Feasibility_studies_in_construction_projects_in_iceland.pdf

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Feasibility studies in construction projects in Iceland by Ásta Ósk Stefánsdóttir

Thesis of 30 ECTS credits Master of Science in Engineering Management January 2015 !

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Feasibility studies in construction projects in Iceland Ásta Ósk Stefánsdóttir

Thesis of 30 ECTS credits submitted to the School of Science and Engineering at Reykjavík University in partial fulfillment of the requirements for the degree of Master of Science in Engineering Management

January 2015 Supervisor: Þórður Víkingur Friðgeirsson, Supervisor Assistant Professor, Reykjavík University, Iceland Examiner: Halldór Zoёga, Examiner Engineer and Administrator, Icelandic Transport Authority

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Feasibility!studies!in!construction!projects!in!Iceland!

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Abstract The research of this thesis will build on a recently published study on feasibility studies in public construction projects in Iceland. The previous study was conducted based on the fact that investment decisions for public projects in Iceland have often been controversial and it is not always clear how prioritization and selection of projects is evaluated. The Icelandic law on public project procurement (no. 84/2001) requires that different solutions to achieve the defined need must be examined and compared internally before applying for funding by feasibility analysis. However, the law is believed to be limited and the results of the previous study show that there is a gap between feasibility study procedures in public construction projects in Iceland and best practices. The research of this thesis is based on this conclusion with a new angle focusing on feasibility studies in private construction projects in Iceland. The literature review determines which procedures can be classified as best practices when performing feasibility studies in the inception of projects. Then an interview-based qualitative research is conducted including eight randomly selected private construction projects in Iceland where current feasibility study practices are benchmarked against theoretical best practices. The aim of the research is to expand the knowledge about of the last decade´s and current feasibility study practices in Iceland by comparing the results of the two studies on public construction projects and private construction projects respectively. The results show that there is a difference between feasibility study practices in private projects and public projects where the private projects perform significantly better. But, the procedures are lacking more than half of the processes to be considered best practices in both cases. Keywords: Project management; Feasibility study; Cost-benefit analysis. !

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Úrdráttur Þessi ritgerð felur í sér rannsókn sem byggir á annarri nýbirtri rannsókn um hagkvæmnisathuganir í opinberum framkvæmdum á Íslandi. Fyrri rannsóknin byggði á þeirri staðreynd að fjárfestingarákvarðanir í tengslum við opinberar framkvæmdir á Íslandi hafa oft á tíðum verið umdeildar og ekki hefur verið ljóst hvernig forgangsröðun og val á verkefnum hefur farið fram. Lög um skipan opinberra framkvæmda (no. 84/2001) gera kröfur um könnun og samanburð á þeim valkostum sem til greina koma við lausn þeirra þarfa sem framkvæmdinni er ætlað að fullnægja áður en sótt er um fjárveitingu. Þrátt fyrir það eru lögin talin ábótavön og niðurstöður fyrri rannsóknar gefa til kynna að munur sé á núverandi starfsháttum í opinberum verkefnum á Íslandi og þeim aðferðum sem teljast fræðilega bestar í dag á sviði hagkvæmnisathugana. Rannsókn þessarar ritgerðar byggir á þessari niðurstöðu og felur í sér nýjan vinkil á viðfangsefnið með því að taka fyrir hagkvæmnisathuganir í einkaframkvæmdum á Íslandi. Fræðilegi kafli ritgerðarinnar

ákvarðar

þá

vinnuferla

sem

teljast

fræðilega

bestir

á

sviði

hagkvæmnisathugana á frumathugunarstigi framkvæmda. Eigindleg rannsókn byggð á viðtölum er gerð þar sem átta einkaframkvæmdir eru skoðaðar og niðurstöður þeirra bornar saman við þær aðferðir sem teljast fræðilega bestar í dag. Markmið rannsóknarinnar er að auka þekkingu á því hvernig staðið er að hagkvæmnisathugunum á Íslandi í dag með því að bera saman niðurstöður þessar rannsóknar og niðurstöður fyrri rannsóknar fyrir opinberu verkefnin. Niðurstöður sýna að marktækur munur er á því hvernig staðið er að hagkvæmnisathugunum í einkaframkvæmdum og opinberum framkvæmdum en einkaframkvæmdirnar samræmast fræðilega bestu aðferðum betur. Þrátt fyrir það þá vantar meira en helming vinnuferla upp á í báðum tilfellum til þess að hægt sér að flokka aðferðirnar sem fræðilega bestu starfshætti á sviði hagkvæmnisathugana. Lykilorð: Verkefnastjórnun; hagkvæmniathugun; kostnaðar-/ábatagreining. !

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Feasibility studies in construction projects in Iceland Ásta Ósk Stefánsdóttir

30 ECTS thesis submitted to the School of Science and Engineering at Reykjavík University in partial fulfillment of the requirements for the degree of Master of Science in Engineering Management

January 2015

Student: ___________________________________________ Ásta Ósk Stefánsdóttir

Supervisor: ___________________________________________ Þórður Víkingur Friðgeirsson

Examiner: ___________________________________________ Halldór Zoёga ! ! !

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Feasibility*studies*in*construction*projects*in*Iceland*

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Table of contents Abstract ............................................................................................................................... i Úrdráttur .............................................................................................................................. ii List of figures ..................................................................................................................... vi List of tables ...................................................................................................................... vii 1.

Introduction ........................................................................................................... 1 1.1

Introduction of the project “Improvement of the public project life cycle” .......... 1

1.2

Statement of the problem ....................................................................................... 1

1.3

Research aim and objectives .................................................................................. 2

1.4

Research questions and hypothesis ........................................................................ 2

1.5

Limitations ............................................................................................................. 3

1.6

Structure of the thesis ............................................................................................ 4

2

Research background ............................................................................................ 5 2.1

Introduction............................................................................................................ 5

2.2

An overview of international public project governance....................................... 5

2.2.1

Norway ............................................................................................................ 5

2.2.2

United Kingdom .............................................................................................. 6

2.2.3

Canada ............................................................................................................. 7

2.3

Feasibility studies in public projects in Iceland ..................................................... 7

2.4

Conclusion ............................................................................................................. 9

3

Literature review ................................................................................................... 9 3.1

Introduction.......................................................................................................... 10

3.2

Project feasibility studies ..................................................................................... 11

3.2.1

Introduction into project feasibility studies ................................................... 11

3.2.2

Validity of feasibility studies for construction projects................................. 12

3.2.3

Project feasibility studies and sustainability .................................................. 14

3.3

Cost-Benefit Analysis .......................................................................................... 16

3.3.1 3.4

Framing of feasibility study theoretical best practices ........................................ 22

3.5

Conclusion ........................................................................................................... 26

4

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The major steps in cost-benefit analysis ........................................................ 17

Research methodology ........................................................................................ 26 4.1

Introduction.......................................................................................................... 27

4.2

Research design ................................................................................................... 27 4*iv*4*

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4.2.1

Qualitative research ....................................................................................... 27

4.2.2

Standardized open-ended interview............................................................... 27

4.2.3

Interview questionnaire ................................................................................. 29

4.3

Data gathering ...................................................................................................... 29

4.3.1 4.4

Data classification.......................................................................................... 32

Data analysis ........................................................................................................ 33

4.4.1

Current feasibility study practices in private construction projects

in Iceland .................................................................................................................... 33 4.4.2

Current feasibility study practices in construction projects in

Iceland ...................................................................................................................... 34 4.5 5

Conclusion ........................................................................................................... 37 Results ................................................................................................................. 38

5.1

Introduction.......................................................................................................... 38

5.2

Framing of feasibility study theoretical best practices ........................................ 38

5.3

Current feasibility study practices in private construction projects in

Iceland ........................................................................................................................... 39 5.4 6

Current feasibility study practices in construction projects in Iceland ................ 39 Discussion ........................................................................................................... 41

6.1

Introduction.......................................................................................................... 41

6.2

Feasibility study practices in construction projects in Iceland ............................ 41

6.3

Limitations ........................................................................................................... 43

6.4

Further research ................................................................................................... 44

6.5

Conclusion ........................................................................................................... 44

7

Conclusion .......................................................................................................... 45 7.1

Feasibility analysis............................................................................................... 46

7.2

Feasibility study practices in construction projects in Iceland ............................ 46

7.3

Recommendation ................................................................................................. 47

References ......................................................................................................................... 47 Appendix I: Overview of public project governance ....................................................... 50 Appendix II: Questionnaire form ...................................................................................... 52 Appendix III: Evaluation form .......................................................................................... 55 Appendix IV: Completed evaluation forms ...................................................................... 59

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List of figures Figure 1: The structure of the literature review and its connection with the previous chapter as well as the following chapter. .................................................................. 11 Figure 2: Flowchart showing the flow of the six major phases of a feasibility study with gateways after each phase. ........................................................................................ 25 Figure 3: Average consistency with best practice for all projects with regard to the amount of occurrences in each category, for private projects and public projects respectively. ................................................................................................................................... 35 Figure 4: ROAMEF CYCLE. Appraisal and evaluation often form stages of broad policy cycle that some departments and agencies formalize in the acronym ROAMEF (Rationale, Objectives, Appraisal, Monitoring, Evaluation and Feedback) (HM Treasury, 2003). ........................................................................................................ 50 Figure 5: The business case model sees the development of the business case progressing through three phases and within those phases are key steps that will collectively make up a solid business case (Treasury Board of Canada Secretariat, 2009). ........ 51 ! ! !

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List of tables Table 1: Consistency with best practice for six selected public projects (Fridgeirsson, 2014). .......................................................................................................................... 8 Table 2: Consistency of approach towards feasibility analysis for six selected public projects (Fridgeirsson, 2014). ..................................................................................... 8 Table 3: The eight selected private projects, the companies responsible and types of companies.................................................................................................................. 30 Table 4: Estimated total cost of the eight selected private projects. ................................. 32 Table 5: Consistency with best practice for the eight selected private projects. .............. 33 Table 6: Consistency of approach towards feasibility analysis for the eight private projects (occurrences and weighted percentages taken into the account of the number of activities in each category). ....................................................................................... 34 Table 7: Average consistency with best practice for all projects, for private projects and public projects respectively. ...................................................................................... 35 Table 8: Average consistency with best practice for all projects with regard to the amount of occurrences in each category, for private projects and public projects respectively. ................................................................................................................................... 35 ! ! !

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1. Introduction 1.1 Introduction of the project “Improvement of the public project life cycle” This thesis is a part of a bigger project, which has the work title “Improvement of the public project life cycle” (IPP). The project is based on the fact that a majority of public funded projects suffer from cost overruns (Fridgeirsson, 2010) and in Iceland the weakest link in the public financial management is believed to be unprofessional decision making (Fridgeirsson quoted The Icelandic National Audit Office, 2010). The project is aimed at investigating the present situation and determine if there is a gap between current procedures and best practices. The goal is to provide important information on current flaws and what has to be done for improvement. This thesis focuses on project feasibility and is related to the following work packages (WP) of the project: •

Project scope

•

Options

•

Appraisal

1.2 Statement of the problem The research of this thesis will build on a recently published study on feasibility studies in public construction projects in Iceland with a new angle focusing on feasibility studies in private construction projects in Iceland. After the recession, the private industry was hard hit and the need for cost-effective solutions became greater than ever before. Private funded projects are different from public projects in some aspects. Private funded projects are usually composed to maximize shareholders profit, while a public project may incur other purposes. For example, serving strategic objectives, creating jobs and public nonprofit services. In the public sector, the decision makers do not have personal responsibility for the success of the proposed project and the costs are borne by taxpayers. However, in the private sector the company follows its project from the beginning to the end and assumes all responsibility for itself. The results of the previous study for the public projects show that there is a lack of systematic procedures in the feasibility phase of projects: when the viability of projects is determined and projects are selected for funding. To ensure efficient allocation of

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society´s resources and stakeholders´ money, it is important that only the most promising projects get accepted for funding. The procedures of project management contribute to this objective, that is, if they are applied at the right time, in the right way and consistently. The early development of strategies, philosophies and methodologies of project implementation have been stressed as the most important factor in achieving success in projects (Munns & Bjeirmi, 1996) where the success is defined as completion to budget, satisfying the project schedule and meeting the project goal. Project feasibility studies have these objectives when they are conducted to justify investments in infrastructure projects and have a vital importance in supporting decisions related to spending on infrastructure projects. The situation in the feasibility phase of public projects in Iceland and the importance of feasibility procedures lays the foundation for the need for further investigation in the field of projects´ inception and feasibility.

1.3 Research aim and objectives In this thesis, recently published peer-reviewed articles and academic books on feasibility studies will be reviewed with the aim of framing current best practices of feasibility studies. Then a research will be conducted, giving insight into feasibility study practices in private construction projects in Iceland. By examining feasibility study practices in private projects and comparing the results of the two studies, this research and the aforementioned study for the public projects respectively, aims to expand knowledge and give insight into the last decade´s and current feasibility study practices in Iceland. The objective is to lay the foundation for further improvement in the feasibility phase of projects, which can benefit all stakeholders in either public or private projects.

1.4 Research questions and hypothesis The research of this thesis will build on the aforementioned research for public construction projects with a new angle focusing on feasibility studies in private construction projects in Iceland. The research will seek to expand the knowledge about the last decade´s and current feasibility study practices in Iceland and will seek to answer the questions: •

How are feasibility study practices in private construction projects in Iceland compared to theoretical best practices?

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How are feasibility study practices in private construction projects compared to feasibility practices in public construction projects in Iceland?

The research hypothesis suggests that the same applies for feasibility studies in private construction projects as in public construction projects. The findings of the previous research, for public construction projects, show that there is a disparity between current feasibility study practices and best practices in public projects in Iceland.

1.5 Limitations This thesis is limited to the methodology of project management and focuses on the feasibility phase in the project life cycle, more specifically the project feasibility study. The preparation and foundation of this thesis research is then limited to the literature review on the subject. The research of this thesis is limited to the examination of the feasibility study practices in private construction projects. Then the results will be compared to the results of the previous research for the public projects sourced from document analysis. However, when collecting data from the private companies for this thesis´ research the documents available for analysis were limited because private companies were reluctant to give up important information about their financial practices and the data was classified. For that reason, another research method had to be chosen and interviews were the only possibility. It should be kept in mind that possible bias can exist which does limit the comparability and credibility of the overall results where two different research methods have been used and the results of the two researches are being compared. Thus the results only give some indications about the overall feasibility practices in Iceland. Where the research involves comparison of feasibility study practices in two different sectors of the construction business, public sector and private sector, the comparability and evaluation can be affected. The criteria for private and public projects sometimes is not the same, where private projects focus more on maximizing financial profitability but the public projects focus on meeting the needs of the society. Also, impacts of private construction projects tend to be less environmental and social than public construction projects. There is also a possibility that the economic crisis might have affected the initial study practices in private companies where the procedures of funders, for example banks, might have changed and the requirements for borrowers made higher. That could limit the comparison between projects implemented before and after the crisis.

