Ch 2-Project Planning & Control.ppt [Compatibility Mode] [Repaired]

8/19/2019 Ch 2-Project Planning & Control.ppt [Compatibility Mode] [Repaired]

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Ch 2. Project Planning &Controlling


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Capital Investment ProcessSearch for Investment Opportunities:Recognition of opportunities which arecompatible with the rm!s objectivesScreening the alternatives: Preliminar"screening process to assess whether it istechnicall" feasible# resources are available& the e$pecte% returns are a%e uate tocompensate the ris's involve%(nal"sis of feasible alternatives: If theproposal satis es the screening process# itis then anal")e% in more %etail b"gathering technical# economical an% other%ata


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Capital Investment Process*valuation of alternatives: Investmentappraisal techni ues are applie% whichrange from a simple pa"bac' metho% to themore sophisticate% %iscounte% cash +owmetho%s(uthori)ation: Once the evaluation iscomplete% then proposal is forwar%e% to ahigher level of management forauthori)ation to ta'e up the projectImplementation & Control: If approve% theproject will be implemente% an% itsprogress is monitore% with the ai% offee%bac' reports.


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,in%s of Projects-alancing Projects

o%erni)ation ProjectsReplacement Projects

*$pansion Projects/iversi cation Projects


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Classi cation of Projects:0ational & International ProjectsIn%ustrial & non1in%ustrial projectsProjects base% on level of technolog": igh

level# Conventional 3evel & 3ow 3evelProjects base% on si)e: 3arge# me%ium &small scale projectsProjects base% on ownership: Public sector#

private sector & joint sector projectsProjects accor%ing to purpose: -alancing#mo%erni)ation# e$pansion# %iversi cation#replacement# etc.


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4orwar% & -ac'war%Integration

-ac'war% integration: Setting up of facilitiesfor the pro%uction of raw materials an%components re uire% for the current operationsof the organi)ation.4orwar% integration: 5he creation of facilitiesfor manufacturing pro%ucts for which thecurrent pro%ucts of the organi)ation serve asinputsReliance6s bac'war% integration into pol"ester

bres from te$tiles an% further intopetrochemicals was starte% b" /hirubhai(mbani.Reliance has entere% the oil an% natural as


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Rationale for /iversi cation 5o achieve consistent growth an%pro tabilit"7hen companies objectives are no longercompatible with the scope of currentportfolio

5o enhance the sharehol%er!s value 5he grass is greener on the other si%e or

sheep mentalit"


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Project Organi)ationStructureatri$ Organi)ation Structure: It is a formal wa"

of hierarch" an% sharing authorit" betweenproject manager an% his team of functionalmanagers# who are answerable to the Project

manager as well as the functional hea%s


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Project Organi)ationStructure

5as' 4orce Organi)ation Structure: ( tas' forceis create% b" getting the personnel fromvarious functional %epartments & puttingthem un%er the Project manager. 5he sta8attache% with the Project manager continuesto get a%ministrative support from theirrespective parent %epartments# but the" willbe un%er the control & gui%ance of the Projectmanager as long as the" are in Projectmanagement team


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Project anagementInformation S"stems

Project anagement Information S"stems9PI S is structure% base% on the nee%s ofmanagerial planning an% control activitiesan%;or organi)ational functions.

anagerial Planning an% controllingactivities can be:

a Strategic Planning

b 5actical Planningc Operational PlanningPI S aims to provi%e information appropriate

to various levels of management


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Communication Channels-oth written & oral# formal & informalcommunication are vital for the success ofa project

5he communication process shoul% not beone merel" conve"ing a message.It must conve" information# motivate# aswell as assist the project management tocontrol


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5echni ues use% to improvecommunication are:

Obtaining fee%bac'# possibl" in more thanform*stablishing multiple communicationchannels


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Stages in Setting up of aProject

Initial Selection of Project I%eas:ust match the promoters! pro le ofuali cations# e$perience# interest# etc.

