Financial analysis and risk assessment of officebuilding project between subsidiaries of FPT corporation

FINANCIAL ANALYSIS AND RISK ASSESSMENT
OF OFFICE BUILDING PROJECT
BETWEEN SUBSIDIARIES OF FPT CORPORATION

By
HUỲNH PHÚC DUY

Submitted in partial fulfillment of the requirements for the degree of
Master of Business Administration (MBA)
at the
SOLVAY BRUSSELS SCHOOL OF ECONOMICS AND MANAGEMENT
and

HO CHI MINH CITY OPEN UNIVERSITY

December 31st 2011

i


DECLARATION
I hereby declare that this paper submitted in partial fulfillment of the MBA degree
is my own work and that all contributions from any other persons or sources are properly
and duly cited. I further declare that it does not constitute any previous work whether
published or otherwise. In making this declaration I understand and acknowledge any
breaches of the declaration constitute academic misconduct, which may result in my
expulsion from the program and/or exclusion from the award of the degree.
HCMC, December 31st, 2011

HUỲNH PHÚC DUY

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ACKNOWLEDGEMENTS
To mom and dad, this is a good chance for me to express my acknowledgement for
your love and education. Thank you mom and deceased dad, I love you so much.
Thank you honey, my wife, for your sympathy and support during 2-year course as
well as the research semester.
I also would like to highly appreciate for all people who support and help me to
finish this research, especially Dr. Nguyen Tan Binh, my thesis tutor, Mr. Trinh Ngoc Bien,
Chief accountant FPT Land Co. and other classmates.
Again, thank you very much!
HUỲNH PHÚC DUY

iii


EXECUTIVE SUMMARY
The purpose of this research is to determine the feasibility of cooperation between 2
companies. That is to build a 15,000-square-meter office building and rent it to the land
owner for a certain time after handover back. This cooperation is specific because
stakeholders are subsidiaries in same corporation. However, distinction of 2 profitmotivated business units might lead the lessee to refuse unreasonable lessor’s proposal.
The project is on the stage of negotiation that terms and conditions are not fixed yet and
Detailed Drawing are not issued.
The research could help decision-maker to determine the lease factors for
negotiation, to understand uncertainty of result, to see how input and output are related.
Financial analysis of the project is conducted by building excel financial model based on
assumptions from experience of other projects. Risk assessment is carried out by
sensitivity analysis on the model and forecast simulation using Crystal Ball software. The
summary of this research are condensed in the following page.

iv



SOLVAY BRUSSELS SCHOOL OF ECONOMICS AND MANAGEMENT
HO CHI MINH CITY OPEN UNIVERSITY

Master of Business Administration (MBA)

MBA THESIS ASSESSMENT
Dear: Board of Thesis Evaluation
Academic Year: 2011 - 2012

Topic:
FINANCIAL ANALYSIS AND RISK ASSESSMENT OF
OFFICE BUILDING PROJECT BETWEEN SUBSIDIARIES
OF FPT CORPORATION
Student:
HUYNH PHUC DUY
In term of the contents, the thesis has presented a subject, which was, agreeably
appropriate to the current condition within the area of project appraisal – public sector as
well as private sector.

To the exact, the enquiry focused mostly on the assessment of the financial advantages and
the possible risks occurred within certain projects. In which, the student has done such
important jobs as searching for data, analyzing markets and interpreting some of the
riskiest factors experienced by, for example, a real-estate project or more specifically,
rental office segmentation.

The student has shown off his knowledge achieved during his time spent studying and
investigating with Solvay Brussels School. This was proved by the ways he designed his
research or collected useful data, as well as the ways he applied scientific criteria to

vii


evaluate projects’ profits leading to quantitative conclusions and some proposals to deploy
the projects.

In term of the presentation, the thesis, with solid and comprehensible layout, has done
great in clarifying the ideas that the student wished to present.

I present to you, Board of Thesis Evaluation, my assessment of the student HUYNH
PHUC DUY and ask you to permit him to further defend his thesis.

