WINSMART ACADEMY

MOTTO: PERSONALISED TUTORING FOR LEADERS OF TOMORROW

WHATSAPP: 08024665051, 08169595996
[email protected]

BFN409 - PROJECT EVALUATION EXAM SUMMARY

Q. What is the meaning of „‟project‟?

Definition of Project

Longman Dictionary of Contemporary English defines a project as “an important and carefully
planned piece of work that is intended to build or produce something new or to deal with a problem”.

A project is a temporary endeavor undertaken to create a unique product, service, or result. The
temporary nature of projects indicates that a project has a definite beginning and end. The end is
reached when the project‟s objectives have been achieved or when the project is terminated because
its objectives will not or cannot be met, or when the need for the project no longer exists. Also, a
project is a temporary endeavor undertaken to create a unique product, service, or result.

A project may also be terminated if the client (customer, sponsor, or champion) wishes to terminate
the project. Projects can also have social, economic, and environmental impacts that far outlive the
projects themselves.

Q. List and explain two types of project

The Types of Project

1. Competitive Projects

The projects are selected as a result of an open or closed project contest announced and conducted by
particular Implementing Authorities (2nd level Intermediate Bodies) which is responsible for
implementation of a given measure. Selection of these projects is performed with respect for the
principle of disclosure and access to information according to the criteria of project selection adopted
by the Programme Monitoring Committee (the document is available in the section Programming
Documentation).

The process of project selection consists of the following stages:

1. Call for proposal

2. Submission of projects

3. Formal evaluation and content-related evaluation of applications

4. Publication of the contest results

5. Review procedures (if needed)

6. Signing contracts on financing projects

7. Registration of documents in the information system, according to separate provisions in areas

concerned (the first registration after the formal evaluation of the application for support).

2. Individual Projects

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 1
Individual projects are investments of strategic significance for the Programme implementation,
indicated by the Managing Authority, after the recommendation of the competent Intermediate Body,
according to strategic criteria approved by the Programme Monitoring Committee. Individual projects
are undertakings whose implementation is important and justified concerning the implementation of
the strategy of a given sector or area and which contribute to a large extent to achieving objectives of
a priority axis a given projects is implemented under. Placing the project on the list is only a
conditional declaration of its financing and is connected with guarantying funds for its
implementation within the project budget. These projects will not be subject to content procedure and
will not apply for the funds under the content procedure. The project implementation will depend on
fulfilling the selection criteria approved by the Programme Monitoring Committee, requirements
concerning documentation and implementation readiness as well as acceptance of the application for
support with annexes required by the MA.

Q. Explain what you understand by the Characteristics of a Project.

Characteristics of a Project

1. A single definable purpose, end-item or result: This is usually specified in terms of cost,
schedule and performance requirements.

2. Every project is unique: It requires the doing of something different, something that was not done
previously. Even in what are often called “routine” projects such as home construction, the variables
such as terrain, access, zoning laws, labour market, public services and local utilities make each
project different. A project is a one-time, once-off activity, never to be repeated exactly the same way
again.

3. Projects are temporary activities: A project is an ad hoc organization of staff, material,

equipment and facilities that is put together to accomplish a goal. This goal is within a specific time-
frame. Once the goal is achieved, the organization created for it is disbanded or sometimes it is
reconstituted to begin work on a new goal (project).

4. Projects cut across organizational lines: Projects always cut across the regular organizational
lines and structures within a firm. They do this because the project needs to draw from the skills and
the talents of multiple professions and departments within the firm and sometimes even from other
organizations. The complexity of advanced technology often leads to additional project difficulties, as
they create task interdependencies that may introduce new and unique problems.

5. Projects involve unfamiliarity: Because a project differs from what was previously done, it also
involves unfamiliarity. And oft time a project also encompasses new technology and, for the
organization/firm undertaking the project, these bring into play significant elements of uncertainty and
risk.

6. The organization usually has something at stake when undertaking a project: The unique
project “activity” may call for special scrutiny or effort because failure would jeopardize the
organization/firm or its goals.

7. A project is the process of working to achieve a goal: During the process, projects pass through
several distinct phases, which form and are called the project life cycle. The tasks, people,
organizations, and other resources will change as the project moves from one phase to the next. The
organizational structure and the resource expenditures build with each succeeding phase; peak; and
then decline as the project nears completion.

Q. Explain any five categories of project classifications.

1. National and International Projects: This kind of projects is categorized on the basis of
geographical location set as countries. If one country tries to build projects with other foreign country,

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 2
such projects are said to be International projects and when it is done in one‟s own country, then it is
said to be a domestic or national project.

2. Industrial and Non-industrial Projects: The projects initiate in one‟s own country with an
objective to make money and for commercialization, are called industrial projects. For example, a car
manufacturing is an industrial project. While the project which are done for the upliftment of the
society and majorly done with social welfare objectives, are called non-industrial projects

3. Projects based on Technology: These are largely high technology projects which require lots of
investment and works on new or non-existent technologies like rocket launch project, space projects,
etc. and some other are those projects which use technology which are already proven like a software
ERP project, automobile automation project, etc.

4. Projects based on its size: These projects are based on investment size or capacity of plant to offer
goods or services. This can be further classified down to small, medium and large scale projects.
Project above the investment of 100 million dollars is considered as large projects.

5. Need based projects: Projects are basically driven by certain needs of the organization and these
needs furthers forms the basis of project categorization as Balancing Project, Modernization Project,
Expansion Project, Diversification Project, Rehabilitation Project and Plant Relocation Project.

Q. Discuss differences between project and programme.

1. Structure: A project is well-defined, with a Project Charter that spells out exactly what the scope
and objectives are for the project. A program tends to have greater levels of uncertainty. The team is
also bigger. The program team are supervising and coordinating the work on a number of projects so
while the core team may not have that many people in, the wider team includes the project managers
and all the project team members.

2. Effort: This is the most significant difference between projects and programs. A project represents
a single effort. It is a group of people forming a team working towards a common goal. A program is
different; it is a collection of projects. Together all the projects form a cohesive package of work. The
different projects are complimentary and help the program achieve its overall objectives. There are
likely to be overlaps and dependencies between the projects, so a program manager will assess these
and work with the project managers concerned to check that overall the whole program progresses
smoothly.

3. Duration: Some projects do go on for several years but most of the projects you willl work on will
be shorter than that. On the other hand, programs are definitely longer. As they set out to deliver more
stuff, they take longer. Programs tend to be split into tranches or phases. Some projects are also split
like this, but not all projects last long enough to be delivered in multiple phases.

4. Benefits: A project team works towards achieving certain outputs, that is, what you get at the end.
For example, this could be a set of deliverables that form a software package, or a new retail branch,
or whatever it is that you are working on. The benefits of a project tend to be tangible: you get a
„thing‟ at the end of it. A program team works towards delivering outcomes. Outcomes can be
tangible but are often not.

5. A project is a singular effort of defined duration, whereas a program is comprised of a collection of

projects.

Q. Explain a project cycle

The Meaning of Project Cycle

A project cycle tries to describe the various stages that are involved, from the conception of a project
idea to when the project is executed or actually takes off. Understanding a project cycle is very
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 3
important as it enables us to get the total picture of a project. The Project Life Cycle refers to a series
of activities which are necessary to fulfill project goals or objectives. Projects vary in size and
complexity, but, no matter how large or small, all projects can be mapped to the following life cycle
structure: Starting the project. Organizing and preparing. Most of the projects are likely to be private
sector driven.

Q. List and discuss the various stages involved in a project cycle.

The Project Cycle

1. The Project Idea Stage

The project idea stage is the first stage of a project cycle. The idea about a project arises from a
variety of sources within the internal environment or market place. New project ideas could originate
from within an organisation or from outside the organisation. If the idea originates from within, it
could be from a sales person who has encountered some success or problem with customers while
performing his or her functions. You will also realise that a new project idea could emanate from
outside an organisation. Coming from outside an organisation, it could be requests from existing
customers asking for bigger or better products. New project ideas may fall into any of the following
categories.

• Proposal to add new products to existing lines: A company with existing product lines may decide to
add new products to its existing lines.

• Proposal to expand capacity in existing lines: A company may have a proposal to expand capacity to
enable it take advantage of enlarged market opportunities.

2. The Project Identification Stage

After the project idea stage, the next stage is the project identification stage. The project identification
stage consolidates the idea stage. Project ideas are not really useful unless they are clearly identified
and put down in a systematic manner for further processing. The idea to introduce a new product into
the market may come from a company salesman who is very familiar with the market. At the
boardroom room level, the entire organisation has to see the project idea properly and clearly identify
it as a possible area of business investment. The totality of the new idea would be considered.

3. The Project Evaluation Stage

When a project has been identified, the next step is to evaluate the project. Project evaluation involves
the estimation of the benefits and costs of a project. Benefits and costs should be measured in terms of
cash flows. We have to emphasise at this point that the estimation of the cash flow of a project is a
very difficult task. It is difficult in the sense that the cash flow to be estimated is future cash flow.
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 4
4. The Project Selection Stage

After the project evaluation stage, the next stage is the project selection stage. Faced with an array of
projects with different values and worth, there is need to select which projects to embarked upon.
There is no standard procedure for selecting projects as this will differ from benefit seen. The
important thing to note is that the project selection function is a top management responsibility which
in most cases goes to Board of Directors of an organisation. In selecting projects, management usually
considers the financial outlays involved and matches them with the financial capabilities of the firm.

5. The Project Execution Stage

The project execution stage is the final stage in the project cycle. After a project has been selected, it
moves on to the execution stage. In most organisations, the responsibility for execution of projects is
vested on a project management team raised by top management. The function of the team is to
ensure that the budget for the project is spent entirely on the project and that the project is completed
on schedule. In an ideal organisation, the project management team usually prepares a monthly budget
consideration report on projects for top management consideration. This is important for project
monitoring and control

Q. Explain the major format of project evaluation.

Project Evaluation – An Introductory Format

Evaluation is important to assess the worth or merit of a project and to identify areas for
improvement. It promotes appropriate decisions to take, including changes to the project‟s objectives
and methodology. An evaluation must be planned carefully. There is no one suite of techniques that
fits all types of projects. The evaluation approach, design and methodologies should match the
specific project. The focus and purpose of an evaluation differs depending on the needs of
stakeholders that may include project developers, funding agencies, local government, community,
teaching personnel and students. It is important to consult with stakeholders to select the most suitable
approach. By identifying the highlights and lowlights of a project, evaluation leads to conclusions that
may affect future decision making. Findings of evaluation reports, based on thorough analysis, are
valuable input in planning processes. Evaluation supports learning and improvement through
incorporation of recommendations into new projects, programs and strategies.

Q. Discuss the key segments of project evaluation

1. The Technical and Engineering Segment

The technical and engineering segment of project evaluation tries to evaluate the total technical and
engineering soundness of a project. It also tries to relate the project to the environment in which it is
located.

2. The Demand and Market Segment

This segment focuses attention on the demand for goods and services and relates it to the market. An
evaluation of the demand for goods and services is very important because demand translates to
revenues. Also, we need to evaluate supply situations in the market. These two topics will be treated
in detail later.

3. The Financial Segment

The financial segment of project evaluation focuses attention on the financial aspects of projects. In
discussing financial issues, we are considering all financial aspects of a project such as startup costs,
financial plans, renames and costs and income statements.

4. The Economic Segment

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 5
The last segment we will consider is the economic segment. The economic segment considers projects
from the macroeconomic point of view. Economic analysis tries to measure the benefits and costs of
projects in terms of their value to society as a whole.

Q. List and explain five items that you hope to find in the checklist of the management segment of a
project evaluation.

5. The Management Segment

After evaluating the technical and engineering segments of projects, the next segment we need to
discuss is the management segment. The management segment focuses attention on the management
aspects of a project. Projects only become successful if they are well managed. We do not need to
over-stress the importance of management. Again, we need to evaluate the legal form of the
organization that is evaluated and see if it can carry the project in question.

Q. List and discuss the factors that have influenced the location of industrial projects in your present
environment.

1. Closeness to Markets: This is the case with fresh produce - so that for example, many
supermarkets operate their own bakeries.

