PROJECT MANAGEMENT

Anant Dhuri

PROJECT MANAGEMENT 100 Marks

Course content: 1. INTRODUCTION: Concept of Project Management. Scope & Coverage. Project Function in an organization Layout of Project Department. Role of Consultants in Project Management. 2. PROJECT IDENTIFICATION: Selection of product identification of market preparation of feasibility study/report Project formulation -Evaluation of risks preparation of Project report. 3. SELECTION OF LOCATION & SITE OF THE PROJECT: Factors affecting location policies of Central State Government towards location Legal aspects of project management. 4. FINANCIAL ANALYSIS: Profitability Analysis Social cost Benefit Analysis preparation of Budget and Cash Flows. 4a) Materials Management in Project Planning Procurement storage disposal. 5. FINANCING OF THE PROJECT: Source of Finance Cost implications thereof Financial Institutions Guidelines for funding projects, Risk Analysis Sensitivity Analysis. 6. QUANTITATIVE ASPECTS OF PROJECTS: PERT/CPM Network Analysis for monitoring of the project Other quantitative techniques for monitoring and Control of project 7. COMPUTER APPLICATIONS: Selection of software packages for application to Project management.

Reference Text PMP - Project Management Professional - Study Guide - By Kimi Heldman Project Management - By S. Choudhary Text Book of Project Management - By P Gopalakrishnan, V. E. Ramamoorthy Prasanna Chandra Project Appraisal - By P. K. Mattoo Project Management - By Vasant Desai

Project Management - By

PROJECT MANAGEMENT

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1.

INTRODUCTION

Concept of Project Management. Scope & Coverage. Project Function in an organization Layout of Project Department. Role of Consultants in Project Management.

I.

FUNDAMENTALS OF PROJECT MANAGEMENT

What is a project? 1. A specific, finite task to be accomplished 2. Can be of a long or short term duration 3. Can be large or small task Project Definition A project is a temporary endeavor undertaken to create a unique product or service. Successful Project Meets or exceeds the customers requirements Is delivered on time Within Budget Projects Vary in Size and Scope NASA shuttle launch Building a boat Building a hospital Building renovation and & space modification Planning a party or wedding Project Characteristics Constant communication across organizational boundaries Many people involved, across several functional areas Sequenced events Goal oriented Has an end product or service

Organizing the Olympic games Developing a new software program Getting a university degree Company mergers

Multiple priorities Complex and numerous activities Unique, one-time set of events Deadlines Start and end dates Identifiable stakeholders Limited resources and budget

When is a Project a Project? A task or set of work assignments may be done by one or more persons using a simple to do list project when the characteristics of a project begin to dominate and overwhelm individuals. Unable to meet deadlines, budgets and corporate expectations.

A task become a

Project Management Project management is a method and/or set of techniques based on the accepted principles of management used for planning, estimating and controlling work activities to reach a desired result on time, within budget, and according to the project specifications. Projects and project management are about people and teamwork and involves planning: Who does what? Who takes what risk? Who else is involved or interested/affected? Its the application of knowledge, skills, tools, and techniques to project activities to deliver a successful project. Tools/techniques Processes and methodology More than time, cost and scope Hard and soft skills A discipline evolving towards a profession Business and Social Aspects of Project Management Hard and soft skills
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Technical aspects of project management Interpersonal skills Influence Politicking Negotiation

4 Project Stages 1. Start Up 2. Planning 3. Execution 4. Close Down Project Management Challenges Lack of a common understanding on the question What is project management??? Managing stakeholders, expectations, teams, projects, uncertainty Measuring project management results Methodology issues Value of Project Management (Why are we doing this?) Improve project / program / firm performance as measured by efficiency, effectiveness Competitive advantage through competency Be more Successful Proactive vs. reactive Root out ill-conceived, directionless projects Increase visibility by providing roadmaps Project Management Team Project Sponsor(s) - Decision maker, funder, champion Project Manager - Manages the big picture Project Leads - Manage parts of a project Project Team - Work on specific tasks Stakeholders - Vested interests. Many of them. Keep them happy Major Causes of Project Failure Projects fail for the following reasons: The project is a solution in search of a problem Only the project team is interested in the result No one is in charge There is no project structure The plan lacks detail The project has insufficient budget and/or resources Lack of team communication Straying from original goal The project is not tracked against the plan Major Causes of Project Success Stakeholders are identified Stakeholders expectations are known and met Senior Management support There is a clearly stated purpose and a sound plan Goal and objectives are understood and communicated A constructive goal-oriented culture Technically competent team Effective (and committed) team Excellent communication Trust

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Project to Development Relationship Model

Project Management Vs. Methodology Methodologies give you templates of things to do. Project management applies them to this project. Roles of a Project Manager 1. Coordinator 2. Communicator 3. Leader 4. Negotiator 5. Planner 6 Phases of a Project 1. Enthusiasm 2. Disillusionment 3. Panic 4. Search for the Guilty 5. Punishment of the Innocent 6. Praise and Honors for the Non-Participants Characteristics of Effective Project Management Effectively plan the project Accurately monitor and communicate the project progress Ensure that all requirements are met Ensure the project is on time and within budget Schedule resources effectively Manage changes to the project

II.

TECHNICAL ASPECTS OF PROJECT MANAGEMENT

Project Management Knowledge Areas Scope Procurement Time Quality Cost Risk Management Human Resources Integration Communication A project manager juggles 9 + balls (knowledge areas) and many tools and techniques

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Project Management Functions 1. Integration Management 2. Scope Management 3. Risk Management 4. Communications Management 5. Schedule Management

6. 7. 8. 9.

Human Resource Management Quality Management Cost Management Procurement Management

1) INTEGRATION MANAGEMENT 1. Pulling all the knowledge areas together 2. As you go through the various project phases, consider the links between knowledge areas Plan the plan Execute the plan Project deliverables and project management outputs 3. Control the plan

2) SCOPE MANAGEMENT Ensure that the project includes all the work required, and only the work required, to complete the project successfully. 1. Initiate the project Feasibility, market, customer or business need Environmental analysis, business case Project selection practices and management decision practices Project link to the firms strategy or corporate goals Initiate the project Identify the project manager Develop a charter - Formally recognize the existence of the project - Include the business need and product description, constraints and assumptions - Approval to proceed Funding, authority, sponsor 2. Plan and define the scope in detail Conduct a cost/benefit analysis, consider alternatives, get expert opinion and review historical databases, brainstorm What is in scope? What is out of scope? What are the criteria for completing phases? Develop a work breakdown structure (WBS) Create a scope statement with assumptions and constraints - Project justification, product description, deliverables, success criteria, scope management plan - Use for future project decisions 3. Verify the scope What is the process and criteria for accepting the scope of work delivered? Work results and documents Inspection Acceptance form 4. Control the scope Performance reports, change requests, issues management form, scope management plan, corrective action, lessons learned Scope tips 1. Be inclusive involve stakeholders Work on securing and maintaining their commitment to the project Commitment: funding, approvals 2. Spend more time planning the projectthen follow it (with updates of course) 3. Define project success and communicate it 4. Steering committee with authority and decision making power Supportive and decisive sponsor

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Change control Insure that changes are agreed upon. Determine when scope change is desired/has occurred. Managing the change through all other processes (schedule, cost, quality).

3) RISK MANAGEMENT The process of identifying, analyzing and responding to project risk. Risk is an uncertain event or condition that will have an effect on the project. It has a cause and an effect and a consequence to cost, schedule, or quality. 1. Identify risks What could go wrong (harm, loss, opportunities and threats) Consider ALL knowledge areas Internal and external risks Sources of risk: product technology, people (misunderstandings, skills), project management etc. 2. Quantify risks Risk interactions, risk tolerance High, Medium, Low (HML) - qualitative Expected Monetary Value (EMV) quantitative 3. Develop risk response plan Opportunities and threats to respond to and opportunities and threats to accept - Avoid eliminate cause - Mitigate reduce risk occurrence - Accept contingency plans, accept losses Its OK to do any of these Insurance, contingency plans, procurement, alternative strategies, contracts Risk management template 4. Control risk responses Workarounds (defined as when it hits the fan unexpectedly and you need to deal with it then and there) Ongoing process of risk management - Corrective action - Update risk management plan Risk Management Tips Start Risk Management at the beginning of the project Review risks throughout the project (e.g. weekly, monthly) Update and project schedules, budget, staffing etc. as risk management plans are changed Risk quantification techniques 1. High, Medium, Low (HML) Probability of occurrence and impact High, Medium, Low grid Focus on HHs and less on LLs Keep it simple 2. Expected Monetary Value (EMV) EMV=risk event probability X risk event value 25% chance of rain X $1,000 impact of damage to convertible car interior = EMV of $250 75% chance of rain X $1,000 impact of damage to convertible car interior = EMV of $750

4) COMMUNICATIONS MANAGEMENT Ensure the timely and appropriate generation, collection, dissemination, storage, and ultimate disposition of project information. Who needs to know what? When do they need to know it? How will it be communicated and by whom? 1. Develop the project communication plan Stakeholder analysis Information to be shared (to who, what, how, when, why) Technology 2. Distribute information Project databases, filing system, software / hardware Report up, down and across the firm 3. Report performance Project plan, work results Project performance reports
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Variance reports, trend analysis, change requests Report the Good, Bad & Ugly 4. Administrative closure Knowledge management Archives Acceptance forms Lessons learned Sample communication formats Status reports Posters Team meetings Coffee room chats Project files Milestone celebrations PR initiatives Kickoff meeting Close out meeting Newsletters E-mail Lessons learned sessions Paraphrase & Validate Databases Website Drawings RACI Schedule update If you think you have communicated enoughgo back and do it again. Use different formats. Frequently use modes of communication that allow you to see the whites of their eyes 5) SCHEDULE MANAGEMENT Ensure the timely completion of the project. Identify the specific activities that must be performed to meet deliverables. Document dependencies Estimate the time to complete an activity Schedule development (start and end dates Schedule control Klipsteins Second Law - The firmness of delivery dates is inversely proportional to the tightness of the schedule. Time management 1. Purpose: Create a realistic schedule with the team 2. Identify the activities (tasks) Activities are action steps (HOW) and different from deliverables that are tangible results (WHAT) Use the WBS and scope statement Develop activity lists and revise the WBS 3. Sequence activities Consider dependencies 4. Estimate durations (time) Top down, bottom up estimates, Monte Carlo simulations Estimating formulae (PERT estimates) Expert opinion Consider resource capabilities Look at similar projects 5. Develop the schedule (Gantt chart) Document assumptions and decisions Use project management scheduling software e.g. MS Project 6. Control the schedule Performance reports, change requests, time management plan, corrective action, lessons learned. E.g. baseline Gantt chart and then update Frequency, Roles and responsibilities Control techniques e.g. meetings, 1:1 Estimating formulae - PERT Estimate (weighted average) [Pessimistic + (4 x Likely) + Optimistic]/6 Pessimistic time to get to work = 30 min
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Optimistic time to get to work = 10 min Likely time to get to work = 15 minutes PERT Estimate = 30 + (4x15) + 10/6 100/6=16.6 = 17 min

6) HUMAN RESOURCES MANAGEMENT Make the most effective use of the people involved in the project. Planning Acquisition Development 1. Organizational plan Organizational chart, roles and responsibilities Linkages between project and functional areas, and other business units. Staffing needs - Unions, human resources department/practices, constraints - RACI+ - Staffing plan (training, orientation, job descriptions, performance evaluations, redeployment), project organizational chart 2. Get staff Assess experience, interests, personal characteristics, availability Negotiate Beg and borrow but dont steal 3. Develop the team Team building, reward and recognition program, support practices 4. Dont control people Managerial control is different from micromanaging 5. Listen to understand 6. Be responsive Provide positive feedback Act on problems in a timely manner 7. Deal with problems They wont go away, but will get BIGGER 8. Provide constructive criticism 9. Document appropriately 10. Take time to have FUN RACI CHART

7) QUALITY MANAGEMENT The processes required to ensure the project will satisfy the needs for which it was undertaken. Identify what to measure periodically review the project. Monitor specific results to determine if they meet the relevant quality standards. 1. Plan for quality Quality product and quality project management practices Quality standards - Conform to specifications (project produces what it said it would) - Fitness for use (satisfy needs) - Prevention vs. inspection - Plan, do, check, act - Benchmark, checklists, flow charts, cause/effect diagrams
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2. Quality management plan Organizational structure, processes, resources, procedures, responsibilities to ensure quality plan is implemented Quality metrics Checklists 3. Quality Assurance Follow the quality management plan, audits, and improvements 4. Quality control Process and product results Control charts, Pareto diagrams, trend analysis QUALITY TIPS Start with a clear view of quality in mind What is quality? Implications for ALL knowledge areas

