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Question Paper

Project Management II : October 2001

Part D : Case Study (50 Points)

This part consists of questions with serial number 1 - 5. Answer all questions.

Points are indicated against each question.

Do not spend more than 80 - 90 minutes on Part D.

Case Study

Read the case carefully and answer the following questions:

1. Prepare the projected profitability statement for the first five years of the project.

(18 points)

2. Project the cash flows of the project from long term funds point of view for the first five years of theproject, considering project will be terminated at the end of the 5 years.

(8 points)

3. Appraise the project in terms of

i. Cash break-even point in terms of sales for the 3rd year

ii. Net present value

iii. Discounted pay-back period.

(4 + 4 + 2 = 10 points)

4. What are the methods used to incorporate uncertainties associated with future cash flows in the project

appraisal?(5 points)

5. What are the factors that may force the corporates to behave in a more environmental friendly manner?Discuss.

(9 points)

Southern Chemicals Ltd. (SCL) was incorporated in August 20, 1991 with manufacture of chemicals as its mainbusiness. The company is considering a project for manufacture of Di-basic Calcium Phosphate (DCP) with aninstalled capacity of 4000 MT per annum for feed grade and 4000 MT for IP grade. The feed grade of product isused in animal feed to replenish calcium and phosphorous and the IP grade or pharmaceutical grade is used asdiluting and chemotherapeutic agent in tablet and capsule formulations and used as a replacement of lactose.

Particulars of the project

Product Di-basic calcium phosphate

Installed capacity Feed grade 4000 MT (p.a.)

IP grade 4000 MT (p.a.)

Proposed capacity utilization:

Feed grade IP Grade

Year 1 60% 60%

Year 2 70% 70%

Year 3 onwards 80% 80%

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Location In chemical zone of APIIC, 50 km from Hyderabad

Category of unit Small scale industry

Manpower 100 personnel

Utilities Power 300 KVADG Set 125 KVA

Water 100 KL

Raw material availability

The important raw materials required to manufacture DCP are as under:

a. Rock phosphate

b. Hydrochloric Acid

c. Soda ash

d. Others

Rock phosphate deposits are found in more than 250 places in the world and are supposed to last for more than20 centuries at the current rate of consumption. Amongst such deposits, the deposits of Florida (USA), Moroccoand Jordan are important. The total estimated reserves in Rajasthan in India are around 800 million metrictonnes. Since the mineral reserves in our country are of inferior quality, the company is forced to import about95% of the requirement. MMTC has been supplying this raw material to various users and any quantityrequirement can therefore be easily met by MMTC.

Hydrochloric Acid is a waste product of Chlor-alkali Industry. The major suppliers of this raw material in A.P.are M/s Andhra Sugars Limited, Tanuku and M/s Sri Rayalseema Alkalies Limited, Kurnool. Since this is only awaste product of the Industry, no problem is envisaged in procuring this raw material in any required quantity.

There are more than 7 units producing Soda Ash in our Country, with an installed capacity of 14.6 lakh TPA andan additional capacity of 15.22 lakh TPA is in the pipeline. In view of the present surplus production, there is noproblem for procuring the required quantity of Soda Ash.

Other raw materials like additives, purifiers, antifoaming agents, discolouring agents, stabilisers are easilyavailable in the local markets.

MARKETING ARRANGEMENTS

DCP - Feed grade

The Company has already obtained an order from M/s Venkateswara Hatcheries Group of Companies that theyare interested in buying about 1000 MTPA of DCP - Feed Grade, Therefore, the entire production of this gradecan easily be tied up with the reputed Venkateswara Hatcheries group. Presently, they are procuring this productfrom outside A.P. Being a local unit is another plus factor for the project.

DCP - Pharmaceutical grade

Even though no prior arrangement is made as at present to market this grade, the company does not envisage any

problem to sell this grade in Hyderabad which is considered to be the Pharmaceutical Capital of the Country.