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1.6 Structure of the thesis This thesis contains seven main chapters. Each chapter is summarized briefly below: The first chapter is the introduction to the thesis where the research is framed and the background of the thesis is presented. The aim and objective of the research is defined and the research questions and its hypothesis are presented. The limitations of the research are explained as well. The second chapter contains the research background, which the research of this thesis is built on. At first, the legal framework for public construction projects in Iceland and three other countries: Norway, Canada and United Kingdom is briefly reviewed and then the results from a previous study, “The feasibility of public projects in Iceland”, are presented. The third chapter includes discussions and reviews of peer-reviewed articles and academic books in the field of feasibility studies. This chapter focuses on explaining what feasibility studies entail and its importance in practice. The development of feasibility studies will be investigated and theoretical best practices framed, which lays the foundations for this thesis research. In chapter four, the research of the thesis is introduced and its methodology presented. The research design is explained, including the research type, research method and data gathering in addition to presenting data classification and data analysis. The private projects under investigation are introduced as well. The data from this thesis´ research as well as the previous research for the public construction projects are analyzed and compared. In chapter five, the results of the research are presented where the research questions are answered and the research hypothesis is tested. Chapter six includes a discussion on feasibility study practices in construction projects in Iceland based on the results of the research of this thesis as well as the previous research for the public projects. In addition, there is a discussion about the limitations of this research as well as the limitations of a cost-benefit analysis. Then further research on the subject is suggested. In chapter seven, the conclusion of the thesis is presented and suggestions for improvements in the feasibility phase in construction projects in Iceland are made. !

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2 Research background 2.1 Introduction In this chapter, the background of the research will be reviewed and screened, with the aim of providing a better understanding of the foundation that is laid for feasibility studies in Iceland. For public projects this foundation is based on legal requirements and in Iceland the Icelandic law on public project procurement (no. 84/2001) sets those requirements. This thesis’ research will build on a recently published article, “The feasibility of public projects in Iceland” (Fridgeirsson, 2014), whose results will be reviewed later in this chapter. Fridgeirsson (2014) states that “limited transparency was found in the management of the initial study reports for the public projects and the findings show that the current process of feasibility analysis during the inception phase is inconsistent and there seem to be few practices that align with current best practices.” Fridgeirsson (2014) suggests in order to improve the situation, it is important the Minister of Finance issues detailed guidelines for conducting feasibility analysis in accordance with current best practices. In this chapter, legal requirements, guides and standards on feasibility studies in three other developed countries: Norway, Canada and United Kingdom, will be reviewed briefly. The objective of this screening is to provide a better insight into current feasibility study procedures in the world for comparison to the current Icelandic practice. The reason for this comparison with other countries is that governmental requests often set a standard for the industry.

2.2 An overview of international public project governance 2.2.1

Norway

In Norway, The Ministry of Finance issues quality assurance, QA1 and QA2, which all investment projects with an expected budget exceeding NOK 750 million shall undergo. The QA1 is the quality assurance of the choice of concept, or the preliminary study. In the QA1, it´s purpose is described: “To ensure that the choice of concept has been subjected to a political process of fair and rational choice. The ultimate aim is that the chosen concept is the one with the highest economic returns and the best use of public funds. The choice of concept is a political 4!5!4!!

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decision to be made by the Cabinet, while the consultant’s role is restricted to assert the quality of the documents supporting the decision” (NTNU, 2014). According to QA1 (NTNU, 2014), the responsible ministry/agency is required to prepare a detailed concept evaluation. The evaluation process is described in detail in the QA1. The QA1 is to be performed sufficiently early, at a time when the choice between alternative concepts is still open. The requirements for the work procedures for the consultant are also defined in detail. The Ministry of Finance in Norway also publishes an up-to date guide to cost-benefit analysis and in order to further improve user friendliness, the Norwegian Government Agency for Financial Management publishes a cost-benefit analysis handbook (Ministry of Finance, 2012). 2.2.2

United Kingdom

In the UK, The HM Treasury provides guidance to other public sector bodies on how proposals should be appraised, before significant funds are committed, and how past and present activities should be evaluated. The guide is called The Green Book – Appraisal and Evaluation in Central Government. The Green Book states that all new policies, program (group of related projects) and projects, whether revenue, capital or regulatory, should be subject to comprehensive but proportionate assessment, wherever it is practicable, as so best to promote the public interest. The purpose of the Green Book is to ensure that no policy, programs or project are adopted without first having the answer to these questions (HM Treasury, 2003): •

Are there better ways to achieve this objective?

•

Are there better uses for these resources?

This is achieved through (HM Treasury, 2003): •

Identifying other possible approaches that may achieve similar results.

•

Where ever feasible, attributing monetary values to all impacts of any proposed policy, project and program.

•

Performing an assessment of the costs and benefits for relevant options.

The process of appraisal and evaluation is described in detail in the Green book and is shown graphically in figure 4 in Appendix I.

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Canada

The Treasury Board of Canada Secretariat published the Business Case Guide in 2009 after many consolidated efforts were undertaken to improve how investment decisions are made and supported and business results are measured by the Government of Canada (Treasury Board of Canada Secretariat, 2009). The purpose of the Business Case Guide is to support the development of a strong business case that links investments with program results and, ultimately, with the strategic outcomes of the organization. The primary audience for the reference tool is Government of Canada program managers seeking approval for an activity, initiative, or project. The guide should be used throughout the entire life cycle of the investment, including the approval stage, to ensure meaningful dialogue between managers and the approval or funding authority from the earliest possible time (Treasury Board of Canada Secretariat, 2009). In addition, the Business Case Guide states that regardless of the complexity and risk of the proposed investment, and whether or not Treasury Board project approval is being sought, the document should be used to guide the development of the investment´s business case. The Business Case Guide has been constructed around two policies, Policy on Investment Planning and Policy on the Management of Projects. The Business Case Guide is a detailed guide to creating a business case. The business case model is shown in figure 5 in Appendix I.

2.3 Feasibility studies in public projects in Iceland In the aforementioned study, “The feasibility of public projects in Iceland” (Fridgeirsson, 2014), six Icelandic public projects were screened from the perspective of how the initial feasibility is determined in relation to best practice. The research was qualitative and the methodological approach was based upon document analysis, or more specifically, content analysis. The projects screened were a diverse set chosen to represent different project types: tunnel, harbor, concert hall, avalanche barrier, school and tourists service center (Fridgeirsson, 2014). Descriptive materials, in the form of initial study reports for the six projects, were analyzed and scored on a numerical scale against the requirements of best practices. Consistency with best practice was assessed and classified into the following three categories: full consistency, partial consistency and no consistency. The findings of the study are shown in table 1 and table 2.

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Full! consistency!

Partial! consistency!

No!consistency!

Full! consistency!

Partial! consistency!

No!consistency!

Vadlaheidi!tunnel!

5!

3!

9!

29%!

18%!

53%!

Landeyjar!harbour!

6!

8!

3!

35%!

47%!

18%!

Harpa!concert!hall!

10!

2!

5!

59%!

12%!

29%!

School!in!Mosfell!town!

2!

7!

8!

12%!

41%!

47%!

Avalance!protection!

4!

5!

8!

24%!

29%!

47%!

Snaefells!stofa!

3!

3!

11!

18%!

18%!

65%!

Average:!

29%!

27%!

43%!

Project(name:(

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! Table 1: Consistency with best practice for six selected public projects (Fridgeirsson, 2014).

Normalized! Full! Partial! weight! consistency! consistency!

No! consistency!

Weighted! Weighted! Weighted! Full! Partial! No! consistency! consistency! consistency!

Category! Project!overview!

0,24!

15!

1!

8!

63%!

4%!

33%!

Alternatives!

0,12!

3!

2!

7!

25%!

17%!

58%!

Benefits!and!cost!

0,29!

7!

16!

7!

23%!

53%!

23%!

Net!present!value!(NPV)!

0,12!

1!

2!

9!

8%!

17%!

75%!

Sensitivity!analysis!

0,06!

0!

2!

4!

0%!

33%!

67%!

Make!a!recommendation!

0,12!

2!

5!

5!

17%!

42%!

42%!

Independent!consultants!

0,06!

2!

0!

4!

33%!

0%!

67%!

24%!

24%!

52%!

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Average:!

! Table 2: Consistency of approach towards feasibility analysis for six selected public projects (Fridgeirsson, 2014). Table 1 shows consistency with best practice for the six selected projects and table 2 shows the consistency of approach towards feasibility analysis for the six selected projects. The category “project overview” is most consistent with best practice. The

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findings show that there is a disparity between best practice and current feasibility study practices in public projects in Iceland, where 76% of the categories are only partially consistent with best practice.

2.4 Conclusion The review of the governmental requirements on feasibility studies in Norway, United Kingdom and Canada show that the emphasis is laid on the thoroughness and transparency of the requirements and the focus is on the follow-up by the government. The foreign requirements indicate strict and detailed rules on feasibility study procedures as well as great monitoring on behalf of the government. The requirements in the other countries are also accessible and user-friendly. The significant gap between theoretical best practices and current feasibility study practices in public projects in Iceland, revealed in Fridgeirsson´s study, can be derived from limitations in Icelandic legislation. Where governmental requests often set a standard for the industry, feasibility procedures in the private sector are also at risk. The conclusion on the situation in Icelandic legislation on feasibility studies and feasibility studies practices in public projects in Iceland, lays the foundation for the research of this thesis, where further investigation in the field of feasibility studies in Iceland will be conducted focusing on the private sector. ! ! ! ! ! ! ! ! !

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3 Literature review 3.1 Introduction The previous chapter included a review of governmental requirements in three other countries as well as the results of an investigation on feasibility studies in public construction projects in Iceland. Since governmental requests often set a standard for industry, the content of the previous chapter lays the foundation for the literature review of this thesis where the field of feasibility studies will be examined. The chapter will start with an introduction of feasibility studies and their position within the field of project management and project life cycle. The aim of the literature review is to determine what feasibility studies entail as well as an understanding of their importance in practice and role in the implementation of construction projects. The development of feasibility studies from the last decade will be investigated, as well as the focus and the current situation. The content of peer-reviewed articles on the subject will be investigated as well as academic books explaining the innovative tools and techniques used when conducting feasibility studies. The review will focus on framing feasibility study theoretical best practices, which will lay the foundation for the research of this thesis. The structure of the literature review as well as its connection with the previous chapter and following chapter is shown graphically in figure 1.

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Figure 1: The structure of the literature review and its connection with the previous chapter as well as the following chapter.

3.2 Project feasibility studies 3.2.1

Introduction into project feasibility studies

The project feasibility study phase involves the making of a project feasibility study that comprises an evaluation and analysis of the potential of a proposed project and is based on extensive investigation and research to support the process of decision-making. Munns and Bjeirmi (1996) state that “the project definition and early decision making is critical to overall success and suggest that the broader decisions in selecting a suitable project in the first place are more likely to influence the overall success of the project.” The project feasibility phase is the second phase in the lifecycle of a project but the first one is the conceptualization

phase

(Kerzner,

2006).

According

to

Kerzner

(2006)

the

conceptualization phase involves two critical factors: (1) Identify and define the problem, and (2) identify and define the potential solutions. Kerzner (2006) gives the following explanation of the feasibility study phase: “The feasibility study phase considers the technical aspects of the conceptual alternatives and provides a firmer basis on which to decide whether to undertake the project.”

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In other words, the feasibility study includes an analysis of the project´s viability and focuses on helping answer the essential question of “should we proceed with the proposed project idea?” The end result of a feasibility study is therefore the go/no-go decision. Kerzner (2006) gives a more detailed purpose of the feasibility phase: •

Plan the project development and implementation activities

•

Estimate the probable elapsed time, staffing, and equipment requirements

•

Identify the probable costs and consequences of investing in the new project

Feasibility studies are typically carried out before the project initiation in support of the proposed business case and provide an accurate assessment of the factors that might affect the project. A feasibility study enables a realistic evaluation of a project, incorporating both the positive and negative aspects of the opportunity (Gardiner, 2005). 3.2.2

Validity of feasibility studies for construction projects

According to Flyvbjerg et al. (2002) in public transportation infrastructure projects, costs are underestimated in almost 9 out of 10 projects and actual costs are on average 28% higher than estimated costs. This problem leads to inefficient use of stakeholder´s money where a project may be started despite the fact that is it not economically viable and/or it may be started instead of another project that would have yielded higher returns. Costunderestimation is also the case in other types of infrastructure projects and the reason is assumed to be the incentive to make a project look better and profitable in order to get the project started (Flyvbjerg et al., 2002). This procedure is known to affect decision making in the beginning of projects, and is called “strategic misrepresentation”, in addition to “optimism bias” which includes excessive optimism on the project’s outcome. Fridgeirsson (2012) states that “the consequences of these two phenomena are unrealistic expectations of projects’ benefits, costs and duration, which distort the real financial needs and benefits, stirs up controversy and unnecessary difficulties in the duration of the project.” Fridgeirsson (2012) mentions a problem in the decision making process in public projects, that is the people who make the project’s go/no-go decision are not financially responsible for the project. Where the decision makers are not risking their own funds, they might not act in the best interest of taxpayers. Public projects are funded by the countries’ taxpayers and generally require huge and immediate investments while private projects can be financed by the company´s own

