Project Management UG

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Unformatted text preview: ncession provide a service to a public-sector body (e.g., provision of a public-sector sector hospital building and facilities) hospital A Concession Agreement under which a project will be constructed to Concession provide a service to the general public normally provided by the public sector (e.g., a toll road) A Concession Agreement or license under which a project will be constructed Concession to provide new services to the public (e.g., a mobile phone network). Examples of other types of structured finance Examples Receivables financing Receivables Securitization Securitization Leveraged buyout (“LBO”) or management buyout (“MBO”) Leveraged financing Acquisition finance Acquisition Asset finance Asset Leasing Leasing Benefit of Leverage on Investor’s Return Benefit Low Leverage High Leverage Project Cost 1,000 1,000 (a) Debt 300 800 (b) Equity 700 200 (c) Revenue from project 100 100 (d) Interest rate on debt (p.a.) 5% 7% (e) Interest payable [(a)x(d)] 15 56 (f) Profit [(c) – (e)] 85 44 Return on equity [(f)÷(b)] 12% 22% Contractor Financing Payment schedule Payment Break out payments into components Break Advance payment Advance Periodic/monthly progress payment (itemized breakdown structure) Periodic/monthly Milestone payments Milestone Often some compromise between contractor and owner Often Architect certifies progress Architect Agreed-upon payments retention on payments (usually, about 10%) retention Often must cover deficit during construction Often Can be many months before payment received Can S-curve Work Man-hours months S-curve Cost 100 8 90 7 80 6 $K 5 60 50 4 40 3 30 2 20 1 10 0 0 1 2 3 4 5 67 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Working days Cumulative costs $K 70 Monthly cost Cum. costs Expense & Payment Expense Amount (dollars) Contractor's expenses Owner's payments 0 1 23 4 5678 Time period (month) 9 Cumulative net cash flow (dollars) (A) Expenses and payments + 01 2 3 4 5 67 8 9 Time period (month) _ (B) Cumulative net cash flow of contractor Image by MIT OpenCourseWare. Contractor Financing Contractor Owner keeps an eye out for Owner Front-end loaded bids (discounting) Front Unbalanced bids Unbalanced Contractor Revenue Projection Contractor Revenue Projection 120 140 100 120 100 Revenue Revenue 80 60 80 60 40 40 20 20 0 0 1 2 3 4 5 6 7 8 9 10 Month 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 Month 11 12 13 14 15 16 17 18 Contractor Financing Contractor Owner keeps an eye out for Owner Front-end loaded bids (discounting) Front Unbalanced bids Unbalanced Contractors frequently borrow from Contractors Banks (Need to demonstrate low risk) Banks Interaction with owners Interaction Some owners may assist in funding Some Help secure lower-priced loan for contractor Help Sometimes assist owners in funding! Sometimes Big construction company, small municipality Big BOT BOT Contractor Financing Agreed upon in contract Agreed Often structure proposed by owner Often Should be checked by owner (fair-cost estimate) Should Often based on “Masterformat” Cost Breakdown Structure Often (Owner standard CBS) Certified by third party (Architect/engineer) Certified Latent Credit Latent Many people forced to serve as lenders to owner due Many to delays in payments Designers Designers Contractors Contractors Consultants Consultants CM CM Suppliers Suppliers Implications Implications Good in the short-term Good Major concern on long run effects Major Role of Taxes Role Tax deductions for Tax Depreciation Depreciation the process of recognizing the using up of an asset through the wear and obsolescence and of subtracting capital expenses from the revenues that the asset generates over time in computing taxable income Others Others Develop or Not Develop Develop Is any individual project worthwhile? Is Given a list of feasible projects, which one is the best? Given How does each project rank compared to the others on How the list? Project Evaluation Example: Project Project A Project Project B Project Construction=3 years Construction=3 Construction=6 years Construction=6 Cost = $1M/year Cost Cost=$1M/year Cost=$1M/year Sale Value=$4M Sale Sale Value=$8.5M Sale Total Cost? Total Total Cost? Total Profit? Profit? Profit? Profit? MIT OpenCourseWare 1.040 Project Management Spring 2009 For information about citing these materials or our Terms of Use, visit: 1.040/1.401 1.040/1.401 Project Management Spring 2009 How to Get Involved in Private Financing Lecture 9 Fred Moavenzadeh Department of Civil and Environmental Engineering Massachusetts Institute of Technology Project Development Project 1. 2. 3. 4. 5. 6. 7. 8. Finding Projects Project Structures Getting into the Business Organization & Staffing Finding Partners Financing and Development Issues Project Risks Merchant Bank/Fund Capability 2 1. Finding Projects Finding Network: Network: Infrastructure funds Infrastructure Published bid opportunities Published Federal and State government officials Federal Banks and international financial institutions Banks Specialized operating companies in chosen sectors (such as electric utilities, Specialized airports, toll roads, etc.) etc.) Infrastructur...
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This note was uploaded on 07/25/2012 for the course ECON 111 taught by Professor King during the Spring '12 term at CSU Bakersfield.

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