VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Dang Thi Thu Huong FINANCIAL FEASIBILITY ANALYSIS & THE CASE STUDY OF JW MARRIOTT 5-STAR HOTEL PROJECT Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: PhD. Tran Phuong Lan Ha Noi, 2012 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENT ACKNOWLEDGEMENTS .iv TABLE OF CONTENT .vi LIST OF FIGURES.ix LIST OF TABLE .4 CHAPTER 1: LITERATURE REVIEW .1 Overview of construction projects. Concept of project. Project life cycle .2 Features of Hospitality industry .3 Overview of Feasibility Study.
Concept of a Feasibility Study. Importance of a Feasibility Study. Contents of a Feasibility Study .12 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.4 Environment Feasibility Analysis Models .2 Five forces model .5 Financial Feasibility Analysis .1 Concept of Financial Feasibility Analysis .2 Purposes of Financial Feasibility Analysis .3 Conducting a Financial Feasibility Analysis.4 Criteria for a Financial Feasibility Analysis .5 Risk analysis methods .28 CHAPTER 2: OVERVIEW AND FINANCIAL FEASIBILITY ANALYSIS OF JW MARRIOTT HOTEL PROJECT .1 Overview of Project Investor .2 Overview of JW Marriott Hotel Project .3 Project’s Environment Feasibility Analysis .2 Five force Analysis.2 Annual Operation Costs .2 Conference, Food and Beverage revenue.53 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.3 Revenue from renting luxury store .4 Revenue from other services .7 Estimated Financial Statement .1 Estimated Project’s Income Statement.2 Estimated Project’s Cash flow .8 Financial Criterion Calculation .9 Summary and conclusion of project investment efficiency .65 CHAPTER3: RESEARCH FINDINGS AND RECOMMENDATIONS .1 Limitations in JW Marriott Hotel Project model .2 Recommendation to construct an effective Financial Feasibility Analysis for a hotel project .88 viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 1.2: Forces Driving Industry Competition .1: Real GDP Growth Rate & GDP per Capita in Viet nam & Hanoi .40 ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLE Table 2.2: Number of conference room .3: Competitors of JW Marriott hotel .4: Construction cost of JM Marriott hotel.5: Room price of other 5 star hotels in Hanoi .6: Forecasted room price for JW Marriott hotel .7: The average occupancy rate of 5 star Hotels in Hanoi in 3 recent years 2008, 2009 and 2010 .9: Project’s operation costs and revenues .1: Number of room of 5-star hotel in Hanoi .2: Npv sensitivity to the changes in standard room rate and suite room rate .70 x LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com INTRODUCTION As competition in the business environment increases, knowledge management becomes a critical success factor. Firms should be able to gather, analyze and re-use knowledge to support their strategic and management decisions.
Construction firms also should analyze information in hand, includes completed and on-going project data, and make it a part of their learning mechanism. Project evaluation is an organizational learning mechanism aiming to form data for the last objectives are monitoring and making decision. Particularly, information about efficiency, feasibility and the risks with their consequences is an important piece of knowledge that the firms should refer to in the forthcoming projects in order not to do the same mistakes. Feasibility Study is an important tool that your organization can use to demonstrate its accountability, improve its performance, increase its abilities for obtaining funds or future planning, and fulfill the organizational objectives.
By communicating the results of the feasibility study, your organization can inform its staff, board of directors, service users, funders, the public, or other stakeholders about the benefits and effectiveness of your organization’s projects and programs. Although there are many benefits in conducting Feasibility Study, it will be a waste of your organization’s resources if the results are not used. With these above reason, the major objective of this thesis is to develop a model for feasibility study, especially on the view of finance discipline. The framework is modeled to ensure information continuity throughout the project life cycle.
This model is discussed through analyzing a real project, since then, get study from that and makes recommendation. 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.1 Research objectives The objective of this study is to develop a manual that presents a step-by-step process for determining the effectiveness of a hotel project. The techniques that will be used in the methodology are common financial analysis tools. A case study of project in BITEXCO – JW Marriott Hotel project will be used to demonstrate evaluation process; therefore, will primarily consist of an overview of the factors that should be addressed in each project, particularly those factors that will serve as the base for assumptions made during the feasibility study.
Based on the existing method applied in JW Marriott hotel, this thesis also gives some recommendations to conduct an effective Financial Feasibility Analysis for a real estate for rent project. In summary, the primary objective of this study is to develop a complete methodology that can be used to evaluate feasibility of a project, focus on finance aspect and especially for a hotel project.2 Research questions The following research questions have been formulated for achieving the goal of this thesis: 1- What are the methods and criteria considered in a Financial Feasibility Analysis of a project? 2 – Which method and how BITEXCO are applying to evaluate a project in reality? 3 - What are useful recommendations to conduct a Financial Feasibility Analysis for a hotel project?.3 Data resources Generally, the theory distinguishes between primary and secondary data, while primary data is data where the researcher is actively involved in collecting it, 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com secondary data is existent data that is studied and where the researcher has not been involved in its collection (Bell and Bryman 2007). The data can be of quantitative or qualitative nature. This thesis will make use of qualitative and quantitative, empirical, secondary data such as the before mentioned reports, feasibility studies as well as books and a broad range of articles concerning the several topics of: feasibility study, project appraisal, project evaluation, project risk analysis.
