General Studies and Engineering Aptitude

For

ESE-2021
Basics of Project Management
By- Rahul Verma
(IES officer)
 Cover complete syllabus and all topics of IES-2021, and GATE-2021.
 Cover all concepts and questions from the top 3 coaching institute class notes.
 Extra topics will cover in each subject if anything will be required in the future
according to IES -2021and GATE-2021syllabus.
 Doubts and quarry solution through dedicated WHATSAPP group.
 Carrier guidance and motivational support.
 Concise, concept oriented and topic wise presentation with detailed video lectures
on Target IES YouTube channel.

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Website: http://www.targeties.com/
 CONTENTS

S. No. Topic
1. Basic concept of project and its life cycle
2. Project formulation and appraisal
3. Project scheduling
4. Project network
5. Project control tools
6. Tendering, Contract and Depreciation
7. Organizations
 1. Basic concept of project and its life cycle
Project- A project can be define as a non routine non rape title work with discrete time having
financial & technical performance goals.
987- Guide to ‘PMBOK’
‘Project management Body of knowledge’
Currently running 6th Edition.
Characteristics of project-
A Project is a planned execution of correlation actuator in a given time & within given cost. A
project is executed for the achievement of certain basic objective of scopes, time, cost & quality.

Progressive elaboration-
Project Project Project Project Project
Concept Research Concept Concept Feasibility
retirement Elaboration Study

Project Project
Plan Scope
Project Strategic time:-
1. Customer request
2. Legal requirement
3. Market demand
4. Technology advancement
5. Company’s own requirement.

Enterprise Environmental factors-

1. Government rules & regulations
2. Political environment
3. Legal environment
4. Man Power of company
5. Planning, scheduling tools & software used by company
6. Market condition.

Taxonomy or Classification of project

1. Industrial Project- To set up an industry for the purpose of production, manufacturing

or converting into any other form.
Non industrial Project- Service oriented. Ex. Telecom, healthcare, education, irrigation,
etc.

2. Base on duration of project-

▪ Long duration project - more than 5 year’s period.
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 ▪ Medium duration project - 3 to 5 year period.
▪ Short duration project – 1 to 3 year period.
▪ Special short duration project – legs than 1 year period.

3. Base on value of project:

▪ Mega value project (> 1000 Cr)
▪ Large value project (100-1000 Cr)
▪ Medium value project (1- 100 Cr)
▪ Small value project (< 1 Cr)

4. Based on ownership.
▪ Public section project= Owned by GOZ &PSUS.
▪ Private section project = Owned by private organization
▪ Joint section project = Public private partnership
Project operation

Change On going

Project Operatio
n

Unique Temporary Repetive Continuous

Created Certain Identical Non Stop

for the begging and Replicatio Or
first time certain end n Permanent

Project

Unique Temporary

Project Operation
1. Setting up a factory 1. Producing goods
2. Developing a new verities of nice seeds 2. Harvesting rice crops
3. Installing a new software on a computer 3. Using the software
system 4. Using the robot
4. Design & development of robot 5. Living & Maintenance of complex
5. Constructing a residential complex 6. Supplying water to fields
6. Erecting of an irrigation dam

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Feature of project-

1. Project sponsor- He develops the business case to adders the corporate vision &
corporate requirements.
▪ It funds the project
▪ It is also called the client.

2. Project manager- He is the single point’s responsibilities centre accountable to achieve

the project adjective and deliver the project deliveries.
▪ He is appointed during the initiation phase of project.

3. Project life cycle- A project is a series of sequential phases called project life cycle
phase. It has 5 phases.
Initiation Planning Execution Monitoring and Control 4th
1 st 2nd 3rd
Closing 5th

4. Project character – It translates the business case of the projects sponsor into project
objectives.
▪ It is signed b/w the project sponsor and project manager.
▪ It is also contract.
▪ It declares the existence of the project.
▪ It is statement of wok.

5. Project team –
▪ Project is administered by project team.
▪ Project team is heated by project manager.
▪ Project team is a part of project management office.

6. Project Procurement-
▪ It is done through contract
▪ A project procures material and components from outside.
▪ Suppliers and out sources work to other companies. This is done through
procurement process and planning.

7. Project Scope-
▪ It means the outcomes of the project.
▪ Project scope explains the boundary of project.

Project work- A project has a unique scope of work that defines what is not included in the
project. A Project Breakdown structure (PBS) can be used to sub divided the project in to
number of deli nobles that relate to the operational configuration.

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 The work Breakdown structure (WBS) can be used to sub divide the work to make the
deliverable in to work packages.

Project work (Decomposition of project work)

Sub project- 1 Sub project- 2

Phase- 1 P- 2 P-1 P-1 P- 3

D-1 D-2 Deliverable-1 D-2 D- 1 D- 2

Work phase-1 Work phase-2 W.P-1 W.P-2

Smallest unit of project work = work phase

Project Budget- If the Gadget is exceed than it is called cost overrun, cost over run most be
avoided, budget of the project is assign to different work packages, This result in button control
& better management, Project budget is monitored based on cost estimation for different
activities of project.
Father of project management – F.W Taylor
Harry Grott
Henri fagot

Project Stake holders:- Any individual or organization effect directly or indirectly by the
activities and outcomes of project are called stake holders.
Project Stake holders
1. Customers 2. Banks & financial institution
3. Project manager 4. Vendors & suppliers
5. Project spondee 6. Program managers
7. Functional manager 8. Partners & managers

Project Schedule- Time over leads to cost overrun project schedule is done by Bar chart or
Gants Chart & CPM.

Project Quality- The out puts of the project must be conforming to the quality stand and decided
in the plan.
- Every project has a quality management plan.

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 Quality control Quality Assurance
1. Quality control is product oriented 1. Quality assurance is process oriented
2. Q.C can be insured by removing 2. Q. A can not be assure nearly by
defects in product. removing product defect
3. Q.C is checking the defects & 3. Q.A is doing the right thing at right
minimizing them time, throughout the life cycle of
4. Q.C is corrective in nature project.
4. Q.A is preventive in nature.

Project risk- Risk is defined as variability from expected out comes, every project has risk
management tax & risk assessment matrix.
Extreme risk – Red – Entire team
High risk – Orange – Strict time lime
Moderate risk – Yellow – Intelligent planning
Low risk – Green – Ignored

R A I D Analysis – Risk, Assumption, Issue, Dependencies

Project resources- Project uses different kind of resources like human resources, time
resources, financial resources & natural resources; Resource control is achieve using
resource histogram.

