Project Planning and Evaluation

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Semester: Sixth Semester
Name of the Subject:
Project Planning and Evaluation
Unit-1

Capital Investment
• Capital investment refers to funds invested in a firm
or enterprise for the purpose of furthering its
business objectives. Capital investment may also
refer to a firm's acquisition of capital assets or fixed
assets such as manufacturing plants and machinery
that is expected to be productive over many years.
Sources of capital investment are manifold and can
include equity investors, banks, financial institutions,
venture capital and angel investors.

Types of Capital Investment
• New Products or New Markets
• Expansion of Existing Products or Markets
• Replacement Project Necessary to Continue
Operations as Usual
• Replacement Project Necessary to Reduce
Business Costs

Importance Of Capital Investment
• Develop and formulate long-term strategic
goals
• Seek out new investment projects
• Estimate and forecast future cash flows
• Facilitate the transfer of information
• Monitoring and Control of Expenditure
• Creation of Decision

Capital Budgeting Phases
• The phases of the capital budgeting process include
the following:
• Description of the need or opportunity
• Identification of alternatives
• Evaluation of the options and the relevant cash
flows of each
• Selection of best alternative
• Conducting a post-completion audit of the projects.

Levels of decision making
• Strategic decisions are long-term in their impact.
They affect and shape the direction of the whole
business. They are generally made by senior
managers. The managers of the bakery need to take
a strategic decision about whether to remain in the
cafe business. Long-term forecasts of business
turnover set against likely market conditions will help
to determine if it should close the cafe business.

• Tactical decisions help to implement the
strategy. They are usually made by middle
management. For the cafe, a tactical decision
would be whether to open earlier in the
morning or on Saturday to attract new
customers. Managers would want research
data on likely customer numbers to help them
decide if opening hours should be extended.

• Operational decisions relate to the day-to-day
running of the business. They are mainly
routine and may be taken by middle or junior
managers. For example, a simple operational
decision for the cafe would be whether to
order more coffee for next week. Stock and
sales data will show when it needs to order
more supplies.

Feasibility Study
• A feasibility study is a type of analysis used in
measuring the ability and likelihood to
successfully complete a project including all
relevant factors. It must account for factors
that affect it such as economic, technological,
legal and scheduling factors.

Objectives of Capital Budgeting
• To find out the profitable capital expenditure.
• To know whether the replacement of any existing fixed assets
gives more return than earlier.
• To decide whether a specified project is to be selected or not.
• To find out the quantum of finance required for the capital
expenditure.
• To assess the various sources of finance for capital
expenditure.

DISADVANTAGES OF CAPITAL BUDGETING
• Capital budgeting decisions are for long-term and are majorly
irreversible in nature.
• Most of the times, these techniques are based on the
estimations and assumptions as the future would always
remain uncertain.
• Capital budgeting still remains introspective as the risk factor
and the discounting factor remains subjective to the
manager’s perception.
• A wrong capital budgeting decision taken can affect the long-
term durability of the company and hence it needs to be done
judiciously by professionals who understands the project well

Strategic planning
• Strategic planning is an organization's process of defining
its strategy, or direction, and making decisions on allocating
its resources to pursue this strategy. It may also extend to
control mechanisms for guiding the implementation of the
strategy. Strategic planning became prominent in corporations
during the 1960s and remains an important aspect of strategic
management. It is executed by strategic planners
or strategists, who involve many parties and research sources
in their analysis of the organization and its relationship to the
environment in which it competes

Diversification
• Diversification is a corporate strategy to enter into a new
market or industry in which the business doesn't currently
operate, while also creating a new product for that new
market. This is the most risky section of the Ansoff Matrix, as
the business has no experience in the new market and does
not know if the product is going to be successful.
• Diversification is one of the four main growth strategies
defined by Igor Ansoff's Product/Market matrix

Capital Structure
• The capital structure is how a firm finances its overall
operations and growth by using different sources of
funds. Debt comes in the form of bond issues or
long-term notes payable, while equity is classified
as common stock, preferred stock or retained
earnings. Short-term debt such as working capital
requirements is also considered to be part of the
capital structure.

