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Project management Project management is an organized venture for managing projects.

Project management includes the scientific application of modern techniques in planning, financing, monitoring, controlling and coordinating the unique activities of project in order to produce the desirable outputs within the constraints of time and cost. Project management consists of the following stages. 1. Project planning 2. Project scheduling 3. Project implementation, controlling and monitoring. Project characteristics a) Objectives - Project has a set of objectives which on achieved can be considered as the completion of the project. b) Lifecycle - Project has a life cycle consisting of stages like analysis, design and implementation & commissioning. c) Definite time limit - Every project has a definite time limit within which it should be completed. d) Uniqueness - Every project is unique and no two projects are similar. e) Teamwork - Coordination among the personals from diverse area of specialization is needed. f) Complexity - Activities that contribute to the complexity of the project are technology survey, choosing the appropriate technology, procuring appropriate machinery and equipment, hiring the right kind of people, arranging for financial resources, execution of project in time by proper scheduling. g) Subcontracting - Some of the activities are entrusted to sub contractors to reduce the complexity of the project. Greater the complexity, larger will be sub contracting. h) Risk and uncertainty - All projects suffer from unexpected situations. E.g. – Suppose during the production of an item, the customer choice changes or sudden entry of a strong competitor. i) Customer specific nature - It is the duty of any organization to go for projects that are suited to customer needs.

6) Temporal spread . It is shown as asset in the balance sheet. 2) Irreversibility . Such a temporal spread creates difficulties in estimating the correct capital expenditure. l) Optimality .Capital expenditure involves substantial outlays. 5) Uncertainty . k) Forecasting . 4) Measurement problem . Capital Expenditure Capital Expenditure can also be called as capital investment or capital project. a wrong investment decision will lead to substantial loss. m) All projects have pre-designed control mechanisms in order to ensure completion of the projects within the time schedule. optimum utilization of resources is a must.Some projects take 10-20 years to complete. Since it is very difficult to predict exactly what will happen in the future there is a great uncertainty.It is very difficult to measure exactly the capital expenditure.j) Change .Since resources are always scarce and are costly. 3) Substantial outlays .Consequences of a capital expenditure decisions extend far in to the future. Capital expenditure has 1) Long term effects . Current manufacturing activities and basic nature of a firm depends on the capital expenditure in the past.Changes can occur throughout the lifespan of the project. .Benefits of a capital expenditure decision extend far in to the future.Forecasting the demand of any product that the project is going to produce is important.If the capital investment is made in the form of equipment. During the course of implementation the technology may have improved and it is better to shift to the new technology.

recreational facilities. . Planning Analysis Selection Financing Implementation Review . Phases of Capital budgeting It can be divided in to 6 broad phases.represents outlays on R&D. plant.pollution control. vehicles and computers. . and equity shares. Eg:invest in a new product. bonds. garden. buildings. Diversification investment . training. fire fighting equipment. .To implement the current strategy more efficiently and more that has a significant impact on the direction of the firm. Miscellaneous investment .meant to increase the capacity to cater to the growing demands.meant to replace worn out equipment with new equipment.meant to develop new products and claims like deposits. .aimed at producing new products or services. .They are tangible investments like land. market development etc.investment on interior decoration.Types of Capital expenditure Physical assets Monetary assets Intangible assets Strategic investment Tactical investment Mandatory investment Replacement investment Expansion investment R&D investment . . . medical dispensary. machinery. .

technical and legal constraints Technical analysis 1. Production possibilities and constraints 3. Projected profitability . Check whether the availability of inputs has been established 3. economic and ecological aspects is under taken. prepares. It deals with: 1. Once a project proposal is identified. Analysis If the project seems to be worthwhile. Structure of competition 5. a detailed analysis of marketing. This phase gathers. a project analysis is done. Distribution channels and marketing policies in use 8. financial. A feasibility check is also made to check whether the project is worthwhile. Check whether the preliminary tests and studies have been conducted 2. Market analysis is concerned with: 1. Consumer behavior. Means of financing 3. Consumption trends in the past & present consumption level 2. and summarizes relevant information about various project proposals. Administrative. Imports & exports 4. technical. preferences & requirements 7. Investment outlay and cost of project 2. Check whether the production process chosen is suitable 4. Cost of capital 4. Cost structure 6.Planning Planning is concerned with the articulation of investment strategy and the generation and preliminary screening of project proposals. Check whether the selected scale of operation is optimal Financial analysis checks whether project is financially viable. Check whether provision has been made for treatment of effluents 5.

