PGCPM

MPM-001 : Project Fundamental and Appraisal

Unit 1 – Project Fundamental
Project fundamental is the first phase of the project life cycle
Both Knowledge sharing and acquiring are not the discrete or time defined processes but on the contrary, part of continuous processes. It is important to learn from the experience of the current project from conceptulisation to delivery phase for the betterment of the next project. Individual knowledge gained must be institutionalized to transform into Corporate knowledge database. The fundamentals of project management is also available as part of the knowledge database and interlinked with this phase of the project life cycle.

Project Fundamentals Conceptualize

Plan

Organize

Implement

Control

Closeout

Delivery

What is a Project? A project is the means of converting a vision or a dream or a need into reality. Such a need could have arisen due to personal, business or social reasons. Projects are needed in each and every sphere of society as such: • • • • Business Industry Government Social sector etc.

A project can vary a great deal depending on what is to achieve. It could be: Very large or very small; a massive complex undertaking or a simple undertaking Projects can be taken by anyone and at any level in an organization The actual project will vary a great deal depending on the nature and amount of work that has to be done. It can involve just one person for a day or thousand people over the years. Across just one department in the organizations to a number of departments in the organizations or even across multiple organization at multiple locations Projects have been defined in various ways by various people Let us look at some definitions of what a project is • The Webster dictionary has defined a project as: A proposal of something to be done; Plan; An organized undertaking; a special unit of work; an extensive public undertaking etc

According to definition given in Project Management Institute, USA’s guide to the project management body of knowledge A project is a temporary endeavor undertaken to create a unique product or service

Buchanan and Body have described project as

Unique ventures that have beginning and an end and are conducted by people to meet established goals within parameters of cost, schedule and quality

Cleland and King have described project as A complex effort to achieve specific objectives within schedule and budget targets, which generally cut across organizational lines and are normally not repetitive within the organization

Some key features of the project are that they are: • Temporary All projects have a definite beginning and a definite end. They are undertaken to achieve specific and objectives and close when these goals and objectives are achieved.

Unique Each project Big or small, no matter how similar to other projects, will vary from others in some respect or other. A project will never be identical to other project

Pre defined goals/objective This could cover financial social or economic reasons.

Budgets and schedule Each project will have a pre-fixed budget to be completed in and pre defined timelines for completing it.

Quality (Performance) measure The performance expected to be followed in the project is decided in the beginning.

Use resources and manpower Availability of both manpower and resources are always limited in the project

Face known and unknown risks Uncertainties in the project could jeopardize its successful completion

Have a project Life cycle Project’s go through different phases in its journey from beginning to the completion.

Project Fulfill Diverse Needs: A project can be taken up for such diverse reasons as • Organizing a simple lunch or arranging a wedding, to developing new products and services, infrastructure development, constructing a building, implementing new business procedures, R&D, designing new software, a poverty alleviation campaign by the government/NGO, putting man on the moon etc. Projects can also be classified in different ways such as o o o • By the industry or sector in which it falls By the size of the project By the tool cost involved in the project

For example a project can be undertaken to provide new products or services for o o o The organization’s own internal Need For an outside client For one’s own personal requirements etc.

Operations versus Projects
Operations are used for • Routine, ongoing and repetitive undertaking in an organization

The objective of the operations is to: • Sustain the existing business of the organization and

• • Make the existing operation more and more efficient Operations are not involved in introducing any new change as in the case in project. there are many differences between them. the aim for which they are performed. Differences between a project and an operation Though projects and operation have many features in common. executed and controlled. A key difference between project and operation is in their objectives. Projects Unique Temporary Aim is to achieve the objectives of the project and then to close the project Future orientation Creation of New things Operations Ongoing Repetitive Objective of operation is to sustain the business Present orientation Maintenance of existing things PM Fundamentals 1. Why Modern PM is the key discipline? . In practice both operations and projects have many characteristics that are common to each other in spite of the fact that they are undertaken to fulfill different aims and objectives. Some common characteristics between projects and operations are that they are both: • • • Performed by people Both have limited resource at their disposal for undertaking the project or the routine operations To be successful both operation and the project must be properly planned.

global human networks are being built having far reaching implications crossing all frontiers of imaginations and bounderies Emergence of ‘Time’ as strategic weapon Unprecedented rate of change Explosion in the quantum of change Unprecedented rate of change requires managing uncertainties In today’s context of rate of change. Rosabeth Moss Kanter of Harvard business school has rightly said. “You have no future unless you add value. How to contain the explosion of change on one side and how to extend the time given are two impossible things facing today’s business managers. a student will get a fairly good overview as why project mindset is master key today. There is more discontinuity observed in business than continuity. . Internet gives you access to the knowledge which is unlimited and provide you the reasons to be innovative. The characteristics of project mindset are defined in this section. Reason 1: New Business Environment: Business environment is completely changed today. create projects” Mind to Mind (M2M) communication is the key due to the unprecedented rate of change. The new world order under formation is increasingly becoming uncertain making it imperative to get into project management. the whole world has changed and remember this is just the begining.Why project mindset is the key to competitiveness? Project mindset deals with the new situations which are full of uncertainties opposed to an operational or colonial mindset which is interested in perpetuating the status quo. Unlimited access to knowledge while seeking freedom to innovate With the advent of the internet age. Every aspect of a business is getting translated into a project. The new scenario is changing manager’s outlook as they have to face and win tougher battles. At the end of the course after highlighting the reason. We all live in a momentous time slot For the first time in civilization. we need non linear thinking and project mindset to manage more uncertainties.

Today the world is one market place with many distributors. Knowledge leveraging is the “critical success factor” for organizations In short. There is always a market open 24 hours somewhere on this planet. This provides a total of 168 hours. Reason 3: Phenomenal Pressure to compress time With the phenomenal rate of change. Modern project management is in essence • • Change management and Uncertainties management. This multiplication of time factor of 4. Reason 2: Scientific way of learning knowledge Some individuals are successful at addressing the numerous business uncertainties and win over them by applying their knowledge. In the first half of 20th century we were living in industrial economy where man machine communication was the hallmark of the economic development. And “The globalization of economy is irreversible” The company has a virtual resource base with flexibility of movement around the world. It was impossible to compress time this period required little time compression. Time pressure force organizations to move faster with high risk as they may not get a second chance to recover the lost battle Before the 20th century we were living in the agriculture economy. There is also a supplier present round the clock to meet the requirements of a customer in a marketplace that is open 24 hours. The growth of modern project management is attributed to change and uncertainties and both these factors are interlinked. everything should have been done yesterday. The rainfall would be the key to a good harvest. One of the biggest challenges of today’s business environment is to leverage these individual successes and make them into corporate asset. which is considerably increase of previous constraint of 40 hours a week. 7 days a week. An organization has at its disposal a timeframe of 24 hours. A supplier can have global access to produce goods or services. With mind . There was hardly any control on time constants which was governed by nature.The turmoil is so extensive that the new business reality is like huge sea wave.2 is what the “Globalization” is all about. No one can simulate and fully predict the behavior of such a waveform of sea tide.

What a peculiar world is Emerging Today’s challenge lies in compression time and to manage its reactions Project management provides methodology to compress time and its reactions Reason 4: Present Scenario of globalization The 4th major reason for project management becoming the key discipline by viewing the present context of globalization E-Technology Era . Only those will survive in today’s context who have mastered art of taming time and making the competitors to have a disadvantage to lag behind. everything should have been done yesterday (high time compression). Services have become the base for the economy. The time ahead of us is becoming tougher because time needs to be compressed without any compromise on quality and reducing cost at the same time. It is in this age that everything should have been done yesterday or even day before yesterday. There is pressure on time to be the minimum possible. It is highly dominated by high tech and telecommunications. Management initiatives in organizing work became so important for the survival of the company due to the competitive pressure.over matter syndrome we could improve time constant related to men-machine communication thus giving rise to low time compression in the sense that we can reduce time of the process under consideration. This means the products must be shipped to customers in the minimum possible time and it gave a medium pace to the reduction of time. Society today is based on high time compression implying shortest possible time for a transaction. In 21st century. Beginning 21st century we are totally in the ‘E’ age. Second half of the 20th century we brought into an organization’s work style the concept of specific management of high order.

With the onset of globalization gradual changes are not enough. The Great Wall have been undertaken centuries ago required massive amount of labor and material. The Taj Mahal. For the first time in human civilization. mind-to-mind (M2M) communications is possible instantly across the globe. organizing and control. project management is as old as the human civilization. Over the past 50 year modern project management have evolved as a separate discipline. global human networks are being formed. Both organizations and individual must regularly transform themselves to stay ahead or usher in better times.Time Scope Cost 2. Historical Perspective We are living in a momentous time slot. The unprecedented rate of changes taking place has made transition complex and non linear. Projects such as pyramid. . If the 20th century can be termed as the “Industrial Age”. 21st century has to be termed as “Communication Age” We find that as a profession. With the use of internet technologies. Though such projects did not use the modern day project management tools they all required the management of hundreds of thousands of workers and exceptional use of planning.

Project management is ideal discipline to manage change and its use is crucial for enterprises to maintain a competitive advantage. These three parameters are related to: • • • The Scope of the project The time to complete the project The cost associated in completing the project Together they form the three major parameters for each and every project. • • • • • • • • Conceptualize Plan Organize Implement Control Integrate Deliver Knowledge leveraging Till recent times the whole edifice of project management was based on three major considerations or parameters. project management has experienced an extraordinary growth in last decade. There are 8 basic processes associated with project management. Time Cost . Consequently.

control and completion were the direct outcome of effectiveness of planning and execution stage.Scope We can represent the three key parameters of scope. time and cost in the form of an equilateral triangle showing that all three are equally important. human society grew in a fragmented way with rulers down the ages who governed the majority. . What do we understand by term Scope? • • Scope is the basis of any project It is used to provide a detailed and accurate description of the work that is required to be done in order to deliver the product or service which has been undertaken by the project Scope forms the basis of time and cost estimates and is the most critical aspect in achieving the goals of the project • Time and Cost: Both the time to complete a project and the cost incurred in completing the project are directly dependent on what the project is required to accomplish. The remaining two out of the five major processes or project management i. Kings and Queens Era: With the evolution of mankind. In other words both the time and cost prospect of the project are based on the scope of the project. In this era. There was the clear distinction between the ruler and the subjects. the scope of the project was usually well defined.e. Let us take a broad look at the historical perspective of the project management discipline. Stone Age: In this age people were primarily engaged in survival process both from the point of view of obtaining food or to escape from becoming food. The need was well established and the planning and execution required was of a low order to fulfill the basic need of remaining alive.

Pyramids and Great Wall were based on the wishes of Kings who possibly wished to make their existence immortal. Costs involved was not that important as the same could be collected from the people and/or acquired through booty and surpluses coming from the fallen territory and kingdoms. a major thrust was also to expand the boundaries of the kingdoms/territories.Time and cost of the project was not well defined and considerably given less importance For instance. The desire to possess a larger terrain was the main consideration in undertaking many projects related to conquest of other kingdoms. To achieve such an aim: The Scope of the project was well defined and maintaining Time was also essential. Time and Cost were important to: • • Create wealth in factories Become competitive . The kings were not worried about the cost or time involved in completing the project Domination Era: In coexistence with the Kings and Queens Era. The scope or the end result was given primary importance. Industrial Era: Time Cost Scope The effective interaction between machine and men brought about the revolutionary era of the industrial age. Various machines could perform functions which their designers could not as the exploitation of science was carried out to create a unique symbiosis between Men and Machines. massive projects like the Taj Mahal. In this era all the three components of Scope. When to launch the attack was a key factor for achieving victory.

