Project Management- Initiating &

Planning
Lecture 5-8
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 Idea / Driven by needs as well as strategic plan. How to
Phasing in practice for
need identification
generate ideas? large projects
Project concepts Identifying and analyzing multiple options

Develop preliminary layout plans, study availability of critical resources. Eg. land,
Pre-feasibility coal, water etc., study logistics etc. Preliminary estimates of cost, revenue, benefit.
Select optimal option and get approval.
Establish technical feasibility and financial viability of the chosen option. This
stage can include numerous onsite preliminary studies also. DPR. Project
Feasibility
financials finalization. Project is appraised by Investment Bankers.

Regulatory Clearances by Central, State, Local government

clearances departments as required. Marks a significant
milestone.

All the sources of funds tied up. Marks a

Financial Closure
significant milestone in project life cycle.

Generally termed as Project Development Stage

 Basic design / Basic designs. Specifications, Scope. Project master
Phasing in practice for
Tender engineering
network (Level-1) large projects

Tendering Tender specifications, NIT, Bid evaluation and Contract award. Project
plan as per Level-2 network.

Detailed engineering (designs, construction drawings, construction procedures etc.)

Detailed engineering

Project construction Construction and erection of the project, Control & monitoring at Level
& - 3 or further drill-down level network. Protocols and Punch lists.
Erection

Testing & Moment of truth – has the project showed intended result.
Commissioning

Contracts closing, Handing over of the project and

Closure as built & operations documentation. Completion
certification.
Generally termed as Project Execution Stage
 Project Origination –Need of the Project
• Establish opportunity through PESTLE analysis
• Politico Legal –Industrial policy , taxation regime etc.
• Economic Factors- Growing or sluggish economy
• Social and demographical factors- aging population in Japan
• Technological factors
• Opportunity
• Environmental
• Other factors
• Existing industries , business scenario , inputs and output of industries,
status of imports and exports , Plan outlays and government guidelines,
local material and resources.
Preliminary Project Screening
Factors for Screening
Compatibility with
Promoters Interest,
alignment with Strategy
, Vision and Mission
Conformity with
Risk Government Policy
/ laws of the land

Availability of
Cost
Inputs

Availability of
Market, Value
proposition
Procedure For Screening Alternatives

Based on Two factors

Weightage of the Ranking of Projects on
Screening Factors each Screening Factor
 Attribute Weighted Matrix

Compatibility Inputs Markets Cost Risk Dummy Total

Compatibility X 0 0 0 0 1 1
Inputs 1 X 1 1 1 1 5
Markets 1 0 X 1 1 1 4
Cost 1 0 0 X 1 1 3
Risk 1 0 0 0 X 1 2
Dummy 0 0 0 0 0 X 0
Weightage 1/15 5/15 4/15 3/15 2/15 15
Rating of 4 alternatives A, B, C, D on all Screening
factors

Ranking of Projects on Screening Factors- Say Compatibility

A B C D Total
A X 1 0 1 2
B 0 X 0 0 0
C 1 1 X 0 2
D 0 1 1 X 2
 Total Weighted Matrix
Project Attribute Compatibility Inputs Markets Cost Rank Total Rank

Weightage 1/15 5/15 4/15 3/15 2/15

A Score 2 1 3 0 1 21/15 III
Wt. Score 2/15 5/15 12/15 0/15 2/15
B Score 0 2 1 2 3 26/15 II
Wt. Score 0/15 10/15 4/15 6/15 6/15
C Score 2 3 2 3 2 38/15 I
Wt. Score 2/15 15/15 8/15 9/15 4/15
D Score 2 0 0 1 0 5/15 IV
Wt. Score 2/15 0/15 0/15 3/15 0/15
Project Feasibility

Establishing Viability/ Justification for taking the project.

