PROJECT – ENERGY EFFICIENT LED LIGHTS

PROJECT – ENERGY EFFICIENT LED LIGHTS

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EXECUTIVE SUMMARY

The Unitas Company Limited is well known name in the Australian market for their best quality
hand-made chocolates. Their best-selling products includes Strawberry and Cocoa-Chocolates.
However, being the best seller in the market, the incurred costs to company is also rising with
increasing revenues. The management is concerned about the rising costs and they have made a
decision in board meeting that cost control measures need to be taken. Company wants to do cost
cutting by implementing sustainable practices so that they can also take leverage of these
implementation in getting various quality certificates from deemed agencies all over the world
which will help them to expand smoothly. The operations manager of company has proposed to
change the 500 100W-CFL Tubes in their factory to 10W Smart LEDs that can improve the
concentration of the employees as well as reduce the energy costs to the company. The CEO of
company has decided to conduct analysis of the project and implement the project if rate of
return is positive.
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TABLE OF CONTENTS
Topics Page No.
Executive Summary 2
1. Case Summary 4
2. Cash flow Diagram 5
3. Assumptions considered in the project 7
4. Sensitivity Analysis 8
5. Total Project Cost 10
6. Project Master Plan 10
7. Reasons for recommending the project 11
8. Gantt Chart 11
9. Project Milestones 12
10 Stakeholder Engagement Plan 12
11. Stakeholder Engagement Matrix 13
Conclusion 14
References 15
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1. CASE SUMMARY

The Unitas Company Limited is well known name in the Australian market for their best quality
hand-made chocolates. Their best-selling products includes Strawberry and Cocoa-Chocolates.
However, being the best seller in the market, the incurred costs to company is also rising with
increasing revenues. The management is concerned about the rising costs and they have made a
decision in board meeting that cost control measures need to be taken. Company wants to do cost
cutting by implementing sustainable practices so that they can also take leverage of these
implementation in getting various quality certificates from deemed agencies all over the world
which will help them to expand smoothly. The operations manager of company has proposed to
change the 500 100W-CFL Tubes in their factory to 10W Smart LEDs that can improve the
concentration of the employees as well as reduce the energy costs to the company. LED Vendor
has claimed that LEDs can reduce the electricity bill by 75% and 83% depending upon the
quality grade A and B and Each LED comes with 10 years life warranty. Each LED (Grade A)
light costs $ 200, LED Grade (B) light costs $ 250 and installation cost includes $ 50 per LED
tube. Hence, the total cost of the project is $ 100,000 or $ 150,000 in today’s dollars.
It is estimated that the average annual electricity bill that company has to pay with CFL tubes
installed is $ 60,000 and it can be reduced to $ 14000 (Grade A) or $ 10,200 (Grade B) per year
after installation of LED tubes.

Financing Structure of the project:

To finance the project, the company will borrow the amount from ABC bank with an interest rate
of 10% per annum for a 10-year project till the warranty of LEDs. The goal of the company is
achieving the positive return on investment within 10-year period.
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2. CASH FLOW DIAGRAMS

Case-1: Efficient LED (Grade A)

Payment Color Color

№ Period Cash inflow Cash outflow Cash flow
date
0 Year-2020 $ - $ (100,000.00) Black $ (100,000.00)
1 Year-2021 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
2 Year-2022 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
3 Year-2023 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
4 Year-2024 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
5 Year-2025 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
6 Year-2026 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
7 Year-2027 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
8 Year-2028 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
9 Year-2029 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
10 Year-2030 $ 46,000.00 Orange $ (14,000.00) Yellow $ 32,000.00
Totals: $ 460,000.00 $ 220,000.00

Case-2: Efficient LED (Grade B)

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Payment Color Color

№ Period Cash inflow Cash outflow Cash flow
date
0 Year-2020 $ - $ (150,000.00) Black $ (150,000.00)
1 Year-2021 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
2 Year-2022 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
3 Year-2023 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
4 Year-2024 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
5 Year-2025 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
6 Year-2026 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
7 Year-2027 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
8 Year-2028 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
9 Year-2029 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
10 Year-2030 $ 49,800.00 Orange $ (10,200.00) Yellow $ 39,600.00
Totals: $ 498,000.00 $ 246,000.00

3. ASSUMPTIONS CONSIDERED IN THE PROJECT

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Following assumptions have been taken in the while evaluating the project success:

1. 10W LED Lights comes with 10-year warranty and will be repaired or replaced free cost if its
breakdowns within the warranty period.
2. The average electricity bill is considered constant for the 10-year period for simple
calculation.
3. The resulted savings from the installation of $ 45000 is considered as a cash inflow or a type
of rebate that company will get every year.
4. The return on investment should be positive within the 10-year period.
5. Installation of LED bulbs can reduce the electricity bill by 75% or 83% depending upon the
grade selected.
6. The luminous intensity and lumens of 10 W LED and 100 W CFL is very much the same.
7. The Smart LED will change its color between the temperature range of 2700K (Warm White)
to 6500K (Cool White) depending upon the environment conditions. This will increase the
productivity of employees and may result in higher productions.

4. SENSIVITY ANALYSIS
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Sensitivity analysis is a financial technique that helps in analyzing the profitability of the project
if the assumptions get changed in the forecast. It helps in identifying the key variables that
influence the investment decision which depends on the cost and benefits of the project.
The sensitivity analysis has been performed on the basis of interest rate to determine the payback
period, internal rate of return and return on investment.

