Project Management

Reference Texts:
1.
2.

Project Management for Business & Technology:

Principles & Practice John M Nicholas;
Project Management -

3.

Project Management Harvey Maylor;

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Course Content
Module 1: Characteristics, phases and appraisal of Projects
Module 2: Organizing for Projects;
Module 3: Planning Projects;
Module 4: Design & Tracking tools Gantt, PERT & CPM
Module 5: Time-Cost relationship;
Module 6: Controlling Projects;

Module 7: Risks in Projects;

Module 8: Contracts
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Module 1:

Characteristics, phases and appraisal of Projects

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What is a Project?
A specific objective, often one-off, to be

completed according to certain requirements,

within a certain time frame, consuming
resources like money, manpower and material
and which may have constraints on the
availability of those resources.

Projects make up more than 50% of all work

carried out therefore, they are economically

important.
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Characteristics of a Project
A Project contains a series of activities and tasks
which are interlinked and are non routine in
nature:

Limitation on Money & Manpower resources

Complexity
Time bound
Involvement of Team work & coordination
Customer specific & Unique
Risk & Uncertainty
Change
Environment
Subcontracting
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Types of Projects
New Project (Green Field Project)
Expansion Project
Modernization Project
Replacement Project
Improvement Projects
Reengineering & restructuring Projects
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Some Examples of Projects

Mumbai Pune Expressway
Setting up a Factory
Setting up a Mobile Cellular Network
Road Widening Project in Pune
Capacity expansion in a Factory
Product Creation & introduction: Indica
ISO Certification
From Country to Product/market
Organizational structure: Philips
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Forward & Backward Integration

Projects
Cotton yarn
Cotton Farming Spinning Mill

Backward
Integration

Existing
Operation

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Textile Mill

Forward
Integration

Project Life Cycle

Conception
Planning/Design
Implementation

Commissioning/ End
of Project

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Project Life Cycle

Planning
Conception Phase
Phase

Implementation phase

Commissioning
/ End of project
Phase

Time
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Why Project Management?

Need for an organized way of accomplishing a

task, which is often unique and non-repetitive,

taking into consideration its resource & time
constraints and other characteristics;
Involves the usual tenets of Management:

Planning
Organizing
Scheduling & Implementing
Monitoring & Controlling

Plus the special dimensions of:

Complexity: technological & newness;
Temporary-ness.
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Organizational Structure &

Project Life Cycle Relationship
Top Management

Conception

Senior Management

Planning

Managers

Implementation
& Commissioning

Staff/Workmen

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Conception Phase of Project

Preliminary Evaluation of an idea
A new need
Or to remedy potential deficiencies in existing

systems

Evaluate the initial Technical, Economic and

Environmental feasibility for:

What will it do ?
Alternate ways to meet the need,
System cost ?
Returns from it ?
When will it be completed ?
How will it be integrated with existing systems ?
Any environmental issues affecting the project ?
Risk Analysis
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Conception Phase of Project

(contd)
Establish initial design to meet system
objectives,

Identification of resources required,

Establish an Organizational structure for
the Project with a Project Manager in
charge.
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Planning/ Design Phase

Preparation of detailed specifications and performance

requirements
Determination of realistic costs
Identification of Detailed activities and tasks and their
precedence
Determination of Time Schedules for Implementation &
Commissioning phases
Firm identification of Human and other resources
Detailed study of risks and plans to mitigate those
Definition of interfaces within and external to the
organization
Documentation of Policies, procedures, job descriptions,
budget, Time schedules etc.
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Implementation Phase

Mobilization of resources;
Actual construction, implementation;
Regular Monitoring of Progress versus Plans
Review meetings for Project progress and/or
changes in needs/specifications,
Carry out Corrective action if the progress is at
variance with Plans
Regular reporting of progress to higher
authorities, customers & interested parties;
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Commissioning Phase/ End of the

Project
Test the project for conformance to specifications
Commission the project, pilot-runs, & fine-tuning,
Develop plans to hand over the responsibility for

Operations to other departments/ organizations,

Document suggestions & lessons learnt during the
Project for Knowledge Management data base of
the Organization,
Disband Project organization and transfer of
resources.
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Feasibility of Project
After a Need has been perceived,

Feasibility is the process of investigating it

in sufficient detail to determine whether it
is:
Technically feasible;
Commercially feasible including sourcing of
finance for funding project;
Environmentally & ecologically feasible.
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Technical Feasibility
Issues to be considered:
Type of Technology
Latest but unproven?
Proven?
Likelihood of obsolescence in near future ?
Technology absorption issues ?
Cost effective?

