Project

Management
(MGMT3192)

YIRGA G…
 CHAPTER ONE
General Introduction
Learning project management can help you
complete projects on time, on budget, and on
target.
Project management is not just for project
managers. Team members need to know how
carry out their parts of the project and
executives need to understand how to support
project management efforts in the
organization.
Projects help us make desired changes in an
organized manner and with reduced
probability of failure.
Faster, cheaper, and better have become the
concern of not only profit-making organizations
seeking to increase market share and profits but
also non profits and governmental organizations
seeking to increase their value to clients.
Companies are always in transition now,
remodeling and reorganizing to meet the latest
global challenges.
Competition is keen and only the flexible ones will
survive.
These business conditions translate directly to the
greater demands for efficient and effective
management of an entire spectrum of projects.
Organizations are increasingly using projects to
meet their goals.
 What Is a Project?
A project is a temporary endeavor undertaken
to create a unique product or service.
Temporary – Definitive beginning and end.
A project has a definite beginning and definite end.
Each activity, and the entire project, has a
start and stop date.
The duration of a project is finite.

Unique – New undertaking, unfamiliar ground.

A project has never happened exactly in the

same way before, and it will never happen again under
the same conditions.

Projects involve doing something that has not

been done before in the same environment.
A project is an investment activity in which
financial resources are expected to create
capital assets that produce benefits over an
extended period of time.

Projects can be large or small and take a short

or long time to complete.

A project ends when its objectives have been

reached, or the project has been terminated.
Examples of Project
• Developing a new product or service.

• Constructing a building.

• Construction of a bridge or a road.

• Effecting change in a structure of an organisation.

• Designing a new vehicle.

• Developing or acquiring a new or modified information

system.
• Building a water system for a community.

• Organizing a meeting (Hosing conference).

• Planning a wedding.
A major misconception about a project is
relating it to only construction or creation of
such physical facilities as buildings, roads
and dams. However, project may involve
intangible things such as

- Creation of awareness
- Eradication of diseases
- Combating harmful practices
- Capacity building
 Project Features
 Temporary

A project has a definite beginning and definite

end.
Each activity, and the entire project, has a
start and stop date.
The duration of a project is finite.

 Unique

A project has never happened exactly in

the same way before, and it will never happen
again under the same conditions. Exact project has
not been done before

Projects involve doing something that has not

been done before in the same environment.
 Progressive elaboration

Project is developed using progressive elaboration (A

project occurs step by step to define the product or service) .

 Requires resources

 Have a primary customer or sponsor

The project sponsor usually provides the

direction and funding for the project.
 Uncertainty

Involves uncertainty (Detail requirements may not be

known in advance).
 Integration
Project Requires resources to be brought together in
a process.
 Project Vs Program
Programs and projects serve as instruments for
the execution of development plans in order to
boost the national economy.

A program is a collection of related projects.

Programs comprise multiple projects, they are

larger in scope than a single project.
For instance, a health program may include a
water project as well as construction of a
health center; both aimed at improving the
health of a given community that previously
lacked easy access to these essential facilities.
Note that projects can stand alone
without being part of certain program.

Projects, which are not linked with

others to form a program, are
sometimes referred to as “stand alone”
projects.
The hierarchical relationship among
development plans, programs, projects,
tasks, and work packages is depicted below:
Development Plans

Programs

Projects

Tasks

Work packages
 What is Project Management?

Project management is the application of

knowledge, skills, tools and techniques to
project activities to meet project
requirements.

Project management is the art of planning,

organising, leading, reporting and
completing a project through people.

All management functions are required to

effectively and efficiently manage resources
required to complete the project.

The objective of project management is to

optimize project cost, time, and quality.
How Does Project Management Benefit
you?
You will have goal clarity and measurement.

Your resources will be coordinated.

Your risks will be identified and managed.

You will increase the possibilities of time savings.

You will increase the possibilities of cost savings.

You will increase the possibilities of achieving the
agreed outcome.
You will increase the possibilities to deliver
projects successfully.
 Project Manager
The project manager is the person assigned to
manage a specific project, who is expected to
meet the approved objectives of a project,
including project scope, budget, and schedule.
The project manager has overall responsibility
for planning, organizing, integrating,
controlling, leading, decision-making,
communicating, and building a supportive
climate for the project.
It is the responsibility of the project manager to
make sure that the customer is satisfied that
the work scope is completed in a quality
manner, within budget, and on time.
Team members. The people who work with the project
manager to accomplish project goals and complete
project activities.
 A Good Project Manager
Takes ownership of the whole project
Is proactive not reactive
Adequately plans the project
Is Authoritative(able to be trusted as being accurate or
true; reliable.) (NOT Authoritarian)
Is Decisive(having or showing the ability to make decisions quickly and effectively )
Is a Good Communicator
Manages by data and facts
Leads by example
Has sound Judgement
Is a Motivator
Is Diplomatic
Can Delegate
 Critical Success Factors of A project
Factors that are critical to project success:
1. Clearly defined goals and project mission
2. Top management support
3. A competent project manager
4. A competent project team
5. Sufficient resources
6. Customer involvements and consultation
7. Good communication
8. Responsiveness to customers
9. Proper monitoring and feedback
10. Appropriate technology
CHAPTER TWO
Project Life Cycle
Before any project is actually realized it goes
through various phases.
Therefore, the different phase through which a
project passes constitutes what is often called
“the project cycle”.
Project cycle is logical sequence of activities
to accomplish the project’s goals and
objectives.
A project cycle is a sequence of events, which a
project follows.
 Phases of project life cycle
1. Initiation phase
2. Planning phase
3. Implementation phase
4. Closing phase

 A clear understanding of these phases

allows managers and executives to
maintain control of the project more
efficiently.
Project Life Cycle
 Initiation Phase
This can also be referred to as the
Conceptualization Phase and is the starting point
of any project or idea.

The phase where a problem that the project is

trying to solve is identified and potential solutions
are suggested.
Define the Problem (What is the problem?):
Identify the problem to be solved by the project.
What client need is being satisfied by the project?
Will the development of a project solve that
problem? It helps to visualize the desired end
result.
Develop Solution Options: How many different
ways might you go about solving the problem?
Of the available alternatives, which do you
think will best solve the problem?

This is also the phase where the project’s value

and feasibility are measured.
 Planning Phase
 Once the project receives the green light, it
needs a solid plan to guide the team, as well as
keep them on time and on budget. We should
recognise that adequate project planning is
essential.

 It is the phase where a project plan is develop.

 In this phase, the project team identifies all of the
work to be done, prepared the schedule, and
estimated the costs.

 Adequate planning leads to the correct completion

of work. Inadequate planning leads to frustration
towards the end of the project and poor project
performance.
 Implementation Phase(Execution)
This can also be referred to as the Execution
Phase.
Once the plan is developed, it must be
implemented.
•You can achieve your end result successfully
through implementing developed plans.
•During project implementation, people are
carrying out the tasks, and progress information
is being reported regularly.
 Progress is continuously monitored and
appropriate adjustments are made .
If a deviation from the plan is discovered, you must ask
what must be done to get back on track, or—if that
seems impossible—how should the plan be modified to
reflect new realities?
 Closing Phase
 The final phase is also called Termination Phase.
 Conclude a project efficiently and effectively.

 During this phase, the emphasis is on passing

on the project to customer, handing over
project documentation, terminating contracts,
communicating the closure of the project to all
stakeholders and Preparing the lessons learned
document.
 Project Life Cycle

Initiation Planning Implementation Closing

20% 60%

5% 15%

Percentages and graph refer to the amount of effort expended.

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 Some models of project cycle
1. world Bank
2. DEPSA’s Project Cycle
3. UNIDO

The world Bank (Baum) Project Cycle

 The first basic model of a project cycle is that of
Baum model (1970), which has been adopted by the
World Bank
 The World Bank lends to different countries to Projects
ranging from infrastructure, education, health and
government financial management.
 In practice, the World Bank and the borrowing country
work closely throughout the project cycle although
they have different roles and responsibilities.
The world bank suggested the following
stages:
1. Identification
2. Preparation
3. Appraisal
4. Negotiation and approval
5. Implementation
6. Evaluation
 1. Identification
The borrowing country and Bank analyze
development strategies generate project ideas.

