Project Analysis & Management

Chapter One

General Introduction
 Meaning and definition of project

• What is a project?
• There is no single comprehensive definition
for a project. It varies, from author to
author, from organization to organization,
based on the nature, objective and other
characteristics of the project.
What Is a Project?

“A project is a temporary endeavor

undertaken to create a unique product or
service.”
service (PMI,2004)
cnt…

Generally project is defined as “ an endeavor

in which human, material and financial
resources are organized in novel way, to
undertake unique scope of work of given
specification, within the constraints of time
and cost, so as to deliver beneficial change
defined by quantitative and qualitative
objective.”
cont…
A project is defined as one shot, time tested, goal
directed, major undertaking requiring the commitment of
varied skills and resources.
A project also described as a combination of human and non
human resources pulled together in a temporary organization
to achieve a specified purpose.
A project is neither a physical objective, nor is it the end
result.
▫ It has something to do with the activities that go on,
which must be the same, whether it is to build a nuclear
power plant or launching a new detergent.
▫ the term “project” may be common, but the “plants” are
not.
 Cont…
•A project first emerges as a concept and follows
various stages, till it gets commissioned.
• Form the point of CONCEPTION to
COMMISSIONING; varying data-flow is required
at the right time to the right people.
•Project management envisages meticulous
planning, effective implementation and
professional management to achieve the
management of time, cost and performance.
Cont…
•components of a project must be precisely defined
as to character, location and time.
Resource
Financial, material, and human
Benefit
 cost savings, increased production, and
institutional development are estimated in advance.
Generally project is:
• “….any series of activities and tasks that:
have a specific objective to be completed within certain specifications
have defined start and end dates
have funding limits (if applicable)
consume resources (i.e., money, people, equipment)
Are multifunctional(cut across several functional lines).” (Kerzner,
2009)
Phases of project
Every project has two phases basically
1st phase
preparation and construction
2nd phase
Operation
Project planning deals with specified tasks,
operations, and activities which must be
preformed to achieve the project goals.
Every project converts the given inputs in to
outputs through the process on implementation.
Program, Project and portifolio
Cont….
Portifolio

