Principles Of Project Management Economics And Project Optimization

Cost-driven project design optimization

The given bridge is being built by Smart construction Company under the build , Operate and transfer agreement with the government of New South Wales. The Government of New South Wales has agreed to pay Smart construction Company AUD100 million for the bridge and will alow Smart Construction Company to operate the bridge for a holding period of 10 years. During the 10 years, Smart construction will operate the bridge, incur all the operational costs. Smart construction will also, operate the toll post at the bridge and will be allowed to collect a toll fee from every vehicle that makes use of the bridge. Smart Company has the right to make all decisions regarding the operation of the bridge , subject to limitations set by the NSW government. The revenues from the toll fee will be shared by the NSW government and Smart Construction. The Bridge, under construction has an estimated construction cost of AUD 320,000,000 and approximately 60% of the construction work was completed. A cyclone caused damage worth AUD 120,000 and delayed the completion of the project by four months. The company has two alternatives

Scenario A: Smart Construction could outsource part of the project to other reputed Company and allow for the project to be completed on time,. This will increase the costs but will help the Company start earning revenues earlier, helping reduce the payback period.

Scenario B: Smart Construction could seek an extension of time for the project and complete the construction. The damages of AUD 120,000 would stil. be incurred by Smart construction by the rest of the cost projections will be the same. This will be the least expensive option but could jeopardise the project due to the delay in construction

This part of the report assess the financial costs, especially accounting for the damages as will as provides some financial analysis to understand the current financial returns on investment in the bridge.

Scenario A: Outsourcing the Repairs and Construction of the Bridge

While Smart Projects has the experience of construction of bridges in Australia, the changing dynamics of the climate would require calling in experts from Ae7 Private Limited, a construction Company based out of Dubai. The Company has built high value projects like bridges on the water Canal road and several other public infrastructure projects. The Company has quoted a cost price of AUD 159,000,000 for repairs. This includes using pre-cast concrete blocks to replace the current concrete work on the bridge and the repair of the suspension. It is possible for Smart Construction Private Limited to keep working while Ae7 continues to repair the Bridge. However, the Company has realized the importance of pre-cast concrete to improve the structural integrity of the bridge and has decided to use that material, instead of the current concrete being used. Additionally, greater investment will be used for better materials, as directed by the NSW government.

Project feasibility reports based on critical analysis

Figure 1Work Break Down Structure

The non-cost related pros and cons are as follows

Pros:

• The construction of the bridge will be completed on time, providing the Company a chance to uphold its reputation and relationship with the Government Of New South Wales
• Outsourcing the construction will also, benefit the project by way of knowledge transfer. Ae7 has plenty of experience in building bridges such as this one  and working with Ae7, may help Smart Construction Private Limited identify other shortcomings in the bridge or understand smarter ways of building and operating the bridge.  This might help improve the quality of construction and help in the overall construction and operation of the bridge. For example, at the suggestion of Ae7, Smart Construction has decided to use Solar LED based lamps , instead of regular lighting for the bridge, This could help reduce the operational costs of bridge but reducing the electricity consumption by anywhere between 10% – 35%. In addition,, the Company can also consider Carbon financing later for the bridge.

Cons:

• There might be inconsistencies in the structure and quality of the bridge due to two different firms operating on the same project.
• There could be inconsistencies since the firm would lack experience of building infrastructure projects in Australia. 

Table 1 Total Costs Outflows for the Bridge, In case of Scenario A

Alternative A: Outsourcing
Total Additional Costs to be Incurred	387000000
Month 1	32000000
Month 2	32000000
Month 3	32000000
Month 4	32000000
Month 5	32000000
Month 6	32000000
Month 7	77400000
Month 8	77400000
Month 9	77400001
Month 10	77400002
Month 11	77400003
Total Costs to be Incurred	579000006

Scenario B : Not Out Sourcing the Maintenance and Repairs of the Bridge

Smart Construction can seek an additional four months and complete the project within 15 months, instead of the previously estimated 11 months. The Company will still incur the costs for repairing the damage of AUD 120,000. The Company has also, decided to seek better quality materials and processes so that a cyclone would not cause serious damages to the bridge, again. Hence, the Company has decided to invest more and the total expected expenditure owing to the improvement in the quality is  $248,000,000

