Anda di halaman 1dari 16

ASSIGNMENT

NICMAR / SODE OFFICE

1. Course

- NCP 29
- Construction Finance

2. Course Title

Management
3. Assignment No.

-1

4. Last date of receipt

- Of Assignment at SODE

office

Submitted By;
Name

Gulshan

Registration No.

: 213-09-31-12800-2154

Construction Finance Management & Cost Accounting


NCP 29
Project Scope
An offer has been given by a Charitable Trust to develop and build a facility
on a 10,000 sq.m of plot in a prime locality of Pune where 5,000 sq.m of area
will be used by the trust for housing, health facilities for senior citizens.
5,000 sq.m. will be given free to the developers as a cost of development
Cost of Land is Rs. 10,000/- sq.m
Flooring specifications for flooring:
-

10% Granite

40% Kota stone

50% Mosaic cement tiles

Developers would like to have minimum 18% net profit on their investment.
Developer can invest only Rs. 10 lakhs as his own funds and can raise not
more than Rs. 50 lakhs as bank loan.

Technical Studies
The technical study is to determine the needs for material and human means
necessary to achieve the objectives. These take account of the market
(availability of raw material, there is a demand, customer requirement),
regulatory and standards-related product and also the financial (amount to
invest and returns expected).
The study focuses on two general areas: study of supply and the study of
transformation. To carry out critical analysis of technical feasibility, there
must

be

enough

environment.

knowledge

of

technical,

economic

and

regulatory

Cost of Construction
The cost of construction includes both the initial capital cost and the
subsequent operation and maintenance costs. Each of these major cost
categories consists of a number of cost components.
The capital cost for a construction project includes the expenses related to
the initial establishment of the facility:
Land acquisition, including assembly, holding and improvement
Planning and feasibility studies
Architectural and engineering design
Construction, including materials, equipment and labor
Field supervision of construction
Construction financing
Insurance and taxes during construction
Equipment and furnishings not included in construction
Inspection and testing
The operation and maintenance cost in subsequent years over the project
life cycle includes the following expenses:
Land rent, if applicable
Operating staff
Labor and material for maintenance and repairs
Periodic renovations
Insurance and taxes
Financing costs
Utilities
The magnitude of each of these cost components depends on the nature,
size and location of the project as well as the management organization,

among many considerations. The owner is interested in achieving the lowest


possible overall project cost that is consistent with its investment objectives.
It is important for design professionals and construction managers to realize
that while the construction cost may be the single largest component of the
capital cost, other cost components are not insignificant. For example, land
acquisition costs are a major expenditure for building construction in highdensity urban areas, and construction financing costs can reach the same
order of magnitude as the construction cost in large projects such as the
construction of nuclear power plants.
The total cost of the project is calculated as below:
Particulars

Rs./sq
.ft

Cost of Superstructure
450
Cost of Brick work, plaster
etc
90
Cost of Electric work

108

Cost of Plumbing

90

Cost of Finishing

54

Cost of Granite Flooring

130

Cost of Kota Flooring

40

Cost of Mosaic Flooring

40

TOTAL COST

Amoun
t
242190
00
484380
0
581256
0
484380
0
290628
0
699660
0
215280
0
215280
0
539276
40

Work Schedule represents the necessary framework to permit scheduling of


construction activities, along with estimating the resources required by the

individual work tasks, and any necessary precedences or required sequence


among the tasks. The terms work "tasks" or "activities" are often used
interchangeably in construction plans to refer to specific, defined items of
work. The scheduling problem is to determine an appropriate set of activity
start time, resource allocations and completion times that will result in
completion of the project in a timely and efficient fashion. Construction
planning is the necessary fore-runner to scheduling. In this planning, defining
work tasks, technology and construction method is typically done either
simultaneously or in a series of iterations.
The definition of appropriate work scheduling can be a laborious and tedious
process, yet it represents the necessary information for application of formal
scheduling procedures. Since construction projects can involve thousands of
individual work tasks, this definition phase can also be expensive and time
consuming. Fortunately, many tasks may be repeated in different parts of
the facility or past facility construction plans can be used as general models
for new projects. For example, the tasks involved in the construction of a
building floor may be repeated with only minor differences for each of the
floors in the building.
The work schedule on quarterly basis for the project is given below:
ID

