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. Role and Responsibilities of a Project Manager, Concept of Social Projects, SCBA What is a Project? “A project is a one-shot, time-limited, goal-directed, major undertaking, requiring the commitment of varied skills and resources”. A project is “ a unique endeavor to produce a set of deliverables within clearly specified time, cost and quality constraints”. Projects are temporary in nature, while operations are ongoing. Projects have definitive start dates and definitive end dates. The project is completed when the goals and objectives of the project are accomplished. Sometimes projects end when it’s determined that the goals and objectives cannot be accomplished and the project is canceled. Operations involve work that is continuous without an ending date and often repeat the same process. Projects exist to bring about a product or service that hasn’t existed before. Projects are different from standard business operational activities as they: (UBEBSSM) 1. Are Unique in nature. They do not involve repetitive processes. Every project undertaken is different from the last, whereas operational activities often involve undertaking repetitive(identical) processes. 2. Have an approved budget. Projects are allocated a level of financial expenditure within which the deliverables must be produced to meet a specified customer requirement. 3. Involve an element of risk. Projects entail a level of uncertainty and therefore carry business risk. 4. Consume human and nonhuman resources (i.e., money, people, equipment) 5. Achieve beneficial change. The purpose of a project, typically, is to improve an organization through the implementation of business change. 6. Have a specific objective to be completed within certain specifications 7. Have defined start and end dates 8. Are multifunctional (i.e., cut across several functional lines) What Is Project Management? Project management is the discipline of planning, organizing, and managing resources to bring about the successful completion of specific project goals and objectives. The primary challenge of project management is to achieve all of the project goals and objectives while honoring the preconceived project constraints. Typical constraints are scope, time, and budget. The secondary—and more determined —challenge is to optimize the allocation and integration of inputs necessary to meet pre-defined objectives. Project management is concerned with the overall planning and co-ordination of a project from beginning to end aimed at meeting the stated requirements and ensuring completion on time, within cost and to required quality standards. Project management is normally reserved for focused, non-repetitive, time-limited activities with some degree of risk and that are beyond the usual scope of operational activities for which the organization is responsible. “Project Management is the skills, tools and management processed required to undertake a project successfully”. Project Management comprises: Skills: A set of skills. Specialist knowledge, skills and experience are required to reduce the level of risk within a project and thereby enhance its likelihood of success. Tools: A suite of tools. Various types of tools are used by project managers to
improve their chances of success. Examples include document templates, register, and planning software, modeling software, audit checklists and review forms Processes: Various management techniques and processes are required to monitor and control time, cost, quality and scope on projects, examples includes management cost, mgmt time, change mgmt, risk mgmt and issue mgmt. Four Basic Elements of Project Management A successful Project Manager must simultaneously manage the four basic elements of a project: resources, time, cost, and scope. Each element must be managed effectively. All these elements are interrelated and must be managed together if the project, and the project manager, is to be a success. • Managing Resources A successful Project Manager must effectively manage the resources assigned to the project. This includes the labor hours of the project team. It also includes managing labor subcontracts and vendors. Managing the people resources means having the right people, with the right skills and the proper tools, in the right quantity at the right time. However, managing project resources frequently involves more than people management. The project manager must also manage the equipment (cranes, trucks and other heavy equipment) used for the project and the material (pipe, insulation, computers, manuals) assigned to the project. • Managing Time and Schedule Time management is a critical skill for any successful project manager. The most common cause of bloated project budgets is lack of schedule management. Fortunately there is a lot of software on the market today to help you manage your project schedule or timeline. Any project can be broken down into a number of tasks that have to be performed. To prepare the project schedule, the project manager has to figure out what the tasks are, how long they will take, what resources they require, and in what order they should be done. • Managing Costs Often a Project Manager is evaluated on his or her ability to complete a project within budget. The costs include estimated cost, actual cost and variability. Contingency cost takes into account influence of weather, suppliers and design allowances. Project Life Cycle: Patel and Morris have stated that "The life cycle is the only thing that uniquely distinguishes projects from nonprojects". The Project Life Cycle refers to a logical sequence of activities to accomplish the project’s goals or objectives. Regardless of scope or complexity, any project goes through a series of stages during its life. There is first an Initiation or Birth phase, in which the outputs and critical success factors are defined, followed by a Planning phase, characterized by breaking down the project into smaller parts/tasks, an Execution phase, in which the project plan is executed, and lastly a Closure or Exit phase, that marks the completion of the project. Project activities must be grouped into phases because by doing so, the project manager and the core team can efficiently plan and organize resources for each activity, and also objectively measure achievement of goals and justify their decisions to move ahead, correct, or terminate. It is of great importance to organize project phases into industry-specific project cycles. Why? Not only because each industry sector involves specific requirements, tasks, and procedures when it comes to projects, but also because different industry sectors have different needs for life cycle management methodology. And paying close attention to such details is the difference between doing things well and excelling as project managers. Diverse project management tools and methodologies prevail in the different project cycle phases. Let’s take a closer look at what’s important in each one of
