Courseware from my course on Project Management that I taught in 2010 at St. Joseph\'s College of Business Administration

1. Tathagat Varma
Tathagat Varma
Session 6/12: 17-Jun-2010

3.  There might be multiple options, competing for same
resources. How do you decide which project is the
right one ?
 Questions to answer (Successful Project
Management, Young)
 Will the proposed project maximize profits ?
 Will the proposed project:
o Maintain market share ?
o Consolidate market share ?
o Open up new markets ?
 Will the project maximize utilization of existing resources ?
 Will the project maximize the utilization of existing
manufacturing capacity ?
 Will the project boost company image ?
 Will the project increase risk faced by the company ?
 Is the project scope within company’s current skills and
experience ?

4.  Successful Project Management, Trevor Young

5. Factors Weightage Project A Project B Project C
Risk/ uncertainty X%
Complexity Y%
Technology Z%
Past Experience A%
Manufacturing Capability B%
Investment, Capex C%
Opex D%
… %
Weighted Rating
Recommmendation 3rd 1st 2nd

6.  Typically Financial Models are used:
 Return on Investment (ROI)
 Return on Net Assets (RONA)
 Breakeven and Payback Period
 Net Present Value (NPV)
 Internal Rate of Return (IRR)
 Cost / Benefit Analysis (CBA)
 Sensitivity Analysis
 Market Data

7.  Represent cash flows over time
Cash i/f Cash i/f
In Year2 In Year5
Cash o/f Cash o/f Cash o/f Cash o/f Cash o/f Cash o/f Cash o/f
In Year0 In Year1 In Year2 In Year3 In Year4 In Year5 In Year6

8.  Invest Rs. 10,000 today and get Rs. 2,000 per
year for next 5 years
 Invest Rs. 1,000 today, Rs. 5,000 in year 3 and
get Rs. 2,000 per year till year 5 and Rs. 3,000
from then until year 10
 Invest Rs. 10,000 today and get Rs. 700 per
year forever
 Invest Rs. 10,000 today and get Rs. 500 per
year growing annually at 1% forever

9.  Four key events:
 E0: Buy raw material from vendor
 E1: Pay vendor for raw material
 E2: Sell finished goods to customer
 E3: Collect payment from customer
 How does the timeline look for this ? Why ?

10.  Cash conversion cycle or CCC, also known as the asset
conversion cycle, net operating cycle, working capital cycle or
just cash cycle, is used in the financial analysis of a business.
 The higher the number, the longer a firm's money is tied up in business
operations and unavailable for other activities such as investing. The cash
conversion cycle is the number of days between paying for raw materials and
receiving cash from selling goods made from that raw material.
 A short cash conversion cycle indicates good working capital management.
Conversely, a long cash conversion cycle suggests that capital is tied up while
the business waits for customers to pay.
 It is possible for a business to have a negative cash conversion cycle, i.e.
receiving customer payments before having to pay suppliers. Examples are
typically companies that employ Just In Time practices such as Dell, and
companies that buy on extended credit terms and sell for cash, such as Tesco.
The longer the production process, the more cash the firm must keep tied up in
inventories. Similarly, the longer it takes customers to pay their bills, the higher
the value of accounts receivable. On the other hand, if a firm can delay paying
for its own materials, it may reduce the amount of cash it needs. In other words,
accounts payable reduce net working capital.

11.  Cash Cycle = DSI + DSO – DPO
 Days
Sales in Inventory (DSI): how many days the
inventory remain in stock before being sold ?
o E2 – E1
 Days
Sales Outstanding (DSO): time between
customer purchase and collection of payment
o E3 – E2
 DaysPayable Outstanding (DPO): how many days
does the firm take to pay to its creditors
o E1 – E0

12.  A kirana shop
 Day 1: buys goods on credit from vendor /
distributor
 Day 5: sells to customer
 Day 7: gets payment from customer
 Day 15: pays back to vendor / distributor
 An eatery
 Day 1: buys raw material (grocery, vegetables, etc.)
 Day 2: sells ‘finished goods’ to customers
 Day 2: gets payment from customer
 Day 3: pays back to vendor

13.  A ‘JIT’ manufacturer
 Day 1: Gets payment from customer
 Day 2: buys raw material
 Day 7: ‘sells’ to customer
 Day 10: pays for raw material to vendor
 Is such a scenario possible ?