MKT4105 Project Management RHK

Project Management
Course Code: MKT 4105
Prepared By
Md. Rakibul Hafiz Khan Rakib
Lecturer
Department of Marketing
Begum Rokeya University, Rangpur.
Contact No.: +88 01718 878162, +88 01516 199044
E-mail: rakibmkt@gmail.com, rakibmkt@brur.ac.bd
__________________________________________________________________________________________
Md. Rakibul Hafiz Khan Rakib, Lecturer, Department of Marketing, Begum Rokeya University, Rangpur. 1
Chapter 1: Introduction to Project Management
Definition of Project
The word project comes from the Latin word projectum from the Latin verb proicere, which
means "before an action" which in turn comes from pro-, which denotes precedence,
something that comes before something else in time and iacere, "to do". The word "project"
thus originally meant "before an action".
When the English language initially adopted the word, it referred to a plan of something, not
to the act of actually carrying this plan out. Something performed in accordance with a
project became known as an "object". Every project has certain phases of development.
Project is the smallest unit of investment operation. It is the way of development for which
monetary wealth is transformed into main assets. To achieve determined and specific goal in
a certain area, project mangers make a proper plan of work schedule through mentioning
income, expenses and time limit. It is a coordination of related assets by which a particular
group is benefited by accomplishing specific tasks and objectives.
A project is a collaborative enterprise, frequently involving research or design, which is
carefully planned to achieve a particular aim. It can be said in another way, project is an
organized unit that is involved in development program which is consistent with previous
work plan and accomplished within the budgeted time.
According to G.R. Heerkens, ―A temporary endeavor undertaken to achieve a particular
aim‖.
According to Oxford English Dictionary, ―A project in business and science is typically
defined as a collaborative enterprise, frequently involving research or design, that is carefully
planned to achieve a particular aim‖.
According to F.L. Harrison, ―A project can be defined as a non routine, non repetitive, one-
off undertaking, normally with discrete time, financial and technical performance goals‖.
As per Wikipedia, projects can be further defined as- ―temporary rather than permanent social
systems that are constituted by teams within or across organizations to accomplish particular
tasks under time‖.
According to Project Management Institute of America, ―A project is a temporary endeavor
undertaken to create a unique product, service, or result.‖ A project is temporary in that it has
a defined beginning and end in time, and therefore defined scope and resources. And a
project is unique in that it is not a routine operation, but a specific set of operations designed
__________________________________________________________________________________________
to accomplish a singular goal. So a project team often includes people who don‘t usually
work together – sometimes from different organizations and across multiple geographies.
So, from the above discussion, we can say that project is an activity that: is temporary-
having a start and end date, is unique- brings about change, has unknown elements, which
therefore create risk. Generally projects are formed to solve a problem or take advantage of
an opportunity.
Features/Characteristics/Nature of Project
From the definition of project we can find that a specific and perfect project holds some
specific characteristics. They are as follows-
1. Objective: Objective is an important and main characteristic of a project. We know that all
tasks are not a project. But the task having a specific objective may be a project. That means
what is the main goal of performing specific job and for whom the activities are to be
performed must be specified in the project.
2. Life time: Like objective, specific lifetime is also an indispensable characteristic of a
proper project. A project must have a specific lifetime or lifespan. When will the project be
started and when it will be closed, will be specified earlier in a project. That means time
duration must be mentioned in a project.
3. Team work: We know that more than one people and more than one tasks are involved in
a project. Again, to perform a specific task, it may need more than one people. So to perform
the task, it needs more than one people which require making a team to organize the work
properly. So, team work is an essential characteristic of a project.
4. Life cycle: Like a product life cycle in marketing and life cycle of human being, a project
has a particular life cycle. From a slow beginning they progress to build up of size then peak,
begin decline, and finally musty be terminated by some due time. A particular project has
mainly three steps; starting, growth and termination.
5. Change: The nature of project is not constant; it may change to adjust with the changing
situation. The rules and regulations, decisions and techniques may be changed to implement
the final project. It is always changeable.
6. Successive principle: We know that to form and implement a project it should have a set
of important successive principles, where the techniques of forming and implementing a
project will be mentioned. So, a project must have a set of successive principles.
7. Made to order: To implement a project it is essential to have a balance in chain of
command. That means, the specific duties and responsibilities and under whom will the work
__________________________________________________________________________________________
be done, must be mentioned in a perfect project. So it is another important characteristic of
project to have a set of order to command in implementing the project and the activities.
8. Unity in diversity: Unity in diversity means a project may have more than one department
or various units to perform separate tasks. That means it has many units which are
responsible to perform different tasks. Suppose, if the project is to make a bridge then various
units be responsible to perform different tasks for constructing a bridge. So diversity of
various units is one of the important characteristics of a project.
9. High level of subcontract: Moreover most of the complex tasks of a project are performed
by the subcontract. Many people are involved with the project. That means to perform the
main tasks of a project, it may require different levels of subcontract but all are involved
entirely in implementing the main project.
10. Risk & uncertainty: We know that no risk, no gain. Generally many risks and
uncertainties are involved in the implementation of a project. It is not possible to implement
any project without taking risks and uncertainties, which may be internal or external. Internal
risk arises due to the problem of the project itself and external risk arises due to the problem
of external environment of the project.
In a nutshell, we can say that-
 A project contains a well defined objective. The project objective is defined in terms of
scope (or requirements), schedule, and cost.
 A project is carried out via a set of interdependent tasks.
 A project uses various resources to carry out these tasks.
 A project has a definite start date and an expected completion date. The actual completion
date may not always be the same as the expected date.
 A project is a one time or unique endeavor.
 A project has a customer.
Classification of Project
There is no hard and fast rule for the classification of project. In our daily life we are familiar
with many projects such as industry, agriculture, education, medical project etc. On the basis
of these common scenarios, we can classify the project in below ways-
1. On the basis of national income as well as socio economic program: On the basis of
national income as well as socio economic program project can be classified into below four
ways-
__________________________________________________________________________________________
a. Industry project: Establishing a new industry, joining additional department with the
established industry and innovation of a new product are included in the industry.
b. Agriculture project: Conducting the research work for increasing the production of agro-
product and generalized the modern cultivation system are included the agriculture industry.
c. Education project: Taking various programs for ensuring the quality of education,
compulsory primary education and adult education program are included in the education
project.
d. Engineering project: Innovation of new technology; various construction programs for
infrastructural development are included in the engineering project.
2. On the basis of equipment production: On the basis of equipment production, project
can be classified in below two ways-
a. Labor intensive: When the emphasis is given on the labor force of a country to conduct
and implement a project then it is called labor intensive project. So here the project is
prepared by considering the labor or work force of a country.
b. Capital intensive: Like labor intensive project when the project is prepared by considering
the financial condition of the country is called capital intensive project. Here emphasis is
given on capital because capital is more important and available than the labor for the
accomplishment of this type of project.
3. On the basis of partnership project: When the project is selected by the initiation of state
for socio economic development of a country then the project is separated based on some
determinants.
Determinants-1: Advantages of project: On the basis of advantages generated by the
projects, they can be classified into three groups.
a. X-type project: Production and revenue based projects are included in X-type project. It is
a self employment based project. Expenses and advantages can be measured in this type of
project.
b. Y-type project: It is only production based but not revenue based project. It produces the
visible opportunity but not earn the profit. Moreover it helps other to earn revenue. It cannot
consume the revenue itself.
c. Z-type project: Mainly service based project is called the z-type project. The advantages
of this project cannot be measured in simple monetary terms. Education, training, hospital,
road, bridge etc. are included in the z-type project.
__________________________________________________________________________________________
Determinants-2: Resource distribution priority: On the basis of priority to distribute the
resources and by considering the national importance, project can be classified into two
divisions.
a. Core project: According to the national importance to distribute the resources or wealth,
the project which gets the priority is called core project.
b. Noncore project: According to the national importance to distribute the wealth and
resources, the project which gets the less priority is called the noncore project.
Determinants-3: Stages of the project: By considering the project development and
implementation stage, it can be divided into four divisions.
a. Experimental project: When the project is conducted to experiment or test the feasibility
of the main project then it is called the experimental project. Generally it is small in nature,
highly innovative, and risky but they always do not give instant economic result.
b. Pilot project: The size of pilot project is larger than the experimental project. For this
reason, it requires huge investment. The reliability and validity of the result of experimental
project are the main considerable factors for the pilot project.
c. Demonstration project: To increase productivity, reduce production cost, increase income
and increase social services etc. with efficiency are the main considerable factors for the
demonstration project. The main objective of the demonstration project is to compare the new
technology, technique and program with the traditional technology and shows these
comparison and differences to the people.
d. Replication, dissemination and service delivery project: Through the replication,
dissemination and service delivery project, techniques and programs of the experimental
project is extended. It is the last step according to the chronology among different stages of
the project. That means it arranges a wide ranges of use of the objects that are innovated by
the experimental project and tested by the pilot project and shown through the demonstration
project. The tested methods, techniques, strategies, and programs are extended by this type of
project.
The Project Life Cycle

Most projects go through similar stages on the path origin to completion. We define these
stages as the project life cycle. Life cycle of a project is compared with the life cycle of
human being. Every project has starting and ending point. In another way the life cycle of
project is also compared with the life cycle of a product in the marketing, such as
introduction, growth, maturity and decline stages are available in the product life cycle.
__________________________________________________________________________________________
100%
Slow finish
% of Project Quick momentum

Completion
0 Slow start Time
Figure: Project Life Cycle

The life cycle of project is divided into the below three main divisions. They are as follows-
1. Design: It is the first step of project life cycle. In this step the project is designed first. It is
related to make a framework of the project. Before implementing the project, the project
authority has to prepare a framework regarding how the project will be implemented, when
the project will be implemented and by whom the project will be implemented.
2. Implementation: It is the second step of the project life cycle. In this step the works which
are designed in the design step are implemented. That means the framework or blueprint of a
project is implemented in reality, in the field.
3. Evaluation: It is the last step of a project life cycle. In this step performance of a project is
evaluated. Mainly, here it is needed to make comparison of performance between the design
of a project and its final implementation.
But some other experts suggest that the life cycle of a project is divided into four divisions.
For example, G.R. Heerkens identified four basic project phases such as-
1. Initiation Phase: During the first of these four phases, the Initiation Phase, the need is
identified. An appropriate response to the need is determined and described. (This is actually
where the project begins.) The major deliverables and the participating work groups are
identified. The team begins to take shape. Issues of feasibility (can we do the project?) and
justification (should we do the project?) are addressed.
2. Planning Phase: Next is the Planning Phase, where the project solution is further
developed in as much detail as possible. Intermediate work products (interim deliverables)
are identified, along with the strategy for producing them. Formulating this strategy begins
with the definition of the required elements of work (tasks) and the optimum sequence for
executing them (the schedule). Estimates are made regarding the amount of time and money
needed to perform the work and when the work is to be done. The question of feasibility and
__________________________________________________________________________________________
justification surfaces again, as formal approval to proceed with the project is ordinarily
sought before continuing.
3. Execution Phase: During the third phase, the Execution Phase, the prescribed work is
performed under the watchful eye of the project manager. Progress is continuously monitored
and appropriate adjustments are made and recorded as variances from the original plan.
Throughout this phase, the project team remains focused on meeting the objectives developed
and agreed upon at the outset of the project.
4. Close-Out Phase: During the final phase, or the Close-Out Phase, the emphasis is on
verifying that the project has satisfied or will satisfy the original need. Ideally, the project
culminates with a smooth transition from deliverable creation (the project) to deliverable
utilization (the post-project life cycle). The project customer accepts and uses the
deliverables. Throughout this phase, project resources (the members of the project team) are
gradually re-deployed and the project finally shuts down. However, although the project team
and the project manager typically stop participating at this point, they can benefit greatly
from understanding and appreciating what goes on after the project, as we will soon see.
The Project Life Cycle of Warren C. Baum

We discussed earlier that the life cycle of project is divided into three stages- design,
implementation, and evaluation. Different experts and specialist also divide the life cycle of
project in many stages; Baum is one of them. Warren C. Baum has developed the six levels
of project life cycle. They are as follows-
1. Identification
6. Evaluation 2. Preparation
5. Implementation & 3. Appraisal

Supervision
4. Negotiating
Figure: Warren C. Baum‘s Project Life Cycle
1. Project identification: According to Baum, the first step of project life cycle is to identify
the project. The identification of project means to identify the requirements and establish the
__________________________________________________________________________________________
concept of a project. Through the identification of project, possibility of profitable investment
is created and by the traditional development program of a country it is achieved.
2. Project preparation: Project preparation means preparation of design and framework of a
project where the measurement of technical, financial, social and institutional requirement of
the project is mentioned. The important step of a project preparation is to conduct the
feasibility study of a project.
3. Project appraisal: Project appraisal is a decision making process for selecting a project by
which the maximum utilization of resources of a project is ensured through the minimum
resources. The main objective of project appraisal is to determine the commercial profit,
economic outcome and social acceptability of project.
4. Project negotiation: In case of contributing project this step is very important. The
important functions of this step are selecting the most profitable project from the apprised
project, building a team to conduct the contract, getting govt. approval for taking credit and
preparing the credit documents.
5. Project implementation and supervision: The important factors for starting and
implementing the project are project appraisal, project activation, collecting resources,
coordinating production and distribution, finding solution of problems, and determining the
methods of inventory and supply. It is necessary to have hard political commitment, simple
frame work, right formulation of project and its proper management for successful
implementation of the project.
6. Project evaluation: It is the last step of project life cycle. In fact, it is called the post step
of project termination. In this step the project output is analyzed. Here mainly the variation
between the standard of outcome and actual outcome of the project is measured. It is not only
applicable for terminated project but also applicable for the ongoing projects.
The Project Life Cycle of Adams and Barndt

J.R. Adams and S.E. Barndt have developed four steps of the project life cycle. To divide the
project in various levels, they emphasized on the required level of efforts in the various steps
of project. We can present Adams and Barndt‘s project life cycle in the bellow way-
__________________________________________________________________________________________
Figure: Adams and Barndt‘s Project Life Cycle.
1. Conceptualization: It is the primary/initial level/stage of the project. Top level
management realizes about the necessity of project, determine the primary goal of the project
and develop the way to achieve the goal.
2. Planning: To achieve the desired goal, formal plan is prepared in this level. Scheduling the
project, preparing a budget and distributing the wealth are included in the planning step.
3. Execution: In this level the real task of several parts of the project is completed and
implemented in practical field. It organizes and uses the physical and human resources as
well as measure the development of the project.
4. Termination: After completing the entire task, the project is terminated. It is the last stage
of the project. In this stage, the project is handover to the initiator and owner of the project.
Unused resources in the project are separated and engage the unused resources and project
members in another operation for their betterment.
Meaning of Project Management

The word project management is the combination of two words: project and management. So,
we should know what project is and what management is-at the first place. So let‘s know
these-
Project: We know that a project is a temporary endeavor undertaken to achieve a specific
aim through creating a unique product, service, or result.
Management: Management means planning, organizing, directing, and controlling related
activities for achieving specific goal.
__________________________________________________________________________________________
From the above definition of project and management, therefore, project management
means the planning, directing, organizing and controlling the resources (human, equipment,
material etc.) to meet the technical, cost and time constraints of the project and achieving the
desired objectives of the project. In brief, we can say that, ―Project management means
managing the activities of a project”.
According to Project Management Institute of America, ―project management is the
application of knowledge, skills, tools, and techniques to project activities to meet the project
requirements‖.
So, we can say that, project management is the application of knowledge, skills, tools, and
techniques applied to project activities in order to meet the project requirements. Project
management is a process that includes planning, putting the project plan into action, and
measuring progress and performance.
Elements of Project Management

To be a complete project, it should have three main elements. These elements are discussed
in bellow-
1. Operations: Operation means activities those are performed to conduct the project. So it
includes all the activities in a project.
2. Resources: Resources mean men, machines, materials, technologies and time those are
used to complete the project. So, the elements which are used to accomplish the project are
called resources.
3. Condition: The surroundings and the barriers of the project in which the project is
performed are known as condition. So, condition affects the effectiveness of the project
activities.
The Project Management Process: Step by Step

Now that we‘ve overviewed in the project life cycle process, let‘s circle back and break it
down into steps. G. R. Heerkens recommends an approach that follows the four-phase model
described earlier, but provides for additional detail in the areas of requirements gathering,
project definition, risk management, and stakeholder management. The result is the eight-step
process, which are briefly summarized below:
Step 1- Identify and frame the problem or opportunity: In this phase, the fundamental
need is identified. The need is then quantified with respect to factors such as its size, shape,
and extent. This leads to the creation of a Requirements Document, which articulates the need
__________________________________________________________________________________________
in as much detail as possible. The true need must be completely understood before attempting
to define the best solution. A significant number of project failures can be attributed to the
phenomenon of solution-jumping. In simple terms, this occurs when you try to provide an
answer without understanding the question. This is a real possibility whenever the
requirements are not fully defined, and impulse— rather than a rational process—is used to
determine the project solution.
Step 2- Identify and define the best project solution: In Step 2, early determinations
should be made regarding which work groups should be involved. A team should be formed
to assist in this and all subsequent process steps. This step begins by identifying all
reasonable alternatives. The team may use brainstorming or similar creativity techniques to
help identify alternative solutions. Using criteria previously agreed upon, the team then
singles out the ―best‖ solution. This is the actual project. The team prepares project definition
documents, which consist of a comprehensive narrative description of the preferred execution
approach, the criteria for project completion, and the definition of project success. In many
organizations, this step concludes with a formal proposal to management and formal approval
or authorization to proceed is granted. If the project is not approved, it may be terminated.
Step 3- Identify task and resource requirements: Once the project solution is identified,
we‘re ready to move to the next phase, which is to identify the task and the resource
requirements. This is also referred to as scope management. In this step, the team identifies
all of the work to be done (the tasks). Consideration should be given to the preferred methods
for doing the work and how much of the work will be done using internal resources.
Preliminary resource commitments should be secured for all work.
Step 4- Prepare the control schedule and resource allocation plan: Creating the project
schedule consists of several steps. First, a network or logic diagram is prepared to display the
optimum sequencing of the tasks. Next, the length of time required to complete each task (its
duration) is estimated. By combining information on the preferred sequence of tasks, the
estimated task durations, and an assumed project start date, the team can place tasks in ―real
time,‖ much like scheduling appointments on a calendar. This reveals the total project
duration and the expected project completion date. The final part of this step consists of
creating a logic-based, time-scaled bar chart that will be used during the project execution to
track progress.
Step 5- Estimate project costs and prepare a project budget: In this step, the project
manager coordinates the preparation of a cost estimate for the project. A variety of methods
may be used to estimate cost, depending upon the level of detail that exists at that time. The
__________________________________________________________________________________________
overall project cost is allocated to individual elements of the project, thus creating a budget
for each major work element. This budget is used to monitor and control cost expenditures
during project execution.
Step 6- Analyze risk and establish stakeholder relationships: Once the project team has
identified the work, prepared the schedule, and estimated the costs, the three fundamental
components of the planning process are complete. This is an excellent time to identify and try
to deal with anything that might pose a threat to the successful completion of the project. This
is called risk management. In risk management, ―high-threat‖ potential problems are
identified. Action is taken on each high-threat potential problem, either to reduce the
probability that the problem will occur or to reduce the impact on the project if it does occur.
Step 7- Maintain control and communicate as needed during execution: You‘ll spend
most of your time in this step. During project execution, people are carrying out the tasks and
progress information is being reported through regular team meetings. The team uses this
information to maintain control over the direction of the project and takes corrective action as
needed. The first course of action should always be to bring the project back ―on course,‖ to
return to the original plan. If that cannot happens, the team should record variations from
the original plan and record and publish modifications to the plan. Throughout this step,
organizational managers and other key stakeholders should be kept informed of project status
according to an agreed-upon frequency and format. The plan should be updated and
published on a regular basis. Status reports should always emphasize the anticipated end
point in terms of cost, schedule, and quality of deliverables.
Step 8- Manage to an orderly close-out: This step is often characterized by the
development of a punch list. A punch list is a relatively small list of tasks that the project
team needs to complete in order to close out the project. The project manager must keep team
members focused at this critical time. Unfortunately, far too often the attention of the team
begins to drift because the project is shutting down. If this step of the process is not managed
in an orderly fashion, the end can have a tendency to drag on. This can have a devastating
effect on customer satisfaction. Finally, the team should conduct lessons learned studies, to
examine what went well and what didn‘t. Through this type of analysis, the wisdom of
experience is transferred back to the project organization, which will help future project
teams.
__________________________________________________________________________________________
Measuring Project Success
On any project, you will have a number of project constraints that are competing for your
attention. We measure the success of a project using these major project constraints. They are
cost, scope, quality, risk, resources, and time.
1. Cost: Cost is the budget approved for the project including all necessary expenses needed
to deliver the project. Within organizations, project managers have to balance between not
running out of money and not under spending because many projects receive funds or grants
that have contract clauses with a ―use it or lose it‖ approach to project funds. Poorly executed
budget plans can result in a last-minute rush to spend the allocated funds. For virtually all
projects, cost is ultimately a limiting constraint; few projects can go over budget without
eventually requiring a corrective action.
2. Scope: Scope is what the project is trying to achieve. It entails all the work involved in
delivering the project outcomes and the processes used to produce them. It is the reason and
the purpose of the project.
3. Quality: Quality is a combination of the standards and criteria to which the project‘s
products must be delivered for them to perform effectively. The product must perform to
provide the functionality expected, solve the identified problem, and deliver the benefit and
value expected. It must also meet other performance requirements, or service levels, such as
availability, reliability, and maintainability, and have acceptable finish and polish. Quality on
a project is controlled through quality assurance (QA), which is the process of evaluating
overall project performance on a regular basis to provide confidence that the project will
satisfy the relevant quality standards.
4. Risk: Risk is defined by potential external events that will have a negative impact on your
project if they occur. Risk refers to the combination of the probability the event will occur
and the impact on the project if the event occurs. If the combination of the probability of the
occurrence and the impact on the project is too high, you should identify the potential event
as a risk and put a proactive plan in place to manage the risk.
5. Resources: Resources are required to carry out the project tasks. They can be people,
equipment, facilities, funding, or anything else capable of definition (usually other than labor)
required for the completion of a project activity.
6. Time: Time is defined as the time to complete the project. Time is often the most frequent
project oversight in developing projects. This is reflected in missed deadlines and incomplete
deliverables. Proper control of the schedule requires the careful identification of tasks to be
performed and accurate estimations of their durations, the sequence in which they are going
__________________________________________________________________________________________
to be done, and how people and other resources are to be allocated. Any schedule should take
into account vacations and holidays.
You should also learn the term ―triple constraint,‖ which traditionally consisted of only time,
cost, and scope. These are the primary competing project constraints that you have to be most
aware of. The triple constraint is illustrated in the form of a triangle to visualize the project
work and see the relationship between the scope/ quality, schedule/time, and cost/resource.
Figure: A schematic of the triple constraint triangle/triad by John M. Kennedy T.

In this triangle, each side represents one of the constraints (or related constraints) wherein
any changes to any one side cause a change in the other sides. The best projects have a
perfectly balanced triangle. Maintaining this balance is difficult because projects are prone to
change. For example, if scope increases, cost and time may increase disproportionately.
Alternatively, if the amount of money you have for your project decreases, you may be able
to do as much, but your time may increase.
The Project Manager

A project manager (PM) is a person with a diverse set of skills –management, leadership,
technical, conflict management, and customer relationship – who is responsible for:
initiating, planning, executing, controlling, monitoring, and closing down a project.
__________________________________________________________________________________________
Project Managers are essentially jugglers. They must make sure that everything keeps to
task, that potential issues are quickly eliminated and the project is delivered on time, all the
while making sure everyone knows what is happening and the project quality and budget are
acceptable. Specifically they:
 Direct all activities required to successfully meet the project objectives
 Manage risk – scanning ahead for potential issues and resolving them before they
become a problem
 Solve problems - recommending alternative approaches to problems that arise and
providing guidance to the project sponsor
 Track and report project progress
 Communicate to all stakeholders in the project.
They are responsible for the project‘s success, they plan and act, focus on the project‘s end,
and ultimately, they be a manager & leader.
The Basic Functions and Responsibilities of a Project Manager

The man who is responsible for all the task of the project is called the project manager.
According to F.L. Harrison ―the man who is responsible for a project may be called a
project manager‖. Project manager also called the project director or coordinator. It is the
duty of project manager to success the project from the view point of time, cost, and technical
side. We know that the main organization has many divisions and many employees work in
those divisions. So it is the duty of project manager to lead those employees so that it is
possible to complete the project with predetermined time and budget.
Project Manager
Planning Coordinating Staffing and Implementing Controlling &

Training Reporting
Maintaining Conflict Change Project

Linkage Management Management Financial
Management
__________________________________________________________________________________________
1. Project planning: The project manager has to prepare a plan for implementing the project.
Proper planning is the precondition for the success of the project.
2. Project coordination: It is important task of the project manager to coordinate among the
members of the project, suppliers, contractors, advisors and other concerned parties. Because,
well coordinated group effort is an indispensable factor for success of a project.
3. Project staffing and training: It is the important function of project manager to recruit the
qualified personnel for the project and arrange the training facilities for them. It is the duty of
a project manager is to recruit a right person for the right post at the right time.
4. Project implementation: Project implementation means perform the project activities
according to the plan and schedule of the project.
5. Project control and reporting: To conduct the project according to the predetermined
plan, control the activities, cost, and time are the important considerable factors to the project
manager. It is also the duty of project manager to submit report to the higher authority
regarding the advancement and problems of the project.
6. Maintaining linkage with the concerned parties: It is the duty of project manager to
maintain coordination and communication with the project concerned parties and those who
have direct and indirect effect on the project.
7. Conflict management: Conflict may arise among the members of the project due to the
tendency of getting power in the organization, leading others and authority & responsibility
relationship. In this situation the duty of project manager is to identify the conflict as soon as
possible and need to solve.
8. Change management: It is the duty of project manager to adjust the project with the
changing situations in the country. That means if it is essential to change any task or decision
of the project due to the changing situation then it is the duty of project manager to adjust the
project with the situation and inform the members of the project regarding the change.
9. Project financial management: It is the duty of project manager to collect the fund in
right time, control, cost and innovate effective accounting system for the project.
10. Terminating the project: It is another important duty of project manager to terminate
the project formally, utilize the unused resources after terminating the project and preparing
evaluating report that will act as a future direction of the project.
The Duties/Functions of Project Management

The functions of project management are no different from the functions of general
management. It has to involve in planning; organizing, directing and controlling for each
__________________________________________________________________________________________
activity of a project those are included in the general management. But, because of the nature
of the project, the functions of project management are different from the functions of general
management. The functions of project management are as follows-
1. Planning: The main and important function of project management is to make a plan for
each activity of the project on the basis of its main objectives.
2. Scheduling and budgeting: On the basis of planning, the second important function of the
project management is preparing schedule and budget for the project.
3. Recruiting: To recruit and select the employee for the project, training and determining
the duties and responsibilities for the employees are the important task of project
management.
4. Investigating and controlling: Here investigating and controlling activities are required
for completing them within predetermined time, budget as well as standard of activities.
5. Communicating: Project manager must communicate between the main project and its
various branches to accomplish the project effectively and efficiently.
6. Maintaining linkage: Project manager must also build and maintain linkage with the
competitors, government and non government organization and with the other related
institutions.
7. Evaluating report: After implementing the project, project management have to prepare
an evaluation report for the project.
Traditional Management vs. Project Management

From the functional aspects, project management has no significant difference with
traditional management; but on the basis of technique and process, they have many
differences. The differences between traditional management and project management are as
follows-
1. Concept and principles: Traditional management maintains some basic concepts and
principles. But project management does not maintain these concepts and principles strictly
because it is dynamic.
2. Nature: The nature of project management is separated from the traditional management
as it can be viewed as only an extension of traditional management. But traditional
management can be viewed as the base of project management.
3. Dependency: In case of project management, its members are not dependent on each other
strictly, rather loosely. But traditional management maintains the boss and subordinate
relationship strictly, means here one is dependent for his work to others.
__________________________________________________________________________________________
4. Size: The size of traditional management is often like a pyramid, without some exceptions.
But the size of project management is like a matrix.
5. Repetition: The functions of traditional management are repetitive in nature. But the
functions of project management are not repeated, rather one-off type.
6. Orientation: Project management is primarily job oriented, but the traditional
management is goal oriented.
7. Communications: Traditional management maintains the formal communication system,
but the project management usually maintains the informal communication system in
between the departments, work groups and employees.
Various Types of Project Organization

Perfect organization is very important for the project management. The role of project
manager regarding directing and controlling activities of the project is determined by the
nature of organizational structure of the project. Generally three types of project organization
are used to conduct the project. They are as follows-
l. Line and staff organization: It is appropriate for the small project when both line and staff
authorities are included in a line and staff organization. It is consisted of employee and
straight line authority. Expert employee only have the ability to provide advise but straight
line executives have the authority to order and advise. To coordinate the task of this type of
organization, coordinator is recruited who coordinate the task of functional divisions.
Long term Planning/ National development planning
Sector Programming/ Scheme
Project
Figure: Relationship between national development planning and project.

