CE 8328: CONSTRUCTION MANAGEMENT

ASSIGNMENT 02

GROUP MEMBERS

Hulangamuwa R.R.V.G.B.C.R.B : (EG/2013/2207)

Edirimanna E.R.D.L : (EG/2013/2183)

De Silva D.K.U : (EG/2013/2168)

Contents
2 OBJECTIVE OF THE STUDY ................................................................................................................................... 3

2.1 TECHNICAL FEASIBILITY ............................................................................................................................... 3

2.1.1 Construction of three story building ................................................................................................... 3

2.1.2 Construction of filling station .............................................................................................................. 4

2.2 ECONOMIC FEASIBILITY ............................................................................................................................... 4

2.2.1 Alternative of construction of a three story building to rent out ....................................................... 4

2.3 Alternative of construction of a filling station ............................................................................................. 6

2.3.1 Initial cash outflow .............................................................................................................................. 6

2.3.2 Operational & maintenance cost per year .......................................................................................... 6

2.3.3 Annual cash inflow .............................................................................................................................. 6

2.4 SCHEDULE FEASIBILITY ................................................................................................................................ 8

2.5 OPERATIONAL FEASIBILITY .......................................................................................................................... 8

3 RECOMMENDATIONS .......................................................................................................................................... 9
1 OBJECTIVE OF THE STUDY

Evaluation of feasibility in construction of three storied building, and to construct filling station are the
main alternatives considered in this report. Feasibility is evaluated in terms of technical, economic,
schedule and operational in order to select the best option. Option one is the investing in a three storey
building which can be rent out for apartments which is proposed to be built in Galle. Three storey
building is consisted of seven numbers of apartments at each story. Second option is the investing money
in construct of a filling station which is proposed to be built in Galle. The filling station is consisted with
three underground storage tanks. Other than the storage tanks, there will be constructed dispensing
pumps, office rooms, wash bathrooms, rest rooms, etc.

1.1 TECHNICAL FEASIBILITY

1.1.1 Construction of three story building

Earth work and foundation

This proposed three story building is going to be built in Galle. Proposed location is near to the coastal
area. Even though, site is near to the coastal area, ground is consists of laterite soil. Therefore, significant
foundation is not required for the three story building. The foundation is designed as pad footings. For the
foundation construction, a C1 contractor can be used, because they are armed with required equipment,
machinery and human resources. Then the task is easy to achieve within proposed period.

Structural works
For structural works including concrete works will be carried out with a Grade C1 company. Because of,
structural part is the important part of the building.

Finishing work
Attraction of the customers is depending on the finishing of a building. Also the landscaping is more
important to rent out the building for successful income. Therefore the landscape preparation and other
external preparation can be easily done with an expert sub-contractor with mature talents.

Building services
It is important to consider that natural ventilation system during maintenance period for reducing the
usage of fans. Fire detectors, sprinkling systems will be proposed at the whole three stories. And also,
LED lighting performances improvements and fire detectors, sprinkling systems will be proposed at the
whole three story. Therefore it needs expert knowledge about installation of these services which are
currently available in best grade building services contractor. It is proposed to outsource those facilities to
an external party and is considered as practical in the case of implementing and maintaining.
1.1.2 Construction of filling station

A distinguished technology is required to construct filling station other than the technology required for a
building. Required technology is currently available in the Sri Lanka and an experienced construction
company in the oil station construction can be selected for the construction process.
 6 m3 three storage tanks are going to be constructed. The size of land is about 50m x 50m for
storage tanks, with one story office building, two petrol receiving point and two diesel receiving
point. Special geotechnical engineering knowledge is required for tank construction. And also
when storing oil in an underground tank which needs sufficient strength and structural integrity to
ensure that it is not to burst or leak in ordinary use. 

 To distribute oil from storage tanks to pumps there should be pipe network. After construct the
tanks and required pipe network, it should be hydrostatically tested. 

 The other important factors that should be considered in construction are safety, security, access
and maintenance. Ensure the surface of the area where deliveries are made and oil is dispensed is
protected by a surface impermeable to the oil stored and isolated from surface water drainage
 system. 
 Office building with rest rooms and wash rooms should be constructed as minor tasks. 

