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M-301 PROJECT MANAGEMENT

Segment I
Basic Concept, Project Life Cycle, Characteristics and Taxonomy, Organizing for
Projects.
Role and Responsibilities of a Project Manager, Concept of Social Projects, SCBA

What is a Project?
“A project is a one-shot, time-limited, goal-directed, major undertaking,
requiring the commitment of varied skills and resources”.
A project is “ a unique endeavor to produce a set of deliverables within clearly
specified time, cost and quality constraints”.
Projects are temporary in nature, while operations are ongoing. Projects have
definitive start dates and definitive end dates. The project is completed when the
goals and objectives of the project are accomplished. Sometimes projects end when
it’s determined that the goals and objectives cannot be accomplished and the
project is canceled. Operations involve work that is continuous without an ending
date and often repeat the same process. Projects exist to bring about a product or
service that hasn’t existed before.

Projects are different from standard business operational activities as they:


(UBEBSSM)
1. Are Unique in nature. They do not involve repetitive processes. Every
project undertaken is different from the last, whereas operational activities
often involve undertaking repetitive(identical) processes.
2. Have an approved budget. Projects are allocated a level of financial
expenditure within which the deliverables must be produced to meet a specified
customer requirement.
3. Involve an element of risk. Projects entail a level of uncertainty and
therefore carry business risk.
4. Consume human and nonhuman resources (i.e., money, people, equipment)
5. Achieve beneficial change. The purpose of a project, typically, is to
improve an organization through the implementation of business change.
6. Have a specific objective to be completed within certain specifications
7. Have defined start and end dates
8. Are multifunctional (i.e., cut across several functional lines)

What Is Project Management?


Project management is the discipline of planning, organizing, and managing
resources to bring about the successful completion of specific project goals and
objectives. The primary challenge of project management is to achieve all of the
project goals and objectives while honoring the preconceived project constraints.
Typical constraints are scope, time, and budget. The secondary—and more determined
—challenge is to optimize the allocation and integration of inputs necessary to
meet pre-defined objectives.
Project management is concerned with the overall planning and co-ordination of a
project from beginning to end aimed at meeting the stated requirements and
ensuring completion on time, within cost and to required quality standards.
Project management is normally reserved for focused, non-repetitive, time-limited
activities with some degree of risk and that are beyond the usual scope of
operational activities for which the organization is responsible.
“Project Management is the skills, tools and management processed required to
undertake a project successfully”.

Project Management comprises:


Skills: A set of skills. Specialist knowledge, skills and experience are required
to reduce the level of risk within a project and thereby enhance its likelihood of
success.
Tools: A suite of tools. Various types of tools are used by project managers to
improve their chances of success. Examples include document templates, register,
and planning software, modeling software, audit checklists and review forms
Processes: Various management techniques and processes are required to monitor and
control time, cost, quality and scope on projects, examples includes management
cost, mgmt time, change mgmt, risk mgmt and issue mgmt.
Four Basic Elements of Project Management
A successful Project Manager must simultaneously manage the four basic elements of
a project: resources, time, cost, and scope. Each element must be managed
effectively. All these elements are interrelated and must be managed together if
the project, and the project manager, is to be a success.
• Managing Resources
A successful Project Manager must effectively manage the resources assigned to the
project. This includes the labor hours of the project team. It also includes
managing labor subcontracts and vendors. Managing the people resources means
having the right people, with the right skills and the proper tools, in the right
quantity at the right time.
However, managing project resources frequently involves more than people
management. The project manager must also manage the equipment (cranes, trucks and
other heavy equipment) used for the project and the material (pipe, insulation,
computers, manuals) assigned to the project.
• Managing Time and Schedule
Time management is a critical skill for any successful project manager. The most
common cause of bloated project budgets is lack of schedule management.
Fortunately there is a lot of software on the market today to help you manage your
project schedule or timeline.
Any project can be broken down into a number of tasks that have to be performed.
To prepare the project schedule, the project manager has to figure out what the
tasks are, how long they will take, what resources they require, and in what order
they should be done.
• Managing Costs
Often a Project Manager is evaluated on his or her ability to complete a project
within budget. The costs include estimated cost, actual cost and variability.
Contingency cost takes into account influence of weather, suppliers and design
allowances.
Project Life Cycle:
Patel and Morris have stated that
"The life cycle is the only thing that uniquely distinguishes projects from non-
projects".

The Project Life Cycle refers to a logical sequence of activities to accomplish


the project’s goals or objectives. Regardless of scope or complexity, any project
goes through a series of stages during its life. There is first an Initiation or
Birth phase, in which the outputs and critical success factors are defined,
followed by a Planning phase, characterized by breaking down the project into
smaller parts/tasks, an Execution phase, in which the project plan is executed,
and lastly a Closure or Exit phase, that marks the completion of the project.
Project activities must be grouped into phases because by doing so, the project
manager and the core team can efficiently plan and organize resources for each
activity, and also objectively measure achievement of goals and justify their
decisions to move ahead, correct, or terminate. It is of great importance to
organize project phases into industry-specific project cycles. Why? Not only
because each industry sector involves specific requirements, tasks, and procedures
when it comes to projects, but also because different industry sectors have
different needs for life cycle management methodology. And paying close attention
to such details is the difference between doing things well and excelling as
project managers.
Diverse project management tools and methodologies prevail in the different
project cycle phases. Let’s take a closer look at what’s important in each one of
these stages:
a) Need identification
b) Initiation
c) Planning
d) Executing
e) Controlling
f) Closing out

1. Need Identification
The first step in the project development cycle is to identify components of the
project. Projects may be identified both internally and externally:
• Internal identification takes place when the energy manager identifies a
package of energy saving opportunities during the day-to-day energy management
activities, or from facility audits.
• External identification of energy savings can occur through systematic
energy audits undertaken by a reputable energy auditor or energy service company.
In screening projects, the following criteria should be used to rank-order project
opportunities.
• Cost-effectiveness of energy savings of complete package of measures
(Internal rate of return, net present value, cash flow, average payback)
• no difficulty of quantifying, monitoring, and verifying electricity and fuel
savings.
• Availability of technology, and simplicity of adaptability of the technology
to Indian conditions.
• Other environmental and social cost benefits (such as reduction in local
pollutants, e.g. SOx)
• Reducing costs
• Increasing revenues
• Eliminating waste
• Increasing productivity and efficiency
• Solving a business or functional problem
• Taking advantage of market opportunities

2. Initiation
In this first stage, the scope of the project is defined along with the approach
to be taken to deliver the desired outputs. The project manager is appointed and
in turn, he selects the team members based on their skills and experience. The
most common tools or methodologies used in the initiation stage are Project
Charter, Business Plan, Project Framework (or Overview), Business Case
Justification, and Milestones Reviews.