8) COST MANAGEMENT Ensure the project is completed within the approved budget 1. Plan resources (people, equipment, materials) Consider WBS, scope statement, organizational policies, staff pool Identify resource requirements 2. Cost centers at Your Company? Time is money 3. Cost budgeting Resource leveling Cost baseline 4. Control costs - Performance reports, change requests, cost management plan, corrective action, lessons learned, e.g. budgeted, actual, variance (with explanation) Time and cost tips Its OK to ask. Talk to subject matter experts. Avoid single point estimates, use validated range estimates. Factor in the learning curve, resource productivity, experience level etc. Use the appropriate tools, techniques, rules of thumb Document assumptions for estimates Negotiate

9) PROCUREMENT MANAGEMENT Acquire goods and services to attain project activities from outside the performing organization. (aka Vendor Management, Subcontractor Management, Supplier Management) 1. Plan procurement needs (goods and services external to the firm that you need to deliver the product) Make or buy decisions Contract type options (risk sharing) 2. Solicitation Procurement management plan Vendor selection process and criteria Proposals, contracts, legal issues 3. Select and manage sources (vendors, partners) Negotiations Manage contracts 4. Close contracts Formal acceptance and closure Procurement Tips 1. Develop charters with vendors and partners Rules of the game, conflict management guidelines, escalation process 2. Take lead times into account 3. Do risk management on procurement (and all other knowledge areas)
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5-STEP PROJECT MANAGEMENT

STEP 1- DEFINE THE PROJECT Agenda - State the problem - Develop project goal - Develop project objectives - Identify assumptions and risks - Identify stakeholders - Criteria for project success - Project Charter/overview document State the Problem/Opportunity 1. Specific questions must be asked before a project begins: What is the problem and what are the opportunities? Do we really need the project? 2. If these questions cannot be answered, then: Pick the wrong project The project will probably not succeed 3. Document the need and the benefits to the organization for undertaking the project Short, crisp and to the point Descriptor for those who although not directly involved on the project team are indirectly involved in supporting the project A need that must be addressed - New product, service, process, facility, or system - It may involve opening a new market Example Membership in PM Association has declined in the past four years and attendance at conference has declined in the past three years. The viability and financial stability of the Association depends on maintaining membership and successful annual conference. State Project Goal A statement of purpose and direction helps to direct the course of the project effort Initiates the project Serves as a point of reference for settling disputes and misunderstandings Clarifies expectations Helps in justifying requests for resources

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Goal Statements 1. Action oriented 2. Short and simple 3. Understandable - Prepare and launch the International Space Station on April 21, 2000, from Cape Canaveral, Florida - Connect France and England via a covered tunnel and railway under the English Channel, facility to be opened to traffic no later than September, 1996 4. Design and complete pilot testing by March 2002, a product accounting software package that performs basic financial analyses for the company 5. Obtain a BSc degree in engineering from U of C by spring, 2004 Example Reverse the downward trend in membership and annual conference attendance by organizing a highly successful conference. Develop Project Objectives 1. Objectives represent major components or milestones Objectives are sub-goals 2. Roadmap to aid decision makers understand the purpose of the project 3. Basis for determining project time line and resource requirements 4. To achieve the goal all objectives must be realized Example Develop the Program Set the Conference Site and Date Design and Implement the Marketing Plan Criteria for Evaluating Project Success Project expectations: Project on time Within budget According to specifications Happy client Example At least 200 of 450 PM Association membership will register to attend At least 50 of previous years conferences attendees will attend At least 1.5% of the non-members receiving conference brochure will attend At least 5% of the non-member attendees will join PM Association Identifying Assumptions and Risks Each objective will have its own risks and assumptions Helps think through the project process and issues associated with execution Identifies resource needs and issues involving resource availability Identifies potential delays and the impact of these delays Potential cost overruns can be predicted and resolved Example Interest in PM Association can be renewed through the annual conference A quality professional program will attract members and non-members Key speaker(s) fail to show up or submit written paper Stakeholders Individual or organisations actively involved in the project or directly or indirectly affected by its execution or results Roles must be identified at the start of the project Needs and expectations must be communicated and influenced in a positive and constructive manner so that the project will be success for all How to find them? Ask who will decide on the success of your project How to involve them?
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Ask for (appropriate) advice Get their buy-in to project plans How to work with them? Active listening Understand their interests and needs Keep everyone informed How to keep them on side? Respond to concerns Manage expectations and make adjustments

Who are the People Involved? Owner, Contractor, Consultant (in-house and outside) Sub-consultants, Subcontractors Suppliers (Vendors) Trade unions End users Operators External Issues Factors within a Project Managers sphere of responsibility, but which he or she has no formal control or authority over: Corporate interests Operating priorities Financial interests Government interests and actions Public interests Economic conditions Social priorities Common Concerns Political fallout Social, cultural, economic impacts Benefits: Training Employment Business opportunity Way of life Just go away!

Public Involvement - Right to know Environmental protection and conservation Loss of control Fear of change Power and influence Native land claims

STAKEHOLDER MANAGEMENT PROCESS 1. Monitoring 2. Analysis 3. Assessment 4. Applications Educate and communicate Mitigate Compensate 5. Appraisal and feedback Summary Understand the role of the various stakeholders Identify the real nature of each stakeholder and their interest in the project Understand their motivation and behavior Issues external to the project that can impact the outcome of a project Project manager should: Understand what they are Consider them early Analyze their potential impact Decide which to mitigate and have a plan Assess how they will react to various approaches Remember that projects managed in ignorance of External Influences:
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Never get off the ground Mid-flight crash Technical success but commercial failure

Charter/Overview Document 1. The define phase focuses on producing a project Charter/Overview document which is used as: A tool in the initial go/no go decision by management A general information document for other managers An early statement of the project goal and direction A statement of the problems and opportunities to be addressed by the project 2. Once the project is approved for go ahead, the Project Charter/Overview becomes the foundation for the detailed planning activities which follow and: Provides a control point for reporting project progress and an audit point Reference base for addressing questions and conflicts Tool for building the team

3. When defining a project you should be able to: Describe what is expected Define the project characteristics Develop a project Charter/overview - Problem statement - Project goal and objectives - State the risks and assumptions - State success criteria

STEP 2 - PLAN THE PROJECT Agenda Work Breakdown Structures (WBS) Estimate Time and Cost Work Breakdown Structure (WBS) 1. Reduces complex projects to a series of tasks that can be planned 2. WBS represents the project in the form of a hierarchy of goal, objectives and activities Identifies activities to be done from beginning to completion of the project 3. Foundation for the definition, planning, organising and controlling of the project

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Composition of a Project WBS

WBS 1. Activities in the WBS are broken-down until the entire project is displayed as a network of separately identified activities 2. The breakdown of activities continues until there are no overlapping activities 3. Each activity should be: 4. Status and completion are easily measured Of a specific time duration with defined beginning and end Easy to derive time and cost estimates Of a single purpose and have clearly understood deliverables Responsibility for completion clearly assigned The 5-step procedure: Example 1. Partition the project into its major objectives 4.1 Develop the Program 4.2 Set the Conference Site and Date 4.3 Design and Implement the Marketing Plan 2. Partition the objectives into activities 1.1 Develop the Program 1.1.1 Establish Theme and Topics 1.1.2 Obtain Speakers 1.1.3 Prepare Handout Materials 1.2 Set the Conference Site and Date 1.2.1 Set Conference Date 1.2.2 Select and Commit Conference Site 1.2.3 Confirm Arrangements 1.3 Design and Implement the Marketing Plan 1.3.1 Develop and Print Conference Brochure 1.3.2 Obtain Label Sets for Direct Mail 1.3.3 Mail Conference Brochures 1.3.4 Receive and Acknowledge Registrations

3. Check each activity for compliance with activity characteristics and further partition any that do not comply 1.1.3 Prepare Handouts 1.1.3.1 Obtain Handout Materials from Speakers 1.1.3.2 Prepare and Print Conference Notebook

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Estimating Activity Time 1. Time to complete a task is random: Skill levels and knowledge of the individuals Machine/equipment variations Material availability Unexpected events Illness Strikes Employee turnover and accidents Changed soil/site conditions 2. We know unexpected events and occurrences will happen but are unable to predict the likelihood with any confidence We must however account for the possibility of the occurrence of these events 3. Use a statistical relationship if you can estimate 4. Optimistic completion 5. Pessimistic completion time Most likely completion time Can acquire this information from discussions with individuals that have first hand experience in projects Optimistic Completion Time - is the time the activity will take if everything goes right 6. Pessimistic Completion Time - is the time the activity will take if everything that can go wrong does go wrong but the project is still completed 7. Most Likely Completion Time - is the time required under normal circumstances 8. It can also be the completion time that has occurred most frequently in similar circumstances 9. To compute the expected duration time the following formula is used: E = (O+4M+P)/6 E = Expected duration time O = Optimistic time M = Most likely time P = Pessimistic time Estimated times for conference planning

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Sequencing Activities Bar chart Produce a Logical Network Critical Path Method Arrow Diagrams Precedence Diagrams Identify Critical Activities Locate the Critical Path Floats Bar Charts/Gantt Chart Most projects, however complex, start by being depicted on a bar chart. The principles are very simple: Prepare list of project activities Estimate the time and resources needed Represent each activity by a bar Plot activities on a chart with horizontal time scale showing start and end RACI Charts Responsibility - Action - Coordination - Information Identify the roles of participants in each element of a project Effective communications road map 4 to 8 weeks look ahead Update weekly to: Reset expectations Ensure right people involved in detailed planning Ensure everyone knows what needs to be done by whom

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CPM: Critical Path Method 1. Graphic network based scheduling technique Arrow Diagrams Precedence Diagrams 2. Use activities created by the WBS process 3. Analysis of timing and sequencing logic Aids in identifying complex interrelationship of activities 4. Allows for easy revision of schedule and simulation and evaluation of the impact of changes 5. Also used as a control tool during execution of the project Producing a Logical Network The sequencing identifies activities that must be completed before another activity can start and which activities can occur simultaneously. Different methods: 1. Low-tech approach: use post-it labels Each label has one activity written on it Through iterative process the labels can be arranged and rearranged 2. Ask yourself the following: Which activities must be completed before this activity starts? Which activity cannot start until this activity is completed? Which activities have no logical relationship with this activity and therefore take place at the same time (concurrent activities)? 3. Identify immediate predecessor activities, which are activities that must be completed before another activity can begin Steps in Producing Networks 1. List the activities 2. Produce a logical network of activities 3. Assess the duration of each activity 4. Produce a schedule - determine the start and finish times and the float available for each activity 5. Determine the time required to complete a project and the longest path on the network The longest path is the Critical Path 6. Assess the resources required Activity sequencing

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Sample Network

Activity Times/Critical Path

Critical Path 1. Calculations for precedence diagrams and arrow diagrams are essentially the same 2. Critical path is where there is zero slack time 3. If an activity takes longer than estimated on the critical path then the project will be delayed 4. The critical path can change if there is a delay that make an alternative path longer Float (Slack) - Slack or float time is amount of delay that could be tolerated in the start or completion time without causing a delay in completion of the project - Total float or calculations to determine how long each activity could be delayed without delaying the project - Total float = LF - ES - duration Summary Critical path identifies the project time requirements Slack or float time is amount of delay that could be tolerated in the start or completion time without causing a delay in completion of the project Zero slack time equals the critical path

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2.

PROJECT SELECTION

A. General principles Programme and Measure Objectives Economic Impact taking account of Deadweight and Displacement Financial Viability PPP and productive Sector Projects Cost effectiveness Environmental Impact Impact on equality of opportunity Impact on poverty Impact on rural development

B. Project Appraisal Procedure 1. Idea 2. Initial contact 3. Business Plan / Formal Application 4. Site visit to project 5. Appraisal by staff 6. Assessment by Evaluation Committee 7. Board decision Criteria for Assistance - You must show: that the project is commercially viable That there is a market for the product or service That adequate finance will be available to fund the project That the promoter has the management and technical capacity to handle the project That the promoters tax affairs are in order and proper company structure Principal Appraisal Techniques 1. Financial Analysis 2. Cost Benefit Analysis 3. Cost Effectiveness 4. Scoring ; Weighting ; Ranking 5. Multi Criteria Analysis (M.C.A) 1) Financial Analysis 2) Cost Benefit Analysis Application - Essential to demonstrate the economic costs and benefits of projects from the perspective of the national economy or social welfare Key features Comprehensive Comparison of costs and benefits, including non-market. Treatment of risk. Can include estimation of multipliers Limitations - Impacts require common monetary numeracies. Data demands can be considerable Can have inadequate political or social acceptability 3) Cost Effectiveness 4) Scoring, Weighting, Ranking (SWR) The criteria against which projects will be appraised are identified. A weighting is assigned to each criteria based on importance (no weighting = equal value). Each project receives numerical score against different criteria. Different project applications ranked against each other.

