B-Tech Lecture Notes Project Management

Project management

Project management is an organized venture for managing

projects. Project management includes the scientific application of modern techniques in
planning, financing, monitoring, controlling and coordinating the unique activities of
project in order to produce the desirable outputs within the constraints of time and cost.
Project management consists of the following stages.
1. Project planning
2. Project scheduling
3. Project implementation, controlling and monitoring.

Project characteristics

a) Objectives - Project has a set of objectives which on achieved can be considered

as the completion of the project.
b) Lifecycle - Project has a life cycle consisting of stages like analysis, design and
implementation & commissioning.
c) Definite time limit - Every project has a definite time limit within which it should be
completed.
d) Uniqueness - Every project is unique and no two projects are similar.
e) Teamwork - Coordination among the personals from diverse area of specialization is
needed.
f) Complexity - Activities that contribute to the complexity of the project are technology
survey, choosing the appropriate technology, procuring appropriate machinery and
equipment, hiring the right kind of people, arranging for financial resources, execution of
project in time by proper scheduling.
g) Subcontracting - Some of the activities are entrusted to sub contractors to reduce the
complexity of the project. Greater the complexity, larger will be sub contracting.
h) Risk and uncertainty - All projects suffer from unexpected situations. E.g. – Suppose
during the production of an item, the customer choice changes or sudden entry of a strong
competitor.
i) Customer specific nature - It is the duty of any organization to go for projects that are
suited to customer needs.

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j) Change - Changes can occur throughout the lifespan of the project. During the course
of implementation the technology may have improved and it is better to shift to the new
technology.
k) Forecasting - Forecasting the demand of any product that the project is going to
produce is important.
l) Optimality - Since resources are always scarce and are costly, optimum utilization of
resources is a must.
m) All projects have pre-designed control mechanisms in order to ensure completion of
the projects within the time schedule.

Capital Expenditure

Capital Expenditure can also be called as capital investment or capital project. It is shown
as asset in the balance sheet.
Capital expenditure has
1) Long term effects - Consequences of a capital expenditure decisions extend far in to
the future. Current manufacturing activities and basic nature of a firm depends on
the capital expenditure in the past.
2) Irreversibility - If the capital investment is made in the form of equipment, a wrong
investment decision will lead to substantial loss.
3) Substantial outlays - Capital expenditure involves substantial outlays.
4) Measurement problem - It is very difficult to measure exactly the capital expenditure.
5) Uncertainty - Benefits of a capital expenditure decision extend far in to the future.
Since it is very difficult to predict exactly what will happen in the future there is a
great uncertainty.
6) Temporal spread - Some projects take 10-20 years to complete. Such a temporal
spread creates difficulties in estimating the correct capital expenditure.

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Types of Capital expenditure

Physical assets - They are tangible investments like land, buildings, plant, machinery,
vehicles and computers.
Monetary assets - financial claims like deposits, bonds, and equity shares.
Intangible assets - represents outlays on R&D, training, market development etc.
Strategic investment - one that has a significant impact on the direction of the firm. Eg:-
invest in a new product.
Tactical investment - To implement the current strategy more efficiently and more
profitably.
Mandatory investment - pollution control, fire fighting equipment, medical dispensary.
Replacement investment - meant to replace worn out equipment with new equipment.
Expansion investment - meant to increase the capacity to cater to the growing demands.
Diversification investment - aimed at producing new products or services.
R&D investment - meant to develop new products and processes.
Miscellaneous investment - investment on interior decoration, recreational facilities, garden.

Phases of Capital budgeting

It can be divided in to 6 broad phases.

Planning

Analysis

Selection

Financing

Implementation

Review

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Planning

Planning is concerned with the articulation of investment strategy and the generation and
preliminary screening of project proposals. Once a project proposal is identified, a project
analysis is done. A feasibility check is also made to check whether the project is
worthwhile.

