Project Management

Nature and Purpose of Project Management
Characteristics of Project
A Project is a Complex Non-routine One time effort One time effort is limited by Time Budget Resource Performance Specification
Defined Objective
Projects have defined Objectives-A Steel Plant considering a blast furnace Government of India is thinking of a plan to link the Ganges and Cauvery rivers A middle class gentleman wants to build two bed room house. This singular purpose is often lacking in daily organizational life where workers Perform repetitive operations each day
A Beginning an End
As there is specified objective, hence projects have a defined end point
A project is a temporary endeavor undertaken to create a unique product or Service
Product example: Apple I Phone-touch screen

Service Example: Event Management-Marriage function (Film-Band baaja barath)
Projects are temporary they have a definite beginning and definite end
People involved in project move from one project to the next as opposed to staying in one job. For example after adding special effects to a film in Mumbai a computer graphics engineer may be assigned virtual reality effects film in Chennai
Involve several professionals

Projects requires the combined efforts of a variety of specialists. Instead of working in a separate offices under a separate managers Whether they are engineers, financial analysts or quality control specialists work closely together under the guidance of a project manager to complete project
Have not been done before

A project is non routine and some unique elements This is not an issue but a matter of degree Accomplishing something that has never been done before Putting an astronaut on the moon, requires solving previously unsolved problems and using breakthrough technology Even basic event management-marriage function that involve established sets of routines and procedures require some degree of customization that Makes them unique.
Specific Time, Cost and Performance Requirements

Finally, specific time, cost and performance requirements bind projects
Projects are evaluated according to what they accomplished, at what cost, And how much time they took
These triple constraints impose a higher degree of accountability These three also highlight one of the primary functions of project management That is balancing the trade-offs among time, cost and performance ultimately satisfying the customer. Example-Erection and Commissioning of a Integrated Steel Plant by MND Erection and Commissioning of Power Plants by GMR Erection and Commissioning of Namma Metro at Bangalore.
The Project Approach

The Project Approach has long been the style of doing business in the Construction industry, Defense Contracts, Today project teams carry out from port expansion to hospital restructuring to upgrading information systems. The impact of project management is most profound in the area of Information technology (IT) Young professionals whose Herculean efforts lead to the constant flow of new hardware and software products.(floppy to hash /pen drive-e filing of IT returns) Project management is not limited to the private sector Project management is also used for doing good deeds and solving social problems organizing march against cancer Implementing a campaign against teenage smoking are projects that benefit from Application of modern project management skills and techniques.
What is Project Management

Project management is set of principles, methods and techniques Those are effectively used to plan and control project work It establishes sound basis for effective planning , scheduling, resourcing, decision making controlling and re-planning
Project management principles and techniques help complete project on schedule

within budget and in full accordance with project specifications, at the same time they help achieve the other goals of the organization such as productivity, quality and cost effectiveness.
Project Objective
The objective of project management is to optimize project cost, time and quality Once the problem or opportunity is clearly identified the next step is to define the basic objectives of the project 1.What is to be done (specific end results) 2.How (quantity or quality or special requirements) 3.When (Time dead line) 4.How much it will cost. Consider the three main aspects of project objectives. 1.Cost The money and resources required to get the job done including people equipment and other allocations 2.Time The time required to get the job done 3.Scope A descriptions features and functions of the end products or services to to be provided by the project
The Project Objectives must be SMART

S-Specific : The project objective must be so clear and well defined precisely any one with basic knowledge of project area can understand them M-Measurable: Objectives must be defined in measurable terms, one must be able to measure and report on the progress of the project A-Agreed upon: The project manager, client and customers must agree on the project objectives R-Realistic: The project objectives must be possible to achieve the given the available resources, knowledge, skills, and time. T-Time(Cost) limited: The objectives must be framed with in clear time(cost) goals, define how much time is available and if there is any flexibility
If the objectives are not SMART keep working with them until they are
Scope of Project Management

Scope is often is most difficult project feature to define and on which to get agreement The project scope is balanced with the time, budget and resources available Scope creep Scope can increase over time because of inadequately defined problem or opportunity, overlooked details, unforeseen problems(Nano car plant at West Bengal) or changes in the market (example Pager) or Company (Change in Management) A good scope statement clearly defines the end product or services A complete scope statement includes Technical specifications Performance requirements constraints Exclusions logistics procedures Safety regulations Security issues
Scope of Project Management

and environmental considerations The scope statement should also consider : How this project will change the way the company does business What other aspects of the business will be affected by this project In positive or negative ways
The scope statement identifies : Which quality standards are relevant to the project Performance standards to determine how to measure quality and compliance with scope specifications Poor project quality leads to customer and management dissatisfaction
Project Manager Skills

Project Management Skills Knowledge of Organization People Skills
Integration Skills
Technical Skills

A project manager needs to be strong in all five areas to be successful (Clock wise)
People Skills:
In working with team members Project manager use combination of formal authority and persuasion skill The project manager needs to be a master at communication and have skills to manage conflict and change

COMMUNICATION PROCESS
MESSAGE
SENDER
RECEIVER
FEEDBACK
Effective Communication Requires

The information is transmitted properly The receiver understands the communication The receiver interprets information correctly
The project manager should develop a communication plan for each project
A communication plan describes what information is communicated

To whom, how and how often
Managing Conflict
Conflict is a disagreement between people caused by Personality differences Miscommunication or Technical or administrative issues Heterogeneous project team is ideal-experienced by conflicts Conflicts exists in almost any human interaction and project manager must be prepared to deal with it dont try to eliminate conflict, but manage it Little or no conflict : Decreases effectiveness in the organization It produces apathy (lack of concern) Stagnation Lack of new ideas
Managing Conflict
A high level conflict also decreases effectiveness in the organization
It creates disruption (trouble)

Chaos (Confusion) and Lack of cooperation An optimal level of conflict increases organizational effectiveness It produces self evaluation and innovation
Managing Change
Every thing is impermanent in this world except CHANGE Change is a product or byproduct of projects Project manager must deal with the fears and perceptions of the people involved and manage the process of change. People resist change because it upsets their familiar environment it makes them insecure. (Core banking use of computers) The process of change require people to forget the past and accept new processes or environments Change may be disruptive (upsetting), slow and difficult to manage Project manager has to consider what changes will be required of people and determine how to manage change
Identify the problem

Identify the reasons for the change The impact the changes will have on the people
Change is obvious to the project manager ,other people who will be affected may not have the same vision
Project manager makes them to understand What needs to change When How fast and How much The project manager elucidate clearly what benefits that change and at what risks
Create Transition Plan

People involved should be given chance to study the old methods and proposed changes The project manager help them to gain positive attitude about the change and require their cooperation. Create a team to manage the transition period and coordinate change Have a plan in place to anticipate problems Sell people on the personal benefits that change brings rather than features of product or service People are least bothered about the product or service works better unless they clearly see how they are benefited by change Following are the potential benefits that change brings: Adventure, affection, comfort, convenience, ease operation, economy, efficiency Play and recreation, health, prestige, pride, protection and recognition
Explain what would happen if the change were not implemented The project manager has to: Communicate regularly with people both individually and in groups
Keep them aware of the progress of the project

Empathetically (sympathetically) listen to their concerns Acknowledge and reward their efforts As the change begins to take place Acknowledge their struggles and sacrifices.
The project manager who is an expert in communication and have skills to manage change and conflict
Use combination of formal authority and persuasion (influence) skills

Authority is the ability to require another person to accept responsibility to produce a desired results
Persuasion is the ability to convince another person to accept such responsibility
Integration Skills
One of the primary duties of the project manager is that many elements of the project are properly coordinated (Example when dam is built at the same time canals must have been built-building a dam and building canals are properly coordinated) Various phases of project work such as: Planning Execution Reporting and Control must be integrated The more complex is the product the more integration is needed (Automobiles)
For example the project manager might have to integrate (example house) electrical drawings from the engineering staff with functional specifications from the civil engineers Engineers and designers should be involved not only in the design process but also in the approval of the final design and specifications
Other players need to be involved in the approval and acceptance phases accounting and executing management to sign off on the project
Technical Skills
The project managers do not do the actual work of the project The more expertise the project manager has in the technical area of the project the greater his effectiveness in managing the project Technical expertise is essential to identify the potential problems As the project manager integrates all aspects of the project The project manager gains technical experience She / he must also careful to maintain a broad perspective She / he technical expertise should not lead to micro managing She / he must manage the project Allow team members to perform the technical work Her / his technical involvement for evaluating the work of the team
Knowledge of the Organization

