Project Evaluation and Development

This document provides insights into project evaluation and development, including site analysis, estimation, cost control, and more. It discusses the importance of reducing construction costs and maximizing project value. The document also emphasizes the significance of monitoring and controlling construction costs. Whether you are a student or a professional, this resource from Desklib will help you understand the key aspects of project evaluation and development.

PROJECT EVALUATION AND
DEVELOPMENT

TABLE OF CONTENTS
TASK A...........................................................................................................................................1
Site analysis.................................................................................................................................1
Reference for estimation..............................................................................................................1
Justifications................................................................................................................................2
TASK B...........................................................................................................................................5
Introduction..................................................................................................................................5
Savings in construction costs which will minimising impact on project value drivers and the
functionality. ...............................................................................................................................5
Monitoring and controlling of construction costs........................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

TASK A
Site analysis
The proposed project is to build commercial warehouse building for a MNC which is
storage warehouse. The project requires area of 8000 – 10000 m2 with no community space. The
area could be reduced based on floors and types of building. Company has selected place on
edge of Corby which is located 23 miles from count town. Corby is town and a borough in
county of the Northamptonshire, England. The town is well-known for most of the people near
Northamptonshire. The rationale for choosing this project is to purchase 6000 square metre of
land for building storage warehouse. Site is located at edge of town and near to main road that
will avoid disruptions to market town (Tahmasebinia and et.al., 2020). Advantage of location
and site is universally accessible through transportation. Being at edge will allow easy
transportation of goods without causing disruptions to town.
Also, there are few factors which need to be considered while planning a project i.e.
adapting traditional appearance of surrounding. The proposed project is based on 6000 square
metre of land in which 4000 m2 will be used for construction of warehouse and rest area will be
left empty. Warehouse will consist of 2 storey that will make it 8000 m2 storage space. Site has
large dimension away from city that makes it viable for the development of site to take place in
the site. The site has to be built with strong foundation with prospects of further development of
storeys. The forward empty area will be used for lorry parking and weighing machine.
In the study it has been found that the area has energy issues and has to be ensured that
there is proper power connection to meet the requirements of client. Also the potential whether
adversities has to be assessed ensuring that it is protected from rain water collection and such
other things. The potential dangers has to be assessed and needs to be reported to client. Further
investigation has to be conducted before the construction work is started for determining present
conditions of the site and the contingencies related to site (Laksono and et.al., 2018).
Reference for estimation
Construction Details
Gross Development Value 4663250.94
Cost of Sales 93265
Net sales proceeds 539625.94
Contingencies 376950
Professional fees 425953.5
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Construction cost 15078
Finance Cost 25557.18
Agency Fees 466325.094
Market Campaign 491325
Other Details
Rental Value 682880
Total Development Cost 1402346
Risk and profit of Developer at 15% of the
GDV 2087843.75
Gross site Value 2047766.53
Deduction of Site Acquisition Cost 2482141.25
maximum amount for site purchase 1931855.22
Justifications
A. Estimated Rental Value
Average cost of rental value is determined for the warehouse based on similar place near
edge of Corby that provides storage space of 3000 m2 for £8/ ft2. This value has been converted
to m2 by multiplying with 10.67 that equates to 85.36 m2. Estimated rental value of one floor is
4000*85.36 m2 = 341440. The rental value of 2 floor will be: 2*341440 = 682880.
B. Years in perpetuity
The similar valuation of property shows that it will yield around 6% and this shows that it
will be around 6.82. Measured as: 85.36*6% = 6.82
C. Gross Development Value
The GDV is computed through multiplication of current year purchase with estimated
rent value derived above (Rafiei and Adeli, 2018). The estimated value of the capital for
completed project has been provided by sum: 6.82 * 682880 = 4663250.94
D. Cost of Sales
The cost of this will be calculated by deducting cost of sales from gross domestic
product. Percentage for deduction has been highlighted in brief that is 2% and it is derived as:
4663250.94 *2% = 93265.
E. Net sales proceeds
Net proceeds for sales are calculated by deduction of the cost of goods sold which is 2%
from GDV and it is computed as 4663250.94 – 93625 = 539625.94
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F. Gross Area
The gross area has been calculated as (8000/80)*100 = 10000 m2. The rate for
calculation has been derived from BCIS that is 1250 / m2 as average that is adjusted (Lovering,
Nordhaus and Yip, 2017). The rate will be applied to whole land area of 2 storey area of 8000
m2 and 2000 m2 of free space.