2. Communications Links: Transport is an important factor supporting access to markets. Modern

companies also need to locate where they have access to excellent information technology links

3. Closeness to raw materials: Locating close to the raw material supplies can reduce where raw
materials are heavy and large quantities are used up in production costs. This is particularly true for
industries like steel, which uses large quantities of iron ore in the production process.

4 Availability of appropriately skilled employees: Some industries rely heavily on a highly skilled
workforce. In contrast, other industries that require cheap labour will seek locations where there are a
lot of people looking for work that are prepared to accept low wages.

5. Opportunity for waste disposal: Waste is an important side effect of modern industrial processes.
Firms that produce a lot of toxic material (e.g. some chemical plants) will seek to locate where there
are facilities available for recycling and safe disposal of their products.

6. Availability of power supplies: Energy supplies can typically be found in most parts of the UK -
e.g. electricity pylons and cables. Large firms are able to negotiate bulk discounts when they purchase
power from energy retailing companies. Being able to negotiate a good deal in a particular location
might be influential as a locational factor.

7. Availability of land: Is increasingly important today. Land is becoming increasingly scarce

particularly in urban locations, forcing rental prices up. Property prices are particularly high in major
city areas such as Central London and Birmingham. Companies like Land Securities are developing
new sites that are suitable for modern businesses to locate to.

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 6
8. Government incentives: Are important in reducing costs of locating in certain areas. These
incentives are in effect subsidies provided by European Regional Funds (from the European Union)
and by the UK government.

9. Availability of Good Road Networks: Availability of good road networks is another major factor
influencing the location of projects in the economic landscape. Road networks are very important.
They are important for the movement of essential raw materials from raw material sources to factories
and also for the movement of finished goods to the markets where they are needed. Most investors in
the economy are usually attracted to areas with good road networks. Good road net works reduce the
cost of transportation.

10. Availability of a Good Rail System: Another important factor influencing the location of
projects is the availability of a good rail system. A good railway system ensures cheap transportation
and evacuation of raw materials from their sources to factory locations and also the movement of
finished goods to markets. You may observe that the development of trading locations in Nigeria
seemed to have followed the railway system. The North – East and West rail system runs through
towns today which have become trading posts. Kaduna-Abuja, Lagos-Osun, etc., all enjoy good
trading activities because they are located along railway line routes.

The Importance of Location in Business

Choosing a location for a new business is one of the most important decisions entrepreneurs make
during the planning phase of launching ventures. The location of a business can affect many aspects
of how it operates, such as total sales and how costly it is to run. Even home-based businesses and
online businesses can be affected by location-dependent rules and regulations.

1. Accessibility

Location is of utmost importance to businesses that sell goods or services directly to customers at
brick-and-mortar establishments. For example, a card shop located in a popular mall is likely to attract
more customers than a similar shop located in a run-down part of town. Location can also influence a
business's ability to market itself. A business with a storefront on a busy street is more likely to attract
customers with signs and storefront displays than a business that is not in a busy area.

2. Competition

A business's location can affect the competition it faces from businesses that sell similar products and
services. For instance, an upscale neighborhood in a major city might have dozens of ethnic food
restaurants, while a small town might not have any businesses that sell ethnic food. Starting a business
in an area with few direct competitors can increase the likelihood of attracting customers.

3. Operating Expenses

The location of a business can influence the total cost of operation. Renting a storefront on a popular
street or in a highly trafficked mall is likely to be more expensive than opening a store in a small
commercial district in a residential area. A business could be better off opening its doors in an area
that is cheap, even if it results in fewer total sales.

4. Taxes and Regulations

The location of a business determines the state and local taxes that owners have to pay and the
regulations they must follow. Income tax and sales tax rates vary from one area to another, which can
have a significant impact on a business owner's earnings. Government zoning laws can limit the size
and construction specifications of buildings and the use of signs. State and local laws can also affect
the types of permits and licenses necessary to operate a business.

5. Home Businesses
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 7
Home-based businesses offer a variety of advantages over companies located away from the home,
which can make them attractive to small-scale business owners. The cost of operating a home-based
business is typically lower than paying to rent retail space or office space in other locations. Home
offices can cut down on travel costs and make it easier for owners to balance work with home life.
The cost of operating a home office is also tax deductible.

The Advantages of Buying a Business

I. The difficult start-up work has already been done. The business should have plans and
procedures in place.
II. Buying an established business means immediate cash flow.
III. The business will have a financial history, which gives you an idea of what to expect and can
make it easier to secure loans and attract investors.
IV. You will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment and
stock.
V. A market for your product or service is already established.
VI. Existing employees and managers will have experience they can share.

The Disadvantages of Buying a Business

I. The business might need major improvements to old plant and equipment.
II. You often need to invest a large amount up front, and will also have to budget for
professional fees for solicitors and accountants.
III. The business may be poorly located or badly managed, with low staff morale.
IV. External factors, such as increasing competition or a declining industry, can affect future
growth.
V. Under-performing businesses can require a lot of investment to make them profitable.
VI. The seller's personality and their established relationships may be a major factor for the
success of the business.

Deciding to Buy a Business

Once you've decided you're ready to be in business, you then need to find a business that suits your
abilities, finances and goals. Consider:

I. A preferred industry (one that matches your experience and meets your goals)
II. A preferred business model (retail, wholesale, national distributor, on-line supplier, etc.)
III. A favourable geographic location (ideal customer exposure, potential for growth, distance to
travel to and from work, etc.)
IV. Opening hours (e.g. Most retailers trade 7 days, restaurants often trade nights, some
businesses are on call 24/7)
V. How much money you have available to fund the purchase and working capital of the
business.

Where to Find Businesses for Sale

There are many ways to find businesses for sale. Businesses are often advertised through: newspapers

I. Business broker websites - business brokers act as intermediaries between sellers and buyers
II. Real estate agency listings
III. Trade journals and industry magazines
IV. The franchising and business opportunities expo
V. Commercial websites

Checking Your Finances

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 8
Buying a business is a significant investment, so you need to sort out your finances early and be well
prepared and professional when applying for a bank loan or approaching potential investors. This will
give them confidence to back your business and convince the seller you are serious.

When checking your finances, consider:

I. The purchase price of the business

II. Stamp duty, usually payable by the purchaser
III. The working capital requirements for your business (your cash flow projections will show
that figure)
IV. Professional fees and charges related to the purchase
V. Any loan repayments and servicing costs, if applicable

All commercial lenders use the following criteria to assess loan applications:

I. Your ability to service loans (interest and periodic repayments)

II. Security (most banks require a 1st mortgage on real estate security and may lend up to 65% of
the real estate asset being offered as security)
III. The management and business skills of the borrower
IV. The trading history of the business (at least three years prior to purchase)
V. The profit and loss and cash flow forecasts for three years (forecasts need to be supported by
realistic assumptions about future trading)

Starting Your Research

Early research of potential businesses could include:

I. Scouting the location

II. Researching your competition (what do they offer that is different)
III. Checking the business's website and marketing materials
IV. Trying the business's products or services
V. Checking demographics
VI. Finding out why the business is for sale
VII. Talking to the business's suppliers
VIII. Talking to the business's customers
IX. Researching customer reviews about the business online

Conducting Due Diligence

When buying an established business it is vital that you, the prospective business owner, examine the
business in detail. This process is known as due diligence. Due diligence is generally conducted after
the buyer and seller have agreed in principle to a deal, but before a binding contract is signed.
Conducting due diligence is the best way for you to assess the value of a business and the risks
associated with buying it. Due diligence gives you access to important and confidential information
about a business, often within a time period specified in a letter of intent.

With this information you can assess the business's financial position and identify risks and ongoing
potential. It is your chance to answer any questions you might have about the business. The due
diligence process ensures that you get good value for a business. Done correctly, it can be the
difference between buying a business that makes you money and buying a business that costs you
money. You should always perform due diligence with the help of your lawyer, accountant or
business adviser.

To conduct due diligence you'll need to carefully review:

I. Income statements
II. Records of accounts receivable and payable
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 9
III. Balance sheets and tax returns including business activity statements (last 3-5 years)
IV. Profit and loss records (last 2-3 years)
V. Cash deposit and payment records, as reconciled with the accounts
VI. Utility accounts

The Warning Signs for the Buyer

You should be wary of sellers who:

I. Do not disclose important information

II. Won't agree to a trial period or enough time to conduct due diligence (you will need at least
30 days)
III. Won't introduce you to their suppliers, landlord or estate agent
IV. Are involved in legal proceedings
V. Are keen to close the deal quickly
VI. Have a questionable credit record and history

The Types of Purchase Contracts

There are basically 2 types of contracts:

I. Purchase contract for the assets of a business (i.e. You purchase only specific assets that the
business currently owns)
II. Purchase contract for shares in the business (i.e. You purchase all the shares in the business
and, so, take over all its assets and liabilities).

Q. Explain capacity and production planning

Capacity and Production Planning

Capacity planning is the process of determining the production capacity needed by an organization to
meet changing demands for its products. In the context of capacity planning, design capacity is the
maximum amount of work that an organization is capable of completing in a given period. Effective
capacity is the maximum amount of work that an organization is capable of completing in a given
period due to constraints such as quality problems, delays, material handling, etc.

The phrase is also used in business computing and information technology as a synonym for capacity
management. IT capacity planning involves estimating the storage, computer hardware, software and
connection infrastructure resources required over some future period of time. A common concern of
enterprises is whether the required resources are in place to handle an increase in users or number of
interactions. Capacity management is concerned about adding central processing units (CPUs),
memory and storage to a physical or virtual server. This has been the traditional and vertical way of
scaling up web applications, however IT capacity planning has been developed with the goal of
forecasting the requirements for this vertical scaling approach.

Capacity is calculated as (number of machines or workers) × (number of shifts) × (utilization) ×

(efficiency).

Capacity planning is focused on maximizing the capacity of a company in a way that allows it to be
more efficient and, thus, more profitable. Basic capacity planning attempts to match the volume the
company is able to produce to the demand in order to avoid downtime by preventing bottlenecks.

The Strategies of Capacity Planning

The broad classes of capacity planning are lead strategy, lag strategy, match strategy, and adjustment
strategy.

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 10
 1. Lead Strategy

Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an

aggressive strategy with the goal of luring customers away from the company's competitors by
improving the service level and reducing lead time. It is also a strategy aimed at reducing stock out
costs. A large capacity does not necessarily imply high inventory levels, but it can imply higher cycle
stock costs. Excess capacity can also be rented to other companies.

2. Lag Strategy

Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond
due to increase in demand (North Carolina State University, 2006). This is a more conservative
strategy and opposite of a lead capacity strategy. It decreases the risk of waste, but it may result in the
loss of possible customers either by stock out or low service levels. Three clear advantages of this
strategy are a reduced risk of overbuilding, greater productivity due to higher utilization levels, and
the ability to put off large investments as long as possible. Organization that follow this strategy often
provide mature, cost-sensitive products or services.

3. Match Strategy

Match strategy is adding capacity in small amounts in response to changing demand in the market.
This is a more moderate strategy.

4. Adjustment Strategy

Adjustment strategy is adding or reducing capacity in small or large amounts due to consumer's
demand, or, due to major changes to product or system architecture.

Q. Planning in an organization is a way forward to achieve organizational objectives, that is why it is

said that he who fails to plan, will plan to fail. Briefly discuss the relationship between Capacity
Planning and Production Planning.

Similarities between Capacity Planning & Aggregate Planning

Most business owners and managers strive to produce the highest quality products at the lowest
production costs. In business terms, "capacity" means the maximum amount of productivity possible.
Capacity planning is one means of managing resources to garner the most profit for every dollar
spent. This type of planning can be set up at different levels. The planning system helps a company
handle an increase or decrease in demand, meet changes in technology and take advantage of new
opportunities.

1. Capacity Management and Planning

Capacity management involves setting up a system to fulfill all manufacturing orders on time. The
system includes plans and schedules for production, taking into consideration materials needed and
shipping requirements. Capacity planning is done for long-term, medium-term and short-term periods.

2. Aggregate Planning

Aggregate planning is medium-term capacity planning that typically covers a period of two to 18
months. Like capacity planning, aggregate planning considers the resources needed for production
such as equipment, production space, time and labor. Companies use aggregate planning to ensure
they have ample time to carry out production plans to meet customer demand, smooth operations
along the supply chain and reduce production costs.

