53366393 project management

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PROJECT MANAGEMENT


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WHAT IS PROJECT?

Projects are temporary in nature and have definitive start dates anddefinitive end dates. The project is completed when its goals andobjectives are accomplished. Projects exist to bring about a product,service or result that didnt exist before. In this sense, a project isunique. Thus a project produce the unique, tangible or intangible,

product or service or result. Project Vs Operations: Operations are ongoing & repetitive where as

projects are temporary.

A project is successful when it achieves its objectives and meets orexceeds the expectations of stakeholders. The stakeholders are the

people who are actively involved with the work of the project or havesomething to gain or lose as a result of the project. The stakeholdersare thus: Project manager, Project sponsor, Customer, Board ofdirectors, Executive managers, Department mangers, Vendors,Suppliers, Project management office etc.


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WHAT IS PROJECT MANAGEMENT?

Project management brings together a set of tools and techniques

performed by people to describe, organize, and monitor the work

of project activities. Project management involves applying

knowledge, skills, and techniques during the course of the project to

accomplish the project requirements. Project managers are the people responsible for managing project

processes and applying the tools and techniques used to carry out

the project activities. It is the responsibility of the project manager to

ensure that project management techniques are applied and

followed.

Many times, stakeholders have conflicting interests. Its the

responsibility of project manager to understand these conflicts and

try to resolve them. Project manager has to identify and meet all

needs and constraints of key stakeholders. And when in doubt,

stakeholders conflict should always be resolved in favor of

customers.


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Project mgt. Continued

Project management is a process that includes planning, putting theproject plan into action, and measuring progress and performance. Itinvolves identifying the project requirements, establishing projectobjectives, balancing constraints, and taking the needs andexpectations of the key stakeholders into consideration. Planning

sets the standard for the rest of projects life and is used to trackfuture project performance.

Programs: Programs are groups of related projects that aremanaged using the same techniques in a coordinated fashion.When projects are managed collectively as programs, theycapitalize on benefits that wouldnt be achievable if the projectswere managed separately. This could be the case where a very

large program exists with many sub projects under it. Each subproject has its own project manager, who reports to programmanager. The management of this collective projects is called asprogram management and it involves centrally managing andcoordinating groups of related projects to meet the objectives of theprogram.


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Project mgt. Continued

Portfolios: Portfolios are collections of programs and projects thatmeet a specific business goal or objective. Say a constructioncompany under retail portfolio might have number of programs andprojects like retails, single family residential, multifamilyresidential, etc. The objective of any program or project in this

portfolio is to meet the strategic objectives of the portfolio, which inturn should meet the objectives of the department and ultimately thecorporation. Portfolio management encompasses managing thecollections of programs and in the portfolio. This includes weighingthe value of each project, or potential project, against the portfoliosstrategic objectives. It involves monitoring, finance management andassuring the efficient use of resources. Portfolio management is

generally performed by a senior manager in the organization. Project Management Offices: PMO is generally a centralizedorganizational unit that oversees the management of projects &programs. PMO has to establish and maintain procedures andstandards for the project management methodologies. They serveas mentors to junior level project managers and act as consultantsto senior level managers.


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NECESSARY SKILLS FOR PROJECT

MANAGERS

1. Communication Skills :

One of the single most important characteristics of a first-rate project manager isexcellent communication skills. Written and oral communications are the backbone ofall successful projects. As a creator or manager of most of the projectcommunication (project documents, meeting updates, status reports, and so on), Itsyour job to ensure that the information is explicit, clear and complete so that theaudience will have no trouble understanding what has been communicated.

2. Organizational and Planning Skills :

Organizational and planning skills are closely related and probably the mostimportant, after communication skills, a project manager can possess. As projectmanager, you will have project documentation, requirements information, memos,project reports, personnel records, vendor quotes, contracts, and much more, totrack and be able to locate at a moments notice. You will also have to organizemeetings, put together teams, and perhaps manage and organize media releaseschedules, depending on your project.