Also, since the project shall be located on the Bombay Highway, this can also be marketed in the healthyBombay market, where the current going rate for IP grade is Rs 30 per kg. against the projected price of Rs.28per kg in the project report.

Export Potential

If the company is able to meet the BP/USP grade specifications, there is every chance for export of products ofany grade. MMTC is encouraging Indian Entrepreneurs by mobilising export orders through its network ofbranches abroad.

However, only after consolidating the local market, the company intends to go in for any exports.

Fuel

LDO is required for the thermic fluid boiler and to run the DG set. LDO is easily available in the local market.

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Water

The factory is proposed to be located in the APIIC developed Industrial Area. APIIC itself is supplying water toall the Industrial units from the common borewells already dug in the vast 1625 acre sprawling industrial estate.Therefore, there is no problem for the water requirement of the project.

Government Clearances

1. SSI Registration

Provisional Registration Certificate is already obtained from the District Industries Centre, Sangareddy,Medak District.

2. Land Allotment by APIIC

APIIC has already allotted plot nos. 1 & 2 in the chemical zone in Pashamailaram IDA. APIIC has alreadydeveloped about 500 acres out of 1625 acres of land for the development of chemical industries.

3. APSEB Connection

Once the site is registered in the name of the company, an application shall be made for the APSEBconnection for the power requirement of the unit. Also, the APIIC office in the industrial area is alsohelping entrepreneurs in obtaining the power connection from the APSEB.

4. Water Connection

Since APIIC itself is maintaining the industrial area in Pashamailaram, common borewells are already dugby APIIC and water is provided for the industrial units. As soon as the site is allotted, an application forwater will be formally made to the office of the APIIC in the industrial area.

5. Municipal Approval

An application for Municipal Approval will be made once the plot is registered in the name of thecompany. However, plans are being prepared for such an application. Since the site is located in theIndustrial Areas, no problem is envisaged for obtaining the Approval.

6. NOC from pollution control board

An application is being made for obtaining a No Objection Certificate from the pollution control board.

Since the unit will be located in the APIIC industrial area, there is no problem for the disposal of theindustrial waste. Even APIIC is allowing industrial units in that area to dump the industrialwastes/pollutants in the Common Effluent Treatment Plant in Patancheru which is close to Pashamailaram.APIIC has also been planning to construct such common effluent treatment plants in Pashamailaram also,which may take some more time.

7. Pollution Control Proposal

It is proposed to take the advice and guidance of the pollution control engineer to dispose off the pollutantsgenerated by our unit. However, it is proposed to dispose off the effluents as under:

a. The solid effluents are the insoluble sludge of the rock phosphate digestion which is acidic in nature andconsists of Silicon. The sludge is neutralized with lime and disposed off the ground or can be used forfilling up the pits.

b. The liquid effluents arising out of the DM plant, the laboratory or from the main factory mainly containssodium chloride and calcium chloride. The liquid effluents are passed on to a masonry tank and neutralizedby using Hydrated lime and are disposed off through the drainage connection.

c. The gaseous effluents arising out of the factory while heating the diesel oil are let out into the atmospherethrough a suitable chimney.

8. Drainage Connection

Alongwith the water connection, a drainage connection will also be obtained from the APIIC.

9. Drug Licence

An application will also be made shortly for obtaining the Drugs License since the company proposes tomanufacture IP grade of DCP which is used in pharmaceuticals.

Any other approval/clearance as and when required will be obtained from the concerned authority.