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The Technical assessment variables

Project Execution

Inputs

Work

Contingency
Plans
Physical

Manf./Process

Schedules

Cash

Alternatives

Association

Technical
arrangements

Guarantees

Charts &
Layouts Flows

Appropriateness
Types

Material etc.
Aux. & utilities

Organization

Plant
Capacity
Structure /
Construction Site

Cost Technology

Product focus

Product Mix

Policy Availability Process focus Customer focus

Utilities Building
Infrastructure Climate

Location
Proximity

Plant / Facility
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Legislation

Commercial Feasibility
Issues to be considered:
Market survey/ Forecast for assessing demand of the
product or service from the Project;
Competition;
Regulatory issues;
Govt. policies for the sector;
Likely Sales/ Revenue;
Cost of project;
Operational Cost after Project completion;
Funding: Equity and Debt;
Financing cost;
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Investment Appraisal
Measures the suitability of a possible

investment and provides input data for

Company Management decision, or a
choice between several candidate projects
for investment
From a Lenders point of view, enables
them to judge whether it is a worthwhile
project for investment
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Investment Appraisal (continued)

Any investment made in a project has to yield a return in

excess of spend i.e. the investment should be pay back,

analyzed in the following ways:
Payback analysis: simply considers the cash-flow of costs and
benefits;
Discounted cash-flow: considers the time-value of cash flows;
Internal rates of return: set basis return criteria on time-value of
money.

The financial appraisal will consider the potential rewards of

carrying out a project, depending on:

The size of the project being considered;

The time-span over which the costs and benefits are going to be
spread.
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Investment Appraisal (continued)

Payback - the simplest/basic method comprises:
Step1: the cumulative income that will be generated with the
initial investment;
Step2: the amount of time that the revenue will need to be
generated to cancel out the investment.
Many companies set this as a hurdle for projects, without going
in for detailed computations e.g.
Manufacturing equipment/hardware (Western):
4~5 years;
Manufacturing equipment/hardware (Japanese):
~10 years;
Computer/IT facilities:
3 years;
McDonalds franchise:
12 years.
While simple, it ignores:
The life-cycle cost (e.g. disposal or decommissioning) of an item beyond
the pay-back period a fact which could alter the viability considerably;
The time-value of money.
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Investment Appraisal (continued)

Main Instrument: Discounted Cash Flow with
Net Present Value (NPV);

NPV describes the the present value of the

EXPECTED NET CASH FLOW to be generated by the

investment over a period of time.
Net cash flow is the actual cash flow considering all
inflow of revenue in cash and all outflow of cash for
capital , operational expenses and Taxes
(Depreciation and Non cash charges are NOT REAL
CASH OUTFLOWS and are not included in the NPV
calculations)

If NPV is positive, project is viable

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Investment Appraisal (continued)

Start of Project
investment

How to Calculate NPV?

Cash
Flow

(xx) Means cash outflow

Year1

Yr2

Yr3

Yr4

Yr5 Yr6 Yr7 Yr8

Yr9 Yr10

Operational cash Flow= Revenue

- Operational Expense incl. TAX

Capital

(800) (500) (200)

Opernl

(200) (150) (125) 50

200 400 500 800 1200 1500

Net

(1000) (650) (325) 50

200

NPV

(1000) +(650) +(325)+ 50 + 200 +400 + 500+ 800+1200+1500

1+r

(1+r)2 (1+r)3

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400 500 800 1200 1500

(1+r)9

Investment Appraisal (continued)

r = Discount rate , is the cost of capital or
minimum rate of return acceptable for a given
risk
Internal Rate of Return (IRR) is the the Discount
rate (r ) required to make NPV zero. This is also
the maximum interest rate of borrowing at
which project becomes viable.

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Investment Appraisal (continued)

Another Example: Proposal for a Fast-food outlet, 12% discounting
Start-up costs
Running costs
Revenues
Sale of Business

Now
50K

Yr1

Yr2

Yr3

30K
40K

45K
50K

45K
60K
70K

NPV = NPVyr1 + NPVyr2 + NPVyr3

= - 50K + {(- 30K+ 40K)/(1+0.12)} + {(- 45K+ 50K)/(1+0.12)2} +
{(- 45K + 60K + 70K)/(1+0.12)3}
= - 50,000 + 8,928 + 3,696 + 60,501
= 23,415

If the criterion is NPV > 0, the project is worth pursuing.

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Investment Appraisal- Cash

Flow
+ve
Cash
Flow

years

-ve

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Project risks considered in

Financing
Technology risk
Political risks
Foreign currency risk
Regulatory risks
Operational risk
Revenue risk
Project completion risk
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Sensitivity & Risk analysis

Project viability is based on certain
assumptions
What if the assumptions are wrong or
change midcourse?

These uncertainties (or risks) have to be

quantified & factored in by using :
Higher Discount factor for IRR calculation
A shorter service life

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