Ib_business_and_management_sl_internal Example.pdf

Business & Management SL: Internal Assessment

Commentary on:

“To what extent would an increase in staff have a positive effect on the Revenue-Cost Ratio of Company X?”

Candidate Name: Marco Antonio Cabrera Aguilar Candidate Number: 001486-0029 Word Count: 1466

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 1 of 19

Contents 1

Introduction .............................................................................................................................. 2

2

Analysis ..................................................................................................................................... 3

2.1

Background ....................................................................................................................... 3

2.2

PEST Analysis .................................................................................................................... 3

2.3

Production Process ........................................................................................................... 5

2.4

Monthly Break-Even Quantity Analysis ............................................................................. 7

2.4.1

Current situation ................................................................................................................... 7

2.4.2

If a draftsman were hired ...................................................................................................... 8

3

Conclusion ............................................................................................................................... 10

4

Sources and references ........................................................................................................... 11

4.1

Primary Source: .............................................................................................................. 11

4.2

Secondary Sources: ......................................................................................................... 11

4.3

Other Sources: ................................................................................................................ 11

5

Appendix ................................................................................................................................. 12

5.1

Primary Source: Interview to Arch. Marco Cabrera Sandoval .......................................... 12

5.2

Primary Source: Interview to Arch. Marco Cabrera Sandoval – Answers ......................... 13

5.3

Secondary Source: Decreto Ejecutivo N° 18636-MOPT, art. 4 - Arancel de Servicios

Profesionales de Consultoría para Edificaciones (Executive Decree N° 18636-MOPT, art. 4 - Tariff of Professional Consulting Services for Buildings) ................................................................................ 16 5.4

Secondary Source: Informe económico del sector construcción (Economic Report on the

construction sector) ........................................................................................................................ 17 5.5

Secondary Source: Guía: Administración profesional de proyectos en arquitectura para

casas de habitación (Model of Professional Project Management in Architecture) ......................... 18 5.6

Secondary Source: Company X Financial Summary, Jan 2014 - July 2015 ........................ 19

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 2 of 19

1 Introduction Company X is a firm that provides services of Architecture and Design to the high class of Costa Rica. During the ’08-’09 global crisis, the contraction of the country’s construction sector was so severe that Company X had to go as far as reducing its staff to avoid bankruptcy. However, the industry is slowly recovering, and the demand for the company’s services is increasing. This poses a dilemma for Company X Management Department, which must choose between keeping operation with the current staff or hiring an additional employee to be able to engage in more upcoming projects. Thus arose this project’s research question: To what extent would an increase in staff have a positive effect on the Revenue-Cost Ratio of Company X? In order to give an appropriate answer to this question, this analysis makes use of several business tools to assess the current state of the company. The PEST Analysis allows for a thorough comprehension of the external factors that affect the company’s operations and how these relate to its current state. An analysis of the company’s Production Process helps to determine the areas in which it can be improved, which results in the judgement that the most fruitful course of action is hiring an additional draftsman. Finally, the Break-Even Quantity analysis provides a clear visualization of the performance of the company in its current form and after implementing the improvement proposed. By contrasting these two scenarios, this analysis leads to the conclusion that an increase in staff would greatly enhance the company’s operations, since it would achieve greater profits while making use of less time, and would have a significant positive effect on its Revenue-Cost Ratio.

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 3 of 19

2 Analysis 2.1

Background Company X began in 1993 as a consultancy firm that provides services of

Architecture and Design. Since then, it has built itself a reputation of devising high-quality products, oriented towards the high class of Costa Rica. This brand image is the basis for its marketing strategy, which relies mainly in the clients’ loyalty and their recommendations to other potential customers. 2.2

