project management All question

Chapter -01

1)      Facets of project analysis

Ans:  The important facets of project analysis are

ü  Market analysis

ü  Technical analysis

ü  Financial analysis

ü  Ecological analysis

ü  Economic analysis

·         Market analysis

Market analysis is concerned primarily two questions

Ø  What would be the aggregate demand of the proposed product? services in the future.

Ø  What would be the market share of the project under appraisal?

To answer the above question, the market analysis requires a wide variety of information and approach forecasting methods. The kinds of information required are:

Ø  Past and present supply position

Ø  Production possibility and constriction

Ø  Imports and export

Ø  Structure  of competition

Ø  Cost structure

Ø  Elasticity of demand

Ø  Administrative, technical and legal constriction

·         Technical analysis

Technical analysis seeks to determine whether the prerequisites for the successful commissioning of the project have been considered and reasonably good choices have been made with respect to location size process etc. the important question raised in technical analysis are

Ø  Whether the preliminary tests and studies have been done or provided for?

Ø  Whether the selected scale of operation in optimal

Ø  Whether the production process chosen in suitable?

Ø  Whether provision has been made for the treatment of effluents?

Financial analysis

Financial analysis seeks to assertion whether the proposed project. Will be financially viable in the sense of being able to meet the burden of servicing debt ad whether the proposed project will satisfy the return expectation of those who provide the capital. The aspects which have to be looked into while conducting financial analysis are

Ø  Investment outlay and cost of project

Ø  Means of financing

Ø  Cost of capital

Ø  Project profitability

Ø  Break-even point

Ø  Cash-even  point

Economic analysis

Ø  Economic analysis also referred to as social cost benefit analysis , the question sought to be answered in social cost benefit analysis are:

Ø  What are the direct economic benefit and cost of the project measured in terms of shadow price and not in term of market price?

Ø  What should be the impact of the project on the distribution of income in the society

Ecological analysis

Ecological analysis should be done particularly for major project which have significant ecological implication and environment polluting industries. The key questions raised in ecological analysis are

Ø  What are the likely damaged caused by the project to the environment?

Ø  What sis the cost of restoration measures required to ensure that the damage to the environment is contained within acceptable limits?

2. Key issues in project analysis

·         Market analysis                    Potential market

                                                            Market share

·         Technical analysis                Technical viability 

                                                Sensible choice

·         Financial analysis                  Risk

                                                       Return

·         Economic analysis               Benefits and cost in shadow prices

                                                     Other impact

·         Ecological analysis               Environmental Damage

                                               Restoration measures

Chapter-03- Generation and screening of project ideas

Ques1.

Generation of ideas

Barring truly new ideas which are based on significant technological breakthrough most of the project ideas involve combining existing fields of technology or offering variants of present product or service. The typical route may be described as follows: someone with specialized technical knowledge or marketing expertise or some other competence feels that can cater to a presently unmet need or serve a market where demand exceed  supply or effectively compete with similar products or service  because of certain favorable features like better quality or lower price.

Stimulation the flow of ideas

 Often firms adopt a somewhat casual haphazard approach to the penetration project ideas. To stimulate the flow of ideas the following are helpful:

Forecasting a Conducive climate To tap the creativity of people and to harness their entre preneurial urges a conducive organizational climate as to be fostered.

2. Monitoring the Environment

Basically a promising investment idea enables a firm to exploit opportunities in the environment by drawing on its competitive strengths. The important aspects studied in monitoring the key sectors of the environment are as follows:

Economic sector

·         State of the economy

·         Overall rate of growth

·         Growth rate of primary, secondary, and tertiary sectors

·         Cyclical fluctuations

·         Linkage with the world economy

·         Trade surplus/ deficits

·         Balance of payment situation

     Governmental sector

·         Industrial policy

·         Government programmers and project

·         Tax framework

·         Subsidies, incentives and concessions

·         Import and export policies

·         Financing norms

Technological sector

·         Emergence of new technologies

·         Access to technical know-how, foreign as well as indigenous

·         Receptiveness on the part of industry

Socio-demographic sector

·         Population trends

·         Age shifts in population

·         Income distribution

·         Educational profile

Competition sector

·         Number of firms in the industry and the market and the market share of the top few

·         Degree of homogeneity and differentiation among product

·         Entry barriers

Supplier sector

·         Availability and cost of raw materials and sub assemblies

·         Availability and cost of energy

·         Availability and cost of money

3 Corporate appraisals

A realistic appraisal of corporate strengths and weakness is essential for identifying investment opportunities which can be profitability exploited. The broad areas of corporate appraisal and the important aspects to be considered under them are as follows:

Marketing and distribution

·         Market image

·         Product line market share

·         Distribution loyalty

·         Customer loyalty

·         Marketing and distribution costs 

Production and operation

·         Condition and capacity of plant and machinery

·         Availability of raw materials, sub-assemblies, and power

·         Degree of vertical integration

·         Locational  advantage

·         Cost structure

Research and Development

·         Research capability of the firm

·         Track record of new product development

·         Laboratories and testing facilities

·         Coordination between research and operation

Corporate resources and personnel

·         Corporate image

·         Clout with governmental and regulatory agency

·         Dynamism of top management 

·         Competence and commitment of employee

Finance and accounting

·         Financial leverage and borrowing capacity

·         Cost capital

·         Tax situation

·         Relation with shareholders and creditors

·         Cash flows and liquidity 

5 scouting for project ideas

Ans:

Good project ideas the key to success are elusive. So a wide verity of source should be tapped to identity them here are some suggestions in the regard.

Analysis the perform of existing industries

A study of existing, industries in terms of their profitability and capacity utilization can indicate promising investment opportunities – opportunities which are profitability and relatively risk free .

Examine the inputs and outputs of various industries

An analysis of the inputs required for various industries may throw up project ideas. Opportunities exits hen materials purchased past or supplies are presently being procured from distant sources with at tendant time lag and transportation cost and several firms produce internally some components / part which can be supplied at a lower cost by a single manufacture that can enjoy economic of scale.

Review imports and exports

An analysis of import statistics for a period of five to seven years helpful in understanding the trend of imports of various goods and the potential for import substitution

Study plan outlays and Government Guidelines:

The government plays a very important role in our economy, its proposed outlay in different sectors provide useful pointers toward investment opportunities, they indicates the potential demand for goods and services required by different sectors

7. Project rating index

When a firm evaluates a large number of project ideas regularly , it may be helpful to streamline the process of preliminary screening for this propose a preliminary evaluation may be translated into a project rating index. The steps involved in determining the project rating index are as follows:

·         Identity factors relevant for project rating

·         Assign weight to these factors

·         Rate the project proposal on various factors using a suitable rating scale

·         For each factor, multiply the factor rating with the factor weight to get the factor score.

