Question Paper

Project Management – II : October 2001

Part D : Case Study (50 Points)
• This part consists of questions with serial number 1 - 5.
• Answer all questions.
• Points are indicated against each question.
• Do not spend more than 80 - 90 minutes on Part D.

Case Study
Read the case carefully and answer the following questions:
1. Prepare the projected profitability statement for the first five years of the project.
(18 points)
2. Project the cash flows of the project from long term funds point of view for the first five years of the
project, considering project will be terminated at the end of the 5 years.
(8 points)
3. Appraise the project in terms of
i. Cash break-even point in terms of sales for the 3rd year
ii. Net present value
iii. Discounted pay-back period.
(4 + 4 + 2 = 10 points)
4. What are the methods used to incorporate uncertainties associated with future cash flows in the project
appraisal?
(5 points)
5. What are the factors that may force the corporates to behave in a more environmental friendly manner?
Discuss.
(9 points)

Southern Chemicals Ltd. (SCL) was incorporated in August 20, 1991 with manufacture of chemicals as its main
business. The company is considering a project for manufacture of Di-basic Calcium Phosphate (DCP) with an
installed capacity of 4000 MT per annum for feed grade and 4000 MT for IP grade. The feed grade of product is
used in animal feed to replenish calcium and phosphorous and the IP grade or pharmaceutical grade is used as
diluting and chemotherapeutic agent in tablet and capsule formulations and used as a replacement of lactose.
Particulars of the project
Product Di-basic calcium phosphate
Installed capacity Feed grade 4000 MT (p.a.)
IP grade 4000 MT (p.a.)
Proposed capacity utilization:
Feed grade IP Grade
Year 1 60% 60%
Year 2 70% 70%
Year 3 onwards 80% 80%

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 Location In chemical zone of APIIC, 50 km from Hyderabad
Category of unit Small scale industry
Manpower 100 personnel
Utilities Power 300 KVA
DG Set 125 KVA
Water 100 KL
Raw material availability
The important raw materials required to manufacture DCP are as under:
a. Rock phosphate
b. Hydrochloric Acid
c. Soda ash
d. Others
Rock phosphate deposits are found in more than 250 places in the world and are supposed to last for more than
20 centuries at the current rate of consumption. Amongst such deposits, the deposits of Florida (USA), Morocco
and Jordan are important. The total estimated reserves in Rajasthan in India are around 800 million metric
tonnes. Since the mineral reserves in our country are of inferior quality, the company is forced to import about
95% of the requirement. MMTC has been supplying this raw material to various users and any quantity
requirement can therefore be easily met by MMTC.
Hydrochloric Acid is a waste product of Chlor-alkali Industry. The major suppliers of this raw material in A.P.
are M/s Andhra Sugars Limited, Tanuku and M/s Sri Rayalseema Alkalies Limited, Kurnool. Since this is only a
waste product of the Industry, no problem is envisaged in procuring this raw material in any required quantity.
There are more than 7 units producing Soda Ash in our Country, with an installed capacity of 14.6 lakh TPA and
an additional capacity of 15.22 lakh TPA is in the pipeline. In view of the present surplus production, there is no
problem for procuring the required quantity of Soda Ash.
Other raw materials like additives, purifiers, antifoaming agents, discolouring agents, stabilisers are easily
available in the local markets.
MARKETING ARRANGEMENTS
DCP - Feed grade
The Company has already obtained an order from M/s Venkateswara Hatcheries Group of Companies that they
are interested in buying about 1000 MTPA of DCP - Feed Grade, Therefore, the entire production of this grade
can easily be tied up with the reputed Venkateswara Hatcheries group. Presently, they are procuring this product
from outside A.P. Being a local unit is another plus factor for the project.
DCP - Pharmaceutical grade
Even though no prior arrangement is made as at present to market this grade, the company does not envisage any
problem to sell this grade in Hyderabad which is considered to be the Pharmaceutical Capital of the Country.
Also, since the project shall be located on the Bombay Highway, this can also be marketed in the healthy
Bombay market, where the current going rate for IP grade is Rs 30 per kg. against the projected price of Rs.28
per kg in the project report.
Export Potential
If the company is able to meet the BP/USP grade specifications, there is every chance for export of products of
any grade. MMTC is encouraging Indian Entrepreneurs by mobilising export orders through its network of
branches abroad.
However, only after consolidating the local market, the company intends to go in for any exports.
Fuel
LDO is required for the thermic fluid boiler and to run the DG set. LDO is easily available in the local market.

