ASSIGNMENT ON

CONSTRUCTION FINANCE MANAGEMENT NCP 29

SUBMITTED BY NILESH S KITEY REG NO: 213-02-31-11297-2142 PGPPM (2013)

Contents
1 2 Work Assignment .................................................................................................................3 Scope of Project ...................................................................................................................3 2.1 2.2 2.3 2.4 Introduction ................................................................................................................ 4 Financial Viability of Project ....................................................................................... 5 STAGE 1: Development and Build Structure for Charitable Trust............................. 5 STAGE 2: Development of Housing Society on land given free as cost of Development .............................................................................................................. 6 2.5 2.6 3 Calculating Capital Requirement ................................................................................ 7 Specifications.............................................................................................................. 8

TECHNICAL STUDIES .............................................................................................................9 3.1 3.2 3.3 3.4 Cost of construction ................................................................................................... 9 Manpower requirements/costs ............................................................................... 12 Design adequacy and alternatives ........................................................................... 14 Work schedule on quarterly basis ............................................................................ 14

FINANCIAL AND ECONOMICS EVALUATION ......................................................................16 4.1 4.2 4.3 Total Investments cost ............................................................................................. 16 Project Financing for Housing Society ...................................................................... 17 Cash Flow Management for Housing Society .......................................................... 18

5 6 7

CONCLUSION ......................................................................................................................20 RECOMMENDATION ..........................................................................................................20 Bibiliography/Readings ......................................................................................................20

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1 WORK ASSIGNMENT
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 at a cost of development. Cost of Land is Rs. 10,000/- Sq m Specifications for Structure Flooring: o 10% Granite. o 40% Kota stone. o 50% Mosaic cement tiles. RCC Framed Structure. Aluminium sliding windows Class A. Rest specifications as used for Class A. Constructions. Developers would like to have a minimum 18 % net profit on their investment. The developer can invest only Rs. 10 lakhs as his own funds and can raise not more than Rs. 50 lakhs as a bank loan.

2 SCOPE OF PROJECT
The scope of project is to developing and building a construction facility in a land of area 10,000 sq. m. Then above mentioned construction project is divided into two stages.
1. Developing facility on a 5,000 Sq. m. for a charitable trust comprising of housing and

health facilities.

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2. Developing 5,000 Sq. m. of area as a cost of development.

Succeeding report highlights the financial viability of the construction project. Extracting profit from the project through financial planning is the main feature of this project report.

2.1 Introduction
Construction Project is a mission, undertaken to create a unique facility, product or service within the specified scope, quality, time and costs. The project can also be defined as the organization and performance of resources such as men, money, machinery, materials, space and technology into a logical sequence of activities. Cash budgeting will play an important role in any type of construction project also capital revenue, financial resource mobilization, cost accounting, management accounting will give proper planning of inflow as well as outflow resources in the project. Financial management in a construction project is mainly related to planning various activities in the project right from the start to the end of the project. A developer must be fully aware about all the key financial aspects of construction. He must be able to control financial flows in an orderly manner for reaping the results in the form of profits. Profit from the project can be harvested by considering, implementing and following the points stated as below. Reducing the cost of construction. Minimizing any kind of wastage whether in term of material or in the form of people time. Planning the activities prior they actually start at the site. Scheduling tasks.

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 Planning and controlling the project. Arranging finances at the right time when requires. Closely monitoring the expenses of the project.

2.2 Financial Viability of Project

Most construction projects start with a need to have a new facility long before designers start designing and drawing of the projects and certainly before field construction work can commence. Elements of this phase include: Conceptual analysis. Technical and feasibility studies and Environmental impact reports. Here the project is divided in two stages first developing & building facility for a charitable trust and using 5,000 Sq m area of land free at a cost of production.

