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Project Management – Core Components/Key Focus Areas

VI to IX:

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Objectives of Project Management/Investment Projects

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Project Management Phases/Processes/Life Cycle Stages

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Monitoring and Control of Investment Projects

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1. Economic Appraisal
Economic appraisal evaluates the project's
overall economic impact and feasibility. It
2. Managerial Appraisal
typically involves:
Managerial appraisal focuses on the project's
alignment with organizational goals and its
Cost-Benefit Analysis: Comparing the total
management aspects. It includes:
expected costs against the total expected
benefits.
Risk Assessment: Identifying potential risks and their
Net Present Value (NPV): Calculating the
impact on project success.
present value of future cash flows minus
Resource Allocation: Evaluating the efficiency of
initial investment.
resource use and management capabilities.
Internal Rate of Return (IRR): Determining
Strategic Fit: Analyzing how well the project aligns
the discount rate that makes the NPV of the
with the organization’s long-term strategies and
project zero.
objectives.
Economic Rate of Return: Assessing the
Implementation Feasibility: Assessing the practical
project's return from a broader economic
aspects of executing the project, including timelines
perspective, including externalities.
and personnel.

3. Social Appraisal
Social appraisal examines the project's social impacts and benefits to the community. Key components include:

Social Cost-Benefit Analysis: Evaluating social benefits and costs, including qualitative factors like community well-being.
23 Analysis:
Stakeholder | P a g e Identifying and assessing the interests of different stakeholder groups affected by the project.
Equity Considerations: Examining how the project affects various social groups, particularly marginalized communities.
Environmental Impact Assessment: Analyzing potential environmental consequences and sustainability considerations.
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Pre-Feasibility or Project Feasibility Study

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Identification of Investment Opportunities/New Project Ideas

A. Monitoring the Environment: PEST Analysis (P - Political or
Government, E- Economic, S - Social & T -Technological).
Sometimes, it is called PESTEL where the additional E stands for Ecology/
Environment and L stands for Legal.

Legal Sector
- health and safety
- equal opportunities,
-advertising standards,
-consumer rights and laws,
-product labelling and product
safety.

Ecological Sector
Climate: Climate change, global warming, and extreme
weather events
Pollution: Air and water pollution
Waste management: Costs, regulations, and disposal
methods
Recycling: Standards and use of recycled materials
Renewable energy: Support for and costs of renewable
energy
Natural resources: Stewardship of natural resources, such
as fresh water
Ethical sourcing: Ethical sourcing of products and raw
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materials
Geographical location:
Stakeholder and consumer values:
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B. Corporate Appraisal across Functional Areas/Departments

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C. Tools for Identifying Investment Opportunities

I. SWOT (Strengths, Weaknesses, Opportunities & Threats)
SWOT Analysis represents a conscious, deliberate and systematic effort by an
organisation to identify opportunities that it can profitability exploit. Periodic
SWOT analysis facilitates the generation of new project ideas/investment options.
Strengths and weaknesses are often internal to an organization, while
opportunities and threats generally relate to external factors. For this reason,
SWOT is sometimes called Internal-External Analysis and the SWOT Matrix is
sometimes called an IE Matrix.
Strengths
 What advantages does your organization have?
 What do you do better than anyone else?
 What unique or lowest-cost resources can you draw upon that other can't?
 What do people in your market see as your strengths?
 What factors mean that you "get the sale"?
 What is your organization's Unique Selling Proposition (USP)?

Weaknesses
 What could you improve?
 What should you avoid?
 What are people in your market likely to see as weaknesses?
 What factors lose you sales?

Opportunities
 What good opportunities can you spot?
 What interesting trends are you aware of?
Useful opportunities can come from scanning the environment (PEST analysis).
Threats
 What obstacles do you face?
 What are your competitors doing?
 Are quality standards or specifications for your job, products or services
changing?
 Is changing technology threatening your position?
 Do you have bad debt or cash-flow problems?
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II. Porter Model for Profit Potential of Industries

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III. The Life Cycle Approach

The experience curve is a concept that suggests that as people gain experience, they become more
efficient at doing something. In project management, this can mean that as teams gain experience with
a project, they can develop more efficient processes and problem-solving skills. This can lead to
reduced time and cost in subsequent projects.
The experience curve can also be applied to a company's manufacturing and marketing of a product.
The concept states that as a company gains experience producing a product, the cost of production
will decrease. This is because employees and the organization learn to implement processes more
efficiently, and growth can lead to specialization, which amplifies the learning effect. The experience
curve can also be used to assess declining production costs as a result of cumulative production.
The experience curve is also known as a learning curve, progress curve, learning by doing, or
idealized pattern describing technological progress in a regular fashion.
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Project Manager – Definition and Role/Functions

Definition: Project Manager is a person who has the overall responsibility for the
successful initiation, planning, design, execution, monitoring, controlling and
closure of a project. They create and organize a project team, take responsibility
for performance, manage risks in every stage and decide in trade-off between
scope, time, cost and quality.