3. Planning
The second phase should include a detailed identification and assignment of each
task until the end of the project. It should also include a risk analysis and a
definition of a criteria for the successful completion of each deliverable. The
governance process is defined, stake holders identified and reporting frequency
and channels agreed. The most common tools or methodologies used in the planning
stage are Business Plan and Milestones Reviews.

4. Execution and controlling


The most important issue in this phase is to ensure project activities are
properly executed and controlled. During the execution phase, the planned solution
is implemented to solve the problem specified in the project's requirements. In
product and system development, a design resulting in a specific set of product
requirements is created. This convergence is measured by prototypes, testing, and
reviews. As the execution phase progresses, groups across the organization become
more deeply involved in planning for the final testing, production, and support.
The most common tools or methodologies used in the execution phase are an update
of Risk Analysis and Score Cards, in addition to Business Plan and Milestones
Reviews.

5. Closure
In this last stage, the project manager must ensure that the project is brought to
its proper completion. The closure phase is characterized by a written formal
project review report containing the following components: a formal acceptance of
the final product by the client, Weighted Critical Measurements (matching the
initial requirements specified by the client with the final delivered product),
rewarding the team, a list of lessons learned, releasing project resources, and a
formal project closure notification to higher management. No special tool or
methodology is needed during the closure phase

PROJECT LIFE CYCLES


Every program, project, or product has certain phases of development known as
life-cycle phases. A clear understanding of these phases permits managers and
executives to better control resources to achieve goals.
During the past few years, there has been at least partial agreement about the
lifecycle phases of a product. They include:
● Research and development ● Market introduction ● Growth ● Maturity
● Deterioration ● Death
Today, there is no agreement among industries, or even companies within the same
industry, about the life-cycle phases of a project. This is understandable because
of the complex nature and diversity of projects.
The theoretical definitions of the life-cycle phases of a system can be applied to
a
project. These phases include:

1. Conceptual 2. Testing 3. Planning 4. Implementation 5.
Closure
The first phase, the conceptual phase, includes the preliminary evaluation of an
idea. Most important in this phase is a preliminary analysis of risk and the
resulting impact on the time, cost, and performance requirements, together with
the potential impact on company resources. The conceptual phase also includes a
“first cut” at the feasibility of the effort.
The second phase is the planning phase. It is mainly a refinement of the elements
in the conceptual phase and requires a firm identification of the resources
required and the establishment of realistic time, cost, and performance
parameters. This phase also includes the initial preparation of documentation
necessary to support the system. For a project based on competitive bidding, the
conceptual phase would include the decision of whether to bid, and the planning
phase would include the development of the total bid package (i.e., time,
schedule, cost, and performance). Because of the amount of estimating involved,
analyzing system costs during the conceptual and planning phases is not an easy
task. As shown in Figure 2–19, most project or system costs can be broken down
into operating (recurring) and implementation (nonrecurring) categories.
Implementation costs include one-time expenses such as construction of a new
facility, purchasing computer hardware, or detailed planning. Operating costs
include recurring expenses such as manpower. The operating costs may be reduced as
shown

in Figure 2–19 if personnel perform at a higher position on the learning curve.


The identification of a learning curve position is vitally important during the
planning phase when firm cost positions must be established. Of course, it is not
always possible to know what individuals will be available or how soon they will
perform at a higher learning curve position.
Once the approximate total cost of the project is determined, a cost-benefit
analysis should be conducted (see Figure 2–20) to determine if the estimated value
of the information obtained from the system exceeds the cost of obtaining the
information. This analysis is often included as part of a feasibility study. There
are several situations, such as in competitive bidding, where the feasibility
study is actually the conceptual and definition phases. Because of the costs that
can be incurred during these two phases, top-management approval is almost always
necessary before the initiation of such a feasibilitystudy.
The third phase—testing—is predominantly a testing and final standardization
effort so that operations can begin. Almost all documentation must be completed in
this phase.
The fourth phase is the implementation phase, which integrates the project’s
product or services into the existing organization. If the project was developed
for establishment of a marketable product, then this phase could include the
product life-cycle phases of market introduction, growth, maturity, and a portion
of deterioration.
The final phase is closure and includes the reallocation of resources. Consider a
company that sells products to consumers. As one product begins the deterioration
and death phases of its life cycle (i.e., the divestment phase of a system), new
products or projects must be established. Such a company would, therefore, require
a continuous stream of projects to survive, as shown in Figure 2–21. As projects A
and B begin their decline, new

efforts (project C) must be developed for resource reallocation. In the ideal


situation these new projects will be established at such a rate that total revenue
will increase and company growth will be clearly visible. The closure phase
evaluates the efforts of the total system and serves as input to the conceptual
phases for new projects and systems. This final phase also has an impact on other
ongoing projects with regard to identifying priorities.

Organizing for Project Management:


