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ROJECT MANAGEMENT NOTES: 1. Define ‘Project’. What are the main characteristics that identify and dlferentiate projects? Do you think hat the specialized project managment techniques can be applied effectively to non-engineering areas of ‘organizational functions? Explain your answer with sultable examples, a temporary endeavour undertaken to create unique product or service. Project seo Gained as a que sot of cordate ond tc ond haat ‘ctvtes undertaken by an organisaon to meat defined cbjactves: that have an agreed ar and fish tne; fs constrsined by cost & resources are has spectied performance vreau Characterstis ofa projet Steet the way in whish projet manager iproving bt evry ef cotces creation of new products. a ‘Some typical examples ar: ‘Annual budgeting / auditing exercises + lntoduction of new systems (ISO 9000) ‘+ Organizational restructuring + Software development & implementation * Development of new product ‘+ Cempaiga for new product launch + Organizing AGM / sales conference 2. Define “Project Management”. State the scope of the "Project Management”. Crgarisod Von fr managing Project, aves sei apoaton of rede "oo andtediaiee in Panning, Fanchg,frpomentngs Montoro, enteling and Goring unique ace or tase pre deal cute Brora th retinas jects, ano cna of be Tn, Cox, Mangrsh D» Bhojoof. ‘The Project Management Covers: (i) Idea generation, analysis and finalisagon of one or more ideas for (@) Preparation of feaeiyreparifr vaio (eas), working out facttios term viablity 3s well 28 proftabilty. Availabilty of Govt. Concessions etc. 3. Define “Project Management”, What are the main criteria for assessing ‘success of projects? Project Management is planning, organizing, directing, and controling of ‘company resources for a relatively short ~ term objective that has been established to ‘accomplish specific objectives. Project Management s the apptication of knowledge, skils, tls, and techniques to Proact acties cr ome er maa sais route ae expecta fom Gritoria for success : Project is considered to be successtul if the projét objectives are achieved within its ‘acheduled time, within budgeted cost, meeting the desired performance / technology budget and set performance parameters forthe project indicate degrea of success. . How dose project management differ from the management of other typas of ‘manufacturing activities ? [Vite “horizon [= Long-term, usually mich y= Shor & medium ‘arm, for planning ‘more than one year usually within one year. + More stalegic oy minor dayto-day involved Resources New muit-dsciplinary tearm t | Plant & personnel already exist 'be. created usually from of | Dect contol over personnel. Minimal change ' & 7. Whyte the project manager equated to ansithaproneur? Cuales fr becoming » succes pect majager are te same as tat of en ‘entrepreneur ~ wha has to deal with new and unkriown factors under time pressure. A Long term effects : Consequences extend far into the future. Scope of current ‘manufacturing is governed by capital investment ofthe past. Estimating diecounting rates and establishment of equivalence is diflout 6 It is ‘sald that the project manager to be succassful should possess ‘entrepreneurial skills. Discuss these skills with thelr importance In project, > Wilingness to make sacrifices : > Leadership > Decisiveness > Confidence in project ’ > Marketing orientation q > Strong ego. | 8. no anomaly in stalin prot 7 hatte role of poet ‘manager vis-a-vis stakeholders expectations? agencles and media outets, individuals, temporary er pormanant lobbying organizations ‘and society at large are also stakeholders. ‘Managing of stakeholder's expeciations is difcult'because various stakeholders have ferent objectives and interests, which may be with each other and with the Project objectives. Project manager has to ind these expoctatons and achieve 2 judicious balance in the interest of fof project implementation, Project ‘manager has to: ‘+ Greate an environment for every stakeholder to contribute his ski and knowledge: In development ofa project plan, + Analyse needs of verious stakeholders to ensure that they wil be met in the best possible manner ‘+ Analyse stakeholders risk tolerances to la risk management strategy. . What are the basic functions of a Projéct Manager 7 Qualifications and experience would you recommend for an effective Project ‘Manager? t a ‘Basic functions of a project manager are : 3 Of the prlect. To endure pertads of adveray and to anal proper pespeeine when event ast shadow over the enterprise, the projet manager nose a + Planning & Control : To develop the project pian and ensure that the work is ‘completed on time, within budget and with acceptable quailty. ‘+ Resource Management : Manage and direct project resources to achieve projoct objectives. 3 + Co-ordination = Interface with higher maniyement regarding project review, ‘2pprovals and project issues. Also relate successfully to line managors and staf. f - Qualities, Qualifications & axperionce to be a successful project manager : 411. Why Is the traditional ‘Functional’ organization Ie not considered suitable for r Implementation of projects in penaral ?1— Name. the other organizaton Personal quaitties : structures developed stating the types of prbjects these are found to be more +=" Communication skis bot, wrtion & oral sffectve. ; Ambition leading to working hard and positively. 4 + Energy fo deal with probloms and take measured isk, ‘The tradidonal ‘Functional orgarizalon is not sulable for Implementation of projects in + Sense of humour to take events, setbacks and success in their side. General because : : + Matury to take things in their stride and sense of timing to make catain moves. ‘No Single individuals drei responsible for jtal project. No formal authority : * Toughness and wilirgness to take contrary positions rather than taking an easy + It'does not provide projectoriented necessary to accomplish project ‘way out, of take a path of least resistance oto cave into the pressure. tasks. 