1.2 ECONOMIC FEASIBILITY

The purpose of an economic feasibility study is to demonstrate the net benefit of a proposed project for
accepting or disbursing funds and benefits, taking into consideration the benefits and costs to the agency,
other state agencies, and the general public as a whole.

In order to identify the economic feasibility of a particular project, a cost benefit analysis is conducted
where it summarizes the revenues and costs involved with the proposed project in order to determine
whether it is logically possible to complete or not. The amounts in the cost benefit analysis should reflect
the amounts and assumptions in the business case.

Here in this case the cost – benefit analysis is done to see whether the particular two projects can be done
within given cost constraints and to determine the most preferred alternative which offers the best return
on investment. In this case for the two particular projects, the cost – benefit analysis is going to be
accomplished by using payback analysis.

1.2.1 Alternative of construction of a three story building to rent out

Considering the first alternative of construction of three story housing apartment building for rent out, the
following cash inflows and cash outflows were listed.
The initial cost of investment = Rs. 30,000,000.00

 It is assumed that each storey of building is consisted with 5 housing apartments and monthly rental
for a house is RS.35, 000.00 
Annual income = Rs.35, 000.00 x 3 x 5x 12

= Rs.6, 300,000.00

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  The monthly cost of maintenance per house is estimated as Rs. 25,000.00 during the first 3 years
after construction and Rs. 30,000.00 for the next 5 years. 
Annual cost of maintenance for first 3 years = Rs. 20,000.00 x 3 x 5x12

= Rs.3, 600,000.00
Annual cost of maintenance for last 5 years = Rs. 25,000.00 x 3 x 5 x12

= Rs.4, 500,000.00
Considering a discount rate of 12%,

Table 2.1: Payback period calculation for first alternative

Investment
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Cash Flow(Rs.)
Development -8,000,000 - - - - - - - -
Cost
Rental Income - 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000
Operation &
Maintenance - -3,600,000 -3,600,000 -3,600,000 -4,500,000 -4,500,000 -4,500,000 -4,500,000 -4,500,000
Cost
Net Cash Flow -8,000,000 2,700,000 2,700,000 2,700,000 1,800,000 1,800,000 1,800,000 1,800,000 1,800,000

Cumulative -8,000,000 -5,300,000 -2,600,000 100,000 1,900,000 3,700,000 5,500,000 7,300,000 9,100,000
Cash Flow
Discount Rate 1 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039

Cumulative -8000000 -4732370 -2072720 71180 1207450 2099380 2786300 3301790 3675490
Costs

The Graph of Cumulative Cashflow Vs.

Years
Cumulative cashflow

10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
-2,000,000 0 1 2 3 4 5 6 7 8
-4,000,000
-6,000,000
-8,000,000
-10,000,000
Years

Figure 2.1: The graph of cumulative cash flow vs. years for first alternative
2072720
Payback Period =2+ (2072720+71180)

= 2.967 years

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1.3 Alternative of construction of a filling station

Considering the second alternative of construction of filling station, the following cash inflows and cash
outflows were listed.

1.3.1 Initial cash outflow

During the construction of filling station the following initial costs were considered.

Table 2.2: Initial cost values for second alternative

Description Value (Rs.)

Land 5,500,000.00
Construction of building 7,000,000.00
Installation of fuel tanks and laying underground pipes 1,500,000.00
Providing initial infrastructure facilitates 500,000.00
Office equipment 75,000.00
Total Initial Cost 14,575,000.00

1.3.2 Operational & maintenance cost per year

 It is assumed that there is 8 staff members employed under the filling station and each one gets Rs.
25,000 per month for their service. 

Table 2.3: Operational & maintenance cost per year for second alternative

Description Value (Rs.)