these stages: a) Need identification b) Initiation c) Planning d) Executing e) Controlling f) Closing out 1. Need Identification The first step in the project development cycle is to identify components of the project. Projects may be identified both internally and externally: • Internal identification takes place when the energy manager identifies a package of energy saving opportunities during the day-to-day energy management activities, or from facility audits. • External identification of energy savings can occur through systematic energy audits undertaken by a reputable energy auditor or energy service company. In screening projects, the following criteria should be used to rank-order project opportunities. • Cost-effectiveness of energy savings of complete package of measures (Internal rate of return, net present value, cash flow, average payback) • no difficulty of quantifying, monitoring, and verifying electricity and fuel savings. • Availability of technology, and simplicity of adaptability of the technology to Indian conditions. • Other environmental and social cost benefits (such as reduction in local pollutants, e.g. SOx) • Reducing costs • Increasing revenues • Eliminating waste • Increasing productivity and efficiency • Solving a business or functional problem • Taking advantage of market opportunities 2. Initiation In this first stage, the scope of the project is defined along with the approach to be taken to deliver the desired outputs. The project manager is appointed and in turn, he selects the team members based on their skills and experience. The most common tools or methodologies used in the initiation stage are Project Charter, Business Plan, Project Framework (or Overview), Business Case Justification, and Milestones Reviews. 3. Planning The second phase should include a detailed identification and assignment of each task until the end of the project. It should also include a risk analysis and a definition of a criteria for the successful completion of each deliverable. The governance process is defined, stake holders identified and reporting frequency and channels agreed. The most common tools or methodologies used in the planning stage are Business Plan and Milestones Reviews. 4. Execution and controlling The most important issue in this phase is to ensure project activities are properly executed and controlled. During the execution phase, the planned solution is implemented to solve the problem specified in the project's requirements. In product and system development, a design resulting in a specific set of product requirements is created. This convergence is measured by prototypes, testing, and reviews. As the execution phase progresses, groups across the organization become more deeply involved in planning for the final testing, production, and support. The most common tools or methodologies used in the execution phase are an update
of Risk Analysis and Score Cards, in addition to Business Plan and Milestones Reviews. 5. Closure In this last stage, the project manager must ensure that the project is brought to its proper completion. The closure phase is characterized by a written formal project review report containing the following components: a formal acceptance of the final product by the client, Weighted Critical Measurements (matching the initial requirements specified by the client with the final delivered product), rewarding the team, a list of lessons learned, releasing project resources, and a formal project closure notification to higher management. No special tool or methodology is needed during the closure phase
PROJECT LIFE CYCLES Every program, project, or product has certain phases of development known as life-cycle phases. A clear understanding of these phases permits managers and executives to better control resources to achieve goals. During the past few years, there has been at least partial agreement about the lifecycle phases of a product. They include: ● Research and development ● Market introduction ● Growth ● Maturity ● Deterioration ● Death Today, there is no agreement among industries, or even companies within the same industry, about the life-cycle phases of a project. This is understandable because of the complex nature and diversity of projects. The theoretical definitions of the life-cycle phases of a system can be applied to a project. These phases include: ● 1. Conceptual 2. Testing 3. Planning 4. Implementation 5. Closure The first phase, the conceptual phase, includes the preliminary evaluation of an idea. Most important in this phase is a preliminary analysis of risk and the resulting impact on the time, cost, and performance requirements, together with the potential impact on company resources. The conceptual phase also includes a “first cut” at the feasibility of the effort. The second phase is the planning phase. It is mainly a refinement of the elements in the conceptual phase and requires a firm identification of the resources required and the establishment of realistic time, cost, and performance parameters. This phase also includes the initial preparation of documentation necessary to support the system. For a project based on competitive bidding, the conceptual phase would include the decision of whether to bid, and the planning phase would include the development of the total bid package (i.e., time, schedule, cost, and performance). Because of the amount of estimating involved, analyzing system costs during the conceptual and planning phases is not an easy task. As shown in Figure 2–19, most project or system costs can be broken down into operating (recurring) and implementation (nonrecurring) categories. Implementation costs include one-time expenses such as construction of a new facility, purchasing computer hardware, or detailed planning. Operating costs include recurring expenses such as manpower. The operating costs may be reduced as shown in Figure 2–19 if personnel perform at a higher position on the learning curve. The identification of a learning curve position is vitally important during the
planning phase when firm cost positions must be established. Of course, it is not always possible to know what individuals will be available or how soon they will perform at a higher learning curve position. Once the approximate total cost of the project is determined, a cost-benefit analysis should be conducted (see Figure 2–20) to determine if the estimated value of the information obtained from the system exceeds the cost of obtaining the information. This analysis is often included as part of a feasibility study. There are several situations, such as in competitive bidding, where the feasibility study is actually the conceptual and definition phases. Because of the costs that can be incurred during these two phases, top-management approval is almost always necessary before the initiation of such a feasibilitystudy. The third phase—testing—is predominantly a testing and final standardization effort so that operations can begin. Almost all documentation must be completed in this phase. The fourth phase is the implementation phase, which integrates the project’s product or services into the existing organization. If the project was developed for establishment of a marketable product, then this phase could include the product life-cycle phases of market introduction, growth, maturity, and a portion of deterioration. The final phase is closure and includes the reallocation of resources. Consider a company that sells products to consumers. As one product begins the deterioration and death phases of its life cycle (i.e., the divestment phase of a system), new products or projects must be established. Such a company would, therefore, require a continuous stream of projects to survive, as shown in Figure 2–21. As projects A and B begin their decline, new efforts (project C) must be developed for resource reallocation. In the ideal situation these new projects will be established at such a rate that total revenue will increase and company growth will be clearly visible. The closure phase evaluates the efforts of the total system and serves as input to the conceptual phases for new projects and systems. This final phase also has an impact on other ongoing projects with regard to identifying priorities. Organizing for Project Management: Organization of Project Participants The top management of the owner sets the overall policy and selects the appropriate organization to take charge of a proposed project. Its policy will dictate how the project life cycle is divided among organizations and which professionals should be engaged. Decisions by the top management of the owner will also influence the organization to be adopted for project management. In general, there are many ways to decompose a project into stages. The most typical ways are: • Sequential processing whereby the project is divided into separate stages and each stage is carried out successively in sequence. • Parallel processing whereby the project is divided into independent parts such that all stages are carried out simultaneously. • Staggered processing whereby the stages may be overlapping, such as the use of phased design-construct procedures for fast track operation .It should be pointed out that some decompositions may work out better than others, depending on the circumstances. In any case, the prevalence of decomposition makes the subsequent integration particularly important. The critical issues involved in organization for project management are: • How many organizations are involved? • What are the relationships among the organizations? • When are the various organizations brought into the project? There are two basic approaches to organize for project implementation ,even though many variations may exist as a result of different contractual relationships adopted by the owner and builder. These basic approaches are divided along the following lines:
1. Separation of organizations. Numerous organizations serve as consultants or contractors to the owner, with different organizations handling design and construction functions. Typical examples whichinvolve different degrees of separation are: o Traditional sequence of design and construction o Professional construction management 2. Integration of organizations. A single or joint venture consisting of a number of organizations with a single command undertakes both design and construction functions. Two extremes may be cited as examples: o Owner-builder operation in which all work will be handled in house by force account. o Turnkey operation in which all work is contracted to a vendor which is responsible for delivering the completed project Since construction projects may be managed by a spectrum of participants in a variety of combinations, the organization for the management of such projects may vary from case to case. On one extreme, each project may be staffed by existing personnel in the functional divisions of the organization on an ad-hoc basis as shown in Figure 2-4 until the project is completed. This arrangement is referred to as the matrix organization as each project manager must negotiate all resources for the project from the existing organizational framework. On the other hand, the organization may consist of a small central functional staff for the exclusive purpose of supporting various projects, each of which has its functional divisions as shown in Figure 2-5. This decentralized set-up is referred to as the project oriented organization as each project manager has autonomy in managing the project. There are many variations of management style between these two extremes, depending on the objectives of the organization and the nature of the construction project. For example, a large chemical company with in-house staff for planning, design and construction of facilities for new product lines will naturally adopt the matrix organization. On the other hand, a construction company whose existence depends entirely on the management of certain types of construction projects may find the project-oriented organization particularly attractive. While organizations may differ, the same basic principles of management structure are applicable to most situations. To illustrate various types of organizations for project management, we shall consider two examples, the first one representing an owner organization while the second one representing the organization of a construction management consultant under the direct supervision of the owner. Example 2-3: Matrix Organization of an Engineering Division The Engineering Division of an Electric Power and Light Company has functional departments as shown in Figure 2-6. When small scale projects such as the addition of a transmission tower or a sub-station are authorized, a matrix organization is used to carry out such projects. For example, in the design of a transmission tower, the professional skill of a structural engineers most important. Consequently, the leader of the project team will be selected from the Structural Engineering Department while the remaining team members are selected from all departments as dictated by the manpower requirements. On the other hand, in the design of a new substation, the professional skill of an electrical engineer is most important. Hence, the leader of the project team will be selected from the Electrical Engineering Department. Example 2-4: Example of Construction Management Consultant Organization When the same Electric Power and Light Company in the previous example decided to build a new nuclear power plant, it engaged a construction management consultant to take charge of the design and construction completely. However, the company
also assigned a project team to coordinate with the construction management consultant as shown in Figure 2-7. Since the company eventually will operate the power plant upon its completion, it is highly important for its staff to monitor the design and construction of the plant. Such coordination allows the owner not only to assure the quality of construction but also to be familiar with the design to facilitate future operation and maintenance. Note the close direct relationships of various departments of the owner and the consultant. Since the project will last for many years before its completion, the staff members assigned to the project team are not expected to rejoin the Engineering Department but will probably be involved in the future operation of the new plant. Thus, the project team can act independently toward its designated mission. Role and Responsibilities of a Project Manager Five Steps for Change The first step is to change how you think about projects. Project managers must stop thinking of projects in a transactional sense, and begin thinking like upper level managers. They have to extend their core leadership skills and start building data communication skills. We all know great PMs create great teams. Their stock in trade is leadership. They bring people together to achieve great things. These are critical skills, but to join upper-level management, these are table stakes. Organizational management involves something more. It requires that managers abstract the data needed to Project Manager A project manager is usually responsible for the success or the failure of the project. They first need to define the project and then build its work plan. If the scope of the project is not very clear, or the project is executing poorly, the manager is held accountable. However, this does not mean that the manager does all the work by himself (which is practically impossible). There is an entire team under the project manager, which helps to achieve all the objectives of the project. However, if something goes wrong, the project manager is ultimately accountable. Apart from this, depending on the size and the difficulty of the project, they may need to take on multiple roles. The project manager may need to assist with gathering business requirements, help to design a database management system or may prepare project documentation. They may work full time on a large project, or may work part-time on various projects of a smaller nature; or may alternatively handle various projects as well as handle other responsibilities like business analysis and business development. At times, they may have accountability but not authority. For example, he or she may be using certain resources but might not have direct control over those resources. At such times, the manager might find certain limitations over task execution, which might not take place as they might have liked. Not having direct control over the state of finances and finance allocation might cause ambiguity. Project managers use project management software, such as Microsoft Project, to organize their tasks and workforce. These software packages allow project managers to produce reports and charts in a few minutes, compared to the several hours it can take if they do not use a software package. In order to be successful, the project manager must be given support and authority by senior management Role of Project Manager It is the responsibility of project manager to make sure that the customer is satisfied and the work scope is completed in a quality manner, using budget, and on time. The Project Manager has primary responsibility for providing leadership in planning, organizing and controlling the work effort to accomplish the project
