Project Development And Implementation For Strategic Managers Accounting Essay

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Q1.1 In strategic decision making it is a common practice to use feasibility studies to compare the costs and benefits of projects/solutions and is a very efficient and effective way of deciding which alternative to take or whether the decision is worthy.

Feasibility study report draft

Problem definition - The company is facing a difficulty is maintain the routine sales procedures and also is seeing a drop in sales revenue due to the recession in the current economy.

Methodology of study - Discussions with stakeholders were made to get a clear and specific idea on the expectations of the project. Also a brief research was done on the current resources (e.g. labour, land, etc.) and the accessibility to raw materials, power, etc.

Analysis - The careful study of the conditions concerning the project shows that the project has the potential to stand up to its expectations. The ideas of merging the new product's manufacturing process with the already existing procedure reduces the cost of new machinery and also reduce the time and effort needed to familiarize labours to new machinery. The only downside is that the prices of raw materials for the new product are considerably high. The project shows high potential in earning revenue.

Alternatives - An alternative project solution was discussed and it was out sourcing the task of converting the raw materials to basic product components to a smaller company with closer access to the raw materials. This is cost effective relative to the cost of transporting raw materials to the manufacturing site.

Recommendations - Even though the alternative solution shows promise the risk involved by being completely dependent on the small out sourcing company's output is too high. Therefore by trading off between the cost and risk it is recommended to follow through the original project.

Developing plan - This covers the factors such as the stages of the project, sequence of execution, methods, allocating responsible teams for each task, monitoring methods, etc.


a. Estimating cost is a major part in effective cost management. This has many subsections mainly the follows,

Labour costs - The number of staff that will be used has to be determined and decide on additional labour requirements. Decisions on multi-tasking the current internal employees or hiring external labour has to be taken. Using the internal staff is not recommended since it will affect the efficiency of current manufacturing processes. Planning of using external consulting the factors such as number of staff, duration, hourly rate for labour, etc. has to be specifically determined at the beginning before contracting.

Resource implication - Covers the impact to a project/company from its resources and labour. Apart from the labour costs the non-labour costs such as equipment, hardware, software, facilities, etc. has to be determined.

b. A project is put in to motion with expectations, mostly revenue outcomes. Thus at the beginning the goals of the project has to be specified clearly and a SWOT analysis is recommended to find the practicality of taking on the project. This will highlight the limitations of the idea providing a clear view of what is to be expected from the project.

c. Our new manufacturing project is expected to earn revenue. This means the products must be marketable. Thus a prior survey on the products value to the customer, whether the customer is interested in the product, whether there is a customer need, if not whether can a customer need be generated, etc. are essential.

d. This includes the analysis of alternatives and comparison between them to come up with the most cost effective idea.

e. Another area that shouldn't be taken lightly is the responsibilities of each department/person has to be discussed in specifics and then agreed upon, thus ensuring the effectiveness of the project once it is on the way.

Q1.3 The Company has been witnessing a gradual decrease in the popularity of the products and for survival new products must be introduced. Let's assume that the new project is to open a steel bar manufacturing facility outside the city. A project need project specification which includes the final products and the factors around it.

Every product has costs which will be covered later by sales. It is essential to know the amount customer is willing to pay and the total cost up to the point of selling. By analysing the current market prices of steel bars, standard costing will demonstrate whether the project is profitable or not.

It is very important to decide scale of our project. Whether we are going as Celsa Steel UK standards or medium or small scale. This includes the facility size, labour requirement, number of steel bar manufactured per day, etc. This has to be decided since it directly affects almost every critical decision.

The price of a product depends on many factors including the quality. We have to decide what type of steel bars that we are going to produce, (E.g. high quality expensive) which depends on the market we are targeting. Benchmarking is a good practice; here if we are targeting the medium quality market then we should set our standard by comparing to the best medium quality steel bar manufacture in the market.

We have to pay attention to the laws surrounding the industry of steel bar manufacturing, such as waste disposal and environmental laws.

Even though there are not any major ethical issues surrounding steel manufacturing other than regular ethical behaviour expected it is recommended to pay attention to the issues.

It is necessary to predict the future market to get an idea on the duration of profitability of the product. Since steel bars market has fewer threats of substitutes and technical innovations, its life cycle can be considered as long.

It can be decided whether we are going to provide value added services such as customizing the steel bars according to customer specifications

While paying attention to the current trend we have to observe how the market and requirements for steels bars have changed during the past decade or so, thus preparing our project for future changes.

Profit margin shows the profitability of the project and if the competition in the steel market high then we have to reduce our prices which makes the profitability low. Having a thin profit margin makes the project/company vulnerable.