• Available of suitable market, costs and risks

Involves the following:

• Market Analysis
• Technical Analysis
• Material Inputs
• Financial Analysis
• Environmental Analysis
• Social Cost Benefit Analysis
 Technical Demand and Financial /
Feasibility Market study Economic viability

When all these steps are satisfied the project is feasible

• Technical Feasibility Also called Technical

• Is the project technically feasible? Analysis

• Financial Viability This is also called

• Is the project financially viable? Project Appraisal / Economic viability /
Financial Appraisal
• Is the project worth investing?

Feasibility
 • Pre-feasibility study
• Desktop study to know preliminarily,
if the project is feasible?
• Largely based on secondary data /
available data
• The question it is going to answer- Is
the project worth doing a detailed
feasibility study?
Feasibility studies
• Feasibility study
• Largely based on site specific
preliminary studies and
accompanied with commitments
from input providers
• Objective to assess feasibility of
the project – Technical, Market,
Financial / Economic.
Market Analysis

Asse • Customer Segmentation

ssing • Demand and supply gap
pote • Current market share
ntial
dem
and
• Product- Determining Product Mix
• Price
4 P’s
• Place
of
• Promotion
Mark
eting
Market Analysis

Primary and Secondary Data

Similarity of purpose
Issues
Competent person for data collection
with Method- What is the methodology for collection of responses
secondary Time- is the data current or dated ?
data Sample-representative

Primary research- sample survey

 Technical Analysis

• Technical areas -Manufacturing process and technology, Material inputs and

utilities , Product Mix , Plan Capacity, Location and Layout, Machines and
equipment, civil works and structure, layout and work schedules etc.
• Selection of appropriate technology- decision points- inputs(Design), costs,
reliability , time at hand, training required
• Sources- Inside / Outsourced .
• Outside Sources- Competitors, R&D houses, Experts
• Issues with Technology Use –
• Association / relationship with the provider, Agreement done and costs included.
• Issues with technology transfer and use ( training, use of local material, ecological
impact)
• Timing for the technology to become obsolete.
Material Inputs

• Availability of desired raw material

Financial Analysis
Project Cost
• Land and site development- Regulations/ subsidies
• Preliminary estimate of expenses( To be done for your project)-
• Building- Plinth area basis, account for inflation in the cost ( rough estimation now)
• Cost of Plant and Machinery ( including duties, excise , freight, insurance etc.
• Preliminary expense- for carrying out market survey, feasibility analysis etc.
• Site Development works
• Other fixed assets ( air conditioner, testing equipment etc.)
• Pre-operative expense- establishment expense, travelling expense etc.
• Capital Issue expense
• Provision for contingencies( 5% for firm and 10% for non-firm items)
• Technical know how fees
• Margin money for working capital
Financial Analysis-
Means of Finance
Equity
• Contributed by owners
• Share of risk , reward and liabilities

Preference Capital
• Preference Shareholders
• Paid fixed rate of dividend irrespective of declaration of the dividend
• No voting rights

Term loans
• Secured loans, tax saving

Debentures
• Fixed rate of interest, maturity period
• Interest paid by company is non-taxable

Deferred Credit

Secured Advance and other Miscellaneous Sources

 Total cost

Direct Costs Indirect Costs

Cost of labour Overhead costs

Cost of equipment
(Project staff / Cost of material (Head office / Outage losses
/ services
Workers etc.) Shared resources etc)

Components of project cost

• Direct costs • Other Cost Classifications
• Land and site development
• Buildings and civil works
• Plant and machinery (mechanical, Variable Costs – accelerate or increase
electrical etc.) through usage
• Consulting charges – technical know
Fixed Cost - Cost which are constant
how, engineering fees etc.
throughout the project
• Preliminary and capital issue expenses
• Preoperative expenses (major Normal Vs Expedited costs.
component is Interest During
Construction)
• Miscellaneous fixed assets Recurring Vs Non-Recurring costs
• Provision for contingencies
• Margin Money for Working Capital
• Indirect costs
• Overheads (head office expenses,
shared resources etc.)
Components of project cost
• Is the project worth investing?
• We can use the capex decision criteria or investment criteria