Secondary data used to support this thesis is some Feasibility study reports of other companies for their real projects. The quantitative data that is used concerns both hotel industry and construction industry. The primary data is the real figures of Financial Feasibility Analysis – JW Marriott Hotel project which used in BITEXO – the investor of project.4 Thesis structure The thesis is split up into four main parts and 3 main chapters. Figure 1 shows this in a systematic way.
Part I: Introduction Part I give an introduction into the topic and describe the overall setting. This part also describes the methodology used in research design, research question, and limitation. Thus, it represents the overall framework for the whole thesis. Part II: Chapter 1 Part II of the thesis builds up the theoretical and practical basis for the analysis.
It contains the theoretical outline of the most relevant, those are: Definitions, conceptual foundations, major steps, criterions, guidelines used in Feasibility Study and Financial Feasibility Analysis. Part III: Chapter 2 This part contains information on evaluation methods with real figures of JW Marriott Hotel project and company’s decision on the project. 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Part IV: Chapter 3 On the basis of part III, Chapter 3 presents the conclusions and reflections of financial evaluation practice in Marriott project and then gives information on limitations and findings from the Feasibility analysis presented in chapter II. This chapter also provides some recommendations in conducting a Financial Feasibility Analysis for a hotel project.
Part I INTRODUCTION Part II Chapter 1: Theoretical framework Being input and basis for Part III Chapter 2: Analysis of JW Marriott Hotel case study Serving as basis for Part IV Chapter 3: Comments and Recommendation Structure of the thesis 1.5 Thesis‟s limitation The case used in this thesis is a real and very big project with an intensive capital, long life (50 years). At the time of this research, it was go further than two third ways of construction phase and going to be operating. Thus, this thesis will not analyze the construction phase and assume that the total construction cost when completed in Quarter 1/2013 is not different from estimated one. 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Because the scope of analyzed case study is too big, so many things need to be discussed in dept, but with the limited time, limited resource and knowledge, the author has to assume some factors are true and no more calculation and analysis.
Especially, the WACC factor ought to calculate because of its significant role in financial criterion calculation, but to conduct this figure, it requires a lot of time and relate to other projects and information of company, in some way, these information is confidential, so I assume we use a WACC at a fixed rate to calculate other financial criterion. 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: LITERATURE REVIEW First of all, this thesis will present a theoretical framework and help the reader make logical sense of the relationships of the variables and factors that have been deemed relevant/important to the problem. It provides the understand how a hotel construction project run, what is financial feasibility analysis, why we have to make feasibility study before deciding to invest in a project. This framework are use for general project, base on it, we can go further in analyze a specific case study.1 Overview of construction projects 1.
Concept of project A project is an undertaking that has a beginning and an end and is carried out to meet established goals wihtin cost, schedule and quality objectives (Haynes, Project Management). A project often has the following characteristic: - A defined beginning and end - Resources allocated specifically to it - Intended to be done only once (although similar separate projects could be undertaken) - Follows a plan towards a clear intended end-result - Often cuts across organisational and functional lines Project management can be defined as the planning, scheduling and controlling of a series of integrated tasks such that the objectives of the project are achieved successfully and in the best interest of the project’s stakeholders (Harold Kerzner, PhD, Advanced project management 2nd edition) 1. Project life cycle 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Every project has beginnings, a middle period during which activities move the project toward completion, and an ending (either successful or unsuccessful). A standard project typically has the following four major phases (each with its own agenda of tasks and issues): initiation, planning, execution, and closure.
Taken together, these phases represent the path a project takes from the beginning to its end. Initiation phase: During the first of these phases, the initiation phase, the project objective or need is identified; this can be a business problem or opportunity. An appropriate response to the need is documented in a business case with recommended solution options. A feasibility study is conducted to investigate whether each option addresses the project objective and a final recommended solution is determined.
Issues of feasibility and justification are addressed. Once the recommended solution is approved, a project is initiated to deliver the approved solution and a project manager is appointed. The major deliverables and the participating work groups are identified and the project team begins to take shape. Approval is then sought by the project manager to move on the detailed planning phase.
Planning phase: this phase is where the project solution is further developed in as much detailed as possible and you plan the steps necessary to meet the project’s objectives. In this step, the company identifies all of the work to be done. The project’s tasks and resource requirements are identified, along with the strategy for producing them. This is also referred to as scope management.
A project plan is created outlining the activities, tasks, dependencies and timeframes.