This document discusses conducting a sensitivity analysis on a proposed investment to install power savers on street lights along a road project to reduce energy costs. It analyzed two alternatives: installing power savers on the existing sodium vapor lamps, or replacing them entirely with LED lights. Field tests showed power savers could reduce energy usage by 25%. A financial model evaluated funding options and found debt financing in phases for one package and full debt financing for the other package yielded the highest returns. Sensitivity analysis showed the investment was not highly sensitive to cost increases up to 50% but could become unprofitable if the remaining concession period was reduced by over 28%. The proposal was concluded to improve profits but was not implemented due to time and cost constraints.

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Mantra for Entrepreneurial Project Management
Bhavesh Thakkar
Dy Manager
Gammon India Limited

2. Decision Analysis for successful Project Investment in midcourse of
BOT Infrastructure Projects
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Theme – Mantra for Entrepreneurial Project Management
Abstract
For any Projects selection, organization invariably undertakes Sensitivity Analysis, if project offers either
decent IRR or positive NPV. Sensitivity analysis particularly pivots on understanding few key variables
like revenue fluctuations in Toll etc and its consequences before finally agree to bid / sign the Concession
Agreement.
In midcourse, some process excellence or innovative methodologies may emerge to improve bottom line
or top line which may require considerable investment. Iloiu and Csiminga have devised methodology of
Sensitivity Analysis using the guided criteria of Switching Value and Sensitivity Indicator which proves to
be very effective tool for better selection.
Case Study to reduce Energy Costs of street lighting by using Power Savers, in Operation phase of PLC
which in turn can improve bottom line and enhances company’s brand value, was taken up in a 4 lane
divided road project between Rajahmundry and Tuni in Andhra Pradesh on NH 16 using this stated
approach.
The analysis provides the following major conclusions:
On Switching Value:
a) Up to Impact of 50% increase in Cost in Investment , IRR would be above the Cost of Capital
thereby NPV will be positive in these range;
b) But for any reason, Balance Concession Period as envisaged for this analysis gets reduced due
to capacity augmentation by NHAI or Concessionaire delays in implementing this feasibility
exercise by more than 28% of balance period, NPV would be less than zero
On Sensitivity Indicator:
a) Low sensitivity indicator ranging between 1.2% and 4.9% on cost of equipment and balance
project duration indicates positive NPV.

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Table of Contents
Sl. No Contents Page No
1.0 Introduction 3
2.0 Project Details 3
3.0 Case genesis of Energy conservation 4
4.0 Evaluating options 5
5.0 Field Experimentation 7
5.1 Fixture of Power Saver 7
5.2 Fixture of LED Lights 8
5.3 Comparison of Alternatives 8
6.0
Financial model of project investment including capital
budgeting
9
6.1 Method Approach 9
6.2 WACC analysis and project assumptions 9
6.3
Identifying locations of Investment and evaluation of
alternatives
10
7.0 Sensitivity Analysis 12
7.1 Identification of Variables 13
7.2 Calculation of effects of changing Variables 13
7.3 Sensitivity Analysis of risk factors: 14
8.0 Result observations 14
9.0 Conclusions 14
10.0 Acknowledgements 15
11.0 References 15

