Chapter: One

Introduction to Project and Project Management

What is Project?

A project is a unique endeavor to produce a set of deliverables within clearly specified time, cost and
quality constraints. A deliverables is a quantifiable outcome of the project, which results in the
partial (or full) achievement of the project objectives.

A project is a human endeavor, which creates change; is limited in time and scope; has mixed goals
and objective; involves a variety of resources; and is unique (Andersen, Grude, Hang and Turner,
1987)

In other words, project is an endeavor in which human, material and financial resources were
organized in a novel way, to undertake a unique scope of work, of given specification, within
constraints of cost and time, so as to achieve beneficial change defined by quantitative and
qualitative objectives. (Turner, 1993)

A project is a sequence of activities, which are:

• Connected
• Conducted over a limited period of time
• Targeted to generate a unique but well-defined outcome (Baguley, 1995)

A project is a unique complex of activities aimed at achieving a jointly predetermined, unique result
that must be realized with limited means (Kor and Wijnen, 2000).

A project can be defined as a “non-repetitive activity” with the following unique characteristics:
• It is goal oriented – it is being pursued with a particular end or goal in mind;
• It has a particular set of constraints – usually centered around time and resource;
• The output of a project is measurable;
• Something has been changed through the project being carried out (Maylor,1991)

A project is a planned investment undertaken to deliver a unique product. It is one-time-only set of

activities. According to Cleland and King, “A project is a combination of human and non-human
resources pulled together in a temporary organization to achieve a specific purpose.”

A project is a set of one-time-only activities designed to attain:

• Specific objectives within the constraints of time, cost and quality performance;
• Through planning, use and control of resources;
• To create a unique product within a temporary life span with starting and ending dates
• In a dynamic environment

Projects are different from standard operational activities as they:

• Are unique in nature: They do not involve repetitive processes. Every project undertaken is
different from the last, whereas operational activities often involve undertaking repetitive
(identical) processes.

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 • Have a defined timescale: Projects have a clearly specified start and end date within which
the deliverables must be produced to meet a specified requirement.
• Have an approved budget: Projects are allocated a level of financial expenditure within
which the deliverables must be produced to meet a specified requirement.
• Have limited resources: At the start of a project an agreed amount of labor, equipment and
materials is allocated to the project.
• Involve an element of risk: Projects entail a level of uncertainty and therefore carry risk.
• Achieve beneficial change: The purpose of a project, typically, is to improve an
organization/ society.

The five dimensions of project (Turner, 1993)

• Scope
• Organization
• Quality
• Cost
• Time
These five dimensions are the key dimensions for all projects, and as such, they must be:
• clearly defined at the beginning of the project
• monitored throughout its duration

• carefully managed and controlled at all times.

All these five dimensions are both connected to and dependent upon each other. It can be argued that
the failure to define all five at the beginning of the project will result in an unsuccessful project.
For example, a shortage of time left to complete a project might be compensated for by taking on
extra labour – at additional cost – or reducing the work content by changing the scope. Similarly, an
increase in quality dimensions of the project may require increases in both time and money to
compensate.

Projects are of many types. Some examples are:

1) industrial projects for developing a new product or services
2) engineering-oriented construction projects for buildings, dams, airports, highways, bridge,
cable car and other infrastructure
3) development of computer software and websites
4) development of new airplane engines, automobiles and ship

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 5) expansion, mobilization, diversification projects of various kinds
6) writing a book, thesis, project report or field assignment; preparing a plan

Characteristics of Project:

Specific Objectives Contracting and Sub contracting

Why are
Life span (Start and End) specific Beneficiaries

Characteristics of a
Constraints (time, cost and quality) Planning and Control
Project

Unique Flexibility (Adapt to change)

Team work Resources integration

projects important?

Failure to deliver a project on time, within budget and to specification poses a major threat to the
strategic direction and financial viability of any organization.

Every project is different but the things that go wrong tend to fall into two categories - aspects of
completion such as time, cost and delivery and failure to achieve the outcomes and benefits. All too
often, the completion failures are the ones that grab the headlines but the outcome failures can have
the greatest impact.