Table 2 Total Cash Outflows during the Build Phase of the Operation

Alternative B: Not Outsourcing	Total Costs (AUD)
Total Costs Yet to be Incurred : AUD 368000000
Month 1	32000000
Month 2	32000000
Month 3	32000000
Month 4	32000000
Month 5	32000000
Month 6	32000000
Month 7	38666666.67
Month 8	38666666.67
Month 9	38666666.67
Month 10	38666666.67
Month 11	38666666.67
Month 12	38666666.67
Month 13	38666666.67
Month 14	38666666.67
Month 15	38666666.67
Total Costs to be Incurred	385333333.333

Non- Cost Related Pros and Cons of Scenario B

Pros

There will be uniformity in the quality of construction, ensuring that the standards of the Company are met.

Cons

The form will have to seek and extension from the NSW government. This could damage the reputation of the firm as well as jeopardise the possibility of contracting future project with the Government of NSW

Cost Related Analyses: Choosing an Alternative

As mentioned earlier, 60% of the expected expenditure has been expended. Additional expenditure was compared and the results are as follows:

Project Costs (in AUD)
AUD value of Project completed (60%)	192000000	192000000
AUD value of Project Left	128000000	128000000
Additional Costs (To be fulfilled for Cyclone)	159,000,000	120,000,000
Additional Costs(for improvement of project)		20,000,000
Total Additional Costs		460000000
Expenditure Above The original Estimated Costs	159000000	140000000
Percentage increase in Project Costs	49.6875	43.75

The damages related to the cyclone have resulted with an increase in the project costs by 43% at the minimum and 49% at the maximum. The initial evaluation of the project had margins for an increase in the evaluation by 7%. On its own, scenario B will cost slightly less than 6% of an increase in costs. It will offer additional benefits. Hence, scenario A i.e. Outsourcing the repair and maintenance of the project has been chosen.

Part C Financial Analysis

Assumptions

The Operational Costs of the Project will not change much
There was no insurance taken for the project in the past. Hence, the Company will receive no insurance payout to cover the cost of the damages.
There is no depreciation of Capital on the bridge while building since the project is supposed be completed in 11 months.
Interest rates on all loans are fixed, with yearly compounding, and were known at the time of the tender.
Assume that all annual increases in toll will occur on the anniversary of the opening of the bridge or at the end of a financial year. Annual increases will not occur not on the new calendar year.

Accounting principles in project budgets and financial projections

Funding

In this case for the Build, Operate and Transfer Project, the NSW government will allow Smart Construction Private Limited to build and operate a toll for a holding period of 10 years, apart from AUD $100 million payment that Smart Construction Limited will be paid for building the project.

According to this framework, the Government has paid 10% of the sum to be paid at the beginning of the project, 55% of the total amount over construction of the project and 35% of the amount due upon the construction of the project.

Funding – Part A: Payment by New South Wales Government

The New South Wales had agreed to the following payment schedule, as a part of the contract in January 2018.

Table 3 Payment Schedule from New South Wales

	Total (in AUD)	% of Total Cost
Month 0	1000000	10
Month 1	500,000	5
Month 2	500,000	5
Month 3	500,000	5
Month 4	500,000	5
Month 5	500,000	5
Month 6	500,000	5
Month 7	500,000	5
Month 8	500,000	5
Month 9	500,000	5
Month 10	500,000	5
Month 11	500,000	5
Completion	3,500,000	35
Total	10000000	100

Funding – Part B: Loan

As mentioned earlier, the initial costs estimated for the Bridge were at AUD 320, 000,000. According to initial estimates, approximately AUD 220,000,000 were to be secured by Smart Construction for completion of the project, from various sources. Smart Construction managed to secure a loan from the ICICA Infrastructure Funding Corporation. Smart Construction was to finance the project by borrowing under two loans. One loan was secured against the operating income. That is, monthly repayments were to be paid out of the net operating income.  A second loan was obtained by  made by the parent company and is ‘psuedo’ Equity. It will be lent to the RDC by the parent Company Smart Construction Company at the prevalent rate. This loan will be used to fund the purchase of the project and any upfront expenses, net of other loan proceeds. All net cash at the end of each month will be used by the RDC to repay the equity loan. Any surplus cash after the presumed Sale of the project and repayment of any loans, will also be used to repay the equity loan