Financial viability
 Financial Analysis

• Expected Profitability and benefit

• Net Present Value
• Calculate the net present value of all the cash inflows. Desired to be a positive
value
 Financial Analysis

Internal Rate of Return – This is the discount rate which makes the NPV
zero

Benefit –Cost Ratio

• Present value of benefits / Initial investment

Payback period
• Is the time that would elapse before a project investment is recovered.
Example
 Financial Analysis
Working Capital Requirement

Net working Capital= Current Assets- Current Liability

Current Assets
Current assets represent assets that a firm expects to turn into cash within one year, or one business cycle,
whichever is less. More obvious categories include cash, cash and cash equivalents, accounts receivables,
inventory, and other shorter-term prepaid expenses. Other examples include current assets of discontinued
operations and interest payable.

Current Liabilities
In similar fashion, current liabilities are liabilities that a firm expects to pay within a year, or one business cycle,
whichever is less. Examples include accounts payables, accrued liabilities, and accrued income taxes. Other
current liabilities include dividends payable, capital leases due within a year, and long-term debt that is now due
within the year.
Financial Analysis
Working Capital Requirement
Net working Capital= Current Assets- Current Liability
 Financial Analysis

• Expected Profitability and benefit

• Net Present Value
• Calculate the net present value of all the cash inflows. Desired to be a positive
value
 Financial Analysis

Internal Rate of Return – This is the discount rate which makes the NPV
zero

Benefit –Cost Ratio

• Present value of benefits / Initial investment

Payback period ( To be done for your projects)

• Is the time that would elapse before a project investment is recovered.
 Environmental Analysis

According to the Environment (Protection) Act 1986, ‘environment’ includes water, air, land and
the interrelationships that exists between water, air, land and human beings, other living
creatures, plants, micro –organisms and property.

Source of Pollution (pertinent to real estate)

• Ground water pollution and depletion

Environmental Impact on Projects

• Environmental Impact Assessment Notification (2006) of GoI – types of projects that

require environmental clearance.
• Environmental Impact Statement ( Potential impact, alternatives, remedial measures)
 Terms to Understand
( Ref. TQM Besterfield et al)
• Environment Management System-An administrative framework for the systematic,
structured and documented approach to the management of environmental affairs.

• Environment –Global surroundings in which an organization operates – air, water,

land, natural resources , flora fauna

• Environmental Aspect- Element of organization’s activities, products or services that

can impact with the environment. Example –effluents, emissions, energy usage etc.

• Environmental Impact- Any change – harmful or beneficial , wholly or partly

resulting from environmental aspect of an organization- Example- impact on flora and
fauna, water contamination etc.
 Considerations for EIA
Existing environmental conditions in terms of physical, biological, social and
economical conditions.
Assessment of possible expected effects of the proposed project
Assessment of unavoidable adverse effect
Assessment of the relationship between local short-term uses of environment
and maintenance of long-term productivity and stability of the environment.
Evaluation of the project costs and its benefit to the society
Presentation of the viable alternatives of the project
Statement on suitable remedial measures of adverse effects arising out of
project implementation. Material source: Safety , Occupational Health and Environmental Management in Construction by S.C.
Khanna and Vineet Kumar, Khanna Publishers , New Delhi
 Where to conduct EIA?
At the project affected area ( land required for the project)

Project Immediate affected area ( areas nearby project)

Project Influence areas( Catchment area , resettlement areas and other areas around the
project)