Aggregate planning, also called aggregate scheduling, is an approach to operations management

focused on satisfying demand. This may be in relation to production, the workforce itself or inventory

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 11
management. Aggregate planning ties facility planning in with scheduling decisions and does so in a
way that is quantitative, meaning it produces numbers to back up an operations plan. Aggregate plans
help match supply and demand while minimizing costs by applying upper level forecasts to lower-
level, production floor scheduling. Plans generally either chase demand, adjusting the workforce
accordingly, or are level plans, meaning that labor is relatively constant with fluctuations in demand
being met by inventories and back orders.

Production Planning & Scheduling

Production planning, or production scheduling, is a term that covers all aspects of operations, from
workforce activities to product delivery. Production planning is almost exclusively seen in
manufacturing environments; however, many of the techniques employed in production planning can
be and are used by many service-oriented businesses. Production planning is primarily concerned with
the efficient use of resources. While it is sometimes referred to as operations planning, and it employs
many of the same techniques, the primary distinguishing characteristic is that production planning is
focused on the actual production, whereas operations planning looks at the operation as a whole.

The goal of production planning is simply to maintain flow. The individual in charge of production
planning adjusts the workforce and process flow to obtain a regular use of company resources with
minimal downtime, minimal bottlenecks and a level of output consistent with all the resources being
put into the process.

1. Static Versus Dynamic Planning

There are two main types of production planning: static and dynamic. Static planning carries an
assumption that all steps in a process can be defined and will not change. In contrast, dynamic
planning assumes that steps in the process will change, so nothing is planned until the demand is
received. Dynamic planning works very well in environments where there is a high degree of
customization. An example of a static plan is a retail clothing company, in which production levels
are determined up to a year in advance. An example of a dynamic plan is a floral shop; there may be a
few arrangements for display and possible purchase, but the primary focus is on creation of custom
arrangements after an order is received.

2. Forward Incremental Planning

Forward incremental planning, or FIP, is a dynamic planning method. FIP is implemented from the
initial receipt of an order. The actions required to fulfill that order are prioritized. The essential goal of
FIP is to reduce lag time. While it can be quite effective, its primary limitation is that it assumes no
other action is in progress -- as in, no machines are tied up and the workforce was essentially idle until
the order was received. This may be a huge limitation for some industries, but for companies that
produce products with high levels of customization, FIP is a powerful tool.

3. Backward Incremental Planning

Backward incremental planning, or BIP, is the other side of the FIP coin. BIP looks at the
requirements from the due date backward and organizes the process accordingly. A good example of
this is a bakery. The cake must be fresh for its pickup date, so the baker would look at the steps
required to produce the cake and the estimated time required to bake and decorate it. BIP works well
in cases where a deadline is more of a requested completion date and completing the order sooner
produces no benefit.

The Importance of Planning & Scheduling

I. Identification

Planning and scheduling are closely related; they're both processes that apply to almost every element
of starting and running a business. For example, when you create a business plan and write down each
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 12
section of how the business will run, you are participating in the planning process. You must also
write a complete schedule to go along with that plan so that you know what to work on each day as
you work toward the opening day of the business. For work projects, you must establish a project plan
and well-defined goals, then set a corresponding schedule for accomplishing those goals.

II. Significance

There are a couple of important reasons why planning and scheduling are important for your business.
For one, a solid plan and schedule helps keep costs down and allows you to operate according to a
budget. For instance, if you take the time to create a plan for an online advertising campaign, you'll be
able to narrow down your target audience and avoid the unnecessary cost of advertising to people who
aren't interested in your products. Creating a schedule for running your online ads may also allow you
to take advantage of price promotions offered by the advertising service. You can also set strict ad
budget restrictions based on your plan. Having a plan and schedule also helps make your business
goals seem more realistic and achievable

III. Types

In addition to general planning and scheduling activities, many businesses must also prepare specific
schedules and plans. For instance, a manufacturer must create an operations plan and schedule for the
production process. Companies that have to order supplies and raw materials on a regular basis need
an ordering schedule. If the company utilizes shift workers, there must also be a schedule detailing the
availabilities of employees and needs of the business.

IV. Solutions

Creating a project plan and schedule is a two-step process that requires one or more computer
programs. When planning, it's helpful to simply create a table with columns denoting every aspect of
the project, including a description of the project that needs to be completed, a timeline for the
project's completion including a due date, the name of the project leader, and the project's budget.
You can create such a table in a word processing or spreadsheet program. After the initial plan is
complete, enter a summary of specific tasks along with deadlines into a calendar program to receive
reminders of upcoming deadlines. Such reminders are useful in remaining on time with projects.

V. Expert Insight

One issue that may arise in the process of planning and scheduling is a situation where the business
owner has to address multiple objectives at the same time. As Michael L. Pinedo, author of "Planning
and Scheduling in Manufacturing and Services" states, "This implies that the two problems often
cannot be solved separately; they may have to be solved together." For example, if one of your
business objectives is to increase sales figures, an additional goal tied to that objective might be to
train your sales professionals. These competing needs may complicate the process and cause delays in
the project plan until both issues are addressed.

Q. Explain manpower planning and evaluation

Manpower Planning and Evaluation

In general terms organising manpower in an organisation is the process of assigning duties amongst
personnel and coordinating efforts towards the attainment of the firm‟s objectives. But before
organising, there must be a plan. It is the plan that leads to the shaping of an organisation‟s structure.

Conceptually, the project initiative in structuring the organisation should be concerned about two
critical things.

1. Job definitions in the project under consideration

2. Departmentalisation which follows job definitions.
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 13
In doing this, similar jobs are grouped together to form a department. The most common way of
organising a project is by function. For example a manufacturing plant may be divided into three
types namely:

1. Production
2. Marketing
3. Finance

There are two uses of the manpower plan.

The first use is by the project initiator. When the project initiator is structuring the project, the
manpower plan definitely is a critical component. The project initiator needs to know well in advance
who the key employees will be. The key employees will depend on the nature of the business in
question. If the business is, for example, soap manufacturing, then a lot of the production staff should
be industrial or pure scientists plus other core support staff. Apart from that, each employee should
have their various responsibilities. For example, in a soap plant, you will have production staff and
also quality control staff. They have difference responsibility. And of course, the qualifications of the
various staff including their years of experience should be properly documented and evaluated.

The second use of the manpower plan is that financial institutions like banks, before granting loans or
overdraft for a project, usually insist on being convinced of the management skills that will be
available or are actually available in the firm that seeks to borrow money. They will look at the people
concerned, their qualifications and match them with the jobs allocated to them. Hours of work and the
salary and wages of the entire work force are another critical input. The salary and wages of those
working on a project is actually expected to hover around the average for the industry.

Q. Explain the meaning of market analysis

Definition of Market Analysis

A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the
market both in volume and in value, the various customer segments and buying patterns, the
competition, and the economic environment in terms of barriers to entry and regulation.

A marketing analysis is a study of the dynamism of the market. It is the attractiveness of a special
market in a specific industry. Marketing analysis is basically a business plan that presents information
regarding the market in which you are operating in. It deals with various factors.

A market analysis studies the attractiveness and the dynamics of a special market within a special
industry. It is part of the industry analysis and thus in turn of the global environmental analysis.
Through all of these analyses, the strengths, weaknesses, opportunities and threats (SWOT) of a
company can be identified. Finally, with the help of a SWOT analysis, adequate business strategies of
a company will be defined. The market analysis is also known as a documented investigation of a
market that is used to inform a firm's planning activities, particularly around decisions of inventory,
purchase, work force expansion/contraction, facility expansion, purchases of capital equipment,
promotional activities, and many other aspects of a company

Q. What are the factors of market analysis?

The Factors of Market Analysis

The most common factors are the SWOT which is an acronym for; Strengths, Weaknesses,
Opportunities, and Threats. By assessing the company‟s strengths and weaknesses, you can make a
strategy on which factors to focus upon. If you have a good labor force, ample investment and good
advertising experts then you are going to make your marketing strategy focusing on those things.
Similarly if your technology is comparatively poorer and you lack online presence then you are going
to avoid those things. You also look at external factors like situations which may you with an
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 14
opportunity or threat. Economic factors, political instabilities or even social changes can give you
opportunities which you can seize and do better. They can also create threats which are going to
hamper your business dealings. Considering all these factors will give you a marketing analysis from
which you can implement your decisions.

Dimensions of Marketing Analysis

There are certain dimensions which help us to perform a marketing analysis. These things help us
understand the market we operate in better. These dimensions include;

1. Market Size: The size of the market is a key factor in a marketing analysis. The bigger the market
the more competitors you are likely to have. For a big market, you need to make sure your products
and services stand out. Otherwise, the customers can easily switch to a rival product. Not only that, a
bigger market makes you rethink your pricing policy. Set your price too high then you are going to
lose your customer base to other competitors. Set it too low and people will think that you are just
providing cheaper poor quality goods. If the market size is small then you can get away with charging
a high price. All these facts are kept in the marketing analysis. Based on that you go ahead with your
marketing plan.

2. Growth rate of the market: The market growth rate is a huge factor in any sort of marketing
analysis. This is because you get the idea of how long the said market will last. Before you make an
investment you need to analyze the market‟s growth rate. If it is likely to grow over time then you can
invest more in it. If it has no growth then you are likely to be discouraged from investing anything at
all. How much time and importance you give to the market depends on its growth rate.

3. Market Trends: Market trends are a significant part of the marketing analysis. Having knowledge
about the trends help you to decide what kind of product you are going to sell. When you are starting
off a business you need to know what the current trend is. What is the thing that the customers like?
How much they are willing to spend? What other trends may capture their attention? These are the
sort of things which will go on your analysis. On the other hand, market trends can change any day.
This can turn out to be an opportunity for your business. If that is the case then you can seize it and
make the most of it. Changes in trend can also be a threat for you.

4. Market Profitability: Most companies‟ motive to get into the business is to make a profit. In other
words, they are profit-motive businesses. So before getting into a business you need to analyze the
profitability of the market. If the market has a good profitability then only you are going to invest
heavily. Otherwise, it would be a waste of your time and capital. In order to calculate the profitability
of the market, there are a few things one has to consider. These things include; buyer power, supplier
power, barriers to entry and so on.

5. Key Success Factors: The key success factors are those elements which help the business to
achieve great success in the market. Such elements are required to stand out among the rest of the
competition. These are things which you did well that have enabled you to produce great results. Key
success factors include;

1. Technology progress

2. Economies of scale

3. Efficient utilization of resources

6. Distribution Channels: Distribution channels are very important for a business. Without those,
you won‟t be able to get your products to your customers. So it becomes a big factor in a marketing
analysis. This is because you need to assess how well the channels are. If the existing ones are good
enough or you need to develop newer ones. Sometimes you come up with brand new channels like
online marketing.

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 15
7. Industry Cost Structure: The industry cost structure is a significant factor while running a
business. It basically sees how much cost is required to get your products for sale. Sometimes firms
can come up with ways to decrease that cost and thereby make a bigger profit without increasing the
market price. Doing a marketing analysis will help you to come up with newer ways to reduce cost.
At the same time, it helps to create strategies for developing a competitive advantage of your rivals.

Different Methods of Market Analysis

Surveys are among the most common market analysis tools. Companies can send out mailers and e-
mails or use telephone surveys to gather consumer data. The information from the survey typically
provides information on the desires, perceptions, and wants of consumers. New products, product
quality, or product lines are often the result of this information. These surveys may also reveal
information on other products purchased.

i. Focus Groups

Focus groups are a bit more personal when compared to standard surveys. Companies often select a
few individuals to come in and discuss or test a new product. The information here allows a company
to review consumer feedback and ask the focus group participants questions. Though focus groups are
a bit more expensive than surveys, these methods of market analysis can glean more information. A
drawback to focus groups can be the internal bias in any individual in the group.

ii. Observation

Observation may be among the easiest methods of market analysis. Essentially, internal stakeholders
simply look around the market and business environment at what other companies are doing. A
review of competitors and other successful products can help a company determine the future of the
market. A flaw in this method is the inability to apply quantitative analysis to the analysis process.
Observation may also not determine the internal profits a competitor earns from its products

iii. Field trials

Field trials typically represent one of the most expensive methods of market analysis available to the
company. The business can create a small group of products and test them in select markets around
the larger region. Information from each test market allows a company to assess how general
consumers react along with any associated marketing or other programs attached to the product. If
successful, the market analysis can help a company complete a rollout in a nationwide sense. As the
company already has a partial system in place for distributing goods, a complete rollout is typically
easier to process after a field trial.

