1. Sourabh Jain
MBA 2010 - 2012
National Institute of Technology Karnataka
Surathkal, India
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2. Preface
• This is a PowerPoint file I created in order to
help me in my studies.
• The material in these slides are a distilled
version of the literature from many sources,
including e-books and papers.
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3. Home (1-10)
Project Idea Generation Portfolio Planning
Feasibility Capacity Planning
Global Sourcing Environmental Clearance
Investment Appraisal
Cost Estimation
Methods
Work Breakdown
Working Capital
Structure
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4. Home (11-20)
Projected Balance Sheet Project Appraisal
Social Cost Benefit
Project Scheduling
Analysis
Resource Allocation Project Control
Budget Management Milestone Trend Analysis
Standard Costs Project Abandonment
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5. Project Idea Generation
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6. Project
• An unique undertaking for essentially a single purpose
which is defined by scope, quality, time, and cost
objectives.
• It is the art and science of directing human and material
resources to achieve stated objectives within the
constraints of time, budget, and quality and to the
satisfaction of everyone involved
• Five Features of a Project
1. Defined beginning, end, schedule, and approach
2. Use resources specifically allocated to the work
3. End results have specific goals
4. Follows planned, organized approach
5. Usually involves a team Sourabh Jain
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7. Project Life Cycle
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8. Phases in Project Management
Monitor
External/Internal
Environment
Scout for new ideas
Preliminary
Screening
(PRI/NPV)
Detailed Market
and Demand
analysis
Feasibility/Appraisal
Planning,
Scheduling,
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Controlling 8

9. Monitoring the environment
• Economic
• Governmental
• Technological
• Socio-Demographic
• Competitive
• Supplier
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10. Corporate appraisal
• Marketing and Distribution
• Research and Development
• Production and Operations
• Corporate Resources and Personnel
• Financial and Accounting
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11. Scouting for new ideas
1. Analyze the Performance of Existing Industries
2. Examine the Inputs and Outputs of Various Industries
3. Review Imports and Exports
4. Study Plan Outlays and Governmental Guidelines
5. Look at the Suggestions of Financial Institutions and
Development Agencies
6. Investigate Local MaterialsJain Resources
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12. Scouting for new ideas
7. Analyze Economic and Social Trends
8. Study New Technological Developments
9. Draw Clues for Consumption Abroad
10. Explore the Possibilities of Reviving Sick Units
11. Identify Unfulfilled Psychological Needs
12. Attend Trade Fairs
13. Stimulate Creativity for Generating New Product Ideas
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13. Preliminary Screening (either Project
Rating Index or NPV)
• Compatibility with the promoter
• Consistency with Govt priorities
• Availability of inputs
• Adequacy of market
• Reasonableness of cost
• Acceptability of Risk level
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14. Sources of +ve NPV
• Economies of Scale
• Product Differentiation
• Cost advantages
• Market reach
• Technological edge
• Govt policy
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15. Market and Demand analysis
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16. Sources of Secondary Info
1. Economic Survey
2. Basic Facts
3. Annual Reports and Accounts of the
Companies Listed on the Stock Exchange
4. Annual Reports of the Various Associations
of Manufacturers
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17. Characterization of Market
1. Effective demand in the past and now
2. Demographics
3. Methods of distribution and sales promotion
4. Supply and competition
5. Govt policy
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18. Demand Forecasting characteristics
• Forecasts are always wrong. Should include
expected value and measure of error.
• Long-term forecasts are less accurate than
short-term forecasts
• Aggregate forecasts are more accurate than
disaggregate forecasts
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19. Demand Forecasting
• Qualitative: primarily subjective; rely on judgment and
opinion
• Time Series: use historical demand only
Forecast = (level + trend)X seasonal factor
– Static
– Adaptive – moving average, exponential smoothing, Holt ,
Winter
• Causal: use the relationship between demand and some
other factor to develop forecast
• Simulation
– Imitate consumer choices that give rise to demand
– Can combine time series and causal methods
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20. Coping with uncertainties in
forecasting
• Conduct analysis with data based on uniform
and standard definitions.
• Ignore the abnormal or out-of-ordinary
observations.
• Critically evaluate the assumptions
• Adjust the projections.
• Monitor the environment.
• Consider likely alternative scenarios.
• Conduct sensitivity analysis
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21. Portfolio Planning
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22. Portfolio Planning
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23. Portfolio Planning Models
• Markowitz Mean-Variance
• Mean Absolute Deviation – check volatility
• Weighted Goal Programming – assign high
weights to serious risk factors
• Minimax – maximize minimum return
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24. Markowitz Model
• For an investor, the returns (for a given portfolio) and
the stability or its absence (volatility) of the returns are
the crucial aspects in the choice of portfolio.