Rough estimate of project cost &promoters! abilit" to mobili)e the resourcesClear i%ea about the mar'et si)e an%growth potential

5he availabilit" of inputs & pro$imit" ofmar'etCost involve% in pro%uction# a%ministrationan% mar'eting

(vailabilit" of technolog" & plant an%


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Selection of Project 3ocation:Pro$imit" of inputsPro$imit" of mar'et

(vailabilit" of power(vailabilit" of waterCommunication facilities>overnment policies# subsi%ies# grants &concessions

anpower availabilit"7eather & climatic con%itions

*nvironmental factors & other regulations


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Selection of Project Site:(vailabilit" of lan%Cost of siteCost of site preparation & %evelopmentChoice of 5echnolog": 4actors that in+uence thechoice of technolog":Plant capacit"

Investment outla" & project costs 5echnolog" use% b" other units3atest %evelopments*ase of absorption of new technolog"


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Stages in Setting up of aProjectS7O5 (nal"sis: Some of the aspects consi%ere%in S7O5 are:Internal nancial resources(vailabilit" of fun%s in the capital mar'et*$tent of support from ban's & nancialinstitutions

5he business & nancial ris's associate%-ran% lo"alt" of e$isting pro%uctsSource of raw materials & other infrastructuralfacilities

ar'et share# %istribution networ'

Severit" of competitionCost of ro%uction & mana erial com etence


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5ime & cost tra%e1o8: 5he project shoul% becomplete% within its sche%ule of implementationan% within the estimate% cost.Sometimes it ma" be possible to complete theproject before %ue %ate# but with an a%%itionalcost4ollowing are the three time1cost optionsavailable:

a ost e?cient plan: 5echnical re uirements ofthe project are met through the most e?cientviews of available resources

b Sche%ule% plan: 5echnical re uirements are metb" the sche%ule% %ates


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onitoring of Capital *$pen%iture: 5heaccumulation# monitoring & control ofcapital e$pen%iture consists of the followingsteps:

a -u%getb (llocation of @ob Or%er no.; Cape$ no.c Collection of cost against each Cape$ no.

% Control of Costse Proper Reporting


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Aariance of Performance (nal"sis:Aariance (nal"sis: 5he tra%itional anal"sisinvolves comparison of actual costs withbu%gete% costs to %etermine the variance.

This approach is inadequate for projectcontrol as it tells only what happened inthe past & does not answer what willhappen in future

Performance (nal"sis: 5his mo%ern approachanal")es the project as a whole & in%ivi%ualparts. It in%icates whether the" are as persche%ule & as per bu%gete% costs. The trendof the performance and the likely nalcost & completion date of project as a


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Important 5erms in Projectanagement

Zero Date : eans a %ate is $e% up from whichthe implementation of the projects begins. 5heprogress is monitore% b" ta'ing )ero %ate as abase.

Financial Closure : Once the nancialinstitutions %eci%e to nance the project# loanagreements are entere% into. (fter this# theproject in all aspects is rea%" for implementation

an% this state of rea%iness for monetar" supportof project is calle% = nancial closure!Project isi!ility : 5he project activities startfrom the )ero %ate. ( project cannot seen b" thepublic most of its life. It can be seen b" thepeople onl" at the en% of its implementation


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"ork #reakdown $tructure : 5he total projectwor' is bro'en %own accor%ing to variouscomponents an% establish the connectionbetween various components is terme% as =wor'

brea'%own structure!. It helps in construction ofnetwor' %iagrams un%er P*R5 & CP .