Outline
Number

Name

1
2

1.0
1.1

Contracts
__Supply Lot Sale Agreement

3
4
5
6
7
8
9

1.2
1.3
1.4
1.5
1.6
1.7
2.0

10

2.1

Durati
on

Start

Finish

0.00d

QUARTER
1
1-May-2010

1-May-2010

__Supply Construction Agreement


__Supply Contract Plans
__Supply Contract Specifications
__Supply Contract Site Plan
__Secure Financing
__Construction Loan Settlement
Document Review & Revision

0.00d
0.00d
0.00d
0.00d
0.00d
0.00d

1-May-2010
1-May-2010
1-May-2010
1-May-2010
1-May-2010
1-May-2010

1-May-2010
1-May-2010
1-May-2010
1-May-2010
1-May-2010
1-May-2010

__Review & Finalize Plans

15.00d

2-May-2010

26-May2010

27-May2010
16-Jun2010
18-Jun2010
23-Jun2010
23-Jun2010
23-Jun2010

15-Jun2010
17-Jun2010
22-Jun2010
23-Jun2010
23-Jun2010
23-Jun2010
26-Jun2010
27-Jun2010
28-Jun2010
29-Jun2010

1.00d

24-Jun2010
27-Jun2010
28-Jun2010
29-Jun2010
30-Jun2010
QUARTER
2
2-Jul-2010

1.00d
0.00d
1.00d
1.00d
1.00d
15.00d
0.00d
1.00d
1.00d
2.00d
1.00d
1.00d

3-Jul-2010
4-Jul-2010
5-Jul-2010
6-Jul-2010
7-Jul-2010
8-Jul-2010
22-Jul-2010
22-Jul-2010
23-Jul-2010
24-Jul-2010
26-Jul-2010
27-Jul-2010

3-Jul-2010
4-Jul-2010
5-Jul-2010
6-Jul-2010
7-Jul-2010
22-Jul-2010
22-Jul-2010
22-Jul-2010
23-Jul-2010
25-Jul-2010
26-Jul-2010
27-Jul-2010

1.00d
4.00d
4.00d
2.00d

28-Jul-2010
29-Jul-2010
2-Aug-2010
6-Aug-2010

3.00d

8-Aug-2010

28-Jul-2010
1-Aug-2010
5-Aug-2010
7-Aug-2010
10-Aug2010

11

2.2

__Review & Finalize Specifications

20.00d

12

2.3

__Review & Finalize Site Plan

1.00d

13

2.4

__Print Construction Drawings

5.00d

14

2.5

__Approve Revised Plans

0.00d

15

2.6

__Approve Revised Specifications

0.00d

16
17

2.7
3.0

__Approve Revised Site Plan


Site Work

0.00d

18

3.1

__Clear Lot

3.00d

19

3.2

__Strip Topsoil & Stockpile

1.00d

20

3.3

__Stake Lot for Excavation

1.00d

21

3.4

__Rough grade lot

1.00d

22

3.5

__Excavate for foundation

2.00d

23
24

4.0
4.1

25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41

4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.1
4.1
4.1
4.1
5.0
5.1
5.2
5.3
5.4

Foundation
__Layout footings
__Dig
Footings
&
Install
Reinforcing
__Footing Inspection
__Pour footings
__Pin Footings
__Stock Block, Mortar, Sand
__Build Block Foundation
__Foundation Certification
__Fill Block Cores w/ Concrete
__Steel Delivery
__Set Lintels, Bolts, Cap Block
__Lumber Delivery
__Waterproofing and Drain Tile
Rough Carpentry
__Set Steel
__1st Floor Deck Framing
__1st Floor Wall Framing
__2nd Floor Deck Framing

