Introduction to Project Management

What is a Project?
 A project is a temporary endeavor undertaken to
produce a unique product or service to satisfy a
customer need

Temporary Characteristics of Unique

Projects

 Temporary – Definitive beginning and end

 Unique – New undertaking, unfamiliar ground
What is a Project?
Defined start and end, specific scope, cost
and duration

A temporary endeavor undertaken to create

a unique product, service or result

A series of activities aimed at bringing about

clearly specified objectives within a defined
time period and with a defined budget
What is a project?
 The differences between projects and operations:
Characteristics of Operations
Ongoing – Continuous cycle
Repetitive – Expected inputs and outputs

Characteristics of Projects
Temporary – Definitive beginning and end

Unique – New undertaking, unfamiliar ground

Project situations
Startup or shutdown of plant
Installation of equipment
Manufacture of aircraft, ships, and large machines
Space shots
Auditing accounts
Fund-raising
Planning a military invasion
Building construction
Movie making
New product R & D & introduction
Launching a course
Designing an advertising campaign
Computer system development
Project Success
Customer
Completed within
Requirements
allocated time frame
satisfied/exceeded

Completed within Accepted by the

allocated budget customer
Project Failure

Poor Requirements
Scope Creep
Gathering

Unrealistic planning Lack of resources

and scheduling
What is Project
Management?
Project Management is the application of
skills, knowledge, tools and techniques to
meet the needs and expectations of
stakeholders for a project.
The purpose of project management is
prediction and prevention, NOT
recognition and reaction
Triple Contraint
Time

Quality
Cost Scope
Triple Contraint
Increased Scope = increased time +
increased cost

Tight Time = increased costs + reduced

scope

Tight Budget = increased time + reduced

scope.
Key Areas of Project
Management
Scope Management
Issue Management
Cost Management
Quality Management
Communications Management
Risk Management
Change Control Management
Scope Management
 Primarily it is the definition and control of what IS
and
IS NOT included in the project.
Issue Management
 Issues are restraints to accomplishing the
deliverables of the project.
 Typically identified throughout the project and
logged and tracked through resolution.

Issue… already impacting the cost, time or quality

Rope not thick

Cost Management
 This process is required to ensure the project
is completed within the approved budget and
includes:

Resources Budget
people
equipment
materials
Quantities
Quality Management
 Quality Management is the process that
insure the project will meet the needs

“conformance to requirements” - Crosby

“fitness for use” - Juran

“the totality of characteristics of an

entity that bear on its ability to
satisfy stated and implied need’ - ISO 8402:1994
Communications
Management
 This process is necessary to ensure timely and
appropriate generation, collection, dissemination,
and storage of project information
Risk Management
 Risk identification and mitigation strategy
 Risk update and tracking

Risk… POTENTIAL negative impact to project

Change Control
Management
Define how changes to the project
scope will be executed
Scope Change Technical Specification Changes

Schedule changes

All changes require collaboration and buy in via the project sponsor’s signature
prior to implementation of the changes
Project Life Cycle
Initiation Phase
 Define the need
 Return on Investment Analysis
 Make or Buy Decision
 Budget Development
Definition Phase
 Determine goals, scope and project
constraints
 Identify members and their roles
 Define communication channels, methods,
frequency and content
 Risk management planning
Planning Phase
 Resource Planning
 Work Breakdown Structure
 Project Schedule Development
 Quality Assurance Plan
Work Breakdown
Structure
 For defining and organizing
the total scope of a project
 First two levels - define a
set of planned outcomes
that collectively and
exclusively represent 100%
of the project scope.
 Subsequent levels -
represent 100% of the
scope of their parent node
Implementation Phase
 Execute project plan and accomplish project
goals
 Training Plan
 System Building
 Quality Assurance
Deployment Phase
 User Training
 Production Review
 Start Using
Closing Phase
 Contractual Closeout
 Post Production Transition
 Lessons Learned
Project Management
Tools
 PERT Chart - designed to analyze
and represent the tasks involved in
completing a given project

