Project Management

What Is Capital Investment?

Capital investment is the acquisition of physical assets by a company for use in furthering its
long-term business goals and objectives. Real estate, manufacturing plants, and machinery are
among the assets that are purchased as capital investments.

How Capital Investment Works?

The executives of a company may make a capital investment in the business. They buy
long-term assets such as equipment that will help the company run more efficiently or grow
faster. In this sense, capital means physical assets.

Capital Investments for Business?

A decision by a business to make a capital investment is a long-term growth strategy. A
company plans and implements capital investments in order to ensure future growth. Capital
investments generally are made to increase operational capacity, capture a larger share of the
market, and generate more revenue. The company may make a capital investment in the form
of an equity stake in another company's complementary operations for the same purposes.

What is a Capital Investment?

Capital investments are sometimes treated as equity investments. Capital investment may be
defined as the funds invested by the owners to expand their business and improve its
productivity. In simple words, it is the fund used by the organization to acquire fixed assets.

It is used to serve long-term business goals and objectives. Some long term capital
investments are the investments done for the purchase of assets like real estate, manufacturing
plants, and machineries. Unlike, equity investment capital investment is made after a detailed
analysis of all clear and precise costs. This helps in increasing profits and reducing the loss.

Without capital investment the companies or organizations can’t fulfill their economic and
financial objectives. The continuous capital investment is essential to maintain the productivity in
the market as well as quality products.

The organization can avail capital investment from a wide range of sources. It can approach
traditional banks as well as venture capital deals. The major sources of capital investments are
angel investors, loan, venture capitals, lenders, and public offerings.

Working of capital investment

You all might be wondering, how does capital investment work? Well, its working is quite similar
to other investments. The first step is raising money for the investments, a new company can
arrange money from a number of resources like, capital firms, angel investors, and other
financial institutions.
 On the other hand, an established company can arrange cash from its own cash flows. It can
also issue bonds or stocks to finance the required amount. There is no fixed amount required for
capital investment. It can vary from a few lakhs to billions and trillions.

Startups require a low amount of capital investment while industries like mining, utilities and
infrastructure comparatively require a high sum of money. During the fund-raising process, a
company’s operating cycle can run at minimum and sometimes, even blocked too. This
decrease in production is responsible for less revenues.

Sometimes, even the employees have to suffer during this time. But as soon as the fund is
raised, the operating cycle of the company returns to normal with greater capabilities. This
results in better profits, satisfied employees and more investors. The demands of customers
now are met with quality products and more satisfactory services.

Types of Capital Investment

On a major basis capital investment is classified into three types. But there can be different
ways to differentiate capital investment depending on the company's needs. These types are
classified after analyzing the asset conversion cycle. The major three types of capital
investment are mentioned below.

1. Diversification

Diversification is the type of capital investment that requires the evaluation of proposals. It is
done to diversify new product lines and new markets. It can also be defined as a technique to
reduce risk of failure while dealing with different products and market operations.

It manages the risk involved in capital by allocating investments in different financial investments
and industries. The aim of diversification is to maximize returns by allowing investments in
different areas. These areas and investments react differently to the same event.

2. Replacement and Modernization

Replacement and modernization is the second kind of capital investment. It is done to improve
the operation efficiency and reduce the intermediate costs. Replacement investment may be
defined as capital investment done to replace old machineries. The plants and machinery
employed in the market should be replaced regularly after it is used and has a good life.

Technology is used to upgrade machineries more modern and advanced. The organization and
market should take efforts for modernization in order to beat competitiveness in the market.
Investment made in this procedure is called modernization investment and is also called cost
reduction investments.

3. Expansion
 Expansion is the investment made to existing companies. It experiences growth and meets the
demand required for improving the product lines. When an established company experiences
shortage or delay in delivery of their services or degradation in the product qualities. In order to
stay in the market, the company must add capacity and strength to the existing product.

Money invested for the above purpose is classified as expansion investment. Expansion
investment helps the company to improve its productivity. At the same time, it also assists in
maintaining the production and meeting the increasing demand. In simple words, expansion
ensures continuity of an organization in the market.

Process of Capital Budgeting

The capital budgeting process is the process of planning used to evaluate the potential
investments or expenditures whose amount is significant. It helps determine the company’s
investment in the long-term fixed assets such as the addition or replacement of the plant and
machinery, new equipment, research, development, etc. This process is the decision regarding
the sources of finance and then calculating the return earned from the investment.

Six Steps to Capital Budgeting Process

#1 – To Identify Investment Opportunities
The first step is to explore the available investment opportunities. Next, the organization’s
capital budgeting committee must identify the expected sales shortly. After that, they recognize
the investment opportunities keeping in mind the sales target set up by them. One must
consider some points before searching for the best investment opportunities. It includes
regularly monitoring the external environment to get an idea about new investment
opportunities. Then, define the corporate strategy based on the organization’s SWOT analysis
, i.e., analysis of its strength, weakness, opportunity, and threat, and seek suggestions from its
employees by discussing the strategies and objectives with them.

Example:
Identification of the underlying trends of the market, which can be based on the most reliable
information before selecting a specific investment. For instance, before choosing the investment
to be made in the company involved in gold mining, firstly, the underlying commodity’s future
direction needs to be determined. Whether the analysts believe that there are more chances of
price getting declined or the chances of price rise is much higher than its declination.
#2 – Gathering of the Investment Proposals
After identifying the investment opportunities, the second process in capital budgeting is to
collect investment proposals. Before reaching the committee of the capital budgeting process,
these proposals are seen by various authorized persons in the organization to check whether
the bids given are according to the requirements. Then the classification of the investment is
done based on the different categories such as expansion, replacement, welfare investment,
etc. This classification into the various types makes decision-making more comfortable and
facilitates budgeting and control.

Example:
The real estate company identified two lands where they could build their project. Out of the two
lands, one land is to be finalized. So, one will submit the proposals from all the departments.
Then, various authorized persons will see the same in the organization to check whether the
bids are multiple requirements. Also, the same will then be classified for a better
decision-making process.

#3 – Decision Making Process in Capital Budgeting

Decision-making is the third step. In the decision-making stage, the executives will have to
decide which investment needs to be made from the available investment opportunities, keeping
in mind the sanctioning power open to them.

Example:
For instance, the managers at the lower level of management, like work managers, plant
superintendents, etc., may have the power to sanction the investment up to the limit of $10,000
beyond the permission of the board of directors
or senior management required. If the investment limit extends, the lower management must
involve the top management to approve the investment proposal.

#4 – Capital Budget Preparations and Appropriations

After the decision-making step, the next step is to classify the investment outlays into higher and
smaller value investments.

