Page 136 - DMGT521_PROJECT_MANAGEMENT

Unit 9: Financial Estimates and Projections

Objectives Notes

After studying this unit, you will be able to:
 Know about Financial Projections

 Understand Time Value of Money
 Know about cost of capital
 Understand about risk analysis in capital investment decisions

Introduction

A budget is an important concept in microeconomics, which uses a budget line to illustrate the
trade-offs between two or more goods. In other terms, a budget is an organizational plan stated
in monetary terms.

In summary, the purpose of budgeting is to:
1. Provide a forecast of revenues and expenditures, that is, construct a model of how our
business might perform financially if certain strategies, events and plans are carried out.

2. Enable the actual financial operation of the business to be measured against the forecast.
3. Establish the cost constraint for a project, program, or operation.

9.1 Financial Projections

9.1.1 Cost of Project

Conceptually, the cost of project represents the total of all items of outlay associated with a
project which are supported by long-term funds. It is the sum of the outlays on the following:
1. Land and site development
2. Buildings and civil works
3. Plant and machinery
4. Technical know how and engineering fees

5. Expenses on foreign technicians and training of Indian technicians abroad
6. Miscellaneous fixed assets
7. Preliminary and capital issue expenses

8. Pre-operative expenses
9. Margin money for working capital
10. Initial cash losses

9.1.2 Land and Site Development

The cost of land and site development is the sum of the following:
1. Basic cost of land including conveyance and other allied charges

2. Premium payable on leasehold and conveyance charges

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