 Gantt Chart - popular

type of bar chart that
illustrates a project
schedule
Gantt Chart
PERT (Program or Project Evaluation and
Review Technique)Chart (First

class-17/3/11)
Scope Management
 Project Scope Management is the process to
ensure that the project is inclusive of all the work
required, and only the work required, for
successful completion.
 Primarily it is the definition and control of what IS
and
IS NOT included in the project.
Issue Management
 Issues are restraints to accomplishing the
deliverables of the project.
 Issues are typically identified throughout the
project and logged and tracked through
resolution.
 In this section of the plan the following processes
are depicted:
 Where issues will be identified and tracked
 The process for updating issues regularly
 The escalation process
 The vehicle by which team members can access
documented issues
Cost Management
 This process is required to ensure the project
is completed within the approved budget and
includes:
 Resource Planning - The physical resources
required (people, equipment, materials) and
what quantities are necessary for the project
 Budget
 Budget estimates
 Baseline estimates
 Project Actuals
Quality Management
 Quality Management is the process that
insure the project will meet the needs via:
 Quality Planning, Quality Assurance, and
Quality Control
 ClearlyDefined Quality Performance Standards
 How those Quality and Performance Standards are
measured and satisfied
 How Testing and Quality Assurance Processes will
ensure standards are satisfied
 Continuous ongoing quality control
Communications
Management
 This process is necessary to ensure timely and
appropriate generation, collection, dissemination,
and storage of project information using:
 Communications planning
 Information Distribution
 Performance Reporting

 Define the schedule for the Project Meetings

(Team, OSC, ESC), Status Meetings and Issues
Meetings to be implemented
Risk Management
 Risk identification and mitigation strategy
 When\if new risks arise
 Risk update and tracking
Change Control
Management
Define how changes to the project
scope will be executed
 Formal change control is required for all of the following
1. Scope Change
2. Schedule changes

3. Technical Specification Changes

4. Training Changes

 All changes require collaboration and buy in via the

project sponsor’s signature prior to implementation of
the changes
Role of a Project
Manager

• Project issues
• Disseminating project information • Implementing standard processes
• Mitigating project risk • Establishing leadership skills
• Quality • Setting expectations
• Managing scope • Team building
• Metrics • Communicator skills
• Managing the overall work plan

Process People
Responsibilities Responsibilities
Nine Project
Management Knowledge
Areas – by PMI
 Project Integration Management
 Project Scope Management
 Project Time Management
 Project Cost Management
 Project Quality Management
 Project Human Resource Management
 Project Communications Management
 Project Risk Management
 Project Procurement Management
Capital Investments as
Projects: Classification I

Physical
Monetary
Intangible
Capital Investments as
Projects: Classification II
Strategic Investments
Tactical Investments
Capital Investments as
Projects: Classification
III
Mandatory Investments
Replacement Investments
Expansion Investments
Diversification Investments
R & D Investments
Miscellaneous Investments
Phases of Capital
Investments
Planning
Analysis
Selection
Financing
Implementation
Review
Planning
Articulation of broad investment
strategy
Generation of project proposals
Preliminary screening of project
proposals -
 To see if the project is worth while to justify a
feasibility study and
 To identify aspects critical to the viability of the
project and hence warrant in-depth investigation
Analysis
 Market analysis
 Technical analysis
 Financial analysis
 Economic analysis
 Ecological analysis
Market Analysis

Potential market
Potential market share
Technical Analysis

Technical Viability
Sensible Choices
Financial Analysis

Risk
Return
Economic Analysis

Cost – Benefit Analysis in

shadow prices
Other impacts
Ecological Analysis

Potential environmental
damages
Restoration measures
Selection
 Appraisal Criteria:
 Non DCF
 Payback period (PBP)
 Accounting rate of return (ARR)
 DCF
 Net Present Value (NPV)
 Internal rate of return (IRR)
 Benefit cost ratio (BCR)
Financing
 Equity
 Paid-up capital
 Share premium
 Retained earnings
 Debt
 Term loan
 Debenture
 Working capital loans and advances
Implementation
Project and engineering designs
Negotiation and contracting
Construction
Training
Plant commissioning
Review
Compare actual with projected
performance – usefulness –
Throws light on how realistic were the
assumptions
Provides a documented log of experience
Suggests corrective actions to be taken
Feasibility Study (Second
class – 21/3/2011)