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FINANCIAL PROJECTIONS:

1. Cost of the project

Rs. in lakhs

Land and site development 25

Buildings 85Plant and machinery 175

Miscellaneous fixed assets 125

Motor vehicle 24

Pre-operative expenses 25

Public issue expenses 15

Contingency 20

Margin money for working capital 78

572

2. Requirement of working capital

Months

Raw materials 1.00

Utilities 0.50

Work-in-progress 0.50

Finished goods 0.98

Debtors 1.00

3. Means of finance

Rs. in lakhs

Promoters equity 100Equity issue 250

Term loan 222

572

Additional information:

i. Syndicate Bank has agreed to finance 60% of the working capital requirement.

ii. Interest on working capital borrowing is 12.5%.

iii. The term-loan is to be repaid in two equal installments at the end of 4th and 5th year. Interest on term loan is14%.

iv. Sales price for IP grade and Feed grade is projected at Rs.28,000 PMT and Rs.8,500 PMT respectively.v. Raw material cost to produce one MT of IP grade of DCP and Feed grade is projected at Rs.16,500 and Rs.4650

respectively.

vi. Consumable stores is estimated at 2% of sales revenue.

vii. Power, fuel and packing costs are estimated at 4%, 2.5% and 1% of the sales revenue.

viii. Wages and salary (factory overhead) is estimated at Rs.24 lakh for first year of operation, out of which thevariable part is expected to be 20%. The fixed part will rise by 5% every year and variable part is expectedto rise at the same proportion with increased production.

ix. Administrative expenses is estimated at Rs.5.50 lakh for the first year of operation and it will increase by5% every year.

x. Selling and distribution expenses are estimated at 3% of the sales.

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xi. Depreciation to be calculated as follows:

Fixed assets Companies Act (SLM) IT Purposes (WDV)

Buildings 5% 15%

Plant and machinery 10% 25%

Miscellaneous fixed assets 15% 20%

Motor vehicle 25% 40%

xii. Tax rate applicable to the company is 35%.

xiii. Assume life of the project is 5 years for appraisal purposes and salvage value of fixed assets can be taken as50% of the book value after 5 years, except the value of land which will remain unchanged.

xiv. Return required by the equity investors in the project is 20%.

END OF PART D

Part E : Caselets (50 Points)

This part consists of questions with serial number 6 - 13.

Answer all questions.

Points are indicated against each question.

Do not spend more than 80 - 90 minutes on Part E.

Caselet 1

Read the following caselet carefully and answer the following questions:

6. Explain the concept of platforming for improving the capital efficiency of large capital projects?

(5 points)

7. What advantages do platforming offer to the companies? Discuss.

(7 points)

8. Do you think platforming can be applied to all capital projects? What can be the impact of platforming onthe customers?

(6 points)

Companies in the business of building large capital projects power stations, chemicals plants, oil rigs,amusement parks, and the like-have long faced a quandary. The scale and highly specialized nature of suchundertakings might seem to require heavily engineered custom treatment. Yet that approach, to the dismay of the

contractors shareholders, depends on large amounts of the contractors capital.Chemical companies, for instance, produce their chemicals and gases in different volumes and proportions, andthe capacities of their plants must correspond to the markets demand for these substances. Any builder of suchplants wants to put them up as simply, quickly, and cheaply as possible, but the obvious way of doing so-usingstandardized parts, designs, and construction techniques-ignores variations in the needs of the purchases. Is thereany way to satisfy the relatively few (but individually significant) customers for the plants while containingcapital expenditures, often the biggest item on a builders balance sheet?

One manufacturer of chemicals plants has found a way to meet both sets of demands and thus to createconsiderable value. It has done so by defying the instincts of many of its own engineers and borrowing a numberof principles from a very different operating environment: mass production. Volkswagen, for example, producesnoticeably different models (the New Beetle, the Golf, and the Audi TT) but uses the platform approach withstandard models and components, thus achieving economies of scale. Likewise, Sony has produced more than

300 variants of its Walkman, all on a platform of standard motors, batteries, and assembly processes.

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Applying that approach to low-volume capital projects might seem fantastic. Our manufacturer of chemicalplants, for example, generally builds five to seven projects a year, usually with different continents. In a decade,a petroleum company might build just half a dozen oil rigs, each tailored to an oil field of unique size andchemical composition and each overseen by a separate project team that explores and develops the reserve andestablishes the size and design of the oil rig for that particular field. Teams sometimes choose the contractor.

