2.  The planning and control of capital expenditure is
termed as “capital budgeting”.
 Capital budgeting is the art of finding assets that are
worth more than they cost, to achieve a
predetermined goal i.e. optimizing the wealth of a
business enterprise.
 The investment proposals need to be related to the
underlying corporate objectives and strategies.

3. Capital Investment Decision
Process

4. Capital Investment process
1. Search for Investment Opportunities
2. Screening the Alternatives
3. Analysis of Feasible Alternatives
4. Analysis of Feasible Alternatives
5. Evaluation of Alternatives
6. Authorization
7. Implementation and Control

5. Kinds of Projects
 Balancing Projects
 Modernization Projects
 Replacement Projects
 Expansion Projects
 Diversification Projects

6. Classification of Projects
 National and international projects
 Industrial and non industrial projects
 Project based on level of technology
- High technology projects
- Conventional technology projects
- low technology projects
 Projects based on size
- large Projects
- Medium Projects
- Small projects

7.  Projects based on ownership
- public sector projects
- private sector projects
- joint sector projects
 Projects according to purpose
- Balancing Project
- Modernization Projects
- Replacement/renewal projects
- Expansion Projects
- Diversification projects
- rehabilitation ( of sick units) projects
- upgradation projects
- maintenance projects
- Mergers and acquisition
- new project

8. Forward and Backward
Integration
Vertical integration
 Back Integration
It is the creation of facilities for production of raw
material and components required for current
production.
 Forward integration
It is the creation of facilities for manufacturing
products for which the current products of the
organization serve as inputs.

9. Rationale forgrowth and profitability
 To achieve consistent
Diversification
( by transferring company’s strategic capability
and providing superior value to customer).
 When companies objectives are no longer compatible
within the scope of current portfolio (the condition
occurs when there is decline in demand, high
competitive pressures, quicker product line
obsolescence)

10.  To enhance the shareholder’s value
 The grass is greener on the other side or sheep
mentality

11.  Build, Own Operate (B.O.O)
 Build, Operate and Transfer (B.O.T)
 Lease,Rehabilitate,Operate and Transfer (L.R.O.T)
 Engineering Procurement and Construct
 Turnkey Contract

12. Projects Organization structure
and management systems
 Project Organization Structure
 Matrix organization structure
 Task force organization structure

13. Benefits of Project Management

14. Project Management Information
System
Managerial planning and control activities can be
classified as
 Strategic planning
 Tactical planning
 Operational control

15. Level Cost Parameters PMIS Control Time Schedule
Pyrz Parameters
Project Manager Budgetary amid Mile Stone
Control
Managers Work Package
Cost and Cash Control
Inflow Control
Supervisors Activity Control
Resources
Productivity
Control

16. Use of Computers in Project
Management
 Reporting
 Resources management
 Cost analysis

17. Stages in setting up of a project
 Initial selection of project ideas
a) Project must match with the promoters profile of
qualifications,experience,interest,etc.
b) Rough estimate of project cost and promoters
capacity to mobilize the necessary resources to the
proposed project.
c) Clear idea about market size and growth potential.

18. d) The availability of inputs and proximity of market for
final products.
e) Costinvolvedinproduction,administration,and
marketing.
f) Availability of technology and plant and machinery.
g) Risks involved with the project.

19. Selection of Project location
 Proximity Of Inputs
 Proximity Of Market
 Availability of Water
 Availability Of Transportation
 Availability Of Power
 Communication Facilities
 Government Policies
 Manpower Availability
 Weather and Climatic Condition
 Environmental Factors and Other Regulations
 General living Conditions

20. Selection of Project Site
 Availability of land
 Cost of site
 Cost of site preparation and development
 Soil and Topography

21. Selection of Technology
 Plant Capacity
 Principal Inputs
 Investment Outlay
 Way by other units
 Product Mix
 Latest Developments
 Ease of Absorption

