Dec 2003

Paper 13 Operations and Project Management & Control December 2003 Time Allowed : 3 Hours Answer Question No. 1 which is compulsory and any two questions from Section I & any two questions from Section II Please answer all bits of a question at one place. SECTION I Marks 1. (a) What do the following abbreviations stand for? 1x10=10 (i) AQL; (ii) GRN; (iii) IPPS; (iv) CAE; (v) LTPD; (vi) DSCR; (vii) LOB; (viii) BOT; (ix) PIS; (x) DRC. (b) Match the words (a) to (j) under column "A" with the corresponding ½x10=5 words under Column "B"s (i) to (x); Column A Column B (a) Consumer Risk (i) Maintenance Management (b) Factor comparison method (ii) Sugar Industry (c) Rotable spare (iii) Line balancing technique (d) Halsey System (iv) Priority rule (e) Baggase (v) Job evaluation technique (f) Smoothness index (vi) Value analysis (g) Shortest operation time (vii) O.C. Curve (h) Esteem value (viii) Learning Curve (i) Labour productivity (ix) Inventory control (j) Pareto analysis (x) Incentive plan (c) State whether the following statements are TRUE/FALSE. ½x10=5 ERP indicates the degree of protection received from national (i) competition. (ii) The preparation of DPR is the final and most important stage of pre-investment phase of project. (iii) The RAT schedule will contain only the key milestones. (iv) Royalty is the consideration paid to the collaborator for transfer of technical know-how on an annual basis over duration of agreement. The cost overruns can occur at a particular stage in the execution (v) of the projects.

I—13(OPM) Revised Syllabus Full Marks : 100

(vi) A value engineering review uses cost as the basis of review and ensures that value is included in the design. A detailed schedule of items with quantities and unit rates are (vii) specified in item rate contract. Benefit cost ratio is the ratio of present value of benefits to the (viii) past value of investment. The owner as well as the contractor are equally concerned with (ix) risk factors in a contract. The project management process cannot be isolated from the (x) environment. 2. (a) What do the factors would you take into account in capacity determination of a biochemical industry? (b) A workshop has 20 identical machines whose failure pattern is as below: Elapsed time (months) No. of machines failed 1 4 2 3 3 3 4 3 5 3 6 4 It cost Rs. 150 attend to a broken-down machine. A maintenance contractor offers preventive maintenance of the machines and in return guarantees no failure of the machine for one year. He charges Rs. 450 per machine per year. Would you go for preventive maintenance contract? (c) What do you mean by "Plant Shut Down"? Under what situations will you advise to resort to Plant Shut Down? 3. (a) Write down the preconditions of usability data for Collective Bargaining. (b) What are different causes of variation in quality? 4. 'Toyotoy' is a worldwide popular Brand among the toy industries. At present the producer of the 'Toyotoy' is producing 60000 units annually. The total capital employed in this business till date is Rs. 25 crores. The current year's surplus is Rs. 1.25 crores. Due to some imbalance the production shop's capacities are not fully utilized, indication of which is narrated below: Production shop Capacity utilized Moulding shop 75% Assembly shop 80% Treatment shop 75% The company at present operates in single working shift of 8 hours per day on an overage for 300 working days in a year. Due to some other litigation the company has to operate on single shift basis only.

6 8

6 12 8

An OMC consultant derived two alternatives after detailed study. Alternative (a) To hire out the surplus unutilized capacity in the production shops for which contract demand exists. The revenue-cost table of those alternatives are drawn. Shop Hire Charges per hour Incremental cost per hour (Rs.) (Rs.) Moulding shop 10000 2000 Assembly shop 8500 2500 Treatment 6000 1500 shop Alternative (b) To increase the installed capacity to 75000 units by spending Rs. 3 crores on additional machines as required. The incremental revenue from the additional sales will be Rs. 500 per toy. In addition, tax benefit on an average will be 1% of the additional investment. You are required to advise: (i) On the average rate of return when the surplus capacity is hired out. On the average rate of return when the capacity is increased as (ii) decided. (iii) Alternative to which the company should opt for. 8+8+4=20