PEST Analysis First and foremost, it is important to understand that there are very strict

regulations and controls regarding construction in Costa Rica. Many government and government-related institutions look over the companies’ activities, enforcing the compliance of urban planning and environmental protection measures, as well as ensuring the proper incorporation of aqueducts, sewage, and electric and anti-seismic systems in the designs1. Furthermore, the Association of Engineers and Architects of Costa Rica (CFIA, for its acronym in Spanish) establishes price floors for the services the companies provide, which are set as percentages of the total value of the projects2. This is intended to eliminate unfair competition, but it also prevents companies from using price penetration as a strategy for attracting customers and increasing market share. As has been mentioned, the recent global crisis had a major impact on the construction sector. For instance, a report by the Chamber of Construction of Costa Rica shows that inter-annual growth rates for this sector fell from 18% in January 2008 to -3% in January 2009, which was followed by a slow and unsteady recovery up to date3. Furthermore, according to Company X General Manager, Arch. Marco Cabrera, the

1

Interview to Arch. Marco Cabrera Sandoval, Company X General Manager, September 4, 2015. Executive Decree N° 18636-MOPT, art. 4. 3 Cámara Costarricense de la Construcción, Informe económico del sector construcción, June 2015. 2

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 4 of 19

volatility of interest rates and the lack of government involvement combine to restrain potential investors from pursuing infrastructure projects, both in the public and the private sector4. The social repercussions of this situation are endless, but the ones that most closely relate to this investigation include the increase in unemployment and, as a consequence, the fall in the price of labor. This of course reduces operating costs for the companies, but has negative effects on the quality of living of the workforce. On the other hand, companies rely heavily on a myriad of software, such as AutoCAD, Vector, and 3DStudio-Max, to name a few5. The licenses of said software amount for as much as $6000 per computer, which constitute paramount costs6. The current low levels of income force Company X to operate on outdated versions of these software, which reduces their competitiveness.

4

Op. cit. Marco Cabrera Sandoval Ibid. 6 Ibid. 5

Marco Antonio Cabrera Aguilar 001486-0029 2.3

IB Business & Management: Internal Assessment (SL) Page 5 of 19

Production Process Company X operates under a job production system. The ultimate objective of the

company is to understand its clients’ expectations and, through a personalized course of action, devise a design that fulfills them. Figure 17 below depicts this process in a graphical way. According to the company’s General Manager, the first steps of the process are very straightforward, while the bulk of the project corresponds to the creation of digital 3D models and other visualizations by the draftsmen. This stage tends to suffer a myriad of changes, both from the clients’ requests and the Designer Architect’s criteria8.

Figure 1. Company X Production Process Flow Chart 7

This figure was elaborated using information from the interview to Arch. Marco Cabrera and the document Guía: Administración profesional de proyectos en arquitectura para casas de habitación. 8 Op. cit. Marco Cabrera Sandoval

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 6 of 19

This is backed by the information presented in Figure 29, which shows the estimated amount of hours each employee invests on an average Company X project. As can be seen, draftsmen account for 284 man-hours of the 726 that make up the whole process, that is, around 40%.

Figure 2. Company X employees' tasks and hours spent on each task for a typical project

This information allows us to conclude that if an extra employee were to be hired, a draftsman would bring about the most benefits to the company, since it would allow for the expediting of the projects’ development.

9

This table was elaborated using information provided by Arch. Marco Cabrera Sandoval

Marco Antonio Cabrera Aguilar 001486-0029 2.4

IB Business & Management: Internal Assessment (SL) Page 7 of 19

Monthly Break-Even Quantity Analysis The projects undertaken by Company X take several months to be completed, and

differ greatly in complexity and worth among each other. Thus, it would be highly unpractical to make this analysis taking projects as the units for the quantity of products sold. Instead, this analysis will consider the amount of hours of operation for the whole staff. This way, the effects of the acquisition of a new employee can be reflected on the revenue curve of the graph. 2.4.1 Current situation Figure 310 summarizes the costs of operation per month for Company X. Total Fixed Costs amount for $22,465.08, while Average Variable Costs represent $5,863.09. According to Arch. Marco Cabrera, each employee works 45 hours per week, except for the janitor, who works part-time. It can be derived from this that the total man-hours worked by the staff are 1461, so the Average Variable Costs per man-hour correspond to $4.01, resulting in a total of $32.10 per hour.

