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    Introduction To Project Appraisal and Finance (PA&F) : Centre For Financial Management, Bangalore 1

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    Darshan Shah
    This document provides an introduction to project appraisal and finance for the class of 2019-21 at the Centre for Financial Management in Bangalore. It discusses key concepts related to projects including what constitutes a project, project appraisal, project constraints, project management processes, project risks, capital budgeting, and levels of decision making. The introduction serves to outline important topics that will be covered in the semester III course.

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    Introduction To Project Appraisal and Finance (PA&F) : Centre For Financial Management, Bangalore 1

    Uploaded by

    Darshan Shah
    32 views12 pages
    This document provides an introduction to project appraisal and finance for the class of 2019-21 at the Centre for Financial Management in Bangalore. It discusses key concepts related to projects including what constitutes a project, project appraisal, project constraints, project management processes, project risks, capital budgeting, and levels of decision making. The introduction serves to outline important topics that will be covered in the semester III course.

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    This document provides an introduction to project appraisal and finance for the class of 2019-21 at the Centre for Financial Management in Bangalore. It discusses key concepts related to projects including what constitutes a project, project appraisal, project constraints, project management processes, project risks, capital budgeting, and levels of decision making. The introduction serves to outline important topics that will be covered in the semester III course.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    32 views12 pages

    Introduction To Project Appraisal and Finance (PA&F) : Centre For Financial Management, Bangalore 1

    Uploaded by

    Darshan Shah
    This document provides an introduction to project appraisal and finance for the class of 2019-21 at the Centre for Financial Management in Bangalore. It discusses key concepts related to projects including what constitutes a project, project appraisal, project constraints, project management processes, project risks, capital budgeting, and levels of decision making. The introduction serves to outline important topics that will be covered in the semester III course.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 12

    Introduction to Project

    Appraisal and Finance


    (PA&F)
    Semester III – Class of 2019-21
    PGPM
    By Prof. Pranav Gosalia

    Centre for Financial Management, Bangalore 1


    Centre for Financial Management, Bangalore 2
    Centre for Financial Management, Bangalore 3
    What are the common elements? Give your opinion…!!!

    1. Team of product developer are designing a new desktop with


    inbuilt camera, speaker, sound and writing pad connected with it
    within five months.
    2. Manufacturing such thousands of desktop at using designing
    blueprint at plant.

    Centre for Financial Management, Bangalore 4


    What is Project? What is Project?

    A project is a temporary endeavor undertaken to create a unique a collection of linked activities carried out in
    product, service, or result. (PMI)
    • Unique an organized manner with a clearly defined
    • Temporary start point and finish point, to achieve some
    • Start and end date specific results that satisfy the needs of an
    • Define scope and resources organization as derived from the
    organization’s current business plans.

    What is Project Appraisal? What is a project…continue…


    Project Appraisal is a consistent process of reviewing a Project is a temporary endeavor, having a defined beginning
    given project and evaluating its content to approve or and end (usually constrained by date, but can be by funding
    or deliverables), undertaken to meet unique goals and
    reject this project, through analyzing the problem or need objectives, usually to bring about beneficial change or
    to be addressed by the project, generating solution added value.
    options (alternatives) for solving the problem, selecting
    the most feasible option, conducting a feasibility analysis The temporary nature of projects stands in contrast to
    of that option, creating the solution statement, and business as usual or operations which are repetitive,
    identifying all people and organizations concerned with or permanent or semi-permanent functional work to produce
    products or services.
    affected by the project and its expected outcomes. It is an In practice, the management of these two systems is often
    attempt to justify the project through analysis, which is a found to be quite different, and RISKY
    way to determine project feasibility and cost-effectiveness. Question is : What makes it risky?

    Centre for Financial Management, Bangalore 5


    Project Constrain with Iron Triangle / Triangle
    Project Constrain
    of Balance / Triple Constraint

    Project Management Framework

    What is Project Management?


    Process Group, Knowledge Group and Tools & Techniques.