Organization of Project Participants
The top management of the owner sets the overall policy and selects the
appropriate organization to take charge of a proposed project. Its policy will
dictate how the project life cycle is divided among organizations and which
professionals should be engaged. Decisions by the top management of the owner will
also influence the organization to be adopted for project management. In general,
there are many ways to decompose a project into stages. The most typical ways are:
• Sequential processing whereby the project is divided into separate stages and
each stage is carried out successively in sequence.
• Parallel processing whereby the project is divided into independent parts such
that all stages are carried out simultaneously.
• Staggered processing whereby the stages may be overlapping, such as the use of
phased design-construct procedures for fast track operation .It should be pointed
out that some decompositions may work out better than others, depending on the
circumstances. In any case, the prevalence of decomposition makes the subsequent
integration particularly important.
The critical issues involved in organization for project management are:
• How many organizations are involved?
• What are the relationships among the organizations?
• When are the various organizations brought into the project?
There are two basic approaches to organize for project implementation ,even though
many variations may exist as a result of different contractual relationships
adopted by the owner and builder. These basic approaches are divided along the
following lines:
1. Separation of organizations. Numerous organizations serve as consultants or
contractors to the owner, with different organizations handling design and
construction functions. Typical examples whichinvolve different degrees of
separation are:
o Traditional sequence of design and construction
o Professional construction management
2. Integration of organizations. A single or joint venture consisting of a number
of organizations with a single command undertakes both design and construction
functions. Two extremes may be cited as examples:
o Owner-builder operation in which all work will be handled in house by force
account.
o Turnkey operation in which all work is contracted to a vendor which is
responsible for delivering the completed project Since construction projects may
be managed by a spectrum of participants in a variety of combinations, the
organization for the management of such projects may vary from case to case. On
one extreme, each project may be staffed by existing personnel in the functional
divisions of the organization on an ad-hoc basis as shown in
Figure 2-4 until the project is completed. This arrangement is referred to as the
matrix organization as each project manager must negotiate all resources for the
project from the existing organizational framework. On the other hand, the
organization may consist of a small central functional staff for the exclusive
purpose of supporting various projects, each of which has its functional divisions
as shown in Figure 2-5. This decentralized set-up is referred to as the project
oriented organization as each project manager has autonomy in managing the
project. There are many variations of management style between these two extremes,
depending on the objectives of the organization and the nature of the construction
project.
For example, a large chemical company with in-house staff for planning, design and
construction of facilities for new product lines will naturally adopt the matrix
organization. On the other hand, a construction company whose existence depends
entirely on the management of certain types of construction projects may find the
project-oriented organization particularly attractive. While organizations may
differ, the same basic principles of
management structure are applicable to most situations.

To illustrate various types of organizations for project management, we shall


consider two examples, the first one representing an owner organization while the
second one representing the organization of a construction management consultant
under the direct supervision of the owner.
Example 2-3: Matrix Organization of an Engineering Division
The Engineering Division of an Electric Power and Light Company has functional
departments as shown in Figure 2-6. When small scale projects such as the addition
of a transmission tower or a sub-station are authorized, a matrix organization is
used to carry out such projects. For example, in the design of a transmission
tower, the professional skill of a structural engineers most important.
Consequently, the leader of the project team will be selected from the Structural
Engineering Department while the remaining team members are selected from all
departments as dictated by the manpower requirements. On the other hand, in the
design of a new substation, the professional skill of an electrical engineer is
most important. Hence, the leader of the project team will be selected from the
Electrical Engineering Department.

Example 2-4: Example of Construction Management Consultant


Organization
When the same Electric Power and Light Company in the previous example decided to
build a new nuclear power plant, it engaged a construction management consultant
to take charge of the design and construction completely. However, the company
also assigned a project team to coordinate with the construction management
consultant as shown in
Figure 2-7.

Since the company eventually will operate the power plant upon its completion, it
is highly important for its staff to monitor the design and construction of the
plant. Such coordination allows the owner not only to assure the quality of
construction but also to be familiar with the design to facilitate future
operation and maintenance. Note the close direct relationships of various
departments of the owner and the consultant. Since the project will last for many
years before its completion, the staff members assigned to the project team are
not expected to rejoin the Engineering Department but will probably be involved in
the future operation of the new plant. Thus, the project team can act
independently toward its designated mission.

Role and Responsibilities of a Project Manager


Five Steps for Change
The first step is to change how you think about projects. Project managers must
stop thinking of projects in a transactional sense, and begin thinking like upper
level managers. They have to extend their core leadership skills and start
building data communication skills. We all know great PMs create great teams.
Their stock in trade is leadership. They bring people together to achieve great
things. These are critical skills, but to join upper-level management, these are
table stakes. Organizational management involves something more.
It requires that managers abstract the data needed to

Project Manager
A project manager is usually responsible for the success or the failure of the
project. They first need to define the project and then build its work plan. If
the scope of the project is not very clear, or the project is executing poorly,
the manager is held accountable. However, this does not mean that the manager does
all the work by himself (which is practically impossible). There is an entire team
under the project manager, which helps to achieve all the objectives of the
project. However, if something goes wrong, the project manager is ultimately
accountable. Apart from this, depending on the size and the difficulty of the
project, they may need to take on multiple roles. The project manager may need to
assist with gathering business requirements, help to design a database management
system or may prepare project documentation. They may work full time on a large
project, or may work part-time on various projects of a smaller nature; or may
alternatively handle various projects as well as handle other responsibilities
like business analysis and business development.
At times, they may have accountability but not authority. For example, he or she
may be using certain resources but might not have direct control over those
resources. At such times, the manager might find certain limitations over task
execution, which might not take place as they might have liked. Not having direct
control over the state of finances and finance allocation might cause ambiguity.
Project managers use project management software, such as Microsoft Project, to
organize their tasks and workforce. These software packages allow project managers
to produce reports and charts in a few minutes, compared to the several hours it
can take if they do not use a software package. In order to be successful, the
project manager must be given support and authority
by senior management

Role of Project Manager


It is the responsibility of project manager to make sure that the customer is
satisfied and the work scope is completed in a quality manner, using budget, and
on time. The Project Manager has primary responsibility for providing leadership
in planning, organizing and controlling the work effort to accomplish the project
objectives. In other words, the project manager provides the leadership to project
team to accomplish the project objective. The project manager coordinates the
activities of various team members to ensure that they perform the right tasks at
the proper time, as a cohesive group. The different roles of project manager are
as follows:
Planning The Role of
the Project Manager

Organizing
Controlling
Leading
Communicating
Cognitive functions
Self management functions
Motivational and personaldevelopment functions
Customer awareness functions
Organizational savvy functions

2.1 Planning
First, the project manager clearly defines the project objectives and reaches
agreement with the customer on this objective. The manager then communicate this
objective to the project team in such a manner as to create a vision of what will
constitute successful accomplishment of the objective. The project manager
spearheads development of a plan to achieve the project objectives. By involving
the project team in developing this plan, the project manager ensures more
comprehensive plan than he or she could develop alone. Furthermore, such
participation gains the commitment of the team to achieve the plan. The project
manager reviews the plan with the customer to gain endorsement and then sets up
the project management information system-either manual or computerized-for
comparing actual progress to plan progress. It’s important that this system be
explained to the project team so that the team can use it properly to manage the
project.

