CAVITE STATE UNIVERSITYCOLLEGE OF ENGINEERING AND INFORMATION TECHNOLOGY

DEPARTMENT OF CIVIL ENGINEER AND ARCHITECTURE

ARCH 106 – SPECIALIZATION IICONSTRUCTION MANAGEMENT

LESSON 4

JANINE ALECAR AMPORYAN PACAYRA

BS ARCH 5-1

ARCHT. ARSOL S. ARCILLA, uapInstructor

July 22, 20151

PROJECT BUDGETS

The project budget is a detailed estimate of all the costs required to complete project tasks. It is much more detailed than the high-level budget developed in the Initiate Stage. The typical budget specifies costs for staff labor, materials procurement, ongoing operating costs and other direct costs such as travel or training.

The detailed budget provides the project sponsor with a best estimate of how much the project will cost. The detail budget helps manage expectations and gives the project sponsor information to develop a cost/benefit for the project.

Your project’s budget includes both direct and indirect costs.

Direct costs include the following:

Salaries for team members on your project

Specific materials, supplies, and equipment for your project

Travel to perform work on your project

Subcontracts that provide support exclusively to your project

Indirect costs fall into the following two categories:

Overhead costs: Costs for products and services for your project that are difficult to subdivide and allocate directly. Examples include employee benefits, office space rent, general supplies, and the costs of furniture, fixtures, and equipment.

You need an office to work on your project activities, and office space costs money. However, your organization has an annual lease for office space, the space has many individual offices and work areas, and people work on numerous projects throughout the year. Because you have no clear records that specify the dollar amount of the total rent that’s just for the time you spend in your office working on just this project’s activities, your office space is treated as an indirect project cost.

General and administrative costs: Expenditures that keep your organization operational (if your organization doesn’t exist, you can’t perform your project). Examples include salaries of your contracts department, finance department, and top management as well as fees for general accounting and legal services.

Suppose you’re planning to design, develop, and produce a company brochure. Direct costs for this project may include the following:

Labor: Salaries for you and other team members for the hours you work on the brochure

Materials: The special paper stock for the brochure

Travel: The costs for driving to investigate firms that may design your brochure cover

Subcontract: The services of an outside company to design the cover art

Indirect costs for this project may include the following:

Employee benefits: Benefits (such as annual, sick, and holiday leave; health and life insurance; and retirement plan contributions) in addition to salary while you and the other team members are working on the brochure

Rent: The cost of the office space you use when you’re developing the copy for the brochure

Equipment: The computer you use to compose the copy for the brochure

Management and administrative salaries: A portion of the salaries of upper managers and staff who perform the administrative duties necessary to keep your organization functioning.

Who are involved?

A. PROJECT MANAGER

A project manager is a professional in the field of project management. Project managers can have the responsibility of the planning, execution and closing of any project, typically relating to construction industry, architecture, aerospace and defense, computer networking, telecommunications or software development.

Many other fields in the production, design and service industries also have project managers.

A project manager is often a client representative and has to determine and implement the exact needs of the client, based on knowledge of the firm they are representing. A project manager is the bridging gap between the production team and client. So he/she must have a fair

knowledge of the industry they are in so that they are capable of understanding and discussing the problems with either party. The ability to adapt to the various internal procedures of the contracting party, and to form close links with the nominated representatives, is essential in ensuring that the key issues of cost, time, quality and above all, client satisfaction, can be realized.

The term and title 'project manager' has come to be used generically to describe anyone given responsibility to complete a project. However, it is more properly used to describe a person with full responsibility and the same level of authority required to complete a project. If a person does not have high levels of both responsibility and authority then they are better described as a project administrator, coordinator, facilitator or expeditor.

Some types of project managers

Construction project manager

Construction project manager in the past were individuals, who worked in construction or supporting industries and were promoted to foreman. It was not until the late 20th century that construction and construction management became distinct fields.

Architecture Project Manager

Architectural project manager are project managers in the field of architecture. They have many of the same skills as their counterpart in the construction industry. An architect will often work closely with the construction project manager in the office of the General contractor (GC), and at the same time, coordinate the work of the design team and numerous consultants who contribute to a construction project, and manage communication with the client. The issues of budget, scheduling, and quality-control are the responsibility of the Project Manager in an architect's office.

