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PROJECT MANAGEMENT NOTES 1. Define ‘Project’. What are the main characteri tic that i!entif" an! !

ifferentiate #roject $ Do "o% thin& that the #ecia'i(e! #roject mana)ement techni*%e can +e a##'ie! effecti,e'" to non-en)ineerin) area of or)ani(ationa' f%nction $ E.#'ain "o%r an /er /ith %ita+'e e.am#'e .

Project is a temporary endeavour undertaken to create unique product or service. Project is also defined as a unique set of coordinated and inter-related and inter-related activities undertaken by an organisation to meet defined objectives; that have an agreed start and finish time; is constrained by cost & resources and has specified performance requirements. Characteri tic of a #roject0 • Project has a definite start and finish. • Project consists of a well-defined collection of jobs, activities, or tasks which when complete; mark the end project. • he jobs may be started or stopped independently of each other, within a given sequence. • he jobs are ordered ! i.e., they must be performed in technological order. Project management has become a proven approach to achieving specific objectives in time. "f properly applied, project management techniques supply structure, focus, and control and help to drive a project team to the completion of work. oday, the definition of a project has e#panded to include recurring situations, one time crisis, and dealing with difficult issues, so that projects and project management apply to various business situations that have to deal with comple#ity. $egal offices, hospitals and other services as well as traditional manufacturing firms have become enthusiastic about the ways in which project management is improving their delivery of services or creation of new products. Some t"#ica' e.am#'e are0 • %nnual budgeting & auditing e#ercises • "ntroduction of new systems '"() *+++, • )rgani-ational restructuring • (oftware development & implementation • .evelopment of new product • /ampaign for new product launch • )rgani-ing %01 & sales conference

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Define 2Project Mana)ement3. State the co#e of the 2Project Mana)ement3.

)rganised 2enture for managing Projects. "t involves scientific application of modern tools and techniques in Planning, 3inancing, "mplementing, and 1onitoring, /ontrolling and /oordinating unique activities or tasks to produce desirable outputs in consonance with pre-determined objectives, within the constraints of the ime, /ost, 4uantity and 4uality.

The Project Mana)ement Co,er 0 'i, "dea generation, analysis and finalisation of one or more ideas for implementation. 'ii, Preparation of feasibility reports for various projects 'ideas,, working out facilities and finance requirements, benefits and long! term viability as well as profitability. 'iii, "dentification of partners needed. 'iv, echnology requirements. 'v, )rganisational requirements. 'vi, Probable sites and building requirements. 'vii, /ommercial aspects. 'viii, 5nvironmental effects and action required. 'i#, %vailability of 0ovt. /oncessions etc.

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Define 2Project Mana)ement3. What are the main criteria for a of #roject $

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Project 1anagement is planning, organi-ing, directing, and controlling of company resources for a relatively short ! term objective that has been established to accomplish specific objectives. Project 1anagement is the application of knowledge, skills, tools, and techniques to project activities in order to meet or e#ceed stakeholder needs and e#pectations from a project. Criteria for %cce 0 Project is considered to be successful if the project objectives are achieved within its scheduled time, within budgeted cost, meeting the desired performance & technology level while utili-ing assigned resources effectively and efficiently. he measurement and comparison of actual deviations or variances from the schedule, budget and set performance parameters for the project indicate degree of success.

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6o/ !oe #roject mana)ement !iffer from the mana)ement of other t"#e man%fact%rin) acti,itie $ MAN78ACT7R9NG (hort & medium term, usually within one year. • 3ocus on minor day-today issues (tabilised over a period of time due to e#perience, minimum uncertainty. • Plant & personnel already e#ist. .irect control over personnel. 1inimal change is e#pected in set routine. /omparatively (maller

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PROJECT ime hori-on • $ong term, usually for planning much more than one year • 1ore strategic thinking involved Process 6as to be developed & designed new each time. /onsiderable uncertainty and many unknown factors. 7esources 8ew multi-disciplinary team to be created usually from of personnel from other departments. /hange Projects are initiated to bring management about change. /apital outlays (ubstantially $arge

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6o/ !o the #arameter an! characteri tic of ‘Project 9n,e tment’ !eci ion !iffer from that of ro%tine man%fact%rin) !eci ion $ What are the main !iffic%'tie in #re#arin) an! ana'"(in) ca#ita' in,e tment !eci ion $

Difference ;  $ong term effects9 /onsequences e#tend far into the future. (cope of current manufacturing is governed by capital investment of the past.  "rreversibility9 .ecisions can not be reversed without substantial financial loss. $ess or no demand for used machinery when scrapped.  (ubstantial financial outlays9 2ery high outlays as compared to operational requirements. Diffic%'tie in #re#aration an! ana'" i of !eci ion 0  1easurement problems9 1easurement of costs and benefits is difficult when they have a bearing on company:s other operations or have intangible effects.  ;ncertainty9 ;ncertainty & unpredictability of future costs and benefits.  emporal spread9 Projections are spread over long period of <-=+ years. 5stimating discounting rates and establishment of equivalence is difficult.

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9t i ai! that the #roject mana)er to +e %cce f%' ho%'! #o e entre#rene%ria' &i'' . Di c% the e &i'' /ith their im#ortance in #roject it%ation .

% project manager to be successful requires qualities and traits of an entrepreneur such as9  >illingness to make sacrifices  $eadership  .ecisiveness  /onfidence in the project  (trong ego  Wi''in)ne to ma&e acrifice 0 % project is invariably with numerous difficulties and unanticipated problems. he project manager has to sacrifice his time, energy and resources to nurture the project in an inhospitable environment. Project manager:s job is a lot demanding and requires total commitment. =ea!er hi#0 Project manager needs strong leadership qualities that enable ordinary persons to accomplish great feats. hey have to motivate their team to successfully cope with the challenges and frustrations inherent in a new venture. Deci i,ene 0 he project has to accomplish many things in the atmosphere of uncertainty. 8umerous decisions have to be taken in a quick succession on the basis of limited information. 6e does not have a history to fall back on or a well-)rganised database to rely upon. he fluid situation calls for ability to decide quickly and also to revise decisions to adapt to the changing environment. Confi!ence in the #roject0 6aving unbounded faith in the project instills confidence in suppliers, contractors, creditors, customers, employees, team members and others. Stron) e)o0 Project managers need a strong ego to cope with the ups and downs of the project. o endure periods of adversity and to maintain proper perspective when event cast shadow over the enterprise, the project manager needs a strong identity and self-image.

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Wh" i the #roject mana)er e*%ate! to an entre#rene%r$

4ualities for becoming a successful project manager are the same as that of an entrepreneur ! who has to deal with new and unknown factors under time pressure. % project manager should have the following traits.  >illingness to make sacrifices  $eadership  .ecisiveness  /onfidence in project  1arketing orientation  (trong ego ?. Who are norma''" the ta&eho'!er in #roject$ mana)er ,i -@-,i ta&eho'!er ’ e.#ectation $ What i the ro'e of #roject

Project stakeholders are individuals or organi-ations who are actively involved in the project, or whose interests may be positively or negatively affected as a result of project e#ecution or its successful completion. ?ey stakeholders in a project include project manager, customers, performing organi-ation and project sponsors. "n addition, owners and funders, suppliers and contractors, team members and their familiars, government agencies and media outlets, individuals, temporary or permanent lobbying organi-ations and society at large are also stakeholders. 1anaging of stakeholder:s e#pectations is difficult because various stakeholders have different objectives and interests, which may be in conflict with each other and with the project objectives. Project manager has to understand these e#pectations and achieve a judicious balance in the interest of successful project implementation. Project manager has to9 • /reate an environment for every stakeholder to contribute his skills and knowledge in development of a project plan. • %nalyse needs of various stakeholders to ensure that they will be met in the best possible manner • %nalyse stakeholders risk tolerances to develop a risk management strategy. A. What are the +a ic f%nction of a Project Mana)er$ What *%a'itie B *%a'ification an! e.#erience /o%'! "o% recommen! for an effecti,e Project Mana)er$

Ca ic f%nction of a #roject mana)er are0 • • • P'annin) D Contro'0 o develop the project plan and ensure that the work is completed on time, within budget and with acceptable quality. Re o%rce Mana)ement0 1anage and direct project resources to achieve project objectives. Co-or!ination0 "nterface with higher management regarding project review, approvals and project issues. %lso relate successfully to line managers and staff.

he authority and influence of the project manager cuts across the traditional vertical line of command. Technica' &i'' B &no/'e!)e D e.  "eing an organi#er managing and allocating time for important issues. impact of end product etc.#erience0  Should be a generalist to see a bigger picture i. Energy to deal with problems and take measured risk.E%a'itie B E%a'ification D e. place them in perspective. suggestions. budgeting and control techni)ues.#erience to +e a %cce Per ona' *%a'itie 0     stride.  !eople management  !erspective vision to step back and take an overall view to see symptoms of problems.e. relationship of pro'ect to the company. Sense of humour to take events. 1F. "n a matri# organi-ation.  make certain moves. "t has greater organi-ational comple#ity due to the dual reporting structure and needs certain level of . Main feat%re an! a!. the personnel working on the project are responsible to their functional superior as well as the project manager.  f%' #roject mana)er0 Communication skills both. setbacks and success in their Maturity to take things in their stride and sense of timing to oughness and willingness to take contrary positions rather than taking an easy way out. written & oral Ambition leading to working hard and positively.’ t"#e or)ani ation for #roject . develop and implement solutions. hints and criticism and converting them in positive action. or to take a path of least resistance or to cave in to the pressure.  Mana)eria' *%a'itie 0  !roblem and conflict solving ability to identify and understand problems.  E(perience of not only working on several pro'ects but to integrate it to apply to the current pro'ect  Ac)uire knowledge of latest pro'ect planning.anta)e of ‘Matri. Ability to take directions.  $amiliarity with the organisation to understand funding and decision making process.  %nitiative and risk taking ability to accept & delegate tasks not done.

A!. or)ani(ationa' tr%ct%re for the #roject are a %n!er0  5nsures effective utili-ation of organi-ational resources.  /ritical resources can be shared between projects.  "t is an ideal for of organi-ation for 5P/ companies.  @uilds up speciali-ed knowledge & technical base within the organi-ation. 8or /hat t"#e of #roject %ch or)ani(ation i more %ita+'e$ .anta)e an! !i a!. are some e#amples.e. (uch organi-ation is suitable for companies embarking on major diversification & e#pansion projects generally at sites away from the parent organi-ation.  (low response to customer needs.organi-ational maturity to avoid conflicting situations that are inherently created by the structure. 11. % APure Project: organi-ation is a separate division developed within the company with independent authority and responsibility for project. >hile retaining the basic functional structure.  8eeds e#cessive lead-time for approval of decisions due to comple# co-ordination. % A1atri# Project: organi-ation combines the attributes of 3unctional & Pune Project )rgani-ations.  . (uch structure is found generally suitable for organi-ations engaged in project implementation for the clients as their main business. hence focused.ecisions normally favour strongest functional group. it identifies independent authority and responsibility for a project with a project manager.  Personnel are not uncertain about their future after project closure.ifficult to pinpoint responsibility.#'ain the or)ani(ation tr%ct%re of a ‘P%re Project’ t"#e of or)ani(ation /ith an or)ani(ation chart an! en%merate it a!.  here is no customer focus. /onstruction contractors.  %uthority and responsibility is shared and gives more time for team members to comple# problem solving.anta)e .  "t does not provide project-oriented emphasis necessary to accomplish project tasks.  eam morale & motivation remains at high level even at the project completion stage. 8o formal authority. 5P/ companies etc. he traditional A3unctional: organi-ation is not suitable for implementation of projects in general because9  8o (ingle individual is directly responsible for total project.  "ndividual motivation and innovation are on low scale. E.anta)e of the matri.e'o#e! tatin) the t"#e of #roject the e are fo%n! to +e more effecti. 11. Wh" the tra!itiona' ‘8%nctiona'’ or)ani(ation i i not con i!ere! %ita+'e for im#'ementation of #roject in )enera'$ Name the other or)ani(ation tr%ct%re !e.  .