·         Add all the factor score to get the overall project rating index

8. Source of positive NPV

 It often taken for granted that there is abundance in an abundance of positive NPV project which can be identified rather easily. However note that choosing positive NPV project is akin to selecting under valued security using fundamental analysis. The letter is possible if there is imperfections in the financial market that cause a discrepancy between security price and their equilibrium value

It appears that there are six main entry barriers that result in positive NPV project. They are as follows:

·         Economic of scale

·         Product differentiation

·         Cost advantage

·         Marketing reach

·         Technological edge

·         Government policy

Economic of scale

Economic of scale means that an increase in the scale of production marketing, or distribution results in a decline in the cost per unit. When substantial economic of scale are present the existing firms are likely to be large in size.

Production Differentiation

The basic for differentiation may be one or more of the following;

·         Effective advertising and superior marketing

·         Exceptional service

·         Innovative product features

·         High quality and dependability

Cost advantage

Cost advantage may stem from one or more the following:

·         Accumulated experience and comparative edge on the learning curve

·         Monopolistic access to low cost reduction

·         A favorable location

Marketing reach

A penetrating marketing reach is an important source of competitive advantage.

Technological Edge

Technological superiority enables firm to enjoy excellent returns firms like IBM and Xerox earned superior returns over extended of time due to inter alia the technological edge they had over their rivals.

Government policy:

Government policy that create entry barriers partial or absolutely include the following

·         Restrictive licensing

·         Import restriction

·         High tariff walls

·         Special tax reliefs

Chapter-04 Market and Demand Analysis

1. Steps of Market and Demand Analysis

Ans:

2.Collection of Secondary Information

Ans:  Information may be obtained from secondary or primary sources. Secondary information is information that has been gathered in some other context and is already available. It provides the base and the starting point for the market and demand analysis.

A.    General Sources of Secondary information:

The important sources of secondary information useful for market and demand analysis in mention below:

Census of Bangladesh it provides information on population, demographic characteristics, household size and composition, educated people and maps.

National Sample survey reports issued from time to time by the Cabinet Secretariat, Government of BD, these reports present information on various economic and social aspects like patterns of consumption, distribution of households by the size of consumer expenditure, distribution of industries, and characteristics of the economically active population.

i.  Economic survey.

ii.   Industry Potential Survey.

iii. Techno Economic survey.

iv. Annual Survey of industries.

v.   The Stock Exchange Directory.

vi. Publications of Advertising Agencies.

B.  Industry Specific Sources of Secondary Information:

         i.            The important industry –specific sources of secondary information are given below:

       ii.            Automobiles.

      iii.            Chemicals (including Fertilizers, Drugs and Pharmaceuticals).

     iv.            Electrical and Electronics.

       v.            Industrial Machinery.

     vi.            Metallurgical.

    vii.            Software.

  viii.            Textiles.

    ix.            Other Industries.

C.  Evaluation of Secondary Information:

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:

i.        Who gathered the information? What was the objective?

ii.      When was the information gathered? When was it published?

iii.    How representative was the period for which the information was gathered?

iv.    Have the terms in the study been carefully and unambiguously defined?

v.      What was the target population?

vi.    How was the sample chosen?

vii.  How representative was the sample?

3. Conduct of Market Survey

                               A market survey, specific to the project being appraised, the market survey may be a census survey or a sample survey. In a census survey, the entire population is covered. Census surveys are employed principally for intermediate goods and investment goods when such goods are used by a small number of firms. A sample survey sample of population is contracted or observed and relevant information is gathered. The information sought in a market survey may relate to one or more of the following:

·         Total demand and rate of growth demand.

·         Demand in segments of the market.

·          Income and price elasticity of demand.

·         Motives for buying.

·         Purchasing plans and intentions.

·         Satisfactions with existing products.

·         Unsatisfied needs.

·         Attitudes towards various products.

·         Socio- economic characteristics of buyers.

4. Characterization 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:

                                                The effective demand in the past and present, the starting point typically is apparent consumption which is defined as:

                                              Production +Imports-Exports-Changes in stock level

·         Breakdown of demand:   

                                         The nature of demand, the aggregate market demand may be broken down into demand for different segments of the market. Market segments may be defined by:

i.        Nature of product.

ii.      Consumer group.

iii.    Geographical division.

·         Price:

                     Price statistics must be gathered along with statistics pertaining to physical quantities. It may be helpful to distinguish the following types of prices:

i.     Manufacturer’s price quoted as FOB price or CIF price.

ii.   Landed price for imported goods.

iii. Average wholesale price.

iv. Average retail price.

·         Methods of distribution and sales promotion:

                   The methods of distribution may vary with the nature of product. Capital goods, industrial raw materials or intermediates, and consumer products tend to have different distribution channels.

·         Consumers:

                               Consumers may be characterized along two dimensions as follows:

                            

·         Supply and competition:

                                    It is necessary to know the existing sources of supply and whether they are foreign or domestic. For domestic sources of supply information along the following lines may be gathered: location, present production capacity, planned expansion, capacity utilization level, bottlenecks in production, and cost structure.

                                  Competition from substitutes and near –substitutes should be specified because almost any product may be replaced by some other product as a result of relative changes in price, quality, availability, promotional effort and so on.

·         Government policy:

                                 The role of the government in influencing the demand and market for a product may be significant. Governmental plans, policies, and legislations, which have a bearing on the market and demand of the product under examination, should be spelt out. These are reflected in: production targets in national’s plans, import and export trade controls, import duties, export incentives, excise duties, sales tax, industrial licensing ,preferential purchases, credit controls, financials regulations, and subsidies /penalties of various kinds.

5. Methods of demand forecasting

                  The methods of demand forecasting may be classified into three categories these are listed below:

i.        Qualitative methods:

                           These methods rely essentially on the judgment of expert to translate qualitative information into quantitative estimates. The important qualitative methods are:

                                         - Jury or Executive method.

                                         - Delphi method.

ii.    Time series method:

                            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 method: 

                    More analytical than the preceding methods, causal methods seek to develop forecasts on the basis of causal-effect relationships specified in an explicit, quantitative manner. The important causal methods are:

-          Chain ratio method.

-          Consumption method.

-          Leading indicator method.

-          Econometric method.

7.Coping with uncertainties

                          The uncertainties in demand forecasting, adequate efforts, along the following lines, may be made to cope with uncertainties:

·         Conduct analysis with data based on uniform and standards definitions.

·         In identifying trends, coefficients, and relationships, ignored the abnormal or out of the ordinary observations.

·         Critically evaluate the assumptions of the forecasting methods and choose a method which is appropriate situation.

·         Adjust the projections derived from quantitative analysis in the light of unquantifiable, but significant, influence.

·         Monitor the environment imaginatively to identify important changes.

