Project Meaning

A project is a temporary endeavour

designed to produce a unique product,
service or result with a defined
beginning and end undertaken to
meet unique goals and objectives,
typically to bring about beneficial
change or added value.
PROJECT DEFINITION:
 “Project is a unique process intended to achieve
target outcomes”
Zwikael and Smyrk, 2009.
 “A project is an organized effort to do something
useful or attain a useful end result which is
sometimes defined as a plan, venture or
enterprise”
Angus and Norman, 1997.
 “Project is a whole complex of activities in an
undertaking that involves uses of resources to
gain benefits”
Gittinger, 1982.
FEATURES/
CHARACTERISTICS
 Projects differ in size, scope cost and time, but all have the
following characteristics:
 A start and a finish
 A life cycle involving a series of phases in between the
beginning and end
 A budget
 A set of activities which are sequential, unique and
non-repetitive
 Use of resources which may require coordinating
 Centralised responsibilities for management and
implementation
 Defined roles and relationships for participants in the
project
 NATURE OF PROJECT
 Investment with expectations:
 Polio free environment
 The success of a project depends upon the SMART
objectives it adopts:
 Specific: The objectives must be clear and should have
precision in its scope.
 Measurable: A clearly defined project must be measurable in
terms of its benefits and achievements. Achievable: A project
will only be meaningful if it is achievable not too ambiguous
 Reliable: Objectives thus set by the project team must be
reliable in a way that individual, organization, or society must
well benefit from the project.
 Time-bounded:
PROJECT MANAGEMENT

 “Project management is the application

of knowledge, skills, tools, and techniques
to project activities in order to meet or
exceed stakeholder needs and
expectations from a project”.
- Project Management Institute 2004
3D VIEW OF PROJECT
QUALITY (+)

TIME (-) COST (-)

PROJECT MANAGEMENT
PROCESSES
Initiating
 According to PMI, the process of Initiating
helps to set the vision of what is to be
accomplished.
 This is where the project is formally
authorized by the sponsor, initial scope
defined, and stakeholders identified.
 Management chooses and authorizes the
project manager here who authorize and have
accountability but little authority.
Planning
 establishing the total scope of the project.
along with risks, milestones, summary and
budget was defined there at a high level.
 detailed planning process, called
progressive elaboration, project documents
are developed at a much more detailed
level.
 A significant concept in Planning is that
the team is able to think the whole project
through in advance.
Cont’d
 Without going into detail on every single
document created, a short list would
include:
 Documents that bound scope (what we are
and are not doing);
 Documents that list detailed requirements;
 Documents that provide estimates for cost
and time;
 Documents that provide for a schedule;
 Documents that plan for quality,
communications, risk and procurement.
 Executing
 after Planning is to execute, Here is where the project team
starts doing the work of creating the deliverables while the
project manager coordinates those resources.
 Since the project team is so important to successful
execution, So the project manager will cultivate it by
performing team-building exercises, managing
communications, managing the stakeholder engagement,
ensuring project and product quality and supporting
contract with a vendor.
 area of Executing that most of the budget will be spent and
the deliverables of the project will be produced.
 Project execution could go on for days, weeks, months or
years depending on its duration.
Monitoring and
Controlling
 According to PMBOK GUIDE, these are "processes
required to track, review and regulate the
progress and performance of the project; identify
any areas in which changes to the plan are
required; and initiate the corresponding changes.1
“
 Monitoring and Controlling is where you get back
on track, where you compare plan to actual,
measure variance and take corrective action.
 areas one might control are scope, cost, and
schedule.
Closing

 Not only do you formally close the project

but you also get sign-off and acceptance
from the customer.
 The project manager should formally close
the project by archiving records, holding a
lessons learned session, making final
payments, closing contracts and
celebrating and releasing the team.
PROJECT MANAGEMENT
KNOWLEDGE AREA
1. Project Integration Management
2. Project Scope Management
3. Project Schedule Management
4. Project Cost Management
5. Project Quality Management
6. Project Resource Management
7. Project Risk Management
8. Project Procurement Management
9. Project Stakeholder Management
(Based on 6th edition)
PORTFOLIOS, PROGRAMS AND
PROJECTS
 Projects are temporary endeavours to create one
or more deliverables.
 Programs are larger initiatives that are broken
up into a set of smaller projects and
subprograms and then coordinated centrally. The
projects in a program are related to each other
 Portfolios are collections of work (projects,
programs, or sub-portfolios) and are a way to
plan and manage the projects from an
organization perspective. The projects may or
may not be related
PROJECT LIFE CYCLE
 Different stages through which a project
planning proceeds from inception to
implementation is called “the project
cycle”.
 It is a serious of phases form start to finish
 Project phases are a collection of related
project activities that culminate in the
completion of one or more deliverables
 The project phase may be sequential,
iterative, overlapping
MODELS OF PROJECT
CYCLE

