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Concepts of project

management

What is a
project?

Meaning of project
It is a blue print for the action oriented
activities of an organization. It reflects the
plan of action in its totality
It is a scientifically evolved work plan
devised to achieve a specific objective within
a specified period of time.

Definition of project
A project is a one-shot, time-bound, goal-directed
major undertaking, requiring the commitment of
varied skills and resources. It has also been
described as a combination of human and nonhuman resources pooled together in a temporary
organization to achieve a specific purpose. The
purpose and the set of activities which can
achieve that purpose distinguish one project from
another.
project management Institute,USA

Features of a project

Fixed set of objectives


Specific life span
A separate entity
Team work
It has a life cycle
Uniqueness
Change
Successive principle
Specific set of goals with a complex set of diversified activities
Sub contraction of work
Risk and uncertainty
Feasibility and appraisal studies

Types of project
On the basis of expansion Project expanding the capacity
--project expanding the supply of knowledge

On the basis of magnitude of the


resources to be invested
Giant projects affecting total economy
Big projects affecting one sector of the
economy
Medium size projects
Small size projects

On the basis of sector

Industrial project
Agricultural project
Educational project
Health project
Social project

On the basis of objective


Social objective project
Economic objective project

On the basis of productivity


Directively productive project
Indirectively productive project

On the basis of nature of


benefits
Quantifiable project
Non-quantifiable project

On the basis of government


priorities
Project without specific priorities
Project with specific priorities

On the basis of dependency


Independent project
Dependent project

On the basis of ownership


Public-sector project
Private sector project
Joint sector project

On the basis of location


Project with determined location
Project where location is open

On the basis of social time value


of the project
Project with present impact
Project with future impact

On the basis of national


policy
Project determined by inward looking policy
Project determined by outward looking policy

On the basis of risk involved in


the project
High risks project
Normal risks project
Low risks project

On the basis of economic life of


the project
Long term project
Medium term project
Short term project

On the basis of technology


involved in the project

Highly sophisticated technology project


Advanced technology project
Foreign technology project
Indigenous technology project

On the basis of resources


Project with domestic resources
Project with foreign resources

On the basis of employment


opportunities
Capital intensive project
Labour intensive project

On the basis of sources of


finance

Project
Project
Project
Project

with
with
with
with

domestic financing
foreign financing
mixed financing
financial institutions

On the basis of legal entity


Own legal entity
Without own legal entity

On the basis of speed required


for execution of the project
Normal project-adequate
time,minimumcapital and no compromise on
quality
Crash project-additional time and cost
Disaster project-round the clock work ,capital
cost is high

Project life cyclephases/stages


Pre-investment phase
Implementation phase
Operation phase

Pre-investment phase

Project infrastructure and enabling services


System design and basic engineering package
Organization and manpower
Schedules and budgets
Licensing and governmental clearances
Finance
Systems and procedures
Identification of project manager
Design basis ,general condition for purchase and contracts
Construction resources and materials
Work packaging

Implementation phase
Project and engineering design-blue print,plant
design etc
Negotiation and contractions-construction of
building and civil works, supply of machine and
equipments etc
Construction-site preparation, building
construction, installation of machinery
Training engineers technicians and workers
Plant commissioning

Operation phase
Transition phase
Project monitoring
Project evaluation

Project life cycle curve

Preinvestment
phase(4-8%)

Implementati
on
phase(85%)

Operation
phase(3%)

PROJECT LIFE CYCLE


PHASES(FIVE PHASES)

CONCEPTION PHASE
DEFINITION
PLANNING AND ORGANISING
IMPLEMENTATION
PROJECT CLEAN UP

A.PROJECT IDEA
GERMINATION
PROJECT may be to overcome existing
problems
Develop comparitive ideas

B. DEVELOPS THE IDEA


GENERATED
Produce document describing project details
Areas examined are raw materials, plant
size,capacity,location and
size,technology/process selection,project
layout,civil
works,utilities,manpower,implementation
schedule

C. INFRASTRUCTURE,ENABLING
SERVICES,

Systems design
Basic engineering package,
Organisation,
Manpower,scheudles,budget,licensing and
government clearances,finance,systems and
procedures
Site preparation and investigation
Construction resource and materials
Work packaging