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C. Transparency Issues Public Promotion Eligibility Criteria Published Criteria for selection available Weightings for criteria available Decisions made by Committee

Conflicts of interest avoided (Declarations) Information given to unsuccessful applicants Competitive or queuing basis Appeals system in place

D. Project Selection Criteria

Included in Operational Programme Objectives Measure specific objectives Economic Impact Financial Viability Cost-Effectiveness Horizontal Principles: Environment: rural development & Poverty: Equality Scoring: Weighting: Ranking

Procedure Initial call for applications 2 stage process 1. Assessment of Proposals Initial review by Regional Tourism Organisation Assessment and scoring of proposals by Filte Ireland Assessed by Filte Ireland Assessment Committee Considered and approved by Product Management Board 2. Short-listed applications complete detailed proposal form 3. Evaluation by Filte Ireland evaluation team 4. Assessment Committee review recommendations 5. Product Management Board consider approve, defer or reject

E. Procedure Monitoring & Evaluation Monitoring of Programme at three levels - Implementing Agency - Monitoring Committee level - National (NDP/CSF) Grantee must retain all records and have available for inspection Retain records of account for 6 years (Irish Law) Retain records 3 years following closure of programme Grantee must file annual financial statements Grantee must file annual financial statements Grantee may have to provide evidence of satisfactory management and financial control procedures Work must comply to all planning conditions Regular progress reports on work
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Security Deed of Covenant or Mortgage Grant paid in two installments Interim and Final Paid eligible expenditure Evidence matching funds Check no grant aid from other sources

F. Project Financing 1. Public Sector Project provision included in annual budget estimates of Central Government Department EU receipts also included Recouped in arrears by Exchequer following verification of expenditure 2. Private Sector Project Approved in advance of commencement Project payments made in arrears on basis of verified expenditure (stage payments allowed) Balance of funding provided by promoters own resources, borrowings or other equity investment Equity and loan finance also included G. Tendering Quotations and Tenders Up to 800 Two oral quotations 800 to 8,000 Two written quotations 8,000 to 16,000 Three written quotations 16,000 to 32,000 Four written tenders 32,000 to 160,000 Full tender in at least two regional newspapers and/or national newspapers 160,000 and over Advertisement in Official Journal of EU and national newspapers

H. Role of Implementing Body Design of overall scheme Seek applications by public advertisement Review and approval of project applications received from project promoters Ongoing monitoring of projects Reviewing progress expenditure, final project costs and irregularity reports if applicable Review, approval and payment of project manager payment claims Prepare claims for Managing Authority on to Paying Authority I. Project Management IT Based System Financial Control Systems Financial Tables Physical Indicators Annual Implementation Reports Other Reports by period county, field of intervention

Actual expenditure reports Claims for draw down Payment details Report on receipts and outstanding claims Funds allocation, dispersal instructions

J. Project Reporting to Monitoring Committee Introduction description measure, commentary on progress Expenditure to date Performance Indicators progress to targets North/South Co-operation Information and Publicity Requirements Horizontal Issues Environment; Gender Equality; Poverty; Rural Development Future Prospects Adjustments required Annexes K. Value for Money - Definitions 1. Additionality: Measure of economic output i.e. amount of project output compared to what would have occurred without intervention 2. Deadweight: Opposite to additionality i.e. could project have proceeded without State Aid
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3. Displacement: Activities that would or could have been financed by the private sector are displaced by publicly subsidized activity 4. Cost-effectiveness: Projects selected contribute the largest amount possible to policy objectives at the minimum possible cost.

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3. Feasibility vs Business Plan

PROJECT FEASIBILITY STUDY

FEASIBILITY 1. The feasibility study provides an investigating function 2. Answers the question: is the project viable? 3. The feasibility study outlines and analyses several alternatives or methods of achieving project success. Therefore it assists to narrow the scope of the project to identify the best project scenario(s) to about two or three. 4. The feasibility study is conducted before the business plan. 5. It is a decision point; to continue or not based on the outcome. 6. Feasibility provides information to choose the blue print or roadmap.

BUSINESS PLAN 1. The business plan provides a planning function. 2. Lays out the actions to be taken to bring the ideas to reality. 3. The business plan focuses on only one alternative or scenario.

4. A business plan is prepared only* after the business venture has been deemed to be feasible. 5. The outcome does not provide information to continue or drop the project. 6. The business plan provides a blue print or roadmap.

Some argue that: We know its feasible. An existing business is already doing it. Feasibility has been done a few years ago so there is no need to do another one. Feasibility studies are just a way for consultants to make money. The business is too small for a feasibility study. The market analysis has already been done by the business that is going to supply the equipment. By hiring a general manager, the study can be accomplished. Feasibility studies are a waste of time. Money is to be spent on building, tie up the site and bid on the equipment; why spend money on feasibility. Reasons For Feasibility Once decisions have been made about proceeding with a proposed business, they are often very difficult to change. An entrepreneur may have to live with these decisions for a long time. Successful businesses thoroughly examine all of the issues and assess the probability of business success first before going into it. Feasibility studies gives focus to the project and outline alternatives and narrow project alternatives Feasibility studies bring to the fore new opportunities through the investigative process. They identify reasons not to proceed. They enhance the probability of success by addressing and mitigating factors earlier on that could affect the project. Feasibility studies provide quality information for decision-making. They help to increase likelihood of finding funds and investors for the project. And provide documentation that the business venture was thoroughly investigated. Aspects of Project Preparation and Analysis 1. Technical 2. Institutional-Organisational 3. Managerial 4. Social 5. Commercial 6. Financial 7. Economic 1. Technical - Relates to underlying principles of knowledge where the product and or the method of the project. For a crop production project, the concerns will be agronomy; knowledge of plants and crops, effects of weather, soil conditions, seeds; generally, inputs and outputs. The relationship among the various factors; with the final product or method in mind. Example: Internet caf project; the knowledge area is information and communications technology (ICT). Issues about computers, Internet connectivity, networking of computers business management The purpose is to assess the current status of the essentials with the view to identify gaps. The team to be selected or put together depends on the technical areas involved. 2. Institutional, organisational. How does the proposed project relate to the various levels of power as well as the existing institutions?
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What are the links of the projects and team with existing government departments and organisations are considered here? Within the project, what are the lines of authority, delegation, line of reporting, and organisational procedures? Will the project keep and operate its own accounts?

3. Managerial Assessment of availability of staff to manage the project; if there is a gap will there be the need to train or hire others locally or for expatriate staff? Are the target groups equipped to use the product or adopt the technology or innovation being introduced? 4. Social Social implications of projects are important. For public projects the social aspect vis--vis the objectives are crucial. For non-public projects the review of social aspect is to assess the negative impact on society if the project is implemented. Where positive influences they are often secondary in importance. The focus is on income distribution, the response of the project to national objectives. Effect of project on employment, possible side effects on some people, issues of quality of life. For the company, how does the project fit into the mission and vision of the organisation? Environmental issues are social issues. Both locally and internationally, there are regulations and laws on governing the effects of undertakings on the environment. For example, what are the possible effects of the undertaking on the physical environment; water, air, soil. Noise pollution is to be considered. Projects in mining do have tremendous adverse effects on the environment. The outcome of these considerations is to identify the enable the planners to find ways of mitigating the environmental effects. At this stage environmental regulations have to be reviewed to appreciate the requirements and limits within which the project can or cannot operate. 5. Commercial - This relates to the product. The sale of the output produced, arrangements for sale, and pricing. This stage is also referred to as market feasibility stage. The demand of the product or service is needs to be assessed; the potential demand as well as the effective demand, the size of the market, segments, and targets of the product. What advertising means are available, media consumption habits of the target market or consumers? Questions like what is the buying behaviour of the target market, income their income distribution and some other characteristics of the customers. On the input side what are the sources of the raw material, what are the pricing mechanisms, regularity of supply etc. 6. Financial Under the financial aspect, the totality of the financial dimension of the proposed project is examined. In social or public projects, there are several participants. These participants in an agricultural project include; farmers, suppliers, project agencies and customers. In a production and distribution project of a manufacturer, the participants are customers, distributors, transporters, and finally the company or manufacturer. Financial effects must be examined for each participant because participants are impacted differently. The financial effects of the participants in the project are examined here. Their effect on them must be appropriately assessed. Separate budgets and accounts (income and expenditure, balance sheet and cashflow) must be prepared. The aim is to make judgements of the financial efficiency, incentives, creditworthiness and liquidity of the project and its participants. In private sector projects the proforma or projected final accounts (profit and loss, balance sheet, and cashflow) are prepared. And this is from the perspective of the company initiating the project. It must be stated, that, several participants (suppliers, competitors, customers) are affected differently, but the company is mostly interested in effects on her. At this stage what is most required to assess financial feasibility using the cashflow. The others only serve as an input. Indeed, some approaches to building the cashflow do not use the income statement and balance sheet. From the cashflow the feasibility of the project is established using measures such as Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit Cost Ratio (BCR) among others. The aim is to find out if the project is viable or not. The issue of profitability does not arise here at all. If the project is viable, then, a detailed project plan is prepared. In the case of projects with profit motive, a detailed business plan follows. The time frame for considered fro projections in feasibility study is quite long, longer than that of the business plan which is the magic five years. In unstable economies, this can be as short as three years.

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7. Economic Economic aspects of project analysis use financial aspects as raw materials. Essentially, the financial analysis is adjusted to accomplish economic analysis. The overarching goal of economic analysis is the determination of the contribution of a proposed project to the total economy. The principal question is: does the level of contribution of the project warrant the use of scare resources of the society to execute it? Despite the complementary nature of the financial and economic analysis there are some differences. Basis Financial Analysis Economic Analysis Part of project benefit, treated as transfer payments and not to be considered as cost. Cost to society because it is expenditure of resources by government thus from society Prices adjusted to reflect economic or social values; the prices are shadow or accounting prices. Subsides and taxes are used in the adjustment.

1.

Taxes

Treated as costs to the project

2.

Subsidies

Treated as returns to the project

3.

Prices

Market prices

4.

Interest on capital

Treated thus: interest paid to capital suppliers external to the economy is subtracted from benefits. The result is what is available to owners of capital. Interest imputed to the entity from whose dimension analysis is being done is part of total return not cost Prepared from the viewpoint of an individual; person, company etc.

Used as quoted. It is total return to society

5.

Viewpoint

From the viewpoint of the economy or society as a whole.

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4. PROJECT RISK MANAGEMENT A. Risk management Risk management is concerned with identifying risks and drawing up plans to minimise their effect on a project. A risk is a probability that some adverse circumstance will occur. - Project risks affect schedule or resources - Product risks affect the quality or performance of the software being developed - Business risks affect the organisation developing or procuring the software B. The risk management process Risk identification - Identify project, product and business risks Risk analysis - Assess the likelihood and consequences of these risks Risk planning - Draw up plans to avoid or minimise the effects of the risk Risk monitoring - Monitor the risks throughout the project C. The risk management process

D.

Risks and risk types

E. Risk 1. Identification Technology risks People risks

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Organisational risks Requirements risks Estimation risks

2. Analysis Assess probability and seriousness of each risk Probability may be very low, low, moderate, high or very high Risk effects might be catastrophic, serious, tolerable or insignificant F. Risk analysis Probability Low High Moderate Moderate Moderate High Effects Catastrophic Catastrophic Serious Serious Serious Serious

Risk Organisational financial problems force reductions in the project budget. It is impossible to recruit staff with the skills required for the project. Key staff is ill at critical times in the project. Software components that should be reused contain defects which limit their functionality. Changes to requirements that require major design rework are proposed. The organisation is restructured so that different management are responsible for the project.

G. Risk planning Consider each risk and develop a strategy to manage that risk Avoidance strategies - The probability that the risk will arise is reduced Minimization strategies - The impact of the risk on the project or product will be reduced Contingency plans - If the risk arises, contingency plans are plans to deal with that risk Monitor - Assess identified risks regularly to decide whether or not it is becoming less or more probable - Assess whether the effects of the risk have changed H. Risk monitoring Assess each identified risks regularly to decide whether or not it is becoming less or more probable Also assess whether the effects of the risk have changed Each key risk should be discussed at management progress meetings

Key points Risks may be project risks, product risks or business risks Risk management is concerned with identifying risks which may affect the project and planning to ensure that these risks do not develop into major threats

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5. PROJECT SELECTION In what steps of the methodology is financial feasibility analysis relevant?

