PROJECT MANAGEMENT

Lecture-06 2 February, 2020. Sunday 2.30-4.30 pm.

BITS Pilani Prof Sandeep Kayastha, at Hyderabad
Pilani Campus

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Download Excel file

“PJM Chapter-04 Market Analysis”

from Taxila, below Topic-1.

Trend projection problem given in the Excel worksheet done.

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Today’s session
Chapter No Textbook # Chapter Title Date(s)

Mid-Term Test Syllabus

1 1 Modern Project Management 11 Jan, 18 Jan
2 1 Organization Strategy and Project Selection 18 Jan
4 2 Market and Demand Analysis 19 Jan, 25 Jan, 1 Feb
5 2 Technical Analysis 2 Feb
6 2 Financial Estimates and Projections 2 Feb
7; 8 2 Time Value of Money; Investment Criteria
9; 10 2 Project Cash Flows; The Cost of Capital
3 1 Organization: Structure and Culture
4 1 Defining the Project
6 1 Developing a Project Plan
Appendix 7.1 1 PERT
8 1 Scheduling Resources and Costs
9; 5 1 Reducing Project Duration; Estimating Project Times and Costs
13 1 Progress and Performance Measurement and Evaluation
7; 14 1 Managing Risk; Project Closure
15; 17 1 International Projects; An Introduction to Agile Project Management

Textbook # 2

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For large projects

Market analysis Technical analysis

(Revenue) (Costs and Mgt.)

Financial Analysis
(Profitability)

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Technical analysis

1. Location 10. Labour

2. Plant capacity, Product mix 11. Government policies
3. Technology choice 12. Climatic, pollution, living conditions
4. Technical arrangements 13. Environment aspects
5. Machinery and equipment 14. Project charts and layouts
6. Structure and civil works 15. Schedule of project implementation
7. Raw material
8. Utilities
9. Infrastructure

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 BITS Pilani
Pilani Campus

Next Chapter
Estimates and Projections:
Chapter-6
Textbook # 2: Projects by Prasanna
Chandra
 BITS Pilani
Pilani Campus

Financial Estimates and Projections: Chapter-6

Textbook # 2: Projects by Prasanna Chandra
This chapter
Chapter No Textbook # Chapter Title
1 1 Modern Project Management
2 1 Organization Strategy and Project Selection
4 2 Market and Demand Analysis
5 2 Technical Analysis
6 2 Financial Estimates and Projections
7; 8 2 Time Value of Money; Investment Criteria
9; 10 2 Project Cash Flows; The Cost of Capital
3 1 Organization: Structure and Culture
4 1 Defining the Project
6 1 Developing a Project Plan
Appendix 7.1 1 PERT
8 1 Scheduling Resources and Costs
9; 5 1 Reducing Project Duration; Estimating Project Times and Costs
13 1 Progress and Performance Measurement and Evaluation
7; 14 1 Managing Risk; Project Closure
15; 17 1 International Projects; An Introduction to Agile Project Management

Textbook # 2

BITS Pilani, Pilani Campus

Project report preparation for bank loans

Source:
http://legalbabu.in/project-report-preparation.html
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Topics

 Hyderabad Metro
 Replacement of furnace in a steel plant.

1. Outlays (spending)
2. Financing (raising financial resources)
3. Projected Revenue and Costs
4. Projected Profit and Loss
5. Projected Balance Sheet
6. Projected Cash Flow

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Capital cost- Hyd Metro

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 BITS Pilani
Pilani Campus

Project: Replacement of furnace in a steel plant

Capital cost and Means of financing

IDC: Interest During Construction period

Total= 205.7

104.9
100.9
Total= 205.7

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Depreciation rates

30 yrs
19 yrs

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Revenue, Costs, Profit

EBIDTA. Earnings Before Interest, Taxes, Depreciation, and Amortization.

Tax rate 20%.

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Remaining slides will be covered in the next session.

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Balance sheet

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Profitability

IRR: Internal Rate of Return

NPV: Net Present Value

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Cash flow

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Risks

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For large projects

Market analysis
(Revenue) Financial Decide:
Analysis undertake the
Technical (Profitability) project or not?
analysis
(Costs and
Mgt.)

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Project cost =

 Land, Site Development, Buildings, Civil works +

 Plant and Machinery +
 Licensing/Know-how, Engineering, Consulting,
Legal charges +
 Pre-operative expenses +

 Margin Money for working capital (25% of one

month worth of raw materials, wages, and
electricity, etc + WIP inventory) can also be
included in the Project cost for financing by
banks.
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Means of Finance =

 Share capital (by promoters & investors) +

 Long term loans (by banks) +
 Deferred payment for land, machinery, supplies (by
suppliers) -
 Incentives from government (to be subtracted)

Project Cost <= Means of Finance

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Working capital =

Capital required to run the operations =

 Raw material +
 WIP inventory +
 Finished goods inventory +
 Wages and salaries +
 Utilities +
 Repair and Maintenance +
 Sales expenses +
 Local taxes

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Estimation of operation costs

Cost of production =
 Raw materials cost +
 Labour & Wages +
 Utilities like Power, water +
 Services:- security, housekeeping, landscaping +
 
 Sales costs:- sales staff salaries, promotion,
distribution costs +
 Overheads:- rent, insurance, repair & maintenance.

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Other costs

 Financial expenses- Interest on loans.

 Depreciation- Usage of machinery and facilities.
 Royalty/Licensing expenses.
 Preoperative expenses.

 Taxes

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Projected Revenue

Projected revenue = Projected sales * Projected price

Year
Item 1 2 3 4 5 … … … N
Projected sales (Units)                  
Projected price (Rs/unit)                  
Projected revenue (Rs) =
Projected sales * Projected price                  

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Computing profit and cash accrual
  Item
A Cost of Production
B Administrative expenses
C Sales expenses
D Royalty, knowhow expenses
E Total cost of production (A+B+C+D)
F Expected sales revenue
G Profit before interest (F-E)
H Financial expenses
I Depreciation
J Operating profit (G-H-I)
K Other income
L Preliminary expenses written off
M Profit/Loss before tax (J+K-L)
N Provision for tax
O Profit after tax (M-N)
P Retained profit (O-Dividend paid)
Q Net cash accrual (P+I+L)
Year-1 Year-2 Year-3 …. Year-N   Constituents
          Material, labour, factory overheads, power
          Admin staff, insurance, rent, office expenses
          Sales staff, distribution, promotion
          Licensing
         
          Selling price * quantity
          Sales Revenue- Total cost of production
          Interest on loans
          Usage of machinery and other assets
           
          Sale of scrap, interest on bank deposits
          Expenses before the project commenced
           
           Based on Tax laws
           
          Dividend paid to shareholders
Depreciation and Preliminary expenses added
          since no cash outflow on them in this year
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 BITS Pilani
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Example from Textbook. p-6.19 to 6.26

ABC Limited- Alloy Steel plant
Slides not included as yet