Managers and internal auditors need to understand which will have the most impact in their
organization. A project that achieves all the delivery criteria but fails to deliver the expected
outcomes or one that delivers the expected outcomes but overruns on time and budget?

The success or failure of a project can have a significant impact on the organization's ability to
provide a much-needed service, take advantage of a market opportunity or ensure compliance with
the law and other important requirements.

Classification of Project:

A. According to source of fund:

a. Private sector project (eg. Private housing, QFX and Big Cinemas, private resorts)
b. Government sector project (Bir hospital, water supply projects, road projects)
c. Grant projects (reconstruction projects, ICTC of IOE, Kalanki-Koteshwar China road
project, Tinkune-Suryavinayak Japanese road project)
d. Loan projects (Projects from ADB and World Bank fundings)
B. According to Foreign Aided contribution:
a. Joint-venture projects (Vayodha Hospital, Life Insurance Corporation, Nepal)
b. Bilateral Project (JICA, KOICA, GtZ)
c. Multilateral project (UN, UNESCO, UNHCR, ADB, WB)
C. According to technique
a. Labor intensive project
b. Capital intensive project
D. According to scale and size

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 a. Mega project (Upper Karnali, Nijgadh-Kathmandu Fast Track, Nijgadh International
Airport)
b. Major project (Madhya Marshyangdi, Out Ringroad in Kathmandu valley)
c. Medium project (Bhotekoshi, khimti, Melamchi water supply)
d. Small project (Manang hydropower, Land pooling projects)
e. Micro project (community based water supply project, micro hydro, waste collection
project)
E. According to nature of project
a. Simple project ( residential building construction, road construction)
b. Complex project (apartment and sky scrapper building construction)
c. Innovative project (car pooling project, ICT in traffic management, pathao, tootle)
d. Emergency project (reconstruction project, Jure flood obstruction clearing project)
F. According to orientation of project
a. Product oriented (cement manufacturing, brick manufacturing)
b. Process oriented ( personnel trainings, workshops and orientation project, health
related projects)
G. According to time frame
a. Normal project (in normal time @ normal cost)
b. Crash project (in short duration @ higher cost)

Goal setting criteria of a Project:

1. Specific
2. Measureable
3. Attainable / achievable
4. Realistic
5. Time bound

i.e. Goal of a project should be SMART

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What is Project Management?

Project management is the process by which projects are defined, planned, monitored, controlled and
delivered to achieve agreed outcomes and benefits.

As there are many people involved with different disciplines and expertise a key task is to ensure that
everyone knows what is expected of them. This requires the definition and scheduling of activities in
terms of duration, cost, resources and interdependencies. It is important to keep in mind that the
overall aim is to deliver objectives and benefits efficiently and effectively.

Knowledge, skill and experience in project management are critical to achieving successful projects.
The organization will need qualified and competent project managers, either in-house employees or
appointed consultants, with a proven track record to develop and apply its project management
process. It is also important to have good project control knowledge amongst members of the Project
Board.

Project Management is the skills, tools and management processes required to undertake a project
successfully. Project Management comprises of:
• a set of skills: specialist knowledge, skills and experience are required to reduce the level of
risk within a project and thereby enhance its likelihood success
• a suite of tools: various types of tools are used by project managers to improve their chances
of success. Examples include document templates, registers, planning software, modeling
software, audit checklists and review forms
• a series of process: various management techniques and processes are required to monitor
and control time, cost quality and scope on projects. Examples include time management,
cost management, quality management, change management, risk management and issue
management.
Projects are difficult to study for several reasons. They are generally multi-organizational and hence
often involve sensitive issues that many people are reluctant to have publicly discussed; they are
often of long duration and there is multiplicity or issues to be handled.

According to Project Management Institute of USA, “Project management is the art of directing and
coordinating human and non-human resources throughout the life of the project by using modern
management techniques to achieve predetermined objectives of scope, cost, time, quality and
participant satisfaction.”

Project management is the task of getting the project activities done on time, within budget and
according to specifications by a project team in a dynamic environment.

