MET+ +Project%2

8/13/2019 MET+ +Project%2

1/42

PROJECT MANAGEMENT NOTES

1. Define Project. What are the main characteritic that i!entif" an! !ifferentiate#roject$ Do "o% thin& that the #ecia'i(e! #roject mana)ement techni*%e can+e a##'ie! effecti,e'" to non-en)ineerin) area of or)ani(ationa' f%nction$E#'ain "o%r an/er /ith %ita+'e eam#'e.

Project is a temporary endeavour undertaken to create unique product or service.Project is also defined as a unique set of coordinated and inter-related and inter-relatedactivities undertaken by an organisation to meet defined objectives; that have an agreedstart and finish time; is constrained by cost & resources and has specified performancerequirements.

Characteritic of a #roject0

Project has a definite start and finish.

Project consists of a well-defined collection of jobs, activities, or tasks which whencomplete; mark the end project.

he jobs may be started or stopped independently of each other, within a givensequence.

he jobs are ordered ! i.e., they must be performed in technological order.

Project management has become a proven approach to achieving specificobjectives in time. "f properly applied, project management techniques supply structure,focus, and control and help to drive a project team to the completion of work. oday, thedefinition of a project has e#panded to include recurring situations, one time crisis, anddealing with difficult issues, so that projects and project management apply to variousbusiness situations that have to deal with comple#ity. $egal offices, hospitals and other

services as well as traditional manufacturing firms have become enthusiastic about theways in which project management is improving their delivery of services or creation ofnew products.

Some t"#ica' eam#'e are0

%nnual budgeting auditing e#ercises

"ntroduction of new systems '"() *+++

)rganiational restructuring

(oftware development & implementation

evelopment of new product

/ampaign for new product launch )rganiing %01 sales conference

. Define 2Project Mana)ement3. State the co#e of the 2Project Mana)ement3.

)rganised 2enture for managing Projects. "t involves scientific application ofmodern tools and techniques in Planning, 3inancing, "mplementing, and 1onitoring,/ontrolling and /oordinating unique activities or tasks to produce desirable outputs inconsonance with pre-determined objectives, within the constraints of the ime, /ost,4uantity and 4uality.


2/42

The Project Mana)ement Co,er0'i "dea generation, analysis and finalisation of one or more ideas for implementation.'ii Preparation of feasibility reports for various projects 'ideas, working out facilities

and finance requirements, benefits and long! term viability as well as profitability.'iii "dentification of partners needed.

'iv echnology requirements.'v )rganisational requirements.'vi Probable sites and building requirements.'vii /ommercial aspects.'viii 5nvironmental effects and action required.'i# %vailability of 0ovt. /oncessions etc.

4. Define 2Project Mana)ement3. What are the main criteria for aein) %cceof #roject$

Project 1anagement is planning, organiing, directing, and controlling of companyresources for a relatively short ! term objective that has been established to accomplishspecific objectives.Project 1anagement is the application of knowledge, skills, tools, and techniques toproject activities in order to meet or e#ceed stakeholder needs and e#pectations from aproject.

Criteria for %cce0Project is considered to be successful if the project objectives are achieved within itsscheduled time, within budgeted cost, meeting the desired performance technology levelwhile utiliing assigned resources effectively and efficiently.he measurement and comparison of actual deviations or variances from the schedule,budget and set performance parameters for the project indicate degree of success.

5. 6o/ !oe #roject mana)ement !iffer from the mana)ement of other t"#e ofman%fact%rin) acti,itie$

PROJECT MAN78ACT7R9NG

ime horionfor planning

$ong term, usuallymuch more than one year

1ore strategic thinkinginvolved

(hort & medium term,usually within one year.

3ocus on minor day-to-day issues

Process 6as to be developed &designed new each time./onsiderable uncertainty andmany unknown factors.

(tabilised over a period of timedue to e#perience, minimumuncertainty.

7esources 8ew multi-disciplinary team tobe created usually from ofpersonnel from other

departments.

Plant & personnel already e#ist.irect control over personnel.

/hangemanagement

Projects are initiated to bringabout change.

1inimal change is e#pected inset routine.

/apital outlays (ubstantially $arge /omparatively (maller


3/42

:. 6o/ !o the #arameter an! characteritic of Project 9n,etment !eciion!iffer from that of ro%tine man%fact%rin) !eciion$ What are the main!iffic%'tie in #re#arin) an! ana'"(in) ca#ita' in,etment !eciion$

Difference ;

$ong term effects9 /onsequences e#tend far into the future. (cope of current

manufacturing is governed by capital investment of the past. "rreversibility9 ecisions can not be reversed without substantial financial

loss. $ess or no demand for used machinery when scrapped. (ubstantial financial outlays9 2ery high outlays as compared to operational

requirements.

Diffic%'tie in #re#aration an! ana'"i of !eciion0

1easurement problems9 1easurement of costs and benefits is difficult when theyhave a bearing on company:s other operations or have intangible effects.

ncertainty9 ncertainty & unpredictability of future costs and benefits.

emporal spread9 Projections are spread over long period of


4/42

>. Wh" i the #roject mana)er e*%ate! to an entre#rene%r$

4ualities for becoming a successful project manager are the same as that of an

entrepreneur ! who has to deal with new and unknown factors under time pressure. %project manager should have the following traits. >illingness to make sacrifices $eadership ecisiveness /onfidence in project 1arketing orientation (trong ego

?. Who are norma''" the ta&eho'!er in #roject$ What i the ro'e of #rojectmana)er ,i-@-,i ta&eho'!er e#ectation$

Project stakeholders are individuals or organiations who are actively involved in theproject, or whose interests may be positively or negatively affected as a result of projecte#ecution or its successful completion. ?ey stakeholders in a project include projectmanager, customers, performing organiation and project sponsors. "n addition, ownersand funders, suppliers and contractors, team members and their familiars, governmentagencies and media outlets, individuals, temporary or permanent lobbying organiationsand society at large are also stakeholders.

1anaging of stakeholder:s e#pectations is difficult because various stakeholders havedifferent objectives and interests, which may be in conflict with each other and with theproject objectives. Project manager has to understand these e#pectations and achieve ajudicious balance in the interest of successful project implementation. Project managerhas to9 /reate an environment for every stakeholder to contribute his skills

and knowledge in development of a project plan. %nalyse needs of various stakeholders to ensure that they will be

met in the best possible manner %nalyse stakeholders risk tolerances to develop a risk management

strategy.

. What are the +aic f%nction of a Project Mana)er$ What *%a'itieB*%a'ification an! e#erience /o%'! "o% recommen! for an effecti,e ProjectMana)er$

aic f%nction of a #roject mana)er are0

P'annin) Contro'0 o develop the project plan and ensure that the work iscompleted on time, within budget and with acceptable quality.

Reo%rce Mana)ement0 1anage and direct project resources to achieve projectobjectives.

Co-or!ination0 "nterface with higher management regarding project review,approvals and project issues. %lso relate successfully to line managers and staff.


5/42

%a'itieB %a'ification e#erience to +e a %ccef%' #roject mana)er0

Perona' *%a'itie0

Communication skills both, written & oral

Ambition leading to working hard and positively.

Energy to deal with problems and take measured risk.

Sense of humour to take events, setbacks and success in theirstride.

Maturity to take things in their stride and sense of timing tomake certain moves.

oughness and willingness to take contrary positions ratherthan taking an easy way out, or to take a path of least resistance or to cave in to the

pressure.

Ability to take directions, suggestions, hints and criticism andconverting them in positive action.

Mana)eria' *%a'itie0

!roblem and conflict solving ability to identify and understandproblems, place them in perspective, develop and implement solutions.

!eople management

!erspective vision to step back and take an overall view to see

symptoms of problems. "eing an organi#er managing and allocating time for important

issues.

$amiliarity with the organisation to understand funding anddecision making process.

%nitiative and risk taking ability to accept delegate tasks notdone.

Technica' &i''B &no/'e!)e e#erience0

Should be a generalist to see a bigger picture i.e. relationship

of pro'ect to the company, impact of end product etc. E(perience of not only working on several pro'ects but to

integrate it to apply to the current pro'ect

Ac)uire knowledge of latest pro'ect planning, budgeting andcontrol techni)ues.

1F. Main feat%re an! a!,anta)e of Matri t"#e or)aniation for #roject.

"n a matri# organiation, the personnel working on the project are responsible to their

functional superior as well as the project manager. he authority and influence of theproject manager cuts across the traditional vertical line of command. "t has greaterorganiational comple#ity due to the dual reporting structure and needs certain level of


6/42

organiational maturity to avoid conflicting situations that are inherently created by thestructure.

A!,anta)e of the matri or)ani(ationa' tr%ct%re for the #roject are a %n!er0

5nsures effective utiliation of organiational resources. /ritical resources can be shared between projects. @uilds up specialied knowledge & technical base within

the organiation. eam morale & motivation remains at high level even at

the project completion stage. Personnel are not uncertain about their future after

project closure, hence focused. %uthority and responsibility is shared and gives more

time for team members to comple# problem solving. "t is an ideal for of organiation for 5P/ companies.

