Post Evaluation of five major Capital Expenditures at Unilever Bangladesh Limited



Unilever is very cautious when it comes to Capital Expenditures. Detailed guidelines are set up to ensure that all of their projects do add the intended value to the company. Although the pre-implementation evaluation is usually done with due diligence, there is no practice of doing proper formal post evaluation. However, such post evaluation can be a very useful learning tool, particularly when the company plans to do further investments in short future.

In the year 2006, UBL invested more than 100 million taka as capital expenditures. Now as the company plans to double sales within the next four years; there will be further capital expenditures within the next few years. Therefore, post evaluation of 2006 projects can be particularly useful at this stage.

Before getting into details of the capital expenditure process, an overview of the organization can be useful.


 Organization Overview:The Global Unilever

Unilever is an AngloDutch company that owns many of the world’s famous consumer product brands in foods, beverages, cleaning agents and personal care products. Unilever employs more than 206,000 people and had worldwide revenue of 39.67 billion (just over US$50 billion) in 2005. With 400 brands spanning 14 categories of home, personal care and foods products, no other company touches so many people’s lives in so many different ways as Unilever. The company is one of the top 100 Fortune 500 companies in the world.

Unilever has two parent companies: Unilever NV in Rotterdam, Netherlands, and Unilever PLC in London, England. Both Unilever companies have the same directors and effectively operate as a single business. The current non-executive Chairman of Unilever N.V. and PLC is Antony Burgmans while Patrick Cescau is Group Chief Executive. Unilever’s major competitors include Procter & Gamble, Nestlé, Mars Incorporated, and Reckitt Benckiser.

The history of Unilever dates back more than 100 years. Popular food brand Margarine was first produced commercially in the Netherlands in the 1870s and by 1927 two early manufacturers, Jurgens and Van den Bergh, decided to merge their operations to form Margarine Unie. Meanwhile, in the UK, William Hesketh Lever founded his company, Lever Brothers, in 1885 and soon established soap factories around the world. In 1917, he began to diversify into foods, ice cream, acquiring fish, and canned food businesses. The Unilever Group came together in 1930 through the merger of Margarine Unie and Lever Brothers. Since then Unilever has operated as one global company.

Three regional teams are responsible for managing Unilever’s business in the regions, and for market operations. They are primarily responsible for winning with customers and deploying brand events and innovations effectively. The regions are fully accountable for the profit performance of its business, as well as growth, short-term cash flows and the in-year development of market shares.

The Europe region includes its operations in Western Europe and in Central and Eastern Europe, and in 2006 accounted for approximately 38% of its business on a turnover basis. The Americas region includes its operations in North America and Latin America and represented around 35% of its business. Its Asia Africa region accounted for 27% of its business, and includes its operations in the Middle East, Turkey, Africa, Asia and Australasia.

Unilever’s mission all over the world is to add vitality to life. UBL follow this and tries to meet everyday needs for nutrition, hygiene and personal care with brands that help people look good, feel good and get more out of life.

In line with its vision, Unilever is the mother of numerous world famous brands in three major categories, namely food, home care and personal care.

The Foods category manages brands in two main groups:

Savoury, dressings and spreads includes sales of soups, bouillons, sauces, snacks, mayonnaise, salad dressings, olive oil, margarines, spreads and cooking products such as liquid margarines and the remaining frozen foods businesses. Among the leading brands are Knorr, Hellmann’s, Calvé, Wish-Bone, Amora, Bertolli, its healthy heart Becel and Flora ranges, and its family brands including Rama, Blue Band and Country Crock.


Ice cream and beverages includes its sales of ice cream under the international Heart brand, including Cornetto, Magnum, Carte d’Or and Solero, and also Ben & Jerry’s, Breyers, Klondike and Popsicle. It also includes sales of tea, where its brands include Lipton and Brooke Bond, weight management products, principally Slim Fast, and nutritionally enhanced staples sold in developing markets, including its Annapurna and AdeS ranges.

Within these groups, the Unilever Food solutions business is a global food service business providing solutions for professional chefs and caterers. Its results are reported within those for the groups above.

Home and Personal Care category manages brands in two main groups:

In Personal Care, six global brands are the core of its business in the deodorants, skin cleansing, daily hair care and mass-market skin care categories – Axe, Dove, Lux, Pond’s, Rexona and Sunsilk. Other important brands include Suave, Clear, Lifebuoy and Vaseline, together with Signal and Close Up in oral care.

Its Home Care ranges include a series of laundry products, including tablets as well as traditional powders and liquids for washing by hand or machine. Tailored products including soap bars are available for lower-income consumers. Its brands include Comfort, Omo, Radiant, Skip, Snuggle and Surf. Its household care products are led by its Cif and Domestos brands.


