PROJECT

MANAGEMENT
a
 Project Definition
PROJECT
One shot, time limited goal directed major undertaking requiring
the commitment of various skills and resources( PMI)
Approval for capital investment to develop facilities to provide
goods & services (WB)

PROJECT MANAGEMENT

Is the application of knowledge, skills and techniques to

execute projects effectively and efficiently
PROJECT vs
PROCESS
 Time limited  Ongoing
 Unique  Standardized
 Customer / Orgn focus  Departmental focus
 Temporary assignments  Permanent
 Heterogeneous team assignments
 Complex  Homogenous team
 High risk  Routine
 Low risk
PROJECT, PROGRAMME,
PORTFOLIO
 PROGRAMME: A group of related projects
managed in a coordinated way to obtain benefits
and control not available from managing them
individually.

 PORTFOLIO: A collection of projects or programs

and other work that are grouped together. The
projects or programs of the portfolio may not
necessarily be interdependent or directly related
Organizational level projects
 Companies considering projects fall into two broad
categories:
1. Companies whose core business is completing projects
for others

2. Companies whose core business is something else

looking at projects to do for themselves
 Strategic Choice
 Competitive Necessity
 Operating Necessity
 Other Considerations
Q.
What constitutes a successful project? What factors are used to
measure project success?
Project Triad- PM Success
Dimensions of project Success
 Customer satisfaction
 Business Success
 Market Share
 Efficiency and effectiveness
Project Life Cycle
PROJECT LIFE CYCLE
 Project Idea & Selection
 Project Planning
 Project execution
 Project Closure
PROCESS OVERVIEW

Initiating

Closing Planning

Monitoring
Executing
Control
PMI
Project Management Institute (PMI)
 PMI is the largest and most recognized international

organization for Project Management

 It is the leading organization for Project Management

certification worldwide

 Project Management Professional (PMP)

 Certified Associate in Project Management (CAPM)
 Program Management Professional (PgMP)
 Portfolio Management Professional (PfMP)
PMBOK
1. Project Integration Management
2. Project Scope Management
3. Project Time Management
4. Project Cost Management
5. Project Quality Management
6. Project Communication Management
7. Project Risk Management
8. Project Procurement Management
9. Project Human Resources Management
10. Project Stakeholders Management
Time Distribution of Project Effort
S curve in Project Management

TIME
Conceptualization & Selection
 Two Phases of Ideas

 Generation of ideas
 Evaulation and selection
 Searching for ideas
“Where Good Ideas Come From The Natural History of
Innovation “Steven Johnson
Seven Sources of Innovation – Peter Drucker on
“Entrepreneurship”
 Generation of Ideas in
Organizations

 SWOT

 Portfolio models
 Entrepreneurship Ideas

TRADITIONAL STARTUP
Existing business models
New business models
Limited growth
High growth potential
Technology use limited
Technology driven
More physical investment
More intellectual
Current Profit Focussed

Less innovative
investment
Future Value Focussed

More innovative
 Idea screening for a start-up

Market
Driven
Market driven idea
 Solving the wrong problem
Team
 Mix of idea-oriented and execution-oriented
Business Model
 Marketplace Model
 The Aggregator Model
 Ad Based ( Sponsorship) Model
 Transactional Revenue Model
 Subscription
 Pay-Per-Use ( On Demand)
 Freemium
 The Reverse Auction Model
FUNDING
Must Answer Questions
 How large is your addressable market?
 How fast is the market growing?
 Who’s make up your team?
 What’s your “secret sauce?”
 What are the barriers to entry/competitive advantage?
 What do your 5 year financials look like?
 What’s your path to profitability?
 Who’s your competition and how do you beat them?
 Why can’t TATA / Reliance do this? (or name any big,
established company…)
Project Selection at organizational
Level
Project Screening Process
Basic proposal

