W2_Hassan Albarrami_Project location selection
1. Problem Definition.
Oman is a tourist country where around 2.1 million tourists visited the Sultanate last 2013, hence building projects seems to be visible especially in Salalah where anyone can invest his money. Building of 12 apartments is the investment idea which entails scientific study to find a location with minimum pay back period.
2. Identify the Feasible Alternative.
The following are the alternatives;
Three locations are attractive to the visitors in Salalah city
- New Salalah
Payback period will be applied to select the best location in Salalah.
3. Development of the Outcome for Alternative
The table below is showing the fixed and variable cost for each location; it is showing the maximum possible profit as will:
Table1: Alternatives and correspondent costs (The numbers are estimated as per local market)
Since it is not certain that the building will be occupied the whole year, a survey had been made to find out the probability that each location will be fully rented and this to make it more realistic.The table below showing occupation status for 10 simelr buildings in each location.
Survey results processed via PERT analysis to find out the probability of maximum (3 high) and results are shown in table 3
Table 3 survey analysis using PERT
Table 4 is showing the payback period calculation for each option taking the probabilities in consedration for variable cost and profit.It is the number of years required to cover the losses.
Table 4 breakeven calculation
Breakeven point = (land cost + building cost)/ (estimated yearly profit -estimated yearly variable cost).
4. Selection of the Acceptable Criteria.
Lowest value is the selection criteria.
5. Analysis and Comparison of the Alternative.
It is clear from table 4 that land cost and building cost in Okad is cheaper than the other two locations but it takes 13.1 years to cover the losses which is more than others. Saadah total cost is less than New Salalah however it takes 4.2 more years to cover the losses.
6. Selection of the Preferred Alternative.
It is obvious that New Salalah is the preferred one as it takes 7.7 years to pay back.
The figure below is showing the breakeven point for the preferred alternative.
Figure 1 breakeven point for New Salalah project
7. Performance Monitoring and the Post Evaluation of Result.
From the result, even though New salalah is preferred but still 7.7 years are relatively high which entails more research to be done, it could be finding a way to reduce building cost.
Times of Oman retrieved on 11.06.2014 http://www.timesofoman.com/news/article-29852.aspx
Simple studies, retrieved on11.06.2014 http://www.timesofoman.com/news/article-29852.aspx
Payback period, retrieved on11.06.2014 http://www.financeformulas.net/Payback_Period.html
Finding your way around retrieved on11.06.2014 http://mathbits.com/MathBits/TISection/Statistics2/normaldistribution.htm