Introduction of Project and Project

Management
1.1Definition of Project, its Characteristics and Example of Projects

A project is a temporary group activity designed to produce a unique product, service or

result.
A project is temporary in that it has a defined beginning and end in time, and therefore
defined scope and resources.
And a project is unique in that it is not a routine operation, but a specific set of operations
designed to accomplish a singular goal.
A one-short, time limited, goal directed, major undertaking requiring the commitment of
varied skills and resources. It is combination of human and non-human resources pooled
together in a temporary organization to achieve a specific purpose.

The Project Management Institute (PMI), USA

A project is any series of activities and tasks that have a specific objective to be completed
within certain specifications, defined start and end points, funding limits and consume
resources.

Harold Kerzner

Characteristics of a Project

1. Any project will have a start date and an ending date. A project is expected to be
completed within this timeframe; otherwise, cost of the project is bound to increase.
2. All projects aim at achieving definite results. Such achievement marks the end of the
project.
3. Projects differ from operations. Operations are day-to-day work and adopt a new set
of objectives and continue while projects cease to exist when the declared objectives
are attained.
4. A project usually needs resources to deliver the expected results.
5. All major projects can be divided into subprojects.
Examples of Projects

Construction Project (building, road, hydropower, etc.)

Research and Development Project
Introducing new products in market
Developing new information system
Running a campaign for political office
Producing a television serial
Writing a book, thesis, etc.

Civil Engineering Projects:

Building Projects (Residential Building, Town Planning, etc.)

Transportation Systems
Hydraulic Structures
Fossil Fuel and Nuclear Power Plants
Offshore Structures
Space based and Defense Structures
Industrial Structures
Communication Systems
Water and Waste Project

1.2Classification of Project

(See Book A Text Book of Project Engineering)

1.3Project Objective and Goal

(See - defining-project-goals-and-objectives.pdf)
1.4Project Life Cycle Phases

Because a project has a beginning and an end, it has a life cycle. The life cycle comprises of
the following stages:
i.

Concept Phase/Initiation Phase/Project Definition

ii.
iii.
iv.
v.

Planning and Organizing Phase

Engineering and Design Phase
Implementation Phase
Termination Phase

Concept Phase/Initiation Phase/Project Definition

The concept phase begins with the initial notion of someone who imagines accomplishing
some objective. This phase comprises of the following actions to determine the viability of
the project:

Conceptual development of the model and its studies

Technical and economic feasibility studies
Environmental impact assessment
Social impact assessment
Land and geological survey-location of the project
Enumeration of the major problems in translating the project into reality

Example: Suppose a state highway is crossing the railway line. The idea
is to construct a fly over. This is situated in a small district level town.
Here the project is the construction of the flyover. In this phase, the
following points are examineda. Based upon the level of traffic, the basic model of the fly over is
prepared, with respect to width, length of the approach road, etc.
b. The cost of construction is roughly estimated and source of money
discussed.
c. Is it necessary to have a fly over now? This point is studied with
regard to the level of traffic on the road as well as on the railway
line. If the traffic load is low, the project may be discarded based on
cost-benefit analysis.
d. How to relocate any power line coming in the construction area.
e. Preliminary soil investigation
These points basically come under the conceptual model & technical and
educational studies. Environment impact assessment is not very
important for this project.
Outcome of this stage: A report dealing with investigation and studies
concerning the problems to be encountered and its solution.
Planning and Organizing Phase

After the project proposal has been accepted and authorized, the next step is to plan and
organize for the project. In this phase, the detailed plans are prepared and tasks identified,
with appropriate milestones, budgets and resource requirements for each task.

Work Breakdown Structure: The project is broken down into small elements so that
all the activities to be performed in the project are included.
Cost and Schedule Planning: After breaking down the project, the time and cost of
each activity is determined and overall time and cost of the project is ascertained.

Contract Terms and Conditions: The contract may be lump-sum, fixed price, unit rate,
etc.

Engineering and Design Phase

In this phase, the project takes a definite shape. All technical issues related to the project are
carried out. Engineers come out with the best alternative available.
Design phase of project is carried out in two stages:
Preliminary Design
This stage involves primarily the studies of various design alternatives, their comparative
economic studies and architectural aspect. Also, in this stage, detailed field investigation such
as soil testing, geological, hydrological data collection, market survey, etc. are carried out.
Depending on the nature of the project, various data is collected.
Example: In the above example of a flyover, this step involves selection
of the bridge deck type, i.e. steel or concrete; Box Girder Bridge or
prestressed Concrete Bridge. Also the exact dimension of the flyover is
fixed, i.e. number of piers, width of foot path, architectural aspect, etc.
Also detailed soil investigation is carried out to get the idea of method of
construction.
Detailed Design
In this stage, the project is broken down into its components and each of the elements is
analyzed and designed, such that the engineer renders the explicit drawings and specifications
used for construction.
Outcome of this design phase: The following are the outcomes of this
phase:
Drawing of the structures/facilities to be constructed
Specifications of components to be employed which contain
detailed description of the amenities constructed.
Implementation Phase

This is the most important phase of a civil engineering project, where the major portion of the
money is invested. A lot of issues of project management are involved in this phase. The
project is realized in the real world. The major works involved are:
i.
ii.
iii.
iv.
v.
vi.