Planning
Analysis
Selection
Financing
Key Considerations in
Investment Decisions
Investment: Does the firm has comparative
advantage over competitors in investing in the
project?
Risks: Assess risks and how do you handle
them?
DCF Valuation for selection
Financing decision
Impact on short-term EPS
Value of Options available
Weaknesses in Capital
Budgeting
Poor alignment between firm
strategy and capital budgeting
Deficiency in analytical techniques
–
 Analysis of with and with out the project
 Inadequate treatment of risk
 Lack of identification and evaluation of options
 Lack of uniformity in assumptions
 Ignoring side effects
Weaknesses in Capital
Budgeting
No linkage between compensation
and financial measures
 Reverse Financial engineering
Weak linkage between capital
budgeting and expense budgeting
Inadequate post-audits
Phase I: Generation and
screening of project
ideas
 The key to success lies in getting into the right business
at the right time
 A simple advise but very difficult to accomplish
 Requires –
 Imagination
 Sensitivity to environmental changes
 Realistic assessment of what the firm can do
 Identification is often the outcome of a triggering process
rather than an analytical exercise
Generation of project
ideas
 Stimulate the flow of ideas by
 SWOT analysis
 Clear articulation of organisational objectives
 Cost reduction
 Productivity improvement

 Increase in capacity utilisation

 Improvement in contribution margin

 Entry /Expansion in to promising fields

 Fostering a conducive climate for employees

Generation of project
ideas – monitoring the
environment
Generation of project
ideas – monitoring the
environment
 Governing environment
 Industrial policy
 Government programmes and projects
 Tax structure
 Subsidies, incentives and concessions
 Import and export policies
 Financing norms
 Lending conditions of banks and financial institutions
Generation of project
ideas – monitoring the
environment
 Technological factors
 Emergence of new technologies
 Access to technical know-how
 Receptiveness on the part of industry
 Socio-demographic environment
 Population trends
 Age shifts
 Income distribution
 Educational profile
 Women employment
 Attitude towards consumption and investments
Generation of project
ideas – monitoring the
environment
 Competitive environment
 Number of firms in industry and market shares of
the top few
 Degree of homogeneity / differentiation among
products
 Entry barriers
 Comparison with substitutes in terms of quality,
price, appeal and functional performance
 Marketing policies and practices
Generation of project
ideas – monitoring the
environment
 Supplier environment
 Availability and cost of raw materials and sub-
assemblies
 Availability and cost of energy, water, etc
 Availability and cost of money
Generation of project
ideas – Corporate
appraisal
 Marketing and Distribution
 Market image
 Product line
 Market share
 Distribution network
 Customer loyalty
 Marketing and distribution costs
Generation of project
ideas – Corporate
appraisal
 Production and Operations
 Condition and capacity of plant and machinery
 Availability of raw materials, sub-assemblies
and power
 Degree of vertical integration
 Locational advantages
 Cost structure
Generation of project
ideas – Corporate
appraisal
 Research and Development
 Research capabilities of the firm
 Track record of new product developments
 Laboratories and testing facilities
 Coordination between research and operations
Generation of project
ideas – Corporate
appraisal
 Corporate resources and personnel
 Corporate image
 Clout with government and regulatory
agencies
 Dynamism of top management
 Competence and commitment of employees
 State of industrial relations
 ideas – Corporate
appraisal (3rd session –
22/3/2011)
 Finance and Accounting
 Financial leverage and borrowing capacity
 Cost of capital
 Tax structure
 Relation with share holders and creditors
 Accounting and control systems
 Cash flows and liquidity
Tools for identifying
investment
opportunities

