Bfc44602 Engineering Economy: Title: Development of A New Private College Worth RM100 Million
Bfc44602 Engineering Economy: Title: Development of A New Private College Worth RM100 Million
ECONOMY
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1.0 INTRODUCTION
Based on the annual report from IREKA, In March 2020, COVID-19 was subsequently
declared a pandemic and prompted several countries, including Malaysia, to close their borders
and to increase production Health monitoring and regulation of the movement of individuals
to curb the spread of the virus. On 18 March 2020, the Malaysian Government introduced the
Movement Control Order ('MCO') and subsequent Conditional MCO ('CMCO') as the COVID-
19 pandemic escalated. The operations of Ireka Corporation Berhad's ("Ireka" or "the Group")
core businesses were severely restricted during the two MCO periods as activities related to
construction and property development came to a halt. In view of the tough economic climate,
Ireka's revenue dropped from RM200.1 million in the financial year ended 31 March 2019
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('FY2019') to RM157.1 million in the financial year ended 31 March 2020 ('FY2020'),
primarily due to the decrease in the amount of work performed by the Construction Division.
1.3 Objectives
The purpose of conducting this project is to figure financial management as well as project
management of IREKA to achieve this aim 3 objectives of this study has been identified which
are:
1. To identify cause of revenue, drop of company IREKA due to pandemic Covid-19
2. To identify the solution to solve problem faced by the company IREKA.
3. Propose of analysis to decide the proceeding of the construction project.
The company decide to build a private collage that worth RM 100 Million in a duration of 5
years. As a project engineer, we are being assign a task to propose the financial management
and project management during the construction process and to decide the proceeding of the
project based on analysis in terms of economy engineering.
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1.5 Organisation Chart
Yeap Kuang
Shen
Project Manager
Jacqueline Lau
Wen Wen
Construction
Manager
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2.0 FINANCIAL MANAGEMENT
Ireka Corporation Berhad is a listed company in Malaysia that play a significant role in
development of the country in construction field. Ireka Corporation Berhad founded in year
1967 and the founder, Datuk Lai Siew Wah introduced the company are mainly focused on
four different types of activities including constructions, technologies, urban transportation and
real estate. Over 50 years of building services, Ireka Corporation Berhad has rapidly grown
into an integrated and progressive entity.
Ireka Corporation Berhad began its business as a sole proprietor undertaking general
earthworks and road works construction. In the 1980s, it emerged as one of the largest local
earthwork contractors in Malaysia. Throughout the 1990s and early 2000s, it constructed some
of the country’s most notable infrastructure projects including civil engineering, building and
public utilities developments. Infrastructure business represented by Ireka Engineering
Construction Sdn Bhd in Malaysia and Ireka Engineering And Construction Vietnam Company
Limited in Vietnam. Besides, Ireka initiated the listing of a property company, Aseana
Properties Limited (‘Aseana’) on the London Stock Exchange in year 2007 in order to
undertake property development activities in Malaysia and Vietnam. Ireka Development
Management Sdn Bhd, has been appointed as the exclusive Development Manager to manage
Aseana’s development portfolio in Malaysia and Vietnam.
Furthermore, Ireka expanded into Technologies which setting up a primary networking
and systems integration company in year 2003. Thus, i-Tech Network Solutions Sdn Bhd
provides customized IT infrastructure solutions and co-location services in Malaysia and
Vietnam. Other than that, Ireka also collaborate with oversea company to expand into urban
transportation services. Mobilus Sdn Bhd is a company that organized by Ireka with its business
partner, CRRC Urban Traffic (Europe) Co Ltd (CRRC UT) to introduce its eco-friendly urban
transportation business in Malaysia and Southeast Asia.
Ireka has established a good track record of consistent growth over the last 50 years. It
aims to provide the highest standard of design, construction and service in the business. Hence,
it resulting in several major industry awards in recent years such as FIABCI and Asia Pacific
Property Award. Therefore, the company performance is analyze based on several aspects
included the type of project financing such as balance sheet, cash flow and income statement
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of the company. These annually data will helps Ireka in discovering the fluctuated trend of the
performance and able to carry out predictions for the future activities in following years.
From the annual report of Ireka Corporation Berhad, it stated there are an average
economy growth of 4.3% in 2019 if compared to 4.7% in 2018. However, Ireka also stated that
the economy in Malaysia is slowly decrease when the time is getting to end of the year due to
the spreading of the COVID-19 pandemic all over the world. Hence, Malaysian Government
had introduced the implementation of Movement Control Order (MCO) to curb the spread of
the virus. Due to the implementation of MCO, there are many constructions and related
development activities have been call off until the government introduced another phase of
MCO. The performance of Ireka has been affected tremendously. This fact is being so when
the revenue of Ireka is decreased from RM200.1 million in year 2009 (FY2019) to RM157.1
million in year 2020 (FY2020), which is affected by the construction activities are not
completed on time.
Besides, Ireka experiences tremendous loss in share from RM2.6 million to RM 32.2
million due to the impairment loss on its Sandakan assets coupled with operating losses and
finance cost of its four operating assets. However, impairment loss on its Sandakan assets are
non-cash losses and has no effect to the cash flow and the operation of the company. Therefore,
RM 39.9 million loss in FY2020 while compared to RM29.1 million in FY2019. Other than
that, Ireka manage to focus on the existing construction project although there is decelerate in
development of infrastructure. The Ireka construction sector ordered book stood at RM508.3
million while RM338.1 million are remain outstanding at 30 June 2020. Furthermore, real
estate sector in Ireka has boost 4.8% and 0.8% to the transactions of the volumes and values of
property respectively in FY2019. Thus, Ireka also expressed the reduction of the interest rate
charged from 25 basis point to 3.0% in May 2019 and further reduced to 2.0% in May 2020.
This action is done to attract more potential investors to buy Ireka properties within their
affordable range. Ireka introduced the third property that cost RM600,000 to boost the property
market after the second half of year 2020 and the Government has also exempted the tax for
disposal of the residential properties for the period from 1 June 2020 to 31 December 2021.