Construction Methods
Labour and Equipment Management
Material Management
Construction Planning
Construction Scheduling
Construction Finance

Outcome of this stage: Facility or Structures

Termination Phase

Aim of this phase is to check that the project has been carried out according to the contract
document. All the facilities should function properly as envisaged in the design phase. Hence,
it should be checked if each component is functioning according to design and specification.
Finally, the project outcome is handed over to the beneficiaries.
1.5Project Environment

Virtually all projects are planned and implemented in a social, economic, and environmental
context, and have intended and unintended positive and/or negative impacts. The project team
starting at the top with the project manager should always consider the project in its
cultural, social, international, political, and physical environmental contexts. Perception of
the project from these standpoint will help the team prepare for issues, plan for risks, and
better understand that factors at work around, and possible even against, your project.
Cultural and social environment. The team needs to understand how the project affects
people and how people affect the project. This may require an understanding of aspects of the
economic, demographic, educational, ethical, ethnic, religious, and other characteristics of the
people whom the project affects or who may have an interest in the project. The project
manager should also examine the organizational culture and determine whether project
management is recognized as a valid role with accountability and authority for managing the
project.
International and political environment. Some team members may need to be familiar with
applicable international, national, regional, and local laws and customs, as well as the
political climate that could affect the project. Other international factors to consider are timezone differences, national and regional holidays, travel requirements for face-to-face
meetings, and the logistics of teleconferencing. This certainly comes into a bigger view for
remote project managers working with virtual teams stretched across a country or around the
world. This wasnt nearly the common occurrence 20 years ago that it is today with our
ability to use technology to collaborate with our team at a moments notice from just about
any location.
Physical environment. If the project will affect its physical surroundings, some team
members should be knowledgeable about the local ecology and physical geography that could
affect the project or be affected by the project. As we consider green initiatives and
environmental sustainability on our projects concepts that often play big roles in projects at
this time the physical environment of the project can be a big factor.

(Class Notes)
A project is environment specific. Environment consists of forces that influence the projects
ability to achieve its objectives. A project environment can be classified into:
a. Internal Environment
b. Task Environment (Stakeholders Environment)
c. External Environment
Internal Environment

- Located within project

a. Objectives: Objectives are the desired outputs or end results of the project. Project
activities must be conducted within project objectives.
b. Constraints: A project operates within the constraints of time, cost and quality. They
delineate the scope of the project.
c. Structure: Project is temporary organization. Its structure generally cuts across
organizational and departmental lines. It has its own management team. Team
members come from various disciplines and experiences. Project must function within
the boundary of their structures.
d. Resources: Project consists of human and non-human resources. It usually has its own
budget. Resource availability sets limit on project activities.

Task Environment

The task environment of a project immediately surrounds the project. It is made up of

STAKEHOLDERS. Their interests are affected by the project. They affect the project
activities. Elements of task environment are:
a. Client/Customers: Project is custom made. It satisfies the needs of the project. Client
specifies the projects TOR (Terms of Reference). Client greatly influences the
project.
b. Contractors: Project involves high level of contracting and subcontracting. Greater
the complexity, greater is the contracting level. Contractors are profit oriented so they
compromise on quality.
c. Consultants: Project consists of analysis of consultants from inception to completion.
They exert influence on the project activities.
d. Suppliers: Project depends on the suppliers for procurement of materials, equipment,
etc. They affect efficiency, quality and schedule.
e. Government: Policies, attitude and facilities by government help or constrain the
project. Projects should comply with government rules, regulations and directions.
f. Finances: Owner/Bank/Government etc. can provide fun to the project. They affect
fund mobilization for the project.
g. Competitors: Competitors are everywhere. Competition on project is intense.
Competitors action is vital for the success or failure of project.
h. Labour unions: Unionization is increasing in projects. Labour relations need to be
effectively managed by projects. Industrial disputes leading to strikes can adversely
affect project progress.
External Environment

Political / Legal

Economic

Technological

Socio-cultural

External
Project
Environment

a. Political Legal Environment: Forces in the political environment are related to

management of public affairs. The important political factors that influence projects
are:
i.
Political System
ii.
Political Institution
iii.
Political Philosophy
iv. Legal Document
b. Economic Environment: Economic environment refers to all the economic
surroundings that influence the project activities. It consists of economic parameters.
It includes:
1. Economic System:
a) Capitalistic
b) Socialistic
c) Mixed Economy
2. Economic Policies
a) Monetary Policy
b) Fiscal Policy
c) Industrial Policy
3. Economic Conditions
a) Income
b) Business Cycle

c. Socio-Cultural Environment: It includes all the social surroundings that influence the
project. It consists of factors related to human relationships. The following factors
affect the project:
i. Demographic
ii. Social Institutions
iii. Cultural Environment
d. Technological Environment: It refers to all the technological surroundings that
influence projects. Technology consists of skills, methods, systems and environments.
Factors in technological environment consists of:
i. Level of technology
ii. Pace of technological change
iii. Technology transfer
1.6 Introduction to Project Management

