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MS-52

1. What are the phases of a Project development Cycle? Give the salient tasks under each phase

Ans: The project has to pass through the three distinct stages in the development process. These
stages as follows:
(a) Pre-investment phase: This phase leading to the authorization (investment decision) for a
Particular project idea under prevailing conditions.
(b) Investment phase: Which involving detailed design and actual implementation, leading to
fructification of erection of relevant assets.
(c) Operation phase: It following the "commissioning" (or start-up) of the completed project.
Now the project would hopefully produce 'the stream of "benefits" for which it was originally
conceived.

We shall briefly examine inter disciplinary task and stages involved in these phases as follows:

(a) The pre-investment phase. This phase would usually involve the following four stages:
(i) Identification of relevant investment opportunities (or project ideas) through
appropriate type of opportunity studies.

0 (ii) Preliminary filtration of the project idea(s) through pre feasibility studies.
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2(iii)Project formulation, resulting in the detailed (techno-economic) feasibility report for
the each project idea considered worthy or further examination at the previous stage;
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(iv) Final evaluation and decision. This is to be based on pre-selected, clear, and
objective criteria derived from legitimate and reasonable expectations and requirements of
various stakeholders, and culminates in the evaluation report.

(b) The investment phase. This phase involves several inter-disciplinary tasks and has the
following four stages. A task-force approach has generally been found to give the best results
for successful conclusion of this phase.

1(i) Negotiation & Contracting. In this stage basic specifications for project plant &
equipment are drawn up. (usually with the help of technical consultants), bids or tenders
invited and evaluated, and legally enforceable duties and responsibilities of different
parties (like, for example, the owners, financiers, technical consultants, know-how
providers, equipment suppliers, architects, and one incorporated into contracts, with
expert legal assistance for the more crucial aspects.
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(ii)Detailed Project Design & Engineering. This covers detailed site investigations and
tests; design and approval of plant lay-out, preparation and approval of engineering
drawings and blue-pints, time schedules and PERT charts, final selection of technology
and equipments, and detailed estimating of costs.

(iii) Construction & Erection, involving actual construction, erection, or installation and
work, interpretation and follow-up of the contracts, project management, and making
suitable changes in design & engineering on account of unforeseen factors and changes
in scope.

(iv) Trial Runs, Commissioning and Optimisation, followed by handing over of the
proven project by the contract (s) to the management or owners.

(c) The operation phase. This phase involves day to day operation of the completed project,
and is expected to yield results which meet the original objectives for which the project had
been conceived, formulated and implemented.

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2. What are the traditional methods of financial evaluation of the projects? Give a comparative
analysis of these methods.

Ans: The Detail Project Rreport incorporates a much detailed projection of the costs and revenues
expected during the projected lifespan of the operation phase. The principal input to this comes
from operations Cost. However, all financing costs, like depreciation, interest on long term
loans and short term working capital loans, writing off of pre-operative and preliminary
expenses, guarantee commission etc. arc included in the calculations. Income Tax calculations
are also included. The DPR provides projections for:

The Profit & Loss statement

The Balance Sheet

The Fund Flow statement for about ten years of operations.

For the Project phase, the DPR provides an estimate of the phased requirement of Capital.
This plan forms the basis of a strategic plan for raising the funds from external sources, like
term lending institutions and through public issue of stocks and/or bonds. The DPR would
include a recommended schedule for ensuring adequate flow of funds for the timely completion
of the project, with adequate provision for normal contingencies. The DPR would also include
for the project phase a recommended system for the monitoring and control of the financial
progress of the project, vis-à-vis the physical progress. This system is, an essential ingredient
for adequate financial control, during the execution and the termination phase of the project.

3. Discuss the usefulness of matrix organisation in project management. Also explain the recent
trend in organisation design.

Ans: Usefulness of matrix organisation in project management:

(i) Project managers maintain control over project resources and costs through functional
managers.

(ii) Policies and procedures for each project can be spelt out separately provided they do
not contradict company policies and procedures.

(iii) Project managers can commit company resources if that does not conflict with other
projects' requirements.

(iv) Organisations can respond rapidly to changes, conflict resolution and other project
requirements.

(v) Functional organisations exist primarily to support the projects.

(vi) Each person has a home where he returns after project completion. Each person can be
motivated showing him his career path.

(vii) Strong technical base and problem solving capability can be developed and expert
knowledge is available to all projects.

(viii) Key people can be shared and cost on projects can be minimised. Since people work on
a variety of jobs, it provides challenges and opportunities and consequently higher, job
satisfaction.

(ix) Conflicts are minimal and can be solved easily and quickly.

(x) We obtain better balance between time - cost and performance.

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(xi) Development of skills of specialists and generalists is rapid.

(xii) Authority and responsibility are shared.

(xiii) Stress is distributed among the team and functional managers.

Recent trend in organisation design: Horizontal lines of matrix organisation structure are profit
centres; consequently project management would offer the best opportunity for training future
managers and executives to be cost conscious and profit-oriented. Owing to increasing
competition of global economy and rapid changes in technology and communication network,
there will be a shirt in favour of flat organisations by doing away with several layers of functional
managers. Project matrix structure is expected to increasingly dominate the style of management
in future. Project learns will be responsible for the complete operations of existing products.
Increasing use of computers and information technology will further integrate functional
departments and 'smart terminals will play major role in project control. Top managers will be
more directly involved in the control of total business organisations with the help of project
managers who would span the middle level and lead project teams to look after specific tasks of
operational management.

