PES Institute of Technology – Bangalore South Campus
Dept. Of MBA
Lesson Plan
Semester – IV
1
Planning & Analysis
Overview: Phases of Capital
Budgeting-Levels of decision
making-Objective
Lecture
PPT
# Class
2
Resource Allocation Frame
work: Key criteria for
allocation of resources
Elementary investment
strategies, Portfolio planning
tools
Lecture
PPT
“
Lecture
Problem
solving
PPT/Black
Boa
rd
“
3
4
LAB-I
II
5
6
Strategic position and action
evaluation, aspects relating to
conglomerate diversification,
interface between strategic
planning and capital budgeting.
Understanding implementation
of portfolio planning.
Generation and screening of
project ideas: generation of
ideas, monitoring the
environment: regulatory frame
work for the projects
Corporate Appraisal,
Preliminary screeing,project
rating index
Pedagogical
Tools
Presentation
Assignments
/ additional
work
Discuss
ion
# Test I
# Case
Present
ation
Lecture
PPT
“
Lecture/
PPT
“
solving
problems
related to
previous
years
question
papers
Lecture
Cumulative
Coverage
I
Contents
Student
Learning
Evaluation
Technique
Session No.
Total no of Lectures: 56
IA Marks: 50
Exam Hours: 03
Exam Marks: 100
Module No
Subject Code: 10MBAFM425
Subject Title: Project Appraisal, Planning & Control
Faculty Name: Dr.Prema Chandran / Mrs.Divya Mathur
No of Hours / Week: 04
10%
28%
PPT
“
7
8
LAB-2
II
9
10
11
12
Demand forecasting methods
LAB-3
Case study on Demand
forecasting
Market Plan
13
14
15
16
LAB-4
17
III
Sources of positive
NPV,Qualities of a successful
entrepreneur
The porter model for
estimation of profit potential of
industries
Construction of project rating
index
Market and demand analysis
:Situational Analysis and
specification of objectives
Collection of secondary
information, conduct of market
survey
Characterization of the market
,demand forecasting
18
19
20
Technical Analysis-Study of
material inputs and utilities,
manufacturing process and
technology
Product mixes, plant capacity,
location and site
Machineries and equipments,
structure and civil works
Discussion on charts and layout
drawings
Project charts and layouts,
work schedules
Estimation of cost of project
and means of financing,
estimates of sales and
production
Cost of production, working
capital requirement and its
financing
Estimates of working results,
breakeven points, projected
Lecture
PPT
“
Lecture
PPT
“
Lecture
PPT
Lecture
PPT
“
Lecture
Problem
solving
PPT
“
Lecture
Problem
solving
PPT
Lecture
PPT
“
Lecture
PPT
“
Lecture
PPT
“
Lecture
PPT
“
Lecture
PPT
“
PPT
“
PPT
“
PPT
“
Case
study
Case Study
“
“
28%
Lecture/
solving
problems
Lecture/
solving
problems
Lecture/
solving
50%
LAB-4
21
22
23
IV
24
LAB-5
25
26
27
28
LAB-6
V
29
30
31
cash flow statement, projected
balance sheet.
Case study on Financial
estimates and Projections
Project cash flows: Basic
principles of measurement of
cash flows, components of the
cash flow streams
Viewing a project from
different points of view,
definition of cash flows by
financial institution and
planning commission, biases in
cash flow estimation
Appraisal Criteria:NPV,Benefit
cost
ratio,IRR,PBP,ARR,investment
appraisal in practice
Types and measures of risksimple estimation of risk,
sensitivity analysis, scenario
analysis
Case study on Project Cash
Flows
Monte Carlo simulation,
decision tree analysis
problems
Selection of project, risk
analysis in practice
Lecture/
Special decision situations:
Choice between mutually
exclusive projects of unequal
life, optimal timing decision
Determination of economic
life, interrelationship between
investment and financial
aspects, Inflation and capital
budgeting
Case study on Decision Tree
Analysis
Social Cost Benefit Analysis
(SCBA)-Rationale for SCBA
UNIDO approach to SCBA-1
UNIDO approach to SCBA-2
Lecture/
PPT
Case study
“
solving
problems
Lecture
Lecture/
PPT
PPT
“
Case study
“
solving
problems
Lecture/
PPT
“
solving
problems
Lecture/
PPT
Case study
solving
problems
PPT
“
solving
problems
Lecture/
PPT
“
Case study
62%
“
solving
problems
Lecture
PPT
“
Lecture
PPT
“
Lecture
PPT
“
Lecture
question
and answer
PPT
Case study
“
78%
session
32
VI
LAB-7
Problems on SCBA
33
Multiple Projects and
Constraints-Constraintsmethods of rankingmathematical programming
approach
Linear programming model
34
VI
Lecture
Lecture/
40
LAB-9
Presentations on Project
Financing
“
PPT
“
solving
problems
lecture &
solving
problems
lecture &
Strategic planning and
solving
financial analysis,
problems
informational asymmetry and
capital budgeting,
organizational considerations
Problems on Multiple Projects
and Constraints
Lecture
Environmental appraisal of
projects: types and dimensions
of a project, meaning and scope
of environment
Lecture
Environment-environment
resources values,
environmental impact
assessment and environmental
impact statement.
