Assignment - Project Appraisal

ASSIGNMENT: PROJECT APPRAISAL

Question: 1. Discuss the Key Business Consideration Relevant for Project Financing Decision

Corporate finance is an area of finance dealing with financial decisions business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, the short term decisions can be grouped under the heading "Working capital management". This subject deals with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers).

The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs.

Capital investment decisions

Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure. Decisions are based on several inter-related criteria. (1) Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. (2) These projects must also be financed appropriately. (3) If no such opportunities exist, maximizing shareholder value dictates that management must return excess cash to shareholders (i.e., distribution via dividends). Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision.

The investment decision

Management must allocate limited resources between competing opportunities (projects) in a process known as capital budgeting. Making this capital allocation decision requires estimating the value of each opportunity or project, which is a function of the size, timing and predictability of future cash flows.

Project valuation

In general, each project's value will be estimated using a discounted cash flow (DCF) valuation, and the opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected (applied to Corporate Finance by Joel Dean in 1951; see also Fisher separation theorem, John Burr Williams: theory). This requires estimating the size and timing of all of the incremental cash flows resulting from the project. Such future cash flows are then discounted to determine their

present value (see Time value of money). These present values are then summed, and this sum net of the initial investment outlay is the NPV.

The NPV is greatly affected by the discount rate. Thus, identifying the proper discount rate - often termed, the project "hurdle rate" - is critical to making an appropriate decision. The hurdle rate is the minimum acceptable return on an investment—i.e. the project appropriate discount rate. The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the financing mix. Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets.)

In conjunction with NPV, there are several other measures used as (secondary) selection criteria in corporate finance. These are visible from the DCF and include discounted payback period, IRR, Modified IRR, equivalent annuity, capital efficiency, and ROI (see list of valuation topics).

Valuing flexibility

In many cases, for example R&D projects, a project may open (or close) paths of action to the company, but this reality will not typically be captured in a strict NPV approach. Management will therefore (sometimes) employ tools which place an explicit value on these options. So, whereas in a DCF valuation the most likely or average or scenario specific cash flows are discounted, here the “flexibile and staged nature” of the investment is modelled, and hence "all" potential payoffs are considered. The difference between the two valuations is the "value of flexibility" inherent in the project.

The two most common tools are Decision Tree Analysis (DTA) and Real options analysis (ROA); they may often be used interchangeably:

DTA values flexibility by incorporating possible events (or states) and consequent management decisions. (For example, a company would build a factory given that demand for its product exceeded a certain level during the pilot-phase, and outsource production otherwise. In turn, given further demand, it would similarly expand the factory, and maintain it otherwise. In a DCF model, by contrast, there is no "branching" - each scenario must be modelled separately.) In the decision tree, each management decision in response to an "event" generates a "branch" or "path" which the company could follow; the probabilities of each event are determined or specified by management. Once the tree is constructed: (1) "all" possible events and their resultant paths are visible to management; (2) given this “knowledge” of the events that could follow, management chooses the actions corresponding to the highest value path probability weighted; (3) then, assuming rational decision making, this path is taken as representative of project value. See Decision theory: Choice under uncertainty.

ROA is usually used when the value of a project is contingent on the value of some other asset or underlying variable. (For example, the viability of a mining project is contingent on the price of gold; if the price is too low, management will abandon the mining rights, if sufficiently high, management will develop the ore body. Again, a DCF valuation would capture only one of these outcomes.) Here:

(1) using financial option theory as a framework, the decision to be taken is identified as corresponding to either a call option or a put option; (2) an appropriate valuation technique is then employed - usually a variant on the Binomial options model or a bespoke simulation model, while Black Scholes type formulae are used less often - see Contingent claim valuation. The "true" value of the project is then the NPV of the "most likely" scenario plus the option value.

Quantifying uncertainty

Given the uncertainty inherent in project forecasting and valuation, analysts will wish to assess the sensitivity of project NPV to the various inputs (i.e. assumptions) to the DCF model. In a typical sensitivity analysis the analyst will vary one key factor while holding all other inputs constant, ceteris paribus. The sensitivity of NPV to a change in that factor is then observed, and is calculated as a "slope": ΔNPV / Δfactor. For example, the analyst will determine NPV at various growth rates in annual revenue as specified (usually at set increments, e.g. -10%, -5%, 0%, 5%....), and then determine the sensitivity using this formula. Often, several variables may be of interest, and their various combinations produce a "value-surface" (or even a "value-space"), where NPV is then a function of several variables. See also Stress testing.

