Professional Documents
Culture Documents
Chapter One
Overview of Project Management
• A project is
• a one-time, multitask job with a definite starting point, definite ending point,
• has clearly defined scope of work, a budget, and usually a temporary team.
2
Cont...
• It is a temporary endeavor undertaken to create unique product or service
• Thus, projects are designed to bring about a product, service, or result that
didn’t exist before.
• Projects are temporary in nature and have definitive start dates and
definitive end dates. Thus, a project is completed when its goals and
objectives are accomplished to the satisfaction of the stakeholders.
3
Cont...
4
Cont...
A project is also defined as a sequence of unique, complex, and inter-
connected activities having one goal or purpose and that must be
completed by a specific time, within budget, and according to
specification.
5
Important concepts in the definition a project
6
Important Characteristics of a Project
7
Cont...
9
Comparison of daily Routine Work with Projects
10
Program versus Project
In practice the terms project and program cause confusion. They are often used
synonymously.
A program is a group of related projects designed to
accomplish a common goal over an extended period of
time.
Each project within a program has a project manager. The
major differences lie in scale and time span.
A program is defined as a group of related projects,
which may include related business-as-usual activities that
together achieve a beneficial change of a strategic nature
for an organisation.
It is a group of related projects managed in a coordinated
way to obtain benefits. Programmes may include elements
of related work outside the scope of the discrete projects in
a programme
11
Cont...
12
Portfolios Vs Programmes
13
Project, Programme and Portfolio
14
Cont...
15
Cont...
16
Types of Projects
The principal identifying characteristic of a project is its novelty. It is a
step into the unknown, which is fraught with risk and uncertainty.
No two projects are ever exactly alike: even a repeated project will differ
from its predecessor in one or more commercial, administrative or physical
aspects.
17
18
Cont...
24
Cont...
Project management is the application of modern management
techniques and systems to the execution of a project from start to finish,
to achieve predetermined objectives of scope, quality, time and cost, to
the equal satisfaction of those involved.
25
The Balance Quadrant
26
Benefits of Project Management
1. Clear Objective
2. Risk Assessment
3. Milestones
4. Resource Allocation
5. Task Dependencies
6. Communication
7. Avoid Scope Creep
8. Client Appreciation
27
Skills needed by Project Managers
Project managers accomplish work through the project team and other stakeholders.
Effective project managers require a balance of ethical, interpersonal, and
conceptual skills that help them analyze situations and interact appropriately.
Therefore, Project Managers require:
Leadership,
Team building,
Motivation,
Communication,
Influencing,
Decision making,
Political and cultural awareness,
Negotiation skills
Trust building,
Conflict management, and
Coaching.
28
Project Management Vs General Management
29
Project Cycle
30
Cont...
31
Initiating
This stage defines and authorizes the project. The project manager is
named, and the project is officially launched through a signed document
called the project charter, which contains items such as the purpose of the
project, a high-level product description, a summary of the milestone
schedule, and a business case for the project.
32
Planning
In this stage, the project manager, along with the project management
team, refine the project objectives and requirements and develop the
project management plan, which is a collection of several plans that
constitute a course of actions required to achieve the objectives and meet
the requirements of the project. The project scope is finalized with the
project scope statement.
33
Executing
In this stage, the project manager, implement the project management
plan, and the project team performs the work scheduled in the planning
stage.
35
Closing
In this stage, you manage the formal acceptance of the project’s product,
close any contracts involved, and bring the project to an end by
disbanding the project team.
36
End of Chapter One
37
Project Management (MBA 592)
Trigger A need to solve a problem A need to study an existing idea, solution or process
Emerging trends within your area may be create demand for new
products and services, and can serve as a business idea.
Research and Development
Research is a planned activity aimed at discovering new knowledge, with
the hope of developing new or improved products and services.
Researching on new methods, skills and techniques that enable
entrepreneurs to enhance their performance and ability to deliver better
products and services.
Tradeshows & association meetings
In the idea screening step, your objective was to eliminate the ideas that
were either not a strong fit for your organization or did not provide a
significant business or social impact.
Now the formal feasibility study can test the key assumptions that
determine whether this enterprise actually would have a good chance to
succeed.
The study is an opportunity to refine and explain the concept, and to test
market reaction.
Generally speaking you will want to: consult potential customers and
funders, and evaluate competitors; and do some preliminary market
research, such as a focus group or survey, to gain confidence in the value
of the concept.
Organizations do their feasibility studies in various ways. You may wish
to apply for funding to hire a consultant to conduct the study, or you
may have someone in your organization who can do it.
Cont…
You can choose to do a feasibility study on one idea (usually the idea that
scored the highest on the assessment scorecard), or you can decide to do a
feasibility study on two or more ideas. That depends on your resources.
It would be reasonable to spend the equivalent of three to six full-time
person days preparing a single feasibility study.
Elements considered while doing Project
Analysis/feasibility study
Project analysis refers to analyzing a project from various perspectives
so as to determine its viability and sustainability.
Project analysis consists of :
1. Market/demand analysis (Some parts covered)
2. Technical analysis
3. Financial analysis (Already covered in Managerial Economics)
4. Economic cost benefit analysis
5. Environmental and social cost benefit analysis
6. Risk analysis (Already covered in Managerial Economics)
Market/Demand Analysis
This step in project analysis aims to estimate the potential size of the
market for the product proposed to be manufactured (or service planned
to be offered) and to get an idea about the market share that is likely to
be captured. Hence, the two broad issues raised are:
1. What is the likely aggregate demand for the product/ service?
2. What will be the share of the market for the proposed
product/service?
Cont...
Answers to these two questions call for an in-depth study of various
factors like:
patterns of consumption growth,
income and price elasticity of demand,
composition of the market, and nature of competition,
availability of substitutes,
reach of distribution channels, etc.
