PROJECT MANAGEMENT

WHAT IS PROJECT?• Projects are temporary in nature and have definitive start dates and

definitive end dates. The project is completed when its goals and objectives are accomplished. Projects exist to bring about a product, service or result that didn’t exist before. In this sense, a project is unique. Thus a project produce the unique, tangible or intangible, product or service or result.

• Project Vs Operations: Operations are ongoing & repetitive where as projects are temporary.

• A project is successful when it achieves its objectives and meets or exceeds the expectations of stakeholders. The stakeholders are the people who are actively involved with the work of the project or have something to gain or lose as a result of the project. The stakeholders are thus: Project manager, Project sponsor, Customer, Board of directors, Executive managers, Department mangers, Vendors, Suppliers, Project management office etc.

WHAT IS PROJECT MANAGEMENT?

• Project management brings together a set of tools and techniques – performed by people – to describe, organize, and monitor the work of project activities. Project management involves applying knowledge, skills, and techniques during the course of the project to accomplish the project requirements.

• Project managers are the people responsible for managing project processes and applying the tools and techniques used to carry out the project activities. It is the responsibility of the project manager to ensure that project management techniques are applied and followed.

• Many times, stakeholders have conflicting interests. It’s the responsibility of project manager to understand these conflicts and try to resolve them. Project manager has to identify and meet all needs and constraints of key stakeholders. And when in doubt, stakeholders conflict should always be resolved in favor of customers.

Project mgt. Continued…• Project management is a process that includes planning, putting the

project plan into action, and measuring progress and performance. It involves identifying the project requirements, establishing project objectives, balancing constraints, and taking the needs and expectations of the key stakeholders into consideration. Planning sets the standard for the rest of project’s life and is used to track future project performance.

• Programs: Programs are groups of related projects that are managed using the same techniques in a coordinated fashion. When projects are managed collectively as programs, they capitalize on benefits that wouldn’t be achievable if the projects were managed separately. This could be the case where a very large program exists with many sub projects under it. Each sub project has its own project manager, who reports to program manager. The management of this collective projects is called as program management and it involves centrally managing and coordinating groups of related projects to meet the objectives of the program.

Project mgt. Continued…• Portfolios: Portfolios are collections of programs and projects that meet a

specific business goal or objective. Say a construction company under retail portfolio might have number of programs and projects like – retails, single family residential, multifamily residential, etc. The objective of any program or project in this portfolio is to meet the strategic objectives of the portfolio, which in turn should meet the objectives of the department and ultimately the corporation. Portfolio management encompasses managing the collections of programs and in the portfolio. This includes weighing the value of each project, or potential project, against the portfolio’s strategic objectives. It involves monitoring, finance management and assuring the efficient use of resources. Portfolio management is generally performed by a senior manager in the organization.

• Project Management Offices: PMO is generally a centralized organizational unit that oversees the management of projects & programs. PMO has to establish and maintain procedures and standards for the project management methodologies. They serve as mentors to junior level project managers and act as consultants to senior level managers.

NECESSARY SKILLS FOR PROJECT MANAGERS

1. Communication Skills :One of the single most important characteristics of a first-rate project manager is excellent communication skills. Written and oral communications are the backbone of all successful projects. As a creator or manager of most of the project communication (project documents, meeting updates, status reports, and so on), It’s your job to ensure that the information is explicit, clear and complete so that the audience will have no trouble understanding what has been communicated.

2. Organizational and Planning Skills :Organizational and planning skills are closely related and probably the most important, after communication skills, a project manager can possess. As project manager, you will have project documentation, requirements information, memos, project reports, personnel records, vendor quotes, contracts, and much more, to track and be able to locate at a moment’s notice. You will also have to organize meetings, put together teams, and perhaps manage and organize media release schedules, depending on your project.Time Management skills are closely related to organizational skills. Planning skills go hand in hand with organizational skills. Combining these two with excellent communication skills is almost a sure guarantee of your success in the project management field.

Skills Contd…• 3. Budgeting Skills :• Project managers establish and manage budgets and therefore need some

knowledge of finance and accounting principles. Especially important in this skill area is the ability to perform cost estimates for project budgeting.