Unilever Bangladesh Limited

Unilever Bangladesh Limited started its operations in Bangladesh in 1964 as a manufacturing wing of Lever Brothers Pakistan limited. In December 2004, the company aligned its name with the global identity by changing its name to Unilever Bangladesh Limited (UBL). Currently the company is one of the most reputed companies of the country with its products reaching about 90% of the households. It has 15 brands in total, with power Brands being Lux, Lifebuoy, Wheel, Fair and Lovely etc. The company has been delivering double digit growth consecutively for the last 8 years and it leads the market in almost all the categories that it operates.

The goals of UBL are:

  • § To manufacture high-standard products.
  • § Promoting products to the highest extent
  • § Producing large volume to achieve production cost economies.
  • § Enabling quality products to be sold out at obtainable prices.

The company has five departments as shown below:


Company at a Glance:

Constitution: Unilever – 60.75% share, Government of Bangladesh – 39.25%

Operations: Home and Personal Care, Foods

Product Categories: Household Care, Fabric Cleaning, Skin Cleansing, Skin Care, Oral Care, Hair Care, Personal Grooming, Tea based Beverages

Top Brands: Wheel, Lux, Lifebuoy, Fair & Lovely, Pond’s, Close Up, Sunsilk, All Clear.

Manufacturing Facility: Unilever Bangladesh has a Soap Manufacturing factory and a Personal Products Factory located in Chittagong. Besides these, there is a tea packaging operation in Chittagong and three manufacturing units in Dhaka, which are exclusively dedicated to Unilever Bangladesh.

Employees:  Over 5000 people are provided direct employment through factories, distributors and exclusive manufacturers.


SWOT Analysis of Unilever Bangladesh Ltd:



Finance Function at Unilever Bangladesh:

The role of the finance function at Unilever is to add value to the company and its shareholders by delivering sustainable bottom line and facilitating growth through selective expenditures in relevant sectors. The finance department at UBL is currently directed by Mr. Mahtabuddin Ahmed, who has a direct reporting line to the regional headquarters. Under him there are the management accounting team, the financial accounting team, and the factory commercial team.


Capital Expenditure Process at Unilever:

The substance and growth of a company is dependent on successful investment decision, both capital & revenue. While both these expenditure are important, capital expenditure which of a far greater significance because it influences the nature of the company’s long term activities and therefore has a vital bearing on the company’s future. The decision on capital investment is more complex because of the longer time gap investments and the returns, which necessitates a careful visualization in to the company’s future. It is also difficult to reverse the decisions taken to incur capital expenditure as the flexibility of the plant & equipment for alternative uses is limited.

Objectives of capital budgeting at Unilever:

  • To enable phasing of various projects to meet marketing needs as well as needs of replacement and development, modernization.
  • To enable realistic quarterly cash flow forecast for capital projects.
  • To enable assessment of needs for project management resources.
  • To enable one to see in totality the various inter connected activities, such as sales projections installed capacities, expansion projects, turnover and profits in a single meaningful document.
  • To have a broad agreement on the following program of capital investments with all concern.

Types of Capital Expenditures at Unilever:

All proposals are classified as per following categories:-

  1. Capacity expansion
  2. Cost savings
  3. Replacement
  4. Quality
  5. SHE
  6. Innovations
  7. Others

Capacity Expansion:

Proposals which are aimed at increasing manufacturing capacity of a saleable product of the unit are classified as expansion proposals. The product may be considered saleable even if it is only a transfer to another unit of the company.

Cost savings

Many proposals are put up to effect cost savings by various means. These could be mechanization, reduction in raw material usage, energy savings, and use of cheaper raw materials. Most of our modernization proposals justified on savings fall under this classification.


Proposals which are for replacement of a capital item by identical or nearly identical equipment are obviously replacement proposals. But there are certain cases where while replacing an item, Unilever also aims to affect either some increases in capacity or some cost savings



The objective of these projects is to enhance the quality of the products. It is closely linked with the Innovation proposals.


There are certain proposals which are raised for environmental reasons. This could be for protection of environment such as pollution control by effluent treatment or by dust reduction. Some proposals could be for protection of safety hazard.



There are certain proposals, which are raised for new innovations like changes in shape, color and packing etc. Launches of new products also fall under this category.


Proposals which can not be in any of the above should be termed as others. Services utility items, welfare facilities, office equipments etc. fall under this category.

