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Unformatted text preview: costing from an EPC perspective Project Broad project participant (which could iinclude: owning and running a development ng Broad could nclude: company) company) Does this vary by sector? Does sector? Are HCC funds available for development and equity investment in Are development projects? What is the level of potential participation by the Company in a development company and What in various projects? Will the Company be willing to partner with others in a development company? Will developm What degree of control would the Company require/desired in the development company What etc.? 20 Suggested Enterprise Structure Suggested Group A – Executive Management CEO Operating Business (1) Existing Construction Business Enterprise Businesses EPC Businesses (new and expanding) Construction Equipment Transportation Hydro Real Estate Capital Infrastructure Development (3) Fund (a) Financing Services Hydro Highways Airports Others Group C – Enterprise Businesses. These businesses should be managed separately from the EPC business with separate skills, compensation, etc. (3) Different specialty JV partners needed for each of these, which can evolve in accordance with opportunity and need. Thermal and Nuclear Others Group B – Operating Businesses Group D – Shared Services Matrix to the Operating Businesses. all functionalities will have to be included. Marketing BD Support Tendering Procurement Project Operations (and Project Management) Monitoring CTO Design, ISG Engineering, Field Engineering R&D and IMS 21 Organization (2) Organization -Strategic Partners Illustrative Development Company Business Structure Partner 3 -Utilities / Developers / Plant & Mine Operators / Middle East Investors Partner 2 -Financial Partners -Funds / Institutional Investors / Multilaterals / Middle East Investors Partner 1 Holding Company -Special Purpose Partners -Equipment Suppliers / Construction Cos. / Plant & Mine Operators / Fuel Suppliers / Lessors x% collective X% Operating Company Partner 3 Partner 3 Partner 2 Partner 1 Partner 2 Management x% collective Partner 3 Partner2 Partner 1 Insurance O&M Development / Project Finance x% x% Infrastructure Holding Company A (IHC-A) [e.g. Toll Road Company] Company’s FUND x% collective Infrastructure Holding Company B (IHC-B) [e.g. Airport Company] Banks: Company’s FUND Partner 1 x% collective Partner 3 Partner 2 Partner 1 x% collective -International /Local Bonds -Public Local Market / Public International Market Project 3 Project 2 Project 2 -IFC / ADB / Export Credits / Multilateral / Government Subsidized/ Concessionary Project 1 Issues: • Type of Partners • Timing to let them enter • Level at which they would enter • Investment appetite of HCC • Raising a Fund(s) Project 3 Government & Multilateral Project 1 Other: Debt -Securitized Paper / Private Debt Market / Mezzanine Debt / Infrastructure Funds / Equipment Finance & Leasing Debt 22 Summary: Analysis for Business Development Summary: What we need for this business What Personnel Personnel Partners Partners Resources Resources Commitments Commitments What we have What What is missing What 23 MIT OpenCourseWare http://ocw.mit.edu 1.040 Project Management Spring 2009 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms. Project Financial Evaluation Massood Samii, Ph.D. WWW.samii.Info Blog: www.msamii.wordpress.com Value Creation • The main objective of project is creation of value for its stakeholders. • Value is created – financially by creating net cash flow – socially by creating social benefit. • The private sector main objective is value creation for their owners (stock holders). This is in terms of wealth maximization. • The public sector attempts to maximize social benefits. • Value creation is the guiding principle through out this discussion. That is any project must be able to create value Explicit and Implicit Cost • In accounting all the costs and revenues are explicit, in finance and economics, they are both explicit and implicit. – Explicit cost are the accounting costs that are realized. For example, labor cost, energy costs, and material. – Implicit costs are those costs that are hidden. – One such a cost is the difference between revenue and revenue from best alternative investment . For example if we make A amount of investment and we receive X amount of return but an alternative investment would create Y return, where Y>X, from economic point of view there is a loss equal to Δ = Y-X. In accounting term there is a profit of Y. Explicit and Implicit, Continued • Social cost –benefit analysis centers on the difference between explicit and implicit cost. – Social cost are costs that are incurred by society. A firm maybe dumping wastes into a river. From firm’s point of view there is zero cost associated with waste disposal. However, the social cost of firms operation (from society point of view) is very high since they either have to clean water (a cost for the society) or have polluted water. – Social benefits maybe also different that private benefit. Time Value of Money • • •...
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