Project Administration Report: Evaluating Airport Road Upgrade Options

This report provides a detailed analysis of two project options for upgrading an airport road, focusing on project administration aspects. The report includes net present value (NPV) calculations from both financial and economic perspectives, considering factors such as inflation rates and the ACT Government's borrowing rate. It assesses the relevance of generated traffic and explains opportunity costs and the 'do nothing' scenario. The analysis further explores the confidence level regarding project costs and benefits, examining how susceptible the business case is to change and emergence, and offers a critical review of the proposals. The report concludes by identifying the best option for developing the airport efficiently in terms of time and cost, supported by references.

PROJECT
ADMINISTRATION

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
A) Net present value calculation and financial as well as economic perspective.......................3
B) Inflation rate...........................................................................................................................4
C) Relevance of ACT Government's borrowings rate................................................................5
D) Relevance of generated traffic...............................................................................................5
E) Explanation of opportunity cost.............................................................................................6
F) Explanation of 'do nothing case'.............................................................................................6
2. a) Confidence level on the project cost and benefits...............................................................6
b) how susceptible the business case will change and emergence..............................................7
C) Criticism of proposals ...........................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Project administration refers to the administration of the function related to the project. It
may include the contact with contractors, suppliers, government regarding the project cost and
time required to complete the project. The report highlights two options for upgrading Airport
road. It explains the net present value of two option to determine the best plan on both financial
and economic perspectives. It also explains the inflation rate, ACT Government Borrowings rate
and general traffic in respect to upgrading airport. It also highlights the project cost and benefits
of both the projects and the changes in the changes and emergence in the business case. The
report criticizes the both proposal on the stakeholders point of view identify the best option for
developing the airport in efficient time and cost.
MAIN BODY
A) Net present value calculation and financial as well as economic perspective
There are two important project K1 and K3, before carrying out discussion on NPV and
financial as well as economic perspectives it is important to understand both projects in detail. In
case of K1 there is proposal to develop new free ways with overpasses/underpasses at major
arterial road intersections. On other hand, in case of K3 minor work will be done to maintain
interaction between roads. NPV results are indicating that project K1 is profitable because its
NPV is $371,537,259. It can be seen that positive value is very which strongly reflect that project
have huge profit potential. On other hands, in case of project K3 there are three options in terms
of cash flow expected to generate which are $58000 per annum, $93000 per annum and $28000
per annum. It is observed that net present value in case of all these three projects and not
profitable. In case of first alternative for project K3 where cash inflow is 58000 per annum
negative NPV of $-944,157,043 is obtained. On other hand, in case of second alternative for
project K3 where cash inflow is 93000 per annum negative NPV of $-943,648,362 is obtained.
Apart from this, in case of third alternative for project K3 where cash inflow is 28000 per annum
negative NPV of $-944,593,055 is obtained. All alternatives in respect to project K3 have
negative cash flows which make it less attractive project.
Financial perspective
Financially good amount of returns is not obtained on K3 project because expenditure is
made on widening of roads and major expenditure is associated with road maintenance cost.
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Hence, new road is not constructed and due to this reason, any additional earning cannot be
gained. This is the main reason responsible for negative NPV on the project.
Economic perspective
From economic perspective it can be said that project will be going for long term.
Construction activity will start from year 3 to 6. Up to 6 years’ time period excavation will
happened. So, in the project for performing single activity long time is required. Which lead to
elevation in project cost. Inflation rate is expected to increase from 2.75% to 5% and due to this
reason in upcoming time period project cost may elevate. Through industrial park ACT
government is expected to receive $50 million per year which is higher amount of cash flow in
single year. It can be said that this factor will make K1more profitable project. However, in case
of project K3 situation is inverse and, on this front, there is need to maintain strict control on
cost.
Thus, it can be said that project is for long term and due to this reason number of factors
need to be taken into account. Moreover, with change in economic condition of the nation
project estimations may also change significantly.
B) Inflation rate
Inflation rate: It refers to the rate which are used by the government to increase fixed
rate or price on the selected goods and items over the time period. The increasing inflation rate
reduce the purchasing power of the customers (The Importance Of Inflation And GDP, 2019).
The inflation rate in the question is 2.75% for the first 10 years and after that it rise to 5% for
next 20 years. It indicates that the cost of production or upgrading the Airport by arterial road is
increasing year by year because of the increasing inflation rate. It also reduces the net present
value of both the options.
The increasing inflation rate also increases the maintenance cost, construction cost etc. in
the following project (Oda, 2016). The estimation of inflation rate helps the project to ascertain
the cost and profit related to the project. In the above case if the select the option 1 for upgrading
airport than they have to prepare the plan regarding the various cost such as construction cost,
right of way, housing acquisition, maintenance cost etc. The inflation rate helps to estimate the
cost of following activities occurred in future and develop the plan to acquire find from different
sources.