Project management is the application of knowledge, skills and techniques to execute projects
effectively and efficiently. Its a strategic competency for organizations, enabling them to tie
project results to business goals and thus, better compete in their markets.
Project management processes fall into five groups:

Initiating
Planning
Executing
Monitoring and Controlling
Closing

Project management knowledge draws on ten areas:

Integration
Cost
Human Resources
Stakeholder Management
Scope
Quality
Communications
Time
Procurement
Risk Management

All management is concerned with these, of course. But project management brings a unique
focus shaped by the goals, resources and schedule of each project. The value of that focus is
proved by the rapid, worldwide growth of project management:

as a recognized and strategic organizational competence

as a subject for training and education
as a career path

History:
-

After 1st World War

Five Year Plan
2nd World War
USAID, UNDP, etc.

Project Appraisal and Project

Formulation
2.1

Concept of Project Appraisal

Project appraisal is the process of assessing and questioning proposals before resources are
committed for the project. It is a means by which best projects can be chosen to achieve the
desired objectives for the community.
Project appraisal helps project initiators and designers to;

Be consistent and objective in choosing projects

Make sure their program benefits all sections of the community, including those from
ethnic groups who have been left out in the past
Provide documentation to meet financial and audit requirements and to explain decisions
to local people.

Appraisal justifies spending money on a project.

Appraisal asks fundamental questions about whether funding is required and whether a
project offers good value for money. It can give confidence that public money is being put to
good use, and help identify other funding to support a project. Getting it right may help a
community make its resources go further in meeting local need.
Appraisal is an important decision making tool.
Appraisal involves the comprehensive analysis of a wide range of data, judgments and
assumptions, all of which need adequate evidence. This helps ensure that projects selected for
funding:

Will help a partnership achieve its objectives for its area

Are deliverable
Involve local people and take proper account of the needs of people from ethnic
minorities and other minority groups
Are sustainable
Have sensible ways of managing risk.

Appraisal lays the foundations for delivery.

Appraisal helps ensure that projects will be properly managed, by ensuring appropriate
financial and monitoring systems are in place, that there are contingency plans to deal with
risks and setting milestones against which progress can be judged.
Getting the system right
The process of project development, appraisal and delivery is complex and partnerships need
systems, which suit local circumstances and organization. Good appraisal systems should
ensure that:
Key issues in appraising projects include the following.

Need, targeting and objectives

The starting point for appraisal: applicants should provide a detailed description of the
project, identifying the local need it aims to meet. Appraisal helps show if the project is the
right response, and highlight what the project is supposed to do and for whom.
Context and connections
Appraisal should help show that a project is consistent with the objectives of the relevant
funding program and with the aims of the local partnership. Are there links between the
project and other local programs and projects does it add something, or compete?
Consultation
Local consultation may help determine priorities and secure community consent and
ownership. More targeted consultation, with potential project users, may help ensure that
project plans are viable. A key question in appraisal will be whether there has been
appropriate consultation and how it has shaped the project
Options
Options analysis is concerned with establishing whether there are different ways of achieving
objectives. This is a particularly complex part of project appraisal, and one where guidance
varies. It is vital though to review different ways of meeting local need and key objectives.
Inputs
Its important to ensure that all the necessary people and resources are in place to deliver the
project. This may mean thinking about funding from various sources and other inputs, such
as volunteer help or premises. Appraisal should include the examination of appropriately
detailed budgets.
Outputs and outcomes
Detailed consideration must be given in appraisal to what a project does and achieves: its
outputs and more importantly its longer-term outcomes. Benefits to neighborhoods and their
residents are reflected in the improved quality of life outcomes (jobs, better housing, safety,
health and so on), and appraisals consider if these are realistic. But projects also produce
outputs, and we need a more realistic view of output forecasts than in the past.
Value for money
This is one of the key criteria against which projects are appraised. A major concern for
government, it is also important for local partnerships and it may be necessary to take local
factors, which may affect costs, into account.
Implementation
Appraisal will need to scrutinize the practical plans for delivering the project, asking whether
staffing will be adequate, the timetable for the work is a realistic one and if the organization
delivering the project seems capable of doing so.
Risk and uncertainty
You cant avoid risk but you need to make sure you identify risk (is there a risk and if so
what is it?), estimate the scale of risk (if there is a risk, is it a big one?) and evaluate the risk
(how much does the risk matter to the project.) There should also be contingency plans in
place to minimize the risk of project failure or of a major gap between whats promised and
whats delivered.