2.2 Organizing
Organizing involves securing the appropriate resources to perform the work. First,
the project must decide which tasks should be done in-house and which tasks should
be done by subcontractors or consultants. For tasks that will be carried out in-
house, the project manager gains a commitment from the specific people who will
work on the project. For tasks that will be performed by subcontractors, the
project manager clearly defines the work scope and deliverables and negotiates a
contract with each subcontractor. The project manager also assigns responsibility
and delegates’ authority to specific individuals or subcontractors for the various
tasks, with the understanding that they will be accountable for the accomplishment
of their tasks within the assigned budget and schedule. For large projects
involving many individuals, the project manager may designate leaders for specific
group of tasks. Finally, and most important, the task of organizing involves
creating an environment in which the individuals are highly motivated to work
together as a project team.

2.3 Controlling
To control the project, the project manager implements a management information
system designed to track actual progress and compare it with planned progress.
Such a system helps the manager distinguish between busyness and accomplishments.
Project team members monitor the progress of their assigned tasks and regularly
provide data on progress, schedule and cost. These data are supplemented by
regular project review meetings. If actual progress falls behind planned progress
or unexpected events occur the project manager takes immediate action. He or she
obtains input and advice from team members regarding appropriate corrective
actions and how to replan those parts of the project. It’s important that problems
and even potential problems, be identified early and action taken. The project
manager cannot take a “let’s wait and see how things works out” approach- things
never works out on their own. He or she must intervene and be proactive, resolving
problems before they become worse.

2.4 Leading
Project manager fosters development of a common mission and vision to the team
members. He should clearly define roles, responsibilities and performance
expectations for all his team members. He uses leadership style appropriately to
situation or stage of team development. He should be able to foster collaboration
among team members. He should provide clear direction and priorities to his team
members. He should be efficient enough to remove obstacles that hamper team
progress, readiness or effectiveness. He should promote team participation in
problem solving and decision making as appropriate. He should pass credit on to
team, and promotes their positive visibility to upper management. He should
appreciate, promote and leverage the diversity within the team.

2.5 Communicating
The Project Manager should be able to communicate effectively with all levels
inside and outside of the organizations. He should be able to negotiate fairly and
effectively with the customers/subcontractors. He should be able to bring
conflicts into the open and manages it collaboratively and productively with the
help of other team members. He should be able to able to influence without relying
on coercive power or threats. He should be able to convey ideas and information
clearly and concisely, both in writing and orally to all the team members.

2.6 Cognitive functions


The project manager should identify the problem and gathers information
systematically and seeks input from several sources. He should then consider a
broad range of issues or factors while solving these problems. For this he
collects the appropriate quantity of data for the situation and discusses it with
all the team members before making a decision. He then draws accurate conclusions
from quantitative data and makes decisions in an unbiased, objective manner using
an appropriate process. For this process of decision making he understands the
concept of risk versus return and makes decision accordingly.

2.7 Self management functions


The project manager should be able to maintain focus and control when faced with
ambiguity and uncertainty and should be able to show consistency among principles,
values and behavior. He should be resilient and tenacious in the face of pressure,
opposition, constraints, or adversity. Being the head of the project he should
manage implementations effectively and should recognize as someone “who gets
things done.” He should continuously seek feedbacks from the team members and
modify his behavior accordingly. He should take keen interest in learning and self
development opportunities.

2.8 Motivational and personal development functions


Project manager should consider individual skills, values and interest of all his
team members when assigning or delegating tasks to them. He should allow team
members an appropriate amount of freedom to do the job. He should accurately
access individual strength and development needs of his team members to complete
the work effectively. He should continuously offer opportunities for personal and
professional growth to his team members. He should arrange for training program
and continuously seeks support to his team member when needed. He should pass
credit on to the individuals and promote their positive visibility to upper
management. He should give
timely, specific and constructive feedback to all his team members.
2.9 Customer awareness functions
Project manager should be able to anticipate customer’s needs effectively and
proactively strives to satisfy them. He should be able to accurately translate the
customer’s verbalized wants into what they actually needs. He should be able to
understand customers and their business and actively build and maintain strong
customer relationships. He should understand customer’s issues, concerns and
queries and try to resolve them effectively. He should actively strive to exceed
customer expectations.

2.10 Organizational savvy functions


Project manager should involve the right people at the right time for a particular
job. Understands, accepts and properly uses power and influence in relationships.
He should build and leverage formal and informal networks to get things done. He
should know the mission, structure and functions of the organizations and others.
He should
understand profitability and general management philosophy. He balance interests
and needs of team/project with those of the broader organization.
DEFINING THE PROJECT MANAGER’S ROLE
The project manager is responsible for coordinating and integrating activities
across multiple, functional lines. The integration activities performed by the
project manager include:
• Integrating the activities necessary to develop a project plan
• Integrating the activities necessary to execute the plan
• Integrating the activities necessary to make changes to the plan
These integrative responsibilities are shown in Figure 1–3 where the project
manager must
convert the inputs (i.e., resources) into outputs of products, services, and
ultimately profits.

