2011

SRINIVAS
d.s.n.m

[PROJECT ADMINISTRATION AND

CONTROL ]
1. A

SWOT is a strategic planning tool used to evaluate the strengths, weaknesses,

opportunities, and threats to a project. It involves specifying the objective of the
project and identifying the internal and external factors that are favorable and
unfavorable to achieving that objective. The strengths and weaknesses usually arise
from within an organization, and the opportunities and threats from external
sources.

The SWOT analysis is an important part of the project planning process:

• Strengths: attributes of the organization that help achieve the project

objective.

• Weaknesses: attributes of the organization that stop achievement of the

project objective.

• Opportunities: external conditions that help achieve the project objective.

• Threats: external conditions that could damage the project.

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Aim of a SWOT Analysis

• Reveal your competitive advantages

• Analyze your prospects for sales, profitability and product development

• Prepare your company for problems

• Allow for the development of contingency plans

A SWOT analysis is a process to identify where you are strong and vulnerable —
where you should defend and attack. The result of the process is a ‘plan of action’,
or ‘action plan’.

1. B

As per the case:

Strengths:

 Major structural work and services like gas and electricity has been installed
as per schedule

 Estimated sales after refurbishment $300,000 per week

Weakness:

 Conflict between the sub contractor of elevator and the project manager

 Delay in elevator work by 3 weeks

 Only 3 written progress report of the project from the last nine months

 Sudden resignation of project manager

 Lack of communication between project manager and regional general

manager.

Opportunity:

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  Entering into a joint venture with an other company to speed up the delayed
work

 Improving sources of communication among all team members

Threats:

 Complete stoppage of project

 Delay in project work would impact the cash flow and also the opening date
of the store

1. C

Prioritized list of action as per SWOT analysis would be

 Talk to the subcontractor about the delay and its impact on the cash flow and
convince him to get back to work

 Discuss with Jane that the conflict between her and the subcontractor would
do no good to the company

 Sue the sub contractor in case he does not listen to project heads

2. A

In this case the major parties involved were the

 Trend plc which is the client

 6 Regional general managers who are responsible for running the retail store

 Project finance manager

 Project manager

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  Architect

 Subcontractor

 Financial director

 Head of quality assurance

The major relationships between parties to the project management process are as
follows:

 Regional general manager who is heading the refurbishment project

 Project finance manager who handles the financial part

 Project manager who chooses the subcontractor and awards him work

 The project manager is supposed to submit the progress report to the

regional general manager

2. B

The short term action would be as follows:

1. Give a chance to subcontractor to explain his problem for the delay of the
project

2. Talk to Jane and subcontractor about their conflict and explain them that
their face off would do no good to the project and in turn it would delay the
opening of the store and would have its impact on the budget

2. C

Medium term action would be:

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 1. The communication flow among the various parties in the project
management has to be improved.

2. The parties involved in the project should avoid conflicts amongst each other
for the welfare of the company

3. A team meeting must be held once a month for the parties to discuss about
the various aspects involved in a project. It helps them in updating the status
of the project among the team.

4. A back up plan has be designed if there is any disturbance in the flow of the
project

3. B

DATAFLOW Diagram:

The data flow diagram among contract manager, sub contractor and project
manager would look like as follows

Receive plans
from architect

Identifying the
major
subcontract
work

Check approved
suppliers list
and select
subcontractor

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Sending copy of
plans and waiting
for the
subcontractor’s
reply

Discussing the
plan details

Receiving of
Gantt charts

Discussing time
period and other
details of work
with
subcontractor

If there is a
major problem,
the plan is
revised

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Receiving the
tender from sub
contractor and
discussing with
project manager

If there is a
problem, then
inform the sub
contractor and
resubmit the
tender

Enclosing the
copy of legal
documents

Filing the
document with
the sub
contractor

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3. B)

As far as the sub contract work goes, the contract manager acts as a medium for
the flow of information from subcontractors to the project manager. This according
to me is a tedious process. It could be made simple if the project manager, contract
manager and sub contractor agree to discuss the assigned work or any changes to
be made sitting together. If that is not possible atleast a team meeting could be
held once or twice before submitting the final tender.