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2.2.1 Performance in Construction Sector
There is a drop of 21.5% in the total revenue about RM157.1 million in FY2020 if
compared to FY2019. This is due to the reduction of book ordered as lesser new contracts in
the construction sector that affected approximately 43.3% of the total revenue of Ireka. Thus,
the call off of the construction activities due to the lockdown of the country during the
implementation of MCO which causes a pre-tax losses of RM36.2 million in FY2020 compared
to pre-tax losses of RM28.7 million in FY2019. However, the overall performance of the
company illustrates an increase of 4.6%, which is increase by RM22.5 million to RM507.7
million in total assets in FY2020 if compared to FY2019. Hence, Ireka also shows there is a
grow in the total liabilities by 16% in FY2020 if compared to FY2019, which is about RM394.8
million and RM340.4 million respectively. Besides, the equity of the shareholders have a
reduction on consolidated basis about RM117.6 in FY2019 to RM77.4 million in FY2020
which due to the losses that happened during the year. Other than that, there is an increase of
1.3% of the total value of construction work done in the last few months before end of 2019.
The outbreak of Covid-19 pandemic had affected the Ireka Engineering & Construction Sdn
Bhd with a loss of RM83.8 million which equivalent to 55.2% in the construction sector.
Covid-19 pandemic and implementation of MCO had affected the group’s performance and
activities by ceasing construction activities. Subsequently, Ireka also faced the problems such
as shortage of labor and other negative consequences on the project execution. On the positive
side, Ireka is successfully to ensure a new contract that worth RM163.9 million on the
construction of 10-storey hospital extension block in Johor Bahru.
From the Group’s Ireka Corporation Berhad, it stated that there is an increase in the
total amount of residential transactions and introduced there are remain a quite numbers of
unsold residential units. These unsold residential units are worth for RM18.8 million. However,
the property market had been impacted by the outbreak of Covid-19 pandemic and causes
supply chain disruption, increase in number of unemployment rate and rigorous housing loan
that imposed by the banks. Thus, it shows the decreased of property transaction volume in the
property market by 13.6% at the first quarter of 2020 due to the arising of pandemic outbreak.
Nevertheless, the revenue of the real estate sector is sharply increase to RM82.7 million if
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compared with previous year worth RM38.1 million. Lastly, it stated that the Group focused
on the completion of its construction project and plan with consideration for the future, which
may still undergo with pandemic outbreak.
A balance sheet is introduced as a financial statement that reports the company assets,
liabilities and shareholders’ equity at certain time, especially it reports annually. The balance
sheet is one of the three core financial statements such as balance sheet, income statement and
cash flows that utilized in the evaluation of the business. Thus, balance sheet can consider as a
review on it owns and owes of the company at that specific time. Balance sheet is a fundamental
method to calculate the financial ratios and able to conclude the gain and loss of the company.
In this project, balance sheets of Ireka Corporation Berhad is discussed in Figure 2.1 below.
From the figure 2.1 below, we noticed that the total assets are divided into two
categories, which is non-current assets and current assets. Other than that, balance sheet also
introduced the equity and liabilities of the company in which liabilities are divided into two
categories such as non-current liabilities and current liabilities. Current assets are meant by an
amount of money are expected to be converted to cash within a certain time. Meanwhile, non-
current assets are meant by an amount of money cannot be draw out within a year. In other
words, current assets are able to draw out whereas non-current assets are considered as long-
term assets. Besides, current liabilities known as short-term liabilities in which the debt of the
company are payable within a certain time or a year. In other words, non-current liabilities
means that the debt of the company are payable after at least a year. Equity represents the
amount of money that are returnable to the shareholders and can be earnings retained by the
company for reinvestment purposes. The balance sheet in figure 1 illustrates that the company
held a total assets of RM507,712,912, total equity of RM112,939,581 and total liabilities of
RM394,773,331.
Table 2.1 and table 2.2 below illustrate the significant analysis ratio (FY2020) in the
balance sheets of figure 1. Thus, we are able to determine the financial condition of the
company from the analysis of ratio.
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Table 2.1: Analysis ratio of FY2020 (Figure 1)
Debt
Debt Return
Current Current Net Current to
Equity to on
Assets Liability Income Ratio Total
(RM) Equity Equity
(RM) (RM) (RM) (CA/CL) Assets
(D/E) (ROE)
(D/A)
358,901,635 354,700,838 112,939,581 5,257956 1.01 0.78 3.5 0.05
From table 2.1 above, it explain the analysis ratio of FY2020 in figure 2.1. We discover that
Ireka has a current ratio of current asset to current liability (CA/CL) ratio of 1.01, debt to total
assets ratio (D/A) ratio of 0.78, total debt to equity (D/E) ratio of 3.5 and return of equity (ROE)
of 0.05. The values stated previously indicate an important feature to financial condition of a
company. Generally, CA/CL values is preferably to be greater than 1. This fact is being so
when Ireka obtained CA/CL value of 1.01, which is able to pay off its debt of 1.01 times in
critical financial condition and would not struggle in short-term obligation. Besides, Ireka
obtained with value D/E of 3.5, it indicates that Ireka is a high risk company. In other words,
Ireka is highly leveraged and that could be a factor to the corporation for borrow more money
if needed for an emergency or economic downturn. Other than that, D/A value that obtained is
0.78, which indicates that the cost of total assets are financed by its lenders and creditors.
Therefore, the stockholders are safe to do investment. While referring to ROE value, the
company having a value of 0.05 which is considered a low return, meaning that there is only
5% of return for every investor in this year.