Pure Project organi-ation is a fully dedicated organi-ation created for project implementation and is separated from the parent system with its  )wn technical staff  )wn administration  0ive parent firm periodic reports and overview 5B"( "80 )70%8"C% ")8 ENGINEERING PROCUREMENT PROJECT MANAGER PERSONNEL FINANCE PROJECT ENGINEERING PROJECT PROCURMENT PROJECT PERSONNEL PROJECT FINANCE A!. facilities. . & personnel  (tockpile equipment and echnical %ssistance  Project takes on a life of its own  8o perpetuation of technology  $ack of opportunity for technical interchange between projects  $ack of career continuity for personnel he APure Project: type organi-ation is suitable for e#pansion & diversification projects of a company either being implemented at a site that is remote from the e#isting facilities or for the projects that are in a completely diverse fields.uplication of efforts. @etter personnel moral & team spirit can be built-up through motivation by the project manager.anta)e 9  .anta)e 9  Personnel demonstrate loyalty to project  @etter employee morale. 14. faster communication  %ll members are responsible to P1  (pecific technologies for several successive projects  /ommitted workers  "ndividuals e#cel in project:s area of technical e#pertise Di a!. Project personnel are more committed to project goals. 3aster & effective communication due to simplicity of organi-ation. A P%re #roject t"#e or)ani(ation i more %ita+'e to han!'e a o/n !i. "ndividual authorities and responsibilities can be clearly spelt-out. 3acilitates better planning & control.er ification #roject +eca% e 0       Project 1anager has a complete line authority over project personnel. higher motivation  7apid reaction time.

Project manager has to handle problems and challenges relating to following issues. project being subject to many uncertainties. skilful resolution of conflicts.75 P7)D5/ )70%8"C% ")8 PROJECT MANAGER Civil Construction Consult"nts Process Tec#nolog$ Project Engineering Accounts & A !inistr"tion Coll"%or"tors M"teri"ls & Purc#"se 15. 'iii. financial and commercial personnel. %lthough the use of proper planning and budgetary control techniques help in successful project management. engineering. . skill of communication and persuasion and ability to act as a buffer between technical. A%thorit"0 Project manager very often does not have a direct authority over the project team. 4uicker decisions and faster reaction & response time. their use and effectiveness depends on the people who are involved and are responsible for various project activities at various levels. 6owever.ation0 Project being a short team endeavour carried out by loosely bound professional team. eam leadership and influencing professionals assumes importance than e#ercising authority. he team members sometimes tend to get confused due to split authority and dual subordination structure of the organisation. Moti. a more creative and adaptive approach is necessary to solve un-programmed and un-structured problems as the project progresses. it is very difficult to keep it motivated throughout the project term.ation an! Team C%i'!in). Per onne' Orientation0 )veremphasis on planning and control techniques that are mathematics and accounts oriented tends to adopt a structured and mechanical approach to project management. (uch orientation is required for all the project team. 'i. )70%8"C% ")8 /6%7 3)7 P. 'ii. 6e has to co-ordinate efforts of various functional groups. the project manger has to ensure that the project goals are clearly defined and are visible to all involved. 6e has to encourage participative management with proper delegation of authority and responsibility that creates a sense of belonging to the project and to make individual:s job sufficiently challenging to have greater personal commitment. Project manager:s authority therefore emanates from his ability to develop rapport with the team members. Di c% 6%man A #ect of Project Mana)ement in re'ation to A%thorit"B Per onne' OrientationB Moti. "t is therefore very important to understand human nature and to achieve satisfactory human relations in project setting. e#ternal agencies etc. consultants. o keep a high level of motivation. e#perts.

rugs and Pharmaceuticals 'according to modified .'iv.etail notification is awaited. & 'iii. F. .ernment a##ro.a' for enterin) into a 8orei)n Techno'o)" A)reement$ he 7@" accords automatic approval to all industries for foreign technology collaboration agreements subject to 'i. =9ST O8 9ND7STR9ES RESERGED 8OR T6E P7C=9C SECTOR E. defence aircraft and warships. nitrocellulose and matches. 6a-ardous chemicals. %tomic 5nergy F. /igars and cigarettes of tobacco and manufactured tobacco substitutes. =. 1<. 'ii. ..ernment. %rms and ammunition and allied items of defence equipment. Team C%i'!in)0 1ost of the project activities are inter-related and inter-dependant and most of the problems need interdisciplinary solutions. 7ailway transport =9ST O8 9ND7STR9ES 8OR W69C6 9ND7STR9A= =9CENS9NG 9S COMP7=SORH E. specific 0overnment approval would be necessary9 . or E+ years from the date of agreement. whichever is earlier 3or the following categories.e! for P%+'ic Sector an! in!% trie for /hich 9n!% tria' =icen in) i com#%' or" %n!er the c%rrent 9n!% tria' Po'ic" of the Go. <. "ndustrial e#plosives including detonating fuses.a'’ for 8orei)n Techno'o)" A)reement$ 7n!er /hat circ%m tance one ha to o+tain #ecific )o.rug Policy issued in (eptember. =i t of in!% trie re er. '"t may be further noted that the government has recently announced opening-up of certain defence sector production to the private sector.ernment of 9n!ia for accor!in) ‘A%tomatic a##ro. E**G. 7oyalty payable being limited to < per cent for domestic sales and J per cent for e#ports subject to a total payment of J per cent on sales over a E+ years period. =. H. he lump sum payments not e#ceeding . 5lectronic %erospace and defence equipment9 all types. . G..( I =nd 1illion.evelopment of mutual trust and acceptance. 1:. open communication and co-operation and development of right attitude toward project are essential for team building. .istillation and brewing of alcoholic drinks. (uccessful management of project therefore is not possible without proper teamwork. he period for payment of royalty not e#ceeding K years from the date of commencement of commercial production. 8ote ! he compulsory licensing provisions would not apply in respect of the small-scale units taking up the manufacture of any of the above items reserved for e#clusive manufacture in small-scale sector. safety fuses gunpowder. What are the criteria %n!er the c%rrent ‘9n!% tria' Po'ic"’ of the )o.

'E. E+ million  Paid-up capital held by a large industrial undertaking . which may have received automatic approval in the first instance. %tomic energy. .S. & 56 P & ( P units are governed by separate provisions. concessions.  Products manufactured by ((" get priority and price preference in government purchases.e a.9. 9n!% tria' =icen in) 0 "ndustries are e#empt from obtaining "ndustrial $icense to manufacture e#cept9 'a. Proposals not meeting any or all of the Parameters for automatic approval. 1?.S.domestic for foreign ! should not e#ceed =GL.@" loans are available at concessional rates. .efence aircrafts & warships.efence equipment.9.  ((" sector is free from M$ocational restrictionsN under the policy. (pecial provision. Main feat%re of the c%rrent in!% tria' #o'ic" %n!er the )o. & incentives available to (("9  ((" sector is completely e#empt from "ndustrial licensing provisions under the policy. 'G. 'H. automatic approvals for 5).ai'a+'e to the S. %tomic minerals & 7ailways. 1>. 5#tension of foreign technology collaboration agreements 'including those cases. ector %n!er the #o'ic"$ 5ligibility criteria for industry to be covered under ((" sector are9  he investment in Plant and 1achinery should not e#ceed 7s. 3urther.  %bout J++ products have been e#clusively reserved for manufacture under ((" sector. What are the e'i)i+i'it" criteria %n!er the c%rrent ‘9n!% tria' Po'ic"’ of the )o. '<. . %ny large scale undertaking or a foreign company having more than =GL equity stake can not manufacture these products without undertaking a <+L e#port obligation  @ank & "nstitutional & (".J Sector$ What are the #ecia' #ro.ernment’ 'i+era'i(ation D economic reform Pro)ramme 0 'E.i ion B conce ion B an! incenti.ernment of 9n!ia for an in!% tr" to +e co. the small scale sector 'F. Proposals attracting compulsory "tems of manufacture reserved for Proposals involving any previous joint venture or technology transfer trademark agreement in the same or allied field in "ndia.ere! %n!er Sma'' Sca'e 9n!% tria' IS. "ndustries reserved for Public sector covering arms & ammunition. licensing provisions '=.

( I =.. 'c. land use and environmental regulations of the state & central governments.e'o#ment in 9n!ia0  $iberalisation process in "ndustrial. Parks '% Ps.rban %rea '(.s. %ll cases pertaining to "ndustrial $icensing. "ndustrial location should be =< ?1 away from the (tandard . (oftware echnology. notification awaited. are not covered by automatic approval and require specific government approval.nits '5). qualifies unit to be registered as a (mall (cale "ndustry '((". "tems reserved roe e#clusive manufacture under ((" sector '$ist covers about G++ items. %bout G++ items are reserved for e#clusive manufacture under ((" 'c. "f proposal attracts locational restrictions. )btaining "$ is compulsory for higher equity and unit loss ((" status. $ump sum payment does not e#ceed . with the (ecretariat of "ndustrial %pprovals '("%. tobacco. drugs & pharmaceuticals. 'b. F. 'c. 9n!% tria' =ocation 0 'a. fiscal. 1A. $ocation will also be governed by local -oning. computer software & printing industries  "ndustries obtaining "ndustrial $icense for specified location. 'c. . 8orei)n Co''a+oration D Techno'o)" Tran fer 0 7eserve @ank of "ndia '7@".. import & e#port e#change control policies of the government that has continued since E**+ has given a boost to "ndian industry. 5lectronic 6ardware echnology Parks '56 Ps. limits in case of cities with population of more than Est.+ million 'b. "nvestment in fi#ed assets in specified plant & machinery less than 7s. "ndustries e#empt from "ndustrial $icensing are required to file "ndustrial 5ntrepreneurs 1emorandum '"51. 5lectronic aerospace & defence e#plosives & ha-ardous chemicals.+ million. 'b. 7oyalty payments should not continue after K years of starting of commercial production or E+ years after the date of agreement whichever earlier. tobacco processing & products. 5quity holding of a large scale unit including foreign equity should not e#ceed =GL.  ((" (ector  5lectronics. 7oyalty is limited to <L on domestic sales and JL on e#ports subject to a ma#imum of JL of total sales over a period of E+ years.rugs & pharmaceuticals.'b. 5#port )riented . alcohol & railways. he above restriction does not apply for $ocations notified as "ndustrial areas by the government.%. '=. Short Note 0 9m#act of 'i+era'i(ation on in!% tria' !e. ((" reserved items. 'd. nuclear. 'd. "ndustries for compulsory licensing covering %lcoholic drinks. is a authori-ed to give automatic approval to foreign technology agreements and collaborations provided9 'a. $arge units are permitted to manufacture items reserved for ((" only after obtaining an industrial license and with a <+L e#port obligation. 8o controls by government on industrial licensing e#cept in defence. trade & commerce. 'G.  . I4J SS9 Sector 0 'a.+ million.+ million '7educed to Est.