D.IMPLEMENTATION-80-85%
PREparation of specification for equipment
and machinery
Ordering of equipment
Lining up of construction contracts
Issue of construction contractors drawings
Equipment foundations

Project clean up
Physical handover of project hardware to
production phase
Handover of drawings
Documents,files,operation and maintenance
manuals
Project account closed
Dues settled etc

CRITERIA FOR SELECTING A


PARTICULAR PROJECT-vasant desai pg.72

INVESTMENT SIZE
LOCATION
Technology
Equipment
marketing

Project management
It is an existing new profession which
receives much attention
It is concerned with the management of
resources to successfully complete the
project
It is designed to manage or control company
resources of a given activity within
time,cost,performance

Overview of project
management

Cost

Resources

time

performanc
e

Components of a project
management system

Objective-fundamental rationale
Requirement-sine qua non or a irreducible
Alternative-a surrogate
Selection criteria- a matter of carrying out
Constraint-a demarcation point

Steps in project
management

Grouping of activities
Single responsibility centre
Support and service system
Commitment-coordinating and directing
towards goals
Follow-up-budgets schedules and controls
Deciding what is to be done.maintaining
integrity and making sure it is done.

Benefits of Project
management

Identification of functional responsibilities


Minimize the need for reporting
Identification of time limits
Identification of a proper methodology for tradeoff analysis
Measurement of performance
Early identification of problems
Improved estimating capability for future planning
Knowing when objectives cannot be met

Obstacles in P.M
Project complexities
Execution of customers special
requirements
Organization restructuring
Project risks
Changes in technology
Forward planning and pricing

Project manager and his


role

Flexible and adaptable


Initiativeness and leadership skills
Aggressiveness,confidence,persuasiveness and verbal fluency
Ambitious, activity and forcefulness
Communicator and integrator
Personal interests
Enthusiasm in agitation and spontaneity
Devotion of time
Able to identify problems
Willing to make decisions
Able to maintain a proper balance in the use of time

Project consultant/need for a


consultant
When a project of new technology is
undertaken
When the in-house consultant is incapable of
meeting the requirement of the project
When there is no in-house facility available
in the organization
Imported technology
Expertise

Job of the consultant


Assisting the agency in appropriate site
investigation and sourcing of materials
Assisting the agency in selecting the
appropriate contractor
Check ing the quality of work, supervision
control, testing ,monitoring and progress
reporting checking measurements and bills.

Main jobs of the consultants


are

Preparation of feasibility report


Preparation of techno-economic report
Preparation of detailed project report
Detailed engineering and consultancy services
Project monitoring and control
Supervision of erection and commissioning of
project
Provide pre-and post commissioning services.

Well known Consultancy


firms

Tata consultancy services ltd


Birla technical services
Dastur and co ltd
Engineers India ltd
Metallurgical and Engineering consultants(India)ltd
Kirloskar Consultancy Ltd.
Power Consultancy services India Pvt Ltd.
Small Industries Service Institute
Technical consultancy organization
Science and Technology Entrepreneurship Park etc.

Project identification-project
ideas
A variety of sources should be tapped to
stimulate their generation.

Sources of project ideas

Success story of a friend/relative


Experience of others in manufacture /sale of product
Examining the inputs and outputs of industries
Plan outlays and government guidelines
Suggestions of financial institutions and developmental agencies
Investigation of local materials and resources
Economic and social trend of the economy
New technological developments
Project profiles and industrial potential surveys
Visits to trade fairs
Unfulfilled psychological needs
Possibility of reviving sick units

Steps in project identification

Conceptual stage
Screening stage(compatibility with promoter,
consistency with governmental priorities,
availability of inputs, adequacy of market,
reasonableness of cost, acceptability of risk
level)
Identification stage Pre-feasibility stage

Pre-feasibility stage_SWOT
ANALYSIS

Availability of internal financial resources


Capability of raising external financial resources
Availability of production facilities
Technological capabilities of the company
Availab ility of the resources
Availability of the infrastructural facilities
Technological capabilities
Cost structure and profit margins of the company
Distribution n network of the company
Market share of the company
State of industrial relations
Impact of corporate laws on the growth of the company
Changes in governmental policies
Existence and severity of competition
Changes in customers preferences tastes etc.