 Forward strategies
The appraisal of forward strategies can be particularly difficult, given inevitable uncertainties
about how projects will develop. But is never too soon to start thinking about whether a
project should have a fixed life span or, if it is to continue beyond a period of regeneration
funding, what support it will need to do so. This is often thought about in terms of other
funding but, with an increasing emphasis on mainstream services in neighborhood renewal,
appraisal should also consider mainstream links and implications from the first.
Sustainability
In regeneration, sustainability has often been talked about simply in terms of whether a
project can be sustained once regeneration funding stops but sustainability has a wider
meaning and, under this heading, appraisal should include an assessment of a projects
environmental, social and economic impact, its positive and negative effects.
While appraisal will focus detailed attention on each of these areas, none of them can be
considered in isolation. Some of them must be clearly linked for example, a realistic
assessment of outputs may be essential to a calculation of value for money. No project will
score highly against all these tests and considerations. The final judgment must depend on a
balanced consideration of all these important factors.
(CLASS NOTES)
Types of Appraisal
Technical Appraisal
Alternative technical solutions processes, engineering and design requirements, technical
specification, technical risks and uncertainties, local resources availability operation sizes,
layout, location and geology are summarized and assessed.
Economic Appraisal
It is in terms of worth the project of society. The cost and benefits of the projects are assessed
and summarized. Criteria used for assessment are:

Comparison of Cost and Benefit

IRR/ERR calculation
NPV-PB period calculation

Market Appraisal
Factors such as project capacity, market demand forecast, estimated revenue, marketing
programme, competition and ability to satisfy customers are summarized and analyzed.
Management Appraisal
Important features of project organization and management, institutional relationship,
management capacities and limitations and impact of stakeholders are summarized and
analyzed.
Environmental Appraisal

Positive and adverse environmental impacts are summarized and assessed. IEE Initial
Environmental Examination and EIA Environmental Impact Assessment is done for large
projects.
Financial Appraisal
Factors such as capital requirement, debt-equity ratio, projected cash flow profitability and
projects capacity to meet financial obligations are summarized and analyzed. Sensitivity
analysis/Ratio analysis is done in this analysis.
2.2 Project Proposal (Technical and Financial)

Project satisfies customer needs. A project proposal shows how the customer needs will be
met through the project activities. The set of documents submitted for evaluation of project is
called project proposal.
A project proposal is a blueprint of project activities. It is a response to TOR by the
customers. Its basic purpose is to convince the customers that proposal is worthy of support.
Contents of Project Proposal
It is divided into two parts:
i. Technical part of the proposal (Technical Proposal)
ii. Financial part of the proposal (Financial Proposal)
a. Technical Proposal
It deals with the technical details of the project:
a) Problems: It should begin with the description of the problem to be addressed. The
approach to tackle the situation should be presented in sufficient detail. The methods
of resolving critical issues should be outlined.
b) Special Requirements: Ways of handling special requirements of customers should be
listed.
c) Test and Inspection: All the test and inspection procedures to assure performance,
quality, reliability and compliance with specification should be noted.
d) Logistics: Plan for logistic support should be outlined. It can be facilities, equipment,
skills and administrative aspect of the project.
e) Reporting: Nature and timing of progress report and evaluation should be noted.
f) Bio-data: Bio-data of key project team members are assigned responsibilities should
be provided.
g) Capability Statement: It is of the organization presenting the proposal. Past
experiences should be provided.
b. Financial Proposal
It deals with the financial details of the project.

It outlines the implementation plan of the project.

It contains cost estimate, time and material required.

Finally, executive summary should be provided in the beginning. Diagrams/Pictures/Piecharts make proposal attractive. After submission of the proposal to the client, it becomes
BID.

2.3 Procedure for Developing Project Proposal

A project proposal should be professionally developed.

Project
Brief

Prefeasibility
Study

Preliminary
Design

Proposal
Developm
ent

1. Project Brief:
It is the wish list of project customer. It is a document provided by the project customer
detailing TOR. It includes: need of the project, scope of the project, objectives and outputs,
estimated budget, estimated time table and deadlines. It serves as a starting point of the
project.
2. Pre-feasibility Study:
It is the preliminary study of the implementability of the project. It does not deal with in
detail. The area for which information is collected and analysed are: technical analysis,
financial analysis, economic analysis, marketing analysis, environmental analysis and
management analysis.
3. Preliminary Design:
It is an elaboration of project idea on the requirement of prefeasibility study. It includes:
technical aspect, project schedule/implementation plan, estimated cost, etc.
4. Proposal Development:
Finally, project proposal is developed which should contain:

Project Objectives/Output
Project Activities
Project Implementation
Project Schedule
Project Budget
Project Monitoring and Evaluation

2.4 Techniques of Project Formulation

The systematic way or technique of converting the concept of project into its probable
planning is called project formulation technique.
It includes:
a. Feasibility Analysis (Pre-feasibility Analysis)
It is the first stage in project formulation. Examination is done to see whether to go in for a
detailed investment proposal or not. Screening of internal and external constraints are also
made. Various aspects of feasibility analysis are:

 Technical Analysis
Financial Analysis
Economic Analysis
Marketing Analysis
Management Analysis
Environmental Analysis
b. Network Analysis (Preliminary Schedule)
It is the heart of the project entity. It defines the sequence of events of the project. Time is
allocated for each activity. It is presented in a form of a network drawing. It helps to identify
project inputs, finance needed and cost-benefit profile of the project.
c. Input Analysis (Preliminary Estimate of Resources)
It assesses the input requirements during the construction and operation of the project. It
defines the inputs required for each activity. Inputs include materials, humans, machinery and
money. It evaluates the feasibility of the project from the point of view of the availability of
necessary resources. This aids in assessing the project cost.
d. Financial Analysis (Preliminary Financial Viability)
It involves estimating the project costs, operating cost and fund requirements. It helps in
comparing various project proposals on a common scale. Analytical tools used are discounted
cash flow, cost-volume-profit relationship and ratio analysis. Investment decisions involve
commitment of resources in future, with a long time horizon. It needs caution and foresight in
developing financial forecasts.
e. Cost Benefit Analysis (Preliminary Cost Benefit Analysis)
The overall worth of a project is considered. The project design forms the basis of evaluation.
It considers costs that all entities have to bear and the benefit connected to it.

Project Planning and Scheduling

3.1 Concept of Project Planning and its Importance

Plan is a course of action to be taken in future. Planning means thinking ahead of an

operation to be performed. It is the primary function of management.
Planning is deciding in advance about what to do, how to do, when to do and who is to do
it. It provides the end to be achieved.

Stephen P. Robbins

Importance of Project Planning

(See Book A Text Book of Project Engineering)
3.2 Project Planning Process

1. Formulate the objectives of the project. Objectives should be SMARTly written.

2. Divide the project work into different phases such as initiation, planning, engineering
and design, implementation and termination.
3. Prepare lot of activities to be carried out in each phase. Work Breakdown Structure
(WBS) is helpful.
4. Estimate time and other resources required to complete each activity.
5. Determine the logical sequence (interrelationship and interdependence) between
activities.
6. Prepare work schedule (Bar Chart/CPM).
7. Assign responsibility to each work activity.
8. Finalize project plan i.e. Time, Cost and Quality Plan.
3.3 Work Breakdown Structure (WBS)

A method of breaking down a project into individual element components, subcomponents,

activities and tasks in a hierarchical structure which can be scheduled is known as Work
Breakdown Structure (WBS). The process is continued till a breakdown accomplishes
manageable units of works for which responsibility can be defined.
Criteria for developing WBS could be:

The WBS and work description should be easy to understand.

All schedules should follow the WBS.
No attempt should be made to subdivide the work arbitrarily to the lower possible
level.
Since scope of effort can change during a program, every effort should be made to
maintain the flexibility in the WBS.
The WBS can act as a tangible milestone.
The level of the WBS can reflect the trust you have in certain line groups.
The WBS can be used to segregate recurring from non-recurring costs,

WBS for renovation of room

Preliminary
Investigatio
n

Addition of
facilities

Wall Colour

Dark Room

Glass
Condition

New Board

Desk and
Chair
Condition

Projector

Lighting

Speakers

Switches

Lockers

Estimating
and
Costing

Estimating
and
Costing of
the
Preliminary
Investigati
on and
Additional
Facilities
separately

Execution

Bidding

Curtains

3.4 Project Scheduling with Bar Chart, CPM and PERT

(See Book A Text Book of Project Engineering)

3.5 Project Scheduling with Limited Resources (Resource Levelling
and Smoothing)

Reducing peak resource requirement at undesirable times and smoothening out by periodic
assignment is known as resource levelling/smoothening. If only non-critical activities are
shifted so that the project duration does not increase, then the process is known as resource
smoothening. If critical as well as non-critical activities are shifted to reduce the peak
resource requirement so that the project duration increases, then the process is known as
resource levelling.
Resource levelling/smoothening makes implementation easy and cost effective. It is
necessary for human/labour and equipment but not so important for material because material
can be stored and can be used in required quantity.
This process helps to avoid frequent changes in resource levels involving costs of hiring,
laying off and administrative problems associated with the same.
30

16

27

15

14

25

12

12
20

10

10

15

8
10

10
5

2
2

Column2

Column2

Step 0

Step 4

14
12

12
11

11

11

10
8
6
4
2
0

3
Column2

Step 8
Burgress Method of Least Squares is a classical method of Resource Levelling. It is based
on the principle that, the sum of daily resources required to complete an activity remaining
constant, the peak value of the resources will be the lowest, when the sum of the squares of
daily resource requirements is brought to a minimum value.
Example:
Suppose an activity takes 4 weeks to be completed, with manpower requirements initially
calculated as 3, 10, 27 and 5 in successive weeks. Here the sum of resources is 3+10+27+5 =
45 men and the peak value is 27 heads in the 3rd week.
Now, instead of engaging only 3 men in the first week and then increasing to 10 and 27 in the
following 2 weeks and again bringing it down sharply to 5 heads in the 4 th week, resources
may be levelled by the principle of least squares, by reducing the peak resources step by
step. This can be done in the following way:
Given: x = 32 + 102 + 272 + 52 = 863
Step 1: x = 32 + 102 + 222 + 102 = 693
Step 2: x = 32 + 152 + 172 + 102 = 623
Step 3: x = 82 + 102 + 172 + 102 = 553
Step 4: x = 82 + 122 + 152 + 102 = 533
Step 5: x = 102 + 102 + 152 + 102 = 525
Step 6: x = 102 + 112 + 132 + 112 = 511
Step 7: x = 102 + 122 + 122 + 112 = 509
Step 8: x = 112 + 112 + 122 + 112 = 507
Any further levelling of resources is not possible, as the sum of squares will be more than
507. Hence, 11, 11, 12 and 11 should be the desired allocation of resources each week.
3.6 Introduction to Planning Software MS Project