22. SWOT Analysis
a) Internal resources
b) Availability of funds in capital market
c) Extent of support from banks and financial institution
d) existing and proposed level of investments and its impact on ROI,EPS and
market value of firm
e) The business and financial risk attached to afirm
f) Technology developed internally or possibility to obtain reliable technical
know-how at cheaper cost
g) Brand loyalty of existing proucts
h) Source of raw material and other infrastructure facilities
i) Market share,distribution net work
j) Severity of competition
k) Cost of production and managerial competence
l) Cost of capital
m) Governmental clearances and permissions
n) Macro and micro economic environment in which business operates

23.  Zero date
zero date project means a date is fixed up from
which the implementation of the projects
begins.The progress in implementation of the
projects is monitored by taking zero date as a
base for counting the time as well as cost of
project.
 Financial closure
The entrepreneur will prepare and submit a
detailed project report called „techno-economic
feasibility report‟ to the financial institution for
obtaining term loans for project financing.on the
basis of this report ,he will obtain the
governmental clearances,statutory permissions.

24.  Project visibility
 the project activities starts prior to the zero date.
 Much of the time spent on planning the project
 A project cannot be seen by the public most of its time

25.  Work break down structure
the total project work is broken down according to
the various componenets and will establish the
connection between various components is termed
as „work breakdown structure‟.
 Brown field project
A project implemented in the precints of a working
plant/working facilityis known as „brown field
project(BEP)‟

26.  Resource levelling
Resource levelling is usage of resources during the
project durationwith minimum variation in resource
requirements without extending the project
completion time.
 Project execution plan
Project execution plan (PEP) refers to that exercise
of matching the project hardware and software with
the executing agencies through a viable work
system.

27. CAT AND RAT Schedule
a) The various approaches for time scheduling are
normally branded as CAT schedule and RAT schedule.
b) CAT schedule stands for „activity target schedule'. RAT
schedule stands for „reserved activity target schedule‟.
c) The CAT schedule is used for progressing of the
executing agencies whereas the RAT schedule are
those that are to be achieved. the project manager will
try to maintain a distance between two schedules so
that CAT schedule does not swallow the RAT
schedule.
d) A CAT schedule is detailed and developed in squared
network form and RAT schedule is maintained in ‟s‟
curve form.
e) The RAT schedule will contain only the key milestones
whereas the CAT schedule will have all important
activities.

28. f) The RAT schedule is based on some in built
allowances for delays. This allowance is not to
be disclosed to execution agencies. The RAT
schedule is for taking care of all uncertainties in
execution of projects.
g) If the achievement of key milestones is delayed
beyond the RAT schedule, then only slippage will
be accepted for reporting to the financial
institutions and the general public.
h) The CAT and RAT schedule should be revised
every time the cost estimates are revised to keep
the gap of allowance.

29.  Line of balance (LOB)
o It is a device for planning and monitoring the progress
of an order, project or program to be completed on
target date.
o Dates are predefined for various major activities like
positioning of materials, specific contributory tasks to
be accomplished, subassemblies and subprojects are to
be completed.
o It is useful control technique.
o It is a more detailed management oriented charting
technique for monitoring progress.

30.  Value Engineering Review
 It is defined as a “a systematic analysis and evaluation
of the technique and functions in the various sphere of
an organization with a view to exploring channels of
performance improvement so that the value in a
particular product can bettered.
 In other words it is an analytical technique, designed
to examine all the facets and cost of a product, in order
to determine whether or not any item of cost can be
reduced or eliminated, while retaining all functional,
performance and quality requirements.
 Value engineering may be applied in the design and
development stage and concentrates mainly on
reduction of direct cost of production.

31.  Risk Aware culture
o The project estimates are dependent on so many
assumptions as to
sales,profitability,costs,investments,technical
estimates, work performance ,project
implementation schedules.
o Risk and uncertainty involved
o The risk awareness culture is to be developed at all
project management team to fight against any
adversaries occur in implementation of the project.

32.  Project procedure manual
o it is required to co-ordinate the various subsystems
like contract management,configuaration
management, time
managemnt,cost,fund,materials,men and
communications management.
o It is prepared in such a way that interacting agencies
are able to see their roles and mutual relationships as
per the common goal.