Table 2.2 above it illustrates the analysis ratio of FY2019 in figure 2.1. Ireka obtained
a current ratio (CA/CL) of 1.02, debt to total assets ratio (D/A) ratio of 1.09, total debt to equity
(D/E) ratio of 2.35 and return of equity (ROE) of 0.14. Generally, Ireka has a greater CA/CL
value of 1.02, which would to avoid struggling in short-term obligation. Besides, it consider as
a medium risk company in year 2019 due to D/E value of 2.35 but it still a better choice for the
stockholders to make investment. Other than that, D/A value of 1.09 indicates that Ireka is
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slightly risky due to the higher financial leverage. While referring to ROE value, the company
having a value of 0.14 which is considered a medium return, meaning that there are 14% of
return for every investor due to Ireka had better net income in year 2019.
The net income of Ireka is sharply decrease about 70%, if the net income of FY2020
is compared with FY2019. This situation may due to the outbreak of pandemic and
implementation of movement control operation (MCO) which occur in 2020. Most of the
construction activities are force to stop and postpone until the release of MCO. By the
comparison of FY2019, we discovered that there is a slightly increased in the current assets,
current liabilities and slightly decreased in the equity, which is 14.4%, 15.3% and 22.1%
respectively. Besides, ROE of Ireka in FY2019 is 0.14 which is 14% return the money to the
stockholders and it slightly higher than that of FY2020. This is due to the low net income of
company which is affected by the outbreak of pandemic. From the tables above, it shows that
CA/CL values are above 1 and it indicates that the company is avoidable of short-term
obligations. Value D/A of 1.09 in FY2019 is decreased to 0.78 and value D/E is increased from
2.35 to 3.5 in FY2020, while it still consider that Ireka is still a good choice of investment
although value of D/E indicates that company is slightly risky in 2020.
Nevertheless, some of values like D/E and ROE ratio had increased and decreased
respectively in 2020. In my point of view, this situation is consider as acceptable as the global
economy nowadays is still under the impact of Covid-19 pandemic. The overall performance
and financial condition of every company will low as compared to previous year. In summary,
financial condition of Ireka Corporation Berhad is still considered healthy and acceptable.
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Figure 2.1: Balance Sheet 1 from Ireka Corporation Berhad Annual Report 2020
Income statement is introduced as the financial statement that reports the profit and loss
statement in the annual report of a company. Income statement also states that the revenue and
expenses of the company in which based on the products and activities that have been
completed. An income statement is one of the three significant financial statements utilized in
reporting the financial performance of a company over a specific accounting period, and
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normally stack with other two key statements being the balance sheet and statement of cash
flows. Figure 2.2 below illustrates the income statement of Ireka Corporation Berhad and is
discussed based on some financial ratios.
From the figure 2.2 below, it illustrates that the income statements are divided into two
different categories, which is the group income statement and the company income statement.
The differences between the group and company income statement is group income statement
is stand for the consolidated financial statement of the company and its all subsidiaries,
associates and joint ventures. Meanwhile, company financial statement is the standalone
financial statement of company itself only. In other words, the group statements are usually
informative while company statements only provide little information. In the income
statements, there are at least four key information that need to be focus on such as revenue,
expenses, gains and losses of the financial reports.
In this income statements financial analysis, there are few types of the financial ratios
that are required, including the gross margin and operating profit margin. Other than that,
comparison between the vertical and horizontal analysis also need to be determine in order to
obtain detailed financial performance of Ireka Corporation Berhad. Table 2.3 below illustrates
the important financial analysis ratio for group income statement.
From table 2.3 above, we discovered that Ireka has obtained a gross margin of 20.9% and
operating profit margin of 3.3% in FY2020. The values stated previously indicate important
features to financial condition and the performance of a company. Generally, the greater
percentage of the gross margin, the better the financial health of a company is. This fact is
being so due to inventors will understand the potential of a company in earning the revenue
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and indicates that the company are able to make a reasonable profit on sales. Besides, operating
profit margin is an analysis ratio that helps to compare the quality of financial activities to its
competitors. Also referred to as return on sales, the operating income indicates the amount of
generated sales is left when all operating expenses are paid off. Thus, higher operating profit
margins are better than lower operating profit margins. In FY2019, Ireka obtained 7.9% and
10% for the gross margin and operating profit margin respectively. By comparing FY2019,
there is an increased and decreased in the gross margin and operating profit margin respectively.
However, there is an decreased of 21.5% of total revenue in FY2020 if compared to FY2019.
Furthermore, as refer to the group income statement, it stated that there are slightly
increase for different types of losses such as the loss for the financial year, total loss attributable
and the total comprehensive loss attributable in FY2020 if compared to FY2019. The losses
for the financial year slightly increased in the percentage of 37.3 with an amount of
RM10855614 by compared to FY2019. Thus, total loss and total comprehensive loss
attributable had increased the losses by 37% and 33.3% respectively if compared to FY2019.
The financial income statement also state that the loss per share attributable to owners in
FY2020 is 21.62 cent which increased by 41.7% by compared to FY2019. On my point of view,
the group financial statement is considered as healthy due to the increased in the gross margin
although there is a slightly decreased in operating profit margin.
Nevertheless, there is no cost of sales from the company income statement in FY2020
and FY2019. This is because company are having service-based business such as accounting
and real estate firms in the construction sector. Thus, there also costs of revenue for ongoing
contract services, including raw materials, direct labor and commission paid to employees.
Other than that, operating profit margin is determined due to the different value of operating
profit and the total amount of revenue as well. Based on the company income statement, the
operating profit margin is determined with the value of 67.6% and 22% in FY2020 and FY2019
respectively. However, the group income statement is more priority if compared to company
income statement due to the group financial statement is consolidated with its all subsidiaries,
associates and joint ventures which shows the major proportion of this financial report.
Therefore, Ireka Corporation Berhad is still consider as a better company for investors although
the financial statements show the increased in the losses and reduction of total revenue in
FY2020, which is due to the consequences of Covid-19 pandemic.
