VARIANCES IN FINANCIAL MODEL BETWEEN FEASIBILITY STUDY AND AFTER DESIGN STAGE

IN BAU SEN BUILDING PROJECT

By

Vo Thanh Phong

Abstract

             

Variances in the financial model of a project are unexpected by all involved parties at all times since they are the critical items turning the project into a loss from an expected profit. There have been a lot of studies on this subject, but usually it is done after the project completion to find out the causations and solutions to those problems to be referenced in the coming projects.

In this report variances in the financial model between the model being made in the feasibility study and the model made after the detailed design will be analyzed in order to find the critical variant items. Assumptions in the critical variant items will be then investigated to deeply understand the causations. Recommendations will be proposed to improve the process of financial modeling for the coming projects.

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Executive summary

Rationale of research

This research has been conducted to identify the variances between financial model for feasibility and financial model after design.

Objectives of study

To study, and understand financial model at feasibility stage and after stage to identify critical variant items, how they affect cash flow and income of project.ans propose recommendations for improvement.

Methodology  

The exploratory method is used to review the literature and study Design for data to put into financial model. And critical activities of two financial models will be compared to find out the variances and causes to propose recommendation.

Findings and conclusion

 The above analysis illustrates all the problems of this project and shows clearly the responsibilities of all the involved parties in the project.

Why big variances in the financial model made between the feasibility study and after the detailed design occurs is answered here. It is obvious that the owner’s competency, the consultant’s capability and state policies are the main causes of those variances.

Moreover, mal-practices of financial modeling and project management also play an important part in causing those variances.

Also, lack of collaboration among the stakeholders and unsuitable organizational structure of the corporation makes assumptions inaccurate and unreal.

As a result, the owner is the one who will suffer from the loss since those variances increase the total investment cost dramatically and turn the project into a loss.

However, the owner cannot escape due to their big cost input and commitment to the local authority to proceed the project. Moreover, they cannot insult their trade brand in the local area as well as on the market. What they can do is to adjust the project to make it marketable and keep the loss to a minimum level.

Recommendation

·         The owner should use an appropriate procurement process for consultancy to hire a competent consultant from the beginning of a project to carry out the designing of all

·         They should make agreements with all stakeholders in the project to get them assist in comments on assumptions as well as other technical issues in all project stages to make sure the project is on the right track.

·         Matrix structure in the organization should be used and responsible people should be appointed to manage the project effectively.

·         Data for assumptions should be from researches and surveys to be trustable.

·         Components of the financial model and items in those components should be checked carefully to be sure that they are sufficient for effective analysis.

·         There should be an update and forecast for related regulations intended to be issued to reduce political and commercial risks to a minimum level.