Projects are identified that are financially,

economically, socially, and environmentally sound.
Based on sector work and country strategies, the
World Bank and borrowing countries jointly identify
projects that support their development goals.
The first stage in the cycle is to find potential
projects.
Some sources of projects are given here.
Some may be “resource based” and stem
from the opportunity to make profitable use
of available resources.
Some projects may be “market based”
arising from an identified demand in home or
overseas markets.
Others may be “need-based” where the
purpose is to try to make available to all
people in an area of minimal amounts of
certain basic material requirements and
services.
Well informed technical specialists and
local leaders are also common sources of
projects.
Technical specialists will have identified many
areas where they feel new investment might be
profitable,
local leaders may also have suggestion about
where investment might be carried out.
 Ideas for new projects also come from
proposals to extend existing programs.
In general, most projects start as an
elementary idea.
Eventually, some simple ideas are elaborated
into a form to which the title “project” can
be formally applied
 2. Preparation(pre – feasibility or feasibility
studies)

 The borrowing country is responsible for project

preparation.

 Clients conduct studies and impact assessments that

refine the objectives, components, schedule,
institutional responsibility and prepare final project
documentation.

 The Bank, on the other hand, starts to determine the

conditions required for the project to succeed and for
the Bank to be satisfied the project will have positive
economic, financial, social and environmental impacts.
Once projects have been identified, there
begins a process of progressively more
detailed preparation and analysis of project
plans.
At this stage the project is being seriously
considered as a definite investment action.
Project preparation (project formulation)
covers the establishment of;
A. Technical
B. Economic and
C. Financial feasibility
Project design and formulation is an area in
which local and international consultants are
very active especially for big project that
cover large areas and have big budgets
 3. Appraisal
• The Bank is solely responsible for project
appraisal.
• Bank staff review the work done during
identification and preparation.
• They will review all the studies conducted in
previous stages. such as
After a project has been prepared, it is
generally appropriate for a critical review or
an independent appraisal to be conducted.
This provides an opportunity to re-examine
every aspect of the project plan to assess
whether the proposal is appropriate and
sound before large sums are committed.
Appraisals should cover at least seven
aspects of a project, each of which must have
been given special consideration during the
project preparation phase:
Technical – here the appraisals concentrate
in verifying whether what is proposed will
work in the way suggested or not.
• Financial – the appraisals try to see if the
requirements for money needed by the project
have been calculated property, their sources
are all identified, and reasonable plans for their
repayment are made where necessary.
• Commercial – the way the necessary inputs for
the project are conceived to be supplied is
examined and the arrangements for the
disposal of the products are verified.
Incentive – the appraisals see to it whether
things are arranged in such a way that all
those whose participation is required will find
it in their interest to take part in the project,
at least to the extent predicted in the plan.
Economic – the appraisal here tries to see
whether what is proposed is good from the
viewpoint of the national economic
development interest when all project effects
(positive and negative) are taken into
account and check if all are correctly valued.
• Managerial – this aspect of the appraisal examines if
the capacity exists for operating the project and see if
those responsible ones can operate it satisfactorily.
Moreover, it tries to see if the responsible are given
sufficient power and scope to do what is required.

• Organizational – the appraisal examines the project if

it is organized internally and externally into units,
contract policy institution, etc so as to allow the
proposals to be carried out properly and to allow for
change as the project develops.
 4. Negotiations and Board approval
After project appraisal, negotiations between
the Bank and the borrower country enter the final
phase.
During this phase, the bank and borrower come
to an agreement on the terms of the loan and the
project is presented to the Board for approval.
 5. Implementation
Project implementation is the responsibility of the
borrowing country, while the Bank is responsible
for supervision.

The World Bank’s role is to monitor project

implementation to ensure that the terms of the
loan/credit agreement are followed and that
procurement is conducted according to the World
Bank’s guidelines.
The objective of any effort in project planning and
analysis clearly is to have a project that can be
implemented to the benefit of the society.
Thus, implementation is perhaps the most
important part of the project cycle.
Recording, monitoring and progress reporting
are important activities during the
implementation stage.
project implementation must be flexible
 6. Evaluation
Following completion of the project, the Bank’s
Independent Evaluation Group conducts an audit of
the project, where the project's outcome is
measured against its original objectives.

Reports are then submitted to the executive

directors and the borrower.
 2. DEPSA’s Project Cycle
•According to the Guidelines to project planning
in Ethiopia (1990) of Development Project
Studies Authority (DEPSA), the project cycle
comprises three major phases.
• Pre – investment
• Investment and
• Operation
Each of these three phases may be divided
into stages. The Guideline has divided the
Project cycle into six stages
Identification
Preparation
Appraisal/decision
Implementation
Operation
Ex-post evaluation
The pre – investment phase consists of the first–three
stages, the investment phase includes the fourth
stage and the operation phase covers the last two
stages
 The UNIDO Project Life Cycle
The United Nations Industrial Development
organization (UNIDO) is the specialized agency of
the United Nations that promotes industrial
development for poverty reduction, inclusive
globalization and environmental sustainability.

The following phases are the project life cycles

according to UNIDO:

1. Pre-investment phase
2. Investment Phase
3. Operation phase
 1. Pre- Investment Phase

Opportunity study( identification of project ideas)

Pre-feasibility study (preliminary project
formulation, selection of alternatives)
Feasibility study (techno-economical project back
ground, final project formulation stage)
Evaluation report ( decision making about project
availability)
 2. Investment Phase

Investment (implementation) phase involves

Technological acquisition and transfer
Detailed engineering design and contract, including
tendering, evaluation of bids and negotiations
Acquisition of land, construction work and installation
Pre-production marketing, including the securing of
suppliers and setting up the administration of the firm
Recruitment and training of personnel and
Start-up
3. Operation phase
Replacement of equipment
Liquidation
 CHAPTER THREE
Project Identification
Project identification is the selection of
projects, which are acceptable for financing.
Every project starts with an idea, which is
provoked by a need or a problem that has
been insufficiently solved or not solved at all.
It begins with the conceiving of ideas. These
ideas are then transformed into a project.
Most project ideas will abandon at a very
early stage.
Project ideas conceived by:
Individuals
Groups of individuals (community)
Local leaders
NGOs
Policy makers
Planners
Government organizations
International development agencies

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 Sources of Project Ideas
It is important to have a great idea first.
Project ideas are generated through different
sources.
Organizations should try to enhance people's
creativity, scan the entire business
environment and appraise the company’s
strengths and weaknesses to generate a large
number of ideas.
In order to discuss the sources of project ideas
it is important to know the industry in which
the project is taking place.
For example, the source of project ideas in a
school could come from the students and/or
teachers. In the workplace, project ideas
could come from managers, team leaders
or other employees. Other sources come
from yourself (an individual), reading, interest
in a topic or problem, and talking with other
people.
Organizations should also analyze the
business environment that consists of the
economic sector, the governmental sector,
the technological sector, the socio-
demographic sector, the competition sector
and the supplier sector.
 Sources of Project Ideas
 Development plans made by government
 Sectoral strategies and programmes
 Surveys conducted by local government and regional
organizations
 Reviews of past projects
 Private sector plans
 R & D (Research and Development) department
 Multilateral or bilateral development agencies
 Unusual events such as droughts, floods, earth – quakes,
hostilities, etc.
 Workshops
 Universities
 Development experiences of other
countries
 The desire of local community to enhance
their economic status and improve their
welfare
 Unsatisfied demand or needs
 The existence of unused or underutilized
resources
 Advertisings
In addition,
• Individual inspiration
• Employees
• Customers
• competitors
• Distributors, Suppliers, may generate some
interesting project ideas.
 Screening Project Ideas

Once a list of project ideas has been

generated (put forward), they should be
carefully screened.