PROJECT MANAGEMENT

Management- It is an act of getting people together to achoplirh a certain goal with in the
available resources & time in effective manner.
Project management- Project management is an application of knowledge, skills, tools
and techniques to meet the project requirements. The objective is to use the optimum
resources to accomplish a goal in minimum time.
Project management Process groups – Initiating
- Planning
- Execution
- Monitoring & controlling
- Closing process

10 Knowledge are of project management:-

1. Project integration management (Core eventual are a)
2. Project scope management
3. Project time management
4. Project cost management
5. Project Quality management
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 6. Project Human recourse management
7. Project Communication management Understanding
8. Project Procurement management Understanding
9. Project risk management • Scope box line
10. Project stake holder management • Schedule box line
• Cost box line
Functions of Project Plan-

Aquaring Acceptance Producing Quality

Financer Output

Project
Obtaining
Management Plan Helps in handing
Resources
risks

Communicates
Procuring Benefits to
Materials Helps in overcoming
State holders obstracles

Basic parameter of project management-

SCOPE TIME
Risk Customer
Management COST QUALITY Satisfaction

The phases of project management

1. Ignition
2. Formulation
3. Feasibility
4. Appraisal
5. Planning
6. Execution
7. Monitoring & controlling
8. Completion
9. Commissioning
10. Closure.

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 Project life cycle- 10 Stages

Corporate vision & Corporate Business Case

Values Requirement

Strategy plan

Initiation Planning Execution & Closing

Control

Project Phase

Operational Half life up Disposal

start up grade

Operation Phase

▪ PLC shows how a project subdivided into a number of phases parented sequentially along
a project time line
▪ All phases from project start to end are known are project life cyle phases.
▪ Phases differ from project to project.

Basic element of PLC-

1. Resource, manpower, material, money, machinery etc.
2. Operation or Activities which should be performed in sequence.
3. Constraints and external conditions.

Classical project management Triangles

Scope

Quality

Cost Time

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Constraint of project management

Scope
Risk

6 – Contrasted Time
Resources

Quality Cost

Project life cycle (Classical Product life cycle)- PLC has maturely 4 phases.
1. (P-1) Feasibility or Appraisal conception
▪ In this problem is identified and potential solution are suggested.
▪ Feasibility study helps in starting from no. of possible business to get one option
which satisfy client requirement.
▪ How problem identified and potential solutions are suggested i.e idea is conceived.
▪ If idea is found feasible from all consideration it is given “Grow Ahead” signal.
▪ In feasibility stage objective clearly defined them appraisal conducted in term of
Risk, Benefits, and financial commitment.

2. Design (Planning & scheduling)Development (P-2)

▪ In this phase uses the guidelines from the feasibility study to design the product.
▪ Once the investment decision is taken the design of the planning stage of project
start
▪ In the phase original ideas are amplified to prepare ‘Blue point’ for next stage.
▪ Output of Design phase is DPR (Detailed Project Report)
▪ Intensity of activities continuous invoices from Phase-1 to Phase-2

3. P-3, Execution of Production Phase.

▪ How Physical shop is given to idea presented in DPR
▪ In this procurement of resources (material/machinery) Starts
▪ P-3 uses the design and project plan from the definition phase to gather with
execution strategy to construct project.
▪ In this phase intensity of activities contagiously Innovate and niches the peak
▪ How great need of continuous monitoring & control.

4. P-4, Termination of Commissioning of Handover Phase.

▪ P-4 confirms the project has been made to the approved design and then hand
over the project to the

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 ▪ Testing & teething problem solved. If trial Success full then commissioning
project is handed over.
▪ This stage might include training of operating personnel.
▪ In this phase intensity of activities reduces to minimal at end.
Life cycle graph between intensity & activities and time:

Implementatio
n
Planning
Commissioning
Appraised

P-1 P-2 P-3 P-4 time

Level of effort (Intersity of activities vs (PLC)
Project Phases
Strategy Phase Feasibility Definition Execution Commissioning
Phase Phase Phase

Rule of effort

Stately Feasibility Definition Execution Commissioning

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 ▪ The level of effort is a use full indication for the project manager to quantity the amount
of work to be for form and the amount of work completed within each phase
▪ These parameters can be parented or a line graph of rate of expenditure or comparative
expenditure
▪ ‘S’ curve profile similar to that used in the earned value calculation.
▪ This graph help manage to quantity amount of work to be performed and the amount of
work completed in each phase.
▪ Similar project have similar led of effort profile.

Level of influence vs cost of changes (Front and importance)

Cost

Level of
Influences.
Potential to
add value

strategy
Level of Influences

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10
Project life cycle costing-

Payback period

+ Profit

Strateg Project Break even point

1 y phase

Disposal
Resultant cash flow cost
Operation phase

Strateg Project Disposal

phase
y

Halo effect- Halo effect is the assumption that “the person is good at technology/ skills then he will be a
good manager it describer an error in thinking in which you make an inference about person.

Difference b/w phase & life cycle-

Phase Project life cycle
1. Phases are definite mile store in the 1. Define the project management
life of a project which have methodology to evaluating the project
changeable about come from start to end.
2. Phase are definite deliverable objects 2. Life cycle is a contentions process &
at the end it define the feasibility criteria be
used from the project.

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 Execution

Planning

Initiation Control
Closing

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12
 2. Project Formulation & Appraisal
Project formulation- It given a complete picture about a project being undertaken project being
undertaken. The information collected through this process can be used for preliminary scrutiny
of projects; The formulation structure may vary from project to project, Following as pacts are
considered in project formulation
1. Conceptualization of project idea
2. Conceptualization of validity of project idea
3. Making assessment of pre investment study.
4. Project demand analysis
5. Technical assessment.
6. Financial appraisal
7. Economic Analysis
8. Environmental impact analysis (EIA)
If a rough estimates all the above criteria are accessed the then for their detailed studies are
carried out for project development, But if initial rough study gives by report then project
idea is suspended.

Project development- A typical project process may have following 3 phase.

1. Pre investment phase- It is related to authorization of investment decision for a particular
project idea. Pre investment phase means identification of project idea or conceptualization of
project idea of opportunity study.
I. Market Research
II. Market analysis
III. Study of geographical are a
IV. Government policies
V. Export import scenario
VI. Performance of existing industry
VII. Availability of raw material.