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1.0 Introduction:
Survival in infrastructure industry in an environment of highly unorganized section, fragmented, intense
rivalry, wafer thin margins amidst opportunities for executing Road projects but lacking in supply side
issues such as non-availability of professional management skill and insufficient equipment had brought
almost all the companies to an alarming situation because of cost overruns and declining profit margins
across the board
This is even particular especially when any investment proposal in O & M Phase of Project Life Cycle is
not keenly given due importance and as a result, good opportunity is lost for improving bottom line
especially when projects are being executed on Annuity basis.
A Case study conducted in our 100 Km Road Project which had approximately 40% of yearly expenses
towards Energy consumption bills. Feasibility studies states that investment of Rs. 19.7 Lakhs towards
installing Power Saver Equipment will yield around 25% savings in Energy consumption
These operational efficiencies if implemented, by infusing capital investment, will enhance brand image,
improve bottom line, and bring sustainability. Unless the scenario of any future impact due to likely policy
changes is evaluated it is likely that the decision taken in favorable condition may go haywire and
therefore Sensitivity Analysis, desirable tool, has to be undertaken using IRR and NPV
2.0 Project Details:
it is a 100Km long Operation and Maintenance Road Project of two continuous packages namely
Rajahmundry Expressway Limited (53 Kms) and Andhra Expressway Limited (47 Kms) being executed by
Gammon Infrastructure Projects Limited, a subsidiary of Gammon India Limited is in 15 years O & M
Phase slated to end in Nov 2019.
In O & M period, Concessionaire has to carry out the routine maintenance works such as Corridor
Cleaning, Reinstating the damaged / missing road furniture, median plantation, Street lighting, repairs to
pavement such as pot holes and crack sealing, re-doing the faded road marking, providing emergent first
aid treatment to accident victims, clearing the blocked vehicles on carriage way etc. besides executing
periodic maintenance works in every fifth year.
Among the above, Major component of routine maintenance activities constitute towards incurring the
energy charges of street lighting which is 42% of total monthly expenses.
There exists a scope of process improvement amidst customer dissatisfaction in the area of minimizing
energy consumption

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3.0 Case Genesis on Energy Conservation:
The Project site had provided Street lighting in all urban areas within corridor. Source of power for
illumination is APGENCO supplied electricity. Barring Toll Plaza location, no other location has any
standby power generation.
Package No of locations No of Poles No of bulbs (250 W)
AP – 15 ( REL) 14 504 880
AP – 16 ( AEL) 13 774 1157
Total 27 1278 2037
Table 1 – Details of Electrical Installations
The site are in receipt of customer complaints for the below par performance from operational
deliverables as stipulated in Concession Agreement.
The root causes of below par performance were evaluated using Fish bone method as drawn below:
Key
factor
Fig 1 – Fish bone diagram of Illumination for below par performance

6. Out of the above causes, barring Electricity Transmission issues all other parameters are man managed
with effective planning and execution. While experimenting, it is understood that electrical losses are to
the extent of 25% in transmission due to fluctuation of voltage termed as Spikes. The sudden voltage
fluctuations are not considered in inputs by any of the electrical appliances and thus these spikes go as a
waste of electricity and an alternate solution needs to be adopted to minimize wastage which in turn can
reduce costs and improve bottom line.
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4.0 Evaluating options
Life cycle project management is necessary because of turbulent environments (particularly shifting
markets), the rapid rate at which technology changes, the increasing influence of the host communities
and stakeholders, and the environmental, social, safety and legal implications of capital projects (Jaafari
2000; Jaafari & Manivong 2000).
Fig 2 – Pictorial representation of choosing projects
To improve the performance, options are explored using Saaty’s analytical hierarchy process which
advocates usage of weighted average criteria.
Criteria and qualifying parameters for rating are tabulated below:

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Table 2 - Weightage criteria of qualitative parameters of illumination
Table 4 – Ratings assigned for qualitative deliverables
However, the evaluation of detailed investment analysis with respect to the balance time of the
Concession period needs to be computed for preferred lighting (existing setup (SV) lights of Power saver
vis-à-vis LED lights on conventional electricity
Physical features of the all the alternatives are studied with the existing provisions before zeroing on
choosing the options:

8. But considering the customer need from the above survey and feasibility, two alternatives are possible
for enhancing the customer satisfaction and meeting road user needs;
 Addition of spike utilization devices for smoother flow of electricity such as Power Savers
to the existing setup and assess the power consumption to minimize cost and
improvement in efficiency;
 Introduction of new technology of LED lights by replacing the entire Sodium Vapor lamp
setup which has high investment cost but low power consumption to be evaluated with
reference to the balance time;
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5.0 Field Experimentation
Field experimentation at site was undertaken for two options
5.1 Fixture of Power saver to the existing 250 W Sodium Vapor lamp being operated on
conventional basis;
Fig 3 – Power Saver Experimentation Fig 4 – Power Saver Experimentation
Trial tests were conducted at our AEL Maintenance Yard using Servomax ‘Power Saver’ by fixing Power
saver to the setup without operating power saver to know the utilization of spikes quantum of energy for
conserving the electrical energy.
The readings were taken at one and half hour intervals to also study the fluctuation in voltages and
ampere readings
The Summary of the test results are tabulated as under:
Load Applied : 750 W
Test duration / day : 12 hours

9. 5.2 Fixture of LED lights functioning on the normal conventional supply from APEPDCL
Since, the usage of LED lights is in developing stage of introduction at various places in the
country including our present town, Rajahmundry. Usage of LED lights is a deviated item from
the scope of works. As such, if at all, it needs to be initiated under NHAI approval for modification
of scheme. However, if adopted, the following is comparative table
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5.3 Comparison of alternatives
Table 7 – preliminary comparison of initial costs

10. In light of obtaining the similar savings in the power, investment of Rs. 41.0 Lakhs is far viable than
the investment of Rs. 10 Cr.
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6.0 Financial Model for the Project Investment including Capital Budgeting
“Time is the essence of the Contract” and similarly timely investment is the key driver for
obtaining the first mover advantage to improve the profitability of the organization. Based on the
technical findings, it is the time to capitalize the opportunity for investment for obtaining smart
returns
The question remains how to tap the savings in energy wattage can be translated into
income by suitably investing in the system wherein the time and expenses have been
frozen.
6.1 Method Approach for analyzing the Project Investment
The viability of project investment is done in the following sequence
 Calculate the Savings from the present billing trend;
 Freeze Project assumptions like tax rates, risk parameters and other components;
 Do WACC analysis and arrive D/E ratio;
 Identify the locations of investment ;
 Evaluate the project feasibility in different conditions;
 Compute Cash flow statement based on the project assumptions;
 Determine Internal Rate of Return and Net Present Value on all the parameters;
 Select the best option inclining towards 15% profitability;
 Carry out sensitivity analysis;
6.2 WACC Analysis and Project Assumptions
WACC Analysis is tabulated below:
Table 8 – WACC Analysis

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Table 9- Project Assumptions
6.3 Identifying locations of Investment and evaluating various alternatives
On evaluation of present energy consumption vis-à-vis theoretical gains, 21 locations are chosen
from 26 locations to be provided with Power Saver Equipment
Investment feasibility is evaluated for IRR, NPV and Cost Improvements in four conditions
separately for these two packages:
 Debt funding in first phase followed by internal accruals in second phase
 Debt funding in two phases
 Entire Debt funding at the beginning of project
 Own Equity at the beginning of the Project
Sample Result among the eight alternatives is depicted below:

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Table 10- IRR and NPV analysis for one of the alternative
The summary results of all the options are tabulated below for taking appropriate decisions:
Table 11 – Summary of Project Investment

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With the above analysis, it was financially concluded to opt with the below recommendations:
REL Package: Debt financing in first phase and through internal accruals in second phase
AEL Package: Entire Debt financing in one go.
The likely net savings with this above proposal would fetch in improving bottom line by Rs. 7.1 mn in
balance concession period.
Table 12 – Final Proposal of Investment
7.0 Sensitivity Analysis
The purpose of sensitivity analysis is
 To help identify the key variables which influence the project cost and benefit streams
 To investigate the consequences of likely adverse changes in these key variables
 To assess whether the project decisions are likely to be affected by such changes
 To identify actions that could mitigate possible adverse effects on the project
Sensitivity analysis needs to be conducted to understand its impact on both financial and
economical internal rate of return. Model suggested in this risk evaluation method is based on
the Technical Paper submitted at Annals of the University of Petrosani, Economics by Mirela
Iloiu and Diana Csiminga
Sequence of steps to be adopted:

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7.1 Identification of Variables
Considering the project under study, the author identifies two variables to assess the impact on
possible changes on the recommended proposal of IRR and NPV on the following risks:
 Cost of the Assets due to delay in approval from Head Office;
 Balance Concession period as the adjacent packages have already been awarded for six
laning works.
7.2 Calculation of effects of changing Variables:
The values of the basic indicators of project viability (EIRR and ENPV) should be recalculated for
different values of key variables. This is preferably done by calculating sensitivity indicators
and switching values which is reproduced below:
Table 13 – Explanation of SI and SV

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7.3 Sensitivity Analysis of risk factors:
Financial Model for Price increase of 10% and duration reduction by every one year is prepared
and analyzed using the above formula and obtain the following results:
8.0 Result Observations:
Price Variable:
The values obtained in Sensitivity Indicator are far less than the discount factor of around 12%.
As such the price is not critical for both the packages as indicated in Sensitivity Indicator
On the price front as indicated in switching value, unless increase in prices vary minimum around
50% to have NPV Value zero equivalent to Cost of Capital.
Duration Variable
The values obtained in Sensitivity Indicator are less by around 8 ½ percent as such price is not
the critical issue
However on the duration front, switching value indicates that no economic value will be added to
investment proposal, if duration reduces by 20.40%.
9.0 Conclusions:
As a result, Rs. 71 Lakhs can be saved providing annual savings of around 12% in the balance
concession period of 7 years with Positive NPV and IRR 35%.
Up to Impact of 50% increase in Cost in Investment, IRR would be above the Cost of Capital
thereby NPV will be positive in these range;
But for any reason, either Balance Concession Period as envisaged for this analysis gets reduced
due to capacity augmentation by NHAI or Concessionaire delays in implementing this feasibility
exercise by more than 28% of balance period, NPV would be less than zero

16. Due to cost constraints amidst economic slowdown, Company could not envisage this proposal
till now and thereby great opportunity is lost now due to balance concession period being only five
years. However still, if management pursues, it can have process improvement to fulfill green
objectives and at the time of handover, these power savers can be shifted to other project sites to
have positive economic value added scenario
Thus leveraging PM methodologies and leadership skills can launch new innovations at the
earliest possible time and gain competitive advantage.
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10.0 Acknowledgements
The Author thanks PMI for giving the opportunity to present the paper. The Author also thanks
entire team of Rajahmundry Site team comprising M/s. Bhagavan Raju, and other team members
besides GIPL Management for facilitating this experimentation to give way for this new thought
process. The Author thanks Mr. D. V Prasad, Power tech solutions for permitting his equipment at
site for demonstration and evaluation. The Author also thanks Mr. M. U. Shah, member- BoM for
his constant guidance and encouragement in submitting this paper. The Author also thanks
various authors shown in the references for providing their various valuable insights in their
respective fields to culminate this overall innovation into possible new thought process of
sustainable project execution
11.0 References:
1) Concession Agreement signed between REL / AEL with NHAI, Asset Deliverable
Criteria(2001) , Appendix A of Schedule I,
2) European Renewable Energy council, Green Peace (2007), A report on Indian National
Energy Scenario
3) Giedrius Grondskis, Alfreda Sapkauskiene(2011) – Cost Accounting information use for
product mix design (Eknomica IR Vadyaba,2011:16)
4) Jack R. Meredith, Samuel J. Mantel (2010)- Text book of Project Management, a Managerial
approach, seventh edition
5) L. Dwayne Barney Jr., Morris G. Danielson(20034) – Ranking mutually exclusive projects –
The role of duration, The Engineering Economist, 49 , 43 -61
6) ManTech Associates(2012), Catalogue on Servomax Power Savers by, pp1-3
7) Mirela Iloiu, Diana Csiminga(2009) – Project risk evaluation methods – Sensitivity Analysis ,
Annals of the University of Petrosani, Economics, 9(2), 2009, 33-38
8) Project Management Institute(2013), “A Guide to the Project Management Body of
Knowledge”, fifth edition