  The Capital Expenditure Process:

Any project involving the purchase, modification, Hire, lease or disposal of the plant & equipment, vehicles, land & building, furniture & fittings requires authorization. Even if the projects have been included in the annual budget of the company, specific authorization is required before expenditure can be committed. The form in which the details of the projects are presented and approval for expenditure sought is known as “Capital Expenditure proposal”/”Capital Proposal”/a “CP” for short.

Unilever Bangladesh has detailed guidelines regarding the evaluation of a project. Every capital expenditure must have a capital proposal document comprising of:

Marketing Consideration:

  • Marketing Objectives
  • Market share & growth
  • Demand forecast –Elasticity of demand & price
  • Quality support /promotional inputs

Technical Consideration:

  • The current situation of leading to the need for expenditure.
  • The nature of the expenditure i.e safety, replacement, environment etc.
  • The cost detail of the expenditure and its basis
  • The benefit of the expenditure, qualitative as well as quantitative, without converting it in to a profit impact
  • The possible alternatives to the investment and the reason for not considering them
  • The risk associated with the project.
  • In case of replacement, the detail of the asset being replaced, the method of disposal and the salvage value estimates.

 Commercial consideration

  • Availability and price movement of the various constituents of production –Raw material, packing material, labour & utilities.
  • Cost of production, marketing, distribution and indirects.
  • Working capital requirements.
  • Cost of Investments in fixed assets & phasing of expenditure.
  • Impact of taxation laws
  • Impact of inflation
  • profitability of the projects-Yield /payback /NPV
  • Sensitivity & risk analysis
  • Financing arrangements-cost of capital
  • Requirement and impact of Back up capital & its treatment.

Unilever Bangladesh has a thoroughly detailed capital expenditure process that ensures that only the must needed expenditures get approved and also that the project implementation is done taking into consideration all possible alternatives and contingencies.


The process starts of with the annual operations plan that is built taking in forecasts from the sales team, production team and also the brands and development teams. Then the targets are sent to the technical team in the supply chain and they are then to decide on the delivery process of the set targets. If the production capacity is not up to the mark or if there needs some significant design alteration or installation of new devices, then the technical managers raise the Technical Appendix (TA) of the Capital Proposal. The TA is then sent to the finance team at the factory who analyses the commercial side of the proposal by analyzing the various profitability and return figures. The factory commercial team then raises a Commercial Note of the Capital Proposal. The entire CP then goes through the authorization process. If the proposals exceed country set limits, then they are sent for the authorization of Asia AMET regional headquarters in Singapore. Once the authorization is done, then the capital machineries are ordered. After installation, there is a necessary pre-commissioning audit, whereby the major requirements in terms of performance delivery and safety are checked. Once it is done, the machines are commissioned and brought to use. However, there is no formal and official post audit of the capital expenditures in practice here in Unilever Bangladesh Limited.

             Study Problem

The major capital investments taken in 2006 need to be post audited thoroughly. Such analysis will show the way for the major investments in 2007 and onwards, which is crucial if the company is to achieve its ambitious growth targets.

  Relevance of the Project

The research was very relevant as not only it enhanced my technical skills and analytical understanding but also was beneficial to Unilever Bangladesh Limited.

Although the topic seems like a completely financial in nature, it will involve the use of various statistical tools as various hypotheses will be tested. Therefore, it will be a hands-on experience on doing research work in real life.

Unilever will also be benefited as this research will enable them to identify whether the projects taken in 2006 have really met up to the expectations or not. Moreover, this may guide them in designing the formal capital expenditure post evaluation system. Since the company has ambitious growth targets in the near future, they need to do further capital investment in the coming years and therefore they would like to capitalize on the leanings from the previous projects.

   Units of Analysis:

This research has focused on post implementation audit of the five chosen investments of 2006. Comprehensive post evaluation was performed of the selected projects. The evaluations not only saw the outturns of the projects, but also evaluated management performance relating to the projects.


The projects were selected based on the following considerations:

  • § The time of completion: It was preferred to have projects that were completed early 2006. This would enable the profitability analysis of the projects.
  • § Value: Major capital proposals in terms of value were selected.
  • § Variety: Attempt was taken to keep some variety in the selection for gaining wider conceptions of the capital expenditure evaluations.

The details of the projects as reflected by their respective Capital Proposals are given below:

 Project Zeppelin:

The idea behind the re-launch of the Lifebuoy was to differentiate the products with wide number of variants each with a clear role, relevance and potential for it to be self sustaining. For that purpose a number of changes were proposed in line #4 in the soap finishing department to facilitate the production of the new variants.

The deliverables of the proposed projects were:

□        15% growth in 2006/07

□        Gain 15% value market share within 12 months of launch.

□        Strong well differentiated and self sustaining variants

It was proposed to authorize tk 23.2 million for the projects, of which 12.5 million was for CAPEX, and rest 10.7 million was for the RR2 repairs.

