Appraisal

S.R.PUBLICATIONS-NICMAR 2ND TERM-PROJECT APPRAISAL Page 1

PROJECT PLANNING , APPRAISAL AND EXECUTION

A project is a specific plan or design presented for consideration. UNIDO defines a project as a proposal for an investment to crate and or develop certain facilities in order to increase the production of goods/services in a community certain period of time. Burns and Tolbet define the term projects discrete package of investments, policy measures and institutional and other actions designed to achieve a specific development objectives. Projects are common term used by many flexibly to denote specific action plans. There are projects to develop a new road, new car, new motorbike, marketing plan, construction of buildings, transport and communication etc. A project can be long term or short term, limited or comprehensive, single sector concentrated or multi sector concentrated. While all of these projects have a general goal with macro and micro directives with specific time frame. This particular article concentrates more on the general project management.

Project: can be defined thus as * A scientifically evolved work plan * Devised to achieve a specific objectives * Within specified time limit * Consuming planned resources

Project Questions

Before the formulation of project problem, many questions to be asked by the project initiators. These questions can be summarized as follows:

What for: The objectives of the project How: The process, and the internal and external resources Who: For whom, By whom – Project partners, stake holders When: The time factor Where: The location What: The activity

Identifying the Project

The first phase of project management is the concerned with identifying the project to achieve the desired objectives. The initial task coming under project identification is to find out the sources of the project. Agencies like government organisations, international institutions like WHO, World Bank, UNDP, Non Governmental Organisations etc can be better source of projects.


Project Need Analysis

The factors included under project need analysis are the, problem, solutions, beneficiaries and decisions. The problem should exhibit an immediate intervention. The focus should be to identify the beneficiaries. The solutions should be based on the original problem. The decision to take up the project lies on how these three factors problem, solutions and beneficiaries are important to project intervention.

Problem formulation and Statement of the Problem

The crux of the project lies in the problem formulation process. The project team should have detailed understanding of the problem, scope, intervention areas and the out come of the project to be hypothesized. Based on a multi phased understanding and analysis, describe the problem to be addressed and resolved. The macro level objectives and micro level objectives to be separated and should give differential wastages

Project Planning

Project planning: can be defined as

* A scientific and systematic process, in which * Logical linkages are clearly established, among * Various element of projects

Successful implementation of the project lies on effective project plan. Based on the anticipated goals and objectives the project planning to be made. The project plan is the blue print of the project. Effective planning gives proper direction in the implementation of the project and it further helps in adequate monitoring and evaluation. For the implementation of plan, an activity chart to be prepared. The activity chart consists of all the proposed activities in the implementation process, including the start date, calendar for the entire project, dates of monitoring and evaluation periods, finishing stages, series of out puts, slack time, responsible person to be coordinate the activities etc.

Project Budget

The project budgeting phase is in the project formulation phase. Two types of budgets are to be made. The prior one is the cost category budget (materials, administration, capital; expenditures etc) and the later is the activity budget. This project budget is to calculate the cost of each project out put. Keep in mind the cash flow of the project, considering the contingencies like, technical shortage, shortage of raw materials, delays in the activity implementation etc. The estimation of the project cost should be made on fairly realistic sense of financial values. In the multi year projects the inflation rate also to be anticipated in advance.


Feasibility of the Projects 1. Management Appraisal

Management appraisal is related to the technical and managerial competence, integrity, knowledge of the project, managerial competence of the promoters etc. The promoters should have the knowledge and ability to plan, implement and operate the entire project effectively. The past record of the promoters is to be appraised to clarify their ability in handling the projects. 2. Technical Feasibility

Technical feasibility analysis is the systematic gathering and analysis of the data pertaining to the technical inputs required and formation of conclusion there from. The availability of the raw materials, power, sanitary and sewerage services, transportation facility, skilled man power, engineering facilities, maintenance, local people etc are coming under technical analysis. This feasibility analysis is very important since its significance lies in planning the exercises, documentation process, risk minimization process and to get approval. 3. Financial feasibility

One of the very important factors that a project team should meticulously prepare is the financial viability of the entire project. This involves the preparation of cost estimates, means of financing, financial institutions, financial projections, break-even point, ratio analysis etc. The cost of project includes the land and sight development, building, plant and machinery, technical know-how fees, pre-operative expenses, contingency expenses etc. The means of finance includes the share capital, term loan, special capital assistance, investment subsidy, margin money loan etc. The financial projections include the profitability estimates, cash flow and projected balance sheet. The ratio analysis will be made on debt equity ration and current ratio. 4. Commercial Appraisal

In the commercial appraisal many factors are coming. The scope of the project in market or the beneficiaries, customer friendly process and preferences, future demand of the supply, effectiveness of the selling arrangement, latest information availability an all areas, government control measures, etc. The appraisal involves the assessment of the current market scenario, which enables the project to get adequate demand. Estimation, distribution and advertisement scenario also to be here considered into. 5. Economic Appraisal

How far the project contributes to the development of the sector, industrial development, social development, maximizing the growth of employment, etc. are kept in view while evaluating the economic feasibility of the project. 6. Environmental Analysis

Environmental appraisal concerns with the impact of environment on the project. The factors include the water, air, land, sound, geographical location etc.


Project Implementation

This is the period in which all the activities that are planned in the initial phases of the project get materialized through operation. Here the role of the project managers comes in to the picture. It is the task of the project managers to schedule the activities one by one and establish functional relationship of the project activities in the fulfillment of the project. The techniques like PERT (Programme Evaluation and Review Technique), CPM (Critical Path Method) etc are the various network techniques the managers make utilize to implement the activities planned in the project considering the cost and time.

Monitoring and Evaluation

Monitoring is the process of observing progress and resource utilization and anticipating deviations from planned performance. (UNIDO, 1993). In the monitoring and controlling phase the project managers have to monitor the technical performance, time and cost performance in addition to the organisational performance. Correction, re-planning and cancellation of the activities are the control actions expected from this phase in order to get the expected outcome. The monitoring is periodical by fixing milestones in the project phases.

Evaluation

The final stage is the evaluation of the project. Upon the conclusion of the project success in attaining the goals, and to determine how future projects could be managed. Here the effeteness of the degree of the objective achievement, the efficiency of the financial, human, and time resources to be observed. The impact of the project, the major concern of the project, i.e. whether the project reach up to the beneficiaries with quality and quantity is to be measured. Different types of evaluation are there like performance appraisal, work audit, result evaluation, cost benefit evaluation, impact analysis etc. Evaluation is done to ensure the effective mutilation of all resources for the accomplishment of the project.

Conclusion

Here the role of the project manager to be analyzed into. From the conception stage to implementation stage and from periodical monitoring to evaluation stage his role is inevitable.

He should show his leadership in managing the relationship, motivating the team, procuring the resources, developing the capabilities, leading all the resources to the accomplishment of the project. The accountability of the project manager's leadership comes only when the team

members accept the ideas and directions of the leader towards the accomplishment of the project. A project manager here should be an effective leader. This article briefs up the

conceptual and theoretical understanding of the project management and project appraisal. It will be beneficial to those who are inspired to take a business of socio-economic project in their

career.


Project Mission

1. Every project has a specified mission or a purpose to be achieved. The mission of a construction project is to create a desired facility like a housing complex, or a power plant or a fertilizer plant. It is not a routine activity like the regular maintenance of buildings or roads.

2. Every project mission is unique in itself in that no two projects are alike. Projects differ from each other in one or more influencing factors such as client, contractors, quality specifications, resources employed, responsibilities delegated and the project environment.Each of these factors will have a decisive effect on the development of the project.

3. In general construction projects are high value projects and they employ huge resources of men, materials & machines. Major works involve heavy investments ranging from millions to billions of rupees, require high level of technology and need effective management of resources.

4. Construction projects are time bound. Each project has a predetermined duration with definite beginning and an identifiable end. Its start point is the time when the client decides to undertake construction and commit his financial resources. It is completed as soon as the mission is accomplished. The time span between the start and the completion of the project represents the “project life cycle”. The completion period varies from few months to few years.

5. Each project is assigned predetermined objectives. These objectives quantify the measurable results to be achieved for accomplishing the mission. Generally, construction project objectives are stated in terms of project completion time, budgeted cost and stipulated quality specifications.

Project Objectives:

There are many factors that determine the outcome of a project, but the six main parameters that define a construction project are:

1) SIZE denotes the number of tasks to be executed in a project and each task is measured in

terms of quantities of work involved.

2) COMPLEXITY is a measure of variety in the nature of tasks to be employed i.e complexity

increases ass the number of dissimilar task increase and it decreases if the tasks are repetitive.

3) QUALITY to be achieved in accomplishing the tasks is stated in terms of standard

specifications.

4) PRODUCTIVITY measures the ratio of planned effort to produce a unit quantity of work to the actual effort employed to achieve this unit quantity of work.

5) COMPLETION TIME depends upon the speed with which the project is to be executed.

6) COST is the expenditure which the client has agreed to commit for creating the desired construction facility


The evaluation of interrelationship among the six parameters is a complicated process. However, in a given project, scope of work in terms of size, repetition and quality gets specified and these parameters can thus be treated as constants. Productivity standards for each item of resources needed to execute a work in a given time is estimated and this forms the basis for determining the time & cost of the project.The achievement of the two parameters namely time & cost depends on the effectiveness & efficiency with which the project resources are managed. Therefore, in a project with predetermined productivity standards, specified completion time and construction cost become the project objectives.

The planning and controlling of the project objectives of time &cost and setting up of the resources productivity standards to achieve these objectives are the most important functions of project management.

PROJECT ENVIRONMENT:

Most of the construction projects have one or more characteristics associated with them:

1) Details of work not defined precisely.

2) Scope of work getting modified during execution

3) Site works located in remote areas.

4) Investments involved are large thus entailing risks in decisions.

5) Inadequate field investigations, faulty designs, absence of quality consciousness and lack of construction experience can delay completion & increase the costs.

6) rapidly changing technology adding to the complex nature of construction projects.

Although the management principles of forecasting,planning, staffing directing, motivating communicating & controlling apply equally in traditional functional type management as well as project management, the risk, uncertainties and complexities make the project management a relatively difficult process.