Project formulation
It is the investigating process which precedes
investment decision.(scientific procedure)
The objectives goals and justification for the
acceptance of the project are to be explained.
(subjective and objective information is to be
presented)
The major task is to assess the financial,
technical and managerial involvement and its
justification considering the resource constraint.

Stages in project formulation

Feasibility analysis
Techno-economic analysis
Project design and network analysis
Input analysis
Financial analysis
Cost benefit analysis
Pre-investment appraisal

Criteria to be followed in project


formulation process

Forecasting
Setting up priorities and choosing the goals
Searching for alternatives
Carrying out detailed studies
estimating the needed resources
Arranging funds
Preparing time schedule for all jobs
Distributing the work to various departments
Execution and controlling the project
Evaluating the performance of each project

Feasibility report
It is an investment proposal based on certain
information and factual data appraising the project
It is prepared during the definition phase of a
project. It lies in between the project formulation
stage and appraisal and sanction stage.
It is prepared to present an in-depth technocommercial analysis carried out on the idea for
consideration of the financial institutions and other
authorities empowered to take the investment
decision.

Gamut (components) of
feasibility study

Commercial and economic feasibility


Technical feasibility
Financial feasibility
Managerial feasibility
Social feasibility or acceptability

Commercial and economic


feasibility
Earning capacity based on the volume of
sales
Sales depends upon the present demand of
the goods produced throughout the project
Sales depends upon the future demand
Anticipated ROR

Technical feasibility-technicians
angle.
Feasibility report should give types of
technology to be adopted
Requirements of equipment, labour and
other inputs.
Size of the plant,location of the
project,pollution caused by the project,
production capacity of the project and
strength of the project.

Financial feasibility-to study the


financial viability
For the existing companies-Preparation of a
financial statement such as B/S and Income
Statement
For new companies-Statement of total
project cost,initial capital requirement etc
Projected income statement and Balance
sheet
Financial analysis relating to ROI, BEA,PA

Managerial feasibility
Heredity skill
Skill acquired through training
Skill acquired during the course of work.

Social feasibility
To generate more employment opportunities
and to improve the standard of living of the
people small scale projects can be
encouraged.

Format of feasibility report


Introduction
Summary and Recommendations
Product capacity, chemistry of the product,
specifications, application and uses
Market potential
Process and know-how
Plant and machinery
Location of the unit
Plot plan and building

Raw materials availability


Utilities and requirements
Effluents treatment
Capital cost
Working capital
Mode of finance
Manufacturing cost
Financial analysis
Implementation schedule

Project Report
It is a document which narrates the various
aspects of a project in a prescribed form.
It is a post-investment decision exercise

Components of a project report

General information(name and address


Rationale(to check that the project is appropriate and
justified)
Project description(location,ownership,site approved or
not,industrial area or not)
Market potential
Capital expenditure and sources of finance
Assessment of working capital requirements
Other financial factors
Government and other statutory approvals
Economic and social variables.

General information
Name and address of the entrepreneur
The qualifications,experience and other
capabilities
A small analysis of the industry-present
status,the way of the organisation, the
problems
The organisational structure
The utility of the product and range of products

rationale
To look at the broad rationale of the project
to ensure that project is justified and
accepted,
Establishment of a modernisation and
pollution control may be fully justified

Project description

Input factors
Raw materials
Labour
Power
Fuel and water
Waste discharge
Communication and transportation facilities
Capacity and technology
Quality control

Market potential
Estimation of demand and supply
Marketing strategy-before and after the
sales.

