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Project Defined

PMI states that ”a project is a temporary endeavour undertaken to create a unique product or
service” . Temporary means that every project has a definite beginning and end, unique means
that the product or service is different in some distinguishing ways from all other products or
services.

Characteristics of a Project

i) Objectives

A project has a set of objectives or a mission. Once the objectives are achieved the project is
treated as completed.

ii) Life cycle

It consists of conception, detailed design of project areas, implementation based on the design
and commissioning the implemented project.

iii) Definite Time Limit

A project has a definite time limit in that it cannot continue forever

iv) Uniqueness

Every project is unique in the sense that no two projects are exactly the same

v) Team work

co-ordination among the diverse areas of project calls for team work

vi) Complexity

A project is a complex set of activities relating to diverse areas ( choosing technology, right kind
of people, procuring machinery etc)

vii) sub contracting

It reduces the complexity of the project and improves the quality as sub contractors are
specialized in particular fields of activity

viii) Risk and Uncertainty

There are foreseen or unforeseen risks in the project. Risk is the deviation from the expected
estimations.

ix) Customer specific nature

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It is the customer who decides the product to be produced and the services to be offered and
hence it is the responsibility of any organization to go for the products or services that are suited
to customer needs.

x) Change

There may be minor to major changes that may occur throughout the life span of a project, as a
natural outcome of many external factors. For example change in technology in the midst of the
project.

xi) Response to environments

Projects are often based on the need for the development of infrastructure and heavy industries.

xii) Forecasting

Only if the forecast gives positive indications, the project is taken up for further study. Thus it
must be accurate and based on sound fundamentals.

xiii) Rationale choice

Since the project is a scheme for investing resources, the choice of a project is done after making
a study of all the available avenues for investing resources and a rationale choice is made.

xiv) Optimality

Many project management concepts have evolved with the aim of achieving optimum utilization
of available resources (which may be scarce and costly)

xv) Control Mechanism

All projects will have pre-designed control mechanisms to ensure the completion of projects
within the time schedule , within the estimated cost and at the same time achieving the desired
quality and reliability.

Taxonomy of projects

Taxonomy is the classification of projects under different heads.

Based on the activity it can be industrial for production of goods or it can be non-industrial like
education or health care projects

Based on the location , national projects are set up within the boundaries of a country and
international projects are set up in other countries.

Based on ownership , an enterprise is considered public when the state or any national, regional
or local authority holds at least 51% of its capital and the enterprise is under the control of the

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state. A private sector project is one in which the ownership is completely in the hands of the
project promoters and investors . Profit maximization is the prime objective of private sector
projects. Joint sector projects are those in which the ownership is shared by the government and
private entrepreneurs.

Advantage to the government from the joint sector enterprise is that it can make use of the
managerial talents, entrepreneurial capabilities and marketing skills of the private entrepreneurs.

Advantage to the private firm is that the government shares the investment required for the
project and minimal red tapism.

Based on the size, projects are classified into small , medium and large. Investments on plant and
machinery upto 1 crore are small scale projects, above 100 crore are large scale projects and
between 1 crore and 100 crore are medium scale projects.

Based on the project completion time , crash projects are those which are to be expedited even
at the cost of ending up with a higher project cost when compared to normal projects.

Based on the purpose projects are classified into:

1. Expansion projects

2. Modernization projects

3. Diversification Projects

4. Backward integration projects

5. Forward integration projects

6. Replacement Projects

7. Balancing Projects

8. New Project

1. Expansion projects

They are the project s aimed at increasing the plant capacity for the current product range . It can
be done in two different ways

a) by establishing additional plant capacity

b) by acquiring another organization in the same line of activity

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2. Modernization projects

Mordernization refers to the change into a superior quality. As technological innovation is a

continuous process whenever either plant and machinery becomes obsolete or the production
process becomes obsolete, there is need for modernization. With out modernization , the product
quality may be inferior or the cost of production may be higher or both.

3. Diversification Projects

When manufacturer wants to offer more than one product, it is defined as diversification and the
associated project is called diversification project. There may be

a) Related diversification: Making closely related diversification to the existing product line . For
eg. clock manufacturer moving in to wrist watch manufacturing.

b) Unrelated diversification: Moving into totally different product ranges

4. Backward integration projects

Addition of manufacturing or processing facilities at the beginning stages of a product line to

avoid irregular raw material supply, additional inventory carrying costs, long lead times for raw
materials and to achieve higher profit margins.

5. Forward integration projects

By including additional manufacturing or processing facilities at the end of the production line,
the products that are currently produced may undergo further processing resulting in value
addition. For example an organization producing Polythene tubes may integrate its production
facilities forward by6 adding printing, cutting and bag making facilities so that the finished
product becomes printed Polythene bags as against continuous tubes.