• “A grouping of an organisation’s projects,

programmes and related business-asusual
activities taking into account resource
constraints. Portfolios can be managed at an
organisational, programme or functional
level.”
Association for Project Management (2006)
scope
 Features of a project
a. Temporary –
• is not a „going concern.
• is a one-time non-routine activity that has a definite beginning
and a definite end.
b. Unique –
• unique as fingerprints.
• unique in terms of its size, complexity, duration, timing,
location, stakeholders, design, objective and other several
variables.
Generally, projects may found to be similar but no two
projects are exactly alike.
Uniqueness, however, does not mean that there is no
similarity between projects; it rather means that their differences
often outweigh their similarities.
cont…
c. Resources –
 Project involves different resources (human, material,
financial and information.
d. A Single Point of Responsibility.
 have a well-defined responsibility
e. Team Roles.
• is a team work activity of different professionals.
f. Beneficial changes –
• is meant to produce an output and beneficial
outcome.
CHARACTERISTICS OF PROJECT
• (1) Objectives : A project has a set of objectives or a mission. Once the
objectives are achieved the project is treated as completed.
• (2) Life cycle : A project has a life cycle. The life cycle consists of five
stages i.e. conception stage, definition stage, planning & organising
stage, implementation stage and commissioning stage.
• (3) Uniqueness : Every project is unique and no two projects are similar.
Setting up a cement plant and construction of a highway are two
different projects having unique features
Cont…
• (4) Team Work : Project is a team work and it normally consists of
diverse areas. There will be personnel specialized in their respective
areas and co-ordination among the diverse areas calls for team work.
• (5) Complexity : A project is a complex set of activities relating to
diverse areas.
• (6) Risk and uncertainty : Risk and uncertainty go hand in hand with
project. A risk-free, it only means that the element is not apparently
visible on the surface and it will be hidden underneath.
Cont…
• (7) Customer specific nature : A project is always customer specific. It
is the customer who decides upon the product to be produced or services
to be offered and hence it is the responsibility of any organization to go
for projects/services that are suited to customer needs.
• (8) Change : Changes occur through out the life span of a project as a
natural outcome of many environmental factors. The changes may very
from minor changes, which may have very little impact on the project, to
major changes which may have a big impact or even may change the
very nature of the project.
Cont..
• (9) Optimality : A project is always aimed at optimum utilization of
resources for the overall development of the economy.
• (10) Sub-contracting : A high level of work in a project is done through
contractors. The more the complexity of the project, the more will be the
extent of contracting.
• (11) Unity in diversity : A project is a complex set of thousands of
varieties. The varieties are in terms of technology, equipment and
materials, machinery and people, work, culture and others.
Project goals should be:
• S – Specific
• M – Measurable
• A – Agreed upon
• R – Realistic
• T – Time related
• Specific –
• well defined and clear to anyone that has a basic knowledge of the project,
• Measurable –
• how do we know how far away completion is and when it has been
achieved?
• Action-oriented –
• indicate what should be done to achieve the objective,
• Reliable/achievable –
• do we have the resources (human, financial, material, information, time) to make the goal
happen?
• Is the objective achievable with the available resources
• Time-based –
• it should identify a definite target date for completion
Project family tree
• Plan = National/Corporate plan with target for growth.
• Programme = health programme, educational programme, R&D
programme.
• Project = Power plant, hospital, housing project etc.
• Work Package = Water supply, power supply and distribution package.
• Task = Award of water supply contract, construction & foundation.
• Activity = Excavation, laying of cable, preparation of drawing.
 Classification of projects
Base for classification Classification Example
Time Horizon - Long term Power constriction
(project life) - Medium term Factory construction
- Short term Exhibitions & bazaars
Type of output - Products Textiles, soft drinks
- Services Education, health
Locality - National Universities /Tele, h/power
- Regional Elementary schools
Market Sector - International Coffee exports international
- Domestic Air Port.
Any local oriented
Economic - Agriculture Commercial farming
- Industries New soft drink factory
- Service Bank, insurance
Resource use - Capital intensive Beer factory
- Labor intensive Salt mining
 Projects and capital budgeting
•Capital expenditures
Capital expenditure refers to resources an organization
commits to create physical and/or non-physical assets and
capabilities from which a stream of benefits is expected.
•Why Capital expenditure decision often represents the
most important decision in an organization?
•three inter-related reasons
1.Long term effects-The consequence of capital expenditure decision
extends far into the future.
2.Irreversibility-wrong capital expenditure decision cannot be reversed
or reversing
3.Substantial outlay-involve deployment of huge amount of resources –
human, material and financial.
•What are the principal sources that poses
difficulties capital expenditure decision?
a.Temporal spread
b. Uncertainty
c.Measurement problems
Capital budgeting
•Capital budgeting refers to a long-term planning for making and
financing investments that involve capital expenditures and that affect
financial and operating results of an organization for relatively long time
period.
•Stages
1.identify investment options
2.estimate cash flows
3.evaluate each investment option
4.select and approve the appropriate investment option
5.implement the approved investment option
6.perform a post-completion audit
Types of Capital Investment