C apital expenditure and sources


of finance
Cost of the project-level of accuracy required
in cost estimates
Means of financing=

Assessment of working capital


requirements
wc

Other financial aspects


Product taken up for production should be
profitable
Profitable an estimate projected PL a/c ,B/S
and CFs

Government and other statutory


approvals

Economic and social variables

Promotes employment opportunities


Development of SSIs
Overall development of that locality

Differences between project and


feasibility report

Objective
Scope of information management
Time span
Cost s involved
Reliability
Depth of analysis

Differences between FR
AND PR
Feasibility report
Aims to serve top
management in arriving
feasible and viable project
alternatives.
Information in areas like
technical, economic
commercial and
environmental areas

Project report
Focuses on formally
communicating the project
sponsors decision to the
government and financial
institutions
70 to 80% information based on
which certain reliable forecasts
are made and decisions taken
by management.

continued
Exploratory research-6 to 15
months
Average of 1.5% and 3% of
the project costs

Reliable for short span


Depth and magnitude
reflected through costs and
time

Official document-1 to 2
years-utility after the
decision is made
Total costs 5% and 7.5% of
the expected investment.
Long run used as a
databank.-major signpost
The depth and magnitude
is perfectly maintained by
furnishing intricate details
of the project.

PROJECT RISKS

TYPES:
Design
Implementation
Operational
Environmental
Finance
Interest risk
Structural
Human resource
Execution
Management
Technology
disruption

Focussing on the
constraints
Identifying the risks
projects with quantified
benefits
projects with nonquantifiable benefits
No prescribed standard
format-based on the
appraisals missions
judgement

PROJECT
APPRAISAL
ASSESSMENT OF A PROJECT in terms of
economical, social and financial viability
Reshape the project so as to upgrade it.
Aims at sizing up the quality and long term
profitability
Emphasis on economic and technical soundness
and
Earning potential than the adequacy and liquidity
of the security

Appraisal processscientific tool-Areas of


appraisal
Market and demand appraisal
Technical appraisal
Managerial appraisal
Financial appraisal
Socio-economic appraisal

Market and demand appraisalcommercial viability


Marketability of end product
Size and prospective growth of the marketnature of population, purchasing power,
educational background, fashion etc
Demand and supply position of the product in
national and international market
Nature of competition
Export potential-product being an important
substitute

TECHNICAL

APPRAISAL-project to be found
sound from technical and engineering point of view.

Justify the goal compatibility with preferred


technology
Alternative technology - cost effective and
efficiently manageable
Technology suits the existing skill
levels(orientation and training programmes)

Technology used in the project


can be classified on the basis of:
Purpose for which it is applied
Level at which it is used
Nature of skills applied

On the basis of purpose


Manufacturing technology-textiles, iron and
steel industries
Extraction technology-oils, petroleum, coal
and pig iron
Conversion-cement and sugar
Pre-fabricated-construction industries like
roads, bridges, buildings and sheds

On the basis of technology

Core technology
Engineering and design technology
Intermediate technology
Component technology

While appraising the following


have to be considered:
Availability of critical inputs
Capacity of the plant and manufacturing
process and suitability of the technology
employed
Plant and machinery
Project planning and scheduling

Managerial appraisal

Character
Capacity
Credit worthiness
Capital
Collateral
conditions

Principle of three cs

Attribute

How is it measured?

Will the borrower repay the loan


according to the schedule?
Does the borrower have the
ability to repay the loan
Is the borrower credit worthy for
the amount of loan applied?
How much liquid assets does
the borrower have.

Previous experience,
credit reference, market
integrity
Viability of the
project,generation of
surplus
Educational and family
background
Networth of the borrower.

Is the loan backed by


sufficient collateral
security
Do the current economic
conditions indicate any
problems in the
borrowers ability to repay
the loan?

Marketability-market
value of the collateral
General economic
condition of the country:
stability of the borrowers
income relative to these
conditions

Financial appraisal
Objectives:
To assess whether the unit will generate sufficient
surplus to meet the outside obligations

Two aspects of financial


appraisal
Cost of the project
Means of financing cost

Factors for assessment of financial viability


which the banker has to examine:

Reasonableness of cost of project


Debt-equity ratio
Promoters contribution
Sensitivity study
Profitability analysis
1.
Ratio analysis

Ratio analysis
Loan safety ratio=liabilities
--------------------owners funds

Current ratio=CA/CL(1.5 and 2.21)


