Week 6_LanreGiwa_Pricing

After acquiring a vast area of Land and obtaining a Bank loan, I have successfully completed 20 Blocks of 3 Bedroom apartment located in a very good location in Lagos.

Considering the cost of completion of each apartment, I am faced with the challenge of determining the quickest way of offsetting the loan I took from the Bank and also how to make profit from the Business investment decision of building a housing estate.

I therefore need to determine three critical things:

a) Whether to put up the apartment for outright sale, Long lease or to be rented out.

b) Determine the selling price of each apartment for any choice made from (a) above.

c) To make profit from the business investment or at a minimum, recover the cost of Investment.

The first thing I have done is to determine the Cost of Investments by summing up all my cost elements such as Labour Costs, Costs of materials, Cost of the Land, Overhead Costs and other Indirect Costs.

It could be difficult in fixing the price of the apartment considering complexities such as the economy in the country, the customer budget, and prices of other apartments in the neighborhood. So, In order to arrive at a good price for any of my final decisions (sell, rent or lease), I used available pricing tools such as:

1. Return on Investment ( ROI)
2. Return on Sales ( ROS)
3. Break even Analysis.

The tools used assisted in determining the mark-up amount by studying the current market trends and determining the amount to be added to the cost to make adequate profit.

With the tools used, it will take a longer period to recover my cost if I have to rent out the apartments or take a long lease.

Considering the available alternatives, based on the analysis and considerations carried out, I would decide the SELL the 3 bed apartments hoping to offset the loan from the bank and to make an appreciable profit. Continual analysis and monitoring will be carried out periodically to determine if it is most viable to keep selling, otherwise, other options like leasing or renting may be reviewed as the next option.

References

1. Chapter 2, Skills and Knowledge of Cost Engineering. 5^th Edition Revised.
2. Jelen, F.C. and J.H Black.1983. Cost and Optimization Engineering. New York: McGraw Hill
3. Chapter 38, Project management using Earned Value, pp 749 - 753. Humprey and Associates.
4. GAO Cost Estimating and Assessment Guide. Best Practices for developing and managing capital Program Costs
5. Engineering Economy,14^th Edition, Page 27,Table 1-1