The purpose of market/demand analysis
The information sought in a market survey may relate to one or more of the
following:
Total demand and rate of growth of demand
Demand in different segments of the market
Income and price elasticity of demand
Motives/Desire for buying
Purchasing plans and intentions
Satisfaction with existing products
Unsatisfied/Unmet needs
Attitudes towards available products
Distributive trade practices and preferences
Socio-economic characteristics of buyers
Steps in market survey
1. Define the target population
2. Select the sampling frame and sample Size
3. Develop the questionnaire
4. Recruit and train the field investigators
5. Obtain information as per the questionnaire
from the sample of respondents
6. Scrutinize the information gathered
7. Analyze and interpret the information
Technical Analysis
Analysis of technical and engineering aspects is done continually when a project is
being examined and formulated. The technical analysis is made to identify and
evaluate:
• The availability of technology
• The availability of technical experts
• The appropriateness of technology
• The affordability of technology
Technical analysis is concerned primarily
with:
• Material inputs and utilities
• Manufacturing process/ technology
• Product mix
• Plant capacity
• Location and site
• Machineries and equipments
• Structures and civil works
• Work schedule
3. Financial Analysis
• Financial analysis involves evaluating the viability or the
capability of the project to raise the appropriate funds
needed to implement the proposed project.
Financial analysis consists determination of the following:
• Cost of project
• Means of financing
• Estimates of sales and production
• Cost of production
• Working capital requirement and its financing
• Breakeven point
• Projected cash flow statements
• Projected balance sheet.
Cost of Project
The cost of project represents the total of all items of outlay associated
with a project. It is the sum of the following outlays:
• Cost of land and site development
• Cost of Building and Civil work
• Cost of Plant and Machinery
• Technical know how Fees (expertise fee)
• Miscellaneous Fixed Assets
• Preliminary expenses
• Preoperative expenses (Costs)
• Provision for Contingencies
• Initial Cash Losses
Means of Financing
In order to finance the project cost, a firm may use combination of the
following sources;
• Share capital (sell of stock)
• Term loan and /or bond capital
• Deferred credit ( Purchase of goods and services on credit)
• Miscellaneous sources: Eg. unsecured loan, leasing
Points to be considered in selecting best means of
financing
a) Cost: cost of capital/interest rate
b) Risk: The two main sources of risk for a firm (a project) are: business
risk and financial risk.
• Business risk refers to the variability of earnings before interest and
tax and arises mainly from fluctuation in demand and variability of
prices and costs.
• Financial risk refers to the risk arising from financial leverage –
inability to serve the source of capital.
Cont....
c. Control: Promoters of the project would ordinarily prefer a scheme of
financing which enable them to maximize their control over the affairs of
the firm, given their commitment of funds to the project.
d. Flexibly: This refers to the ability of a firm (or project to raise further
capital from any source it wishes to tap to met the future financing needs.
• Thus, when we determine (choose) the financing mix we must consider
the above factors.
• After we understand the monetary policy of the country( norms of
regulatory bodies) we must select a source of capital with moderate cost
and risk, that enables the firm maximize the control and allows flexibility
in raising additional capital
Estimates of sales and production
• In estimating sales revenue, the following considerations should be born
in mind:
1. It is not advisable to assume a high capacity utilization level in the first
years of operation.
• It is sensible to assume that capacity utilization would be somewhat low
in the first year and rise gradually to reach the maximum level in the
third or fourth year of operation.
• A reasonable assumption with respect to capacity utilization is as
follows: 40 –50 percent of the installed capacity in the first year, 50 –80
percent in the second year, and 80 –90 percent from the third year
2. For practical purpose, it may be assumed that production would be equal
to sales ( No inventory of Finished goods or manufactured good will be
sold)
3.The selling price considered should be the price realizable by the
company.
Cost of Production
• Given the estimated production, the cost of production may be worked
out. The major component of cost of production are:
1.Material cost (raw materials, chemicals, components, and consumables
required for production).
2. Labor cost (Direct & indirect labor)
3. Utilities Cost (Power, water, and fuel)
4. Factory overhead cost (repairs and maintenance, rent, taxes, insurance
on factory assets, etc)
Working Capital Requirements and Its
Financing
• Working capital is commonly defined in financial analysis as net
current assets.
• Consisting of inventories, including goods in process; net
receivables; marketable securities; bank balances; and cash in hand.
• A certain amount of working capital is normally required to run
project facilities created by investment in fixed assets.
• The principal sources of working capital finance are (i) working
capital advances provided by commercial banks, (ii) trade credit (iii)
accruals provisions; and (iv) long term sources of financing.
Profitability of Projects
• Given the estimates of sales revenue and cost of production, the next
step is to prepare the profitability projections.
• The estimates of profitability may be prepared.
Breakeven Points
76
77
Projected Cash Flow Statements
• The cash flow statement shows the movement of cash into and out of the
firm and its net impact on the cash balance with the firm.
• The cash flow statement is really a cash flow budget.
There are three basic steps in determining whether a project is worthwhile
or not are:
1. Estimate projected cash flows,
2. Establish the cost of capital, and
3. Apply a suitable decision or appraisal criterion (pay back, NPV, IRR)
to decide whether to accept or reject the project
Project Selection Models
• A numeric model is usually financially focused and quantifies the project in terms of
either time to repay the investment (payback) or return on investment.
• While non-numeric models look at a much wider view of the project considering
items from market share to environmental issues.
• The main purpose of these models is to aid decision-making leading to project
selection. Most importantly the model must evaluate projects by how well they meet
a company's strategic goals and corporate mission. The following are the types of
questions to ask:
1. Will the project maximize profits?
2. Will the project maximize the utilization of the workforce?
3. Will the project maintain market share, increase market share or consolidate
market position?
4. Will the project enable the company to enter new markets?
5. Will the project maximize the utilization of plant and equipment?
6. Will the project improve the company's image?
7. Will the project satisfy the needs of the stakeholders aspirations?
8. Is the project's risk and uncertainty acceptable?
9. Is the project's scope consistent with company expertise?
Numeric Models
• The numeric selection models presented here may be sub-
divided into financial models and scoring models. The
financial models are:
1. Payback Period (PV)
2. Return on Investment (ROI)
3. Net Present Value (NPV)
4. Internal Rate of Return (IRR)
• Companies tend to prefer financial models and often select
solely on profitability. This may not be as drastic as it
sounds because subconsciously the managers will be
considering a wider scope of selection criteria.