Proficient project management skills will not compensate procedural blunder by not understanding the company culture, policies, personalities or politics The project manager supposed to know personalities, needs and desires since the the project manager negotiates with many people Every organization has unique culture The more he knows about the organization the better equipped the manager is The manager is maneuver (tactic) around pitfalls and get what is needed for the project Understanding organization culture and personalities can help project manager more successful Apart from above the project management is combination of many ingredients like rich common sense , ambition, flexibility, resourcefulness and healthy appetite for negotiation and a genuine belief the service performed is of value to the organization
Traditional Management Life Cycle
A traditional phased approach identifies sequence of steps to be completed In the traditional approach five development of a project (Shown as above) Typical development of an engineering project: 1. 2. 3. 4. 5. Initiation Planning and design Execution and construction Monitoring and control systems Completion Not all projects visit will visit every stage As projects can be terminated before they reach completion Some projects do not follow a structured planning and or monitoring process Some projects will go through steps 2, 3 and 4 multiple times Many industries use variations of these project stages
For example in software development this approach is often known as waterfall model That is one series of tasks after another in linear sequence Waterfall development work well for small, well defined projects But often fails in large projects of undefined nature While terms may differ from industry to industry The actual stages typically follow common steps to problem solving
Defining the problem Weighing options Choosing a path Implementation and Evaluation
What is a baseline
In a project management baseline refers to accepted and approved plans and their related documents Project baselines are generally approved by project management team These are used to measure and control project activities Baselines are output of planning stage But they are referred and updated during executing and monitoring and controlling process Baseline give the project manager a best way to understand project progress By analyzing baseline Vs actual performance and forecast the project outcome Project baselines include but are not limited to: Schedule baseline Cost baseline Scope baseline quality baseline
Baselines are prepared on triple constraints Scope Time Cost (and quality) management areas
All the above are considered as components of project plan

Often schedule, cost and scope baseline will be combined into performance measurement baseline that is used as an overall project baseline for measurement of project performance
Program Budgeting
Is a budgeting system Contrary to conventional budgeting Program budgeting describes and gives the detailed cost of every activity or program that is to be carried out in a budget Objectives, outputs and expected results are described completely as are their necessary resource, costs for example materials, equipments and staff The sum of all activities or programs constitute the program budget When looking at program budget one can easily find out what precisely will be carried out, at what costs with what expected results in considerable detail
What is Project Quality Plan

The project quality plan is controlled working document applicable to specific projects It describes the practical application of the quality assurance policy and objectives The custodian of these documents is quality assurance manager He shall maintain a register for the issue of this documents with date and signature of the recipient The distribution of quality project plan is as follows Client Project Manager Quality control and Assurance engineer Project Engineer Documentation record
Sources of Project Ideas

A. B. C. D. E. F. G. H. I. J. K. L. M. N. Analysis of Industries performance Analysis of Inputs and Outputs of Industries Analysis of Imports and Exports Five year plan and Government Policies Suggestions of Financial Institutions and Development Agencies Survey of Local Resources Analysis of Economic and Social Trends New Technologies Emulating Consumption Pattern from Abroad Restoring Life to Sick Units Analysis of unsatisfied Needs of Consumers International and National Trade Fairs and Industry Exhibitions Stimulate Creativity for Generation of New Projects Ideas Chance Factor
Build Own Operate Transfer(BOOT)

BOOT is suitable for infrastructure projects like highways, roads mass transit railway transport and power generation. During the concession period the private company owns and operates the facility The prime goal to recover the cost of investment and maintenance Tries to achieve higher margin on projects As such they have political importance for the social welfare But are not attractive for other types of private investments BOOT is a method which finds very extensive application which desire ownership transfer and operations including. Advantages of BOOT projects are: Encourage private investment Inject new foreign capital to the country Transfer of technology and knowhow Completing project within time frame and budget planned Releasing the burden on public budget for infrastructure development
Just In Time (JIT)

Just-In -me manufacturing concept introduced in the United States by the Ford Motor Company It works on demand -pull basis contrary to production push basis Just-In-Time is colloquially referred to as JIT production systems Under Just-In-Time manufacturing actual orders dictate what should be manufactured so that exact quantity is produced at the exact time it is required Just-In-Time manufacturing goes hand in hand with concepts such as Kanbancontinuous improvement and Total Quality Management (TQM) Just-in-time production requires intricate planning in terms of procurement policies and the manufacturing process for success of implementation Highly advanced technological support systems provide the necessary back-up that just-in-time manufacturing demands Production scheduling software and electronic data interchange being the most sought after
Advantages Just-In-Time Systems

1. Just-in-time manufacturing keeps stock holing cost to a bare minimum 2. Just-in-time manufacturing eliminates waste , as out of date or expired products do not enter in to this equation at all 3. Only essential stocks are obtained, less working capital is required to finance procurement 4. ROI would generally be high 5. Just-in-time manufacturing encourages the right first time so that inspection and cost of rework is minimized 6. High quality products and greater efficiency can be derived 7. Frequent communication with the customer results in high customer satisfaction 8. Excess production is eliminated 9. It works on demand pull basis all goods manufactured would be sold
VED Analysis
VED analysis can be defined as the analysis of maintenance spares into V Items-Items of Vital importance E Items-Items of Essential importance D Items-Items of Desirable importance 1. Vital importance in the way of indicating the fact that manufacturing cant run without V item 2. Essential importance in the sense that manufacturing can run but without parameters such as efficiency, noise reduction etc 3. Desirable importance denotes manufacturing can run but factor of safety, industrial formalities cant be sacrificed wearing ear protection aid The VED analysis is complex and it needs deliberate discussions to fix the item whether it is V item or E item or D item
The Project Life Cycle
A typical methodology would involve a number of stages and activities which occur at different parts of life cycle The preparation stage involves the project manager and sponsor in the preparation and approval of an outline project justification , plan and budget The start up stage involves the selection and briefing of the project team and some discussion on the roles and organization The Feasibility or Research stage will establish whether project is feasible and establish the risks and key success measures. It may include the identification of external resources such as specialist consultants or product and service providers who may wish to offer goods, software or service for the project. The object is to build a team that is better than the sum of the individuals Defining and planning the project in more detail by writing and publishing a complete definition of the project and determining a project plan. This work is undertaken by the team and coordinated by the project manager. Both should be communicated widely to ensure maximum understanding of the projects objectives by all staff who will be affected by the project
The implementation stage involves the execution of the project as agreed whilst carefully monitoring progress and managing changes The closedown stage involves the satisfactory delivery to the project customer of the product or services that achieve the beneficial gain . A project review should be held to learn the lessons.
Project Identification
Market Demand : The demands of the market place can drive the need of the project
Business Need : Need sensed by input process output system of business Consumer Request: Consumer request can drive the project . Technological Advances: Technological advances in various fields brings new projects Legal Requirement: Private agencies and government agencies generate new projects as a result of legislative amendments (ban of plastic products) Social Need: Project come of as a result of social needs(KMF)
Project Formulation
Project formulation is a process whereby the entrepreneur makes an objective and an Independent assessment of various aspects of an investment proposition of a project idea for determining its total impact and also its liability. This forms an important stage in the pre-investment phase that is the period from conception of an idea
until the final analysis to decide about the future of the project idea. This makes it
an analytical management aid. The aim of project formulation is to achieve the Project objectives with the minimum expenditure and adequate resources.
Main Components of Project Cost

Land Cost Building Cost
Machines Cost
Interest Cost Labor cost during project construction Power cost during project construction Managerial expenses
Project Management Process

A. Agree precise specification for the project-Terms of reference A. Plan the project- Time, team, activities, resources, financials using suitable project management tools. C. Communicate the project plan to project team- and to any other interested people or groups D. Agree and delegate project actions E. Manage and motivate- Inform, encourage , enable the project team F. Check, measure, monitor and review project progress- Adjust project plans and inform the project team and others
G. Complete project- Review and report on the project performance ; give praise and thanks to the project team H. Project follow-up- Train, support, measure and report results and benefits
Gantt Charts
Gantt charts are extremely useful project management tools The Gantt chart is named after US engineer and consultant Henry Gantt Who devised the technique in the 1910s
Gantt charts are excellent models for : Scheduling Budgeting Reporting Presenting Communicating project plans and Progress easily and quickly
Gantt charts are not as good as Critical Path Analysis Flow Diagram
A proposal is a request for financial assistance to implement a project The proposal outlines the plan of the implementing organization about the project The proposal gives extensive information about the intention, for implementing it, the ways to manage it and the results to be delivered from it (Product or Service) A project proposal is a detailed description of a series of activities A project proposal in order to be successful the document should: Provide a logical presentation of a research idea Illustrate significance of the project idea Show the ideas relationship to the past actions and Articulate the activities for the proposed project Designing a project is a process consisting of two elements which are equally important These two elements are vital for forming a solid project proposal 1. Project planning (formulation of project elements) 2. Proposal writing (Converting a plan into a project document) The project proposal should be a detailed and directed manifestation of the project design It is a means of presenting the project to the outside world In a format that is immediately recognized and accepted
Project Proposal
Project Contract (for services)

