Case - Project Proposal

!1

Coa[

Fired

Boi[ers Project

(An Overview

of a

Proposatfor

an

lnfrastructure

Project)

Abstroct

r

proiects; the type

of

datu to be collected, its

e availability

of

necessary supporting

duaik'

ffates one such presentation

of

a proposal _t'or an

infrastructure

projict,

It

would help

to

grle the readus explsure to some aspects

of

the modun prortct planning ind,managemenr ichniques

and

also serve as a preview

of

the knowledge,

y!ir:i!

CASE TEXT

The whole

world

is a

unified

place and the events

occurring in

one

country

eqho

loudly

in

some

distant

lands.

Altaf

Hussein

worked

as

an

engineering

and

maintenance manager

in National

Mills,

an

old

textile

mill in

the

hinterlands

of

India.

He led a

routine work

life

and

hardly

ever

anything exciting

new happened.

All

this

changed suddenly

in March

1973, when

in

an OPEC

meeting held in distant Riyadh, the decision was taken to raise the crude prices. The crude

oilprice

was indeed observed

to

fluctuate or

even

gradually

creep upwards

ovei

the years.

But

the

price revision this time was an abrupt upward leap

_-

from

U.S.

$233

a barrel

to

U.S. $ 9.82 a barrel.

The textile mills are heavy users

of

low pressure steam for their processing departments

_-

dyeing, bleaching and finishing and the cost

of

steam accounts for a substantial

portion

of

their processing costs. Use

of

coal as a fuel

for

raising low-pressure steam

would

reduce steam costs,

but

coal is a

much unclean and inconvenient fuel-compared

to oil

and so switching over

to coal-fired

boilers was

strongly

resisted

by

the

plant

rurugr*tnt

all

along.

Some

textile

mills

located near

the metropolis areas and well-connected by rails had switched over

to

coal

for

steam generation,

but

the procurement and

transportation

of

coal

to

the

hinterland

being cumbersome,

National

Mills

had continued

to

depend

on

steam generated

from oil

frred boilers

till

now.

However,

with

this

fourfold

increase

in

the price

of oil

derived

from

costly crude, the

mill

faced dire future.

It

had

to

do something about the steam cost

or

face closure

of

ihe entire

mill.

Altaf

had

all

along a dislike

for

use

of

the

old oil-frred

boilers

with

frequent breakdowns and

causing

unexpected emergencies

and

workloads

on him and his staff, but his

proirosals

for

replacing the

old

boilers

with

new ones had been rejected twice

in

the last

four

years

with

the

argument,

"New

boilers and the trouble.free

continuity in

the processing departments is fine,

but

the investment

won't

pay

for

itself." Projection

of

economic benefits is sometimes

diflicult

to cast

into

hard cash numbers and

Altaf

had ultimately lost

out

on earlier occasions.

Altaf

saw

in

the new

situation

one more

opportunity

to

push his favourite

boiler

replacement project

_-

this time

with

an added twist

_-

new coal-firgd boilers, which can be

justified

for economic beneflrts now hands down. He prepared a

brief

3-pages proposal for the new coal fired boilers and sent

it

to Kamal

Nayan Bajaj,

Executive Vice-President

Friday morning.

The

proposal

was so

attractive that

Mr.Bajaj

summoned

Altaf

for further

discussion

that

very

aftqtnoon,

Altaf

had

projected {35

million

as the project cost

for

80 tonnes/hr eapacity boilers and the cost

of

generated steam

to

drop

from

{135 per tonne to

t105

per tonne.

Mr

Bajaj

shot a

numbei

of

questions:

'Altaf,

the idea is good,

but

unfortunately, may be, we are late

for it,

How fast can we execute the project?

How

sure are you

of

the

viability

of

the project

-

the cost

of

project,

saving

in

operating cost by

its

generation

with

coal as fuel?

Of

course, the

most

crucial

question

wouid

be: can we get

the

boiler oii line'by'Febrriary

1974, say latest by

March

1974;lf

your answer to the last question is yes, we can announce

in

thb next annual general meeting

in May

that the operation cost situation is under control. That would save the day."

"Sir,

I

am

pretty

sure

of

my cost

of

project and operational cost savings numbers. The project

has become now

not

only

just

viable

but

a very attractive investment." enthused

Altaf.

"Well,

if

that is the case,

I

would be ready

to

authorize the project

right

away. You

would

be the

Project Manager and

if

you deliver the goods, the next

promotion to

Assistant Vice President is

yours!