Customers slowly grew in importance and began to get into the driving seat. With this came the need for completion amongst the industrial organizations that offered similar products to customers. Competitive Era: Time Qual ity Scope Cost As the industrial era became well entrenched it gave rise to the establishment of many industries creating a surplus of production over demand. It was necessary in the industrial age to fulfill all the components of the defined Scope within Time and Cost. Enhanced Quality became the basis for the industries to function and survive/thrive. Quality became the 4th major component to be considered in managing projects of all kinds across the globe. In 1960's and 1970's. It was no longer enough to manage two sides of the triangle. It was now necessary to ensure that there was no compromise on Quality. Globalization Era: Integration Qual ity . Time and Cost.• Create a market place where products will be exchanged for the betterment of the living standards of the people. Competitiveness became the hallmark of a new competitive era. It was not good enough to meet the scope and performance criteria of the project with no time and cost runs. This was given a boost by Japanese organizations that wanted to penetrate the global market outside Japan. When undertaking projects successfully the need was to ensure a balance of all the three sides of the triangle representing Scope.

the area of a triangle that comprises of its three sides namely Scope. E-Technology Era: Time Cost Scope In this era. cost and quality parameters. Risk. then the E-Technology era is creating pressures to organizations to reduce this area.Communication Risk Human Resource Procurement As per PMI. procurement. If for the sake of argument. communication and project integration gained importance along with scope. Time and Cost is the Baseline (representing Scope) multiplied by the height of the triangle from baseline to the tip of the other 2 sides divided by 2. human resource. USA – A Guide to project management body of knowledge version 200 As the world market began opening up to form one big global market other issues related to managing projects came to the forefront. there is always a tremendous pressure in reducing time and cost without changing the scope or compromising the quality. time. .

Flowcharts were used to represent project activities and Henry Gantt introduced his famous Gantt chart which is a bar chart used to monitor planned project activities against a calendar i. • • . • • • • Development of PM in 1960’s: • During the 1960s the rapid development of fast computer technology brought a number of changes. Basically developed for it's Polaris submarine and missile program. Many new terms. This is a big challenge to modern day corporations. John F Kennedy's vision of putting a man on the moon in the 60s gave a tremendous boost to the development of project management tools and techniques. merged with network diagrams to develop project management. This technique is known as an Arrow Diagramming Method (ADM). Using the network the Critical Path Method calculates the earliest completion date possible for a project. Computers began to be used to develop project networks and do accompanying analysis of project activities. Features such as cost control. Development of PM in 1950’s: • Techniques such as industrial engineering began to be used to manage projects. It was very important to monitor and optimize the time and cost of this massive project. The baseline cannot be reduced. However. DuPont developed the Critical Path Method through the use of networks which used arrows to represent different project activities and circular nodes to represent events or the start and end of the activities.The only way it can be reduced in a most optimal way is by reducing the height of the triangle. scheduling of resources for the project etc. This implies reducing the cost and time proportionately. Former US President. techniques and nomenclature began to be used in managing projects. the US Navy was required to monitor projects using hundreds of contractors.e. The US Navy developed a technique known as Project Evaluation Review Technique or PERT by using network diagrams very similar to arrow diagrams. DuPont and the United States Navy both independently developed very similar networking techniques to manage project activities. instead of using arrows to represent activities. the US Navy networks used a rectangular node to represent different project activities. Around this time two famous organizations. a time frame.

Development of PM in 1980’s: Project management began to be formally recognized as a fast growing discipline in its own right. • • For this reason the use of project management methodologies is traditionally associated with construction activities. The construction industry worldwide began to use project management techniques extensively as an integral part of managing its projects. Development of PM in 1970’s: • Experience of the 60's began to be used to further develop the management of projects and an exciting new. Project management professional associations began to be formed in more and more countries. human resource and integration for managing projects effectively. communication.• Two leading project management professional not-for-profit bodies were formed that gave further impetus to the growth of the profession: The European project management professional body known as the INTERNET was formed in 1965. • • . PM knowledge began to move away from a limited address of traditional issues connected to time. cost and quality to the additional knowledge areas of risk. INTERNET of Europe was renamed International Project Management Association (IPMA) and it has grown to become one of the two most influential PM bodies worldwide with membership from 40 countries. Such software became more and more popular. formal discipline of modern project management began to emerge. • • Use of modern project management skills. In 1969 the American project management association. PM tools and techniques and use of PM software to manage all projects grew. Project management software which chiefly dealt with making computerized project networks was developed by many software companies. procurement. This was an umbrella body with membership from different European countries. scope. known as the Project Management Institute was formed.

Project Management certification is growing exponentially worldwide and there has been an 8 to 10 fold increase in the total number of certified project managers globally in the last 3-4 years. (PMA. there are over 400. The first project manager to be certified was in 1986. toprated certificate that teaches the intricacies of project management and builds a very strong foundation of project management skills and knowledge.Certificate In Project Management (CIPM)and Certified Project Professional (CPP). Today. .both IT and non-IT are demanding that their professionals be certified in project management. They are: o International Project Management Association. India is the Examination body for India) • • More and more companies worldwide . Level D is at the bottom and is the basic knowledge level. o o Introductory Certificate In Project Management (IntroCIPM). Switzerland's 4 Level Certification (4LC) which is based on knowledge. • Currently. Project Management Institute of USA's PMP® certification PMGURU Inc of USA has 3 levels of Certification. skills and practice.• Project Management Institute of USA grew to become the largest PM body in the world with chapters all over the world From late 90s onwards there is a mind-boggling development in the project management field. there are three leading project management certifications available in the world. The Certificate In Project Management (CIPM) is a globally recognized.000 certified project professionals worldwide.

which is most crucial both at business and personal levels. Time has become the most crucial strategic weapon to gain a better market share or supremacy. The use of project management is so advantageous that it is becoming one of the fastest growing disciplines worldwide Project Management discipline is used to: Successfully manage all projects irrespective of their size or complexity. the information explosion coupled with shrinkage of time has made the rate of change unprecedented. . Worldwide.3. Project Management Project Management Today. We can say that project management is the art and science of converting 'vision' into reality and 'abstract' into concrete. 'Everything should have been done yesterday' is a kind of syndrome we are all familiar with. Project Management is the art and science of managing a project . the discipline of project management is universally regarded as the most efficient way of introducing changes. In this scenario it is becoming more and more important to manage all our projects on time and within budget without compromising quality. It can also be termed as Dream or Change management.

we require specific knowledge and skills related to project management. technical and other performance criteria.e. There are various bodies of knowledge today that have organized the basic project management knowledge areas in different ways. tools and techniques to project activities to meet the aims for which the project was undertaken. executing. Project management provides a basic understanding of how we should address project uncertainties in a planned manner through planning. Project Lifecycle Phases: . As the project progresses project management provides the "single point of integrative responsibility" that is needed to ensure successful delivery of the project's aims and objectives. skills. the project stakeholders. quality. Project team members have to manage all the different persons such as the client. monitor and maintain progress of the project. To properly carry out a project from initiating to closing. This can be a difficult task as different stakeholders have different expectations from the project • • • Modern project management encompasses both the 'hard' side and 'soft' side of managing projects.It involves the use and application of specific knowledge. Managing everything that is required to achieve project objectives safely within agreed upon time. risk and quality in the project. Using the most appropriate tools and techniques to plan. controlling and closing and various issues throughout the project's life cycle. time. Using persons knowledgeable about project management to manage the project with the competing demands of scope. Project management achieves all this by following those procedures and processes which involves: • • Making a plan to achieve project objectives/goals and following this plan. The hard side deals with the tools and techniques used in managing projects The soft side deals with the people and project teams involved in carrying out project activities. the customer and the contractor who are directly or indirectly involved with the project i. cost. cost.

Conceptualization phase not only deals with the vision or Dream but it also later on carry out the analysis of its viability or practicability keeping in view the extended boundaries of an organization. Project Charter gives a green signal of going ahead with the project. the project life cycle phases may go through different nomenclature. Plan: Plan is an output of Planning Phase. The input to Planning Phase is Project Charter. This is a very generic project life cycle phases covering broadly most of the situations. implement. depending upon industry. However. . deliver & closeout and knowledge leveraging Conceptualize: It is the first phase of the Project Life Cycle.Shown below is the division of a project life cycle. Plan. we declare the existence of a project and release a Project Charter. Only after establishing the viability. The key deliverable of Conceptualization phase of Project Life Cycle is the Project Charter. Management transforms Dream to its awakening or Realize the Vision or delivers the Strategy or Concretize the Abstract.the main output of the Conceptulization Phase of project Life Cycle. Knowle dge Levera ging CIPMContro l PLC Conceptu alize Plan Integr ate Delive r and closeo ut Organiz e Implem ent The 8 phases of project life cycle are: Conceptualize. Project implies projection of Dream or Vision or Strategy or Abstract. integrate. control. Organize.

major portion of success is ensured. we have carefully indicated the interlinkage between Planning and Organize Project Life Cycle phases. Execution without planning is ad-hocism and nothing concrete can come out of such a process. Project manager is the principal actor responsible for the implementation of the Plan to the satisfaction to Stakeholders of a project. As it is shown in the graphic of project Life cycle. Project manager must also display Leadership characteristics and should be willing to take decisions based on his or her convictions along with carrying the team. Capital and Machinery. Organize Phase of the Project Life Cycle follows Planning Phase. Human resource management and able to communicate and negotiate for resources are some of the major challenges faced by project manager. Planning evolves a complete road map to change from the existing state to the state we would all like to reach as detailed out in the Project Charter. Ultimately. Resources imply Human. It is said if we evolve a good Plan document having detailed steps and road map outlined. Action without Planning give rise to ad-hoc outcomes and Planning without its execution is a road map of a vision without realizing Organize: How to get maximum output with the minimum inputs is the way we optimize the efficiency of various processes. In fact.Planning is the core of performing action. For instance. Organize and Planning phases of project Life cycle overlaps to a certain degree as Plan assumes certain way of organsing the implementation of activities. Implementation is the 4th Phase of the Project Life Cycle following Oraganization Phase. Material. Project manager is virtually a mini CEO in implementing a project to deliver the expected results as an ultimate outcome of the project. Organize Phase established guidelines of availability of Resources with reference to time. organizational structure could be Functional like in manufacturing organizations or Matrix or projectized. Organise Phase also elaborates the organizational structure which would be decided for implementation of project. we need performance to achieve what was targeted or conceptulized and planned / organized. Implementation: In Action lies Results. Every action must have a planning component for its execution. .