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Water
The factory is proposed to be located in the APIIC developed Industrial Area. APIIC itself is supplying water to
all the Industrial units from the common borewells already dug in the vast 1625 acre sprawling industrial estate.
Therefore, there is no problem for the water requirement of the project.
Government Clearances
1. SSI Registration
Provisional Registration Certificate is already obtained from the District Industries Centre, Sangareddy,
Medak District.
2. Land Allotment by APIIC
APIIC has already allotted plot nos. 1 & 2 in the chemical zone in Pashamailaram IDA. APIIC has already
developed about 500 acres out of 1625 acres of land for the development of chemical industries.
3. APSEB Connection
Once the site is registered in the name of the company, an application shall be made for the APSEB
connection for the power requirement of the unit. Also, the APIIC office in the industrial area is also
helping entrepreneurs in obtaining the power connection from the APSEB.
4. Water Connection
Since APIIC itself is maintaining the industrial area in Pashamailaram, common borewells are already dug
by APIIC and water is provided for the industrial units. As soon as the site is allotted, an application for
water will be formally made to the office of the APIIC in the industrial area.
5. Municipal Approval
An application for Municipal Approval will be made once the plot is registered in the name of the
company. However, plans are being prepared for such an application. Since the site is located in the
Industrial Areas, no problem is envisaged for obtaining the Approval.
6. NOC from pollution control board
An application is being made for obtaining a ‘No Objection Certificate’ from the pollution control board.
Since the unit will be located in the APIIC industrial area, there is no problem for the disposal of the
industrial waste. Even APIIC is allowing industrial units in that area to dump the industrial
wastes/pollutants in the Common Effluent Treatment Plant in Patancheru which is close to Pashamailaram.
APIIC has also been planning to construct such common effluent treatment plants in Pashamailaram also,
which may take some more time.
7. Pollution Control Proposal
It is proposed to take the advice and guidance of the pollution control engineer to dispose off the pollutants
generated by our unit. However, it is proposed to dispose off the effluents as under:
a. The solid effluents are the insoluble sludge of the rock phosphate digestion which is acidic in nature and
consists of Silicon. The sludge is neutralized with lime and disposed off the ground or can be used for
filling up the pits.
b. The liquid effluents arising out of the DM plant, the laboratory or from the main factory mainly contains
sodium chloride and calcium chloride. The liquid effluents are passed on to a masonry tank and neutralized
by using Hydrated lime and are disposed off through the drainage connection.
c. The gaseous effluents arising out of the factory while heating the diesel oil are let out into the atmosphere
through a suitable chimney.
8. Drainage Connection
Alongwith the water connection, a drainage connection will also be obtained from the APIIC.
9. Drug Licence
An application will also be made shortly for obtaining the Drugs License since the company proposes to
manufacture IP grade of DCP which is used in pharmaceuticals.
Any other approval/clearance as and when required will be obtained from the concerned authority.

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FINANCIAL PROJECTIONS:
1. Cost of the project
Rs. in lakhs
Land and site development 25
Buildings 85
Plant and machinery 175
Miscellaneous fixed assets 125
Motor vehicle 24
Pre-operative expenses 25
Public issue expenses 15
Contingency 20
Margin money for working capital 78
572
2. Requirement of working capital
Months
Raw materials 1.00
Utilities 0.50
Work-in-progress 0.50
Finished goods 0.98
Debtors 1.00
3. Means of finance
Rs. in lakhs
Promoters equity 100
Equity issue 250
Term loan 222
572
Additional information:
i. Syndicate Bank has agreed to finance 60% of the working capital requirement.
ii. Interest on working capital borrowing is 12.5%.
iii. The term-loan is to be repaid in two equal installments at the end of 4th and 5th year. Interest on term loan is
14%.
iv. Sales price for IP grade and Feed grade is projected at Rs.28,000 PMT and Rs.8,500 PMT respectively.
v. Raw material cost to produce one MT of IP grade of DCP and Feed grade is projected at Rs.16,500 and Rs.4650
respectively.
vi. Consumable stores is estimated at 2% of sales revenue.
vii. Power, fuel and packing costs are estimated at 4%, 2.5% and 1% of the sales revenue.
viii. Wages and salary (factory overhead) is estimated at Rs.24 lakh for first year of operation, out of which the
variable part is expected to be 20%. The fixed part will rise by 5% every year and variable part is expected
to rise at the same proportion with increased production.
ix. Administrative expenses is estimated at Rs.5.50 lakh for the first year of operation and it will increase by
5% every year.
x. Selling and distribution expenses are estimated at 3% of the sales.