Lecture
Project financing in India:means of finance –norms and
policies of financial
institutions,SEBI guidelines,
sample financing plans
Lecture
Structure of financial
question
institutions in India, schemes
and answer
of assistance, term loans
session
procedures.
39
PPT
solving
problems
36
38
“
Lecture/
Qualitative analysis:Qualitaive
factors in capital budgeting,
strategic aspects
37
PPT
question
and answer
session
35
LAB-8
VII
Little and Mirrlees approach to
SCBA
82%
“
“
PPT
“
PPT
“
PPT
“
PPT
“
82%
90%
41
VIII 42
43
44
Project appraisal by financial
institutions.
Project Management: Forms of
project organization, project
planning, project control
Human aspects of project
management, prerequisites for
successful project
implementation
Network techniques for project
management, development of
project network
Lecture
PPT
“
Lecture
PPT
“
Lecture
PPT
“
PPT
Lecture/
solving
problems
Case study
Previous
year
question
paper
“
100%
LAB-10 Case study on Network
45
46
47
Techniques
Time estimation, determination
of critical path
Scheduling when resources are
limit, PERT and CPM models
Lecture/
Lecture/
“
PPT
“
PPT
“
“
solving
problems
Lecture/
Network Cost System
PPT
solving
problems
solving
problems
Project review and
administrative aspects: Initial
review, performance
evaluation,
LAB-11 Problems on Project Review
Lecture
PPT
49
Lecture
PPT
VIII 48
50
abandonment analysis,
administrative aspects of
capital budgeting, evaluating
the capital budgeting system of
an organization
REVISION
51
REVISION
52
REVISION
Table – 2
Assignments & Additional Work
Mod No
1
2
S.No.
Assignment Topics
Questions from module 1
Questions from module 2
“
100%
3
4
5
6
7
8
1-8
Questions from module 3
Questions from module 4
Questions from module 5
Questions from module 6
Questions from module 7
Questions from module 8
Each student have to submit three questions from question bank
 1 question for 3 marks
 1 question for 7 marks
 1 question for 10 marks
Recommended Books
1. Prasanna Chandra-Project Planning: Analysis, Selection, Implementation and Review-TMH,5/e
2. Narendra Singh-Project Management and Control-HPH,2003
References & Additional Readings
S.No.
Mod. No.
1
I – VIII
”
Nicholas-Project Management for Business and Technology:
Principles and Practices-Pearson/PH1
Gray & Larson-Project Management :The Management ProcessTMH,3/e,2005
”
Vasant Desai-Project Management-HPH
2
3
4
5
Particulars
Bhavesh M Patel-Project Management-Vikas
”
”
Chitkara-Construction Project Management,Planning,Scheduling and
Control-TMH,1/e
Table – 6
IA Pattern
Test Marks
60%
Presentations
20%
Assignments
20%

For Internal Evaluation T1 marks and the best out of remaining two will be
considered.

1st Test is mandatory.
Question Bank:
3 Marks Questions:
1. What are the usual assumptions underlying CPM analysis?
2. What is the procedure of determining critical path?
3. What are basics of network cost system?
4. What is the difference between accounting break even and financial breakeven?
5. What are the means of finance for setting up a project?
6. What is project management?
7. What is a work schedule? What purpose does it serve?
8. What are items found in the cash flow statement?
9. Discuss the contents of the balance sheet.
10. What do you understand by risk of a project?
11. Define capital project.
12. What are the levels of decision making?
13. List out the methods of demand forecasting.
14. How would you evaluate secondary information?
15. How would you characterize the market?
16. What is the rationale for NPV method?
17. State the three important steps to be taken to strengthen the links between strategy
and capital budgeting.
18. List out the pre-requisites for successful implementation of a project.
19. What do you understand by social cost benefit analysis?
20. What are the key issues that should be considered while analyzing any project?
21. State the various steps in project rating index.
22. What are the principal sources of discrepancies that need to be considered while
undertaking Social Cost Benefit Analysis?
