2010_&_2008
TRANSCRIPT
,mj'_E_lsIHI.41<1 66-9049Con. 2483-10,
(4 Hours)[ Total Marks: 100
Demand (Units) Probabilities
10,000 0.12
12,000 0.17
15,000 0,41
17,000 0,24._
19,000 0.06
N,B. (1) Attempt any five questions. All questions carry equal marks,
(2) Use of calculator is allowed. . .(3) Necessary Statistical Table Values, Present Values, Annuities Values etc. are
provided in the question paper.
(a) What is 'Sensitivity Analysis'? Discuss the relevance of Risk Analysis for a 10
Comprehensive Project Evaluation, .'(b) X Ltd, has to decide between rentals of two types of machine manufnctunng 10
the same product. Machine A, an economy model, rents for Rs. 1,000 per month,'-'ut variable production cost is Rs. 0,25 per unit. Machine 8 rents for Rs, 3,000per month, but the variable production cost is only Rs, 0.10 per unit. Monthlydemand varies between 10,000 and 19,000 units to the follOWing probabilities:
1,
~,•
Make a comparison of two machines to help X Ltd. make a decision on whichmachine to rent? If the demand is definitely v.nown to be 10,000 units, would
the decision vary?
No. of Years of Machine life No. of Machines
3 . 204 , 505 1006 707 10
250
2. (a) How do the parameters and characteristics of Project Investment Decisions differ 10from that of routine manufacturing decisions .. U"t the main difficulties in preparingProject Investment Decisions,
(b) A company is considering the purchase of a new machine for Rs. 3,50,000. It 10feels quite confident that it can sell the goods produced by the machine so asto yiel.d an annual cash surpfus of Rs. 1,60,000, There is, however,. someuncertainty as to the machine's life. A recently published Trade Association Survey'shows that members of the Association owned 250 of these machines and havefound the lives of the machine vary as under '-
Assuming a discount rate of 10%, Net Present Value for each different machineIS as follows :-
Machine life (Years) NPV (Rs.)3 ..,.1,01,0004 -33,0005 29,0006 86,0007 1,37,000
You~re required to advise whether the Comp~~y ~hould p'urchase'machine or not. '. . the New
[TURN OVER
CII
\
e activities of a
Activity Estimated Activity DurationTo Tm Tp
1 2 1 4 71 3 5 10 172 4 3 3 32 6 1 4 73 4 8 15 263 5 2 4 84 5 5 5 55 6 2 5 8
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3. (a) What do you understand by 'Three Time Esti'" . . ",and under ,'vha, circumstance, i's LI' ._ ~lates. rn:thod for network schedulinco 10the' . t . '-' I -.-eo I III/nails one p' ' ",' <::l
proJee Within the total scheduled tim _' '.; .' ,oOJaollliYof completingt;stlmate Method? e calculated on the basis of Three Time
(b) The following table gives the data for th "small project ;-
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,---~8. I
10
- Normallime Manpower requiredActivity (days) per day
1 2 10 2 .
1 3 11 32-4 13 4
2-6 14 3
3-4 10 1
4-5 7 3
4-6 17 5
5-7 13 3
6-7 9 8
7-8 1 11
Draw the network ~nd find the expected project completion time.What IS the probability that it would take 5 days more than ex ec .Find the project completion time which wili have 95% confid~lc~~d duration?
(a) How do the resource constraints affect the project schedules? Discuss various 10problems encountered .rn resource al.location to activities under a situation ofmuitlple. resource requirement With limited availability and what the differentalternatives to allocate resources without affecting the final completion date?
(b) FolloWing are the manpower requirements for each activity in a project;- .
4.
Draw the network and find out the Total Float and Free Float for each activity.The contractor stipulates that during the first 26 days only 4.5 men ahd duringremaining days 8-11 men can be made available. Rearrange the activities suitablytor leveling the manpower resource satisfying the above conditions.
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5. (a) Explain how'S' curves and concept ot 'Earned Value' are useful to the top 10management in assessment, monitoring and control of project schedules andcosts.
(b) A project with a total budgeted cost of Rs. 350 crores is scheduled to be completed 10in 80 weeks. A periodic review taken at tbe end of 50 weeks after cornmencementindicate the following ;- .
Earned Value BCWP = Rs. 270 CroresActual Expenditure ACWP = Rs. 280 CroresScheduled r::arned Value BCWS' ~. Rs. 287 Crores
What do you interpret' about the project progress till dale .with regard to limeand cost on the basis of following calculations?
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Investment Net Cash Inflows (Rs.)Proposal
(Rs.) 1 2 3 4
A 20,000 8,000 8,000 8,000 8,000
B 20,000 6,000 8,000 10,000 10,000
C 20,000 4,000 8,000 10,000 10,000
D 20,000 10,000 10,000 10,000 5,000
(a) What are the main differences between Net Present Value (NPV) and Internal 10Rate of Return (IRR)? Discuss the; limitations of NPV and IRR. .
(b) Calculate the Net Present Value orthe following Investment Proposals and decide 10on the acceptance / rejection of these proposals Discount rate is 10%.
6.
Con. 2483-B6.G049-1 O.
(i) Cost Performance Index (CPI)(~;\ SehedulG Perform8nCp. Index (SPI)\"1
(iii). Estimated Cost to complete(iv) Estimated tim", to complete .•
10
}.-\101
Also calculate the Internal Rate of Return for these proposals.
? 7.
3 10ft,
10
A company is considering a capital project about which the following information is 20
available :-(a) The investment outlay in the project will be Rs. 600 lacs. This consists of
Rs. 400 lacs on the plant and machinery and Rs. 200 lacs on net workingcapital. The entire outlay will be incurred at the beginning of the project.
(b) The life of the project is to be expected to be 5 years. Fixed assets willfetch a net salvage of Rs. 196 lacs, whereas the net working capital will beliquidated at its book value.
(c) The projected is expected to increase the revenue of the firm by.Rs. 540 lacsper year. The increase in cost on account of the. project is expected to beRs. 350 lacs per year. This includes all items 'of cost other than depreciation,interest and tax. The tax rate is 25%. . . . . .
(d) Plant and machinery would be depreciated at the rate of 20% per year asper the written down value method.
(e) Cost of capital - 10%.Using the net present value method determine, whether the company should undertakethe above proposal or not.
