COST OF
ESTIMATING PROJECT : COMPONENTS OF COST OF PROJECT
PROJECT
MANAGEMENT
•
PROJECT COST ESTIMATION
- CORRECT ESTIMATION OF THE CAPITAL COST OF A PROJECT IS THE FOUNDATION
OVER WHICH FINANCIAL APPRAISAL STANDS
- NEED FOR CORRECT COST ESTIMATION
- IF THE COST IS UNDER ESTIMATED THE PROJECT WILL RUN SHORT OF FUNDS
- IF THE PROJECT IS OVER ESTIMATED : DIVERSION OF FUNDS
- COST IS REQUIRED TO PROCURE ALL THE NEEDED PRODUCTS, SERVICES AND
RESOURCES TO DELIVER THE PROJECT SUCCESSFULLY.
- IN CONSTRUCTION: COST ESTIMATION STARTS FROM LAND ACQUISITION COST,
CONSTRUCTION COST, MATERIALS COST AND ADMINISTRATION COST,LABOUR COST AND
OTHER DIRECT AND INDIRECT COST.
- COST IS REQUIRED TO PROCURE ALL THE NEEDED PRODUCTS, SERVICES AND
RESOURCES TO DELIVER THE PROJECT SUCCESSFULLY.
- IN CONSTRUCTION: COST ESTIMATION STARTS FROM LAND ACQUISITION COST,
CONSTRUCTION COST, MATERIALS COST AND ADMINISTRATION COST,LABOUR COST AND
OTHER DIRECT AND INDIRECT COST.
•
CAPITAL COST
- ALL THE COST INCURRED IN THE PROJECT BEFORE IT BECOMES READY TO START
COMMERCIAL PRODUCTION WILL BE TREATED AS CAPITAL COST.
- CAPITAL COST WILL NOT ONLY INCLUDE EXPENDITURE ON ASSETS SUCH AS LAND,
PLANT, MACHINERY, TOWNSHIP BUT ALSO SOFTWARE COST SUCH AS DESIGN,ENGINEERING,LICENCOR'S FEES, MANAGEMENT AND SUPERVISION AND EVEN PREOPERATIVE EXPENSES.
•
TOTAL COST
1.
CAPITAL COST
2.
WORKING CAPITAL COST : THE FUNDS REQUIRED FOR MAINTAINING VARIOUS
INVENTORIES LIKE RM,WIP AND FG
3.
OPERATING COST : COSTS WHICH WILL BE
INCURRED ON RECURRING BASIS FOR PRODUCTION ,MAINTENANCE AND MARKETING. RAW
MATERIALS,LABOUR AND UTILITIES AND ALSO INCLUDE THE INTEREST LOAN TAKEN FOR
FINANCE
•
TOTAL FUNDS
•
EXAMPLE
1.
LAND
AMOUNT IN RS
2.
LAND DEVELOPMENT
3.
BUILDING
4.
PLANT MACHINERY
5.
ELECTRICAL
6.
TRANSPORT AND ERECTION CHARGES
7. CONTINGENCY
9. KNOW HOW CONSULTANCY CHARGES
10. MISCELLANEOUS
11.
PRELIMINARY OPERATIVE EXPENSES
12.