Analysis

If the project seems to be worthwhile, a detailed analysis of marketing, technical,

financial, economic and ecological aspects is under taken. This phase gathers, prepares,
and summarizes relevant information about various project proposals.
Market analysis is concerned with:
1. Consumption trends in the past & present consumption level
2. Production possibilities and constraints
3. Imports & exports
4. Structure of competition
5. Cost structure
6. Consumer behavior, preferences & requirements
7. Distribution channels and marketing policies in use
8. Administrative, technical and legal constraints
Technical analysis
1. Check whether the preliminary tests and studies have been conducted
2. Check whether the availability of inputs has been established
3. Check whether the production process chosen is suitable
4. Check whether provision has been made for treatment of effluents
5. Check whether the selected scale of operation is optimal
Financial analysis checks whether project is financially viable. It deals with:
1. Investment outlay and cost of project
2. Means of financing
3. Cost of capital
4. Projected profitability
5. Cash flows of the project

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Economic analysis checks how the cost & benefit of the project is going to affect the
society. It deals with:
1. Impact of the project on the distribution of income in the society
2. Impact of the project on the level of savings & investment in the society
3. Contribution of the project towards self sufficiency, employment

Ecological analysis: - Deals with environmental issues

1. Check the damage caused by the project to the environment
2. Cost of restoration measures required to reduce the damage

Selection

Project is selected based on the following

Criterion Accept Reject
Payback period PBP<target period PBP>target period

Accounting rate of return ARR>target rate ARR<target rate

Net present value NPV>0 NPV<0

Internal Rate of return IRR>cost of capital IRR<cost of capital

Benefit cost ratio BCR>1 BCR<1

Payback period:-Defined as the length of time required to recover the original investment
through cash flows earned.

Accounting rate of return (Also known as the average rate of return):-

ARR=Profit after tax/Book value of investment (recorded value of investment)
Profit after tax is the average annual post tax benefit over the life of the project.

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Net present value:-

NPV = (Present value of all cash inflows over the life of the project) – (Present value of
cash out flow)
Present value of future cash flows is arrived at by discounting the future
cash inflows at an interest rate equal to the cost of capital.

NPV= CF1 CF2 CFn

+ . ……… _ CF0
(1+r)1 (1+r)2 (1+r)n

Where CF1, CF2,…..are the future cash flows occurring at the end of first year, second
year etc.
n = life of the project.
r = discount rate (cost of capital).
CF0 = Present cash outflow.
NPV = 0 indicates that present cash outflow and present value of future cash inflows are
equal.
NPV<1 indicates that the present value of future cash inflows is less than the present cash
outflow.
NPV >1 indicates that the present value of future cash inflow is more than the present
cash outflow.

Internal rate of return (IRR):- IRR is the rate of discount which would equate the present
value of cash outflows to the present value of cash inflows.
Benefit cost ratio (BCR):- Present value of cash inflows/Present value of cash outflows.
If BCR >1 it indicates that the benefits from the project are in excess of the cost incurred
towards the project.
Financing
After selecting a project financial arrangements have to be made. Sources of finance are
1) Equity shares
2) Debt (consists of term loans and debenture.)

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Implementation

Stage Activity

Project & engineering Site probing, preparation of plant designs, selection of specific
design machines and equipment.

Negotiations and Legal contracts with respect to project financing, contracts for
contracting acquisition of technology, construction of buildings E.g.tendors.

Construction Site preparation, construction of buildings, installation of machinery.

Training Training of engineers, technicians.

Plant commissioning Start up of the plant.

Review
Performance review should be made periodically to compare actual performance with
projected performance.

Project model
A project is viewed as a conversion or transformation of some form of input in to an
output under a set of constraints and utilizing a set of mechanisms to make the project
happen.
Constraints

Project
Input Output

Mechanisms

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Inputs
Inputs refers to the want or need to start a project. For many organizations, this need will
be encapsulated into a brief document describing the nature of the work to be undertaken.
For the project manager, there will be both explicitly stated requirements (original needs)
and those that emerge during the course of the project due to the customer’s changing
needs or perceptions (emergent needs).

Constraints

The main constraints are time, cost and quality. All projects by definition have a time
constraint. In practice, it is often found to be the most challenging to meet. Cost
constraint refers to the value and timing of financial resources required to carry out the
project work. Quality constraint indicates the standards by which both the product and the
process will be judged. In addition to these three, the following constraints can prove
limiting on the project:

1. Legal - this may not be explicitly stated but there will be legal constraints.

2. Ethical – a major area of many organizations today, particularly those where the ethics
of their organizational policies has been questioned in the past.