Salary 2,400,000.00
Oil Purchasing 20,000,000.00
Maintenance Work 1,000,000.00
Total Operation and Maintenance Cost 23,400,000.00

1.3.3 Annual cash inflow

It is assumed that annual income from operation activities of the filling station is as below.
Annual income = Rs. 30,000,000.00

Considering a discount rate of 12%,

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 Table 2.4: Payback period calculation for second alternative

Investment cash
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
flow (Rs.)
Development -
- - - - - - - -
cost 14,575,000
filling station
Income - 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000
Operation &
- - - - -
Maintenance - -23,400,000 23,400,000 23,400,000 23,400,000 23,400,000 23,400,000 -23,400,000 -23,400,000
Cost
-
Net cash flow 14,575,000 6,600,000 6,600,000 6,600,000 6,600,000 6,600,000 6,600,000 6,600,000 6,600,000

Cumulative cash -
-7,975,000 -1,375,000 5,225,000 11,825,000 18,425,000 25,025,000 31,625,000 38,225,000
flow 14,575,000

Discount rate 1 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039

- 7514787.5 14303987.5 15439077.5

Cumulative costs -14575000 7120877.50 -1096150 3719155 0 10454345 12677665 0 0

The Graph of Cumulative Cashflow vs.

Years
Cashflo

50,000,000.00
40,000,000.00
Cumulative w

30,000,000.00
20,000,000.00
10,000,000.00
0.00
-10,000,000.00 0 1 2 3 4 5 6 7 8
-20,000,000.00
Years

Figure 2.2: The graph of cumulative cash flow vs. years for second alternative

1096150

Payback Period =2+ (1096150+3719155)

= 2.228 years

Payback period of alternative 1 = 2.967 years Payback period of alternative

2 =2.228 years since Payback period of construction of filling station <

Payback period of construction of three storey building and rent out.

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Therefore, it is more economical to implement the construction of filling station, rather than the
implementation of the three storey building.

1.4 SCHEDULE FEASIBILITY

Option 1: Construction of a three storey building

It is better to evaluate whether the particular deadline can be met under the schedule feasibility. But the
given construction period may not sufficient to fulfill the task with maximum quality. Extending of the
construction time period tends to have lot of scheduling effects not only delay of the deadline but also
reducing of benefit taking period. The skills required to apply the technology may vary. Not only that,
lacking of resources, poor construction management, lack of attention from the owner, shortages in
materials may affect for lacking of schedule feasibility. All these factors can affect the proposed deadline
of the project.

Option 2: Construction of filling station

Bad weather conditions can be arisen during construction period. Hence construction process can be
delayed since it is difficult to do carry out constructions like excavation works under rainy condition.

When constructing this filling station, underground storage tanks have to be constructed. Since it has
complicated construction process it needs advanced technical knowledge as well as more expensive
equipment. There can be delays or difficulties of supplying these technical staff and equipment. It can
also affect the construction deadlines.

If there is not proper management of materials and resources it may be the major reason for lacking of
schedule feasibility. Also given construction period might not enough to maintain required high quality of
construction.

1.5 OPERATIONAL FEASIBILITY

Option 1: Construction of a three storey building

It should be identified whether the proposed alternative can meet the requirements of the end users under
operational feasibility. It is assumed that end user may feel comfortable in the building as many functions
in the green concept are used in this building such as solar panel, natural lighting and ventilation. People
may be satisfied to live in those apartments which require less maintenance frequency and cost. And also
in owner’s point of view it is easy to market the building with having above facilities.

Option 2: Construction of filling station

Maintaining required staff can be a problem for entire life time. The number of staff sometimes can be
dropped due to unexpected reasons. The accidents like fire problems can be occurred. Also the difficulties
for buying required materials such as oil and fluctuations of prices can be affected on operation process.

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2 RECOMMENDATIONS

In this feasibility study the most important part is economic feasibility study. According to the
calculation,

Payback period of filling station = 2.2 years

Payback period of 3 story building = 3 years

Difference = 0.8 years

Difference is nearly one year. It is large value comparing with the investment. According to the payback
period an filling station provide more benefit for the client. When the schedule feasibility is considered,
both projects have same difficulties as rain, lack of labours, lack of management etc. Also similar aspects
are there for operational feasibility. But oil provider can provide proper management and labours in
operational period also since this will be administrated under a separate business purpose.

According to the above feasibility studies best investment opportunity is filling station.