• Markowitz uses the statistical measurements of mean
and variance of return to describe, respectively, the
benefit and risk associated with an investment.
• The objective is either to minimize the risk of the
portfolio for a given level of return, or, to maximize the
expected level of return for a given level of risk.
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25. Feasibility
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26. Feasibility report
1. General info – purpose, scope, contacts
2. Management Summary – Objectives,
environment, methodology, measures,
evaluation criteria
3. Proposed system – Description, Technical &
Financial Feasibility, Impacts, SCBA, Conclusion
4. Alternatives - Description
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27. Technical Feasibility
• System performance, interfaces and security
• Development processes
• Staff assessment
• Failure Immunity
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28. Project Feasibility
• Management Processes
• Traceable WBS
• Planned Reviews and Audits
• Risk management
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29. Financial Feasibility
• Development costs
• Support costs
• Time to implement
• ROI, Payback and financial ratios
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30. Capacity Planning
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31. Capacity Planning
• Capacity planning is the process of determining the
production capacity needed by an organization to
meet changing demands for its products.
• Capacity can be increased through
1. Increase resources/equipment
2. Process improvements
3. technology
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32. Capacity Planning
• Factors determining plant capacity
1. Finance available
2. Demand and Growth
3. Economies of scale
4. Cost of expansion vs. purchase
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33. Capacity Strategies
• Lead - proactive
• Lag - reactive
• Match – moderate adjustments
• Capacity Required vs. Available
• Capacity is calculated: (number of machines or
workers) × (number of shifts) × (utilization) ×
(efficiency).
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34. Plant Location determinants
1. Raw material availability.
2. Location (with respect to the marketing area.)
3. Availability of suitable land.
4. Transport facilities.
5. Availability of labor.
6. Availability of utilities (Water, Electricity).
7. Environmental impact and effluent disposal.
8. Local community considerations.
9. Climate.
10. Political strategic considerations.
11. Taxations and legal restrictions
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35. Plant Layout determinants
1. Economic considerations: construction and
operating costs.
2. Process requirements.
3. Convenience of operation.
4. Convenience of maintenance.
5. Health and Safety considerations.
6. Future plant expansion.
7. Modular construction.
8. Waste disposal requirements
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36. ‘Functional’ Plant Layout
• Common for a large variety of
L L M M
products in batch volumes.
• Similar processes are grouped L L M M
together. Material 1
• Inefficient: Long material transport
routes from dept. to dept. Work in Material 2
progress is high. Tracking of orders can D D
ASSEMBLY
be difficult.
1
D D
• Advantages: Specialist labour and
supervision. Flexibility as material can Product 1
be rerouted in any sequence.
Product 2
G G
ASSEMBLY
2
G G
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37. ‘Product’ Plant Layout
• Mass production where variety is small and
production volumes are very high.
L M D G
• AKA ‘flow’ or ‘line’ layout.
• More efficient, but less flexible than
‘functional’ layout. A
S
• Work in progress is minimised, and jobs are S
easily tracked. E
L M D G
• Investment in specialised capital equipment M
is high, so a reliable and steady demand is B
required. LY
• Very sensitive to machine breakdown or
disruption to material supply.
L M D G
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38. ‘Cellular’ Plant Layout
• AKA ‘Group Technology’
• Each cell manufactures products belonging L M ASSEMBLY
to a single family.
D G CELL 1
• Cells are autonomous manufacturing units
which can produce finished parts.
• Commonly applied to machined parts.
• Often single operators supervising CNC M M ASSEMBLY
machines in a cell, with robots for materials
handling. D G CELL 2
• Productivity and quality maximised.
Throughput times and work in progress kept
to a minimum.
• Flexible. L L ASSEMBLY
• Suited to products in batches and where CELL 3
L G
design changes often occur.
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39. Economic Order Quantity
CO D CH Q
Total cost per year, T
T
Q 2
Holding costs alone
Q
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40. Global Sourcing
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41. Sourcing Process
• Sourcing is the entire set of business processes
required to purchase goods and services.