But,

remember,

you

will

have

to

prove

your

projections

first

to Mr.

Patel, and

as the

Company Financial Controller,

he is as hardnosed as seasoned accountants are. We

don't

have

.ocli

time.

For

a

starter,

why

don't

you

give me

the

first thing

Monday

morning

an executive

5()

Project

Management

Altaf

had done his homework well before; so he:prepared the executive summary (shown below

as

an exhibit

to

this

case),

which could

reassure

Mr.

Bajaj

on

all

issues

raisld'by

him,

At

\Ir.

Bajaj's

suggestion,

Altaf

prepared

the

detailed

_{projeci proposal, along}

_with

_{a number}

_of

documents supporting _{the figures and projections,used}

_{inthe executive.srr*-ury'}

'

Project objectives and criteria for

judging

project success

(particularly

the project schedule)

'

Financial

justification for

the project (economic

feasibility

of

the proposal

_-

backed by cash

flows based on operating _{costs and savings, estimated}

_return

_{on invesiment}

_(ROI)

_using

pay-back period _{and net present value methods}

_for

_{calculations)}

'

Scope

of

the overall

work

and technical and performance specifications

of

key deliverables

'

Project time frame

_-

milestones

for major

activities completion

'

Preliminary project cost estimate

(with

breakdown showing

major

expense heads)

'

Key project team members

(to

be released for

working

on this project)

'

Plan

for

project communications

After

a close scrutiny,

Mr.

Patel

confirmed

as realistic the projections

in Altaf's

proposal and the new coal-based steam Generation Project was soon authoiized.

coAL

FTRED

BOTLERS PROJECT

pROPOSAL

Executive

Summarg

1. Project Scope Statement

Design, procure,

install

and commission

by February

28,, 1974 a system

for

generating 80

tonnes per hour

of

steam using coal as fuel at a

total

project

iost

not

exceedin!

t35

mililon,

The

minimum return

on investment

of

t35

million

should

be

50%per annum.

2.

Project Objectives and

Criteria

for prolect Success

Custorher/Proiect Sponsor

There is no external customer; the executive vice-president Kamal Nayan Bajaj is the project

sponsor,

4. Summary

of

Economic

Viability

Estirirated Investment:

Saving in cost

of

production

of

steam

(Based on coal based steam cost

of

tl05/

tonne Compared to T135/ tonne

for

furnace as fuel)

Annual

savings

in

steam

production

cost

(based on 85 o/o arrrllal average use

of

the installed

Capacity

of

80 tonnes/hr at 900/o annual average operating time)

ROI

Preliminary Stakeholders Analysis

Project Sponsor T35

million

'

T30/- per tonne <17.7

million

5. 50,40/o

KamalNayan

Bajaj, Executive Vice President Senior Officers

of

l,{ational

Mills

Mr.

Patel, Company Finance

Controller

Heads

of

operating departments using low pressure steam: Heads

of

Dyeing, Bleaching and Finishing Departments

Head

of

Materials Department

for

coal procurement,

quality

testing and storage

Head

of

Maintenance Department

for

maintenance and upkeep

of

the system

Project Team

Project Manager:

Altaf

Hussein

Key members

of

the project team: The members deputed to the cross-functional project team

(material procurement

assistant,

senior

engineers

in

charge

of

civil construction

and

mechanical and electrical installations

Fit

with Current Operations /Similarities to Previous Projects

'

The project has a very close

fit

to

the current operations

_-

generating process steam; only

the fuel is planned

to

be switched. The project would have immediate impact on the entire operations

of

the

mill.

'

Some

modifications

were

carried

out from

time

to

time

in

the

mill's

steam

distribution

system and piping, but no major

installation

of

the size and scope

of

the proposed project

was undertaken

in

the last seven years by the company.

Maior

Deliverables

Deliverable

1

Sys tem Design:

Study the plant's present steam

distribution

and steam requirements

for

overall system design

Equipment

layouts

in

boiler/coal handling

areas and

piping

layouts and detailed construction drawings

Deliverable

2

Procurement:

'

Procure.system components

Coal-fired

boiler

and coal handling system

Structural components

for

pipe rack

Piping, valves and other piping components

6.