The project was to be completed within 18 weeks from the LC opening.

The key financial indicators were:

□        DCF yield at constant terms                                        39%

□        DCF yield at current terms                                          48%

□        NPV                                                                                  48 million

□        Payback years                                                                 3.5 yrs.-

This proposal can be termed as an innovation project, as it solely focused on launching new variants of both Lifebuoy and Lifebuoy Gold toilet Soaps.

 Plodder to facilitate manufacturing of LUX in line 5:

Line 5 of the SFD was originally designed to produce Lifebuoy soaps. However, since the capacity constrains was augmented in recent times, it was decided to undertake selected changes in order to accommodate the production of LUX in line 5 as well.

It was therefore proposed to install new Plodder Set for line 5. The projected costs were 8.9 million for Capital Expenditure and 1.6 Million for RR2 Repairs.

The profitability of the projects were calculated on the volume of Lux that would have been lost if the project was not implemented. The key indicators are as follows:

□        DCF yield at constant terms                66%

□        DCF yield at current terms                  70%

□        NPV                                                          70 million

□        Payback years                                         1.5 yrs.

This project can be termed capacity expansion project, however, it must be mentioned that gaining flexibility in operations is the main objective of the proposal.

China Tube filling Machines:

Due to the increased demand for the personal products, especially toothpastes, the then present two tube filling machines were under serious capacity constraints. Therefore, it was decided to procure one more tube filler.

The projected costs were approximately 9.5 million for plant and machinery, and 0.821 million for RR2 repairs.

The profitability of the project was calculated on the profitability of the toothpaste volume that would have been lost if the project was not undertaken:

□        DCF yield at constant terms                90%

□        DCF yield at current terms                  100%

□        NPV                                                          65 million

□        Payback years                                         1.4 yrs.

The proposal is simply a capacity up gradation project and was to be completed in 17 weeks.

    Soap centrifuge

Due to the increased demand of toilet and laundry soaps, the 14 soap setting pans were under serious capacity constraints. Therefore it was proposed to install two soap centrifuges that would not only solve the demand constraints, but also would make the soap settling process automated and efficient.

The proposal was to invest Tk 15.0M for commissioning of Toilet soap centrifuge and for appropriate capacity up-gradation of soap process.

The new facility was expected to be operational by the end of 1st qtr 2006.

The centrifuges would push back 100% utilization level up to 2012, thus providing a little more flexibility for reacting to contingencies such as sudden increase in demand.

The financial profitability was calculated based on the increased volume of soaps, both toilet and laundry variety of it.  The financial KPIs were expected to be:

DCF yield in current term      — 81%

DCF yield in constant terms —   70%

Pay Back Period                    — 1.3 Yr

NPV                                  — Tk 381M


The capital proposal was for capacity up gradation.


Eight track Subham sachet packing machine

Hair care business is a fast growing category of the company. Especially the demand of sachet pack has significantly increased over the last few years. Due to this significant demand of all sachet pack, existing five machines was not able to meet the demand, particularly in some peak months. Moreover, from the year 2007 onwards, the capacity utilization would have crossed 100% for every month.

To meet the demand of peak months, it was decided to procure another one 8 track VFFS Subham machine to pack 4ml & 7 ml pack.

The proposed machine would cost taka 6.9 million. DCF yield has been calculated on the profitability of volume loss of sunsilk 7 ml which will not be meet by existing machines.

The summary of financial analysis noted below:

DCF yield at constant terms              –51%

DCF yield at current terms               –60%

NPV                                                      –16 M

Pay back years                                     –2.5

The capital proposal was for capacity up gradation and the time estimated for the project to roll on was 18 weeks.

Research Questions:

The research will try to seek answers to the following broad questions:

–   Were the projects completed sticking to the resource limits and adhering to the Unilever policies and guidelines?

–   Did the projects deliver the financial Key Performance Indicators [KPIs]?

–   Did the capital machineries perform according to the expectations of the users and technical team?

–   Was the management coordination achieved in implementing the projects?


     Broad Objective:

“To see if the five major Capital Expenditures in 2006 have delivered all the intended benefits as suggested by their Capital Proposal Documents.”

 Specific Objectives:

[1] To see if the capital proposals adhered to company fixed policies and guidelines:


Here the test is to make a checklist of the various requirements of a typical capital proposal and then to check if the capital proposals adhered to the guidelines. There is no specific quantitative tests in this case, however, a comprehensive checklist will enable us to get a compete picture.

