Unit 4 Discussion: Scheduling & Constraints

Unit 3 Discussion

Identification & Cost Estimation

            The project that we embarked on was the geothermal power plant construction. We had various objectives as we our planning to embark on the project. These included; finishing the project on time and making sure it meets the expenses projected. The project’s scope had complete clarity since it gave the estimated costs, the quantity of people needed for the project, the timelines for the project completion and the subdivision of the project in phases in relation to the project timelines.

            At the earlier stages of the project, a lot of capital was needed in drilling. Therefore, more debt was acquired to finance the project making the project riskier financially. (Nikolova, Rodionov, & Afanasyeva, 2017). Additionally, the costs and expenditures are always to high at this point and thus pushes investors away. Since the project is more of a public good, the risk was mitigated through funds from the government which invested heavily as well as partnerships with private investors. The project was a success. However, I also believe getting funds from insurance programs could also help mitigate the risk.

            We also faced technical risks that included untested technologies in drilling. However, we our able to acquire drilling and geoscientists personnel who helped us utilize binary and geothermal conventional steam turbines technologies which were very reliable. The project became a success. I also believe we could have used guarantees and warrants to should the investors from such risks.

            The legal risks included the poor relationships with contractor who were not certain of our project. In fact, they almost sued us but we did what the law requires of us. We served them justice by coming up with contract agreements using corporate lawyers. The country of operation has independent judiciary and I believe we could have also used this to shield the investors and lenders too.

            The commercial risk that we could possibly face was higher prices of the end product which make reduce the demand of the product and this may be a loss to the investors. However, the government offered subsidies which reduced the costs of production and thus reduced selling prices. (Edwards, Serra, & Edwards, 2019). This risk was further overcoming through a demand and supply analysis and forecast. This could also be overcoming through a power supply agreement on a pay or take basis to transfer such a risk from lenders and investors to the off takers.

            We faced a power generation default risk which might have hindered us from executing the project. Which included budget overruns but thanks to the supplementary budget that we had in place. Availability of design changes could also prove crucial. Generally, the project was a great success.

            The fixed costs included; maintenance and operational cost, purchase of the site, salaries, insurance covers, and interest expenses, purchase of technologies as well as contracts while variable ones were the utility costs, the purchase of raw materials and labor, salaries, insurance covers, and interest expenses. The non-recurring costs included; lawsuit payments, design costs, and moving expenses while recurring expenses were the rent paid.

            The top-down budgeting approach was utilized where the budgets were done after dividing the costs between the work packages. The projects executed previously can be used as reference points in allocating the project. (Siddikee, 2019). The change of design was a contingency that was considered in making the budget extra higher than the actual estimates. The extra budget was meant to cater for extra costs that may have not been realized during the analysis of the project and generation of the budget estimates.

The risks my classmates identified for their project included; resource risks, environmental and social risks. I also believe the off-take default risk could challenge them since their project is not safeguarded from failures, and institutional risks too. Their risk mitigating strategies are in accordance to the risks identified and thus very practical. However, they utilized the bottom up budgeting strategy where the budget was generated founded on the lowest level work packages and rolled up to get the aggregate project costs.

 

 

 

References

Edwards, P. J., Serra, P. V., & Edwards, M. (2019). Managing Project Risks. John Wiley & Sons.

Nikolova, L. V., Rodionov, D. G., & Afanasyeva, N. V. (2017). Impact of globalization on innovation project risks estimation. European Research Studies, 20(2), 396.

Siddikee, M. J. A. (2018). The Development of the Green Capital Budgeting Approaches Based on Traditional Capital Budgeting Approaches. International Journal of Innovation and Applied Studies, 25(1), 253-262.