Project Management

Project
• Project is planned to achieve a specific objective which calls for a
specific authority to implement it.
• Every project ha three attributes:
Input characteristics: Define what the project will consume(require
raw material, energy, manpower, financial resources etc)
Output characteristics: Define what the project will generate.
(production of additional goods, provision of additional resources, etc)
Social-cost benefit characteristics: affect the current equilibrium of
availabilities and non availabilities in an economy.
Search for a business idea
• Industrialisation accelerates economic growth, effects structural changes in
the economy(resource utilization, production functions, income generation,
foreign trade etc).
• Real progress must ultimately depend on industrialisation.
• Choosing an idea
• Idea should give satisfying results to you.
• Develop five or more plan in parallel.
• An entrepreneur has to weigh objectively his intrinsic capabilities in
finalising an idea.
• Suggestion for new products are obtained from all possible sources.
Selection of product
• Selection of right product is very essential for being successful in business venture.(RP->marketable at
reasonable profit).
• Various factor that influence in selecting right product:
Item selected are banned items would considerably weigh favourably or otherwise in the selection of
the product.
Entrepreneurs having substantial amount of experience will be a advantage
Selection of product will be based on degree of profitability.
Concessions from the government for few products.
Many products belongs to priority industries or SSI.
Market for the product plays a significant role.(export market->widens marketing)
Getting license.
Many product carry locational advantages.
Product belong to ancillary unit, it provides a ready demand.
The adoption Process
• It is a process of bringing a change in a buyers attitudes and perception.
• Consumer adoption process includes:
Awareness: A person learns about new idea, product.
Interest: Develops interest in innovation. Demands more information of the
product.
Evaluation: Accumulated information and evidence are weighed in order to
access the basic soundness or worth of the innovation.
Trial: Put the idea into practice.
Adoption: The person now decides to adopt new ideas, product or practice
for continued use.
Product innovation
• Innovation alone assures growth and survival.
• Evolution of new product is a practical business function and is
described as a process product management.
• The process of product planning and development is always adopted
for product innovation.
Four basic types of opportunities for sales
growth
Product planning and development strategy
• Marketers have four alternative ways of bringing about an increase in sales
and profit:
Market penetration: Expansion of sales of the existing product in existing
market by selling more to present customers or gaining new customers in
existing markets.
Market development: Existing product is introduced to new market. It is the
creation of new markets by discovering new applications for existing goods.
Product development: It occurs when a firm introduces new product into
market in which it is well established.
Product diversification: It occurs when firm seeks to enter a new market with
a completely new product.
New product development
process(Innovation Management)
Product planning and development process
• Seven steps:
New product ideas: ideas may be contributed by scientists, customers, deals
etc. we may need ‘n’ number of ideas to get one commercial viable product
Idea screening: evaluate all ideas and inventions.
Concept development and testing: screening process developed to mature
product concepts. Concept testing the company to choose the best among
alternative product concepts.
Business analysis: It is a combination of marketing research, cost benefit
analysis and assessment of competition. It will prove the economic
prospects of new product concept.
Product development programme: three steps:
Prototype development giving visual image of product
Consumer testing of model
Branding, packaging and labelling
Test marketing: It is necessary to find out viability of a full marketing
program for national distribution.
Commercialisation: Finalising features of the product.
Concept of projects and Classification
• Characteristics of a project
Investment pattern
Benefits of gain
Time limit
Location
Project is a economic activity with well defined objectives and having specific
beginning and end. It should be amendable to planning, financing and
implementation as a unit where cost and returns are measurable.
A well planned project includes a correct consideration of alternatives,
identification of key issues, broad participation, compactness and enforceability. It
should be neat , clear-cut and specific.
• It also involves cost investment for the purpose of developing facilities
to provide goods and services.
• It may involves establishment of new plant , provision for additional
educational facilities or it may aim at developing infrastructure
facilities.
• Whatever might be nature of project, a project will involve allocation
and consumption of resources, on one hand and generation of
resources, goods or services on the other.
Project levels
• National level: Where national level investment plans are formulated,
priorities among sectors are established.
• Sector level: priorities for investment within each sector are
determined and issues and problems affecting the development of
the sector are addressed.
• Project level: where individual projects are identified, prepared and
implemented and attention is given to their technical, economic,
financial, social, institutional and other dimensions.
Project classification
• Quantifiable and Non-quantifiable projects
Quantifiable projects are quantitatively assessed in terms of benefits
