Dated : 21st April 2013

Report on Project Cost Management practices in Arsalan Foods.

Submitted To : Fahad Paracha Szabist

Submitted By Syed Mohammad Ali Abbas Rizvi Syeda Masooma Naqvi Mohammad Lubaib Chandio Syed Arsalan Afsar

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Table of Contents
INTRODUCTION: ...................................................................................... 3 Company`s Vision.................................................................................... 3 Company`s Mission ................................................................................. 4 Words with Rao Rizwan (CEO) of Arsalan Foods. .................................... 4 Why is Cost Management so important in projects? .............................. 4 Existing Project Cost Management Process in Arsalan Foods ................. 5 Analogous Estimation ............................................................................. 6 Bids from Vendors .................................................................................. 6 Expert Judgment ..................................................................................... 7 Recommendation: .................................................................................. 7

*copy of this report is also submitted to Arsalan Foods.

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INTRODUCTION:
Arsalan Foods has developed a history of entrepreneurial excellence ever since its inception in 1987. Their management techniques, quality standards, and passion for growth have propelled them to the top of the Pakistani food industry. Their product diversification and market development strategies have enabled them to grow tenfold within a decade. Today their products portfolio includes bread, fruit buns, rusks and many other bread items. They believe their employees constitute their main differentiating factor and that effective application of the latest management and leadership techniques are essential for creating value in the corporate environment. Arsalan Foods enjoys the privilege of being an equal opportunity employer and they envision their organization as an integrated whole with all the parts acting in conjunction and harmony with each other. Market development and penetration are their key priorities at the moment and they believe their product portfolio demands a global audience. In this regard they have established an import-Export department to explore probable markets and develop positioning strategies. Their installed production capacity and expected additional increment mean they are in an ideal position to develop foreign markets while maintaining top quality services to local consumers. Together we hope to emancipate a new era of food revolution adhering to our core competencies of excellent customer service and differentiated products. Constant innovation and redefining our core processes is a daily mantra and we aim at, nay we foretell of greater things to come. By Rao Rizwan Chief Executive Officer

Company`s Vision
Our vision is to be the worlds premier food company, offering nutritious, superior tasting breads to people in Pakistan. Being the premier bread company does not mean being the biggest but it does mean being the best in terms of consumer value, customer service, employee talent, and consistent and predictable growth.

*copy of this report is also submitted to Arsalan Foods.

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Company`s Mission
To make, distribute & sell the finest quality bread products with a continued commitment to incorporating wholesome, natural ingredients and promoting best business practices.

Words with Rao Rizwan - CEO of Arsalan Foods.

Due to the rapidly changing nature of our market and cut throat competition it is essential for us to keep introducing new products in order to keep pace. This also helps us in maintaining market share as well as allows the brand to reach a diversified audience thus ensuring constant growth of Professional Family. Our Projects are not completely managed as per Standards and Practices describe by PMBOK but to some extent we are using similar practices as the top control approach for costing. For every new idea, process, or product a prefeasibility analysis is made by the companys higher management. Financial viability can be judged on the following parameters:

Total estimated cost of the project (a ball park value) Financing of the project in terms of its capital structure, debt equity ratio and promoter's share of total cost Existing investment by the promoter in any other business Projected cash flow and profitability

Why is Cost Management important in projects?

A Cost Management process helps you control expenses within an organization. By purchasing the Project Cost Management process advertised here, you can ensure that all expenses are approved before they are paid. Using this project Cost Management process, you can ensure that your project is delivered within budget. For a company's management to be effective overall, cost management must be an integral feature. It is easiest to understand this concept if it is explained in the context of a single project. For instance, before a project is started, the anticipated costs should be identified and measured. These expenses should then be approved before any purchasing occurs. During the process of completing a project, all incurred costs should be noted and kept in a record of some kind, to help ensure that the costs are controlled and kept in line with initial expectations, to the extent that this is possible.
*copy of this report is also submitted to Arsalan Foods.