Insurance Claim Project Manager

In the insurance industry project managers often oversee and manage the restoration of a client’s home/office after a fire, flood. Covering the fields from electronics through to the demolition and constructions contractors.

Engineering Project Manager

In Engineering project management is the term used to describe the task of seeing a product/device through the stages of R&D/design to manufacturing stages. Working with various professionals in different fields of engineering and manufacturing to go from concept to finished product. Optionally, this can include different versions and standards as required by different countries. Requiring knowledge of laws, requirements and infrastructure. Things like electrical voltages often change from country to country.

Software Project Manager

A Software Project Manager has many of the same skills as their counterparts in other industries. Beyond the skills normally associated with traditional project management in industries such as construction and manufacturing, a software project manager will typically have an extensive background in software development. Many software project managers hold a degree in Computer Science, Information Technology, Management of Information Systems or another related field.

Responsibility

The project manager is accountable for ensuring that everyone on the team knows and executes his or her role, feels empowered and supported in the role, knows the roles of the other team members and acts upon the belief that those roles will be performed. The specific responsibilities of the Project Manager may vary depending on the industry, the company size, the company maturity, and the company culture. However, there are some responsibilities that are common to all Project Managers, noting:

Developing the project plan Managing the project stakeholders Managing communication Managing the project team Managing the project risk Managing the project schedule Managing the project budget Managing the project conflicts Managing the project delivery

B. PROJECT SPONSOR

Executive sponsor (sometimes called project sponsor or senior responsible owner) is a role in project management, usually the senior member of the project board and often the chair. The project sponsor will be a senior executive in a corporation (often at or just below board level) who is responsible to the business for the success of the project.

The sponsor has a number of interfaces and responsibilities for the project.

The responsibilities for which the sponsor is accountable to the board are:

Provides leadership on culture and values

Owns the business case

Keeps project aligned with organization's strategy and portfolio direction

Governs project risk

Works with other sponsors

Focuses on realization of benefits

Recommends opportunities to optimize cost/benefits

Ensures continuity of sponsorship

Provides assurance

Provides feedback and lessons learnt

The governance activities that take place between the sponsor and the project manager are:

Provides timely decisions

Clarifies decision making framework

Clarifies business priorities and strategy

Communicates business issues

Provides resources

Engenders trust

Manages relationships

Supports the project managers role

Promotes ethical working

In addition to these activities the following activities take place between the sponsor and other stakeholders:

Engages stakeholders

Governs stakeholder communications

Directs client relationships

Directs governance of users

Directs governance of suppliers

Arbitrates between stakeholders

Due to the problem solving needs of the role the executive sponsor often needs to be able to exert pressure within the organization to overcome resistance to the project. For this reason a successful sponsor will ideally be a person with five personal attributes – understanding, competence, credibility, commitment and engagement.

A few research study have been published that not only detail the role of this individual within project management but also provide a way to ensure that the success of a project is greater increased if this individual plays a more active role.

C. PROJECT TEAM

A project team is a team whose members usually belong to different groups, functions and are assigned to activities for the same project. A team can be divided into sub-teams according to need. Usually project teams are only used for a defined period of time. They are disbanded after the project is deemed complete. Due to the nature of the specific formation and disbandment, project teams are usually in organizations.

A team is defined as “an interdependent collection of individuals who work together towards a common goal and who share responsibility for specific outcomes of their organizations”. An additional requirement to the original definition is that “the team is identified as such by those within and outside of the team”. As project teams work on specific projects, the first requirement is usually met. In the early stages of a project, the project team may not be recognized as a team, leading to some confusion within the organization. The central characteristic of project teams in modern organizations is the autonomy and flexibility availed in the process or method undertaken to meet their goals.

Most project teams require involvement from more than one department, therefore most project teams can be classified as cross functional team. The

project team usually consists of a variety of members often working under the direction of a project manager or a senior member of the organization. Projects that may not receive strong support initially often have the backing of a project champion. Individual team members can either be involved on a part-time or full-time basis. Their time commitment can change throughout the project depending on the project development stage.

Project teams need to have the right combination of skills, abilities and personality types to achieve collaborative tension. Teams can be formulated in a variety of ways. The most common method is at the discretion of a senior member of the organization.

