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Project Planning & Evaluation

BBA (B&I) 304

CAPITAL INVESTMENT / EXPENDITURE
Commitment of Current Resources for Future Benefits

What is capital investment?

Any investment which typically
involves a current outlay of
funds in the expectation of a
stream of benefits extending far
in the future.
 Capital Investment
Importance – Involve High Stakes
• Long-Term Effects
• Irreversibility
• Substantial Outlays
Difficulties
• Uncertainty
• Risk Element
 Types of Investment
Different Companies in Different Ways for Planning & Control

• Physical, Monetary & Intangible Assets

• Strategic Investments
• Tactical Investments
• Mandatory Investments
• Replacement Investments
• Expansion Investments
• Diversification Investments
• Research & development Investments
 Phases of Capital Budgeting

• Planning
• Analysis
• Selection
• Financing
• Implementation
• Review
 Phases of capital budgeting
• Planning
It involves the following steps:
 Analysis
• The focus of this phase is to gather,
prepare and summarize relevant
information about various project
proposals.
• Detailed analysis to be undertaken, if
the project is prima-facie acceptable :
» Marketing
» Technical
» Financial
» Economic
» Ecological
 Selection
⦿ There are two main techniques of
selecting a project:
1. Discounting techniques : NPV, IRR,
Benefit-Cost ratio, etc.
2. Non discounting techniques : Pay-back
period, Accounting rate of return, etc.
 Financing
• Once a project is selected, suitable
financing arrangements have to be
made.
• Flexibility, risk, income, control, and
taxes(FRICT) are the key
considerations

• Two broad source of finance are –

•Equity
•Debt
 Implementation
⦿ Setting up of manufacturing facilities
involving some of the following stages:
1. Design & Engineering – Site probing,
Acquisition of Technology, Plant
design & engineering, Selection of
machines & equipment, etc.
2. Purchasing & Contracting—Selection
of Vendors, Issue of enquiries,
Evaluation, Placement of orders, etc.
 Implementation (Continued)

3. Civil work & Erection of plant

4. Plant commissioning – Start
up & stabilize operation.
5. Training of personnel – for
taking up assigned task.
 Review
6. Review needs to be done
periodically to compare the
actual performance with
planned one.
In case of deviation or
shortfall corrective actions are
required to be taken.
 Levels of decision making
Operating Administrative Strategic
decisions decisions decisions

Where is the Lower level Middle level Top level mgmt

decision taken mgmt mgmt

How structured Routine Semi structured unstructured

is the decision

What is the level Minor Moderate Major

of resource
commitment

What is the time Short term Medium term Long term

horizon
 Facets of Project Analysis
• Market Analysis – (1) Potential Market (2) Market Share

• Technical Analysis – (1) Viability (2) Choice

• Financial Analysis – (1) Risk (2) Return

• Economic Analysis – (1) Benefits & Costs in Shadow

Prices (2) Other Impacts

• Ecological Analysis – (1) Environmental Damage

(2) Restoration Measures
 Facets of Project Analysis

Market analysis
Consumption trends in the past
Consumption trends in the present
Supply
Production possibilities
Imports and exports
Structure of competition
Elasticity of demand
Consumer behavior, attitude etc.
Distribution channel
Administration and legal constraints
 Technical analysis
• Preliminary studies have been done
• Availability of raw material, power,
infrastructure, etc.
• Selected scale of operation is
optimal
• Production process chosen is
suitable
• Equipment and machines chosen are
suitable
• Provision for treatment of effluents
• Work schedule to be realistic
 Financial analysis
• Investment outlay and cost of project
• Means of financing
• Cost of capital
• Projected profitability
• Break even point
• Projected financial position
• Level of risk
 Economic analysis

❖ Direct economic benefits

❖ Impact on distribution of
income in the society
❖ Impact of the project on the
level of savings and
investment
❖ Contribution of the project
towards employment, self
sufficiency, etc.
 Ecological analysis
Likely damage caused by the
project to the environment