Even though we are planning on entering the market as medium quality steel bear manufactures with time we can expand in to other steel product markets, the strategies are made taking this fact in to account.

Q1.4 When executing a project it has to be done in phases to achieve quality and efficiency. The whole project can be divided in to 4 major phases which gives the project manager the ability to smoothly control and direct the project.

Initiation - Darnall (2010) states that the initiation state is where the project teams are identified and the discussions regarding the project is started. These meetings and discussions cover all the cost benefits and risks of the project and will also determine whether the project is realistic or not.

Planning - This covers the scope of the project, the expected outcomes, planning the resource acquisition methods, budget estimations and finally the scheduling of the tasks of the project in the order of execution.

Execution - The actual tasks are being finally carried out. For a product manufacturing project, this is the phase where the product is being developed and tested. If unforeseen factors such as Hurricanes, Tsunamis, etc. occur during this phase the managing board has to make necessary adjustments to the schedules.

Close out - This is the phase where the project is being completed and the expected outcome is seen. Final evaluation of the project is done at this phase. Once the project is up to expectations the project is closed and the staff will be allocated for another project at this phase.



Year 0

Year 1

Year 2

Year 3

Year 4

Year 5







Operating cash flow (W1)





Liquidating of working capital



Redundancy payment



Community Centre


Disposal of PPE


Forgone on lease





Forgone on community Centre contribution


Forgone on PPE disposal


Total incremental cash flow







DCF (10%)







Discounted cash flow







Net Present Value = sum of discounted cash flow

= £ 7.88million


Year 0

Year 1

Year 2

Year 3

Year 4

Operating profit





(+) Depreciation





(+) Amortization





Operating Cash flow





Q2.1 As mentioned in the question it is necessary to have a project plan when getting the approval of various divisions of the company.

Project name - Steel bar manufacturing facility

This project is to establish a steel bar manufacturing facility outside London. The vision is to focus on the medium quality steel bar market since the company's current products are reaching the last stage of their life cycles.

Project planning and monitoring methods - For project planning we will be using the PERT and the different stages of the process will be evaluated and a critical path analysis will be done for planning purposes. Using the check list in the Prince 2 methodology we will be closely monitoring every stage of the project.

Operating methods - The operation sequence will be defined, resources will be allocated accordingly and the production line machinery and labour will be allocated paying close attention to bottleneck possibilities.

Line of communication - The project manager will communicate with each of the related individuals and departments to make sure a smooth flow of work is being done.

Risk analysis - Sadgrove (2005) states that the risk is a future event which is a result of present actions. Using the consequence probability matrix we will highlight the high risk high probability events and find ways to minimize those effects.

Structure of group and collaborative work - The whole project team will be divided in to different sections such as marketing, finance, labour, etc. This divisional of work will increase the efficiency of the project. Specific individuals will be given responsibility of supervising different tasks making sure the work is up to schedule.

Targets and aims to ensure sufficient support from stakeholders - The target of the project is to enter the medium quality steel bar market and with time become the leading manufacture. Thus the project will be continued for years with the target of conquering the market.

Q2.2 Using the market penetration pricing is a basic strategy in entering an existing market with low price relative to the current market price. This is followed with the expectation of customers switching from other product to the company's product due to the low price. In implementing following factors must be considered.

We plan on entering the market with a relatively low price. Thus we might have to go through a thin profit margin. But with time customer base will increase and we will be able to expand the production the average cost per unit goes down due to economies of scale. Since the price will not decrease we will have cost advantages which will directly increase the profit.

To succeed in penetration pricing achieving low cost per units are critical. Therefore employees must be trained to make production process efficient and most cost efficient production processes must be selected and products that are price competitive must be selected, these are ways effectiveness of the strategy must be achieved.

Since we are entering an existing market advertising play a key role in attracting customers. We have to give the staff the required skill set first and then the proceedings will have to be closely monitored and evaluated so that the strategy will keep on track as expected.

Smith (2012) describes this as one of the most sought after skills in HR. Since our approach is different from our future functionality we have to choose the right number of staff with right number of skills, etc.

Rather than having an expensive contingency plan, we are focusing on risks in current process and allocating more resources in order to minimize risks We will marketing of the product which will attract more customers which is one of our major targets.