In order to do this, the project manager needs strong communicative and


interpersonal skills, must become familiar with the operations of each line
organization, and must have knowledge of the technology being used. An executive
with a computer manufacturer stated that his company was looking externally for
project managers. When asked if he expected candidates to have a command of
computer technology, the executive remarked: “You give me an individual who has
good communicative skills and interpersonal skills, and I’ll give that individual
a job. I can teach people the technology and give them technical experts to assist
them in decision making. But I cannot teach somebody how to work with people.” The
project manager’s job is not an easy one. Project managers may have increasing
responsibility, but very little authority. This lack of authority can force them
to “negotiate” with upper-level management as well as functional management for
control of company resources. They may often be treated as outsiders by the formal
organization. In the project environment, everything seems to revolve about the
project manager. Although the project organization is a specialized, task-oriented
entity, it cannot exist apart from the traditional structure of the organization.
The project manager, therefore, must walk the fence between the two organizations.
The term interface management is often used for this role, which can be described
as managing relationships:
• Within the project team
• Between the project team and the functional organizations
• Between the project team and senior management
• Between the project team and the customer’s organization, whether an
internal or external organization
To be effective as a project manager, an individual must have management as well
as technical skills. Because engineers often consider their careers limited in the
functional disciplines, they look toward project management and project
engineering as career path opportunities. But becoming a manager entails learning
about psychology, human behavior, organizational behavior, interpersonal
relations, and communications. MBA programs have come to the rescue of individuals
desiring the background to be effective project managers. In the past, executives
motivated and retained qualified personnel primarily with financial incentives.
Today other ways are being used, such as a change in title or the promise of more
challenging work. Perhaps the lowest turnover rates of any professions in the
world are in project management and project engineering. In a project environment,
the
project managers and project engineers get to see their project through from
“birth to death.” Being able to see the fruits of one’s efforts is highly
rewarding. A senior project manager in a construction company commented on why he
never accepted a vice presidency that had been offered to him: “I can take my
children and grandchildren into ten countries in the world and show them
facilities that I have built as the project manager. What do I show my kids as an
executive? The size of my office? My bank account? A stockholder’s report?” The
project manager is actually a general manager and gets to know the total operation
of the company. In fact, project managers get to know more about the total
operation of a company than most executives. That is why project management is
often used as a training ground to prepare future general managers who will be
capable of filling top management
positions.
__________________________________________________________________________________
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SOCIAL COST BENEFIT ANALYSIS

• So, to reflect the real value of a project to society, we must consider the
impact of the project on society.

Thus ,when we evaluate a project from the view point of the society (or economy)
as a whole, it is called Social Cost Benefit Analysis (SCBA)/Economic Analysis.
Scope of SCBA
SCBA can be applied to both Public & private investments –
• Public Investment:
SCBA is important specially for the developing countries where govt. plays a
significant role in the economic development.
• Private Investment:
Here, SCBA is also important as the private investments are to be approved by
various governmental & quasi-governmental agencies.
Objectives of SCBA
The main focus of Social Cost Benefit Analysis is to determine:
1. Economic benefits of the project in terms of shadow prices;
2 The impact of the project on the level of savings and investments in the
society;
3. The impact of the project on the distribution of income in the society;
4. The contribution of the project towards the fulfillment of certain merit
wants (self- sufficiency, employment etc).
Significances of SCBA
CBA is unable to reflect social values. Hence SCBA has been emerged with some
interesting significances. These significances also make the SCBA different from
the CBA.
• Market Imperfections
• Externalities
• Taxes & Subsidies
• Concern for Savings
• Concern for Redistribution
• Merit Wants
• Market Imperfections: Market prices, the basis for CBA, do not reflect the
social values under imperfect market competition.
• Externalities: A project may have beneficial or harmful external effects
that are considered in SCBA, not in CBA.
• Taxes & Subsidies: From the social point of view, taxes & subsidies are
nothing but transfer payments. But in CBA, taxes & subsidies are treated as
monetary costs and benefits respectively.
• Concern for Savings: In SCBA, the division between benefits & consumption is
relevant wherein higher valuation is placed on savings. But in CBA such division
is irrelevant.
• Concern for Redistribution: In SCBA, the distribution of benefits is very
much concerning issue where commercial private firm does not bother about it.
• Merit Wants: Merit wants are important from the social point of view and
therefore, SCBA considers these wants.
Approaches to SCBA
There are two principal approaches for Social Cost Benefit Analysis.
A. UNIDO Approach, and
B. L-M Approach.
A. UNIDO Approach: This approach is mainly based on the publication of UNIDO
(United Nation Industrial Development Organization) named Guide to Practical
Project Appraisal in 1978.
B. L-M Approach :I.M.D Little & J.A.Mirlees have developed this approach for
analysis of Social Cost Benefit in Manual of Industrial Project Analysis in
Developing Countries and Project Appraisal & Planning for Developing Countries.

UNIDO Approach
The UNIDO approach of Social Cost Benefit Analysis
involves five stages:
• Calculation of financial profitability of the project measured at market
prices.
• Obtaining the net benefit of the project at shadow (efficiency) prices.
(Objective of SCBA-1)
• Adjustment for the impact of the project on Savings & Investment. (Objective
of SCBA-2)
• Adjustment for the impact of the project on Income Distribution. (Objective
of SCBA-3)
• Adjustment for the impact of the project on Merit and Demerit Goods whose
social values differ from their economic values. (Objective of SCBA-4)

Stage-1: Calculation of financial profitability of the project


 A good technical and financial analysis must be done before a meaningful
economic (social) evaluation can be made so as to determine financial
profitability.
 Financial profitability is indicated by the Net Present Value (NPV) of the
project, which is measured by taking into account inputs (costs) and outputs
(benefits) at market price.
 Net Present value of a Project is calculated as: Here,
Vt = Value of outputs at market price at time t
Ct = Value of inputs at market price at time t
K = Discount Rate
T = Lifetime of the project
I0 = Initial cost at the start of the project.
 The project is viewed as financially feasible if NPV > 0.

Stage-2: Obtaining the net benefit of the project at economic (shadow) prices
 The Commercial Profitability analysis (calculated in stage - 1) would be
sufficient only if the Project is operated in perfect market. Because, only in a
perfect market, market prices can reflect the social value.
 If the market is imperfect (most of the cases in reality), net benefit of
the Project is determined by assigning shadow prices to inputs and outputs.
 Therefore, developing shadow prices is very much vital.
 Shadow Prices reflect the real value of a resource (input or output) to
society.
 Shadow Prices are also referred as economic prices, accounting prices,
economic/accounting efficiency prices etc.
 Shadow Prices can be defined as the value of the contribution to the
country’s basic socio-economic objectives made by any marginal change in the
availability of commodities (0utput) or factor of production (input).
 Example: A project of power station may increase the production of
electricity which contributes to one of the socio-economic objectives of the
country

General Principles of Shadow Pricing


Numeraire :
 A unit of account in which the values of inputs and outputs are to be
expressed.
 Numeraire is determined at-
• Domestic currency (BDT) rather than border price.
• Present value rather than future value.
Because, “a bird in the hand is worth two in the bush.”
• Constant price rather than current price.
Tradability:
• Tradability refers to whether a good or service is tradable or non-
tradable; if tradable whether is fully traded or non-traded.
• A good/service is tradable in the absence of or within limited trade
barriers.
• A tradable good/service is actually traded when-
• the import (export) supply is perfectly elastic over the relevant range of
volume.
• all additional demand (production) must be made (consumed) by import
(export) due to the full capacity in the domestic industry (fulfillment of demand
by domestic consumer).
• the import (CIF) price is less or the export (FOB) price is more than the
domestic cost of production.
• A good/service is non-tradable; if
• its import (CIF) price is greater than its domestic cost of production,
and/or
• its export (FOB) price is less than its domestic cost of production.
• A tradable good/service that is not actually traded is called non-
traded.

