Project Management (Lalit Shivhare)

8/8/2019 Project Management (Lalit Shivhare)

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: Project Planning and Phases

Projects Planning, analysis, Selection,

Financing, Implementation and Reviewby Prasanna Chandra

Lalit

Shivhare


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Need and Importance

Long-Term Effects Irreversibility

Substantial outlays


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Phases of Capital Budgeting Complex Process:

1. Planning2. Analysis

3. Selection

4. Financing5. Implementation

6. Review


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Planning phase Broad Investment strategy

Generation of Ideas Preliminary screening of project

proposals


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Analysis If preliminary screening suggests that project is

viable, a detailed analysis is undertakenFacets/Aspects of Project Analysis:

a. Marketing: Potential Market and MarketShare

b. Technical: Technical Viability and Choice ofTechnology

c. Financial: Risk Vs. Return

d. Economic: Social Benefits and costse. Ecological: Environmental damage and

Restoration measures


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Analysis (Contd.) Gathering, preparing and summarising

relevant information

Stream of costs and benefits associatedwith the project are identified


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Selection Out of the various project proposals, the

project which gives the optimum benefits as

compared to cost is selected. To select the project that gives optimum

benefits, appraisal criteria is used:

1. N

on-Discounting criteria2. Discounting criteria


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Important Criteria of Selection1. Non-Discounting Criteria:

a. Payback periodb. Accounting rate of return

2. Discounting Criteria:

a. Net Present Valueb. Internal Rate of Return

c. Benefit Cost Ratio


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Financing Once a project is selected, Capital Structure

decision is to be taken to finance the

project Capital structure decision comprises of mix

of:

1. Equity: Paid-up capital, Share premium and

retained earnings2. Debt: Term loans, debentures and working

capital advances


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Capital structure decision The mix of equity-debt and the source of

finance is influenced by the following key

business considerations: (FRICT)1. Flexibility

2. Risk

3. Income4. Control

5. Taxes


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Implementation Setting up of manufacturing facilities:

1. Project and Engineering Designs

2. Negotiations and contracting

3. Construction

4. Training

5. Plant commissioning


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Implementation (Contd.) For expeditious implementation at a

reasonable cost:

1. Adequate formulation of the Project

2. Use the principle of ResponsibilityAccounting

3. Use ofNetwork Techniques


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Review Performance review to be done

periodically compare actual

performance with projectedperformance

It helps in:

1. Future decision-making2. Take Corrective action

3. Investors are cautioned


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Feasibility Study The first four phases of capital

budgeting Planning, Analysis,Selection and Financing constitute thefeasibility study of the project


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Resource Allocation

Framework Project management/Capital Budgeting

is basically managing the resourceallocation process

For optimum resource allocation,strategic planning is required which

identifies valuable investmentopportunities


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Investment Strategies Strategy: The determination of the basic

long-term objectives of an enterprise and the

adoption of courses of action and theallocation of resources necessary to carry outthese objectives

It is matching the firms strengths and

weaknesses with the opportunities andthreats present in the external environment


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Strategic Planning Optimal match between the capabilities of the

business and the opportunities in theenvironment

Cross-Sectional relationships between existingassets and growth opportunities

Time-series relationships between currentgrowth opportunities and future growth

opportunities Impact of new investments on the Risk profile

of the business


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Strategy Growth:

1.

Concentration2. Vertical Integration: a. Forward and

b. Backward

3. Diversification: a. Concentric

b. Conglomerate


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Strategy (Contd.) Stability

Contraction:1. Divestiture

2. Liquidation


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Strategy (Contd.) Concentration: When a business house

estimates growth in the market size of

its existing product, it expands thecapacity of its product.

Vertical Integration:

1. Backward: It manufactures rawmaterials and components required forthe existing operations


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Strategy (Contd.)2. Forward: It manufactures products that

uses existing products as input.

