Effectiveness of Feasibility Study Analysis in Apartment Building Project

In the context of declining global economy, Vietnam’s real estate/market and construction potential is one the reasons why foreign investors remain attracted in the country. The construction projects present a unique situation where each project is different with different situation and parties. One  of  the  important  stages  involve  in  a construction  project  is  the  preparation  of  the  feasibility  study. Feasibility Study is being conducted during the formulation phase of Project Cycle. It verifies whether the proposed project is well founded, and is likely to meet the needs of its intended target groups/ beneficiaries. The study should design the project in full operational detail, taking account of all policy, and technical, economic, financial, institutional, management, environmental, socio-cultural, and gender-related aspects.

According to the characteristics of construction industry, it has high uncertainty, so many risks will occur during Project Feasibility Study. This problem might influence to the decision making of the project and to its profit. To those assumption, the main construction factors should have been anticipated and calculate it into the feasibility analysis so that avoiding risks will become additional advantage for the investor.

TRUONG NGOC DUNG made a case study which objectives were to:

1. conduct an exploratory study on the factors and process used in financial feasibility study

2. develop a framework for an effective financial feasibility for Apartment Building Project

3. conduct a case study to validate the effectiveness of the framework

This issue is more significant to some of the construction investors facing serious problems with budget control, as an effective budget control is critical for investing in large projects.

Conclusions

The case in this report described a practical implementation in the Feasibility Study stages of Apartment Building Project of Vietnam in general and Ho Chi Minh City in particular which obviously revealed the factors which can seriously affect the success of the project. Actually, Vietnam at present has enormous efforts to overcome policy and reduce the cumbersome procedures in investment, but investors still face a lot of problems (Financial Feasibility Study) which occurs in term of project implementation.

So based on this study, how to implement the effective feasibility study such as the factors and processes used in this stage were understood. There are expenses, sources of fund and revenues; and methods of estimation. Moreover NPV method, B/C ratio method and IRR method were the methods of evaluation used, in addition, to establish a useful framework for Apartment Building Project.

In conclusion, the report may not only offer the effective method to make Feasibility Study in the first stages of project implementation, but also clear description of the major factors that may affect the efficiency budget that most projects in Vietnam are all experiencing. The problem of cost overrun, bankrupt and project costs incurred were up compared to initial estimates.

Recommendations for further study

This research has concentrated on finance in estimated cost, revenue and how to analyze the project financial. However, other influence factors such as local politics, public relationship and strategy of the owners did not mention.

Feasibility Study should be done not only once, but it must always check at different stages such as design stage, construction stage and after operation and transfer stage for the main purpose of improving the later project.

In addition, Sensitivity Analysis to recognize the priority factors after calculating the financial factors for the Apartment Building project should also be considered, so that these factors can be managed.

Abstract

The Real Estate investment is one of the most dynamic, risky and challenging businesses because of their implementing time is very long with huge investment capital and various participating components. Furthermore, this field has poor skills for making Feasibility Study, with many major projects failing to finish on time and cost targets.

Feasibility Study of construction project used to get the alternatives of optimal land use that give the highest profits. Feasibility study analysis also gives information about value of investment and the benefits that investors will get. Define return of investment can be seen from feasibility study. Commonly, Net Present Value (NPV), Internal Rate of Return (IRR) and Benefit/Cost (B/C) are the values that used by investor to consider this project is feasible or not.

The purpose of this study to identify effectiveness methods, main major estimated factors that will be occurs in this stage. To effectively making the financial feasibility study in construction project, it is necessary for oriented path to identify important factors, then provide a suitable tool to measure their effects in each stage of Financial Feasibility Study life cycle and suggest the effective solution methods as minimized/maximized, shared, or accepted.