they are going to make. Eg: Industrial development, power
generation, mineral development etc
Non Quantifiable projects Can not be quantitatively assessed in terms
of benefits they are going to make. Eg: projects involving health,
education and defence
Sectoral Projects
• Agriculture and allied sector
• Irrigation and power sector
• Industry and mining sector
• Transport and communication sector
• Social service sector
• Miscellaneous
Techno-Economic Projects
• Factor-Intensity oriented: on this basis project may be classified as
capital intensive or labour intensive depending on whether large-scale
investment in plant and machinery or human resources involved.
• Causation-oriented classification: Projects are classified as demand
based or raw material based.
• Magnitude oriented classification: Depending upon size of investment
projects are classified as small scale, large scale and medium scale
projects.
Financial Institutions classification
• All India and state financial institutions classify the projects according
to their age and experience and the purpose for which the project is
being taken up.
• New projects
• Expansion projects
• Modernisation projects
• Diversification projects
Service projects
• Welfare projects
• Service projects
• Research and development projects
• Educational projects
Dimensions of a Project
• They become the catalytic agents of economic development.
• They initiates the process of development.
• They have consequences which are long term in nature.
• It provide the framework of the future activities of the enterprises.
• They also shape the future pattern of services.
• Project usually involves substantial financial outlays.
• They also initiates development of basic infrastructure and environment.
• Project commitment can not be reversed.
• Project identification brings the necessary changes in society in course of time.
• Project accelerate the process of socio-cultural development.
Conceptualising the project
Aspects of a project
• Two aspects:
• Preliminary aspects: Analysing the product, its marketing, technical,
financial and economic aspects.
• Feasibility aspect: includes adequate information for decision making
and sometimes even implementation.
The Project Cycle
Project identification:
• Identification of project ideas that appear to represent a high priority to achieve
important development objectives.
Project Preparation :
• Feasibility study should be taken in its principal dimensions technical, economic,
financial, social and so forth to establish the justification of the project.
• Project should be designed in such a way that how they are going to be
implemented. Design of project need to be adopted to local, political,
administrative, economic and cultural conditions.
• Entire project should be objectively appraised.
Project implementation:
• All project identification and preparation work is directed toward facilitating
project implementation and helping to ensure its success. Implementation is a
critical stage of project work.
Ex-Post Evaluation :
• Project cycle does not end with when implementation is completed and the
project goes in to operation.
• Main purpose is to learn lessons for the design of future projects and help ensure
accountability
• It should provide a comprehensive and detailed review of the elements of success
and failure of the project for enhancing the development impact of project work.
Essential Requirements of project objectives
• Specific, not general
• Not overly complex
• Measurable, tangible and verifiable
• Realistic and attainable
• Established within resource bounds
• Consistent with resources available
• Consistent with organisational plans, policies and procedures
Basic objectives of the project
• Maximisation of the market value of equity.
• Maximisation of net present value.
• Maximisation of return.
• Increase in the internal rate of return at low risk.
• Increase in the net present value of monetary flows.
Project features
• Simplicity and clarity.
• Availability of attractive technology to promote the project.
• Integration of basic production services, especially those of input
supply, credit, marketing and extension.
• Compatibility of the project within the existing administrative mix.
Phases of project management
Requirements of phases
Basic tenets of managing projects
• Define the objective of the project
• Determine the constituent tasks
• Identify important milestones.
• Allocate resources to each task.
• Re-evaluate task relationships and scheduling, pinpointing resource
conflicts.
• Execute the project.
Project management processes
Operational management processes
• These activities are ongoing activities with neither a clear beginning
nor expected end.
• Planning: Identifying objectives and devising a workable scheme to
accomplish them.
• Executing: Co-ordinating people and other resources to carry out the
plan.
• Controlling: ensuring that the objectives are met by measuring the
progress and taking corrective actions when necessary.
Additional Project management Processes
• Initiating: Recognising that a project should begin and committing to
do so.
• Closing: Formalising acceptance of the project and bringing it to an
orderly end.
Technical Processes
• These processes vary by application areas.
• These are not discrete.
• Basic process interaction occur within each phase such that closing
one phase provides inputs for initiating the next.
Project Interface Management
• The core competence to manage the integrative system involves
making offs among competing objectives and alternatives in order to
meet or exceed stakeholders requirements.
• With enormous amount of analytical techniques and advent of
information technology, numerous tools have been developed helping
the project management professionals to manage the day to day
activities more efficiently.
Project Identification