2. Pre feasibility stage- After the identification stage the project ideas are filtered through pre
feasibility study. In this stage more elaborate study is required than the previous stage.
After this stage one should be able to decide
1- Whether the project is accepted or rejected
2- whether project requires money detailed feasibility study
3- Some aspects of the projects need special investigation
Pre feasible study include-
1- Plant layout study
2- Project background study
3- Plant size
4- Location site
5- Technology
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13
 6- Market demand
7- Impact resources
8- Project development methodology
9- Man power
10- Finical analysis
11- Environmental analysis
3. Feasibility study-

Generation of idea

Initial filteration of idea

Is the idea work No Drop idea

Yes

Put to feasibility

Market analysis Technical analysis

Financial analysis

Economical +social analysis

Environment impact casement

Is the idea accepted? No Drop out

Prepare investment Proposal

Feasibility study is an analysis of how successfully a project can be completed. In feasibility

analysis we study technical feasibility.
▪ Market demand
▪ Financial feasibility
▪ Economic feasibility
▪ Social feasibility
▪ Environmental impact assessment

PROJECT APPRAISAL
Technical appraisal / Analysis.
1- Statement of objectives
2- Project background study
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 3- Study of project location and site

Location cost index (LCI)-

𝐶𝐴
LCI for location A is = 𝐶𝐵 × 100
CA= cost of setting of plant at location
CB= Cost of setting of plant at location
If LCI < 100 then project location should be preferred.
4- Plant layout- Operational and eco friendly layout.
5- Plant size-
6- Technology
7- Infrastructure
8- Resources
9- Environmental impact assessment

Market and demand analysis-

Market and demand analysis are required to meet planning and decision making.
a. For short term planning – less than 1 year
b. For medium term planning- 1 to 3 year
c. For long term planning- 4 or more years

Forecasting- Forecasting is the ability to use any previous date or recode to estimate happenings
of the future.
Method of demand fore casting-

1. Quantitative or subjective 2. (1-3 month) Quantitative or objective

(Judgmental) (Time series) (Causal or Econometric)
- Opinion survey - Past average - Correlation
- Market trial - Moving average -Regression.
- Market research - Exponential smoothing
- Depict technique method
- Weighted moving average

1. Delphi- A panel of experts are asked sequential question & no available previous data of
demand & forecast.
2. Luminal group technique/ Jury of executive opinion-
▪ Questions are pre pared by facility or based on opinion pole market research,
economical analysis.
▪ Experts sit around a round table in full view of one another and asked to speak to
each other.
▪ Questions are distributed to the experts & they are requested to generate their ideas
to the question

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 ▪
After every one has written down their ideas, The idea shared is written or the flip
chart, which everyone can see:
▪ Experts are requested to discuss these ideas freely with each other.
▪ As a result no of ideas comes down
▪ Then experts are requested to prioritize these ideas.
Quantitative method-
1- Time series based-
𝑠𝑢𝑚 𝑜𝑓 𝑑𝑒𝑚𝑜𝑛𝑑 𝑜𝑓 𝑎𝑙𝑙 𝑝𝑒𝑟𝑖𝑜𝑑 𝑖𝑛
a. 𝑆𝑖𝑚𝑝𝑙𝑒 𝑎𝑏𝑒𝑟𝑎𝑔𝑒 𝑚𝑒𝑡ℎ𝑜𝑑 = 𝑇𝑜𝑡𝑎𝑙 𝑛𝑜 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑𝑒

𝑆𝑢𝑚 𝑜𝑓 𝑠𝑒𝑙𝑒𝑐𝑡𝑒𝑑 𝑝𝑒𝑟𝑖𝑜𝑑

b. 𝑀𝑜𝑣𝑖𝑛𝑔 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 = 𝑁𝑜 𝑜𝑓 𝑠𝑒𝑙𝑒𝑐𝑡𝑒𝑑 𝑝𝑒𝑟𝑖𝑜𝑑
c. Weighted average method-Give more weight age to rant data
𝑛(𝑛+1)
I. 𝑓𝑖𝑛𝑑 𝜀𝑛 > 𝑍
𝑛 𝑛−1 𝑛−2 1
II. 𝐴𝑟𝑟𝑎𝑛𝑔𝑒 𝑡ℎ𝑒 𝑖𝑛 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑖𝑛𝑔 𝑜𝑟𝑑𝑒𝑟 = 𝜉𝑛 , , , … . 𝜉𝑛
𝜉𝑛 𝜉𝑛
Weight ‘W’ = 0.7 to 0.9= for new project
W= 0.4 to 0.6 for balanced product
W= 0.1 to 0.3 for established products
d. Exponential smoothing method- Latest observation given maximum weight age.
Ft= Ft−1 + α(Dt−1 − Ft−1 )
2. Error in demand forecasting- Error= [forecast demand – Actual demand]
There are these types of error in demand forecasting.
I. Measurement and data error
II. Model specification error
III. External error
Any error that is present in demand forecast will impact on reliability of the economic
appraisal.
Following aspects is measuring the effectiveness of any method of forecasting.
∑𝑛
𝑖=1|𝐷𝑖−𝐹𝑖|
a. Mean anisole deviation (MAD)= 𝑛
b. Mean forecast error (Bias)- It takes account the direction of account
𝑹𝒖𝒏𝒏𝒊𝒏𝒈 𝒇𝒐𝒓𝒆𝒄𝒂𝒔𝒕 𝒆𝒓𝒓𝒐𝒓 ∑𝒏
𝒊=𝟏(𝑫𝒊−𝑭𝒊)
Bias = =
𝑻𝒐𝒕𝒂𝒍 𝒏𝒐 𝒐𝒇 𝒑𝒆𝒓𝒊𝒐𝒅 𝒏
Bias can be zero, +tve, -ve,
• For a very accurate forecasting MAD and Bias both should be zero.
• If MAD is lower than Bias will be automatically reduced.
c. Cost of forecast errors- Important decision (short term, Medium, and long term) are based
on forecast, large errors of forecast can lead to costly mistake, particularly, when used for
evaluating investment proposals which are long – term and nearly irreversible.

• Project risk analysis-

- Risk refers to the variability of the project.
The project appraisal for risk is based on
i. Project cash in flow
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 ii. Periodic cash out flow
iii. Life of machinery
iv. Salvage value of machinery

- Risk is define as the variability of return in investment based on certain probability of

outcome where as uncertainty does not involves probable approach.
Type of project risk –
i. Project completion risk
ii. Resource risk
iii. Price risk- Price fluctuations of both input and output
iv. Technological risk
v. Political risk
vi. Interest rate risk
vii. Exchange risk- Currency fluctuation
Indicator use to measure risk-
i. Range- The range of a distribution is the difference b/w highest value and lowest
value.
ii. Standard deviation 𝝈
𝜎 = √𝜺𝒑𝒊(𝒏𝒊 − 𝒙̅) 𝟐
𝑃𝑖 = 𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑎𝑠𝑠𝑜𝑐𝑖𝑎𝑡𝑒𝑑 𝑤𝑖𝑡ℎ 𝑖 𝑡ℎ 𝑣𝑎𝑙𝑢𝑒
𝑥𝑖 = 𝑖𝑡ℎ 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
𝑥̅ = 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑣𝑎𝑙𝑢𝑒/𝑤𝑒𝑖𝑔ℎ𝑡 𝑎𝑣𝑒𝑟𝑎𝑔𝑒
NPV Probability
200 0.3
300 0.5
900 H 0.2

The probability weighting is E(NPV)=∑ 𝑃𝑖(𝑁𝑃𝑉)𝑖 )

𝐸 = 0.3 × 200 + 0.5 × 600 + 0.2 × 900 = 540
𝜎 = √0.3(200 − 540)2 + 0.5(600 − 540)2 + (900 − 540) = 249.8
Variance- it is square of S.D
Variance=𝜎2
𝑠𝑡𝑎𝑛𝑑𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛
Coefficient of variance- 𝐶𝑉 = 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒.