STEP 4 FEASIBILITY ANALYSIS

Questions Management Will Ask 1. Is the project profitable? Initial investment costs Annual operating costs and savings Cost of operating inputs Cost of waste management Less tangible costs Revenues
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2. Determine availability of internal investment funds for bigger projects 3. Obtain external financing for remaining projects Capital Budgeting Process - Process by which organisation decides: Which investment projects are Needed Possible Special focus on projects that require significant up-front capital investment How to allocate available capital between different projects If additional capital is needed Capital Budgeting Practices Vary widely from company to company. Vary from country to country Larger companies tend to have more formal practices than smaller companies Larger companies tend to make more and larger capital investments than smaller companies Some industry sectors require more capital investment than others Typical Project Types and Costs Maintenance Maintain existing equipment and operations Improvement Modify existing equipment, processes, and management and information systems to improve efficiency, reduce costs, increase capacity, improve product quality, etc. Replacement Replace outdated, worn-out, or damaged equipment or outdated/inefficient management and information systems

CASH FLOW Cash Flow Concept Common management planning tool. Distinguishes between Costs: cash outflows Revenues/savings: cash inflows Types of Cash Flow Outflow One-time Annual Other Initial investment cost Operating costs & taxes Working capital Inflow Equipment salvage value Operating revenues & savings Working capital

Costs and Savings Initial investment costs purchase of the camera system, delivery, installation, start-up Annual operating costs (and savings) Operating input materials, energy, labour Incineration fuel, fuel additive, labour, ash to landfill Wastewater treatment chemicals, electricity, labour, sludge to landfill Working Capital and Salvage Value Working capital: total value of goods and money needed to maintain project operations Raw materials inventory Product inventory Accounts payable/receivable Cash-on-hand Salvage Value: resale value of equipment or other materials at the end of the project

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Timing

Incremental Analysis Needed for many CP or EE projects Compares cash flow of implemented options to the business as usual cash flow Covers only the cash flows that change

PROFITABILITY INDICATORS Definition: a single number that is calculated for characterisation of project profitability in a concise and understandable form Common indicators 1. Simple Payback 2. Return on Investment (ROI) 3. Net Present Value (NPV) 4. Internal Rate of Return (IRR) 1. Simple Payback - Number of years it will take for the project to recover the initial investments. Usually a rule of thumb for selecting projects, e.g. payback must be < 3 years

2. Return on Investment - The percentage of initial investment that is recovered each year

3. Net Present Value - Money Loses its Value Question: If we were giving away money, would you rather have: (A) $10,000 today, or (B) $10,000 3 years from now Explain your answer. Inflation Money loses purchasing power over time as product/service prices rise, so a dollar today can buy more than a dollar next year
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Return on Investment A dollar that you invest today will bring you more than a dollar next year having the dollar now provides you with an investment opportunity

Time Value of Money Money is worth more now than in the future because of Inflation Investment opportunity Time value of money depends on Rate of inflation Rate of return on investment Cash Flows from Different Years Before you can compare cash flows from different years, you need to convert them all to their equivalent values in a single year It is easiest to convert all project cash flows to their present value now, at the very beginning of the project Converting Cash Flows to Present Value

Converting Cash Flows to Present Value Discount rate: Converts future year cash flows to their present value Incorporates: Desired return on investment Inflation Reverse of an interest rate calculation Discount Rate & Interest Rate Invested at an interest rate of 20%, how much will $10,000 now be worth after 3 years? $10,000 x 1.20 x 1.20 x 1.20 = $17,280 At a discount rate of 20%, how much do I need to invest if I want to have $17,280 in 3 years? $17,280 1.20 x 1.20 x 1.20 = $10,000 Which Discount Rate? Equal to the required rate of return for the project investment, based on A basic return - pure compensation for deferring consumption Any risk premium for that projects risk
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Any expected fall in the value of money over time through inflation At least cover the costs At least cover the costs of raising the investment financing from investors or lenders (i.e. the companys cost of capital) A single Weighted Average Cost of Capital (WACC) characterises the sources and cost of capital to the company as a whole

Calculating Present Value

The Value of a Future $1

Net Present Value (NPV) Definition: sum of present values of all projects cash flows Negative (cash outflows) Positive (cash inflows) Characterises the present value of the project to the company If NPV > 0, the project is profitable If NPV < 0, the project is not More reliable than Simple Payback or ROI as it considers Time value of money All future year cash flows Sensitivity Analysis In business as usual scenario PLS Company needs waste water treatment plant in year 3: $150,000 investment With QC project: $95,000 Savings: $55,000 Also consider taxes! Pollution taxes / fees Tax deductions for equipment depreciation Tax deduction for environmental projects 4. Internal Rate of Return (IRR) Definition: discount rate for which NPV = 0, over the project lifetime Tells you exactly what discount rate makes the project just barely profitable Similar to NPV, considers
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Time value of money All future year cash flows

Profitability Indicators Summary

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5.

FINANCIAL ANALYSIS

Financial Analysis Defined: Comparing the costs and benefits over time to determine whether a project is profitable or not. To achieve this the following financial indicators are used: Net Present Value (NPV) Internal Rate of Return (IRR) Sensitivity Analysis Steps in conducting a Financial Analysis: 1. Identify the costs 2. Identify the benefits 3. Enter the costs and benefits into the financial calculator 4. Assess the financial indicators to determine if the project is financially favourable. Defining Costs There are different ways of defining costs: By type: Capital costs Operating costs By behaviour: Fixed costs Variable costs

By function: Development costs Operational costs Maintenance costs By time: Recurring costs Non-recurring costs

Capital Costs Capital costs are the expenses incurred in purchase of items that are recorded as assets; their value is depreciated over time and they are recorded in the Balance Sheet. Identify the capital costs for the project for the following items: Equipment Non-consumable Materials* Infrastructure * Non-consumable materials are capital costs because these are materials that persist (eg. furniture, bricks) Operating Costs Operating costs are expenses incurred in the execution of the project or in the operation of the business (after the project) They are not depreciated over time and are recorded in the profit and loss statement. Identify the operating costs for the project for the following: Training Internal business resources Internal IT resources System administration Equipment hire External resources Office accommodation Consumable materials* Travel Accommodation Licenses Support Identifying the Benefits Identify the benefits that the project will provide, and the value that can be assigned to each benefit. Enter the costs and benefits into the Financial Calculator For each year enter the anticipated capital and operating expenses into the financial calculator spreadsheet. For each year enter the anticipated benefits into the spreadsheet. Adjust the discount rate if appropriate. Enter sensitivity values (% cost increase and % revenue decrease values) The spreadsheet will automatically calculate the financial indicators Assess the Financial Indicators Financial indicators used in the spread sheet are: Net Present Value (NPV) Internal Rate of Return (IRR) Sensitivity Analysis
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The value of Money The value of money changes over time. With most projects, the financial benefits are realised at a different time to the costs. Net present value (NPV) provides a means to compare these by adjusting the value to todays value. This is achieved by modifying the future value by a factor that represents the change in value of money from todays value. This factor is called the discount factor. It is calculated as: 1 (discount rate / 100) Investment Analysis

If the Net Present Value is less than zero then this indicates the project is not financially worthwhile. Note: The discount factor is based on a discount rate of 13%. Hence at the end of the first year $1 is worth 87c, drops to 75.6c in the second year, 65.8c in the third year etc. Internal Rate of Return Is defined as the discount rate at which an investment has a zero net present value. The internal rate of return equates to the interest rate, expressed as a percentage that would yield the same return if the funds had been invested over the same period of time. Therefore, if the internal rate of return for the project is less than the current bank interest rate it would be more profitable to put the money in the bank than execute the project Sensitivity Analysis Projects do not always run to plan. Costs and benefits estimated at an early stage of a project may indicate a profitable project, but this profit could be eroded by an increase in costs or a decrease in the value of the benefits (the revenue). Sensitivity analysis provides a means of determining the financial impact of this type of fluctuation. By entering an anticipated percentage increase in costs or decrease in revenue the financial impact on the project can be identified by looking at the change to the NPV or IRR measures.

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7.

PROJECT FINANCE MANAGEMENT

PROJECT LIFE CYCLE Conceptualisation : Project Proposal Feasibility Study Planning : Organisational Structure Resources Establishment of standards Implementation : Monitoring & Controlling Termination Disposal & Redeployment CONCEPTUALISATION includes Project Proposal - prepared to set out clearly, the rationale, proposed methods, costs and benefits. Feasibility Study - resulting from careful examination of practicability, costs, markets and associated costs. Important Ps Product / Project Identification Process ( Manufacturing & Project management) Place (Project site, Markets, Sourcing) Partners (Financial, Commercial) Promoters (Equity holders) Feasibility Studies Evaluation of risks & returns Managerial potential Economic considerations Commercial feasibility Financial capability Technical Feasibility Social Factors Marketability Compliance with statutory regulations Insurance / Risk management KEY FACTORS 1. Location of the project - raw material availability - infrastructure facilities, etc 2. Size & Capacity levels - large plants are more economical - idle capacity is a huge loss 3. Technological Aspects - Production process, machinery 4. Management policies - Personnel, Sales, etc.

PLANNING includes Project Report - prepared formally after conceptualizing the project & consists of write-up on the fine-prints of the project and financials of the project Project Appraisal & Evaluation - for the purpose of acquisition of resources PROJECT REPORT A project report is a pre-investment and comprehensive study of investment proposals of an organisation. Project report encompass a thorough investigation relating to economic, technical, financial, social, managerial and commercial aspects FEATURES OF A PROJECT Separate Entity
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Specific Purpose & Objectives Limited Duration Target dates for Commencement & completion

Fine-prints of the Project Report 1. Data collection, capacity determination 2. Promoters Information 3. Locational Advantages 4. Technical Arrangement 5. Marketing & Selling Arrangement 6. Schedule of Implementation 7. Project Cost & Means of Finance 8. Profitability Essentials for drafting a Techno Economic Feasibility Report (TEFR) 1. Comprehensive 2. Clarity 3. Elaborate 4. Informative 5. Synchronized 6. User friendly Preparation of TEFR 1. Detailed description of the project, product description and uses 2. Promoters background & management profile 3. Infrastructure 4. Analysis of the schedule of implementation 5. Manufacturing processes, technical arrangement and process flow chart 6. Marketing 7. Financial summary of the promoters, group companies 8. Organisation Structure 9. Basic assumptions underlying the preparation of the TEFR 10. Analysis of the project cost 11. Structuring the means of finance Components of Project Cost Land & Land Development Shed & Building Plant & Machinery- imported & indigenous Miscellaneous Fixed Assets Electrical installation Margin money for working capital Preliminary & pre-operative expenses Provisions & Contingencies Prospective Means of Finance Share Capital - Equity or Preference Term Loans - Domestic/External Commercial Borrowings or FCNR (B) Debentures Unsecured Loans & Deposits Lease Internal Accruals Sops & Incentives Venture Capital Grants & Subsidies Seed Capital Assistance Deferred Payment Guarantee Debt Securitisation Forfaiting Factoring
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Working Capital

Financial Projections Sales Forecast Material Costs Labour Power & Fuel Freight Interest Costs Depreciation Taxation

Pooling of Capital Term Loan Investment Acquisition of Fixed Assets Working Capital Miscellaneous Expenditure Deferred Revenue Expenditure Dividend

RISK 1. Assumption of Capital Budgeting 2. The projected cash flows occur in the same quantum as forecasted by the appraiser. 3. Quantification of Risk 4. Variation of the actual return from what was expected during the time of projections. Risk analysis 1. STANDARD DEVIATION 2. PROBABILITY TREE METHOD 3. SIMULATION METHOD 4. SENSITIVITY ANALYSIS 5. CERTAINTY EQUIVALENTS 6. ADJUSTED DISCOUNT RATE 7. CAPITAL ASSET PRICING MODEL (CAPM) SENSITIVITY ANALYSIS GOAL - Identification of variables of a project which could have an adverse effect on the overall outcome of an investment proposal. Variables commonly used - Selling Price - Cost of Factors of Production - Initial Outflow - Project Life Role of Financial Instructions Critical Appraisal Lending Visits & Interactions Conducting feasibility tests Evaluation of credit worthiness Interactions with Financial Institutions Conviction Evaluation Attitude Credit worthiness of promoters

Structuring Finance Period of Loan Grant of Moratorium Credit Rating Monitoring & Follow-up

Knowledge of the project Detailed study of the TEFR Cordial & Positive Approach
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Sanction & Disbursal by Financial Institutions Clearance by legal department Acceptance of terms & conditions Documentation Creation of Charges Disbursal Term Loan Procedure Submission of loan application Processing Appraisal Issue of sanction letter Acceptance of terms & conditions ANALYSIS OF FINANCIAL RESULTS 1. Profitability 2. Balance Sheet - portrayal & scrutiny 3. Cash Flows 4. Break-even Point and Margin of Safety 5. Debt Service Coverage Ratio 6. Fixed Assets Coverage Ratio 7. Sensitivity Analysis 8. Pay-back period 9. Internal Rate of Return Important Qualitative Ratios Return on capital Employed Profit Margin Assets Turnover Ratio Inventory Turnover Ratio Pay-out Ratios

Execution of loan agreement Disbursement of Loan Creation of security Monitoring

Liquidity Ratios Current Ratio Debt Equity Ratios Interest Coverage Ratios Debt - Service Coverage Ratios