·         Consider likely alternative scenarios and their impact on market and competition.

·         Conduct sensitivity analysis to assess the impact on the size of demand for unfavorable and favorable variations of the determining factors from their most likely levels.  

8.Marketing Planning

                  A marketing plan usually has the following components:

-          Current marketing situation.

-          Opportunity and issue analysis.

-          Objectives.

-          Marketing strategy.

-          Action programmed.

Uncertainties of demand forecasting

Demand forecasts are subject to error and uncertainty which arise from three principal sources:

i.     Data about past and present market

ii.   Methods of forecasting.

iii. Environmental changes.

Chapter 05 – technical analysis

1. Manufacturing process/ Technology

For manufacturing a product / services often two or more alternative technological are available for example:

·         Steel can made either by the Bessemer process or the open heart process.

·         Cement can be made either buy the dry process or the wet process.

·         Soda can be made bye the electrolysis method or the chemical method.

Choice Technology 

The choice technology is influenced by the verity of considerations

·         Plant capacity

·         Principal inputs

·         Use by the other units

·         Product mix

·         Ease of absorption 

·         Latest development

Plant capacity often there is a close relationship between plant capacity and production technology.

Principal input The choice of technology depend on the principles inputs available for the project

Use by the units The technology adopted must be proven by successful use by other units preferably

Product mix The technology chosen must be  judged in terms of the total product mix generated by it, including salable by product .

Latest development the technology adopted must be based on the latest developments in order to ensure that the likelihood of technological obsolescence in the near future, at least is minimized,

Ease of absorption the ease with which a particular technology can be absorbed can influence the choice of technology

Appropriateness of technology

The advocates of appropriated technology urge that the technology should be evaluated in terms of the following question

·         Whether the technology utilizes local war materials?

·         Whether the technology utilizes local man power?

·         Whether the technology protects ecological balance?

·         Whether the goods and services product cater to the basic needs?

2. Technical arrangements:

Satisfactory arrangements must be made to obtain the technical know how need for the purposed manufacturing process. When collaboration is sought, inter alia, the following aspects of the arrangements must be worked out in detail.

• The nature of support to be provided by the collaborators during the designing of the project, selection and procurement of ,equipment, installation and erection of the plant, operations, and maintenance plant, and training of project personnel.
• Process and performance guarantees in terms of plant capacity, product quality, and consumption of raw materials and utilities.
• The price technology in terms of one time licensing fee and periodic royalty fee.
• The continuing benefit of research and development work being done by the collaborator.
• The period of collaboration agreements.
• Assignment of the agreements by the either side in case of change in owner ship.
• Approaches to be adopted in force major situations.

3. MATERIAL INPUTS AND UTILITIES 

An important aspect of tech. analysis is concerned with defining the materials and utilities required, specifying their properties in some detail and setting up their supply programme. Material inputs and utilities can be further classified into four broad categories:

(i) Raw Materials

(ii) Processed Industrial Materials and Components

(iii) Auxiliary Materials and Factory Supplies

(iv)  Utilities

(i) Raw materials

Processed or semi-processed may be classified into three types:

Agricultural Products

Mineral Products

Livestock and Forest Products

(ii) Processed Industrial Materials and Components:

In studying them the following questions need to be answered:

What are their properties?

What quantity would be available from the

Domestic sources?

What has been the past trend in prices?

(iii) Auxiliary Materials and Factory Supplies:

in addition to the basic raw material and industrial materials and components, a manufacturing project requires various auxiliary materials and factory supplies like chemicals, additives,

packaging materials, paint, oils, grease, cleaning materials etc. so the requirements of these materials should be considered in feasibility analysis.

(iv)Utilities:

A broad assessment of utilities (power, water, steam, fuel etc.) may be made at the time

of input study through a detailed assessment can be made only after formulating the project with respect to location, technology, and plant capacity.

4. Product Mix:

A range of associated products that yields larger sales revenue when marketed together than if they were marketed individually or in isolation from others.

Product mix, also known as product assortment, refers to the total number of product lines that a company offers to its customers. For example, a small company may sell multiple lines of products. Sometimes, these product lines are fairly similar, such as dish washing liquid and bar soap, which are used for cleaning and use similar technologies. Other times, the product lines are vastly different, such as diapers and razors. The four dimensions to a company's product mix include width, length, depth and consistency.

5. Plant capacity

Several factors have a bearing on the capacity decisions:

• Technological Requirement
• Input Constraints
• Investment Cost
• Market Conditions
• Resources of the Firm
• Government Policy
• Technological Requirement:

 For many industrial project, particularly in process type industry, there isa a certain minimum economic size determined by the technological factor.

·         Input constrains:

In a developing country like Bangladesh there may be constrain on the availability of certain inputs. Power supply may be limited; basic material may be somewhere scarce; foreign exchange available for inputs may be inadequate. Constrains of these kind should be in the mind while choosing in the plant capacity.

·         Investment cost:

When serious input constrains do not obtain, the relationship between capacity and investment cost is an important consideration.

·         Market condition:

The anticipated market for the product and service has an important bearing on plant and capacity. If the market is likely to be very strong, a plant of higher capacity is preferable. If the market is likely to be uncertain, it might be advantageous to start with a smaller capacity.

·         Resources of the firm:

The resources, both managerial and financial, available to a firm define a limit on its capacity decision. Obviously a firm can not chose a scale of operations beyond its financial resource and managerial capabilities.

·         Government policy:

The capacity level may be influenced by the policy of the government. Traditionally, the policy of the Government was to disturb the additional capacity to be created in a certain industry among several firms, regard less of economic of scale. This policy is substantially modified in recent years.

Q. 6. Location and site: Location refers to a fairly broad area like a city, an industrial zone, or a coastal area; site refers to a specific piece of land where the project would be set up. The choice of location is influenced by a variety of consideration:

   1. Proximity to Raw Materials Markets.

   2. Availability of Infrastructure.

   3. Labor Situation.

   4. Governmental Policies.

   5. Other Factors.

Above those factors are describing in below:

1. Proximity to Raw Materials Markets: An important consideration for location is the proximity to sources of raw materials and nearness to the market for final products. In terms of a basic vocational model, the optimal location is one where the total cost (raw material transportation cost plus production cost plus distribution cost for the final product) is minimized. This generally implies that:

 (i)A resource-based project like a cement plant or a steel mill should be located close to the source of basic material.

 (ii) A project based on imported material may be located near a port.

 (iii) A project manufacturing a perishable product should be close to the centre of consumption.

2. Availability of Infrastructure: Availability of power, transportation, water, and communications should be carefully assessed before a location decision is made.

Adequate supply of power is a very important condition for location- insufficient power can be a major constraint, particularly in the case of an electricity-intensive project like an aluminum plant.

