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1 a.

Describe the characteristics of a project

b. Explain the triple constraints in project management
a. List and explain the characteristics of a project
b. State the meaning of constraints
Describe the triple constraints with the help of examples.
Answer: a) Characteristics of a Project
Specific purpose: Each project is undertaken to accomplish certain specified goals. These
goals vary from one project to another. For example, the airport authority may want to build
a new terminal in the existing airport to accommodate more traffic. Here, capacity
expansion is the main objective for the construction of the new terminal. Similarly, projects,
such as new product development or customer survey, are undertaken for specific purposes
such as increasing sales or studying the tastes and preferences of customers, etc.
Uniqueness: All projects are unique in terms of their scope, objectives, technology used,
budget, number of workers employed, or the organisation undertaking the project. For
example, every day different construction companies throughout the country undertake
hundreds of road construction projects. However, no two-road construction projects are the
same in terms of location, nature, and the construction company undertaking the project.
Lifecycle: Projects follow a well-defined life cycle. A project lifecycle begins with the
generation of project ideas. Next, the ideas are documented and a project plan is
developed. Thereafter, the project plan is put into execution, and the progress of the project
is monitored.
Dependencies between activities: A project consists of a number of activities. However,
the activities of a project are not executed in isolation from other activities. Project activities
are required to be executed in an order. For example, the floor of a bridge can only be
constructed after the beams supporting the floor are embedded. Similarly, there is a logical
flow of activities in all types of projects.
Specified time: The goals of any project have to be achieved within the allotted time. If an
organisation fails to complete its projects on time, it may suffer financial losses. For
example, if an organisation decides to launch a new product in the market but fails to
introduce the product on time in the market, the organisation may suffer financial losses
due to low demand. However, the time required for a project depends on the type and scope
of a project.
Interdependencies between activities: Generally, an organisation conducts a number of
projects simultaneously. For example, construction companies, such as DLF or GMR,
undertake a number of national and international projects at the same time. Similarly, a
drug manufacturing company may conduct research and development on a number of drugs
at the same time. In such a multi-project environment, there is a degree of dependence
among the different projects of the organisation.
b) Project constraints: triple constraints
Constraints refer to the limitation of resources. No project has access to unlimited
resources. An organisation allocates budget and resources to a project. In addition, the
organisation sets a timeline for the completion of the project. Therefore, a project needs to
fulfil the set objectives within a given set or resources. In addition, the deadline and the
quality of deliverables are required to be maintained. There are three constraints of a
Scope/Quality: The scope or quality of a project is specifically set before initiating any
project. It includes the deliverables of the project and the specifications of the deliverables.
For example, the scope of a bridge construction project can be to construct a bridge of a
certain length and breadth with a certain load-bearing capacity. A project cannot
compromise on the scope. Consider a mobile phone whose quality is based on its utility and

longevity. While manufacturing it, the project members need to focus on its long-term
prospects, so that the mobile phone does not become obsolete soon after its launch in the
market. Thus, the scope or quality of a project acts as a constraint in project management.
Cost/Resources: Resources are always in limited supply in a project. This is because
resources can be procured only by incurring costs, and sponsors allocate fixed budget for
the projects. Resources required in a project depend on the type of the project. For
example, a construction project would require bricks, stones, marbles, cement, steel, etc.
On the other hand, a product development project may not require any of these resources.
However, all types of resources involve cost. Therefore, resources are a constraint for any
project. Shortage of financial resources hinders a project from its successful completion.
Schedule/Time: It is the timeline for the completion of a project. Organisations cannot
continue a project forever. Every project needs to be completed in a time bound manner. For
example, if you want to get a house built, you give a timeline to the contractor to build the
house. On the other hand, if the contractor fails to close the project in time, it impacts both
the cost and the scope. Therefore, schedule is a constraint for any project.
2 Write short notes on:
Project development
Project organisation
Factors affecting collection of market-related information
Term loans as a means of financing projects
Answer: Project development
In this phase of project management lifecycle, the progress of the project is monitored and
controlled. This phase also provides a measure to ensure that the project deliverables meet
the expectations of customers or clients. This phase is considered complete after the testing
and approval of the project. The main purpose of this phase is to verify whether the project
is adhering to the plan and if there are any deviations, to determine the extent of deviation.
The various processes which an organisation needs to undertake in this phase include:
1. Schedule control: It integrates various aspects such as the current status of the project
schedule and the factors that led to schedule changes.
2. Cost control: It includes inspecting and controlling the variance of the actual cost from
the estimated cost in the budget.
3. Functional scope control: It includes determining the scope of project deliverables in
terms of quality and desired expectations of customers/clients, etc.
4. Process control: It is related to the engineering activities of projects, which deal with
the mechanisms and procedures to maintain the output of a specific process. Process
control is widely used in mass production, such as oil refining, chemical plants, steel plants,
paper mills, etc.
Project organisation
Project organisation is one of the most crucial parts of project planning. It is a structure that
is designed for the successful execution of a project. It provides a complete framework for a
project and ensures that the project is arranged in a manageable structure. In project
organisation, the complexity of a project is structured and the sequence of project activities
is defined. The first step of project organisation is project design in which the course of the
project, the flow of project activities and allocation of resources are determined. Then, the
roles and responsibilities of individuals involved in the project are assigned. Finally, the
general principles and guidelines of project planning are implemented.