Yet platforming principles are being applied successfully even here. The companies involved treat a series ofprojects sometimes lasting for five or ten years as a portfolio, not as a series of individual schemes. Theresulting shortened lead times, smaller inventories, and lower engineering, operating, and maintenance expensesare cutting the cost of the projects by as much as 30 percent, representing, in some cases, hundreds of millions ofdollars. Furthermore, the uniform, interfaces presented to operators promote safety by minimizing the risk ofconfusion.

Caselet 2

Read the following caselet carefully and answer the following questions:

9. Explain what is project organization and discuss the reasons for failure of project organization.

(7 points)10. What are the other reasons apart from cost escalation for terminating a project before its completion?

(7 points)

Last year you authorized the expenditure of $500,000 for what you thought was a promising new project for thecompany. So far, the results have been disappointing. The people running the project say that with an additional$300,000 they can turn things around. Without extra funding, they cry, there is little hope. Do you spend theextra money and risk further losses, or do you cut off the project and accept the half-million-dollar write-off?

Managers face such quandaries daily. They range from developing and placing employees to choosing plant sitesand making important strategic moves. Additional investment could either remedy the situation or lead to greaterloss. In many situations, a decision to persevere only escalates the risks, and good management consists ofknowing when to pull the plug.

These escalation situations are trouble. Most of us can think of times when we should have bailed out of a courseof action. The Lockheed L-1011 fiasco and the Washington Public Supply System debacle (commonly referredto as WHOOPS) are spectacular examples of organizational failure to do so. Decisions to persist with thesecrippled ventures caused enormous losses.

Of course, all managers will make some mistakes and stick with some decisions longer than they ought to.Recent research has shown, however, that the tendency to pursue a failing course of action is not a random thing.Indeed, at times some managers and even entire organizations, seem almost programmed to follow a dyingcause.

What leads executives to act so foolishly? Are they people who should never have been selected for responsiblepositions? Are these organizations simply inept? Or are they generally competent managers and companies thatfind themselves drawn into decisional quicksand, with many forces driving them deeper? Though we think thislast description is probably the right one, we dont think the tendency is uncheckable. Managers and

organizations that often fall into escalation traps can take steps to avoid them.

Caselet 3

Read the following caselet carefully and answer the following questions:

11. Chrysler had to shorten its product introduction cycles in order to be competitive in the automotiveindustry. What are the general characteristics of a project life-cycle?

(8 points)

12. Discuss the competitive advantages of reducing product development times in the automobile industry and

other industries.(4 points)

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13. What are the key elements to take into account in developing a projects schedule?

(6 points)

There is no room for complacency in todays supply-heavy automotive industry. Faced with offerings from aarray of domestic and foreign suppliers, 1990s consumers are demanding greater functionally, reliability,performance, and fuel efficiency, as well as improved safety features. Only those manufactures that meet

consumers expectations will survive. As Lee Iacocca put it, in this market you either lead, follow, or get out ofthe way. Todays Chrysler is neither a follower nor a spectator.

It was against this backdrop that Chrysler Corp. conceived the Dodge Viper, its high-performance sports car forthe 1990s. When the concept car debuted at the North American International Auto Show in Detroit in January1989, it was evident from the reaction of attendees, and from the sackloads of letters that arrived at Chrysler, thatthe corporation had developed a well-received product. But it was not until May 1990, when Iacocca gave theproject the green light, that Chrysler focused on how to turn the Viper dream car into a reality.

However, the car was to be more than an exotic extravagance. Iacocca charged the Viper project with a criticalrole in reshaping the path of Chryslers future. Nothing more than a beautiful shell in 1989, Iacocca gave theViper team just three years to transform the concept into a production vehicle, involving the completedevelopment of the vehicle including the body, an all-new 8.0 liter V40 aluminum engine, and a six-speedhigh-performance transmission a task that has traditionally taken five years. If the Viper team was successful,

the project would set a precedent for all future vehicle development at Chrysler.