Example:
When the value of an investment is lower and approved by the lower management level, then
for getting speedy actions, they are generally covered with blanket appropriations. But, if the
investment outlay is of higher value, it will become part of the capital budget
after taking the necessary approvals. These appropriations aim to analyze the investment
performance during its implementation.

#5 – Implementation
After completing all the above steps, it implements the investment proposal, i.e., put into a
concrete project. Several challenges can be faced by the management personnel while
executing the tasks as they can be time-consuming. For the implementation at a reasonable
cost and expeditiously, the following things could be helpful: –

Formulation of the project adequately: Inadequate formulation is one of the main reasons for
the delay. So, the concerned person should consider all the necessary details in advance and
one should do a proper analysis well to avoid any delay in the project implementation., the
concerned person should consider all the necessary details in advance, and one should do a
proper analysis well to avoid any delay in the project implementation.
Use responsibility accounting
principle: For the expeditious execution of the various tasks and the cost control, one should
assign specific responsibilities to the project managers, i.e., the timely completion of the project
within the specified cost limits.
Network technique use: Several network techniques like the Critical Path Method (CPM) and
Program Evaluation and Review Technique (PERT) are available for project planning and
control, which will help monitor the projects properly and efficiently.
Example:
For prompt processing, the capital budgeting committee must ensure that management has
done the homework on the preliminary studies and the concise formulation of the project before
its implementation. After that, it implements efficiently.

#6 – Review of Performance
A review of performance is the last step in capital budgeting. But, the management must first
compare the actual results with the projected results. The correct time to make this comparison
is when the operations get stabilized.
Example:
With this review, the capital budgeting committee concludes on the following points: –

To what extent the assumptions were realistic.

The efficiency of the decision-making.
Suppose there are any judgmental biases.
Either it fulfills the hopes of the sponsors of the project.
Thus, the process is complex, consisting of the various steps required to be followed strictly
before finalizing the project.

Conclusion
The companies use capital budgeting to make decisions related to long-term investment. It
starts with the identification of different investment opportunities. Then, after collecting and
evaluating various investment proposals and selecting the best profitable investment, the
decision for capital budgeting and apportionment is to be taken. Lastly, one should implement
the decision taken and review the performance timely.

How does the capital budgeting process begin?

The capital budgeting process begins with identifying various investment opportunities. Then,
after collecting and calculating different investment proposals and choosing the best profitable
one, the decision for capital budgeting and apportionment is taken.

What is the ultimate goal of the capital budgeting process?

Capital budgeting aims to determine which projects can be the most financially advantageous in
the long run. For that, a company must consider several factors during capital budgeting.

Why is the capital budgeting process so important?

The capital budgeting process is so crucial because it makes accountability and measurability.
In addition, a business that needs to invest its resources in a project without knowing the risks
and returns engaged in will be considered irresponsible by its owners or shareholders.

TECHNICAL ANALYSIS

Technical aspects relate to the production or generation of the project output in the form of
goods and services from the project's inputs. Technical analysis represents study of the project
to evaluate technical and engineering aspects when a project is being examined and
formulated. It is a continuous process in the project appraisal system which determines the
prerequisites for meaningful commissioning of the project.

Aspects of Technical Analysis

Technical analysis broadly involves a critical study of the following aspects,

1) Selection of Process/ Technology: For manufacturing a product, more than one

process/technology may be available. For example, steel can be manufactured either by the
Bessemer process or by the open-health process. Cement can be manufactured either by the
wet process or by the dry process.

The choice of technology also depends upon the quantity of the product proposed to be
manufactured. It the quantity to be produced is large, mass production techniques should be
followed and the relevant technology is to be adopted. The quality of the product depends upon
the use to which it is relevant technology is to be adopted. The quality of the product depends
upon the use to which it is meant for. A product of pharmaceutical grade or laboratory grade
should have high quality and hence sophisticated production technology is required to achieve
the desired quality. Products of commercial grad do not need such high quality and the
technology can been chosen accordingly.

A new technology that is protected by patent rights, etc., can be obtained either by licensing
arrangement or the technology can be purchased outright. Appropriate technology: A
technology appropriate for one country may not be the ideal one for another country. Even
within a country, depending upon the location of the project and other features, two different
technology may be ideal for two similar projects set up by two different firms at two different
locations. The choice of a suitable technology for a project calls for identifying what is called the
‘appropriate technology’.

The term ‘appropriate technology’ refers that technology that is suitable for the local economic,
social and cultural conditions.

2) Scale of operations: Scale of operations is signified by the size of the plant. The plant size
mainly depends on the market for the output of the project. Economic size of the plant varies
from project to project. Economic size of the plant for a given project can be arrived at by an
analysis of capital and operating costs as a function of the plant size. Though the economic size
of the plant for a given for a given project can be theoretically arrived at by above process, the
final decision on the plant size is circumscribed by a number of factors, the main factor being
the promoter’s ability to raise the funds required to implement the project. If the funds required
implementing the project as its economic size is beyond the promoter’s capacity to arrange for
and if the economic size is too big a size for the promoter to manage, the promoter is bound to
limit the size of the project that will suit his finance and managerial capabilities. Whenever a
project is proposed to be to be set up at a size blow its economic size, it must be analyzed
carefully as to whether the project will survive at the proposed size (which is below the
economic size). Performance of existing units operating at blow economic size will throw some
light on this aspect.

Technical aspects relate to the production or generation of the project output in the form of
goods and services from the projects inputs. Technical analysis represents study of the project
to evaluate technical and engineering aspects when a project is being examined and
formulated. It is a continuous process in the project appraisal system which determines the
prerequisites for meaningful commissioning of the project.

3) Raw Material: A product can be manufactured using alternative raw materials and with
alternative process. The process of manufacture may sometimes vary with the raw material
chosen. If a product can be manufactured by using alternative raw materials, the raw material
that is locally available may be chosen. Since the manufacturing process and the
machinery/requirement to be used also to a larger extent depend upon the raw material, the
type of raw material to be used should be chosen carefully after analyzing various factors like
the cost of different raw materials available, the transportation cost involved, the continuous
availability of raw material , etc. Since the process of manufacture and the machinery/
equipments required depend upon the raw material used, the investment on plant and
machinery will also to some extent depend upon the raw material used, the investment on plant
and machinery will also to some extent depend upon the raw material chosen. Hence the cost of
capital investments required on plant and machinery should also be studied before arriving at a
decision on the choice of raw material.
4) Technical Know-How: When technical know-how for the project is provided by expert
consultants, it must be ascertained whether thee consultant has the requisite knowledge and
experience and whether he has already executed similar projects successfully. Care should be
exercised to avoid self-styled, inexperienced consultants. Necessary agreement should be
executed between the project promoter and the know-how supplier incorporating all essential
features of the know-how transfer. The agreement should be specific as to the part played by
the know-how supplier (like taking out successful trial run, acceptable quality of final product,
imparting necessary training to employees in the production process, taking out successful
commercial production, performance guarantee for a specified number of years after the start of
commercial production, etc). The agreement should also include penalty clauses for
non-performance of any of the conditions stipulated in the agreement.

