PROJECT MANAGEMENT

CASE STUDY PROJECT –MARKS--40

Enarcon India: Project Planning

Submitted to Prof. Vivek Raina

Submitted By

Chetan Panara 44

Ram Chaudhary 39

Dinesh Moyal 43

Yashir Momin 42

Critical Path Analysis

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Q=2

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Explain negotiation with the possible outcomes, describing in the form of the decision analysis form, what can Prithviraj do in the said scenario?

In this case there is only one form of direct negotiation has been given for the Prithviraj is with farmers at the time of the land acquisition. But apart from this direct negotiation, we feel there is couple of other indirect negotiation which Prithviraj has to face but not explicitly mentioned in the case. We are trying to show direct and indirect negotiation and its effects.

(Negotiation in the given middle box is the direct negotiation given in the case and other two given in the other boxes are the indirect negotiation which we fill has arrived from the case)

The Nawapur site was on private land and EIL needed to negotiate with each landowner. The land acquisition part of a project generally takes about four to five months and comprises several rounds of negotiations. The speeding up of this process meant that the villagers could gauge the desperation of EIL in clinching the deal. Consequently, the land prices went up. EIL estimated that it had to finally settle for prices which were about 30-35 per cent more than the normal rates. The total land cost was about Rs 15 million for300 acres.

Q=3

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Negotiation

Purchase of new 220 capacity crane or wait for the repair

Land acquisition from the farmers at the lowest possible rate

Completion of the project within time limit of September 30

Explain in detail the outcomes and learning in context the project management and management. What information system can be used in scenario like this? Is cost benefit analysis feasible in this type of conditions?

Problems in Case:

Weak Project Control StructureA comparison of the bar chart of the Installation Head (Exhibit 13), BDO (Exhibit 14), along with the actual progress in the Nawapur Project Progress Report (Exhibit 18) reveals interesting information as given in Table 1. It is observed from Table 1 that there are substantial differences in information being maintained in the Head Office (Installation Head), the Division Office (BDO, Vadodara) and the Project Office at Nawapur, which is a pointer to the manner in which the project is controlled and monitored. These differences should not have occurred given that an ERP system is in operation and networked between all the offices. This means that the information is rarely updated or validated on field. It appears that the reporting and controlling systems have not been designed to support the multi-project teams, where each project has a very short lifecycle.

Land Acquisition ProblemCalculating the earliest and the latest start and completion times in Table 2, using the data in Exhibit 15 and 16, we find that activities 1 (land acquisition process), 2 (micro siting and planning), 6 (tower delivery), 8 (machine erection), 10 (pre-commissioning of WEC), 12 (VCB and 11 KV line charging), and 13 (commissioning) lie on the critical path. It is evident from above that the land acquisition process holds a vital key to the entire project delivery.

Transportation ProblemOther than land acquisition, the other critical components of the project are transportation of components and erection of WECs. Transportation of over-dimensional consignment components, such as WECs, involves coordination with the State Road Department, which might involve strengthening of bridges or even construction of diversions at times. Here again, a detailed planning is required in advance to survey the condition of roads, bridges, culverts, under-bridges, etc., to determine the route to be taken or the type of trucks that can be used. This might also require transportation of components in dismantled condition which in turn would require setting up of component assembly works at the site itself. These aspects become all the more important since most of the

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high potential wind energy sites are located at remote and inaccessible areas far from human habitation.

Mathematical equation of the case

The following financial equation is used for assessing the financial viability of owning 220 tonne crane versus hiring it from the market:

• Average return on investment• Investment pay-back period• Net present value• Internal rate of return

Total investment for purchasing the crane 31,150,000

(Addition of total landed cost of Rs 31,650,000 and (31.15million)provision for spares inventory @ 5 % of the landed cost)

Annual cost of operating demag 665 crane 7,606,000Annual cost of hiring an equivalent crane from the market 15,600,000Annual saving by Enercon owning the crane 7,994,000 (8.00million)Interest payable on capital borrowings 14 % per annum