[2] To see if the projects were completed on time:


Time is very important when it comes to project implementations as delayed implementation may lead to potential losses to the company. Moreover, time is the indicator that the projects were completed through effective planning and management coordination. The hypothesis here is stated below:


Hypothesis:  The projects were commissioned within the timeframe as suggested by the capital proposals.

Variable: Completion dates of various milestones of the projects.

 [3] To see if the projects were completed within the authorized budget limits.


The expenditure may vary from the budgeted ones. However, if the variation is more than 15%, then the question of supplementary CP comes and the project may be delayed further. Moreover, it is essential to maintain tight control over the expenditures. The hypothesis here is:


Hypothesis:  The projects were completed within the authorized financial limits as suggested by the capital proposals.

Variable: Actual Expenditure figures.

[4] To see if the production capacity has increased as per plan for the proposed capacity upgrading projects.


The first test here is to see if the production capacity has increased significantly from the previous situation after commissioning of the projects. The hypothesis for this purpose is:

  • § Hypothesis: There has been significant improvement of the capacity after the commissioning of the capacity up gradation projects.

Variable: Volume adjusted capacity utilizations.

Our second Hypothesis for purpose is to compare the actual capacity utilization figures with the expected ones. The hypothesis is:

  • § Hypothesis 2: The capacity of the capital machineries have increased more than planned.


Variables: Projected and Actual capacity utilization figures.

[5] To see if the technical performances of the machines are as good as anticipated.


Unfortunately, the detailed analysis of the technical performance of the new capital machineries is out of the scope of this study. Therefore, no quantitative tests can be performed. However, the valuable opinions of the technical team will be used to see if they are satisfied with the performance of the machineries.


 [6] To see if the projects have delivered the financial gains as expected.

Since the projects have not lapsed much time, it would not be possible to calculate NPV. However, annual yield can be performed. The yield can then be compared with the projected yield.

  • § Hypothesis: The yields of the projects were greater than projected.
  • § Variables: Actual and projected yields.


[7] To see if the projects were completed through superior management coordination and teamwork. 


This too has to be a subjective judgment and the questionnaires from the engineers and other involved personnel will be used extensively. The ultimate objective is to see if there are any major areas where there is scope for much needed improvements.

Literature Review

Various writers have stretched the need of post mortems of the completed projects. The major point to mention here is that there is a misconception that project post mortem needs to be done only after a project goes bad. But actually a project post evaluation can help even more when the project goes well as it enables learning from the project to be disseminated as examples. The comments from various writers are asserted below:

The post audit is primarily a learning tool because it is carried out at the end of the capital investment’s life or after the investment has matured to a stable level of activity and profitability. Post audits allow us to identify the strengths and weaknesses of our capital budgeting system. Some companies construct business case histories from post-audits and use those cases in their management education programs. Monitoring and post-audit encourage managers to be accurate in the estimates used in their capital investment proposal and help counter the tendency to change numbers to make the projects look better. The information garnered from a series of post audits can result in a new look at goals and strategies. The fundamental objective of post-audit is the identification and selection of the capital investments that will make greatest possible contribution to the firm’s value and other goals.

                                                           [Neil Seitz]

The Post Implementation can provide useful feedback to project appraisal and strategy formulation. For example, ex-post assessment of the strengths and weaknesses of cash flow forecasting of past projects can indicate the level of confidence that can be attached to current investment projects. If projects undertaken in the past within the current framework of firm’s current strategic plans do not prove to be as lucrative as predicted, such information can prompt management to consider a thorough review of the firm’s current strategic plans.

 [Don Daynanda, Richard Irons]

A post-mortem is paramount to the success of all projects down the road.

Depending on the size of your organization, the methodologies you use, and the outcome of the project, post-mortem can be a relatively painless process. It can also be a very involved process that brings together people from all corners of the organization, from those who worked directly on the project to those responsible for budgets.

The post-mortem is an end-to-end review of the project from its conception to its delivery. A thorough post-mortem will call on the involvement of personnel beyond the developers who made the project work. Issues with procurement must be addressed; finance people must be involved to keep the budget and the budget of future projects in line with the product.

A formal process will make it easier to find what went wrong, even in a project that was largely successful.

The entire post-mortem process should not only be open to everyone who was involved with the project, but should be conducted in front of the group. In those cases where some sort of disciplinary action is required, that should, of course, be done one-on-one.

A good post-mortem after a bad project relies requires honesty and a willingness to improve, both of which can be inspired by a good leader. Some organizations that have well-defined methodologies might also have something in place to ensure that any action that needs to be taken as a result of a post-mortem is done. Together, strong leadership and process that ensure improvements are made will increase the likelihood of successful projects.

