Project Management Assignment: Renewable Energy Project In Australia And New Zealand Known As Tilt Renewable Limited
Task: PART A (20 marks) The report should begin with a short executive summary and conclude with several, short general recommendations. The content you include in the report should link the project management principles detailed below with the practices of the renewable energy company you have been allocated. The topics on which students need to make recommendations in their report include:
i) Project selection – How should the company you select determine what projects to undertake and what ones to avoid? What tools, measures, and practices are available to project analysts in this industry?
ii) Cost management – What is the role of project cost management for your chosen company? Why is it important? What strategies or approaches should the company you have chosen adopt in order to effectively manage project costs?
iii) Funding – What funding measures or options are generally available to assist companies like the one you have chosen to fund proposed new projects? The report should include reference to any implications associated with different funding types or models.
iv) Implementation and winding up – Are there any particular issues associated with commencing a project that your company must consider? Why are they important? Who do they impact or affect? What happens when the project finishes? How are projects wound up? Do they just end or are there resource or infrastructure considerations? Are there environmental issues associated with the end of a project?
Where possible, students should relate each section back to the renewable energy company they have been allocated. The executive summary should bring together general recommendations for the student’s chosen company relating to i)-iv). PART B (20 marks)
Consider the following three sources and answer the following questions directly. You do not need to write a lot for each question and for some you will need to use excel calculations. Submit you excel spreadsheet together with your report in the separate submission inbox on the assessment table.
This report is based on the project management analysis of a renewable energy project in Australia and New Zealand known as Tilt renewable Limited. The company is engaged in the generation of energy using wind and solar energy. The project managers want to verify the stages of project management such as project scope, cost management, funding and implementation and closure. The second part of the report consists of practical implication of the same project. The FCF and NPV of the project have been calculated. It includes computation of the debt to equity ratio of the company to measure its financial leverage.
Project management tools and practices are required for managing project resources that are best suitable for the required scope of project management. The project management tools are required for increasing the effectiveness and efficiency of the project. Within the scope of project management, Waterfall technique is the best technique for assessing the quality and degree of successful project management (Kerzner, 2017). The Waterfall technique helps in planning and organisation with the attributes of effective communication, time management skills and cost control. The Tilt Renewables applies Waterfall technique which is unidirectional and has a downward approach in the phases of conception, initiation, analysis, designing, construction and so on.
The work of cost management is conducted by the cost managers who perform the role of the allocating required cost and funds to the departments who are required. One such method of control controlling is budgeting (Tiltrenewables.com, 2020). It includes the work of forecasting, recording budget figures, actual figures, cost control measures and the basis on which the budget has been prepared. The Tilt Renewables applies Critical Path Method as one its cost management strategies to maintain cost at a substantial level and thereafter verify the planned cost with the actual costs. The application of CPM has allowed the project manager to define the shortest possible route in conducting the project activities that will take minimal costs.
For funding options, The Tilt Renewables has applied for long-term debt from a commercial bank and a financial institution (Tiltrenewables.com, 2020). The project has taken up ownership over the operational wind assets and wind and solar development plants. The provision of renewable sources of energy for The Tilt Renewables has greatly helped the business in developing and gaining more financial resources from investors as well. The involvement of private shareholders by the company was to reduce the risk associated with the business and transfer the burden of risk and return to the advisory and shareholders of the business (Meredith et al., 2017).
Implementation and winding up
The Tilt Renewables includes multiple complexities while it is at the stage of implementation and closure (Tiltrenewables.com, 2020). The project manager is required to frame an estimated implementation plan to conduct environment running tests and ensure no hazardous activities and outputs are delivered from the project. The safety and security towards the workers who are working for the company must be maintained with high standards.