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C) Relevance of ACT Government's borrowings rate
Government borrowings rate: It refers to the rate which are used by the borrower to spend
on public services. In other word government use the borrowings rate to spend the money in
providing public services such as development of bridge, road, etc. Debt office set the
government borrowing rate on every Thursday and it was applied for Friday to next Thursday
(Oikawa, and Ueda, 2018). In the above question the government borrowing rate is 5.5% which
is quite below to the other borrowing rate because the ACT government has AAA+ credit rating
which indicate that their credit rating is high, and they are able to repay the amount to the
lenders. This rate help them to acquire money on lower rate from the lenders and invest in the
project to run the project successfully.
The borrowings rate is 5.5% interest in the next 30 years which help them to maintain their
expenses and plan the project to get the effective results. They can invest the borrowed amount
in the project to pay the expenses. The government borrowings also helps to estimate the interest
rate payable to the lenders.
D) Relevance of generated traffic
Generated traffic: It refers to the new traffic generated from the lowering transportation
cost. If the transportation cost reduced then the traffic on roads is increased because the number
of usage of vehicles is increases (Litman, 2017). It increases the demand of customer which
ultimately increases vehicles usage. In the following case of upgrading Airport, traffic is
increased because the development of arterial road generate new way to reach on airport which
also increases the number of vehicles and reduce the transportation cost because now the people
have an alternative way to reach on airport. The generated traffic also increases various problems
for the both passengers and the drivers. If the motorist trapped in the tunnel because of the traffic
or traffic accident than it increases the chances of spreading various kind of diseases such as
legionnaires disease (Soua, Koesdwiady and Karray, 2016). The legionnaire disease is normally
incurred because of the bacteria in water. It spread through the air, water while breathing and
eating. As per the project 1 the new transport line is developed which increases the number of
vehicles because the development of new road increases usage of vehicles which result to
increase traffic on road.
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E) Explanation of opportunity cost
Opportunity cost: It refers to the cost incurred on investment while selecting one
alternative from another. For example the investor select the second best option for the
investment than the difference between the first best option and second best option is known as
opportunity cost (Chodorow-Reich and Karabarbounis, 2016). In the following case there are
two option for upgrading the Canberra's Airport. In first option they can upgrade the road by
developing arterial road and in second case they can develop the existing road by major
modification. For the case one they acquire the residential property for upgrading airport road
(Trinks and Scholtens, 2017). The acquisition of residential property results to arising
opportunity cost because they can use the residential property to lend or sale to property dealer
and gain the profit rather than to invest it in road development for public services. ACT
government gain the profit in up-gradation of road by collecting toll tax or other tax but the
revenue generated from residential property is much higher than the road up-gradation.
F) Explanation of 'do nothing case'
Economic evaluation refers to the comparison of two option in systematic manner by
analysing the inputs and outcomes (Drummond And et.al., 2015). The second option 'do nothing
case' explains the minor modification and up-gradation in the existing road. It can be identified
from the data or Net present value calculation that the maintenance cost of the ' do nothing' case
is very high because in regular interval they have to modify the road which incur additional cost.
The net present value of the second case is also high which indicate that the generated profit
from the second case is low because the cost incurred on maintaining the road is high. As
economic point of view they have to maintain their cost and choose the another alternative to
earn the higher profit from the Airport up-gradation project.
2. a) Confidence level on the project cost and benefits
As the exact project cost is determined through proper calculation. In order to extended
the airport runways, air traffic control system is enhances and also improve the access of roads
from the town centres to the airport. As the project cost of Canberra International Airport is
355.5 million in which the major arterial road intersection is taken and it is ensured that the cost
is quite beneficial for executing the project in right way (Newcomer, Hatry and Wholey, 2015).
Through the project cost, the government provide the easiest way to their customers and as a
result, it will help them to provide new facilities to their customers. By meeting the exact value
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of the project cost, Australian Capital Territory is easily meet their objectives. Being an engineer,
I am quite confident in the project cost and opting major arterial road intersection because it
helps to connect the road between the town to airport easily.
On the other hand, this estimated project cost is also helped to save the travel time and
extra expenses as well. Even there is a discount rate which is recommended form the Federal
Treasury Department on order to economic evaluation which is also helped an engineer to
estimating exact price cost for the project execution (Zahed and et.al., 2019). Moreover, there are
many parties who also contribute the money and as a result, it helps to maintain the estimation of
the project in better way. Therefore, these all situations shows that the estimated project cost is
absolutely meet the defined aim in systematic manner and also benefited the project in better
mode.
b) how susceptible the business case will change and emergence
As per the case scenario, there are many chances of changing the business case into
another way. Such that if the press release by the Australian Capital Territory that the
government argues that while undertaking the whitewashed exercise in order to cover up the
impact of seven-legged pink
spotted spider, may be allegedly seen and the same will ever proved then the chances of
changing a project is increases and the overall project estimation is waste (Gu and Yang, 2019).