1.Supplier Scoring and Assessment
2.Selection of suppliers – Auctions and Negotiations
3.Design and execution of suppliers contract
4.Product Design Collaboration
5. Procurement of material or services
6.Sourcing Planning, Analysis and Risk
Management
7. Evaluation of supplier performance
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42. Supplier Scoring and Assessment :
1. Replenishment Lead time
2. On-time performance
3. Supply Flexibility
4. Supply Quality
5. Inbound Transportation cost
6. Pricing Terms
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43. Supplier Selection
• Sealed-bid price auctions – lowest bidder
wins
• English Auctions – dynamic unlike sealed-bid
• Dutch Auctions – raise bids
• Second-price (Vickery) Auctions – lowest
bidder, but at price quoted by second lowest
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44. Procurement
• Direct and Indirect materials
• Aggregation helps achieve economies of scale
– capacity, information, transport, relationship
• Multiple suppliers with different strengths is
desirable
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45. Risks of outsourcing
1. The Process is broken
2. Underestimation of cost of coordination
3. Reduced customer / supplier contact
4. Loss of internal capability and growth in third party
power
5. Leakage of sensitive data and information
6. Ineffective Contracts
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46. Issues
• Offshoring production to low-cost nations is
good, but watch out for costs like
transportation and coordination.
• Offshoring to low cost nations reduces
domestic employment of parent country.
• Costs of raw materials are rising.
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47. Environmental Clearance
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48. EC Process
• Screening – For state level projects - B
• Scoping – For both National Level (A) and B
• Public Consultation
• Appraisal
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49. Investment Appraisal Methods
1. Net Present Value
2. Internal Rate of Return
3. Discounted Payback Period
4. Performance Index
5. Accounting Rate of Return
Click Here for a detailed PowerPoint file
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50. Cost Estimation
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51. Types
1. Capital costs LIFE CYCLE
COSTS
2. Operational and Maintenance costs
• With scaling costs can escalate
1. Linearly
2. Exponentially
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52. Costing Methodologies
1. Expert Opinion – Delphi
2. Analogy – Compare with similar project
3. Parametric – relate cost to some parameters
(cost estimating relationships)
4. Engineering – cost from bottom up; includes all
aspects
5. Actual – base on historical costs. Most preferred
method
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53. Commercially Available Costing
Models
• COCOMO – cost = no of person months X loaded labor rate
Other rates are based on this cost
• COSTXPERT – COCOMO + database of actual projects
• SEER – Software/Hardware estimation
• SLIM – Software Life Cycle Model
• REVIC – Updated parameters of COCOMO
• COSTAR – Based on COCOMO
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55. Work Breakdown Structure
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56. WBS
• A (WBS) is a deliverable oriented decomposition of
a project into smaller components.
• 100 % rule: WBS includes 100 % of deliverables as
defined by project scope. Focus on outcomes.
• Each WBS element must contain
1. Scope of work
2. Begin and End of scope of work
3. Budget allotted for work
4. Responsibility
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58. Misconceptions
• A WBS is not an exhaustive list of work. It is
instead a comprehensive classification of project
scope.
• A WBS is neither a project plan, a schedule, nor a
chronological listing. It specifies what will be
done, not how or when.
• A WBS is not an organizational hierarchy,
although it may be used when assigning
responsibilities
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59. Working Capital
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60. Working Capital
• Working capital is a financial metric which
represents operating liquidity available to a
business, organization, or other entity, including
governmental entity
• Net WC = Current Assets – Current Liabilities
• Current Assets = acc receivable + inventory
• Current Liabilities = acc payable
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61. WC Management
• Cash management
• Inventory management
• Debtors management
• Short term financing
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62. Projected Balance Sheet
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63. Creation
1. Collect the company’s financial records. Separate them into income and
expenses.
2. Prepare an estimate of current assets.
3. List the current value of real property, land, machinery and equipment
owned by the business.
4. Identify intangible assets, their value and any associated costs.
5. Create a summary of the company’s liabilities.
6. Make a separate list of expenses that are not due within 12 months, like
bank loans.
7. Finish the balance sheet by calculating the owner’s equity, sometimes
referred to as the company’s net worth.
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64. Cash Flow statements
• The purpose of the cash flow statement is to
report the sources and uses of cash during the
reporting period.
