Project management

Presentation by Ashalakshmi RK

Project appraisal & Feasibility

Project identification : Identify investment opportunities Sections : Generation of ideas Monitoring the environment Corporate appraisal Profit potential of industries:?

Scouting for project ideas Preliminary screening Project rating index Sources of positive NPV On being an entrepreneur

 1.Generation of ideas: Stimulating the flow of ideas SWOT Analysis Clear articulation of objectives:(CR, PI, Increase in CU, Improvement in CM, Expansion) Fostering a conducive climate- Unconstraint, entrepreneurial urges, Suggestion schemes Eg: Bell Telephone Laboratory, 3 M Corporation Eg :Apple Inc, Hindustan UNILEVER ,ICICI Bank All about creativity

 2.Monitoring the environment: Economic sector: Monitoring on 1.S of E 2.R of G 3. G of Ps- Ss- Ts 4.Fluctuations in EC 5.Linkages with the WE 6. Trade S or D 7.BOP situation

 Governmental sector: Monitoring on 1. I P 2. Govt. P&P 3.Tax framework 4.S- I & C from Govt. 5.EXIM policy 6. Financing norms 7.Lending conditions of FI and CB

 Technological sector: Monitoring on 1.Emergence of NT 2. Access to technical know how 3. Receptiveness on the part of industry Socio-demographic sector: Monitoring on 1.PT 2.Age shifts in population 3.Income distribution

4.EP 5.E of W 6. Attitudes towards C&I Competition sector: Monitoring on 1.No. of firms in the industry &MS 2. Degree of H&D among products 3.EB

4. Comparison with substitutes in terms of Q, P, A and FP 5.Marketing P&P Supplier sector : Monitoring on 1. Availability & cost of RM and SA 2. Availability of cost of E 3. Availability of cost of Money

 3.Corporate appraisal: Marketing & Distribution 1.MI 2.PL 3.MS 4.DN 5.CL 6.M &D Costs

 Production & operations 1.Conditions and capacity of P &M 2.Availability of RM, SA, &P 3. Degree of VI 4.LA 5.CS

 Research & Development 1.Research capabilities 2. Track record of NPD 3.L&T facilities 4. Coordination between R&O Corporate Resources & Personnel: 1. CI 2. Clout with G&RA 3. Dynamism of TM 4. C&C of employees 5. State of IR

 Finance & Accounting: 1.FL&BC 2.Ko 3.Tax situation 4.Relations with Shs&Crs 5.A/C&CS 6. CF&L

4.Tools for identifying investment opportunities/profit potential: A.PORTERs Model: Threat of new entrants Rivalry among existing firms Pressure from substitute products Bargaining power of buyers Bargaining power of sellers

Threat of new entrants

Entry barriers are high-low threat and vice versa Situations of high entry barriers: Investment of resources Existing Economies of scale Control of distribution channels, product differentiation Switching costs Government policy

Rivalry between existing firms

Situations when intensity of rivalry is high: Large no. of competitors Few firms are balanced Industry growth is sluggish Chronic over capacity Product is stimulating strong price and service competition High exit barriers

Pressure from substitute products

Situations when threat from substitute products are high: Price performance tradeoff is attractive Switching costs for buyers are low Produced by industries earning superior profits

Bargaining power of buyers

Situations when bargaining power of buyers are high : Purchases are large Switching costs are low Strong threat of backward integration

Bargaining power of suppliers

Situations of strong bargaining power: Supplier group is more concentrated No variables substitutes the products Switching cost is high Forward integration

B. LIFECYCLE APPROACH: Pioneering stage Rapid growth stage Maturity & stabilisation stage Decline stage

 C. EXPERIENCE CURVE: Learning effects Technological improvements Economies of Scale 5.Scouting for project ideas: A. Analyze performance of existing industry: P&CU

B. Examine the input and output of various industries Materials, parts, finished goods Internal production C. Review imports & exports Import statistics-BOP, employment, market D. Study plan outlays & governmental guidelines Guidelines by Dept. of ID

E. Look at the suggestions of FI & Developmental Agencies SFC,IDC F. Investigate local materials & resources NCAER-H,M,IF,M G. Analyse economic & social trends-Eg:value of time, H. Study new technological development-CSIR

H. Draw clues from consumption abroad EG:? I. Explore the possibility of reviving sick units J. Identify unfilled psychological need Spectrum Analysis K. Attend trade fairs L. Stimulate creativity for generating new product idea: M, R, R, M, R, S, A, C Chance factor

6.Preliminary screening: A. Compatibility with the promoter: Fit with the personality & resources Accessible Growth and return B. Consistent with governmental priorities: National goals and priorities? Environmental effect?

Foreign exchange projects? License of project? C. Availability of inputs: Capital requirement? Technical know how? Domestically or imported? Power supply?