ANALYSIS OF FINANCIAL & OPERATING LEVERAGE Quantitative Ratios Units sold or consumed as raw materials Unit realisation price Trends in key ratios like sales, fixed assets, working capital & operating margin Annualizing numbers especially for companies changing accounting years Inter & Intra firm companies Guidelines for Project Appraisal Provision for Cost Escalation Scrutinise sources of finance Profitability adjustments Examine Financial viability Project Preference Appraisal & Evaluation Qualitative Factors Intuition Vision Intangible Benefits Strategic Aspects Linkage between business planning and capital budgeting Approach to decision making Strategic Planning & Financial Analysis Organisational Considerations
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Summarizing Appraisal & Evaluation Marketing Technical Financial Economical Managerial Quality Control & Improvements SWOT Analysis Monitoring includes Periodical Review Updating/Revision of plans Monitoring during Implementation Adequate formulation Sound project organisation Proper implementation planning Advance Action Timely availability of funds Judicious equipment, tendering & procurement Better contract management Effective monitoring Applying network techniques like CPM & PERT model

Disposal of Assets includes Redeployment of resources having alternative usage

CAPITAL BUDGETING Planning for investment in capital assets. It involves proper project planning and commercial evaluation of projects to know in advance technical feasibility and financial viability of the project Capital Budgeting Process depends on Size of the organisation Number of projects Direct financial benefit Composition of assets Timing of expenditure Process of Capital Budgeting

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Capital budgeting techniques

PROJECT CASH FLOWS Defined as the financial costs and benefits associated with a project Costs & benefits evaluation Capital Costs Operating Costs Revenue Depreciation Residual Value Principles used in developing Projected Cash Flows Incremental principle Long Term Funds principle Exclusion of Financing Costs principle Post Tax principle INFLATION Inflation has the tendency to cause a major impact on the ultimate success or failure of capital projects. The timing of project appraisal is significant from the point of view of appraisers. In the likelihood that the presumed normal conditions seldom exist for a project, inflation is bound to affect the project appraisal and implementation process. Effect of inflation Change in Projected Statement of Profitability and Cash Flows Increase in rate of interest by lending institutions. Increase in all Expenditure heads: Labour, Raw Material, Fixed Assets, etc, Remuneration to technicians & managerial personnel Dealing with Inflation Build into each Cash Flow element estimated rate of inflation on the basis of information available Role of Venture Capitalist Venture Capitalist fills this gap by providing Value Added Finance What is Venture Capital Spirit of partnership - Alignment of interest Active participation and Value Addition Long term perspective Returns linked to performance Risk - Reward sharing Investment and not Assistance
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Approaching Venture Capital 1. Evolve Long Term Growth Strategy Strong Value Proposition High probability of Commercialization Scalable Business Model 2. Prepare well thought-out Business Plan Business Focus & Growth Strategy Milestones Realistic Projections Exit Options 3. Prepare to dilute Owning Large Part of a Small Business or Small Part of a Large one 4. Select a Partner (Strategic / VC) that Shares Vision and Objective Provides Strategic Inputs & Complementary Relationship

BUSINESS PLAN - WHAT VCFs LOOK FOR SIMPLE -CLEARLY HIGHLIGHTING : CORE STRENGTHS Promoters & Team Value Proposition, Competitive Advantage Key Customers, Market, Growth Potential GROWTH PLANS STRATEGY & TIME FRAME TO ACHIEVE SET MILESTONES FUND REQUIREMENTS & DEPLOYMENT PLAN REALISTIC FINANCIAL PROJECTIONS Exit Options Investment criteria a) Risk Analysis 1. Promoters Background / Quality of Management Vision Experience Ability to Innovate / Change Rapidly Ability to Build Team Marketing and Branding Skills 2. Product / Service / Idea Product Concept / Value proposition Stage of Development / Level of Acceptance Competitive Advantage and its sustainability / Entry Barrier Scalability 3. Valuation Revenue Model IPR Customer Base 4. Exit Options Trade Sale Merger IPO b) Value Addition Implementation of Business Plan Using Network Team Building Resource Planning Implementation of systems Evolving Growth Strategy Provide Outside View

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VC Expectation Post Investment Transparency / Corporate Governance Openness to Constructive suggestions Growth Appetite Organic / Non Organic Growth Build Team Build System Preparedness to dilute and facilitate Exit Social Cost Benefit Analysis (SCBA) Urgency to fulfill long-term interest of the nation Planning Commission decided to include social rate of return in feasibility study in case of public sector projects Private Sector projects may be easily acceptable to Govt. institutions while granting various licenses & approvals A project with monetary loss but social benefit may be acceptable. Indicators of Social Desirability Employment Potential Criterion Capital Output Ratio Value added per unit of capital Foreign Exchange benefit criterion Cost benefit ratio criterion Relationship Among employees Between management, executives and work force With financial institutions, banks and suppliers of capital - customers - competitors - government bodies - suppliers of resources

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8.

SOURCES OF FUNDING

Learning Objectives Strategic policy objectives in setting up projects Investment strategies Tactical objectives Sources of funding Introductory Comments Setting up a project typically requires substantial investment financial implications must be addressed well in advance we will look at the likely costs of such projects focus on ideas which are most critical

I.

INVESTMENT STRATEGIES Private ventures range in size from large, vertically integrated firms to small backyard operations single common element: profit investment decisions vary depending upon scale large companies usually look at long-term trends, look at product life cycles sometimes invest in unprofitable pilot projects in order to receive better future return

II.

TACTICAL DEVELOPMENT OBJECTIVES Often specified with respect to desired rate of return (ROI) other criteria used: net profit before taxes, cash flows, net present value returns reflect the sources of and cost of the capital employed: the cost of risk venture capital or equity depends upon return expected by shareholders DEBT: EQUITY Cost of funds borrowed from a funding/loan institution vary according to interest rates, duration, size of loan cost of loans is less than the cost of risk equity average cost of capital is dependent upon gearing ratio (debt:equity ratio) when interest rates are low, D/E ratio is high equity-based companies do better when interest rates are high RATE OF RETURN What is an appropriate rate of return? Projects represents risk and are more hazardous compared to other ventures Hence higher returns needed to be worthwhile most banks look at 20-25% ROI as favorable other option is to assign a risk premium of 5% over normal return the higher the intensity or more untried the technology, the higher the risk premium

1.

2.

III.

Sources of funding There are two basic sources of funding: 1) Capital assistance and 2) private investment capital assistance = loans, grant aid, cash grants for developing nations, this comes from external loans (World Bank, Commonwealth Development Corporation, Banco International de Desarollo, etc.) grant aid: USAID, UNIDO, WHO, Swiss, Japanese, Norwegians developed countries: subsidies and enterprise grants 1) CAPITAL ASSISTANCE Most loans provided are low interest rate, extended repayment, concessionary in nature high percentage of Asian Development Bank loans are of this type. 10% of all such loans are via the World Bank grant-aid/grants are not paid back, real benefit is in reducing trade imbalances (export promotion loans) assistance is often provided in form of technology transfer from government

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2)

CREDIT INSTITUTIONS Typically accessed by small borrowers Consist of state finance corporations, and cooperative credit societies with numerous branches Provide small loans promptlyminimum bureaucracy Some technical and marketing assistance also provided Briefing to borrowers on purpose and use of credit should also be provided (not often done) PRIVATE INVESTMENT Can be foreign or domestic private or public sale of equity (shares/stock) backed up by commercial financing venture capital or private equity venture capital available through specialized companies / funds they expect high rates of return VENTURE CAPITAL Criteria include: annual growth rates of 25-50% pre-tax margins of at least 35% minimum ROI of at least 30% public offering of stock in 5-8 years must be unique technology / idea / IP 30% ownership of project by venture capital firm minimum investment of around $500,000 exit strategy on public sale of 4-7x PUBLIC SALES Accomplished through offering of shares large publicly-traded companies offer shares for sale, but often not to the general public, Public sale is considered for a diversification JOINT VENTURES Developing nations have attracted foreign investment via joint ventures Why? Land is cheaper, labor cheap, favorable investment climate often this is an arrangement between a local owner and foreign investor production often targets the export market due to limited local market (product too expensive) regulations as to percentage ownership vary from country to country Many joint ventures with foreigners call for foreign partner providing technical expertise if technical expertise has no experience within country, project usually started as a pilot only if technical experts are really experienced should construction start immediately site must achieve recommended criteria Most loan institutions consider cash as king consultants taking an equity position can seldom convince them to recognize their consulting rates equity fund / venture capital partners are very skeptical of anything but cash they will want to see the company established, land purchased, business plan, financials, distribution of shares, compensation packages, etc. prior to taking the plunge

3)

4)

5)

6)

Evaluating Joint Venture Partners Partners can be cash or in-kind (e.g., land) participants if in-kind (sweat equity), the value of shares is often less than par value if partners come in late, they dont receive a 1:1 (par) disbursement of shares if land is to be used as equity, have it appraised by three parties: your own appraiser, the land owners appraiser, and by a neutral third-party (take the average) 7) OTHER FUNDING ISSUES A bad track record on debt service, loan payback affects funding. Seeking of personal guarantees from promoters on part of funding agencies most companies go bankrupt due to lack of cash (undercapitalized), not lack of profits financial crisis often result in rapid failure, whereas technological crisis can be solved recognition of adequate funds for implementation phase is critical

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9.

PROJECT SCHEDULING

The Topics that will be addressed in this Module include: 1. Define Planning vs. Scheduling 2. Define and Illustrate Basic Scheduling Concepts 3. Define Logic Relationships and Critical Path

What is Scheduling? There are multiple ways of defining scheduling. Scheduling is: - Forming a network of activities and event relationships that portrays the sequential relations between the tasks in a project - Planned completion of a project based on the logical arrangement of activities, resources By looking at the aforementioned definitions of scheduling, do you see a difference between planning and scheduling? Lets take a look Placing the project and its activities in a workable sequenced timetable A detailed outline of activities/tasks with respect to time While scheduling is all of these things, the main thing to remember is that scheduling is the development of planned dates for performing project activities and meeting milestones. By looking at the aforementioned definitions of scheduling, do you see a difference between planning and scheduling? Lets take a look on the next page. 1. PLANNING VS. SCHEDULING

I keep six honest serving men (they taught me all I knew); their names are what and Why and When and How and Where and Who. --- Rudyard Kipling Planning involves making decisions with the objective of influencing the future. Another way to consider planning is as the thinking phase. Defining activities, their logical sequence, and their relationship to each other are all planning functions. In planning you answer the following questions: 1) What will be performed? This question is answered by determining the final project product necessary for achieving project success. This is done in the initiation phase before the development of your WBS. 2) How will it be performed? This question is answered by determining the processes, procedures, and methodologies used to complete the project. 3) Where will it be performed? This answer varies for each type of project. For example, if its a construction project, the where will be the physical location of the building or road etc. If the project is a software development project, the answer could be the physical location of the project team or the final location of the project software. 4) Who will perform the work? This question is answered by determining if the work will be contracted or will use in-house resources. Then, the question will be examined in even more detail: if a contractor, what type of contractor, and if company resource, what department and who in each department? 5) In what sequence? This question involves determining the order in which activities will be performed to complete the project. With five main questions answered, only one last question remains: when. This question involves scheduling. Scheduling determines the timing of operations in the project. The schedule will determine the specific start and completion dates for the project and all project activities. Another way to look at scheduling is to consider it the action or doing it phase. In scheduling you answer the question:
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6) When will the work be performed? Scheduling includes the project start and completion dates, project deliverables and milestones dates, and the start and completion dates for all activities needed to successfully complete the project. Equipped with an understanding of the difference between planning and scheduling, lets look on the next page at the scheduling requirement needed in an earned value management system (EVMS). A. PROJECT SCHEDULING To satisfy the earned value management system (EVMS) criteria, the schedule must: Include logical ties for all activities Include all key milestones and deliverables Reflect the agreed to project baseline Integrate with the cost baseline On the following pages, we will discuss the process for developing a project schedule, including how to ensure it is logical and how to ensure that it includes all key milestones and deliverables. Project scheduling in the earned value management system involves a clear, five step process. This process aids managers in determining the project schedule and, eventually, the project schedule baseline. The process steps are: 1. Develop the list of project activities 2. Sequence the list of project activities 3. Determine the relationships between activities 4. Establish the duration for each activities 5. Determine the project duration (start and completion dates) For the purpose of explaining the process in detail, we will use the BEST Management Books project. STEP 1 - Develop a List of Project Activities Developing a list of project activities is as simple as it sounds: list all activities that are needed to complete the project. Do not order or rank them yet, as this step comes later. This list needs to be as complete as possible. You can add and subtract activities throughout the process, but the more complete the list is now, the easier the process will be. Using the BEST Management Book example from Chapter 2, we will use the lowest level of BESTs WBS as our activity list. The list for this example is relatively short; however, the list for your projects will most likely reflect more detailed activities for each task.
BEST Management Books 1.