Select one or more potentially promising

project idea(s).
This, calls for a quick preliminary screening
by experienced professionals who could
also modify some of the proposals.
During the screening to eliminate ideas,
which are not promising, it is required to
look into the following aspects:
 Coherence with strategic priorities of
implementing agencies and donors
 Consistency with government priorities

 Availability of inputs

 Adequacy of market

 Reasonableness of costs

 Acceptability of risk level

 During selection, the analyst should
eliminate project ideas that:
 Are risky,
 Have no market for the output,
 Have inadequate supply of inputs,
 Are very costly in relation to benefits,
 Assume over ambitious sales and
profitability.
 Methods for Identifying New Project
Ideas
Interview: Interviews with a fixed set of
(open) questions.
Focus group discussion: Interviews can also
be conducted with groups. Arguments
expressed in groups offer valuable insights
and allow a great deal of information to be
collected in a short time.
Workshop:
Brainstorming and SWOT Analysis are two
techniques widely used in workshops.
Brainstorming is a creativity tool, which was
developed to elicit new, fresh ideas and as
such it is very suitable for looking for
opportunities and solutions to problems. It
works best in medium-sized groups of 8 to 20
people that are familiar with the situation
and have a genuine interest.
CHAPTER FOUR
Project Preparation
Project preparation is a study to decide whether the identified project is
attractive enough to go for implementation.
Project Preparation consists of all the work necessary to ensure that a proposed
project is feasible and appropriate and that it can be successfully
implemented.
This stage involves a more thorough exercise of collecting data and
information on the proposed project.
The exercise is performed by personnel with technical skills in consultation with
the beneficiary community.
 Why is Preparation Important?
Systematic and effective Project Preparation is
important for a range of reasons outlined below:
 Project risks are managed and controlled.
 Scarce implementation resources are optimally utilized and are
only allocated to viable projects.
 Provides valuable information for a “go/no-go” decision
 Narrows the business alternatives.
 Identifies a valid reason to undertake the project.
 Projects are supported by the key stakeholders (including the
community, municipality, funders and implementation
partners).
 Government and other funders can predict and therefore
manage their cash flows by enhancing the predictability of
project outcomes and timeframes for implementation.
Project preparation includes:
 Markets and Demand Analysis
 Raw Materials and Supplies Study
 Technical Analysis
 Location and Site
 Environment Impact Assessment (EIA)
 Raw Materials and Supplies Study
 Technology Selection
 Financial and Economic Analysis
 Organizational and Human Resource
 Markets and Demand Analysis
Market and demand analysis is conducted to know
about the market share that the proposed project
will enjoy and aggregate demand for the product or
service.

This analysis helps management determine if they

can successfully enter a market and generate
enough profits to advance their business operations.
Objectives of Market and Demand
Analysis
To identify potential consumers or
buyers.
To indicate the total current demand.
To identify the pattern of demand
temporally as well as geographically.
To know customers’ willing to pay for
the proposed services or product.
To identify appropriate channels of
distribution for the product.
The analysis cover mainly:
• Aggregate demand for the proposed product
• Market share of the project under appraisal (The
share of unfulfilled demand
• Potential Buyers
• Market price of product
• Level of competition (Analysis of competitors, their
strength and weakness)
• Distribution channel/mechanism
Source for Market related Information

Collection of Secondary Data

Sources of secondary data: National
Sample Survey report, census, plan
report, statistical abstracts, economic
surveys industry potential reports by
various agencies & website of industry
associations, web-sites of relevant
ministry, other information available in
public domain, etc.
Conducting a market survey
The key steps in market and
demand analysis are as follows:
Situational analysis
Gathering secondary data
Conduct of market survey (primary
data)
Market classification
Demand forecasting
Market planning
Raw Materials and Supplies Study
 Concerned with defining the materials and
supplies required, specifying their properties, and
setting up their supply program.
 Basis for the selection of materials
and input is the demand analysis and
the production program and finally
plant capacity.
 Supply Marketing and Supply program
Supply Marketing

Cost minimization, risk minimization

(reliability of suppliers) and the relations
with supplier.
Cost Minimization
Input costs can be reduced by selecting
appropriate suppliers and by choosing a
proper volume and frequency of the orders.
Risk minimization (reliability of
suppliers)
Reliability with regards quantities, qualities,
deadlines and prices is significant for the entire
manufacturing process.

Relations with suppliers

Establishing smooth and productive relations
with the suppliers
Building up maximum bargaining power
 Supply Program
A supply program should deal with
Identification of supplying sources and
supplies
Quantities and qualities
Agreement and regulations
Consignments
Means of transport
Storage
Risk assessment
Costs of Raw Materials and
Supplies
- unit costs,

- annual costs and

- overhead costs
 Technical Analysis
The technical analysis is used to establish whether
or not a project is technically feasible.
The technical feasibility analysis should consider
various aspects of a project as follows:
 Project Design
 Selection of the production process
 Specification of equipments
 Buildings
 Engineering works
 Choice of technology
 Standards
 Plant layout
 Project location and site
 Production Plant Capacity
 Size of project
 Location, Site, and
Environmental Assessment
Determine the location and the site suitable
for a project.
Location and site are often used
synonymously but must be distinguished.
Location refers to a fairly broad area (a
region, a city, an industrial zone) while site
refers to a specific piece of land where the
project would be set up.
 Location and Site Analysis
Location and site analysis determine the location
and the site suitable for a project.

Location and site are often used synonymously but

must be distinguished.
Location is fairly broad area like a city,
town, an industrial zone, region, country.

Site is a specific piece of land where the

project would be set up.
Requirements to be identified in
location analysis:
 Natural environment
 Geophysical conditions

 Raw materials availability

 Availability of labor (skilled and

unskilled)
 Incentives and restriction

 Government plans and polices

 Infrastructure services

 Urbanization and literacy

 In the selection of location, you should
consider:
 The availability of raw materials and inputs.
 The proximity to raw materials & centers of
consumption.
 The existence of basic infrastructure
facilities
The optimal location is where the total
cost (raw material transportation cost plus
production cost plus distribution cost for
final product) is minimized.

A resource based project like a cement

plant or a steel mill should be located close
to the source of basic material (limestone
in the case of cement plant and iron- ore in
the case of a steel plant).
A project based on imported material may
be located near a port.
 Site Selection
Main Considerations
The following factors determine the
selection of the final site
Cost of land
Site preparation cost
Cost of utility lines extension
Environmental considerations
Size and shape of the available area
Suitability for future extension
Proximity of centers of consumption (market
orientation)
Infrastructure facilities (transport network,
houses, power supply etc.)
Availability of labor in the area
Socio – economic factors
Distance to seaport (import and export)
The cost estimates at the site are
Acquisition of land
Taxes
Legal expenses
Site preparation and development.
 Environmental Impact Assessment (EIA)
Environment includes the conditions under
which any individuals or thing exists, live or
develop.
Environmental Impact Assessment is concerned
with the identification, prediction and
evaluation of the impact of the proposed project
aimed at eliminating or minimizing damaging
impacts and optimizing beneficial impacts.
EIA will lead to a decision to accept, modify or
reject a project.
 Purpose of the Assessment
To identify and assess any potentially adverse
environmental effects of a new development.
To make sure that the adverse impacts could be
avoided or reduced.
To ensure that environmental consequences were
taken into account during planning, designing and
decision Making process.
To influence how it is subsequently managed during
its implementation.
 Stages of EIA process
- Identifying of various potential impacts of
the project on the environment
- Predicting of the extent of the
environmental changes.
- Assessing of whether or not the identified
and predicted changes are of any
environmental significance.
- Planning of mitigation measures or
alternatives that could reduce the project’s
environmental impacts.
EIA report normally include the following
information:
The impact the project would have on the physical environment.

Any possible pollution of the soil, of waters of all kinds such as

surface, underground, costal and of the atmosphere.

The impact of the project on wildlife, the natural habitat and all
other ecological factors.

The project’s likely influence on the qualities of life of the local

populations.

Any influence the project may have on existing industry and

employment.

Any need that may result for new or improved infrastructure

such as utilities, transport, housing, school recreational
amenities etc.
 Technology Selection

Determination of the appropriateness of

technology for the project.

The required machinery and equipment

must be determined in relation to the
technology to be utilized, the local condition
and human capabilities.
Factors should be taken into
consideration are as follows:
The projects ability to utilize local resources.
Its wider application. Consider easily adaptable
technology.
Sustainability. There should be adequate services or
maintenance facilities for the selected technology.
Reliability.
Implementers and beneficiaries ability to operate
the chosen technology.
Cost-effectiveness of the chosen technology in
comparison to the alternatives.
 Organizational and Human Resource
In general there are three basic types of organizational
arrangements for implementing a project as appropriate
1. Functional organization. This involves the use of existing
structural lines within an organization. This structure is
suitable for small projects where co-ordination across
functional lines is liable to be less problematic.
2. Projectised organization. This involves the creation of
separate and self-contained organization with special
goal of project implementation. This form of structure is
often set up for large and complex projects. It will be
banded when the project is completed.
3. Matrix organization. This form of structure integrate
both the functional and projectised organization.
 Human Resources
Identify the requirements (with sufficient skills
and experience) and assess the availability of
human resources as well as the training needs.
The successful operation of a project will
ultimately depend on the skill, experience and
productivity of workers and management.
Financial and Economic Analysis
Financial Analysis
The financial analysis is one of the analyses to
be conducted in a feasibility study and is
normally undertaken after the market and
technical analysis.

The objective of the financial analysis is to determine

the financial viability of the project.