Contract for Project Management Services is used by a company legally employ a builder or a designer for a specific project
It outlines for project management services the amount of time and compensation allocated for the different phases of the construction or design project
The contract is used when a business needs to employ independent project management for development and construction This contract is customizable for a companys specific usage
Project Constraints
Typical Project Constraints Resource Constraints Key staff resources will be available only on a part-time basis. Computer resources will be available on a limited basis. Key customer resources will be available on a restricted basis.
A significant percentage of the project staff will not be experienced with the technical environment
A significant percentage of the project staff will not be experienced with the operating environment
Project Constraints (cont)

The customer has limited staff capable of adequately describing in detail the functional requirements of the system. The customer has limited staff capable of adequately describing in detail the operational requirements of the system. Delivery Constraints Deliverables submitted for approval will require working days for review. There is no limit to review and approval cycles.
Equipment order lead times cannot be specified with accuracy.

Environmental Constraints The development or operating environment is new, and no project staff members are familiar with it. Key decision-makers are difficult to contact when issues arise. The project does not have a customer project manager (or executive sponsor, or steering committee) The project environment is new and the components have not yet been successfully integrated. The project depends upon the successful and timely completion of associated projects.

Budgetary Constraints Statistics used in preparing the estimates are unreliable. Outside consulting requirements cannot be accurately estimated. Functionality Constraints The scope of the project is unclear. The project depends upon receiving data from other, external applications
Project Contingencies
The objective of contingency allocation is to prevent a project from experiencing cost overrun Contingency is an amount added to an estimate to allow for additional costs that experience shows will likely be required. This may be derived either through statistical analysis of past project costs, or by applying experience gained on similar projects Contingency covers the costs that may result from incomplete design, unforeseen and unpredictable conditions, or uncertainties within the defined project scope. Contingency usually does not include changes in scope or schedule or unforeseeable major events such as strikes or earthquakes
Two Approaches to Project Management

1. Project Administration: Focuses on finding solutions with in given constraints (Cost, time and budget) An early design freeze that creates a stable target for the project Effective when duration of the project or the time required to innovate is shorter than the rate of change in the business environment 2. Business synergies: Focuses on adding value to the organization and maximizing ROI Does not lock down design earlier than absolutely necessary not to miss a emerging opportunity ; effective for managing innovative projects in the rapidly changing environment
Two Approaches to Project Management (cont)

Where change cycle is shorter than or equal to the duration of the project Business synergies approach is concerned with discovering possibilities for adding value to the organization not finding solutions with in given constraints This entrepreneurial approach to project management requires to manage the the project as it were an independent business venture The project manager must manage with larger organizational system in mind
Project Review
These activities have many names Debriefs (to question somebody closely about a task, mission or event after it has ended) Retrospectives Post project reviews Mid project reviews Project Audits Lessons learnt Most often called postmortems on software projects Project reviews are examination of projects or events for the purpose of Reviewing the events that occurred Evaluating not only what happened but also why those events happened
Project Review (cont)

Determining the correct actions to take to improve the results of the next event or project Project reviews can occur at any time during a project and can be used to evaluate the success of both events and projects
Project Termination
Project termination is one of the most serious decisions a project management team and its control board have to take It causes frustration for those stakeholders who sincerely believed and still believe that the project could produce the results they expected (The project manager and her or his team members very important stakeholders the project) They will feel that they personally failed They also will be scared of negative consequences for their careers, motivation Consequently their productivity will decrease significantly In contrast to that: They are convinced that conscious project termination at the right time Profoundly discussed with the whole project management team and finally mutually decided It is one of the boldest decisions , the involved or affected members of an an organization can take
Project Audit
Project audit provides an opportunity to uncover the issues, concerns and challenges encountered in execution of a project It affords the project manager, project sponsor and project team an interim view of 1. What has gone well and 2. What needs to be improved with the project to successfully complete it 1. If conducted at the close of the project a project audit can be used to develop success criteria for future projects by providing a forensic review 2. This review will provide an opportunity to learn what elements of the project were successfully managed and which ones presented some challenges 3. This will help the organization to identify what it needs to do so such mistakes are not repeated on future projects 4. It is generally recommended that an outside facilitator conduct the project audit
Project Financing
Project financing is an innovative and timely financing technique that has been used on many high-profile corporate projects Employing a carefully engineered financing mix Project finance is a finance for a particular project such as mine, toll road, railway, pipe line, power station, ship, hospital, etc Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenues of the project in order to secure and service the loan In project financing the financier has no recourse (option) to the non project assets of the borrower (Kingfisher Airlines no recourse on United Breweries) The risks for a financier is are great since the loan can be repaid only when the project is operational If major part of the project fails the financiers are likely to lose a substantial amount of money
Advantages of Project Financing

Eliminates or reduce lenders recourse to the sponsors Maximize the leverage of a project Permit an off balance sheet treatment of the debt financing (Project Loan need not to be shown in the balance sheet) Avoid any restrictions or covenants binding the sponsors under their respective financial 0bligations Allow the lenders to apprise the project on a segregated and stand alone basis Obtain a better tax treatment for the benefit of the project (Sales Tax exemption for few years) Reduce political risks affecting a project (Congress Government to BJP)
Disadvantages of Project Financing

Often takes longer time to structure project finance Higher transaction costs due to creation of an independent entity Project debt substantially more expensive ( such as upfront, processing charges, interest charges, etc due to its non recourse nature) Extensive contracting restricts managerial decision making (interference FI) Project finance requires greater disclosure of information and strategic deals
Contemporary Issues In Project Management

To acquaint with the procedures of preparation of Detailed Project Report (DPR)
Acquaint with various net work technique s of planning project Participants should acquaint with computerized project management systems To familiarize with latest tools and techniques of resource and cost management Discuss about the ways and means of conflict resolution and management Share participants experiences for planning and implementation of projects Participants should acquaint with new models and approaches of project management. Make participants aware about the pits and traps of project management
Sensitivity Analysis
It is a procedure to determine the sensitivity of outcome s of a model based upon its changes to its parameters This would not usually include changes in its environment If a small change in a parameter (input factor) results in relatively large changes in the model outcome the outcome is said to be sensitive to that parameter If this is the case, either the input factor will need accurate control or the process will need redesign to reduce the sensitivity Sensitivity analysis is used to assess how robust (tough) the results are to uncertain decisions or assumptions in the model A process can be investigated using mathematical model The model can comprise a series of equations, input factors and variables which aim to characterize the process Computer model simulations are used widely in the investigation of complex physical systems The model will be only as good as the input data (GIGO)
Project Scheduling
Project scheduling is concerned with the techniques that can be employed to manage the activities that need to be undertaken during the development of a project. Scheduling is carried out in advance of the project commencing And involves Identifying the tasks that need to be carried out Estimating how long they will take Allocating resources mainly (personnel/Human resource) Scheduling when the tasks will occur
Project Scheduling (cont)

Once the project is underway (in progress), control needs to be exerted (exercised) to ensure that plan continues to represent the best prediction of what will occur in the future:
Based on what occurs during the development

Often necessitates revision of the plan Effective project planning will help to ensure that the systems are delivered : With in cost With in time constraint To a specific standard of quality
Project Scheduling Techniques

Two projects scheduling techniques are Milestone Charts (Gantt Charts) and the activity network Milestone Charts Milestone marks significant events in the life of a project
Critical activities must be achieved on time to avoid delay in the project