It follows Implementation/ Control Phases. It is the complete delivery which is to be accepted by a customer. Customer is the key player in accepting the deliveries. we interface with the ultimate customer of the outcome of undertaking a project. Control is an important 5th Phase of the project Life cycle and intertwined with the Implementation Phase of the project Life cycle. Control: Like in any system. Delivery phase brings the close out of a project with many lessons which have been learnt during the complete project life cycle. a typical Control strategy should be evolved. Integration: Integration is the 6th Phase of the Project Life Cycle. There could be overlapping between Implementation and Integration phases. Control strategy is not to exercise power of those who demand control but it is the basic component of the project life cycle ensuring the right deliverables with appropriate processes. A series of outcome could be in the form of products/ services. not excessive and at the same time not too little. Control phase must display maturity in ensuring the balanced view of control i. Cost. without Feedback. Depending upon the nature of the deliverables in the implementation phase. In delivery phase. deliveries can be 1 or many depending upon the project plan. It is mandatory in the Integration Phase to establish a fool proof mechanism of ensuring conformance to the specifications as outlined in the Plan document and to ensure Quality of the integrated product as expected. Deliver: It is the 7th Phase of the Project Life Cycle.e. The order of integration is an important factor for creating the final product for the Delivery Phase of the project life cycle. the system is unstable.Implementation Phase depicts the real efforts to bring about a change in transforming strategies to deliveries. The skill of the human resource required for integration can be different than those of responsible of Planning phase decomposing a visulized product / service to many deliverables. It implies that while we implement. Lessons learned is . In Deliver phase. It is better to have as rigid as possible the correctness of Integration phase as that alone will save Redo of efforts and later reducing the Customer dissatisfaction. it is with reference to deliverables in the domain of typically Time. and Quality.

a project explicitly focused on three major aspects and had one additional aspect which was implied in the project. were considered to be the triple constraints under which projects functioned. These three major considerations of scope.shown as the separate Phase of the project Life cycle under the title of Knowledge leveraging/ Lessons Learnt. It may be mentioned here that it is in the delivery Phase that the conflict can arise between those who have worked to deliver and those who are accepting the results of such work. all of which are equally important in any project. The fundamentals of project management is also available as part of the knowledge database and interlinked with this phase of the project life cycle. time and cost. Both Knowledge sharing and acquiring are not the discrete or time defined processes but on the contrary. Individual knowledge gained must be institutionalized to transform into Corporate knowledge database. Knowledge Leveraging: Knowledge leveraging / Lessons learnt are symbolically the 8th and the final Phase of the project life cycle. The explicit considerations for managing projects were: • • • Scope Time Cost while maintaining Quality was implied in the project. In such situations. In a real sense. the Project Plan holds the key for solving the conflicts as in project plan itself the specifications are detailed with time and quality considerations. . Triple Constraint Triple constraints: Conventionally. 4. it is a continuous phase whose span starts from the first phase of conceptulization to the last and the 7th phase of delivery. part of continuous processes. It is important to learn from the experience of the current project from conceptulization to delivery phase for the betterment of the next project.

which needs to be done in terms of deliverables to the customers. Scope forms the basis of all projects. A basic method adopted in project management to understand. For this reason Scope is shown as the base of the basic PM triangle which comprises of scope. For this reason the scope of the project must be fully clear in advance. Quality considerations which affects all three is shown in the center Time Qual ity Scope Cost Scope: Scope is used to define the total products or the services that are to be provided by the project. • • It defines the boundaries of the work. Each side of the triangle represents different units of measure. Time and Cost as three sides of an equilateral triangle show that there should be a balanced emphasis on all these three aspects of the project. identify and cover all aspects of the scope of the project is by detailing out all the work that will be required to be done in the project's Work Breakdown Structure (WBS). time and cost. o Both parameters of Time and Cost are computed for a project based on the Scope of the project. Once this is done: o It is easier to cost the project based on actual tasks and resources involved (bottom-up estimation) Asses and manage the time it will take to complete the project o Representing Scope.They can be represented as the three sides of a triangle as all three are equally important. Time and Cost: • The other two sides in the triangle are Time and Cost. For instance:- .

This is where we need competent project managers to build internal and external teams including suppliers. cost and time The balance triangle is Time Qual ity Cost . Managing the scope. time and cost: • • Managing any two sides of this PM triangle is relatively easy. days etc. What happens to our symbolic equilateral triangle when there is change in different parameters of scope. The project must ultimately satisfy different stakeholders. CUSTOMER Qual ity The representation of the Customer in the above diagram represents the ultimate receiver of the project work who needs to be fully satisfied. The challenge lies in managing all the three sides of the triangle without changing any one side.• • • Scope is measured in terms of deliverables Time is measured in units of years. months. Cost is measured in monetary currency Why is Quality kept in the center of the triangle? This is to show that quality can interact with all the three sides of the triangle and reflect that there cannot be any compromise on Quality during any phase of the project's life cycle. weeks.

Scope For change in cost triangle can be depicted as Time Qual ity Scope For change in Time triangle can be depicted as cost Time Quali ty Cost Scope For the change in Scope triangle can be Time Cost Quality Scope For changes in all three parameters of scope. Scope increased) Qual ity . Cost overrun. time and cost the new triangle can be depicted as (Time Overrun.

However this is not always possible in real life. time and cost in managing their projects. time and cost in any project? Ideally speaking. time. cost and quality. We have seen that by giving more stress to one parameter over the other the scope or the time or the cost will vary of the project .Time Cost Scope If you are the project manager what is the choice you should make between managing the scope. This policy should guide us for making our choice regarding which parameter should be given more weightage. Each company has their own policy regarding their preference in terms of maintaining the integrity of the triple constraints of scope. a balanced approach should be followed by in managing proper inter-relationship amongst scope.

Management control can be and should be exercised by everyone in the project to the extent he or she is responsible for performing and coordinating a group of activities. Enterprises performing projects will usually breakup the project into various phases. Project related activities keep a future angle in view while operational level of activities are more concerned with the present set of activities. Management control does not imply control only by the upper management. They are futuristic oriented. can be managed by using the scientific project management skills. One of the major advantages of breaking down the project into various phases is that as the requirements of resources will vary from one phase . Both operations and projects require good management to move forward. Operational level activities ensures the market share is maintained based on the existing product or services offered by an enterprise. Project Life Cycle Enterprises perform all kinds of work. These activities must necessarily be performed well in order to keep the market share. Projects are part of the strategic vision of an enterprise. large or small. Basically all activities require sound management in terms of organizing. Projects have a definite start time and finish time. control and finally achieving the aim for which we begin the work. Projects are one time and unique. Certainties are more associated with projects as being unique and temporary. execution. methodology and knowledge The Project Life Cycle defines the beginning and the end of a project from its conceptualization to its close-out and hand over. Some of the project phases also show more clearly the links to the ongoing operations of the performing organizations. This is done to improve management control of the project at all levels. Operations and projects share many common characteristics. Operational activities are repetitive and ongoing. This includes various key milestones and significant events of relevance to stakeholders in the project. Projects of any size. This includes both the routine operational work as well as project related work. planning.5. resources and that too never enough.

Decision is also taken to detect/correct all the errors. For instance. Such phase end reviews are often called phase exits. What are the characteristics of a project phase? A project phase is deemed completed with a deliverable or a set of deliverables. In a generic definition. or kill points. which may or may not be totally required in the execution phase. We should also include the lessons learned as one of the components. At times decisions are taken to abandon the project. Cost & Staffing Level Intermediate Phases . depending upon the type of business and the specific project being done. The termination of a phase is decided by the completeness of all the deliverables linked with the project performance to date. At the end of each project phase. Generic Project Life Cycle The points between the beginning and the end of the project will vary considerably. which need to be brought in at the time of a phase completion. a decision is taken regarding whether to continue into the next phase of the project or not. Collectively all the broken up project phases is called the project life cycle. can be verified and has some value associated with it.to another. There will be many intermediate phases in the project and this will depend on the type and the complexity of the project. called in-house or internal deliverables. Deliverables may be products or services that are delivered external to the project or they may be deliverables that are needed for other project work to take place. there is a start or initial phase of a project as well as the final or closure phase. in the phase of planning or detailed planning. it provides a good way of managing dynamic resources of varied skill levels and experience throughout the project life cycle. we would need a set of skills. A deliverable is tangible. which need rectification. stage gates.

It is interesting to note that what is most optimal for a phase may not be so from the entire project life cycle viewpoint. execution. However. Stake of the sponsors is also low. the characteristics of a project go through change. control and close out. Commitment is now relatively high not to abandon the project. We must optimize across the project life cycle rate than merely narrowing down optimization to a single phase. Sunk costs (costs that have already been incurred and cannot be recovered) calculations should be made. the requirements of staff and of key people and other resources are low. This concept is typical of system optimization theory. one should be business like and rational to check at the completion of every phase whether to proceed with the project or not. An evaluation should be clearly done regarding what it would cost to continue and the profit and loss in respect to closing the project in between. At the same time. Cost of making change in the initial stage is relatively very low. Chances of the project getting cancelled is also fairly high in the beginning. one should be careful not to create a feeling of uncertainty regarding whether the project will be completed or not. Just because one has begun the project does not imply that one must always complete it irrespective of financial and other considerations that may come up later. Often. planning. This could be a disaster for the company and all those who are associated with the project. Processes can repeat within each phase.Start Time Generic Project Life Cycle Finish In the initial or start up phase. As the project progresses into the intermediate phases. Risk and uncertainty is maximum. Objective assessment should be made at every stage. Each project phase is associated with major processes such as initiation. there is some confusion in distinguishing phases from processes. . Project life cycle phase concept is one of the major differentiations between projects and non-projects.

Enterprises performing projects will usually break-up the .6. Deliver and Knowledge Leveraging. Implement. This includes various key milestones and significant events of relevance to stakeholders in the project. Integrate. The process of Control is invoked right from the beginning of initiating a project to its closure. We have not considered Control as a separate phase though many do so Pla n Project Life Cycle Phase2 Plannin g Phase3 Executio n Act Phase4 Close-out High Phase1 Initiati on Period of Highest Uncertainty Low ``Time Uncertainty Curve The Project Life Cycle defines the beginning and the end of a project from its conceptualization to its close-out and hand over. the project life cycle is divided into 8 basic phases of Conceptulize. Organize. Uncertainties Vs Life-Cycle In the figure below. Plan. Control.

initiation and planning. Deliver and Knowledge Leveraging. . The level of uncertainty remains relatively high during the first 2 phases of the project i. Management control can be and should be exercised by everyone in the project to the extent he or she is responsible for performing and coordinating a group of activities. the initial starting level of total uncertainties come down to give a better control on the project during the execution stage. We have not considered Control as a separate phase though many do so. The process of Control is invoked right from the beginning of initiating a project to its closure. With proper analysis and due diligence. Some of the project phases also show more clearly the links to the ongoing operations of the performing organizations. in the phase of planning or detailed planning.project into various phases. Integrate. For instance. This uncertainty does not fall significantly until execution progressively translates unknowns to knowns. which may or may not be totally required in the execution phase. Organize. it provides a good way of managing dynamic resources of varied skill levels and experience throughout the project life cycle. This is done to improve management control of the project at all levels. Management control does not imply control only by the upper management. It is challenging to ensure that the slope of reducing the uncertainties could be as much negative as possible to keep full control on the events rather than driven by them. Plan. we would need a set of skills. Collectively all the broken up project phases is called the project life cycle. the project life cycle is divided into 8 basic phases of Conceptulize. Control. Implement. The larger the slope of reducing uncertainties implies that due diligence was carried out and all the open issues requiring resolution were closed.e. 7. One of the major advantages of breaking down the project into various phases is that as the requirements of resources will vary from one phase to another. Value addition Vs Life Cycle In the figure below.

the room for value addition is minimum 8. The maximum value addition in the quantitative and qualitative aspects of a project can be achieved in the early stages of the project. Cost of Change Vs Life-Cycle Changes are inevitable. Phase 1 of the project which is the initiation phase is where maximum value addition can be made. Project Life Cycle Pla Act n Phase1 Initiati on Phase2 Phase3 Phase4 High Plannin g Executio n Close-out Low Time Value Addition Curve When you start a project. Even with the best planning there will be many reasons why changes will be required in the project.Let us review the chart as to the potential of value addition throughout the project life cycle. there are many Ifs and Buts about the project. During the final phase of the project. The cost to bring about any changes is also minimum at this stage of the project. There are many Assumptions and Constraints that are made in the project as well as information gaps that will need to be understood and clarified as the project progresses. What would it cost to make changes in the project through its life cycle? Let us review the chart as to the cost of making changes throughout the projects life cycle Phase1 Phase1 Initiati InitiatiPla Plannin Phase2 Plannin Phase2 Phase3 Executio Act Close-out Executio Phase3 Phase4 Phase4 Close-out Pla n Project Life Cycle Act Project Life Cycle .