Q2.3 Having the opportunity to influence the customer mostly only from cost side has given the project's cost analysis a spot light.

a. Being a manufacturing project the requirement for labour is high. Unlike in most countries in UK the labour cost is high. And that is not all, labours have to be taught and trained to use the different machinery and processes which are unique to the steel bar manufacturing. In order to provide products with attractive prices these costs have to be controlled and kept to a minimum.

b. These costs directly affect the final price of the product. The project manager has to find reliable, quality and relatively less expensive suppliers for raw materials and other supplies.

c. The storage facilities are a main factor. Having good condition storages for raw materials, supplies and final products ensures the damage to products and wastage to be at a minimum. Less wastage means less cost which means less cost per product.

d. This has to be considered since having high costs of accessing funds will be shown in the products price.

e. This should be done in order to calculate the costs and benefits. The project manager and other related members can check the feasibility and take decisions on the price of the product accordingly.


Target cost = £60

To achieve a ROI of 25%, our company must produce the batteries at a cost of £60. It is my belief that we should not go ahead with the battery project due to following reasons.

This target cost presents a net profit margin of 20% which would be very tough target in recessionary environment

Since this is a new product to our company initial cost will be much higher than industry due to absence of learning effect

In recessionary environment it is generally inadvisable to undertake new investments since failures could mean liquidation.


a. We will take use of work breakdown structure first to define who is responsible for what and then to define who answers to whom. This will clarify who is in charge and will ensure the quality completion of each task and once the procedure begins it is relatively simple to monitor and keep track of the functions and staff.

b. Once the project is launched it is normal to face few unforeseen scenarios mostly due to external factors such as political and some internal factors such as labour unions. When monitoring performance in such situations decisions have to be taken which might not have been in the initial planning process.

c. When the project is at expansion phase situations might occur where the initially planned methods are not valid anymore. For example if a raw material supplier goes bankrupt or more effective automated machinery come in to market, then the control procedures have to be changed.

Q2.6 As we know it is a possibility in a project that different individual having different opinions. Not all can be met and once agreed on one then the team has to keep aside personal opinions and work for the common goal. Working under a team leader one should be clear about his or her role and responsibilities. The leader should be able to listen to team's ideas and problems and make decision in an impartial way. A person should be in the team who can motivate and guide the teams' morality to high grounds. The work should be passed down to the sub teams and individuals in a way that everyone has a well-defined responsibility and everyone has to answer to someone. Finally when a conflict arises the team should discuss and find the solution which is in best interest of the project. And this requires skills such as the ability to make the point and listen to the points against it, keeping the calm, looking at the big picture, etc.

Q3.1 No, It is important to conduct a pilot test for a project which in simple is a real world test of the project. No amount of planning, analysis and predictions will give a clear picture as a pilot test. For a product this shows whether the project actually meets the product specification in a real production environment. The data gathered is valuable for the decision making of the entire project before it is launched in the bigger scale. Evaluation of these data shows whether the project is viable in the practical environment.

Q3.2 Bottlenecks occur when a certain step in the production line lacks in speed relative to others, thus making the efficiency of the whole process to decrease. Let's for example take our previous scenario of steel bar manufacturing. The facility does not have the storage capability and since the factory is situated outside the city the project planners have planned a warehouse near the harbour inside the city. Being a medium size production the company possesses 10 trucks to transport rods from production facility to the warehouse. The initial planners did not account for the time that a truck will take for a round trip. When the process started it was evident that at certain times there are no trucks at the facility. All the trucks are on route to or from warehouse. This caused the manufacturing process to be delayed.

To minimize the impact increasing the number of trucks is not practical due to expenses. Due to the limitation of owned property the company cannot build a storage structure inside the facility premises. The next solution is a secondary warehouse, bought or leased and stationed between the facility and the main warehouse. Thus the production speed will remain as it was planned and transportation from secondary to the main can be scheduled by observing the truck requirements and production idle times.

Q3.3 Organization breakdown structure (OBS) is a layout that shows the relationships between different task units who are working in a project/company and is useful in assigning tasks to different work units.

Daft (2009) states that this reflects the organizational structure. This shows managers of different projects and how those managers are linked with other individuals and departments.

This chart helps to clarify everyone's responsibilities. It is also possible to use this to assign multitasking. The matrix is as follows,

Employee 1

Employee 2

Employee 3

Employee 4

Task 1




Task 2


Task 3



Task 4



Figure 1 - Task responsibility matrix

This will make the employees complete their responsibilities within the given time periods. Furthermore we can categorize the tasks depending on type such as administrative, marketing, facilitating, etc.

This is presented to a client (contractor) once the client has agreed to the project terms. Since this contains the facts such as objectives, schedules, price, etc. the external party cannot go against it, raise the prices or delay the product/service delivery. Thus ensures that the project is on schedule and the negative effects from the external contractors/clients are at a minimum.



