Project Management with Mikola Andrejeu #2

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Project Management. Project Planning n Phases

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Project Management with Mikola Andrejeu #2

  1. 1. <ul><ul><li>IPM. PM in India. </li></ul></ul><ul><ul><li>PMP. </li></ul></ul><ul><ul><li>PMBOK. </li></ul></ul>Homework
  2. 2. 10 June 2010 Project Planning and Phases
  3. 3. Project Planning and Phases <ul><li>Phases of Capital Budgeting </li></ul><ul><li>Project Analysis Facets </li></ul><ul><li>Resource Allocation Framework </li></ul><ul><li>Generation & Screening of Project Ideas </li></ul>
  4. 4. Capital Budgeting = <ul><li>… may be defined as the firm’s </li></ul><ul><li>decision to invest its funds in </li></ul><ul><li>the project to get the benefit </li></ul><ul><li>over the years. </li></ul><ul><ul><ul><li> … the major consideration in taking a capital budgeting decision is to evaluate its returns as compared to its investment. </li></ul></ul></ul>
  5. 5. Capital Budgeting
  6. 6. Capital Budgeting: Phases Planning Analysis Selection Implementation Review
  7. 7. Capital Budgeting: Phases / Planning Planning
  8. 8. Capital Budgeting: Phases / Analysis <ul><li> Planning: Worthwhile. </li></ul><ul><li>Gathering and summarizing relevant info about various project proposals which are being considered. </li></ul>Analysis
  9. 9. Capital Budgeting: Phases / Selection <ul><li>Planning n Analysis: Worthwhile n Selected. </li></ul><ul><li>Criteria to judge the suitability of the project: </li></ul><ul><ul><li>I Non-discounting </li></ul></ul><ul><ul><li>II Discounting </li></ul></ul>Selection
  10. 10. Capital Budgeting: Phases / Selection
  11. 11. Capital Budgeting: Phases / Selection <ul><li>Why $ should have time value? </li></ul><ul><ul><ul><li>$ can be invested productively to generate additional return. </li></ul></ul></ul><ul><ul><ul><li>Inflation: lower purchasing power in the future. </li></ul></ul></ul><ul><ul><ul><li>Since the future is uncertain, individuals prefer current consumption to future consumption. </li></ul></ul></ul>Non-discounting criteria: ignore time value of money
  12. 12. Capital Budgeting: Phases / Selection <ul><ul><ul><li>Consider time value of money. </li></ul></ul></ul><ul><ul><ul><li>Give a clear cut decision rule. </li></ul></ul></ul><ul><ul><ul><li>All the cash flows are considered, including working capital and salvage value. </li></ul></ul></ul><ul><ul><ul><li>The risk associated with future uncertainties can be easily incorporated by adjusting the required rate of return . </li></ul></ul></ul>Advantages of Discounted Cash Flow Techniques
  13. 13. Capital Budgeting: Phases / Impl. <ul><li>Implementation </li></ul><ul><li>I Adequate Formulation of Project. </li></ul><ul><li>II Assignment of Responsibilities. </li></ul><ul><li>III Use of Network Techniques. </li></ul>Implementation
  14. 14. Capital Budgeting: Phases / Review <ul><li>Feedback device may be proved useful bkz: </li></ul><ul><ul><ul><ul><ul><li>It throws the light on how realistic were the assumptions. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Provides experience which is highly valuable in future decision making. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>It suggests corrective action to be taken in the light of actual performance. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>It helps in uncovering judgmental biases </li></ul></ul></ul></ul></ul>Review
  15. 15. Project Analysis <ul><ul><ul><ul><ul><li>Project Analysis Facets: </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Market Analysis </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Financial Analysis </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Ecological Analysis </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Technical Analysis </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Economical Analysis </li></ul></ul></ul></ul></ul>
  16. 16. Project Analysis: Market Analysis <ul><li>Future: </li></ul><ul><li>Aggregate demand of the proposed product/service? </li></ul><ul><li>Market share of the project under appraisal? </li></ul><ul><li>Past consumption trends n present level </li></ul><ul><li>Past n present supply position </li></ul><ul><li>Imports and Exports </li></ul><ul><li>Level of competition </li></ul><ul><li>Elasticity of demand </li></ul><ul><li>Consumer behavior, motivation, attitude, preferences n requirements </li></ul><ul><li>Administrative, technical n legal constraints. </li></ul>
  17. 17. Project Analysis: Tech Analysis Determines if the pre-requisites for successful project implementation have been considered and good choices have been made. ? preliminary test ? availability of raw materials, power n other inputs ? suitable production process ? appropriate machines n equipments ? proposed layout of the plant n building is appropriate ? proposed technology is appropriate from social point of view.