Cost of restoration measures

so that the damage is within
the acceptable limits
 Feasibility study
Concerned with the first four
phases of capital budgeting viz.
planning , analysis , selection
and financing and involves
market, technical, financial,
economic and ecological
analysis.
 CAPITAL BUDGETING
• Objectives –
Shareholders Wealth Maximization
• Common Weaknesses –
❖ Poor integration with Strategy
❖ Deficiencies in Analytical Techniques
❖ No linkage between Compensation & Financial
measures
❖ Reverse Financial Engineering
❖ Weak Integration between Capital & Expense
Budgeting Inadequate Post Audits.
 Capital Allocation Framework

• Key Criteria – Two Stage Process

• Investment Options –
• Portfolio Planning Models – BCG / Spotlight /
McKinsey Matrix
• Strategic Position & Action Evaluation (SPACE)
• Diversification Debate
• Strategic Planning & Capital Budgeting
 Financing of Projects
• Capital Structure
• Means of Financing
• Equity Capital
• Preference Capitals
• Internal Accruals
• Term Loans
• Debentures
• Working Capital Advance
• Miscellaneous Sources
• Raising Venture Capital
• Raising Capital in International Markets
 Capital Structure
It represents the mix of
different sources of long term
funds (such as equity shares,
preference shares, long term
loans, retained earnings, etc.)
in the total capitalization of
the company.
 Means of Financing
▪ Equity capital
▪ Preference capital
▪ Internal accruals
▪ Term loans
▪ Debentures
▪ Working capital advances
▪ Miscellaneous sources
▪ Raising venture capital
▪ Raising capital in International markets
 Equity Capital
❑ They represent the ownership position
in a company.

❑ The holders of the ordinary shares,

called shareholders, are the legal
owners of the company.

❑ Ordinary shares are also called

permanent capital since they don’t have
a maturity period.

❑ An ordinary share is also known as

variable income security.
 Features of Ordinary Shares

▪ Claim on income(last)

▪ Claim on assets(last)

▪ Right to control(voting rights)

▪ Pre-emptive rights(right issues)

▪ Limited liability
 Advantages

✔ Permanent capital (no maturity

date)

✔ Borrowing base (because of own

capital)

✔ Dividend payment discretion (not

compulsory)
 Disadvantages
o Higher cost (no tax deductible &
floating cost)

o Risk (investors view company is

not liable for anything )

o Earning dilution (with increase in

shareholders)

o Ownership dilution (with increase in

shareholders)
 Debentures
❑ A debenture is a long term
promissory note for raising loan
capital.

❑ The firm promises to pay

interest and principal.

❑ The purchasers of debentures

are called debenture holders.
 Features of Debentures
❖ Interest rates (fixed, tax deductible, legal binding)

❖ Maturity(fixed)

❖ Sinking fund

❖ In debenture (debenture trust deed between

company and the trustee)

❖ Security (mostly secured by company’s assets)

❖ Claims on income (first position)

❖ Claims on assets (first position)

 Advantages
❖ Less risky (investors view)

❖ Less costly (less risky so debenture

holders expect less returns and tax
deductible)

❖ No ownership dilution (because there is no

ownership)

❖ No dilution of control

❖ Fixed payment of interest

 Disadvantages
❖ Risky for company (financial risk to
pay the principal)

❖ Obligatory payments (interests)

❖ Cash outflows (on maturity)

❖ Restrictive covenants (interference

by the debenture holders)
 Preference shares
▪ Preference shares are those shares
which carry preferential rights over
other shares.

▪ It is called a hybrid security.

▪ It is similar to ordinary share

▪ No legal obligation to pay dividend

▪ Not tax deductible.

▪ In some cases, it has no fixed
maturity date.

▪ Dividend rate is fixed.

▪ Do not share in the residual

earnings.

▪ Claims on income and assets prior

to ordinary shareholders.
 Features of Preference Share
Claim on income and assets (middle
position)
Fixed dividend
Cumulative dividend (pay all dividends)
Redemption
Sinking fund
Call feature (buy back of shares at call
price)
Participation feature (in extraordinary
profits)
Voting rights (may or may not)
Convertibility
 Advantages
Fixed obligation (no extra dividend)

No charge on assets of the company

Add to equity base

Dividend can be postponed

Limited voting rights

 Disadvantages

Not tax deductible

Commitment to pay dividend

Dilute the claim of equity

shareholders.
 Internal Accruals

❑ A new company has only external

sources of finance. However, an
existing company can also
generate finance through its internal
sources.

