PES Institute of Technology – Bangalore South CampusDept. Of MBALesson Plan

Semester – IVSubject Code: 10MBAFM425 Total no of Lectures: 56 Subject Title: Project Appraisal, Planning & Control IA Marks: 50Faculty Name: Dr.Prema Chandran / Mrs.Divya Mathur Exam Hours:

03 No of Hours / Week: 04 Exam Marks: 100

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I 1 Planning & Analysis Overview: Phases of Capital Budgeting-Levels of decision making-Objective

Lecture PPT # Class Discussion

# Test I# Case

Presentation

10%

2 Resource Allocation Frame work: Key criteria for allocation of resources

Lecture PPT “

3 Elementary investment strategies, Portfolio planning tools

LectureProblem solving

PPT/Black Board

“

4 Strategic position and action evaluation, aspects relating to conglomerate diversification, interface between strategic planning and capital budgeting.

Lecture PPT “

LAB-I Understanding implementation of portfolio planning.

II 5 Generation and screening of project ideas: generation of ideas, monitoring the environment: regulatory frame work for the projects

Lecture/solving

problems related to previous

years question papers

PPT “ 28%

6 Corporate Appraisal, Preliminary screeing,project rating index

Lecture PPT “

7 Sources of positive NPV,Qualities of a successful entrepreneur

Lecture PPT “

8 The porter model for estimation of profit potential of industries

Lecture PPT “

LAB-2 Construction of project rating index

II 9 Market and demand analysis :Situational Analysis and specification of objectives

Lecture PPT Case study

“

28%

10 Collection of secondary information, conduct of market survey

Lecture PPT “

11 Characterization of the market ,demand forecasting

LectureProblem solving

PPT “

12 Demand forecasting methods LectureProblem solving

PPT Case Study

“

LAB-3 Case study on Demand forecasting

13 Market Plan Lecture PPT “

14 Technical Analysis-Study of material inputs and utilities, manufacturing process and technology

Lecture PPT “

15 Product mixes, plant capacity, location and site

Lecture PPT “

16 Machineries and equipments, structure and civil works

Lecture PPT “

LAB-4 Discussion on charts and layout drawings

17 Project charts and layouts, work schedules

Lecture PPT “

III 18 Estimation of cost of project and means of financing, estimates of sales and production

Lecture/solving

problems

PPT “ 50%

19 Cost of production, working capital requirement and its

Lecture/solving

problems

PPT “

financing20 Estimates of working results,

breakeven points, projected cash flow statement, projected balance sheet.

Lecture/solving

problems

PPT “

LAB-4 Case study on Financial estimates and Projections

21 Project cash flows: Basic principles of measurement of cash flows, components of the cash flow streams

Lecture/solving

problems

PPT Case study “

22 Viewing a project from different points of view, definition of cash flows by financial institution and planning commission, biases in cash flow estimation

Lecture PPT “

23 Appraisal Criteria:NPV,Benefit cost ratio,IRR,PBP,ARR,investment appraisal in practice

Lecture/solving

problems

PPT Case study “

IV 24 Types and measures of risk-simple estimation of risk, sensitivity analysis, scenario analysis

Lecture/solving

problems

PPT “

62%

LAB-5 Case study on Project Cash Flows

25 Monte Carlo simulation, decision tree analysis

Lecture/solving

problems

PPT Case study “

26 Selection of project, risk analysis in practice

Lecture/solving

problems

PPT “

27 Special decision situations: Choice between mutually exclusive projects of unequal life, optimal timing decision

Lecture/solving

problems

PPT Case study “

28 Determination of economic life, interrelationship between investment and financial aspects, Inflation and capital budgeting

Lecture PPT “

LAB-6 Case study on Decision Tree Analysis

V 29 Social Cost Benefit Analysis (SCBA)-Rationale for SCBA

Lecture PPT “ 78%

30 UNIDO approach to SCBA-1 Lecture PPT “

31 UNIDO approach to SCBA-2 Lecturequestion

and answer session

PPT Case study “

32 Little and Mirrlees approach to SCBA

Lecturequestion

and answer session

PPT “

LAB-7 Problems on SCBAVI 33 Multiple Projects and

Constraints-Constraints-methods of ranking-mathematical programming approach

Lecture/solving

problems

PPT “

82%34 Linear programming model Lecture/solving

problems

PPT “

35 Qualitative analysis:Qualitaive factors in capital budgeting, strategic aspects

lecture & solving problems

“

VI 36 Strategic planning and financial analysis, informational asymmetry and capital budgeting, organizational considerations

lecture & solving problems

“

82%

LAB-8 Problems on Multiple Projects and Constraints

37 Environmental appraisal of projects: types and dimensions of a project, meaning and scope of environment

Lecture PPT “

38 Environment-environment resources values, environmental impact assessment and environmental impact statement.

Lecture PPT “

VII 39 Project financing in India:-means of finance –norms and policies of financial institutions,SEBI guidelines, sample financing plans