 World Bank project life cycle or sometimes

called Baum Cycle (Baum, 1978)
 UNIDO project life cycle (Behrens and
Hawranek, 1991)
 World Bank Project Life Cycle/
Baum Cycle
 The world bank provides finance and
service to low and middle income countries
 Certain rules and procedure
 Project cycle helps in design, prepare,
implementation, and supervise the project
 Cont’d
 The first basic model of a project cycle is that of Baum (1970),
which has been adopted by the World Bank and initially
recognized four main stages, namely.
1. Identification
2. Preparation
3. Appraisal and Selection
4. Implementation
 At a later stage (in 1978) the author has added additional stages
making the stages 6 in number.
 A World Bank project consists of six stages:
1. Identification
2. Preparation
3. Appraisal
4. Negotiation/Approval
5. Implementation/Support
6. Completion/Evaluation

1. Project Identification
Identifying project that have high priority
 Economic and sectors analysis conducted with the help of the bank
 Identify the project that fit with the government and bank
 Project must also meet a prima facie test of feasibility
 Policy or institutional reforms to achieve project objective
 Both the bank and the government involved in identification of the
project
 Assess country credit worthiness
 Agree on initial project concept and beneficiaries
 The WBG outline PCN (objective, risk, alternatives and time table)
 “Resource based” - to make profitable use of
available resources.
 “Market based” - arising from demand in home or overseas
markets.
 “Need-based” - to make available to all people in an area of
minimal amounts of certain basic material requirements and
services.
 “Situation based” - Tsunami in 2004 several developmental
2. Project Preparation
 Resource base investigations are undertaken and alternative
forms of projects are explored.
 Government contract with consultant
 Beneficiaries and stakeholders consulted to get their feed back
 The WB gives advise and analysis support
 The world bank assess the relevance capacity of the
implementing agencies (financial management, procurement,
reporting, monitoring and evaluation)
 Project brief (objective, issue, time )
 1 – 2 years close collaboration
 Responsibility rest with the borrower
 The bank assist some times in identifying and preparing sound
project (Source: WHO, UNESCO, UNIDO, UNDP)
 Preparation must cover full range of technical, institutional,
economic, and financial condition
 It needs detail feasibility study
3. Project Appraisal
 It provides a comprehensive review of all aspects
of a project and lays the foundation for
implementing the project and evaluating it when
completed.
 The bank and the government review the work
done in identification and preparation phase
 Confirm the expected project out come, intended
beneficiaries, and evaluation tools for monitoring
progress
 It covers four major aspects of a project technical,
institutional, economic, and finance
 The team confirms that all aspect of the project is
consistent with world bank policies and the
government institutional arrangement are in place
to implementing the project
Cont’d
1. Technical ( physical scale, location, layout,
technology, equipment, approach, schedule, cost,
procurement, raw material ------)
2. Institutional: organization management, staffing,
policies, and procedures for contusive environment
for the project to operate
3. Economic: the contribution of the country economy
development
Cost – Benefit to the country, economic rate of
return
4. Financial: sufficient funds to cover the cost of
implementing the project on schedule. The bank
covers foreign exchange cost and the borrower
expected to cover local costs
4. Negotiation and Approval
 both agree on the measures necessary to assure
the success of a project
 Give and take on both side
 The agreement converted in to legal obligation
 The negotiation may include specify the necessary
rate of return and the timing of initial rate increase
 Agreement on objective, specific actions
 After negotiation and acceptance by both parties
the team develop project appraisal document
along with other financial and legal documents.
 Once the document are approved and signed by
the executive director, the implementation phase
begins.
 5. Implementation Supervision
 It is the responsibility of the borrower
 The bank gives organizational studies, training of staff,
expatriate manager/ consultant and supervise the
project
 The implementing agency prepares all the specification
of the project
 Carry out procurement of goods and work
 The result will be obtained only if the project is well
executed
 Difficulties political, weather, project management
 The WB review (semi annually) the progress of the
project (out come, and impact) of the project on
beneficiaries
 The bank ensures that the proceeds of any loan are
used only for the purpose for which the loan was
granted.
Cont’d
 Supervision helps to accumulate
experiences
 During negotiation, agreement will have
been reached on schedule of progress
report
 It includes physical work, cost, revenue
earning
 Reviewed at head quarter
 Supervision concerns also about
procurement of goods and works
 6. Project Evaluation
 The project is subject to ex post audit
 Operation evaluation department (OED)
 The borrower prepare a completion report at
the end of disbursement period and it is
reviewed by (OED)
 Document the result achieved, the problem
encountered, the lessons learned and
knowledge gained
 It may include both on the desk and field
review
 The independent evaluation group (IEG)
produce impact evaluation report to assess
the economic worth of a project and the long
term effect on people and the environment
The UNIDO Project Cycle
Model
The UNIDO project life cycle designed by
Behrens and Hawranek, 1991, is composed of
three phases and multiple sub-phases in each
major phase.
1. The pre-investment phase,
2. Investment phase, and
3. Operational phase.
 Cont’d
 According to the UNIDO Manual, the main stages of
the pre–investment phase are stated as follows:
 Identification of investment opportunities
(opportunity studies)
 Analysis of project alternatives and preliminary
project selection
 Project preparation (pre – feasibility, feasibility
studies and support or functional studies ) and
 Project appraisal and investment decision
(appraisal report).
 These stages assist a potential investor in the
decision-making process and provide the base for
project decision and implementation.
 Cont’d
 However, formulation of the detail techno-economic
feasibility study that enables a definite decision to be
made on the project is a costly and time-consuming
task.
 Therefore, before assigning large funds for such a study,
a preliminary assessment of the project idea must be
made in a pre-feasibility study. This is just to see if:
o All possible project alternatives are examined
o The project concept justifies detail study
o All aspects are critical and need in–depth
investigation
o The project idea is viable and attractive or not
 1.Opportunity studies:
An opportunity study should identify investment opportunities or
project ideas by analyzing the following factors in detail.
o Natural resources with high potential for processing and
manufacture;
o The future demand for certain consumer goods or for newly
developed goods;
o Imports in order to identify areas for import substitution;
o Manufacturing sectors successful in other countries with
similar level of development;
o Cost and availability of production factors;
o Possible extension of existing lines of manufacture;
o Possible inter-linkage with other industries;
o Possibilities for diversification of manufacturing;
o The possible expansion of existing industrial capacity to
attain economics of scale and
o Export possibilities
2. Pre-feasibility Study
 A pre-feasibility study should be viewed as an
intermediate stage between a project opportunity
study and a detailed feasibility study.
 The main difference between the pre-feasibility study
and the actual feasibility study is the degree of the
detail of the information obtained and the intensity
with which project alternatives are examined.
 The structure of a pre-feasibility study should be the
same as that of the detailed feasibility study.

