Project Evaluation Fundamentals

Project Evaluation Fundamentals

Content

How does the CEM work?

INDEX

Valuation Parameters

Type of Valuations

Profitability Targets

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Roles & Responsibilities

CEM stands for Cost Evaluation Model

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

Input Data

Calculation Basis

System model

CEM Design

Master data input

System

Output reports

Macro economics

Plan information

CEM

Program Specific Inputs

Manufacturing Strategy

Quote Assumptions

Feasibility Analysis

Valuation Parameters

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

Evaluation Horizon

Volume

Price

COST

NWC

TAXES

We recommend that you download this terms for future references.

Quick check

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Question 1/5

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

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Question 1/5

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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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True

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Types of evaluation

Click on each button to know the types of evaluation:

Marginal evaluation

Full evaluation

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

Mark

Carol

Carol

Marginal evaluation

Full evaluation

Marginal evaluation

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

Manufacturing improvements, year over year cost efficiencies

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.

Labor productivity, man hours required to produce one output unit

Comparison with benchmark product or program

Scrap rates

Tying it all together

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.

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Tying it all together

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Volume

•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)

Cost

• 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.

IMPORTANT!

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

Evaluation horizon

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

Price

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

NWC

• 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.

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Taxes

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

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.

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

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.