33.  Time and cost trade off
o The project should be completed within its schedule of
implementation and within the estimated cost.
o The project manger should be conversant with the
different time savings and the extra cost involved with
project.
o The following three option are available:
1. Most efficient project
2. Scheduled plan
3. Shortest duration plan

34.  Monitoring capital expenditure
the accumulation, monitoring and control of capital
expenditure of big project consists of the following
steps
1. Budget
2. Allocation of job order No./Capex No
3. Collection of cost against each Capex No
4. Control of cost
5. Proper reporting

35.  Variance and performance analysis
 Variance analysis
traditional analysis involves comparison of actual
costs with budgeted costs to determine the variance.
 Performance analysis (BUGDETED – Actual)
it a modern approach where analysis is done for the
project as a whole projects on schedule,behind,and
ahead of schedule.
it indicates whether cost of a project as a whole
project is as per budget

36.  Network analysis (PERT and CPM)
it is a technique is a technique used for administration
of a project which consists of several activities having a
definite interrelationship among them. Each activity
identified by means of a starting event and a finishing
event so that normal duration of the activity can be
determined.
o The project manager should decide
a) Which tasks must be done first before others can be
started?
b) Which tasks could be done at the same time?
c) Which tasks must be started as soon as possible and
completed on schedule if the completion date for the
entire project is to be achieved?

37.  Objectives of network analysis
I. To ascertain the normal duration for completion of
all the activities comprised in the project
II. To minimize the cost of the project by proper
marshalling of the resources
III. To obtain the ‘cost time trade off’ t

38.  Techniques of network analysis
o PERT
o CPM

39.  Feasibility study report (pre-investment study report)
 Before a project investment is finalizes, the entrepreneur
will conduct a feasibility study to confirm about the
techno-commercial strength of project and prepares a
report called feasibility report.
 It contains the followings
a) Study of the configuration of the project idea in all
aspects
b) Identifying the type and size of the project with
justification
c) Study of location

40. j) Lack of reliable technology
k) Lack of flexibility
l) Financial soundness of participating investors
m) Unforeseen competition

41. d) Study of demand of products/services
e) Survey of material requirement
f) Project schedule
g) Project cost and sources of finance
h) Profitability and cash flow analysis
I ) Cost benefit analysis
j) Identifying and quantifying risk element
k) Social costs and benefits
l) Study of economic, political and legal environment

42.  Market survey
o Before understanding any new project it is customary to
undertake a market survey.
o Market survey is the other name of market research.
The effectiveness of market survey depends on-
i. Potential buyers
ii. Buyers intention
iii. Cost effectiveness
a) cost of identifying buyers
b) buyers willingness to disclose intention
c) buyers propensity to carry out their intention

43. Invisible walls in project
estimation
a) Delays in governmental clearances
b) Delays in obtaining sanction of loan from financial
institutions
c) Reliability of contractors
d) Hurdles from the local people near the project site
e) Political disturbance
f) Foreign exchange rate variation
g) Unable to quantify the risk properly
h) Location disadvantage
i) Uncertainty of markets and change in consumer
preferences

44. J) Lack of reliable technology
k) Lack of flexibility
l) Financial soundness of participating investors
m) Unforeseen competition

45. Reasons for project failure the
a) Substantial overrun of the project which makes
project not feasible to implement further
b) Changes in technology during the implementation
of the project
c) Wrongful estimation of cost of project and its
profitability
d) Lack of experienced management team
e) Lack of delegation of authority and responsibility
f) Lack of proper project monitoring system
g) Failure to obtain government clearances and
permissions
h) Unfaithfulness of the promoter
i) Lack of sufficient knowledge about the project to
promoter.