Using a related technique, analysts also run scenario based forecasts of NPV. Here, a scenario comprises a particular outcome for economy-wide, "global" factors (demand for the product, exchange rates, commodity prices, etc...) as well as for company-specific factors (unit costs, etc...). As an example, the analyst may specify specific growth scenarios (e.g. 5% for "Worst Case", 10% for "Likely Case" and 25% for "Best Case"), where all key inputs are adjusted so as to be consistent with the growth assumptions, and calculate the NPV for each. Note that for scenario based analysis, the various combinations of inputs must be internally consistent, whereas for the sensitivity approach these need not be so. An application of this methodology is to determine an "unbiased" NPV, where management determines a (subjective) probability for each scenario – the NPV for the project is then the probability-weighted average of the various scenarios.

The financing decision

Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix can impact the valuation. Management must therefore identify the "optimal mix" of financing—the capital structure that results in maximum value. (See Balance sheet, WACC, Fisher separation theorem; but, see also the Modigliani-Miller theorem.)

The sources of financing will, generically, comprise some combination of debt and equity financing. Financing a project through debt results in a liability or obligation that must be serviced, thus entailing cash flow implications independent of the project's degree of success. Equity financing is less risky with respect to cash flow commitments, but results in a dilution of ownership, control and earnings. The cost of equity is also typically higher than the cost of debt (see CAPM and WACC), and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.

Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows.

The dividend decision

Whether to issue dividends, and what amount, is calculated mainly on the basis of the company's unappropriated profit and its earning prospects for the coming year. If there are no NPV positive opportunities, i.e. projects where returns exceed the hurdle rate, then management must return excess cash to investors. These free cash flows comprise cash remaining after all business expenses have been met.

This is the general case, however there are exceptions. For example, investors in a "Growth stock", expect that the company will, almost by definition, retain earnings so as to fund growth internally. In other cases, even though an opportunity is currently NPV negative, management may consider “investment flexibility” / potential payoffs and decide to retain cash flows; see above and Real options.

Management must also decide on the form of the dividend distribution, generally as cash dividends or via a share buyback. Various factors may be taken into consideration: where shareholders must pay tax on dividends, firms may elect to retain earnings or to perform a stock buyback, in both cases increasing the value of shares outstanding. Alternatively, some companies will pay "dividends" from stock rather than in cash; see Corporate action. Today, it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem).

Working capital management

Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities.

Decision criteria

Working capital is the amount of capital which is readily available to an organization. That is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets), and cash requirements (Current Liabilities). As a result, the decisions relating to working capital are always current, i.e. short term, decisions.

Working capital management decisions are therefore not taken on the same basis as long term decisions, and working capital management applies different criteria in decision making: the main considerations are (1) cash flow / liquidity and (2) profitability / return on capital (of which cash flow is probably the more important).

The most widely used measure of cash flow is the net operating cycle, or cash conversion cycle. This represents the time difference between cash payment for raw materials and cash collection for sales. The cash conversion cycle indicates the firm's ability to convert its resources into cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. (Another measure is gross operating cycle which is the same as net operating cycle except that it does not take into account the creditors deferral period.)

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management . Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity (EPQ).

Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.

Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

Question 2: Draft a project report relating to launching a medium- sized software firm

Answer: 2

KANICHAI Tech is the software house which is concentrating on Indian projects specially to participate in development of Pakistan thus enhancing IT value and strength in country.

Mission Statement: Giving quality products to the active economy drivers in market

Vision: Focusing on providing quality services to the target market which is playing important role in country economy and progress i-e Business concerns, manufacturing concern, banks and educational institutes. Thus we can promote technology within these working concerns which results into their efficient participation in Pakistan’s eonomy and progress.

1-Market Analysis: The Indian IT industry today has an impressive story to tell. Much like the successful startup that one would have not heard of a few years ago but is all of a sudden the talk of the town. The Pakistan IT industry has started to appear on the radar of firms like Gartner and IDC and in reports by AT Kearny and the World Bank. It is a transformed industry growing exponentially and creating a stir.

1.1 Estimated Size of IT Industry: From its nascent beginnings in the late 1980s, the industry has successfully arrived to a point where its value proposition has been validated over and over again. The largest members are grossing 15-25 million dollars in revenues, and receiving 100 million dollar valuations. Most tech companies are growing in excess of 30% a year annually. The industry as a whole is doing over 2 billion dollars a year in revenue, up from less than a billion dollars a few years ago.

1.2 Software & Services Sector with 39% Growth

For 2007 – 08

About half of this growth is coming from foreign, software and high end services projects. IBM, Cisco and Microsoft are expanding Pakistan operations aggressively while several startups are now backed by VCs such as e-Planet Ventures, Motorola, and Adobe.