❑ The two most important sources of

internal financing are depreciation
and retained earnings.
 Depreciation
❑ Depreciation means decrease in the value of the
asset due to wear and tear, lapse of time,
obsolescence, accident and exhaustion.

❑ Argument of treating depreciation as the source of

finance.
--- People opposing it say that it’s a provision
(expense) and cannot be treated as funds.

--- People favoring it say that being a non cash

item can be considered as fund as charging
depreciation does not represent any cash
outflow.
 Retained Earnings
o It refers to accumulation of profits by a
company to finance its developmental
activities or repay loans.

o According to the latest provisions of

companies act, a certain %, as prescribed
by the central government (not exceeding
10%), of the net profits after tax of a
financial year have to be compulsorily
transferred to reserve by a company before
declaring dividends for the year.
 Retained Earnings (Continued)

o It’s very useful to the company as on one

hand it does not cost anything to the
company and on the other hand it
enhances the reputation of the company.

o It is not wholly correct to say that retained

earning has no cost. As a matter of fact
the cost of retained earning is the
returned which the shareholders could
have earned on the amount of retained
earnings if it had been distributed.
 Examples of Venture Capital Funds
in India

1. Promoted by Central Govt. Viz. Industrial

Finance Corporation of India (IFCI), Small
Industry Development Bank of India (SVCL).
2. Promoted by State Govt. Viz. Gujarat Venture
Finance Ltd.
3. Promoted by Public Sector Banks
Viz. SBI Capital Market Ltd., Canbank VCF.
 Raising Venture Capital
o A new company unable to tap public financial
market may seek venture capital.

oVenture capital means funds made available

for start-up firms and small businesses with
exceptional growth potential.

o Venture capital is money provided by

professionals who alongside management invest
in young, rapidly growing companies that have
the potential to develop into significant economic
contributors.
 Venture Capitalists generally:
▪ Finance new and rapidly growing
companies
▪ Purchase equity securities
▪ Assist in the development of new
products or services
▪ Add value to the company through
active participation.
 Venture Capital Features

▪ Long time horizon

▪ Lack of liquidity

▪ High risk

▪ Equity participation

▪ Participation in management
 Advantages of Venture Capital

▪ It injects long term equity finance which provides

a solid capital base for future growth.

▪ The venture capitalist is a business partner,

sharing both the risks and rewards. Venture
capitalists are rewarded by business success and
the capital gain.

▪ The venture capitalist is able to provide practical

advice and assistance to the company based on
past experience with other companies which were
in similar situations.
Advantages of Venture Capital (Continued)

▪The venture capitalist also has

a network of contacts in many
areas that can add value to the
company.

▪The venture capitalist may be

capable of providing additional
rounds of funding should it be
required to finance growth.
 Raising Capital in International Market
✔ Due to globalization, Indian firms can raise capital
from international markets.

✔ Many good companies get listed on stock

exchanges indirectly – using American Depository
Receipts or Global Depository Receipts.

✔ These receipts, which are traded like ordinary

stocks, are called Depository Receipts. Each
receipt amounts to a claim on the predefined
number of shares of that company.
 Financial Estimates & Projections
• Cost of Project
• Means of Finance
• Estimates of Sales & Production
• Cost of Production
• Working Capital Requirement & its
Financing
• Profitability Projections
• Projected Cash Flow Statement
• Projected Balance Sheets
 Cost of the project
It represents the total of all items of outlay
associated with the project which are
supported by long term funds.

It is the sum of the outlay on the following:

Land & site development
Basic cost of land
Cost of leveling & development
Cost of laying approach roads, gates, etc.
 Continued
Building & civil work
Building of the main plant and
equipment
Building of auxiliary services like water
supply, labs, godowns, warehouses,
Tanks, wells, bins, etc
Sewers , drainage etc

Plant & machinery

Cost of imported machinery
Cost of indigenous machinery
Cost of stores and spares
 Continued

Technical know how & engineering

fees-royalty paid
Expenses on foreign technicians
Expenses in training Indian technicians
abroad
Miscellaneous fixed assets
Furniture
Office machinery
Generator for office use
Vehicles etc
 Continued

Preliminary & capital issue expenses

Expenses on identifying the project
Expenses on conducting the market survey
Expenses on making the feasibility report
Expenses on drafting the memorandum &
article of association
Expenses on incorporating the company