Porter model
Life cycle approach
Experience curve
Porter’s model
 Profit potential of an industry depends on
strength of five basic competitive forces
Threat of new entrants
Rivalry among existing firms
Pressure from substitute products
Bargaining power of buyers
Bargaining power of sellers
Product life cycle
approach

Pioneering stage
Rapid growth stage
Maturity and stabilisation stage
Decline stage
Experience curve
 The unit cost decreases by 20% for each
doubling of the accumulated volume
Experience curve
Factors contributing to decline in unit
cost
Learning effects on labour skills
Technological improvements
Economies of scale: Usually a doubling in
capacity leads to 52% to 74% increase in
costs
Scouting for project ideas
 Analyse performance of existing industries
 Review imports and exports
 Study plan outlays and government outlays
 Suggestions of financial institutions and development
agencies
 Analyse economic and social trends
 Explore reviving sick units
 Identify unfulfilled needs
 Attend trade fairs
Preliminary screening
 Compatibility with the promoter
 Consistency with government priorities
 Availability of inputs
 Adequacy of market
 Reasonableness of cost
 Acceptability of risk level
Project rating index
 Identify relevant factors for project rating
 Assign weights to each factor
 Rate the project proposal on various factors
 Multiply each factor rating with respective
weights to get factor scores
 Add all the factor scores to get a project
rating index
Sources of positive NPV
Economies of scale
Product differentiation
Cost advantage
Marketing reach
Technological edge
Government policy
On being a successful
entrepreneur - traits
Willingness to make sacrifices
Leadership
Decisiveness
Confidence in the project
Marketing orientation
Strong personality
Phase – II, Analysis:
Market and Demand
Analysis
Objective:
 To analyse market demand
 To find out the market share of the company

 Sources of information:
 Primary
 Secondary
Characterisation of the
market:
Overall demand
Break up of demand
Prices
Methods of distribution and sales
promotion
Consumers
Supply and competition
Government policy
Demand Forecasting (4 th

Session – 24/3/2011)
 Qualitative methods:
 Jury of executive opinion method
 Delphi method
 Time Series projection
 Trend / regression analysis
 Exponential smoothing
 Moving averages
 Causal methods:
 Consumption level method – use elasticities of demand
 End use method, Bass diffusion model, leading indicator
method
 Econometric method – single and multiple equations
Uncertainties in demand
forecasting
Data about past and present
 Lack of standardisation
 Less observations
 Abnormal factors
Methods of forecasting
 Unrealistic assumptions
Environmental changes
 Technology, policies, sources of RM, weather,
etc.
Marketing plan
 Current marketing situation
 Market situation, competitive situation,
distribution situation, macro-environment
 Opportunity and issue analysis - SWOT
 Objectives
 When breakeven, market share, sales target,
brand image, brand recall, etc.
 Marketing strategy
 Target segment, product line, price, distribution,
sales force, promotion, advertising, etc.
 Action program to operationalise strategy
Problems (Session no.5
on 2/4/2011)
 1. Least square regression / trend analysis
 2. Exponential smoothing, F (t+1) = F (t) + a * e (t),
e(t) = S (t) – F (t).
 3. A 3 periods moving average
 4.Income elasticity of demand, Ie = (Q2 – Q1) / (I2 –
I1) * (I1 + I2)/ (Q1 + Q2)
 5. Price elasticity of demand, Pe = (Q2 – Q1) / (P2 –
P1) * (P1 + P2)/ (Q1 + Q2)
 6. Bass Diffusion Model, n (t) = p*N + (q-p)* N (t-1)
+ (q/N) * (N (t-1))^2
Technical Analysis
1. To ensure that the project is
technically feasible – all inputs
required to set up the project are
available
2. to facilitate the most optimal
formulation of the project in terms
of technology, size, location, etc.
Technical Analysis:
Choice of technology
Plant capacity
Principal inputs
Investment outlay and production costs
Past experience of others
Product mix
Latest developments
Ease of absorption
Technical Analysis:
material inputs and
utilities
 Raw materials:
 Agriculture products
 Mineral products
 Livestock and forest products
 Marine products
 Processed industrial materials and components
 Auxiliary materials:
 chemicals, packing materials, additives, etc.
 Utilities:
 Power, water, steam, fuel, etc.
Technical analysis:
Product mix
Technical Analysis: Plant
capacity
Technological requirement
Input constraints
Investment cost
C2 = C1 *(Q2 / Q1)^a , 0.2 < a < 0.9
Market conditions
Resources of the firm
Government policy
Technical Analysis:
Location and site
 Proximity to raw materials and markets
 Availability of Infrastructure
 Labour situation
 Government policies
 Other factors
 Climatic conditions
 General living conditions
 Proximity to ancillary units
 Ease in coping with pollution
 Site selection
Technical Analysis:
 Machineries and equipments:
 Production technology and plant capacity
 Constraints in selection
 Procurement of plant and machinery
 Structures and civil works:
 Site preparation and development
 Buildings and structures
 Outdoor works
 Environmental aspects
Technical Analysis:
Project charts and
layouts
 General functional layout
 Material flow diagram
 Production line diagrams
 Transport layout
 Utility consumption layout
 Communication layout
 Organisational layout
 Plant layout
 Schedule of project implementation and work
schedule
Technical Analysis:
Consider alternatives

