Project Processes

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A project is implemented according to the plans prepared and appraised by the stakeholders like the owner, shareholders, lenders and so on. There is a need to implement the project by the persons who were put responsible as they are the ones who have the knowledge, specialized techniques and skills.
The monitoring of projects is done by the following techniques:
PERT : This technique uses a graphic representation of a project known as a 'Project Network' diagram'. The interrelationships between the elements of a project can be easily identified with this method. The diagram also shows the order in which the activities need to be made. The difference in the actual activity to the projected/planned activity is calculated.
CPM: This is also called as the 'Critical Path Method'. It is similar to PERT chart but includes an explicit implementation of the 'critical path' that sequences the tasks to be performed and defines the minimum amount of time for the project.

GNATT CHART: This was invented by an engineer and social scientist Henry L Gnatt in the 1900's. The Gnatt chart gives a timeline for each activity and hence can be used for planning, scheduling and recording progress in the project.
COST MANAGEMENT: Method of estimating and controlling cost requires the planning of resources to be obtained, estimating the cost of these resources and creating a budget for all of this. Once the process has been established, costs are controlled in a timely manner whenever there is a diversion between the actual and planned.
PROJECT AUDITING: This is made within the management in order to have a detailed inspection of the management of a project, its methodology, the techniques, the procedures and processes and the level of completion of the project. The project audit includes a report about the present (work) status of the
 project, the projected status of the project, the status of critical tasks to be performed. Moreover, it is established whether there are chances of the project failing or running into a loss. Further, the audit also examines the strategy used for their other projects and whether it can be used here.
FOLLOW UP PROCESS:  The follow - up process involves the re validation of assumptions made on the basis of the performance of the project. It involves the modification of earlier assumptions based on actual developments, in order to come closer to reality.The aspects involved include a financial follow up by a reassessment of the financial health of the company; Operations follow up which involve a review of the operations and inspection of physical resources of the project. A legal follow up is made to check and update of legal documentation.
As a project executive, you have understood the importance and concerns of all the stakeholders.While implementing the project, all  the activities of the project needs to be and tasks need to be coordinated in an integrated manner. The project implementer/manager will need to practice all the techniques as mentioned above with dexterity.

Alterations and Options in Life Insurance Policies

Life Insurers do allow certain alterations in the policy which would not impact the financial features but could alter the main structure of the product. Alterations are made for a fee charged by the insurer. Alterations in policy can be as follows:

• Change in the term of the policy: Usually an increase in policy term is not allowed as it can lead to selection of policies that are disadvantageous to the insurance company. However a  reduction in policy term is possible. 
• Increase in Sum Assured is allowed to a certain extent with medical examination.
• Change in the type of plan from say whole life plans to term plans are sometimes allowed
• A without profit contract could be made into a with profit contract.
• Premium payments can be made from monthly mode to yearly mode.

The Insurer may also provide options. Options sometimes enhance the financial value of the policy while some options may be non-financial like change in ownership and change in nominee. Some options include:

• To be able to partially surrender the policy
• Backdating of policy at the inception of the contract
• Increase in the grace period for premium payments
• To change the owner (not the life assured) of the policy
• Conversion of a convertible term life insurance plan into an endowment contract or a whole life assurance

These features in the product allow more suitability and flexibility in choice to the Insured. For example; an Insured who has been paying premium on monthly basis can now afford to pay premium on a yearly basis and hence saves in premium payment. An insured who has not paid premium within the grace period is allowed to pay late premium. An Insured may want to change the type of product from whole life plan to endowment plan and he is allowed to do so. The insured may partially surrender the policy according to the option provided by the insurer. In such a manner, the product becomes viable and consumer friendly too.

