Project Management with Mikola Andrejeu #2
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Transcript of Project Management with Mikola Andrejeu #2
1. IPM. PM in India.2. PMP.3. PMBOK.
Homework
10 June 2010
Project Planning and PhasesProject Planning and Phases
Project Planning and Phases
Phases of Capital BudgetingProject Analysis FacetsResource Allocation FrameworkGeneration & Screening of Project
Ideas
Capital Budgeting =
… may be defined as the firm’s
decision to invest its funds in the project to get the benefitover the years.
… the major consideration in taking a capital budgeting decision is to evaluate its returns as compared to its investment.
Capital Budgeting
Planning
Analysis
Selection
Implementation
Review
Capital Budgeting: Phases
Planning
Capital Budgeting: Phases / Planning
Capital Budgeting: Phases / Analysis
Planning: Worthwhile.
Gathering and summarizing Gathering and summarizing relevant info about relevant info about
various various project project proposals which are proposals which are
being considered.being considered.
Analysis
Capital Budgeting: Phases / Selection
Planning n Analysis: Worthwhile n Selected.
Criteria to judge the suitability of the Criteria to judge the suitability of the project:project:
II Non-discountingNon-discounting
IIII DiscountingDiscounting
Selection
Capital Budgeting: Phases / Selection
Capital Budgeting: Phases / Selection
Why $ should have time value?
$ can be invested productively to generate additional $ can be invested productively to generate additional return.return.
Inflation: lower purchasing power in the future.Inflation: lower purchasing power in the future. Since the future is uncertain, individuals prefer current Since the future is uncertain, individuals prefer current
consumption to future consumption.consumption to future consumption.
Non-discounting criteria: ignore time value of money
Capital Budgeting: Phases / Selection
Consider time value of money. Give a clear cut decision rule. All the cash flows are considered, including
working capital and salvage value. The risk associated with future uncertainties
can be easily incorporated by adjusting the required rate of return.
Advantages of Discounted Cash Flow Techniques
Capital Budgeting: Phases / Impl.
ImplementationI Adequate Formulation of Project.II Assignment of Responsibilities.III Use of Network Techniques.
Implementation
Capital Budgeting: Phases / Review
Feedback device may be proved useful bkz:
• It throws the light on how realistic were the assumptions.• Provides experience which is highly valuable in future
decision making.• It suggests corrective action to be taken in the light of
actual performance.• It helps in uncovering judgmental biases
Review
Project Analysis
Project Analysis Facets:
•Market Analysis•Financial Analysis•Ecological Analysis•Technical Analysis•Economical Analysis
Project Analysis: Market Analysis
Future:1. Aggregate demand of the proposed product/service?2. Market share of the project under appraisal?
• Past consumption trends n present level• Past n present supply position• Imports and Exports• Level of competition• Elasticity of demand• Consumer behavior, motivation,
attitude, preferences n requirements• Administrative, technical n legal
constraints.
Project Analysis: Tech Analysis
DeterminesDetermines if the pre-requisites for successful project
implementation have been considered and good choices have been made.
? preliminary test? availability of raw materials, power n other inputs? suitable production process? appropriate machines n equipments? proposed layout of the plant n building is
appropriate? proposed technology is appropriate from social
point of view.
Project Analysis: Financial Analysis
Questions:
• Cost of the project• Preparation of cost estimates• Means of financing• Financial institutions• Financial projections• Cost of capital• Project profitability• Break-even point• Cash flows of the project• Projected financial position• Level of risk
Project Analysis: Economic Analysis
• Contribution to economic development
• Contribution to region development
• Direct economic benefits and costs of the project in terms of efficiency prices
• Distribution of income in society• Savings and investments in the
society Improving employment opportunities, self-sufficiency and social order
Impact of the project:
Project Analysis: Ecological Analysis
• What is the likely damage caused by the project to the environment?
• What is the cost of measures required to control the damage to the environment within acceptable limits?