Figure 3. Average Company X costs per month

The average project generates $29,700.00 in revenues for the company11. Since each project takes about 726 man-hours to be completed, it follows that each man-hour generates, on average, $40.91 in revenue. In total the staff brings in $327.32 per hour 12.

10 11

The data used in this table proceeds from Company X Financial Summary, Jan 2014 – July 2015 Op. cit. Marco Cabrera Sandoval

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 8 of 19

2.4.2 If a draftsman were hired Last month, the salary of a draftsman in Company X corresponded to $833.3313. This is taken to be the salary that would be paid to the new draftsman. As a result, Total Fixed Costs would increase to $23,298.41, and the total man-hours would be 1656, which in turn would drive the Average Variable Costs per man-hour to $3.54, leaving the Total Variable Costs per hour at $31.86. The Total Revenue produced by the staff would be $368.23 per hour14. All the previous information is summarized in the following table, which displays the equations of the functions that describe the curves corresponding to each aspect 15.

Figure 4. Break-Even Analysis Equations Summary

12

Current staff consists of a Designer Architect, a Coordinator Architect, two Draftsmen, two Interior and Spatial Designers, an Accountant, and a Janitor, for a total of eight people. 13 Company X Financial Summary, Jan 2014 – July 2015. 14 If a draftsman were hired, the staff would be constituted by nine people. 15 These equations take 𝑥, the amount of hours worked, as the independent variable, and 𝑦, the monetary value of the cost/revenue resulted, as the dependent variable.

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 9 of 19

From this data we can calculate the Break-Even Quantities for the current situation and the hypothetical case of hiring an extra draftsman, which correspond to 76 hours and 69 hours, respectively16. In each case, the Total Costs/Revenues reached at said BreakEven Quantities are $24,909.05 and $25,503.6117. This is reflected in Figure 5.

Figure 5. Break-Even Analysis for Company X Current vs hypothetical situation

Based on this analysis, we can conclude that hiring an additional draftsman increases the efficiency of the production process of Company X, since the Break-Even Point is reached within less hours of work, and at it more revenue is generated. Furthermore, the current Revenue-Cost Ratio at full operation corresponds to 2.22, while with the acquisition of another draftsman it becomes 2.4318.

16

BEQ for current situation: 22465.08 𝑇𝐶 = 𝑇𝑅 ⟹ 22456.08 + 32.10𝑥 = 327.32𝑥 ⟹ 𝑥 = 327.32−32.10 = 76.10. BEQ for hypothetical situation: 23298.41 𝑇𝐶 = 𝑇𝑅 ⟹ 23298.41 + 31.86𝑥 = 368.23𝑥 ⟹ 𝑥 = 368.23−31.86 = 69.26. 17 Total Cost/Revenue for current situation: 𝑇𝐶 = 𝑇𝑅 = 327.32 ∙ 76.10 = 24909.05 Total Cost/Revenue for hypothetical situation: 𝑇𝐶 = 𝑇𝑅 = 368.23 ∙ 69.26 = 25503.61 18 If an employee works 45 hours per week, then they work 45 ∙ 4.33 = 194.85 𝑇𝑅 327.32∙194.85 Revenue-Cost Ratio for current situation: 𝑇𝐶 = 22456.08+32.10∙194.85 = 2.22 𝑇𝑅

Revenue-Cost Ratio for hypothetical situation: 𝑇𝐶 =

368.23∙194.85

23298.41+31.86∙194.85

= 2.43

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 10 of 19

3 Conclusion The analysis carried out leads to the conclusion that the recruitment of an additional employee, specifically a draftsman, would have a significant positive effect on the Revenue-Cost Ratio of Company X, which would be increased from the current 2.22 to 2.43, a 9.46% growth. This is because an extra draftsman would help expedite the process of production of the company, especially the stage of development of the design of the projects. As a result, the company would be able to engage in a larger amount of projects, thus generating more revenue. Furthermore, the cost of hiring said draftsman would not significantly increase the total costs of production, so this increased revenue would be translated into an increased profit. The advantages of this course of action can also be seen in the Break-Even Point of the company. Currently, this lies at a Break-Even Quantity of 76 hours of staff work, at which $24,907.76 are perceived. Hiring a draftsman would drag down the Break-Even Quantity to 69 hours, and increase the revenue to $25,505.17. This data points to an enhancement in Company X Production Process, for it would be able to generate a greater amount of revenue in a smaller period of time.