11. Wh" the tra!itiona' 8%nctiona' or)ani(ation i i not coni!ere! %ita+'e forim#'ementation of #roject in )enera'$ Name the other or)ani(ation tr%ct%re!e,e'o#e! tatin) the t"#e of #roject thee are fo%n! to +e more effecti,e.

he traditional A3unctional: organiation is not suitable for implementation of projects ingeneral because9 8o (ingle individual is directly responsible for

total project. 8o formal authority. "t does not provide project-oriented emphasis

necessary to accomplish project tasks.

8eeds e#cessive lead-time for approval ofdecisions due to comple# co-ordination.

ecisions normally favour strongest functionalgroup.

here is no customer focus. (low response to customer needs. ifficult to pinpoint responsibility. "ndividual motivation and innovation are on low

scale.

% APure Project: organiation is a separate division developed within the company withindependent authority and responsibility for project. (uch organiation is suitable forcompanies embarking on major diversification e#pansion projects generally at sitesaway from the parent organiation.

% A1atri# Project: organiation combines the attributes of 3unctional & Pune Project)rganiations. >hile retaining the basic functional structure, it identifies independentauthority and responsibility for a project with a project manager. (uch structure is foundgenerally suitable for organiations engaged in project implementation for the clients astheir main business. /onstruction contractors, 5P/ companies etc. are some e#amples.

1. E#'ain the or)ani(ation tr%ct%re of a P%re Project t"#e of or)ani(ation /ith anor)ani(ation chart an! en%merate it a!,anta)e an! !ia!,anta)e. 8or /hatt"#e of #roject %ch or)ani(ation i more %ita+'e$


7/42

Pure Project organiation is a fully dedicated organiation created for projectimplementation and is separated from the parent system with its )wn technical staff )wn administration 0ive parent firm periodic reports and overview

A!,anta)e9 Personnel demonstrate loyalty to project @etter employee morale, higher motivation 7apid reaction time, faster communication %ll members are responsible to P1 (pecific technologies for several successive projects /ommitted workers "ndividuals e#cel in project:s area of technical e#pertise

Dia!,anta)e9 uplication of efforts, facilities, & personnel (tockpile equipment and echnical %ssistance Project takes on a life of its own 8o perpetuation of technology $ack of opportunity for technical interchange between projects $ack of career continuity for personnel

he APure Project: type organiation is suitable for e#pansion diversification projects of acompany either being implemented at a site that is remote from the e#isting facilities or forthe projects that are in a completely diverse fields.

14. A P%re #roject t"#e or)ani(ation i more %ita+'e to han!'e a o/n !i,erification#roject +eca%e 0

Project 1anager has a complete line authority over project personnel. "ndividual authorities and responsibilities can be clearly spelt-out.

3aster & effective communication due to simplicity of organiation. 3acilitates better planning & control. @etter personnel moral & team spirit can be built-up through motivation by the project

manager. Project personnel are more committed to project goals.

ENGINEERING PERSONNEL FINANCEPROCUREMENT

PROJECT MANAGER

PROJECT

ENGINEERING

PROJECT

PROCURMENT

PROJECT

PERSONNEL

PROJECT

FINANCE

5B"("80 )70%8"C%")8


8/42

4uicker decisions and faster reaction response time.

)70%8"C%")8 /6%7 3)7 P75 P7)D5/ )70%8"C%")8

15. Dic% 6%man A#ect of Project Mana)ement in re'ation to A%thorit"BPeronne' OrientationB Moti,ation an! Team %i'!in).

%lthough the use of proper planning and budgetary control techniques help in successfulproject management, their use and effectiveness depends on the people who are involvedand are responsible for various project activities at various levels. "t is therefore very

important to understand human nature and to achieve satisfactory human relations inproject setting. Project manager has to handle problems and challenges relating tofollowing issues.

'i A%thorit"0 Project manager very oftendoes not have a direct authority over the project team. 6e has to co-ordinate effortsof various functional groups, e#perts, consultants, e#ternal agencies etc. eamleadership and influencing professionals assumes importance than e#ercisingauthority. Project manager:s authority therefore emanates from his ability to developrapport with the team members, skilful resolution of conflicts, skill of communicationand persuasion and ability to act as a buffer between technical, engineering, financial

and commercial personnel.'ii Peronne' Orientation0 )veremphasison planning and control techniques that are mathematics and accounts orientedtends to adopt a structured and mechanical approach to project management.6owever, project being subject to many uncertainties, a more creative and adaptiveapproach is necessary to solve un-programmed and un-structured problems as theproject progresses. (uch orientation is required for all the project team.

'iii Moti,ation0 Project being a short teamendeavour carried out by loosely bound professional team, it is very difficult to keep itmotivated throughout the project term. he team members sometimes tend to getconfused due to split authority and dual subordination structure of the organisation.

o keep a high level of motivation, the project manger has to ensure that the projectgoals are clearly defined and are visible to all involved. 6e has to encourageparticipative management with proper delegation of authority and responsibility thatcreates a sense of belonging to the project and to make individual:s job sufficientlychallenging to have greater personal commitment.

PROJECT MANAGER

Civil

Construction

Project

Engineering

Accounts &

A!inistr"tion

Process

Tec#nolog$

M"teri"ls &

Purc#"se

Consult"nts

Coll"%or"tors


9/42

'iv Team %i'!in)0 1ost of the projectactivities are inter-related and inter-dependant and most of the problems need inter-disciplinary solutions. (uccessful management of project therefore is not possiblewithout proper teamwork. evelopment of mutual trust and acceptance, opencommunication and co-operation and development of right attitude toward project areessential for team building.

1:. =it of in!%trie reer,e! for P%+'ic Sector an! in!%trie for /hich 9n!%tria'=icenin) i com#%'or" %n!er the c%rrent 9n!%tria' Po'ic" of the Go,ernment.

=9ST O8 9ND7STR9ES RESERED 8OR T6E P7=9C SECTORE. %rms and ammunition and allied items of defence equipment, defence aircraft and

warships.

=. %tomic 5nergyF. 7ailway transport

=9ST O8 9ND7STR9ES 8OR W69C6 9ND7STR9A= =9CENS9NG 9S COMP7=SORHE. istillation and brewing of alcoholic drinks.=. /igars and cigarettes of tobacco and manufactured tobacco substitutes.F. 5lectronic %erospace and defence equipment9 all types.G. "ndustrial e#plosives including detonating fuses, safety fuses gunpowder,

nitrocellulose and matches.


10/42

'E Proposals attracting compulsorylicensing provisions

'= "tems of manufacture reserved forthe small scale sector

'F Proposals involving any previousjoint venture or technology transfer trademark agreement in the same or allied field

in "ndia.'G 5#tension of foreign technology

collaboration agreements 'including those cases, which may have receivedautomatic approval in the first instance

'


11/42

'b "ndustries for compulsory licensing covering %lcoholic drinks, tobaccoprocessing & products, 5lectronic aerospace & defence e#plosives & haardouschemicals, rugs & pharmaceuticals.

'c "tems reserved roe e#clusive manufacture under ((" sector '$istcovers about G++ items

'd "f proposal attracts locational restrictions.

"ndustries e#empt from "ndustrial $icensing are required to file "ndustrial 5ntrepreneurs1emorandum '"51 with the (ecretariat of "ndustrial %pprovals '("%

'= 9n!%tria' =ocation 0'a "ndustrial location should be =< ?1 away from the (tandard rban %rea '(%

limits in case of cities with population of more than Est.+ million.'b he above restriction does not apply for-

$ocations notified as "ndustrial areas by the government. ((" (ector 5lectronics, computer software & printing industries "ndustries obtaining "ndustrial $icense for specified location.

'c $ocation will also be governed by local oning, land use and environmentalregulations of the state & central governments.

I4 SS9 Sector 0'a "nvestment in fi#ed assets in specified plant & machinery less than 7s. F.+

million '7educed to Est.+ million; notification awaited qualifies unit to beregistered as a (mall (cale "ndustry '(("

'b %bout G++ items are reserved for e#clusive manufacture under (("'c $arge units are permitted to manufacture items reserved for ((" only after

obtaining an industrial license and with a


12/42

1arket oriented economy with no artificial barriers for protecting inefficient industry. 5asier inflow of latest technology )pening of financial markets to foreign investors & easy inflow of foreign funds. )pening up of international competitive markets. 5#posure to global competition in local markets "mprovement in productivity & product quality. 3aster infrastructure development on commercial basis.

