Module: 05

Establishing An Enterprise and Project Management

Project
‡A temporary endeavor undertaken to create a unique product or service. ‡Defined as scientifically evolved work plan devised to achieve a specific objective with the specified period of time

Project Management:
The application of knowledge, skills, tools, and techniques to project objectives to meet stakeholder needs and expectations.

Characteristics and features
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Investment patter Benefits of gains location Objectives Life span Single entity Team work Life cycle interrelated Uniqueness ‡ Change ‡ Successive principles ‡ Made to order or customer specific ‡ Unity in diversity ‡ High levels of subcontracting ‡ Risk and uncertainty

Knowledge Areas:
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Scope Management Time Management Cost Management Quality Management Human Resources Management Communications Management Risk Management Procurement Management Integration Management

Implementation 5. Definition stage or project formulation 3.Project life Cycle Stages 1. Conception Stage or Project Identification 2. Project clean up stage . Planning and Organizing stage or project design 4.

1. Conception Stage or Project Identification ‡ Idea germination ‡ Problem identification ‡ Project identification .

power.2.. Definition stage or project formulation ‡ In this stage the project will develop the idea generated during the conception stage ‡ The areas examined in this stage are (Eg .cement plant) ± ± ± ± ± ± ± ± ± ± ± ± Raw materials Plant size Location Technology Project layout Plant layout Electrical works Civil works Utilities fuel. Manpower Financial Implementation schedule .

3. ± Project infrastructure ± System design ± Licensing ± Identification of project manager . Planning and Organizing stage or project design ‡ Prepare project execution plan ‡ 8% of the work done ‡ Take necessary action for realization of project like.

Implementation ‡ 85% of the work done in this stage .4.

Project Clean-up stage ‡ 3 % effort needed ‡ Drawing.5. operation and maintenance manuals are catalogued and handed over to the customer ‡ Handing over . files. documents.

Project Management and other disciplines ‡ ‡ ‡ ‡ ‡ ‡ Finance HRM Operations Purchase and logistics R&D Marketing .

3. Quantifiable and Non-Quantifiable projects Sector projects Techno-economic projects Financial institutions classification Services projects .Project Classification 1. 2. 4. 5.

1. Quantifiable and Non-Quantifiable projects ‡ Quantifiable projects are those in which a reasonable quantitative assessment of benefits can be made ‡ Non-quantifiable projects are those where such an assessment not possible .

Sector Projects ‡ ‡ ‡ ‡ Agriculture Industry and mining Transport Social services .2.

Causation-oriented classification 2. Techno-economic projects 1. Magnitude oriented classification . Factor intensity oriented classification 3.3.

New projects 2. Financial Institutions classification 1.4. Diversification projects . Expansion projects 3.

Welfare services 2. Services Projects 1. Service projects 3. Educational projects .5.

Project Formulation ‡ Defined as taking a first look carefully and critically at a project idea by an entrepreneur to build up an all round beneficial to project after carefully weighing its carious components .

Phases of Project formulation CONCEPTION OF AN IDEA ANALYSIS OF RELATED ASPECTS FORMULATION OF A PROJECT DESIGN OF A PROJECT .

Operational Objectives .Steps in Project Formulation 1. General Objectives 2.

2. 7. 4.Sequential Stages in Project Formulation 1. 5. Feasibility study Techno-economic analysis Project Design and Network analysis Input Analysis Financial analysis Social cost benefit analysis Pre-investment analysis . 3. 6.

Project Planning ‡ Project Planning ± is a formal. approved document used to manage and control project execution .

Project Plan Development Output of Planning processes in other knowledge areas _______________________ Historic Information _______________________ Stakeholder skills and knowledge _______________________ Organizational Policies _______________________ Limitations and Assumptions P M Project Planning Methodology Project Plan I S .

Project Scope ‡ ‡ ‡ ‡ To whom is the project is prepared The target audience The usefulness the stakeholders .

Project Planning Objectives ‡ To satisfy the stakeholder ‡ To show one s expertise ‡ To get the approval .