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 11 of 19

4 Sources and references 4.1

Primary Source: Cabrera Sandoval, M. (2015, September 4). Company X Interview. (M. Cabrera

Aguilar, Interviewer) 4.2

Secondary Sources: Arquitectos Asamblea de Representantes, C.F.I.A. (1988, November 35). Arancel de

Servicios Profesionales de Consultoría para Edificaciones (Decreto Ejecutivo N° 18636MOPT, art. 4). Diario Oficial La Gaceta No 225. San José, Costa Rica. Cámara Costarricense de la Construcción. (2015). Informe económico del sector construcción. San José. Cabrera Sandoval, M. (2012, February). Guía: Administración profesional de proyectos en arquitectura para casas de habitación. San José, Costa Rica. Company X Finance Department. (2015, July). Company X Financial Summary, Jan 2014 - July 2015. San Jose, Costa Rica. 4.3

Other Sources: Chapman, A. (2015). PEST market analysis tool. Retrieved August 20, 2015, from

Business Balls: http://www.businessballs.com/pestanalysisfreetemplate.htm Folsom, D. (2004). Break Even Analysis. In D. Folsom, Encyclopedia of American Business. New York: Library of Congress Cataloging-in-Publication Data. Peter Stimpson, A. S. (2011). Business and Management for the IB Diploma. Cambridge: Cambridge University Press.

Marco Antonio Cabrera Aguilar 001486-0029

IB Business & Management: Internal Assessment (SL) Page 12 of 19

5 Appendix 5.1

Primary Source: Interview to Arch. Marco Cabrera Sandoval

Company X

Marco Antonio Cabrera Aguilar 001486-0029 5.2

IB Business & Management: Internal Assessment (SL) Page 13 of 19

Primary Source: Interview to Arch. Marco Cabrera Sandoval – Answers The sections in italics correspond to the translations of the parts of the interview

that provided information used in this analysis. 1.

2. 3.

4.

5.

6.

7.