Facing such tight deadlines, a multitude of variables, and working with finite resources, Chrysler recognized thatconsistent, end-to-end project management would be quintessential for success. Therefore, the corporation wasvery selective about the components that went into the project. Working on such a high-stakes program, Chryslercould not afford to internalize any weaknesses. Personnel was hand picked for the project. Employing that samecommitment to excellence after reviewing the project management systems on the market, Chrsyler choseArtemis Prestige from Lucas Management Systems.

Roy Sjoberg, team Viper executive engineer, outlines Chryslers functional project management systemsrequirements. Front-end planning and subsequent process engineering and reengineering were an implicit partof the task that lay before us. We needed a sophisticated tool that was capable of handling multiple projectsconcurrently and interactivity. We needed a tool that would allow us to see the big picture and to gauge theimpact of each operation on that panoramic view.

Sjoberg explains that Chrysler recognized that significant process reengineering would be necessary if theproject was to fulfill the corporations goals. Working with finite resources and within tight time parameters,we could not afford to target all processes for reengineering. We had to identify the significant obstacles thatstood between us and our three-year development goal, targeting any problem processes on that front end, hesays. The softwares powerful what-if capability, coupled with its multi-project vision, gave us the insight to dothis.

Sjoberg goes on to explain how his team used the applications what-if capacity to project the impact of changesin resource allocations, or of process restructuring and reengineering on the Vipers big picture or critical pathplan. It enabled us to gauge the effect of any change before committing to it, he says. What-if helped usrecognize those processes that most needed attention, and to identify where resource redistribution could havethe greatest impact on net yield.

However, no matter how careful the front-end planning no project-especially one involving a number of externalsuppliers is ever totally free of unforeseeable problems. To prevent this, Chrysler made great use of thesoftwares what-if capabilities in damage control.

END OF PART E

END OF QUESTION PAPER

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Suggested Answers

Project Management II : October 2001

Part D : Case Study

1. Projected Profitability Statement

(Rs. in lakh)

Year 1 2 3 4 5

Production

IP grade 2,400.00 2,800.00 3,200.00 3,200.00 3,200.00

Feed grade 2,400.00 2,800.00 3,200.00 3,200.00 3,200.00

Sales

IP grade 672.00 784.00 896.00 896.00 896.00

Feed grade 204.00 238.00 272.00 272.00 272.00Total Sales 876.00 1,022.00 1,168.00 1,168.00 1,168.00