4. Elaborate the concept of Earned value of the Budget in PERT/COST system

Ans: Use of network, techniques like CPM and PERT is essential for large projects. As you know,
these involve the preparation of a detailed schedule of construction and allied activities and its
translation into a network- diagram after considering precedence requirements. For practical
reasons the activities .are generally delineated in such a manner that none has a duration of
more than three weeks: The diagram shows the critical path and also the “slacks” available at
different "nodes".
Initially, the Programme Evaluation and Review Technique (PERT) focussed only on the time
management aspect of a project. It was in 1962 in the USA that a PERT cost system was
developed to control costs. It involves assignment of costs to individual project activities rather
than to functions or organisational units as in traditional cost accounting systems. Low cost
activities are usually grouped together for this purpose. This system uses the following two sets
of data for activity-wise cost control.

(i) Estimates of costs for activities (or groups of activities)

(ii) Actual costs for the same activities/groups.

It is in estimating the activities' costs that the greatest difficulty in. encountered. This usually
involves estimating the material costs, labour costs, and expenses, besides supervisory and
administrative overheads that call be attributed to each activity (or a group for activities).
However, once this has been done, the evaluation of a project's progress is possible on the
more transparent basis of completed activities, rather than on the traditional basis of estimating
percentage physical progress and comparing it with expenditures. Usually, activities are so
chosen that the expenditure on each may be assumed to occur relatively uniformly over its
duration.
The project can be easily derived on, say, a monthly basis using the activity-wise cost
estimates. This helps the owner or manager in planning his cash flows so as to minimise
financial costs. For an example, study the bar chart in figure below:

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Estimating monthly cash requirements using activity bar chart

In our discussions so far we have assumed that the activities commence on the "early start "
dates. Cost estimates can however, be built up using the "late start" timings as well. Plotting
these two sets of cumulative costs against time would yield two curves which together enclose
the zone of feasible budgets for a given project duration without any resources restrictions (i.e.
without crashing, etc.). This is depicted in figure given below:

During the implementation of the project, the following information is periodically ascertained
from WBS/activity-based cost recording and accounting system.
(i) Cumulative actual cost to date.
(ii) Budgeted (estimated) cost to date.
(iii) Value of actual work done to date, based on cost estimates.

From these, cost over-runs (when a exceeds c) or cost-runs (when c exceeds a) can be
computed a percentage using the formula given below. Figure 5 shows the relationship
between these three different variables and the cost over-run.

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The concept of cost over-run

5. Explain the concept of Cybernetics applied to project management.

Ans: Concept of Cybernetics: Norbet Weiner who founded the science of Cybernetics described it
as the science of control and communication in animals and machines. It is derived from the
Greek word meaning `steerman' signifying `steering' or `piloting'. It now implies the general
theory of control applicable CO men, groups of men, machines, factory, industry, society or
national economy. Since management is a profession of control, it can reap the greatest
benefit from Cybernetics, the science, of control. Its approach is multi-disciplinary. Herein,
concept of control does not imply coercion or repression-it stands for self-regulation. It deals
with those attributes which make a system regulate itself to respond to its environments and to
adopt, to survive and evolve like living animals that are far superior to any of the instruments of
control derived by men. Cybernetics aim to imitate such mechanisms of nature.

Living organisms regulate themselves and respond to environments through feedback.

Feedback device in living animals makes the `effect' to act back on the `cause' or `causes'.
This mechanism called the `homeostasis' regulates organs, glands etc. and regulate various
functions of body such as maintaining body temperature, stabilising the acidity ;value of blood,
regulating sugar content of blood or for expelling foreign body from the eye, nose or throat. It is
the deviation from the normal (standard in our case) that causes the secretion of some
harmonies or chemical substances or cause to operate the reflex mechanism in order to
combat the imbalance and restore normal conditions.

Managers also actual performance, compare it against standards, identify /analyse deviations,
develop a programme of corrective action and implement it in order to arrive at the
performance desired as shown in fig.

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6. The following information is given for a project

Activity : A B C D E F G

Immediate Predecessor : - A A C B, D D E, F
Time(weeks) : 6 3 7 2 4 3 7

(a) Draw the network

(b) Identify critical path

(c) Calculate the project completion time

(d) Calculate the float of each activity

E=9 E = 15 E = 19
Ans: (a) E=0 E=6 L = 15 Dummy1 L = 15 L = 19 E = 26
L =1 0 L=6 3 ------- 5 E(4) 6 8 L = 26
B(3) G (7)
1 A(6) \Dummy 2
2
1 D (2) F (3) \
C (7)
1 4 7

E = 13 E = 19
L = 13 L = 19

(b) Critical path is 1 – 2 – 4 – 5 – 6 – 7 - 8

(c) Expected time required to build the plant is 26 weeks

(d) Float of each activity

Activity Estimated Earliest Latest Total Free Independent

Duration float float float
Start Finish Start Finish
(Weeks)
A 6 0 6 0 6 0 0 0
B 3 6 9 12 15 6 0 0
C 7 6 13 6 13 0 0 0
D 2 13 15 13 15 0 0 0
E 4 15 19 15 19 0 0 0
F 3 15 18 16 19 1 1 0
G 7 19 26 19 26 0 0 0

Since total float = (LSij) – (ESij)

Free float = Total float – (L – E) of the head event

Independent float = Free float – (L – E) of the tail event

Note: Perfectly if we go to this network, it is not possible. Since activity ‘F’ will start after
finishing ‘D’ only. It is not possible for drawing the PERT diagram without dummy activity. If we
draw the dummy activity, there will be preceding activity of ‘C’. But which is not mentioned in
the problem.
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