Material source: Safety , Occupational Health and Environmental Management in Construction by S.C.
Khanna and Vineet Kumar, Khanna Publishers , New Delhi
 Negative Impacts of a project
• General
• Displacement of people
• Change of land use
• Impact in flora and fauna
• Deforestation
• Air, water and noise pollution
• Waste disposal during construction and operation
• Vibration and noise during blasting.
• Impact on health
• Enhanced hazards
• Impact on heritage sites
• Specific to Hydro Projects
• Seismic impacts
• Quarrying
• Land slides
• Impact on Irrigation
 Environmental Clearance
( MOEF Notification, September 2006 )
• https://moef.gov.in/en/rules-and-regulations/environment-protection/environ
mental-clearance-general/
• Project Classified into –
• Type A- prior environmental clearance from MOEF
• > 50 MW Hydel Projects, > 500 MW Thermal Projects, Ports, Airports etc.
• Type B- Clearance from State Environment Impact Assessment Authority (SEIAA)
• B1- Requires environment Impact assessment report
• State highways, small hydro projects etc.
• B2- Does not require environment Impact assessment report
• Notified by guidelines of the ministry, except for item 8 b) for townships and area development
projects.
 Environmental Clearance Process

4 Stages

Screening
• Scrutiny of information submitted in form 1 ( MOEF notification 2016)
• Determine whether EIA required or not

Scoping- Determine the Terms of Reference for preparation of EIA report

Public Consultation- Public hearing to be conducted by the State Pollution Control Board

Appraisal- of Final EIA report , outcome of public hearing

 Steps for EIA
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uressays.com/11416
7/9-important-
(Page 33) procedure-involved-
in-the-
Generation of background environmental-
impact-assessment-
Environmental data and in-india
assessment of the
environment- Base line
study

Data to be collected for Baseline study

Land Environment- Land use, soil. Ecology,
seismology, geology
Water Environment – Water resources, water
quality, hydrology
Air Quality- Ambient Air quality, meteorology
, noise
Biological environment-Flora , fauna, aquatic
ecology
Socio-Economic Aspects – Details of families
to be displaced/ affected ( Tribal, Non-Tribal
etc.)
Life Cycle Assessment
Social Cost- Benefit Analysis

• Framework by UNIDO(United Nations International Development

Organization)
• Impact on Society
• Impact on macro economy
• Shadow prices
• Saving Vs Consumption
• Income distribution
• Processes under Project Integration Management
• Develop project charter – developing a document that deals with authorization of
project, project manager and application of resources.
• Develop project management plan – developing sub-plans and integrating them
into project management plan.
• Direct and Manage project work – process of leading and doing the work
• Monitor and Control project work – track, review, measure, and report progress.
Course correction; change management.
• Perform integrated change control – process of reviewing and approving changes.
• Close project or phase – formally closing all activities
Project Integration Management
Project Planning Process
Turning Feasibility into Reality
 Purpose of Planning

Planning should answer the following questions

What does the project Involve ?

Inputs – Project Objective / Charter Output- NIT, Scope of the tender

What tasks are to be carried out for completing the project?

Input- Scope Output- WBS, Estimate, Specifications

When the tasks have to be carried out?

Input – Objective, Scope, Charter Output- Activity Network, Gantt Chart

Who does what ?

Input-Project Charter Output-Role and Resource Allocation
 Project Charter
Project charter is the document issued by the
Provides information
project sponsor ( person or group, internal or
about internal and
external) that formally authorizes the project and
external parties related
documents the business needs, assumptions,
with the project
constraints, and high-level requirements

Inputs
• Project Statement of work
( need, scope, strategic
plan)
Provide resources, champions, Successfully
• Business Case initial scope &charter, escalates, Completing the
(Cost/Benefit, risks) authorizing changes project
• Agreements( MoU,
Contracts)
• Enterprise environmental
factors (Laws, Competition,
Org, Culture & Structure) Project
• Organizational Process Sponsor
Assets ( Organizational
Manager
memory)
 Make the Project Charter
• Project purpose or justification,
• Measurable project objectives and related success criteria,
• High-level requirements,
• Assumptions and constraints,
• High-level project description and boundaries,
• High-level risks,
• Summary milestone schedule,
• Summary budget,
• Stakeholder list,
• Project approval requirements (i.e., what constitutes project success, who
decides the project is successful, and who signs off on the project),
• Assigned project manager, responsibility, and authority level, and
• Name and authority of the sponsor or other person (s) authorizing the project
charter
Sample Project Charter
Source:https://www.simplilearn.com/project-charter-and-its-importance-article
Roles of Clients, Customers and Other Stakeholders
Client Customer Contractor Supplier Remarks
Approval of √
Objectives
Other √ Are decision points
Approvals clearly defined ??
End user √ Are needs identified??