9. As the curve shows. the cost to make changes which may or may not necessarily arise as a result of redoing the work is substantially more at the closing stages of the project. in the figure below. Deliver and Knowledge Leveraging. The process of Control is invoked right from the beginning of initiating a project to its closure. Plan. Value addition in the beginning is more constructive than destructive if done at the later stage of the project life cycle. Organize.High Low Time Cost of making change curve Often the cost of redoing work is considerable in relationship to the cost of doing it right the first time. This process will also minimize the chances of incurring extra cost in carrying out the changes at a later stage of the project. Amount at stake Vs Life Cycle In a simple way. It is advisable that we endeavor to add as much value as possible at the beginning of the project life cycle than at a later stage. the project life cycle has been divided into 8 basic phases of Conceptulize. Integrate. The same concept can be extrapolated to making changes in the project at a later stage in the project life cycle. Implement. We have not considered Control as a separate phase though many do so Project Life Cycle Phase2 Plannin g Phase3 Executio n Phase1 Initiati on Pla n Act Phase4 Close-out . Control.

The amount of stake. the amount of stake keeps on increasing proportionately. There are many information gaps that still need to bridged. The relationship between amount of stake and uncertainties is inversely proportional during the project life cycle . if measured in terms of resources deployed and the financial commitment is relatively low during the first two phases of the project. As the capital and other resources deployed keep on increasing with the time in a project life cycle. there are many Ifs and Buts.High Low Amount at Stake Time Amount at stake curve When you start a project. There are many Assumptions and Constraints. It is easier to back out from a project during its the initial stages then during the later part of the project life cycle when considerable work has already been done. The stake rises rapidly during the execution phase of the project.

'a person or group of people who have a vested interest in the success of an organization and the environment in which the organization operates'. A stakeholder can be a key stakeholder like the project manager or a secondary stakeholder like the end user. groups and organizations that are directly involved in the project or may be affected by the project activities and the outcome of the project. A stakeholder could be: • • • passively involved in the project and the project deliverables actively involved in the project work and outcome negative about the project and opposed to it . The British Standard 6079 states that a stakeholder is.Unit 2 – Appraisals Stakeholders Who is a Stakeholder? Stakeholders are all those individuals.

• Project customer/client The customer is the individual/group/organization that will use the deliverables of the project. • Project team members The project team is at the core of managing the project. the sponsor. • Performing organization The performing organization is the organization that employs the persons who are engaged in completing the project work. high level guidance to the project. Managing Stakeholder’s Expectations .A very important role of the project manager is to keep all the stakeholders satisfied. It is a challenge for the project manager to keep all the stakeholders smiling and happy Project's key stakeholders are: The key stakeholders for any project are the project manager. • Project Sponsor The sponsor represents top management and is responsible to make sure funds are available to the project and provide overall. the project team and the organization that is performing the project. The project can have a single customer or more than one customer. Often projects will have many stakeholders each with different and possibly contradictory expectations from the project. • Project Manager The project manager is overall responsible to ensure that the project meets it's goals and objectives. The performing organization can be engaged in internal work or be undertaking the project work for an external customer. A good team is essential for project success. The team members are responsible for actually performing key parts of the project. the customer.

set priorities and see which requirements have to be fulfilled in the project for each stakeholder for the project to be considered a success by them. Doing this helps the project manager to earn more support and cooperation and less opposition from the stakeholders Steps for undertaking a stakeholder analysis: • • Make a list of all the project's stakeholders For each stakeholder understand: o o o • the key requirements which must be met for them to be satisfied chances of getting support for the project from the stakeholder their likely change requirements Analyze the interests of each stakeholder in the project and rate this on a scale. their expectations from the project and any vested interests. For example.g. Waiting till the Implementation phase to identify and understand this is too late for taking suitable actions. o o o o Vital Significant Some effect on time/cost/quality and No effect • See what actions must be taken to meet the important objectives of the stakeholder and also look into what help can be obtained from different stakeholders to achieve project success. . The project manager will have to do a Stakeholder Analysis for making the Project Management Plan to identify the different needs.There is a distinct need to manage stakeholder expectations in all projects as the expectations from the project varies from stakeholder to stakeholder. It is advisable that the project manager take care to address. identify and understand who the different stakeholders are. For example. this could be a scale of 1 to 4 e. a marketing head would want a solution that will help him to keep track of all the product changes while the sales manager would want a solution that will help him to keep track of the choices of his customers. potential impact and influence they may have on the project outcome.

The following heads can be considered: • • • • • Name of the Stakeholder Stakeholder's interest/potential impact PM's assessment of this impact Actions by PM to increase stakeholder's support Actions by PM to reduce stakeholder opposition Business Case 1. Need Analysis Circle Need – the creator of projects In the Webster dictionary. In this tough battle of increasing the market share. a word of old English origin. has connotations which make it strong in emotional appeal whereas Necessity. A commonly acceptable strategic vision for companies is their quest for increasing their market share and the satisfaction level of their ever demanding customers. We may call this as a process of “organizational dreaming” or an organizational vision for simplicity. A NEED can also arise to mitigate the threats that are embedded in this new market place. What gives rise to the NEED for a project? A project can be defined as a projection of dreams that an organization would like to transform into reality using either a structured or an unstructured methodology.• See what actions must be taken to incorporate the changes needed from the above steps and incorporate them in the project's WBS. which will be in line with the strategic plan of the organization is the basis of sowing the seed. NEED emergence. Market conditions are changing quite rapidly. . a NEED arises of taking full advantage of the opportunities being offered by the dynamic market place. a word of Latin origin. Need is defined as 'a lack of something wanted' or 'deemed necessary' or 'necessity arising from the circumstances of a case' etc. Competition never stands still. A table can be made to do such an analysis. is more formal and impersonal or objective. It further states that Need. for a new potential project.

The NEED can arise from any level of the organizational hierarchy and from anywhere across the various functional units of the organization. a NEED arises to seize the new opportunities and to mitigate the threats. In both these situations. The NEED Life Cycle goes through the three pahses of: • • • Need Emergence Need Recognition and Need Articulation Need Emergence Need Recognition Need articulation Need Emergence The dynamics of the market forces provide both new opportunities as well as threats. Need Recognition . Market conditions may not force you to respond as you may be the leader but internal driven compulsions also generate NEEDS. We may call this as the Need Emergence phase. We may have constant requirement of NEEDS due to our own target of improving productivity or achieving excellence. This can be based on business gain or even to meet employee needs. The NEED can arise from any level of the organizational hierarchy and from anywhere across the various functional units of an organization. This phase of Need emergence is the first part of the three-phased Need Life Cycle. The second scenario of NEED emergence could be more internal driven from within an enterprise.

The Need Recognition phase takes into account the following major factors: • • • • • Validity of a Need in the realm of the organizational working philosophy or vision Urgency of the Need It's viability from financial and resource angles Its impact on company's bottom line Its impact on the emotional framework of employees or the society as a whole After considering the above factors the NEEDs which emerge should be prioritized and ranked by importance. Need Articulation The third stage of the need life cycle is when a NEED has already emerged in the organization. A commonly used category to rank the NEEDs is shown below: • • • • • In the top 25% scale (ranked 1st) Maximum Need In the second 25% scale (ranked 2nd) In the third 25% scale (ranked 3rd) In the bottom 25% scale (ranked 4th) and Rejecting the Need as unviable on the face of it Only the Needs ranked in the top 25% slot are generally taken to Need Articulation .Need Recognition . Some needs may not form a part of the organization's overall visioning process while some may have a low priority for which action could be taken at a later stage.the next phase of the Need Life Cycle. can afford to undertake projects to fulfill all the needs that emerge. The NEED now enters the phase of Need Articulation. irrespective of it's size or mission. been recognized and ranked in the top category. .the second phase of the Need Life Cycle involves a cross examination of the reasons that gave rise to the need and the relevance of that need to the organization. All needs that emerge must be vigorously screened as no organization.

Developed . if approved the need is formally articulated by way of a document of approval. can become eligible to be transformed into a project. The Need Life Cycle ends with Need Articulation. At times. This is the first part of the relay race in a project and it hands over the baton to the Project Life Cycle. or its impact on society on a social plane. A Need Articulation phase looks at the: • • Financial viability of the need and takes into account the resources required Its impact on the overall competitiveness of the company. 2. . It is at this stage that the Need.the justification for taking up the project It deals with and defines: • • • the need or reasons for which the project was undertaken the changes that the project is expected to accomplish and the key project requirements that are needed to achieve the stated business goals The Business Case must check that the project is worthwhile to be undertaken and that it is in line with the organization’s overall business strategy. or it's impact on the emotional plane of employees Historical database of the previous NEEDS that were generated.This means that the selected NEED deserves to be thoroughly evaluated in detail for its viability within the parameters operating in the company. it may also be required to introduce new parameters for which the company should be prepared. which had emerged. It discusses the “Why” of the project i. Business Case Concept The Business Case is one of the most important documents in the project.e. recognized and articulated Its urgency on a time plane • • Based on the above factors and criteria.

it also identifies the project's stakeholders and their key requirements and interests. it is authorized by the top management of the organization and 'owned' by the project's Sponsor. cost and scope and known risks. The project's justification and feasibility should consider both financial and nonfinancial factors. contraints and assumption and what the project is to deliver on completion. The Business Case is: • • Developed from the NEED statement and shows the overall justification for undertaking the project Describes the “why” of the project .during the Conceptualization phase of the project. It is a key document and should be well prepared. the project's overall time.the problem or the opportunity to be addressed by the project and the product or services that the project will deliver on completion Highlights and links the project to the organization's business/corporate strategy • . The Business Case not only shows the justification for taking up the project. Financial factors covers investment appraisal using different techniques like: • • • Payback Period Net Present Value Internal Rate of Return Non-financial factors considered when justifying the feasibility of the project are the organization's: • • • Operational survival Competitive position Comparative analysis The role of the Business case in the project The Business Case plays a very important role in the project.

Today. maintenance and disposal costs when doing a financial feasibility. a lot of industries are also cosidering the costs that are expected in implementing the project plus the operations.• Identifies and describes the needs of all the stakeholders · It describes the project's priority within the overall business plan. its level of importance and likely support from management It identifies the project's Critical Success Factors of time. When looking at the expected project costs all major expenses that are expected to be incurred in the project such as key procurements should be fully considered to verify the feasibility of the proposed investment. The project manager has to interpret this Business Case and interpret it to prepare the Project Management Plan of the project. during implementation to verify that the stated business benefits are being met The Business case for the project should be reviewed regularly to verify that the original objectives are still valid. Once the project is complete then there should be a formal evaluation to see whether the project achieved its stated business benefits or not as a learning exercise and to leverage knowledge for improvements in future. To see the contents of the Business Case please see 'Contents of Business Case' . scope and quality It details out the preferred option of the feasibility study It provides a description of the likely impact of this project on other projects undertaken in the organization and any possible conflicts that could arise among different projects The scope of the project and any constraints that have been identified are documented Any assumptions that have been made in going ahead with the project are mentioned The project's authorization is based on the business case This business plan is interpreted by the project's Project Manager and used as the basis for Planning and Implementing the project • • • • • • • At phase end reviews the Business Case is used to check that the project objectives are likely to be met or not. cost.

Key contents of the Business case are: • • • • • • • • • • • • • • The business need or the justification for taking up the project and how the project is linked to the organisation's business strategy Objectives of the project The product or service to be delivered by the project The financial and non-financial advantages as well as a 'do-nothing' option if no further action on the business case is to be taken The critical Success Factors that will be used at project completion to judge whether the project is successful or not The Key Performance Indicators (KPIs) The organization strategy for implementing the project The investment appraisal data Time. if already appointed maybe assigned by the Sponsor to develop the Business Case. It is developed and produced before the detailed planning of the project can begin. Content of Business Case The Business Case is a key document in the project. technical. quality. The Business Case is authorized by top management and it is 'owned' by the project's Sponsor. safety. cost. other performance requirement outlines for the project Major project risks perceived as well as any likely opportunities Who all are the main stakeholders of the project Key resource requirements for the project Competitive impact Impact of the project on the organizational impact.3. The project manager. if any .

change in public perception etc. It is the outcome of this need articulation. Investment Appraisal Project selection methods involve measuring value to the project sponsor. how about tomorrow? Has a financial review been done to test financial viability? Is the financial return expected to be up to the mark? Investment Appraisal . of the project The assumptions and constraints considered 4. The business strategy of the organization should define the key project selection criteria. which will become the product of the project. if any. health. market share. Various factors such as those given below should be considered when selecting a project: • • • • • • • • • • • Is the project aligned with the organizational vision and strategy? How urgent and important is it to go ahead? If the project is due to a business need then does the product have a ready market? Who are your competitors? Is the technology planned to be used reliable? What is the expected lifespan of the technology to be used? How will the project benefit the existing business? Will the project meet environmental. This could include financial returns. safety and legal requirements of company and legal requirements? If there is no market today. The selection process can take the form of a checklist to assist in the process of seeing whether the project envisioned meets organizational strategy or not. social obligations. project selection criteria is defined in terms of merits and evaluation of the NEED Articulation.• • • The environmental impact Social impact. Generally speaking.