Characteristics of Project Management:

1) Objectives-oriented
2) Change-oriented
3) Single responsibility center
4) Team based
5) Functional coordination
6) Planning and control
7) Constraints

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 8) Body of knowledge (knowledge about time management, change management, integration
management, cost management, quality management, HRM, conflict management, risk
management and procurement management)

Benefits of Project management:

1) Change management
2) Environmental adaptation
3) Result-orientation
4) Coordination
5) Team development
6) Reengineering
7) Timely correction
8) Customer satisfaction

Elements of project Management:

1) Organization
2) Time
3) Cost
4) Quality
5) Human resource
6) Communication
7) Risk
8) Integration

Concept of Project Cycle:

A project can be split into a number of activities or stages. The lifecycle refers to the overall time
span and progress of the project made up of the individual activities and stages. Not all projects will
visit every stage as projects can be terminated before they reach completion but what happens during
each of these stages needs to be firmly defined with clear boundaries. The important thing to
appreciate is that it is an orderly process that involves a series of steps and procedures to bring about
a successful outcome. The diagram developed by the internal audit team for projects at Transport for
London illustrates the progression through the stages and the sort of activities that may take place
within each stage. It is possible to manage the steps, procedures and stages through a process of
project management. It is worth noting that in some cases the 'project' may finish but the 'change'
may continue for some time after the project team has disbanded, particularly in terms of the delivery
of benefits.

Project Lifecycle can be defined as:

- A series of project phases which are under taken in either sequential or parallel order.
- Having a beginning and an end, project goes through several stages of development. However
well defined the desired outcomes might be, the project process itself is, like all human
endeavors, subject to change, growth and decline. This pattern of growth and decline is a familiar
one which we see in the life cycles of many organic systems or organisms.

There are many versions of the project life cycle. The simplest has four basic stages (Turner, 1993):

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1. Germination (conception):

- During this stage the project is identified, its feasibility reviewed and initial estimates of cost
generated.
- This stage will also involve an initial definition of performance and time.
- The end of this stage, during which the project is compared with other projects or standards of
performance, will be marked by a decision to implement the project or not. The decision to
implement will then lead to the next stage of growth.

2. Growth:
- In this stage the detailed design of the project outcome is developed and decisions are made about
who will do what and when.
- Cost and time estimates are also refined.
- Both this and the earlier stage involve a relatively low, though accelerating pace of activity.
3. Maturity:
- This is the stage in which the planned work takes place.
- It is also the stage with the highest activity rate and as such it requires effecting monitoring,
- control and forecasting procedures which will tell the project manager and the staff what
- has or has not been done or spent, what ought to have been done or spent, and what will
- need to be done or spent in the future.
4. Death:
- This stage involves a slower pace of activity, involving the review and audit of the project and,
ultimately, the break-up of the project team.

More formally,
the Project

Lifecycle has, in general, the following four stages (note: sometimes there are additional stages such as
‘Project Selection’ and/or ‘Project Monitoring and Controlling’):
1. Initiation
2. Planning
3. Execution
4. Closure

(1) Project Initiation

Steps:
i) Develop Project Case
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- A detailed definition of the problem or opportunity
- An analysis of the potential solution options available. For each option, the potential benefits, costs, risks
and issues are documented.
- A formal feasibility study may be commissioned if the feasibility of any particular solution option is not
clear.
- The recommended solution and a generic implementation plan are prepared.
- The case is approved by the Project Sponsor and the required funding is allocated to proceed with the
project.
ii) Perform Feasibility Study
- The purpose is to assess the likelihood of a particular solution option for achieving the benefits outlined in
the proposal.
- The Feasibility Study will also investigate whether the forecast costs are reasonable, the solution is
achievable, the risks are acceptable and/or any likely issues are avoidable.
iii) Establish Project Charter
- The Project Charter defines the vision, objectives, scope and deliverables for the project.
- It also provides the organization structure (roles and responsibilities) and a summarized plan of the activities,
resources and funding required to undertake the project.
- Any risks, issues, planning assumptions and constraints are listed.
iv) Appoint Project Team and set up Project Office
- A Project Manager is appointed prior to the establishment of the project team.
- The PM documents a detailed Job Description for each project role and appoints a human resource to each
role suitably.
- The Project Office is set-up.

