Proj Eval-1

Project Evaluation & Implementation
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Course Developed by : K.K.Nigam
Project Evaluation
Clear and accurate definition of a project is one of the most important actions one should take to ensure the project's success.
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The clearer the target the more likely is the success assured. Defining a project is a process of selection and reduction of the ideas and perspectives of those involved into a set of clearly defined objectives, key success criteria and evaluated risks.
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This definition process should culminate in the production of a Project Definition document, sometimes called a Project Charter
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The Project Definition document should be approved and issued by a manager with the authority to apply organisational resources to the project activities.
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As a minimum, the Project Definition should include a statement of the business need that the project seeks to address and the description of the product, service or deliverable business objectives that will be its output.
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The way to define a project is to ask a standard set of questions of yourself (as project leader) the project team, colleagues with particular expertise and senior managers.
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The questions fall into the categories given below.
The Purpose (or Mission) This is the reason for doing the project
What is the project about in broad terms? Who wants it done and why? What is its title?
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The Goals These are the targets we want to meet
What is it we want to achieve? When do we want to achieve it? What are our specific aims? Why are these goals essential to the project?
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The Beneficial Gains or Scope
This is how our organisation will gain. Here we define our performance criteria and set our quality standards for the project.
How will things be different if the project is successfully completed? Is there a clear need and can it be quantified ? Who will benefit, how will they benefit and what will they gain?
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Do the beneficiaries agree about the need and the proposed solution? Is the project to identify that need and/or that solution? How will they react to that solution? What are the alternatives? Are those alternatives more or less acceptable (satisfactory).
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Is how we are going to achieve the goals an important part of the beneficial gain? I. E. Is it a learning project? How important is the project in comparison to other projects How important is this project to you? What is it worth to you or to others to have the need satisfied?
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Project Characteristics:
When considering whether or not you have a project on your hands, there are some things to keep in mind. First, is it a project or ongoing operation?
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Next, if it is a project; who are the stakeholders? And third, what characteristics distinguish this endeavor as a project?
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A project has several characteristics: Projects are unique. Projects are temporary in nature and have a definite beginning and ending date.
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Projects are completed when the project goals are achieved or it s determined the project is no longer viable. A successful project is one that meets or exceeds the expectations of your stakeholders.
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Project Evaluation Objectives

We need to define specific measurable objectives from our broad aims. These objectives will tell us if we have met our goals and to what standard.
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From the list of specific goals for the project we must develop a set of measurable objectives that will confirm that we have reached certain project milestones (or way points) including the final one of project completion.
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The measurable objectives (when achieved) demonstrate the extent to which the beneficial gains have been achieved, the goals have been met and that the purpose of the project has been achieved.
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Key Success Criteria (KSC) These are the objectives that, even if everything else fails, and we are able to achieve these , we can say that the Project is successful.
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From the list of objectives select those that are critical or key to the success of the of the project.
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These are the items that are critical to those who will benefit from the project and those with the responsibilities for judging success criteria (Managers, Customers, Members, Shareholders, Stakeholders etc.).
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The project may then be replanned to ensure the KSC are met or the KSC may be formally changed (by Senior Managers in the light of changed circumstances) and the project redefined and replanned to ensure they are met.
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Deliverables
The fundamental objective of a project is to deliver something new.
It is not always easy to distinguish between aims (goals), objectives and deliverables.
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If the project is to create new products or modify existing ones, then the list of deliverable items may be as simple as a set of part or product numbers.
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These deliverables are easily distinguishable from the goal; which may be to increase market share by 7%, and the objectives; to have the product shipping by the 3rd quarter of the year etc.
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Project Constraints Every project has constraints. The primary ones are the trade off between Time, Resources and Performance Criteria. We must define our project so that we can manage these constraints.
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Performance Criteria
The Performance Criteria are the things the project will deliver and to what quality standard they will be delivered.
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One of the main reasons for producing a well defined Project Definition is to ensure that the Performance Criteria are set and agreed.
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We must define what it will NOT deliver, what it will deliver, and to what quality standard. The clear aims and the measurable objectives derived from the definition process enable us to set the Performance Criteria and the quality standard.
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Time
If we choose to reduce the Resource Days by increasing the Resource Capability this will not necessarily reduce the Total Cost because the reduction in resource days may be out weighed by the increased Resource Cost.
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However, improved Resource Capability will reduce the task time and there is often a delivery Time Cost associated with a project so that the cost to the organisation will be less or its income improved. This is the so called 'window of opportunity' factor.
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So it is self evident that there is always a trade off decision to be made between Time, Resources and Performance Criteria.
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Risk Analysis
We need to identify, quantify and make contingency plans to deal with project risks. The constraints on a project are one form of risk. The project may well have specific constraints that lead to identifiable risks.
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What do we mean by project risk?
A risk is anything that will have a negative impact on any one or all of the primary project constraints Time, Resources and Performance Criteria.
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Project Life Cycle:
The Project Life Cycle refers to a logical sequence of activities to accomplish the project s goals or objectives.
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Regardless of scope or complexity, any project goes through a series of stages during its life.
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Phases of Project Life Cycle:
- Initiation - Planning - Execution and Controlling - Closure Let us understand each one of them:
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Initiation In this first stage, the scope of the project is defined along with the approach to be taken to deliver the desired outputs.
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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.
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Planning The second phase should include a detailed identification and assignment of each task until the end of the project.
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It should also include a risk analysis and a definition of a criteria for the successful completion of each deliverable.
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Project Evaluation The most common tools or methodologies used in the planning stage are Business Plan and Milestones Reviews.
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Project Evaluation Execution and Controlling

The most important issue in this phase is to ensure project activities are properly executed and controlled.
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During the execution phase, the planned solution is implemented to solve the problem specified in the project's requirements.
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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.
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As the execution phase progresses, groups across the organization become more deeply involved in planning for the final testing, production, and support.
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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.
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Project Evaluation Closure

In this last stage, the project manager must ensure that the project is brought to its proper completion.
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Project Evaluation The closure phase is characterized by a written formal project review report containing the following components:
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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.
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No special tool or methodology is needed during the closure phase.
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Project Management
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Definition:
A project can be defined as a non-repetitive activity. This needs augmented by its characteristics like:
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It is goal oriented it is being pursued with a particular end or goal in mind.
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It has a particular set of constraints - usually centred around time and resource.
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The output of the project is measurable. Some thing has been totally/ partially changed through the project.
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Project Management includes planning , organising , directing and controlling activities in addition to motivating what are usually the most expensive resource on the project - the people.
Project Management
Project Management is the discipline of defining and achieving targets while optimizing the use of resources (time, money, people, material, etc). Thus, it could be classified into several models: time, cost, scope, and intangibles.
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Thus the salient points of a Project are:
* A scientifically evolved work plan * Devised to achieve a specific objectives * Within specified time limit * Consuming planned resources
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Project Questions Before the formulation of project problem, many questions to be asked by the project initiators. These questions can be summarized as follows:
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What for: The objectives of the project How: The process, and the internal and external resources Who: For whom, By whom Project partners, stake holders When: The time factor Where: The location What: The activity
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Identifying the Project The first phase of project management is concerned with identifying the project to achieve the desired objectives.
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Project Management The initial task coming under project identification is to find out the sources of the project.
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Project Need Analysis: The factors included under project need analysis are the, problem, solutions, beneficiaries and decisions.
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The problem should exhibit an immediate intervention. The focus should be to identify the beneficiaries. The solutions should be based on the original problem.
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The decision to take up the project lies on how these three factors problem, solutions and beneficiaries are important to project intervention.
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Problem formulation and Statement of the Problem The crux of the project lies in the problem formulation process.
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The project team should have detailed understanding of the problem, scope, intervention areas and the out come of the project to be hypothesized.
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Based on a multi phased understanding and analysis, describe the problem to be addressed and resolved.
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The macro level objectives and micro level objectives to be separated and should give differential wastages.
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Project Planning Project planning: can be defined as:
* A scientific and systematic process, in which * Logical linkages are clearly established, among * Various element of projects
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Successful implementation of the project lies on effective project plan. Based on the anticipated goals and objectives the project planning to be made.
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The project plan is the blue print of the project. Effective planning gives proper direction in the implementation of the project and it further helps in adequate monitoring and evaluation.
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For the implementation of plan, an activity chart to be prepared. The activity chart consists of all the proposed activities in the implementation process, including the start date, calendar for the entire project, dates of monitoring and evaluation periods, finishing stages, series of out puts, slack time, responsible person to coordinate the activities etc.
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Project Budget
The project budgeting phase is in the project formulation phase. Two types of budgets are to be made.
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The first one is the cost category budget (materials, administration, capital; expenditures etc) and the later is the activity budget. This project budget is to calculate the cost of each project out put.
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Keep in mind the cash flow of the project, considering the contingencies like, technical shortage, shortage of raw materials, delays in the activity implementation etc.
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The estimation of the project cost should be made on fairly realistic sense of financial values. In the multi year projects the inflation rate also to be anticipated in advance.
Project Management Feasibility of the Projects