Pre-operative expenses
Expenses till the commencement of
commercial production starts
Rent, rates and taxes
Travelling expenses
Interest charges on borrowings
Start up expenses
 Continued

Provision for contingencies

Unforeseen expenses
Sudden price increase

Margin money for working capital

The principal support of working capital is
provide by banks
A certain margin part of working capital has to
come form the company
It comes from the long term sources of finance

Initial cash losses

Usually the project makes initial cash losses
Proper provisions to be kept for such losses
 Means of finance
Share capital
Term loans
Debenture capital
Internal sources
Deferred credit from suppliers of plant
& machine
Incentive sources like seed capital
money from govt.
Miscellaneous sources like unsecured
loans, leasing etc
 Planning the means of finance
The key consideration while deciding the source of Funds:
1.Cost
2.Risk
3.Control
4.Flexibility

Estimates of sales & production

It is advisable to assume a low capacity utilization
level in the first year of operation.
A reasonable assumption with respect to capacity
utilization is as follows:
40 -50% of the capacity in the 1st year
50 -80% of the capacity in the 2nd year
80 -90% of the capacity from the 3rd year onwards
 Cost of Production
The major components of cost of production are:
1. Material cost
The requirement of various material input per unit
of output is ascertained.
The prices of material inputs are defined in
CIF(cost, insurance & freight) terms
2. Utilities cost
The requirement of utilities like power, water & fuel
may be determined on the basis of norms
3. Labor cost
It is a function of the number of employees and the
rate of remuneration.
 Continued

4. Factory overhead cost

The expenses on repairs and
maintenance, rent, taxes, insurance on
factory assets etc are factory
overheads
Repair and maintenance tends to be low in
the initial years and higher in the later
years.
Rent, taxes, insurance etc may be
calculated at the existing rates.
Provision should be made for meeting
miscellaneous factory expenses.
Working capital requirement & its financing
The WC requirement consist of the following:
Raw material and components
Stocks of goods in process
Stock of finished goods
Debtors
Operating expenses
Consumable stores
The principal source of WC finance are:
WC advances provided by commercial banks
Trade credit
Accruals and provisions
Long tern sources of finance
MARKET & DEMAND ANALYSIS : This should
be carried out in a systematic & orderly
manner.

PROJECT ANALYSIS
❖ Estimate the Potential size of the Market or Services
❖ Supply Demand Gap
❖ Patterns of Consumption Growth
❖ Income & Price Elasticity of Demand
❖ Composition of Market
❖ Nature of Competition
❖ Availability of Substitutes
❖ Reach of Distribution Channels
Broad Steps of Market & Demand
Analysis:

Situational Analysis & Specification

of Objectives
Collection of Secondary Information
Conduct of Market Survey
Characterization of the Market
Demand Forecasting
Uncertainties in Demand Forecasting
Market Planning
Situational Analysis & Specification of Objectives

• The project analyst may informally talk

to customers, competitors, middlemen,
and others in the industry.
• Specification of objectives can be in the
form of questions like:
Who is the buyer of the product?
What is the total current demand of it?
How is the demand distributed over the
year and geographically?
Continued

What price will be the customers

will be willing to pay for the
product?

How can potential customers be

convinced about the product?

What channels of distribution are

most suited for the product?
 Collection of Secondary Information

In order to answer the questions listed in the

previous slide, information may be obtained
from secondary data and/or primary data.

The important sources of secondary data in

India are as follows:
Census of India
National sample survey reports
Plan reports
Statistical year book
Guidelines to industries
Continued

Annual survey of industries

Stock exchange directory

Monthly bulletin of RBI

Other publication

Various association bodies

Conduct of Market Survey
Define the target population
Select the sampling technique and
sample size
Develop a questionnaire
Recruit and train the field investigators
Get the questionnaire filled
Scrutinize the information gathered
Analyze and interpret the information
Characterization of the Market
Based on the information gathered form
secondary and primary data, market for
the product/service may be described in
terms of the following:

Effective demand in the past and the present

Production + imports-exports - changes in

stock level
Breakdown of Demand
To get a deeper insight into the nature of demand, the
aggregate demand may be broken down into demand
for different segments of the market. Market segments
may be defined by
Consumer groups
Consumers of a product may be divided into
industrial consumers and domestic consumers.
Industrial consumers may be sub-divided industry
wise.
Domestic consumers may be divided into different
income groups.
Nature of product
One product may be used for production of different
products. Ex: Steel
Price

Price statistics must be gathered along with

statistics pertaining to quantities. It distinguish
prices like wholesale price, retail price, CIF price
etc
Methods of Distribution & Sales Promotion
The method of distribution and sales promotion
may vary with the nature of the product.

