Chapter 4: Project

Conceptualisation, Selection and

Initiation
 Chapter 4
Project Conceptualisation, Selection and Initiation
Explain the relevance of project conceptualization and initiation phase
Define request for proposal
Describe the meaning and need of project selection
State the importance of project selection and methods used for this
Explain the concept of capital budgeting
Describe the meaning of capital rationing
Feasibility Analysis

Operational Feasibility
Market Feasibility
Technical Feasibility
Economic and Financial Feasibility
Legal and Regulatory Feasibility
Environmental Feasibility
Social Feasibility
 Feasibility Analysis

Feasibility
Operational

Market

Technical

Economic

Financial

Legal and Regulatory

Environmental

Social

Total Score
 Feasibility Analysis

Feasibility Hydro
Operational

Market

Technical

Economic

Financial

Legal and Regulatory

Environmental

Social

Total Score
 Feasibility Analysis

Feasibility Coal Gas Hydro Solar Nuclear Geotherm Biogas Grid

Operational

Market

Technical

Economic

Financial

Legal and Regulatory

Environmental

Social

Total Score
 Feasibility Analysis

Feasibility Coal
Operational 3
Market
Not Feasible
Technical Feasible

Economic

Financial

Legal and Regulatory

Environmental

Social

Total Score
 Feasibility Analysis

Not Feasible
Feasiblity Coal Feasible
Operational 3
Market

Technical

Economic

Financial

Legal and Regulatory

Environmental

Social

Total Score Not Feasible

Feasible
 Feasibility Analysis

Not Feasible
Feasibility Coal Feasible
Operational 3
Market 7
Technical 7
Economic 8
Financial 6
Legal and Regulatory 2
Environmental 2
Social 5
Total Score Not Feasible
Feasible
 Feasibility Analysis

Feasibility Coal Gas Hydro Solar Nuclear Geotherm Biogas Grid

Operational 3
Market 7
Technical 7
Economic 8
Financial 6
Legal and Regulatory 2
Environmental 2
Social 5
Total Score
 Feasibility Analysis

Feasibility Coal Gas Hydro Solar Nuclear Geotherm Biogas Grid

Operational 3 5
Market 7 6
Technical 7 2
Economic 8 2
Financial 6 10
Legal and Regulatory 2 5
Environmental 2 7
Social 5 2
Total Score
 Feasibility Analysis

Feasibility Coal Gas Hydro Solar Nuclear Geotherm Biogas Grid

Operational 3 5 7 7 6 2 9 4
Market 7 6 7 5 5 6 5 6
Technical 7 2 5 3 4 8 6 9
Economic 8 2 5 3 8 2 10 5
Financial 6 10 5 4 8 9 5 2
Legal and Regulatory 2 5 9 5 2 3 5 5
Environmental 2 7 10 7 2 3 7 4
Social 5 2 6 4 3 2 4 7
Total Score
 Feasibility Analysis

Feasibility Coal Gas Hydro Solar Nuclear Geotherm Biogas Grid

Operational 3 5 7 7 6 2 9 4
Market 7 6 10 5 5 6 5 6
Technical 7 2 5 3 4 8 6 9
Economic 8 2 5 3 8 2 10 5
Financial 6 10 5 4 8 9 5 2
Legal and Regulatory 2 5 9 5 2 3 5 5
Environmental 2 7 10 7 2 3 7 4
Social 5 2 6 4 3 2 4 7
Total Score 40 39 54 38 38 35 51 42
 Feasibility Analysis

Feasibility Coal Gas Hydro Solar Nuclear Geotherm Biogas Grid

Operational 3 5 7 7 6 2 9 4
Market 7 6 10 5 5 6 5 6
Technical 7 2 5 3 4 8 6 9
Economic 8 2 5 3 8 2 10 5
Financial 6 10 5 4 8 9 5 2
Legal and Regulatory 2 5 9 5 2 3 5 5
Environmental 2 7 10 7 2 3 7 4
Social 5 2 6 4 3 2 4 7
Total Score 40 39 54 38 38 35 51 42
 2
Feasibility Analysis
 2
Feasibility Analysis
Requirement: Connectivity between Noida  Agra

Feasibility

Total Score
 Project Selection Methods
Benefit Measurement Methods

Financial Models
PB
NPV
IRR
ARR
PI/BCR

Non-financial Models
EVA
Scoring model
Opportunity cost

Constrained Optimization Methods

 Concept of Capital Budgeting

Capital budgeting is a method of planning that is used to calculate the value of a long-term
investment in a project.
It involves recognising, assessing, and choosing lasting investments in factory or equipment.
It assists in calculating expenses and profits from a project. If the capital invested in a project
does not yield profits, it is of no use to the organisation.
An organisation should consider the following aspects while choosing a project:
Growth of the organisation
Risks
Arrangement of funds
Irreversibility of investment decisions
 Time Value of Money

Time Value of Money (TVM) is based on the theory that the value of the
present money is more than that of the equal amount of money in future.

Today After 1 Year

Rs. 100

Rs. 100
 Time Value of Money

Time Value of Money (TVM) is based on the theory that the value of the
present money is more than that of the equal amount of money in future.