L-M Approach
• I.M.D. Little and James A. Mirrlees have developed an approach to SCBA which
is famously known as L-M approach.
• The core of this approach is that the social cost of using a resource in
developing countries differs widely from the price paid for it.
• Hence, it requires Shadow Prices to denote the real value of a resource to
society. (mentioned earlier)
Features of L-M Approach
• L-M Numeraire is present uncommitted social income.
• L-M methods opts for savings as the yardstick of their entire approach.
Present savings is more valuable to them than present consumption since the
savings can be converted into investment for future.
• L-M approach rejects the ‘consumption’ numeraire of UNIDO approach since the
authors (L & M) feel that the consumption of all level is valuable.
• This approach measures the cost and benefits in terms of international or
border prices.
Why Border prices?
Because the border prices represent the correct social opportunity costs or
benefits of using or producing a traded goods.
Social Cost-Benefit Analysis (SCBA)
The resources – inputs & outputs – of a project are classified into mainly:
• Labor
• Traded Goods
• Non-traded Goods
Therefore, to find out the real value of these resources, we should calculate –
a) Shadow wage rate (SWR)
b) Shadow price of Traded Goods
c) Shadow price of Non-traded Goods

a) Shadow Wage Rate (SWR)


The purpose of computing the SWR is to determine the opportunity cost of employing
an additional worker in the
project. For this we have to determine –
 The value of the output foregone due to the use of a unit of labor
 The cost of additional consumption due to the transfer of labor
L-M suggest the following formula for calculating the SWR:
SWR = m + (c¢-c) + (1-1/s) (c-m)
Here, m = marginal productivity of the wage earner
c¢-c = cost of urbanization
(1-1/s) (c-m) = cost of additional committed consumption
 c¢= additional resources devoted to consumption
 c = consumption of wage earner
 1 = value of uncommitted resources
 1/s = value of committed resources
 c-m = additional consumption of labor
 c¢ (transportation system, e.g. road construction, motor vehicles) – c (e.g.
bus rent)
= cost of urbanization (e.g. road construction)
b) Shadow price of Traded Goods
Shadow price of traded goods is simply its border or international price.
 If a good is exported, its shadow price is its FOB price;
 If a good is imported, its shadow price is its CIF price.
c) Shadow price of Non-traded Goods
 Non-traded goods are those which do not enter into international trade by
their very nature. (e.g. land, building, transportation)
 Hence, no border price is observable for them.
 Ideally, Shadow price of Non-traded Good is defined in terms of marginal
social cost (MSC) and marginal social benefit (MSB).
 L-M suggest that the monetary cost of non-traded goods be broken down into

 Labor SWR (Social Wage Rate)
 Tradable Social Conversion Factor (SCF)
 Residual components SCF
Accounting Rate of Return (ARR):
This is the rate used for discounting social profits.
• Experience is the best guide to the choice of ARR.
ARR should be such that all mutually compatible projects with positive present
social value can be undertaken
Dissimilarities between Two Approaches
UNIDO Approach L-M Approach
• Domestic currency is used as Numeraire
• Consumption is the measurement base
• SCBA objectives are met through stage by stage • International Price is
used as Numeraire
• Uncommitted Social Income is the measurement base
• At one place all SCBA objectives are fulfilled
Similarities between Two Approaches
• Calculation of Shadow Prices to reflect social value
• Usage of Discounted Cash Flow Techniques
• Taking into account about the effect of a project on savings, investment and
income of a society