• In an investment appraisal only the incremental income
and expenses attributed directly to the project under
consideration should be included. Costs that have already
been incurred (sunk costs) should be ignored as they are
irrelevant to decisions effecting future projects.
Scoring Models
• The numeric models discussed so far all have a common limitation; they
only look at the financial element of the project.
• In an attempt to broaden the selection criteria a scoring model called the
factor model which uses multiple criteria to evaluate the project.
• The factor model simply lists a number of desirable factors on a project
selection proforma along with columns for Selected and Not Selected.
• A weighted column can be added to increase the score of important
factors while reducing the scoring of the less important.
• The weighted column is calculated by first scoring each factor, and then
dividing each factor by the total score.
• The total of the weighted column should always add up to one.
• The factors can be weighted simply 1 to 5 to indicate; 1 "very poor", 2
"poor", 3 "fair", 4 "good" and 5 "very good".
4. Risk Analysis
• Risk has always been an intrinsic part of project management.
• Risk management is gaining significance and importance due to:
1. increasing market competition,
2. increasing technology and
3. an increasing rate of change,
• Risks are generally deemed acceptable if the possible gains exceed the
possible losses.
• A project risk may be defined as any event that prevents or limits the
achievement of project objectives as defined at the outset of the project,
and these objectives may be revised and changed as the project progresses
through the project life-cycle.
The generally accepted risk management model includes the
following:
• Define Objectives: define what you have to achieve to be successful and
establishes a basis for dealing with risk and future decisions.
• Identify Risk: identify areas of risk which may limit or prevent
achievement of objectives.
• Quantify Risk: evaluate and prioritize the level of risk and quantify
frequency of occurrence and impact.
• Develop Response: define how we are going to respond to the identified
risks; eliminate, mitigate, deflect or accept.
• Document: the risk management plan documents how we propose to
tackle risk on the project.
• Risk Control: the risk control function implements the risk management
plan.
• This may involve training and communication.
• And as the risks and the work environment are continually changing, it is
essential to continually monitor and review the level of risk and your
ability to effectively respond.
5. Economic Analysis and Environmental Assessment
• Successful economic development depends on the rational use of natural
resources and on reducing as far as possible the adverse environmental
impacts of development projects.
• Environmental assessment (EA) is a primary tool for achieving this
objective, by inserting critical environmental information into the process
of project identification, preparation, and implementation.
• Economic analysis, by comparison, is employed to determine if the overall
economic benefits of a proposed project exceed its costs, and to help design
the project in a way that produces a solid economic rate of return.
• Adverse environmental impacts are part of the costs of a project, and
positive environmental impacts are part of its benefits.
• Consideration of environmental impacts, therefore, should be integrated
with the other aspects of the project in the economic analysis to the extent
possible.
Environmental Analysis
• Environmental analysis process is a systematic, interdisciplinary process
used to identify the purpose of a proposed action, develop practical
alternatives to the proposed action, and predict potential environmental
effects of the action.
• A few examples of proposed actions are road construction, tree clearing
for disease control, reforestation, building a hydroelectric dam, or
developing a quarry.
• An Environmental Analysis (EA)identifies problems, conflicts, or
resource constraints that may affect the natural environment or the
viability of a project.
• It also examines how a proposed action might affect people, their
communities, and their livelihoods.
• The analysis should be conducted by an Interdisciplinary Team consisting
of personnel with a range of skills and disciplines relevant to the project.
• Team members should include a team leader and may include
• Engineers, geologists, biologists, archaeologists, and social workers.
Cont....
• The EA process and findings are communicated to the various affected
individuals and groups.
• At the same time, the interested public helps provide input and comment
on the proposed project.
• The document produced as a result of the EA guides the decision maker
toward a logical, rational, informed decision about the proposed action.
• The EA process and Interdisciplinary Team studies can reveal sound
environmental, social, or economic reasons for improving a project.
• After predicting potential issues, the EA identifies measures to minimize
problems and outlines ways to improve the project’s feasibility.
• Environmental mitigations a designer can use to avoid potential impacts
on wildlife, such as use of animal underpasses and culvert requirements
for fish passage
Cont....
• The EA process can provide many benefits to the road builder, local
agencies, and the communities who will be affected by road construction
and maintenance activities.
• The process and resulting reports are tools that road managers can use to
guide their decisions, produce better road designs and maintenance
plans, identify and avoid problems, and gain public support for their
activities.
• An EA document can be long and complex for major, potentially high
impact projects, or it may only be a few pages long for a simple road
project presents an eight-step process that is useful for doing
Environmental Analysis.
The Eight Steps of Environmental Analysis Process and Its Associated Outputs
1. Identify the Project: Identify the purpose and need of the proposed action.
2. Scoping, identify the issues, opportunities, and effects of implementing
3. Collect the probable effects of project implementation and Interpret Data .
4. Design of the Alternatives. Consider a reasonable range of alternatives.
• Usually at least three alternatives are considered.
• Include a No-Action Alternative.
• Consider the mitigation of negative impacts.
5. Evaluate Effects, predict and describe the physical, biological, economic,
and social effects of implementing each alternative.
• Address the three types of effects --Direct, Indirect, and Cumulative.
6. Compare alternatives, measure the predicted effects of each alternative
against evaluation criteria.
7. Select preferred alternative and allow review and comment by the affected
and interested public.
8. Implement selected alternative and ensure that EA mitigations are followed.
Annex: Project Analysis Techniques
Techniques of Valuing a project
90
Net Present Value (NPV)
n
Rt
NPV C0
t 1 (1 k )
t
92
Example: The initial investment of a project is ETB 60,000.
Find the NPV of the project if the discount rate is 10%, and
the yearly cash flow is given below.
0 -60,000 1 -60,000
1 6,000 0.909 5454
2 20,000 0.826 16520
3 30,000 0.751 22530
4 40,000 0.683 27320
5 4,000 0.621 2484
Total NPV 14,308
94
Internal Rate of Return (IRR): Is the rate of
discount that equates the present value of future net cash
flows equal to the initial investment cost of the project.
n
Rt
t 1 (1 k *)
t
C0
96
Example:
Find the IRR of a project with 20,000 initial investments, the cost of
capital of 12 % and with the following table of cash flows.