PROJECT LIFE CYCLE:

Each project has a pre-determined duration with a definite beginning and an end. Although construction projects differ in many ways, the life span of the project follows a similar pattern. After conception there is a gradual build up in the use of resources, and it is followed by a long duration plateau and towards the end, there is a rapid run down completion. The life cycle of a typical construction project can be broadly divided into the following stages:

1) FORMULATION STAGE(PRE-INVESTMENT PHASE) This stage includes :

A. Project idea conception B. Feasibility studies C. Investment appraisal D. Project definition.

2) MOBILIZATION STAGE(INVESTMENT PHASE): This stage encompasses:

A. Project preliminary plan B. Designs & drawings C. Specifications & contract finalisation D. Resources mobilization and earmarking of funds

3) CONSTRUCTION STAGE(OPERATION PHASE): This stage covers:

A. Planning and controlling execution B. Inducting resources C. Construction & commissioning D. Final handing over to the client.

1) THE PRE-INVESTMENT PHASE would usually cover the following four stages:

a) IDENTIFICATION OF relevant investment opportunities through appropriate type of opportunity studies.

b) PRELIMINARY FILTRATION of the project through pre-feasibility studies. c) PROJECT FORMULATION, resulting in detailed project report d) ( techno-economic feasibility report) for each project idea conceived worthy for

further examination @ previous stage. e) FINAL EVALUATION &DECISION(APPRAISAL) which is based on technical

viability, commercial viability, financial viability, economic viability, environmental viability and managerial viability finally resulting in the evaluation report

2) INVESTMENT PHASE has the following four stages :

a) NEGOTIATION & CONTRACTING: In this stage, basic specifications for a project, plant and equipment are drawn up ( usually with the help of technical consultants). Later on, bids/ tenders are invited and evaluated and legally enforceable duties and responsibilities of different parties ( ex. owners., financiers, technical consultants, equipment suppliers, architects etc) and the one incorporated in the contracts are chalked up. For more crucial aspects, expert legal assistance is taken .


b) Detailed Project Design & Engineering: This covers detailed site investigations and tests, design and approval of plant layout, preparation and approval of engineering drawings and blue prints, time schedules CPM /PERT charts,final selection of technology and equipments and detailed estimating of costs

c) Construction and erection : This phase involves actual construction, erection / installation, interpretation and follow up of the contracts, project management and making suitable changes in design & engineering on account of unforeseen factors and changes in scope

d) Trial runs, Commissioning & Optimisation: This phase entails handing over of the project by the contractors to the management / owners.

3) OPERATION PHASE: This phase involves day to day operation of the completed project

and is expected to yield results which meets the original objectives for which the project has been conceived, formulated & implemented.

OUTLINE OF GENERAL OPPORTUNITY STUDIES:

1.Basic characteristics of an area

a) Geographical location b) Size ( sq.km) c) Important physical features ( forest, undulating, hilly, rocky,water logged riverine

etc) d) Contour maps

2..Population size and socio-economic data including background, employment,

educational pattern and per capita income as compared to the overall figures for the particular state / country\

3..Major exports from and into the area.

4..Basic exploited and potentially exploitable factors of production( land, Labour, natural resources etc)

5..Infrastructural facilities ( transport, power and telecommunications ) which are necessary for developing new business / industry

6..A comprehensive check list of businesses that can be developed by exploiting the resources and facilities available in the area.

7.Estimates of the present & expected demand –supply gaps based on earlier studies / published data.

8) Estimated lumpsum capital costs of the selected business/ industry taking into account: (a) Land including site development (b) Civil Works (c) Technology (d) Plant & equipment (e) Project Implementation


(f) Preliminary expenses for conducting feasibility studies (g) Working capital requirements.

9) approximate operational requirements of major inputs for each project viz:

(a) Material Inputs:

i. Raw materials ( e.g coke for a thermal power plant) ii. Processed materials ( e.g coke for a steel plant) iii. Manufactured goods ( e.g castings for a car plant) iv. Auxiliary materials ( e.g steel scrap in an integrated v. steel plant) vi. Spares and other materials for plant and machinery

B) utilities like water, electricity, steam, gas etc C) Manpower – managerial, technical & other D) Information.

10) Estimates of actual sales revenues and impact on market share /product mix 11) Organizational and management aspects of project sponsors 12) Total indicative time schedule for implementation 13) Total investment contemplated in project and peripheral activities like development of infrastructure, promotional activities etc. 14) Visualised source of finance 15) Estimated requirements / savings / earnings of foreign exchange 16) Financial appraisal giving approximate payback period, and rate of return on the investment 17) Indicative estimates of overall economic benefits e.g ( balanced regional growth, generation of employment, reduction of social disparities etc)

FEASIBILITY STUDIES:

After the identification stage, the project ideas are subjected to a process of preliminary filtration by way of feasibility study.

This involves study of project idea at a more elaborate level than that was carried out at the opportunity stage.

This is an intermediate stage between an opportunity study and a full fledged feasibility study .

If the preliminary projections thrown up at the stage of opportunity study are quite encouraging or decisive, then the pre-feasibility study stage can be ignored and one may straight away take up feasibility study itself. A pre-feasibility study should not normally take more than 3 months to complete , and on the basis of which the investor should be able to decide:

a) whether the project can be straightaway accepted or rejected b) Project requires a detailed analysis ( going in for feasibility study) c) Some aspects of the project need to be subjected to special investigations or

studies such as market research, mathematical modelling, site surveys, laboratory tests etc.


OUTLINE OF A FEASIBILITY STUDY:

1) Executive Summary: This gives the title, brief description and objectives of the proposal and a summary of all essential findings and recommendations of the study in about two pages.

2) PROJECT BACKGROUND & HISTORY: This identifies the project sponsors and gives a chronological account of the project and various studies /surveys/investigations that were carried out along with their results.

3) ANALYSIS OF DEMANDED SUPPLY:

(a) Demand capacities & market: This outlines the profile of the customers and their needs, estimates of the present and future trends of gross demand, production capacities to be set up, their utilisation levels and imports /exports.

(b)Sales Forecast & Marketing: This covers the qualitative and quantitative aspects of

competition to the project and distributional requirements of the product / service.

(c) Production Programme:This proposes production levels of products and by-products. Estimate of consequential wastes and emissions and the annual expenditure their disposal / treatment is also worked out.

(d) Plant Capacity: The feasible normal plant capacity taking into account the production under normal working conditions, holidays,

Stoppages for shift change, preventive maintenance, repairs, and the relationship between sales, plant capacity and major inputs is worked out.

4) ANALYSIS OF INPUTS: It gives approximate requirements of raw, semi-

processed/processed materials, utilities, auxiliary materials, tools, spares etc along with availability, sources of supply and estimates of annual costs>

5) LOCATION & SITE : Here, geographical location and setting up of the plant / facilities is

recommended and specifies essential related activities and cost-estimates.

6) ENGINEERING AD TECHNOLOGY: The following items are described in detail:

(a) The exact scope of the project

(b) technologies and processes that are to be applied to the project considering the proposed capacity, location, nature of inputs and estimates of cost of inputs.

(C) rough layout of the project

(d) Civil engineering works covering site preparation & development, buildings & structures etc) together with rough cost estimates.

7) ORGANIZATION: This gives (a) an outline of the recommended organization structure for

production, sales, and administration


(b) estimates of overhead costs covering factory, administration & financial arrangements.

8) MANPOWER: This gives estimate of manpower requirements in different categories of levels and skills along with estimates of annual direct and indirect costs of manpower for different years of operation.

9) EXECUTIVE SCHEDULE AND METHODOLOGY: It gives a rough time schedule for implementing the project and estimates of the costs to be covered during implementation phase. This also broadly outlines the approach to be followed for implementation Ex. EPC, in-house construction or item-rate contracting etc.

10) FINANCIAL & ECONOMIC EVALUATION: This covers

i. estimates of total cost of investment and their cash flow pattern ii. proposed capital structure, mode of financing and annual financial costs ( interest,

lease charges etc) iii. Estimates of fixed and variable costs of production iv. financial evaluation of the project in terms of (a) Pay-back period (b) Break even-point

(c) Return of investment (d) net pesent value & (e) Internal rate of return. (f) benefit-cost ratio

Project cost percentage factors:

By rule of thumb, the following are the percentages of project cost factors: 1) Project development & DPR: 2% 2) Engineering & Design : 13% 3) Materials & equipment : 55% 4) Fabrication & Construction: 30% Percentage of uncertainty at various phases: 1) Concept and Pre-feasibility: ( 25-40% uncertainty) 2) Design & Techno-economic Feasibility ( 15-25% uncertainty 3) Engineering & procurement ( 10-15% uncertainty) 4) Construction & Commissioning ( 0-10% Uncertainty)


Project Identification

When a project idea occurs, it should be visualized & identified as a wealth creating and a goods producing or a service generating enterprise or facility

Such identification has to be done with reference to the country‟s development strategies and long term economic policy, so that, when completed, it fits well into the total economic system or development networks, capable of being fully utilised.

Every project that is identified for implementation, even if it is a private enterprise, must serve an economic and/or social need of the country in general and the society around it in particular, for a long time to come

The basis for a project‟s success is a comprehensive feasibility study and evaluation. The feasibility study involves detailed analysis and evaluation of the project concept

from all relevant angles, and it has to be given scrupulous attention by the study team and the owner of the project

Several institutions have published comprehensive guidelines for project studies and evaluation. They include UNIDO, Geneva; OECD Development Centre, Paris ; World Bank Group, Washington DC; Asian Development Bank, Manila; and Industrial Bank of India, Bombay.

