Transcript But , how to do it?

Project Planning, Analysis and Management
Generation and Screening of Project Ideas
Generation and Screening of Project Ideas
This is the first step in project planning.
The key is “ enter the right business at the right time”.
But , how to do it?
It requires
-- imagination
-- sensitivity to environmental changes
-- realistic assessment of one’s capacity.
It is
-- partly structured and partly unstructured
-- partly dependent on convergent thinking and partly divergent thinking
-- partly objective analysis and partly subjective evaluation
-- partly amenable to control and partly dependent on circumstances
It has to be admitted “ it is a difficult task”.
Please identify some successful people you have
come across as above.
Generation and Screening of Project Ideas
Generation of ideas– how to do it?
Stimulating the flow of ideas
Step 1
SWOT analysis. The aim is to get new ideas from the employees and
connected people.
Step 2
Clearly defining the objectives
-- cost reduction
-- productivity improvement
-- capacity utilisation increase
-- improvement in contribution margin
-- expansion in to promising fields
Step 3
Fostering a conducive atmosphere
Generation and Screening of Project Ideas
Monitoring the Environment
It involves studying the following factors:
-- Economy
-- Government Policy
-- Technology
-- Social factors
-- Competition
-- Supply
Generation and Screening of Project Ideas
Monitoring the Environment
Economy
•Present state of the economy
•Overall rate of growth
•Cyclical fluctuations
•Linkage with global economy
•Trade surplus/ deficit of the country
•Balance of Payment situation of the country
Generation and Screening of Project Ideas
Monitoring the Environment
Government Sector
1. Industrial Policy
2. Government Programme and Projects
3. Taxation policy
4. Incentive policy
5. Foreign Trade Policy
6. Exchange Control Regulations
7. Financing norms and lending climate from financial institutions
Generation and Screening of Project Ideas
Monitoring the Environment
Technology
-- rate of change of technology
-- access to technical know-how
-- receptiveness to change in technology
Generation and Screening of Project Ideas
Monitoring the Environment
Social Sectors
-- population growth
-- age shift
-- income distribution
-- education profile
-- employment of women
-- attitude towards consumption and investment
Generation and Screening of Project Ideas
Monitoring the Environment
Competition
-- number of competitors and the pattern of market share
-- nature of products offered by them
-- entry barriers for new entrants
-- comparison of the proposed product with that of competitors
-- marketing practices
Generation and Screening of Project Ideas
Monitoring the Environment
Suppliers
-- material
-- men
-- energy and power
-- finance
Can you think of some examples of successful projects
in the past on the above factors?
Then follows corporate appraisal
Generation and Screening of Project Ideas
Corporate Appraisal
Marketing and Distribution
-- market image
-- product line
-- market share
-- distribution net work
-- customer loyalty
-- cost of marketing and distribution
Generation and Screening of Project Ideas
Corporate Appraisal
Technology
Plant and Machinery
Vertigal integration
Locational advantage
Cost aspects
Generation and Screening of Project Ideas
Corporate Appraisal
Research and Development
Research capabilities
Infrastructural facilities for research
Coordination between research and operations
Corporate Resources and Personnel
Corporate image
Liaison with Government and other agencies
Capability and dynamism of top management
Competency and commitment of employees
Industrial relations
Finance and accounting
Financial leverage
Cost of capital
Taxation system
Relationship with share holders and creditors
Accounting and control systems
Cash flows and liquidity
How to identify investment opportunities?
Generation and Screening of Project Ideas
Three popular tools can be put to use:
Porter Model
Experience Curve
Life Cycle Approach
Generation and Screening of Project Ideas
Porter Model
Developed by Michael Porter.
Mainly discusses the profit potential of the industry.
According to the theory, profit potential depends on the following:
1.
2.
3.
4.
5.
Threat of new entrants
Rivalry among existing companies
Pressure from substitute products
Bargaining powers of buyers
Bargaining power of suppliers
The company applies the above model and identifies level of
threat to profitability and goes for new project ideas.
Exercise– Please identify some industries who have embarked on new
projects to meet the above threat.
Generation and Screening of Project Ideas
Experience curve
This tool is based on the principle that
“ investments aimed at reducing the cost is essential for the long term
survival and profitability of the company”.
What are the factors contributing to reduction in cost over a period?
1. Learning effects
2. Technological improvement
3. Economies of scale
Generation and Screening of Project Ideas
Experience curve– an exercise --A recent news item
Sesa Goa to buy Dempo’s mining assets for Rs 1750 cr.
Brief details of the buy
Sesa Goa is a large iron ore exporting company,
also diversified in to manufacture of pig iron and metallurgical coke.
It belongs to Vedanta Group. It has mining operations in Karnataka and
Orissa. It has metallurgical and pig iron plants of large size in Goa.
VS Dempo and co Pvt Limited, is a Goa based company.
One of the largest iron ore exporters form Goa.
The company’s assets include processing plants, barges,
trans-shippers and loading capacities at Marmugoa port.