. ‡ A feasibility study provides an Investigating function that helps answer Should we proceed with the proposed project idea? Is it a viable business venture? ‡ A feasibility study should be conducted to determine the viability of an idea BEFORE proceeding with the development of a business.What is a Feasibility Study? ‡ A feasibility study is an analysis of the viability of an idea through a disciplined and documented process of thinking through the idea from its logical beginning to its logical end.

technical. such as ± economic. market and financial . technical.Distinction between pre-feasibility study and Feasibility study Pre-Feasibility Study ‡ No thoughts on ± The viability of the project from economic. market and financial point of view Feasibility Study ‡ Deeper knowledge on various feasibility. managerial. managerial. social. social.

Various Feasibility Studies ‡ ‡ ‡ ‡ ‡ Socio-Economic Feasibility Technical Feasibility Managerial Feasibility Market Feasibility Financial Feasibility .

Salaries. and Benefits ‡ Identify and Estimate Project Related Costs ± ± ± ± Infrastructure development or improvements Advertising and Promotion Legal Fees Municipal & State Development taxes ‡ Identify and Estimate all Fixed Costs .Socio-Economic Feasibility ‡ Identify and Estimate all Capital Expenditures ‡ Identify and Estimate all Variable Costs related to the Proposed Business Venture ± Identify People and Skills required to operate ‡ Determine Wages.

Technical Feasibility Manufacturing process/technology selected Technical collaboration Capacity/size of the project/ scale of operation Location of the project Availability of physical and social infrastructure ‡ Plant layout ‡ Factory building ‡ ‡ ‡ ‡ ‡ .

Managerial Feasibility ‡ The levels of Management ‡ Designing about the posting and recruitment ‡ Allocating of power .

Market Feasibility ‡ ‡ ‡ ‡ ‡ ‡ ‡ The target audience Segments of your projects The end users The cost of the project The competitors Market entry Supply chain management .

Financial Feasibility ‡ ‡ ‡ ‡ ‡ ‡ ‡ Capital and operating costs Funds flow Cash flow Ratio analysis Break-even Profitability Investment process .

economic. social etc . financial data and technical details which serves as the basis for carrying out the project successfully ‡ The feasibility report should cover the following important aspects ± all the feasibilities studies such as market. financial.Feasibility Reports presentation ‡ A feasibility report provides primary economic information.

Project Feasibility Report Checklist ‡ ‡ ‡ ‡ ‡ ‡ ‡ Socio-Economic Feasibility Technical Feasibility Managerial Feasibility Market Feasibility Financial Feasibility HR feasibility Operational Feasibility .

Sources of Finance 1. Mid-term finance 3. Long term finance . Short term finance 2.

Public deposits (For existing concerns) 5. Ploughing back of profits Bank credit 1. Issue of debentures Installment credit 3. 3. Issue of debentures 3. Issue of shares 2. Issue of shares Trade credit 2.Sources of Finance Short Term 1. 4. Ploughing back of profits . Loans form financial institutions 4. Medium Term Long Term 1. Loans form banks Customer advances and other financial institutions 4. 2.

Break Even Analysis ‡ Refers to determining the level of activity where total cost is equal to the total sale ‡ Break even is a point of zero profit and zero loss ‡ BEP in terms of sales = Fixed Cost * Total amount of sales Total Contribution .

Utility of BE Analysis ‡ It serves as the most useful and important managerial tool to study cost-outputrelationship at varying levels of output ‡ It is useful in reviewing pricing policies ‡ It aids in planning capitalization of the enterprise ‡ It provides the entrepreneur to decide whether to acquire or not assets involving additional fixed costs .

Strategic business design . testing them ‡ Design is the new weapon and key driver is innovation to fight out the competition ‡ For design to become culturally embedded in an organization three forces have to be considered 1. the entrepreneur is expected to design prototypes. A deeper user understanding 2. Multiple prototyping 3.Project Design ‡ In project design.

Feed it and reward it 7. The future starts today . Make a long term commitment 2. Assign a leader. Collaborative and internalize it 5. but do not limit it to a function 4.Steps in design thinking 1. Inspire. Build it into your corporate strategy 3. don t legislate 6.

which are then arranged in a logical sequence ‡ Network Tools 1. PERT 2. CPM .Network Design ‡ Is a system which plans both large and small projects by analyzing the project activities ‡ Projects are broken down into simple activities.