Diversification:1. Concentric: Business house gets into a

related business to the existing one

2. Conglomerate: Business house getsinto a new business which is unrelatedto its existing business


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Strategy (Contd.) Stability: A business is satisfied to

serve the same product market and

has no wish to expand or diversify Contraction: 1. Divestiture: Sale of

business unit or part of it

2. Liquidation: When the business is incontinuous loss and there is no chanceof any revival


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Portfolio planning tools Corporations can be organised as portfolio

of business units

They use conglomerate diversification astheir investment strategy

Such corporations require allocation ofresources across business units

Portfolio planning tools guide the process ofstrategic planning and resource allocation


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Portfolio planning tools (Cont.) BCG matrix: -

- Developed by Boston Consulting Group- Businesses in a portfolio are classified

on the basis of :

a. Relative market share

b. Relative market growth rate


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BCG MatrixThe BCG matrix classifies businesses into:

a. Stars: - High market share and a high

growth rate- They earn high profits and require

additional funds to expand

b. Question marks: - High growth rate but low

market share- Additional resources are required to improve

market share to convert into stars


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BCG Matrix (Contd.)c. Cash Cows: - High market share but

low growth rate

- Cash surpluses are available for useelsewhere

d. Dogs: - Low market share and low

growth rate

- Close down


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BCG Matrix: Conclusion Cash Cows generate funds and Dogs

release funds if divested

Stars and Question Marks requireadditional funds

Hence the funds released should be

allocated to Stars and Question Marks


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General Electric Stoplight

MatrixIt evaluates businesses in terms of:

1. Business Strength and

2. Industry Attractiveness- Business which are favourably placed justify

high commitment of funds

- Business which are placed unfavourably call

for divestment- Business which are placed in between call

for modest investment


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Mckinsey matrix Two Dimensions:

1. Competitive position and

2. Industry Attractiveness- Criteria are used and weights are suggested

- Winners justify larger commitment ofresources, losers call for divestments and

Question Mark, Average Business and ProfitProducer call for moderate commitment offunds


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Criteria and weightsIndustry Attractiveness

Criteria Weight

Industry Size 0.10Industry growth 0.30Industry Profitability 0.20Capital Intensity 0.05

Technological Stability 0.10Competitive Intensity 0.20Cyclicality 0.05


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Criteria and weightsCompetitive Position

Criteria Weight

Market Share 0.15Technological Knowhow 0.25Product Quality 0.15

After-sales service 0.20

Price Competitiveness 0.05Low Operating Costs 0.10Productivity 0.10


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Interface between Strategic

Planning and Capital Budgeting Capital Budgeting should be squarely

related to Corporate Strategy


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Generation of Project Ideas A good project idea will lead to a successful

project

The key is right business at the right time Identification of good project ideas

requires:a. Imagination and creativityb. Awareness about environmental change and

reaction to this changec. Realistic assessment of what the business

can do


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Generation of Ideas (Contd.) It involves:

1. New ideas based on invention anddiscovery

2. Observe whatever exists, usecombinations and generate ideas


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Considerations and Guidelines

for Generation of Ideas Stimulate the flow of ideas:

a. SWOT analysis: Should be periodic

b. Clear Articulation and prioritization ofObjectives: This will channelise the effortsof employees to think imaginatively

c. Fostering a conducive climate: This willbring out the creativity and entrepreneurialurge of people


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(Contd.) Monitoring the Environment - Key Aspects

to be studied:

1. Economic Sector2. Governmental Sector

3. Technological Sector

4. Socio-demographic Sector5. Competition Sector

6. Supplier Sector


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(Contd.) Corporate Appraisal: Key Aspects to

be considered:

1. Marketing and Distribution

2. Production and Operations

3. Research and Development

4. Corporate Resources and Personnel

5. Finance and Accounting


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(Contd.) Tools for identifying investment

opportunities:1.

Porter Model: Michael Porter - Profitpotential of an Industry depends on thecombined strength of :

a. Threat of new entrantsb. Rivalry among existing firmsc. Pressure from substitute productsd. Bargaining power of buyerse. Bargaining power of sellers


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Tools2. Life Cycle Approach: A product has

four stages:

a. Pioneering Stage

b. Rapid Growth Stage

c. Maturity and Stabilisation Stage

d. Decline Stage


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Life Cycle Approach Each stage presents investment opportunities Investment in the pioneering stage have a

low return but if one survives, has option toparticipate in growth stage Investment in the growth stage have a high

return Investment in the maturity stage have

average return Investment in the decline stage has low

returns


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Tools (Contd.)3. The Experience Curve: - Investments should

be aimed at reducing costs for long-term

survival and profitability- Curve shows how the cost per unit behaves

with respect to accumulated volume ofproduction

- Generally the cost per unit declines due tolearning effects, technological improvementsand economies of scale


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(Contd.) Sources of identifying Project Ideas:

1. Analyse the performance of existing Industries

2.