4. A

The following are key issues to be examined in the preliminary meeting:

1. Attend the crisis meeting called by Jane with the managing director and finance
director of TREND plc and discuss the various possibilities of solving the problem
with the members.

2. Take legal action against the subcontractor and sue him incase he doesn’t agree
to work.

3. Take advice on managing capital investment projects form other people in the
industry with the help of financial director.

4. The possibility of getting into joint venture for the completion of delayed work.

4. B

The following are the methods to be followed for creating an ideal business
environment in TREND plc.

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1. Employee –Boss communication has to be improved

2. Skilled and strong work force has to be employed

3. Conflict management and negotiation skills has to be part of training and

development in the organization

4. The flows of information and communication aspects have to be dealt to create

synergy in the team

5. A

There are four main financial requirements of a business, namely, working capital,
fixed assets, marketing costs and a contingency fund. Financial management for a
business involves managing all of these in an efficient manner. Working capital is
the amount of money a company has to carry on with its daily operations.

Calculation of working capital:

A company has two kinds of assets namely fixed assets such as property and
machinery and current assets. The current assets of a company are those which will
be used up within a single fiscal year. They include cash in hand, cash at bank,
accounts receivable, pre-paid expenses, inventory and short term investments.
Current liabilities are those which have to be settled in cash within the current fiscal
year. They include all the accounts payable pertaining to goods and services
including short term loans payable within one year. Working capital is the difference
between the current assets and the current liability. The mathematical formula for
this is:

Working Capital = Current Assets – Current Liabilities

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PROJECTION OF WORKING CAPITAL REQUIREMENTS

 Determine level of activity

 Estimate raw materials cost per unit & total

 Estimate labor and overheads cost per unit & total

 Estimate work-in-progress period

 Estimate finished goods period

 Estimate sundry debtor’s collection period

 Estimate cash/bank balance

 Estimate sundry creditors payment period

 Estimate creditors for expenses

 Determine safety margin

FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS

All firms do not have the same working capital needs. It depends on several factors,
which are listed as follows.

1. Nature and size of business:- The working capital requirement of a firm is

closely related to the nature of the business. We can say that trading and
financial firms have less investment in fixed assets but require a large some of
money to be invested in working capital. Also, a firm with a large scale of
operation will obviously require more working capital than the smaller firm.

2. Method of Production:- Whether the company follows job, batch or flow

production also affect working capital requirement. Also is Production Labor
Intensive or Capital Intensive affects working capital requirement.

3. Manufacturing cycle:- It starts with the purchase and use of raw materials
and completes with the production of finished goods. Longer the manufacturing

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 cycle larger will be working capital requirement; this is seen mostly in the
industrial products.

4. Business cycles:- When there is an upward swing in the economy sales will
increase, and also the firm’s investment in inventories and book debts will
increase, thus it will increase the working capital requirement of the firm and
vice-versa.

5. Production policy:- To maintain an efficient level of production the firms

may resort to normal production even during the slack season. These will lead
excess production and hence the funds will be blocked in the form of inventories
for a long time, hence provisions should be made accordingly.

6. Firm’s credit policy:- If the firm has liberal credit policy, its funds will
remain blocked for long time in form of debtors and vice-versa. Normally,
industrial goods manufacturing will have a liberal policy whereas dealers of
consumer goods will have a tight credit policy.

7. Availability of credit:- If the firm gets credit on liberal terms, it will require
less working capital since it can always pay its creditors later and vice-versa.

8. Growth and expansion activities:- It is difficult precisely to determine the

relationship between volumes of sales and need for working capital. The need
for working capital does not follow the growth but precedes it. Hence, if the firm
is planning to increase its business activities, it needs to plan its working capital
requirements during the growth period.

