enercon project planning
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PROJECT MANAGEMENT
CASE STUDY PROJECT MARKS--40
Enercon India: Project Planning
Submitted to
Prof. S.S. Pal
Submitted By
Akhil Vigh
19
Abhishek Jain
16
Kapil Gulta
17
Nitya
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Critical Path Analysis
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Q=2
Explain negotiation with the possible outcomes, describing in the form of thedecision analysis form, what can Prithviraj do in the said scenario?
In this case there is only one form of direct negotiation has been given for the
Prithviraj is with farmers at the time of the land acquisition. But apart from this
direct negotiation, we feel there is couple of other indirect negotiation which
Prithviraj has to face but not explicitly mentioned in the case. We are trying to
show direct and indirect negotiation and its effects.
(Negotiation in the given middle box is the direct negotiation given in the caseand other two given in the other boxes are the indirect negotiation which we fill
has arrived from the case)
The Nawapur site was on private land and EIL needed to negotiate with each
landowner. The land acquisition part of a project generally takes about four to
five months and comprises several rounds of negotiations. The speeding up of
this process meant that the villagers could gauge the desperation of EIL in
clinching the deal. Consequently, the land prices went up. EIL estimated that it
had to finally settle for prices which were about 30-35 per cent more than thenormal rates. The total land cost was about Rs 15 million for300 acres.
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Negotiation
Purchase of new 220
capacity crane or wait
for the repair
Land acquisition from
the farmers at the lowest
possible rate
Completion of the
project within time
limit of September 30
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Q=3
Explain in detail the outcomes and learning in context the projectmanagement and management. What information system can be used in
scenario like this? Is cost benefit analysis feasible in this type of conditions?
Problems in Case:
Weak Project Control Structure
A comparison of the bar chart of the Installation Head (Exhibit 13), BDO
(Exhibit 14), along with the actual progress in the Nawapur Project ProgressReport (Exhibit 18) reveals interesting information as given in Table 1. It is
observed from Table 1 that there are substantial differences in information
being maintained in the Head Office (Installation Head), the Division Office
(BDO, Vadodara) and the Project Office at Nawapur, which is a pointer to the
manner in which the project is controlled and monitored. These differences
should not have occurred given that an ERP system is in operation and
networked between all the offices. This means that the information is rarely
updated or validated on field. It appears that the reporting and controlling
systems have not been designed to support the multi-project teams, where each
project has a very short lifecycle.
Land Acquisition Problem
Calculating the earliest and the latest start and completion times in Table 2,
using the data in Exhibit 15 and 16, we find that activities 1 (land acquisition
process), 2 (micro siting and planning), 6 (tower delivery), 8 (machine
erection), 10 (pre-commissioning of WEC), 12 (VCB and 11 KV line
charging), and 13 (commissioning) lie on the critical path. It is evident fromabove that the land acquisition process holds a vital key to the entire project
delivery.
Transportation Problem
Other than land acquisition, the other critical components of the project are
transportation of components and erection of WECs. Transportation of over-
dimensional consignment components, such as WECs, involves coordination
with the State Road Department, which might involve strengthening of bridges
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or even construction of diversions at times. Here again, a detailed planning is
required in advance to survey the condition of roads, bridges, culverts, under-
bridges, etc., to determine the route to be taken or the type of trucks that can be
used. This might also require transportation of components in dismantled
condition which in turn would require setting up of component assembly worksat the site itself. These aspects become all the more important since most of the
high potential wind energy sites are located at remote and inaccessible areas far
from human habitation.