o Is there a common understanding? o Acceptable to client??

o Coordination mechanism ? o Payment mechanism clear?
 Stakeholders
Sustainability, Social
responsibility

Shareholders

Enhancement of profit / stock

price
Customers
Value in product and service

Business val
ue Creation

• Determining what constitutes

value for each levels helps in
• Interests of each level is linked to the
aligning the efforts , skills and
other
resources of the organization
Planning
• Thumb rule 25% - concept and development , 75% -
implementation and termination
• Establishment of systems very important – Time
management, Cost Management , Quality
Management, Stakeholder Management , Change
Management, Communication management etc.
Project Planning and Control Systems
Define the Problem or
opportunity Readdress

Establish Project Objectives

Reprogram
(Strategy ) Cost, time , Scope

Develop the Plan ( Tactics)

Replan
Activities, Schedule, Resources

Begin Project Work

Monitor ( Determine Status,

Compare with plan, Analyse, Control
Prepare report

Close Project
Project Scope- Checklists

Is the objective getting fulfilled through the Scope ?

Is the boundary of the project clearly defined with

exclusions and inclusions?

Requirements of all the stakeholders included??

Has the review with client / customer/ relevant stakeholder

carried out??

Scope Creep- Increasing of the Scope with time.

Balancing Act

Time

Cost

Scope
• Process of developing a detailed project description
• Scope statement
– Defines the detailed project scope (boundaries of the project). What is
included and what is excluded.
– Defines deliverables, assumptions and constraints. Defines the work
required for the deliverables. Defines quality and acceptance criteria.
– Brings a common understanding between stakeholders about project
scope
– It serves as a baseline to control scope

Define scope
• Outputs
– Requirements documentation - Stakeholder needs
• Technical specifications;
• Quality criteria
• Acceptance criteria
• Safety, Health and Environmental protection requirements
• Stakeholder communication requirements
• Training requirements
• Reporting and Documentation requirements
– Requirements traceability matrix – a matrix that links between
requirement and deliverables

Collect requirements
• Scope management plan
– Documents how project scope is defined, validated, controlled and
verified
• Preparing a detailed project scope statement;
• Creation of the WBS from the detailed project scope statement;
• How the WBS will be maintained and approved;
• How formal acceptance of the completed project deliverables will be
obtained; and
• How requests for changes to the detailed project scope statement will be
processed.
– Helps reduce project scope creep
Plan scope management
Create WBS

• Process of subdividing the project deliverables and project work into

smaller manageable components.
WBS is ……

A hierarchical diagram of activities and end products that

organizes and defines all work to be completed in a project
Graphical representation ( diagram) of the project showing its
component part
Provides definition to the project scope by showing the
hierarchical breakdown of activities and end products

Work Packages are the deliverables in the lowest level of the work
breakdown structure. A work packages can be defined into specific
activities to be performed.
WBS Utility
• Basis for making the estimate
• Organization Break down structure
• Basis to create the list of activities
• Is the unit for scheduling of activities and for allocation of
resources.
• Fundamentally WBS can be structured based on Object; Phase,
Function.
• Developing the WBS on the basis of project phases, eg. Project
Management, Engineering (Concept, Tender and Detailed),
Construction and Erection, Testing & Commissioning, Closing.
• Subdivide the project into higher level deliverables under the
phases. Check if the deliverables in WBS are complete as per Scope.
• Subdivide the deliverables into more fundamental components that
are verifiable product, service or result, which are actual
deliverables.
•Guidelines
Subdivide the
for deliverables
developing into
WBScomprehensive work packages.
Generally a package contains works of similar nature /
• Subdivide the work packages into activities.
• Not all deliverables require similar levels of decomposition.
• Decomposition should be done to the greatest detail possible for
better management; control and monitoring. Too much of detailing
needs too much of management effort and wastage of resources.
Balance is the key.
• The total of the work at the lowest levels should roll up to the
higher levels
Guidelines forsodeveloping
that nothingWBS
is left out and no extra work is
performed. Also called 100% rule.
Don’t be constrained by sequence