1. Management Appraisal
Management appraisal is related to the technical and managerial competence, integrity, knowledge of the project, managerial competence of the promoters etc.
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Project Management The past record of the promoters is to be appraised to clarify their ability in handling the projects.
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2. Technical Feasibility Technical feasibility analysis is the systematic gathering and analysis of the data pertaining to the technical inputs required and formation of conclusion there from.
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The availability of the raw materials, power, sanitary and sewerage services, transportation facility, skilled man power, engineering facilities, maintenance, local people etc. are coming under technical analysis.
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This feasibility analysis is very important since its significance lies in planning the exercises, documentation process, risk minimization process and to get approval.
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3. Financial feasibility One of the very important factors that a project team should meticulously prepare is the financial viability of the entire project.
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This involves the preparation of cost estimates, means of financing, financial institutions, financial projections, break-even point, ratio analysis etc.
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The cost of project includes the land and site development, building, plant and machinery, technical know-how fees, pre-operative expenses, contingency expenses etc.
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The means of finance includes the share capital, term loan, special capital assistance, investment subsidy, margin money loan etc.
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The financial projections include the profitability estimates, cash flow and projected balance sheet. The ratio analysis will be made on debt equity ratio and current ratio.
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4. Commercial Appraisal
In the commercial appraisal many factors are to be taken into account.

- Scope of Project/Beneficiaries - Customer /User Friendly Processes
future demand of the supply, - effectiveness of the selling arrangement, - latest information availability an all areas, - government control measures, etc.
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The appraisal involves the assessment of the current market scenario, which enables the project to get adequate demand. Estimation, distribution and advertisement scenario also to be considered here.
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5. Economic Appraisal How far the project contributes to the development of the sector, industrial development, social development, maximizing the growth of employment, etc. are kept in view while evaluating the economic feasibility of the project.
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6. Environmental Analysis Environmental appraisal concerns with the impact of environment on the project.
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The factors include the water, air, land, sound, geographical location etc.
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Project Implementation This is the period in which all the activities that are planned in the initial phases of the project get materialized through operation.
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Here the role of the project managers comes in to the picture. It is the task of the project manager to schedule the activities one by one and establish functional relationship of the project activities in the fulfillment of the project.
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The techniques like PERT (Programme Evaluation and Review Technique), CPM (Critical Path Method) etc. are the various network techniques the managers may utilize to implement the activities planned in the project considering the cost and time.
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Monitoring and Evaluation Monitoring is the process of observing progress and resource utilization and anticipating deviations from planned performance.
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In the monitoring and controlling phase the project managers have to monitor the technical performance, time and cost performance in addition to the organisational performance.
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Correction, re-planning and cancellation of the activities are the control actions expected from this phase in order to get the expected outcome. The monitoring is periodical by fixing milestones in the project phases.
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Evaluation The final stage is the evaluation of the project. Upon the conclusion of the project success in attaining the goals, and to determine how future projects could be managed.
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Here the effectiveness of the degree of the objective achievement, the efficiency of the financial, human, and time resources to be observed.
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The impact of the project, the major concern of the project, i.e. whether the project reach up to the beneficiaries with quality and quantity is to be measured.
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Different types of evaluation are there like performance appraisal, work audit, result evaluation, cost benefit evaluation, impact analysis etc.
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Project Management Evaluation is done to ensure the effective mutilation of all resources for the accomplishment of the project.
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A project is therefore is a programme of work to bring about a beneficial change which has:1. A start and an end 2. A multi-disciplinary team created/developed together for the project 3. Constraints of cost, time and quality a scope of work that is unique and involves uncertainty
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Examples of a Project:1. Setting up a new unit/facility 2.The development and introduction of a new services 3. The development of MIS (Management Information System) 4. The introduction of an improvement to an existing process 5. The creation of a large tender or the preparation of a response to it. 6. The production of a new customer newsletter, catalogue or Web site
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The project triangle If only you could foresee your project's future.... In a way you can, if you understand three factors that shape every project:
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Time: The time to complete the project as
reflected in your project schedule. Money: The project budget, based on the cost of the resources , that is, the people, equipment, and materials required to do the tasks. Scope: The goals and tasks of the project and the work required to complete them.
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This trio of time, money, and scope is the project triangle. Adjusting one of these elements affects the other two. While all three elements are important, typically one will have the most influence on your project.
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The relationship between these elements differs in every project and determines the kinds of problems you'll encounter and the solutions you can implement. Knowing where your limitations and flexibility reside makes it easier to plan and manage your project.
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A common Project Life Cycle:
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Almost any human activity that involves carrying out a nonrepetitive task can be a project. So everyone becomes a Project Managers at some point of time in the career.
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Some of us may be Project Manager on a regular basis as such they are designated as Project Manager. But we all practice Project Management (PM), if not in office definitely at Home.
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Project Strategy:
Before considering the tasks of your project or the resources you need, first set your strategy. Your project strategy helps you build the big picture of the project, so you and other project stakeholders are very clear about where you're headed.
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Gather or develop the following information:
Objectives - The goals and outcomes of the
project must be clearly understood.
Assumptions - If you're making any