D. Adequacy of the market: Domestic market C&MS Export markets Quality price profile Sales &DS Increase in consumption EB E,S &DT Patent protection

E. Reasonableness of cost: Material inputs Labour costs Factory O/Hs Admin.exp S&D exp Service costs Economies of scale

F. Acceptability of risk level: Vulnerability of BC Technological changes Competition from substitutes Competition from imports Govt. control over P&D Shifts in consumer preference

7.Project rating index Factors relevant to PR Assign weights to these factors Rate using suitable scale For each factor: Factor rating *factor weight=factor score Add all scores=project rating index

8.Sources of positive NPV: A. Economies of scale B. Product differentiation: Advt. & Mkting Service Innovation Q&D

B. Cost advantage: Learning curve Monopolistic access Favourable location Effectiveness C. Marketing reach D. Technological edge: IBM, INTEL, BHEL, HERO HONDA

E. Governmental policy: Restrictive licensing Restriction High tariff EC Tax

9.On being an entrepreneur: Whether Your goals are defined? Do you have right strategy? Can you execute the strategy? Qualities & Traits of a successful entrepreneur! Willingness to make Sacrifices, L D, C in the project, MO, Strong Ego

Industrial policy
We shall open our economy to private sector Industrial policy -1991 Aims : LPG 1.Liberalisation: System of License-permit-control raj Freedom

 Asset ownership limited to 100 cr. Raised to 1000 crores Licensing compulsory industries: Distillery ,coal & lignite ,petroleum ,sugar Animal fats & oils, asbestos , plywood, rawhides & skins Paper & newsprint, electronic aerospace & defence equipment etc

 2.Globalisation: Feature : Integration Reduction of trade barriers Free flow of capital Free flow of technology Free movement of labour

Objectives : 1. Reduction of import duties: 162 items restrictions removed 69 items from SIL to free imports 93 items from industrial to SIL 2.Encouragement of foreign investment: Direct investment up to 51%

 Joint ventures up to 74% Trading companies up to 51% 3.Encouragement to foreign technology agreement: Priority industries up to 1 crore 5% domestic& 8% export royalty Automatic permission for no foreign exchange No permission for hiring foreign technician

3.Privatisation: A. Ownership operation Denationalization Joint venture Liquidation Workers cooperative

B. Organisational measures: Holding company structure Leasing Restructuring : Financial ,Basic C. Operational measures: Autonomy Incentives Freedom, access to capital market

Market /Demand Analysis-Steps

1.Situational analysis & specification of objectives 2.Collection of secondary information 3.Conduct of market survey 4.Characterisation of market 5.Demand forecasting 6.Uncertainities in demand forecasting 7.Market planning

1.Situational Analysis
Designed for preparing marketing plan Products are new for the company Not new for the market Objectives : Measure the market Reliable projected demand & revenue Eg : Generator-questions?

5 Cs-Company, Collaborators , Customers ,Competitors , Climate

Company :P,M,P&G,C&V,T,FP Collaborators : C,D,S,JV Customers : S,G,DS,B,D,M,P,T,D Competitors : Who , What, Indirect competition, quality of competition Climate :PE &G, R, Macro economic factors , S&C , T

2.Collection of secondary information-General sources

National sample survey reports Plan reports , Annual survey of industries Statistical abstract of the Indian Union India year book, Statistical year book Economic survey , Guidelines to industries Annual report of the development wing Annual bulletin of statistics of exports and imports

Techno Economic surveys Industry potential surveys The stock exchange directory Monthly studies of production of selected industries Monthly bulletin of RBI Publications of advertising agencies Other publications Evaluations : questions?

3.Conduct market survey: Census or sample Total demand Segment demand Income & price elasticity Motives Plans Satisfaction & un satisfaction Attitude Practices & Socio economic characteristics

4.Characterisation of the market

Effective demand Breakdown of demand Price Methods of distribution & sales promotion Consumers Supply & competition Government policy

5.Demand forecasting
Qualitative methods: A. Jury of executive opinion method B. Delphi method Time series projection methods: A. Trend projection method B. Exponential smoothing method C. Moving average method

Causal methods: A. Chain ratio method B. Consumption level method C. End use method D. Econometric method

7.Market planning
Current market situation Opportunity & issue analysis Objectives Marketing strategy Action programme

Technical Analysis
Purpose : Technical feasibility Optimal formulation of project Issues : Manufacturing process or technology Technical arrangements Material and inputs Product mix

Plant capacity Location & site Machineries & equipments Structures & civil works Environmental aspects Projects chart & layouts Project implementation schedule Need for considering alternatives

Issue 1: Choice of Technology Appropriateness of technology Issue 2: Nature of support Process & performance guarantees Price & period

Issue 3: Raw materials Processed components Utilities Issue 5: Technological requirement Input , investment , market ,resources ,policy

Issue 6: Proximity ,availability Labour situation , policies Other factors & Site selection Issue 7: Constraints ,procurement, Issue 8: Site preparation ,building &structures ,outdoor works

Issue 10: Functional layout ,Material flow diagram Production line diagrams , transport layout Utility consumption layout ,Plant layout Communication layout, organisational layout Issue 12: Nature of project, process , product quality , scale of operation

Financial analysis