CONCEPT OF PROJECTS AND CLASSIFICATION Introduction ; Meaning of Projects ; Characteristics of a Project ; Taxonomy of Projects ; The Project Cycle ; Project Identification ; Project Formulation; Establishing the Project and Objectives ; Question Bank. 1.1 INTRODUCTION A project is a planned programme to achieve a specified objective within a specified period of time. The three basic attributes of a project are a course of action, specific objectives, and definite time frame. The project can be implemented by a specific authority called Project Manager. Every project has the following characteristics : 1, Input Characteristics: Projects require raw materials, energy, manpower, financial resources and an organizational set-up. It is necessary to evaluate the nature as well as magnitude of these essential inputs for the successful implementation of a project. 2. Output Characteristics: A project will define the outputs to be generated in the form of additional goods or services. It is necessary to evaluate these outputs qualitatively and quantitatively and assess the financial outputs generated by the project. 8. Social Cost Benefit Characteristics: The input and output characteristics define the impact of the project on the environment and effects on the current equilibrium of the availabilities and non- availabilities in an economy and, therefore, whole society is involved. Therefore, it is essential to carefully evaluate the sacrifice to be made and benefits to be achieved by the society. 3am Project Management » 4] The feasibilit characteristics an impact on the owner of A project must be subjected to thorough and rigorous i ie logi al cound economic logic in a well-defined and Sanaa ee appraisal gives credibility to a project and protects it from in-built weakn: oe aera and viable industry comes up based on careful and sound evaloation ion. 4.2 MEANING OF PROJECTS A project is a productive activity which can be analyzed, appraised and monitored independently. It is a scientific programme to achieve a specific objective within a specified time frame. Different authorities have defined project differently 1, World Bank: develop facilities to provi 2. Little and Mirless: “A project is @ sche investing resources which can be reasona) as an independent unit. It may be any ite which can separately be evaluated.” 3. Giitinger: “A project is a whole complex of a using resources to gain benefits.” project cannocts 4. Dr. Albert’ O. Hirchman: “The development some minimum size, a specific location, the introduction of something quantitatively new, and the expectation r—r——™—F will be set in motion. Development projects are privileged particles of the development process.” 5. Project M ty of a project idea is based on identificati A . ntifi ‘d other information collected by the a ee the enterprize andthe environment. “A project is an approval for a capital investment to ide goods and services.” me or a part of a scheme for bly analyzed and evaluated m of investment activity ctivities involved in purposefulness, ‘A: “Project is a system involving te department entities through- ompleted within prescr anagement Institute US. the coordination of a number of separa out the organization and which must be ¢ schedules and time constraints.” 6. Harison: “A project is a non-routine, non-repetitive, undertaking normally with discrete time, financial and te performance goals.” 7. Encyclopaedia of Manageme dedicated to the attainment of goal- development project on time, within predetermined programme specifications.” It-can be concluded that a project has specific objectives for a given location. ee starting and end point, to serve a target population and te achieve good ae return. It requires an organization to implement it The of a project are shown in Fig. 1.1. one-off chnical ati “Project is an organized unit the successful completion ofa budget, in canfurmance with© Concept of Projects and Classification = ‘Objective Internal Rate of Return 4 =e on Fic. 1.1, Components of 4 Prosecr 1.3. CHARACTERISTICS OF A PROJECT There are so many definitions and concepts of a projects, but they have four basic characteristics : 1. Investment pattern, 2. Benefits or profits, 3. Time limits, and 4. Location. Therefore, a project is an economic activity with well-defined objectives and time frame with specific starting and end points. It is amenable to planning, financing and implementation as a unit with costs and returns should be measurable. A project can be considered as a proposal for capital investment to create facilities for provision of goods and services, Major characteristics of a project are discussed below in Table 1.1 alongwith distinguishing features. ‘TaBLe 1.1, Mason CHARACTERISTICS OF A PROJECT SL | Characteristic Features | 1. | Objectives Every project has specific objectives. The project { ceases to exist after objectives have been achieved. 2. | Life span The life span representing the start and end of a L project are specified in the objectives. 3. | Uniqueness Every project is unique and is one unit with one responsible authority. However, there are many | participants in the project. 4. | Team Work ‘A team is constituted with members drawn from | different disciplines, specializations, organizations | and may be countries. The success of a project | depends upon team work. Life Cycle A project has a life cycle consisting of conception, design, implementation and commissioning stages. nb a asdW | 6. | Change A project is not rigid in life span. throughout the life span of a Lr) changes may not have major impact. However ("| changes can affect the earlier character or one | of the project. Course | 7. | Principle of How a project is going to be implemented is not succession fully known before hand. The details get finalized successively with the passage of time. A project is always customer specific. The customer gives various requirements and constraints within] which the project has to be executed. 