The diagram may not be symmetrical- Break each branch down to the levels necessary to
adequately define the project
Each box is a summary of the boxes below it . The final box in each branch must end in a product or
deliverable
The boxes in the lowest level ( of activity level charts) are called work packages- which could be
estimated, scheduled, monitor and controlled
The sum total of the boxes should represent the complete project

Work packages should be tangible, specific and measurable.

Additional Tips for making the WBS

Deliverable Do not consume any
time or resource

Sub
deliverables
Plan , schedule ,
monitor and control
Work independently
packages

Tasks and
elements
V/S
Top down and
hierarchical
Source: KN Jha
Deliverables

Source:
Chitkara
 Civil works packages

Finishings pkg

Electro-
mech pkg

Source: Chitkara
Source: Chitkara
 Validate scope
• Validate Scope is the process of formalizing acceptance of the
completed project deliverables
– How you are going to get approval of the completed deliverables.
 Scope control
• Control Scope is the process of monitoring the status of the
project scope and managing changes to the scope baseline
– Monitor and control scope
– Track scope changes and identify change requests
– Monitor and control implementation of change requests
WBS Work Mr.XYZ Ms.ABC Mr.PQR Ms.IJK Mr.PM
Package

Preliminary Right of way Primary Support Review Approval

works responsible

Engineering Civil Designs Support Primary Review Approval

& Design responsibility

Civil works Viaduct Primary Approval

responsibility

Responsibility Assignment Matrix (RAM)

 Cost management processes
• Plan cost management: Establishing policies, procedures for
planning, budgeting, expending, and controlling project costs
• Estimate costs: Process for estimating costs (direct and
indirect)
• Determine budget: Aggregating all costs and establishing the
approved cost. Also called cost baseline.
• Control costs: The process of monitoring, updating costs and
managing changes to cost base line.
Initiating Cost Management
Estimate costs
• Use WBS as a framework
• Identify work packages and activities
• Estimate costs
• Add overheads and margin

Cost Management Plan

 Estimating Methods

• Analogous approach
• Use historical similar data
• Top down estimate
• Used for project with limited amount of detailed information.
• Less accurate
• Parametric Modelling
• Uses mathematical parameters – cost / sq. ft ,BOQ method
• Bottom-up estimate
• More accurate estimate , but at a higher cost
• Simulation
 Different Types of Estimate

Preliminary Conceptual Estimate Based upon experience of the

Estimator for similar type of buildings
Estimate or or works. Generally used to carry out
Rough Cost Feasibility studies.
Estimate -
Prepared at Plinth Area Estimate Based upon established plinth area
rates. May be used for Preliminary
Concept Design Approvals.
Stage

Cube Rate Estimate Based upon cubic content of the

building – Very Less Used
 Different Types of Estimate (Contd..)

Approximate Quantity Estimate - Prepared at Schematic Design Stage. Gives a better

estimation of cost compared to the above type of estimates.

Detailed Estimate or Item Rate Estimate – Prepared at Detailed Design Stage. Enables
most accurate estimate of cost.

