Chapter 3:

Project Development and

Management
 Structure
 3.1. Definition
 3.2. Characteristics
 3.3. Phase of Project Management
 3.4. Aspects for analysis
 3.5. Cash Flow (CF)
 3.1. Definition of a project

OUR CUSTOMERS DO NOT BUY PRODUCT

 THEY BUY ??? _ _ _ _ _ _ _ _
 A project is... 4

A project is a temporary endeavor

undertaken to create a unique
product, service or result. (PMI, 2003)
 3.1. Definition (cont.)
Vu Thi Kim Oanh and Nguyen Thi Viet
Hoa (2013) "A project regards all
feasible solutions with the limited
resources for the purpose of
solving problems and generating
benefits for private investors and
societies"
 3 factors in project
Result
Expected
result
TARGET

Cost
Limited
Limited Budget
time

Time
 3.2. Characteristics 8

Temporary
Unique
Time-bound

A PROJECT Resource-limited

Progressive Elaboration
Risky
Beneficial Changes
 3.3. Phases of project
management
Lewis (2007)
Idea  Planning  Execution  Closeout

Vu, T. K. O. and Nguyen, T. V, H.

Idea  Planning  Appraisal  Execution 
Closeout
 3.4. Aspects for analysis
 Market Analysis
 Organizational and Technological Analysis
 Financial Analysis
 Economic & social efficiency Analysis
 3.4.1 Market Analysis
a. Current/ projected demand?
b. Target markets? characteristics of
potential customers
c. Projected supply?
d. Competition?
e. Location/site affecting business?
Practice: Market analysis
for “sticky rice”.
Requirements:
- Analyze this market.
- SWOT?
- Recommendations for potential product?
3.4.2 Org. and Tech. Analysis
- Organizational analysis:
a. Organizational structure?
b. Board of directors?
c. Qualifications of managers?
d. Who to manage?
e. Other staffing needs?
- Technological analysis:
a. What kinds of technologies
b. What kinds of other equipments
c. Where to obtain tech. & equip.?
d. When to get equipments?
e. How much?
- Technological analysis:
a. Specifications of products and services
b. Selection for demanded technologies
c. Supply sources of raw materials, energy,
labor…
d. Selection for the project location
e. Clarification for construction activities
f. Solutions for environmental issues
 Technological analysis: (Vietnam)
a. Specifications of products and services
b. Selection for demanded technologies
List of machines and equipments for the
project
Type Origin Specifications Quantity Estimated Total
price value
I. Main mach. &
equip.
II. Supplementary
mach. & equip.
III. Transportation
equip.
IV. Office equip.
 Technological analysis: (Vietnam)
c. Supply sources of raw materials, energy, labor…
c1. List for estimated demand for raw materials
Year of
Year 1 ..Year k stable
Type production
Quan Unit Total
tity price value
I. Import
1.
…
I. Domestic origin
 Technological analysis: (Vietnam)
c. Supply sources of raw materials, energy, labor…

c2. List for estimated demand for energy

Year of
Supply Year 1 ..Year k stable
Type production
sources
Quantity Price
 Technological analysis: (Vietnam)
c. Supply sources of raw materials, energy, labor…
c3. List for estimated demand for labors
Type Vietnamese Foreigner Total
1. Managers
2. Technical staff &
supervisors
3. Skilled workers
4. Unskilled workers
5. Office staff
Total
c4. Estimated salary budget of the project
Year
1 2 ... Of stability
I. Foreigners (each department)
1.
2….
Total salary budget for foreigners
II. Vietnamese (each department)
1.
2.
Total salary budget for Vietnamese

III. Total salary budget (I+II)

 Technological analysis: (Vietnam)
d. Selection for the project location
- Factors to consider:
. Geographical characteristics
. Infrastructure and location situation (road,
...electricity…)
. Square for the project and price for rent
. Compensation value to make clearance
 Technological analysis: (Vietnam)
d. Selection for the project location
- Analysis:
. Basic analysis: natural, social
conditions….
. Economic analysis: (costs
compensation for land clearance…)
. Social analysis: effects on human
lives, environment….
. Solutions
 Technological analysis: (Vietnam)
d. Selection for the project location
- Clarification for construction activities:
List for construction activities
Name Unit Size Unit Total value
price
I. Newly constructed
1.
2….
II. Repaired & maintained

Total
 3.4.2. Financial Analysis
Financial Statements
Balance Sheet
Income Statement
 Can a profitable company
runs out of cash?

- Profit?
- CF?
CF statement
 3.5. CASH FLOW (CF)
- Cash inflows
- Cash outflows
a. Clarification of total investment

Total investment = Fixed capital (FC)

+ Working capital Demand
(WCD)
b. Clarification of capital sources
b1. List of capital sources
Type Y0 Y1 Yk.. Yn Total

1 Share capital
Retained
2
earnings
3 Borrowings

4 Total
 b2. The plan for paying principals and
interests
Types Y0 Y1 Yk … Yn Total
Liability at the
1
beginning of the year
2 Interest to pay
3 Principal to pay
Within year liability
4
to pay
Liability at the end
5
of the year
c. Clarification of revenue, cost and
profit
c1. Estimated revenues of the project
Year of stable
Types Year 1 Year k ...
production
1.
2.
...