Debt service coverage
ratio(DCSR)=NP+DEP+INTEREST ON TERM LOAN
LIABILITIES/payment of term loans+interest on
loans
Margin of security=value of fixed assets-term
loans/value 0f fixed assetsx100

Productivity ratio=
Capital employed to value of output sales
CE TO NVA
Investment per worker
Productivity per worker
Profitability ratio

Profitability ratio
Percentage
output
Percentage
output
Percentage
Percentage
Percentage

of raw material to value of


of wages and salaries to value of
of interest to value of output
of operating profit to sales
of profit after tax equity

Break even point


Discounted cash flow techniques
pay back method
ARR
NPV
IRR
SCBA

SCBA
Methodology to assess the utility of the project to
society as a whole.
Separates all expected changes
Represents inputs and outputs of a project and a
price can be put to each of these inputs and outputs
Combines the costs and benefits that arise over the
economic life of the project
Methodological guidelines developed by OECD AND
UNIDO

The mission of the Organisation for Economic Co-operation and


Development (OECD) is to promote policies that will improve the
economic and social well-being of people around the world.

The OECD provides a forum in which governments can work together


to share experiences and seek solutions to common problems. We
work with governments to understand what drives economic,
social and environmental change. We measure productivity and
global flows of trade and investment. We analyse and compare data
to predict future trends. We set international standards on a wide
range of things,from agriculture and tax to the safety of chemicals.

We look, too, at issues that directly affect the lives of ordinary people, like
how much they pay in taxes and social security, and how much leisure time they
can take. We compare how different countries school systems are readying
their young people for modern life, and how different countries pension
systems will look after their citizens in old age.

Drawing on facts and real-life experience, we recommend policies designed to


make the lives of ordinary people better. We work with business, through the
Business and Industry Advisory Committee to the OECD, and with labour,
through the Trade Union Advisory Committee. We have active contacts as well
with other civil society organisations. The common thread of our work is a shared
commitment to market economies backed by democratic institutions and focused
on the wellbeing of all citizens. Along the way, we also set out to make life harder
for the terrorists, tax dodgers, crooked businessmen and others whose actions
undermine a fair and open society.

The United Nations Industrial Development


Organization (UNIDO), French/Spanish acronym
ONUDI, is a specialized agency in the United Nations
system, headquartered in Vienna, Austria. The
Organization's primary objective is the promotion
and acceleration of industrial development in
developing countries and countries with
economies in transition and the promotion of
international industrial cooperation. It is also a
member of the United Nations Development Group .[1]

SCBA B/S of nuclear power


project
Benefits
Gain in gross
domestic
provident

costs
------------------

Social cost of
extra GDP to
be generated
by the project

----------------

Routine
radiation in
value

----------------

Waste
management

--------------

Proliferation

-----------------

Civil liberties

-------------------

Benefit of the best alternative


foregone to a
OPPORTUNITY
COST
particular course of action

Shadow prices
Also known as the accounting price
Refers to adjusted price of the input/output
so as to reflect its real cost of value
Accounting price of an input
viz.capital,labour or foreign exchange
represents its opportunity cost or the loss to
the economy that would result from a
reduction in its supply by one unit.

Socio-Economic appraisal
SCBA IS A PERFECT NECROPSY where the
identification and determination of the best
among project alternatives is made with
reference to a country economic and social
Position.

Project planning
Blue print to foresee some predicted goals
It is a skeleton which consist of a bundle of
activities with its future prospects
Guided activity
A predefined and detailed plan of action
Helps the managers to perform their task
effectively and efficiently.