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capital or the company can seek external funding. While the financial responsibility of the public projects is distributed among taxpayers, the private companies carry all financial responsibility themselves. In order to prevent the use of the abovementioned procedures and to promote the efficient use of stakeholders´ money, feasibility studies should be conducted, whether the proposed construction project is within the public sector or the private sector. Owners, decision makers and financial institutions build their decisions to proceed with and/or finance any project based on the results of the feasibility study of that project (Hyari and Kandil, 2009). Hyari and Kandil (2009) state that ensuring the validity of economic feasibility studies of construction projects is a vital step in ascertaining that decisions related to the construction of facilities are based on consistent and standard procedures that avoid the use of misleading or inadequate information. They also emphasize that decision makers exert every possible effort to ascertain that analyses presented in a feasibility study report are based on reasonable forecasts and reliable information. To develop a successful project, its promoters should ascertain that the project be politically, socially, legally, environmentally, economically and financially viable and the project viability may only be determined following a detailed and accurate feasibility study (Salman et.al 2007). The conduct of a comprehensive feasibility analysis plays an important role regarding implementation and prioritization in the decision-making phase in the beginning of a project life cycle, which applies to public and private projects respectively. Yun and Caldas (2009) argue that this process leads decision makers to make a go/no-go decision, to determine investment priority between capital projects, and to provide optimal alternatives and investment timing. They state that preliminary feasibility studies are the basis for the go/no-go decision, which determines whether the capital project is to be recommended or not. Many funding agencies in the private sector also require satisfactory feasibility study reports before committing significant funds to projects seeking external finance (Gardiner, 2005). Hyari and Kandil (2009) emphasize the importance of weighing massive expenditures on construction projects against the expected benefits resulting from the projects to stakeholders and therefore conducting feasibility studies prior to the construction of the facilities. The economic feasibility of a project is an estimate of the potential profitability of a project and a study that measures the expected benefits from a certain project relative to its cost (Hyari and Kandil, 2009). A study conducted by Yun and Caldas (2009) came

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to similar conclusion, which supports the further investigation in the following subsections of the literature review on feasibility studies. In that study data mining was conducted to discover knowledge from preliminary feasibility studies of large-scale projects in Korea using classification and prediction. Their conclusion was that the dominant decision variables in determining the implementation of the project were the benefit - cost ratio, the economic feasibility and the financial feasibility, but these decision variables have in common that they are closely related to the financial aspects of a project (Yun and Caldas, 2009). Yun and Caldas (2009) state that in this case the benefit - cost ratio was the most important decision variable for determining the project implementation. In the next subsections, the processes of feasibility studies will be examined in more detail as well as the recommended tools and techniques for conducting successful feasibility studies, that is cost-benefit analysis. 3.2.3

Project feasibility studies and sustainability

According to Yun and Caldas (2009) the preliminary feasibility studies include four processes that are used to analyze a capital project: project overview; economic feasibility; political viability; and total viability. •

Project overview examines the project’s basic information such as its background, objectives, and procedure and planned content.

•

Economic feasibility estimates demand and calculates economic and financial indices such as benefit-cost ratio (B/C), net present value (NPV) and internal rate of return (IRR) based on cost-benefit analysis to determine national economic impact and investment suitability.

•

Political viability evaluates non-economic impact, attitudes toward the project, financial feasibility, and compliance with relevant governmental policies, environmental impact, as well as project-specific factors.

•

Total viability leads decision makers to make a Go/No Go decision, determine investment priority between capital projects and provide optimal alternatives and investment timing.

Yun and Caldas’s (2009) results from analyzing decision variables that influence preliminary feasibility studies reveal that practitioners emphasize financial aspects in the project’s planning phase. While economic performance is given the most attention, less 4!14!4! !

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attention is given to the social and environmental performance. They still have the opinion that there is a need to reinforce the evaluation criteria for the non-economic factors. Although economic feasibility has the biggest influence on the Go decision it does not mean that other factors aren´t important in the decision making process as well. Public capital projects should be considered not only in economic perspectives. This applies to some types of projects within the private sector a well. Yun and Caldas (2009) quote MOPB (1999): “For successful implementation and operation, infrastructure projects need clear objectives and goals, which include the following: achieving greater social justice, developing the economy and sustainable employment, developing financially responsible programs, and protecting the environment.” A research similar to Yun and Caldas’ was conducted in China where China´s construction industry was the research field, but according to the authors, Shen et al. (2010), implementing construction projects has been a driving force to the economic growth in China over previous two decades. They state that the effects of the construction industry on the degrading environment are huge and one of the major reasons for this is the lack of consideration given to the environmental protection in the project feasibility study. Their results reveal the insufficiency of examining the performance of implementing a construction project from the perspective of sustainable development. The results also suggest the need for shifting the traditional approach of project feasibility study to a new approach that embraces the principles of sustainable development (Shen et al., 2010). In

sustainable

construction

practices,

sustainability

promotes

the

balance

of

environmental protection, economic development and social development. It refers to various methods in the process of implementing construction projects that involve less harm to the environment (Shen et al., 2010). Performance attributes are used for assessing performance of construction projects, but what factors/or or attributes are considered for each project can differ depending on the project´s type. Shen et al. (2010) categorize all available performance attributes into environmental, economic and social where some attributes are common to all projects where other apply only to individual projects. For public sector projects in China, the study’s results show interesting evidence where limited concern is given on market competition (economical), safety standards (social), and eco-environmental sensitivity of the project location and land consumption (environmental). Shen et al. (2010) argue that the reason for the development is limitation 4!15!4! !

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in practice of sustainable construction methods. They state that this limitation is partly due to the profit-driven culture in the industry where cost, quality and schedule have been the determinants ensuring maximum benefits to the construction business. They argue that in order to improve the existing practice of construction implementation towards contributing to sustainable development, all the three dimensions, including economical, social and environmental issues, need to be fully concerned in conducting project feasibility studies (Shen et al., 2010). According to Shen et al. (2010) the responsibility of implementing sustainable construction practices is on the project’s participants. The government´s role is important in promoting sustainability of construction project at the stage of the project feasibility study. The government should guide with policies, laws and regulations and balance the interests among economic, social and environmental stakeholders (Shen et al., 2010). That sort of guidance would benefit all construction projects, whether they are within the public sector or the private sector.

3.3 Cost-Benefit Analysis The review of peer-reviewed articles in the previous subsections emphasizes the importance of evaluating the costs and benefits of construction projects in order to increase their efficiency. The broad purpose of cost-benefit analysis is to help decisionmaking and to make it more rational. More specifically, the objective is to have more efficient allocation of stakeholders´ resources. Cost-benefit analysis was initially used in the U.S. in the 1930’s, but now cost-benefit analysis is used in many different contexts for many different purposes (Boardman et al., 2014). The Project Management Institute (PMI) recommends using cost-benefit analysis as a tool and technique in project quality management, where the primary benefits of meeting quality requirements can include less re-work, higher productivity, lower costs, and increased stakeholder satisfaction (PMI, 2008). In order to demonstrate the superior efficiency of a particular intervention relative to the alternatives, including the status quo, analysts use a cost-benefit analysis. The analysis includes a systematic cataloguing of impacts as benefits (pros) and costs (cons), valuing in dollars (assigning weights), and then determining the net benefits of the proposal relative to the status quo. All of the costs and benefits are considered to society as a whole, that is, social costs and social benefits (Boardman et al., 2014). Although originally a cost-benefit analysis was designed for the public sector it is also applicable in

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the private sector. The standard cost-benefit analysis is conducted while a project or policy is under consideration, independent of its type, before it is started or implemented. The cost-benefit analysis assists in the decision about whether resources should be allocated by government or the company to a specific project or policy or not. In situations in which analysts care only about efficiency, cost-benefit analysis provides a method for making direct comparisons among alternative policies (Boardman et al., 2014). Cost-benefit analysis is based on the Kaldor-Hicks criterion and when all relevant projects are independent, the cost-benefit analysis decision rule is simple: adopt all policies that have positive net benefits. A more general version of the rule applies in situations involving multiple policies that may enhance or interfere with each other: choose the combination of policies that maximizes net benefits (Boardman et al., 2014). Boardman et al. (2014) recommend using net present value rule (NPV) as a decision rule instead of cost-benefit ratio or internal rate of return. According to them it is the appropriate criterion to use where other rules can give incorrect answers. While applying the rule, an analyst should still be aware where it applies only to the actual alternatives specified and other alternatives might conceivably be better. While the net present value criterion results in a more efficient allocation of resources, it does not necessarily recommend the most efficient allocation of resources. It is also important for analysts to realize the limitations of a cost-benefit analysis. According to Boardman et al. (2014) two types of circumstances make the net benefits criterion an inappropriate decision rule for public policy. First, technical limitations may make it impossible to quantify and then monetize all relevant impacts as costs and benefits. Second, goals other than efficiency are relevant to the policy.

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The major steps in cost-benefit analysis

Boardman et al. (2014) recommend breaking the process of a cost-benefit analysis down into nine basic steps: 1. Specify the set of alternative projects. 2. Decide whose benefits and costs count (standing). 3. Identify the impacts (benefits and costs) categories, catalogue them, and select measurement indicators. 4. Predict the impacts (benefits and costs) quantitatively over the life of the project. 5. Monetize (attach dollar values to) all impacts (benefits and costs). 6. Discount benefits and costs to obtain present value. 7. Compute the net present value of each alternative. 8. Perform sensitivity analysis. 9. Make a recommendation. Below is each step described and illustrated. 1. Specify the set of alternative projects. Step 1 requires the analyst to specify the set of alternative projects. For many projects the number of potential alternatives can be so large that neither decision makers nor analysts can cognitively handle comparisons among them. Resource and cognitive constraints mean that analysts typically analyze only a few (less than six) alternatives (Boardman et al., 2014). Cost-benefit analysis compares the net benefits of investing resources in one or more particular potential projects with the net benefits of a project that would be displaced if the project(s) under evaluation were to proceed. The displaced project is the status quo, which means there is no change in government policy (Boardman et al., 2014), that is, no change in the existing state of affairs. 2. Decide whose benefits and costs count (standing). In step 2, the analyst must decide whose benefits and costs should be included. In the public sector the provincial perspective, for example, measures only the benefits and costs that affect the residents within a certain area, but a global perspective includes the benefits and costs that affect everyone (Boardman et al., 2014). Boardman et al.

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(2014) note that the issue of standing can sometimes be contentious and point out that some environmental issues should be analyzed from a global perspective and local governments typically want to consider only benefits and costs to local residents and to ignore costs and benefits that occur in adjacent municipalities or are borne by higher levels of government. 3. Identify the impacts (costs and benefits) categories, catalogue them, and select measurement indicators. Step 3 requires the analyst to identify the physical impact categories of the proposed alternatives, catalogue them as benefits and costs, and specify the measurement indicator of each impact category. Impacts include both input, that is resources required, and outputs (Boardman et al., 2014). In a highway construction project the benefit impact categories can for example include “time and operating cost savings”, “safety benefits” and “toll revenues” and the cost impact categories can include for example “maintenance”, “toll collection” and “toll booth construction”. Boardman et al. (2014) emphasize that analysts identify explicitly the ways in which the project would make some individuals better off, for example through improved skills, better education, or higher incomes and identify as well the negative environmental and congestion impacts of the growth. In order to treat something as an impact, we have to know there is a cause-and-effect relationship between some physical outcome of the project and the utility of human beings with standing. Impacts that do not have any value to human beings are not counted. Demonstrating such cause-and-effect relationships often requires an extensive review of scientific and social science research (Boardman et al., 2014). The choice of measurement indicator depends on data availability and ease of monetization (Boardman et al., 2014). 4. Predict the impacts (costs and benefits) quantitatively over the life of the project. Almost all projects have impacts (costs and benefits) that extend over time. In step 4 the task is to quantify all costs and benefits in each time period. The analyst must make predictions for each alternative in each time period. For example, a production company

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has to predict ahead of time the type A product sale price and the cost of type A raw material each year for a specified period of time and do the same for type B product. In practice, predicting impacts is very important and very difficult. Prediction is especially difficult where projects are unique, have long time period, or relationships among variables are complex (Boardman et al., 2014). 5. Monetize (attach dollar values to) all impacts (benefits and costs). In step 5, the analyst has to monetize each of the impacts or value in dollars each of the impacts. Boardman et al. (2014) note that sometimes the most intuitively important impacts are difficult to value in monetary terms, for example valuing environmental impact. In cost-benefit analysis the value of an output is typically measured in terms of “willingness to pay”, that is the maximum amount an individual is willing to sacrifice to procure a good or avoid something undesirable. Where markets exist and work well, a willingness to pay can be determined from the appropriate market demand curve (Boardman et al., 2014). Where markets do not exist or do not work well, analysts can draw upon previous research and use “plug in” values whenever possible. If analysts are unwilling to attach a monetary value to some impact, they are forced to use an alternative method of analysis. 6. Discount benefits and costs to obtain present value. For a project that has impacts that occur over years, we need to aggregate the benefits and costs that arise in different years. In cost-benefit analysis, future benefits and costs are discounted relative to present benefits and costs in order to obtain their present values (PV) (Boardman et al., 2014). Boardman et al. (2014) note that the need to discount arises for two main reasons. First, there is an opportunity cost to the resources used in a project. Second, most people prefer to consume now rather than later. Inflation must be taken into account. A cost (Ct) or benefit (Bt) that occurs in year t is converted to its present value by dividing it by (1+s)t, where s is the social discount rate. Real inflation-adjusted social discount rate should be used. Suppose a project has a life of n years. The present value of the benefits, PV(B), and the present value of the costs, PV(C), of the project are, respectively:

4!20!4! !

Feasibility!studies!in!construction!projects!in!Iceland! !

!" ! = ! !!! !

!" ! = ! !!!

!

!! (1 + !)! !! (1 + !)!

! The discount rate is the opportunity cost of investing in the project rather than in the capital market, that is, instead of accepting a project, the firm can always return the cash to the shareholders and let them invest in financial assets (Brealey et al., 2011). For government analysts, the discount rate is usually mandated by a government agency with authority. For most projects that do not have impacts beyond 50 years (intragenerational), real social discount rate of 3.5 percent is recommended. If the project is intergenerational then time-declining discount rates are recommended (Boardman et al., 2014). 7. Compute the net present value of each alternative. The net present value (NPV) of an alternative equals the difference between the PV of the benefits and the PV of the costs: !"# = !" ! − !"(!) The basic decision rule for a single alternative project (relative to the status quo) is simple: adopt the project if its NPV is positive. The analyst should recommend the proceeding with the proposed project if its !"# = !" ! − !" ! > 0 That is, if its benefits exceed its costs: !" ! > !" ! When there is more than one alternative to the status quo and all the alternatives are mutually exclusive, then the rule is slightly more complicated: select the project with the largest NPV. If no NPV is positive, then none of the specified alternatives are superior to the status quo, which should remain in place (Boardman et al., 2014). Boardman et al. (2014) emphasize the importance of remembering that NPVs are estimates and that sensitivity analysis (step 8) should be conducted before making a final recommendation.