Today After 1 Year

Rs. 100 Rs. 110

Rs. 90.9 Rs. 100

 Time Value of Money

Time Value of Money (TVM) is based on the theory that the value of the
present money is more than that of the equal amount of money in future.

Today After 1 Year After 2 Years

Rs. 100 Rs. 110 Rs. 121

Rs. 82.6 Rs. 90.9 Rs. 100

 Time Value of Money

Time Value of Money (TVM) is based on the theory that the value of the
present money is more than that of the equal amount of money in future.

Today After 1 Year After 2 Years

Rs. 100 Rs. 110 Rs. 121

Rs. 82.6 Rs. 90.9 Rs. 100

 Time Value of Money

If you are expected to receive Rs 5000 after 4 years. What will be the
Present Value of that amount?

If you are expected to receive Rs 5000 after 6 years. What will be the value
of that amount at the end of 2 years from now?
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461 473154

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461 473154

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV -1000000 363636 330579 300526 273205 248369 516315

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV
 Net Present Value Method
The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461 473154

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV -1000000 363636 330579 300526 273205 248369 516315

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV -1000000 454545 413223 300526 204904 186276 559475
 2

Net Present Value Method

The NPV method is widely used to assess the profitability of a project. NPV is the variation between the current
cash inflows and outflows in a given project. NPV can be calculated as:
NPV = C1/(1+r) + C2/(1+r)2 + C3/(1+r)3 +…..+ Cn/(1+r)n – I0
Where:
Ct = Net cash received at the end of year t
Io= Initial investment outlay
r = Discount rate/the required minimum rate of return on investment in a project
n = Time duration of the project (in years)

I C1 C2 C3 C4 C5 Total
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461 473154

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV -1000000 363636 330579 300526 273205 248369 516315

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV -1000000 454545 413223 300526 204904 186276 559475
 2

Net Present Value Method

 2

Net Present Value Method

HVL Products is considering a new project that develops a new

laundry detergent, TURF. The company has estimated that the
project's NPV is $3 million, but this does not consider that the new
laundry detergent will reduce the revenues received on its existing
laundry detergent products. Specifically, the company estimates
that if it develops TURF the company will lose $500,000 in after-tax
cash flows during each of the next 10 years because of the
cannibalization of its existing products. Ellison's WACC is 10
percent. What is the net present value (NPV) of undertaking TURF
after considering externalities?
Internal Rate of Return Method

The IRR method is a time-based method used to assess the capital investment decisions
and assists in choosing potentially profitable projects.
The internal profit rate is the discount rate that makes the NPVs of all cash flows equal
to nil.
In other words, IRR stands for the rate of interest at which the NPVs of all expenses
made on a project (cash outflow) equals to the NPVs of all revenue earned out of the
project (cash inflow).

I C1 C2 C3 C4 C5 IRR
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV @ IRR

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV @ IRR

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV @ IRR
Internal Rate of Return Method

The IRR method is a time-based method used to assess the capital investment decisions
and assists in choosing potentially profitable projects.
The internal profit rate is the discount rate that makes the NPVs of all cash flows equal
to nil.
In other words, IRR stands for the rate of interest at which the NPVs of all expenses
made on a project (cash outflow) equals to the NPVs of all revenue earned out of the
project (cash inflow).

I C1 C2 C3 C4 C5 IRR
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV @ IRR 25 %

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV @ IRR 29 %

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV @ IRR 33 %
Internal Rate of Return Method

The IRR method is a time-based method used to assess the capital investment decisions
and assists in choosing potentially profitable projects.
The internal profit rate is the discount rate that makes the NPVs of all cash flows equal
to nil.
In other words, IRR stands for the rate of interest at which the NPVs of all expenses
made on a project (cash outflow) equals to the NPVs of all revenue earned out of the
project (cash inflow).

I C1 C2 C3 C4 C5 IRR
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV @ IRR -1000000 239546 191274 203640 203254 162296 25 %

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV @ IRR -1000000 310924 241684 187863 146027 113508 29 %

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV @ IRR -1000000 376523 283539 170814 96473 72649 33 %
 2

Net Present Value Method

The IRR for this project will be ?

Internal Rate of Return Method

Available Options:
A) Invest in one of the following projects
B) Invest in Govt. Securities @ 9.5 %

I C1 C2 C3 C4 C5 IRR
Cashflow -1000000 200000 200000 250000 300000 300000
Project-01

Cashflow -1000000 250000 250000 250000 250000 250000

Project-02

Cashflow -1000000 300000 300000 250000 200000 200000

Project-03
Internal Rate of Return Method

Available Options:
A) Invest in one of the following projects
B) Invest in Govt. Securities @ 9.5 %

I C1 C2 C3 C4 C5 IRR
Cashflow -1000000 200000 200000 250000 300000 300000
Project-01
NPV @ IRR -1000000 186410 173744 202423 226403 211019 7.29%

