Improvement of the investment project management
mechanism in KAZZINK LTD
Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017
Grishaev Ilia, Kazakh-American Free University, Ust-Kamenogorsk, Kazakhstan
Trofimova Yulia, Kazakh American free university, Kazakhstan
The implementation of investment activities is inextricably linked
with the production and strategic development of the enterprise. The production
equipment used at present is annually subjected to physical deterioration and
obsolescence. Over time, the equipment needs major repair or replacement for
similar or more modern equipment. Scientific progress does not stand still and
allows to use more efficient equipment and technological methods of production.
It is necessary to develop and maintain an up-to-date methodology
for managing investment activities in order to develop the enterprise and gain
maximum benefit from the modernization of the production base.
The main criteria of an effective mechanism for managing investment
projects are the availability of:
- qualified members of project teams;
- carrying out of examinations on feasibility studies and conclusions
of project groups;
- control by the top management of the company;
- the necessary conditions for the planning and implementation of
- system of motivation and development of employees.
"Kazzinc" LTD is one of the largest enterprises of the Kazakhstan mining and metallurgical branch. The company conducts planning and management of
investment projects, which is carried out according to the internal standard
for project management based on the management of PMBoK.
A new unit - the Project Support Office (PSA) appeared in 2012 at
Kazzinc, which is engaged in the formation of a mechanism for managing
The duties of this unit are:
- support and development of the internal standard for project
- development and updating of instructions and recommendations to
- providing all stakeholders with reliable and up-to-date
information on the status of projects;
- attestation admission to the design work;
- screening of projects in accordance with the company's internal
- control over the implementation of investment projects;
- checking the execution of documents for compliance with internal requirements;
- examination of the feasibility study and passports of business
- preparation of a consolidated plan for the acquisition of
- drawing up a consolidated capital construction plan;
- identification of opportunities and methods for improvement in
planning and project management .
Planning of strategic development of the company and control over
investment activity is carried out by members of the investment and technical
council, which includes general and executive directors, chief specialists in
the areas of the company's activities.
The main objectives and functions of the investment and technical
- definition of strategic objectives and priorities of the
enterprise in investment activities;
- development and approval of an investment plan (portfolio of
projects) for the next year;
- support of the current investment plan of Kazzinc LTD and ensuring
its transparency for all participants of the investment process by Kazzinc LTD,
Kazzinc Holdings LTD, Glencore International AG, JSC “Tau-Ken Samruk”;
- consideration of feasibility study-1 or feasibility study-2 on the
initiative of the members of the investment and technical council;
- approval of new projects - projects which are not approved by the
budget of capital construction for the current year should be sent to the
investment and technical council for approval and decision-making on additional
financing in accordance with the guidelines for approval;
- consideration of the current course of investment activities -
projects which are approved by the annual budget and having a feasibility study
and project documentation are carried out according to the approved plan. The
course of execution of investment activity is considered at the investment and
technical council in a notification procedure and with the adoption of the
- adjustment of the investment plan, taking into account changes in
external and internal factors affecting its implementation (market prices,
adjustments to the company's strategy and priorities, inability to implement
projects in accordance with the approved plan).
The main criteria for evaluating projects are:
- compliance with strategic objectives;
- economic efficiency;
- ensuring the implementation of approved production plans;
- renewal of fixed assets;
- environmental aspects;
- personnel safety;
- social aspects.
Following the results of the meetings, the Investment and Technical
- determines the priorities for the implementation of projects;
- produces the necessary redistribution of funds;
- decides whether to launch new projects, suspend or close projects;
- makes a decision to change the capital construction budget of the
current year .
All capital construction projects at Kazzinc LTD are classified by
budget. In accordance with this, we have compiled Table 1, which shows the
project budget, the direction of the project, the presence or absence of
accompanying project management documents (business idea passport (BIP),
feasibility study (FS)), statistical data on budget deviations, among completed
projects according to this classification.