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8. Perform sensitivity analysis. There may be considerable uncertainty about both the predicted impacts and the appropriate monetary valuation of each unit of the impact. Boardman et al. (2014) recommend using sensitivity analysis to deal with such uncertainties. Sensitivity analysis helps to determine which risks have the most potential impact on the project. It examines the extent to which the uncertainty of each project element affects the objective being examined when all other uncertain elements are held at their baseline value (PMI, 2008). When net present value has been calculated and if the project appears worth going ahead, a sensitivity analysis is performed. According to Brealey et al. (2011), before the godecision is made, it is important to delve into the impact forecasts and identify the key variables that determine whether the project succeeds or fails, for example, unit sales, revenue, variable cost per unit and initial cost. It is also important to look out for unidentified variables. A sensitivity analysis is conducted where analysts are asked to give optimistic and pessimistic estimates for the underlying variables. For each estimate the net present value is recalculated as the variables are set one at a time to their optimistic and pessimistic value (Brealey et al., 2011). Boardman et al. (2014) mention three other approaches to doing sensitivity analysis: partial sensitivity analysis, worst- and best-case analysis and Monte Carlo sensitivity analysis. 9. Make a recommendation. Analysts should make recommendations based on NPVs and sensitivity analysis. It is important to realize that cost-benefit analysis is only one input to this political decision-making process, one that attempts to push it toward a more efficient resource allocation and in practice, correct cost-benefit analysis is no more than a voice for rational decision-making (Boardman et al., 2014). It is also important to bear in mind that independent, unbiased assessments are needed if the cost-benefit analysis is to work correctly and produce believable results, i.e. to avoid “judge and jury” characteristics (Shtub et al., 2005).

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3.4 Framing of feasibility study theoretical best practices When the primary contents of subsections 3.2.3 Project feasibility studies and sustainability, including the four major processes of a feasibility study and the three recommended performance attributes, and 3.3.1 The major steps in cost-benefit analysis are reviewed in relation to each other and combined, the six major phases of a feasibility study can be concluded as well as their major activities. These phases and their activities create a basis for feasibility theoretical best practices which the research of this thesis will build on, but a research questionnaire will be designed based on these contents: 1. Project overview 2. Alternatives 3. Benefits and costs 4. Net present value (NPV) 5. Sensitivity analysis 6. Make a recommendation Phase 1 includes establishing the frame of the project, it´s basis and the needs for the project. The analyst has to define the objectives of the project and there has to be a mutual understanding between all stakeholders on the project´s objectives. Phase 2 is the definition of the project´s alternatives where the options can vary on many dimensions. At least two alternatives and less than six alternatives have to be defined. The zero-option has to be defined as well. Phase 3 is the definition of benefits and costs that should be included. Economical, social and environmental factors and/or attributes should be considered but the analyst should have in mind that there might be some attributes that do not apply to the individual projects. This phase should include the following activities: • • • •

Decide whose benefits and cost count Catalogue the impacts and select measurement indicators (units) Predict the impacts quantitatively over the life of the project Monetize (put price on) all impacts.

Phase 4 involves discounting benefits and costs of each alternative to obtain present value (PV) and then calculate the net present value (NPV) for each alternative by finding the difference between the present value of the benefits and present value of the costs. The basic decision rule is that the analyst should recommend proceeding with the proposed 4!23!4! !

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project if the present value of benefits exceeds the present value of costs and should select the alternative with the largest net present value. Sensitivity analysis should be conducted (phase 5) before making the final recommendation. Phase 5 involves performing sensitivity analysis to deal with uncertainties about both the predicted impacts and the appropriate pricing valuation of each unit of the impact. Phase 6 involves the evaluation of all alternatives and making recommendation based on the net present value (NPV) and sensitivity analysis. The following list contains the summary of the major activities for a feasibility study: 1. Project overview • Explain the origin of the project • Project background •

Project objectives

•

Needs analysis

2. Alternatives • Development of alternatives. Limit to at least two and less than six alternatives in addition to the zero alternative. 3. Benefits and costs •

Decide whose benefits and cost count. Economic, social and environmental factors and/or attributes.

• •

Catalogue the impacts quantitatively over the life of the project. Monetize (put price on) all impacts.

4. Net present value (NPV) • Discount benefits and cost to obtain present values. • Compute the net present value (NPV) of each alternative. 5. Sensitivity analysis • Perform sensitivity analysis of each alternative. 6. Recommendations • Evaluation of alternatives. •

Selection of the “most promising” alternative.

Figure 2 shows the flow of the six major phases with gateways after each phase. If after each phase the project is considered viable based on the activities in each phase, the project should proceed. However, if after any phase of the six major phases the project does not fulfill the activities, it should end and not be considered viable.

4!24!4! !

Feasibility!studies!in!construction!projects!in!Iceland! !

!

Start!

Project!overview!

NO!

End!

YES!

Alternatives!

NO!

End!

YES!

Benefits!and!costs!

NO!

End!

YES!

Net!present!value!(NPV)!

NO!

End!

YES!

Sensitivity!analysis!

NO!

End!

YES!

Make!a!recommendation!

NO!

End!

YES!

Proceed!

! Figure 2: Flowchart showing the flow of the six major phases of a feasibility study with gateways after each phase. 4!25!4! !

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3.5 Conclusion The aim of the literature review was to determine what feasibility studies entail, understand their importance in practice and role in implementation of construction projects, as well as investigate their development in the last decades, their focus and the current situation. The results of the above-mentioned peer-reviewed articles show the urgent need for governments to have strict laws and regulations in the decision-making process in public construction projects, which could also benefit the private construction projects. In order to prevent a conflict of interest within the government and inefficiencies in the decision-making process of proposed projects, so that the stakeholders’ money and resources are spent in the most efficient way, a detailed project feasibility study is necessary when selecting construction projects, independent of their type. When gathering the results from the articles on project feasibility studies, they clearly show the importance of the economical issues in the conduct of a project feasibility study: A project will not proceed if it is not financially viable. Simultaneously the results show that not enough emphasis is laid on the project´s sustainability in the project feasibility phase, which has proven to have negative consequences on the society and environment, regarding the project. The feasibility study in the conception of projects is the foundation for a comprehensive and transparent determination of the viability of investment proposals, focusing on minimizing uncertainty throughout the lifetime of the project. The recommended processes and performance attributes of feasibility studies as well as the recommended tools and technique examined in this chapter lay the foundation for the research of this thesis, but a research questionnaire will be designed in the following chapter, based on section 3.4 Framing of feasibility study theoretical best practices.

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4 Research methodology 4.1 Introduction Qualitative research was conducted in order to expand the knowledge about the last decade´s and current feasibility study practices in private construction projects in Iceland. The researcher interviewed employees from eight different private companies, which had recently participated in the preparation of a construction. The analysis of the data gathered from the interviews gave an understanding of what factors and/or attributes have been used in the conception of projects and insights into the quality of the prerequisite used when deciding on projects. A comparison of the data gathered from this study as well as the data gathered from the previous study for the public projects, presented in section 2.3, gives an indication about current feasibility study practices in Iceland.

4.2 Research design 4.2.1

Qualitative research

The aim of the research is to benchmark current feasibility study practices in private construction projects in Iceland against theoretical best practices, as well as compare current feasibility study practices in private construction projects to current feasibility study practices in public construction projects, where the results for the public projects are already available. The research can therefore be classified as applied research, and is based on qualitative methods where exploration of feasibility studies is carried out to gain more insights on the subject and to develop a theory on current feasibility study practices in Iceland. Qualitative methods are ideal for this particular research where they facilitate the study of issues in depth and detail; increase the depth of understanding of the cases studied and typically produce a wealth of detailed information about a small number of cases (Patton, 2002).

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!

Standardized open-ended interview

According to Patton (2002) qualitative findings grow out of three kinds of data collection: (1) in-depth, open-ended interviews; (2) direct observation; and (3) written documents. In this research, direct observation is not a suitable data collection method, were feasibility study procedures can be a long process and this research examines feasibility study procedures already applied within the businesses. When contacting the private companies and asking for information about their feasibility study procedures most of them were not willing to give away documents on the subject nor was the researcher allowed to review them, where they were recorded as classified. The data gathering was therefore based on interviews. The approach taken to the design of the interview was fully structured in advance of the interviews and is called the standardized open-ended interview. The interview consists of a set of questions carefully worded and arranged with the intention of taking each respondent through the same questions with essentially the same words (Patton, 2002). The standardized open-ended interview is used when it is important to minimize variation in the questions posed to interviewees (Patton, 2002), which is the case in this particular research where answers will be evaluated on the same scale and compared. Before starting the interviews it is important to realize the advantages and disadvantages of using interviews as a data collection method. Robson (2011) identifies the pros of interviews as a flexible and adaptable way of finding things out as well as being quicker than observation, but still incorporating aspects of it. In addition they can reap unexpected awards where things about the interview other than the actual answers to the questions may be interesting to the researcher (Robson, 2011). When designing the interview it is important to have the cons of interviews in mind but according to Robson (2011) interviews require careful preparation as well as being time-consuming. In addition, the researcher needs skill and experience to handle the results of such a flexible approach and the reliability is challenged by the lack of standardization. However, the standardized open-ended interview is less flexible than other types of interviews where questions are written out in advance exactly the way they are asked during the interview, making the interview highly focused and time is used efficiently (Patton, 2002).

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Interview questionnaire

The interviews were based on a questionnaire where the task for the researcher is to provide a framework within which people can respond in a way that represents accurately and thoroughly their experience with the particular program being evaluated (Patton, 2002). When designing the questions it is important that it is clear to the interviewee what is being asked and to use words that make sense to the interviewee (Patton, 2002). Asking singular, unambiguous and non-leading questions improves the quality of data obtained during the interview (Patton, 2002). The interview questionnaire includes 17 open questions, based on this thesis literature review´s theoretical best practices, with focus on the unit of analysis: methods, processes and procedures, factors and/or attributes. That is, the data collection from the eight private businesses is based on what methods, processes and procedures for conducting feasibility analysis were applied and what factors and/or attributes were used. The unit of analysis is based on the following questions and are in accordance with the previous study for public projects: •

What was done? (feasibility analysis method)

•

How was it done? (processes and procedures)

•

What sort of prerequisites was used? (factors and/or attributes)

The 17 questions asked were in accordance with the previous study for public projects with the aim of enabling comparison between the results of the two studies for public projects and private projects respectively.

4.3 Data gathering The approach of data gathering aims at collecting information about specific methods, processes and procedures, and prerequisites for conducting a feasibility analysis for private construction projects in Iceland from the perspective of private businesses in Iceland. The data gathering is limited to private projects established in the period from 2001 to the present day, where the Icelandic law no. 84/2001 was passed by the parliament in 2001. When selecting projects for the research, different private companies were contacted, but the companies had in common having been involved in a preparation of a construction project sometime the last 13 years, as well as being responsible for the construction

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project. The selection of construction projects was random and was aimed at selecting projects based on their variety and with regard to selecting projects from several different businesses. The eight construction projects selected are presented in table 3, detailing the concerned company responsible for the construction project as well as the type of the concerned company.

Project name:

Concerned company:

Type of company:

Advania Data Center

Advania

Information technology

Egilsholl Cinema Hall

Sambioin

Cinema

Harpa Hotel and Apartments

Mannvit

Engineering consultancy

Hofdatorg Down Town and Service Center

Eykt

Constructor

SS Verktaki

Constructor

Klappir Development

Development and investment

Upphaf

Real estate

X

Data center

Holaberg Senior Citizen Apartments Proposed Aluminum Smelter Skagabyggd Vindakor Apartments X Data Center

Table 3: The eight selected private projects, the companies responsible and types of companies. The gathering of data was based on interviews. The eight different companies were visited and an employee responsible for the preparation of the construction project and participated in the initial study was interviewed. The design of the interview was based on studying what methods, processes and procedures for conducting feasibility analysis were applied and what factor and/or attributes were used. A total of 17 questions were asked based on the list of major activities for the conduct of a feasibility study framed as theoretical best practices in section 3.4:

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Project overview Q1. Has the origin of the project been explained? Q2. Has the background of the project been described? Q3. Have the project objectives been defined? Q4. Has a needs analysis been carried out? Alternatives Q5. How many alternative schemes/projects were considered? Q6. Was the zero-alternative included? Cost-benefit Q7. Were benefits and beneficiaries identified? Q8. Were costs identified? Q9. Have the impacts been recorded as performance indicators? (units) Q10. Have the impacts been predicted quantitatively over the life of the project? Q11. Have all impacts been monetized? Net present value (NPV) Q12. Have the benefits and costs been discounted to obtain present value? Q13. Has the net present value (NPV) been computed and compared for each alternative? Sensitivity analysis Q14. Has sensitivity analysis been performed for each alternative? Make recommendation Q15. Has evaluation of alternatives been performed? Q16. Has the selection of the most promising alternative been made? Additionally, it was checked whether an outside evaluation from independent consultant had been performed. For each feasibility conduction activity it was sought to find answers to the following questions: • What was done? (feasibility analysis method) • •

How was it done? (processes and procedures) What sort of prerequisites was used? (factors and/or attributes)

In addition to these questions, information about the total cost of each construction project was gathered for better realization of the size of the projects and for further comparison of the projects. Table 4 shows the estimated total cost of each of the eight projects in billions of ISK.

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Feasibility!studies!in!construction!projects!in!Iceland! Project name

! Estimated total cost of project (bilion ISK)

Advania Data Center

0.7

Egilsholl Cinema Hall

0.6

Harpa Hotel and Apartments

14

Hofdatorg Down Town & Service Center

6

Holaberg Senior Citizen Apartments

1

Proposed Aluminium Smelter Skagabyggd

70

Vindakor Apartments

1.6

X Data Center

11

Table 4: Estimated total cost of the eight selected private projects. The questionnaire presented to the eight employees is available for review in the Appendix II. In each interview the questions were asked in the right order and comments registered in the abovementioned form for each question where appropriate. 4.3.1

Data classification

For each interview the questionnaire form was filled out and consistency with best practice for each question was also evaluated and registered. The consistency with best practice was assessed and classified into the following three categories: •

Full consistency with best practice

•

Partial consistency with best practice

•

No consistency with best practice

In assessing the consistency with best practice, the answer to each question was evaluated as how consistent it was to the summary of theoretical best practices in section 3.4. The unfilled evaluation form is available for review in Appendix III.