1.3 Employment of Professionals by 41% Growth

Sectors and countries have achieved in 15-20 years, Pakistan’s technology scene is poised to achieve in less than a decade.

Putting it all together, the Indian Technology industry is very different from what it was in the early 1990’s. From 4 founding companies in 1994, PASHA’s current membership exceeds 370. From 4,619 full-time employees in 2004, current employment is at 12,232 and rising.

The number of QA Professionals has doubled in the last 3 years and 20% of those employed in the sector are foreign qualified. Fast becoming a hub of high performance business, the questions now asked are if growth this year will be 28% or 50%, if there will be enough skilled HR to staff demand, if there will be enough office space available next year.

2-The Industry at Glance

3. Departments:

Our main idea is to open a software house in Karachi which would be the biggest software house in the Pakistan. We will have mainly two departments.

3.1 Prospecting Projects

Supporting ANR (Afghan National Refugee): We will support ANR project in collaboration with NADRA by using SQL, Oracle

Data Base for InstitutionsBasically concentrating on the projects and solutions for institutions like Educational, Medical and Business Growing Institutes.

3.2. Launch of New software:

o KANICHAI TECH will launch new software and will introduce a new idea in history of Pakistan. o We will introduce software that will help the disable people. This idea has been taking from

research work of Dr. Sue who first introduced the idea of starting software of such kind.

4. The MarketKANICHAI TECH has identified four distinct market segments that will be interested in the software product. These segments are the most likely consumers of the software. The segments are as follows:

IT Intensive Corporate - The corporate and commercial business which are focusing on IT software and having IT oriented environments e.g. banks, manufacturing concerns.

Proactive Educational Concerns- Educational institutes  who are taking an active role in the education of their students will be looking for aids that they can use at educational places to help with their students learning progress.

Agencies- Internationally many countries have agencies that act as brokers to connect service providers with individuals. The agencies have generally been formed as a result of a settlement or payout from a lawsuit (including class action).

4.1Competitive EdgeThere is several companies on the market selling business and educational products for this target

segment. KANICHAI TECH will leverage their competitive edge by incorporating entertainment into their software product, a means of creating interest while using the software. This interest will increase the amount of time that the users use the software, thereby increasing the effectiveness of the program. KANICHAI TECH is convinced that the customer interest and trust towards the product instead of having to be forced to use it.KANICHAI TECH has been inspired by development in IT industry.  KANICHAI TECH has forecasted revenues of Rs.400, 397 and Rs.490, 000 for years two and three.

4.3 Keys to Success

Develop business and educational software that is constructive and supportive. If it is not so, it likely will not be used.

Implement a strong marketing campaign to develop awareness of the software and its benefits within all of the business centers, educational institutes, brokerages.

Design strict financial controls for the organization.

4.4 Objectives

Increase sales by triple for the first two years. Achieve 20% market penetration by year four.

Assist more than 10,000 different individuals with development disabilities.

.5. Company Ownership

The company was founded and is owned by Ms Amna Riaz. She is a respected, enthusiastic, passionate and strategic, former educator of special education with an emphasis on autism. Sue will leverage her extensive knowledge and industry contacts to make KANICHAI TECH a success.

5.2 Start-up Summary

KANICHAI TECH is a start-up organization. The following assets and professional services will be needed for the formation and start of operations.

Legal services for company formation. Accounting services to set up the accounting shell of the company QuickBooks Pro software.

Computer programmers (3) to rapidly develop the software. An individual programmer could complete the coding of this product however; KANICHAI TECH is interested in launching the product fast therefore they will employ multiple programmers to speed the process up.

Eight computer workstations, including one server. Seven of the stations will have Microsoft Office; one of them will have QuickBooks Pro. Three networked laser printers.

A broadband Internet connection.

Office cubicle furniture for seven employees.

Seven extension telephone system.

Copier and fax machine.

Lunch room furniture and appliances including a refrigerator and microwave.

Shipping materials including boxes scales, etc.

Promotional materials.

Market Analysis Summary

The market for life skills training software can be segmented into four groups. The first is centers for independent living, the second is school districts, the third is proactive parents, and the last is agencies charged with special education administration. Each of the four segments is distinct and will be communicated with in different ways. These four segments have been chosen because they are the main purchasers of products for individuals with developmental disabilities.

The software industry for individuals with developmental disabilities has just begun to grow. Only within the last few years has there been a significant increase in the number of computers found in classrooms using specialized software. Competing with the software companies are products that have printed pictures on them, typically laminated cards. While these cards are helpful, they are less interactive. 

Market Segmentation

KANICHAI TECH has identified four distinct market segments for their products:

Centers for Independent Living- These are typically not-for-profit entities that assist individuals with developmental disabilities. The centers help clients with transition skills, making them more independent. These centers offer a wide range of life skills training for the individuals.