The sensitivity report based on the given rate of interest and assumptions provided in the
previous part is as follows:

Case-1 Efficient LED Grade A

The input variable for sensitivity analysis:

Discount rate 10%

Investments (pre-investment costs) $ (100,000.00)
Outflow of funds in each period $ (14,000.00)
Cash inflow in each period $ 46,000.00

Case-2 Efficient LED Grade B

The input variable for sensitivity analysis:
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Discount rate 10%

Investments (pre-investment costs) $ (150,000.00)
Outflow of funds in each period $ (10,200.00)
Cash inflow in each period $ 49,800.00

Note: The excel sheet calculations are attached with the project.
Sensitivity Analysis Result:

Based on the sensitivity analysis report, the break-even period for the installation of 10W LED
Grade A Lights is 3.125 (PP) years. Company can reap the cost benefits by 4 th year. The Net
present value (NPV) of the project is $ 96,626. The discounted profitability index (PI) is 1.97
and the break-even period for the installation of 10W LED Grade B Lights is 3.78 (PP) years.
Company can reap the cost benefits by the end of 4 th year. The Net present value (NPV) of the
project is $ 93,324. The discounted profitability index (PI) is 1.62. The sensitivity report
shows that company would reap profits over the long term if Grade A Lights were selected.

5. TOTAL PROJECT COST

The total project cost is the sum of 10W LED Product costs and Installation costs.
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Total Project Cost = $ 500 (X +Y)

Where,
X is the purchase cost of a 10W LED tube (measured in dollars)
Y is the installation cost of a 10W LED tube in the factory (measured in dollars)

6. PROJECT MASTER PLAN

Activity Description Predecessor Weeks
A Prepare concept plan broad Start on 1/July/2020 4
scope of the project
B Prepare comparative energy A 3
analysis report of CFLs and
LEDs
C Project proposal presentation to B 1
the board members
D Find LED and Installation C 4
Vendors
E Prepare Vendor Rating Analysis D 3
Report
F Decide Vendor Selection D 1
Criteria
G Negotiation with suppliers and E, F 4
finalize
H Ordering 500 10W LEDs G 4
I Preparing Installation Report G 4
after discussion with installer
J Take permission of CEO to G 2
decide the final date of
installation
K Installation of LEDs I 3

7. REASONS FOR RECOMMENDING THE PROJECT

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The foremost reason for recommending this project is the positive return of the 10% overall
within the stipulated timeline of 10 years. However, there are other positive outcomes of the
project such as company’s enhanced public image with respect to environmental measures as
using LEDs can significantly reduce the carbon footprint of the company. After this project, it
will be easy for the company to get certificates related to environmental measures. These
certifications will provide a boost to company’s export demand as it will create a enhanced
public image among the international buyers.

8. GANTT CHART

GANTT CHART – MASTER PLAN

As per the GANTT Chart, the project can be completed in 24 weeks starting from July 1, 2020.

9. PROJECT MILESTONES
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Milestone Description Project Deliverables

Analyze the advantages of LEDs over CFL by Comparative Energy Analysis Report
end of August,2020
Finalize Vendors by the first week of Vendor Rating Analysis Report
November,2020
Installation plan to be ready by first week of Installation Report
December,2020
Installation completion by end of year 2020 Project Closure Report

10. STAKEHOLDER ENGAGEMENT PLAN

Stakeholder Potential role in an Engagement Follow-up Strategy
Organization, activity Strategy
group or
individual
CEO Share important reports Involvement in a key Will be involved as a
such as Comparative stakeholder’s key stakeholder
Energy Analysis, meetings aimed to during review
Vendor Rating Analysis, sensitize stakeholders meetings
Installation Report, about the benefits of
Project Closure Report the project
Project Manager Share information on Involvement in every Project manager is
weekly basis about the small and key responsible for
status of the ongoing discussion throughout following up with the
project the project team and reporting to
CEO
Team Members Recording every Working closely with Team members are
information of the work Project Manager on responsible for
activities regular basis recording the data
and coordinating with
external stakeholders
such as suppliers and
installers
Environment Discuss the Involvement in key Review of
Protection Agency requirements of energy stakeholder meeting comparative energy
saving to get green with CEO and Project analysis report and
certifications Manager issuing certificates
after project closure

11. STAKEHOLDER ENGAGEMENT MATRIX

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CONCLUSION
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This project gives the positive return within the stipulated timeline of 10 years. Company must
select Grade A LEDs to install in the factory, even Grade A LEDs have lesser efficiency but it
gives higher net present value and IRR than Grade B as per the sensitivity analysis result.
However, there are other positive outcomes of the project such as company’s enhanced public
image with respect to environmental measures as using LEDs can significantly reduce the carbon
footprint of the company. After this project, it will be easy for the company to get certificates
related to environmental measures. These certifications will provide a boost to company’s export
demand as it will create a enhanced public image among the international buyers.

REFERENCES
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1. Forbes, S. (2013). The impact of project flexibility on project choice and capital structure.
(Thesis). University of Cape Town, Faculty of Commerce, Research of GSB.
2. Greenwood, M. Stakeholder Engagement: Beyond the Myth of Corporate Responsibility. J
Bus Ethics 74, 315–327 (2007)
3. Maak, T. Responsible Leadership, Stakeholder Engagement, and the Emergence of Social
Capital. J Bus Ethics 74, 329–343 (2007)
4. Jere Lehtinen and Kirsi Aaltonen, organizing external stakeholder engagement in inter-
organizational projects: Opening the black box, International Journal of Project
Management, 10.1016/j.ijproman.2019.12.001, 38, 2, (85-98), (2020)