4project financing Planning-3
-
Upload
vijit2388bij521 -
Category
Documents
-
view
215 -
download
0
Transcript of 4project financing Planning-3
-
8/7/2019 4project financing Planning-3
1/35
Planning
-
8/7/2019 4project financing Planning-3
2/35
Planningy Overview
y Resource Allocation Framework
y Generation and Screening of Project Ideas.
-
8/7/2019 4project financing Planning-3
3/35
Overviewsy A mini-steel plant is considering building a new Arc
Furnace:
y An insurance company is planning to install a computer
system for information processing.
y Government of India is thinking of an ambitious plan tolink Ganges and Cavery rivers.
-
8/7/2019 4project financing Planning-3
4/35
y Gautam a graduate student is planning to buy amoped
y Involves - A capital expenditure decision
y Importance and difficulties.y Phase of capital budgetingy Levels of decision makingy Facets of project analysisy Objectives of capital budgeting
-
8/7/2019 4project financing Planning-3
5/35
-
8/7/2019 4project financing Planning-3
6/35
Measurement
Problem
Uncertainty Temporal
spread
Difficulties
Cost Benefit
-
8/7/2019 4project financing Planning-3
7/35
-
8/7/2019 4project financing Planning-3
8/35
Analysisy Marketingy Technical
y Financial
y Economic
y Ecological
-
8/7/2019 4project financing Planning-3
9/35
Selection
Appraisal Criteria
Non Discounting Discounting
Pay back period
Accounting Rate of return
Net present value
Internal rate of return
Benefit Cost Ratio
-
8/7/2019 4project financing Planning-3
10/35
Criteria Accept Reject
PBP PBP < target period PBP > target periodARR ARR > Target rate ARR 0 NPV < 0
IRR IRR > Cost of capital IRR 1 BCR < 1
-
8/7/2019 4project financing Planning-3
11/35
Implementation
-
8/7/2019 4project financing Planning-3
12/35
Stage Concerned With
Project and
engineering
designs
Site probing and prospecting preparation of blue
prints, and plant designs, plant engineering,
selection of specific machineries and equipment
Negotiations
and Contracting
Negotiable and drawing up of legal contracts with
respect to project financing, acquistion of
technology, construction of building and civil
works, provision of utilities, supply of machineryand equipment, marketing arrangements etc
Construction Site preparation, construction of building & civil
works, erection and installation of machinery &
equipmentTraining Training of engineers, technicians and workers
Plant
Commissioning
Start up of the plant
-
8/7/2019 4project financing Planning-3
13/35
y Translation of an investment proposal in to a concrete
project is a complex, time consuming & risk fraught
task. Delay in implementation can lead to substantial
cost overruns. For expeditious implementation at a
reasonable cost, the following are helpful-
-
8/7/2019 4project financing Planning-3
14/35
Adequate
formulation ofproject
Home-work in
term of
preliminary
studies
Comprehensive
and detailed
formulation of
project
-
8/7/2019 4project financing Planning-3
15/35
Use of principles
of
Responsibility
Accounting
Time Frame Cost Limit
-
8/7/2019 4project financing Planning-3
16/35
-
8/7/2019 4project financing Planning-3
17/35
Key issues in Project Analysis
y
Market Analysisy Potential market
y Market Share
y Technical Analysis
y Technical viability
y Sensible choices
y Financial Analysis
y Risk
y Return
-
8/7/2019 4project financing Planning-3
18/35
Key issues in Project Analysisy Economic Analysis
y Benefit and costs in shadow prices
y Other impact
y Economical Analysis
y Environment damage
y Restoration measures
-
8/7/2019 4project financing Planning-3
19/35
Feasibility Study: A Schematic Diagram
General of ideas
Initial Screening
Is the idea primafacie promising
Plan feasibility
AnalysisTerminate
-
8/7/2019 4project financing Planning-3
20/35
Plan feasibility Analysis
Conduct Market Analysis Conduct Technical Analysis
Conduct financial Analysis
Conduct Economic and Ecological Analysis
Is the project is
worthwhile
Prepare finding
Proposal
Terminate
-
8/7/2019 4project financing Planning-3
21/35
Resource Allocation
Frameworky In an HBR article, Seymour Tilles wroke The most
tangible expression of a companys strategy is its
allocation of funds. Few things determine the future of
the company as directly as the way it spends its money.