School Districts- All students are guaranteed an education therefore the school districts must provide the appropriate education until the individual is 21 years old. School districts are consumers of these products in pursuit of their goal of providing the students with an appropriate education.

Proactive Parents- These are parents of individuals with developmental disabilities who are taking an active role in their child's education/life skill training. Reinforcing these skills as much as possible is useful; therefore there are many parents that will purchase the software for home use.

Agencies- Many states, often as a reaction to a lawsuits (individual and class actions) have set up agencies or brokerages whose purpose is to dispense money from the state to the service providers assisting the individuals in need.

Money from the state to the service providers assisting the individuals in need.

SWOT Analysis:

Strength:

Highly qualified staff Introduction of new technology in Pakistan Providing customized products. Focusing on multiple target markets. Quality value added services.

Weakness

Lack of training within organization in start of business Name recognition

Opportunities:

Vast market Untapped target market to cover Variety of products according to clients demand

Threats

Globalization trend High turn over rate Impact of Economy deterioration in market.

6-Technical Analysis:

6.1 Labor

. A professional software house normally consists of at least three dedicated sub-teams :

Business Analysts who define the business needs of the market Software Designers/programmers who creates the technical specification and next do a coding

Software Testers who are responsible for the whole process of quality management

The pros:

Each person has full knowledge about the full production cycle People are doing various tasks what makes especially young people excited about their work

There is a very good possibility to manage the work load especially in crisis situations like "all hands on pump"

6.2 Location and Size:

Our software house will be situated in main SADDAR area of Karachi. Size of our software house would be approximately 2 acre.

6.3 Machineries and technology

We need to install high quality machinery. For this purpose we will import our computers from U.S market and their technical people will install the computers and networking.

6.4 Training

For better and efficient use of the imported machinery we will send our experiences programmers to U.S for training.6.5 Software House capacity:

We will arrange 24-hours open at our software house and employees will have morning and night shifts. So we can increase the production capacity of our software house and ultimately more people will get employment.

6.6 Input Constraints

Biggest constraint is load shedding. For this purpose we will arrange generators. Generators will increase our cost but it will increase our results accordingly.

6.7 Methodologies

Software house may use a number of various methodologies to produce the code. These can include:

The Waterfall Model, including project management methodologies like PRINCE2 or PMBoK Agile Software Development, such as Extreme Programming and SCRUM

There are also some methodologies which combine both, such as the Spiral Model, RUP or MSF.

7-Financial Analysis

7.1 Cost of Project

The estimated cost of project is Rs 15,670,000 according to proposal research and market

studies.

7.2 Means of Financing

Partner’s Equity:

Partners Name Equity in Rs ShareholdingMs Amna Riaz 700,000 25%Ms Sadaf Zehra 700,000 25%Mr. Shahab Mustafa 700,000 25%Ms Khudija Riaz 700,000 25%

Borrowings

o Borrowing from bank Rs 420,000

o Long-term Loan Rs 840,000

7.3 Projections

Start-Up ExpenseExpense Heads Amount in RsLegal 10,000License 2,000,000Marketing 210,000Furniture 900,000Fixtures 350,000

Computers Hardware & software Laptop Printer Projector Main Server -Networking

50, 00,000

Equipments Photostat machine Fax machine Stationery Generator

Telephone

50, 00,000

Research & Development 30, 00, 000Rent Advances and Rent 700,000Other expenses 500,000Total Start-Up Expense 15,060,000Required cash in hand 610,000TOTAL 15,670,0007.4 Projected Profit And Loss Statement

Projected Profit And Loss Statement2009 (in Rs) 2010 (in Rs) 2011 (in Rs)

Sales 2,000,000 2,150,000 2,500,000Less: Cost of Sales (1,200,000) (1,450,000) (1,500,000)Gross Profit From Sales 800,000 700,000 1,000,000Selling and Administration ExpenseSalaries and wages 250,000 250,000 250,000Commissions 15,000 15,000 30,000Office suppliers 90,000 90,000 70,000

Legal fees 50,000 50,000 100,000Advertising 210,000 250,000 300,000Equipment 50,000 10,000 70,000Research & development 25,000 35,000 50,000

Interest 70,000 70,000 140,000 Sundry expense 100,000 50,000 90,000Less: other income 860,000 800,000 1,100,000

Total expenses (75,000) (130,000) (910,000)