46. Techniques for project control
a) Watch and measure the achievement at short
intervals
b) Ascertain current variances and predict future
variances
c) Ascertain root cause of variances
d) Take actions to offset the ill-effects of past
variances
e) Prevent future potential variances
f) Track and measure the quantitative output and
cost inputs

47. g) Evaluate targets, output and input in financial terms
h) Special monitoring of essential tasks by using
techniques like red lists, hotline reports to draw top
management’s attention.
i) Introduction of incentives for good performance
j) Doing away with red-tapism and bureaucratic
procedures
k)Periodic review meetings and taking appropriate
actions

48. Incentives in oriented unitsplanning
 Incentive for export project
a) Liberal import facilities are allowed depending on
actual import content of product and F.O.B value of
product
b) Customs and central excise duties paid on raw
material used for manufacture of export products are
reimbursable
c) Raw materials are supplied at controlled prices for
specified export products
d) Priority is accorded by railways for transport of goods
meant for export

49. e) Export credit guarantee corporation (ECGC) offers special
assistance by way of protecting from credit risk
f)Insurance against loss in export of goods and services.ECGC also
provides guarantee to banks and financial institutions to enable
exporters to obtain better facilities from them
g)Financial facilities at special concessional rates of interest are
given by commercial banks
h)100% foreign equity participation is allowed but the company
should be an Indian company.
i) Imports of capital goods/components and raw materials are
exempted from import duty
j) Single point clearance with simplified procedures
k)Relaxations are allowed in respect of sales tax, property tax,octroi
l)Tax holiday is available for 100% export oriented units

50. Incentives for units in industrially
backward area
a) Central outright grant or subsidy scheme
b) Concessional finance scheme
c) Transport subsidy scheme

51. Incentives for small scale
industries units need not obtain
a) Small scale industrial
licenses for certain category of items manufactured
b) Number of products and services have been
exclusively reserved for small scale units.
c) Government provides comprehensive assistance to
small entrepreneurs through various organizations
like industries development organization.
d) Priority and assistance is provided in allotment of
land
e) State finance corporations provides loan

52.  Tax consideration in project planning
since corporate tax is a very vital element, the
magnitude and timing of the tax burden associated
with projects should be carefully assessed. The tax
incentives and benefits and tax implications have a
major role to play in project investment decision.

53. Impact of liberalization and
globalization on project planning
 Under the post liberalization economic scenario,
India is facing:
 global challenges of advanced technology
 Problems concerning energy conservation
 Rapid automation
 Need to have high productivity and low prices
 Issues arising out of efficiency oriented privatization
 Challenges of speed and customer orientation

54.  To survive in the globalization situation, the Indian
projects will have to:
 be cost effective and inexpensive
 Have low capital base
 Use advanced technology suitable for Indian
conditions
 Be safe from pollution and nuclear radiation
 Be energy efficient
 Increase speed of delivery
 Ensure good customer relationship management

55.  All future projects should incorporate adequate
provisions for:
 using non-conventional energy, natural gas and coal
where possible
 Partial replacement keeping pace with advanced
technology
 Utmost safety in operation
 Conservation of resources
 Good quality control
 Ensuring excellence of end product
 Strategies for staying close to the customer
 Sticking to the expertise-core competence

56.  Future projects should aim at:
 alleviating poverty
 Generating mass employment potential
 Raise standards of living and quality of life
 Making the country self sufficient in inexpensive
essential goods and services
 Safe disposal of waste
 Adequate environmental protection

57.  Strategic focus in project planning
a) Economies of scale by consolidation
b) Thrust on core business, in other words, expand the
business globally where corporate has strength.
c) Upgrading products and technologies to ensure
customer satisfaction with quality and reliable
products and services.
d) Reduce product development time and cycle time to
bring efficiency.
e) Cost effective solution, cost reduction and increasing
value to customers.

58. f) Clear understanding of customer’s requirement and
ensuring customers loyalty on-going basis.
g) Down-sizing,delayering and business process re-
engineering to ensure efficiency in operations to
service to customers.
h) Deployment of techniques like total quality
management, six sigma, activity based cost
management etc.
i) Strategic alliance with Indian and foreign companies,
joint ventures with foreign companies, start new
business or restore existing business.

59.  Micro and Macro Considerations
At National level
At Sectorial level
 At Project level
 Macro considerations at national level
a) Overall growth of all sectors
b) Allocation of resources between sectors
c) Boost up private and public sector
d) Allocate the scarce resources
e) Controlling fiscal, monetary framework
f) Maintaining wage policy, exchange rate and
inflationary pressure
g) Motivating economic behavior

60.  Micro considerations at sectorial level
a) Ensuring the investment plan
b) Ensuring a balance in implementation of multiple
projects
c) New projects should be kept waiting
d) Rational decisions should be made on the basis of
past experience.
e) Cost benefit analysis
f) The investment plan should able bifurcate expense
in core and non core projects.