5) Collaboration Agreements: If the project promoters have entered into agreement with
foreign collaborators, the terms and conditions of the agreement may be studied as explained
above for know-how supply agreement.
Apart from this, the following additional points the deserve consideration:
(i) The competence and reputation of the collaborators needs to be ascertained through
possible sources including thee Indian embassies and the collaborator’s bankers.
(ii) The technology proposed to be imported should suit to the local conditions. A highly
sophisticated technology, which does not suit local conditions, will be detrimental to the project.
(iii) The collaboration agreement should have necessary approval of the Government of India.
(iv) There should not be any restrictive clause in the agreement that import of
equipment/machinery required for the project should be channelized through the collaborators.
(v) The design of the machinery should be made available to the project promoter to facilitate
future procurement and/or fabrication for machinery in India at a later stage.
(vi) The agreement should provide a clause that any dispute arising out of interpretation of the
agreement, failure to, comply with the clauses contained in the agreement, etc., shall be
decided only by courts within India.
(vii) It must be ensured that the collaboration agreement does not infringe upon any patent
rights.
(viii) It is better to have a buy–back arrangement with the technical collaborator. This is to
ensure that the collaborator would be serious about the transfer of correct know-how and would
ensure quality of the output.

6) Product Mix: Customers differ in their needs and preferences. Hence, variations in size and
quality of products are necessary to satisfy the varying needs and preferences of customers, the
production facilities should be planned with an element of flexibility. Such flexibility in the
production facilities will help the organization to change the product mix as per customer
requirements, which is very essential for the survival and growth of any organization.

For example, a plastic container manufacturing industry can be produced according to the
market requirement. This will give the unit a competitive edge.

7) Selection and Procurement of Plant and machinery

Selection of machinery: The machinery and equipment required for a project depends upon the
production technology proposed to be adopted and the size of the proposed. Capacity of each
machinery is to be decided by making a rough estimate, as under; thumb rules should be
avoided.

i) Take into consideration the output planned.

ii) Arrive at the machine hours required for each type of operation.
iii) Arrive at the machine capacity after giving necessary allowances for machinery
maintenance/breakdown, rest time for workers, set up time for machines, time lost during
change of shifts, etc.
iv) After having arrived at the capacity of the machinery as above, make a survey of the
machinery available in the market with regard to capacity and choose that capacity which is
either equal to or just above the capacity theoretically arrived at.

In case of process industries, the capacity of the machines used in various stages should be so
selected that they are properly balanced.

Procurement of Machinery

Plant and machinery form the backbone of any industry. The quality of output depends upon the
quality of machinery used in processing the raw materials (apart from the quality of raw material
itself). Uninterrupted production is again ensured only by high quality machines that do not
breakdown so often. Hence no compromise should be made on the quality of the machinery and
the project promoter should be on the lookout for the best brand of machinery available in the
market. The performance of the machinery functioning elsewhere may be studied to have a first
hand information before deciding upon the machinery supplier.

Plant Layout

The efficiency of a manufacturing operation depends upon the layout of the plant and
machinery. Plant layout is the arrangement of the various production facilities within the
production area. Plant layout should be so arranged that it ensured steady flow production and
minimizes the overall cost.

The following factors should be considered while deciding plant-layout:

i) The layout should be such that future expansion can be done without much alteration of the
existing layout.
ii) The layout should facilitate effective supervision of work.
iii) Equipments causing pollution should be arranged to be located away from other plant and
machinery. For example, generator is a major source of noise pollution.
iv) There should be adequate clearance between adjacent machinery and between the wall and
machinery to enable undertaking of regular inspection and maintenance work.
v) The plant layout should ensure smooth flow of men and material from on stage to another.
vi) The plant layout should be one that offers maximum safety to the personnel working inside
the plant.
vii) The plant layout should provide for proper lighting and ventilation.
viii) The plant layout should properly accommodate utilities like power and water connections
and provisions for effluent disposal.

8) Location of Projects: Choosing the location for a new project is to be done taking many
factors into account. The study for plant location is done in two phases. First a particular region/
territory is chosen that is best suited for the project. Then, within the chosen region, the
particular site is selected. Thus, we may say that there are two major factors, viz., Regional
factors and site factors, to be considered.

i) Regional Factors
a) Raw Materials: Raw materials normally constitute about 50to 60 per cent of the cost of the
final product. Hence, it is important that the cost of the raw material should be minimum. To
procure raw material at minimum cost, the plant must be located nearer to the place where raw
material is available, so that transportation cost will be reduced and the number of middle men
involved in the procurement process also will be reduced.

b) Proximity to Market: If transportation of the finished product is more difficult (due to the
special nature of the finished product) than transporting the raw material and also if the cost of
transporting the finished product is more as compared to the transporting the raw material and
also if the cost of transporting the finished product is more as compared to the transportation
cost of transporting the finished product is more as compared to the transportation cost of raw
material, it is advantageous to locate the plant nearer to the consumers, i.e., nearer to the
market.

c) Availability of Labor: Though unemployed people are in plenty in our country, this does not
mean that there will be no problem in getting the labor-force required for the project. Availability
of skilled labor is what is the criterion rather than availability of unemployed who are
unemployable. If the project needs skills of general nature, getting adequate skilled labor will not
pose any problem if the plant is located in areas where skilled labor-force is available. People in
different areas develop special skills in different activities by virtue of the work culture prevailing
in their respective areas.

d) Availability of Supporting Industries: If a firm has proposed to get some of the production
operations done from outside, there must be suitable industries existing in the surrounding
areas to undertake such sub-contracting works. This can be seen by the existence of many
ancillary industrial units surrounding major industrial establishments like BHEL, NTPC, etc.

e) Availability of Infrastructural Facilities: availability of power, water and transport facilities are
the important aspects to be considered for availability of infrastructural facilities.
ii) Site Factors: After having chosen region that is comparatively more advantageous for the
location of a project. For choosing a particular sit in the chosen region, considerations like cost
of land, suitability of land, availability and suitability of ground water, facilities for effluent
disposal, etc., are to be taken into account.