Means of Financing
• Preference Capital or Preference Shares
• Debenture / Bonds
• Medium Term Loans from
– Financial Institutes
– Government, and
– Commercial Banks

• Short Term Loans like Working Capital Loans from
Commercial Banks
• Fixed Deposits for a period of 1 year or less
• Advances received from customers
• Creditors
• Payables
• Factoring Services
• Bill Discounting etc
Means of Financing

Venture Capital
• It is a private or institutional investment made into early-stage
/ start-up companies (new ventures). As defined, ventures
involve risk (having uncertain outcome) in the expectation of
a sizeable gain. Venture Capital is money invested in
businesses that are small; or exist only as an initiative, but
have huge potential to grow. The people who invest this
money are called venture capitalists (VCs). The venture capital
investment is made when a venture capitalist buys shares of
such a company and becomes a financial partner in the
business.

Features of Venture Capital
investments
• High Risk
• Lack of Liquidity
• Long term horizon
• Equity participation and capital gains
• Venture capital investments are made in innovative
projects
• Suppliers of venture capital participate in the
management of the company

Raising Venture Capital from International
Market
• Euro Issue
• Global Depository Receipts (GDRs)
• American Depository Receipts (ADRs)
• Foreign Currency Convertible Bonds (FCCBs)
• External Commercial Borrowings (ECBs)

Project cost
• Cost management is concerned with the
process of planning and controlling the budget
of a project or business. It includes activities
such as planning, estimating, budgeting,
financing, funding, managing, and controlling
costs so that the project can be completed
within the approved budget.

The Projected Cash Flow
Statement
• A projected cash flow statement is used to evaluate
cash inflows and outflows to deter. mine when, how
much, and for how long cash deficits or surpluses will
exist for a farm business during an upcoming time
period. That information can then be used to justify
loan requests, determine repayment schedules, and
plan for short-term investments. This publication
focuses on preparing and using a projected cash flow
statement in managing the farm business.

projected balance sheet
• Forecasting Balance Sheet. A projected
balance sheet, also referred to as pro forma
balance sheet, lists specific account balances
on a business' assets, liabilities and equity for
a specified future time.

Semester: Sixth Semester
Unit-2

Market Demand Analysis
• The total purchase value, or revenue earned
by a product or service within a specified
demographic at a given point in time (across a
range or a time period), in a specific location,
is known as market demand. To accurately
ascertain demand, a strong focus on the
demographic needs to be maintained.

Market Survey
• The purpose of a market survey is to provide
business managers with insight about their
target customers, such as how much money
they spend on certain types of products,
whether they use competing products and the
interest level for new products.

Demand Forecasting
• Demand Forecasting refers to the process of
predicting the future demand for the firm’s
product. In other words, demand forecasting
is comprised of a series of steps that involves
the anticipation of demand for a product in
future under both controllable and non-
controllable factors.

• Demand forecasting enables an organization to take
various business decisions, such as planning the
production process, purchasing raw materials,
managing funds, and deciding the price of the
product. An organization can forecast demand by
making own estimates called guess estimate or
taking the help of specialized consultants or market
research agencies. Let us discuss the significance of
demand forecasting in the next section.
Demand Forecasting

Situation analysis
Situation analysis refers to a collection of
methods that managers use to analyze an
organization's internal and external
environment to understand the organization's
capabilities, customers, and business
environment.

Secondary Data Collection
When the data are collected by someone else
for a purpose other than the researcher’s
current project and has already undergone the
statistical analysis is called as Secondary Data.

Secondary Data Collection Methods
• Government censuses, like the population census,
agriculture census, etc.
• Information from other government departments,
like social security, tax records, etc.
• Business journals
• Social Books
• Business magazines
• Libraries

Conduct a Market Survey
• Market survey is a systematic collection,
recording, analysis and interpretation of data
relating to the existing or potential market for
a product or services A market survey is a
useful tool for contact with the market.