whenever there have been major changes in the environment.sing sales values instead of volumes will neglect the effect of inflation.k.       1arket oriented economy with no artificial barriers for protecting inefficient industry.9 (uitable for estimation demand for intermediate products that are consumed for various end uses. perhaps because it has not been recorded in a consistent manner over the relevant time period. 8or would they be appropriate where the historical data is unreliable. /onsumption $evel 1ethod9 3or products that are directly consumed. 11. 6owever. %lso. %lso it is necessary to ensure comparability of data. 5stimate is based on estimated output levels of various end use products and proportion of use of concerned intermediate product in those. 5#posure to global competition in local markets "mprovement in productivity & product quality. 'ii. rend analysis methods would not be appropriate where relevant historical data is not available. the consumption level is estimated on the basis of elasticity coefficients ! income elasticity and price elasticity ! of demand. . 5nd . e#trapolation of values would be misleading. 5asier inflow of latest technology )pening of financial markets to foreign investors & easy inflow of foreign funds. 1F. )pening up of international competitive markets. .a. and the past is no guide to the future. 3aster infrastructure development on commercial basis. /hain 7atio 1ethod9 Potential sales are estimated by applying a series of factors to a measure of aggregate demand. he forecasting methods to be used in such circumstances are9 '%ny three names are e#pected with detail description & e#ample of any one of them. Short Note 0 Ga'i!it" of tren! ana'" i in !eman! foreca tin) for #roject fea i+i'it"0 . such as a competitor introducing a radical new product. or in situations where circumstances have radically changed. 'v. which makes it unwise to assume any continuity of events. when a company sells a range of products or services and that mi# has changed over time. rend or time series analysis method is not an appropriate approach to use in a new product & new business situation.am#'e. 'iv. $eading "ndicator 1ethod9 $eading indicators are variables that change ahead of its dependant or lagging variables. 'i.sing sales values instead of volumes will neglect the effect of inflation. (ince the underlying processes producing the forecast are not being modeled there is a danger of overlooking some fundamental change in the process. What are the it%ation /hen Tren! or Time Serie ana'" i metho! cannot +e % e! for !eman! foreca tin)$ Name an" three other metho! % e! in %ch it%ation an! !e cri+e an" one of them /ith a %ita+'e e. e#trapolative forecasting methods become less appropriate. /onsumption /oefficient 1ethod. 5conometric 1ethod9 5conometric model is mathematical representation of economic relationships derived from economic theory.se 1ethod 'a. 'iii. )bserved changes in leading variables are used to predict changes in lagging variables.emand forecasts made on the basis of market trend data are subject to error and uncertainty since9 . %lso it is necessary to ensure comparability of data.

6owever.e tment !eci ion 0 he manufacturing capacity to be set-up is decided on the basis of peak market requirements to be fulfilled within the constraints of decided budget for the project. utilities.%ny special requirements for structures to be considered.  1%8. (pecific site or plot to be selected on the basis of its suitability and cost to develop the same for the particular industry. 6owever. ( 7./hoice of location is decided by factors such as pro#imity to raw materials and markets. processed industrial materials and components.75(9 .Dustification for the chosen technology and manufacturing process among various alternatives. e.. fle#ibility in manufacturing capacity should be considered to enable quick response to changed market conditions. time taken for market development etc. availability of skilled labour and infrastructure.7"80 P7)/5(( & 5/68)$)0O9 .  P7)D5/ /6%7 ( %8."t is dependant on production technology. "t is therefore a generally accepted practice to reach the full manufacturing capacity in stages over a period of time. to be planned. price. % proper balance has to be obtained between capacities of individual sections or production departments. Short Note 0 Main a #ect to +e con i!ere! in technica' ana'" i of a #roject0 echnical analysis of the project is concerned primarily with the following9  15 7"%$ "8P. 11. /onclusions may not be statistically reliable due to inadequate sample si-e or may be influenced by certain abnormal factors.3%/ . ransport layout. %reas for manufacturing. international developments. 1%8.7aw materials. 'b.hese are general functional layouts. material flow diagrams. . $%O).  @. Production line diagrams."P158 (9 .. 14.ata on past and present market parameters such as products. "t is therefore necessary to know the minimum operating capacity at which project does not . ( %8.en ana'" i in in./ 1"B %8."80( %8. (" 59 . services. government incentives etc. may be vitiated by inadequacies due to lack of standardi-ation. (9 . administration. . quantities etc. climactic effects etc. )rgani-ational layout and plant layout. welfare etc.  $)/% ")8 %8.  P7). 1aterial consumption charts.'a. costs. process and plant capacity. errors due to unrealistic assumptions and procession needs of e#cessively voluminous data. 1ethods of forecasting are characteri-ed by certain limitations such as inability to handle unquantifiable factors./ . 'c.7"80 /%P%/" O9 . Short Note 0 7 e of +rea& .  1%/6"857O & 54. 5nvironment in which projects are set up is characteri-ed by uncertainty and unpredictability in may factors such as technological changes.Product mi# is basically guided by market requirements. au#iliary materials & factory supplies and utilities required are to be studied for their sources and availability as they have a bearing on location.3%/ . "$" "5(9 . uniformity on concepts and measures. government policies. 6owever it is not possible to run the plant at its full capacity from the beginning due to various reasons such as time for learning and process stabili-ation. technology and equipment selection. it is uneconomical to operate the plant at a lower capacity as the fi#ed overhead e#penses do not get scaled down in proportion of the utilised capacity and they more or less remain constant."$.

5stimates of working results for the project life vii. Projected cash flow i#.make any losses.era'' 'imit on in.in) e'ection of a mi. there is no such surplus generated out of project operations at the beginning the first year of production and the margin requirements are to be provided from the long term funds as initial investment and is included in A/ost of Project:. his operating capacity is known as A@reak ! even capacity:.  @oth methods lead to the same decision in case of evaluation for accept & reject criterion. >orking capital requirements. 6owever. @reak ! even capacity is calculated by dividing fi#ed costs by the unit Acontribution margin: of the product. Projected balance sheets. (uch margin money is generally provided from the cash surplus generated during the operational phase. he commercial banks financing the working capital requirements against the security of current assets do not finance E++L needs but specify certain margin to be provided by the company from their own resources. @reak-even point viii.a'%ation an! ran&in) of #roject . 5stimates of sales & Production volumes iv. Which metho! /o%'! "o% % e for !eci ion in. the two methods may give contradictory or confliction results.  6owever.  @oth methods lead to same decisions in case of comparative evaluation of conventional independent projects. for the comparison of mutually e#clusive or unconventional investments. 1:. NPG 9RR 8P2 method finds the present value of "77 finds the rate of discounting at which future cash flows at the given rate of the 8P2 becomes -ero.e tment’ for the fir t "ear of o#eration$ 1ain components of financial analysis are9 i. "t is generally seen that plant at least achieves a break ! even in the first year of its operation.o'.nit 2ariable /ost 15. it:s financing & margin provisions vi. /ost of Project covering basic investments ii.i!e! a ‘9nitia' 9n. What are the main com#onent of ‘8inancia' Ana'" i ’ /hi'e /or&in) o%t the Detai' Project Re#ort$ Wh" ‘Mar)in Mone"’ for /or&in) ca#ita' i i re*%ire! to +e #ro.nit (elling Price ! . /ost of production v. 3i#ed /osts @reak even point P . Com#are NPG an! 9RR a metho! for e. discounting /omputation of 8P2 is comparatively /omputation of "77 is complicated . 1eans of financing iii. /hoice between the two in such cases is based on their applicability in different situations.e ti+'e f%n! $  @oth 8P2 and "77 methods use discounted cash flows and therefore recogni-e time value of money. of m%'ti#'e #roject /ithin an o.

imports. 1arket share ! e#pected market share and its growth from the projected demand d. it can be used for decisions involving selection of a mi# of multiple projects within an overall limit on investible funds. the value additivity principle. 1<. sociological. special features resulting in consumer preference. e#pected market share and their growth  Projected selling prices  3actors affecting demand & prices and their possible ranges of variation. . process as it involves trial & error method with multiple computations to arrive at the right value. economical. he main outputs of market analysis useful for financial analysis are9  3orecast of sales quantities based on demand projections. technological factors affecting demand. selling agents. forecast of future trends. other demographic. geographical division etc. change as discounting rate changes. What are the main a #ect to +e con i!ere! %n!er ‘Mar&et Ana'" i ’ /hi'e /or&in) o%t the #roject fea i+i'it"$ Which of the main o%t#%t of mar&et ana'" i that i % ef%' in ‘financia' ana'" e $ 1ain aspects to be considered under market analysis while working out the project feasibility are9 a. . Product features ! 1ajor uses. income and price elasticity of demand e. 5#port possibilities ! nature of competition in foreign markets. and therefore can give a direct comparison comparative ranking of projects may between projects.emand ! Past & present demand. competitive pricing & costing f. selling organi-ation for direct selling g. one with negative 8P2 is rejected.. rate of of discounting changes from year to year. e#ports if any. b.e. Product . market segmentation by nature of product. consumer groups. distribution. 8P2s of different projects can be added to "77s for different projects cannot follow find total addition in value of the firm. % project with positive value of 8P2 at the % project with an "77 greater than >%// rate of discounting equivalent to the is considered acceptable while the one >%// is considered acceptable while the with a lower "77 is rejected. Product pricing ! Price trends in the past. scope of market. possible competition from substitute products. (ince the 8P2 method follows the value additivity principle. 0overnment controls ! government controls on pricing. 2alue of 8P2 depends on the rate of "77 is independent of the discounting rate discounting used and therefore. 8P2 criterion can be used in case of "77 criterion cannot be used in case rate varying cost of capital i. discounting from year to year.simple. c.istribution & sales promotion methods ! distributors.

e tment #ro#o a' $ 6o/ !oe the DC8 ana'" i o.  @y focusing attention on capital recovery. internal roads 3encing. criteria for e. D 9.  @y ignoring cash flows beyond pay back period. "t treats all present and future cash flows having same value. tubewells etc.  "t overlooks cash flows beyond payback period and discriminates against projects that generate substantial cash flows in later years.1>.G.ercome the e !ra/+ac& $ Di c% the re'ati. $and 9 $and.e merit D !emerit of N. gates.a'%ation of in.P.a'%ation D com#ari on of in.  %ll project cash flows for its entire life are considered in . 9RR Metho!0  "77 indicates margin of safety over cost of capital. @uildings . he non-discounted Pay @ack Period gives the length of time required to recover the initial cash outlay for the project.  7anking of projects does not change with change in cost of capital. What are the !ra/+ac& of non-!i co%nte! #a" +ac& #erio! metho! for financia' e.R.R. it does not indicate firm:s liquidity. 9t %ffer from fo''o/in) !ra/+ac& 0  "t ignores time value of money. the risks beyond pay back period are also ignored. conveyance charges $and leveling & development %pproach roads.  7anking of projects can be done for projects with different initial investments. it diverts attention from profitability.  "f cash flows change sign more than once. $ease premium.  hought it measures project:s liquidity.  (ince 8P2 gives net value of returns in absolute 7upee terms. 9 1ain @uildings for plant & equipment to +e =.  he method also does not indicate the risk margin available over the hurdle rate or the cost of capital. Projects with similar initial investments give different rankings at different discount rates. The Di co%nte! Ca h 8'o/ IDC8J metho! o.  7anking of projects by 8P2 method is influenced by nature of cash flow patterns & discount rates. NPG Metho!0  (ince 8P2 method gives 8et value of returns in Present 7upee terms./3 evaluation  @oth profitability of project during its operations and recovery of initial investment are calculated in . The main con tit%ent of the ‘Project Co t’ an! their +a ic e'ement con i!ere! for #re#arin) #roject re#ort are 0 E. there can be multiple values for "77. it cannot be used to compare projects that require different initial investments. 1?.ercome the e !ra/+ac& ince0  3uture cash flows are discounted to the present value and therefore can be compared to initial investment directly./3 analysis.e tment #ro#o a' . his helps in deciding the projects that can be accepted amongst several contenders under limited funds situation. 8P2s of different projects can be directly added.