The required funding for expected to be obtained as below

Table 4 Loan Payments

Year	Principal	Interest	Total Payment
2018	1,09,29,442.71	86,10,165.63	1,95,39,608.34
2019	1,72,33,992.68	1,20,75,419.83	2,93,09,412.51
2020	1,82,96,947.64	1,10,12,464.87	2,93,09,412.51
2021	1,94,25,463.33	98,83,949.18	2,93,09,412.51
2022	2,06,23,583.41	86,85,829.11	2,93,09,412.51
2023	2,18,95,600.90	74,13,811.61	2,93,09,412.51
2024	2,32,46,073.66	60,63,338.86	2,93,09,412.51
2025	2,46,79,840.61	46,29,571.90	2,93,09,412.51
2026	2,62,02,039.18	31,07,373.33	2,93,09,412.51
2027	2,78,18,123.62	14,91,288.89	2,93,09,412.51
2028	96,48,892.24	1,20,911.93	97,69,804.17

Funding Part C: Additional Funding

The increase in costs brought about due to the cyclone has necessitated raising additional capital. Smart construction has decided that it will minimize its risks by raising capital through an REIT in order to be less burdened by loans.  However, the REIT may not be able to raise the complete amount given today’s macro economic climate. Hence, Smart Construction will provide a loan of AUD 109 million to RDC, in order to be able to fund the project. The terms and conditions and payment structure will be the same as the loan from ICICA. The loan will have monthly instalments starting May 2018 and the payment schedule will be as given in the table below.

Due diligence processes and information needs of stakeholders and sponsors

Table 5 Loan Payments for Loan Funded by Smart Construction

Year	Principal	Interest	Total Payment	Balance	Loan Paid To Date
(A)	(B)	(A + B)
2018	54,15,042	42,65,946	96,80,988	10,35,84,958	4.97%
2019	85,38,660	59,82,822	1,45,21,482	9,50,46,298	12.80%
2020	90,65,306	54,56,176	1,45,21,482	8,59,80,992	21.12%
2021	96,24,434	48,97,048	1,45,21,482	7,63,56,558	29.95%
2022	1,02,18,048	43,03,434	1,45,21,482	6,61,38,510	39.32%
2023	1,08,48,275	36,73,207	1,45,21,482	5,52,90,235	49.28%
2024	? 1,15,17,373	? 30,04,109	? 1,45,21,482	? 4,37,72,862	59.84%
2025	? 1,22,27,739	? 22,93,742	? 1,45,21,482	? 3,15,45,123	71.06%
2026	? 1,29,81,919	? 15,39,562	? 1,45,21,482	? 1,85,63,203	82.97%
2027	? 1,37,82,616	? 7,38,866	? 1,45,21,482	? 47,80,588	95.61%
2028	? 47,80,588	? 59,906	? 48,40,494	? 0	100.00%

Setting Up an REIT

To isolate risk, the Company can form an infrastructure REIT called Road Development Company (RDC) , which would be a subsidiary of Smart Construction Company Limited and would be floated on the Sydney Stock Exchange. The REIT could also seek other financing .  RDC’s only assets will be infrastructure projects above the value of AUD200 million and any relevant agreements. The RDC will sell shares to the project, in lieu of cash.. For the initial round, REIT could seek funding of AUD 50 million.
If the REIT is unable to meet its targets, Smart construction will provide further loans to cover the deficit amount. However, if the REIT exceeds its target, the excess amount will go towards repayment of the loan provided by Smart Construction.
The total funding through the REIT will not be greater than 5% of the total valuation of the project.