(See msproject.pdf)

Project Implementation and Controlling

4.1 Introduction to Monitoring, Evaluation and Controlling

Monitoring ()
It is the process of observing, recording and reporting project information continuously.
Purpose of Monitoring:
i.
ii.
iii.
iv.
v.
vi.

To make a project effective

To collect and analyse information
To review the progress critically
To change or continue direction
For the best utilization of resources
To prepare the base for evaluation
Methods of Monitoring:

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.

Through Progress Report

Review Meeting
Field Visit
Discussion and Dialogues
Tour report of Project Staff
Visitors observation
Key information
Complaints and Grievances position
Networking

Evaluating ()
It is the systematic judgmental process of comparing actual project performance with planned
performance to find deviation and its causes if necessary. Evaluation is a periodic process and
is done during and after implementation.
S.N
.
1.
2.
3.
4.

Basis of Difference

Monitoring

Vision
Time Frame
Who does

Looks forward
Continuous process
Needs to be done internally

Communication

Needs

Evaluation

Looks backward
One time periodic
Needs to be done internally
and externally
communication Not necessary among all levels

5.

Feedback

6.

Helpful

properly
Provides information for Provides information for future
day to day management
planning
Monitoring
helps
for Evaluation helps for future
evaluation.
planning.

Corrective Actions
If deviation exceeds the tolerance limit, appropriate actions are taken known as corrective
actions to bring the project back on track.
Control
CONTROL = Monitoring + Evaluation + Corrective Actions
It ensures that right things are done at right time in a right manner.
4.2 Project Control

Controlling is the management function of comparing the actual achievements with the
planned ones at every stage and taking necessary action, if required, to ensure the attainment
of the planned goals.
Areas of Control
1. Quality (Performance) Control - Specification
2. Cost Control - Budget
3. Time Control Schedule
Difficulties in Project Control in Nepal
1.
2.
3.
4.
5.
6.
7.
8.
9.

Political instability
Social problems
Corruption (on site quality control)
Lack of appropriate technologies
Manpower lack of skilled manpower
Lowest bidder is awarded the project.
Difficult geography
Climatic condition
Cultures, norms etc.

4.3 Project Control Cycle

Control is cyclical process.

a. 3-Step Control Cycle

Measuring

Correcting

Evaluating

b. 7-Step Control Cycle

1. Implementation

7. Take Corrective
Action

2. Fixing Datum

6. Decide whether
the deviation is
unacceptable

3. Observation
and Recording of
Data

5. Note the
Deviation

4. Analysis of
Deviation

4.5 Project Schedule Control

Need for Schedule Updating

Construction projects merely go as planned. We expect some deviation from BASELINE
SCHEDULE. It is prepared by the contractor before commencement of the work and
approved by the client. In ill planned projects, many change orders may be issued and
baseline schedule keeps on changing. Such changes may change the CRITICAL PATH
and focus of effort.
Information needed for Updating Schedule

a) Past Information
i. Activities that have started, actual start date, percentage completed
and remaining duration of each
ii. Activities that are complete and actual
iii. Completion date of each
iv. Actual budget spending/resource consumption
b) Future Information
i. Any activity that have been added along with their information
(duration, logic, budget, etc.)
ii. Any activity that has been deleted
iii. Any activity that has changed in duration, logic, budget, resource
etc.
iv. Any change in imposed finish date or constraints
v. Any other schedule related change
4.6 Project Cost Control: Methods and Procedure (Earned Value
Analysis)

Control of expenditure on project from its inception to final completion is known as Cost
Control. It ensures that the job/project is completed within the calculated cost.
1. Cost Control during Pre-construction
a. Survey
b. Design
c. Specification
2. Cost Control during Construction
- Strict Monitoring
Methods of Cost Control
1. Short Term Planning and Control
2. Accounting Method
a. Overall profit and loss account
b. Profit and loss account after part payment
c. Unit rate comparison
3. S-curve Method/Earned Value Analysis
Earned Value Analysis (EVA)
Example: 100 cumecs of concreting had to be done in 5 hours with expenditure of Rs.
30,00,000 (plan). In 2 hours, 45 cumecs of concreting was completed with actual
expenditure of Rs, 14,50,000. Perform EVA and comment on the performance.
BCWS (Budgeted Cost of Work Scheduled)
-

Planned Expenditure till Review Date

5 hours
- Rs. 30,00,000
1 hour
- Rs. 6,00,000
2 hours
- Rs. 12,00,000
- BCWS in 2hours

