First, a lesson to designers! We were involved in a team presentation for a large development, which required of course its iconic centrepiece building. The designer took inspiration from the current fashion for twisted shaped buildings, and it did indeed look very gracious. However, the client team leader interpreted it as a representation of the female form. Job lost! All the team were experienced in sensitive Middle East work and this really took us by surprise, so the lesson is that designers must imagine the unimaginable when they do their self assessments.
The last blog tried to answer the “why Iraq” question. If you are still reading, then maybe you are past that, and your next question is “how to invest”? Whilst investment in Iraq has many different and perhaps unique aspects, the overall objective of a capital project investor is the same – they want return on their investment . This need not just be profit of course, and there are techniques that compare costs with more subjective returns such as social benefits, or community improvement and so on. However, this blog will try to provide a guide to how an investor can create his working model that allows him to control his investment costs and so returns.
There are, in my opinion, 3 strategic issues that must be controlled – what the market wants, the technical solution and the commercial solution. All else falls into place when these are controlled. My approach also tries to work from the outside inwards – surround the issue then slowly pick off the problems with defined solutions that always link in to and impact upon the end result. The model must be able to react to changes of course, and our own models provide such dynamic impact analyses to allow rapid decision making.
What the market wants: The investor/developer may already have a clear idea, and so this should be defined and it will become the project brief. I do caution though in simply saying “I have a site, and would like a commercial development – give me some ideas team”. Ideas will flow, and will be creative, exciting and so on, but for that site is it what the market (the people) want and will be happy to pay for? We recommend then that a more objective approach be made by performing a market study.
The Technical Solution: This should produce a project definition, created with the designers, clearly defining the project that the market can bear, whether it be a 5 star hotel, a business hotel, clinic or specialised hospital or a general hospital, and so on. All other project decisions will flow from here – revenue potential, scope, content mix, quality, time/programme, capital costs, operating costs and of course the dreaded profit.
The Commercial Solution: A comprehensive study will be invaluable in attracting investors and partners and also in surmounting any local political or planning issues. Capital cost will be the biggest short term amount, but beware of the penalties of opting for a lower than optimum build cost that causes long term or “whole life cycle” costs to be excessive and perhaps fatal to the project viability. A viability model then is needed that combines revenue streams with capital costs, operating costs and whole life costs so that the genuine return is established and tracked as the project develops.
The process outlined above can be complex with many skilled professionals contributing. An investor may feel exposed to many influencing opinions. The investor must establish control therefore by channelling and filtering all the information into credible conclusions with clear definition of change and its impacts expressed to him in a combined manner. The controller is of course the development or project manager appointed by the investor – It is therefore critical that the investor appoints an experienced project manager to represent them!
Our next blog will have a look at the current business climate for capital projects and identify some significant benefits available for the right project type. And maybe another anecdote linking the past to the present.
Blair Anderson Ltd can be contacted on the following email: [email protected]