Revenues

In this case, the Government is planning to introduce the toll for the bridge it will be called BridgeConnex. The Government has allowed for a revenue sharing model that will allow the Company to share the revenues
Significant revenues will be obtained from tolls. According to the Government estimates of traffic volume approximately 100,000 vehicles use the road every day. Based on several calculations including season pass and other concessions and levies, the average revenue is expected to be $3.50 per vehicle. The NSW government has capped a maximum individual vehicle toll initially, making allowance for a maximum annual increase in the levy of 3% as a part of the Contract.
RDC will be responsible for the operation of the toll, repair and maintenance of the road as well as other expenses. The revenue sharing model will be 66% gross revenues will be retained by RDC while 34% of the revenues will be transferred to the NSW government. The total revenues accrued from a given month should be paid off to the government, at most, by the 10^th of the following month.
Government estimates suggest that for the first five years, an average of 100,000 vehicles will use the services. However, based on some market research government estimates in the first year, 90% of the government estimates in the second year and is expected to average at the government estimates of 100,000 vehicles over the life of the project. The consulting firm does not expect the number of vehicles to be greater than government estimates over the period of the last eight years of the project. It is expected that there will be an increase in the toll tax, at the allowed rate of 3% per annum but the per vehicle revenue has been capped by the Government at AUD 5 over the life of the project.

Case study of project optimization after a setback caused by a cyclone

Table 6 Revenue Inflows (All Revenues are in AUD)

Year	No. of Vehicles Per day	Revenue Per Car	Revenue Per Day	Annual Revenue	Revenue Share Paid to the NSW Government	Revenue Inflows
Year 1	140000	3.5	490000	178850000	60809000	118041000
Year 2	180000	3.605	648900	236848500	80528490	156320010
Year 3	200000	3.713	742600	271049000	92156660	178892340
Year 4	200000	3.824	764800	279152000	94911680	184240320
Year 5	200000	3.939	787800	287547000	97765980	189781020
Year 6	200000	4.0574	811480	296190200	100704668	195485532
Year 7	200000	4.179	835800	305067000	103722780	201344220
Year 8	200000	4.304	860800	314192000	106825280	207366720
Year 9	200000	4.433	886600	323609000	110027060	213581940
Year 10	200000	4.566	913200	333318000	113328120	219989880

Costs incurred

Depreciation

The bridge will require an initial investment of  over AUD 385,000,000 in both cases. The depreciation of the bridge is estimated on a straight line basis for every year over the life of the project. It is valued at 3%  of the total cost of the project. It is important to note here that the bridge is expected to have a life of at least 30 years while the project holding period is for 10 years.

Debt Servicing

In order to understand the going concern of the project on a standalone basis, the revenues of the project are given as below:

Table 7 Loan Payments as a percentage of Total Costs and Total Revenues (in AUD, unless specified)

Year	Total Loan Payments	Total Loan Payments as a % of Costs (in %)	Total Loan Payments %  of Revenues (in %)
2018	29220596.34	100
2019	43830894.51	88.0051949536797	37.131924085699
2020	43830895.51	87.5525333206333	28.0392097659154
2021	43830896.51	87.0822233607616	24.5012707139948
2022	43830897.51	86.5938054569934	23.7900680535075
2023	43830898.51	86.086828680556	23.0955121381474
2024	43830899.51	85.5608530335418	22.4215567574587
2025	43830900.51	85.015451837061	21.7691377035805
2026	43830901.51	84.4502142611294	21.1369025415457
2027	43830901.51	83.8647476612938	20.521820108011
2028	14610298.17	62.3741618161813	6.64135012483301

Operating Costs

The total final costs of these jeans are 60% of the total revenue. No other costs are applicable:
The fixed and variable costs for the lab are as follows:

Personnel costs = AUD 50,00,000 Per Annum
Cost of other materials = AUD 500,000 Per Annum
Other costs – AUD 250000 per annum
Maintenance of books and other accounting expenditure related to the agreement of shred revenues with the government = AUD 50000 per annum.

These costs will increase by 3% per annum over the life of the project, according to the current inflation targeting by Reserve Bank of Australia.

All costs given below are in Australian Dollars

Table 8 Total Operational Costs amounting for Inflation (in AUD)

Year	Personnel Costs	Costs of Materials	Other costs	Govt. Partnership Costs	Total (At current Costs)	Costs (inflation accounted)
2019	5000000	500,000	250000	50000	5800000	5974000
2020	5250000	500,000	250000	50000	6050000	6231500
2021	5512500	500,000	250000	50000	6312500	6501875
2022	5788125	500,000	250000	50000	6588125	6785768.75
2023	6077531.25	500,000	250000	50000	6877531.25	7083857.187
2024	6381407.8125	500,000	250000	50000	7181407.812	7396850.046
2025	6700478.203125	500,000	250000	50000	7500478.203	7725492.549
2026	7035502.11328125	500,000	250000	50000	7835502.113	8070567.176
2027	7387277.21894531	500,000	250000	50000	8187277.218	8432895.535
2028	7756641.07989258	500,000	250000	50000	8556641.079	8813340.312

Total Costs Incurred

The total costs incurred are as follows. These include costs of debt servicing as well operational costs (accounted for inflation).