F. What are the it%ation /hen Tren! or Time Serie ana'"i metho! cannot +e%e! for !eman! forecatin)$ Name an" three other metho! %e! in %chit%ation an! !ecri+e an" one of them /ith a %ita+'e eam#'e.

rend or time series analysis method is not an appropriate approach to use in a newproduct new business situation, or in situations where circumstances have radically

changed, and the past is no guide to the future. (ince the underlying processesproducing the forecast are not being modeled there is a danger of overlooking somefundamental change in the process, which makes it unwise to assume any continuity ofevents. 6owever, whenever there have been major changes in the environment, such asa competitor introducing a radical new product, e#trapolative forecasting methods becomeless appropriate. rend analysis methods would not be appropriate where relevanthistorical data is not available. 8or would they be appropriate where the historical data isunreliable, perhaps because it has not been recorded in a consistent manner over therelevant time period. %lso it is necessary to ensure comparability of data. sing salesvalues instead of volumes will neglect the effect of inflation. %lso it is necessary to ensurecomparability of data. sing sales values instead of volumes will neglect the effect of

inflation. %lso, when a company sells a range of products or services and that mi# haschanged over time, e#trapolation of values would be misleading.he forecasting methods to be used in such circumstances are9 '%ny three names aree#pected with detail description e#ample of any one of them

'i /hain 7atio 1ethod9 Potential sales are estimated by applying a series of factorsto a measure of aggregate demand.

'ii /onsumption $evel 1ethod9 3or products that are directly consumed, theconsumption level is estimated on the basis of elasticity coefficients ! incomeelasticity and price elasticity ! of demand.

'iii 5nd se 1ethod 'a.k.a. /onsumption /oefficient 1ethod9 (uitable for estimationdemand for intermediate products that are consumed for various end uses.

5stimate is based on estimated output levels of various end use products andproportion of use of concerned intermediate product in those.

'iv $eading "ndicator 1ethod9 $eading indicators are variables that change ahead ofits dependant or lagging variables. )bserved changes in leading variables areused to predict changes in lagging variables.

'v 5conometric 1ethod9 5conometric model is mathematical representation ofeconomic relationships derived from economic theory.

1. Short Note 0a'i!it" of tren! ana'"i in !eman! forecatin) for #roject feai+i'it"0

emand forecasts made on the basis of market trend data are subject to error anduncertainty since9


13/42

'a ata on past and present market parameters such as products, price, costs,quantities etc. may be vitiated by inadequacies due to lack of standardiation,uniformity on concepts and measures. /onclusions may not be statistically reliabledue to inadequate sample sie or may be influenced by certain abnormal factors.

'b 1ethods of forecasting are characteried by certain limitations such as inability tohandle unquantifiable factors, errors due to unrealistic assumptions and procession

needs of e#cessively voluminous data.'c 5nvironment in which projects are set up is characteried by uncertainty and

unpredictability in may factors such as technological changes, government policies,international developments, climactic effects etc.

. Short Note 0Main a#ect to +e coni!ere! in technica' ana'"i of a #roject0

echnical analysis of the project is concerned primarily with the following9 157"%$ "8P( %8 "$""5(9 - 7aw materials, processed industrial materials

and components, au#iliary materials & factory supplies and utilities required are to be

studied for their sources and availability as they have a bearing on location,technology and equipment selection.

1%83%/7"80 P7)/5(( & 5/68)$)0O9 - Dustification for the chosentechnology and manufacturing process among various alternatives.

P7)/ 1"B %8 1%83%/7"80 /%P%/"O9 - Product mi# is basicallyguided by market requirements. 6owever, fle#ibility in manufacturing capacity shouldbe considered to enable quick response to changed market conditions.

$)/%")8 %8 ("59 - /hoice of location is decided by factors such as pro#imity toraw materials and markets, availability of skilled labour and infrastructure,government incentives etc. (pecific site or plot to be selected on the basis of its

suitability and cost to develop the same for the particular industry. 1%/6"857O & 54"P158(9 - "t is dependant on production technology, process

and plant capacity. % proper balance has to be obtained between capacities ofindividual sections or production departments.

@"$"80( %8 (7/75(9 - %ny special requirements for structures to beconsidered. %reas for manufacturing, services, utilities, administration, welfare etc.to be planned.

P7)D5/ /6%7( %8 $%O)(9 - hese are general functional layouts,material flow diagrams, Production line diagrams, ransport layout, 1aterialconsumption charts, )rganiational layout and plant layout.

4. Short Note 07e of +rea& ; e,en ana'"i in in,etment !eciion0

he manufacturing capacity to be set-up is decided on the basis of peak marketrequirements to be fulfilled within the constraints of decided budget for the project.6owever it is not possible to run the plant at its full capacity from the beginning due tovarious reasons such as time for learning and process stabiliation, time taken for marketdevelopment etc. "t is therefore a generally accepted practice to reach the fullmanufacturing capacity in stages over a period of time. 6owever, it is uneconomical tooperate the plant at a lower capacity as the fi#ed overhead e#penses do not get scaleddown in proportion of the utilised capacity and they more or less remain constant. "t istherefore necessary to know the minimum operating capacity at which project does not


14/42

make any losses. his operating capacity is known as A@reak ! even capacity:. "t isgenerally seen that plant at least achieves a break ! even in the first year of its operation.

@reak ! even capacity is calculated by dividing fi#ed costs by the unit Acontribution margin:of the product.

3i#ed /osts

@reak even point nit (elling Price ! nit 2ariable /ost

5. What are the main com#onent of 8inancia' Ana'"i /hi'e /or&in) o%t theDetai' Project Re#ort$ Wh" Mar)in Mone" for /or&in) ca#ita' i i re*%ire! to+e #ro,i!e! a 9nitia' 9n,etment for the firt "ear of o#eration$

1ain components of financial analysis are9i /ost of Project covering basic investments

ii 1eans of financingiii 5stimates of sales & Production volumesiv /ost of productionv >orking capital requirements, it:s financing & margin provisionsvi 5stimates of working results for the project lifevii @reak-even pointviii Projected cash flowi# Projected balance sheets.

he commercial banks financing the working capital requirements against the security ofcurrent assets do not finance E++L needs but specify certain margin to be provided by thecompany from their own resources. (uch margin money is generally provided from the

cash surplus generated during the operational phase. 6owever, there is no such surplusgenerated out of project operations at the beginning the first year of production and themargin requirements are to be provided from the long term funds as initial investment andis included in A/ost of Project:.

:. Com#are NP an! 9RR a metho! for e,a'%ation an! ran&in) of #roject.Which metho! /o%'! "o% %e for !eciion in,o',in) e'ection of a mi ofm%'ti#'e #roject /ithin an o,era'' 'imit on in,eti+'e f%n!$

@oth 8P2 and "77 methods use discounted cash flows and therefore recognietime value of money.

@oth methods lead to the same decision in case of evaluation for accept rejectcriterion.

@oth methods lead to same decisions in case of comparative evaluation ofconventional independent projects.

6owever, for the comparison of mutually e#clusive or unconventional investments,the two methods may give contradictory or confliction results. /hoice between thetwo in such cases is based on their applicability in different situations.

NP 9RR8P2 method finds the present value offuture cash flows at the given rate ofdiscounting

"77 finds the rate of discounting at whichthe 8P2 becomes ero.

/omputation of 8P2 is comparatively /omputation of "77 is complicated


15/42

simple. process as it involves trial & error methodwith multiple computations to arrive at theright value.

% project with positive value of 8P2 at therate of discounting equivalent to the>%// is considered acceptable while the

one with negative 8P2 is rejected.

% project with an "77 greater than >%//is considered acceptable while the onewith a lower "77 is rejected.

2alue of 8P2 depends on the rate ofdiscounting used and therefore,comparative ranking of projects maychange as discounting rate changes.

"77 is independent of the discounting rateand therefore can give a direct comparisonbetween projects.

8P2s of different projects can be added tofind total addition in value of the firm.

"77s for different projects cannot followthe value additivity principle.

8P2 criterion can be used in case ofvarying cost of capital i.e. rate ofdiscounting from year to year.

"77 criterion cannot be used in case rateof discounting changes from year to year.

(ince the 8P2 method follows the value additivity principle, it can be used for decisionsinvolving selection of a mi# of multiple projects within an overall limit on investible funds.


16/42

>. What are the !ra/+ac& of non-!ico%nte! #a" +ac& #erio! metho! for financia'e,a'%ation of in,etment #ro#oa'$ 6o/ !oe the DC8 ana'"i o,ercomethee !ra/+ac&$ Dic% the re'ati,e merit !emerit of N.P.. 9.R.R.criteria for e,a'%ation com#arion of in,etment #ro#oa'.

he non-discounted Pay @ack Period gives the length of time required to recover the initial

cash outlay for the project.

9t %ffer from fo''o/in) !ra/+ac&0

"t ignores time value of money. "t treats all present and future cash flows havingsame value.

"t overlooks cash flows beyond payback period and discriminates against projectsthat generate substantial cash flows in later years.

@y focusing attention on capital recovery, it diverts attention from profitability. hought it measures project:s liquidity, it does not indicate firm:s liquidity. @y ignoring cash flows beyond pay back period, the risks beyond pay back period

are also ignored.

