Lecture 7: Basics of Project Planning - PowerPoint PPT Presentation

1 / 48
About This Presentation
Title:

Lecture 7: Basics of Project Planning

Description:

Title: Lecture 6: Setting up the Project Author: Staff Last modified by: Customer Created Date: 12/27/1998 10:42:14 PM Document presentation format – PowerPoint PPT presentation

Number of Views:253
Avg rating:3.0/5.0
Slides: 49
Provided by: Sta7176
Category:

less

Transcript and Presenter's Notes

Title: Lecture 7: Basics of Project Planning


1
Lecture 7 Basics of Project Planning
2
Learning Objectives
  • Part 1 Introduce concepts, procedures regarding
    the analysis of agri/aquaculture projects
  • Part 2 Sources of funding and tactical
    objectives

3
The Project Concept
  • All projects suffer from poor preparation
  • Project planning identifies national, regional
    and/or company goals
  • selects priority areas of development (hatchery,
    farm, processing plant?)
  • designs effective pricing policies
  • mobilizes necessary resources

4
Why is Planning Required?
  • Waste is a tragic loss to poor countries
  • Projects are typically underestimated with
    respect to time and effort
  • When money sits in a bank, the bank does not
    care, you still have to pay debt service
  • He who hesitates is lost.

5
What is a Project?
  • Definition the whole complex of activities
    using resources to gain benefits
  • investment activity cash, equity, long-term
    financing
  • financial resources are expended
  • capital assets are created
  • benefits hopefully appreciate over time

6
Characterizing Aquaculture Projects
  • Two types economic development and private
    company (firm) type
  • large scale economic development type projects
    are part of a large program (e.g., World Bank
    irrigation projects)
  • can even be divided into smaller subprojects
    (e.g., CJEDP)
  • usually involve local counterparts
  • sometimes funded and administered by two
    different governments

7
(No Transcript)
8
Private Investment (Firms)
  • Usually small, minimum size from a financial
    standpoint
  • technologically, administratively feasible
  • specific starting point and end point
  • specific objectives
  • boundaries and clientele clearly defined
  • wholly independent administrative structure
  • funded through a mix of cash, equity, long-term
    financing

9
Project Planning
  • Most important factor is to have good planning
  • information includes potential and ongoing
    investments in the area
  • What effect will these investments have on
    growth? How will they affect your project? How
    much can be spent over duration of the project?
  • What resources are available for specific
    investment?

10
Project Planning
  • Projects are usually selected based in part on
    numerical indicators of value of costs and
    returns (ROI, NPV, IRR, etc.)
  • large-scale projects look at the same as above,
    but also national income, income of typical
    farmer
  • the typical yardstick might be market price
    (actual price at which goods and services are
    traded)
  • sometimes market price is not used instead, a
    better indicator of value (shadow price) is used
    (shadow price value based on scarcity of the
    resource)

11
Project Planning
  • Good planning also helps provide financial
    assistance to both types of projects
  • large-scale projects often concentrate on
    investment from outside sources (e.g., the World
    Bank)
  • often suggested they also look at local
    assistance (local development banks) however,
    criteria are different
  • small-scale projects often have to look both
    inside the country and outside
  • Homework come up with a concept/name for your
    project, create a list of possible funding
    sources available to aquaculture projects

12
Project Planning Targets
  • Large-scale projects target broader implications
    than private investment projects (e.g., social
    benefit, national income)
  • helpful to scrutinize just what are the policy or
    production targets
  • in large-scale projects, the issue of planning is
    often complicated by a need to coordinate with
    other plans and investments
  • both project types must consider scarcity of
    investment funds, foreign exchange rates, labor
    issues, etc.