1 Neods excessive lead-time for approval of decisions due to complex co-ordination. Ability to take directions, suggestions, hints and aritcism and converting them in positive action. + Decisions normaly favour songestfunctonal group. There is no customer focus, 2 Managerial qualities : + Slow response t customer needs. + Problem and conflict solving abilty to ently and understand probleme, place + Difficult to pinpoint responsibilty. them in perspective, develop and implement solutions. Individual motivation and innovation are on tl scale. + People management : : + Perspecive vision to step back and take an overall view to see symploms of ‘A Pure Project organization is separate dvision developed within the company witn problems. independent authority and responsibilty for project. Such organization is suitable for + Being an organizer managing and allocating tine for important issues. omaries embarking on mace dveriiaton /grbarsion projet General a tes Fa with the organisation to understand funding and dedsion making ‘away from the parent organization. "= Intlative and risk taking ability to accept delegate tasks not done, ‘A "Matrix Project organization combines the attibutes of Functional & Pune Project pate Crgatzatona hls relanny ie base funciona auc, teens independent Tochnical skills, knowledge & experionce : authority and responsiblity for 2 project with a manager. Such stucture is + Should be a generalist 0 see a bigger picture Le, relationship of project to the found generally sutabe for orgartzatons in project implementation forthe company, impact of end product ete. ients as their main business, Construction ‘EPC companies ic. are * Experience of not only working on several projects but to Integrate Itto apply to the some examples, current projact * Acquire knowledge of latest projec planning, budgeting and contro techniques. i 12, Explain the organization structure of a ‘Pure type of organization with ‘an organization chart and enumerate its adantages and disadvantages. For what types of projects such organization is more suitable 7 10, Main features and advantages of ‘Matrix’ type organisation for projects. Pure Project organization is a fully dedi organization created for project In matte organization, to personnel werkng on the project ae respons ot Frplomotaion ats spared wom he pret store ts functional superior as well as the project manager. The authority and Influence of the © Own technical staff Projet manager tts scoss the Fodioral veal ine of corseera Whee ea + Sinatcrston : organizational complexity due to the dual reporting structure and needs certain level of * Give parent firm periodic reports and overview Cigar! atry © wou comers simone ata any ately be Ersures effective uitzaton of organizations! esoueas (Boneane] [aoommcer] PERSON, s ea 4 stage. raorecr PROUECE ‘RowEcT Foner > Personnel are not uncertain about thelr future after project closure, hence focused. ENGINEERING PROCURMENT: PERSDNNEL FINANCE > Authority and rasponsbilty is shared end gives more time for team members 10 " ‘complex problem solving. > Itis an ideal for of organization for EPC companies, 4 OO : = No ‘+ Lack of career continlty for personne! L recuse FE RSGSG OF Pape Managegand RGN ROA, a a ond state ha rons som he oss eotes Personnel Otentaton Mowwaon Sno eu gue eked me ae ee Sri rec tat een 8 comply ces es fanoa et Loco a tesa tl ecm te See eer Torr au end achive sts haran 43. A Pure project type organization is more suitable to handle a own yerefore very important to understand human achieve: ‘iversification project because : ‘elaine In projet sating. Project manager has, ‘handle problems and challenges '+ Projact Manager has @ complete line authority over project personnel. 7 dood thority {Inu aurea repens cn be coast ory: Pele ae tt, eso neta gy, op Tipe es ear narea soma eree ett ‘Consultants, external agencies etc. Team ‘and influencing professionals ‘Better porsonnel moral & team spirit can be buitup through motivation by the aes oghrolect managers aaerty «Project poreetnl are more commited to project goals. Seat resouton sf confi, ski of commuricaton and parsuation and ably 1 = Quicker decisions and faster reaction / response time. Saeonnel ‘buffer between technical, engineering, financial and commer cal (i) Personnel Orientation : Overemphasis on planning and control techniques that ORGANIZATION CHART FOR PURE PROJECT ORGANZATION oe oor hewere, pee sang eet 2 PROIRGT MANAGH TR ‘many uncertainties, a more creative and adaptive approach is necessary to solve: = in-progremmed and un-structured problems -as the project progresses. ‘Such orientation is required for all the project team. Cay eR i a aa our aed ut by ose bund l rofessional team, it is very difficult to keep it motivated throughout the project Civil Project ‘Aco ants & term. The team members sometimes tend id get confused due to split authority Construction Engineering Administration ‘and dual subordination structure of the tion, To keep a high tevel of oi a Stat tthe poet gods we Cat aa apron, tm BO ge bes orton arate ‘management with proper delegation of ‘and responsibility that creates @ ——y acne a oe errand ate imanouare oo sony ‘Callahorators ‘Technology Purchase challenging to have greater personal i = (v) Team Bullding : Most of the project activities are inter-related and intor- saa Me oe ee, Marceinoy stone. Sucaets management of project therefore is not Gossible without proper teamwork a Development of mutual ust and acceptance, open communication and co- Sparation and development of right attude toward project ar essen for tam ng. 15. List of industries rosorved for Publle Sector and industries for which Industrial Licensing Is compulsory under the current Industrial Policy of the Government. LIST OF INDUSTRIES RESERVED FOR THE PUBLIC SECTOR 11. Arms and ammunition and allied Hems of defence equipment, defence airorat ‘and warshi z 8. Drugs and. Pramaceutcals (according to modited Drug Poloy issued in ‘Septomber, 1994). Note +e campusay teraing provelons wou not ep in eepact of fv sale ‘scale units taking up the manufacture of any of the a reserved for exclusive tmanutacture in steal secon (Kaye fare ted al fhe government has feeenly announoed opening-up of eatin defence secior production to the Pevalo ‘sector. Detal notification is awaited). 