Net Profit 5,000 30,000 90,000

7.5Projected Balance Sheet

AssetsCurrent Assets

2009 2010 2011Cash 400,000 450,000 650,000Accounts Receivable 600,000 550,000 500,000Inventory 165,000 165,000 200,000Prepaid rent 600,000 675,000 650,000Bill Board 50,000 (100,000) 250,000Total Current 865,000 1,940,000 2,250,000Fixed Assets Furniture 900,000 900,000 1,000,000Fixture 350,000 350,000 350,000Computer Hardware 345,000 345,000 500,000Equipment 425,000 425,000 500,000Less: Accumulated Depreciation

(100,000) (100,000) (100,000)

Total Fixed Assets 1,920,000 1,920,000 2,250,000Total Assets 3,785,000 3,860,000 4,450,000

Liabilities And CapitalCurrent Debt:

2009 2010 2011Accounts Payable 200,000 300,000 250,000Accrued Expense 100,000 200,000 150,000Current Borrowing 210,000 210,000 420,000Subtotal Current Liabilities 510,000 710,000 820,000Short term loan Long-term Loan

560,000 420,000 840,000

TOTAL LIABILITIES 1,070,000 1,130,000 1,660,000

Capital Stock2009 2010 2011

Ms. Amna Riaz 700,000 700,000 700,000Ms. Sadaf Zehra 700,000 700,000 700,000Mr. Shahab Mustafa 700,000 700,000 700,000Ms. Khudija Riaz 700,000 700,000 700,000Profit 15,000 30,000 90,000Total Capital 2,715,000 2,730,000 2,790,000Total Liab & Capital 3,785,000 3,860,000 4,450,000

8-Strategy and Implementation Summary

KANICHAI TECH will leverage their competitive edge of combining business, education and manufacturing concerns within their software product to help them quickly gain market share. All of the competitors software concentrates on skill development. While this is useful, it does have customer oriented. KANICHAI TECH has added entertaining elements into their software, encouraging the students to use the software and have fun while they learn.

KANICHAI Tech’s marketing strategy will be to raise visibility of the software product among the decision makers who are business and institutional handlers. The campaign will be targeted to reach these people/organizations so that they are aware of the options they have in developing IT environment. Lastly, the sales strategy will seek to convince the prospective customers that there can be significant gains in learning through KANICHAI Tech’s carefully designed software.

8.1 Marketing Strategy

KANICHAI TECH's marketing strategy reflects their perception of the industry: that most of the companies operating today are operated by business and manufacturing concerns; that they make number of products; but not many people know about the products, and overall awareness is poor. The reality is that so many prospective customers in Pakistan are unaware of the different available products. KANICHAI TECH will employ an aggressive marketing strategy to raise awareness of their products among customers who are in need of these products, and thereby increasing software purchases. KANICHAI TECH will be advertising heavily in various industry journals and magazines as a proven method of reaching the target audience. The ads will generate awareness of KANICHAI TEC Hand will lead the customers to KANICHAI TECH's website where they can demo the software. This strategy is based on the philosophy that you can have a great product, but if no one knows about it you are not going to be successful.

8.3 Sales Strategy

KANICHAI TECH will use an aggressive sales campaign that will rely on conference participation as well as target cold calling. There are numerous industry conferences throughout the country that are specifically for educators. The conferences are the places where people get together and share strategies that work with their colleagues in different departments and different states. While the conferences are not typically packed with vendors, KANICHAI TECH will be present since the conferences are a captive assortment of the right people – the educators that are in the trenches working with the special students. The conferences will be an excellent networking opportunity and should develop significant sales.

The second prong of the sales strategy will be a campaign aimed at contacting key decision makers and introducing them to KANICHAI TEC Hand their products. Research will be done to determine target business, manufacturing concerns and educational institutes and money has been given to agencies to disperse to various service providers. This information will be valuable in determining who the proper consumer for the special software is. These personal contacts will help generate significant sales.

8.3.1 Sales Forecast

The following table and charts present sales forecasts in a monthly format as well as yearly projections. Forecasts have been conservatively estimated to increase the likelihood of attainment. Sales have been broken down by customer group.

A fulfillment house will be contracted to produce, package, and ship the hard copy software product to purchasers. Download of the software from the KANICHAI TECH website will be available. This will drastically reduce cost of goods if purchasers use the download only purchase option.

Purchaser download of the software from the KANICHAI TECH website will be available. This will drastically reduce cost of goods if purchasers use the download only purchase option.