Mathematical equation of the case
The following financial equation is used for assessing the financial viability of
owning 220 tonne crane versus hiring it from the market:
Average return on investment
Investment pay-back period
Net present value
Internal rate of return
Total investment for purchasing the crane
31,150,000
(Addition of total landed cost of Rs 31,650,000 and (31.15million)
provision for spares inventory @ 5 % of the landed cost)
Annual cost of operating demag 665 crane 7,606,000
Annual cost of hiring an equivalent crane from the market 15,600,000
Annual saving by Enercon owning the crane 7,994,000
(8.00million)
Interest payable on capital borrowings 14 % per annum
Additional Assumptions required for Calculations
Operating life for a crane 10 years
Salvage value at the end of operating life Rs 6.23 million
( 20 % of original investment of Rs 31.15 million) Equity-Debt ratio
for project financing 60 : 40
Return expected by Enercon on its own equity 20 % per annum
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Net total taxation rate applicable to Enercon 33 % on incremental
profits
Depreciation provision on straight line basis
CalculationsAverage Return on Investment (ROI)
Annual savings by Enercon owning the crane Rs 8.00 million
Return on investment (PBDIT) 31 %
Pay-back Period for Investment
Annual cash-flow (before depreciation) Rs 8.00 million
Pay-back period for investment (31.15 /8.00 ) 3.9 years
Net Present Value
Calculation of Weighted Average Return on Capital (WACC)
Post-tax cost of project term borrowings with 33 % income
tax and 14 % market interest rate on 40 % project cost
(= 0.40 x 14 x 0.67) 3.75 % per
annum
Cost of expected return on equity investment on 60 % of
Project cost at 20 % per annum return on equity 12.00 % per annum
Total weighted average cost of capital (WACC) 15.8 % per annum
Net Present Value(Considering 20% salvaged value of investment at end of 10th year) Rs 40.4
million
Internal Rate of Return (IRR) 23%
Based on all the four criteria considered, it is clear that owning a 220 tonne
crane is an attractive proposition. Hence, Enercon should own at least one such
crane initially.
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* Source: Exhibit 19, Comparative Statement between Owning and Hiring of
Crane by Enercon.
Some Outcome From project
1) PROJECT TIME
Project timing for nawapur project is e June end to 30 th September. In
this time, there is monsoon seasone . So it is a difficult to work in heavy
rain fall and high wind. If the project is not finished at sep. end, client
will be losing half depreciation, tax benefit and wind power benefit.
2) PROJECT COSTThe cost of the nawapur project is 600 million Rs. If project is not
finished within time period, client will be investing more money for extra
working day to finish.
Due to this company suffer financial loss.
3) TOTAL QUALITY MANAGEMRNT OF PROJECT
There is requirnment for quality work in WECs project for better
result.so it is necessary to comlete work within limited time and
resources for company growth. more importantly, it would not affect thecustomer confidence in EILs ability to handle wind energy project from
concept to commissioning and beyond.
4) WORK BREAKDOWN STRUCTURE
At the first level of WBS there is a 13 activity involved in a nawapur
project. Such as
Land identification and acquisition
Micrositing and planning
Approach road formation
Foundation casting
WEC delivery
Tower delivery
Blades delivery
Machine eraction
11 KV overhead line
Pre-commissioning of WEC VCB and metering yard construction
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VCB and 11kv line charging
Commissioning.
At the second level of WBS , there are sub activity involved in a project.
Make land sale deeds with owners.
Apply to GEDA with copy of land deeds.
Clearance by GEDA.
micrositing.
planning of power evacuation and approach roads.
5) ORGANISATION BEHAVIOUR TOWARDS PROJECTEIL believes in from concept to commissioning and beyond so it is
necessary to company to finish project within time period and
with quality work.
6) SYSTAMATIC APPROACH / INTUITION APPROACH
Company follow various system likes ERP and SAP and WBS system
for planning of project. In nawapur project there is 3 month time for
project. So prithviraj take some decision based on their intuition and his
past experience in last 7 year.
7) RISK OF PROJECT
There is a possibility that project will not be finished in prescribed time
because of agitation of villagers for extra compensation for their land.
The cost of the nawapur project is 600 million Rs. If project is not
finished within time period, client will be investing more money for extra
working day to finish.
Due to this company suffer financial loss.
8) PROJECT TEAMThere are four project team and each work at different site. One project
team has 26 member including deputy manager civil engineer, supervisor
and trainee engineer .Store keeper and commissioning team. Each team
managed their project independently.
9) PROJECT CONTROL SYSTEM
Company follow various system likes ERP and SAP and WBS system
for planning of project. Company control their time, cost, quality,
resources, employees and teams
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10) SELECTION OF LOCATION
It is very important to select right place to build WECs for better
operating and maintaing.nawapur site is on private land thats why
various legal implication arise. So it is necessary to collect all necessary
permission from GEDA and district collector and villagers.