Riders and Add - Ons

Riders and Add-ons are 'additional benefits' in life insurance products. These are optional to the policyholder.The main characteristics of riders are that

• The option offered with the main contract is valid only if the main contract is valid
• The additional benefit is provided on the happening of specified events
• The option can be cancelled at any time while the main policy is in force

Some riders are given below:

• A Waiver of premium rider: Here the future premium payments are waived from the date of the event. The events include death of proposer in case of insurance plans on children or on joint life plans; or on permanent disability in any insurance plan.
• A Term Rider: The event is any type of death for which there is an additional death benefit
• A Critical illness Rider:  An amount fixed in advance is payable on the happening of the event that there is an affliction with specific critical illness.
• A Permanent Disability Rider: A certain percentage of death benefit and waiver of future premium payment when there is the event of permanent disability on account of accident or disease
• An Accident premium rider: Due to the event of an accident, the benefit payable is usually 2 to 3 times the Sum Assured payable on normal death.

Different types of riders are added as part of the product design according to the requirements of the insured population. Moreover, the Insurance company will assess the financial feasibility of offering riders. Riders will have to be within the statutory regulations given by the Insurance Regulatory Authority.

Financial Statements and Tools for A Project

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For analysis and appraisal of a project idea, a number of financial statements and projections are made.The financial statement and tools required for project financing are;

1) The Balance Sheet: This is a statement of balances, depicting the state of affairs or position of a business enterprise at a particular date. It is prepared as per the accounting standards of the country.

• The management of the business should ensure that the assets are used to generate profits.
•  Moreover, the balance sheet is analysed to test whether the funds provided by the manager/owner/shareholder/lender have been invested judiciously to create assets. 
• The assets so created should be able to generate the highest operating and investment returns. 
• The net income thus earned should be able to make the business self sustaining and leave a surplus for the future growth of the business entity.

2) The Profit and Loss Statement: This is an operating statement which summarizes the transactions which together result in profit or loss during a specific period of time. The method of analysis for decision making include the

• Percent of Sales Method: The individual cost components are expressed as percentage of net sales during the year and other years covering the period of analysis.
• Incremental Sales Method: An analyst derives the extent of contribution made by important expense items towards overall costs or profitability.
• Time Series Analysis: Using historical data, this analysis captures the behavior of a financial parameter sales, total expense and so on over a period of time and is useful to predict future trends.

3) Funds Flow Statement: This statement captures the movement of funds between one balance sheet and another. It enables the monitoring the end use of funds.
 Sources of Funds include:

• Increase in liabilities
• Decrease in assets
• Profit accruals

Uses of funds include

• Decrease in liabilities
• Increase in assets
• Funding of losses
• Payments like dividend and taxes

A funds flow statement is analysed to find out exceptions about whether short term funds are being diverted to funding long term expenses, whether there is a disproportionate increase in various types of inventories, whether funds generated out of business operations are increasing or decreasing and also to compare the actual statement with the projected statement and to find out the reasons for the difference.

4) Cash Flow Statement: Cash flow has a smaller connotation than 'funds'. Cash flow statement includes items that affect the cash position of a concern.
The sources and uses of cash include

• Cash generated and absorbed from Operations
• Cash from Investments include sale of fixed assets and uses include purchase of fixed assets
• Cash from financing include Equity Issues and uses include payment of dividend and transactions in debt

The analysis of the cash flow statement include whether any drastic changes have occurred in the past trends and projections of liquidity position, whether there is too little or too much cash and  how the unit will handle the seasonality.Readers may visit the post about 'Funds flow and Cash flow' to know more about the topic at http://ecoformanagers.blogspot.in/2014/04/funds-flow-and-cash-flow.html

5) Ratio Analysis: Ratios are the accounting measures of risks,profitability, liquidity, repayment capacity operating and financial efficiency. ratios are generally divided into the following categories:

• Operating and Financial Ratios
• Turnover Ratios
• Leverage Ratios
• Profitability Ratios

Readers may visit the post about 'Ratios of Financial Statements' for further explanations about Ratio Analysis at http://ecoformanagers.blogspot.in/2014/04/ratio-analysis-of-financial-statements.html

Setting Premium Rates in Insurance Products

Premium in Insurance is the price paid by the insured in exchange for indemnity that the insurance company provides on happening of events mentioned in the insurance contract. A payment schedule specified in the contract describes how and when the premium is payable.
For every insurance policy, there is an equation of value.