Year 1 2 3 4 5 6 7Present Value at 10% 0.909 0.826 0.751 0.683 0.6i1 0.564 0.513
8. (a) What are the various ways of financing a project along with relative merits and 10demerits of the same.
(b) Following data is available about actual sales quantity for the past 10 years. 10Find the forecast for year 11 using 2 years as well as 3 years moving averages.Which of the two forecast is more reliable on the basis of MSE criteria '-
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Year. 1 2 3 4 5 6 7 8 9 10Sales 330 320 300 340 330 360 400 340 380 420
9. Write short notes on any four of the following :-(a) Project Management and its scope .(b) Success of project and entrepreneurship(c) Matrix organization structure of projects(d) Detailed Project report (DPR)(e) Work breakdown structure(I) Earned vaiue management.
20
Ir[TURN OVER
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5.(b) Total Project BudgetScheduled CompletionDate of ReportingBCWPACWPSCWS
RS.350.00 Crores80 weeksEnd of 50 weeksRS.270.00 CroresRS.280.00 CroresRs. 287.00 Crares
Cost VarianceCPISPICost of CompletionTime of Completion
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= BCWP-ACWP= 270 - 280 = - 10 Crores= 8CWP/ACWP = 270/280 = .0.9'1 {), ~ l= BCWP/BCWS= 270/287 = 0.91 C. ,j'r= Budgeted Cost/ CPI = 350/0.9(= Rs.mCrores= Sch. Duration/SPI =.80/9.!H. =.s]-;91 i.e. 88 weeks.
~9it ",s 'G-.. Till the date of reporting the actual cost of work performed has' exceeded the Budgeted by-RS.10 Crores.' The cost of completion would exceed the budgeted cost of completion byRS.15.96 crores and the time of completion would exceed the scheduled completion periodof 80 weeks by 8 weeks..
c!»...
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IIrYear CFAT(Rs.) PV Factor Total PV (Rs)1 '8000 0.909 72722 8000 0.826 66083 8000 0.751 6008'4 8000 0.683 5464 ,Total PV 25352
less: Initial outlav 20000NPV ' .. 5352
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6386NPVProposal C
Year CFAT(Rs) , PVFactor TotalPV1 6000 0.909 54542 8000 0.826 . 6592 .3 10,000 0.751 75104 ' 10,000 0.683 "6830Total PV 26386 ,
Less:Initial outlay 20000 i I' (; 1/V
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Year CFAT(Rs.) PVFactor TotalPV1 4000 0.909 36362 8000 0.826 6608, "'
3 10000 - "- 0.751 . 75104 10000 0.683 6830
ToWPV > 24584,.. _.ILess:Initial outlay
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TotalPVPVFProposalDYear CFAT(Rs) actor1 10000 0.909 90902 10000 0.826 8260 -3 10000 0.751 7510'4 5000 0.683 3415
'IotalPV 28275Less:hitial outlav 20000NPV 8275
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• Con. 2170-08.(4 Hours)
88-8584
[Total Marks :.100
;~.I, N. B. : (1) Attempt any five full questions. All questions carry equal marks.I:' (2) Use of scientific calculator will be allowed but programmable calculators, laptop!
palmtop computers will not be aUowed.(3) Use of Normal distribution and 'z' value tables, Present Value and Annuity value
tables is permitted. They are provided at the end of the question paper.(4) Structured answers in legible handwriting are expected. Marks may be deducted if
this instruction is not followed.
55
555
5
"?10
10 I10 I,.!..,Iri
Year , 1 2 3 4 5 6 7 8 9 10 11 12Sales' ,(Units) 40 45 35 30 40 50 55 60 65 50 45 50
2. Attempt any two of the following :-(i)' When do you judge a project to be a failure? What are the possible causes
of project failures?(ii) Differentiate between "Project Monitoring" and "Project Control"? Explain Project
Monitoring and Control cycle.(iii) Following data is available about."Actual Sales quantities" for the past 12 years.
1. 00 as Directed (Any four) :(I) Define "Project Management". State the scope of the "Project Management'.(Ii) "It is said that for a project manager to be successful, he should possess entrepreneurial
skills" -Discuss.(iii) Outline the main features and advantages of "Matrix" type organization for projects.(iv) What are the main aspects to be considered in technical analysis of a project?(v) What is a 'DPR' (Detailed Project Report)? What points will you include in
a'DPR'?(vi) Write a brief note on "Work Break Down Structure".
- " .
.,' '. -;"
\I
! .
" ,
,Activity Immediate DurationPredecessor (Days)
A - 6B A 12
C - 60 C 4E A 2
F 0 10
G 0, E 14
H B, F,G 8
Find the forecast for year 13 using "Five years" as well as "Four ye~rs" Movingaverages. Whicn of the two forecasts is more "reliable" on the basis of "MeanSquared Error (MSE)" criterion?
,.(iv) The following table defines the various activities in a small project. 10..'
.,,;., '
Draw.the network diagram using Precedence Diagramming (Activity oh Node) conventionand find the expected completion time forthe project by performing a "Forward Pass".. '
"
[TURNOVER
Con. 2170--88-8584-08.2 -.
I
:0. A company is consldeiing a proposal to install a new equipment. The equipment would. 20involve a cash outlay of Rs.40 Lakhs, and working capital of Rs. 2-4 Lakhs. Theexpected life of the project is 5 years with a salvage yalue of RS.2.8 Lakhs. The com-pany charges depreciation on written down value method at the' rate of 25% perannum. The cost of capital is 12%. The income tax rate is 40%.
The project is expected to generate a revenue of RS.32 Lakhs in the first year and it willincrease by 15% every year on its previous year's value.
, The aggregate cost for the first year is RS.18 Lakhs excluding depreciation and Tax.It will increase by Rs. 3 Lakhs every year.
The working capital will be liquidated at the end of the life of the project.
Using the above information, develop the cash flow for the proposal and usingNPV (Net Present Value) Method, determine whether the proposal should be under-~~norn~. - .
III
6.
7.
Activity Immediate NormalTime Crash Time DirectCost (Rs.)Predecessors (Days) (Days) Normal Crash
P - 8 6 6000 9000Q - 12 8 15000 25000R - 4 2 3000 6000S P 10 6 15000 25000T R 4 4 10000 10000U P 14 10 11500 . 17500V S,Q,T 8 4 10000 24000
4. The following table gives the activities in a construction project and other relevant information 20
(a) Draw an arrow diagram of the project.(b) Determine the project duration which will result in minimum total direct cost.(c) If indirect costs are Rs.4000 perday, then determine the optimum duration of the project.