Please turn over (2) F-13(OPM) Revised syllabus 5. Distinguish between (any four): (a) Specification and Tolerance; (b) Master scheduling and Loading; (c) Fabrication process and Metal working process; (d) Machine availability and Machine utilization; (e) Method study and time study; (f) Elevator and Conveyor. SECTION II 6. (a) What are the major causes for delays and cost overrun in completion of projects? (b) Describe the different types of contract payment in a project contract. 7. (a) Nasscom Project is having the following activities and expected time duration: Activity Duration (Weeks) Precedence Activity

Marks 2½x8=20

10 10 10

A 1.0 — B 4.0 A C 5.0 A D 3.0 B E 1.5 C F 1.5 B G 3.5 C H 2.5 D,E I 1.0 F J 4.0 H,G,I (i) Draw the network diagram of Nasscom Project; (ii) Find the Critical Path; (iii) Calculate the expected time of completion of Project; (iv) Amount of Slack time in each activity; (v) Computing the Earliest Starting and Finishing time; (vi) Computing the Latest Starting and Finishing time. (b) The following data pertains to a project: Activity Normal time Crash time Normal Cost Crash Cost (Weeks) (Weeks) (Rs.) (Rs.) 0-1 1 1 5000 5000 1-2 3 2 5000 12000 1-3 7 4 11000 17000 2-3 5 3 10000 12000 2-4 8 6 8500 12500 3-4 4 2 8500 16500 4-5 1 1 5000 5000 It is desired to compress the project to the least possible duration day to day. You are required to compress the project day by day and estimate the total extra cost at each stage of the crashing. 8. The Chairman of a large sector Oil Company calls for a meeting of his functional Directors to discuss the plans for the future. In the meetings, considering the opening up of the Oil sector and Competition foreseen, the Director (Planning) suggests that the company should increase its Refining capacity and also to optimize cost and increase penetration and should expand its pipeline network, as well as open retail outlets. The company in the last financial year declared a net profit of Rs. 1,300 Cr. on a turnover of about Rs. 20,000 Cr. The company had a dividend outflow of Rs. 500 Cr. The Director (Projects) added in the meetings that the envisaged projects would require an investment of over Rs. 8,000 Cr. over three years period. Moreover of this about amount Rs. 3,000 Cr. of foreign exchange would also be required. The Chairman asked Mr. Narayana Murthy. Director (Finance) of the Company to study the proposal and prepare a detailed plan for sourcing of funds, considering all pros and cons of various options. He has

10

20

also been required to draw plans to meet the increased working capital requirement.

Please turn over (3) F-13(OPM) Revised syllabus Marks Narayana Murthy is a worried man. The margins are eroding and in the untested environment of free competition, the performance of his companies is unknown and hence the profitability. He calls his Project Financing teams to evaluate the various options and develop the most optimal mix, if required of various long-term and short-term funding options. Discuss the different financing options and recommend the ideal financing mix. Make suitable assumptions about the industry in its present state. 9. A company is considering two mutually exclusive projects X and Y. Project X costs Rs. 30,000 and Project Y Rs. 36,000. You are given below the net present probability. Project X Project Y NPV Estimate NPV Estimate Profitability Profitability (Rs.) (Rs.) 3,000 0.1 3,000 0.2 6,000 0.4 6,000 0.3 12,000 0.4 12,000 0.3 15,000 0.1 15,000 0.2 (i) Compute the expected net present value of projects X and Y. Compute the risk attached to each project, i.e. Standard (ii) deviation of each probability distributions. (iii) Which project do you consider more risky and why? (iv) Compute the probability index of each project. 10. Write short notes on any four of the following: (i) B.O.T. and L.R.O.T. (ii) Commercial aspects of the Project to be considered by the institutions. (iii) LD Clause. (iv) Risk neutral, Risk averse and Risk prone. (v) Project Feasibility Report. (vi) Bridging Finance. __________

5x4=20

5x4=20