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Unit II
Project Identification, Selection &
Planning
• Project Identification and Selection: Introduction,
Project
Identification Process, Project Initiation, Pre-Feasibility Study,
Feasibility Studies, Project Break-even point.
• Project Planning: Introduction and need for Project Planning, Project
Life Cycle, Roles, Responsibility and Team Work, Project
• Planning
Mapping of Course Outcomes for Unit II -
Process,
CO2: Work and
Identify Breakdown Structure
select the (WBS)project
appropriate . based on
study and undertake its effective
feasibility
planning.
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Introduction _II
Project life cycle phases
1.Conception phase
2. Definition phase Initiation phase or Selection of a project

3. Planning and organizing

4. Implementation
5.Project clean-up phase

Smt. Kaibai Navale College of Engineering , Vadgaon, Pune

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Introduction-Project Life Cycle
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Project Selection and Identification

1. Project selection: Major decision of top
mgt.
(How to select a project ??????).
 Project selection can be divided into two major activities:
i) Project identification ii) Project appraisal

i. Project identification: Brainstorming (structured- sequential, 20-30 ideas,)

and unstructured.
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Project Identification:
 Project identification starts from an understanding of the mandate, vision and objectives.
 It involves -Identifying environmental problems to be addressed and the needs and interests of
possible beneficiaries and Stakeholders.
 The problems and the most realistic and effective interventions are analyzed, and ideas for Projects
and other actions are identified and screened.

Situation analysis/ problem Analysis :

 An environmental situation needs to be assessed and analyzed. This objective analysis enhances
understanding of the likely causes and linkages between existing problems and the needed actions.
 A Situational analysis based on a scientifically sound conceptual framework generates key actions and
strategies to be applied for the intended project intervention.
 A situation analysis should include analyses of needs, interests, strengths and weaknesses of key
stakeholders and beneficiaries.
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Project Identification and Selection:

Ways to create new product development through different methods

For XYZ Organization

1. informal sessions- engineer and designer with customers-For their problems and needs
-Allow time off scouting time- for technical people to put in their own, pet projects.

2.-Survey your customers.

-Use iterative models: customers group discussing problems- technical people in another room listening and
solving.

3.-Set up an idea vault.

4.-Interaction b/w technical people and supplier - through visits

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Project Identification and Selection:

 During brainstorming
activity:
The management has to be:
Vision for future growth
Receptive
Keep long term objectives in mind
SWOT
Perform preliminary project analysis to assess whether a project proposal is
worthwhile or not.

 Documents like: project / product documents (characteristics of project), feasibility

document (constraints), project concept document (what, how, why - is to be done),
project charter (it formally communicates the initiation of the project, scope, authority,
etc.)
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Project appraisal
Project Identification and Selection:

 Market appraisal: customer (who-needs), market share, current and future competitors- their market
share, aggregate demand, possible pricing options.

 Financial appraisal: Cost of project and means of sources, impact on financial position of the firm,
working capital, cash flows over time, profitability, BEP, net present worth, IRR, PBP,
Risk.
 Ecological: Environmental damage (air, water, noise) restoration measures Economic????????

 Economic: Impacts of project on society. Benefits and costs, distribution of income in society, level of
saving and investments, employment, etc.

 Production factors: Time to complete project, availability of resources, existing production line, energy
requirements and its sources. Expected quality of product. flexibility of operations, connection with
Personal factors:?????? Legal factors:???????
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Project Identification and Selection:
Cash Flow Problem
 The value of 100 Rs./ as on today will not equal to the value of 100 Rs./- on 27-01-2032.
 Reasons:
 Individuals, in general, prefer current consumption to future consumption.
 Capital can be employed productively to generate positive returns.
 Aninvestment of one rupee today would grow to (1 + r) a year hence (r is the rate of return earned
on the investment).
 In an inflationary period a rupee today represents a greater real purchasing power than a rupee a
year hence.