vcetputtur ec dept 39
Introduction
• First step of new venture
• It is concerned with collection, compilation & analysis of economic data
for the eventual purpose of locating possible opportunities for
investment & development of such opportunities
• Opportunities according to drucker
• Are of 3 kinds
• Additive: which enables decision maker to better utilise the existing resources
without involving a change in character of business
• This involves minimum disturbance & least risk
• Complementary: introduction of new idea leads to certain amount of change in
the existing structure
• Breakthrough : fundamental changes in both the structure & character of
business
• minimum disturbance & vcetputtur
least risk ec dept 40
Feasibity Report

• Before starting SSI , It is mandatory for the entrepreneur to consult

the director of industries service institute(SISI) in one state
• SISI guides, type of industry to start ,where to start & how to start it
• It suggest line on which project report for the proposed unit should
be submitted
• It also gives valuable information of various incentives available to
small scale industry

vcetputtur ec dept 41
PROJECT FEASIBILITY ANALYSIS
• It includes market analysis, technical analysis, financial analysis and social profitability
analysis(analysis  to find out strength and weakness of the project.
• Analysis consists of 3 factors: market, technical, financial
• Market analysis is the method of screening project ideas as well as means of evaluating
a project feasibility in terms of market
• It covers following areas(market analysis)
• Brief market description including market areas, method of transportation, existing rates
of transport, channel of distribution
• An analysis of past & present demand determination of quantity value of consumption,
identification of the major consumers of the product.
• An analysis of past & present supply determining competitive position of product, selling
price quality & market price

vcetputtur ec dept 42
A technical analysis reviews the technique or
processes to be applied
• Description of the product including specification relating to its physical
mechanical & chemical properties
• Description of selected manufacturing process, shows detailed flow
charts & presenting alternative process
• Determination of plant size & production schedule, includes expected
volume for given time period
• Selection of machinery & equipment includes specifications: equipment
to be purchased, quotation from suppliers, delivery dates etc..
• Identification of plant location & assessment of its desirability in terms
of distance from raw material sources & market
vcetputtur ec dept 43
• A design of plant layout & estimate the cost of erection
• Study of availability of raw materials & utilities including physical
&chemical properties
• Estimate labour requirement
• Determination of type & quantity of waste to be disposed
• Estimate the production cost of project

vcetputtur ec dept 44
Financial analysis
• For project it involves new companies, statement of total project cost,
initial capital requirement cash flow
• For project it involves Supporting schedules for financial projection,
payment period of purchase& expense & element of production cost
• For project it involves Return on investment ,return on equity break
even volume & price analysis
• For project if necessary a sensitivity analysis to identify items which
have substantial impact on profitability or possibly a risk analysis

vcetputtur ec dept 45
Economic feasibility
• General information of project company history, nature of industry
reputation & qualification of the existing or proposed management
• Description of project includes market production, marketing
methods & financial statements
• Miscellaneous information like steps taken for implementation of
project & qualification of technical partner

vcetputtur ec dept 46
Project formulation

vcetputtur ec dept 47
Project Formulation
• Formulation consisting of identification of scope, schedule and budget
for the proposed project. Scope is identified typically through a sketch
prepared by a member of project management.
• Director of PM evaluates the plan, estimates its total project cost and
estimate the elapsed time schedule for the project.
Project formulation
• It is defined as taking a first look carefully & critically at a project idea
by an entrepreneur to build up an all around beneficial to project
after carefully weighing its components

vcetputtur ec dept 49
SEQUENTIAL STAGES OF PROJECT
FORMULATION

50
vcetputtur ec dept
Feasibility analysis
• Project idea is examined from point of view of whether to go in for a
detailed investment proposal or not
• Project idea is examined in context of internal &external constrains 3
alternatives must be considered
• Project idea seems to be feasible
• Project idea seems to be not feasible
• Unable arrive at a conclusion want of adequate data
• If it is feasible we go for second step if not feasible we collect more data

vcetputtur ec dept 51
• Techno-economic analysis:
• Estimation of project demand potential
• choice of optimal technology is made
• This analysis gives the project a platform for preparation of detailed project design.
• Project design & network analysis:
• It defines individual activities which constitute the project & their inter
relationship with each other
• Sequence of events of project is presented
• Project design is heart of project entity
• Time is allocated for each activity.
• It is presented in a form of a network drawing.
• It helps to identify project inputs, finance needed and cost-benefit
profile of the project.
vcetputtur ec dept 52
• Input analysis:
• It asses input requirement during the construction & operation of
project
• Observe the input required for each activity & sum it up to get the
total input requirement on quantitative & qualitative terms
• It includes men, material.
• Financial analysis:
• Estimating project cost, operating cost & fund requirement
• Helps in comparing various project proposal on common sale &
thereby aiding the decision maker
• Analytical tools used are discounted cash flow, cost volume, profit
relationship, ratio analysis