Project Management - An Introduction 1.1

Writing Text Book 1.1.1

Editing Text Book 1.1.2

Publishing Text Book 1.1.3

Chapter 1 1.1.1.1

Chapter 2 1.1.1.2

Chapter 3 1.1.1.3

Editing Chapter 1 1.1.2.1

Editing Chapter 2 1.1.2.2

Editing Chapter 3 1.1.2.3

Project Selection 1.1.1.1.1

Project Organization

1.1.1.1.2

Project Planning 1.1.1.1.3

Budget & Cost 1.1.1.2.1

Scheduling 1.1.1.2.2

Project Controls 1.1.1.2.3

Auditing 1.1.1.3.1

Administrative Closeout

1.1.1.3.2

Here is the initial list of activities for the BEST Project Management book. There are two things to remember at this stage of the process. 1. The activity list is not a complete list; additions and subtractions will be made from it. 2. As you develop your list, you may see the need to update the WBS. Remember the WBS is a dynamic tool, revisions may be needed and should be expected as the scheduling of activities progresses.
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For this example, we will assume that this is a complete list of activities, and no revision to the WBS is needed.

WBS
1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.1.3 1.1.1.2.1 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity List
Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Project Planning section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finished Development of the Project Management Book

STEP 2 - Sequence the List of Project Activities With the activity list complete, we need to sequence or develop logic between activities. To complete this process we need the WBS activities list and a pencil. A pencil? Why a pencil? This process requires the project manager, subject matter experts (SME), and other project team members who are familiar with the nature of the specific activities to meet, discuss and develop the sequencing of the project activities. This process is known as a pencil to paper process. Continuing to use our BEST Management book example, we will take a look at this sequencing process on the next page. 1. Start with the WBS 2. Develop the Activity List.
BEST Management Books 1.

Project Management - An Introduction 1.1

Writing Text Book 1.1.1

Editing Text Book 1.1.2

Publishing Text Book 1.1.3

Chapter 1 1.1.1.1

Chapter 2 1.1.1.2

Chapter 3 1.1.1.3

Editing Chapter 1 1.1.2.1

Editing Chapter 2 1.1.2.2

Editing Chapter 3 1.1.2.3

Project Selection 1.1.1.1.1

Project Organization

1.1.1.1.2

Project Planning 1.1.1.1.3

Budget & Cost 1.1.1.2.1

Scheduling 1.1.1.2.2

Project Controls 1.1.1.2.3

Auditing 1.1.1.3.1

Administrative Closeout

1.1.1.3.2

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WBS
1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.1.3 1.1.1.2.1 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity List
Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Project Planning section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finished Development of the Project Management Book

3. Use the WBS and Activity List to develop the project activity sequence or logic

STEP 3 - Determine the Relationship between Project Activities Once the sequence has been established, you need to determine the direct relationship between each activity. But how does sequencing differ from identifying the relationships of tasks and activities? Sequencing is the order of how things will happen. First, second, third, etc. Identifying direct relationships provides greater understanding to the project tasks and schedule. By identifying the relationships between activities in scheduling, you identify the sequence plus dependencies of tasks. There are 4 types of scheduling dependencies: FS Finish to Start SS Start to Start FF Finish to Finish SF Start to Finish There are two methods for developing project sequence and relationships: 1. Precedence Diagramming Method (PDM) 2. Arrow Diagramming Method (ADM). We will use PDM in this module but will not explore these scheduling methods in detail. Lets take a closer look at the first three scheduling dependencies. We will not discuss the last dependence, as it is never used.

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Types of Scheduling Dependencies The first type of relationship is called Finish to Start (FS). This means that activity A must finish before activity B can start. Lets look at this relationship using the BEST Management Books example: You must Finish writing the Project Organization section of Chapter 1 before you can Start writing the Project Planning section for Chapter 1.

The second type of relationship is Start to Start (SS). This means that activity B can start as soon as activity A starts. Lets look at this relationship using the BEST Management Books example: You can Start writing the Project Selection section for Chapter 1 as soon as you Start the BEST Management Books Project. .

The third type of relationship is Finish to Finish (FF). This means that activity B cannot finish until activity A finishes. Lets look at this relationship using the BEST Management Books example: You cannot Finish the project, Finish BEST Management Book Project, until you Finish Editing Chapter 3.

Using the relationships we have just described, the BEST Management Books project activities and the logical relationships among them is diagrammed below. This is formally known as a Network Diagram. With the relationships defined, we now need to establish the duration for each activity. Lets take a look on the next page.

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STEP 4 - Establish the Duration for Each Activity Now that you have the project network diagram, it is time to determine the duration for each project activity. Once again, just like the sequencing process: you need to enlist the help of the people or group of people familiar with the nature of the project. Establishing the duration of each project activity involves determining the work periods needed to complete each identified activity. Work periods can be hours days weeks months, etc.. Regardless of the exact work period chosen, the period must be consistent for all activities in the schedule. The project manager and team member(s) must decide which work period is right for the project. Methods for Determining Activity Duration Two major duration estimating tools can help project managers estimate the activity duration: the PERT and CPM. Three time estimates can be applied to any activity: 1. Optimistic (O) 2. Pessimistic (P) 3. Most Likely (M) Lets consider an example on the next page to understand better. PERT CPM PERT uses the distributions mean to determine Critical Path Method (CPM) requires only a one time individual activity duration. Specifically, the PERT estimate per activity. This method uses only a Most formula is Likely time estimate. (P + 4M + O) / 6 Example For the activity Editing Chapter 1, the following estimates are determined: (O) Optimistic estimate = 6 days (P) Pessimistic estimate = 18 days (M) Most Likely = 9 days Using PERT, the following estimate is derived: (18 + 36 + 6) / 6 = 10 days. Using CPM, the estimate is 9 days.
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Legend Time Estimates Optimistic (O) Pessimistic (P) Most Likely (M) CPM = Most Likely time estimate PERT = the distributions mean: (P + 4M + O) / 6 Now lets look at the duration estimate for the activities in the BEST Management Books project. For the purposes of this tutorial, it does not matter which duration estimating method was used. Here is a list of the activities in the BEST Management Books Project. The durations for each activity have been determined. From looking at the chart, what is the work period chosen by the project manager? The work period is weeks (wks). Remember the selected work period must be consistent for all activities.

WBS
1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.1.3 1.1.1.2.1 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity Description
Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Project Planning section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book

Duration
0 wks 8 wks 10 wks 9 wks 9 wks 5 wks 7 wks 2 wks 1 wk 8 wks 8 wks 4 wks 4 wks 0 wks

Project Scheduling Quick Review At this point, you have covered a good bit of information. Take some time now to review what you have learned. So far, we have covered four of the five steps related to project scheduling: 1. Developing the list of project activities 2. Sequencing the list of project activities 3. Determining the relationship between each activity 4. Establishing the duration for each activity The final step in this process is to determine the project duration (start and completion dates) and the start and finish dates for each individual activity. Take a closer look at this step on the following page. STEP 5 - Determine Project Duration Usually the project duration and activity start and completion dates are mapped in a typical scheduling software application. The activities are placed in the software tool, and the relationships are identified. The software calculates the dates. To better understand how the software calculates the dates, we will take a look at the process known as Forward and Backward Pass. Together, these processes give the total project duration, including the start and finish dates for each activity. Additionally, the process will determine the critical path, which tells you the activities that cannot slip without increasing the total duration of the project or moving the project completion date, and float, which tells you how much certain activities can slip without impacting the total project duration. We will look at critical path and float later in the module. Forward Pass The Forward Pass determines the early start (ES) and the early finish (EF) of each activity. Backward Pass The Backward Pass determines the late start (LS) and late finish (LF) of each activity.

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To start this process, lets look at the Forward Pass. The Forward Pass calculates the earliest date that each activity can start and finish according to the logical sequence of work and the duration of each activity. The Forward Pass yields the project duration. To start this process, a Project Network Diagram and a chart will help estimate the appropriate dates.

Using the Network Diagram, the next activity is Writing Project Selection section of Chapter 1. This activity is start to start (SS) with the previous activity, thus its early start date is 1/1 (see chart). The early finish is determined by the duration of the activity itself. This activity has a duration of 8 weeks, which translates to a early finish date of 2/25.

WBS
1.1

Activity
Start Development of Project Management Book

Duration
0 wks

ES
1/1

EF
1/1

LS

LF

1.1.1.1.1 Writing Project Selection section for Chapter 1

8 wks

1/1

2/25

The next activity is Writing the Project Organizational section of Chapter 1. It is finish to start (FS) with the previous activity. With the FS relationship in mind, what is the early start date for this activity? Because you must finish writing the Project Selection section before you start writing the Project Organizational section, the early star date for the current activity is 2/26. The early finish is once again calculated by using the duration of the activity, giving you an early completion of 5/6.

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The next activity is Writing the Project Budget and Cost section of Chapter 2. It is finish to start (FS). Can you determine the activity that must finish, before this activity can start? It is finish to start (FS) with Writing the Project Selection section: because you must finish writing the project selection section before you start writing the project budget and cost section (same as Writing Project Selection section), the early start date is also 2/26. The early finish is once again calculated by using the duration of the activity, giving you an early completion of 4/29. This process is used to determine each activitys ES and EF. On the page next is the completed Forward Pass. By looking at the chart below, can you determine the project duration, start and completion dates? Project Duration: 41 weeks or 205 days. Project Start: January 1 Project Completion: October 14

W B S 1 .1 1 .1 .1 .1 .1 1 .1 .1 .1 .2 1 .1 .1 .2 .1 1 .1 .1 .1 .3 1 .1 .1 .2 .2 1 .1 .1 .2 .3 1 .1 .1 .3 .1 . 1 .1 .1 .3 .2 1 .1 .2 .1 1 .1 .2 .2 1 .1 .2 .3 1 .1 .3 1 .1

A c tiv ity S ta rt D e v e lo p m e n to fP ro je c tM a n a g e m e n tB o o k W ritin gP ro je c tS e le c tio ns e c tio nfo rC h a p te r1 W ritin gP ro je c tO rg a n iz a tio ns e c tio nfo rC h a p te r1 W ritin gB u d g e ta n dC o s t se ctio nfo rC h a p te r2 W ritin gP ro je c tP la n n in gse c tio nfo rC h a p te r1 W ritin gS c h e d u lin gs e c tio nfo rC h a p te r2 W ritin gP ro je c tC o n tro lss e c tio nfo rC h a p te r2 W ritin gA u d itin gs e c tio nfo rC h a p te r3 W ritin gA d m in istra tiv eC lo se o u ts e ctio nfo rC h a p te r3 E d itin gC h a p te r1 E d itin gC h a p te r2 E d itin gC h a p te r3 P u b lis h in gP ro je c tM a n a g e m e n tB o o k F in ishD e ve lo p m e n to f th eP ro je c tM a n a g e m e n tB o o k

D u ra tio n 0w k s 8w k s 1 0w k s 9w k s 9w k s 5w k s 7w k s 2w k s 1w k 8w k s 8w k s 4w k s 4w k s 0w k s

E S 1 /1 1 /1 2 /2 6 2 /2 6 5 /7 4 /3 0 6 /4 7 /2 3 8 /6 7 /9 7 /2 3 8 /1 3 9 /1 7 1 0 /1 4

E F 1 /1 2 /2 5 5 /6 4 /2 9 7 /8 6 /3 7 /2 2 8 /5 8 /1 2 9 /2 9 /1 6 9 /9 1 0 /1 4 1 0 /1 4

L S

L F

With the Forward Pass complete, lets look at the Backward Pass. The Backward Pass calculates the latest date that each activity can start and finish in order to meet the project end date. Again, using the BEST Management Books example, lets now address the Backward Pass. The chart below contains the Forward Pass information. Unlike the Forward Pass, which started with the first activity, the Backward Pass will start at the bottom of the chart with the last activity and work backwards.
WBS 1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1 Activity Duration Start Development of Project Management Book 0 wks Writing Project Selection section for Chapter 1 8 wks Writing Project Organization section for Chapter 1 10 wks Writing Budget and Cost section for Chapter 2 9 wks Writing Project Planning section for Chapter 1 9 wks Writing Scheduling section for Chapter 2 5 wks Writing Project Controls section for Chapter 2 7 wks Writing Auditing section for Chapter 3 2 wks Writing Administrative Closeout section for Chapter 3 1 wk Editing Chapter 1 8 wks Editing Chapter 2 8 wks Editing Chapter 3 4 wks Publishing Project Management Book 4 wks Finish Development of the Project Management Book 0 wks Start at the end and go backwards ES 1/1 1/1 2/26 2/26 5/7 4/30 6/4 7/23 8/6 7/9 7/23 8/13 9/17 10/14 EF 1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14 LS LF

The process works the same as the Forward Pass but in the opposite direction. Once again using the Network Diagram, the last activity is Finish the Development of the Project Management Book (see below). The late finish (LF) and the late start (LS) will be the same as the early start (ES) and early finish (EF) since it is the final activity. The next activity is Publishing Project Management Book, and it is finish to finish (FF) with the Finish Development activity. Thus, the LF and LS are also the same as the ES and EF.

