Dire Dawa University Institute of Technology

School of Civil Engineering and Architecture

Construction Technology and Management Chair

Development and Construction Economics

(COTM 5272)

By: Tewodros G. (MSc.) 1

 Businesses are like Fruit Trees…
Fruit
Net Goods &
Earnings Services
Operating
Activities

Reinvested Investment
Investing in Producing
Activities Assets

Debt Branches
Payment Trunk &
Debt
Financing Financing
Activities Dividends Equity
Financing Roots
3. Five phases of property development process

3.1 Inception of an idea

3.2 Refinement and design

3.3 Feasibility Analysis

3.4 Negotiations and concludes

3.5 Production to start

3.6 Development team by each phase

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Development Economics in Construction by: Tewodros (MSc.)
1. Inception of an idea
▪ The beginning of something, such as an undertaking; a
commencement.
▪ Select a site in a familiar area
▪ Productivity analysis
▪ Storyline / plot
▪ Niching (searching specialized market market)
▪ Define target group -giving storyline and niching
▪ Research in socio economics data in market area
▪ A brief market analysis – does target group exist?
▪ Time to contact land owner for land option
Developer work mostly alone and keep quiet of ideas

Development Economics in Construction by: Tewodros (MSc.) 4

2. Refinement and design

▪ Contracting value adders => Design, function and quality

▪ Developer lead the team
▪ Developer is the expert to say stop or go
▪ Assign consultants
▪ All paid from the pocket of developer

Development Economics in Construction by: Tewodros (MSc.) 5

3. Feasibility analysis
Appraisal is undertaken / required to select good projects for
implementation and to determine:

▪ Technical Feasibility
▪ Economic Viability
▪ Financial Viability
▪ Commercial Viability
▪ Organizational and Management Capability
▪ Social and Political Acceptability, and
▪ Environmental Sustainability of a project.

Development Economics in Construction by: Tewodros (MSc.) 6

Feasibility analysis…
✓ Is about possibilities and constrains
Input: Land use plan, house design, landscaping, infrastructure, storyline
and supporting amenities.
Perform a final deep REMA
Extensive economic calculations has now to be done.
A deep round about discussion with
▪ Venture capitalists, bankers, municipality, contractors, landlord, brokers,
appraisers, pressure groups, neighborhood, ethnic groups etc.
▪ Prepare a Detailed land use and environmental plan to municipality.

Decision Give up or continue?

Development Economics in Construction by: Tewodros (MSc.) 7

4. Negotiations and concludes

▪ Developer shift from value adder to negotiator Agents Venture

capitalists, bankers, municipality, contractors, landlord, brokers,
pressure groups etc.
▪ Extremely tight plan and exact timing
▪ storyline again Professional writing contracts, incitements and
damage claims to survive
▪ The developer must be able to select a professional team of
contractors and specialists
▪ No own back up or ”smoother” capacity Extremely

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Development Economics in Construction by: Tewodros (MSc.)
5. Production to start
New risks

▪ Costs out of control, wrong materials, mistakes in construction

work, termination of contractors, equity, problems to sell,
bankruptcy.
▪ The developer should have advisors (consultants) to mitigate
such risk
▪ Developer is the real leader, coordinator and controller.
▪ Developer also need to inspire with enthusiasm, be flexible,
convince by knowledge.
▪ Prepare marketing and sell, employ an administrator, arrange
permanent financing.
Unsuccessful if all are not sold => problem with next one
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Development Economics in Construction by: Tewodros (MSc.)
Production to start ….

Cost
overrun

Risks
Project
Poor Constraints Delays
Quality
6. Development team
1. Site selection
▪ Brokers, title company, market consultants.
2. Feasibility study
▪ Market analyst, economic consultants, mortgage brokers
and bankers, engineers.

3. Design
▪ Land planners, architects, landscape architects, surveyors, soils
engineers, structural engineers, environmental consultants,
contractors, parking consultants.

Development Economics in Construction by: Tewodros (MSc.) 11

Development team…
4. Financing
▪ Venture capitalists, mortgage brokers and bankers,
construction lenders, permanent lenders, surety companies,
appraisers.
5. Construction
▪ Architects, land planners, contractors, engineers, landscape
architects.
6. Marketing
▪ Brokers, public relations firms, advertising agencies,
graphic artists.

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Development team…

7. Operations
▪ Property managers
8. Sale
▪ Brokers, appraisers.

9. Throughout the process

▪ Lawyers.

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Development Economics in Construction by: Tewodros (MSc.)
Important to succeed

▪ No formal organization
▪ Access to local specialists
▪ Access to local construction companies
▪ Equipment can be rented
▪ Suppliers do construction design
▪ Dynamic drawings
▪ Very split contracting/pay per hour
▪ Engaged companies pay salary per hour to workers
▪ Daily management of the developer

Development Economics in Construction by: Tewodros (MSc.) 14

 Assignment #03

▪ Explain the detail Structure and content of the

Project feasibility Report

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Development Economics in Construction by: Tewodros (MSc.)