Lecture PPT “ 90%

40 Structure of financial institutions in India, schemes of assistance, term loans procedures.

Lecturequestion

and answer session

PPT “

LAB-9 Presentations on Project Financing

41 Project appraisal by financial institutions.

Lecture PPT “

VIII 42 Project Management: Forms of project organization, project planning, project control

Lecture PPT “

100%

43 Human aspects of project management, prerequisites for successful project implementation

Lecture PPT “

44 Network techniques for project management, development of project network

Lecture/solving

problems

PPT Case study Previous

year question

paper

“

LAB-10 Case study on Network Techniques

45 Time estimation, determination of critical path

Lecture/solving

problems

PPT “

46 Scheduling when resources are limit, PERT and CPM models

Lecture/solving

problems

PPT “

47 Network Cost System Lecture/solving

problems

PPT “

VIII 48 Project review and administrative aspects: Initial review, performance evaluation,

Lecture PPT “

100%LAB-11 Problems on Project Review49 abandonment analysis,

administrative aspects of capital budgeting, evaluating the capital budgeting system of an organization

Lecture PPT “

50 REVISION51 REVISION52 REVISION

Table – 2Assignments & Additional Work

Mod No S.No. Assignment Topics

1 Questions from module 12 Questions from module 23 Questions from module 34 Questions from module 45 Questions from module 56 Questions from module 67 Questions from module 78 Questions from module 81-8 Each student have to submit three questions from question bank

1 question for 3 marks 1 question for 7 marks 1 question for 10 marks

Recommended Books1. Prasanna Chandra-Project Planning: Analysis, Selection, Implementation and Review-

TMH,5/e2. Narendra Singh-Project Management and Control-HPH,2003

References & Additional Readings

Tab le –

6IA Pattern

Test Marks Presentations

Assignments

60% 20% 20%

For Internal Evaluation T1 marks and the best out of remaining two will be considered.

1st Test is mandatory.

S.No. Mod. No. Particulars1 I – VIII

Nicholas-Project Management for Business and Technology: Principles and Practices-Pearson/PH1

2”

Gray & Larson-Project Management :The Management Process-TMH,3/e,2005

3 ” Vasant Desai-Project Management-HPH

4”

Bhavesh M Patel-Project Management-Vikas

5 ” Chitkara-Construction Project Management,Planning,Scheduling and Control-TMH,1/e

Question Bank:- 3 Marks Questions:

1. What are the usual assumptions underlying CPM analysis?

2. What is the procedure of determining critical path?

3. What are basics of network cost system?

4. What is the difference between accounting break even and financial breakeven?

5. What are the means of finance for setting up a project?

6. What is project management?

7. What is a work schedule? What purpose does it serve?

8. What are items found in the cash flow statement?

9. Discuss the contents of the balance sheet.

10. What do you understand by risk of a project?

11. Define capital project.

12. What are the levels of decision making?

13. List out the methods of demand forecasting.

14. How would you evaluate secondary information?

15. How would you characterize the market?

16. What is the rationale for NPV method?

17. State the three important steps to be taken to strengthen the links between strategy

and capital budgeting.

18. List out the pre-requisites for successful implementation of a project.

19. What do you understand by social cost benefit analysis?

20. What are the key issues that should be considered while analyzing any project?

21. State the various steps in project rating index.

22. What are the principal sources of discrepancies that need to be considered while

undertaking Social Cost Benefit Analysis?

23. Discuss the key steps in sample survey.

24. What is meant by work break down structure?

25. What aspects are considered in technical analysis?

26. What factors have bearing on the choice of technology?

27. What factors have a bearing on the plant capacity?

28. List out the techniques of risk analysis.

29. What are the various sources of finance available for the projects in India?

30. What is technical analysis in the context of project management?

31. What are the constraints in ranking multiple projects?

7 Marks Questions:

1. Define the levels of decision making. What are their key characteristics?

2. What are the pros and cons of conglomerate diversification?

3. What are a firm do to stimulate the flow of project ideas?

4. Describe the aspects covered in market planning.

5. How would you determine the kinds of machinery and equipment required for a

manufacturing industry?