2. Divisional organization: It is familiar as a strong organizational structure of the project. In
this system there are separate divisions and a project manager of that division has to
implement the project. The expert and other employees are engaged in the project for the full
time. The project manager is all in all and has power to order the employees for their duty.
__________________________________________________________________________________________
That means he is the most superior in straight line authority and all the members of the
project work under him. Due to the centralized power, it is possible to take quick decision.
3. Matrix organization: In matrix organized project, the project manager controls
administrative decisions and functional heads controls technical decisions. In matrix
organization the power is more balanced. It is the method of organizing that maintains both
functional supervisions as well as project supervisions. A strong matrix operates close to a
pure project organization while a weak matrix operates more like a functional organization.
So here authority is divided between project manager and functional manger. Only project
manager cannot take decisions here.
Meaning of Project Planning

Project planning is the advanced decision regarding the activities, time to complete, costs, as
well as wealth which is needed to complete the project. The pre requisite to accomplish a
project successfully is to prepare a plan in a written way.
According to R. L. Martino, ―A project plan establishes the duration of the project, the
resources needed to complete each activity and the required sequences of performance of
each job.‖
From the above definition we get three elements of project planning-
1. Determination of time or duration of project.
2. Assuming the resources required.
3. Determining the sequences of activities.
“Project consists of some activities, but all the activities are not project”
Specialists try to define project in such a way that, ―the activities which are performed to
achieve a special or predetermined goal.‖ This definition may create a question that, do all
the activities are project? A laborer does his job to earn money. One can do anything, is that a
project? Definitely this is not a project. To remove this confusion we may define project in
such a way that ―project involves those activities, which have predetermined starting and
ending time, for which definite expenses and assets are allocated.‖ By analyzing this
definition, if we justify the activities from the view point of objective, nature, time, expenses
and sources of assets, we can find some characteristics; which differentiate the project from
other activities. Those activities are described below-
1. Objective: Objective is the main feature of a project. We know that all tasks are not a
project. But the task having a specific objective may be a project. That means what is the
__________________________________________________________________________________________
main goal of performing specific job and for whom the activities are to be performed must be
specified in the project.
2. Lifetime: Like objective, lifetimes also an indispensable characteristics of a proper project.
A project must have a specific lifetime. When will the project be started and when it will be
closed, must be specified in a project. That means time duration must be mentioned in a
project.
3. Team work: We know that more than one people and more than one tasks are involved in
a project. Again to perform a specific task, it may need more than one people. So to perform
the task, it needs more than one people which require making a team to organize the work
properly. So, team work is an essential characteristic of a project.
4. Life cycle: Like a product life cycle in marketing and life cycle of human being, a project
has a particular life cycle. From a slow beginning they progress to build up of size then peak,
begin decline, and finally must be terminated by some due time/course. A particular project
has mainly three steps; starting, growth and termination.
5. Change: The nature of project is not constant; it may change to adjust with the changing
situation. The rules and regulations, decisions and techniques may be changed to implement
the final project. It is always changeable.
6. Successive principle: We know that to form and implement a project it should have a set
of important successive principles, where the techniques of forming and implementing a
project will be mentioned. So, a project must have a set of successive principles.
7. Chain of command: To implement a project it is essential to have a balance in chain of
command. That means, the specific duty and responsibility and under whom will the work be
done, must be mentioned in a perfect project. So it is another vital trait of project to have a set
of order to command to implement the project and the activities.
8. Unity in diversity: Unity in diversity means a project may have more than one department
or various units to perform separate task. That means it has many units which are responsible
to perform different tasks. Suppose, if the project is to make a bridge then various units be
responsible to perform different tasks for constructing a bridge. But all these departments or
divisions must work in unity, in harmonious rhythm. So diversity of various units and their
unity is another central attribute of a project.
9. High level of subcontract: Moreover most of the complex tasks of a project are performed
by subcontracting. Many people are involved with the project, who may partially supply
important components or parts of the project. That means to perform the main task of a
__________________________________________________________________________________________
project, it may require different level of subcontract but all are involved to implement the
main project.
10. Risk & uncertainty: We know that no risk, no gain. Generally many risks and
uncertainties are involved in the implementation of a project. It is not possible to implement
any project without taking risks and uncertainties, which may be internal and external.
Internal risk arises due to the problem of the project itself and external risk arises due to the
problems/changing situations of external environment of the project.
From the above discussion, we can say that project is the sum of many activities but all the
activities are not project, because every project must fulfill the above characteristics.
Why do Projects Fail?

1. Poor project and program management discipline
2. Lack of executive-level support
3. Wrong team members
4. Poor communication
5. No measures for evaluating the success of the project
6. No risk management
7. Inability to manage change
A project has always a degree of uncertainty. In project planning many assumptions are made
regarding:
 Access to resources.
 Resource capability.
 Impact of environmental factors.
These assumptions are not always accurate. Therefore, requires project managers to re-assess
and trade-offs between requirements, costs, and time. Above all, be pro-active.
Further Reading
1. Project Management- B. B. Goel
2. Project Management in Practice- Samuel J. Mantel Jr., Jack R. Meredith, Scott M.
Shafer, & Margaret M. Sutton
3. Project Management- Gary R. Heerkens
4. Project Management- Open Textbooks for Hong Kong by The Open University of
Hong Kong
5. Project Management- M. Saiful Islam
__________________________________________________________________________________________
Chapter 2: Project Formulation and Project Cycle Analysis
Definition of Project Formulation
Project formulation is the systematic development of a project idea for arriving at an
investment decision. It has the built-in mechanism of ringing the danger bell at the earliest
possible stage of resource utilization. Project formulation is a process involving the joint
efforts of a team of experts. Each member of the team should be familiar with the broad
strategy, objectives & other ingredients of the project. Besides being an expert in his area of
specialization, he should be able to play his role in the overall scheme of things.
It aims at a systematic analysis of project potential with the ultimate objective of arriving at
an investment decision. In this process it makes an objective assessment from all possible
angles starting from project identification upto its appraisal stage. Thus, project formulation
is the process of examining technical, economic, financial & commercial aspects of a project.
It refers to a preliminary project analysis covering all aspects such as technical, financial,
commercial, economic & managerial to find out whether it is worthwhile to take project for
detailed investigation & evaluation.
According to B.B. Goel, ―Project formulation refers to a series of steps to be taken to convert
an idea or aspiration into a feasible plan of action‖.
According to G. Myrdal, ―Project formulation is one of the basic techniques through which
planning can be changed from an institutional base to an institutional and rational base‖.
Project formulation is the ―pre-project‖ or ―Ex-ante‖ appraisal of a project. Here, before
taking a project decision, project entrepreneur appraise the project from economic, technical
and social point of views. Project formulation is an intellectual, complex and risky task. So it
needs to have a team of expertise people who come from different disciplines like economics,
engineer, management, marketing and so on.
Stages of Project Formulation

Project formulation Process involves many sequential stages which are as follows:
Stage 1- Project Identification: Project identification means determining specific activities
to control raised situation, to solve existing or possible problem or to achieve expected result.
Different parties are involved in identifying a project-
a. Government
b. Individual
c. Organization
__________________________________________________________________________________________
d.NGO (Non Govt. Organization)
From this stage, we can get 3types of decision about a proposed project-
a. The project is potential.
b. The project is not potential.
c. The information is not adequate for making a decision.
Stage 2- Technical Analysis: In this stage, different strategic concepts which play a
supporting role such as labor, raw material, transportation, demand and supply etc. are
analyzed. The broad purposes of technical analysis are-
(a) To ensure that the project is technically feasible in terms of availability of all the inputs.
(b)To facilitate the most optimal formulation of the project in terms of technology, size,
location and so on.
Following factors are considered for technical analysis:
A. Input Analysis: Where will the project be set up, what types of raw materials, manpower
are required and from where will it be collected etc. are analyzed in input analysis. It
includes-
a. Location
b. Size and cost of land
c. Raw materials
d. Utilities
e. Manpower
f. Transportation facilities
g. Incentives and concession
h. Environmental consideration
I. Climatic and natural consideration
j. Technical analysis
B. Demand and Supply Analysis: The importance of a project depends on the demand for
its produced goods and services. By demand and supply analysis, we can get whether the
project is capable of producing quality products or not according to its customer demand. For
analyzing demand and supply, it is required to have adequate information about customer,
consumer, seller and their behavior. Demand and supply can be forecasted through data,
which are collected from the primary and secondary sources.
Stage 3- Feasibility Study: Feasibility study means to determine whether a project is
socially, economically, financially, politically and environmentally viable or not. Following
aspects are considered in feasibility study:
__________________________________________________________________________________________
a. Economic feasibility study: How a project is economically profitable/ acceptable is
examined in economic feasibility study. Generally overall conditions of the country, export
import, unemployment problem are given emphasis in economic feasibility study. Hence, in
economic feasibility study the following factors are considered:
 Net National Value Added
 Employment Effect
 Distribution Effect
 Foreign Exchange Effect
 Infrastructures Complications
 Environmental Complication
b. Financial Feasibility Study: Whether the project is financially positive or not is examined
in financial feasibility study. For analyzing financial feasibility study, the following factors
should be considered:
 Pay Back period (PBP): The payback period is the length of time which is required
to recover the initial cash outlay of the project.
Cost of Investment Net Cash Outlay (NCO)
PBP = Annual cash inflow or, PBP = Net Cash Benefit (NCB)
 Net Present Value (NPV): The NPV of the project is the sum of the present values of
all the cash flows- positive as well as negative –that are expected to arise over the
lifetime of the project. That means time value of money is considered here.
NPV=Total present value of cash inflow-Total present value of cash outflow.
 Benefit Cost Ratio (BCR): The BCR is defined as the present value of benefits
divided by the present value of costs. A project is considered worthwhile if the benefit
cost ratio is more than 1 and not worthwhile if the benefit cost ratio is less than 1.
Present Value of Benefit
BCR= Present Value of Cost
 Internal Rate of Return (IRR): The IRR of the project is the discount rate, which
makes its NPV equal to zero. By using below formula, IRR can be determined-
C
IRR= A+ D (B-A)
Where, A= lower discounting rate

B= Higher discounting rate
C= Net present value at lower discounting rate
__________________________________________________________________________________________
D= Difference between the net present value at higher discounting rate and at lower
discounting rate.
 Financial Ratios: Financial ratios are used to measure the project‘s financial
capacity; liquidity, ability to earn profit etc. are used in analyzing financial ratio.
c. Commercial Feasibility study: The commercial acceptability of the project is examined
in commercial feasibility study. In this case the following factors should be considered:
 What is the current demand of the product produced in a project and what will be the
demand in future?
 What will be the price of produced product in future?
 What will be the cost of the product?
 What will be nature and structure of distribution channel of the product?
d. Managerial Feasibility Study: Managerial feasibility study examined whether the
management of the project is right and eligible enough at the time of production and project
implementation. Managerial feasibility study is important at all the stages of project life
cycle, from in project definition to implementation to termination. Following aspects are
considered here:
 How much manpower are required, whether management personnel are skilled and
experienced, whether foreign expert is required or not?
 Consider equilibrium between supervisor and production staff, and from this,
determine size of management.
 Whether organization structure is appropriate for the project or not.
Stage 4- Appraisal of Project: Appraisal of project is the last stage of project formulation.
According to P.K. Mattoo, ―Project appraisal is the process of evaluating the salient features
of feasibility analysis, techno-economic analysis, design and network analysis, input analysis,
financial analysis and social cost benefit analysis of a project‖.
Actually project appraisal is the details list of answering several questions related to different
aspects of a project from which it is possible to know about the ins and outs of the project. A
list of considerable factors and fundamental questions about a project are as follows:
Considerable Factors Questions
1. Technical a. Whether the project is technically sound?
Feasibility b. Whether will our technology be obsolete in near future?
c. How much will the project be depended on foreign technology?
d. Whether the project engineering is viable?
2.Economic a. Whether the project is inconsistent with national economic structure?
Feasibility b. Whether the project gets priority?
c. Whether the project is capable of contributing to the concerned sector?
d. Whether the project contribution is viable for using scarce resources in
concerned sector?
__________________________________________________________________________________________
3.Financial Feasibility a. Whether the organization is financially capable?
b. Whether the cost estimation of the project is determined on the basis of future
price level?
c. What type of financing will be required and from where will it be collected?
d. What and how will be possible operating cost, income, liquidity etc.?
4.Commercial a. Whether the supply of products or services is adequate for construction work?
Feasibility b. Whether the supply of required equipment for project operation will be ensured?
c. Whether the necessary steps have been taken to forecast demand?
5.Organisational a. Whether the project will be succeeded?
Feasibility b. Whether any type of help will be required from outside the organization?
6.Managerial a. What will be the structure of proposed project?
Feasibility b. Whether present system will be adequate for directing and controlling?
7.Social Feasibility a. What type of change will be brought by the proposed project in human attitude
and behavior?
b. What is the attitude of the general people toward the project?
8.Environmental a. Will the project pollute environment?
Feasibility b. Whether the project hampers environmental equilibrium?
c. Is the project nature or environment friendly?
When the above-mentioned details information is presented in a document, then it can be
considered as project appraisal. It is also called ‗pre-investment report‘ or ‗feasibility report‘.
These 4 stages must be properly studied for effective project formulation.
Meaning of Project Identification

Project identification refers to determining the activities in order to control the emerged
situation, solving the existing as well the potential problem or to achieve any desired results.
Any project cannot emerged by itself. Various parties‘ like-government, person, organization
etc. take the initiative of the project. By analyzing various issues it can be observed that the
government is the primary initiator of most of the projects.
For the expansion of industry and commerce various industrial and commercial organizations
take the initiative of new projects. These types of initiatives influence the social and
economical condition of the country directly or indirectly. It creates employment opportunity
for many people, fulfill the demand of customers, as well as make the country import
independent.
The purpose of project identification is to develop a preliminary proposal for the most
appropriate set of interventions and course of action, within specific time and budget frames,
to address a specific development goal in a particular region or setting. Investment ideas can
arise from many sources and contexts. They can originate from a country‘s sector plan,
programme or strategy, as follow-up of an existing project or from priorities identified in a
multi-stakeholder sector or local development dialogue. Project identification involves:
 a review of alternative approaches or options for addressing a set of development
problems and opportunities;
__________________________________________________________________________________________
 the definition of project objectives and scope of work at the degree of detail necessary
to justify commitment of the resources for detailed formulation and respective
preparatory studies; and
 the identification of the major issues that must be tackled and the questions to be
addressed before a project based on the concept can be implemented.
By following the project identification process primarily it is possible to get three types of
decisions-
1. The project is potential.
2. The project is not potential that means it is not appropriate.
3. The data available is not in a position to reach in a decision.
Major Steps in Project Identification

Major steps in project identification, many of which will be pursued concurrently in the
identification process, are:
 Review of the national and sectoral analyses, plans and priorities of both the
government and the potential financing agency – for overall context and to identify
overall goals and outcomes to pursue;
 Social analysis– understanding the socio-economic context, and examining the
dynamics of rural livelihoods, social diversity and gender in the context of agriculture
and rural development;
 Stakeholder analysis – assessment of relevant stakeholders and institutions and their
respective interests, roles and capacities to inform definition of outcomes and
interventions. Mapping stakeholders can be a helpful analytical exercise, but care
should be taken that preliminary analysis does not cement a status quo at the expense
of developing a common vision for change;
 Diagnosis and preliminary assessments of technical, institutional or socio-economic
constraints and opportunities. Diagnosis of the underlying causes of the problems –
for instance, by using a problem tree approach – and of the factors which underpin the
opportunities;
 Preliminary definition of envisaged results of the investment, and overall project logic
in a draft results framework;
 The definition of clear project objectives and related metrics is important to focus the
discussion. The exact wording will be refined throughout design. It should capture the
essence of the concept and what the project will actually be able to achieve;
__________________________________________________________________________________________
 Review of alternative possible solutions or development strategies;
 Review and assessment of relevant past and current development efforts and projects
in the same or related fields or geographic area, considering the evidence base and
lessons learned, in particular from evaluations of relevance to the present context;
 Preliminary financial and economic analysis;
 Consideration of major cross-cutting issues such as climate change, gender, nutrition
and governance, and delineation of how they will influence project scope and
strategy.
Factors to be Considered in Technical Analysis of Project

In technical analysis, different strategic concepts which play a supporting role such as labor,
raw material, transportation, demand and supply etc are analyzed. Following factors are
considered for technical analysis:
A. Input Analysis: Where will the project be set up, what types of raw materials, manpower
are required and form where will it be collected etc are analyzed in input analysis. It include
the analysis of-
a. Location
b. Size and cost of land
c. Raw materials
d. Utilities
e. Manpower
f. Transportation facilities
g. Incentives and concession
h. Environmental consideration
I. Climatic and natural consideration
j. Technical analysis
B. Demand and Supply Analysis: The importance of a project depends on the demand of its
produced goods and services. By demand and supply analysis, we can get whether the project
is capable of producing quality products or not according to its customer demand .For
analyzing demand and supply, it is required to have adequate information about customer,
consumer, seller and their behavior. Demand and supply can be forecasted through data,
which are collected from both the primary and secondary sources. The below methods can be
used here-
__________________________________________________________________________________________
a. Jury or expert opinion: It involves soliciting the opinions of a group of Managers on
expected future sales and combining them into a sales estimate.
b. Delphi method: It is used for eliciting the opinions of a group of experts with the help of
mail survey.
Steps:
(i) A Group of experts are sent questionnaire and asked to express their views.
(ii) The responses received are summarized and another questionnaire based on this
response is sent back, not revealing the identity of the experts.
(iii)The process is continued till a reasonable agreement emerges.
c. Time series projection method: It involves analysis of historical time series. It includes
trend projection method, exponential smoothing method, or moving average method etc.
d. Causal method: It uses the phenomenon of change in one parameter due to the change in
another parameter to develop a cause effect relationship which can be converted into
quantitative method.
Considerable Issues in Feasibility Study of the Project

Managers frequently have to make decisions on whether or not to authorize investment in a
project, or they might be asked to decide between two or more different project options.
Depending on the type of project under consideration, their final decision will depend on
many factors. Feasibility study means to determine whether a project is socially,
economically, financially, politically and environmentally viable or not. For these reasons,
following issues are considered in feasibility study:
a. Economic feasibility study: How a project is economically profitable/ acceptable is
examined in economic feasibility study. Generally overall conditions of the country, export
import, unemployment problem are given emphasis in economic feasibility study. Hence, in
economic feasibility study the following factors are considered:
 Net National Value Added
 Employment Effect
 Distribution Effect
 Foreign Exchange Effect
 Infrastructures Complications
 Environmental Complication
__________________________________________________________________________________________
b. Financial Feasibility Study: Whether the project is financially positive or not is examined
in financial feasibility study. For analyzing financial feasibility study, the following factors
should be considered:
 Pay Back period (PBP)
 Net Present Value (NPV)
 Benefit Cost Ratio (BCR)
 Internal Rate of Return (IRR)
 Financial Ratios etc.
c. Commercial Feasibility study: The commercial acceptability of the project is examined
in commercial feasibility study. In this case the following factors should be considered:
 What is the current demand of the product produced in a project and what will be the
demand in future?
 What will be the price of produced product in future?
 What will be the cost of the product?
 What will be nature and structure of distribution channel of the product?
d. Managerial Feasibility Study: Managerial feasibility study examined whether the
management of the project is right and eligible enough at the time of production and project
implementation. Managerial feasibility study is important at all the stages of project life
cycle, from in project definition to implementation to termination. Following aspects are
considered here:
 How much manpower are required, whether management personnel are skilled and
experienced, whether foreign expert is required or not?
 Consider equilibrium between supervisor and production staff, and from this,
determine size of management.
 Whether organization structure is appropriate for the project or not.
In general, project managers or authority seek answers to questions like the following:
 Is the project feasible technically?
 Are we confident that the claims of the engineers, designers, consultants or architects
are valid?
 What are the environmental implications?
 What are the implications, if any, for our staff?
 For a new consumer product development, can we produce it, will people like it, how
many can we sell and at what price?
 Is the project likely to be finished on time?
__________________________________________________________________________________________
 How much will it all cost?
 For machinery or process plant, what are the expected operating costs?
 Will the proposed new plant produce as much output as the experts claim?
 What is the expected operational life of the new machinery?
 Is there no better project strategy than the one proposed?
 What are the technical risks?
 What are the commercial risks?
 Is the return on our investment going to be adequate?
 For a management change project, have the intangible benefits been evaluated as well
as the tangibles?
 How can we raise the investment money?
Considerable Issues Involved in Project Appraisal

Appraisal of project is the last stage of project formulation. It is such types of analytical
process that analyze the various parts of a proposed project, like- economic, financial,
technical, business, management aspects. It analyses the reality as well as profitability, and
the project manger take the decision of acceptability and investment based on this.
According to B.B. Goel, ―Project appraisal is a tool to examine as to whether in the given
situation it would be most realistic, reliable and reasonable one to commit resources or not.‖
According to P.K. Mattoo, ―Project appraisal is the process of evaluating the salient features
of feasibility analysis, techno-economic analysis, design and network analysis, input analysis,
financial analysis and social cost-benefit analysis of a project.‖
Therefore, we can say that, Project Appraisal is a consistent process of reviewing a given
project and evaluating its content to approve or reject this project, through analyzing the
problem or need to be addressed by the project, generating solution options (alternatives) for
solving the problem, selecting the most feasible option, conducting a feasibility analysis of
that option, creating the solution statement, and identifying all people and organizations
concerned with or affected by the project and its expected outcomes. It is an attempt to justify
the project through analysis, which is a way to determine project feasibility and cost-
effectiveness. For a proper appraisal of a project the project managers need to analyze the
following issues-
1. Technical potentiality.
2. Financial potentiality.
3. Monetary potentiality.
__________________________________________________________________________________________
4. Commercial feasibility.
5. Organizational feasibility.
6. Managerial potentiality.
7. Social feasibility.
8. Environmental feasibility.
The detailed information and data when published in a written document that is called the
project appraisal, reinvestment report or feasibility report. All these activities should be done
in a consistent way so that the investment decision becomes accurate, that will make the
project profitable.
Issues Involved in Social, Political and Economic Appraisal of Project

For social appraisal of project managers need to find the answers of the following
questions-
1. What types of change the proposed project can bring in human perception and
behavior?
2. What is the attitude of general people toward the project?
3. How the beneficiaries of the project will be associated with various stages of the
project?
By analyzing these various questions managers come to a decision that whether the project
will be socially acceptable. If the answer is positive then managers take the decision to
implement the project.
For political appraisal of project managers need to find the answers of the following
questions-
1. What is the attitude of politician regarding the project?
2. Whether the project goes against the policy of the government?
3. Will the government allow the project to be implemented?
4. Will the government give proper support for performing the activities properly?
When the answers of these questions come in favor then it is possible to take initiative to
implement the project.
For economic appraisal of project managers need to find the answers of the following
questions-
1. The organization that is going to take the initiative of the project is financially capable
or not. If not then how it is possible to achieve this financial capability?
2. Is the cost determined on the basis of future cost and price?
__________________________________________________________________________________________
3. What types of finance is needed for this project and from which source it will be
collected?
4. Whether the investors have the capability to pay the debt of the money lending
organization?
5. What will be the potential cost, income, liquidity, and income rate?
The financial issue is a very important issue because without money it is not possible to start
the project. All these three issues are needed to consider very carefully in order to get the
highest outcome from a project.
Impediments/ Problems/ Drawbacks Hindering Effective Project Formulation

Some controllable and uncontrollable drawbacks hinder effective project formulation. In
developing country like Bangladesh, problems or drawbacks of proper project formulation
may include the followings:
 The Project is not consistent with the purpose of initiative organization.
 The Project is not consistent with socioeconomic development of the country.
 Frequent change of govt. rules and regulations.
 Lack of political stability.
 Wrong presentation of project duration, cost, revenue, social cost benefit etc.
 Wrong selection of project place.
 Unsuitable technology selection and implementation.
 Increase in project cost as a result of unnecessary use of modern technology.
 Inadequate market analysis.
 Lock of planning with respect product mix at primary stage.
 Analysis of market on the basis of assumptions only.
 Radical change of market condition.
 Exaggerate financial planning.
 Problems of supplying raw materials.
 Underestimating project costs.
 Underestimating project scheduling.
 No use of modern management technique in project formulation.
 Lack of qualified professional and technically trained employees.
 Frequent transfer of higher managerial personnel.
 Ignore environmental problem influenced by project.
 Failure to evaluate entrepreneurial qualification to accept new project.
__________________________________________________________________________________________
 Social customs create barriers to the project beneficiaries.
 Higher initial cost.
 To be highly ambitious in project formulation by planner.
 Internal conflict of entrepreneurs/businesses/organizations due to self-interest etc.
Measures to be Taken for Ensuring Effective Project Formulation

