Projects Lecture I, II, III

8/4/2019 Projects Lecture I, II, III

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Projects: Appraisal, financing and control

Academic Year: 2010-11

Trimester IV Lecture 1


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Text book:

Prasanna Chandra: Projects Planning, Analysis, Selection,

Financing, Implementation and Review

7th Edition 2009 Tata McGraw Hill

Project Reports Preparation

by mid trimester

To be prepared by each group for a project selected by the group

Project Appraisal & Financing Plan by end trimester

To be done as a group activity:

1. You will play the role of the financing bank!

2. You are doing this work for a project prepared by another

group?

What shall we do in this course?


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Plan for Lecture No 2

Each group to present in 5 minutes:

1. a project idea

2. Who the project leader will be

If the project is real, it will be great! In that

case, the promoter will be the project leader.


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Capital Investments : Importance and Difficulties

Importance

Long term effects

Irreversibility

Substantial outlays

Difficulties

Measurement problems: example a new capex plan might

impact some existing activity of the firm

Uncertainty

Temporal spread


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Types of Investments

Mandatory Investments

Replacement investments

Expansion investments

Diversification investments

R & D investments

Miscellaneous investments


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Capital Budgeting Process

Financing

Implementation

Selection

Analysis

Review

Planning


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Levels of Decision Making

Operatingdecisions

Administrativedecisions

Strategicdecisions

Where is the decision taken Lower level

management

Middle level

management

Top level

management

How structured is the decision Routine Semi-structured Unstructured

What is the level of resource

commitment

Minor resource

commitment

Moderate

resource

commitment

Major

resource

commitment

What is the time horizon Short-term Medium-term Long-term


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Examples

Operating Decisions: minor office equipment

Administrative Decisions balancing

equipment

Strategic Decisions: diversification plan


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Key Issues in Project Analysis

Market Analysis

Technical Analysis

PotentialMarket

MarketShare

TechnicalViability

Sensible Choices

Financial AnalysisRisk

Return

Economic Analysis

Benefits and Costs in Shadow

PricesOther Impacts

Ecological AnalysisEnvironmental Damage

Restoration Measures


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What all will the project report

contain

Various aspects mentioned in the previous

slide + + +

The pluses will definitely include the details of

the promoters particularly their experience,

the management team, and so on

Dont forget the executive summary in the

beginning


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Feasibility Study : A Schematic Diagram

GenerationofIdeas

Initial Screening

Is the Idea Prima Facie Promising

Plan Feasibility Analysis

Conduct Market Analysis Conduct Technical Analysis

Conduct Financial Analysis

Conduct Economic and Ecological Analysis

Is the Project Worthwhile ?

Prepare Funding Proposal Terminate

Terminate

Yes No

NoYes

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Key Issues in Major Investment Decisions

Investment story

Risks

DCF Value

Financing

Options


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Objective of Capital Budgeting

Finance theory rests on the premise that managers should manage

their firms resources with the objective of enhancing the firmsmarket value. This goal has been eloquently defended by

distinguished finance scholars, economists, and practitioners.

The quest for value drives scarce resources to their

most productive uses and their most efficient users. The

more effectively resources are deployed, the more robust

will be the economic growth and the rate ofimprovement in our standard of living.


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Basic Considerations : Risk and Return

Investmentdecisions

Financing

decisions

Return

Risk

Market value

of the firm


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Common Weaknesses in Capital Budgeting

Poor alignment between strategy and capital budgeting

Deficiencies in analytical techniques

Poor identification of base case the status quo

Inadequate treatment of risk

Improper evaluation of options

Lack of uniformity in assumptions example different departmentsof the firm

Neglect of side effects

No linkage between compensation and financial measures

Reverse financial engineering cooking up the story

Weak integration between capital budgeting and expense budgeting Ex. The

capital budget presumes some ad expenses, which are later knocked out

Inadequate post - audits

Projects Lecture I, II, III

Documents

Transcript of Projects Lecture I, II, III