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#rown eld project : ( project implemente% inthe area of a wor'ing plant;wor'ing facilit" is'nown as =brown el% project!. Revamping#replacements# rehabilitation# renovation#

mo%erni)ation projects of a running plant are all-4P%esource le elling : It is usage of resources%uring the project %uration with minimum

variation in source re uirements withoute$ten%ing the project completion time. 5heobjective is to level# as much as possible# the%eman% for each speci c resource %uring the lifeof the project without allowing an" increase in theproject %uration


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alue (ngineering %e iew : ( s"stematicanal"sis an% evaluation of the techni ues an%functions in the various spheres of anorgani)ation with a view to e$ploring channels

of performance improvement so that the valuecan be bettere%%isk )ware Culture : *stimation of sales#pro tabilit"# costs# investments# etc are base%on various assumptions which involve ris' &uncertaint". 5he awareness of ris' is importantan% a ris' awareness culture is to be %evelope%at all levels of project management*ine of #alance : It is a %evice for planningan% monitoring the progress of an or%er#


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3ine of -alance


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+etwork )nalysis ,P(%T & CP-. : Is a techni uefor planning an% controlling large projects# It helpsto plan when to start various tas's# to allocateresources so that tas's can be carrie% out within

sche%ule# to monitor actual progress & to n%when control is nee%e%.Feasi!ility $tudy %eport : -efore the project is

nali)e%# the promoter will con%uct a feasibilit"stu%" to con rm about the techno1commercialstrength of a project an% prepares a report calle%=feasibilit" report!. 5his report becomes the basefor preparation of =%etaile% project report!


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-arket $ur ey : -efore un%erta'ing an" newproject it is customar" to un%erta'e a mar'etsurve" which helps in %etermining the level of%eman%# testing bu"ers! reaction to %i8erent

pro%uct con gurations & pac'aging an%i%entif"ing the lin's between purchasingbehaviour an% other variables. 5he e8ectivenessof this techni ue %epen%s upon a number ofvariables:

a 0umber of potential bu"ersb Clarit" of bu"ers! intentionsc -u"ers! willingness to %isclose their intentions

% Cost of i%entif"ing & contacting bu"ers!


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/n isi!le "alls in Project (stimating : 5hereare certain invisible walls which stops fromma'ing B D accurate estimates. 5he" are:

a /ela" in governmental clearances

b /ela"s in obtaining sanction of loansc Reliabilit" of contractors% ur%les from local people near the project sitee Political %isturbancesf 4oreign e$change rate variationsg


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Reasons for Project 4ailureSubstantial overrun of the projects whichma'es the project not feasible toimplement furtherChanges in technolog" %uring theimplementationIncorrect estimation of the cost of project &its pro tabilit"

3ac' of e$perience% management team3ac' of %elegation of authorit" &responsibilit"3ac' of project monitoring s"stems

4ailure to obtain government clearances &


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0ew Concepts in 4inancing &*$ecution of Projects:

-uil%# Own & Operate 9-.O.O. : 5heentrepreneur will buil% the project from hisown resources# he will own the project an%is also entitle% to operate the projectsubse uent to its commercial launching-uil%# Operate & 5ransfer 9-.O.5. : Privatesector is invite% b" the govt. to un%erta'eprojects in core sector. ovt.


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0ew Concepts in 4inancing &*$ecution of Projects:

3ease# Rehabilitate# Operate & 5ransfer93.R.O.5. : >ovt. will give a running plant forrehabilitation to put the plant on pro tabilit"trac'. 5he govt. a%opts this concept when it hasfun%s constraint*ngineering# Procurement & Construct 9*.P.C. :

5he contractor ta'es the complete responsibilit"to construct# erect & suppl" the plant & 'eeps itrea%" to operate b" the owner.

5urn'e" Contract: 7hen a single contractorun%erta'es the responsibilit" for the entire wor'an% complete it so that the owner merel" turnsthe 'e" an% operates the plant# it is calle%


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Incentives in Project PlanningIncentives for *$port Oriente%


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Incentives in Project PlanningIncentives for *$port Oriente% C also guarantees to ban's & nancialinstitutions to enable e$porters to obtain betterfacilities from them

g 4inancial facilities at special concessional rates ofinterest are given b" commercial ban's

h B D foreign e uit" participation is allowe% butthe compan" shoul% be an In%ian compan"

i Imports of capital goo%s ;components an% rawmaterial are e$empte% from import %ut"

j Rela$ations are allowe% in respect of sales ta$#propert" ta$# octroi# etc.