• 3 sections:
1. cash flows from operating activities
2. cash flows from investing activities
3. cash flows from financing activities
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65. Cash Flow statements methods
• Direct method – analyze cash and bank accounts
1. Cash receipts from customers
2. Cash payments for inventory
3. Cash paid to employees
4. Cash paid for operating expenses
5. Taxes paid
6. Interest paid
7. Equals net cash provided by (used in) operating
activities
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66. Cash Flow statements methods
• Indirect method – analyze income and expense accounts
and working capital
1. Net income per the income statement
2. Minus entries to income accounts that do not represent
cash flows
3. Plus entries to expense accounts that do not represent
cash flows
4. Equals cash flows before movements in working capital
5. Plus or minus the change in working capital, as follows:
– An increase in current assets = negative figure because cash was
spent
– A decrease in current assets = positive figure
– An increase in current liabilities = positive figure
– A decrease in current liabilitiesJain negative figure
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67. Project Appraisal
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68. Appraisals/Planning
1. PERT/CPM
2. SWOT
3. Problem Tree Analysis
4. Stakeholder Analysis
5. Logical Framework Analysis
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69. Social Costs Benefit Analysis
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70. SCBA
• A methodology developed for evaluating
investment projects from the point of view of
the society (or economy) as a whole.
• Used primarily for public investment
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71. Problems Solvable by SCBA -1
• Principle sources of discrepancy:
1. Market Imperfection – FOREX regulation
2. Externalities – external benefits/ unintended
3. Taxes and Subsidies - Taxes reduce benefits
4. Concern for Savings – Saving benefit is better
5. Concern for redistribution – focus on poor
6. Merit Wants – larger interest
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72. Problems Solvable by SCBA -2
• With UNIDO approach, we can evaluate net
benefit from any project
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73. Problems Solvable by SCBA -3
• With shadow price, we know the effect of using one
more unit of resources on the social cost and benefits.
• Shadow pricing is relating to decision of project
manager.
• Sources of Shadow Prices
1. Increase or decrease the total consumption in the
economy
2. Decrease or increase production in the economy
3. Increase or decrease export or import
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74. Project Scheduling
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75. Project Scheduling
• Scheduling is carried out in advance of the
project commencing and involves:
1. identifying the tasks that need to be carried
out
2. estimating how long they will take
3. allocating resources (mainly personnel)
4. scheduling when the tasks will occur
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76. Tools
1. Milestone Charts
2. Gantt Charts
3. Activity Networks
4. Critical Path Method/PERT
5. Critical Chain Scheduling
6. Monte Carlo Simulation
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77. Resource Allocation
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78. Resource Allocation Process
1. Define your mission
2. Inventory you resources
3. Inventory your projects
4. Reallocate resources using Resource
Allocation Matrix
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79. 12/10/2011 Sourabh Jain 79

80. The Key to Effective Project
Resource Allocation
1. Determine quickly what resource you will need
2. Determine who the best people are in that are
3. Approach their line manager and check on their
availability
4. Assuming they are available put their name
down against the relevant tasks in your project
plan
5. Get your project plan into the PMO and get it
baselined as soon as possible
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81. Issues
• Check out project.net for awesome resource
allocation and diagnostic software
• Overcommitment
• Overallocation
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82. More issues
1. Project Silos – no checks to see allocation
2. Failure of resource pools – overallocation
3. Prioritized Projects – to counter overallocation
4. Building a culture of decision making
5. Creating change from bottom up
6. Risk Management
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83. Project Control
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84. Project Control
• Control – process and activities needed to correct
deviations from plan
• Control the triple constraints
1. time (schedule)
2. cost (budget, expenses, etc)
3. performance (specifications, testing results, etc.)
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86. Technique for control – Earned Value
Analysis
• Measures overall performance
• Earned value of task = % of task completed X planned
cost for task
• Methods
1. 50-50 – 50 % assumed at start, rest 50 % at end
2. 0-100 – Not considered 100 % until finished
3. Critical Input rule – How much critical input used
4. Proportional Rule – time to date/ scheduled time
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87. Earned Value Analysis
• Baseline (planned) cost to completion – referred to as
budget at completion (BAC)
• Actual cost to date – referred to as estimated cost at
completion (EAC)
• Identify several variances according to two guidelines
1. A negative variance is ‘bad’
2. Cost and schedule variances are calculated as earned value minus
some other measure
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89. Variances
• 4 types of variances;
• Cost (spending) variance (CV) – difference between
budgeted cost of work performed (earned value)
(BCWP) and actual cost of that work (ACWP)
• Schedule variance (SV) – difference between earned
value (BCWP) and cost of work we scheduled to
perform to date (BCWS)
• Time variance (TV) –difference between time
scheduled for work performed (STWP) and actual time
to perform it (ATWP)
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90. Problem
A project to develop a country park has an actual cost in month 17 of
$350,000, a planned cost of $475,000, and a value completed of $300,000.
Find the cost and schedule variances and the three indexes.