42

5.5

__2nd Floor Wall Framing

1-Jul-2010

2-Jul-2010

43

5.6

__Set Roof Trusses

2.00d

44

5.7

__Frame Roof

7.00d

45

5.8

__Install Roof Plywood

5.00d

46

5.9

__Install Windows & Doors

2.00d

47

5.1

__Frame Basement

3.00d

48
49

5.1
6.0

__Frame Basement Bulkheads


Concrete Slabs

2.00d

10-Aug2010
11-Aug2010
18-Aug2010
23-Aug2010
25-Aug2010
10-Aug2010

10-Aug2010
17-Aug2010
22-Aug2010
24-Aug2010
27-Aug2010
11-Aug2010

12-Aug2010
14-Aug2010
15-Aug2010
16-Aug2010
17-Aug2010
18-Aug2010
19-Aug2010

13-Aug2010
14-Aug2010
15-Aug2010
16-Aug2010
17-Aug2010
18-Aug2010
19-Aug2010

20-Aug2010
22-Aug2010
23-Aug2010

21-Aug2010
22-Aug2010
27-Aug2010

50

6.1

51

6.2

__Basement Slab Preparation


2.00d
__Termite Treatment Basement
Slab
1.00d

52

6.3

__Slab Inspection

1.00d

53

6.4

__Pour Basement Slab

1.00d

54

6.5

__Prep Garage Slab

1.00d

55

6.6

__Termite Treatment Garage Slab

1.00d

56
57

6.7
7.0

__Pour Garage Slab


Plumbing Rough-in

1.00d

58

7.1

__Plumbing Sub-slab

2.00d

59

7.2

__Plumbing Layout

1.00d

60
61

7.3
8.0

__Plumbing rough-in
Electric Rough-in

5.00d

62

8.1

__Set Electric Boxes

2.00d

63
64

8.2
8.3

__Install Electric Service Panel


__Electrical Walk-through

2.00d
1.00d

28-Aug2010
30-Aug2010
1-Sep-2010

65
66

8.4
9.0

__Electrical Rough-wire
Specialty Rough-ins

14.00d

2-Sep-2010

29-Aug2010
31-Aug2010
1-Sep-2010
15-Sep2010

67

9.1

__Central Vacuum Rough-in

5.00d

68
69

9.2
9.3

__Alarm System Rough-in


__Telephone System Rough-in

5.00d
5.00d

16-Sep2010
21-Sep2010
26-Sep-

20-Sep2010
25-Sep2010
30-Sep-

70

9.4

__Television System Rough-in

5.00d

71

9.5

__Audio Visual Rough-in

5.00d

72

10.0

Electrical inspection

0.00d

73
74

11.0
12.0

Framing Inspection
Roofing

0.00d

75

12.1

__Roofing Paper Installed

3.00d

76

12.2

__Stock Roof Shingles

1.00d

77
78

12.3
13.0

__Install Roof Shingles


Exterior Finishes

7.00d

79

13.1

__Siding

3.00d

80

13.2

__Exterior Trim

7.00d

81

13.3

__Brick Arch Forms

1.00d

82
83

13.4
14.0

__Brick Veneer
Insulation

45.00d

84

14.1

__Caulk & Air Seal

1.00d

85

14.2

__Draft & Fire Stop

1.00d

86

14.3

__Insulation

3.00d

87

15.0

Floor Finishes

88

15.1

__Ceramic Tile

15.00d

89

15.2

__Install Hardwood Floor

4.00d

90

15.3

__Sand, Stain, Seal Hardwood

5.00d

91

15.4

__Install Carpet

4.00d

92
93

15.5
16.0

__Final Coat Hardwood


Paint

2.00d

94

16.1

__Prep Drywall for Prime Coat

2.00d

95

16.2

__Prime Paint Drywall

2.00d

2010
1-Oct-2010
6-Oct-2010
10-Oct2010
10-Oct2010

2010
5-Oct-2010
10-Oct2010
10-Oct2010
10-Oct2010

10-Oct2010
12-Oct2010
14-Oct2010

12-Oct2010
13-Oct2010
20-Oct2010

20-Oct2010
20-Oct2010
20-Oct2010
20-Oct2010

20-Oct2010
20-Oct2010
20-Oct2010
20-Oct2010

20-Oct2010
22-Oct2010
24-Oct2010
QUARTER
3
27-Oct2010
11-Nov2010
15-Nov2010
20-Nov2010
24-Nov2010

21-Oct2010
23-Oct2010
26-Oct2010

26-Nov2010
28-Nov2010

27-Nov2010
29-Nov2010

10-Nov2010
14-Nov2010
19-Nov2010
23-Nov2010
25-Nov2010

30-Nov2010
2-Dec-2010

96
97

16.3
16.4

__Prep Trim for Prime Coat


__Prime Trim

2.00d
2.00d

98

16.5

__Finish Coat Trim

10.00d

99
10
0
10
1
10
2
10
3
10
4
10
5
10
6
10
7
10
8
10
9
11
0
11
1
11
2
11
3
11
4
11
5
11
6
11
7
11
8
11
9
12
0

