The Environment and Cost Benefit Analysis in Feasibility Studies

1. The Environment and Cost Benefit Analysis in Feasibility Studies Dr. John M. Hutcheson, Senior Lecturer, School of Building, the University of New South Wales, Kensington, NSW. , Australia Summarized by: Kamal Al Dihan ARE 512

2. Outline • Introduction • Reason for the Research • A Framework • The Model • Sensitivity Analysis • Summary & Conclusion

3. Introduction Standard format was used to highlight the impact of the following: • Taxation, • Interest, • Profit, and • Risk Environmental changes were also analyzed such as: • Social, • Economic, • Political, and • Physical aspects

4. Reason for the Research 1. Reducing The Uncertainty • Energy Supply • Government Fiscal Policy • International Economic, and • Political Changes 2. Predict future trends and to make effective decisions

5. A Framework • Market, • Financial, and • Physical

6. The Model • Feasibility stage • Design stage • Pre-construction stage • Construction stage • Handover & maintenance stage • Sale or management stage

7. OH = Overhead L = Land Cost C = Final Contract Price S = Sales T3 = Contract Duration I = Interest S1 I S2 COSTS $ C S3 L S4 OH T1 T2 T3 T4 T5 S5 S6 PROFIT $ (P) TAX TIME Time Sequence Model Interest Calculation (Approximate) P = I {OH (T1 + T2 + T3 + T4) + L-T2/10 + LT3 + LT4 + C (T4)/2 + (C + L + OH + I) T5/2}

8. Sensitivity Analysis • Overhead (OH) • Timing • Pre-Construction, and • Construction Cost (C)

9. Revenue (s) • Current Prices / Income • Future Prices / Income • Patterns of Sales / Income

10. Tax and Profit • Profit • Cash Flows • Interest

11. Environmental Impacts • Political Action • Social Change

12. New Taxes, New Philosophies, Fiscal Measures, Subsidies, Decentralization, Discriminatory Taxation, Health Regulations, Development Regulations, Narrow or Overwhelming Parliamentary , Majorities, Grants, Public Expenditure, and Rental Freezes., and Safety rules and labor laws, Political Action

13. Social Change • Demography, • Work force, • Household formation, • Migration, • Natural population growth, and • Other social elements

14. Risk • Assessment • Time and Place Location , location, and location • Continuing Evaluation

15. Impact on the Environment • Accountability • Cost Benefit Analysis • Presentation • Project Selection

16. Computers Format / Programs • Holding periods, • Financing terms, • Taxation and • Rate of return.

17. Construction Software

18. Sensitivity Format Summary

19. Sensitivity • Revenue Assessment (Pattern of Income) • Interest Calculation • Risk • Timing of Cash Flows • Project Selection • Taxation, and • Environmental Impacts

20. Format • Used discounted cash flow (DCF) methods • NPV to assist the feasibility of project • Rate of Return for quick assessment (real estate).

21. Conclusions • Risk • Format • The Environment

22. Risk Most professionals underestimate the sensitivity of critical elements of project profitability studies especially for neglected sensitive areas.

23. Format • Simple Format • Cost Benefits • Computers

24. The Environment • Environment and Benefit Analysis • Probability Analysis

25. The Future Educate and re-educate developers and their advisors to understand the rationale behind feasibility studies. Use the best available technology to develop the used model in order to depict all the neglected internal and external elements impacting projects.

26. Thank you