a) Calculate the FCFs of the project
The free cash flow of the business is recorded as the cash derived from the corporate activities after deducting all necessary expenses in terms of expenses on assets. The FCFF for the renewable energy project called Tilt Renewables Limited has been computed and examined under the EBIT approach (Tiltrenewables.com, 2020). This approach takes into account four components required for computation of FCF and it includes- EBIT, tax rate, depreciation and amortisation and changes in the value of PPE or CAPEX. With these values, the FCF of the Tilt Renewables Limited for the year 2017, 2018, 2019 and 2020 were $53473, $73581, $-71855 and $1148429 (Au.finance, 2020). It can be observed from the values that in all the years of analysis, the cash generated by the company is positive except in 2019. It can be said that FCF from the cash is lower after the company had paid off all its long-term and short-term obligations made from operating expenses and capital expenditure of the renewable project.
b) Calculation of NPV of the project and determine whether it should accept or reason
Net present value is the value of all total future cash flows both positive and negative that a company generates from the projects undertaken by it. A positive cash flow denotes that cash outflow is lower than cash inflow whereas, a cash inflow when falls than cash outflow it signifies cash outflow. For the given case, the NPV of the Tilt Renewables Limited was computed for 4 years beginning from 2017 to 2020 at a discounting rate of 10%. The NPV ascertained is as $-916071, indicating a negative NPV (Au.finance, 2020). The decision-making criteria for NOV mentions that it should either be greater than 1 for individual projects whereas, for mutually exclusive projects, a project having the highest NPV must be selected. Therefore, it is advisable that Tilt Renewables Limited must not select the project as the NPV is negative. It suggests that Tilt renewables Limited shall be investing $10 million against which it shall suffer a loss of $916071 against the investment made (Tiltrenewables.com, 2020).
c) Mention whether NPV must take into account of CO2 emission reduction that the project will lead to
Under the consideration of NPV, the factor of CO2 emission reduction has not been taken into consideration. Both the factors, NPV and CO2 are considered as a trade-off in the investment appraisal overview that looks forwards for a systematic approach to be implemented for optimising the initial investment for the project. However, the CO2 emission should be taken into consideration as it shall bring forth systematic efficiency to the project leading greater chances of profitability and income-generating capacities. By taking into consideration the CO2 emission, the NPV of the project might be overviewed as positive whereby the company shall decide on accepting the project. However, the reduced CO2 emission does not account for financial transactions, it shall bring in a higher chance of sustainable business practices attracting more initial capital investment from the investors to invest their money onto the project.
d) Calculate the debt to equity ratio for Tilt Renewables Limited for 2019
The debt-to-equity ratio is an accounting ratio that measures the proportion of debt obligation and equity funding available with the business to finance for its operations. A D/E ratio of 1:1 is the most stable and optimal ratio that mentions an equal amount of creditors to finance for the assets of the business. Based on the annual report of Tilt Renewables Limited, the D/E ratio for 2019 is 1.33:1 (Tiltrenewables.com, 2020). The total liabilities held by the company at the end of 2019 was $915525 whereas the total equity held as shareholders fund was $684949. According to the formula of D/E ratio, that is total liabilities/Shareholders fund = 915525/684949 = 1.33:1 (Au.finance, 2020). It denotes that against every $1 of equity shareholders fund, the financial leverage for the business is 133%. The financial risk for the business is moderately high signifying that the company is fairly dependent on long-term and short-term debt obligations for financing most of its operations.
Au.finance, 2020, All About TLT.NZ Financials, Available https://au.finance.yahoo.com/quote/TLT.NZ/financials?p=TLT.NZ [Accessed on 10th June 2020]
Au.finance, 2020, All About TLT.NZ, Available https://au.finance.yahoo.com/quote/TLT.NZ/financials?p=TLT.NZ [Accessed on 10th June 2020]
Kerzner, H., 2017. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.
Meredith, J.R., Shafer, S.M. and Mantel Jr, S.J., 2017. Project management: A strategic managerial approach. John Wiley & Sons.
Tiltrenewables.com, 2020, All About Assets and projects, Available from https://www.tiltrenewables.com/assets-and-projects/Snowtown-North-Solar-Energy-Farm/ [Accessed on 10th June 2020]
Tiltrenewables.com, 2020, All About US, Available from tiltrenewables.com [Accessed on 10th June 2020]