The Dico%nte! Cah 8'o/ IDC8 metho! o,ercome thee !ra/+ac& ince0 3uture cash flows are discounted to the present value and therefore can be

compared to initial investment directly. %ll project cash flows for its entire life are considered in /3 evaluation @oth profitability of project during its operations and recovery of initial investment

are calculated in /3 analysis.

NP Metho!0

(ince 8P2 method gives 8et value of returns in Present 7upee terms, 8P2s of

different projects can be directly added. his helps in deciding the projects that canbe accepted amongst several contenders under limited funds situation.

(ince 8P2 gives net value of returns in absolute 7upee terms, it cannot be used tocompare projects that require different initial investments.

7anking of projects by 8P2 method is influenced by nature of cash flow patterns &discount rates. Projects with similar initial investments give different rankings atdifferent discount rates.

he method also does not indicate the risk margin available over the hurdle rate orthe cost of capital.

9RR Metho!0 "77 indicates margin of safety over cost of capital. 7anking of projects can be done for projects with different initial investments. 7anking of projects does not change with change in cost of capital. "f cash flows change sign more than once, there can be multiple values for "77.

?. The main contit%ent of the Project Cot an! their +aic e'ement to +econi!ere! for #re#arin) #roject re#ort are 0

E $and 9 $and, $ease premium, conveyance charges

$and leveling & development%pproach roads, internal roads3encing, gates, tubewells etc.

= @uildings 9 1ain @uildings for plant & equipment


17/42

tility buildings such as boiler house, pump house,$abs, warehouses, electrical distribution etc.)ther non-factory buildings ! %dministration, /anteen

F Plant & 1achinery 9 "mported machinery"ndigenous machinery/ost of machinery to include all costs landed at site,

(pares, foundation & installation.G echnical know-how 9 3oreign /ollaborators fees

9 echnical consultant fees9 /ost of Project report


18/42

4F. Princi#a' i%e coni!ere! in #roject a##raia' +" 8inancia' 9ntit%tion

Mar&et a##raia'0 Reasonableness of demand forecasts is e#amined utiliingfindings of available information and surveys. %dequacy of marketing infrastructureis assessed in terms of promotional effort, distribution network, transport facilities,

stocking policies and knowledge, e#perience and competence of marketingpersonnel.

Technica' a##raia'0 echnical review of product mi#, capacity, manufacturingprocess, technical know-how, materials, labour skills, buildings, plant & machineryetc. is made.

8inancia' a##raia'0 %ssessment of reasonableness and adequacy of estimates forcapital cost, working results, returns is made and appropriateness of financingpattern is checked.

Economic a##raia'0 Project is reviewed from larger social point of view in terms ofsocial cost-benefit analysis.

1anagerial appraisal9 1anagerial capability of promoters is judged by theirresourcefulness, their understanding of the project details and their commitment tothe project.

41. Dic% the !ifferent a##raia' criteria for e,a'%ation of cah f'o/ forcom#arin) m%t%a''" ec'%i,e in,etment #ro#oa'.

he appraisal criteria for evaluation of mutually e#clusive investment proposals are broadlycategoried as9Dico%ntin) Criteria0Net Preent a'%e INPis the sum of the present values of all cash flows associated with

the project. 3uture cash flows are discounted at a certain hurdle rate to arrive at theirpresent value. 6igher 8P2 indicates a better proposal in case the initial "nvestment issimilar.enefit - Cot Ana'"icalculates the ratio of either Present 2alue of benefits to the "nitial"nvestment '@enefit /ost 7atio @/7 or the 8et Present 2alue to "nitial "nvestment '8et@enefit /ost 7atio 8@/7. he criterion is preferable to 8P2 criteria for comparingproposals having widely differing initial investments.9nterna' Rate of Ret%rn I9RRis the discount rate at which 8P2 of the project is Cero.6igher "77 indicates better proposal irrespective of the amount of initial investment.

Non-Dico%ntin) Criteria0-

Pa" ac& Perio!is the length of time to recover initial cash outlay on the project. (horterthe payback period, the more desirable the project. his criterion tends to shield the projectfrom the risk of future uncertainties in the cash flows to certain e#tent.Acco%ntin) Rate of Ret%rn is a measure of project profitability that relates income toinvestment, both measured in accounting terms. "t is generally e#pressed as a ratio of%verage "ncome after a# to "nitial "nvestment.

5#cept for the 8P2 criterion, which can not be used for comparing mutually e#clusiveproposals unless the investment amounts are similar, all other criteria enable a goodcomparison within their own limitations.

"n general, the non-discounting methods are simpler to calculate and therefore give aquicker comparison between various proposals. hey however, do not take time valuefuture cash flows into consideration and therefore may result in misleading conclusions.


19/42

hese criteria are therefore used to compare smaller investments or as a quick method todiscard weak proposals.

iscounting methods are considered to be more dependable for comparing largeinvestments and are recommended for use by the financial institutions.

4. Scenario Ana'"i 0-

(cenario %nalysis is one of the methods of risk analysis to evaluate the effect of changes inproject assumptions on its profitability. "n simple sensitivity analysis, typically one variableis varied at a time to observe its effect on the project profitability. 6owever, if the variablesare inter-related, it is advisable to analyse certain plausible scenarios, each scenario beinga consistent combination of a few variables.

he primary factors that affect the project profitability are generally the sales price, salesvolumes, material costs, labour costs, project costs etc. /oncurrent changes in these

factors within the possible range will give rise to many plausible combinations. hese canbe categoried as optimistic, normal and pessimistic scenarios and their effects studied.3urther attaching probability estimates to the scenarios, overall evaluation can be carriedout.

44. When !o "o% j%!)e a #roject to +e a fai'%re$ What are the #oi+'e ca%e of#roject fai'%re$

% project is considered to be a failure if it fails to complete in scheduled time or it e#ceedsthe budgeted cost or is not able to fully accomplish the project objectives. >hile timeoverruns and cost overruns are the common causes of project failure; inability to meet thekey performance indicators is also observed occasionally. %lthough the project is may notbe a total failure as it is finally implemented and starts functioning, it tends to beuneconomical to run, does not create sufficient surplus for investing into future growth of theorganiation and eventually becomes a drain on organisations: funds.

/ommon causes that result in time cost overruns or failure to meet specifications are99na!e*%ate #roject form%'ation0 (uperficial field investigations, ill-defined project scope,wrong assessment of input requirements, inaccurate methods for estimation of costs &benefits, deliberate underestimation of costs and overestimation of benefits etc.7n%ita+'e Project Or)ani(ation0"ncompetent project leader, inadequate authority to the

project leader, confusing or improperly understood roles of project team members.9m#ro#er 9m#'ementation P'annin)0 "nsufficient breakdown of project activities, unduereliance on intuition and judgment rather than available information and data, improperdefinition of interlink ages between activities.8ai'%re to ta&e a!,ance action0 %s project is subjected to a lot of risks during its course ofimplementation, it is necessary to be proactive at the signs of impending problems ratherthan react only when the problems are fully blown up.Non-a,ai'a+i'it" of f%n! in time0 Proper cash flow management is the key to success ofthe project. 8on-availability of funds in time delays the project implementation as well asincreases the project costs.9nj%!icio% e*%i#ment ten!erin)B #roc%rement an! contract mana)ement0 "t is

generally observed that equipment and materials form H< Q K+L of the project cost andprocurement of the same covers almost K+L of the project implementation time. (imilarly,Proper selection of contractors ensures timely completion within budgeted costs.


20/42

9neffecti,e #roject monitorin)0 %s the projects are implemented under a dynamic, everchanging environment, effective monitoring and timely modifications in implementationstrategy are required for the success of the project.

45. What are the t"#e of #roject ri&$ What mea%re of ri& are %e! to ae

the ri& factor in #roject mana)ement$

he three types of project risks are9 (tand %lone 7isk 9 he risk when the project is viewed in isolation 3irm 7isk or /orporate risk9 his represents contribution of project to the risk of the

firm. (ystematic 7isk or 1arket 7isk9 his represents the risk of project in the conte#t of

market portfolio.1easures of risk9 7ange

1ean %bsolute eviation (tandard eviation /oefficient of variation (emi 2ariancehe (tandard eviation is the most commonly used measure of risk in finance becauseit is analytically easily tractable. %lso if the probabilities are normally distributed, themean and standard distribution gives all information about the same.

4:. What i a ri& re)iter$ When ho%'! it +e o#ene! an! ho/ 'on) ho%'! it +emaintaine!$

he 7isk 7egister records details of all risks identified at the beginning and during the lifeof the project, their grading in terms of likelihood of occurring and seriousness of impacton the project, initial plans for mitigating each high level risk and subsequent results."t usually includes9

% unique identifier for each risk; % description of each risk and how it will affect the project; %n assessment of the likelihood it will occur and the possible seriousnessimpact if

it does occur 'low, medium, high; % grading of each risk according to a risk assessment table

>ho is responsible for managing the risk; %n outline of proposed mitigation actions 'preventative and contingency; and "n larger projects, costing for each mitigation strategy.

his 7egister should be maintained throughout the project and will change regularly ase#isting risks are re-graded in the light of the effectiveness of the mitigation strategy, andnew risks are identified. "n smaller projects, the 7isk 7egister is often used as the 7isk1anagement Plan.