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4.4 Data analysis 4.4.1

Current feasibility study practices in private construction projects in Iceland

For each of the eight interviews, comments and an evaluation of consistency with best practice were reported in the defined form and are available for review in Appendix IV. For the 17 questions and 8 projects a total of 136 occurrences (17 x 8) are recorded, where 67 of them are evaluated as fully consistent with best practice, 31 partially consistent with best practice and 38 have no consistency with best practice. Table 5 shows how the 17 occurrences for each project split between the three classes of consistency with best practice as well as the percentage of each class for each project. Full consistency varies from 35% to 65% with a mean of 49%, partial consistency varies from 12% to 35% with a mean of 23% and no consistency varies from 18% to 47% with a mean of 28%.

Table 5: Consistency with best practice for the eight selected private projects.

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Table 6 demonstrates the distribution of the scores and the normalized results due to different number of questions within each category. The consistency percentages are based on the number of questions within each category and the consistency strength within each category.

Table 6: Consistency of approach towards feasibility analysis for the eight private projects (occurrences and weighted percentages taken into the account of the number of activities in each category). The category “project overview” is the most consistent with best practice and thereafter the category “alternatives”. The categories “net present value” and “independent consultants” have the highest rate of no consistency with best practice. The general conclusion is a gap of 60% of the categories where there is only partial consistency with best practice, where 40% of the categories are fully consistent with best practice. 4.4.2

Current feasibility study practices in construction projects in Iceland

The data analysis of the research “The feasibility of public projects in Iceland” carried out in 2014 is presented in section 2.3. The average consistency with best practice evaluation for the two studies is shown in table 7 and table 8. Table 7 shows the average consistency

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with best practice for all projects, private projects and public projects respectively. Table 8 shows the average consistency with best practice for all projects with regard to the amount of occurrence in each category, for private and projects and public projects respectively. The weighted consistency with best practice is shown graphically in figure 3.

Table 7: Average consistency with best practice for all projects, for private projects and public projects respectively.

Table 8: Average consistency with best practice for all projects with regard to the amount of occurrences in each category, for private projects and public projects respectively.

52%!

Weighted No consistency

36%! 24%!

Weighted Partial consistency

24%! 24%!

Weighted Full consistency

40%! 0%

10%

20%

Public!construction!projects!

30%

40%

50%

60%

Private!construction!projects!

Figure 3: Average consistency with best practice for all projects with regard to the amount of occurrences in each category, for private projects and public projects respectively. 4!35!4! !

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For the private projects the general conclusion is a gap of 60% of the categories where there is only partial consistency with best practice, but for the public projects the gap is 76%. In order to determine whether the difference between the consistency with best practices for the private projects and the public projects is significant, a two-sample t-test is performed on the full consistency rates. The rates for the public projects are shown in table 1 in section 2.3 and for the private projects in table 5 in section 4.4.1. The null hypothesis states that there is no difference between the means of the two cases; !! stands for the hypothesized mean of the full consistency rates for the private projects and !! for the public projects. Null hypothesis:

H0: !! = ! !!

Alternative hypothesis:

Ha: !! ≠ ! !!

The two-sample t-test determines whether the difference between the two means is significantly different from the hypothesized difference between means. Degrees of freedom, DF, are computed: !!! !!! ! + ) !! !! !" = ! ! ! !! ( ! )! ( ! )! !! !! + !! − 1 !! − 1 (

Then test statistic is computed, which is a t-score, t, defined by the following equation: ! =!

!! − ! !! − ! !!! !!! !! + !!

where !! is the standard deviation and !! !is the mean of the full consistency rates for the private projects and !! is the standard deviation !! !is the mean of the full consistency rates for the public projects, !! is the number of private projects and !! is the number of public projects, and d is the hypothesized difference between the means. !!! = 9.59 !!! = 16.55 !! = 8 !! = 6 !! = 49.25 !! = 29.50 d = 0 DF = 11,46 t = 2,81

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The critical value of t is 2.20 if 95% confidence interval is assumed. If the standardized difference between the two sample means, t, is larger than 2.20 it can be concluded that there is a significant difference between the two means. Where t = 2,81 > 2.20 there is a significant difference between the two means and the null hypothesis is rejected.

4.5 Conclusion The research included evaluation of data obtained through interviews in eight private companies that had in recent years prepared, and most of them established as well, a construction project. The types of businesses responsible for the construction are different and the total cost of projects varies from 0.6 billion ISK to 70 billion ISK. The projects were all started after the year 2007, in the shadow of the economical crisis. The following eight private construction projects were examined: • • • • • • • •

Advania Data Center Egilsholl Cinema Hall Harpa Hotel and Apartments Hofdatorg Down Town and Service Center Holaberg Senior Citizen Apartments Proposed Aluminum Smelter Skagabyggd Vindakor Apartments X Data Center

The interviews were based on 17 questions obtained from the conclusion of the literature review on feasibility study best practices. For each question, information about the underlying methods, processes and procedures, factors and/or attributes was collected. Evaluation of the data was based on benchmarking the current feasibility study practices and procedures against the best practices. The conclusion of the research shows that there is a considerable discrepancy between current feasibility practices in private projects and best practices and the conduct of feasibility studies in private projects is lacking processes to be considered best practice. The data collected from the research was compared to the data collected from the previous study for the public projects, presented in section 2.3. The data analysis shows a significant difference between feasibility study practices in private construction projects and public construction projects respectively, where the private projects are performing better, although in both cases the feasibility study procedures are lacking more than half of their processes to be considered best practice. ! 4!37!4! !

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5 Results 5.1 Introduction In this chapter the results of the thesis are presented. The results of the literature review are presented first with the literature review aimed at framing the feasibility study best practices. The research of this thesis sought to answer the aforementioned research questions: •

How are feasibility study practices in private construction projects in Iceland compared to theoretical best practices?

•

How are feasibility study practices in private construction projects compared to feasibility practices in public construction projects in Iceland?

The research questions are answered and the research hypothesis was tested, by interpreting the data analysis in chapter 4, but the research hypothesis suggested that the same applies for feasibility studies practices in private construction projects as in public construction projects. The findings of the research for the public construction projects showed that there is a disparity between current feasibility study practices in public projects in Iceland and best practices. The results give an understanding of current feasibility study practices in private construction projects in Iceland and an indication of current feasibility study practices in construction projects in Iceland, including private and public construction projects. It should be kept in mind that two different research methods were used for the two research studies compared, which might have biased the results to some extent and should be taken into account when results are interpreted.

5.2 Framing of feasibility study theoretical best practices The literature review aimed at framing the best practices of feasibility studies which laid the foundation for the research. The conclusion of the review involved 6 major processes of the feasibility study: project overview, alternatives, benefits and costs, net present value (NPV), sensitivity analysis and making recommendation. Each process is described in more detail in section 3.4.

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5.3 Current feasibility study practices in private construction projects in Iceland The research of this thesis was a qualitative study based on interviews and involved investigation and evaluation of feasibility study practices in eight private construction projects. The following eight private projects were examined: • • • • • • • •

Advania Data Center Egilsholl Cinema Hall Harpa Hotel and Apartments Hofdatorg Down Town and Service Center Holaberg Senior Citizen Apartments Proposed Aluminum Smelter Skagabyggd Vindakor Apartments X Data Center

Evaluation of data was based on benchmarking current practices and procedures against best practices for conducting feasibility analysis which includes the following six processes: project overview, alternatives, benefits and costs, net present value (NPV), sensitivity analysis and making a recommendation. In addition, it was checked whether an outside evaluation from independent consultants had taken place. The overall conclusion of the study shows that there is a considerable gap between current practices and procedures in conducting feasibility studies in private construction projects and theoretical best practices, where 60% of the processes are only partially consistent with best practices.

5.4 Current feasibility study practices in construction projects in Iceland To give an indication of current feasibility study practices in construction projects in Iceland the conduct of feasibility studies in private and public projects is examined and compared. The two research studies were both qualitative studies based on the same 17 questions and classification of evaluation. The research of the private projects was interview-based and the research of the public projects was based on content analysis. The data analysis and results of the research “The feasibility of public projects in Iceland” carried out in 2014 is presented in section 2.3 and the comparison between the two research studies is presented in section 4.4.2. Based on the data analysis in section 4.4.2, the research hypothesis stating that there is no difference between feasibility studies practices in private construction projects and public construction projects, is rejected, i.e. 4!39!4! !

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there is a significant difference between feasibility studies practices in private construction projects and public construction projects. In other words, the private projects perform significantly better in conducting feasibility analysis than the public projects. Despite this conclusion, in both cases, the data analysis shows that there is a discrepancy of applied methodology and best practices when conducting feasibility analysis, where the private projects only fulfill 40% of the best practice processes and the public projects 24%. In both cases the projects are lacking more than half of the feasibility study procedures to be considered best practices.

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6 Discussion 6.1 Introduction This chapter includes a discussion on the feasibility study practices in construction projects in Iceland based on the results of the research of this thesis. In addition, there is a discussion about the limitations of this research as well as the limitations of cost-benefit analysis. Then further research in the field of feasibility studies is suggested in order to expand knowledge on the subject and improve feasibility study practices in Iceland.

6.2 Feasibility study practices in construction projects in Iceland This research has aimed at expanding knowledge about the last decade´s and the current feasibility study practices in Iceland. The results indicate that the private construction projects perform significantly better in conducting feasibility analysis than the public construction projects, but in both cases the projects are lacking more than half of the feasibility study procedures to be considered best practices. For the public projects, legal requirements structure a framework of feasibility study procedures that they are required to follow, but the conclusion of Fridgeirsson´s investigation on feasibility studies in public projects indicates that the there is a lack of transparency in the management of initial study reports in addition to the lack of feasibility study procedures. He suggests in order to improve the situation, it is important the Minister of Finance issues detailed guidelines for conducting feasibility analysis in accordance with current best practice (2014). The review of the international requirements on feasibility study procedures in section 2.2 showed clearly the limitations of the Icelandic law on public project procurement in comparison to the international requirements. The foreign requirements indicate stricter rules on feasibility study procedures as well as greater monitoring on behalf of the government. For the private construction projects, the company itself is responsible for its own feasibility study, but in those cases where the project is restricted to the Law on Environmental Impact Assessment, the EIA entails a part of the feasibility study, for example, by identifying environmental and social impacts and evaluation of alternatives. The companies responsible for the private construction projects under investigation in this thesis´ research were of different types and the projects were financed in different ways, but their intention with the projects was the same: benefit financially. In those cases

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where external financing was sought to finance the projects the interviewees talked about the requirements set by the financing agencies. The companies asking for financing were required to sell the concept of the project and convince and reassure the lender of the viability of the project as well as its profitability. In those cases, the company was required to submit a feasibility study. It can be assumed that the work procedures of financing agencies are stricter and borrowers are expected to meet stricter requirements after the recession. Nowadays the construction business is tough and it is probably more important now than ever that the right projects are selected and proceed with construction based on the right factors. Based on this thesis´ research, it can be reasoned that the more responsibility the private project implies and the more expensive and extensive the project, the more the company is compelled to lay emphasis on feasibility studies. This conclusion can be drawn from the fact that the 4 most expensive private projects of this thesis´ research, seen in table 4, are also the 4 most consistent with best practice, seen in table 5. The cost estimates and the ranking of consistency go hand in hand except for the most expensive project, Proposed Aluminum Smelter Skagabyggd, which places 4th, that could be explained by the fact that EIA has not been conducted yet for that project. For the cheaper projects, less emphasis was laid on feasibility studies and the practice seems to be based on rushing into the projects without sufficient preparation and analysis. The results show that current methodology of performing feasibility analysis varies greatly and the overall conclusion shows limited consistency with best practices. The significant difference between feasibility study practices in private and public projects could be explained based on the literature review and the information drawn from this thesis research. The pressure that the financing agencies lay on the private companies seeking external financing requires reassurance about the viability of the project, the situation in the economy where construction cost is high and the housing market is tough and the fact that the private companies are risking their own money when they decide on establishing a construction project, should give the companies enough reason to prepare and evaluate their proposed project thoroughly before deciding to proceed with the project. Despite that difference, feasibility study practices in private and public construction projects are lacking procedures to be considered best practices and there is space for major improvement of procedures in both cases.

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For the public projects, issuing detailed guidelines for conducting feasibility analysis in accordance with current best practices is suggested in order to improve the situation (Fridgeirsson, 2014). Such publishing of exemplary practices by the government could also benefit and have positive impact on feasibility study practices in the private sector where governmental requirements often set the industry standard. The laws and regulations create a specific model of ideal procedures that organizations work by and the private sector can use in its own favor. When issuing such guidelines transparency, accessibility and user-friendliness should be kept in mind.

6.3 Limitations This research was limited to the examination of conduct of feasibility studies in eight private construction projects. The presented theoretically best practices for conducting feasibility studies for construction projects were limited to the literature review and the conclusion is therefore limited to the extent of that review. There are also some limitations to the research that could have affected the research findings. As mentioned earlier, two different research methods were used for the two research studies compared for the private projects and public projects respectively, which could have biased the results and should be kept in mind when results are interpreted. When selecting private projects for the investigation, the aim was to collect feasibility study data from projects initiated in the period 2001-2014, i.e. after the law on public project procurement (no. 84/2001) was passed by the government in 2001 to the present day. The research included a comparison between feasibility study practices in the private projects and public projects, but the results for the public projects were already available. Half of the public projects were prepared before the financial crisis in 2008, but when collecting data for the private projects limited data was available for projects initiated before that time. The explanations given for this limitation were different: staff turnover, lack of storing data, changes in ownership and changes in work procedures. It can be assumed that preparation of private projects has improved in some ways after the recession where the construction business is tougher which could have exaggerated the significant difference between feasibility study practices in public and private projects. The fact that public and private projects are different in nature where the impacts of private construction projects tend to be less environmental and social than public construction projects, could have affected the evaluation and comparison but none of the 4!43!4! !