  18. 18. Project Analysis: Financial Analysis <ul><li>Questions: </li></ul><ul><li>Cost of the project </li></ul><ul><li>Preparation of cost estimates </li></ul><ul><li>Means of financing </li></ul><ul><li>Financial institutions </li></ul><ul><li>Financial projections </li></ul><ul><li>Cost of capital </li></ul><ul><li>Project profitability </li></ul><ul><li>Break-even point </li></ul><ul><li>Cash flows of the project </li></ul><ul><li>Projected financial position </li></ul><ul><li>Level of risk </li></ul>
  19. 19. Project Analysis: Economic Analysis <ul><li>Impact of the project: </li></ul><ul><li>Contribution to economic development </li></ul><ul><li>Contribution to region development </li></ul><ul><li>Direct economic benefits and costs of the project in terms of efficiency prices </li></ul><ul><li>Distribution of income in society </li></ul><ul><li>Savings and investments in the society Improving employment opportunities, self-sufficiency and social order </li></ul>
  20. 20. Project Analysis: Ecological Analysis <ul><li>Ensure sustainability: </li></ul><ul><li>+ better life for man </li></ul><ul><li>+ conservation of the diversity of this planet </li></ul><ul><li>What is the likely damage caused by the project to the environment? </li></ul><ul><li>What is the cost of measures required to control the damage to the environment within acceptable limits? </li></ul>
  21. 21. Resource Allocation <ul><ul><ul><ul><ul><li>Resource Allocation Framework: </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Key Criteria </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Elementary Investment Strategy </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Portfolio Planning Tools </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>SPACE </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Debate Over Diversification </li></ul></ul></ul></ul></ul>
  22. 22. Resource Allocation Framework 3 Key Criteria Basic objective of the company is to maximize the wealth of shareholders. Profitability = relationship between Profit & Investment <ul><ul><ul><li>Measuring profitability: </li></ul></ul></ul><ul><ul><ul><ul><li>Profit after tax </li></ul></ul></ul></ul><ul><ul><ul><ul><li>------------------ </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Tax Net-worth </li></ul></ul></ul></ul>
  23. 23. Resource Allocation Framework Elementary Investment Strategy
  24. 24. Resource Allocation Framework Portfolio Planning Tools
  25. 25. Resource Allocation Framework Strategic Position n Action Evaluation (SPACE)
  26. 26. Resource Allocation Framework Debate Over Diversification
  27. 27. Resource Allocation Framework Interface Between Strategic Planning and Capital Budgeting Environment assessment Managerial Vision, Values and Attitudes Corporate Appraisal Strategic Plan Capital Budgeting Strategies (Product, Market, Production, …)
  28. 28. Project Ideas <ul><ul><ul><ul><ul><li>Generation and Screening of Project Ideas </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Generation of ideas </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Monitoring the environment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Corporate appraisal </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Scouting for project ideas </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Preliminary screening </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Project rating index </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Sources of positive net present value </li></ul></ul></ul></ul></ul>
  29. 29. Project Ideas <ul><ul><ul><ul><ul><li>E.g. SWOT Strengths </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Weaknesses </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Opportunities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Threats </li></ul></ul></ul></ul></ul>Generation of Ideas
  30. 30. Project Ideas <ul><li>Economic Sector </li></ul>Monitoring the Environment <ul><li>Overall growth rate </li></ul><ul><li>Growth rate of primary n secondary sectors </li></ul><ul><li>Cyclical fluctuations </li></ul><ul><li>Inflation rate </li></ul><ul><li>Balance n Payment situation </li></ul><ul><li>Linkage with world economy </li></ul>
  31. 31. Project Ideas <ul><li>Government Sector </li></ul>Monitoring the Environment <ul><li>Industrial policy </li></ul><ul><li>Government projects </li></ul><ul><li>Import n export policies </li></ul><ul><li>Financial norms </li></ul><ul><li>Lending conditions of financial institutions </li></ul>
  32. 32. Project Ideas <ul><li>Tech Sector </li></ul>Monitoring the Environment <ul><li>Emergence of new technologies </li></ul><ul><li>Access to technical know how </li></ul>
  33. 33. Project Ideas <ul><li>Socio-demographic Sector </li></ul>Monitoring the Environment <ul><li>Population trends </li></ul><ul><li>Distribution of Income </li></ul><ul><li>Women Entrepreneurship </li></ul><ul><li>Attitudes towards consumption n investment </li></ul>