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Figure 2.2: Income statement of Ireka Corporation Berhad
Cash flow statement is introduced as a financial statement that summarizes the amount
of cash and cash equivalents that entering and leaving a company. Cash flow statement are one
of the key components that used in the financial annual reports. Thus, it complements with the
balance sheet and income statement to determine the overall financial condition and
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performance of the company. The main feature of the cash flow statement is to assist the
company in monitoring and managing its cash position. In other words, cash flow statement
indicate that the efficiency of cash generation of a company to pay its debt obligations and fund
its operating expenses. Figure 2.3 and figure 2.4 illustrate the cash flow statements of Ireka
Corporation Berhad and discussed based on some significant components.
From the figures below, it illustrate that the different types of the components in the
cash flow statement such as cash flow from operating activities, cash flow from investing
activities and cash flow from financing activities. The cash flow statement is believed to be the
most intuitive of all the financial statements due to the cash made in these three methods. Thus,
sum of these three segments also known as net cash flow. The first section of the cash flow
statement is cash flow from operating activities that included the transactions from all
operational activities. After that, it followed by the cash flow from investing activities to
determine the gains and losses of the investment. Cash flow from financing activities is the
final section that provides an overview of cash used from debt and equity.
In this cash flow statement financial analysis, there are few types of the financial ratios
that are required to execute such as free cash flow, current liability coverage ratio, cash flow
margin ratio and cash flow coverage ratio. Positive free cash flow is indicative of overall
financial health. Company that has a healthy free cash flow would have enough funds on hand
to pay their debt at certain specific of time. In other words, company with low free cash flow
will need restructure due to insufficient of money after paying the debt. Current liability
coverage ratio also known as current cash debt ratio, which is a measurement of cash from
operating activities to average current liabilities. This ratio indicates that the ability for
operation activities to generate cash in order to cover the debt within a certain specific time.
Besides, cash flow margin ratio indicates that amount of cash generated from the operating
activities per net sales. The higher the percentage, the better the company converting sales to
cash flow. Cash flow coverage ratio measure the solvency of a company and its ability to pay
long-term debts. Table 2.4 below illustrates the financial ratios of cash flow statement.
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Table 2.4: Financial ratio for cash flow statement
Net Cash Flow Cash Flow Cash Flow
Free Cash Current Liability
Year in Operating Margin Coverage
Flow (RM) Coverage Ratio
Activities (RM) Ratio Ratio
2020 26,387,289 15,085,365 0.073 0.170 0.066
2019 25,958,436 12,589,620 0.084 0.130 0.076
From table 2.4 above, we discovered that Ireka has obtained a current liability coverage
ratio of 0.073, cash flow margin ratio of 0.17, cash flow coverage ratio of 0.066 and the free
cash flow of RM15,085,365 in FY2020. The values stated previously indicate important
features to financial condition and the performance of a company. Generally, the greater the
ratio, the better the financial health of the company. From the financial analysis above, it shows
that the value of ratios are slightly lower than the common level and it indicates that company
may has significant risk on lack of sufficient cash to pay for its immediate obligations. However,
this condition of financial ratios are still consider as normal due to the economy and outdoor
activities are under impact of Covid-19 pandemic. Due to the outbreak of pandemic, the net
cash flow in operating activities are nearly the same within these both years and only slightly
increased in FY2020 if compared to FY2019. There is a slightly increased of the free cash flow
in FY2020 about 19.8% which able to assist Ireka to use these funds when it faced financial
problem. Besides, increased in free cash flow also gives some confidence to the investors to
stay for its investment and investors would have an idea in the form of share buybacks or
dividend payments. Other than that, Ireka has a cash flow margin flow of 0.17 and the value
had increase in FY2020. Although there are some decreases of the financial ratio, but Ireka still
is a trusted and listed company that provide confidence to the investors in investment.
Furthermore, from the figure 2.3 and figure 2.4, it stated the net cash flow generated
from investing activities and financing activities. For the second section of the financial cash
flow statement, it stated that the amount of net cash flow used in investing activities in FY2020
is RM10,235,408 while FY2019 had generated an amount of RM15,803,624 from investing
activities. Other than that, the net cash flow generated from the financing activities is slightly
increased of 4.9% in FY2020 if compared to the amount of RM22,112,129 in FY2019. As refer
to the cash and cash equivalents, it shows that Ireka has a good start of financial year with
tremendously increase of the amount by comparing with previous year. However, there is a net
decrease in cash and cash equivalents in FY2020 and most probably is due to the impact of the
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pandemic that causes the call off construction activities. Thus, the total amount of net cash flow
from financing activities drop to RM11,496,519 at end of financial year 2020 which is about
53.7% decreased if compared to the previous year. In summary, Ireka Corporation Berhad had
obtained an amount of RM120,944,679 and RM2,205,264 for reconciliation of liabilities
arising from financing activities in FY2020 and FY2019 respectively. In my opinion, I believe
that Ireka Corporation Berhad is a financial healthy and good performance company although
the financial statement above illustrates some financial ratios are below the average and most
probably Ireka will recover after the impact of Covid-19 pandemic.
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Figure 2.4: Cash flow statement of Ireka Corporation Berhad (2)
Coronavirus disease (COVID-19) had started to spread over the world in December
2019. World Health Organization (WHO) declared it as a global pandemic in March 2020.
Numerous of countries had prompted by this pandemic, including Malaysia. The person who
is infected by COVID-19 has the following symptoms, which include fever, fatigue, cough,
shortness of breath. Many countries had introduced the movement control order (MCO) in
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response to the COVID-19. The purpose of MCO is to curb the spread of virus by limiting the
movement of people and practicing the social distancing.
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2.6.2 Flow Chart of Decision Making Process
Evaluation of Alternatives:
- Purchase or rent the concrete mixer pump for completion of works with less time and
fewer people
- Purchase or rent the one tonne lorry for transportation of building materials
Implementation of Alternatives:
Make a comparison between the types of concrete mixer and lorry
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2.6.3 Table of Decision Making Process
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Purchase the best concrete mixer by comparing
their features and production rate.
Purchase the best transport by comparing their
capacity to carry the building materials and other
equipment to the construction site.