General assessment: Very Good

Dr. Nguyen Tan Binh
Advisor

viii


TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION ........................................................................................ 1
1.1

BACKGROUND ..................................................................................................... 1
A. FPT Corporation ................................................................................................. 1

B. FPT Land Company Limited (F.Land) .............................................................. 2
C. FPT Software Joint Stock Company (F.Soft) .................................................... 2
D. Raising of cooperation ....................................................................................... 4

1.2

PROBLEM STATEMENT ..................................................................................... 5

1.3

RESEARCH OBJECTIVES.................................................................................... 5

1.4

SCOPE & LIMITATION ........................................................................................ 5

1.5

PAPER STRUTURE ............................................................................................... 6

CHAPTER 2 LITERATURE REVIEW ............................................................................ 7
2.1

INVESTMENT PROJECT LIFE CYCLE .............................................................. 7

2.2

PROJECT APPRAISAL FRAMEWORK .............................................................. 8

2.3

FINANCIAL MODEL ............................................................................................ 9

2.4

RISK AND RISK ANALYSIS.............................................................................. 10

CHAPTER 3 MARKET ANALYSIS ............................................................................... 13
3.1

MARKET OVERVIEW ........................................................................................ 13

3.2

SAIGON HIGHTECH PARK ............................................................................... 17

CHAPTER 4 TECHNOLOGY ANALYSIS.................................................................... 19
4.1

STANDARD APPLICATION .............................................................................. 19

4.2

BASIC DESIGN .................................................................................................... 20

4.3

CONSTRUCTION STRUCTURE & FINISHING MATERIAL ......................... 20

4.4

EQUIPMENT SCHEDULE .................................................................................. 21

4.5

MASTER SCHEDULE ......................................................................................... 21

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CHAPTER 5 FINANCIAL ANALYSIS .......................................................................... 23
5.1

TOTAL INVESTMENT AMOUNT ..................................................................... 23

5.2

WORK BREAKDOWN STRUCTURE ............................................................... 24

5.3

OPERATION EXPENSE ...................................................................................... 26

5.4

DEPRECIATION SCHEDULE ............................................................................ 27

5.5

FINANCING SCHEDULE ................................................................................... 27

5.6

LOAN & INTEREST EXPENSE ......................................................................... 29

5.7

INCOME STATEMENT....................................................................................... 30

5.8

CASH FLOW STATEMENT ............................................................................... 33

5.9

EQUITY CASH FLOW ........................................................................................ 35

5.10 LEASING OPTION .............................................................................................. 36

CHAPTER 6 RISK ANALYSIS ....................................................................................... 37
6.1

LIQUIDITY RISK................................................................................................. 37

6.2

RELATIONSHIP

BETWEEN

DOWN

PAYMENT

AND

MONTHLY

PAYMENT .......................................................................................................................... 39
6.3

INPUT SENSITIVITY .......................................................................................... 40

6.4

DISCOUNT RATE vs. NPV ................................................................................. 42

6.5

RESULT DISTRIBUTION & PROBABILITY ................................................... 43

6.6

VALUE AT RISK ................................................................................................. 47

CHAPTER 7 CONCLUSION AND RECOMMENDATION ....................................... 48

REFERENCE ..................................................................................................................... 49

APPENDIX ......................................................................................................................... 51

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LIST OF FIGURES
Figure 1-1 F.Soft profit and growth ....................................................................................... 3
Figure 1.2 F.Soft growth plan ................................................................................................ 3

Figure 2.1 investment Project life cycle stage summary ...................................................... 8
Figure 2.2 Financial model illustration ................................................................................ 10
Figure 2.3 Simulation by Crystal Ball software .................................................................. 12

Figure 3.1 Office space stock in Ho Chi Minh City ............................................................ 15
Figure 3.2 Future supply by grade in HCMC ...................................................................... 15
Figure 3.3 Average asking rents grade A & B office space ................................................ 16
Figure 3.4 Current asking rents of major office building in HCMC ................................... 16
Figure 3.5 Vacancy rate by grade ........................................................................................ 17

Figure 4.1 Basic Design Calculations .................................................................................. 20
Figure 4.2 Construction schedule & Finishing schedule ..................................................... 20
Figure 4.3 Equipment schedule ........................................................................................... 21
Figure 4.4 Master schedule .................................................................................................. 21
Figure 4.5 A brief view of construction schedule................................................................ 22