Company X es una empresa de arquitectura y diseño, pequeña, que ha tenido a través de su existencia un alto impacto en el mercado de las casas de lujo en Costa Rica. Company X is a firm dedicated to consultancy and design; small, but that has had, throughout its existence, a significant impact in the market of luxury houses in Costa Rica. La empresa tiene 22 años de operar. The firm has been in operation for 22 years. Yo siento que en parte se está cumpliendo, en la parte en la que le queremos dar satisfacción al cliente con el producto, con el diseño, y también brindando fuentes de trabajo para diferentes personas. Pero hay un área de la visión asociada a la sostenibilidad la cual hasta el momento no se ha podido implementar; a pesar de que a través de sistemas electromecánicos o algunas soluciones pasivas se logre en la arquitectura no ha sido algo prioritario para el diseño. [Está conformado por] casas de lujo de la clase alta de Costa Rica. También oportunidades de negocio para personas que tienen capital financiero y quieren invertir, entonces también se desarrollan edificios y condominios, tanto residenciales como comerciales. It is comprised by luxury houses for the high class of Costa Rica. We also work with people who have financial capital available and want to invest, so we develop buildings and condominiums, both for inhabitation and commerce. En Company X se hace el diseño de las obras de infraestructura, [por ejemplo] condominios, conjuntos habitacionales, torres de apartamentos, casas de habitación. Por otro lado, la oferta en cuanto al diseño interno de las casas, la creación y respaldo de planos arquitectónicos, y las inspecciones de obra. Fortalezas: posicionamiento en el mercado, servicio al cliente, producto de calidad. Las oportunidades de crecimiento y mejora abundan, enfocadas no solamente al cliente externo sino también a los funcionarios. Debilidades: a pesar de que se hace un esfuerzo no tenemos nada estrictamente establecido para gestionar nuestros proyectos. Amenazas: el mercado y la competencia, hasta cierto punto la indisciplina en los procesos operativos internos. La primera de todas es el Colegio Federado de Ingenieros y Arquitectos, porque como empresa de consultoría y diseño estamos adscritos a esa institución. Luego están las municipalidades de cada cantón, el Ministerio de Salud, Acueductos y Alcantarillados (AYA), la Secretaría Técnica Nacional Ambiental (SETENA), el Instituto Nacional de Vivienda y Urbanismo (INVU), [y] dependiendo de la magnitud, Compañía Nacional de fuerza y Luz (CNFL), Servicio Nacional de Aguas Subterráneas, Riego y Avenamiento (SENARA), Instituto Costarricense de Electricidad (ICE), y Aviación Civil, para proyectos de mayor complejidad. [Las] restricciones [son] estrictamente legales. Ellos nos dictan cuáles son los lineamientos para construir y cuáles son los parámetros. Por ejemplo, dentro de un lote nos brindan retiros, nos brindan coberturas [de servicios], nos brindan alturas, nos brindan capacidad de ocupación, nos dicen si hay agua o no, si se puede construir porque es ambientalmente viable o no. Por lo general construimos en condominios ya desarrollados, pero sí hay restricciones en las zonas ambientalmente frágiles, como las zonas de Escazú y Santa Ana, o zonas ambientalmente protegidas como San Rafael de Heredia y Ciudad Colón. The most important of all is the Association of Engineers and Architects of Costa Rica (CFIA), because as a firm dedicated to consultancy and design we are affiliated to it. Then there are also the City Councils, the Ministry of Health, Aqueducts and Sewage (AYA), the National Technical Environmental Secretariat (SETENA), the National Institute for Housing and Urbanism (INVU) and, depending on the magnitude of the project, the National Power and Light Company (CNFL), the National Service for Ground Water (SENARA), Irrigation and Drainage, the Costa Rican Institute for Electricity (ICE), and Civil Aviation, for projects of more complexity. They dictate the regulations and parameters for the design. For example,

Marco Antonio Cabrera Aguilar 001486-0029

8.

9.

10.

11.

12.

13. 14.

15.