• 4. Conflict Management Skills :• Conflict management involves solving problems. Problem solving is really

a twofold process. First, you must define the problem by separating the causes from the symptoms. Often when defining problems, you end up just describing the symptoms instead of really getting to the heart of what’s causing the problem. To avoid that, ask yourself questions lie “Is it an internal or external problem?” To avoid that, ask yourself questions like “Is it an internal or between team members? And “Is is managerial?” and “What are the potential impacts or consequences?” These kinds of questions will help you get to the cause of the problem.

• Next, after you have defined the problem, you have some decisions to make. It will take a little time to examine and analyze the problem, the situation causing it, and the alternatives available. After this analysis, the project manager will determine the best course of action to take and implement the decision. The timing of the decision is often as important as the decision itself. If you make a good decision but implement it too lake, it might turn into a bad decision.

Skills contd…5. Negotiation and Influencing Skills :

Effective problem solving requires negotiation and influencing skills. Simply put, negotiating is working with others to come to an agreement.Negotiation on projects is necessary in almost every area of the project, from scope definition to budgets, contracts, resource assignments, and more. This might involve one-on-one negotiation or with teams of people, and it can occur many times throughout the project.Power and politics are techniques used to influence people to perform. Power is the ability to get people to do things they would not do otherwise. It is also the ability to change minds and the course of events and to influence outcomes. Politics involve getting groups of people with different interest to cooperate creatively even in the midst of conflict and disorder.

6. Leadership Skills :Leaders and managers are not synonymous terms. Leaders impart vision, gain consensus for strategic goals, establish direction, and inspire and motivate others. Even though leaders and managers are not the same, project managers must exhibit the characteristics of both during different times on the project. Understanding when to switch from leadership to management and then back again is a finely tuned and necessary talent.

Skills Contd….7. Team-Building and Motivating Skills :

Project managers will rely heavily on team-building and motivational skills. Teams often formed with people from different parts of the organization. These people might or might not have worked together before, so some component of team-building groundwork might involve the project manager. The project manager will set the tone for the project team and will help the team members work through the various stages of team development to become fully functional. Motivating the team, especially during long projects or when experiencing a lot of bumps along the way, is another important role the project manager fulfills during the course of the project.

PROJECT MGT. KNOWLEDGE AREAS

• Project Integration Management• Project Scope Management• Project Time management• Project Cost Management• Project Quality Management• Project Human Resource Management• Project Communication Management• Project Risk Management• Project Procurement Management

Project Integration Management

• Process Name• Develop Project Charter• Develop Preliminary project Scope

Statement • Develop Project management plan• Direct & manage project execution• Monitor & control project work• Integrated change control• Close project

• PM Process Group• Initiating• Initiating

• Planning• Executing• Monitoring & controlling• Monitoring & controlling• Closing

Project Scope Management

• Process Name• Scope Planning• Scope Definition• Create WBS*• Scope Verification• Scope Control

• * Work breakdown structure

• PM Process Group• Planning• Planning• Planning• Monitoring & Controlling• Monitoring & Controlling

Project Time Management

• Process Name• Activity Definition• Activity Sequencing• Activity Resource

Estimating• Activity Duration

Estimating• Schedule Development• Schedule Control

• PM Process Group• Planning• Planning• Planning

• Planning

• Planning• Monitoring & Controlling

Project Cost Management

• Process Name• Cost Estimating• Cost Budgeting• Cost Control

• PM Process Group• Planning• Planning• Monitoring & Controlling

Project Quality Management

• Process Name• Quality Planning• Perform Quality

Assurance• Perform Quality

Control

• PM Process Group• Planning• Executing

• Monitoring & Controlling

Project Human Resource Management

• Process Name• Human Resource

Planning• Acquire Project Team• Develop Project Team• Manage Project Team

• PM Process Group• Planning

• Executing• Executing• Monitoring & Controlling

Project Communication Management

• Process Name• Communications

Planning• Information Distribution• Performance reporting• Manage Stakeholders


• Executing• Monitoring & Controlling• Monitoring & Controlling

Project Risk Management

• Process Name• Risk Management

Planning• Risk Identification• Qualitative Risk Analysis• Quantitative Risk

Analysis• Risk Response Planning• Risk Monitoring & Control


• Planning• Planning• Planning

• Planning• Monitoring & Controlling

Project Procurement management

• Process Name• Plan Purchases &

Acquisitions• Plan Contracting• Request Seller Response• Select sellers• Contract Administration• Contract Closer


• Planning• Executing• Executing• Monitoring & Controlling• Closing

Model Questions

Project Identification• Understanding How Projects Come About• Needs & Demand• Market Demand: The demands of the market place can drive the

need of the project.• Business Need: Need sensed by Input – Process – Output system

of business.• Consumer Request: Consumer request can drive the project. The

consumer can be internal or external.• Technological Advances: Technological advances in various fields

brings in new projects.• Legal Requirement: Private agencies and government agencies

generate new projects as a result of legislative amendments. • Social Need: Projects come up as a result of social needs.