Ensure sustainability:Ensure sustainability:
+ better life for man+ conservation of the diversity of this planet
Resource Allocation
Resource Allocation Framework:
• Key Criteria• Elementary Investment Strategy• Portfolio Planning Tools• SPACE• Debate Over Diversification
Resource Allocation Framework
3 Key CriteriaBasic objective of the company is to maximize the wealth of shareholders.
Profitability =relationship between
Profit & InvestmentMeasuring profitability:
Profit after tax------------------Tax Net-worth
Resource Allocation Framework
Elementary Investment Strategy
Resource Allocation Framework
Portfolio Planning Tools
Resource Allocation Framework
Strategic Position n Action Evaluation(SPACE)
Resource Allocation Framework
Debate Over Diversification
Resource Allocation Framework
Interface Between Strategic Planning and Capital Budgeting
Environment assessment
Managerial Vision, Values and Attitudes Corporate
Appraisal
Strategic Plan
Capital Budgeting
Strategies (Product, Market, Production,
…)
Project Ideas
Generation and Screening of Project
Ideas
• Generation of ideas• Monitoring the environment• Corporate appraisal• Scouting for project ideas• Preliminary screening• Project rating index• Sources of positive net present value
Project Ideas
Generation of Ideas
E.g. SWOTSWOT Strengths
WeaknessesOpportunitiesThreats
Project Ideas
Monitoring the Environment
Economic Sector
• Overall growth rate• Growth rate of primary n
secondary sectors• Cyclical fluctuations• Inflation rate• Balance n Payment
situation• Linkage with world
economy
Project Ideas
Monitoring the Environment
Government Sector • Industrial policy• Government projects• Import n export policies• Financial norms• Lending conditions of
financial institutions
Project Ideas
Monitoring the Environment
Tech Sector
• Emergence of new technologies
• Access to technical know how
Project Ideas
Monitoring the Environment
Socio-demographic Sector
• Population trends• Distribution of Income• Women Entrepreneurship• Attitudes towards
consumption n investment
Project Ideas
Monitoring the Environment
Competition Sector
• Number of firms in the industry
• Homogeneity n differentiation among product
• Marketing policies n practices
• Comparison with substitutes in terms of quality, price
Project Ideas
Monitoring the Environment
Supplier Sector
• Availability and cost of raw materials, energy, etc.
Project Ideas
Corporate Appraisal
Marketing n distribution
1. Market Share2. Product Line3. Distribution Network4. Customer Loyalty5. Marketing n Distribution
costs
Project Ideas
Corporate Appraisal
Production n Operations
1. Plant capacity n conditions2. Availability of raw material3. Locational advantage
Project Ideas
Corporate Appraisal
Research n Development
1. Research capabilities of the firm
2. New product developments3. Coordination between
research n operations
Project Ideas
Corporate Appraisal
Personnel
1. Competence n commitment of employees
2. Dynamism of top management
3. State of industrial relations
Project Ideas
Corporate Appraisal
Finance n Accounting
1. Financial leverage n borrowing capacity
2. Cost of capital3. Relations with shareholders n
creditors4. Accounting n control system
oAnalyze the Existing PerformanceoExamine the Inputs n Outputs of Various
IndustriesoStudy the Government’s GuidelinesoAnalyze economic n Social Trendso Identify Unfulfilled Psychological Needs
Project Ideas
Scouting for Project Ideas
oCompatibility with the EntrepreneuroConsistency with Governmental PrioritiesoAvailability of InputsoAdequacy of MarketoReasonable Cost
Preliminary Screening
Project Ideas
o Identify relevant factors for project ratingoAssign weights to these factorsoRate the project proposal on various factorsoMultiply the factor rating with the factor
weight to the factor scoreoAdd all the factor scores to get the overall
project rating index
Project Ideas
Project Rating Index
oEconomies of ScaleoProduct DifferentiationoCost AdvantageoMarketing ResearchoTechnological
AdvancementoGovernment Policy
Project Ideas
Sources of Positive Net Present Value• Effective advertisement• High quality n
dependability• Innovative product• Better service
• Favorable location• Effective cost control n cost
reduction• Monopoly over low cost materials
• Import restrictions• Special tax relief• Restrictive licensing• Environmental control
Project Ideas
Competitive Analysis
Homework: 17.06.2010
1. Strategy.2. Portfolio.3. SWOT.