• Risk minimization strategies-

1. Risk reduction strategies- Changes the proportion of fixed and variable costs.
2. Change pricing strategy- A lower price (Selling) increase demand but increase
breach eer level.
3. Sequential investment- Initially start with low production or small unit and
increase the production with increase in demand
4. Improving Information- Gat her more information about market and technology
before taking a plunge
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 5. Provide insurance cover.
6. Financial leverage- Reduce the dependence on debt and invoice equity
7. Enter in to long term agreements with suppliers, employees, lenders & customers.
8. Strategic alliance and tie-ups
9. Explain rein forcing options.
• Techniques of Risk Analysis-
1. Sensitivity Analysis- (What if Analysis)
▪ If sales of investment deviates from its expected value than sensitivity analysis ix
conducted.
▪ This analysis giver an idea that how the project is vulnerable.
▪ NPU or IRR any other indicator of Project is analyzed for variability due to change in any
one variable at time keeping other factor constant.
▪ Ex- If the quantity sold of a product decrees by 1% other variables remain constant than
NPU changer by
Limitations-
▪ It nearly shows change in NPU, IRR or any other indicator due to change in sum
variables and no for their conclusion.
▪ In this analysis only one variable at a time is changed where as others are help const.
several variable can changed.
▪ The interpretation of result is very subjective, one decision maker may accept the project
where as other may reject the project.
2. Scenario Analysis-
▪ In this analysis several variable ore varied simultaneous lay and their effect is observed
on financial indicators (NPV,IRR etc)
▪ This method improvement over sensitivity analysis.
▪ Most commonly there scenario are considered
i. Optimistic Scenario
ii. Pessimistic scenario
iii. Most likely Scenario.
3. Simulation Analysis-(Monte carol Analysis)
The decision makers would like to know the likely wood effect of change in variable
on actual result, this information can be generated by simulation analysis
Steps-
i. Model the project- This modeling at the project will reveal that how NPV is
related to other parameters of exogenous variables.
ii. Specify The value of parameters & probability distribution
iii. Select The value at random from the probability distribution of each
variables
iv. Determine NPV corresponding to randomly generated values of variables.
v. Repeat (III) &(iv) a number of times to get a large number of simulated
NPV.
vi. Plot the frequency distribution of NPV.

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 Some commonly used Probability distributions-

Uniform Triangle as Step rectangular Normal Step rectangular

distribution distribution distribution distribution distribution

4. Break even Analysis Mos

BE.P – No loss , No Profit 𝜃
total cost
S = F+V+P B.E.P
Sn = F+ Vn +P
at BEP , P=0 Fixed cost (F)
𝐹
(𝑛)𝐵𝐸𝑃 = (𝑆−𝑉) mos
𝜃 – larger angle indicate profit.
Mos= Actual sales – B.E. seller
𝑃 𝐶𝑀 𝐹 + 𝑃 𝐹1 + 𝑃1 𝐹2 + 𝑃2
( )𝑟𝑎𝑡𝑖𝑜 = = = =
𝑉 𝑆 𝑆 𝑆1 𝑆2

5. Decision True analysis- It is assumed that the project will be completed in according with
the proposed planning but in reality there is always some flexibility in execution, Hence such
flexibility exists in implementation. There decision tree analysis evaluates project flexibility.
Steps-
I. Identify the problem & alternative option.
II. Make the path of decision
III. Specify the probability & monitory out come.
IV. Evaluate various decision alternative & implement the best decision

6. Game theory- Is the study of mathematical mode less of conflict are cooperation b/w
intelligent rational design- makers.
• Financial feasibility- 3 Major aspects-
i. Estimation of project cost- Total project cost
ii. Estimation of project operation cost – Managing day to day cost
iii. Estimation of project funding – The Cost of project & mote through following two
means.
a) Equity – Capital of investor
b) Debt – Loan from financial institutions.

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The equity does not attract any interest and is not needed to be paid back, The debt component is
required to be paid with interest.

• Financial Appraisal/ criteria used for selection of investment opportunities

1- Average rate of Return (APR) or Rate or Return
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑘𝑒𝑠 (𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡)
𝐴𝑅𝑅 = × 100%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑜𝑣𝑒𝑟 𝑡ℎ𝑒 𝑝𝑟𝑜𝑓𝑖𝑡 𝑙𝑖𝑓𝑒
1
𝐴𝑣. 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑜𝑣𝑒𝑟 𝑡ℎ𝑒 𝑝𝑟𝑜𝑗𝑒𝑐𝑡 𝑙𝑖𝑓𝑒 = [1. 𝐶 − 𝑆𝑉] + 𝑆. 𝑉 + 𝑊𝐶𝑅
2
I-C- Initial cost
S.V- salvage value
WCR- Working capital requirement
Where salvage value means book value of the project after use full life.
Working capital represents operating liquidity available for the project
WCR= CA-CL
CA – Current assets
CL – Current liability
OR
𝑨𝒗. 𝒂𝒏𝒏𝒖𝒂𝒍 𝒑𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝒕𝒂𝒙𝒆𝒔
𝑨𝑹𝑹 =
𝑨𝒗 𝒃𝒐𝒐𝒌 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒊𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕
Av. book value = Initial cost – Depreciation. this formula has to be applied year after year and
there average is calculated.
Q- There two machines A & B both have initial purchase price of 60.000 Rs, Calculate ARR, If
yearly profit after depreciation and taxes are given below.
Year m/c A m/c B
1 4000 12000
2 5000 9000
3 7000 7000
4 9000 5000
5 12000 4000

S.V 3000 1000

Working capital for both machine=0
For m/c ‘A’ useful life =5 year
4000 + 5000 + 7000 + 9000 + 12000
𝐴𝑉. 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡 𝑜𝑓 𝐴 = = 7400
5
AV. Investment over life of project.
1
𝐴 = [1𝐶 − 𝑆. 𝑉] + 𝑆𝑉 + 𝑊𝐶𝑅
1
1
= [60,000 − 3000] + 3000 + 0 = 31,500
2
7400
𝐴𝑅𝑅 𝑓𝑜𝑟 𝐴 = × 100 = 23.49%
31,500
similarly- ARR for B= 24.20%
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:: We should purchase m/c ‘B’

2- Pay back period method (PB):- It is a measure in terms of which will take a recovery the
cost of investments in term of time.
If cash flow after tax (CFAT) per annum is uniform (equal in all periods) them
𝐼𝑛𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝑃𝐵 =
𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑎𝑠ℎ. 𝑖𝑛𝑓𝑙𝑤𝑜
It is important for every investor to know how and when he will be getting his investment
back.
If cash flow after the tax is non uniform
𝐵
𝑃𝐵 = 𝐴 +
𝐶
A= last period with (-ve) commutative cash out flow.
B= Absolute value of commutative cash out flow
C= cash in flow during the period after period A
Ex- A company is planning to take a project that requires initial invest of Rs, 50 Cr. and is
expected to generate cash inflow after tax per annum as follow-
Year CFAT (Rs,cr) Cumulative
1 10 - 50 + 10 = -40
2 13 - 40 + 13 = -27
3–A 16 - 27 + 16 = -11 B
4 19 – C - 11 + 19 =8
5 22 22 + 8 = 30

𝐵
𝑃𝐵 = 𝐴 +
𝐶
11
=3+ = 3.57 𝑔𝑟.
19
If there are two projects there choose that one which has least payback period.