Table 9 Total Costs Incurred

Year	Operational Costs	Loan 1 Payments	Loan 2 Payments	Total Costs
2018		19539608.34	9680988	29220596.34
2019	5974000	29309412.51	14521482	49804894.51
2020	6231500	29309412.51	14521483	50062395.51
2021	6501875	29309412.51	14521484	50332771.51
2022	6785768.75	29309412.51	14521485	50616666.26
2023	7083857.187	29309412.51	14521486	50914755.697
2024	7396850.046	29309412.51	14521487	51227749.556
2025	7725492.549	29309412.51	14521488	51556393.059
2026	8070567.176	29309412.51	14521489	51901468.686
2027	8432895.535	29309412.51	14521489	52263797.045
2028	8813340.312	9769804.17	4840494	23423638.482

Costs of Goods Sold or Cost of Obtaining Revenues

‘Costs of Goods Sold’ is essentially, the total cost of building the bridge to operating and transfer of the project. (Seigel & Shim, 2000). Costs of goods sold can be viewed as all the Total Costs that are projected to be accrued over the life of the project.  Here, the total costs for the project are added. The initial investment has been taken in to account by way of depreciation.

Depreciation has been included in costs and divided uniformly over the period of ten Years

Table 10 Total Cost of Goods Sold or Cost of Obtaining Revenues for the Project Per Year

All costs given below are in AUD

Year	Costs (inflation accounted)	Depreciation	Total
2019	5974000	14370000	20344000
2020	6231500	14370000	20601500
2021	6501875	14370000	20871875
2022	6785768.75	14370000	21155768.75
2023	7083857.187	14370000	21453857.187
2024	7396850.046	14370000	21766850.046
2025	7725492.549	14370000	22095492.549
2026	8070567.176	14370000	22440567.176
2027	8432895.535	14370000	22802895.535
2028	8813340.312	14370000	23183340.312

Sensitivity Analysis

Using the information above the cash flows can be calculated as follows:

Profits and Profits After Tax

Profits are takes as Revenues minus Total Costs. However, without the effects of taxation, profits, in isolation, may not be a good measure to understand the overall profits and can skew the understanding of the value of investment. Hence, ‘profits after tax’ is the metric that is analysed. ‘Profits after tax’ would reflect the true profits i.e profits that are expected to be accrued after the deduction of taxes to be paid. Profits and Profits After Tax also account for depreciation , since depreciation is tax deductible.

Table 12 Total Profits and Profit After Tax Per Year

Year	Total Costs (in AUD)	Total Revenues (in AUD)	Profits (in AUD)	Profits After Tax (in AUD)
2018	20344000	29220596.34	8876596.34	6213617.438
2019	20601500	49804894.51	97697000	68387900
2020	20871875	50062395.51	135718510	95002957
2021	21155768.75	50332771.51	158020465	110614325.5
2022	21453857.187	50616666.26	163084551.25	114159185.875
2023	21766850.046	50914755.7	168327162.813	117829013.9691
2024	22095492.549	51227749.56	173718681.954	121603077.3678
2025	22440567.176	51556393.06	179248727.451	125474109.2157
2026	22802895.535	51901468.69	184926152.824	129448306.9768
2027	23183340.312	52263797.05	190779044.465	133545331.1255
2028	216716146.555	23423638.48	196806539.688	137764577.7816

Annual Rate of Return (ARR)

Accounting Rate of Return is a very simplistic measure that helps understand the rate of return without accounting for the discount rate, that is, it provides the rate of return without considering the time value of the investment that would be made into the bridge over the period of time.

Accounting Rate of Return  (ARR) was calculated as Average Returns over 10 years / Average Investment over 10 years (Seigel & Shim, 2000) The Average Returns were taken as the total expected revenues from over the period of ten years divided by 10. The Average Investment was taken as the total costs (Total Initial Investment + Total Costs Over ten Years) and divided by 10.