16.6

__Finish Coat Drywall

14.00d

16.7
16.8

__Caulk Exterior Windows & Doors 1.00d


__Finish Coat Exterior Trim &
Siding
1.00d

17.0

Exterior Landscaping

17.1

__Rough Final Grade

1.00d

1-Jan-2011

1-Jan-2011

17.2

__Patios

7.00d

2-Jan-2011

17.3

__Porches

5.00d

17.4

__Sidewalks

7.00d

17.5

__Decks

7.00d

17.6

__Driveways

2.00d

17.7

__Final Grade and Seed

3.00d

9-Jan-2011
14-Jan2011
21-Jan2011
28-Jan2011
30-Jan2011

8-Jan-2011
13-Jan2011
20-Jan2011
27-Jan2011
29-Jan2011

18.0

Hardware

18.1

__Door Hardware

2.00d

1-Feb-2011

2-Feb-2011

18.2

__Bath Hardware

2.00d

3-Feb-2011

4-Feb-2011

18.3

__Mirrors

5.00d

18.4

__Shower Doors

10.00d

18.5

Final Building Inspection

0.00d

5-Feb-2011
10-Feb2011
19-Feb2011

9-Feb-2011
19-Feb2011
19-Feb2011

19.0

Cleaning

19.1

__Windows

3.00d

19.2

__Rough Clean

3.00d

19.3

__Final Clean

2.00d

19-Feb2011
22-Feb2011
25-Feb2011

21-Feb2011
24-Feb2011
26-Feb2011

20.0

Final Walk-through

4-Dec-2010
14-Dec2010
28-Dec2010
30-Dec2010
QUARTER
4

1-Dec-2010
3-Dec-2010
13-Dec2010
27-Dec2010
29-Dec2010
31-Dec2010

1-Feb-2011

12
1

21.0

Move-in

Financial and economic Evaluation


Capital - Business requires capital. The term capital is used differently in
different contexts. It is used in the sense of means of production, usually the
assets held by the firm. It is also used in the sense of finance obtained by a
firm. In accounting, capital is used in the second sense. A part of the finance
obtained by a firm is in the form of interest free credit, such as credit allowed
by suppliers of materials or services and advance payment received by
customers. The interest free credit is settled in the normal operating cycle of
the business and is not included in the capital.
Revenue Revenue is the income that arises from exchange transactions
with customers in the course of ordinary activities of an enterprise. An
entitys revenue earning activities include selling of goods, rendering of
services, and allowing others to use entitys resources yielding interest,
royalties and dividends. Revenue increases the equity of the enterprise. As a
general principle, an enterprise recognizes revenue when it receives cash,
receivables or other consideration in its own account. For example, in an
agency relationship, the agent recognizes the commission as revenue.
Finance Resource mobilization Resource mobilization can facilitate the
flow of resources from various sources and catalyze the flow of additional
resources from official and private institutions. For projects and programs
that are too large to be handled by one funding agency, mobilizing co
financing from various funding sources can help meet these large resource
requirements. Resources can be in any form such as finances, technology,
manpower both skilled and labor, knowledge, information, etc
Financial

accounting

Financial

accounting

consists

of

recording,

classifying and analyzing the business transactions so as to facilitate the


preparation of Profit and loss account for a period and also the position
statement (i.e. Balance Sheet) as on a particular day. Thus, the emphasis of

financial accounting is on the ascertainment of profit and loss of the concern


and not on the more important aspects of the business i.e. planning, control
and decision-making.
Cost accounting - Cost accounting analyses the transactions in an objective
manner for the purposes of planning, control and decision making. Cost