We conducted an analysis of the budget planning of investment
projects which were implemented in 2014-2016. We took the capital costs for the
implementation of several projects as an object of research. As a result of the
research, we found that projects are implemented with budget savings. In
respect that there was inflation in the country during this period, it is
difficult to say whether these economic indicators reflect the real situation.
In addition to the analysis of budget planning, we carried out an
analysis of calendar planning, which revealed that most of the projects, we
investigated, were implemented in violation of deadlines. The average
arithmetic deviation in terms of the projects under consideration was 53.7%,
which indicates that scheduling at the enterprise is not effective. Since calendar
and budget planning are closely related to each other and are determined by estimate
calculations, inefficient scheduling calls into question the effectiveness of
Based on the results of the study of calendar planning, we
identified and classified the main causes of deviations (Table 2).
Table 2 shows that only 25.64% (exchange rate difference, weather
conditions, changes in legislation) are uncontrollable. Another 15.38% (supply of
equipment, contractor failure, emergency situation) could reduce the likelihood
of implementation by tightening penalties when concluding contracts. 7.69% are
related to difficulties in choosing a contractor due to the complexity and
specificity of the work performed. The remaining 51.29% are related to the
implementation of project planning.
Starting from the results of Table 2, we identified two potential
causes of inefficient planning:
- not sufficient/incorrect motivation of employees;
- lack of knowledge among employees engaged in project activities.
Current bonus for the implementation of the project occurs
single-time for the fact of the project implementation, provided that the
project was implemented without violating safety procedures, without violating
the quality of the project, within the time frame, within the budget.
The bonuses are shown in table 3 .
Considering the average duration of the project, from the moment of
completion of the design and survey work to the commissioning, we consider such
a bonus system as not effective. The average estimate of the project
implementation is shown in Table 4.
We recommend dividing the premium part into 2 directions:
- bonus for execution within the terms;
- bonus for execution within the budget.
It is necessary to realize the bonus in stages. It will allow better
control over the budget and calendar bonuses of the project. Beside additional
control, this system will allow to stimulate the project teams make everything
on time, not to postpone.
The bonus should be carried out according to the formula (1):
where B – bonus for the project stage;
AMS - average monthly salary;
n - percentage in accordance with the bonus table.
The percentage of remuneration for projects without an economic effect
is determined in accordance with Table 5.
Table 5 can be used for unscheduled projects, provided that n will
be multiplied by a factor of 0.5 in the calculation formula. Thus, it will not
be profitable to implement unscheduled projects for the project team members.
They will try to reduce their number to a minimum. Projects with direct
economic effect should be awarded in accordance with Table 6.
We recommend an additional bonus if the actual economic effect has
been increased. Awarding for projects with an economic effect between members
of the project team is carried out equally. It is recommended to make an
additional bonus at a rate of 1% of the difference between the actual and
planned NPV for the whole project group after the approval of FS-4.
This is calculated by formula (2):
where BNPV - bonus for increasing
NPVa – NPV actual;
NPVp – NPV
n - number of participants in the project team.
Based on the above table
5, tables 6 and tables for unscheduled projects, it can be seen that the
implementation of projects with direct economic effect is much more profitable
for all participants of the project groups. Comparison of the premium of
projects without economic effect, projects with direct economic effect and
unplanned projects are shown in Table 7.
Table 7 shows that we are proposing an increase in the total premium
for the implementation of the project. This increase is justified by a phased
bonus. In our opinion, it is possible to achieve the optimal interest of
project managers and project team members in such a distribution of premium.
Despite the increase in total bonuses, the probability of completing all stages
of the project without any deviations is not great.
1. Regulations on the project support office of Kazzinc
LTD dated 09.02.2016;
2. Regulations on the Investment and Technical
Council of Kazzinc LTD dated 15.02.2016;
3. Regulations on awarding project groups of Kazzinc
LTD dated 10.03.2016.
Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017