!

Coa[ Fired Boi[ers Project

Project)
(An Overview of a Proposatfor an lnfrastructure

Abstroct

r proiects; the type of datu to be collected, its

e availability

of

necessary supporting

duaik'

ffates one such presentation of a proposal t'or an

infrastructure projict,

It

would help

to

grle the readus explsure to some aspects

of the modun

y!ir:i!

preview of the knowledge,

prortct planning ind,managemenr ichniques and also serve as a
and nanagrng projects presented in th subsequent sections of the book,

'r,ii,"rirffiit ii
i*rni

Modern Project Managernent 49

CASE TEXT
The whole world is a unified place and the events occurring in one country eqho loudly in some
distant lands. Altaf Hussein worked as an engineering and maintenance manager in National
Mills, an old textile mill in the hinterlands of India. He led a routine work life and hardly ever
anything exciting new happened. All this changed suddenly in March 1973, when in an OPEC
meeting held in distant Riyadh, the decision was taken to raise the crude prices. The crude oilprice
was indeed observed to fluctuate or even gradually creep upwards ovei the years. But the price
revision this time was an abrupt upward leap - from U.S. $233 a barrel to U.S. $ 9.82 a barrel.
The textile mills are heavy users of low pressure steam for their processing departments - dyeing,
bleaching and finishing and the cost of steam accounts for a substantial portion of their processing
costs. Use of coal as a fuel for raising low-pressure steam would reduce steam costs, but coal is a
much unclean and inconvenient fuel-compared to oil and so switching over to coal-fired boilers
was strongly resisted by the plant rurugr*tnt all along. Some textile mills located near the
metropolis areas and well-connected by rails had switched over to coal for steam generation, but
the procurement and transportation of coal to the hinterland being cumbersome, National Mills
had continued to depend on steam generated from oil frred boilers till now. However, with this
fourfold increase in the price of oil derived from costly crude, the mill faced dire future. It had to
do something about the steam cost or face closure of ihe entire mill.
Altaf had all along a dislike for use of the old oil-frred boilers with frequent breakdowns and
causing unexpected emergencies and workloads on him and his staff, but his proirosals for
replacing the old boilers with new ones had been rejected twice in the last four years with the
argument, "New boilers and the trouble.free continuity in the processing departments is fine, but
the investment won't pay for itself." Projection of economic benefits is sometimes diflicult to cast
into hard cash numbers and Altaf had ultimately lost out on earlier occasions.
Altaf saw in the new situation one more opportunity to push his favourite boiler replacement
project - this time with an added twist - new coal-firgd boilers, which can be justified for economic
beneflrts now hands down. He prepared a brief 3-pages proposal for the new coal fired boilers and
sent it to Kamal Nayan Bajaj, Executive Vice-President Friday morning. The proposal was so
attractive that Mr.Bajaj summoned Altaf for further discussion that very aftqtnoon, Altaf had
projected {35 million as the project cost for 80 tonnes/hr eapacity boilers and the cost of generated
steam to drop from {135 per tonne to t105 per tonne.
Mr Bajaj shot a numbei of questions: 'Altaf, the idea is good, but unfortunately, may be, we
are late for it, How fast can we execute the project? How sure are you of the viability of the project
- the cost of project, saving in operating cost by its generation with coal as fuel? Of course, the
most crucial question wouid be: can we get the boiler oii line'by'Febrriary 1974, say latest by
March 1974;lf your answer to the last question is yes, we can announce in thb next annual general
meeting in May that the operation cost situation is under control. That would save the day."
"Sir, I am pretty sure of my cost of project and operational cost savings numbers. The project
has become now not only just viable but a very attractive investment." enthused Altaf.
"Well, if that is the case, I would be ready to authorize the project right away. You would be the
Project Manager and if you deliver the goods, the next promotion to Assistant Vice President is
yours! But, remember, you will have to prove your projections first to Mr. Patel, and as the
Company Financial Controller, he is as hardnosed as seasoned accountants are. We don't have
.ocli time. For a starter, why don't you give me the first thing Monday morning an executive
summary of your project proposal, which should include brief project overview? "

5()

Project Management

Altaf had done his homework well before; so he:prepared the executive summary (shown below
as an exhibit to this case), which could reassure Mr. Bajaj on all issues raisld'by him, At

Bajaj's suggestion, Altaf prepared the detailed projeci proposal, along with a number of
documents supporting the figures and projections,used inthe executive.srr*-ury'

\Ir.

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Project objectives and criteria for judging project success (particularly the project schedule)
Financial justification for the project (economic feasibility of the proposal backed by cash
flows based on operating costs and savings, estimated return on invesiment (ROI) using payback period and net present value methods for calculations)

'
'
'
'
'

Scope

of the overall work and technical and performance specifications of key deliverables

Project time frame

milestones for major activities completion

Preliminary project cost estimate (with breakdown showing major expense heads)
Key project team members (to be released for working on this project)
Plan for project communications

After a close scrutiny, Mr. Patel confirmed

as realistic the projections in Altaf's proposal and

the new coal-based steam Generation Project was soon authoiized.

coAL

FTRED BOTLERS PROJECT pROPOSAL

Executive Summarg
1. Project Scope Statement
Design, procure, install and commission by February 28,, 1974 a system for generating 80
tonnes per hour of steam using coal as fuel at a total project iost not exceedin! t35 mililon,
The minimum return on investment of t35 million should be 50%per annum.
2. Project Objectives and Criteria for prolect Success

3. Custorher/Proiect Sponsor

There is no external customer; the executive vice-president Kamal Nayan Bajaj is the project
sponsor,

lYodern Project l'1anag'ement 5l

4. Summary

of Economic Viability

Estirirated Investment:

of production of steam
(Based on coal based steam cost of tl05/ tonne
Compared to T135/ tonne for furnace as fuel)

