The Mount Hope Project

Posted: August 27th, 2021

Assignment 1 – The Mount Hope Project

 Name

Institutional Affiliation

Assignment 1 – The Mount Hope Project

MEMO

TO:Claire

FROM:Big Builders

SUBJECT:Mount Hope Shopping Facility Project

DATE: 1^st January 2013

Mount Hope Shopping Facility Project

            This memo’s primary objective is to state the project’s costs for the construction of a Mount Hope shopping facility project. The project will commence in the year 2018. The projects’ cost is also analyzed and reviewed compared to a similar project undertaken by the construction company in developing a shopping facility in 2003 in Splash Springs. Additionally, to determine the price adjustments resulting from duration and location differences in both projects, the costs are adjusted using the construction cost indices in 2003 and 2013. Furthermore, the inflation factor of 3.1% is compounded annually for five years between 2013 and 2018. Likewise, this reflects the market rate when the projected will commence. Hence, this provides an estimate of the costs that the project is likely to incur.

Table of the Itemized Costs

            Table 2 below shows the Mount Hope shopping facility project’s adjusted costs in 2018 when it will commence. The costs are adjusted using the construction cost indices, as indicated in table one in 2003 and 2013, to determine the price adjustments due to time and location differences in the projects. In 2003, the Splash springs cost projects were adjusted using a factor of 0.95 and 0.83 to reflect the equivalent current location and construction costs of the Mount Hope shopping facility project. In the year 2013, the Splash springs cost projects are adjusted using a factor of 1.84 and 1.69 to reflect the Mount Hope shopping facility project’s equivalent cost adjustments in the ten years. Therefore, this indicates that as time goes by, project adjustment costs may go high.

Table 1- The construction cost indices of the two projects

More so, table two shows the construction costs of the Mount Hope shopping facility project for the year 2018 when the project will commence. The costs are adjusted using an inflation factor of 3.1% compounded annually for five years 2013 to 2018 to reflect the construction costs’ equivalent market.

Table 2- Table of the itemized costs for the year Mount Hope for the year 2018

Purpose

            The project client, Claire, managed to secure the land’s parcel for $ 2,945,000 in Mount Hope, where the project will be situated. The project’s construction is expected to commence in the year 2018. Furthermore, the shopping facility will have parking spaces amounting to six hundred in number. Notably, the parking lot cost is proportional to the number of parking spaces. The parking lot’s construction costs are calculated by dividing the total cost in 2013 for the Splash Springs project. With the construction indices, the unit costs adjusted to Mount Hope can be obtained.

Similarly, the multiplication of unit cost and the total number of parking slots is done to get the parking lot’s total construction costs. However, the contractor did not manage to find an electrical subcontractor bidding a low price.  This is because of the extreme shortage of companies specializing in installing electrical reticulations for the last half-year. Therefore, necessary adjustments are made, as explained under the assumptions in the calculation of electrical reticulation. More so, the landscaping costs are approximately 15% of the parking lot’s construction cost as the client is concerned about the appearance of the shopping facility in the community. Likewise, the items under “various fees” are calculated as 20% of the construction cost. Besides, an annual inflation rate of 3.1% is used to adjust the construction cost from 2013 to 2018. The inflation rate is compounded for the five years in the calculation of the project’s costs. Finally, all the costs are aggregated to give total construction costs of $15,056,965.48 as of 2018 after comparing the two projects’ costs, adjusting the construction indices, and inflation rates.

Additional Assumptions

The project assumes a linear relationship in the construction costs based on the shopping facility’s floor plan area. The electrical reticulation unit cost in Mount Hope in 2013 is also assumed to exceed the unit cost of Splash Springs in 2003 by 1.45 times. Additionally, electrical reticulation costs are assumed to be directly proportional to the project’s floor space. Finally, an inflation rate of 3.1% per annum is estimated in the project’s cost if the construction was done after 2013.

Summary

The total construction cost of the Mount Hope shopping facility project is estimated to be $15,056,965.48 as of the year 2018. However, this estimate is based on the 2003 construction costs of the Splash Springs project in different locations and times. The cost may be inaccurate due to changes in construction costs, such as direct material, labor, approval from relevant government authorities, and adjustments on the construction indices. The annual inflation rate of 3.1% is an estimation that may not reflect the actual market rates. Therefore, additional information on government approvals, current labor and material costs, and implication on the environment should improve the construction estimates’ accuracy. Hence, information on the contract’s financial performance, the current market rental, and lease prices should be provided to give Claire an indication of the project’s feasibility. The project will be economically viable if the economic benefit exceeds its economic costs after considering the impacts on the externalities and environment. Thus, making it a worthwhile project investment.