Need for project planning

To eliminate or reduce uncertainty


To improve efficiency of the operation
To obtain a better understanding of the objectives
To provide a basis for monitoring and controlling
the work

Functions of project
planning
Organization of activities
and allocation of

responsibilities
Communication and coordination
Induces people to look ahead
Instills a sense of urgency and time consciousness
Basis for monitoring and control
(gist: prj mgr should structure the work
manageable,independent,integratable and
measurable in terms of progress)

Steps in project planning


Awareness of the various alternatives
Define each alternative
Choice between the alternatives

Areas of project planning

Planning
Planning
Planning
Planning

the
the
the
the

project work
manpower and organization
money
information system

Types of project plan


One shot-single use-short term
Standing or standard use plans-long term

Tools of project planning


Traditional tools
Network analysis

Traditional tools
Gantt chart
1.
oldest formal planning designed by Henry Gantt in
1903
2.
activities are broken down into a series of well-defined
jobs of short duration whose cost and time can be
estimated.
3.
pictorial device in which the activities are represented
by horizontal bars on the time axis
4. The length of the bar-estimated time
5. The left hand end of the bar shows the beginning time,
right hand and the ending time

The Gantt Chart

Merits and demerits of the Gantt


chart

merits

demerits

It is simple to understand
Can be used to show
progress
Used for manpower
planning

Cannot show relationship


between activities on
large complete projects
Physical limit to the size
of the bar chart
Cannot easily cope with
frequent changes

Network techniques
Sophisticated than the traditional bar chart
Activities, events and their relationships are
represented by a network diagram
Also called an arrow diagram
It is drawn in which lines between the nodes
represent the jobs, the nodes being
numbered to identify the jobs.

Merits and demerits of network


techniques

merits
Effectively handle
relationships among
project activities
Identify the activities
which are critical
Handle large and complex
projects
Computerized and
updated

Not easily understood by


the project personnel
Do not define an
operational schedule

PERT-

ADVANTAGES
Gives the management the
ability to plan the best possible
use of resources to achieve a
given goal within the overall
time and cost limitations
Helps the management to
handle the uncertainities
It presses for the right action at
the right point and at the right
time

DISADVANTAGES
Basic difficulty comes in
the way of time estimates
Does not consider
resources required at
various stages
Requires frequent
updating and revising the
PERT calculation and this
costly affair

CPM-CRITICAL PATH METHOD-was developed


in 1956 at the E.I.Dupont Nemours & Co USA

Advantages
Helps in ascertaining time schedule
Control by the management is made
easy
Makes better and detailed planning
Provides a standard method for
communicating project plans,
schedules time and cost
performance
Identifies the most critical elements
and attention is paid to these
activities

Disadvantages

Fails to incorporate
statistical analysis
Based on the
assumptions that there is
a precise known time but
not true in reality
Cannot be used as a
controlling device
especially when changes
are introduced

Differences between PERT & CPM

PERT

The origin is military(naval)


It is event oriented approach
There is allowance for
uncertainty
It has three time estimates
It is probabilistic model with
uncertainty in activity duration
It does not demarcate between
critical and non-critical activities
It is especially when high
precision is required in time
estimates
Time is averaged
The concept of crashing is not
applied
It lays emphasis on reduction of
the execution time of the project
without too much cost
implications. It is time based.

CPM

The origin is industrial


It is an activity oriented system
No such allowance
There is only one single
estimate of time and the
emphasis is on cost.
It is deterministic model
Marks critical activities
It is suitable when reasonable
precision is required
No averaging of time is
involved
The concept of crashing is
applied
It lays emphasis on the
greatest reduction in
completion time with the least
increase in project cost. It is

Time estimates
Essential to fix a time target for each and
every activity
Helps to complete the projects as per time
schedule

Basic factors involved in


time estimates
Work
Constraints
Resources
Data available

Three time values


Optimistic time(to)-time required if no
hurdles arise
Most likely time(tm)-activity is most likely to
be completed-normal circumstances
Pessimistic time(tp)-if unusual complications
arise.

Different approaches

Time study approach T=a/pxn


Previous project data
Estimating approach range estimates
Estimates from vendors and contractors
Allocated and committed time

Project Scheduling When is to be done and how much is to be


done
To obtain commitment
Communicate the commitments to the
concerned people and ensure coordination
through self-regulating first efforts

Purpose of project
scheduling
Successively detail out the schedule to
provide physical equivalence with reality
Adopt the schedule to the changed realities
Provide intervention when stability of the
work system

Bounding schedule Scheduling of non-critical activities can be


done by two schedules:
early start schedule
late start schedule

Project cost control-cost control


methods

At zero date
During detailed engineering
During procurement and subcontracting
During construction

Project organisation
Project organisation should have specific
objectives,a formal structure of authority
with some persons in leadership roles and
others in subordinate roles,division of work
which entails specialsiation by members in
various activities or functions, a formal
system of communications,and generally a
set of formal procedures and customs that
distinguish them from the social entities.