In general, industrial projects require considerable extent of land. If the unit cost of land is high,
the investment required to be made on land may become prohibitively high which should be
looked into.
a) Choice of Location: Decision on the choice the location for the given project is to be made
after considering the points enumerated above. In view of the number of factors involved,
deciding upon the project location is a complex problem. The problem is compounded further
because of the existence of both tangible and intangible factors. If there are only tangible
factors, the solution to the problem can be arrived at mathematical means. Arriving at a decision
combining the tangible and intangible factors involve subjective estimate.
b) Choice of Location based on Tangible Factors: When tangible factors alone are considered,
an ideal location is on for which the cost of setting up the project, cost of procuring raw
materials, cost of processing the raw material into finished product and cost of distributing the
finished product to the customers are minimum.

9) Project Scheduling: Scheduling is nothing but the arrangement of activities of the project in
the order of time in which they are to be performed.

The schedule which broadly indicates the logical sequence of events would be as under:
i) Land acquisition,
ii) Sit development,
iii) Preparing building plants, estimates, designs, getting necessary approvals and entrusting the
construction work to contractors,
iv) Construction of building, machinery foundation and other related civil works and completion
of the same,
v) Placing order for machinery,
vi) Receipt of machinery at site,
vii) Erection of machinery,
viii) Commissioning of plant and taking trial runs,
ix) Commencement of regular commercial production.

Each of the above mentioned activities consume resources, viz., time, money and effort. The
sequence of activities should be so planned as to minimize the resource consumption.

What is Project Financing?

Project Financing is a long-term, zero or limited recourse financing solution that is available to a
borrower against the rights, assets, and interests related to the concerned project.
If you are planning to start an industrial, infrastructure, or public services project and need funds
for the same, Project Financing might be the answer that you are looking for.

The repayment of this loan can be done using the cash flow generated once the project is
complete instead of the balance sheets of the sponsors. In case the borrower fails to comply
with the terms of the loan, the lender is entitled to take control of the project. Additionally,
financial companies can earn better margins if a company avails this scheme while partially
shifting the associated project risks. Therefore, this type loan scheme is highly favoured by
sponsors, companies, and lenders alike.

In order to bridge the gap between sponsors and lenders, an intermediary is formed namely
Special Purpose Vehicle (SPV). The main role of the SPV is to supervise the fund procurement
and management to ensure that the project assets do not succumb to the aftereffects of project
failure. Before a lender decides to finance a project, it is also important that all the risks that
might affect the project are identified and allocated to avoid any future complication.

What Is Special Purpose Vehicle and Why Is It Necessary?

During Project Financing, a Special Purpose Vehicle (SPV) is appointed to ensure that the
project financials are managed properly to avoid non-performance of assets due to project
failure. Since this entity is established especially for the project, the only asset it has is the
project. The appointment of SPV guarantees the lenders of the sponsors' commitment by
ensuring that the project is financially stable.

Key Features of Project Financing

Since a project deals with huge amount funds, it is important that you learn about this structured
financial scheme. Below mentioned are the key features of Project Financing:

Capital Intensive Financing Scheme: Project Financing is ideal for ventures requiring huge
amount of equity and debt, and is usually implemented in developing countries as it leads to
economic growth of the country. Being more expensive than corporate loans, this financing
scheme drives costs higher while reducing liquidity. Additionally, the projects under this plan
commonly carry Emerging Market Risk and Political Risk. To insure the project against these
risks, the project also has to pay expensive premiums.
Risk Allocation: Under this financial plan, some of the risks associated with the project is shifted
towards the lender. Therefore, sponsors prefer to avail this financing scheme since it helps them
mitigate some of the risk. On the other hand, lenders can receive better credit margin with
Project Financing.
Multiple Participants Applicable: As Project Financing often concerns a large-scale project, it
is possible to allocate numerous parties in the project to take care of its various aspects. This
helps in the seamless operation of the entire process.
Asset Ownership is Decided at the Completion of Project: The Special Purpose Vehicle is
responsible to overview the proceedings of the project while monitoring the assets related to the
project. Once the project is completed, the project ownership goes to the concerned entity as
determined by the terms of the loan.
Zero or Limited Recourse Financing Solution: Since the borrower does not have ownership
of the project until its completion, the lenders do not have to waste time or resources evaluating
the assets and credibility of the borrower. Instead, the lender can focus on the feasibility of the
project. The financial services company can opt for limited recourse from the sponsors if it
deduces that the project might not be able to generate enough cash flow to repay the loan after
completion.
Loan Repayment With Project Cash Flow: According to the terms of the loan in Project
Financing, the excess cash flow received by the project should be used to pay off the
outstanding debt received by the borrower. As the debt is gradually paid off, this will reduce the
risk exposure of financial services company.
Better Tax Treatment: If Project Financing is implemented, the project and/or the sponsors can
receive the benefit of better tax treatment. Therefore, this structured financing solution is
preferred by sponsors to receive funds for long-term projects.
Sponsor Credit Has No Impact on Project: While this long-term financing plan maximizes the
leverage of a project, it also ensures that the credit standings of the sponsor has no negative
impact on the project. Due to this reason, the credit risk of the project is often better than the
credit standings of the sponsor.

What Are the Various Stages of Project Financing?

Pre-Financing Stage
Identification of the Project Plan - This process includes identifying the strategic plan of the
project and analysing whether its plausible or not. In order to ensure that the project plan is in
line with the goals of the financial services company, it is crucial for the lender to perform this
step.
Recognising and Minimising the Risk - Risk management is one of the key steps that should
be focused on before the project financing venture begins. Before investing, the lender has
every right to check if the project has enough available resources to avoid any future risks.
Checking Project Feasibility - Before a lender decides to invest on a project, it is important to
check if the concerned project is financially and technically feasible by analysing all the
associated factors.
Financing Stage
Being the most crucial part of Project Financing, this step is further sub-categorised into the
following:
Arrangement of Finances - In order to take care of the finances related to the project, the
sponsor needs to acquire equity or loan from a financial services organisation whose goals are
aligned to that of the project
Loan or Equity Negotiation - During this step, the borrower and lender negotiate the loan
amount and come to a unanimous decision regarding the same.
Documentation and Verification - In this step, the terms of the loan are mutually decided and
documented keeping the policies of the project in mind.
Payment - Once the loan documentation is done, the borrower receives the funds as agreed
previously to carry out the operations of the project.

