L2 - Project Development Intro

CVEN 640: Project Development: Methods and Models Lecture 2: Project Development Spring 2009 Dr. Ivan Damnjanovic

Role of Engineers  Didn’t

change; plan, design, construct, and maintain civil engineering structures

 However,

those decisions need to be coordinated to maximize the project objectives: MAKE PROFIT!

 How

can we make such decisions?

Engineering Decisions Determine:  Construction

quality (type of material and equipment, etc.)

 Constructability

 Operations

flexibility (expanding, scaling, and abandoning)

Engineering Decisions Determine:  Life-cycle

    

costs

Development costs Construction costs Maintenance costs Operating costs Other costs

 Revenues

 

Increased revenue due to strategic planning Other

DEMAND, Cumulative Cost

Example of Scalability

II

WILL YOU INVEST IN THIS PROJECT? I

PLANNING DESIGN CONSTRUCTION

TIME

Engineering Decisions Matter  Design

 

option was more expensive, but…

Made the project more attractive and feasible Changed the cash flows – important from the perspective of servicing debt

 Engineering,

Investment and Financing Decisions are related!

How to Develop Project?  The

Vision or The Idea

 Defining

 Market

the Concept

Research and Analysis

 Business

Structure

The Vision: A Marketable Need or Service  Vision

   

 

Source

Work experience Educational experience Business colleagues and friends Observed business trends and opportunities Advanced education and training Media coverage

Note: Without an identifiable customer segment willing to pay for a product or service, its value is dubious no matter how clever it seems.

Who comes up with the vision? Who are project developers, sponsors or promoters? Contractors  Vendors  Operating companies  Investment banks  Venture capital funds  Other investors 

Redefining/Defining the Vision 









If an invention, build a prototype or prepare design drawings and specifications If a process, clearly define its purpose and advantage If it is proprietary intellectual knowledge, define how it can produce clear competitive advantage If a new market, define the market and why it will use the product or service If a niche market, define why the product has an advantage over existing participants

Market Research  Market

information is making known the supply and the demand for the considered or substitute products  Market segmentation is the division of the market or population into subgroups with similar motivations  Market trends is predicting and analyzing upward or downward movements of a market, during a period of time

Market Research  Costumers

or Buyers

 Vendors  Barriers

to entry and exit  Substitute products  Competitors  Current industry health and trends  Apparent factors for success  Societal factors

Strategic Approach to Market Analysis  SWOT

Analysis

 Porter’s

 Other

Five Forces Model

techniques (PEST Model, Context analysis, Six Forces Model, GAP, TOWS, etc.)

SWOT Analysis Strategic planning tool to evaluate project’s:    

Strengths, attributes of the organization that are helpful to achieving the objective Weaknesses, attributes of the organization that are harmful to achieving the objective Opportunities, external conditions that are helpful to achieving the objective Threats, external conditions that are harmful to achieving the objective

Factors



Internal factors - The 'strengths' and 'weaknesses' internal to the organization.



External factors - The 'opportunities' and 'threats' presented by the external environment.

Strengths Consider this from an internal perspective, and from the point of view of your customers and people in your market   



What advantages does your company have? What do you do better than anyone else? What unique or lowest-cost resources do you have access to? What do people in your market see as your strengths

Note: If all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity.

Weaknesses  What

could you improve?

 What

should you avoid?

 What

are people in your market likely to see as weaknesses?

Opportunities  

Where are the good opportunities? What are the interesting trends? Useful opportunities can come from such things as: 

 



Changes in technology and markets on both a broad and narrow scale Changes in government policy related to your field Changes in social patterns, population profiles, lifestyle changes, etc. Local Events

Threats  What

obstacles do you face?  What is your competition doing?  Is changing technology or policy threatening your position?  Do you have bad debt or cash-flow problems? Carrying out this analysis will often be illuminating - both in terms of pointing out what needs to be done, and in putting problems into perspective.

Porter’s Five Forces Model 

Developed by Michael Porter in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” (1980)



Five forces determine the attractiveness of a market:     

Bargaining power of customers Bargaining power of suppliers The threat of new entrants Threat of substitute products The level of competition in an industry

Porter’s Five Forces Model

In Class Exercise (groups of 3-4)  Assume

you are Patrick Kron, Chief Executive Officer and Chairman on the executive board of Alstom.  You have an amazing idea to build and operate high speed rail between Houston, Dallas, and San Antonio.  Conduct SWOT Analysis and Implement Porter’s Five Forces Model  For Info Check: http://www.thsrtc.com/