9. | Complexity A project is a complex set of activities relating to technology, machinery, materials, equipment and people, work culture and ethics, financial resources, Execution of the project in time by proper scheduling of different activities contribute to the complexity of the project. Jo. | Sub-contracting [A high percentage of project work is get done} through contractors. Normally 80% of work is done} through contractors depending upon the complexity of the project. Sub-contracting is also helpful ifthe sub-contractors are specialized in their field of activity. This will improve completion time and quality of the project. 11, | Risk and Risk and uncertainity go hand and hand with the uncertainity project. The degree of risk and uncertainity will depend upon the type of project, i.e., R&D projects and ill-defined projects. _ All projects will have pre-designed cont mechanism to ensure completion of project within time schedule, within estimated cost and achieving the project specifications with desired level of quality and reliability. 13.| Optimization | Project management concepts the aim of achieving optimal utilization resources. ae] = Project Management » 8. | Customer Specific, rol 12. | Control mechanism have evolved with| of available 1.4 TAXONOMY OF PROJECTS Taxonomy of projects is the scionce of classification into different groups. ‘ wve been classified in various ways by different authorities. . * anable and Non-quantifiable Projects Gite and Mirreas have divided projects into two main categori fowsamne Sr Hescaeee sre the projects in which plausible quantitative — . : , industria development, mineral developmen ne Power generation, indus!= Concept of Projects and Classification Non quantifiable projects are those where assessment of benefits is not | possible. Examples health, education, defence, ete 2 Sectoral Projects The Planning Commission of India has used sectoral bias for the classification of projects. This system is useful in resource allocation at macro- level The projects can fall into following sectors. (2) Agnculture and allied sector. (a) Irmgation and Power (ai) Industry and Mining (iv) Transport and Communication (v) Social service sector (vi) Miscellaneous 3. Techno-Economic Projects Projects can be classified as per their techno-economic features. This type of classification is useful for the process of feasibility appraisal. United Nations and its specialized agencies use International Standard Industrial classification for collection and compilation of economic data. This classification covers the entire field of human economic endeavour and hence form useful basis for classification of projects. Three main groups of classification can be identified as under () The projects may be classified as capital-intensive or labour-intensive depending upon whether large-scale investment in plant and machinery or human resources is involved. (ii) The projects can be classified as demand-based or raw material-based. Demand based projects are launched to meet gap of non-availability of certain goods or services. Raw material-based projects are launched to utilize the availability of certain raw materials, skills or other inputs in a certain region. (iii) The projects can be classified on the basis of size of investment as large-scale, medium-scale or small-scale projects. Economic activities are grouped into ten division which are further sub- divided into ninety sub-divisions. The main divisions are : Division 0 ; Agriculture, Forest, Hunting and Fishing. Division 1: Mining and Quarrying. ae § | Manufacturing Division 4 : Construction Division 5 : Electricity, gas, water and sanitary services Division 6 : Commerce Division 7 ; Transport, storage and communications Division 8 : Services and others Division 9 : Activities not adequately described. 4. Classification of Projects by Financial Institutions All India and state Financial Institution classify the projects into the following groups, based on the need of the project. The projects are generally Profit oriented.,= Project M meet customer needs for a good or service 1, New Projects to 2, Balancing Projects to improve upon the manufacturing capacity on unite that will result in the improvement ig one or more producti ere gverall production capacity of the project as a whole 3, Expansion Projects to increase the plant capacity for the current product range to meet definite upward trend in the demand for that product. 4. Modification and machinery or pro 5, Replacement Projects to machinery of same 6. Diversification Projects unrelated product. 7, Backward Integration Projects to add manufacturing capacity for the in-house production of raw materials used for the existing plants 8, Forward Integration Projects to add manufacturing/processing facilities at the end of production line to further process the existing products for value addition. 5 Service Projects ‘The service projects (@ Welfare Projects (ii) Service Projects (iii) Research and Development Projects (iv) Educational Projects Projects for technological upgradation of existing plant duction process which have become obsolete replace old machinery with a new capacity to improve operational effeiency. to offer more than one related product or can be classified as follows 4.5 THE PROJECT CYCLE Several stages of project work are collectively called as 1 various stages of the project are : 1. Project Identification The project cycle begins wi with collection, compilation an purpose of locating possible opportunit development of such opportunities. Identifying a new sound project study from many different angles. 