Project Appraisal and Finance

Notes for Module 1

Introduction and Overview
Module 1: Introduction and Overview (3 Hours)
Evolution of project finance – Project types - Need for Project finance - Drivers deciding
quantum of project finance, Facets of Project Analysis, Identifying Project Risks-
Construction risk, operational risk, supply risk, off-take risk, repayment risk, political risk,
currency risk; Project Rating Index

Learning outcome: Able to understand the basics of Project finance and associated risks

Core concepts
• Project
• Types of Projects
• Project characteristics
• Project finance
• Differences between Corporate finance and Project finance
• Evolution of Project finance
• Project risks
• Project rating index
• Facets of Project analysis
• Drivers of project finance/Factors affecting the quantum of Project finance

Assessment
• Questions
• Quiz
• Case 1 – Who is the project manager?
• Submission on Market, technical and environmental analysis-Assessment 1
1.1. Definition of project
A Project is a one-shot, time limited, goal directed, major undertaking, requiring the
commitment of varied skills and resources. It has also been described as a combination of
human and non-human resources pooled together in a temporary organization to achieve a
specific purpose. The purpose and the set of activities which can achieve that purpose
distinguish one project form another. -Project Management Institute, U.S,A

“A specific activity with a specific starting point and a specific ending point intended to
accomplish a specific objective. It is something you draw a boundary around at least a
conceptual boundary and say this is the Project”. -J. Price Gettinger.

1.2. Types of projects

Much of what the project will comprise and consequently its management will depend on the
category it belongs to. The location, type, technology, size, scope and speed are normally the
factors which determine the effort needed in executing a project. Though the characteristics of
all projects are the same, they cannot be treated alike. Recognition of this distinction is
important for management. Classification of project helps in graphically expressing and
highlighting the essential features of the project. Projects are often categorized in terms of their
speed of implementation as follows:

Normal Projects

Adequate time is allowed for implementation.

All the phases in a project are allowed to take their normal time.
Minimum requirement of capital.
No sacrifice in terms of quality.
Example-A hospital construction
Crash Projects

Requires additional costs to gain time.

Maximum overlapping of phases is encouraged.
Example-A Railway bridge repair and reconstruction

Disaster Projects
 Anything needed to gain time is allowed in these projects.
Around the clock work is done at the construction site.
Capital cost will go will go up very high.
Project time will get drastically reduced.
Example-A COVID 19 hospital construction

Besides that, projects in general are classified on several basis as given in the following
illustrative list by the United Nations Asian and Pacific Development Institute.

Types of Projects can be represented in the diagram below.

TYPES OF
PROJECTS

National International

Non - industrial Industrial

Non
Conventional
conventional R High technology Low technology
technology
&D

Mega Major Medium Mini

Grass Expansion Diversification New project Replacement

Modification

Normal Crash Disaster

Figure 1: Classification of Projects

1.3. Another classification of projects
The project can be classified on several basis. Major classification of the projects are given
below:

1. On the basis of Expansion:

• Project expanding the capacity

• Project expanding the supply of knowledge.

2. On the basis of Magnitude of the resources to be invested:

• Giant projects affecting total economy

• Big projects affecting at one sector of the economy
• Medium size projects
• Small size projects (depending on size, investment & impact)

3. On the basis of Sector:

• Industrial project
• Agricultural project
• Educational project
• Health project
• Social project

4. On the basis of objective:

• Social objective project

• Economic objective project

5. On the basis of nature of benefits:

• Quantifiable project
• Non-quantifiable project

6. On the basis of government priorities:

• Project without specific priorities

• Project with specific priorities

7. On the basis of dependency

• Independent project
 • Dependent project

8. On the basis of ownership

• Public sector project

• Private sector project
• Joint sector project

9. On the basis of location

• Project with determined location

• Project with future impact

10. On the basis of social time value of the project

• Project with present impact

• Project with future impact

11. On the basis of risk involved in the project

• High risks project

• Normal risks project
• Low risks project

12. On the basis of economic life of the project

• Long term project

• Medium term project
• Short tern project

13. On the basis of technology involved in the project

• High sophisticated technology project

• Advance technology project
• Foreign technology project
• Indigenous technology project