Different Types of Business Analysis Tools

Business analysis tools are different methods stakeholders use to assess a company‟s operations. In
most cases, the purpose of the analysis is to determine how effective or efficient a company is in the
overall market. A few different tools are accounting ratios, SWOT analysis, and the balanced
scorecard.

1. Accounting Ratios

Accounting ratios are among the easier analysis tools to compute and use in business assessment.
These ratios use information from both the income statement and balance sheet in order to provide
indicators of a company‟s financial strength. In particular, the ratios measure a company‟s liquidity,
profitability, asset use, and financial leverage along with other financial areas. While a good tool for
use at the end of each month, financial ratios do have some flaws. First, the ratios are useless by
themselves as they need another source for comparison; second, the ratios only use information from
the financial statement for review.

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 16
 2. SWOT

SWOT stands for strengths, weaknesses, opportunities, and threats. In terms of business analysis
tools, SWOT analysis is valuable because it reviews both internal and external factors that can relate
to a company‟s operations. Strengths and weaknesses are the internal factors; essentially, they are the
things a business does well and does not do well. Opportunities and threats represent the external
factors. Opportunities are new items or business areas in which a company can engage, while threats
represent the potential competitors in the market or new opportunities.

3. The Balanced Scorecard

The balanced scorecard is an increasingly popular assessment among other business analysis tools.
The scorecard has four different perspectives: financial, business process, learning and growth, and
customer. Each perspective looks at specific information related to its overarching focus. Taken
together, all perspectives should provide information that helps a company reach its goals and develop
strategies. The balanced scorecard may also be able to help a company plan future operations.

Q. List and Explain types of Market Failure.

Types of Market Failure

A market failure is a situation where free markets fail to allocate resources efficiently. Economists
identify the following cases of market failure:

1. Productive and allocative inefficiency: Markets may fail to produce and allocate scarce resources
in the most efficient way.

2. Monopoly power: Markets may fail to control the abuses of monopoly power.

3. Missing markets: Markets may fail to form, resulting in a failure to meet a need or want, such as
the need for public goods, such as defence, street lighting, and highways.

4. Incomplete markets: Markets may fail to produce enough merit goods, such as education and
healthcare.

5. De-merit goods: Markets may also fail to control the manufacture and sale of goods like cigarettes
and alcohol, which have less merit than consumers perceive.

6. Negative externalities: Consumers and producers may fail to take into account the effects of their
actions on third parties, such as car drivers, who may fail to take into account the traffic congestion
they create for others. Third-parties are individuals, organisations, or communities indirectly
benefiting or suffering as a result of the actions of consumers and producers attempting to pursue their
own self interest.

7. Property rights: Markets work most effectively when consumers and producers are granted the
right to own property, but in many cases property rights cannot easily be allocated to certain
resources. Failure to assign property rights may limit the ability of markets to form.

8. Information failure: Markets may not provide enough information because, during a market
transaction, it may not be in the interests of one party to provide full information to the other party.

9. Unstable markets: Sometimes markets become highly unstable, and a stable equilibrium may not
be established, such as with certain agricultural markets, foreign exchange, and credit markets. Such
volatility may require intervention.

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 17
10. Inequality: Markets may also fail to limit the size of the gap between income earners, the so-
called income gap. Market transactions reward consumers and producers with incomes and profits,
but these rewards may be concentrated in the hands of a few.

Q. Discuss extensively the types of stock market analysis.

The Types of Stock Market Analysis

1. Fundamental Analysis

The goal of fundamental analysis is to determine whether a company‟s future value is accurately
reflected in its current stock price. Fundamental analysis attempts to estimate the value of a particular
stock based on a variety of factors, such as the current finances of the company and the prevailing
economic environment. Fundamental analysis also may include speaking with a company‟s
management team and assessing how the company‟s products are received in the marketplace.

When a fundamental review is complete, the analyst may decide the stock is an attractive opportunity
because the market has underestimated its future prospects. The analyst also may determine the stock
to be a “hold” or a “sell” if the value is fully reflected in the price.

2. Technical Analysis

Technical analysts evaluate recent trading movements and trends to attempt to determine what‟s next
for a company‟s stock price. Generally, technical analysts pay less attention to the fundamentals
underlying the stock price. Technical analysts rely on stock charts to make their assessment of a
company‟s stock price. For example, technicians may look for a support level and resistance level
when assessing a stock‟s next move. A support level is a price level at which the stock might find
support and below which it may not fall. In contrast, a resistance level is a price at which the stock
might find pressure and above which it may not rise.

3. Sentimental Analysis

Sentimental analysis attempts to measure the market in terms of the attitudes of investors. Sentimental
analysis starts from the assumption that the majority of investors are wrong. In other words, that the
stock market has the potential to disappoint when “masses of investors” believe prices are headed in a
particular direction. Sentiment analysts are often referred to as contrarians who look to invest against
the majority view of the market. For example, if the majority of professional market watchers expect a
stock price to trend higher, sentiment analysts may look for prices to disappoint the majority and trend
lower.

Q. What is supply analysis?

Supply analysis in project analysis tries to focus attention on the supply side of the market. The
potential investor will like to know who the current suppliers of the goods or services are. Because
this will guide him/her in understanding what is known as the demand/supply gap. Supply analysis
tries to identify the supply of given goods or services. It tries to identify who the suppliers are and
their locations. Generally, in measuring the supply of a good, the following should be taken into
consideration:

I. The domestic supply of the good or service

II. The foreign supply of the good or service. (the imported quantity)
III. The export of the good or service (export quantity).

Q. Explain the supply equation and its relevance.

The Supply Equation

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 18
Consider a firm called Bade Nigeria Limited that wishes to set up a liquid soap manufacturing plant in
Nigeria. The firm now wants to analyse the supply of liquid soap in Nigeria. As we have said, there
are three key items to consider. Those three items are:

• The domestic supply of the liquid soap

• The foreign supply of the liquid soap

• The export of the liquid soap in question.

Let A = the domestic supply of a good

B = the foreign supply of a good

C = the export of the good

Then supply X = (A + B) – C.

This is called the supply equation.

You will notice that C is the exported quantity and which will not be available for local consumption.

Q. Explain the meaning of competition

The Nature of Competition

Competition occurs because every firm in an industry wants to sell its products and also get market
share to the detriment of other players. In the market, the state of competition depends on five basic
forces as shown in Figure 5 Therefore, any discussion on competition must take into consideration
these five basic forces since they cannot be glossed over. The first force exists within the industry
where we see firms all jockeying for position. Here, all firms unleash their strategies and fight each
other. In the end, some firms emerge as clear leaders, some emerge as followers, while others might
close shop. The second force is the threat of new entrants. New entrants into an industry bring in new
capacity. But we should note that the threat of entry depends on the barriers present and also the
reaction of existing players. We should also not forget the forces arising from suppliers. Strong
suppliers can exert strong bargaining power on market participants to the extent of raising prices and
influencing the price of goods generally. Powerful buyer groups, when they exist in an industry, tend
to influence prices since they more or less dictate the price at which they will buy. Finally substitute
goods or the threat of substitute goods also influence competition in an industry. Substitute goods tend
to limit the potentials of an industry. For example sugar tends to limit the honey industry‟s potentials
for growth and expansion.

Q. Discuss marketing plans and how they are designed.

The Marketing Plan

The marketing plan addresses issues concerning the marketing of the products. It tries to relate the
firm to its external consumers and the market.

The marketing plan should answer the following questions:

• What is the product or service?

• What are the uses of the product or service?

• What is the offered price?

• Where will the product be found?

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 19
• How will the product or service be advertised?

Q. Explain project cost analysis

Project Cost Analysis

Project cost analysis provides total frameworks for calculating or estimating the total cost of a project.
For example, a firm wants to set up a garri processing plant to enable it serve the food needs of a
growing population. To guide our discussions, let us define project cost as all those costs that are
incurred in the process of setting up a project. The costs must be attached to the project. And the list
of the items must be exhaustive. But we need to arrange the cost items in an orderly and consistent
manner so that like items stay together. To ease our discussions and to make them as easy as possible,
we shall divide project cost items into the following sub-headings:

• Cost of land

• Cost of building

• Cost of machinery and equipment

• Cost of utilities

• Cost of furniture and other fittings

• Cost of vehicles

• Pre-operational expenses

• Working capital

Q. Explain the meaning of projected income statement

The Projected Income Statement

The projected income statement is usually needed by a variety of people. Some of the users of the
projected income statement might have direct interest in the firm while others have indirect interest.
The owners or sponsors of a project have a direct interest in the projected income statement. It is so
because they are entrusting their investment to the firm. They wish to know beforehand what the
revenues, expenses and net profit of the firm will be, and most importantly, their own expected
dividends

Q. Explain the meaning of a projected balance sheet

Meaning of a Balance Sheet

The balance sheet or the statement of financial position is one of the most important financial
statements. It shows the financial condition or better still, the statement of affairs of a firm or
business. We Will therefore, define a projected balance sheet as a forecast of a future balance sheet as
at a future date.

Components of the Balance Sheet

The balance sheet has two main sides namely:

I. Assets
II. Liabilities

1. Assets

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 20
When we are talking of assets generally, we are talking about the valuable possessions owned by the
firm, valued in monetary terms. They will include land and buildings, stock of goods, raw materials,
cash, vehicles and other valuables. But generally we can classify assets under the following headings:

• Current assets

• Investments

• Fixed assets

Lets us now discuss each of them:

Current Assets

The current assets of a firm or business are those assets which are held in the form of cash or expected
to be converted into cash in a period or within the accounting period of the firm. In actual practice, the
accounting period is usually of one-year duration.

The current assets of the firm will include the following:

• Cash

• Book debts (debtors)

• Prepaid expenses

• Marketable securities

• Stock

Investments

Investments represent the firm‟s investments in shares, debentures and bonds of either firms or the
government. By their nature, the investments are long term. It is important to note that the investments
yield income to the firm.

Fixed Assets

Fixed assets are long-term assets held for periods longer than one year. They are usually held for use
in the firm‟s business. Fixed assets include land, buildings, machinery and equipment, vehicles, etc.

2. Liabilities

When we talk of liabilities, we mean the debts that are payable by the firm or business to creditors.
They may represent various obligations due to various third parties arising from various business
transactions. Examples of liabilities include creditors, accounts payable, taxes payable, bonds,
debentures, etc. But generally, liabilities are divided into two broad groups namely:

• Current liabilities and

• Long-term liabilities

We shall discuss each of the groups

1. Current Liabilities

Current Liabilities are those debts that are payable in a short period usually within a year. One of the
major current liabilities is the bank overdraft. Most banks grant their customers overdraft which are

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 21
repayable within a period of one year. The other type of current liability includes provisions for taxes
and dividends. These are liabilities that will mature within one year.

Another type of liability is expenses payable. The firm may expenses to public power supply
organisation or have rents to be paid.

2. Long Term Liabilities

Long-term liabilities are the obligations which are payable in a period of time greater than a year. One
of the long term liabilities of a firm is term loan. The firm may borrow money from a bank that will
be repayable over a period preceding one year. Such a borrowing or loan is regarded as long-term
liability. Also, when a firm needs to raise a large sum of money, it debentures. A debenture is an
obligation on the part of a firm to pay interest and principal under the terms of the debenture.

Q. Explain the preparation of the projected balance sheet

Construction of the Projected Balance Sheet

In the earlier sections of this unit, we have discussed the balance sheet generally. That was from a
historical perspective. We shall now discuss the construction of a projected balance sheet.

The following steps are recommended:

• Start from the determination of sales revenue.

• Compute cost of goods sold (COGS)

• Compute admin expenses, general and selling expenses.

• Bring forward sundry income and expenses and generate the projected income statement.

• Determine taxation, dividends and retained earnings.

• Project for assets.

• Project for liabilities.

Q. What are the major characteristics of a project?

Characteristics of a Project

Any project should posses the following characteristics:

i. It should provide a means to distinguish between acceptable and unacceptable projects.

ii. It should also be able to rank projects in order of their desirability.

iii. It should be a criterion that is applicable to any conceivable project.

iv. It should recognise that bigger cash flows are preferable to smaller ones.

v. It should recognise that early cash flows or benefits are preferable to later cash flows or benefits.

