Lecture 

Slide Topic‐1‐PEFA

EM-512
Project Evaluation and
Feasibility Analysis (PEFA)
Resource Person
Dr. Syed Amir Iqbal. 
Professor,
Department of Industrial and Manufacturing Engineering,
NED University of Engineering and Technology.

Unit 1
Overview of
Project Evaluation
Resource Person
Dr. Syed Amir Iqbal. 
Professor,
Department of Industrial and Manufacturing Engineering,
NED University of Engineering and Technology.

Dr. Syed Amir Iqbal. 1
Lecture Slide Topic‐1‐PEFA

What is Project?

Pyramid of Giza Great Wall of China IBM 5150

 Projects are the common part of human evolution

 It is undertaken to create solution, machines, medicines
and even wonders
 Does anyone evaluated why projects are needed?
 It is important to understand, what is project??

Definition of Project
According to PMBOK;

“A project is a temporary endeavor undertaken to create

a unique product, services or result.”
 Temporary does not refers to short duration but means
definite beginning and end dates.
 E.g. Building a national monument – construction time is
limited but result expected to last for centuries.
 Unique means new product, service or result.
 E.g. Constructing buildings ‐ similar activities, materials,
teams but each building has new design, location, situation
and stake holder.

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Lecture Slide Topic‐1‐PEFA

Project Vs. Operations

Project Operations
New process or product Repeat process or product
One objective Several objectives
One shot – limited life On‐going
More heterogeneous People are homogeneous
Systems must be created Systems in place 
Performance, cost & time less  Performance, cost, & time 
certain known

Project Attributes
1. Unique objective (specifications)
2. Temporary (start and end dates)
3. Developed using progressive
elaboration (phase by phase)
4. Requires resources, often from
various areas (multi‐functional)
5. have a primary customer or
sponsor,
6. Involves uncertainty (Risk)

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Lecture Slide Topic‐1‐PEFA

Change in  Developing new 
New product or services New results
Organization compound/material

E.g. tracking watch E.g. Panama Leaks E.g. Implementing Lean E.g. Pharmacies

Developing or acquiring a  Research effort to record  Building plant,

new or modified MIS outcome infrastructure or plant

E.g. Implementing Cloud  E.g. data for  E.g. Burj dubai

computing, SAP composite material

Project Success
Project is successful, if fulfils

 The constraints of scope, time, 
cost, quality, resources, and risk 
as approved
 Successful soft launch and 
handover to customer
 Approved by the authorized 
stakeholders

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Lecture Slide Topic‐1‐PEFA

Life Cycle Relationships

Corporate Business Life Cycle
Policy  Needs  Project  Product in 
Realization Retirement
Planning Identification Conception Services

Product Life Cycle

Feasibility Acquisition Operations Retirement

Project Life Cycle

Initiation Development Implementation Delivery

Portfolio, Program and Project

Portfolio Program Project
It is defined as projects, A group of related projects A Project is a temporary
programs, subsidiary managed in a coordinated endeavor undertaken to
portfolios, and operations way to obtain benefits and create a unique, product,
Definition

managed as a group to control not available from service, or result.

achieve strategic managing them individually. It may be
objectives. It is centralized  stand‐alone project,
management of one or  within a program, or
more portfolios to achieve  within a portfolio
strategic
objectives
To maximize the return on   Transportation program  Specific highway project
investment ‐  Local railway project
infrastructure firm may   Wind power project
Examples

put together a portfolio   Power sector program  Hydro power projects

that includes a mix of   Nuclear plant projects
projects in oil & gas,   Coal and other mining
power, water, roads,  projects
railways etc.  Extraction Program

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Lecture Slide Topic‐1‐PEFA

Why to do Projects?
 Why apple invest in R&D to invent smart watch?
 Why consortium of journalist worked on Panama
Paper?
 Why organizations invest to acquire Lean, Six Sigma or
even ISO standards?
 Why ERP systems like SAP, Oracles Business Suite or
MS Dynamics are acquired by organizations?
 Why new materials are being invented?
 Why new building and wonders are being constructed?
 Why are you all pursing Master Degree?

Objectives to Drive to Change

 Project moves an
organization from one
state to another in order
to achieve a specific
objective.
 Projects enable business value creation Ref: PMBOK, 6th Edition

 In business analysis, business value is considered the return, in

the form of elements such as monitory assets, utility, tools, or
good‐will, strategic alignment in return for something exchanged
 For example, building, installing machine, implementing lean
etc.

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Lecture Slide Topic‐1‐PEFA

Examples
 In the financial industry, it can be used to create or modify financial
products that meet customer needs;
 In the health‐care industry, it can be used to minimize wait times from
entrance to first diagnosis;
 On construction projects, it can be used to define the requirements of a
new building for use as the basis for the scope of work;
 Governments use it to analyze situations and determine the best solutions
to improve issues such as poverty, economic crises, and environmental
issues;
 In manufacturing, it can be applied to optimize assembly‐line processes;
and
 On IT projects, it is performed to translate the business requirements into
stakeholder and system requirements to provide clear guidance to designers
and developers on what to build.