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3.0 PROJECT MANAGEMENT
The latest project our company- Ireka Development Management Sdn Bhd in the year 2021 is
the development of new private college which named as ASTA COLLEGE. The location of
ASTA COLLEGE is 3 km from Kajang town, 10 km from Putrajaya, and 20 km from Kuala
Lumpur City Centre which located in Bukit Angkat, Kajang as figure 3.1. This land will be
used for the constructions of buildings, stadium, gardens land and others. The summary
information about the project was listed in table 3.1.
Duration 5 years
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Estimated Date of January 2021- January 2026
Completing Project :
In this project, we had the analysis of the life-cycle cost in three phases which are acquisition
phase, operation phase and end of life for bought of Concrete Mixer Pump and one tonne lorry
to solve the problem of this study. Life-cycle cost is often encountered in an engineering project.
The purpose of the life cycle is used to summery all the cost related to the project as an
illustration of figure 3.1 . This project required to identify 3 models of mortar pump and one
tonne lorr by using the 3 phase of ownership which is Acquisition Phase, Operation Phase and
end of life.
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Table 3.2: Properties Of Concrete Mixer Pump
Brand HAOMEI
Max.concrete MPa 10 8 8
pumping
pressure(H./L.)
length×width×height
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Table 3.3: Properties Of One Tonne Lorries
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I. 10% of deposit fee
Concrete Mixer Pump
Deposit = 10%
Period = 5 years
Table 3.4: Deposit for Concrete Mixer Pump
Model JB40R JB40R-JS500 JB40R-JS750
Price (RM) 120 000 142 000 150 000
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Table 3.6: Interest Rate of Bank.
No Bank Inerest Rate (%) on Year 2020
1. Alliance Bank 2.82
2. AmBank 2.85
3. CIMB Bank 3.00
4. Citibank 2.65
5. Hong Leong Bank 2.88
6. HSBC 2.64
7. Maybank 2.00
8. OCBC Bank 2.83
9 Public bank 2.52
10. RHB 2.75
11 Standard Chartered 2.52
12 UOB 2.86
13 Bank Islam 2.77
14 Bank Muamalat 2.81
15 Bank Rakyat 3.35
16 Bank Simpanan Nasional 2.85
17 Agro Bank 2.60
18 Affin Bank 2.95
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑃𝑎𝑦𝑚𝑒𝑛𝑡
(90% 𝑜𝑓 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 𝑝𝑟𝑖𝑐𝑒 × 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 × 5 𝑦𝑒𝑎𝑟) + 90% 𝑜𝑓 𝑚𝑎𝑐ℎ𝑖𝑛𝑒 𝑝𝑟𝑖𝑐𝑒
=
5 × 12 𝑚𝑜𝑛𝑡ℎ
𝐴𝑛𝑛𝑢𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 = 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 × 12 𝑚𝑜𝑛𝑡ℎ𝑠
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Bank interest (%) 2.00 2.00 2.00
Monthly payment (RM) 1980 2343 2475
Annual payment (RM) 23 760 28 116 29 700
The operational phase is the second part of the life-cycle cost which positioned after the
Acquisition phase. This stage includes the operating costs of the construction equipment, which
are incurred only when the equipment is being used. Operating costs of the equipment are
categorized as variable costs because they depend on several factors such as operating hours,
types of equipment, working condition of operation etc. This phase includes the periodic
maintenance cost and fuel consumption cost of the construction machinery and transportation
vehicle.
28
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐶𝑜𝑠𝑡 = 𝑅𝑒𝑝𝑎𝑖𝑟 & 𝑀𝑎𝑖𝑛𝑡𝑒𝑛𝑎𝑛𝑐𝑒 𝐶𝑜𝑠𝑡 + 𝐹𝑢𝑒𝑙 𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
Operation or customer
Production of
use maintance and Retirement and disposal
construction
support.
29
𝐿𝑖𝑓𝑒 𝑠𝑝𝑎𝑛 = 8 ℎ𝑜𝑢𝑟𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦 × 5 𝑑𝑎𝑦𝑠 𝑝𝑒𝑟 𝑤𝑒𝑒𝑘 × 52 𝑤𝑒𝑒𝑘𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝐿𝑖𝑓𝑒 𝑠𝑝𝑎𝑛 = 2080 ℎ𝑜𝑢𝑟𝑠 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝐿𝑖𝑓𝑒 𝑠𝑝𝑎𝑛 ≈ 2000 ℎ𝑜𝑢𝑟𝑠 𝑝𝑒𝑟 ℎ𝑜𝑢𝑟𝑠
The annual working hours is 2080 hours which is approximate to 2000 hours. By considering
the annual working hours is 2000 hours, hence the lifespan in 5 years is 10000 hours as the
duration of development project is 5 years. To estimate the maintenance and service cost, the
initial cost of the machine and transportation vehicle are divided by their expected life in hours
respectively and multiplying by 70% or 100%. We will use 100% in our estimation of service
costs.
30
Table 3.9: Service Costs of concrete mixer pump
31
Table 3.10: Service Costs of one tonne lorry
Model
32
ii. Fuels Consumption
The annual fuel consumption cost will be calculated for both concrete mixer pump and one
tonne lorries. This is because fuel consumption is acquired when the machineries is being
operated. The fuel usually used by construction machineries is gasoline and diesel fuel, yet
most of the equipment in our country do not install gasoline engines in the machineries. Hence,
the diesel fuel consumption will be considered in our project. Fuel consumption is varying
depends on different requirements of the machineries.
Fuel consumption is varying depends on different requirements of the machineries. The
hourly cost of fuel is estimated by multiplying the hourly fuel consumption by the unit charge
of fuel. The cost of fuel consumption is calculated based on the assumption that the diesel price
remains current of RM2.18 per litre for the next 5 years.
33
One tonne lorry
Diesel Price = RM 2.18 / litre
Travel distance = 6 km per hr
Salvage value is the estimated resale value of a machinery at the end of its useful life, which
can also call as market value. New buying prices and selling prices of 5 years used machines
and transportation vehicles were dependent on the physical conditions of the machineries. The
salvage value of an equipment will always lower than the initial value because of the
depreciation. Salvage value is often estimated in the range 10% to 20% of the initial value.