accountancy is the application of costing and Cost accounting principle,
methods and techniques to the science, art and practice of cost control and
the ascertainment of profitability. It includes the presentation of information
derived there from for the purpose of managerial decision making. Cost
accounting is also defined as the process of accounting for cost from the
point at which expenditure is incurred or committed to the establishment of
its ultimate relationship with cost centers and cost units.
Management accounting - Management accounting is another aspect of
accounting which has developed in recent years and is being employed in
many concerns as an informative mechanism to aid the management in
decision making by providing various information they need for the purpose.
Both cost and management accounting working together can keep the
management well informed about what is going on in the business and what
changes, if any, is required to be given effect to.
Capital budgeting or investment appraisal is the planning process used to
determine whether a firm's long term investments such as new machinery,
replacement

machinery,

new

plants,

new

products,

and

research

development projects are worth pursuing. It is budget for major capital, or


investment, expenditures.
Many formal methods are used in capital budgeting, including the techniques
such as Accounting rate of return, Net present value, Profitability index,
Internal rate of return, Modified internal rate of return, Equivalent annuity
etc. These methods use the incremental cash flows from each potential

investment, or project Techniques based on accounting earnings and


accounting rules are sometimes used - though economists consider this to be
improper - such as the accounting rate of return, and "return on investment."
Simplified and hybrid methods are used as well, such as payback period and
discounted payback period

Cash flow forecasting is in a corporate finance sense, the modeling of a


company or assets future financial liquidity over a specific timeframe. Cash
usually refers to the companys total bank balances, but often what is
forecast is treasury position which is cash plus short-term investments minus
short-term debt. Cash flow is the change in cash or treasury position from
one period to the next; in the context of the entrepreneur or manager,
forecasting what cash will come into the business or business unit in order to
ensure that outgoing can be managed to as to avoid them exceeding cash
flow coming in. If there is one thing entrepreneurs learn fast, it is to become
very good at cash flow forecasting.

Proposed Project Financing

Capital structure refers to the way a corporation finances its assets


through some combination of equity, debt, or hybrid securities. A firm's
capital structure is then the composition or 'structure' of its liabilities. The
proposed capital structure for the project is as below:

Capital Structure

Asset
Equity
Debt

50,000,0
00.00
1,000,0
00.00
4,000,0
00.00

The debt raised by the promoter is Rs 40 lacs. The total debt would not be
taken all at once rather it would be disbursed in 4 equal quarterly
installments. This debt will carry a fixed interest expense as follows:

Month
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11

Amou
nt
(Rs.)
100000
0

100000
0

100000
0

100000
0

Int.
Payable
Monthly
10000
10000
10000
20000
20000
20000
30000
30000
30000
40000
40000
40000