• Price = Benefit or Indemnity provided by the product (Monetary or Non-Monetary) + Expenses (to be incurred for sales and service)

and

• The present value of premium(s) = Present value of Benefits or indemnity + Present value of expenses

Expenses included in pricing of an insurance product include:

• Procurement Expenses: A commission is normally paid which is related to premium
• Underwriting  Expenses: An underwrites needs to take a decision whether or not to grant insurance cover. Expenses may be involved in assessing the financial status and health condition of the insured.
• Administrative Expenses: Preparing policy documents, rendering service while collecting premium and settlement of claims and also payment of salaries to employees all constitute administrative expenditure.
• Legal Expenses: These include stamp duties and litigation costs
• Miscellaneous Expenses: These include advertisement, reinsurance and taxes.

Expenses are incurred during the first year and the renewal years.

• First Year Expenses = Procurement Costs + x% of first year premium towards expenses + constant expenses per policy towards sum insured + independent expenses per policy
• Renewal Expenses = y% of renewal premium + constant expenses + independent expenses
• The expenses would cease upon termination of the contract.

Cost of benefit is the expected value of benefit or indemnity in mathematical terms.

• Cost of benefit or indemnity = = The discounted value of ( The amount of benefit or indemnity * The probability that the benefit is payable at that point of time)

American Academy of Actuaries

The aim of the American Academy of Actuaries is to serve the public and in United States in the Actuarial Profession. The academy has publications in the form of newsletters and magazines also. The academy also provides opportunities for development for its members through volunteering and service in the profession.

The academy strives to promote the actuarial profession in the international arena too.

They can be visited at :  http://www.actuary.org/category/publications/actuarial-update

A Reading List

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Hello Readers.

Here is a reading List for you

I recommend that you should visit:

http://www.economist.com/blogs

http://blogs.wsj.com/source/2010/12/30/the-best-economics-blogs/

Data and Skill Requirements of a Promoter

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The promoter plays a pivotal role in the development of a project. The project starts with the promoter.The promoter uses his business acumen and entrepreneurship after searching for potentially viable projects. Having arrive at a business idea, the promoter implements by using relevant information based on data and analysis for making a business plan, a marketing plan and a financial plan. The promoter has to assemble many types of resources like land, machinery, employees and so on.

Here are some issues handled by the promoter:

1. Pollution protective measures in compliance with the Government rules and regulations
2. Analyse and compare various investment opportunities available. Here the promoter chooses between equity and debt options.The investors need to be convinced that their money will be safe and earning the revenues expected by them.
3. Establishing milestones which serves to give a perspective on timelines. Milestones include details about the various plans, technological specification and formal resumes for important members of the management teams of promoters.
4. Presentation to lenders which include bankers and financial institutions. Projects may be presented in an audio - visual form to the top executives to develop their appreciation of the whole plan. Generally, the lenders expect a formal application for loan from the promoters. 

The application form includes the following queries:-

• Name of the Business Concern
• Location
• Constitution : Whether public or private
• Date of Incorporation/ Registration
• Sector: Public; Private; Joint or Co-operative Sector
• New, Expansion, Modernization or Diversification Project
• Name of the Industry
• Brief History
• Any court cases or litigation or other adverse feature
• Amount of Financial Assistance required with details
• Details about Capital Structure
• Details about Management 
• The Project : Particulars of the Project, Technical/Collaboration Services,manufacturing Processes,Location and particulars of Land , Building, Construction, Equipment, Capacity, Raw materials, Utilities like power water and transport requirement
• Cost of the project and means of financing
• Market trend, situation and potential, Competitors
• Production and Economic costs
• Government Consents whether obtained

The appraisal for financing the project and the appraisal of various components of the project like technology, commercial aspects and profitability are correlated. This correlation is made by the promoter. A project well planned by the promoter will enable the success of the project.