Examine their inputs and outputs3. Review imports and exports

4. Study plan outlays and Government Guidelines

5. Look at the suggestions of Financial Institutionsand Developmental Agencies

6. Investigate Local Materials and Resources

7. Analyse Economic and Social Trends


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Sources of identifying Project

Ideas8. Study new Technological developments

9. Draw clues from Consumption abroad

10. Explore the possibility of reviving sick units

11. Identify unfulfilled Psychological Needs

12. Attend Trade Fairs

13. Stimulate creativity14. Chance Factor and luck


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Screening of Project Ideas A long list of project ideas have been generated

and so need to select goods ideas and eliminatebad ones

Aspects to be looked into:1. Compatibility with the Promoter2. Consistency with Governmental Priorities3. Availability of Inputs4. Adequacy of the Market5. Reasonableness of Cost6. Acceptability of Risk Level


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Screening of Project Ideas

(Contd.) Project Rating Index: The screening may be done

on the basis of rating

Sources of positive NPV: There are six main entrybarriers that result in positive NPV projects:

1. Economies of scale

2. Product differentiation

3. Cost advantage

4. Marketing reach5. Technological edge

6. Government Policy


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(Contd.) On being a Entrepreneur: Questions

that an entrepreneur should answer:

1. Are my goals well defined

2. Do I have the right strategy

3. Can I execute the strategy


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(Contd.) Qualities and Traits of a Successful

Entrepreneur:1. Willingness to make sacrifices2. Leadership3. Decisiveness4. Confidence in the Project5.

Marketing and Financial Orientation6. Strong ego7. Open mindedness


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Unit-2: Project Analysis


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Market and Demand Analysis

Estimate the aggregate demand for theproduct/service

Estimate the share of the market Factors to be considered:1. Patterns of Consumption growth2. Income and price elasticity of demand3. Composition of market4. Nature of Competition5. Availability of Substitutes6. Reach of distribution channels, etc.


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Steps1. Situational analysis & specification of

objectives

2. Collection of secondary information3. Conduct of market survey

4. Characterisation of the market

5. Demand Forecasting6. Uncertainities in demand forecasting

7. Market planning


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Sources of Secondary

Information A GOI every ten years - Census of India National Sample Survey Reports by Cabinet Secretariat Plan Reports by the planning commission at the beginning, middle &

end of five year plans

Annual Statistical Abstract of the Indian Union, Annual survey ofIndustries and monthly studies of Production of Selected Industries byCentral Statistical Organisation

Annual India Year Book by Ministry of Information & Broadcaasting Annual Statistical Year Book by United Nations Annual Economic Survey by Ministry of Finance Annual Guidelines to Industries by Ministry of Industrial Development Annual Reports of the Development Wing, Ministry of Commerce &

Industry


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Sources of Secondary

Information (Contd.) Annual Bulletin of Statistics of Exports & Imports by Department of

Commerce Techno-Economic Surveys by The National Council of Applied Economic

Research

Industrial Potential Surveys by IDBI & other Financial Institutions A ten year Stock Exchange Directory by Bombay Stock Exchange Monthly Bulletins of RBI Publications of Advertising agencies Other Publications like Weekly bulletin of Industrial Licenses, Import

Licenses and Export licenses by GOI; Studies of State TradingCorporation; Commodity reports by IIFT; Reports of Export Councils

and Commodity Boards; Annual report on currency and financ3 Industry Specific


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Evaluation of Secondary

Information It is available economically & readily

But it should be examined for:

a. Reliability

b. Accuracy

c.

Relevance


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Conduct of Market Survey Secondary information needs to be

supplemented with primary information

gathered through a market survey The market survey may be:

a. Census Survey: Entire population issurveyed

b. Sample Survey: A sample of population issurveyed & inferences about the populationis drawn


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Steps in a Sample Survey Define the Target Population

Select the Sampling Scheme & Size

Develop the Questionnaire

Recruit & train the field investigators

Obtain information Scrutinise the information

Analyse & interpret the information


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Problems in a survey Heterogeneity of the Country

Multiplicity of Languages

Design of Questionnaire


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Characterisation of Market Effective Demand in the Past and Present Breakdown of Demand: Bya. Nature of Productb.