For transporting the inputs of the project and distributing the outputs of the project, adequate transport connection-whether by rail, road, sea, inland water, or air-are required. The availability, reliability, and cost of transportation for various alternative locations should be assessed.

Given the plant capacity and the type of technology, the water requirement for the project can be assessed.

It addition to power, transport, and water, the project should have adequate communication facilities like telephone and internet.

3. Labor Situation: In labor-intensive projects, the labor situation in a particular location becomes important. The key factors to be considered in evaluating the labor situation are:

• Availability of labor, skilled, semi-skilled and unskilled
• Prevailing labor rates
• Labor productivity
• State of industrial relations judged in trims of the frequency and severity of strikes and lockouts
• Degree of unionization          

4. Governmental Policies: Government policies have a bearing on location. In the case of public sector projects, location is directly decided by the government. It may be based on a wider policy for regional dispersion of industries.

In the case of private sector projects, location is influenced by certain governmental restrictions and inducements.

5. Other Factors: Several other factors have to be assessed before arriving at a location decision:

• Climatic conditions
• General living conditions
• Proximity to ancillary units
• Ease in coping with pollution

Q. 7. Machineries and equipment

 The requirement of machineries and equipments is dependent on production technology and plant capacity. It is also influenced by the type of project. For a presses-oriented industry, like a petrochemical unit, machineries and equipments required should be such that the various stages are matched well. The following procedure may be followed:

(i) Estimate the likely levels of production over time.

(ii) Define the various machining and other operations.

(iii) Calculate the machine hours required for each type of operation.

(iv) Select machineries and equipments required for each function.

The equipments required for the project may be classified into the following types:

(i) Plant (process) equipments,

(ii) Mechanical equipments,

(iii) Electrical equipments,

(iv) Instruments

(v) Controls,

(vi) Internal transportation system,

(vii) Others.

In addition to the machineries and equipments, a list should be prepared of spare parts and tools required. This may be divided into:

• Spare parts and tools to be purchased with the original equipment,
• Spare parts and tools required for operational wear and tear.

The choice of machineries and equipments for a manufacturing industry is somewhat wider as various machines can perform the same function with varying degrees to accuracy.

Q. 8. Structures and civil works

Structures and civil works may be divided into three categories:

(i) Site preparation and development,

(ii) Buildings and structures,

(iii)Outdoor works.

1. Sit preparation and development this covers the following:

(i) Grading and leveling of the sit,

(ii) Demolition and removal of existing structures,

(iii)Relocation of existing pipelines, cables, roads, power lines, etc,

(iv)Reclamation of swamps and draining and removal of standing water,

(v) Connections for the following utilities from the site to the public network, electric power ( high tension and low tension) water for drinking and other purposes, communications (telephone, telex, internet etc),roads, railway siding,

(vi) Others site preparation and development work.

2. Buildings and Structures: Buildings and Structures May be divided into:

                   I.            Factory or process buildings,

                II.            Ancillary buildings required for stores, warehouses, laboratories, utility supply centers, maintenance services, and others.

             III.            Administrative buildings;

             IV.            Staff welfare buildings, cafeteria and medical service buildings;

                V.            Residential buildings.

3. Outdoor Works: Outdoor works cover:

(i) Supply and distribution of utilities (water, electric power, communication, steam and gas)

(ii) Handling and treatment of emission, wastages and effluents.

(iii) Transportation and traffic signals.

(iv) Outdoor lighting.

(v) Landscaping.

(vi) Enclosure and supervision (boundary wall, fencing, barriers, gates, doors, security posts etc.

Q. 9. Environmental aspects

A project may cause environmental pollution in various ways:

(i)     It may throw gaseous emissions.

(ii)   It may produce and solid discharges.

(iii) iii. It may cause noise, heat and vibrations.

Projects that produce physical goods like cement, steel, paper and chemicals by converting natural resource endowments into saleable products are likely to cause more environmental damage. Hence the environmental aspects of these projects have to be properly examined. The key issues that need to be considered in this respect are:

(i)     What are the types of effluents and emissions generated?

(ii)   What needs to be done for proper disposal of effluents and treatment of emissions?

(iii) Will the project be able to secure all environmental clearances and comply with all statutory requirements?

Q. 10. Project charts and layouts

Once data are available on the principal dimensions of the project – market size, plant capacity, production technology, machineries and equipments, buildings and civil works, conditions obtaining at plant site and supply of inputs to the project – project charts and layouts may be prepared.

The important charts and layouts drawings are briefly described below.

1. General Functional Layout: This shows the general relationship between equipments, buildings, and civil works. In preparing this layout, the primary consideration is to facilitate smooth and economical movement of raw materials, work-in-process, and finished goods.
2. Material Flow Diagram: This shows the flow of materials, utilities, intermediate products, final products, by-products, and emissions.
3. Production Line Diagrams: These show how the production would progress along with e main equipments.
4. Transport Layout: This shows the distances and means of transport outside the production line.
5. Utility Consumption Layout: This shows the principal consumption points of utilities (power, water, gas, compressed air, etc.) and their required quantities and qualities.
6. Communication Layout: This shows how the various parts of the project will be connected with telephone, internet, intercom, etc.
7. Organizational Layout: This shows the organizational set –up of the project along with information on personnel required for various departments and their inter-relationship.
8. Plant Layout: The plant layout is concerned with the physical layout of the factory. In certain industries, particularly process industries, the plant layout is dictated by the production process adopted.

Q. 11. Project implementation schedule

As part of technical analysis, a project implementation schedule is also usually prepared. For preparing the project implementation schedule the following information is required:

• List of all possible activities from project planning to commencement of production.
• The sequence in which various activities have to be performed.
• The time required for performing various activities.
• The resources normally required for performing various activities.
• The implications of putting more resources or less resource they are normally required.

Work Schedule: The work schedule, are its name suggests, reflects the plan of work concerning installation as well as initial operations. The purpose of the work schedule is:

• To anticipate problems like to arise during the installation phase and suggest possible means for coping with them.
• To establish the phasing of investments taking into account the availability of finances.
• To develop a plan of operations covering the initial period (the running-in period).
• In the first case the plant remains idle and in the second the material may tend to deteriorate and /or pose problems of storage.

Q. 12. Need for considering alternatives

The need for considering alternatives has been touched upon earlier. This point, however, needs to be emphasized. There are alternative ways of transforming an idea into a concrete project. These alternatives may differ in one or more of the following aspects:

• Nature of project: The project may envisage the manufacture of all the parts and components in a vertically integrated unit or it may be an assembly type unit which obtains the bulk of the parts and components from outside suppliers.
• Production process: There may be several alternative with respect to the production process. The availability and characteristics of raw materials, the cost structure, and the nature of markets served are factors that have to be borne in mind while deciding about the process.
• Product quality: The quality and product range decisions would depend on the characteristic of the market, the elasticity of demand, consumer preference,   and the nature of competition.
• Scale of operation and time phasing: the choice of a particular scale would depend on the financial resources available, the nature of competition, the nature of demand, the economics of scale.
• Location: location and size are closely interrelated. perhaps the same demand could be satisfied by:
• A single plant for the entire market,
• One large plant for the bulk of the market with a few smaller plants for the remaining market.