23. Discuss the key steps in sample survey.
24. What is meant by work break down structure?
25. What aspects are considered in technical analysis?
26. What factors have bearing on the choice of technology?
27. What factors have a bearing on the plant capacity?
28. List out the techniques of risk analysis.
29. What are the various sources of finance available for the projects in India?
30. What is technical analysis in the context of project management?
31. What are the constraints in ranking multiple projects?

7 Marks Questions:
1. Define the levels of decision making. What are their key characteristics?
2. What are the pros and cons of conglomerate diversification?
3. What are a firm do to stimulate the flow of project ideas?
4. Describe the aspects covered in market planning.
5. How would you determine the kinds of machinery and equipment required for a
manufacturing industry?
6. Describe the important charts and layout drawings.
7. Discuss the importance of considering alternative ways of transforming an idea
into a concrete project?
8. Show how various financial estimates and projections are inter-related.
9. Discuss in detail the major component of cost of production.
10. Discuss the items that are considered in estimating the working results.
11. Critically evaluate payback period criterion.
12. What problem are encountered in applying portfolio theory to capital budgeting?
13. Mention the assumptions underlying the standard capital asset pricing model.
14. Describe the procedure involved in obtaining a term loans.
15. Describe and evaluate the various forms of project organization.
16. What steps are involved in PERT analysis?
17. Discuss the procedure of CPM analysis with help of simple example.
18. Discuss the basic principle of network cost system.
19. What are the advantages of conducting a performance review?
20. Explain portfolio analysis according to BCG matrix.
21. Explain how financial institutions calculate cost of capital, with an illustration.
22. Explain the difference between PERT and CPM in project management.
23. Discuss briefly the capital budgeting techniques.
24. Explain the term loan procedure as followed in financing of projects.
25. Discuss the procedure for determining whether a project should be continued,
terminated or divested.
26. Explain the steps involved in developing a project rating index.
27. What are the five stages involved in UNIDO method of project appraisal? (2)
28. Explain the steps involved in capital budgeting process.
29. Describe the important charts and layout drawings.
30. Evaluate the pay back period and accounting rate of return as investment criteria.
31. What is the procedure that is generally associated with term loan as a source of
finance from financial institution?
32. What are the pre-requisites for successful project implementation?
33. What is environmental impact statement of a project? Explain the contents of an
environmental impact statement.

10 Marks Questions :
1. Discuss the five broad phases of capital budgeting.
2. Define the link between strategic planning and capital budgeting.
3. Discuss suggestions helpful in scouting for project ideas.
4. What key issues would you examine in a preliminary screening exercise?
5. What qualities and traits are required to be a successful entrepreneur?
6. List the important general sources of secondary information available in India.
7. Discuss the uncertainties in demand forecasting. How can one cope with these
uncertainties?
8. What are the components of cost of project? Discuss them in detail.
9. Explain how you would compare mutually exclusive projects of unequal life.
10. Discuss the procedure for determining optimal timing under conditions of certainty.
11. Distinguish between the physical life and the economic life of an asset. How would you
determine the latter?
12. Define the two measures of benefit cost ratio.
13. Discuss the procedure commonly used in practice to test CAPM.
14. What are the similarities and differences between the UNIDO approach and the Little
Mirrlees approach?
15. Critically evaluate the integer linear programming model as a tool for capital budgeting.
16. Discuss the following in the context of a goal programming model; objective function
economic constraints, and goal constraints.
17. Discuss the keys issues considered by financial institutions while appraising a project for
term financing.
18. Why does the control of projects in practice tend to be ineffective?
19. Discuss the pre-requisites for successful project implementation.
20. What is basic difference between PERT and CPM?
21. Illustrate the problem of scheduling in view of resource constraints with the help of an
example.
22. What problems are encountered in performance review and how can be they overcome?
23. How would you evaluate the capital budgeting system of an organization?
24. Explain the various aspects to be considered in technical analysis of a project.
25. Explain the UNIDO method of project appraisal.
26. A project is having the following activities and their time estimates,
Activity
Time in weeks
Optimistic Most likely Pessimistic
1–2
2
3
10
1–3
3
4
5
2–4
6
8
10
2–5
5
6
7
3–4
5
7
9
4–5
4
5
12
i) How the PERT network for the project.
ii) Identify the critical path and calculate the expected time (Arithmetic average
time) to complete the project.
iii) What is the probability that project will be completed by 15 weeks (for z=-1.5,
area of the normal distribution = 0.0668)
27. The Alpha Company limited is considering setting up two projects A and B. The
investment outlays and cash inflows after taxation, expected from the two projects are as
under:
Investment outlays Project A: Rs.4,00,000 Project B: Rs.4,50,000
Cash inflows
Rs.
Rs.