Some necessary measures must be taken for ensuring effective project formulation. They are
as follows-
 The project must be consistent with socioeconomic development policy of the
country.
 The project must be consistent with the purpose of initiative organization.
 Accurate presentation of project duration, cost, revenue, social cost benefit etc.
 Adequate market analysis.
 Proper selection of project place.
 Accurate financial planning.
 Use of modern management technique in project formulation.
 Recruit qualified and experienced personnel.
 Don‘t make frequent transfer of project personnel.
 Consider environmental issue.
 Stable political climate.
 Select and implement appropriate technology.
 Develop proper project schedule.
 Include beneficiary group in the project formulation process.
 Ensure full support from other helping organizations like government, NGO‘s etc.
__________________________________________________________________________________________
Chapter 3: Appraisal Criteria
Meaning of Capital Budgeting
Capital budgeting is a step by step process that businesses use to determine the merits of an
investment project. The decision of whether to accept or deny an investment project as part of
a company's growth initiatives, involves determining the investment rate of return that such a
project will generate. The capital budgeting process is a measurable way for businesses to
determine the long-term economic and financial profitability of any investment project.
According to John J. Hampton, ―Capital budgeting may be defined as the decision making
process by which firms evaluates the purchase of major fixed assets including buildings,
machinery and equipments.‖
Hence, from the above discussion, it can be said that, capital budgeting is an evaluating
process to invest fund in different profitable long term assets and projects.
Basic Concepts Used in Capital Budgeting
(1) Cost of fund: Cost of funds is the interest rate paid by financial institutions for the funds
that they deploy in their business. The cost of funds is one of the most important input costs
for a financial institution. A lower cost will generate better returns when the funds are used
for short-term and long-term loans to borrowers.
Cost of funds is the rate of interest that a borrower will pay in order to obtain money through
a loan. It can also be referred to as simply the cost of borrowing money. Cost of fund means
the amount of money, which is given to main owner for collection of funds from different
sources. Any firm can collect necessary fund from different sources for business. This fund
can be collected through accepting loan, selling debenture and selling share. In capital
budgeting, cost of fund must be considered; because investment project has to earn more
income than this cost.
(2) Cost of capital: Cost of capital means minimum expected profit or rate of return from
any investment project. So, cost of capital is a minimum rate of return which an investor
expects. If rate of profit is earned more than the cost of capital, then the market value of the
share will increase. So, cost of capital is important for capital budgeting.
In economics and accounting, the cost of capital is the cost of a company's funds (both debt
and equity), or, from an investor's point of view "the required rate of return on a portfolio
company's existing securities". Cost of capital is the required return necessary to make a
capital budgeting project, such as building a new factory, worthwhile. Cost of capital includes
__________________________________________________________________________________________
the cost of debt and the cost of equity. Another way to describe cost of capital is the cost of
funds used for financing a business.
(3) Return on investment: Return on investment (ROI) measures the gain or loss generated
on an investment relative to the amount of money invested. ROI is usually expressed as a
percentage and is typically used for personal financial decisions, to compare a company's
profitability or to compare the efficiency of different investments.
Return on investment (ROI) is a performance measure, used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. ROI measures the
amount of return on an investment, relative to the investment‘s cost. To calculate ROI, the
benefit (or return) of an investment is divided by the cost of the investment. The result is
expressed as a percentage or a ratio. Generally, investor invests capital for earning profit.
Which profit is carried or expected to earn from certain investment is called return on
investment.
(4) Discounting rate: The future cash flow of project is converted to present value and which
rate of discount is used, is called discounting rate. The discount rate also refers to the interest
rate used in discounted cash flow analysis to determine the present value of future cash
flows.
It is a multiplier that converts anticipated returns from an investment project to their current
market value (present value). It is always less than 1, and depends on the cost of capital
(current compound interest rate) and the time interval between the investment date and the
date when returns start to flow. For this, the future income is discounted by that rate. Without
discounting rate, the project cannot be evaluated.
(5) Outflow and inflow: In any business organization, cash flow is divided into two types.
These are (i) cash outflow and (ii) cash inflow. These are discussed below:
(i) Cash outflow: Cash outflow means the investment of capital at different time by the
investor. Generally, any project accepts for investment and the amount of fund is used for
implementing project is called cash outflow.
(ii) Cash inflow: Which income or profit comes at different time from project is called cash
inflow. All types of future return from investment project are called cash inflow.
(6) Opportunity cost: It is the cost for choosing the next best alternatives. For producing any
product, different types of elements are required. These elements can be used as alternative
way in different production functions. Opportunity cost means the receipt rate of return from
good investment project which the firm has to sacrifice. Opportunity cost is to be considered
in capital budgeting.
__________________________________________________________________________________________
Meaning of Benefit-Cost Ratio
Benefit –cost ratio means the ratio between benefit and cost. Here benefit refers to the income
from the project and cost indicates the invested money and operational costs. It is mainly the
ratio between the value of present income and the value of present costs. By this ratio it can
be known how much money can be earned against investing a unit of money.
Benefit-Cost ratio= Present value of benefit/ Present value of cost.
If the value of benefit-cost ratio is 1 or more than 1 then the project is acceptable. In case of
more than one project the project in which BCR is more that particular project is more
acceptable. But if the benefit-cost ratio is less than 1 then that project is not acceptable.
Concept of Payback Period (PBP)

Payback period is the time required to recover an investment or loan. The payback period is
the length of time required to recover the cost of an investment. The payback period of a
given investment or project is an important determinant of whether to undertake the position
or project, as longer payback periods are typically not desirable for investment positions. The
payback period ignores the time value of money (TVM), unlike other methods of capital
budgeting such as net present value (NPV), internal rate of return (IRR), and discounted cash
flow.
According to Dennis Lock, ―Payback period seeks to answer the blunt question ‗How long
would this project take to pay for itself?‘ The method compares the predicted cash outflows
and inflows relating to a new investment option against those of an alternative option (which
in many cases means comparing the relative merits of proceeding with a project against the
option of doing nothing). Costs and income or savings are analyzed over consecutive periods
(typically years) until a point is reached where the forecast cumulative costs of the new
project are balanced (paid back) by the cash inflows that the project is expected to generate‖.
If one project annual cash inflow is static, then the payback period is expressed in the
following way:
Investment (Cash out flow) C
PBP = =A
Annual cash inflow
Advantages of Pay Back Period (PBP):
1. Payback period method is very easy and understandable.
2. It is less expensive than other method.
3. It is measured simply on the basis of cash flow analysis.
4. It emphasis on short-term project than risky project.
__________________________________________________________________________________________
Disadvantages of Pay Back Period (PBP):
1. Payback period method does not consider the cash flow of money for upcoming years.
2. It does not measure profit, because it does not count all the cash flow of life cycle of
project.
3. It does not consider time value of money.
4. It is not consistent with the companies` long-term goal.
Concept of Average/Accounting Rate of Return (ARR)

Accounting rate of return, also known as the average rate of return (ARR) is a financial ratio
used in capital budgeting. The ratio does not take into account the concept of time value of
money. ARR calculates the return, generated from net income of the proposed capital
investment. The ARR is a percentage return. The accounting rate of return (ARR), also
known as the simple or average rate of return, measures the amount of profit, or return,
expected on an investment. It divides the average profit by the initial investment to derive the
ratio or return that can be expected. Average rate of return is expressed by:
Annual Average Net profit
ARR = Average investment  100
Advantages of Average/Accounting Rate of Return (ARR method):

1. It is very easy to understand, measure and use.
2. It counts all the income in project whole life cycle.
3. It is very easy to determine from income statement.
4. It is very easy to scan the project unless its time duration and amount of recorded
capital are different.
Disadvantages of Average/Accounting Rate of Return:
1. In project evaluation method, ARR use the accounting profit without project cash
flow.
2. It does not consider time value of money.
3. It does not consider the reinvestment of project.
Concept of Net Present Value (NPV)

Net present value (NPV) is the difference between the present value of cash inflows and the
present value of cash outflows over a period of time. NPV is used in capital budgeting to
analyze the profitability of a projected investment or project. Generally, an investment with a
positive NPV will be profitable, and an investment with a negative NPV will result in a net
__________________________________________________________________________________________
loss. A zero net present value means the project repays original investment plus the required
rate of return.
A positive net present value means a better return, and a negative net present value means a
worse return, than the return from zero net present value. Thus, if this strategy shows the
positive figure or zero then the project is considered as acceptable. But if the result is
negative then the project is not acceptable. Net present value is expressed by:
 A1 A2 An 
NPV =   ........ n 
C , Here, K= Interest Rate
 1  K  1  K  2
1  K  
A= Net Cash Benefit
N= Number of Year
Advantages of Net Present Value Method (NPV):
1. It applies the time value of money.
2. It counts all cash flow of project.
3. It considers the nature and quantity of cash flow.
4. It has the opportunity to co-ordinate with the risk.
Disadvantages of Net Present Value Method:
1. It is difficult to use, understand & measure the method.
2. It is essential to determine the discount rate that is comparatively a difficult task.
Concept of Internal Rate of Return (IRR)

The internal rate of return (IRR) is frequently used by corporations to compare and decide
between capital projects. The IRR is the interest rate (also known as the discount rate) that
will bring a series of cash flows (positive and negative) to a net present value (NPV) of zero
(or to the current value of cash invested). Using IRR to obtain net present value is known as
the discounted cash flow method of financial analysis.
IRR is the average annual return earned through the life of an investment and is computed in
several ways. Depending on the method used, it can either be the effective rate of interest on
a deposit or loan, or the discount rate that reduces to zero the net present value of a stream of
income inflows and outflows. If the IRR is higher than the desired rate of return on
investment, then the project is a desirable one. On the other hand it can be said that IRR is
that discount rate in which the NPV of investment becomes zero.
According to R. L. Pitely, ―IRR is that rate of discount at which NPV=0, and BCR=1.‖
When the IRR is equal or more than the minimum necessary rate then it is acceptable
Internal rate of return is expressed by-
__________________________________________________________________________________________
A1 A2 A3 An
C = (1+k) + (1+k)2 + (1+k)3 +---------- + (1+k)n
n At
Or, C =  (1+k)t
t 1
Advantages of Internal Rate of Return (IRR):
1. It considers time value of money and discount, future cash flow by its discounting
rate.
2. It counts all cash flow of project life cycle.
3. It determines discount rate. So that it is considered to compare with the project cost of
capital.
4. It is very easy to compare a project with other project by using this method.
Disadvantages of Internal Rate of Return:
1. It is difficult to understand, measure & use.
2. The result of IRR & NPV may different when project life cycle, cash outflow and
cash inflow is different.
3. It is very difficult to use IRR method in a country with unstable economy.
Concept of Time Value of Money

Time value of money (TVM) is the idea that money available at the present time is worth
more than the same amount in the future, due to its potential earning capacity. This core
principle of finance holds that provided money can earn interest, any amount of money is
worth more the sooner it is received. In another word, a financial principle holding that a
dollar earned today is worth more than a dollar earned at a future date. It is based on the
assumption that today's dollar can begin earning compounded income immediately, whereas
earnings on the future dollar are deferred. That means, the value of present 100 Tk. is more
than the value of 100 Tk. we will get in future since we prefer present or existing money than
future money.
Time value of money is important due to below three reasons. These are:
1. We live in an uncertain world. Since firm does not sure about its future cash flow; so, firm
gives preference to its present cash flow.
2. Most of the people give preference on the present consumption than future consumption,
because in future there may arise many risks and it may not be possible to consume in future
at all.
__________________________________________________________________________________________
3. Most of the organization emphasis on existing money than the future cash flow, because
firms can invest its present money and gained profit. But in present time, it is not possible to
invest future cash flow.
Techniques of Time Value of Money

It is very important to convert the amount of money with the help of general measurement of
time to compare between cash inflow and outflow for this purpose we use two methods.
These are:
1. Compounding Method
 Annual Compounding
 Semi-Annual and other Compounding
 Quarterly Compounding
2. Discounting/Present Method
1. Compounding Method:
a) Annual Compounding: If it is compounded only one time in the year, then it is called
annual compounding method. The use of annual compounding is massive when money is
earned from the opening deposit than compounding the interest rate and after first
compounding convert into principle amount. Principle amount means first investing amount.
It follows the below formula:
Here,
Fn=Future Value
Fn= P(1+K)n P= Principle/Opening amount
K= Interest Rate
N= Time/Number of year
b) Semi-Annual Compounding: If it is compounded two times in the year, it is called Semi-

annual compounding method. Its formula is-
Here,
Fn=Future Value
Fn= P(1+K/m)m n P= Principle/Opening amount
K= Interest Rate
m= Times the compounding of the year
n= Time/Number of year
__________________________________________________________________________________________
c) Quarterly Compounding: If it is compounded four times in the year, it is called quarterly
compounding method. Its formula is-
Here,
Fn=Future Value
Fn= P(1+K/m)m n P= Principle/Opening amount
K= Interest Rate
m= Times the compounding of the year
n= Time/Number of year
2. Discounting/Present Method: It is the opposite technique of compounding technique. In

the concept of compounding method, invested amount increased because here we add the
interest rate. Present value, also called "discounted value," is the current worth of a future
sum of money or stream of cash flow given a specified rate of return. Future cash flows are
discounted at the discount rate; the higher the discount rate, the lower the present value of the
future cash flows. In discounting technique, future value of money converts into present
value of money. In fixed discounting rate, present value of investment amount will be less
than the future value of money. For this reason, the process of determining present value of
future cash flow is called the discounting technique. The formula used here is-
Fn= P(1+K)n Here,

Fn=Future Value
Fn P= Principle/Opening amount
So, P = (1+k)n
K= Interest Rate
N= Time/Number of year
__________________________________________________________________________________________
Sample Mathematical Problems
Problem-1: Initial cost of a project is Tk. 25,000 and cash inflow from that project for the
next 5 years will be gradually Tk. 9,000, Tk. 8000, Tk. 7000, Tk. 6000 and Tk. 5000. If the
capital expenses is 10% then what will be the net present value?
Solution: We know,
 A1 A1 An 
NPV=    .........................  C
 1  k  1  k  1  k n 
1 2
Here, C= 25000Tk.
K= 10% = 0.1
N= 5 Years
A1= 9000, A2= 8000, A3= 7000, A4=6000, A5=5000Tk.
NPV=?
 A1 A2 A3 A4 A5 
 NPV=       C
 1  k  1  k  1  k 3 1  k 4 1  k 5 
1 2
 9000 8000 7000 6000 5000 

=      5 
 25000
 1  0.11
1  0.1 2
1  0.13
1  0.1 4
1  .01 
 9000 8000 7000 6000 5000 
=       25000
 1.1 1.21 1.331 1.464 1.610 
= (8181.818+6611.570+5259.203+4098.080+3105.590)-25000
= 27256.261-25000
= 2256.261
= 2256.261 Tk.
 NPV= 2256.261 Tk. (Ans.)
Problem-2: If we get Tk. 9000 after 3 years by investing Tk. 6000, where capital expense or
discount rate is 9%; then, find out whether the investment will be profitable?
Solution: We Know,
 An 
NPV=  n 
C
 1  k  
Here, C= 6000 Tk.
A= 9000 Tk.
K= 9% =0.09
__________________________________________________________________________________________
N= 3 Years
NPV=?
 An 
 NPV =  n 
C
 1  k  
 9000 
=  3
 6000
 1  0.09  
 9000 
=  3
 6000
 1.09 
 9000 
=    6000
 1.295
= 6949.806-6000
= 949.806
= 949.806 Tk.
NPV= 949.806 Tk.
As the NPV is Tk. 949.806 of that project is positive, so the investment will be profitable.
Problem-3: The initial cost of a project is Tk. 5000, and if we get Tk. 10,000 as cash inflow
after 5 years then what will be the internal rate of return?
Solution: We know,
n
At
C t
t 1 1  k  Here,
10,000 t= 5 year (Time)
 5000  C= 5000 Tk.
1  k 5 a= 10000 Tk.
k=?
 1  k  
5 10,000
5000
 1  k   2
5
1 1
 1  k  5
1
5
2 5
[Both side are multiplied by 1 5 ]
 1  k   2 .2
 1+k= 1.148
 k= 1.148-1
 k= .148
__________________________________________________________________________________________
 K  .148  100 %
 k= 14.8%
 k= 14.8%
Ans. 14.8%
Problem-4: The initial cost of a project is Tk. 10,000 (cash outflow). From that project we get
gradually Tk. 4000, Tk. 2500, Tk. 2000, Tk. 3500, and Tk. 3500 as cash inflow for the next 5
years. Find out the IRR.
Solution: Calculate the fake annuity = sum of cash inflow/year
=15,500/5
=3100 Tk.
Calculate the payback period = initial cost/fake annuity
=10,000/3100
=3.225
Now we find the factor close to 3.225 (5 years) is 3.2743 for 16%
So, at first we have to find out present value with 16 % discounting rate:
We know,
 A1 A1 An  Here,
NPV =    ......................... n 
C C= 10000Tk;
 1  k 1
1  k  2
1  k   K= 16%=.16
A= Cash inflow
 A1 A2 A3 A4 A5 
NPV =       C
 1  k  1  k  1  k  1  k  1  k 5 
1 2 3 4
 4000 2500 2000 3500 3500 

=        10000
 1  .16 1  .16 1  .163 1  .164 1  .165 
1 2
 4000 2500 2000 3500 3500 

=      5 
 10000
 1  .16 1
1  .16  2
1  .16 3
1  .16  4
1  .16  
 4000 2500 2000 3500 3500 
=        10000
 1.16 1.345 1.560 1.810 2.100 
= (3448.275+1858.736+1282.051+1933.701+1666.666)-10000
= 10189.429-10000=189.429
= 189.429 Tk.
At 16% discounting rate NPV is positive. So, we may try with a larger discounting rate. At
18% discounting rate:
__________________________________________________________________________________________
We know,
Here,
 A1 A1 An  k=18%=.18
NPV =    ......................... n 
C
 1  k 1
1  k  2
1  k  
 A1 A2 A3 A4 A5 
=      C
1  k  1  k  1  k 5 
NPV
 1  k  1  k 
1 2 3 4
 4000 2500 2000 3500 3500 

=      5 
 10000
 1  .18 1
1  .18  2
1  .18 3
1  .18  4
1  .18  
 4000 2500 2000 3500 3500 
=        10000
 1.18 1.392 1.643 1.938 2.287 
= [3389.830+1795.977+1217.285+1805.985+1530.389]- 10000
= 9739.466-10000= -260.534
= - 260.534 Tk.
Now, we have to calculate internal rate of return (IRR).
We Know,
IRR  A 
C
 B  A
D
 .16 
189.429
.18  .16 Here,
A = lower discounting rate = 16%=.16
449.963
B = higher discounting rate = 18% = .18
=0 .16 +0.420×0.02 C = NPV at lower discounting rate=189
= 0.16+0.00840 D = difference between NPV at lower discounting rate
and higher discounting rate = 189.429- (-260.534)=
= 0.1684 189.429+260.534=449.963
= (0.1684×100)% = 449.963
= 16.84 %
 IRR= 16.84%
Ans: 16.84%
Problem-5: Mr. X takes the decision to deposit Tk. 1,000 with the condition of 8% semi-
annual compounding interest rate in his savings account. After 2 years what will be the
amount of his money?
Solution: We know that in case of semi-annual compounding,
Here,
Fn  p1 k / m P= 1000
mn
K= 8%= .08
 Fn  10001  .08 / 2
22 m= 2
n= 2 years
=1000 (1+.04)4
__________________________________________________________________________________________
= 1000 (1.04)4
=1000×1.169
= 1169
 Mr. X will get Tk. 1169 after the end of two years.
Ans: 1169 Tk.
Problem-6: Mr. Y gets a piece of information that a financial institution will provide 8%
compounding interest rate on the basis of quarterly. If he deposits Tk. 1,000 at quarterly basis
for 2 years then what will be the future value?
Solution: We know that in case of quarterly compounding. Future value,
Fn  p1  k / m
mn
Here,
 Fn  10001  .08 / 2
42
P= 1000
K= 8%= .08
=1000 (1+.02)8 m= 4
= 1000 (1.02)8 n= 2 years
Fn= Future Value= ?
=1000×1.171
= 1171
 Fn= 1171 Tk.
Ans: Future value= 1171 Tk.
Problem-7: Miss. Nazah deposits into savings account for five years gradually Tk. 10,000,
Tk. 20,000, Tk. 30,000, Tk. 40,000, and Tk. 50,000 at the end of the year. If the interest rate
is 10% then at the end of 5 years, what will be the future value of savings and between semi-
annual & quarterly compounding, which method will be preferable?
Solution: For Semi- annual compounding method,
Fn  p1 k / m
mn
Here,
 Fn  100001  .15 / 2
22
P= 1000 Tk.
K= 15%= .15
=10000 (1+.075)4 m= 2
= 10000 (1.075)4 n= 2
Fn= Future Value= ?
=10000×1.335
= 13350
 Fn= 13350 Tk.
__________________________________________________________________________________________
For Quarterly Compounding Method,
Fn  p1 k / m
mn
4 2
 .15 
 Fn  100001   Here,
 4  m= 4
= 10000 (1.037)8
=10000 (1.037)8
=10000 ×1.337
= 13370
 Fn= 13370 Tk.
So, quarterly compounding method will be more profitable for Miss. Nazah because future
value is high in this method.
Problem-8: Miss. Naisha deposits into savings account for five years gradually Tk. 10,000,
Tk. 20,000, Tk. 30,000, Tk. 40,000, and Tk. 50,000 at the end of the year. If the interest rate
is 10% then at the end of 5 years, what will be the future value of savings?
Solution: As she deposits money at the end of the year gradually, so she will not get any
interest on last year‘s deposit.
So, Fn= P (1+K)4+ P (1+K)3+ P (1+K)2+ P (1+K)1+ P (1+K)0
or, Fn= 10000 (1+.10)4+20000 (1+.10)3+30000 (1+.10)2+ 40000 (1+.10)1++50000
= 10000 (1.10)4+20000 (1.10)3+30000 (1.10)2+40000 (1.10)1+50000 Here,
= 14640+26620+36300+44000+50000 k= 10%
=.01
= 1, 71,560 Tk. Fn=?
 After 5 years the future value of her savings will be Tk. 1,71,560
Ans: 1, 71,560 Tk.
Problem-9: Till 5 years Mr. Z is depositing Tk. 20,000 on his account on the basis of 10%
compounding interest rate at the end of the year. What will be the amount of his savings after
5 years?
Solution: As Mr. Z deposits money at the end of each year, so he will not get any interest on
last year‘s deposit.
So, Fn= P (1+K)4+P (1+K)3+ P (1+K)2+ P (1+K)1+ P (1+K)0
or, Fn= 20000 (1+.10)4+20000 (1+.10)3+20000 (1+.10)2+20000 (1+.10)1+20000
= 20000 (1.10)4+20000 (1+.10)3+20000 (1+.10)2+20000 (1.10)1+20000
__________________________________________________________________________________________
= 20000 (1.464)4+20000 (1.331)3+20000 (1.21)2+20000 (1.10)1+20000
= 29280+26620+24200+22000+20000
= 1, 22,100 Tk.
 Fn= 1, 22,100 Tk.
So, the amount of his money after 5 years will be Tk. 1,22,100.
Ans: 1, 22,100 Tk.
Problem-10: Mr. Pramanik wants to get Tk. 1 after finishing the 1st, 2nd and 3rd year. If the
discount rate is 10% then how much money he has to pay at present?
Solution: We know that,
Fn  p1  k   P(1  K )  Fn
n
Fn
P 
1  k n
The present value of Tk. 1 after 1st year will be-
Here,
Fn k= 10%
P 
1  k n =.01
n=1
1

1  .10 1
1

1.1
 P= .909 Tk.
The present value of Tk. 1 after 2nd year will be-
Fn Here,
P 
1  k  2
n=2
1

1  .102
1

1.21
= .826 Tk.
 P= .826 Tk.
The present value of Tk. 1 after 3rd year will be-
Fn Here,
P 
1  k  3
n=3
__________________________________________________________________________________________
1

1  .10 3
1

1.331
= .751
 P= .751 Tk
 Mr. Pramanik has to pay at present (.909+.826+.751) = 2.486 Tk. to get Tk. 1 after
finishing 1st, 2nd and 3rd year.
Problem-11: Mr. X has an opportunity to get gradually Tk. 4000, Tk. 8000, Tk. 5000, Tk.
4000, and Tk. 3000 for the next 5 years at the end of the year. At 10% discount rate what will
be the present value of cash flow?
Solution: We Know that,
Fn Fn Fn Fn Fn
Present value, P =    
1  K  1
1  K  2
1  K  3
1  K  4
1  K 5
4000 8000 5000 4000 3000
P     
1  .10 1
1  .10 2
1  .103
1  .10 4
1  .105
4000 8000 5000 4000 3000
    
1.10 1.21 1.331 1.464 1.610
= 3636.363+6611.570+3756.574+2732.240+1863.354
= 18, 6000.101
 P= 18,600.101 Tk.
Ans: Present value of cash flow= 18,600.101 Tk.
Problem-12: Mr. Y has an opportunity to gain Tk. 1 as an annual annuity for 4 years at 10%
time preference rate. Find out the present value of that annual annuity.
Solution: We know, in case of annuity, for 4 years-
A A A A
P   
1  K  1
1  K  2
1  K  3
1  K 4
1 1 1 1
   
1  .10 1
1  .10 2
1  .10 3
1  .104
1 1 1 1
   
1.10 1.21 1.331 1.464
= .909+.826+.751+.683
__________________________________________________________________________________________
= 3.169
P= 3.169 Tk.
So, the present value of that annual annuity is 3.169 Tk.
Problem-13: Mr. Z has borrowed Tk. 18,450. According to the loan condition he has to repay
the loan with five equal installments. Each installment takes Tk. 5000. What will be the rate
of interest (compound)?
Solution: Final amount at the end of 5 years = 5000×5=25000Tk.
Fn= 25,000 Tk.
P= 18450 Tk.
n=5 Years
Compounding rate of interest, K=?
We know,
Fn= P (1+K)n
 2500= 18450 (1+K)5
 Log 25000= log 18450 (1+k)5
 log 18450 (1+k)5= log 25000
 log 18450+log (1+K)5= log 25000 [ log mn= logm+logn]
 log (1+k)5= log 2500-log 18450
 5 log (1+K) = 4.397-4.265 [log an= n log a]
.132
log (1+k) =
5
 log (1+k) = 0.26
 1+k= Antilog of 0.026
 1+k= 1.061
 k= 1.061-1
 k= .061
 k= (.061×100) %
= 6.1%
Ans: Interest rate 6.1%
Further Reading
1. Project Management- Dennis Lock (Ninth Edition).
__________________________________________________________________________________________
Chapter 4: Project Planning & Scheduling
Meaning of Project Planning
Project planning is a framework or blue print of action regarding the project. It indicates the
particular budget regarding time, cost and wealth to implement the project. It is the pre
decision regarding the activities of project, time and cost of completing a project and
regarding a required resource of a project.
It‘s often been said that project management really consists of two major phases-doing the
right project and doing the project right. Ensuring that the project is based upon a true need
and that it‘s justified from a business standpoint are two important aspects of doing the right
project. Project planning, on the other hand, is all about doing the project right.
Project planning consists of two components. The first is almost strategic; it consists of
understanding some of the principles and philosophies of planning. The second component of
project planning is tactical-almost mechanical; it consists of the step-by-step process of
creating a detailed project plan, using estimates as raw material.
According to G. R. Heerkens, project plans are considered to consist of three fundamental
―dimensions‖:
 Cost: how much money that will be spent and how it‘s budgeted over time
 Time: how long it will take to execute work—individually and as a total project
 Scope: what is to be done?
According to R. L. Martino, ―A project plan establishes the duration of the project, the
resources needed to complete each activity and the required sequences of performance of
each job.‖
From the above definition of Martino regarding a project plan, we find three elements of a
project plan. They are –
 Determining the time or duration of a project.
 Forecasting the required resources of a project.
 Identifying the schedule of activities of the project.
The Project Planning Process

Project plans tend to emerge gradually. They are continuously modified and refined in terms
of content, structure, and level of detail. As the project definition becomes more refined,
work is broken down into ever-increasing levels of detail, assumptions are verified or refuted,
and actual results are achieved, the project plan must keep pace.
__________________________________________________________________________________________
Although there are many variations of the basic project planning process, the below figure
illustrates a common phenomenon. Project plans are often generated in iterations: at different
times, in different levels of detail, for different purposes. Major iterations are often tied to key
decision points and result in the creation of different versions of the plan at different levels of
detail and precision.
Figure: The evolution of project plans