assumptions that support the goals and successful outcome of the project, these assumptions need to be specified ahead of time.
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LimitationsAny limiting factors or project constraints should be spelt out. Identifying limits and constraints can also help you plan contingencies for potential problems. deliverables of the project.
Scope - The scope defines the tasks and
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Project Management Methodology
The art of planning for the future has always been a human trait. In essence a project can be captured on paper with a few simple elements: - a start date, - an end date, - the tasks that have to be carried out - and when they should be finished
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Some idea of the resources (people, machines etc.) that will be needed during the course of the project.
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Project Management Project Management is a methodology and a discipline which can bring significant benefits to organizations by:-
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Ensuring limited resources are used on the right projects Harnessing the energy of staff in achieving beneficial change
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Managing complex changes in an organised way Assessing risks, defining goals and key success areas and setting quality objectives.
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- To be effective, workable project methodologies should be adopted
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- For simple projects in a small organisation, agreed milestones, a few checklists and someone to steer the project are all that are required.
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- For complex projects in a large organisation a more structured approach is needed, to set up and approve the project, monitor and guides its progress, solve its problems, deliver the end product (or gain) and close it down.
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Define the project Reduce it to a set of manageable tasks Obtain appropriate and necessary resources Build a team or teams to perform the project work
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Plan the work and allocate the resources to the tasks monitor and control the work Report progress to senior management and/or the project sponsor close down the project when completed Review it to ensure the lessons learnt and widely understood.
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Project Management It is this structured approach that makes project management the best method for change management.
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When the plan starts different things happening at different times, some of which are dependent on each other.
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Therefore a sequence of activities must be laid out before commencing the Project. This will enable optimum use of resources.
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Project Management All the activities must be part of the Project Plan and must be provided to the concerned to act accordingly.
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Tools used for Project Management:
In 1958, a technique was invented,known as Program Evaluation and Review Technique or PERT, as part of the Polaris Missile submarine program. At the same time, the Du Pont Corporation invented a similar model called CPM, Critical Path Method . PERT was later extended with a Work breakdown Structure or WBS.
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PERT/CPM though still in existence and organizations are using it, but with the availability of Software Tools that are quite sophisticated and take care of almost all the activities involved in the Project are being used. They have become popular and more and more organizations are adopting it.
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These Project planning and scheduling Software can provide real time information. They can also be linked to: - Risk Analysis - Time Recording - Costing - Estimating and other aspects of project control.
Project Management
But , We all know computer programs are not Project Managers:
The Computer Software is a tool for managing Projects. Project Management is therefore a mix of components of: - Control - Leadership - Teamwork and - Resource Management etc, All these help in a successful project.
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In fact if you have an unlimited budget and unlimited time( Which is impossible), Project Management becomes rather easy.
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For most people, however, time and money are critical and that is what makes Project Management so important.
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Information Technology and Project Methodology
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A Project Methodology provides a strategic-level plan for managing controlling IT Projects.
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A good methodology may be flexible and adapt to the needs of the Project organization over time.
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Although many IT Projects fail or experience significant challenges. But if proper care /methodology is taken , there are all chances of its being successful. Following Phases are recommended for any Project management:
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Phase I Conceptualize and Initialize
In this phase of the IT Project, the methodology focuses on defining the overall goal of the project. The Projects goal aids in defining the projects scope and guides decisions throughout the project life cycle. This will also be useful at the end of the Project to evaluate the projects success.
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Phase II
Develop the Project Charter and Detailed Project Plan
The Project charter is a key deliverable for the second phase of the IT Project methodology. It defines how the Project will be organized and how the Project alternative that was recommended and approved for funding will be implemented.
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In addition, the project charter identifies and gives authority to a Project Manger to begin carrying out the processes and tasks associated with the Systems Development Life Cycle (SDLC).
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Project Management The Project Plan provides all the tactical details concerning who will carry out the project work and when.
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The Project charter and plan answer the following questions:
Who is the Project manager? Who is Project Sponsor? What is Project Time? What is the role of every member of the team? What is scope of the Project? How much the Project cost? How long will it take to complete the project?
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What resources and technology will be required? What approach, tools and techniques will be used to develop the information System What tasks or activities will be required to perform the project work? How long will these tasks/ activities take? Who will be responsible for performing these tasks What will the organization receive for the time , money and resources invested in this project?
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Phase III
Execute and Control the Project
The third phase of the IT Project methodology focuses on execution and control carrying out the Project plan to deliver the IT product and managing the Project s processes to achieve the Project s goals.
Project Management
The Project Manager must also ensure that the environment and infrastructure to support the project includes:
Acquisition of People with the appropriate skills, experience and knowledge The technical infrastructure for development/ implementation IS development methods and tools A proper work environment Scope, schedule budget and quality controls A detailed risk plan A Procurement plan for vendors and suppliers
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A quality management plan A change management plan A communication plan A testing plan An implementation plan A human resources system for evaluation and rewards
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Phase IV Close Project After the Information System has been developed , tested and installed a formal acceptance should transfer control from the Project Team to the Client or Project Sponsor .
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The project team should prepare a final project report/ presentation to document and verify that all the project deliverables have been completed as defined in the Project s scope of work.
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At this time , the final cost of the project can be determined.
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Subsequently , the consultant may invoice the client for any remaining payments, or the accounting department may make any final internal charges to appropriate accounts.
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It is also necessary to take complete stock of the Project and team members must follow a set of processes to formally close the project.
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Phase V Evaluate Project Success In this phase , focus should be on evaluating four areas. First a post mortem , or final project review should be conducted by the project manager and his team.
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At this stage , the Project manager and his team should identify best practices that can be institutionalized throughout the organization by incorporating them in to the methodology.
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It is also recommended that the review of the project must be done by a third person. The focus of this review should get the answer of the following:
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What is the likely hood of the
Project achieving its goal? Did the Project meet its scope, schedule budget and quality objectives?
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Did the Project team deliver everything that was promised to the sponsor or client? Is the project sponsor or client satisfied with the project work
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Did the Project manager and his team follow the processes outlined in the project and system development methodologies?
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What risks or challenges did the project team face? And how well did they handle those risks and challenges?
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How well did the project sponsor, project team and manager work together ? Did the project manager and team act in a professional and ethical manner
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Project Management So the Project must be evaluated in order to determine whether the Project provided value to the organization.
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Also it is necessary to evaluate the Project in view of resource allocation i.e. whether the resources needed/ used commensurate with the goal /objective of the Project.
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The Business Case
Any Project needs to be developed from the Owner/ Senior Management perspective. Because it is these people (in most of the cases it is owner) have to make Financial commitment. Therefore it is recommended that a detailed plan should be prepared giving details like Feasibility Costs Benefits Risks , if any etc.
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Developing a Business case:
The main purpose of a business case is to show how an IT solution can create business value.
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Following may be the reasons for undertaking an IT Project:
Reduce Costs Improve Customer Service Improve Decision making Create or strengthen relationships, Customers or partners Improve reporting capabilities Support new legal requirements
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Project Management The points mentioned in the previous slide are important, that may be considered by the management for evaluation etc.
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Further the Business case must explicitly highlight that how this investment will help in the increase in business. Therefore , some salient points must be kept in view such as:
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1.Select the Core Team:
Credibility Alignment with Organizational Goals Understand the real Costs Ownership Agreement Evaluate Alternatives
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2. Define Measurable Organizational Value (MOV):
The primary objective of the core team is to define the problem or opportunity and then identify several alternatives that will provide direct measurable value to the organization.
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Project Management Therefore IT Projects must align with and support the organization s goal, mission and objectives.
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The IT Project s overall goal and measure of success is referred to as project s Measurable organizational value (MOV). Therefore MOV must:
Be Measurable Provide value to the organization Be agreed upon by one and all Be verifiable
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Let us try and understand with the help of this Block Diagram the IT Value Chain:
Organizational Goal Organizational Strategy
Project s Measurable Organizational Value
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To support this Business strategy , the organizations may consider developing a B2B model so as to allow the Suppliers , to log on the Server and find various status of their transactions.
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Project Management They may also see the status of the inventory items that they supply apart from the status of their material, bill clearance etc.
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Potential Areas of Impact for IT Projects:
Potential Area
Strategic
Examples of Desired Impact

- Penetration of New Market - Transformation of the terms of competition within the market - Increased Market Share
Customer
- Customer have more choices of products or services - Customers receive better products and services - Transaction processes are more efficient and effective - Increased Profit - Increased Margins - Lower Costs due to streamlined operations - Increased Operational effectiveness - Improvements to Supply chain Education Health Safety Environment
Financial Operational
Social
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3. Identify Alternatives: Every Project has several alternatives, therefore one must identify all such alternatives before deciding upon that one which is most suitable.
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Project Management The alternatives or the options, identified in the business case should strategies for achieving the MOV.
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The options could be:
- Changing the existing business processes without investing in IT - Adopting or adapting an application developed - Re-engineering the existing system - Purchasing an Off-the shelf Application package from a Software Vendor - Custom building a new application using internal resources or outsourcing the development to another company
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Define Feasibility and Assess Risk Both Feasibility and Risk are very important aspect of any Project. While Feasibility focuses on whether a particular alternative is doable and worth doing, Risk on the other hand focuses on What can go wrong and what must go right.
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Feasibility must be viewed in terms of:
Economic Feasibility Technical Feasibility Organizational Feasibility Other Feasibility (Legal /Ethical etc.)
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Risk should focus on:
Identification What can go wrong ? What must go right? Assessment What is the impact of each risk? Response How can the organization avoid or minimize the risk?
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Project Planning
Some Definitions about Project Planning are ---- The project plan defines the dates, milestones, tasks and deliverables that will drive the project.
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It defines who is responsible for doing what, and by when. The project plan enables the Project Manager to monitor and control progress as the work proceeds.
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Project Management Another definition a formal accepted document used during the implementation of the project.
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The main objective of the project plan is documenting the assumptions and decisions, help in communication between all the concerned parties and documenting the aims, costs and time sequencing of the project. Project plan can be given in the form of summary or in detail.
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Project Charter The project charter is a one-time announcement. It clearly establishes the project manager's right to make decisions and lead the project.
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The intent of a project charter is to give notice of the new project and new project manager and to demonstrate the upper management support for the project and the project manager.
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The charter should precede the other project documents as it establishes the project manager's authority which, in turn, is necessary to get the stakeholder agreements written.
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The Project Team
Group of people responsible for a project, whose terms of reference may include the development, acquisition, implementation or maintenance of an application system.
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Project Management The team members may include line management, operational line staff, external contractors, and auditors.
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A project team is a team used for grouping people based on a common function. Members of a team usually belong to different groups, but are assigned to activities for the same project, thereby allowing them to be viewed as one team.
Some say -----
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Therefore, the team feature facilitates the creation, tracking and assignment of a group of people based on the project they have been assigned to.
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A team can be divided into subteams according to need. When a team is only used for a defined period of time it is often called a project team.
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Project Scope
When we talk about defining the scope, we are talking about developing a common understanding as to what is included in, or excluded from, a project
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We are not talking about deciding how long it will take, or how much it will cost. That comes after the scope is defined. Time and cost are outputs of scope.
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Why is Scope important?
Anyone who has ever done a project will have ideas of how scope changes. Scope is bound to change with the passage of time, and this is expected.
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As the detail becomes clearer, more complications creep in. These are not foreseeable at the start and therefore a contingency plan must be in place. If possible the contingency plan may be built for what we cannot see.
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To make it clearer the Project is broken down into various activities which is nothing but interrelated activities or structure known as Work Bench Structure.
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Work Bench Structure (WBS) -
A Work Breakdown Structure is a result-oriented family tree that captures all the work of a project in an organized way.
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It is often portrayed graphically as a hierarchical tree, however, it can also be a tabular list of "element" categories and tasks or the indented task list that appears in your Gantt chart schedule.
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The WBS is a tool for defining the hierarchical breakdown and work in a project.
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It is developed by identifying the highest level of work in the project. These major categories are broken down into smaller components.
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Project Budget The sum established by the owner as available for the entire project, including the construction budget, land costs, costs of furniture, furnishings, and equipment; financing costs; compensation for professional services; cost of owner-furnished goods and services; contingency allowance; and similar established or estimated costs.
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Risk Planning Risk Assessment in a project is the most difficult phase of all to carry out. From the definition we gave elsewhere, a risk is a combination of uncertainty and constraint. Constraints are usually difficult to remove, though they are important to understand.
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The three circles indicate the most important quality measurements of the project. And the most important of these is meeting the users' requirements.
Project Management Thus a Project can be managed effectively if the manager works effectively alongwith all the team members.
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Project Appraisal
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Project Appraisal
Project appraisal is a generic term that refers to the process of assessing, in a structured way, the case for proceeding with a project or proposal.
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Project Appraisal
In short, project appraisal is the effort of calculating a project's viability. It often involves comparing various options, using economic appraisal or some other decision analysis technique.
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Project Appraisal
Definition
Systematic and comprehensive review of the economic, environmental, financial, social, technical and other such aspects of a project to determine if it will meet its objectives.
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Project Appraisal Process

