Project Feasibility Analysis

Question 1

What is value management?

Answer 1

• Involved in looking at the whole management approach to the project to see if there are any ways in which the project can be completed more efficiently or effectively.
• It is seen as pro active

Question 2

What is value engineering?

Answer 2

• It is a systematic method aimed at improving value of a project by improving a certain aspect of the design
• It is seen as reactive

Question 3

What is life cycle costing

Answer 3

• According to RICS, Life Cycle Costing (LCC) is a process that evaluates and models all costs associated with an asset throughout its entire lifespan, from initial capital expenditure through operational and maintenance costs to end-of-life costs, including disposal.

Question 4

What is whole life cycle costing?

Answer 4

• According to RICS, Whole Life Costing (WLC) is a process that covers everything that LCC does but also takes into consideration non construction costs, income and externalities.

Question 5

What is the difference between life cycle and whole life cycle costing?

Answer 5

• Life cycle costing looks at a building or asset and the costs from construction/ manufacturing through it’s operation life and maintenance.
• Whole life cycle costing looks takes all the previously mentioned into consideration plus end of life/ disposal costs, income and externalities.
• This is defined in the RICS guidance note on LLC and WLC.

Question 6

How would you produce a whole life cost assessment?

Answer 6

• My experience producing a WLC has been using a software called One Click LCA that is approved by RICS, however, I am aware of the RICS guidance note on WLC and it includes the following:
• defining the project’s boundary and life cycle stages
• calculating embodied and operational carbon
• assessing replacement and end-of-life impacts
• RICS NRM classification system for elemental breakdown

Question 7

What are capital costs?

Answer 7

• Capital costs, or Capital Expenditures (CapEx), are funds a business uses to acquire, upgrade, or maintain long-term assets such as property, plant, and equipment, rather than for day-to-day operating expenses. With regards to LCC these are all relevant costs incurred before the base date.

Question 8

How would you assess operational and maintenance costs?

Answer 8

• I’d use a Planned Preventative Maintenance (PPM) schedule to systematically identify and budget for future building needs, contrasting it with unplanned, reactive maintenance.
• Key steps include a detailed inspection, creating a risk-based cost breakdown, using cost data benchmarking tools like BCIS to compare against industry standards, and ensuring the PPM plan is a dynamic document updated with new information and informed by professional advice.

Question 9

What is the RICS guidance on appraisals?

Answer 9

• RICS guidance on property appraisals is primarily contained within RICS Valuation – Global Standards, commonly known as the “Red Book”.

Question 10

What do the RICS guidance notes say on appraisals?

Answer 10

• The RICS Red Book includes global and UK-specific mandatory standards, best practice guidance, and commentary for <property valuations undertaken by RICS members. It ensures valuers follow the International Valuation Standards (IVS), and covers the minimum content of a valuation report.

Question 11

Other than LCC and WLC, what else is involved in carrying out an appraisal?

Answer 11

• In my experience I have only carried out LCC and WLC but I am aware that in RICS red book it sets out an appraisal in the following stages:
• Gross Development Value (GDV) ie the estimated market value of the development
• Development Costs which include land costs, construction costs, fees etc
• Developers profit
• Residual land value
• Cash flow
• Sensitivity analysis
• Assumptions and inputs

Question 12

What non-financial factors can affect feasibility studies?

Answer 12

• Location and Environmental impact

Question 13

What is an environmental impact assessment?

Answer 13

• It is a statutory process that evaluates the potential significant environmental effects of a construction project before it is approved, with the goal of avoiding, reducing, or offsetting negative impacts.

Question 14

How is an environmental impact assessment carried out?

Answer 14

• Identify any impacts
• Develop appropriate mitigation methods if required
• Involve the public
• Publish environmental statement

Question 15

What information must be in place to carry out a feasibility estimate?

Answer 15

• Existing Site information
• Site appraisals
• Planning permissions and legal approvals
• Budget and cost analysis
• Accommodation considerations
• Servicing strategies
• Operational and maintenance issues
• Programme considerations

Question 16

What is a discounted cashflow and when would you use it?

Answer 16

• A discounted cash flow (DCF) is a valuation model that estimates a property’s current value by projecting its future net income or cash flow and then discounting that flow to its present value.
• RICS guidance, DCF is best used to help with investment buy/sell decisions or to value investments where market transactions are scarce or where a rational framework is needed to derive Market Value.

Question 17

Can you explain the key components of a development appraisal?

Answer 17

• Gross Development Value (GDV) ie the estimated market value of the development
• Development Costs which include land costs, construction costs, fees etc
• Developers profit
• Residual land value
• Cash flow
• Sensitivity analysis
• Assumptions and inputs

Question 18

You mentioned conducting life cycle cost exercises for warehouse developments — what elements did you include in your cost model?

Answer 18

Elements required in an LCC or WLCC model are:
- Construction costs
- Operational costs such as energy consumption and water consumption
- Maintenance cost such as for the M&E systems
- Occupancy costs
- End of life costs
(WLC)
- Non construction costs (land and fees)
- Income
- Externalities

Question 19

Can you tell me about one of the feasibility projects you were involved in at ISG and some of the value and risk management exercises you undertook?

Answer 19

Similarly to my case study project I was given a task of performing a LCC on installing new M&E equipment on a potential asset for a client. This process involved conducting a VM exercise on the potential interventions and also the risks associated with those works and the client owning the asset of the Life Cycle of the building.