Supplementary Estimate – Required to add costs to an estimate due to scope / design

changes during design development stages.
Few terms used in cost management
• Budget: Approved cost. It is also called Cost baseline.
• Committed cost: Cost that is committed, yet to be incurred. That is,
When an order is placed, it consumes the budget but expense is
incurred when work is done / supply is made.
• Actual cost: Cost actually incurred.
• Budget = Committed cost + Actual cost
• Contingency reserve
• Management reserve
 Terminologies
Elemental Method of Budgeting /
Element- Major part of a
Estimate- Work / Project is
group element- example-
Base Cost Estimate- Does not perceived as a set of Group and
Group Element- Internal
take into account the risk individual elements. Estimate
finishes; Elements- Wall
factors and uncertainties prepared on the basis of
finish, Floor Finish, Ceiling
calculation of Element Quantities
finishes
and Rates

Estimate Base date- Date
which depicts the time @
which the costs of various
elements / items are valid.
Basis for calculating
inflation / variance etc.
Indirect Costs
• Main Contractor’s General & Administrative expenses-
Cost of maintaining the head office + Return on capital
investment +Interest During Construction (IDC)+
• Main Contractor’s Preliminary (Overheads)- Cost of
maintaining the site establishment+ Cost not
attributable directly to work+ insurance bonds ,
warranties etc.
Steps to Prepare Estimates
Cost of Risk, Inflation and Currency exchange

Risk Avoidance – Having serious consequences for project completion

Risk Reduction - Risk is unacceptable but mitigating steps can be taken which would reduce risk
Risk Transfer- Example Insurance
Risk Sharing - Owners retain some percentage of risk
Risk Retention - Risk which is not controllable and hence resides with the owner
Inflation - to be accounted for projects running for long time
Currency exchange – to be taken into account for overseas projects
RICS recommends allowance to be made for following risks
• Design Development risks
• Construction risks
• Employer change risks
• Employer other risks- handover postponement, owner change etc.
 Esti
Fac wo mate
ilita the rks rel of the
En a ti pro ated
blin Works ng
gW &
je c t to
Ove orks
rhe
pre ad a
lim nd
ina
wo ry
rks
Constituents of Cost Estimate

Cos Esti
cos mate
Risk of Infl ind t of di includ
con and t ation, irec rec i
ting axe t w t an n g
ork
enc s,
ies s d

Fin
al c
ost
esti
m ate
Estimate Report format
Project Title

Project Description

Statement of cost (including cost limit)

Details of the information and specification on which the cost plan was prepared

A statement of the work

Basis of cost estimates (i.e. assumptions)

Estimate base date (i.e. to which inflation has been applied)

Estimated costs of and a request for decisions on any alternative proposals (i.e. summary of open
costs); and
Inclusions and exclusions (i.e. a clear and unambiguous statement of what is included in and excluded
from the order of cost estimate)
Sample Estimation Format
Understanding budget components
Budget at
Completion
 Activities included in cost
control
• Influencing factors that cause changes to cost baseline
• Ensuring change requests are executed timely
• Managing changes as and when they occur
• Ensuring actual costs do not exceed planned costs at Activity
level, work package level, WBS level and at Project level.
• Monitoring work performance vs cost baseline
• Preventing unapproved changes not entering reported costs
• Informing appropriate stakeholder about approved changes
• Bringing expected cost overruns within permissible limits.
Control costs – Tools & Techniques

• Performance reviews
• Earned value management
• Forecasting
• Reserve analysis
• Project management software
• To-complete performance index (TCPI) (Work remaining / funds
remaining)
 Contract
Management and
Partnering
 Definition

Formal agreement between two

parties wherein one party( the
contractor) agrees to perform a
service and the other party ( the A contract is legally binding
client) agrees to do something in
return, usually in the form of a
payment to the contractor.

Contract
• Contains rights and responsibilities
• Remedies for breach of contract
Type of Contract
Fixed price contract

• Lump sum contract or Fixed Price +Economic price Adjustment ( escalation) or

Fixed Price+ Incentives ( cost sharing for increase and decrease in cost, LD
Clause, incentive on schedule )
• Minimum price through competitive bidding
• For client
• Suitable for unknown vendors / risky job
• Difficult to prepare- estimate and scope have to be very precise
• For contractor
• Suitable for a definitive scope
• Estimates have to be very careful to win the bidding
• Tighter control on schedule and cost overruns