[Post-Mortems Key to Successful Future Projects by Michael Pastore]

Various surveys were conducted to see the rate and reasons behind projects, particularly the IT projects. A few mentionable are:

Most significant of these was the Bull survey done on IT projects. The results are as follows:



Research Methods

 Basic methodology

The research will comprise both qualitative and quantitative aspects.

Firstly, the relevant persons, particularly the engineers, were interviewed to see if they believed the projects have lived up to their expectations or not. The timing, expenditure patterns was also observed to see if the projects were implemented with due diligence adhering strictly to company guidelines.

For the quantitative part, the various variables indicating the performance of the projects were identified and statistical tests was performed to see if there were any discrepancies between the expected and actual outcomes. Moreover, a similar test was performed for the various assumptions made in the capital proposals to see if the assumptions were actually valid or not.

Source of Primary Information:

  • The interviews with the engineers and finance officers at the Chittagong factory.
  • Questionnaires sent and received by e-mail.

Source of Secondary Information:

  • MFG Pro: ERP system at the company
  • Abacus: Financial Analysis Software
  • Monthly Results booklets
  • Internet
  • Books
  • Journals and magazines.

[Please see the reference section for the list of materials.]


There was not much scope and need for sampling for this particular research. All the data available were used without performing any random or stratified selection.

 Data collection

Data on the following variables were collected.

–   Completion time of the projects

–   Costs

–   Production Volumes

–   Capacity utilization

–   Sales

–   Profits


 Statistical Considerations

Confidence Level was 90% for all cases where probability theories came into use.

Data analysis

Since most of the analysis will be simple comparison between two data series (expected and actual or before and after), the major statistical tools were:

  • T-tests
  • Chi square test
  • Kolmogorov-Smirnov Test.
  • Regression.

The z-test was never used as in most of the cases the sample size was smaller than 30.

Descriptive analysis was the major part of the research, particularly when it came to assessment of management performance. Some financial tools such as IRR were also used.


Most of the statistical tools used did not retrieve reliable results due to the lack of data for two reasons:

  • In many cases the projects had not lapsed much time and therefore there were only few data points after the projects.
  • Some data were not available as they are not stored.

Despite the limitation, the analysis should still be able to provide some amount of validity and reliability.

Research Findings

 Adherence to Policies and Guidelines:

 Our first objective was to see if the capital proposals adhered to company fixed policies and guidelines.

For this purpose a checklist was developed to see if the capital proposals contained all the necessary parts as suggested by the capital asset guidelines. The results of the checklist are shown below:


Table 3: Adherence to the Capital Guidelines

Therefore, it can be seen that:

  • Almost all of the capital proposals lacked details as far as marketing considerations are concerned. Although the marketing objectives are reflected in the Operation Plans (OPS) upon which the capital proposals are being built in the first place, by restating the marketing objectives, the importance of the capital expenditure can be reinforced.
  • None of the CPs under review had alternative considerations defined in them. This can be a major issue as without it, the decision makers do not get the complete picture. Moreover, by showing alternatives and the reasons why they were dismissed, the chosen capital expenditure gains more credibility.
  • The availability and price movements of raw materials are seldom defined. There should be at least some graphs and pictorial representations of what the price movements of the raw materials are.
  • Other than these factors, the cps are all well organized and sufficiently detailed.

Completion within time:

The second objective was to see if the projects were completed on time


Table 4: Completion times of the projects

Unfortunately, this was a major limitation of this report as the actual and specific dates of the various milestones were not found. However, estimated dates of when the CP was raised and when the projects were actually commissioned are available. Therefore, the following descriptive analysis can be made:

Although the hypothesis can not be authentically tested statistically, simply by looking at the variance figures, we can say that all the projects suffered from significant amount of delay.

However, No specific area of delay could be identified. Talking to the capital asset manager in Unilever it was evident that there is not much sense of meeting the deadlines especially when it comes to capital expenditures. Management efforts are mostly focused on the implementation of the short term projects and as a result, the capital proposals are often sidelined and therefore take long time for getting authorized.   For example, the authorization of CP is normally projected to take 1 week. However, in the case of project Zeppelin for example, it took nearly 4 weeks. Moreover, the lead time for manufacturing and transporting often exceeds significantly. The reason the huge delay of commissioning of Soap centrifuge was due to the wrong projection of manufacturing lead time. In similar manner, purchase order processing, commissioning, etc all usually are delayed.


 Adhering to Budget Limits:

The third objective was to see if the projects were completed within the authorized budget limits.

The actual costs of the capital investments were available as shown in the following table.


Therefore, from the descriptive table it shows that the actual costs of the projects are usually significantly lower than the authorized capitals. The following Chi-square test supports the evidence:

H 0:     The actual costs of the projects were same as estimated costs.

