Chapter Five

Project management

By: Gebrewold T.(M.Sc.) 1-1

Introduction
 Many organizations today have a new or renewed
interest in project management

 The U.S. spends $2.3 trillion on projects every year, or

one-quarter of its gross domestic product

 The world as a whole spends nearly $10 trillion of its

40.7% gross product on projects of all kinds

 This is the landmark of project management

By: Gebrewold T.(M.Sc.) 1-2

 Introduction-Definition

 “A Project is a non-routine, non-repetitive complex

economic activity that requires investments or
commitments of scarce resources to provide
facilities, goods, services, etc. whose benefits would
exceed the committed investments or resources.”

By: Gebrewold T.(M.Sc.) 1-3

 Introduction-Elements of a project
• Non-routine/ non-repetitive
• One time operational activity
• Requires investment (allocation of scarce resources)
• It has a sense of uniqueness
• Requires a unique organization (as opposed to
functional/institutional organization)

By: Gebrewold T.(M.Sc.) 1-4

 Introduction-Cont’d
 A project is a set of activities that are related to one
another; and all the activities must be completed in
order to complete the project.
 Material resources and manpower resources are the
two basic things required for the completion of a
project.
 Thus a management is a specialized
project
management technique to plan and control the available
resources under a strong single point of responsibility
for the successful completion of the project.
By: Gebrewold T.(M.Sc.) 1-5
 Types of Projects
1) Duration
– Long duration e.g HE power
– Short duration e.g annual crop yield
2) Goal
- goods production
- Service production - transport
- Knowledge generating - research station
- Information generating - mineral exploration
or other surveys
By: Gebrewold T.(M.Sc.) 1-6
 Types of Projects-cont’d
3) Resource differentiated
- capital intensive
- Labour intensive
- Energy intensive, etc.
4) Functional 5) Catering to
- agricultural – regional market
- Industrial – national market
- Transportation – international market

By: Gebrewold T.(M.Sc.) 1-7

 Sources of Project Ideas
Macro-level Sources
1) National, regional, sectoral plan
e.g. reduce disparity of regional dev’t.
 the need is the source of project idea
Decision by macro-planners to reduce regional dev’t imbalances.
2) Constrains in the dev’t effort
e.g. lack of infrastructure, health centers, roads, ports, power,
financial institutions.
3) Self-sufficiency objective in critical resources
e.g. in supply of food, finding of oil/petroleum.
4) Events such as drought, flood Natural calamities/disasters.

By: Gebrewold T.(M.Sc.) 1-8

 Micro-level Sources of Project Ideas
1) Identification of unsatisfied demand
 Can be of macro-level magnitude
e.g. Cement
2) Existence of unused/underutilized natural or human
resources.
3) Response to gov’t incentives
e.g. Charge in mortgage interest rate triggers construction of
houses  demand for construction materials.
4) Local group initiative for economic independence.
e.g. Source of drinking water, feeder road,
power supply.
By: Gebrewold T.(M.Sc.) 1-9
 There are different types of
projects

By: Gebrewold T.(M.Sc.) 1 - 10

 Construction project

By: Gebrewold T.(M.Sc.) 1 - 11

By: Gebrewold T.(M.Sc.) 1 - 12
By: Gebrewold T.(M.Sc.) 1 - 13
By: Gebrewold T.(M.Sc.) 1 - 14
By: Gebrewold T.(M.Sc.) 1 - 15
 Manufacturing project

By: Gebrewold T.(M.Sc.) 1 - 16

 Agricultural project

By: Gebrewold T.(M.Sc.) 1 - 17

 Introduction-Cont’d
 A project is generally deemed successful if it meets
predetermined targets set by the client, performs
the job it was intended to do, or solves an identified
problem within predetermined time, cost, and quality
constraints.
 To meet these targets the project manager uses
project management systems to effectively plan and
control the project.

By: Gebrewold T.(M.Sc.) 1 - 18

 Project management
 Managing projects is a matter of keeping scope,
schedule, and resources in balance.
 Generally project management means planning,
organizing, and tracking a project’s tasks to accomplish
the project objectives.
 Scope is the range of tasks required to accomplish
project goals.
 A schedule indicates the time and sequence of each
task, as well as the total project duration.
 Resources are the people and/or equipment that
perform
By: Gebrewold T.(M.Sc.) or facilitate project tasks. 1 - 19
Project Management-Why Need Project Management?