18. What ate the cltra under the current industrial Pollo’ of the government of India for according ‘Automatic approval’ for Foreign Technology Agreement? [Under what circumstances one has to obtain speciic governmantepproval for centering into a Foreign Technology Agreement ? commencement of comer produto 10 years rom the dato! eroemen whichever is earlier idee * For the folowing categories, spocific Government approval would be necessary: (1) Proposals atracing compulsory feensing provisions (2) koms of manutacture reserved fr the smal scale sotor (6) Proposes involving any previous joint venture, oF technology transfer trademark ‘agreement in the same or alied fed in India, provisions. t 117, What are the ligibllity criteria under the ‘current ‘industrial Policy’ of the government of India for an Industry to be covered under Small Scale industrial (S81) Sector 7 na are the special provision, concessions, and incntves vallable to the 8.S1.. sector under the policy? igi atria for indus tobe covard unde ‘= The investment in Plant and Machinery texted is 10miign \ Ceo~ = * Paidap capil hid by a large Industial underaking -Gorestc da-torign — should not excoed 24%, 18, Main features of the current industlal policy under the government's liberalization & economic reforms program (1) Industrial Licensing : Industies are exempt from obtaining Industrial License to except Cy) eee Defence equpmertDelrca stra & warship, Amis enery. Atomic minal & Alcoholic drinks, tobacco & defence explosives & hazardous chemicals, Dnigs & pharmacau (c)_ rv resowed Too secutive tanufacure nde SSI Secor (List covers sbout 400 terns) (2) Industrial Location : (8) Industial location should be 25 KM away fibm the Standard Urban Area (SUA) limits incase of cites with population of mare than 1st milion (b) The above restriction doos not apply for- ‘= Locations notified as Industrial areas by the government. 1 J 881 Sector “Trend or ime series analysis method Is not an affroprate approach to use In a now + Elecronics, computer sofware & printing incusties product / new business situation, or in situalons phere circumstances have radically + anges abaring Indus Linea for epectod locaton. Fhanged, and the past is 90 guide to the fulurp’ Since the underlying processos (©) Location wil slvo be govered by local zoning, land use and environmental producey the forecast are not being modeled tygre is a danger of overlooking some reguiatione of ho state & central governments. ‘Rindemental change in the process, which makes juve {© agaume any continuity of events However, whanever there have boon mafer changes inthe environment, such (3), $81Sector: fs 2 competi hiroducing 2 radial new produ itive forecasting methods lavastment in fixed assets in specified plart & machinery less than Rs. 3.0 Secome less appropriate. ‘Trend analysis methods would not be appropiate where felevant historical data is not available. Nor would they be sppropriate where the storeal data fs unreliable, perhaps because it has not been recorded In a consistent ‘manner over the relavant time period. Also itis lecessary to ensure comparably of ‘ata, Using sales values instead of volumes wil neglect the efecto ination. Also itis necessary to ensure comparably of data. Usingigales values insteed of volumos will () Eauty rlaig ot 2 Tage sal nt erg fren ‘equity should not exceed reac de efoct sf rfocon. Ais, nhon a cotgpany sels ‘a range of roduc ct 24%, Obtaining IL is compulsory for highor equity and uni ose SSI status, Services and that mix has changed over tme\fiexrapolation of valves would be misieading. (4) Foreign Golaboration & Technology Transfer: Reserve Bank of Ida (RE) ‘The forecasting methods to be used in such circumstances are : (Any tee names are ‘althorized to give aulomaic approval to foreign technology agreements and expected wth deal dseription /exampe of any one of them ) Calaboratore preweet ‘5'"'chan Rato Moshod * "Potontal sales arqestmated by applying a series of (2) Lumpsum payment does not exceed US $ 2.0 mili factors to a measure of aggregate demand. (©) Royal is Imted to $34 an domestic sales and 2% on exports Subjct to i) Consumption Level Method For that are droctly consumed, the maximum of 8% of teal sales over a period of 10 years. ‘consumpton level is estimated on tho basi of elasicty coaficients — income (©) Royalty payments should rot continue after 7 years of staring of commercial ‘lastly and price elasticity ~of demand, rodustion or 10 years aftr the date of agreement whichever earlier. (i) End Use Method (eka. Consumption Method): Sultable for ‘Al cases pertaining to Industial Licensing, SSI reserved items, Export Oriented estimation demand for intermediate that are consumed for various end {(EOUs), Sofware Technology, Parks (ATP), Electronic Hardware Technology taeo, Eatmele i based on extmated ouput lvele of various end use products Parks (EHTPs) are not covered by aulomalic approval and require specific fd proportion of uso of concerned ntrmedaleproductin asa, ‘government approval. (iv) Leading Incicator Metnod : Leading Indicatgs are variables that chango ahead cof ts dependant or lagging variables. ‘changes in leading variables are Used to predict changes in lagging var (™) Exonomatic Method : Econometric modgt is mathematical representation of 19. Short Note : ‘economic relationships derived from shear Impact of liberalization on industrial development in India; ‘+ Liberalisation process in Industral, fiscal, trade & commerce, import & export xchange contol policies of he government that has coniuod since 1000 has 21. Short Note: iovconow by government on industal caning except in defence, nuclear drugs & pharmaceuticals, tobacco, alcohol & railways. Demand forecasts mate on te basis of markaljtend data are subject o error and + Market Oriented economy with no eifcal barriers for protecting inefclent uncertainty since : industry (@) aia on past and present market parametirs uch as products, pice, costs, + Easier infow of latest technology papas ez may bo wad by naenutng duno ck of Sanaa, + Opening of financial markets to foreign investors & easy infow of foreign funds. 