Project Identification (cont.)Project identification is concerned with collection, compilation and

analysis of economic data for the eventual purpose of locating possible opportunities for investment and with the development of such opportunities.

Opportunities according to Peter Drucker are of three kinds: additive, complementary and breakthrough.

Additive opportunities are those which enable better utilization of existing resources without change in character of business. These opportunities involve minimum disturbance to the existing state of affairs and hence carry least risk.

Complementary opportunities involve the introduction of new ideas and lead to certain amount of change in the existing structure.

Breakthrough opportunities on the other hand involve fundamental changes in both the structure and character of business.

Sources of Project Ideas1. Analysis of Industries’ Performance2. Analysis of Inputs & Outputs of Industries3. Analysis of Imports and Exports4. Five year plan and Government Policies5. Suggestions of Financial Institutions & Development Agencies6. Survey of Local Resources7. Analysis of Economic & Social Trends8. New Technologies9. Emulating Consumption Patterns from Abroad10.Restoring Life to Sick Units11.Analysis of Unsatisfied Needs of Consumers12. International and National Trade Fairs & Industry Exhibitions13.Stimulate Creativity for Generation of new Project Ideas14.Chance Factor

Criteria for Selecting Project

• Investment Size• Location• Technology• Equipment• Marketing

Feasibility• Feasibility Report: Before starting a small-scale industry,

it is mandatory for entrepreneurs to consult the Director of Industries Service Institute (SISI) located in the state. The SISI guides entrepreneurs as to the type of industry to start, where to start and how to start it. SISI suggests the lines on which the project reports for the proposed units should be prepared for the consideration of various financial institutions with a view to securing financial assistance. It also provides technical guidance related to selection of raw material, type of machinery & information about various incentives available to the small scale industries from various organizations.

Project Feasibility Analysis• Project feasibility analysis includes market analysis,

technical analysis, financial analysis & social cost-benefit analysis.

• Market Analysis: A market analysis is a method of screening the project ideas as well as means of evaluating a project’s feasibility in terms of market. The market analysis should cover the following areas.

1. A brief market description including market area, channels of distribution, transportation & general trade practices.

2. An analysis of past & present demand, identification of major consumers.

3. An analysis of supply & competitive position of product , such as selling price, quality & marketing practices of competitors.

Feasibility Analysis (cont.)• The technical analysis of a project feasibility study

establishes whether the project is technically feasible or not. It involves following aspects.

1. Description of product & alternative manufacturing processes.2. Determination of plant size, selection of machinery & equipments, set

up time & technical factors.3. An identification of plant location, building & plant layout.4. A study of availability of raw materials, its cost, terms of payment,

sources of supply etc.5. An estimate of labour requirements. Skilled, semi-skilled & unskilled

labour. Supervisory work force required. 6. Waste & waste disposal.7. An estimate of production cost of the product.

Feasibility Analysis (cont.)• Financial analysis of feasibility study consists of

preparation of financial statements to evaluate profitability. Risk analysis is necessary for the investment decision. The financial analysis should include:

1. Statement of total project cost, initial capital requirement, and cash flow statement in case of new companies.

2. Supporting schedules for financial projections, collection period, inventory levels, payment period, element of production cost, selling, administrative, & financial expenses.

3. Financial analysis showing returns on investments, returns on equity, break-even volume, and price analysis.

4. A sensitivity analysis to identify items having substantial impact on profitability or possibly a risk analysis.

Feasibility Analysis (cont.)• Social cost-benefit analysis is necessary to justify a project

from the national viability point of view. We not only take into account direct costs & benefits but also the cost of all entities connected with the project and the benefits which will be enjoyed by all such entities. This analysis include following aspects broadly:

1. Priorities as per national five year plan.2. Employment capability.3. Social acceptance.4. Pollution & pollution control.5. Conservation of energy.6. Generation of foreign exchange.7. Overall economic development.