Consumer Groupsc. Geographical Division Price Methods of Distribution and Sales Promotion Consumers: Dimensionsi) Demographic and sociologicalii) Attitude Supply and Competition Government Policy


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Demand Forecasting MethodsI Qualitativea. Jury of Executive Opinionb. Delphi

II Time Series Projectiona. Trend Projectionb. Exponential Smoothingc. Moving AverageIII Causala. Chain ratio

b. Consumption levelc. End used. Leading Indicatore. Econometric


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Qualitative Forecast is based on the judgement of expertsa. Jury of Executive Opinion

Solicits opinions of a group of executives on expected futuredemand & combining them into an estimate

Advantagesi) Expeditiousii) A variety of factors are included in the estimateiii) Appealing to executivesDisadvantages

i) Subject to biasesii) Not too reliable


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Delphi Opinions of a group of experts through mail survey Stepsa. A group of experts is sent a questionnaire to express their

viewsb. The responses received are summarised without disclosing

the identity & sent back along with a questionnaire to find outthe reasons for the extreme views expressed in the firstround

c. The process is continued for one or more rounds till areasonable agreement is reached in view of the experts

Advantagesi) Intelligibleii) More accurate and less expensive


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Time Series Projection Forecast is based on an analysis of the historical time seriesa. Trend Projection Determines the trend of demand by anlaysing past Demand

Projects future demand by extrapolating the trend Linear relationship is used Y = a + bX

Y = Demanda = intercept =Mean of Y b(mean of X)b = slope = Sum of XY n(mean of X)(mean of Y)

Sum of X square n(mean of X)squareX = time variable


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Forecast demand by Trend

ProjectionQ1. You are required to forecast demand for the year 2007 to 2011 based on the demand data

given below:Year Demand1993 101994 13

1995 141996 171997 181998 181999 192000 202001 222002 23

2003 222004 242005 242006 25


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Exponential Smoothing Forecasts are modified as per observed errors

Ft+1 = Ft +Alpha et

Ft+1 = forecast for the next periodFt = forecast for the current period

Alpha = smoothing parameter (which liesbetween 0 and 1)

Et = error in the forecast for current period =St Ft

St = Actual Sales for the current period


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Forecast Demand by Exponential

SmoothingQ2. Given the initial forecast = 29 and smoothing parameter = 0.2

Forecast demand for the given observations:Period Observed data1 28.0

2 29.03 28.54 31.05 34.26 32.77 33.5

8 31.89 31.910 34.311 35.2


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Exponential Smoothing

(Contd.) How should the first forecast and the smoothing

parameter be chosen?

First forecast is the mean of the warm-up sample

Warm-up sample are observations of the previousperiod for which the forecasting exercise has begun

Smoothing parameter shall be one of the severalvalues in the range of 0 to 1 which minimises the

MSE(mean sqaured error) in the warm-up period MSE = Sum of (St Ft) sqaure / n


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Moving Average The forecast for the next period is equal to the average of the sales for several

preceding periodsQ3. If four years averaging is done, forecast the demand based on the data given

below:Year Sales

1 28.02 29.03 28.54 31.05 34.26 32.77 33.5

8 31.89 31.910 34.311 35.212 36.0


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Causal More analytical Based on cause-effect relationshipsa. Chain Ratio Demand is estimated by applying a series of factors

Q4. Forecast the demand for stainless steel blades of XYZ Ltd. in Indorebased on the following information:

Total population 25 lakhs Percentage of adult males 25% Proportion of adult male population using shaving blades 90% Number of times a person uses shaving blades every alternate day

Average number of shavings per stainless steel blade 3 Proportion of stainless steel blade market the company could

capture 35%


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Consumption Level It estimates demand on the basis of elasticity coefficients1. Income: It measures the responsiveness of demand to

variations in incomeEi = Q2 Q1 X I1 +I2

I2 I1 Q2 + Q1Ei = income elasticity of demandQ1= Quantity demanded in the base yearQ2= Quantity demanded in the following yearI1 = income level in the base year

I2 = income level in the following yearGiven the elasticity, Q2 = (Q1) (1+ % change in income level x Ei)


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Income Elasticity of DemandQ4. Q1 = 50, Q2= 55, I1 = 1,000 and I2 = 1,020.

What is the income elasticity of demand?

The income elasticity of demand & projected income

is used to obtain a demand forecastQ5. If the present per capita annual demand for paper

is 1 kg & the present per capital annual income is Rs.18,200. The income elasticity of demand for paper is2. The projected per capita annual income threeyears hence is expected to be 10 per cent higherthan what it is now. Find out the demand for paperthree years hence.