vcetputtur ec dept 53
• Cost benefit analysis:
• Overall worth of project is considered.
• This will consider in national viability point of view.
• It considers costs that all entities have to bear and the benefit connected to it.
• Pre investment analysis:
• Gets formal & final shape.
• The results obtained in previous stages are consolidated to arrive at clear conclusions.
• Project is presented in such a way that project sponsoring body, project implementing
body & external consulting agencies are able to decide whether to accept the
proposal or not

vcetputtur ec dept 54
Project evaluation
• In this we need to consider the total impact of project on economy of
nation
• Socio cost analysis is used
• All cost & benefit can be classified into 3 categorise
• Primary cost & benefits: which will be incurred & will accrue to project
implementing body
• Secondary cost & benefits: benefits accrue to parties other than project
implementing body
• tertiary cost & benefits: include all non quantifiable fill over & multiplier
effects
vcetputtur ec dept 55
 PLANNING COMMISSION GUIDELINES
• In order to process investment proposals and arrive at investment decisions, the planning Commission has
issued guidelines for preparing/formulating industrial projects.
• 1. General information: The feasibility report should include an analysis of the industry AND the past
performance of the industry.
• 2. Preliminary analysis of alternatives:
• The gap between demand and supply for the outputs which are to be produced.
• Data on the capacity that would be available from projects that are in production or under
implementation at the time the report is prepared.

• A complete list of all existing plants in the industry, giving their capacity and their level of production
actually attained.
DEPT EC VCET PUTTUR 56
• 3. Project description: The feasibility report should provide a brief description

of the technology/process chosen for the project.

 Information relevant for determining the optimality of the location chosen should also be included.

 To assist in the assessment of the environmental effects of a project every feasibility report must present
the information on specific points, i.e., population, water land, air, flora, fauna, effects arising out of the
project’s pollution, other environmental destruction, etc.

• 4. Marketing plan: It should contain the following items:

 Data on the marketing plan, demand and prospective supply in each of the areas to be served.

DEPT EC VCET PUTTUR 57

5. Capital requirements and cost: The estimates should be reasonably complete and properly estimated. Information

on all items of costs should be carefully collected and presented.

6. Operating requirements and costs:

• Operating costs are essentially those costs which are incurred after the commencement of commercial

production.

• Information about all items of operating cost should be collected.

• Operating costs relate to cost of raw materials and intermediaries, fuel, utilities, labour, repair and maintenance,

selling expenses and other expenses.

7. Financial analysis: The purpose of this analysis is to present some measures to asses the financial viability of the

project.

• A Performa balance sheet for the project data should be presented.

DEPT EC VCET PUTTUR 58
• 8. Economic analysis: Social profitability analysis needs some adjustments in the data relating to the costs
and return to the enterprise.

• One important type of adjustment involves a correction in input and cost, to reflect the true value of foreign
exchange, labour and capital.

9. Miscellaneous aspects: Other relevant information must be included.

DEPT EC VCET PUTTUR 59

Project design & network
analysis
Introduction
• Execution of project follows planning, scheduling & controlling
• project design
• Enables to identify flow of event which must take place for successful
implementation
• Network techniques help the management of an organisation in
performing these functions effectively & efficiently

vcetputtur ec dept 61
Network analysis:
• A network generally comprises a set of symbols connected with each other in a

sequential relationship with each step making the completion of an event.

• The network diagram and scheduling computations enable the project formulation team to identify
the longest series of activities through the project implementation phase which determines the
project duration
NETWORK
• n/w analysis is a system which plans both large & small projects by
analysing the project activities
• Projects are broken down into simple activities which are arranged in
logical sequence
• It is also decided as which task will be performed simultaneously
which other sequentially

vcetputtur ec dept 63
Importance of network analysis
• Whole project should be considered with reference to sequence of activities &
event
• Event should be thought of in different stream of operation
• Whole project may be put on one network while different segments of project
may be detailed out in separate network for final integration
• Time estimation is made taking into view 2 aspects
• Project in which no previous experience & time estimation based on probabilities
• time estimation may be deterministic
• Cost estimates would depend on project time estimates & change in price of
different factors of production
• The physical progress of the project ,individuality simultaneity of the events

vcetputtur ec dept 64
Network techniques
• In project there are 2 categories of job or activities
• Which can be taken up concurrently
• Which can be taken up only after completing some activities-either
completely or partially
• CPM is widely used in project management as they are very useful in
basic management functions

vcetputtur ec dept 65
 Networking techniques are,
• Program Evaluation and Review Technique (PERT): The PERT is primarily a scheduling technique. It shows

any job or project as a set of processes of operations called ‘activities’ which must take place in a certain

sequence.