Milestones should be truly significant and be reasonable in terms of deadlines Examples include : I. II. III. IV. Installation of equipment Completion of phases File conversion Cutover (when old and new systems are operating concurrently) to the new system
1.Gantt Charts
A Gantt chart is a horizontal bar or line chart which will commonly include the following features: Activities identified on the left hand side Time scale is drawn on the top (or bottom) of the chart A horizontal open oblong [in the form of a rectangle one of whose dimensions is greater than the other] or A line is drawn against each activity indicating estimated duration Dependencies between activities are shown At a review point the oblongs are shaded to represent the actual time spent An alternative is to represent actual and estimated by two separate lines A vertical cursor placed at the review point makes it possible to establish activities which are behind or ahead of the schedule
EXAMPLE OF A GANTT CHART
2.Activity Networks
The foundation of the approach came from the special projects office of the US navy in 1958 It developed a technique for evaluating the performance of large development projects Which became known as PERT-Project Evaluation and Review Technique Other variations of the same approach is known as the Critical Path Method (CPM) or critical path analysis (CPA) The heart of any PERT chart is a network of tasks needed to complete a project showing the order in which the tasks need to be completed and the dependencies between them This is represented graphically
Activity
6
7 8
Activity
=13 = 17
Activity
CRITICAL PATH IS LONGEST PATH = 17 DAYS
A project is composed of a set of actions or tasks Usually these tasks have some kind of interdependency
Before an axle [is a central shaft for rotating wheel or gear] can be turned it must first be designed
The metal must be purchased It is to be fitted to the pay loader, tested, etc This type of complex system is much easier to understand through the use of diagrams Actual interconnections between tasks can be shown instead of through textual description The activity network diagram displays interdependencies between tasks Through the use of nodes and arrows
Arrows pointing out into a task node come from its predecessor tasks which must be completed before the task can start Arrows pointing out of a task node go to its successor tasks, which cannot start until this task is complete There are number of attributes that can be associated with a task such as person(s) doing it and the resources need to the job The most important of these is the time required to complete each task Once this is known the actual calendar dates for tasks can be calculated Critical path is longest path If any task on the critical path finishes late, then the whole project will also finish late
Project Management today has evolved in order to plan, coordinate and control complex and diverse (various) activities of modern industrial, commercial and management change projects. Modern projects for all their technological sophistication are not necessarily greater in scale than some of those early enormous works But economic pressure of the industrial world, military defense needs, competition between rival companies and greater regard for the value and well being (and hence the employment costs) of working people have all led to the development of new ideas and techniques for managing projects. All projects share one common characteristic-the projection of ideas and activities into new endeavors (accomplishments). The ever present element of risk and uncertainty means that the event and tasks leading to completion can never be foretold with absolute accuracy. For some very complex and advanced projects even the possibility of successful completion might be in serious doubt.
Nature And Purpose Of Project Management
Nature And Purpose Of Project Management (cont)

The purpose of project management is to foresee or predict as many of the dangers and problems as possible Hence to plan, organize, and control activities so that the projects are completed as successfully as possible in spite of all the risks This process starts before any resource is committed and must continue until all work is finished The primary aim of the project manager is the final result (bullet diginda leda) to satisfy the project sponsor With in the promised time scale and Without using more money and Other resources than those that were originally set-aside or budgeted Development in project management methods took place in the second half of the twentieth century spur red (drive) by impatient project sponsors Who wanted their projects finished quickly (quick fix solution) so that their investment could be put to profitable use as soon as possible
Nature And Purpose Of Project Management (cont)

Competition between nations for supremacy in weapons and defense systems played a significant role in the development of project management techniques The process has been accelerated by the wide spread availability of powerful reliable and cheap computers Project management is more effective when it makes use of these sophisticated techniques and facilities It is a highly specialized branch of management Planning and control must be exercised on overall activities and resources involved in a project The project manager needs to understand how all the various participants operate To appreciate their particular skills, working methods, problems and weaknesses This demands fairly a wide degree of general experience in practical sense Project management is akin to general management.
Project Management Context

Project management is management , but these five characteristics make it unique 1. Responsibility Without Authority Completing a project requires resource, people, equipment and support services With rare exceptions those who manage projects do not command resources Project manager can not arbitrarily (by chance) assign staff to purchase equipment as project require it, hire people or place needs at the top of the priority list Promote or demote staff These prerogatives (rights) belong to supervisors and line manages
Project Management Context (cont)

2. The Source of Power Despite lack of authority the project manager has power if he is prepared to exercise it The project manager is the only one able to make the project deliver value Without project manager, the project is in extreme in jeopardy (danger or threat) He has to face a project under risky conditions He has the right and obligation to say this project can not succeed under these conditions and until people change , I will not continue such blunt statement serves as a shock indicating that there is a problem with the project.

3. Project Transience(State of being brief and short lived) Teams not managers execute projects The project managers major task is team building The project manager has to apply team building skills to a group of people who may have no commitment to the project or who will shortly move on to another assignment
The project manager do not have the luxury allowing a team to evolve (progress)

4. You Get What You Get I. Some theorists emphasize the importance of selecting a good project team II. Not simply finding the right skills but even by ensuring that personalities mesh
III. Companies do not have large idle pools of technical expertise waiting to be chosen for a sandlot (a vacant lot used especially by children for unorganized sports and games) baseball game.
IV. The problem is not choosing the right people but getting people who are even remotely (closely) qualified V. The manager job is not to select a project team but to build one from the people who are available

5. Specialized Tools and Techniques 1. Project management has its own tool and techniques 2. It is not easy to learn these concepts or to understand how to apply them 3. Managing a project is a management 4. It requires the same tools and techniques used by all managers 5. Whether you manage project or department you need to know: How to listen Manage meetings Gather information Build teams Communicate Time management 6. Managing a project is a distinct discipline requires aptitudes, standards and training. Anything less the projects continue to suffer :

Overruns Delays Increased antipathy (hatred ) of users and corporate management who are weary (tired) of project plans with suspicion
Project Management: A Winning Strategy

1. 2. 3. 4. 5. 6. 7. 8. 9. Progressive organizations are setting goals and developing plans to improve their performance over the past year Organizations are faced with tighter budgets, less time, and fewer resources To effectively compete, organizations need to do more with less The goal of effective project management is to deliver a project on time and within budget A key factor in successful project management is to invest sufficient time in defining and planning the project The statement plan your work and work your plan fits project management A good project plan reduce the likelihood of problems later in the project thus saving both time and money The project team has to break down the work and organize the tasks into logical groupings using a Work breakdown structure The project team further organizes project in order to complete it on time and with in budget
10. Successful organizations are using project management techniques to enhance their chances of being winners in the very competitive market 11. In todays changing market organizations that use effective project management techniques have the competitive advantage 12. The competition is becoming both time-based and cost-based 13. Time based organizations can get a product or service to market faster than any one else, these companies have the competitive edge 14. The project team estimates the amount of time it will take to complete the project 15. The project teams use project scheduling techniques such as Gantt Charts and PERT 16. Planning ahead and being proactive (practical), project teams can anticipate possible problems and plan alternative ways of dealing with these problems 17. The more effective the project team is in planning the project, the easier is the implementation of the project becomes 18. Effective team work ensures success of a project 19. As the competition increases , progressive organizations are realizing the value of providing their project managers and project teams training so that they can bring projects on time and within budget
Generation and Screening of Project Ideas

Idea generation is based on the interrelationships between: Company Product Consumer These relationships are constantly changing Environment is also subject to continuous social and technological change Understanding the changes that are occurring leads to innovative products which will fulfill customers need The creation of all new product ideas either revolutionary or evolutionary New product ideas will only be successful if there is an atmosphere which stimulates innovative thought and search for new ideas Ideas come from technological push and consumer pull Technological push comes from knowledge of marketing, processing and product technology and their related scientific bases Consumer pull comes from knowledge of the consumers and their individual and social needs
Brain storming is a group technique to develop ideas concerning a specific problem It can be either informal or formal Informal brainstorming is called free brainstorming where the problem is described and then ideas allowed to generate Formal brainstorming where problem is described members write down 3 to 4 ideas and produce these for discussion Brain storming use a variety of people such as engineer (knowledge of processing) sales person (knowledge of market), purchasing person (knowledge of the raw material and ingredient market) Customer/consumers (their needs and wants) and retailer (knowledge of available products)
Ideas Screening the aim of idea screening is to retain the successful ideas and eliminates the ideas which could be failures It is much easier to write than carry out in practical If the idea is in doubt keep the idea until more information is obtained Idea screening is based on tacit (unstated) knowledge of the individual and of the company
Aim of successive screening is to build up the necessary information for the decisions to be made in a qualitative and objective way Screening of ideas is both a reiterative (to say or do something again, once or several times, some times in a tiresome way) and progressive So there is need to the first screening and last screening of in case it no longer fits the screening criteria first set out Screening is done in stages , simple methods may be used in early stages More detailed screening is done based on technical, marketing and financial information becomes available As screening proceeds the number of ideas decrease The amount of information increases The number of screening factors increase and the accuracy improves The advantages of a systematic screening approach are that it provides: i. uniform method of idea evaluation; ii. point of reference throughout the project; iii. systematic approach; iv focus on business strategy and top management decisions.
Project Analysis-Market Demand