WORKING CAPITAL MARGIN
•
COMPONENTS OF CAPITAL COST OF THE PROJECT
- LAND AND LAND
DEVELOPMENT
- BUILDINGS
- PLANT AND
MACHINERY
- ELECTRICAL
- TRANSPORT AND
ERECTION CHARGES
- KNOW HOW
CONSULTANCY FEES
- MISCELLANEOUS
ASSETS
- PRELIMINARY AND
PREOPERATIVE EXPENSES
- PROVISION FOR
- MARGIN MONEY FOR
WORKING CAPITAL
- LAND
1)
FIRST THING HAS TO DECIDE EXTENT OF LAND REQUIRED FOR THE PROJECT
2)
PROJECT IS SMALL ---POSSIBILITY OF
BUILDING TAKEN ON LEASE MAY BE CONSIDERED
3)
COMPARISON HAS TO BE MADE ---- LEASED BUILDING AND STARTING THE BUSINESS ON
HIS OWN LAND
4)
THE COMPONENT OF LAND COMES IN THE PICTURE WHEN WE DECIDE TO SET UP THE
PROJECT ON OWN LAND
5)
EXTENT OF LAND IS DECIDED UPON THE BUILDING PLAN
6)
SUFFICIENT ALLOWANCES FOR OPEN SPACE
7)
EXPANSION PLANS FOR FUTURE
8)
SOME INDUSTRIES– WHERE RAW MATERIALS ARE STORES IN OPEN SUFFICIENT OPEN LAND
SHOULD BE THERE
9)
LOCATION
10)
THE COST OF LAND INCLUDES THE LEGAL CHARGES PAYABLE FOR REGISTRATION OF SALE
DEEDS
•
LAND DEVELOPMENT
1)
COST OF LEVELING OF LAND
2)
COST OF LAYING INTERNAL ROAD
3)
COST OF PROVIDING FENCES AND GATES
4)
NEED OF CORRECT ESTIMATION
•
BUILDING
1)
MAIN
FACTORY BUILDINGS
2)
ANCILLARY
FACTORY BUILDINGS
3)
ADMINISTRATIVE
BUILDINGS
4)
LABORATORY
5)
GODOWNS
6)
TOILET
BLOCKS
7)
UNDERGROUND
WATER STORAGE
8)
CANTEENS,REST
ROOMS AND GUEST HOUSE
9)
QUARTERS
FOR ESSENTIAL STAFF
•
BUILDING
1)
THE PLANT LAY OUT FOR THE PROJECT
SHOULD BE STUDIED AND ANALYZED
2)
MAIN FACTORY BUILDING DEPENDS UPON THE PLANT LAYOUT
3)
BUILT UP AREA
4)
TYPE OF ROOFING -----DETERMINANTS OF COST OF THE PROJECT
5)
NATURE OF SUPER STRUCTURE WALLS COLUMNS,BEAMS ETC DEPEND UPON THE ROOFING
6)
ADMINISTRATIVE BUILDING ---- REINFORCED CONCRETE SLAB ROOFING
7)
FACTORY HALL, GODOWNS AND OTHER BUILDING--- INDUSTRIAL ROOFING
8)
THE HEIGHT OF FACTORY – AFTER DETERMINATION OF THE HEIGHT OF MACHINERY
PLANT AND MACHINERY ;
INDIGENOUS PLANTS : COST OF INDIGENOUS PLANS INCLUDE BASIC PRICE
PLUS GST .