14. On the basis of resources required by the projects

• Project with domestic resources

• Project with foreign resources

15. On the basis of employment opportunities available in the project

 • Capital intensive project
• Labour intensive project

16. On the basis of management of project

• High degree of decision-making

• Normal degree of decision-making
• Low degree of decision-making

17. On the basis of sources of finance

• Project with domestic financing

• Project with foreign financing
• Project with mixed financing

18. On the basis of legal entity

• Project with their own legal entity

• Project without their own legal entity

19. On the basis of role played by the project

• Pilot project
• Demonstration project

20. On the basis of speed required for execution of the project

• Normal project
• Crash project
• Disaster project

1.4. Characteristics of project

(1) Objectives: A project has a set of objectives or a mission. Once the objectives are achieved
the project is treated as completed.

(2) Life cycle: A project has a life cycle. The life cycle consists of five stages i.e. conception
stage, definition stage, planning & organising stage, implementation stage and commissioning
stage.
 (3) Uniqueness: Every project is unique and no two projects are similar. Setting up a cement
plant and construction of a highway are two different projects having unique features.

(4) Team Work: Project is a team work and it normally consists of diverse areas. There will be
personnel specialized in their respective areas and co-ordination among the diverse areas calls
for team work.

(5) Complexity: A project is a complex set of activities relating to diverse areas.

(6) Risk and uncertainty: Risk and uncertainty go hand in hand with project. A risk-free project
only means that the element is not apparently visible on the surface and it will be hidden
underneath.

(7) Customer specific nature: A project is always customer specific. It is the customer who
decides upon the product to be produced or services to be offered and hence it is the
responsibility of any organization to go for projects/services that are suited to customer needs.

(8) Change: Changes occur throughout the life span of a project as a natural outcome of many
environmental factors. The changes may vary from minor changes, which may have very little
impact on the project, to major changes which may have a big impact or even may change the
very nature of the project.

(9) Optimality: A project is always aimed at optimum utilization of resources for the overall
development of the economy.

(10) Sub-contracting: A high level of work in a project is done through contractors. The more
the complexity of the project, the more will be the extent of contracting.

(11) Unity in diversity: A project is a complex set of thousands of varieties. The varieties are
in terms of technology, equipment and materials, machinery and people, work, culture and
others.

1.5. Project finance

Project finance is a means of funding projects that are typically infrastructure heavy, capital-
intensive or related to public utilities. During its lifetime, these projects are treated as distinct
entities from its parent. A project finance venture undertaken is completely an off-balance
sheet item for the parent. Therefore, all financing this entity avails, must be repaid exclusively
out of its own cash flow and subject to its own assets. The assets of the parent cannot encroach
for payback of its subordinate’s liabilities even if the venture fails.

It is the structured financing of a specific economic entity—the SPV, or special-purpose

vehicle, also known as the project company—created by sponsors using equity or mezzanine
debt and for which the lender considers cash flows as being the primary source of loan
reimbursement, whereas assets represent only collateral. Project finance is used extensively in
the following sectors.

• Oil and gas

• Mining
• Electricity Generation
• Water
• Telecommunications
• Road and highways
• Railways and Metro systems
• Public services
Building type projects may include the following:

• Offices
• Schools (classrooms)
• Banks
• Research and laboratory facilities
• Medical facilities
• Stores and shopping centers
• Institutional buildings
• Apartments
• Dormitories
• Parking structures
• Hotels and motels
• Light assembly and manufacturing
• Warehouses
• Airport terminals
• Recreational and athletic facilities
• Public assembly and performance halls
• Industrial control buildings
The parties involved and transaction flow in project finance are depicted in the diagram
below:

SPONSORS

Sponsors are usually the equity share capital holders of the parent company who wish to seek
project finance.

BANKS/FINANCIAL INSTITUTIONS

It may be a single lender or a consortium of financial institutions. They are the providers of
senior debt and hold precedence over debt extended (if any) by the sponsors. The loan is
secured strictly against the cash flows and assets of the SPV only. Therefore, sufficient due
diligence is performed before the grant of any credit.