6. Describe the important charts and layout drawings.

7. Discuss the importance of considering alternative ways of transforming an idea

into a concrete project?

8. Show how various financial estimates and projections are inter-related.

9. Discuss in detail the major component of cost of production.

10. Discuss the items that are considered in estimating the working results.

11. Critically evaluate payback period criterion.

12. What problem are encountered in applying portfolio theory to capital budgeting?

13. Mention the assumptions underlying the standard capital asset pricing model.

14. Describe the procedure involved in obtaining a term loans.

15. Describe and evaluate the various forms of project organization.

16. What steps are involved in PERT analysis?

17. Discuss the procedure of CPM analysis with help of simple example.

18. Discuss the basic principle of network cost system.

19. What are the advantages of conducting a performance review?

20. Explain portfolio analysis according to BCG matrix.

21. Explain how financial institutions calculate cost of capital, with an illustration.

22. Explain the difference between PERT and CPM in project management.

23. Discuss briefly the capital budgeting techniques.

24. Explain the term loan procedure as followed in financing of projects.

25. Discuss the procedure for determining whether a project should be continued,

terminated or divested.

26. Explain the steps involved in developing a project rating index.

27. What are the five stages involved in UNIDO method of project appraisal? (2)

28. Explain the steps involved in capital budgeting process.

29. Describe the important charts and layout drawings.

30. Evaluate the pay back period and accounting rate of return as investment criteria.

31. What is the procedure that is generally associated with term loan as a source of

finance from financial institution?

32. What are the pre-requisites for successful project implementation?

33. What is environmental impact statement of a project? Explain the contents of an

environmental impact statement.

10 Marks Questions :

1. Discuss the five broad phases of capital budgeting.

2. Define the link between strategic planning and capital budgeting.

3. Discuss suggestions helpful in scouting for project ideas.

4. What key issues would you examine in a preliminary screening exercise?

5. What qualities and traits are required to be a successful entrepreneur?

6. List the important general sources of secondary information available in India.

7. Discuss the uncertainties in demand forecasting. How can one cope with these

uncertainties?

8. What are the components of cost of project? Discuss them in detail.

9. Explain how you would compare mutually exclusive projects of unequal life.

10. Discuss the procedure for determining optimal timing under conditions of certainty.

11. Distinguish between the physical life and the economic life of an asset. How would you

determine the latter?

12. Define the two measures of benefit cost ratio.

13. Discuss the procedure commonly used in practice to test CAPM.

14. What are the similarities and differences between the UNIDO approach and the Little

Mirrlees approach?

15. Critically evaluate the integer linear programming model as a tool for capital budgeting.

16. Discuss the following in the context of a goal programming model; objective function

economic constraints, and goal constraints.

17. Discuss the keys issues considered by financial institutions while appraising a project for

term financing.

18. Why does the control of projects in practice tend to be ineffective?

19. Discuss the pre-requisites for successful project implementation.

20. What is basic difference between PERT and CPM?

21. Illustrate the problem of scheduling in view of resource constraints with the help of an

example.

22. What problems are encountered in performance review and how can be they overcome?

23. How would you evaluate the capital budgeting system of an organization?

24. Explain the various aspects to be considered in technical analysis of a project.

25. Explain the UNIDO method of project appraisal.

26. A project is having the following activities and their time estimates,

Activity Time in weeks

Optimistic Most likely Pessimistic

1 – 2 2 3 10

1 – 3 3 4 5

2 – 4 6 8 10

2 – 5 5 6 7

3 – 4 5 7 9

4 – 5 4 5 12

i) How the PERT network for the project.

ii) Identify the critical path and calculate the expected time (Arithmetic average

time) to complete the project.

iii) What is the probability that project will be completed by 15 weeks (for z=-1.5,

area of the normal distribution = 0.0668)

27. The Alpha Company limited is considering setting up two projects A and B. The

investment outlays and cash inflows after taxation, expected from the two projects are as

under:

Investment outlays

Cash inflows

Project A:

Rs.4,00,000

Rs.

Project B: Rs.4,50,000

Rs.