13
The Project Format - Its Advantages
  • Advances/assesses by organizing info from many
    sources
  • gives ideas on cost, year by year, effects on
    participants, possible incentives
  • allows better judgement re-organization,
    administration problems are faced head-on
  • gives mgrs/planners better criteria for
    monitoring progress/implementation
  • encourages checking-out other alternatives
  • controls reliability of data
  • format well-suited to production projects
    w/clear-cut investments, valued costs/benefits

14
Project Preparation and Analysis
  • Only when all the aspects of a project are taken
    into consideration can its financial impact be
    truly realized - Why?
  • All elements are inter-related
  • Judgements about one affect the other
  • As project analysts, your job is to continually
    question technicians as to whether all aspects
    have been considered

15
The Project Cycle
  • Five phases
  • 1) identification (finding the project)
  • 2) prep/analysis (Does it have merit?)
  • 3) appraisal (critical review, independent)
  • 4) implementation (getting it started)
  • 5) evaluation (success or failure)

16
Identification Phase
  • Involves finding individual projects
  • usually identified by technical specialists,
    sometimes politicians
  • sometimes identified from other proposals to
    extend on-going programs
  • suggestions often arise due to present or
    anticipated lack of supply of some product
  • can be identified via common knowledge, market
    trends, import statistics
  • also by existing EDPs, bank reports, etc.

17
Preparation/Analysis Phase
  • This includes all work done to bring the project
    to the point of appraisal
  • first step feasibility study or business plan
  • these documents define objectives, suggest
    alternatives, indicate most efficient plan,
    convince
  • includes a preliminary financial or economic
    analyseis (better now vs. later)
  • nothing moves forward without financials

18
Preparation/Analysis Phase
  • Business plans and feasibility studies take time
    and money
  • business plan about two months
  • feasibility study compares projects, longer
  • costs are as high as 10 of project value
  • regained as improved ROI
  • undertaken by special team of consultants

19
Appraisal Phase
  • Critical review, independent evaluation
  • re-examines every aspect of the project plan to
    assess its logic/value prior to release of big
    money
  • may involve new information
  • required by most funding agencies
  • feasibility study read/approved by someone
    outside the agency

20
Implementation Phase
  • Objective of previous phases is to have a project
    that can be implemented to the benefit of
    recipients
  • the better and more realistic the project plan,
    the easier to implement
  • more likely it will be successful or beneficial
  • implementation needs to be flexible, though,
    considering changes in prices and technology
  • the greater the uncertainty or novelty of the
    project, the more changes will occur

21
Evaluation Phase
  • This phase regards evaluation of success or
    failure elements of a project with relevance to
    the future
  • usually takes place throughout the project, but
    sometimes only at the end
  • undertaken by sponsoring company, agency, etc.
  • some projects have separate internal units for
    this or use outsiders
  • Are or have objectives being/been met? If not,
    were the objectives realistic?

22
Evaluation Phase
  • Was the technology proposed appropriate?
  • Were the institutional, management arrangements
    suited to the conditions?
  • Were the financial aspects carefully worked out?
  • Were the economic aspects carefully explored?
  • Did management quickly respond to changes?
  • Was its response carefully considered and
    appropriate?
  • How could the projects structure be changed to
    make it more flexible?

23
Accuracy of Project Analysis
  • They are supposed to be the basis for investment
    decisions however
  • How accurate are they in foretelling future
    results?
  • Usually take the shape of performance reviews at
    end of implementation phase
  • typical indicator is ROI
  • most EDPs yield 20-25 returns
  • however, ROI is misleading due to changes in
    prices
  • poor financial predictability is the result of
    inappropriate technology, poor management, delays

24
Why Projects Often Go Wrong
  • When analysis fails to predict project success,
    it is likely due to poor project design and
    faulty implementation
  • projects are then typically audited to determine
    the reasons for poor performance
  • inappropriate technology
  • inadequate support systems/infrastructure
  • failure to appreciate social environment
  • administrative problems
  • adverse policy environment

25
Part 2 Sources of Funding
26
Learning Objectives
  • Strategic policy objectives in setting up
    projects
  • Investment strategies
  • Tactical objectives
  • Sources of funding
  • Investment appraisal methods, indices