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WBS 1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book

Duration 0 wks 8 wks 10 wks 9 wks 9 wks 5 wks 7 wks 2 wks 1 wk 8 wks 8 wks 4 wks 4 wks 0 wks

ES EF LS LF 1/1 1/1 1/1 2/25 2/26 5/6 2/26 4/29 5/7 7/8 4/30 6/3 6/4 7/22 7/23 8/5 8/6 8/12 7/9 9/2 7/23 9/16 8/13 9/9 9/17 10/14 9/17 10/14 10/14 10/14 10/14 10/14

Looking at the Network Diagram on the previous page, you see that there are three activities that have a relationship with Publishing Project Management Book: Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Also note that the relationships are all finish to start (FS). With this in mind, what is the LF and LS for each activity?

WBS 1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book

Duration 0 wks 8 wks 10 wks 9 wks 9 wks 5 wks 7 wks 2 wks 1 wk 8 wks 8 wks 4 wks 4 wks 0 wks

ES 1/1 1/1 2/26 2/26 5/7 4/30 6/4 7/23 8/6 7/9 7/23 8/13 9/17 10/14

EF 1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14

LS

LF

7/23 7/23 8/20 9/17 10/14

9/16 9/16 9/16 10/14 10/14

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Because Publishing Project Management Book has an LS of 9/17 and all three activities are finish to start (FS), the late finish (LF) for each must be 9/16. How do you determine the late start (LS) for each activity? Subtract the duration for each activity from LF, as shown in the chart.

WBS 1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book

Duration ES 0 wks 1/1 8 wks 1/1 10 wks 2/26 9 wks 2/26 9 wks 5/7 5 wks 4/30 7 wks 6/4 2 wks 7/23 1 wk 8/6 8 wks 7/9 8 wks 7/23 4 wks 8/13 4 wks 9/17 0 wks 10/14

EF 1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14

LS

LF

7/23 7/23 8/20 9/17 10/14

9/16 9/16 9/16 10/14 10/14

Here is the completed list of all the activities, including the early starts (ES), early finishes (FS), late starts (LS) and late finishes (LF). What can you determine about the project from this data? Take a look on the next page. WBS Activity Duration ES EF LS LF 1.1 Start Development of Project Management Book 0 wks 1/1 1/1 1/1 1/1 1.1.1.1.1 Writing Project Selection section for Chapter 1 8 wks 1/1 2/25 1/1 2/25 1.1.1.1.2 Writing Project Organization section for Chapter 1 10 wks 2/26 5/6 3/12 5/20 1.1.1.2.1 Writing Budget and Cost section for Chapter 2 9 wks 2/26 4/29 2/26 4/29 1.1.1.1.3 Writing Project Planning section for Chapter 1 9 wks 5/7 7/8 5/21 7/22 1.1.1.2.2 Writing Scheduling section for Chapter 2 5 wks 4/30 6/3 4/30 6/3 1.1.1.2.3 Writing Project Controls section for Chapter 2 7 wks 6/4 7/22 6/4 7/22 1.1.1.3.1. Writing Auditing section for Chapter 3 2 wks 7/23 8/5 7/30 8/12 1.1.1.3.2 Writing Administrative Closeout section for Chapter 3 1 wk 8/6 8/12 8/13 8/19 1.1.2.1 Editing Chapter 1 8 wks 7/9 9/2 7/23 9/16 1.1.2.2 Editing Chapter 2 8 wks 7/23 9/16 7/23 9/16 1.1.2.3 Editing Chapter 3 4 wks 8/13 9/9 8/20 9/16 1.1.3 Publishing Project Management Book 4 wks 9/17 10/14 9/17 10/14 1.1 Finish Development of the Project Management Book 0 wks 10/14 10/14 10/14 10/14 From the Forward Pass information, we know the Project duration, Project Start, and Completion date. Now it is time to use the information from the Backward Pass to determine the projects critical path.
WBS 1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1 Activity Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book Duration ES 0 wks 1/1 8 wks 1/1 10 wks 2/26 9 wks 2/26 9 wks 5/7 5 wks 4/30 7 wks 6/4 2 wks 7/23 1 wk 8/6 8 wks 7/9 8 wks 7/23 4 wks 8/13 4 wks 9/17 0 wks 10/14 EF 1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14 LS 1/1 1/1 3/12 2/26 5/21 4/30 6/4 7/30 8/13 7/23 7/23 8/20 9/17 10/14 LF 1/1 2/25 5/20 4/29 7/22 6/3 7/22 8/12 8/19 9/16 9/16 9/16 10/14 10/14

The Critical Path tells you the activities that cannot slip a day without increasing the total duration of the project or moving the project completion date. The critical path is the longest path of logically related activities through the network which cannot slip without impacting the total project duration. Lets look at calculating the critical path on the following page.
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WBS 1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book

Duration ES 0 wks 1/1 8 wks 1/1 10 wks 2/26 9 wks 2/26 9 wks 5/7 5 wks 4/30 7 wks 6/4 2 wks 7/23 1 wk 8/6 8 wks 7/9 8 wks 7/23 4 wks 8/13 4 wks 9/17 0 wks 10/14

EF 1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14

LS 1/1 1/1 3/12 2/26 5/21 4/30 6/4 7/30 8/13 7/23 7/23 8/20 9/17 10/14

LF 1/1 2/25 5/20 4/29 7/22 6/3 7/22 8/12 8/19 9/16 9/16 9/16 10/14 10/14

The Critical Path is calculated as follows: Late Finish date (LF) - Early Finish date (EF) If the difference is Zero, then the activity is on the critical path. If the result is a number greater the zero, then the activity is not on the critical path and has float. To better understand critical path, look at the chart. Note a column was added to calculate float and determine the critical path. From reviewing the chart, what activities are on the critical path? All the activities with zero float are on the Critical Path!!!! But what exactly does this mean? Take a look on the next page.

WBS
1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity
Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book

Duration
0 wks 8 wks 10 wks 9 wks 9 wks 5 wks 7 wks 2 wks 1 wk 8 wks 8 wks 4 wks 4 wks 0 wks

ES
1/1 1/1 2/26 2/26 5/7 4/30 6/4 7/23 8/6 7/9 7/23 8/13 9/17 10/14

EF
1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14

LS
1/1 1/1 3/12 2/26 5/21 4/30 6/4 7/30 8/13 7/23 7/23 8/20 9/17 10/14

LF
1/1 2/25 5/20 4/29 7/22 6/3 7/22 8/12 8/19 9/16 9/16 9/16 10/14 10/14

Float
0 0 14 0 14 0 0 7 7 14 0 7 0 0

The Critical Path tells management the activities that are critical or essential in completing the project on time. It is also important for management to look at activities with minor float because any delays in those activities could cause them to be on the critical path. Lets look at the table above in a PERT chart format.

WBS
1.1 1.1.1.1.1 1.1.1.1.2 1.1.1.2.1 1.1.1.1.3 1.1.1.2.2 1.1.1.2.3 1.1.1.3.1. 1.1.1.3.2 1.1.2.1 1.1.2.2 1.1.2.3 1.1.3 1.1

Activity
Start Development of Project Management Book Writing Project Selection section for Chapter 1 Writing Project Organization section for Chapter 1 Writing Budget and Cost section for Chapter 2 Writing Project Planning section for Chapter 1 Writing Scheduling section for Chapter 2 Writing Project Controls section for Chapter 2 Writing Auditing section for Chapter 3 Writing Administrative Closeout section for Chapter 3 Editing Chapter 1 Editing Chapter 2 Editing Chapter 3 Publishing Project Management Book Finish Development of the Project Management Book
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Duration
0 wks 8 wks 10 wks 9 wks 9 wks 5 wks 7 wks 2 wks 1 wk 8 wks 8 wks 4 wks 4 wks 0 wks

ES
1/1 1/1 2/26 2/26 5/7 4/30 6/4 7/23 8/6 7/9 7/23 8/13 9/17 10/14

EF
1/1 2/25 5/6 4/29 7/8 6/3 7/22 8/5 8/12 9/2 9/16 9/9 10/14 10/14

LS
1/1 1/1 3/12 2/26 5/21 4/30 6/4 7/30 8/13 7/23 7/23 8/20 9/17 10/14

LF
1/1 2/25 5/20 4/29 7/22 6/3 7/22 8/12 8/19 9/16 9/16 9/16 10/14 10/14

Float
0 0 14 0 14 0 0 7 7 14 0 7 0 0

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Below is the PERT chart layout of the project. The boxes in red indicate those activities on the critical path. The blue boxes are for all other activities. Notice the information in the boxes, it shows the activity name, duration, early start and finish, and late start and finish. See the legend below for details.

The Critical Path tells you the activities that cannot slip a day without increasing the total duration of the project or moving the project completion date. It is the longest path of logically related activities through the network which cannot slip without impacting the total project duration, termed zero float.

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10. PROJECT PROCUREMENT MANAGEMENT

TYPES OF CONTACT 1. The external resources required could be in the form of services. A simple example of this could be using temporary staff on short-term contracts to carry out some project tasks. 2. On the other hand, the contract could be placed for the supply of a completed software application. This could be: A bespoke system a system that created from scratch specially for the customer; Off-the-shelf which you buy as is; Customized off-the-shelf (COTS) software this is a basic core system, which is customized to meet needs of a particular customer.

PAYMENT METHODS 1) Fixed price contracts In this situation a price is fixed when the contract is signed. The customer knows that this is the price to be paid on the completion of the work. Once the development is under way, the customer will not be able to change their requirements without renegotiating the price of the contract. Advantages a) Know customer expenditure - If there are few subsequent changes to the original requirements, the customer will have a known outlay. b) Supplier motivation - Supplier has a motivation to manage the delivery of the system in a cost-effective manner. Disadvantages a) Higher prices to allow for contingency - The supplier absorb the risk for any errors in the original estimate of product size. b) Difficulties in modifying requirements - The need to change the scope of the requirements sometimes becomes apparent as the system is developed this can cause friction between the supplier and customer. c) Higher prices to allow for contingency - The supplier absorb the risk for any errors in the original estimate of product size. d) Difficulties in modifying requirements - The need to change the scope of the requirements sometimes becomes apparent as the system is developed this can cause friction between the supplier and customer. e) Upward pressure on the cost of changes - When competing against other potential supplier, the supplier will try to quote as low a price as possible. If, once the contract is signed, further requirements are put forward; the supplier is in a strong position to demand a high price for these changes. f) Threat to system quality - The need to meet a fixed price can mean that the quality of the software suffers. 2) Time and materials contracts Customer is charged at a fixed rate per unit of effort, for example, per staff-hour. At the start of project, the supplier normally provides an estimate of the overall costs based on their current understanding of the customers requirements, but this is not the basis for the final payment. Advantages a) Ease of changing requirements - Changes to requirements are dealt with easily. b) Lack of price pressure - Lack of price pressure can allow better quality software to be produced. Disadvantages a) Customer liability - Customer absorbs all the risks associated with poorly defined or changing requirements. b) Lack of incentives for supplier - Supplier has no incentive to work in a cost-effective manner or to control the scope of the system to be delivered. 3) Fixed price per unit delivered contracts Associated with function point (FP) counting. Size of the system to be delivered is calculated or estimated at the outset of the project. Size of the system to be delivered might be estimated in lines of code. A price per unit is quoted. Final price is the unit price multiplied by the number of units. Advantages a) Customer understanding - Customer can see how the price is calculated and how it will vary with changed requirements.
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b) c) d) e)

Comparability - Pricing schedules can be compared. Emerging functionality - Supplier does not bear the risk of increasing functionality. Supplier efficiency - Supplier has an incentive to deliver the required functionality in a cost-effective manner. Life-cycle range - Requirements do not have to be definitively specified at the outset. Thus the development contract can cover both the analysis and design stages of the project.

Disadvantages a) Difficulties with software size measurement - With FPs, there can be disagreements about what the FP count should really be: in some cases, FP counting rules might be seen as unfairly favoring either the supplier or customer. Users will almost certainly not be familiar with the concept of FPs and special training might be needed for them. b) Changing requirement - Some requested changes might affect existing transactions drastically, but not add to the overall FP count. Decision has to be taken about how to deal with these changes. 4) Categorizing Contracts a) Open tendering process - Any supplier can bid to supply the goods and services. All tenders must be evaluated in the same way. With a major project where there are lots of bids and the evaluation process is time consuming, this can be an expensive way of doing things. b) Restricted tending process - There are bids only from supplier who have been invited. Customer may at any point reduce the number of potential suppliers being considered. c) Negotiated procedure - Negotiate with one supplier e.g. for extensions to software already supplied. STAGES IN CONTRACT PLACEMENT

Main Sections in a Requirements Document 1. Introduction 2. A description of existing system and current environment 3. The customers future strategy or plans 4. System requirements Mandatory and desirable features 5. Deadlines 6. Additional information required from bidders Requirements Analysis These will include Functions in software, with necessary inputs and outputs Standards to be adhered to Other applications with which software is to be compatible Quality requirements e.g. response times Evaluation plan How are proposals to be evaluated? Methods could include: Reading proposals Site visits Interviews Practical tests Demonstrations
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Need to assess value for money for each desirable feature Invitation to tender (ITT) Note that bidder is making an offer in response to ITT acceptance of offer creates a contract Customer may need further information Memorandum of agreement (MoA) - Customer asks for technical proposals - Technical proposals are examined and discussed - Agreed technical solution in MoA - Tenders are then requested from suppliers based in MoA - Tenders judged on price - Fee could be paid for technical proposals by customer Contract Management Contracts should include agreement about how customer/supplier relationship is to be managed. Decision points - could be linked to payment Quality reviews Changes to requirements Acceptance When the work has been completed, the customer needs to take action to carry out accepting testing. The contract might put a time limit on how long acceptance testing can take, so the customer must be organized to carry out this testing before the time limit for requesting corrections expires. Part or all of the payment to the supplier will depend on this acceptance testing. There is usually a period of warranty during which the supplier should fix any errors found for no charge. The supplier might suggest a very short warranty period of 30 days. It is in the customers interests to negotiate a more realistic period of at least 120 days.