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xi. Depreciation to be calculated as follows:

Fixed assets Companies Act (SLM) IT Purposes (WDV)

Buildings 5% 15%
Plant and machinery 10% 25%
Miscellaneous fixed assets 15% 20%
Motor vehicle 25% 40%

xii. Tax rate applicable to the company is 35%.

xiii. Assume life of the project is 5 years for appraisal purposes and salvage value of fixed assets can be taken as
50% of the book value after 5 years, except the value of land which will remain unchanged.
xiv. Return required by the equity investors in the project is 20%.

END OF PART D

Part E : Caselets (50 Points)

• This part consists of questions with serial number 6 - 13.
• Answer all questions.
• Points are indicated against each question.
• Do not spend more than 80 - 90 minutes on Part E.

Caselet 1
Read the following caselet carefully and answer the following questions:
6. Explain the concept of ‘platforming’ for improving the capital efficiency of large capital projects?
(5 points)
7. What advantages do platforming offer to the companies? Discuss.
(7 points)
8. Do you think platforming can be applied to all capital projects? What can be the impact of platforming on
the customers?
(6 points)
Companies in the business of building large capital projects – power stations, chemicals plants, oil rigs,
amusement parks, and the like-have long faced a quandary. The scale and highly specialized nature of such
undertakings might seem to require heavily engineered custom treatment. Yet that approach, to the dismay of the
contractor’s shareholders, depends on large amounts of the contractor’s capital.
Chemical companies, for instance, produce their chemicals and gases in different volumes and proportions, and
the capacities of their plants must correspond to the market’s demand for these substances. Any builder of such
plants wants to put them up as simply, quickly, and cheaply as possible, but the obvious way of doing so-using
standardized parts, designs, and construction techniques-ignores variations in the needs of the purchases. Is there
any way to satisfy the relatively few (but individually significant) customers for the plants while containing
capital expenditures, often the biggest item on a builder’s balance sheet?
One manufacturer of chemicals plants has found a way to meet both sets of demands – and thus to create
considerable value. It has done so by defying the instincts of many of its own engineers and borrowing a number
of principles from a very different operating environment: mass production. Volkswagen, for example, produces
noticeably different models (the New Beetle, the Golf, and the Audi TT) but uses the platform approach with
standard models and components, thus achieving economies of scale. Likewise, Sony has produced more than
300 variants of its Walkman, all on a platform of standard motors, batteries, and assembly processes.

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Applying that approach to low-volume capital projects might seem fantastic. Our manufacturer of chemical
plants, for example, generally builds five to seven projects a year, usually with different continents. In a decade,
a petroleum company might build just half a dozen oil rigs, each tailored to an oil field of unique size and
chemical composition and each overseen by a separate project team that explores and develops the reserve and
establishes the size and design of the oil rig for that particular field. Teams sometimes choose the contractor.
Yet “platforming” principles are being applied successfully even here. The companies involved treat a series of
projects – sometimes lasting for five or ten years – as a portfolio, not as a series of individual schemes. The
resulting shortened lead times, smaller inventories, and lower engineering, operating, and maintenance expenses
are cutting the cost of the projects by as much as 30 percent, representing, in some cases, hundreds of millions of
dollars. Furthermore, the uniform, interfaces presented to operators promote safety by minimizing the risk of
confusion.

