The Blue Mountain Cabin Project
Introduction
The Blue Mountain Cabin Project is being funded by couples who have just retired, namely Jack and Jill Smith. The couple has contracted the services of Mrs. Daryl to oversee the full implementation of the project. Mrs. Daryl has hired three workers who will work on the project site for 20 days from January 1, 2016, to January 27, 2016. The three workers each have a specific specialization in the project work and are paid differently. Tom, the general carpenter will draw a wage of $ 200 per day. Dick, the skilled plumber will draw a wage of $ 300 per day, and Harry, the skilled electrician will draw a daily wage of $ 300. Mrs. Daryl Hannah as the supervisor of the project has negotiated a cost-plus contract where she will receive 15% of the contract cost as her compensation (Mura, & Ključnikov, 2018). The contractor has estimated the cost of raw materials and permits to be $ 40,000 and has requested for management reserve of 10% to cater for unexpected problems. The overall cost of the project is as depicted in the project proposal.
Effect of Resources Limitation on the Final Schedule
The blue mountain cabin project is likely to be affected by the resources constrain on the part of the financiers. This will affect the completion of the project within the expected timeline of 20 days from the start date. The financiers of the project may be looking forward to using their annuity payment to finance the project from inception to its completion. Therefore, any delay in getting their lump sum is likely to stall the project progress (Viholainen, & et al, 2020). Also, Jack and Jill Smith being retirees may not attract credit from the financial institutions to complete the project. Jack and Jill Smith’s annuity payment which they target to use in the project may be affected by the presence of outstanding loans with their bankers making the bank deduct it upfront upon hitting their account reducing the available cash for the project.
BLUE MOUNTAIN PROJECT PROPOSAL
| ID | TASK | PREDECESSOR | TIME | WORKERS | COST/DAY IN $ | TASK COST |
| A | Prepare Site | None | 2 | T,D,H | 800 | 1,600 |
| B | Pour foundation | A | 2 | T,D,H | 800 | 1,600 |
| C | Elect Frame | B | 4 | T,D,H | 800 | 3,200 |
| D | Roof | C | 3 | T,D,H | 800 | 2,400 |
| E | Windows/Doors | D | 2 | T, D | 500 | 1,000 |
| F | Electrical | D | 2 | T, H | 500 | 1,000 |
| G | Plumbing | D | 2 | T, D | 500 | 1,000 |
| H | Rough-in Frame | E,F,G | 2 | T,D,H | 800 | 1,600 |
| I | Clean Up | H | 1 | T,D,H | 800 | 800 |
| Total Labor Costs | 14,200 | |||||
| Cost of Materials | 40,000 | |||||
| Daryl Hannah Fee (15%) | 8,130 | |||||
| Management Reserve (10%) | 5,420 | |||||
| Total Project Costs | 20 | 67,750 |
LABOUR COST ESTIMATES GANTT CHART
| Cost Centre | $ 800 | $1,000 | $1,600 | $2,400 | $3,200 |
| Clean up | |||||
| Windows/Doors | |||||
| Electrical | |||||
| Plumbing | |||||
| Prepare Site | |||||
| Pour Foundation | |||||
| Roof | |||||
| Elect Frame |
PROJECT TOTAL COST ESTIMATES SUMMARY GANTT CHART
| Cost Centre | Management Reserve | Hannah Fee | Material Costs | Labor Costs | Total Costs |
| $ 5420 | |||||
| $8130 | |||||
| $4000 | |||||
| $14,200 | |||||
| $67,750 |
The project financial risk
The cabin is likely to face credit risk from various perspectives once completed. The customers of the cabin may request for use of the services at a credit. This will affect the money reverting to the owners impacting negatively on the maintenance of the facility in good condition. Also, the limitation of the resources may compel the owners to seek credit from a financial institution. If the project upon the start of full operation fails to attract clients, the loan will attract interest making the lender auction the project making the owners lose their property. The project is likely to suffer the risk related to loss of value or asset-backed risk. This risk will occur due to the timing of the project completion where few people are willing to go on picnics during January and February. Also, during the same period, the value of housing plummet due to the risk associated with such a project at that time hence few people are willing to invest in the housing and hospitality sector (Mura, & Ključnikov, 2018). The risk of the loss of value can also be attributed to the market dynamics that result in a high-interest rate for investors seeking finance for construction projects like the blue mountain cabin. The project will be affected by the operational risk that occurs concerning its day-to-day management. Considering the age of the owners of the project, they cannot be trusted with the daily operations of the cabin (Viholainen, et al, 2020). Due to this fact, they may hire a resident manager to manage the finance and pay bills on their behalf as pertains to the project. If the manager is a person of questionable character, the couples will lose their investment and the expected returns.
Action to mitigate the risk
To reduce the effect of credit risk on the investment, the couples can institute measures that promote early booking and payment to get access to the services of the cortege. Also, the couple can undertake the project in phases to avoid securing the loan with a financial institution giving them time to wait for their lump sum payment (Ruggieri, 2012). The operational risk can be eliminated by the couple’s act of contracting a well-established firm to manage the cabin on their behalf. The risk related to lose in value of the cabin can be mitigated by getting an insurance cover from a reputable insurance company.
References
Mura, L., & Ključnikov, A. (2018). Small businesses in rural tourism and agro-tourism: Study from Slovakia. Economics & Sociology, 11(3), 286-300.
Ruggieri, L. (2012). From Horses To Log Cabins A $9 Million Embezzlement Case: How Did The Owner Not Know?. Journal of Business Case Studies (JBCS), 8(6), 575-584.
Viholainen, N., Kylkilahti, E., Autio, M., & Toppinen, A. (2020). A homemade of wood: Consumer experiences of wooden building materials. International Journal of Consumer Studies, 44(6), 542-551.