3 coneants and_measues. ns ray not be statistically + Opering up of international compettive markets. rales “Fri be influenced by certain abnormal ‘Exposure fo global competition in local markets + Improvement in productivity & product quay © Nats of wean re chscinzsy rnritatne 8 Such as inabilty + Faster inrastructure development on commercial basis, handle unquantifable factors, ertors dues to unrealisicassumayons and procession needs of excessively (0) Environment in wii pc no ‘characterized by uncertainty and Lnpeaabety in may factors such as Hennoiogkal canges, goverment 20, What are the situations when Trend or Time Series analysis methods can developments, clr We eed for domand foraatng.?. Name any three other methous Used In ‘such situations and describe any one of them with a sultable example. 4 i 24, What aa the main componantsof Financial Anaya! while working out the 22, Short Note: Detail Project Report 7 Why le Margin Money’ for working capital is required ‘Main aspects to be considered in technical analysis of a project: tobe pr cauennns-) i Tectia analysis of ne projects concerned primary with the flowing: / Nain comoonentso rani anata are: aw mates, processed induatial, hsb, iN” Cost ot Project covering basi Investments XnRRa, Maoras and corpora: audi fatale & fecny cUpoles and es? WRaGHTOS I Means of financing required are to bo sod fr ther sources and avalaity es they have a bering, Ras’ ii) Estmetea of sole & Production volumes ee rear see cndianorent eaeacn Gastar oa.cten yay * MANUFACTURING PROCESS & TECHNOLOGY ;- Justification for the chasen v) Working capital requirements, its financing & margin provisions technology and manufacturing process among various alternatives. ¥)_ Estimates of working results forthe projec He Pow Wane PARTY + PRODUCT MIX AND MANUFACTURING CAPACITY. :- Product mix ls basically vi) Breaiveven point i guided by market requirements. However, flexiblity in manufacturing capacity i Shou be coraradt rable quick eaponoe to charged marl ender * LOCATION AND SITE :~ ae eee sectiod by factors such ot Dost row mas nd ren, ai ‘he bale of is sulablty ad cost to develop the same fo the partauar dusty. * MACHINERY & EQUIPMENTS :- it is dependant on production technology, a apactieg of i sacone of roducton dopants BUILDOINGS AND STRUCTURES :- Any special requcaments for stuctuses 10 be considered. Aroas for manufacturing, services, tities, administration, wolfare ‘ic. be planned. + PROJECT CHARTS AND LAYOUTS :- These are general functional layouts 25, Compara NPV and IRRas methods ale SAGA material fow diagrams, Production. ms, Transport layout, Materia Which method would you usa for decisiong Involving selection of a mix of ‘consumption chart, and plant layout ‘multiple projects within an overall fimit on inyestible funds ? > Both NPV and IRR methods uso flows and therefore recognize time value of money. 23. Short Note : > Both methods ead to the same ‘of evaluation for accept / reject oven : stteron. > Both methods lead to same decisions ‘of comparative evaluation of Tne manufacturing capscty to be setup Is decided on the basis of peak ‘conventional independent projec. requtemenis 1 be fled witin te caravans of docked b Project > However, for the comparison of mutitly exclusive or unconventional to run the plant at its full “fom the begining du lavestmants, the two methods may give goniradlctory oF contain results. varus reste Gh ab eter loaning and sce ableton fe ahon ‘Cholce between the two in such cases is bdged on thelr applicability in diferent ‘market development ete. itis therefore @ generally accopted practice to reach the ful situations. manufacturing capacty in stagt over a period of time. However, tis uneconomical i operate the plant at lower capac as the fxed overhead expenses do Not got scaled. WEY t TRE down In proportion of the utlised capacity a thoy mare or loss romain conaiant. Its NPV Trathed fds the present value of| IRR finds the rate of aiscounting at which therefore necessary to know the minimum future cash flows at the given rate of| the NPV becomes zero. rake any losses. This operating capacty is known as ‘Break — even capaci. i Generay seen that plant a least schieves a break aan He Wat oer of hs i ‘operat Js calculated by dividing fixed costs by the unit ‘contibution jdscounting used and therefore, i } Between projects, = ttignores time value of money. It teats all present and future cash flows having tame vale. TAR Tor diferent projecta cannot flow = Rrowedoskes cash flows beyond payback period end discimnates against {ihe value ackavay nae, projects that generato eubstartial cash flows:in later yoars. TAR rrin carn be used cae fale + Brewing dann on aah rocerery rar aon rom easy Le. ‘of discounting cha rs {Thought timeasures project's liquidity, indicate firm's Uquidity. ‘Sssounieg fom yaar year eee By ignoring cash flows beyond pay'back period, the risks beyond pay back period are also ignored. ‘Since the NPV method follows the value additivity principle, it can be used for decisions: rh involving selection of @ mix of multiple projects within an overal iit on investbe funds. ‘The Discounted Cash Flow (OCF) methods these drawbacks since + Future cash flows are discounted to the present value and therefore can be ‘compared to inlial investment directly. ‘+All project cash flows for its entre life are considered in DCF