Year 1 2 3 4
Cash flow 6000 6000 8000 9000
97
Try to compute the NPV with 12% discount rate.
99
IRR continued...
IRR=r1 + ((r2-r1)(NPV1/NPV1-NPV2)
Other option:
However, the exact percentage can be computed
using interpolation techniques as:
Present value at 15% = 20167
Present value at 16% = 19656
Difference = 511
Therefore, we get the percentage difference of: [1-
(511-167)/511=0.33
Adding this number to 15%, we get the IRR
approximately 15.33%.
101
Exercise : Using the data below, calculate the
IRR based on trial and error and interpolation
method
102
Profitability Index (PI) or Benefit Cost Ratio: is the
ratio of present value of future net cash flows to the
initial cost of the project.
n
Rt
(1 k ) t
PI t 1
C0
104
Example: Consider a project with initial investment of Birr
50,000 and the following Cash inflows. Discounting rate is
12%
Year 1 2 3 4
Cash inflow 12500 10000 30000 25000
PV
PI
Co
12500 10000 30000 25000
( 2
3
4
) 50000
(1.12) (1.12) (1.12) (1.12)
1 30,000 25,000
2 40,000 40,000
3 45,000 40,000
4 50,000 50,000
106
Payback Period
The payback period: The length of time required to
recover the initial investment.
Decision Rule: the shorter the payback period, the
more desirable the project is
107
Example
Project Year Cash In flow PV of $1 at PV of cash inflow Cumulative cash
10% savings
0 -10000 1 -10000 -10000
1 5000 0.909 4545 -5455
2 6000 0.826 4956 -499
3 8000 0.751 6008 5509
4 7000 0.683 4781 10290
5 6000 0.621 3726 14016
109
Decision making under risk and
uncertainty
110
Risk and Uncertainty
Risk: A situation where there is more than one
possible outcome to a decision and the probability of
occurrence of each outcome is known
It is important to note that risk refers to the amount of
variability in the outcome as a result of the adoption of a
particular strategy.
Uncertainty: A situation where there is more than one
possible outcome to a decision and the probability of
occurrence of each outcome is unknown
In decision making involving risk or uncertainty
three terms are quite often used. They are:
1. Strategy
2. State of nature
3. Outcome
111
The Terms…
A strategy refers to one of several alternative courses of
action or plans that can be implemented to achieve the
desired goal.
A state of nature refers to the conditions that prevail in
future and which have a significant effect on the success
or failure of the strategy.
The different states of nature that may exist in the future
are: boom, recession, and normal conditions.
Outcome refers to the results which are usually in the form
of profit that come about as a result of implementation of a
strategy.
A payoff matrix lists the outcomes associated with
combinations of each strategy and state of nature.
112
Measuring Risk: Probability Distributions
Probability: Chance that an event will occur
Probability Distribution: List of all possible events and the probability
that each will occur
Expected Value or Expected Profit
n
E ( ) i Pi
i 1
113
Calculation of Expected Profit
114
Discrete Probability Distribution
• List of individual events and their probabilities
• Represented by a bar chart or histogram
Continuous Probability Distribution
• Continuous range of events and their probabilities
• Represented by a smooth curve
115
Discrete Probability Distributions
Project A; E() = 500, Low Risk Project B: E() = 500, High Risk
116
Continuous Probability Distributions
Project A: E() = 500, Low Risk Project B: E() = 500, High Risk
117
Absolute Measure of Risk: The
Standard Deviation
n
(X
i 1
i X ) Pi
2
118
Calculation of the Standard Deviation
Project A
5, 000 $70.71
119
Calculation of the Standard Deviation
Project B
120
Coefficient of variation (CV)
Coefficient of variation (CV) is also known as
Relative Standard Deviation (RSD), is a standardized
measure of dispersion of a probability distribution or
frequency distribution.
121
Relative Measure of Risk: The
Coefficient of Variation (v)
v
Project A Project B
70.71 212.13
vA 0.14 vB 0.42
500 500
122
Decision with uncertainity
123
Example
Say I own land that might contain oil.
oValue of land – 5 million
oDrill for oil – 12 million
oFind oil – 40 million
oFind no oil – 3 million
Decision: sell or drill?
Required:
1. Prepare pay off table
2. Make a decision based on:
i. Expected value (probability distribution)
ii. Maximax approach (best case scenario)
iii. Maximin approach (best worst case scenario)
iv. Minimax regret approach (opportunity cost
approach)
124
Pay off table
Oil Dry
Sell 5 5
125
Decision based on expected value
If chance of finding oil is 0.6
Oil Dry EV
Drill 28 -9 13.2
Sell 5 5 5
Prob. 0.6 0.4
126
Decision based on Maximax approach
127
Decision based on maximin approach
128
Decision based on minimax regret approach
Drill 28 -9 0 [5-(-9)]=14 14
Sell 5 5 (28-5)=23 0 23
Min 14
129
End of Chapter Two!!!
Project Management (MBA 592)
Effekr Effects
Focal Problem
Causes
EXAMPLE of aPROBLEM TREE
Bus company gets a Disabled High cost for
Effekr
bad reputation people hospital care
High number of
bus accidents
Project Objective
Focal problem
Expected results
Causes
Activities
Objective Tree
Ends
Means
Objectives vs. Activities
There is a difference between objectives and activities.
Objectives should describe;
1. Which is the changed situation to acheive
2. What to acheive when the project is completed.
3. What the activities are aiming at
While, an activity is a means to acheive the objective
Example
Objective: Enhanced competence on trade facilitation among
trading partners
Activity: Arrange a seminar on trade facilitation
Objectives Cont...
1. Overall Objectives/ Development Objectives
Several different projects often aiming at the same overall
objectives. Sometimes also called goals
Often Governmental level E.g. Social welfare, economic growth
Time frame: Long term..