Figure 5.1 Total Investment Amount calculation ................................................................ 23
Figure 5.2 Total Investment Amount Breakdown estimate ................................................. 24
Figure 5.3 Construction cost – Main building Breakdown (code 1a) estimate .................. 25
Figure 5.4 Equipment cost Breakdown (code 2) estimate ................................................... 25
Figure 5.5 Investment & construction consultant cost Breakdown (code 4) estimate ........ 25
Figure 5.6 Other cost Breakdown (code 5) estimate ........................................................... 26

Figure 5.7 Main structure cost Breakdown (code 1.3) estimate .......................................... 26
Figure 5.8 Operation expense estimate ................................................................................ 27
Figure 5.9 Depreciation calculation ..................................................................................... 27
Figure 5.10 Depreciation schedule ...................................................................................... 27
Figure 5.11 Loan support data and Financing schedule ...................................................... 28

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Figure 5.12 Financing structure ........................................................................................... 28
Figure 5.13 Loan & Interest calculation .............................................................................. 29
Figure 5.14 Loan & Interest schedule .................................................................................. 29
Figure 5.15 Debt cash flow .................................................................................................. 30
Figure 5.16 Income statement calculation ........................................................................... 30
Figure 5.17 Pro forma Income statement............................................................................. 31
Figure 5.18 Cash flow statement calculation ....................................................................... 33
Figure 5.19 Pro forma Cash flow statement ........................................................................ 33
Figure 5.20 Equity cash flow ............................................................................................... 35
Figure 5.21 Lease option summary...................................................................................... 36

Figure 6.1 Shortage of Cash due to increase of Total investment amount .......................... 37
Figure 6.2 Negative closing cash balance illustration ......................................................... 37
Figure 6.3 Additional equity depend on Borrowing period & Grace period
(at Down payment =15%) ................................................................................................... 38
Figure 6.4 Additional equity depend on Borrowing period & Grace period
(at Down payment =10%) ................................................................................................... 39
Figure 6.5 Relationship between Down payment and Monthly payment
(Leasing period = 8 years, IRR = 25%, Borrowing period = 7 years, Grace period = 0) ... 40
Figure 6.6 Project IRR sensitivity analysis on ±10% of base element ................................ 41
Figure 6.7 Relationship between NPV and Discount rate ................................................... 43

Figure 6.8 Relationship between NPV and Discount rate at various Cost of equity ........... 43
Figure 6.9 Assumption report .............................................................................................. 45
Figure 6.10 Forecast report .................................................................................................. 46
Figure 6.11 Value at Risk ................................................................................................... 47

xii


Chapter 1 Introduction

CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
A. FPT Corporation
FPT Corporation was incorporated as a State-owned company in Vietnam and
subsequently equitised in accordance with Decision No.178/QD-TTg, following which the
Corporation officially operated as a joint stock company. FPT Corporation was established
under the Business Registration No. 0103001041 issued for the first time by Hanoi
Department of Planning and Investment dated on 13 May 2002 and its amendments.
As at 31 December 2010, FPT Corporation had 11 subsidiaries, as follows:
1. FPT Information System Joint Stock Company;
2. FPT Trading Group;
3. FPT Telecom Joint Stock Company;
4. FPT Software Joint Stock Company;
5. FPT IT Services Company Limited;
6. FPT Media Company Limited;
7. FPT Education Company Limited;
8. FPT Hoa Lac High-tech Park Development Company Limited;
9. FPT Land Company Limited;
10. FPT Online Services Joint Stock Company;

11. FPT City Da Nang Joint Stock Company.
During the 2010 FPT Strategy Conference, the Corporation’s leaders unanimously
agreed to set the following strategic objective for the period 2011 - 2024:
FPT MUST BECOME A VIETNAMESE LEADING GLOBAL CORPORATION
OneFPT is the Corporation’s Strategy for 2011 - 2024 to achieve the goal. OneFPT
strategy follows 3 main directions:
1. Go-Mass: provides FPT’s products/ services to customer on-time, any time,
everywhere.
2. Synergy: gather all internal and external forces to achieve OneFPT targets. “Oneownership, one resource, achieves OneFPT targets. “One-ownership, one resource,

1


Chapter 1 Introduction

one benefit”. Foster internal communication & cooperation; Simplify & integrate
FPT Management System; Provide each customer with FTP’s solutions/ products/
services.
3. Best-in-Class: do the best of completion missions for OneFPT targets. Build FPT
world-class Quality Standard; Lean & Efficiency toward Preventive & Proactive;
Provide best products/ services “Supex Goals”; Develop “Best-in-Class”
leadership; Favor Talent; Ensure of “Right People”; Develop continuously
Creativity & Improvement.