evaluation . Bath rab of prj rg operate ‘and recovery of inital investment | ‘ave calculated in 28, What are thy msn sepects fo be considered under Market Analyse! whe working out the project feasibility 7 Pinch of the main outputs of market NPV Method : ‘analysis that are useful in financial analysie’ 7 ‘+ Since NPV method gives Net value of In Prasent Rupee torms, NPVs of ifferent projects can be diracly added. This helps in deciding the projects that ‘aspects to be considered under market analysis wile working out the project ‘ean be accepted amongst several contenders under imited funds situation. feast ae + Soo NPV vs net a of abe mn absote Rupes irs ‘cannot be used 'a) Product fectures - Major uses, scope of market, possible competion from to compare projects that require different estments. substtufe products, special features resulting In consumer preference. = Renklng of projects by NPV method is influajced by nature of cash flow patterns: b) Product Damgnd ~ Past & present demand, forecast of future tends, market & discount rates. Projects with similar is give different rankings. ‘segmentation by nature of product, consumer groups, geographical division etc, at diferent discount rates. ‘Tho moth also doesnot into er nam available over the hurdle rat Ges domeweph sodblopca” economical tecinoogual fac fing . anne onthe costof capa ©) Market share ~ expected market share and is growth from the projected demand 2) Sproris nr ofompean trop natcs neite po RA MR as arn of fal ver cot of ort Teature of competion nforelgn markets, compel & . margin of safety over coating ae 1 Fotung afprlad can be dene troche io! mvesonens 1) Distbuton sales gromoton mettods ~ dsributes, sling agers, sling {Ranking of projects doesnot change wih change ln cost of capt 1 eash lows change sgn more than once, Ure can be multiple values for IRR. ‘organization for direct seling 9) Government gaommi.- goverment cols on orcng, dertbuton, Ineo any 28, The main constituents of the ‘Projact Cc fend ine baste alamanis to be “The main outputs of market analysis useful for financial analysis are : ‘considered for preparing project report are: ** Forecast of slas quanls based on demand projedons, expected marketshare soar 4) band + Land, Lease ‘conveyance charges + Projected soling pres Land lovling & dvelopment 1 Fadorsalecing demand prices and thet posable ranges of valaton. ‘Approach roads, eral roads Fencing, gates, tubewells etc. 2) Buildings aan tea cies cole Reee, Utity bulcings eich as baer house, pum hous, 27. What are the drawbacks of non-discounted pay back p¢ Ne eet Labs, warehouses; electricat distribution etc, financial evaluation of investment proposals 7 How doos the DCF a snalysis Other non-factory' buildings — Administration, Canteen ‘overcome these drawbacks 7 Discuss the relative merits & demerits of N.P.V. 3) Plant & Machinery + imported machinery: &LRR. criteria for evaluation & comparison of investment proposals, Indigenous machinery h Cost of machinery to include all costs landed at site, \ The nonsfscounted Pay Back Paiod gies the length of time required to recover the ‘Spares, fundaon& stain. inital cash outa fr te project 4) Techrical knowhow: Foreign Colaborators fs + Technical consugnt foes It suffers from following drawbacks : 3 '5) Foreign Technicians & > Expenses for foreign technicisns for plant setup # ‘ Training abroad Expenses for training of personnel abroad = Financial appraisal : Assessment of reasonableness and adequacy of estimates 6) Other fixed assats Utilities - Boilers, transformers, compressors atc. er Secs as te sont, rotere ie mage and w Ippropriateness of financing Offce eautment& ture, Voices pattern is choked, 7) Preliminary expenses: Project identification, markot survey, feasibility study, * Economic perl» Projct is oviewed fot larger socal point of vw i terms ompary formation snd equy au eepgece 8c 2) Proeperawe expenies : Gover ah spensoeel roars natre store i Tichageralcapabify of promoter Is judged by thoi completion of pled! & cormnercoment of reduction. ‘eeourcetunes, a understanding of te pec dette and te commiaent ct Project fic enning expences, slaos& wages repre ‘Traveling & conveyance, on taxes,rsuanes 6. Interest & comment charges bers completion : Staeup expenses, i 3) Marg fr wor cp: Warn aa marr efit or of operon 40) ina! Cash Loos I tho pcb peectons show cach asco ie intl years of peraton 41) Conthgenoy roi unseen opt expend and ice Escatato 28, Economic Appraisal of « Project 31, Discuss the diffrent appraisal criteria for evaluation of cash flows for Comparing mutually oxclutve Investment pro pouae, Apts eens of nig an acter cn ho este an ne fale ofreum should be higher than tw Cot of tnd or the Yequfed Tae e Tatars, ‘The appraisal sitria for evaluation of mutlly pachisive investment proposals are ‘Without Economic viability, a project is doomed to fail, broadly categorized jas: 3 scouring Sera Coane ‘Net Present Value Is the sum of the present values of all cash flows associated nial vedtment - ——Y S*N SET we SLE Loe aggeraan wine moet ano carta hrc rateo aie at ter & Slsecantimosineni< Beta at Hh NPV ino blr post cae ei stn ae & Eepramic ite of te poet A Nowe, TSMR Lasdagoranle & Savage value « Bonet - Cost Analysis calculates the ratio of Present Value of benefits to the # Sortigcanron” 2) 3 NGLgnth VaCown Intl Investment (nent Cost Rao BCX) or te NB Present Valo fo nal investment Ree {Net Benefit Cost Ratio NECR). ‘The erleron is preférable to NPV erkerla for comparing g. Rate of Tax- proposals having widely differing initial investments. _ A Cost of Funds ~ » entettee Q Roongnn Ralancte_ httoral Rata of Raturn (IRR) the dlecourt rata which NPV ofthe project is Zor. IP Sporn ect Higher RR ndate battor proposal trespecve fp amount ont! investment METHODS: Aslok Non-Discountng Criteria = 4. Pay back period s> Ge Pay Back Period isthe length of me to recovgf inital cash outlay on the project. i. Accounting rate of return ‘Shorter the payback