Caselet 2
Read the following caselet carefully and answer the following questions:
9. Explain what is project organization and discuss the reasons for failure of project organization.
(7 points)
10. What are the other reasons apart from cost escalation for terminating a project before its completion?
(7 points)
Last year you authorized the expenditure of $500,000 for what you thought was a promising new project for the
company. So far, the results have been disappointing. The people running the project say that with an additional
$300,000 they can turn things around. Without extra funding, they cry, there is little hope. Do you spend the
extra money and risk further losses, or do you cut off the project and accept the half-million-dollar write-off?
Managers face such quandaries daily. They range from developing and placing employees to choosing plant sites
and making important strategic moves. Additional investment could either remedy the situation or lead to greater
loss. In many situations, a decision to persevere only escalates the risks, and good management consists of
knowing when to pull the plug.
These escalation situations are trouble. Most of us can think of times when we should have bailed out of a course
of action. The Lockheed L-1011 fiasco and the Washington Public Supply System debacle (commonly referred
to as WHOOPS) are spectacular examples of organizational failure to do so. Decisions to persist with these
crippled ventures caused enormous losses.
Of course, all managers will make some mistakes and stick with some decisions longer than they ought to.
Recent research has shown, however, that the tendency to pursue a failing course of action is not a random thing.
Indeed, at times some managers and even entire organizations, seem almost programmed to follow a dying
cause.
What leads executives to act so foolishly? Are they people who should never have been selected for responsible
positions? Are these organizations simply inept? Or are they generally competent managers and companies that
find themselves drawn into decisional quicksand, with many forces driving them deeper? Though we think this
last description is probably the right one, we don’t think the tendency is uncheckable. Managers and
organizations that often fall into escalation traps can take steps to avoid them.

Caselet 3
Read the following caselet carefully and answer the following questions:
11. Chrysler had to shorten its product introduction cycles in order to be competitive in the automotive
industry. What are the general characteristics of a project life-cycle?
(8 points)

12. Discuss the competitive advantages of reducing product development times in the automobile industry and
other industries.
(4 points)

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13. What are the key elements to take into account in developing a project’s schedule?
(6 points)
There is no room for complacency in today’s supply-heavy automotive industry. Faced with offerings from a
array of domestic and foreign suppliers, 1990s consumers are demanding greater functionally, reliability,
performance, and fuel efficiency, as well as improved safety features. Only those manufactures that meet
consumers’ expectations will survive. As Lee Iacocca put it, “in this market you either lead, follow, or get out of
the way. “Today’s Chrysler is neither a follower nor a spectator.
It was against this backdrop that Chrysler Corp. conceived the Dodge Viper, its high-performance sports car for
the 1990s. When the concept car debuted at the North American International Auto Show in Detroit in January
1989, it was evident from the reaction of attendees, and from the sackloads of letters that arrived at Chrysler, that
the corporation had developed a well-received product. But it was not until May 1990, when Iacocca gave the
project the green light, that Chrysler focused on how to turn the Viper dream car into a reality.
However, the car was to be more than an exotic extravagance. Iacocca charged the Viper project with a critical
role in reshaping the path of Chrysler’s future. Nothing more than a beautiful shell in 1989, Iacocca gave the
Viper team just three years to transform the concept into a production vehicle, involving the complete
development of the vehicle – including the body, an all-new 8.0 liter V40 aluminum engine, and a six-speed
high-performance transmission – a task that has traditionally taken five years. If the Viper team was successful,
the project would set a precedent for all future vehicle development at Chrysler.
Facing such tight deadlines, a multitude of variables, and working with finite resources, Chrysler recognized that
consistent, end-to-end project management would be quintessential for success. Therefore, the corporation was
very selective about the components that went into the project. Working on such a high-stakes program, Chrysler
could not afford to internalize any weaknesses. Personnel was hand picked for the project. Employing that same
commitment to excellence after reviewing the project management systems on the market, Chrsyler chose
Artemis Prestige from Lucas Management Systems.
Roy Sjoberg, team Viper executive engineer, outlines Chrysler’s functional project management systems
requirements. “Front-end planning and subsequent process engineering and reengineering were an implicit part
of the task that lay before us. We needed a sophisticated tool that was capable of handling multiple projects
concurrently and interactivity. We needed a tool that would allow us to see the big picture and to gauge the
impact of each operation on that panoramic view.”
Sjoberg explains that Chrysler recognized that significant process reengineering would be necessary if the
project was to fulfill the corporation’s goals. “Working with finite resources and within tight time parameters,
we could not afford to target all processes for reengineering. We had to identify the significant obstacles that
stood between us and our three-year development goal, targeting any problem processes on that front end,” he
says. “The software’s powerful what-if capability, coupled with its multi-project vision, gave us the insight to do
this.”
Sjoberg goes on to explain how his team used the application’s what-if capacity to project the impact of changes
in resource allocations, or of process restructuring and reengineering on the Viper’s big picture or critical path
plan. “It enabled us to gauge the effect of any change before committing to it, “he says. “What-if helped us
recognize those processes that most needed attention, and to identify where resource redistribution could have
the greatest impact on net yield.”
However, no matter how careful the front-end planning no project-especially one involving a number of external
suppliers – is ever totally free of unforeseeable problems. To prevent this, Chrysler made great use of the
software’s what-if capabilities in damage control.