Time Management skills are closely related to organizational skills. Planning skills gohand in hand with organizational skills. Combining these two with excellentcommunication skills is almost a sure guarantee of your success in the projectmanagement field.


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Skills Contd

3. Budgeting Skills :

Project managers establish and manage budgets and therefore need someknowledge of finance and accounting principles. Especially important in this skillarea is the ability to perform cost estimates for project budgeting.

4. Conflict Management Skills :

Conflict management involves solving problems. Problem solving is really a

twofold process. First, you must define the problem by separating the causes fromthe symptoms. Often when defining problems, you end up just describing thesymptoms instead of really getting to the heart of whats causing the problem. Toavoid that, ask yourself questions lie Is it an internal or external problem? To avoidthat, ask yourself questions like Is it an internal or between team members? And Isis managerial? and What are the potential impacts or consequences? These kindsof questions will help you get to the cause of the problem.

Next, after you have defined the problem, you have some decisions to make.It will take a little time to examine and analyze the problem, the situation causing it,and the alternatives available. After this analysis, the project manager will determinethe best course of action to take and implement the decision. The timing of thedecision is often as important as the decision itself. If you make a good decision butimplement it too lake, it might turn into a bad decision.


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Skills contd

5. Negotiation and Influencing Skills :

Effective problem solving requires negotiation and influencing skills. Simply put,negotiating is working with others to come to an agreement.

Negotiation on projects is necessary in almost every area of the project, from scopedefinition to budgets, contracts, resource assignments, and more. This might involveone-on-one negotiation or with teams of people, and it can occur many times

throughout the project.Power and politics are techniques used to influence people to perform. Power is theability to get people to do things they would not do otherwise. It is also the ability tochange minds and the course of events and to influence outcomes. Politics involvegetting groups of people with different interest to cooperate creatively even in themidst of conflict and disorder.

6. Leadership Skills :

Leaders and managers are not synonymous terms. Leaders impart vision, gain

consensus for strategic goals, establish direction, and inspire and motivate others.Even though leaders and managers are not the same, project managers must exhibitthe characteristics of both during different times on the project. Understanding whento switch from leadership to management and then back again is a finely tuned andnecessary talent.


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Skills Contd.

7. Team-Building and Motivating Skills :

Project managers will rely heavily on team-building andmotivational skills. Teams often formed with people fromdifferent parts of the organization. These people mightor might not have worked together before, so somecomponent of team-building groundwork might involvethe project manager. The project manager will set thetone for the project team and will help the team memberswork through the various stages of team development to

become fully functional. Motivating the team, especiallyduring long projects or when experiencing a lot of bumpsalong the way, is another important role the projectmanager fulfills during the course of the project.


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PROJECT MGT. KNOWLEDGE AREAS

Project Integration Management

Project Scope Management

Project Time management

Project Cost Management

Project Quality Management

Project Human Resource Management

Project Communication Management Project Risk Management

Project Procurement Management


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Project Integration Management

Process Name Develop Project Charter

Develop Preliminary project Scope

Statement

Develop Project management plan

Direct & manage project execution

Monitor & control project work

Integrated change control

Close project

PM Process Group Initiating

Initiating

Planning

Executing

Monitoring & controlling

Monitoring & controlling

Closing


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Project Scope Management

Process Name

Scope Planning

Scope Definition

Create WBS*

Scope Verification

Scope Control

* Work breakdown structure

PM Process Group

Planning

Planning

Planning

Monitoring & Controlling



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Project Time Management

Process Name

Activity Definition

Activity Sequencing

Activity ResourceEstimating

Activity Duration

Estimating

Schedule Development Schedule Control

PM Process Group

Planning

Planning

Planning

Planning

Planning



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Project Cost Management

Process Name

Cost Estimating

Cost Budgeting

Cost Control

PM Process Group

Planning

Planning



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Project Quality Management

Process Name

Quality Planning

Perform Quality

Assurance

Perform Quality

Control

PM Process Group

Planning

Executing

Monitoring &

Controlling


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Project Human Resource Management