(2) Project Planning

This stage involves the creation of the followings:

a. Project Plan: outlines activities, tasks, dependencies and timeframes.

b. Resource Plan: lists labor, equipment and materials required.
c. Financial Plan: identifies labor, equipment and materials costs.
d. Quality Plan: provides quality targets, assurance and control measures.
e. Risk Plan: highlights potential risks with actions to mitigate them.
f. Acceptance Plan: lists criteria to be met for customer/public acceptance.
g. Communications Plan: lists information needed to inform stakeholders.
h. Procurement Plan: identifies products to be sourced from external suppliers.

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(3) Project Execution
The Execution stage is typically the longest phase of the project (in terms of duration).

- Within this phase, the deliverables are physically constructed and presented to the target group for
acceptance.
- To ensure that the requirements are met, the PM monitors and controls the activities, resources and
expenditure required to build each deliverable throughout the execution phase.

This stage involves the followings:

- Each activity or task listed in the Project Plan is executed.

- A series of management processes are undertaken to monitor and control the deliverables (project output),
which includes:
􀂃 identification of changes, risks and issues,
􀂃 review of deliverable quality and
􀂃 measurement of each deliverable (output) being produced against the acceptance criteria.
Once all of the deliverables have been produced as planned, the project is ready for closure.

(4) Project Closure

Following the completion of all project deliverables and acceptance by the target group, a successful project
will have met its objectives and be ready for formal closure.
- Project Closure is the last phase in the project and must be conducted formally so that the benefits delivered
by the project are fully realized by the target group.

This stage involves the followings:

- release of the final deliverables
- handing over of project documentation
- termination of supplier- and other contracts,
- release of project resources,
- communication with the stakeholders about the closure of the project, and
- Post Implementation Review to quantify the overall success of the project and to list lessons for future
projects.

Project cycle, in another view, can have following phases:

a) Identification
b) Formulation
c) Appraisal
d) Implementation
e) Monitoring and evaluation

Project Environment:

Project environment represents a connection, where the project is processed. It impacts the project and is,
therefore, conditioned. Such an interaction is provided by numerous factors as operational, physical,
ecological, social, cultural, economic, psychological, financial, organizational etc. The environment not only
formulates the project but also estimates it.
The project environment analysis is held at the beginning of the project. This method identifies the lobbies
and integrates the project stakeholders into project group. All impact factors are analyzed in this
analysis: project risks and chances, stakeholders and their interests, measures for the control. The stakeholder
type is thereby analyzed. It distinguishes between active and passive type. The first group represents project

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team and project manager, principal and customer. The second group contains authorities, works council,
competitors, persons affected by the project indirectly.
The project environment can be analyzed from various perspectives. For the purpose of this article, we would
analyze the project environment from three perspectives, which are:

1. Project time environment

2. Internal Project environment
3. External project environment

PROJECT TIME ENVIRONMENT

Fig 1. Relationship between the project time phases

The project time environment is best described using the project phases. The project phases, as we all know
are the initiation, planning, execution and closure. The figure above shows the relationship between these
phases.

For easy analysis, in explaining the project time environment, the production of an everyday product (mobile
phone) has been used. The table below shows the various processes that are carried out in each of the project
phase when manufacturing a mobile phone.

It is important to mention that the project environment is dynamic and has a high probability to change during
a projects life cycle. It is the duty of the project manager to analyze, understand and identify changes in the
project environment and adapt to the changes as they occur during the cause of a project.