Int.
Payable
Quarterly

30000

1000000
1000000
1000000

60000

2000000
2000000
2000000

90000

3000000
3000000
3000000

120000

4000000
4000000
4000000

*Loan disbursed in 4 equal quarterly installments


**Assuming interest @ 12% p.a.

Profit Measures

Closing
bal

Loan

A profit measure is defined as an indicator of the desirability of a project


from the standpoint of a decision maker. A profit measure may or may not be
used as the basis for project selection. Since various profit measures are
used by decision makers for different purposes, the advantages and
restrictions for using these profit measures should be fully understood.
There are several profit measures that are commonly used by decision
makers in both private corporations and public construction projects. Each of
these measures is intended to be an indicator of profit or net benefit for a
project under consideration. Some of these measures indicate the size of the
profit at a specific point in time; others give the rate of return per period
when the capital is in use or when reinvestments of the early profits are also
included. Some of the most frequently used profit measures are as follows:
1. Net Future Value and Net Present Value. When an organization
makes an investment, the decision maker looks forward to the gain over a
planning horizon, against what might be gained if the money were invested
elsewhere. A minimum attractive rate of return (MARR) is adopted to reflect
this opportunity cost of capital. The MARR is used for compounding the
estimated cash flows to the end of the planning horizon, or for discounting
the cash flow to the present. The profitability is measured by the net future
value (NFV) which is the net return at the end of the planning horizon above
what might have been gained by investing elsewhere at the MARR. The net
present value (NPV) of the estimated cash flows over the planning horizon is
the discounted value of the NFV to the present. A positive NPV for a project
indicates the present value of the net gain corresponding to the project cash
flows.
2. Internal Rate of Return. The internal rate of return (IRR) is defined as
the discount rate which sets the net present value of a series of cash flows
over the planning horizon equal to zero. It is used as a profit measure since it
has been identified as the "marginal efficiency of capital" or the "rate of

return over cost". The IRR gives the return of an investment when the capital
is in use as if the investment consists of a single outlay at the beginning and
generates a stream of net benefits afterwards. However, the IRR does not
take into consideration the reinvestment opportunities related to the timing
and intensity of the outlays and returns at the intermediate points over the
planning horizon. For cash flows with two or more sign reversals of the cash
flows in any period, there may exist multiple values of IRR; in such cases, the
multiple values are subject to various interpretations.
3. Adjusted Internal Rate of Return. If the financing and reinvestment
policies are incorporated into the evaluation of a project, an adjusted internal
rate of return (AIRR) which reflects such policies may be a useful indicator of
profitability under restricted circumstances. Because of the complexity of
financing and reinvestment policies used by an organization over the life of a
project, the AIRR seldom can reflect the reality of actual cash flows.
However, it offers an approximate value of the yield on an investment for
which two or more sign reversals in the cash flows would result in multiple
values of IRR. The adjusted internal rate of return is usually calculated as the
internal rate of return on the project cash flow modified so that all costs are
discounted to the present and all benefits are compounded to the end of the
planning horizon.
4. Return on Investment. When an accountant reports income in each
year of a multi-year project, the stream of cash flows must be broken up into
annual rates of return for those years. The return on investment (ROI) as
used by accountants usually means the accountant's rate of return for each
year of the project duration based on the ratio of the income (revenue less
depreciation) for each year and the un-depreciated asset value (investment)
for that same year. Hence, the ROI is different from year to year, with a very
low value at the early years and a high value in the later years of the project.

5. Payback Period. The payback period (PBP) refers to the length of time
within which the benefits received from an investment can repay the costs
incurred during the time in question while ignoring the remaining time
periods in the planning horizon. Even the discounted payback period
indicating the "capital recovery period" does not reflect the magnitude or
direction of the cash flows in the remaining periods. However, if a project is
found to be profitable by other measures, the payback period can be used as
a secondary measure of the financing requirements for a project.