Process Name

Human Resource

Planning

Acquire Project Team Develop Project Team

Manage Project Team

PM Process Group

Planning

Executing

Executing



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Project Communication Management

Process Name

Communications

Planning

Information Distribution Performance reporting

Manage Stakeholders

PM Process Group

Planning

Executing




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Project Risk Management

Process Name

Risk Management

Planning

Risk Identification Qualitative Risk Analysis

Quantitative Risk

Analysis

Risk Response Planning Risk Monitoring & Control

PM Process Group

Planning

Planning

Planning

Planning

Planning



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Project Procurement management

Process Name

Plan Purchases &

Acquisitions

Plan Contracting Request Seller Response

Select sellers

Contract Administration

Contract Closer

PM Process Group

Planning

Planning

Executing

Executing


Closing


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Model Questions


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Project Identification Understanding How Projects Come About Needs & Demand Market Demand: The demands of the market place can drive the

need of the project.

Business Need: Need sensed by Input Process Output systemof business.

Consumer Request: Consumer request can drive the project. Theconsumer can be internal or external.

Technological Advances: Technological advances in various fieldsbrings in new projects.

Legal Requirement: Private agencies and government agenciesgenerate new projects as a result of legislative amendments.

Social Need: Projects come up as a result of social needs.


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Project Identification (cont.)

Project identification is concerned with collection, compilation andanalysis of economic data for the eventual purpose of locatingpossible opportunities for investment and with the development ofsuch opportunities.

Opportunities according to Peter Drucker are of three kinds: additive,complementary and breakthrough.

Additive opportunities are those which enable better utilization ofexisting resources without change in character of business. Theseopportunities involve minimum disturbance to the existing state ofaffairs and hence carry least risk.

Complementary opportunities involve the introduction of new ideas andlead to certain amount of change in the existing structure.

Breakthrough opportunities on the other hand involve fundamentalchanges in both the structure and character of business.


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Sources of Project Ideas

1. Analysis of Industries Performance

2. Analysis of Inputs & Outputs of Industries

3. Analysis of Imports and Exports

4. Five year plan and Government Policies

5. Suggestions of Financial Institutions & Development Agencies

6. Survey of Local Resources

7. Analysis of Economic & Social Trends

8. New Technologies

9. Emulating Consumption Patterns from Abroad

10.Restoring Life to Sick Units

11.Analysis of Unsatisfied Needs of Consumers12.International and National Trade Fairs & Industry Exhibitions

13.Stimulate Creativity for Generation of new Project Ideas

14.Chance Factor


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Criteria for Selecting Project

Investment Size

Location

Technology Equipment

Marketing


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Feasibility

Feasibility Report: Before starting a small-scale industry,it is mandatory for entrepreneurs to consult the Directorof Industries Service Institute (SISI) located in the state.The SISI guides entrepreneurs as to the type of industry

to start, where to start and how to start it. SISI suggeststhe lines on which the project reports for the proposedunits should be prepared for the consideration of variousfinancial institutions with a view to securing financialassistance. It also provides technical guidance related to

selection of raw material, type of machinery &information about various incentives available to thesmall scale industries from various organizations.


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Project Feasibility Analysis

Project feasibility analysis includes market analysis,

technical analysis, financial analysis & social cost-benefit

analysis.

Market Analysis: A market analysis is a method of screening the

project ideas as well as means of evaluating a projects feasibility in

terms of market. The market analysis should cover the following

areas.

1. A brief market description including market area, channels of

distribution, transportation & general trade practices.

2. An analysis of past & present demand, identification of majorconsumers.

3. An analysis of supply & competitive position of product , such as

selling price, quality & marketing practices of competitors.


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FeasibilityAnalysis (cont.)

The technical analysis of a project feasibility study

establishes whether the project is technically feasible or

not. It involves following aspects.

1. Description of product & alternative manufacturing processes.

2. Determination of plant size, selection of machinery & equipments,

set up time & technical factors.