Revise
Evaluation on
Abandon
major criteria

Pursue

Detailed proposal

Valuation by
Project Council
Accept

Held in reserve Cleared for funding

Project Selection Process
 Reduces the number of wasteful projects
 Helps identify proper goals for projects
 Helps everyone involved understand how and why a project
is selected
 Help to evaluate approaches when there is more than one
project that can accomplish a goal
Benefit- Cost- Risk Models
( BCR Models)
 The project are to evaluated on

 Total cost of the project

 Benefits derived
 Risk impact
Numeric Models / Financial
Models
 Net Present Value (NPV) – The present value of
Revenues minus the present value of Costs including
initial investment. The higher the NPV, the more
desirable the project.
 Internal Rate of Return (IRR) – The rate at which the
project revenues and costs are equal. The higher the
rate, the more desirable the project.
 Payback Period – The time it takes to recover the
project investment. The shorter the period of time,
the more desirable the project.
Tangibles Vs intangibles
 Tangible costs
 Tangible benefits
 Intangible costs
 Intangible benefits
Non Financial models

 Yes /No model

 Scoring model
 Weighted Scoring model
 Decision Trees
 Utility Theory
 Analytic Hierarchy Process (AHP)
 Technique for Order Processing using
Similarity to Ideal Solution (TOPSIS)
 Simple Additive Weighting (SAW)
Raziya’s Venture
Raziya has decided to be an entrepreneur. She has shortlisted three project
proposals.  
Travel Agency , Coffee shop, Boutique
  She is trying to compare these options on three important parameters namely 
(1) Profitability (2) Easiness (3) Resource availability

Profitability is her main concern followed by Resources and third comes

Easiness.
 
She has evaluated each project proposal on these parameters. Every parameter
is labelled as, “good”, “average” or “poor” depending on how favourable is
that parameter in a particular project idea.
Raziya’s Venture

FACTORS PROJECTS
Travel Agency Coffee shop Boutique

Profitability average Good Good

Easiness Poor poor Good

Resource Good Good Average

Availability
How to derive the factors
 The project council ( senior management) has to
evolve these factors through
 Literature
 Benchmark
 Experts
 Discuss and arrive at a consensus list
 Different lists may be used for different categories
of projects
 Too many or too little are counter productive
Example: P & G practice
 Would not consider a project to add a new consumer
product or product line:
 that cannot be marketed nationally;
 that cannot be distributed through mass outlets (grocery
stores, drugstores);
 that will not generate gross revenues in excess of $—
million; for which Procter & Gamble’s potential market
share is not at least 50 percent;
 and that does not utilize Procter & Gamble’s scientific
expertise, manufacturing expertise, advertising expertise, or
packaging and distribution expertise.
Unweighted Yes /No model

FACTORS PROJECTS
Travel Agency Coffee shop Boutique

Profitability average Good Good

Easiness Poor poor Good

Resource Good Good Average

Availability
SCORES
1 2 2
 Unweighted Yes /No model
Proj 1 Proj2 Proj3
Potential market size y y
No new technical expertise required y y
Ability to manage project with current y y
personnel
No requirement for reorganization y
Rate of return more than 15% after tax y y

Time to break-even less than 3 years y

No Need for external consultants y y
Consistency with current line of business y y

Impact on company image among customers y y y

Impact on company image within the industry y

Total 7 5 6
Unweighted Scoring Model

FACTORS PROJECTS
Travel Agency Coffee shop Boutique

Profitability 2 3 3

Easiness 1 1 3

Resource 3 3 2
Availability
SCORES
6 7 8
 Weighted Scoring Model

WEIG FACTORS PROJECTS

HT
Travel Agency Coffee shop Boutique

3 Profitability 2 3 3

Easiness 1 1 3
1

Resource 3 3 2
2
Availability
SCORES
13 16 16
Analytic Hierarchy Process (AHP)
 Method for ranking decision alternatives and
selecting the best one when the decision maker has
multiple objectives, or criteria
 Pairwise Comparisons