objectives. In other words, the project manager provides the leadership to project team to accomplish the project objective. The project manager coordinates the activities of various team members to ensure that they perform the right tasks at the proper time, as a cohesive group. The different roles of project manager are as follows: Planning The Role of the Project Manager Organizing Controlling Leading Communicating Cognitive functions Self management functions Motivational and personaldevelopment functions Customer awareness functions Organizational savvy functions 2.1 Planning First, the project manager clearly defines the project objectives and reaches agreement with the customer on this objective. The manager then communicate this objective to the project team in such a manner as to create a vision of what will constitute successful accomplishment of the objective. The project manager spearheads development of a plan to achieve the project objectives. By involving the project team in developing this plan, the project manager ensures more comprehensive plan than he or she could develop alone. Furthermore, such participation gains the commitment of the team to achieve the plan. The project manager reviews the plan with the customer to gain endorsement and then sets up the project management information system-either manual or computerized-for comparing actual progress to plan progress. It’s important that this system be explained to the project team so that the team can use it properly to manage the project. 2.2 Organizing Organizing involves securing the appropriate resources to perform the work. First, the project must decide which tasks should be done in-house and which tasks should be done by subcontractors or consultants. For tasks that will be carried out inhouse, the project manager gains a commitment from the specific people who will work on the project. For tasks that will be performed by subcontractors, the project manager clearly defines the work scope and deliverables and negotiates a contract with each subcontractor. The project manager also assigns responsibility and delegates’ authority to specific individuals or subcontractors for the various tasks, with the understanding that they will be accountable for the accomplishment of their tasks within the assigned budget and schedule. For large projects involving many individuals, the project manager may designate leaders for specific group of tasks. Finally, and most important, the task of organizing involves creating an environment in which the individuals are highly motivated to work together as a project team. 2.3 Controlling To control the project, the project manager implements a management information system designed to track actual progress and compare it with planned progress. Such a system helps the manager distinguish between busyness and accomplishments. Project team members monitor the progress of their assigned tasks and regularly provide data on progress, schedule and cost. These data are supplemented by regular project review meetings. If actual progress falls behind planned progress or unexpected events occur the project manager takes immediate action. He or she obtains input and advice from team members regarding appropriate corrective
actions and how to replan those parts of the project. It’s important that problems and even potential problems, be identified early and action taken. The project manager cannot take a “let’s wait and see how things works out” approach- things never works out on their own. He or she must intervene and be proactive, resolving problems before they become worse. 2.4 Leading Project manager fosters development of a common mission and vision to the team members. He should clearly define roles, responsibilities and performance expectations for all his team members. He uses leadership style appropriately to situation or stage of team development. He should be able to foster collaboration among team members. He should provide clear direction and priorities to his team members. He should be efficient enough to remove obstacles that hamper team progress, readiness or effectiveness. He should promote team participation in problem solving and decision making as appropriate. He should pass credit on to team, and promotes their positive visibility to upper management. He should appreciate, promote and leverage the diversity within the team. 2.5 Communicating The Project Manager should be able to communicate effectively with all levels inside and outside of the organizations. He should be able to negotiate fairly and effectively with the customers/subcontractors. He should be able to bring conflicts into the open and manages it collaboratively and productively with the help of other team members. He should be able to able to influence without relying on coercive power or threats. He should be able to convey ideas and information clearly and concisely, both in writing and orally to all the team members. 2.6 Cognitive functions The project manager should identify the problem and gathers information systematically and seeks input from several sources. He should then consider a broad range of issues or factors while solving these problems. For this he collects the appropriate quantity of data for the situation and discusses it with all the team members before making a decision. He then draws accurate conclusions from quantitative data and makes decisions in an unbiased, objective manner using an appropriate process. For this process of decision making he understands the concept of risk versus return and makes decision accordingly. 2.7 Self management functions The project manager should be able to maintain focus and control when faced with ambiguity and uncertainty and should be able to show consistency among principles, values and behavior. He should be resilient and tenacious in the face of pressure, opposition, constraints, or adversity. Being the head of the project he should manage implementations effectively and should recognize as someone “who gets things done.” He should continuously seek feedbacks from the team members and modify his behavior accordingly. He should take keen interest in learning and self development opportunities. 2.8 Motivational and personal development functions Project manager should consider individual skills, values and interest of all his team members when assigning or delegating tasks to them. He should allow team members an appropriate amount of freedom to do the job. He should accurately access individual strength and development needs of his team members to complete the work effectively. He should continuously offer opportunities for personal and professional growth to his team members. He should arrange for training program and continuously seeks support to his team member when needed. He should pass credit on to the individuals and promote their positive visibility to upper management. He should give timely, specific and constructive feedback to all his team members.
2.9 Customer awareness functions Project manager should be able to anticipate customer’s needs effectively and proactively strives to satisfy them. He should be able to accurately translate the customer’s verbalized wants into what they actually needs. He should be able to understand customers and their business and actively build and maintain strong customer relationships. He should understand customer’s issues, concerns and queries and try to resolve them effectively. He should actively strive to exceed customer expectations. 