IB Business & Management: Internal Assessment (SL) Page 14 of 19

they provide us with setbacks [zones of the property left unbuilt], availability of basic services, maximum allowed inhabitants, and if the project is environmentally viable or not. We usually operate in established condominiums, but there are restrictions on environmentally fragile areas, like Escazú and Santa Ana, or areas destined to the preservation of nature, like parts of San Rafael de Heredia and Ciudad Colón. No, en absoluto, porque al menos dentro de la administración una de las políticas es el cumplimiento al 100% de la normativa. Nosotros procuramos cumplir con las normativas y las leyes, porque a pesar de que son restrictivas, permiten un mejor desarrollo de los proyectos. Además, tampoco queremos tener ningún problema legal, ni con las instituciones ni con nuestros clientes. Después de la crisis del 2009 la construcción no volvió a ser la misma. Duró por lo menos unos tres años en recuperarse un poco. A partir de ahí ha sido muy inestable porque no hay una política clara del gobierno y de las instituciones involucradas. Hay mucho temor de inversión, mucha volatilidad en cuanto a las tasas de interés, mucha amenaza al factor cambiario. Todo esto hace que para los inversionistas Costa Rica no sea atractivo. Ha aumentado el riesgo de inversión, la calificación país ha bajado. Todo eso ha ahuyentado un poco la inversión. After the 2009 crisis construction was never quite the same. It took at least three years to somewhat recover. Afterwards, it was been very unstable, because there are no clear policies from the government and other relevant institutions. There is a lot of fear to invest, volatility of interest rates, threats to the exchange rate. All this turns Costa Rica into an unattractive setting for investors. The risk of investment has risen; the country’s ratings have lowered. All this has driven investment away. [Ha causado] bajo flujo de trabajo. Muchos clientes han querido hacer proyectos pero se ha quedado en sólo una propuesta porque terminan decidiendo invertir en otro país. It has led to a low flow of projects. Many clients have wanted to engage in projects but have retracted, leaving just a proposal behind, because they ended up investing in another country. El acceso a los ingresos ha sido, como le decía, muy inestable. No ha sido continuo como en otros años, sino que [se ha usado] casi que para cubrir costos de operación. No hay posibilidades de inversión o crecimiento para la compañía, de momento. Totalmente dependiente. Manejamos sistemas de cómputo muy sofisticados y muy caros. Las licencias de un programa por computadora andan rondando los $6000, y estos son muy especializados. Son programas como AutoCAD, como 3D Studio, Vector, entre otros. Cada uno es muy caro. En fin, dependemos muchísimo de la tecnología. En términos de hardware, hay renovaciones de licencia, los programas se vuelven mejores pero también más pesados, más complejos, entonces los equipos tienen que renovarse para poder correrlos. Completely dependent. We deal with very sophisticate and expensive software. The licenses of one of these programs cost about $6000, and these are very specialized. We are talking about programs like AutoCAD, 3D Studio, Vector, among others. Each of them is very expensive. Anyways, we rely heavily on technology. In terms of hardware, when the licenses are renovated and the programs get better but also heavier and more complex, so the computers have to be upgraded to be able to run them. El 90% de los proyectos que desarrolla Company X están en el lado de Santa Ana, y hay unos pocos en el lado este de la ciudad, específicamente en los condominios Monterán y El Gregal. Llevan estilos de vida de lujo. Estamos hablando de casas que como mínimo tienen un área de 600m2, hasta lo que uno se pueda imaginar. Para que usted se dé una idea, una casa de interés social mide tan sólo 50m2. Entonces una casa de estas familias de clase alta tiene a su haber doce casas de interés social. They have very luxurious lifestyles. We are talking about houses that, as a minimum, span 600m2, and get as big as you can possibly imagine. For you to picture it better, a low-income house spans only 50m 2, so a house of one of these high class families equates twelve social-interest houses. Es muy variado. En términos generales, el cliente nos contacta, se hace la reunión con el cliente, el que tiene la reunión siempre es el dueño de la empresa y a través de él se canaliza la información. A partir de ahí hay dos áreas: la administrativa y la técnica. Dentro de la parte administrativa se genera un archivo, una base de datos, donde viene la parte de adquisiciones, contratos, facturación, y seguimiento en la parte contable y de finanzas. Por otro lado viene la parte técnica, donde se recopilan los

Marco Antonio Cabrera Aguilar 001486-0029

16.

17.

18.

19.

20.

21.