IDBI which is the principal Indian Financial Institution or the apex development bank to coordinate the activities of all development financing institutions in the country, has besides publishing its own guide lines in the form of application form & explanatory notes, reproduced and published UNIDO‟s Manual for the preparation of Industrial Feasibility Studies

UNIDO has divided project cycles into phases and stages as follows

Pre-investment Phase Investment Phase Operational Phase

1.Pre-investment Phase

Identification of investment opportunity (Project Ideas) Preliminary selection stage (Pre-feasibility study) Project formulation stage (Techno-economic feasibility study) Evaluation and decision stage (Evaluation report or DPR)

2. Investment Phase

Negotiation & contracting stage Project design stage Construction stage Start up stage

3.Operational Phase

Short term views Long term views


Feasibility Studies

A project has to pass through three stages of scrutiny & clearance, namely prefeasibility (PF), techno-economic feasibility (TEF) and detailed project report (DPR)

1.1 Pre Feasibility Report

Project formulation report or project opportunity study report or Pre-feasibility report (PFR) is the documents which elicits the preliminary sanction or the first stage clearance by the government and/or the board of directors of any enterprise, for further study of a project

1.1. Pre Feasibility Report - Contents

Project back ground & description Market demand and plant capacity Materials & inputs Location & site Project engineering and Investment costs Plant organisation & overheads Manpower Implementation schedule Financial & economic evaluation Status of clearances and approvals from various central & state government

departments


Project Back Ground & Description

Project enterprise‟s name and profile, detailing its experience and performance in the project implementation

Project description Cost of study/investigation already carried out

Market Demand & Plant Capacity

Demand Pattern, size & market : Existing size and capacities in the industry, the project size of future growth, Governments & private sector development programmes

Approximate present size of demand, its past growth/graph, major determinants and/or indicators

Sales forecast and market plan: Anticipated competition for the project from existing and potential local & foreign producers and contractors

Estimated annual cost on marketing & sales promotion

Market Demand & Plant Capacity

Production programme: Products, Bye-products, Wastes & Estimated annual costs on waste

Determination of plant capacity : Feasibility normal capacity Quantitative relationship between sales, plant capacity and materials & other inputs

Materials & Inputs

Details of input requirements, their sources, present & potential supply positions and estimate of annual cost of utilities under following sub headings

Raw materials Processed Industrial materials Bought out components Auxiliary materials Power , water and other utilities, including transport service

Location & Site

Alternative Locations, descriptions and area of land pre-selected Estimated cost of land including its development, for each of the proposed alternatives Schedule & cost of soil investigation Factors influencing the selection of each of the alternatives proposed

Project Engineering & Investment Costs

Preliminary determination of scope of project Process/technology and equipment cost Civil engineering works : Layout of civil works, arrangement of buildings and description

of construction materials to be used, classified as under o Site preparation & development o Buildings & special civil works o Outdoor works

Estimate of investment cost of civil engineering works classified as above


Plant Organisation & Overheads

Organisation layout for production, sales, administration & management Name, profile and experience of the consultant appointed or proposed to be

appointment Estimated overhead costs on site/factory, administration & financial items

Manpower (Local & Foreign)

Estimated manpower requirements Estimated annual salaries and wages including allowances, fringe benefits and long

term social and statutory provisions Labour housing plan and estimated cost

Implementation Schedule

Proposed time schedule

Estimated implementation costs matching the implementation programme

Financial & Economic Evaluation

Total Investment costs which include estimated fixed assets Estimated working capital requirements Total operating costs classified as fixed costs & variable costs Project financing arrangement proposed which include proposed capital structure and

finance plan, loan/borrowings planned & interest rates and estimate of interest amounts during construction

Operating costs Financial evaluation based on estimates

Finance & Economic Evaluation

National economic evaluation which includes Effect of industrialisation (units/project role in infrastructure development Estimate of foreign exchange earnings & savings Approximate social benefit cost analysis, using estimated weights and shadow prices

Status of Clearances and Approvals

Soil investigation reports Industrial license /letter of intent Approval of appointment of foreign consultant Foreign exchange permission Import license or automatic permission for import of capital goods and raw materials Clearance from pollution control board International airport authority board clearance Clearance from ministry of railways


Status of Clearances and Approvals

Electricity authority/board Clearance from chief controller of explosives Clearance from mines & geological survey dept. Clearance from the state industries department Approvals from urban development authority / municipalities/town planning departments

wherever applicable

1.2 Techno Economic Feasibility Report (TEFR)

TEFR is the second stage of evaluation phase where the project scope is defined, its size and methods determined, suitability of the site, the required natural resources and raw materials investigated, and more accurate estimates , buildings, offsite facilities and other assets, their costs etc., and the total feasibility of the proposal studied in depth and cleared

After TEFR is cleared, the project proposer can expend money on preparation of DPR and detailed cost estimate (DCE)

1.3 Detailed Project Report (DPR)

DPR & DPE go together. This is the last and most important stage of the preinvestment phase of any project

DPR are cleared not only by PIB, but also by the cabinet committee on economic affairs (CCEA)

DPR shall be prepared after obtaining the investment decision based on TEFR so that the expensive efforts involved in the preparation of DPR are not wasted

For DPR preparation, process designs, layout drawings & construction data are necessary

DPR – Checklist of Documents & Data

Process/systems design Raw materials/feed stock and project specifications License fee for technology Engineering plan & engineering manpower curves Final flow diagrams Material balance Piping & Instrumentation diagrams for utilities & process

Layout plan for buildings, equipment, utilities & off-sites General project specifications Soil investigation reports & foundation requirements Site grading plan Piping & electrical layout drawings for both underground and above ground Single line electrical drawings Construction plan Environmental protection plan

Equipment list Specifications & data sheets for all major equipment


Quotations/proforma invoices and other procurement costs for major equipments Resources schedules Bulk materials take off sheets & price schedules Construction labour wages rates and productivity details Organisational charts and manpower curves Construction equipment usage charts and equipment prices Works contract tax basis & rates

Additional Data/Information for DPR

Deviations from feasibility study Drawings Physical /Topographical Rates Water & Power supply Information to accompany estimate provisions General

Deviations from feasibility study

Deviations in cost, profitability analysis, technology, scope of work, market demand, pricing and location to be indicated (Copy of the feasibility report to be attached)

Drawings

Map/Index plan showing location of the project in relation to adjoining towns, trunk roads, railway lines etc.,

Drawing showing detailed layout of factory, indicating roads, railway lines, water supply, sewerage and power lines and installations

Physical/Topographical

General topographical features of the site Soil characteristics of site Average annual rainfall and maximum monthly rainfall Maximum and minimum temperature Prevailing direction of wind

Rates

A copy of schedule of Rates of the district based on which the estimate has been prepared

Cost of materials and labour at site. For materials, the cost at source, lead and carriage charges should be indicated

Water & Power supply

An indication regarding the assurance from the state government or local authority concerned, guaranteeing supply of the required quantity of water and power


Information to accompany estimate provisions

Land : Immediate use & future expansion Leveling & dressing : An indication of the extent & nature of work involved may be

furnished Main plant structures : RCC & Steel, M & E equipment Auxiliary plant structures Welfare buildings Administrative buildings Roads & paved areas Railway lines Water supply

Information to accompany estimate provisions

Effluent disposal Storm water drainage Power supply Construction plant & equipment Compound wall/fencing Plant & equipment layout Plant & machinery Spares Foundation erection & electrification Material handling equipment

General

Customs duty – amount and rate of duty adopted Freight & handling charges Insurance Contingencies

Q: Who prepares a DPR ?

1. Preparation of DPR is a complex task 2. Therefore highly specialised agencies have come up in different areas who undertake

such tasks for clients 3. For ex. Dastur company specialises in metallurgical industries, Engineers India Ltd in

Oil sector & very recently have been awarded with the work of preparing DPR by Ministry of water Resources for linking of rivers

4. The process takes the following shape: a. The client enters into contractual relationship with consultant b. The consultant receives all inputs from the client, carries out necessary studies &

submits the first draft report to the client c. The client evaluates the draft report, makes modifications/ suggestions/ further

studies to be carried out by consultant & a revised draft report is to be submitted. d. The consultant submits the final DPR after approval from the client with all

annexures & drawings.


An Example of Vizag Steel Plant

Detailed Project Report prepared by the consultant M.N. Dastur & Company is in 33 volumes. The following is the list of volumes and their major contents

Summary Product – Mix, Raw materials, production technology and Plant layout Coke & Iron Making Steel Plant & Rolling Mills

Power, Lighting & Instrumentation Utilities & Environmental control Auxiliary Facilities Plant Construction Plant Management & Manpower Costs, Financial Analysis & Future Expansion Drawings - Raw materials, Plant Site & General layout Drawings - Coke ovens and bye product plant

Drawings – Sinter plant Drawings – Blast furnace Drawings – Steel melting shops Drawings – Rolling mills Drawings – Iron & Steel Making auxillaries Drawings – Power plant & Blower house Drawings– Power systems, Lighting, Communication & Instrumentation Drawings – Water system

Drawings – Utilities, works transportation & laboratories Drawings – Repair shops & storages Drawings – Auxiliary buildings and plant construction General specifications Technical specifications for Raw materials handling Technical specifications for blast furnaces Technical specifications for steel melt shops

Technical specifications for rolling mills Technical specifications for power plant and power systems Technical specification for utilities Technical specification for auxiliary facilities

Conclusion

Complete and detailed feasibility studies covering all aspects of a project is a vital requirement for the success of the project

A high rate of accuracy is required for project cost estimates and it must be good enough to be used as the documents of guidance and key information base for the subsequent project planning & implementation

It should be carried out by a knowledgeable consultant or an internal study team capable to do so


Project Clearance Procedures

Project success will depend a great deal in obtaining the various clearances on time, and completely

Besides the techno-economic clearance and financial clearance, other clearance procedures are required for the project implementation

Some of them may be technical, others or statutory – but all regulated by the Government

Various Clearances/Approvals

1. Soil investigation report 2. Clearance under the monopolies and restrictive trade practices (MRTP) act 3. Industrial license/Letter of intent 4. Approval of foreign collaboration 5. Approval for appointment of foreign consultant 6. Foreign exchange clearances 7. Import of capital goods 8. Approval for setting up export oriented units 9. Environment/Pollution control clearances 10. Clearance from International Airport Authority 11. Railway clearance 12. Electricity clearance 13. Explosives clearance 14. Forest clearance 15. State Industries department clearance

Soil Investigation Report

♣ A proper & Complete soil investigation is necessary for designing foundations. In view of the previous bad consequences of improper soil investigation, the government made it mandatory that every TEFR must be accompanied by a reliable soil investigation report

♣ CSMRI,CRRI,CBRI, Soil research stations of both Central & State governments

Clearances MRTP Act

♣ As per the central governments guidelines most of the industries are exempted from license

♣ Setting up of industries and pollution causing projects within radius of 25km from the standard periphery of the standard urban area limits of a city having population of 10 lakh and above requires industrial license