• Physical-are tangible investment like land, building, plant,

machinery; e.t.c
• Monetary-are financial claims against some parties. Deposits,
bonds, and equity shares are examples of monetary assets.
• Intangible-are not in the form of physical assets or financial
claims. They represent outlays on research & development, training,
market development, franchises and so on that are expected to
generate benefits over a period of time.
Types of capital investments
• A strategic investment is one that has significant impact on the
direction of the firm. MEDROC‟s decision to invest in a passenger
car project may be regarded as a strategic investment.
• A tactical investment is meant to implement a current strategy as
efficiently or as profitably as possible. An investment by Bahir Dar
Textile factory to replace an old machine to improve productivity
represents a tactical investment.
Types of capital investments
•Capital investments are often classified by companies in different
categories for planning and control.
a.mandatory investments,
b.Replacement investments,
c.expansion investments,
d.diversification investments,
e. R&D investments, and
f.miscellaneous investments.
 Cont..
• A mandatory investment is a capital expenditure required to comply
with statutory requirements. Examples of such investments are
pollution control equipment, a faire fighting equipment, medical
dispensary, and a crèche in the factory.
• A replacement investment is meant to replace worn out equipment
with new equipment to reduce operating costs, increase the yield, and
improve quality.
• An expansion investment is meant to increase the capacity to cater to a
growing demand.
• A diversification investment is aimed at producing new products or
services or entering into new geographical areas.
 Cont…
• R &D investments are meant to develop new products and
processes which would sharpen the technological edge of the firm.
• Finally, miscellaneous investments represent a catch-all category
that includes items like interior decoration, recreational facilities, and
landscape.
Project and Plan
 • At a minimum, a project plan answers basic questions about
the project:
• Why? –
• What is the problem or value proposition addressed by the project? Why is it being sponsored?
• What? –
• What is the work that will be performed on the project? What are the major products/deliverables?
• Who? –
• Who will be involved and what will be their responsibilities within the project?
• How will they be organized?
• When? –
• What is the project timeline and when will particularly meaningful points
Project Plan Contents
• Statement of work (SOW) • Risk management plan
• Work breakdown structures • Communications plan
(WBS) • Quality plan
• Responsibility assignment • Verification and validation
matrices plan
• Project schedule
• Resource plans/histograms
• Budget
Project management

• Definition of Project Management

“…the application of knowledge, skills, tools and techniques to project
activities in order to meet stakeholders needs and expectations from a
project.” -(PMI, 1996):PMBOK

“The process by which projects are defined, planned, monitored,

controlled and delivered so that agreed benefits are realised.” –(APM,
2006): APMBOK
• Knowledge, skills, tools & techniques = PM
(1)
Knowledge – formal training outside
organization/ within organization
Skills – developing from experience (PM
practice)
Tools – to facilitate process of making
decision/or meeting requirements
Techniques – to help decision making
process/balanced reflection on project issues
“Hence, successful project management can then
be defined as having achieved the project
objectives:
• Within time
• Within cost
• At the desired performance/technology level
• While utilizing the assigned resources effectively
and efficiently
• Accepted by the customer/User
• With minimum or mutually agreed upon scope
changes”.(Kerzner, 2009)
CHAPTER II - PROJECT CYCLE
Meaning and definition of project life cycle
• There tends to be a natural sequence in the way projects
are planned and carried out.
• Before any project is actually realized it goes through
various planning phases.
• The different stages through which project planning
proceeds from inception to implementation is called
project cycle.
• The main features of this process are:
• information gathering,
• analysis, and
• decision making
 The project cycle
• a process through which a project is implemented from
beginning to end.
• This process is often very complex; however, it can be
decomposed into several stages.
• Dividing project life cycle into phases helps in better
management and control of a project.
• Therefore, projects cycle is a self – renewing cycle
in that new projects may grow out of the old ones in a
continuous process and self – sustaining cycle of
activity.
• A clear understanding of the life cycle of a project:
Permits managers and executives to better control resources to
achieve goals
Facilitates investment promotion and provides a basis for project
decision & implementation
Important to understand the role to be played by different actors
of the project
 Project life cycle models
project life cycle models may differ in their perspective,
emphasis and level of detail.
the common known models are
I. World Bank project life cycle or sometimes called
Baum Cycle (Baum, 1970)
1. identification,
2. preparation,
3. appraisal,
4. implementation and
5. evaluation phases, (after 1978 added)
Model cont.
II. Integrated Project Planning and
Management Cycle IPPMC(Goodman,1988).
Four phases:
phase-1 consisting of planning, appraisal and
design;
phase-2 consisting of selection, approval and
activation;
phase-3 consisting of operation, control and
handover; and
phase-4 consisting of evaluation and refinement.
Models cont..