Initiation Planning Execution Closing

• Identify • Detailed design of • Final review of • Review
consumers need selected concept production acceptance by
• Perform feasibility • Develop cost plan drawings management
studies • Develop schedule • Procure necessary • Settle all
• Align with plan equipment accounts
organizational • Detailed risk • Begin • Close all
goals analysis manufacturing contracts
• Identify • Determine what operations • Review
alternatives would be produced • Monitor and processes used
• Determine market in-house and what control production • Document
structure and would be • Monitor and lesson learned
competitors contracted control the supply • Reassign or
• Define • Select contractors chain disassemble
• Develop and and subcontractors • Check for planned project
selection of • Design contract and unforeseen members
conceptual design document and sign risk • Close all

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 Agreement • Testing and project records
• Select project team verification of
members performance
Table 1. Process required for the manufacturing of mobile phones

Each of the project phases can be broken down and treated as individual projects. While the senior management
and project manager mostly handles the project initiation, when subdivided, it can be characterized as a full project.
It is temporary; time bound and sets out to achieve a specific goal. All these characteristics also apply to the other
phases of a project (planning, executing and control). In the project time environment, the successful completion of
each project phase is a major milestone and usually marks the opening of the next phase. Due to the high rate of
dependency, the success of the execution phase would be tied to the success of the planning phase, also a delay in
one of the project phases would lead to a delay in all of the other phases causing a disruption of the project time
environment.

Project phase, environment and communication: Since the project phases are highly related to the
environment. Each project phase can be described as a project environment. It is now time for us to see the
relationship between these environment and communication. As we all know, the more people required in a project,
the more the communication channel required and the more difficult it is to manage the communication channels.
Below is the formula for calculating the communication channel
No of channels required = [N (N-1)] / 2 where N = No of people.

From the diagram in fig xxx above, we should realize that at the beginning of the project life cycle, fewer people
were required which gradually increases and peaks at the at the execution phase before a sharp decline is realized
during the project closure phase. This simply means that more communication channels would be established
during project execution leading to a more complex communication management process. The least amount of
communication channel is recorded during the initiation and project closure phase. The chat in figure xxx can also
be used as a resource chat.

As earlier mentioned, since the project phases are mostly dependent on the success of the previous phase, then it
becomes very important for the project manager to ensure the success of the execution phase. This is because the
execution phase is actually the phase where the product of the project is being manufactured. Also, experience has
shown that one of the major challenges that face the project closure phase is the ability to ensure the project team
members do not run out of steam to engage in a proper project closure. There is generally a struggle between
ensuring team members loyalty to the project and reducing the team’s size when there is not enough work to cater
for all members.

If at any point in time during the project the planning was inadequate due to a lack of understanding of the project
time environment; this can lead to budget and time overrun even if the project is in its final stage.

INTERNAL PROJECT ENVIRONMENT

The study of the internal project environment focuses on understanding the leadership structure, organizational
culture, organizational structure and the organizational policy and politics that is adopted within an organization
while implementing a project. This spans across all the various phases of the project lifecycle (initiation, planning,
execution, monitoring &control and close-out). The organizational culture often determines the internal project
environment. The nature of project might affect the internal project environment sometimes, but this is largely
related to the external project environment.

Leadership Structure: Effective leadership is the ability to bring people of various skills and background
together and coordinate them to achieve a common goal. It is the function of the leader to establish the
organizational vision, develop the corporate strategy and motivate the employees in achieving the organizational
goal. The strategic role leadership plays in an organization implies that the overall success of a project is dependent
on the leadership style of the organization. This is because it sets the pace for the organizational performance,
determines the type of project that the company undertakes and how it is implemented.

Organizational culture: The organizational culture refers to the way operations are carried out within the
organization. As project managers, the organizational process asset (OPA) is a very good starting point when trying
to understand the culture within an organization. The OPA is a comprehensive database where information about
previous projects is stored. Information on the database includes, but is not limited to, organizational processes,
template, policies, procedures, lessons learnt, historical information, etc. The information in the OPA gives the
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project manager an inroad to the organizational culture. Although the project organizational culture is not rigid,
improper understanding or deviation from the organizational culture without a buy in from the management can
jeopardize the success of a project.

Organizational structure and politics: The organizational structure highlights the chain of command in the
company. Who do you report to and who reports to you? What kind of project environment is it? Is it a functional,
projectized or mixed environment? Who are the company shareholders? Etc. These questions and more can help in
determining the way the organization is structured. The aim of knowing the organizational structure is to
understand the command chain, recognize the stakeholders at various levels, realize their interest and develop a
plan to satisfy the interest of the various stakeholders. The organizational politics on the other hand helps in
explaining the reason why some decisions are taken. These criteria were based on profitability and return of
investment. However, as a result of organizational politics, organizations embark on some projects that are not
profitable. This could be to increase organizations public relations, strategic reasons, personal (intrinsic), and so on.
It is, however, important for us as project managers to understand the reason for which a project was undertaken, as
it would help us in deciding the best way to approach the project.