Chapter-06: Financial estimates and projections.

Q. 1. Cost of project

The cost of project represents the total of all items of outlay associated with a project which are supported by long term funds. It is the sum of the outlays on the following:

• Land and site development.
• Building and civil works.
• Plant and machinery.
• Technical know-how and engineering fees.
• Expenses on foreign technicians and training.
• Miscellaneous fixed assets.
• Preliminary and capital issue expenses.
• Pre operative expenses.
• Margin money for working capital.
• Initial cash losses.

Q. 2. Means of finance

To meet the cost of the project the following means of finance are available:

Ø  Share capital: There are two types of share capital – equity capital and preference capital. Equity capital being risk capital carries no fixed rate of dividend. Preference capital represents the contribution made by preference shareholders and the dividend paid on it is generally fixed.

Ø  Term Loans: Provided by financial institutions and commercial banks, term loans represent secured borrowings which are a very important source (and sometimes, the major source) for financing new projects as well as for the expansion, modernization, and renovation schemes of existing firms.

Ø  There are two broad types of debentures: non-convertible debentures and convertible debentures. Non-convertible debentures are straight debt instruments.

Ø  Deferred Credit: Many a time the suppliers of the plant and machinery offer a deferred credit facility under which payment for the purchase of the plant and machinery can be made over a period of time.

Ø  Incentive Sources: The government and its agencies may provide financial support as an incentive to certain type of promoters or for setting up industrial units in certain locations.

Ø  Miscellaneous Sources: A small portion of the project finance may come from miscellaneous sources like unsecured loans, public deposits, and leasing and hire purchase finance. 

Chapter -8

Q.1 Net Present Value – NPV, Benefit-cost ratio, Internal rate of return (IRR), Urgency, Payback period.

Net Present Value – NPV

The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.

NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.

Formula:

The net present value (NPV) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows of the same entity.

Benefit-cost ratio 

A benefit-cost ratio (BCR) is an indicator, used in the formal discipline of cost-benefit analysis, that attempts to summarize the overall value for money of a project or proposal. A BCR is the ratio of the benefits of a project or proposal, expressed in monetary terms, relative to its costs, also expressed in monetary terms. All benefits and costs should be expressed in discounted present values.

A ratio attempting to identify the relationship between the cost and benefits of a proposed project. Benefit cost ratios are most often used in corporate finance to detail the relationship between possible benefits and costs, both quantitative and qualitative, of undertaking new projects or replacing old ones.

Benefit cost ratio (BCR) takes into account the amount of monetary gain realized by performing a project versus the amount it costs to execute the project. The higher the BCR the better the investment. General rule of thumb is that if the benefit is higher than the cost the project is a good investment.

Internal rate of return (IRR)

The internal rate of return (IRR) or economic rate of return (ERR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. It is also called the discounted cash flow rate of return (DCFROR) or the rate of return (ROR).[1] In the context of savings and loans the IRR is also called the effective interest rate. The term internal refers to the fact that its calculation does not incorporate environmental factors.

Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. 

Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected.

Urgency

Urgency is the attitude and process of treating key business or personal matters as if one's life depended on it. It is determination to stay focused on results and deadlines until the task or project is completed.
The state of being urgent; an earnest and insistent necessity.

Payback period

Payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques.

Formula

The formula to calculate payback period of a project depends on whether the cash flow per period from the project is even or uneven. In case they are even, the formula to calculate payback period is:

Payback Period =	Initial Investment
	Cash Inflow per Period

When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period:

Payback Period = A +	B
	C

In the above formula,
A is the last period with a negative cumulative cash flow;
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A

Both of the above situations are applied in the following examples.

Decision Rule

Accept the project only if it’s payback period is LESS than the target payback period.

Chapter-9

Q.1 Elements of the cash flow stream of a project.

To evaluate a project, must determine the relevant cash flows, which are the incremental after-tax cash flows associated with the project. 

The cash flow stream of a conventional project - a project which involves cash outflows followed by cash inflows - comprises three basic components:

·         Initial investment

·         Operating cash inflows, and

·         Terminal cash inflow

The initial investment is the after tax cash outlay on capital expenditure and net working capital when the project is set up. The operating cash inflows are the after cash inflows resulting from the operations of the project during its economic life. The terminal cash inflow is the after-tax cash flow resulting from the liquidation of the project at the end of its economic life.

Time Horizon for Analysis

The time horizon for cash flow analysis is generally the minimum of the following:

Physical life of the plant: This refers to the period during which the plant remains in a physically usable condition. Suppliers of the plant my provide information on the physical life under normal operation conditions. While the concept of physical life may be useful for determining the depreciation charge, it is not very useful for investment decision making processes.

Technological life of the plant: New technological developments tend to render existing plants obsolete. The technological life of a plant refers to the period of time for which the present plant would not be rendered obsolete by a new plant. It is very difficult to estimate the technological life because the pace of new developments is not governed by any law.

Product market life of the plant: A plant may be physically usable, its technology may not be obsolete, but the market for its products may disappear or shrink and hence its continuance may not be justified. The product market life of a plant refers to the period for which the product of the plant enjoys a reasonably satisfactory market.

Investment planning horizon of the firm: The time period for which a firm wishes to look ahead for purposes of investment analysis may be referred to as its investment planning horizon. It naturally tends to vary with the complexity and size of the investment.

Q.2 Principles of Cash Flow Estimation

Cash flow estimation is a must for assessing the investment decisions of any kind. To evaluate these investment decisions there are some principles of cash flow estimation. In any kind of project, planning the outputs properly is an important task.

The following principles are considered in cash flows of the project:

·         Separation principle.

·         Incremental principle.

·         Post-tax principle.

·         Consistency principle.

Separation Principle

In establishing the difference between budget and investment estimates, knowledge has been imparted that the cash inflows and cash outflows of a new venture are segregated from the regular business operations. This is to ascertain, whether or not, the resulting net cash flow of the project will positively or negatively impact the present earning capacity of the business.

Incremental Principle

All projects are being considered in terms of their potential capability to increase the profit or improve the present financial condition of a business. Hence, most decisions are initially evaluated based on the proposed project's potentials to generate additional net cash inflow. There are three factors to consider: (1) the side-effects or “externalities”, (2) the sunk costs and 3) the opportunity costs.