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Price Elasticity of DemandPrice: It measures the responsiveness of demand to

variations in priceEp = Q2 Q1 X P1 +P2

P2 P1 Q2 + Q1Ep = price elasticity of demandQ1= Quantity demanded in the base yearQ2= Quantity demanded in the following yearP1 = price per unit in the base yearP2 = price per unit in the following yearGiven the elasticity, Q2 = (Q1) (1+ % change in price

level x Ei)


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Price ElasticityQ6. P1 = Rs. 600, Q1 = 10,000, P2= Rs.

800, Q2 = 9000. What is the price

elasticity of demand? The price elasticity of demand &

expected price change is used to obtain

a demand forecast


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End Use Also referred to as consumption coefficient

suitable for estimating the demand for

intermediate products Key inputs:

(i) Projected output levels of consumingindustries

(ii) Consumption coefficients: Input requiredper unit of output


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Bass Diffusion Model Developed by Frank Bass

Estimates the pattern of sales growth for newproducts

Considers two factors:

p: The coefficient of innovation - likelihood that apotential customer would adopt the product becauseof its innovative features

q: The coefficient of imitation tendency of a potentialcustomer to buy the product because many othershave bought it

Nt = pN + (q p)nt-1 + (q/N) x (nt-1)(nt-1)


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Problem SumQ7. A new product has a potential market

size of 10,00,000, p = 0.03 and q =

0.08. Forecast the demand for the firstfive years.


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Leading Indicator Two indicators

1. Leading: variables which change ahead of othervariables

2. Lagging: The other variables

Observed changes in leading indicators are used topredict the changes in lagging variables

Steps involved:

a. Identify the leading indicatorsb. Establish relationship between the leading

indicators & the variable to be forecast


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Econometric Model A mathematical representation of economic relationship Forecast the future behavior of the economic variables Two types of econometric models:1. Single equation: Assumes that one variable as dependent

(explained variable) is influenced by one or more independentvariables (explanatory variables) For e.g. Demand for aproduct is influenced by price and income

2. Simultaneous equation: Two or more equations. For e.g. GNP= Govt. Purchases + gross investment + Consumption,another equation is that Investment and consumption is a

linear function of GNP


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Econometric Model (Contd.) Steps of construction & use of model:

a. Specification: expression of an economicrelationship in a mathematical form

b. Estimation: determination of parameter values (aand b) & other statistics by least squares method

c. Verification: accepting or rejecting the specificationas a reasonable approximation to the truth on thebasis of the results of estimation

d. Prediction: projection of the value of the explainedvariables

i i i d


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Uncertainties in Demand

Forecasting Arises from:1. Data about past & present market:a.

Lack of standardisationb. Few Observationsc. Influence of Abnormal factors2. Methods of forecasting

a. Inability to handle unquantifiable factorsb. Unrealistic assumptionsc. Excessive data requirement

U i i i D d


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Uncertainties in Demand

Forecasting3. Environmental change:

a. Technological

b. Shift in Government policyc. Developments on the international

scene

d. Discovery of new sources of RawMaterial

e. Vagaries of Monsoon


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Coping with Uncertainties Conduct analysis with data based on uniform

& standard definitions In considering trends, coefficients &

relationships ignore abnormal observations Critically evaluate the assumptions Adjust the projections in the light of

unquantifiable influences

Monitor the environment continuously Consider alternative scenarios Conduct sensitivity analysis


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Marketing Plan Current market situation examinesa. Market size, growth, consumer behaviorb.

Competition major competitors, theirobjectives, strategies, strengthsc. Distribution capabilities of competitors,

number of outlets, special schemes to beoffered

d. Macro-environment effect of social,political, economic, technological & otherexternal variables


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Marketing Plan (Contd.) Opportunity & issue analysis SWOT

is conducted & core issues are

identified Where the product shouldbe launched & brand name

Objectives Should be clear-cut,

specific & achievable sales, profit &targets


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Marketing Plan (Contd.) Marketing strategy

a. Target Segment

b. Positioning placing product in the minds ofcustomers

c. Product Line One or more variants of the product

d. Price

e. Distribution network

f. Sales Forceg. Sales Promotion

h. Advertising budget & modes


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Marketing Plan (Contd.)Action programme operationalise the

strategy in the coming period


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Technical Analysis Ensure that the project is technically

feasible all the required inputs are

available Facilitate the optimal formulation of the

project technology, size, location, etc.


