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 Project Management - By Prasanna Chandra
• Project Appraisal - By P. K. Mattoo
2
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
• Organizing the Olympic games
• Developing a new software program
• Getting a university degree
• Company mergers
Project Characteristics
• Constant communication across organizational boundaries
• Many people involved, across several functional areas
• Sequenced events
• Goal oriented
• Has an end product or service
• 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 A task become a project when the characteristics of a project begin to dominate and overwhelm individuals.
• Unable to meet deadlines, budgets and corporate expectations.
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?
It’s 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
• 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
4 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
A project manager juggles 9 + balls (knowledge areas) and many tools and techniques
• Scope • Time • Cost • Human Resources • Communication • Procurement • Quality • Risk Management • Integration
Project Management Functions 1. Integration Management 2. Scope Management 3. Risk Management 4. Communications Management 5. Schedule Management
6. Human Resource Management 7. Quality Management
8. Cost Management 9. 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 firm’s 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 project…then 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
6 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
• It’s 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
- 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 • Team meetings • Project files • PR initiatives • Newsletters • E-mail • Databases • Website • RACI • Posters
• Coffee room chats • Milestone celebrations • Kickoff meeting • Close out meeting • Lessons learned sessions • Paraphrase & Validate • Drawings
• Schedule update
If you think you have communicated enough…go 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
Klipstein’s 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
8 • 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 don’t steal
3. Develop the team
- Team building, reward and recognition program, support practices
4. Don’t “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 won’t 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
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
• It’s 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
10 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
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
12
- 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 Manager’s 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
- 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
14 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
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
16 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
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
18 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
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.
20 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 Fáilte Ireland
• Assessed by Fáilte Ireland Assessment Committee
• Considered and approved by Product Management Board 2. Short-listed applications complete detailed proposal form 3. Evaluation by Fáilte 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
• 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
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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
3. PROJECT FEASIBILITY STUDY
Feasibility vs Business Plan
FEASIBILITY BUSINESS PLAN
1. The feasibility study provides an investigating function 1. The business plan provides a planning function. 2. Answers the question: is the project viable? 2. Lays out the actions to be taken to bring the ‘ideas’ to
‘reality’.
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.
3. The business plan focuses on only one alternative or
scenario.
4. The feasibility study is conducted before the business
plan.
4. A business plan is prepared only* after the business
venture has been deemed to be feasible.
5. It is a decision point; to continue or not based on the
outcome.
5. The outcome does not provide information to continue
or drop the project.
6. Feasibility provides information to choose the ‘blue
print’ or ‘roadmap’.
6. The business plan provides a ‘blue print’ or ‘roadmap’.
Some argue that:
‘We know it’s 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 café 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.
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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-à-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.
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
1. Taxes Treated as costs to the project
Part of project benefit, treated as transfer payments and not to be considered as cost.
2. Subsidies Treated as returns to the project
Cost to society because it is expenditure of resources by government thus from society
3. Prices Market prices
Prices adjusted to reflect economic or social values; the prices are ‘shadow’ or accounting prices. Subsides and taxes are used in the adjustment.
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
Used as quoted. It is total return to society
5. Viewpoint Prepared from the viewpoint of an individual;
person, company etc.
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
• 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
Risk Probability Effects
Organisational financial problems force reductions in the project budget.
Low Catastrophic
It is impossible to recruit staff with the skills required for the project. High Catastrophic
Key staff is ill at critical times in the project. Moderate Serious
Software components that should be reused contain defects which limit their functionality.
Moderate Serious
Changes to requirements that require major design rework are proposed.
Moderate Serious
The organisation is restructured so that different management are responsible for the project.
High Serious
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
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 Inflow
One-time Initial investment cost Equipment salvage value
Annual Operating costs & taxes Operating revenues & savings
Other Working capital 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
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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
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
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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 company’s “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 project’s 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
– Time value of money
– All future year cash flows
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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 function: • Development costs • Operational costs • Maintenance costs By behaviour: • Fixed costs • Variable 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:
• Internal business resources
• Internal IT resources • External resources • Office accommodation • Licenses • Support • Training • System administration • Equipment hire • Consumable materials* • Travel Accommodation
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)
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 today’s value.
• This is achieved by modifying the future value by a factor that represents the change in value of money from today’s 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