2.10 Organizational savvy functions Project manager should involve the right people at the right time for a particular job. Understands, accepts and properly uses power and influence in relationships. He should build and leverage formal and informal networks to get things done. He should know the mission, structure and functions of the organizations and others. He should understand profitability and general management philosophy. He balance interests and needs of team/project with those of the broader organization. DEFINING THE PROJECT MANAGER’S ROLE The project manager is responsible for coordinating and integrating activities across multiple, functional lines. The integration activities performed by the project manager include: • Integrating the activities necessary to develop a project plan • Integrating the activities necessary to execute the plan • Integrating the activities necessary to make changes to the plan These integrative responsibilities are shown in Figure 1–3 where the project manager must convert the inputs (i.e., resources) into outputs of products, services, and ultimately profits. In order to do this, the project manager needs strong communicative and interpersonal skills, must become familiar with the operations of each line organization, and must have knowledge of the technology being used. An executive with a computer manufacturer stated that his company was looking externally for project managers. When asked if he expected candidates to have a command of computer technology, the executive remarked: “You give me an individual who has good communicative skills and interpersonal skills, and I’ll give that individual a job. I can teach people the technology and give them technical experts to assist them in decision making. But I cannot teach somebody how to work with people.” The project manager’s job is not an easy one. Project managers may have increasing responsibility, but very little authority. This lack of authority can force them to “negotiate” with upper-level management as well as functional management for control of company resources. They may often be treated as outsiders by the formal organization. In the project environment, everything seems to revolve about the project manager. Although the project organization is a specialized, task-oriented entity, it cannot exist apart from the traditional structure of the organization. The project manager, therefore, must walk the fence between the two organizations. The term interface management is often used for this role, which can be described as managing relationships: • Within the project team • Between the project team and the functional organizations • Between the project team and senior management • Between the project team and the customer’s organization, whether an internal or external organization To be effective as a project manager, an individual must have management as well as technical skills. Because engineers often consider their careers limited in the functional disciplines, they look toward project management and project engineering as career path opportunities. But becoming a manager entails learning
about psychology, human behavior, organizational behavior, interpersonal relations, and communications. MBA programs have come to the rescue of individuals desiring the background to be effective project managers. In the past, executives motivated and retained qualified personnel primarily with financial incentives. Today other ways are being used, such as a change in title or the promise of more challenging work. Perhaps the lowest turnover rates of any professions in the world are in project management and project engineering. In a project environment, the project managers and project engineers get to see their project through from “birth to death.” Being able to see the fruits of one’s efforts is highly rewarding. A senior project manager in a construction company commented on why he never accepted a vice presidency that had been offered to him: “I can take my children and grandchildren into ten countries in the world and show them facilities that I have built as the project manager. What do I show my kids as an executive? The size of my office? My bank account? A stockholder’s report?” The project manager is actually a general manager and gets to know the total operation of the company. In fact, project managers get to know more about the total operation of a company than most executives. That is why project management is often used as a training ground to prepare future general managers who will be capable of filling top management positions. __________________________________________________________________________________ ___________ SOCIAL COST BENEFIT ANALYSIS • So, to reflect the real value of a project to society, we must consider the impact of the project on society. Thus ,when we evaluate a project from the view point of the society (or economy) as a whole, it is called Social Cost Benefit Analysis (SCBA)/Economic Analysis. Scope of SCBA SCBA can be applied to both Public & private investments – • Public Investment: SCBA is important specially for the developing countries where govt. plays a significant role in the economic development. • Private Investment: Here, SCBA is also important as the private investments are to be approved by various governmental & quasi-governmental agencies. Objectives of SCBA The main focus of Social Cost Benefit Analysis is to determine: 1. Economic benefits of the project in terms of shadow prices; 2 The impact of the project on the level of savings and investments in the society; 3. The impact of the project on the distribution of income in the society; 4. The contribution of the project towards the fulfillment of certain merit wants (self- sufficiency, employment etc). Significances of SCBA CBA is unable to reflect social values. Hence SCBA has been emerged with some interesting significances. These significances also make the SCBA different from the CBA. • Market Imperfections • Externalities • Taxes & Subsidies • Concern for Savings • Concern for Redistribution • Merit Wants • Market Imperfections: Market prices, the basis for CBA, do not reflect the social values under imperfect market competition.
• Externalities: A project may have beneficial or harmful external effects that are considered in SCBA, not in CBA. • Taxes & Subsidies: From the social point of view, taxes & subsidies are nothing but transfer payments. But in CBA, taxes & subsidies are treated as monetary costs and benefits respectively. • Concern for Savings: In SCBA, the division between benefits & consumption is relevant wherein higher valuation is placed on savings. But in CBA such division is irrelevant. • Concern for Redistribution: In SCBA, the distribution of benefits is very much concerning issue where commercial private firm does not bother about it. • Merit Wants: Merit wants are important from the social point of view and therefore, SCBA considers these wants. Approaches to SCBA There are two principal approaches for Social Cost Benefit Analysis. A. UNIDO Approach, and B. L-M Approach. A. UNIDO Approach: This approach is mainly based on the publication of UNIDO (United Nation Industrial Development Organization) named Guide to Practical Project Appraisal in 1978. B. L-M Approach :I.M.D Little & J.A.Mirlees have developed this approach for analysis of Social Cost Benefit in Manual of Industrial Project Analysis in Developing Countries and Project Appraisal & Planning for Developing Countries. UNIDO Approach The UNIDO approach of Social Cost Benefit Analysis involves five stages: • Calculation of financial profitability of the project measured at market prices. • Obtaining the net benefit of the project at shadow (efficiency) prices. (Objective of SCBA-1) • Adjustment for the impact of the project on Savings & Investment. (Objective of SCBA-2) • Adjustment for the impact of the project on Income Distribution. (Objective of SCBA-3) • Adjustment for the impact of the project on Merit and Demerit Goods whose social values differ from their economic values. (Objective of SCBA-4) Stage-1: Calculation of financial profitability of the project A good technical and financial analysis must be done before a meaningful economic (social) evaluation can be made so as to determine financial profitability. Financial profitability is indicated by the Net Present Value (NPV) of the project, which is measured by taking into account inputs (costs) and outputs (benefits) at market price. Net Present value of a Project is calculated as: Here, Vt = Value of outputs at market price at time t Ct = Value of inputs at market price at time t K = Discount Rate T = Lifetime of the project I0 = Initial cost at the start of the project. The project is viewed as financially feasible if NPV > 0. Stage-2: Obtaining the net benefit of the project at economic (shadow) prices The Commercial Profitability analysis (calculated in stage - 1) would be sufficient only if the Project is operated in perfect market. Because, only in a perfect market, market prices can reflect the social value. If the market is imperfect (most of the cases in reality), net benefit of the Project is determined by assigning shadow prices to inputs and outputs.