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In a small sense project managers perform the same functions as other managers.
That is, they plan, schedule, motivate, and control. However, what makes them
unique is that they manage temporary, non-repetitive activities, to complete a
fixed life project. Unlike functional managers, who take over existing operations,
project managers create a project team and organization where none existed
before. They must decide what and how things should be done instead of simply
managing set processes. They must meet the challenges of each phase of the
project life cycle, and even oversee the dissolution of their operation when the
project is completed.

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Project Scope

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Project Management – Importance and Recent Trends

Project management is no longer a special-need management. It is rapidly becoming a
standard way of doing business An increasing percentage of the typical firm’s effort is
being devoted to projects. The future promises an increase in the importance and the role
of projects in contributing to the strategic direction of organizations. Several reasons are:
1. Compression of the Product Life Cycle
One of the most significant driving forces behind the demand for project management is
the shortening of the product life cycle. For example, today in high-tech industries the
product life cycle is averaging 1 to 3 years. Only 30 years ago, life cycles of 10 to 15 years
were not uncommon. Time to market for new products with short life cycles has become
increasingly important. Speed, therefore, becomes a competitive advantage; more and
more organizations are relying on cross-functional project teams to get new products and
services to the market as quickly as possible.
2. Knowledge Explosion
The growth in new knowledge has increased the complexity of projects because projects
encompass the latest advances. For example, building a road 30 years ago was a
somewhat simple process. Today, each area has increased in complexity, including
materials, specifications, codes, aesthetics, equipment, and required specialists. Product
complexity has increased the need to integrate divergent technologies. Project
management has emerged as an important discipline for achieving this task.
3. Triple Bottom Line (planet, people, profit)
The threat of global warming has brought sustainable business practices to the forefront.
Businesses can no longer simply focus on maximizing profit to the detriment of the
environment and society. Efforts to reduce carbon imprint and utilize renewable resources
are realized through effective project management. The impact of this movement towards
sustainability can be seen in changes in objective & techniques used to complete projects.
4. Corporate Downsizing
The last decade has seen a dramatic restructuring of organizational life. Downsizing (or
rightsizing if you are still employed) and sticking to core competencies have become
necessary for survival for many firms. Middle management is a mere skeleton of the past.
In today’s flatter and leaner organizations, where change is a constant, project
management is replacing middle management as a way of ensuring that things get done.
Corporate downsizing has also led to a change in the way organizations approach
projects. Companies outsource significant segments of project work, and project
managers have to manage not only their own people but also their counterparts in
different organizations.
5. Increased Customer Focus
Increased competition has placed a premium on customer satisfaction. Customers no
longer simply settle for generic products and services. They want customized products
and services that cater to their specific needs. This mandate requires a much closer
working relationship between the provider and the receiver. Account executives and sales
representatives are assuming more of a project manager’s role as they work with their
organization to satisfy the unique needs and requests of clients. Project management is
critical both to development of customized products and services and to sustaining
lucrative relationships with customers.

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Types of Project Management – Different Styles and Methods

Several sophisticated methods for managing projects have been developed
through decades of thought and practice by professional project managers. You can
benefit from this collected wisdom by surveying the various methods to find the
style that suits your business and your project.
1. Waterfall Method
The waterfall method is a linear approach. First the project manager determines
the requirements for the project, and then a project developer designs the project,
project members build the project by putting all the pieces in order and the
manager then integrates the project into the business for testing and debugging.
Once the project is ready, management implements the project and a manager is
assigned to maintain it.
2. Agile Approach
The agile approach does away with the idea of developing a project in sequential
pieces. Instead, the project team presents a version of the project that is complete
enough to potentially implement. Team members attend "scrum" meetings where
they evaluate the latest version of the project and make suggestions for
improvement. The project developers then create a second version with the
suggested changes and present it. This process can continue through four or more
versions until the scrum process has addressed all the requirements. In short, the
agile method presents full project versions that can be tweaked.
3. Six Sigma
The Six Sigma method works well for projects that you can precisely measure. The
idea is to look for any deviations from absolute perfection and address the causes
of those deviations. To do this, you define, measure, analyze, improve and control
the project throughout its development and implementation so you achieve exactly
the results you want with little variation. For example, You would test and refine
the system so there are no more than 3.4 defects per million opportunities. This is
a Six Sigma standard.
4. Kanban Technique
With kanban, project managers use a white board with sticky notes placed in one
of three columns: "in queue," "in progress" and "recently completed." The notes
contain descriptions of project tasks. The team can easily see what tasks are coming
up, which ones are being worked on and which are finished. For example, a new
task with great urgency might cause a task that is already in progress to be put on
hold by being moved back to the "in queue" column.