Prime objective of project


organisation
Accomplish the specific project in the most
economical,efficient and effective manner
within the constraints of time,budget and
performance or quality standards

Forms of organisation

Line and staff


Divisional
Matrix
Task force
Totally projectised

Line and staff organisation model


Chief executive
Project manager

Personnel

Engineeri
ng

Technical

constructio
n

finance

Administratio
n contract

commercial

purchase

Project financing and project


over runs
Many projects are co-financed
Some of the sources are:

Common sources of project


finance

Multilateral funding agencies


Export credit agencies
Direct foreign investment
Bilateral funding agencies
Commercial banks
Institutional lenders
Leasing companies
Contractors
countertrade

Multilateral funding
agencies
World bank
Regional development banks
EDF-European development funds
UNDP-united nations development program
Advantages:
1.
long period
2.
Lower rate of interest
3.
Participation will endorse credit for interested
parties
4.
Co-financing is possible

Export credit agenices


Available in two forms:
national export-import bank
Foreign aid
When tied together they are called mixed credits
1. Export credit and credit guarantees(ECCG)
2. OECD
NB:PURCHASE GOODS /SERVICES FROM PRIVATE
SECTOR IN THE COUNTRY THAT PROVIDES THE
FINANCING

LOANS AND GUARANTEES


Concessional loans or guarantees

Suppliers credit

Credit guaranteed by export credit agency


Concessional rate of interest for fixed period
Repayment is over a period of 5-10 years
Bonds,bank charges,insurance costs are
included in project offer

Buyers credit
Arrangement between banks of the country
with that of banks of other countries(client)
Lending banks should to make progress
payments in cash to the contractor or
submission of invoices together with
appropriate paper such as BOL
Commonly used in Asian and pacific region.

Project lines of credit


Arrangement between selected banks in
certain countries
Buyers make cash orders for a variety of
different contracts.

Direct foreign investment


Major source for industrial plants developed by
industrialised countries in developing countries
International manufacturers such as
electronics,textiles and automobiles spare parts
Both latin american and asian countries have
put major efforts to attract this DFI
MIGA-multilateral Investment guarantee agency
in 1988

Project overruns
Inability of the project administration to
complete the venture within the stipulated
framework of cost and time
Spending more time than the scheduled time
Cost overrun is the excess of actual cost
incurred on a project over the budgeted or
planned cost.

Causes for overrun


Internal reasons
External reasons

Internal reasons
Underestimation at the project preparation and evaluation stages
unsuitability of the location,changes in the designs of civil
structure,additions and changes in various items of plant and
equipment
Effective project implementation requires competent management
with ability to forecast problems
Tendency of management to overspend on travel,entertainment
,non-productive activities etc
Incompetent and dishonest management Delay in recruitment of project implementation staff,excessive
expenditure on foreign technicians,failure to comply with
institutional conditions,inadequate contingency provisions for nonfirm items ,complex technology etc

External reasons
Delay in availability of utilities-power
General short supply of materials and escalation in prices
Delay in sanction and disbursement of assistance by financial
institutions
Delay in development of an industrial area and provision of necessary
infrastructure
Changes in government policies
Foreign currency fluctuations
Unforeseen political developments
Inability of domestic machinery to adhere to the delivery schedules due
to over booking,strikes,non-availabilty of components etc
Delay in the arrival of foreign technicians
Sudden changes in the market conditions

Project control-two major


functions
Ensures regular monitoring of performance
Motivates project personnel to strike for
achieving projects objectives

Steps in project control


Establishment of controls
On-going controlling activities using the
above controls