. Contribution of the project towards self sufficiency. Check the damage caused by the project to the environment 2. Impact of the project on the distribution of income in the society 2. Accounting rate of return (Also known as the average rate of return):ARR=Profit after tax/Book value of investment (recorded value of investment) Profit after tax is the average annual post tax benefit over the life of the project. employment Ecological analysis: . Cost of restoration measures required to reduce the damage Selection Project is selected based on the following Criterion Payback period Accounting rate of return Net present value Internal Rate of return Benefit cost ratio Accept PBP<target period ARR>target rate NPV>0 IRR>cost of capital BCR>1 Reject PBP>target period ARR<target rate NPV<0 IRR<cost of capital BCR<1 Payback period:-Defined as the length of time required to recover the original investment through cash flows earned. Cash flows of the project Economic analysis checks how the cost & benefit of the project is going to affect the society.5.Deals with environmental issues 1. Impact of the project on the level of savings & investment in the society 3. It deals with: 1.

.Net present value:NPV = (Present value of all cash inflows over the life of the project) – (Present value of cash out flow) Present value of future cash flows is arrived at by discounting the future cash inflows at an interest rate equal to the cost of capital. Benefit cost ratio (BCR):. ……… (1+r)n CFn _ CF0 Where CF1.…. NPV<1 indicates that the present value of future cash inflows is less than the present cash outflow.Present value of cash inflows/Present value of cash outflows. CF0 = Present cash outflow. Internal rate of return (IRR):. NPV = 0 indicates that present cash outflow and present value of future cash inflows are equal. second year etc. NPV >1 indicates that the present value of future cash inflow is more than the present cash outflow. Financing After selecting a project financial arrangements have to be made. n = life of the project. If BCR >1 it indicates that the benefits from the project are in excess of the cost incurred towards the project. Sources of finance are 1) Equity shares 2) Debt (consists of term loans and debenture.are the future cash flows occurring at the end of first year. NPV= CF1 + (1+r)1 (1+r)2 CF2 . CF2. r = discount rate (cost of capital).) .IRR is the rate of discount which would equate the present value of cash outflows to the present value of cash inflows.

construction of buildings. installation of machinery. Constraints Input Project Output Mechanisms Inputs . Activity Site probing. technicians. Project model A project is viewed as a conversion or transformation of some form of input in to an output under a set of constraints and utilizing a set of mechanisms to make the project happen. Site preparation. contracts for acquisition of technology. Training of engineers.Implementation Stage Project & engineering design Negotiations and contracting Construction Training Plant commissioning Review machines and equipment. construction of buildings E. selection of specific Legal contracts with respect to project financing.g. Start up of the plant. preparation of plant designs. Performance review should be made periodically to compare actual performance with projected performance.tendors.

cost and quality. particularly those where the ethics of their organizational policies has been questioned in the past. This will be usually in the form of :  Converted information e. which will need to be taken into account at the outset. it is often found to be the most challenging to meet. the following constraints can prove limiting on the project: 1. 3. In addition to these three. Cost constraint refers to the value and timing of financial resources required to carry out the project work. Outputs Output can be described as a ‘satisfied need’. For the project manager. 5. Quality constraint indicates the standards by which both the product and the process will be judged. 6. In practice.Inputs refers to the want or need to start a project. All projects by definition have a time constraint. 4. Constraints The main constraints are time. Indirect effects – it is practically impossible for any change to take place in isolation. Ethical – a major area of many organizations today. There will be ripple effects. a set of specifications for a new product . Environmental – the deluge of environmental legislation that has been generated by governments has changed the role of environmental control from a subsidiary issue to one which is at the forefront of management thinking in many sectors. Legal . 2. there will be both explicitly stated requirements (original needs) and those that emerge during the course of the project due to the customer’s changing needs or perceptions (emergent needs). Logic– the need for certain activities to have been completed before a project can start. this need will be encapsulated into a brief document describing the nature of the work to be undertaken. For many organizations.g.this may not be explicitly stated but there will be legal constraints. Activation – actions to show when a project or activity can begin.