TECHNICALANALYSIS
Technical analysis of a project idea includes
designing the various processes, installing
equipment, specifying material, and prototype
testing. ... Therefore, location of the project,
type of technology to be used, and method of
effluent disposal are decided only after taking
these factors into consideration

Manufacturing Process/Technology
For manufacturing a product / service often two or more alternative
technologies are available . The choice of technology is influenced
by a variety of considerations:
Choice of Technology
The choice of technology is influenced by a variety of
considerations
• Plant capacity
• Principal inputs
• Investment outlay and production cost

Technical Arrangements
Satisfactory arrangements must be made to obtain the
technical know-how needed for the proposed manufacturing
process. When collaboration is sought, inter alia, the
following aspects of the agreement must be worked out in
detail.
•The price of technology in terms of one time licensing fee and
periodic royalty fee.
•The continuing benefit of research and development work being done
by the collaborator.
•The period of collaboration agreement

Material Inputs and Utilities
An important aspect of technical analysis is concerned with defining the
materials and utilities required, specifying their properties in some detail,
and setting up their supply programme.
Materials and utilities may be classified into four broad categories:
• Raw materials
• Processed industrial materials and components
• Auxiliary materials and factory supplies
• Utilities

Location and Site
Location refers to a broad area; site refers to a specific piece of land.
The choice of location is influenced by a variety of considerations:
• Proximity to raw materials and markets
• Availability of infrastructure
• Labour situation
• Governmental policies
• Other factors

• The requirement of machineries and equipment is dependent on
production technology and plant capacity. It is influenced by
the type of project.
• For a process-oriented industry, like a petrochemical unit,
machineries and equipments required should be such that the
various stages are matched well.
• The choices of machineries and equipments for a manufacturing
industry is somewhat wider.
Machineries and Equipment

SUMMARY For manufacturing a product/service often two or more alternative technologies
are available. The choice of technology is influenced by a variety of
considerations: plant capacity, principal inputs, investment outlay, production
cost, use by other units, product mix, latest developments, and ease of absorption.
 Satisfactory arrangements have to be made to obtain the technical know-how
needed for the proposed manufacturing process.
 An important aspect of technical analysis is concerned with defining the materials
and inputs required, specifying their properties in some detail, and setting up their
supply programme. Materials may be classified into four broad categories: (i) raw
materials, (ii) processed industrial materials and components, (iii) auxiliary
materials and factory supplies , and (iv) utilities.
 The acquisition of technology from some other enterprise may be by way of (i)
technology licensing, (ii) outright purchase, or (iii) joint venture arrangement.

Semester: BBA Sixth Semester
Unit-3

Project Management
A project is temporary in that it has a defined
beginning and end in time, and therefore
defined scope and resources.

• Project management, then, is the application
of knowledge, skills, tools, and techniques to
project activities to meet the project
requirements.
Project Management

Types of Project Organizations
• An individual project manager to whom no
one is required to report
• .A unit project organization where the
manager is provided unit help in scheduling
and coordinating as well as supervising the
funds of the project

• An intermix project in which some of the
operative functions or existing departments
are assigned full time to the project and
others remain intact
• the aggregate organization in which all
activities and personnel are assigned to the
project manager
Types of Project Organizations

Project planning
• Project planning is a discipline for stating how
to complete a project within a certain
timeframe, usually with defined stages, and
with designated resources.

Project planning
• Setting objectives (these should be
measurable)
• Identifying deliverables
• Planning the schedule
• Making supporting plans

Project Controls
• Project controls are the data gathering, management and
analytical processes used to predict, understand and
constructively influence the time and cost outcomes of a
project or program; through the communication of
information in formats that assist effective management and
decision making. This definition encompasses all stages of a
project or program’s lifecycle from the initial estimating
needed to ‘size’ a proposed project, through to reflective
learning (lessons learned) and the forensic analysis needed to
understand the causes of failure (and develop claims).

Role of human aspects in project
management
• Today in the world of management, despite of project
managers’ technical and technological domains becoming
more complicated and extended, the focus of project
managers is mostly tended to human aspect rather than
technical and technological aspects. Thus, nowadays the need
for developing soft skills in project managers is considered so
much more by organization. One of the human aspects that
should be specifically considered in project team is motivation
of the project team members.