Project Formulation• Project formulation is a process whereby the

entrepreneur makes an objective and independent assessment of various aspects of an investment proposition of a project idea for determining its total impact and also its liability. This forms an important stage in the pre-investment phase – that is the period from the conception of an idea until the final analysis to decide about the future of the project idea. This makes it an analytical management aid. The aim of project formulation is to achieve the project objectives with the minimum expenditure and adequate resources.

Steps in Project Formulation• A project comprises of a series of activities for achieving

predetermined objectives. In this view the objectives of the project should be defined as precisely as possible. The objectives may be social, economic, or combination of the both. They can be defined under the following categories.

1. General objectives: A general objective merely states in broad terms the achievements expected of the project.

2. Operational objectives: Operational objective specifically mentions results expected from the implementation of project.

The definition of objectives in clear terms helps in quantifying physical, financial, human & other resources requirements.

Stages of Project Formulation• The process of project development has seven distinct

& sequential stages. The project formulation is a result of completion of these stages. The stages are:

1. Feasibility analysis2. Techno-economic analysis3. Project design and Network analysis4. Input analysis5. Financial analysis6. Social Cost-Benefit analysis7. Pre-investment analysis.

Stages of… (cont.)

1. Feasibility analysis: At this stage, the project idea is examined from the point of view of whether to go for detailed investment proposal or not. The project idea is examined in the context of internal & external constraints three alternatives could be considered – Project idea seems to be feasible or not feasible or unable to arrive at conclusion. If project idea is feasible we go to second step else abandon the idea.


2. Techno-economic analysis: In this step, estimation of project demand potential and choice of optimal technology is made. It is necessary to know the market for the goods/services produced by the project implementation. Therefore market analysis is also in-built in this step. Techno-economic analysis gives the project a unique individuality and sets the stage for detailed design development.


3. Project design and network analysis: This important step defines individual activities

which constitute the project and their inter-relationship with each other. The sequence of events of the project is presented. Detailed work plan of the project is prepared with time allocation for each activity and presented in a network drawing. Project design is the heart of the project as based on this resources required can be detailed and provided to the project.


4. Input analysis: This step assesses input requirement during construction of the project and also during the operation of the project. The input requirements on quantitative and qualitative basis for each activity is determined and total input requirements are worked out. This determines project feasibility from the point of view of resource requirements. This analysis also helps in assessing the cost and helps financial analysis and cost-benefit analysis.


5. Financial analysis: This stage involves in estimating project cost, operating cost & funds requirements. Financial analysis also helps in comparing various project proposals on common scale, thereby aiding the decision maker. Some of the analytical tools used in financial analysis are – discounted cash flow, cost-volume-profit analysis and ratio analysis. Since the costs & benefits as the out come of the project has long time-horizon it is necessary to exercise due care & foresight in financial forecasts.


6. Cost-Benefit Analysis: Overall worth of the project is the main consideration. There are three categories –

Primary – Cost-benefit analysis from the point of view of project implementing body.

Secondary – Cost-benefit from the point of view of other than project implementing boy. Also called as spill-over or multiplier affect.

Tertiary – Non quantifiable spill-over or multiplier effect.


7. Pre-investment analysis: The project proposal gets a formal and final shape at this stage. All the results obtained in the above steps are consolidated and various conclusions arrive at to present a clear picture. Now, at this stage the project sponsoring body, project implementing body and the external consulting agencies are able to decide whether to accept the proposal or not. And investment decision regarding the project can be taken by project implementing body.

Project Risks• Types of project risks1. Design risk2. Implementation risk3. Operational risk4. Environmental risk5. Finance risk6. Interest rate risk7. Structural risk8. Human resource risk9. Execution risk10.Management risk11.Technology risk12.Disruption risk

Focusing on Constraints • Theory of constraints recommends the manager’s

focus on constraints or bottlenecks. For projects, the constraint is critical path. Once managers identify bottlenecks the techniques of resource allocation, resource leveling, monitoring, crashing etc. can be used to reduce the risk of not completing project in the planned time. But goldratt adds an important second constraint to this framework that managers often overlook: scares resources needed by tasks not only on and off critical path but also by the other projects.

Identifying the Risks

• Kleindorfer has identified three main categories as the primary sources of supply chain disruption risk: Operational contingencies, which include equipment malfunctions and systemic failures, abrupt discontinuity of supply, bankruptcy, fraud, labour strikes; natural hazards such as earthquakes, hurricanes, storms; and terrorism or political instability.