Nature of project
Production process
Product quality
Scale of operation and time scaling
Location
Financial Analysis
Financial estimates and
projections for preparing
Profit and loss statement
Balance sheet
Cash flow statement
Financial estimates and
projections: Cost of
Project
 Land and site development
 Buildings and civil works
 Plant and machinery
 Technical know-how and engineering fees
 Foreign / local technicians and training costs
 Miscellaneous fixed assets
 Preliminary and capital issue expenses
 Pre-operative expenses
 Margin money for working capital
 Initial cash losses
Means of finance (session
6 on 6/4/2011)
 Share capital
 Term loans
 Debentures
 Deferred credit
 Incentive sources
 Miscellaneous sources
Key business
considerations for
project financing
 Cost of funds
 Risks
 Business risk
 Financial risk
 Control
 Flexibility
Estimates of sales and
production
Cost of production
 Material cost
 Utilities cost
 Labour cost
 Factory overhead cost
Working capital
estimates and sources
Profitability projections
Projected statements
 Profit and loss account
 Balance sheet
 Cash flow statement
Multi year projections
(session no.8 on
8/4/2011)
Selection (session no.9
on 9/4/2011)
 Criteria:
 DCF basis
 NPV
 Cost benefit ratio
 IRR
 Non-DCF basis
 Pay back period
 A/c rate of return
Net Present Value (NPV)
 Properties:
 NPVs are additive
 Intermediate cash flows are invested at cost of capital
 Can use varying discounts rates
 Limitations:
 NPV is expressed in absolute terms and not in relative
terms
 Does not consider the life of the project: in mutually
exclusive projects comparison may be imbalanced
Benefit – cost ratio or
Profitability Index
 BCR = PVB / I
 NBCR = (PVB /I) – 1
 Evaluation:
 Accept / reject similar to NPV
 Rank projects in the order of decreasing
efficiency (benefit per rupee investment)
 No means of aggregating several projects into
a package
 When cash flows occur beyond the initial
period, it is not suitable
Internal rate of return
(IRR)
 Problems:
 Multiple IRRs with non-conventional cash flows
 Comparing mutually exclusive projects – should analyse
incremental cash flows
 Can not distinguish lending and borrowing
 Can not have multiple rates (like short term and long term
lending rates)
 Modified IRR (MIRR):
 PVC – PV of Investment / cost, TV – Terminal value of cash
inflows, MIRR given by PVC = TV / (1+MIRR)^n
Pay back period
 Evaluation:
 Simple – both in concept and application
 Favours projects which generate substantial cash flows
in early years then those which bring more cash inflows
later. May be suitable for firms with cash problems
 Limitations:
 Does not consider time value of money
 Ignores cash flows after pay back
 It is a measure of capital recovery not profitability
SO Discounted pay back period
Accounting rate of return
 Evaluation:
 It is simple
 Considers entire life of the project
 Based on accounting profit and not cash flow
 Limitations:
 There are many – may lead to confusion
 Accounting profit varies depending on method
of depreciation, stock valuation, etc
Project cash flows
 Estimating cash flows is the most critical and the most
difficult task of capital budgeting
 Many players in estimation:
 Capital outlays – engineering and product development
 Revenue projections – marketing department
 Operating costs – production people, cost accountants,
purchase managers, tax experts, personnel people, etc.
Project manager / Finance managers – coordinate efforts
of all departments and examine forecasts based on
consistent economic assumptions
Project cash flows:
elements