Raw materials

IP grade 396.00 462.00 528.00 528.00 528.00

Feed grade 111.60 130.20 148.80 148.80 148.80

Consumable Stores 17.52 20.44 23.36 23.36 23.36

Power 35.04 40.88 46.72 46.72 46.72

Fuel 21.90 25.55 29.20 29.20 29.20

Packing 8.76 10.22 11.68 11.68 11.68

Salary 24.00 25.76 27.57 28.63 29.74

Admn. Expenses 5.50 5.78 6.06 6.37 6.69

Selling & Distr. Exp. 26.28 30.66 35.04 35.04 35.04

Depreciation 51.62 51.62 51.62 51.62 44.96

Int. on term loan 31.08 31.08 31.08 31.08 15.54

Int. on w. cap.loan 14.63 17.04 19.46 19.46 19.46

Issue exp. W/off 3.00 3.00 3.00 3.00 3.00

PBT 129.07 167.77 206.41 205.05 225.82

Tax 27.85 49.82 69.61 73.84 82.35

PAT 101.22 117.95 136.80 131.20 143.47

Working Note : 1

Allocation of Contingencies and Pre-operative Expenses

Cost Pre-op. exp. Contingency Total

Buildings 85.00 5.20 4.16 94.35

Plant and machinery 175.00 10.70 8.56 194.25

Misc. fixed assets 125.00 7.64 6.11 138.75

Motor vehicle 24.00 1.47 1.17 26.64

409.00 25.00 20.00 454.00

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Working Note : 2

Depreciation -SLM Per annum

Buildings 4.72

Plant and machinery 19.43

Misc. fixed assets 20.81

Motor vehicle 6.66

Total 51.62

Depreciation-WDV

Buildings Year 1 Year 2 Year 3 Year 4 Year 5

Op. balance 94.35 80.20 68.17 57.94 49.25

Depreciation 14.15 12.03 10.23 8.69 7.39

Cl. Balance 80.20 68.17 57.94 49.25 41.86

Plant and machinery Year 1 Year 2 Year 3 Year 4 Year 5

Op. balance 194.25 145.69 109.27 81.95 61.46

Depreciation 48.56 36.42 27.32 20.49 15.37

Cl. Balance 145.69 109.27 81.95 61.46 46.10

Misc. fixed assets Year 1 Year 2 Year 3 Year 4 Year 5

Op. balance 138.75 111.00 88.80 71.04 56.83

Depreciation 27.75 22.20 17.76 14.21 11.37

Cl. Balance 111.00 88.80 71.04 56.83 45.47

Motor vehicle Year 1 Year 2 Year 3 Year 4 Year 5Op. balance 26.64 15.98 9.59 5.75 3.45

Depreciation 10.66 6.39 3.84 2.30 1.38

Cl. Balance 15.98 9.59 5.75 3.45 2.07

Total Depreciation 101.12 77.05 59.14 45.69 35.50

Working Notes : 3

Interest and Principal Repayment Schedule

Year Principal Interest Repayment

Outstanding

principal

1 222.00 31.08 0.00 222.00

2 222.00 31.08 0.00 222.00

3 222.00 31.08 0.00 222.00

4 222.00 31.08 111.00 111.00

5 111.00 15.54 111.00 0.00

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Working Notes : 4

Computation of Working Capital Borrowing

Item Month Year 1 Year 2 Year 3

Raw materials 1.00 42.30 49.35 56.40

Utilities 0.50 3.47 4.05 4.62

Work-in-progress 0.50 25.62 29.79 33.97

Finished goods 0.98 50.66 58.87 67.08

Debtors 1.00 73.00 85.17 97.33

Total working capital requirement 195.04 227.22 259.41

Bank Borrowing 117.03 136.33 155.65

Working capital margin 78.02 90.89 103.76

Incremental working capital margin 12.87 12.87

Working Notes : 5

Tax calculation

Year 1 2 3 4 5

PBT + Depreciation 180.69 219.39 258.03 256.67 270.78

Depreciation as per IT 101.12 77.05 59.14 45.69 35.50

Taxable profit 79.57 142.35 198.89 210.98 235.28

Tax 27.85 49.82 69.61 73.84 82.35

2. Salvage value of fixed assets

Land 25.00

Buildings 35.38

P&M 48.55

Misc.FA 17.35

Motor vehicle 0.00

Total 126.28

Cash Flows Statement from Long-term Funds Point of View

(Rs. in lakh)

Year 0 1 2 3 4 5

Initial investment -572.00

Increase in w.cap. margin -12.87 -12.87

PAT 101.22 117.95 136.80 131.20 143.47 101.22

Depreciation 51.62 51.62 51.62 51.62 44.96 51.62

Issue exp. W/off 3.00 3.00 3.00 3.00 3.00 3.00

Interest on term loan x(1-t) 20.20 20.20 20.20 20.20 10.10 20.20

Operating flow 163.17 179.90 211.62 206.03 201.53 163.17

Recovery of margin moneyfor w.cap. 103.76

Salvage value of FA 126.28

Terminal flow 230.04

Net cash flow -572.00 163.17 179.90 211.62 206.03 431.57

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3. i. Cash break-even point

Year 3

Sales 1,168.00

Variable cost

RM 676.80

Consumable stores 23.36

Power 46.72

Fuel 29.20

Packing 11.68

Salary(variable) 6.40

Int. on w. cap. 19.46

Selling & Distr. Exp. 35.04

848.66

Contribution 319.34

Fixed costs

Salary 21.17

Admn. Expenses 6.06

Int. on term loan 31.08

58.31

Cash BEP = SalesonContributi

)cash(tcosFixed = 1168

34.319

31.58 = Rs.213.27 lakh.