Q. Discuss project evaluation criteria

Project Evaluation Criteria

Although there are a lot of project evaluation criteria in the literature, we shall discuss the most
widely accepted criteria which are the traditional criteria and the discounted cash flow (DCF) criteria

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 22
1. Traditional Criteria of Project Evaluation

In the traditional criteria, we shall discuss two methods, namely: the payback period and the
accounting rate of return method.

The Payback Period

The payback period is one of the most popular methods of project evaluation. The payback period is
defined as the number of years required to recover the original cash outlay invested in a project. If the
project yields constant annual cash inflows, the payback period can be computed by dividing cash
outlay by the annual cash inflow.

So we say thus: Payback period Cash outlay (investment) = Annual Cash inflow

The Accounting Rate of Return (ARR) Method

The accounting rate of return (ARR) is a method that uses accounting information to measure the
profitability of an investment. The accounting rate of return (ARR) is computed by dividing average
income after taxes by the average investment.

ARR = Average Income

Average Investment

Q. Discuss two Discounted Cash Flow Methods for project evaluation.

2. The Discounted Cash Flow (DCF) Method

The two methods are the net present value (NPV) method and the internal rate of return (IRR)
method. These two methods are referred to as discounted cash flow (DCF) methods or the adjusted
methods.

i. net present value (NPV) method

ii. internal rate of return (IRR) method

3. The Net Present Value (NPV) Method

This method correctly recognises the fact that cash flows arising different time periods differ in value
and are comparable only when their equivalent- present values are found out

The following steps are followed when computing the net present value (NPV).

1. A discount rate is selected to discount the cash flows. The correct discount rate should be the firm‟s
cost of capital which is the minimum rate of return expected by the investors to be earned by the firm.

2. The present value of cash inflows and outflows are computed using cost of capital as the
discounting rate.

3. The net present value (NPV) is the present value of cash inflows less present value of cash
outflows.

4. The Internal Rate of Return (IRR) Method

The internal rate of return (IRR) can be defined as that rate which equates the present value of cash
inflows with the present value of cash outflows of an investment. Put in another way, the internal rate
of return is the rate at which the NPV of an investment is zero. It is called the internal rate because it

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 23
depends solely on the outlay and the resulting cash inflows of the project and not any rate determined
outside the investment.

Q. Explain the meaning of an economic analysis

Economic Analysis

Economic analysis also tries to solve resource allocation problems in an economy. In economic
theory, resources are very scarce and it is part of any good analysis to allocate resources between
competing projects. For example, resource allocation problems can arise if a community is trying to
decide whether to build a school or a hospital with limited scare resources. Economic analysis
considers projects from a macro point of view. The type of questions asked in an economic analysis
are:

1. Will the project under consideration lead to the general well being of the community, the state and
the nation?

2. Will the project generate employment at various levels in the macro environment?

3. Will the project lead to economic growth?

4. What are the linkages that the project has, i.e., forward or backward linkages?

5. Will the project generate more technical knowledge?

Q. Compare and contrast financial analysis and economic analysis.

Financial Analysis and Economic Analysis – a Comparison

In general theory, a financial analysis tries to solve resource allocation problems. It tries to use
information from projects to determine whether projects should come on stream or not. Economic
analysis also tries to solve resource allocation problems in an economy. In economic theory, resources
are very scarce and it is part of any good analysis to allocate resources between competing projects.
For example, resource allocation problems can arise if a community is trying to decide whether to
build a school or a hospital with limited scare resources. Financial analysis equally tries to allocate
resources but from a micro view point. So, both financial and economic analyses solve resource
allocation problems. Financial analysis tries to concern itself with issues of both benefits and costs
arising from a project. In the financial analysis, the concern of the analysis is to evaluate the stream of
costs attached to a project and deduct same from the stream of benefits.

If the stream of benefits is greater than the stream of costs, then project in question has a positive
value and should be accepted, all things being equal. However, if the stream of costs is greater than
the stream of benefits, then the project in question has a negative value and should not be accepted, all
things being equal. Economic analysis also concerns itself with costs and benefits arising from a
project. If the stream of benefits is greater than the stream of costs, then the project in question has a
positive value and should be accepted.

However, if the stream of costs is greater than the stream of benefits, then the project in question has a
negative value and should not be accepted, all things being equal. So we could say that financial
analysis and economic analysis both concern themselves with costs and benefits arising from a
project. In the end, they provide answers to the question of whether a project should be acceptable or
not. In evaluating projects, both use discounting and compounding techniques to arrive at their
answers.

However, there exist conceptual differences between financial analysis and economic analysis. While
financial analysis has a primary objective of establishing the viability and acceptability of a project
from a financial view point, paying no attention to society, economic analysis has the objective of

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 24
establishing the fact that a project is acceptable or not to the society as a whole. So while financial
analysis has a micro objective, economic analysis has a macro objective.

Finally, in reaching a decision as to whether or not to accept a project, financial analysis and
economic analysis both try to establish a relationship between costs and benefits. For example in
financial analysis, costs and benefits arising from a project are usually defined in monetary variables
such as profits. But economic analysis goes really beyond the vague definitions of profit. In Economic
analysis, costs are defined in terms of opportunity costs or foregone costs to the society as a whole.

The Nature of Economic Analysis

In economic analysis, the costs and benefits attached to a project are usually compared before a
decision can be reached on whether or not to accept a project. In the literature, there exist three
discounted measures of project worth which we will now discuss:

The Net Present Worth

The net present worth is the difference between the present worth of benefits and the present worth of
costs. We can write thus:

Generally, according to the net present worth theory, a project is acceptable if the net present worth is
positive. If the net present worth is negative, the project will be rejected.

Benefit-Cost Ratio

If you divide the present worth of benefits of a project by the present worth of its costs, then you have
what is known as the benefit-cost ratio. We can write thus:

Benefit-Cost ratio = Present worth of benefits

Present worth of costs

Generally, a project is acceptable if the benefit-cost ratio is greater than 1 (one). If the benefit-cost
ratio is exactly 1 (one), that project is a break even project

The Internal Rate of Return (IRR)

The internal rate of return is a discount rate where the present worth of benefits is equal to the present
worth of costs. Under the internal rate of return evaluation method, a project will be acceptable if its
internal rate of return is higher than the firm‟s required rate of return. The starting point of economic
analysis is the financial analysis of a project which should be properly concluded before embarking on
an economic analysis. Some adjustments will be made to the calculations to arrive at economic data.

First, it may be necessary to include or exclude some costs and benefits which may have been
included or excluded from the financial analysis.

Secondly, some project inputs and outputs may have to be revalued if their shadow prices differ
significantly from their market prices.

Adjustments to Financial Analyses

We have stated that the starting point of an economic analysis is a financial analysis, so if we have
financial data on financial analysis, we need to make some adjustments to the financial analysis to
arrive at economic analysis data. We shall now consider some of the adjustments:
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 25
Transfer Payments

Transfer payments represent transfer of resources from one section of society to another. They do not
make any claim on the country‟s resources and as such, their impact should be clearly distinguished
and analysed in the economic analysis. One of the first transfer payments we shall consider is interest.
Interest is a reward for capital. For example, if a project is funded through a bank loan, the interest
component is included in the profit and loss statement.

The interest charges in the profit and loss statement represent transfer payments from a project to the
provider of funds. What the project lost (interest) has become a gain to the provider of funds. In
effect, both figures are equal and cancel out without any net increase to society of funds. Therefore in
economic analysis, interest charges are excluded since they only represent transfer payments.

The second transfer payment we shall consider is tax. When a project is profitable it is expected to
pay taxes to the government at the ruling rate. In computing the profit of a project taxes are deducted
to arrive at net profit. Taxes therefore appear as outgoing cash flows. Taxes represent transfer
payments from a project to government.

In the economic analysis of a project, taxes are excluded because from the point of view of the
society, they are only a transfer of resources from one section of the economy to another. The third
transfer payment is subsidies. In a traditional private sectors setting, it would be unheard of to talk of
subsidies. But in economic analysis, subsidies appear as important data. Most public sector projects
enjoy government subsidies to enable the poor gain access to certain services which ordinarily they
cannot afford without government assistance. Subsidies represent opportunity costs to a nation as a
whole.

Linkage Effects of a Project

Generally, there are two types of linkage effects which we shall briefly discuss:

I. Forward Linkage Effects

Forward linkage is the stimulus given to industries that use the products of a project. A case in point is
a flour manufacturing project. Flour has so many uses. If a flour mill is located in an environment, it
will lead to the establishment of such projects as bakeries which will use the flour.

II. Backward Linkage Effects

Backward linkage demonstrates the stimulus to industries that supply the inputs to a project. For
example, the establishment of a flour mill in an environment will lead to demand for wheat which is a
major input for flour mill. The flour mill will lead to investment in wheat cultivation. Also, the
establishment of a car assembly plant will lead to the establishment of tyre manufacturing plants that
need to supply tyres to the car assembly plant.

Q. Explain the meaning of Evaluation

The Meaning of Evaluation

Broadly speaking, evaluation may be defined as "a process which attempts to determine as
systematically and objectively as possible the relevance, effectiveness and impact of activities in the
light of the objectives". It is, thus, a critical analysis of the factual achievements/results of a project,
programme or policy vis-a-vis the intended objectives, underlying assumptions, strategy and resource
commitment.

In specific terms, it makes an attempt to assess objectively the following:

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 26
(a) the relevance and validity of the objectives and design of the project/programme in terms of
broader issues of development policy, sector/sub-sector priorities and strategies as well as other
problems of a wider nature

(b) the efficiency and adequacy of the pace of progress of the project/programme where the focus is
mainly on managerial performance and productivity

(c) the effectiveness of the project/programme - a major part of an evaluation exercise-in realizing the
intended objectives from a variety of angles; and (d) the identification of reasons for the satisfactory
or unsatisfactory accomplishment of the results of the project/programme and to deduce critical issues
and lessons which may be of relevance to other on-going and future projects/programmes of a similar
nature.

Q. Analyse the purpose of evaluation and classify difference types of project evaluation.

Types of Evaluation

Evaluation can be applied for different purposes as well as to a specific activity, project or
programme. It is not restricted to the completion stage only but involves periodic investigations at
many stages. The different types of project evaluations carried out are: (i) ex-ante evaluation, (ii) on-
going evaluation and (iii) terminal evaluation/ex-post evaluation.

(a) On-going/Mid-term Evaluation

The main purpose of an on-going/mid-project evaluation is to assist the project management to make
appropriate adjustments in the changed circumstances or to rectify any shortcomings in the original
design, so as to improve its efficiency and overall performance.

(b) Post-Completion Evaluation

The purpose of an ex-post or post-hoc evaluation is to discover the actual, as opposed to the projected,
results of implementing a project. The aim of evaluation is primarily to compare the actual outcome of
the project with the projections made at the appraisal stage. The examination of different aspects of
the project can provide important lessons derived from experience for the new projects. The overall
impact of the project will result in a number of effects which can be classified as costs and benefits,
direct and indirect or tangible and intangible.

(c) Terminal Evaluation/Ex-Post Evaluation

Ex-post evaluation takes place after the completion of the project and is often more in-depth as it
focuses on the analysis of impact. Besides, it is time-consuming, costly and calls for persons with
special skills.

Q. Explain the potential risk to mankind

Meaning of Risk

Risk has been described as a natural ingredient to any activity. No venture, no success; this could be
recorded as no risk, no success either for an individual or organization.

The question now is what do we mean by risks?

To answer this question, there is need for us to note that different authors have defined risk in various
ways. Williams Jr. and Heins (1985) had posited that, no one definition is “correct”. That is, the
definition could be likened to the story of the seven blind men‟s description of the elephant – all of
which are correct and at the same time incorrect. The above might not be unconnected to the fact that

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 27
risks exist whenever the future is unknown. More so, that the adverse effects of risk had challenged
the survival of mankind on planet earth ever since time immemorial.

RISK is the variation in the outcomes that could occur over a specified period in a given situation. If
only one outcome is possible, the variation and hence the risk is O. If many outcomes are possible, the
risk is not O. The greater the variation, the greater the risk. - Williams, Jr and Heins (1985, P6).

