Case Analysis under Project Management for MMS – Sem IV students

Amit Bhandari, an Engineering Graduate from IIT - Powai and Post Graduate from IIM - C, had a
dream of becoming an Entrepreneur. His father had a small fabrication workshop at Thane. Amit had
learnt quite a few lessons while working with his father for a period of two years after completing his
studies at IIM - C. He wanted to do something big. He had developed some contact with L & T. He
realised that L & T is developing a New Product and are looking for a reliable vendor for a very
critical component. Amit could develop a prototype of the component in his father’s workshop. L &
T approved the prototype and asked Amit to supply 11,520 pieces per year spread over evenly
throughout the year for period of 5 years. Now, this was a big opportunity for Amit. He discussed the
matter with his father who advised him to consult "Unique Associates", the well known Project
Consultants. Amit held number of meetings with "Unique Associates" who asked him to provide lot
of information to enable them to prepare a “Project Report”

Amit could submit the following information:-

1. Name of the critical component --- Trio

2. Parts required to assemble the component --P1, P2 and P3
3. Time required to manufacture the parts -- P1 - 1 Hour, P2 - - 2 Hours and P3 -- 5 Hours
4. Labour Rate per Hour - Rs. 30
5. Enough No of workers to be recruited, one for each Part though all workers can substitute
each other
6. Working hours -- 8 effective working hours per day, 6 days a week , 24 days in a month
7. Standard Wastage - --10% of the output turns out to be defective
8. Raw Material Cost:-
P 1 ---- Rs. 20, P 2 ---- Rs. 30 and P3 ---- Rs. 50
9. Other manufacturing expenses -- 250% of the Labour Cost
10. Administration Expenses -- 10% of the Works Cost
11. Selling and distribution Expenses -- 10% of the Cost of Production
12. Profit desired -- 20% on the Selling Price

13. Land required -- 1,000 sq. ft. at Rs. 800 per sq.ft.
14. Factory Shed to be constructed at a cost of Rs. 10 Lakhs
15. Machineries required costing Rs. 25 Lakhs
16. Equipments required costing Rs. 10 Lakhs
17. Furniture required costing Rs. 5 Lakhs'
18. Consider depreciation under WDV Method – Factory Shed @10%, Machineries @ 15%,
Equipments @ 20% and Furniture @ 20%
19. Assume Taxation @ 30%
20. Profits are ploughed back into the business.

Bank of India expressed willingness to finance the project by way of a Term Loan @ 12% p.a. on the
security of Factory Shed, Machineries and Equipments with Margin Money of 20%. Interest payable
quarterly and the Loan would be repayable in 5 equal annual installments starting from the end of the
second year. Rest of the assets will have to be acquired by Amit from his own contribution. Amit will
also have to finance Margin Money. Amit agrees to bring in the required Capital to with the help of
his father, relatives and friends at no interest cost.
Estimated Working Capital required (to be financed by relatives / friends of Amit )is as
under:-
Raw Material Stock --- 2 Months' Consumption
Finished Goods Stock --- 1 Month's Output
Receivables --- 3 Months Credit
Cash and Bank balance --- Rs. 2 Lakhs

You, as an executive from "Unique Associates" are required to help Amit, in preparing the
Project Report together with Profit and Loss Account and Balance Sheet for a period of 5
years.

Also work out the Sensitivity Analysis if -----

1. L & T would allow only 10% profit on selling Price

2. Bank of India would enhance the Interest Rate from 12% to 14%
3. L & T would reduce the commitment by 20%

Explain various risks involved in this project and how Amit should go about mitigating those
risks. Also mention key learning issues.