Such method and sales promotion employed

presently and their rationale must be specified
Supply and competition
It is necessary to know the existing
sources of supply and whether they are
foreign and domestic.

Competition from substitutes should be

specified because almost any product
may be replaced by some other product.
Government Policy
Govt. plans and policies, which have a
bearing on the market and demand of the
product should be spelt out.

These are reflected in:

Production targets in national plans
Import and export trade controls
Industrial licensing
Credit controls
Financial regulations
Subsidies
Demand forecasting

The future demand may be estimated after collecting

information about various aspects of the market.
A wide range of forecasting methods are available :
Qualitative methods – based on views of experts
who translate qualitative information to quantitative
estimates e.g. Delphi method, etc.
Time series projection method - generate forecasts
on the basis of an analysis of the historical time
series. The important methods are:
Trend projection method
Exponential smoothing method
Moving average method
Exponential smoothing method
In this methods, forecasts are modified in the light of
observed errors. If the forecast value for a particular
year is less than the actual value for that year than an
observed error is entered for the future years.
Moving average method
As per this method, the forecast for the next period is
equal to the average of the sales for several preceding
periods.
Trend projection method
It involves determining the trend of consumption by
analyzing the past and than project the future
consumption.
Causal Method
This method seeks to develop forecasts on the basis of
cause and effect relationship. The methods are:
Chain ratio method
Consumption level method
Leading indicator method
Econometric method

Uncertainties in Demand Forecasting

Demand forecasting are subject to error & uncertainty
arising broadly for following sources –
Uncertainties in Demand Forecasting (continued)
Methods of forecasting
Inability to handle unquantifiable factors
Unrealistic assumptions
Data about past an present market
Few observations
Lack of standardization of product, price, quantity,
etc.
Influence of abnormal factors like natural calamity,
war etc.
Environmental changes
Technological changes
Change in govt. policy
Discovery of new sources of raw material
Monsoon
Developments on the international scene
Market planning
A marketing plan usually has the following components:
Current market situations
Market situations:
Size, Growth, Consumer aspiration & Buying
behavior.
Competitive situations:
Major competitors - objectives, strategies &
strength
Distribution situations:
Distribution Capabilities of the competitors
Macro environment:
Effect of Social, Political, Economic &
Technological impact on the market
Opportunity and issue analysis
A SWOT analysis is conducted and the core issues
before the product are identified.
Objectives
Objectives have to be clear cut, specific and
achievable
Marketing strategies
Target segment
Positioning: How a product is placed in the mind of customers
Product line: One variant or more than one
Price
Distribution
Sales force
Sales promotion
Advertising
Action plan is implementation of the strategy
 Why Technical Analysis?

To ensure that the project is technically

feasible in the sense that all the inputs required
to set up the projects are available
To facilitate the most optimal formulation of the
project in terms of technology, size, location
and other technicalities
Appropriate technology has to be selected and
it refers to those methods of production which
are suitable to local, economic, social, and
cultural conditions
TECHNICAL ANALYSIS:

• Manufacturing Process / Technology

• Technical Arrangements
• Materials & Inputs
• Product Mix
• Plant Capacity
• Location & Site
• Machineries & Equipments
• Structure & Civil Works
• Environmental Aspects
• Project Charts & Layouts
• Project Implementation Schedule
• Need for Considering Alternatives
1. Manufacturing process/technology

A choice of technology for the project is to be

made out of different alternatives available.