Risk, defined as uncertainty as to loss poses a problem to individuals in nearly every walk of life.
Students, householders, business people, employees, travelers‟ investors, and farmers all must face
risk and develop ways to handle it. If a cost or loss is certain to occur, it may be planned for in
advance and treated as a definite, known expense. It is when there is uncertainty about the occurrence
of a loss that risk becomes important problem.

Q. In clear language, explain the following: (a) Speculative risk (b) Operational risk Give two
examples of each type.

The Types of Risk

1. Speculative Risk

These are risks where the outcomes could either be a loss, no loss or profit. For instance, if a company
decides to invest its money in a project, the objective of using fund in the way is to make profit. But in
reality, the outcome could either be a loss, a break-even or a profit. Risks with such tendencies are
classified as speculative risks. Examples of speculative risks are:

I. Decision as to invest in a new project, the timing of such an investment

II. Whether to enter a new market place or a new country (as in the developed countries‟
emerging market concept of Asia, etc.)
III. A car maker deciding to replace a current model, the timing and level of investment needed,
etc.

2. Operational Risk

These are risks that any organization faces in carrying out its daily activities. This occurs when
something unplanned and unpleasant hit the organization causing losses – either to men or materials –
in the organization. In an operational risk, the outcome is either a loss or no loss situation. Some
textbooks refer to this type of risk as Pure Risks. As a result of the unexpected nature of this kind of
risks, organizations can prepare for losses following the occurrence of such risks, through insurance,
contingency planning and other funding mechanisms. There is always the challenge to organization to
recognize and manage the operational risks threatening their existence.

Q. Differentiate between speculative risk and operational risk

Speculative risk is a risk where the outcomes could either be a loss, no loss or profit. For instance, if a
company decides to invest its money in a project, the objective of using fund in the way is to make
profit. But in reality, the outcome could either be a loss, a break-even or a profit. On the other hand,
operational risk is risk that any organization faces in carrying out its daily activities. This occurs when
something unplanned and unpleasant hit the organization causing losses – either to men or materials –
in the organization. In an operational risk, the outcome is either a loss or no loss situation. Some
textbooks refer to this type of risk as pure risks.

Q. Describe the role and position of the risk manager within an organization

Relationship between Risk and the Objectives of an Organization

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 28
The objective of an organization is to maximize its profit. This main objective has always been made
difficult as a result of the impact of risk to the organization. For instance, if an organization suffers
from an industrial accident which, let say, makes it pay out the sum of N50 Million in form of various
compensation to the victims of such losses. You will note that this will affect the overall result of the
organization at the end of its financial year. Apart from the objective of profit maximization, a
modern organization has alongside other objectives. The objective of an organization may be informal
while at times, they are formal and documented in form of strategic plan

Q. According to Kaye (2001), there are stakeholders that could be affected by a risk incident
occurring in the organization. Mention and briefly elucidate them.

The identified „‟stakeholders‟ by Kaye (2001) are:

1. Employees

 Morale and pride. This often reflects the degree of the employees‟ interest in the success of
an organization and has a direct link into the quality of work performed.
 A need for a job to sustain personal and family life and also self-esteem.
 A safe working environment

2. Suppliers

 Suppliers to the organization will depend on its survival to be able to deliver and receive
payment for the goods or services contracted.
 Sometimes the loss of one or more large customers can destroy a supplier of goods and
services.
 The organization, as supplier, can destroy customers who are further up the delivery chain.

3. Customers and Other Recipients of Service

 Most business customers are free to move to other organizations. They will do so if they lose
confidence in either delivery or quality.
 Other, non-commercial, service suppliers may find that their relationships with their existing
recipients will become difficult and even fail should confidence be lost.
 Sales teams will find it increasingly difficult to find new customers.
 Failure to deliver the contracted services with sufficient quality can lead to litigation for
damages well beyond the value of the item in dispute.

4. Distributors

 Distributors are in effect wholesale customers. All the comments about customers therefore
apply.
 Some distributors depend on few or even one source of supply (e.g. a distributor of a new
motor vehicles). Failure of that one source of supply could damage that distributor on many
different ways. It can even cause it to fail if an adequate replacement supplier is not found
soon enough.

5. Regulators

 There are various regulators who, in many different ways, will take a continuing interest in
the origination.
 Failure to satisfy the statutory and other requirement of these regulators can result in them
imposing fines, restricting business or closing down the business altogether.
 The losses therefore can range from financial, reputational damage and even closure.

6. The Media
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 29
  The media has many firms
 Local and international Newspapers
 Television and Radio
 Popular and Professional Magazines

7. Private Investors

 Private, monetary, investors can range from family, partners, employees, associated
companies and other investors in an organization often they can be exposed to devastating
loss than stock market investors who have more opportunity to spread their investments, and
therefore the risk across different companies and market.
 There are also „‟investors‟ who have a non-monetary stake in the organization. They stake
their professional and personal reputations alongside that of the organization. They too can
suffer loss alongside any damage to the organization itself. They can find it a very long and
difficult process to rebuild this type of asset.

8. Banking Industry

 Banking and investor finance companies will maintain, throughout, an interest in the fortunes
of those organizations to which they have provided money.
 If that money is perceived to be at greater risk due to an unexpected downturn in the strength
of an organization, the cost of borrowing can increase significantly
 If the financier believes there is sufficient cause for concern, the assets that are the security
for that loan can be sold. The lender can have that power under the terms of the loan or
mortgage agreement.

9. Quoted Shareholders

 Quoted shareholders come to the organization through stock markets in various forms.
 Usually the investor has many choices beyond the subject organization and can switch funds
away rapidly.
 Stock market sentiments however have many other influences (beyond the success of the
individual quoted organization) and thus its behaviour becomes a risk in itself.
 Failing stock values can also increase the cost of borrowing capital. If leaders perceive that
the relationship between total borrowings and the value of the company is narrowing they can
demand higher interest rates and security.
 Single points of influence can affect shares widely. These influences include credit rating
agencies such s Standard and Poor‟s, and investment analysts employed by the bigger brokers
and merchant bankers.

10. The Environment

 Increasingly, there is public and statutory interest in the quality of the environment.
 It is a very wide subject not only covering pollution of the physical environment.

Q. Explain the term uncertainty

Under uncertainty condition, the decision maker has difficulty assigning probabilities to outcomes
either because there is a lack of information or an absence of knowledge concerning what outcome
can be expected. In other words, there are either two main possible outcomes or too many known facts
or both. In this case, the decision maker cannot predict the outcome with any degree of confidence. In
fact since the possible outcomes of the event under consideration and/or their probabilities are
unknown, it is difficult to measure or forecast accurately. This situation is faced frequently by
mangers when entirely new products or services are being introduced. Other examples of non-
measurable events are salvation in religion, state of mind, etc. In addition, unlike risk, uncertainty is a

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 30
subjective phenomenon. The implication is that two or more individuals are unlikely to have identical
views of the outcome of decisions taken under condition of uncertainty. Consequently, it is very
difficult to develop universally acceptable techniques for dealing with uncertainty. In practice, a
decision maker faced with uncertainty would attempt to generate a probability distribution of possible
outcomes on the basis of his personal judgment of the situation. For instance, any predication as to
which of two teams, hitherto unknown, will win a match is bound to be subject. People are bound to
give their opinions according to their fancies of the team.

Q. Distinguish between risk and uncertainty

1. Risk concerns variations in possible outcomes in a situation. Uncertainty is often used as a

synonym for risk, although when so used it usually refers to objective (measurable or quantified)
uncertainty.

2. Under uncertainty condition, the decision maker has difficulty assigning probabilities to outcomes
either because there is a lack of information or an absence of knowledge concerning what outcome
can be expected. On the other hand, under condition of risk, a person or a decision maker is faced
with a situation in which results of an action or decision are not totally known, but will probably fall
within a possible range of outcomes

3. In summary, risk is associated with measurability while uncertainty with non-measurability of the
event(s) or the error(s) of forecast about future situation(s).

Q. Differentiate between objective and subjective risks

Subjective Versus Objective Risk

Trieschmann, Gustavson and Hoyt (2001: 5) draw a distinction between subjective and objective
risks. According to them, subjective risk refers to the mental state of an individual who experiences
doubt or worry as to the outcome of a given event. In addition to being subjective, a particular risk
may also be either pure or speculative and either static or dynamic. Subjective risk is essentially the
psychological uncertainty that arises from an individual‟s mental attitude of state of mind.

Objective risk differs from subjective risk primarily in the sense that it is more precisely observable
and therefore measurable. In general, objective risk is the probable variation of actual from expected
experience. This term is most often used in connection with pure static risks, although it can also be
applied to the other types of uncertainties.

Q. Discuss the different attitudes to risk

Attitude to risk could be approached from three angles:

a) Risk averter

b) Risk optimist/risk seeker

c) Risk neutral

To be risk averse implies that a person is willing to pay in excess of the expected return in exchange
for some certainty about the future. To pay an insurance premium, for example, is to forgo wealth in
exchange for the insurer‟ promise that covered losses will be paid. Some people refer to this as an
exchange of a certain loss (the premium) for an uncertain loss. An important aspect of the exchange is
that the premium is larger that the average or expected loss because insurer expenses and profit are
included. A person willing only to pay the average loss as a premium would be considered risk
neutral. Someone who accepts risk at less than the average loss, perhaps even paying to add risk such
as through gambling is a risk seeker.

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 31
One person may be very cautious and averse to taking chances, whereas another may be highly
optimistic regarding uncertain outcomes: the former (risk averter) is likely to arrive at higher loss
probability estimates than the latter (risk optimist). Someone who is strongly averse to accepting even
the smallest variation in outcomes from the expected may choose to insure, whereas a less risk
adverse individual may be prepared to carry the risk himself. In fact, attitude to risk influences not
only subjective estimates of probability but also risk handling decisions.

What causes one person to be more risk averse than another? This is a question best answered by
psychologists, sociologists, or anthropologists. However, it is safe to say that family and societal
influences, genetics, and religious / philosophical beliefs all play an important role. Somewhat less
clear is the relationship between a Person‟s risk aversion and his or her uncertainty; a problem that is
influenced by the imprecise way the terms “aversion” and uncertainty” commonly are used. In some
respects, uncertainty could be affected by aversion. For example, an individual might be so wary of
risk in general that he/she would tend to discount his / her own judgment regarding a particular risk.
In that respect, her/his own level of uncertainty regarding a particular risk might be driven higher by
her / his aversion to risk. In other situations, it is possible to say that uncertainty influences aversion,
in that a person consistently exposed to an environment of seemingly random and unpredictable
events (say, a citizen of Sarajevo) might eventually develop a high level of aversion to risk.
(Williams, Smith and Young, 1995: 7) Some scholars have taken a different approach in relating to
risk, risk aversion, and uncertainty to one another.

For instance, William and Heins (1989) discuss risk as consisting of objective and subjective
components. Objective risk refers to the measurable component of risk, while subjective risk reflects
an individual reaction to (attitude towards) risk. In this approach, uncertainty becomes an aspect of
subjective risk.

Q. Explain the meaning of profitability ratio

Profitability Ratios

Profitability ratios show a company's overall efficiency and performance. We can divide profitability
ratios into two types: margins and returns. Ratios that show margins represent the firm's ability to
translate sales dollars into profits at various stages of measurement. Ratios that show returns represent
the firm's ability to measure the overall efficiency of the firm in generating returns for its
shareholders.

One of the most frequently used tools of financial ratio analysis is profitability ratios which are used
to determine the company's bottom line and its return to its investors. Profitability measures are
important to company managers and owners alike. If a small business has outside investors who have
put their own money into the company, the primary owner certainly has to show profitability to those
equity investors.

Q. Discuss the five basic profit ratio.

1. Operating Profit Margin

Operating profit is also known as EBIT and is found on the company's income statement. EBIT is
earnings before interest and taxes. The operating profit margin looks at EBIT as a percentage of sales.
The operating profit margin ratio is a measure of overall operating efficiency, incorporating all of the
expenses of ordinary, daily business activity. The calculation is: EBIT/Net Sales = %. Both terms of
the equation come from the company's income statement.

