PM0012 – PROJECT FINANCE AND BUDGETING

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Assignment

DRIVE	WINTER 2014
PROGRAM	MBADS (SEM 3/SEM 5) MBAFLEX/ MBA (SEM 3) PGDPMN (SEM 1)
SUBJECT CODE & NAME	PM 0012 – PROJECT FINANCE AND BUDGETING
BK ID	B1938
CREDIT & MARKS	4 CREDITS & 60 MARKS

1 Write short notes on:

(a) Key project resources: Committing to resources, both financially and contractually, means looking closely at your budget and the needs of the project. The tighter the budget, the more important it is that you run a streamlined project, and the more efficiently you'll have to utilize your resources. Your overall project resources will include:

·         How many people you need for the project: This is not necessarily the number of people who will be involved at any level, but the number of people you will need to get the project accomplished.

(b)Three main requirements of funding a project through project finance:

·         Applicants should have South African citizenship and should be 18 years and above. Applicants should have a legal status as adults. There will not be funding for ad hoc groups.

·         The NAC is unlikely to fund the entire budget of the project. Applicants are advised to raise other funding.

·         Funding generally granted for mainly the artistic program and applicants must declare all sources of funding.

·          

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 (c) Medium term financing for projects: Medium Term finance are sources of finance available for the mid-term of between 3 – 5 years typically used to finance an expansion of a business or to purchase large fixed assets.  It is usually the larger amounts of borrowing or the use of the funds that differentiates medium sources of finance from short term, although a number of the short term options are available for the mid-term.

The annual cost of medium term

(d) Bottom up estimation for creating project budget: Bottom up approach is used for creating projects. By using this approach project management system works properly and this approach is also beneficial for project managers also.

These five steps will send

2 What is off take contract? Explain the various types of off take contracts.

Answer: An agreement entered between a producer and a buyer to buy/sell a certain amount of the future production. It is generally negotiated long before the construction of a facility to guarantee a market for the facility's future production and improve chances of getting financing for the installation concerned.

These agreements are fairly common in the natural resource sector, where capital costs to extract the resources are important. They usually include several protective clauses and can take months to negotiate.

3 Explain the different key project documents.

Answer: In Project Management, one of the major responsibilities of the project manager is to keep proper documentation for the project and to keep the documents up to date. At any point in time during the life of the project, these documents can be really useful consulting about the various aspects related to the project. When it comes to managing the project effectively, there are certain documentation standards that the manager should adhere with. So, for a manager to know which documents these are and then keeping them and maintaining standards for these holds a lot of significance.

4 Write short notes on:

(a)Project parties in a construction project: A project cannot proceed without adequate financing, and the cost of providing adequate financing can be quite large. For these reasons, attention to project finance is an important aspect of project management. Finance is also a concern to the other organizations involved in a project such as the general contractor and material suppliers. Unless an owner immediately and

(b)Types of working capital: Working capital is classified into different types and the classification is based on the following views:

·         Balance Sheet View

·         Operating Cycle

·          

(c) Project cash flows: When beginning capital-budgeting analysis, it is important to determine a project's cash flows. These cash flows can be segmented as follows:

·         Initial Investment Outlay: These are the costs that are needed to start the project, such as new equipment, installation, etc.

·         Operating Cash Flow over a Project's Life: This is the additional cash flow a new project generates.

·         Terminal-Year Cash Flow: This is the final cash flow, both the inflows and outflows, at the end of the project's life; for example, potential salvage value at the end of a machine's life. Example: Expansion Project

 (d)Payback period method used to evaluate an investment on a project: Payback method does not consider the present value of cash flows. Under this method, an investment project is accepted or rejected on the basis of payback period. Payback period means the period of time that a project requires recovering the money invested in it. The payback period of a project is expressed in years and is computed using the following formula:

5 What are the problems associated with BOOT projects.

Answer: A BOOT funding model involves a single organisation, or consortium (BOOT provider) designing, building, funding, owning and operating the scheme for a defined period of time and then transferring this ownership across to an agreed party.

Customers enter into long term supply contracts with the BOOT operator and are charged accordingly for the service delivered. The service

6 Explain the different types of management contracts (a type of PPP).

Answer: PPPs can be categorized into two types: a PPP of a purely contractual nature and a PPP of an institutional nature. This categorization is adopted by the European Union and by many other countries.

In a PPP of a purely contractual nature, the partnership between the public and the private sector is based solely on contractual links,

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