III. UNIDO project life cycle (Behrens and

Hawranek, 1991)
consisting of:
1.pre investment,
2. investment and
3. operational phases
World Bank Project Cycle (The Baum Cycle)-1970
 WBPC adopted by the World Bank and initially recognized four main
stages, At a later stage (in 1978) the author has added an additional
stage called “Evaluation”
 each stage naturally follows the proceeding one and leads on to the next
 Actually, the division into stages is artificial, but it helps us to
understand that project planning, though a continuous process over time,
has distinct phases and stages.
 Thus, each of Baum’s main stages are discussed briefly next
 1.Identification
The first stage in the cycle is to find potential projects.
• sources of the project
 resource based
• stem from the opportunity to make profitable use of available resources.
 market based”
• arising from an identified demand in home or overseas markets.
 need-based
• to make available to all people in an area of minimal amounts of certain basic material requirements
and services.
 Well – informed technical specialists
 local leaders
 from proposals to extend existing programs.
2. Preparation (pre – feasibility or feasibility studies)
• Once projects have been identified, there begins a process of progressively
more detailed preparation and analysis of project plans.
• It covers the establishment of technical, economic and financial feasibility.
• Decisions have to be made on
• The scope of the project,
• location and site,
• soil and hydrological requirements, project size (farm
or factory size) etc
• Resource base investigations are undertaken and alternative forms of
projects are explored.
• Complete technical specifications of distinct proposals
accompanied by full details of financial and economic costs and
benefits are the out come of the project preparation stage.
• The project now exists as a set of tangible proposals.
 3. Appraisal
 it is a critical review or an independent appraisal to be conducted after a
project has been prepared
 re-examining every aspect of the project plan
• to assess whether the proposal is appropriate and
• sound before large sums are committed.

• Appraisals should cover at least seven aspects of a project

 Technical – Will it work?”
• Verify whether what is proposed will work in the way suggested or not.
 Financial –
• If the money needed by the project have been calculated properly,
• their sources and
• reasonable plans for their repayment
Commercial –
 the way the inputs to be supplied
 the arrangements for the disposal of the products are verified
Incentive –
 Stake holders interest to take part in the project
Economic –
• whether what is proposed is good from the viewpoint of the national economic
development, (affect positive or negative) taken in to account and valued.
Managerial –
• if the capacity exists for operating the project, if the responsible are
given sufficient power and scope to do what is required.
Organizational
• if it is organized internally and externally into units, policy, etc.
 4 .Implementation
• It is the most important part of the project cycle.
• In this stage, funds are actually disbursed to get the project
started and keep running.
• A major priority during this stage is to ensure that the project is
carried out in the way and within the period that was planned.
• Problems frequently occur when the economic and financial
environment at implementation differs from the situation
expected during appraisal
• During this stage many of the real problems of projects are
first identified.
• Recording, monitoring and progress reporting are important
activities during the implementation stage to aware of
difficulties.
 5.Evaluation
The final phase in the project cycle.
Once a project has been carried out, it is often
useful, (though not always done) to look back over
what took place to:
 compare actual progress with the plans
 judge whether the decisions and actions taken were responsible and useful.
 Evaluation is not limited only to completed projects
 It is a most important managerial tool in ongoing projects and rather
formalized evaluation may take place at several times in the life of a
project.
Evaluation cont..
• Who may do evaluation?
Project management
The sponsoring agency
the project’s administrative structure…
• Experience with one project can give rise to new ideas for extension of
the project, repetition, the need for “vertically” associated projects,
which supply, inputs to or process products from this project, and other
ideas which become the seeds or new project proposals.
The Baum cycle (adapted by the world bank in 1970)
 UNIDO – Project Cycle
•This approach is mainly based on the publication of UNIDO (United Nation
Industrial Development Organization) named Guide to Practical Project
Appraisal in 1978.
•Comprises three distinct phases:

1)The pre investment phase,

2)Investment phase and
3)Operational phase phases.
THE PRE INVESTMENT PHASE
A. Project Identification
is the initial stage of a project.
It requires:
• imagination,
• sensitivity to environmental changes, and
• a realistic assessment of what the firm can do
A project idea may originate from multiple sources.
from political commitments of national leaders
as response to crises, emergencies of external threats or
to foreign governments policies and assistance agency
priorities. Identified projects can be for infrastructure,
housing, education, health, and government financial
management, among others.
Preliminary Screening
Pre-Feasibility Study
Content of the Pre-feasibility Study:

1. The structure and objective of the project

2. The nature and size of the demand of the output

3. Availability of materials and human inputs.

4. Basic alternative technologies available and their merits and drawbacks.

Content of the Pre-feasibility Study cntd….