Additional Assumptions required for CalculationsOperating life for a crane 10 years

Salvage value at the end of operating life Rs 6.23 million

( 20 % of original investment of Rs 31.15 million) Equity-Debt ratio for project financing 60 : 40Return expected by Enercon on its own equity 20 % per annum

Net total taxation rate applicable to Enercon 33 % on incremental profitsDepreciation provision on straight line basis

CalculationsAverage Return on Investment (ROI)Annual savings by Enercon owning the crane Rs 8.00 millionReturn on investment (PBDIT) 31 %

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Pay-back Period for InvestmentAnnual cash-flow (before depreciation) Rs 8.00 millionPay-back period for investment (31.15 /8.00 ) 3.9 years

Net Present ValueCalculation of Weighted Average Return on Capital (WACC)Post-tax cost of project term borrowings with 33 % incometax and 14 % market interest rate on 40 % project cost(= 0.40 x 14 x 0.67) 3.75 % per annum

Cost of expected return on equity investment on 60 % ofProject cost at 20 % per annum return on equity 12.00 % per annum

Total weighted average cost of capital (WACC) 15.8 % per annum

Net Present Value(Considering 20% salvaged value of investment at end of 10th year) Rs 40.4 million

Internal Rate of Return (IRR) 23%Based on all the four criteria considered, it is clear that owning a 220 tonne crane is an attractive proposition. Hence, Enercon should own at least one such crane initially.

* Source: Exhibit 19, Comparative Statement between Owning and Hiring of Crane by Enercon.

Some Outcome From project

1) PROJECT TIME

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Project timing for nawapur project is e June end to 30th September. In this time, there is monsoon seasone . So it is a difficult to work in heavy rain fall and high wind. If the project is not finished at sep. end, client will be losing half depreciation, tax benefit and wind power benefit.

2) PROJECT COSTThe cost of the nawapur project is 600 million Rs. If project is not finished within time period, client will be investing more money for extra working day to finish.Due to this company suffer financial loss.

3) TOTAL QUALITY MANAGEMRNT OF PROJECTThere is requirnment for quality work in WECs project for better result.so it is necessary to comlete work within limited time and resources for company growth. more importantly, it would not affect the customer confidence in EILs ability to handle wind energy project “from concept to commissioning and beyond”.

4) WORK BREAKDOWN STRUCTUREAt the first level of WBS there is a 13 activity involved in a nawapur project. Such as

Land identification and acquisition Micrositing and planning Approach road formation Foundation casting WEC delivery Tower delivery Blades delivery Machine eraction 11 KV overhead line Pre-commissioning of WEC VCB and metering yard construction VCB and 11kv line charging Commissioning.

At the second level of WBS , there are sub activity involved in a project.

Make land sale deeds with owners. Apply to GEDA with copy of land deeds. Clearance by GEDA. micrositing. planning of power evacuation and approach roads.

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5) ORGANISATION BEHAVIOUR TOWARDS PROJECTEIL believes in “from concept to commissioning and beyond” so it is necessary to company to finish project within time period and with quality work.

6) SYSTAMATIC APPROACH / INTUITION APPROACHCompany follow various system likes ERP and SAP and WBS system for planning of project. In nawapur project there is 3 month time for project. So prithviraj take some decision based on their intuition and his past experience in last 7 year.

7) RISK OF PROJECTThere is a possibility that project will not be finished in prescribed time because of agitation of villagers for extra compensation for their land. The cost of the nawapur project is 600 million Rs. If project is not finished within time period, client will be investing more money for extra working day to finish.Due to this company suffer financial loss.

8) PROJECT TEAMThere are four project team and each work at different site. One project team has 26 member including deputy manager civil engineer, supervisor and trainee engineer .Store keeper and commissioning team. Each team managed their project independently.

9) PROJECT CONTROL SYSTEMCompany follow various system likes ERP and SAP and WBS system for planning of project. Company control their time, cost, quality, resources, employees and teams

10) SELECTION OF LOCATION

It is very important to select right place to build WECs for better operating and maintaing.nawapur site is on private land that’s why various legal implication arise. So it is necessary to collect all necessary permission from GEDA and district collector and villagers.