 The first version of the project plan occurs before the project has been defined. In this
version, estimates of cost and schedule are relatively crude and are established with little
knowledge of the specifics of the project. It‘s done primarily for the purpose of allocating
funds to an effort that will be listed in an organization‘s annual operating budget.
 The next version of the project plan is created when the organization is prepared to
initiate a project represented in its operating budget. Sufficient planning must be done so
that it can be formally decided whether or not the project is an investment worth funding.
 The next version of the plan emerges only if the project proposal is approved. A detailed
plan is created that the project team will use as a guide for implementation and that the
project manager/director use to evaluate progress and maintain control.
 The next stage in the evolution of the project plan is continuous re-planning. As the team
executes the project, change will occur. Actual results will inevitably be different from
what was expected at the outset of the project, so project team will need to make ongoing
course adjustments. These continual changes should be reflected in slight modifications to
the plan.
 The last version of the plan although not familiar enough, but expert‘s found it to be quite
real and very vital to achieving success. It occurs near the end of the project, when it
becomes apparent that a number of work items (sometimes referred to as a punch list)
must be taken care of in order for the project to be considered complete. When project
manager reach this stage, he/she may find it useful to create a new plan, just for
completing all remaining work.
__________________________________________________________________________________________
Meaning of Scheduling
Scheduling simply refers to the time table of future performing activities. When the tasks will
be started and when it will be ended- is the subject matter of scheduling. It includes the
timetable of various activities. It can reflect the prospective starting and ending period of
each activity of the project. On the basis of time available in scheduling, project authority
usually distributes the resources to implement the project.
According to R. L. Martino, ―A schedule depicts the expected start and finish time of each
job. It is produced by allocating resources up to the limit of availability, according to the
requirements given be the plan.‖
According to Punmia and Khandelwal, ―Scheduling is the determination of time required
for execution of each operation and the time order in which each operation has to be carried
out, to meet the plan objectives.‖
Steps of Scheduling Suggested by Dennis Lock

Scheduling is one of the critical tasks of project management. Scheduling shows the steps of
performing various activities and it is possible to know the probable starting and ending
period of performing each activities from the scheduling. For this reason the success of a
project depends on the proper formulation of scheduling. Dennis Lock suggests seven steps
of successful project scheduling. These steps are as follows:
1. Determination of project objective: It is the first task to determine the objectives of
project and recheck the same to make the schedule of the activities of the project.
2. Division of project: After determining the objectives of the project, it is logical to divide
the total project into several divisions for easy supervision and controlling of the project.
3. Steps of activities: After dividing the project, project manager needs to determine the
sequence of activities of the project. That means, develop sequential steps of performing each
activity of the project.
4. Estimating time: After developing the sequences of each activity of the project, next step
involves estimating time for each activity separately. Estimated time depicts the logical
starting point of each activity.
5. Terminating time: After developing the estimating time, project manager also needs to
determine the terminating time of each activity on the basis of estimated time span of
different activities of the project.
6. Coordination: After developing terminating time of each activity of the project, it is
expected that the project manager make careful coordination of the programs of the project
__________________________________________________________________________________________
with the resources available in project. If the resources are not available according to
scheduling, then schedule may be changed with the changing circumstances.
7. Disposing responsibility: It is the last step of scheduling the project. After coordinating
the programs with the available resources, project manager needs to dispose the duty and
responsibility of the project on the persons or project team who are involved to implementing
the project.
Planning and Scheduling Environment

Anyone planning a project of significant size will soon find that there are a number of factors,
both inside and outside the project organization, which can have a profound effect on the
project. Also, the quality of the plans and schedules that are produced will greatly influence
the benefits that can be expected for the company and everyone else concerned in carrying
out the project. The below figure denotes a simplified graphical representation of these ideas.
Figure: Project planning environment
__________________________________________________________________________________________
1. External factors: External factors are events and conditions that lie outside the control of
the project management organization. Some of these factors can affect or completely wreck
attempts at project planning. They can even result in project cancellation. They may include
the following:
Acts of God – all projects are subject to risk, and many of those risks can have an enormous
impact on plans. The following are just four from a long catalogue of happenings that can be
classified as Acts of God:
 An earthquake devastates a project organization‘s headquarters.
 A hurricane and flood put a project site under a metre of water and delay the start or
ruin the work in progress.
 An influenza epidemic puts half the project workforce out of action.
 The project manager is struck by lightning.
Fiscal policy – the actions of a national government in respect of taxation and other financial
measures can have a profound effect on projects and their planning. One extreme
manifestation of this is seen when a government-funded project is cancelled or abandoned
through a political decision. Less immediate, but of general concern, are the wider and
longer-term economic consequences of government fiscal policies, such as (for example) the
diversion of funds or special taxation relief to or from different national regions.
Corporate strategy – strategic decisions made by managers outside and above the project
organization can affect many aspects of planning. For example, a strategic decision is made
to halt all new staff recruitment or even to downsize, so reducing the resources previously
expected to be available for projects.
Statutory regulations – legislation by national and regional governments can impose extra
burdens on project designers, staff and participating organizations that have to be taken into
account at the planning stage. This can be a particularly important feature of projects carried
out in foreign countries, where the project manager would need to research the local
employment, welfare, technical and commercial regulations before committing resources to a
plan.
2. Working factors: The items labeled ‗working factors‘ are those that are most likely to
affect the project manager and the project on a day-by-day basis. The factors shown in the
figure should be self explanatory. They can apply to all kinds of projects and project
organizations. Although these working factors can have a profound effect on the project
outcomes, the project manager will often find that some or all of them are determined by
managers or circumstances over which the project manager has no authority or power. Project
__________________________________________________________________________________________
managers have to learn what the organizational difficulties are for their particular project.
They must then plan and act according to the amount of power or influence that they can
command through their own personality, drive and strength of character, by their status in the
organizational hierarchy and by the amount of support that they can draw down from higher
management.
3. Contribution of good planning to results: As one of the foundations of project
management, planning should promote efficient working when it has been done sensibly and
logically. Project workers who are spared the frustration of constantly trying to overcome
crises caused by bad planning can devote more of their time to achieving the quality
standards expected. Thus a well-planned project stands a far greater chance of being
completed within time and budget. That should contribute greatly to cost effectiveness and
profitability.
Importance of Project Planning

Project planning is an important part of project implementation. The budget is formulated and
financial controlling systems are taken on the basis of project planning. Project planning is
the basis for delegating authority to the project manager. It also creates the consciences
regarding the time of completing. Project planning emphasizes on the logical execution of
diversified activities of project.
1. Organizing the functions of project: For the proper implementation of a project, all
functions related to it must be organized. For this proper planning is needed.
2. Determining what, who, why, where, when, and how related aspects of project tasks:
Successful implementation of projects depends largely on the determination of types of tasks
to be performed, who will do the tasks, and where, when and how the tasks will be
performed. Proper planning is needed to satisfy those queries.
3. Determine the necessity of wealth: To perform the tasks of a project some wealth or
resources are necessary. The project manager needs to determine the amount of different
types of wealth/resources necessary to implement the project through proper planning.
4. Distribution or dissemination of resources to implement the project: Project manager
have the responsibility of not only collecting the resources but also to distribute the necessary
wealth/resources to different sectors to perform the project related tasks. For this they have to
develop a proper plan.
__________________________________________________________________________________________
5. Determination and distribution of responsibility: Proper authority and responsibility
must be provided to employee related to the project implementation. In this context proper
planning helps to determine the required authority and responsibility for each task.
6. To maintain effective communication with the people related to project: Different
parties are related to a project. It is necessary to maintain a good relation with all the parties.
Proper project planning helps to determine the degree of relation and corresponding need for
communication with different parties.
7. Coordination between all tasks and employee: We know that employees are the key
persons in implementing a project. So it is necessary to make coordination between all the
tasks and employees related to a project. Proper planning facilitates such coordination.
8. Develop the control process: Control process is necessary to evaluate the actual
performance with the expected performance. So an effective control process needs to be
established. Proper planning acts as the foundation of establishing control system in project
management.
9. Handling the changing situation and uncertainty: Business environment is always
changeable and uncertain. Project manager need to either control or adapt to these changing
situations. Proper planning shows the paths for handling such changing situations.
For the above mentioned reasons, project planning is of significant importance to project
managers.
Functions of Project Planning

Project planning as a vital aspect of project management, serves several important functions;
they are as follows:
1. It provides a basis for organization, working area of members in the project and allocating
responsibilities to individuals/project team members.
2. It is the pathway of communication and coordination among all the members who are
involved in the project.
3. It helps project related people to look forward.
4. It increases the sense of urgency and time consciousness.
5. It establishes the basis of monitoring and controlling.
Common Planning Failures/Why do Plans Fail?

The common mistakes that some project managers make in their approach to planning
include-
__________________________________________________________________________________________
1. Failure to plan: Many factors influence the degree to which project manager should plan
the project. Sometimes, a relatively small amount of planning effort will suffice. However,
some project managers feel (or are pressured into feeling) that planning is not worth doing at
all. Some project managers- particularly new ones-are extremely action-oriented. They feel
that time spent in planning is lost. Others are pressured by their management, their
organizational culture, or some stakeholders into cutting short any meaningful planning
effort.
2. Failure to plan in sufficient detail: Sometimes project managers make an attempt to plan,
but don‘t do it in enough detail. It‘s a question of how they size and compose elements of
work-specifically the ones that they then put on their schedule and attempt to watch closely.
Failing to plan and schedule project work in enough detail can result in three significant,
undesirable effects, which you can avoid by asking these questions:
(i) Will all involved participants readily understand what it includes?
(ii) Can you prepare a reasonably accurate estimate of duration and cost?
(iii)Will you be able to effectively monitor its progress?
3. Failure to know when to stop planning: This can be just as much a problem as not
planning in enough detail. Some people believe that the further they break down the work,
the more control they‘ll achieve. That‘s simply not true. Let‘s say that a project manager is
managing a 14-month project and he/she conducts team status meetings every two weeks. If
he/she plan in such detail that his/her elements of work are only a few days in duration,
several of them may (or may not!) be completed between team meetings.
4. Failure to involve task performers in planning: The people who will be working on the
project should be heavily involved in planning their portion of it. There are at least two good
reasons for this. First, the planning outputs will undoubtedly be more accurate as the task
performers are probably more knowledgeable than project manager-after all, it‘s what they
do. Second, involving them during the planning stage is likely to make them significantly
more willing to participate and more committed to succeeding. People often feel compelled to
live up to what they‘ve promised.
5. Failure to reflect risk and uncertainty in plans: Nearly all projects that go wrong do so
because risk and uncertainty were left untreated. Risk management techniques use statistics
and other scientific methods to allow the project manager to make the most reasonable
prediction of an outcome in conditions of high uncertainty. Yet many who plan projects do
not properly assess, accommodate, or plan for the inherent risk in projects.
__________________________________________________________________________________________
6. Failure to keep the plan current: For some project managers, planning is a one-shot deal.
They create a plan and then store it away in a notebook on their shelf for the remainder of the
project. Project plans must be kept current. They must continuously reflect what‘s occurring
on the project. Variations from the original plan are inevitable. If the project manager doesn‘t
take these variations into account, it‘s harder to maintain control, chaos is more likely, and
hurt his/her chances of bringing the project in on time and within budget.
Besides the above mentioned causes, there are some other reasons of failure of project plan;
such as-
 If the objectives of the project are not clear to the lower level management then project
plan may fail.
 If financial forecasting is weak and unreliable then there is huge possibility to fail the
project plan.
 If it includes more task in a project and if there is deadline to complete the project
activities within very short time then project plan may fail.
 If plan is prepared on the basis of insufficient information, then the project plan will
normally be unreasonable, unreliable, and unrealistic.
 The success of project plan largely depends on the project implementation. If there is a
lack of qualified persons for implementing the project then project may fail.
 If the project plan formulation process is not systematic and scientific, then project plan
may go vain.
 If plan is prepared on the basis of assumption without depending on past experience, or
standard value then the plan will not be effective and realistic.
 If the project is suffering from the natural calamity or accident then project manager has
nothing to do. Because of natural calamity project plan may go vain.
 If project manager repetitively change the employee without investigating schedule and
program then project plan may be vague to the new employees, leading to its failure.
 Team work is crucial for effective project formulation and execution. For team work,
cooperation among the members is essential. If employees of the organization are not
cooperative for implementing the project then project plan may fail as a logical result.
How Much Planning Is Enough?

As is true of so many questions that arise in project management, the answer to this question
is … it depends. In this case, it depends upon many factors. Among the most important are
the following:
__________________________________________________________________________________________
1. Organizational expectations: As mentioned above, organizations have different
perspectives on the value of planning. This will reflect directly upon the time and effort teams
are expected to put into planning. It‘s absolutely vital that project manager understand his
organization‘s expectations relative to planning.
2. Project importance: This factor is associated more with organizational politics than
technical or logistical criteria. If project manager is politically astute, he‘ll realize that there‘s
likely to be much more attention paid to the so-called ―hot project‖ than to other, more
mundane projects.
3. Project Complexity: Projects can vary considerably in complexity. Those that require a
significant amount of coordination among parties, that have intricate timing, or that include a
lot of participating work groups, for example, will ordinarily require more effort and
forethought in planning.
4. Project size: Obviously, large projects require more planning than small ones. However,
the time allocated to planning and the control of large projects can often be proportionately
less. In many organizations, mega-projects get more visibility and therefore more attention.
5. Amount of uncertainty: When the level of uncertainty is extremely high, detailed
planning of the entire project at the outset may not be advisable. In fact, it may be a waste of
time, due to amount of change likely. On projects where the level of uncertainty is high,
project manager will probably end up doing the same amount of planning, but spread out
periodically throughout the life of the project. In other words, expect to spend a good deal of
time re-planning, as he encounters change.
6. Project management software selection: Project manager‘s choice of project
management software (if he uses it) will affect his planning time. Obviously, the more user-
friendly the software, the less time he‘ll have to invest in using it. However, be aware that
project management software products differ significantly in cost, capability, and utility.
Distinction between Planning and Scheduling

Some persons think that project planning and project scheduling is the same thing. But this is
not correct. Project planning and project scheduling is two different conceptual task of project
management.
A plan can be considered as the listing or visual display that results when all project activities
have been subjected to estimating, logical sequencing, target timing and the determination of
priorities. For projects of any significant size, some form of network analysis is usually the
preferred method for preparing a plan. However, some charting methods provide better visual
__________________________________________________________________________________________
aids, can be more effective for communicating plans to project personnel and are often quite
adequate for small projects.
A schedule, on the other hand, is obtained by doing additional work on the initial plan, so that
resources needed to carry out all the project activities are taken into account. In other words,
a schedule is the practicable working document that results by matching the organization‘s
available resources to the initial plan within the stipulated time.
From the above discussion, we can say that, although project planning and project scheduling
is the blueprint of future activities but project scheduling is very much definite than project
planning and time consideration is more emphasized in project scheduling. That means
Project planning and project scheduling is not the same.
__________________________________________________________________________________________
Chapter 5: Project Cost Estimation and Financing
Meaning of Project Cost Estimation
Estimating is a big part of project planning. To prepare an accurate, thorough project plan,
project manager will need to estimate many things: how long it will take to do the work, how
much the work will cost, how much money the project will save or make, the magnitude of
the risk and uncertainty involved, and other aspects of the project.
Webster simply defines estimating as ―determining approximately the size, extent, value,
cost, or nature of something.‖
Reliable cost estimates are necessary for all projects, whether or not they are to be sold for a
fixed price to an external customer. Without a cost estimate it would be impossible to
establish detailed budgets, control spending, assess manpower requirements or perform many
other management procedures.
How much money will be needed to implement the project effectively is estimated before its
implementation. By project cost estimation, project initiator can get an idea about the project
cost. It also helps to find out the possible sources of finance and to take timely decisions. So
we can say that, project cost estimation means estimation of project costs before its
implementation.
Terms Commonly Used in Project Cost Accounting

Absorption costing– a method that attempts to recover indirect costs (overheads) by
apportioning them over all the company‘s direct costs.
Below-the-line costs– a collective name for the various allowances that are added once a
total basic cost estimate has been made. Below-the-line costs typically include allowances for
cost escalation, exchange rate fluctuations, contingencies and provisional cost items.
Cost escalation– increases in all costs above their original estimates owing to national cost
inflation and increases in wages and salaries. Usually expressed as a rate per cent and only
significant in times of high inflation, or for projects planned to last for several years.
Direct costs– costs that can be directly attributed to project work. These are also ‗variable
costs‘, because their rate of expenditure depends on the intensity of project activity. When no
work is being done on the project, there are no direct costs.
Cost of sales– equivalent to the sum of all the above-the-line costs (shown in the below
figure).
__________________________________________________________________________________________
Figure: Typical summary layout of a project cost estimate
General and administrative costs– a general cost burden, added as a proportion per cent of
the above-the-line costs by some companies to recover selling and other expenses (for
instance head office costs) that are not included in the overhead costs.
Indirect costs– costs that must be incurred by the organization to provide heat, light,
accommodation, insurances, maintenance, accountants, secretaries, welfare, management
salaries, and other general running costs of the business that cannot be attributed as costs to
be charged to a specific project. Because these costs do not vary from day to day they are also
‗fixed costs‘. Also known as ‗overhead costs‘.
Labor burden– an amount, usually a percentage of wages or salaries, that is added to the
basic hourly or weekly rate for employees to allow for non-working time and various
additional expenses such as the cost of paid holidays and per capita amounts payable by the
__________________________________________________________________________________________
employer as employee benefits, either voluntarily or as a requirement of the national
legislation.
Materials burden– an amount added by some contractors to the actual cost of bought out
materials to recover their purchasing administration costs. This might be charged at 10 per
cent or less for very high-cost but at (say) 25 per cent on small low-cost items that have
relatively high handling and administration costs. A common all-round rate used for the
materials burden is 15 per cent.
Overhead rate– more properly called the overhead absorption rate, this is a rate calculated
by accountants that expresses the company‘s total expected overhead costs for a given period
(usually a year) as a proportion of the expected direct costs over the same period. It is used to
calculate the overhead recovery amount included in prices. The rate used will depend on
many factors that include, for example, the ratio of direct to indirect staff, the amount of
internally funded research and development being done, local authority and public utility
charges, and so on. High overhead rates increase prices and reduce competitive advantage.
Prime cost– the sum of all the direct costs needed to fulfill a particular job or project (direct
labor plus direct materials plus direct expenses).
Standard costing– an important and common accounting system in which cost estimates and
actual project expenditure are calculated using average or ‗standard costs‘ for direct labor and
materials. These standards are calculated by cost accountants as expected averages for each
grade of labor and for materials that are commonly held in stores and issued from general
stock. Standard costs for materials are particularly relevant to manufacturing projects.
Standard labor costs are important for most projects and they greatly simplify cost estimating.
Variance– a term commonly used by accountants to describe the difference between actual
costs and standard costs in a standard costing system. More widely, it is the amount by which
any actual cost differs from its corresponding estimate or budget. Also used less commonly
for the difference in time between an actual event and its planned time.
Classification of Project Costs

Project costs can be classified into different groups. Such as- initial vs. regular costs, direct
vs. indirect costs etc.
1. Initial vs. Regular Costs: Initial Costs: All the costs incurred before the production
from the project are treated as initial costs. It includes the cost of fixed assets, installation
cost, design cost, salary of advisers etc. They are non-repetitive in nature. Regular costs:
All the costs incurred after the commercial production from the project are treated as
__________________________________________________________________________________________
regular cost. It can be working capital cost and operating cost. Working capital costs
include the cost of raw materials, cost of storing etc. Operating costs include cost of daily
production, cost of marketing and selling etc.
2. Direct vs. Indirect Costs: There are considerable differences between companies in the
interpretation of direct and indirect costs. Some firms charge to projects the costs of
printing drawings, for example, and recover those costs directly by billing them to the
client or customer. Other firms would regard such costs as indirect, and charge them to
overheads. Sometimes the classification of costs as direct or indirect can vary even from
project to project within the same company, depending on what each customer has agreed
and contracted to pay for as a direct charge. To a large extent, the type of projects usually
undertaken by a company and the industry in which the company operates will determine
how the split between direct and indirect costs is made. Solicitors, for example, often
charge their clients for the costs of correspondence and telephone calls that many other
companies would regard as indirect costs to be included in the general overheads.
Different Types of Cost Estimates

Cost estimates can be of different types. S. Chowdhury classified different types of cost
estimates into five categories. They are as follows-
1. Order of magnitude estimates: After identifying a project, initiator can take help from
order of magnitude estimates. Order of magnitude estimates can be ±60% accurate. For order
of magnitude estimates past experience, scale factor, or capacity estimation techniques can be
used.
2. Study estimates: For conducting the economic or financial feasibility study or for
collecting the necessary fund, study estimates are done. The accuracy of these types of
estimates is ±30%. It is done by analyzing the information relating to project work, needed
machineries, price and quantity of needed materials etc.
3. Preliminary estimates: When project scheduling is done and the initiator has a clear idea
about the technology to be used in the project, the preliminary estimates take place. This type
of estimates is done on zero date. The accuracy of these types of estimates is ±20%.
4. Definite estimates: After zero date, definite estimates are done. It is done by analyzing the
information relating to complete plan, specimen of price and quantity of materials/elements
etc. The accuracy of these types of estimates is ±10%.
__________________________________________________________________________________________
5. Detailed estimates: When the initiator ordered for different elements/materials of project
and the vital contracts are signed, then the detailed estimates can be done. The accuracy of
these types of estimates is ±5%.
Adrienne Watt classified different types of cost estimates into four categories. They are as
follows-
1. Analogous Estimate: An estimate that is based on other project estimates is an analogous
estimate. If a similar project cost a certain amount, then it is reasonable to assume that the
current project will cost about the same. Normally, this judgment is based on many years of
experience estimating projects, including incorrect estimates that were learning experiences
for the expert.
2. Parametric Estimate: If the project consists of activities that are common to many other
projects, average costs are available per unit. For example, if you ask a construction company
how much it would cost to build a standard office building, the estimator will ask for the size
of the building in square feet and the city in which the building will be built. From these two
factors or parameters —size and location—the company‘s estimator can predict the cost of
the building. Estimates that are calculated by multiplying measured parameters by cost-per-
unit values are parametric estimates.
3. Bottom-Up Estimating: The most accurate and time-consuming estimating method is to
identify the cost of each item in each activity of the schedule, including labor and materials.
If you view the project schedule as a hierarchy where the general descriptions of tasks are at
the top and the lower levels become more detailed, finding the price of each item at the
lowest level and then summing them to determine the cost of higher levels is called bottom-
up estimating.
4. Activity-Based Estimates: An activity can have costs from multiple vendors in addition to
internal costs for labor and materials. Detailed estimates from all sources can be reorganized
so those costs associated with a particular activity can be grouped by adding the activity code
to the detailed estimate. The detailed cost estimates can be sorted and then subtotaled by
activity to determine the cost for each activity (for further reading: http://pm4id.org/9/1/).
Dennis Lock classified different types of cost estimates into four categories. They are as
follows-
1. Ballpark Estimates: Ballpark estimates are those made when only vague outline
information exists and when practically all details of the work have yet to be decided.
Ballpark estimates are also made in emergencies, when all the detailed information necessary
for a more detailed estimate is available but there is insufficient time allowed for its proper
__________________________________________________________________________________________
consideration. An example of such a ballpark estimate is seen when a manager is presented
with a set of manufacturing drawings and, when asked to answer the question ‗What will this
lot cost to make?‘, weighs the pile of drawings thoughtfully in his/her hands and declares
‗About fifty thousand pounds‘. A well-reasoned ballpark estimate might achieve an accuracy
of ±25 per cent, given a very generous amount of luck and good judgment but far wider
divergence can be expected.
2. Comparative Estimates: Comparative estimates, as their name implies, are made by
comparing work to be done on the new project or one of its tasks with similar work done on
previous projects. They can be attempted before detailed design work takes place, when there
are no reliable materials lists or work schedules. It might not be possible to achieve better
than ±15 per cent accuracy by applying this method.
3. Feasibility Estimates: Feasibility estimates can be derived only after a significant amount
of preliminary project design has been carried out. In construction projects, for example, the
building specification, site data, provisional layouts and outline drawings for services are all
necessary. Quotations must be obtained from potential suppliers of expensive project
equipment or subcontracts, and material take-offs or other schedules should be available to
assist with estimating the costs of materials. The accuracy ‗confidence factor‘ for feasibility
estimates should be better than ±10 per cent. This class of estimate is often used for
construction tenders.
4. Definitive Estimates: Definitive estimates cannot be made until most design work has
been finished, all significant purchase orders have been placed at known prices and work on
the project is well advanced or nearing completion. Definitive estimates can be produced
from scratch, but the best practice is to arrive at them by updating the original comparative or
feasibility estimates routinely as part of the project cost reporting and control procedure.
Barring shocks or disasters during project execution, the accuracy of the total project estimate
should improve as work proceeds and the estimated costs are, one by one, replaced by their
corresponding actual costs. Estimates can be labeled as ‗definitive‘ when the time is reached
where their accuracy is regarded as ±5 per cent or better.
Tools and Techniques for Estimating Project Cost

Often, when you come into a project, there is already an expectation of how much it will cost
or how much time it will take. When you make an estimate early in the project without
knowing much about it, that estimate is called a rough order-of-magnitude estimate (or a
__________________________________________________________________________________________
ballpark estimate). This estimate will become more refined as time goes on and you learn
more about the project. Here are some tools and techniques for estimating project cost:
1. Determination of resource cost rates: People who will be working on the project all work
at a specific rate. Any materials you use to build the project (e.g., wood or wiring) will be
charged at a rate too. Determining resource costs means figuring out what the rate for labor
and materials will be.
2. Vendor bid analysis: Sometimes you will need to work with an external contractor to get
your project done. You might even have more than one contractor bid on the job. This tool is
about evaluating those bids and choosing the one you will accept.
3. Reserve analysis: You need to set aside some money for cost overruns. If you know that
your project has a risk of something expensive happening, it is better to have some cash
available to deal with it. Reserve analysis means putting some cash away in case of overruns.
4. Cost of quality: You will need to figure the cost of all your quality-related activities into
the overall budget. Since it‘s cheaper to find bugs earlier in the project than later, there are
always quality costs associated with everything your project produces. Cost of quality is just
a way of tracking the cost of those activities. It is the amount of money it takes to do the
project right.
Once you apply all the tools in this process, you will arrive at an estimate for how much your
project will cost. It‘s important to keep all of your supporting estimate information. That way,
you know the assumptions made when you were coming up with the numbers.
Meaning of Project Cost Escalation

Rising of project cost is a common phenomenon. There is hardly any project which is
completed within its primary cost estimation. The difference between the estimated cost and
the actual cost of a project is called project cost escalation.
According to F. L. Harrison, ―Project cost escalation is the difference between the final cost
or latest estimate of final cost and the original definitive estimation‖.
Causes of Project Cost Escalation