Industries in Respect of which is IL is compulsory

♣ Coal & Lignite

♣ Petroleum & distillation products

♣ Sugar, Animal fats & oils

♣ Asbestos & Asbestos based products

♣ Plywood, decorative veneers and other wood based products


♣ All items of electronic aerospace and defence equipment

♣ Industrial explosives, including detonating fuses, safety fuses, gun powder and matches

♣ Hazardous chemicals

♣ Drugs & Pharmaceuticals

Industries Reserved for Public Sector

♣ Arms & ammunition and allied items of defence equipment, defence aircrafts & warships

♣ Atomic energy

♣ Coal & Lignite

♣ Mineral oils

♣ Mining or iron ore, manganese ore, chrome core, gypsum, sulphur, gold & diamonds

♣ Minerals specified in the schedule of atomic energy

♣ Railway transport

Special Approval Committee for NRI Proposals

♣ A special approval committee called SAC exists to clear all the Industrial investment proposals emanating from NRI

♣ The committee decides and monitors the progress of all applications received from NRI‟s involving

♣ Industrial licenses/registrations/permissions

♣ Foreign collaboration

♣ Import of capital goods

♣ All applications from NRI for investment are processed and finalised within a period of 45 days

Approval of Foreign Collaboration

♣ Foreign collaboration encompasses two distinct aspects, namely foreign investment & foreign technology agreement

♣ Applications shall be made to the exchange control department for cases falling under automatic approval category

♣ The application shall seek approval for foreign investment & payment in FE under the following heads

♣ Import of designs and drawings is allotted without any restriction

Approval for appointment of foreign consultant

♣ Foreign consultant, who is different from foreign technician , shall be engaged as a sub-consultant to render engineering services through an Indian prime consultant.

♣ Sub-consultancy by a foreign consultant will be approved only on the following conditions

♣ He is responsible for the supply of a patented technology which is the basic know how for the proposed Indian Project, and also for the licensing of its use

♣ The services are necessary for the scrutiny of the detailed engineering done in India, and that scrutiny has a bearing on the successful transfer of technology with performance guarantees

♣ The consultants services are vital for equipment selection & inspection


♣ The consultants presence is important in quality assurance and observance of standards in construction, for achieving the performance guaranteed by the technology owner

♣ The consultants supervision is needed for rectification of any equipment failure

Foreign Exchange Clearances

♣ Automatic approval will be given by the RBI for direct foreign investment up to 51 per cent of equity in high priority industries

♣ Foreign equity investment up to 49 percent may be allowed in the public sector undertakings to meet their FE requirements

♣ NRI‟s & Overseas corporate bodies (OCB‟s) predominantly (60%) or more owned by NRI‟s can invest any amount without the approval of the government or RBI on condition that neither the invested amount nor the income accruing on that will be allowed to be repatriated outside India at any time in future

Import of Capital Goods

♣ Capital Goods comprising plant, machinery and equipment, raw material, intermediates, components, consumables, spares, accessories, equipment and other goods than those regulated by a defined negative list (NL) of imports for use in projects

♣ Import & Export policy and Hand book of procedures for relevant period obtained from Government Publications Dept. may be referred for list of materials that can be imported and procedures for obtaining license or permit for import

Approval for setting up export oriented units

♣ For approval for setting up of export oriented unit, the application shall be submitted to SIA (Secretariat for Industrial Approvals)

♣ The following goods required for production may be imported provided they are prohibited items in the NL

♣ Capital goods

♣ Tools, Jigs, fixtures, gauges, moulds

♣ Raw materials, components, consumables, intermediates, spares and packing materials

♣ Prototypes and technical samples not exceeding two in number

♣ Material handling equipment like fork lifts and over head cranes

♣ Office equipment and spares and consumables thereof

Environmental/Pollution Control Clearances

♣ With a view to check & prevent air, water & soil pollution, arising out of industrial projects, the government insists on certain conditions being fulfilled

♣ In respect to certain industries of a high polluting nature, it is not only necessary to install suitable pollution control equipment, but also to identify the site and location of the project where a particular industrial unit would be set up

♣ In order to provide concrete shape to this requirement, the government has identified 20 industries causing high pollution


♣ The state director of industries confirmation that the site of the project has been approved from environmental angles by the competent state authority

♣ The entrepreneur's commitment that he will install the appropriate equipment and implement the prescribed measures for prevention and control of pollution

♣ The state pollution control boards certification that the proposal meets the environmental requirements and that the equipment installed or proposed to be installed is adequate and appropriate for the requirements

Industries causing pollution

1. Primary metallurgical producing industries namely zinc, copper, aluminum & steel

2. Paper pulp & newsprint 3. Pesticides/ Insecticides 4. Refineries 5. Fertilisers 6. Paints 7. Dyes 8. Leather tanning 9. Rayon

10. Sodium /Potassium Cyanide 11. Basic Drugs 12. FoundryStorage batteries 13. Acids/ Alkalies 14. Plastics 15. Rubber 16. Cement 17. Asbestos 18. Fermentation Industry 19. Electro plating industry

Central Ministry of Environment & Forest Guidelines

♣ Shipping & Harbor projects

♣ Development of beaches

♣ Mining operations

♣ River valley projects

♣ Siting of Industrial projects

♣ Thermal power plants

Clearance from Airport Authority

♣ The location of project close to an airport should be selected in consultation with the International Airport Authority and with its clearance so that the two do not interfere with each other hand, and at the same time, support each others operations

Railway Clearance

♣ The projects wherein railway structure may effect shall obtain clearance from SIA (Secretariat for Industrial Approvals) to meet the requirements of

♣ Marshalling yard

♣ Railroad to site

♣ Siding, handing and special facilities including special types of wagons required at dispatching and receiving stations

♣ Wagon allotment

♣ Up gradation of serving railway station, if necessary


Electricity Clearance

♣ Depending on the requirement, clearance shall be sought from the State Electricity Board or Central electricity authority, in consultation with the SEB for power supply

♣ The total power requirement broken down between

♣ To be met from own captive generating station

♣ To be availed from power supply

♣ and detailed with connected load in KW

♣ Maximum load in KW shall be given for clearance

Explosives Clearance

♣ Clearance from Chief Controller of Explosives (CCE) is necessary for handling all explosive materials during construction and/or operation.

♣ Blasting in stone quarry and for doing earthwork in hard rock is a common operation in project work needing procurement, storing, handling & transportation of explosives

Forest Clearance

Forest clearance is as important as environmental clearance Every project involving de-reservation of reserve forest or diversion or use of forest land

needs clearance under the Forest (Conservation) act and Forest (Conservation) rules. The clearance is to be given first by the state government & central government

Project enterprise should take special care to cover adequately the following issues while submitting the proposal to the government for forest clearance

Justification for locating the project in a forest area, giving alternatives that were examined and the reasons for their rejection

Species wise and diameter class wise list of trees to be filed A map showing location of the areas to be deforested to a scale of 1 : 50000 A detailed and satisfactory proposal for rehabilitation of the affected persons In case of mining projects the procedure for stocking of the top soil for reuse and

phased reclamation programme Extent of subsidence expected in the underground mining operations and its impact on

water, forest and other vegetation Reasons why the forest land identified for project cannot be located outside the forest

area Monitoring mechanism for the implementation of the condition of compensatory

afforestation and other stipulated conditions In case of medium and minor irrigation projects a detailed catchment treatment plan


Resettlement and Rehabilitation Objectives of resettlement plan and definition of

Resettlement terminology This Resettlement Plan (RP) is prepared according to the Laws and Regulations

of PRC andNingxia Hui Autonomous Region, as well as the involuntary resettlement policy of ADB. Thepurpose of this document is to set out a policy framework and an action plan for theResettlement and Rehabilitation of the Project Affected Persons (APs) to ensure that theywill benefit from the project and their standards of living will improve or at least be restoredafter the project impact. This RP is a legally binding agreement between the ExecutingAgency (EA) – Ningxia Yinchuan-Wuhan Expressway Headquarter (NYECH) and both theADB and the local government offices involved with resettlement implementation, wherebyNYECH will take overall

responsibility to ensure the action plans are adequately financedand properly implemented by the county governments. This RP will be approved by Ningxia Communication Department on behalf of Ningxia Hui Autonomous Region Government. Acquisition of land and other assets for the project will adversely affect the livelihood of persons who live, work or earn their living on the land that will be acquired for the project. APs are defined as those persons whose income or livelihoods will be adversely affected by land acquisition for the project. APs include the following categories: a) persons who have a title, right, interest, in structures (houses, enterprises, shelters,

or public buildings), land (including residential, agricultural, and grazing land) or anyother asset acquired or possessed, in full or in part, permanently or temporarily;

b) persons who use the structures, land or assets described above; or persons whose business, occupation, work, place of residence or habitat adversely affected; or

c) persons whose standard of living is adversely affected as a consequence of land acquisition and/or resettlement activities.

A definition of APs is given below: Definition of the APs: “Affected Persons” means persons who on account of the

execution of the project had or would have their: a) standard of living adversely affected; or b) right, title or interest in any house, land (including premises, agricultural and grazing land) or any other fixed or movable asset acquired or possessed, temporarily or permanently; or c) business, occupation, work or place of residence or habitat adversely affected, and “Affected Person” means individually all those who qualify as “Affected Persons.” APs may be individuals or legal entities such as a company, a public institution. Definition of APs is not limited or restricted to their legal registration or permission to live or conduct business in the affected location, or their title to property. Thus it includes: a) all those affected by the project regardless of their legal rights or absence thereof to the assets being taken; and b) persons without residential permit to live in a certain area. Therefore all such persons who are affected will need to considered and recorded as APs, regardless of their legal status regarding assets, land or location.


All APs are entitled to the improvement or at least restoration of their standards of living, and compensation for the material losses they suffer. Compensation for assets will cover replacement cost. No deductions or discounts will be applied to the compensation amount fordepreciation or other reasons. All APs deriving an economic benefit from the affected land and property are entitled to receive rehabilitation benefits in addition to the compensation for their assets lost. Those APs without title, authorization or legal permission to reside, conduct business, cultivate land or construct structures are eligible for rehabilitation of their livelihoods and compensation for their assets in a fair manner compared with those with formal legal title, authorization or permission to the assets. The term RESETTLEMENT includes: a) the relocation of living quarters; b) finding acceptable new employment for those whose jobs are lost or severely affected; c) restoration (or compensation) of affected productive resources such as land, workplaces, trees and infrastructure; d) restoration of other adverse effects on APs‟ living standards (quality of life) through land acquisition, indirect resettlement impacts or other project impacts; e) restoration of or compensation for affected private and public enterprises; f) restoration of adversely affected on cultural or common property.