. evaluate these to determine the optimum process for the task and minimise risk. It is a time to explore the possibilities. Technology – the available physical assets that will be performing part or all of the conversion process. find alternatives to the problems presented. a building Changed people e.g. Design the process – construct models to show how the needs will be developed. through a training project. Knowledge and expertise – brought to the project by the participants and outside recruited help of both technical specialisms and management processes. its reasons for existence and the intentions that it intends to progress. the participants have received new knowledge Mechanisms The means of mechanisms by which the output is achieved are as follows: • • • • • People – those involved both directly and indirectly in the project. Phases of project management Define the project Design the project process Develop the process Deliver the project Define the project – this is the time when it is determined what the project is about. Financial resources Tools and techniques – the methods for organizing the potential work with the available resources.g.  A tangible product e.

Point at which go-ahead is agreed by project sponsor. assemble project teams. Identify what has to be provided to meet those needs – is it likely to be feasible? Show how those needs will be met through the project activities. Design the project process 1) Proposal 2) Justification 3) Agreement Deliver the project 1)Start-up 2)Execution 3)Completion 4)Handover Develop the process 1)Review 2)Feedback . Put in place improvements to procedures. Time/Money constraint reached or activity series completed. Output of project passed to client/user. Develop the project process – improve the products and processes in the light of the experience gained from the project. Prepare and evaluate financial costs and benefits from the project. fill gaps in knowledge and document lessons for the future. Phase Define the project Sub phases 1) Conceptualization 2) Analysis Description Generate explicit statement of needs. Identify the outcomes for all stakeholders.Deliver the project – carry out the project in line with the models or plans generated above. Carry out defined activities. Gather resources.

It involves a high level consideration of objectives. recruitment and management of those working on the project.7-s of project management Works of a project manager can be categorized in to 7.The managerial and technical tools available to the project manager and the staff. Strategy is a process. Project team can be dedicated. Project Environment The change in the competitive environment in which the majority of organizations operate has necessitated a major rethink of the way in which projects are managed. The effects of the changes on projects and their managers include the following: • Time has become a major source of competitive with selection. 2) Structure – It is the organizational arrangement that will be used to carry out the project. 7) Stakeholders – Individuals and groups who have an interest in the outcome of the project. . 1) Strategy – Strategy stands for the high level requirements of the project and the means to achieve them. Success starts with a rational strategy process. full time team or one where staffs are borrowed as and when needed. 3) Systems – The methods for work to be designed monitored and controlled. including communication and quality assurance. which then guides and informs the decisions made in all areas of the project. Strategic issues that lead to project failures are 1) Organization lacks coordination. 5) Skills . which can be seen as points of principle rather than activity-level details. Both formal and informal systems will need to be designed or at least recognized for key tasks. 6) Style – The underlying way of working and inter-relating within the work team or organization. 4) Staff . 2) Resource is not available 3) Company doesn’t have the capacity to take up the project.