Key terms

Cost-benefit analysis: a theoretical approach applied to every systematic


quantitative evaluation of a public or private project, in order to determine if,
and to what extent, the project is convenient from a public or social perspective.
Discounting: Put simply, the discount rate is a percentage used to discount the
future value of money. It is used to project your costs into the future, but price
them with today's value of money.
Economic analysis: an analysis conducted by using economic values that express the
value that society is willing to pay for a good or service. In general the
economic analysis assesses goods or services at their use value or their
opportunity cost for society (often a border price for tradable goods). It has the
same meaning as cost-benefit analysis.
Financial analysis: allows for the accurate forecasting of which resources will
cover the expenses. In particular it enables one to: 1. verify and guarantee cash
equilibrium (verification of financial sustainability); 2. calculate the indices
of the financial return of the investment project based on the net time-discounted
cash flows, which refer exclusively to the economic unit that implements the
project (firm, managing body).
Traded goods: goods that can be traded internationally in the absence of any
restrictive trade policies.
Non-traded goods: goods that cannot be imported or exported, for example local
services, unskilled labour and land. In the economic analysis non-marketed goods
are assessed at the value of their marginal return if they are intermediate goods
or services, or according to the willingness to pay criterion if they are final
goods or services.
Socio-economic costs and benefits: opportunity costs or benefits for the economy
as a whole. They may differ from private costs to the extent that effective prices
differ from shadow prices (social cost = private cost + external cost).
Opportunity cost: the value of a resource in its best alternative use. For the
financial analysis the opportunity cost of an acquired input is always its market
value. In the economic analysis the opportunity cost of an acquired input is the
value of its marginal return in its best alternative use for intermediate goods or
services, or its use value (measured by the willingness to pay) for final goods or
services.
Willingness to pay: the amount consumers are willing to pay for a good or service.
If a consumer’s willingness to pay for a good exceeds its price then the consumer
enjoys a rent (consumer surplus).
Distortion: condition in which the effective market price of a good differs from
the efficient price it would have in the absence of market failures or public
policies. This generates a difference between the opportunity cost of a good and
its effective price, for example in a monopoly regime, when there are
externalities, indirect taxes, duty, tariffs, etc.
Externalities: effects of a project that extend beyond the project itself, and
consequently are not included in the financial analysis. In general an externality
exists when the production or consumption of a good or service by one economic
unit has a direct effect on the welfare of the producers or consumers in another
unit without compensation. Externalities may be positive or negative.
Conversion factor: a number that can be multiplied by the national market price or
use value of a non-marketed good in order to convert it into a shadow price.
Border price: the unit price of a marketed good at the country’s border. For
exports this is the FOB (free on board) price and for imports it is the CIF (cost,
insurance and freight) price.
Shadow price: the opportunity cost of goods, usually different from the actual
market price and from regulated tariffs. It should be used when analysing a
project to better reflect the real cost of the inputs and real benefits of the
outputs for the society. Often it is used as a synonym of accounting prices.
Economic Rate of Return (ERR): index of the socio-economic profitability of a
project. It may differ from the financial rate of return (FRR) due to price
distortions. The economic rate of return implies the use of shadow prices and the
calculation of a discount rate at which the benefits of the project equal the
present costs, that is the economic net present value is equal to zero.
Internal rate of return: the discount rate at which a stream of costs and benefits
has a net present value of zero. We speak of financial internal rate of return
(FIRR) when the values are estimated at current prices, and economic rate of
return (EIRR) when the values are estimated at shadow prices. The internal rate of
return is like a reference value to evaluate the results of the proposed project.
Discount rate: the rate at which future values are discounted. The financial and
economic discount rates may differ, in the same way in which market prices may
differ from shadow prices.
Net Present Value (NPV): the discounted monetary value of the expected net
benefits of the project. The economic net present value (ENPV) is different from
the financial net present value (FNPV). It is the measure that is often used to
determine whether a programme / project is justifiable on economic principals. To
calculate NPV, monetary values are assigned to benefits and costs, discounting
future benefits and costs using an appropriate discount rate and subtracting the
sum total of the discounted costs from the sum total of the discounted benefits.
NPV is based on the principle that benefits accruing in the future are worth less
than the same level of benefits that accrue now. Furthermore, it takes that view
that costs occuring now are more burdonsem that costs that occur in the future.
If the NPV is positive, then the financial return on the project is economically
acceptable. If the NPV is negative, then the project is not acceptable in puely
economic terms.
Residual value: the net present value of the assets and liabilities in the last
year of the period chosen for evaluation.
Do nothing / Do minimum / Do something alternatives: If used ex-ante, a cost
benefit analysis of a project or intervention, can enable policy makers to assess
the feasibility of the projected work from a technical point of view. As a result
of this assessment, policy makers should be able to determine whether the
intervention is required. The three scenarios above will be a result of the ex-
ante cost benefit analysis. Thus, a decision will be made to either do nothing
(no intervention / project), intervene in the least possible way, or proceed with
the proposed intervention / project. The do nothing option is rarely the
solution.

COST-BENEFIT ANALYSIS
Description of the technique
Cost-benefit analysis (CBA) is a method of evaluating the net economic impact of a
public project. Projects typically involve public investments, but in principle
the same methodology is applicable to a variety of interventions, for example,
subsidies for private projects, reforms in regulation, new tax rates. The aim of
CBA is to determine whether a project is desirable from the point of view of
social welfare, by means of the algebraic sum of the time-discounted economic
costs and benefits of the project.

The technique is based on:


a) forecasting the economic effects of a project,
b) quantifying them by means of appropriate measuring procedures,
c) monetising them, wherever possible, using conventional techniques for
monetising the economic effects
d) calculating the economic return, using a concise indicator that allows an
opinion to be formulated regarding the performance of the project.

Purposes of the technique


The justification for an investment project tallies with the feasibility and
economic performance. Cost-benefit analysis usually accompanies a feasibility
study (technical, financial, legislative, organisational) of the project itself
and it constitutes the final combination.
The main advantage of CBA compared to other traditional accounting evaluation
techniques is that externalities and observed price distortions are also
considered. In this way market imperfections are explicitly considered, which are
reflected neither in corporate accounting nor, as a rule, in national accounting
systems.

Circumstances in which it is applied


The first ideas and applications of CBA can be traced back to nineteenth century
France, and later they spread to the UK and USA, especially in the transport and
hydraulic works sectors. The systematic use of cost-benefit analysis was developed
by international organisations, especially the World Bank (although with
alternating fortunes). Today cost-benefit analysis plays an important role in
evaluating major infrastructure projects, especially those that are co-financed by
the ERDF, the Cohesion Fund and the ISPA, and it constitutes a requisite for
European Community co-financing endorsed by EU regulations.

Generally speaking cost-benefit analysis is used in the ex-ante evaluation for the
selection of an investment project. It can also be used ex-post to measure the
economic impact of an intervention. It is used when the effects of an intervention
go beyond the simple financial effects for the private investor. It is normally
used for major infrastructure projects, especially in the transport and
environment sectors, where it is easier to quantify and monetise the non-market
effects. CBA is also used to evaluate projects in the health, education and
cultural heritage sectors.
CBA is not normally used to evaluate programmes and policies, even though in
principle it could be used to study the effect of changes in specific political
parameters (for example customs tariffs, pollution thresholds, etc.).

Steps in Project Management


The various steps in a project management are:
1. Project Definition and Scope
2. Technical Design
3. Financing

4. Contracting
5. Implementation
6. Performance Monitoring

Segment II
Market Potentiality Analysis – Identification of opportunities, Evaluation of
market and potential demand. Technical Analysis. Financial Analysis – NPV, IRR,
Payback period.
Market Potential Analysis
Do you know how successfully your newly developed product will sell on the market?
Planning, development and introduction of new products is always associated with
uncertainty. Specific knowledge regarding potential target consumers and their
probable spending on the new product provides you with more certainty concerning
the market success of new product developments. We can offer you precise and
reliable information in this area after conducting a market potential analysis.
Definition and Goals
Market potential describes the maximum capacity of a defined market for a specific
product/ a service within a defined time period. In this context market refers to
the total of all potential consumers with a certain need or desire who are willing
or able to satisfy this need or this desire through the purchase of products /
services. The sales potential can then be derived from the results of the market
potential analysis. Market potential consists of the upper limit of total demand
which would theoretically be converged on at (infinite) rise of marketing
expenditures of all relevant providers (see figure).