Initial Assessment Define problem and long-list Consult and short-list Develop options Compare and select Project
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Project Appraisal
Following are the types of Appraisal: -Technical - Financial - Economical - Social - Institutional - Environmental - Political
Project Appraisal
Let us try and understand each one of these: Technical - can the project be handled technically?
Is the necessary competence available within? If not how it is will be handled? Is it by outsourcing or by hiring new employees?
Whether pre-requisites for the success of project considered? Good choices with regard to location, size, process, machines etc.
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Financial- can the project be financed?
Will there be sufficient funds to cover the expenditure requirements during the life of the project?
Whether the project is financially viable ? Servicing debt Meeting return expectations
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Economic- will the nation and society at large be
better off as a result of the project? Will the project benefits be greater than the project costs over the life of the investment when account is taken of time ?
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Social cost -benefit analysis Direct economic benefits and costs in terms of shadow prices Impact of project on distribution of income in society Impact on level of savings and investments in society Impact on fulfillment of national goals :1. Self sufficiency 2. Employment 3. Social order
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Social and genderwhat will be the effect of the project on different groups, at individual, household and community levels? How will the project impact on women and men? How will they participate in various stages of the project cycle?
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Institutional- are the supporting institutions in
place? Can they operate effectively within the existing legislative and policy environment? Has the project identified opportunities for institutional strengthening and capacity building?
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Environmental- will the project have
any adverse effects on the environment? Have remedial measures been included in the project design?
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Impact of project on quality of :- Air - Water - Noise - Vegetation - Human life
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Project Appraisal
Major projects , cause environmental damage Power plants Irrigation schemes Industries like bulk drugs, chemicals and leather processing.
Likely damage & the cost of restoration
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Political- will the project be compatible with government policy, at both central and regional levels?
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Project Appraisal
Market Appraisal What would be the aggregate demand of the proposed product or service? What would be the market share of the project under appraisal?
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Project Appraisal
Let us try to understand Financial Appraisal in detail: Financial and Economic analysis verifies soundness of the project and the quantification and valuation of costs and benefits to ensure financial viability.
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Project Appraisal
One of the most important criteria for Project Appraisal is Cost Benefit Analysis (CBA). It is used for determining the attractiveness of a proposed investment in the project.
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Project Appraisal
By presenting benefits and costs in a monetary format, CBA not only facilitates choices between alternative investment options but also gives an idea of the project worth.
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Project Appraisal
CBA differs from financial appraisal which views an investment solely from the perspective of individual participants, focusing on private benefits and costs and using market prices.
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In contrast, CBA adopts a much broader approach, considering both monetary and non-monetary benefits and costs, and uses prices that more accurately reflect economic, environmental and social values.
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Project Appraisal
Out of all the types of Project Appraisal, the most important and critical appraisal is Financial Appraisal ,as such let focus on Financial Appraisal.
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Financial Appraisal Whether the project is financially viable ?
Investment wise Servicing debt wise Meeting return expectations
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Project Appraisal
Financial Appraisal of Projects Estimation of cost of the project and its timing.
Estimation of the likely revenues during each period. The cost of capital. The planning horizon of the project. The risk in the project as evidenced by the worst and best values of costs and revenues.
Project Appraisal
Financial Criteria of Interests Net present value
Internal rate of return Simple before/after tax rates of return Equivalent annual cost Payback period Discounted payback
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Criteria for DEBT Repayment Benefit /Cost ratio of discounted cash flows
Debt service coverage ratio (The debt service coverage ratio (DSCR), is the ratio of cash available for debt servicing to interest, principal and lease payments. A company s reputation in terms of assets and liabilities and record of previous repayments is often considered by the financing institutions before disbursing a loan
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Project Appraisal
Sample Project
Suppose a project has the following data:
Initial investment (I) = Rs 3,00,000
Annual costs of operation =Rs 20,000
Expected annual revenues Rs 1,00,000 per annum for the first two years Rs 200,000 per annum for the next three years Planning horizon of 5 years Salvage value = zero
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Project Cost Management
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Project Cost Management

Project cost management may be defined as management of the processes involved in planning, estimating, and controlling costs so that the project can be completed within the approved budget. Cost Estimating Cost Budgeting Cost Control
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Project Cost Estimation

Cost Estimating
Approximate costs are developed for complete scheduled activities after consideration of risks and all causes of risks and possible cost variation. This quantitative assessment process generates a Schedule Activity Cost Estimate.
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Various alternative estimates are identified and considered. All additional costs are checked for justification in additional savings in the life cycle process.
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Project Cost Estimation Resources for which costs are estimated include infrastructure, labour, materials, equipments, etc. and special categories like inflation or contingency.
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If the performing organization does not have formally trained project cost estimators then the project team will need to supply both the resources and the expertise to perform project cost estimating activities.

Type of Costs -There are different ways to look at the costs while estimating and controlling project costs. A cost is either variable or fixed.
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Variable Cost A variable cost is any costs that change with the amount of production or the amount of work. Example: cost of materials, power, water and wages.
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Fixed Cost Cost that does not change as production changes is a fixed cost. Example: set up cost, rental or hiring of an equipment or machinery. A cost can be either direct or indirect.
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Direct Cost Costs are directly attributable to the work on the project. Example: team travel, team wages, recognition, and costs of materials used on the project.
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Indirect Cost Overhead items or costs incurred for the benefit of more than one project are indirect costs. Example: Corporate Tax, Fringe Benefit Tax, and House keeping Services including security services etc.
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Opportunity Cost
The Opportunity given up by choosing a choice of project over another project is an opportunity cost. For example, if we need to select one of the following two projects:
-Project A with an NPV Rs.60,000 -project B with an NPV Rs.50,000 then opportunity cost of selecting Project A is Rs.50,000.
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Sunk Cost
Sunk costs should not be considered when deciding on reviving or continuing with a troubled project. Sunk costs are the ones which were already spent on the project earlier and will not be considered when the revival plan decision is made.
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Tools and Techniques of Cost Estimating
Analogous Estimating Analogous cost estimating means using the actual cost of previous or similar projects as the basis for estimating the cost of the current project.
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This is used when there is a limited amount of detailed information about the project. It uses expert judgment, is less expensive and is less accurate but reliable in similar project situations.
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Determine Resource Cost Rates
Actual per unit human and material resource rates are collated or estimated. Quotes, contracts, commercial database, seller published price lists are used and appropriate Escalation rates and inflation are incorporated.
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Bottom-up Estimating
Individual scheduled activities are estimated to the smallest detail. All costs are then aggregated and used for reporting, tracking and control purposes. Here, the individual activity cost consciousness is of prime importance.
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Project Cost Estimation Parametric Estimating

This technique uses historical cost with current project variables that are determined. This is a highly accurate method as it requires clarity in current project variables.
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Project Management Software