' 5a$ holi%a" is available for B D e$port oriente%


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$


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5a$ Consi%erations in ProjectPlanning

Some projects are locate% primaril" because ofta$ incentives an% bene ts associate% withthem

5a$ incentives# ta$ bene ts & implications pla"

a major role in project investment %ecisions0ormall" capital e$pen%iture is not allowe% asa ta$ %e%uctible e$pen%iture-ut in certain cases# ta$ incentives are given

for capital e$pen%iture incurre%*g. B D %e%uction is allowe% on capitale$pen%iture if incurre% on scienti c researchrelate% to business carrie% on b" the enterprise


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Cost -ene t (nal"sisIt is an anal"tical tool in %ecision ma'ingwhich enables a s"stematic comparison tobe ma%e between the estimate% cost of theproject an% the estimate% value & bene ts

which ma" arise from the operation of sucha project

C ( l" i &


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Cost -ene t (nal"sis&Investment /ecisions

4or public;non pro t ma'ing organi)ationssee'ing to ma'e an investment %ecision#the concept of 0PA ma" not be regar%e% asentirel" appropriate

C-( involves the assessment of the costsan% bene ts of the rm as well as thesocial costs & bene ts*g. ( rm buil%ing a bri%ge %oes not haveto pa" societ" for the a%%itional pollutioncreate% nor %oes it receive pa"ments forthe a%%itional jobs create%.

ence there is a %i8erence between privatecosts & bene ts an% social costs & bene ts


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5echni ues of Cost -ene t(nal"sis

B. /iscounte% Cash 4low 5echni ues:• 0et Present Aalue 90PA• 0PA E 9-1C ;9BFr n

7here# - E Sum of the bene ts of the project# nE e$pecte% lifeC E Sum of the costs of the project# r E social

rate of %iscount•

Internal rate of Return 9IRR• IRR is that rate of return which e uates the

sum of the costs & sum of the bene ts.• If IRR G cost of capital# project shoul% be

accepte%.


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Social Cost -ene t (nal"sisSocial Cost is a sacri ce or %etriment tosociet"Social bene t is a compensation ma%e tothe societ" in the form of per capitaincome# emplo"ment opportunities# etcSocial Cost -ene t (nal"sis is a s"stematicevaluation of an organi)ation!s socialperformance as %istinguishe% from itseconomic performance.It is concerne% with the possible in+uenceson the social ualit" of life instea% ofeconomic ualit" of life.


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In%icators of Social/esirabilit"

*mplo"ment Potential4oreign e$change earningsSocial cost bene t anal"sisCapital1output ratioAalue a%%e% per unit of capital

* i ( i l


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*conomic (ppraisal 5echni ues of Project

*conomic Rate of Return: Is a %iscount rate atwhich the cash in+ows an% out+ow aree uate%. *RR is %etermine% on the basis ofsha%ow prices which re+ect the real cost of

inputs to the nation an% the real bene t ofoutput to the nation/omestic Resource Cost: Represents theresource cost of a pro%uct manufacture%%omesticall" without importing such pro%uct./RC is the costs incurre% in pro%uction to thenet foreign e$changes save% or earne%./RC E Aalue a%%e% at %omestic prices $*$change Rate

Aalue a%%e% at worl% rices

* i ( i l


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*conomic (ppraisal 5echni ues of Project

*8ective Rate of Protection: In%icates the %egree pfprotection a project receives from internationalcompetition.In calculation of *RP the basic parameter is the

6value a%%e%6 which is %i8erence between the sellingprice of a pro%uct an% cost of material input*RP E Aalue a%%e% at %omestic prices Aalue a%%e%at worl% prices

5he %i8erence in the value a%%e% is because of theprotection given to the %omestic pro%uct*RP9D E Aalue a%%e% at %omestic prices Aalue a%%e%

at worl% prices $ B

Aalue a%%e% at worl% prices


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Ch 2-Project Planning & Control.ppt [Compatibility Mode] [Repaired]

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