3. An identification of plant location, building & plant layout.

4. A study of availability of raw materials, its cost, terms of payment,

sources of supply etc.

5. An estimate of labour requirements. Skilled, semi-skilled & unskilled

labour. Supervisory work force required.

6. Waste & waste disposal.

7. An estimate of production cost of the product.


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Feasibility Analysis (cont.)

Financial analysis of feasibility study consists of

preparation of financial statements to evaluate

profitability. Risk analysis is necessary for the investment

decision. The financial analysis should include:

1. Statement of total project cost, initial capital requirement, and cash

flow statement in case of new companies.

2. Supporting schedules for financial projections, collection period,

inventory levels, payment period, element of production cost, selling,

administrative, & financial expenses.

3. Financial analysis showing returns on investments, returns on

equity, break-even volume, and price analysis.

4. A sensitivity analysis to identify items having substantial impact on

profitability or possibly a risk analysis.


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Feasibility Analysis (cont.)

Social cost-benefit analysis is necessary to justify a

project from the national viability point of view. We not

only take into account direct costs & benefits but also the

cost of all entities connected with the project and the

benefits which will be enjoyed by all such entities. This

analysis include following aspects broadly:

1. Priorities as per national five year plan.

2. Employment capability.

3. Social acceptance.4. Pollution & pollution control.

5. Conservation of energy.

6. Generation of foreign exchange.

7. Overall economic development.


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Project Formulation

Project formulation is a process whereby the

entrepreneur makes an objective and independent

assessment of various aspects of an investment

proposition of a project idea for determining its total

impact and also its liability. This forms an important

stage in the pre-investment phase that is the period

from the conception of an idea until the final analysis to

decide about the future of the project idea. This makes it

an analytical management aid. The aim of projectformulation is to achieve the project objectives with the

minimum expenditure and adequate resources.


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Steps in Project Formulation

A project comprises of a series of activities for achieving

predetermined objectives. In this view the objectives of

the project should be defined as precisely as possible.

The objectives may be social, economic, or combination

of the both. They can be defined under the following

categories.

1. General objectives: A general objective merely states in broad terms

the achievements expected of the project.

2. Operational objectives: Operational objective specifically mentionsresults expected from the implementation of project.

The definition of objectives in clear terms helps in quantifying

physical, financial, human & other resources requirements.


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Stages of Project Formulation

The process of project development has seven

distinct & sequential stages. The project

formulation is a result of completion of these

stages. The stages are:1. Feasibility analysis

2. Techno-economic analysis

3. Project design and Network analysis

4. Input analysis

5. Financial analysis

6. Social Cost-Benefit analysis

7. Pre-investment analysis.


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Stages of (cont.)

1. Feasibility analysis: At this stage, the project

idea is examined from the point of view of

whether to go for detailed investment proposal

or not. The project idea is examined in thecontext of internal & external constraints three

alternatives could be considered Project idea

seems to be feasible or not feasible or unable to

arrive at conclusion. If project idea is feasible wego to second step else abandon the idea.


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Stages of (cont.)

2. Techno-economic analysis: In this step,

estimation of project demand potential and

choice of optimal technology is made. It is

necessary to know the market for thegoods/services produced by the project

implementation. Therefore market analysis is

also in-built in this step. Techno-economic

analysis gives the project a unique individualityand sets the stage for detailed design

development.


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Stages of (cont.)

3. Project design and network analysis:

This important step defines individual activities

which constitute the project and their inter-

relationship with each other. The sequence ofevents of the project is presented. Detailed work

plan of the project is prepared with time

allocation for each activity and presented in a

network drawing. Project design is the heart ofthe project as based on this resources required

can be detailed and provided to the project.


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Stages of (cont.)

4. Input analysis: This step assesses input

requirement during construction of the project

and also during the operation of the project. The

input requirements on quantitative andqualitative basis for each activity is determined

and total input requirements are worked out.

