Enarcon india project planning


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Enarcon india project planning

  1. 1. 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 42Critical Path Analysis 1
  2. 2. Q=2 2
  3. 3. 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. NegotiationPurchase of new 220 Land acquisition from Completion of thecapacity crane or wait the farmers at the lowest project within timefor the repair possible rate limit of September 30 (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 3
  4. 4. Explain in detail the outcomes and learning in context the projectmanagement and management. What information system can be used inscenario 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 ProgressReport (Exhibit 18) reveals interesting information as given in Table 1. It isobserved from Table 1 that there are substantial differences in information beingmaintained in the Head Office (Installation Head), the Division Office (BDO,Vadodara) and the Project Office at Nawapur, which is a pointer to the mannerin which the project is controlled and monitored. These differences should nothave occurred given that an ERP system is in operation and networked betweenall the offices. This means that the information is rarely updated or validated onfield. It appears that the reporting and controlling systems have not beendesigned to support the multi-project teams, where each project has a very shortlifecycle.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 acquisitionprocess), 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 landacquisition process holds a vital key to the entire project delivery.Transportation ProblemOther than land acquisition, the other critical components of the project aretransportation of components and erection of WECs. Transportation of over-dimensional consignment components, such as WECs, involves coordinationwith the State Road Department, which might involve strengthening of bridgesor even construction of diversions at times. Here again, a detailed planning isrequired 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 beused. This might also require transportation of components in dismantledcondition which in turn would require setting up of component assembly worksat the site itself. These aspects become all the more important since most of the 4
  5. 5. high potential wind energy sites are located at remote and inaccessible areas farfrom human habitation.Mathematical equation of the caseThe following financial equation is used for assessing the financial viability ofowning 220 tonne crane versus hiring it from the market:• Average return on investment• Investment pay-back period• Net present value• Internal rate of returnTotal 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 annumAdditional Assumptions required for CalculationsOperating life for a crane 10 yearsSalvage value at the end of operating life Rs 6.23 million( 20 % of original investment of Rs 31.15 million) Equity-Debt ratiofor project financing 60 : 40Return expected by Enercon on its own equity 20 % per annumNet total taxation rate applicable to Enercon 33 % on incremental profitsDepreciation provision on straight line basisCalculationsAverage Return on Investment (ROI)Annual savings by Enercon owning the crane Rs 8.00 millionReturn on investment (PBDIT) 31 % 5
  6. 6. Pay-back Period for InvestmentAnnual cash-flow (before depreciation) Rs 8.00 millionPay-back period for investment (31.15 /8.00 ) 3.9 yearsNet 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 annumCost of expected return on equity investment on 60 % ofProject cost at 20 % per annum return on equity 12.00 % per annumTotal weighted average cost of capital (WACC) 15.8 % per annumNet Present Value(Considering 20% salvaged value of investment at end of 10th year) Rs 40.4millionInternal Rate of Return (IRR) 23%Based on all the four criteria considered, it is clear that owning a 220 tonnecrane is an attractive proposition. Hence, Enercon should own at least one suchcrane initially.* Source: Exhibit 19, Comparative Statement between Owning and Hiring ofCrane by Enercon.Some Outcome From project 1) PROJECT TIME 6
  7. 7. 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 COST 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. 3) TOTAL QUALITY MANAGEMRNT OF PROJECT There 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 STRUCTURE At 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. 7
  8. 8. • planning of power evacuation and approach roads.5) ORGANISATION BEHAVIOUR TOWARDS PROJECT EIL 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 APPROACH Company 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 PROJECT There 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 TEAM There 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 SYSTEM Company follow various system likes ERP and SAP and WBS system for planning of project. Company control their time, cost, quality, resources, employees and teams10) 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. 8
  9. 9. POSSIBLE UTCOME AND LEARNING 1) HUMAN RESOURCES HR 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. 9
  10. 10. 3) OPERATION MANAGEMENT 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 MANAGEMENT Various 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) FORCASTING There 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 DEPARTMENT Manufacturing 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 MANAGEMENT Manufactured 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 MANAGEMENT The 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. 1 0
  11. 11. COST BENEFIT ANALYSISYes, it is feasible in this type of condition.Assume that ¸ if the project is not finish in a deadline of 30th sep.2003. On thatcondition 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 millionClients loose the 427 million Rs. Because of not finishing the project within thetime period And other additional cost attached with the extra days to finish theproject. Assume that ¸ if the project is finish in a deadline of 30 th sep.2003. onthat condition client does get benefit froms 600million project.Benefits, Client gets depreciation and tax benefit Company get profit from theproject Market believes in that company’s ability to handle wind energy project“from concept to commissioning and beyond.” 1 1