The Initial Investment, however, will be paid off by the government i,e 100 million dollar. Hence, the rest of the investment is take n as the total investment. These are accounted for in the cash outflows, as show above  (Total Costs). Depreciation is not accounted for, in this metric.

Table 13 Annual Rate of Returns

Year	Annual Rate of Returns
2018	-70
2019	95.9047786626865
2020	148.575251713919
2021	178.793448568833
2022	184.793990851819
2023	190.91986926263
2024	197.120600818922
2025	203.372409584026
2026	209.677449742679
2027	216.062946921502
2028	587.425259181389

Net Present Value

Net Present Value  is usually, the most commonly used metric that is used to value projects such as the Bridge. The Net  Present Value (NPV) of the Investment is calculated using the series of cash flows that will be accrued in the future. (Frederick, 1999). NPV takes into consideration the value of investment discounted at the desired Discount Rate (here taken as 14%). Discount Rate is that Rate of Return that is the assigned value for forgoing present consumption in favour of future returns. Generally, the Internal rate of Return for projects of Smart Construction is 14%. Hence, the assigned discount rate was taken at 14%

Net Present Value and Internal Rate of Return ‘Internal Rate of Return’ is that Rate of Return, where the Net Present Value is reduced to Zero. It provides an idea about the idea of the attractiveness of a project. The Internal Rate of Return was calculated from a series of trial and error to observe at which percentage does the value of NPV come the nearest to zero.

Table 3 Present Value

(in AUD)

Year	Total Costs	Total Revenues	Profits	Profits After Tax	Present Value
2018	20344000	29220596.34	8876596.34	6213617.438	($414,241.16)
2019	20601500	49804894.51	29203394.51	20442376.157	($1,362,825.08)
2020	20871875	50062395.51	29190520.51	20433364.357	($1,362,224.29)
2021	21155768.75	50332771.51	29177002.76	20423901.932	($1,361,593.46)
2022	21453857.187	50616666.26	29162809.073	20413966.3511	($1,360,931.09)
2023	21766850.046	50914755.7	29147905.651	20403533.9557	($1,360,235.60)
2024	22095492.549	51227749.56	29132257.007	20392579.9049	($1,359,505.33)
2025	22440567.176	51556393.06	29115825.883	20381078.1181	($1,358,738.54)
2026	22802895.535	51901468.69	29098573.151	20369001.2057	($1,357,933.41)
2027	23183340.312	52263797.05	29080456.733	20356319.7131	($1,357,087.98)
2028	216716146.555	23423638.48	-193292508.073	-135304755.6511	$9,020,317.04

Year	Total Costs
NPV	$3,634,998.90
XIRR	7

Income Statements

Table 14 Income Statement for 2019 and 2020 (All figures in AUD, unless stated otherwise)

INCOME STATEMENTS
(Projected)
	Twelve Months Ended December 31
	2019		2020
Revenue:
Product	49804894.51		50062395.51
Total revenue	49804894.51		50062395.51
Cost of revenue:
Total cost of revenue	8876596.34		29203394.51
Operating income	49804894.51		42,619,092
Other income, net	0		0
Income before income taxes	29190520.51		42,619,092
Provision for income taxes	8757156.153		12785727.747
Net income	20433364.36		29833364.74

Table 15 Income Statement for 2021 and 2022 (All figures in AUD, unless stated otherwise)

	Twelve Months Ended December 31
	2021		2022
Revenue:
Product	50062395.51		49804894.51
Total revenue	50062395.51		49804894.51
Cost of revenue:
Total cost of revenue	20871875		21155768.75
Operating income	50062395.51		49804894.51
Other income, net	0		0
Income before income taxes	29190520.51		29203394.51
Provision for income taxes	8757156.153		20442376.16
Net income	20433364.36		8761018.353

Table 16 Income Statement for 2023 and 2024 (All figures in AUD, unless stated otherwise)