period, tha more desirable the, ‘This criterion tends to shield iii, Present value method the project from the risk of future uncertainties in: flows to certain extent. fv. intemal rate of return Accounting Rate of Return is a measure of profitability that relates income to Vv. Profitability Index [Ruesiment, both measured in accounting terms. tf generally expressed es a ratio of vi Discounted Paybock prod method ‘Aveape nome afer Tax ial vostro vi Inomal carpe rte ea. oot fe NEV ction, ih cn tb uf opting may we broposals unis te Investrert amounts are sia, al oer ctora enaie a goed Eetparcon win tei ownttatone, 30, Principal issues considered in project appraisal by Financial Iatutions 7 In general, the non-discounting methods are to caloulate and therefore give a ‘+ Markot appraisal : Reasonableness of demand forecasts fs examined uliizing auickarenmparison ptwoon varus proposals. Tiby Rawever. do rot ake tne valvo findings of available information and surveys. Adequacy of. marketing future cash flows into consideration and therefore may result in misleading conclusions. ifractuctire sassossed In terms Of promational eer etfbon raters “Tove cra ere thera sed to cope smlerjvesimens of 2. use ethos © fanapot ecte, stoi pols si eee, xpereneaad compres scar weak proposal. ae, “Toctnical review of product mi capac, manufcoring Dscourng mods av conctted m be ma doped or compat te eoemaie. eowehow mate, abou Sls, Dulas, pat & see —_—_— stitutions. Qenadontas esi \ 34. What are the types of projoct risks 7 Wilt measures of risk aro used to 32, Sconario Analysis : ‘assess the risk factor in project 7 cs Scenario Analysis ono ofthe methods of risk analysis to evaluate the affect of changes ‘The tree types of project sks ar: in project assumptions on te proftaoiy. In simple seretvly anally, (cally ane + Stand Ate Flak: The ok whon tho project viewed In eolaton Variable is vared at a tio to obeerve safer on te projet proftabily. Hor ever, the {Fim Risk or Corporate risk: This represen contibuion of project to the sk of ‘arabes are interrelate, it's advieable © analyse oorain plausblo eoanaros, each thom. ‘cenari beng a consistent combinaton of afew variables. + Syateratc Risk or Markot Risk: This reprednts the risk of projec inthe context ; of market porto. 4 ‘The primary factors that affect the project proftabity are gonraly the sales price, sales Moasures ois: volumes, motel costs, labour costs, project costs ete. Concuent changes in these + Rar factors within the pestle rango wil ge rae to many pausble combirations, These can {Man Absolute Deviation ‘be categorized as optimistic, normal and pessimistic scenarios and their effects studied. = Standard Deviation» * Further staching probably estimates tothe scenarios, overall vaivaon can be cared + Costient of vation % out + Sem Variance tg : ine Sencar even e most common) wed mans of kn face 33. When do you Judge @ project tobe a falure ? What are the possible causos of Decause it fs analyicaly easly Yactable. AO if the probabilies are normal project failures ? el An extemal event — change in government reguiatons > ‘An erroror omission n dt scope of he pods project ily. » Avalue adding change, enhancing project benefits. a : ‘Any such modification should be carried out ig such manner that corresponding anges In tire of complaion, bucoatd cont shange in cope get proper authenticator nd approval. ‘Tomanage and control the scope change, “The scope baseline Is first defined by work ‘Structure (WBS) Establish scope change control system that defines the provedure by which scope to be changed. This includes paperwork, tracking systems, and approval levels ‘and authorles necessary for authorizing cha Monitor project performance for scope ‘from ime. Any time to tr deviations should be scrutinized to assess for cape charge n fue, ‘cst and performance and Intale action to formalize the changes. > Issue revisions in schedule, budgets and pa ‘parameters on the basis of, approved changes. . budget from ‘bottom-up’ and {from the ‘top-down’ methods 7 a Ror trdey eka ta cae oamemieaeaas Ineffective cost & schedule control ? tstmatig eam in gven fel ‘Beto Up edd ils estimating te costo nda work, as fhe work Merease fs eur Eamed value management systems attach budgotad costs to individual activites in the project. ‘The actual cost Incurred can be found out elther 2s soon as the activity is Completed on even whe the acy i under rogress, This enables tne prcoct manage ‘urent stato fal roe re noes Sowie ML Regan & poe enerna fmol css don de te ota suman i ‘Cost of Work performed til date {ou of Sudglsot or he work the project. ‘When ACWP is higher that BCWP, lt indicates off overrun and when eamed Value lower than BCWS itindcates schedule delay. 65, How do you differentiate between the terms ‘Project Monitoring! and ‘Project ‘Control’? Explain the project monitoring & controt-eycle, Project monitoring ia & pracous of |. Assessing the current status ofthe project progress in terms of schedule, cost and performance paramaters, §i. Analysing deviations from basevine schedule, budgets and acceptance erteria fi, Evaluating implications of deviations on total project completion, cost and final performance 'v. Suggesting altemative strategies in order to bring the project on track project ‘control on the other hand ¥, Plans and decides control action i. Decides authorities and responsibities to carry out the control actions vi, Redistitutes revised schedules, budgets, and specticatons for execution. 66. Proparing a ‘project work breakdown structure’ (W.B.S.) is said to bo the first ‘step in project planning especially, scheduling & budgeting Explain. purposes. WBS also helps in consolidating the project status and cost reports at different levels to ‘evaluate performance of cifferent pers of the project. 