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Marketing Feasibility & Plan or Market & Demand Analysis

I. Situational Analysis and Specification of Objectives

In order to get a “feel” of the relationship between the product and its market, the project analyst
may informally talk to customers, competitors, middlemen, and others in the industry. Wherever
possible, he may look at the experience of the company to learn about the preferences &
purchasing power of customers, actions & strategies of competitors, & practices of middlemen.

II. Collection of Secondary Information

Secondary information is information that has been gathered in some other context and is readily
available. Secondary information provides the base and the starting point for the market and
demand analysis. It indicates what is known and often provides leads and cues for gathering
primary information required for further analysis. While the secondary information is available
economically and readily, its reliability, accuracy, and relevance for the purpose under
consideration must be carefully examined. The market analyst should seek to know:
Evaluation of Secondary Information
 Who gathered the information? What was the objective?
 When was the information gathered? When was it published?
 How representative was the period for which the information was gathered?
 Have the terms in the study been carefully and unambiguously defined?
 What was the target population?
 How was the sample chosen?
 How representative was the sample?

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 How satisfactory was the process of information gathering?

 What was the degree of sampling bias and non-response bias in the information
gathered?
 What was the degree of misrepresentation by respondents?
Sources of Secondary Information

III. Conduct of Market Survey

Secondary information, though useful, often does not provide a comprehensive basis for market and
demand analysis. It needs to be supplemented with primary information gathered through a market
survey. The market survey may be a census survey or a sample survey; typically it is the latter.
Information Sought in a Market Survey
 Total demand and rate of growth of demand,
 Demand in different segments of the market,
 Income and price elasticities of demand,
 Motives for buying,
 Purchasing plans and intentions,
 Satisfaction with existing products,
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 Unsatisfied needs,
 Attitudes toward various products,
 Distributive trade practices and preferences, and
 Socio-economic characteristics of buyers.

Steps in a Sample Market Survey

IV. Characterisation of the Market

Based on the information gathered from secondary sources and through the market survey, the market
for the product/service may be described in terms of the following:

• Effective demand in the past and present: Production + Imports – Exports – Change in Stocks
• Breakdown of demand as per nature of product, consumer groups and geographical areas.
• Price: Manufacturer, imported, wholesaler and retailer past prices for analysis & comparison.
• Methods of distribution and sales promotion used as per the nature of the product.
• Consumers: Demographic, Sociological and Attitudinal characteristics.

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• Supply and Competition: Sources of Supply; Competition from substitutes and near substitutes.
• Government Policy: Laws, Policies, Plans that have an impact on market and consumer demand.

V. Demand Forecasting

Refer to the next section on “Demand Forecasting”.

VI. Marketing Plan or Market Planning

A marketing plan usually has the following components:

1. Current Marketing Situation: This part of the marketing plan deals with the different
dimensions or facts of the current situation. It examines the Market Situation in terms of size,
growth, customer aspirations and buying behavior in the market under consideration. The
Competitive situation dwells on the major competitors, their objectives, strategies, strengths etc.
Distribution situation evaluates the availability of distributors and the distribution capabilities of
competitors. Finally, the Macroeconomic environment is analysed in terms of its Political, Legal,
Socio-Cultural, Economic, Environmental and Technological dimensions.
2. Opportunity and Issue Analysis: It primarily involves conducting the SWOT (Strength,
Weakness, Opportunity and Threat) analysis. Different findings from previous current marketing
situation analysis are categorised as either a Strength, Weakness, Opportunity or Threat.
3. Objectives: Objectives have to be clear cut, specific and achievable. They may be defined in
terms of achieving break even in a time period, attaining specific sales volume or market share.
4. Marketing Strategy: A comprehensive marketing strategy should involve well reasoned
description of the target segment amongst prospective customers; how to Position the product
in customer’s mind; number and varieties of Products to be launched; Price range as per the
target customer; Distribution networks to be used and geographical locations to be covered;
number and proper training of Sales force; activities and campaigns to be conducted for Sales
Promotion; and Advertisement mediums, frequency along with their main content.
5. Action Program: Action programs operationalize the Marketing plan. They are conducted as
per a time line to show the gradual progress towards the objectives.