END OF PART E

END OF QUESTION PAPER

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 Suggested Answers
Project Management – II : October 2001
Part D : Case Study

1. Projected Profitability Statement

(Rs. in lakh)
Year 1 2 3 4 5
Production
IP grade 2,400.00 2,800.00 3,200.00 3,200.00 3,200.00
Feed grade 2,400.00 2,800.00 3,200.00 3,200.00 3,200.00
Sales
IP grade 672.00 784.00 896.00 896.00 896.00
Feed grade 204.00 238.00 272.00 272.00 272.00
Total Sales 876.00 1,022.00 1,168.00 1,168.00 1,168.00

Raw materials
IP grade 396.00 462.00 528.00 528.00 528.00
Feed grade 111.60 130.20 148.80 148.80 148.80
Consumable Stores 17.52 20.44 23.36 23.36 23.36
Power 35.04 40.88 46.72 46.72 46.72
Fuel 21.90 25.55 29.20 29.20 29.20
Packing 8.76 10.22 11.68 11.68 11.68
Salary 24.00 25.76 27.57 28.63 29.74
Admn. Expenses 5.50 5.78 6.06 6.37 6.69
Selling & Distr. Exp. 26.28 30.66 35.04 35.04 35.04
Depreciation 51.62 51.62 51.62 51.62 44.96
Int. on term loan 31.08 31.08 31.08 31.08 15.54
Int. on w. cap.loan 14.63 17.04 19.46 19.46 19.46
Issue exp. W/off 3.00 3.00 3.00 3.00 3.00
PBT 129.07 167.77 206.41 205.05 225.82
Tax 27.85 49.82 69.61 73.84 82.35
PAT 101.22 117.95 136.80 131.20 143.47
Working Note : 1
Allocation of Contingencies and Pre-operative Expenses
Cost Pre-op. exp. Contingency Total
Buildings 85.00 5.20 4.16 94.35
Plant and machinery 175.00 10.70 8.56 194.25
Misc. fixed assets 125.00 7.64 6.11 138.75
Motor vehicle 24.00 1.47 1.17 26.64
409.00 25.00 20.00 454.00

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 Working Note : 2
Depreciation -SLM Per annum
Buildings 4.72
Plant and machinery 19.43
Misc. fixed assets 20.81
Motor vehicle 6.66
Total 51.62

Depreciation-WDV
Buildings Year 1 Year 2 Year 3 Year 4 Year 5
Op. balance 94.35 80.20 68.17 57.94 49.25
Depreciation 14.15 12.03 10.23 8.69 7.39
Cl. Balance 80.20 68.17 57.94 49.25 41.86

Plant and machinery Year 1 Year 2 Year 3 Year 4 Year 5

Op. balance 194.25 145.69 109.27 81.95 61.46
Depreciation 48.56 36.42 27.32 20.49 15.37
Cl. Balance 145.69 109.27 81.95 61.46 46.10

Misc. fixed assets Year 1 Year 2 Year 3 Year 4 Year 5

Op. balance 138.75 111.00 88.80 71.04 56.83
Depreciation 27.75 22.20 17.76 14.21 11.37
Cl. Balance 111.00 88.80 71.04 56.83 45.47

Motor vehicle Year 1 Year 2 Year 3 Year 4 Year 5

Op. balance 26.64 15.98 9.59 5.75 3.45
Depreciation 10.66 6.39 3.84 2.30 1.38
Cl. Balance 15.98 9.59 5.75 3.45 2.07

Total Depreciation 101.12 77.05 59.14 45.69 35.50

Working Notes : 3
Interest and Principal Repayment Schedule
Outstanding
Year Principal Interest Repayment
principal
1 222.00 31.08 0.00 222.00
2 222.00 31.08 0.00 222.00
3 222.00 31.08 0.00 222.00
4 222.00 31.08 111.00 111.00
5 111.00 15.54 111.00 0.00