B. FPT Land Company Limited (F.Land)
FPT began investing in real estate in 2006 with the establishment of FPT Land
Company Limited, operating including real estate trading, investment and brokerage
services, leasing and renting of offices/apartments, warehouses, storage; doing business in
hospitality, restaurants, dormitories, real estate management and investment; construction
of civil, industrial, transportation and irrigational works, and other real estate activities.

The primary goal of FPT real estate investments is to build infrastructure for FPT
Corporation. The next goal is to engage in projects with high technology application
content, creating utilities and conveniences for users. In 2009, FPT started operations in
FPT Da Nang Building and FPT Building in Ho Chi Minh City. Prior to that, in 2007, FPT
also put into use FPT Cau Giay Building in Hanoi.
FPT will continue investing in the development of the 181-hectare FTP City in Da
Nang, which comprises a software park, an FPT University campus, and a residential area.
This complex is located on a central traffic route 7km from the city center. FPT will also
continue its investment in the hi-tech industrial park in Ho Chi Minh City and some other
projects.

C. FPT Software Joint Stock Company (F.Soft)
2010 was a challenging year for FPT Software due to the incomplete recovery of
the traditional Japanese market and difficulties in signing and implementing contracts with
several large customers in the EU market. In addition, weak management of expenditure
assistance prevented FPT Software from completing the plan for 2010. A highlight in 2010

2


Chapter 1 Introduction

was the success of FPT Software in the US market, in which growth was respectable and
two contracts worth USD 1 million were signed with Twin City Fan Companies and
CourtTrax.
At the end of fiscal 2010, FPT Software sales reached VND 1,000 billion, up 34%
compared to 2009, reaching 95% of the plan. Prof it before tax was VND 230 billion, a
10% increase from the previous year and 80% of the plan.
(Source: FPT Annual Report 2010)

Figure 1-3 F.Soft profit and growth

Although FPT Software is leading software exporter in Vietnam, its global market
share is still very small. Therefore, the Company continues to set high growth target for
the future. The Japanese and US markets are evaluated to be two major markets for FPT
Software in 2011. The Japanese market is expected to be more profitable than in 2010.
In the coming years, FPT Software will need highly skilled human resources to
provide high quality services and to engage in large contracts. In 2011, FPT Software will
intensify human resource investments. In addition, the company will initiate various
measures to raise labor productivity and increase growth, such as implementing
applications to support production and management, and reforming the cost structure.
(Source: FPT Annual Report 2010)

Figure 1.4 F.Soft growth plan

3


Chapter 1 Introduction

Since 2006, F.Soft has invested in project of Telecommunication Technology
Research and Software Production Center in Saigon High-Tech Park (SHTP), district 9
HCMC. The project was divided into 3 phases with initial registered investment amount of
560 billion VND. Phase 1 comprises a 5-storey office building that would be working
place for 1,000 information technology (IT) programmers. Phase 2 was tending to be on
the same scale. And the last one was to serve 2,000-3,000 experts. Total project scale was
to support for 4,000-5,000 staffs. That was the strategy of FPT in growing fast in software
export sector.
At the moment, project has finished phase 1, operating for 800 IT staffs. The
challenge is coming due to infrastructure and social affair in district 9 not to satisfy

specific requirements of high-tech workforce, IT programmer, such as community
connection, after work entertainment, social relationship management or even sports. The
target of 5,000 IT programmers working in SHTP become far away. Moreover, F.Soft have
planned to develop its other projects in Dong Nai and Ha Noi where could be better places
fit their strategy and opportunity. That led to the F.Soft‘s decision to reduce the SHTP
project scale to 2 phases with 2,500 IT programmers. That means the next as well the last
phase is an office building with 15,000m2 gross floor area supporting for 3,000 staffs
maximum.