• Critical Path Method (CPM): The CPM is a logical mathematical model of the project based upon the optimal

duration required for each activity and optimal use of available limited resources.

• Line of Balance (LOB): Line of balance uses graphic techniques to show the progress achieved on the project

with respect to key events.

• Graphical Evaluation and Review Technique (GERT): The GERT is a more recently used network

• Workshop Analysis Scheduling Programme (WASP): This technique of networking system was developed by

the British Automatic Energy Authority.

Origin of CPM & PERT
• CPM came into existence in 1957

• PERT came into existence in 1958

• Application of pert based on probability estimates, covering those

pessimistic, those optimistic & those considered normal

vcetputtur ec dept 67
Need for n/w technique

• It helps in designing planning coordinating controlling & decision

making in order to accomplish project economically in minimum
available time with limited available resources

• It developed from MILESTONE CHART & BAR CHART

• Because of their limitation it cannot be utilised for large complex
project

vcetputtur ec dept 68
DISADV OF MILESTONE CHART & BAR CHART
• Bar chart becomes cumbersome while dealing with big & complex projects
• Bar chart does not point out which task should be given priority as regards
resources
• Effect of change in schedule cannot be evaluated with the help of bar
chart
• A bar chart neither tells the time at which activity begins & end nor does
it indicate tolerances in activity timing
• PERT is concerned with 2concepts
• Events: it is specific accomplishment that occurs at recognisable point of time &
does not call for either the time or resources
• Activities: it is the work require to complete specific event

vcetputtur ec dept 69
Steps in PERT
• Establishment of objectives
• Schedule work break down in great detail
• Technical & managerial person should begin to work together
• Each person who participates in application of pert to the control of
project should have some basic familiarity with the general nature of
the work & with ultimate objective desired

vcetputtur ec dept 70
SOME AUTHOR ALSO INDICATED
FOLLOWING STEPS
• Development of project network
• Time estimation
• Determination of critical path, event slacks,& activity floats
• Development of project schedule
• Calculation of variability duration & probability of completion in given
time

vcetputtur ec dept 71
• IN PERT time is the basic measure
• Expressed in calendar weeks
• Project should be completed within stipulated optimistic time
• In order to arrive at most reliable estimation of time, 3time
estimates are usually employed
• Optimistic time: it is the shortest time possible if everything goes
perfectly well with no complication, the chance of this optimum
actually occurring might be one in a hundred
• Pessimistic time: it is the longest time conceivable, it includes time
for unusual delays & thus the chance its happening might be only
one in a hundred
• Most likely time: best time what normally would occur

vcetputtur ec dept 72
ADVANTAGES OF PERT
• It determines the expected duration of activities and consequently of the project duration.

• It incorporates risk analysis in project network.

• It determines critical activities in the project.

• It determines the most economical scheduled for fixed project duration.

• It enables optimal allocation of limited resources.

• It gives the mgt the ability to plan the best possible use of resources to achieve a given goal within
the overall time & cost limitation
• It helps mgt to handle uncertainties involved in programmes where no standard time data are
available
• It presses for right action, at right point& at right time in the organisation

vcetputtur ec dept 73
LIMITATIONS OF PERT
• Basic difficulty comes in the way of time estimates for the completion
of activities because activities are non repetitive type.
• This technique does not consider the resources required at various
stages.
• Use of this technique for active control of a project requires frequent
updating & revising the PERT calculations & this proves quite a costly
affair

• The probability distribution of total time is assumed to be normal

which in real life situations may not be true.
vcetputtur ec dept 74
CPM
• It has 2 time cost estimates for each activity
• Normal situation
• Crash situation
• CPM operates on assumption there is a precise known time each
activity in project will take.

vcetputtur ec dept 75
ADVANTAGES OF CPM
• Helps in ascertaining the time schedule.
• With its aid, control by mgt is made easy
• It makes better & detailed planning possible
• It provides a standard method for communicating project plans
schedules time& cost performance
• It identifies most critical elements & thus more attention can be paid
to these activities

vcetputtur ec dept 76
LIMITATIONS OF CPM
• It fails to incorporate statistical analysis in determining the time
estimates

• It operates on the assumption that there is a known precise time that

each activity in the project will take but this may not be true in actual
life

• Difficult to use CPM as controlling device because , one must repeat the
entire evaluation of the project each time when changes are introduced
into the network
vcetputtur ec dept 77
Difference between CPM & PERT

vcetputtur ec dept 78