Rehabilitation means: the restoration of the APs‟ resource capacity to continue with

productive activities or lifestyles at a level higher or at least equal to that without the project. The objective of this RP is to provide a plan for the resettlement and rehabilitation of

the APs so that their losses will be compensated and their standards of living will be improved or at least restored to the pre-project levels in a sustainable manner. Affected productive resources of businesses, enterprises (including shops) and public facilities and infrastructures will also be improved or at least restored to their pre-project levels


Capital Budgeting

Capital Budgeting is a project selection exercise performed by the business enterprise. Capital budgeting uses the concept of present value to select the projects. Capital budgeting uses tools such as pay back period, net present value, internal rate of

return, profitability index to select projects.

Capital Budgeting Tools

Payback Period Accounting Rate of Return Net Present Value Internal Rate of Return Profitability Index

PAYBACK PERIOD

Payback period is the time duration required to recoup the investment committed to a project. Business enterprises following payback period use "stipulated payback period", which acts as a standard for screening the project.

Computation Of Payback Period :When the cash inflows are uniform the formula for

payback period is cash outflow divided by annual cash inflow

When the cash inflows are uneven, the cumulative cash inflows are to be arrived at and then the payback period has to be calculated through interpolation.

Here payback period is the time when cumulative cash inflows are equal to the outflows. i.e.,

Payback Reciprocal Rate : The payback period is stated in terms of years. This can be

stated in terms of percentage also. This is the payback reciprocal rate.

Reciprocal of payback period = [1/payback period] x 100 .

Decision Rules

A. Capital Rationing Situation

Select the projects which have payback periods lower than or equivalent to the stipulated payback period. „

Arrange these selected projects in increasing order of their respective payback periods. Select those projects from the top of the list till the capital Budget is exhausted.


C. Mutually Exclusive Projects

In the case of two mutually exclusive projects, the one with a lower payback period is accepted, when the respective payback periods are less than or equivalent to the stipulated payback period.

Determination Of Stipulated Payback Period

Stipulated payback period, broadly, depends on the nature of the business/industry with respect to the product, technology used and speed at which technological changes occur, rate of product obsolescence etc.

Stipulated payback period is, thus, determined by the management's capacity to evaluate

the environment vis-a-vis the enterprise's products, markets and distribution channels and identify the ideal-business design and specify the time target.

Advantages Of Payback Period

It is easy to understand and apply. The concept of recovery is familiar to every decision-maker.

Business enterprises facing uncertainty - both of product and technology - will benefit by the use of payback period method since the stress in this technique is on early recovery of investment. So enterprises facing technological obsolescence and product obsolescence - as in electronics/computer industry - prefer payback period method.

Liquidity requirement requires earlier cash flows. Hence, enterprises having high liquidity requirement prefer this tool since it involves minimal waiting time for recovery of cash outflows as the emphasis is on early recoupment of investment.

Disadvantages Of Payback Period

The time value of money is ignored. For example, in the case of project A Rs.500 received at the end of 2nd and 3rd years are given same weightage. Broadly

a rupee received in the first year and during any other year within the payback period is given same weight. But it is common knowledge that a rupee received today has higher value than a rupee to be received in future.

But this drawback can be set right by using the discounted payback period method. The discounted payback period method looks at recovery of initial investment after considering the time value of inflows.


Example

There ARE TWO PROJECTS (Project A AND B) AVAILABLE FOR A COMPANY, WITH A LIFE OF 6 YEARS EACH AND REQUIRING A CAPITAL OUTLAY OF Rs.9,000/- EACH; AND ADDITIONAL WORKING CAPITAL OF Rs.1000/- EACH.

The cash inflows comprise of profit after tax + Depreciation + INTEREST (Tax adjusted) for five years and salvage value of Rs.500/- for each project plus working capital released in the 6th year. This company has prescribed a hurdle payback period of 3 years. Which of the two projects should be selected?


Example – Data

Example

Payback period for Project A = 3 years (cumulative cash inflows = outflows)

Payback period for Project B = 4 years + 500/3000 = 4 years and 2 months.

(Note: Interpolation technique is used here to identify the exact period at which cumulative cash inflows will be equal to outflows. The amount required to equate is Rs.500, while the returns from the 5th year is 3,000. Hence the addition time duration required to compute the payback period is (500/3000) x 12 which is 2 months. The interpolation technique is used based on the assumption that cash inflows accrue uniformly throughout the year.)

The investment decision will be to choose Project A with a payback period of 3 years and reject Project B with a payback period of 4 years and 2 months.

Accounting Rate Of Return

Accounting rate of return is the rate arrived at by expressing the average annual net profit (after tax) as given in the income statement as a percentage of the total investment or average investment. The accounting rate of return is based on accounting profits. Accounting profits are different from the cash flows from a project and hence, in many instances, accounting rate of return might not be used as a project evaluation decision. Accounting rate of return does find a place in business decision making when the returns expected are accounting profits and not merely the cash flows.

Computation Of Accounting Rate Of Return

• The accounting rate of return using total investment. or

Sometimes average rate of return is calculated by using the following


formula:

Where average investment = total investment divided by 2

Accounting Rate Of Return – Advantages

It Is Easy To Calculate. The Percentage Return Is More Familiar To The Executives.

Accounting Rate Of Return – Disadvantages

The definition of cash inflows is erroneous; it takes into account profit after tax only. It, therefore, fails to present the true return.

Definition of investment is ambiguous and fluctuating. The decision could be biased towards a specific project, could use average investment to double the rate of return and thereby multiply the chances of its acceptances.

Example

There are two projects (Project A and B) available for a business enterprise, with a life of 6 years each and requiring a capital outlay of Rs.9,000/- each and additional working capital of Rs.1000/ each. The cash inflows comprise of profit after tax + depreciation + interest (Tax adjusted) for five years and salvage value of Rs.500/- for each project at year 6 plus working capital released also in the 6th year.

The Profit (after tax) component of the cash inflows for each project are given in the next slide.

Example

Net Profit After Tax


Example

Taking into account the working capital released in the 6th year and salvage value of the investment, the total investment will be (10,000-1,500) Rs.8500 and the average investment will be (8500/2) Rs.4250 for each project.

The rate of return calculations are:

‘Net profit after tax as a percentage of total investment

Project A

Project B

The investment decision will be to select Project B since its rate of return is higher than that of Project A if they are mutually exclusive. If they are independent projects both can be accepted if the minimum required rate of return is 11.7% or less.

NET PRESENT VALUE (NPV)

Net present value of an investment/project is the difference between present value of cash flows and cash outflows. The present values of cash flows are obtained at a discount rate equivalent to the cost of capital.

Computation Of Net Present Value (Npv)

Let 'b' be the cash outflow in period 't' where t = 0,1,2,....n 'B' be the present value of cash outflows 'c' be the cash inflow in period 't'=0,1,2,........n 'C' be the present value of cash inflows 'K' be the cost of capital

Then


Computation Of Net Present Value (Npv)

When the cash outflow is required for only one year i.e., in the present year, then the Net

present value is calculated as follows:

"I" is the initial investment (cash outflow) required by the project.

Decision Rules

A. "Capital Rationing" situation :Select projects whose NPV is positive or equivalent to zero.

Arrange in the descending order of NPVs. Select Projects starting from the list till the capital budget allows.

B. "No capital Rationing" Situation : Select every project whose NPV >= 0

C. Mutually Exclusive Projects : Select the one with a higher NPV.

Net Present Value (Npv) – Example

Assuming that the cost of capital is 6% for a project involving a lumpsum cash outflow of Rs.8,200 and cash inflow of Rs.2,000 per annum for 5 years, the Net Present Value calculations are as follows:

a) Present value of cash outflows Rs.8200

b) Present value of cash inflows :

Present value of an annuity of Rs.1 at 6% for 5 years=4.212

Present value of Rs.2000 annuity for 5 years = 4.212 X 2000 = Rs.8424

Net present value = present value of cash inflows - present value of cash outflows = 8424 -8200 = Rs.224

Since the net present value of the project is positive (Rs.224), the Project is accepted.


INTERNAL RATE OF RETURN (IRR)

The internal rate of return method is also known as the yield method. The IRR of a project/investment is defined as the rate of discount at which the present value of cash inflows and present value of cash outflows are equal.

IRR can be restated as the rate of discount, at which the present value of cash flow (inflows and outflows) associated with a project equal zero.

Computation Of Internal Rate Of Return (Irr)

Let at be the cash flows (inflow or outflow) in period t • Where t = 0,1,2...... .. n years

the project is found out by solving for the value of 'r' in the Then IRR of „r‟ in following equation

is :

Computation Of Internal Rate Of Return (Irr)

Let at be the cash flows (inflow or outflow) in period t

• In the special case where a0 < 0 and at > 0, where t = 1,2,......n

• Then the IRR is

Computation of Internal Rate Of Return (Irr) When Trial and error method is used to solve for the IRR, two rates are computed one that gives a small positive NPV, another that gives a small negative NPV. The IRR using the trial and error method will be:


Example Internal Rate Of Return (Irr)

A new machinery costs Rs.8,200 and generates cash inflow (after tax) per annum of Rs.2,000 during its life of 5 years.

IRR method involves trial and error in the sense that one has to experiment with different rates of discount before arriving at the appropriate rate at which the equation 1 and 2 are satisfied. Butwhen the cash inflows are by way of annuities the relevant interest factor is:

(Irr) - Example Internal Rate Of Return

Annuity Table Method:

In the present case this is 8200 divided by 2000 = 4.1 The interest factor 4.1 for a 5 year project corresponds to a discount rate of 7%. So the

IRR of the project is 7%. An interest factor of 4.100 indicates that the present value of one Rupee annuity for 5 years at 7% is equivalent to 4 rupees and ten paise.

The present value of Rs.2,000 annuity is 4.100 X 2000 = 8200. The present value of cash inflows = Rs.8200 and the present value of cash outflow =

Rs.8200 At 7% the present value of cash inflows is equivalent to the present value of cash

outflows. Hence 7% is the IRR of the project.