 Complex project needs coordination of:

• Multiple people
• Multiple resources (labs, equipment, etc.)
• Multiple tasks – some must precede others
• Multiple decision points – approvals
• Phased expenditure of funds
• Matching of people/resources to tasks

By: Gebrewold T.(M.Sc.) 1 - 20

 Project Management-Project Stakeholders
 Stakeholders are the people involved in or affected
by project activities
 Stakeholders include:
• The project sponsor • Customers
• The project manager • Users
• The project team • Suppliers
• Support staff • And yes - opponents to
the project!
By: Gebrewold T.(M.Sc.) 1 - 21
 Project Management-Framework

By: Gebrewold T.(M.Sc.) 1 - 22

 Skill Requirements for Effective Project
Management
 Conflict Resolution

 Creativity and Flexibility

 Ability to Adjust to Change

 Good Planning

 Negotiation

By: Gebrewold T.(M.Sc.) 1 - 23

Ten Most Important Skills and Competencies for
Project Managers
1. People skills 6. Verbal communication
2. Leadership 7. Strong at building teams
3. Listening 8. Conflict resolution,
4. Integrity, ethical conflict management
behavior, consistent 9. Critical thinking, problem
5. Strong at building solving
trust 10. Understands, balances
priorities

By: Gebrewold T.(M.Sc.) 1 - 24

 The Triple Constraint
of Project Management –Goals

Successful project
management means
meeting all three goals
(scope, time, and cost) –
and satisfying the
project’s sponsor!

However, quality is the

quadruple constraint

By: Gebrewold T.(M.Sc.) 1 - 25

 Project Management-Project Cycle
 It is convenient to think or project the work as
taking place in several distinct stages. This chain of
stages is commonly referred to as the "project
cycle".
 The term denotes that the stages are closely linked
to one another and follow a logical progression, with
the later stages helping to provide the basis for
renewal of the cycle throughout subsequent project
work.
By: Gebrewold T.(M.Sc.) 1 - 26
 The World Bank model Project life cycle
Identification

Preparation
Evaluation

Implementation Appraisal/
financing

By: Gebrewold T.(M.Sc.) 1 - 27

 Identification
 The first phase of the cycle is concerned with
identifying project ideas that appear to represent a
high priority use of the country’s resources to
achieve an important development objective.
 Such project ideas should assure that technical and
institutional solutions at costs commensurate with
the expected benefits-will be found and suitable
policies adopted.

By: Gebrewold T.(M.Sc.) 1 - 28

 Preparation
 Once a project idea has passed the identification
“test“ it must be advanced to the point at which a
firm decision can be made whether to or not to
proceed with it.
 This requires a progressive refinement of the design
of the project in all its dimensions technical,
economical, financial, social, institutional and so on.

By: Gebrewold T.(M.Sc.) 1 - 29

 Appraisal
 Before approving a loan external agencies normally
require a formal process of appraisal to assess the
overall soundness of the project and its readiness
for implementation for an internally generated and
financed investment.
 An explicit appraisal is necessary or at least a
desirable, part of the decision making process
before funds are committed.
By: Gebrewold T.(M.Sc.) 1 - 30
 Implementation
 The implementation stage covers the actual
development or Construction of the project, up on
the point at which it becomes fully operational.

 It includes monitoring of all aspects of the work or

activity as it proceeds and supervision by “over
sight” agencies within the country or by external
lenders.
By: Gebrewold T.(M.Sc.) 1 - 31
 Evaluation

 The post evaluation of a completed projects

to determine whether the objectives have
been achieved as planned or not; and to draw
lessons from experience with the project
that can be applied to similar project in the
future.
By: Gebrewold T.(M.Sc.) 1 - 32
 Project Management-Objectives of project
 A project should be completed with in minimum of
elapsed time.
 It should use available manpower and other resources
as sparingly as possible, with out delay.
 It should be completed, with minimum capital
investment, with out delay.
 To achieve the above objectives, Project management
involves the following three phases.