BCWP (Budgeted Cost of Work Performed)

-

Also known as Earned Value. It is the value of work done. It is the estimated
cost of actual work.
100 cum
- Rs. 30,00,000

1 cum
45 cum

- Rs. 30,000
- Rs. 13,50,000

ACWP (Actual Cost of Work Performed)

-

Actual Expenditure till Review Date

= Rs. 14,50,000

Schedule Variance (SV) = BCWP BCWS = Rs. (13,50,000 12,00,000) = Rs. 1,50,000
+ve, Ahead of Schedule
-ve, Behind Schedule
Schedule Performance Index (SPI) = BCWP/BCWS = 13,50,000/12,00,000 = 1.125
>1, (Ahead)
Schedule Variance % = (BCWP BCWS)/BCWS = +12.5 %
Hence, New Time Estimate = 5 hrs/SPI = 5/1.125 = 4.44 hours
Cost Variance (CV) = BCWP ACWP = Rs. 1,00,000
Cost Performance Index (CPI) = BCWP/ACWP = 0.93
Cost Variance % = (BCWP ACWP)/ACWP = 6.8%
New Cost Estimate = 30,00,000/0.93 = Rs. 32,25,806
Theory:
EVA relates the budget costs with the time progress. Earned Value is the value of work
done at a given point of time. EVA is a tool that compares the value of work done with
the value of work that should have been done. EVA is often presented in the form of
progress or S-curve diagrams.

Budgeted Cost of Work Scheduled (BCWS): It represents the cumulative, time-phased

cost projections made in the budget for activities that are scheduled to be performed. It
shows what is planned for execution.
Budgeted Cost of Work Performed (BCWP): It is the value earned. It shows the
cumulative cost budgeted for the work performed.
Actual Cost of Work Performed (ACWP): It represents the cumulative actual cost
incurred on date in accomplishing the work.
Cost Variance (CV)

= BCWP ACWP

If CV is positive, then the project has a cost under run, i.e. the cost incurred is
less than the planned or budgeted cost.
If CV is negative, then there is a cost overrun, i.e. the cost incurred is more than
the planned or budgeted cost.
If CV is zero, then the project is proceeding according to the budgeted cost.
Schedule Variance (SV)

= BCWP BCWS

If SV is positive, then the project is ahead of its planned cost, i.e. the earned value
of the work performed is higher than the planned or scheduled earned value.
If SV is negative, then the project is behind its planned cost, i.e. the earned value
of the work performed is less than the planned or scheduled earned value.
If SV is zero, then the project is proceeding according to the planned schedule.
Cost Performance Index

= BCWP/ACWP

Schedule Performance Index

= BCWP/BCWS

Accounting Method of Cost Control

Overall Profit and Loss Account Profit or Loss is calculated after completion of the
project and feedback is acquired to correct in next project if necessary.
For small projects, this method is applied.
Profit or Loss after Part Payment Profit or Loss is calculated each time after getting
payment i.e. after running bills. This allows to make necessary correction in projects for
remaining works.
Unit Costing Method Profit or Loss is calculated for each individual item of works and
necessary actions taken to correct.
Example:
Items of Work
Unit
Stone
m3
Masonry
Gabion Works
m3
Hence, prefer Gabion Works.

Bid Price
Rs. 15,000

Actual Cost
Rs. 14,500

Profit
Rs. 500

Rs. 10,000

Rs. 8000

Rs. 2000

Short Term Planning Control

Project works are divided into small components i.e. for short durations of weeks or
days. Each component is monitored and evaluated.

4.7 Project Quality Control

Quality: Degree of goodness, conformance to requirement, zero defect, fitness for

purposes, consistent confirmation to expectation, doing things right the first time etc.
The engineering quality refers to conformance to specification.
Cost and Quality
Quality cost has two components:
Cost of Quality: Prevention and Appraisal cost i.e. cost of design, documentation, test
material, equipment etc. This cost is high if level of quality is high.
Cost of Failure: It includes scrap test, replacement cost, administrative expenses, etc.
Cost of failure is inversely proportional to level of quality. Hence, optimum balance is
necessary.

Q. Justify Quality costs more but lack of quality costs even more.
Quality Control (QC) and Quality Assumption (QA)
Quality Control is a part of quality management focused on fulfilling quality
requirements. It is defined as the operational techniques and activities used to fulfill
requirements for quality. It is the physical verification that the product conforms to these
planned arrangements by inspection, measurement, etc.
Quality Assurance (QA)
It is a part of quality management focused on providing confidence that quality
requirements will be fulfilled. It is defined as all the planned and systematic activities
within the quality systems that can be demonstrated to provide confidence that a product
or service will fulfill requirements for quantity.
Total Quality Management (TQM)

Total Quality Management is an approach to the art of management that originated in