Sales Forecast

2009 2010 2011

Sales

Centers for Independent Living

Rs.23,439 Rs.96,957 Rs.118,616

School Districts Rs.43,405 Rs.179,550 Rs.219,660

Proactive Parents Rs.9,983 Rs.41,297 Rs.50,522

Agencies Rs.19,966 Rs.82,593 Rs.101,044

Total Sales Rs.96,793 Rs.400,397 Rs.489,842

Direct Cost of Sales 2003 2004 2005

Centers for Independent Living

Rs.1,641 Rs.6,787 Rs.8,303

School Districts Rs.3,038 Rs.12,569 Rs.15,376

Proactive Parents Rs.699 Rs.2,891 Rs.3,537

Agencies Rs.1,398 Rs.5,782 Rs.7,073

Subtotal Direct Cost of Sales

Rs.6,776 Rs.28,028 Rs.34,289

8.4 Milestones (Action Program)

KANICHAI TECH has several milestones, presented in the following table and chart, which will be instrumental in the success of the organization.

Milestones

Milestone Start Date End Date Budget Manager Department

Business plan completion 1/1/2004 2/15/2004 Rs.0 SueBusines

Development

Beta version completed 2/1/2004 4/15/2004 Rs.0 ABC Programming

Organizational hiring complete

3/15/2004 5/1/2004 Rs.0 Sue HR

Public release of software 4/15/2004 5/15/2004 Rs.0 ABC Programming

Profitability 5/15/2004 5/30/2005 Rs.0 Sue Accounting

Totals Rs.0

9-Web Plan Summary

KANICHAI TECH will develop a website that will be used as both a marketing and sales tool. On the site interested parties can receive more information regarding the company and the current product list. Once the beta version of the software is ready interested customers can download a trial version of the software

for their evaluation. The website will also provide people with company contact information to allow them to ask any questions that they may have.

Online sales will be contracted to one of the third party Internet sales businesses, such as Yahoo! Shopping. The site will provide customers with a download only purchase option.

9.1 Website Marketing Strategy

The website will be marketed using simple yet effective means. The first method is inclusion of the URL address in all promotional activities. This will be especially important because it will allow all interested parties to view screen shots of the software and download a trial version of the product. KANICHAI TECH recognizes that no ad will be able to communicate everything; therefore KANICHAI TECH will rely on the website to provide the additional information. The second marketing tool for the website will be comprehension search engine submission. The submission process will provide KANICHAI TECH will many visitors to the website. This will be accomplished when an interested party searches on "autism software" or some other set of keywords. The search engine will then list a number of "hits" that correspond to the search terms.

9.2 Development Requirements

KANICHAI TECH will employ one computer science student for the design and development of the website. Development will occur concurrently with the development of the software.

9.1 Personnel Plan

KANICHAI TECH will require the following employees:

Assistant to Manager will be doing a little of everything from HR to business development to product development to finance.

Accounting- an accounting clerk will be hired.

Software development- two employees will be in charge writing manuals, instructions, and product bug updates, and version upgrades.

Marketing Sales- two employees will be hired to generate sales.

Customer Service- two employees will be used to field any questions from customers or address any concerns/problems regarding orders as well technical difficulties.

Bibliography:

Resources from where the primary research work is done

http://www.pasha.org.pk/ IT professional of NADRA and Plexus (Pvt) Limited www.wikipedia.com

Question: 3. Briefly explain the appraisal methods adopted by a financial institution.

Answer: Q 3

Financial institutions appraise a project from the marketing, technical, financial, economic and managerial angles. The principal issues considered and the criteria employed in such appraisal are discussed below in this article.

Market Appraisal: The importance of the potential market and the need to develop a suitable marketing strategy cannot be over emphasized. Hence efforts are made to:

Examine the reasonableness of the demand projections by utilizing the findings of available surveys, industry association projections, Planning Commission projections, and independent market surveys (which may sometimes be commissioned).

Assess the adequacy of the marketing infrastructure in terms of promotional effort, distribution network, transport facilities, stock levels etc.

Judge the knowledge, experience, and competence of the key marketing personnel.

Technical Appraisal: The technical review done by financial institutions of focuses mainly on the following aspects:

1. Product mix2. Capacity3. Process4. Engineering know-how and technical collaboration5. Raw materials and consumables6. Location and site7. Building8. Plant and equipments9. Manpower requirements10. Break even point.

The technical review is done by qualified and experienced personnel available in the institutions and/or outside experts (particularly where large and technologically sophisticated projects are involved).

Financial Appraisal: The financial appraisal seeks to assess the following:

Reasonableness of the Estimate of capital Cost: While assessing the capital cost estimates, efforts are made to ensure that (1) padding or under-estimation of costs is avoided, (2) specification of machinery is proper, (3) proper quotations are obtained from potential suppliers, (4) contingencies are provided for, and (5) inflation factors are considered.