 3. Feasibility Studies
 A feasibility study should provide all data necessary for
making the investment decision.
 The commercial, technical, financial, economic and
environment prerequisites for an investment project
should therefore be defined and critically examined on the
basis of alternative solutions already reviewed in the pre –
feasibility study.
 The results of these efforts is then a project whose
background conditions and aims have been clearly
defined in terms of its control objective and possible
marketing strategies, the possible market shares that can
be achieved, the corresponding production capacities, the
plant location, existing raw materials, appropriate
technology and mechanical equipment and, if required, an
environmental impact assessment.
Cont’d
 The financial part of the study covers the scope of
the investment, including the net working capital,
the production and marketing costs, sales
revenue and the return on capital invested.
 The emphasis on the components varies from
project to project.
 The sensitive parameters such as the size of the
market, the production program or the
mechanical equipment selected should be
examined more closely.
 5. Appraisal Report
 When a feasibility study is completed, the various parties
will carry out their own appraisal of the investment project
in accordance with their individual objectives and
evaluation of expected risks, costs and gain.
 Large investment and development finance institutions
have formalized project appraisal procedures and usually
prepare an appraisal report.
 This is the stage where final investment and financing
decisions taken by the project promoters.
 Project appraisal as carried out by financial institutions
concentrates on the health of the company to be financed,
the returns to be obtained by equity holders and the
protection of its creditors.
 The techniques applied to appraise projects in line with
these criteria center around technical, commercial,
market, managerial, organizational, and financial and
possibly also economic aspects.
 2. Investment (Implementation) phase
 The investment or implementation phase of a project
provides wide scope for consultancy and engineering
work.
 The investment phase includes the following
activities:
 Establishing the legal, financial and
organizational framework: covers the signing of
contracts between the investor /entrepreneur
on the one hand and the financing institutions,
consultants, architects and suppliers of raw
materials and required inputs on the other.
 Technology acquisition and transfer.

 Detailed engineering design and contract,

including tendering, evaluation of bids and
negotiations:
Cont’d
 Acquisition of land, construction work and
installation: involves site preparation,
construction of buildings and other civil
works, together with the erection and
installation of equipment in accordance with
proper programming and scheduling.
 Pre – production marketing, including the

securing of suppliers and setting up the

administration of the firm.
 Recruitment and training of personnel.