Since investment's ROI value is less than the North Division's current ROI of 32% (1,680,000/5,250,000) I will reject the proposal

It is probable that this is because even with the addition of this low earning investment due to North Division's other investments having ROI of high 32%, North Division's final ROI will be within 20% target of the company.

Residual Income = Net operating income - investment x Minimum return expected (Cost of Capital)

Residual Income of last year = 1,680,000 - 5,250,000*15%

= £892,500

Residual Income if new product line is added = (1,680,000 + 180,000) - (5,250,000 + 3,000,000)*15%

= £622,500s

Decline, because addition of the new product line reduces the residual income for the division.

Q4.1 Initial project plan does not have the capability of evaluating the progress if the time schedules deviate from the original plan. That's where the Project Evaluation and Review Technique (PERT) come in to play. This is a network leading from one task to another (or a few) which finally arrives at the project completion stage, with the estimated times. We will follow the followings to create the PERT.

Identifying the milestones of every stage

Identifying the task sequence

Building the PERT chart

Time estimation for each stage

Critical path observation

Updating the network as the project proceed from stage to stage

Q4.2 To justify the progress and the final outcome of a project certain measurements can be used, and these are important for on-going decision making process and for the future decision makings.

Variance analysis - This shows the difference between the expected and actual figures of costs and revenues. In a production project the cost variance is calculated and can be used when choosing suppliers. The revenue variance can be used in decision making of future projects.

Payback period - Can be used to deciding whether to launch the project or not and will show whether the project specifications can be actually met and the time period that the project will take in order to earn the investment cost. Shorter PBP means very high potential of being profitable.

Return on investment -Justify the project to the higher administration board as a worthy. This is the ratio between benefit and investment and can evaluate the validity of project for launching. The planned ROI and the actual ROI is calculated and can be used in evaluating the expected and actual performances.

Q4.3 The adverse measurement values are not always due to risks or poor project execution.

VA - An adverse VA can occur when the actual cost for project exceeds the planned cost. Still the project can be continued finding less expensive raw material, labour, etc. thus bringing the actual cost down.

PBP - The time to cover the investment is longer. In order to make the PBP favourable we can focus more on advertising, marketing and offer added services to persuade customers in to paying for the products early.

ROI - Having an unfavourable ROI does not mean that the project should be discarded, we can enter the market with a more aggressive way, such as exceptional advertising and customer services.



Relevant cost for 50,000 units of speakers = All direct material + £60,000 of indirect labour + . £40,000 of supply cost

Therefore total relevant cost = 600,000 + 60,000 + 40,000

= £700,000

b) Relevant cost per unit = £15

Therefore total relevant cost (for 50,000 units) = 15*50,000

= £750,000

Therefore making is the less costly option by £50,000.

Following are the qualitative factors that might influence the make or buy decision

The quality of the speakers of supplier's might not be adequate

In the long term the supplying company might directly supply to our customers and thereby eliminate our market

Supplier of the speakers might not be able to meet our rush orders, where in our JIT system we could meet our customer's rush orders

In long term bargaining power of the supplier could thin out our profit margin.



The following report will provide an project appraisal of three projects initiated and implemented by our company.


The appraisal will be carried out with reference to the appendix where quantitative results of the projects are summarized with comparable budgeted values.


Due to the recessionary environment investments had to be done on projects with low ROI returns and low investment values. However cost overruns occurred due to more breakdowns.

Number of breakdowns

With reference to the appendix it can be observed that with exception of Project B actual breakdowns exceeded budgeted figures due to cost cuts in operations and resulted in additional costs in repairing, and reduction in actual number of units produced.

Production units

With exception of Project B planned number of units could not be produced due to more breakdowns and resulted in reduced bottom-line.


With the exception of Project A which produced a necessity good, sales went down due to the extended recessionary environment.

Material and labour costs

Labour costs remained more or less at their expected value but material costs went up slightly due to lack of availability of intermediate goods.

Operating profit and ROI

With the exception of project A other projects showed a sharp decline in expected profits due to the machine break downs, cost overruns in material and decrease in expected sales. As a result ROI has fallen dramatically in project B, C although project shows an acceptable ROI close to its expected value.


It can be concluded that due to the recessionary environments and cost overruns due to machine break downs project B and C has not been able to perform up to its expectations and project A has performed reasonably well due to the fact been a necessity good.


Project A

Project B

Project C







Number of break downs







Production (Units)







Investment (£'000)







Total sales (£'000)







Material cost per unit (£)







Labour cost per unit (£)







Operating profit (£'000)







ROI (%)