Widely Available cost estimation applications can be used for faster estimation of alternatives.
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Project Cost Estimation Vendor Bid Analysis:

Vendor Bid analysis is another technique to benchmark costs. If a project is won in a competitive bid, more details may be considered for cost estimation and control purposes.
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Cost of Quality
Cost of quality can also be used to prepare the schedule activity cost estimate.
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Cost Budgeting
Cost budgeting involves aggregating the estimated costs of individual schedule activities or work package to establish a total cost baseline for measuring project performance.
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The project scope statements are prepared prior to the summary budget. However, schedule activity or work package cost estimates are prepared prior to the detailed budget requests and work authorization.
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Project Cost Estimation Tools and Techniques of Cost Budgeting Cost Aggregation
Schedule activity cost estimates are aggregated and grouped by work packages, which may be then grouped by higher levels as per levels set by the WBS, then finally by the entire project.
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Reserve Analysis
Reserves or Management Contingency allowances are used to deal with uncertainty known unknowns.
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Project Cost Estimation The reserve is added to the project budget, but not distributed as budget because they are not a part of earned value calculations.
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Project Cost Estimation Funding Limit Reconciliation

Funds are reconciled and based on the results and new limits are set and WBS components are adjusted.
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This may impact allocation of resources to the project. If costs are used in the schedule development process, the process is repeated with new constraints and a new baseline is derived.
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Cost Control Project
Influencing the factors that create changes to the cost baseline ,Ensuring requested changes are agreed upon Managing the actual changes as and when they occur .
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Project Cost Estimation Assuring that potential cost overruns do not exceed the authorized funding periodically and in total for the project.
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Monitoring cost performance to detect and understand variance from the cost baseline recording all appropriate changes accurately against the cost baseline.
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Project Cost Estimation Preventing incorrect, inappropriate, or unapproved changes from being included in the reported cost or resource usage.
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Informing appropriate changes to stakeholders.
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Acting to bring expected cost overruns within acceptable units.
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Capital Budgeting
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Capital Budgeting
Let us try and understand what is Capital Budgeting!
Capital budgeting (or investment appraisal) is the planning process used to determine whether a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital investment/ expenditures.
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Capital Budgeting
Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return.
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Capital Budgeting
To do this, a sound procedure to evaluate, compare, and select projects is needed. This procedure is called capital budgeting.
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Capital Budgeting
Many formal methods are used in capital budgeting, including the techniques such as
Accounting rate of return Net present value Profitability index Internal rate of return Equivalent annuity
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Capital Budgeting
These methods use the incremental cash flows from each potential investment, or project Techniques based on accounting earnings and accounting rules.
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Capital Budgeting
These are sometimes used though economists consider this to be improper - such as the accounting rate of return, and "return on investment."
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Capital Budgeting Simplified and hybrid methods are used as well, such as payback period and discounted payback period.
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Capital Budgeting Net present value:

Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find its net present value (NPV). (First applied to Corporate Finance by Joel Dean in 1951.)
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Capital Budgeting
This valuation requires estimating the size and timing of all the incremental cash flows from the project. These future cash flows are then discounted to determine their present value.
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Capital Budgeting Internal rate of return

The internal rate of return (IRR) is defined as the discount rate that gives a net present value (NPV) of zero. It is a commonly used measure of investment efficiency.
[ The IRR is a rate of return used in capital budgeting to measure and compare the profitability of investments.]
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Capital Budgeting
The IRR method will result in the same decision as the NPV method for (non-mutually exclusive) projects in an unconstrained environment, in the usual cases where a negative cash flow occurs at the start of the project, followed by all positive cash flows.
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Capital Budgeting Equivalent annuity method

The equivalent annuity method expresses the NPV as an annualized cash flow by dividing it by the present value of the annuity factor.
[The term annuity is used in finance to refer to any terminating
stream of fixed payments over a specified period of time.]
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Capital Budgeting
It is often used when assessing only the costs of specific projects that have the same cash inflows.
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Capital Budgeting
In this form it is known as the equivalent annual cost (EAC) method and is the cost per year of owning and operating an asset over its entire lifespan.
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Capital Budgeting
Real options
Real options analysis has become important as option pricing models have got more sophisticated.
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Capital Budgeting
The discounted cash flow methods essentially value projects as if they were risky bonds, with the promised cash flows known.
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Capital Budgeting But managers will have many choices of how to increase future cash inflows, or to decrease future cash outflows.
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Capital Budgeting
In other words, managers get to manage the projects - not simply accept or reject them.
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Capital Budgeting
Real options analysis try to value the choices - the option value - that the managers will have in the future and adds these values to the NPV.
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Capital Budgeting
Ranked Projects
The real value of capital budgeting is to rank projects. Most organizations have many projects that could potentially be financially rewarding.
Capital Budgeting
Once it has been determined that a particular project has exceeded its hurdle, then it should be ranked against peer projects (e.g. highest Profitability index to lowest Profitability index).
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Capital Budgeting The highest ranking projects should be implemented until the budgeted capital has been expended.
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Capital Budgeting Funding Source When a corporation determines its capital budget, it must acquire said funds.
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Capital Budgeting Three methods are generally available to publicly traded corporations:
- Corporate bonds, - Preferred stock, and - Common stock.
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Capital Budgeting The ideal mix of those funding sources is determined by the financial managers of the firm and is related to the amount of financial risk that corporation is willing to undertake.
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Capital Budgeting
Corporate bonds entail the lowest financial risk and therefore generally have the lowest interest rate.
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Capital Budgeting
Preferred stock have no financial risk but dividends, including all in arrears, must be paid to the preferred stockholders before any cash disbursements can be made to common stockholders; they generally have interest rates higher than those of corporate bonds.
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Capital Budgeting Finally, common stocks entail no financial risk but are the most expensive way to finance capital projects.
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Financial Statements
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Projected Financial Statements is summary of various component projections of revenues and expenses for the budget period.
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Financial Statements Projected Financial Statements indicate the expected income & Expenditure details for the period.
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Projected Financial Statements are an important tool in determining the overall performance of a company.
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Projected financial statements have the balance sheet, income statement and cash flow statements to indicate the company performance.
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The Balance Sheet shows your assets, liabilities and equity at a particular point in time. It is basically a snapshot of your financial position. The basic accounting formula is assets equal liabilities plus owner s equity.
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The asset section of the balance sheet should be presented in order of liquidity starting with the most liquid assets such as cash, accounts receivable and inventory.
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The liabilities section should be presented in order of maturity starting with liabilities that are payable over the next year such as a demand note payable and accounts payable.
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The Income Statement captures profit performance, demonstrates immediate capability to service debt for banks or real potential for growth in returns for venture capital.
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Financial Statements This is often expressed in terms of sales volume, or compared to industry benchmarks.
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Financial Statements The Statement of Cash Flows is the most critical forecast since it reflects viability rather than profitability.
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Financial Statements It can also be the most uncertain statement as projections extend into the future.
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Therefore, monthly cash flow is a key statement since it enables calculation of "coverage" at any given point.
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Preparing projected financial statements can be very time consuming and it requires a careful analysis of the company's past and present financial health.
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Projected financial statements project or forecast a company's performance in the near future.
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Preparing projected financial statements require careful analysis: Prior to preparing projected financial statements, an analyst studies the financial history of the company.
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Factors considered for analysis of the financial health of the company: An analyst uses the following points to evaluate the position of the company:
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There may be some drawbacks, which the company may have encountered down the years. To eradicate such hurdles and for the betterment of the company's financial status, an analysis is conducted.
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There are four basic financial statements, accompanied by a management discussion and analysis:
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1.Balance Sheet 2.Income Statement 3.Statement of Retained Earnings 4.Statement of Cash Flows
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Balance Sheet:
Balance sheet: also referred to as statement of financial position or condition, reports on a company's assets, liabilities, and Ownership equity at a given point in time.
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Income statement: Also referred to as Profit and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a period of time.
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Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state.
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Statement of retained earnings: explains the changes in a company's retained earnings over the reporting period.
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Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities.
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Let us now try and understand the Projected Balance Sheet: Preparing this operating document is a key requirement for initial and ongoing funding proposals.
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The balance sheet is an essential management tool, as well, and provides the most accurate indication of financial health or problems.
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Steps in preparing A Projected Balance Sheet: 1. Collect the company s financial records. Separate them into income and expenses. These two broad categories form the basic structure of your balance sheet.
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2. Prepare an estimate of current assets. Total your cash on hand and outstanding receivables.
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Calculate and list the value of inventory, securities, vehicles and anything else that could be converted into cash or business income.
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3. List the current value of real property, land, machinery and equipment owned by the business. These are fixed assets.
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These items are the only tangible assets allowed in business balance sheet.
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4. Identify intangible assets, their value and any associated costs. Treat patents and copyrights as intangible assets.
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The fees for filing patent applications and the actual research and development labour costs are also intangible. List these separately and add them to the tangible assets list.
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5. Create a summary of the company s liabilities. A good rule of thumb to follow is to put all day-to-day operating costs due within the next 12 months in current liabilities.
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Payroll, taxes, accounts payables, insurance, mortgages or rent, and monthly vehicle or equipment payments go into this section.
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6. Make a separate list of expenses that are not due within 12 months, like bank loans. These will the company s long-term liabilities.
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7. Finish the balance sheet by calculating the owner s equity, sometimes referred to as the company s net worth.
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Include stock shares, the original start-up cash investment, additional investments and retained profits.
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Now you need to make columns as per the Balance sheet format and present the sub-totals and Totals so as to make every thing clear and one can understand the status of the finances as on that date.
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Projected Income Statement
Projected Income Statement normally includes your estimated future Business Revenues, Cost of Goods Sold, Gross Profit, Controllable Expenses, NonControllable Expenses and Net Profit. This statement is utilized to project your financial future in your business.
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Financial Statements Projected Income Statement