2.3 STAGE 1: Development and Build Structure for Charitable Trust

To develop and build a facility for housing and health facilities for senior citizens on a 5,000 Sq m area plot in a prime locality of Pune. The cost of land is Rs. 10,000/ m2 The developer is going to get 5,000Sq m at the rate of 10,000/ m2, which will give him an asset of 5,000 x 10,000 = 5,00,00,000 (Rs 5 crore) The developer will get the area to develop for the trust is 5,000 Sq. m at the rate of 10,000/m2. Generally the construction rate is varying with area to area. We can assume the construction cost at this prime locality is 1,200 Rs/ ft2 i.e. 13,000 Rs/ m2. Thus the total cost of construction will be 4000 X 13,000= 5,20,00,000 Rs. (say Rs 5.2 crore)

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Total project cost of 5.2 crore can be split into 3.5 crore for housing for the aged and 1.7 crore for the healthcare facility. Since the housing is a multi-level development and health care will be limited to 2 -3 floors we can estimate that housing and healthcare uses an equal amount of site area, i.e.

2500 sq. m of area is used in housing which costs 3.5 crore, and 1500 sq. m of area is used in healthcare which costs 1.7 crore.

2.4 STAGE 2: Development of Housing Society on land given free as cost of Development
As the developer has to earn a profit by making housing society at 5000 Sq m of land (Considering FSI is 1), it will cost Rs 6.5 crore (This we assume includes the Construction and marketing cost for the project). This housing society is divided into two phases of each 2500 Sq m area. The best investment feasible is by completing phase 1 housing society first i.e. 2500 Sq m of land. As the land is located in prime location in Pune, so flat of the purposed residential building can be sold at higher prices earning a good profit margin for the developer. Also he can take the booking amount for the initial launch of project from customer and use it for launching the project. The residential building will be six storey building to be built on a space on an area of 500 sq. X 500sq.m. Ground floor of the building will be meant for two wheeler and four wheeler parking. The Proposed residential building will comprise of:1) 3 BHK Flats - 6 , one on each floor 2) 2 BHK Flats - 12 , two on each floor 3) Balcony - 6, one for each floor

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4) Lobby - 6, one for each floor 5) Staircase - 1 for all 6) Parking lot - At ground level 7) Guard room - 1 at ground level adjacent to entrance gate All 3 BHK flats will be front facing and linked with the other two no. 2 BHK flat via lobby. The balcony will be provided at all six no. 3 BHK flats. Flats will be constructed and then will be fully furnished. Fully furnished flats will then be ready for selling to the customers with ready to move option. As flats to be constructed are spacious, parking facilities along with security is also being provided so flat will going to attract the potential buyers easily. Posh location will also add to the amount on which flats can be sold. So developing a residential building on a free of cost land and selling the flats of the building is a sure sort assurance of profit.

2.5 Calculating Capital Requirement

For trusts requirement: Rs 5.2 crore profit of 10 % i.e. 4.7 crore. For Development of Housing society: Rs 6.5 crore for 2 phases of housing society profit of 10 % i.e. crore (For first phase 3 crore). Total capital requirement: 7.7 crore. (This is Net Present Value)

The capital requirement would be as follows: 1st year 2 Crore approx. 2nd year 5.32 crore approx. (which will be 5.63 crore based on current inflation)

Therefore at the end of 2 years total of 7.63 crore would have been spent. On this the developer wants to make a profit of 18% on his investment.

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2.6 Specifications
As it is a Housing project the specifications in general for the residential dwellings will be as follows. 1) 2) 3) Structure: R.C.C. Framed structure. As per design of Architect and Engineer. Reinforcement: The reinforcement used will be Anti Corrosive TMT Steel. Masonry: All Masonry will be of Concrete Block and internal partition with first class wire cut bricks. 4) Plastering: Internal/External plaster of walls will be executed with necessary admixtures added to the Cement Mortar in order to minimize shrinkage cracks. Internal walls will be neatly finished and External walls will be Sponge finished. 5) Flooring: Granite on Floor in Living Room and remaining area Mosaic cement tiles and Kota stone in Bathrooms and Kitchen area. 6) Framework: Door frames of Sal wood, Main door of Teak Wood with French polish, Internal Doors Marine Flush Door with Oil paint. 7) 8) Windows : Aluminium sliding Windows 3 track anodized Painting and Polishing: Internal Walls will be painted with Oil Bound Distemper, External Walls with Apex Weather Shield paint. 9) Kitchen: Granite platform with Stainless steel sink with drain board and Ceramic tiles on dado up to height of 0.6m above platform. 10) Plumbing: All plumbing in the Bathrooms / Toilets will be concealed and CPVC pipes will be used. All External piping and SWR pipes used will be of Finolex. 11) Sanitary ware: All Sanitary ware will be in the standard range of Hind ware or equivalent and fittings of Jaguar standard range. 12) Water Storage: Underground sump and overhead tank. 13) Electricals: All wires used will be Finolex or equivalent with fixtures of Crabtree or equivalent.

