Project Evaluation Fundamentals

Project Evaluation Fundamentals

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Content

INDEX

Roles & Responsibilities

Profitability Targets

Type of Valuations

Valuation Parameters

How does the CEM work?

Press in each circle to know more about the components of this model:

System model

Input Data

Calculation Basis

CEM stands for Cost Evaluation Model

CEM Design

Program Specific Inputs

Quote Assumptions

Manufacturing Strategy

Feasibility Analysis

Plan information

Macro economics

CEM

Output reports

System

Master data input

We recommend that you download this terms for future references.

For the upcoming content, it is important to be familiar with the following concepts and definitions.

Valuation Parameters

TAXES

NWC

COST

Price

Volume

Evaluation Horizon

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The parameter volume allow us to identify materialization-related risks and opportunities through the resulting credibility factor.

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The parameter volumen is a Market Assessment performed by Business Development to understand a program’s volume and identify materialization-related risks and opportunities through the resulting credibility factor.

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Click on each button to know the types of evaluation:

Types of evaluation

Marginal evaluation

Full evaluation

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Listens to each case and connects each person to the type of assessment they are performing

Marginal evaluation

Marginal evaluation

Full evaluation

Values are positively correlated with expected returns and negatively correlated with risk. For this reason, it is generally best practice to prepare your forecast on an “real-case” basis, rather than with excessive conservatism or aggressiveness.

Comparison with benchmark product or program

Manufacturing improvements, year over year cost efficiencies

Scrap rates

Labor productivity, man hours required to produce one output unit

Why do we need to validate projections for the CEM KPIs?

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Now you have a good sense of what to think about as you build a project forecast and the prospect of creating a financial projection is not as daunting as it may have seemed. You are ready to get into the nuts and bolts.

Tying it all together

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•Market Assessment performed by Business Development to understand a program’s volume and identify materialization-related risks and opportunities through the resulting credibility factor. •Preliminary volume curves may be obtained from the Nemak Rolling Forecast (NRF)

Volume

• Product Development and Manufacturing define feasibility, cycle time, labor and salary required, and other product-specific requirements
• Unitary costs are calculated each year by cross referencing volume, product specification, last year cost structure, macroeconomics, and plant business plan
• Costs are divided in;
• Fixed costs: Costs that do not depend on the level of output.
• Variable costs: Costs that change as the level of output changes.
• SG&A: Includes all general and administrative expenses as well as the direct and indirect selling expenses.

Cost

Take note that for you to perform your job is neccessary to aknowledge our policies.

IMPORTANT!

Projection according to customer’s stated lifetimeIf customer does not state a lifetime, the commercial team should provide their best estimate

Evaluation horizon

All pricing components and agreed discounts or productivities must be consideredAdditional discounts on ongoing programs must be considered as incremental costs

Price

• Days calculated according to historic plant account payables, inventories, and payment terms of the new product
• Accumulated NWC at the end of the evaluation is 0.

NWC

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• Labore et dolore magna aliqua.

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Tax rates are statutory and according to each country legislation. These are preloaded in the CEM

Taxes

• The full operating cash flow
• The new capital investment
• Its corresponding share for existing assets
• Salvage value for new and existing assets

All investments are evaluated on a fully accounted asset approach, which means that both new acquired assets and existing assets are charged into the economic evaluation. This approach is commonly referred to as the Full Evaluation, and should consider.

Marginal evaluation Replacement programs, uplifts and engineering changes may also be assessed on a standalone basis using a Marginal Evaluation, which weighs the additional benefits of an activity compared to the additional costs incurred by that same activity. The Marginal analysis should only consider:

• The incremental operating cash flow, you must trace out all indirect effects of accepting the project.
• The incremental new capital investment.