4


21/42

making project unviable. herefore, one cannot depend on just one set of projections butit is very necessary to analyse the risks involved and their impact on the project.

hree commonly used methods for incorporating risk factor in project evaluation are9 (ensitivity analysis (cenario analysis

1onte /arlo (imulation analysis

Ste# in,o',e! in Seniti,it" ana'"i0

(et up relationship between basic underlying factors i.e. sales quantity, unit price,material & labour costs, project life etc. and the 8et Present 2alue or "77.

5stimate range of variation and most likely value for each of the basic underlyingfactors

(tudy the effect of variations in the basic variables on 8P2 or "77; with one factorcarried at a time.

Ste# in,o',e! in Scenario ana'"i0 (ince many variable factors are interrelated, plausible scenarios with a combination

of changes in variables are worked out. 5ffect on 8P2 or "77 is found under different scenarios. ypically; optimistic,

pessimistic and base case scenarios are evaluated.Ste# in,o',e! in Monte Car'o Sim%'ation ana'"i0

4>. Define Ri& an! in!icate ,ario% t"#e of ri& aociate! /ith a #roject.

% risk is any uncertain event, if it occurs, could prevent the project realiing the e#pectations

of the stakeholders.

% risk always has a cause and if it occurs, a consequence, positive or negative.T/o T"#e ;

a Project 7isk ! %ssociated with the technical aspects of the work to achieve therequired outcomes.

b Process 7isk ! %ssociated with the project process, procedures, tools and techniqueemployed, controls, communication and team performance.

T"#e of Ri& IProject Ri&i. Project /ompletion 7isk

ii. 7esource 7iskiii. Price 7iskiv. /ompetitor:s 7iskv. echnology 7iskvi. Political 7iskvii. "nterest rate riskviii. 5#change rate riski#. 7isk from global competitors#. 7isk due to trading activities etc.

4?. 7e of ri& ana'"i for #roject e,a'%ation an! a##raia'.

he market forecasts and other projections used for project feasibility and evaluation suchas sales prices and quantities, cost of capital assets and inputs, ta#ation rates, foreign


22/42

e#change rates etc. are subject to a risk that they may not turn out in reality as projected.eviations from the projections in reality may adversely affect the project feasibility.

here are various statistical and other techniques for understanding risks and evaluatingtheir effects. (ensitivity analysis, scenario analysis, 1onte-/arlo simulation methods etc.hat evaluates effects of variability of various factors either singularly or multiply.

(ubjective probabilities are further attached to evaluate the project under optimistic,pessimistic and most likely situations out of various possible outcomes before a finaldecision is made.

"n absence of e#tensive analysis, project feasibility worked out on the basis of conservativeestimates for project revenues, adequate safety margins in cost provisions and fle#ibility ininvestment appraisal yardsticks is considered to be adequately covered for risks.

4. What are the ,ario% /a" of financin) a #roject a'on) /ith re'ati,e merit an!

!emerit of each of them$

1ain sources of project 3inancei. )rdinary (haresii. Preference (haresiii. ebenturesiv. @ondsv. erm $oansvi. eferred /reditsvii. /apital investment subsidyviii. $ease 3inancingi#. nsecured loans#. "nternal accruals#i. @ridge $oans#ii. Public eposits.

)rdinary (hares ! (ource of permanent capital. (hareholders bear the risk of ownership.(hareholders e#pect altercative dividends and price appreciation of their shares.Preference (hares ! hey bear pre-determined rate of dividend. hey have priority overequity shares on the assets of the company in the event of liquidation of the company.

ebentures ! "nstruments for raising long-term debt capital. ebenture holders arecreditors of the company.

@onds ! (imilar to debentures.

erm $oans ! $ong term loan offered for project financing. he period of repaymentvarious from < to E+ years depending upon the nature of the project. 1ore forinfrastructure projects say =+ to =< years. he length of the repayment period dependsupon the period of implementation of the project.

eferred /redits ! 2ia @ank payment is made.

/apital investment subsidy ! 'a %re a (ubsidy 'b Product (ubsidy

$ease 3inancing ! 1ainly suitable for e#pansion projects etc.


23/42

5F. Short Note ; ent%re ca#ita' 8inancin) ;

% young private company that is not ready or willing to tap the public financial market mayseek venture capital.

2enture capital funds are free standing pools of capital, raised mostly from institutionalinvestors and high network individuals who have the ability to provide long term capital.

2enture capital investments involve businesses with potential for high growth in sales andprofitability, equity or quasi ! equity financing instruments, medium or long term investmenthorions, above average investment risks and returns and active post financing involvementbetween investor and investee.2enture capital investment process is different from that of appraising a term loan. 2enturecapital investors place greater emphasis on assessing the capability of the managementteam, analying the strategic strengths of the business in question and on whether, how and

over what time frame investors will achieve liquidity on the investment.

51. Short Note ; Com#onent of Ca#ita' Cot of a Project

i. $and and $and evelopmentii. @uildingsiii. Plant & 1achineryiv. 5lectricalv. ransport and erection chargesvi. ?now-how and consultancy feesvii. 1isc. %ssetsviii. Preliminary and Pre-operative e#pensesi#. Provision of contingencies#. 1argin money for working capital

5. Emer)ence !e,e'o#ment of ent%re Ca#ita' 8inancin) in 9n!ia.

/oncept of venture capital vis-R-vis traditional security oriented approach9 2enture capital isprimarily for the kind of business ideas that have good market potential but do not have any

background to base the projections. (uch ventures also could suffer very heavy losses if thenew products are not accepted in the market. 1any new promising business ideas floatedby unknown entrepreneurs were being rejected by financial institutions due to their veryguarded and security oriented approach to minimie the risk of loss. %s a developingnation, availability of project capital was scarce and priorities were naturally towardscomparatively risk free investments.

$iberalisation & opening-up of global markets9 nder the new liberalied scenario,there has been a positive change in the outlook of financial institutions. 3inances arealso available from the foreign investors who are more familiar with the venturecapital business. 5ven the "ndian financial institutions have realied the possibility of

very high returns by backing promising ventures after due evaluation of theirpotential.

2enture capital funds in "ndia9 1any financial institutions such as "/"/", 0""/ etc.have set-up their venture funds and there are many private funds also. %lthoughthere are no financiers purely in venture capital field, most are allocating about


24/42

E+L of their investible funds for venture financing to adequately cover foe the risk offailures in some cases.

54. Short note0 A!,anta)e of 2Prece!ence Dia)rammin)3 a'ia AON net/or&.

%)8 networks can represent comple# activity relationships or dependencies such as(tart-(tart, 3inish-3inish, and (tart-3inish etc. apart from the normal 3inish-(tart.

%)8 networks can represent $ead & $ag times for dependant activities. %)8 representation eliminates necessity for Adummy: activities to maintain the logic. %)8 networks are comparatively simpler to draw and more useful for activity

oriented networks. 8etwork calculations are possible in A1ultiple (tart: & A1ultiple 3inish: networks.

55. Short note0 Si)nificance of Tota'B 8ree an! Ne)ati,e f'oat.

Tota' 8'oatis the total e#tra time available to complete the activity without affecting project

completion date. "t is therefore calculated as the difference between $ate (tart and 5arly(tart for an activity '$(-5( or the difference between $ate finish and 5arly 3inish '$3-53or '$3-5(-duration. otal float signifies the e#tent to which an activity completion can bedelayed without affecting the final completion date.

8ree 8'oatis the float available to a non-critical activity without affecting the early (tart ofthe immediately succeeding activity. "t is calculated as 5s of "mmediate successor minus53 of predecessor minus the estimated duration. "t signifies the e#tent to which a particularactivity can be delayed with the succeeding activity maintaining its early schedule. "t isuseful to know the free float when the responsibility for the successor activity lies withanother agency and one cannot disturb its schedule in any manner.

Ne)ati,e 8'oatfor an activity means that the time available to carry out the activity is lessthan the time required to complete the same. >hen the project is to be completed by agiven deadline and critical activities are delayed, the negative value of float indicates thee#tent to which the activities are required to be crashed in order to meet the deadline.

5:. What are the +aic characteritic of PERT mo!e' for Net/or& !e,e'o#ment an!/h" the" are more %ita+'e for reearch or !e,e'o#ment oriente! #roject$E#'ain the metho! for etimation of time !%ration of in!i,i!%a' acti,itie inPERT mo!e'.

P57 model is an event oriented network that recognies the specific :stages: ofcompletion or Amilestones: in the project. he events are the end results of a process oran activity. he interdependence between events is indicated by defining predecessorrelationships. 6owever, the nature of activities or process to achieve the end result or anAevent: is not well defined and is not fully controllable. "t therefore introduces a lot ofuncertainty about the time estimates and efforts required to complete the activity. his isthe typical situation commonly e#perienced in 7 & projects.