2. Project Objective/ Project Purpose :
The main objective that the intervention/project should be able to
achieve.
Solution to the focal problem.
The very reason for implementing a project.
Time frame: Medium term (the length of the project). Purpose
should be “SMART’’
3. Expected results/ immediate objectives:
The results describe the services to be produced by the project.
What services do the beneficiary get access to?
Short term objectives. Directly after the project activities.
Time frame: After the activities have been implemented. Results
should be “SMART”.
LFA Overall Objectives
Long-term social and/or economic benefits, to which the project will
contribute
Not achieved by the project on its own, several projects contribute
States the positive state for the beneficiaries and for the society
Examples:
Improved social welfare
Economic growth in region X
Food supply stabilised
LFA Project Purpose
Project objective:
Increased efficiency in the customs service in country X
Expected results:
1. Enhanced competence on custom related trade
facilitation mesures among customs service staff
2. Strengthened management capacity in the
Customs service
3. Improved customs clearence routines
Expected Outputs:
1. 500 staff members trained on trade facilitation
3. New manuals for customs clearance developed
Staff
Budget
Equipment
Time
Step 6. Inputs/Resource planning
To monitor results
Indicators Measure achievements
• Indicators should be set for all expected results and for the
project purpose (short-term objectives and medium-term
objective).
6. Plan of Resources/Inputs
5. Plan of Activities FEASIBILITY
7. Indicators/measurements
GOAL
PURPOSE
OUTPUTS
ACTIVITIES Inputs
The Logical Framework Matrix
Objectives & Means of
Indicators Assumptions
activities verification
Goal
(Impact)
Purpose/
(Outcome)
Outputs
Means Cost
Activities
What needs to
be fulfilled Pre-conditions
before activities
can start
Summary of the logical framework
Intervention Logic
• Goal
The higher level objective towards which the project is expected to contribute
(mention target groups)
• Purpose
The effect which is expected to be achieved as the result of the project.
• Outputs
The results that the project management should be able to guarantee (mention
target groups)
• Activities
The activities that have to be undertaken by the project in order to produce
outputs.
Cause-effect relationship among objectives at
several levels
Goal
Purpose
Outputs
Impact
Outcome
Assumptions
Outputs Assumptions
Activities Assumptions
Evaluation Criteria
Relevance: The appropriateness of the project objectives to the
problems it addresses and to the physical and policy
environment.
Efficiency: Results achieved at reasonable cost i.e how well
inputs/means have been converted into results in terms of
quality, quantity and time?
Effectiveness: An assessment of the contribution made by the
results to achievement of the project purpose and how
assumptions have affected project achievements.
Impact: The effect of the project on its wider environment. Its
contribution to the objectives for the sector (overall objectives)
Sustainability: Likelihood of the benefits produced by the
project to continue to flow after end of project with particular
reference to ownership, environment, policy support,
institutional capacity and financial support.
Project Management (MBA 592)
1. Deliverable Orientation
• In the WBS below, the elements at the highest level are deliverables
associated with this project.
• As the work is broken down, subcomponents of the primary
deliverables are described as continues down to the lowest where
the work is defined as simple easy-to-understand and easy-to-
manage deliverables that are the responsibility of the single
individual, a single organization or a single function within the-
organization.
Cont...
• The orientation is not by phase, or by checkpoints, but by the deliverables that have to be
produced.
• Example: Let's use the simple example of an office move. Here, the target deliverable is the
organization's completed move to a new facility.
• To accomplish that goal, the organizers have identified the key deliverables as the efforts to (1)
move networks, (2) move equipment, and (3) move personnel:
1.0 Organizational Move
1.1 Network Move
1.2 Equipment Move
1.3 Personnel Move
• Under Network Move, there could be several key deliverables:
1.1 Network Move
1.1.1 Server Move
1.1.2 Backup Systems Move
1.1.3 Workstation Move
• Under Workstation Move, there could be a breakdown either by office group or by other
pertinent deliverables.
1.1.3 Workstation Move
1.1.3.1 Word Processing Workstation Move
1.1.3.2 Data Entry Workstation Move
1.1.3.3 Customer Service Workstation Move
• If those departments are sufficiently large, there might even be cause to break the deliverables
down even further.
1.1.3.2 Data Entry Workstation Move
1.1.3.2.1 Sun Workstation Transfer
1.1.3.2.2 M/S Workstation Transfer
1.1.3.2.3 Mac Workstation Transfer
Fig. Deliverable oriented WBS
207
Cont...
• The other school of thought argues that the lowest level of the WBS
should always feature a "verb-object" or task orientation to describe
the specific work that has to be accomplished.
• The latter approach is more specific in describing these work packages-
the lowest level of the WBS-and how they should be accomplished.
Cont...
2. Task Orientation
• While the deliverable-oriented WBS has become the predominant
approach over the past few years, the task-oriented WBS remains a
favorite among project managers -whose projects are heavily time
dependent and whose organizations- are steadfast in their orientation-
toward “checkpoints" and "gates" that allow for progress-from stage to
stage-or phase to-phase.
• Task oriented work breakdown structures break the work out by task
groupings that either occur within the same timeframe or are related in
function.
• In using the same example we used for the deliverables-oriented WBS,
the only change has been to reflect a time-scaled (or checkpoint-scaled)
orientation.
Cont...
Project Implementation
(Part Four)
Maru Shete (PhD and Assoc. Prof.)
How will approved projects be implemented?
Implementation of approved projects require choosing among different
Organizational Structures.
There are three different project management structures to choose from:
1. Functional organization
2. Projectized or dedicated teams
3. Matrix structure
214
Cont..
In any organizational structure there is Organizational Workflow with
different level of authority, responsibility and accountability.
Authority: the power granted to individuals so that they can make the final
decision
Responsibility: The obligation incurred by individuals in their roles in the
formal organization to effectively perform assignments
Accountability: being answerable for the satisfactory completion of a
specific assignment
Accountability = Authority + Responsibility
215
Functional Organization
When top management decides to implement the projects
with the existing functional hierarchy, it is functional
organizations
Thus, the implementation and coordination of the projects
are managed by functional management.