This determines project feasibility from the point

of view of resource requirements. This analysisalso helps in assessing the cost and helps

financial analysis and cost-benefit analysis.


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Stages of (cont.)

5. Financial analysis: This stage involves in

estimating project cost, operating cost & funds

requirements. Financial analysis also helps in

comparing various project proposals on commonscale, thereby aiding the decision maker. Some

of the analytical tools used in financial analysis

are discounted cash flow, cost-volume-profit

analysis and ratio analysis. Since the costs &benefits as the out come of the project has long

time-horizon it is necessary to exercise due care

& foresight in financial forecasts.


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Stages of (cont.)

6. Cost-Benefit Analysis: Overall worth of the

project is the main consideration. There are

three categories

Primary Cost-benefit analysis from the pointof view of project implementing body.

Secondary Cost-benefit from the point of view

of other than project implementing boy. Also

called as spill-over or multiplier affect.

Tertiary Non quantifiable spill-over or

multiplier effect.


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Stages of (cont.)

7. Pre-investment analysis: The project proposal

gets a formal and final shape at this stage. All

the results obtained in the above steps are

consolidated and various conclusions arrive at topresent a clear picture. Now, at this stage the

project sponsoring body, project implementing

body and the external consulting agencies are

able to decide whether to accept the proposalor not. And investment decision regarding the

project can be taken by project implementing

body.


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Project Risks

Types of project risks

1. Design risk

2. Implementation risk

3. Operational risk

4. Environmental risk

5. Finance risk

6. Interest rate risk

7. Structural risk

8. Human resource risk9. Execution risk

10.Management risk

11.Technology risk

12.Disruption risk


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Focusing on Constraints

Theory of constraints recommends the

managers focus on constraints or bottlenecks.

For projects, the constraint is critical path. Once

managers identify bottlenecks the techniques ofresource allocation, resource leveling,

monitoring, crashing etc. can be used to reduce

the risk of not completing project in the planned

time. But goldratt adds an important secondconstraint to this framework that managers often

overlook: scares resources needed by tasks not

only on and off critical path but also by the other

projects.


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Identifying the Risks

Kleindorfer has identified three main

categories as the primary sources of

supply chain disruption risk: Operational

contingencies, which include equipment

malfunctions and systemic failures, abrupt

discontinuity of supply, bankruptcy, fraud,

labour strikes; natural hazards such asearthquakes, hurricanes, storms; and

terrorism or political instability.


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Risk Analysis

Projects with quantified benefits: The internal rate of

return (IRR) is the measure most often used to indicate

the economic viability of Bank financed projects.

Calculation of IRR requires a set of assumptions

regarding the conditions faced by the project which

prevail during its life. However, such projects have very

long life and conditions faced by the project may change

due to various reasons. Sensitivity analysis is carried

out to determine the effects of possible changes in thevalues of key variables ( costs, yields, and price of inputs

and outputs) on projects IRR. Risks are generally higher

in projects for which the base-case IRR is only

marginally higher than opportunity cost of capital.


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Risk Analysis (cont.)

Projects for which Benefits are not Quantifiable: For projects incertain sectors or sub-sectors such as education, health, sanitation& family planning, project benefits cannot be quantified and the riskscannot be measured by sensitivity analysis. The real benefit of thistype of project relate to broad socio-economic goals. In such cases,

the relationship of project risk to the project objectives should beexplained. The objectives should be discussed in relation to theproject cost and output, and also in relation to the socio-economicobjectives sought by the project. In case of projects for whichbenefits can be quantified, the risk relating to both the costs andbenefits should be discussed. Investment costs, in such projects,

relate to construction of building and necessary infrastructure. Therisk on the cost side could be the delay in implementation of project.In such projects, the risks are greater on benefit side. This risk isthat the quantified benefits are not achieved. While it may not bepossible to to eliminate such risks, it is essential to minimize them.