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 Working Notes : 4
Computation of Working Capital Borrowing
Item Month Year 1 Year 2 Year 3
Raw materials 1.00 42.30 49.35 56.40
Utilities 0.50 3.47 4.05 4.62
Work-in-progress 0.50 25.62 29.79 33.97
Finished goods 0.98 50.66 58.87 67.08
Debtors 1.00 73.00 85.17 97.33
Total working capital requirement 195.04 227.22 259.41
Bank Borrowing 117.03 136.33 155.65
Working capital margin 78.02 90.89 103.76
Incremental working capital margin 12.87 12.87

Working Notes : 5
Tax calculation
Year 1 2 3 4 5
PBT + Depreciation 180.69 219.39 258.03 256.67 270.78
Depreciation as per IT 101.12 77.05 59.14 45.69 35.50
Taxable profit 79.57 142.35 198.89 210.98 235.28
Tax 27.85 49.82 69.61 73.84 82.35

2. Salvage value of fixed assets

Land 25.00
Buildings 35.38
P&M 48.55
Misc.FA 17.35
Motor vehicle 0.00
Total 126.28
Cash Flows Statement from Long-term Funds Point of View
(Rs. in lakh)
Year 0 1 2 3 4 5
Initial investment -572.00
Increase in w.cap. margin -12.87 -12.87
PAT 101.22 117.95 136.80 131.20 143.47 101.22
Depreciation 51.62 51.62 51.62 51.62 44.96 51.62
Issue exp. W/off 3.00 3.00 3.00 3.00 3.00 3.00
Interest on term loan x(1-t) 20.20 20.20 20.20 20.20 10.10 20.20
Operating flow 163.17 179.90 211.62 206.03 201.53 163.17
Recovery of margin money
for w.cap. 103.76
Salvage value of FA 126.28
Terminal flow 230.04
Net cash flow -572.00 163.17 179.90 211.62 206.03 431.57

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3. i. Cash break-even point
Year 3
Sales 1,168.00
Variable cost
RM 676.80
Consumable stores 23.36
Power 46.72
Fuel 29.20
Packing 11.68
Salary(variable) 6.40
Int. on w. cap. 19.46
Selling & Distr. Exp. 35.04
848.66
Contribution 319.34
Fixed costs
Salary 21.17
Admn. Expenses 6.06
Int. on term loan 31.08
58.31
Fixed cos t (cash) 58.31
Cash BEP = × Sales = × 1168 = Rs.213.27 lakh.
Contribution 319.34
350 222
ii. Cost of capital = × 20 + × (1 − 0.35) ×14
572 572
= 15.77% say, 16%
NPV = –572.00 + 163.17 × PVIF(16, 1) + 179.90 × PVIF(16, 2) + 211.62 × PVIF(16, 3)
+ 206.03 × PVIF(16, 4) + 431.57 × PVIF(16, 5)
= –572.00 + 104.65 + 133.67 + 135.65 + 113.73 + 205.42
= Rs.121.12 lakh.
iii.
Year Cashflow PV @ 16% Cummulative eft
1 163.17 104.65 104.65
2 179.90 133.67 238.32
3 211.62 135.65 373.97
4 206.03 113.73 487.70
5 431.57 205.42 693.12
572.00 − 487.70
Discounted pay-back period = 4 years + = 4.41 years.
205.42

4. The methods which are used to incorporate uncertainties associated with future cash flows in the project
appraisal are:
• Certainty equivalent method
• Risk adjusted discount rate method
• Sensitivity analysis
• Scenario analysis
• Simulation technique
• Decision tree analysis.