5.- (a) Discuss the various Discounted Cash Flow (DCF) techniques for evaluation of 10. . cash flows fqr comparing mutually exclusive inVestment proposals; •
(b) The progress observed at the end of the 7th daY from the beginning of a project is 10as given in the following table. .
. ~~..Duration Bodgeted Cost Actual Cost of Actual % Completion- Activity(Days) of Activity Activity till date at the end of Day 7
(Rs. Lakhs) (Rs.Lakhs)
. A (1 - 2) 3 5 4 100B (2- 3) 4 8 9 90C (2 - 4) 3 4 5 95D (2 - 5) 8 5 3 60E (3 - 6) . 5 3 0 0F (4 - 6) 4 2 1 30
- -
0 0G (5 - 7) 5 10H (6 - 7) - 3 - 7 0 0
.' ,
- .
Con ..2170-88--8584-08. 3
i 20 If the costs are incurred linearly in proportion to activity completion, find out:. . .
(i) Cost variance(ii) . CoslPerform'ance Index (CPI)
. iii)' '.Schedule Performance Index (SPI)(iv) '. Estimated Cost of the Project completion(v) Estimated Duration of the project.
Year-} YO Y1 Y2 Y3 V4 Y5 V6
Project A (400) 100 100 100 100 100 100
Project B (600) 120 120 100 180 180 ' 160
Project C (400) 160 140 100 180 60 40
Project D. (640) 400 100 . 120 0 0 200
6. (a). What is Project Appraisal? Explain various types of Appraisal Criteria used before 10execution of a project.
(b) A company is considering investing surplus funds in a project. Four projects are 10being considered. The projected cash flows for the four projects are given belOw.Based onNet Present Value (NPV) and Profitability Index (PI) Criteria, rank theprojects.Based on profitabilityIndex (PI) Criterion, which project will you recommend for executiOn?(Assume discount rate 8%).20
,.,
,
.. Activity Immediate Duration ..," Total Cash flow ...Predecessor (Days) requir~dforth~ activity
. (Rs. in Lakhs)
A - . 5 25B - 5 30'C A 10 40D B 7 28
.E A 6 12F C,D 8 24G C,D 6 15H E,F 5 10I G 4 12 I
(J) Draw the network and find the project completion time.(ii) . Compute total float for each-activity, - _' .. - .' - . _ _ .
(iii) . Draw the "Gantt Chart" and "Resource Loading Chart" for the project. .(iv) _What IS the maximum requirement of the cash and on which day it occurs?-
. . . ," '-. .: . .v ••.•••••• ~ , ~,'... " .~ •• ,~ •• [, •••• ":"','
(TURNOVER I
7. Attempt any two of the following: 10(a) .. Explain the terms "Cost Performance Index (CPI) and Schedule Performance
Index (SPI) in relation to "Earned Value Analysis" and how the Projectperformance is. interpreted on the basis of these indices? Illustrate .your
. answerwith the help of a suitable example. •. .
(b) A project consists of nine activities fCir.whichthe relevahldata are given beloW:'-- 10
10
10
,'~ ,~'i. ' .. '
:" 1:;.n; 2170-88-8584-08. 4 •
\(c) . A projectconsisting of eight activities has the following relevant information.
. Duration (davsActivity Immediate
Most Most Mo.stPredecessorOptimistic Pessirnistic likely
A - 4 8. 6.
B - 16 16 16C - 6 30 12D A 4 28 10E B 4 16 4F C 2 10 6G D, E 2 6 4H F,G 12 .. 28 20
10
: , ..•..
. '~.
, _.
(i) Draw the PERT network diagram for the project and identify the critical path .(ii) D.etermine the expected completion time and variance of the project .
. (iii) Find the probability that the project will be completed in 35 .days. . '.'"
.(iv) Which project duration has 88% chance of completion?
(d) Discuss the Human aspects of Project Management in relation toAuthoritY,10Personnel Orientation, Motivation and Team Building .
I
i
.8.. Write short notes on (Any foUr):-.. .' . . (i) Role of a consultant ih Project management.
.. ' (ii) Project costover-run and its reasons... (iii) IT and Project Management
(iv) Venture capitalfinanclhg. (v) Project Software.(vi) Basic functions of a project manager(vii) Components of cost of capital.
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,-, 0.09
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0.:1664. '0.1 700- ,0.1736 0.1772 ' 0:1,808,0.2224' 0.4 0.155, 0.1591 0.1628 ..
0.2954 0.20,88 0.212J 0.215/ 0;21900.25490.5 0.19'15 0,19.50 O,II'<l.5 '0.2019
. 0.2422 0.24.54 0.2.86 ' 0.2.1170.2291 0:231' 0.23.17 0.2389
0.2794 0:282J " 0.28520.6 0.2257.0.2673 0.2704 " 0:2734 ,6.2764
0.J1JJ0.7 0.2.180 " 0.2611 O.~6.20.2995 0.J02J. 0.30.11 0.3078 O.JI06
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.. . ,Present Value F;ictor tor an Annuity (PVFA) Table
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I, . 6.711 6.HI . /1.130 &.001 ~.7" "'.sn S.JJ9 5.206 s.on uu 4.711 4.5&' '.tD• .. 7.6'52 '.31S 7.0JO .. &.73] 6.Ul 6:210 5.97t . 5.7H 5.5)5 S.JH 5.146 4.\1"6' 4.799
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" 13.004 1.2.106 I i.~'16 'IM63 .' 9..'99 9.19S •• 74S 1.244 7.n6 7.J67. 6.912. 6.6:' pOl'5 ," ,"
Il.US 1.2.'49 11.93' 1t.11 •. 10.JIO 9.711 . 9.10. a.SS9 . 1.061 7.606 . 7.191 U1I 6.462,.:31)16 14.711 )).57. 12.561 11.6~2 la.llG 10.106 9.447 '.851 7•• H ~.J79. 6.974 6.604
.'.11 15.562 1'.291 13."166 11.166 B.2" lQ,471 9.76l 9,112 aSH 1.022 7.S'~' ~.120 6.72~ .
" .:. '16.39. lun 1).754' U.6S11 11.690 10.121 ~O.05' 9.J71 1.756 1;101. 7.702 7..250 6.140
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... , rale 01 interest r % .