IB Business & Management: Internal Assessment (SL) Page 15 of 19

requisitos, y se hacen estudios preliminares para cumplir con la normativa legal. Luego se hace un diseño, y una vez que se aprueba se hacen planos arquitectónicos, los cuales se envían a las ingenierías para elaborar planos de ingeniería estructural, mecánica, eléctrica; a su vez está el diseño de espacio interno. Posteriormente todo eso se recopila, se hace una conciliación de esos planos y a partir de ahí se inicia el proceso de los permisos de construcción. Finalmente se recogen los planos sellados y visados y se envían a presupuesto, lo cual no lo hacemos nosotros, y se inician las obras. It varies greatly. In general terms, the client contacts us and we have a meeting with him; always carried out by the company’s owner [the Designer Architect], through which information is collected. From there on there are two areas: administrative and technical. The administrative part encompasses the creation of an archive, the data base management the relations with suppliers, contracts, bills and finance. Conversely, the technical part includes the collection of requisites and the elaboration of preliminary studies to comply with the legal regulations. Then comes the design, and once it is approved, the architectural plans, which are sent to engineering firms that develop structural, mechanical and electrical plans; parallel to this comes the interior and spatial design. Afterwards all the information is compiled, and then starts the process of gaining construction permits. Finally, the approved blueprints are retrieved and sent to quotation, which is external to us, and the building process begins. Los costos de operación directos incluyen la planilla: dos arquitectos, dos dibujantes, dos asistentes administrativas y dos diseñadoras. Después estamos hablando del alquiler de una oficina en Lindora, lo cual representa un costo alto, y los gastos de operación, servicios, pólizas de riesgos, obligaciones obrero-patronales y mantenimiento, aire acondicionado, equipos de cómputo y algunas pequeñas inversiones hechas para renovar los equipos. The costs of operation include payroll: the staff is composed by two architects, two draftsmen, two administrative assistants and two designers. Then there is the rent of an office in Lindora [a high class zone], which represents a high cost, and the usual expenses, basic services, insurance, social responsibilities, and maintenance, like air conditioning, computers, and some minor investments in physical capital. [Los] ingresos directos provienen de los clientes que nos contratan. Para que usted se haga una idea, una casa de habitación de esa magnitud paga alrededor de $30000 por sus planos. The revenues come from the clients that hire us. For you to picture it, a project of this magnitude injects about $30000 in payments for our services. En este momento, podríamos decir que sí. Sin embargo, estamos necesitando un dibujante más, por el flujo de trabajo que se tiene, el cual a pesar de no ser alto genera mucha ocupación. At this moment, we could say that it is. However, we are in need of an extra draftsman, because the current work flow, in spite of being low, generates a great workload. Me parece que es necesaria la figura de un dibujante más que nos ayude a generar más trabajo para procurar mayor flujo [de trabajo] y por ende mayor ingreso. I find necessary the presence of an extra draftsman to help us engage in more projects and as a result generate more income. Sería un dibujante, con salario de 45000 colones por mes más gastos obrero-patronales y pólizas. It would be a draftsman, and their salary would amount for 45000 colones, plus insurance and social responsibilities. Sí claro, por supuesto. Yes, sure, of course.

Marco Antonio Cabrera Aguilar 001486-0029 5.3

IB Business & Management: Internal Assessment (SL) Page 16 of 19

Secondary Source: Decreto Ejecutivo N° 18636-MOPT, art. 4 - Arancel de Servicios Profesionales de Consultoría para Edificaciones (Executive Decree N° 18636-MOPT, art. 4 - Tariff of Professional Consulting Services for Buildings)

Translation: a)

Preliminary studies

If the contract is referred exclusively to the concretion of the preliminary studies, or if the client decides to call off the project during this stage, the honorarium will correspond to 1.5% of the estimate value of the project b)

Construction plans and technical specifications

The standard house defined by the state as of social interest will pay, for this category, 3% of its value. c)

Budget

The fare to be charged for this service will be 1% of the estimate value of the project. d)

Advice on government contests and adjudication

The fare for this service will be 0.5% of the value of adjudication of the project. e)

Inspection

The fare for this service will be 3% of the final value of the project.

Marco Antonio Cabrera Aguilar 001486-0029 5.4

IB Business & Management: Internal Assessment (SL) Page 17 of 19

Secondary Source: Informe económico del sector construcción (Economic Report on the construction sector)

Marco Antonio Cabrera Aguilar 001486-0029 5.5

IB Business & Management: Internal Assessment (SL) Page 18 of 19

Secondary Source: Guía: Administración profesional de proyectos en arquitectura para casas de habitación (Model of Professional Project Management in Architecture)

Marco Antonio Cabrera Aguilar 001486-0029 5.6

IB Business & Management: Internal Assessment (SL) Page 19 of 19

Secondary Source: Company X Financial Summary, Jan 2014 - July 2015