Industry % J F M A M J J A S O N D Annual total Annual %
Total net sales Cost of sales Gross profit Gross profit margin Fixed Expenses Rent/mortgage Utilities Insurance Licenses/permits Loan payments Depreciation Other Total Fixed Expenses Variable Expenses Payroll Supplies Travel/auto Professional fees Dues/subscriptions Advertising/marketing Other Total Variable Expenses Total Expenses Net profit before taxes Taxes Net profit -after 12 21-Feb21 Feb- taxes
Course Developed by : K.K.Nigam 343
An income statement, sometimes called a profit and loss statement (P&L), is a financial document which shows income earned and expenses incurred.
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Thus the resulting difference between income and expense is called your net profit, which is often referred to as the bottom line, and this statement tells you if your business is profitable or not
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The Projected Cash Flow Statement A projected cash flow statement is used to evaluate cash inflows and outflows to determine when, how much, and for how long cash deficits or surpluses will exist for a firm/ business during an upcoming time period.
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That information can then be used to justify loan requests, determine repayment schedules, and plan for short-term investments.
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This publication focuses on preparing and using a projected cash flow statement in managing the business.
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Format of a Cash Flow Statement
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Fund Flow Statement: Generally people use Fund Flow and Cash flow statements interchangeably. But there is some basic difference.
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A Fund Flow statement is basically the net value of all the cash inflows and outflows of various financial assets. It is measured on monthly or quarterly basis by a company.
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Fund Flow statements tells the investors and market analysts ways to gauge the sentiments of the investors within specific asset class or the market as a whole.
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Fund Flow statement is an additional statement prepared along with the conventional financial statements to depict the causes of change in assets, liabilities and owners equity from the beginning of the accounting year to the end of accounting year. This is the statement of changes in financial position.
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Author Roy & A. Foulke, Finance Experts, define fund flow statement as a "statement of sources and application of funds as a technical device, designed to analyze the changes in the financial condition of a business enterprise between two dates."
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Simply put, a fund flow statement highlights the flow of funds (sources and uses) between two dates.
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A fund flow statement also throws light on the financial position of a firm at a given point in time and highlights the financial consequences of major business operations, allowing managers to take corrective actions, if required.
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Funds flow statements allow financial managers to plan on how to improve the rate of return on assets, manage the effects of insufficient funds and cash balance and plan how to pay interest to creditors and dividends to shareholders.
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Fund Flow Statement
Statement of Sources and Applications of Funds for the period from __ to __
Sources of Funds
(Inflow) Equity Share Capital Preference Share Capital Reserves Long Term Liabilities Accumulated Losses 3,00,000 2,00,000 3,00,000 1,00,000 1,00,000 Amount
10,00,000 Applications of Funds

(Outflow) Fixed Assets 8,00,000
Change in Working Capital
2,00,000
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PREPARATION OF DETAILED PROJECT REPORTS
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Project Report Preparation

For preparing Project Report , one should go according to the Guidelines for the specific project. However, here we are discussing some salient points that must be considered for the Project Report.
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ARRANGEMENT OF CONTENTS: The sequence in which the project report material should be arranged and bound should be as follows:
Cover Page & Title Page Certificate Abstract Table of Contents List of Tables List of Figures List of Symbols, Abbreviations and Nomenclature Chapters Appendices References
The table and figures must be introduced in the appropriate places.
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PREPARATION FORMAT: Cover Page & Title Page A specimen copy of the Cover page & Title page of the project report are given in the next slide.
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(A typical Specimen of Cover Page & Title Page) TITLE OF PROJECT REPORT <1.5 line spacing> A PROJECT REPORT Submitted by <Italic> NAME OF THE CANDIDATE(S) in partial fulfillment for the award of the degree of <1.5 line spacing><Italic> NAME OF THE DEGREE IN BRANCH OF STUDY 
NAME OF THE COLLEGE . UNIVERSITY : (City) <1.5 line spacing> MONTH & YEAR Course Developed by : K.K.Nigam
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Certificate may be required in case of Government or other such projects Where it is necessary before the start of the project. It must be obtained from the competent authority.
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Abstract Abstract should be one page synopsis of the project report typed double line spacing, Font Style Times New Roman and Font Size 14.
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Table of Contents The table of contents should list all material following it as well as any material which precedes it. The title page and Certificate will not find a place among the items listed in the Table of Contents but the page numbers of which are in lower case Roman letters.