Preference Level Numerical

Value
Compare two Equally preferred 1
alternatives
according to Moderately preferred 3
a criterion
and
Strongly preferred 5
indicate the
preference
Very strongly preferred 7
using a
preference
scale Extremely preferred 9
Pairwise Comparison
 If you put 3 against row A
and Column B, it means
that A is moderately
preferred over B A B C
 If you put 1/5 against row
B and Column C, it means A 1 3 2
that C is strongly preferred
over B
 Any alternative compared B 1/3 1 1/5
to itself, must equally
preferred C 1/2 5 1
AHP Example
Raziya has three potential project alternatives:
Travel Agency , Coffee shop, Boutique
  She is trying to compare these options on three
criteria:

 (1) Profitability (2) Easiness (3)

Resource availability
Ranking the Criteria
 Determine the relative importance or weight of the criteria
 which one is the most important and which one is the least important one
 What is the weightage score for each criteria

Profitability Easiness Resource

Availability
Profitability 1 3 2

Easiness 1/3 1 1/5

Resource 1/2 5 1
Availability
 Developing Weightages for Criteria

 Sum the values in each column of Profit Easy Resource

the pairwise comparison matrices
Profit 1 3 2
Easy 1/3 1 1/5
Resource 1/2 5 1
TOTAL 1.83 9 3.2

 Divide each value in a column by

its corresponding column sum to Profit Easy Resource
normalize preference values Profit 1/ 1.83 = 3/9 = 2/ 3.2 =
 Values in each column sum to 1 0.5455 0.333 0.6250
Easy 0.1818 0.1111 0.0625

Resource 0.2727 0.5556 0.3125

 Average the values in each row Profit Easy Resourc Average

e
 Last column is called Profit 0.5455 0.333 0.6250 0.5012
preference vector ( weightage
score) Easy 0.1818 0.1111 0.0625 0.1185
Ranking each project on each criteria

Profitability
Project Travel Coffee Boutique SCORE

Travel 1 6 1/3 0.2813

Coffee 1/6 1 1/9 0.0599
Boutique 3 9 1 0.6588
 Ranking each project on other
criteria
Easiness
Project Travel Coffee Boutique SCORE
Travel 1 1/4 1/6
0.0899
Coffee 4 1 1/2
0.3236
Boutique 6 2 1
0.5865

Resource Availability
Project Travel Coffee Boutique SCORE

Travel 1 4 6 0.6849
Coffee 1/4 1 3 0.2212
Boutique 1/6 1/3 1 0.0939
Preference scores for projects on each criteria
Criteria wt 0.5012 0.1185 0.3803

Project Profitability Easiness Resource FINAL

Availability SCORE= ∑ Cr
score * wt
Travel

0.2813 0.0899 0.6849 0.4121

Coffee
0.0599 0.3236 0.2212 0.1525
Boutique
0.6588 0.5865 0.0939 0.4354
Decision Tree
 Raziya has decided to start a Boutique. The cost of
setting up a shop is estimated as Rs 20 lakhs. The
profit will depend on the emerging market conditions.
If the future demand is good she can make a net profit
of Rs 5 lakhs per annum for next 10 years. If the
demand is bad, the loss will be 1 lakh per annum.
 According to market analysts, there is 60% chance for
the market demand for apparels to be good.
 Should she take up the project
Decision Tree
 Raziya can employ a market research agency to estimate the
future demand to be good or bad. If the MR agency predicts a
favorable future scenario, the chance for future demand to be
good is 80%
 If the MR agency shows an unfavorable future, the chance for
future demand to be good is only 30%
 The MR agency will charge Rs 5 lakhs for the study. There is
no clue whether the MR agency report will show favorable or
unfavorable future

 What should Raziya do

Project Feasibility Study
PROJECT FEASIBILITY STUDY

 The goal of feasibility assessment is to determine if

it makes good business sense to continue to pursue
the project.
PROJECT FEASIBILITY STUDY
 MARKET FEASIBILITY
 Includes a description of the industry, current market,
anticipated future market potential, competition, sales
projections, potential buyers, etc’
 Leads to Market Planning and Market estimation