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Taking this approach to cost management will help a company determine whether they accurately estimated expenses at first, and will help them more closely predict expenses in the future. Any overspending can also be monitored in this way and either eliminates in future projects or specifically approved if the expense was necessary. Cost management cannot be used in isolation; projects must be organized and tailored with this strategy in mind. Starting a project with cost management in mind will help to avoid certain pitfalls that may be present otherwise. If the objectives of the project are not clearly defined at first, or are changed during the course of the project, cost over-runs will be more likely to occur. If costs are not fully researched before the project, they may be underestimated, thereby inflating the expectation of the project's success unrealistically. Construction projects are subject to their own particular challenges; these can include constraints in the form of laws and regulations that must be planned around. If the project is completely and clearly defined, this will facilitate effective management of the costs it will incur. Effective cost management strategies will help a team deliver a finished project within the allocated budget, while also making it as valuable as possible to the company. There is always the possibility of unexpected costs, but preparation in the form of cost management will likely make them much easier to deal with when they occur.

Existing Project Cost Management Process in Arsalan Foods

There are two conventional costing approaches used in Arsalan Foods. The first, and more common, is process costing. Used in most mass-production settings, a process cost system analyzes the net cost of a manufacturing process, say filling bottles with soda, over a specified period of time. The unit cost for filling bottles is simply the net costs incurred while filling all the bottles during the period divided by the number of bottles filled. Since most manufacturing processes involve more than one step, a similar calculation is made for each step to arrive at a unit cost average for the entire production system. In contrast, the second major costing method, job-order costing, is concerned with tracking all the costs on an individual product basis. This is useful in settings where each unit of production is customized or where there are very few units produced, such as in building pianos, ships, or airplanes. Under job order costing, the exact costs incurred in the production of a particular unit are recorded and are not necessarily averaged with those of any other unit, since every unit may be different. Job-order costing is also widely used outside manufacturing. A single manufacturer may use both process and job-order costing
*copy of this report is also submitted to Arsalan Foods.

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for different parts of its operations. Cost estimation depends upon the nature of project being undertaken. Currently the product cost or project cost is estimated on the following parameter mostly by the Marketing Director accomplished with financial and production personnel. Moreover some excel sheet has been generated internally to estimate the cost of project even though you have very efficient estimates but you have to include a contingency margin to overcome the human error or market inflation.

Project Cost Management Collect Estimates Develop Budget

Cost Control

The following list includes common tools and techniques used in project cost estimation:

Analogous Estimation
As stated earlier the need of project is initiated by company`s higher management, so most of the time estimation is done by or under the supervision of higher management using the previous completed projects.

Bids from Vendors

Most of the time project is initiated by CEO of the company and also the managed by him, so he often has estimates from the vendors by floating request for proposals and request for quotation. Some RFPs and RFQs are attached with this report.

*copy of this report is also submitted to Arsalan Foods.

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Expert Judgment
Use of knowledge gained from past project management experience. Expert judgment, in conjunction with objective estimation techniques, provides valuable information about the organizational environment and information from prior comparable projects.

Recommendation:
As per above context and after analyzing the existing cost management practices , it is recommended that it better not rely on Vendors bids or ball park values for the experienced resources , use the project management practices to estimate and control the cost of project. It is only possible when projects are treated as a project described in PMBOK. Project Cost Management Process helps you to monitor and report all expenses within a project. Costs (or "expenses") are recorded by team members, using expense forms. These forms are reviewed and approved by the Project Manager, prior to the expense items being purchased. The project cost management process steps you through this process, to ensure that all of the costs within your project are accurately recorded and tracked. This project cost management process will help you to:

Identify each of the costs within your project Ensure that expenses are approved before purchasing Keep a central record of all costs incurred Control the overall cost of your project Determine whether your expenses were adequately budgeted Monitor and control instances of over-spending Gain special approvals for extra-ordinary expenses Schedule expense payments and invoice approvals Keep your project and financial plans up-to-date To deliver your project under budget, it is essential that you implement an effective and efficient project cost management process. This process will help you identify, monitor and control costs, at each phase in the project. If you want to control the way that expenses are incurred, then you need to implement a Cost Management process. It will help you to control project expenses, ensuring that only
*copy of this report is also submitted to Arsalan Foods.

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expenses which have been approved, may take place. Using this Cost Management process, you can also keep your project plan up-to-date with the latest expense information available

*copy of this report is also submitted to Arsalan Foods.