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Location of an Enterprise

Location considerations for the establishment of manufacturingplants is critical. An ideal site certainly contributes to the smooth andefficient functioning of an enterprise. The study of location forms animportant branch of economic geography. The need for plantlocation arises for new enterprise as well as established enterprise.The established enterprise need it for various reasons such as

expansion, decentralization, diversification, end of lease contract,abandoning undesirable location, shifting of market, depletion of rawmaterials etc.

Selection of most economic site: According to Kimball & Kimbal, themost advantageous location is that at which the cost of gatheringmaterial, fabricating it into finished product and the cost of

distributing finished product to final consumer is minimum. The threeparameters form the three apex of triangle & location of enterprise isat the most appropriate place within the triangle.

L


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Steps in Enterprise Location

The selection of enterprise location involves three main steps.

Selection of region or general area, selection of particular

community and selection exact plant site. PM 1.doc

Webers theory of Industrial Location:Webers theory divides the

factors influencing Industrial location into following :1. The general regional factors of transport and labour costs. These

are regarded as primary causes affecting industrial location.

2. The local factor of agglomerative forces regarded as the secondary

causes responsible for redistribution of industry.

Limitations of Webers theory: The theory is base on wrongassumption about labour supply. The transport cost depend on

mode of transport, nature of goods etc. Location & size of market

may vary with changes in economy. Non-economic forces also exert

important influence. Classification of materials is not proper.


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Legal & Govt. aspects

The project site is sometimes determined by the governments

licensing regulations and not by the choice of the promoters. The

government has eased restrictions on location of industries. A

notification issued by the Ministry of Industry mentioned that under

new industrial policy, industrial licensing exemption granted to all

industries except certain specified categories. These include that

project should not be located within 25 km from the periphery of

standard urban areas limits of city with population of more than one

million, as per 1991 census. But if the industrial units were located in

an area designated as an Industrial area by the concerned state

government before July 25, 1991, then this restriction would notapply. The applications were received for grant of relaxation on

account of location. However, it is only the environment, safety, land

use, urban planning and related factors that were kept in view while

considering the industrial licence applications received .


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Legal & Govt. aspects (cont.)

Industrial Growth Centers scheme: For the promotion of

industries in backward areas, the scheme of establishing growth

centers was envisaged in 1988 for establishment of 100 growth

centers around the country. The criteria for the location of centers is

as under:

i. Outside 50 km. of cities with population above 2.5 million.

ii. Outside 30 km. of cities with population above 1.5 million but below

2.5 million.

iii. Outside 15 km. of cities with population above 0.75 million but

below 2.5 million.The objective of the scheme has been to provide the best of theinfrastructure facilities nation wide. The growth centers were so located that

sufficient land was available for the development of housing and for the

promotion of tertiary activities. Further the locations prone to ecological

problems were not selected. Such centers were expected to cover an area

of radius 20 25 km.


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Legal & Govt. aspects (cont.)

State incentives provide assistance and facilities to allure

& motivate techno-entrepreneurs to start their venture in

their region. The nature of assistance, however, varies

from state to state. PM 2.doc

Industrial location policy: Govt. of Maharashtra has

revised location policy for BMR. The policy has been in

force for two decades from its revision in Feb. 1984. The

revised policy is applicable to all industries in BMR

excluding cotton textile industry, service industries &service industrial estates. The location clearance,

however, is subject to environmental approvals from

center & state govt. and also provisions of the regional

plan.


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Industrial location policy M.S. (cont.)

BMR was divided into three zone for the purpose of implementation

of policy.

a. Zone I : Consisting of Greater Bombay and areas of Thane

municipal corporation and Mira- Bhayndar Municipal council.

b. Zone II : Consisting areas of Kalyan & navi Mumbai corporations,Ambarnath, Kulgaon- Badlapur Municipal councils, Bhivandi and

Uran sub-regions and Vasai-virar sub-regions.

c. Zone III : Consisting of the remaining areas of BMR

Industries were categorized into three categories namely non-

polluting (listed in schedule I), highly polluting (listed in schedule II)and other than the two. A new unit or expansion under the category

of schedule II is allowed only in the MIDC areas in Zone II.