There are many components to becoming a top performing team, but the key is working on highly cooperative relationship. The job of management is to create relaxed and comfortable atmosphere where members are allowed to be themselves and are engaged and invested in the project work. All team members are encourage for relationship building. Each member is responsible to give constructive feedback, recognize, value and utilize unique strengths of each other. The whole team is tuned on trust and cooperation.

2

DEVELOPMENT OF PROJECT ESTIMATES FOR BUDGETING

The preparation of estimates, assessing risk, and assigning contingency for budgeting is one of the most difficult tasks in project management because it must be done before the work is started. It is a process that involves a series of successive approximations beginning with the owner’s feasibility study and continuing through design development and construction.

The preparation of cost estimates for budgeting is important to each party because the decision to proceed, at each phase in the project, is based on the estimated cost that was determined in the preceding phase. The owner’s organization must determine a realistic maximum cost of the entire project, which includes the cost of design and construction. The designer’s organization must determine the cost of the performing design tasks and producing the contract documents. It must also determine the probable cost of construction as a part of the design process. The construction contractor’s organization must determine the cost of all material, labor, and equipment to build the project on the job-site.

Each contractor on a project must develop a base estimate, consider risk, and assign contingency for the work they will be performing on a project. Since the owner’s organization has overall project funding responsibility, the owner’s management must consider both the contractor’s and owner’s estimate in order to determine the overall budget for the project.

Project estimating and budgeting begins with feasibility of the study of needs, priorities and scope. A special effort should ____________ in the development of a project to define the scope as detailed ______as possible. The control of project to define the scope growth and cost overruns can be greatly enhanced if the owner obtains the early advice and expertise of experienced design and construction professionals, who have the knowledge of construction costs. All parties must realize that the estimated cost, at any time, is based upon the amount of information that is known about the project when the estimate was prepared. Too often this concept is not fully recognizes. A project manager can play an important role as mediator in the early staged of the development of a project by testing, scrutinizing, and identifying the variances that should be applied to an estimate.

The owner’s organization must prepare estimates to determine the overall project budget, which includes the approved cost for design and construction. If the scope is not well defined or the owner’s organization does not have the expertise to perform such an estimate, the owner can enlist a designer to perform these services on a cost-reimbursable basis. Because this budget is prepared prior to any detailed design work, it should include reasonable amount of contingency funds to allow some flexibility in decision making during design development.

The designer’s organization must prepare a budget based on the estimated costs to provide design services. In addition, as a part of the design process the designer must prepare the estimated construction costs of the various design alternatives that are being evaluated to meet the owner’s needs for the project. This is necessary before completion of the contract documents. It is the designer’s responsibility to keep design costs and estimated construction costs within the owner’s overall approved project budget. This requires extensive cooperation and involvement with the owner because the scope must somethings to meet the owner’s needs. This design costs and estimated construction and costs within the owner’s overall approved budget, or the budget must be readjusted to meet the owner’s needs. This decision must be made by the owner’s organization.

The construction contractor’s organization must prepare a bid that is submitted to the owner, based on the estimated costs to build the project in accordance with the contract documents. For competitive-bid projects, the contractor is not obligated to a cost that is within the owner’s approved budget because this information is usually not known to the contractor. For negotiated cost-reimbursable projects the contractor’s organization works closely with the owner to determine construction alternatives with costs that are within the owner’s overall approved budget.

3LEVEL OF ACCURACY

Improving Project Estimation Accuracy

Accurate project estimation is one of the most challenging aspects of a project. Project estimation becomes increasingly difficult as the project’s complexity and uncertainty increases. However, project estimates can be accurate.

The powerful project estimation techniques that are explained in this article will quickly improve the accuracy of project estimates, even if you have no project estimation experience.

 

Before Estimating Project Costs

Before you begin project estimation, there needs to be an understanding of the scope of the project. If you don’t know what the project is trying to achieve, then there is little chance of being able to accurate estimate the effort required.

The more detailed the scope of the project, the more detailed and accurate the project estimate will be. The size, complexity and stage of the project will impact greatly on the level of accuracy required, the amount of cost and time the business can commit to project estimation and the level of understanding and clarity of the scope of the project.

It is therefore important to align the project estimation requirements to the required accuracy and stage of the project.

Project Estimation Accuracy

When estimating a project it is important to understand what stage the project is in as this will determine the level of project estimation accuracy required. For example, if the project is in the initiation stage, the project estimate may have an accuracy of ±50%.