Risk Analysis• Projects with quantified benefits: The internal rate of return

(IRR) is the measure most often used to indicate the economic viability of Bank financed projects. Calculation of IRR requires a set of assumptions regarding the conditions faced by the project which prevail during its life. However, such projects have very long life and conditions faced by the project may change due to various reasons. Sensitivity analysis is carried out to determine the effects of possible changes in the values of key variables ( costs, yields, and price of inputs and outputs) on project’s IRR. Risks are generally higher in projects for which the base-case IRR is only marginally higher than opportunity cost of capital.

Risk Analysis (cont.)• Projects for which Benefits are not Quantifiable: For projects in

certain sectors or sub-sectors such as education, health, sanitation & family planning, project benefits cannot be quantified and the risks cannot be measured by sensitivity analysis. The real benefit of this type of project relate to broad socio-economic goals. In such cases, the relationship of project risk to the project objectives should be explained. The objectives should be discussed in relation to the project cost and output, and also in relation to the socio-economic objectives sought by the project. In case of projects for which benefits can be quantified, the risk relating to both the costs and benefits should be discussed. Investment costs, in such projects, relate to construction of building and necessary infrastructure. The risk on the cost side could be the delay in implementation of project. In such projects, the risks are greater on benefit side. This risk is that the quantified benefits are not achieved. While it may not be possible to to eliminate such risks, it is essential to minimize them.

Location of an Enterprise• Location considerations for the establishment of manufacturing

plants is critical. An ideal site certainly contributes to the smooth and efficient functioning of an enterprise. The study of location forms an important branch of economic geography. The need for plant location arises for new enterprise as well as established enterprise. The established enterprise need it for various reasons such as – expansion, decentralization, diversification, end of lease contract, abandoning undesirable location, shifting of market, depletion of raw materials etc.

• Selection of most economic site: According to Kimball & Kimbal, the most advantageous location is that at which the cost of gathering material, fabricating it into finished product and the cost of distributing finished product to final consumer is minimum. The three parameters form the three apex of triangle & location of enterprise is at the most appropriate place within the triangle.

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Steps in Enterprise Location• The selection of enterprise location involves three main steps.

Selection of region or general area, selection of particular community and selection exact plant site. PM 1.doc

• Weber’s theory of Industrial Location: Weber’s theory divides the factors influencing Industrial location into following :

1. The general regional factors of transport and labour costs. These are regarded as primary causes affecting industrial location.

2. The local factor of ‘agglomerative’ forces regarded as the secondary causes responsible for redistribution of industry.

• Limitations of Weber’s theory: The theory is base on wrong assumption about labour supply. The transport cost depend on mode of transport, nature of goods etc. Location & size of market may vary with changes in economy. Non-economic forces also exert important influence. Classification of materials is not proper.

Legal & Govt. aspects• The project site is sometimes determined by the government’s

licensing regulations and not by the choice of the promoters. The government has eased restrictions on location of industries. A notification issued by the Ministry of Industry mentioned that under new industrial policy, industrial licensing exemption granted to all industries except certain specified categories. These include that project should not be located within 25 km from the periphery of standard urban areas limits of city with population of more than one million, as per 1991 census. But if the industrial units were located in an area designated as an ‘Industrial area’ by the concerned state government before July 25, 1991, then this restriction would not apply. The applications were received for grant of relaxation on account of location. However, it is only the environment, safety, land use, urban planning and related factors that were kept in view while considering the industrial licence applications received .

Legal & Govt. aspects (cont.)• Industrial Growth Centers scheme: For the promotion of industries

in backward areas, the scheme of establishing growth centers was envisaged in 1988 for establishment of 100 growth centers around the country. The criteria for the location of centers is as under:

i. Outside 50 km. of cities with population above 2.5 million. ii. Outside 30 km. of cities with population above 1.5 million but below

2.5 million.iii. Outside 15 km. of cities with population above 0.75 million but below

2.5 million. The objective of the scheme has been to provide the best of the infrastructure

facilities nation wide. The growth centers were so located that sufficient land was available for the development of housing and for the promotion of tertiary activities. Further the locations prone to ecological problems were not selected. Such centers were expected to cover an area of radius 20 – 25 km.