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3 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 the 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 knowledge of technical, economic and regulatory environment.

3.1 Cost of construction

Now a day the rates of all Basic Materials used in Construction is increasing at a high pace, and hence the cost of Construction has been always on the rise. Since all materials used for construction are in high demand and supply is correspondingly low there is always a point where the material is priced higher by the retailer in order to increase his margin. Therefore in the planning stage itself the quantities have to be worked out and materials have to be ordered early in order to avoid the loss by spending higher amounts at various stages of Construction. Hence the Finance Manager needs to foresee such circumstances before the commencement of the project, in order to achieve the projected Profit Margin set up at the initial stage or at least try to be as close as possible. 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:

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1) Planning and feasibility studies. 2) Architectural and engineering design. 3) Construction, including materials, equipment and labor. 4) Field supervision of construction. 5) Construction financing. 6) Insurance and taxes during construction. 7) Equipment and furnishings not included in construction. 8) Inspection and testing. The operation and maintenance cost in subsequent years over the project life cycle includes the following expenses: 1) Operating staff. 2) Labor and material for maintenance and repairs. 3) Periodic renovations. 4) Insurance and taxes. 5) Financing costs. 6) Utilities. Calculating the cost of construction is also helpful in the financial management and planning as it gives the idea that how much finance will probably will require for developing the project. Breakup of Cost of Construction for the trusts Development and Housing Project is listed in the table given below. For Trusts Development: (44,000 sq. ft construction Work) Sr. NO. 1. 2. 3. ITEMS R.C.C. Reinforcement Masonry Rs. / Sq Ft 220 160 320 TOTAL COST (Rs.) 9700000 7000000 14080000

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4. 5. 6. 7. 8. 9. 10. 11.

Plastering Flooring Framework Painting and Polishing Plumbing Sanitary ware Water Storage Electricals Grand Total

70 70 70 15 20 15 20 20

3080000 3080000 3080000 660000 880000 660000 880000 880000 4,39,80,000

For Housing Socity: Phase 1 (27,000 sq. ft Construction Work) Sr. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. ITEMS R.C.C. Reinforcement Masonry Plastering Flooring Framework Painting and Polishing Plumbing Sanitary ware Water Storage Electricals Grand Total Rs. / Sq Ft 220 160 320 70 70 70 15 20 15 20 20 TOTAL COST (Rs.) 5940000 4320000 8640000 1890000 1890000 1890000 405000 540000 405000 540000 540000 2,70,00,000

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3.2 Manpower requirements/costs

In general without this, project cannot be run. One should know the requirements of manpower to run the show. Based on the site requirements, the project will have the following categories: Management staffs. Professional staffs. Supervising staffs. Workers (skilled, semiskilled and un-skilled). Selection of manpower totally depends upon the nature of work, type of work, scope of work. Based on the scope of work, the organization chart should be prepared. Work distribution should be done according to the organization chart. For the workers duration of working hour, cost per hour or day, output can do assessed based on the nature of work. Manpower Requirement for R.C.C & Structural Works For Trusts Development: (44,000 sq. ft construction Work) Sr. No. 1. 2. 3. 4. 5. MANPOWER Mason Carpenters Painters Blacksmiths Mazdoors Grand Total No. 12-16 8-10 12-16 12-16 60-70 TIME PERIOD 12 months 04 months 04 months 12 months 12 months 78,44,000 COST 1344000 360000 560000 1680000 3900000

Manpower Requirement for Finishing, Plumbing & Electrical Work

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Sr. No. 1. 2. 3. 4.