SPECIAL PURPOSE VEHICLE (SPV)

It is a separate legal entity floated by the sponsors of the project. The project finance obtained
is directed exclusively only towards this SPV. The SPV acts as a corporate veil between the
lenders and the parent company preventing seepage of credit and attachment of property
between the two parties.

HOST GOVERNMENT
Refers to the government of the home country where the SPV is located. The SPV must be
incorporated in accordance with the government’s rules and regulations. It also often acts as a
guardian angel in providing various tax concessions, subsidies, and rebates.

OFF TAKERS

Off-takers are bound via an off-take agreement to mandatorily purchase a certain minimum
quantity of produce from the selling party. An off-take agreement is a frequently resorted to in
mining, construction and other industries of mass significance. The vendor (SPV) incurs a huge
amount of capital expenditure. An off-take agreement ensures the seller of the existence of a
market upon completion.

SUPPLIERS & CONTRACTORS

As in any construction job, suppliers and contractors are necessary for the execution of a
contract. They are the key suppliers of raw material. They also perform crucial functions such
as design and build (D&B), operations and maintenance (O&M), etc

Features of a project finance deal

The following five points are, in essence, the distinctive features of a project finance deal.

1. The debtor is a project company set up on an ad hoc basis that is financially and legally
independent from the sponsors.

2. Lenders have only limited recourse (or in some cases no recourse at all) to the sponsors after
the project is completed. The sponsors’ involvement in the deal is, in fact, limited in terms of
time (generally during the setup to start-up period), amount (they can be called on for equity
injections if certain economic-financial tests prove unsatisfactory), and quality (managing the
system efficiently and ensuring certain performance levels). This means that risks associated
with the deal must be assessed in a different way than risks concerning companies already in
operation.

3. Project risks are allocated equitably between all parties involved in the transaction, with the
objective of assigning risks to the contractual counterparties best able to control and manage
them.
 4. Cash flows generated by the SPV must be sufficient to cover payments for operating costs
and to service the debt in terms of capital repayment and interest. Because the priority use of
cash flow is to fund operating costs and to service the debt, only residual funds after the latter
are covered can be used to pay dividends to sponsors.

5. Collateral is given by the sponsors to lenders as security for receipts and assets tied up in
managing the project.

1.6. Differences between Corporate finance and Project finance:

Table 1: Differences between Corporate finance and Project finance

1.7. Evolution of Project finance
It’s been said that project finance is a technique that was already common during the Roman
Empire. It was used to finance imports and exports of goods moving to and from Roman
colonies. Nonetheless, modern project finance dates back to the development of railroads in
America from 1840 to 1870. In the 1930s, the technique was used to finance oil Weld
exploration and later well drilling in Texas and Oklahoma.

Funding was provided on the basis of the ability of producers to repay principal and interest
through revenues from the sale of crude oil, often with long-term supply contracts serving as
counter guarantees.

In the 1970s, project finance spread to Europe as well, again in the petroleum sector. It became
the financing method used for extracting crude on the English coast. Moreover, in the same
decade, power production regulations were passed in the United States (PURPA—the Public
Utility Regulatory Policy Act of 1978). In doing so, Congress promoted energy production
from alternative sources and required utilities to buy all electric output from qualified producers
(IPPs, or independent power producers). From that point on, project finance began to see even

wider application in the construction of power plants for traditional as well as alternative or
renewable sources.

From a historical perspective, then, project finance came into use in well-defined sectors having
two particular characteristics:

1. A captive market, created by means of long-term contracts at pre-set prices signed by big,
financially solid buyers (off takers)

2. A low level of technological risk in plant construction

1.8. Project Risks

Risks inherent to a project finance venture are specific to the initiative in question; therefore,
there can be no exhaustive, generalized description of such risks. This is why it is preferable to
work with broader risk categories, which are common to various initiatives.
 Project life cycle