3. Environmental – the deluge of environmental legislation that has been generated by

governments has changed the role of environmental control from a subsidiary issue to
one which is at the forefront of management thinking in many sectors.

4. Logic– the need for certain activities to have been completed before a project can start.

5. Activation – actions to show when a project or activity can begin.

6. Indirect effects – it is practically impossible for any change to take place in isolation.
There will be ripple effects, which will need to be taken into account at the outset.

Outputs

Output can be described as a ‘satisfied need’. This will be usually in the form of :

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Converted information e.g. a set of specifications for a new product

A tangible product e.g. a building

Changed people e.g. through a training project, the participants have received new
knowledge

Mechanisms
The means of mechanisms by which the output is achieved are as follows:

• People – those involved both directly and indirectly in the project.

• Knowledge and expertise – brought to the project by the participants and outside
recruited help of both technical specialisms and management processes.
• Financial resources
• Tools and techniques – the methods for organizing the potential work with the
available resources.
• Technology – the available physical assets that will be performing part or all of
the conversion process.

Phases of project management

Define the project

Design the project

process

Develop the process Deliver the project

Define the project – this is the time when it is determined what the project is about, its
reasons for existence and the intentions that it intends to progress. It is a time to explore
the possibilities, find alternatives to the problems presented.
Design the process – construct models to show how the needs will be developed,
evaluate these to determine the optimum process for the task and minimise risk.

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Deliver the project – carry out the project in line with the models or plans generated
above.
Develop the project process – improve the products and processes in the light of the
experience gained from the project.

Phase Sub phases Description

Define the project 1) Conceptualization Generate explicit statement of needs.

2) Analysis Identify what has to be provided to meet

those needs – is it likely to be feasible?
Design the project process 1) Proposal Show how those needs will be met
through the project activities.

2) Justification Prepare and evaluate financial costs and

benefits from the project.

3) Agreement Point at which go-ahead is agreed by

project sponsor.

Deliver the project 1)Start-up Gather resources, assemble project teams.

2)Execution Carry out defined activities.

3)Completion Time/Money constraint reached or

activity series completed.

4)Handover Output of project passed to client/user.

Develop the process 1)Review Identify the outcomes for all stakeholders.

2)Feedback Put in place improvements to procedures,

fill gaps in knowledge and document
lessons for the future.

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7-s of project management

Works of a project manager can be categorized in to 7.
1) Strategy – Strategy stands for the high level requirements of the project and the means
to achieve them. Strategy is a process. It involves a high level consideration of objectives,
which can be seen as points of principle rather than activity-level details. Success starts
with a rational strategy process, which then guides and informs the decisions made in all
areas of the project. Strategic issues that lead to project failures are
1) Organization lacks coordination.
2) Resource is not available
3) Company doesn’t have the capacity to take up the project.
2) Structure – It is the organizational arrangement that will be used to carry out the
project. Project team can be dedicated, full time team or one where staffs are borrowed as
and when needed.
3) Systems – The methods for work to be designed monitored and controlled. Both
formal and informal systems will need to be designed or at least recognized for key tasks,
including communication and quality assurance.
4) Staff - deals with selection, recruitment and management of those working on the
project.
5) Skills - The managerial and technical tools available to the project manager and the
staff.
6) Style – The underlying way of working and inter-relating within the work team or
organization.
7) Stakeholders – Individuals and groups who have an interest in the outcome of the
project.

Project Environment
The change in the competitive environment in which the majority of organizations
operate has necessitated a major rethink of the way in which projects are managed. The
effects of the changes on projects and their managers include the following:
• Time has become a major source of competitive advantage.

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• Human resource management has moved from considering that members of a project
team should be treated as anonymous cogs in the machine to the idea that individual
creativity can be harnessed.
• Rates of change in technology and methods have increased.
• Organizations are having to become customer focused and exceed rather than just
meet customer requirements.
• There is a trend towards integration and openness between customers and suppliers.
Company information that would previously have been closely guarded secrets is
often shared in a move towards partnership rather than adversarial relationships.
The project environment may be summarized by the four Cs.
1) Complexity
2) Completeness
3) Competitiveness
4) Customer focus

The Complexity of projects

The level of complexity of an activity is a function of three features:
Organizational Complexity: the number of people, departments, organizations, countries,
languages, cultures and time zones involved.
Resource complexity: the volume of resources involved often assessed through the
budget of the project.
Technical Complexity: the level of innovation involved in the product or the project
process, or novelty of interfaces between different parts of that process or product.
Overall complexity = Organizational complexity * Resource complexity * Technical
complexity.

