MODULE 3

PROJECT MANAGEMENT
MEANING OF PROJECT

• A project refers to any investment

opportunity which is exploited for
profit.
• It is a collection of linked activities
carried out in an organised manner
with a clearly defined start point and
finished point , to achieve some
specific results that satisfy the
needs of an oganisation as derived
from the organisations current
business plans.
• A project may be defined as a
scientifically evolved work plan
devised to achieve a specific
objective within a specified period of
time.
• The objective may be to create
,expand and develop certain
facilities in order to increase the
production of goods and services in
the community.
DEFINITION
“A project is any scheme or part
of a scheme ,for investing
resources which can be
reasonably be analysed and
evaluated as an independent
unit”
Little and Mirrlees
Characteristics of a project.

• It has clear and specific objective.

• Project is different from routine
business activities
• There are time and financial
constraints
• It requires team work of different
experts and their coordinated efforts.
• Then project involves high degree of
risk and uncertainty.
• It is focused on the customer and
customer expectations.
• It provides a unique opportunity to
learn new skills
• Has to be flexible to accommodate
change as the work proceeds.
• May comprise more than one sub-
project.
• Forces you work in a different way
because the temporary management
role is directly associated with life of
the project.
Objectives of a project
• Maximization of stake holders wealth
or market value of equity share.
• Increased production of goods and
services
• Enlarging the capacity of existing
projects
• Increasing the internal rate of return at
low risk
• They must be consistent with
organisational plans, policies and
procedures.
• They must be measurable, tangible and
verifiable from time to time.
CLASSIFICATION OF PROJECTS