Applications
Market potential analyses are especially used for growth or unsaturated markets
for which “market size” cannot simply be estimated through the actual market
volume. Market potential analysis offers decision support for specific questions
for which such as:
 Exploration of potential (target) markets  Determination of
company locations
 Evaluation of ideas (screening)  Designation of sales areas

Financial analysis:
Pay back period
The payback period is the exact length of time needed for a firm to recover its
initial investment as calculated from cash inflows. Payback period is the least
precise of all capital budgeting methods because the calculations are in dollars
and not adjusted for the time value of money
THE TIME VALUE OF MONEY
Everyone knows that a dollar today is worth more than a dollar a year from now.
The reason
for this is because of the time value of money
NET PRESENT VALUE (NPV)
The net present value (NPV) method is a difficult capital budgeting technique that
equates the discounted cash flows against the initial investment.
INTERNAL RATE OF RETURN (IRR)
The internal rate of return (IRR) is perhaps the most sophisticated capital
budgeting technique and also more difficult to calculate than NPV. The internal
rate of return is the discount rate where the present value of the cash inflows
exactly equals the initial investment. In other words, IRR is the discount rate
when NPV =0.

Segment III
Project Implementation and control - Network techniques- Project Crashing, Project
Updating, Resource Allocation and leveling. Contractor Schedule and Rescheduling ,
PMIS, Project Audit , ex-post Evaluation.

Network Scheduling Techniques


INTRODUCTION
Management is continually seeking new and better control techniques to cope with
the complexities,
masses of data, and tight deadlines that are characteristic of highly competitive
industries. Managers also
want better methods for presenting technical and cost data to customers.
Scheduling techniques help achieve these goals. The most common techniques are:
• Gantt or bar charts
• Milestone charts
• Line of balance1
• Networks
• Program Evaluation and Review Technique (PERT)
• Arrow Diagram Method (ADM) [Sometimes called the Critical Path Method
(CPM)]2
• Precedence Diagram Method (PDM)
• Graphical Evaluation and Review Technique (GERT)
Advantages of network scheduling techniques include:
• They form the basis for all planning and predicting and help management
decide how to use its resources to achieve time and cost goals.
• They provide visibility and enable management to control “one-of-a-kind”
programs.
• They help management evaluate alternatives by answering such questions as
how time delays will influence project completion, where slack exists between
elements, and what elements are crucial to meet the completion date.
• They provide a basis for obtaining facts for decision-making.
• They utilize a so-called time network analysis as the basic method to
determine manpower, material, and capital requirements, as well as to provide a
means for checking progress.
• They provide the basic structure for reporting information.
• They reveal interdependencies of activities.
• They facilitate “what if” exercises.
• They identify the longest path or critical paths.
• They aid in scheduling risk analysis.

Factors to Consider when Crashing


• The amount by which an activity is crashed is, in fact, permissible.
• Taken together, the shortened activity durations will enable one to finish
the project by the due date.
• The total cost of crashing is as small as possible

Steps in Project Crashing


• Compute the crash cost per time period. For crash costs assumed linear over
time:

• Using current activity times, find the critical path


• If there is only one critical path, then select the activity on this
critical path that (a) can still be crashed, and (b) has the smallest crash cost
per period. Note that a single activity may be common to more than one critical
path.
• Update all activity times.
Advantages of PERT/CPM Limitations of PERT/CPM
1. Especially useful when scheduling and controlling large projects.
2. Straightforward concept and not mathematically complex.
3. Graphical networks aid perception of relationships among project activities.
4. Critical path & slack time analyses help pinpoint activities that need to be
closely watched.
5. Project documentation and graphics point out who is responsible for various
activities.
6. Applicable to a wide variety of projects.Useful in monitoring schedules and
costs 1. Assumes clearly defined, independent, & stable activities
2. Specified precedence relationships
3. Activity times (PERT) follow
beta distribution
4. Subjective time estimates Over-emphasis on critical path.

Project Management Information System (PMIS)


Project Management Information System (PMIS) are system tools and techniques used
in project management to deliver information. Project managers use the techniques
and tools to collect, combine and distribute information through electronic and
manual means. Project Management Information System (PMIS) is used by upper and
lower management to communicate with each other.
Project Management Information System (PMIS) help plan, execute and close project
management goals. During the planning process, project managers use PMIS for
budget framework such as estimating costs. The Project Management Information
System is also used to create a specific schedule and define the scope baseline.
At the execution of the project management goals, the project management team
collects information into one database. The PMIS is used to compare the baseline
with the actual accomplishment of each activity, manage materials, collect
financial data, and keep a record for reporting purposes. During the close of the
project, the Project Management Information System is used to review the goals to
check if the tasks were accomplished. Then, it is used to create a final report of
the project close.
To conclude, the project management information system (PMIS) is used to plan
schedules, budget and execute work to be accomplished in project management.

Project Management Information System (ProMis)


Critical to the success of every project is effective management of information.
Getting the right information to the right people at the right time. The Grontmij
| Carl Bro Project Management Information System (ProMis) is a database
application designed for monitoring and management of large-scale projects and
multi contract programmes. ProMis provides a common framework for the project
organisation to share the management infor¬mation and to present the progress of
the project in a consistent set of reports.

The application of IT in the construction sector has shown considerable success in


administrative processes
such as financing and accounting; however, while construction is a field-oriented
industry, the system implementation for collaboration among business entities to
support engineers in site is still in its early stage.
PMIS implement business management system to overcome shortcomings of headquarter-
oriented ERP
systems such as insufficiencies in field monitoring, reporting system between
headquarters and site, difficulties
of drawing transfer or recycling by establishing systematic process of reporting
and communication, cooperating with sharing of related information and knowledge
among field business entities.
PMIS is ideal system for all companies which intend to implement business
management system prior to introduction of ERP as well as the construction company
who needs comprehensive management of information and outputs within the entire
lifecycle from beginning to end of the construction site and a business management
system enabled by IT prior to ERP implementation.

Features/benefits
Information sharing and real-time business available among customer, supervisor,
affiliate and architect
by using single Web-based interface
• Drawings and documents available in site (Same as headquarters)
• Knowledge Management of field accumulated data (Defect cases/Safety
management cases/new construction methods)
• Site monitoring for process status by business unit (Individual site or
Grouping of construction sites classified by types)
• Flexible interface with other systems (ERP etc)
• Empower each business division for its business
• Maximize consistent information retrieval and reporting.
• Increase workforce productivity
• Improve system response times and aviability.
• Enhance system maintainability

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