"n order to estimate the time required to perform an activity, there is no past e#perience ordata about the similar work. 5stimates are therefore made in the following manner9O#timitic etimate9 "s an estimate of time to complete if activity does not encounter anyrisks.Peimitic etimate9 "s an estimate of time to complete if activity encounters allpossible risks.


25/42

Mot 'i&e'" etimate9 "s an estimate of time to complete under most likely situation thatwill have to face certain amount of risks

%n average time is then worked out using the above estimates using the formula9

)ptimistic ime S G # 1ost $ikely ime S Pessimistic ime

%verage ime TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT H

his average time is then used in the network calculations to find e#pected time tocomplete the project.

5


26/42

) / "75/ %

/)( $

)

( / )

( "8"75/ /)(

8)71%$ 7%")8

PROJECT D7RAT9ON

5>. A'tho%)h the Net/or& Techni*%e %ch a PERT CPM /ere intro!%ce! too,ercome certain hortcomin) of Gantt ChartB it i een that the Gantt Chartare #o#%'ar'" %e! +" #roject mana)er to re#reent che!%'e intea! ofNet/or& !ia)ram. What !o "o% thin& are their feat%re that are ti'' fo%n! to +e%ef%' effecti,e$

0antt /harts are very effective visual representation of schedule and therefore are usedeverywhere from boardroom presentations to semiliterate project workers. 0antt charts can

be easily understood and interpreted at all levels. 0antt charts can also be presented in asummary form to avoid unimportant details.

7esource loading, leveling and allocation e#ercise can also be carried out using a 0anttchart.

5?. Wh" the acc%rac" of etimation of time !%ration of in!i,i!%a' acti,itie i i

im#ortant in Critica' Path Ana'"i$ E#'ain the metho! an! too' %e! fortime Reo%rce etimation.

he /ritical Path %nalysis focuses on competing the project at he earliest possible timeand if possible at minimum cost. %ccurate time estimation is essential to good projectmanagement. "t is important to get time estimates right for two main reasons9

ime estimates drive the setting of deadlines for delivery of projects, and henceclients: assessments of your reliability.

hey often determine the pricing of contracts and hence their profitability.

(ince /P1 is used for the projects in which the organiation has previous e#perience orcan have access to certain data back-up information available about the activities. %s afirst step it is essential to understand the correct scope of work estimate the total work

content of the activity /7 /harts '/ost-ime-7esource /harts that are available fordifferent trades such as civil construction, structural fabrication, etc. further help inpreparation of estimates of time, resource requirements and costs quite accurately. he/7 catalogue defines the scope of each activity in the network along with its estimatedcost, resources required, and the time for completion. he network then read in


27/42

conjunction with /7 catalogue becomes the basis for measuring progress; valuing thework done, cost reporting, forecasting and overall control of the project.

5. E#'ain the %e of f'oat ana'"i in #roject #'annin). E#'ain !ifferent t"#e off'oatK e#'ain ho/ the" are ca'c%'ate! an! their i)nificance.

3loat can be generally defined as the difference between time available and the timerequired to carry out a given activity. "n /ritical Path %nalysis, the non-critical activitiescan afford certain amount of rela#ation in their performance. his gives a good amount offle#ibility to the project manager in planning of schedules, resource leveling, allocation andtheir efficient utiliation. %lso, efforts & resources can be concentrated or diverted ifnecessary from the jobs with float to the critical activities to ensure their completion intime. %ctivities with float can be delayed to save resources & cost. he different types offloats are as under9

i. Tota' 8'oat0! 3or the non-critical activities the difference between the $( & the 5(

or $3 & 53 is known as otal 3loat. 3inish of the predecessor activities or the startof successor activities can be delayed to the e#tent of this difference withoutaffecting the project completion date.

Tota' 8'oat IT80 L =Si - ESi or L =8i - E8i

ii. 8ree 8'oat0- "n some cases it is observed that is the total float available for anactivity is used on the same activity, the total float available on successor activitiesin the path will reduce by the same e#tent. his means that the total float can notbe e#clusively available to the activity but is shared between successor activities inthe non-critical path. 6owever, some amount of float is sometimes available toindividual activity such that its use does not affect he successor activity. hemeasure of e#tent to which timing for activities can be altered without affectingsuccessor activities in any way is the 3ree 3loat. his is the float available if theimmediately succeeding activity has to start at the earliest start time.

8ree 8'oat I880 L 88i L ESi - E8i

iii. 9n!e#en!ent 8'oat0- "t is independent of time of preceding activity & if used updoes not affect time of succeeding activity. "t is measure indicating the floatavailable if the predecessor activity finishes at its $3 and the successor activity

starts at its 5(.

9n!e#en!ent 8'oat I980 L 98i L ESi - =Si - !i

:F. Decri+e the t/o main con,ention %e! for !ra/in) CPM net/or& /ith theirre'ati,e merit. Which con,ention i norma''" %e! +" the mo!ern oft/are#ac&a)e for #roject mana)ement$

Acti,it" on Arro/ IAOA0 "t is also known as %rrow iagramming 1ethod.

he basic diagram in a network is the arrow diagram. 5ach arrow represents oneactivity.

%n arrow is pointed towards finishing event. 8etwork starts in a single starting node and ends in a single finishing node.


28/42

8etwork consists of collection of arrows linked in logical sequence according totechnical characteristics of the project.

%n arrow in broken line represents Adummy: activity; i.e. an arrow indicating logicalinterdependence of two events in a network without any physical activity required tobe performed in between. ummy does not consume any time or resource.

escription of activity is written along the arrow for easy reference.

$ength of an arrow is not drawn to any scale does not represent time for activity. %)% network can represent only 3inish-(tart relationship without any lead or lag

between activities.

Acti,it" on No!e IAON0 "t is also known as Precedence iagramming 1ethod. 5ach node in the network diagram represents an activity. 'sually drawn as a

rectangular bo# %n arrow is drawn between two activities indicating their logical interrelationship. 8etwork may start in multiple nodes as starting activities and also end in multiple

nodes as finishing activities.

escription of activity is usually written within the space available in rectangularbo#.

(uch diagrams eliminate the need for showing of dummy activities. "t is also possible to represent different types of relationships between activities

with their $ead-$ag time restraints such as9o 3inish-(tart '3(,o (tart-(tart '((,o 3inish-3inish '33 &o (tart-3inish '(3

he project management computer packages mainly use %ctivity on 8ode convention.

:1. Define Critica' Path in a CPM net/or&. 6o/ i it i)nificant of #roject contro'$Doe the critica' #ath once i!entifie!B remain ame ti'' com#'etion of #roject$ 9fnotB /hat are the reaon for it chan)e$

/ritical path is the sequence of activities from the starting activity to the finishing activity,with value float equal to ero. "t is also the longest path of activities in a network indicatingthe minimum time required to complete the project. he activities on the critical path areknown as critical activities and they must be completed within the time allotted without anydelay so that the project could be completed within scheduled time. %ny delay in performing

critical activity will delay the project completion by same time. "t is therefore necessaryfocus the attention and efforts, give priority in allocating resources to critical activities toensure their timely completion. "t may also be necessary to Acrash: the critical activityduration by spending e#tra resources either to avoid delay or to optimie overall projectcosts.

he critical path 'or Paths once identified at the beginning of the project, does not remainsame till completion of the project but is likely to change or shift at the time of every projectupdate. >hile the project is under progress and a periodic updating is carried out, it may beobserved that the actual time taken for completion of various activities is different from theirestimated time for completion. "t is also likely that some critical activities may have been

completed before their scheduled time and or some non-critical activities have delayedeven beyond the entire Afloat: available. (uch situations result in change in Afloat: values ofactivities and therefore in emergence of a new critical path.


29/42

:. What are the main reaon for attem#tin) reo%rce 'e,e' for a #rojectche!%'e$ E#'ain the term Shiftin)B S#'ittin) Stretchin) in re'ation toreo%rce 'e,e'in).

%s the resource loading is done on the A5arly (tart: schedule, it is observed that the period-to-period requirements of different resources vary considerably. 6owever, it is always

economically desirable to keep the resources at constant minimum level and ensure uniformworkload over a period of time when they are engaged on a project. (uch uniform loadingcan be achieved by the process of Aresource leveling:. he process moves resourcerequirements from peak demand periods to low demand periods by rescheduling non-criticalactivities within available floats without affecting completion date. he critical activities thatdo not have floats are allocated resources on priority and are carried out as per schedule toensure timely completion of project.

7escheduling of non-critical activities can be done in different ways9". (hifting9 %ctivity is shifted to start at a later date than A5arly (tar: date; without

e#ceeding available float; and is completed without interruption. 7esources thus

released can be deployed on critical activities."". (plitting9 %ctivity is split in two or more parts and each part is carried out with time

gaps to avoid peak resource requirement periods. 6owever, the entire activity iscompleted within the total time available including float.

