Evaluation of a Modernisation Project - Case Study Example

1. Executive Summary The duties and obligations of different stakeholder are very intricately interrelated as far as the Glamstone modernization plan is concerned. This diagnostic paper concerns simplifying this complexity and establishing a project planning approach to verify the financial viability. The core issue is judicious use of natural resources, in context with management, security and societal development. The paper does the analysis and then highlights different aspect of project implementation. Sustainable development will be achieved when different stakeholders take into account their roles and share of natural resources. Unsound sharing of resources may leave the environment depleted and society poorer over time 2. Introduction The quarry needs to be modernized in order not only to be financially viable but also to be sustaining on long term perspective. This endeavor itself needs very many factors to be incorporated. There has to be consent of villagers, cost viability, environmental concerns, and regulatory consideration. Glamstone need to optimally utilise, so to have a positive or neutral impact on natural resources, in harmonization with local and governmental agencies. To ascertain this goal, a proper financial and stakeholder analysis has to be done. 3. Project Planning 3.1. Context This analysis can be used to identify people who will be affected by this project. It also can be used for those who are in opposition of this project which is likely to affect the project’s planning, execution and implementation. Apart from these, it can be subjected for evaluation from the financial sources for risk assessment. 3.2. Significance The analysis will clear cut depict the probable roles, accountabilities, limitations and gains for different stakeholders. This will help in smooth planning of the project in terms of role allocation, establishing accountabilities and limiting authority. Once this is done, the implementation will take its own course and probability of project success increases multifold. 3.3. Stakeholder Analysis Table below is the stakeholder matrix which will depict the various stakeholders, their interests, influences and capacity. Stakeholder Categories Relevant Stakeholders Interests in relation to policy (effects on / effects of policy) Influence on policy (H=High, M=Medium, L=Low) Capacity to participate Government policymakers Government & Local Administration Regulatory Concerns High As Governing Body Implementing agency Glamstone Financial Profits High Project planning and implementation Organized Interest Groups Employees and Labors Employment Medium Human Resource Civil Society Villagers Social well being High Affected parties 4. Organizational Structure The following represents the organization chart of Glamstone. 5. Critical Path Analysis Stage plans were developed to demonstrate the sequential development of the quarry and to illustrate how the plan can be achieved. The first objective would be to develop a model based on current costs factoring the modernization plan, and an economic pit design In the next stage plan for the removal of overburden need to be developed The next stage would be to develop the pit. In the beginning 3 years the pit capacity would be to produce only 250000 tonnes of aggregate but after that when north quarry would be closed south quarry would be meeting the demand which was earlier met by north quarry and for that there will be expansion plan to produce additional 500000 tonnes of aggregate During expansion plan measure additional investment would be done to control of pollution The issue of road has to be solved either by developing the tunnel or an over-bridge based on the economic and social factors After four years when the whole production would be done only from south quarry, the 30 tonnes trucks would be replaced with 60 tonnes or higher capacity trucks which in turn would reduce the haulage cost significantly 6. Financial Viability of Glamestone Business Operation 6.1. Business as usual situation If we do not consider any modernization in the quarrying process and the business is run as usual then we find that there would be a loss of £1 million per annum. The figure has been arrived at by considering that current production of 500000 tonnes of low grade aggregate would be sold annually for next four years, which is the remaining life of the quarry. Business as Usual Year 0 1 2 3 4 Sales   4000000 4000000 4000000 4000000 Quarrying cost   1015000 1015000 1015000 1015000 Haulage cost   2400000 2400000 2400000 2400000 Other operating costs   1000000 1000000 1000000 1000000 Salary   660000 660000 660000 660000 Operating Profit   -1075000 -1075000 -1075000 -1075000 Present value @ 10% (£3,407,605.35)         Quarrying cost is maintained at £2.03 per tonne, while haulage cost is calculated by taking into consideration that the maximum a truck has to cover 30 miles to deliver the limestone and its cost will remain same for next 4 years. Salaries have been taken as £22000 / annum per employee for next 4 years. So for in the business as usual the company is incurring nearly £4 millions in 4 years. Thus the business does not seem to be feasible without modernization and without tapping new market. 