 Most financial problems involve cash flows occurring at different points of time.
 These cash flows have to be brought to the same point of time for purposes of comparison and aggregation.
 Hence you should understand the tools of compounding and discounting which underlie most of what we do in
finance - from valuing securities to analyzing projects, from determining lease rentals to choosing the right
financing instruments, from setting up the loan amortization schedules to valuing companies, so on and so forth.
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Project
TIME Identification
LINES and Selection:
AND NOTATION
 When cash flows occur at different points in time, it is easier to deal with them using a time line.
 A time line shows the timing and the amount of each cash flow in a cash flow stream.
 Thus, a cash flow stream of ~10,000 at the end of each of the next five years can be depicted on a time
line like the one shown in Part A Figure below
 As shown, 0 refers to the present time.
 A cash flow that occurs at time 0 is already in present value
terms and hence does not require any adjustment for time
value of money.
 You must distinguish between a period of time and a point o
in time.
 Period 1 which is the first year is the portion of time line
between point O and point 1.
 The cash flow occurring at point 1 is the cash flow that occu
at the end of period 1.
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Project
 Identification
Finally, the andis Selection:
discount rate, which 12 percent in our example, is specified for each period on the time line and it
may differ from period to period.
 If the cash flow occurs at the beginning, rather than the end, of each year, the time line would be as shown in
Part B .Note that a cash flow occurring at the end of year 1 is equivalent to a cash flow occurring at the
beginning of year 2
 Cash flows can be positive or negative.
 A positive cash flow is called a cash infiow; a negative cash flow, a cash outfiow.
The following notation will be used in our discussion:
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Project Selection
 Methods Models
for selection run on continuum, from highly qualitative or judgmental to quantitative.

 The Screening models should have

1. Realism organization's objectives, constraints on money and resources.
2. Capability: flexible enough to respond to changes in conditions under which projects are
carried out. Comparison of projects should be there (time, technology, commercial aspects)
3. Flexibility: model should allow tax rate and tax laws, building codes.
4. Ease of use: simple enough, help people involved in project roles and functional roles
5. Cost: model should be cost effective
6. Compatability: broad enough to be applied to multiple projects
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Project Selection and evaluation Methods

Methods of project selection/evaluation
 Sacred cow: Senior and powerful people

 Operating necessity: Shortage of power - power generation unit, effluent disposal

 BCG-Boston Consulting Group

 SBU- Strategic Business Unit

 GE/McKINSEY-General
Electric/McKINSEY
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Project Selection and evaluation Methods
Methods of project selection/evaluation
 Boston Consulting Group (BCG) Matrix.- It is a four celled matrix (2 * 2 matrix) developed by BCG,
USA.
 It is the most renowned corporate portfolio analysis tool.
 It provides a graphic representation for an organization to examine different businesses in it's
portfolio on the basis of their related market share and industry growth rates.
 The BCG matrix consists of four cells with market share on the horizontal axis and market growth rate
on the vertical axis.
High Market Share Low
High
Stars Question Marks
Market
Growth rate
Cash Cows Dogs
Low
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Project Selection and evaluation Methods
The BCG matrix classifies businesses in four categories as described below:
• Stars Businesses which enjoy a high market share and a high growth rate are referred to as stars. Though they earn
high profits, they require additional commitment of funds because of the need to make further investments for
expanding their production and sales. Eventually, as growth declines and additional investment needs diminish, stars
become cash cows.

• Question marks Businesses with high growth potential but low present market share are called question marks.
Additional resources are required to improve their market share and potentially convert them into stars. Of course, there
is no guarantee that this would happen – that is why they are called 'question marks'.

• Cash cows Businesses which enjoy a relatively high market share but low growth potential are called cash cows. They
generate substantial profits and cash flows but their investment requirements are modest. The cash surpluses provided
by them are available for use elsewhere in the business.

