Global

Project Management
Topics

Project Management
Project Cash Flows
The Time Value of Money
Definition & Basics
Investment Criteria
Selection of Site in Various Countries
Cost of Capital
Group Exercise 1
Risk Analysis
5Ms
Qualitative Aspects
Group Exercise 2
Project Financing
Incoterms
Project Implementation
Global Logistics Considerations
Financial Analysis
Capital Allocation and Framework
International Sources of Finance
Group Exercise 3
PBRT/CPM for Monitoring Projects
Generation and Screening of Ideas
Managing International Projects
Group Exercise 3
Software Tools for Project Management
Market and Demand Analysis
Technical Analysis
Financial Analysis
Financial Estimates and Projections
Project Selection
Assessment

Grade Distribution:
Theory Paper : 50 Marks
Assignment 1 : 5 Marks
Assignment 2 : 10 Marks
Class Participation : 10 Marks
Presentation : 20 Marks
Attendance : 5 Marks
What is a Project

Project
Temporary group activity designed to produce a unique design, service
or result. Project Management Institute

Features
Temporary
A beginning an End
Non Routine
A Cross Functional Project Team with special skills.
A Budgetary Constraint
Ex: Bridge Construction, Setting up a Factory
What is Project Management

Project Management
Its the application of knowledge, skills and techniques to execute a
project effectively and efficiently.

Key Terms
Knowledge: Core Competency
Skills: Dexterity
Techniques: Experience
Effectively: Doing the right things
Efficiently: During things the right way
Whats Global??

Global
Not Local

Features
Foreign Exchange
International Law
Transportation & Lead Time
Accounts and Taxation and IFRS
International Banking Facilities
Interest Rate Parity / Impossible Trinity
Culture
Language
Time Zones
Site Selection / Global Logistics

Site Selection
Location of Market
Availability of Raw Materials
Availability of Port
Availability of International Airport
Availability of Skilled Manpower
Financial Implications
Site Selection

Site Selection VW AG Investemnt in VW India Pvt Ltd

Location of Market Chakan, Pune
Availability of Raw Materials JBM, Caparo,
Visteon, NSK
Availability of Port JNPT, MPT + Mumbai
Pune Expressway
Availability of International Airport Viman
Nagar, Pune
Availability of Skilled Manpower Engg
Colleges, ITIs, experienced staff
Financial Incentive:
Taxation: Import of Cars 110% for Fully Built,
30% for CKD
VAT incentive from the govt. of Maharashtra.
Site Selection

Site Selection Ashok Leyland Investemnt RAK, UAE

Location of Market UAE, Kuwait, Muskar, Oman
Availability of Raw Materials Free Zone, Imports
Availability of Port Jebel Ali Port, Dubai
Availability of International Airport Dubai International Airport
Availability of Skilled Manpower Millions of Indians
Financial Implication:
0 Taxes
Transport Charges are
exceptionally high.
Group Exercise 1:

Instructions:
Form Groups of 5
Select a Project of your choice:
Select a country/location
Select a Product
Estimate data
Justify your reason for selecting the Location and the project.
Time for Discussion: 10 minutes
Tip 1: Spend 2 minutes on deciding Timelines, Milestones
Tip 2: Divide Work
Time for Presentation: 10 minutes per group
Project Planning Five Ms

Man:
Organization Strength
Hierarchy
Compensation
Accommodation & Facilities
Material
Sources
Rates
Suppliers
Technical Specifications
Quality
Machine
Types
Capacity
Production Rate
Downtime
Maintenance
Cost
Project Planning 5 Ms (contd)

Money
Sources of Finance
Cost of Capital
Breakeven
Guarantees
Risk

Method
Quality Systems
Administration & Discipline
Health & Safety
Milestones & Timelines
Group Exercise 2:

Instructions:
Form Groups of 5
Reselect Previous Project:
Estimate data
Plan the 5 Ms using the above format
Time for Discussion: 20 minutes
Tip 1: Spend 2 minutes on deciding Timelines, Milestones
Tip 2: Divide Work
Time for Presentation: 10 minutes per group

Assignment:
Imposisible Trinity
CAPM
Calculate WACC: rf=10%, Beta of ONGC for last 3 years, Market Premium = 6%,
Equity = 1,62,000/-, Debt = 83,000/-
Cost Sheet
Incoterms

EXW (Ex-Works)
Delivery at Sellers Warehouse/Factory
Responsibility of Buyer for Transport, Freight Forwarding, Insurance
FOB (Free on Board)
Delivery up to port or point of Origin
Buyers Responsibility: Transport, Freight Forwarding, Insurance
CFR (Cost & Freight)
Delivery up to destination port
Buyers Responsibility: Insurance
CIF (Cost Insurance Freight)
Delivery up to destination port
Buyers Responsibility: Pick up the Goods
Global Logistics - Pointers