The project manager will often come across various terms related to investments and they should be aware of these financially related technical terms. If I have $X with me.Numerous books have been written on the vital subject of project appraisal in financial terms. It should be noted that investments are not always made for multiplication of the capital deployed. Financial investment and project appraisal techniques are a specialized field. a project manager must be an all rounder . This particular concept is designed to address key concepts in a comprehensive and easy to understand mode to help project managers and their team members to understand the financial jargon easily. he also needs to have a basic understanding of the investment appraisal techniques used to appraise the financial viability of projects. Choose that option. communicator. benefit/cost analysis) and constrained optimization models (analytical mathematical models) can be used to test the performance of the expected project to help in deciding whether to select the project or not. As a CEO. As this interdependence grows so does the possibility of being able to choose a better investment option. Let us first understand the basic principle behind financial investments. in essence. like a CEO of an enterprise. which gives you the best return. sub-contractors and parties involved in fulfilling the objectives of a project. A project manager is. see how you can make your financial resources multiply faster. motivator and an effective integrator of the efforts of his team. The Project appraisal step may or may not be a part of the project. project appraisal is carried out by a separate group of professionals who are only associated with the feasibility studies of a project and in seeing how to optimize the deployment of the company's financial resources. how shall I invest it so that it grows? .a good team builder. Various decision models such as cost measurement models (scoring models. Generally the best possible option of deploying capital is in that area where return on capital is maximum and the investment is in line with the strategic objective of an enterprise. Irrespective of his/her specialization in any field of art or science. In some organizations. Globalization is the process of growing interdependence between people and nations. In other words. There can be other social objectives for undertaking a project which are not weighed in monetary terms but are for the benefit of society at large irrespective of the financial returns.

Internal Rate of Return (IRR) 4. or getting better returns on your surplus funds as deposits in the bank will generally not be as lucrative as investing in projects. How will you decide whether to invest in project A or B or C provided you have some information available about the possible revenue and expenditure of these projects over the coming years? In order to look at scientific methods available to understand the return on capital. Assume you want to be 100% safe and do not want to take chance of loosing any money the at all. In that case you need to look for a very safe investment like Government securities or bonds subject to your assessment of their credibility. possibly 2% to 4% per annum If you are willing to take the chance of loosing all your money then you may opt for high risk. Return on Investment (RoI) . Payback Period 2. this option will protect your investment but most likely the return will be low on your investment. you could also take a chance and bet on horses or get associated with lotteries etc. Or.My question to myself will be. this section of investment appraisal will cover the following concepts: 1. then you could even consider investing in the government bonds of other countries that you trust subject to the rules and processes of investment of different countries in the world. If you have no problem of convertibility of your local currency into hard currency such as dollar or Euro. These are 2 cases of extremes. high gain stocks listed on the various stock exchanges. What does this imply? Well. 'Am I ready to loose all the money or ½ of it or none of it'. We now come to a 3rd scenario. Risky stocks could be those stocks which promise very good prospects for growth on paper but you do not have enough information to judge their track record or full information about their investment in their various projects. This will give me a good indicator regarding how much risk I am willing to take on my investment of $X.Cost Ratio (BCR) 5. where one will like to invest in a project as the CEO of a company for increasing your market share. Discounted Cash Flow (DCF) Analysis 3. Benefit .

Payback Period Payback Period is a technique that is useful to get a good initial input regarding the investment pattern for any project.e the year wise income minus expenses for the project in question. Let us create a case study for understanding the Payback Period concept. Project A Payback Initial Investment $100. During these 5 years. The figures for the Income or Inflows and Expenditures or Outflows for these 3 projects are given in Table 1. Payback Period for any investment is achieved when the cumulative year wise cash flows equals the project's initial investment.Project A.000 and for Project C it is $200. projects A.000.000 figures are in $’000 Year Inflow Outflow (income) (Expense s) 1 45 20 2 60 35 3 65 45 4 100 85 5 160 90 Table 1 All Cash Flow 25 25 20 15 70 Cumulative Cash Flow 25 50 70 85 150 Project B Payback Table 2 . Payback method also does not take depreciation into consideration. 2 and 3 respectively. Payback period does not add the cash flows for the time period still remaining in the total project once this initial investment has been recovered. The duration (life cycle) of all the 3 projects is 5 years. B and C will have Income and Expenditure. It involves simply adding up the project's predicted year wise cash flows i. for Project B it is $150. The initial investment required for Project A is $100. Project B and Project C that it can invest in.000. Let us assume an organization has 3 potential projects .

000 figures are in $’000 Year Inflow Outflow (income) (Expense s) 1 50 60 2 100 110 3 180 140 4 280 220 5 400 280 All Cash Flow -10 0 40 120 180 Cumulative Cash Flow -10 -10 30 150 330 Table 3 All Cash Flow -10 -10 40 60 120 Cumulative Cash Flow -10 -20 20 80 200 From the Tables 1. it can be seen that the Payback Period for project A is 4 years 2.000 which is the same as it's initial investment. 2 and 3. Remember.) The calculation of the Payback Period for projects B and C is clearly seen.000 is being generated. the cumulative cash flow at the end of the 4th year is $150.Initial Investment $150.000 which is $15. The cumulative cash flow for project A at the end of the 5th year is $155.000 while at the end of the 4th year it was $85. .000 figures are in $’000 Year Inflow Outflow (income) (Expense s) 1 45 50 2 80 80 3 140 100 4 230 110 5 300 120 Project C Payback Initial Investment $200. In short at the end of the 4th year the cumulative cash flow is $15.000 less than the project's initial investment of $100. During the 5th year a cash flow of $70.57 months.000 which is the same as it's initial investment. In project C the cumulative cash flow at the end of year 5 is $200.000 less than the project's initial investment while at the end of the 5th year the project's cash flow is much higher. • • • In project B. (Payback is calculated in months & years. for project B it is 4 years and for project C it is 5 years. Payback Period is achieved when the cumulative cash flow equals the initial investment. In the case of project A the Payback Period will fall in-between the 4th and the 5th years and we need to calculate the exact number of months.000.

Assuming a linear cash flow through the year the cash flow per month in the 5th year will be:70. Recommendation: Payback Period is a good indicator for initial Investment analysis but it must be used in conjunction with other investment appraisal techniques. Advantages of Payback Period Method • • • • It is simple to use It is a standard technique used worldwide It can be used effectively for high risk situations Provides a good idea of the company's liquidity position Disadvantages of Payback Period Method • • • Payback period normally ignores the time value of money i. Let us suppose your household comprises of yourself.The payback period will therefore fall in between the 4th and the 5th years. in about $15.57 months. At this juncture. clothing. sports.000 will be made up in: 15000 / 5833 = 2. let us understand the concept of inflation or the rate at which the purchasing power of money is going down. Will you be able to plan to buy these goods and services with the same amount of funds .57 months Hence the payback period for project A is 4 years and 2. transportation etc. your spouse and 2 children in the age group of 8 and 10 years. entertainment expenses. Discounted Cash Flow Analysis Discounted Cash Flow technique is based on the fact that the value of money depreciates with time.e. Inflation or the discounted cash flow which will be learned later in this chapter Little consideration is taken of the cash flow situation after the Payback Period Payback Period method if used by itself can give rise to wrong decision making for investment due to the disadvantages listed above at number 1 and 2.000. Assume in 1975. you could pay off your mortgage on a home and take care of food.000/12 = 5.833 per month This shortfall of 15.

interest rate (I) is . Let us also look at the concept of Future Value of Money when dealing with Discounted Cash Flow technique.next year or next to next year? Most probably not. The price of goods and services may go up by X cents.51. you need to compute this value. Net Present Value (NPV) . PV = $1000. We have calculated the future value of $1000 after 5 years at 10% interest per year to be $1610. which suggests that the value of a dollar today is not going to remain constant as time passes by. Your investment of 1$ has grown by 7% over the period of time and appreciated to $1. as mentioned above.07. When you look at the capital or money that you have today and you want to forecast its value in future.51 To compute the Future Value (FV) we should use the formula: FV = Present Value (PV) at the time of deposit * (1 + interest rate in decimal) raised to the power of number of years for which FV needs to be calculated.10 At the end of year 5: $1464.10 = $1610. It may be noted that even if inflation is zero still the time value of money concept is valid. In our example. It is this X cents by which the purchasing power of your money has come down. and services as the inflation is zero in this particular example. It is a concept. the purchasing power of money keeps on coming down which means that $1 today will not be able to buy the same goods or services next year at the same price. but he returns a total of $1 and 7 cents to you after 1 year.10 plus 10% interest on $1464. which can buy more goods. In fundamental terms. The interest on your savings account is 10% per annum. Assume that you have $1000 and you have invested the whole amount into your savings account for a period of 5 years. Over the years. For instance you can lend $1 to your friend today at 7% interest as he needs it now. The simple calculation for the future value of your $1000 can be made as follows: At the end of year 1: $1000 plus 10% interest on $1000 = $1100 At the end of year 2: $1100 plus 10% interest on $1100 = $1210 At the end of year 3: $1210 plus 10% interest on $1210 = $1331 At the end of year 4: $1331 plus 10% interest on $1331 = $1464. Inflation provides one example of what is called the time-phased value of money or simply time value of money. this is defined as Inflation which is the rate at which the purchasing power of money keeps on coming down.1 or 10% and number of years is 5. The interest is added into your investment of $1000 after every year.

• • • NPV quantifies profit in absolute terms. Then calculate the Present Value for each time unit. NPV shows the net value of each project in today's monetary terms after adjusting for value of money over time. Higher NPV is better Higher the interest rate the Lower the NPV Steps in Calculating the Net Present Value • First calculate the cash flow for each unit of time. Present Value (PV) This Present Value gives us the current value of expected future cash flows.Net Present Value. initial investments. It is based on computing the Present Value (PV) of all future cash inflows and outflows. This is generally measured in years. . and expected cash inflows and outflows. NPV uses discounted cash flows to compare viability of projects that differ in their time spans. is a discounted cash flow technique that is used for investment appraisals and is often used to compare the viability of different projects. Cash flows DO NOT consider fixed assets and depreciation. It shows what the future cash flow will be worth in today’s terms. • • The formula used for computing the Future Value (FV) can be reversed to compute the Present Value (PV) PV = FV / (1 + r)n where r = rate of interest in decimal n = number of years (n is always = 0 for the year when Initial investment is made) Net Present Value is the sum of all the year-wise Present Values of the project's cash flows Less the project's initial investment. o • the cash flow is the expected cash Inflow or Revenue minus the cash Outflow or Expenses for the unit of time. Cash flows are considered a good way of assessment.