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5. The factors that can effectively induce the corporates to behave in a more environmental friendly manner:
• Pollution control regulation
• Consumer pressure
• Pressures from the local people and
• Pressure from the investors.
Pollution Control Regulation
There are various laws and regulations governing pollution by industries. Almost all of them contain
pollution standards. Standards are limits on the amounts of polluting substances that can be released into
the environment, per unit of the medium containing the polluting substance, such as water, air, etc. The
laws also prescribe ranges within populated areas in which certain highly polluting industries cannot be
located. Certain industries cannot be located at all unless clearance is obtained from the regulatory
authorities set up under these laws. Penalties and punishments are also prescribed under these laws to
companies that flout the pollution standards. This factor, therefore, is the most important and potent factor
among the four.
Consumer Pressure
The second factor, namely consumer pressure, is not at all powerful. It calls for well co-ordinated consumer
movements to boycott the products and services of the polluting companies. These are difficult to initiate
and manage. Consumers, particularly in the developing countries such as India, are concerned more about
the cost and performance of the product than the environmental affects of producing the product. Even in
the West, movements by consumers against polluting industries are just taking root.
Pressures from the Local People
Pressures from the local people can also be quite effective, particularly in labor intensive industries. If the
local people boycott the industry, it becomes very difficult to get labor. But this is most unlikely to happen
in countries with high rates of unemployment and poverty, such as India. Another form of pressure from
the local people can be through filing of public interest petitions in the local courts. The courts may order
the closure of the polluting units if the pollution standards are not met by them.
Pressure from the Investors
The last in the order is pressure from the investors of the company, who want to ensure that their company
does not pollute the environment. Though this is one of the factors that prevails in the West, it is almost
non-existent in India. Shareholders are more concerned about the profits and dividends than pollution. But
a day may soon come when at least large institutional investors will force the companies in which they
invest to wear a green look. This is, in fact, in the interest of the stockholders, as flouting pollution norms
may land their company, sooner or later, in trouble.

Part E: Caselets
Caselet 1
6. Platforming is a concept of producing various products in masses using a single basic structure. In
automobile industry, companies produce various models with some standard components by changing the
outlook of the vehicles so that it can address the needs of the wide range of customers. Developing a new
vehicle from scratch is a very costly proposition and also highly time consuming. But making many models
based on the same platform and customized to the needs of various level of customers not only save capital
outlays but also reduces time to reach customers with new products. This platforming concept is useful in
other large capital projects also; companies now treat a series of projects at the same time instead of taking
one project at a time. This saves their time as well as money. It also helps them to reach markets sooner and
move up the value chain.

7. Platforming improve efficiency in many ways. Since they embody lessons drawn directly from previous
projects, they take less time to design. Companies can reap economies of scale by purchasing larger lot
sizes of parts and materials in fewer separate transactions, for projects that go up at roughly the same time.
Fabrication is faster and less wasteful. And testing and certification are easier to perform. Indeed, a
common design can have the time and effort needed to design and build just about every thing – except the
platform itself, which must be made adaptable to a host of different circumstances.

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 Far from degrading a project’s value, these savings often permit a developer to enhance it. One developer
designed a single sophisticated – but standardized – motion system for the different attractions at all of its
theme parks. The time and money saved by designing one system rather than many were used to create a
unique theme for each attraction.
Platforming offers other advantages as well. The manufacturer of chemicals plants used to build customs
designs, each with a specific output capacity. It now offers a series of standard plants whose output can be
scaled up or down. Faster construction gives companies greater strategic freedom. A petroleum company
that commissions a number of oil rigs with the same basic architecture, can begin to have them built even
before it has finished exploration. It can thus respond more quickly to an upturn in oil prices.

8. Platforming is not applicable for every kind of capital project. Its applicability depends on how many
common elements can be identified in a series of projects and the probable impact on costs, risk and timing
to market. Flexibility can be even more importance in capital projects, whose specifications can change
during construction in response to shifts in market demand or the availability of resources.
Platforming may driven customers away from the company’s new products. If a company failed to
distinguish the individual products sufficiently to justify the price differentials among them. This will
confuse the consumers, which may create distance between them and the company’s high value products.
Caselet 2
9. A firm’s organizational structure shows the number of people working at each level of the hierarchy and
their interrelationships. The project organization is separated from the rest of the parent system and it is a
self-contained units with its own hierarchy. The project organization is tied to the parent firm by the
tenuous strands of periodic progress reports and oversight. Some parent organizations prescribed
administrative, financial, personnel and control procedures in detail. Other allows the project organization a
total freedom within the limits of final accountability.
There are many reasons for failure of project organization:
i. If the parent organization takes on several projects, it may happen that the project organization is not
fully staffed to handled various cross-sectional responsibilities. In such a situation, such staff are to be
shared across various projects, thus creating problems for other projects.
ii. The need to ensure access of technological knowledge and skills results in an attempt by the project
manager to stockpile equipment and technical assistance in order to be certain that it will be available
when needed. This will make organizing projects very costly.
iii. If the project groups become inconsistent in framing policies and procedures to be carried out that
many result in failure of project organization.
iv. If there is rivalry between the project members, and political infighting between projects will lead to
the failure.
v. If a project is close to completion, a considerable uncertainty arises between the project members
about what will happen when the project is completed. What will be the fate of the members? Whether they
will be laid-off? etc. may lead to the failure of project organization.