The individuals who are responsible for project organisation are categorized into the
following three different groups:
Directors of the project: This group is composed of individuals who provide strategic
direction during the project planning process.
Project team: The project team is a group of individuals who are assigned duties to
complete a project within the stipulated time.
Steering committee: This body comprises organisational peers, customers and
stakeholders who provide strategic direction to a project.
Factors affecting collection of market-related information
Cultural diversity: The most crucial factor is cultural sensitivity and diversity. The tastes
and preferences of customers vary according to their cultures. A classic example of what a
western retail organisation faced when they opened shop in Japan. They were surprised to
find that their packed fish and other sea food did not sell even though the price was very
competitive and the product was fresh. When they investigated further they found that the
issue laid in the cultural domain. Asian people like to feel (brick and mortar feeling) the food
product before purchasing them. So, the shop unpacked the seafood and placed it on
display outside the shop. After that, the seafood got sold well.
Geographical location: Geographical location affects the market information collection
process to a large extent. A country may comprise of a large number of states and
territories inhabited by different people whose tastes and preferences are different. In such
cases, it becomes difficult to collect information from all the locations of the country, which
results in inadequate market information.
Multiple languages: Collecting information from a multi-lingual market is a little difficult.
In a country like India, people residing in different locations use different languages. The
multiplicity of languages affects the market research and information collection activities of
an organisation.
Term loans as a means of financing projects
These are secured long term loans provided by financial institutions and commercial banks
to organisations or individuals to start a new project or expand and redesign existing
projects. Two types of term loans are provided in India, rupee term loan and foreign
currency term loan.
You can use rupee term loans for acquiring land, building capital assets, buying plant and
machinery, etc. for a project. On the other hand, you can use foreign currency loans for
importing equipment and technological knowhow.
3 Explain the L-M approach of SCBA.
a. Explain the L-M approach stating the basic features of the approach
b. State how to calculate the actual value of resources in this approach
Answer: L-M approach was developed by I.M.D Little and J.A. Mirrlees, and is similar to the
UNIDO approach. The L-M approach is based on the assumption that the social cost of using
a resource is substantially different from the actual price paid for that resource due to
market imperfections. Therefore, in the LM approach, shadow price refers to the actual
value of resources to the society. The basic features of the L-M approach are as follows:
It considers saving as the basic parameter for determining the social impact of a
project. In this approach, preference is given to present savings over present

consumption as the present savings can be used to invest in any other project in the
It measures the costs and benefits at international or border prices as the actual
social costs or benefits are accurately reflected by the border price.
It classifies inputs and outputs of a project into three categories:
Traded goods
Non-traded goods

Therefore, to determine the actual value of resources, you need to calculate the following:
Shadow Wage Rate (SWR) for labour: It refers to the economic price of the
labour measured in the appropriate numraire. SWR is calculated on the basis of the
demand and supply price of labour. The objective of calculating SWR is to find out the
opportunity cost of employing every additional labour in the project.
Shadow price of traded goods: It refers to the border price or international price
of a good. If a good is being exported, the shadow price of the good would be equal
to its Free on Board (FOB) cost. On the other hand, if a good is imported, its shadow
price would be equal to the Cost, Insurance and Freight (CIF) cost of the good.
Shadow price of non-traded goods: It refers to the economic price of goods, such
as land, building and transportation, which cannot be traded because of their
immovable nature. Generally, the shadow price of non-traded goods is defined in
terms of Marginal Social Benefit (MSB) and Marginal Social Cost (MSC).
4 Discuss the financing of a power project.
Elucidate which are key project parties in a power project
Mention the key points of PPA(Power Purchase Agreement)
Discuss the 3-tier security payment mechanism
Answer: Power projects are critical for the economic growth and development of any
country. Power projects include hydro-power projects, thermal power projects, nuclear
power projects, etc. As any other infrastructure project, power projects also have state
government, EPC contractor, project sponsors, suppliers and O&M contractors as key
parties. In a power project, PPA is signed by the SPV and the SEB, whereby the produced
power is purchased by the SEB.
Some of the key points of a PPA include:
Terms and conditions: A PPA includes terms and conditions under which power are sold to
the SEB.
Minimum off-take amount: If the SEB fails to off take the minimum amount of power, a
minimum payment is made by the SEB to compensate for the loss of revenue. The minimum
amount of payment includes interest, depreciation, maintenance expenses and return on
Terms of payment: A PPA provides for a timely payment and supply of required power.
Responsibilities of the SPV: A PPV specifies the responsibilities of the SVP such as
constructing an interconnection facility between the plant and SEB so that the generated
electricity can be sold. If the construction of the interconnection facility becomes costly,
project financers consider the project to be carrying a high degree of financial risk.
Termination clause: It indicates the termination of the project in case of sustained default
by the SPV or SEB in fulfilling their respective obligations.
Lets discuss the 3-tier security and payment mechanism in power projects.

