Presentation on “Project

formulation,evaluation & monitoring”

By Avinash kumar

PROJECT

Characteristics of project

1. Objectives-Every project has aimed to achieve certain objective.

Once the objective is achieved the project is said to be completed .

2.Life cycle- stages of Life cycle are as follows:

a.conception

b.Design

c.Implementation

d.Commissoning

3. Definite time limit 4. Uniqueness 5. Change 6. Optimality 7. Control mechanism

Classification of projects

Phases in project cycle

1.Identification2.Formulation3.Appraisal4.Implementation5.Monitoring6.Evaluation

project cycle

TIME VALUE OF MONEY

It involves two types of cost-1.Compounding cost:- Future value of

present sum is known as compounding.

Formula: A=C(1+r)n

2. Discounting cost:- Present value of future sum is called discounting.

Formula:Present

worth=R(A)/(1+r)n

Techniques of risk analysisFollowing are the popular techniques :1. Break even analysis2. Sensitive analysis3. Decision tree analysis4. Monto carlo5. Game theory

Break even analysis

Here we can find out break even point (BEP).

* BEP refers to the level of production at which farmer neither incurred profit nor incurred losses .

* Its also known as no-profit no loss situation.

Break even production = fixed cost

selling price per unit - variable cost per unit

Estimation of break Even pointC

ost

s &

retu

rns

(in

Rs)

Q

B

K

L

M

O X

Y

S

Quantity

Where,SM= Total fixed cost SL= Total cost curve OK= Total revenue curve B= Break Even Point OQ=Break-Even Quantity

Zone

of lo

ss

Zone of profit

SENSITIVE ANALYSIS It’s a technique that measures change in

profitability level of the project caused by a change in factors affecting the profitability level.

Sensitive Analysis provides answer to the folloeing questions –

what happens to the profitability level if……

1. Demand of the product fall down. 2. If selling price of the product fall

down. 3. If the level of production is declined.

Evaluation techniques for selection of profitable project It is nothing but benefit cost analysis

of various aspects of a project. These techniques are divided into

two groups: 1.Non –discounted

techniques 2.Discounted

techniques

Non- discounted techniques1. Payback period (PBP)2. Average rate of return (ARR)3. Urgency

Payback Period (PBP)

It is the length of period required to get back or recover orignal investment incurred on a project through cash inflow or income.

Payback period=Orignal investment/Annual cash inflow.

Thumb rule:Project which have minimum PBP is selected.

Average rate of return (ARR) This method is obtained by the

formula : AVERAGE INFLOW

AVERAGE OUTFLOW

Thumb rule: A project having highest ARR value is selected

Urgency

Urgency : In this method no formula or method is used. Only those projects are selected which are urgently required.

Discounted techniques

It includes :1.Net present worth (NPW)2.Profitability index3.Internal rate of return (IRR)4.Discounted benefit cost ratio

Net Present Worth (NPW)

This is the present worth of cash flow stream.

It is referred as Net Present Value(NPV). NPW=P1/(1+i)t +P2/(1+i)t+....+Pn/(1+i)t-C. P1=Net cash flow in first year, i=Discount rate, t=Time period, C=Initial cost of the investment. Thumb rule:A Project having +ve & max

value of NPW is selected.

Profitability Index (PI)

It is ratio of net present values of cash flows to the initial capital expenditure.

PI = Present value of cash inflow/Present value of cash outflow.

Thumb rule: A Project with highest value of Profitability index is selected

Internal Rate of Return (IRR) IRR is the discounted rate which

makes NPV equal to ZERO. IRR is calculated by TRIAL and ERROR

method. IRR=(Lower discount rate)+(Diff b/w

the two discont rates)*[(Present worth of the cash flow at the lower discount rate)/(Absolute diff b/w the present worths of the the cash flow at two discount rates)]

Benefit Cost Ratio

We compare the present worth of costs with present worth of benefits.

B-C Ratio =Present value of cash inflow/Present value of cash outflow.

Thumb rule: A project with highest B-C Ratio is selected.

NETWORK BASED SCHEDULING

It is a technique used for planning , scheduling and controlling of a project.

It is represented by graphical plan which consist of activity and event.

ACTIVITY: Any operation which consume resources( man, material, time),has start point and end point.

Activity is represented by straight arrow with circle at two points.

TYPES OF ACTIVITIES

1. PRECEEDING ACTIVITY: Activity which occur immediately before the succeeding activity.

2. SUCCEEDING ACTIVITY: Activity which cannot be started until one or more activities are completed.

3. DUMMY ACTIVITY: Activity which does not consume resources. It is represented by dotted arrow.

EVENT

They are called nodes. It does not consume resources and

time. Event is the beginning and end of an

activity and is represented by a circle at specific point of time.

TYPES OF EVENTS

1. Merge event: It represent joint completion of more than one activity.

2. Burst event: Event which represent the beginning of more than one activity.

3. Merge and Burst event : It is for sometime nerge and sometime burst.

ERRORS IN DRAWING A NETWORK1. Looping: Drawing an endless loop in

a network .2. Dangling: to disconnect an activity

before the completion of all the activities in a network.

3. Redundancy: inserting the dummy activity in a network diagram.

NETWOK SCHEDULING TECHNIQUE CPM: (Critical path method)

represent a logical sequence of an activity and events in a project. The duration of all these paths are added in the total duration of the path.

The path that has a longer duration duration is called critical path and activities drawn in that path are critical activities.

FORWARD PATH COMPUTATION

In this method earliest start time of all the events is is computed which begin from initial event and move toward the final event.

BACKWARD PATH COMPUTATION

Here we calculate the latest time. This method is start from last event and move toward initial event.

Slack time: It is the diff b/w latest finish time and earliest start time.

Activity float analysis

A study of non- critical path with regard to free time is necessary because it help in better control of project implementation and better allocation of resources.

In critical path latest finish time and earliest start time both are equal.

The slack of the event is given by diff b/w the TL and TE.

The free time available for an activity is called “float”.

TYPES OF FLOAT

1. Total float: It represents the max time by whhich completion of an activity can be delayed w/o affecting the project completion time.

Total float=[Tl of head event-Te of tail event-Duration of activity]

2. FREE FLOAT

Delay that can be permitted in an activity so that succeeding activity in the path are not affected.

3.INDEPENDENT FLOAT

IT is the spare time available for an activity .