The project environment may be summarized by the four Cs. languages. • • • Rates of change in technology and methods have increased. Project manager Project manager is a single person who heads the project. He is the focal point for bringing together all efforts towards a project objective. Technical Complexity: the level of innovation involved in the product or the project process. cultures and time zones involved. 1) Complexity 2) Completeness 3) Competitiveness 4) Customer focus The Complexity of projects The level of complexity of an activity is a function of three features: Organizational Complexity: the number of people. Company information that would previously have been closely guarded secrets is often shared in a move towards partnership rather than adversarial relationships. Overall complexity = Organizational complexity * Resource complexity * Technical complexity. Resource complexity: the volume of resources involved often assessed through the budget of the project. organizations.• Human resource management has moved from considering that members of a project team should be treated as anonymous cogs in the machine to the idea that individual creativity can be harnessed. Organizations are having to become customer focused and exceed rather than just meet customer requirements. or novelty of interfaces between different parts of that process or product. There is a trend towards integration and openness between customers and suppliers. departments. He is responsible for people from different functional departments working on the project. . countries.

Due to this criss-cross nature they are called matrix managers. motivating. Attributes of a project manager A project should have the following skills 1) Planning and organizational skills. 8) Ability to take suggestion. 10) Ability to develop alternative actions quickly. Their purpose is to achieve unity of communication. . Matrix managers . 12) Ability to make self evaluation. directing and controlling the project work. 6) High energy levels. 13) Effective time management. 9) Understanding the views of project team members. 11) Knowledge of project management tools. They achieve unity of direction. 3) Communicational skills. Outcomes and rewards are shared among the members of the project team. They have no authority over the workers. 2) Personnel management skills. They deal with upper level executives and they bring unity of control. 5) Ability to solve problems. Project coordinators . They control people located in other departments. 4) Change orientation. 7) Ambition for achievement.They perform all the management functions like planning. 14) Solving issues without postponing them.They speed up work and they are the communication link to the general manager. Types of project managers Project Expeditors .They disburse fund from the budget.He should see that the particular product or services is delivered within the correct time and cost. He should have the conflict resolution capability.

15) Risk taking ability. the team is disbanded. Once project is completed. 18) Knowledge of technology. 17) Tolerance for difference of opinion.Main company only has to administer the employment of its own staff. 19) Conflict resolving capacity. directors. Lessons studied during the past projects can’t be taken to the future. Disadvantages:Team is temporary. 1) Project organization Board of directors Project board A Project board B Project board C Project manager A Employed by the company Contractors Brought in as needed At the highest level in the organization there are staff posts – senior managers. administrative staff etc. Contractors carry out works such as electrical works etc. Less commitment. Forms of project Organization Forms of project organization means the way in which the human resource is categorized. Advantages:. (called the project board). 16) Familiarity with the organization. The next level down is a series of project managers who have control over one or more projects at a time. . Less labor burden.

2) Functional organization Research & Development Marketing Engineering Manufacturing Sales HR This arrangement prevails in many traditional industries. but not have a direct control over management.3) Line and staff organization There is a project coordinator who act as a focal point to receive information from one department and pass that to another department. He has very close relationship to the top . This arrangement forms a hierarchical pyramid Chief executive Board of directors Line managers Supervisors workers This traditional form is not suitable because 1) A project requires contribution of efforts from different department 2) No means of integrating people below the top management. 3) No effective communication between departments. He can give advice. It leads the functional managers to build their own empires by creating work for themselves without considering whether it will help the organization as a whole. 4.4. functional managers.

Both of them governing a team member is the drawback of the system. The organization of the matrix follows one of the three models: 1) The Light weight matrix . 3) The heavy weight matrix .Project manager chairs matrix.5) Matrix organization Authority is shared between project manager and the functional managers. 4.Departments provide resources on a full time basis to the project team. Responsibility for the success is shared. This is the weakest form of Example of usage Minor change to existing product Quality through Advantages depth of specialization Speed highest Expense of contractors Management of knowledge Disadvantages Issues for project manager Relatively slow Integration of work within organization . There is more dedication and commitment.4) Divisional organization A separate division is formed for the project. Project manager heads the division. Comparison Functional Light weight Heavy weight Major IT system innovation projects Quality maintained Coordination expense Two bosses problem Speed & quality improvement Coordination expense Two bosses problem Project Large construction projects meetings of all department representatives.4. 2)Balanced model . On completion they return to their own departments.Power of project manager and line manger is balanced. He has a direct control over the functional managers.