The Prerequisites for successful project
implementation are as follows
• Adequate formulation.
• Sound project organisation.
• Proper implementation planning.
• Advance action.
• Timely availability of funds.
• Judicious equipment tendering and procurement.
• Better contract management.
• Effective monitoring.

Networking Techniques of Project
Management
PERT/CPM

PERT
• Project Evaluation and Review Technique
(PERT)
– U S Navy (1958) for the POLARIS missile
program
– Multiple task time estimates (probabilistic nature)
– Activity-on-arrow network construction
– Non-repetitive jobs (R & D work)

Need of PERT/CPM
• Prediction of deliverables
• Planning resource requirements
• Controlling resource allocation
• Internal program review
• External program review
• Performance evaluation
• Uniform wide acceptance

Importance of PERT system
• Reduction in cost
• Saving of time
• Determination of activities
• Elimination of risk in complex activities –
• Flexibility
• Evaluation of alternatives-
• Useful in effective control-
• Useful in decision making
• Useful is research work

History of CPM
• Critical Path Method (CPM)
– E I Du Pont de Nemours & Co. (1957) for
construction of new chemical plant and maintenance
shut-down
– Deterministic task times
– Activity-on-node network construction
– Repetitive nature of jobs

CPM calculation
• Path
– A connected sequence of activities leading from
the starting event to the ending event
• Critical Path
– The longest path (time); determines the project
duration
• Critical Activities
– All of the activities that make up the critical path

Procedure of PERT/CPM
• Develop a list of activities that make up
project.
• Estimate the completion time for each activity.
• Draw a project network and t

Limitations to CPM/PERT
• Clearly defined, independent and stable activities
• Specified precedence relationships
• Over emphasis on critical paths
• Deterministic CPM model
• Activity time estimates are subjective and depend on judgment
• PERT assumes a beta distribution for these time estimates, but
the actual distribution may be different
• PERT consistently underestimates the expected project
completion time due to alternate paths becoming critical

Post-Implementation Review
• "Completing a project" is not the same thing
as ending the project management
process. Simply finishing doesn't ensure that
the organization benefits from the project's
outcome.

You also need to ensure that the lessons learned during the project are
not forgotten. You can more effectively design and execute future projects
when you take advantage of lessons learned through experience of
previous projects. So how can you properly measure a project's success,
and work toward continuous improvement? This is where the process of
Post-Implementation Review (PIR) is helpful. It helps you answer the
following key questions:
• Did the project fully solve the problem that it was designed to address?
• Can we take things further, and deliver even bigger benefits?
• What lessons did we learn that we can apply to future projects?
Post-Implementation Review

Abandonment Analysis
• Project Abandonment Analysis is a process that organizations
should execute before making decisions upon stopping or
continuation of their projects. This analysis embraces
economic and administrative considerations that an
organization should give to their projects prior to making a
well-grounded project continuation vs. abandon decision
when it is necessary for an organization to cease some of their
projects for the sake of a better viability of their other
projects

Administrative aspects of capital
budgeting
• The Administrative Group for Project Review would
maintain all documents associated with a review,
report periodically to the independent Review
Advisory Board (discussed in more detail below), and
act as the advocate for review. The AGPR should
organize internal review panel meetings and
activities and should assemble, publish, and
disseminate reports from internal review panels.

Agency Problem
• The agency problem is a conflict of interest inherent in any
relationship where one party is expected to act in another's
best interests. In corporate finance, the agency problem
usually refers to a conflict of interest between a company's
management and the company's stockholders. The manager,
acting as the agent for the shareholders, or principals, is
supposed to make decisions that will maximize shareholder
wealth even though it is in the manager’s best interest to
maximize his own wealth.

Generation of Project Ideas
• The process of creating, developing, and
communicating ideas which are abstract,
concrete, or visual. The process includes the
process of constructing through the idea,
innovating the concept, developing the
process, and bringing the concept to reality.

Meaning Of Corporate Appraisal
• Broadly, corporate appraisal refers to an examination
of the entire organization from different angles. It is a
measurement of the readiness of the internal culture
of the corporation to interact with the external
environment. Marketing strategists are concerned
with those aspects of the corporation that have a
direct bearing on corporate-wide strategy because
that must be referred in defining the business unit
mission, the level at which marketing strategy is
formulated.