27
Introductory Comments
  • Setting up an aquaculture project typically
    requires substantial investment
  • financial implications must be addressed well in
    advance
  • we will look at the likely costs of such projects
  • focus on ideas which are most critical

28
Strategic/Policy Objectives of Aquaculture
Projects
  • Governmental agencies social benefit, national
    income via increased taxation
  • Development agencies social benefit, securing
    of resources
  • others attracting foreign investment, improving
    balance of trade, transmigration
  • aquaculture investors, analysts must weigh the
    good against the bad

29
Socio-economic benefits derived from an
aquaculture project
Individual
Improved Std. Of Living
Income
Family
Employment
Municipal
Taxes
National/Community Development
National
AQUACULTURE PROJECT
Import Substitution
Foreign Exch. Savings
Domestic Market
Supply of Product
Additional Supply
Lowering of Prices
Production
Export Market
Increased Foreign Exchange Reserves
Stimulation of Economy
Demand for Materials
Domestic Market
30
How Aquaculture Projects Attract Foreign
Investment
  • Relaxing exchange controls
  • flexibility in foreignlocal joint ventures
  • simplifying legal requirements/red tape
  • providing training, information, support
  • promoting auxiliary industries (feed mills,
    processing plants, etc.)
  • cutting duties on imports of equipment and raw
    materials
  • providing tax holidays during implementation
    phase
  • permitting repatriation of profits/assets
  • providing infrastructure (aquaparks)

31
Investment Strategies
  • Private ventures range in size from large,
    vertically integrated firms to small backyard
    operations
  • single common element profit
  • investment decisions vary dependent upon scale
  • large companies usually look at long-term trends,
    look at product cycling
  • sometimes invest in unprofitable pilot projects
    in order to receive better future return

32
Investment Strategies smallholders
  • Aquaculture often serves as an alternative to
    other activities
  • examples agriculture, salt production
  • switching to aquaculture almost always means loss
    of income from established crops
  • low risk culture practices are often used to
    keep impact to a minimum
  • focus is on profitability of each run
  • farmer needs other occupation, income to cover
    periods of no aquaculture activity

33
Aquaculture and Farm Income
  • Introducing aquaculture to smallholders can help
    raise their income
  • however sources of inputs (fry) must be
    available
  • markets must be accessible
  • usually finfish production can produce greater
    yields for less input (more forgiving)
  • crustacean culture requires higher costs for
    lower yields
  • finfish production techniques are simpler
  • lower value of finfish also keeps it in local
    markets

34
Overlap Between Private Sector and Public Sector
  • Allows for cooperation and coordination of effort
  • government hatcheries are good example
  • contract growing schemes (nucleus estate
    planning)
  • passing of laws specific to aquaculture
  • organization of meetings, conferences, seminars

35
Tactical Development Objectives
  • Often specified with respect to desired rate of
    return (ROI)
  • other criteria used net profit before taxes,
    cashflows, net present value
  • returns reflect the sources of and cost of the
    capital employed
  • the cost of risk venture capital or equity
    depends upon return expected by shareholders

36
Tactical Objective debtequity
  • Cost of funds borrowed from a funding/loan
    institution vary according to interest rates,
    duration, size of loan
  • cost of loans is less than the cost of risk
    equity
  • average cost of capital is dependent upon
    gearing ratio (debtequity ratio)
  • when interest rates are low, D/E ratio is high
  • equity-based companies do better when interest
    rates are high

37
Tactical Objectives rate of return
  • What is an appropriate rate of return?
  • Aquaculture represents risk and is hazardous
    compared to other ventures
  • therefore it must generate higher than normal
    returns to be attractive/worthwhile
  • most banks look at 20-25 ROI as favorable
  • other option is to assign a risk premium of 5
    over normal return
  • the higher the intensity or more untried the
    technology, the higher the risk premium