""". (tretching9 %n activity can be stretched in duration by reducing the resourceallocation than its normal requirement. he total duration after stretching ismaintained within total time available to carry out the activity. he releasedresources can be diverted to more critical activities.

:4. E#'ain the circ%mtance /hen Crahin) of acti,itie i coni!ere!necear". Wh" the conce#t of crahin) can not +e a!o#te! for PERTmetho!o'o)"$

he critical path of the /P1 network gives the minimum time and therefore, the earliestdate required completing the project by working under normal circumstances. "t is possibleto reduce the total project duration by resorting to Acrashing: the critical path activities i.e.reducing the e#pected duration by assigning e#tra resources or adopting more efficientprocesses. /rashing is considered necessary under the following circumstances9

"f it is required to complete the project before the date indicated by the critical path, itbecomes necessary to complete the activities on critical path before their estimated

times. "f the project is delayed during the process of implementation, crashing is done to

meet the project deadline to avoid heavy penalties, cancellation of order, loss ofgoodwill etc.

/rashing can also be done to optimie project duration to minimie total project cost.his is done by achieving a balance or trade-off between project:s direct & indirectcosts vis-R-vis project duration.

P57 methodology uses probabilistic time estimates for activity durations and the activitycosts are also not very certain. 5ven the longest path identified in the network may not bethe real critical path is another Anear critical: path has higher variability 'i.e. (tandardeviation. nder such circumstances, it is not possible to consider crashing as precise

information on timings and costs can not be obtained.

:5. Three Time Etimate metho! for Net/or& Sche!%'in) 0


30/42

5stimation of time required for completion of various activities in the project is one of thecrucial issues in network scheduling. >hen the activities are being performed for the firsttime in a new project and there is no back-up data available for time estimation, a method ofAhree ime 5stimates: is used. he method is used for P57 technique where the projectteam estimates three different time durations for each activity namely;

Peimitic time etimate9 considering that activity faces ma#imum possible problems &delays.O#timitic time etimate9 considering that activity is carried out without encountering anyproblemsMot 'i&e'" time9 considering the activity faces moderate delays as normally e#pected.An a,era)e time9 for the activity to be used for network calculation is given by formula

Pessimistic time G B 1ost likely time S )ptimistic time%verage time

H

he method is used for development of network schedules for research & developmenttype projects. he probability of the project completing within the total schedule timecalculated on the basis of three time estimates is


31/42

:


32/42

P579 P57 methodology deals with the uncertainties involved in performing variousactivities and therefore, difficulties in determining e#act duration of activities in the project.he model generally considers development-oriented projects where many activities do nothave precedents to estimate their likely duration. 6ence, the model adopts a statisticalaverage time estimate based on three time estimates ! optimistic, pessimistic and most

likely time ! criteria. he total project duration worked out on this basis thus also hascertain probability value.

/P19 /P1 approach considers day to day work situations and therefore, the activitydurations can be estimated with a fair accuracy. /onsiderable amount of past data can beavailable for similar activities. he total time for completion based on critical path duration isalso quite accurate and helps in controlling the project schedules more effectively.

:. WS IWor& rea&!o/n Str%ct%re

>@( is a systematic and logical breakdown of the project into its component parts or work

packages. "t is constructed by dividing project into its major parts, each of which is furthersub divided. he process is continued till the breakdown reaches such manageable levelwhere schedule, cost and responsibility can be clearly defined for units of work or individualactivities. >@( therefore helps in

5ffective planning of the project by dividing large project into manageable elementsthat can be easily comprehended and planned.

/osts and responsibilities can be assigned to >@( elements at the lowest levels andsummaried at the higher levels of the structure.

5ffective planning, monitoring and controlling structure can be developed.

5ffective information system is developed with help of proper codification for cost

accounting and progress reporting.


33/42

hen time available equals time required, there is no float and theactivity is called critical. he float available on non-critical activities therefore indicates thefle#ibility in scheduling the activity and also the ma#imum e#tent to which the activity can bedelayed without affecting the project completion date.

otal float signifies the ma#imum permissible delay without delaying the final completionwhile free float signifies the ma#imum permissible delay without delaying the earliest start ofits immediate successor activity.

?nowing the available floats on various activities helps the project manager to plan andorganie day-to-day activities in view of resource constraints and concentrate efforts and

resources on critical activities.

8egative float indicates that the time available is less than the time required to perform theactivity and unless the activity duration is compressed or Acrashed: to by the e#tent ofnegative float, the scheduled completion date can not be met.


34/42

%ny such modification should be carried out in such manner that corresponding changesin time of completion, budgeted costs and performance parameters due to change inscope get proper authentication, sanction and approval.o manage and control the scope change, following procedure may be adopted9 he scope base line is first defined by work @reakdown (tructure '>@( 5stablish scope change control system that defines the procedure by which scope to

be changed. his includes paperwork, tracking systems, and approval levels andauthorities necessary for authoriing changes.

1onitor project performance for scope compliance from time to time. %ny deviationsshould be scrutinied to assess the need for scope change in future.

?eep track of change requests oral or written, direct or indirect, e#ternally orinternally initiated, legally mandated or optional.

5valuate effect of the scope changes 'either e#pansion or shrinkage on schedule,cost and performance and "nitiate action to formalie the changes.

"ssue revisions in schedule, budgets and performance parameters on the basis ofapproved changes.

ork performed till date andcovers total cost of work done, goods received and of services used, whether or notthese have been paid for. his includes accruals & provisions.

ii. Sche!%'e! E#en!it%re ICWS9 "t is the @udgeted cost of work to be completedtill given date if the project runs on schedule.

iii. Earne! ,a'%e ICWP9 >hen any of the project activity gets completed it isconsidered to have Aearned value: equivalent to its budgeted cost. herefore, thetotal of @udgets cost for the work performed to date is the total Aearned value: of theproject.

>hen %/>P is higher that @/>P, it indicates cost overrun and when earned 2alue islower than @/>( it indicates schedule delay.


35/42


36/42

7egular & periodic reporting of project costs is done under the following summary heads9i. Committe! cot9 otal value of all works and e#penses contained in contracts and

purchase orders awarded to third parties. "n case of reimbursable or measuredworks contracts, committed costs are in relation to defined scope of work.

ii. S%n& cot9 otal cost, at a given time, which would be incurred should the projectbe cancelled.

iii. Project e#en!it%re9 otal cost of work done, goods received and of servicesused, whether or not these have been paid for. his includes accruals & provisions.

iv. O%ttan!in) commitment9 otal costs committed minus project e#penditure.v. Etimate to com#'ete9 "s the best estimate that can be made at any given time of

remaining cost not already reported as e#pended or committed, taking into accountthe current project scope and performance trends date.

vi. Etimate! fina' cot9 "t is committed costs to date plus the estimate to complete.vii. Earne! ,a'%e9 otal of budgeted cost for the work progress to date.


37/42

he total value earned for the project on any given date is the total of earned values of allthe completed activities till date as well as the total of earned values to date for partiallycompleted activities. he A(: curve drawn between the planned cumulative earned value forthe project against the time, based on early start schedule; will indicate the total plannede#penditure for the project at any given point of time during its progress.


38/42

ime and costs are therefore inseparably linked and it is not possible to controlcosts without linking them with time schedule of activities.

"t is therefore necessary to identify costs with the work involved in project activities. he total cost budget is broken down as per >@( at different levels upto its last

level representing individual activity. >hen the duration or schedules for the particular part of the project or for the

individual activity are changed, the cost incidence also changes accordingly. 3iner the >@(, more fle#ible and accurate will be the control. echniques such as A5arned 2alue: and A(: curves help in keeping cost and

schedule control in an integrated manner.

>1. E#'ain the incrementa' #rinci#'e for /or&in) o%t the #roject cah f'o/.

9NCREMENTA= PR9NC9P=E9 /ash flows must be measured in incremental terms. ".e. hedifference between cash flows with the project and without the project has to be

ascertained. >hile estimating incremental cash flows, following points should be kept inmind.Coni!er a'' inci!enta' effect0%part from the direct cash flows, the incidental effects onthe company:s other operations must be considered. he project may enhance profitabilityof some of the e#isting activities of the company because it has a complimentaryrelationship with them, or it may detract profitability of some e#isting activities as it hascompetitive relationship with them. hese effects should be considered in the project cashflows.9)nore %n& cot0 )utlay incurred in the past or e#penses already committed irrevocablyshould be considered. he e#penditure that is not affected due to either acceptance orrejection of the project under consideration can not be treated as project cash flow.

9nc'%!e O##ort%nit" cot9 )pportunity cost for diversion of available resources to theproject should be included. "f the project requires some assets already available, thecompany loses the opportunity to use them for any alternative use. he net value of suchloss of opportunity should form part of project cash flow.A''ocation of o,erhea!9 overhead costs irrelevant to the project should not beconsidered. "tems such as general administrative e#penses, managerial salaries, legale#penses, rents etc. that are being already incurred by the company and not increasing dueto the project should not be allocated to project cash flows.