61.  Cost and time over runs
 pre feasibility stage
a) bureaucratic delays
b) Securing necessary approvals
c) Failure to plan on important resources
 Evaluation stage
a) Better evaluation
b) Find lackings
c) Wrong selection of project
d) Wrong economic studies

62.  choice of technology
a) Wrong selection of technology
b) Section of technology on the basis of credit
availability by supplier
c) Delay in completing engineering
d) Improper scrutiny
 Contracting and procurement
a) Improper preparation of tender documents
b) Wrong selection of vendors
c) More time consumption on importing material
d) Absence of proper quality

63. e) Poor logistic planning
 construction stage
a) Starting construction activities without proper
planning
b) Low productivity of contractors
 Commissioning and start –up
a) Delays in making available manuals
b) Failure of equipments
c) Defects in installation

64.  Methods to avoid cost and time overrun
1. master schedule/milestone network/master budget
2. Time and resources schedule
3. Procurement time schedule
a) calendar time construction work schedule
b) scheduling of contracting
c) Crashing economic analysis
d) Progress report
e) Fund flow analysis etc

65.  Cost benefit analysis
It is more sophisticated technique recently introduced
in long term decision making in capital projects
appraisal.
It is defined as “an analytical tool in decision making
which enables a systematic comparison to be made
between the estimated cost of undertaking of project
and the estimated value and benefits which may arise
from the operation of such a project.”

66.  CBA and investment decisions
 The concept of NPV may not be regarded as entirely
appropriate.
 CBA is essentially discounted cash flow analysis for public
sector institutions.
 For a business assessing a project such comparison with
the other investment opportunities currently available.
 The only factor which will influence the decision will be
those costs and benefit incurred and received privately by
the firm
 From society point of view road building has effects in the
community which confer both costs and benefits on society
as a whole e.g. increased traffic may create pollution of air
and at the same time create jobs in the area around road

67.  CBA is used to determine
a) Whether or not a specific operation should be
undertaken
b) Which of the possible alternative projects should be
selected
c) Which time cycle would be most beneficial to the
project.

68.  CBA Procedure
1. Determine problem to be considered
2. Ascertain alternative solutions to problem
3. Estimate and analyze costs and benefits
4. Appraise estimated costs and benefits
5. Decide on optimal solution
 Techniques of CBA
a) Discounted cash flow techniques
- Net present value(NPV)
- Internal rate of return(IRR)
b) Benefit/cost comparison
c) Benefit/cost ratio

69.  Benefits of CBA
1. Ensure value of money
2. Social cost and benefits
3. Protection from potential enemy
4. Good health
 Limitations of CBA
1. Inaccuracy in data input
2. Difficult to forecast
3. Difficult to quantify
4. Difficulty in determining value of cost and benefits

70.  Social cost benefit analysis
 ‘social cost' is a sacrifice or detriment to society.
 ‘social benefit’ is a compensation made to the society
in the form of increase in per capita income,
employment opportunities,etc.
 Social cost benefit analysis (SCBA) is a systematic
evaluation of an organizations social performance as
distinguished from its economic performance.
 It is concerned with the possible influences on the
social quality of life instead of economic quality of life.
• It is used to determine
a) Which alternative or choice is socially viable
b) Which alternative is the optimal or the best solution.

71.  Indicators of social desirability of a project
a) Employment potential
b) Foreign exchange earnings
c) Social-cost benefit analysis
d) Capital output ratio
e) Value added per unit of capital

72.  Economic Appraisal Technique of Project
 Growing importance of public investment,especially in
developing countries govt on development projects,
the social cost benefit analysis has received increasing
emphasis.
 To eliminate the trade offs between growth and equity,
investment projects are divided into
a) Capital intensive industrial project
b) Infrastructure investments
c) Agriculture and rural development projects
 Economic Rate of Return
 Domestic Resource Cost
 Effective Rate of Protection