52

Project

Management

Deliverable 3

Deliverable 4 Deliverable 5

Deliverable 6

Summary Budget (in

t

million)

Buildings and Structures

Machinery

and Equipment Boiler

Coal handling equipment Other equipment

Installation -materials

&, labour

SUB-TOTAL

_{MACHINERY AND EQUPMENT}

Provision

for

contingency at approx . lO o/o

Project Construction at the site;

Civil

construction

for

boiler

control

room, pipe rack structure

equipment

foundations

and

Mechanicalinstallation

of

boiler, electrical

&

instrumentation

_{for boiler}

Mechanical

installation

of

coal handling system

Installation

of

steam,distribution

piping

System commissioning

Training and handing over the project _{to operating departments}

operation

and maintenance manuals

for

boiler, coal handling equipment

and special new instrumentation Project Management;

Receiving statutory approvals

(from

Boilers Inspector, etc.)

Factory Inspector,

Effective

project

management

to

deliver the

project

on budget

time

and

within

8. 16.0 6.0 3.0 3.5 29.5 3.5

TOTAL ESTIMATED

PROJECT COST

9,

Summary Milestones

The

installation

of

coal-handling system: The

installation

of

the

boiler

and

all

systems:

The

Tiial

runs

for

statutory approvals:

The performance guarantee runs

of

entire system:

The steam headers and connections

to

users:

10. Assumptions, Risks, and Constraints

SCHEDULE BASED ON

FOLLOWING

ASSUMPTIONS

AND

ASSOCIATED RISKS

(a) Authorizedcapital

_{Budget Request is received latest by}

_April

_r,

_rg73.

(b)

Statutory

approvals

from

The

Boiler

_{Inspectorate and Environment Protection Agency}

for

the

preliminary

proposal

for

installation

of

coal

fired boiler

ars approved latest by

May

15, 1973,

(c)

Engineering consulting _{company is selected and awarded the contract by}

_April30,

_1973.

(d) All

key project team members are released to work

full

time on this project latest by

April

30,1973. 3 5.0 January 15, 1974 Febru ary 1, 197 4 Febru ary 15, 197 4

March

l,

191 4

March

15,

l9l

4 3.0

(e)

The

deliveries

at the

site

for

the

critical major

equipment (coal

fired boiler

and

coal

handling

equipment) are completed

by

December 31, 1973 under late delivery penalty

purchase order.

SCHEDULE CONSTRAINTS

(a)

Two

potential

key members

of

the project team are presently

working on other

urgent

'

'

projects and

theii

release in the desirable time may be

doubtful.

(b)

The Boiler Inspectorate is notoriqus for causing delays

in

giving

approvals for proposals'

(c) Ordinarily boiler

delivery

period

is

of

the

order

of

8-9

months

minimum, while

6-7

months maximum deliveiy

peliod

is necessary

to

meet project schedule. (Special

tffol!

to locate a suitable

supplier,lxtrapriie

prernium over routine competitive prices and

stiff

'

late delivery penalty may be necessary

to

overcome this')

(d)

The foundation casting must be completed before the expected onset

of

monsoon, i.e. by June 15.

(e) A

large number

of

holidays

would

be

in

August-November period

-

the expected peak

activity

period for prgject construction.

(a)

Study the proposal closely. Notice the issues which a major capital expenditure project should

addrlss.

6o*pur.

them

with

the capital expenditure authorization practice

in

your

organization.

(b)

Notice

the

critical

role a

major

project

would

play

in

the organization,

For this

textile

mill,

the very existence

of

the

organiiation

depends-on coming up

with

and efficiently managing this

major

project

(c)

Notice

the nature

of

specificity and objective measurable standards included

in

describing

the proposal.

.

The inclusion

of

the technical specifications

of

the

product

of

the project (Statement

of

Works

or

S.O.W.), budget and schedule

in

the opening project scope statement.

.

The project

objectives

and the

objectively measurable

criteria for judging

the project

success

for

each

of

those objectives.

.

Focus

on

sponsor

or main

customer and

identifying

all major

stakeholders; managing

the key stakeholders is a major

contributor for

project success.

.

Summary

of

economic

viability

analysis, project cost estimate and

major

milestones

for

schedulei these figures demarcate theboundaries

for

project cost and schedule.

.

provision for contingency in project cost and schedule

-

it is one

of

the tools for managing

project risks.

.

Major

deliverables

-

including separately project management as a specific deliverable.

.

Analysis

of

Assumptions, Risks and Constraints.

This

list

is very useful

in

fo.cusing on