WHILE CHOOSING MACHINERY SUPPLIER.THEIR
PERFORMANCE AND REPUTATION SHOULD BE CONSIDERED
PLANT AND MACHINERY ;
IMPORTED PLANT MACHINERY :THE COST OF IMPORTED PLANT :
1)
SUM OF FOB ( FREE ON BOARD) VALUE OF THE PLANT TO BE IMPORTED
2)
SHIPPING /AIR CARGO FREIGHT CHARGES,MARINE AIR INSURANCE CHARGES,IMPORT
DUTY,CLEARING CHARGES,LOADING AND UPLOADING CHARGES
COST OF POWER GENERATOR IS TO BE INCLUDED IN
THE COST OF PLANT AND MACHINERY
NEED OF
OTHER EQUIPMENT : LABORATORY EQUIPMENT,TOOLS ROOM MACHINERY IS ALSO CONSIDERED
• ELECTRICAL
1)
COST
OF CABLES
2)
PANEL
BOARDS
3)
VOLTAGE STABILIZERS IN CASE OF NEED OF
DRAWING ELECTRIC POWER FROM A HIGH
TENSION POWER LINE
•
TRANSPORT AND
ERECTION CHARGES
1)
LOADING
AND UNLOADING
2)
ERECTION
CHARGES:-MACHINERY FOUNDATION,ASSEMBLING AND ERECTION EXPENSES
•
KNOW-HOW/CONSULTANCY FEES
1)
KNOW
HOW FEES TO TECHNICAL CONSULTANT
2)
EXPENSES
OF TRAINING EMPLOYEES IN THE PRODUCTION PROCESS
• MISCELLANEOUS ASSETS
1)
DO NOT FORM PART OF PLANT AND MACHINERY
2)
ALLIED TO INDUSTRIAL ACTIVITY
•
FOR EXAMPLE :
•
OFFICE EQUIPMENT,FURNITURE,FIRE FIGHTING EQUIPMENT ,WATER COOLERS,AIR
CONDITIONERS
•
CASH DEPOSIT WITH ELECTRICITY BOARD FOR GETTING POWER CONNECTION
•
PRELIMINARY AND PRE OPERATIVE EXPENSES
• MISCELLANEOUS EXPENSES THAT ARE INCURRED BEFORE THE PROJECT TAKES SHAPE AND
START COMMISSIONING
1)
INVESTIGATION FEES,SERVICES CHARGES ETC TO BANKS ,FINANCIAL INSTITUTIONS
2)
COMMITMENT CHARGES PAYABLE ON THE LOANS OFFERED BY FINANCIAL INSTITUTIONS AND
BANKS
3)
INTEREST ON LOANS DURING IMPLEMENTATION PERIOD
4)
MORTGAGE EXPENSES
5)
EXPENSES ON CAPITAL ISSUES
6)
INSURANCE CHARGES
•
PROVISIONS FOR
1)
THE COST ESTIMATE OF LAND ,LAND DEVELOPMENT,BUILDING,PLANT AND
MACHINERY,ELECTRICAL,TRANSPORT AND ERECTION THAT ARE MADE ON THE BASIS ON
CERTAIN ASSUMPTIONS
2)
WHILE ACTUALLY IMPLEMENTING THE PROJECT IT IS MORE LIKELY THERE MAY BE
DEVIATION BETWEEN THE ESTIMATED COST AND ACTUAL COST
3)
MARGIN MONEY FOR WORKING CAPITAL
•
PROJECT NEED FUNDS FOR TWO PURPOSE :
1)
SETTING UP OF THE PROJECT
2)
MAINTAINING THE OPERATIONS OF THE PLANT
SETTING UP THE PROJECT CONSISTS OF INVESTMENT
IN FIXED ASSETS AND FUNDS REQUIRED FOR WORKING CAPITAL
•
MARGIN MONEY FOR WORKING CAPITAL
•
FINANCING THE FIXED ASSETS AND
WORKING CAPITAL THE FINANCIER EXPECT A
MARGIN REQUIRED AND THAT IS TO BE BROUGHT BY THE PROMOTERS
•
MARGIN MONEY FOR WORKING CAPITAL= WORKING CAPITAL REQUIREMENTS -PROBABLE
WORKING CAPITAL LOAN THAT CAN BE OBTAINED FROM BANK
•
MARGIN MONEY FOR WORKING CAPITAL
•
MARGIN
MONEY FOR WORKING CAPITAL=WORKING CAPITAL REQUIREMENT-WORKING CAPITAL LOAN
•
COMPONENT
OF WORKING CAPITAL
1)
RAW MATERIAL
2)
WORK IN PROGRESS = COST OF RM+DIRECT EXPENSES+OVERHEAD
3)
FINISHED GOODS =WIP+ ADMINISTRATION + SALE DISTRIBUTION EXPENSES
4)
BOOK DEBTS
5)
CREDITORS FOR RAW MATERIAL AND CONSUMABLE
6)
WORKING CAPITAL REQUIREMENT
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