Internal Rate Of Return (Irr) - Example

Trial And Error Method:

Through the trial and error method, we can begin with a 10% discount The net present value assuming a 10% discount rate is rate. (2000 x 3.7908) - 8200 = 7581.6 - 8200 = -618.4. Since the NPV is negative, we need to reduce the discount rate to arrive at a positive NPV. Hence, let us assume a discount rate of 5%. The net present value assuming a 5% discount rate is (2000 x 4.3295) - 8200 = 8659 - 8200 = 459.

Profitability Index (Pi)

Profitability ratio is otherwise referred to as Benefit/Cost ratio. This is an extention of the Net Present Value Method. This is a relative valuation index and hence is comparable across different types of projects requiring different quantum of initial investments.

Profitability index (PI) is the ratio of present value of cash inflows to the present value of cash outflows. The present values of cash flows are obtained at a discount rate equivalent to the cost of capital.


Computation Of Profitability Index (Pi)

Life Cycle Costing

Engineering economy is the application of economic factors and criteria to evaluate

alternatives, considering the time value of money. The engineering economy study involves

computing a specific economic measure of worth for estimated cash flows over a specific

period of time.

The terms interest, interest period and interest rate are useful in calculating equivalent sums of

money for an interest period. Interest is the manifestation of the time value of money. It is the

difference between an ending amount of money and the beginning amount over an interest

period. For more than one interest period, the terms simple interest and compound interest

become important.

1.1. Simple Interest:

Simple interest is calculated using the principal only, ignoring any interest accrued in preceding

interest periods. The total simple interest over several periods is computed as:

Simple Interest = (Principal) x (Number of Periods) x (Interest Rate)

Here the interest rate is expressed in decimal form. The total sum accrued at the end of n

interest periods is given by:


1.2. Compound Interest:

For compound interest, the interest accrued for each interest period is calculated on the

principal plus the total amount of interest accumulated in all previous periods. Compound

interest reflects the effect of the time value of money on the interest also. The interest for one

period is calculated as:

Compound Interest = (Principal + All accrued Interest) x (Interest Rate)

The total sum accrued after a number of interest periods can be calculated from the following

expression:

We can see from the above two expressions that the sum accrued at the end of first year

would be same for both simple interest and compound interest calculations. However, for

interest periods greater than one year, the sum accrued for compound interest would be larger.

What happens if the interest is compounded more than once in a year?

We need to modify equation (2) and is given by:

We can extend equation (3) to calculate the sum accrued if the interest is compounded

continuously. Here m tends to . Taking the limits such that m goes to infinity, we get the

following expression:


Given the present worth, annual interest rate and number of years, we can calculate the future

worth. There may be situations when the future worth of money is given and we need to find

the present worth of the money. The above equation can be re-arranged to calculate the

present worth, given by:

To carry out calculations, it is convenient to draw what is called as cash flow diagram. The

following figure gives one such cash flow diagram:

The cash flow diagram helps in analyzing the problem better.

Equations (2) and (5) are used in problems concerning single payment. In today‟s world

we deal with problems that involve annual/monthly equal payments such as home mortgage

payments, vehicle loans or loans for consumer electronic goods. The following relationships

hold good for problems involving such uniform series:

From these equations, we can calculate present worth or future worth given uniform annual

amounts. We can also calculate the uniform annual amounts given either present worth or the

future worth. A typical example would be person borrowing money from a financial institute for

buying a vehicle. Knowing the interest rate and number of installments, the person can

calculate the uniform equal amounts he or she has to pay depending on the amount borrowed.


A typical cash flow diagram would look as follows:

The up-arrow indicates the amount „coming in‟ such as borrowing and the down arrow

indicates the amount „going out‟ such re-payments towards the borrowing.

1.3. Inflation:

In all the above equations, we had assumed that there is no inflation. Inflation is an increase in

the amount of money necessary to obtain the same amount of product before the inflated price

was present. Inflation occurs due to downward change in the value of the currency. If „C‟ is the

cash in hand today for buying a product, f is the inflation rate, nthen the amount we need to

pay for the same product after n years would be C(1 + f) , assuming uniform inflation over the

years. The present worth of such money with interest component added is given by:


1.4. Life Cycle Cost:

Life cycle costing or LCC is an important factor for comparing the alternatives and deciding on

a particular process for completing a project. The different components taken into account for

calculating LCC are:

LCC = Capital + Replacement cost + Maintenance cost + Energy cost – Salvage

Here, Capital is the present worth. Replacement cost that may occur at a later years need to

converted to present worth. Maintenance cost is annual maintenance cost and needs to be

converted to present worth and so is the energy cost. Salvage is the money that is obtained

while disposing the achinery at the end of life cycle period. Even this amount has to be

converted to present worth for calculating LCC. Once we have the LCC value, we can easily

find the Annual Life Cycle Costing using the following equation:

1.5. Example:

A community has 500 people. The source of water to the community is from the bore-wells and

the supply of water from the bore-wells is by hand-pumps. Six hand-pumps are installed to

meet the water requirement of the community. Per-capita water consumption of the community

is 40 liters/day. Bore-well depth is 20 meters. The cost of each hand-pump is Rs.5,000.00.

Cost of digging of each bore-well is at the rate of Rs.250.00 per meter. Life of the hand-pump

is 10 years. Annual maintenance cost perpump is Rs.1250.00. If the rate of interest is 10%,

what is the unit water cost for the life cycle period of 20 years?

Solution


:


1.6. Example:

A PV array of 500 watts has been installed to pump water from a bore-well of 2 meters deep

using a submergible motor and pump system to an over-head tank. The length of pipe required

to pump the water is 30 meters. Following are the costs involved for the sub-systems and their

life spans:

PV Array : $8/peak watt; Life span – 15 years

Motor and pump: $2/watt; Life span – 7.5 years

Pipe cost: $8/meter; Life span – 5 years

Cost of digging the bore-well: $20/meter

Maintenance cost: $80/year

Miscellaneous cost: $3.5/watt

If the interest rate is 10%, calculate the Life Cycle Cost of the water for a period of 15

years and also water cost per year (ALCC).

Solution:

Step 1: Calculate the Capital cost (K)

Cost of PV array = $8/watt x 500 watts = $4000 Cost of motor and pump = $2/watt x 500 watts = $1000 Cost of pipe = $8/meter x 30 meters = $240 Cost of digging the bore-well = $20/meter x 2 meters = $40 Miscellaneous cost = $3.5/watt x 500 watts = $1750 Total capital cost = $4000 + $1000 + $240 + $40 + $1750 = $7030

Step 2: Calculate Replacement cost (R)

Replacement cost of motor and pump after 7.5 years = $1000

Replacement cost of pipe at the end of 5 year and at the end of 10 year = $240 each

Step 3: Calculate maintenance cost (M)

The annual maintenance cost is given as $80.


Let us draw the cash-flow diagram for the above data.


1.7. Example:

A micro-hydel plant of 1kW power capacity has been installed. Following are the cost involved

in installation of the whole system:

Installation cost of the plant = Rs.16000 Cost of mains transmission = Rs.16000 Cost of distribution transformer = Rs.2500 Cost of 11 kV line per Kilometer = Rs.4000

Life span of the plant is 25 years. If the rate of interest is 12%, find the unit cost per Kilometer.

Solution:

Step 1: Calculate the capital cost (K)

The problem involves only the initial cost incurred at year 0. There is no replacement

cost or maintenance cost involved. Hence, we can calculate the total capital cost just by

adding the given quantities. Let K be the capital cost. It is calculated as follows:

K = Rs.16000 + Rs.16000 + Rs.2500 + Rs.4000 x d

Here d is the distance to which 11 kV line runs

.


Examples


2.Example


Example 3


Introduction PROJECT MANAGEMENT

Project management is concerned with the overall planning and co-ordination of a project from conception to completion aimed at meeting the stated requirements and ensuring completion on time, within cost and to required quality standards.

Project management is normally reserved for focused, non-repetitive, time-limited

activities with some degree of risk and that are beyond the usual scope of operational activities for which the organization is responsible.

7.2 Steps in Project Management

The various steps in a project management are:

1. Project Definition and Scope

2. Technical Design

3. Financing

4. Contracting

5. Implementation

6. Performance Monitoring

7.2.1 Project Definition and Scope

What is a Project?

“A project is a one-shot, time-limited, goal-directed, major undertaking, requiring the

commitment of varied skills and resources”.

A project is a temporary endeavor undertaken to create a unique product or service. A project

is temporary in that there is a defined start (the decision to proceed) and a defined end (the

achievement of the goals and objectives). Ongoing business or maintenance operations are

not projects. Energy conservation projects and process improvement efforts that result in

better business processes or more efficient operations can be defined as projects. Projects

usually include constraints and risks regarding cost, schedule or performance outcome.

Four Basic Elements of Project Management

A successful Project Manager must simultaneously manage the four basic elements of a

project: resources, time, cost, and scope. Each element must be managed effectively. All

these elements are interrelated and must be managed together if the project, and the project

manager, is to be a success.


1.Managing Resources

A successful Project Manager must effectively manage the resources assigned to the project.

This includes the labor hours of the project team. It also includes managing labor

subcontracts and vendors. Managing the people resources means having the right people,

with the right skills and the proper tools, in the right quantity at the right time.

However, managing project resources frequently involves more than people management.

The project manager must also manage the equipment (cranes, trucks and other heavy

equipment) used for the project and the material (pipe, insulation, computers, manuals)

assigned to the project.

2.Managing Time and Schedule

Time management is a critical skill for any successful project manager. The most common

cause of bloated project budgets is lack of schedule management. Fortunately there is a lot of

software on the market today to help you manage your project schedule or timeline.

Any project can be broken down into a number of tasks that have to be performed. To

prepare the project schedule, the project manager has to figure out what the tasks are, how

long they will take, what resources they require, and in what order they should be done.

3.Managing Costs

Often a Project Manager is evaluated on his or her ability to complete a project within

budget. The costs include estimated cost, actual cost and variability. Contingency cost takes

into account influence of weather, suppliers and design allowances.

4.How the 80/20 Rule can help a project manager?

The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are

trivial. Successful Project Managers know that 20 percent of the work (the first 10 percent

and the last 10 percent) consumes 80 percent of your time and resources.