This analysis determines if the project is a

profitable investment, especially to the
individuals or agencies undertaking the
investment. If it is not profitable, then it will be
financially prudent to consider alternative
investments to maximize the use of capital and
other resources.
Financial viability can be judged on the
following parameters:
Total estimated cost of the project
Sources of project finance
Projection of Sales and Cost of Production
Projected balance sheet, profitability, and
cash flow.
A) Cost of project:
Conceptually, cost of project represents the total of
all items of outlays associated with a project. It’s
the sum of the outlays on the following:

Land and site development costs

Building and civil works costs
Plant and machinery costs
Technical know-how and engineering fees
Expenses on foreign technicians and training of technicians
abroad
Miscellaneous fixed asset
Preliminary and capital issue expenses
Working Capital
Pre-operative expenses e.t.c.
B) Sources of project finance:
Share Capital: there are two types of share capital,
namely equity capital and preference capital. Equity capital
represents the contribution made by the owners of
business, the equity shareholders, who enjoy the reward
and bear the risks of ownership. Preference capital
represents the contribution made by preference
shareholders and the dividend paid on it is generally fixed.
Term loan: are provided by financial institutions and
commercial banks.
Debenture capital: debentures are instruments for
raising debt capital.
Deferred credit: many a time the suppliers of the plant
and machinery offer a deferred credit facility under which
payment for the purchase of the plant and machinery can
be made over a period of time(Hire purchase).
Incentive source: the government and its agencies may
provide financial support as an incentive to for setting up
industrial units in certain locations.
Other sources
C) Projection of Sales and Cost of Production
i) Projected Sales
Typically, the starting point for profitability projections is
the forecast of sales revenue.
ii) Cost of production
The major components of cost of production are:
Material cost which comprises the cost of raw materials,
chemicals, components, and consumable stores required
for production.
Labor cost which is the cost of all the manpower employed
in the factory.
Utility cost consists of power, water and fuel determined
based on norms or consumption standards in the industry.
Factory overhead cost: the expenses on repairs and
maintenance, rent, taxes, insurance on factory assets, and
so on are collectively referred to as factory overheads.
D) Balance Sheet, Profitability, Cash
Flows and Projections
Given the estimates of sales revenue and cost of
production as discussed above, at least it is fair to
provide projected Balance Sheets, Income
Statements and cash flow projections for the life of
the project.
Financial evaluation

 Payback period of the project (PBP)

 Accounting rate of return (ARR)
 Net present value (NPV)
 Internal rate of return (IRR)
 Profitability index (PI)
 Economic Analysis
Cost and benefits to the society or to the
nation due to the proposed project are
considered in the economic feasibility test.
Thus, economic feasibility is also called
Social Cost Benefit Analysis (SCBA).
Cost-Benefit analysis (CBA) deals with
financial or profitability analysis whereas
Social cost-benefit analysis (SCBA) deals with
the benefit the society will get or the cost the
society has to bear.
Tax revenue, generation of employment,
foreign earnings, savings and investments,
distribution of income and such other
factors, differentiate economic feasibility
from financial viability.
Economic aspect addresses the project’s
impact and its worthwhileness from the
viewpoint of the whole society.
The government and government agencies
calculate the economic indicators of a
project before permitting the project or
financing it.
 Political Feasibility
Political viability of the area/country where the
project will be established is an important facets
of feasibility study.

There are two types of politics to be considered:

Internal and external.
Internal politics this is related with internal
political stability.
The second type of politics is external politics
related to regional political stability.
 Stakeholders Analysis
Stakeholder analysis is the process of identifying the people,
groups, communities and institutions who/which are liable
to be affected in some way by a proposed project.
Stakeholder is a person or group of people who have a
vested interest in the success of a project and the
environment in which the project operates.

Typical Stakeholders
- Project Sponsor - Steering Committee
- Project team - Customer
- Supplier - Contractor
- End User - Environmental Agency
- Community - Functional managers
Once these stakeholders have been identified it is important
to establish key information about them such as their
interests, potential impact (negative or positive) on the
project, the relative importance of their interest.

The influence and importance of the stakeholders in terms

of achieving project objective should be considered.

Key stakeholders are those who either have a significant

influence over a project, or who are important in terms of
meeting project objectives, or both.

When dealing with participation it is important to determine

their involvement in terms of inform, consult, partnership,
or control.
 CHAPTER FIVE
PROJECT PLANNING
Planning is an essential part of project
management.
Planning determines what need to be done,
who will do it, how long it will take, and how
much it will cost.
It is important that the people who will be
involved in performing the work are also
involved in planning the work. Participation
builds commitment.
Planning Phase Involves
Project goals and objectives
Project Scope
Work breakdown structure
Network diagramming
Scheduling (Estimate time)
Resource requirements (Distribute
resources )
Cost Estimate
 Project Goals and Objectives

The first step in the planning process is to

define the project goals and objectives. The
goals and objectives must be clearly
defined and agreed upon by the customer
and the organization or contractor that will
perform the project.
 Project scope
The project scope is the framework of a project. The
scope determines the “boundaries” of the project
and defines exactly what the project will achieve.
The project scope is the basis of the project, and all
other planning activities will revolve around the
project scope.
The project scope is usually documented as a
scope statement.
Ensure that the project includes all of the work
required, and only the work required, to complete
the project successfully.
A project’s scope should be based on the needs and
Project scope statement consists
• Project objective
• Deliverables
• Milestones
• Exclusions
•Technical requirements
• Reviews with customer
 Deliverables
A deliverable is any product, service or result that
must be completed in order to finish a project.
A deliverable is a tangible or intangible good or
service produced as a result of a project that is
intended to be delivered to a customer (either
internal or external).
The expected outputs to be provided over the life
of the project.
Something produced or provided as a result of a
process.
 Examples of deliverables
Report (Status reports, Service report Strategic report Progress report)
Proposal
Design (Design drawings, Design documents Design review, a new or
improved design)
Completed product (house, building, bridge, etc.)
Document (Tender document, instruction manual)
Software products/programs
Marketing study
Training programs
Meetings, reviews
Product quality enhancement
New equipment or tools
Better customer service
Web site/page
New knowledge or experience
Improved filing and organization systems
Improved process
 Milestones
A milestone is a significant event in a project that occurs at a point in
time.
A milestone is a reference point that marks an important event in a
project task or group of tasks.
Milestones have no duration themselves. They have zero duration
because they symbolize an achievement, or a point of time in a project.
Milestones can be used to symbolize anything that has started or
finished.
The most significant of all project management milestones, of course, is
the one that marks the completion of a project.
They help project team members and other
stakeholders stay informed about the project
status.

They can do more than just show progress—they

can help you communicate what’s happening with
your project.

They are also useful for celebrating project

achievements.
 Examples:
 The start of significant phases of a project
 The end of significant phases of a project (completing a
phase of the project)
 Approval (the initial approval/Project approval that allows the
project to move forward, design Approval final approval).
 Contract signed
 When an important decision is being made
 When building a house (The floors will be finished on Monday,
The roof will be completed on November 1 st, The gas installation
will be connected at the end of the month)
 Requirements review (When projects involve a lengthy
process)
 Exclusions
Exclusions further define the boundary of the
project by stating what is not included.
Examples:
 Data will be collected by the client, not the
contractor.
 A house will be built, but no landscaping or security
devices added.
 Software will be installed, but no training given.
 Work Breakdown Structure
After defining the objectives of the project and scope,
the next step is to break the project down into
manageable pieces in a work breakdown structure.
This requires developing a list of all the activities.

A Work Breakdown Structure (WBS) is a hierarchical tree

structure of tasks (from general to specific) that need to
be performed to complete a project.
WBS is the basis for time estimating, resource allocation,
and cost estimating.
The entire project team should be involved in
developing the work breakdown structure.

When completed, you should review the work

breakdown with the concerned stakeholders.
This is to ensure that it is complete and that
it addresses their specific concerns.
 WBS- Formats
1. Organization Chart Method

0.
Title

1. 2. 3.
Major Phase 1 Major Phase 2 Major Phase 3

1.1 1.2 1.3

Section 1 Section 2 Section 3
of Phase 1 of Phase 1 of Phase 1
2. Outline Method

0. TITLE
1. MAJOR PHASE 1
1.1 S1 OF PHASE1
1.2 S2 OF PHASE1
1.3 S3 OF PHASE1
2. MAJOR PHASE 2
...
etc.

127
Example: WBS –Equipment System
 Project Scheduling
Scheduling is determining when the tasks can and
must be started; when they must be completed;
which tasks are critical to the timely completion of
the project; and which tasks have slack and how
much.