  34. 34. Project Ideas <ul><li>Competition Sector </li></ul>Monitoring the Environment <ul><li>Number of firms in the industry </li></ul><ul><li>Homogeneity n differentiation among product </li></ul><ul><li>Marketing policies n practices </li></ul><ul><li>Comparison with substitutes in terms of quality, price </li></ul>
  35. 35. Project Ideas <ul><li>Supplier Sector </li></ul>Monitoring the Environment <ul><li>Availability and cost of raw materials, energy, etc. </li></ul>
  36. 36. Project Ideas <ul><li>Marketing n distribution </li></ul>Corporate Appraisal <ul><li>Market Share </li></ul><ul><li>Product Line </li></ul><ul><li>Distribution Network </li></ul><ul><li>Customer Loyalty </li></ul><ul><li>Marketing n Distribution costs </li></ul>
  37. 37. Project Ideas <ul><li>Production n Operations </li></ul>Corporate Appraisal <ul><li>Plant capacity n conditions </li></ul><ul><li>Availability of raw material </li></ul><ul><li>Locational advantage </li></ul>
  38. 38. Project Ideas <ul><li>Research n Development </li></ul>Corporate Appraisal <ul><li>Research capabilities of the firm </li></ul><ul><li>New product developments </li></ul><ul><li>Coordination between research n operations </li></ul>
  39. 39. Project Ideas <ul><li>Personnel </li></ul>Corporate Appraisal <ul><li>Competence n commitment of employees </li></ul><ul><li>Dynamism of top management </li></ul><ul><li>State of industrial relations </li></ul>
  40. 40. Project Ideas <ul><li>Finance n Accounting </li></ul>Corporate Appraisal <ul><li>Financial leverage n borrowing capacity </li></ul><ul><li>Cost of capital </li></ul><ul><li>Relations with shareholders n creditors </li></ul><ul><li>Accounting n control system </li></ul>
  41. 41. <ul><ul><ul><ul><ul><li>Analyze the Existing Performance </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Examine the Inputs n Outputs of Various Industries </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Study the Government’s Guidelines </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Analyze economic n Social Trends </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Identify Unfulfilled Psychological Needs </li></ul></ul></ul></ul></ul>Project Ideas Scouting for Project Ideas
  42. 42. <ul><ul><ul><ul><ul><li>Compatibility with the Entrepreneur </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Consistency with Governmental Priorities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Availability of Inputs </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Adequacy of Market </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Reasonable Cost </li></ul></ul></ul></ul></ul>Project Ideas Preliminary Screening
  43. 43. <ul><ul><ul><ul><ul><li>Identify relevant factors for project rating </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Assign weights to these factors </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Rate the project proposal on various factors </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Multiply the factor rating with the factor weight to the factor score </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Add all the factor scores to get the overall project rating index </li></ul></ul></ul></ul></ul>Project Ideas Project Rating Index
  44. 44. <ul><ul><ul><ul><ul><li>Economies of Scale </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Product Differentiation </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Cost Advantage </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Marketing Research </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Technological Advancement </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Government Policy </li></ul></ul></ul></ul></ul>Project Ideas Sources of Positive Net Present Value <ul><ul><ul><ul><ul><li>Effective advertisement </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>High quality n dependability </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Innovative product </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Better service </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Favorable location </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Effective cost control n cost reduction </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Monopoly over low cost materials </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Import restrictions </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Special tax relief </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Restrictive licensing </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Environmental control </li></ul></ul></ul></ul></ul>
  45. 45. Project Ideas Competitive Analysis
  46. 46. Homework: 17.06.2010 <ul><ul><li>Strategy. </li></ul></ul><ul><ul><li>Portfolio. </li></ul></ul><ul><ul><li>SWOT. </li></ul></ul>

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