BCWS = 475,000
BCWP = 300,000
ACWP = 350,000
CV = 300,000 – 350,000 = -50,000 (negative value - cost overrun)
SV = 300,000 – 475,000 = -175,000 (negative value - behind schedule)
Cost Performance Index (CPI) = BCWP/ACWP = 300/350 = 0.86
Schedule Performance Index (SPI) = BCWP/BCWS = 300/475 = 0.63
Time Performance Index (TPI) = STWP/ATWP
Scheduled Time Work Performed (STWP) can be estimated
Time t = Schedule Variance/Slope of Planned costs =
-175,000/ (475,000/17) = - 6.26 months
Time Difference= 17- 6.26 = 10.74
TV = 10.74/17 = 0.63
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91. Critical Ratio
• The critical ratio is
actual progress x budgeted cost
scheduled progress actual cost
• If ratio is 1 everything is probably on target
• The further away form 1 the ratio is, the more we may need
to investigate
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92. Budget Management
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93. Budget
• It is a financial and /or quantitative statement,
prepared and approved prior to a defined
Period of time of the policy to be pursued
during that period for the purpose of
attaining a given objective.
• It may include income, expenditure and
employment of capital.
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94. Key reasons for overspending…
1. Bad Luck
2. Overly optimistic initial estimates
3. Poor communication
4. Poor cost/time estimating practices
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95. Types
1. Time period – short term < 1yr (cash budget) / >
1yr long term (R&D budget)
2. Conditions – basic – forever /current – for now
3. Capacity – fixed (rigid)/flexible
4. Coverage – functional/master
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96. Objectives of Budgeting
1. Definition of Goals
2. Defining Responsibilities
3. Basis for Performance Evaluation
4. Optimum use of Resources
5. Co-ordination
6. Planned action
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97. Steps in budgeting
1. Define objectives
2. Locate budget factor – main driver of budget
3. Allocate a controller
4. Budget period
5. Standard of activity
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98. Metrics
• Capacity Ratio = Actual hours/Budgeted hours
• Efficiency Ratio = Actual Output in Std hours/
Actual Hours
• Activity Ratio = Actual Output in STd hours/
Budgeted Output in STd hours
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99. Disadvantages of budgeting
1. Estimates
2. Rigidity
3. False Sense of Security
4. Lack of co-ordination
5. Time and Cost
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100. Milestone Trend Analysis
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102. Standard Costs
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103. Standard cost
• Refers to the cost that management believes
should be incurred to produce a good or
service under anticipated conditions.
Standard costs are developed in a variety of
ways. They are
1. specified by formulas or recipes.
2. developed from price lists provided by
suppliers.
3. determined time and motion studies
conducted by industrial engineers.
4. developed from analyses of past data.
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104. Material Price Variance
The material price variance is expressed as
(AP – SP)AQp where:
(AP) = actual price per unit of material.
(SP) = standard price per unit of direct
material.
(AQp) = actual quantity of material
purchased.
If actual price > standard price, then the
variance is unfavorable.
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105. Material Quantity Variance
The material quantity variance is
expressed as (AQu – SQ)SP where:
(AQu) = actual quantity of material used.
(SQ) = standard quantity of material
allowed.
(SP) = standard price of material.
If actual quantity > standard quantity,
then the variance is unfavorable.
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106. Labor Rate Variance
The labor rate (price) variance is
expressed as (AR – SR)AH where:
(AR) = actual wage rate (price).
(SR) = standard wage rate (price).
(AH) = actual number(quantity) of labor
hours.
If actual rate > standard rate, then the
variance is unfavorable.
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107. Labor Efficiency Variance
The labor efficiency (quantity) variance is
expressed as (AH – SH)SR where:
(AH) = actual number of hours worked.
(SH) = standard number of hours
worked.
(SR) = standard labor wage rate.
If actual hours > standard hours, then the
variance is unfavorable.
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108. Overheads variances
• The controllable overhead variance is
expressed as (actual overhead - flexible
budget level of overhead) for actual level
of production.
• The overhead volume variance is
expressed as (flexible budget level of
overhead for actual level of production -
overhead applied to production using
standard overhead rate).
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109. Project Abandonment
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111. Purposeful abandonment
• Purposeful abandonment is the cessation of something
that you or your company have been doing for months
or years but no longer gaining the results or traction
you originally hoped for.
• The few causes of project abandonment as inadequate
project planning; inadequate fund, inflation,
bankruptcy of Contractor, variation of project scope,
political factor, death of client, incompetent project
manager, wrong estimate, inadequate cost control,
faulty design and delayed payment.
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