Legal & Govt. aspects (cont.) • State incentives provide assistance and facilities to allure &

motivate techno-entrepreneurs to start their venture in their region. The nature of assistance, however, varies from state to state. PM 2.doc

• Industrial location policy: Govt. of Maharashtra has revised location policy for BMR. The policy has been in force for two decades from its revision in Feb. 1984. The revised policy is applicable to all industries in BMR excluding cotton textile industry, service industries & service industrial estates. The location clearance, however, is subject to environmental approvals from center & state govt. and also provisions of the regional plan.

Industrial location policy M.S. (cont.)

• BMR was divided into three zone for the purpose of implementation of policy.

a. Zone I : Consisting of Greater Bombay and areas of Thane municipal corporation and Mira- Bhayndar Municipal council.

b. Zone II : Consisting areas of Kalyan & navi Mumbai corporations, Ambarnath, Kulgaon- Badlapur Municipal councils, Bhivandi and Uran sub-regions and Vasai-virar sub-regions.

c. Zone III : Consisting of the remaining areas of BMR Industries were categorized into three categories – namely non-

polluting (listed in schedule I), highly polluting (listed in schedule II) and other than the two. A new unit or expansion under the category of schedule II is allowed only in the MIDC areas in Zone II.

Factory Design & Layout• Factory Design: The term factory design refers to the

for a particular type of building, arrangement of machinery, and provision of service facilities, lighting, heating, ventilation etc. in the building.

• Plant Layout: A simple, clear and comprehensive definition given by Knowels & Thomson says that plant layout involves –

i. Planning & arranging manufacturing machinery, equipment and services for the first time in completely new plants;

ii. The improvements in layouts already in use in order to introduce new methods & improvements in manufacturing procedures.

Factors affecting Factory Design

The factory design and layout should be flexible so that it may adapted easily to technological change, modernization, diversification and expansion with minimum cost & time.

The following factors influence the design of a factory:1. Location2. Nature of manufacturing process3. Plant layout4. Material handling and movement5. Cost of building6. Lighting, ventilation and service facilities7. Nature of product8. Future expansion, modernization etc.9. Projecting the image of factory

Importance of Layout The importance of layout lies in enhancing manufacturing functions

and supervision and control. Some advantages are:1. Economies in material handling2. Reduction in accidents,3. Effective use of available area,4. Minimization of production delays,5. Avoidance of bottlenecks,6. Better production control,7. Maximization of production,8. Improved quality control,9. Improved utilization of labour,10. Better supervision, and,11. Increased revenues and profits.

Considerations in factory Layout While choosing the layouts for a factory, the

following factors should be taken into consideration.

1. Nature of product,2. Volume of production,3. Material handling,4. Type of equipment,5. Factory building,6. System of manufacture,7. Lighting & ventilation,8. Service facilities.

Optimum size of Plant• The scale and size of operations of the unit determine its efficiency

and profitability.• A small scale unit can easily be formed. It has flexibility and

ownership control. Such units are most suitable because of limited demand and changing tastes, local market, Limited capital limited risk of loss, shorter gestation period etc. A firm may start and steadily move towards expansion in order to enjoy the benefits of economy of scale. After reaching a particular level, the law of diminishing returns or increasing cost begins and acts as a brake on further expansion. This level is probably known as the optimum level, indicating the most profitable combination of resources providing equi-marginal utility or return. The optimum size of plant achieves equi-marginal returns from all resources or factors of production.

Project Report1. Objective & scope of project2. Product characteristic3. Market position & trend4. Raw material5. Manufacturing process6. Plant & machinery7. Land & building8. Financial implications9. Marketing channels10.Personnel

Project Report Numerical• An entrepreneur wishes to start a new weaving factory by installing

96 automatic looms & related machinery. The looms with complete installation are available for 2 lakhs rupees each. The pirn winding machine is required for making weft pirns from yarn cones. The pirn winding machine can be purchased at price of rupees 3 lakhs. The dimension for each loom is 3m X 2m including working place around the loom. The pirn winding machine measures 4m X 2m floor space. The open space necessary for material handling measures 30% of the machine space. Space necessary for storage of raw materials, work in progress & finished goods measures 20% of machine space. Total area necessary for inspection of cloth, grey folding, maintenance & overall administration measures 50% of machine space. The land cost per 100 m2 is 50000 rupees. Plot area : built up area ratio allowed is 1:1. The construction cost rupees 10000 per m2. The entrepreneur wishes to buy land double the present requirement with view of future expansion. (cont.)