Total revenue
 c2. Estimated profit of the project
Year of stable
Types Year 1 Year k..
production
1. Total revenue
2. Total cost
3. Gross profit
4. Corporate income tax
5. After tax profit
6. Allocation for funds
7. Allocation for investors
3 stages:
Cash Flow Statement
(1) Preparation:
. Buy fixed assets (-)
. working capital demand (Inventory+Account receivables –
Account payables) (-)
. Prepare for other payments? (-)
(2) Execution:
. Revenue (+)
. Cost (-)
. Depreciation (+)
. Corporate income tax (-)
. Changes in working capital demand (+/-)
(3) Closeout:
. Revenue from liquidation
Cost from liquidation
Receiving from WCD
 Exercise 1
A project with the following information (unit: USD
thousand):
- Total estimated investment: 40, in which
+ Fixed asset: 30 (paid all in one time in the
preparation period, equally depreciated in 5 years)
+ The rest is for working capital demand
- Annual revenue: 50, annual cost (depreciation
included) : 26
- Corporate income tax rate: 25%
Set up the CF statement of the project?
 Exercise 1
Year 0 1 2 3 4 5
Preparation
Fixed asset
WCD
Execution
Revenue
Cost (depreciation included)
Depreciation
Tax
Closeout
Liquidation
WCD receive
Tax from liquidation
CF
 Exercise 1
0 1 2 3 4 5
Preparation
Fixed asset -30
WCD -10
Execution
Revenue 50 50 50 50 50
Cost (depreciation included) -26 -26 -26 -26 -26
Depreciation 6 6 6 6 6
Tax -6 -6 -6 -6 -6
Changes in WCD 0 0 0 0 0
Closeout
Liquidation 0
WCD receives 10
CF -40 24 24 24 24 34
 Exercise 2
A project with the following information (unit:
VND millions):
- Total estimated investment: 80, in which
+ Fixed asset: 60 (paid all in one time in the
preparation period, equally depreciated in 5
years)
+ The rest is for working capital demand.
- Annual revenue: 100, annual cost (depreciation
included) : 70
- Corporate income tax rate: 25%
Set up the CF statement of the project?
 Exercise 2
Year 0 1 2 3 4 5
Preparation
Fixed asset
WCD
Execution
Revenue
Cost (depreciation included)
Depreciation
Tax
Closeout
Liquidation
WCD receives
Tax from liquidation
CF
 Exercise 2
Year 0 1 2 3 4 5
Preparation
Fixed asset -60
WCD -20
Execution
Revenue 100 100 100 100 100
Cost (depreciation included) -70 -70 -70 -70 -70
Depreciation 12 12 12 12 12
Tax -7.5 -7.5 -7.5 -7.5 -7.5
Closeout
Liquidation
WCD receives 20
Tax from liquidation
CF -80 34.5 34.5 34.5 34.5 54.5
 Exercise 3
Fixed capital is VND800 million (spent when preparing, depreciating
evenly and fully in 10 years, after 10 years, it will be liquidated at
VND100 million). Working capital demand: 10% Revenue (will have to
prepare from the previous year):
 Revenue 1000; 1200; 1400; 1600; 1200; 1200; 1200; 1200; 1200; 1200.
 Expected annual cost share (including depreciation expense: 80%
of revenue)
 CIT: 30%
1. Set up the CF statement for the project
2. Total investment capital?
 Exercise 3
0 1 2 3 4 5 6 7 8 9 10
Fixed assets -800
WCD -100 -120 -140 -160 -120 -120 -120 -120 -120 -120

WCD changes -20 -20 -20 40 0 0 0 0 0

Revenue 1000 1200 1400 1600 1200 1200 1200 1200 1200 1200
Cost -800 -960 -1120 -1280 -960 -960 -960 -960 -960 -960
Depreciation 80 80 80 80 80 80 80 80 80 80
Tax -60 -72 -84 -96 -72 -72 -72 -72 -72 -72
Liquidation 70
WCD receives 120
CF -900 200 228 256 344 248 248 248 248 248 438
 Exercise 4
A project with the following information:
- Fixed asset: USD 60m (paid all in one time in the preparation period,
equally depreciated in 5 years). After finishing the project, the fixed
asset expected to liquidate USD 5m.
- Anual revenue shown in below table
Year 1 2 3 4 5
Revenues (USD millions 80 100 120 110 100
)