 Plant commissioning and start–up

 Cont’d
The project team starts investing in the project at this
phase. This phase can be further divided into three
major sections as below:
• Acquisition Phase: Where major resources such

as funds, land and building, plant and machinery,

manpower, technology, and raw materials are
procured for the projects execution.
• Commissioning Phase: At this stage of the

project, acquired resources are installed and

made ready for the operation. For example,
installation of machinery, erecting of building,
etc.
• Test production and marketing: Once the

resources are all ready for the operation a test

run is performed to make sure that everything is
intact and ready for the actual operation.
 3. Operational phase
 The problem of the operational phase needs to be
considered from both short – and long – term viewpoint.
 The short – term view relates to the initial after
commencement of production when a number of
problems may arise concerning such matters as the
applications of production techniques, operation of
equipment or inadequate labor productivity owing to
lack of qualified staff and labor.
 The long term view relates to chosen strategies and the
associated production and marketing costs as well as
sales revenues. These have a direct relationship with the
projections made at the pre–investment phase. If such
strategies and projection prove faulty, any remedial
measures will not only be difficult but may prove highly
expensive.
PROJECT IDENTIFICATION
 Project identification is the process of
searching for and subsequently finding
potential projects.
 Success of a venture depends on:
 Identifying - investment opportunities
 Searching - promising project ideas
 getting -into the right business at the right time.

43
3.1. WHO IDENTIFIES PROJECTS?
 Small producers organizations/producers’ unions;
 Large scale individual private sector producers;
 Product marketing organizations;
 Private sector companies (local/multinational);
 State owned enterprises and organizations;
 Government ministries, authorities;
 Local/International Development Banks and Agencies;
 Aid agencies /self-aid associations;
 Local/State/Regional/Sub-regional Government Authorities;
 Local political and pressure groups - opposition parties;
 Local/ International NGOs;
 Credit institutions and cooperatives, etc. 44
How Project Ideas Come About?
 Observation of existing opportunities and problems
 Opportunity studies by central government ministries;
 Sectoral/sub-sectoral programs of technical ministries (eg;
health, agriculture, tourism, education, industry, etc);
 Surveys conducted by local/ regional governments;
 Review of past projects;
 Private sector, cooperatives, and state enterprise plans;
 Investment identification by development banks/ agencies;
 Brainstorming (unsystematic discussions);
 Need analysis (existence of unsatisfied demand); and
 Need to tackle unexpected or undesirable events (drought,
earthquake, flood, etc). 45
3.2.2 MACRO AND MICRO SOURCES
 Projects are expected to contribute towards the
attainment of specified development objectives.
 Project ideas often are not derived from national
and/or sectoral plans in practice - may originate
from several sources.
 We can distinguish two levels where project ideas
are born:

1. Macro sources

2. Micro sources
46
 3.2.1. MICRO SOURCES
 Project ideas generally should aim at overcoming constraints on national
development efforts or meeting unsatisfied needs/demand.

 Prevailing constraints, needs, and demands should be interpreted

broadly to include: foreign exchange constraints that might indicate the
need to undertake projects for export promotion and/or import
substitution.

 Sectoral information and strategies often are important sources of

project ideas.

 Private and Public Enterprises; Local Groups or Organizations;

Consumer Groups and Associations; Financial Institutions/Credit
Associations; Cooperatives, Farmers’ Unions, etc; New Technology
Suppliers, and even individuals.

47
 Cont’d
• A micro source of projects is not as big as macro sources but it is carried
at the levels other than the government. At micro level project ideas can
be generated from various sources. Some of these are discussed below.
1. Analysis of the performance of existing industries
2. Examination of the input-outputs of various industries
3. Review of imports and exports
4. Investigation of local materials and resources
5. Analysis of economic and social changes
6. Exploring the possibility of reviving sick units
7. Study of new technological developments
8. Identification of unfulfilled psychological needs
9. Attending trade fairs
10. Stimulating creativity for generation’s new product lines

01/17/25 48
 3.2.2. MACRO SOURCES
• A macro source of project identification requires more investment of
time and cost.
• Government is the major source of project ideas in developing
countries because it has the necessary resources for undertaking
opportunity studies (conduct survey, studies, and reviews) better
access to data and information; familiar with the development
objectives, priorities, and strategies
1. Project ideas from government policies and plan
2. Project ideas from local leaders
3. Project ideas from Entrepreneurs

01/17/25 49
Major Macro Sources:
 Federal/Central or Regional Governments
 Bilateral and Multilateral Agreements
 International Development Agencies
Government is the major source of project
ideas in developing countries. Reasons:
 Has the necessary resources for undertaking
opportunity studies;
 Better access to data and information;
 Familiar with the development objectives, priorities, and
strategies.