ii. Cost of capital = 14)35.01(572

22220

572

350+

= 15.77% say, 16%

NPV = 572.00 + 163.17 PVIF(16, 1) + 179.90 PVIF(16, 2) + 211.62 PVIF(16, 3)

+ 206.03 PVIF(16, 4) + 431.57 PVIF(16, 5)

= 572.00 + 104.65 + 133.67 + 135.65 + 113.73 + 205.42

= Rs.121.12 lakh.

iii.

Year Cashflow PV @ 16% Cummulative eft

1 163.17 104.65 104.65

2 179.90 133.67 238.32

3 211.62 135.65 373.97

4 206.03 113.73 487.70

5 431.57 205.42 693.12

Discounted pay-back period = 4 years +42.205

70.48700.572 = 4.41 years.

4. The methods which are used to incorporate uncertainties associated with future cash flows in the projectappraisal are:

Certainty equivalent method

Risk adjusted discount rate method

Sensitivity analysis

Scenario analysis

Simulation technique

Decision tree analysis.

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5. The factors that can effectively induce the corporates to behave in a more environmental friendly manner:

Pollution control regulation

Consumer pressure

Pressures from the local people and

Pressure from the investors.

Pollution Control Regulation

There are various laws and regulations governing pollution by industries. Almost all of them containpollution standards. Standards are limits on the amounts of polluting substances that can be released intothe environment, per unit of the medium containing the polluting substance, such as water, air, etc. Thelaws also prescribe ranges within populated areas in which certain highly polluting industries cannot belocated. Certain industries cannot be located at all unless clearance is obtained from the regulatoryauthorities set up under these laws. Penalties and punishments are also prescribed under these laws tocompanies that flout the pollution standards. This factor, therefore, is the most important and potent factoramong the four.

Consumer Pressure

The second factor, namely consumer pressure, is not at all powerful. It calls for well co-ordinated consumermovements to boycott the products and services of the polluting companies. These are difficult to initiate

and manage. Consumers, particularly in the developing countries such as India, are concerned more aboutthe cost and performance of the product than the environmental affects of producing the product. Even inthe West, movements by consumers against polluting industries are just taking root.

Pressures from the Local People

Pressures from the local people can also be quite effective, particularly in labor intensive industries. If thelocal people boycott the industry, it becomes very difficult to get labor. But this is most unlikely to happenin countries with high rates of unemployment and poverty, such as India. Another form of pressure fromthe local people can be through filing of public interest petitions in the local courts. The courts may orderthe closure of the polluting units if the pollution standards are not met by them.

Pressure from the Investors

The last in the order is pressure from the investors of the company, who want to ensure that their companydoes not pollute the environment. Though this is one of the factors that prevails in the West, it is almost

non-existent in India. Shareholders are more concerned about the profits and dividends than pollution. Buta day may soon come when at least large institutional investors will force the companies in which theyinvest to wear a green look. This is, in fact, in the interest of the stockholders, as flouting pollution normsmay land their company, sooner or later, in trouble.

Part E: Caselets

Caselet 1

6. Platforming is a concept of producing various products in masses using a single basic structure. Inautomobile industry, companies produce various models with some standard components by changing theoutlook of the vehicles so that it can address the needs of the wide range of customers. Developing a newvehicle from scratch is a very costly proposition and also highly time consuming. But making many modelsbased on the same platform and customized to the needs of various level of customers not only save capitaloutlays but also reduces time to reach customers with new products. This platforming concept is useful inother large capital projects also; companies now treat a series of projects at the same time instead of takingone project at a time. This saves their time as well as money. It also helps them to reach markets sooner andmove up the value chain.