2, Project Formulation After identification of a worthwhile project, the preparation or formulation. This consists of : () Pre-feasibility study (i) Functional studies or support studies (iii) Feasibility study i Detailed Project analysis, paration of detailed project report. he project cycle. The vation of a project. It is concerned jata for the eventual d with the ith the identife: d analysis of economic d ties for investment an volves careful a complex problem. It im next stage is project= Concept of Projects and Classification m _ 9 3. Project Implementation The process involved in establishing a project are : ©) Initiating (u) Planning Gai) Organizing (iv) Executing (o) Directing and Controlling Planning. Organizing, Executing, Directing and Controlling are applicable to all types of management activities including project management. Since projects are one-time ventures, they \Controting, have a beginning and an end which are denoted by two processes, initiating and closing respectively. The project implementation cycle is shown in Fig. 1.2. Implementation is a critical stage of project work. 4. Ex-post Evaluation The project cycle does not end when implementation is completed and the project goes into operation. Ex-post evaluation should provide a compre- hensive and detailed review of the elements of success and failure of the project for enhancing the development impact of project work. The main purpose of ex-post evaluation is to learn lessons for the design of future projects and help ensure accountability. Directing and Fig. 1.2. Prosect IMPLEMENTATION 1.6 PROJECT IDENTIFICATION Project identification is the first step of new venture. Identifying a new project is a complex problem. It involves careful study from many angles. Projects take shape to meet customers needs for goods and services. Hence, project identification is based on finding a gap in terms of customer needs for goods and services and filling the gap. 1.6.1. Sources of Project Idea New project ideas may emerge from the following sources : 1, Study of Existing Industries Study of performance of existing industries can be a good indicator. Careful analysis will show the gaps between demand and supply of goods or services. 2. Raw Materials Availability Availability of good quality raw materials at cheaper rate in a region is adefinite indication for launching ® praject. Food processing industry ser here plenty of agricultural products are available. Chemical industrss fan be launched where some minerals are available — & Availability of Skilled Labour Suitable ventures are possible to utilize available skilled manpower 4 Import/Export Data Data on import and export of goods and services reveal the remains untapped. An import substitute can be produced way ee increasing trend of import of a product. Similarly a product for export can be manufactured to meet increasing trend in export potential 5. Demand-Supply Gap variation of a product/service is a good indicator of gap between demand and supply ‘A steeper rise in price of a product than feneral price rise is a definit indicator of demand-supply exp 6. Other Sources ‘can be used to identify a project : (a) Balance sheets of existing companies. (iii) Profitability, break-even Jevel, earning per share of various industries. & Foreign Demands Certain prod: i are not needed in the country but there is high to rach data cam be used to identify projects 19 mest ®. Unfalfilled Psychological Needs like cosmetics, $08! ; sector ips, toothpastes, New products in consumer goods 7 eed to meet the unfulfilled 10. Government Plans and Guidelines ‘The Department of Industrial Development, Government of India publishes place and guidelines which provide information on the }0™ of different sectors of industries. capacity of various industries. (iii) Scope for future exports. (iv) Location and structure of industries. 11. Study of Economic and Social Trends ee erncmrcc and aca) trends of the society wil be helpful 2 identifying demands for new goods and services.= Concept of Projects and Classification = 11 (@) There is growing desire for leisure and recreational activities which indicates good investment opportunities for rest houses, resorts, etc. (ii) There is growing demand for fast foods, high speed vehicles, better transportation, readymade garments as the society has become time conscious. 12, Revival of Silk Units Infusion of more capital, provision of complementary inputs, revamping the organization structure, ete. can be used to nurse an ailing industrial unit and to bring it back to life. Reviving a sick unit can be a good opportunity to launch a project. 1.6.2. Criteria for Selecting a Particular Project After getting project ideas from different sources, project profiles can be prepared by the consultants. The following criteria for selecting a particular project should be considered. 1, Investment Size The investment size will decide the promoter’s contribution, term loan and licencing requirements and scale of the industry, ie., small scale, medium scale or large scale with attendant complexities. 2. Location There are various incentives available for locating the plant in rural and backward areas. However, the location near state capital helps to attract competent managers, easy liasion with Electricity Board, State Industrial Development Corporation, Financial Institution and other agrencies. 3. Technology The project may need proven indigenously available technology or high technology necessitating foreign technical collaboration. 4, Equipment The equipment selected should be of high quality and productivity and there should be no compromise in this respect. There are always serious difficulties in running a plant using poor quality equipment. 5. Marketing The product selected should avoid cut-throat competition and should be sold to a limited numt-r of industrial customers. 1.6.3. Importance of Project Identification Project identificatiun is of great importance due to following’ reasons : 1. Projects are thu catalytic agents of economic development. 2. Projects result in employment and income generation. 3. Projects initiate development of infrastructure and envi:onment. 4. Projects acceleriite the process of socio-culture development. 5. Projects attract substantial financial investments. 6. Projecta have kimeficial consequences in the long run.emf [a4] = Project Management # besis of project objectives, project feasibility parameters and project demand imal project strategy is the combination of controlled variablos potential. Opti to ensure achievement of project objectives with minimum expenditure of resources. 