• Dogs Businesseswith low market share and limited growth potential are referred to as dogs. Since the prospects for
such products are bleak, it is advisable to phase them out rather than continue with them.
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 Project Selection
Broadly -cash andfunds
cows generate evaluation
and dogs, ifMethods
divested, release funds.
 On the other hand, stars and question marks require further commitment of funds.
 Hence, the suggested pattern of capital allocation should be as shown in Part A.
 Conscious efforts should be made to avoid the pattern of capital allocation depicted in Part B of Exhibit 2.6.
 Some firms unwillingly adopt this pattern which leads to the neglect of stars and question marks and
misdirection of surplus funds generated by cash cows into futile efforts to revive dogs.
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Project Selection
Strategic Business and evaluation Methods
 It is :a two dimensional analysis on management of SBU's (Strategie Business Units).
Unit
 In other words, it is a comparative analysis of business potential and the evaluation of environment.
 According to this matrix, business could be classified as high or low according to their industry growth rate and
relative market share.
 Market Share???(Relativ)? = SBU Sales this year / leading competitors sales this year.
 Market Growth Rate = Industry sales this year/ Industry Sales last year
 Stars- Stars represent busıness units having large
market share in a fast growing industry.
 They may generate cash but because of fast
growing market, stars require huge investments to
maintain their leads.
 Net cash flow is usually modest. SBU's located in
this cell are attractive as they are located in a
robust industry and these business units are
highly competitive in the industry.
 If successful, a star will become a cash cow when
the industry matures as shown -
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Project Selection and evaluation Methods
 Cash Cows- Cash Cows represent business units having a large market share in a mature, slow growing
industry.
 Cash cows require little investment and generate cash that can be utilized for investment in other business
units.
 These SBU's/products are the corporation's key source of cash, and are specifically the core business.
 They are the base of an organization.
 These businesses usually follow stability strategies.
 When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be
pursued.
 Question Marks- They require huge amount of cash to maintain or gain market share.
 They require attention to determine if the venture can be viable.
 If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment
strategy can be adopted.
 Most businesses start as question marks as the company tries to enter a high growth market in which
there is already a market-share.
 If ignored, then question marks may become dogs, while if huge investment is made, then they have
potential of becoming stars.
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Project
 Selection
Dogs-Dogs and evaluation
represent busınesses havıng weakMethods
market shares in low-growth markets.
 They neither generate cash nor require huge amount of cash.
 Due to low market share, these business units face cost disadvantages.
 Generally retrenchment strategies are adopted because these firms can gain market share only at the
expense of competitor s/rival firms.
 These business firms have weak market share because of high costs, poor quality, ineffective marketing,
etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to
gain market share. Number of dogs should be avoided and minimized in an organization.

 As a particular industry matures and its growth slows, all business units become either cash
cows or dogs.
 The natural cycle for most business units is that they start as question marks, then turn into
stars.
 Eventually the market stops growing thus the business unit becomes a cash cow.
 At the end of the cycle the cash cow turns into a dog.
 BCG looks at only growth-share, ignores other elements.
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Project Selection and evaluation Methods
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Project Selection and evaluation Methods
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Project Selection and evaluation Methods
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Project Selection and evaluation Methods
General Electric's Stoplight Matrix
 The General Electric Company is highly admired for the sophistication, maturity, and quality of its
planning system.
 It uses a 3x3 matrix called the General Electric's Stoplight Matrix to guide the allocation of resources.
 This matrix calls for evaluating the businesses of a firm in terms of two key issues:
• Business strength How strong is the firm vis-a-vis its competitors?
• Industry attractiveness What is the attractiveness or potential of the industry?
 The commitment of resources to various businesses is guided by how they are rated in terms of the above
two dimensions.
 As shown in Figure, businesses which are favorably placed
justify substantial commitment of funds;
 Businesses which are unfavorably placed call for divestment;
and businesses which are placed in between qualify for modest
investment.
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Project Selection
McKinsey Matrix and evaluation Methods
 Very similar to the General Electric Matrix, the McKinsey matrix has two dimensions viz., competitive
position and industry attractiveness.
 The criteria or factors used for judging industry attractiveness and competitive position along with
suggested weights for them are shown below:
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Project Selection
Once an SBU and
is assessed evaluation
on the Methods
dimensions of industry attractiveness and competitive position, it is placed
in one of the nine cells given in the 3x3 matrix shown in Figure below.
 SBUs judged as 'winners„ justify larger commitment of resources,
 SBUs judged as 'losers' are candidates for disinvestments, and
 SBUs judged as 'question mark' or 'average business' or 'profit producer' call for moderate
commitment of resources.
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Project Selection and evaluation Methods
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Project Selection and evaluation Methods
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Project Selection and evaluation Methods
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Project Success:
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Project Success:

Key indicators of IT project success ???????

1.System quality- easy to use, and they supply quality information.

2.Information quality- the information generated by the IT project must be the info required
by users and be of significant quality that it is 'actionable".

3.Use- IT system must be, problem solving, decision aiding, and networking mechanism.

4.User satisfaction- team must determine user satisfaction.

5.Individual impact- Is decision making faster and more accurate? Is info. more retrievable
and more affordable, and assimilated?

6.Organisational impact- positive impact on entire organization.