Initial Investment
Operating cash inflows
Terminal cash inflows / outflows
Project cash flows: Time
horizon of project
 Minimum of:
Physical life of the plant
Technological life of the plant
Product market life of the plant
Investment planning horizon of the
firm
Principles of cash flow
estimation (session
no.10 on 11/4/2011)

Separation principle
Incremental principle
Post-tax principle
Consistency principle
Separation principle

Separate investment and

financing sides
Incremental principle
 Measure cash flows on incremental basis
 Consider all incidental effects
 Product cannibalisation
 Ignore sunk costs
 Include opportunity costs
 Estimate net working capital properly
Post – tax principle
 Tax rate
 Treatment of losses
 Effect of non-cash charges
 Deferred tax liability / benefit
Consistency principle
 Investor group: equity holders alone or all
investors?

 Inflation
Cash flows for
replacement projects
 Initial investment = Cost of project +
incremental WC – (Salvage value of old + WC
recovery from old)
 Operating cash flow = OC new – OC old
 Terminal cash flow = Salvage + WC recovery
of new - Old
Biases in cash flow
estimations
 Over statement of profitability: Optimism

 Understatement of profitability:
 Ignored intangible benefits
 Value of Options overlooked
Feasibility Study
 Generation of Ideas

Initial Screening

Promising
Project Management: Official
Definition
A project is a temporary endeavor
undertaken to create a unique product or
service. It implies
 a specific timeframe
 a budget
 unique specifications
 working across organizational boundaries
Project Management: Unofficial
Definition
Project management is about
organization
Project management is about
decision making
Project management is about
changing people’s behavior

Project management is about

creating an environment conducive to
getting critical projects done!
Why Projects Fail
 Failure to align project with organizational
objectives
 Poor scope
 Unrealistic expectations
 Lack of executive sponsorship
 Lack of project management
 Inability to move beyond individual and
personality conflicts
 Politics
Why Projects Succeed!
 Project Sponsorship at executive level
 Good project charter
 Strong project management
 The right mix of team players
 Good decision making structure
 Good communication
 Team members are working toward common
goals
Why this matters to YOU
 Most of us get to where we are by some technical
or specific set of skills
 If you want to get things done, you need a good
blend of
Business knowledge
People management
Knowledge of organizational politics
AND an area of technical expertise

Those are the people that make things

happen!
Laws of Project
Management
 No major project is ever installed on time,
within budget, or with the same staff that
started it. Yours will not be the first.
 Projects progress quickly until they become
90% complete, then they remain at 90%
complete forever.
 When things are going well, something will go
wrong.
 When things just cannot get any worse, they
will.
Laws of Project
Management
 When things appear to be going better, you have
overlooked something.
 No system is ever completely debugged. Attempts
to debug a system inevitably introduce new bugs
that are even harder to find.
 A carelessly planned project will take three times
longer to complete than expected
 A carefully planned project will take only twice as
long.
 Project teams detest progress reporting because it
vividly manifests their lack of progress.
Core Project Management Tools
 Project Charter
 Work Breakdown Structure (WBS)
 Project Schedule
 Project Budget
Thank You