83 60 3 .10) year 3 = 20 x .10)and so on.91 or 25 / 1.83 or 25 / 1.10 year 2 = 25 x .75 or 20 / 1.68 100 5 .464 (1.20 43.10) year 4 = 15 x .000 is then subtracted from the total to arrive at the NPV for project A.75 65 4 . B and C shown below in Tables 4.10 x 1.10 .10 x 1. for Project A it is calculated as follows: year 0 is never discounted year 1 = 25 x .000 are in $’000 Year Discount Inflow Factor – (income) 10% 0 1. sum up the Present Values calculated for each year and subtract the project's Initial Investment from this figure to obtain the NPV for the project.10 x 1.210 (1.331 (1.00 1 . For example.o this can be done by multiplying the cash flow for each time unit by the discount factor that has been given (discount factor tables are available) OR by using the formula: PV = FV / (1 + r)n where r = rate of interest n = number of years • Finally. 5 and 6 respectively.75 15 10. Let us calculate the NPV using our sample projects A.10 x 1.91 45 2 .75 20.62 160 Table 1 All figures Outflow Cash (Expense Flow s) 100 -100 20 25 35 25 45 20 85 15 90 70 Net Present Value Cumulativ e Cash Flow -100 22.68 or 15 / 1.10 x 1.10 x 1. Once the PV for each year is calculated they are added together and the initial investment of $100.(We have taken accuracy of two decimal places) Project A Payback Initial Investment $100.40 12.

0 40.10 Project C Payback Initial Investment $200.68 230 5 .10 0.62 300 Table 2 All Outflow Cash (Expense Flow s) 150 -150 50 -10 80 0 100 40 110 120 120 180 Net Present Value Table 3 Cumulativ e Cash Flow -150 -9.200 in Project C while Project A gives a positive NPV of $12.80 74.100.00 1 .000 All figures are in $’000 Year Discount Inflow Factor – (income) 10% 0 1. you should reject the project.60 111.75 180 4 .Project B Payback Initial Investment $150.40 -72.00 81.83 80 3 .000 figures are in $’000 Year Discount Inflow Factor – (income) 10% 0 1.10 -8.00 30.20 Which project is most viable? If you now look at the Net Present Value of the three projects you will notice that Project B is the best project as it gives the maximum NPV of $64.91 50 2 .100 as opposed to a net loss of $72.75 140 4 .00 1 .68 280 5 . If the project's NPV is not positive.83 100 3 .60 64. Advantages of using NPV • It considers time value of money . One should select the project with the maximum positive NPV.62 400 Outflow Cash (Expense Flow s) 200 -200 60 -10 110 -10 140 40 220 60 280 120 Net Present Value Cumulativ e Cash Flow -200 -9.30 30.91 40 2 .

from beginning to end Can simulate what-if using different values Disadvantages of using NPV • • • • It's accuracy is based on the accuracy of estimates of future cash flows and the interest rate Does not consider non-financial data Has bias towards short term projects Uses a fixed interest rate Internal Rate of Return (IRR) IRR is a significant factor. The simplest definition of IRR is that it is the interest rate at which an investment of money will return a zero Net Present Value for the project. . It is: • Arrived at by trial and error by calculating the NPV for the project at different interest rates with the aim of finding that interest rate at which the NPV will be zero. IRR is calculated in an attempt to nullify the impact of time value of money on the proposed project. The higher the IRR the better the project as it is a measure of the return on investment While NPV expresses profitability in absolute terms IRR expresses it as a percentage. To reduce the project's NPV calculate using a higher interest rate • • • The higher the project's IRR the better is the return on your money and the project falls in the 'Go' mode. which will help to assess the feasibility of investing in a project from the financial angle. why would you invest money in a project with less return? If the IRR of a project is 5% and you can get 8% interest from the bank in your savings account. would you not make more profit by depositing money with the bank instead of undertaking a project that has a 5% IRR. If the IRR is less than the rate of interest accrued in the bank or in securities. IRR shows the interest or the discount rate at which the project will break even.• • • All future cash flows are compared in today’s values Considers whole time span of project.

50 230 5 .42 300 Project C Payback Initial Investment $200.25 13.000 All figures are in $’000 Year Discount Inflow Factor 0% (income) 0 1 2 3 1.000 figures are in $’000 Year Discount Inflow Factor – (income) 19% 0 1.88 45 2 .00 1 .10 Project B Payback Initial Investment $150.00 1 .60 60.00 1.000 are in $’000 Year Discount Inflow Factor – (income) 14% 0 1.59 100 5 .52 160 Table 1 All figures Outflow Cash (Expense Flow s) 100 -100 20 25 35 25 45 20 85 15 90 70 Net Present Value Table 2 All Outflow Cash (Expense Flow s) 150 -150 50 -10 80 0 100 40 110 120 120 180 Net Present Value Table 3 Cumulativ e Cash Flow -150 -8. Let us examine the Tables 7.00 50 100 180 Outflow (Expense s) 200 60 110 140 Cash Flow -200 -10 -10 40 Cumulativ e Cash Flow -200 -10 -10 40 .60 0.59 140 4 .Let us work on the same example that we used in Payback method and NPV to see which would be the best investment from IRR technique view.40 8.84 40 2 . Project A Payback Initial Investment $100.40 -0.85 36.00 1.00 1.00 23.80 Cumulativ e Cash Flow -100 22.40 0.77 60 3 .00 19.67 65 4 .00 75.71 80 3 . 8 and 9 for calculating their IRR.

By doing this we would be getting a 9% return on the capital borrowed from the bank as the bank borrowing interest in 10% whereas IRR is 19% for Project B. for .00 In the case of Project C we must apply a discount rate of 0% to make it's NPV zero. is it better to get a loan of $50.Cost ratio is B/C.00 280 400 220 280 60 120 Net Present Value 60 120 0. it is much better as benefits are more than the costs incurred to achieve them. Remember the higher the IRR the better the project's feasibility. fulfillment of social objectives. The ratio 1 implies No gain or loss.4 5 1. I can go ahead with Project A which has an IRR of 14% and requires an initial investment of $100. The Benefit .000.Cost Ratio is the ratio of quantifiable benefits to the costs incurred in achieving the benefits. One would reject Project C out rightly is it's IRR is 0%. Project B is more lucrative but it needs an initial investment of $150.Cost Ratio (BCR) Benefit . In theory.000 to invest and need to select the most profitable project. If the ratio is greater than 1. boosting the morale of the team etc. Let us represent benefits as B and Costs as C. However. Suppose a situation now arises where we only have $100. Project A does give me 14% IRR and is feasible but project B is better with an IRR of 19%. Benefit . We saw earlier that Project C had a negative NPV of $72. Mathematically speaking.00 1. which I have.000. In order to make a negative NPV become zero.000 from the bank at 10% interest rate and invest in Project B instead of A? The additional loan taken from the bank will give us a better investment option. Inflows can be linked to Benefits and Outflows to the Costs incurred. the discount rate applied has to be reduced. In our context of project investment appraisal. Ratio of less than 1 will imply that we get fewer benefits in comparison to the costs incurred. What should we do? Let us examine this more closely. intangible and non-quantifiable. From a management perspective. benefits can be in financial terms covering the revenue generation and cost savings.200 when using a discount rate of 10% (refer Table 6). improving quality. we will cover quantifiable measures pertaining to financial measures. Assuming that the bank interest rate is 10% which is my cost of borrowing capital. the best choice is Project B as it gives a maximum IRR of 19%. Clearly. a ratio can be either greater than 1 or less than 1 or 1 itself. We have done this by reducing the discount rate for C to 0% from 10% to get an NPV close to zero.

000 . Table 11 (Refer to Tables 1.100 $774.000 Net Outflow $ 375. 5 and 6 for calculation details) Projec t A B C Net Discounted Inflow $306. 600 $486.) Project A B C Net Inflow $ 430. We can also look at the Benefit . B/C should be greater than 1 and as high as possible.100 Ratio of Inflow to Outflow 1.000 $ 610.000 Ratio of Inflow to Outflow 1.146 1.700 $550.000 $1010.295 1. The B/C ratio for Project B outscores Projects A and C as it's B/C ratio is greater than 1 and also higher than Project A.131 .Cost ratio based on accumulated Inflows and Outflows without using a discount factor. Table 10 (Refer Tables 4.041 1.900 Net Discounted Outflow $294.gain. as shown below in Table 11.000 $ 790.000 $1010. Project C has a B/C ratio of less than 1 showing that we will derive much fewer benefits than the costs incurred and project is not viable. B and C. 2 and 3 for calculation details.200 $701.907 The above calculations based on the discounted cash inflows and outflows can give us a good idea regarding which project will be best from the point of view of Benefit to Cost Ratio. Let us examine the following tables of comparison related to our three projects .A.

but still in our case it has not changed our preference for Project B in comparison to Project A. which would be more realistic. If we consider savings as the benefits and divide it by the cost incurred to drive the savings which in this case is $100.000 worth of assignments.000 for the next 5 years. we have deducted $200. Both these figures are based on NPV. Assuming a 10% discount factor.000 which is the meaningful work done by the manager every year. For instance.000 to lay-off the manager.000. Based on the above factors.000 salary given to the manager minus $40. The cost incurred is $100. Every year the company is saving $160.000 which is 8. then the ratio will come down from 8 to a lower number. Please note that we have not taken discounted figures in the cost savings and cost incurred. In case of non-revenue generating projects.06. by providing an opportunity to managers to opt for leaving the company by giving them a good compensation package. Calculate the B/C Ratio based on Discounted Inflows and Outflows.Though this is not preferred over a discounted Inflow to Outflow ratio. To arrive at the project's RoI: .000. The discount rate is 10%. The ratio therefore is 6. this manager gets $200.000 divided by $100. The compensation package is given at the beginning of year 1. The senior management will be ready to give a compensation package of $100. the ratio comes to $800.000 worth of meaningful work for the company every year for 5 years. Assuming that based on our current situation and future forecasts we have surplus staff and can only use this manager for roughly $200. The cost of having a golden handshake with this manager is $100.000 is the difference of the $200. It does not consider depreciation or time value of money. If we do take the discounted figures. This means the company is unnecessarily spending $800. the net savings based on 10% discount factor comes to $606.06 Return on Investment (RoI) Return on Investment technique considers only the total cash profit or cash flow (income minus expenses).000 as the benefit we expect to get from the manger working for the company.000 to him to quit the company. the Benefit to Cost Ratio will work out to be 8. Benefit to Cost ratio can be computed by taking the ratio of the total cost savings to cost incurred for affecting the savings.000.000 as his regular salary and produces $40.000 on this manager. Suppose the cost of a manager to the company for the next 5 years of his employment is $1 Million. $160. How did we arrive at this figure? From the $1 million we have to pay over the next 5 years. Let us assume that for the next 5 years. The ratio should come to 6.

B and C are 31%. The RoI for Projects A. 17 and 18 respectively.000 are in $’000 Year Inflow Outflow 0 1 2 3 4 5 45 60 65 100 160 20 35 45 85 90 Total Table 1 All figures Net Cash Flow 25 25 30 15 70 155 Project B Payback Initial Investment $150.The cash flow for each year is added without discounting it and this total cash flow for the complete project is divided by the number of years to get the Average Return per year.000 figures are in $’000 Year Inflow Outflow 0 1 2 3 4 5 40 80 140 230 300 50 80 100 110 120 Total Table 2 All Net Cash Flow -10 0 40 120 180 310 . 44% and 20% respect Project A Payback Initial Investment $100. Let us calculate the RoI for our three sample projects shown below in Table 16. The Average Return per year is then divided by the Initial Investment made in the year 0 and multiplied by 100 to get the project's ROI.

Project C Payback Initial Investment $200. The Business Case for the project which documents full details of the project's financial viability along with the product. initiator. The project manager should preferably be appointed while the charter is being developed and it gives the project manager the authority to use the organization's resources for the project The Project Charter should contain the following details: • The organization's vision and mission statement . A contract can also form the Project Charter. This is an exception rather than the rule. Once the Business Case is approved by top management and a decision is taken to go ahead with the project then it acts as the Project Charter.000 All figures are in $’000 Year Inflow Outflow 0 1 2 3 4 5 50 100 180 280 400 60 110 140 220 280 Total Table 3 Net Cash Flow -10 -10 40 60 120 200 Some people prefer to calculate the RoI based on the discounted cash profit. service or results that are to be met by the project may or may not be approved. Project Charter The Project Charter formally authorizes the project to go ahead and it forms the link between the project and the on-going work of the organization. or some person associated with funding the project e. funding agencies. Discount based calculations for the average net cash flow would always give a lower RoI as the net average cash profit will come down due to the discounting factor 5. a company.g. government department. The project's Sponsor is responsible to issue the Project Charter. The project charter could be issued external to the organization performing the project by the project sponsor.