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Factory Design & Layout

Factory Design: The term factory design refers to thefor a particular type of building, arrangement ofmachinery, and provision of service facilities, lighting,heating, ventilation etc. in the building.

Plant Layout: A simple, clear and comprehensivedefinition given by Knowels & Thomson says that plantlayout involves

i. Planning & arranging manufacturing machinery,equipment and services for the first time in completelynew plants;

ii. The improvements in layouts already in use in order tointroduce new methods & improvements inmanufacturing procedures.


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Factors affecting Factory Design

The factory design and layout should be flexible so that it mayadapted easily to technological change, modernization,diversification and expansion with minimum cost & time.

The following factors influence the design of a factory:

1. Location

2. Nature of manufacturing process

3. Plant layout

4. Material handling and movement

5. Cost of building

6. Lighting, ventilation and service facilities

7. Nature of product

8. Future expansion, modernization etc.

9. Projecting the image of factory


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Importance of Layout

The importance of layout lies in enhancing manufacturing functionsand supervision and control. Some advantages are:

1. Economies in material handling

2. Reduction in accidents,

3. Effective use of available area,

4. Minimization of production delays,

5. Avoidance of bottlenecks,

6. Better production control,

7. Maximization of production,

8. Improved quality control,

9. Improved utilization of labour,

10. Better supervision, and,

11. Increased revenues and profits.


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Considerations in factory Layout

While choosing the layouts for a factory, thefollowing factors should be taken into

consideration.

1. Nature of product,2. Volume of production,

3. Material handling,

4. Type of equipment,

5. Factory building,

6. System of manufacture,

7. Lighting & ventilation,

8. Service facilities.


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Optimum size of Plant

The scale and size of operations of the unit determine its efficiency

and profitability.

A small scale unit can easily be formed. It has flexibility and

ownership control. Such units are most suitable because of limited

demand and changing tastes, local market, Limited capital limitedrisk of loss, shorter gestation period etc. A firm may start and

steadily move towards expansion in order to enjoy the benefits of

economy of scale. After reaching a particular level, the law of

diminishing returns or increasing cost begins and acts as a brake on

further expansion. This level is probably known as the optimum

level, indicating the most profitable combination of resourcesproviding equi-marginal utility or return. The optimum size of plant

achieves equi-marginal returns from all resources or factors of

production.


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Project Report

1. Objective & scope of project

2. Product characteristic

3. Market position & trend

4. Raw material5. Manufacturing process

6. Plant & machinery

7. Land & building

8. Financial implications9. Marketing channels

10.Personnel


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Project Report Numerical

An entrepreneur wishes to start a new weaving factory by installing96 automatic looms & related machinery. The looms with completeinstallation are available for 2 lakhs rupees each. The pirn windingmachine is required for making weft pirns from yarn cones. The pirnwinding machine can be purchased at price of rupees 3 lakhs. The

dimension for each loom is 3m X 2m including working place aroundthe loom. The pirn winding machine measures 4m X 2m floor space.The open space necessary for material handling measures 30% ofthe machine space. Space necessary for storage of raw materials,work in progress & finished goods measures 20% of machine space.Total area necessary for inspection of cloth, grey folding,

maintenance & overall administration measures 50% of machinespace. The land cost per 100 m2 is 50000 rupees. Plot area : builtup area ratio allowed is 1:1. The construction cost rupees 10000 perm2. The entrepreneur wishes to buy land double the presentrequirement with view of future expansion. (cont.)


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Project Report Numerical (cont.)