Reasonableness of the Estimate of Working Results: The estimate of working results is sought to be based on (1) a realistic market demand forecast, (2) price computations for inputs and outputs that are based on current quotations and inflationary factors, (3) an approximate time schedule for capacity utilization, and (4) cost projections that distinguish between fixed and variables costs.

Adequacy of rate of return: The general norms for financial desirability are as follows:

Internal rate of return: 15 percent Return on investment: 20-25 per cent after tax

Debt service coverage ratio: 1.5 to 2.0

In applying these norms, however, a certain amount of flexibility is shown on the basis of the nature of the project, the risks inherent in the project, and the status of the promoter.

Appropriateness of the Financing Pattern: The institutions consider the following in assessing the financial pattern.

1. A general debt equity ratio norm of 1:12. A requirement that promoters should contribute a certain percentage of the project cost.

3. Stock exchange listing requirements.

4. The means of the promoter and is capacity to contribute a reasonable share of the project finance.

Economic Appraisal: The economic appraisal looks at the project from the larger social point of view. The methodology adopted by financial institutions for the purpose of economic evaluation (also referred to as social cost benefit analysis) is labeled as Partila Little Mirrlees approach. In addition to the calculation of the economic rate of return as per this approach to the calculation of the economic rate of return as per this approach, they also look at two other economic indicators: (1) effective ate of protection, and (2) domestic resources cost. Admittedly, the economic review done by financial institutions is not very rigorous and sophisticated. Also, the emphasis placed on this review has diminished. Now it is hardly done.

Managerial Appraisal: In order to judge the managerial capability of the promoters, the following questions are raised:

1. How resourceful are the promoters?2. How sound is the understanding of the project by the promoters?

3. How committed are the promoters?

Resourcefulness: This is judged in terms of the prior experience of the promoters, the progress achieved in organizing various aspects of the project, the skill with which the project is presented and the ability to raise committed capital and unforeseen shortfall financing.

Understanding: This is assessed in terms in terms of the credibility of the project plan (including, interalia, the organization structure, the staffing plan the estimated costs, the financing pattern, the assessment of various inputs, and the marketing programs) and the details furnished to the financial institutions.

Question: 4. What are the techniques of Risk Analysis in project selection?

Answer: 4

There may be some terminology and definition differences related to risk analysis, risk assessment and business impact analysis. Although several definitions are possible and can overlap, for purposes of this article, please consider the following definitions:

•A risk analysis involves identifying the most probable threats to an organization and analyzing the related vulnerabilities of the organization to these threats.

•A risk assessment involves evaluating existing physical and environmental security and controls, and assessing their adequacy relative to the potential threats of the organization.

•A business impact analysis involves identifying the critical business functions within the organization and determining the impact of not performing the business function beyond the maximum acceptable outage. Types of criteria that can be used to evaluate the impact include: customer service, internal operations, legal/statutory and financial.

Most businesses depend heavily on technology and automated systems, and their disruption for even a few days could cause severe financial loss and threaten survival. The continued operations of an organization depend on management’s awareness of potential diKANICHAIters, their ability to develop a plan to minimize disruptions of mission critical functions, and the capability to recover operations expediently and successfully. The risk analysis process provides the foundation for the entire recovery planning effort.A primary objective of business recovery planning is to protect the organization in the event that all or part of its operations and/or computer services are rendered unusable. Each functional area of the organization should be analyzed to determine the potential risk and impact related to various diKANICHAIter threats

RISK ANALYSIS PROCESS

Regardless of the prevention techniques employed, possible threats that could arise inside or outside the organization need to be assessed. Although the exact nature of potential diKANICHAIters or their resulting consequences are difficult to determine, it is beneficial to perform a comprehensive risk assessment of all threats that can realistically occur to the organization. Regardless of the type of threat, the goals of business recovery planning are to ensure the safety of customers, employees and other personnel during and following a diKANICHAIter.The relative probability of a diKANICHAIter occurring should be determined. Items to consider in determining the probability of a specific diKANICHAIter should include, but not be limited to: geographic location, topography of the area,

proximity to major sources of power, bodies of water and airports, degree of accessibility to facilities within the organization, history of local utility companies in providing uninterrupted services, history of the area’s susceptibility to natural threats, proximity to major highways which transport hazardous waste and combustible products.

Potential exposures may be classified as natural, technical, or human threats. Examples include:Natural Threats: internal flooding, external flooding, internal fire, external fire, seismic activity, high winds, snow and ice storms, volcanic eruption, tornado, hurricane, epidemic, tidal wave, typhoon. Technical Threats: power failure/fluctuation, heating, ventilation or air conditioning failure, malfunction or failure of CPU, failure of system software, failure of application software, telecommunications failure, gas leaks, communications failure, nuclear fallout.Human Threats: robbery, bomb threats, embezzlement, extortion, burglary, vandalism, terrorism, civil disorder, chemical spill, sabotage, explosion, war, biological contamination, radiation contamination, hazardous waste, vehicle crash, airport proximity, work stoppage (Internal/External), computer crime.