6o/ /o%'! "o% treat the fo''o/in) item in #roject cah f'o/$

/ost of project feasibility study carried out before final approval of the project9 (unkcost should not be included.

/ost of e#isting idle machinery equipment transferred to new project9 (ince there isno opportunity otherwise to put the machine to any use, not to be included.

Portion of 6ead )ffice administrative e#penses allocated on project9 %llocatedoverheads should not be included.

/ost of land purchased in e#cess of current project requirements9 (ince the e#cessland is not required for the project, its cost cannot be considered incremental costrelated to project. 6ence not to be included.

>. What i the criterion %e! for !eterminin) =ife of the #roject for !eterminin)time #an of cah f'o/ #rojection$

he life of project is considered to be minimum of the following9


39/42

i. Physical life of plant 9 Period for which the plant remains economically andtechnically functional and productive, plant productivity declines due to normal wear &tear during its use it becomes uneconomical to maintain beyond certain period.

ii. echnological $ife of plant9 8ew technologies and processes make e#istingplants obsolete even before they are physically worn out.

iii. Product market life9 1arkets for a products shrink change or disappear due

to changes in consumer preferences, emerging competition etc. making continuedproduction unjustifiable.

iv. "nvestment planning horion of the company9 ime period for which thecompany wishes to look ahead as it:s long-term investment policy.

>hen any one of the above occurs, the project cannot be e#pected to run remuneratively.6ence cash flow projections are carried out only up to that time.

>4. E#'ain the reaon for %in) Wei)hte! a,era)e Cot of Ca#ita' IWACC a a6%r!'e Rate for Dico%nte! Cah 8'o/ IDC8 ana'"i. What are the 'imitation

in %in) WACC a contant rate of !ico%ntin) thro%)ho%t the #roject 'ife #an$

he /3 analysis is carried out with cash flows worked out form A$ong erm 3unds: pointof view. >%// indicates the average rate of e#pectation from the providers of long-termfunds to the project. % positive 8P2 after discounting the project cash flows at the >%//indicate that the project generates surplus in terms of present value after meeting thee#pectations of all the long-term fund providers. 6ence the >%// is considered as aAhurdle rate: for /3 analysis.

7ate of discounting generally represent the rate at which project surplus is reinvested.sing a constant rate of discounting therefore assumes that the surplus is reinvestedevery year at the same rate. 6owever in reality, opportunities for reinvestment keepchanging from time to time making it necessary to consider different rates of discountingfor different years.

>5. What i =on) Term 8%n! #rinci#'e for e,a'%ation of #roject cah f'o/$ Wh"i it necear" to ec'%!e financin) cot /hen the 'on)-term f%n! #rinci#'e iacce#te!$

he A$ong erm 3unds: principle evaluates project form the point of view of providers of

$ong erm 3unds: to the project. he benefits accrued to the suppliers of long term fundsi.e. 5quity and preference share holders, debenture holders, and term lending institutions,are compared with the sacrifices made by them for the project. $ong-term fund suppliersprovide for outlays in fi#ed assets and margin for working capital. @enefits accrued to thesuppliers of long term funds are cash profits after ta#, interest paid on term loans, salvagevalue of fi#ed assets, and recovery of working capital margin.

"nterest on term loans is a considered as an e#pense or cost while working out P & $account as per normal accounting principles. 6owever, under the long term funds principle,the term loan interest is considered as an accrued benefit, hence, while working out theproject cash flows, the interest on long term debt is either ignored while computing profits

and ta#es thereon or added back to the cash profits calculated by normal accountingprocedures. hese are then compared against the cost of long-term funds that includeinterest and dividend payments.


40/42

>:. Princi#'e fo''o/e! for /or&in) o%t the #roject cah f'o/.

9NCREMENTA= PR9NC9P=E9 /ash flows must be measured in incremental terms. ".e. hedifference between cash flows with the project and without the project has to beascertained. >hile estimating incremental cash flows, following points should be kept inmind.

Coni!er a'' inci!enta' effect0%part from the direct cash flows, the incidental effects onthe company:s other operations must be considered.9)nore %n& cot0 )utlay incurred in the past or e#penses already committed irrevocablyshould be considered.9nc'%!e O##ort%nit" cot9 )pportunity cost for diversion of available resources to theproject should be included.A''ocation of o,erhea!9 )verhead costs irrelevant to the project should not beconsidered.

=ONG TERM 87NDS PR9NC9P=E 0 "t is recommended that the project should beevaluated from the long term funds point of view as the assets for the project are created

out of the funds provided by long term fund providers. 6ence the principle focus of financialappraisal should be on profitability of long-term funds.

EC=7S9ON O8 89NANC9NG COSTS PR9NC9P=E0 3inancing costs of the long term fundsshould be e#cluded from analysis. his corroborates with the long-term funds principlementioned above. '"nterest on long term funds to be added back to profits after ta#

POST TA PR9NC9P=E0 %ll cash flows to be defined in post ta# terms since the cost ofcapital is considered on post ta# basis.

>>. Short note ;EARNED A=7E MANAGEMENT - Anactivity:s value its budgeted cost for a project

"f actual is more than budgeted, it earns no value

i. he project e#penditure '%/>P %ctual cost of work performed till date andcovers total cost of work done, goods received and services used, whether thesehave been paid for. "t includes accurate and provisions.

ii. (chedule e#penditure '@/>( @udgeted cost of work schedule. @udgeted costof work to be completed till given date if the project runs or schedules.

iii. 5arned value '@/>P. otal of budgeted cost for the work performed to date isthe total A5arned 2alue: of the project.

>?. Can the oft/are #ac&a)e for #roject mana)ement rea''" Mana)e Project$

What are the +aic feat%re of %ch #ac&a)e an! ho/ the" are %ef%' ineffecti,e mana)ement of #roject$

(oftware packages cannot really manage the project but they can only aid the projectmanager in decision-making process. %ny control measure to correct the deviations from


41/42

schedule, costs or e#pected performance has to be decided on the basis of varioustechnical issues involved and also needs judgment and discretion on the part of decisionmaker. % computer cannot be e#pected to carryout such functions.3eatures of project management packages that are useful in effective project management9

i. 8etwork evelopment9 Package develops a network with just the basic inputs ofactivity description, estimated duration, and activity dependencies. "t also identifies

critical activities, critical path, and floats.ii. /alendar definition9 ifferent calendars can be defined to take care of working

days, holidays and timings specific to project, location, activity, resource etc.iii. 7esource allocation & leveling9 ifferent resources ! 1anpower, equipment, and

materials can be allocated on activities and leveled to minimie periodic fluctuationsas well as to optimie their deployment.

iv. /osting9 /osts related to activities can be worked out and consolidated to givethe project cost.

v. Progress updating9 Periodic updating of progress works out the revisedschedules, costs, and indicates variances for enabling corrective action.

vi. 7eports9 2arious reports ! etail and summary ! can be produced for

management information & control.>. Eentia' feat%re of oft/are #ac&a)e for #roject #'annin) monitorin)

he software package for project management should essentially have following features9 (cheduling9 %bility to develop schedules based on three basic inputs; vi. %ctivity

name, estimated duration and precedence relationship. 1onitoring9 3acility to update project status from time to time and workout its effects. 7esource allocation9 3acility to define and allocate resources and resource costs. /alendar dates9 (chedules to be represented o calendar basis rather than on day

numbers.

/ost allocation9 3acility to define fi#ed and variable costs of activities. 7eporting9 %bility to prepare and print reports in tabular and graphic formats.

)ther desirable features could be9 3ormal9 preferably %)8 format with at least three types of relationship 3(, ((, & 33. >@(9 3ull >@( format preferred to outlining. (ub-projects9 3acility to link independent projects as sub-Projects. "nterfacing9 5#port-"mport and linking to databases and other applications.

?F. What are the it%ation in /hich e,a'%ation of in,etment a'ternati,e ifaci'itate! +" !eciion tree ana'"i$ E#'ain the +aic te# in,o',e! in!eciion tree ana'"i.

(ome investment decisions are not isolated or not unconnected with future outcome ofevents after making the decision are analysed with help of decision tree technique. 1anysuch outcomes would be beyond the control of the decision maker and will be a result ofchance to a greater or lesser e#tent.

% decision tree consists of a number of branches springing at each node as a result of oneof two conditions. @asic steps involved in the analysis are9

". "dentify the problem and various alternatives"". 3orm the decision tree ecision points and alternatives available for action. /hance points when outcomes are dependant on chance

""". (pecify probabilities & monetary values for various out comes.


42/42

ata for probabilities associated with each possible outcome at various chancenodes and

1onetary value of each combination of decision alternatives and chanceoutcomes.

"2. 5valuate the alternatives. 5valuate monetary values of chance points & decision points in a backward

manner till reaching the original decision point.

MET+ +Project%2

Documents

Transcript of MET+ +Project%2