POST-TAX PRINCIPLE

Post Tax Principle is one of the basic principles of cash flow estimation. This is used to bring out the project cash flows with accuracy. After tax calculations are suggested by the Post Tax Principle for the project cash flow. There are some businesses that generally neglect the payment of tax while measuring the cash flow of a project.

Some issues are the following: 

Tax Rate

Handling the Losses

Non-Cash Charges

Consistency Principle:

This principle takes into consideration two important aspects that can affect or be affected by the quality of the estimations: the investors’ expected income and inflation.

These are the principles of cash flow estimation, which are used by cash flow statement.

Q. 3 Guidelines for calculating incremental cash flows.

The additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company's cash flow will increase with the acceptance of the project.

Five General Rules for Incremental Cash Flow Calculations

Rule 1: Include cash flows and only cash flows in your calculations. Do not include allocated costs or overhead unless they reflect cash flows.

Rule 2: Include the impact of the project on cash flows from other product lines. If the product associated with a project is expected to cannibalize or boost sales of another product, you must include the expected impact of the new project on the cash flows from the other product in the analysis.

Rule 3: Include all opportunity costs. By opportunity costs, we mean the cost of giving up another opportunity.

Rule 4: Forget sunk costs. Sunk costs are costs that have already been incurred, but all that matters when you evaluate a project at a particular point in time is how much you have to invest in the future and what you could expect to receive in return for that investment; this means that past investments are irrelevant.

Rule 5: Include only after-tax cash flows in the cash flow calculations. The incremental pretax earnings of a project only matter to the extent that they affect the after-tax cash flows that the firm’s investors receive.

Q. 4 viewing a project from other perspectives.

There are several perspectives from which a project may be viewed. A project can be viewed from four distinct points of view. There are:

·         Equity point view

·         Long-term funds point of view

·         Explicit cost funds point of view

·         Total resources point of view

Long-term funds comprise of equity and long-term debt.

Explicit cost funds comprise of long-term funds and short-term debt. They are also called investor claims.

Fixed assets are typically fully supported by long term funds.

Current assets partly supported by long-term funds and partly supported current liabilities. The portion of current assets that is supported by long-term funds is called working capital margin.

So, the explicit cost funds point of view has already been discussed at length, we will in this section look at how cash flows are defined from the equity point of view, the long-term funds point of view, and the total resources point of view.

Q.5 How financial institutions and the planning commission define cash flows.

Financial institutions in evaluating project proposal submitted to them, financial institutions define project cash flows as follows:

                                                Cash out flows

Capital expenditure on the project (net of interest during construction)                   

+         

                                    Outlays on gross working capital

Cash inflows

Planning Commission:

Q.6 Biases in cash flow statement.

Biases in cash flow estimation may cause overestimation or underestimation of the amount of profit that a particular project will produce. The projected cash flows are estimates, and there may be some mistakes in calculations.
At the same time, these estimates are very important to a firm. Because of this, there are several ways to make these estimates. Experts in the field hold that there are several types of biases in cash flow estimation. Overestimation of profit and understatement of profit are the two most common biases.

These experts say that there are two reasons for the overestimation of profits from a particular project. The first reason is that the initial investments that have been calculated are too low. At the same time, the operating cash inflow estimates are too high.

There are several factors behind the overestimation of project profitability. One is lack of sponsor's experience. On the other hand, there are some firms who attract investors by intentionally providing inaccurate information about their projects. For their purposes, costs are always estimated to be lower than the actual requirements of the project. 

Underestimating the project profits is also one of the major biases in cash flow estimation. The underestimation of a particular project's profit is due to an over-conscious attitude on the part of the sponsors. There are the incidents of neglecting some important factors such as value of future options from the estimation process.

A number of new investment options develop with the undertaking of a new project by any firm. This means that a new project often leads to another project or creates a base for beginning another project. Because of this, the profitability of the firm rises. While estimating, these factors should be considered important.

At the same time, there are certain intangible benefits that are also not calculated while estimating profits from a project and the salvage values are also not estimated properly by the estimators. 

Chpter-11 Stand –Alone Risk analysis.

Q.1 Sources, measures and perspectives on risk.

Sources of risk are follows:

Specific Risk

Risk that affects a very small number of assets. Specific risk, as its name would imply, relates to risks that are very specific to a company or small group of companies. This type of risk would be the opposite of an overall market risk, or systematic risk.
Sometimes referred to as "unsystematic or diversifiable risk." 

Competitive Risk

The second source of risk is competitive risk, whereby the earnings and cash flows on a project are affected (positively or negatively) by the actions of competitors. While a good project analysis will build in the expected reactions of competitors into estimates of profit margins and growth, the actual actions taken by competitors may differ from these expectations.

Industry specific Risk

The third source of risk is industry-specific risk, those factors that impact the earnings and cash flows of a specific industry. There are three sources of industry-specific risk.

The first is technology risk, which reflects the effects of technologies that change or evolve in ways different from those expected when a project was originally analyzed.

The second source is legal risk, which reflects the effect of changing laws and regulations.

The third is commodity risk, which reflects the effects of price changes in commodities and services 

Market Risk

The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks.

International Risk

The fourth source of risk is international risk. A firm faces this type of risk when it generates revenues or has costs outside its domestic market. In such cases, the earnings and cash flows will be affected by unexpected exchange rate movements or by political developments.

Measures on Risk:

Statistical measures that are historical predictors of investment risk and volatility and major components in modern portfolio theory (MPT). MPT is a standard financial and academic methodology for assessing the performance of a stock or a stock fund compared to its benchmark index.

Measures of Risk - Variance and Standard Deviation:

Risk reflects the chance that the actual return on an investment may be very different than the expected return. One way to measure risk is to calculate the variance and standard deviation of the distribution of returns.

Given an asset's expected return, its variance can be calculated using the following equation:

                      

Where

• N = the number of states,
• p_i = the probability of state i,
• R_i = the return on the stock in state i, and
• E[R] = the expected return on the stock.

The standard deviation is calculated as the positive square root of the variance.

Where

            σ^{2 =} Variance

These are familiar measures of risk. Which is mentioned basic principle and realizable ways of measurement.

Perspectives on Risk

Regardless of the risk measure employed, there are different perspectives on risk. We can view a project from at least three different perspectives. These are:

Stand-alone risk of a project when it is viewed in isolation.

 Firm risk also called corporate risk, this reflects-the contribution of a project to the risk of the firm.

Systematic risk this represents the risk of a project from the point of view of a diversified investor. It is also called market risk.

Q.2 Sensitively analysis

A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond's price.

Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s). A very popular method for assessing risk.

Sensitively analysis has certain merits:

1. It compels the decision maker to identify the variables which affect the cash flow forecasts. This helps him in understanding the investment project in totality.

2. It indicates the critical variables for which additional information may be obtained. The decision maker can consider actions which may help in strengthening the "weak spots" in the project.