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Steps of Technical Analysis1. Manufacturing Process/Technology

Alternative technologies are availablea. Choice of technology: decision based on following

factors i) Plant Capacityii) Principal inputsiii) Investment outlay & production costiv) Use by other unitsv) Product mixvi) Latest developmentsvii) Ease of absorption

St f T h i l A l i


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Steps of Technical Analysis

(Contd.)b. Appropriateness of Technology

Technology should be suitable to local economic, social &cultural conditions

2. Technical Arrangements If vide collaboration, aspects of

agreement:a. Support providedb. Process and performance guaranteesc. Priced. Continuing benefit of Research & Developmente. Period of agreementf. Restrictions if anyg. Level of equity participationh. Termination of agreement in case of violations


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3. Material Inputs & Utilities Specifying properties & supply programme Classified into-a. Raw materials: Classified intoi) Agricultural products - Quality- Assessment of quantities available, current and potentiali) Mineral products - quantum of exploitable deposits- Location, size & depth of deposits

- Composition of ore, level of impurities & physical, chemical &other properties

Mate ial In t & Utilitie


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Material Inputs & Utilities

(Contd.)i) Livestock and forest productsii) Marine productsb. Processed industrial materials & components

properties, requirement, quantity available,dependability & pricec. Auxiliary materials chemicals, packaging

materials, paint, varnishes, oils, greases, cleaningmaterials

d. Utilities power, water, steam, fuel, transportation- Based on location, technology & plant capacity- requirement, sources, availability, shortages/

bottlenecks, alternatives, cost, investment


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4. Product Mix Variations in size and quality satisfy a wide range of

customers

Expands the market & leads to high profitability

Planning of production facilities should provideflexibility in product mix

Alteration of product mix responds to changes andenables to survive & grow

Careful analysis is required for choosing the degreeof flexibility in product mix, since it involves extracost


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5. Plant Capacity Units that can be manufactured

1. Feasible normal capacity (FNC)

capacity attainable under normalworking conditions on the basis ofinstalled capacity, technical conditions,

stoppages, downtime, holidays2. Installed capacity


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Plant Capacity (Contd.) Factors effecting the FNC:1. Technological requirement Technology chosen may require a

minimum capacity2. Input constraints there may be limit on the availability of inputs

3. Investment cost it decreases with the increase in plant capacityC2 = C1(Q2/Q1)raised to alphaC2 derived cost for Q2 units of capacityC1 known cost for Q1 units of capacity

Alpha factor reflecting capacity-cost relationship (0.2


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Plant Capacity (Contd.)4. Market conditions Stronger the

market, higher plant capacity is

required5. Resources managerial & financial

6. Government policy


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6. Location & Site Assessment of demand, size & input Location is a broad area Site is a specific land

Choice of location is affected by:1. Proximity to raw materials & markets optimal

location is one where the total transportation,production and distribution cost is minimum

2. Availability of infrastructure

3. Labour Situation availability, rates, productivity,industrial relations, unionisation

4. Government policies based on regional dispersion


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6. Location and Site5. Other Factors:

a. Climatic conditions

b. General living conditionsc. Proximity to ancillary units

d. Ease in coping with pollution

Site Selection evaluated based oncost of land & site preparation &development


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7. Machineries & Equipments Based on production technology, plant

capacity & type of project

Steps:1. Estimate the level of production over time

2. Define the machining & operations

3. Calculate the machine hours of eachoperation

4. Select machineries & equipments required

Machineries & Equipments


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(Contd.) Types of equipments:

a. Plant/Process

b. Mechanicalc. Electrical

d. Instruments

e. Controlsf. Internal transportation

g. Others



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(Contd.) Spare parts & tools:

a. To be purchased with the original eqipment

b. Required for operational wear & tear Constraints in selection:

a. Limited availability of power

b. Transporting a heavy equipmentc. Workers may not be able to operate

d. Import policy may not allow



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(Contd.) Procurement: Factors to be considered in

selecting a supplier:

a. Desired qualityb. Technology required

c. Reputation of supplier

d. Expected delivery schedule

e. Payment terms

f. Performance guarantee


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8. Structure & Civil Works Site preparation & development:a. Grading & levelingb. Demolition & removal of unwanted structuresc. Relocation of existing pipelines, cables, roads, power linesd. Connections of utilities Buildings & structures:a. Factoryb. Ancillary stores, labs, maintenance, utilityc. Administrative

d. Staff welfaree. Residential

Structure & Civil Works


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Structure & Civil Works

(Contd.) Outdoor works:

a. Supply of utilities

b. Handling & treatment of emissions

c. Transportation

d. Outdoor lighting

e. Landscaping

f. Enclosure


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9. Environmental Aspects Types of effluents generated