Misalignment of undertaking a project that does not form an overall place in the company's road map can be quite fatal. it's IRR and Return on Investment (ROI) The customer's requirements and expectations from the project Expected stakeholder influences The various organizations/departments that will be involved in the project Who the project manager will be and his/her level of authority A broad. Pestle Analysis Projects are undertaken in tune with the strategic objectives and vision of a company. high level description of the new product/service to be provided by the project to meet these requirements The expected project budget Assumptions made in project regarding external. economic. environmental and organizational factors A milestone schedule showing summary of completion dates required 6.• • • • • • • • • • • • • The business need for taking up the project The project's purpose or justification Results of the feasibility study Project's expected investment. . environmental and organizational factors Constraints identified regarding external. We must pay full attention to all aspects that can influence a project including political. Projects are initiated in a real environment and the challenge is to work out the strategies in such a way that the environment becomes conducive to project success. geographical. climatic and cultural considerations when evaluating and planning projects.

Political analysis: As resources within any company are always limited.We often carry out a PESTLE analysis (also referred to as a Environmental Impact analysis). Technical. Social. Legal and the physical Environment. it is not possible to undertake an unlimited number of projects. and includes the: • • • • regulatory bodies project team contractors/suppliers/funding organization client . interactions etc. P . Economic. which enables us to look at 6 major considerations in a logical and systematic manner. The challenge is to recognize the political framework and transform politics in support of projects. The initiation of a project may be on a logical framework. We should not have a reality disconnect of living in a utopian world order where politics is not associated at all with projects. Political context for a project includes the major external and internal stakeholders such as: • • • • • the political policies of the project's host country the politics of foreign governments and foreign suppliers impact of national politics impact of media impact of various lobby groups The politics of the project's stakeholders that can affect the project is their behaviour. Good and professional companies try to minimize the politics within the company but are not able to eliminate it completely. attitudes. Besides any politics within the company. Any enterprise will always have some influence of politics but the level will vary. there is politics at state/federal level as well. but selection and priorities assigned to various projects are not always totally scientific and free from politics. These 6 parameters PESTLE are Political. Projects are executed in real environments.

Macro-economic factors and Supra-macro economic factors. Feasibility studies conducted for undertaking a project is covered in detail under Business Case in the Commercial Knowledge Area. Supra-macro-economic context • These are economic factors that exist at a geo-political level such as trade tariffs and lie outside the control of the project sponsor and the project manager.Social context : analysis includes publicly funded projects that may need approval of local communities and bodies. exchange rates and equity markets. If the land is to be vacated by the local inhabitants to build a hydroelectric power station. .Technical analysis: The technical considerations in the project context are fairly well understood. the return on your investment in a project should be maximized by not only choosing a right project but also to speed up its completion both in time and within cost.g. If there is no project. Sociological factors may affect the undertaking of projects.Economic analysis: Economics is the backbone of undertaking projects.Microeconomic factors. One must examine the impact of technological advancement on a project during the project's life cycle. S . The Micro-economic factors impact the project at the business level such as: • The financial health of the client. The Economic context in a project cover the three separate aspects of . In economic plane. there is no future as it is projects.E . T. of the business sector of the project and the financial viability of the project Micro-economic factors lie within the control of the project sponsor and the project manager Macro-economic context • These factors exist at national fiscal policy level and cannot be controlled by the project sponsor and the project manager e. interest rates. Technical issues must be fully resolved as it could be a major problem if a change is required on a technical plane at a later date. which provide value addition to companies and countries. Therefore it is equally important to appreciate sociological considerations while evaluating projects. it is a social issue.

It is important to understand that undertaking a new project should not cause ecological degradation. Environment plays an important role as it has a direct bearing on all projects. off-shore. typhoon prone etc. The Environmental context is the actual physical environment details in which the project will be implemented such as: • • • • Is it a physically safe place e. clients. Project manager should be familiar with the basics of the legal framework. earthquake prone.The technical context covers different technical aspects such as: • • • • What is the technology being used in the project? Is it easily available and reliable? Is same technology available with competitors? Is it a tried and tested technology or is it a new technology? All of these should be looked into by the project sponsor and the project manager / project team before the project's technology is finalized.g. L . Local weather conditions Will any hazardous materials be used . contractors E . as it would help him/her to be clear about the rights of the performing organization as well as of sponsors and customers. underground etc.Legal analysis: We all need a legal framework to resolve any conflicts. In a project a large number of people are involved both within the organization and outside. Is the location on land.Environment analysis: Projects which comprise of many constituents are planned and executed in a real environment with various stakeholders. The Legal context considers all the legal requirements that must be followed in the project such as: • • • • The rules and regulations that must be adhered to Relationship between the different stakeholders The laws that will be followed for contracts and any disputes that may arise Laws binding any foreign partners.

Safety and Environment plans used in the project. A Revolutionary change is a change where something new. Monitoring the project context as well any changes in the context is the responsibility of the project Sponsor and not the project manager as the sponsor is responsible for the investment used for the project. We must bear in mind that when we say projects are unique we are referring to the context of the project which is unique and not to the project management methodology that is used and applied to manage the project. Project management uses tried and tested tools and techniques to manage projects. something outside the current business/operations is to be introduced :------------: . The exact tools and techniques and the approach used for managing a specific project will largely depend on the challenge and the judgment of the project manager.Please note the term 'Environment context' maybe confusing and a PESTLE analysis should not be confused with the Health. The Project Management approach will differ with the type of project being implemented. The context of the project is based on the type of change required and how much is known about both the problem to be solved or opportunity to be availed as well as how this can be solved. An Evolutionary change is a change where an organization's current business is to be enhanced. Changes can be Evolutionary or Revolutionary.

poor scope definition means the final project costs are likely to be higher than planned due to many changes which can: • break the work continuity create rework increase project time lower productivity and morale of the workforce It is difficult to achieve an objective if we are vague about it Project failures can largely be attributed to: • Poor scope definition .RIDL – Project Fundamental A key difference between projects and operations is that: • • Projects are unique and temporary that end once the project objectives have been achieved Operations consists of repetitive. ongoing work done to sustain the business Subprojects are used to: • Break-up a large project into smaller projects to make it easier to manage it Is proper scope definition critical for project success? • Yes.

• • • • • Lack of project leadership No proper demarcation of project responsibilities. equipment and material Resource planning involves determining two things: The quantity of each resource that will be required for the project When the resource will be required Define what is ‘do the right thing right the first time’ • • It states that it is easier and less costly to do the work right the first time than it is to do it again Attitude is the key differentiator in doing the right thing right the first time . Responsibility is mixed nobody is ultimately responsible for completing the work Lack of team functioning Not enough authority given to the project manager Could be many other reasons also What are the different types of project costs? • • • • • • • • Direct material costs Indirect or overhead costs Opportunity costs Inflation costs Sunk costs Contingency costs Direct labor costs Variable costs What is resource planning? • • Which type of resources will be required for the project .the three types of resources are human resource.

Different stakeholders of the project and different organizations will have varying tolerance for risks What are the two types of risks? • • Business risks .deals with the profit or loss in a business venture Pure risks . contractor property. risk tolerance varies. analyzing and responding to risk factors throughout the project life cycle in the best interests of the project's objectives Risk management is a continuous process throughout the project life cycle • Is risk tolerance the same for all stakeholders? • No. damage to equipment.g.g.• The concept trains people to ensure that they understand that doing the work correctly the first time may not take extra time than doing it wrongly Risk management can be described as: • The art and science of identifying.this type of risk only can be deflected or transferred to another party Describe some types of insurable risks? • • • • • • • • • • • • Legal liabilities e. Employee replacement costs Employee injury . loss. car damage. faulty design public bodily injury Direct damage to property theft. protection to contractors for any third party losses replacement of equipment .g.worker compensation Indirect losses e. project material Insurance against natural calamities Personnel related costs e.

Very low Risk analysis is applied to the specific risk event identified and not the whole project The impact of the risk on project is also prioritized qualitatively in terms such as High.What is risk Probability? • The likelihood that a risk will occur What is risk Probability and Impact (PI)? • • • • Risk probability and it's impact is a tool and technique used for qualitative risk analysis The probability of a risk occurring is prioritized in terms such as High. Low. Medium. Medium. Very low What is a Decision Tree? • Decision Tree analysis is a diagram structured as a decision tree that illustrates both the implications and probability of an event occurring plus the implications and probability of the event not occurring The decision tree helps to show the decision path that will provide the highest expected value The tree branches represent possible alternatives of the events occurring and the risks and rewards of choosing each path • • How does documentation of risks help the project? • • • Helps in evaluating current project based on historical database Keeps a proper record of status of risk events Builds a record for future use What is a problem? How does it differ from a risk? • • A risk is something that does not exist but has the potential to occur A problem is something that exists at present Risk identification should be performed during? • Throughout the project life cycle A force majeure is: . Low.

g. to increase profitability To deal with an unplanned. time. unique. social need etc. plan and order to each project Ensuring that risks in the project are identified. multi-discipline team to undertake the project What is a project life-cycle? • The project life cycle is a set of sequential project phases followed in implementing the project across time from it's beginning to finish .g. cost and quality/performance criteria Ensuring changes in the project are minimum and formally accepted Bringing structure. unknown problem or opportunity e. maintain or renew a facility. temporary endeavour that is undertaken to bring about changes. the body of knowledge of specific skills. legislation or market change What is project management? • • • Project management is the most efficient way for implementing unique changes It is the processes. construct.g.g. an earthquake that prevents fulfillment of a contract What is a project? • A project is a one-time. To exploit a known opportunity e.• Any unforeseen acts over which we have no control e. reduced and planned for Forming a cross-functional. tools and techniques that is used to deliver projects successfully Project management is the art and science of converting vision to reality Project management manages a project by: • • • • • Identifying the scope. specific goals and objectives within a specific timeframe and costs while maintaining the performance/quality criteria What does a project focus on? • The delivery of specific outcomes Why are projects undertaken? • • • To solve a known problem e.

reports or completion of some tests etc. more defined and manageable parts With planning there is more efficient use of resources as they can be obtained as needed and personal responsibilities can be fixed more clearly The project manager and his team are compelled to properly plan the project Main features and aspects of the project are more easily seen by all and key project milestones can be drawn up • • • • • • • What is the difference between a project and operations? . sector and organizations involved in the project What is a project phase? • Each phase is marked by the completion of at least one or more deliverables such as design finalization. which must be approved to proceed to next phase A part of the overall project in which the key processes follow distinct characteristics A project generally has 4-5 phases but depending on the project size and complexity this go upto 8-9 phases Each phase acts as a decision gate for important decisions and also to decide whether to proceed with the project or not • • • How is using a project life-cycle approach in managing projects advantageous? There are many advantages such as: • Each phase provides a gateway or a checkpoint at which important project reviews/decisions can be made by the project sponsor and the project manager regarding the project's progress and continued viability The most appropriate tools and techniques to be used in the project can be better identified Risk identification and planning is easier in each phase Monitoring and control of the project is much easier Using a life-cycle means the project can be broken down into smaller. complexity.• The number and the names of a project's phases are not fixed but depend on the type. size.

g. the cost to change is exponential as one progress with reference to project life cycle phases Describe a generic project life-cycle sequence • • • There is no fixed project life-cycle but all projects follow a common generic sequence A project life-cycle generally consists of 4-5 phases that can go up to over 10 phases According to CIPM . money Exhaustible resources .g. errors are cheaper to correct: • In the early stages of the project life-cycle What are project resources? • People. unique endeavours undertaken to bring about some change in the organization In projects.g.• Operations are repetitive.are consumed by the project and are non-renewable e. £n2 during execution and £n3 during close-out. natural resources Re-usable resources .a typical project life-cycle has the following eight phases: o o o o o Conceptualize Plan Organize Implement Control . cement. Basically. human resource How does the cost to make changes vary over the project's life cycle? • Generally a change that costs £1 in the feasibility stage would cost £n during design. routine functions of the organization whereas projects are temporary. objects and materials How can project resources be classified? • • • Replenish able resources -are consumed by the project but can be obtained again e.are used for project work but remain intact e. machinery.