Cost Plus Contract

• Reimburse direct allowable cost ( labour +material ) + Additional agreed upon profit
• Burden of risk on client. Final cost known only when the project is over.
Type of Contract
Indefinite delivery contract

• Awarded to two or more vendors for delivery of supplies and services

• Three Types:
• Definite Quantity contract
• Used when definite quantities to be used are known in advance
• Requirements Contract
• Quantities not fixed. Supply prices are fixed over contract period
• Indefinite Quantity contracts
• For indefinite supply during contract period
• Maximum and minimum limits specified

Unit Price Delivery Contract

• Unit price for service or deliverable

• Provisions for Fixed Price Incentive contracts
 Type of Tender
Global Tender
FIDIC-International Federation of Consulting engineers
Published in International trade journals international newspapers and business
magazines
Open Tender
Limited or restricted tender
Single tender
Negotiated Tender
Pre-qualification
Two stage bidding
Pros and Cons
Design-Bid-Build – Includes multiple prime contracting

• Buildability can be an issue

• Conflicts at the execution stage . Coordination issues between contractors
• Risk of the contractor , non-involvement during design stage could create issues
• Quality could be compromised in case of fixed cost.

Construction management at Risk – Part design then Contractor assumes

the risk and builds.
• Potential of conflicts post submission of bids and start of the construction.

Design-Build – could have two envelope bids

• EPC type . Lack of control

Integrated Project Delivery – Ideal but difficult to achieve.

Pre-qualification / QR and associated issues

 Tendering Process
Analyse response
based on
qualification criteria Negotiations ( Two
NIT Receive response
and shortlist the stage bidding)
qualified
contractors

Receive filled in
Invite all
forms along with
contractors for Arrange for a site
EMD in a sealed Open bids
bidding in the visit if necessary
envelop within the
contract
time specified

Select the
successful bidder.
Evaluate the Award the contract.
Issue Letter of Pre-award
tenders against the Issue Letter of
Intent (LoI). Inform discussions
award criteria Award LoA
unsuccessful
parties
 Other Terminologies associate with contracts

Registration of Contractors

Contract Closeout

• Notice of completion to the client, followed by inspection.

• Successful inspection results in the certificate of completion
• Defect Liability period
• Refund of SD after defect liability period

Contract Law

• Indian contracts act 1972

• Conciliation and Arbitration Act 1996
Procurement Decisions QCBS =Quality
& Cost based
Selection
 Disputes Handling
Conciliations- award has equal status as that of arbitration.
• Amicable settlement of disputes (Part III of the conciliation and Arbitration Act 1996)
• Takes place if the concerned parties agree
• Adopted prior to arbitration in presence of a conciliator( as per the contract provision)

Arbitration- award can be challenged in court

• Institutional and Ad hoc
• Ad hoc
• More in vogue in India
• Procedure has to be agreed by the parties and the arbitrator . Involves a lot of time
• Arrangement of infrastructural facilities for conduction arbitration is a problem. Confidentiality of procedure an
issue
• Getting trained staff and library etc is also a problem. Replacement of arbitrator tough.
• Likelihood of court intervention more
• Institutional
• Procedural rules including fee are already established by the institution
• More professionally conducted as the institution has all the facilities
• Arbitral institutions such as International Chamber of commerce
• Before the award is given it is scrutinized by an experienced panel.
• Arbitrators governed by the rule of the institution and may hence be removed.
Contract Partnership- PPP
Project based on contract or concession agreement between a
government or statutory entity and a private sector entity.

Generally for the execution of infrastructure projects

Private party assumed substantial financial, technical and operational risk

in return for the cost of the services produced or subsidy, tax breaks etc.

SPV (consortium) is formed to develop, build, operate and maintain the

asset for the contracted period
• Consortium comprises of the contractor, financial institutions and maintenance company

Build Operate Transfer or Build Own Operate Transfer

• Recover investments, operating and maintenance expenses.

• Example- Parking lot, New Airports
Thank you !!