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. '~.'1 .' ~.:.:O.a7? O.50~. ,v.ailo 0.355 0.141 0.'40 ,0,133 0.506 0.751 '0".7S1 . 0.735 0.71.4. ;
, I I.~U 1.626 1.605 1.51$ 1.5'.' 1.5H 1.521 1.(57. 1.392 1.331 1.276 \..11.4J '. :~.; 2.3:22 2.213 1.246 I.UO 2.17' ... :U(O 2.106 1.9.81 ~.a61 1.7.&& 1.&73' 1.519
, . .. 2.914 2.155 2.7" 2.143 2.690 UJ9 2•.sS9, . :1.(04 2.241 "1.096 I..'" U.,, 3.(33' . 3.352 J.n. '3.199 3.127 :.J.OSS'. 2.9'91 1.745 2.531 2.3'$ 2:~'1 2.0H6 'J.an ~.7" 3.615 3~.s1P ~.!ge 3.UD 3.326 3.020 2.759 2.534 2.)39 2.1"&1,
'.21' '.\60 . '.039 J.9n ),m .. ),,'OS uos '.241 2.'37 1.617" 1~C.s$ 2.261 .:';,~(~';J'~"
,6 ".639 C.447 4~20t .'.07' )'?S' 3.137 3."2' 3.076 2.706. 2.~CO ~.1I3. ,• . '.9" 4.772 4.£07 C•.451- C.)03 '.16" '.(.031 3.566 3.fac 2.16' '. Z:~03 2.379,
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" 5:141 S.SlJ S.)t1 . S.\II, 4.910 '.715 4.5JJ 3.912 3.417 '3.040 1,711 1.'69
" &.002 5.714 S.U. 5.119 .. 5.0o, U02: 4.&11 3.961 3.U9 3.061 2.740 2.0':15 ".142 5.147 ..5.515 SIJ~~ 5.092 4•.176 '.675 4.001 J.HIJ J.076 '2.750 . i.H(, , ..
.: .,H' '.16S 5.954 5.601 . 5.40~ ."i.I61 '.93~ . 4.730 0(.033 J.SOJ ).081 1.757 2.U9' .." 6.373 6.047 .5.].49 5.475 S.2U' ~.990 ~.ns (,959 ',SU 3.097 • 2.163 '2.492.,' JI .6.'67 6.12' S.1l8 5.534 5.27J 5.033 . '.11I (.080 . 3.529 3.104.. Z.767 .2.49'.,. .' 6,>S~ '.19' un. S.58~ S.316 $.070 C.I4.:I . '.097 3.5H .. 3.109 "Z.7'O 2".496" , .20 . ., '.UJ . 6.~~9. 5.929; 5.62' S.3S~ .s.19~ -4,870 uta 3.54.& '3.113 un 2.497'i~ " .
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0.1 (i)
Project Managenlent is defined as :Project Management •
"The application of knowledge, skills, tools, and techniques to project activities in order to meet orexceed stakeholders' needs and expectations from a project." Meeting or exceeding stakeholderneeds and expectations invariably irwolves balancing competing demands among:
• Scope, t.ime, cost, and quality.• Stakeholders with differing needs and expectations.• Identified requirements (needs) and unidentified requirements (expectations).
Project Management Knowledge Areas
Modern project management recognizes nine knowledge areas as described below:
1. Project integration management relates to the process required to ensure that the variouselements of a project are properly coordinated. It includes plan development, execution 2ndoverall change control.
2. Project scope management means ensuring that the project includes all the work required,and only the work required, to complete the project successfully. It covers scope initiation,planning, definition, verification and change control.
3. Project time management includes the decisions and actions required to ensure timelycompletion of the rroject. such as activity definition, sequencing, duration estimating ,schedule development and control.
4. Project cost management refers to the processes required to ensure that the project iscompleted within the approved budget - resource planning, cost estimating, cost budgetingand control.
5. Project quality management means the processes required to ensure that the project wilisatisfy the needs for which it was undertaken. It covers quality planning, assurance andcontrol.
6. Project human resource management is making the most effective use of the peopleinvolved with the project. It includes organizational planning, staff acquisition and teamdevelopment.
7. Project communication management refers to the processes required to ensure timelyand appropriate generation, collection, dissemination, storage and ultimate disposition ofproject information. It entails communications planning, information distribution,performance reporting and administrative closure.
8. Project risk management means identifying, analyzing and responding to project risk. Itincludes risk identification, risk quantification, risk response development and risk responsecontrol.
9. Project procurement rnanagement covers the processes required to acquire goods andservices from outside tile performing organization - procurement planning, solicitationplanning, solicitation, source selection, contract administration and contract close-out.
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I ~) (f) (eon h~J..), SCOfDE OF PROJECT MANAGEMENT:
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@2~\Q}~Q1 (iii) , •In a strong matrix organization, the balance of power rests with the project manager, They havf.'the ability to strong - arm the functir,'lai managers into giving up their best .resources for projefts;Sometimes, more' resources than necessary, are assembled for the proJect, and then proJec!managers negotiate these, resources among themselves, cutting oui the functional manageraltogether, as you can see in Figure 1
'On the other end of the spectrum is the weak matrix (see Figure 1), As you would suspect, thefunctional managers have all lhe power in this structure" Project managers are really projectcoordinators or expeditors with part-time responsibilities on projects in a weak matrix organization.Project managers have little to no authority, just as in the functional organization, On the otherhand, the functional managers have a lot of authority and make all the work assignment Theproject manager simply expedites the project.
Figure 1 Strong matrix organizational chart,
CEO
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Staff
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Staff
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Staff
Production
Staff
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• Fig'ure 2 Weak matrix organizational chart
.. CEO
. HumanInformationResource Finance Marketing
!-- Technology . Production
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Ie-- Staff
I I I IStaff/ProjectCoordinator Staff Staff Staff Staff
Figure 3 Balanced matrix organizational chart
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~'.
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Staff
Staff
Marketing
Staff
Staff
InformationTechnology
Staff
Staff
Production
Staff
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Q.1 (iv) " 'Main aspects to be considered in technical analysis of a project.
T~chnical analysis of the p')ject is concerned primarily with the following :-
1. Manufacturing process & technology: Appropriate~ess of the chosen'technology and manufacturing process among various alternatives isascertained. What is the level of automation nad flexibility for changingprocess I product at a later date.