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11. PROJECT MONITORING AND POST EVALUATION Purpose of Monitoring Monitoring is collecting, recording and reporting information concerning all aspects of the performance of a project. The primary aim of introducing a monitoring system is to provide the top management at different levels with the necessary tools to keep track of critical variables in relation to various projects, schemes and programs. The need for an effective monitoring system emanates from the need for a continuous evaluation of the three critical areas in project implementation: time, cost and performance. Monitoring is meant to anticipate problems before they occur and thus help avoid potential areas of failure or shotcomings that may ultimately jeopardize a project. It provides timely feedback and acts as an early warning system for identification of areas of both internal and external problems. The internal problems may arise from faulty planning, defective project design or unrealistic project goals. The external problems may occur primarily due to alterations in the external environment of the project: fundamental shift in the political, legal or institutional arrangements, changes in input and output market conditions, availability of essential utilities like electricity and water. Process Involved in Monitoring Determination of the status on the entire project basis of (i) actual work accomplished, (ii) current and anticipated technical results, (iii) resource expenditures; Comparison of the current status to the original plan in terms of (i) work schedule, (ii) budget, cost estimates and cash flows, (iii) technical specifications to be met at the end of the project; Identification of variances between (i) the costs incurred and the original estimate of costs (cost variance), (ii) the costs of work performed and the costs of work scheduled (schedule variance), (iii) quality of work and technical specifications for the project; Comparative analysis, both from the points of view of physical and financial performance, of similar projects under implementation. Levels of Monitoring and Institutional Arrangement The levels, the frequency and the thoroughness of monitoring are clearly a function of the nature and the size of the project or program. Most projects are subject to at least two levels of monitoring, one at the project management level and the other at the organizational level. The immediate and the most important monitoring is done at the project level and is meant for the benefit and guidance of the project managers. The monitoring at the organizational level is performed by the controlling department/agency or the concerned ministry depending upon the size of the project. Data Collection The measurement of project performance poses the most difficult problem in monitoring, that is, the timely collection of data which would be relevant. Monitoring activity should focus on data that is important rather than data that is easily available. The information to be collected suc as accounting data, operating data, engineering test data, and customer reactions must be identified. Once the procedure for data collection is in place, the next step is choosing appropriate tools for monitoring. Tools for Monitoring There are broadly four methods that are used for monitoring of projects and programs: 1. Firsthand observation, 2. Oral and written reports, 3. Review and technical interchange meetings, 4. Graphical displays. It may be pointed out at the very outset that these methods are not mutually exclusive, two or more of these are and should be used together. Firsthand Observation Firsthand observations through physical inspection are always a preferred way of getting an idea about the status of a project. It has some distinct advantages: (i) This is the best tool to receive non-filtered information. In this approach the real situation on the ground can be seen.
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(ii) It also helps in building a rapport between the management and the staff working at the project and fosters a team spirit that is conductive to high morale and better performance. Verbal and Written Reports A verbal report has the following advantages: i. It is most current. ii. It is the least time taking at both ends. This method suffers from disadvantage that it tends to be inaccurate and sometimes there is a danger of misinterpretation. Review and Technical Interchange Meetings The purpose of such meetings may be summarized as below: Identify problems for remedial action. Obtain agreement among members of the management team that problems exist and get their first-hand reactions. Agree upon action that would be most suitable for resolving problems or enhance performance. Record action to be taken by individuals or groups for follow up. Graphic Displays The following are some of the advantages of using graphic displays. Large amounts of data can be shown in the pictures. They are easier to understand. Change in rate of progress is clearly visible. They show different sets of information simultaneously. Graphic displays help keep the project people involved at all levels. Scope and Nature of Post Evaluation Post evaluation examines both the physical achievements (outputs) and the impact on stakeholders (outcome) of a project/ program after its completion. It also provides an opportunity for learning fundamental lessons for planning and execution of similar projects/programs in future. The lessons of post evaluation provide a very useful feedback for highlighting the inadequacies in project formulation and project implementation. Post Evaluation of Projects Post evaluation is a very valuable activity, in practice only a few project authorities or organizations examine their completed projects in depth and devote the desired level of resources and attention to it. The process of post evaluation turns out to be a two-part exercise: 1. Appraisal of the physical performance of project/program in terms of its outputs. 2. Evaluation of the outcome or the analysis of impact on target groups in terms of achievement of social end economic goals of the project/program. Evaluating the Projects Physical Performance The evaluation unit determines systematically how a project was handled at different stages. At the proposal stage During the projects construction During its operation Seeing how problems developed offers valuable lessons for future, it is also very useful to study the causes of success. Lessons from Analysis of Physical Performance of Projects The most valuable lessons are expected to emerge in the following four areas: Cost estimation and cost control Optimal scale and timing of a project Evaluating contractor performance Improving project management and project performance. Evaluating the Outcomes or Impact of a Project This analysis involves an examination of the outcomes rather than the outputs of a project or program on the target group of beneficiaries in terms of achieving social and economic goals.
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The outcome of the project may, in fact, go beyond the direct and obvious results in the sense that reduced illness gets finally translated into savings on medical bills on one hand and higher productivity among the beneficiaries on the other. The final outcome of the project or program is a measure of its total impact on the beneficiaries rather than its most direct effect. The assessment of the outcome or total impact of aproject or program is a complex process for a variety of reasons: A clear distinction between the physical output and the final outcome of project is not easy in practice. The implementation of a project may be perfect in terms of achieving the physical targets but there may be a problem with the result that the desired social or economic goals cannot be realized through the project.

Elements of Evaluation Study An evaluation study of outcomes or impact analysis involves a series of steps Define the objective of the analysis Select an appropriate methodology for the study Collect data Prepare evaluation report Follow up of the evaluation study INSTITUTIONS FOR PUBLIC SECTOR INVESTMENT DECISION MAKING I. International Experience with Public Investment Preparation II. Benefits of Full Project Appraisal Analysis Background Investments that yield a high economic return will increase the rate of growth of economy. Good investment appraisals leads to dramatically improved project designs, and increases the rates of return and sustainability of investments. Purpose of a Good Public Investment Program Strategic Direction of Policy Coordination between central policy ministries and the line ministries Investment selection and approval Monitoring of implementation and assessment of policy results II. Benefits of Full Project Appraisal Analysis Project selection needs to be based on economic benefits and costs, and not only on financial benefits and costs, or on construction costs based on norms Lets look at two examples Economic Benefits / Costs of Maker Port Project Economic Benefits: (Financial Benefit) Additional port revenue from expansion in traffic. (Financial Benefit) Additional rental income from containers yards. Plus: Reduction in waiting time of ships. Reduction in animal weight loss from waiting on ship. Economic Costs: All investment and operating costs of port, even if subsidized.

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1.

PROJECT IDENTIFICATION

Selection of product identification of market preparation of feasibility study/report Project formulation - Evaluation of risks preparation of Project report

In short, project Identification is the process of checking if candidate projects should be undertaken by the organization. Introduction The key feature of this activity is recognizing that identifying candidate projects is something that an organization should do on a regular basis, not just once each year. Further, when examining projects for approval, it is vital to also examine the resource capacities and capabilities available for assignment. It is futile to assign a major new project requiring extensive discovery of business requirements if no business analysts are available. Project Identification proceeds Project Initiation. Process Description Project Identification is a repeatable process for documenting, validating, ranking and approving candidate projects within an organization. Process Purpose: Due to the changing financial conditions within the total organization, it is necessary to establish a stable process for approving projects for initiation. This process will... Validate the business reason for each candidate project. Provide the base information for more informed financial commitments to projects. Establish a more objective ranking of candidate projects. Allow a more effective matching of skilled resources to the right project. Avoid over-allocating limited skilled resources. Anticipate future human resource quantities and skills. Provide a valid basis for staff training. Make Project Initiation faster and more efficient. Because priorities, finances and resources may change at any time, it is critical that this process be well-defined and easy to follow. It is also important that its value is understood and supported by corporate leaders and the business organization. Use Criteria: This process is intended for proposed projects that... Are of significant size and will require a significant amount of time to complete. Must be tightly coordinated with other active projects. Will use new or emerging technology. Will require a new work process. Are intended for a new customer or unproven market. Will impact numerous departments or organizations. Are highly critical to the success of the business. Are a known high risk.

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2.

SELECTION OF LOCATION & SITE OF THE PROJECT

Factors affecting location Policies of Central State Government towards location Legal aspects of project management

III. LEGAL ASPECTS OF PROJECT MANAGEMENT Project management is an under-rated art. This is ironic in view of the fact that there is a chronic shortage of skilled project managers in this country. This guide concentrates on the legal aspects of project management, particularly in relation to the computer industry, and aims to provide some suggestions to help avoid a project turning into a disaster. 1. Risk Management There will always be a chance that a project will not turn out as expected. Successful completion of a project therefore requires that this risk should be considered and evaluated. A risk management plan should be drawn up to show how each significant risk will be controlled. A "top ten" list of risks in software projects is shown in the Appendix at the end of this guide with, in each case, various suggested risk management techniques. Some of these techniques are implemented through the contract for the project itself. 2. Project Contract It is in the drafting of the project contract that lawyers will generally make their greatest contribution. In many cases it will be vital that ALL pre-contractual documentation is referred to in the contract. Such documentation should include the Statement of Requirements (SoR) or the Request for Proposal (RFP) or the Invitation to Tender (ITT) and the suppliers response. Arguably, the lawyer will have completed half of the responsibility of protecting the user if this is achieved. Some of the documentation may have been superseded so only the most recent version should be used. The documentation does not have to be attached - a cross reference to the most recent version is sufficient, provided that the parties can readily indentify it. The contract must contain provision for change control and progress review meetings. 3. Change Control Changes to the project are almost inevitable. They can be divided into 1) those instigated by the supplier and 2) those instigated by the user. Changes requested by the supplier are generally caused by a weakness or uncertainty in the design. Examples include a weakness in the design architecture or an over optimistic projection by the designers of the performance of the system. Or perhaps an innovative solution may turn out to be more impractical or more difficult than originally envisaged. Changes to requirements are normally the responsibility of the user. Such changes should be discouraged because, apart from the cost implications (which increase the later the change is made), any design modification is disruptive and too much change may de-stabilise the project. The project contract must contain a detailed change control procedure which allows changes to be proposed, costed and settled. Sometimes the cost of estimating the additional costs of the change are borne by the user if the user decides not to proceed with a change it has proposed. All agreed changes should be documented and numbered for future reference. 4. Progress Review Meetings These are vital in a well-run project and will become more frequent as the project progresses. They may have a variety of causes such as: (a) periodic reports (eg. every two weeks); (b) the completion of a particular stage (ie. an "end of stage" meeting); or (c) a requirement for an outside independent appraisal of the projects progress. The aims of such meetings will include: a) comparing progress with the planned schedule; b) deciding how to tackle actual or potential problems; c) forecasting progress; and d) examining costs. Such meetings should be properly documented and minuted (with the minutes going to all parties). An agreed list of action points arising from each meeting and their times for completion should be prepared and reviewed at following meetings.
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5. Restrictions on the Supplier It is common to impose restrictions on a supplier under the project contract and so it should be considered what restrictions are appropriate. One obvious restriction is to require the supplier to keep confidential any confidential information given to it by the user. Another is to prevent the supplier from "poaching" any of the users staff or customers. If the project involves specialised techniques it is sensible for the user to consider a restriction on the supplier against providing the same techniques to the users competitors. 6. Restrictions on the Suppliers Liability It is standard practice for consequential and indirect losses to be totally excluded from computer-related agreements. Suppliers will always seek to ensure they are only liable for direct losses ie. those reasonably foreseeable as a result of a breach of contract. Most customers accept the exclusion of consequential loss and it is only worth debating the point if there is a particular principle involved. Suppliers will also seek to have a financial cap on their liability under the contract. For such a cap to be enforceable in court generally it must be reasonable. One factor which courts look at in determining this is the insurance cover that the supplier has, so consequently that level often determines the amount of the financial cap.

Project Management properly carried out can have a significant effect on both the costs and time of completion of a project. The legal aspects of project management can be very useful in establishing appropriate procedures and parameters within which such management can be carried out.

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