Scheduling includes:
 DefineActivities
 Sequence Activities

 Estimate Activity Durations

 Develop Schedule
 Scheduling Tools
 Gantt Chart (Bar chart)
Gantt Chart is a popular type of bar chart that
illustrates a project schedule.
Gantt chart is a visual representation of your
project schedule.
A Gantt chart shows all of the tasks (activities) that
need to be done, the amount of time each task is
expected to take, the time frames in which
individual tasks are to be completed, and the
relationship between various tasks.

It helps get the work done on time.

 Activity A

Activity B

Activity C

Activity D

Jun Jul Aug Sep O ct N ov

Tim e
T here are m any other acceptable w ays to display project inform ation on a bar chart.
 Network Diagram
Network diagram is a graphical flow of the activities
that must be accomplished to complete the project.
It shows the planned sequence of activities, time
requirements, and interrelationships.
Drawn from left to right.
 Terminologies
Parallel activities. Two or more activities that occur at the same time.
Also called concurrent or simultaneous activities.

Sequential activities. Two or more activities that occur one after the
other. Also called consecutive activities.
Diverging Activities (Merge activity): Single predecessor with
multiple successors. This is an activity that has more than one activity
immediately preceding it (more than one dependency arrow flowing to
it).
Converging Activities (Burst activity): Multiple predecessors with
single successor. This activity has more than one activity immediately
following it (more than one dependency arrow flowing from it).
Critical path: It means the path(s) with the longest duration through the
network; if an activity on the path is delayed, the project is delayed the
same amount of time.
Event: This term is used to represent a point in time when an activity is
started or completed. It does not consume time.
 Formats of network diagram
Activity in the box (AIB)
Each activity is represented by a box in the
network diagram, and the description of the
activity written in the box.
Activity on the arrow (AOA)
In the AOA, an activity is represented by an
arrow in the net diagram, and the activity
description is written above the arrow.
 Network Diagrams
A, B, C, D, E, F are activities

A B E
Start
C D F Finish

AIB Format

B
A E
Start Finish
C F
D

AOA Format
 Example
Activity Time(days) Preceded By
A 10 --
B 7 --
C 5 A
D 13 A
E 4 B,C
F 12 D
G 14 E
Network Diagram
 Time Estimation
Estimating of time is the process of forecasting or approximating
the time of completing a project and an activity.

Estimating processes are frequently classified as top-down and

bottom-up. Top-down estimates are usually done by senior
management.

Bottom-up estimates are typically performed by the people who are

doing the work. Their estimates are based on estimates of elements
found in the work breakdown structure.

Accuracy is improved with greater effort. Inaccurate estimates lead

to false expectations and customer dissatisfaction.

Increase estimates if workers will be distracted by other

responsibilities or interrupted by other projects. It takes the worker
more time to complete his or her work because time is wasted shifting
between projects.

Increase the estimates when using less-skilled workers or workers

with whom you have little experience.
Duration Estimate
Duration estimate is an estimate of how long each
activity will take, from the time it is started until
the time it is finished. This duration estimate for
each activity must be the time for the work to be
done plus any associated waiting time.

Start and Finish Times

It is necessary to select an estimated start time and
a required finish (completion) time for the overall
project. Also estimate start and finish times for each
activity.
 Determine earliest and latest times
Earliest start time for activity (ES)- How soon can the
activity start?
Latest start time for the activity (LS)- How late can the
activity start?
Earliest finish time for the activity(EF)- How soon can
the activity finish?

Latest finish time for the activity (LF)- How late can the
activity finish?
Forward Pass—Earliest Times (ES and EF)
The forward pass requires that you remember
the following when computing early activity
times:
- You add activity times (duration) along each path in
the network to compute early finish (ES+DUR =EF).
- You carry the early finish (EF) to the next activity
where it becomes its early start (ES).

- The next succeeding activity is a merge activity. In

this case you select the largest early finish number
(EF) of all its immediate predecessor activities.
 Backward Pass- Latest Times (LS and LF)

The backward pass is similar to the forward

pass; you need to remember three things:
- You subtract activity times along each path starting
with the project end activity to find the late start (LF–
DUR=LS).

- You carry the LS to the next preceding activity to

establish its LF, unless.

- The next preceding activity is a burst activity; in this

case you select the smallest LS of all its immediate
successor activities to establish its LF.
 Determining Slack (or Float)

When the forward and backward passes have been

computed, it is possible to determine which
activities can be delayed by computing “slack” or
“float.”
Total slack or float for an activity is simply the
difference between the LS and ES or LF and EF
Slack = LS - ES or Slack = LF – EF
After slack for each activity is computed, the critical
path(s) is (are) easily identified. The critical path
can be identified as those activities that also have
LF = EF or a slack of zero (LF - EF = 0), or LS - ES =
0).
 Schedule for a Project
Total
Respons Earliest Latest
Activity Duratio Slac
ibility Start Finis Star Finish
n k
h t

1 A Jim 10 0 10 0 10 0
2 B Jim 7 0 7 10 17 10
3 C Susan 5 10 15 12 17 2
4 D Abera 13 10 23 10 23 0
5 E Kebe 4 15 19 17 21 2
6 F Amare 12 23 35 23 35 0
7 G Amare 14 19 33 21 35 2
 When Expected Activity Times are
Uncertain
Optimistic estimate- the longest time for each task
(to), most likely- the mean value of the estimates
of each task (tm), and pessimistic estimate- the
shortest time for each task (tp) time estimate for
each activity. te= Estimated time (PERT
Estimating) t o  4t m  t p
te 
6

2
 t p  to 
 2
 
 6 
 Example
Activity Preceded By to tm tp te 2
A -- 2 6 7 5.50 .694
B -- 5 7 9 7.00 .44
C A 3 5 6 4.83 .250
D A 10 10 10 10.0 0.000
E B,C 3 4 5 4.0 .111
F D 8 12 13 11.5 .694
G E 2 4 8 4.33 1.000
Network Diagram with Expected
Activity Times and Variances

[5.5, 2 [10, 0.0] 4

0.694]
D [11.5, 0.694]
A F
1 C [4.83, 6
0.250]
B
[7.0, G
0.444] E [4.33, 1.0]
3 5
[4.0,
0.111]
Expected Completion Time and
Variance of Path A-D-F

Expected completion time = 5.5 + 10 +

11.5=27
 Assigning Resources
The best project plan in the world cannot be
accomplished without the right people,
materials, and equipment at the right place
at the right time.

150
 Consider the following principles when assigning
resources:
 Schedules are meaningless unless the right resources are
available when the activity is scheduled to begin.
 If you cannot get the right resources at the right time, you
may need to replan.
 Do not assign the wrong person to the job just because no
one else is available at that time. Assign the most appropriate
people to each activity.

Identify the skills required for each activity and recruit individuals
who best meet the skill requirements. You don’t want to assign an
entry-level editor to do a job specified for a senior editor. Likewise,
you usually would not assign a senior (and higher paid) editor to
do a job that could be accomplished by an entry-level editor.
 Assign scarce resources to activities on the critical path first.
 Obtain firm commitments from team members,
functional managers, and senior management.
 Too few people on a project cannot solve the
problems; too many people can create more problems
than they solve.
 It may be necessary to increase the project duration
to get the right resources at the right times.
 Project Cost Estimates
The project cost estimate is allocated to the
various work packages in the WBS.

The budget for each work package is

distributed over the duration of the work
package so that how much of its budget
should have been spent at any point in time.
 Allocating Total Budgeted Cost (TBC)

The amount allocated to each work package

represents the TBC for completing all the activities
associated with the work package.

When the budgets for all the work packages are

summed, they cannot exceed the total budgeted
cost of the project .
The Work Breakdown Structure with the total
budgeted cost for each work package
 Developing Cumulative Budgeted Cost

Once a TBC has been established for each work

package, the second step in the project budgeting
process is to distribute each TBC over the duration
of its working package. A cost is determined for
each period based on when the activities that make
up the work package are schedule to be performed.

When the TBC for each work package is spread out

by time period, it can be determined how much of
the budget should have been spent at any point in
time.
Example: WBS for packaging machine with
TBC

Packaging
Machine
$100,000

Design Build Install & Test

$24,000 $60,000 $16,000
 Budgeted cost by period for the packaging
machine project (In thousands)

Work Week
package TBC 1 2 3 4 5 6 7 8 9 10 1 12
1
Design 24 4 4 8 8
Build 60 8 8 1 1 1 10
2 2 0
Install & 16 8 8
Test
Total 100 4 4 8 8 8 8 1 1 1 10 8 8
2 2 0
Cumulative 4 8 1 2 32 4 5 6 7 84 92 10
6 4 0 2 4 4 0
 Project Plan
The end result of your planning phase is a document called the project plan.