Design of an Insurance Product

An insurance product has to be simple to understand. The impetus for insurers to design a product is the expected profits. Profitability is directly related to the volume of sales.

The following guidelines can be noted while designing an insurance product:

• To whom the product is intended. The target population can be for the urban or the rural, for white collar or blue collar jobholders, for individuals of all ages and so on. 
• Who can buy the product depends on the limitations provided in the policy about a minimum and maximum age, Gender, Income and Insurable Interest, preexisting health conditions and also citizenship of a country and so on.
• How comprehensive are the features contained in the insurance policy
• The benefit structure or the indemnity provided by the policy should be easily identifiable. This will make it easier for consumers to purchase the product. 
• The commission structure also should be simple. This is necessary in order to get forth more sales.
•  Whether the distributors need special training to sell the insurance to clients.
• Whether distributors can explain the relative advantage of the insurance product as compared to other products in the market.
• The definitions provided in an insurance product should be unambiguous and easy to understand.
• The number of riders, endorsements and bonus payments should be restricted to a few as too many of these features can cause more confusion. 
• Who are entitled to receive benefits and indemnity.
• What are the remedies in case there is a problem of litigation.
• Due regard and attention is given to the concerns of stakeholders. The policyholders expect sufficient protection for themselves and their dependents, Distributors expect timely receipt of commissions,the Insurers Association would be interested to control 'sales illustrations', 'poaching' and other bad practices.The consumer forum  protects the beneficiaries and towards this end, product design should be framed in order to avoid and minimize litigation.
• Filing requirements and the solvency requirements of the insurance regulators should be adhered to.

Generally speaking, the product design should be made so that the language used in description of terms should be simple to understand , fine print is avoided so that the insurance contract and sales literature can be easily read and understood by consumers. Moreover, restrictive clauses and conditions should be avoided. Complex design also should be avoided. This is because too many endorsements, riders and too many conditions in granting a benefit will be confusing for the clients. Clauses and endorsements should be numbered. The possibility of providing liquidity of the contract through the secondary insurance market can be considered. These are the various aspects to be considered while designing an insurance product.

Project Planning

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For those interested to start or join a project, this post can help you to get a head start.
A project necessarily:

• Has a specific objective to be completed with some specifications
• Has a defined start date and end date
• Has a certain amount of funds allocated
• Requires resources like money, time and equipment 

After identifying the project that you would to like to implement successfully, here's a check list to establish the feasibility:

Technical Feasibility: 

• Location and layout of the project
• Size of the project
• Construction requirements if any
• Manufacturing process and technology
• Process and Product design
• Scale of operation
• Infrastructure facilities and Economic Situation

Economic Feasibility

• Matching economic resources with the actual requirements for the project
• Establishing the profitability of the investment
• Examining the cost estimate without compromising on quality and suitability:
• Land
• Power, water, fuel and transportation
• Raw material
• Labor
• Establishing technical and administrative personnel requirements

After the feasibility study is made the design and process of the project is then implemented. Thereafter the process of appraisal and control of the operations is required for the successful implementation and completion of the project.
All the best in your endeavor!!

Types of Insurance Products

Products that are offered for sale by General Insurers include various types of

1)Property Insurance

• Fire Insurance
• Marine Insurance - Ocean marine and Inland water Insurance
• Motor Insurance
• Other Miscellaneous Insurances

The coverage offered by Property Insurance include risks of
Fire,Windstorm, hail aircraft, vehicle damage, riot and civil commotion, explosion, smoke, vandalism, sprinkler leakage, water damage, sinkhole collapse,volcanic action earth movement and crime.

2) Casualty Insurances

• Auto liability
• General liability
• Workers Compensation
• Professional Liability
• Umbrella and Excess liability
• Package Policies
• Small accounts and Surety bonds

Coverage is offered for various types of liabilities to third parties of the Insured.
Legislation and court decisions require frequent changes to policy forms and underwriting guidelines.