6.2. Business after modernization For modernization £1 million is expended as capital expenditure while £600000 is the redundancy cost incurred to reduce the manpower from 30 to 10. These costs have been incurred in the first year. Due to modernization, from the second year the production has been increased to 750000 tonnes per annum, operating costs have linearly reduced to 80% over the next three years. In this business situation the present value of the cash flows is coming £.21 million which is less than business as usual situation. However, the business is still not viable. Business After Modernization Year 0 1 2 3 4 Sales   4000000 6000000 6000000 6000000 Quarrying cost   1015000 1522500 1522500 1522500 Haulage cost   2400000 2400000 2400000 2400000 Other operating costs   1000000 928000 847000 800000 Salary   220000 220000 220000 220000 Capital expenditure   1000000 0 0 0 redundancy cost   600000 0 0 0 Net cash inflow   -2235000 929500 1010500 1057500 Present value @ 10% (£217,853.97)         6.3. Business with modernization and South Quarry South quarry would be used to satisfy the demand that is going to increase due to new regeneration programme. This market will be of 250000 per annum. Gamestone may get 100% market share in this business because of its accessibility to the new regeneration plant and because of that it will charge additional £5 per tonne for its high grade aggregate. This programme is going to start from next year, so work on south quarry must be started from this year itself. The factors considered when developing the plan are: The need to uncover stone reserves to ensure short term operation Matching overburden removal to stone production The location of the crusher and type of crusher to be used Bench and ramp widths to accommodate operation of 60 tonne trucks Optimizing the benefit of increased overburden removal with introduction of larger capacity trucks Allowing operational flexibility so that final pit boundaries can be adjusted if economic circumstances change 6.4. Financial Viability The initial costs of planning, site identification and others are considered minimal or negligible as the site is already identified For removal of overburden and stripping existing machines would be used which are used in the north quarry or additional requirement would be met by leasing the machinery which is the economic way of doing that The problem of road would be solved either by making the tunnel under the road which cost £540000 in the first year. The other option is to develop the bridge after two years costing £220,000 but that requires the road to be closed for two years and that would create local people opposition. However this opposition could be mitigated by doing welfare for the local people. Firstly a bridge over the road (cost £50,000) to access the school is needed along with a wide footpath from the housing estate to the road crossing. The village community centre is in need of repair (£10,000). So total cost of the second option would be around £300,000 over three years, which looks cost effective. For the first year of operation it has been considered that there would be the production of just 50000 tonnes of high grade aggregate, next year there will be 200000 tonnes of production and then next year 250000 tonnes of high grade aggregate would be produced. This would capture the whole market of 250000 tonnes which is going to generate from the regeneration programme. After four years when north quarry will stop functioning, its machinery and labor would be used to produce at south quarry and since they will work on the same sit just ten labors would be needed to produce 750000 tonnes of aggregate (which is the industry average of labor efficiency). This additional 500000 tonnes of aggregate would be used to satisfy the demand that was earlier met by north quarry. Here one assumption has been made that after initial capital expenditure there would not be any major capital expenditure on expanding the capacity of quarry, this is because it is considered that initial capital expenditure would be enough to cover the production of 750000 tonnes of aggregate and till 4th year south quarry will operating at way below its capacity However, one more assumption has been made that now instead of just satisfying the demand of low and high grade aggregate the south quarry will be used for medium grade aggregate as well After modernization the operating costs would come down and the labors needed will come down to 20 for the next 4 years and after that only 10 labors would be needed Haulage cost would come down partly due to production will take place only at south quarry and partly due to replacement of 30 tonnes truck with 60 tonnes truck South quarry will be operational for next 20 years The discount rate for calculating the present value of the future cash flow is taken as 10% Considering the above assumptions the present value of the cash flows is coming to be £20,112,491.32, which shows that the project is feasible under the new conditions 7. Win Over the Community The local community has got some reservation against the project. The issue of road is also major one. But it has been shown that the project can still be profitable, even after consideration of the local community. The following approach can be adopted to win over the local community: a) Glamstone should be involved in local community welfare programme. b) A bit of employment can be generated from the villages itself. c) It should run an awareness campaign that will demonstrate that how the business of Glamstone is positively effecting the local commerce. 8. Conclusion It is being evident that the project if financially viable and sustainable over long term. But the critical stages are to be followed as analyzed in the report. Apart from this there are some social issues which also need to be analyzed like welfare of local community. There is a very intricate relationship between different parties involved in this project. They have different vested interests and different influence. They need to act according to their capacity so that the project can achieve its goal of sustainable development. The authority on this project should be passed down whereas the information should be send upwards. This feedback mechanism will insure that all the stakeholders are interacting in a way which will lead to the achievement of the goal. A proper gap analysis should be done at every stage of the project and the concerned stakeholders should be held responsible if at all there remains any gap in performance. Thus by achieving this managerial technique of stakeholder governance will definitely give results. Read More