H 1:   The actual costs of the projects were less than estimated costs.

The Chi2 results are as shown below:


Therefore at 90% confidence level, we can not reject the null hypothesis that the actual costs of the projects were same as the estimated ones.

However, it must be said that the company is largely successful for keeping their cost of projects under control. The success factors here are:

  • Tight budgetary control minimizing every scope of wastage or misuse of funds.
  • Careful selection of suppliers: The equipment suppliers are chosen with extensively detailed analysis and taking recommendations from regional partners.
  • Often purchase of reconditioned instead of brand new machineries.


 Capacity Increase:

Our fourth specific objective was to see if the production capacity has increased as per plan for the proposed capacity upgrading projects.

Most of the projects undertaken at Unilever Bangladesh Limited are capacity up gradation projects. Therefore, it is particularly essential to see if the projects undertaken do increase the capacity to the extent that was planned. Capacity improvement can best be measured with capacity utilization figures. The more the pressure on capacity, the higher is the capacity utilization figures.

Capacity utilization depends upon two factors:

  • The Production Volume
  • The actual capacity of the machines

For our research, the capacity up gradation of only Plodder for line five and China tube filling machine were tested. The rest of the projects were not included, as:

  • 8 Track Subham Machine was commissioned on March 2007. And therefore, there is not enough data to test if the production capacity has increased significantly.
  • Soap Centrifuge was commissioned in end of May 2007. Therefore, here too, there is not enough data to test if there had been significant differences.
  • Zeppelin had nothing to do with capacity up gradation.

The first test is an descriptive one, whereby the average capacity utilizations were compared with the volume of production (of equal time frame) and a simple comparative analysis was performed:

Following are the charts give us a picture of the before and after status of the projects:



Utilization = Average Capacity Utilization

Volume =       the proportionate figures keeping the time period fixed for both the before and after situations.

Efficiency Ratio = Volume / utilization

Therefore, the figures show that Plodder has actually made the production efficiency go up as well as the capacity. However, in case of Wuxi (china tube), the production efficiency has actually gone down a little.

The point to keep in mind is that this production efficiency not the same as production capacity. The capacity, on the other hand, may have gone up for both the projects. That however, will be tested next:

The first test here is to see if the production capacity has increased significantly from the previous situation after commissioning of the projects. The hypothesis for this purpose is:

  • § Null Hypothesis: The capacity of production has remained the same as before the capital expenditures.
  • § Alternate Hypothesis: The capacity of production has increased after the capital expenditures.

For this test, the volume increase factor had to be taken out of the equation. Therefore, all throughout, an average volume was considered and the capacity utilizations were adjusted accordingly. This initial calculation is as follows:

1)    Firstly the volumes of before the projects were calculated. Then the average was taken.

2)    This average figure was considered the volume throughout the entire timeframe under consideration.

3)    The after project capacity utilizations were divided with the average volume after the projects and were multiplied by average volume before the projects.

4)    Thereafter, we got two adjusted capacity utilization figures, before the investment and afterwards. The rest of the test was a simple comparison of means through t-test.

The two derived capacity utilization figure data were entered into the statistical package software and a comparison of means was performed.

The t-test outputs from the software are as follows:






From the charts, we can very clearly see that the capacity has actually increased, and that for high level of volume, the capacity utilization was actually within controllable limits. The flatter the curve, the better is the capacity, and our curves show clear improvements.

Our second Hypothesis for purpose was to compare the actual capacity utilization figures with the expected ones. The hypothesis was:

  • § Null Hypothesis: The actual capacity utilization is same as estimated capacity utilization.
  • § Alternate Hypothesis: The capacity of production has increased after the capital expenditures.

Here however, only one (Wuxi) of the capital expenditures could be tested, because:

  • As the projects were always delayed, the projection time has elapsed and now comparing the data with the actual ones will lead to misleading results.
  • As for Project Wuxi, only partial calculation for five months was possible.

The results of that are shown below:


Therefore, it can be seen that the actual capacity utilizations are not significantly different from the projected ones in case of Wuxi.

  Technical Performance:

Our next objective was to see if the technical performances of the machines are as good as anticipated.


The detailed analysis of the technical performance of the new capital machineries was out of the scope of this study. Therefore, no quantitative tests can was performed. The results of the survey form the engineers were the only source of primary information.

The results are shown below:


Figure 4: Technical Performance of the machines

In general the engineers were satisfied with the machines and as a result, they all marked satisfied when asked how satisfied they were. However, the results show that they were not so satisfied with the serviceability of the machines and they perceived it to be very difficult to repair the machines.


