Capstone Project/ Design

Learning Outcomes
At the end of the lecture, students are expected to be able
to conduct capstone project,
to demonstrate project management, and
to demonstrate financial management.

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 What is capstone project?
It can be research-oriented or design-oriented.

Identifying a problem in practical power system, and

developing solutions to address it.

Demonstrating a thorough knowledge of the course work.

Presentation.
Report.

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Capstone Framework & Guidelines (1)
1. Originality.
A clearly defined and focused topic.
Formulating your own solutions for a specified
problem.

2. Independence.

3. Appropriate scope.
Plan your work; to complete research and writing
within a limited and realistic scope.

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Capstone Framework & Guidelines (2)
4. Orderly & Objective Process of Inquiry:
the ability to ask the right questions,
to synthesize ideas, to identify and use evidence,
to draw and support conclusions,
to recognize compelling research,
to communication your ideas, and
to solve a problem using a specific set of tools.

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 By the end of the capstone design
course, you should be able to
work in a team,
increase your communicate skill,
explore and propose a solution.
present to an audience in various forms, oral and written.
implement and validate a working prototype of your
proposed solution.

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Project Management

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 What is project management? (1)
The application of processes, methods, knowledge, skills
and experience to achieve the project objectives.
Efforts of people to accomplish goals.
Using available resources efficiently and effectively.

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 What is project management? (2)
Management comprises
planning,
organizing,
staffing,
leading or directing, and
controlling an organization
https://www.apm.org.uk/WhatIsPM
or initiative to accomplish
a goal.

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 Ethics
Responsibility.
Respect.
Fairness.
Honesty.

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 Resourcing encompasses the
deployment and manipulation of:
Human resources.
Financial resources.
Technological resources.
Natural resources.

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 Project management encompasses
many different skills
Understanding the interdependencies among people.
Technologies.
Budgets.
Expectations.

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Objectives of planning the project
To maximise productivity.
Motivating others to execute the plan.
Analysing the actual results.
Reworking and tuning the plan to deal with the realities of
what really happens as the project is executed.

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Phases of project
Initiation

Project
definition,
detailed
Closure planning, Planning
monitoring &
control, review
project

Execution

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 Project Constraint (1)
1. Schedule.
Organizing all tasks and events needed to complete the
project; to meet a specified due date.

2. Human resource & ethics.

Estimating staff needed:
Number, type, work hour and skills.

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 Project Constraint (3)
3. Budget
Estimating cost of the project:
Allocated to tasks, resources, and etc.

4. Economy.
All determined solutions (products, equipment or
services) must meet both economy viability (lowest
cost) and technical aspects (optimum quality).

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 Project Constraint (3)
5. Engineering maintenance.
to optimize the equipment, procedures, and budget
departments to achieve better maintainability,
reliability, and availability of equipment.

6. Marketing.
Identifying, anticipating and meeting customer needs
and generate profits.

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Financial Management
 What is financial management? (1)
Effective and efficient management of funds, to achieve the
project objectives.
Planning.
Identify the goals.
Formulate the strategies.
Arranges or creates the means required.

Organizing.
Arranging several elements into a purposeful
sequential or spatial (or both) order or structure.

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What is financial management? (2)
Directing.
Build an effective work climate and creating opportunity for
motivation, supervising, scheduling, and disciplining.

Monitoring.
Supervising activities in progress to ensure they are on-
course and on-schedule in meeting the objectives and
performance targets.

Controlling.
This can be done through many techniques like ratio
analysis, financial forecasting, cost and profit control, etc.

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 Capital Investment
Funds to be invested for expanding business objectives.

It also refers to a firm's acquisition of capital assets or fixed

assets such as manufacturing plants and machinery that is
expected to be productive over many years.

Sources equity investors, banks, financial institutions,

venture capital and angel investors.

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 Capital Budgeting
A process to determine whether projects such as building a
new plant or developing a new product or research are
worth pursuing.

It also known as investment appraisal.

Usually, it involves an assessment of cash inflows and

outflows of a prospective project the returns meets the
target benchmark.

Methods Net Present Value (NPV), Internal Rate of

Return (IRR) and payback period.

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 Net Present Value (NPV) (1)
Definition The difference between the present value of
cash inflows and the present value of cash outflows.

To value the future cash flows in present cash value.

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 Net Present Value (NPV) (2)
Calculation:

=1
= 0
1+
where
= net cash inflows during the period
0 = total investment costs
= discount rate
= number of time periods

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 Net Present Value (NPV) (3)
Example 1:
An initial investment of RM12,720 on a new product is
expected to generate cash inflows of RM4,716, RM6,288,
RM7860 at the end of 1st, 2nd and 3rd year respectively.
Calculate the net present value of the investment if the
discount rate is 5%.

Answer: RM4,263.89

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 Net Present Value (NPV) (4)
If It means Then
NPV > 0 The investment Project maybe accepted.
would add value to
the firm.
NPV = 0 The investment We should be indifferent in the decision
neither gain nor lose whether to accept or reject the project.
value for the firm. This project adds no monetary value.
Decision should be based on other
criteria.
NPV < 0 The investment Project should be rejected.
would subtract value
from the firm.

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 Net Present Value (NPV) (5)
Limitations:
It depends fully on assumption and estimation.
It is very sensitive to changes of estimated cash inflows.

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 Internal Rate of Return (IRR) (1)
To measure the profitability of future investment.

It also known as Economic Rate of Return (ERR).

Calculation

=1
= 0
1+

= 0
Solve for through trial-and-error or using software
programmed to calculate IRR.
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 Internal Rate of Return (IRR) (2)
Example 2:
Company A must decide whether to purchase a piece of
manufacturing equipment for RM300,000. The equipment would
only last 5 years, but it is expected to generate RM150,000 of
additional annual profit during those years. Then, the equipment
will be sell for scrap afterward for about RM25,000. Using IRR,
Company A can determine whether the equipment purchase is a
better use of its cash than its other investment options, which
should return about 10%.

Answer: The company should purchase the equipment since the

investment generates 41% (using excel) or 41.67% (using online IRR
calculation).

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 Internal Rate of Return (IRR) (3)
Limitations:
It can be misleading if used alone.
Different length of period results different IRR.

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 Payback Period (1)
The length of time required to recover the investment cost.

Payback period = cost of project / annual cash inflows

Limitations:
It does not consider NPV and the cash flows after the
payback period.

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 Payback Period (2)
Example 3:
Company A plans to initiate a project which requires an
investment of RM500,000. The project is expected to generate
RM100,000 per year. Calculate the payback period of the
project.

Answer: 5 years.

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