Additionally, salvage value is also used as a component to calculate the depreciation value.
Depreciation represents the decline in market value due to the age, wear, deterioration, and
obsolescence of an equipment. It is based on the initial cost, salvage value and useful life of a
machinery and transportation vehicle. However, we estimate that the salvage value of all
machineries and transportation vehicles are as 15% of their initial costs in this project.
34
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑣𝑎𝑙𝑢𝑒 =
𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒
𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒 = 15% × 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑚𝑎𝑐ℎ𝑖𝑚𝑒
Salvage value in 5 15% × 𝑅𝑀 98 000 15% × 𝑅𝑀 115 000 15% × 𝑅𝑀 136 000
years = = =
Last but not least, we decided to keep the machineries for future use instead of selling
it when the project completed. This is because the salvage value of machineries is low, concrete
mixer pump can used to gain us more benefit and keep our construction business on track. The
machineries used after the project will be sent to our headquarter and the periodic maintenance
will be done to ensure its functionality. If the machines are kept well-maintained, it can
definitely work for the next project
35
3.3 Work Breakdown Structure (WBS)
36
3.4 Benefit Cost Ratio Method
A benefit-cost (B-C) ratio is known as a ratio used in a cost-benefit analysis to review the
overall relationship between the relative costs and benefits of a proposed project. This method
is useful in many applications, even it can be used in the assessment of public projects in the
civil engineering field. It can be expressed in monetary or qualitative terms. If a project has a
B-C ratio equal or greater than 1.0, the project is expected to deliver a positive net present value
to the investors. Therefore, the project is said to be acceptable if the B-C ratio is equal or greater
than 1.0. Instead, if the value is smaller than 1.0, it indicates that the project is not suitable to
be proceed due to the imbalance of the benefits gained.
To proceed with the B-C ratio calculations, there are some assumptions are taken as below:
For two or more alternative projects, the B-C ratios on the increment of investment
between alternative projects are computed first. If the B-C ratio calculated is greater than 1.0,
choose the alternative project with the higher cost. If the B-C ratio calculated is smaller than
1.0, choose the alternative project with the lower cost.
37
3.4.1 B-C Ratio for Concrete Mixture Pump (Conventional Method-Present Worth)
Where,
PW(·) = present worth of (·);
B = benefits of the proposed project;
I = initial investment in the proposed project;
MV = market value at the end of useful life;
O&M = operating and maintenance costs of the proposed project.
38
RM 19 200 RM 19 200 RM 19 200 RM 19 200 RM 19 200
Table 3.15 (b): Cost and Value with discrete compound factors.
Model JB40R ( RM )
Deposit 12 000 12 000.00
Annual loan payment, Aloan (P/A, 6%,5) 23 760 x 4.2124 100 086.63
Annual Fuel Consumption Cost, Apetrol (P/A,6%, 5) 7 920 x 4.2124 33 362.21
Initial Investment, I 145 448.84
Annual service cost, Aservice (P/A, 6%, 5) 19 200 x 4.2124 80 878.08
PW (O&M) 80 878.08
Salvage cost after 5 years, Fsalvage (P/F,6%, 5) 18 000 x 0.7473 13 451.40
PW (MV) 13 451.40
Annual Benefit 145 448.84 x 40% 58 179.54
Annual Benefit (P/A,6%, 5) 58 179.54 x 4.2124 245 075.49
PW (B) 245 075.49
39
(B) Model : JB40R-JS500
40
Table 3.16 (b): Cost and Value with discrete compound factors.
Model JB40R-JS500 ( RM )
Deposit 14 200 14 200.00
Annual loan payment, Aloan (P/A, 6%,5) 28 116 x 4.2124 118 435.84
Annual Fuel Consumption Cost, Apetrol (P/A,6%, 5) 7 920 x 4.2124 33 362.21
Initial Investment, I 165 998.05
Annual service cost, Aservice (P/A, 6%, 5) 22 700 x 4.2124 95 621.48
PW (O&M) 95 621.48
Salvage cost after 5 years, Fsalvage (P/F,6%, 5) 21 300 x 0.7473 15 917.49
PW (MV) 15 917.49
Annual Benefit 165 998.05 x 40% 66 399.22
Annual Benefit (P/A,6%, 5) 66 399.22 x 4.2124 279 700.07
PW (B) 279 700.07
41
RM 24 000 RM 24 000 RM 24 000 RM 24 000 RM 24 000
Table 3.17 (b): Cost and Value with discrete compound factors.
Model JB40R-JS750 ( RM )
Deposit 15 000 15 000.00
Annual loan payment, Aloan (P/A, 6%,5) 29 700 x 4.2124 125 108.28
Annual Fuel Consumption Cost, Apetrol (P/A,6%, 5) 7 920 x 4.2124 33 362.21
Initial Investment, I 173 470.49
Annual service cost, Aservice (P/A, 6%, 5) 24 000 x 4.2124 101 097.60
PW (O&M) 101 097.60
Salvage cost after 5 years, Fsalvage (P/F,6%, 5) 22 500 x 0.7473 16 814.25
PW (MV) 16 814.25
Annual Benefit 173 470.49 x 40% 69 388.20
Annual Benefit (P/A,6%, 5) 69 388.20 x 4.2124 292 290.85
PW (B) 292 290.85
42
Table 3.18 (a): B-C ratio of each concrete mixer pump.
Company HAOMEI
Model JB40R JB40R-JS500 JB40R-JS750
(A) (B) (C)
PW (Total Cost) (RM) 212 875.52 245 702.04 257 753.84
PW (Benefit) (RM) 245 075.49 279 700.07 292 290.85
B-C Ratio 1.151 1.138 1.134
From table3.4 (a), every model of concrete mixer pump has B-C ratio bigger than 1.0. Thus,
they are accepted and needed to be proceeded in incremental analysis.