Scouting for project ideas
• Analyze the performance of existing industries
• Examine the inputs and outputs of various
industries
• Review imports and exports

Project Rating Index
• The Project Rating Index (PDRI) is a methodology used by
capital projects to measure the degree of scope definition,
identify gaps, and take appropriate actions to reduce risk
during front end planning. PDRI is used at multiple stages in
the front end planning process. As a project progresses,
identified gaps will continue to be addressed until a sufficient
level of definition (measured using the PDRI score) is achieved
for the project to successfully proceed to detailed design and
construction.

Semester: BBA Sixth Semester
Unit-4

Measuring project risk
• No matter how good a project manager you are, you can't
eliminate risk in IT projects. But you can and must manage it.
And since you can't manage what you can't measure, good
risk metrics should be part of your project tool kit.
• Without accurate risk metrics, you can fail to mitigate serious
risks and end up watching your project fail. Or you can
misspend in an overblown effort to mitigate risks that will
never come to pass or that won't cause much damage if they
do. Here's how to get a handle on project risk.

• Start early.
• Identify risks
• Make a risk list
• Measure
• Prioritize
• Improve
Measuring project risk

Portfolio construction
• Portfolio construction is a disciplined, personalized
process. In constructing aportfolio, the individual
risk and return characteristics of the underlying
investments must be considered along with your
unique needs, goals and risk considerations.

Environmental Monitoring for
Construction of Projects
• Environmental Monitoring for Construction Projects
is an environmental management practice that is
implemented on the majority of construction and
development projects in Canada. Hundreds of
companies provide environmental monitor in
services. Thousands of individuals work as
Environmental Monitors.

Modern Portfolio Theory
• Modern portfolio theory (MPT) is a theory on how
risk-averse investors can construct portfolios to
optimize or maximize expected return based on a
given level of market risk, emphasizing that risk is an
inherent part of higher reward. According to the
theory, it's possible to construct an "efficient
frontier" of optimal portfolios offering the maximum
possible expected return for a given level of risk

CAPM (Capital Assest Pricing
Model)
• Cap-M" looks at risk and rates of return and compares them
to the overall stock market. If you use CAPM you have to
assume that most investors want to avoid risk, (risk averse),
and those who do take risks, expect to be rewarded. It also
assumes that investors are "price takers" who can't influence
the price of assets or markets. With CAPM you assume that
there are no transactional costs or taxation and assets and
securities are divisible into small little packets.

Had enough with the assumptions yet? One more. CAPM assumes that
investors are not limited in their borrowing and lending under the risk free
rate of interest. By now you likely have a healthy feeling of skepticism.
We'll deal with that below, but first, let's work the CAPM formula -
Rs = Rf + B ( Rm - Rf)
where
Rs = The Required Rate of Return.
Rf = The Risk Free Rate of return
B = measure of vlatility or systematic risk of security
Rm = Market rate of return
CAPM (Capital Assest Pricing
Model)

Assumptions of CAPM
• All investors have rational expectations.
• There are no arbitrage opportunities.
• Returns are distributed normally.
• Fixed quantity of assets.
• Perfectly efficient capital markets.
• Investors are solely concerned with level and uncertainty of future wealth
• Separation of financial and production sectors.
• Thus, production plans are fixed.
• Risk-free rates exist with limitless borrowing capacity and universal access.
• The Risk-free borrowing and lending rates are equal.

Shortcomings of CAPM
• The model assumes that asset returns are (jointly) normally distributed
random variables. It is however frequently observed that returns in equity
and other markets are not normally distributed. As a result, large swings
(3 to 6 standard deviations from the mean) occur in the market more
frequently than the normal distribution assumption would expect.
• The model assumes that the variance of returns is an adequate
measurement of risk. This might be justified under the assumption of
normally distributed returns, but for general return distributions other risk
measures (like coherent risk measures) will likely reflect the investors'
preferences more adequately.

Project Planning and Evaluation

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