1A. compressors etc. /anteen F. pump house. "nterest & commitment charges before completion (tart-up e#penses. /ost of 3unds i. *. )pportunity cost MET6ODS0i. 2ehicles K.. $abs. Pay back period ii. rents. (alvage value e. Present value method iv. (ubsequent investment c. insurance etc. 3oreign echnicians & 9 5#penses for foreign technicians for plant set-up raining abroad 5#penses for training of personnel abroad H. ta#es. echnical know-how 9 3oreign /ollaborators fees 9 echnical consultant fees 9 /ost of Project report <. %ccounting rate of return iii. . Economic A##rai a' of a Project 0 % project should be capable of producing an adequate return on the investment and the rate of return should be higher than the cost of funds or the required rate of return. "nitial /ash $oss 9 "f the profitability projections show cash losses in the "nitial years of operation. market survey. )ffice equipment & furniture. EE. "nitial investment b. >ithout 5conomic viability. )perating /ash 3low f.tility buildings such as boiler house. Profitability "nde# vi. Preliminary e#penses 9 Project identification. warehouses. )ther fi#ed assets 9 . transformers.tilities ! @oilers. salaries & wages. Project office running e#penses. .epreciation g. (pares. . /ompany formation and equity issue e#penses etc. feasibility study. "nternal 5#change rate etc. SCOPE0 a. J. ravelling & conveyance. 1argin for working capital9 >orking capital margin for the first year of operation E+. foundation & installation. 7ate of a# h. )ther non-factory buildings ! %dministration. 5conomic life of the project d. a project is doomed to fail. "nternal rate of return v. G.iscounted Payback period method vii. Pre-operative e#penses 9 /overs all e#penses of revenue nature prior to /ompletion of project & commencement of production. /ontingency 9 Provision for unforeseen capital e#penditure and price 5scalation. electrical distribution etc. Plant & 1achinery 9 "mported machinery "ndigenous machinery /ost of machinery to include all costs landed at site.

a'%ation of ca h f'o/ com#arin) m%t%a''" e. for 41. buildings. stocking policies and knowledge. working results. returns is made and appropriateness of financing pattern is checked. Cenefit . which can not be used for comparing mutually e#clusive proposals unless the investment amounts are similar. Di c% the !ifferent a##rai a' criteria for e.4F.Co t Ana'" i calculates the ratio of either Present 2alue of benefits to the "nitial "nvestment '@enefit /ost 7atio @/7. he appraisal criteria for evaluation of mutually e#clusive investment proposals are broadly categori-ed as9 Di co%ntin) Criteria0 Net Pre ent Ga'%e INPGJ is the sum of the present values of all cash flows associated with the project. he criterion is preferable to 8P2 criteria for comparing proposals having widely differing initial investments. 9nterna' Rate of Ret%rn I9RRJ is the discount rate at which 8P2 of the project is Cero. Non-Di co%ntin) Criteria0Pa" Cac& Perio! is the length of time to recover initial cash outlay on the project. capacity. "n general. Economic a##rai a'0 Project is reviewed from larger social point of view in terms of social cost-benefit analysis. Acco%ntin) Rate of Ret%rn is a measure of project profitability that relates income to investment. both measured in accounting terms. the non-discounting methods are simpler to calculate and therefore give a quicker comparison between various proposals. . 6igher "77 indicates better proposal irrespective of the amount of initial investment. manufacturing process. the more desirable the project. 5#cept for the 8P2 criterion. Technica' a##rai a'0 echnical review of product mi#. 3uture cash flows are discounted at a certain hurdle rate to arrive at their present value. hey however. their understanding of the project details and their commitment to the project. technical know-how. all other criteria enable a good comparison within their own limitations. Princi#a' i  %e con i!ere! in #roject a##rai a' +" 8inancia' 9n tit%tion     Mar&et a##rai a'0 Reasonableness of demand forecasts is e#amined utili-ing findings of available information and surveys. transport facilities.c'% i. is made. distribution network.. his criterion tends to shield the project from the risk of future uncertainties in the cash flows to certain e#tent.e in. do not take time value future cash flows into consideration and therefore may result in misleading conclusions. 1anagerial appraisal9 1anagerial capability of promoters is judged by their resourcefulness. plant & machinery etc. labour skills. 8inancia' a##rai a'0 %ssessment of reasonableness and adequacy of estimates for capital cost. "t is generally e#pressed as a ratio of %verage "ncome after a# to "nitial "nvestment. (horter the payback period. materials. e#perience and competence of marketing personnel.e tment #ro#o a' . 6igher 8P2 indicates a better proposal in case the initial "nvestment is similar. or the 8et Present 2alue to "nitial "nvestment '8et @enefit /ost 7atio 8@/7. %dequacy of marketing infrastructure is assessed in terms of promotional effort.

undue reliance on intuition and judgment rather than available information and data. sales volumes.hese criteria are therefore used to compare smaller investments or as a quick method to discard weak proposals. inadequate authority to the project leader. it is necessary to be proactive at the signs of impending problems rather than react only when the problems are fully blown up. normal and pessimistic scenarios and their effects studied. inability to meet the key performance indicators is also observed occasionally. 9m#ro#er 9m#'ementation P'annin)0 "nsufficient breakdown of project activities. it tends to be uneconomical to run. . material costs. /ommon causes that result in time & cost overruns or failure to meet specifications are9 9na!e*%ate #roject form%'ation0 (uperficial field investigations. he primary factors that affect the project profitability are generally the sales price. improper definition of interlink ages between activities. overall evaluation can be carried out. (imilarly. does not create sufficient surplus for investing into future growth of the organi-ation and eventually becomes a drain on organisations: funds. >hile time overruns and cost overruns are the common causes of project failure. inaccurate methods for estimation of costs & benefits. 8on-availability of funds in time delays the project implementation as well as increases the project costs. Scenario Ana'" i 0(cenario %nalysis is one of the methods of risk analysis to evaluate the effect of changes in project assumptions on its profitability. Proper selection of contractors ensures timely completion within budgeted costs. typically one variable is varied at a time to observe its effect on the project profitability.ance action0 %s project is subjected to a lot of risks during its course of implementation. wrong assessment of input requirements. if the variables are inter-related. 6owever. each scenario being a consistent combination of a few variables. it is advisable to analyse certain plausible scenarios. Non-a.iscounting methods are considered to be more dependable for comparing large investments and are recommended for use by the financial institutions. When !o "o% j%!)e a #roject to +e a fai'%re$ What are the #o #roject fai'%re $ i+'e ca% e of % project is considered to be a failure if it fails to complete in scheduled time or it e#ceeds the budgeted cost or is not able to fully accomplish the project objectives. . 9nj%!icio% e*%i#ment ten!erin)B #roc%rement an! contract mana)ement0 "t is generally observed that equipment and materials form H< Q K+L of the project cost and procurement of the same covers almost K+L of the project implementation time. "n simple sensitivity analysis. hese can be categori-ed as optimistic. project costs etc. 3urther attaching probability estimates to the scenarios. labour costs. 7n %ita+'e Project Or)ani(ation0 "ncompetent project leader. 44.ai'a+i'it" of f%n! in time0 Proper cash flow management is the key to success of the project. 41. deliberate underestimation of costs and overestimation of benefits etc. 8ai'%re to ta&e a!. /oncurrent changes in these factors within the possible range will give rise to many plausible combinations. confusing or improperly understood roles of project team members. %lthough the project is may not be a total failure as it is finally implemented and starts functioning. ill-defined project scope.

45.e #roject monitorin)0 %s the projects are implemented under a dynamic. 4<. his uncertainty about the future gives rise to a risk of ..eviation  (tandard .  % description of each risk and how it will affect the project.#'ain the #roce!%re te# for an" one of them. initial plans for mitigating each high level risk and subsequent results.a'%ation an! e. material prices. and  "n larger projects. What i a ri & re)i ter$ When ho%'! it +e o#ene! an! ho/ 'on) ho%'! it +e maintaine!$ he 7isk 7egister records details of all risks identified at the beginning and during the life of the project.9neffecti. project life etc.  %n assessment of the likelihood it will occur and the possible seriousness&impact if it does occur 'low. Wh" i ‘Ri & Ana'" i ’ con i!ere! a an inte)ra' #art of #roject e. ever changing environment. the 7isk 7egister is often used as the 7isk 1anagement Plan. What are the t"#e of #roject ri & $ What mea %re of ri & are % e! to a the ri & factor in #roject mana)ement$ e he three types of project risks are9  (tand %lone 7isk 9 he risk when the project is viewed in isolation  3irm 7isk or /orporate risk9 his represents contribution of project to the risk of the firm.eviation is the most commonly used measure of risk in finance because it is analytically easily tractable. high. hese parameters are likely to be affected adversely by the future turn of events that are uncertain and beyond our control. his 7egister should be maintained throughout the project and will change regularly as e#isting risks are re-graded in the light of the effectiveness of the mitigation strategy. and new risks are identified. costing for each mitigation strategy. 1easures of risk9  7ange  1ean %bsolute . medium. %lso if the probabilities are normally distributed. he projections of initial investments and operating results of the project are based on various assumptions relating to various input parameters such as sales quantity and prices. effective monitoring and timely modifications in implementation strategy are required for the success of the project. their grading in terms of likelihood of occurring and seriousness of impact on the project. 4:. "n smaller projects.  (ystematic 7isk or 1arket 7isk9 his represents the risk of project in the conte#t of market portfolio.  %n outline of proposed mitigation actions 'preventative and contingency.eviation  /oefficient of variation  (emi 2ariance he (tandard ..  % grading of each risk according to a risk assessment table  >ho is responsible for managing the risk.a'%ation$ Name an" three metho! of incor#oratin) ri & factor in #roject e. the mean and standard distribution gives all information about the same. "t usually includes9  % unique identifier for each risk. labour costs and their output levels.

ypically.o'. positive or negative. 4?. project life etc. and the 8et Present 2alue or "77.e. could prevent the project reali-ing the e#pectations of the stakeholders.a'%ation an! a##rai a'. Ste# in. plausible scenarios with a combination of changes in variables are worked out. 7isk due to trading activities etc. b. % risk is any uncertain event. unit price.  5stimate range of variation and most likely value for each of the basic underlying factors  (tudy the effect of variations in the basic variables on 8P2 or "77. material & labour costs. T"#e of Ri & IProject Ri & J i. 5#change rate risk i#.  5ffect on 8P2 or "77 is found under different scenarios. controls. foreign . Price 7isk iv. Project 7isk ! %ssociated with the technical aspects of the work to achieve the required outcomes.o'. "nterest rate risk viii. procedures. 7isk from global competitors #. sales quantity. 7esource 7isk iii.e! in Sen iti. tools and technique employed. % risk always has a cause and if it occurs. with one factor carried at a time. T/o T"#e . hree commonly used methods for incorporating risk factor in project evaluation are9  (ensitivity analysis  (cenario analysis  1onte /arlo (imulation analysis Ste# in. one cannot depend on just one set of projections but it is very necessary to analyse the risks involved and their impact on the project.o'.making project unviable. Define ‘Ri &’ an! in!icate .it" ana'" i 0  (et up relationship between basic underlying factors i. cost of capital assets and inputs. Political 7isk vii. Ste# in. he market forecasts and other projections used for project feasibility and evaluation such as sales prices and quantities. if it occurs. /ompetitor:s 7isk v.ario% t"#e of ri & a ociate! /ith a #roject. communication and team performance. 7 e of ri & ana'" i for #roject e. a. echnology 7isk vi. optimistic. ta#ation rates. Project /ompletion 7isk ii.e! in Scenario ana'" i 0  (ince many variable factors are interrelated. a consequence. pessimistic and base case scenarios are evaluated. herefore. Process 7isk ! %ssociated with the project process.e! in Monte Car'o Sim%'ation ana'" i 0 4>.