This means that if the project estimate is $2,000,000 with an estimating accuracy of ±50%, the business needs to allow for $1,000,000 at the lower end of the estimate and $3,000,000 as the upper limit of the project estimate.

Project estimation is a process and it is likely that the estimate will undergo several iterations and development. As the project scope is understood and refined, the project estimation accuracy should also improve.

A project estimate in the planning phase may reduce form ±50% to ±30%. Prior to executing the project and providing sufficient project planning was conducted, the project estimate may be as accurate as ±10%.

Project Estimation Techniques

It can be extremely challenging to estimate a project, as a project by definition is unique in nature, often a new product, service or business change. But there are several techniques available that can greatly improve the project estimation process and accuracy which include:

Expert Judgment

Project estimation requires a level of expert judgement, not only in the project itself but more importantly expert judgement of the business environment in which the project is being delivered.

It is typically the role of the project manager to provide this expert judgement in order to decide what business risks need to be managed and which project estimating technique is likely to achieve the best results. Some areas of consideration are:

Impact of inflation over the project lifecycle Foreign exchange risk when using international suppliers Can hedging or insurance reduce the exposure to the business Required labor and labor rates Material costs and assumptions Costs of quality Availability of historical information Level of project estimation accuracy required

Analogous Estimating

Analogous estimates are a great technique for early project estimation providing there is sufficient historical data for which assumptions of similarity in size and complexity can be derived.

For example, the project may be to implement a CRM system into an 80 person national company. Knowledge of past projects of similar complexity have taken 5 months to complete for a 40 person company.

With this information you might infer that the complexity is similar but the scale of the project is double and an Analogous project estimation would suggest this could take 10 months.

As with most project estimation techniques, each have their own advantages and limitations, some key considerations for Analogous project estimating are:

How does the project differ from that of the historical data? What adjustment can be made to the formula for those differences? How accurate is the historical data Is the data source internal or external to the organization What external factors have not been accounted for Can the estimate be verified by an external expert Analogous estimates offer a low level of accuracy at a low cost

Parametric Estimating

Parametric project estimation is similar to analogous estimating but provides an increased level of accuracy due to the statistical nature of the estimating technique. This estimating technique is often based on average known rates, such as square meter age for construction or software lines of code for software projects etc.

For example if a typical residential house usually costs around $1,000 per square meter, a 400 square meter house can be estimated to cost around $400,000.

Estimating a software project that is expected to have around 20,000 lines of code and the cost per line of code is $3. We can estimate that the project is likely to cost $60,000.

This project estimation technique is highly dependent on the quality of the data source and the knowledge of the project specifics, some key considerations are:

How aligned is the quality requirement to historical data Age of historical data Understanding of the project specification Accuracy of historical data

Data source (internal or external)

Bottom-Up Estimating

Bottom-up project estimation breaks down and estimates each component of a project. Each key portion or work package is split and broken down to greater levels of detail. The individual costs of each work package is then totaled to form the full bottom-up project estimate.

The bottom-up estimate takes the longest amount of time to prepare, but providing sufficient component detail is calculated this project estimation technique can provide the highest level of accuracy. Some considerations are:

Estimate accuracy relies on level of detail known Can take considerable amount of time for complex projects Can take considerable amount of money May not be ideal during early initiation due to the cost of this

estimation technique.

Three-Point Estimates

The three-point estimate is one of my favorite project estimation techniques because it can not only greatly increase the project estimates, but its approach also makes it easier for other experts to provide input.

The three-point estimate, also known as the PERT technique, provides a range of project estimates and calculates the weighted average of that range. In order to use the PERT project estimation technique, we provide 3 data points, the “best case”, “most likely case” and the “worst case”:

1. Best Case (O) – What is the best case scenario to build X2. Most Likely Case (L) – What is the best case scenario to build X3. Worst Case (P) – What is the worst case scenario to build X4. This technique works great for several reasons.5. Psychologically it is easier to provide a number when you can provide a

wide range6. Starting with the worst case often leads to less resistance7. Once worst case and best case is identified, it becomes easier to

provide the most likely case8. Reduces the natural instinct to inflate estimates

I will generally ask experts to first provide their worst case estimate and then the best case estimate. Once these 2 points are agreed, It is easier for

them to determine the most likely case knowing their upper and lower estimates.