Project control purposes

On
On
On
On

the progress of the activities


the performance of project activities
project schedule
project cost

Problems of project control


Characteristics of project
People problems
Poor control and information system

tools

Gantt charts
Bar charts
Milestone charts
Critical path method
PERT

USES OF NETWORK
TECHNIQUES
Graphic representation of how each activity is dependent on
others help in better scheduling, monitoring and control
Serve as indicators
Illustrates the type and extent of coordination required
among several functionaries of the project team
Identifying critical tasks and helps in diverting resources
Helps in identifying the critical path
Helps in resource allocation
Helps in resource smoothening
Whether or not to crash the project
Cost control

Project review
Important aspect in the process of planning
Important tool to identify the shortcomings during
the implementation period and to develop
corrective actions to improve the delivery and
administrative function
Final phase of project management

Facets of project review

Initial review
Performance evaluation
Abandonment analysis
Behavioral issues in project abandonment
Administrative aspects of capital budgeting
Evaluating the capital budgeting system in
org

Initial review-two types


Control of project in
progress- expenditure authorization
specifies how much can be spent by whom
and when.

Post audit-an audit after it has been


commissioned is referred as post audit or
post completion audit

Performance evaluation

It is done periodically
On going process
Economic rate of return=cash flow+changes in
present value/pv at the beginning of the year

Abandonment analysis
Investment decision is guided by NPV
criterion.
Applied to a project continuation versus
abandonmentdecision
Project to be abandoned if the NPV
associated with continuation

Administrative aspects of capital


budgeting
Identification of promising investment
opportunities
Classification of investments
Submission of proposals
Decision-making
Preparation of capital budget and appropriation
Implementation
Performance review

Financial review-purpose
Reasonableness of the estimate of capital
cost
Reasonableness of the estimate of working
results
Adequacy of the rate of return
Appropriateness of the financing pattern

Adequacy of rate of returngeneral norms


Internal rate of return-15%
Return on Investment-20-25%
Debt-service coverage ratio-1.5:2.0

Financial review
Cash flow stream
Debt service coverage ratio

Refinement in financial
evaluation
Risk analysis
Inflation analysis
Better monitoring

Technical review-by financial


institutions

Project mix
Capacity
Process of manufacture
Engineering know-how and technical collaboration
Raw materials and consumables
Location and site
Building
Plant and equipments
Break even point

Marketing review
Resourcefulness Understanding
Commitment

Economic review
Effective rate of protection and Domestic
resource cost
World bank

Turnkey Trap
When do not have expertise often resort to
Turnkey trap
Owner expects that the turnkey contractor
can take care
It is single point responsibility, this
responsibility is with respect to
TIME,PERFORMANCE PARAMETERS AND
PROJECT COST

CM AND DM companies
The owner when he is not doing things
himself,needs someone who is not working
for profit.
These are construction management and
design management

Project audit
Formal and systematic examination of the
performance of an ongoing project as
compared to its requirements
Independent and authentic source of
information and critique

objectives
Creating awareness among the project staff of the
types and magnitude of the problems-producing
quality products, in planned volume and at
competitive costs
Providing clear picture, from time to time of the
actual status of project
Prompt identification of the factors that might
cause product quality problems
Identify specific training needs
Establishment appropriate standards and systems

Formalized the experience and expertise in


project management
Good information base for proper estimation
and costing of the project

Functions of project auditor

Expert on measuring, confirming, investigation


and reporting the status of a project
Should not arrogate to himself the role of a
consultant
Advised to make recommendations
Unsolicited action plans should be made only if
he feels strongly about important changes.
Evaluate the contract base lines and give his
judgment on the adequacy

Work breakdown structure


It is a powerful tool for expressing the scope or
extent of a project in simple graphic terms
It represents the project in terms of the
hierarchy of deliverables and services it will
produce.
It starts with a single box at the top which
represents the whole project.
The project is then partitioned into its
components with lower level boxes

Advantages of WBS
Partition the major project deliverables into smaller components
to improve the accuracy of cost estimates
Provide a mechanism for collecting and organising actual costs
Provide a mechanism for performance measurement and control
Defines the final and intermediate products of a project and their
relationships
Uses a tree diagram to show the resolution of overall requirments
into increasing levels of detail.
Allws a team to accomplish its general requirements by
partitioning a large task into smaller components and focusing on
work that can be more easily accomplished