D. Raising of cooperation
The development plan of F.Soft, coming with requirement of new office space is
raising cooperation between 2 FPT subsidiaries. F.Soft need more space for their
employees, in fact. They also need to reserve cash for development, which stage always
brings negative operating cash flow. Consequently office space leasing is a considerable
option.
F.Land, with experience in F.Soft’s first phase in SHTP as a project management,
could be a partner.
Moreover, from FPT Corporation point of view, the cooperation is the right move
at the right time for their new strategy. Synergy between 2 subsidiaries could bring more
efficiency operation. Clarifying the source of profit could bring better view of business unit
management.

4


Chapter 1 Introduction

However, distinction of 2 profit-motivated business units even in the same
corporation might lead F.Soft to refuse unreasonable F.Land proposal. The problem here
is to propose the option that is “fair” to both parties.

1.2 PROBLEM STATEMENT
F.Land is required to make and present a proposal for opportunity venture. Early
meeting is agreed F.Land would build a 15,000-m2 office building on F.Soft’s own land in
SHTP and rent to F.Soft for a certain period of years. After the concession period, the
office building would belong to F.Soft the lessee. The problem to be addressed in this
research is to evaluate such business opportunity from F.Land’s point of view, to
decide whether invest in the project, to prepare options to convince F.Soft in the
presentation, to predict key financial factors change during negotiation.

1.3 RESEARCH OBJECTIVES
The research is aimed to provide answers to the above problems, based on project
appraisal technique, financial analysis and risk assessment. The research objectives are:
• To build the financial model of project
• To determine proposal options which are contributed by: initial lease payment,
residual payment, monthly payment paid by F.Soft the lessee, the concession
period…
• To analyze sensitivity of financial model calculation input using Monte Carlo
simulation
• To evaluate the project result with its distribution and probability
• To analyze scenario and riskiness of input which impact on model’s forecast results
using Oracle Crystal Ball software

1.4 SCOPE & LIMITATION
Project appraisal framework includes various sectors that require many workforce,
experience, expertise, time and data digging such as market analysis, technical analysis,
human resource analysis and financial analysis. This research comprises reporting market
and technical analysis in usual condition for purpose to give a brief information and bird-

5

Chapter 1 Introduction

eye view about the project, bypassing human resource analysis and focusing about
financial analysis and risk assessment. The research assumed that rational decision would
be made based on financial view with fully risk warning.

1.5 PAPER STRUTURE
The research paper is arranged into 7 chapters. Chapter 1 introduces the research
background, objectives and the scope of study as well as its limitation. Chapter 2 presents
literature review. Chapter 3, 4, 5, 6 provide project’s market, technology, finance and risk
analysis respectively. Chapter 7, the last one, is the summary and author‘s recommendation.

6


Chapter 2 Literature review

CHAPTER 2
LITERATURE REVIEW
2.1 INVESTMENT PROJECT LIFE CYCLE
In the past feasibility studies for projects have been developed on an ad hoc basis
because a standardized approach has never really been developed. The investment lifecycle was normally considered to consist of 6 separate stages of development that can
overlap. These are:
1. Opportunity identification
2. Appraisal
3. Investment planning
4. Asset creation
5. Operation

6. Close-down
The investment life-cycle stages are summarized in the following table:
Stage
Opportunity

Processes

Decision parameters

Identify business need

Capital cost estimate (+/-30%)

identification Define the opportunity

Appraisal

Operating cost estimate

Undertake initial assessment

Cash flows

Decision to proceed

Preliminary risk review

Define

objectives,

scope

and Capital cost estimates (+/- 15%)

business requirement

Operating cost estimate

Define project structure and strategy

Cash flows

Develop business case

Identify the cost of the planning

Identify source of funds and cost

phase

Carry out studies

Full risk review

Decision to proceed
Investment
planning

Put funds in place

Cost of finance

Obtain all consents and licenses

Capital cost estimates (+/- 10%)

Undertake the concept design

Operating cost estimate

Preparation of the project plan

Cash flows

7


Chapter 2 Literature review

Final decision to proceed

Identify the total cost of the asset

Place any enabling contracts that are creation phase

Asset
creation

required

Risk review

Put project team in place

Scope

Detailed design

Quality

Place contracts

Schedule

Construct

Capital Cost

Commission and handover

Risk management

Train operators and prepare for
operation
Operation

Operate

Operating Cost

Take benefits

Maintenance cost

Maintain

Revenue
Other benefits

Close-down

Shutdown

Shutdown costs

Sale or disposal

Staff redundancy cost
Disposal cost / income

Figure 2.1 investment Project life cycle stage summary

2.2 PROJECT APPRAISAL FRAMEWORK
Project appraisal and evaluation are often referred to together as project assessment.
Project appraisal is concerned with assessing, in advance, whether a project is worthwhile
and therefore if it should be proceeded with. The process of project evaluation is concerned
with assessing, in a retrospective sense, the performance of a project after it has been
implemented and completed. Project appraisal framework comprises:
• Market analysis