Tax Implications (Customs)

Freight Cost (Shipping/Truck)
Storage Implications
Stock Implications
Shelf Life (Battery)
Existing Production Capacity of Global Supplier
Spare Capacity of Global Supplier
Lead Time
Currency Fluctuations (Euro @ 60 in 2009, @ 80 in 2014!!!)
Political Instability (Somalia Piracy, Change of Law)
Global Logistics

VW India Pvt Ltd

Engine: 1.6 Litre Diesel: Salzgitter, Germany
Engine: 1.2 Litre Dieslel: Uitenhage, South Africa
Gearboxes: Kassel, Germany
Steering Box: NSK, Japan (made in China)
Exhaust: Tenneco Exhaust, India
Grab Handle: Technoplast, Slovenia
Brake Caliper: Brakes India, Chennai, India
Tyre: Apollo, Gurgaon, India
Catalytic Converter: Emission Control, Cape Town, South Africa
HVAC Unit: Behr Unit, Maharashtra, India
Power Window: TRW, Malaysia
Capital Allocation & Framework

What is Capital Allocation:

A processes of how businesses divide their financial resources and
other sources of capital across processes, people and projects in order
to maximize the wealth of the shareholders.

Key Features
Fundamental Responsibility of Senior Management
One of the toughest challenges to any company.
Strategy at its core
Capital Allocation & Framework

Allocation depends on the Strategy Pursued:

Growth Strategy
Stability
Contraction
Vertical Integration
Related Diversification
Unrelated Diversification

Bear in mind. These are highly successful companies

Group Exercise - 3

For the Project chosen in Group Exercise 2:

Propose a strategy from the below list that will sustain the
company for the next 10 years. Support your answer with
justification:
Growth Strategy
Stability
Contraction
Vertical Integration
Related Diversification
Unrelated Diversification
Time for Discussion: 20 minutes
Time for Presentation: 10 minutes per group (2 min per person)
Prepare Timeline for Activities
Generation of Ideas Possible Leads

Cost Reduction
Substitutes (Rexene for Leather, Flyash in Concrete)
Vertical Integration (Ultratech Cements)
Productivity Improvement
Business Process Reengineering (Mahindra & Mahindra)
Automation (Saint Gobain)
Capacity Utilization
Product Augmentation (Polo LHS, Vento)
Product Development
Margin Contribution
Allied Products (Tata Salt)
Diversification
Group Exercise 4 (Assignment 1)

For the Project chosen in Group Exercise 1

Using the previous slide, generate ideas for proposed Capital
Allocation for your business. Support your answer with
justification.
Time for Discussion: 20 minutes
Time for Presentation: 5 minutes per group
Submit 4 page description of the above three Exercises as an
Assignment
Screening Ideas

Porters 5 Forces
Michael Porter (Competitive
Strategy)
Industry Analysis

SWOT Analysis
Internal & External Analysis
Screening Ideas

Market Size
Shrinking
Saturated
Growing
Govt. Restrictions
Compatibility with Promoter
Risks Involved
Market Analysis

Understanding Competition
Forecasting Demand
Customer Surveys

P.S.: All Bull*%&$, It boils down to your intuition.

Technical Analysis

Obsolescence
Raw Material / Inputs
Plant Capacity
Product Mix
Location
Environment
Cost

Keep In Mind Risks,

Advantages & Disadvantages
Financial Analysis

Budget Vs Actual
Means of Financing
NPV
IRR
EVA
Problem:
Return 2nd Year: Rs.40,000/-
Company: Return First Year: Rs.10,000/-
Return 3rd Year: Rs.25,000/-
Investment Rs.1,00,000/-
Return 4th Year: Rs.90,000/-
Return First Year: Rs.10,000/-
Whats my NPV for Discount of 12%
Group Exercise - 5

For the Project chosen in Group Exercise 1

Conduct a Marketing Analysis
Conduct a Technical Analysis
Conduct a Financial Analysis
Time for Discussion: 20 minutes
Time for Presentation: 10 minutes per group
Financial Estimates & Projections

Sr. Parameter Attributes affecting Parameter

Revenue Market Size, Promoters Capability, GDP
Labour Inflation, Skill Requirement
Direct Materials Inflation, Input Costs, Competition
Expenses Inflation, PEST
Risk Free / Bank Rate Central Bank, International Situation
Discounting Rate Bank Rate, Geographical Location
Land Rent Inflation, Location,
Taxes Political Scenario (Amplified during export/import)
Time Value of Money

Time Value of Money

Time Value of Money refers to a fact that a Rupee held today is more
valuable than a Rupee held at a future date.
Interest Cost
Opportunity Cost
Risk

Types of Interest
Simple Interest
Compound Interest
Time Value of Money Important Terms

Important Terms in Time Value of Money

Present Value: It is the current worth of future streams of money.