3. It helps to expose inappropriate forecasts and thus guides the decision maker to concentrate on relevant variables.

Sensitively analysis has some demerits:

1. It does not provide clear cut results. The terms optimistic and pessimistic could mean different things to different people.

2. It fails to focus on the interrelationship between underlying variables. For example sales volume may be related to price and cost but we analyze each variable differently.

Q. 3 Scenario Analysis

The process of estimating the expected value of a portfolio after a given period of time, assuming specific changes in the values of the portfolio's securities or key factors that would affect security values, such as changes in the interest rate.

Scenario analysis commonly focuses on estimating what a portfolio's value would decrease to if an unfavorable event, or the "worst-case scenario", were realized. 

Limitations of Scenario Analysis:

1) Inability to accurately measure by-products of major factor movements.
2) Incorrect assumptions and correlations, user bias.

Q. 4 Simulation Model

Simulation modeling is the process of creating and analyzing a digital prototype of a physical model to predict its performance in the real world. Simulation modeling is used to help designers and engineers understand whether, under what conditions, and in which ways a part could fail and what loads it can withstand. Simulation modeling can also help predict fluid flow and heat transfer patterns.

Q. 5 Decision tree Analysis

Decision Tree

A schematic tree-shaped diagram used to determine a course of action or show a statistical probability. Each branch of the decision tree represents a possible decision or occurrence. The tree structure shows how one choice leads to the next, and the use of branches indicates that each option is mutually exclusive.

Steps of decision tree analysis

1.      Identifying the problem and alternatives

2.      Delineating the decision tree

3.      Specifying probabilities and monetary outcomes

4.      Evaluating various decision alternatives

So, A decision tree can be used to clarify and find an answer to a complex problem. The structure allows users to take a problem with multiple possible solutions and display it in a simple, easy-to-understand format that shows the relationship between different events or decisions. The furthest branches on the tree represent possible end results.

Q. 6 Managing Risk

The risks associated with ineffective, destructive or underperforming management, which hurts shareholders and the company or fund being managed. This term refers to the risk of the situation in which the company and shareholders would have been better off without the choices made by management.

This section is an assortment of activities that Project Managers may do to align the project team and the stakeholders for the upcoming project. These items include:

·         A recommended list of documentation that summarizes general best practices for a project, cautioning that quality, not quantity, is the measure.

·         A project start-up workshop; including its preparation and execution. The goal is to align people to the goals and educate them on the challenges.

·         Determining the appropriate metrics for the project, ensuring they are not burdensome and affect behavior in a positive manner. Too often, metrics change behavior to provide better metrics not better performance.

·         Setting the amounts and conditions for use of the project reserves.

·         Negotiating the final objectives of the project with stakeholders to improve the chances of project success.

·         Validate that all team members and stakeholders accept the plan of record.

·         Describe to all team members and stakeholders the change management process and how it will be enforced.

Q. 7 Project selection under Risk

Project selection is the procedures followed by MPOs, States, and public transportation operators to advance projects from the first four years of an approved TIP and/or STIP to implementation, in accordance with agreed upon procedures.

Project selection under risk reefers expected return (measure as net present value, IRR, or some other criteria of merit) and variability of return (measure I term of range, or standard deviation or some other risk index) has been gathered.

There are several ways of incorporating risk in the decision process:

            Judgment evaluation

            Payback period requirement

            Risk adjusted discount rate method

            Certainty equivalent method

Q. 8 Risk analysis in practices

Risk assessment is all about measuring and prioritizing risks so that risk levels are managed within defined tolerance thresholds without being over-controlled or forgoing desirable opportunities. To accomplish this requires a risk assessment process that is practical, sustainable, easy to understand and right-sized for the enterprise.

This new white paper, developed by Deloitte in collaboration with COSO, presents a process for developing a risk assessment criterion, assessing risks and risk interactions, as well as prioritizing risks. It also discusses how to actually put this process into practice in a simple, practical and easy to understand way. 

ERM is a young discipline that is continuing to evolve. This publication can help executives develop a more robust risk assessment process and provide an understandable discussion that will assist board members in their oversight responsibilities.

Download the white paper to learn how your company can strengthen its organization’s oversight over ERM, internal control, and fraud deterrence processes.

Chaspter-14-Social Cost Benefit Analysis

1.Rational For SCBA 

In SCBA the focus is on the social costs and benefits of the project. These tend to differ from the monetary costs and benefits of the project. The principal sources of discrepancy are:

·         Market imperfection

                                                   Market prices, which form the basis for computing the monetary costs and benefits from the point of view of the project sponsor reflect social values only under conditions of perfect competition, which are rarely, if ever, realized by developing countries. When imperfections exist, market prices do not reflect social values.

The common market imperfections found in developing countries are – (i) rationing, (ii) prescription of minimum wage rates, and (iii) foreign exchange regulation.

·         Externalities

                                  A project may have beneficial external effects. For example, it may create certain infrastructural facilities like roads which benefit the neighboring areas. Such benefits are considered in SCBA, though they are ignored in assessing the monetary benefits to the project sponsors because they do not receive any monetary compensation from those who enjoy this external benefit created by the project. Likewise, a project may have a harmful external effect like environmental pollution.

·         Taxes and Subsidies

                                              From the private point of view, taxes are definite monetary costs and subsidies are definite monetary gains. From the social point of view, however, taxes and subsidies are generally regarded as transfer payments and hence considered irrelevant.

·         Concern for Savings

                                                A private firm does not put differential valuation on savings and consumption. From a social point of view, however, the division of benefits between consumption and savings (which leads to investment) is relevant, particularly in the capital-scarce developing countries. The concern of the society for savings and investment is duly reflected in SCBA wherein a higher valuation is placed on savings and lower valuation is put on consumption.

·         Concern for Redistribution

                                                         A private firm does not bother how its benefits are distributed across various groups in the society. The society, however, is concerned about the distribution of benefits across different groups.

·         Merit wants

                                   Goals and preferences not expressed in the market place, but believed by policy makers to be in the larger interest, may be referred to as merit wants. For example, the Government may prefer to promote an adult education programmed or a balance nutrition programmed for school going children even though these are not sought by consumers in the market place.

3.Stages of UNIDO approach

Ans: The UNIDO method of project appraisal involves five stages:

1.      Calculation of the financial profitability of the project measured at market prices.

2.      Obtaining the net benefit of the project measured in terms of economic (efficiency).

3.      Adjustment for the impact of the project on savings and investment.

4.      Adjustment for the impact of the project on income and distribution.

5.      Adjustment for the impact of the project on merit goods and demerit goods whose differ from social values differ from their economic values.

Each stage of appraisal measures the desirability of the project from a different angle.