Post-Financing Stage
Timely Project Monitoring - As the project commences, it is the job of the project manager to
monitor the project at regular intervals.
Project Closure - This step signifies the end of the project.
Loan Repayment - After the project has ended, it is imperative to keep track of the cash flow
from its operations as these funds will be, then, utilised to repay the loan taken to finance the
project.
Free Credit Score
Types of Sponsors in Project Financing
In order to determine the objective of the project and the risks related to it, it is important to
know the type of sponsor associated with the project. Broadly categorised, there are four types
of project sponsors involved in a Project Financing venture:

Industrial sponsor - These type of sponsors are usually aligned to an upstream or downstream
business in some way.
Public sponsor - The main motive of these sponsors is public service and are usually
associated with the government or a municipal corporation.
Contractual sponsor - The sponsors who are a key player in the development and running of
plants are Contractual sponsors.
Financial sponsor - These type of sponsors often partake in project finance initiatives and invest
in deals with a sizeable amount of return.
Conclusion
Project Financing is a long-term, non-recourse or limited recourse financing scheme that is used
to fund massive projects which can be repaid using the project cash flow obtained after the
completion of the project. This scheme offers financial aid off balance sheet, therefore, the credit
of the shareholder and Government contracting authority does not get affected. In Project
Financing, multiple participants are allowed to handle the project while the ownership of the
project is entitled according to the terms of the loan only after the project is completed. This
financial scheme offers better credit margin to lenders while shifting some of the risk from the
sponsors to the lenders.

As the Indian Government continues to investment on the infrastructure of the country, it is

expected that there will be massive developments in future in terms of power, transportation,
bridges, dams etc. Most of these projects will be using the Public Private Partnership (PPP)
method indicating a rise in Project Financing during the upcoming years. This entire cycle will
further help improve the economic condition of India.
What is Project Funding?
Project funding refers to the process of obtaining financial resources for the purpose of
implementing a specific project or initiative. This can come from various sources, including
government grants, private investors, and loans, among others. The goal of project funding is to
provide the necessary capital to start, sustain, and complete the project, with a return on
investment as the ultimate outcome. The allocation of funds is usually determined by the scale
and scope of the project, as well as the availability of financial resources.

Project Funding : Definition, Types, Features and Benefits

Types of Project Funding
There are several types of project funding, including:

Debt financing: loans from banks or other financial institutions to fund the project.

Equity financing: funding from investors in exchange for ownership of the project.

Grants: funds provided by government agencies, foundations, or corporations to support

specific projects.

Crowdfunding: funding from a large number of individuals via the internet, typically through a
platform such as Kickstarter.

Corporate sponsorships: funds provided by corporations for specific projects or initiatives, often
in exchange for marketing or advertising opportunities.

Venture capital: funding from professional investors, typically focused on early-stage startups.
Angel investing: funding from individual investors, usually high-net-worth individuals, for
early-stage startups.

Each type of funding has its own benefits and drawbacks, and the best option for a specific
project will depend on factors such as the size and stage of the project, the nature of the
business, and the goals of the project.

Key Features of Project Funding

Project financing is a financing method used to fund specific projects and is
characterized by the following key features:

Capital Intensive: Project financing is a capital-intensive financing scheme as it involves a

significant amount of funding.
Risk Allocation: The risk of the project is allocated among the different stakeholders, including
the lender, borrower, and other parties involved in the project.

Multiple Applicants: Multiple applicants can apply for project financing, including governments,
private companies, and public-private partnerships.

Asset Ownership: The ownership of the assets created through the project is determined at the
completion of the project, based on the terms of the financing agreement.

Zero or Limited Resource Financing: Project financing provides a zero or limited resource
financing solution, meaning that the lenders rely on the project's cash flow to repay the loan,
rather than the borrower's balance sheet.

Loan Repayment: Loan repayment is done with the project cash flow, which minimizes the risk
of default.

Sponsor Credit: The credit of the project sponsor (the company or individual leading the project)
has no impact on the project financing as the lender relies on the project's cash flow to repay
the loan, not the sponsor's creditworthiness.

Advantages of Project Funding

Access to Capital: Project funding provides access to capital that can be used for various
purposes, such as starting a new business, expanding an existing one, or funding research and
development.

Risk Reduction: It can help reduce the risk of a venture by spreading the financial burden
among multiple investors.

Increased Credibility: It can increase the credibility of a venture, making it easier to attract
additional funding and customers.

Improved Operations: It can be used to improve operations by financing new equipment,

facilities, and technologies.

Opportunity for Growth: Project funding can provide an opportunity for growth by financing new
ventures, expanding into new markets, or developing new products or services.

Professional Support: It can provide access to professional support and mentorship, which can
help increase the chances of success.

Project Appraisal by Financial

Institutions
Credit or Project Appraisal
in Project Finance means an
investigation/assessment
done by the Financial Institution
prior to providing any Funding /Loan/Project Finance, in which it checks the economic, financial
& technical viability of the proposed project [Reliance on Project Cash Flows & Assets].

• The ultimate objective of the appraisal exercise is to ascertain the viability of a project with a
view to ensuring the repayment of the
borrower’s obligations . Therefore, it is not so much the quantum of theproposed term
assistance as the prospects of its repayment that shouldweigh with us while appraising a
project.

Aspects of Project Appraisal

•The appraisal of a project involve the examination of:
–
Technical Feasibility :
To determine the suitability of the technology selectedand the adequacy of the technical
investigation, and design.

– Economic Feasibility :
To determine the conduciveness of economic parameters to setting up the project and their
impact on the scale of operations.It also contains Market Demand/Survey providing rationale for
undertaking theProject.

–Financial Feasibility :
To determine the accuracy of cost estimates, suitabilityof the envisaged pattern of financing and
general soundness of the capitalstructure.

–Commercial Viability :
To ascertain the extent of profitability of the project and its sufficiency in relation to the
repayment obligations pertaining to termfinance.

Managerial Competency :
To ascertain that competent men are behind the project to ensure its successful implementation
and efficient managementafter commencement of commercial production.

–Ecological Feasibility
: it has been made sure that the applicant has madesatisfactory plans for handling wastes so
that atmosphere remains pollutionfree.

TECHNICAL FEASIBILITY
•The main objective of a technical feasibility study is to determine whether acertain plan of
action is feasible
— That is, will it work?
•
A technical feasibility assessment should be applied to all projects beingconsidered in order to
better understand if the project can be done
“technically”
and whether it can be done
“here
and
now”
•
Technology and techniques:
–
Do the technology and techniques required to deliver this project exist locallyor globally? Have
they been used before? If a new technology or technique isneeded, how confident are we in its
success?
•
Technical capacity/skills:
–
Do the skills exist locally to design and implement the project? Have they beenused before?

•Human and Financial resources:

–
What is the scope of human and financial (budget) resources required toimplement this
project? Will the human resources be accessible, and howmight costs change during the life of
the project (operational, maintenance,etc.)?