One and a half spacing should be adopted for typing the matter under this head. The Table of Contents of the project report may be like any book.
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Project Report Preparation List of Tables The list should use exactly the same captions as they appear above the tables in the text. One and a half spacing should be adopted for typing the matter under this head.
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List of Figures The list should use exactly the same captions as they appear below the figures in the text. One and a half spacing should be adopted for typing the matter under this head.
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List of Symbols, Abbreviations and Nomenclature One and a half spacing should be adopted or typing the matter under this head. Standard symbols, abbreviations etc. should be used.
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Chapters The chapters may be broadly divided into 3 parts
(i) Introductory chapter, (ii) Chapters developing the main theme of the project work, and (iii) Conclusion.
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The main text will be divided into several chapters and each chapter may be further divided into several divisions and subdivisions.
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Each chapter should be given an appropriate title. Tables and figures in a chapter should be placed in the immediate vicinity of the reference where they are cited.
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Footnotes should be used sparingly. They should be typed single space and placed directly underneath in the very same page, which refers to the material they annotate/refer.
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Appendices Appendices are provided to give supplementary information, which is included in the main text may serve as a distraction and cloud the central theme.
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Appendices should be numbered using Arabic numerals, e.g. Appendix 1, Appendix 2, etc. Appendices, Tables and References appearing in appendices should be numbered and referred to at appropriate places just as in the case of chapters.
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Appendices shall carry the title of the work reported and the same title shall be made in the contents page also.
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List of References The listing of references should be typed 4 spaces below the heading REFERENCES in alphabetical order in single spacing left justified.
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The reference material should be listed in the alphabetical order of the first author. The name of the author/authors should be immediately followed by the year and other details.
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Project Ranking
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Project Ranking
Having prepared the Project Report, it is pertinent to rank the Projects and arrive at a decision /selection after due evaluation of each option.
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Project Ranking
Various tools and techniques are available and depending on the type of Project, one can use the right technique to decide.
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Project Ranking
MS-Excel has variety of Finance/Accounting and Statistical tools built into it. The user has to select the right option with in Excel and see how it can use these tools.
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Project Ranking
Ranking project priority is a difficult chore for many organizations because it requires enough maturity among the business departments and divisions to slow down enough to conduct preproject launch discussions.
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Project Ranking
The first step in the process is to hold a meeting or series of meetings with key decision makers or department heads to determine how projects will be prioritized and weighed.
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The organization will need to develop criteria for the following:
Categories for the projects or project types; Metrics for scoring the projects; and A scoring system.
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Project Ranking
In order to create project types, you will need to look at common categories of projects that you conduct.
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Project Ranking
For example, an IT organization might have project types by business unit it serves, or by product/software that it supports, or by IT function such as networking, maintenance, upgrades, etc., or by initiative.
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Project Ranking
Typically, the teams will meet to determine the project types they will track as well as the nomenclature to use.
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Project Ranking
A metric system for scoring the projects might include categorizing projects by the following: Strategic initiative, Mission critical, Process improvement, Projected revenue growth, Projected profitability or compliance.
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Project Ranking
A scoring system needs to be created that allows the team to weigh the projects and then provide a final score.
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Project Ranking
The scoring system needs to have a description so that new team members can understand the system.
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Project Ranking
Typical scoring systems are from 1to-10 or from 1-to-5. When scoring, for example, a compliance project would receive the highest score possible as it is not usually an optional project.
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Project Ranking
Once the criteria for scoring projects have been decided upon, a useful tool is a score card. This can be a simple Excel spreadsheet (as already mentioned) or a more sophisticated portfolio and project management software system.
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Project Ranking
Excel will work if the project load is minimal, but in environments where there are a dozen or more simultaneous projects, a centralized project and resource management system of some sort becomes indispensable.
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Project Ranking
Ultimately the Projects are always decided based on Financial Criteria's. Therefore it is important to understand these Financial methods to rank the Projects.
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Project Ranking
Some of the common techniques for Project ranking are:
Payback Method Accounting Rate of Return Internal Rate of Return Net Present Value Net terminal Value Etc. Let us look at each one of them.
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Project Ranking
Payback Method:
The Pay back period is the length of time required to recover the initial cash outlay on the project. For example , if a project involves cash outlay of Rs. 6,00,000/- and generates cash inflows of Rs.1,00,000/-, Rs.1,50,000/- and Rs.2,00,000/- in the first , second ,third and fourth years respectively , its payback period is 4 years.
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Project Ranking
According to the Payback period , the shorter the payback period , the more desirable the project is.
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Project Ranking
The Payback period is a widely used investment criterion . It offers following advantages:
It is simple , both in concept and application. It does not involve concepts and tedious calculations and has few hidden assumptions.
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Project Ranking
It is a rough and ready method for dealing with risk. It favours projects which generate substantial cash inflows in earlier years and discriminates against projects which bring substantial cash inflows in later years but not in early years.
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Project Ranking
Since it emphasises earlier cash inflows , it may be a sensible criterion when the firm is pressed with problems of liquidity.
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Project Ranking
The limitations of the payback criterion are quite serious:
It fails to consider Time value of money. It ignores cash flows beyond the payback period. It is a measure of Project s Capital recovery , not profitability. Though it measures a Project s liquidity , it does not indicate the liquidity position the firm as a whole.
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Project Ranking
Accounting rate of return, also known as the Average rate of return, or ARR is a financial ratio used in Project Ranking.
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Project Ranking
The ratio does not take into account the concept of time value of money. ARR calculates the return, generated from net income of the proposed capital investment. The ARR is a percentage return.
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Project Ranking
If ARR = 7%, then it means that the project is expected to earn seven percents out each rupee invested.
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Project Ranking
If the ARR is equal to or greater than the required rate of return, the project is acceptable.
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Project Ranking
If it is less than the desired rate, it should be rejected. When comparing investments, the higher the ARR, the more attractive the investment.
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Project Ranking
The formula therefore is :
ARR= Average Profit/Average Investment Where
Average Investment = (Book Value at the beginning of the year 1+ Book value at the end of usual Life) / 2
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Project Ranking
ARR is most often used internally when selecting projects. It can also be used to measure the performance of projects and subsidiaries within an organisation.
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Project Ranking
It is rarely used by investors, and should not be used at all, because:
Cash flows are more important to investors, and ARR
is based on numbers that include non-cash items. ARR does not take into account the time value of money the value of cash flows does not diminish with time as is the case with NPV and IRR.
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Project Ranking
It does not adjust for the greater risk to longer term forecasts. There are better alternatives which are not significantly more difficult to calculate.
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Project Ranking
The accounting rate of return is conceptually similar to payback period, and its flaws, in particular, are similar.
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Project Ranking
A very important difference is that it tends to favour higher risk decisions (because future profits are insufficiently discounted for risk, as well as for time value), whereas use of the payback period leads to overly conservative decisions.
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Project Ranking
Because ARR does not take into account the time value of money, and because it is wholly unadjusted for non-cash items, any method of selecting investments based on it is necessarily seriously flawed.
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Project Ranking
Its only advantage is that it is very easy to calculate. It is fairly easy to construct (realistic) examples where it will lead to different choices from NPV, and the NPV led decision is clearly correct.
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Project Ranking
Internal Rate of Return:
The internal rate of return (IRR) is a rate of return used in Project Selection to measure and compare the profitability of investments.
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Project Ranking
It is also called the discounted cash flow rate of return (DCFROR) or simply the rate of return (ROR). In the context of savings and loans the IRR is also called the effective interest rate.
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Project Ranking
The internal rate of return on an investment or project is the "annualized effective compounded return rate" or discount rate that makes the net present value (NPV) of all cash flows (both positive and negative) from a particular investment equal to zero.
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Project Ranking
In more specific terms, the IRR of an investment is the interest rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment.
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Project Ranking
Internal rates of return are commonly used to evaluate the desirability of investments or projects.
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Project Ranking
The higher a project's internal rate of return, the more desirable it is to undertake the project.
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Project Ranking
Assuming all projects require the same amount of up-front investment, the project with the highest IRR would be considered the best and undertaken first.
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Project Ranking
Net Present Value
The net present value (NPV) or net present worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows.
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Project Ranking
The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or discount curve and outputs a price.
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Project Ranking
The valuation technique, known as net present value or NPV, allows a company to project the projects potential profitability by discounting future cash flow expectations and comparing the sum of these cash flows to the initial capital expenditure required to fund the project.
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Project Ranking
Basically, the future cash flows is to be discounted by a discount factor (Interest rate) to arrive at the present value of each cash flow.
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Project Ranking
The formula then sums up each of these values and subtracts the initial investment into the project.
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Project Ranking
A NPV greater than 0 indicates that the project will add value to the company, while a NPV of less than 0 indicates that the company will be negatively impacted by the project.
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Project Ranking
Formula for calculating NPV is as under:
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Project Ranking
Net Terminal Value Method:
The terminal value (TV) is used hand-in-hand with the discounted cash flow analysis to assess the present value of a firm.
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Project Ranking
The discounted cash flow analysis calculates the value of a firm for several years -- typically 3-5 -- based on projected cash flow for the firm during that period.
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Project Ranking
The terminal value calculation is used to determine the value of the firm for all years beyond which one can reliably project cash flow using the discounted cash flow.
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Project Ranking
The terminal value can be calculated in several ways. One calculation assumes the liquidation of the firm's assets in the final year of the discounted cash flow analysis.
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Project Ranking
This method estimates what the market would pay for the firm's assets at this point.
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Project Ranking
The other two methods assume the firm will continue operations for an indefinite time period.
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Project Ranking
The terminal value is determined either by applying a multiple to earnings, revenues or book value or by assuming an indefinite, constant growth rate.
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Project Ranking
Multiple Internal Rate of Return:
A situation in which the internal rate of return for a project has more than one value. The internal rate of return is the present value of cash flows that will result in a project breaking even; multiple rates of return occur when one calculates cash inflows and cash outflows in the internal rate of return.
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Social Cost Benefit Analysis - SCBA
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SCBA
Social Cost Benefits Analysis means to analyze the social cost and total social benefits if the project is accepted.
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SCBA
To reflect real value to society, one must consider the impact of the project on the society.
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SCBA
Thus when we evaluate the project from the viewpoint of society (or economy) it is called Social Cost Benefit Analysis(SCBA) / Economic Analysis.
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SCBA
Objectives of SCBA:
The main focus of the SCBA is to determine: 1. Economic benefits of the project in terms of shadow prices. 2. The impact of the project on Savings and investments in the society. 3. The impact of the project on the distribution of income to the society. 4. The contribution of the project towards the fulfilment of certain wants (self sufficiency, Employment etc.) of the society.
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SCBA
Two Principal approaches to SCBA:
UNIDO Approach The approach is mainly based on the publication of UNIDO (United Nations Industrial Development Organisation) named guide to practical Project Appraisal 1978. L M approach IMD Little and J.A.Mireless developed this approach for analysis of Social Cost Benefit in manual of Industrial Project Analysis in Developing Countries and Project Appraisal and planning for Developing Countires.
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SCBA
We know that for completing the big project, we need big investment. In social cost benefit analysis (SCBA), we see whether return or benefits on this investment are more than its cost from point of view of society in which we are living.
SCBA
In public investment, we analyze and compare government expenditure with total benefits to society through SCBA.
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SCBA
It is a good technique of financial evaluation of a project because we ignore that project whose benefits to society are less than total cost, because all resources are from society.
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SCBA
Problems which can be solved by Social Cost Benefits Analysis:
1st Problem: Rationale for SCBA: a) Market imperfection : We will not analyze social cost benefit; we can not find market imperfections. After study of market rates following factors come in to our knowledge.
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SCBA
i) Rationing factor :
It means some of raw material prices are controlled by Govt. So, it may increase our project cost but its social benefit will go to poor community.
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SCBA
ii) Regulation for providing minimum wage factor:
It also affects social cost and benefits of any project. Because company must have to pay this minimum wages.
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SCBA
iii) Foreign Exchange Regulations factor: Sometimes, we have to deal at currency rate which is less than actual market rate due to regulation on FOREX. So, we should analyze this point also.
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SCBA
b) Externalities :
Externalities are non-cash or benefits which an organization suffer or get, if it starts the project. For example, if govt. makes road near your project plant, you can get this facility without any payment.
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SCBA
On the other side, if any other organization is polluting and spreading diseases, it may cost your organisation because of employee s absenteeism due to their illness.
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SCBA
c) Tax and Subsidies:
Tax is payment on the earning of the project and it will reduce overall benefits. On the other hand, if govt. gives us subsidy for operating any project, it will count for our cost benefit analysis.
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SCBA
2nd Problem: What is net benefit to society from a project? With UNIDO (United Nations Industrial Development Organisation) approach, we can evaluate net benefit from any project. Formula is given below:
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SCBA
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SCBA
3rd Problem: To Know the Effect of using one more Unit of Resources
With shadow price, we know the effect of using one more unit of resources on the social cost and benefits. Shadow pricing is relating to decision of project manager.
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SCBA
Before accepting the project, we have to find the price if we have to use extra unit of resources. Suppose, we have to use one more hour of labour, what will we pay and what will its effect on social benefits.
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SCBA
UNIDO Approach:
UNIDO Approach 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.
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SCBA
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.
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SCBA Implementation of Project