Irrevocable and revolving Letter of Credit (LC): It comes into force only when the SEB
fails to make a direct payment to the SPV. The SEB must replenish the LC if it is invoked by
the SPV. However, the SEB is not always able to replenish the LC. Therefore, LC does not
ensure a secured payment mechanism. The escrow mechanism has been specially designed
for situations when the LC becomes non-functional.
Escrow mechanism: In this mechanism, a legally binding escrow agreement is created
among the SPV, SEB and an escrow agent (a commercial bank). The mechanism is used to
isolate the payment risk of the .SEB by identifying and capturing a stream of revenue flow
and routing it through a dedicated escrow account. The escrow mechanism comes into force
when the SEB fails to replenish the LC. However, the escrow mechanism fails in case the
SEB fails to provide adequate escrow cover to the SPV. Therefore, the need of government
guarantee arises.
Government guarantee: It is the third tier of the security mechanism. The state
government guarantee comes into force when the escrow is inadequate. The state
government usually provides guarantee for tariffs and termination payments. The
requirement of the government guarantee arises mainly because of the poor financial health
of the SEBs and the fact that SEBs are the only buyers of electricity. The government
guarantee holds a very important position in the financing of a power project, as in its
absence, lenders would avoid taking risk in lending to the SPV. It increases the liability of
the government; therefore, the government tries to avoid it.
5 Explain the types of procurement contracts.
List the THREE types of procurement contracts
Discuss the THREE types of procurement contracts
Answer: THREE types of procurement contracts
Fixed-Price contracts: The fixed price contract, which is also called the lump-sum
contract, is an agreement to provide a well-defined product to the buyer at a fixed total
price. This type of contract may involve incentives from the buyers to the sellers for
exceeding project objectives by the seller, such as delivering end-products to the buyer
before the deadline. For example, a contract between a buyer and a seller says that
`10,000 is payable to the seller if the seller completes his/her part of the contract as
scheduled. Further, the contract has a condition that 5% of the contracted price is provided
as incentive to the seller, if he/she completes the work before the scheduled time, the buyer
has to pay a total price of (10,000 + 5% of 10,000) `10,500. However, this type of contract
may involve risk for both the buyer and the seller, in case the product is not well-defined.
The buyer may receive a low quality product and the seller may have to spend additional
money to deliver the required product.
Cost reimbursable contracts: The cost reimbursable contract requires the buyer to pay
the seller for the direct and indirect expenses incurred in the product. In addition, a profit
margin is attached to the cost. This margin is the difference between the sales amount and
the actual cost of the product. Three types of contracts exist within the cost reimbursable
contract, Cost Plus Incentive Fee (CPIF), Cost Plus Fixed Fee (CPFF) and Cost Plus
Percentage of Cost (CPPC).
Unit price contract: The unit price contract, also known as the time and material contract,
requires the buyer to pay the seller a preset amount per unit of services provided. The total
cost under this contract is determined as a function of the number of unit of work provided
by the seller. For example, a buyer agrees to pay `100 per unit of steel-plate, provided by
the seller. Therefore, if the seller provides 100 units of steel-plates, the buyer has to pay
(`100100 units) `10,000 to the seller. There is no discount from the seller or any incentive

from the buyer. Such contracts may be useful in case of large projects, where small
amounts of work can be outsourced to meet the schedule of projects.
6 What is the purpose of project evaluation? Which the four dimensions of the
project explain the purpose of project evaluation?
Mention the purpose of project evaluation
List the four dimensions of the project that explain the purpose of project evaluation
Discuss four dimensions of the project that explain the purpose of project evaluation
Answer: The purpose of project evaluation is to measure the success of a project.
Accordingly, projects are evaluated on the basis of the indicators of success or failure such
as profitability, competency, efficiency and future prospect. The success of a project has
been defined by different researchers through some models. One of such models was
proposed by Shenhar et al. in 1997.
According to the model, project success has four dimensions:
Project efficiency: It helps the project manager to know the actual performance of a
project. Evaluation of project efficiency helps in comparing the actual schedule and budget
of a project with its planned schedule and budget. In addition, it is conducted to know the
performance and efficiency of the team members and their commitment towards the goals
and objectives of the project.
Impact on customer: It is the extent to which the project is able to fulfil the needs and
demands of the customers. Project evaluation helps in measuring the degree of customer
satisfaction from a product. If the customers are satisfied with the product, they prefer the
same product again in the future. Hence, factors such as loyalty and repurchase are
considered in this dimension.
Business success: It helps the project manager in determining the competitive advantage
of a project in terms of commercial success and market share.
Preparing for the future: It helps the project manager to determine the future potential
of a project. It is however, a difficult task to determine the future potential of a project as
the future is unclear and full of uncertainties. The main factors that are considered in this
dimension are related to the opening of a new market, developing new products and
services, developing new technologies and skill sets.