Project Report Numerical (cont.)• The grey fabric to be produced as a continuous job order has linear

fabric weight of 200g. Each loom produces 100m of fabric per day of three shifts. The yarn cost per kg is rupees 140. The buyer is ready to supply necessary yarn 100% on credit & ready to pay conversion cost at the rate of rupees 10 per linear meter. The maintenance cost (including cost of lubrication oil) per machine is 5% of machine cost per annum. The machines have expected life of 10 years and the depreciation charge is calculated by straight line method. The electric power required per day per machine is 18 units at the tariff charge of rupees 5 per unit. Non motive power required per day is 5% of motive power @ rupees 3 per unit. Overall manpower required for operations in each shift is 15 at average wage rate of rupees 6000 per month. Managerial expenses per month are 30% of operational charges. (cont.)

Project Report Numerical(cont.)

• Capital necessary is raised as under:Owner’s capital 20%Industrial development bank 80% at interest rate of 8.5%Working capital funded by commercial bank at rate of 11%Tax holiday for 5 years.Excise duty 5% of value addition.

Consider additional suitable data by making explicit assumptions.

Calculations• Land costRequired machine area Area for looms = Area per loom X 96

= 6 X 96 = 576 m2Area for Pirn winding = 4 X 2 = 8 m2Total machine area = 576 + 8 = 584 m2Additional area = 30% + 20% + 50% = 100%Total built-up area = 584 + 584 = 1168 m2Land area = Built-up area + Area for future expansion = 1168 + 1168 = 2336 m2Land cost = ( Land area ÷ 100) X 50000 = 11,68,000

Calculations (cont.)

Building costCost of building = Built-up area X construction rate = 1168 X 10000 = 1,16,80,000

Machines costCost of looms = Cost per loom X number of looms = 2,00,000 X 96 = 1,92,00,000Cost of one pirn winding machine = 3,00,000Total machine cost = 1,92,00,000 + 3,00,000 = 1,95,00,000


Total Non-recurring expenditureTotal expenditure = Land cost + Building cost + Machine cost = 11,68,000 + 1,16,80,000 + 1,95,00,000 = 3,23,48,000 Note:Material handling area = 30% of machine areaStorage (Raw material + Work in process + Finished goods) area= 20% of machine areaCloth inspection, Grey folding, Adm. Etc area = 50% of machine areaRatio of land area: Built-up area = 1:1Ratio current area: area for future expansion = 1:1

Calculations (cont.)Maintenance cost = 5% of machine cost = 5% of 1,95,00,000 = 9,75,000DepreciationBy straight line methodTotal machine cost = 1,95,00,000Expected life = 10 yearsDepreciation Charge = 19,50,000Power BillMotive Power: Total 97 machines & power rate 5 / unit = 97 X 18 = 1746 KWH


Motive power bill = 1746 X 5 = 8730 per dayNon-motive power = 5 % motive power = 5% of 1746 = 87.30 KWHNon-motive power bill = 87.30 X 3 = 261.90 per day


Labour cost per month= 15 X 3 X 6000= 2,70,000


Managerial expenses= 30% of labour cost= 30% of 2,70,000= 81000

Calculations (cont.)Long term capital requirement= Land cost + Building cost + Machine= 11,68,000 + 1,16,80,000 + 1,95,00,000 = 3,23,48,000 Long term loan from financial institutions= 80% of 3,23,48,000= 2,58,78,400 Interest charges on long term loan 8.5%= 21,99,664Working capital requirement for 3 months= Power bill + Wages & salaries + Maintenance Charge = 8,09,280 + 10,53,000 + 2,43,750= 21,06,030Interest charges on short term loan = 57,915.8

Calculations (cont.)Total earning per day= 96 X 100 X 10= 96,000 per dayYearly income from job work charges= 96,000 X 300= 2,88,00,000Expenditure per year= 21,99,664+ ( 57,915.8 + 21,06,030) X 4= 1,08,55,447.20

Financial Institutions• Over the years, financial institutions are playing a key

role in providing finance and counseling to the entrepreneurs to start new ventures as well as modernize, diversify and even rehabilitate sick enterprises. With the launching of the Five Year Plans, in the absence of a sufficiently broad domestic capital market, there was a need for adopting and enlarging institutional structure to meet the medium and long term credit requirements of the industrial sector. In this context RBI took the initiative in setting-up statutory corporation at the all-India and regional levels to function as specialised financial agency purveying term credit.

PROJECT MANAGEMENT

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