Saving in cost

Annual savings in steam production cost

(based on 85 o/o arrrllal average use of the installed
Capacity of 80 tonnes/hr at 900/o annual average operating time)
ROI

'

T35

million

T30/- per tonne

<17.7

million

50,40/o

5. Preliminary Stakeholders Analysis

Project Sponsor

KamalNayan Bajaj, Executive Vice President

Senior Officers of l,{ational Mills

Mr. Patel, Company Finance Controller

Heads of operating departments using low pressure steam:
Heads of Dyeing, Bleaching and Finishing Departments
Head of Materials Department for coal procurement, quality testing and storage
Head of Maintenance Department for maintenance and upkeep of the system
Project Team
Project Manager: Altaf Hussein
Key members of the project team: The members deputed to the cross-functional project team
(material procurement assistant, senior engineers in charge of civil construction and
mechanical and electrical installations
6.

Fit with Current Operations /Similarities to Previous Projects

The project has a very close fit to the current operations - generating process steam; only
the fuel is planned to be switched. The project would have immediate impact on the entire
operations of the mill.
Some modifications were carried out from time to time in the mill's steam distribution
system and piping, but no major installation of the size and scope of the proposed project
was undertaken in the last seven years by the company.
Maior Deliverables

'

'

7,

Deliverable

Deliverable

'

Design:
Study the plant's present steam distribution and steam requirements for
overall system design
Equipment layouts in boiler/coal handling areas and piping layouts and
detailed construction drawings
Sys tem

Procurement:
Procure.system components
Coal-fired boiler and coal handling system
Structural components for pipe rack
Piping, valves and other piping components

52

Project Management
Deliverable 3

Deliverable 4
Deliverable 5

Deliverable 6

Project Construction at the site;

Civil construction for boiler control room, equipment foundations and
pipe rack structure
Mechanicalinstallation of boiler, electrical & instrumentation for boiler
Mechanical installation of coal handling system
Installation of steam,distribution piping
System commissioning
Training and handing over the project to operating departments
operation and maintenance manuals for boiler, coal handling equipment
and special new instrumentation
Project Management;
Receiving statutory approvals (from Boilers Inspector, Factory Inspector,
etc.)

Effective project management to deliver the project on time and within

budget
8. Summary Budget (in

t million)

Buildings and Structures

Machinery and Equipment

Boiler

3.0

16.0

Coal handling equipment

6.0

Other equipment

3.0

Installation -materials &, labour

SUB-TOTAL MACHINERY AND EQUPMENT
Provision for contingency at approx . lO o/o

TOTAL ESTIMATED PROJECT COST

9, Summary Milestones
The installation of coal-handling system:
The installation of the boiler and all systems:
The Tiial runs for statutory approvals:
The performance guarantee runs of entire system:
The steam headers and connections to users:
10. Assumptions, Risks, and Constraints

3.5
29.5
3.5
3

5.0

January 15, 1974

Febru ary 1,

197 4

Febru ary 15,

197 4

March l, 191 4
March 15, l9l 4

SCHEDULE BASED ON FOLLOWING ASSUMPTIONS AND ASSOCIATED RISKS

(a) Authorizedcapital Budget Request is received latest by April r, rg73.

(b) Statutory approvals from The Boiler Inspectorate and Environment Protection Agency
for the preliminary proposal for installation of coal fired boiler ars approved latest by
May 15, 1973,
(c) Engineering consulting company is selected and awarded the contract by April30, 1973.
(d) All key project team members are released to work full time on this project latest by April
30,1973.

Modern Proiect Management 53

(e) The deliveries at the site for the critical major equipment (coal fired boiler and coal
penalty
handling equipment) are completed by December 31, 1973 under late delivery
purchase order.

SCHEDULE CONSTRAINTS
(a) Two potential key members of the project team are presently working on other urgent
' projects and theii release in the desirable time may be doubtful.
proposals'
(b) The Boiler Inspectorate is notoriqus for causing delays in giving approvals for
(c) Ordinarily boiler delivery period is of the order of 8-9 months minimum, while 6-7
(Special tffol!
months maximum deliveiy peliod is necessary to meet project schedule.
prices and stiff
to locate a suitable supplier,lxtrapriie prernium over routine competitive
late delivery penalty may be necessary to overcome this')
(d) The foundation casting must be completed before the expected onset of monsoon, i.e. by

'

'

June 15.

(e) A large number of holidays would be in August-November period

activity period for prgject construction.

the expected peak

(a) Study the proposal closely. Notice the issues which a major capital expenditure project should
in your
addrlss. 6o*pur. them with the capital expenditure authorization practice
organization.

(b) Notice the critical role a major project would play in the organization, For this textile mill,
efficiently managing
the very existence of the organiiation depends-on coming up with and
this major project

(c) Notice the nature of specificity and objective measurable standards included in describing
the proposal.

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.

(Statement of
The inclusion of the technical specifications of the product of the project
Works or S.O.W.), budget and schedule in the opening project scope statement.
judging the project
The project objectives and the objectively measurable criteria for
success for each of those objectives.
managing
Focus on sponsor or main customer and identifying all major stakeholders;
the key stakeholders is a major contributor for project success.
for
Summary of economic viability analysis, project cost estimate and major milestones
schedule.
schedulei these figures demarcate theboundaries for project cost and
provision for contingency in project cost and schedule - it is one of the tools for managing

project risks.

Major deliverables - including separately project management as a specific deliverable.

in fo.cusing on
Analysis of Assumptions, Risks and Constraints. This list is very useful
majoi issues and atill later stage reviews of the project for giving it the right direction.