Market and demand analysis should be carried out in a orderly and systematic order Key steps are as follow In order to get a feel of the relationship between the product and its market the project analyst may informally talk to customers, competitors, middlemen and other in the industry
Where and how to market the new air cooler the objectives of the market and demand analysis in this case may be answer the following questions
1. Who are buyers of air coolers? 2. What is the current demand for air coolers? 3. How is demand distributed temporally and geographically? 4. What is the break up of demand for air coolers of different sizes? 5. What price and warranty will ensure its acceptance? 6. What channels distribution are most suited for the air cooler? 7. What trade margins will induce distributors to carry it? 8. What are prospects of immediate sales? The above information may be obtained from primary and secondary sources Primary information is collected first time to meet specific purpose (eenadu paper) Secondary information is information that has been gathered on some other context and is already available (National Sample Survey) Based on the information gathered sources and through the market survey the market for the product or service may be described in terms of the following:
1. Effective demand on the past and present 2. breakdown of demand 3. Price 4. Methods of distribution and sales promotion 5. Consumers 6. Supply of competition 7. Government Policy. Demand forecasting After gathering information from different sources an attempt may be made to estimate future demand, these may be classified in three categories as shown below:
1. Qualitative Methods (selling insurance or investment product-naukri.com 2. Time series projection Methods 3. Causal Methods 4. Jury of executive opinion Method 5. Chain ratio Method 6. Consumption level Method Uncertainties in demand forecasting Demand forecasts are subject to error which from three principal sources a) Data about past and present market b) Method of forecasting c) Environmental Change
Market planning A marketing plan usually has the following components Current marketing situation Opportunity and issue analysis
Objectives
Marketing strategy Action programme.
Technical Analysis
The issues involved in the assessment of technical analysis of the proposed project May be classified into 1.Input Analysis 2.Throughput Analysis and 3.Output Analysis. 1.Input Analysis is mainly concerned with the identification , quantification and evaluation of project inputs that is machinery and materials The project manager has to ensure that the right kind and quality of inputs would be available at the right time and cost throughout the life of the project Enter into long term contracts with potential suppliers Gather information of supply sources
Example: When Macdonald entered India they developed sustainable sources of supply of potatoes, lettuce (edible leaves eaten in salads) and other ingredients for their burgers
The activities involved in developing and retaining supply sources are referred as Supply chain management.
2.Throughput Analysis It refers to the productions/operations that will be performed on the inputs to add value The inputs received would undergo a process of transformation in several stages of manufacture (Spinning, weaving, finishing and dying processes) Technical analysis includes designing the various processes Specifying material required for the project Installing equipment and prototype (trial of product) testing The project manager must be careful in finalizing the technical aspects of the project As the decision is irreversible and the investment involved will be high He has to select the technology required in consultation with technical experts and consultants In the modern world because of the rapid development of the industry pollution has reached alarming proportions
There are various factors like pressure from government regulations, local people The concern to act in a more friendly environment 3. Output analysis This involves product specification in terms of Physical features Colour, weight (laptop), length, breadth (sony laptop) Functional features (Configuration) Chemical properties (packaged food may contain preservatives) Standards to be complied with (example packaged drinking water) BIS-Bureau of Indian Standards ISI-Indian Standard Industries Mark
ISO-International Organization for Standards
What is Activity Duration

Activity Duration Estimation is the act of estimating the number of work units need to complete individual project activities This shapes the preliminary project schedule Elapsed Time This is actual calendar days/months/years required for an activity from start to finish Effort This is the number of person-hours or person-days required to complete the activity This estimate to be provided based on the cost estimation and resources estimation
Why do you need network analysis

The core technique available to project managers for planning and controlling the projects is Network Analysis This short guide provide a basic understanding of Networking principles before applying them to computers
Network Analysis or Critical Path Analysis (CPM) or the American Program Evaluation and Review Technique (PERT) is one of the classic methods of planning and controlling the progress of projects
Social Cost Benefit Analysis (SCBA)

Social Cost Benefit Analysis (SCBA)means to analyze the social costs and total social benefits for any given project Completing big project, big investment is required In Social Cost Benefit Analysis (SCBA) whether return or benefits on project investment are more than its cost from point of view of society in which we are living In public investment analysis and comparison is made for government expenditure with total benefits to society through SCBA It is a good technique of financial evaluation of a project because
we shelve (drop) the project where benefits to society are less than total cost of project
Green Audit
Green audit is about corporate responsibility Scientific research and statistical analysis conducted by Green audit uncovers the truth about statements made by government, large multination companies (Bhopal Victims of Calcium Carbide gas leak),and military with regard to the health effects of environmental pollution Green Audit was founded in 1992 as an environmental consultancy It reviews organizations with aim of monitoring the performance of the companies Organizations whose activities may threaten the environment and health of citizens Democratic values are threatened when information is kept from the public and all routes of access are controlled The aim of Green Audit is to give citizens the information they need the need and able to question the companies which are destroying the environment We all depend on environment It is worrying fact that such information is suppressed and restricted which provide the impetus for the Green Audit
Importance of Contingencies
The key attributes of the concept of project cost contingency are: RISK: The need and amount of contingency reflects the existence of risk in projects Contingency covers for two categories of risks 1. Known unknowns and 2. Unknown unknowns Contingency caters for events for events within the defined project scope that are unforeseen, unexpected, unidentified or undefined RISK MANAGEMENT: There is a range of risk management strategy for risks in projects such as risk transfer, risk reduction and financial treatment for retained risks So contingency is used in conjunction with other risk treatment strategies TOTAL COMMITMENT: Cost estimates are prepared and contingencies are added to indicate likely total cost of the project The inclusion of contingencies with in a budget estimate means that the estimate represents the total financial commitment for a project PROJECT OUTCOMES: Contingency can have a major impact on project outcomes for a project sponsor
If contingency is too high it encourages sloppy (careless) cost management cause the project to be uneconomic and aborted and lack of funds not available for other organizational activities If too low it may be too rigid and set an unrealistic financial environment
Advantages of Diagrammatic Models

It is a visual form of presentation of project activities in the form of diagrams such as Gantt Charts, Network Analysis, CPM, PERT etc Advantages of diagrammatic presentation of project activities are: It is more attractive It simplifies complex activities of a project It saves time to understand project activities
It helps to make comparison of different project activities
Process of appraising projects

TECHNICAL Will the project work Due attention has been paid to technical factors affecting the project design Given the human and material resources can the project activities be undertaken Project is completed with in the time and to the required standards FINANCIAL Can the project be financed by Banks/Financial Institutions Will there be sufficient funds to cover the expenditure requirements during the life of the project ECONOMIC Will the nation and society at large be better off as a result of the project ? Will the project benefits be greater than the project costs life of the investment Is the Net Present Value of the project is positive at the cut-off rate ? SOCIAL AND GENDER What will be the effect of the project on different groups, at individual, household and community levels ? How will the project impact on women and men ?
Will social benefits of the projects be greater than the over the life of the investment when account is taken of time ?(NPV) ENVIRONMENENTAL Will the project has any adverse effects on the environment ? Remedial measures have been included in the project design ? POLITICAL Will the project be compatible with government policy, both at central and regional levels ? SUSTAIABILITY AND RISK Will the project be exposed to any undue risks ? Will the project benefits be sustainable beyond the life of the project ?
What is Change Management

CHANGE MANAGEMENT This change management process helps to manage all requests for change within project By putting this change process in place, the project manager will be able monitor and control the amount of change that take place It tells how to implement and control change, through change approvals and reviews Project Manager by using this change process he can Identify requests for change Confirm the feasibility of each change Control the way the change is under taken Manage the approval of change Using an effective change process is a core function in any team Change impacts on project managers ability to deliver project objectives Consequently increasing costs and putting pressure on delivery time frames
What is change process ? Change management process is a set of procedures that helps teams to control change effectively It is not that the manager has to prevent change from happening, it is how he manages change once it occurs that really matters This is where a Change Process is invaluable Change process allows the manager to record change requests, reviews and and approve those requests before implementing them This change process makes change management easy When do a manager use change process ? If you work in a team that is subject to change then you need a change process By implementing a Change Process the manager can track change as it occurs And control the effect it has on the team A Change Process helps the manager to monitor the impact of change It ensures that each change has desired outcome
The Elements of Project Risk Management