Advantages of payback period method-

▪ He can be used to measure risk in project
▪ For comprises facing liquidity problem, this me that provides ranking of projects which
would return money early
o Disadvantages –
▪ It does not take in to the account time value for money To remove this drawback
discounted cash flow techniques can be used.
▪ It does not take in to account the cash flow that occurs after payback period.

3- Discounted cash flow technique-

▪ Traditional method of project evaluation do not take into account the total benefits from
the entire life of project and they do not consider the time value of money.

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21
 ▪ In this techniques discounted below, a discounting function is and to account for time value
of money. This analysis used the future free cash flow projections and discounts them to
convert in the present value estimates
𝑪𝑭𝟏 𝑪𝑭𝟐 𝑪𝑭𝟐 𝑪𝑭𝒏
𝑫𝑪𝑭 = + + ± − − − − − −
(𝟏 + 𝒓)𝟏 (𝟏 + 𝒓)𝟐 (𝟏 + 𝒓)𝟑 (𝟏 + 𝒓)𝒏
CF= future cash flow (after tax)
r= discounted rate
n= no of period of life
𝑵𝑷𝑽
▪ 𝑰𝒇 𝑫𝑪𝑭 > (𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒄𝒐𝒔𝒕) 𝒕𝒉𝒆𝒏 𝒑𝒓𝒐𝒋𝒆𝒄𝒕 𝒔𝒉𝒐𝒖𝒍𝒅 𝒃𝒆 𝒑𝒓𝒆𝒇𝒆𝒓𝒆𝒅.
▪Net present value (NPV) - The money received today is worth more than the sum
received in future because it has time value, It is due to following Reason
1. Interest or cost of finance
2. Impact of inflation
3. Effect of risk
NPV computes the present value of the cash inflow after tax.
Net present value = Present value of cash inflow after tax – P.V of cash out flow (entire intestine
cost-)

Interpretation of NPV-
NPV>0 then project is financially valuable (√)
NPV= 0 then project is meeting B.E.P
NPV =0 then project is financially unviable.(×)
II. Cost Benefit ratio CBR or BCR-
𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 (𝑐𝑎𝑠ℎ 𝑖𝑛 𝑓𝑙𝑜𝑤)
𝐵𝐶𝑅 =
𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑡𝑛.
BCR>1 Project is financially viable (√)
BCR<1 Project is financially unviable (×)
BCR=1 meat B.E.P
• Net benefit cost ratio (NBCR)
NBCR=BCR – 1
NBCR > 0 Viable
NBCR <0 non viable
III. Internal rate of return (IRR)
▪ It is also known as yield on investment method.
▪ Marginal efficiency of capital method.
▪ Marginal productivity of return method
▪ Rate of return method.
▪ Economical rate of return method.
▪ This method takes into account the time value of money by discounting cash inflow and
cash out flow.
The tern internal means that the calculation does not incorporate environmental/ external
factors such as interest vote and inflation.

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 Interest rate may be considered as internal factor also, Due to this features this method is
also known discounted cash flow rate of return method of effective interest rate method.

Definition of IRR-
1. The IRR of an investment of project is the discount rate of return that Meany
NPV=0
2. It is the discounted rate at which the present value of all futures cash flow is equal
to the initial investment- The rate at which the investment achiever a breakeven
point.
3. IRR of an investment is the discounted rate at which the NPV of cost (cash out
flow – cash inflow) of the investment = Net present value of benefits.

Character sticks of IRR-

1. Greater IRR is desirable and project should we under taken only when IRR > Rate return
of interest rate (cost of capital)
2. IRR given rate and is an indicator of efficiency or yield of an investment where as NPV
is an indicator of value of magnitude of investment.
3. IRR can also be used to evaluate boy back scheme.
4. Some companies get bather IRR by buying their own shares and products instead of
investing at other place

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 3. Project Scheduling

Scheduling involves programming requirements and expected program over’s the project
duration. Techniques for Scheduling projects include –
Activities
1. Bar Chart
Each bar represents one specific job A
or activity of the project, the beginning
& end of each our represent the time of B
start & time of finest of that activity. C
▪ It does not show activity inters relationship.
▪ Does not indicate any event during activities D
▪ Does not show any time uncertainty E
▪ It become unmanageable for large no of activates. 1. 2. 3. 4. time
▪ It can not easy to find critical path.
▪ For simple project provide good scheduling & control tool but for large projects its
fail.
1 2
2. Milestone Chart
It is a modification over the original P
3 4 5
Gantt chart Q
Mile stones are key events of a main R
6 7
activity, this are specific pointy in time
8 9 10
which mark the competition of certain S
portions of the main activity.
▪ The beginning & and of the sub divided activates of teaks are termed as mile
stones.
▪ Milestone event is the point indication on the activity path.
▪ Better scheduling chart than bar chart. Activity
3. Line of balance-
The line of balance process
is employed when a
repetitive process exerts
within the contract’s work
space, It helps- Time
▪ Comparing actual progress with a formula plan- 1 2 3 4 5 6
7 8 9
▪ Examining only the deviation from established plane.
▪ Examining only the deviation from established plane.
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 ▪ Receiving timely information concerning trouble are an
▪ Fore costing future performance.
▪
4. Fast tracking- Do activity parallel & complete fast.
▪ This technique simply rearranges the activities in the original schedule.
▪ Although fast tracking may not result in an increase in the cost, it leads to an
increase in the risk.

5. Crashing- Crashing is a method for shortening the project duration by reducing the
time of one or more of the critical project activities to less than etc. normal activity
time
▪ Crash only the critical
activities
∆𝐶
▪ Cost slope =
∆𝑡
𝐶𝑐 − 𝐶ℎ
=
𝑡𝑐 − 𝑡ℎ
Crash those activities first which have a minimum cost slope, this is for cost optimization

6. What if Scenario – What it scenario is the process of changing the values in cells to
see how those changer will affect the outcome of formulas on the work sheet, Three
kinds of what if Analysis tools come with excel.
I. Scenarios
II. Goal seek
III. Data tables.