- Annual cost (depreciation NOT included): 80% annual revenue

- Working capital demand: 25% annual revenue. WCD is prepared in
the previous year.
- Corporate income tax rate: 20%
Set up CFS of the project?
 Exercise 4
Year 0 1 2 3 4 5
Preparation
Fixed asset
WCD
WCD changes
Execution
Revenue
Cost (depreciation included)
Depreciation
Tax
Closeout
Liquidation
WCD receives
Tax from liquidation
Year 0
Exercise
1 2 3
4 4 5 6 7 8
Preparation
Fixed asset -60
WCD
WCD changes -20 -5 -5 2.5 2.5
Execution
Revenue 80 100 120 110 100 100 100 100
Cost (depreciation -76 -92 -108 -100 -92 -80 -80 -80
included)
Depreciation 12 12 12 12 12 0 0 0
Tax -0.8 -1.6 -2.4 -2 -1.6
Closeout
Liquidation 5
WCD receives 25
Tax from liquidation -1
 Exercise 5
An investor plans to invest in a project with the following financial
information: Buys fixed assets at 160 million USD (one-time expense).
Fixed assets are divided into 2 groups to calculate depreciation as follows:

Group 1: valued at USD 40 million, equally depreciated in 8 years.

Group 2: worth USD 120 million, equally depreciated in 12 years.

The life cycle of the project is 10 years. At the end of the 10th year, the group
1 fixed assets will be liquidated at USD 2 million, the group 2 fixed assets
will be liquidated at USD 16 million. First year revenue is expected to be
80 million USD. Each year, the revenue increases by 10 million USD
compared to the year before. Total annual production cost (including
depreciation cost) is equal to 85% of revenue. The corporate income tax
rate applicable to the project is 20%. Demanded working capital is 10% of
the revenue and must be prepared from the previous year.
 Make a project's cash flow statement?
Year 0 1 2 3 4 5 6 7 8 9 10
Fixed
assets Exercise 4
-160

WCD -8 -9 -10 -11 -12 -13 -14 -15 -16 -17

Delta
-8 -1 -1 -1 -1 -1 -1 -1 -1 -1
WCD
Revenue 80 90 100 110 120 130 140 150 160 170

Cost -68 -77 -85 -93.5 -102 -111 -119 -128 -136 -145

Deprecia
15 15 15 15 15 15 15 15 10 10
tion
Corpora
-2.4 -2.7 -3 -3.3 -3.6 -3.9 -4.2 -4.5 -4.8 -5.1
te tax
WCD
17
changes
Group 1
liquidati 1.6
on
Group 2
liquidati 16.8
on
CF -168 23.6 24.8 26 27.2 28.4 29.6 30.8 32 28.2 65.8
 Exercise 6
An enterprise is considering a plan to renovate a production line of
machinery with the following information:
Buy 1 new line:
 Purchase cost: $ 2 million
 Shelf life: 5 years, equally depreciated, and the remaining value after 5
years is 0.
 Production cost savings by using new line: USD800,000 / year.
Selling current lines:
 Cost of purchase: USD1,500,000 (just purchased 1 year ago)
 Equally depreciated in 5 years.
 Current remaining accounting value: USD1,200,000
 Liquidation: USD1 million.
Question: If the company applies a 12% profit margin and the current
corporate income tax rate of 40%, should the company innovate? Why?
Exercise 6: CF statement for buying newline or not
YEAR 0 1 2 3 4 5

Fixed asset -2,000,000

Depreciatio
-100,000 -100,000 -100,000 -100,000 -400,000
n cost

Savings 800,000 800,000 800,000 800,000 800,000

Depreciatio
100,000 100,000 100,000 100,000 400,000
n
Corporate
-280,000 -280,000 -280,000 -280,000 -160,000
tax
Liquidatio
1,000,000
n
Tax from
80,000
liquidation

CF -920,000 520,000 520,000 520,000 520,000 640,000

 Exercise 7
An electronics manufacturing company is expected to produce and sell
7,000 products each year in the next 10 years. The company is considering
whether to manufacture components on its own or buy from outside. A
supplier is willing to sell components to the company for $ 5 / component
and commit to supply enough and keep the same price for the next 10
years. If self-produced, the production cost of a component is USD3
(excluding machine depreciation) and the company will have to invest an
additional USD78,000 to buy a machine to serve the component
production. This machine is depreciated equally and expires in 10 years.
After 10 years it is expected that the company will be able to liquidate this
machine for $ 5,000. The applicable rate of return in the company is r =
12% and the corporate tax rate payable is 25%. Besides, the company
needs to use 2 components to produce a final product.
Should the company buy from outside or produce the components
themselves? Why?
 Exercise 7: CF statement for
self-producing or buying components outside
Year 0 1 2 3 4 5 6 7 8 9 10
Fixed asset -78000
Depreciatio
n cost -7800 -7800 -7800 -7800 -7800 -7800 -7800 -7800 -7800 -7800
Depreciatio
n 7800 7800 7800 7800 7800 7800 7800 7800 7800 7800
Savings 2800028000 28000 28000 28000 28000 28000 28000 28000 28000
Tax -5050 -5050 -5050 -5050 -5050 -5050 -5050 -5050 -5050 -5050
Liquidation 3750
CF -780002295022950 22950 22950 22950 22950 22950 22950 22950 26700