PROJECT EVLUATION

There are two basic questions for any project:

"Will its benefits exceed its costs?
"Is this the best possible project?

Project evaluation can be viewed in terms of both economics and

sustainability. The major economic criteria are that the costs exceed the
benefits, noting that some costs and benefits will be difficult to quantify, let
alone to monetarize. Sustainability is a very useful concept for considering
projects and programs:

Financial sustainability: will there be enough cash to pay for

construction , operation and maintenance?
Social sustainability: will there be enough public support for the
project to obtain initial approvals for the location, design, and
construction process and to support continued operation,
maintenance, rehabilitation, and expansion of the project?
Social sustainability must consider the distribution of costs and
benefits, now and in the future, as well as the alternatives uses
of the resources required by a project.
Environmental sustainability: will the impacts on the
environment be acceptable in terms of their short- and long-run
implications?

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ROLE OF AN ENGINEER

BUILD PROJECTS
DESIGN PROJECTS
EVALUATE PROJECTS
PROPOSE PROJECTS
DEFINE PROBLEMS

- INCREASING COMPLEXITY
- MORE POSSIBILITIES
- DECREASING CERTAINTY
- GREATER NEED FOR
IMAGINATION &
LEADERSHIP

A SUCCESSFUL PROJECT

A successful project is one which has:

Engineering feasibility
Financial feasibility
Social feasibility

The benefits are indeed greater than the costs and the methods used
in the development of the project are an effective way to achieve those
benefits. The project was built in an effective and efficient manner.

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ELEMENTS OF PROJECT EVALUATION

Following are the elements of project evaluation:
1. Estimate the time, resources, and other costs of building
the project. This is probably the most important factor in
evaluation of project. Time, resources and cost come in
the triple constraints of a project; it means that these
three are the basic factors involved in the project and
decide whether a project is successful or not.
2. Determine how the project can be financed. Financing a
project is critical issue, whether there are sufficient fund
available to complete the project or will it hang in uncertainty due to lack of funds.
A simple cost model for the construction of a skyscraper
could be based upon the following:
a. The land area (acres) and the price of the land ($0.1 to
$10 million/acre).
b. The costs of clearing the land ($10 to $50,000/acre)
c. The foundation ($2-4 million/acre).
d. The weight-bearing structure.
e. The exterior of the building, including windows,
exterior materials, waterproofing, and insulation.
f. The elevators.
g. Heating, air-conditioning, ventilation.
h. Creation of a dramatic entry area and mini-parks.
i. Interior walls.
j. Interior finishing.
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3. Support a comparison of costs and benefits

Financial
Non-financial

4. Provide a process for dealing with controversies. Within a

project several conflicts arise due to difference in opinion,
if this issue is not dealt with care it can be major set back
for the project.

5. The sooner we identify the problems in a project ; the

better. Problems can arise due to a number of reasons.
These problems if not dealt properly and according to the
objective of the project can cause a serious threat to the
project.

6. Design options: For a CEE project, we are generally

considering whether or not to begin a particular type of
project. We probably have several basic design and
location options plus numerous minor variations on these
options, e.g. variations in size or quality of components.
From the underlying logic of the project, we can develop a
function that relates the project costs to the design and
location possibilities. Separate functions can be used to
estimate the initial investment costs as well as the fixed
and variable operating costs. As engineers, it is our job to
try to understand what options are available, including
new designs or construction techniques as well as "tried &
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true" approaches. We also would like to estimate the

demand for the services provided by our project, taking
into account the quality of the service provided, the
capacity of our project and competing facilities, and the
price that we and our competitors charge. For a
skyscraper, the revenues will be based upon the rental
rates, commonly expressed as the annual rent per square
foot. A skyscraper makes financial sense if the projected
rents (net of any continuing expenses) will be sufficient to
justify a mortgage sufficiently large to cover all of the
costs of construction, including interest on a construction
loan.

7. Environmental Impact Assessment: in the modern era

EIA is very important. A number of project now- a- days
have adverse effects on the community so proper EIA
should be done to minimize the harmful effects of
different projects on the environment.
8. Uncertainty and Risks: We cannot predict the future, and
we may not even have good estimates of probabilities of
possible outcomes. Projects create new demands - and we
can't always refer to past experience.
Risks refer to the possibility that something will go wrong:
Construction risks(unable to construct on
time and within budget because of technical or
organizational problems).
Competitive risks (loss of market to better,
earlier , or larger projects similar to or
substituting for your project).
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 Financial risks (changes in interest rates

,exchange rates, credit limits that affect our ability
to raise sufficient funds for project; changes in
cash flows that affect ability to mortgage
payment).
Political risks (changes in government or in
regulations that limit our ability to complete,
open, or receive payment for our project).
METHODS OF RISK ANALYSIS

Methods driven by the analysis:

1.

Sensitivity Analysis:

2. Probabilistic Analysis

Methods driven by the structure

1. Scenarios

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SENSITIVITY ANALYSIS:

In engineering economy studies, sensitivity

analysis is a general non probabilistic methodology, readily available, to provide
information about the potential impact of uncertainty in selected factor
estimates. Its routine use is fundamental to developing economic information
useful in the decision process

PROBABALISTIC

ANALYSIS:
Treat the key factors as random

variables (continuous or discrete). Develop expressions for key performance

measures as functions of the random variables. Calculate the probability that the
results of the project will be unacceptable. There are certain difficulties in
probabilistic analysis such as; we generally dont know the probabilities; the math
gets complicated very quickly; the design process is more related to possibilities
than to probabilities

Scenarios:
A "scenario" is a set of internally consistent assumptions

that together provide a vision of a "possible" future within which our project will
be implemented.
Elements of a Scenario - the factors that we believe are important to our
project that we will vary across scenarios. For example: General economic
conditions, Response of competitors to our project, Construction prices.

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PUBLIC vs. PRIVATE PROJECTS

PURPOSE
FUNDING
MULTI-PURPOSE
PROJECT LIFE
BENEFITS

CONFLICT
POLITICS

PRIVATE
FINANCIAL
DEBT & EQUITY
BONDS
SOME
SHORTER
FINANCIAL

MODERATE
LITTLEMODERATE

PUBLIC
SOCIAL
TAXES, BONDS ETC
MANY
LONGER
FINANCIAL,
SOCIAL,
ECONOMIC,
AESTHETIC
COMMON & HIGH
VERY DIFFICULT

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CASH FLOW OF A TYPICAL CEE PROJECT

CIVIL & ENVIRONMENTAL PROJECTS ARE THE KEY TO

CIVILIZATION

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CEE PROJECTS MAKE CITIES POSSIBLE AND MORE

LIVABLE

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