It is NOT necessary to comply with a standard . communicating. problem solving and influencing the organization What are the possible outcomes of any negotiation? • • • • Win / lose Lose / win Win / win Lose / lose Describe the difference between a standard and a regulation: According to ISO: • A standard is a document that has been approved by a recognised body to provide common rules. negotiating.o o o Integrate Deliver & Closeout Knowledge Leverage When is it least costly to correct errors in a project? • • Phasing helps to detect errors as early as possible through phase end reviews and checkpoints As early as possible in the project as the cost of rework plus cost of redoing other associated work will be least then What is an extended life cycle? • • Generally the project life-cycle extends up to the operations and management phase of the project An extended life cycle extends beyond this phase to also include disposal/replacement of the product or service Key general management skills include? • General management skills leading. services and processes. guidelines and characteristics for products.

It defines how the project will be executed.• A regulation is a document that lays down product. people and facilities When is the project’s product or service created? • During the project implementation phase Majority of the project resources are used during: • The implementation phase of the project What is a Project Management methodology? • • • Project management methodology refers to the different project management processes and their interrelated processes and functions The actual processes used in the project and the level to which they will be used will depend on the project requirements This includes use of: o o o o standard templates simulation programs project management software kick-off meetings . Complying with a regulation is MANDATORY What is a Trend Analysis? • Examining project results over time to determine if performance is improving or becoming worse What is the role of the Project Management Plan? • The project management plan is the key document of the project. skills and knowledge. it is iterated a number of times before it is finalized How is a project managed? • Using project management tools and techniques. monitored and controlled and closed Is the project management plan developed in one go? • No. process or service characteristics including all administrative provisions that are applicable to it.

Projects can arise due to: • • • • • • • Market demands Business needs Technical advances Legal requirements Customer requests Competitors profile and strategies Social needs What is the role of the Project Charter in a project? • • • • To link the project to the organization’s ongoing work To give the Project Manager the authority to use the resources of the organization for project activities The Project Charter formally authorizes the project The Project Manager may or may not be appointed before the Project Charter is developed When should the Project Manager be identified? • • • As early as feasible preferably at the initiation phase of the scope management Before much of the project planning has been done Always before starting execution of the project What criteria should be used when selecting a project? • Criteria are defined in terms of merits of the project's product and can cover the full range of possible management concerns like financial return. . market share. public perceptions etc. opportunities or business requirements that need management response.RIDL – Appraisal Projects are typically authorized as a result of problems.

this method is most common • It uses a comparative approach through Scoring models and Economic analysis like Payback period.The two broad categories of project selection methods are: • Benefit measurement methods . integer and dynamic programming algorithims What is the break-even point in a project? • When the project’s income or savings is the same as the initial investment of the project Define project justification: • Project justification is the business need that the project was undertaken to fulfill When will the stakeholders have maximum influence over the project costs? • In the early stages of the project What is the project context? • The overall internal and external environment in which a project is undertaken What aspects form a part of the project context? • • • • • • Technical Political Legal Environmental Economic Social What are the key aspects of the generic Conceptualization phase of the project life-cycle? . Net Present Value. non-linear. Internal Rate of Return Constrained optimized methods this method uses mathematical models that apply linear.

and the critical success factors .• • This phase may also be referred to as the Feasibility. the key performance indicators (KPIs) for measuring the success of the project. Not on how to achieve these goals and objectives When can the Business Case be developed? • Once the project's initial need has been identified a Business Case should be made to appraise the different aspects of the project and see the feasibility of the project The Business case takes time to develop as many aspects must be considered and covered to get a correct and realistic picture • What are the main contents of the Business Case? Business case includes key aspects such as: • • • • • The business need for which the project was undertaken – the ‘why’ of the project Financial / investment appraisal data The project’s objectives and benefits A broad description of the project Performance parameters – the project's success criteria. Initiation or Definition phase The project need / proposal is refined into a fully scoped and defined project plan for implementing the project what is to be done how it will be done when it is to be done and who all will do the work is finalized • The business case is finalized and used as the basis to decide whether it is viable to proceed further with the project or not Why is a Business Case needed in a project? • To have a concrete basis to appraise and assess a proposed project What should the Business Case focus on? • The business case should focus on the goals and objectives that are to be achieved by the project.

• • • • • • • • • • Project's key stakeholders The assumptions and the constraints The time frame for completing the project and the major milestones Safety parameters Quality (Performance) criteria for the project Technology to be used A forecast of the cash-flow A broad outline of the resources required and the key roles and responsibilities Main risks as well as opportunities foreseen Main competition envisioned and it’s impact What is the role of the Business Case? • • • • • • • • • • The business case is developed from the initial Need statement in the conceptualization phase It shows the problem or the opportunity that the project has been taken up to address – the justification of the project It identifies the strategic alignment of the project with the organization strategy It provides a framework for informed decision making for planning the project Highlights the scope of the project and the project constraints The project's key risks and the project’s key deliverables are identified and documented Likely impact of this new project on other projects The assumptions made are identified All potential conflicts are highlighted It forms the basis for developing the Project Management Plan (PMP) for the project Who is responsible for preparing the Business Case? .

the sponsor represents the owner Who is a project stakeholder? • Any individual / group or organization that has a role or interest in the project or will be impacted by the project What sort of resource analysis should be done in the Business Case? • • • Only a broad analysis of the types of resources that will be needed to ensure that the required resources will be available From where the resources will be obtained Specialized requirements should be highlighted What are the different types of investment appraisal techniques? • • • • • Payback period method Return on Investment (ROI) Discounted Cash Flow (DCF) Net Present Value (NPV) Internal Rate of Return (IRR) How does the Payback Period method appraise investments? . Who is the owner of the project? • • • The owner is the organization or the individual/s for whom the project has been undertaken The owner is the project's key risk taker In the project.• • The project's Sponsor The sponsor represents the financing authority and he / she 'owns' the business case Why is financial appraisal done for a project? • • • To see the likely profitability Availability and the sources of funds Cash flow requirements etc.

• • • •

It measures how long it will take the project to recover the initial investment made Shorter the payback period, better is the project viability This method does not consider time value of money or the project’s cash flow once the original investment has been recovered It is not suitable for assessing long term projects

What are the advantages of Payback period criteria? • • • • • It is very widely used Good as an initial filter Simple to use Favors projects with faster returns, better for company liquidity Good for high risk projects

Describe Net Present Value (NPV) project selection criteria: • • • • • • NPV uses discounted cash flows to compare and select projects It quantifies expected profit in absolute terms and shows what the future cash flows will be worth in today’s terms Depreciation and fixed assets are not considered as part of cash flows Higher NPV is better The higher the discount factor the lower the projects NPV Projects with zero or negative NPV should be discarded

What are the advantages of using NPV in selecting projects? • • • • Considers time value of money All future cash flows are compared in today’s values Takes into account the whole time span of the project, from beginning to end Can simulate what-if using different discount factor values

What are the disadvantages of using NPV in selecting projects?

• • • •

Its accuracy is based on the accuracy of estimates of future cash flows and the interest rate Does not consider non-financial data Has a bias towards short term projects Uses a fixed interest rate i.e. discount factor

What are the key methods of Depreciation? • • Straight line depreciation Accelerated depreciation

In Straight Line method of depreciation • • The same amount of depreciation is taken every year The salvage value of the asset (value of the asset at end of it's useful life) is subtracted from it's purchase cost and this figure is divided by it's useful life in years

How does Accelerated depreciation vary from Straight Line depreciation: • • In Accelerated depreciation the assets depreciate faster then the straight line method Assumption is that assets lose higher value in initial years

What are the methods of calculating Accelerated depreciation? • • Double Declining Balance Sum of the Years Digits

What is the Internal Rate of Return (IRR)? • • • IRR is the discount rate at which the project's Net Present Value will be zero Higher the IRR, better is the project's viability The rate of inflation or the rate of borrowing capital would have to rise above the IRR rate for the project to make a loss

What is Return on Investment (ROI)? • • • ROI is the year-on-year financial return that is expected to be earned by the project The higher the return the better the project ROI technique does not consider depreciation i.e. time value of money

What is meant by stakeholder analysis? • Stakeholder analysis is a technique used to identify stakeholders and understand and assess their level of interest and likely influence on the project outcomes

What is the advantage of doing a stakeholder analysis? • • Stakeholder analysis helps to increase stakeholder support for the project and reduce any opposition from them It helps to ensure the stakeholders' requirements are properly considered in project planning

What are the steps involved in stakeholder analysis? Four steps are involved in a stakeholder analysis, which are: • • • • Step 1 - All the stakeholders are identified and listed Step 2 - Each stakeholder's level of interest in the project and their requirements are identified Step 3 - Assess each stakeholders interest in the project according to a predefined scale such as, Very important, Important, Some effect, no effect etc. Step 4 - On the basis of the above 3 steps note down actions that can be taken by the project team to increase stakeholder support and decrease their opposition or negative interest A table can be used to list out the above

Who is responsible for making sure funds are available for the project? • The project sponsor

What is project selection criteria?

• •

Criteria defined in terms of merits of the product of the project This can cover many possible management concerns like financial return, market share, public perceptions etc.

Who all can provide expert judgment for project selection criteria? • • • • Professional and technical associations Publicly available information e.g. internet for similar type of projects Other units within the performing organization Consultants

What is the key role of the project sponsor? • • • • • • To guide the project at a strategic level as per the organizational needs and provide the management's commitment for the project He/she is the owner of the project on behalf of the organization and is responsible to make sure that the project benefits are achieved as planned Finalize the business case To provide the funds for the project Gives the authorization to proceed to the next phase of the project He/she must resolve all project issues as soon as possible

What is the role of the stakeholders of the project? • • • • • • Accept the project at project completion Inform about any changes that may be required in the project following the agreed upon change procedure They approve the project Stakeholders provide valuable information to the project team to determine the project's scope and objectives Provide approval to proceed to next phase at the end of project phases Provide regular feedback about the project reports received by them as the project work progresses

upgrade technology Project goals and objectives The product or service that the project will deliver Customer’s requirements Other stakeholders requirements Justification for the project Overall budget All the assumptions and constraints – organizational as well as external High level milestones Financial viability The project manager and his/her authority Roles and responsibilities of the sponsor.• Make key project decisions when required and ensure timely resolution of issues that can affect project success What all should be documented in the Project Charter? • • • • • • • • • • • • • • An overview of the project The business needs that the project is being undertaken to meet e.g. project manager. market demand. project team members The organizations that will be involved What is the role of a "strategic plan" in project selection? • The strategic plan of the performing organization must be considered as a primary factor in project selection decisions as all projects should support and be line with the strategic goals of the performing organization Aligning the project objectives with the company’s strategic plan • . expansion.

Who can provide expert judgment to project selection criteria? • • • • • Other units within the performing organization Consultants Professional and technical associations Industry groups Search on Internet for similar type of projects Can a contract be used as the project charter? • The signed contract between buyer and seller generally serves as the project charter for the seller to perform the project For showing great learning capabilities in gaining knowledge in extracts and executing all the assignments with highest quality .

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