SCBA - Implementation
Like understanding what project management is, it is equally or more important to understand the importance of successful implementation of the project.
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An expert on Project Implementation gave tip for it s success and he says that the challenge is in:
"Coming together is a beginning. Keeping together is progress. Working together is success."
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According to PMAlliance, Inc., an Atlanta, Georgia based project management consulting company, implementing a Project can present significant challenges.
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For that reason, a phased approach to Project implementation is not only crucial but also a distinguishing characteristic of successful project management.
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Experienced project management consultants recommend a phased approach for successful Project Implementation.
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The phases approach helps in following ways:
1. Helps to overcome resistance to change, 2. Allows for lessons learned in early phases to be incorporated in systems installed in later phases and, 3. Establishes a solid foundation of available project-level data prior to rolling-up enterprise-level information.
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In order to keep a close check on the implementation, we need to apply all the tools we prepared in order to keep ourselves in control of the project.
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In order to have successful Project implementation , the Project Manager must understand the Pre-requisites and adhere to it.
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In India, Time and Cost overruns of Projects are most common particularly in the public sector. Due to this Time and Cost overruns , Projects tend to become uneconomical, resources are not available to support other projects and economic development gets adversely effected.
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While a lot of things can be done to achieve this goal, the more important ones are as under:
Adequate Formulation Sound Project Organisation Proper Implementation Planning Advance Action Timely availability of funds Judicious equipment tendering and procurement Better Contract Management Effective Monitoring
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Let us understand one by one: Adequate Formulation:
It has been experienced that Project Formulation often is deficient of one or more of the following: Superficial Field Investigation
Cursory assessment of input requirements Slip-Shod methods (careless / unprofessional) used for estimating costs and benefits Omission of Project Linkages Flawed judgements because of lack of experience and expertise Undue hurry to get started Deliberate over estimation of benefits and underestimation of costs
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Care must be taken to avoid the above deficiencies so that the appraisal and formulation of the project is thorough, adequate and meaningful.
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Sound Project Organisation: A sound project organisation for implementing the project is critical to its success. The characteristics of such an organisation are:
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It is led by a competent leader who is accountable for the project performance. The authority of the project leader and his team is commensurate with their responsibility.
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Adequate attention is paid to the human side of the project. Systems and methods are clearly defined. Rewards and penalties to individuals are related to performance.
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476
Proper Implementation Planning:
Once the investment decision is taken and often even while the formulation and appraisal are being done - it is detailed implementation planning ,before commencing the actual implementation. Such planning should be with following objectives:
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477
Develop a comprehensive time plan for various activities like land Acquisition , tender evaluation, recruitment of personnel, construction of buildings, erection of plant, arrangement of utilities , trial production run etc.
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478
Estimate meticulously the resource requirements (Manpower, Materials, Money etc.) Define properly the inter-linkages between various activities of the project. Specify Cost Standards.
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479
Advance Action:
When the Project appears prima facie to be viable and desirable, advance action may be initiated on the following lines:
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480
i. Acquisition of Land ii. Securing Essential Clearances iii. Identifying technical collaborators / Consultants iv. Arranging for Infrastructural facilities v. Preliminary design and engineering, and vi. Calling of tenders etc.
To initiate advance action with respect to the above activities, some investments are required.
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Timely Availability of Funds:
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482
Project Manager
Role and Responsibilities It is important to have a defined formal structure for the project and for the project Manager/staff. This provides each individual with a clear understanding of the authority given and responsibility necessary for the successful accomplishment of project activities.
As Project Manager one has to make sure that we, together with all our team members,
take action, in-line with the plan and / or contract record and document all the work, work results, special events, decisions about changes, implementation of changes, etc.
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analyze, communicate, report, and document status and results of action, in-line with the plan and / or contract take decision if and what kind of change we need, in case any result (or action) is not as required implement agreed changes, in-line with the plan and / or contract.
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485
Project team members need to be accountable for the effective performance of their assignments and achievement of the project goals and objectives.
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486
A successful project requires that the project team have the authority to complete a project, be participants (at some level) in the planning process, have ownership and buy-in to the project plan, and be responsible and accountable for completion of the project.
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487
The roles and responsibilities of project participants will vary. The requirements placed on participants will be determined and defined during the project planning process phase, however, the following is a good rule of thumb perspective:
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488
On a large project, individual role assignments may require full-time attention to the function.
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489
On smaller projects, role assignments may be performed part-time, with staff sharing in the execution of multiple functions.
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490
Tasking and individual responsibilities are often covered in the Organizational Breakdown Structure (OBS) as activity assignments are defined during the planning phase. Typically these assignments are shorter term and exist only to the completion of the activity deliverable.
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491
Project Audit :
A project audit provides an opportunity to uncover the issues, concerns and challenges encountered in the execution of a project.
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492
It affords the project manager, project sponsor and project team an interim view of what has gone well and what needs to be improved with the project to successfully complete it.
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This audit will provide an opportunity to learn what elements of the project were successfully managed and which ones presented some challenges. This will help the organization identify what it needs to do, so that mistakes are not repeated on future projects.
A project audit consists of three phases:
Phase 1: Success Criteria and Questionnaire Development Phase 2: In-depth Research Phase 3: Report Development
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495
Contract Management:
Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees.
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496
Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes that may arise during its implementation or execution.
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497
Issues and Remedies of Contract Management:
The basic rule is that parties to contracts must perform as specified in the contract unless:
(1) the parties agree to the change in the contract's terms, or (2) the actions of the party who deviates from the terms of the contract are implicitly accepted ("ratified") by the action or non-action of the other party.
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498
If one party fails more or less entirely to perform the contract, or totally prevents the performance of the contract by the other party, the situation is clearer.
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499
The situation becomes more complex where the argument is over the quality of materials, the timing of work, or something of that sort.
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500
Breach of contract leaves the nonperforming or improperly performing party open to a claim for damages by the other party. The non- breaching party is relieved of his obligations under the contract by the other party's breach.
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501
REMEDIES
The ordinary remedy for breach of contract is money damages. A contract should always foresee the possibility of non-performance, intentional or unintentional, and should spell out what is to be done.
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502
Some contracts go so far as to include an agreement on a set amount of "liquidated damages" which are to be paid in case something goes wrong.
Sometimes these are also known as penalty clause
21-Feb21-Feb-12
503

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Project Evaluation & Implementation

Course Developed by : K.K.Nigam

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Project Evaluation Objectives

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Project Evaluation Execution and Controlling

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Project Evaluation Closure

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