Project manager
Project manager is a single person who heads the project.
He is the focal point for bringing together all efforts towards a project objective.
He is responsible for people from different functional departments working on the
project.

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He should see that the particular product or services is delivered within the correct time
and cost.
He should have the conflict resolution capability.
Outcomes and rewards are shared among the members of the project team.

Types of project managers

Project Expeditors - They speed up work and they are the communication link to the
general manager. Their purpose is to achieve unity of communication.
Project coordinators - They disburse fund from the budget. They have no authority over
the workers. They deal with upper level executives and they bring unity of control.
Matrix managers - They perform all the management functions like planning, motivating,
directing and controlling the project work. They achieve unity of direction. They control
people located in other departments. Due to this criss-cross nature they are called matrix
managers.

Attributes of a project manager

A project should have the following skills
1) Planning and organizational skills.
2) Personnel management skills.
3) Communicational skills.
4) Change orientation.
5) Ability to solve problems.
6) High energy levels.
7) Ambition for achievement.
8) Ability to take suggestion.
9) Understanding the views of project team members.
10) Ability to develop alternative actions quickly.
11) Knowledge of project management tools.
12) Ability to make self evaluation.
13) Effective time management.
14) Solving issues without postponing them.

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15) Risk taking ability.

16) Familiarity with the organization.
17) Tolerance for difference of opinion.
18) Knowledge of technology.
19) Conflict resolving capacity.

Forms of project Organization

Forms of project organization means the way in which the human resource is
categorized.
1) Project organization

Board of directors

Project board A Project board B Project board C

Project manager A
Employed by the company

Contractors Brought in as needed

At the highest level in the organization there are staff posts – senior managers, directors,
administrative staff etc. (called the project board). The next level down is a series of
project managers who have control over one or more projects at a time. Contractors carry
out works such as electrical works etc. Once project is completed, the team is disbanded.
Advantages:- Main company only has to administer the employment of its own staff.
Less labor burden.
Disadvantages:-
Team is temporary.
Less commitment.
Lessons studied during the past projects can’t be taken to the future.

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4.2) Functional organization

Research & Marketing Engineering Manufacturing Sales HR

Development
This arrangement prevails in many traditional industries. It leads the functional managers
to build their own empires by creating work for themselves without considering whether it
will help the organization as a whole. This arrangement forms a hierarchical pyramid

Chief executive
Board of directors

Line managers

Supervisors
workers

This traditional form is not suitable because

1) A project requires contribution of efforts from different department
2) No means of integrating people below the top management.
3) No effective communication between departments.

4.3) Line and staff organization

There is a project coordinator who act as a focal point to receive information from
one department and pass that to another department. He can give advice, but not have a
direct control over functional managers. He has very close relationship to the top
management.

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4.4) Divisional organization

A separate division is formed for the project. Project manager heads the division.
He has a direct control over the functional managers. There is more dedication and
commitment.

4.5) Matrix organization

Authority is shared between project manager and the functional managers. The
organization of the matrix follows one of the three models:
1) The Light weight matrix - Project manager chairs meetings of all department
representatives. Responsibility for the success is shared. This is the weakest form of
matrix.
2)Balanced model - Power of project manager and line manger is balanced. Both of them
governing a team member is the drawback of the system.
3) The heavy weight matrix - Departments provide resources on a full time basis to the
project team. On completion they return to their own departments.

Comparison

Functional Light weight Heavy weight Project

Large
Major
Example of Minor change to construction
IT system innovation
usage existing product projects
projects

Quality through
Quality Speed & quality
Advantages depth of Speed highest
maintained improvement
specialization
Coordination Coordination Expense of
Disadvantages Relatively slow
expense expense contractors
Integration of
Issues for Two bosses Two bosses Management of
work within
project manager problem problem knowledge
organization

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