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POSSIBLE UTCOME AND LEARNING

1) HUMAN RESOURCESHR management in projects is a systematic exercise involving HR estimation at the planning stage, hiring/deploying the project team during execution, and motivating and managing the team which is a monitoring and control process. HR planning appears to be inadequate at Enercon. The organization of the project team is not conducive for effective and efficient project management. Two glaring omissions are the absence of procurement coordinator reporting to the project manager and a crane specialist at site. HR planning should also be appropriately linked with other areas like time, risk, and procurement. In this regard, if proper planning had been carried out as outlined in earlier paragraphs, the necessity of two erection crews for using two cranes simultaneously would have appeared almost mandatory. HR planning for the site project team should have been carried out accordingly.

2) PROCUREMENT MANAGEMENT

As seen under risk management, continuous availability of 220 tonne crane, during the erection period, is the key to maintaining the schedules. On the positive side, Enercon did try to take care of the potential risk by contracting most of the 220 tonnes capacity cranes (4 out of 7 in India) available in the market on lease/hire. But,this is clearly not enough and the procurement policy of the company is questionable considering the Own vs Hire trade-off analysis carried out in Exhibit-6. The Exhibit shows that the payback on the capital investment of Rs 32 million on the 220 tonne crane is 3.9 years and IRR is 20 per cent. This indicates that it makes business sense to own at least one 220 tonne crane. Considering that Enercon has successfully implemented projects and should have accumulated adequate cash surplus, a proactive decision to purchase 220 tonne crane before the start of the project would have been in order.

3) OPERATION MANAGEMENT

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Various operation happen in this company like land acquisition , land identification , maintenance of WECs site , commissioning of WEC , interfacing with regulatory authority for required permission,prepareing approach roads, construction of WEC, erection of WEC. so company managed all these operation .

4) INVENTORY SYSTEM & STORAGE MANAGEMENTVarious part of WEC like blades, towers, WEC foundation parts, is difficult to sore and managed at project site. So taking step for inventory management is necessary for company.

5) FORCASTINGThere is necessity to forecast the period the monsoon or heavy rain at the project site.So company focused on weather condition. There is necessity to forecast the sales of WECs in India.

6) MANUFACTURING DEPARTMENTManufacturing department is manufactured and managed WECs blades, WECs tower, WECs .they also export this machine to Germany and all over the world. so it is difficult to manufacture all required WECs.

7) SUPPY CHAIN MANAGEMENTManufactured department at Daman manufactured and managed WECs blades, WECs tower, WECs. Then they supplied this equipment to the various project sites in india.they used trucks for loading of their equipments. So it is very difficult to manage all supplied materials at right time.

8) FINANCIAL MANAGEMENTThe cost of the Newapur project is 600 million Rs. If project is not finished within time period, client will be investing more money for extra working day to finish.Due to this company suffer financial loss. Due to the less time, it is possible to less NPV obtain which affect on EILs valuation.There is one alternative to purchase 220 tonnes cranes for company which is helpful in future. All cost regarding new 220 tonnes crane purchase will be compensate in three years.

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COST BENEFIT ANALYSIS

Yes, it is feasible in this type of condition.

Assume that ¸ if the project is not finish in a deadline of 30 th sep.2003. On that condition client does not get benefit from 600million project.

Depreciation benefit (2003-2004) =240 millionCorporate tax benefit at 30% =180 millionWind power benefit =7 million(1.4million *5 Rs. Per unit) Total =427 million

Clients loose the 427 million Rs. Because of not finishing the project within the time period And other additional cost attached with the extra days to finish the project. Assume that ¸ if the project is finish in a deadline of 30 th sep.2003. on that condition client does get benefit froms 600million project.Benefits, Client gets depreciation and tax benefit Company get profit from the project Market believes in that company’s ability to handle wind energy project “from concept to commissioning and beyond.”

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