Years 1
40,000
1,20,000
2
1,20,000
1,60,000
3
1,60,000
2,00,000
4
2,40,000
1,20,000
5
1,60,000
80,000
The company has a target of return on capital of 10 percent and on this basis, you are
required to compare the profitability of the projects and state which alternative you
consider financially more profitable. (Present value of one rupee at 10 percent – 1st year
0.91; 2nd year 0.83; 3rd year 0.75; 4th year 0.68; 5th year 0.62)
28. What is abandonment analysis in project review? Describe the general procedure of the
analysis.
29. Mitsubishi Corporation has a project to be evaluated under three different scenarios. It
wants to manufacture a component used in the manufacture of machinery. In all the
scenarios, the initial investment is 80,00,000. The unit selling price is Rs.1,500-/,1,000/,and 3,000-/ in three scenarios. The demand is 4000 units 7,000 units and 3,000 units
and the variable costs are Rs.50, Rs.60 and Rs.70 per unit under the three scenarios.
Fixed costs are Rs.5,00,000 and Depreciation Rs.3,00,000. The tax rate is 50%. What is
the NPV under the three scenarios if the life of the asset is 5 years and the discount rate is
24%?
30. Prepare a sensitivity analysis statement from the following information pertaining to a
project:
(All figures are in Millions of rupees)
Year Rs. in million Years 1 to 10
Investment
(250)
Sales
200
Variable cost (60% sales)
120
Fixed costs
20
Depreciation
25
Pre-tax profit
35
Taxes
10
Profit after taxes
25
Cash flow from operations
50
Net cash flow
50
What is the NPV of the project assuming a cost of a capital of 13%? The range of values
of the underlying variable can take is shown as under:
Underlying Variable
Pessimistic Expected Optimistic
Investment
300
Variable costs as a percent of sales 65
250
200
60
56
31. Shantha Murthy enterprises is considering a capital project about which the following
information is available:
a. The investment outlay on the project will be Rs.100 million. This consists of
Rs.80 million on plant and machinery and Rs.20 million on net working capital.
The entire outlay will be incurred at the beginning of the project.
b. The project will be financed with Rs.45 million of equity capital, Rs.5 million of
preference capital and Rs.50 million of debt capital. Preference capital will carry
a dividend rate of 15% debt capital will carry an interest rate of 15%.
c. The life of project is expected to be 5 years. At the end of 5 years, fixed assets
will fetch a net salvage value of Rs.30 million where as net working capital will
be liquidated at its book value.
d. The project is expected to increase the revenues of the firm by Rs.120 million per
annum. The increase in costs on account of the project is expected to be Rs.80
million per annum. (This includes all items of cost other than depreciation,
interest and tax.) The effective tax rate will be 30%.
e. Plant and machinery will be depreciated @25% per annum as per the written
down value method. Hence the depreciation charge will be:
First year
Second year
Third year
Fourth year
Fifth year
Rs.20.00 million Rs.15.00 million Rs.11.25 million Rs.8.44 million Rs.6.33 million
Given the above details, calculate the project cash flows.
32. Explain the BCG matrix and GE stop light matrix.
33. The Scientists at Vigyanik have come up with an electric moped. The firm is ready for
pilot production and test marketing. This will cost Rs.20 million and take six months.
Management believes that there is a 70 percent chance that pilot production and test
marketing will be successful.
In case of success, Vigyanik can build a plant costing Rs.150 million. The plant will
generate an annual cash inflow of Rs.30 million for 20 years if the demand is high or an
annual cash flow of Rs.20 million if the demand is moderate. High demand has a
probability of 0.6; Moderate demand has a probability of 0.4. What is the optimal course
of action using decision tree analysis?
34. Explain the strategic position and action evaluation (SPACE) approach with suitable
diagram.
35. Hari Chandra Pvt. Limited is evaluating seven projects with the following characteristics:
Project
Net present value
Cash outflow in
Cash outflow in
(NPV)
Period 1 (CFj1)
Period 2 (CFj2)
1
6
5
7
2
8
9
5
3
8
12
4
4
7
3
10
5
4
4
6
6
12
10
15
7
9
13
9
The budget available to the firm is limited to 35 in a year 1 and 30 in year 2.
There are tow additional constrains: Power constraint and managerial constraint. The
requirement and constraints applicable in this respect are as under:
Project
Power
Managerial
Requirement (Ej)
Requirement
(Mj)
1
2
6
2
4
5
3
5
7
4
3
2
5
4
4
6
7
8
7
6
3
∑ XjEj ≤ 18
∑ XjMj ≤ 20
Develop a Linear programming formulation of capital budgeting under various
constraints mentioned above.