6. Replacement Projects

Projects oriented on replacing the existing plant and machinery or a part of which is break down

7. Balancing Projects

Balancing projects are meant for the line balancing of various product ranges.

8. New Project

A new project is spearheaded in the development or offing of a new product or service which is
distinct from the existing ones.

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The 7S of Project Management

The 7S that defines Project Management are

Strategy: The high level requirements of the project and the means to achieve them.

Structure: The organizational arrangement that will be used to carry out the project

Systems: The methods for work to be designed , monitored and controlled

Staff: The selection, recruitment, management and leadership of those working on the project

Skills: The managerial and technical tools available to the project manager and staff

Style/culture: The underlying way of working and inter relating within the work team or
organization

Stakeholders: Individuals and groups who have an interest in the project process or outcome

In an instance the Digital certification operation in controlled environment (DCOCE) project is

aimed at the development of a website of Oxford University which provides authenticated access
to affiliated colleges and institutions, thereby able to provide digital certificates and other useful
information which together defines the goal and means to achieve the goal (strategy). The
methodology is to create several links, the click on which gives access to the required fields
defines systems. The tool available is a layout of the website to be designed and developed along
with the expertise in creating it attribute to the Skills. The hierarchy and the arrangement of the
team members defines the structure of the organization. The recruited team members along with
the project manager comprises the staff. The underlying way of work is by co-operating with
others as well as receiving useful information from outsiders( Style) .The fund raising is done
and the project is promoted by means of several partners (Stake holders) who have a lots of
interest in the project outcome.

Project Management defined

PMI defines project management as the application of knowledge, skills, tools and techniques to
project activities to meet project requirements.

The Project Management process

The project management process consists of the following steps:

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1. Project identification and prima facie analysis

Identification is done mainly by closely examining the external situations (keeping eyes and ears
open) prevailing, listening to the customer voices, identifying gaps in fulfilling the customer
needs etc. The sources which serves the purpose will be journals , magazines, records, news
papers, market surveys, opinion polls, expert opinions, intuitions from veterans etc. Often the
prima facie analysis overlaps identification part (*pls write the below paragraph also even when
the question is about simply identification)

Prima facie analysis is done by means of comparing the performance of the existing industries,
price trends, price difference between international and domestic prices, government policies,
fiscal policies, monetary policies, location aspects , financial position etc. About 99% of the
ideas are rejected during prima facie analysis. Only those investment ideas which are screened
through the first phase will go for a detailed, in depth analysis called feasibility study

The two of the above may be some times stated as pre-feasibility study

2. Project preparation

The detailed, in depth analysis called feasibility study is performed to formulate the feasibility
report called the Detailed Project Report (DPR). The break up components of a feasibility study
will be:

1) Market and Demand Analysis

The following are studied during the market and demand feasibility:

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a) Demand- supply gap

b) Product life cycle and target market
c) Marketing channels
d) Competitors, their strengths and weakness
e) Present data, past data and the future data is forecasted
f) Modification of forecasts based on economic indicators
g) Demographic and geographic elements
h) Export potential

2) Technical Analysis

Technical feasibility is concerned with the assessment, selection and source (developed or
transferred) of technology , process, know-how, indigenization etc. Market and Technical
feasibility together determines the ideal location of the plant. Also the capacity planning, and
raw material selection are done during this phase.

3) Financial Feasibility

The procedural steps in financial analysis are:

a) Selection of the sources of funds

b) Estimation of the cost of the project as well as operating cost
c) Calculation of cost and benefits in terms of financial numbers
d) Assessment of tax implications
e) Financial workings like preparation of depreciation schedule, working capital schedule,
loan repayment schedule etc.
f) Preparation of cash flow statements, Profit and Loss (P&L) statements as well as balance
sheets.
g) Risk
h) Statistics of Financial viability (summary )

Most companies prefer interest cover ratio, Pay Back Period (PBP) and Net Present Value
(NPV), Internal rate of return (IRR) etc. for feasibility assessment. Riskiness of the project to be
presented in the project feasibility report by calculating break-even point and by carrying out
sensitivity analysis around critical success factors.

4) Social Cost Benefit Analysis (SCBA) aka Economic analysis (Socio Economic Analysis)

During this particular analysis, we try to determine the cost to the nation due to the proposed
project and compare with the benefits. This considers economic costs rather than accounting
costs. The benefits assessed will be the impact of the project on the income distribution, level of
savings and investments of the society, fulfillment of employment , self sufficiency etc.