G. Contingencies
They are hard to predict therefore a specific proportion of 5% of total project cost has
been kept. The contingency provisions will amount to: 359000 * 5% = 17950.
359000 + 17950 = 376950
H. Professional fees
This fees mainly accounts for estimated expenditure that is billed for covering total
professional cost that is included within project such as building architects, quality surveyors,
quantity surveyors and building surveyors (Al-Momani, 2017). Assumption for is made at 13%
for fees of total cost of project which will be multiplied with accounted contingencies.
1.13 x 376950 = £ 425953.5
I. Total Overheads
This is calculated by adding the values of professional fees and contingencies.
425953 + 376950 = 802903.5
J. Short Term Finance
The short terms loans are more expensive to provide finance for project. They carry high
risks as non payment of interests gets accumulated with compounding rates (Rehm and Ade,
2018). The project has short term finance available at 8%.
K. Construction cost (50%)
It has been provided in brief that duration of project development would be of around 18
months at rate of 8% and it s computed as follows:
(1.08 ^ 1) -1) x (376950 * 0.5)) = 15078
L. On Fees (75%)
(1.08 ^ 1) -1) x (425953 * 0.75) = 25557.18
M. Total = ( Cost + Finance for 12 months)
((1.08^1)-1) x (802903.5 + 15078 + 25557.18) = 67483.09
N. Total = Construction cost fees + total cost + finance / 12 months ( void period)
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Value of construction through addition of the construction costs and finance over the 12
months. It is calculated as: 15078 + 25557.18 + 67483.09 = 108118.27
O. Agency Fees
Agency fees is described as sum assumed to provide for cost of agents that are held
responsible for trade of property after the completion of project.
P. Fees at 10% of rent
Letting fee of the premises is at the range 10% and calculation is done as follows:
4663250.94 x 0.1 = £466325.094 ( 1 year rent)
Q. Market Campaign
It has been highlighted that value of market campaign is estimated to £25000 and
therefore the letting fees in total will amount to 466325 + 25000 = £491325
R. Total Development Cost
It is calculated from total of the gross domestic value, the short-term finance and agency
fees (Alshamrani, 2017). 802903.5 + 108118.27 + 491325 = 1402346
S. Risk and profit of Developer at 15% of the GDV
It is computed as result of total sums provided to developer as profit. The other risks have
been considered with project on hand. Calculations have been done as:
4663250.94 - 93265 = 4569985
0.15 x 4569985 = 685497.75
685497.75 + 1402346 = 2087843.75
T. Surplus for Land purchase
Value is largest amount of the money obtained for securing land through cost deduction
from net proceedings of the sales from the gross domestic value.
U. Present value of £1 at 8% for 2.5 years
Price adjustment value for the calculation is taken as 2.5 years for £1. Brief provides for
term of 18 months with 12 months period that gives 2.5 years. It is calculated as: 1/(1.08) ^ 2.5 =
0.8250
V. Gross site Value
Money available for attainment of site
2482141.25 x 0.8250 = 2047766.53
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W.Deduction of Site Acquisition Cost
Deduction for site acquisition is assumed as 6% and calculated that maximum accessible
amount for site is difference between site value and amount available for the site purchase.
4569985 – 2087843.75 = 2482141.25
X. Net maximum amount for site purchase
Net value available for the purchase of site is:
(1/1.06) x 2047766.53 = £1931855.22
TASK B
Introduction
Project evaluation refers to objective and systematic assessment of the ongoing or
proposed project. It is done to determine relevance and the level of achievement of objectives,
efficiency, development effectiveness, impact, sustainability and the main function of assess the
development costs. This cost refers to all costs and expenditures which were involved in
construction of property for its intended use. There are number of costs that are incurred for the
project which are required to be assessed. It will also discuss contribution of quantity surveyor/
cost manager in project team which seeks to ensure that the project approved for construction has
been delivered at cost which does not affects financial viability of project and functional and
associated values to project by client.
In the present case project team is given task designing and the construction of 24000 m2
of business park campus of a 10 equal sized building for the speculative developer. The project
work has already been started and is on foundation stage. The project is receiving interest of
number of prospective tenants but they are highly concerned with high rent level. Agents are
requiring a slight down in rent to retain the tenants (Mahdavi and Doppelbauer, 2018). Agents
are seeking for revised target level rent. The developer aims at saving around 5% from cost of
the construction.