 TECHNICAL FEASIBILITY
 Details how you will deliver a product or service
(materials, labor, transportation, location, technology
needed, etc.).
PROJECT FEASIBILITY STUDY

 FINANCIAL FEASIBILITY
 Cost of the project, Means of financing, Projection of
financial statements, Financial appraisal

 ECONOMIC ( SOCIAL) FEASIBILITY

 Going beyond the Financial viability
 Done mainly for public investment

 ENVIRONMENTAL FEASIBILITY
PROJECT FEASIBILITY STUDY
(Optional)
 Strategic
 Will it fit into the owners “scheme of things”
 Synergy with existing set up, Competitive Advantage etc
 Operational
 How does this change the way we do business?
 Schedule
 Is there a deadline to do this? Can we meet that deadline?
 Legal and contractual
 How does this impact existing legal obligations? Does it incur new
obligations?
 Political
 How does it impact the customers, stockholders, suppliers and
employees of our firm?
FINACIAL FEASIBILITY
 COST OF THE PROJECT
 MEANS OF FINANCING
 PROJECTION OF FINANCIAL STATEMENTS
 FINANCIAL APPRAISAL
 RISK ANALYSIS
COST OF THE PROJECT
 Land & Site development
 Building & Civil works
 Plant & Machinery
 Misc Fixed Assets
 Technical know how fees
 Initial training charges
 Preliminary expenses
 Pre operative expenses
 Margin money for WC
 Provision for contingencies
 Initial cash losses
MEANS OF FINANCING
 Equity
 Common equity, preference capital
 Term Loans
 Rupee loans, foreign currency loan
 Debentures
 Plain, Hybrid
 Deferred Credit
 Subsidy
 Incentives
 Others
 Public FD
 Unsecured loans
 Leasing & Hire purchase
 New structures (SPV)
 BOT, Take or pay, forward purchase
Raising equity for Startups
 Personal funds
 Grants, Gifts
 Family/ Friends / Fools ( bootstrapping )
 Angel Investor
 Accelerators
 Crowd Funding
 Venture capital ( Series Funding)
 IPO
APPRAISAL CRITERIA
 NPV
 IRR
 BCR
 NBCR
 PAYBACK PERIOD
 NPV Vs IRR
Project Alpha
Yea Investment Net
r Profit
0 500
1 200
2 200
3 250
4 250
5 300
6 300
Project Beta
Yea Investment Net
r Profit
0 200
1 100
2 100
3 150
4 150
5 200
6 200

Project NPV IRR Payback

@10%
Alpha 387 58% 3 yrs
Beta 501 25% 2 yrs
 Max
  Projects Availble Availability
  A B C D E  
Investment
(Cr) 100 150 200 170 100 300
Manpower
required 5 9 20 17 6 25
Machines
required 2 3 2 1 3 5
NPV 50 75 100 100 60 
Issues in Project Financing
Debt Vs Equity
 FACTORS
 Flexibility
 Risk
 Cost
 Control
 Tax
 Capital structure
Issues in Financing
Debt Vs Equity
 Agency problem
 The information asymmetry will lead to
 Sub optimal decisions
 Moral Hazards
 What will the lenders do
 Recourse
 Convertible loans
 Insurance
Issues in Project Financing
Corporate Finance Vs Project Finance
 The difference is not well defined
 Project finance is normally non recourse
 Project is a separate independent entity
 Cash flows are paid out to owners rather than
reinvesting them back to new projects
Financial Innovations
SPV

Government Share holders

Project Company (SPV)

Lenders Suppliers O & M Contractors

Issues in Project Financing
Corporate Finance Vs Project Finance
 Synergy without merger
 Limited liability
 Better risk management
 Can be off balance sheet
 Higher debt content – lower COC
 Tax benefits
 Flexibility
BREAK EVEN POINT

FIXED COST

UNIT SELLING PRICE – UNIT COST PRICE

• Break even in terms of numbers of

units
• Break even in terms of Capacity
utilization
• Break even in terms of Revenue