Products offered by Life Insurers include:

1) Assurances: The coverage offered include benefit in the event of death besides other benefits It can be classified into two sub groups: Pure death benefit contracts also called Term Assurances and Endowment benefit contracts  which provide a death benefit if death takes place and a survival benefit during the period of contract which is also called Money Back Assurance.

2) Annuities: The product provides benefits on the event of survival at stipulated time intervals besides other benefits. It can be classified into two sub-groups: Deferred Annuity which provides an immediate annuity after a specified period called 'deferment period' and Immediate Annuity that provides a series of payments at a stipulated interval on survival.

Who buys Insurance

Insurance products are sold in the market through soliciting by distributors including insurance sales, agents and brokers. Consumers do not purchase insurance as a matter of necessity. Consumers usually need to be convinced about the usefulness of an insurance product. Insurance products are not given priority by individuals. The reasons for this include:

• Unawareness of such products
• Limited savings of potential consumers
• Facilities for the purchase of contract are not available (like sales counters, insurance offices and agents)
• The insurance product is too difficult to understand,which is not easily understood,full of technical jargon
• Products that are needed by consumers are not designed or available
• Consumers do not have enough trust on the insurers and the products sold by insurers
• Consumers prefer other financial products with savings

The segments and types of people needing insurance product include:

• Children, Youth, Old 
• Married and Single
• Men and Women
• Rich and Poor
• Individuals and Co operations

The type of insurance product required by each of the type of people will determine the insurance policy.

• General Insurance requirements include insurance for Fire, Motor, Marine and Miscellaneous risks
• Life insurance requirements include Immediate and Deferred Annuities, Money Back Plans, Unit Linked Plans , Endowment Assurances, Term Insurance and Whole Life Insurance.

Financial Management - Lectures

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How to become an actuary

A Specimen Policy Document - A money back policy

 ----------------------------------NAME OF THE COMPANY----------------------------------------

--------------------------------------------ADDRESS-----------------------------------------------------

Website------------------------

SPECIMEN POLICY DOCUMENT

The policy is subject to terms and conditions contained herein, the schedule and any attached riders and endorsements

The company agrees to pay the benefits stated under the policy upon satisfaction of the happening of the insured event, while the policy is in force and effect to the lawfully entitled person.

The effective date and number of this policy are as set out in the schedule.

Signed by and on behalf of 

-------------Name of the Company---------------

(Company's Seal)

                                                         THE SCHEDULE

1) Details of the Insured

Name of the policy holder                       Sex

Address

Identification

Name of the Life Assured (LA)             Sex

Date of birth of L.A.                              Age at entry

Address

Source of identification

2) Policy features

Date of the application                             Issuing office and policy number

Face amount of Insurance

Policy term                                               Premium paying term

Date of commencement                           Date of Maturity
of the policy

Plan of Insurance                                    
(Whether the policy
is participating or non-
participating policy) 

Insured Event on which Benefits            1) Upon death during the policy term: Face amt + accrued
are payable                                                                                                             guaranteed additions

                                                                  2) Upon survival at the end 5 years:  'x'% of face amount
                                                                  Upon survival at the end of 10 years: 'y'% of face amount
                                                                  Upon survival at the end of 15 years: 'z'% of face amount                                       Upon survival to Maturity : 40% of face value + total guaranteed additions

3) Beneficiary details

Name of the beneficiary                          Share(s)
1)
2)

4) Rider details

Name of the rider  (Accidental death benefit or term rider)
Period of Coverage
Amount of coverage
Annexure reference

5) Other special provisions/options

Guaranteed Additions: Provided the policy is in force, a guaranteed addition of Rs 'X' per 1000 of face amount will be added to the face amount at the end of each policy anniversary and will be payable either on the date of maturity or on earlier death of the life assured.

6) Premium Summary

Policy type
Base policy premium
Accidental Death Benefit
Term rider
Total premium
Mode of payment
Due date(s) of (installment) premium        
Date of last installment premium due