2. Net Profit Margin

When doing a simple profitability ratio analysis, net profit margin is the most often margin ratio used.
The net profit margin shows how much of each sales dollar shows up as net income after all expenses

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 32
are paid. For example, if the net profit margin is 5%, that means that 5 cents of every dollar is profit.
The net profit margin measures profitability after consideration of all expenses including taxes,
interest, and depreciation. The calculation is: Net Income/Net Sales = %. Both terms of the equation
come from the income statement.

3. Cash Flow Margin

The Cash Flow Margin ratio is an important ratio as it expresses the relationship between cash
generated from operations and sales. The company needs cash to pay dividends, suppliers, service
debt, and invest in new capital assets, so cash is just as important as profit to a business firm. The
Cash Flow Margin ratio measures the ability of a firm to translate sales into cash. The calculation is:
Cash flow from operating cash flows/Net sales = %. The numerator of the equation comes from the
firm's Statement of Cash Flows. The denominator comes from the Income Statement. The larger the
percentage, the better.

4. Returns Ratios

Return on Assets (also called Return on Investment) The Return on Assets ratio is an important
profitability ratio because it measures the efficiency with which the company is managing its
investment in assets and using them to generate profit. It measures the amount of profit earned relative
to the firm's level of investment in total assets. The return on assets ratio is related to the asset
management category of financial ratios.

5. Return on Equity

The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the
company. It measures the return on the money the investors have put into the company. This is the
ratio potential investors look at when deciding whether or not to invest in the company. The
calculation is: Net Income/Stockholder's Equity = _____%. Net income comes from the income
statement and stockholder's equity comes from the balance sheet. In general, the higher the
percentage, the better, with some exceptions, as it shows that the company is doing a good job using
the investors' money.

Q. Use matrix policy to analyse organization cost, revenue and profits.

Private profits, D, equal A minus B minus C. Social profits, H, equal E minus F minus G. 3 0utput
transfers, 1, equal A minus E; they also equal M plus Q plus U. lnput transfers, J, equal B minus F;
they also equal N plus R plus V. Factor transfers, K, equal C minus G; they also equal O plus S plus
W. Net transfers, L, equal D minus H; they also equal I minus J minus K; and they equal P plus T plus
X.

Q. Explain the term Cost-Benefit Analysis

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 33
 Meaning of Cost benefit analysis

Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the benefits and
costs to the community of projects to establish whether they are worthwhile. Cost-Benefit Analysis
(CBA) estimates and totals up the equivalent money value of the benefits and costs to the community
of projects to establish whether they are worthwhile. These projects may be dams and highways or
can be training programs and health care systems.

Q. Discuss the principles of CBA

Principles of Cost Benefit Analysis

There must be a Common Unit of Measurement

In order to reach a conclusion as to the desirability of a project all aspects of the project, positive and
negative, must be expressed in terms of a common unit; i.e., there must be a "bottom line." The most
convenient common unit is money. This means that all benefits and costs of a project should be
measured in terms of their equivalent money value. A program may provide benefits which are not
directly expressed in terms of dollars but there is some amount of money the recipients of the benefits
would consider just as good as the project's benefits. For example, a project may provide for the
elderly in an area a free monthly visit to a doctor. The value of that benefit to an elderly recipient is
the minimum amount of money that that recipient would take instead of the medical care. This could
be less than the market value of the medical care provided. It is assumed that more esoteric benefits
such as from preserving open space or historic sites have a finite equivalent money value to the
public.

Not only do the benefits and costs of a project have to be expressed in terms of equivalent money
value, but they have to be expressed in terms of dollars of a particular time. This is not just due to the
differences in the value of dollars at different times because of inflation. A dollar available five years
from now is not as good as a dollar available now. This is because a dollar available now can be
invested and earn interest for five years and would be worth more than a dollar in five years. If the
interest rate is r then a dollar invested for t years will grow to be (1+r)t. Therefore the amount of
money that would have to be deposited now so that it would grow to be one dollar t years in the future
is (1+r)-t. This called the discounted value or present value of a dollar available t years in the future.

When the dollar value of benefits at some time in the future is multiplied by the discounted value of
one dollar at that time in the future the result is discounted present value of that benefit of the project.
The same thing applies to costs. The net benefit of the projects is just the sum of the present value of
the benefits less the present value of the costs.

CBA Valuations Should Represent Consumers or Producers Valuations As Revealed by Their

Actual Behavior

The valuation of benefits and costs should reflect preferences revealed by choices which have been
made. For example, improvements in transportation frequently involve saving time. The question is
how to measure the money value of that time saved. The value should not be merely what
transportation planners think time should be worth or even what people say their time is worth. The
value of time should be that which the public reveals their time is worth through choices involving
tradeoffs between time and money. If people have a choice of parking close to their destination for a
fee of 50 cents or parking farther away and spending 5 minutes more walking and they always choose
to spend the money and save the time and effort then they have revealed that their time is more
valuable to them than 10 cents per minute. If they were indifferent between the two choices they
would have revealed that the value of their time to them was exactly 10 cents per minute.

Q. What are the challenges of CBA?

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 34
 The Challenges of CBA

The most challenging part of CBA is finding past choices which reveal the tradeoffs and
equivalencies in preferences. For example, the valuation of the benefit of cleaner air could be
established by finding how much less people paid for housing in more polluted areas which otherwise
was identical in characteristics and location to housing in less polluted areas. Generally the value of
cleaner air to people as revealed by the hard market choices seems to be less than their rhetorical
valuation of clean air.

Q. Discuss the decision criteria for project

Decision Criteria for Projects

If the discounted present value of the benefits exceeds the discounted present value of the costs then
the project is worthwhile. This is equivalent to the condition that the net benefit must be positive.
Another equivalent condition is that the ratio of the present value of the benefits to the present value
of the costs must be greater than one.

If there are more than one mutually exclusive project that have positive net present value then there
has to be further analysis. From the set of mutually exclusive projects the one that should be selected
is the one with the highest net present value.

If the funds required for carrying out all of the projects with positive net present value are less than
the funds available this means the discount rate used in computing the present values is too low and
does not reflect the true cost of capital. The present values must be recomputed using a higher
discount rate. It may take some trial and error to find a discount rate such that the funds required for
the projects with a positive net present value is no more than the funds available. Sometimes as an
alternative to this procedure people try to select the best projects on the basis of some measure of
goodness such as the internal rate of return or the benefit/cost ratio. This is not valid for several
reasons.

Q. Analyze how risk exposure in the process of executing a project by an organization can affect its
people, its assets, and other people and their assets.

Organization Risk Exposure

The organization is exposed to risk, which could affect its people, its assets and / or other people as
well as their assets.

1. People

The people are usually exposed to the risks of injury, sickness or death depending on the nature of
activities carried out in the organization. For instance, for an employee of an asbestos manufacturing
company, apart from the risk of injury, he or she could be exposed to asbestos related sickness such as
lung cancer, etc. The people exposed to organization„s risk are:

 Employees
 Visitors / Customers
 Third parties

2. Assets

The assets of the organization are also exposed to the risk of damage. Such assets are:

 Balance Sheet assets – such as money, building, equipment, vehicles etc.

 Off balance sheet assets – such as intellectual assets

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 35
  (Information and knowledge) reputation network of critical, suppliers, distribution system,
customer base, etc.

3. Liabilities

These are the legal liabilities, which the organization owes others as a result of wrongdoing. It could
be as a result of injury to third party property.

4. Risk Map

The risk map describes how risks can be presented graphically. This assists the organization to have a
picture of its risk exposures.

Q. Explain the two (2) uses of manpower plan in project evaluation.

There are two uses of the manpower plan.

1. Use is by the project initiator

The first use is by the project initiator. When the project initiator is structuring the project, the
manpower plan definitely is a critical component. The project initiator needs to know well in advance
who the key employees will be. The key employees will depend on the nature of the business in
question. If the business is, for example, soap manufacturing, then a lot of the production staff should
be industrial or pure scientists plus other core support staff. Apart from that, each employee should
have their various responsibilities. For example, in a soap plant, you will have production staff and
also quality control staff. They have difference responsibility. And of course, the qualifications of the
various staff including their years of experience should be properly documented and evaluated.

2. Financial institutions

The second use of the manpower plan is that financial institutions like banks, before granting loans or
overdraft for a project, usually insist on being convinced of the management skills that will be
available or are actually available in the firm that seeks to borrow money. They will look at the people
concerned, their qualifications and match them with the jobs allocated to them. Hours of work and the
salary and wages of the entire work force are another critical input. The salary and wages of those
working on a project is actually expected to hover around the average for the industry.

Q. Explain briefly the term Evaluation.

Meaning of Evaluation

Evaluation is the systematic and objective assessment of an on-going or completed project or

programme, its design, implementation and results. Evaluation provides information used in the
decision-making process. Evaluation is simpler for direct financial investment which leads into clearly
measured outcome (profit). Techniques and methods for evaluating projects are used for assessing
whether and how fast the fund invested will return. The aim is to determine the relevance and
fulfillment of objectives, development efficiency, effectiveness, impact and sustainability. Also,
evaluation involves a comprehensive assessment of the given project, policy, programme or
investments, taking into account all its stages: planning, implementation, and monitoring of results. It
provides information used in the decision-making process. Evaluation is one of the core duties of a
fundamental project analyst, as evaluations (along with cash flows) are typically the most important
drivers of project prices over the long term. Evaluation should answer the simple yet vital question:
what is something worth? The analysis is then based on either current data or projections of the future.

Q. Discuss four (4) basic purposes of evaluation.

The Purposes of Evaluations

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 36
1. Learning from experience: With the assistance of evaluations, successes and failures can be
interpreted. Based on those experiences, both current and future projects and programmes can be
improved.

2. Transparency: Evaluations illustrate the responsible utilization of the resources and justify the
results and their effects vis-à-vis the contractor, the partners, the target groups in the recipient country
and the tax payers.

3. Deepening understanding: Evaluation is a tool for deepening knowledge and understanding of the
assumptions, options and limits of development cooperation.

4. Improved communication: An evaluation is intended to foster communication and understanding

within and between the groups mentioned above, even if this can only be managed in different ways
and with different participations in each case.

Q. Discuss evaluation techniques as well as identify their merits and demerits

Evaluation Techniques

There are many techniques and methods for assessing the financial evaluation and success factor
evaluation of investment. For success factor evaluation, we have the following techniques:

1. Success Factor Evaluation

a) Query techniques: this technique requires asking people through interviews (structured and
unstructured) and questionnaires. Interviews require that all interviewees be asked the questions, in an
order. Questionnaires can be conducted in person, by telephone, or by mail as a medium to quickly
obtain information from a wide variety of people.

b) Observational methods: this evaluation method involves listening, watching, and documenting
what is seen and heard. Through asking questions, and by noting comments, behaviours and reactions,
useful information is provided to the evaluation process. The method gathers accurate information
about how a group and project operates in the field.

c) Field or site studies: this could be in the form of photographic and holographic records. The use of
photographic records is useful as a method to monitor a site over time, and can be used as an
evaluation tool combined with other methods. Holographic records capture the appearance of a
coastal site, and allow comparisons of before and after management actions and are useful for on-
ground projects.

2. Financial Evaluation

For financial evaluation, there are a large number of techniques. They can be distinguished into two
groups:

a) Static Evaluation Methods

These evaluation techniques focus especially on monitoring of cash benefits or measuring of the
initial expenditure. They do not include a risk factor in evaluation and take the time factor into
account only in a limited extent. In other words, they do not consider the time value of money.
Evaluation techniques here are:

1. Accounting Rate of Return (ARR)

Accounting rate of return (also known as simple rate of return or average rate of return) is the ratio of
estimated accounting profit of a project to the average investment made in the project. ARR is used in
investment appraisal. It is given as

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 37
Average accounting profit is the arithmetic mean of accounting income expected to be earned during
each year of the project's life time. Average investment may be calculated as the sum of the beginning
and ending book value of the project divided by 2. Another variation of ARR formula uses initial
investment instead of average investment.

Advantages:

i. Like payback period, this method of investment appraisal is easy to calculate.

ii. It recognizes the profitability factor of investment.

Disadvantages:

i. It ignores time value of money.

ii. It can be calculated in different ways.

iii. It uses accounting income rather than cash flow information.