The major causes of project cost escalation are as follows-
1. Inefficiency: Inefficient management of project can raise its final cost. Inefficient use
of materials, machineries, manpower etc. can lead to project cost escalation.
__________________________________________________________________________________________
2. Inflation: Inflation means continuous rise in price level in terms of percentage. Due
to inflation, the price of various factors like materials, machineries, salary etc.
increases and thus creates project cost escalation.
3. The character of information flow: If the original or preliminary cost estimation is
done based on the vague information then it can differ from the final cost.
4. Form of contract: Cost escalation can be created due to the form of contract. We
know two in case of a project; contracts can be of two types- fixed price contract and
cost plus contract. There is usually no change in final cost in fixed price contract but
definitely a chance of rise in cost in cost plus contract.
These are the major causes of project cost escalation.
Sources of Fund
To purchase the fixed assets or to invest in another field, funds are not limited within the
owner of the firm only. Mainly funds are collected from two sources: internal sources and
external sources.
1. Internal sources: When funds are collected from the internal sources or sources within the
organization, then it is called internal sources of the organization, such as share of capital,
non distributed profit, incentive or provident fund of the employee, depreciation etc.
2. External sources: When funds are collected from the outside of the organization then it is
called external sources of fund, such as creditors, preferred share, trade credit etc.
Concept of Short-term Finance

Current capitals are used to meet up the daily requirement of the business institutions. To
collect the current capital short term finance is needed i.e. raw materials purchase for
production, payment of labor wages and other administrative and marketing cost. The money
which is spent for this purchase purposes and collecting is called the short term finance.
Short-term finance is collected from that sources where payment is needed within one year.
That means finance is made from that sources or loan is taken from that sources where loan
or finance is needed to be returned within one year.
According to I. M. Pandy, ―Funds available for a period of one year or less than one year is
called short term finance.‖
According to Hardware and Apton, ―Loan receives or pays for a period of one year or less is
called short term finance.‖
__________________________________________________________________________________________
So, from the above discussion we can say that short-term finance is used to purchase the
current assets and daily necessary goods or requirements. Current capital manages from the
sources which needed to be returned within a period of one year or less than one year. Here
current assets mean cash money, inventory, debtors, bills receivable, cash at bank etc.
Concept of Intermediate/mid- term Financing

Intermediate term financing is an interim/temporary substitute system of short term and long
term financing. But most of the time, to meet the requirements of long term capital business
organization takes the shelter of intermediate term financing.
Company may want to purchase fixed assets by selling share or debenture for managing long
term capital, but it is not always possible or difficult to collect money due to unfavorable
situation in capital market and economy then organization takes the shelter of intermediate
term financing. That means intermediate term financing is interim substitute system for
intermediate time of short and long term financing. The duration of intermediate term
financing is more than one year but less than ten years.
Concept of Long-term Finance

Long-term finance is the investment of fund for long time or for purchasing the fixed assets
of the business institutions. In another way-―long term financing is the process of collecting
fund for eliminating the long-term demand of the business institutions‖.
Two types of capital are required for running specific projects or the business institutions,
such as current capital and fixed or long-term capital. Long-term capital is used to purchase
fixed assets such as land, building, machineries, and furniture etc. To fulfill the demand of
these assets, the process of managing capital is called the long-term finance.
But J. J. Hampton expressed his opinion in this regard as ―the financial process and method,
which is taken for 7 to 15 years, is called long term financing‖.
So, from the above discussion, we can say that long term financing is the process of
collecting huge capital for fulfilling the long-term requirements of the project or to purchase
the fixed assets of the businesses involved.
Sources of Long-term Finance

Long-term finance is required for investment in fixed assets, such as land, building,
equipment, furniture, plant, machinery etc. There are two sources of long-term finance:
A. Internal sources.
__________________________________________________________________________________________
B. External sources.
A. Internal sources of long term finance: When a business firm collects money from
owners‘ own sources for long term finance then it is called internal sources of long term
finance. As internal source of finance is firms own capital and reserved fund, so it needs not
to maintain complex institutional formality in borrowing the same. Major internal sources of
finance are explained below:
1. Owner’s capital: Promoter‘s initial capital is the first source of internal finance. In every
firm, at the starting position, entrepreneur supply capital for business activities. The investors
do not expect supplying their capital before the dissolution of the firm. In different forms of
firm, capital is supplied in various ways.
2. Retained earnings: Generally well-established companies have retained earnings or
undistributed profits that work as capital. Retained earnings represent that portion of a
company‘s net profits which is kept in business for investment purpose and not distributed
among their shareholders as dividend. Such earnings are a popular source of finance for
modernization and expansion programs and also be used to redeem old debts and to meet
working capital requirements. Retained earnings are kept in various ways. These are
mentioned in bellow:
a. General reserve: General reserve is the internal source of long-term finance. It is the
portion of net profit, which is kept in reserved and not to be distributed among the
shareholders as dividend.
b. Dividend equalization fund: Most of the shareholder expects a certain amount of
dividend but some time it is impossible to distribute dividend for less earnings. Sometimes
for more earning they can distribute more dividends. For equalization of this dividend
company made an equalization fund. Before distribution, this amount can be used as internal
source of finance.
c. Sinking Fund: Sinking fund from net profit for paying the credit of sundry creditors. Until
this loan and debenture is paid, it can be used for internal sources of finance.
d. Workmen’s compensation and welfare fund: Workmen‘s compensation and welfare
fund is another form of retained earnings that can also be used as internal source of finance. It
is the reserve for compensation of labor, if they die or any damage occurs through accident
during working for the organization. Until the money is paid, it can be used as long tern
finance in business.
__________________________________________________________________________________________
3. Other internal sources of finance: Outstanding expenses, provident fund of officers and
employees, sale of fixed assets, over use of fixed assets, provision for doubtful debts can also
be the internal sources of long term finance.
B. External sources of long term financing: We may classify the external sources of long
term financing into two major groups, such as:
1. Owners capital from capital market: We described owners own capital as the internal
sources of business finance in the previous section. That means the capital which is supplied
at the time of formation of business by the promoters of the sole tradership, partnership and
Joint Stock Company is called primary external sources of business finance. Joint Stock
Company collects money by selling their share to fulfill the lack of additional capital. That is
required for further expansion of function, scope and size of business firm. This process is
considered as an external source. This type of capital includes-
a. Ordinary share capital: There are three ways to collect money by selling ordinary share-
i. Initial public offering (IPO): In a Joint Stock Company, the common stock is divided into
some small equal portions. Each fraction is called share. These shares are offered to public
for selling by publishing prospectus in the newspaper. The fund that will be formed by selling
the share to public is called share capital i.e. owners capital because shareholders are the
owners of the company.
ii. Right share: After the initial public offering if the company requires additional capital for
further expansion, the company can sell new share. Among the new share, some share is kept
for the present shareholders. The benefit of selling such type of share is that the total share
capital increase but the numbers of shareholders do not increase. As a result, controlling of
the business becomes easy.
iii. Bonus share: Usually dividend is given to each shareholders of the company. A part of
whole profit is not distributed. Some profit is saved that is called reserve surplus. If there is a
plan of expansion of the business, the company may distribute the share to the present
shareholder against dividend. Thus the number of share increase but shareholders does not
increase. The amount of dividend is converted into capital fund. It is the bonus share.
b. Preference share: Preference share is another source of owner‘s capital. Selling
preference share can be a source of collecting long term finance. Preference share holds the
characteristics of both the ownership and bond or debenture. Preference shareholders get a
certain amount of dividend. If any dividend is to be declared then it must be declared first on
these shares at the predetermined rate. The shareholders cannot take part in management and
they have no voting right.
__________________________________________________________________________________________
There is an important role of capital market in case of collecting every types of share capital
discussed above. That means such types of capital are collected by the help of various
organizations of capital market named Securities and Exchange Commission, Dhaka Stock
Exchange etc.
c. Debenture/bond: Selling debenture and bond is another important source of long term
financing. Debenture which is a document of long term debt is sold to collect long term
capital. The buyer of the debenture is called capital supplier. The debenture holder is not the
owner of the company. They get a specific amount of interest at the end of a certain period as
the creditor of a company. A debenture is an instrument which evidences the existence of a
debt.
2. Institutional sources: The capital, which is collected from various organizations or
financial institutions, is called institutional sources. Long term fund may be collected from
the following organizational sources:
a. Commercial banks: Commercial bank is the most important source of long term finance
among the organizational sources. Commercial bank collects money from public as an
intermediary and lends the money for interest. Commercial bank issue loan for the
establishment of new industry, expansion of business, and modernization of industry.
Securities are needed to get loan from commercial bank.
b. Investment bank: The main task of investment bank is to expand the scope of investment
of the company. For this it purchase share from public company and sell these share in the
capital market. Investment bank fulfills the need for capital of various organizations by
purchasing their share. So, the role of investment banks as the source of long term capital is
very important.
c. Insurance company: Insurance companies collect premium from the policy holder. But
they have to fulfill comparatively less claim. So they have a greater fund useless for long
time. For this, in many cases, they invest that money to the large, strong and less risky
industries for the long term.
d. Underwriter: Underwriters are considered as another prospective source of long term
finance. Such shareholder will not be benefited or will not suffer any loss as the income of
the company increase or decrease; as the rate of profit of such shareholder is definite. Under
writer guarantee on the sale of share or debenture of the company. If the share or debenture
remains unsold then the underwriter buys these share and debenture. They do it for extra
commission.
__________________________________________________________________________________________
Chapter 6: Social Cost-Benefit Analysis
Meaning of Social Cost-Benefit Analysis
Social cost benefit analysis is the process of evaluating investment project from the viewpoint
of society. In this analysis, the total effects of a project on socio economic aspects and
wellbeing of a country are evaluated. In social cost benefit analysis, project is considered not
only as capital investment but also as asset investment. In the evaluation process, project is
treated as significant to both the implementation authority and to the society and nation as
whole.
Social cost-benefit analysis is a systematic and cohesive economic tool (method) to survey
all the impacts caused by an urban development project. It comprises not just the financial
effects (investment costs, direct benefits like tax and fees, et cetera), but all the social effects,
like: pollution, safety, indirect (labor) market, legal aspects, et cetera. The main aim of a
social cost-benefit analysis is to attach a price to as many effects as possible in order to
uniformly weigh the above-mentioned heterogeneous effects. As a result, these prices reflect
the value a society attaches to the caused effects, enabling the decision maker to form a
statement about the net social welfare effects of a project.
According to P. K. Mattoo, ―Social cost benefit analysis is the process of evaluating a project
from the point of view of the total impact which the project will have on the economy of the
nation.‖
Social cost benefit analysis is evaluated directly and indirectly. A project is established in a
specific place, where structural situation, natural situation, socio economic situation etc. are
established for the project and project does its job in this environment. Project subtracts
something from this environment which is social cost and projects deliver/provide something
to this environment which is called social benefit. Project collects input from the society and
provides output to the society also. Therefore, assessing whether the projects is bringing any
positive change in the society is of vital importance to the project manager. This indicates the
need for social cost benefit analysis of project. Hence, the main objective of social cost
benefit analysis is to evaluate the direct and indirect effect of project on socio economic
conditions and settings of a country.
Rationale of Social Cost Benefit Analysis

As we already know that social cost benefit analysis is the process of evaluating any
investment project from society‘s point of view. In this method a project is evaluated on the
__________________________________________________________________________________________
basis of socio economical conditions of a country and its possible impacts on the same.
SCBA not only views a project as a sector of capital investment but also a sector of
investment of other resources.
Social cost benefit analysis (SCBA) called Economic analysis, is a methodology developed
for evaluating investment projects from the point of view of the society as a whole. SCBA
aids in evaluating individual projects within the planning framework which spells out
national economic objectives and broad allocation of resources to various sector. In other
words, SCBA is concerned with tactical decision making within the framework of macro
level.
P.K. Mattoo gives the following view about the rationales for SCBA, ―Social cost benefit
analysis is the process of evaluating a project from the point of view of the total impact which
the project will have on the economy of the nation.‖ Here, the project is evaluated not only
from the perspective of the project implementer but also from the greater interests of the
society in which it belongs and operated.
As we have seen earlier, the impact of the project on economy, society, as well as
environment is not considered while evaluating the project from financial and commercial
viewpoint. In most of the time, project‘s impacts on society and environment are neglected.
The potentiality of the project in bringing positive change in the society and betterment to
environment is also ignored. Therefore, to be a good and ethical corporate citizen, SCBA is
done to evaluate the direct and indirect impact of a project on socio economic conditions of a
country.
For the economic development of a developing country like Bangladesh, the importance of
SCBA is increasing. The consciousness on social benefits and environmental preservation is
emphasized to a large extent by the home as well as foreign development and donor
organizations. From the view point of these organizations, a project is not completed until the
SCBA is done cautiously. These types of organization are contributing a lot for the social and
economical development of a developing country. These organizations implement a variety
of SCBA. The benefits as well as harmful impacts of every proposed project can be
identified by SCBA. For example, most of the environmentalist organizations and
international development organizations are persistently opposing the Rampal power project
near Sundarban on SCBA ground.
Principle Sources of Discrepancy Leading to SCBA
__________________________________________________________________________________________
In SCBA the focus is on the special costs and benefits of the project. The principle sources of
discrepancy are: Market imperfections, Externalities, Taxes and subsidies, Concern for
savings, Concern for redistribution, and Merit wants.
1. Market imperfections: When imperfection exits, market price do not reflect social values.
The common imperfections found in developing Countries are:
 Rationing: Rationing of a commodity means control over its price and distribution. The
price paid by a consumer under rationing is often significantly less than the price that
prevails in the competitive market.
 Prescription of minimum wage rates: When minimum wages would be in a competitive
labor market free from such wage legislations.
 Foreign exchange regulation: The official rate of foreign exchange in most of the
developing countries, which exercise close regulation over foreign exchange, typically
less than the rate that would prevail in the absence of foreign regulation. That is why
foreign exchange usually commands a premium in unofficial transactions.
2. Externalities: a project may have a beneficial external effect. For example, it may create
certain infrastructural facilities like roads which benefit the neighboring areas. Such benefits
are considered in SCBA, though they are ignored in assessing the monetary benefits to the
project sponsors because they do not receive any monetary compensation from those who
enjoy the external benefit created by the project. Likewise, a project may have harmful effect
like environmental pollution.
3. Taxes and subsidies: From the private point of view, taxes are definite monetary costs and
subsidies are definite monetary gains. From the social point of view, however, taxes and
subsidies are generally regarded as transfer payments and hence considered irrelevant.
4. Concern for savings: A taka of benefits saved is deemed more valuable than a taka of
benefit consumed. The concern of society for saving and investment is dully reflected in
SCBA wherein a higher valuation is placed on saving and lower valuation is put on
consumption.
5. Concern for redistribution: The society is concern about the distribution of benefits
across different group. A Taka of benefit going to an economically poor section is considered
more valuable than a Taka of benefit going to an affluent section.
6. Merit wants: Goals and preferences not expressed in the market place, but believed by
policy maker to be larger interest. For example govt. may promote an adult education
programme or balanced nutrition programme for school –going children even though these
are not sought by consumer in market place.
__________________________________________________________________________________________
Advantages and Disadvantages of SCBA
Advantages:
 The ability to identify the projects that maximize the welfare of the country.
 The ability to objectively assess and quantify the purpose projects in relation to
community needs.
 Exposure of the basis for decision-making for projects and opportunity for public
criticism.
 Ability to rank and prioritize limited resources so that the maximum benefit is
realized.
Disadvantages:
 Difficulty in measuring social costs and benefits and converting them in to monitory
term.
 Over statement of the value of social benefits
 Complexity
 Conflict between social welfare and financial justification.
Distinctions between Social Costs-Benefits Analysis and Financial Analysis

Social cost benefit analysis and financial analysis both are the pre-investment evaluation
technique of a project. In financial analysis, it is judged that whether the investment in a
particular project is profitable or not. And in social cost benefit analysis, it is evaluated that
whether the investment in a particular project is benefited to the society and country or not.
The differences between social cost benefit analysis and financial analysis are given below:
1. Measuring income and expenses: In financial analysis of a project, primary or direct
income or expenditure is countable. But in social cost benefit analysis of project; direct,
indirect and tertiary income and expenditure is countable.
2. Measuring benefits: In financial analysis, commercial profitability is measurable. On the
basis of equipments, production, market price, capital expense, management expense and
income, commercial profitability is measured. On the other hand, social cost benefit analysis
is evaluated on the basis of social price/cost of elements and output.
3. Externalities of output: In financial analysis of project, externalities of output are
neglected. Externality of output is considerable factors in social cost benefit analysis.
__________________________________________________________________________________________
4. Time value of money: In financial analysis the present value of future income,
expenditure of a project, prevalent interest rate etc. is considerable. In social cost benefit
analysis social rate of discount is used.
5. Potential consumer surplus: In financial analysis of a project potential consumer surplus
is not considerable. On the other hand, in social cost benefit analysis potential consumer
surplus is considered.
The UNIDO Method of Social Cost-Benefit Analysis

The United Nation under their familiar publication ―Guidelines for project Evaluation‖ first
introduces the UNIDO methods of social cost benefit analysis in 1972. In this publication the
wide structure of social cost benefit analysis for developing country was explained. Again the
United Nations Industrial Development Organization (UNIDO) published another instruction
named ―Guide to Practical Project Appraisal‖. According to UNIDO methods, social cost
benefit analysis has five levels such as:
1. Calculation of financial profitability at market price.
2. Determination of net benefit in terms of shadow price.
3. Adjustment for the impact of the project on savings and investment.
4. Adjustment for the impact of the project on income distribution.
5. Adjustment for the impact of the projects on merit and demerit goods.
1. Calculation of financial profitability at market price: At the beginning of UNIDO
method, it is necessary to estimate financial profitability at market price. Input and output are
calculated based on market price and according to it, net present value of the project is
estimated. Estimation of financial profitability depends on three financial statements. These
are:
a. Financial income statement: In this statement, probable income and expenditure
are included. The main objective of this statement is to evaluate whether the investment in
project is profitable or not.
b. Cash flow statement: Here necessary funds, source of funds and cost units/drivers
are shown to forecast cash balance or scarcity. The sources of funds in project may include
share capital, term loan, bonds, bank loan, deferred credit depreciation, business loans,
balances etc. On the other hand costs are capital expense, primary expense, stock, tax, interest
payment on credit etc.
__________________________________________________________________________________________
c. Projected balance sheet: It is an assumed statement where the condition of assets,
capital and liabilities are shown at the end of every year. It is done based on previous two
statements.
2. Determination of net benefit in terms of economic (efficiency) price/shadow price: In
second stage, the net profit is determined based on shadow price of the project. For monopoly
market condition (or perhaps for the absence of pure competition) in most of the developing
countries, it is necessary to determine the shadow price.
 Aspects of shadow price determination: Shadow price is not market price or real
price but it is an assumed price, which is determined by alternative goods or other
ways. The ways are as follows:
a. Choice of Numeraire: Determining shadow price account numeraire is an
important factor. One of the important aspects of shadow pricing is the determination of the
numeraire, the unit of account in which the value of inputs or outputs is expressed. What will
be the currency and its current or future value for cost benefit evaluation etc. is considered to
determine numeraire. To define the nummeraire, the following questions have to be
answered: 1. what unit of currency, domestic or foreign, should be used to express benefits or
costs? 2. Should costs and benefits be measured in current values or constant values? 3.
Should the income of the project is measured in terms of consumption or investment?
b. Tradability of product: Tradability of product means the buying and selling
capacity of a product in international market. On the basis of tradability of product it can be
divided into four divisions –
i. Tradable goods: The product on which the government has no restriction regarding
its import and export is called the tradable goods.
ii. Traded goods: Tradable goods which are already exchanged means exported or
imported is called traded goods.
iii. Non Tradable goods: If the total cost of locally produced products are high
because of high production cost and international transportation cost then these products
export becomes impossible. Importers are not willing to import these products by giving high
price. These types of products are known as non-tradable goods. These are the goods that
cannot be imported and exported due to its higher production cost and international
transportation cost.
iv. Non traded goods: The importable and exportable goods which are not imported
or exported because of trade policy of the country are called non-traded goods. These are
usually trade restricted items.
__________________________________________________________________________________________
3. Adjustment for the impact of the project on savings and investment: On the basis of
the impact of the project on savings and investment, project is evaluated in third stage of
UNIDO method. The difference of income from consumption is savings. Investment is
dependent on savings. Balance income is distributed among all various groups such as
project, private owner, other organization, government, labor, consumer, external sector etc.
a. Measuring gains or losses: Difference between shadow price and market price of
inputs is the profits or losses of the project for physical resources. On the other hand,
difference between value paid and value received is the profits or losses for financial
resources.
b. Savings impact and its value: Almost every developing country faces the scarcity
of capital. So the government or authority must analyze the impact of savings and its value of
project.
c. Impact on savings: The changes of income on the certain income group for a
project and that group‘s marginal propensity to savings guide to estimate project impact on
savings. The following formula can be used as:
Net savings Impact of the project =∑YiMPSi
Here,
Yi = Change in income of ―i‖ group for project.
MPSi = Marginal propensity to savings of ―i‖ group.
d. Value of saving: Value of savings for one unit is the current value of additional
consumption stream created by profitable investment.
4. Adjustment for the impact of the project on income distribution: Investment project is
initiated by government for regional development and income distribution to all level people.
The government gives emphasis on undeveloped region or poor people to maintain balance of
income distribution. That's why it weights to adjust income distribution for undeveloped
regions or poor people. In this stage of social cost benefit analysis under UNIDO method,
project is evaluated based on income of various groups‘ comparative weight. The
comparative weight is determined by calculation and discussion among political members,
planners, analysis etc. or by the following formula:
n
b
Wi =  
 ci 
Here,
Wi = weight of income at ci level
__________________________________________________________________________________________
ci = level of income of group i
b = base level of income that has a weight of 1
n = elasticity of the marginal utility of income
5. Adjustment for the impact of the projects on merit and demerit goods: The difference
between economical value and social value of resources is seen in analyzing social cost
benefit. This difference happened for merit goods and demerits goods. For merit goods social
value is higher than economical value & here upward adjustment is used. For demerit goods
economical value is higher than social value and demerit goods needs downward
adjustments.
L-M Method of Social Cost-Benefit Analysis

Two famous British economists named Ian M. D. Little and James A Mirrlees published the
theory of social cost-benefit analysis in the book of ―Manual of Industrial Project Analysis in
Developing Countries" in 1969. Later they again published another book named "Project
Appraisal and Planning for Developing Countries" in 1974 for social cost-benefit analysis.
Their theory about social cost-benefit analysis is known as Little & Mirrlees method, in brief
L-M method.
In this L-M method, the below issues are of critical importance:
 Numeraire: L-M‘s numeraire is ―present uncommitted social income measured in
terms of convertible foreign exchange of constant purchasing power‖.
 L-M’s Shadow Price: L-M‘s approach measures costs and benefits in terms of
international price as against UNIDO method that measures costs and benefits in
terms of domestic prices. In this L-M method project related inputs and outputs can be
classified into three ways:
1. Traded goods and services.
2. Non traded goods and services.
3. Labor.
1. Shadow prices of traded goods and services: If any product or services is exported, its
shadow price will be F.O.B prices, and on the other hand if any products or services are
imported then shadow price will be C.I.F. price. If the foreign demand is not constant,
marginal export income will be shadow price and for foreign inconstant supply marginal
import cost will be the shadow price.
2. Shadow prices of non-traded goods and services: For the non-traded goods like land,
buildings, services etc. shadow price is determined by marginal social cost (MSC) and
__________________________________________________________________________________________
marginal social benefit (MSB). Marginal social cost is additional input for additional output
and marginal social benefit is additional pricing from the view of society. But it is not easy to
measure MSC and MSB. So in L-M methods financial cost of non-traded goods and services
is divided into three ways- exchangeability, labor and rest parts. Conversion factors are some
average ratios of accounting prices to market prices. To measure conversion factor we can
use:
Q.Ap
S.C.F=Q.MP
Here,
S.C.F.= Standard Conversion Factor.
AP= Accounting Prices.
MP=Market Price.
Q=Available Supply.
3. Shadow prices of labor: In L-M. method to measure shadow prices of labor, the following
formula is used:
1
SWR=C'-S (C-M)
Here,
SWR=Shadow wage rate.
C'=Additional resources devoted to consumption.
1
S = Value of committed resources.
C= Consumption of the labor.
M=Marginal product of the labor.
In social cost-benefit analysis under L-M method, the following two factors are also very
crucial. They are-
i. Income distribution: The income from the project is not at all but how income is
distributed among the entire social income group is the fact. If the government distributes
income among the lower level of people then basic consumption scale of lower level people
will increase but if income is distributed among the upper level of people then savings will be
increased.
__________________________________________________________________________________________
ii. Accounting rate of interest: Accounting rate of interest (ARI) means social discount rate
which used to discount social profit. But L-M method is quite indigenous about ARI. Here
the only scales are saving and consumption.
Similarities and Dissimilarities between UNIDO and L-M Method

The similarities between UNIDO method and L-M method are found in the below issues:
1. Computation of shadow price, especially in case of foreign currency reserve and
inexpert labor.
2. Consideration of equity.
3. Use of discounted cash flow (DCF).
The dissimilarities between UNIDO method and L-M method are as follows:
1. Under UNIDO method the income and expenses of project are calculated in local
currency. But under L-M method, they are calculated in border price. That means
UNIDO approach is limited to domestic boundaries (measures cost and benefits in
terms of domestic rupees) whereas, L-M approach considers international aspects also
(measures cost and benefit in terms of international/border prices).
2. Under UNIDO method the income and expenses of project are calculated on the basis
of consumption. But under L-M method income and expenses of project are
calculated on the basis of uncommitted social income.
3. The UNIDO approach focuses on efficiency, savings and redistribution aspects in
different stages. L-M approach tends to view these aspects together Under UNIDO
method saving, skill, redistribution etc. are considered sequentially. But under L-M
method, these issues are considered at a time.
Concept of Shadow Price

Shadow price is not market price, it is derived price. It is determined by considering the
alternative goods in market. It is also called the assumption price. Shadow price is such type
of pricing system that is influenced by the equipments needed to produce the goods and
external price of the goods.
Shadow prices reflect true values for factors and products for the calculation or estimations of
prices in social cost-benefit analysis. The shadow price is the proxy value of a good or
project. We often define it by what somebody has to give up to gain an extra unit of that
good.
__________________________________________________________________________________________
J. Tinbergen defines them, ―Shadow prices are prices indicating the intrinsic or true value of
a factor or product in the sense of equilibrium prices. These prices may be different for
different time periods as well as geographically separate areas and various occupations (in the
case of labor). They may deviate from market prices.‖
According to E.J. Mishan, ―A shadow or accounting price…. is the price the economist
attributes to a good or factor on the argument that it is more appropriate for the purposes of
economic calculation than its existing price if any.‖
Causes of Shadow Pricing