Precompletion phase risk Postcompletion phase risks Risk common to both

Activity planning Supply risk interest rate risk

Technology Operational risk exchange risk

Construction Market risk inflation risk

Environment risk

Regulatory risk

Legal risk

Credit/ counterparty risk

Figure 2: Risks associated with Projects

A project goes through at least two phases in its economic life:

1. The construction, or pre-completion, phase

2. The operational, or post-completion, phase

The risks to allocate and to cover are: Pre-completion phase risks, Post-completion phase risks,
and risks common to both phases

Pre-completion Phase Risks

The phase leading up to the start of operations involves building the project facilities. This
stage is characterized by a concentration of industrial risks, for the most part. These risks should
be very carefully assessed because they emerge at the outset of the project, before the initiative
actually begins to generate positive cash flows.

• Activity planning risk- This involves delineating the timing and resources for various
activities that are linked in a process that leads to a certain result within a pre-set time frame.
The logical links among various activities are vital in order to arrive at the construction deadline
with a plant that is actually capable of functioning. Delays in completing one activity can have
major repercussions on subsequent activities. Additional effects of bad planning are possible
repercussions on the SPV’s other key contracts. For example, a delay in the completion of a
facility could result in penalties to be paid to the product purchaser. As a worst-case scenario,
the contract might even be cancelled.
• Technological Risk- the risk arises when a specific license, valid in theory, proves
inapplicable in a working plant. Examples of technological risk arise in projects involving
innovative technologies that have not been adequately consolidated in the past.

• Construction Risk or Completion Risk- occurs when the project may not be completed
or that construction might be delayed. Some examples of construction risk pertain to:

Non-completion or delayed completion due to force majeure (unforeseeable circumstances that

prevent someone from fulfilling a contract), Completion with cost overruns, delayed
completion, or completion with performance deficiency.

Post-completion Phase Risks

The major risks in the post-completion phase involve the supply of input, the performance of
the plant as compared to project standards, and the sale of the product or service.

• Supply risk arises when the SPV is not able to obtain the needed production input for
operations or when input is supplied in suboptimal quantity or quality as that needed for the
efficient utilization of the structure.

• The operating risk (or performance risk) arises when the plant functions but
technically underperforms in post-completion testing.

• Demand risk (or market risk) is the risk that revenue generated by the SPV is less than
anticipated. This negative differential may be a result of overly optimistic projections in terms
of quantity of output sold, sales price, or a combination of the two.

Risks Found in Pre-Completion and Post-completion Phases

Many risks common to both phases pertain to key macroeconomic and financial variables
(inflation, exchange rate, interest rate); consequently, any division between the categories of
industrial and financial risk is actually somewhat arbitrary.

Interest Rate Risk: This cost item represents a significant percentage of total costs; in fact,
the more intense the recourse to borrowed capital, the greater the weight of the interest
component.

Exchange Rate Risk: Essentially this risk emerges when some financial flows from the project
are stated in a different currency than that of the SPV. This often occurs in international projects
where costs and revenues are computed in different currencies. When possible, the best risk
coverage strategy is currency matching.

The following coverage instruments provided by financial intermediaries may be used:

• Forward agreements for buying or selling (In a forward contract, the buyer
and seller agree to buy or sell an underlying asset at a price they both agree on at an
established future date. This price is called the forward price.)
• Futures on exchange rates (Currency futures are futures contracts for currencies that
specify the price of exchanging one currency for another at a future date.
The rate for currency futures contracts is derived from spot rates of
the currency pair. Currency futures are used to hedge the risk of receiving payments
in a foreign currency)
• Options on exchange rates (a foreign exchange option (commonly shortened to
just FX option or currency option) is a derivative financial instrument that gives the
right but not the obligation to exchange money denominated in one currency into
another currency at a pre-agreed exchange rate on a specified date.)
• Currency swaps (A currency swap is a transaction in which two parties exchange an
equivalent amount of money with each other but in different currencies. ... The purpose
could be to hedge exposure to exchange-rate risk, to speculate on the direction of
a currency, or to reduce the cost of borrowing in a foreign currency.)

Inflation Risk: Inflation risk arises when the cost dynamic is subject to a sudden acceleration
that cannot be transferred to a corresponding increase in revenues.