(1957) for construction of new chemical plant and maintenance shut-down ± Deterministic task times ± Activity-on-node network construction ± Repetitive nature of jobs ‡ Project Evaluation and Review Technique (PERT) ± ± ± ± U S Navy (1958) for the POLARIS missile program Multiple task time estimates (probabilistic nature) Activity-on-arrow network construction Non-repetitive jobs (R & D work) darla/smbs/vit 44 .History of CPM/PERT ‡ Critical Path Method (CPM) ± E I Du Pont de Nemours & Co.

a time consuming effort that is required to perform a part of the work. Nodes  A node is represented by a circle . a point in time where one or more activities start and/or finish.Project Network Network analysis is the general name given to certain specific techniques which can be used for the planning. Activity A task or a certain amount of work required in the project Requires time to complete Represented by an arrow Dummy Activity Indicates only precedence relationships darla/smbs/vit Does not require any time of effort 45 .Indicate EVENT. management and control of projects ‡ Use of nodes and arrows Arrows An arrow leads from tail to head directionally ± Indicate ACTIVITY.

and arrows show precedence relationships Activity-on-arrow (AOA) arrows represent activities and nodes are events for points in time darla/smbs/vit 46 .Project Network ‡ Event ± Signals the beginning or ending of an activity ± Designates a point in time ± Represented by a circle (node) ‡ Network ± Shows the sequential relationships among activities using nodes and arrows Activity-on-node (AON) nodes represent activities.

AOA Project Network for House Lay foundation 2 3 Design house and obtain financing 3 0 1 Dummy Build house 3 1 1 Finish work 1 1 2 4 Select paint 6 Select carpet 7 Order and receive materials 5 AON Project Network for House Lay foundations Build house 2 2 Start 1 3 3 1 5 1 4 3 Finish work 7 1 6 1 Select carpet 47 Design house and obtain financing Order and receive darla/smbs/vitSelect paint materials .

Situations in network diagram B A A must finish before either B or C can start C A C B A B A C D B A must finish before B can start Dummy C D darla/smbs/vit 48 both A and B must finish before C can start both A and C must finish before either of B or D can start both A and C must finish before D can start .

The key question is: How long will it take to complete this project ? darla/smbs/vit 49 .Network example Illustration of network analysis of a minor redesign of a product and its associated packaging.

CPM calculation ‡ Path ± A connected sequence of activities leading from the starting event to the ending event ‡ Critical Path ± The longest path (time). determines the project duration ‡ Critical Activities ± All of the activities that make up the critical path darla/smbs/vit 50 .

time and cost performance ‡ It identifies the most critical elements and thus more attention can be paid to these activities .Advantages of CPM ‡ It helps in ascertaining the time schedule ‡ With its aid. schedule. control by the management is made easy ‡ It makes better and detailed planning possible ‡ It provides a standard method for communicating project plan.

Limitations of CPM ‡ Fails to incorporate statistical analysis in determining the time estimates ‡ It operates on the assumption ‡ It is difficult to use CPM as a controlling device for the simple reason that one must repeat the entire evaluation of the project each time .

the time the activity would take if things did go well darla/smbs/vit 53 .the consensus best estimate of the activity s duration ± optimistic time (to ) .PERT ‡ PERT is based on the assumption that an activity s duration follows a probability distribution instead of being a single value ‡ Three time estimates are required to compute the parameters of an activity s duration distribution: ± pessimistic time (tp ) .the time the activity would take if things did not go well ± most likely time (tm ) .

‡ Analyze the paths through the network and find the critical path. ‡ The length of the critical path is the mean of the project duration probability distribution which is assumed to be normal ‡ The standard deviation of the project duration probability distribution is computed by adding the variances of the critical activities (all of the activities that make up the critical path) and taking the square root of that sum ‡ Probability computations can now be made using the normal distribution table.PERT analysis ‡ Draw the network. darla/smbs/vit 54 .

Determination of critical path. event slacks and activity floats 4.Steps in PERT 1. Development of project network 2. Time estimation 3. Development of project schedule 5. Calculation of variability duration and the probability of completion in a given time .

at the right point and at the right time in the organization .Advantages of PERT ‡ It gives the management the ability to plan the best possible use of resources to achieve a given goal within the overall time and cost limitations ‡ Helps management to handle the uncertainties involved in programmes where no standard time data of the Taylor-Gantt variety are available ‡ It presses for the right action.

It does not consider resources required at various stages of the project 3. The basic difficulty comes in the way of time estimates for the completion of activities because activities are of non-repetitive 2.Disadvantages of PERT 1. Needs frequent updating .

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