43
3.4.2 B-C Ratio for One Tonne Lorry (Conventional Method-Present Worth)
44
Table 3.19 (b): Cost and Value with discrete compound factors.
Alwinz Biz
Model ( RM )
Resources’
Deposit 9 800 98 00.00
Annual loan payment, Aloan (P/A, 6%,5) 19 404 x 4.2124 81 737.41
Annual Fuel Consumption Cost, Apetrol (P/A,6%, 5) 5 886 x 4.2124 25 274.40
Initial Investment, I 116 811.81
Annual service cost, Aservice (P/A, 6%, 5) 15 680 x 4.2124 66 050.43
PW (O&M) 66 050.43
Salvage cost after 5 years, Fsalvage (P/F,6%, 5) 14 700 x 0.7473 619 22.28
PW (MV) 619 22.28
Annual Benefit 116 811.43 x 40% 46 724.72
Annual Benefit (P/A,6%, 5) 46 724.72 x 4.2124 196 823.23
PW (B) 196 823.23
45
Figure 3.8: Cash flow diagram of Zdistribution
Table 3.20 (b): Cost and Value with discrete compound factors.
Model Zdistribution ( RM )
Deposit 11 500 11 500.00
Annual loan payment, Aloan (P/A, 6%,5) 22 770 x 4.2124 95 916.35
Annual Fuel Consumption Cost, Apetrol (P/A,6%, 5) 4 499.52 x 4.2124 18 953.78
Initial Investment, I 126 370.13
Annual service cost, Aservice (P/A, 6%, 5) 18 400 x 4.2124 77 508.16
PW (O&M) 77 508.16
Salvage cost after 5 years, Fsalvage (P/F,6%, 5) 14 750 x 0.7473 62 132.90
PW (MV) 62 132.90
Annual Benefit 126 370.13 x 40% 50 548.05
Annual Benefit (P/A,6%, 5) 50 548.05 x 4.2124 212 928.61
PW (B) 212 928.61
46
(C ) One Tonne Lorry Model : Lafiy Marnia Travel
Table 3.21 (a): Summarise of cost and value of Lafiy Marnia Travel.
Model Lafiy Marnia Travel
Deposit Payment RM 13 600
Annual Loan Payment RM 26 928
Annual Fuel Consumption Cost RM 4 473.36
Annual Service Cost RM 21 760
Salvage Value RM 20 400
47
Table 3.22 (b): Cost and Value with discrete compound factors.
Model Lafiy Marnia Travel ( RM )
Deposit 13 600 13 600.00
Annual loan payment, Aloan (P/A, 6%,5) 26 928 x 4.2124 113 431.51
Annual Fuel Consumption Cost, Apetrol (P/A,6%, 5) 4 473.36 x 4.2124 18 843.58
Initial Investment, I 145 875.09
Annual service cost, Aservice (P/A, 6%, 5) 21 760 x 4.2124 91 661.82
PW (O&M) 91 661.82
Salvage cost after 5 years, Fsalvage (P/F,6%, 5) 20 400 x 0.7473 85 932.96
PW (MV) 85 932.96
Annual Benefit 145 875.09 x 40% 58 350.04
Annual Benefit (P/A,6%, 5) 58 350.04 x 4.2124 245 793.69
PW (B) 245 793.69
From table3.8 (a), every model of one tonne lorry has B-C ratio bigger than 1.0. Thus, they are
accepted and needed to be proceeded in incremental analysis.
48
3.4.3 B-C Ratio for Concrete Mixture Pump (Conventional Method-Annual Worth)
𝐴𝑊(𝐵)
= 𝐶𝑅 +𝐴𝑊(𝑂&𝑀)
Where,
Table 3.24 (a): Cost and value of concrete mixer pump with discrete compound factors.
49
From table3.9 (b), each concrete mixer pump has B-C ratio bigger than 1.0. Thus, they are
accepted and needed to be proceeded in incremental analysis.
3.4.4 B-C Ratio for One Tonne Lorry (Conventional Method-Annual Worth)
Table 3.25 (a): Cost and value of one tonne lorry with discrete compound factors.
Model Alwinz Biz Resources' Zdistribution JB40R-JS750
Initial Investment, I 116 811.81 126 370.13 145 875.09
Salvage Value 14 700.00 14 750.00 20 400.00
Cost Recovery, CR 25 123.34 27 383.62 31 011.79
Annual service, AW(O&M) 15 680.00 18 400.00 21 760.00
Annual Benefit, AW(B) 46 724.72 50 548.05 58 350.04
50
Table 3.25 (c): Incremental analysis for one tonne lorry.
Increment B-A Increment C-B
Δ Benefit (RM) 3823.33 7801.99
Δ Cost (RM) 4980.28 6988.17
ΔB/ΔC 0.768 1.116
Rejected C is better
51
4.0 CONCLUSION
In conclusion, it can be concluded that the revenue drops of the IREKA Company was mainly
due to the delay of project completion due to the movement control order (MCO) that
introduced by government. During the MCO period the company are facing shortage of labour,
will lead to delay in construction work, and will affect the decrease of revenue to the company
IREKA. Deliveries and supplies of building materials from overseas came to halt.
There are two alternatives are being proposed. The first alternative is to purchase the
best concrete mixer pump for daily used by comparing their capacity to carry the building
materials and other equipment to the construction site. The second alternative is to purchase
the best transport by comparing their capacity to carry the building materials and other
equipment to the construction site. The model of concrete mixer pump proposed previously
was JB40R, JB40R-JS500 and JB40R-JS750 and the model of one tonne of lorry included
Alwinz Binz Resources, Zdisdribution and Lafify Marnia Travel. We decided to keep the
machineries for future use instead of selling it when the project completed. This is because the
salvage value of machineries is low, concrete mixer pump can used to gain us more benefit and
keep our construction business on track.