Environmental Risk: This risk has to do with any potential negative impact the building
project could have on the surrounding environment. Such risk can be caused by a variety of
factors, some of which are also linked to political risk. Examples are: Building or operating the
plant can damage the surrounding environment, create noise pollution, etc., Change in law can
result in building variants and an increase in investment costs.

Regulatory Risk: There are various facets to regulatory risk; the most common are the
following.

• The permits needed to start the project are delayed or cancelled.

• The basic concessions for the project are unexpectedly renegotiated.
• The core concession for the project is revoked.
 Political Risk and Country Risk: Political risk takes various forms, for instance, a lack of
government stability, which for some projects may be critical. E.g. , Trade with China

Legal Risk: Legal risk centres primarily on the project’s lenders, whose lawyers analyze and
manage this risk (see Section 4.1). Their job is to ascertain whether the commercial law of the
host country offers contract enforceability should problems emerge during the construction or
post-completion phases.

Credit Risk or Counterparty Risk: This risk relates to the parties who enter into contracts
with the SPV for various intents and purposes. The creditworthiness of the contractor, the
product buyer, the input supplier, and the plant operator is carefully assessed by lenders through
an exhaustive due diligence process.

1.9. Project rating index

The Project Definition Rating Index (PDRI) is a methodology used by capital projects to
measure the degree of scope definition, identify gaps, and take appropriate actions to reduce
risk during front end planning. PDRI is used at multiple stages in the front-end planning
process. As a project progresses, identified gaps will continue to be addressed until a sufficient
level of definition (measured using the PDRI score) is achieved for the project to successfully
proceed to detailed design and construction.

The PDRI offers a comprehensive checklist of 64 scope definition elements in an easy-to-use

score sheet format. Each element is weighted based on its relative importance to the other
elements. The PDRI identifies and precisely describes each critical element in a scope
definition package and allows a project team to quickly predict factors impacting project risk.
It is intended to evaluate the completeness of scope definition at any point prior to the time a
project is considered for development of construction documents and construction.

Benefits of Project definition rating index

The PDRI is quick and easy to use. It is a “best practice” tool that will provide numerous
benefits to the building industry. A few of these include:

1. A checklist that a project team can use for determining the necessary steps to follow in
defining the project scope
2. A listing of standardized scope definition terminology throughout the building industry
 3. An industry standard for rating the completeness of the project scope definition package to
facilitate risk assessment and prediction of escalation, potential for disputes, etc.
4. A means to monitor progress at various stages during the front-end planning effort
5. A tool that aids in communication and promotes alignment between owners and design
contractors by highlighting poorly defined areas in a scope definition package
6. A means for project team participants to reconcile differences using a common basis for
project evaluation
7. A training tool for organizations and individuals throughout the industry

1.10. Facets of project analysis

(Power point slides of chapter 4 from Projects-Prasanna Chandra)

The important facets of project analysis are:

• Market analysis
• Technical analysis
• Financial analysis
• Economic analysis
• Ecological analysis

Market Analysis: Market analysis is concerned primarily with two questions: ■ What would
be the aggregate demand for the proposed product/service in the future? ■ What would be the
market share of the project under appraisal?

Technical Analysis: Analysis of the technical and engineering aspects of a project needs to be
done continually when a project is formulated. Technical analysis seeks to determine whether
the prerequisites for the successful commissioning of the project have been considered and
reasonably good choices have been made with respect to location, size, process, etc.

Financial Analysis: Financial analysis seeks to ascertain whether the proposed project will be
financially viable in the sense of being able to meet the burden of servicing debt and whether
the proposed project will satisfy the return expectations of those who provide the capital.

Economic Analysis: Economic analysis, also referred to as social cost benefit analysis, is
concerned with judging a project from the larger social point of view. In such an evaluation the
focus is on the social costs and benefits of a project which may often be different from its
monetary costs and benefits.
Ecological Analysis: In recent years, environmental concerns have assumed a great deal of
significance — and rightly so. Ecological analysis should be done particularly for major
projects which have significant ecological implications (like power plants and irrigation
schemes) and environment-polluting industries (like bulk drugs, chemicals, and leather
processing).