The grey fabric to be produced as a continuous job order has linear

fabric weight of 200g. Each loom produces 100m of fabric per day of

three shifts. The yarn cost per kg is rupees 140. The buyer is ready

to supply necessary yarn 100% on credit & ready to pay conversion

cost at the rate of rupees 10 per linear meter. The maintenance cost

(including cost of lubrication oil) per machine is 5% of machine cost

per annum. The machines have expected life of 10 years and the

depreciation charge is calculated by straight line method. The

electric power required per day per machine is 18 units at the tariff

charge of rupees 5 per unit. Non motive power required per day is

5% of motive power @ rupees 3 per unit. Overall manpowerrequired for operations in each shift is 15 at average wage rate of

rupees 6000 per month. Managerial expenses per month are 30% of

operational charges. (cont.)


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Project Report Numerical(cont.)

Capital necessary is raised as under:Owners capital 20%

Industrial development bank 80% at interest rate of 8.5%

Working capital funded by commercial bank at rate of 11%

Tax holiday for 5 years.

Excise duty 5% of value addition.

Consider additional suitable data by making explicit assumptions.


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Calculations

Land costRequired machine area

Area for looms = Area per loom X 96

= 6 X 96

= 576 m2Area for Pirn winding = 4 X 2 = 8 m2

Total machine area = 576 + 8 = 584 m2

Additional area = 30% + 20% + 50% = 100%

Total built-up area = 584 + 584 = 1168 m2

Land area = Built-up area + Area for future expansion= 1168 + 1168 = 2336 m2

Land cost = ( Land area 100) X 50000

= 11,68,000


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Calculations (cont.)

Building costCost of building = Built-up area X construction rate

= 1168 X 10000

= 1,16,80,000

Machines costCost of looms = Cost per loom X number of looms

= 2,00,000 X 96

= 1,92,00,000

Cost of one pirn winding machine = 3,00,000

Total machine cost = 1,92,00,000 + 3,00,000

= 1,95,00,000


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Total Non-recurring expenditureTotal expenditure = Land cost + Building cost + Machine cost

= 11,68,000 + 1,16,80,000 + 1,95,00,000

= 3,23,48,000Note:

Material handling area = 30% of machine area

Storage (Raw material +Work in process + Finished goods) area

= 20% of machine area

Cloth inspection, Grey folding, Adm. Etc area = 50% of machine areaRatio of land area: Built-up area = 1:1

Ratio current area: area for future expansion = 1:1


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Maintenance cost = 5% of machine cost

= 5% of 1,95,00,000

= 9,75,000

Depreciation

By straight line method

Total machine cost = 1,95,00,000

Expected life = 10 years

Depreciation Charge = 19,50,000

Power Bill

Motive Power: Total 97 machines & power rate 5 / unit

= 97 X 18

= 1746 KWH


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Labour cost per month

= 15 X 3 X 6000

= 2,70,000


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Managerial expenses

= 30% of labour cost

= 30% of 2,70,000= 81000


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Long term capital requirement

= Land cost + Building cost + Machine

= 11,68,000 + 1,16,80,000 + 1,95,00,000 = 3,23,48,000

Long term loan from financial institutions

= 80% of 3,23,48,000= 2,58,78,400

Interest charges on long term loan 8.5%

= 21,99,664

Working capital requirement for 3 months

= Power bill +Wages & salaries + Maintenance Charge

= 8,09,280 + 10,53,000 + 2,43,750

= 21,06,030

Interest charges on short term loan = 57,915.8


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Total earning per day

= 96 X 100 X 10

= 96,000 per day

Yearly income from job work charges

= 96,000 X 300

= 2,88,00,000

Expenditure per year

= 21,99,664+ ( 57,915.8 + 21,06,030) X 4

= 1,08,55,447.20


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Financial Institutions

Over the years, financial institutions are playing a key

role in providing finance and counseling to the

entrepreneurs to start new ventures as well as

modernize, diversify and even rehabilitate sick

enterprises.With the launching of the Five Year Plans, inthe absence of a sufficiently broad domestic capital

market, there was a need for adopting and enlarging

institutional structure to meet the medium and long term

credit requirements of the industrial sector. In thiscontext RBI took the initiative in setting-up statutory

corporation at the all-India and regional levels to function

as specialised financial agency purveying term credit.

53366393 project management

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