Those activities which are treated generously are
presumably the real basis of the companys future.
-
8/7/2019 4project financing Planning-3
22/35
Research Allocation
Frameworky Key criteria
y Elementary investment strategies
yPortfolio planning tools
y Strategic position and action evolution
y Diversification debate
-
8/7/2019 4project financing Planning-3
23/35
Key Criteria
Profitability Risk Growth
Unit of
Measurement
Unit of
measurement
Unit of
measurement
ROE = PAT
Net worth
Range of possible
outcomes
Difference betweenhighest and lowest
outcomes
i.e Range of return of equity
- Assets
- Networth
- Profits-Dividends
- So on.
-
8/7/2019 4project financing Planning-3
24/35
Elementary Investment
Strategies Replacement and Modernization
Capacity expansion
Vertical integration
Concentric diversification
Conglomerate diversification
Disinvestments
-
8/7/2019 4project financing Planning-3
25/35
Portfolio Planning Toolsy BCG Product Portfolio matrix
y General Electrics Stoplight Matrix
-
8/7/2019 4project financing Planning-3
26/35
BCG Product Portfolio matrix
Relative
Market Share
High Low
High Stars Question
marks
Low Cash Cows Dogs
Industry
Growth
Rate
-
8/7/2019 4project financing Planning-3
27/35
Cash cows(Funds
generated)
Dogs on
disinvestments(Funds released)
Stars Question
Marks
-
8/7/2019 4project financing Planning-3
28/35
Stars Question marks
Cash cows
Dogs
-
8/7/2019 4project financing Planning-3
29/35
General Electrics Stoplight
MatixBusiness Strength
Strong Average Weak
High Invest Invest Hold
Medium Invest Hold Divest
Low Hold Divest Divest
-
8/7/2019 4project financing Planning-3
30/35
Functions of Planningy It provides a basis for organizing work on the project
and allocating responsibilities to individuals.
y It is a means of communication and coordinationbetween all those involved in the project.
y It induces people to look a head.
y It instills a sense of urgency and time consciousness
y It establishes the basis for monitoring and control.
-
8/7/2019 4project financing Planning-3
31/35
Areas of Planningy Planning the project work
yPlanning the manpower and organisation
y Planning the money
y Planning the information system.
-
8/7/2019 4project financing Planning-3
32/35
The work break-down
structure helps iny Effective planning by dividing the work into manageable
elements which can be planned budgeted andcontrolled
yAssignment of responsibilities for work element toproject personnel and outside agencies.
y Development of control and information system
-
8/7/2019 4project financing Planning-3
33/35
Life Cycle of a Projecty Project development and preliminary engineering.
y Bidding and contract negotiation
yEngineering design
y Purchase and procurement
y Construction
y Commissioning
-
8/7/2019 4project financing Planning-3
34/35
Tools of Planning
Bar charts/ Gantt Chart
y Simple to understand
y Used to show progress
y Can be used manpowerplanning
Limitations
y Cannot show interrelationshipamong activities in complexprojects
y Physical limit to the size
y Frequent changes & updatingis not possible
Network Technique
y Effectively handleinterrelationship
y Identify the activities whichare critical- on time
yCan handle complex andlarge projects
y Easily computerized &updated
Limitations
y Not easily understood byproject personnel
y Operational schedule is notdefined. i.e. who does, what& when
-
8/7/2019 4project financing Planning-3
35/35
y For a large project a hierarchy of plans, having varying
levels of details need to be prepared.