Project Management Life Cycle

The process flow of Project management processes is shown in Figure 7.1. The various

elements of project management life cycle are

1) Need identification

2) Initiation

3) Planning

4) Executing

5) Controlling

6) Closing out


a) Need Identification

The first step in the project development cycle is to identify components of the project.

Projects may be identified both internally and externally:

Internal identification takes place when the energy manager identifies a package of

energy saving opportunities during the day-to-day energy management activities, or from

facility audits. External identification of energy savings can occur through systematic energy

audits

undertaken by a reputable energy auditor or energy service company.

In screening projects, the following criteria should be used to rank-order project

opportunities.

Cost-effectiveness of energy savings of complete package of measures (Internal rate of

return, net present value, cash flow, average payback) Sustainability of the savings over the

life of the equipment. Ease of quantifying, monitoring, and verifying electricity and fuel savings.

Availability of technology, and ease of adaptability of the technology to Indian

conditions. Other environmental and social cost benefits (such as reduction in local pollutants,

b) Initiation

Initiating is the basic processes that should be performed to get the project started. This

starting point is critical because those who will deliver the project, those who will use the

project, and those who will have a stake in the project need to reach an agreement on its

initiation. Involving all stakeholders in the project phases generally improves the probability

of satisfying customer requirements by shared ownership of the project by the stakeholders.

The success of the project team depends upon starting with complete and accurate

information, management support, and the authorization necessary to manage the project.

c) Planning

The planning phase is considered the most important phase in project management. Project

planning defines project activities that will be performed; the products that will be produced,

and describes how these activities will be accomplished and managed. Project planning

defines each major task, estimates the time, resources and cost required, and provides a

framework for management review and control. Planning involves identifying and

documenting scope, tasks, schedules, cost, risk, quality, and staffing needs.

The result of the project planning, the project plan, will be an approved, comprehensive

document that allows a project team to begin and complete the work necessary to achieve the

project goals and objectives. The project plan will address how the project team will manage

the project elements. It will provide a high level of confidence in the organization‟s ability to

meet the scope, timing, cost, and quality requirements by addressing all aspects of the

project.


d) Executing

Once a project moves into the execution phase, the project team and all necessary resources

to carry out the project should be in place and ready to perform project activities. The project

plan is completed and base lined by this time as well. The project team and the project

manager‟s focus now shifts from planning the project efforts to participating, observing, and

analyzing the work being done.

The execution phase is when the work activities of the project plan are executed, resulting in

the completion of the project deliverables and achievement of the project objective(s). This

phase brings together all of the project management disciplines, resulting in a product or

service that will meet the project deliverable requirements and the customers need. During

this phase, elements completed in the planning phase are implemented, time is expended, and

money is spent.

In short, it means coordinating and managing the project resources while executing the

project plan, performing the planned project activities, and ensuring they are completed

efficiently.

e) Controlling

Project Control function that involves comparing actual performance with planned

performance and taking corrective action to get the desired outcome when there are

significant differences. By monitoring and measuring progress regularly, identifying

variances from plan, and taking corrective action if required, project control ensures that

project objectives are met.

f) Closing out

Project closeout is performed after all defined project objectives have been met and the

customer has formally accepted the project‟s deliverables and end product or, in some

instances, when a project has been cancelled or terminated early. Although, project closeout

is a routine process, it is an important one. By properly completing the project closeout,

organizations can benefit from lessons learned and information compiled. The project

closeout phase is comprised of contract closeout and administrative closure.

7.2.2 Technical Design

For a project to be taken up for investment, its proponent must present a sound technical

feasibility study that identifies the following components:

The proposed new technologies, process modifications, equipment replacements and

other measures included in the project.

Product/technology/material supply chain (e.g., locally available, imported, reliability of

supply)

Commercial viability of the complete package of measures (internal rate of return, net

present value, cash flow, average payback).

Any special technical complexities (installation, maintenance, repair), associated skills

required.


Preliminary designs, including schematics, for all major equipment needed, along with

design requirements, manufacturer‟s name and contact details, and capital cost

estimate.

Organizational and management plan for implementation, including timetable, personnel

requirements, staff training, project engineering, and other logistical issues.

7.2.3 Financing

When considering a new project, it should be remembered that other departments in the

organization would be competing for capital for their projects. However, it is also important

to realize that energy efficiency is a major consideration in all types of projects, whether they

are:

Projects designed to improve energy efficiency

Projects where energy efficiency is not the main objective, but still plays a vital role.

The funding for project is often outside the control of the project manager. However, it is

important that you understand the principles behind the provision of scarce funds.

Project funds can be obtained from either internal or external sources.

Internal sources include:

Direct cash provision from company reserves

From revenue budget (if payback is less than one year)

New share capital

Funding can become an issue when energy efficiency projects have previously been given a

lower priority than other projects. It is worth remembering that while the prioritization of

projects may not be under our control, the quality of the project submission is.

External sources of funds include:

Bank loans

Leasing arrangement

Payment by savings i.e. A deal arranged with equipment supplier

Energy services contract

Private finance initiative

The availability of external funds depends on the nature of your organization. The finance

charges on the money you borrow will have a bearing on the validity of your project.

Before applying for money, discuss all the options for funding the project with your finance

managers.

It is reiterated that energy savings often add substantially to the viability of other non-energy

projects.


7.2.4 Contracting

Since a substantial portion of a project is typically executed through contracts, the proper

management of contracts is critical to the successful implementation of the project. In this

context, the following should be done.

The competence and capability of all the contractors must be ensured. One weak link

can affect the timely performance of the contract.

Proper discipline must be enforced among contractors and suppliers by insisting that

they should develop realistic and detailed resource and time plans that are matching

with the project plan.

Penalties may be imposed for failure to meet contractual obligations. Likewise,

incentives may be offered for good performance.

Help should be extended to contractors and suppliers when they have genuine

problems.

Project authorities must retain independence to off-load contracts (partially or wholly)

to other parties where delays are anticipated.

If the project is to implemented by an outside contractor, several types of contract may be

used to undertake the installation and commissioning:

Traditional Contract: All project specifications are provided to a contractor who

purchases and installs equipment at cost plus a mark-up or fixed price.

Extended Technical Guarantee/Service: The contractor offers extended guarantees

on the performance of selected equipment and / or service/maintenance agreements.

Extended Financing Terms: The contractor provides the option of an extended lease

or other financing vehicle in which the payment schedule can be based on the

expected savings.

Guaranteed Saving Performance Contract: All or part of savings is guaranteed by

the contractor, and all or part of the costs of equipment and/or services is paid down

out of savings as they are achieved.

Shared Savings Performance Contract: The contractor provides the financing and

is paid an agreed fraction of actual savings as they are achieved. This payment is used

to pay down the debt costs of equipment and/or services.

7.2.5 Implementation

The main problems faced by project manager during implementation are poor monitoring of

progress, not handling risks and poor cost management.

a) Poor monitoring of progress: Project managers some times tend to spend most of their

time in planning activity and surprisingly very less time in following up whether the


implementation is following the plan. A proactive report generated by project planner

software can really help the project manager to know whether the tasks are progressing as

per the plan.

b) Not handling risks: Risks have an uncanny habit of appearing at the least expected time.

In spite of the best efforts of a project manager they are bound to happen. Risks need

immediate and focused attention. Delay in dealing with risks cause the problem to

aggravate and has negative consequences for the project.

c) Poor cost management: A project manager's success is measured by the amount of cost

optimization done for a project. Managers frequently do all the cost optimization during

the planning stages but fail to follow through during the rest of the stages of the project.

The cost graphs in the Project planner software can help a manager to get a update on

project cost overflow. The cost variance (The difference between approved cost and the

projected cost should be always in the minds of the project managers).

7.2.6 Performance Monitoring

Once the project is completed, performance review should be done periodically to compare

actual performance with projected performance. Feedback on project is useful in several

ways:

a) It helps us to know how realistic were the assumptions underlying the project

b) It provides a documented log of experience that is highly valuable in decision making

in future projects

c) It suggests corrective action to be taken in the light of actual performance

d) It helps in uncovering judgmental biases

e) It includes a desired caution among project sponsors.

Performance Indicators (PIs) are an effective way of communicating a project‟s benefits,

usually as part of a performance measuring and reporting process. Performance Indicators are

available for a wide range of industries and allow a measure of energy performance to be

assigned to a process against which others can be judged.

Depending on the nature of the project, savings are determined using engineering

calculations, or through metering and monitoring, utility meter billing analysis, or computer

simulations.


SETTING UP SYSTEMS

System

A group of elements either human or non-human that is organised & arranged in such a way that the

elements can act as a whole towards achieving some common goal, objective or end

A composite of equipment, skills and techniques capable of performing and/or supporting an

operational role. A complete system includes related facilities equipment, material services and

personnel requirement for its operation to the degree that it can be considered as a self sufficient unit in

its intended operational and/or support environment (Defined by Air force)

Program

Program can be constructed as the necessary first level elements of a system

The integrated, time phased tasks necessary to accomplish a particular purpose

Or

A relative series of undertakings which combine over a period of time and which are designed to

accomplish a broad, scientific or technical goal

They are regarded as the subsystems, however programs are generally defined as time phased efforts,

whereas systems can exist on a continuous basis

Project

Projects are also time phased efforts (much shorter than programs) and are first level of break down of

programs

A project is within a organisation as an undertaking with a scheduled beginning and an end, and which

normally involves some primary purpose

Project Categorisation

Individual projects

Staff projects

Special projects

Matrix projects

Individual Project

Individual projects are short duration projects normally assigned to a single individual who may be acting as

both project manager and functional manager

Staff Project

These are the projects that can be accomplished by one organisational unit, say a department. A staff or task

force is developed from each section involved. This works best if only the functional unit is involved

Special Projects :Special projects occur that require certain primary functions/ or authority to be assigned

temporarily to other individual or units. This works out best for short duration projects.