FINANCIAL FEASIBILITY–
To determine the accuracy of cost estimates, suitability of the envisaged patternof financing and
general soundness of the capital structure.
–Total Cost of Project in the Financial Feasibility should include Contingency &appropriate
Forex Cushion in line with the Size & time line of the Project.
– The main objective of a Financial Feasibility study is to determine whether aProject is
Financially Feasible.
That is, will it provide adequate returns to all investors (including Debt Holders) based on
reasonableAssumptions.
– Estimation of Cash flow.
–Assessment of necessity of working capital.
– Forecasts of Future profitability.
–Break even sensitivity examination of the project.
 Social Cost Benefits Analysis in Project Management
Social Cost Benefits Analysis in Project Management

What Is Social Cost-Benefit Analysis In Project Management?

The primary goal of all businesses is to get maximum return on investments. Thus, the
promoters prefer to assess commercial viability. However, some ventures may not give
appealing results for business profitability, so such programs are executed because they have
social consequences. These are infrastructure works, including roadway, rail, bridges, and
certain other construction works, irrigation, electricity initiatives, etc., that have a major role in
socio-economic concerns instead of merely commercial prosperity. Therefore, such initiatives
are assessed for the net socio-economic advantages and cost control that is nothing other than
the national survey of potential socio-economic costs.

So, SCBA, often known as Social Cost-Benefit Analysis in project management, has become a
tool for effective financial evaluation. It is an approach to assessing infrastructure investments
from a social (or economic) perspective. Get to know more from PMP training, which is the most
prominent credential in project planning worldwide.

What is a social cost-benefit analysis?

It is a technique used for determining the value of money, specifically public investments, and it
is becoming extremely popular. In addition, it helps in decision-making regarding the numerous
parts of the organization and closely related project design programs.

What Is Social Cost-Benefit Analysis In Project Management?

The primary goal of all businesses is to get maximum return on investments. Thus, the
promoters prefer to assess commercial viability. However, some ventures may not give
appealing results for business profitability, so such programs are executed because they have
social consequences. These are infrastructure works, including roadway, rail, bridges, and
certain other construction works, irrigation, electricity initiatives, etc., that have a major role in
socio-economic concerns instead of merely commercial prosperity. Therefore, such initiatives
are assessed for the net socio-economic advantages and cost control that is nothing other than
the national survey of potential socio-economic costs.

So, SCBA, often known as Social Cost-Benefit Analysis in project management, has become a
tool for effective financial evaluation. It is an approach to assessing infrastructure investments
from a social (or economic) perspective. Get to know more from PMP training, which is the most
prominent credential in project planning worldwide.

What is a social cost-benefit analysis?

It is a technique used for determining the value of money, specifically public investments, and it
is becoming extremely popular. In addition, it helps in decision-making regarding the numerous
parts of the organization and closely related project design programs.
Social cost-benefit analysis in project management

Benefits of SCBA in Project Management

Social cost-benefit analysis in project management enables a complete comparison of several
project options. This is not merely a financial concern. Even so, an SCBA recognizes
non-financial consequences as well. For instance, consider the effects of increased accessibility
on the environment, the economy, and other factors.

Social cost-benefit analysis helps governments to pursue innovative initiatives that benefit all,
not just a selected few. Additionally, it aids in the entire development of an economy by assisting
in decision-making that increases job, investment, savings, and consumption, increasing a
country's economic activity.

Social cost advantages can be used for both investments. Thus, public investment is
vital for a developing nation's economic progress.

1. Market Instability

A private corporation would evaluate a deal based on productivity and relevant market prices.
However, the government must consider additional variables. Determining social costs in the
event of market inefficiency and when market pricing cannot specify them. These hidden social
costs are referred to as shadow prices.

2. Investments & Savings

A venture that results in increased savings is considered an investment in a market.

3. Income is distributed and redistributed

The initiative should not lead to revenue accumulation in the control of a few and the distribution
of income.

4. Career and Living Standards

The impact of a program on employment and level of livelihood will also be considered.
Therefore, the contract should result in a rise in employment and living standards.

5. Externalities

Externalities can be detrimental and advantageous to an enterprise. As a result, both impacts

must be considered before approving a deal. For example, positive externalities can take the
shape of technological advances, while negative externalities might take the form of rapid
urbanization and ecological degradation.
6. Subsidy and Taxation

Taxation and subsidies are treated as expenses and revenue, respectively. However, taxation
and subsidy are regarded as transfer payments for social cost-benefit analysis.

What is the scope of SCBA?

SCBA's purpose is to establish the financial benefits of each venture in perspective of shadow
prices because initiatives impact people's savings and investments and the development's
impact on the revenue sharing in society. Additionally, it is critical to consider how certain factors
like employment and self-sufficiency will be achieved if the strategy is delivered.

SCBA can be used to engage both in the public and private sectors.

1. Public investment: conducting social cost analysis for economic infrastructure development is
critical for the developing world. When the national government contributes to shaping that
country's economy, it is essential to analyze the development's social impact.

2. Private investment: Evaluating the social impact of private development initiatives is vital as
federal and quasi-government authorities authorize these initiatives.

we must choose –

Shadow Wage Rate (SWR)

The SWR is used to calculate the potential cost of adding a person to the assignment. This
requires us to ascertain -

The value of production is lost as a result of the usage of a unit of labor.

The expense of extra consumption owing to labor transfer
Traded Goods Shadow Pricing

The shadow pricing of traded items is simply the cost at the international market.

If a commodity is shipped, its FOB price serves as the shadow pricing;

When goods are imported, their shadow price is equal to their CIF price.
Non-traded Goods' Shadow Pricing

Non-traded commodities are those that do not access international trade. (– for example, land,
construction, and logistics). As a result, they have no noticeable border pricing.

Project Review
 What is a Project Review?

A Project Review is an evaluation of the current progress of a project at a specific point of the
project (milestone). The focus of a project review is the chance of future project success. A
project review will provide you with a thorough knowledge of the current status of your project
and if it is on track to meet your success criteria.

Project reviews are carried out at the end of phase of project life cycle, such as Initiation,
Planning, and Execution stages.

The Advantages of Project Review Process

1. You will get a 360-degree perspective of your project’s current status.
2. A project review will provide you with the knowledge you need to make informed
decisions.
3. You will get a third-party opinion on how likely it is that the project will be successful in
terms of project delivery, product or service success, and also business success.
4. You will get better suggestions for how to fix the project problems and challenges that
have been found.

What can we expect from the results of a project evaluation?

The outcome for project review could be all of the following;
1.
2. A current condition summary and assumption list
3. A comprehensive and up-to-date issue list
4. A current risk analysis for risk management process
5. A comprehensive report containing observations and recommended corrective actions
6. Discussion and analysis of the findings and recommended actions

Types of Project Review

There are at least 4 types of project review, such as Initial Project Review, Completion Review,
Special Review for Non-Compliant follow up and Stakeholder Requested review.

