Professional Documents
Culture Documents
Managing Projects
A project is (or involves) a capital expenditure (= capital investment/project). The basic characteristic
of a capital expenditure / investment is that it typically involves a current outlay of funds in the
expectation of a stream of benefits extending far into the future.
The following six (6) Phases of Capital Budgeting Process can be used to manage projects.
Planning
Analysis
Selection
Financing
Implementation
Review
1. Planning
2. Analysis
If the project is prima facie worthwhile, go for the following facets of project analysis in detail:
Criterion / tool
Non-discounting tools
1. Payback Period (PBP)
2. Accounting Rate of Return (ARR)
Discounting tools
1. Discounted PBP
2. Net Present Value (NPV)
3. Internal Rate of Return (IRR)
4. Benefit-Cost Ratio (BCR) / PI
Accept
Reject
* required (or expected) rate of return must at least equal (weighted average) cost of capital; hence used
interchangeably.
4. Financing
5. Implementation
This is the phase where Project Management comes into play. For an industrial project,
implementation refers to the setup of manufacturing facilities following are the stages:
6. Review
Note: Phases 1 4 above relate to the pre-feasibility and feasibility studies for a project. Phase 1
(planning) is concerned mainly with prefeasibility. Phases 2, 3 & 4 (analysis, selection & financing)
deal with the feasibility of a project. If the prefeasibility study reveals that the idea is viable and
worthwhile we go for feasibility study, otherwise we terminate before feasibility study. Next, if the
feasibility study is favorable we go for implementing the project, else we terminate without
implementing.