The feasibility of a project can be understood by the diagram given below:

Figure 3: Feasibility process

Assessment 1

Why this assessment Assessment Description of the Assessment

component assessment marks
number
To assign the semester Activity 1 Project initiation 0
long group project to
students
 To be able to look into Activity 2 Project implementation 5
abstract future and prepare schedule (Group activity -
a schedule Online Plus Hard copy
submission)
To absorb cues from the Activity 4 Market and Demand 5
ecosystem on Analysis (Group Activity-
macroeconomic aspects of Online plus Hard copy
Project finance submission)
To absorb cues from the Activity 5 Technical, Social and 5
ecosystem on environmental analysis
macroeconomic aspects (Group Activity-Online
of Project finance plus hard copy submission)
Timeline for submission: before 10th session

Case study1-Who is the Project Manager?

Purpose: Assign roles to students for their chosen projects

Who is the Project Manager?

Assigning Project Management Responsibility for Success
A project manager’s prime task is managing a project to success. The products of the project
need to be picked up by the line organisation, and if this involves change in the organisation
or ways of working, the changes must be made to ‘stick’. By ensuring that the responsibilities
for project management and business change are well assigned in a project there is an
increased chance of success.
The Dilemma
In all projects assigning the correct project manager is crucial. The choice is often not simple.
I have experienced this in the form of a dilemma: do we appoint someone who is an
experienced project manager or someone who will champion the change? Very often the
experienced project manager will come from a technical background, e.g. IT, and will not
have authority to make changes in the organisation or processes. On the other hand the
change champion will have credibility with the business unit, but often not have the project
skills required. If you can always find all of this in one person, then good luck to you; you
don’t need the rest of this article!
When is This a Problem?
There can be a problem in a project that is not part of a programme. Let’s look at the
differences between programmes and projects. I’ll use MSP™ (Managing Successful
Programmes of the OGC) to illustrate. MSP clearly differentiates between projects – that
deliver outputs - and programmes - that deliver outcomes. The main difference is that a
project that is not part of a programme delivers the output to the line organisation; the line
management is subsequently responsible for achieving the benefits (outcomes). A
programme, on the other hand, is also responsible for the benefits realisation of the projects
within the programme.
I have noticed, in our organisation at least, that projects are expected to deliver the change
in the organisation, so the outcome is not achieved if the project only delivers the output.
How Does it go Wrong?
To ensure a good mix of business change and project management, for IT projects, we have
in the past staffed projects with a project manager from the customer, a “business PM” or
BPM, and an experienced project manager from IT, the “IT PM”, reporting to them. This
can work well, depending on the individuals and how well they cooperate and complement
each other. But if the BPM doesn’t have the required project management capabilities
there can be a conflict of authority: the BPM is in charge - the “boss” - but the IT PM needs
to tell them what to do and how to do it. Hoping that the BPM and IT PM will complement
each other and work well together is not enough, we have seen this go bad a large number
of times. Roles and responsibilities, especially for the project management tasks, is the
foundation of a project and if that goes wrong it is very difficult to correct. So, it’s best to
get it right at the start. Having more than one person in a project with a role of “project
manager” is confusing. There should only be one. This can be resolved by only giving the
overall project manager this role and the IT PM is called an “IT work stream lead” or “IT
team lead”. Some IT project managers have great difficulty accepting this; after all it says
“Project Manager” on their business card, and they expect that to appear as their role in every
project as well. Of course, a project role and a job title are completely different things, but
we have found that this “role inflation” has crept into the way people see project roles. My
goal was to ensure that when a project was setup, it had a good foundation to be successful.
Of course, the project team members still need to work together well to be successful, but
giving the team a good foundation allows them to focus on delivering together, instead of
trying to work out who they should listen to. I started looking for a solution to this dilemma.
What did I Find?
My analysis led me to the conclusion that we needed a capable and experienced project
manager to be responsible for the project management, and someone with the right authority
and “organisational credit” to be responsible for the change in the business. As the
experienced project managers available for our IT projects are nearly always from IT they
do not have the authority or credit in the customer’s organisation. And the main customer
contacts, the potential candidates for the BPM role, often don’t have the project management
capabilities. Looking at how MSP describes the programme structure, the key players are the
SRO (Senior Responsible Owner), the Programme Manager and the BCM (Business Change
Manager). The key here is that the BCM does not report to the Programme Manager or vice
versa; and that the Programme Manager is responsible for the day-to-day management of the
programme while the BCM is responsible for delivering change and benefits. Why couldn’t
this work in a project as well? With a team of project managers, I worked through the roles
and responsibilities in a typical project, with the aim of making this work. The project
managers were motivated in this too, as they had experienced the problem first hand! The
result was a proposed project structure as shown in figure 1.