7. Scheduling using calendar-

Project Calendar combines
Resource Calendar. Resource – limited schedule.
The project & Resource calendar are combining, produce a resource limited schedule.

8. Scheduling using software-

▪ Primavera project software
▪ Success planned project planning software
▪ Our requirements are feed through input in software & produce project schedule
▪ By changing input alternative schedule can be produce & the best schedule is
chosen.

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9. Scheduling models-

Supportive Project Project Project Alternative

data management scheduling
model scheduling
software Analysis

Input

Project manager
pick up schedule

Out put
10. Leads & lags.
Leads- Accelerating an activity by advancing its starting time is called leads
10
Float –s 15 (schedule time)

7 12
(Can cat range date due to float & start 5 day earlier)

Lags – When the activity delayed due to delayed in peered loss activity.

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 4. ProjectNETWORK
4. PROJECT Network

ADM PDM
(Arrow diagramming method) (Precedence diagramming Network)
AOA (Activity on Arrow system) AON (Activity on node system)

1
A B 5 7
2 3
5 7 A B
ADM- 3 Elements of network.
1. Event-
2. Activity - Arrow
3. Dummy --------- dotted line arrow.
Event- A event is an instant of time just on occurrence, It takes no time & no resources.

A A
2 3
1 B B 2 3
C Dual roal event

Ex- Mixing of cement & concert has been completes.

- Painting of wall is over.
Activity – The actual performance of work is called an activity, It takes time as well as
resources and it is represent by ( ) in ADM system.
Dummy - Dummy is use to remove any network ambiguity. Dummy takes no time &
resources.
- Dummy indicate precedence relationship in network.
Rules of network –
1- No of arrow is same as no. activities
2- No event occurs twice.
3- Time flows from left to right in net work
4- There is only one finish & one start in network
5- No event can occur under all the activity complete.
6- Length of arrow does not represent any magnitude.
7- Arrow should not cross each other, If it is do then bridge over the other

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 PERT – Program evaluation & review technique
▪ It provides uncertainty in activity & evaluates activity completion duration beaded
on probability. Probability
▪ In PERT all activity follow B- distribution.
Three PERT values 50% area
to=optimistic time
tm= most likely time
tp= Pessimistic times
te= expected time
𝑡𝑜+4𝑡𝑚+𝑡𝑝 time
𝑡𝑒 = 𝑤𝑒𝑜𝑔𝑗𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒. to tm te tp
6
𝑅𝑎𝑛𝑔𝑒 = 𝑡𝑝 − 𝑡𝑜
𝑡𝑝 − 𝑡𝑜 𝑡𝑝 − 𝑡𝑜 2
𝑆. 𝐷 = , 𝑣𝑎𝑟𝑖𝑒𝑛𝑐𝑒 (𝑣 ) = 𝜎 2 = ( ) )
6 6
𝑃𝑟𝑜𝑏 − 𝑡𝑖𝑚𝑒 𝑡𝑜 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 = (𝑡𝑒 − 𝜎)𝑡𝑜 (𝑡𝑒 + 𝜎)

Central limit theorem- In PERT network different activities follow different 𝛽

idtribution having respectively the expected time of completion as tp1, tp2 ,tp3---------and
respective S.D AS 𝜎1 , 𝜎2 , 𝜎3 − − − −𝜎𝑛 such that along the critical path the network
follow normal distribution approximetly, such that along the critical path, network time
of completion te= te1+te2+te3+------ten and along the critical path the S.D of network is
given
𝜎 1 = √𝜎1 2 + 𝜎2 2 + 𝜎3 2 − − − 𝜎𝑛 2 𝑆. 𝐷 𝑎𝑙𝑜𝑛𝑔 𝑡ℎ𝑒 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑝𝑎𝑡ℎ𝑒
𝜎 = 34.13%
2𝜎 = 47.7%
3𝜎 = 49.87%
𝑡𝑠 −𝑡𝑒
Probability of completion of project 𝑧 =
𝜎1
Z Probability
0 50 %
1 50 + 34.13 = 84.13%
2 50 + 4.77 % = 97.7%
3 99.87%
-1 50 – 34.13 = 15.87 %
-2 2.28%
-3 0.13%

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Critical path method- (CPM)
▪ Activity oriented, based upon single time, use for repetitive work, Associated with
deterministic activity
▪ Total Float- This is the delay which can be imported in an activity without
affecting project completion time. Total float affect both preseason & successor
activity.
▪ Free float – This is the delay which can be imported in an activity without
affecting the successor activity & affective only presses activity.
▪ Independent Float- This float does not affect preseason or successor activity
𝑬𝒊 𝑬𝒋
𝒊 𝒋
𝑳_𝒊 𝑳_𝒋
TF= LJ – [Ei +teij]
FF = Ej – [Li + teij]
IF = Ej – [Li + teij]
1. Forward pass computation.

Ei 〖𝒕𝒆〗^𝒊𝒋 Ej Ej =𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑜𝑓 𝑎𝑙𝑙 [ 𝐸𝑖𝑡 + 〖𝑡𝑒〗^𝑖𝑗 ]

𝑖 𝑗

2. Back ward pass computation

Ei 〖𝒕𝒆〗^𝒊𝒋 Ej 𝑳𝒊 = 𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑜𝑓 𝑎𝑙𝑙 [ 𝐿_𝑗 〖𝑡𝑒〗^𝑖𝑗 ]

𝑖 𝑗

Li Li

Notation- 5 Activity number

ES 1 EF
Slag = LS - ES
Slag
= LF – EF
LS 5 LF

Activity duration

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29
 Fore cost Estimate to
▪ Earn value analysis- Cumulative Cost. completive
Ev= earn value AC Estimated at
Budgeted cost of work Completed
Performed PV
PV – Planed value
Budget at
AC – Actual cost EV
completive
Rate of review
At time row

Time
Earned value analysis is an industry standard method of measuring a project progress at
any given point in time, forecasting its completion date and final cost, and analyzing
variance in the schedule and budget as the project proceeds.
1. Cost variance (CV) = EV – AC
2. Cost performance index (CPI) = 𝐸𝑉/𝐴𝐶
3. Schedule variance (SV) = EV – PV
4. Schedule performance index (SPI) = 𝐸𝑉/𝑃𝑉
5. Time variance = Time from date of review when EV = PV
6. Estimated cost performance index (ECPI) = 𝐵𝐴𝐶/𝐸𝐴𝐶
BAC – Budget at completion
EAC – Estimated cost at completion.
1. Variance in completion = BAC – EAC
2. To complete performance index (TCPI) = (𝑤𝑜𝑟𝑘 𝑟𝑒𝑚𝑎𝑛𝑖𝑛𝑖𝑛𝑔 )/
(𝐵𝑢𝑑𝑔𝑒𝑡 𝑟𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔) = (𝐵𝐴𝐶 − 𝐸𝑉)/(𝐵𝐴𝐶 − 𝐴𝐶)
Q- A summary of the facts-
Original project cost = 320 staff days
Original project schedule = 4 months
Planned value = 80 staff- days at I month
Actual Cost =82
Earned value =75
Current staffing =4 peoples
Solve= 1. Cost variance (SV)= EV-AC
= 75-82=7 stuff days
2. Cost performance index(CPI)=𝐸𝑉/𝐴𝐶 = 75/82 = 0.91
3. Schedule variance (SV)= EV-PV
= 75-80=5stuff days
4. Schedule performance index(SP)= 𝐸𝑉/𝑃𝑉 = 75/80 = 0.9375