A project plan is "a formal, approved document used to guide both project
execution and project control.

The project plan may be made up of lots of subsidiary plans. These include:

A plan for managing the human resources.

A plan for managing costs and the budgeting.
A plan for procurement
A plan for communications
A risk plan for dealing with project risk
A quality plan that specifies the quality targets for the project.

That’s a lot of documentation. In reality, it’s rare that you’ll produce these as
individual documents. What you need is a project plan that talks about the
important elements of each of these.
 CHAPTER SIX
PROJECT
IMPLEMENTATION
After you have successfully passed the planning phase, it is time for real
action- to start the project implementation (or project execution) phase,
the third phase of the project management life cycle.

It is usually the longest phase in the project life cycle and it typically
consumes the most energy and the most project resources.

The implementation phase turns project plan into action.

Project implementation is a process whereby project inputs are converted

to project outputs.
The implementation phase is where project team actually do the project
work to produce the deliverables.
Implementation tends to be complicated in practice by many
unforeseen problems.
You should not expect the project to be implemented exactly
as planned.
Flexibility is, therefore, required at this stage to enable the
successful execution of the project.
No matter how good the original plan is, there will always be
some deviation during implementation.

This should be anticipated, and the aim of project

management is to track this deviation, make sure it stays
within the scope of the project, and redirect activities to get
back on track. Never allow activities to go outside the
approved scope of the project.
Define margins and the scope for variation that can be
tolerated to achieve objectives with the available resources.
Project implementation involves:
 Establish and manage the project team.
 Manage other resources.
 Performing the activities needed to meet the project
objectives.
 Contracting procurements.
 Recommend changes and implement approved changes.
 Hold meetings.
 Communication.
 Control project objectives
 Reporting.
 Manage risks.
 Monitoring performance.
 Give recognition and rewards to team members and keep
them motivated.
 Communicating Project Plans
Be sure to communicate project information to all stakeholders: the project
team, functional managers, senior management, and customers.

Present the appropriate level of detail to each group. Management may be

interested in summary-level information whereas team members need much
more detail.

Be sure to cover all areas of planning, including:

 Statement of the project objectives
 Work breakdown structure
 Logic network diagrams
 Schedules for individual activities and the project as a whole
 Charts showing estimated costs and projected cash flow
 Managing Team
It is the people—the project manager and the project team— that are critical to
accomplishing the project objective.
In project management, the skills and knowledge of the people involved are vital
for producing the result.
Project Manager
The project manager is a key ingredient in the success of a project. It is the
responsibility of the project manager to make sure that the customer is satisfied
that the work scope is completed in a quality manner, within budget, and on
time.

The project manager has primary responsibility for providing leadership in

planning, organizing, and controlling the work effort to accomplish the project
objective. In other words, the project manager provides the leadership to the
project team to accomplish the project objective.
In addition to providing leadership, the manager should
possess a set of skills that will both inspire the project team to
succeed and win the confidence of the customer.

Effective project managers should have strong leadership

ability, the ability to develop people, excellent communication
skills, good interpersonal skills, the ability to handle stress,
problem solving skills, and time management skills.
Project Team
Teamwork is the cooperative effort by members of a team to
achieve that common goal.

A project team is more than a group of individuals assigned to

work on one project. A project team is a group of interdependent
individuals working cooperatively to achieve the project objective.

The effectiveness—or lack thereof—of the project team can make

the difference between project success and project failure.

The project manager and the project team are the key to project
success; project success requires an effective project team.

Therefore, you should be familiar with the development and

maintenance of an effective project team is necessary.

Helping these individuals develop and grow into a cohesive,

effective team takes effort on the part of the project manager and
each member of the project team.
 Communication
Communication in a project takes place between the project
team and the customer, among the project team members,
and between the project team and its upper management.

Communication may involve two people or a group of people.

It can be oral or written. It can be face to face or involve
some medium, such as phone, voice mail, e-mail, letters,
memos, videoconferencing, or groupware.

It can be formal, such as a report or a presentation at a

meeting, or informal, such as an e-mail message.

Effective and frequent communication is crucial for keeping

the project moving, identifying potential problems, soliciting
suggestions to improve project performance, keeping abreast
of customer satisfaction, and avoiding surprises.
Project managers must be good communicators. They need to
communicate regularly with the project team, as well as with
any subcontractors, the customer, and their own company’s
upper management.

Good communication is especially important early in the

project to build a good working relationship with the project
team and to establish clear expectations with the customer.

Effective project managers communicate and share

information in a variety of ways. They have meetings and
informal conversations with the project team, the customer,
and the company’s upper management. They also provide
written reports to the customer and upper management.

All these tasks require that the project manager have good oral
and written communication skills.
The project manager should create an atmosphere that fosters timely
and open communication without any fear of reprisal, and he or she must
accept differing viewpoints.

It’s important for the project manager to provide timely feedback to the
team and customer. Both the good news and the bad news should be
shared promptly. For the project team to be effective, members need to
have up-to-date information—especially customer feedback that may
necessitate changes to the project work scope, budget, or schedule.
Personal Communication

Effective and frequent personal communication is crucial to keep

the project moving, identify potential problems, solicit suggestions
for improving project performance, keep abreast of whether the
customer is satisfied, and avoid surprises.
Listening
We learn more by listening than by talking. Therefore, good project
managers spend more time listening than talking. They don’t
dominate a conversation.

The heart of communication is not words, but understanding—not

only to be understood, but also to understand. Half of making
communication effective is listening. Failure to listen can cause a
breakdown in communication.

Listening is more than just letting the other person talk. It must be
an active, not a passive, process. Active listening increases
understanding and reduces conflict.
 Reporting
Reports should be designed to communicate exactly
what needs to be communicated.

The report includes information about activities

carried out, outputs delivered and expenditure
incurred, and problems that have been encountered.
It makes sense to focus reports on time, cost, and
scope of the project.

It is important to make reports easy to read. The first

step is to be sure reports contain only the
information needed by the recipient.
The frequency of the report submission should be decided. This
varies from project to project.
 Reporting Considerations
As you prepare reports, use the following guidelines:
 Be sure everything you publish is accurate.
 Keep all stakeholders appropriately informed, including team
members, customers, clients, functional managers, and senior
management.

Determine for each audience what information they need to perform

their functions and design reports accordingly.

Keep them informed—but not over-informed—with the information

they need to make decisions and take corrective action.
 Use exception reporting by including only major variations from the
plan. Stakeholders don’t have time to digest pages and pages of
project information, and there is little need to report on items where
status matches the plans.
 Choose the best format for the report, such as a
table, line graph, histogram, or bar or Gantt chart.
 On each report, clearly state the purpose of the
report and the action to be taken.
 Highlight main achievements
 Report on time.
 Control Project Objectives

Control is the process of comparing actual performance to the

baseline to determine variances, evaluate possible alternatives,
and take the appropriate corrective action.

Consider the following actions to control time:

 Systematically collect performance data
 Compare this status information with the baseline
schedule.
 Analyze variances to determine their impact.
 Determine a course of action.
 Take corrective action.
 Managing risks
Risk is anything not in the project plan that may
occur and cause your project to be late, cost more or
compromise its quality/performance.

Project risk is an uncertain event or condition that, if

it occurs, has a negative effect on a project objective .

Risk is a potential negative impact to project.

Risks are internal or external events that may occur
during project implementation and could threaten the
achievement of project objectives and the project as
a whole.
Identify risks and outline contingency measures for when they
happen. This process involves three steps:

1. Identifying risks

To identify risks you can look at possible sources of risk or at

the threats/problems that can become risks. Sources include
the team members, stakeholders, sub-contractors, target
groups, etc. Problems could be, for example, a change in the
political environment or the loss of money through inflation.

A good way to identify relevant risks can be an open brain-

storming session at meetings on ‘What can go wrong?’’
Concerned ones should be involved in this process to a) raise
their awareness about possible risks, and b) to identify as
many relevant risks as possible
2. Assessing risks (Analyzing risks)

Once potential risks have been identified, they need to be

qualified according to their impact on the project and their
probability of occurring.