A. Identify Uncertainties Explore the entire project plans and look for areas of uncertainties The risk could be expressed as we have underestimated the likely duration of the task Some examples of areas of uncertainties are Failure to define the objectives of the project Failure to secure commitments from people who assist with the project Failure to estimate costs accurately Failure to provide a good working environment for the project B. Analyze the Risks The chart plots probability of occurrence of a risk Another way of saying how uncertain the success of the tasks would be against the impact Impact means the severity of the effect on either the budget, the the timeliness of project completion
or the ability of the project to meet the users requirements Whether the severity of Impact or the probability is high or low is a matter for the judgment of the risk assessor and the project manager 1.Tigers High Probability High impact Dangerous animals Neutralized as soon as possible 3.Puppies High probability low impact A pup grow into animal little training will ensure not much trouble ensures 2.Alligators(large reptile) Low probability high impact These are also dangerous animals which can be avoided with care
4.Kittens Low probability Low impact Lot of effort wasted on training it
Prioritize Risks
1. Risks must be mitigated early on 2. There must be an action plan to stop them from interfering with the project 3. Puppies have to watched but less stringently and with less urgent containment plans 4. Kittens can be ignored at the peril (risk)of the project manager
The Elements of Risk Control

Mitigate Risks.(Diminish) Project Manager has to mitigate risks for all types of risk categorized above as Tigers Risk can be mitigated by reducing either the probability or the impact Remember that the project manager identified the risks by seeking uncertainties in the project The probability can be reduced by action up front (the process of doing something in order to achieve a purpose) to ensure that a particular risk is reduced An example is to employ a team to run a testing on a particular data base or data structure to ensure that it will work when the reminder of the project is to put together around it The technique of building a pilot phase (test of something such as a proposed manufacturing process to discover and solve problems before full implementation of the project) is an example of risk mitigation
Plan for Emergencies. By performing risk assessment, the project manager knows the most likely areas of the project which will go wrong The project risk plan should include against each identified risk, an emergency plan to recover from the risk This plan will name the person accountable for recovery from the risk, the nature of the risk and action to be taken to resolve it and the method by which risk can be spotted Measure and Control. The person accountable for each risk should be responsible to the project manager to monitor his risk and to take appropriate action to prevent it from going on or to take recovery action if the problem does occur Nothing can be controlled which cannot be measured In a project there are three things which can always be measured 1. The schedule 2. The cost and 3. The users satisfaction
Pre-feasibility analysis
The pre-feasibility of the project should include the following preliminary analysis Needs and options analysis Legal feasibility Technical feasibility Scoping social/environment safeguards analysis Preliminary financial viability institutional capability analysis Identification of next steps required Options analysis Option for meeting the product/service need Use a non-asset solution Focus on management practices or demand management to meet or reduce the need. Improve existing assets Upgrade or refurbish existing assets/up grade to expand capacity, Use new assets Develop new infrastructure to meet the product/service need, New asset are the most complex option, and will typically require the greatest commitment of resources. For example, BOT.
Technical Studies: Detailed technical studies are not required at this stage , but sufficient technical and survey work must be undertaken to able to provide a cost range for the project A preliminary cost estimate should be prepared along with preliminary design The technical pre-feasibility should consider : 1.The engineering and technical aspects of the project 2.The manageability of the operational aspects of the project 3.Preliminary assessment of all likely technical and operational risks. Financial and economic viability: The preliminary financial and economic viability of the proposed project should include an assessment of: i. The cost recovery/income generation assumptions of the project ii. The overall project cost (capital + operations + maintenance costs) iii. Possible financial risks v. Identification of likely economic benefits generated by the project
The next step to be taken if the project proceeds should also be identified by A. Assessing the resources required to complete the project preparation process B. Identifying parties responsible for completing next steps C. Determining the roles and responsibilities of involved parties D. Determining the time frame required for completing project preparation.
Problems
A company is considering two mutually exclusive projects. Bothe require an initial cash outlay of Rs 10000 each, and have life of five years. The companys required rate of return is 10 percent and pays tax at a 50 percent rate. The projects will be Depreciated on a straight line basis. The before taxes cash flows expected to be generated by the projects are as follows: Before-tax Cash Flow (Rs) 1 2 3 4 5 4000 6000 4000 3000 4000 2000 4000 5000 4000 5000
Project A B
Calculate for each project: (1) the payback period, (2) NPV and PI (3) IRR and (4) Average Rate of Return (ARR). Which project should be accepted and why ?
PROJECT A 1 Year 1 2 3 4 5 2 CF 4000 4000 4000 4000 4000 3 Dep 2000 2000 2000 2000 2000 4 2-3 2000 2000 2000 2000 2000 5 T.at50% 6 4-5 7 6+3 3000 3000 3000 3000 3000 8 C.C.F 3000 6000 9000
1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 3.3333 Years
Payback Period =
PROJECT B 1 Year 1 2 3 4 5 2 CF 6000 3000 2000 5000 5000 3 Dep 2000 2000 2000 2000 2000 4 5 2-3 T.at50% 4000 1000 0 3000 3000 2000 500 0 1500 1500 6 4-5 2000 500 0 1500 1500 7 6+3 4000 2500 2000 3500 3500 8 C.C.F 4000 6500 8500
Payback Period =
3.4286 Years
PROJECT A 1 2 Year CF 0 1 2 3 -10000
3 Dep -
4 5 2-3 Tax 50% 1000 1000 1000
6 4-5 1000 1000 1000
7 6+3 3000 3000 3000
8 DCF10%
9 7*8
1.00 -10000 0.909 0.826 0.751 2727 2478 2253
4000 2000 2000 4000 2000 2000 4000 2000 2000
4
5
4000 2000 2000

4000 2000 2000 PI=
1000
1000
1000
1000 1.137
3000
3000
0.683
0.621 NPV
2049
1863 1370
PROJECT B 1 2 Year CF 0 1 -10000
3 Dep -
4 5 2-3 Tax50% 2000
6 4-5 2000
7 6+3 4000
8 DCF10%
9 7*8
1.00 -10000 0.909 3636
6000 2000 4000
2
3 4 5
3000 2000 1000

2000 2000 0
500
0 1500 1500 PI=
500
0 1500 1500 1.177
2500
2000 3500 3500
0.826
0.751 0.683 0.621 NPV
2065
1502 2391 2174 1767
5000 2000 3000 5000 2000 3000
PROJECT B 1 Year 2 CF 10000 3 Dep 4 5 6 4-5 7 6+3 8 DCF10 % 9 10 11 12 13 12*7 Tat 2-3 50%
7*8 DCF12%
10*7 DCF15%
0 1
4000
1.00 -10000 0.909 3636
1.000 -10000 0.893 3572
1.000 0.870
-10000 3480
6000 2000 4000 2000 2000
2
3 4 5
3000 2000 1000