2. Material Inputs: Availability and cost of raw materials, power and otherfacilities like utilities etc is assessed.
3. Plant Capacity and Product Mix:- Plant Capacity has a bearing on cost ofproduct and outlay. Can the capacity be cross deployed for changingproduct mix to be able to respond to changed market conditions.
4. Machinery & Equipment: It is dependant on production technology,process and plant capacity. Whether new machines to be installed orsecond hand machines to be filted? A proper balance has to be obtainedbetween capacities of individual sections or production departments.
5. Production System and Plant Layout:- Plant Layout is guided by" Production System to be followed. Whether flow process, batch process,cellular process or project process are being used.
6. Location and Site :- Choice of location is decided by factors such asproximity to raw materials and markets, availability of skilled labour andinfrastructure, government incenti'Jes etc. Specific site or plot to be selectedon the basis of its suitability and cost to develop the same for the particular.industry.
7, Building and Structure: Any special requiremen.ts for structures to beconsidered, Areas for manufacturing, services, utilities, administration,welfare etc. to be planned.
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Q.1 (v)
Detailed Project Report (DPR) .
A Detailed Project Report (DPR) is a "ocument containing detailed description of importantaspects of a Project. This is prepared after initial hurdles in the process of getting the Projectcleared, have been crossed and the need for Project has been established.
A detailed Project Report generC)IIycontains the following details:
1. Background of t,",e Project: The background of the project is described in terms of its basis.This generally include the type of project, the sector of economy it belongs to, its location,gestation period, brief description, technical details such as scope, process, scale,. maps anddesigns, target beneficiaries, etc.
2. Objectives of the Projects: The objectives are specified in terms of general objectives,specific objectives, physical targets to be achieved etc. .
3. Justification for the Project: The justification for the Project is based on technicalorganizational, marketing, financial, economic and environmental appraisal of the project.
4. Cost of Project and Sources of Funding: The cost cif Project is determined by consideringand including all the items of capital outlay. The arrangement made for meeting therequirement of funds for the project is specified in terms of capital structure, sources of funds. . ~and amount proposed to be raised from each source.
5. Salient Features of the Project: The salient features descried included, foreign exchangerequirement and contribution, estimated sales revenue, estimated production cost, expectedreturn on investment, social cost and benefits,. extent of public participation, role ofgovernment, participation of non-governmental organizations, etc.
6. Project Organization: Regarding the project organization and its personnel, the detailsregarding organization. chart, line of control, authority-responsibility structure, extent ofdelegation, mechanism for monitoring and follow up, project control mechanism, etc. are given.
7. Implementation Details: The implementation details for a project are given in terms ofsequence of tasks and activities, resource requirement, precautions. safety requirement, etc.The programme of activities is also given under it. This includes details regarding the activities'covered, such as implementation requirement, time schedule. activities and events. criticalactivities, activity-wise resource requirement management control system, budgeting andbudgetary control system, management information system, etc.
Q.2 (i)When do you judge 3 pr()j~ct to be a failuie?project failu. es?
V\!h~t are ihe pos~ibje.causes 0.
A project is considered to be a failure if it fails to complete in scheduled time or it exceeds the
budgeted cost or is not able to fully accomplish the project objectives. While time overruns ane
cost overruns are the common causes of project failure, in<lbility to meet the key performance
indicators is also observed occasionally. Although the project is may not be a total failure as it
is finally implemented and starts functioning, it tends to be uneconomical to run, does no.'
create sufficient surplus for investing into future growth of the organization and eventuallybecomes a drain on organizations' funds.
Common causes that result in time / cost overruns or failure to meet specifications are:
In'adequate project formulation: Superficial field investigations, ill-defined project scope,wrong assessment of input requirements, inaccurate methods for estimation in of costs &benefits, deliberate underestimationof costs and overestimation of benefits etc.
Unsuitable Project Organization: Incompetent project leader, inadequate authority to theproject/eader, confusing or improperly understood roles of project team members.
Improper Implementation Planning: Insufficient breakdown of project activities, unduereliance on intuition and judgment rather than available information and data, improperdefinition of interlinkages between activities.
Failure to take advance action: As project is subjected to a lot of risks during its course ofimplementation, it is necessary to be proactive at the signs of impending problems rather thanreact only when the problems are fully blown up.
Non-ability of funds in time: Proper cash flow management is the key to success of theproject. Non-availability of funds in time delays the project implementation as we!! as increasesthe project costs.
Injudicious equipment tendering, procurement and contracts management: It is generallyobserved that equipment and materials form 65 - 70% of the project cost and procurement ofthe same covers almost 70% of the project implementationtime. Similarly, Proper selection ofcontractors ensures timely completionwithin budgetedcosts.
Ineffective project monitoring: As the projects are implemented under a dynamic, ever
changing environment, effective monitoring and timely modifications in implementation strategyare required for the success of the project
.J ~ ;CCR ')MONITORING AND CONTROL OF PROJECT
• DEFINITION :
Monitoring is collecting, recording,.and reporting information concerning any and all aspects ofproject performance that., the project manager or others in the organisation wish to know. Itis important to remember that monitoring, as an activity, is distinct fro.rn "Controlling as well as 'from evaluation.
Control is the act of reducing the difference between 'plan' & 'reality'. It involves the regularcomparison of performance. against targets, a search for the causes of deviation and acommitment to check adverse variances.. Project control
PROJECT CONTROL :o
No sooner is the project launched,control becomesthe dominant concern of the projectmanager, indeed, once the launch phase is over, planning & control become closely inter-twined in an integrated managerial process.Project control involves a regular comparison of performance against targets, a search forthe causes of deviation, and a commitmentto check adverse variances. It serves two majorfunctions:
a) It ensures regular monitoring of performance & .b) Motivates project personnel to strive for achieving project objectives.A few things that can cause a project to require the control of performance cost or timeare as follows: _A) Performancei) Un-expected technical problems.ii) Insufficient resources when needed.iii) Quality & Reliability problems.iv)Client requires changes.v) Inter-functional complications.BICosti) Tech. Difficulties require more resources.ii) Scope of work increases.iii) Initial bids! estimates were low.Iv) Budgeting was inadequate.v) Input price changes.vi) Corrective control was not exercisedin time.C) Time:
i) Long time to solve technical difficultiesii) Initial time estimates too optimisticiii) Task sequencing was incorrect.iv) Inputs delayv) Preceding talks delayed.vi) Customer requirements changed.VII) Gov!. Regulations were altered.