9. Conditions of supply of raw material and stock policy:- If the supply of

raw material is scarce the firm may need more working capital to stock up on the
inventory. The decision to follow JIC and JIT is also a factor.

10. Profit margin and profit appropriation: - A high net profit margin
contributes towards the working capital and results into lower requirement for
working capital (e.g. Infosys Ltd.) Also, tax liability is unavoidable and hence
provision for its payment must be in the working capital plan, otherwise it may
impose a strain on the working capital.

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11. Price level changes:- Changes the price level due to inflation or other reason
also affect the requirement of working capital. Rising prices necessitate the use of
more funds for maintaining an existing level of activity. Rising prices will require
higher level of working capital and vice-versa.

12. Dividend policy:- Also if the firm’s policy is it to retain profits it will increase
their funds available for working capital and if they decide to pay their dividends it
will weaken their working capital position, as the cash flows out. So dividend policy
of the Company is a important factor affecting requirement of working capital.

13. Depreciation policy:- The depreciation of the firm, through the effect on tax
liability and retained earnings, has an influence on the working capital. The firm
may charge a high rate of depreciation, which will reduce the tax payable. Thus
depreciation is an indirect way of retaining profits and preserving the firm’s working
capital position.

Methods of financing working capital:

Working capital is an indicator of a company's financial health in the short-term.

Working capital demonstrates to investors the firm's ability to meet current
financial obligations with current assets. Organizations may be profitable but still
show negative working-capital measures, since customers do not pay immediately
after receiving orders: credit terms could vary between 30 days and 120 days.

The methods of financing working capital are as follows:

Accounts Receivable Selling

• Organizations may meet working capital needs by selling their accounts

receivable--the amounts owed by customers--to financial institutions or
investors. They usually sell such accounts receivable at a discount. In other
words, amounts received from buyers are lower than accounts receivable
face values. This type of financing allows firms to receive cash immediately
and also removes the financial risk of customer non-payment or default.

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Credit with suppliers

• Organizations also may finance working-capital requirements by asking for

credit extensions on orders. Supplier’s ship goods to such organizations and
are paid beyond regular credit terms. This type of financing is based on
transaction history, customer importance in suppliers' client rosters, and
credit availability in financial markets.

Equity issuance

• Organizations listed in securities exchanges may issue equity shares--or

stocks--to investors. This type of financing is conducted through corporate
finance departments and investment banks.

Debt issuance

• Organizations also may issue debt securities to raise financing for working
capital. They may sell bonds--which are long-term financing tools, or short-
term instruments such as commercial paper, which are unsecured promissory
notes due in 270 days or less. "Unsecured" means that borrowers have not
pledged collateral--or assets--before receiving loan proceeds. Entities also
may borrow directly from banks by applying for loans, lines of credit or
overdraft agreements.

Hybrid Financing

• Corporate finance specialists also may help firms issue convertible bonds or
preferred shares. This type of financing is referred to as hybrid financing, and
such instruments are known as quasi-debt because they hold equity and debt
features. Convertible bondholders receive periodic interest payments
similarly to regular bondholders. Preferred shareholders are paid periodic
dividends and make profits when share prices increase.

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5. B

Sales revenue

Definition:
Sales Revenue is money generated by a company's sales operations, before
deductions for expenses.

Reasons for undertaking sales revenue forecasts

Businesses are forced to look well ahead in order to plan their investments, launch
new products, and decide when to close or withdraw products and so on. The sales
revenue forecasting process is a critical one for most businesses. Key decisions that
are derived from a sales revenue forecast include:

- Employment levels required

- Promotional mix
- Investment in production capacity

Types of forecasting

There are two major types of forecasting, which can be broadly described as macro
and micro:

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Macro forecasting is concerned with forecasting markets in total. This is about
determining the existing level of Market Demand and considering what will happen
to market demand in the future.

Micro forecasting is concerned with detailed unit sales revenue forecasts. This is
about determining a product’s market share in a particular industry and considering
what will happen to that market share in the future.

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