Introduction of Project and Project Management

1.1 Definition 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

1.2 Classification of Project

(See Book – A Text Book of Project Engineering)

1.3 Project Objective and Goal

(See - defining-project-goals-and-objectives.pdf)

1.4 Project 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 Definitionii. Planning and Organizing Phaseiii. Engineering and Design Phaseiv. Implementation Phasev. 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 examined-

a. 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. Construction Methodsii. Labour and Equipment Management

iii. Material Management iv. Construction Planningv. Construction Scheduling

vi. 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.

1.5 Project 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 time-zone 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 wasn’t nearly the common occurrence 20 years ago that it is today with our ability to use technology to collaborate with our team at a moment’s 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 project’s ability to achieve its objectives. A project environment can be classified into:

a. Internal Environmentb. Task Environment (Stakeholder’s Environment)c. External Environment

Internal Environment

- Located within projecta. 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 project’s 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

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 Systemii. Political Institution

iii. Political Philosophyiv. 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) Capitalisticb) Socialisticc) Mixed Economy

2. Economic Policiesa) Monetary Policyb) Fiscal Policyc) Industrial Policy

3. Economic Conditionsa) Incomeb) 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. Demographicii. Social Institutions

iii. Cultural Environmentd. 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

Political /

Legal

Economic

Technological Socio-cultur

al

External Project Environment

ii. Pace of technological changeiii. Technology transfer

1.6 Introduction to Project Management

Project management is the application of knowledge, skills and techniques to execute projects effectively and efficiently. It’s 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 objectivesThe 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 connectionsAppraisal 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?

ConsultationLocal 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

OptionsOptions 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.

InputsIt’s 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 outcomesDetailed 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 moneyThis 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.

ImplementationAppraisal 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 can’t 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 what’s promised and what’s delivered.

Forward strategiesThe 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.

SustainabilityIn 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 project’s 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/Pie-charts 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.

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

Project Brief Pre-feasibility Study

Preliminary Design

Proposal Development

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,

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

WBS for renovation of room

Preliminary Investigation

Wall Colour

Glass Condition

Desk and Chair Condition

Lighting

Switches

Curtains

Addition of facilities

Dark Room

New Board

Projector

Speakers

Lockers

Estimating and Costing

Estimating and Costing of the

Preliminary Investigation

and Additional Facilities

separately

Execution

Bidding

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.

1 2 3 40

5

10

15

20

25

30

3

10

27

5

Week

1 2 3 40

2

4

6

8

10

12

14

16

8

12

15

10

Week

Step – 0 Step – 4

1 2 3 40

2

4

6

8

10

12

14

11 1112

11

Week

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 (अनु�गमनु)

It is the process of observing, recording and reporting project information continuously.

Purpose of Monitoring:

i. To make a project effectiveii. To collect and analyse information

iii. To review the progress criticallyiv. To change or continue directionv. For the best utilization of resources

vi. To prepare the base for evaluation

Methods of Monitoring:

i. Through Progress Reportii. Review Meeting

iii. Field Visitiv. Discussion and Dialoguesv. Tour report of Project Staff

vi. Visitors’ observationvii. Key information

viii. Complaints and Grievances positionix. Networking

Evaluating (म�ल्यांकनु)

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. Basis of Difference Monitoring Evaluation1. Vision Looks forward Looks backward2. Time Frame Continuous process One time periodic3. Who does Needs to be done internally Needs to be done internally and

externally4. Communication Needs communication

properlyNot necessary among all levels

5. Feedback Provides information for day to day management

Provides information for future planning

6. Helpful Monitoring helps for evaluation.

Evaluation helps for future 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 - Budget3. Time Control – Schedule

Difficulties in Project Control in Nepal

1. Political instability2. Social problems3. Corruption (on site quality control)4. Lack of appropriate technologies5. Manpower – lack of skilled manpower6. Lowest bidder is awarded the project.7. Difficult geography8. Climatic condition9. Cultures, norms etc.

4.3 Project Control Cycle

Control is cyclical process.

a. 3-Step Control Cycle

b. 7-Step Control Cycle

Measuring

EvaluatingCorrecting

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 Informationi. Activities that have started, actual start date, percentage completed

and remaining duration of eachii. Activities that are complete and actual

iii. Completion date of eachiv. 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 constraintsv. 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. Implementation

2. Fixing Datum

3. Observation and Recording of Data

4. Analysis of Deviation

5. Note the Deviation

6. Decide whether the deviation is unacceptable

7. Take Corrective Action

1. Cost Control during Pre-constructiona. Surveyb. Design c. Specification

2. Cost Control during Construction- Strict Monitoring

Methods of Cost Control

1. Short Term Planning and Control2. Accounting Method

a. Overall profit and loss accountb. Profit and loss account after part paymentc. 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 Date5 hours - Rs. 30,00,0001 hour - Rs. 6,00,0002 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. 30,00,0001 cum - Rs. 30,00045 cum - 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 Bid Price Actual Cost ProfitStone

Masonrym3 Rs. 15,000 Rs. 14,500 Rs. 500

Gabion Works m3 Rs. 10,000 Rs. 8000 Rs. 2000 Hence, prefer Gabion Works.

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 company’s 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 supplier’s 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) doesn’t reduce if the company goes into loss.

From investor’s 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 =10% of 5,00,000 = Rs. 50,000

Earning after interest before tax, EAIBT = Rs. 2,00,000

Tax = 25% of EAIBT = Rs. 50,000

Earning after interest and tax, EAIT = Rs. 1,50,000

Interest/Dividend to P. share = 12% of 2,00,000 = Rs. 24,000

Shareholder’s Earning = Rs. 1,26,000

Earning per Share = 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 firm’s 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 firm’s 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. They have long term implications for the firm and influence its risk complexion.2. They involve commitment of large amount of fund. (1 MW – 20 crore)3. They are irreversible decisions.4. They are among the most difficult decisions to make.

Project Evaluation Criteria

1. Payback Period Methoda. Simpleb. Discounted

2. Accounting Rate of Return (ARR) and Rate on Investment (ROI)3. NPV/NFV/NAV4. IRR/ERR (ROE)5. BCR/Profitability Index

Capital Budgeting Process

Risk Analysis

Project Generation

Project Evaluation

Estimate of Cost and Benefit

Selection of appropriate method of evaluation

Project Selection

Project Execution