By: Gebrewold T.(M.Sc.) 1 - 33

 Project Management-Objectives of project
 A project should be completed with in minimum of
elapsed time.
 It should use available manpower and other resources
as sparingly as possible, with out delay.
 It should be completed, with minimum capital
investment, with out delay.
 To achieve the above objectives, Project management
involves the following three phases.

By: Gebrewold T.(M.Sc.) 1 - 34

 Project Planning and Control

By: Gebrewold T.(M.Sc.) 1 - 35

 Project Planning
 In this phase, plan is made and strategies are set
taking into consideration the company's policies,
procedures and rules.

By: Gebrewold T.(M.Sc.) 1 - 36

Steps in the planning process
Define: the objective of a project in definite words
Establish: goals and intermediate stages to attain the
final target
Develop: forecasting methods and means of achieving
goals, i.e, activities
Evaluate: organization's resources-financial, managerial
and operational- to carry out activities and to
determine what is feasible and what is not.
By: Gebrewold T.(M.Sc.) 1 - 37
 Determine: alternatives - individual course of action
that will allow to accomplish goals.
Test: for consistency with company's policy.
Choose: an alternative which is not only consistent with
its goals and concepts, but also one that can
be accomplished with the evaluated
resources.
Decide: on a plan.
By: Gebrewold T.(M.Sc.) 1 - 38
 Project Scheduling
 Scheduling is the allocation of resources.
The resources in conceptual sense are
time and energy; but in practical sense
they encompass time, space, equipment
and effort applied to material.

By: Gebrewold T.(M.Sc.) 1 - 39

 The steps in scheduling
Calculate: detailed control information.

Assign: timing to events and activities.

Give: consideration to the resources. The manager is

generally concerned with those resources whose
availability is limited and thereby imposes a
constraint on the project.

Allocate: the resources.

By: Gebrewold T.(M.Sc.) 1 - 40
 Project Controlling

 Project control is the formal mechanism

established to check deviations from the
basic plan, to determine the precise effect
of these deviations on the plan, and to re-
plan and reschedule to compensate for the
deviation. Controlling is accomplished in the
following well recognized steps:
By: Gebrewold T.(M.Sc.) 1 - 41
 The steps in controlling
Establish: standards or targets. These targets are
generally expressed in terms of time.
Measure: performance against the standards set down
in the first step.
Identify: the deviation from the standards.
Suggest and Select: correcting measures. This will
involve problem identifying, decision making,
organizing the leadership and improving
By: Gebrewold T.(M.Sc.)
leadership skill of the decision maker. 1 - 42
 Project Success Factors
 The success of a project depends on factors and
prevailing circumstances both within and outside of
the organization.
 Usually project financers (project sponsors, lenders
or host governments) look at the consideration, that
are particularly important for success.
 The following are some of the success factors that
are given higher priority
By: Gebrewold T.(M.Sc.) 1 - 43
 i. Financially sound, feasible and
affordable project
 First, the project must be financially and
economically sound.
 Secondly, it must be feasible from a practical stand
point.
 Thirdly, the costs of the service of the fees charged
must be affordable for users.
 Sponsors and host governments must be convinced at
the start that the project will be successful
throughout its lifetime.
By: Gebrewold T.(M.Sc.) 1 - 44
 ii. The country risks must be manageable

 Political instability, including the risk of

expropriation and changes of laws, may frighten off
potential private investors.

 The legal and economic framework in some countries

may not be sufficiently developed to support a
construction program.

By: Gebrewold T.(M.Sc.) 1 - 45

  Any foreign investment, even the most practical and
financially viable project, requires a stable political
and economic environment.

 Finance on reasonable terms may be unavailable in

countries with a very weak credit standing and
investment may not be attractive to sponsors and
lenders if the country risks are considered to be too
high.
By: Gebrewold T.(M.Sc.) 1 - 46
 iii. Strong government support
 Strong government support is essential for any
project.

 The private sector’s interest in financing such a

project will be considerably strengthened if the
host government has announced and has
demonstrated practically that it wishes to promote
public-private partnerships.
By: Gebrewold T.(M.Sc.) 1 - 47
 iv. The project must rank high on the host
government’s list
 Some governments may not have enough resources to
pursue more than a short list of projects, and
sponsors and lenders are not likely to seriously
pursue projects that are not on that list.