scenario analysis. hey have priority over equity shares on the assets of the company in the event of liquidation of the company. project feasibility worked out on the basis of conservative estimates for project revenues. 1onte-/arlo simulation methods etc. Preference (hares iii. erm $oans ! $ong term loan offered for project financing. creditors of the company. . "nternal accruals #i. (ubjective probabilities are further attached to evaluate the project under optimistic.eferred /redits vii. .ebenture holders are $ease 3inancing ! 1ainly suitable for e#pansion projects etc. hat evaluates effects of variability of various factors either singularly or multiply.ario% /a" of financin) a #roject a'on) /ith re'ati. @onds v. What are the . are subject to a risk that they may not turn out in reality as projected.ebentures iv. he length of the repayment period depends upon the period of implementation of the project. Public . Product (ubsidy .eferred /redits ! 2ia @ank payment is made.eposits. (hareholders e#pect altercative dividends and price appreciation of their shares. here are various statistical and other techniques for understanding risks and evaluating their effects. 1ore for infrastructure projects say =+ to =< years. Preference (hares ! hey bear pre-determined rate of dividend.e merit an! !emerit of each of them$ 1ain sources of project 3inance i.ebentures ! "nstruments for raising long-term debt capital. /apital investment subsidy viii. @ridge $oans #ii.eviations from the projections in reality may adversely affect the project feasibility. . "n absence of e#tensive analysis. he period of repayment various from < to E+ years depending upon the nature of the project. pessimistic and most likely situations out of various possible outcomes before a final decision is made. )rdinary (hares ! (ource of permanent capital. erm $oans vi. . 4A. adequate safety margins in cost provisions and fle#ibility in investment appraisal yardsticks is considered to be adequately covered for risks. )rdinary (hares ii.nsecured loans #.e#change rates etc. /apital investment subsidy ! 'a. . @onds ! (imilar to debentures. %re a (ubsidy 'b. (hareholders bear the risk of ownership. (ensitivity analysis. . $ease 3inancing i#. .

nder the new liberali-ed scenario. $and and $and . 3inances are also available from the foreign investors who are more familiar with the venture capital business. viii. 2enture capital investment process is different from that of appraising a term loan. 51. vi. 1any new promising business ideas floated by unknown entrepreneurs were being rejected by financial institutions due to their very guarded and security oriented approach to minimi-e the risk of loss. availability of project capital was scarce and priorities were naturally towards comparatively risk free investments. 5ven the "ndian financial institutions have reali-ed the possibility of very high returns by backing promising ventures after due evaluation of their potential. 2enture capital funds are free standing pools of capital. there has been a positive change in the outlook of financial institutions. 2enture capital funds in "ndia9 1any financial institutions such as "/"/". %ssets Preliminary and Pre-operative e#penses Provision of contingencies 1argin money for working capital 51. %lthough there are no financiers purely in venture capital field. Com#onent of Ca#ita' Co t of a Project i. vii. iii. most are allocating about <L to  . raised mostly from institutional investors and high network individuals who have the ability to provide long term capital. how and over what time frame investors will achieve liquidity on the investment. have set-up their venture funds and there are many private funds also. 0""/ etc. Short Note .e'o#ment of ‘Gent%re Ca#ita'’ 8inancin) in 9n!ia. Emer)ence D !e. medium or long term investment hori-ons.evelopment @uildings Plant & 1achinery 5lectrical ransport and erection charges ?now-how and consultancy fees 1isc. 2enture capital investors place greater emphasis on assessing the capability of the management team. Gent%re ca#ita' 8inancin) . v. /oncept of venture capital vis-R-vis traditional security oriented approach9 2enture capital is primarily for the kind of business ideas that have good market potential but do not have any background to base the projections. #. equity or quasi ! equity financing instruments. % young private company that is not ready or willing to tap the public financial market may seek venture capital. Short Note . (uch ventures also could suffer very heavy losses if the new products are not accepted in the market.  $iberalisation & opening-up of global markets9 . 2enture capital investments involve businesses with potential for high growth in sales and profitability. ii. analy-ing the strategic strengths of the business in question and on whether. above average investment risks and returns and active post financing involvement between investor and investee. %s a developing nation. i#. iv.5F.

8ree 8'oat is the float available to a non-critical activity without affecting the early (tart of the immediately succeeding activity. "n order to estimate the time required to perform an activity. 54.  %)8 networks can represent $ead & $ag times for dependant activities. projects. "t therefore introduces a lot of uncertainty about the time estimates and efforts required to complete the activity. otal float signifies the e#tent to which an activity completion can be delayed without affecting the final completion date. P57 model is an event oriented network that recogni-es the specific :stages: of completion or Amilestones: in the project. Short note 0 Si)nificance of ‘Tota'’B ‘8ree’ an! ‘Ne)ati.e'o#ment oriente! #roject $ E.  Tota' 8'oat is the total e#tra time available to complete the activity without affecting project completion date. 6owever. >hen the project is to be completed by a given deadline and critical activities are delayed. Ne)ati. %)8 networks can represent comple# activity relationships or dependencies such as (tart-(tart. and (tart-3inish etc. the negative value of float indicates the e#tent to which the activities are required to be crashed in order to meet the deadline. Short note 0 A!.i!%a' acti. What are the +a ic characteri tic of PERT mo!e' for Net/or& !e.#'ain the metho! for e timation of time !%ration of in!i.. Pe imi tic e timate9 "s an estimate of time to complete if activity encounters all possible risks. 3inish-3inish.e 8'oat for an activity means that the time available to carry out the activity is less than the time required to complete the same. the nature of activities or process to achieve the end result or an Aevent: is not well defined and is not fully controllable. . 55. "t is useful to know the free float when the responsibility for the successor activity lies with another agency and one cannot disturb its schedule in any manner. or '$3-5(-duration. there is no past e#perience or data about the similar work. apart from the normal 3inish-(tart.  8etwork calculations are possible in A1ultiple (tart: & A1ultiple 3inish: networks. or the difference between $ate finish and 5arly 3inish '$3-53. his is the typical situation commonly e#perienced in 7 & . "t is therefore calculated as the difference between $ate (tart and 5arly (tart for an activity '$(-5(. he events are the end results of a process or an activity.e’ f'oat .E+L of their investible funds for venture financing to adequately cover foe the risk of failures in some cases. he interdependence between events is indicated by defining predecessor relationships. 5:.anta)e of 2Prece!ence Dia)rammin)3 a'ia AON net/or& . "t signifies the e#tent to which a particular activity can be delayed with the succeeding activity maintaining its early schedule. 5stimates are therefore made in the following manner9 O#timi tic e timate9 "s an estimate of time to complete if activity does not encounter any risks.itie in PERT mo!e'.  %)8 networks are comparatively simpler to draw and more useful for activity oriented networks.  %)8 representation eliminates necessity for Adummy: activities to maintain the logic. "t is calculated as 5s of "mmediate successor minus 53 of predecessor minus the estimated duration.e'o#ment an! /h" the" are more %ita+'e for re earch or !e.

he initial estimation of activity duration is based on the normal methodology and normal resource allocation. . his can be achieved by shortening the duration of activities on critical path at an e#tra cost and thereby resulting in reduction in total project duration. he project duration at which the project costs are minimum is therefore known as Aoptimum: duration. herefore. 6owever. the e#tra cost required to reduce the activity duration will increase the total direct costs of the project. it becomes necessary to reduce the project duration. 5<. herefore. his is known as the ime-cost trade-off. the cost of crashing per unit time starts rising sharply. if the project completions date as indicated by the critical path is beyond the desirable or committed completion date. and interest etc.7% ")8 . "t is also seen that the indirect costs such as administration. "t is also observed that as the various project activities are crashed more and more.1 . rise in proportion of the project duration. it becomes economical to reduce the project duration only if the savings in indirect costs are more than the increase in direct costs.Mo t 'i&e'" e timate9 "s an estimate of time to complete under most likely situation that will have to face certain amount of risks %n average time is then worked out using the above estimates using the formula9 %verage ime P )ptimistic ime S G # 1ost $ikely ime S Pessimistic ime TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT H his average time is then used in the network calculations to find e#pected time to complete the project. establishment. there could be a saving in total project costs if the duration is reduced. there will be a reduction in indirect costs of the project if the total duration is shortened.#'ain /ith a %ita+'e !ia)ram. %s seen earlier. his is illustrated in the following diagram9 )P "1.. 6ence. equipment or skills to perform the activity at an A5#tra /ost:. the crashing could be economical only up to some reduction and then becomes uneconomical to crash any further. What !o "o% %n!er tan! +" the term ‘acti.it" cra hin)’ an! ho/ !oe cra hin) he'# in re!%cin) the #roject !%ration$ Wh" i the time-co t tra!e-off re'ation hi# im#ortant in !eci!in) the ‘o#tim%m’ !%ration of the #roject$ E. 6owever. A/rashing: is a process of reducing the normal estimated duration of an activity by adopting a different and more efficient process.

Wh" the acc%rac" of e timation of time !%ration of in!i. resource requirements and costs quite accurately. "t is important to get time estimates right for two main reasons9  ime estimates drive the setting of deadlines for delivery of projects.ime-7esource /harts. he /ritical Path %nalysis focuses on competing the project at he earliest possible time and if possible at minimum cost. resources required. (ince /P1 is used for the projects in which the organi-ation has previous e#perience or can have access to certain data & back-up information available about the activities.) / ) . %ccurate time estimation is essential to good project management. that are available for different trades such as civil construction.  hey often determine the pricing of contracts and hence their profitability. 0antt charts can also be presented in a summary form to avoid unimportant details.7% ")8 PROJECT D7RAT9ON 5>. and hence clients: assessments of your reliability.ercome certain hortcomin) of ‘Gantt Chart ’B it i een that the Gantt Chart are #o#%'ar'" % e! +" #roject mana)er to re#re ent che!%'e in tea! of Net/or& !ia)ram .. structural fabrication. 5?."75/ /)( 8)71%$ .itie i i im#ortant in Critica' Path Ana'" i $ E."75/ /)( % $ / ) ( ( "8. he / 7 catalogue defines the scope of each activity in the network along with its estimated cost. %s a first step it is essential to understand the correct scope of work estimate the total work content of the activity / 7 /harts '/ost.e$ 0antt /harts are very effective visual representation of schedule and therefore are used everywhere from boardroom presentations to semiliterate project workers. he network then read in . further help in preparation of estimates of time. leveling and allocation e#ercise can also be carried out using a 0antt chart. 0antt charts can be easily understood and interpreted at all levels.#'ain the metho! an! too' % e! for time D Re o%rce e timation.i!%a' acti. A'tho%)h the Net/or& Techni*%e %ch a PERT D CPM /ere intro!%ce! to o. etc. What !o "o% thin& are their feat%re that are ti'' fo%n! to +e % ef%' D effecti. 7esource loading. and the time for completion.

#'ain !ifferent t"#e of f'oat K e. 9n!e#en!ent 8'oat0 .iagramming 1ethod. E.conjunction with / 7 catalogue becomes the basis for measuring progress. 8ree 8'oat I88J0 L 88i L ESi . Tota' 8'oat IT8J0 L =Si . 6owever. cost reporting.ention i norma''" % e! +" the mo!ern oft/are #ac&a)e for #roject mana)ement$ Acti. resource leveling. De cri+e the t/o main con. 3loat can be generally defined as the difference between time available and the time required to carry out a given activity.E8i iii.e merit ."n some cases it is observed that is the total float available for an activity is used on the same activity. "n /ritical Path %nalysis.#'ain ho/ the" are ca'c%'ate! an! their i)nificance.ention % e! for !ra/in) CPM net/or& /ith their re'ati. some amount of float is sometimes available to individual activity such that its use does not affect he successor activity. the non-critical activities can afford certain amount of rela#ation in their performance.  8etwork starts in a single starting node and ends in a single finishing node. .ESi ii. "t is measure indicating the float available if the predecessor activity finishes at its $3 and the successor activity starts at its 5(. Tota' 8'oat0 ! 3or the non-critical activities the difference between the $( & the 5( or $3 & 53 is known as otal 3loat. he different types of floats are as under9 i. his means that the total float can not be e#clusively available to the activity but is shared between successor activities in the non-critical path. 5A. %lso. his gives a good amount of fle#ibility to the project manager in planning of schedules. 3inish of the predecessor activities or the start of successor activities can be delayed to the e#tent of this difference without affecting the project completion date.it" on Arro/ IAOAJ0 "t is also known as %rrow .  %n arrow is pointed towards finishing event."t is independent of time of preceding activity & if used up does not affect time of succeeding activity. E. efforts & resources can be concentrated or diverted if necessary from the jobs with float to the critical activities to ensure their completion in time.#'ain the % e of f'oat ana'" i in #roject #'annin). forecasting and overall control of the project. 9n!e#en!ent 8'oat I98J0 L 98i L ESi =Si . %ctivities with float can be delayed to save resources & cost. Which con. his is the float available if the immediately succeeding activity has to start at the earliest start time. he measure of e#tent to which timing for activities can be altered without affecting successor activities in any way is the 3ree 3loat. 5ach arrow represents one activity. valuing the work done. or L =8i . allocation and their efficient utili-ation.  he basic diagram in a network is the arrow diagram.E8i 8ree 8'oat0 .!i :F. the total float available on successor activities in the path will reduce by the same e#tent.