Years 1 40,000 1,20,000

2 1,20,000 1,60,000

3 1,60,000 2,00,000

4 2,40,000 1,20,000

5 1,60,000 80,000

The company has a target of return on capital of 10 percent and on this basis, you are

required to compare the profitability of the projects and state which alternative you

consider financially more profitable. (Present value of one rupee at 10 percent – 1st year

0.91; 2nd year 0.83; 3rd year 0.75; 4th year 0.68; 5th year 0.62)

28. What is abandonment analysis in project review? Describe the general procedure of the

analysis.

29. Mitsubishi Corporation has a project to be evaluated under three different scenarios. It

wants to manufacture a component used in the manufacture of machinery. In all the

scenarios, the initial investment is 80,00,000. The unit selling price is

Rs.1,500-/,1,000-/,and 3,000-/ in three scenarios. The demand is 4000 units 7,000 units

and 3,000 units and the variable costs are Rs.50, Rs.60 and Rs.70 per unit under the three

scenarios. Fixed costs are Rs.5,00,000 and Depreciation Rs.3,00,000. The tax rate is

50%. What is the NPV under the three scenarios if the life of the asset is 5 years and the

discount rate is 24%?

30. Prepare a sensitivity analysis statement from the following information pertaining to a

project:

(All figures are in Millions of rupees)

Year Rs. in million Years 1 to 10

Investment (250)

Sales 200

Variable cost (60% sales) 120

Fixed costs 20

Depreciation 25

Pre-tax profit 35

Taxes 10

Profit after taxes 25

Cash flow from operations 50

Net cash flow 50

What is the NPV of the project assuming a cost of a capital of 13%? The range of values

of the underlying variable can take is shown as under:

Underlying Variable Pessimistic Expected Optimistic

Investment 300 250 200

Variable costs as a percent of sales 65 60 56

31. Shantha Murthy enterprises is considering a capital project about which the following

information is available:

a. The investment outlay on the project will be Rs.100 million. This consists of

Rs.80 million on plant and machinery and Rs.20 million on net working capital.

The entire outlay will be incurred at the beginning of the project.

b. The project will be financed with Rs.45 million of equity capital, Rs.5 million of

preference capital and Rs.50 million of debt capital. Preference capital will carry

a dividend rate of 15% debt capital will carry an interest rate of 15%.

c. The life of project is expected to be 5 years. At the end of 5 years, fixed assets

will fetch a net salvage value of Rs.30 million where as net working capital will

be liquidated at its book value.

d. The project is expected to increase the revenues of the firm by Rs.120 million per

annum. The increase in costs on account of the project is expected to be Rs.80

million per annum. (This includes all items of cost other than depreciation,

interest and tax.) The effective tax rate will be 30%.

e. Plant and machinery will be depreciated @25% per annum as per the written

down value method. Hence the depreciation charge will be:

First year Second year Third year Fourth year Fifth year

Rs.20.00 million Rs.15.00 million Rs.11.25 million Rs.8.44 million Rs.6.33 million

Given the above details, calculate the project cash flows.

32. Explain the BCG matrix and GE stop light matrix.

33. The Scientists at Vigyanik have come up with an electric moped. The firm is ready for

pilot production and test marketing. This will cost Rs.20 million and take six months.

Management believes that there is a 70 percent chance that pilot production and test

marketing will be successful.

In case of success, Vigyanik can build a plant costing Rs.150 million. The plant will

generate an annual cash inflow of Rs.30 million for 20 years if the demand is high or an

annual cash flow of Rs.20 million if the demand is moderate. High demand has a

probability of 0.6; Moderate demand has a probability of 0.4. What is the optimal course

of action using decision tree analysis?

34. Explain the strategic position and action evaluation (SPACE) approach with suitable

diagram.

35. Hari Chandra Pvt. Limited is evaluating seven projects with the following characteristics:

Project Net present value

(NPV)

Cash outflow in

Period 1 (CFj1)

Cash outflow in

Period 2 (CFj2)

1 6 5 7

2 8 9 5

3 8 12 4

4 7 3 10

5 4 4 6

6 12 10 15

7 9 13 9

The budget available to the firm is limited to 35 in a year 1 and 30 in year 2.

There are tow additional constrains: Power constraint and managerial constraint. The

requirement and constraints applicable in this respect are as under:

Project Power

Requirement (Ej)

Managerial

Requirement

(Mj)

1 2 6

2 4 5

3 5 7

4 3 2

5 4 4

6 7 8

7 6 3

∑ XjEj ≤ 18 ∑ XjMj ≤ 20

Develop a Linear programming formulation of capital budgeting under various

constraints mentioned above.