2000 2000 0
500
0
500
0
2500
2000 3500 3500
0.826
0.751 0.683 0.621 NPV
2065
1502 2391 2174 1767
0.797
0.712 0.636 0.567
1993
1424 2226 1985 1199
0.756
0.658 0.572 0.497
1890
1316 2002 1740 427.5
5000 2000 3000 1500 1500 5000 2000 3000 1500 1500
PROJECT B-By Trial and Error Method 1 7 12 13 Year 6+3 DCF15% 12*7 0 1 2 3 4 5 -10,000 4000 2500 2000 3500 3500 1.000 0.870 0.756 0.658 0.572 0.497 -10,000 3480 1890 1316 2002 1739.5 428
14 DCF16% 1.000 0.862 0.743 0.641 0.552 0.476
15 14*7 -10,000 3,448 1,858 1,282 1,932 1,666 186
16 DCF18% 1.000 0.848 0.718 0.609 0.516 0.437
17 16*7 -10,000 3,392 1,795 1,218 1,806 1,530 260
IRR=
Smaller Discount Rate+NPV at Smaller Rate/Sum of the absolute values of the NPV @ smaller & bigger discount rates X( Bigger Discount Rate-Smaller Discount Rate) 16 + 0.83 = 16.83
Project A Average Rate of Return(ARR)= Average Income/Average Investment X 100 Average Income = Rs (1000+1000+1000+1000+1000)/5 = Rs 5000/5 = Rs 1000 Average Investment = (0+10000)/2 = Rs 5000 ARR = Rs 1000/5000 X100 = 20% Project B Average Income= Rs (2000+500+0+1500+1500)/5 = 1100 Average Investment= Rs (0+10000)/2 = Rs 5000 ARR = 1100/5000 X 100 = 22%
Problem 1: A company is faced with the problem of choosing between two mutually Exclusive projects. Project A requires a cash outlay of Rs 1,00,000 and cash running Expenses of Rs 35,000 per year. On the other hand, Project B will cost Rs 1,50,000 and requires cash running expenses of Rs 20,000 per year. Both the machines have eight years life. Project A has a Rs 4,000 salvage value and Project B has Rs 14,000 salvage value. The companys tax rate is 50 per cent and has a 10% required rate of return. Assume depreciation on straight line basis and no tax on salvage values of assets. Which project is to be accepted Problem 2: A company is considering a proposal of installing a drying equipment. The equipment would involve a cash outlay of Rs 6,00,000 and working capital of Rs 80,000. The expected life of the project is 6 years without any salvage value. Assume that the company is allowed to charge depreciation on straight-line basis for tax purpose, and that the rate is 50 percent. The estimated before tax cash flows are given below: Before tax Cash Flows (Rs 000) Year 1 2 3 4 5 6 210 180 160 150 120 100
Solution: 2 1 2 4 5 6 7 8 9 10 11 12 13 Year CF T.50% Bal T.S DCF PVS DCF PVS DCF PVS 2-4 5+6 at 12% 7x8 at 8% 7x10 at 6% 7x12 0 -680 0 -680 0 -680 1.000 -680 1.000 -680 1.000 -680 1 210 105 105 50 155 0.893 138 0.926 144 0.943 146 2 180 90 90 50 140 0.797 112 0.857 120 0.890 125 3 160 80 80 50 130 0.712 93 0.794 103 0.840 109 4 150 75 75 50 125 0.636 80 0.735 92 0.792 99 5 120 60 60 50 110 0.567 62 0.681 75 0.747 82 6 100 50 50 50 180 0.507 91 0.630 113 0.705 127 Rs'000 -104 -33 8 Depreciation=600000/6=100000 Tax Shield=100000*50%=50000 At the end of life of the equipment working capital will be realized NPV=Negative=-104 IRR= 6.39 %
Solution:1 We have to solve this problem by comparing both projects 1 2 3 Rs Rs Rs Project A Project B Incremental Value 1 Intial Outlay 100000 150000 -50000 2 Project B has excess outlay of Rs 50000 3 Depreciation 12500 18750 6250 on Rs 6,250 Tax Shield (Savings in Tax) Rs 6,250 x 50% = 3,125 is benefit to Project A 4 Operating Expenses 35000 20000 15000 Savings in Project B of Rs 15000 After Tax Savings = 15000 x 50% = 7500 Total benefit = 3125+7500 = 10625 5 Salvage Value at the end 4,000 14000 10,000 No tax on salvage Value Intial Outlayof Project B -50000 Total Savings 10625 More Salvage Value (at 8th Year) 10000
Year 1 2 3 4 5 6 7 8
DCF at 10% 0.909 0.826 0.751 0.683 0.621 0.565 0.513 0.467 5.335
DCF 1.000 5.335 0.467 NPV
PVS -50000 56684 4670 11354
If the companys opportunity cost of capital is 12 per cent, calculate the equipments net present value and internal rate of return. Problem3: Analyze the case and answer the question given at the end: A firm has two options, each of them costing Rs 10,000 and having a life period of 5 years. Assume a required rate of return of 6% after taxes. The net cash flows for both the projects are shown below. Which project should be accepted ? Year CF Project A CF Project B 1 5000 4000 2 5000 5000 3 4000 4000 4 3000 3500 5 500 3000 (a) Determine i. Payback period and ii. ARR for both projects (b) Determine NPV of both projects (c) Determine profitability index of project A and B
Solution 3 Payback Period Project A CF 5000 5000 4000 Project A CF CCF 4000 4000 5000 4000 9000 13000
Year 1 2 3
CCF 5000 10000 14000
Year 1 2 3
4
5
3000
500
17000
17500
4
5
3500
3000
16500
20000
Payback Period = 2 Years
Payback Period = 2.25 Years =1000/4000 0.25
ARR=
Average Income/Average Investment
Project A Average Income = (5000+5000+4000+3000+500)/5 = 3500 Average Investment= (0+10000)/2 = 5000 ARR= 3500/5000 = 70% Project B Average Income = (4000+5000+4000+3500+3000)/5 = 3900 Average Investment= (0+10000)/2 = 5000 ARR= 3900/5000 = 78%
NPV 1 Year 2 CF Project A 3 CF Project B 4 DF at 6% 5 PVS Project A 2x4 1.000 -10000 4715 4450 3360 6 PVS Project B 3x4 -10000 3772 4450 3360
0
1 2 3
-10000
5000 5000 4000
-10000
4000 5000 4000
0.943 0.890 0.840
4
5
3000
500
3500
3000
0.792
2376
374 5275
2772
2241 6595
PI of A PI of B
0.747 NPV Projec B should be accepted 1.5275 1.6595 Project B should be accepted
Problem: Read the case and answer the problems that follow. X Company Ltd., having its head office at Mumbai, wants to setup a factory at Gulbarga. The Finance Department of the company developed the following data for the purpose of determining the economic feasibility of the proposal: a) Purchase of land Rs 3,00,000 to be paid at the time of purchase (t=0) and two installment of Rs 2,00,000 each to be made at the end of the next two years(t=1-2). b) Construction of the factory building to be completed in two years. the contractor is to be paid Rs 12,00,000 in two equal installments at the end of year 2 and 3 (t=2-3) C) Equipment cost to be incurred at the start of the year 4 (t=3) is Rs 12,00,000. d) The operations will begin at the start of the year 5 (t=4). e) It is expected that there will be a need for working capital investment. The details are: Rs 3,00,000 accounts receivable, Rs 15,00,000 inventories and current liabilities will also increase by Rs 2,00,000
The operations will begin in year 5 and will continue for 12 years through the year 16. The sales revenue and operating costs are assumed to at the end of each year (t=5 to 16). The following additional assumptions are made: i) The building and equipment will be depreciated over a 12 year life starting in year 5. The factory building after 12 years is estimated to have salvage value of Rs 6,00,000. The plant however expected to have no salvage value. The company expects to sell land at Rs 8,00,000 when the plant is closed down. The company uses the straight line method of depreciation. ii) Its cost of capital is 10% iii) Annual sales are Rs 28,00,000 iv) Annual variable operating costs are Rs 10,00,000 v) Annual fixed operating costs excluding depreciation are Rs 2,00,000 vi) The companys normal tax rate is 35% Question:
Should the company accept this project ? Use the NPV method for the purpose of calculation
Solution 1. Computation of Working Capital Rs Current Assets Accounts Receivables Inventories Less:Current Liabilities Working Capital 300000 1500000 1800000 200000 1600000
2.Net Revenue Before Tax Annual Sales

Annual Operating Costs -Variable -Fixed
2800000
B A-B
1000000 20000 1020000 1780000
3.Depreciation a)Factory Building Year 2 Year 3 Less:Salvage Value
1200000 1200000 2400000 600000 1800000 150000 1200000 100000
Depreciation 1800000/12
b)Equipment 1200000/12
1 Yea r
2 CF Dep
4 2-3
5 Tx.35%
6 4-5
7 Add-Dep i.e CF
8 DF
9 PVS 7x8 -300000 -181800 -661600
0 1 2 3 4 5 6
-300000 -200000 -800000 -1800000 -
-300000 -200000 -800000 1800000
- - - -
300,000 200,000 800,000 -
300,000 1.000 200,000 0.909 800,000 0.827
- - 1,800,000 -1,800,000 0.751 -1351800 - 0.683 180000 0.621 1,279,500 0.565 111780 722918
- 180000 350000 -170000 -170000 1780000 350000 1430000 500500 929,500 Year 2 Outlay Year 3 Outlay Buildin Land -200000 g Building Construction -600000 Equipment -800000 Year 5 Outlay W/C 1780000- 1600000
-600000 -1200000 -1800000
Year
CF
Dep
2-3
Tx.35%
4-5
Add-Dep
i.e CF
DF
B/F
PVS
7x8 -xxxxxx 656384 597527 542508
7 1780000 350000 1430000 500500 8 1780000 350000 1430000 500500 9 1780000 350000 1430000 500500
929500 929500 929500
1279500 1279500 1279500
0.513 0.467 0.424
10 1780000 350000 1430000 500500