5. Approximate investment and operation costs.

6. Rough estimates of financial and economic returns.

7. Any major factor that have an impact on the project

8. What further information on the technical, financial, economic or institutional aspects of the project

should be acquired through special studies and surveys?

 A pre and feasibility study
• the difference
 being in the degree of detail of the information obtained
 the intensity with which project alternative are discussed.
• similarity
 The structure of a pre – feasibility study should be the same as
that of a detailed feasibility study.

Project Preparation – Feasibility Studies
 should provide all data necessary for an investment decision.

 There is more and sophisticated analysis

 supported by accurate information in the study

 all aspects, technical and non technical, should receive the attention

 without postponing any consideration to a later stage.

 Appraisal and Investment Decision
 The project proposal is submitted to the investment decision makers for a
broad and impartial appraisal.

 Appraisal is the comprehensive and systematic assessment of all aspects of the

proposed project.

 The project is viewed from different perspectives;

 technical, commercial, financial, economic, managerial and organizational.

 It is to ensure that the project represents

 a high priority use of country’s resources and in combination with other policies,
 contributes the maximum possible towards achieving national development objectives.
 After appraising the project carefully, appraisers will decide whether it will be
implemented or not, with or without minor modifications.
 2. THE INVESTMENT PHASE

 begins immediately after the final decision on the project ends

 in earlier stages (pre investment phase)
 there was more thinking and less action
 the quality and dependability of the project are more important
 in the implementation stage
 more action and less thinking is needed.
 the time and cost factor is more critical

THE INVESTMENT PHASE cntd…

 the time when the conclusions reached and the decisions

made are put into action.

Detailed engineering design comprises preparatory work

for site preparation,

the final selection of construction planning and time –

scheduling of factory construction,
the preparation of flow charts, scale drawing and a wide
variety of layouts.
The investment phase is divided into the following stages:

1. Establishing the legal, financial and organizational basis for the

implementation of the project.
2. Technology acquisition and transfer
3. Detailed engineering design and contracting/ Negotiations
 include site preparation final selection of technology construction planning and
time scheduling as well as flow charts and scale drawings
 Negotiations are concerned with legal obligations arising from the
acquisition of technology, construction of buildings, purchase and
installation of machinery, and financing
4. Acquisition of land construction work and installation.

 This involves site preparation construction of buildings and

other civil works, together with erection and installation of
equipment
5. Pre-production marketing
 including the securing of supplies and setting up of the
administration of the firm.
6. Recruitment and training of personnel.
7. Plant commissioning and start-up.
 It links the preceding construction phase with the operational
(production) phase.
3) OPERATIONAL PHASE
 CHAPTER THREE