The project will be part of the working agenda of top
management.
The overall project will be managed following (within)
the normal hierarchy.
One functional area plays a dominate role or has a
dominant interest in the success of the project
216
Functional Organization (Example)
General
Manager
Adminis-
Director Level Engineering Production Sales Marketing Admin.
tration
Division Level
Department Level
217
Cont…
Advantages of Functional Organization
1. No change: Projects are managed within the functional structure of the
organization to administer and complete project. No radical change in
the operations of the parent company. Thus, status quo is maintained.
2. Flexibility: Specialists in different functional units can temporarily
work on the project then return to their normal work.
3. Indepth Expertise: The functional unit is assigned primary
responsibility and in-depth experts within the unit can concentrate on
the most crucial aspects of the project.
4. Easy Post-Project Transition: Normal career paths within a
functional division remain intact. The functional unit worked on it and
they maintained it after being implemented.
218
Cont...
Disadvantages of Functional Organization
1. Lack of Focus: Each functional unit has it own routine
operational work to do. Project responsibilities can easily
be pushed aside in order to meet normal obligations.
Creates delay!
2. Poor Integration: Poor integration across functional teams
as functional specialists tend to be concerned only with
their project responsibilities, not what is best for the total
health of the project.
3. Slow: Decisions have to be circulated through normal
management channels. As project operations are not their
core function, they respond to project concerns slowly.
Thus, takes longer to complete projects!
4. Lack of Ownership: Weak motivation of the resources
assigned to the project as it is not directly linked to their
professional development or advancement. This lack of
ownership discourages a strong commitment to project-
related activities. 219
Organizing Projects as Dedicated Teams
220
Dedicated Project Team (Example)
222
Cont...
224
Matrix Organization Cont…
Participants must spend full time on the project. This ensures a degree
of loyalty.
Horizontal as well as vertical channels exist for making commitments.
Both horizontally and vertically oriented managers negotiate for
resources.
The horizontal line operates as a separate entity except for
administrative purposes.
All managers will have input in the planning process.
The structure requires to have quick and effective methods for
conflict resolution.
It also requires good communication channels and free access
between managers.
225/48
Different Matrix Forms
1. Weak matrix: very similar to a functional approach with the exception
that there is a formal designated project manager responsible for
coordinating project activities.
The project manager acts as a staff assistant who develops the schedules and
checklists, collects information on work status, and facilitates project
completion.
Project managers have indirect authority
Functional managers have full and direct authority over resources
Advantage: likely to improve technical quality as well as a better system for
managing conflicts across projects because the functional manager is in control
of unit resources.
Disadvantage: Functional control over the project is often the cause of poor
project integration.
226
Weak Matrix (Example)
DIVISION MGR.
LEGEND
FORMAL FLOW
PROJECT MGR.
INFORMAL FLOW
227
The Matrix Management Structure (Example)
General
Manager
Project Mgr.
Y
Project Mgr.
Z
228
Modified Matrix Structure (With a Director of Project Management)
General Manager
Project Mgr. X
Project Mgr. Y
Project Mgr. Z
229
Matrix Cont…
2. Balanced matrix: classic structure in which the project manager is
responsible for defining what needs to be accomplished and functional
managers are concerned with how it will be accomplished.
The project manager establishes the overall plan, integrates
completed tasks, sets schedules, and monitors progress
Functional manager is responsible for assigning personnel and
executing their project work per the standards and schedules set by
the project manager.
Both the project and functional managers work closely together and
jointly approve technical and operational decisions.
Power is shared equally between the project and functional manager
Balanced matrix can achieve better balance between technical and
project requirements. However, it is a delicate system to manage due
to sharing authority and resources with a functional manager.
230
Matrix Cont...
3. Strong matrix: project manager controls most aspects of the project
including assignment of functional personnel.
Project manager controls when and what resources do and has final say on major
project decisions
Functional manager has title over the unit and is often utilized as a
“subcontractor” for the project, in this case having more control over specialized
work.
Advantage: Strong matrix is likely to enhance project integration, diminish
internal power struggles, and ultimately improve control of project activities and
costs.
Disadvantage: quality may suffer because functional areas have less control over
the quality of contributions to the project.
231
Matrix Cont...
General Advantages
1. Efficient: Resources are shared across multiple projects within functional
divisions. This reduces duplication of effort as seen in a projectized structure.
2. Strong Project Focus: A stronger focus on projects due to having a designated
project manager. This helps sustain a holistic approach to problem solving which
is often lacking in the functional unit.
3. Easier Post-Project Transition: Since the project organization is overlaid across
functional divisions, specialists maintain ties with their functional group and are
not displaced when a project ends.
4. Flexible: Matrix structure provides for flexible utilization of resources and expert
skill sets within the organization. Depending on the culture and the Matrix
structure, functional units may provide individuals who are entirely managed by
the project manager while engaged on a project. In other cases, the contributions
to the project are managed and monitored by the functional manager.
232
Matrix Cont...
General Disadvantages
Potential weaknesses in a matrix structure is due in great part that it
creates multiple bosses over functional resources. This is a radical
departure from the traditional hierarchical authority system.
Managers who are not indoctrinated to a project style organization may
find it difficult to relinquish or even share their authority over their
staff with a project manager.
Analysis shows that a matrix structure can take 3 to 5 years to reach full
maturity. The disadvantages and problems that follow represent
growing pains along the journey of project maturity
Project management maturity refers to the progressive development of an
enterprise-wide project management approach, methodology, strategy, and
decision-making process. The appropriate level of maturity will vary for each
organization based on its specific goals, strategies, resource capabilities, scope,
and needs.
233
Matrix disadvantage cont...
1. Dysfunctional conflict: Tension between functional managers and
project managers is viewed as a necessary mechanism for achieving a
balance between complex technical issues and unique project
requirements. This tension can be the result of conflicting agendas
(project and operational) and accountabilities (to project and to
operational demands).
2. Infighting: When equipment and resources are being shared between
project and functional activities, it can lead to conflict and
competition for scarce resources. Infighting can occur between
project managers who are vying for the same resources when
concerned about what is best for their project.