    Centre for Financial Management, Bangalore 6


    Project Management Stages

    Initiation

    Closing Control Planning

    Execution

    Centre for Financial Management, Bangalore 7


    Project Management
    Process Groups and
    Knowledge Areas
    Mapping
    (From PMBOK)

    Project Risks? Project Risks?

    oProjects have unique risks: oProjects have unique risks:


    oSymmetric risks: oBinary risks
    oDemand, price. oTechnology failure.
    oInput/supply. oDirect expropriation.
    oCurrency, interest rate, inflation. oCounterparty failure
    oReserve (stock) or throughput (flow). oForce majeure
    oAsymmetric downside risks: oRegulatory risk
    oEnvironmental.
    oCreeping expropriation.

    Centre for Financial Management, Bangalore 8


    Types of Investments Capital Investments : Importance and Difficulties

    Importance
     Physical, monetary and intangible assets
     Long – term effects
     Strategic investment and tactical investment
     Irreversibility
     Mandatory Investments
     Substantial outlays
     Replacement investments Difficulties
     Expansion investments  Measurement problems
     Diversification investments  Uncertainty
     R & D investments  Temporal spread
     Miscellaneous investments

    Centre for Financial Management, Bangalore 9


    Capital Budgeting Process
    Capital Budgeting Planning

    Analysis
    Capital budgeting is the process in which a
    business determines and evaluates potential
    expenses or investments that are large in Selection
    nature.
    Financing

    These expenditures and investments include


    Implementation
    projects such as building a new plant or
    investing in a long-term venture.
    Review
    FRICT – Flexibility, Risk, Income, Control and Tax influence capital structure (Debt-Equity
    Ratio) decision and choice of financing instrument

    Levels of Decision Making Key Issues in Project Analysis

    Potential Market
    Operating Administrative Strategic Market Analysis
    decisions decisions decisions
    Market Share
     Where is the decision taken Lower level Middle level Top level Technical Viability
    management management management Technical Analysis
    Sensible Choices
     How structured is the decision Routine Semi-structured Unstructured Risk
    Financial Analysis
    Return
     What is the level of resource Minor resource Moderate Major
    Benefits and Costs in Shadow
    commitment commitment resource resource
    commitment commitment Economic Analysis Prices
    Other Impacts
    Environmental Damage
     What is the time horizon Short-term Medium-term Long-term
    Ecological Analysis
    Restoration Measures

    Centre for Financial Management, Bangalore 10


    Feasibility Study : A Schematic Diagram
    P
    r
    Key Issues in Major Investment Decisions
    Generation of Ideas
    e
    l
    i Initial Screening
    m
    i
    • Investment story
    Is the Idea Prima Facie Promising
    n
    a Yes No • Risks
    r
    Plan Feasibility Analysis
    y
    Terminate • DCF Value
    W
    o
    Conduct Market Analysis Conduct Technical Analysis • Financing
    r
    k
    Conduct Financial Analysis
    • Impact on Short-term EPS
    E
    A v • Options
    n a Conduct Economic and Ecological Analysis
    a l
    l u
    Is the Project Worthwhile ?
    y a

    s t Yes No
    i
    i
    o Prepare Funding Proposal Terminate
    s
    n

    Objective of Capital Budgeting Common Weaknesses in Capital Budgeting


     Poor alignment between strategy and capital budgeting
    Finance theory rests on the premise that managers should manage
    their firm’s resources with the objective of enhancing the firm’s  Deficiencies in analytical techniques
    market value. This goal has been eloquently defended by  Poor identification of base case
    distinguished finance scholars, economists, and practitioners. Wit
     Inadequate treatment of risk
    the following :
     Improper evaluation of options

    “ The quest for value drives scarce resources to their  Lack of uniformity in assumptions
    most productive uses and their most efficient users. The  Neglect of side effects
    more effectively resources are deployed, the more robust  No linkage between compensation and financial measures
    will be the economic growth and the rate of
    improvement in our standard of living.”  Reverse financial engineering
     Weak integration between capital budgeting and expense budgeting
     Inadequate post - audits

    Centre for Financial Management, Bangalore 11


    Project finance is the long-term financing of infrastructure and industrial
    projects based upon the projected cash flows of the project rather than
    the balance sheets of its sponsors.

    Usually, a project financing structure involves a number of equity


    investors, known as 'sponsors', a 'syndicate' of banks or other lending
    institutions that provide loans to the operation.

    • Topic :- Basel III and Project Finance

    Centre for Financial Management, Bangalore 12

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