 Sponsors and lenders must be assured that the

project under consideration has a high priority in the
host government’s project planning.
By: Gebrewold T.(M.Sc.) 1 - 48
 v. The legal framework must be stable

 An appropriate and stable legal framework that clearly

sets forth which government agencies are authorized to
develop projects and the laws and regulations is widely
recognized as essential for a successful policy.

 This will apply to sponsors and lenders in areas like

foreign investment, corporate law, security legislation,
taxation and intellectual property rights.
By: Gebrewold T.(M.Sc.) 1 - 49
 vi. Efficient administrative framework

 Bureaucratic procedures like seeking approval from

many different ministries and local authorities are
often cited as a serious obstacle to projects.

By: Gebrewold T.(M.Sc.) 1 - 50

 vii. Fair and transparent bidding procedure

 Sponsors look at the clarity and the orderliness

of bidding procedures as an indicator for the
success of the proposed project.

 The bid evaluation criteria must be clearly defined

and the bids must be evaluated in a public and
proper manner.

By: Gebrewold T.(M.Sc.) 1 - 51

  Private sponsors cannot be expected to invest time
and resources in developing bids if the process for
awarding a project is not reasonably orderly, fair and
transparent so that the chances for success are
predictable.

By: Gebrewold T.(M.Sc.) 1 - 52

 viii. Structured transactions
 In the past, the long time and high cost of moving
from the announcement of a project to its
conclusion has been a major drawback and has kept a
number of projects from going forward.
 Sponsors are not enthusiastic to propose projects if
the host government has a history of carrying on
long and expensive negotiations that never reach a
conclusion.

By: Gebrewold T.(M.Sc.) 1 - 53

 ix. Experienced and reliable sponsors

 The technical ability, experience and financial

strength of the private sponsors is of utmost
importance and must be clearly known.

By: Gebrewold T.(M.Sc.) 1 - 54

 x. Financial strength of sponsors
 Attracting sufficient equity is one of the key
challenges for all projects.

 Governments and lenders will require the private

sponsors to have a large enough financial interest
in the project to make it difficult for them to
abandon or neglect the project.

By: Gebrewold T.(M.Sc.) 1 - 55

 xi. Experienced and resourceful construction
contractors

 The lenders will insist that the prime contractor,

preferably selected on competitive basis, has the
technical and managerial competence, staffing and
financial strength to fulfill its contractual
responsibilities.

By: Gebrewold T.(M.Sc.) 1 - 56

 xii. Adequate financial structure
 Lenders require that the project will pay off the
loans as they become due and that adequate
security is provided in case of default.
 The ultimate success or failure of a project
revolves around the sponsors’ ability to arrange
financing.

By: Gebrewold T.(M.Sc.) 1 - 57

 xiii. The currency, foreign exchange and
inflation issues
 Currency convertibility, foreign exchange and
inflation risks can be large stumbling blocks to the
success of projects.
 The sponsors and the lenders will have to be
comfortable regarding repayment of the principal
and interest on any foreign exchange financing,
project revenues to be converted to the currency of
the loans and protection against losses from
exchange
By: Gebrewold T.(M.Sc.) rate fluctuation and inflation 1 - 58
 xiv. Co-ordinated contractual framework

 All the contractual agreements should be clear to all

parties.

 If a party feels that the contract terms are unfair

there is a danger that it will walk away from the
project or at least be uncooperative

By: Gebrewold T.(M.Sc.) 1 - 59

 What is a successful project?

 Customer Requirements satisfied/exceeded

 Completed within allocated time frame

 Completed within allocated budget

 Acceptance by the customer

By: Gebrewold T.(M.Sc.) 1 - 60

 Why do projects fail?
 Lack of clarity on what’s really needed
 Inadequate planning (the devil is in the details)
 Ineffective process to deal with changes or problems
 Lack of willingness or discipline to monitor progress
 Unresolved conflicts
 Lack of committed, dedicated resources
 Lack of understanding of project management

By: Gebrewold T.(M.Sc.) 1 - 61