Laser-engineered net shaping, referred to as LENSTM process, is an additive manufacturing technique for building metallic parts, layer by layer, by direct deposition of metal powders in a melt pool created by a focused laser beam. The process involves rapid melting and solidification of a controlled amount of injected metal powders as a laser beam scans over each layer building the structure from the bottom to the top. Due to its unique capability to deposit precise amounts of powder material at a desired location, the LENSTM process finds potential application in rapid tooling, prototyping, precision repair work, and manufacture of complex, intricate components with varying compositions. The peak temperature and thermal cycle experienced by each layer influence the final mechanical properties and dimensional accuracy of the part. An understanding and quantitative knowledge of the peak temperature, melt pool dimensions, and thermal cycles experienced in the deposited layers are essential for a priori selection of the process parameters in LENSTM technique. It is important to ensure that the deposited layers have the desired dimensions, good interlayer bonding, and requisite mechanical properties. In an attempt to understand the process parameters to be used in achieving the desired nature of deposition, a three-dimensional model is developed based on finite element method to numerically simulate heat transfer phenomenon in LENSTM process considering deposition of SS316 powders on a substrate of the same material. The computed temperature profiles are first validated with experimental results reported in the literature. The influence of process parameters on peak temperature, thermal cycles, and melt pool dimensions are studied subsequently. The continuous movement of laser and synchronized activation of elements depicting addition of powder particles are incorporated through an externally written user subroutine and using the element deactivation and activation features in the commercial finite element software ABAQUS 6.7. A unique non-dimensional parameter specific to LENSTM process is defined considering the combined influence of process parameters and material properties. The non-dimensional parameter is further used to serve as a guideline for the selection of appropriate process parameters that can result in a steady melt pool dimension, thereby ensuring a target layer width with good interlayer bonding.