1.Quantifiable and Non-quantifiable

projects
2.Sectoral projects
3.Techno-economic projects
4.Financial institutions classification
5.According to the urgency of the
execution
1. Quantifiable and Non- quantifiable
projects
Classification given by Little and
Mirrless. Quantifiable projects are
concerned with those projects in
which quantitative estimation of
benefits can be made. Eg: industries,
power generation, rail etc
Non quantifiable projects are those
projects where such an estimation or
assessment is not possible.
2. Sectoral projects
Sectoral classification given according
to planning commission of India.
• Agriculture and Allied sector
3. Techno- Economic projects
Three main classification based on this,
a)Factor intensity oriented classification
It involves capital intensive or labour
intensive based industries.
b) Causation oriented
It involves demand based and raw
material based industries. Demand
based means, existence of demand for
certain goods & services makes
demand based industries. Raw
materials availability creates raw
material based industries.
c) Magnitude oriented
4. Financial institutions classification
Projects classified under this category
are, new projects, expansion projects,
diversification projects, modernization
projects.
5. Miscellaneous projects
Under this category projects are
classified into service projects, welfare
projects, educational projects,
research and development projects.
STAGES FOR SETTING UP A UNIT –
PROJECT MANAGEMENT
1.Decision to be self employed
2.Identification of opportunities or
project identification.
3.Selection of the product
4.Project formulation.
5.Selection of ownership form
6.Location and layout of the unit
7.Designing financing scheme
8.Acquiring manufacturing know-how
9.Preparation of project report.
1. Decision to be self employed
By analyzing several factors the person
has to decide whether to become an
entrepreneur or a an employee. If the
person decides to be an entrepreneur
he has analyze several internal and
external factors.
2.Project identification
Project identification is concerned with
the collection, compilation and
analysis of economic data for the
eventual purpose of locating possible
opportunities for investment.
Importance of project identification
• Identified projects become the
catalytic agents of economic
development.
• They initiate employment and income
generation
• They have long term benefits
• Provides guidelines for future activities
of the enterprise.
• Project identification helps in
development of infrastructure
development and environment.
• Project commitments are normally not
revised
3. Selection of the project
Entrepreneur has to decide which
product he has to manufacture based
on;
• Assessing the existing demand in the
domestic and export markets
• Assessing the potential demand
• Availability of substitutes in the market
and their performance.
• Expected demand from big units for
ancillary products.
4. Project formulation
Project formulation refers to the step by
step investigation of resources and
development of project idea. The
objective of project formulation is to
achieve project objectives with
adequate resources and minimum
expenditure.
Elements of project formulation
1.Feasibility analysis
2.Techno economic analysis
3.Project design and network analysis
4.Input analysis
5.Financial analysis
1. Feasibility analysis
This analysis is undertaken to ascertain
the desirability of investing funds in
the development of project idea.
Viability is analyzed based on
technical, financial, marketing,
managerial and other considerations.
If it is positive we will move on to the
next step, if negative we will collect
more information to check again.
2. Techno economic analysis
Its concerned with estimation of project
demand potential and selection of
optimal technology suitable for
achieving the project objectives or
3. Project design and network analysis
Project design defines individual
activities comprising a project and
their inter relationship with each other.
A detailed work plan of the project is
prepared with time allocation for each
activity and presented in a network
diagram. It helps to execute the
project within minimum time and
ensures effective utilization of
available resources.
4. Input analysis
Input analysis is concerned with
identification, quantification and
evaluation of the project inputs. The
5. Financial analysis
This analysis covers estimation of
project costs, operating cost and fund
requirements. Several tools like
discounted cash flow methods, ratio
analysis etc. are used.
6. Social cost benefit analysis
Under this method an analysis of social
costs and benefits is computed for
analyzing the social profitability of the
project. The major aim is know the
impact of project on society.
7. Project appraisal
It is the independent examination of
various aspects on technical,
5. Selection of form of ownership
The form of ownership for small scale
unit can be sole proprietorship,
partnership and private limited
company.
Sole proprietorship starts with own
resources and manages it individually.
It suffers from unlimited liability and
limited resources.
Partnership can be with minimum 2 and
maximum 20 members, its liability is
unlimited
Private limited company with minimum 2
and maximum 50, restriction on
transfer of shares.
6. Location and layout of the unit.
The choice of proper location depends
on considering the principle factors of
business like Men, Machines and
Materials for convenient manufacturing
of goods at least cost.
7. Designing financing scheme
Adequate funds on easier terms and
conditions is the key factor of success
Sources
a.Own funds
b.Borrowings forms friends and relatives
c.Loans from commercial banks for
working capital
8. Acquiring manufacturing know-how
The projects which require technical
knowledge related to implementation
can be acquired from several
government institutions. whether it is
small scale or large scale, government
support can be acquired.
Technical know can be acquired on
several factors like
• Effluent treatment and disposal
• Energy conservation
• Utilization of by-products
Points examined for selection of
technology
• The production technology should be
already tested and beneficial
• If technology not tested, the degree of
risk and success should be calculated.
• The technology should be based on
indigenous raw material and resources,
if imported regular supply of raw
materials should be ensured based on
govt. policies.
• Technology should suit conditions like,
temperature, power skilled labours
availability, transportation and water
• Technology should ensure employment
opportunities, ecological balance and
import substitution.
• Scope for updating of technology should
be ensured.

9. project report
It is a written statement of entrepreneurs
various processes which are necessary
for setting up and managing a new
business venture.
It contains information related to
entrepreneurs qualification, particulars
Contents of a project report
1.General information
• Bio data of the promoter
• Industrial profile
• Organisation structure
• Product details
2. Project description
• Location of enterprise
• Physical infrastructure
• Raw materials, labour, power,
pollution, communication etc.
• Transportation, machinery, capacity of
plant, technology etc.
3. Market potential
Includes details like demand and supply
position, expected price, marketing
strategy, after sales service,
distribution etc.
4.Capital costs and sources of finance
Various financial estimate for arranging
various assets like land, machinery,
raw material, working capital etc and
institutions from which capital is
raised.
5. Assessment of working capital
6. Other financial aspects: like profit,
projected balance sheet etc.
8. No objection certificate
For NOC an entrepreneur has to apply in
District Industries Centre
9. Industrial licensing
10. Project implementation
A time schedule for implementation of
project should be mentioned
11. Registration: registration formalities
has to be fulfilled with District
Industries Centre.
12. Power Connection
The per capita power connection should
be indicated for measuring the
consumption.
13. Arranging finance
An accurate estimation of financial
requirements and methods for
arranging the capital has to be
mentioned.
14. Procuring personnel and their
training
Requirement of right type of personnel
and methods of training them should
be mentioned.
15. Plant layout
Specification of locating machinery in
production plant, which can be product
layout or process layout
• Mixed layout is also selected by
several companies.