Cashflow -1000000 250000 250000 250000 250000 250000

Project-02
NPV @ IRR -1000000 231630 214610 198840 184229 170692 7.93%

Cashflow -1000000 300000 300000 250000 200000 200000

Project-03
NPV @ IRR -1000000 276033 253981 194742 143348 131896 8.68%
Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow
Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow
Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000 -700000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow
Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000 -700000 -400000 0 500000 1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow
Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000 -700000 -400000 0 500000 1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow -1000000 -600000 -200000 200000 600000 1000000

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow
 3

Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000 -700000 -400000 0 500000 1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow -1000000 -600000 -200000 200000 600000 1000000

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow -1000000 -500000 0 400000 700000 1000000
 3

Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000 -700000 -400000 0 500000 1000000

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow -1000000 -600000 -200000 200000 600000 1000000

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow -1000000 -500000 0 400000 700000 1000000
 3

Payback Period Method

The Payback Period (PB) method is a traditional method to assess investment in a project.
The payback period refers to the time consumed to retrieve the earlier expense of the project.
The fundamental theory of the PB method is that if the initial expense of a project is earned quickly,
then the project is considered to be profitable.
The projects that take less time to recover initial costs are graded higher than the projects that take
more time for payback.
Payback Period = Investment required for the project/Net annual return or cash inflow

With NPV I C1 C2 C3 C4 C5
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
Cum Cash Flow -1000000 -727273 -479339 -178813 162694 473154

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
Cum Cash Flow -1000000 -636364 -305785 -5259 267946 516315

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
Cum Cash Flow -1000000 -545455 -132231 168295 373199 559475
 Accounting Rate of Return Method

It deals with the accounting gains of a project instead of the cash flows.
The mathematical formula for calculating ARR is as follows:
ARR = (Average Income/Average Investment) * 100
Here, the average income is defined as Earnings Before Interest and after
Taxes (EBIT). EBIT relates to the total gain from a project before the
payment of interest on capital and taxes.
Profitability Index Method

PI = PV of cash inflows / Initial cash outflow or initial investment

I C1 C2 C3 C4 C5 PI
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV -1000000 363636 330579 300526 273205 248369

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV -1000000 454545 413223 300526 204904 186276
Profitability Index Method

PI = PV of cash inflows / Initial cash outflow or initial investment

I C1 C2 C3 C4 C5 PI
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461 1.47

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV -1000000 363636 330579 300526 273205 248369

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV -1000000 454545 413223 300526 204904 186276
Profitability Index Method

PI = PV of cash inflows / Initial cash outflow or initial investment

I C1 C2 C3 C4 C5 PI
Cashflow -1000000 300000 300000 400000 500000 500000
Project-01
NPV -1000000 272727 247934 300526 341507 310461 1.47

Cashflow -1000000 400000 400000 400000 400000 400000

Project-02
NPV -1000000 363636 330579 300526 273205 248369 1.52

Cashflow -1000000 500000 500000 400000 300000 300000

Project-03
NPV -1000000 454545 413223 300526 204904 186276 1.56
Project Charter (PMBOK Definition)

A document issued by the project initiator

or sponsor that formally authorizes the
existence of project and provides the
project manager with the authority to
apply organizational resources to project
activities.
 Request for Proposal/Bid (RFP/RFB)

Steps in Tendering Process

1.Determining the type of tender that will be used
2.Preparing a request for tender outlining contractual requirements
3.Floating the invitation for tender to the target audience depending on the
category of business
4.Getting response from suppliers and addressing to their queries
5.Collecting tenders submitted by the suppliers
6.Evaluating tenders for compliance and selecting the one that offers the best
value
7.Informing the supplier (whose tender is selected) about the outcome of the
contract in writing
 Request for Proposal/Bid (RFP/RFB)

Bid Evaluation and Comparison

During tender evaluation, three terms are used frequently. They are:
Deviation: It refers to nonconformity to the requirements specified in the tender
document. Material deviation is the one that affects project scope, quality or the
performance of goods or services.
Reservation: It refers to withholding from complete acceptance of the requirements
specified in the tender document.
Omission: It refers to the bidder’s failure to submit part or all information or
documentation required in the tender document.
 Request for Proposal/Bid (RFP/RFB)

Bid Evaluation and Comparison

The buyer will only evaluate and compare the tenders which are found to be
substantially responsive to the requirements of tender documents.
Bid prices are first corrected for any mathematical errors.
After the evaluation process has been completed, the MPT has to
recommend a bidder (supplier). If approval is given on the bidder by the
competent authority as per the organisation’s internal policies and
procedures, the team can formally enter into a contract.
Option-01 Option-02 Option-03 Option-04 Option-05
Option-01 Option-02 Option-03 Option-04 Option-05
Option-01 Option-02 Option-03 Option-04 Option-05
Option-01 Option-02 Option-03 Option-04 Option-05
Option-01 Option-02 Option-03 Option-04 Option-05
Option-01 Option-02 Option-03 Option-04 Option-05
 Option-01 Option-02 Option-03 Option-04 Option-05

Final Recommendations
 Option-01 Option-02 Option-03 Option-04 Option-05

Final Recommendations L-03 L-01 L-02 Not Accept.

Post Your Query

Course related queries are channelized through Blackboard. To post a query

relating to this course presentation please login to Student Zone.