ED-UNIT 4
PROJECT PLANNING
& CONTROL
-Dr. Anubhuti Nigam
Project planning & Control
■ A new business has two steps involved. First, setting up the business and the
second, continuing with the business operations for which it is setup.
■ The first step of setting up a business itself can be a project which consists of
several tasks like business plan development, feasibility study, field
studies, financial plans, infrastructure development and regulatory approvals.
■ In the second step, an entrepreneur should think about the actual production
development or service delivery. This ongoing business activity comprises several
projects to accomplish the business goals.
■ Projects may be undertaken to generate revenue, such as introducing methods for
improving cash flow, or be capital projects that require additional expenditure and
resources to introduce a change to the capital base of the organization
Finance functions in project planning
■ The main function of finance function is to:
1. Forecast the financial needs
2. Decide sources of finance
3. Plan and procure of fund
4. Spend the fund as per the need
5. Control the use of fund
6. Plan the repayment of fund
Cost of capital in Project planning &
Control
■ Cost of capital is never free and depends on :
1. Sources of capital
2. Cost of raising the capital
3. Amount of capital
4. Capital structure
5. Risk involved
6. Time for completion of project
7. Time for repayment
8. Availability of alternatives
Economic evaluation
■ The extent to which project plan is realistic or economic is to be checked and is
known as economic evaluation.
■ It is done with the aim to ensure economic feasibility of the project.
■ It should ascertain:
1. Will the project generate adequate revenue?
2. In how much time cost of investment can be recovered?
3. Will it have steady rate of return?
4. Whether sufficient fund will be available for its implementation?
Risk Analysis
■ Risks are anything that can potentially disrupt any component of your project plan,
such as your scope, schedule, costs or your team. Since every project is unique, no
two projects are likely to have the same risks.
■ Risk analysis involves examining how project outcomes and objectives might change
due to the impact of the risk event.
■ Once the risks are identified, they are analysed to identify the qualitative and
quantitative impact of the risk on the project so that appropriate steps can be taken
to mitigate them.
■ Risk analysis is an important input for decision making during all the stages of the
project management cycle.
Capital expenditure
■ Capital expenditures refer to funds that are used by a company for the purchase,
improvement, or maintenance of long-term assets to improve the efficiency or capacity of
the company.
■ Long-term assets are usually physical, fixed and non-consumable assets such as
property, equipment, or infrastructure, and that have a useful life of more than one
accounting period.
■ Capital expenditures include the purchase of items such as new equipment, machinery,
land, plant, buildings or warehouses, furniture and fixtures, business vehicles, software,
or intangible assets such as a patent or license.
■ There are normally two forms of capital expenditures: (1) expenses to maintain levels of
operation present within the company and (2) expenses that will enable an increase in
future growth. A capital expense can either be tangible, such as a machine, or intangible,
such as a patent. Both intangible and tangible capital expenditures are usually
considered assets since they can be sold when there is a need.
■ It is important to note that funds spent on repair or in conducting continuing, normal
maintenance on assets is not considered capital expenditure and should be expensed
on the income statement whenever it is incurred as repair and maintenance expense.
Capital Expenditure Policies & Practices
in Public Sector Enterprises
■ Every new project will have half the investment in equity capital and the other half in
debts. A decision about capital expenditure involves a number of organisations.
■ MOU between government and public enterprise is a negotiated performance
agreement and contains three sections.
■ Every capital expenditure proposal is first discussed at Board of Directors level of
concerned enterprise. The Board can decide only up to a certain amount. The
proposals requiring more investments are recommended by the board to the
concerned Administrative Ministry.
■ After a proper study at Ministry the proposal is either sent to Public Investment
Board or Project Appraisal Division (PAD) depending upon the cost involved.
Planning of cash flows
■ Cash flow is the net amount of cash and cash equivalents being transferred into and
out of a business. Cash received represents inflows, while money spent represents
outflows.
■ The cash flow statement records the company's cash transactions (the inflows and
outflows) during the given period. It shows whether all of the revenues booked on
the income statement have been collected.
■ A cash flow plan is a recorded projection of the amount and timing of all cash
inflows and cash outflows expected to occur throughout the planning period.
■ All inflows and outflows have to be planned only then there will financial discipline.
Control of financial flows
■ Fund flow refers to the working capital of the company, and a fund flow statement is
prepared to visualize the changes in working capital of the company over a period of
time. Investors use the fund flow information to determine where capital needs to be
invested.
■ There are two types of inflow of funds in a business
1. Funds generated by the business operations
2. Long term funds raised by issuing shares or sale of fixed assets.
Control and communication
■ Control ensures things move in proper direction as per the plan.
■ Effective communication in project planning and control is an integral aspect.
■ It is flow of information, news, messages, among the various people involved in the
project.
■ It is medium through which direction is issued and there is flow of authority and
responsibility.