10. The other reasons for terminating a project before its completion are:
i. The project has not so far met its time, cost or technical performance requirements and there appears
to hope of it ever meeting them. Termination may be considered even if the project fails to meet the
target in any one of the three aspects.
ii. There are other projects which have moved up in the order of priority and the funds available are not
sufficient for all the projects.
iii. The parent firm has changed its strategy and the project no longer fits into the strategic plan of the parent.
iv. The changes in the business environment have made the project unviable.
v. The project has become obsolete due to technological changes.
vi. Some people, without whom the project cannot progress, have left the organization.
vii. Haphazard initial planning of the project, resulting in a realization at a later stage that the project is
not feasible.
viii. A better alternative could be found to achieve the objectives for the achievement of which the current
project has been planned.

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 Caselet 3
11. There are broadly, four phases in the life of a project:
Phase I : Conception and Selection
Phase II : Planning and Scheduling
Phase III : Implementation, Monitoring and Control
Phase IV : Evaluation and Termination.
The level of activity, in any project, starts at a low level and then rises slowly. At the conception and
selection phase, before it is decided whether or not something is a worthwhile idea or which of the several
alternative ideas should be proceeded with, the activity is naturally low and is confined to conducting
feasibility studies, estimating revenues and costs, etc. In this phase the amount spent is also low, as also the
number of people working on it (we can also say the time spent on the project).
Once selection of the project and its approval by the management are through, the project enters the second
phase. This phase is preparatory to the actual implementation of the project. Planning how to implement the
project and scheduling how the implementation should be carried out are done in this phase. Planning
includes deciding on what are the activities to be undertaken for implementing the project, while
scheduling is fixing time frames for the activities. The level of activity and also the project cost rise rapidly
during this phase. The number of people assigned to the project also increases manifold.
The next phase is the actual implementation of the project, and monitoring and controlling the
implementation. The project cost reaches its peak during this stage, as also the level of activity (or the man-
hours spent on the project). The project manager is highly concerned about the costs and does not bother
much about the schedule at the beginning. Concentration on the performance also continues.
The fourth, and the final phase is to evaluate what has been done, and hand it over to either the client or the
in-house operational staff. This markets the end of the project, from the project management angle. In this
phase, the activity levels decline steeply, and reach zero. The additional inputs of other resources are also
small. This phase is often completed in a hurry, as the deadline will be nearing. The entire concentration of
all the staff and the managers will be focused on handling over on time than on costs or performance.

12. The only way to succeed in the present market scenario by the automobile industry or other consumer
goods industry is to reduce product development time. The consumer goods industry is a buyer’s market,
where the consumer have wide lot of choice available from various producers and also at a competitive
price. If we take the electronics industry-if a new product comes into market, the developer of the new
product hardly get six months to sell the product in the market. Within six months other companies will
come out with the same product with a lesser price. So by what time if the company able to come out with
another product which can distinguish itself from the other products available in the market, will help the
company to maintain its leadership, like, Sony in electronics industry. So it is necessary to reduce product
development time to remain competitive.

13. Certain key elements should be followed in the preparation of schedules:

• All major events and dates must be clearly identified. If a statement of work is supplied by the
customer, then those dates shown on the accompanying schedules must be included. If for any reason
the customer’s milestone dates cannot be met then the customer should be notified immediately.
• The exact sequence of work should be defined through a network in which interrelationships between
events can be identified.
• Schedules should be directly relatable to the work breakdown structure. If the WBS is developed
according to a specific sequence of work, then it becomes an easy task to identify work sequences in
schedules using the same numbering system as in the WBS. The minimum requirement should be to
show where and when all tasks start and finish.
• All schedules must identify the time constraints and, if possible, should identify those resources
required for each event.
Although these four key elements relate to schedule preparation, they do not define how complex the
schedules should be. Before preparing schedules, three questions should be considered:
• How many events or activities should each network have?
• How much of a detailed technical breakdown should be included?
• Who is the intended audience for this schedule?

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