16. Obtaining clearance from pollution

control board.
It is mandatory that all major industries
should get environmental clearance.
For this an Environment Impact
Assessment is conducted which
identify, predict, interpret and
communicate information about the
impact of an action on the health and
well being of people. Based on this
studies a no objection certificate must
be obtained from pollution control
Project appraisal
Project appraisal is an attempt to
examine the proposed project from
economic, technical, marketing,
managerial and operational angles.
A comprehensive appraisal of a project
covers Break Even analysis.
BEP: It explains a sales break even
where there is no profit or loss. Beyond
the point there is profit and below this
point the enterprise will incur loss.
Project life cycle
Like humans projects also have different
stages of life cycle. They are;
1.Pre investment phase
It is the first phase of project which
starts with germination of project idea.
Here the entrepreneur may be
visualizing any situation to solve a
problem which will lead to conceiving
of project idea.
2. Construction phase
At this phase the entrepreneur invests
his resources for trial run and starting
of his project. Here he specifies the
assets required for his venture.
3. Normalization phase
The objective of this phase is to produce
goods for which project was set up.
The assets procured during the second
phase is utilized at this phase.

PROJECT – MANAGER ROLE &

RESPONSIBILITIES
A project manager is concerned with
identifying the project, arranging and
employing requisite resources in order
to ensure attainment of the goals
stipulated in the project within defined
period of time.
Responsibilities of a project manager
1.Concerning the project
2.Defining the project
3.Planning and organizing the project
4.Implementing the project
5.Follow up.
1. Concerning the project
Here the project manager’s
responsibility is generation of project
idea. The ideas can be generated from
various sources like;
• Studying potential demand
• Emerging trends in demand
• Success stories of entrepreneurs
• Professional magazines or trade
journals
• Government schemes.
2. Defining the project
Here manager develops a document
containing various details covering
different aspects essential for lending
institutions for taking their decision
regarding funding of the project.
3. Planning and organizing the project
Project manager has to plan and
organize various activities and the
sequence in which these activities will
be carried out for attainment of
enterprise objectives.
4. Implementing the project
It is actual implementation of business
which covers, plant layout, machinery,
5. Follow up
Manager is expected to make appraisal
of actual operations with regard to
what was expected and what is
actually achieved.

NETWORK ANALYSIS
Network is a combination of activities in
a project. It is a set of symbols
connected with each other in a
sequential relationship, with each step
contributing to the completion of a
project or event.
Delays in the completion of the project
leads to excess costs for the project.
In order to avoid delays in completion,
the activities of the project are
arranged in a sequence so as to
accomplish the project objectives with
minimum cost and resources. This
process is known as ‘project
scheduling’.
Objectives of Network analysis
1.Minimisation of total cost
2.Minimisation of total time
3.Minimisation of cost for a given total
time
4.Minimisation of idle resources
NETWORK TECHNIQUES
1.Programme Evaluation and Review
Technique (PERT)
2.Critical Path Method (CPM)
3.Workshop Analysis and Scheduling
Programme (WASP)
4.Graphical Evaluation and Review
Technique (GERT)
5.Line Of Balance (LOB)
1. Programme Evaluation and Review
Technique (PERT)
PERT is primarily a scheduling
technique. It was first developed as a
management aid for completing
Polaris Ballistic Missile Project in USA
in 1958. it helped in reducing the
completion period of the project from
7yrs to 5yrs. The main objective of
this analysis is to find out whether the
job or project could be finished by a
given date.
Time estimates in PERT
1. Optimistic time
2. Pessimistic time
1. Optimistic Time (to)
This is the minimum time required to
complete an activity when everything
goes on well as planned.
2. Pessimistic time (tp)
It is the maximum or longest time
required to complete an activity or
project when everything goes wrong,
not as planned.
3. Most likely time (tm)
It is the time estimation for a project or
activity on normal circumstances
With help of these time estimations,
average time is calculated
Advantages of PERT
• It determines the expected duration of
activities in a project.
• It incorporates risk analysis of project
network.
• It determines critical activities in the
project.
• It determines most economic schedule
for a fixed project duration
• It enables optimal allocation of limited
resources.
• It makes detailed and better planning.
• It enables the management to take
right action at the right point and at
2. Critical Path Method (CPM)
CPM was the first developed in USA by
the Du Pont Company in 1956. it
resulted in reducing the shut down
period of a chemical company from
130hrs to 90hrs, and saving the cost of
the company.
CPM is used for projects which fairly
estimates time and cost for completion
of activity. It can be effectively used in
production planning, road systems,
traffic schedules, communication
network etc.
CPM mainly uses two time- estimates,
one for normal situation and the other
Advantages of CPM
1.It helps in ascertaining the time
schedule of the project.
2.It helps the management to control the
project easily by identifying the critical
activities.
3.It makes better and detailed planning
possible.
4.It helps to practice delegation
effectively.
 • Difference between PERT and CPM
Basis PERT CPM