$ength of an arrow is not drawn to any scale does not represent time for activity.ummy does not consume any time or resource. with value float equal to -ero. & o (tart-3inish '(3.  (uch diagrams eliminate the need for showing of dummy activities.it" on No!e IAONJ0 "t is also known as Precedence . .e.iagramming 1ethod. (uch situations result in change in Afloat: values of activities and therefore in emergence of a new critical path. Define ‘Critica' Path’ in a CPM net/or&..escription of activity is usually written within the space available in rectangular bo#. he activities on the critical path are known as critical activities and they must be completed within the time allotted without any delay so that the project could be completed within scheduled time. %ny delay in performing critical activity will delay the project completion by same time. '. 6o/ i it i)nificant of #roject contro'$ Doe the critica' #ath once i!entifie!B remain ame ti'' com#'etion of #roject$ 9f notB /hat are the rea on for it chan)e$ /ritical path is the sequence of activities from the starting activity to the finishing activity. "t is also likely that some critical activities may have been completed before their scheduled time and & or some non-critical activities have delayed even beyond the entire Afloat: available. it may be observed that the actual time taken for completion of various activities is different from their estimated time for completion. o (tart-(tart '((.  "t is also possible to represent different types of relationships between activities with their $ead-$ag time restraints such as9 o 3inish-(tart '3(. .  8etwork may start in multiple nodes as starting activities and also end in multiple nodes as finishing activities. he critical path 'or Paths. %)% network can represent only 3inish-(tart relationship without any lead or lag between activities. o 3inish-3inish '33. i.  5ach node in the network diagram represents an activity. an arrow indicating logical interdependence of two events in a network without any physical activity required to be performed in between. he project management computer packages mainly use %ctivity on 8ode convention. give priority in allocating resources to critical activities to ensure their timely completion. >hile the project is under progress and a periodic updating is carried out.     8etwork consists of collection of arrows linked in logical sequence according to technical characteristics of the project. does not remain same till completion of the project but is likely to change or shift at the time of every project update. :1..  . "t may also be necessary to Acrash: the critical activity duration by spending e#tra resources either to avoid delay or to optimi-e overall project costs.escription of activity is written along the arrow for easy reference. Acti. "t is also the longest path of activities in a network indicating the minimum time required to complete the project. once identified at the beginning of the project.sually drawn as a rectangular bo#. %n arrow in broken line represents Adummy: activity. "t is therefore necessary focus the attention and efforts. .  %n arrow is drawn between two activities indicating their logical interrelationship.

"". it becomes necessary to complete the activities on critical path before their estimated times. it is observed that the periodto-period requirements of different resources vary considerably. • "f the project is delayed during the process of implementation.e. :5. "t is possible to reduce the total project duration by resorting to Acrashing: the critical path activities i. 7escheduling of non-critical activities can be done in different ways9 ".#'ain the term re o%rce 'e. without e#ceeding available float.itie i con i!ere! nece ar".eviation. 5ven the longest path identified in the network may not be the real critical path is another Anear critical: path has higher variability 'i.e. 6owever. (hifting9 %ctivity is shifted to start at a later date than A5arly (tar: date. . What are the main rea on che!%'e$ E. crashing is done to meet the project deadline to avoid heavy penalties. P57 methodology uses probabilistic time estimates for activity durations and the activity costs are also not very certain. cancellation of order. Three Time E timate metho! for Net/or& Sche!%'in) 0 . • /rashing can also be done to optimi-e project duration to minimi-e total project cost. (plitting9 %ctivity is split in two or more parts and each part is carried out with time gaps to avoid peak resource requirement periods. :4.e' ’ for a #roject ‘Shiftin)’B ‘S#'ittin)’ D ‘Stretchin)’ in re'ation to %s the resource loading is done on the A5arly (tart: schedule. Wh" the conce#t of ‘cra hin)’ can not +e a!o#te! for PERT metho!o'o)"$ he critical path of the /P1 network gives the minimum time and therefore. loss of goodwill etc. reducing the e#pected duration by assigning e#tra resources or adopting more efficient processes. (uch uniform loading can be achieved by the process of Aresource leveling:. and is completed without interruption. he total duration after stretching is maintained within total time available to carry out the activity. it is not possible to consider crashing as precise information on timings and costs can not be obtained. the earliest date required completing the project by working under normal circumstances. the entire activity is completed within the total time available including float.. he critical activities that do not have floats are allocated resources on priority and are carried out as per schedule to ensure timely completion of project. 6owever. his is done by achieving a balance or trade-off between project:s direct & indirect costs vis-R-vis project duration.e'in). he released resources can be diverted to more critical activities.:1. for attem#tin) ‘re o%rce 'e. """. he process moves resource requirements from peak demand periods to low demand periods by rescheduling non-critical activities within available floats without affecting completion date.nder such circumstances. it is always economically desirable to keep the resources at constant minimum level and ensure uniform workload over a period of time when they are engaged on a project.#'ain the circ%m tance /hen ‘Cra hin)’ of acti. (tretching9 %n activity can be stretched in duration by reducing the resource allocation than its normal requirement. E. 7esources thus released can be deployed on critical activities. /rashing is considered necessary under the following circumstances9 • "f it is required to complete the project before the date indicated by the critical path. (tandard .

a method of A hree ime 5stimates: is used. Postponing or shifting of non critical activities within available activity floats to smoothen out day to day resource requirements.era)e time9 for the activity to be used for network calculation is given by formula Pessimistic time P G B 1ost likely time S )ptimistic time %verage time P H he method is used for development of network schedules for research & development type projects. he above problems may necessitate delays in schedules of certain activities due to unavailability of sufficient resources when required and may even result in delay in completion date. >hen the activities are being performed for the first time in a new project and there is no back-up data available for time estimation. An a. he resources thus released can be utili-ed on critical activities. The re o%rce con traint /ithin the che!%'e. b. his method achieves reduction in difference between peak requirements and minimum requirements when there are no limitations on availability. • he actual availability of certain resources may be less than the allocation on certain days making it difficult to perform the task. (plitting of non critical activities in parts when technically feasible. he parts can be performed within lean activity periods thereby prioriti-ing allocation on critical activities. he different alternatives to overcome resource constraints and to avoid delay in the final completion date are various empirical methods trying to find optimum allocation within fle#ibility of the network. he probability of the project completing within the total schedule time calculated on the basis of three time estimates is <+L. • 7equirement of more than one resource for an activity makes the situation more difficult to cope. • #o e . he method is used for P57 technique where the project team estimates three different time durations for each activity namely. Pe imi tic time e timate9 considering that activity faces ma#imum possible problems & delays. ::.ario% #ro+'em in im#'ementation of #roject he resource allocation may be such that it gives very wide fluctuations in day to day requirements.5stimation of time required for completion of various activities in the project is one of the crucial issues in network scheduling. c. O#timi tic time e timate9 considering that activity is carried out without encountering any problems Mo t 'i&e'" time9 considering the activity faces moderate delays as normally e#pected. his gives rise to inefficient utili-ation and uneven loading. he main methods used are9 a. "t further tries to adjust the schedule within resource limitations as far as possible. . (tretching the activity durations of non critical activities within the activity floats by reduction in resource allocation.

the direct costs are inversely proportional to activity duration. 9n!e#en!ent 8'oat9 3or an activity which neither disturbs the start of the succeeding nor finish of the preceding activity.. otal 3loat ii.#'ain ho/ the" are ca'c%'ate! an! their i)nificance. supervision.uration of the activity. if absorbed then neither it delays the project nor it changes the critical path %ll critical activities have -ero otal 3loat. . it is difficult to obtain accurate cost-time relationship on various activities either because data are not available or because estimates are too bothersome and e#pensive to compile.. are useful information and help project manager to arrive at better decisions. either by delaying the activity or by enlarging its duration.$3 of proceeding . labour & machinery costs.. "n practical use. :>. @ut even if the accurate data are not available. 3loat is useful in resource planning. and Aindirect cost: 'overheads.#'ain the % e of f'oat ana'" i in #roject #'annin). "nterfering 3loat Tota' 8'oat9 "t is that spare time available in any non-critical activity. otal project cost comprises of the Adirect cost: for performing activities 'material. /P1 tries to achieve the optimum duration for which the total cost of the project is the minimum. he principal focus of /P1 analysis is on variation in activity times as a result of changes in resource assignments. "t further determines project schedule to minimi-e total cost on the basis of time-cost relationships. "t is defined as9 3 P $3 .uration of the activity 'preceding. Short Note 0 7 e of CPM in o#timi(ation of #roject co t .#'ain !ifferent t"#e of f'oat K e. here are G types of 3loats. "ndependent 3loat iv. :?..5( . it is observed that while the indirect costs are directly proportional to the project duration. i.5( of the preceding activity . E. loss of revenue etc. Short Note 0 Time e timation metho! in PERT D CPM a##roache . interest. E. 3loat is the spare time available in any non-critical activity. down-time cost.. equipment hire costs etc. his means that the indirect cost reduce with the project duration while an e#tra e#penditure has to be incurred on activities to reduce their duration. 3ree 3loat iii. unless completely arbitrary. hose activities which have large float can be delayed for want of resources. 3loat can be absorbed 'utili-ed. if absorbed them it does not disturb the start of the succeeding activity. 5( of succeeding . best guesses.uration 8ree 8'oat9 "t is that spare time available in a preceding activity. 33 P 5( of succeeding activity .:<.

the activity durations can be estimated with a fair accuracy. "t is therefore necessary to smoothen-out the peak requirements and contain the ma#imum resource level within available level. monitoring and controlling structure can be developed. /P19 /P1 approach considers day to day work situations and therefore. "t is constructed by dividing project into its major parts. • 5ffective planning. he initial network schedule considers all activities to start at their earliest times and does not consider the resource requirements for performing activities. he total time for completion based on critical path duration is also quite accurate and helps in controlling the project schedules more effectively. • /osts and responsibilities can be assigned to >@( elements at the lowest levels and summari-ed at the higher levels of the structure. . he schedule adjustment can be done either by just shifting the entire activity within the float or by stretching the activity duration with reduction in resource allocation or by splitting the activity to be carried out in parts at convenient times within the available time. (uch schedule invariably gives rise to a situation where peak requirements of various resources on day-to day basis show very large variations. difficulties in determining e#act duration of activities in the project. cost and responsibility can be clearly defined for units of work or individual activities. (uch situation is not desirable as it does not ensure uniform workload on day to day basis and pose difficulty in determining optimum resource strength for the project. <F. his is known as resource leveling and smoothening and is achieved by adjusting the schedules of non-critical activities within the available floats. :A. he total project duration worked out on this basis thus also has certain probability value. 6ence. he model generally considers development-oriented projects where many activities do not have precedents to estimate their likely duration.P57 9 P57 methodology deals with the uncertainties involved in performing various activities and therefore. • 5ffective information system is developed with help of proper codification for cost accounting and progress reporting. pessimistic and most likely time ! criteria. WCS IWor& Crea&!o/n Str%ct%reJ >@( is a systematic and logical breakdown of the project into its component parts or work packages. he implicit assumption is that the normal deployment of resources can be done as and when required and there are no constraints on resources. each of which is further sub divided. /onsiderable amount of past data can be available for similar activities. %s this e#ercise is very complicated.e'in) M Smoothenin) . heuristic algorithms are developed to perform this e#ercise with help of computer programs. he process is continued till the breakdown reaches such manageable level where schedule. Short Note 0 Re o%rce =e. the model adopts a statistical average time estimate based on three time estimates ! optimistic. comple#ities increasing as more variety of resources are considered. >@( therefore helps in • 5ffective planning of the project by dividing large project into manageable elements that can be easily comprehended and planned.