As with most other aspects of planning, the assessment of

probability can often only be based on assumptions and
educated guesses. The impact, however, can often be
estimated in relation to the budget and time lost or indicators
not achieved. This assessment allows projects to prioritize
risks – the ‘high risk’ decisions and actions have to be taken
first.
 Risk assessment matrix
High Medium Low Impact
Impact Impact

High Probability Medium Risk High Risk High Risk

Medium Low Risk Medium Risk High Risk

Probability

Low Probability Low Risk Low Risk Medium Risk

 Project Controls
Control means to detect and rectify errors and prevent
reoccurrence.
Controlling is essentially tracking and managing the core
project management elements of scope, quality, time and
cost.
Control keeps the whole project on-track, on time, and within
budget.
Project control monitors and compares planned objectives,
requirements, risks, schedules and budgets against what is
actually being delivered.
Control holds people accountable and prevents small
problems from becoming big ones.
Project controls provides accurate and timely
project information to project management team
that will enable them to make informed decisions
and take necessary actions to correct any possible
adverse situations or trends.

Effective project control is used to deliver timely

project information allowing managers to take
corrective measures to keep the project on track.
It is important to provide the right information to the
right people. Data which is important for project
manager could be use less for a stakeholder.
Each project should be assessed for the appropriate
level of control needed. Too much control is time
consuming, too little control is very risky.

There are three major points which have to be covered

to build up the framework for a functioning project
control system:
• What data to collect; how, when, and who will collect
them?
• Analysis of the data and
• The report of the current status
The project control Process
Basic steps of an effective and efficient project
control are:

1. Setting a baseline plan

2. Measuring progress and performance

3. Comparing plan against actual

4. Taking corrective action

 Human Aspects of Project Management

Of all the resources required to execute projects,

human resources is the most critical. All other
resources such as land, money, materials,
machinery, and others are secondary.
Human resources are the dynamic resources, and
the success of the project depends largely on the
availability and the quality of the human resources
and how efficiently the workforce uses other
resources for project execution.
The major human resource support activities
relevant to project management are
 Determining the quantity and quality of people
required for project execution
 Conducting the recruitment and training
process,
 Managing and measuring performance,
 Compensation and rewards,
 Managing leaves,
 Enforcing discipline, and
 Ensuring legal compliance.
Successful project execution depends on the
cooperation, commitment, and enthusiasm of the
workforce to perform as required, and the ability of
the project managers to manage the workforce well,
to extract the best out of the available resources.
 Monitoring and Evaluation (M & E)
Monitoring and evaluation occur during the execution
phase of project life cycle.
Although often referred to together as M&E, monitoring and
evaluation are two different terms but linked processes that apply
to many projects.
Projects with strong M & E tend to stay on track and problems
are often detected earlier, which reduces the likelihood of having
major cost overruns or time delays.
 Key Terms in Monitoring and Evaluation

Outputs are the things produced by a project or programme.

For example, include products like new or rehabilitated wells
and pumps, new latrines and training manuals.
Outcomes are the effects of the outputs, usually in the
medium-term. Example, the number of people who now have
access to safe water as a result of the new water schemes.

Impacts are long-term effects. Example, could be a fall in the

incidence of disease or improved school attendance.

Key performance indicators (KPIs). KPIs help to measure

the time, cost, and quality of the project.
 Key Performance Indicators (KPIs)

KPIs need to be defined according to critical or

core objectives.
KPIs cannot be arbitrarily selected by the project
manager; rather, the project manager applies tools
like brainstorming, interviewing, and the Delphi
technique to determine what the project's
stakeholders want the KPIs to be.
Examples of KPIs
Customer satisfaction (When the project deals directly with a client or
customer).
Employee satisfaction
Actual Cost (AC)
Earned Value (EV)
Cost Performance Index (CPI)
Cost Variance (CV)
Return on Investment (ROI)
Planned Value (PV)- (Planned % of tasks left to complete) X (project
budget)
Line Items In Budget: keep track of individual expenditures and provide a
more detailed way to see how the budget was spent.
Number of Errors: How often things need to be redone during the project.
Number of Project Milestones Completed On Time With Sign Off: (Were the
milestones completed in a timely manner and approved by the owner or
buyer?)
Cycle time (The time needed to complete a certain task or
activity).
 Monitoring
Monitoring is systematic, timely and purposeful observation
and data collection to check if project activities are being
implemented as planned.

Monitoring is collecting, recording, and reporting

information concerning project performance.

Monitoring is checking progress against plans.

Monitoring is the routine collection and analysis of project

data, specifically on project activities.

Data is collected routinely throughout the life cycle of the

project. Data collection is ongoing (weekly, monthly, quarterly,
semiannually, etc.).

It focuses on what is being done and how it is being done.

 Why do we monitor?
Simply because we know that things
don’t always go according to plan.

To detect and react appropriately to

deviations and changes to plans.
 What do we monitor?
Human resources
Money
Materials
Machines
Time
Quality
Tasks
Progress, e.t.c
Monitoring provides managers with information needed to:

• Analyze the current situation

• Identify problems and find solutions
• Discover trends
• Keep project activities on schedule
• Measure progress towards objectives and
formulate/revise future goals and objectives
• Make decisions about human, financial, and material
resources.

Monitoring is usually undertaken (done) by the people

directly involved in implementing the project. It is carried
out by the beneficiaries, the implementing staff, the
supervisory staff and the management staff.
Characteristics of an excellent monitoring
system
 Quickly provides information for corrective action
 Cost-effective
 Flexible
 Accurate
 Comprehensive
 Relevant
 Accessible
 Leads to learning
 Transparent
 Shares information up and down.
 Monitoring reports
The purpose of a project monitoring report is to provide
information to assist stakeholders in comparing performance
against plans so that potential problems can be identified and
analyzed.

Reports are only effective if they are submitted to the right

people at the right time to facilitate corrective decision
making.
A monitoring report should:

• Contain a list of the activities to be monitored

(derived from the plan),
• List the duration and deadlines for completion of
different activities,
• State the methods of monitoring the activities,
• State the current progress on steps taken so far,
• Point out any changes in the original
goals, objectives or activities and explain this change in
direction.
• State the barriers confronted, if any,
• Suggest solutions to overcome them.

The data acquired through monitoring is used for

evaluation.
 Evaluation
Evaluation is defined as an objective and rigorous analysis of a continuing
or completed project, to determine its significance, effectiveness,
impact and sustainability by comparing the result with the set of
standards.

The evaluation of a project is usually carried out periodically (mid-term,

final or post- evaluation).

Evaluations should help to draw conclusions about five main aspects of

the intervention:
Relevance
Effectiveness
Efficiency
Impact
Sustainability

Evaluation looks for lessons to be learned from both success and lack of
success, and also looks for best practices which can be applied elsewhere.
Reflections on lessons learned from past successes and failures can
be very helpful when planning future interventions.
 Types of Evaluation
Types of evaluation include:
• Interim evaluation (Mid-Term Evaluation) -This normally takes
place at some point during the life of a project, usually mid-term.

• Terminal evaluation - This assesses the progress made towards

the achievement of the pre-determined objectives at the end of
the project and provides a basis for decisions on future action. Its
findings and recommendations are often used to decide whether
or not to stop the project or when a new phase is under
consideration.
• Ex-post evaluation - This is conducted after a sufficient
number of years (depending on the project) have elapsed since
project completion so as to measure the impact. It is generally
accepted that, if the evaluations are to be objective, they have to be
undertaken by external consultants.
 Types of Evaluation
•Internal Evaluation

Evaluation conducted by a unit and/or individuals reporting to the

management of the donor, partner, or implementing organization.

•Joint Evaluation
An evaluation to which different partners and/or donor agencies
participate.

•Participatory Evaluation
Evaluation method in which representatives of agencies and
stakeholders (including beneficiaries) work together in
designing, carrying out and interpreting an evaluation.
 Types of Evaluation
•Formative Evaluation

Evaluation intended to improve performance, most often

conducted during the implementation phase.

•Summative Evaluation

Evaluation conducted at the end to determine the extent to

which anticipated outcomes were produced.