50
3.3. PROCESS OF IDEA GENERATION
 Undertaking formal project identification studies
(including opportunity studies).
 Identification studies may involve
 area studies,
 industry studies,
 resource-base studies, and
 sectoral studies.

51
The process involves
 Surveying, reviewing, and analyzing existing policies,
resource endowments, and socio-economic variables
 Natural Resources: review of the natural resource
endowments of the country.
 Human Resource: review of educational standards/facility
 Socio-Economic Variables: review of various socio-
economic factors (includes: housing facilities/utilities
services/health & nutrition services/income distribution).
 Field Survey and Interview
 Survey people needs/problems.
 Asking the public their community needs

52
CONT’D
 Observing and Analyzing Prevailing Situation
 Current DD & SS;
 Examination of past and future consumption /production
trends for goods/services;
 Possibilities for improvement of goods and services (both in
terms of quality & quantity);
 Observing opportunities & threats in the invention &
introduction of new technologies, etc.
 Participating in Deliberations, Discussions, and
Trainings
 seminars, workshops, and conferences (local and/or
international) levels.
 Brainstorming
 Group of people suggesting different ideas
53
(Informal).
3.4. TOP-DOWN AND BOTTOM-UP
APPROACHES
Top-Down Approach:
Projects are identified at:
 higher planning (or macro) level
 implemented at the decision of top officials.
 Based on the national plan and strategies.
 problem might be clearly visible
 Often have long-term orientations.
 May encounter resistance as the people in the context
might lack interest to cooperate with.

54
3.4. TOP-DOWN AND BOTTOM-UP
APPROACHES contd..
Bottom-Up Approach:
– survey of resources, key development problems, and
resources.
– Based on the realities existing in the locality.
– May focus on short-term
– Projects easy to implement
– Project’s benefits are easily visualized by the society.
– Likely to get substantial community support.
– Might help to create good will (positive images) towards
the institution/the promoter.

55
3.5. SCREENING POTENTIALLY
PROMISING IDEAS
Screening Criteria:
 Compatibility with the promoter
 Consistency with government priorities
 Availability of inputs
 Adequacy of market
 Reasonableness of costs
 Acceptability of risk level
Eliminate (screen out) project proposals that:
 Are technically unsound and risky
 Have no market for their outputs
 Have inadequate supply of inputs
 Are very costly in relation to the expected benefits
 Assume an overambitious sales and profitability target
56
3.6. PROBLEMS FOR IDENTIFICATION OF
PROJECT IDEAS
Ambiguity about the National Development Goals
(Objectives)
 People might not clearly know the national
development goals.
 Development goals may not be well communicated, or
not substantially supported by other stakeholders.
Priority Issues in the Existing Development Goals
(Objectives)
 Conflict of views regarding the development priorities
and goals
 Lack of interest and commitment towards the
pursuit/realization of these goals.
 Differences regarding aspects of national priority.
 Differences in prioritizing sectoral goals. 57
CONT’D
Problems Associated with Data/Information
 Problems in data and information flow
 Constraint for accessing data
 Limited availability of data and information
 Available data may not be dependable/reliable
Conflict of Interest between Local Beneficiary
Groups
 What are the costs and benefits of the project?
 Who bear the cost? Who obtains the benefit in the
society?
 Do benefits accrue to those groups in the society who
bear the cost?
 If yes, all right!
 If no, find mechanisms to compensate those who bear
the cost

58
PROJECT PLANNING
 Effective total program planning cannot be
accomplished unless all of the necessary
information becomes available at project
initiation. These information requirements
are:
 Statement of work (SOW)
 Project specifications
 Work breakdown structure (WBS)

59
1. The statement of work (SOW) is a narrative
description of the work to be accomplished with its
objective, work description, funding, the specification
and the schedule.
2. Project specification: Specifications are used for
man-hour, equipment, and material estimates.
Specifications are, in fact, standards for pricing out a
proposal. If specifications do not exist or are not
necessary, then work standards should be included in
the proposal.
3. Work Breakdown Structure: The successful
accomplishment of both contract and corporate
objectives requires a plan that defines all effort to be
expended, assigns responsibility to a specially
identified organizational element, and establishes
schedules and budgets for the accomplishment of the 60

work.
Cont’d
In planning a project, the project manager must structure
the work into small elements that are:
 Manageable, in that specific authority and
responsibility can be assigned
 Independent, or with minimum interfacing with and
dependence on other ongoing elements
 Measurable in terms of progress