Therefore, developing shadow prices is very much vital. Shadow Prices reflect the real value of a resource (input or output) to society. Shadow Prices are also referred as economic prices, accounting prices, economic/accounting efficiency prices etc. Shadow Prices can be defined as the value of the contribution to the country’s basic socio-economic objectives made by any marginal change in the availability of commodities (0utput) or factor of production (input). Example: A project of power station may increase the production of electricity which contributes to one of the socio-economic objectives of the country General Principles of Shadow Pricing Numeraire : A unit of account in which the values of inputs and outputs are to be expressed. Numeraire is determined at• Domestic currency (BDT) rather than border price. • Present value rather than future value. Because, “a bird in the hand is worth two in the bush.” • Constant price rather than current price. Tradability: • Tradability refers to whether a good or service is tradable or nontradable; if tradable whether is fully traded or non-traded. • A good/service is tradable in the absence of or within limited trade barriers. • A tradable good/service is actually traded when• the import (export) supply is perfectly elastic over the relevant range of volume. • all additional demand (production) must be made (consumed) by import (export) due to the full capacity in the domestic industry (fulfillment of demand by domestic consumer). • the import (CIF) price is less or the export (FOB) price is more than the domestic cost of production. • A good/service is non-tradable; if • its import (CIF) price is greater than its domestic cost of production, and/or • its export (FOB) price is less than its domestic cost of production. • A tradable good/service that is not actually traded is called nontraded. L-M Approach • I.M.D. Little and James A. Mirrlees have developed an approach to SCBA which is famously known as L-M approach. • The core of this approach is that the social cost of using a resource in developing countries differs widely from the price paid for it. • Hence, it requires Shadow Prices to denote the real value of a resource to society. (mentioned earlier) Features of L-M Approach • L-M Numeraire is present uncommitted social income. • L-M methods opts for savings as the yardstick of their entire approach. Present savings is more valuable to them than present consumption since the savings can be converted into investment for future. • L-M approach rejects the ‘consumption’ numeraire of UNIDO approach since the authors (L & M) feel that the consumption of all level is valuable. • This approach measures the cost and benefits in terms of international or border prices.
Why Border prices? Because the border prices represent the correct social opportunity costs or benefits of using or producing a traded goods. Social Cost-Benefit Analysis (SCBA) The resources – inputs & outputs – of a project are classified into mainly: • Labor • Traded Goods • Non-traded Goods Therefore, to find out the real value of these resources, we should calculate – a) Shadow wage rate (SWR) b) Shadow price of Traded Goods c) Shadow price of Non-traded Goods a) Shadow Wage Rate (SWR) The purpose of computing the SWR is to determine the opportunity cost of employing an additional worker in the project. For this we have to determine – The value of the output foregone due to the use of a unit of labor The cost of additional consumption due to the transfer of labor L-M suggest the following formula for calculating the SWR: SWR = m + (c¢-c) + (1-1/s) (c-m) Here, m = marginal productivity of the wage earner c¢-c = cost of urbanization (1-1/s) (c-m) = cost of additional committed consumption c¢= additional resources devoted to consumption c = consumption of wage earner 1 = value of uncommitted resources 1/s = value of committed resources c-m = additional consumption of labor c¢ (transportation system, e.g. road construction, motor vehicles) – c (e.g. bus rent) = cost of urbanization (e.g. road construction) b) Shadow price of Traded Goods Shadow price of traded goods is simply its border or international price. If a good is exported, its shadow price is its FOB price; If a good is imported, its shadow price is its CIF price. c) Shadow price of Non-traded Goods Non-traded goods are those which do not enter into international trade by their very nature. (e.g. land, building, transportation) Hence, no border price is observable for them. Ideally, Shadow price of Non-traded Good is defined in terms of marginal social cost (MSC) and marginal social benefit (MSB). L-M suggest that the monetary cost of non-traded goods be broken down into – Labor SWR (Social Wage Rate) Tradable Social Conversion Factor (SCF) Residual components SCF Accounting Rate of Return (ARR): This is the rate used for discounting social profits. • Experience is the best guide to the choice of ARR. ARR should be such that all mutually compatible projects with positive present social value can be undertaken Dissimilarities between Two Approaches UNIDO Approach L-M Approach • Domestic currency is used as Numeraire • Consumption is the measurement base • SCBA objectives are met through stage by stage • International Price is
used as Numeraire • Uncommitted Social Income is the measurement base • At one place all SCBA objectives are fulfilled Similarities between Two Approaches • Calculation of Shadow Prices to reflect social value • Usage of Discounted Cash Flow Techniques • Taking into account about the effect of a project on savings, investment and income of a society
Key terms Cost-benefit analysis: a theoretical approach applied to every systematic quantitative evaluation of a public or private project, in order to determine if, and to what extent, the project is convenient from a public or social perspective. Discounting: Put simply, the discount rate is a percentage used to discount the future value of money. It is used to project your costs into the future, but price them with today's value of money. Economic analysis: an analysis conducted by using economic values that express the value that society is willing to pay for a good or service. In general the economic analysis assesses goods or services at their use value or their opportunity cost for society (often a border price for tradable goods). It has the same meaning as cost-benefit analysis. Financial analysis: allows for the accurate forecasting of which resources will cover the expenses. In particular it enables one to: 1. verify and guarantee cash equilibrium (verification of financial sustainability); 2. calculate the indices of the financial return of the investment project based on the net time-discounted cash flows, which refer exclusively to the economic unit that implements the project (firm, managing body). Traded goods: goods that can be traded internationally in the absence of any restrictive trade policies. Non-traded goods: goods that cannot be imported or exported, for example local services, unskilled labour and land. In the economic analysis non-marketed goods are assessed at the value of their marginal return if they are intermediate goods or services, or according to the willingness to pay criterion if they are final goods or services. Socio-economic costs and benefits: opportunity costs or benefits for the economy as a whole. They may differ from private costs to the extent that effective prices differ from shadow prices (social cost = private cost + external cost). Opportunity cost: the value of a resource in its best alternative use. For the financial analysis the opportunity cost of an acquired input is always its market value. In the economic analysis the opportunity cost of an acquired input is the value of its marginal return in its best alternative use for intermediate goods or services, or its use value (measured by the willingness to pay) for final goods or services. Willingness to pay: the amount consumers are willing to pay for a good or service. If a consumer’s willingness to pay for a good exceeds its price then the consumer enjoys a rent (consumer surplus). Distortion: condition in which the effective market price of a good differs from the efficient price it would have in the absence of market failures or public policies. This generates a difference between the opportunity cost of a good and its effective price, for example in a monopoly regime, when there are externalities, indirect taxes, duty, tariffs, etc. Externalities: effects of a project that extend beyond the project itself, and consequently are not included in the financial analysis. In general an externality