PROJECT IDENTIFICATION AND

SCREENING
PROJECT IDENTIFICATION
• Project idea identification is the first step towards establishing a
successful venture.
• This stage is about finding potential projects that will result in positive net
present value or that provide benefits for the society.
• This is the starting stage in the project cycle.
• Identification of project idea requires
• imagination, sensitivity to environmental changes
• realistic assessment of what the firm can do. .
• It is interrelated with the government policies, infrastructural developments
and skill of people.
 Pr. ident…..
•Project identification is concerned with collection, compilation and
analysis of economic data for the purpose of locating possible opportunities
for investment and with development of such opportunities.
•Identification is often the outcome of triggering process rather than the
analytical exercise.
•the first stage of any project is conceptualization
• During this part of the work, there is great opportunity for creativity, as the
options open to the emerging project team (which may be nothing more
than an informal group at this point) are identified, discussed and evaluated.
 GENRATION OF IDEAS
• Stimulating the Flow of Ideas
• SWOT Analysis
• is an acronym for strength, weakness, opportunities and threats.
• represents a conscious deliberate and systematic effort by an organization to identify opportunities that can be
profitably exploited by it.
• Clear Articulation of Objectives
• The operational objectives of a firm may be planned to be
one or more of the following:
Cost reduction
Productivity improvement
Increase in capacity utilization etc
Improvement in contribution margin
 Expansion in to promising fields
• A clear articulation and prioritization of objectives helps in channelizing the
efforts of employee and urges them to think more imaginatively.
SURVEY /TIPS FOR PROJECT IDEAS
SURVEY FOR PROJECT IDEAS
Projects can be visualized on the basis of:
• Needs
• to avail certain goods and services to peoples in a
locality.
• Market demand –
• domestic or overseas
• Resource availability
• to make profitable use of available resources
• Technology
• to make use of available technology
• Natural calamity
• Political considerations
 Who can initiate project ideas?
• Technical specialists
 from their experiences of through their research findings,
 common in manufacturing firms where mechanical and industrial engineers working
• Local leaders
 from the suggestions made by local leaders regarding the problems prevailing in the area
 initiate project ideas from already identified or implemented projects. project ideas on irrigation
• Entrepreneurs
 the characteristics of perception of managerial competence and motivation to achieve results
 major sources of industrial and commercial projects.
• Governments: sources of many projects
Sources of Project Ideas:
• Macro Source of Project Idea
• Micro Sources of Project Idea
• Macro /general Sources of Project Idea:
• Also called Sector Sources.
• which is reflected from national, regional and Sectoral
level sources. For example,
• Lack of foreign exchange (trade deficit) requires export oriented
projects or import substitution oriented projects
• Natural disaster such as drought, earthquake or flood requires
resettlement projects and flood control projects like dam
•General opportunity study or Macro study may be
divided into the following three categories:(see
page 5-6)
A.Area Study
B.Industry Study
C.Resource Based Study
• Micro Approach /Specific Opportunities studies / Enterprise Approach:
The Micro Approach is mainly concerned with a review of
investment ideas of industries, investment offices and financial
institutions in both developing and developed countries.
• Specific project opportunity studies are concerned with the initial
identification of general investment opportunities in the form of
products with the potential form of domestic manufacture.(see page
7)
 PRELIMINARY SCREENING
•It is required to eliminate ideas which prima facie are not promising. preliminary
screening weighs a project in terms of the following variables:
1.Compatibility with the Promoter
 It Fits the Personality of the Entrepreneur
 It is Accessible to Him
 It offers him the Prospect of Rapid Growth and High Return on the Invested Capital

2.Consistency with the Government Priorities

 Is the Project Consistent with the National Goals and Priorities?
 Are there any Environmental Effects Contrary to Governmental Regulations?
 Will there be Any Difficulty in Obtaining the License of the Project?
 PRELIMINARY SCREENING
3. Availability of Inputs
 Are the Capital Requirements of the Project within Manageable Limits?
 Can Technical Know-How Required for the Project be Obtained?
 Are the Raw Material Required for the Project Available Domestically at a Reasonable Cost? If the Raw Materials Have
to Be Imported, Will there be Problems?
 Is the Power Supply for the Project Reasonably Obtainable from External Sources and Captive Power Resources

4. Adequacy of the Market

 Total Present Domestic Market
 Competitors and Their Market Share
 Export Markets
 Sales and Distribution System
 Projected Increase in Consumption
 Barriers to the Entry of New Units
 Economic, Social and Demographic Trends
 Patent Protection
 PRELIMINARY SCREENING
5. Reasonableness of Cost
 Cost of Material Inputs
 Labour Costs
 Factory Overheads
 General Administrative Expenses
 Selling and Distribution Cost
 Service Cost

6. Acceptability of Risk Level

 Technological Changes
 Competition from Substitutes
 Competition from Imports
 Governmental Control Over Price and Distribution
 4 Pre-feasibility Studies
• Since formulation of the feasibility study is costly and time consuming task,
further assessment of the project idea is made in a pre-feasibility study.
• In general, the pre-feasibility study involves subjective judgment of the
project in terms of:
• Availability of an adequate market: -
• Project growth potential:
• Investment costs:
• Demand and supply factors:-
• Social and environmental considerations: -
• According to the Guidelines to project planning in Ethiopia (1990) of
Development Projec Studies Authority (DEPSA), the project cycle comprises
three major phases.
• 1. Pre – investment
• 2. Investment and
• 3. Operation