All locations and facilities should be included in the risk analysis. Rather than attempting to determine exact probabilities of each diKANICHAIter, a general relational rating system of high, medium and low can be used initially to identify the probability of the threat occurring. The risk analysis also should determine the impact of each type of potential threat on various functions or departments within the organization. A Risk Analysis Form, can facilitate the process. The functions or departments will vary by type of organization. The planning process should identify and measure the likelihood of all potential risks and the impact on the organization if that threat occurred. To do this, each department should be analyzed separately. Although the main computer system may be the single greatest risk, it is not the only important concern. Even in the most automated organizations, some departments may not be computerized or automated at all. In fully automated departments, important records remain outside the system, such as legal files, PC data, software stored on diskettes, or supporting documentation for data entry.The impact can be rated as: 0= No impact or interruption in operations, 1= Noticeable impact, interruption in operations for up to 8 hours, 2= Damage to equipment and/or facilities, interruption in operations for 8 - 48 hours, 3= Major damage to the equipment and/or facilities, interruption in operations for more than 48 hours. All main office and/or computer center functions must be relocated.Certain assumptions may be necessary to uniformly apply ratings to each potential threat. Following are typical assumptions that can be used during the risk assessment process:

1. Although impact ratings could range between 1 and 3 for any facility given a specific set of circumstances, ratings applied should reflect anticipated, likely or expected impact on each area.2. Each potential threat should be assumed to be “localized” to the facility being rated.3. Although one potential threat could lead to another potential threat (e.g., a hurricane could spawn tornados), no domino effect should be assumed.

4. If the result of the threat would not warrant movement to an alternate site(s), the impact should be rated no higher than a “2.”

5. The risk assessment should be performed by facility.

To measure the potential risks, a weighted point rating system can be used. Each level of probability can be assigned points as follows:

To obtain a weighted risk rating, probability points should be multiplied by the highest impact rating for each facility. For example, if the probability of hurricanes is high (10 points) and the impact rating to a facility is “3” (indicating that a move to alternate facilities would be required), then the weighted risk factor is 30 (10 x 3). Based on this rating method, threats that pose the greatest risk (e.g., 15 points and above) can be identified.

Considerations in analyzing risk include:

1. Investigating the frequency of particular types of diKANICHAIters (often versus seldom).2. Determining the degree of predictability of the diKANICHAIter.

3. Analyzing the speed of onset of the diKANICHAIter (sudden versus gradual).4. Determining the amount of forewarning associated with the diKANICHAIter.5. Estimating the duration of the diKANICHAIter.6. Considering the impact of a diKANICHAIter based on two scenarios;a. Vital records are destroyedb. Vital records are not destroyed7. Identifying the consequences of a diKANICHAIter, such as;a. Personnel availabilityb. Personal injuriesc. Loss of operating capabilityd. Loss of assetse. Facility damage.8. Determining the existing and required redundancy levels throughout the organization to accommodate critical systems and functions, including; Hardware, Information. Communication, Personal and Services.

9.. Estimating potential losses for each business function based on the financial and service impact, and the length of time the organization can operate without this business function. The impact of a diKANICHAIter related to a business function depends on the type of outage that occurs and the time that elapses before normal operations can be resumed

10. Determining the cost of contingency planning.

CONCLUSIONThe risk analysis process is an important aspect of business recovery planning. The probability of a diKANICHAIter occurring in an organization is highly uncertain. Organizations should also develop written, comprehensive business recovery plans that address all the critical operations and functions of the business.The plan should include documented and tested procedures, which, if followed, will ensure the ongoing availability of critical resources and continuity of operations. A business recovery plan, however, is similar to liability insurance. It provides a certain level of comfort in knowing that if a major catastrophe occurs, it will not result in financial diKANICHAIter for the organization.

Insurance, by itself, does not provide the means to ensure continuity of the organization’s operations, and may not compensate for the incalculable loss of business during the interruption or the business that never returns.

------------------------------------------------------------------------------------------------------------------------------------------

Prepare a project outline of a large infrastructure project (e.g. Metro Rail, an international airport, Expressway, Palm Islands etc). The project opted for can be a proposed project/ already completed project or even a project in progress. Elaborate the following in detail:

Need for the project Stakeholders involved Market feasibility Demand analysis Technical Analysis Budgeting estimates (variations over time also to be included) Socio Cost Benefit Analysis