Project Initiation Context

Meet Regulatory, Legal, or Social Requirements

Legal Requirements Social need Environmental need

EU safety requirements Metro train in Dehli Water treatment plant at the 
in airplanes for transportation end of Liyari river

Create, Improve, or  Satisfy Stakeholder Implement or Change Business

Fix Products, Processes,  Requests or Needs or Technological Strategies
or Services

Customer need Technology Adv. Strategic/business need

Improve Product Siemens install grid station  New materials research  Engro investing in 
Fuel efficient cars / on request of K‐electric causing faster/cheaper CPUs coal power generation.
Electric cars

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Lecture Slide Topic‐1‐PEFA

Portfolio, Program and Project

 Program and project management focus on doing programs and projects the “right” way; 
 Portfolio management focuses on doing the “right” programs and projects

Ref: PMBOK, 6th Edition

Capital Investment/Expenditure

“Current or future outlay of funds in the expectation of 
a stream of benefits extending far into the future”

Actually make much 
higher revenue

Seems like asset depreciating

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Lecture Slide Topic‐1‐PEFA

Importance of Capital Investment

Long – term effects: future results are decided

 E.g. implementing SAP results in future productivity

Irreversibility: cannot be undo

 E.g. reversing SAP will bring in pen and paper era

Substantial outlays: Capital costs tend to increase 
with advanced technology. future operating cost 

 E.g. future upgradations

Importance of Capital Investment

Measurement: difficult to measure future revenues
 E.g. tangible and intangible outcomes

Uncertainty: difficult to predict events
 E.g. cost/benefit analysis, NPV, IRR based on assumptions

Temporal Spread: return of cost spread over long period
 E.g. 10‐20 years for industrial and 20‐50year 
infrastructure projects

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Lecture Slide Topic‐1‐PEFA

Types of Capital Investment

 Mandatory Investments
 Replacement investments
 Expansion investments
 Diversification investments
 R & D investments
 Miscellaneous investments

Phases of Capital Budgeting Process

Planning Chose projects, which worth for analysis/viability

Analysis Gathering, preparing and summarizing alternatives

Selection Appraisal criterion are applied/compared with cut‐off 

Financing Selected project is financed through equity and debt

Implementation Project life cycle

Review Performance of evaluation and feasibility is assessed

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Lecture Slide Topic‐1‐PEFA

Level of Decision Making

Operating Administrative Strategic

decisions decisions decisions

 Where is the decision taken Lower level Middle level Top level
management management management

 How structured is the decision Routine Semi-structured Unstructured

 What is the level of resource Minor resource Moderate Major

commitment commitment resource resource
commitment commitment

 What is the time horizon Short-term Medium-term Long-term

Facet of Project Analysis

Potential Market
Market Analysis
Market Share
Technical Viability
Technical Analysis
Sensible Choices
Risk
Financial Analysis
Return
Benefits and Costs in Shadow
Economic Analysis Prices
Other Impacts
Environmental Damage
Ecological Analysis
Restoration Measures

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Lecture Slide Topic‐1‐PEFA

P Generation of Ideas
r
e
l
Initial Screening
i
m
i
Is the Idea Prima Facie Promising
Feasibility Study

n Yes No
a
r Plan Feasibility Analysis
y Terminate

W
Conduct Market Analysis Conduct Technical Analysis
o
r
k
Conduct Financial Analysis
E
A
v
n
a Conduct Economic and Ecological Analysis
a
l
l
u
y Is the Project Worthwhile ?
a
s
i
t Yes No
i
s
o Prepare Funding Proposal Terminate
n

Key Issues in Major Investment

 Investment story: competitive advantage over competitor

 Risks: Risks associated with the project

 DCF Value: Discounted cash flow criterion, e.g. NPV, IRR

 Financing: 

 Impact on Short‐term EPS: earning per share

 Options: option for flexibility, delay, expand or abandon

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Lecture Slide Topic‐1‐PEFA

Common Weaknesses
 Poor alignment between strategy and capital 
budgeting
 Deficiencies in analytical techniques
 Poor identification of base case
 Inadequate treatment of risk
 Improper evaluation of options
 Lack of uniformity in assumptions
 Neglect of side effects

Common Weaknesses

 No linkage between compensation and financial 
measures

 Reverse financial engineering

 Weak integration between capital budgeting and 
expense budgeting

 Inadequate post ‐ audits

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Lecture Slide Topic‐1‐PEFA

References

 Project Planning, Analysis and Selection, Prasanna Chandra, 9th
ed, McGraw Hill.
 The PMI Guide to Business Analyst, PMI, USA
 Project Management Body of Knowledge, 6th ed, PMI, USA.
 Project Management: A Systems Approach to Planning, 
Scheduling, and Controlling, Harold Kerzner, 11th ed, Wiley & 
Sons.
 Project Management: Achieving Competitive Advantage, 3rd ed, 
Jeffery, K. Pinto, Prentice Hall. 

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