Future Value: The value of an asset or cash at a future specified date.

Discount Rate: A concept in time value of money to convert the future

value of money to its present value. It is often a function of the
riskiness of the Cash flows it discounts.

Interest Rate: Can take multiple connotations ranging from risk free
return, to bank rates, to market rates.
Basic Dividend Model

Basic Dividend Model: Basic Model in which all the Dividends

are discounted to arrive at the present value.

n
Divit
=S (1 + ke)t
t=1
Where:
Divit: Dividend issued at time t
n: no of periods/years
ke: Discount rate for Equity Holders (Expected Returns)
Basic Dividend Model + FSP Adjustment

Basic Dividend Model + Final Share Price Adjustment: Basic

Model in which all the Dividends are discounted to arrive at
the present value.
n
Divit FSPn
=S (1 + ke)t
+
(1 + ke)n
t=1

Where:
Divit: Dividend issued at time t
n: no of periods/years
ke: Discount rate for Equity Holders (Expected Returns)
FSP: Final Share Price (Share Price of the Stock at period n
Session - 4

Discounted Cash Flow

What is Cash Flow
What is DCF (Discounted Cash Flow)
Risk
Beta
Risk Free Return
Market Return
Cost of Equity
Cost of Debt
Cost of Capital
Leveraged Beta
FCFE / FCFF
Understanding IRR & NPV

Choosing multiple Projects when Funds are Limited

Rank Projects in the Order of their IRR
Select Company with the Highest IRR whose Investment is less than
the funds available for investing.
Select the next company in the list up to the point where all the funds
are consumed.

Choosing single Projects when Funds are Limited

Decide priority between NPV and IRR
Exercise

Choosing multiple Projects when Funds are Limited

Company A needs an Investment of Rs.23,00,000/- and is able to
generate a returns at an IRR of 18%. Company B requires an
Investment of Rs. 2,43,00,000/- and is able to generate returns at an
IRR of 16%. Company C requires an Investment of Rs. 45,00,000/- and
is able to generate returns at an IRR of 23%.
Choosing Single Projects when Funds available are 25 Lacs
Company A needs an Investment of Rs.23,00,000/- and is able to
generate a returns at an IRR of 18%. Company B requires an
Investment of Rs. 2,43,00,000/- and is able to generate returns at an
IRR of 16%. Company C requires an Investment of Rs. 14,00,000/- and
is able to generate returns at an IRR of 23%.
Assignment Calculating NPV, IRR & EVA

We have the following information on Protoss Industries:

Protoss Industries needs an Investment of Rs.10,34,456/- to begin
production. Its revenue at the end of the first year is expected to be
Rupees 12 Lacs and this is expected to grow at the rate of 10% per
annum for 5 years. The material cost is 48.57% of the revenue and
labour costs are expected to be Rupees One Lac in the first year. Direct
Expenses, Indirect Expenses will be Rs.20,000/- and Rs. 50,000/-
respectively. All expenses are expected to increase at the rate of 8%
per annum. The Current finance cost is 12% and reinvestment cost is
to be assumed at 8%.
Kindly Calculate the following:
Projections for 5 years based on the above information
Calculate the NPV
Calculate the IRR
Presentation 20 Marks

Instructions:
Form Groups of 2
Select a Project of your choice
Presume project life of 5 yrs
Estimate data
Plan the 5 Ms using
Plan Implementation & Milestones on Gnatt Charts
Include Proposed Strategy after 3 yrs of operation
Prepare Excel Sheet detailing the cost breakup
Calculate the NPV and IRR for the project
Time for Presentation: 20 minutes per group max
Assignment: Gnatt Chart

Sr. Parameter St.dt End Dt Days Requirement

A Signing Partnership Deed 1/11/15 1/11/15 1
B Procuring Gumasta 3/11/15 9/11/15 7 A
C Signing & Registration of Land Lease 3/11/15 6/11/15 4 C
D PAN 6/11/15 21/11/15 16 A,B,C
E VAT Registration 22/11/15 20/12/15 28 D
F Bank Account Opening 22/11/15 24/11/15 3 D
G Project Report for Bank 23/11/15 29/11/15 7 F
H Loan Disbursement 14/12/15 14/12/15 1 D,F
I RFQ for Machinery 23/11/15 16/12/15 21 E
J Buying of Machinery 16/12/15 30/12/15 15 I, H
Important Concepts

IRR, MIRR
NPV
Gearing
Risk Free Rate
Beta
CAPM
Break Even Analysis
Types of Equity
Types of Debt
BCG Matrix, Ansoff Matrix
GNATT Charts