8egative float indicates that the time available is less than the time required to perform the activity and unless the activity duration is compressed or Acrashed: to by the e#tent of negative float.e’ 8'oat $ 3loat or a slack represents the difference between the time available and the time required to perform the activity. scope may need modification as a result of  %n e#ternal event ! change in government regulations  %n error or omission in defining scope of the product or project initially.anta)e of ‘Matri. . O. • "t is an ideal for of organi-ation for 5P/ companies. • Personnel are not uncertain about their future after project closure. he float available on non-critical activities therefore indicates the fle#ibility in scheduling the activity and also the ma#imum e#tent to which the activity can be delayed without affecting the project completion date. • @uilds up speciali-ed knowledge & technical base within the organi-ation. the personnel working on the project are responsible to their functional superior as well as the project manager.uring the implementation phase of the project. "t has greater organi-ational comple#ity due to the dual reporting structure and needs certain level of organi-ational maturity to avoid conflicting situations that are inherently created by the structure.e mana)ement of #roject $ 6o/ !o term ‘Tota' 8'oat’ an! ‘8ree 8'oat’ !iffer in their i)nificance$ When can #roject che!%'e ca'c%'ation ho/ ‘Ne)ati.  % value adding change. • /ritical resources can be shared between projects.<1. otal float signifies the ma#imum permissible delay without delaying the final completion while free float signifies the ma#imum permissible delay without delaying the earliest start of its immediate successor activity. he authority and influence of the project manager cuts across the traditional vertical line of command. What are f'oat or 'ac& in #roject che!%'e an! ho/ the" are % e! in effecti. there is no float and the activity is called critical. ?nowing the available floats on various activities helps the project manager to plan and organi-e day-to-day activities in view of resource constraints and concentrate efforts and resources on critical activities. %dvantages of the matri# organi-ational structure for the projects are as under9 • 5nsures effective utili-ation of organi-ational resources. <1. the scheduled completion date can not be met.K’ t"#e or)ani(ation for #roject . • %uthority and responsibility is shared and gives more time for team members to comple# problem solving. enhancing project benefits. • eam morale & motivation remains at high level even at the project completion stage. "n a matri# organi-ation. <4. 6o/ ho%'! %ch chan)e +e mana)e!$ . hence focused. Main feat%re an! a!. >hen time available equals time required.er the #erio! of #roject im#'ementation #ha eB the #roject co#e ma" nee! mo!ification.

he actual cost incurred can be found out either as soon as the activity is completed on even while the activity is under progress. "t is also known as analogous estimating as it uses actual costs of previous similar project as a basis. Sche!%'e! E. tracking systems. e#ternally or internally initiated. legally mandated or optional. it indicates cost overrun and when earned 2alue is lower than @/>( it indicates schedule delay. Earne! . 6owever.e co t D che!%'e contro'$ A op .#en!it%re IACWPJ9 "t is the %ctual /ost of >ork performed till date and covers total cost of work done. iii.  "ssue revisions in schedule.  ?eep track of change requests oral or written. 7egular & periodic reporting of project costs is done under the following summary heads9 i. direct or indirect. o manage and control the scope change.e merit of +%i'!in) a #roject +%!)et from ‘+ottom-%#’ an! from the ‘to#-!o/n’ metho! $ 6o/ !oe the a i)nment of co t to in!i. .  5stablish scope change control system that defines the procedure by which scope to be changed. Project e. >hen %/>P is higher that @/>P. sanction and approval. and then summari-ing or rolling-up the individual estimates to get a project total.p: method involves estimating the cost of individual work items in the work breakdown structure '>@(.  5valuate effect of the scope changes 'either e#pansion or shrinkage. cost and performance and "nitiate action to formali-e the changes. whether or not these have been paid for.own: method of project budgeting is a quick and economical method to prepare project cost estimates with reasonable reliability when the detail information about the project parameters is not available.  1onitor project performance for scope compliance from time to time. and approval levels and authorities necessary for authori-ing changes. goods received and of services used.#en!it%re ICCWSJ9 "t is the @udgeted cost of work to be completed till given date if the project runs on schedule.a'%e ICCWPJ9 >hen any of the project activity gets completed it is considered to have Aearned value: equivalent to its budgeted cost. on schedule. ii. scalability of parameters and e#pertise of the estimating team in given field. budgeted costs and performance parameters due to change in scope get proper authentication. budgets and performance parameters on the basis of approved changes. (maller work items increase time and cost of estimation but also increase its accuracy. his includes paperwork. herefore. reliability depends on the degree of similarity between projects. his enables the project manager to take timely controlling action as soon as any deviations from the budgeted costs for the current state of physical progress are noticed. <5. %ny deviations should be scrutini-ed to assess the need for scope change in future.i!%a' #roject acti. What are the re'ati.itie he'# ineffecti. /ost of estimation and its accuracy depends upon si-e of individual work item in the >@(. A@ottom . his includes accruals & provisions. 5arned value management systems attach budgeted costs to individual activities in the project.%ny such modification should be carried out in such manner that corresponding changes in time of completion. the total of @udgets cost for the work performed to date is the total Aearned value: of the project. following procedure may be adopted9  he scope base line is first defined by work @reakdown (tructure '>@(.

itie he'# in effecti. he total project estimates and budgets can be developed either on Atop down: or Abottom-up: basis for each work package. he breakdown is carried out in various levels such that the lower level elements contain the components of its higher-level element. he lowest level thus broken down is generally known as a Awork package:. 5ach work package is further broken down to define tasks or activities that are required to be performed for its completion by the incumbent responsible. %ssessing the current status of the project progress in terms of schedule. the >@( helps in defining complete scope of the project and also facilitates clearer definition of project deliverables. 6owever. <>. budgets and acceptance criteria iii. ii. %nalysing deviations from base-line schedule. 3urther. it forms the basis for project cost control. and measurable elements. 7edistributes revised schedules.C. herefore. Pre#arin) a ‘#roject /or& +rea&!o/n tr%ct%re’ IW. Project monitoring is a process of i.e co t contro' of the #roject.#'ain. >ork breakdown structure is a deliverable oriented breakdown of project into smaller. his enables the project manager to take timely controlling action as soon as any deviations from the budgeted costs for the current state of physical progress are noticed.e %ch contro' o.#'ain ho/ the co t +rea&!o/n +a e! on #roject acti. (uggesting alternative strategies in order to bring the project on track project control on the other hand v. 7esponsibilities are assigned to individuals & contractors for completion of work packages. >@( also helps in consolidating the project status and cost reports at different levels to evaluate performance of different parts of the project. he actual cost incurred can be found out either as soon as the activity is completed or even while the activity is under progress. 7esources required to perform various activities are also assigned so that activity wise costs can be worked out for cost control purposes.ecides authorities and responsibilities to carry out the control actions vii.er #roject co t $ he normal accounting practice of preparing project budgets on the basis of asset classification does not enable timely comparison with actual costs due to the time delay in collecting and collating the relevant information and thus the information does not remain useful for control purposes. Plans and decides control action vi.<:. 5valuating implications of deviations on total project completion. cost and final performance iv. cost and performance parameters. when budgeted cost for each work package is broken down further to indicate budgeted cost for each activity. . and specifications for e#ecution. Which are the main co t fi)%re to +e trac&e! +" a #roject mana)er to achie.J i ai! to +e the fir t te# in #roject #'annin) e #ecia''"B che!%'in) D +%!)etin) E. such cost data does not directly correlate to the physical progress of the project and therefore cannot be interpreted meaningfully. . manageable.S.#'ain the #roject monitorin) D contro' c"c'e. hese activities are used as basic elements for scheduling where time estimates and inter relationships are defined to prepare as project network. 6o/ !o "o% !ifferentiate +et/een the term ‘Project Monitorin)’ an! ‘Project Contro'’$ E. <<. budgets. E.

7egular & periodic reporting of project costs is done under the following summary heads9 i. Earne! . at a given time. Project e. PROJECT MON9TOR9NG D COTRO= T6RO7G6’S’ C7RGE Hr 1AAA E.CCWP P (chedule variance he hori-ontal component of the schedule variance shows the actual schedule variance by time units. vi. whether or not these have been paid for. . "n other words. E timate! fina' co t9 "t is committed costs to date plus the estimate to complete. the e#pected project completion and budgeted e#penditure is potted for different time intervals through the project period. Committe! co t 9 otal value of all works and e#penses contained in contracts and purchase orders awarded to third parties. @/>( P @/>P P %/>P P @udgeted cost of work scheduled. 6ence completion of an activity is considered to contribute value equivalent to its budgeted cost to the total value to the project. he cumulative values based on actual progress are plotted on the curve and compared with the planned curve. <?. ii. iii. is made along with actual e#penditure incurred or accrued for the fully & partially completed activities till the review date.#en!it%re9 otal cost of work done.CCWP P otal cost variance CCWS . Earne! Ga'%e Conce#t he budgeted cost of each activity is considered as its value for the project. he variance therefore indicates cost over run. E timate to com#'ete9 "s the best estimate that can be made at any given time of remaining cost not already reported as e#pended or committed. which would be incurred should the project be cancelled. taking into account the current project scope and performance trends date. S%n& co t 9 otal cost. "n case of reimbursable or measured works contracts. %n activity that is partially completed on a particular date is also considered to have earned value equivalent to its percentage completion on the given date multiplied by its total budgeted cost. 3ollowing variances are observed9 "f hen ACWP . the project does not earn any additional benefit since activity parameters are well specified.CCWS L %ccounting cost variance ACWP . O%t tan!in) commitment 9 otal costs committed minus project e#penditure. an activity earns value equivalent to its budgeted cost on its completion. committed costs are in relation to defined scope of work. an assessment of the percentage completion the activates under progress 'but not completed.a'%e9 otal of budgeted cost for the work progress to date. @udgeted cost of work Performed. vii. . 1onitoring on the basis of ( curve gives the trend indication for the overall state of the project and therefore is very useful reporting tool for the top management. "n case actual e#penditure incurred for completion of an activity e#ceeds its budgeted cost. ? aJ Dia)ram he diagram shows a typical curve for a project. he shape of the curve generally resembles 5nglish letter A(: and hence the curve is popularly known as ( curve.uring the periodic monitoring process. his includes accruals & provisions. iv. goods received and of services used. & %ctual cost of work Performed. v. based on the schedules and budgeted cost.