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Demand Forecasting
After gathering information about various aspects of the market and demand from primary and
secondary sources, an attempt may be made to estimate the future demand. A wide range of
forecasting methods are available to the market analyst. These methods may be classified into
three broad categories as shown below.
I. Qualitative Methods: These methods rely essentially on the judgment of experts to translate
qualitative information into quantitative estimates. The important qualitative methods are:
 Jury of Executive Opinion Method
 Delphi Method
II. Time Series Projection Methods: These methods generate forecasts on the basis of an analysis
of the historical time series. The important time series projection methods are:
 Trend Projection Method
 Exponential Smoothing Method
 Moving Average Method
III. Causal Methods: More analytical than the preceding methods, causal methods seek to
develop forecasts on the basis of cause-effect relationships specified in an explicit, quantitative
manner. The important causal methods are:
 Chain Ratio Method
 Consumption Level Method
 End Use Method
 Leading Indicator Method
 Econometric Method
 Bass Diffusion Model

Jury of Executive Opinion Method and Delphi Method

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Trend Projection Method

To estimate the parameters “a” and “b” of the relationship, the method of Least squares is used.
According to the least squares method, the linear relationship which minimizes the sum of squared
deviations of observations from the line of best fit is chosen.

Exponential Smoothing Method

In exponential smoothing, forecasts are modified in the light of observed errors. If

the forecast value for year t, Ft is less than the actual value for year t, St, the forecast
for the year t+1, Ft+1, is set higher than Ft. If Ft > St, Ft+1 is set lower than Ft. In general
Ft+1 = Ft + α et
where Ft + 1 = Forecast for year t + 1
α = Smoothing Parameter (which lies between 0 and 1)
et = Error in the forecast for year t = St - Ft

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Moving Average Method

Chain Ratio Method

The potential sales of a product may be estimated by applying a series of factors to a measure of
aggregate demand. Ex: A firm planning to manufacture stainless steel blades in a country tries to
estimate its potential sales in the following manner:

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Consumption Level Method

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End Use Method

Leading Indicator Method

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Econometric Method

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Bass Diffusion Model

Uncertainties in Demand Forecasting

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Coping with Uncertainty in Demand Forecasting

Levels of Demand Forecasting

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Commercial Viability

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Technical Feasibility/Viability/Analysis

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Manufacturing Process/Technology

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Material Inputs and Utilities

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Plant Capacity

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Location and Site

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Machineries and Equipments

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Structures and Civil Works & Environmental Aspects of Technical Feasibility

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Project Charts and Layouts

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Schedule of Project Implementation

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Need for Considering Alternatives

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Product Mix & Key Product Inter-Linkages

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Overall Financial Plan/Analysis

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Factors influencing the planning of Means of Finance

1. Norms of Regulatory Bodies and Financial Institutions
2. Key Business Considerations like cost of funds, risk, control, and flexibility.

3. Estimates of Sales and Production

Refer to the next Section on “Estimation of Fund Requirements/Project Budgeting”.

4. Cost of Production
Refer to the next Section on “Estimation of Fund Requirements/Project Budgeting”.

5. Working Capital Requirement and its Financing

Refer to the next Section on “Estimation of Fund Requirements/Project Budgeting”.

6. Profitability Projection or Estimates of Working Results

Refer to the next Section on “Estimation of Fund Requirements/Project Budgeting”.

7. Break Even Point

The profitability projections or estimates of working results discussed above are based on the assumption
that the project would operate at given levels of capacity utilization in future. In addition to knowing what
the projected profits would be at certain levels of capacity utilization, it is also helpful to know what the
level of operation should be to avoid losses. For this purpose, the breakeven point, which refers to the
level of operation at which the project neither makes profit nor incurs loss, is calculated.

8. Projected Cash Flow Statement

Refer to the next Section on “Estimation of Fund Requirements/Project Budgeting”.

9. Projected Balance Sheet

Refer to the next Section on “Estimation of Fund Requirements/Project Budgeting”.

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Estimation of Fund Requirements/Project Budgeting

It involves the estimation of Production, Sales, Costs, Working Capital
requirements, Profitability projections, projected Cash Flow Statement and
projected balance sheet for at-least about 10 years to facilitate financial planning.

I. Estimation of Sales and Production

Sales and Production are closely related and are typically the basis or starting point
for profitability projections. The following considerations should be kept in mind:
1. Not advisable to assume a high capacity utilization level in first year of operation.
2. It is not necessary to make adjustments for stocks of finished goods. For practical
purposes, it may be assumed that production would be equal to sales.
3. The selling price considered should be the price realizable by the company net
of excise duty. It shall, however, include dealers' commission, which is shown as an
item of expense [as part of sales expenses].
4. The selling price used may be the present selling price – as the changes in selling
price will be matched by proportionate changes in cost of production.

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