8. Project Design and Network Analys: Project design and network analysis consists of development of the detailed work plan of the project and its time profile, This plan is presented in the form of a network diagram. Network analysis is carried out to identify the optimal course of action to execute the project within minimum time and with the available resources, The project inputs are worked out from project design and network analysis. The financial requirements are worked out and cost-benefit profile of the project can be prepared. 4, Input Analysis ‘The resource requirements of the project can be determined after feasibility analysis, techno-economic analysis and network analysis. Input analysis is tarried out for identification, quantification and evaluation of project inputs. The following information is obtained. (i) Nature of resources to be consumed by the project. (ii) Estimation of magnitude of required resources. (iii) Evaluation to ensure un-interrupted supply of inputs. are the basis of cost estimates of the project which al profile of the project and carry out cost-benefit Input requirements are used to develop financit analysis. 5. Financial Analysis Financial analysis requires estimates of project cost, revenues and funds requirement. It consists of break-even analysis and ratio analysis. The information obtained is used for commercial profitability analysis. 6. Cost-Benefit Analysis ‘There is no standard methodology available for evaluation of social cost- benefit analysis. However, it is recognized internationally. All social costs due to impact of the project are estimated alongwith secondary benefits. The analysis is carried out in same way as financial analysis. However, in place of market prices, some shadow prices are used based on social and national objectives. ee eee analysis, techno-economic analysis, design and network analysis, input analys financial analysis and cost-benefit analysis paler esl shape is given to the project. It is also called pre- information is collected ae e (eee dec ision about the project. This Formulation, e form of a feasibility report and is called Project® Concept of Projects and Classification = [15] 4.8 ESTABLISHING THE PROJECT AND OBJECTIVES 4.8.1. Project Objectives The objectives of the project will be to complete the project, 1, Within budgeted funds 2. Within scheduled time limit 3. Meets the quality standards 4. Meets the satisfaction of the customer. 5, Meets the social objectives. The project objectives are to be kept in mind by all members of the project team throughout implementation Period. All decisions are to be taken keeping in view the project objectives, 1.8.2. Project Implementing Processes The processes involved in establishing a project are : 1. Initiating 2. Planning 3. Organizing 4. Executing 5. Directing and Controlling 6. Closing General management including project management deals with planning, organizing, executing, directing and controlling processes. Initiating and closing Processes are applicable to project management only. 1.8.2.1. Initiating Initiating the project means getting the commitment and authorization to commence the project. This decision is based on identification of project, generation and development of project ideas, formulating a project proposal, appraisal of the project proposal chosen. 182.2 Planning Project planning involves the following : (i) Defining the output of the project in terms of product/services to be generated. (ii) Forecasting and estimation of input resources for the project in terms of men, materials, money, machines, etc. (iit) Breaking down the project into manageable work packages or activities and logical sequence between different activities. (iv) Structuring an appropriate organization to implement the project. (v) Planning the tentative project completion time by preparing a master programme schedule indicating control points and critical dates: of major events.| 16 = Project Management # (oi) Scheduling the activities to complete the project in minimum possibl time by the use of network analysis. le (vii) Preparation of detailed cost estimates of all activities. red resources for all the activities. (viii) Estimation of requi (ix) Preparation of contingency plan considering all adverse circumstances, 18.2.3. Organizing Organizing consists of (a) Financial Resources ensure their adequate (6) Project Organization : responsibility for coordina’ implementation of the project. A sui to be selected and manned with competent skill and expertize. (©) Team Building : Execution of project requires special and unique quis, capable personnel selected must be given training and counselling. (@ Vendors and Contractors : The vend contractors for execution of the project sh¢ proper procedures. (©) Communication : should be designed relevant information among project stakeholders. the following sub-processes. + The financial resources are to be arranged to and timely availability. ‘A project manager must be appointed with tion, directing and controlling the table organizational structure is personnel with required lors for material supplies and ould be appointed following A suitable information and communication system and implemented to collect and disseminate all members of the project team and other 1.8.2.4, Executing ‘The project execution shall be done as per original plans. However, project og cTie Brio eer Silty i roqlred inthe execution of the PO! within overall objectives of the project. 1.8.2.5. Directing and Controlling The project manager will direct his subo ji tes through the tools of instructions, orders, requests, guidance, supervision, coaching, advice, et ‘and motivate them to achieve the project goals. ; otaling i cectng te verano a tin, Tr® 040 gar original plans. After identifying the deviations, suitable remedial measures origin! plans, After identifying Oe ea and put the prject back om eh 1.82.6. Closing _A project comes to an end when the execution is completed and project ne eee eee vl poste af elosing tbe process consis (a) Testing the project gives planned output. (6) Settlement of final bills of the contractor.