67. Explain how the cost breakdown based on project activities helps In effective ‘cost control of the project, Which are the main cost flaures to be tracked by a ‘Project manager to achleve such control over project costs ? ‘The normal accounting practice of preparing project budgets on the basis of asset ‘Gassiication does not enable tmely comparison wih actual costs due to the time delay in collecting and collating the relevant information and thus the Information does not remain seful for control purposes. Further, such cost data does nat directly correlate to the physical progress of the project and therefore cannot be interpreted meaningfully. However, when budgeted cost for each work package is broken down further t Indicate budgeted cost for each activity, it fomms the I f z, 4 i 8 ‘action 28 soon as any deviations from the budgeted cosis forthe current state of physical progress are noticed. : ‘measured works contracts, commitied costs are in relation to defined scope of work. Sunk costs : Total cost, at a glvan ime, ich would be incurred should tho [ject be canceled, fi, Project expenditure : Total cost of work dre, goods received and of services Used, whether or not these have: been vw inal cost: vil Eamed value : Total of budgeted cost for 68. PROJECT MONITORING & COTROL THROUGH'S' CURVE ; Yr19900. 8.9) Diagram | for the project against the time, based on early fart schedule: wil indicate the total plennod expenditure forte pojet at any given polo Une during is progres. 68, Project monitoring & control eyes. Project mplemeniaion phase starts after the projectctviy schedule is planned, budgets ‘are alocated and responsibilities are assigned. In ofder to achieve affective control over 0 the Implementation, t becomes necessary ‘the progress from time at regular intervals in toms of physical complation of schedifpd activities, actual cost incurred | performing those activities ad achievement of Performance levels. This Assessment process known as ‘monitoring’ then the status with the plans to find deviations. The effect of deviations in ‘costs are estimated on the final ‘completion time and cost and controlling actions are faken to correct the deviations tb the ‘extent possible and to bring the project back on it ‘course. Schedules, budgets ‘and performance parameters are revised as a resull,and reissued for futher execution. ‘Actual controling actions are carried out by the ‘authorized and responsible for {or the fully & partially completed acivtes til the review date. ‘The cumulative values ‘based on actual progress are potted on the curve and compared wit the planned curve. Following variances are observed : Mf BOWS= Budgeted cost of work scheduled, 70, Explain why and how the project = the basis of ‘project activities to achiove effective. ‘cand canny saute. + ivan ent wkd conte mae aut fr iba Fcaton an es otrelel te tne arfmannern wich be mendes Cost activities. «Sita re nt bona ena ps2 vars eet cee Incase noun experi hae comptn ofan acti cede te budge bobs pltnre by doy occ. cos te roe ows nt nary ata ma sce ay points as wel = Fingal a frat erat fed ana nis not posse w ns ‘petite Th varace rte deste Conte tu Thee od cone re eres emer et ac ‘etal ate carr est on ony gon di st ta oad vale ofa = PENS nob tly cst wh ork Inoed 8 poeet completed actives tl dato as wl asthe tal of eared vals fo cal party delves. Conpited schon. T'S cave Gan beteon fe panned cumutre aura aus + The al cost budgets broken down as parWWAS at dferentiovels uni isiast i lvelrereserting cil ey. x When the duration or schedules for the particular part of the project or individual satvity are changed, the cost incidence also changes accordingly. «Finer te WBS, more laxible and accurate wil be the control, + Techniques euch #8 ‘Eamed Value’ and ‘S' curves help in keeping cost and ‘schedule contro in an integrated manner. 71. Explain the ‘incremental principle’ for working out the project cash flows. INCREMENTAL PRINCIPLE : Cash flows must be measured in incremental terms. |.e. ‘The difference between cash flows with the project and without the project has to be aceraied. Whi etna increment cath fv, bln pons should o kept Consider all incidental effects = Apart from the direct cash flows, the incidental effects f t ity of Sctiviles as thes competitive relationship wih them. These offects should be considered Inthe project cash flows. Ignore sunk cost: Outlay incurred in the past or expenses already committed itrevoeably should be considered. The expenditure that is not affected die 10 either scceniance of ection of ne reject under ceeieraten cannot be vente} as pct Inelude Opportunity costs : Opportunity cost for diversion of available resources to the How would you treat the following items in project cash flows 7 «Cost of project feasiilty study carried out before final epproval of the project ‘Sunk cost should not be included. + Cost of existing idle machinery / equipment transferred to new project: Since there: ‘Sno opportunty otherwise o put the machine to any use, not to be included. + Porton of Head Office administrative expenses alocated on project : Alocatod 7 i “eS LE Ganges in consumer preferences, emerging competion ete, making continued ve-.e-se ! Produ matt Ho: Marts @ peu f,charge o Spout to Se eae Iv. fnveatment planning horizon of the company : Time period for which the company ‘wishes t 100K ahead as it's long-term Investmest policy. When any one of the above occurs, the project cannot be expected to nin remuneratvely. Hence cash flow projections are cdrriad out only up to that time, 78. Explain the reasons for using Weighted average Cost of Capa (WAGC) asa sro Raut for Dlecountad Cath Flow (UCP) analysis. What ore the dain using WAGE ee constant rig of eecounting throughout the project fe span? : Considered as a ‘hurdle rate for DCF analysis. -¥} ato of discounting gonraly represent ne rate alvtich projet surplus is reimosted cain seemant may of aacouring iertore ees tat fe surplus Is rewested Using a cone ‘same ate. nave realy, opprtuies for reinvent Koop rary yoo a he ae sg noceseary eon fore ies of ocouning foraiernt yous. ‘7A, What is ‘Long Term Funds’ principle for éHeluation of project cash flows ? Why ts It necessary to exckide financing costs when the long-term funds principle is accepted ? 