POSSIBLE UTCOME AND LEARNING
1) HUMAN RESOURCES
HR management in projects is a systematic exercise involving HR
estimation at the planning stage, hiring/deploying the project team during
execution, and motivating and managing the team which is a monitoring
and control process. HR planning appears to be inadequate at Enercon.
The organization of the project team is not conducive for effective and
efficient project management. Two glaring omissions are the absence of
procurement coordinator reporting to the project manager and a crane
specialist at site. HR planning should also be appropriately linked with
other areas like time, risk, and procurement. In this regard, if proper
planning had been carried out as outlined in earlier paragraphs, the
necessity of two erection crews for using two cranes simultaneously
would have appeared almost mandatory. HR planning for the site project
team should have been carried out accordingly.
2) PROCUREMENT MANAGEMENT
As seen under risk management, continuous availability of 220 tonne
crane, during the erection period, is the key to maintaining the schedules.
On the positive side, Enercon did try to take care of the potential risk by
contracting most of the 220 tonnes capacity cranes (4 out of 7 in India)
available in the market on lease/hire. But,this is clearly not enough and
the procurement policy of the company is questionable considering the
Own vs Hire trade-off analysis carried out in Exhibit-6.
The Exhibitshows that the payback on the capital investment of Rs 32 million on the
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220 tonne crane is 3.9 years and IRR is 20 per cent. This indicates that it
makes business sense to own at least one 220 tonne crane. Considering
that Enercon has successfully implemented projects and should have
accumulated adequate cash surplus, a proactive decision to purchase 220
tonne crane before the start of the project would have been in order.
3) OPERATION MANAGEMENT
Various operation happen in this company like land acquisition , land
identification , maintenance of WECs site , commissioning of WEC ,
interfacing with regulatory authority for required permission,prepareingapproach roads, construction of WEC, erection of WEC. so company
managed all these operation .
4) INVENTORY SYSTEM & STORAGE MANAGEMENT
Various part of WEC like blades, towers, WEC foundation parts, is
difficult to sore and managed at project site. So taking step for inventory
management is necessary for company.
5) FORCASTING
There is necessity to forecast the period the monsoon or heavy rain at the
project site.
So company focused on weather condition. There is necessity to forecast
the sales of WECs in India.
6) MANUFACTURING DEPARTMENT
Manufacturing department is manufactured and managed WECs blades,
WECs tower, WECs .they also export this machine to Germany and all
over the world. so it is difficult to manufacture all required WECs.
7) SUPPY CHAIN MANAGEMENT
Manufactured department at Daman manufactured and managed WECs
blades, WECs tower, WECs. Then they supplied this equipment to the
various project sites in india.they used trucks for loading of their
equipments. So it is very difficult to manage all supplied materials at
right time.
8) FINANCIAL MANAGEMENT
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The cost of the Newapur project is 600 million Rs. If project is not
finished within time period, client will be investing more money for extra
working day to finish.
Due to this company suffer financial loss. Due to the less time, it is
possible to less NPV obtain which affect on EILs valuation.There is one alternative to purchase 220 tonnes cranes for company
which is helpful in future. All cost regarding new 220 tonnes crane
purchase will be compensate in three years.
COST BENEFIT ANALYSIS
Yes, it is feasible in this type of condition.
Assume that if the project is not finish in a deadline of 30 th sep.2003. On that
condition client does not get benefit from 600million project.
Depreciation benefit (2003-2004) =240 million
Corporate tax benefit at 30% =180 million
Wind power benefit =7 million
(1.4million *5 Rs. Per unit)
Total =427 million
Clients loose the 427 million Rs. Because of not finishing the project within the
time period And other additional cost attached with the extra days to finish theproject. Assume that if the project is finish in a deadline of 30th sep.2003. on
that condition client does get benefit froms 600million project.
Benefits, Client gets depreciation and tax benefit Company get profit from the
project Market believes in that companys ability to handle wind energy project
from concept to commissioning and beyond.
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