There were though some complains from the engineers and all of them were minor ones that they themselves later fixed.


Financial Gains:

The Objective here was to see if the projects have delivered the financial gains as expected.

Since the projects have not lapsed much time, it would not be possible to calculate NPV. However, annual yield can be performed. The yield can then be compared with the projected yield.

  • § Hypothesis: The yields of the projects were greater than projected.
  • § Variables: Actual and projected yields.

After detailed calculation of the projects that have actually lapse some amount of time, the following profitability results can be calculated


Therefore, it is seen that not all the projects were as profitable as projected by their capital proposals.

  • Plodder has been a major success. This project has actually lead to far greater use than anticipated. Line 5 has been extensively used for production of Lux soaps.
  • Project Zeppelin has been a loss project. The re-launch of Lifebuoy has been a failure in all senses.
  • Project Wuxi has been moderately successful. However, not up to the projection.
  • The profitability of the rest of the projects could not be calculated as they have not lapsed much time.
  • Unfortunately, 3 profits figure is too small to draw any statistical inference. Therefore, the hypothesis was not tested.

Management Coordination:

Our final objective was to see if the projects were completed through superior management coordination and teamwork.

This too has to be a subjective judgment and the questionnaires from the engineers and other involved personnel will be used extensively. The ultimate objective is to see if there are any major areas where there is scope for much needed improvements


The major findings from the survey are:

  • § Speed has always been a major issue, and the engineer survey also shows that.
    • § There is clear evidence that there is no goal ambiguity as far as the capital proposals are concerned. People involved very clearly know what is expected of them.
    • § Another poor performing field is planning. There seems to be lacking in planning and scheduling of the entire capital projects. This can very rationally be deduced from the delay in completion of every project.

The open ended questions directed towards the engineers received some feedback and suggestion:

  • § Cross functional team to be developed from PP & Engineering for any project in PP.
    • § Co-ordination with other department like Accounts, Buying, Safety & Quality to be improved.

Therefore, it is evident that although there are clear task definitions during the projects, there can be further improvement of planning and cross functional co ordinations.

Conclusion & Recommendation:

Unilever Bangladesh has been one of the most successful organizations of the country due to sound strategic decisions and their superior executions. However, since the business is projected to grow even further in the coming years, there is no feasible and profitable alternative increase its in-house production capacity by selectively investing in its supply chain. Therefore, right execution of capital proposals will be a major issue for the company in years to come.

After the analysis of five major capital expenditures of 2006, it is evident that the projects are being implemented keeping the control factor in mind. As a result, most of the projects met their budget restrictions, but none actually met the projected timelines. Therefore, the following can be recommended for Unilever Bangladesh Limited:

  • Frequent Project Post- Mortem: Project post evaluation is not just necessary when the project goes wrong, but rather is equally important when the projects go right. Therefore, Unilever should make it a practice to perform project post evaluations of at least 10 projects every year. Ideally someone from the Chittagong factory should do it.
  • Structured Format: There should be a structured format of the post evaluation. The standardized format should be used for all the post evaluations. [A recommended form is attached in the Appendix].
  • Modification of the capital expenditure process: The capital process should go through some slight modifications to incorporate:
    • Active role of the brand managers
    • Time Limits
    • Enhanced Communication
    • Cross functional teamwork.

The following chart shows the proposed process:


  • Developing cross functional teams: There should be the use of actual cross functional team. The team should comprise of at least:


  • Brand Manager: His task would be to raise the marketing appendix; and also ensure quick processing of the authorization of the CPs when they come to Dhaka.


  • Technical: The role of the technical team would be to do the research, raise the technical appendix and later the installation, testing and commissioning of the capital machineries. This team should also have within itself members from the safety team, Quality Assurance team etc.
  •  Factory Commercial: He should prepare the commercial appendix as usual. Most importantly, he should record the timelines of completion of every project milestones.
  • Alternatives: Alternatives should always be described. Alternatives should include:
    • Alternative processes
    • Alternative Suppliers


  • Time limit: There must be time limits defined and it must be strictly monitored. The factory commercial along with help from the brand managers should ensure the process. Every major milestone should be recorded.
  • Calculation of risk:  The risk for every project should also be calculated; at least qualitative measures should be adopted. For example: The risks of the project zeppelin can be assessed by:

Project: Zeppelin


Table 10: Risk Analysis

However, when the managers are not sure about the risks of any project, they can use the structure shown in the appendix.

Lastly, what can be recommended is the slight change in overall psychology regarding the capital expenditure process, and so that the capital expenditures get the same amount of priority as does the short projects, and attempt should be taken to implement the proposed capital expenditures as early as possible.