2 “Tho ‘Long Term Funds’ principle evaluates project ffm the point of view of providers of ‘Long Torm Funds’ to the project. The benefits aézrued to the suppliers of fong term 8. ar holders, and term fending insthutions, are compared with the sacrifices tham for the project. Long-tam fund suppliers provide for outlays in fixed assets and margin for working capital. Benefits _acorued tothe supplies of long term funds ere ‘after tax, interest paid on term, Toane, savage value of xed assats, and recovery offvorking capital margin. Interest on term loans is @ considered es an expense or cost while working out P & ‘account as per normal accounting principles. {under the long term funds principle, the tam loan intorest is considered as an benefit, hence, while working a Erving procedures, These are then compared agaist te cost of long-term funds fatnce eres ard vided payments, 15. Principle followed for working out the project cash flows. INCREMENTAL PRINCIPLE : Cash flows must be measurad in incremental terms. Le- ‘The diference betwoen cash flows wih the projec, and without the project has to be # y ‘ascertained. While estimating incremental cash flows, folowing points should be kept in rind. Consider all incidental effects : Apart from the direct cash flows, the incidental effects ‘pn the company’s other operations must be considered, Include Opportunity costs: Opportunity cost for diversion of availabe resources to the project should be nduded. Allocation of overheads : Overhead costs irrelevant to the project should not be considered ‘LONG TERM FUNDS’ PRINCIPLE : It is recommended that the project should be ‘evaluated from the long term funds point of view as the assels forthe project are created ‘ut of the funds provided by long term fund providers. Hence the principle focus of financial appraisal should be on profitably of long-term funds. EXCLUSION OF FINANCING COSTS PRINCIPLE : Financing costs of the tong term funds should be excluded from analysis. This corroborates with the long-term funds Principle mentioned above. (Interest on long term funds to be added back io profts aftr tax) POST TAX PRINCIPLE : All cash flows to be defined in post tax torms since the cost of ‘capital is considered on post tax basis. 76. Short notes = SENSITIVITY ANALYSIS ~ itis a technique that measures the change in the profitatility ‘of a project caused by changes in the factors that affect the cash in lows of a project. Ha ‘small chango in one factor leads to a major change In the profitability of the proposed Investment the projectis considered moro sensitive to that factor. T7._ Short notes ~ EARNED VALUE MANAGEMENT An activit/s valuo = its budgeted cost fora project factual is more than budgeted, it eams no value |. The project expenditure (ACWP) Actual cost of work performed til date and covers {tal cost of work done, goods received and services used, whether these have been paid for. It incudes accurate and provisions. fi, Schedule expenditure (CWS) Budgeted cost of work schedule. Budgeted cost of work to be completed ti given date f the project runs or schedules. fi, Eamed value (BCWP). Total of budgeted cost for the work perforned to date is the total ‘Eamed Value’ of the project. 78. Can the software packages for project management really ‘Manage’ Projects 7 What are the basic features of such packages and how they are useful In effective management of projects ? ‘Sofware packages cannot really manage the project but they can only ald the project ‘manager in decision-making process. Any control measure to correct the devialons from schedule, casts or expected performance has to be decided on the basis of various technical issues involved and also needs judgment and discretion on the part of decision ‘maker. A computer cannot be expected to carryout such functions. i Features of project management packages tht are useful in effective project ‘management: iL "Network Development: Package develops ‘The software package for project management shouif essentialy have folowing features: ‘Scheduling :Abilty to Cevelop schedules badd on three basic inputs; viz. Activity ‘name, estimated duration and precedence relehonship. ‘+ Monitoring : Facility to update project statf§ from time to time and workout its offects + Resource allocation: Facil to define and allocate resources and resource costs. * Calender dates : Schedules to be represented o calendar basis rather than on day numbers. ° + Costallocation : Facity o define fixed and variable costs of actives. * Reporting Abiy to prepare and pintreporgn tabu nd grap frmats (Other desirable features could be : * ‘+ Formal :proferably AON format with at least three types of relationship FS, SS, & FF. - be:caveemantemiecstinn FE ecco 1 SEES SSC 80. What are the situations in which evalusdibn of Investment alternatives is {nctated by decision tr analyse 7 Explain te basic steps involved in decision tres analysis. 4" ‘events after making the decision are analysed with Hipp of decision tree technique. Many ‘such outcomes would be beyond the control ofthe decision maker and will be a result of chance to a greater or lesser extent ‘one of two conditions. Basic steps involved inthe are: |. Identify the problem and various alternatives Decision points and alternatives for action. * Chance points when outcomes are dependant on chance ML. Spectyprobebies & monetary values for vadous out comes. 4 $ = Data for probebilties ascociated with each possible outcome st various chance nodes and, + Monetary value of each combination of decision alternatives and chanco uicomes. |v, Evaluate the alternatives. *" Evaluate monetary values of chance points & decision points in @ backward ‘manner tl reaching the orginal decision point. ePBianen natr OS See me eo

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