On the other side, if the assumption describe in the project is wrong such that there are
different concern which also raised at the possibility of exposure of the motorist to veteran
disease in the proposed tunnel which leads to the result of accidents. And if these rate is
increases then the business case is also completely change and at that time, the Australian
Capital Territory has to introduce new business case as soon as possible.
In addition to this, inflation rate may also affect the business case in negative way
because as per the calculation, in present scenario, the inflation rate is only 2.5% but when the
time changes, it is shift from 2.5 to 5 percent and as a result, due to increase price, the business
case will be definitely affected in negative way. It is so because the if the price is increases then
the expenses and labour cost is also increased and at that time, the government may not meet the
project cost and hence this will creates negative impact upon the business case and the chances
of declining the cost is also increases (Andrić and et.al., 2019).
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Therefore, these conditions shows that the chances of emerging or changing the business
case is high and that is why, by considering all the key changing factors, an engineer take proper
action in order to successful implementation of Canberra International Airport project.
C) Criticism of proposals
Main point where proposal can be criticized is that on alternative K3 maintenance cost will
be very high which must be matter of concern for the ACT. This is because maintenance cost is
high but cash inflow is relatively very low lead to negative NPV of the project. This indicates
that on this front lot more need to be done. Other major point of criticism is that government
department state that there is existence of specific type of spider and if construction carried out
then that species may have destroyed. Canberra international consortium does not believe in the
fact and want to carry out project. Thus, such kind of issues can lead to delay in project. Case
may go in court and due to this reason project implementation may get delayed. Hence, it can be
said that it is one of the major matter of concern and point where project must be criticized.
CONCLUSION
It can be summarized that the report explains the different aspect of project development.
The airport upgrading can be done in two-way such as developing the new arterial road or
upgrading the existing road and do some minor changes. It can be identified that on the basis of
net present value the development of new road is the best option because it helps to generate
higher revenue. The confidence levels of project cost and benefits helps to estimate the growth of
project in the future. It can be concluded that at the different perspective of stakeholders the first
option is more beneficial rather than to option 1.
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REFERENCES
Books and Journals
Andrić, J. M. and et.al., 2019. The cost performance and causes of overruns in infrastructure
development projects in Asia. Journal of Civil Engineering and Management.25(3).
pp.203-214.
Chodorow-Reich, G. and Karabarbounis, L., 2016. The cyclicality of the opportunity cost of
employment. Journal of Political Economy. 124(6). pp.1563-1618.
Drummond, M.F. And et.al., 2015. Methods for the economic evaluation of health care
programmes. Oxford university press.
Gu, Y. and Yang, J., 2019, March. Research on Cause and Governance Path of Passenger
Disturbance in Flight Delay in Terminal. In International Academic Conference on
Frontiers in Social Sciences and Management Innovation (IAFSM 2018). Atlantis Press.
Litman, T., 2017. Generated traffic and induced travel. Victoria Transport Policy Institute.
Newcomer, K. E., Hatry, H. P. and Wholey, J. S., 2015. Cost-effectiveness and cost-benefit
analysis. Handbook of practical program evaluation, p.636.
Oda, T., 2016. Optimal Inflation Rate in a Life-Cycle Economy(No. 16-E-05). Institute for
Monetary and Economic Studies, Bank of Japan.
Oikawa, K. and Ueda, K., 2018. The optimal inflation rate under Schumpeterian growth. Journal
of Monetary Economics. 100. pp.114-125.
Page, B. and et.al., 2017. Macroeconomic analysis of the tax cuts and jobs act as passed by the
Senate. Washington, DC: Tax Policy Center.
Soua, R., Koesdwiady, A. and Karray, F., 2016, July. Big-data-generated traffic flow prediction
using deep learning and dempster-shafer theory. In 2016 International joint conference
on neural networks (IJCNN) (pp. 3195-3202). IEEE.
Trinks, P.J. and Scholtens, B., 2017. The opportunity cost of negative screening in socially
responsible investing. Journal of Business Ethics. 140(2). pp.193-208.
Zahed, S. E. and et.al., 2019. Life-cycle cost analysis of a short-haul underground freight
transportation system for the DFW Airport. Built Environment Project and Asset
Management.
Online
The Importance Of Inflation And GDP. 2019. [Online]. Available through:
<https://www.investopedia.com/articles/06/gdpinflation.asp>
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