Once these 3 points of data are captured, the formula (O+4L+P)/6 can be applied to calculate the weighted average estimate.

If we go back to our lines of code estimate above a three-point PERT estimate might look something like this:

We can see that buy using the PERT technique in our project estimation we now have a weighted average software lines of code, which should be more accurate than our initial estimate of 20,000 lines of code.

Depending on the level of certainty, the weightings of the average can be Vendor Bid Analysis

Adjusted to suit.

If there is a specific element of the project (or all of the project) to be outsourced and procuring an external vendor to deliver the project on your behalf, a simple and effective way in determining project estimates is to have these external suppliers conduct it on your behalf.

This will likely be through a competitive bidding process, where multiple vendors will provide a proposal including a fixed price and required time frames for completion.

Once all of the vendor bids have been returned, an evaluation can be made on each bid in order to determine the range of costs associated with each solution, taking into account any quality assumptions and documented exclusions.

Key aspects to remember in vendor bid analysis project estimation are: Bid quality relies on quality of scope documentation provided Requires knowledgeable and capable vendors Price may be inflated due to unknown or risk transference May be difficult to determine individual component costs Does not improve internal knowledge for future project estimation

Reserve Analysis

Finally, once the project estimation has been completed and the project has a defined budget, it is important to provide for the level of “uncertainty”.

As with any estimate, it is just that, an estimate.  It should not be expected to be 100% accurate and only required to be as accurate as the rough order of magnitude that was used, i.e. ±15% for the known components.

An estimate will inevitably include some element of uncertainty and due to the uniqueness of a project, will carry certain risks. The project estimation process should account for this uncertainty.

Uncertainty is often managed with a “contingency” budget, contingency is used where there is 20% of uncertainty surrounding the scope, a reasonable estimate may be to allow 20% contingency for the grey areas.

Combine Multiple Project Estimation Techniques

No single project estimation technique will suit all projects and for best results I suggest using and combining all or many of these estimating techniques to provide increased accuracy to your project estimates.

I like to take it one step further and use a three-point (PERT) estimate for all project estimation techniques, applying a PERT weighted average for everything! This is another key reason the three-point is my favorite project estimation technique.

4

OWNER’S ESTIMATE FOR BUDGETING

Every project must be shown as economically feasible before it is approved by the owner’s management. Economic feasibility is determined by an economic analysis for projects in the private sector or by a benefit/cost ratio for projects in the government sector. An economic analysis can be performed once an owner’s estimate has been prepares.

Estimating costs during the inception of a project by the owner, prior to any design, is difficult because only limited detailed information is known about the project. However, this cost estimate is important because it is used to set the maximum project budget that will be approved for design and construction. At this stage of project development the only known information is the number of units or size of the project, such as number of square feet of building area, number of cars in a parking garage, number of miles of 345-kilovolt (kV) transmission line, or number of barrels of crude oil processed per day. At some point in time an estimate has to be frozen and converted to a project budget.

Preparation of the owner’s estimate requires knowledge and experience of the work required to complete the project. Cost information from professionals who are preparation of the owner’s budget is usually derived from one of two sources:

Cost records from previous projects of similar type and size, Or pricing manuals that are published annually by several

organizations.

For buildings, public works, and heavy construction projects, the Means Cost Guide is commonly used. The Richardson’s manual for construction estimating is common reference for petrochemical and processing projects. These pricing manuals provide costs per unit for various types of projects, such as cost per square foot of building area for offices, warehouses, and maintenance buildings. The costs are derived from previous projects that have been completed a numerous geographic locations.

Illustrative examples of cost-per-square-foot information available from pricing manuals.