MANPOWER Mason Electricians Plumbers Mazdoors Grand Total

No. 8-10 6-10 8-10 25-30

TIME PERIOD 4 months 3 months 3 months 4 months

COST 288000 270000 270000 540000

13,68,000

For Housing Socity: (27,000 sq. ft Construction Work) Sr. No. 1. 2. 3. 4. 5. MANPOWER Mason Carpenters Painters Blacksmiths Mazdoors Grand Total No. 12-15 6-8 9-13 12-15 40-50 TIME PERIOD 08 months 03 months 03 months 08 months 08 months 42,76,000 COST 896000 220000 360000 900000 1900000

Manpower Requirement for Finishing, Plumbing & Electrical Work Sr. No. 1. 2. 3. 4. MANPOWER Mason Electricians Plumbers Mazdoors Grand Total No. 4-6 3-5 3-5 25-30 TIME PERIOD 3 months 2 months 3 months 3 months COST 1,20,000 1,20,000 1,44,000 3,75,000

7,60,000

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3.3 Design adequacy and alternatives

The project Design is the main criteria on which the whole budget as well as the end profit depends. So the design of the structure always needs to be handled at the highest priority and enough time given to the designer to make use of all the objectives to maximize the profit by using as much of the Permissible F.A.R. possible. Also care needs to be taken during designing that the whole project should be very impressive and should be able to suit the conditions comfortably in order to find buyers very easily in terms of looks as well as funds both and apartments so the design should suit the requirements of the buyer. The Design should be in such a manner that the buyers can also relate and be able to comfortably alter a few things in such a way so as to not disturb the structure or its elevations etc.

3.4 Work schedule on quarterly basis

Working out the Task & Time schedule of a project in preliminary stages is must for the accurate financial planning. The main motive of a work schedule is to break down the construction activities to be carried out in a project in the form of various tasks, stating the specific time to be consumed for the planned tasks. For this project a total time period of 2 years has been considered and all the construction activities will be carried out during this tenure. Project start date is fixed on 01/10/13 and commissioning of the project is scheduled on 01/10/15. So Project activities are divided into four quarterly phases namely Phase-I, Phase-II, Phase-III & Phase-IV, each phase covers a period of 8 to 4 months depending on the activities carried in the respective phase. Breakup of Work Schedule is listed in the table given below.

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PHASE-I S. NO. 1. 2. 3. 4. 5. ACTIVITIES General Conditions R.C.C. Foundation R.C.C. Frameing Masonry Work Plastering START TIME 01/10/13 21/10/13 01/01/14 15/01/14 01/02/14 FINISH TIME 20/10/13 31/12/13 20/04/14 30/04/14 30/05/14 8 months

Total Time Elapsed

PHASE-II Sr. NO. 1. 2. 3. ACTIVITIES Flooring Framework Painting and Polishing START TIME 01/06/14 01/07/14 15/07/14 FINISH TIME 31/09/14 31/10/14 31/11/14 7 months

Total Time Elapsed

PHASE-III Sr. NO. 1. 2. ACTIVITIES Plumbing Sanitary ware Total Time Elapsed START TIME 01/12/14 01/01/15 FINISH TIME 30/02/15 30/03/15 4 months

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PHASE-IV Sr. NO. 1. 2. ACTIVITIES Water Storage Electricals Total Time Elapsed START TIME 01/04/15 15/04/15 FINISH TIME 30/06/15 15/06/15 3 months

4 FINANCIAL AND ECONOMICS EVALUATION

Financial management is mainly concerned with the management of funds i.e. management of monetary issues. There are two basic aspects of financial management via the procurement of funds and an effective use of these funds.

4.1 Total Investments cost

The primary step in the financial planning of a project is to estimate total investment cost involved in the development of project. The investment cost of the project is the sum of following costs stated as below. 1) Land Cost - It involves the cost required to acquire the land on which construction of housing colony is to be carried out. 2) Raw Material Cost - It comprises the cost of raw material required for construction like cement, TMT bars for reinforcement, aluminium & wooden frames, tiles, electrics, sanitary wares etc. 3) Construction Cost - All money spend for carrying construction activities add on to form this cost. 4) Manpower Cost - Cost of recruiting skilled and non-skilled employees contribute to this type of cost.

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Sr. NO. 1. 2. 3.

COST BREAK-UP

REMARKS

INVOLVED COST (Rs.)