This first part is to determine market demand to answer these following questions
o “What is to be produced?”
o “Which segment is the product of project on?”
o “How much is it produced?”
To decide: Quality, Scope, Pricing strategy and Technology used.

8


Chapter 2 Literature review

• Technology analysis
This is mainly concerned with issues related to physical scale, layout, location of
facilities, technology used, cost estimates and their relation to engineering or other data on
which they are based, proposed procurement arrangements, procedures for obtaining
engineering, architectural or other professional services, the potential impact on the human
and physical environment, and a range of other similar concerns related to the technical
adequacy and soundness of the project.
• Human resource analysis
The objective of many projects is not merely to add to physical assets and capital,
but also to create and enlarge human and institutional capabilities to manage and maintain
development undertakings. Institutional appraisal is concerned with a large number of
questions which deal with the adequacy or otherwise of such human capability and the
institutional framework in which projects are implemented. This is possibly the most
challenging aspect of the project’s overall success. Many failure projects which are
technically well-designed and well-endowed (in terms of their ‘hard’ inputs), have
limitations at the human and institutional level (the so-called ‘soft’ inputs). Therefore
project appraisal requires careful and sensitive consideration of the institutional dimension
and local conditions.
• Financial analysis

Financial appraisal (investment appraisal) is concerned with such questions as the
adequacy of funds, the financial viability of the project, the borrower’s ability to service
debt, procedures for recovering investment and operating costs, etc, and, ultimately, does
the project return a profit?

2.3 FINANCIAL MODEL
A financial model is a spreadsheet that has taken the leap from being a data
organizer to an analysis tool. A model represents the relationships between input and
output variables using a combination of functions, formulas, and data. As you add more
cells to the model, your spreadsheet begins to portray the behavior of a real-world system

9


Chapter 2 Literature review

or situation. Almost all financial-statement models are sales driven; this term means that as
many as possible of the most important financial statement variables are assumed to be
functions of the sales level of the firm.

Figure 2.2 Financial model illustration

2.4 RISK AND RISK ANALYSIS
Uncertainty is usually associated with risk, where risk includes the possibility of an
undesirable event coupled with severity. If the reduction in inventory is large enough, there
will be a delay in shipping orders (an undesirable event). If a delay in shipping means
losing orders (severity), then that possibility presents a risk. As uncertainty and risk
increase, decision-making becomes more difficult.
There are two points when analyzing risk:
• Where is the risk?

• How significant is the risk?
Almost any change, good or bad, poses some risk. Once identifying the risks, a
model can help to quantify them. Quantifying risk means determining the chances that the
risk will occur and the cost if it does, to help deciding whether a risk is worth taking. For
example, if there is a 25% chance of running over schedule, costing you $100 out of your
own pocket that might be a risk you are willing to take. But if you have a 5% chance of

10


Chapter 2 Literature review

running over schedule, knowing that there is a $10,000 penalty, you might be less willing
to take that risk.
Finding the certainty of achieving a particular result is often the goal of a model
analysis. Risk analysis takes a model and sees what effect changing different values has on
the bottom line. Risk analysis can:
Three traditional ways to capture the uncertainty are:
• Point estimates
Point estimates are when we use what we think are the most likely values
(technically referred to as the mode) for the uncertain variables. These estimates are the
easiest, but can return very misleading results. For example, try crossing a river with an
average depth of three feet. Or, if it takes us an average of 25 minutes to get to the airport,
leave 25 minutes before your flight takes off. You will miss your plane 50% of the time.
• Range estimates
Range estimates typically calculate three scenarios: the best case, the worst case,
and the most likely case. These types of estimates can show the range of outcomes, but not
the probability of any of these outcomes.
• What-if scenarios
What-if scenarios are usually based on range estimates, and are often constructed