• Origin • Military • Industry

• Orientation • Event oriented • Activity
• Time estimate • Three time oriented
estimate • Single time
• Emphasis • Time based estimate
• Model • Probabilistic • Cost based
• Critical model • Deterministic
activities • No separation model
as critical and • It marks
non critical critical
• Crashing
activities activities
• Crashing not • Crashing is
applied applied
PROJECT APPRAISAL
Project evaluation/ appraisal is the
analysis of costs and benefits of a
proposed project with a goal of
assuring a rational allocation of limited
financial resources amongst alternate
investment opportunities with the
objective of achieving specific goals.
Objectives
• To extract relevant information for
determining the success or failure of a
project.
• To apply standard yardsticks for
determining the rate of success or
failure of a project.
Various aspects of Project
Appraisal.
1.Economic appraisal
2.Technical appraisal
3.Financial appraisal
4.Managerial appraisal
5.Operational appraisal/ market
appraisal
6.Environment appraisal.
1. Economic appraisal
Economic appraisal is made to find out
as to whether the benefits associated
with the project are more than the
project cost for justifying investment
made on it.

SCBA is a method referred for economic

analysis based on investment.

The economic appraisal should cover as

to whether the project fits into
national priorities, contributes to the
development of desired sector of
economy and other benefits Justify
Why SCBA is needed for economic
appraisal
1.For evaluating investments
SCBA is used for evaluating public and
private investments.
2. Evaluating individual projects
SCBA is used in evaluating individual
projects where government can make
decisions regarding which sector they
have to make investments.
3. External aspects
SCBA analysis not only evaluates the
benefits of the project but also the
adverse effects of the project. Like
4. Taxes and subsidies
In financial analysis, taxes are
considered as monetary costs and
subsidies are treated as monetary
gains. But in SCBA taxes and subsidies
are considered as transfer payments
and hence considered irrelevant.
5. Consumption and savings
A Rupee of benefits saved is deemed
more valuable than a Rupee of benefits
consumed. The concern of the society
for savings and investment is duly
reflected in SCBA where in a higher
valuation is placed on savings and a
lower valuation is put on consumption.
UNIDO APPROACH
The United Nation Industrial
Development Organization (UNIDO)
Approach is a five stage methodology
in SCBA analysis
1.Calculation of financial profitability
measured at market prices.
2.Obtaining the net benefit of the project
measured in terms of economic
prices.
3.Adjustment for the impact of the
project on savings and investment.
4.Adjustment for the impact of the
project on income distribution.
2. Technical appraisal
It covers technical feasibility of the
project which includes the study of
adequacy of the proposed plant and
equipment to produce the products
within the prescribed norms.
Technical feasibility of project covers
following
• Location of the project
• Availability of infrastructural facilities
like, water power, transport,
communication etc.
• Availability of raw material as per
prescribed quantity and quality.
• Technical collaboration arrangements
made if any and their details.
• Size of the project or scale of operation
• Layout of the plant
• Rate of obsolescence.
3. Financial appraisal
Appraisal of financial aspects of a
project involves, cost of the project,
means of financing the project, cost of
production and profitability, cash flow
estimates, projected balance sheet.
4. Managerial aspects
Success or failure of a management
mainly depends on the management. In
assessing managerial competence, the
abilities of the promoters are to be
judged with reference to their
educational background and
experience.
5. Operational/ market analysis
Market appraisal is made about the
marketability of the products, the
points to be considered are,
• The size of the market and its growth
• The gap between demand and supply
6. Environment appraisal
Environmental analysis is done to check
whether the project has any adverse
effect on environment. And does the
project has mentioned any remedial
methods.
Project appraisal Techniques