5) Ecological Analysis

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Ecological analysis or environmental impact analysis studies the adverse impact of the proposed
project on the environment or ecology, particularly for major projects which have significant
ecological implications like power plant projects, irrigation schemes and for environmentally
polluting industries like chemicals, bulk drugs and leather processing industries etc. The key
questions raised in this analysis are:

a) What is the likely damage caused by the project?

b) What are the possible restoration and rehabilitation methods?
c) What is the cost of Restoration and Rehabilitation?

THE DETAILED PROJECT REPORT (DPR) aka Feasibility Report

After crossing the important hurdle of the above in depth analyses, the DPR or feasibility report
is prepared. It is an important document to be produced to the banks and other financial
institutions for financial assistance, SEBI, other government and statutory legal authorities for
various consents like electricity board approval for electric power connections, NOC from
pollution control board etc. The following are included in a DPR:

a) General information: Name, form of the organization, sector, nature of products,

promoters and their contribution
b) Background and experience of promoters
c) Marketing and selling arrangements: application of proposed products or service, growth
rate, existing players and competition
d) Details of the proposed projects which include:

i) proposed products and their capacity ii)process of manufacture and its sources (contract
with the supplier for the support), iii) details about major equipment needed for the above
process iv) management team with their qualification and experience v) details of land and
building vi) details of water and power vii)effluents (if any) and their treatments and disposal
as per plan vii) raw material availability viii) man power requirement

e) Technical arrangements
f) Production process details
g) Environmental aspects
h) Schedule of implementation
i) Cost of project, appraisals and risk
j) Means of finance

3. Project implementation

This is the most time, cost and resource consuming phase in the project management. During this
phase teams are selected, activities are allotted to team members and schedules of activities are
formed and monitored. This is done with the help of various tools like Gantt chart,Network

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diagrams and other monitoring tools. Infact many softwares have been developed for execution
and proper monitoring of the project. This phase is inclusive of making project and engineering
designs, Negotiations and contracting, construction, training and plant commissioning(
commissioning refers to the start up of the plant. Technically it is the most crucial stage).

4. Project Review

Refers to comparing the actual performance with projected performance. The review report is
helpful

i) for the operations management team for making corrective action ii) as a documented log for
future reference iii) in assessing the correctness of the assumptions made during various phases
iv) in uncovering the judgemental bias and induces a caution among project sponsors

Define the scope and objectives of Project management?

The scope lies in defining the boundaries of the project and the objectives are to yield superior
performance with respect to quality, cost and time making optimal use of the available resources
which are often scarce and costly

Define the importance of Project management?

The importance of project management arises out of the following key factors like rapidly
changing technologies, high entropy of the system, squeezed life cycle of products, globalization
impact as well as the increasing size of the organization. Project management is essential under
these scenarios to obtain the required objectives (as mentioned in the above question.pls write
objectives here also)

Capital Budgeting

Capital budgeting refers to the investment decision making procedures of business firms and
other enterprises. The capital budgeting consists of the following phases:

1. Planning (identification and assembly of investment proposals) – This phase is

concerned with the articulation of firms investment strategy, identification and
formulation of investment proposals, prima facie screening of the proposals and crucial
factors of the identified ideas which requires in-depth analysis.
2. Analysis- The detailed feasibility analysis asses the worthwhileness of different project
ideas with respect to Market and Demand Analysis, Technical Analysis, Financial and
Socio economic Analysis as well as Ecological Analysis

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3. Selection (Decision Making) - This phase follows and often overlaps the Analysis phase,
is useful in determining the financial viability (worthwhileness) of the various project
ideas. This financial appraisal phase includes discounting methods and non-discounting
methods. This includes currency gateway and executives blanket or non blanket
decisions.
4. Financing (Budgeting and appropriation) - This phase determines the Capital structure
(or the Debt-Equity ratio) for the selected project. Equity refers to the owner’s capital and
Debt refers to Debentures, long term loans, working capital advances etc. Flexibility,
Risk, Income, Control and Taxes (FRICT) are the factors which determine the capital
structure. This also checks the availability of funds and financial position of the
company.
5. Implementation- refers to making project and engineering designs, Negotiations and
contracting, construction, training and plant commissioning( Commissioning refers to the
start up of the plant. Technically it is the most crucial stage). For expeditious
implementation at reasonable cost the following are helpful:
i) Adequate formulation of projects ii) Use of the principle of responsibility Accounting
iii) Use of Network Techniques
6. Review- Refers to comparing the actual performance with projected performance. The
review report is helpful : i) for the operations management team for making corrective
action ii) as a documented log for future reference iii) in assessing the correctness of the
assumptions made during various phases iv) in uncovering the judgemental bias and
induces a caution among project sponsors

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