The choice of technology is influenced by a

variety of considerations like:
Plant capacity
Principal inputs
Investment outlay
Use by other units
Product mix
Latest developments
Ease of absorption
2. Technical arrangements
▪ The nature of support to be provided by the
collaborator through the phases of capital budgeting
▪ The price of the technology in terms of licensing fee
and royalty fee.
▪ Process and performance guarantees in terms of
plant capacity, product quality, and consumption of
raw material and utilities.
▪ The continuing benefits of research and development
work being done by the collaborator.
▪ The period of the collaboration agreement.
▪ The assistance to b provided and the restrictions to
be imposed by the collaborator with respect to
exports.
▪ The level of equity participation by collaborator.
 3. Material Inputs & Utilities
Technical analysis also involves defining the
material and utilities required specifying their
properties & setting-up their supply program.

Material inputs and utilities may be classified

into four broad categories:
o Raw materials
o Processed industrial materials
o Auxiliary materials
o Utilities
 Raw material may be classified into four types :
▪ Agriculture product
The quality of agricultural RM must first be examined.
The assessment of quantities of agricultural RM
available currently and potentially is required.
▪ Mineral product
A study on the location, size and depth of the deposits
of mineral RM.
▪ Forest product
A survey on the quantum of live stock produce and
forest products.
▪ Marine product
A study on availability of marine products and the cost
of collection has to be done.
Processed Industrial Materials
What is the total requirement of the
project?
What quantity would be available from
domestic sources?
What quantity can be produced from
foreign sources?
How dependable are the supplies?
What has been the past trend in
prices?
What is the likely future behavior of
prices?
 Auxiliary Materials

The requirement of auxiliary material like chemicals,

packaging materials, paint, oils, grease, cleaning
material etc should be take into account in the
technical study.

Utilities
A broad assessment of utilities like power, water,
steam, fuel may be made at the time of technical
analysis.
✔ What quantities are required?
✔ What are the sources of supply?
✔ What would be the potential availability?
✔ What are the likely shortages?
✔ What measures may be taken to augment supplies?
 4. Product mix
❖ The choice of product mix is guided by
market requirements.
❖ In the production of most of the items,
variations of size and quality are
aimed at satisfying a broad range of
customers.
❖ During technical analysis some
flexibility with respect to product mix
must be sought.
5. Plant capacity
It refers to the volume or number of units that
can be manufactured during a given period.
It depends on various factors that need to be
studied during technical analysis:
•Technological requirement – minimum
economic size
•Input constraints – raw materials, utilities like
power, water, etc.
•Investment cost
•Market conditions (demand)
•Resources of the firm– managerial & financial
•Government policy
6. Location and site
The choice of location is influenced by a variety of
considerations:
Proximity to raw material and markets
A perfect location model is the one where the total
cost i.e. raw material transportation cost, production
cost and distribution cost for the final product is
minimized.
Availability of infrastructure
Availability of power, transportation, water and
communications should be carefully assessed.
Labor situation
Availability of labor
Prevailing labor rates
Labor productivity
Degree of unionization
Government policies
In case of public sector projects, location is
directly decided by the govt..
In case of private sector, location is
influenced by certain govt. restrictions and
inducements.

Other factors
Climate conditions
General living conditions
Ease in coping with pollution
7. Machinery & Equipments
The requirements of Machinery & Equipments
are influenced by the production technology and
plant capacity. It is also influenced by the type of
project.

Constraints in selecting Machinery & Equipments

• There may be limited availability of power
• There may be difficulty in transporting heavy
equipments to a remote location
• Workers may not be able to operate
• The import policy of the govt. may stop the
import of certain machineries
8. Structures and Civil Work
It is divided into three categories:

❑ Site preparation & development

Grading & leveling of the site
Demolition & removal of existing
structures
Relocation of roads, power lines etc
Connections of utilities like electric
power, drinking water, communication
through telephone, internet
Other site preparation and development
Building & structure
Factory or process buildings
Ancillary buildings required for stores,
warehouses, lob.,
Administrative buildings
Staff welfare buildings
Residential buildings
Outdoor works
Supply and distribution of utilities
Handling and treatment of emission
Transportation
Outdoor lightings
Boundary wall, fencing, gates ,doors
security posts
9. Environmental Aspects
A project may cause environmental pollution like
▪ It may throw gaseous emissions
▪ It may produce liquid and solid discharge
▪ It may cause noise, heat, etc

The key issues are

▪ What are the types of effluents and emission
generated?
▪ What needs to be done for proper disposal?
▪ Will the project be able to secure all
environmental clearance ?
▪ Will the project be able to secure all
environmental clearances and comply with the
statutory requirements?
 10. Project Charts and Layouts