In developing countries for project evaluation, the distribution of factors on the basis of
market prices is imperfect because there exist fundamental disequilibria which are reflected
in mass underemployment at existing wage levels, in the deficiency of funds at existing
interest rates and in the scarcity of foreign exchange at the prevalent exchange rate.
In such a situation, the equilibrium level of wages would be much below the market wage,
the equilibrium interest rates would be higher than their market rates, and the equilibrium rate
of exchange would be lower than its market rate.
In order to overcome these difficulties, J. Tinbergen, H.B. Chenery and K.S. Kretchemer
have emphasized the use of shadow or accounting prices for the following reasons:
1. Imperfect Market Mechanism: The price mechanism operates imperfectly in developing
countries. Market prices do not correctly reflect relative scarcities, benefits, and costs. This is
because perfect competition is entirely absent. Structural changes do not respond to price
changes. All such difficulties are overcome with the help of shadow prices. Fiscal, monetary
and other policies also help in bringing the market prices of products labor, capital and
foreign exchange in conformity with their shadow prices and thus make investment projects a
success.
2. Wage Rates: In developing countries, there exist fundamental disequilibria in the labor
market which are reflected in mass underemployment and unemployment at existing wage
rates. In such economies, wages are much lower in the non-organized agricultural sector.
There is also surplus labor in rural areas whose marginal product is zero or negligible. But it
cannot be assumed to be zero in calculating the cost of such labor on construction works. On
the other hand, wages are much higher than the opportunity cost of labor in the industrial
sector where labor is organized in strong trade unions. Therefore, unadjusted market wages of
labor cannot be used for calculating the cost of such labor on investment projects. In such a
situation, the equilibrium level of wages would be much below the market wage in the rural
__________________________________________________________________________________________
sector. Economists suggest that the shadow price of such labor can be fixed anywhere above
the zero marginal products of labor and with the increase in the marginal product of labor, its
shadow price can also be raised to the market level of wages.
3. Capital Costs: In developing countries, funds for investment are deficient at prevailing
interest rates. The main cause is the deficiency of savings. The majority of people are poor
having low income levels, low rate of savings and hence low propensity to invest. Moreover,
there is little relationship between the supply of capital and interest rates prevalent in the
country. To overcome this problem, the shadow rate of interest can be estimated on the basis
of interest rates paid by private investors.
4. Exchange Rate: There is acute scarcity of foreign exchange leads to balance of payments
difficulties in developing countries. As a result, the current rate of foreign exchange is much
lower than in the black market and the equilibrium exchange rate is lower than its market
exchange rate. To solve this problem, an artificial equilibrium is achieved in the balance of
payments by fixing a higher shadow exchange rate than the official exchange rate. For this,
weight is attached to the cost of foreign exchanges in the project.
5. Inflationary Pressures: Developing countries suffer from inflationary pressures because
the market mechanism operates imperfectly due to a number of socio-economic and
administrative obstacles. Even otherwise, rise in prices are inevitable in the development
process. So, actual market prices do not reflect social benefits and costs. Some prices are
fixed by the government. Others are free, but are influenced by restrictive trade practices or
monopolies. Still others are influenced by quantitative controls. A factor that is expected to
be in short supply should have a shadow price higher than its market price, while a surplus
factor should have a lower shadow price than its market price. Thus the shadow price is the
price which would prevail if prices were equilibrium prices.
Limitations of Shadow Prices

The following are the limitations in the determination of shadow prices:
1. The calculation of shadow prices pre-supposes the availability of data. But adequate data
are not easily available in less developed countries.
2. In order to establish the intrinsic value of a factor or product requires the existence of full
equilibrium in all markets. In an underdeveloped economy which is characterized by a
number of fundamental disequilibria, the knowledge of full equilibrium conditions for the
entire economy is not possible. Thus the notion of shadow prices corresponding to intrinsic
values is arbitrary.
__________________________________________________________________________________________
3. The assumption of full employment equilibrium in the whole economy makes the concept
of shadow prices indeterminate. It requires a complete knowledge of demand and supply
functions which are based on the existing socio-economic institutions in the economy. Thus
shadow prices are difficult to ascertain under the existing institutional framework of
underdeveloped countries.
4. Another problem arises with regard to the time dimension. The concept of shadow prices is
static and timeless, because shadow prices are used to overcome the difficulties involved in
project evaluation when factor prices change over time. All inputs and outputs are valued at
fixed shadow prices in such cases. This is not realistic because investment projects relate to
long periods. Hence the concept of shadow prices remains a static one.
5. Another practical difficulty relates to the use of shadow prices in the economy where the
private enterprises buy inputs and sell outputs at market prices. The government, on the other
hand, uses shadow prices for the evaluation of its projects but buys all inputs at market prices
and sells outputs at competitive market prices where it does not possess a monopoly.
6. The determination of shadow prices is difficult in the case of projects with high capital-
intensity and which are substitutes and complementary to each other. Suppose there are two
projects in which the input of one is the output of the other and vice-versa. In such cases, the
determination of the shadow prices of the inputs of labor, capital and foreign exchange will
not only be difficult but impossible because the decisions about the construction plans of the
two projects cannot be the same.
Prof. Myrdal in his ―Asian Drama‖ regards shadow prices as ―utterly unreal and other
worldly in concept, particularly in underdeveloped countries like those in South Asia …. as it
is recognized that they cannot be definitely ascertained.‖
Uses of Shadow Prices

Despite the above limitations, the shadow prices possess the following uses:
1. In Project Evaluation: Shadow prices are a convenient tool for evaluating investment
projects in different sectors of the economy. They are used for evaluating the effects of a
project on the national income which are also known as external effects. This is done on the
basis of costs-benefit analysis where both costs and benefits are calculated at shadow prices.
2. In Public Policy: The success for development planning depends upon the correct
operation of public policy. Shadow prices are intrinsic prices on whose correct determination
depend the success of a plan to a considerable extent. In developing countries, investment
projects in the public sector cannot be profitable unless the prices of labor, capital and other
__________________________________________________________________________________________
inputs and foreign exchange rates are determined in shadow prices. Though very often
shadow prices are rough estimates, yet the state should try to bring market prices close to the
shadow prices of products and factors through monetary, fiscal and other measures for the
success of the plans.
3. In Programming: Shadow prices have much importance in programming. In the context
of developing countries, programming means the optimum use of investment whereby there
is no difficulty in the production process. But, in reality, the difficulties of supplies of factors,
rise in market prices and the scarcity of foreign exchange are found in such economies. All
such problems are overcome with the help of shadow prices. The use of fiscal, monetary and
other policies by the state help in bringing the market prices of products, factors and foreign
exchange in conformity with their shadow prices and thus make investment programming a
success. Thus shadow prices are a useful and important devise for the success of project
evaluation, public policy and investment programming.
__________________________________________________________________________________________
Chapter 7: Risk Management and Planning
Meaning of Project Risk
Even the most carefully planned project can run into trouble. No matter how well you plan,
your project can always encounter unexpected problems. Team members get sick or quit,
resources that you were depending on turn out to be unavailable, even the weather can throw
you for a loop (e.g., a heavy rainfall, flood, thunderstorm etc.). So does that mean that you‘re
helpless against unknown problems? No! You can use risk planning to identify potential
problems that could cause trouble for your project, analyze how likely they are to occur, take
action to prevent the risks you can avoid, and minimize the ones that you can‘t.
A risk is any uncertain event or condition that might affect your project. Not all risks are
negative. Some events (like finding an easier way to do an activity) or conditions (like lower
prices for certain materials) can help your project. When this happens, we call it an
opportunity; but it‘s still handled just like a risk.
There are no guarantees on any project. Even the simplest activity can turn into unexpected
problems. Anything that might occur to change the outcome of a project activity, we call that
a risk. A risk can be an event (like a snowstorm) or it can be a condition (like an important
part being unavailable). Either way, it‘s something that may or may not happen, but if it does,
then it will force you as project manager to change the way you and your team work on the
project.
Risk and uncertainty are unavoidable in project life and it‘s dangerous to ignore or deny their
impact. Adopting a ―can do‖ attitude may be a good way to get your team members energized
and committed, but it‘s a foolhardy approach when it comes to managing a complex project.
 Some Basic Definitions: Let‘s look at some of the key terms associated with risk
management:
Uncertainty: It‘s not surprising to start with a definition of uncertainty instead of risk,
because uncertainty really drives everything else. Uncertainty is defined as an absence of
information, knowledge, or understanding regarding the outcome of an action, decision, or
event. Project managers constantly suffer from an absence of information, knowledge, or
understanding.
Risk: Risk is actually a measure of the amount of uncertainty that exists. It‘s directly tied
to information, as the below figure illustrates. This is not exactly the way most of us think
about risk in everyday situations. However, in the world of project management, risk relates
primarily to the extent of your ability to predict a particular outcome with certainty. Hence, it
__________________________________________________________________________________________
denotes any uncertain event or condition that might affect your project. This interpretation is
derived from the study of decision and risk analysis, the statistical sibling to project risk
management.
Figure: Risk relationship between information and uncertainty

Threat: The effects of risk can be positive or negative. Positive effects of risk are often
referred to as opportunities. Threats are the negative— or ―downside‖— effects of risk.
Threats are specific events that drive your project in the direction of outcomes viewed as
unfavorable (e.g., schedule delays, cost overruns, and inferior product performance).
Risk Appraisal and Analysis

Once identified and listed, risks can be ranked according to the probability of their
occurrence and the severity of their impact if they occur. This process will eliminate the most
improbable risks arising from brainstorming, but it should bring to the fore those risk events
that are most likely to happen or which would have the greatest impact on the project. For
this analysis it is necessary to consider the possible causes and effects of every risk. Risk
analysis can be qualitative or quantitative.
1. Qualitative cause and effect analysis: Qualitative risk analysis involves considering each
risk in a purely descriptive way, to imagine various characteristics of the risk and the effect
that it might have on the project.
1.1. Ishikawa Fishbone Diagrams: Ishikawa fishbone diagrams are methods commonly
used by reliability and safety engineers to analyze faults in design and construction. Below
figure, for instance, shows how an Ishikawa fishbone diagram might be compiled to analyze
the numerous reasons why a car engine fails to start. Many items in this car engine example
could be expanded into greater detail, leading to quite a complex diagram, with many
branches to the ‗fish skeleton‘.
Fishbone diagrams can easily be used without adaptation to examine failures or poor
performance in organizations. The process generally starts by thinking about the effect, and
__________________________________________________________________________________________
then looking for the possible causes. However, project risk management is more often
conducted from the opposite viewpoint, which means first listing all the possible causes
(risks) first and then assessing their probable effects.
Figure: Ishikawa fishbone diagram for car engine failure

This cause and effect diagram examines the possible causes of a risk event. Project risk
management is more often concerned with the possible outcomes of a risk event, for which
failure mode effect analysis is a more appropriate method.
1.2. Failure mode and effect analysis (FMEA): Failure mode and effect analysis has also
been imported into project risk management from reliability and quality engineering, but this
method is possibly more helpful because it starts by considering possible risk events (failure
modes) and then proceeds to predict all their possible effects. Below figure shows a simple
FMEA chart. Item 1 in this example is related to the car engine problem in the fishbone
diagram discussed in previous section but now we look beyond the simple fact of engine
failure to consider the possible consequential effects of the engine failing to start. A final
column allows space for preemptive actions to be recommended that might mitigate or
prevent damage from the risk.
__________________________________________________________________________________________
Figure: Part of a failure mode and effect matrix (FMEA)
Only three items are shown in the above figure but there might be hundreds of items in a
large, complex project. The chart illustrates a qualitative process because the characteristics
of each risk are considered, but there is no attempt to give each risk a priority ranking number
or to quantify the effects if the risk should occur.
1.3. Risk classification matrices: Below figure shows a risk classification matrix chart. This
matrix comprises nine sections. Although this is a simple classification method, an even
simpler four-section matrix is often used, containing the following quadrants:
 high chance – high impact
 high chance – low impact
 low chance – high impact
 low chance – low impact
Figure: Matrix for qualitative risk classification
__________________________________________________________________________________________
As with failure mode and effect analysis, this again is a qualitative method, in which no
attempt is made to evaluate any risk numerically. Each risk item is considered for its
likelihood of occurrence (chance) and for the relative scale of the impact on the project
should it occur.
Suppose, for instance, that a project is being planned to move a large company headquarters
from a central city location to a purpose-built office building on the suburbs of a country
town (let‘s think of shifting to Panchagarh from Dhaka). The following are a few of the many
risk events that might be visualized and assessed:
 Some office equipment could be damaged or stolen in transit. The risk of that happening
might be high, but the impact could be considered medium because equipment is
replaceable.
 Some key staff might decide not to relocate with the company. That could be thought to
have a medium chance, and the effect would have a medium impact on the company‘s
performance when starting up in the new location.
 The collapse of the new premises just before opening date through an earthquake in
Panchagarh would be very low chance, but the impact would unquestionably be
devastatingly high.
Below figure shows a simple qualitative risk assessment matrix showing how the principles
illustrated in the above figure might be applied in practice.
Figure: Qualitative risk assessment matrix
__________________________________________________________________________________________
2. Quantitative analysis: Quantitative risk analysis goes at least one stage further than
qualitative analysis by attempting to quantify the outcome of a risk event or to attach a
numerical score to the risk according to its perceived claim for preventive or mitigating
action. Quantitative analysis methods attempt to assign numerical values to risks and their
possible effects. They often examine the probable impact on project time and costs.
Alternatively, the evaluation process can produce a ranking number for every identified risk.
Ranking numbers denote the priority that a risk should claim for management attention and
expenditure on preventative measures.
Although all quantitative methods produce actual numbers they can give a false sense of
precision. It has to be remembered that the results are based on estimates, assumptions and
human judgment. Those contributing assessments might be fundamentally flawed, mistaken
or simply too difficult for any person to make with any degree of certainty.
2.1. Failure mode effect criticality analysis (FMECA): The qualitative failure, mode and
effect analysis method illustrated in section 1.2 of this chapter can be adapted and extended to
attempt risk quantification. The method then becomes failure mode effect and criticality
analysis (FMECA). Below figure shows one version of it. In this example three assessment
columns are provided, in each of which the risk analyst is expected to enter a number
expressing the degree of significance. Every item is ranked on a scale of one to five (1-5),
with the highest numbers indicating the greatest degree of significance. The entries might be
those of the risk analyst or, preferably, the collective opinions of a risk committee or
brainstorming group. In some procedures the column headed ‗Detection difficulty‘ is
replaced by one headed ‗Prediction difficulty‘.
Figure: Part of a failure mode effect and criticality analysis matrix

Item 2 in the above figure, for example, considers the possibility and potential seriousness of
a building collapse. This is for a building created as part of the project, and the collapse in
__________________________________________________________________________________________
question might happen during the installation of heavy machinery on upper level floors. If the
floors have been incorrectly designed, they might not be sufficiently strong to carry the
weight of the machinery. The assessor clearly thinks this is unlikely to happen because he has
ranked ‗Chance‘ at the bottom end of the 1–5 scale. There is no doubt, however, that if this
event did occur it would be extremely serious, so ‗Severity‘ has been marked as 5. ‗Detection
difficulty‘ means the perceived difficulty of noticing the cause of this risk (design error in
this case) in time to prevent the risk event. Here there is a considerable element of judgment,
but the assessor thinks that although the chance of a design error is very low, the difficulty of
spotting a mistake if it did occur would be higher (3 on the scale of 1–5). The product of
these three parameters, 1 × 5 × 3 gives a total ranking number of 15. Theoretically, when this
exercise has been performed on every item in the list, the list can be sorted in descending
sequence of these ranking numbers, so that risks with the highest priority for management
attention come at the top of the list.
Risk Management Process

Managing risks on projects is a process that includes risk assessment and a mitigation
strategy for those risks. Risk assessment includes both the identification of potential risk and
the evaluation of the potential impact of the risk. A risk mitigation plan is designed to
eliminate or minimize the impact of the risk events- occurrences that have a negative impact
on the project. Identifying risk is both a creative and a disciplined process. The creative
process includes brainstorming sessions where the team is asked to create a list of everything
that could go wrong. All ideas are welcome at this stage with the evaluation of the ideas
coming later.
1.1. Risk Identification: A more disciplined process involves using checklists of potential
risks and evaluating the likelihood that those events might happen on the project. Some
companies and industries develop risk checklists based on experience from past projects.
These checklists can be helpful to the project manager and project team in identifying both
specific risks on the checklist and expanding the thinking of the team. The past experience of
the project team, project experience within the company, and experts in the industry can be
valuable resources for identifying potential risk on a project.
Identifying the sources of risk by category is another method for exploring potential risk on a
project. Some examples of categories for potential risks include the following:
 Technical
 Cost
__________________________________________________________________________________________
 Schedule
 Client
 Contractual
 Weather
 Financial
 Political
 Environmental
 People
You can use a risk breakdown structure (RBS) to organize the risks that have been
identified into categories using a table with increasing levels of detail to the right. The people
category, for instance, can be subdivided into different types of risks associated with the
people. Examples of people risks include the risk of not finding people with the skills needed
to execute the project or the sudden unavailability of key people on the project. The result is a
clearer understanding of where risks are most concentrated.
1.2. Risk Evaluation: After the potential risks have been identified, the project team then
evaluates each risk based on the probability that a risk event will occur and the potential loss
associated with it. Not all risks are equal. Some risk events are more likely to happen than
others, and the cost of a risk can vary greatly. Evaluating the risk for probability of
occurrence and the severity or the potential loss to the project is the next step in the risk
management process. Having criteria to determine high-impact risks can help narrow the
focus on a few critical risks that require mitigation. For example, suppose high-impact risks
are those that could increase the project costs by 5% of the conceptual budget or 2% of the
detailed budget. Only a few potential risk events meet these criteria. These are the critical few
potential risk events that the project management team should focus on when developing a
project risk mitigation or management plan. Risk evaluation is about developing an
understanding of which potential risks have the greatest possibility of occurring and can have
the greatest negative impact on the project. These become the critical few.
Risk evaluation often occurs in a workshop setting. Building on the identification of the risks,
each risk event is analyzed to determine the likelihood of occurrence and the potential cost if
it did occur. The likelihood and impact are both rated as high, medium, or low. A risk
mitigation plan addresses the items that have high ratings on both factors—likelihood and
impact.
__________________________________________________________________________________________
Figure: Risk and Impact
There is a positive correlation- both increase or decrease together- between project risk and
project complexity. A project with new and emerging technology will have a high-
complexity rating and a correspondingly high risk. The project management team will assign
appropriate resources to technology managers to ensure the accomplishment of project goals.
The more complex the technology, the more resources the technology manager typically
needs to meet project goals and each of those resources could face unexpected problems.
2. Risk Mitigation: After the risk has been identified and evaluated, the project team
develops a risk mitigation plan, which is a plan to reduce the impact of an unexpected event.
The project team mitigates risks in various ways: risk avoidance, risk sharing, risk reduction,
risk transfer etc.
Each of these mitigation techniques can be an effective tool in reducing individual risks and
the risk profile of the project. The risk mitigation plan captures the risk mitigation approach
for each identified risk event and the actions the project management team will take to reduce
or eliminate the risk.
2.1. Risk avoidance usually involves developing an alternative strategy that has a higher
probability of success but usually at a higher cost associated with accomplishing a project
task. A common risk avoidance technique is to use proven and existing technologies rather
than adopt new techniques, even though the new techniques may show promise of better
__________________________________________________________________________________________
performance or lower costs. A project team may choose a vendor with a proven track record
over a new vendor that is providing significant price incentives to avoid the risk of working
with a new vendor.
2.2. Risk sharing involves partnering with others to share responsibility for the risky
activities. Many organizations that work on international projects will reduce political, legal,
labor, and others risk types associated with international projects by developing a joint
venture with a company located in that country. Partnering with another company to share the
risk associated with a portion of the project is advantageous when the other company has
expertise and experience the project team does not have. If a risk event does occur, then the
partnering company absorbs some or all of the negative impact of the event.
2.3. Risk reduction is an investment of funds to reduce the risk on a project. On international
projects, companies often purchase the guarantee of a currency rate to reduce the risk
associated with fluctuations in the currency exchange rate. A project manager may hire an
expert to review the technical plans or the cost estimate on a project to increase the
confidence in that plan and reduce the project risk. Assigning highly skilled project personnel
to manage the high-risk activities is another risk reduction method. Some companies reduce
risk by forbidding key executives or technology experts to ride on the same airplane.
2.4. Risk transfer is a risk reduction method that shifts the risk from the project to another
party. The purchase of insurance on certain items is a risk-transfer method. The risk is
transferred from the project to the insurance company. A construction project in the
Caribbean may purchase hurricane insurance that would cover the cost of a hurricane
damaging the construction site. The purchase of insurance is usually in areas outside the
control of the project team.
Managing Risk: An Overview

Many approaches can be used to address risk and the threats it produces. However, most
processes for managing risk tend to follow some variation of this basic four-step approach:
Step 1: Identification (determining what threats exist). Identify all significant uncertainties
(sources of risk), including specific threats (also called potential problems or risk events) that
could occur throughout the life of the project.
Step 2: Quantification (determining how big the threats are). Obtain information on the
range of possible outcomes for all uncertainties and their distribution and/or probabilities of
occurrence, to better understand the nature of the threats and their potential effects on the
project.
__________________________________________________________________________________________
Step 3: Analysis (determining which threats are of greatest concern). Use the knowledge
gained through risk assessment to determine which potential problems represent the greatest
danger to achieve a successful and predictable project outcome, ordinarily by considering the
probability that a specific problem will occur and its anticipated impact on the project.
Step 4: Response (dealing with the threats). Determine the best approaches for addressing
each high-threat potential problem, which may include evaluating and choosing among a
number of alternatives, and create specific action plans.
Common Problems/Risks Encountered on Projects

Below figure lists over 60 common problems encountered on projects. Consider using this or
a similar checklist when meeting with your team. List as many potential problems as you can,
using brainstorming techniques. Although you don‘t want to stifle creativity, try to keep the
list to a reasonable size (perhaps 30-50, depending on project size and complexity).
Figure: Common problems encountered on projects

As you, as project manager, list potential problems that threaten your project, don‘t lose sight
of the concept of uncertainty. Remember that the lack of information, knowledge, and
__________________________________________________________________________________________
understanding is really your enemy. In other words, think of your biggest ―threats‖ as those
that have the greatest potential to throw you off course the furthest-in an unfavorable
direction.
Basic Ways to Handle Risk/Methods for Dealing with Risks

When you‘re planning your project, risks are still uncertain: they haven‘t happened yet. But
eventually, some of the risks that you plan for do happen, and that‘s when you have to deal
with them. There are four basic ways to handle a risk suggested by Amado et al. (for further
reading http://pm4id.org/.).
1. Avoid: The best thing you can do with a risk is avoid it. If you can prevent it from
happening, it definitely won‘t hurt your project. The easiest way to avoid this risk is to walk
away from the cliff, but that may not be an option on your project.
2. Mitigate: If you can‘t avoid the risk, you can mitigate it. This means taking some sort of
action that will cause it to do as little damage to your project as possible.
3. Transfer: One effective way to deal with a risk is to pay someone else to accept it for you.
The most common way to do this is to buy insurance.
4. Accept: When you can‘t avoid, mitigate, or transfer a risk, then you have to accept it. But
even when you accept a risk, at least you‘ve looked at the alternatives and you know what
will happen if it occurs. If you can‘t avoid the risk, and there‘s nothing you can do to reduce
its impact, then accepting it is your only choice!
Dennis Lock suggests a range of options for the project manager:
1. Avoid the risk: The only way to avoid a risk is to abandon the possible causes, which
could even mean deciding not to undertake a project at all.
2. Take precautions to prevent or mitigate risk impact: This is a most important part of
risk management, requiring the active participation of all managers and staff. It needs high
level risk prevention strategy combined with executive determination to ensure that all
preventive measures are always followed throughout all parts of the organization. It requires
the creation of a risk prevention culture, covering all aspects of project tasks, health and
safety, and consideration for the environment.
3. Accept the risk: Rain might make the day chosen for office relocation miserable for all
concerned but the risk would have to be accepted. There are numerous small things that can
go wrong during the course of any project, and most of these risks can be accepted in the
knowledge that their effect is not likely to be serious, and that they can be overcome by
corrective measures or re-planning.
__________________________________________________________________________________________
4. Share the risk: If a project, or a substantial part of it, appears to carry very high risk, the
contractor might seek one or more partners to undertake the work as a joint venture. Then the
impact of any failure would be shared among the partners. Sharing a risk big enough to ruin
one company might reduce its impact to little more than a temporary inconvenience.
5. Limit the risk: There are occasions when project risks should only be accepted with
safeguards in place to limit their potential effect. A good example is an internal project,
perhaps for pure research, that cannot be adequately defined at the outset. No one can tell
how much the project will eventually cost or what its outcome might be. Yet the
opportunities are too great to consider avoiding the risk altogether.
6. Transfer the risk: Some risks, or substantial parts of them, can be transferred to another
party on payment of a fee or premium. This leads to the important subject of insurance, which
is discussed in the later section.
Contingency Plan
The project risk plan balances the investment of the mitigation against the benefit for the
project. The project team often develops an alternative method for accomplishing a project
goal when a risk event has been identified that may frustrate the accomplishment of that goal.
These plans are called contingency plans. The risk of a truck drivers‘ strike may be mitigated
with a contingency plan that uses a train to transport the needed equipment for the project. If
a critical piece of equipment is late, the impact on the schedule can be mitigated by making
changes to the schedule to accommodate a late equipment delivery.
Contingency funds are funds set aside by the project team to address unforeseen events that
cause the project costs to increase. Projects with a high-risk profile will typically have a large
contingency budget. Although the amount of contingency allocated in the project budget is a
function of the risks identified in the risk analysis process, contingency is typically managed
as one line item in the project budget.
Some project managers allocate the contingency budget to the items in the budget that have
high risk rather than developing one line item in the budget for contingencies. This approach
allows the project team to track the use of contingency against the risk plan. This approach
also allocates the responsibility to manage the risk budget to the managers responsible for
those line items. The availability of contingency funds in the line item budget may also
increase the use of contingency funds to solve problems rather than finding alternative, less
costly solutions. Most project managers, especially on more complex projects, manage
__________________________________________________________________________________________
contingency funds at the project level, with approval of the project manager required before
contingency funds can be used.
Insurance for Project Risks

The financial impact of many risks can be offset by insuring against them. The client pays the
insurance company a premium for this service and the insurer might itself choose to spread
the risk by sharing it with one or more other insurance companies. Below figure shows that
managers do not enjoy complete freedom of choice when deciding which risks should be
included in their insurance portfolio.
Figure: Risk and insurance in project management
__________________________________________________________________________________________
Chapter 8: Project Implementation
Meaning of Project Implementation
When the project is applied in practical field then it is called the project implementation. It is
the step related with project execution. Project implementation is started after planning,
forming, evaluating and scheduling the project. It is the total expression of its main goal.
Through the project implementation, project can start to perform its activities. So it is vital in
project management to achieve its desired goal through effective implementation.
After you have carefully planned your project, you will be ready to start the project
implementation phase. The implementation phase involves putting the project plan into
action. It‘s here that the project manager will coordinate and direct project resources to meet
the objectives of the project plan. As the project unfolds, it‘s the project manager‘s job to
direct and manage each activity, every step of the way. That‘s what happens in the
implementation phase of the project life cycle: you follow the plan you‘ve put together and
handle any problems that come up.
The implementation phase is where you as project manager and your project team actually do
the project work to produce the deliverables. The word ―deliverable‖ means anything your
project delivers. The deliverables for your project include all of the products or services that
you and your team are performing for the client, customer, or sponsor, including all the
project management documents that you put together.
Objectives of the Implementation Phase of Project