7. Platforming improve efficiency in many ways. Since they embody lessons drawn directly from previousprojects, they take less time to design. Companies can reap economies of scale by purchasing larger lotsizes of parts and materials in fewer separate transactions, for projects that go up at roughly the same time.Fabrication is faster and less wasteful. And testing and certification are easier to perform. Indeed, acommon design can have the time and effort needed to design and build just about every thing except theplatform itself, which must be made adaptable to a host of different circumstances.

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Caselet 3

11. There are broadly, four phases in the life of a project:

Phase I : Conception and Selection

Phase II : Planning and Scheduling

Phase III : Implementation, Monitoring and Control

Phase IV : Evaluation and Termination.

The level of activity, in any project, starts at a low level and then rises slowly. At the conception andselection phase, before it is decided whether or not something is a worthwhile idea or which of the severalalternative ideas should be proceeded with, the activity is naturally low and is confined to conductingfeasibility studies, estimating revenues and costs, etc. In this phase the amount spent is also low, as also thenumber of people working on it (we can also say the time spent on the project).

Once selection of the project and its approval by the management are through, the project enters the secondphase. This phase is preparatory to the actual implementation of the project. Planning how to implement theproject and scheduling how the implementation should be carried out are done in this phase. Planningincludes deciding on what are the activities to be undertaken for implementing the project, whilescheduling is fixing time frames for the activities. The level of activity and also the project cost rise rapidlyduring this phase. The number of people assigned to the project also increases manifold.

The next phase is the actual implementation of the project, and monitoring and controlling theimplementation. The project cost reaches its peak during this stage, as also the level of activity (or the man-hours spent on the project). The project manager is highly concerned about the costs and does not bothermuch about the schedule at the beginning. Concentration on the performance also continues.

The fourth, and the final phase is to evaluate what has been done, and hand it over to either the client or thein-house operational staff. This markets the end of the project, from the project management angle. In thisphase, the activity levels decline steeply, and reach zero. The additional inputs of other resources are alsosmall. This phase is often completed in a hurry, as the deadline will be nearing. The entire concentration ofall the staff and the managers will be focused on handling over on time than on costs or performance.

12. The only way to succeed in the present market scenario by the automobile industry or other consumergoods industry is to reduce product development time. The consumer goods industry is a buyers market,

where the consumer have wide lot of choice available from various producers and also at a competitiveprice. If we take the electronics industry-if a new product comes into market, the developer of the newproduct hardly get six months to sell the product in the market. Within six months other companies willcome out with the same product with a lesser price. So by what time if the company able to come out withanother product which can distinguish itself from the other products available in the market, will help thecompany to maintain its leadership, like, Sony in electronics industry. So it is necessary to reduce productdevelopment time to remain competitive.

13. Certain key elements should be followed in the preparation of schedules:

All major events and dates must be clearly identified. If a statement of work is supplied by thecustomer, then those dates shown on the accompanying schedules must be included. If for any reasonthe customers milestone dates cannot be met then the customer should be notified immediately.

The exact sequence of work should be defined through a network in which interrelationships betweenevents can be identified.

Schedules should be directly relatable to the work breakdown structure. If the WBS is developedaccording to a specific sequence of work, then it becomes an easy task to identify work sequences inschedules using the same numbering system as in the WBS. The minimum requirement should be toshow where and when all tasks start and finish.

All schedules must identify the time constraints and, if possible, should identify those resourcesrequired for each event.

Although these four key elements relate to schedule preparation, they do not define how complex theschedules should be. Before preparing schedules, three questions should be considered:

How many events or activities should each network have?

How much of a detailed technical breakdown should be included?

Who is the intended audience for this schedule?