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 5. Project Control Tools
There are many tools available to assist with accomplishing the task and executing the
responsibility.
1. Graphical Evaluation and review technique(GER)-
It is a network analysis technique used in project management that allows
probabilistic treatment both network logic and estimation of activity duration.
▪ It use the activity as well as nudes as probalistic
▪ It allows loops within takes
▪ It user Monte Carlo simulation technique.
▪ It resolves the limitations of both CPM & PERT
2. Critical chain method- It is a method of planning and managing projects that
emphasizes the resources required to execute project tasks.
▪ Critical chain project management is based on method and algorithms
derived from theory of constraints.
▪ It is based on criteria of resource buffer, project buffer and feeders’ buffers.
▪ These buffers are added to the critical chain as a result, very after the
critical path of the network changes.
▪ It is the resources optimization control tool
▪ Resource based network technique
3. Decision CPM- In a network there are multiple network path, decision CPM
technique helps in choosing the best alternating path.
4. Resource Leveling- “A technique in which start and fresh dates are adjusted
based on resources constraints with the goal of balancing demand for resources
with the available supply”. recourse

Resourc 3 3 3 3
3
e Time
3
Time

1 2 3 4

Technique- 1. Heuristic (Trial & Error)

2. Level Trigger- If the park requirement exceeds the predetermined
level, then the active are slog and post pond.
3. Comprehensive method- EST Schedule
+
Floats
+
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 Resource loading chart
▪ Resource unlimited but time is limited- Resource leveling
▪ Resource are limited but time is unlimited= Resource smooth
5. Change control management- It is the formal system establishes in the project to
accommodate approves changer.
6. Control account- The integrated base line of project is monitored against earn
value parameters that is control account.
▪ A management control point where the integration of slope, budget, actual
cost and schedule takes place and where the measurement of performance
will occur.
7. Performance measuring base line (PMB)- The performance of the project, and
the project manager needs to be measured if there is no base line or bench make,
then the there is no way to know if the project manager did a good job or not? We
need to have a clear target or good to achieve, so that we can compare it with the
actual.
8. Project progress chart- A project progress chart is an interactive graph that
provides a visual representation of the health of a project by displaying complete
vs incomplete tasks over time.
9. Tuck name ladder- The (furmining Storming nurming performing
Adjourning) model of group development was first purposed by Bruce Truck man,
who said that these phases are all necessary and investable in order for the team to
grow, face up the challenges, tackle problems, find solutions, plan work and delver
restarts.
10. Project management information system (PMIS)- A project management
information system Is the requested for an organization to execute project
successfully. A PMIS is typically one or mass software applications and a methods
process for collecting and using project information.
Commonly use project information system-
▪ Microsoft Instra- plan
▪ Scoda Yojna
▪ Prism Praman
▪ PIL- projects Quick net
11. Matrix diagram- Matrix diagram are a type of quality management tools that is
utilized to analysis the data within a particular organization structure, The data is
created in a matrix to show the relationship b/w different groups of information.
▪ It shows the relationship b/w different group of information b/w subjects,
factor and causes.

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 6. Tendering

Tender is a written after to execute the certain work under certain terms and condition, it
is also called BID.
▪ It is written by the tender or (The persons who after the tender).

Notice Opening of Preparation of Selection of Issuing of

inviting tenders comparative the lowest letter of
Tender (NIT statement of bidder inters (LOI)
tender

Contract Signing of
execution ad contract
ministrative

Tender Notice or Notice inviting tender (NIT)-

▪ Name, adders, contact no of the authority of insuring tender.
▪ Broad estimation of work
▪ About the earnest money deposit (EMO) and security deposit
▪ Last date of receiving of tender
▪ Date and place of opening of tender
▪ Amount of cost of tender document
The tender notice is public notice and is published in elating news paper, e-
portals.
Tender Document- Tender documents are meant to cap the tenders informed about the
general and specific condition applicable for tenders. Tender document consist.
▪ A letter of invitation to the tenders
▪ Specific tender form
▪ General instruction to the tender
▪ Details of work, blue print and charts
▪ Details of machinery/equipment to be supplied, is any
▪ Draft contract argument
▪ Name of Arbitration authority
▪ Amount of permanent money to be deposited
Prequalification of tenders- Prequalification of tenders is done in bigger and
complex projects. The objective of prequalification is to be ensure that only
competent tenders participate in the tender. The following information is gathered
from the competent.
▪ Financial capacity

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 ▪ Infrastructure available, Machinery, Equipment and Manpower
▪ Previous Experience
Earnest money deposit- (EMD)
It is the amount to be deposited by all the tenders when they submit their tender. The
EMD amount values from 1% to 3% of the tender value, Once the construct is finalized,
the EMO is return back to all the un successful tenders, the EMD of the successful
tenders is retained as a resource of caution so that he will not with draw his often.
Security deposits- Security deposits is the amount to be deposits by the successful tender
after the contract is finalized. Normally it is about 15% of the total value of the contract.
This amount is collected as safety measure so that the constriction fulfills all terms and
conditions of contract.
Lotion of intent (LOI)- This is a letter issued to the successful tender about his often
being accepted. LOI is not a legal document the two parties have to necessarily executive
the contract by singing the contract argument.
Contract
A contract is legal argument b/w two parties for the execution of certain works under
specific condition. The argument enforceable by law, It has two distant parts.
▪ A contract is an argument
▪ An argument most be enforce able by law
Essential features of a void contract-
▪ Lawful consideration b/w the parties to the construct.
▪ Object of the contract most be lawful
▪ The terms of the contract shall be capable of performance
▪ Contract shall full fill the necessary legal formalities
Contract
Turnkey contract Non turn key contract
Lump sum fixed price contact
Unit price contract
Bill of quality contract
Schedule of rates contact
Cost plus contract
K-2 Contract (Software based)
Hybrid contract (Time & material contract)
Item rate contracts (Govt, Contracts)

Turnkey contract-
In turnkey contract, the entire responsibility of project execution is entrusted to the
contractor.