3. Stressful: Matrix structures violate the management principle of unit
of command. Project participants take orders from their functional
managers in addition to one or more project managers. Working in a
matrix environment can be stressful to people resources.
4. Slow: The presence of a project manager to coordinate project tasks
should accelerate completion of projects. In practice, however,
decision making can get bogged down as agreements have to be
obtained across multiple functional groups. This is especially true in
balanced matrix. 234
What is the Right Project Mgmt. Structure?
The following Organizational and Project Considerations are
important:
1. Project Considerations
1. How important is project management for the success of the
organization?
If over 75% of work being done involves projects, then the
organization should consider a fully projectized structure.
If the organization performs both standard products and projects,
then a matrix structure would be appropriate.
If the organization has very few projects, then a less formal
arrangement is probably all that is needed (i.e. functional structure).
Finally, dedicated (or projectized) teams could be formed only when
needed or could be outsourced.
235
Cont...
There are seven project-related factors that influence the choice of a
project management structure. This includes:
1. Size of the project
2. Strategic importance of the project
3. Novelty and need for innovation
4. Need for integration
5. Environmental complexity
6. Budget and time constraints
7. Stability of resource requirements
236
Cont...
237
Cont...
2. How available are resources?
Matrix structures share resources across multiple projects and functional
work while at the same time creating legitimate project leadership.
For organizations which have limited resources and cannot afford to tie
up critical personnel on projects, a matrix structure is appropriate.
Alternatively, the organization could create a dedicated team or
outsource the project when internal resources are not readily available.
238
Organizational Culture and Choice of
Project Management Structure
Organizational Culture: refers to a system of shared norms, beliefs,
values, and assumptions which binds people together and becomes a shared
meaning.
Culture reflects the personality of the organization and defines its aspects,
which differentiate its setting from other organizations, even in the same
industry.
Culture provides a sense of identity for its members. The more clearly an
organization’s perceptions and values are stated, the more strongly people
can identify with their organization and feel part of it.
Culture helps legitimize the management system and helps clarify
authority and why authority should be respected.
Culture clarifies and reinforces standards of behavior by defining what is
permissible and inappropriate behavior.
Culture helps create social order within the organization. Customs, norms,
and ideals provide stability and predictability in behavior, essential for an
effective organization.
239
Cont...
According to research, there are 10 primary characteristics that, when
aggregated, capture the culture of the organization. There are:
1. Member identity: employees identify with the organization as a
whole rather with their type of job or their field of professional
expertise.
2. Team emphasis: the degree in which work activities are organized
around groups rather than individuals.
3. Management focus: the degree in which management decisions take
into account the effect of outcomes on people in the organization.
4. Unit integration: the degree to which organizational units are
encouraged to operate in both coordinated or interdependent manners.
5. Control: the degree in which rules, policies, and direct supervision
are used to oversee and control employee behavior.
240
Culture Cont...
6. Risk tolerance: the degree in which employees are encouraged to be
aggressive, innovative, and risk seeking.
7. Reward criteria: the degree to which rewards (promotion & salary
bumps) are allocated according to performance rather than seniority,
favoritism, or other non-performing factors.
8. Conflict tolerance: the degree in which employees are encouraged
to air conflict and criticisms openly
9. Means versus end orientation: the degree in which management
focuses on outcome rather than on techniques or processes used to
achieve those results.
10. Open-system focus: the degree to which the organization monitors
and responds to changes in the external environment
These 10 dimensions provide a composite picture of the
organization’s culture. It becomes the basis for shared feelings across
the organization, how things are done, and the way members are
supposed to behave.
241
Implications of Organizational Culture
for Organizing Projects
Project managers have to interact with the culture of the parent
organization and work well in the subcultures of various departments.
Project managers have to interact with the client or customer
organizations.
Project managers have to interact with other organizations connected
to the project
Project managers have to be able to read and speak the culture they
are working in when developing strategies, plans, and responses that
will be understood and accepted.
Strong correlation between project management structure and the
organizational culture with project success.
242
Cont...
Given the metaphor that culture is a river and a project is a boat
Cultures that are conducive to project management is like paddling
downstream.
Some organizations have such a strong project culture and are project
friendly. In these cases, projects succeed due to the norm of project
commitment, healthy conflict, and committed to the strategies of the
organization.
Toxic cultures is like paddling upstream, which requires more time, effort,
and constant attention to the end goal. These are cultures that discourage
teamwork, have a low tolerance for conflict, and where “getting ahead” is
less about performance and more on relationships with upper management.
243
Cont...
244
Chapter 4: Project Monitoring and
Evaluation/Controlling
Monitoring & Evaluation (M&E)
247
Commonalities of M&E
248
Planning a Monitoring System
2. How?
• Select methods to track indicators/report on progress
Observations, interviews, routine reporting, sentinel sites
Both formal/informal and quantitative/qualitative methods
Decide how information will be recorded systematically and reported
clearly
Consider the time and skills of those who will collect the data
Pretest new monitoring instruments
249
Planning a Monitoring System
250
Planning a Monitoring System
251
Tools for Project monitoring/controlling:
The Earned Value Analysis
What is Earned Value?