exists when the production or consumption of a good or service by one economic unit has a direct effect on the welfare of the producers or consumers in another unit without compensation. Externalities may be positive or negative. Conversion factor: a number that can be multiplied by the national market price or use value of a non-marketed good in order to convert it into a shadow price. Border price: the unit price of a marketed good at the country’s border. For exports this is the FOB (free on board) price and for imports it is the CIF (cost, insurance and freight) price. Shadow price: the opportunity cost of goods, usually different from the actual market price and from regulated tariffs. It should be used when analysing a project to better reflect the real cost of the inputs and real benefits of the outputs for the society. Often it is used as a synonym of accounting prices. Economic Rate of Return (ERR): index of the socio-economic profitability of a project. It may differ from the financial rate of return (FRR) due to price distortions. The economic rate of return implies the use of shadow prices and the calculation of a discount rate at which the benefits of the project equal the present costs, that is the economic net present value is equal to zero. Internal rate of return: the discount rate at which a stream of costs and benefits has a net present value of zero. We speak of financial internal rate of return (FIRR) when the values are estimated at current prices, and economic rate of return (EIRR) when the values are estimated at shadow prices. The internal rate of return is like a reference value to evaluate the results of the proposed project. Discount rate: the rate at which future values are discounted. The financial and economic discount rates may differ, in the same way in which market prices may differ from shadow prices. Net Present Value (NPV): the discounted monetary value of the expected net benefits of the project. The economic net present value (ENPV) is different from the financial net present value (FNPV). It is the measure that is often used to determine whether a programme / project is justifiable on economic principals. To calculate NPV, monetary values are assigned to benefits and costs, discounting future benefits and costs using an appropriate discount rate and subtracting the sum total of the discounted costs from the sum total of the discounted benefits. NPV is based on the principle that benefits accruing in the future are worth less than the same level of benefits that accrue now. Furthermore, it takes that view that costs occuring now are more burdonsem that costs that occur in the future. If the NPV is positive, then the financial return on the project is economically acceptable. If the NPV is negative, then the project is not acceptable in puely economic terms. Residual value: the net present value of the assets and liabilities in the last year of the period chosen for evaluation. Do nothing / Do minimum / Do something alternatives: If used ex-ante, a cost benefit analysis of a project or intervention, can enable policy makers to assess the feasibility of the projected work from a technical point of view. As a result of this assessment, policy makers should be able to determine whether the intervention is required. The three scenarios above will be a result of the exante cost benefit analysis. Thus, a decision will be made to either do nothing (no intervention / project), intervene in the least possible way, or proceed with the proposed intervention / project. The do nothing option is rarely the solution. COST-BENEFIT ANALYSIS Description of the technique Cost-benefit analysis (CBA) is a method of evaluating the net economic impact of a public project. Projects typically involve public investments, but in principle the same methodology is applicable to a variety of interventions, for example, subsidies for private projects, reforms in regulation, new tax rates. The aim of CBA is to determine whether a project is desirable from the point of view of social welfare, by means of the algebraic sum of the time-discounted economic
costs and benefits of the project. The technique is based on: a) forecasting the economic effects of a project, b) quantifying them by means of appropriate measuring procedures, c) monetising them, wherever possible, using conventional techniques for monetising the economic effects d) calculating the economic return, using a concise indicator that allows an opinion to be formulated regarding the performance of the project. Purposes of the technique The justification for an investment project tallies with the feasibility and economic performance. Cost-benefit analysis usually accompanies a feasibility study (technical, financial, legislative, organisational) of the project itself and it constitutes the final combination. The main advantage of CBA compared to other traditional accounting evaluation techniques is that externalities and observed price distortions are also considered. In this way market imperfections are explicitly considered, which are reflected neither in corporate accounting nor, as a rule, in national accounting systems. Circumstances in which it is applied The first ideas and applications of CBA can be traced back to nineteenth century France, and later they spread to the UK and USA, especially in the transport and hydraulic works sectors. The systematic use of cost-benefit analysis was developed by international organisations, especially the World Bank (although with alternating fortunes). Today cost-benefit analysis plays an important role in evaluating major infrastructure projects, especially those that are co-financed by the ERDF, the Cohesion Fund and the ISPA, and it constitutes a requisite for European Community co-financing endorsed by EU regulations. Generally speaking cost-benefit analysis is used in the ex-ante evaluation for the selection of an investment project. It can also be used ex-post to measure the economic impact of an intervention. It is used when the effects of an intervention go beyond the simple financial effects for the private investor. It is normally used for major infrastructure projects, especially in the transport and environment sectors, where it is easier to quantify and monetise the non-market effects. CBA is also used to evaluate projects in the health, education and cultural heritage sectors. CBA is not normally used to evaluate programmes and policies, even though in principle it could be used to study the effect of changes in specific political parameters (for example customs tariffs, pollution thresholds, etc.). Steps in Project Management The various steps in a project management are: 1. Project Definition and Scope 2. Technical Design 3. Financing 4. Contracting 5. Implementation 6. Performance Monitoring Segment II Market Potentiality Analysis – Identification of opportunities, Evaluation of market and potential demand. Technical Analysis. Financial Analysis – NPV, IRR, Payback period. Market Potential Analysis
Do you know how successfully your newly developed product will sell on the market? Planning, development and introduction of new products is always associated with uncertainty. Specific knowledge regarding potential target consumers and their probable spending on the new product provides you with more certainty concerning the market success of new product developments. We can offer you precise and reliable information in this area after conducting a market potential analysis. Definition and Goals Market potential describes the maximum capacity of a defined market for a specific product/ a service within a defined time period. In this context market refers to the total of all potential consumers with a certain need or desire who are willing or able to satisfy this need or this desire through the purchase of products / services. The sales potential can then be derived from the results of the market potential analysis. Market potential consists of the upper limit of total demand which would theoretically be converged on at (infinite) rise of marketing expenditures of all relevant providers (see figure). Applications Market potential analyses are especially used for growth or unsaturated markets for which “market size” cannot simply be estimated through the actual market volume. Market potential analysis offers decision support for specific questions for which such as: Exploration of potential (target) markets Determination of company locations Evaluation of ideas (screening) Designation of sales areas