Summative evaluation is intended to provide information

about the worth of the project.
Evaluation can be internally or externally led, but
is not usually facilitated by those who implement
the project. Evaluation is best conducted by an
independent outsider who can be impartial in
consulting with project staff.
 Key Differences Between Monitoring and
Evaluation
The difference between monitoring and evaluation can be drawn
clearly on the following premises:
 By monitoring is meant a routine process (continuous activity), that
scrutinizes the activities and progress of the project and also finds out
the deviations that occur while undertaking the project. As against,
evaluation is a periodical activity that makes inferences (draw
conclusion) about the relevance and effectiveness of the project or
program.
 Whilemonitoring is observational in nature, evaluation is
judgmental.
Monitoring is conducted by internal party whereas evaluation is
conducted by internal party or external party (who can give impartial
views on the project).
 Monitoring is a short-term process, that is concerned with the collection
of information regarding the success of the project. Conversely, evaluation
is a long-term process, which not only records the information but also
assesses the outcomes and impact of the project.
 Link between planning, M&E
Without proper planning, it is not clear what should
be monitored and how.
Without effective planning, the basis for evaluation is
weak.
Without careful monitoring, the necessary data is not
collected; hence evaluation cannot be done well.
Monitoring is necessary for evaluation. Monitoring
facilitates evaluation.
 The Prerequisites for successful project
implementation are as follows:

 Adequate formulation.

Good assessment of input requirements

Deep field investigation

Using sound procedures for computing costs and benefits

Omission of project linkages

Accurate estimation of benefits and estimating costs

 Sound project organization.

Led by competent leader

Authority and responsibility are equitably

distributed

Adequate attention is paid to designing jobs

All work methods and systems are clearly defined

A culture of reward and punishment on the basis of
performance is established
 Proper implementation planning.

Estimate the resource requirements and time plan for each activity

Define inter linkage between different activities of the project

Specify cost standards

 Advance action.

Acquisition of land
Security essentials clearance
Identify technology collaborators/consultants
Arranging infrastructure facilities
Preliminary design and engineering
Calling of tenders
 Timely availability of funds.

In order to be successfully completed the project must

have adequate funds available to meet its requirements as
per the implementation plan. Proper allocation of must be
done with the help of experts.

 Better contract management.

Competence and capability of contractors must be ensured

before entering into a contract.
Project authorities must retain the power to transfer a
contract to third parties when delays are anticipated.

Effective monitoring.
Adequate system of monitoring must be established.
 CHAPTER SEVEN
SOCIAL COST BENEFIT
ANALYSIS (SCBA)
 Social cost benefit analysis

SCBA is also called Economic analysis. It is a part of

the economic analysis in project appraisal.

SCBA is a methodology developed for evaluating

investment projects from the point of view of the
society (or economy) as a whole.

All project investments have impact on society and

nations economy.
In this analysis, the direct economic benefits and
cost of the project on
- Distribution of income in society,
- Level of savings and investments in society,
- The contribution of the project towards
fulfillment of certain merit-wants (e.g.
employment, self-sufficiency etc.) are analyzed.
In this analysis, the direct economic benefits and
cost of the project on
- Distribution of income in society,
- Level of savings and investments in society,
- The contribution of the project towards
fulfillment of certain merit-wants (e.g.
employment, self-sufficiency etc.) are analyzed.
 Social costs
Social cost of staff
• Lay off and voluntary termination
• Work-related injuries
• Undesired attitude formation
Social cost of community and general public
• Increase in cost of living in vicinity due to a
project
• Consumption of state electric service
• Services and facilities consumed
• Expenditure in foreign exchange
• Environmental damage
Examples of Social cost
• Air pollution
• Water pollution
• Soil erosion
• Depletion and destruction of animal
resource
• Deforestation
• Impairment of human resources
Social benefits of staff
• Medical and hospital facilities
• Educational facilities
• Subsidized canteen facilities
• Provident fund
• Housing facilities
• Holiday, leaves
• Recreational and cultural facilities
Social benefits of community and
general public
• Local taxes paid to municipality
• Environmental improvements

• Generation of job potential

• Welfare activity for the community

• Business generation
Example

If a bridge is to be constructed then how much will it

benefit the people who live in that particular area, is
to be analyzed.
Therefore, how many people are willing to use the
bridge, how much traffic will be reduced and what is
the increase in cost of travelling, will have to be
assessed as a whole to come to a conclusion.
Suppose, if people are not willing to use the bridge if
the cost of travelling from the bridge is $5 and if $7
has to be charged per vehicle to make this project
feasible, then the government may consider dropping
the project out.
On the other hand, if people are willing to travel
using the bridge, being indifferent to the toll price-
difference of $2, and the traffic is reduced by a good
amount, then the government will sanction the
project.

Therefore, it is beneficial to take up a project if its

total benefits (B) are more than its total costs. Thus,
it can be said that if, B/C > 1 or even when B=C,
then a project can be under taken.
SCBA can be applied to public investment and also
to private investment.

In case of public investment, it plays a major role in

the economic development of a developing country.
SCBA is used primarily for evaluating public
investments especially in developing countries
where government play significant role in economic
development.

In case of private investments social cost benefit

analysis is important as investments are to be
approved and are monitored by the government.
Advantages of SCBA

• The ability to identify the projects that maximize the

welfare of the country.
• The ability to objectively assess and quantify the
purpose projects in relation to community needs.
• Ability to rank and prioritize limited resources so
that the maximum benefit is realized.
Disadvantages

• Difficulty in measuring social costs and benefits

and converting them in to monitory term.

• Over statement of the value of social benefits

• Complexity

• Conflict between social welfare and financial

justification.
 CHAPTER EIGHT
PROJECT FINANCING
Every project needs financing to implement and
run it successfully.

Project finance is nothing but sourcing funds to

a long term infrastructure project, or any other
project, and using the cash flow generated from
the project to payback the financing procured.
Project finance is the long-term financing of
infrastructure and industrial projects based
upon the projected cash flows of the project
rather than the balance sheets of its sponsors.
The debt and equity used to finance the project
are paid back from the cash flow generated by
the project.
In project finance, financial institutions can’t see
your balance sheet in case of a project. They
finance the project on the basis of the projected
cash flow. If the cash flow seems satisfactory and
beneficial to the financial institutions they invest in
the project.
The most visible characteristic of project finance is that it is non-
recourse debt.

Non-recourse loans are secured by the project assets and paid

entirely from project cash flow, rather than from the general
assets or creditworthiness of the project sponsors.
In non-recourse financing, the borrowers and shareholders of the
borrower have no personal liability in the event of monetary
default.

If the collateral sells for less than the debt, the lender cannot
seek that deficiency balance from the borrower—its recovery
is limited only to the value of the collateral.

Project finance is especially attractive to the private sector

because companies can fund major projects off-balance-sheet.
 Parties involved:
There are many parties involved in project finance. Let’s look at all
these parties in brief
Sponsors: People who sponsor the project.
Lender: Financial institutions which lend money for project.
Financial advisors: They help the parties to understand how
much return on investment they can make. They can be in both
sides – lenders or borrowers.
Technical advisors: Often for effective execution of the project,
technical consultants are hired. They act as technical advisors for
the project.
Legal advisors: As the name suggests, they help in legal matters.
Debt Financier: People who give secured loan for the project on
the basis of project assets.
Equity Investors: People who invest the money in lieu of shares.
Regulatory agencies: Generally, government authorities who take
care of the regulations in regard to the project intricacies.
Multilateral agencies: The agencies are part of the World Bank
group.
 Sources of Project Financing
There are a wide variety of funding sources available for projects.
The main sources of project finance include
 Equity

 Debt

 Grants
 Lease and hire-purchase
  Equity
Equity refers to capital invested by sponsor(s) of the
project and others.
Equity is provided by project sponsors, government, third
party private investors, and internally generated cash.
Equity providers require a rate of return target, which is
higher than the interest rate of debt financing. This is to
compensate the higher risks taken by equity investors as
they have junior claim to income and assets of the
project.
  Debt
Debt refers to borrowed capital from banks and
other financial institutions. It has fixed maturity and
a fixed rate of interest is paid on the principal.
Lenders of debt capital have prior claim on income
and assets of the project.
The common forms of debt are:
Commercial loan
Bridge finance
Bonds
Commercial loans are funds lent by commercial
banks and other financial institutions and are usually
the main source of debt financing.
Bridge financing is a short-term financing
arrangement (e.g., for the construction period or for
an initial period) which is generally used until a long-
term financing arrangement can be implemented.
Bonds are long-term interest bearing debt
instruments.
 Government grants

Government grants can be made available to make projects

commercially viable, to reduce the financial risks of private
investors, and to achieve socially desirable objectives such
as to induce economic growth in lagging or disadvantaged areas.
 Lease and hire-purchase

Leasing for industrial equipments and machineries is a

relatively recent phenomenon.

A lease represents a contractual arrangement whereby the

lessor grants the lessee the right to use an asset in return
for periodical lease rental payments.
Hire purchase involves the purchase of an asset on the
understanding that the purchaser (called hirer)will pay in
equal periodic installments spread over a length of time.