Matrix Projects

Matrix projects require input from a large number of functional units and usually control vast resources

Organisation

Organisations are important to the development of nation. They serve the country and the society by

developing products that are technically advanced

The construction industry plays a key role in this development as it provides one of three basic needs of human

life

Projects with larger work scope as well as different locations require an organisation that can carry out

systematic coordination of the various construction aspects by assigning a team of trained personnel

This team is the MANAGEMENT of the organization

Project Organisation

A good project organisation is one in which all individuals concerned constantly interact for achieving

project objectives which is vital for success of any project

A project team takes over the project responsibility from the study team as soon as statutory clearances

are obtained and funding arrangements made

In the scheduling stage what is generally done is to check and redesign the organisation which was

defined at the beginning of the project

In the final stage the organisation is given a more formal character and strengthened with clearly

defined responsibilities and commensurate authority

Objectives of Project Organisation

Undertaking and carrying out various construction activities

Achieving the task through disciplined work and efficient management

Developing finance resources to complete the work in the stipulated time

Researching and experimenting for up gradation of technology

Preparation of model projects to demonstrate minimum wastage of materials and labour

Establishing branches/sub-heads for efficient management business

Creating joint ventures through association with other companies

Developing of new project management techniques for prosperity and continual improvement of

organisation

Forms of Project Organisation

Functional Organisation

Divisional Organisation

Matrix Organisation


Functional Organisation

Functional organisation is the traditional centralised type of organisation with line and staff structure, in

which heads of various functional departments report to the CEO for their respective specialised

functions in the management of the project as well as the enterprise on the whole

The project manager supported by a few area project engineers and clerical staff would function as a

coordinator and report daily to the CEO

This form of organisation would suit pure project enterprises whose CEO can afford to function virtually

as chief project manager, without other more important business

In a going concern where the CEO has many other things to do, this form of project organisation will

lead to neglect of the project

Functional Project Organisation

Divisional Organisation

Divisional organisation envisages well knit decentralised project management divisions, each headed by

a PM or someone of equivalent title, and divided into several sections, each under the charge of senior

person and manned by qualified and experienced staff of appropriate levels, solely allotted to the

project

The PM concentrates totally on his project, without worrying about the general management of the

enterprise

Project schedules and resource budgets are mostly entrusted to the PM with proper rules and guide

lines which require regular submission of reports to top management


The divisional organisation has the disadvantage of leading to wastage of resources because it tends to

create water tight compartments. All the specialists or men of high skill attached to a particular project

division may not have full time work there

Divisional Project Organisation

Matrix Organisation & Project team

In this form of organisation there are two distinct categories of personnel one, at lower levels, recruited

solely for the particular project and the other, deputed by other functional departments to serve the

project

The first category normally faces termination at the completion of the project, unless some are

absorbed in the production and management

The second category may serve more than one project at a time according to the needs and

practicability of the situation

When posted in PMD or at site, they will report administratively to the PM, but professionally and for

specialist advice continue to report to their functional heads

On the project they represent the interests of the functional departments and might even disagree with

the PM in matters of schedules, budgets, quality etc


Matrix Project Organisation

Advantages of Matrix Organisation

Flexibility in the deployment of resources

Effectiveness in the usage of rare equipment and scarce specialist skills

Better opportunity for people for career advancement

Better use of experience gained in the organisation, for benefit

Saving in project cost because of minimum idling

Construction Organisation & Management

Engineering

Purchase

Finance

Personnel & Admin

Marketing

Accounts

Legal


Electronic Data Process

Engineering Department - Objective

To complete project with strict & timely supervision achieving quality & workmanship

To complete project construction in stipulated time schedule through advance planning & coordination

To complete project construction in the most economical way with the best resources available

Engineering Department

Execution

Quality Control

R & D

Contracts

Quantity Surveying

Planning

Execution

To study drawings & specifications thoroughly, prepare progress charts

Study contractor agreements in detail

Working out of estimates and check material consumption at site

Follow up regularly with the various consultants

Updating of progress

Report the progress, material shortfall, contractor problems on a daily basis to the superiors

Quality Control

Detailed study of specifications of the project

Summarise the project according to quality requirements

Prepare checklists for various items to be executed

Make quality checks on the material received at site by taking the prescribed field & laboratory tests

Check the workmanship of all the items at every stage of work

Conduct tests to improve the quality with the help of available resources

Survey and study modern techniques for suitability to working conditions

Research & Development

Research & Development is possible through experimenting, recording of observations and deriving

easily adaptable procedures

Highlight the better points observed on other sites to the Chief Engineer/ Project Manager

Material testing & developing of new building construction techniques towards achieving better quality

results at a minimum cost


Contracts

Management of contracts within the framework of the business policy

Supervision, preparation, execution and costing

Responsible for all technical and construction planning, execution, and post-estimating.

Execution of contracts - technical and economical – assisted by project managers, engineers

Ensure observance of safety regulations

Visit projects regularly and monitor the progress

Maintain close contact with other important departments

Co-ordinate with plant department for punctual availability of plant at site as well as repairs

Negotiate with clients, consultants, others

Review performance. evaluate monthly project costs/ progress reports.

Maintain required standard of work

Ensure specified inspection and testing

Try to solve difficulties faced at the project.

MIS documentation

Copies of bills, related letters

Details of collections

Details of Disputed items

Materials reconciliation

Min. wages notifications

Client’s schedule of rates

Client’s rate analysis

Quantity Surveying

Highlight contract provisions

Measurements, billing, collection

Generate correspondence

Prepare rate analysis

Timely submissions

Planning

Briefing

Designing

Tendering

Constructing

Commissioning


Manage Time

– Most common traps

Incomplete work

A job poorly done that must be done over

Delayed decisions

Poor communication channels

Uncontrolled telephone calls

Casual visitors

Waiting for people

Failure to delegate

Poor retrieval system

Preparing and updating on a daily basis, schedule of tasks

Sorting of tasks and short listing a daily basis

Priority fixing

Time allocation

Dismissing or suspending time-wasters

Preparation of timely plans to face the future tasks without emergencies

Making profitable use of waiting time & journey time

Selectively delegating to others a good lower part the tasks

To attend all important matters without delay or failure/excuse

Taking stock of daily achievements

Avoiding of disorganised confusion

Manage Cost

Cost control is equally important to all companies, regardless of size. Cost control is not only monitoring

of costs and recording perhaps massive quantities of data, but also analysing the data in order to take

corrective action before it is too late

A simple evaluation of the inputs and outputs and a comparison of actual expenses on the inputs with

what is expendable will suffice

Out of the available advance estimate of various cost elements, what is expendable during the reporting

month and cumulative to date must be worked out in proportion to quantity and percentage of work

completed

Consider factual measurements of percentage completed

Cost control implies good construction management which must include

Cost Estimating

Cost Accounting

Project cash flow

Company cash flow


Direct labour costing

Overhead rate costing

Others such as incentives, penalties and profit sharing etc

Project Team

Organising Project Team

Project team is a combination of project office and functional employees

Project Office

Project Office

The project office is an organisation developed to support the project manager in carrying out his duties

The responsibilities include

Acting as the focal point of information for both in house control & customer reporting

Controlling time, cost & performance to adhere to contractual requirements

Ensuring that all the work required is documented and distributed to all key personnel

Ensuring that all the work performed is both authorised and funded by contractual documentation


Functional Team

The project team consists of PM, the project office and functional or interface members. Functional

team members are often shown in organisational charts as project office team members

Functional staffing is directly dependent upon project requirements and therefore, must include

functional management because

For large projects it is desirable to have a full time functional representative from each major division or

department assigned permanently to the project, and perhaps even to the project office

Functional Management

Program management

Project engineering

Engineering operations

Manufacturing operations

Procurement

Quality Control

Cost Accounting

Publications

Marketing

Sales

Stores Management

Most organisations and engineers consider store keeping a minor activity in the construction field

Of the total construction cost, almost 65% is the material cost which can go up due to negligence by

engineer/organisation.

This can be controlled by effective store management

Stores management is a part of material management. Various types of buildings are used for storage

depending on the types of materials to be stored, convenience, cost of land, climatic conditions,

transportation facilities etc.,

Two factors are of utmost importance in determining the layout of store house viz., economy and efficiency

If a store house is not fully utilised, it is a waste of capital and if it is the one that holds too much, is

wasteful in terms of time & labour

Stores – Activities

Materials inward recording

Material issue recording

Materials consumption & reconcilation


Materials safety & stacking

Stock checking

Updating materials stock

Control of wastage of materials

Control on quantity and quality of materials

Reporting to H.Q for bill settlements

Plant Management

The general aim of any construction project is to produce a structure of reasonable cost and quality

within an acceptable time period

To achieve the above time period and in many cases to overcome a shortage of suitable manpower the

mechanisation of many construction projects is considered

The items of plant which are available is very extensive, ranging from simple hand tools to very

expensive equipment

Increase rate of output

Reduce overall building costs

Carry out activities which cannot be done manually or to do them more economically

Eliminate heavy manual work thus reducing fatigue and increasing productivity

Maintain a planned rate of production where there is shortage of either skilled or unskilled operatives

Maintain high standards often required by present day designs and specifications, especially concerned

with structural engineering works

House Keeping

Basic requirements of project office

Office working space for staff

Laboratory Set up

Appointment of Staff

Marking site boundaries

Amenities arrangement

Security arrangements

Material stocks & tools for the initial stage

Poor Housekeeping - Typical features

Excessive material in work area.

Congested Aisle, exit/egress not marked.

Overloaded waste containers.

Tools left on machines/ platforms etc.

Shabby arrangement of cables/hoses etc.

Oil, water, grease spills

Over loaded walkway and platform

Aid to Good Housekeeping

Layout of work area

Marking of aisles and storage areas

Cabinets / holders for tools & portable equipment

Storage arrangements for materials


Containers for materials

Periodical and planned cleaning drives

Training of employees

Safety

Safety Principles for a Construction Project

Plan safety into every job.

Anticipate the unexpected.

Identify hazard before the injury occurs.

Correct unsafe acts and conditions quickly.

Promote incident reporting during the early stages.

Safety Principles for a Construction Project

Ensure employees have the proper tools.

Ensure employees follow established safety procedures.


Conduct frequent safety inspections.

Consult your safety representative whenever necessary.

Give positive motivation for safe work.

Quality Control


Organisation for Quality

Control


Factors Affecting Quality of

Construction

Data Processing

Selection of appropriate hardware, software for various functional requirements

Implementation of systems or effective work results

Providing timely and correct information to the management

Training the staff to use the software packages

Maintenance of all the computer systems in an organisation

Updating the information about advanced computer technologies

Monthly reporting to the management about the development and progress In the implementation

of systems

Appraisal

Documents

project cost

project intervention

entire project

executiona project

project identification

project partners

project team

project initiators