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private projects considered environmental and social impacts in their feasibility study. For the private projects, all of the focus was on financial benefits and costs. In addition, it is important to realize that the cost-benefit analysis has some limitations, but two circumstances make the net benefit criterion an inappropriate decision rule: technical limitations and goals other than efficiency (Boardman et al., 2014). Limitations in theory, data or analytical resources may make it impossible for the analyst to measure and value all impacts of a policy as commensurate costs and benefits. Usually efficiency underlies cost-benefit analysis, but sometimes goals other than efficiency are relevant, especially in the public sector (Boardman et al., 2014).

6.4 Further research The research of this thesis did not include examination of how well the private projects passed the budget or how they performed during and after implementation, where some of the projects have not been established yet. For the public projects, all of them apart from one ran into problems (Fridgeirsson, 2014). It would be interesting to follow the eight private projects, and investigate whether they achieved their defined needs and how well they met expectations. In order to determine how Icelandic feasibility study practices are consistent with best practice in comparison to international practices, it would be interesting to repeat this thesis´ research as well as the research for the public projects in the three countries reviewed in section 2.2. Further research, based on these perspectives could benefit and improve feasibility study practices in Iceland by expanding new knowledge on the subject.

6.5 Conclusion Considering the advantage and success that conducting feasibility analysis can give in the development, preparation and implementation of construction projects the results of the research are disappointing to some degree. The results show significant difference between feasibility study practices in private construction projects and public construction projects in Iceland, where the private projects perform better. The performance of the private projects can possibly be explained by the pressure that the financing agencies lay on the private companies seeking external finance by requiring reassurance about the viability of the project. In addition, the situation in the economy where construction cost is high and the housing market is tough and the fact that the private companies are risking

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their own money when they decide on establishing a construction project. Simultaneously, there is limited transparency in the management of initial study reports for the public projects and poor or no methodology is present for feasibility analysis to evaluate various options in public projects. But despite the significantly better performance of the private projects, feasibility study practices in both private and public projects are lacking more than half of the processes to be considered best practices. To improve the situation and current methodology in the public sector it has been recommended to improve the procedures entailing new detailed guidelines for performing feasibility analysis in accordance with best practices. This improvement could also benefit the private sector, especially if the guidelines are transparent, accessible and user-friendly. Private businesses that are considering launching new projects are then encouraged to adopt the principal methodology of feasibility analysis in the inception of the project with the aim of increasing the chances of success in the whole life cycle of the project.

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7 Conclusion 7.1 Feasibility analysis The importance of conducting feasibility studies in construction projects is clear, entailing professional methodology to evaluate the viability of the proposed project before an investment decision is made. The procedures of feasibility analysis develop a comprehensive study and a series of examinations that contribute to the project´s success where the success of the project includes for example, completion to budget, satisfying the project schedule and meeting the project goal. Feasibility studies should be applied in any development of new projects where efficiency is the goal, independent of the project´s type. According to the literature review, theoretical best practices of a feasibility study include six processes; project overview, alternatives, benefits and costs, net present value (NPV), sensitivity analysis and making recommendation. Each process is described in detail in section 3.4 Framing of feasibility study theoretical best practices.

7.2 Feasibility study practices in construction projects in Iceland Based on the abovementioned results, a questionnaire was designed to lay the foundation for the data gathering of the research. The research entailed an interview-based qualitative study on the feasibility study practices in eight different private construction projects in Iceland. Answers were evaluated based on studying what methods, processes and procedures were applied and what factors and/or attributes were used in the conduction of the feasibility studies. The results of the evaluation were benchmarked against theoretical best practices, showing the current feasibility study practices in private projects in Iceland. Current feasibility study practices in private projects in Iceland were then compared to current feasibility study practices in public projects in Iceland, giving an indication about feasibility study practices in construction projects in Iceland. The results indicated a significant difference between feasibility studies practices in private construction projects and public construction projects where the private projects perform better in conducting feasibility analysis than the public projects. However, in both cases, the data analysis showed a discrepancy between applied methodology and best practices when conducting feasibility analysis where the projects are lacking more than half of the feasibility study procedures to be considered theoretical best practices. 4!46!4! !

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7.3 Recommendation To improve the situation and current methodology in the public sector it has been recommended to improve the procedures by entailing new detailed guidelines for performing feasibility analysis in accordance with best practices. Where governmental requests often set standard for industry this improvement could benefit the private sector as well. The importance of feasibility analysis is again highlighted and private businesses that are considering launching new projects are encouraged to adopt the principal methodology of feasibility analysis in the inception of the project with the aim of increasing the chances of success in the whole life cycle of the project.

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References Boardman, Greenberg, Vining & Veimer. (2014). Cost-Benefit Analysis: Concepts and Practice 4th ed. Pearson. Brealey, R.A., Myers, S.C., & Allen, F. (2011). Principles of corporate finance 10th ed. McGraw Hill/Irwin. Flyvbjerg, Skramis Holm, M. K., & Buhl, S. L. (2002). Cost underestimation in Public Works Projects: Error or lie? Journal of the American Planning Association, vol 68, no 3, pp. 279-295. Fridgeirsson, Þ.V. (2010). Project Charter: Improvement of the Public Project Live Cycle (IPP). Fridgeirsson, Þ. V. (2012). Frumundirbúningur og ákvörðunartaka vegna opinbers verkefnis á Íslandi borin saman við norskar lágmarkskröfur. Fridgeirsson, Th. V. (2014). The feasibility of public projects in Iceland. 28th IPMA World Congress. Gardiner, P. D. (2005). Project management: A strategic planning approach. Macmillan. HM Treasury. (2003). The Green book: Appraisal and Evaluation in Central Government. Retrieved on August 30th 2014 from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220 541/green_book_complete.pdf Hyari, K., & Kandil, A. (2009). Validity of feasibility studies for infrastructure construction projects. Jordan Journal of Civil Engineering, vol 3, no. 1, Kerzner, H. (2006). Project management: A systems approach to planning, scheduling and controlling (9th ed). Wiley. Ministry of Finance. (2012). Cost-Benefit Analysis. Official Norwegian Reports NOU 2012: 16. Munns, A. K., & Bjeirmi, B. F. (1996). The role of project management in achieving project success. International Journal of Project Management. Vol. 14. No. 2, pp.81-87.

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NTNU. (2014). The quality assurance scheme. Retrieved on August 30th 2014 from http://www.concept.ntnu.no/qa-scheme/description Patton, Q. (2002). Qualitative research & evaluation methods 3rd ed. Sage Publications, inc. Project Management Institute (PMI). (2008). A guide to project management body of knowledge 4th ed. Project Management Institute, Inc. Robson, C. (2011). Real world research: a resource for users of social research methods in applied settings 3rd ed. Wiley. Salman, A.F.M., Skibniewski, J.M., & Basha, I. (2007). BOT Viability model for largescale infrastructure projects. Journal of construction engineering and management 133, pp. 50-63. Shen, L., Tam, V. W. Y., Tam, L., Ji., Y. (2010). Project feasibility study: the key to successful implementation of sustainable and socially responsible construction management practice. Journal of Cleaner Production 18, pp 254-259. Shtub A., Bard, J. F., Globerson, S. (2005). Project Management: Processes, Methodologies and Economics 2nd ed. Upper Saddle River: Prentice Hall. Treasury Board of Canada Secretariat. (2009). Business Case Guide. Retrieved on August 30th 2014 from http://www.tbs-sct.gc.ca/emf-cag/business-rentabilisation/bcggar/bcg-gar-eng.pdf Yun, S., Caldas, C. H. (2009). Analysing decision variables that influence preliminary feasibility studies using data mining techniques. Construction Management and Economics 27, pp. 73-87. ! ! ! ! ! ! ! !

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Appendix I: Overview of public project governance

Figure 4: ROAMEF CYCLE. Appraisal and evaluation often form stages of broad policy cycle that some departments and agencies formalize in the acronym ROAMEF (Rationale, Objectives, Appraisal, Monitoring, Evaluation and Feedback) (HM Treasury, 2003).

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Figure 5: The business case model sees the development of the business case progressing through three phases and within those phases are key steps that will collectively make up a solid business case (Treasury Board of Canada Secretariat, 2009).

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Q8. Were costs identified?

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Q6. Was the zero alternative included?

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

Q3. Have the project objectives been defined?

Q2. Has the background of the project been described?

Q1. Has the origin of the project been explained?

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project: What was done? (Feasibility analysis method)

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

Feasibility!studies!in!construction!projects!in!Iceland! !

Appendix II: Questionnaire form

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Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Q12. Have the benefits and costs been discounted to obtain present value?

Present value

Q11. Have all impacts been monetized?

Q10. Have the impacts been predicted quantitatively over the life of the project?

Q9. Have the impacts been recorded as performance indicators? (units)

Major activities for feasibility analysis

Project name: Year of project: Total cost of project: What was done? (Feasibility analysis method)

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

Feasibility!studies!in!construction!projects!in!Iceland! !

Q17. Has an outside evaluation from independent consultants been performed?

Independent consultants

Q16. Has the selection of the most promising alternative been made?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project: What was done? (Feasibility analysis method)

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

Feasibility!studies!in!construction!projects!in!Iceland!

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Feasibility!studies!in!construction!projects!in!Iceland!

Appendix III: Evaluation form

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!

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Q8. Were costs identified?

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Q6. Was the zero alternative included?

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

Q3. Have the project objectives been defined?

Q2. Has the background of the project been described?

Q1. Has the origin of the project been explained?

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

What was done? (Feasibility analysis method)

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

Full consistency with best practice

Partial consistency with best practice

No consistency with best practice

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Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Q12. Have the benefits and costs been discounted to obtain present value?

Present value

Q11. Have all impacts been monetized?

Q10. Have the impacts been predicted quantitatively over the life of the project?

Q9. Have the impacts been recorded as performance indicators? (units)

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

What was done? (Feasibility analysis method)

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

Full consistency with best practice

Partial consistency with best practice

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

Q17. Has an outside evaluation from independent consultants been performed?

Independent consultants

Q16. Has the selection of the most promising alternative been made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

What was done? (Feasibility analysis method)

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

Full consistency with best practice

Partial consistency with best practice

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland!

4!58!4! !

!

Feasibility!studies!in!construction!projects!in!Iceland!

Appendix IV: Completed evaluation forms

4!59!4! !

!

What was done? (Feasibility analysis method)

Advania Data Center 2014 700 million ISK

In the agreement process with the customer, the background of the project was recorded in minutes. -

-

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

4!60!4! !

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

3 different locations were considered, Blönduós, Höfn in Hornafjörður and Fitjar

The customer provided the needs analysis.

Floor area, power supplies, air conditioning,

Profitability calculations in dollars.

Technical information for data centers.

-

What sort of prerequisites were used? (Factors and/or attributes)

November 13th 2014 Jóhann Þór Jónsson, office of the director Advania

When comparing locations, the price and amount of energy available in easch Cost estimation. location was considered as well as the price of transporting supplies.

The customer had been for trial in THOR, Advania´s older data center, and wanted more space. Advania met their needs by building a bigger data center in Fitjar, Reykjanes.

Financial benefits were defined. Other objectives were defined including to transfer Q3. Have the project objectives Financial benefits were defined based on and sell power in the form of information and been defined? profitability calculations. build up the data center industry that can provide more jobs.

Q2. Has the background of the project been described?

Q1. Has the origin of the project The origin has not been recorded. been explained?

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

1

1

1

0

0

Full consistency with best practice

0

0

0

1

0

Partial consistency with best practice

0

0

0

0

1

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!61!4! !

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: What sort of prerequisites were used? (Factors and/or attributes)

November 13th 2014 Jóhann Þór Jónsson, office of the director Advania

All financial costs was identified.

Costs and revenues were recorded in dollars.

Q9. Have the impacts been recorded as performance indicators? (units) -

All costs was estimated with the help of an engineering consultancy firm that carried out a cost analysis.

Financial benefits were identified. As well as transferring and selling power in the form of Financial benefits were based on information and build up the data center profitability calculations. industry that can provide more jobs.

Alls costs and revenues in dollars.

Factors and/or attributes: Cost of property, initial cost, operating cost, financing cost.

!

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

Factors and/or attributes: Profitability calculations.

!

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

Whether or not the project would proceed depended on the product price. Advania is The option of not proceeding the project was still considering their cooperation with the Product price. considered. customer and whether or not to continue with it, where the agreement is only valid for 9 months.

What was done? (Feasibility analysis method)

Advania Data Center 2014 700 million ISK

Q8. Were costs identified?

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Q6. Was the zero alternative included?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

1

0

0

1

Full consistency with best practice

0

1

1

0

Partial consistency with best practice

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!62!4! !

Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Different locations were evaluated as well as Cost estimation. the type of housing, steel vs. laminated.

Sensitivity analysis was performed for one alternative.

Sensitivity analysis was carried out based on price elasticity.

-

Q13. Has the net present value (NPV) been computed and compared for each alternative?

No present value calculations were made.

-

Q12. Have the benefits and costs been discounted to obtain No present value calculations were made. present value?

Present value

-

All costs and revenues have been monetized.

Q11. Have all impacts been monetized?

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

-

What was done? (Feasibility analysis method)

Advania Data Center 2014 700 million ISK

Q10. Have the impacts been The impacts were not predicted quantitatively predicted quantitatively over the over the life of the project. life of the project?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

Initial cost.

Price elasticity.

-

-

All costs and revenues in dollars/kw.

The customer makes agreements that last for a short period time, 9 months, and the infrastructure is written off early in the life of the project.

What sort of prerequisites were used? (Factors and/or attributes)

November 13th 2014 Jóhann Þór Jónsson, office of the director Advania

1

0

0

0

1

0

Full consistency with best practice

0

1

0

0

0

0

Partial consistency with best practice

0

0

1

1

0

1

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

What was done? (Feasibility analysis method)

Advania Data Center 2014 700 million ISK

Q17. Has an outside evaluation Cost analysis was performed by an from independent consultants engineering consultancy firm. been performed?

Independent consultants

Q16. Has the selection of the Reykjanes was selected based on cost most promising alternative been estimation. made?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

The work of the consultants did not involve second opinion desk study. -

What sort of prerequisites were used? (Factors and/or attributes)

November 13th 2014 Jóhann Þór Jónsson, office of the director Advania

Based on cost estimation. If the possibility of expanding the business comes up, the housing will be more simpler and cheaper Cost estimation. next time, to lower construction costs and provide better prices for the product.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

0

1

Full consistency with best practice

8

0

0

Partial consistency with best practice

4

1

0

5

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!63!4! !