Charts and layouts provide the basis for detailed

project engineering and estimation of the investment
and production costs.
Some of the charts and layouts are:
1.General functional layout:
This shows the general relationship between
equipment, buildings, and civil works.
2. Material flow diagram:
This shows the flow of materials, utilities,
intermediate products, final products and emission.
3. Production line diagrams:
This shows how the production would progress in the
main equipment.
4. Utility consumption X
This shows the principle consumption points of utilities
and their required quantities and qualities.
5. Communication utility
This shows how the various part of the project will be
connected with telephone, internet, intercom etc
6. Organizational layout
This shows the organizational set up of the project
along with the information on personnel required for
various departments.
7. Plant layout
It is considered with the physical layout of the factory.

8. Transport layout
This shows the distances and means of transport
outside the production line.
 11. Schedule of project implementation
Project implementation schedule is made and it
requires the following information:
1.List of all possible activities from project
planning to commencement of production.
2.The sequence in which various activities have
to be performed
3.The time required for performing various
activities
4.The resources normally required for performing
the various activities
5.The implications of putting more resources or
less resources than are normally required.
 UNIT – III
Basic Characteristic of a Project
A Start & a Finish
A Time Frame of Completion
Continuity – Sequencing of Activities
Involvement of Several People
A Limited Source of Resources
A Limited Source of Resources
Non-repetitive & Non-routine Undertaking
often Associated with Many Uncertainties
Relationships are Dynamic, Temporary &
Flexible
 Project Management:

• Traditional form of organization is appropriate for handling established

operations with relatively stable activities. However, traditional form is
not suitable for project management due to the reasons –
1) A project is a non-routine, non-repetitive undertaking often plagued
with many uncertainties.
2) The relationships in a project setting are dynamic, temporary &
flexible.
3) A project requires a coordination of the efforts of persons drawn from
different functional areas & contributions of external agencies.

Issues relating to Project Management –

-- Forms of Project Organization
-- Project Planning
-- Project Control
-- Human Aspects
-- Pre-requisites of successful Project implementation
 Form of Project Organization

❖Line & Staff Organization

❖Divisional Organization
❖Matrix Organization
 Project Planning
• Detail with Breakdown of Activities properly
Scheduled & Sequenced
• Manpower Financial
• Communication, Reporting & Information
Project Control
▪ Variance Analysis
▪ Performance Analysis
Human Aspects of Project Management
❑ Authority
❑ Orientation
❑ Motivation
❑ Group Functioning
Network Techniques
Once the project is selected, the focus shifts on Implementation. This involves
completion of numerous activities by employing various resources – men,
machines, materials, money & time.

Network – A Network is constructed to represent a Project

graphically. It shows various activities from start to finish.
Broadly there are 2 basic types of network techniques PERT &
CPM.
• Development of Project Network
• Time Estimation
• Determination of Critical Path
• Scheduling when resources are limited
• PERT Model
• CPM Model
• Network Cost System
 Project Review & Administrative Aspects

A project is monitored during implementation

stage to avoid time & cost over-runs. After
completion performance reviewed to match
expectation

• Control of in-progress Projects

• Post completion Audits
 Generation & Screening 0f Project Ideas

• Generation of Ideas
• Monitoring the Environment
• Corporate Appraisal
• Profit Potential of Industries
• Scouting for project Ideas
• Preliminary Screening
• Project Rating Index
• Sources of positive Net Present Value
• On being an Entrepreneur
 UNIT – IV
Risk Analysis: Sources

✔ Stand-alone Risk
✔ Corporate Risk
✔ Project Specific
✔ Competitive Risk
✔ Industry Specific Risk
✔ Market Risk
✔ International Risk
 Managing Risk
o Sensitivity Analysis
o Simulation
o Decision Tree
o Portfolio Related Risk Measure
o Capital Asset Pricing Model
 RISK ANALYSIS X
• Portfolio related Risk Measures
• Mean-variance Portfolio Construction
• Portfolio Theory & Capital Budgeting
• Capital Asset Pricing Model (CAPM)
• Developing Inputs required for applying
CAPM
• Capital Asset Pricing Model & Capital
Budgeting