ComponentOffice buildings Motels

Low$/SF

Median$/SF

High$/SF

Low$/SF

Median

$/SF

High$/SF

FoundationFloors on gradeSuperstructureRoofingExterior wallsPartitionsWall finishesFloor finishesCeiling finishesConveying systemsSpecialtiesFixed equipmentHVACPlumbingElectrical Total $/SF

3.953.10

14.900.204.904.352.352.051.555.550.651.058.853.504.60

4.003.15

16.900.259.755.303.753.902.606.700.802.809.503.804.75

4.803.90

20.250.30

13.007.055.005.153.758.252.653.75

12.204.856.25

0.903.9510.952.402.802.600.752.402.051.151.101.153.104.454.20

1.405.00

13.303.404.453.652.603.554.601.801.351.655.555.407.45

1.605.4021.703.455.555.252.754.554.902.354.001.956.256.158.20

$61.55

$78.10 $101.15

$43.95

$65.15 $84.05

ComponentSecondary Schools Hospitals

Low$/SF

Median$/SF

High$/SF

Low$/SF

Median

$/SF

High$/SF

FoundationFloors on gradeSuperstructureRoofingExterior wallsPartitionsWall finishesFloor finishesCeiling finishesConveying systemsSpecialtiesFixed equipmentHVACPlumbing

1.353.85

10.951.703.755.903.053.103.200.001.702.859.055.05

10.25

1.854.40

12.302.055.556.553.403.953.650.001.903.35

10.456.00

12.00

2.706.00

17.252.458.008.505.155.254.650.002.606.00

14.459.20

16.50

4.350.30

17.053.25

16.007.206.752.602.15

12.953.105.20

21.659.10

13.45

4.900.40

18.553.70

18.5511.007.952.752.20

13.003.255.25

25.5010.6517.50

6.650.6025.505.2025.1024.7011.104.003.5519.554.607.6538.0516.4524.40

Electrical Total $/SF

$69.55

$77.40 $108.70

$125.10

$145.05

$215.10

It shows the low, average, and high cost per square foot, based on the level of quality. The budget for a proposed project can be calculated by multiplying the cost per square foot by the total square feet in the project. The cost of land, permits, and design fees should be added to the calculated cost of construction. A reasonable percentage multiplier should also be applied for contingency since the design is not prepared for the project during the owner’s budgeting process. Adjustments for time and location should also be made.

The other source of cost information is company records from previous projects. Although the total cost of previously completed projects will vary between projects, unit costs can be calculated to forecasting future projects. The term of weighting is commonly used to refer to the procedure of analyzing historical cost data to determine a unit cost for forecasting future project costs. A unit cost should be developed that emphasizes the average value, yet accounts for extreme maximum and minimum values.

5

Economic Feasibility Studies

Feasibility studies, aim to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats present in the environment, the resources required to carry through, and ultimately the prospects for success. In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained.

A well-designed feasibility study should provide a historical background of the business or project, a description of the product or service, accounting statements, details of the operations and management, marketing research and policies, financial data, legal requirements and tax obligations. Generally, feasibility studies precede technical development and project implementation.

A feasibility study evaluates the project's potential for success; therefore, perceived objectivity is an important factor in the credibility of the study for potential investors and lending institutions. It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based.

Feasibility study topics echo

Common factors

The acronym TELOS refers to the five areas of feasibility - Technical, Economic, Legal, Operational, and Scheduling.

Technology and system feasibility

The assessment is based on an outline design of system requirements, to determine whether the company has the technical expertise to handle completion of the project. When writing a feasibility report, the following should be taken to consideration:

A brief description of the business to assess more possible factors which could affect the study

The part of the business being examined The human and economic factor The possible solutions to the problem

At this level, the concern is whether the proposal is both technically and legally feasible (assuming moderate cost).

Legal Feasibility

Determines whether the proposed system conflicts with legal requirements, e.g. a data processing system must comply with the local Data Protection Acts.

Operational Feasibility

Operational feasibility is a measure of how well a proposed system solves the problems, and takes advantage of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of system development.

The operational feasibility assessment focuses on the degree to which the proposed development projects fits in with the existing business environment and objectives with regard to development schedule, delivery date, corporate culture, and existing business processes.

To ensure success, desired operational outcomes must be imparted during design and development. These include such design-dependent parameters such as reliability, maintainability, supportability, usability, producibility, disposability, sustainability, affordability and others. These parameters are required to be considered at the early stages of design if desired operational behaviors are to be realized. A system design and development requires appropriate and timely application of engineering and management efforts to meet the previously mentioned parameters. A system may serve its intended purpose most effectively when its technical and operating characteristics are engineered into the design. Therefore operational feasibility is a critical aspect of systems engineering that needs to be an integral part of the early design phases.

Economic Feasibility

The purpose of the economic feasibility assessment is to determine the positive economic benefits to the organization that the proposed system will provide. It includes quantification and identification of all the benefits expected. This assessment typically involves a cost/ benefits analysis.

