Page 58 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Unit 4: Project Budgeting

6. Silos, tanks, wells, chests, basins, cisterns, hoopers, bins, and other structures necessary for Notes
installation of the plant and equipment;
7. Garages Sewers, drainage, etc.; and
8. Other civil engineering works.

The cost of the buildings and civil works depends on the kinds of structures required which, in
turn, are dictated largely by the requirements of the manufacturing process. Once the kinds of
structures required are specified, cost estimates are based on the plinth area and the rates for
various types of structures. These rates, of course, vary with the location to some extent.

Notes The cost of land varies considerably from one location to another. While it is very
high in urban and even semi-urban locations, it is relatively low in rural locations.

Plant and Machinery

The cost of the plant and machinery, typically the most significant component of the project cost,
consists of the following:

Cost of imported machinery:
This is the sum of (i) FOB (free on board) value, (ii) shipping, freight, and insurance cost,
(iii) import duty, and (iv) clearing, loading, unloading and transportation charges.

Cost of indigenous machinery:
This consists of (i) FOR (free on rail) cost, (ii) sales tax, octroi, and other taxes, if any, and
(iii) railway freight and transport charges to the site.

Cost of stores and spares.

Foundation and Installation Charges

The cost of the plant and machinery is based on the latest available quotation adjusted for
possible escalation. Generally, the provision for escalation is equal to the following product:
(latest rate of annual inflation applicable to the plant and machinery) × (length of the delivery
period).

Technical Know-how and Engineering Fees

Often it is necessary to engage technical consultants or collaborators from India and/ or abroad
for advice and help in various technical matters like preparation of the project report, choice of
technology, selection of the plant and machinery, detailed engineering, and so on. While the
amount payable for obtaining the technical know-how and engineering services for setting up
the project is a component of the project cost, the royalty payable annually, which is typically a
percentage of sales, is an operating expense taken into account in the preparation of the projected
profitability statements.

Expenses on Foreign Technicians and Training of Indian Technicians Abroad

Services of foreign technicians may be required in India for setting up the project and supervising
the trial runs. Expenses on their travel, boarding, and lodging along with their salaries and

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