Work breakdown structure (WBS) enhances:

 Effectiveness of planning by dividing the work
into manageable elements that can be planned,
budgeted, and controlled.
 Assignment of responsibility for work elements
to project personnel & outside agencies.
 Development of control & information system
61
PROJECT
SCHEDULING

62
 Cont’d
Example1:
ABC Cables is bringing a new product on line to be
manufactured in their current facility in existing space. The
owners have identified 11 activities and their precedence
relationships. Develop an AOA for the project from the following
details.
Solution
Draw the diagram
How long it takes to complete the project?
Identify the critical Path

64
PROJECT ANALYSIS
 Feasibility studies are detailed analysis of
the project in different dimensions that
lead to an investment decision.
 It provides information required for the
project appraisal.
 It is similar in content with the pre-
feasibility study except it is done in detail
with greatest accuracy in an iterative
optimization process.

65
Major dimensions of feasibility
studies:

A. Commercial Dimension: Market & Demand

Analysis
B. Technical Dimension comprising:
1. Production Program and Plant Capacity
2. Input (Raw Materials & Supplies) Study
3. Location & Site Studies and Environmental Impact
Assessment
4. Engineering & Technology Study
5. Organisational & Human resources
C. Financial Cost-Benefit Analysis
D. Economic Analysis

66
 A. Market and Demand
Analysis
Collection
of Demand
Secondary Forecastin
Information g

Situational Analysis
and Specification of Characterizatio
Objectives n of the Market

Conduct of Market
Market Planning
67
Survey
 Demand Forecasting
 After gathering information about the
various aspects of the market and demand
from primary and secondary sources,
attempt may be made to estimate future
demand. A wide range of forecasting
method is available to the market analyst.

68
a) Qualitative Methods
(i) Jury of executive opinion method:
under this method opinions are sought from a
group of managers on the expected future sales
they are then translated into sales estimates
(Top – Down Approach)
(ii) Delphi method: opinions are sought from
a group of experts who don’t know the identity of
each other, any divergent opinions are then
mailed back to back for further opinion until a
consensus is obtained.
(iii) Salesmen opinion method: This method
uses information from salesmen to forecast
demand in the future (Bottom – up Method)

69
b) Quantitative Methods
(i) Trend Analysis or Time series Analysis:
This involves determining the trend of
consumption by analyzing past consumptions
data and then projecting future consumption by
extrapolating the trend. The most common
method of extrapolation is the linear regression.
This is given by the expression
Y = a + bx where;
t

Y = demand for year (dependent variable)

t
x = time variable ( Independent variable)
b = slope / gradient.
a = Y intercept.

70
71
Example

72
73
Exponential Smoothign
Method

74
Moving Average Method
 The forecast for the next period represent
a simple arithmetic average or a weighted
arithmetic average of the last few periods.

75
 Based on the above data forecast the
demand for the next two years using the
simple moving average of the recent three
years
 Assume a weight of 0.5 has been assigned
for the recent data followed by weights of
0.3, 0.2.

76
Causal Method
High – Low method
It use only the highest and lowest observation
values of the dependent and independent variables.
The demand function is estimated by using these
two points to calculate the slope coefficient and the
constant or intercept.
Slope coefficient (b)= difference between the
highest demand and lowest demand in the past
divided by the difference between the highest and
the lowest of the independent variable.
To compute the constant (Y intercept), we can use
either the highest or the lowest observations of the
data.

77
 Both calculations yield the same
answer because the solution
technique solves two linear
equations with two unknowns, the
slope coefficients and constant:
Y= a + bx
a= Y- b.X

78
Example

79
Regression Analysis
 It involves extrapolation the past trend of
demand with identified factor affecting the
demand such as income to project the
future consumption.
 It measures the average amount of
change in the dependent variables
associated with a unit change in one or
more independent variables associated
with a unit change in one or more
independent variables.
80
Example

81
Solution

82
Technical Dimension
comprising:

1. Production Program and Plant Capacity

2. Input (Raw Materials & Supplies) Study
3. Location & Site Studies and
Environmental Impact Assessment
4. Technology Study
5. Organisational & Human resources

83
 FINANCIAL FEASIBILITY

 The purpose of financial analysis is not just

to document the expected impact of the
project, credit worthiness, financial
efficiency
 Financial appraisal involves:
 Examining estimated costs & benefits
(cash flows) of the project.
 initial investment cost
 Cash flow statements

 Deciding whether the project is

worthwhile or not. 84
II. DECIDING WHETHER THE PROJECT IS
WORTHWHILE OR NOT

85
 NON-DISCOUNTED MEASURE OF PROJECT
WORTH
1. PAYBACK PERIOD
Pay back period is the number of years required
to return the original investment.
 Payback is often used as a "first screening
method".
 Acceptance Rule
 Accepted Project if it’s payback period is less
 Formulae:
 Payback Period with equal cash inflows.