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.Q.5(a)
Net Present Value Method
• The objective of the firm is to create wealth by using existing and future resources to producegoods and services. To create wealth, inflows must exceed the present value of all anticipatedcash outflows. Net present value is obtained by discounting all cash outflows and inflowsattributable to a capital investment project by a chosen percentage. The method discounts the netcash flows from the investment by the minimum required rate of return, and deducts the initialinvestment to give the yield from the funds invested. If yield is positive the project is acceptable. Ifit is negative the project in unable to pay for itself and is thus unacceptable. The exercise involvedin calculating the present value is known as 'discounting' and the factors by which we havemultiplied the cash flows are known as the 'discount factors'. The discount factor is given by thefollowing expression:
1
Where.(1 + r)"
rn
==
Rate of interest per annum.number of years over which we are discounting.
Merits
• It is based on the assumption that cashflows, and hence dividends, determine shareholders wealth.
• Cashflows are subjective than profits.• It considers the lime - value of money.• It considers the total benefits arising out of prop'osals ,over its life-time.• The future discount rate normally varies due to longer time span. This rate can be
applied in calculating the NPV by altering the denominator.• This method is particularly .useful for the selection of mutually exclusive projects. (In
mutually exclusive projects acceptance of one project tantamount to rejection of theother projecl.)
• This method of project selection is instrumental in achieving the financial objective,i.e., the maximizatiolJ of the shareholders wealth.
Demerits
" ".
• It is difficult to calculate as well as understand a's compared to accounting rate ofreturn method or payback period method.
• Calculation of the desired rates of return presents serious problems Generally costof capital is the basis of determining the desired rate. The calculation of cost ofcapital is itself complicated. Moreover, desired rates of return will vary from year toyear.
• This method is an absolute measure. When two projects are being considered, thismethod will favour the project which has higher NPV.
• This method may not give salisfactory results w:~en two projects having differenteffective lives are being compared. ~rmally. the project with shorter economic life ispreferred, if other things are equal. .
• This method emphasizes the compariso~of net present value and disregards theinitial investment involved. Thus, this method maY10t give dependable results.
Internal Rate of Return MethodInternal rate of return (IRR) is a percentage discount rate used in capital investment appraisals\~jhich brings the cost of n project and its future ciJsh inflo\\'s into Cqu8lity. It is the fate ur. returtwhich equates the present value of anticipalt.d net Cashflows with the initial outlay. TheIRR. i~also defined as the rate at which the net present value is zero. The rate for computing IRRdepends as bank lending rate or opportunity cost of funds to invest which is often called aspersonal discounting rate or accounting rate. The test of profitability of a project is the relationshipbetween the IRR (%) of the project and the minimum acceptable rate of return (%). The IRR canbe stated in form of a ratio as shown below:
Cash Inflows---------------------Cash.O\ltflows
= 1
OR P. V. of Cash Inflows - P. V. of Cash Outflows = 0
The IRR is to be obtained by trial and error method to ascertain the discount rate at which thepresent values of total cash inflows will be equal to the present values of total cash out flows. Ifthe cash inflow is not uniform, then IRR will have to be calculated by trial and error method. Inorder to have an approximate idea about sLJchdiscounting rate, it will be better to find out the'factor'. The factor reflects the same relationship of investment and cash inflows as in case ofpayback calculations.
WhereFFIC
= IIC= Factor to be located= Original Investment= Average cash inflow per year
In appraising the investment proposals, IRR is compared with the desired rate of return orweighted average cost of capital, to ascertain whether the project can be accepted or not. IRRR isalso called as 'cut off rate' for accepting the investmentproposals.
The trial and error method for computing IRR when cash inflows are not even is summarized, stepby step, as follows:
1. Compute NPV at the cost of capital, denoted here as r,.2. See if NPV is positive or negative.3. If NPV is positive, then pick another rate (r2)much higher than r,.4. Compute NPV using r2. If NPV is positive then choose another value of r2 which is higher
than previous r2. If NPV is negative at new r2then the true IRR at which NPV = 0 must besomewhere between these two rates, r, and r2(new)
5. Use interpolation for the exact rate.
Interest rate NPV
(X,) r, NPV, > 0 (Y,)-----(Xo) IRR NPV = 0 (Yo)
(X2)r2).
NPV2<0 (Y2)
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Merits
ThenXo "X, + ----------------------------
Demerits
• It considers the time value of money.• It takes into account the total cash inflows and cash outflows.• It is easy to understand for example if told that IRR of an investment is 20% against
the desired rate of an investment isRs.15,396.
• It does not use the concept of desired rate of return whereas it provides the rate of ireturn which is indicative of the profitability of investment proposal
• It involves tedious calcul.ations, based on trial and error method.• It produces multiple rates which can be confusing.• Projects selected based on higher IRR may not be profitable.• Unless the life of the project can be accurately estimated, assessment of cash flows
cannot be correctly made.• Single discount rate ignores the varying future interest rates.
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Q.6(a)ECONOMICAPPRAISAL OF A PROJECT
1. INTRODUCTION:: . ~In case of commercial projects. the real justification for the project comes from the economicviability. Accordingly. a project should be capable of producing an adequate return on theinvestment and the rate of return should be higher than the cost of funds or the required rateof return. A project is doomed to fail without economicviability.
The object of econornic appraisal of a project is to analyse the aspects of cost of funds andROI over the life of the project and to determine whether the project shall be able to giveadequate ROI or not.
2. SCOPE(a) Initial Investment outlay.This specifies the requirementof funds for the project to begin with. It includes the expenditureon design, survey, consultancy, land, plant & machinery, building etc. & Minimurn workingcapital, contingencyetc.b) Subsequent Investment outlays.Some times the project is taken in phases. In such cases. subsequent investment has to beprovided for
c) Economic life of project:This is determined by the stage upto which the project is expected to produce positive cashflows and income flows. In other words, the project should produce adequate ROI to justifyits continuance on economic consideration.(d) Salvage value:At the end of economic life, different assets, belonging to the project, when scrapped &disposed off, are expectedto realize some value for the project.(e) Operating cash flows:These are generated from the sales revenueafter deducting production cost andoverheads.(I) Depreciation :Depreciation is charged with the object of distributing the cost of fixed assets over theirentire useful life. However, since it does not involve cash out flow, it is added to theea rning after interest and tax to deterrnine the net cash inflow! out flow.g) Rate of Tax :Tax is charged by the state on profit and also on other earnings of the business enterprise.Th is affects 'the surplus avai!able for payment as dividend and also results in outflow ofcash.h) Cost of Funds:Funds required for a project are generally loans from bank or other sources, which have got acost Cost of funds forms the basis for determining the present value of inflows and the netpresent value of the project.I ) Opportunity cost:, The Opportunity cost of funds. invested in a project is the expected return from thealternative investrnent or the opportunity of investment foregone by the investors while makinginvestment in the project. The expected ROI, shouldbe higher than opportunity cost.