Savings in construction costs which will minimising impact on project value drivers and the
functionality.
The management of construction cost is not an easy task as the cost of raw materials and
services are increasing constantly. It must be ensured that cost reduction should not result in
decline in quality or standard project. It has to be done analysing all the costs and areas where
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savings could be made. Developer desires of 5% cost reduction in the project so that it could
reduce the rent of buildings which is very high. It is essential for attracting and retaining the
prospective tenants. Areas where money could be saved are:
Cost control
Construction business involves use of heavy equipments like excavators and trucks. The
fleet runs at hefty cost. Proper management of fleet could allow considerable savings in costs.
Company should analyse usage of fleet every month to estimate spending over projects. The
heavy cost equipments could be rented or hired rather than purchasing for the project (Saving in
Construction, 2020). The empty turn of vehicle could be used for moving the waste at reduced
prices. Company can make effective allocation of the resources and equipments. This in turn
allows company to control cost which in turn assists from heavy spending and this in turn lead to
the saving as well.
Using new technology
It is always seen that old technology is more time-consuming and hampers the
productivity. It results in increased costs and expenses for the project. There will be more labour
hours and wastage of materials increasing consumption and increasing expenses. New advanced
equipments and machines should be used for construction like lifting machines, cranes and JCB
for foundation, mixtures etc.
Making bulk purchases
Bulk purchases will always help the developer to get discounts through negotiations. Like
other construction business does not have to face storage cost. Developers could save significant
amount over purchases and this in turn improve the cost of a company so that they spend amount
in different area as well.
Monitoring and controlling of construction costs
Lack of proper monitoring will always lead to increase in expenses as there will
inefficient utilisation of the resources. Developer has to lay strict monitoring and control over all
the process to reduce the waste proportion. The internal controls will help to reduce waste and
boost productivity reducing idle time. It could emphasize over completing the project before the
estimated time period so that costs will be saved from labour and rent of equipments
(Constructions cost reduction, 2019). Developers could set benchmarks for completing the stated
project up to the given time. The above methods can help in reducing cost of project and saving
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5% of project cost that will help in reducing the rent for building. Saving costs in construction
projects will enable the organisation to gain competitive advantage and also transfer the benefits
to its stakeholders. There are different methods through which costs could be reduced or
managed.
CONCLUSION
It could be summarised from the above report that construction work involves high
degree estimation and evaluation of the costs. Each and every task has to be performed with
accuracy and proper management to complete the project within the budget. Developer should
record all cost and expenditures and should ensure that targeted level of work is completed in
given time period. Increase in completion time of project will lead to increase in cost for both
developer and client.
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REFERENCES
Books and Journals
Tahmasebinia, F., and et.al., 2020. Criteria development for sustainable construction
manufacturing in Construction Industry 4.0. Construction Innovation.
Laksono, T.D., and et.al., 2018. The Impact of Airport Performance towards Construction and
Infrastructure Expansion in Indonesia. In Journal of Physics: Conference Series (Vol. 954,
No. 1, p. 012015). IOP Publishing.
Rafiei, M.H. and Adeli, H., 2018. Novel machine-learning model for estimating construction
costs considering economic variables and indexes. Journal of construction engineering
and management. 144(12). p.04018106.
Lovering, J.R., Nordhaus, T. and Yip, A., 2017. Apples and oranges: Comparing nuclear
construction costs across nations, time periods, and technologies. Energy Policy. 102.
pp.650-654.
Rehm, M. and Ade, R., 2018. Construction costs comparison between ‘green’and conventional
office buildings. Building Research & Information. 41(2). pp.198-208.
Al-Momani, A.H., 2017. Construction cost prediction for public school buildings in
Jordan. Construction Management & Economics. 14(4). pp.311-317.
Alshamrani, O.S., 2017. Construction cost prediction model for conventional and sustainable
college buildings in North America. Journal of Taibah University for Science. 11(2).
pp.315-323.
Mahdavi, A. and Doppelbauer, E.M., 2018. A performance comparison of passive and low-
energy buildings. Energy and buildings. 42(8). pp.1314-1319.
Online
Saving in Construction .2020. [Online] Available trough:
<https://www.pwc.com/gx/en/insurance/publications/firing-on-all-cylinders-five-steps-to-
strategic-cost-reduction.pdf>
Constructions cost reduction. 2019. [Online] Available trough:
<https://www.leanmap.com/consulting/cost-reduction/>
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