Introduction & Basics of Comprehensive Business Plans

7/27/2019 Introduction & Basics of Comprehensive Business Plans

1/18

Business Modeling &Business Modeling &

PlanningPlanning

Project Planning StageProject Planning Stage

Module - IModule - I


2/18

Capital Budgeting - NeedCapital Budgeting - Need

Financial Objective: ProfitFinancial Objective: Profitmaximisation and wealthmaximisation and wealth

maximisationmaximisationThree types of decisions :Three types of decisions :

Investment, Financing and workingInvestment, Financing and working

capital / dividend;capital / dividend; First decision is always InvestmentFirst decision is always Investment

followed by Financing / W. Capital /followed by Financing / W. Capital /

DividendDividend


3/18

Capital Investment :Capital Investment :

ImportanceImportance Long Term Effects on the company;Long Term Effects on the company; Irreversibility of the decisions andIrreversibility of the decisions and

expenditure: Correct decision wouldexpenditure: Correct decision wouldincrease consistent profits & wealthincrease consistent profits & wealth

Substantial Investments:Substantial Investments:

Directly linked to corporate financialDirectly linked to corporate financialobjectivesobjectives Strategic in nature and policy effectStrategic in nature and policy effect


4/18

Issues in Capital InvestmentIssues in Capital Investment

Measurement IssuesMeasurement Issues

UncertaintyUncertainty

Temporal Spread: Cost BenefitTemporal Spread: Cost Benefitanalysis over a long period of timeanalysis over a long period of time


5/18

Project ClassificationProject Classification

Mandatory Investments- StatutoryMandatory Investments- StatutoryRequirements (Post 3G For SecurityRequirements (Post 3G For Security

)) Replacement ProjectsReplacement Projects

Expansion ProjectsExpansion Projects

Diversification ProjectsDiversification Projects R & Development ProjectsR & Development Projects

Social ProjectsSocial Projects


6/18

Capital Budgeting ProcessCapital Budgeting Process

Planning stage: Based on broadPlanning stage: Based on broadstrategystrategy

Analysis: Various Feasibility studiesAnalysis: Various Feasibility studies Selection: Capital budgetingSelection: Capital budgeting

techniquestechniques

Financing: Capital StructureFinancing: Capital Structure Implementation: Designing projects,Implementation: Designing projects,Contracts, construction, training,Contracts, construction, training,Use of PERT / CPMUse of PERT / CPM

Review: Feedback mechanismReview: Feedback mechanism


7/18

Phases of Project AnalysisPhases of Project Analysis

Market AnalysisMarket Analysis

Technical AnalysisTechnical Analysis

Financial AnalysisFinancial Analysis

Economic AnalysisEconomic Analysis

Ecological AnalysisEcological Analysis


8/18

Basic ConsiderationsBasic Considerations

Risk & Return Relationship Risk & Return Relationship Establishing the relationship betweenEstablishing the relationship between

Investment, Financing decisions withInvestment, Financing decisions withrisk and return and to observe itsrisk and return and to observe its

effect on Market value of the firm.effect on Market value of the firm.

Time Value of MoneyTime Value of Money


9/18

Strategy & ProjectsStrategy & Projects

Formulation of strategy is a mainFormulation of strategy is a maintask of the top managementtask of the top management

Use of SWOT analysisUse of SWOT analysis External Environmental study External Environmental study

Customers, competitor, RegulationCustomers, competitor, Regulation

etc;etc; Internal Study: Technical, logisticsInternal Study: Technical, logistics

availability etc.availability etc.


10/18

Strategy & ProjectsStrategy & Projects

Whether a new project undertaken isWhether a new project undertaken isin line with companies growthin line with companies growth

strategy and can company createstrategy and can company createsynergy?synergy?

The effect of new project onThe effect of new project on

companies overall risk ( This iscompanies overall risk ( This isdiscussed separately)discussed separately)


11/18

Environment AnalysisEnvironment Analysis

Economic Sector GDP, BOP positionEconomic Sector GDP, BOP positionetcetc

Governmental Sector IndustrialGovernmental Sector Industrialpolicy;policy;

Technological Sector NewerTechnological Sector Newer

technology;technology; Socio-Demographic Sector;Socio-Demographic Sector;

CompetitionCompetition


12/18

Identifying InvestmentIdentifying Investment

OpportunitiesOpportunities

Porter Model - 5 competitive forces;Porter Model - 5 competitive forces;Threat of new entrants;Threat of new entrants;

Rivalry among existing firms;Rivalry among existing firms;

Pressure from substitute products;Pressure from substitute products;

Bargaining power of buyers;Bargaining power of buyers;

Bargaining power of sellers.Bargaining power of sellers.


13/18

Growth & Stability StrategyGrowth & Stability Strategy

Growth Strategy includesGrowth Strategy includesConcentration ( increasing theConcentration ( increasing the

capacity of products if market sharecapacity of products if market shareis increasing);is increasing);

Vertical Integration: Backward &Vertical Integration: Backward &

forward integration;forward integration; Diversification: In same line orDiversification: In same line or

conglomerateconglomerate


14/18

About New IdeasAbout New Ideas

Study of performance of existingStudy of performance of existingindustries;industries;

Study of Input, Process & Output ofStudy of Input, Process & Output ofvarious industries;various industries;

Import / Export policies and effect;Import / Export policies and effect;

Government plans & regulations;Government plans & regulations; Government priorities;Government priorities;


15/18

About New IdeasAbout New Ideas

Analyse Economic & Social Trends;Analyse Economic & Social Trends;

Newer Technological changes;Newer Technological changes;

Reviving Sick units;Reviving Sick units; Mergers & Acquisitions;Mergers & Acquisitions;


16/18

Preliminary ScreeningPreliminary Screening

Compatibility with promoters;Compatibility with promoters;

Consistency with GovernmentalConsistency with Governmental

priorities;priorities; Availability of Inputs;Availability of Inputs;

Adequacy of market;Adequacy of market;

Cost Analysis;Cost Analysis;

Risk Analysis.Risk Analysis.


17/18

Portfolio StrategyPortfolio Strategy

Instead of concentrating on oneInstead of concentrating on onebusiness, capital resources arebusiness, capital resources are

spread across multiple businesses tospread across multiple businesses toreduce risk and maximise returns;reduce risk and maximise returns;

Use of BCG matrix, McKinsey MatrixUse of BCG matrix, McKinsey Matrix


18/18

Sources of Positive NPVsSources of Positive NPVs

Economies of ScaleEconomies of Scale

Product differentiationProduct differentiation

Cost AdvantageCost Advantage Marketing ReachMarketing Reach

Technological EdgeTechnological Edge

Government Policy.Government Policy.

Documents

Introduction & Basics of Comprehensive Business Plans