38
Funding Sources
  • There are two basic sources of funding 1)
    capital assistance and 2) private investment
  • capital assistance loans, grant aid, cash
    grants
  • for developing nations, this comes from external
    loans (World Bank, Commonwealth Development
    Corporation, Banco International de Desarollo,
    etc.)
  • grant aid USAID, UNIDO, WHO, Swiss, Japanese,
    Norwegians
  • developed countries subsidies and enterprise
    grants

39
Funding Sources capital assistance
  • Most loans provided are low interest rate,
    extended repayment, concessionary in nature
  • high percentage of Asian Development Bank loans
    are for aquaculture
  • around 10 of all aquaculture loans are via the
    World Bank
  • grant-aid/grants are not paid back, real benefit
    is in reducing trade imbalances
  • assistance is often provided in form of technology

40
Funding Sources credit institutions
  • These sources are typically accessed by
    smallholders
  • consist of agricultural, fisheries and
    cooperative banks with numerous branches
  • small loans are provided promptly with minimum
    bureaucracy
  • some technical and marketing assistance provided
  • briefing to farmers on purpose and use of credit
    should also be provided (not often)

41
Funding Sources private investment
  • Can be foreign or domestic
  • private or public sale of equity (shares/stock)
  • backed up by commercial financing
  • sometimes referred to as venture capital or
    equity
  • venture capital available through specialized
    companies (CAIM)
  • they expect high rates of return and consider
    capital needs of aquaculture firms typically too
    small

42
Funding Sources venture capital
  • Criteria include annual growth rates of 25-50
  • pre-tax margins of at least 35
  • minimum ROI of at least 30
  • public offering of stock in 5-8 years
  • must be unique technology
  • 30 ownership of project by venture capital firm
  • minimum investment of around 500,000
  • exit strategy on public sale of 4-7x

43
Funding Sources public sales
  • Accomplished through offering of sales
  • large publicly-traded companies offer shares for
    sale, but often not in reference to only their
    aquaculture efforts
  • aquaculture is considered a diversification

44
Funding Sources joint ventures
  • Developing nations have attracted foreign
    investment via aquaculture
  • Why? Land is cheaper, labor cheap, favorable
    climate
  • often this is an arrangement between a local
    owner and foreign investor
  • production targets the export market due to
    limited local market (product too expensive)
  • regulations as to percentage ownership vary

45
Funding Sources joint ventures
  • Many joint ventures with foreigners call for
    foreign partner providing technical expertise
  • if technical expertise has no experience within
    country, project usually started as a pilot
  • only if technical experts are really experienced
    should construction start immediately
  • site must achieve recommended criteria

46
Funding Sources joint ventures
  • Most loan institutions consider cash king
  • consultants taking an equity position can seldom
    convince them to recognize their consulting rates
  • equity fund/venture capital partners are very
    skeptical of anything but cash
  • they will want to see the company established,
    land purchased, business plan, financials,
    distribution of shares, compensation packages,
    etc. prior to taking the plunge

47
Evaluating Joint Venture Partners
  • Partners can be cash or in-kind (e.g., land)
    participants
  • if in-kind (sweat equity), the value of shares
    is often less than par value
  • if parnters come in late, they dont receive a
    11 (par) disbursement of shares
  • if land is to be used as equity, have it
    appraised by three parties your own appraiser,
    the land owners appraiser, and by a neutral
    third-party (take the average)

48
Other Funding Issues
  • Aquacultures bad track record on debt service,
    loan payback (examples)
  • simple ignorance of aquaculture on part of
    funding agencies
  • most companies go bankrupt due to lack of cash
    (undercapitalized), not lack of profits
  • financial crisis often result in rapid failure,
    whereas biological crisis can be solved
  • recognition of adequate funds for implementation
    phase is critical
Write a Comment
User Comments (0)
About PowerShow.com