Last but not least, ratio of cost-benefit is calculated to review the overall relationship
between the relative costs and benefits of a proposed project. The calculated benefit to cost
ratio for all 3 concrete mixer pumps is bigger than 1.0 thus, it was accepted. After calculating
the incremental analysis, we decided to use the model JB40-JS750. As for the one tonne of
lorry, calculated benefit to cost ratio is bigger than 1.0 for all of the three company. After
incremental analysis, we decided to choose Lafify Marnia Travel.
Choosing a good concrete mixer pump and transportation are important stages before
we start the construction project. This is because a good concrete mixer pump can help to
increase the production rate since the shortage of labour occurs due to the pandemic COVID-
19. Besides, a good transportation can help to deliver the construction materials without any
delay. As a result, we decided to proceed the project, the development of a new private college
worth RM100 million for duration of 5 years.
52
5.0 REFERENCES
53
University, Major Equipment Life-cycle Cost Analysis, April 2015.
14 Fuel Consumption. (n.d.). Retrieved June 12, 2020, from
https://www.scribd.com/document/271103107/Fuel-Consumption
15 4. Fuel consumption per hour in equipment rental and ... (n.d.). Retrieved June 12, 2020,
from https://transportation.ae/equipment-fuel-consumption/
54
6.0 APPENDIX
Leader gave a brief explanation about the All All members took note
project to all members. All members were members about the important
required to give the ideas on the project’s messages from the
content. leader. All members
made great effort on
the discussion in order
to provide the ideas for
the project’s content.
Annual report of company is needed for this All All members tried to
project. members search the annual
55
report of company via
online.
3.0 Closing
Leader thanked every member that gave the Jacqueline -
full cooperation to accomplish this meeting. Lau Wen
Wen
56
MINUTE OF MEETING 2: 22 DECEMBER 2020
Group Members:
1. Jacqueline Lau Wen Wen AF170264
2. So Soon Wei AF 170259
3. Phang Zhi Qian AF170230
4.Teo Yu Pei AF170247
5. Yeap Kuang Shen AF170258
Leader assigned the task for each member. Jacqueline All members agreed
There are 5 parts that need to be included in Lau Wen with their own task that
the project, which are: Wen assigned by the leader.
1. Introduction, Conclusion and 1. Introduction,
Compilation of Project - sw Conclusion and
Financial management: Compilation of Project
2. Analysis of the annual report from – So Soon Wei
company in terms of balance, sheet, cash Financial management:
flow and income statement - KS 2. Analysis of the
3. Identify the issues that related to covid- annual report from
19, use 7 principles of economy, video, company in terms of
References and Appendix. balance, sheet, cash
Project management: flow and income
4. Project background, Lifecycle cost statement – Yeap
5. WBS , benefit cost ratio Kuang Shen
3. Identify the issues
that related to covid-
57
19, use 7 principles of
economy, video,
References and
Appendix – Jacqueline
Lau Wen Wen
Project management:
4. Project background,
Lifecycle cost – Teo
Yu Pei
5. WBS , benefit cost
ratio – Phang Zhi Qian
The leader set deadline of submission of the Jacqueline All members agreed to
project for the checking purpose. Lau Wen the deadline that was
Deadline: 10 January 2020, 10pm Wen set by the leader.
3.0 Closing
Leader thanked every member that gave the Jacqueline -
full cooperation to accomplish this meeting. Lau Wen
Wen
58
MINUTE OF MEETING 3: 28 DECEMBER 2020
Group Members:
1. Jacqueline Lau Wen Wen AF170264
2. So Soon Wei AF 170259
3. Phang Zhi Qian AF170230
4.Teo Yu Pei AF170247
5. Yeap Kuang Shen AF170258
Leader called for the meeting via Jacqueline All members gave their
WhatsApp at 11am. All members were Lau Wen response in WhatsApp.
compulsory to attend this meeting. Wen
2.0 Difficulty Faced by Each Member
Members asked the questions or doubts All members Every group member
that faced in the project via WhatsApp was willing to help
group. each other and put the
great effort to discuss
the problems that faced
during the project.
After the discussion,
leader would take note
on the problems that
faced by each member
and would ask for the
help from the lecturer.
3.0 Work Progress
59
Teo Yu Pei – 40%
Phang Zhi Qian – 30%
Yeap Kuang Shen -
30%
3.0 Closing
Leader thanked every member that gave Jacqueline -
the full cooperation to accomplish this Lau Wen
meeting. Wen
60
MINUTE OF MEETING 4: 10 JANUARY 2021
Group Members:
1. Jacqueline Lau Wen Wen AF170264
2. So Soon Wei AF 170259
3. Phang Zhi Qian AF170230
4.Teo Yu Pei AF170247
5. Yeap Kuang Shen AF170258
Leader called for the meeting via Jacqueline All members gave their
WhatsApp at 11am. All members were Lau Wen response in WhatsApp.
compulsory to attend this meeting. Wen
2.0 Amendment for Report
Leader described the amendment needed All members Every group members
for the report explicitly to each member. jotted down the
important notes from
leader and did
amendment for the
report.
.
Members were required to send their All members Every group members
amended part to leader by 15 January 2021 agreed with this.
for checking purpose.
3.0 Closing
Leader thanked every member that gave Jacqueline -
the full cooperation to accomplish this Lau Wen
meeting. Wen
61
MINUTE OF MEETING 5: 15 JANUARY 2021
Group Members:
1. Jacqueline Lau Wen Wen AF170264
2. So Soon Wei AF 170259
3. Phang Zhi Qian AF170230
4.Teo Yu Pei AF170247
5. Yeap Kuang Shen AF170258
Leader called for the meeting via Jacqueline All members gave their
WhatsApp at 11am. All members were Lau Wen response in WhatsApp.
compulsory to attend this meeting. Wen
2.0 Video Presentation
Leader described the requirements for the All members Every group members
video presentation. jotted down the
important
requirements for video
presentation from
leader.
.
Members were required to send their video All members Every group members
to leader by 17 January 2021. agreed with this.
3.0 Closing
Leader thanked every member that gave Jacqueline -
the full cooperation to accomplish this Lau Wen
meeting. Wen
62