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 ▪ The owner comes into picture only when the project is completed and he turns the
key of plant to start production.
▪ Since the entire works is done by a single contractor
▪ It may be for whole project or even for a sub unit of a main project.
Non turnkey contract- Non turnkey contract are performed when the projects are small
sized, It is also called as item sate contract in which the drawing is provided by the
company, The contractor will only basic based on the drawing given to him.
1. Lump sum contract (fixed price)- Under the lump sum contract, a single ‘lump
sum’ price for all the works is agreed before the works, It is generally used for
construction work.
2. Unit for prize contract- In unit price contract, construction work is done in which
is client or owner pays a fixed sum for each completed unit of work.
3. Hybrid contract- A hybrid contract is something mode by joining two or more
things together in under to form a separate and distinct contract.
4. Item rate contract- An item rate contract or unit price or schedule contract is a
type of contract which is undertaken on per price or item basis.
Depreciation
Depreciation is an accounting method to allocate the cost of tentative asset for a
particular period of useful life.
Type of depreciation- a) Physical depreciation
b) Function deprecation
c) Contingent deprecation (due to accident)
Difference b/w desperation and Obsolescence-
Depreciation Obsolescence
▪ Physical in nature ▪ Functional in nature
▪ Depend upon age ▪ Do not depend on age
▪ Depend upon physical condition ▪ Do not depend on physical
▪ Calculation method is used condition.
▪ No method to use for calculation
Depletion- A reduction of the values of on asset on a balance short that comes about as a
result of the physical reduction of the asset’s features Depletion reduces the value of the
oil field in away related to the amount of oil drilled up over a given period of time
Depletion is used most after with natural resources,
𝐴𝑛𝑛𝑢𝑙𝑎 𝑑𝑒𝑝𝑙𝑒𝑡𝑖𝑜𝑛
= (𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒)/(𝑁𝑜. 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑠𝑒)
× 𝑁𝑜𝑓 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑢𝑠𝑖𝑑 𝑖𝑛 𝑎 𝑦𝑒𝑎𝑟.
Depletion fund- When one source of natural resources is exhaust, company buy another
source for use, the found which is use is called depletion found.
Method of depletion calculation-
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Ci= Initial cost of asset
Cs= Salvage value of asset
n= life of asset in year.
Bm= Book value in the with year,
1. Straight line method- Depletion is calculated at a fixed value of every year, &
Depletion is fixed in every year
𝐷_1 = 𝐷_2 = 𝐷_3 = 𝐷_𝑚 = (𝐶_𝑖 − 𝐶_𝑠)/𝑛
𝐷_𝑚 = 𝐶_𝑖 − 𝑚((𝐶_𝑖 − 𝐶_𝑠)/𝑛)
Application – Purpose of taxes, civil construction civil appliances, civil application.
2. Declining balance method – Depletion is calculated at a prcenatge value of every
year.
1st Year – B1 = Ci(1 – FDB)
FDM= (FATOR OF DECLING BALANCE)
2nd Year – B2 = Ci (1 – FDB ) – Ci (1 – FDB) FDB
= Ci (1 – FDB)2
B3 = Ci (1-FDB)3
Bn = Cs
CS= Ci (1 –FDB)n
FDB = 𝟏 − (𝑪_𝑺/𝑪_𝒊 )^(𝟏/𝒏)
Application – Electronics industry.

3. Double declining balance method (DOB)-

Factor of DDB = 𝟐/𝒏
FDDB = 𝟐/𝒏 = 𝟏 − (𝑪_𝒔/𝑪_𝒊 )^(𝟏/𝒏)
Application – Electronics industry.

4. Sum of year digits method-

Dm = (Ci – Cs) [(𝑛 − (𝑚 − 1))/((𝑛 (𝑛 + 1))/2)]
Application – Electronics goods

5- Sinking fund method=

𝑫 = (𝑪_𝒊 − 𝑪_𝒔 )[𝝀/((𝟏𝟏𝟏)^(𝟏_𝟏 ) )
𝑫
= 𝑫[𝟏𝟏𝟏]^(−𝟏)
Application- large value long term assets.

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 7. Organizations
Social unit of people that is structured and managed to meet a need or to purpose
collective goals.
1. Functional organization- Functional organization is a type of organizational structure that
uses the principle of specialization based on function or role.
General Manager

Finance Production Marketing R & D manager

manager manager manager

2. Project zed organization- An organizational structure in which the project manager

has full authority to assign properties apply resources and direct the basic of persons
assigned to the project.
General Manager

Project manager Project manager Project manager

Staff Staff Staff
Staff Staff Staff

3. Matrix Organization - A matrix organizational structure is a company structure in

which the reporting relationship are set up as a grid matrix wither than in the traditional
hierarchy, In other words, employs have dual reporting relationship - general’s to both a
function manager and a products manager.
General manager

Manager Manager Manager Manager

finance R &D Production Personal

PM-1
Project relationship
PM-2
PM-3
Supervision
PM-4

PM - Project manager
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Strong matrix organization- The command of technology with project manager saw a
result his influence for the worker is more than the functional manger, hence the
manager is called program manager or project manager.`
Weak matrix Organization- functional mangers have commerce of technology &
influence of project manager is reducing. Considerately, it is called weak matrix
organization; here the manager is called co-ordination or foliature
Balanced matrix organization – The influence of project manager & functional
manager are balanced, here the project manager is called project manager or
project leader

PROJECT EVALUATION
Project evaluation is an assessment of the project during the course of implantation.
Objectives-
▪ To verify if the progress the progress of project implementation is as planned and
to take corrective measures if the project progress lager behind the schedule.
▪ To check the quality standards.
▪ To identify any unexpected problem areas and to plan for managing such
situations.
▪ To appraise the clines about the progress of project
▪ To bring about overall improvement in project performance.

Method of evaluation-
Post project evaluation (Post Audit)- Post Audit done after completion of Project.
1st Phase – After completion of project
2nd Phase – 2 to 3 years after completion of program objective of post project evaluation
is to insure find out the reasons for short coming, archive men of Project.
- To create a data for further education & research purpose.

3 type of post Audit

1. Technical – Consern with quality & quality of produce
2. Financial – Consern with internal rate of return
3. Economical – Consern with social well for by the

Updating- Redrafting & Re scheduling of project is called project updating. Updating

does not inc either addition of deletion of activities. For smaller project updating is
done frequently
- For larger project the frequencies of updating is in toward the end of project.

ABC Analysis- Based on use basis

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 VLAUE QUANTITY
AAA A 70 – 75 % 5 – 10%
BB B 10 – 15 % 10 – 15 %
C C 5 – 10 % 70 – 80 %

Enterprise resource planning (ERP): ERP is a process by which a company manager, integrate the
important parts of its business.

Maintenance
management Production
Material management
management
Enterprise Account &Financial
Lugestic Resource management
Management Planning
Share & Market
management

Human & resource

management

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