The objectives of the implementation phase can be summarized as follow:
 Putting the action plan into operation.
 Achieving tangible change and improvements.
 Ensuring that new infrastructure, new institutions and new resources are sustainable in
every aspect.
 Ensuring that any unforeseen conflicts that might arise during implementation are
resolved.
 Ensuring transparency with regard to finances.
 Ensuring that potential benefits are not captured by elites at the expenses of poorer social
groups.
__________________________________________________________________________________________
Advantages and Disadvantages of Project Implementation
Advantages:
 Implementation gives the opportunity to see the plans become a reality.
 Execution of projects allows end-users to have access to better services and living
environment.
 Success stories and experiences can be shared with specialists from other cities and
towns, encouraging others to adopt similar approaches, which in turn may improve
resource management i.e. water resources management in the local area.
Disadvantages:
 Evidence of corrupt practices in procurement will undermine the entire process and waste
precious resources.
 Poor financial planning can lead to budget constraints in the midst of implementation.
 The decision on when a project is complete often causes friction between implementers
and the community. Completion for the implementer is quite straightforward. It is defined
by contracts, drawings, and statutes. Communities have a more practical approach to
completion. Once the project produces the benefits for which they agreed to undertake it
they see no reason to spend further time and money on it.
Implementation Plan of a Project

Implementation is commonly used for discrete projects, technology deployment within a
company, and inventory planning. However, you can create an implementation plan for any
organizational undertaking of any size or scope. You can even create an implementation plan
for personal use (i.e., for career planning) if it will help you organize and take actionable
steps toward your goal(s).
A project implementation plan is the plan that you create to successfully move your project
plan into action. This document identifies your goals and objectives (both short and long-
term), lists the project tasks, defines roles and responsibilities, outlines the budget and
necessary resources, and lists any assumptions. A project implementation plan sometimes
includes a rough schedule, but teams usually set the hard timeline in the execution plan.
Components of an Implementation Plan

The following are the key components of and questions that drive a successful
implementation plan:
__________________________________________________________________________________________
 Define goals/objectives: What do you want to accomplish? The scope of these goals will
depend on the size of your undertaking/project.
 Schedule milestones: While task deadlines and project timelines will be formally set in
the execution plan, it‘s a good idea to outline your schedule in the implementation phase.
 Allocate resources: One of the core purposes of an implementation plan is to ensure that
you have adequate resources (time, money, and personnel) to successfully execute. So,
gather all the data and information you need to determine whether or not you have
sufficient resources, and decide how you will procure what‘s missing.
 Designate team member responsibilities: Assign roles. This doesn‘t necessarily mean
you must define who will execute each individual task, but you should create a general
team plan with overall roles that each team member will play.
 Define metrics for success: How will you determine whether or not you are successful?
What data (whether quantitative or qualitative) will you use to measure your results, and
how will you accrue the necessary data?
 Define how you will adapt: Make a plan for how you will adapt, if necessary, to changes
in your plan. Be sure to consider factors outside your control that could significantly alter
the schedule or success of your project, and create emergent strategies ahead of time, so
you don‘t get derailed down the road- doing so helps build a culture of flexibility, agility,
and fast action.
 Evaluate success: In addition to defining your metrics for success, decide how often you
will evaluate your progress (e.g., monthly/quarterly reviews).
How to Write an Implementation Plan

The steps involved in writing an implementation plan are straightforward, but the process is
not quick or easy. Each section should be detailed, combining the information from your
strategic plan and incorporating the necessary research and data that makes your objectives
actionable. This section provides an ordered example for writing each component in an
implementation plan.
 Introduction: The introduction of your implementation plan explains the purpose, vision,
and mission statement of your project or initiative. You should identify the high-level risk
areas, include any assumptions, and describe how you will identify the value stream in
your proposed work.
__________________________________________________________________________________________
 Management overview: In this section, you describe how implementation will be
managed. This includes who is managing it, the underlying roles and responsibilities, and
key points of contact.
 Major tasks: This is where you list and describe the specific tasks, actions, and targets in
implementation. You should also note the status of any tasks that are already in progress.
 Implementation schedule: You do not need to create a detailed, inflexible task schedule
in your implementation plan. It‘s appropriate to simply list the task order and predicted
phase durations to roughly outline and allot for all the many moving pieces.
 Security and privacy: Discuss the privacy features and considerations of the software
tools, processes, or information that you may use in implementation. Address security
issues and how to handle sensitive information (personal data, medical history, financials,
etc.).
 Implementation support/resources list: Describe the various tools, activities, and
departments that you require to support successful implementation. These might include
hardware or software tools, facilities, and additional external human resources or services.
 Documentation: In this section, you must attach any other documentation that supports
your implementation plan. This could include your strategic plan, confirmation of
adequate materials and resources, and a history of past successful projects.
 Monitoring performance: Define the metrics by which you will measure success. How
and when will you review your progress?
 Acceptance criteria: How will you define implementation ―completion?‖ This differs
from performance monitoring because rather than defining metrics for milestones and
appropriate implementation, here, you describe how you will know when you have buy-in
from management on your implementation plan.
 Glossary: Define any key terms used in your implementation plan.
 References: Indicate where you received your information, or list people who support
your plan.
 Project approval: If you need management‘s approval before moving into execution,
this section provides space for official signoff.
Implementation Planning Best Practices

Although you should include all the detailed aspects listed above in your implementation
plan, simply having all these components will not ensure success. Instead, you should focus
on the process of implementation and foster the following behaviors within your team:
__________________________________________________________________________________________
 Create a designated implementation team: An implementation team is the team
responsible for ensuring successful implementation of a particular project/initiative.
While it‘s possible to move through implementation without creating a specific,
organized body to oversee the processes, doing so heightens your chances of success.
 Create a shared vision among all team members: Establish ―why‖ you are making
strategic changes so that team members have both a greater understanding of the root
cause and a deeper connection to their work. Ensure individual compliance, so people
don‘t feel like their voices went unheard.
 Choose a strong team leader: The team leader should coach and educate team members
along the way and seek out guidance from past implementation plan leaders to improve
upon existing implementation processes within the organization. However, there can be
multiple team leaders with slightly different responsibilities.
 Define actionable goals: Stay specific, define current issues, and identify root causes.
Methods for defining current problems include brainstorming, surveys, and new member
information forms.
 Create an action-oriented plan: Regardless of the size or predicted duration of your
goals, create a plan focused on incremental action. Small steps add up, so stay positive
and focus on the future. You need to know what problem you really should be solving so
that you don‘t end up solving proxy problems (problems you think are your problem but
really aren‘t- an example of this is praying for rain when your real problem is that you
need water on your field). And, finally, you need to know what you really need to do to
get the work done. What resources do you need? Do you have the resources you need?
Can you get the resources you need? If not, your plan won‘t work.
 Value communication: The team leader should not only value others‘ input, but also
make active participation an expectation. Open, honest communication keeps processes
transparent and helps generate new ideas.
 Continually monitor incremental success: Perform analysis and hold regular progress
meetings to analyze your development. Closely monitoring your progress enables you to
make adjustments before crisis hits and allows you to adapt before processes or
expectations become solidified.
 Involve the correct people at the correct times: This includes defining when and why it
is appropriate to involve upper management. Include the critical stakeholders that are part
of the project. The beginning of planning should only include the decision makers and not
every team member that is part of the project. Outline the critical tasks that are needed
__________________________________________________________________________________________
first. Once the tasks are outlined, dictate the personnel who will be responsible for the
tasks.
 Publicize your plan: While you don‘t necessarily want every stakeholder‘s input at all
times during implementation planning, you do want to maintain transparency with other
teams and management. Make your plan available to higher-ups to keep your team
accountable down the line.
Stages of Project Implementation

The objective of project implementation is performing the project‘s activities within the
resource available and, scheduling & budgeting of the project. For implementing the project,
it needs to maintain seven steps. These are discussed in bellow-
1. Initiating the project: It is the first step of project implementation. Functions of project
are started from here. Again, here project makes the new plan. Without these other tasks are
as follows-
a. Selecting a manager for the project.
b. Approving the plan, budget, strategy programs of the project by concerned authority.
c. Have to make a contact for financial help and technical support if it is required.
2. Specifying and scheduling the work: In this step, project plan is analyzed properly. Each
activity is identified and the relationship among the activities is determined. Where, when,
how and by whom the activities of the project will be done is mentioned here. All the tasks of
the project are divided into some controllable subdivisions. Due to these divisions, it is easy
to estimate the required time and resources to complete the project. To implement the project
bellow activities need to perform-
a. Finalizing the technological parameter.
b. Selecting the machine.
c. Developing the layout.
d. Identifying the infrastructure.
e. Call for tender and pay the invoice.
f. Collecting supplies and installation equipments.
g. Training the employees.
3. Clarifying the authority, responsibility and relationship: Here the relationship of the
persons involved in the project is analyzed. The responsibility of the employees and how
much authority he will hold is clarified and their organizational relationship is discussed in
this step.
__________________________________________________________________________________________
4. Obtaining resources: In this step the required resources for the project is collected. It can
divide the resources of the project into three divisions. These are personnel, finance, and
materials & equipments.
Project Formulation Project Implementation
2. Specifying 5. Establishing the

Technical
Activities and controlling system
Analysis
Formulating
Schedule
1. Project 3. Clarifying
Financial and Starting Authority, 6. Directing and
Economic
Responsibility And controlling.
Analysis
relationship
Schedule
4. Collecting
Cost-benefit Resources 7. Project
Analysis
Termination
Plan formulation Organizing Controlling
Figure: Project management & project implementation.

5. Estimating controlling system: To complete the activities in right time, right cost and in
right way, controlling system is developed here. It determines the time, budget and cost of the
project on the basis of assumptions. So it balances between assumptions and reality. Every
task is dependent to the other task. So the failure of previous task influence to the present
task. For this reason controlling system should be established in such a way, so that it is
possible to identify the problems of the project instantly and take corrective actions.
6. Directing and controlling: After establishing the controlling system, the employees are
directed to perform the activities. That means, it needs to provide the advice regarding when
the task will be started and how & when the task have to be performed. The internal
environment of the organization is different than that of other organization. So it should
direct the employees in such a way so that they can do their responsibility simultaneously and
they can understand that they are not dominated by anyone.
7. Terminating the project: It is the last step of project implementation. From the
experience it is seen that many project managers take this step as usual. But it should not
acceptable at all. Because, right termination of the project influences its‘ post-ante evaluation.
__________________________________________________________________________________________
Impediments/ Problems/ Drawbacks for Implementing the Project
The success of the project largely depends on the efficiency with which it is implemented.
Implementation is the allocation of tasks to the group members within the project
organization. There are numerous common factors which impedes the effective
implementation of projects in developing country like ours. These impediments or problems
for implementing the project are discussed in bellow-
01. Delay in obtaining approval: Delay in obtaining approval on various aspects of project
from the concerned agencies. It hampers the starting of activities just in time.
02. Lack of project perception: It is a major impediment to project implementation. It
happens for the lack of experience, skill and redtops in planning and lack of information.
03. Political expediency and vested interest: From the beginning of planning to the
implementation, every stage of the project is influenced by political expediency and vested
interests of different groups. This problem is severe particularly for a developing country like
Bangladesh. That‘s why implementation may be delayed, even stopped for an uncertain
period of time.
04. Wrong assignment: If improper people are employed and given the responsibility to
implement project may not successfully towards its objects.
05. Delay in getting foreign technical assistance: A project might not be properly
implemented if it gets delayed in getting foreign technical assistance such as money, men,
materials and knowledge.
06. Frequent transfers and heavy turnover: For frequent transfers, project loses its
experience and skilled members to implement and heavy turnover also creates barriers for
project implementing.
07. Under- staffing and over-staffing: For understaffing project faces problems to complete
the project activities within the time limit. Overstaffing creates haphazard and anomalies in
implementation and increases expenses.
08. Diffusion of implementation responsibility: Project analysis may require assigning the
implementation responsibility to various agencies instead of certain agency, failure of which
will hamper project implementation.
09. No clarity about authority and responsibility relationship: If the staff does not know
what to do, whom to follow, whom to report, who will provide necessary guidelines etc., then
projects may not be implemented successfully because of their natural tendency of avoiding
their works.
__________________________________________________________________________________________
10. No mechanism for co-operation and co-ordination: If project analyzer fails to co-
operate and co-ordinate between the various connected agencies or the activities, project
likely to be implemented improperly.
11. Unavailability of materials: Project implementation may hinder because of
unavailability of raw materials that acts as one of the key inputs to project.
12. Non-commitment to financial resources: Before starting the project financial sources
needed to be prearranged. At the time of implementing, non-commitment to organizing
financial resources will hamper its execution.
13. Change in government fiscal and licensing policies: The project implementation may
be stopped at the mid-point because of changes in government fiscal and licensing policies.
14. Missing of cost planning, budgeting and accounting: If the planning committee misses
to integrate cost planning, budgeting and accounting in the planning and scheduling phase,
then the project may face problems in proper implementation.
15. Unrealistic scheduling: Sometimes project analyst prepares unrealistic scheduling just to
impress top management or donor agency, which is not easy to turn into action.
16. Lower monitoring: If the project manager does not monitor the progress of project
works properly at the time of implementing project, the project cannot run successfully.
17. Lack of direction and controlling mechanism: If there are no parameters for direction
and controlling the team members engaged in implantation tasks, then project implementation
is likely to fail.
18. Poor quality control system: Poor quality of technician, materials, equipments,
technology lead to the project failure.
19. Continuous change in designs, drawings and specifications: Continuous change in
designs, drawings and specifications also make changes in assigned task. So the employee
groups need to adjust with the changes, which require additional time and efforts. So it also
impedes the project implementation.
20. Accidents: Various accidents may be occurred at the time of execution of the projects
such as fire damage, sudden death at the time of working, electrical breakdown etc. These
also hinder the project implementation.
Besides these, the below reasons can also impede the successful implementation of projects.
21. Lack of integrated management information and reporting systems.
22. Various contractual problems with different parties.
23. Changes in project priority by initiating authority, government, or concerned authorities.
24. Communication gap between project implementation team and other related departments.
__________________________________________________________________________________________
25. Too many similar projects under way at a time.
26. Apathy to application of modern project management techniques.
27. No consideration of past experience and learning.
28. Natural calamities.
29. Failure to maintain interest on project among related groups.
30. Excluding beneficiary group to project.
Impediments for which the Project Manager has nothing to Do

Among the impediments hindering project implementation, for the below impediments, the
project manager has almost nothing to do.
1. Natural calamities: In spite of having many efforts of all groups and agencies a project
may hamper due to natural calamities like storm, flood, earthquake etc.
2. Accidents: Various accidents may be occurred at the time of execution of the projects such
as fire damage, sudden death at the time of working, electrical breakdown etc. These also
hinder the project implementation.
3. Change in government fiscal and licensing policies: The project implementation may be
stopped at the mid-point because of changes in government fiscal and licensing policies.
4. Unavailability of materials: Project implementation may hinder because of unavailability
of raw materials that acts as one of the key inputs to project.
5. Political expediency and vested interest: From the beginning of planning to the
implementation, every stage of the project is influenced by political expediency and vested
interests of different groups. This problem is severe particularly for a developing country like
Bangladesh. That‘s why implementation may be delayed, even stopped for an uncertain
period of time.
So the project managers must be sincere at the time of implementation of the project. Project
manager have to identify the factors which will hamper the project to ensure speedy
implementation and to achieve optimum results out of investment; and have to take necessary
steps to overcome these problems; barriers, obstacles or impediments.
Guidelines for Effective Implementation of Projects

The below guidelines can be followed for ensuring the effective implementation of project.
 Do not run too many similar types of project at a time.
 Preparing and strictly maintaining the schedule.
__________________________________________________________________________________________
 To cope with the changing situation, taking necessary adaptive strategy like
decentralization of power, delegation of authority, periodic evaluation etc.
 Perform adequate analysis regarding location, market, materials, machineries etc.
 Use of modern management techniques in project implementation.
 Recruit qualified and experienced personnel and always motivate them so that they
devote themselves to achieve project objectives.
 Include beneficiary group in the project implementation process.
 Ensuring good relationship with government, NGO‘s, and project related other
organizations and the initiating authority.
 Proper monitoring and periodic evaluation of project.
 Application of integrated management information system and reporting &
controlling system.
Besides these, Philip et al. (2008) suggests the below tips:
 Field management staff must make time to establish an atmosphere of honesty and
trust with partners during implementation so that concerns may be raised (and often
resolved) informally.
 Realistic long-term planning of finances is a key to the implementation of an action
plan.
 A communication strategy can be used to raise awareness of the positive benefits for
the community, as well as explaining that there are necessary trade-offs, such as the
introduction/increase of water pricing, which will not please everybody. This will
help to further strengthen local ownership of the plan and encourage public
participation in the implementation of projects.
 At the end of a planning and implementation cycle, a press release is useful to
highlight successful stories and announce the publication of a final document such as
a report.
 Expectations among stakeholders and the general public are likely to be high
following the participatory approach to the development of the preceding stages of the
planning process. It is therefore important that actions are visible and demonstrate
tangible results early to build confidence in the process.
__________________________________________________________________________________________
Chapter 9: Project Monitoring
Meaning of Project Monitoring
In project management, monitoring is considered as an important task. Project has less
possibility to achieve its goal if the implemented activities of the project are not monitored
properly. The main objective of project monitoring is to ensure the implementation and
termination within the estimated time and cost.
According to B. B. Goel, ―Monitoring involves watching the progress against time, resources
and performance schedule during the execution of the project and identifying lagging areas
requiring timely attention and action.‖
According to M. Thyagarajan, ―Monitoring means periodic checking of progress of works
against the targets laid down in order to ensure timely completion of the project.‖
Finally, we can say that monitoring is the coordination of activities and formulation of
recommendations for solving problems regarding supervision and result orientation involved
in the implementation of the project.
Benefits of Project Monitoring

Effective monitoring system ensures an effective implementation of project. The activities of
project are mutually interdependent. If one task of project is hampered then it influences the
other activities of the project. It is possible to identify problems of the project in right time
and take proper preventive action accordingly through monitoring. The benefits of project
monitoring therefore are as follows-
1. It can evaluate whether the project is implemented according to its main goal or not.
2. It can identify the problems and develop recommendations for solving the problems.
3. It can help in selecting the implementation steps.
4. It is possible to determine the necessity of basic correction rationally.
5. It can help in determining the result or outcome of the implemented effort.
6. By evaluating the planning and scheduling progress, it can provide feedback to the
concerned authority.
7. It can present the recommendation with documents to the authority for developing policy
and taking future decision.
Methods of Project Monitoring

Various methods of monitoring are discussed in bellow-
__________________________________________________________________________________________
1. Project status report: It is a short report where the current situation of the project for a
particular day is discussed. Here all the executed tasks, schedule, programs, and total figure
of the project are mentioned. Moreover it identifies the variation between main plan and
actual performance, and determines the influences of these variations. It uses the color code.
Color code identifies the weak point of the project. Project manager can give priority on this
weak point.
2. Project schedule chart: In this method, the schedule for implementing project is
developed and maintains properly. In general sense it is entire chart of the important task of
the project. It also holds the probable terminating time of the project. On the basis of that
chart the schedule of the task of the project is prepared. On the basis of scheduling the
progress of performance of the project is monitored and evaluated.
3. Project financial status report: It is an important report among the reports of project
monitoring. Here the financial condition of the project is descried. The main subject matter of
project monitoring is to measure the progress of performance with predetermined time and
budget. If it requires more time than the predetermined time then it negatively affect the
project. Time overrun moves the project toward the cost overrun and reduces the financial
feasibility.
4. Photograph of physical progress: Photograph may be used as a method for monitoring
the progress of the construction project. It can present pictorial presentation of the project
about its actual progress. It is possible to measure the progress of project according to the
time and budget. Necessary actions can be taken if the project does not progress according to
time and budget. To follow this method, it needs to monitor and evaluate the applied progress
of the project after certain/periodic time interval.
5. Project inspection: In this method the authority does not dependent on the report of the
project, they directly inspect and evaluate the performance of the project. After physically
inspecting the project, the inspection groups fill-up the table on the basis of predetermined
rules and prepare the report for submitting to the authority. It is necessary to have own
inspection group to monitor the project progress in this method.
Guidelines for Effective Project Monitoring

Effective monitoring system ensures an effective implementation of project. To make the
monitoring process more effective the bellow guidelines should be followed-
1. Assigning primary responsibility: The primary responsibility of monitoring is given to
those persons, to whom the responsibility of implementation is also given.
__________________________________________________________________________________________
2. Team work: Monitoring should be done through team work. The responsibility of
monitoring should not let to a single person.
3. Compulsory tool: Monitoring is considered as an important and compulsory task of
project management. It should not be used as a tool of mistrust or illegal interference in other
work.
4. Mentality of the members: To prepare business report of activities without any bias,
monitoring team should have the mentality of honesty, integrity, and courage.
5. Involvement of all parties: To make the monitoring more effective, the involvement of all
concerned parties is essential. They should have a high level of commitment and team spirit.
6. Relation: Monitoring and scheduling are closely related. According to the standard of
scheduling the task of monitoring is done. So there must have a close connection between
them.
7. Small project: The both task of scheduling and monitoring can be done through the same
group in case of small project.
8. Communication: The monitoring activities should not be confined within the top level
management. The related information of monitoring should be communicated to all levels of
employees/team members.
9. Qualification of members: The monitoring task should be handed over to a group of
persons who are skilled, trained and capable enough having sound track record.
10. Working environment: Proper working environment should be provided to the
monitoring team, so that they can get job satisfaction and feel secured.
11. Time interval: The time interval of monitoring activities should be according to the
nature of project.
12. Timely action: The monitoring report should be submitted to those who can take timely
action.
13. Flawless information: One of the most vital preconditions of monitoring is quick
exchange of flawless information among monitors, concerned authorities and team members.
14. Dependence: The success of monitoring activities depends on the prudence, analyzing
power and confidence level of the monitoring persons.
15. Complex project: In case of complex project the monitoring task should be assigned to a
renowned project management company, who has expertise personnel or team for
monitoring.
__________________________________________________________________________________________
Levels of Project Monitoring in Bangladesh
Monitoring of development projects in Bangladesh is done at various levels, such as:
1. Project level monitoring: In this level, it is the duty of persons or person who is
responsible for conducting the project. Project implementation activities are monitored
through Bar chart, Periodical Budget, CPM, PERT etc.
2. Agency or division level monitoring: In agency level, there is a planning and
implementation wing. The implementation wing is engaged in the duty of monitoring the
project and solving the existing problems. Generally a large executive agency is divided into
some sectors. These sectors monitor the project on the basis of sector base, project base and
agency base. Management by exception strategy is used to solve the project‘s problems.
3. Ministry level monitoring: Every ministry has a planning cell. These planning cells
monitor the task of the project activities. The performance of the project is reviewed in the
monthly review meeting of ministry.
4. Monitoring at national level: Implementation, monitoring and evaluation division
(IMED) is assigned to monitor the development project at national level. It is a division of
planning ministry.
However, coordination among all the above levels/stages is important for the project
monitoring process in Bangladesh.
“Effective Monitoring System Ensures an Effective Implementation of Project”

Project management calls for all the subsystems of management in an integrated way.
Planning, scheduling and monitoring must be involved in the subsystems simultaneously.
Planning determines the objectives, scheduling is the act or projecting timetable of work,
monitoring is the process of ensuring that the task is completed within the budget as well as
time. So monitoring is an important task of project management. It ensures the successful and
efficient termination of the project.
The main objective of monitoring is to ensure the implementation of the project and terminate
the project in an estimated time and cost considering the goal. That‘s why it is also
considered as an important task of project management. It has less possibility to achieve the
goal of project, if the implementation activities of the project are not monitored properly.
Monitoring also provides the following benefits for implementing the project effectively-
1. It can evaluate whether the project is implemented according to its main goal or not.
2. Monitoring can identify the problems and develop recommendations for solving the
problems.
__________________________________________________________________________________________
3. It can help in selecting the implementation steps.
4. Through monitoring, it is possible to determine the necessity of basic correction rationally.
5. It can also help to present the recommendations with appropriate documentations to the
authority for developing policy and taking future decision.
From the above discussion we can conclude that effective monitoring system fosters and
ensures an effective implementation of project.
__________________________________________________________________________________________
Chapter 10: Managing Project Closure
Reasons for Closing a Project
Project management activities do not usually end abruptly when all the tasks on the plan have
been performed successfully. A number of loose but important ends need to be tied up in a
process which some call ‗closeout‘.
Projects do not always end successfully and there are a number of reasons why projects are
occasionally closed before their intended finish date. Here are a few of the many possible
reasons for stopping work on a project:
 The project has been completed and handed over to the project owner, with or without
complete success.
 The project contractor has run out of funds, leaving the owner to find a new
contractor.
 The project owner has permanently run out of funds, killing the project.
 The project owner wishes to make fundamental changes, causing the project to be
scrapped and restarted.
 Changed economic or political conditions mean that the project will no longer be
financially viable for the owner in the foreseeable future (for example, a fall in the
price or demand for a commodity that removes financial justification for building new
plant to increase production capacity).
 The customer asks for the project to be ‗put on hold‘ (delayed indefinitely) pending a
possible improvement in market conditions or to await the results of a reappraisal.
 Government policy changes (possible for many reasons) resulting in termination of
some government contracts. Defense contracts for weapons systems, ships and aircraft
are always subject to such risks.
 An Act of God (flood, draught, thunderstorm, earthquake and so on) has intervened,
causing further work on the project to be suspended or abandoned.
 Hostile activities have broken out in an internal or international conflict, making work
on the project impossible.
Early Termination
In many cases, a project should be terminated early, though in far too many cases, it isn‘t.
There are at least three reasons why early project termination does not occur, even though it
should:
__________________________________________________________________________________________
1. Falling asleep at the wheel: You should be testing project viability- or financial
justification- on a continuous basis throughout the life of the project. Some organizations
don‘t do this very well. Others don‘t do it at all. Once management approves a project, it
simply moves ahead until it‘s completed. But in today‘s fast-paced and constantly changing
environment, it‘s always possible that there will be changes that undermine the original
business case for the project. That means that you need to reconsider the economic viability
of every project periodically. And the organization should terminate projects that have lost
their business case underpinnings.
2. Fear of failure: In many people‘s minds-and in many of the organizations- early project
termination has somehow become linked with failure (perceived as failure). This couldn‘t be
any further from the truth. Early project termination (for the right business reasons) is
actually smart management. It‘s really just a process of reallocating funds from a relatively
poor investment to a relatively good one.
3. Inertial pride: Once a project is underway, a certain amount of ―inertia‖ is created by the
work that has already gone into a particular project. Pride swells, and a feeling that ―we must
see this thing through ‘til the end‖ begins to take command of peoples‘ minds. Unfortunately,
it can dull them to a point where judgment is impaired. Even though a team (or organization)
senses that a project is on shaky ground, emotional issues such as not being viewed as
quitters, and finishing what we started, seem to become part of the process of determining
whether or not to terminate the project. Couple these feelings with the sweat equity that‘s
been invested, and under these circumstances the project is almost certain to continue even
when it doesn‘t make sense anymore!
Management Challenges at the End of the Project
At the end of the project, there are some challenges that will test your ability as project
manager to bring the project to a successful conclusion, even if everything has been going
well until then. Most of the challenges you‘ll face will fall into one of three broad categories:
1. Technical Challenges
 Start-up problems with new products or new designs
 Thorough identification and agreement on all remaining deliverables
 Loss of control of the charges to the project
 Difficulties in securing useful project historical data
2. Project Team Challenges
 Loss of team functionality as some members complete their tasks
 Loss of interest in tasks such as documentation and ―administrivia‖
__________________________________________________________________________________________
 Attention is diverted as members transition into new projects or other work
 Fear of no future work; hence, foot-dragging
3. Customer Challenges
 Agreement on what outstanding commitments still exist
 Absence of a clear hand-off strategy
 Change of responsible personnel at critical transition points
 Unavailability of key personnel
Key Elements of Successful Project Closure