• It is a project monitoring and measurement system that:
1. establishes a clear relationship between planned accomplishments and actual
accomplishments
2. reinforces and rewards good planning practices
• Basic concepts of Earned Value Management (EVM)
Each task in a project earns value as planned work is completed
For example, if you were paid on this basis, you would earn $x at key milestones based on the value
of what you have completed (earned value)
Earned value can be compared to actual cost and budgeted cost to determine variance
and predict future performance
• One way of measuring overall performance is by using an aggregate
performance measure called earned value
• A serious difficulty with comparing actual expenditures against budgeted or
baseline is that the comparison fails to take into account the amount of work
accomplished relative to the cost incurred
Cont…
• The earned value of work performed (value completed) for
those tasks in progress is found by multiplying the
estimated percent completion for each task by the planned
cost for that task
• The result is the amount that should have been spent on the
task so far
• The concept of earned value combines cost reporting and
aggregate performance reporting into one comprehensive
chart
Cont…
• Variances on the earned value chart follow two primary guidelines:
Negative means there is a deviation from plan—not good
The cost variances are calculated as the earned value minus some other measure
1. Earned Value (EV):
The value (in person-hours) in terms of your base budget of what you have accomplished at a
given point in time (or, % complete X Planned Value/Cost). In short, budgeted cost of
work performed
2. Actual Cost (AC):
How much work (person-hours) you have actually spent at a given point in time. In short,
Actual cost of work performed
3. Planned Value/Cost (PV/PC):
How much work (person-hours) you planned to have accomplished at a given
point in time (this is from the WBS in your plan). In short, Budgeted cost of
work scheduled
4. Scheduled Time (ST): Schedule for work performed
5. Actual Time (AT): Actual time of work performed
Earned Value: Example
Today
18
14
On Day X:
• PLANNED VALUE (Budgeted cost of the work scheduled, BCWS) =
18 + 10 + 16 + 6 = 50
• EARNED VALUE (Budgeted cost of the work performed, BCWP) =
18 + 8 + 14 + 0 = 40
• ACTUAL COST (of the work performed , ACWP) =
45 (from your project tracking - not evident in above chart)
255
Earned Value: Example
Time (Date)
256
Earned Value: Example
Today
Over
Budget
Cost (Person-Hours)
Behind
Schedule
Time (Date)
257
Variance
• Any schedule or cost deviation from a specific plan.
• Used within an organization to verify the budget and schedule for a project
• Frequently used as a key component of plan reviews and performance
measurement
• Must compare scheduling and budget variance at the same time
• Schedule variance: deviations from work planned – not a measure of changes in
cost
• Cost variance: deviations from the budget – not a measure of work scheduled vs.
work completed
• Example: applying more $$/people to a task may maintain the schedule, but it adds to cost…
schedule on track… over budget on expenses (cost)
258
Variance Analysis
18
14
On Day X:
• PLANNED VALUE (PV) = 18 + 10 + 16 + 6 = 50
• EARNED VALUE (EV) = 18 + 8 + 14 + 0 = 40
• ACTUAL COST (AC) = 45 (from your project tracking)
Therefore:
• Schedule Variance = EV – PV = 40 - 50 = -10 (behind schedule)
• Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan
• Cost Variance =EV - AC = 40 - 45 = -5; Cost overrun
• Cost Performance Index = 40/45 = 0.89, or you are getting an 89¢ return on every $1.00 (or,
person-hour) spent on this project
261
Example
Cost variance = EV – AC
= $1500(2/3) - $1350
= $1000 - $1350
= -$350
Schedule Variance
Schedule variance = EV – PV
= $1500(2/3) - $1500
= -$500
Cost Performance Index (CPI)
CPI = EV/AC
=($1500/(2/3) / $1350)
= 1000/1350
= 0.74
SPI (Schedule Performance Index)
SPI = EV/PV
= ($1500(2/3))/$1500
= $1000/$1500
= 0.67
Estimate to Complete (ETC) and Estimate at
Completion (EAC)
Estimate to complete (ETC) = (PV-EV)/CPI
=(1500-1000)/0.74
= $676
Case 1. Tabulated Summary for Project X (Cumulative values of Project X, a 12 month project, with values to
the end of month 8).
Month PC AC %Comp EV CPI SPI
1 50 50 10%
2 150 80 20%
3 260 200 30%
4 370 300 45%
5 490 420 55%
6 590 510 65%
7 700 635 75%
8 800 780 80%
9 870
10 930
11 980
12 1000
BAC
Notes: Planned Cost (PC); Actual Costs (AC); Percentage Complete (%Comp); and Budget at Completion
(BAC).
Questions:
• Using the information provided in the table above, answer the following
questions.
1. What is the Earned Value at the end of month 8? (5 points)
2. What is the Cost Performance Index (CPI) at the end of month 8? (5
points)
3. What is the Schedule Performance Index (SPI) at the end of Month
8? (5 points)
4. What is the Budget at Completion (BAC) at the end of Month 8? (5
points)
5. Looking at the project as a whole, describe the progress of the
project thus far in terms of predicted schedule and cost implications.
(5 points)
Answers:
1. What is the Earned Value at the end of month 8? (5 points)
• Earned Value (EV)= (% Completed)(Planned Value/Cost); (0.8)(ETB3410)= ETB 2728
2. What is the Cost Performance Index (CPI) at the end of month 8? (5 points)
• Cost Performance Index (CPI)= EV/Actual Cost(AC); 2728/2975= 0.916 (91.6%). A
situation of cost overrun, or for every one birr investment, the return was only 0.916
cents.
3. What is the Schedule Performance Index (SPI) at the end of Month 8? (5
points)
• Scheduled Performance Index (SPI)= EV/PV; 2728/2975=0.8. The project is behind
schedule, i.e the project accomplished only 80% of the job that should have been done
until month 8.
4. What is the Budget at Completion (BAC) at the end of Month 8? (5 points)
• Estimate to complete the work at the end of month 8 (ETC) = (PV-EV)/CPI; (3410-
2728)/0.916= ETB 744.54. This means that the project requires ETB 744.54 to
complete the whole activities planned until month 8. Then, the BAC (EAC) of all the
activities of month 8 will be: AC (ETB 3410)+ ETB 744.54=3719.54
5. Looking at the project as a whole, describe the progress of the project thus
far in terms of predicted schedule and cost implications. (5 points)
• The project requires ETB 3719.54to complete the whole activities planned until month
8 while the budget allocated until this month was ETB 3410. Therefore, the cost
implication due to poor performance: ETB 3719.5 - 3410= ETB 309.54
• The Schedule Variance will be: EV – PV= ETB 62728-ETB3410= ETB -682. Due to late
accomplishment, the project incurred this much additional cost.
Case 2: A project has an original budget of ETB600,000 and after the first 4 months of a
12 months planned project time, the scheduled costs, actual costs and earned values are
as follows:
Performance Time
Indicators
Month 1 Month2 Month 3 Month 4