2. Payback Period

The payback period, also called the payback rule, is the length of time required to recover the cost of
an investment. The PB reveals how many years are required to for the cash inflows to equate to the
one million dollar outflow. A short PB period is preferred as it indicated that the project will "pay for
itself" within a smaller time frame. Since the payback period does not reflect the added value of a
capital budgeting decision, it is usually considered the least relevant valuation approach. However, if
liquidity is a vital consideration, PB periods are of major importance. It is given as:

Advantages:

i. Payback periods are typically used when liquidity presents a major concern.

ii. If a company only has a limited amount of funds, they might be able to only undertake one major
project at a time.

iii. Another major advantage of using the PB is that it is easy to calculate once the cash flow forecasts
have been established.

Disadvantages:

i. It ignores the time value of money.

ii. It ignores any benefits that occur after the payback period and therefore does not measure
profitability.

B) Dynamic Evaluation Methods

These evaluation techniques take into account the time and risk factors. In other words, they do not
consider the time value of money. The basis is the discounting of input parameters. Evaluation
techniques here are:

1. Net Present Value (NPV)

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 38
Net present value (NPV) is the present value of an investment's expected cash inflows minus the costs
of acquiring the investment.NPV is used to analyze an investment decision and give company
management a clear way to tell if the investment will add value to the company. Typically, if an
investment has a positive net present value, it will add value to the company and benefit company
shareholders. For example, if a company decides to open a new product line, they can use NPV to find
out if the projected future cash inflows cover the future costs of starting and running the project. If the
project has a positive NPV, it adds value to the company and therefore should be considered.

2. Internal Rate of Return (IRR)

Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows
(both positive and negative) from a project or investment equal zero. Internal rate of return is used to
evaluate the attractiveness of a project or investment. Also, IRR is best-suited for analyzing venture
capital and private equity investments, which typically entail multiple cash investments over the life
of the business, and a single cash outflow at the end via IPO or sale.

3. Profitability Index (PI)

Profitability index is an investment appraisal technique calculated by dividing the present value of
future cash flows of a project by the initial investment required for the project. benefit-cost ratio too
and is useful in capital rationing since it helps in ranking projects based on their per naira return.
Profitability index is actually a modification of the net present value method. While present value is
an absolute measure (i.e. it gives as the total naira figure for a project), the profitability index is a
relative measure (i.e. it gives as the figure as a ratio). Profitability index is sometimes called

4. Discounted Payback Period (DPP)

One of the major disadvantages of simple payback period is that it ignores the time value of money.
To counter this limitation, an alternative procedure called discounted payback period may be
followed, which accounts for time value of money by discounting the cash inflows of the project. In
discounted payback period we have to calculate the present value of each cash inflow taking the start
of the first period as zero point. For this purpose the management has to set a suitable discount rate.

Q. Explain the meaning and steps in project identification.

Project Identification

Identification, the first stage of the project cycle, is a crucially important process leading to the initial
screening of projects. Project identification is the initial phase of the project development cycle. It
begins with the conceiving of ideas or intentions to set up a project. These ideas are then transformed
into a project. This first step in the project cycle is to identify an issue that a project could address.
This usually involves needs assessment and capacity assessment or appreciative enquiry„ as referred
by some people. Need assessment finds out what community needs are and whom they affect. The
project should seek to strengthen any weaknesses. That is, prevailing problem in a given area.
Capacity assessment is by asking community members to identify the resources they have and then
asks them how they want to use them in the future. Also explain availability of resources in a given
location.

Projects are usually identified or conceived by the following entities:

a) Government agencies preparing the national, regional or sectoral development plan

b) Bilateral or multilateral aid agencies/international development agencies conducting country

economic/sector studies or ex-post evaluation of completed projects;

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 39
c) Public or private-sector entities in the country or donor countries, municipalities, policy makers;
local residents/group of people/communities, non-governmental organizations (NGOs), academics;
and

d) Others (individuals or planners) conducting a project.

Steps in Project Identification

Project identification generally consists of the following steps:

1. Propose measures to solve major problems identified in the development strategy and to meet
diverse development needs, while setting clear project objectives and identifying target groups
receiving benefits from the project;

2. Establish the project concept (together with alternative plans) that will effectively serve to achieve
the country„s development objectives;

3. Assess the priority or urgency of the project in the context of the country„s economic and social
development plan and sector investment program;

4. Examine consistency with the master plan and the regional development plan;

5. Consider the adequacy of the Executing Agency and the possibility of private sector participation in
the project;

6. Estimate approximate project cost (together with the cost of alternatives) based on the conceptual
design; and

7. Make preliminary assessment of the feasibility of the project and its impacts on the country, its
specific region or sector.

Q. Explain the top-bottom and bottom-up approaches to project identification as well as their merits
and demerits

Project Identification Techniques

There are two major techniques or approaches to project identification

a) Top-down technique/approach

In this approach, projects are identified based on demands from beyond the community. This may
include directives from: international conventions; international institutions or NGOs that have
determined particular priorities and thus projects; national policy makers identifying projects that
pertain to party manifestos and/or national plans. The approach as some advantages and
disadvantages:

Advantages of Top-Down Approach

1. It may be a rapid response to disasters like floods, war outbreak because there is limited time and
chance to consult the beneficiaries.

2. It can be effective in providing important services like education, health, water, roads etc.

3. It can contribute to wider national or international objectives and goals and therefore potentially be
part of a wider benefit (e.gtrans-boundary resources, such as climate)

Limitations of Top-Down Approach

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 40
1. Does not help in modifying strongly established ideas and beliefs of people.

2. Assumes external individuals know better than the beneficiaries of the service.

3. Communities have little say in planning process rendering approach devoid of human resource
development.

4. Community develops dependency syndrome on outside assistance and does not exploit their own
potential.

5. The development workers (change agents) become stumbling blocks to people-led development
tendency to impose their own biases, etc. on people.

b) Bottom-up technique/approach

In this approach community/beneficiaries are encouraged to identify and plan the projects themselves
with or without outsiders. This approach also has some merits and demerits.

Advantages of Bottom-Up Approach

1. Interveners accomplish more with limited resources since people tend to safeguard what they have
provided for themselves.

2. Develops people„s capacity to identify problems and needs and to seek possible solutions to them.

3. Provides opportunities of educating people.

4. Helps people to work as a team and develop a „‟WE‟‟ attitude - makes project progressive and
sustainable.

5. Resources are effectively managed; dependence reduces, there is increased equity, initiative,
accountability, financial and economic discipline.

Limitations of Bottom-Up Approach

1. Not always effective for projects that require urgency to implement

2. Time-consuming and requires patience and tolerance.

3. People sometimes dislike approach because they do not want to take responsibility for action.

4. The agency using this approach is never in control and cannot guarantee the results it would want.

5. The priorities of communities may not fit with national or international priorities that seek to have a
broader impact

Q. There are varied bottom-up techniques that can be used for project identification. Identify and
discuss any five (5) of them.

Bottom-Up Technique/Approach

1. Techniques 1: Animation

This is the process of stimulating people to become more aware and conscious of problems they suffer
from. This will help to gain confidence in their ability to deal with these problems and take initiatives
to improve situation. Animation makes the community better understand and be prepared to overcome
its problems and take decisions with full responsibility. It is carried out by Animators / Helpers /
Change agents, which could be internal or external (Internal Animators if they come from within the
community or External Animators if from outside).
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 41
2. Technique 2: Facilitation/Community Action

This technique is an attempt to assist people to get over problems by (say) training them in certain
skills, providing them with the needed information e.g. market information, linking them up with
relevant agencies and organizations to improve access to the needed resources etc.

3. Technique 3: Participatory Appraisal

The participatory appraisal technique could be in two forms - participatory rural appraisal (PRA)
when carried out in rural areas; and participatory urban appraisal (PUA) when carried out in urban
areas. PRA/ PUA techniques can be described as a family of approaches, methods and behaviours that
enable people to express and analyze the realities of their lives and conditions, to plan for themselves
what action to take, and to monitor and evaluate the results. The key to PRA/PUA is that the only
external involvement is in facilitation. The communities themselves determine the issues, priorities
and courses of action. Once the needs/issues have been grouped, community members can decide
which of the issues should be given priority. They then place them in order, from the most important
to the least important.

4. Technique 4: Needs Assessment Survey

It is also referred to as situation analysis (SITAN).In general, needs assessment is done fairly quickly.
How projects come about through need assessment are: the project should come out of what people
say they want and not from assumptions that we make; sometimes the needs are not immediately clear
or cannot be easily understood; by talking to different people, we will be able to understand how
problems affect people differently; circumstances change in the environments (such as there may be
new people in the community; there may be new needs; old needs might have been addressed; and
problems might be affecting people differently); and needs assessment gives people an opportunity to
priorities their needs, which leads to a more sustainable development project.

5. Technique 5: Capacity Assessment Survey

Communities should be encouraged to use their own capacities and resources to address the problems
they face. It is therefore important to carry out a capacity assessment after needs assessment to
identify strengths that the community could use to address the problems they identified earlier. The
project, if needed, should focus on strengthening the community„s capacities to address their
problems. By doing this, we are facilitating the community to address their problems rather than
addressing their problems for them.

Q. Distinguish between “Project Evaluation” and “Project Selection.”

When a project has been identified, the next step is to evaluate the project. Project evaluation involves
the estimation of the benefits and costs of a project. On the other hand, after the project evaluation
stage, the next stage is the project selection stage. Faced with an array of projects with different values
and worth, there is need to select which projects to embarked upon.

Q. Explain TWO (2) Advantages and THREE (3) Disadvantages of Accounting Rate of Return.

As an accept or reject criterion, the ARR method will accept all those projects whose ARR is greater
than the minimum rate established by management. If the ARR is lower than the minimum rate
established by management, then the project should be rejected. The ARR method is very simple to
understand and use. It can also be easily calculated using accounting information. However, the ARR
suffers from three main weaknesses. First it uses accounting profits not cash flows in appraising
projects. Secondly ARR ignores the time value of money. The profits occurring in different periods
are valued equally.

Q. Compare and contrast financial analysis and economic analysis. State clearly their primary
objectives.
PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 42
There exist conceptual differences between financial analysis and economic analysis. While financial
analysis has a primary objective of establishing the viability and acceptability of a project from a
financial view point, paying no attention to society, economic analysis has the objective of
establishing the fact that a project is acceptable or not to the society as a whole. So while financial
analysis has a micro objective, economic analysis has a macro objective. Finally, in reaching a
decision as to whether or not to accept a project, financial analysis and economic analysis both try to
establish a relationship between costs and benefits. For example in financial analysis, costs and
benefits arising from a project are usually defined in monetary variables such as profits. But economic
analysis goes really beyond the vague definitions of profit. In Economic analysis, costs are defined in
terms of opportunity costs or foregone costs to the society as a whole.

Q. Ebuka and Sons Ltd has three projects A, B and C to evaluate using Profitability Index criterion.
Each project‟s cost of capital is 12% and the after-tax cash flows for each of the projects are as
follows:

Calculate the PI for each of the projects.

Solution

Q. explain projected cash flow statement

Projected Cash Flow Statement

A cash flow statement is a statement that shows the actual receipt of cash (inflows) and the
disbursement of cash (out flows) of a firm or project. Having said that, we can now go ahead to define

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 43
a projected cash flow statement. A projected cash flow statement is a statement which shows the
forecasts of actual receipts of cash (inflows) and the disbursement of cash (outflows) of a firm or
project. There are many users of information contained in projected cash flow statements. The first
user of the projected cash flow statement is the project sponsor or initiator. The project sponsor or
initiator is interested in knowing well in advance the future cash flows of the firm. This is important
because the future financing needs of the firm have to be known well in advance. The project initiator
needs to distinguish between credit sales and cash sales.

Q. Projected cash flow statements assist us to evaluate a firm‟s future performance and financial
condition. What are the basic questions do they assist the firm to answer?

Projected cash flow statements assist us to evaluate a firm„s future performance and of course
financial condition that enables the project evaluator answer the following questions.

1. What is the nature of the firm„s projected cash flow statement?

2. Will the projected cash flow be able to service the project„s debts(loan, overdraft + interest)?
3. When will the project need financing and to what extent?
4. How should the loan or overdraft or finance be structured?
5. How stable are the cash flows?

PLEASE PATRONISE US FOR MORE EXAM SUMMARY, PAST QUESTION AND TMA
08024665051 (WHATSAPP), 08169595996 [email protected] Page 44