To explain to the Steering Group, other stakeholders, the project manager and BCM how
the responsibilities are split over the project manager and BCM, we have also developed a
RACI matrix and a standard role description. These are then discussed by the project
manager and BCM, and if necessary, the sponsor, at the start of the project. They are then
tailored for the specific project, but have proven to be an 80-90% fit at the start.
Does This Work?
We have now started a number of projects this way, and the project manager finds that it
gives clarity on the main roles at the start of the project. Also, there is little chance that the
BCM will try and run the project, normally they have their hands full with the business
change anyway! So, the BCM is happy to know that there is someone else responsible for
the day-to-day running of the project. A number of projects that started with this structure
have completed, and the feedback from the customers has been good. On review the project
managers feel that this approach works well, and also gives enough room for tailoring to the
needs of the individual project.
In Summary
This problem only occurs in projects that are not part of a programme, but in my team, we
have a large number of these. Having a project manager and a BCM, with clear
responsibilities and the capabilities to match, greatly increases the chance of success in the
project team. I am aware that this is probably not the only way to solve this dilemma, and
would like to hear from people who have other ideas and experiences, even if they are
contradictory to mine!
Question:
Analyse the case and discuss the case facts.
Source: http://www.projectsmart.co.uk/who-is-the-project-manager.html (Taken from the
study material of LPU)

Key facts of the case and feasible solution:

Chapter related Questions

1. Explain about Market and Demand Analysis.
 2. Explain the significance of project approach for the economic development of the
country.
3. Give an outline about the project opportunities available in different sectors of the
economy
4. Discuss about Project Rating Index.
5. Discuss about the benefits of PDRI.
6. Why should we use PDRI?
1. Discuss about Situational Analysis.
7. Describe about “Conduct of Market Survey”.
8. Discuss about Demand and Forecasting.
9. Discuss about Technical Analysis.
10. What is Environment Impact Assessment?
11. Discuss about Inventory Management.
12. Explain about Forecasting Techniques.

Student Group –Simulating the real world

Student groups are created to simulate the real-world scenario and decision-making process.
Each group will have 7 students, each representing a role of stakeholder that is being
involved/part of a scenario that is simulated for driving the concepts and identified topics. The
group is allotted a project and asked to prepare an appraisal report and present the same. This
shall make the learning real and effective.

The following table describes the roles.

Student No Student Role Role profile and responsibilities
The project head shall be responsible for overall
success of the project plan preparation. It shall
Student 1 Project head
include coordinating with other team members on all
the aspects of project appraisal
The financial analyst shall make all the calculations
Student 2 Financial analyst from the inputs provided by the team members and
prepare budgets and cash flow projections.
 Depending upon the type of the project, the legal
implications of starting and running the same have to
Student 3 Legal expert
be evaluated by the legal expert. This should be a part
of the project appraisal
This person will be responsible to look into the
Student 4 Technological expert technical requirements and feasibility of the chosen
project
The market analyst shall be responsible to forecast
Student 5 Market analyst the demand for the product/service, the market
conditions, etc.,
The economic analyst has to give a report on the
macro-economic aspects of the project, and also the
Student 6 Economic analyst micro-economic feasibility, including decisions on
being labour intensive/capital intensive, production
levels, etc.,
The environmental analyst shall be responsible for
evaluating the environmental implications of the
Student 7 Environmental analyst
project and deciding on the environmental clearances
to be got.