4 Stages of L-M approach

Little and Mirrlees have developed an approach to social cost benefit analysis expounded by them in the following works, Manual of Industrial Project Analysis in Developing Countries, Project Appraisal and Planning for Developing Countries.

5. Similarities & Differences between UNIDO approach & L-M approach

There is considerable similarity between the UNIDO approach and the L-M approach these are given below:

1.      Calculating accounting (shadow) prices particularly for foreign exchange savings and unskilled labor.

2.      Considering the factor of equity.

3.      Use of DCF analysis.

There are certain differences between two approaches:

1.      The UNIDO approach measures costs and benefits in the terms of domestic currency whereas the L-M approach measures costs and benefits in terms of international prices, also referred to as border prices.

2.      The UNIDO approach measures costs and benefits in the terms of consumption whereas the L-M approach measures costs and benefits in terms of uncommitted social income.

3.      The stage-by –stage analysis recommended by the UNIDIO approach focuses on efficiency, savings, and redistribution considerations in different stages. The L-M approach, however, tends to view these considerations together.

Chapter-21.5-Project Management

1. Project Control

                                The project launched, control becomes the dominant concern of the project manager. Indeed, once the launch phase is over, planning and control become closely intertwined in an integrated managerial process.                                     

     Project control involves a regular comparison of performance against targets, a search for the causes of deviation, and a commitment to check adverse variances. It serves two major functions:

 (i) It ensures regular monitoring of performance, and

(ii) It motivates project personnel to strive for achieving project objectives.

3.Human aspects of project management

A satisfactory human relations system is essential for the successful execution of a project. To achieve satisfactory human relations in the project setting, the project manager must successfully handle problems and challenges relating to:

·         Authority

                              Except in the divisional organization, the project manager, whose activities cut functional lines of command, lacks the desired formal authority over project- related personnel. Without the conventional leverage of hierarchy authority, the project manager has to co-ordinate the efforts of various functional groups (within the organization) and outside agencies. The logic and rationale for the project activities, show receptivity to the suggestions made by others, avoid unilateral imposition of decisions, eschew dogmatic postures, and search for areas of agreement which can be the basis of acceptable solutions.

·         Orientation

                                 Most of the managers working for a project are usually engineers (or technologists). Typically an engineer:

-          Works with physical laws, characterized by mathematical precision, as his tools.

-          Adopts a structured, mechanical approach to his problems

-          Seeks an enduring solution to his problem.

-          Attaches a high value on technical perfection

When an engineer assumes managerial responsibilities, he faces a very different world in which he is supposed to:

-          Perform the task of planning, organizing, directing, and controlling the resources of the firm in a world of uncertainty.

-          Adopt a more creative approach to solve non- programmed and unstructured problems.

-          Attach greater importance to efficient utilization of resources and resolution of human relation problems.

Thus the project manager has to strengthen the managerial orientation of project personnel so that the project goals and objectives can be efficiently achieved within the constraints of time and budget. Clearly for achieving this task he must himself be an accomplished engineer-manager.

·         Motivation

The principal behavioral factor which can influence is the motivation of the project personnel. In this context, he should bear in mind the following:

i.    Human beings are motivated by a variety of needs: physiological needs, social needs, recognition needs, and self actualization needs. Individual differ greatly in the importance they attach to various needs satisfaction.

ii.  The traditional approach to management was based on the assumption that human beings regard work as unpleasant, shirk responsibility, and ordinarily employ inefficient and wasteful method.

iii.Motivation tends to be strong when the goal seyt is challenging, yet attainable. If the goal is demanding, it result s in frustration and conflict, if too lax, it induces complacency.

iv.Expectation of reward, rather than fear of punishment, has a greater bearing on individual behavior.

v.  Ina project setting where hygiene factors (like pay, physical working conditions etc) are reasonably taken care of, the principal motivators would be a sense of accomplishment and professional growth.

·         Group Functioning

                                             In a large complex project, many persons drawn from different functions, departments, and organizations are involved. This leads to formation groups, formal and informal. Organizations may be considered as systems of interlocking groups. Thus in a typical project organization, many interlocking and interdependent groups are formed.

The groups formed in a project setting may be of three types:

-          Vertical groups.

-          Horizontal groups.

-          Mixed groups.

4.Pre-requisites for successful project implementation

While a lot of things can be done to achieve this goal, the more important ones appear to be as follows:

·         Adequate information

                                                      Often project formulation is deficient because of one or more of the following shortcoming:

-          Superficial field investigation

-          Cursory assessment of input requirements.

-          Slip-shod methods used for estimating costs and benefits.

-          Omission of project linkages.

-          Flawed judgments because of lack of experience and expertise.

-          Undue hurry to get started.

-          Deliberate over- estimation of benefits and under –estimation of costs.

·         Sound project organization

                                A sound organization for implementing the project is critical to its success. The characteristics of such an organization are:

-        It is led by a competent, leader who is accountable for the project performance.

-       The authority of the project leader and his team is commensurate with their responsibility.

-       Adequate attention is paid to the human side of the project.

-       Systems and methods are clearly defined.

-       Reward and penalties to individuals are related to performance.

·         Proper implementation planning

-          Develop a comprehensive time plan for various activities like land acquisition, tender evaluation, recruitment of personnel, construction of buildings, erection of plant, arrangement for utilities, trial production run etc.

-          Estimate meticulously the recruitment (manpower, materials, money etc.)

-          Specify cost standards.

·         Advance action

                             Advance action on the following activities may be initiated:

i.        Acquisition of land.

ii.      Securing essential clearances.

iii.    Identifying technical collaborators /consultants.

iv.    Arranging for infrastructure facilities.

v.      Preliminary design and engineering.

vi.    Calling of tenders.

·         Timely availability of funds:

                             A project is approved; adequate funds must be made available to meet its requirements as per the plan of implementation – it would be highly desirable if funds are even before the final approval to initiate advance action. Piecemeal, ad-hoc, and niggardly allocation, with rigidities, can impair maneuverability of the project team.

·         Judicious equipment tender and procurement.

·         Better contract management 

              The proper management of contracts is critical to the successful implementation of the project. In this context, the following should be done:

-          The competence and capability of all the contractors must be ensured- one weak link can jeopardize the timely performance of the contract.

-          Proper discipline must be inculcated among contractors and suppliers by insisting that they should develop realistic and detailed resource and time plans. Which are congruent with the project plan?

-          Penalties –which may be graduated-must be imposed for failure to meet contractual obligation. Likewise, incentives may be offered for good performance.

-          Project authorities must retain latitude to off-load contracts to other parties well in time where delays are anticipated.

·         Effective monitoring

                                A system of monitoring must be established. This helps in:

-          Anticipating deviations from the implementation plan.

-          Analyzing emerging problems.

-          Taking corrective actions.