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•'Q.7 (a)Earned Value Analysis I Earned Value Management
, !tis a method for measuring pr~ect performance. It compares the amount of work that wasplanned with what was actually accomplished to determine if cost and schedule performance is asplanned.
!t helps us to determine how much volume and how much value of work has been done on aparticular day of an activity / project.
!t is a cost perfor'mance measure which helps the project manager to understand the total costperformance. It is achieved by integrating the scope, cost and the schedule measures of work.In EVA, we calculate (i) Budget Cost (ii) Actual Cost (iii) Budgeted cost estimate (iv) CostVariance.
Earned value is the percentage of the total cost budgeted against the tolal cost incurred.
The Budgeted Cost of each activity is cOnsidered as its value for the project. Hence completionof an activity is considered to contribute .equivalent to its value to the total value of the project..In other words, an activity earns value, equivalent tb its budgeted cost on its completion. Anactivity that is partially completed on a pal.ticular date is also considered to have earned valueequivalent to its percentage completion on the given dale multiplied by its total budgeted cost ..
I r. case Actual Expenditure incurred for completion of an activity exceeds its budgeted cost,the project does not earn, any additional benefit since activity parameters are well specified.The variance therefore indicates cost over~run.
The total value earned for the project, on any given date is the tbtal of earned value's of all thecompleted, activities till date as well as the total of earned values to date for partiallycompleted activities.
Performance Analysis seeks to remove this subjectivity by employing an analytical frame workbased on the following terms: •
(1) BeWSValue) ( PV)
of Work Schedule Planned•
It s the budgeted cost of work to be completed .'illgiven date if the project runs on schedule
(2) BeWp (Budgeted Cost of Work Performed) [Earned Value] (EV):
It is the budgeted cost for the completed work. When any of the activity is completed, it IS
co nsidered to have "earned value" equivalent to its budgeted cost. Therefore the total of budgeted
cost for the work performed to date is the total "earned value" of the project.
(3) ACWP (Actual Cost of Work Performed I [ Project Expenditure] (Actual Cost) lAC)
It is the actual cost incurred in completing the work. It covers total cost of work done, goodsrec e ived and services used, whether or not these have been paid for.
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This. is simply the total budgeted cost for the entire projertwork.(5) ACC (Additional Cost for completion)
This represents the estimate for the additional cost required for completing the project.Given the above terms, the project may be monitored along the following lines:
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(6) Cost Variance : BCWP - ACWP (if ACWP > BCWP, it indicates cost over run)OR .
.Cost variance = Difference between the estimated cost of the activity and the actual cost ofthe activity. = EV - AC
(7) Schedule Variance (in cost terms) ; BCWP - BCWS or EV - PV
Any difference between the schedule completion of an activity and the actual completion of that. activity.
If BCWP < SCWS, it indicates schedule delay.
(8) Cost Performance Index (CPI)
(9) Schedule Performance Index (SPI)
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A value greater than aileindicates that work is beingcompleted better thanplanned whereas a value ofless than one means thatwork is costing more thanand I or proceeding moreslowly than planned.
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Discuss Human Aspects of Project Management in relation to Authority,, () .. . r\n........ I T ~"' O'Pe.fsonne. ,-"neniZlt:on ;;.,;,OdVchion aflCJ I earn qunQlng.
•Although the use of proper planning and budgetary control techniques help in successful projeqmanagement, their use and effectiveness depends on the people who are involved and areresponsible for various project activities at various levels. It is therefore very important tounderstand human nature and to achieve satisfactory human relations in project setting. Projectmanager has to handle problems and challenges relating to following issues.
1. Authority: Project manager very often does not have a pired authority over the project team.He has to co-ordinates efforts of various functional groups, experts, consultants external agenciesetc. Team leadership and influencing professionals assumes importance than exercising authority.'Project manager's authority therefore emanates from his ability to develop rapport with the teammembers, skillful resolution of conflicts, skill of communication and persuasion and ability to act as.a buffer between technical engineering, financial and commercial personnel.
2. Personnel Orientation: Overemphasis on planning and control techniques that aremathematics and accounts .oriented tends to adopt a structured and mechanical approach toproject management. However, project being subject to many uncertainties, a more creative andadaptive approach is necessary to solve un-programmed and un-structured problems as theproject progresses. Such orientation is required for all the project team.
3. Motivation: Project being a short team endeavour carried out by lossely bound professionalteam, it is very difficult to keep it motivated throughout the project term. The team memberssometimes tend to get confused due to split authority and dual subordination structure of theorganization. To keep a high level of motivation , the project manager has to ensure that theorojRct goals are clearly defined and are visible to all involved. He has to encourage participativemanagement with proper delegation of authority and responsibility that creates a sense ofbelonging to the project and to make individuals job sufficiently challenging to have greaterpersonal commitment.
4. Team Building: Most of the project activities are inter-related and interdependent and most ofthe problems need inter-disciplinary solutions.
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Q.8(i) .
APPOINTMENT & ROLE OF CONSULTANT IN PROJECT.
INTRODUCTION:
Most of the project owners use the services of a consultant - An individual consultant or aconsulting firm or a captive consulting organization throughout the project duration. Evenwhen the owner has a competent project team, a consultant may be appointed for thefollowing reasons.
a) The functional experts of various departments who are also the members of the projectteam will have many other parallel responsibiiities which are bound to divert their attentionfrom the project.
b) A multi-disciplinary consultant's deep knowledge, rich experience and concentratedattention to all important aspects of a project will. no doubt. boost its efficiency. justifying theconsultancy cost.
c) An independent consultant will view all matters in an unbiased manner."
GENERAL ISSUES CONCERNING APPOINTMENT_Determination of consultant's role in the project.