PBP = Cash outlay (initial investment)

Annual cash inflow
 Payback Period with unequal cash inflows.
PBP = year recover + unrecovered cost at start of year 86
Cash flow during the next year
Example-2: Assume a $100,000 investment and the
following cash flows for two alternatives. Which of the
two alternatives would you select under the payback
method?

Year Investment A Investment B

1 $30,000 $40,000
2 50,000 30,000
3 20,000 15,000
4 60,000 15,000
5 — 50,000

87
 Project X Project Y
Year Net cash Accumulated Net cash Accumulated Net
inflow Net cash inflow cash inflow
inflow
1 30,000 30,000 40,000 40,000
2 50,000 80,000 30,000 70,000
3 20,000 1,00,000 15,000 85,000
4 60,000 1,60,000 15,000 1,00000
5 40,000 2,00,000 50,000 1,50,000

Payback Investment X = 3 years

Payback Investment Y = 4 years
Investment X should be selected because of the faster payback.
88
 Project A Project B
Year Net cash Accumulated Net cash Accumulated
inflow Net cash inflow inflow Net cash inflow

1 30,000 30,000 7,000 7,000

2 30,000 60,000 15,000 22,000
3 35,000 95,000 20,000 42,000
4 35,000 130,000 56,000 98,000
5 40,000 170,000 45,000 143,000
Note * represent the balance to be recovered from the cash inflow in period four;
100,000 – 95,000 = 5,000
70,000 – 42,000 = 28,000
Payback period for Project A:
= 3 years + 5000*
35,000
= 3.14 year or 3 years and 2 months

Payback period for Project B

PP = 3 years + 28,000
56,000 89
= 3.5 year or 3 years and 6 months. Project A to be selected as it has less payback
 DISCOUNTED MEASURE OF
PROJECT WORTH

 Money is one of the basic resources of an

organization that has a time value. The time
delay between an outlay and its effect is the main
reason for discounting and compounding future
benefits and costs.
 The commonly used discounting methods are:
 Net Present Value (NPV)
 Internal Rate of Return (IRR) and
 Benefit Cost Ratio (BCR)

90
 3. NET PRESENT VALUE (NPV):
 NPV is the net sum of total discounted benefits (cash
inflows) and total discounted costs. It represents the
present worth of an investment in excess of the
investment itself.

Where:
CFt
NPV=
 (1  r ) t  C0
 CF = Cash inflows at different periods
r = discounting rate
C0 = cash outflow in the beginning
Acceptance Rule
t = time period
 Accept the project when NPV is positive NPV > 0
 Reject the project when NPV is negative NPV < 0
 May accept the project when NPV is zero NPV = 0
91
 NPV
 All future cash flows should be discounted
into present values. The discount factor is:

 Assume that a given project has a life of

five years & a discount rate (r) of 8%
is used.
 For example, the discount factor for year 3
(i.e. t=3) is calculated as follows:

92
 NPV calculations –example, r=8%
Question: Compute the NPV for project A &
Project B:
year Cash flows for Project A Cash flows for Project B

0 (120,000) (75,000)

1 40,000 5,000

2 25,000 70,000

3 70,000 45,000

4 130,000 30,000

5 80,000 5,000

93
 Solution
year Project A Discount factor Discounted cash flow
= -120,000
0 (120,000)

1 40,000 37,037

2 25,000 21,433

3 70,000 55,568

4 130,000 95,554

5 80,000 54,447

Add them up NPV= 144,039

Project B

0 (75,000) ($75,000)

1 (5,000) 4,630)

2 70,000 60,014

3 45,000 35,723

4 30,000 22,051

5 5,000 3,403
4. Internal Rate of Return (IRR):

 IRR is defined as the discount rate the net present value is

zero. IRR method finds out the rate at which – when applied
on future cash inflows – the present value of such inflows
taken together should equal with the present value of the
cost of investment.
 The IRR is the discount rate at which the NPV for a project
equals zero. This rate means that the present value of the
cash inflows for the project would equal the present value
of its outflows.
 Where k = IRR
 The IRR is the break-even discount rate.
 The IRR is found by trial and error.

95
The NPV Curve The project IRR= 0.0547

96
Example 1: You buy a new piece of equipment for $16,980,
and you receive a cash inflow of $3,000 per year for 12 years.
What is the internal rate of return?

 Solution:
Appendix D
$16,980
PVIFA  5.660
$3,000

IRR = 14%
For n = 12, we find 5.660 under the 14% column.