Miners in Goa have lower costs as mines are located near the port,
and so avoid road and rail charges.
What could have been the motive of Sesa Goa to go for this project?
Generation and Screening of Project Ideas
L&T makes Rs1037 cr by exiting Ultra tech.
Brief details
Larsen and Toubro as all of us know is a giant in engineering and
construction activity.
Recently the company was in the news as a bidder for Satyam through
its group company.
The company had a cement division under the name of
Ultra Tech Cement, which was sold in 2004 to Grasim Industries of
Aditya Birla group.
The reason for the sale was said as strategy for focusing on core
Business.
Under the sale agreement, L&T retained 11.49% (14.3 million) shares of
Ultra Tech with a commitment to sell before 31st December 2009.
The shares were shown in the books at Rs10.00 each as on 31.3.2008.
The shares have now been sold at Rs.725/- each for Rs.1037/- crores.
Generation and Screening of Project Ideas
Questions to be answered
What is the reason for L&T exiting the cement business and
selling it to Gracim
When a division of a company is sold, what is it called?
When they have another 6 months time to sell the shares as per
the agreement, what could be the reason for timing the sale now?
Generation and Screening of Project Ideas
Life cycle Approach
This tool is based on the principle that every industry has a life cycle.
Depending upon the stage where the company is presently placed,
the investment has to be chosen.
What are the stages of life cycle?
1. Birth (pioneering)
2. Growth
3. Maturity or stabilisation
4. Decline ( to be carefully managed )
5. Death ( to be totally avoided )
What is the answer to avoid situations 4 and 5 ?
To EVOLVE
Generation and Screening of Project Ideas
Project ideas may come from different sources
Some of the important sources are:
1. Analysis of performance of existing industries
2. Examination of inputs and out puts of various industries
3. Review of imports and exports
4. Plan outlays of Governments and other major companies
5. Leads given by Financial Institutions and others
6. Identifying unfulfilled needs (psychological or otherwise)
7. Trade fairs
8. Some times chance factor also provide ideas
Generation and Screening of Project Ideas
Preliminary screening
This will involve the following aspects
1. Compatibility with the promoter
2. Consistency with Government priorities
3. Availability of inputs
4. Adequacy of the market
5. Cost
6. Acceptability of risk level
Then the projects are rated. A project rating index is developed.
Generation and Screening of Project Ideas
Preliminary screening
Project Rating Index
When a company has a number of workable project ideas, it should
develop a mechanism to study them objectively and crystalise on one.
The company identifies important parameters to be considered and
assigns a weight to each parameter.
Rates each idea on the various factors using a suitable rating scale.
(normally 5 point to 7 point scale).
For each factor, the factor rating is multiplied by the weight assigned
and the score obtained.
Then all the scores for various factors are added and the project score
is obtained.
For all the project ideas scores are obtained and indexed, to choose one.
This system is called Project Rating Index
Generation and Screening of Project Ideas
A typical project rating index will look as under
Factor
Factor
Rating
Factor
weight VG G A P VP
score
5 4 3 2 1
Input availability 0.25
*
0.75
Technical
know-how
0.10
*
0.40
Adequacy of
market
0.15
*
0.75
Reasonableness
of cost
0.05
*
0.20
Complementary
relationship with
other products 0.05
*
0.20
Stability
0.10
*
0.40
Dependence on
firm’s strength 0.20 *
1.00
Consistency with
Govt priorities 0.10
*
0.30
Rating index
4.00
Generation and Screening of Project Ideas
Hurdle rate
What it is?
It can be defined as a point of obstacle.
A point beyond which, the proposal is risky.
In project rating index, a minimum scoring point is fixed as
obstacle score, indicating any score below the same is not to be
Considered.
The ratings obtained by various ideas are compared with the
hurdle rate and the best scoring idea is chosen.
Generation and Screening of Project Ideas
Project Rating Index
An exercise
ITC has recently launched a project to produce a bathing soap
called “vivel”.
In the light of what we have so far seen, please answer the following
with regard to this project:
1.
2.
3.
4.
5.
6.
What is the core activity of ITC?
What type of strategy is this project?
What could have been the motive for this project?
Do you see any risk factors in this project?
What are the positive factors in this project?
Please construct a scoring model for this project
Generation and Screening of Project Ideas
Net Present Value (NPV)
Another important point considered in project screening is the NPV.
How this is possible?
Imperfections in real market (product and marketing) create entry
barriers for new firms.
If entry barriers are strong, it will prevent new players and there by
provide prospects of positive NPV.
It depends on the under noted factors:
1.
2.
3.
4.
5.
6.
Economies of scale
Product differentiation
Cost advantage
Marketing reach
Technology edge
Government Policy
Generation and Screening of Project Ideas
Exercise
For crystalsing on a project for implementation,
a company needs to do four major analysis to ensure
viable implementation of the project.
From what we have seen so far, please spell out the
four areas of analysis.
1.
2.
3.
4.
Market viability
Technical feasibility
Commercial viability
Financial feasibility