11 1780000 350000 1430000 500500 12 1780000 350000 1430000 500500 13 1780000 350000 1430000 500500 14 1780000 350000 1430000 500500 15 1780000 350000 1430000 500500
929500
929500 929500 929500 929500 929500
1279500
1279500 1279500 1279500 1279500 1279500 2189500
0.386
0.351 0.319 0.290 0.263 0.239 0.218
493887
449105 408161 371055 336509 305801 477311 3046363
16 3180000 350000 2830000 990500 1839500 +160000 realizatio Of W/C0 n no tax
Salvage Value of Bld=600000+Sale of Land=800000=1400000+1780000
Problem: Solve the case and answer all the questions at the end: On November 15, 1978, Department of Energy Resources awarded Telestar a 4,75,000 contract for the developing and testing of two waste treatment plants. Telestar had spent the better part of the last two Years developing waste treatment technology under their own R & D activities. This new contract would give Telestar the opportunity to break into a new field, that of waste treatment.
The contract was negotiated at a firm fixed price. Any cost overruns would have to be incurred by Telestar. The original bid was priced out at 8,47,000. Telestars management however, wanted to win this one. The decision was made that Telestar would buy in at 4,75,000 so could at least get their foot into the new market place.
The original estimate of 8,47,000 was very rough because Telestar Did not have any odd man-hour standards, in the area of waste Treatment, upon which to base their man-hour projections. Corporate management was willing to spend up to 4,00,000 of their own funds in order to compensate the bid of 4,75,000.
By February 15, 1979, costs were increasing to such a point where overrun would be occurring well ahead of schedule. Anticipated costs to completion were now 9,43,000. The project manager decided to stop all activities in certain functional departments, one of which was structural analysis department strongly opposed the closing out of the work order prior to testing of the first plants high pressure Pneumatic and electrical systems. Structures Manager: You are running a risk if you close out this work Order. How will you know if the hardware can withstand the stresses that will be imposed during the test ? After all, the test is scheduled for next month and I can probably finish the analysis by then. Project Manager: I understand your concern, but I cannot risk a cost overrun. My boss expects me to do the work within cost. The plant design is similar to one that we have tested before, without any structural problems being detected. On this basis I consider your analysis as unnecessary.
Structures Manager:Just because two plants are similar does not mean that they will be identical in performance. There can be major structural deficiencies. Project Manager: I guess the risk is mine. Structures Manager: Yes, but I get concerned when a failure can reflect upon the integrity of my department. You know, we are performing on schedule and within the time and money budgeted. You are setting a bad example by cutting off our budget without any real justification. Project Manager:I understand your concern, but we must pull out all stops when overrun costs are inevitable. Structures Manager: Theres no question in my mind that this analysis should be completed. However Im not going to complete it on my overhead budget. Ill resign my people tomorrow. Incidentally, you had better be careful; my people are not very happy to work for a project that can be cancelled immediately. I may have trouble getting volunteers next time.
Project Manager: Well Im sure youll be able to adequately handle any future work. Ill report to my boss that I have issued a work stoppage order to your department. During next months test, the plant exploded, post analysis indicated that the failure was due to structural deficiency. Questions: 1) Who is at fault ? 2) Should the structures manager have been dedicated enough to the work on his own ? 3) Can a functional manager, who considers his organization as strictly support, still be dedicated to total project success ?
=27-1-8-3 2
15 15 5 5
37 27 =15+3+8+1
15 0 0 1
3 3
15
8 3 18 =15+318
1
26 26 4 12 14
26 26 =18+8 14 12 6
7 40 40
54 54
=15+3+8+14+14=54 Backward Pass=Maximum Forward Pass=Min =18+8+14
Activity 1-2 1-3 2-3 2-5 3-4 3-6 4-5 4-6 5-6 6-7
N.Time 15 15 3 5 8 12 1 14 3 14
EST 0 0 15 15 18 18 26 26 27 40
SFT 15 15 18 20 26 30 27 40 30 54
LST 0 3 15 32 18 28 36 26 37 40
LFT 15 18 18 37 26 40 37 40 40 54
TF 0 3 0 17 0 10 10 0 10 0
EFT=N.Time +EST LST=LFT-N.Time TF=LFT-EFT OR LST-EST
The following table shows the jobs of a project with their duration in days. Draw the network and determine the critical path. Also calculate all the floats. Jobs 1-2 1-3 1-4 2-5 3-7 4-6 5-7 5-8 6-7 6-9 7-10 8-10 9-10 10- 11 11-12 Days 10 8 9 8 16 7 7 7 8 5 12 10 15 8 5
18 18 10 10 10
5
7 7 7
27 25
8 10
1
0
0 9
16
7
12
25 25 8 15 9 15
0 1
37 37
1 1
5
45 45 50 50
1 2
4
7
10 9
5 22
16 16
21
Acty 1-2 1-3 1-4 2-5 3-7 4-6 5-7 5-8 6-7 6-9 7-10 8-10 9-10 10-11 11-12
NT 10 8 9 8 16 7 7 7 8 5 12 10 15 8 5
EST 0 0 0 10 8 9 18 18 16 16 25 25 21 37 45
EFT 10 8 9 18 24 16 25 25 24 21 37 35 36 45 50
LST 0 1 1 10 9 10 18 20 17 17 25 27 22 37 45
LFT 10 9 10 18 25 17 25 27 25 22 37 37 37 45 50
TF 0 1 1 0 1 1 0 2 1 1 0 2 1 0 0
FF 0 0 0 0 1 0 0 0 1 0 0 2 1 0 0
IF 0 0 0 0 0 -1 0 0 0 -1 0 0 0 0 0
FF=TF-Head event EFT=NT+EST slack LST=LFT-NT IF=FF-Tail event slack(TF) TF=LFT-EFT OR LST- If tail even is on CPM that is to be EST taken
PERT
to = Optimistic time estimate
1. It is the minimum time taken to complete the activity if every thing goes well 2. Very little chance that activity can be done in time, that is less than optimistic time
tm = Most likely time estimate

Normal time the activity would take (Mode)
tp = Pessimistic time estimate

It is the longest time that an activity would take if everything goes wrong From these we have to calculate expected time that is denoted by
te
Formula =
te = to +4tm +tp 6
PERT PROCEDURE: 1. Draw the project Network 2. Compute the expected time using the above formula Also calculate variance 3. Compute the EST EFT LST and LFT and TF of each activity 4. Find the Critical Path and identify the critical activities 3. Find the standard deviation of the project length
Problem: The following table shows the jobs of a network along with their time estimates. Job 1-2 1-6 2-3 2-4 3-5 4-5 6-7 5-8 7-8 a (days) 1 2 2 2 7 5 5 3 8 m () 7 5 14 5 10 5 8 3 17 b () 13 14 26 8 19 17 29 9 32
Draw the project network and find the probability that the project is completed in 40 days

Project Management

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What are the characteristics of a project?

What are the characteristics of a project?

What are the objectives of a project?

What are the objectives of a project?

Nature and Purpose of Project Management

Product example: Apple I Phone-touch screen

Involve several professionals

Have not been done before

Specific Time, Cost and Performance Requirements

The Project Approach

What is Project Management

Project management principles and techniques help complete project on schedule

The Project Objectives must be SMART

Scope of Project Management

Scope of Project Management

Project Manager Skills

Project Manager Skills

Project Manager Skills

Effective Communication Requires

A communication plan describes what information is communicated

It creates disruption (trouble)

Identify the problem

Create Transition Plan

Keep them aware of the progress of the project

Use combination of formal authority and persuasion (influence) skills

Persuasion is the ability to convince another person to accept such responsibility

Knowledge of the Organization

Traditional Management Life Cycle

All the above are considered as components of project plan

What is Project Quality Plan

Sources of Project Ideas

Build Own Operate Transfer(BOOT)

Just In Time (JIT)

Advantages Just-In-Time Systems

The Project Life Cycle

Main Components of Project Cost

Project Management Process

Project Contract (for services)

Project Constraints (cont)

Equipment order lead times cannot be specified with accuracy.

Project Constraints (cont)

Project Constraints (cont)

Two Approaches to Project Management

Two Approaches to Project Management (cont)

Project Review (cont)

Advantages of Project Financing

Disadvantages of Project Financing

Contemporary Issues In Project Management

Project Scheduling (cont)

Based on what occurs during the development

Project Scheduling Techniques

Critical activities must be achieved on time to avoid delay in the project

EXAMPLE OF A GANTT CHART

CRITICAL PATH IS LONGEST PATH = 17 DAYS

Nature And Purpose Of Project Management

Nature And Purpose Of Project Management (cont)

Nature And Purpose Of Project Management (cont)

Project Management Context

Project Management Context (cont)

Project Management Context (cont)