Japanese industry in the 1950s and has become steadily more popular in the West since
the early 1980s.
Total Quality is a description of the culture, attitude and organization of a company that
aims to provide, and continue to provide, its customers with products and services that
satisfy their needs. The culture requires quality in all aspects of the companys
operations, with things being done right first time, and defects and waste eradicated from
operations.
ISO 9001 is one of a series of three international standards for quality systems that can
be used for external quality assurance purposes. Those standards specify quality system
requirements for use where a contract between two parties requires the demonstration of
a suppliers capability.
4.8 Introduction to Project Management Information System (PMIS)

(See Book A Text Book of Project Engineering)

Introduction to Project Financing

6.1 Project Finance

Sources of Project Finance

a. Share/Common Share/Equity Share
Shareholders are the owners of the company and hence they bear the risks of ownership.
Shareholders get attractive dividend if company makes profit. Share value increases if
the company makes profit and share value decreases if company makes loss.
b. Debt (Loan and Bond)
Debt holders are the creditors of the company and get fixed interest even if company
incurs losses. Loans are taken from financial institutions and bonds are collected in
public (not in Nepal).
c. Preference Share (P. Share)
P. Share holders get fixed interest if the company makes profit but unlike share, the value
of P. Share (invested capital) doesnt reduce if the company goes into loss.
From investors point of view:
Share Dividend/Bonus Risk is high. (Based on profit)
P. Share Fixed Interest Risk is medium. (If profit)
Debt Fixed Interest Risk is minimum. (Profit or Loss)
Q. Which type of source will you prefer to invest in a project?
6.2 Capital Structure Planning (Financial Plan)

It is the composition of long term sources of fund.

Share

Loan

Example:
A company has total capital of Rs. 10,00,000.
Rs. 3,00,000 share i.e. 3000 no. @ Rs. 100
Rs. 2,00,000 P. share @ 12% interest per year
Rs. 5,00,000 loan @ 10% interest per year
In a year, the company makes a profit of Rs. 2,50,000 (earning before interest (tax)).
Calculate earning per share (EPS) if tax rate is 25%.
Tax

-2

Interest to loan

-1

Interest to P. share

-3

Dividend/Bonus to Shareholders

-4

Profit (earning before interest and tax, EBIT)

= Rs. 2,50,000

Interest on loan

= Rs. 50,000

=10% of 5,00,000

Earning after interest before tax, EAIBT

Tax

= Rs. 2,00,000
= 25% of EAIBT

Earning after interest and tax, EAIT

Interest/Dividend to P. share

= Rs. 1,50,000

= 12% of 2,00,000

Shareholders Earning
Earning per Share

= Rs. 50,000

= Rs. 24,000
= Rs. 1,26,000

= Rs. 1,26,000/3000 = Rs. 42

Features of Sound/Appropriate Capital Structure

A sound or appropriate capital structure should have the following features:
a. Profitability: C/S should be the most advantageous to the company. Within the
constraints, maximum use of debt maximizes the profit.
b. Solvency: Use of excessive debt threatens the solvency of the company. Debt should
not exceed certain limit.
c. Flexibility: It means firms ability to decide on its capital structure to meet the
dynamic needs of the company. Firm should be able to adopt its capital structure
without undue delay and cost.
d. Conservation: Debt capacity should be kept minimum i.e. firm should be able to pay
interest on a loan even in the worst situation.
e. Control: Capital structure should involve minimum risk of loss of control of the
company.
Determinants of Capital Structure

1. Effect on Earning Per Share (EPS): Calculate EPS of different options and
decide the best.
2. Growth and Stability of Sales: Growing and stable company can use excessive
debt but declining and unstable company should minimize debt.
3. Cost of Capital: Interest on loan and dividend to shareholders are the cost of capital.
It is high for share and low for loan.
4. Marketability: Readiness of investors to buy a particular type of share at given profit
is marketability. If it is good, collecting money by issuing share is also a good option.
5. Size of Company: Large firms have no difficulty in collecting fund by either means
but smaller firms cannot collect fund early. Hence, retaining earning to expand
business is a good option.
6. Floatation Cost: Cost of missing fund is floatation cost. It is high for share and low
for loan.
6.3 Capital Budgeting Decision

Investment decision of a firm is known as capital budgeting decision. It may be defined

as the firms decision to invest its current fun most efficiently in long term activities in
anticipation of an expected flow of benefit over a series of years. Investment includes:
Addition, disposition, modification and replacement of its assets.
Introducing a new product.
Expanding the business.
Importance of Capital Budgeting Decision
1.
2.
3.
4.

They have long term implications for the firm and influence its risk complexion.
They involve commitment of large amount of fund. (1 MW 20 crore)
They are irreversible decisions.
They are among the most difficult decisions to make.

Project Evaluation Criteria

1. Payback Period Method
a. Simple
b. Discounted
2. Accounting Rate of Return (ARR) and Rate on Investment (ROI)
3. NPV/NFV/NAV
4. IRR/ERR (ROE)
5. BCR/Profitability Index
Capital Budgeting Process

Project
Generation

Project
Evaluation
Estimate of
Cost and
Benefit
Selection of
appropriate
method of
evaluation

Risk Analysis

Project
Selection

Project
Executio
n