The close-out phase of the project should be given as much or more project management
attention as any other phase of the project. Bringing a project to a successful conclusion
requires close attention to several different managerial functions. More than any other project
phase, project closeout requires an extremely diverse set of technical, organizational, and
leadership skills. Here are all of the things that you must do well to maximize your chances of
ensuring the successful completion of your project:
1. Ensure that the project will deliver what was promised: Actually, this should have been
addressed throughout the entire execution and control phase. You must continually monitor
the functionality and quality of the project deliverables and protect these from degradation.
From the project closeout perspective, make it your objective to avoid last-minute surprises.
2. Actively lead the project team through a confusing period of time: The key term here
is actively. Make your visibility greater at this time than at any time since the beginning of
the project. Your project team may begin to disintegrate as a functional unit when the project
nears completion. Communication will become more difficult for you. You may not be able
to count on a captive audience each week at your team meetings. Organizing people and
things will become increasingly difficult. All of these issues require that you maintain a high
profile and assume a position of strong leadership.
3. Ensure timely completion of the “odds-and-ends” (the punch list activities): As
mentioned previously, there will come a point where you can just about abandon the original
project plan. When that happens, you‘ll find it helpful to focus everyone‘s attention on the
specific work items required to get the job done. You handle this through the punch list
process.
4. Prepare for the transition into the next phase in the overall project life cycle: There is
ordinarily an afterlife- at least from the perspective of your project. The deliverables your
project produces are normally accepted and used by a customer. One of the basic rules of
__________________________________________________________________________________________
managing projects is that you have the primary responsibility for ensuring that the ―handoff‖
to the customer or user goes smoothly. In fact, don‘t be surprised if this requires your
involvement- on a limited basis, at least- after the traditional completion of the project.
5. Secure consensus that the project has met the completion criteria: As mentioned
previously, you should establish criteria for completion at the beginning of your project. If
you ignore this issue until the end of your project, disagreements may become significant in
scope. Resolving some problems late in the project can involve significant rework.
6. Obtain customer acceptance and verify customer satisfaction: This is not done enough-
at least not in a formalized way. You should strive to create an almost ―ceremonial‖
atmosphere when addressing customer acceptance and customer satisfaction. Just as a formal
kickoff meeting communicates project initiation, a formal session where you secure customer
satisfaction and acceptance should signal successful project completion in a positive and
upbeat way.
7. Ensure that the project records reflect accurate “as-built” data: This issue may
include a wide range of documentation. It refers to the process of updating any and all
documents related to your project to reflect the reality that exists at the end of the project.
This ensures the existence of accurate historical data, which can be of great value to project
teams in the future. Project files (most notably the project plan) should be updated to reflect
final ―actuals‖ in terms of cost, schedule, functionality, and quality. Design documents and
specification sheets should be updated to reflect how the deliverables actually look and
perform. Contractual and procurement records should reflect any modifications to agreements
or contractual exceptions.
8. Transfer what you’ve learned to others: The process of performing a ―lessons learned
analysis‖ is described below. Whether you perform a full-fledged analysis or simply jot a few
notes, it can be important and useful to transfer any critical information you‘ve accumulated
or lessons you‘ve learned to anyone who may benefit from your recently acquired wisdom.
9. Acknowledge the contribution of contributors: Acknowledging those who helped you
achieve project success is not just a nice thing to do; it‘s a strong building block for the
future- yours as well as the organization‘s. People who work hard and make significant
contributions can actually become de-motivated if their work goes unrecognized. This can
hurt the overall effectiveness of the organization. At a more personal level, if you gain a
reputation as someone who appreciates a job well done- and you show it- you‘re more likely
to garner the resources you want on your future projects.
__________________________________________________________________________________________
10. Bring the project to efficient administrative closure: This may include a wide range of
administrative issues. For example, you need to address accounting issues, such as closing
open charge account numbers. It also includes ensuring that all outstanding invoices have
been submitted, and all bills are paid. It may also include closing out rental or lease
agreements, as well as disposing of or storing any leftover materials.
Project Completion Checklist

The checklist below includes many of the elements but you should modify and expand this
list to include items specific to your project circumstances.
1. Customer Issues
 Complete all deliverables
 Install and test deliverables
 Prepare operating manual
 Prepare maintenance manual
 Train customer‘s personnel
 Agree on level of follow-up support
 Conduct formal acceptance review with customer
 Verify customer satisfaction
2. Organizational Issues
 Summarize learning‘s; communicate to the organization
 Prepare final technical reports
 Evaluate project performance
 Conduct final review with management
 Prepare project historical files and place in archive
3. Personnel Issues
 Recognize/reward team performance
 Write performance evaluations for project team
 Assist in reassignment of project personnel
4. Administrative/Other Issues
 Dispose of leftover project material
 Close down temporary site operations
 Submit final invoices
 Forward all final payments
 Close out project charge codes and work orders
__________________________________________________________________________________________
The Lessons Learned Process
You will probably find the lessons learned process to be most productive when it is oriented
toward identifying problems you and your team encountered, and suggesting ways to avoid
similar problems in the future. You can accomplish this by asking the following questions for
each identified problem:
1. What was the problem and its impact? Get a description of the perceived problem and
its specific effect(s) on the project. In other words, find out what happened to the project as a
result of the problem.
2. What caused this problem to occur? Find out the known or perceived root cause of the
problem. If unknown, the cost of securing this knowledge needs to be weighed against its
potential benefit.
3. Why was the problem undetected? This involves a search for possible flaws in
monitoring, control, or reporting methods. However, you should be cautious while asking this
question as this question can also be sensitive, as it may involve individual performance
problems.
4. Can this problem be eliminated in the future? Here you‘re asking for suggestions on
specific steps aimed at precluding a future occurrence. Total elimination is not always
possible; however you can come up with strategies for reducing the probability of it
happening again.
5. If it cannot be eliminated, are there ways it could be detected? Here you‘re looking for
suggestions on how the team can alter monitoring, control, or reporting methods in ways that
allow for earlier or more reliable detection of the problem.
__________________________________________________________________________________________
Chapter 11: Project Evaluation
Meaning of Project Evaluation
Project evaluation is the last step of project management. After performing the activities of
the project it requires to investigate the success and failure of the project on the basis of
specific objectives.
According to Skylark Chadha, ―Evaluation is an analytical process for systematically and
objectively perceiving the relevance, efficiency, effectiveness and impact of activities in the
light of their objectives.‖
According to B. B. Goel, ―Evaluation is the postmortem of completed activities of a project.‖
Project evaluation therefore includes-
1. Measuring the progress of the project activities and its total impact.
2. Analyzing the problems and barriers the project faces during the operation of the project.
3. Measuring the steps which were taken to overcome these problems and obstacles.
Objectives of Project Evaluation

The primary concern of project evaluation is ultimately concerned with bring about all-
around improvements. Evaluation helps to know about what is unknown and also what is
worth known. Project evaluation can justify the capability of achieving goals for what
purpose project has been taken. It examines whether the project is completed within the
scheduled time and any other extra expenses is occurred or not.
At the time of implementing project if any problem is raised then the project evaluation
process identify the characteristics of the problem and how that will be solved is shown.
Russell D. Archibad divided the objectives of the project evaluation into the below three
divisions-
1. To provide visibility: The total expenses of the project from the beginning to the ending,
the schedules, the interrelation of the working factors etc. are provided to the project
management clearly.
2. To identify problems before they occur: Continuous evaluation help identify problems
before they occur and to protect the possibility of loss & destruction or control the frequency
of loss.
3. To identify the opportunity quickly: If any special opportunity arises that should be
identified as quickly as possible and that can increase the project development process,
decrease the expenses and achieve the tactical advantages.
__________________________________________________________________________________________
Importance of Project Evaluation
Project evaluation is of vital importance to project manager because of the below reasons-
1. To accelerate managerial activities: Without proper management any works cannot reach
to its destination. A project is not indifferent to it. Evaluation helps to enhance the speeds of
managerial activities.
2. To retain the right way of goals: Evaluation helps a project manager to judge working
mode, working efficiency, and skill of the stuffs. These also help to provide guidelines to
retain the right way towards goal of the project.
3. Ascertaining the quantum of remedial measure: Evaluation also ensures the quantum of
remedial measure. Evaluation identifies the problem before occurred. Besides, it also helps in
judging the quality of remedial measures employed to offset the identified problems.
4. Adjusting necessary changes: If any kind of change is necessary at the mid way of
running project then periodic evaluation will find the necessary change. It also helps to take
necessary steps to adjust with the changes.
5. Provide suggestion to managerial board: Evaluation is an analytical process where
various information‘s and data are collected. Analyzing this information, evaluation can
provide suggestion to the managerial board.
6. Maintaining proper implementation: Evaluation also helps in maintaining the pace of
proper implementation process.
So for the above reason evaluation is very much indispensable for a project. It helps to run
the project systematically and objectively perceiving the relevance, efficiency, effectiveness
and impact of activities in the light of their objectives.
Methods of Project Evaluation

To evaluate the project, the professionals, specialists and reactionaries follow different
methods. The important methods of project evaluation are as follows-
1. First hand information based evaluation: It is very simple method for evaluating the
project. In this method to evaluate the project, the information is collected from the field
workers, office staffs, or experts those who are directly involved in the execution of project
and know about the progress of the project. In this method, the project manager investigates
the progress of the project and identifies the variation of the performance. Here project
evaluation is more effective. If the size of the project is big and also more complex then it is
not possible to apply this method to evaluate the project.
__________________________________________________________________________________________
2. Periodic reports: In this method the project manager evaluate the project on the basis of
formal and informal report after certain time intervals. From the informal report, a wide range
of information about the project condition can be collected. There is a possibility to have
vague, bias and dangerous information in informal report. For this it is not possible to
identify who is responsible for the fault. So, informal report has less acceptability and
reliability. To evaluate the project, formal repot is more acceptable and reliable because it
provides accurate and correct information. For this it is possible to identify who is
responsible for the fault.
3. Graphical representation: The progress of the project activities are presented through the
picture, graph, and chart in the room of the project manager. One can get the total idea about
the progress of the project activities within very short time without growing attention. If it is
presented wisely then it requires less space, become more visible and easy to understand and
it also help to compare between expectation and achievement. The main disadvantages of this
method are more time consuming and expensive.
4. Standing evaluation review committee: The large institutions form standing evaluation
review committee to evaluate their own project. In this committee the experienced and expert
persons work. This committee arrange meeting after certain time interval. This committee
identifies the problems and provides recommendation to the authority to solve the problems.
5. Project profile: The important method for evaluating the project is developing project
profile. To prepare a profile, it needs to investigate and analyses the total activities of the
project from starting to terminate. On the basis of principles, models, and directions the
enquiry group prepares the project profiles.
6. Control centre: Control centre is a mentionable method for evaluating the project. This
control centre is established for the single large project. It is expensive to evaluate the project
by the control centre, as it requires structural facilities to evaluate the project successfully.
Stages of Evaluation Plan

For evaluating the project effectively an evaluation plan must be developed. Evaluation plan
consists of several things like the duration of project, types of data to be collected and
analyze the scope of evaluation etc.
Now the chronological steps of an evaluation plan are discussed below:
1. Timing of evaluation: The time of evaluation must be specified at the beginning of the
project. Nature of the project and the time of making decision at different levels of the
project should consider while determining the evaluation time.
__________________________________________________________________________________________
2. Defining the nature of decision: Who will take the decision, the lower level or top-level
executive- is defined in this stage. An executive can take three kind of decision through
evaluation.
a. Carrying on the project without any change.
b. Changing the project plan or objectives.
c. Canceling the project.
3. Determining the scope of project evaluation: At this stage, solution of the problems or
answers of the questions are required to overcome the situation through evaluation.
4. Identifying symptoms: Success or failure of the project depends on identifying the
symptoms. It is the main task of evaluating the project. For an example, massive response of
the customers for an advertisement shows that whether the promotion strategy is fully
workable or not.
5. Defining types of data: What types of data should be collected for evaluating must be
defined in detail at this stage. Unnecessary data is totally harmful for the evaluation task.
6. Selecting the method of data collection: After defining the types of data, method of
collecting data is also be selected. Probable complexity, reality of system, acceptability
should be considered at the time of selecting the method.
7. Selecting method of data analysis: How the data will be analyzed is determined at this
stage. A well-documented report is prepared after the analysis.
8. Redefining data specification: If anything found unnatural while analyzing the data. Then
the project manager should redefine the specific data.
9. Putting evaluation based suggestions: It is one of the most important steps of the
evaluation plan. In this stage suggestion is made on the basis of the evaluation.
10. Refining project design: It is the last stage of the project evaluation plan. If any variance
is found in the current project then it is needed to be refined. Refining task is done according
to the suggestions made at the previous stage.
Principles of Effective Evaluation

Effective evaluation is always needed to be guided by the following principles-
1. Never includes personal opinion/view of the evaluator in the evaluation process.
2. Always make the evaluation process neutral.
3. Explain the expected results from the project to the all concerned parties.
4. To be well informed about the information requirement of the decision maker.
5. Distinguish between cause and effect.
__________________________________________________________________________________________
6. Make distinction between prove and opinion.
7. Identify and differentiate the sector/activities in which sector/activities, there is no prove.
8. Include alternative techniques in the evaluation process.
9. Making realistic recommendations.
10. Delegate authority and responsibility for implementing the suggestions/recommendations.
11. Convey the results to the decision maker after the recommendations are fully
implemented.
__________________________________________________________________________________________
Chapter 12: Project Management in Bangladesh
Project Classifications in Bangladesh
In Bangladesh, project can be divided into three ways by considering socio-economic and
national importance. Theses ways are as follows:
1. Magnitude of Investment: On the basis of investment level, project can be classified into
three categories. And various authorities approve the project by considering investment level.
These categories are-
a. A category: The size of investment of this category is maximum two crores taka for all
projects or schemes. The ministers of various ministries‘ approve this project on the basis of
reference of divisional project evaluation committee.
b. B category: Investment size for this category project is two crores to ten crores taka for all
projects or schemes. The planning minister approves this project on the reference of project
evaluation committee of planning commission.
c. C category: The investment size of this category is above ten crore taka. Executive
Committee of National Economic Committee (ECNCE) approves this project on the basis of
reference of planning Commission (PC), Project Evaluation Committee (PEC) and planning
minister.
2. Project benefits: On the basis of project benefits, project can be classified into three types.
These categories are-
a. X type project: Production and revenue base projects are included in X type project. It is a
self employment base project, such as- industrial project.
b. Y type project: It is production base but not revenue base project. It produces the visible
opportunity but not earns profit, such as sewerage and land development project.
c. Z type project: Mainly service base project is called Z type project. The advantages of this
type of project cannot be measured, such as educational institutions, hospital, construction of
road, bridge etc.
3. Project priority: By considering the national importance and on the basis of priority to
distribute the resources, project can be divided into two divisions, such as-
a. Core project: The projects which get more priority on the national importance to
distribute the wealth are include in core projects, such as-
-X type and infrastructure development projects.
-The projects which get more foreign aid and national fund.
-Fully foreign aided projects.
__________________________________________________________________________________________
b. Non-core projects: The project items those are not included in the core projects are called
the non-core projects. It gets less priority in the national development programs.
Except these above types of projects, various governmental organizations have classified
projects from their own views. Moreover, all projects should be for social welfare.
Organizations/ Body/ Persons Involved in the Implementation of Project in Bangladesh

Authorities, organizations or bodies who are involved in planning, scheduling, budgeting,
approving, and implementing the projects in Bangladesh are as follows-
1. Management of various projects.
2. Management of Owner Company.
3. Various corporations and executive agencies in Bangladesh.
4. External resource department (ERD) of ministry of planning.
5. Departmental project evaluation committee (DPEC).
6. Various sectors, divisions and planning divisions of planning commission.
7. Project evaluation committee (PEC).
8. Ministry of planning, Ministry of industry, ministry of finance etc.
9. Implementation, monitoring and evaluation department (IMED) of ministry of planning.
10. National economic council (NEC).
11. Executive committee of national economic council (ECNEC) etc.
Functions of Implementation, Monitoring and Evaluation Division

Functions of implementation, monitoring and evaluation division are discussed in below-
1. It evaluates the implemented task of the development project under the annual
development programs.
2. It presents the annual or monthly report to the related ministry, head of the government,
advisors, organizations, or ECNEC.
3. If it finds any problems during investigation then it discusses with the related ministry or
agency for evaluating, investigating in the field level, and coordinating other activities to
solve the problems.
4. After investigating the project, if it finds any problem then through the recommendation, it
also presents the findings to the related ministry.
5. It provides advisory services to the related ministry for implementing the project according
to the schedule.
__________________________________________________________________________________________
National Economic Council (NEC) and its Functions
National economic council (NEC) is the maximum authority of policy makers regarding the
economic factors of government. It determines the national policies and objectives for the
long term planning. According to executive committee of national economic council,
planning commission determines the national plans and schedules. The head of the
government is the key personnel of national economic council.
The functions of national economic council are as follows-
1. National economic council provides direction to determine the long term planning, five
years planning, annual development programs and the most important economic policies.
2. It finalizes the plan, project or program, policy and also approves these.
3. It analyzes the economic advancement and the implementation of developing project
program.
4. It takes very important decisions and activities for the socio economic development of the
country.
5. It forms various committees to perform the duties which are imposed on the national
economic council.
Executive Committee of National Economic Council (ECNEC) and its Functions

The determined policies of national economic council (NEC) is implemented by a committee
(consist of some executives), which is called ECNEC. It is the most powerful authority for
permitting the project. ECNEC also analyze these projects which are reported by
implementation, monitoring and evaluation department (IMED). Prime minister is the head of
ECNEC. The minister of industry, commerce, finance, and labor etc. ministry are the
members of ECNEC.
Functions of ECNEC are as follows-
1. By the recommendation of project evaluation committee (PEC) of planning commission, it
considers and permits the project which cost more than five crores taka.
2. It considers and permits the sole tradership invested projects whose primary investment is
more than fifteen crores taka.
3. It analyzes the advancement of implemented activities of the development project. The
report given by implementation, monitoring and evaluation department (IMED) is the basis
of it.
4. Monitoring the economic condition and analyze the total economic performance.
5. Consider the performance of regulated corporations specially their financial results.
__________________________________________________________________________________________
6. It analyzes the price of public utility services and the product of government institutions.
Organizational Structure of National Planning in Bangladesh

Generally, policy making authority exists at the top of the organizational structure of national
planning in Bangladesh. The function of this authority is to take development planning and
prepare policies. The government of a country gets the highest priority to determine this
policy. At present the national assembly of our country is the authority of determining this
policy after establishing the democratic cabinet in 1991.
The duties and responsibilities for preparing plan and implementing and evaluating the
project have been given to the ministry of planning. There are three division which works
under the ministry of planning. These divisions are as follows:
1. Planning division
2. Implementation, Monitoring and Evaluation Division (IMED)
3. Statistics division
The central planning and policy making organizations -such as planning commission works
under the planning division. This commission works through six division and nearly thirty
wings. Central authority evaluates the implementation, monitoring and evaluation of running
development project. Bangladesh Bureau of Statistics works under the statistic department.
The main function of statistics Bureau is to collect report, analysis and present this report to
fulfill the needs and help in decision making of every sectors of developing planning. There
is another institution named- Bangladesh Institute of Development Studies‖ (BIDS). It is an
autonomous institution. We can show the organizational structure of national planning in
Bangladesh by the given chart.
National Assembly
National Economic Council
Ministry of Planning ECNEC
Planning IMED Department of statistics
BIDS
Figure: Organizational structure of national planning in Bangladesh
__________________________________________________________________________________________
Problems of Project Management in Bangladesh
Success of a project depends on various things, like proper principles, necessary efficiency,
foresight, cooperative attitudes etc. Timely approval of project, supply of money and other
resources, effective adjustment among various activities, regular monitoring the progress of
the project also affect the success of project. But absence of above mentioned elements is
absent in the field of implementing developed projects in Bangladesh. As a result, complexity
is created in the period of implementing project like waste unnecessary time & increase cost.
The factors which work as hindrance in implementing project are as follows:
1. Corruption: PEACE!!!
2. Crowding of projects: An approved project must be included in ADP to get allotted
money. Planning commission distribute the received assets among the projects which is
included in ADP. To fulfill local demand, excessive projects are included in ADP due to
political promises. It is not possible to implement excess project by govt. for its limited
resources within certain financial year. For this reason enough time is needed, cost increases
and inflation results in possible termination of the project.
3. Over dependence on foreign aid: Most of the projects in our country depend on donor
countries or associations‘ promises. But in practice, many times due to several reasons they
fail to supply money according to their promises. Consequently, progress of the project is
hindered, even stopped due to the lack of adequate money.
4. Lack of objectivity: According to many experts (in Bangladesh) there is absent of certain
realistic objective & planning. Project cannot reach at target destination because of the lack
of objectivity.
5. Lack of proper coordination & cooperation: Various ministry, department & agency are
related with taking imitative, processing, approval & implementation of the development
project. Lack of co-operative attitude of the delegated authorities with project & lack of
proper co-ordination among their works/activities leads to increase cost. So lack of mutual
understanding among project related parties & proper coordination obstruct proper
implementation.
6. Delay in approval of projects: There are various authorities in Bangladesh for processing
& approving the development projects such as ECNCEC, PEC, MoP etc. A particular
authority does not have the power for processing or approving all types of projects. Approval
depends on its nature & project cost. Several stages have to be followed to get approval. In
__________________________________________________________________________________________
many cases, after getting approval it is seen that starting time is over and donor associations
have lost their interest of funding.
7. Inadequacy of resources: Over dependence on foreign aid for finance, excessive project
included in ADP, which hamper the effectiveness of ADP. Supply of project finance from
internal sources is not satisfactory in maximum time. It is not possible to utilize resources
properly for managerial inefficiency & corruption.
8. Lack of constant monitoring & evaluation of projects: Monitoring & evaluation of
progress of implemented activities of project is performed by planning ministry under IMED.
But it is not possible to monitor & evaluate all project activities at a time. Selected project
activities are monitored & evaluated. So, all development projects are not monitored &
evaluated.
9. Absence of sound plan & political system: At first the reality of compiled plan should be
ensured for implementing national plan properly. Political stability along with reality is
essential to implement plan properly. There is absence of proper political practice in our
country. It creates obstacle to implement the project.
10. Conflict & co-ordination problems at the local level: Decentralization of govt.
administration or power policy creates problem in the field of administration & political
sector. Lack of proper response and co-operation of local people including the community
leader to prepare development plan and implement it works as obstacle.
11. Lack of skilled manpower & sound techniques: Lack of skilled manpower & sound
techniques are the main hindrance for plan implementation rather that scarcity of money &
other resources. There are absence of experienced project direction & skilled labor & also
effective training system. There is no idea about modern technology which is used in project
management activities.
12. Delay in fund release: Delay in fund release is a common phenomenon in Bangladesh. It
hinders the effective project implementation in our country.
Suggestions for Improving Project Management in Bangladesh

There are many problems of effective project implementation and management in
Bangladesh. However, the below suggestions may help.
1. Determine the objective and goal: It is needed to identify or determine the clear-cut
objectives and goals for long time basis, five-year basis or annual basis project. At the time of
determining the objectives and goals the possibility of getting national needs, availability of
internal resources, foreign aid and credit should be informed, so the project can be
__________________________________________________________________________________________
implemented within estimated time and cost. The project should be classified on the basis of
importance and more rights for allocation.
2. Selection of organizational structure: The prestige and responsibility of project manger
depends on organized project structure. For fruitful implementation, proper organizational
structure should be selected. All the duties and responsibilities should be divided between
upper level and lower level. For project scheduling and estimating cost, modern technology
such as CPM, PERT, CASPAR, MIS etc. should be applied.
3. To reduce complexity and long term process: Project processing and sanction should be
easy and short term. If the projects are not sanctioned in right time, it is not possible to
implement it in due time. It should prevent waste of resources. For project sanction and
implementation, some steps should be taken for preventing corruption and indiscipline.
4. Proper coordination: Different ministry and department of government and development
agencies are involved with the management and implementation of different types of project.
So, proper coordination should be done with various ministries and development divisions/
organizations.
5. Ensure local participation: For implementation of project, local participation needs to be
ensured. Because local communities identify the problems and feel the needs at the very core
level. As a result, selection of project becomes easy and getting their support becomes easier.
6. Reduce complexity in delay and fund release: For sanctioning project implementation
the aspect of fund release complexity and delay should be prevented. Supply of fund should
be regular so that the activities of project can be finished within the fixed time.
7. Proper and regular monitoring: It is the precondition of effective project
implementation. Central monitoring department should be established under the cell of IMED
for regular monitoring of the project progress.
8. Training system: The manager as well as other team members of project should be trained
up. International or local specialists may train them. As a result technical, theoretical and
human skills of project team will be increased.
9. Reducing corruption: PEACE!!!!!
These are the various suggestions for improving project management in Bangladesh.
__________________________________________________________________________________________

MKT4105 Project Management RHK

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MKT4105 Project Management RHK

Uploaded by

Copyright:

Available Formats

Project Management

Course Code: MKT 4105

The Project Life Cycle

% of Project Quick momentum

0 Slow start Time

Figure: Project Life Cycle

The Project Life Cycle of Warren C. Baum

5. Implementation & 3. Appraisal

Figure: Warren C. Baum‘s Project Life Cycle

The Project Life Cycle of Adams and Barndt

Meaning of Project Management

Elements of Project Management

The Project Management Process: Step by Step

Figure: A schematic of the triple constraint triangle/triad by John M. Kennedy T.

The Project Manager

The Basic Functions and Responsibilities of a Project Manager

Planning Coordinating Staffing and Implementing Controlling &

Maintaining Conflict Change Project

The Duties/Functions of Project Management

Traditional Management vs. Project Management

Various Types of Project Organization

Long term Planning/ National development planning

Sector Programming/ Scheme

Figure: Relationship between national development planning and project.

Meaning of Project Planning

Why do Projects Fail?

Stages of Project Formulation

Where, A= lower discounting rate

Meaning of Project Identification

Major Steps in Project Identification

Factors to be Considered in Technical Analysis of Project

Considerable Issues in Feasibility Study of the Project

Considerable Issues Involved in Project Appraisal

Issues Involved in Social, Political and Economic Appraisal of Project

Impediments/ Problems/ Drawbacks Hindering Effective Project Formulation

Measures to be Taken for Ensuring Effective Project Formulation

Concept of Payback Period (PBP)

Concept of Average/Accounting Rate of Return (ARR)

Advantages of Average/Accounting Rate of Return (ARR method):

Concept of Net Present Value (NPV)

Concept of Internal Rate of Return (IRR)

Concept of Time Value of Money

Techniques of Time Value of Money

b) Semi-Annual Compounding: If it is compounded two times in the year, it is called Semi-

2. Discounting/Present Method: It is the opposite technique of compounding technique. In

Fn= P(1+K)n Here,

 9000 8000 7000 6000 5000 

 4000 2500 2000 3500 3500 

 4000 2500 2000 3500 3500 

 4000 2500 2000 3500 3500 

The Project Planning Process

Figure: The evolution of project plans

Steps of Scheduling Suggested by Dennis Lock

Planning and Scheduling Environment

Figure: Project planning environment

Importance of Project Planning

Functions of Project Planning

Common Planning Failures/Why do Plans Fail?

How Much Planning Is Enough?

Distinction between Planning and Scheduling

Terms Commonly Used in Project Cost Accounting

Classification of Project Costs

Different Types of Cost Estimates