97
 5. Benefit Cost ratio (BCR) or
Profitability Index (PI)
 Profitability index identifies the relationship of investment
to payoff of a proposed project.

Rules for selection or rejection of a project:

 If PI > 1 then accept the project
 If PI < 1 then reject the project

98
ORGANISATION

All Forms of project organizations is not

suitable to the projects due to the following
features of projects.
 Project is a non-routine, non repetitive
 Work with uncertainties.
 It involves co-ordination of efforts of persons.
 The relationships in the project are dynamic,
temporary and flexible.
1. Line and Staff Organization

 Does not make decision of project

 Project mgr merely collects and
communicates information to CEO
 He may influence some decision taken by
CEO
 Effective use of resources
1. Line and Staff Organization
2. Divisional Organizations

 Separate division is set headed by PM

 Planning & control,
 better integration and communication
 PM advice functional group but final
decision rest with Functional group
 PM has authority only to shape project
 Effective realization of goal
2. Divisional Organizations
Project Management
Structures (cont’d)

 Organizing Projects: Matrix Structure

 Hybrid organizational structure (matrix) is
overlaid on the normal functional structure.
 Two chains of command (functional and project)
 Project participants report simultaneously to both
functional and project managers.
 Matrix structure optimizes the use of resources.
 Allows for participation on multiple projects while
performing normal functional duties.
 Achieves a greater integration of expertise and project
requirements.
3–104
3. Matrix Organization
 4. Project Organization
contd..
 A Project Management Office (PMO) is a
separate office, staffed with full time
employees, to help coordinate all project
activities within the organization.
 PM with full project authority
 Shorter communication lines than hybrid
organization
 Higher project commitment of team
 Faster decision making
 Unity of command makes life easier for staff
 Organization is structurally simple and
flexible 106
4. Project Organization

 In Project Management

107
 Choosing the Appropriate Project Management
Structure (cont’d)
 Project Considerations
 Size of project
 Strategic importance
 Novelty and need for innovation
 Need for integration (number of departments
involved)
 Environmental complexity (number of external
interfaces)
 Budget and time constraints
 Stability of resource requirements
 IMPLEMENTATION:Mea
IMPLEMENTATION:
ning
 Process whereby “project inputs are
converted to project outputs”. May be
looked at as:
 Putting in action the activities of the project
 Putting into practice what was proposed in the
project document (i.e. transforming the project
proposal into the actual project)
 Management of the project or executing the
project intentions
Project implementation
phase includes...
 Project activation
This means making arrangements to have the
project started. It involves coordination and
allocation of resources to make project operational.
 Project operation
This is practical management of a project. Here,
project inputs are transformed into outputs to
achieve immediate objectives.
 Other typical
implementation problems
 Poor scheduling of projects leading to delays in
implementation.
 Misallocation of funds
 Lack of accountability and transparency
 Bureaucracy in decision-making.
 Selfishness/nepotism/favouritism by some project managers.
 Weak monitoring systems
 Natural calamities like drought, earthquakes, landslides,
 Migration of beneficiaries
 Lack of team work
 Lack of incentives for implementers
 Project controlling
 Control is a management function which is the
process of monitoring, evaluating and comparing
planned results with actual results to determine
the progress torward the project cost, schedule,
and technical performance objectives, as well as
the project's ”strategic fit” with enterprise
purposes.
 It's role is more predictive than investigative and
answers the question what may happen according
to the management type than what has happened.
 Steps in control cycle
(1)
Establishing
standards

(4)
(2)
Taking
Observing
corrective
performance
action

(3)
Comparing actual
performance
Monitoring &
Evaluation
 Monitoring is to keep track of and to check
systematically all project activities.
 Evaluation is the examination and appraisal of
how things are going on the project.
 Monitoring and Evaluation of the project require
that the project team look inward to the project
and the sponsoring organization as well as
outward to the stakeholders and the general
”system” enviroment.
 Monitoring
 In developing a system of monitoring, the
following points should be considered:
 focus sharply on the critical aspects of project
implementation
 lay more emphasis on physical milestones and
not on financial targets
 must be kept relatively simple
 monitoring is not an end in itself rather as a
means to implement the project successfully
 Evaluation
 Evaluation is mainly concerned with determining
whether the planned benefits of the project have
materialized and distributed to the beneficiaries of the
project.
 Evaluation takes longer time and requires more
specialist skills than monitoring.
 Ex-post/post audit action of a project control:
 provide a documented log of experience that help in improving
future decision making
 identify individual with superior abilities in planning and
forecasting
 discover systematic biases in judgment
 serve as a useful training ground for promising executives