Initial Project Review

The initial plan review will help to verify if the project exceeds the basic requirement for starting
a project. This assessment may encompass the following project phases, such as PPI (Project
Planning and Initiation), SRA (System Requirement Analysis), TRA (Transition Risk Analysis),
etc.

Completion Review
During the completion review, it will be determined whether or not the project was successful in
meeting all of the requirements, sign-offs, and deliverables that were outlined in the project
scope, as well as whether or not the project management process was successful in meeting all
of the necessary criteria. The Review of Completion will determine whether or not all project
technical, financial, and contract closure activities have been correctly executed.
 Special Review (RS)
Special review is similar to completion review. The differences are usually the special review
might focus on “at-risk” behaviors, conditions, or work products and it’s usually conducted at the
specific point during the project when special review is requested.

Special Review: Non-Compliant Follow-Up

If a previous assessment concluded that “the project is at risk”, a Non-Compliant review will be
held within a month. The type of Non-Compliance review (R1, R2, or R3) determines the (RS)
Special Review.

In the event that the non-compliant review was an Initial Project Review (R1), the subsequent
Special Review (RS) would investigate the Project Deliverables that were defined in R1.

Special Review : Stakeholder Requested

Any project stakeholder in the project, including the Project Manager, has the ability to submit a
request for an “ad hoc” or Special Review (RS). The justification for a “ad hoc” review may
consist of any of the following:

Change in the Project Managers;

Serious issues that may affect the project’s capacity to deliver the best possible solutions; and
A project that has been classed as a “Non-Compliant Project” and requires a particular finding
or issue to be resolved. The detected issue will be reviewed by stakeholders.
This review follows the Project Review format. What deliverables are reviewed depends on the
project’s stage.

Strategic Steps To Conduct Project Review

1. Determine Review Scope and Objective

Check that the project team and stakeholders understand the review’s objective and scope
before moving on. Usually, this will come from the project’s sponsor or top management. This
should be done to shed more light on any concerns that prompted the need for the review.

2. Preparation Process
To ensure that the review is as productive as it possibly can be, preparation is essential, just as
it is with anything else. This will include the following:

Keeping track of the findings while also ensuring their scope, length, and format.
A preliminary reading of the project paperwork, which may include the business case, status
reports, etc.
Identifying and gaining agreement from stakeholders to conduct interviews.
Developing questions to be asked in interviews in order to investigate a theory.
Making arrangements for interviews.
Developing an initial working hypothesis of the issues.
3. Interview The Sponsor
It is recommended that the initial interview be with the sponsor of the project. This will make it
possible to clarify concerns, provide background information on the project, and comprehend
why the project is vital, among other things.

Additionally, it will make it possible to test the hypothesis to determine whether or not it strikes a
chord with the sponsor. When there is not a lot of time available and the review needs to be
finished in a short amount of time, this step is quite critical. It will guarantee that the review
focuses on the areas of concern that need to be addressed.

However, it is important that this meeting, as well as all of the meetings, be attended with an
open mind because the sponsor may have overlooked certain aspects or may have a bias.

4. Interview The Project Manager

This should ideally be the following interview on the agenda after interviewing the sponsor. It will
make it possible to look into and test the concerns and hypotheses to see if they are valid. You
need to understand that, a defensive project manager is normal. Consequently, you must be
persistent and avoid being hostile in your questioning.

The areas of concern where the project manager’s responses contradict the sponsor or
documents must be accurately noted so they can be tested with other project stakeholders and
team members.

5. Interview The Project Stakeholders

The remaining sessions should be concluded as soon as feasible, and information obtained in
prior meetings should be evaluated. This may provoke further inquiries, necessitating a second
meeting with certain parties or certain project stakeholders.

It is essential that, for all meetings, the same questions be asked. Always take meeting notes,
and if appropriate, send them to the individual with whom you met. This will allow for the
correction of any misunderstandings before the final findings are reached. In addition, it implies
that conclusions can be traced back to the facts supporting them.

6. Analysis Process
After the interviews and cross-checks have been completed, the data are analyzed and
compared to the initial concerns and hypotheses. Because of this, draft findings will be able to
be documented.

7. Draft Review Conclusion

Having the sponsor and, if necessary, the project manager examine the draft conclusion is
essential. They will be better able to comprehend the findings, as well as the reasoning behind
them. In this way, the final paper can be fine-tuned to deliver the message with the best
possibility of action. It also provides the opportunity to clarify any issues.
It’s important to note that the conclusions might not be accepted by the project manager or the
sponsor. However, do not alter the findings simply because you are under pressure. By doing so
will not assist the project in overcoming potential obstacles, and if the project fails, this will
reflect poorly on the review that it failed to spot the problems.

8. Publish The Review

Finalize the findings in a document, ensuring that it includes a summary that addresses the
initial scope review and objective of the review and also highlights high-risk issues. While
verifying the concerns or serious risk items is crucial, establishing an action plan for addressing
the findings is the most critical thing you can do to make the evaluation truly beneficial.

This will demonstrate a high level of initiative, and it will be warmly accepted by the sponsor as
well as senior management because it will make it feasible to solve the issues without any

✍️
delay. Consultancies have found that employing this strategy to successfully secure subsequent
engagements is quite effective.

HUMAN ASPECTS OF PROJECT MANAGEMENT

Introduction
Apart from the financial resources, presence of human relations also drives a project towards its
successful implementation. Project management and human relations work hand in hand. Absence of
human relation will lead the project nowhere. Majority issues may be resolved through the aid of finance,
but issues relating to human are very delicate and cannot be resolved through the money power. For
optimum balance in the human relations, issues like orientation, authority, responsibility, motivation,
commitment should be tactfully handled by project manager.

FINANCE
HUMAN ASPECTS OF PROJECT MANAGEMENT
30 July 2023 by financefac.com
Table of Contents
Introduction
1. Project Authority
Types of Project Authority
2. Project Orientation
3. Commitment and Motivation
4. Group Functioning

Introduction
Apart from the financial resources, presence of human relations also drives a project towards its
successful implementation. Project management and human relations work hand in hand. Absence of
human relation will lead the project nowhere. Majority issues may be resolved through the aid of finance,
but issues relating to human are very delicate and cannot be resolved through the money power. For
optimum balance in the human relations, issues like orientation, authority, responsibility, motivation,
commitment should be tactfully handled by project manager.