1) Types of consultant2) The Role of Domestic consultant3) Selection & appointment4) Terms of reference5) Actual use of consultant6) Co-ordination procedure7) Professional - liabilityConsultant's RoleA consultant can be used either in an "Advisory Role" or in a participatory Role" . In theadvisory role, after accomplishing the task of the study phase, he might continue as anadvisor, without involVing himself in the implementation.
His assignments in this role will be : _Pre- Investment investigationPreparation of feasibility reportPreparation of detailed project reportPreparation of project specifications& tender documentsGiving advice on problems.
He shall play the roles of a planner, an organizer, and effective co-ordinator, an advisor indecision making, a' counselor in overcoming the usual resistance to change and a multi-disciplinary management guide, committed to the cli~nt's success and profitability.
I-h role can further be increased to macro and micro- level planning of various activitiessue h as defining project scope,
Org anizing project team, assisting in procurement of critical equipmenls, scl)eduling & processchasing. Supply of technology or design is optional..
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Q.8(iv)VENTURE CAPITAL FINANCING
Venture .capitai is a form of financing especially designed. for funding Iligh technology, high risk ii:..•dperceived high reward projects. While a conventional financier seeks t~ fund projects with proiYentechnologies and already established markets, a venture capitalist provides funds to the entrepre~eurs •.pursuing new and hitherto unexplored avenues and ideas. Thus, venture capital helps the entrepreneurstranslate their new ideas into commercial production. It 'especially helps in financing of high technolog yprojects and helps translate research and development into production.International FinanCe Corporation, Washington (lFCW) defines venture capital as equity or equityfeatun;"dcapital seeking investment in new ideas; new companies, new products, new processes or new servicesthat offer the potential of high returns on investment It may also. include investment in turnaroundsituations.
The origin of the concept of venture capital is traced back to 1946 with the establishment of the AmericanResearch and Development Corporation of General Dohio!. In fact, there is .not looking. back since then.Now, it has become a worldwide concept in the field of funding technology based products. However, the'concept of venture capital is.of recent origin.in India. .
In India, the venture capital industry had its formal introduction in the Budget Speech of the Finance Ministerin 1988. Though extremely focused in its technology development objective, the introduction recognizedthe need for a source of patient c'3pital with the ability to participate in high risk projects in return for highrewards. Coincidentally, around the same time, the Industrial Credit and Investment Corporation of IndiaLimited (ICICI) came forth with initiatives for addressing technology incentive projects. One such initiative,the venture Capital Division, was spun off into Technology Development and Information Company of IndiaLimited (TDICI) which has since emerged as a significant player and a pioneer in the field of venture capitalindustry in the country.
Immediately after the Budget Speech announcement, a cess of 5 percent was levied on all payments forimport of teChnology I know how resulting in the creation of a sizable pool of funds. The venture fund th.atwas created out of this cess was to be administered by the Indu'strial Development Bank of India (IDBI) forproviding financial assistance to industrial enterprises attempting commercial application of indigenoustechnology on adapting imported technology to wider domestic applications, Besides, many of thedevelopment banks and development finance institutions have also entered venture capital business in therecent years, Going purely by the number of venture capital firms in India today, one could possibly arguethat there exists a venture capital industry in the country, It augurs well for future industrial development ofthe country,
The Government of India issued some guidelines on November 18, 1988 mainly to promote a broadframework for the operations of the venture capital companies in the country, The main features of theseguidelines are given hereunder: •
1. All India Financial Institutions, the SBI and other scheduled banks are eligible to float such a fund,.2, Minimum size of the fund should be Rs.10 crores, .3. In the event of public issue, the promoters share is to be more than 40% of the issued capital.4, Foreign holding will be allowed up to 25% provided it comes from multilateral international financial'
organizations, developmental institutions or mutual funds,5, The NRls investment is allowed up to 74% in the capital on a non repatriable basis and up to 25 _
40% on a repatriable basis,6, Debt - equity ratio should be limited to 1:1:5,. 7, Venture capital funds are nol dllowed to operate in money market operations, bill re-discounting ,
portfolio investments and financial consultancy services.8, The venture capitalist will pay tax at the rate of 20% on its dividend income and long term capital
gains. But, an investor is entitled to tax exemption on divi<;lendssubject to a maximum of Rs.10,OOOand witl have to pay tax at 20%:on capital gains,
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.0.8 (v)Project Management Software
(a) Low-end packages:
Microsoft project 2000 : Microsoft Corporation, U. S. A.Sure trak 3.0: Primavera Systems Inc. USA (Represented in India by KLG Systel Ltd.)Project Scheduler 8: Scitor Corporation, USA (Represented in India by CEPM, Noida)Harward Project ManagerYojana': Digital Tools & Techniques Ltd.Success Planned: TCS Ltd.
(b) High-end packages
Primavera Project Planner (P3): Primavera Systems Inc. USA (Represented in India by KLG SystelLtd.)
Artemis: Represented in India byOP/PEN Image Labs. India Pvt. Ltd., New Delhi)Microsoft Project 2002: Microsoft Corporation, U. S. A.
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BAS!C FUNCTIO~J.S OF A PROJECT NIANft,qER
The Project Manager has three clearly defined management responsibilities.
I .• As a Resource Manager: Manager and direct project resources to achieve the projectobjectives.
• As a Planning & Control Manager: develop the project plan and ensure that the work iscompleted on time, within budget and with acceptable quality.
• As a Co-ordinator: Interfacewith higher management regarding project review, approvalsand addressing project issues. They must also relate successfully to line managers andstaff. •
WHAT PROJECT MANAGER DOES
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DIRECTINGMOTIVATINGPLANNINGSUPERVISINGADMINISTERINGDOINGTRAININGCOUNSELINGDELAGATINGRE:SOLVINGCONFLICT
Project ResourcesProject TeamAnticipate and planThe Project WorkAdministrative TasksDoing some tasks directlyProject TeamTechnical, Business, Project& Personnel issuesDelegate & superviseOver resources & schedules
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Q.B(vii)
COMPONENTS OF CAPiTAL COST OF A PROJECT :
Following are the components that constitute the capital cost of any project:(i) Land & land d~velopment(ii) Buildings(iii) Plant a .d m chinery(iv) Electrica(v) Transpo a d erection charges(vi) Know how consultancy fees(vii) Misc laneous assets.(viii) Preliminary & pre- operative expenses(ix) Provision of contingencies(x) Margin money for working capital
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