enercon project planning

7/29/2019 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



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



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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