Financial analysis: Pay back period The payback period is the exact length of time needed for a firm to recover its initial investment as calculated from cash inflows. Payback period is the least precise of all capital budgeting methods because the calculations are in dollars and not adjusted for the time value of money THE TIME VALUE OF MONEY Everyone knows that a dollar today is worth more than a dollar a year from now. The reason for this is because of the time value of money NET PRESENT VALUE (NPV) The net present value (NPV) method is a difficult capital budgeting technique that equates the discounted cash flows against the initial investment. INTERNAL RATE OF RETURN (IRR) The internal rate of return (IRR) is perhaps the most sophisticated capital budgeting technique and also more difficult to calculate than NPV. The internal rate of return is the discount rate where the present value of the cash inflows exactly equals the initial investment. In other words, IRR is the discount rate when NPV =0. Segment III Project Implementation and control - Network techniques- Project Crashing, Project Updating, Resource Allocation and leveling. Contractor Schedule and Rescheduling , PMIS, Project Audit , ex-post Evaluation. Network Scheduling Techniques INTRODUCTION Management is continually seeking new and better control techniques to cope with the complexities, masses of data, and tight deadlines that are characteristic of highly competitive
industries. Managers also want better methods for presenting technical and cost data to customers. Scheduling techniques help achieve these goals. The most common techniques are: • Gantt or bar charts • Milestone charts • Line of balance1 • Networks • Program Evaluation and Review Technique (PERT) • Arrow Diagram Method (ADM) [Sometimes called the Critical Path Method (CPM)]2 • Precedence Diagram Method (PDM) • Graphical Evaluation and Review Technique (GERT) Advantages of network scheduling techniques include: • They form the basis for all planning and predicting and help management decide how to use its resources to achieve time and cost goals. • They provide visibility and enable management to control “one-of-a-kind” programs. • They help management evaluate alternatives by answering such questions as how time delays will influence project completion, where slack exists between elements, and what elements are crucial to meet the completion date. • They provide a basis for obtaining facts for decision-making. • They utilize a so-called time network analysis as the basic method to determine manpower, material, and capital requirements, as well as to provide a means for checking progress. • They provide the basic structure for reporting information. • They reveal interdependencies of activities. • They facilitate “what if” exercises. • They identify the longest path or critical paths. • They aid in scheduling risk analysis. Factors to Consider when Crashing • The amount by which an activity is crashed is, in fact, permissible. • Taken together, the shortened activity durations will enable one to finish the project by the due date. • The total cost of crashing is as small as possible Steps in Project Crashing • Compute the crash cost per time period. time: For crash costs assumed linear over
• Using current activity times, find the critical path • If there is only one critical path, then select the activity on this critical path that (a) can still be crashed, and (b) has the smallest crash cost per period. Note that a single activity may be common to more than one critical path. • Update all activity times. Advantages of PERT/CPM Limitations of PERT/CPM 1. Especially useful when scheduling and controlling large projects. 2. Straightforward concept and not mathematically complex. 3. Graphical networks aid perception of relationships among project activities. 4. Critical path & slack time analyses help pinpoint activities that need to be closely watched. 5. Project documentation and graphics point out who is responsible for various activities.
6. Applicable to a wide variety of projects.Useful in monitoring schedules and costs 1. Assumes clearly defined, independent, & stable activities 2. Specified precedence relationships 3. Activity times (PERT) follow beta distribution 4. Subjective time estimates Over-emphasis on critical path. Project Management Information System (PMIS) Project Management Information System (PMIS) are system tools and techniques used in project management to deliver information. Project managers use the techniques and tools to collect, combine and distribute information through electronic and manual means. Project Management Information System (PMIS) is used by upper and lower management to communicate with each other. Project Management Information System (PMIS) help plan, execute and close project management goals. During the planning process, project managers use PMIS for budget framework such as estimating costs. The Project Management Information System is also used to create a specific schedule and define the scope baseline. At the execution of the project management goals, the project management team collects information into one database. The PMIS is used to compare the baseline with the actual accomplishment of each activity, manage materials, collect financial data, and keep a record for reporting purposes. During the close of the project, the Project Management Information System is used to review the goals to check if the tasks were accomplished. Then, it is used to create a final report of the project close. To conclude, the project management information system (PMIS) is used to plan schedules, budget and execute work to be accomplished in project management. Project Management Information System (ProMis) Critical to the success of every project is effective management of information. Getting the right information to the right people at the right time. The Grontmij | Carl Bro Project Management Information System (ProMis) is a database application designed for monitoring and management of large-scale projects and multi contract programmes. ProMis provides a common framework for the project organisation to share the management infor¬mation and to present the progress of the project in a consistent set of reports. The application of IT in the construction sector has shown considerable success in administrative processes such as financing and accounting; however, while construction is a field-oriented industry, the system implementation for collaboration among business entities to support engineers in site is still in its early stage. PMIS implement business management system to overcome shortcomings of headquarteroriented ERP systems such as insufficiencies in field monitoring, reporting system between headquarters and site, difficulties of drawing transfer or recycling by establishing systematic process of reporting and communication, cooperating with sharing of related information and knowledge among field business entities. PMIS is ideal system for all companies which intend to implement business management system prior to introduction of ERP as well as the construction company who needs comprehensive management of information and outputs within the entire lifecycle from beginning to end of the construction site and a business management system enabled by IT prior to ERP implementation. Features/benefits Information sharing and real-time business available among customer, supervisor,
affiliate and architect by using single Web-based interface • Drawings and documents available in site (Same as headquarters) • Knowledge Management of field accumulated data (Defect cases/Safety management cases/new construction methods) • Site monitoring for process status by business unit (Individual site or Grouping of construction sites classified by types) • Flexible interface with other systems (ERP etc) • Empower each business division for its business • Maximize consistent information retrieval and reporting. • Increase workforce productivity • Improve system response times and aviability. • Enhance system maintainability
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