Technical Feasibility

The technical feasibility assessment is focused on gaining an understanding of the present technical resources of the organization and their applicability to the expected needs of the proposed system. It is an evaluation of the hardware and software and how it meets the need of the proposed system

Schedule Feasibility

A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the system will take to develop, and if it can be completed in a given time period using some methods like payback period. Schedule feasibility is a measure of how reasonable the project timetable is. Given our technical expertise, are the project deadlines reasonable? Some projects are initiated with specific deadlines. It is necessary to determine whether the deadlines are mandatory or desirable.

Other feasibility factors

Market and real estate feasibility

Market feasibility studies typically involve testing geographic locations for a real estate development project, and usually involve parcels of real estate land. Developers often conduct market studies to determine the best location within a jurisdiction, and to test alternative land uses for given parcels. Jurisdictions often require developers to complete feasibility studies before they will approve a permit application for retail, commercial, industrial, manufacturing, housing, office or mixed-use project. Market Feasibility takes into account the importance of the business in the selected area.

Resource feasibility

This involves questions such as how much time is available to build the new system, when it can be built, whether it interferes with normal business operations, type and amount of resources required, dependencies, and developmental procedures with company revenue prospectus.

Cultural feasibility

In this stage, the project's alternatives are evaluated for their impact on the local and general culture. For example, environmental factors need to be considered and these factors are to be well known. Further an enterprise's own culture can clash with the results of the project.

Financial feasibility study

In case of a new project, financial viability can be judged on the following parameters:

Total estimated cost of the project Financing of the project in terms of its capital structure, debt equity

ratio and promoter's share of total cost

Existing investment by the promoter in any other business Projected cash flow and profitability

The financial viability of a project should provide the following information:

Full details of the assets to be financed and how liquid those assets are.

Rate of conversion to cash-liquidity (i.e. how easily can the various assets be converted to cash?).

Project's funding potential and repayment terms. Sensitivity in the repayments capability to the following factors: Time delays. Mild slowing of sales. Acute reduction/slowing of sales. Small increase in cost. Large increase in cost. Adverse economic conditions.

In 1983 the first generation of the Computer Model for Feasibility Analysis and Reporting (COMFAR), a computation tool for financial analysis of investments, was released. Since then, this UNIDO software has been developed further, to also support the economic appraisal of projects. The Computer Model for Feasibility Analysis and Reporting (COMFAR III Expert) is intended as an aid in the analysis of investment projects. The main module of the program accepts financial and economic data, produces financial and economic statements and graphical displays and calculates measures of performance. Supplementary modules assist in the analytical process. Cost-benefit and value-added methods of economic analysis developed by UNIDO are included in the program and the methods of major international development institutions are accommodated. The program is applicable for the analysis of investment in new projects and expansion or rehabilitation of existing enterprises as, e.g., in the case of re-privatization projects. For joint ventures, the financial perspective of each partner or class of shareholder can be developed. Analysis can be performed under a variety of assumptions concerning inflation, currency revaluation and price escalations.

Market research study and analysis

This is one of the most important sections of the feasibility study as it examines the marketability of the product or services and convinces readers that there is a potential market for the product or services. If a significant market for the product or services cannot be established, then there is no project.

Typically, market studies will assess the potential sales of the product, absorption and market capture rates and the project's timing.

The feasibility study outputs the feasibility study report, a report detailing the evaluation criteria, the study findings, and the recommendations.

6

Design budgets

The design organization has a difficult ask of estimating the cost of providing design services and /or producing contract documents for the project before the design and construction phases begin. For many projects the magnitude of work that is required by the designer cannot be fully anticipated, because design is a creative process that involves the evaluation of numerous alternative. The evaluation of design alternatives is necessary part of the design process required to select the best design that satisfies the owner’s need for the project.

Compensation for design services is usually by one of the following methods:

Lump-sum Salary cost times a multiplier Cost plus a fixed payment or percent of construction.

The method that is used depends on the accuracy of the scope definition that is provided to the design organization.

For projects that have a well-defined scope with no unusual features, and are similar to projects that a designer has handled in the past, a lump-sum design contract is commonly used. Preparation of the design budget can be developed by defining tasks, and grouping of tasks, in a work breakdown structures.