Disposal of effluents

Secure environmental clearances &comply with statutory requirements


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10. Project Charts & Layouts1. General Functional layout relationship

between equipments, buildings and civilworks

2. Material Flow

3. Production Line

4. Transport

5. Utility Consumption6. Communication

7. Organisational

Project Charts & Layouts


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Project Charts & Layouts

(Contd.)8. Plant: physical layout of the factory

Considerations

a. Consistency with production technologyb. Smooth flow of goods

c. Utilisation of space

d. Scope for expansion

e. Minimisation of production cost

f. Safety of personnel

11 Schedule of Project


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11. Schedule of Project

implementation List all possible activities from project planning to

commencement of production Sequence of activities Time required for activities Resources required for activities Use bar charts, PERT/CPM analysis

PERT/CPM are network planning techniques which can handleinnumerable activities, complex interdependency relationships,resource constraints, probabilistic estimates and cost-timetradeoffs

Work schedule: - installation & initial operations- Avoid losses from idle capacity & deterioration of stocks- Commissioning of plant to be synchronised with the availability

of inputs

12 Need for considering


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12. Need for considering

AlternativesThere are alternative ways of transferring anidea into a project. The alternatives maydiffer with respect to:

Nature of Project

Production Process

Product quality

Scale of operations & time phasing Location

Key project inter-linkages

Financial Estimates &


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Financial Estimates &

Projections Develop projections for:1. Profit & Loss A/C2. Balance Sheet

3. Fund Flow Statement Steps for developing projections:1. Cost of Project:a. Land & Site Developmentb. Building & civil works cost depends on the kind of

structures- estimates are based on the plinth area & therates for type of structures


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Cost of Project

c. Plant & Machinery Cost of imported P&M = FOB + shipping +freight + insurance + import duty + clearing + loading + unloading+ transportation- Cost of indigenous P&M = FOR + VAT + octroi + other taxes +railway freight + transportation

- Cost of stores & spares- installation charges- estimates based on latest available quotation adjusted forescalationEscalation = latest rate of annual inflation applicable to plant &machinery X length of delivery period

d. Technical know-how & Engineering fees if royalty is payableannually it is an operating expensee. Expenses on foreign & Indian technicians travel + boarding +

lodging + salaries + allowances


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Cost of Project (Contd.)

f. Miscellaneous fixed assets furniture, officemachinery & equipment, tools, vehicles, DG,transformers, boilers, etc.

g. Preliminary expenses identifying theproject, market survey, feasibility report,drafting MOA and AOA, ROC expenses

h. Capital Issue expenses underwriting,brokerage, fees to registrar, printing &postage, advertising, listing fees, stampduty


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i. Pre-operative expenses expense incurred till commencementof commercial production- Directly related to project implementation schedule- any delay shall increase the expenses

- financial institutions allow 20-25% delay- are capitalised by apportioning them to fixed assets ortreated as deferred revenue expenditure and w/off over aperiod of time

j. Provision for contingencies to estimate divide the project costinto

(a) Firm cost already incurred/ orders placed(b) Non-firm cost

Provision shall be 5 to 10 % of non-firm cost/ 10% for totalproject cost


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k. Margin money for Working Capital Working capital is provided by banks &

creditors. Certain part of it has to comefrom long term sources of finance(Generally 25%)

l. Initial cash losses


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Working Capital Requirement

It consists of:

a. Raw materials & components

b. Stocks of Work-in-process

c. Stocks of finished goods

d. Debtors

e. Operating expenses

f. Consumable stores


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Working Capital Financing

Working Capital Advance obtained in the form ofaggregate permissible bank finance as per the normsof lender

As per Tandon Committee Maximum PermissibleBank Finance = 0.75(Current Assets Current

Liabilities)- It means 25% of net working capital must befinanced by long-term sources of finance which isknown as the margin money for working capital

Trade Credit Accruals & provisions Long term source of finance

Documents

Project Management (Lalit Shivhare)