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Project Success:

Information Technology Project "Success“-some research

facts
 Software & hardware projects fail at a 65% rate
 Over half of all IT projects become runaways

 Up to 75% of all software projects are cancelled

 Average cost overrun is 45%; schedule overrun is 63%; with only 67% of originālly contracted
features

 47% of IT projects delivered but not used, 29% paid for but not delivered; 19% abandoned
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Project Success:
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Project Success:
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Feasibility study
 A feasibility study -core of the project proposal preparation process
 It helps stakeholders to decide - whether or not to proceed with the project
 Feasibility should be in terms of cost and benefits to be attained from the project
 The feasibility study must provide answers to the following basic questions:

 Does the project conform to the development and environmental objectives and
priorities of the specific country and or region?
 Is the project technically and scientifically sound, and is the methodology the best
among the available alternatives?
 Is the project administratively manageable?
 Is there adequate demand for the project’s outputs?
 Is the project financially justifiable and feasible?
 Is the project compatible with the customs and traditions of the beneficiaries?
 Is the project likely to be sustained beyond the intervention period?
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Pre-feasibility study
Pre-feasibility study is conducted at the project identification stage in order to
assess needs, interests, strengths and weaknesses of the project.
It helps project implementers, stakeholders and sponsors to understand the
viability of the project.
If the project is not viable then it could be rejected or changed as the
requirements.
If it viable then policy planners hope to implement it by conducting a detailed
feasibility study.
Detailed-feasibility study
It is comprehensive and in-depth analysis that explore the, market feasibility,
technical feasibility, Economic feasibility, and financial feasibility, environmental
and legal feasibilities of the project.
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Market feasibility _II

• It is a study conducted for assessing marketability of the project.

• It involves testing geographic locations for a real estate development project
related to parcels of real estate land. Market Feasibility takes into account the
importance of the business in view of demand, market segments, periphery and
alternative products etc.
• Basically 2 issues are addressed:
1.What is the expected aggregate demand for the proposed good or service?
2. What is the market for the proposed good or service?
Major aspects of Market feasibility
1. Current Market Analysis
2. Competition or presence of competing products.
3. Anticipated future market potential.
4. Potential buyers and sources of revenues.
5. Sales projections.
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Technical feasibility _II

 It is an assessment about technical viability of input, processes, output, fields,

programs and procedures related to proposed project or the product.
 The assessment is based on an outline design of system requirements, to
determine whether the company has the technical ability to handle the project.

Major aspects of the Technical

feasibility
1. Location of the project
2. Availability of raw materials
3. Power
4. Man Power
6. Technical Knowhow
5. Management
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Other feasibilities _II

1. Financial : Inspects the financial feasibility of the project

2. Environmental : Inspects the Environmental feasibility of the
project
3. Economical : Inspects the Economical feasibility of the project
5.
4. Social
Legal :: Inspects
Inspects the
the Legal
Socialfeasibility
feasibilityofofthe
theproject
project
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Project Break even Point
 The objective of most private firms is to make profits — or
at least to avoid losses.
 All business firms need to know at what point their sales
revenue or income will permit them to meet all their
obligations — fixed (contractual) and variable (non-
contractual).
 This point is called the breakeven point.
 They are also interested in knowing at what point income
from sales will exceed expenses, thus yielding a profit.
 Break-even analysis, also known as cost-volume-profit
analysis, is a useful tool that permits firms to visualize
more clearly the revenue-cost relationship at different
levels of output.
 It is based on certain concepts used in preparing a variable
budget.
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Project Initiation: The Project Planning

 Planning, in general, can best be described as the function of selecting the enterprise objectives and
establishing the policies, procedures, and programs necessary for achieving them.
 Planning in a project environment may be described as establishing a predetermined course of action
within a forecasted environment.

One of the objectives of project planning is to completely define all work required (possibly through the
development of a documented project plan) so that it will be readily identifiable to each project
participant.

This is a necessity in a project environment because:

● If the task is well understood prior to being performed, much of the work can be preplanned.
● If the task is not understood, then during the actual task execution more knowledge is gained that, in
turn, leads to changes in resource allocations, schedules, and priorities.
● The more uncertain the task, the greater the amount of information that must be processed in order to
ensure effective performance.
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Project Initiation: The Project Planning and Control
System
The boxes at the top
represent the
planning activities,
and the lower boxes
identify the
“tracking” or
monitoring of the
planned activities
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• Failing
The primary benefit
to plan of not to
is planning planning
fail. is that failure will then come as a complete
surprise rather than being preceded by periods of worry and depression.
Consequences of poor planning include:
● Project initiation without defined requirements ● Wild enthusiasm
● Disillusionment ● Chaos
● Search for the guilty ● Punishment of the innocent
● Promotion of the nonparticipants
There are four basic reasons for project planning:
● To eliminate or reduce uncertainty
● To improve efficiency of the operation
● To obtain a better understanding of the objectives
● To provide a basis for monitoring and controlling work
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Project Initiation: The Project General
planning
● Objective: a goal, target, or quota to be achieved by a certain time
● Program: the strategy to be followed and major actions to be taken in order to
achieve or exceed objectives
● Schedule: a plan showing when individual or group activities or accomplishments
will be started and/or completed
● Budget: planned expenditures required to achieve or exceed objectives
● Forecast: a projection of what will happen by a certain time
● Organization: design of the number and kinds of positions, along with corresponding
duties and responsibilities, required to achieve or exceed objectives
● Policy: a general guide for decision-making and individual actions
● Procedure: a detailed method for carrying out a policy
● Standard: a level of individual or group performance defined as adequate or
acceptable
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Project Initiation: The Project Planning and Control
System
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Role,Resonsibilities and Team Work

Project Manager/Executive:
 Traditional role of senior management is as project sponsors/Executives.
 The project sponsor usually comes from the executive levels and are responsible to maintain
executive–client contact.
 The project sponsor will normally transmit cost and deliverables information to the customer,
whereas schedule and performance status data come from the project manager.
 In addition to executive–client contact, the sponsor also provides guidance on:
● Objective setting ● Priority setting
● Project organizational structure ● Project policies and procedures
● Project master planning ● Up-front planning
● Key staffing ● Monitoring execution
● Conflict resolution
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Role,Resonsibilities and Team Work

Project Sponsor Responsibilities:
The role of the project sponsor takes on different dimensions based on the life-cycle phase the
project is in.
During the planning/initiation phase of a project, the sponsor normally functions in an active role,
which includes such activities as:
● Assisting the project manager in establishing the correct objectives for the project
● Providing the project manager with information on the environmental/political factors that
could influence the project’s execution
● Establishing the priority for the project (either individually or through consultation with other
executives) and informing the project manager of the established priority and the reason for the
priority
● Providing guidance for the establishment of policies and procedures by which to govern the
project
● Functioning as the executive–client contact point
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Project Hierarchy/Work
 In planning Breakdown
a project, the project managerstructure
must structure the work into small elements that
are:
● Manageable, in that specific authority and responsibility can be assigned
● Independent, or with minimum interfacing with and dependence on other ongoing
elements
● Integratable so that the total package can be seen
● Measurable in terms of progress
 The development of the work breakdown structure (WBS) is the first step in planning.
 WBS is a product-oriented family tree subdivision of the hardware, services, and data
required to produce the end product and it represents the way in which work will be
performed.
 WBS also considers other areas that require structured data, such as scheduling,
configuration management, contract funding, and technical performance parameters
 The WBS is the single most important element because it provides a common framework
from which:
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Project Hierarchy/Work Breakdown structure
The WBS is the single most important element because it provides a common framework
from which:
● The total program=summation of subdivided elements. ● Planning can be performed.
● Costs and budgets can be established. ● Time, cost, and performance can be tracked.
● Objectives can be linked to company resources in a logical manner.
● Schedules and status-reporting procedures can be established.
● Network construction and control planning can be initiated.
● The responsibility assignments for each element can be established.
Common Six Level Intended Structure

Work breakdown structure for objective

control and evaluation
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Project Hierarchy/Work Breakdown structure

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Organization
Structure
Organization structure consists of three key elements
1. Organizational structure (OS) designates formal reporting relationship, including no of levels,
span of control of managers and supervisors.
2. OS identifies the grouping together of individuals into departments and departments into total
origination
3. OS includes the design of systems to ensure effective communication, coordination, and
integration of efforts across departments.
Forms of organizational structure
 Internal and external organization environment?

 Functional organization: grouping people performing similar activities into departments

 Project organization: grouping people into project teams on temporary assignments

 Matrix organization: companies are structured by creating a dual hierarchy in which functions and project
have equal prominence.
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Organization Structure-Functional
Organization
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Organization Structure-Functional
Organization
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Organization Structure-Functional
Organization
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Organization Structure-Project Organization

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Organization Structure-Project Organization

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Organization Structure-Project Organization

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Organization Structure-Matrix Organization

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Organization Structure-Balanced Matrix
Organization
Organization Structure-Matrix Organization
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Influence on project of organization structure