	Twelve Months Ended December 31
	2023		2024
Revenue:	51227749.56		51556393.06
Product
Total revenue	51227749.56		51556393.06
Cost of revenue:
Total cost of revenue			29132257.007
Operating income	51227749.56		51556393.06
Other income, net	0		0
Income before income taxes	29132257.01		29115825.88
Provision for income taxes	8739677.1021		8734747.7649
Net income	20392579.9		20381078.12
Table 17 Income Statement for 2025 and 2026 (All figures in AUD, unless stated otherwise)	Twelve Months Ended December 31
	2025		2026
Revenue:
Product	51556393.06.4		51901468.69
Total revenue	51556393.06		51901468.69
Cost of revenue:
Total cost of revenue	29132257.007		29115825.883
Operating income	51556393.06		51901468.69
Other income, net	0		0
Income before income taxes	29115825.88		29098573.15
Provision for income taxes	8734747.7649		8729571.9453
Net income	20381078.12		20369001.205

Table 18 Income Statement for 2027 and 2028 (All figures in AUD, unless stated otherwise)

	Twelve Months Ended December 31
	2027		2028
Revenue:
Product	52263797.05		23423638.48
Total revenue	52263797.05		23423638.48
Cost of revenue:
Total cost of revenue	29115825.883		29080456.733
Operating income	52263797.05
Other income, net	0		0
Income before income taxes	29098573.151		23423638.48
Provision for income taxes	8729571.9453		57987752.4219
Net income	20369001.2057		-135304755.6511

Other Considerations For Analysis:

The report has made all the calculations to ensure business sustainability. However, business sustainability goes beyond financial sustainability. Any good project should be built on three pillars or  the “Triple Bottom Line” of business sustainability. This was a term introduced by John Elkington in 1994. (Hindle, 2009)  and encompassed three aspects of Financial , Environmental and Social. The given report has taken into consideration the financial aspects of the bridge. However, it needs to also consider other considerations.  Financial sustainability has been discussed above. However, modern firms, especially firms that manage public property have an additional responsibility towards the society. It is also good for business as it will establish smart construction as the brand for building environmentally sustainable infrastructure projects.

Environmental Sustainability

Environmental Sustainability is an important aspect of public infrastructure as more and more organizations imbibe the value of environmental sustainability.

The two other important considerations are mentioned below:

Environmental:  This aspect requires consideration of alternative materials and processes in building the project in order to create an environmentally sustainable public infrastructure. Consideration for the environmental aspect of the project  will help reducing the carbon footprint of the project. Usually, public infrastructure tends to have a very high carbon footprint due to the use of cement, electricity, water etc. Additionally, the operation of the bridge will require roadside lighting for at least six hours a day. There are also additional processes that require the consumption of electricity in huge amount. The introduction of products and processes in the value chain by making efforts to source and environmentally sustainable products etc. Will help reduce this carbon footprint greatly.

Recommendations:

Energy Reduction: Smart construction may start analysing the amounts of energy input used in various processes right from mixing cement to welding anf finishing. This implies that a consultant will be hired who will analyse each process and will make reduction in the energy footprint of each process.

Water: Construction of cement based infrastructure requires big amounts of water. Hence, water saving processes must be adopted.

Ecologically Sensitive Materials: The Company could also consider ecologically sensitive materials, eco friendly paints etc. The Company could test other materials as some materials may help decrease the operational costs later on due to low requirement of maintenance and repair. Construction of the bridge may lead to further deforestation. Hence, the firm can start a drive to plant more trees. Additionally, the sides of the roads could be decorated with native Australian shrubs, in order to enhance the value of the bridge.

Social: The social aspect relates to the impact that the bridge is a part of the larger society. On its own, the bridge will have marginal social benefits as construction of the bridge will help the commuters travel to their locations more easily and help elevate the local economy. However, the Company can also, look into hiring more locals for the non-skilled jobs such as maintenance and repair and security on the bridge. Additionally, the bridge operations can have a medical team and a automobile team available on call to ensure that traffic accidents or other accidents are dealth with more efficiently. This will also help smooth out traffic incidents faster and help in the overall operations of the bridge (Bonini & Gorner, 2011)

Bonini, Sheila and Stephan Gorner. The Business of Sustainability: Putting It into Practice. San Francisco: McKinsey & company, 2011.

Frederick, Shane. Discounting, Time Preference, and Identity. USA: Department of Social and Decision Sciences, Carnegie Mellon University, 1999.

Hindle, Tim. Triple Bottom Line. 17 November 2009. 16 Spetember 2017.

Seigel, Joel G and JaE K Shim. Accounting Handbook. New York: Barron’s education Series, 2000.