!

4!64!4! ! Needs analysis was carried out by an engineering consultancy firm.

Q3. Have the project objectives 3 objectives were defined. been defined?

Q4. Has a needs analysis been carried out?

Two location options were examined.

Cancelling the project was never an option.

Q6. Was the zero alternative included?

Needs analysis was carried out.

Q5. How many alternative schemes/projects were considered?

Alternatives

The suburb was lacking a cinema hall and next cinema was rather far away. The project owner´s guessed as large part of the residents did not attend movies because of the distances.

The objectives were 3: To increase the overall attendance, build up competition with other rivals on the market and provide new customers by adding a cinema hall in a new and growing suburb with rather young population.

-

The two locations considered were Spöngin and Egilshöll with regard to traffic load but Traffic load. the location of Spöngin turned out to be inconvenient.

-

Needs analysis of the location based on the age of population, traffic load and demand. In the beginning of the project the cinema hall was designed as a luxury cinema with higher ticket prices but after the recession the project was put on hold and the focus changed.The ticket prices were kept average.

-

The background of the project has not been recorded. -

-

What sort of prerequisites were used? (Factors and/or attributes)

November 14th 2014 Björn Á. Árnason, manager Sambio

Q2. Has the background of the project been described?

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

-

What was done? (Feasibility analysis method)

Egilsholl Cinema Hall 2008-2010 600 million ISK

Q1. Has the origin of the project The origin of the project has not been been explained? recorded.

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

1

1

1

0

0

Full consistency with best practice

0

0

0

0

0

0

Partial consistency with best practice

1

0

0

0

1

1

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!65!4! !

The cost and revenues.

Q12. Have the benefits and costs Even though the lease was for 33 years, been discounted to obtain present value was not calculated. present value?

Present value

Q11. Have all impacts been monetized?

Q10. Have the impacts been The cost and revenues were predicted predicted quantitatively over the quantiatively over the life of the project. life of the project?

All costs and revenues were recorded as performance indicators.

All financial costs were considered.

Q8. Were costs identified?

Q9. Have the impacts been recorded as performance indicators? (units)

Financial benefits were identified.

What was done? (Feasibility analysis method)

Egilsholl Cinema Hall 2008-2010 600 million ISK

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

-

-

The cost and revenues were calculated 33 years ahead, the length of the lease.

-

Cost analysis was carried out.

Financial benefits were identified by profitability calculations

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

-

All financial costs and revenues in Icelandic kronas.

Operating cost, inital cost, rental cost and revenues.

Costs and revenues were recorded in Icelandic kronas.

Factors and/or attributes: Initial cost, operating cost, rental cost, cost of capital.

!

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

Factors and/or attributes: Profitability calculations.

!

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

What sort of prerequisites were used? (Factors and/or attributes)

November 14th 2014 Björn Á. Árnason, manager Sambio

0

1

1

1

0

0

Full consistency with best practice

0

0

0

0

1

1

Partial consistency with best practice

1

0

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!66!4! !

The two locations were evaluated but not in detail.

Sensitivity analysis was not performed.

NPV was not calculated.

What was done? (Feasibility analysis method)

Egilsholl Cinema Hall 2008-2010 600 million ISK

Q17. Has an outside evaluation Examination of two different locations was from independent consultants performed by an engineering consultancy been performed? firm.

Independent consultants

Q16. Has the selection of the most promising alternative been Only one alternative. made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

0

0

0

-

-

-

-

1

Full consistency with best practice

What sort of prerequisites were used? (Factors and/or attributes)

November 14th 2014 Björn Á. Árnason, manager Sambio

The consultants adviced on choosing Egilsholl because of better transportation in Traffic load. that area.

-

-

-

-

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

7

0

0

0

0

0

Partial consistency with best practice

2

0

1

1

1

1

8

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

!

!

4!67!4! !

Q7. Were benefits and beneficiaries identified?

Financial benefits of the project were identified.

In the conceptual study the zero alternative was included.

Q6. Was the zero alternative included?

Cost-benefit

3-4 greater options where considered and then many minor options as well.

Need analysis was carried out.

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

Q3. Have the project objectives The objective was defined as financial been defined? benefits.

Mannvit owns a part in the project so it´s background has been recorded.

Calculations made with the help of the bank.

The base case defined.

The costs and technical aspects of the alternatives was compared.

Factors and/or attributes: Profitability calculation, revenue estimation and then profit proven.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

-

The greater options where architectural, for example number of floors, but the minor options considered for example the structure of rooms.

Estimate the costs of the project as accurate as possible and define the project in detail with the aim of better outcome of the project. Analysis of the market for the specific product, that is, demand for apartments in Analysis of quality, size of hotel rooms and this location and demand for a hotel in this price per night. quality class.

Information about the development of the project have been recorded. -

What sort of prerequisites were used? (Factors and/or attributes)

November 11th 2014 Karl Reymond Birgisson, engineer Mannvit

Q2. Has the background of the project been described?

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

-

What was done? (Feasibility analysis method)

Harpa Hotel and Apartments 2014 14 billion ISK

Mannvit owns a part in the project along with Q1. Has the origin of the project Information about the stakeholders in the other owerns and it´s origin has been been explained? project and their responsibility. recorded.

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

1

1

1

1

1

1

Full consistency with best practice

1

0

0

0

0

0

0

Partial consistency with best practice

0

0

0

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

4!68!4! !

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Present value was not calculated.

Q12. Have the benefits and costs been discounted to obtain Present value was not calculated. present value?

Financial impacts, costs and revenues were monetized.

-

Cost and revenues are estimated without indexation.

-

-

Q11. Have all impacts been monetized?

The financial impacts where recorded as performance indicators.

-

Present value

What sort of prerequisites were used? (Factors and/or attributes)

November 11th 2014 Karl Reymond Birgisson, engineer Mannvit

-

-

All costs and revenues in Icelandic kronas

Revenues and all costs.

Revenues and all costs.

Economic ( x )yes ( )no A detailed cost estimation was carried out. Social ( )yes ( x )no Risk analysis during construction was Environmental ( )yes ( x )no Alls financial costs were identified as well as carried out where health and security of ! risk analysis. workers were identified as well as social, legal and environmental impacts of the Factors and/or attributes: Initial costs, cost of project and the schedule of the project. capital, investment cost, operating costs. The probability of every risk class of impact was evaluted and it´s consequences recorded.

What was done? (Feasibility analysis method)

Harpa Hotel and Apartments 2014 14 billion ISK

Q10. Have the impacts been Financial impacts were predicted predicted quantitatively over the quantitatively over the life of the project. life of the project?

Q9. Have the impacts been recorded as performance indicators? (units)

Q8. Were costs identified?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

0

1

1

1

0

Full consistency with best practice

0

0

0

0

0

1

Partial consistency with best practice

1

1

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

Evaluation was based on initial cost.

Sensitivity analysis was performed for one alternative.

What was done? (Feasibility analysis method)

Harpa Hotel and Apartments 2014 14 billion ISK

4!69!4! !

Initial cost.

Initial cost.

-

When selecting the most promising alternative, strong emphasis is laid on security issues, which can sometimes be the determining factor, dominant over the profitability of the project.

-

What sort of prerequisites were used? (Factors and/or attributes)

November 11th 2014 Karl Reymond Birgisson, engineer Mannvit

The sensitivity analysis focuses on changes Initial costs. in cost.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Q17. Has an outside evaluation Profiability calculations were performed by a The work of the consultants did not involve from independent consultants bank. second opinion desk study. been performed?

Independent consultants

Q16. Has the selection of the most promising alternative been Selection was based on initial cost. made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

1

1

0

11

Full consistency with best practice

0

0

0

1

Partial consistency with best practice

3

1

0

0

0

No consistency with best practice

! 3

Feasibility!studies!in!construction!projects!in!Iceland! !

4!70!4! !

1

A need analysis was carried out

The need for office building was identified, locations and structure of potential office buildings was analysed as well as the rental rates. The internal of the housing was Need for office space. Location. Rental rates. analysed as well, size per office, technical Internal facility. Transportation. needs, number of windows, number of parking lots needed. Transportation agreements with employees were analysed as well.

Q4. Has a needs analysis been carried out?

1

The financial objectives were defined in detail by profitability calculations. The conceptual objectives inlcuded a new Q3. Have the project objectives Both financial and conceptual objectives were vision for the city center, with a modern Profiatbility calculations. New vision for the been defined? defined in a clear goal setting. and new design of housing, new vision for city center. culture where all kinds of services can be found in the same building as well as a hotel, apartments and restaurants.

Development of culture in the down town area. Planning of the building area, in the past and future. Idea about the down town center model.

1

A report on the project´s origin and background.

Q2. Has the background of the project been described?

Full consistency with best practice

Developing of the life and culture is described and proposed future developmentas well. The planning of the location is described as well as the development of the planning in the past. Development of the down town area is described and the idea about a down town and service center is described.

What sort of prerequisites were used? (Factors and/or attributes)

November 18th 2014 Gunnar Valur Gíslason, project manager Eykt

1

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

The building history of the old houses and property is told in the report. Developing of Transportation development and need for city transportation and need for a new city center. center examined.

What was done? (Feasibility analysis method)

Hofdatorg Down Town & Service Center 2009 6 billion ISK

Q1. Has the origin of the project A report on the project´s origin and been explained? background.

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

0

0

0

Partial consistency with best practice

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

The zero alternative was not included.

Q6. Was the zero alternative included?

4!71!4! !

What sort of prerequisites were used? (Factors and/or attributes)

November 18th 2014 Gunnar Valur Gíslason, project manager Eykt

All financial costs were estimated.

Revenues and costs were recorded as performance indicators.

Q8. Were costs identified?

Q9. Have the impacts been recorded as performance indicators? (units)

-

Detailed cost analysis was carried out.

The financial benefits were identified in Profitability calculations and operating detail. Benefits for the culture and service in estimates. the down town area were identified as well.

-

Revenues, cost of property, initial cost, cost of capital, operating cost, investment cost.

Factors and/or attributes: Cost of property, initial cost, cost of capital, operating cost, investment cost.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

Factors and/or attributes: Profitablity. All kind of service found in the same building. Create a city center with creative culture. Shorter distances have positive influence on traffic load.

Economic ( x )yes ( )no Social ( x )yes ( x )no Environmental ( )yes ( x )no

The alternative to wait with proceeding with part of the construction was included, that is not tearing down all of the old hauses immediately.

The two options were office building and a hotel. After deciding on the office building internal alternatives were considered: Cost estimation and need analysis. windows, fittings, covering, square meter per employee

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Q7. Were benefits and beneficiaries identified?

Cost-benefit

2 alternatives were considered.

What was done? (Feasibility analysis method)

Hofdatorg Down Town & Service Center 2009 6 billion ISK

Q5. How many alternative schemes/projects were considered?

Alternatives

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

1

0

0

0

1

Full consistency with best practice

0

1

1

0

0

Partial consistency with best practice

0

0

0

1

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

What was done? (Feasibility analysis method)

Hofdatorg Down Town & Service Center 2009 6 billion ISK

Financial benefits, revenues and costs were monetized.

4!72!4! !

Revenues, cost of property, initial cost, cost of capital, operating cost, investment cost.

Revenues and all costs were monetized in Icelandic kronas.

-

Q16. Has the selection of the most promising alternative been Only one alternative. made?

Sensitivity analysis was performed with respect to investment costs. As well as credit terms vs loan rate.

Investment costs.

-

-

The NPV of the costs and revenues was Revenues, cost of property, initial cost, cost of calculated for the life time of the building. capital, operating cost, investment cost.

And FCFF was calculated.

-

-

Sensitivity analysis for the alternative that was chosen was performed.

The NPV was computed for the alternative that was chosen.

What sort of prerequisites were used? (Factors and/or attributes)

November 18th 2014 Gunnar Valur Gíslason, project manager Eykt

Cost and revenues were predicted 30 years Initial cost, cost of capital, operating cost, ahead. revenues.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Only one alternative.

Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Q12. Have the benefits and costs Present value for revenues and costs was been discounted to obtain calculated. present value?

Present value

Q11. Have all impacts been monetized?

Q10. Have the impacts been The costs and revenues were predicted predicted quantitatively over the quantitatively over the life of the project. life of the project?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

0

0

0

1

1

1

Full consistency with best practice

0

0

1

1

0

0

0

Partial consistency with best practice

1

1

0

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

What was done? (Feasibility analysis method)

Hofdatorg Down Town & Service Center 2009 6 billion ISK

Q17. Has an outside evaluation An outside evaluation from independent from independent consultants consultants was not performed. been performed?

Independent consultants

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

-

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible: Full consistency with best practice

0

What sort of prerequisites were used? (Factors and/or attributes)

-

November 18th 2014 Gunnar Valur Gíslason, project manager Eykt

9

0

Partial consistency with best practice

4

1

4

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland!

4!73!4! !

!

!

!

What was done? (Feasibility analysis method)

Holaberg Senior Citizen Apartments 2009-2012 1 billion ISK

The background has not been described.

No initial report was carried out.

No initial report was carried out.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

4!74!4! !

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Financial benefits were identified.

The zero alternative was always an option before the construction started.

Q6. Was the zero alternative included?

Revenue plan carried out.

The zero alternative was not reported.

Different options about the implementation of The options were not recorded. the building were considered.

No report was made comprising the needs analysis. 54 preparatory meetings were held where the Association informed the constructor of it´s needs and requests.

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

Needs analysis had been carried out by the Association of senior citizens in Reykjavik and vicinity.

The only objective of this project was to Q3. Have the project objectives create jobs and let the wheels of the company The objective was not recorded. been defined? spin.

Q2. Has the background of the project been described?

Project overview Q1. Has the origin of the project The origin was not explained. been explained?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

Factors and/or attributes: The income of the project was estimated to decide on the sale price of the building.

0

1

The situation in the economy made the Association and the constructor doubt the possibility of the project.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

0

1

1

0

0

Full consistency with best practice

Cost estimation.

Needs analysis consisted mainly of the size of the apartments.

The project was started in 2008, the year of the recession and many projects were put on hold.

-

-

What sort of prerequisites were used? (Factors and/or attributes)

November 6th 2014 Ármann Óskar Sigurðsson, manager SS Verktaki

1

0

1

0

0

0

0

Partial consistency with best practice

0

0

0

0

0

1

1

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!75!4! !

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Sensitivity analysis was not performed.