(chedules.e co t contro'. he effect of deviations in schedules and costs are estimated on the final completion time and cost and controlling actions are taken to correct the deviations to the e#tent possible and to bring the project back on its planned course. Project implementation phase starts after the project activity schedule is planned. "n order to achieve effective control over the implementation. E. @.he total value earned for the project on any given date is the total of earned values of all the completed activities till date as well as the total of earned values to date for partially completed activities. his assessment process known as Amonitoring: then compares the status with the plans to find deviations. based on early start schedule. /osts are incurred and become due in a project as various project activities are being performed. (uch classification is not useful for control as it is more suitable for historical information and does not reflect the time and manner in which the e#penditure is to be incurred. %ctual controlling actions are carried out by the persons authori-ed and responsible for the activities and involve efforts and assistance by entire project team. it becomes necessary to assess the progress from time at regular intervals in terms of physical completion of scheduled activities. <A.$5(..05 ( 5( "1% 5( ) /)1P$5 5 %/ ")8 P$%8 >F.e effecti. (/65.   . will indicate the total planned e#penditure for the project at any given point of time during its progress.itie to achie. by deploying resources. budgets are allocated and responsibilities are assigned.%$ ( % .( 8) 2%7"%8/5( O5( 752"(5.  Project budgets are initially prepared to conform to the asset classification required by the financial institutions. a# and company statutes. he A(: curve drawn between the planned cumulative earned value for the project against the time. /)1P%75 P$%8 %/ .#'ain /h" an! ho/ the #roject +%!)et are +ro&en-%# on the +a i of #roject acti.. Project monitorin) D contro' c"c'e. budgets and performance parameters are revised as a result and reissued for further e#ecution. his classification is generally based on depreciation & amortisation rates and capitali-ation rules in accounting procedure. actual cost incurred in performing those activities ad achievement of desired performance levels.

Portion of 6ead )ffice administrative e#penses allocated on project9 %llocated overheads should not be included.e. "tems such as general administrative e#penses. the incidental effects on the company:s other operations must be considered. that are being already incurred by the company and not increasing due to the project should not be allocated to project cash flows. not to be included. managerial salaries. he project may enhance profitability of some of the e#isting activities of the company because it has a complimentary relationship with them. A''ocation of o. hese effects should be considered in the project cash flows. "t is therefore necessary to identify costs with the work involved in project activities. "f the project requires some assets already available. he difference between cash flows with the project and without the project has to be ascertained. >1. more fle#ible and accurate will be the control. echniques such as A5arned 2alue: and A(: curves help in keeping cost and schedule control in an integrated manner. ". 9NCREMENTA= PR9NC9P=E9 /ash flows must be measured in incremental terms. 6o/ /o%'! "o% treat the fo''o/in) item in #roject ca h f'o/ $     /ost of project feasibility study carried out before final approval of the project9 (unk cost should not be included. its cost cannot be considered incremental cost related to project. the company loses the opportunity to use them for any alternative use. >hen the duration or schedules for the particular part of the project or for the individual activity are changed.erhea! 9 overhead costs irrelevant to the project should not be considered. following points should be kept in mind. rents etc. 9)nore %n& co t0 )utlay incurred in the past or e#penses already committed irrevocably should be considered. 9nc'%!e O##ort%nit" co t 9 )pportunity cost for diversion of available resources to the project should be included. he e#penditure that is not affected due to either acceptance or rejection of the project under consideration can not be treated as project cash flow. or it may detract profitability of some e#isting activities as it has competitive relationship with them. /ost of e#isting idle machinery & equipment transferred to new project9 (ince there is no opportunity otherwise to put the machine to any use. Con i!er a'' inci!enta' effect 0 %part from the direct cash flows. 6ence not to be included. E. >hile estimating incremental cash flows.      ime and costs are therefore inseparably linked and it is not possible to control costs without linking them with time schedule of activities. What i the criterion % e! for !eterminin) ‘=ife’ of the #roject for !eterminin) time #an of ca h f'o/ #rojection $ he life of project is considered to be minimum of the following9 . he total cost budget is broken down as per >@( at different levels upto its last level representing individual activity. 3iner the >@(. the cost incidence also changes accordingly. he net value of such loss of opportunity should form part of project cash flow. legal e#penses. >1.#'ain the ‘incrementa' #rinci#'e’ for /or&in) o%t the #roject ca h f'o/ . /ost of land purchased in e#cess of current project requirements9 (ince the e#cess land is not required for the project.

e. E. @enefits accrued to the suppliers of long term funds are cash profits after ta#. >4. >5. debenture holders. plant productivity declines due to normal wear & tear during its use it becomes uneconomical to maintain beyond certain period. 6ence cash flow projections are carried out only up to that time. emerging competition etc. >%// indicates the average rate of e#pectation from the providers of long-term funds to the project. salvage value of fi#ed assets. iii. while working out the project cash flows.#'ain the rea on for % in) ‘Wei)hte! a. and term lending institutions. $ong-term fund suppliers provide for outlays in fi#ed assets and margin for working capital. he benefits accrued to the suppliers of long term funds i. ii.era)e Co t of Ca#ita' IWACCJ a a ‘6%r!'e Rate’ for Di co%nte! Ca h 8'o/ IDC8J ana'" i . What i ‘=on) Term 8%n! ’ #rinci#'e for e. iv. .a'%ation of #roject ca h f'o/ $ Wh" i it nece ar" to e. % positive 8P2 after discounting the project cash flows at the >%// indicate that the project generates surplus in terms of present value after meeting the e#pectations of all the long-term fund providers. the term loan interest is considered as an accrued benefit. are compared with the sacrifices made by them for the project. making continued production unjustifiable. and recovery of working capital margin. hese are then compared against the cost of long-term funds that include interest and dividend payments. "nvestment planning hori-on of the company9 ime period for which the company wishes to look ahead as it:s long-term investment policy. hence. 7ate of discounting generally represent the rate at which project surplus is reinvested. What are the 'imitation in % in) WACC a con tant rate of !i co%ntin) thro%)ho%t the #roject 'ife #an$ he . 6owever./3 analysis is carried out with cash flows worked out form A$ong erm 3unds: point of view. under the long term funds principle. 5quity and preference share holders. interest paid on term loans.sing a constant rate of discounting therefore assumes that the surplus is reinvested every year at the same rate. 6ence the >%// is considered as a Ahurdle rate: for . 6owever in reality. Product market life9 1arkets for a products shrink change or disappear due to changes in consumer preferences. the project cannot be e#pected to run remuneratively.c'%!e financin) co t /hen the 'on)-term f%n! #rinci#'e i acce#te!$ he A$ong erm 3unds: principle evaluates project form the point of view of providers of ‘$ong erm 3unds: to the project. the interest on long term debt is either ignored while computing profits and ta#es thereon or added back to the cash profits calculated by normal accounting procedures. opportunities for reinvestment keep changing from time to time making it necessary to consider different rates of discounting for different years. ./3 analysis. >hen any one of the above occurs. "nterest on term loans is a considered as an e#pense or cost while working out P & $ account as per normal accounting principles. Physical life of plant 9 Period for which the plant remains economically and technically functional and productive. echnological $ife of plant9 8ew technologies and processes make e#isting plants obsolete even before they are physically worn out.i.

9nc'%!e O##ort%nit" co t 9 )pportunity cost for diversion of available resources to the project should be included. ii. @udgeted cost of work schedule. %ny control measure to correct the deviations from . 9)nore %n& co t0 )utlay incurred in the past or e#penses already committed irrevocably should be considered. A''ocation of o. he difference between cash flows with the project and without the project has to be ascertained. ‘=ONG TERM 87NDS’ PR9NC9P=E 0 "t is recommended that the project should be evaluated from the long term funds point of view as the assets for the project are created out of the funds provided by long term fund providers. %ctual cost of work performed till date and covers total cost of work done. Can the oft/are #ac&a)e for #roject mana)ement rea''" ‘Mana)e’ Project $ What are the +a ic feat%re of %ch #ac&a)e an! ho/ the" are % ef%' in effecti. ". 5arned value '@/>P. Princi#'e fo''o/e! for /or&in) o%t the #roject ca h f'o/ . iii. he project e#penditure '%/>P. the incidental effects on the company:s other operations must be considered. following points should be kept in mind..e. >hile estimating incremental cash flows. it earns no value i. ><. Short note . goods received and services used. EARNED GA=7E MANAGEMENT . "f a small change in one factor leads to a major change in the profitability of the proposed investment the project is considered more sensitive to that factor. "t is a technique that measures the change in the profitability of a project caused by changes in the factors that affect the cash in flows of a project. '"nterest on long term funds to be added back to profits after ta#. whether these have been paid for. 6ence the principle focus of financial appraisal should be on profitability of long-term funds. (chedule e#penditure '@/>(. his corroborates with the long-term funds principle mentioned above.>:.An activity:s value P its budgeted cost for a project "f actual is more than budgeted. otal of budgeted cost for the work performed to date is the total A5arned 2alue: of the project. ENC=7S9ON O8 89NANC9NG COSTS PR9NC9P=E0 3inancing costs of the long term funds should be e#cluded from analysis. SENS9T9G9TH ANA=HS9S . 9NCREMENTA= PR9NC9P=E9 /ash flows must be measured in incremental terms. @udgeted cost of work to be completed till given date if the project runs or schedules.erhea! 9 )verhead costs irrelevant to the project should not be considered. >>.e mana)ement of #roject $ (oftware packages cannot really manage the project but they can only aid the project manager in decision-making process. >?. Con i!er a'' inci!enta' effect 0 %part from the direct cash flows. POST TAN PR9NC9P=E0 %ll cash flows to be defined in post ta# terms since the cost of capital is considered on post ta# basis. Short note . "t includes accurate and provisions.

8etwork .e tment a'ternati. %ctivity name.o'. 7eports9 2arious reports ! . 1any such outcomes would be beyond the control of the decision maker and will be a result of chance to a greater or lesser e#tent. costs.  >@(9 3ull >@( format preferred to outlining.  1onitoring9 3acility to update project status from time to time and workout its effects. /osting9 /osts related to activities can be worked out and consolidated to give the project cost.  7esource allocation9 3acility to define and allocate resources and resource costs. estimated duration. and indicates variances for enabling corrective action.  /hance points when outcomes are dependant on chance """. % decision tree consists of a number of branches springing at each node as a result of one of two conditions. )ther desirable features could be9  3ormal9 preferably %)8 format with at least three types of relationship 3(. iii. (ome investment decisions are not isolated or not unconnected with future outcome of events after making the decision are analysed with help of decision tree technique. 7esource allocation & leveling9 . holidays and timings specific to project. critical path. >A.ecision points and alternatives available for action. ?F. equipment. 3orm the decision tree  . What are the it%ation in /hich e. costs or e#pected performance has to be decided on the basis of various technical issues involved and also needs judgment and discretion on the part of decision maker. activity.  /ost allocation9 3acility to define fi#ed and variable costs of activities. @asic steps involved in the analysis are9 ".a'%ation of in. vi-.ifferent calendars can be defined to take care of working days. location. (pecify probabilities & monetary values for various out comes. ii. vi.  7eporting9 %bility to prepare and print reports in tabular and graphic formats.e i faci'itate! +" !eci ion tree ana'" i $ E.  /alendar dates9 (chedules to be represented o calendar basis rather than on day numbers.ifferent resources ! 1anpower. "t also identifies critical activities.e! in !eci ion tree ana'" i . ((. resource etc.#'ain the +a ic te# in. v. % computer cannot be e#pected to carryout such functions. iv. estimated duration and precedence relationship. . & 33.schedule. and floats.etail and summary ! can be produced for management information & control.evelopment9 Package develops a network with just the basic inputs of activity description. Progress updating9 Periodic updating of progress works out the revised schedules. 3eatures of project management packages that are useful in effective project management9 i.  (ub-projects9 3acility to link independent projects as sub-Projects. /alendar definition9 . "dentify the problem and various alternatives "". and activity dependencies. E entia' feat%re of oft/are #ac&a)e for #roject #'annin) D monitorin) he software package for project management should essentially have following features9  (cheduling9 %bility to develop schedules based on three basic inputs.  "nterfacing9 5#port-"mport and linking to databases and other applications. and materials can be allocated on activities and leveled to minimi-e periodic fluctuations as well as to optimi-e their deployment.

"2.ata for probabilities associated with each possible outcome at various chance nodes and  1onetary value of each combination of decision alternatives and chance outcomes.  5valuate monetary values of chance points & decision points in a backward manner till reaching the original decision point.  OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO .. 5valuate the alternatives.