Land Cost Construction Cost Man Power Cost Grand Total

Not Applicable As Land Was Free

0 2,70,00,000 50,36,000 3,20,36,000

Hence the total investment for this Housing Colony Construction Project is two crore and forty lakhs i.e. Rs 3,20,36,000/-

4.2 Project Financing for Housing Society

Proposed Capital Structure / Loan requirements. One of the major problems facing any business enterprise is that of obtaining finance and ascertaining the cost of project. Finance can be obtained from different sources and since finance arranged from different sources have different characteristics in terms of risk, cost and control. Sources of finance depend upon the business structure. There are several sources of finance available for a construction project like: Long Term Finance. Middle Term Finance. Short Term Finance. As in this Construction Project there are some restrictions in the investment like:Developer has already invested his own Rs 10 lakhs in construction of the Charitable trust and also an amount of Rs50 lakhs which he has taken as a bank loan. So the complete finance for the housing project i.e. Rs 3.2 crore is to be managed / procure. As

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the project duration is of 2 years and developer seeks early and quick profit Middle term and Short Term Finance seems to be the feasible options. Types of finance considered for the Construction project are stated as under:1. Middle Term Finance a. Loans from Banks - Primary role of banks is to cater to the financial requirement of a project. Usually bank charges 15 % of interest rate on financing such type of construction project. 2. Short Term Finance a. Advance From Customers As this Construction Project comprises a housing colony in which flats are to be constructed for selling to the costumer, money can be generated from the potential costumers in the form of advance down payment for booking the flats. Interest Calculations As only Rs 50 lakhs is being taken loan from banks at 15 % of interest for 5 years so only this amount is subjected to the interest Total amount Years - Rs. 5.000,000 -2 = 15,00,000 So total amount paid to the bank as interest is Rs 15 lakhs.

Rate of interest - 15 % Total interest amount to be paid = (5,000,000 x 15 x 2 ) / 100

4.3 Cash Flow Management for Housing Society

Cash Flow management basically deals with inflow and outflow of cash during a particular time.

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 Quarterly Break Up of Cash Outflow.

Sr. No. 1. 2. 3. 4. 5. 6. 7.

PHASES Phase I Phase II Phase III Phase IV Cumulative Construction cost for all 4 phases Cumulative Man Power cost for all 4 phases Interest amount payable to bank

Amount 1,12,00,000 87,00,000 35,00,000 36,00,000 2,70,00,000 50,36,000 15,00,000

Sink Foundations Work Flooring & Frame work Pipe Fitting Work Electrical work & Finishing

Grand Total Quarterly Break Up of Cash Inflow

3,35,36,000

Sr. No. 1.

PHASES Phase I

Amount 1,12,00,000

Source 25 lakhs(Bank) + 5 lakhs(own fund) + 53 % Customer Advance 5 lakhs (own fund) + 41.5 lakhs (lease amount) + 25% Customer Advance 5 lakhs(Bank) +30 lakhs (lease amount) 22 % Customer Advance 20 lakhs( Bank) 17 % of total selling amount Rs. 3500 per sq.ft

2.

Phase II

87,00,000

3. 4. 5. 6. 7.

Phase III Phase IV Bank Loan Costumer advance Flat selling amount

35,00,000 36,00,000 20,00,000 1,62,00,000 9,50,00,000

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5 CONCLUSION
As the total investment for this Construction Project is Rs 7.7 crore and by selling amount of a flat amount of Rs 9.5 crore has been received, so this project is fully financially feasible and have the potential to reap high profit for the developer. Profit calculation A) Total cost of project = Rs 7,70,00,000 Remaining land cost = 10,000 x 2500 = 2,50,00,000 B) Total selling amount = Flat + Land = 12,00,00,000 Net Profit = B A = 12,00,00,000 7,70,00,000 = 4,30,00,000 Profit Percentage = (C x 100) / A = (4,30,00,000 x 100) / 7,70,00,000 = 55 % of Profit Earned

6 RECOMMENDATION
Particularly during periods of economic recession construction firms are exceedingly conscious of the problem of survival and seek to predict, monitor and control costs and revenues with diligence far surpassing that employed during more buy-ant time. Hence considering real estate value is going up it is recommended to take up the project financial term in the project.

7 BIBILIOGRAPHY/READINGS
1. Text Books from NICMAR. 2. Financial Management, Second Edition, Oxford Publication by Srivastava Misra.

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