1. Project Authority
It signifies the power to control or to command the activities of the others towards a direction while
executing a project. As per the well-known management principle, the authority can be delegated by the
superior to its subordinates. It’s the subordinates out of respect or seniority deputes to the superior with
the power to control them. If a is manager having certain authority, then it is mixture of power and the fact
that the subordinates are willing to accept his decision.
Unilateral authority does not lie with the project manager for a particular project. He possesses all the
authority while dealing and negotiating with the contractors and the suppliers outside and tendering the
company, but for the internal matters, the authority is shared. The project size, management’s trust and
management’s philosophy defines the amount of authority a manager possesses.
There is a direct relation between the risk and the authority. If the risk associated with the project is high,
proportionate level of authority is delegated to project manager.
When the organisation structure is project-oriented, the authority related to the functional policy and the
procedure is also held by the project manager. In such kind of organisation structure, the project manager
is placed at the helm of the affairs, and holds the ultimate authority and there are no hurdles in exercising
the same. The personnel incharge of functions are deputed to work as per the instructions of project
manager and reasonable authority to conduct the work which is delegated. Apart from this, in case of
other organisation structure, the project manager lacks the ultimate authority and the same is shared by
different personnel.

Types of Project Authority

Project authority is of three types. They are:

1) De Jure Project Authority: It is also known as the legal authority or commands the efforts of a project
in a certain direction. The authority is delegated as per the legal terms of the appointment and comes
inherent with the position held in the organisation.
The project manager may introduce some further resources to the project or may withdraw few of them
during the course. As said, the authority of a manager is drafted in the documents along with the
supporting role of other managers like work package manager, functional manager and general manager
which will aid the project manager.
Legal authority only provides ignition to the process. It is the capability of the project manager to take the
most out of the authority assigned to him.

2) De Facto Implied Authority:

All parts of the authority cannot be expressed, rather some authority comes with experience, an
individual’s knowledge and qualification, interpersonal skill and decision-making ability. This authority
does not require any drafting and may be carried by managers, team members of the project clientele. In
managing the technical projects, it is often held by the project managers, that the experience and the
reputation hold the key.
The technical and the organisational expertise are further assumed to be possessed by the project
managers. Expertise comes with the involvement and execution of the project manager through the past
undertaken projects and its successful implementation. As stated above, De facto authority is the prime
interpersonal ability of project manager to take the team along, without whose involvement it will be
difficult to implement and execute the project. Project manager, should not only be fully equipped with the
technical knowledge to carry out the project but also acts as a mentor for the rest of the team for
successful execution. The presence of interpersonal skills will enable the project manager to develop the
relation with other professionals whose services are an indispensible part in conducting the project.

3) Project Charter Authority:

Project charter is the most accepted form of documenting a project manager’s delegated authority. A
project charter is a document defining a project’s scope, goals of a project, project manager’s name along
with the authority directing him, project’s name, the authority entrusted for reviewing and the involvement
of various persons in the project. As soon as the project manager is appointed, the chief executive officer
issues the charter.

For the following reasons, it is important to document the authorities of the project manager:

¡ To keep all the interfaces simple and understandable.

il) To entrust the project manager with the authority to pressurise the functional managers to switch from
the present methods and even may take some risk.

iii) To make available authority relating to various unassigned areas to the project manager. It takes place
when the project manager by his deeds is able to gain the respect from the concerned personnel.

iv) To ensure that complete description of the team relating to authority and responsibility is not described.
It is only in terms of the authority and responsibility of the project manager. Focus should be on solving
the problem and not merely on defining the role.
Project manager’s authority relating to a project varies with change in management philosophy, size of the
project and interpreting the potential conflicts by the management.

2. Project Orientation
It is immaterial whether the organisation structure selected for a project is a matrix, task force or a project
oriented. Its successful implementation depends on the leaders and the different individuals carrying out
different functions.

Majority projects being highly technology driven are handled by the engineers or technicians who have
the experience of working in the highly technical environment. When the engineers and the technicians
are assigned the managerial responsibility, then there are chances of uncertainty and risks and the main
challenge is to resolve the unstructured problems which they have not dealt before. On the other hand,
they also have to maintain cordial relations with different personnel and efficiently utilise the resources.
So, as a project manager, the major focus is to enhance the human bonding and increasing managerial
orientation of the personnel involved to achieve the underlying objectives of the project without wasting
any of the resources. To infuse managerial orientation in other personnel, the project manager should
himself be fully equipped with the managerial capabilities as well as the professional qualifications.

3. Commitment and Motivation

For the success of a project, commitment and motivation are the prime requirements. So, a project
manager always focuses on to motivate the personnel and make them committed towards the project.
It may happen that the organisation has prepared a unique project report, has adopted the best available
technology, has a best team of technical consultants, an experienced construction contractor, done
adequate planning and coordination, has made financial arrangements and maintained adequate facilities
for the timely disbursement of funds, has acquired the latest equipments for the success of the project.
But, the essence lies in acquiring and building a committed and motivated team who plug the gaps when
required and collectively focus on achievement of the objectives within the prescribed time frame.
So apart from possessing the technical competence, the project manager should be a good observer and
influencer of personal relations to carry his team all the way through the completion of the project. At
times, he must entertain the difference in individual requirements and tackle in a strategic manner. He
must be self motivated first and supportive enough to understand different personnel.
There are different things that drive the motivational level of different human beings and to initialise is the
physiological requirements of the individuals. As soon as the basic requirements are satisfied, other
requirements like emotion, safety, esteem, self actualisation arise in ascending order. A project manager
should take care of all these

requirements so as to keep the individuals motivated and inserting the sense of belongingness in them so
that the individuals may accept more responsibility. At times, individuals are bound to react differently to
satisfaction of varied requirements as they also might get influenced by their colleagues and seniors.
Normally, the term motivation is related with the material benefits.
Majority of individuals are materially driven. Often increase in their position does not affect them as much
a material reward does. But at the same time, this material motivation has a shorter life. If the monetary
rewards are less than the expected level, the same may back fire and result in de-motivating them. So,
such individual requirement of monetary reward requires continuous monitoring. While commitment is a
personal quality of the individual and cannot be externally infused.
Commitment comes with motivation but often the non-material rewards increase the level of commitment.

4. Group Functioning
A large and a complex project not only demand personnel from the project’s office but also needs
representatives from different departments, groups, organisations who are involved in the project.
Involvement of different personnel formulates the following two types of groups:
1) Formal Group: A group that is formed as per the organisation structure and obliges the formal
requirements.
2) Informal Group: It is voluntary formation by different individuals from different organisations that
comes together having a common ideology. These individuals are attracted towards each other as a
result of common thoughts, background, values, interests, etc., and the group formed is not supported by
the organisation structure.
While setting a project, following three types of groups may exist:
1) Horizontal Group: When the individuals hold same level of position under the hierarchy but at different
departments, functions or the companies.
2) Vertical Group: When different levels of positions are held by the individuals in hierarchy of the same
department, functions or the companies.

✍️
3) Mixed Group: It is a composition of horizontal as well as vertical groups. The individuals may come
from any position in the same hierarchy or a different one.