The NPV was not computed.

Q12. Have the benefits and costs Benefits and costs were not discounted to been discounted to obtain obtain present value. present value?

Present value

-

-

Only financial interests and cost of capital were discounted to obtain present value.

-

Costs and revenues were monetized.

Q11. Have all impacts been monetized?

-

-

All financial impacts were recorded as performance indicators.

Q9. Have the impacts been recorded as performance indicators? (units)

All costs of the project was estimated.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Q10. Have the impacts been For the construction from the beginning to the predicted quantitatively over the finish. life of the project?

A detailed cost analysis was carried out.

What was done? (Feasibility analysis method)

Holaberg Senior Citizen Apartments 2009-2012 1 billion ISK

Q8. Were costs identified?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

-

-

-

Revenues and costs were redorded in Icelandic kronas.

Cost of property. Construction cost. Cost of capital, profit.

Revenues and costs.

Factors and/or attributes: Cost of property. Construction cost. Cost of capital.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

What sort of prerequisites were used? (Factors and/or attributes)

November 6th 2014 Ármann Óskar Sigurðsson, manager SS Verktaki

0

0

0

1

1

1

0

Full consistency with best practice

0

0

0

0

0

0

1

Partial consistency with best practice

1

1

1

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

Evaluation of alternatives was not performed.

What was done? (Feasibility analysis method)

Holaberg Senior Citizen Apartments 2009-2012 1 billion ISK

Q17. Has an outside evaluation An outside evaluation from independent from independent consultants consultants was not performed. been performed?

Independent consultants

Q16. Has the selection of the Only one alternative, not with regard to most promising alternative been systematic evaluation of options. made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

-

-

-

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

-

-

-

What sort of prerequisites were used? (Factors and/or attributes)

November 6th 2014 Ármann Óskar Sigurðsson, manager SS Verktaki

0

0

0

Full consistency with best practice

6

0

0

0

Partial consistency with best practice

3

1

1

1

8

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!76!4! !

!

4!77!4! ! -

-

The zero alternative was not included.

Q6. Was the zero alternative included?

The needs analysis comprises studying the A marketing report was made with focus on market for the product. Import of the product to the Europian market. Europe exceeds the production in Europe

Locations had to have access to a port and Different locations for the smelter have been enough energy. 120 thousand tons were explored. Original location was Húsavík. Two decided for the production size, with the Locations and production size. production size options were considered, 240 possibility of expansions of the smelter of thousand tons and 120 thousand tons. another 120 thousand tons in the future.

A needs analysis was carried out.

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

Q3. Have the project objectives The objectives have been roughly defined. been defined?

Technical information about aluminium smelter and wire rod production.

Import of wire rods to Europe exceeds the prodcution in Europe. Analysis of the price of the product and price forecasts for aluminium.

What sort of prerequisites were used? (Factors and/or attributes)

November 6th 2014 Jóhann Friðrik Haraldsson, manager Klappir Development

The objectives are financial benefits as well Financial benefits. as creating employment for the managers.

A detailed description of the technique behind the production is given.

The pre-feasibility study explains the backgraound of the project.

Q2. Has the background of the project been described?

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

A description about the need for wire rods is given.

What was done? (Feasibility analysis method)

Proposed Aluminium Smelter Skagabyggd In process 2014 70 billion ISK

Q1. Has the origin of the project The pre-feasibility study explains the origin been explained? of the project.

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

1

1

0

1

1

Full consistency with best practice

0

0

0

1

0

0

Partial consistency with best practice

1

0

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!78!4! !

Financial impacts were recorded as performance indicators.

Q8. Were costs identified?

Q9. Have the impacts been recorded as performance indicators? (units)

The financial impacts were monetized.

Q12. Have the benefits and costs Only the cash flow was obtained as present been discounted to obtain value. present value?

Present value

Q11. Have all impacts been monetized?

Q10. Have the impacts been Costs and revenues were predicted predicted quantitatively over the quantitatively over the life of the project. life of the project?

Cost analysis was carried out.

All financial costs directly linked to the construction of the smelter and its operation were identified.

The PV() in Excel was used to obtain the present value of the cash flow.

-

A revenue estimate has been made to the year 2030 with focus on the product. The production cost has been estimated from the development of aluminium prices.

-

The financial benefits were analysed with the help of a revenue model.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Financial benefits were identified.

What was done? (Feasibility analysis method)

Proposed Aluminium Smelter Skagabyggd In process 2014 70 billion ISK

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

Cash flow.

Costs and revenues were redcorded in dollars.

Revenues and operating costs.

Initial cost, operation cost, property cost, cost of capital, revenues.

Factors and/or attributes: Initial cost, operation cost, property cost, cost of capital.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

Factors and/or attributes: Financial benefits in dollars

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

What sort of prerequisites were used? (Factors and/or attributes)

November 6th 2014 Jóhann Friðrik Haraldsson, manager Klappir Development

0

1

1

1

0

0

Full consistency with best practice

1

0

0

0

1

1

Partial consistency with best practice

0

0

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!79!4! !

No systematic evaluation of alternatives was performed.

Sensitivity analysis was only performed for the most promising option.

The NPV of the project´s profit was computed for one alternative.

What was done? (Feasibility analysis method)

Proposed Aluminium Smelter Skagabyggd In process 2014 70 billion ISK

Q17. Has an outside evaluation A foreign consultant performed a prefrom independent consultants feasibility analysis. been performed?

Independent consultants

Q16. Has the selection of the Only one alternative. 120 thousand tons most promising alternative been production in Skagabyggð. made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

NPV of profitability.

What sort of prerequisites were used? (Factors and/or attributes)

November 6th 2014 Jóhann Friðrik Haraldsson, manager Klappir Development

Foreign consultant adviced on different locations as well as size of production.

-

-

Production size, location.

-

-

The sensitivity analysis included changes in rates, development of the aluminium world market price, the market price of the Rates, market price, initial cost. product, and the total construction cost of the project.

-

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

1

0

0

0

0

Full consistency with best practice

8

0

0

0

1

1

Partial consistency with best practice

6

0

1

1

0

0

3

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

!

What was done? (Feasibility analysis method)

Vindakor Apartments 2014 1,6 billion ISK How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

4!80!4! !

Q7. Were benefits and beneficiaries identified?

The objectives were financial in Icelandic kronas.

-

Factors and/or attributes: Profitability.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

-

First the quality of the interior was decided Quality and structure of the interior. Based on and then different alternatives of the cost estimation. Investment costs. interior were considered.

Number of dwellings available. Price per A detailed analysis on the status of the square meter. Changes of population. Number housing market in Iceland and where it´s of purchase agreements. aiming was carried out. The reporting, "Upp úr öldudalnum" was written by GAM Management hf. in 2011. Economics forecasts from Statistics Iceland on the development of population, rental market, real estate price and real estate supply were analysed in detail.

Revenue calculations.

Financial benefit of the project was identified. Analysis of the impact of adding 54 Benefits for the hausing market by adding 54 apartments on the market. Profitability apartments. calculations.

The zero alternative was not included.

Q6. Was the zero alternative included?

Cost-benefit

Interior alternatives were considered as well as different funding alternatives.

A needs analysis was carried out.

Q5. How many alternative schemes/projects were considered?

Alternatives

Q4. Has a needs analysis been carried out?

Need for apartments.

What sort of prerequisites were used? (Factors and/or attributes)

November 5th 2014 Pétur Hannesson, project manager Upphaf

The building was bought weatherproof and The background of the project was recorded. available data about the property and Drawings, size of building, property data. housing recorded.

Q3. Have the project objectives The financial profit objectives from the been defined? construction were defined in detail.

Q2. Has the background of the project been described?

Q1. Has the origin of the project The origin of the project is based on analysis Analysis of the hausing market. been explained? of the hausing market.

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

0

1

1

1

1

1

Full consistency with best practice

1

0

0

0

0

0

0

Partial consistency with best practice

0

1

0

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!81!4! !

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Q13. Has the net present value (NPV) been computed and compared for each alternative?

Sensitivity analysis was carried out for one alternative.

Only for the most promising alternative.

Costs and revenues.

-

All costs and revenues were monetized in Icelandic kronas.

-

Construction cost, cost of capital, interest expenses, investment cost, revenues.

Construction cost, cost of capital, interest expenses, investment cost.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

What sort of prerequisites were used? (Factors and/or attributes)

November 5th 2014 Pétur Hannesson, project manager Upphaf

Sensitivity analysis of interest expenses of Interest expenses. loans vs. how early the apartments are sold.

-

Q12. Have the benefits and costs Present value was calculated for the costs and been discounted to obtain Present values calculations. revenues. present value?

Present value

-

All costs and revenues were moneticed.

Q11. Have all impacts been monetized?

-

-

Costs and revenues were recorded as performance units.

Q9. Have the impacts been recorded as performance indicators? (units)

A detailed cost analysis was carried out by Ferill, engineering consultancy firm.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Q10. Have the impacts been The impacts were not predicted quantitatively predicted quantitatively over the over the life of the project. life of the project?

All financial costs were identified.

What was done? (Feasibility analysis method)

Vindakor Apartments 2014 1,6 billion ISK

Q8. Were costs identified?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

0

1

1

0

1

0

Full consistency with best practice

1

1

0

0

0

0

1

Partial consistency with best practice

0

0

0

0

1

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

Evaluation of different funding alternatives was performed.

What was done? (Feasibility analysis method)

Vindakor Apartments 2014 1,6 billion ISK

Q17. Has an outside evaluation Cost analysis was carried out by an from independent consultants engineering consultancy firm. been performed?

Independent consultants

Q16. Has the selection of the Selection between different funding most promising alternative been alternatvies. made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

The work of the consultants did not involve second opinion desk study.

-

Costs for each alternative calculated.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

-

Based on the optimal investment strategy.

Investment costs.

What sort of prerequisites were used? (Factors and/or attributes)

November 5th 2014 Pétur Hannesson, project manager Upphaf

0

0

0

Full consistency with best practice

8

0

1

1

Partial consistency with best practice

6

1

0

0

3

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

4!82!4! !

!

What was done? (Feasibility analysis method)

X Data Center 2014 11 billion ISK

4!83!4! !

Q7. Were benefits and beneficiaries identified?

Cost-benefit

Q6. Was the zero alternative included?

Alternatives Q5. How many alternative schemes/projects were considered? Base case defined.

With the use of profitability calculations but x had limited access to these Financial benefit of the project was identified. information where they were classidied because of competitors.

The zero alternative was included in the conceptual study.

Different quality classes were considered.

The prices of different quality classes of data centers were compared.

-

Factors and/or attributes: Profitability.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

Cost estimation.

The buyer asked for a specific quality class In this case the buyer had certain ideas about for the data center and x gave advice on the implementation of the project and x based different classes. it´s feasibility study on that.

Need analysis was not carried out.

Q4. Has a needs analysis been carried out?

Technical information.

-

What sort of prerequisites were used? (Factors and/or attributes)

November 11th 2014 X X

Estimate the costs of the project as accurate as possible and define the project in detail Cost estimation. with the aim of better outcome of the project.

The background and information about the project is described by the buyer, which x These information are recorded in the uses and makes changes on in the conceptual conceptual study. process.

-

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Q3. Have the project objectives The objective was defined as financial been defined? benefits.

Q2. Has the background of the project been described?

The origin of the project is not explained but Q1. Has the origin of the project everything within the construction area is been explained? defined.

Project overview

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

0

1

1

0

1

1

0

Full consistency with best practice

1

0

0

0

0

0

0

Partial consistency with best practice

0

0

0

1

0

0

1

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

The financial impacts and technical performance where recorded as indicators.

Q9. Have the impacts been recorded as performance indicators? (units)

4!84!4! ! -

Present value was not calculated.

Q13. Has the net present value (NPV) been computed and compared for each alternative?

-

-

Financial impacts were monetized.

Unforseen cost is taken into account.

-

A detailed cost estimation was carried out.Then risk analysis for the cost estimation was carried out with Monte Carlo simulation and risk analysis during construction was carried out where technical performance of the project was evaluated.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

Q12. Have the benefits and costs been discounted to obtain Present value was not calculated. present value?

Present value

Q11. Have all impacts been monetized?

Q10. Have the impacts been The financial impacts and technical predicted quantitatively over the performance were predicted quantitatively life of the project? over the life of the project.

All financial costs were identified.

What was done? (Feasibility analysis method)

X Data Center 2014 11 billion ISK

Q8. Were costs identified?

Major activities for feasibility analysis

Project name: Year of project: Total cost of project:

-

-

Costs and revenues were recorded in Icelandic kronas.

Costs, revenues and technical performance.

Costs and revenues.

Factors and/or attributes: Initial cost, operating cost, cost of property, cost of capital.

Economic ( x )yes ( )no Social ( )yes ( x )no Environmental ( )yes ( x )no

What sort of prerequisites were used? (Factors and/or attributes)

November 11th 2014 X X

0

0

1

1

1

0

Full consistency with best practice

0

0

0

0

0

1

Partial consistency with best practice

1

1

0

0

0

0

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

Evaluation of alternatives was performed.

Sensitivity analysis was carried out for one alternative.

What was done? (Feasibility analysis method)

X Data Center 2014 11 billion ISK

4!85!4! !

Q17. Has an outside evaluation Feasbility study was performed by an from independent consultants engineering consultancy firm. been performed?

Independent consultants

Q16. Has the selection of the Different quality classes were evaluated and most promising alternative been the most promising was selected. made?

Q15. Has evaluation of alternatives been performed?

Make recommendation

Q14. Has sensitivity analysis been performed for each alternative?

Sensitivity analysis

Major activities for feasibility analysis

Project name: Year of project: Total cost of project: What sort of prerequisites were used? (Factors and/or attributes)

November 11th 2014 X X

The engineering consultancy firm adviced on the optimal quality class, based on Quality class of data center. profitability calculations and cost analysis

Selection of the most promising alternative Cost estmation. was based on the cost analysis.

Evaluation of different quality classes was Cost estmation. performed and costs compared.

Sensitivity analysis was carried out for the Profitability calculations. profitability calculations.

How was it done? (Processes and procedures)

Date of interview: Interviewee: Company responsible:

1

1

1

0

10

Full consistency with best practice

0

0

0

1

Partial consistency with best practice

3

0

0

0

0

4

No consistency with best practice

Feasibility!studies!in!construction!projects!in!Iceland! !

!