informally. What is the worst case for sales? What if sales are best case but expenses are
the worst case? What if sales are average, but expenses are the best case? What if sales are
average, expenses are average, but sales for the next month are flat?
Traditional ways limitation:
This is extremely time consuming, and results in lots of data, but still doesn’t
provide the probability of achieving different outcomes. Two fundamental limitations of
ordinary spreadsheets is still faced. Only one spreadsheet cell can be changed at a time. As
a result, exploring the entire range of possible outcomes is next to impossible; you cannot
realistically determine the amount of risk that is impacting the bottom line.
"What-if" analysis always results in single-point estimates which do not indicate the
likelihood of achieving any particular outcome. While single-point estimates might tell you
what is possible, they do not tell you what is probable.

11


Chapter 2 Literature review

Modern way to analyze uncertainty:
Monte Carlo simulation is used by Crystal Ball software to model the complexity of
a real-world scenario. For each trial of a simulation, Crystal Ball repeats the following
three steps:
1. For every assumption cell, a random number is generated according to the range
you defined and then is placed into the spreadsheet.
2. The spreadsheet is recalculated.
3. A value is retrieved from every forecast cell and added to the chart in the forecast
windows.
The final forecast chart reflects the combined uncertainty of the assumption cells on
the model’s output. When building and simulating spreadsheet models, it is required to
carefully examine the nature of the problem and continually refine the models until they

approximate your situation as closely as possible.

Figure 2.3 Simulation by Crystal Ball software illustration

12


Chapter 3 Market analysis

CHAPTER 3
MARKET ANALYSIS

3.1 MARKET OVERVIEW
Office for lease is a branch of real estate. Starting in Vietnam from the 1990s, this
sector has been growing year over year. Until Quarter 2 2011, there are over 1.7 million
total floor area office space for lease in Ho Chi Minh City. Services office buildings could
be classified into 3 grades:
Grade A:
A grade A office must satisfy 22 items of standard, including:
1. First-class design of a newly constructed building
2. Excellent location: Buildings with an excellent location generally are either in the
city center and/or CBD
3. Easy access to the building
4. Attractiveness to the most creditworthy and prestigious tenants on the market
5. High rent levels. Rent levels should be above the average for the particular city
6. Professional property management
7. Underground parking lot providing enough parking space for the building
8. Use of high-quality building materials
9. Floor to ceiling height responding to the regulatory requirements for this type of
buildings but not less than 2.70 m

10. Flexibility of internal design – ‘open space type’
11. Under floor cabling system (raised floors) and suspended ceilings
12. 24-hours security and access control
13. High-speed lifts with waiting time max up to 30 seconds. At least 2 lifts with a
capacity of at least for 6 people
14. HVAC system to provide heating, cooling and humidity control of the air and
control of microclimate in the office according to the EU HVAC standards.
15. Dual power supply with automatic switch
16. Room depth 18-20 m between windows

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Chapter 3 Market analysis

17. Common areas not more than 12 percent of TBA
18. Building Management System
19. Luxury meeting rooms and a large impressive lobby
20. Food and rest areas for staff /restaurant, café, fitness/ for the buildings designed for
more than 250 people
21. Modern window panes, high-quality window frames, sun-protection glass
22. Energy efficiency class A (the highest efficiency class according to EU Energy
efficiency standards)

Grade B:
1. A grade B office building must be Compulsory characteristics:
2. High rent levels. Rent levels should be above the average for the market in the
particular city
3. Professional property management
4. Use of high-quality building materials

5. Floor to ceiling height responding to the regulatory requirements for this type of
buildings but not less than 2,70 m
6. Flexibility of internal design – ‘open space type’
7. 24-hours security and access control
8. High-speed lifts with waiting time max up to 30 seconds. At least 2 lifts with a
capacity of at least for 6 people
9. Dual power supply with automatic switch
10. Room depth 18-20 m between windows
11. Luxury meeting rooms and a large impressive lobby
12. Food and rest areas for staff /restaurant, café, fitness/ for the buildings designed for
more than 250 people
13. Modern window panes, high-quality window frames, sun-protection glass

Grade C:
Buildings of this category are with lower quality characteristics. Generally, such
buildings are indented for administrative use for earlier periods, often dating to 20-25 years
ago. They meet just a part of the main requirements for grade B office buildings.

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