However a project environments can be better understood from the following diagram.

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 2.0 Project Appraisal and Formulation

2.1 Concept of project appraisal

Project appraisal is a generic term used to refer the process of assessing the investment
proposals. It is a technique of evaluating, analyzing the investments and effort of calculating the
project’s viability. Project appraisal is an overall assessment of the relevancy, feasibility and
sustainability of a project prior to making decision whether to undertake it or not.

Project appraisal is done to answer two basic questions:

• Will the project meet its objectives as well as the larger need of the societies or country?
• How does project compare with other projects (alternatives) in term of funds and other
resources?

Project appraisal is carried out in systematic and scientific manner because it determines the
success and failure of the project. It helps in the optimum allocation of the resources, proper
selection of project, systematic planning and evaluating the costs and benefits.

Project appraisal can be ex-ante, ongoing and ex-post.

Ex-ante appraisal is carried before the project implementation; it is the review of the investment
proposal. On going appraisal is carried during the course of implementation and ex-post is done
after the completion of project before commissioning.

After the completion of project appraisal, the following issues are addressed:

• Whether or not the objective of the project has been successfully achieved?
• Whether or not resources were properly utilized?
• Whether or not project completed within the stipulated time?
• Whether or not decisions taken during project implementation were really useful?
• Whether or not the quality of product and services of the project are according to
standards?

Appraisal factors (types of project appraisal)

The feasibility study serves as the groundwork for project appraisal. The aspects covered in
feasibility study are re-examined during the appraisal.

1. Technical appraisal (assessment):

Technical and engineering analysis is necessary when a project is formulated. It

ascertains whether the prerequisites for the successful commissioning of the project have
been considered and reasonably good choices have been made with respect to technical
solutions, technical specifications, technical risks and uncertainties, local resources
availability, size, location, geology etc.

2. Economic appraisal (assessment)

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 2.0 Project Appraisal and Formulation

It is also known as social cost benefit analysis concerned with judging a project from the
larger social point of view. It ascertains the contribution of the project on self sufficiency,
employment generation and social order. Similarly it measures the impact of the project
on saving, investment, distribution of income in the society.
3. Financial appraisal (assessment)
It focuses on the financial viability of the project. In simple words, whether this project
will be able to satisfy the return expectations of those who provide capital. The aspects to
be looked during financial analysis include an investment outlay, cost of capital, means
of financing, projected profitability, break even points, cash flows, investment worth
judged in terms of various criteria of merit and risk.
4. Management appraisal (assessment)
Management analysis focuses on project organization, management, institutional
relationships and management capabilities in planning, organizing, staffing, leading,
implementing and controlling.
5. Marketing appraisal (assessment)
Marketing analysis is primarily concerned with marketing related issues. It will analyze
the aggregate demand, sales forecast, estimated revenue, market share etc.
6. Environmental appraisal (assessment)
Environmental assessment is concerned with the impact of the project on environmental
issues such as environmental damage by the proposed project and environmental
restoration measures. IEE, EIA are reexamined.
Once the appraisal is completed and the results come positive, the funding agency
approves the project and the project is ready to move for planning followed by
implementation.

2.2 Project Proposal (Technical and Financial)

A project proposal is common and better understood in academic, commercial, industrial and
governmental sectors. The proposal could be a request for a grant to conduct academic research
or to sell an item or to build infrastructure or to conduct income generation training and capacity
development.

Once the project idea is identified, selected and projects parameters are developed, then the
project proposal are prepared. A proposal is basic document containing the explanation of all
activities to be performed while undertaking an investment venture. In other words, it is written
document prepared to do something in a pre-planned way with the view to successfully carry out
the proposed assignment. Generally project proposal should satisfactorily answer the following
questions:

• What are you preparing to do?

• Why you are proposing to do?
• What specific results you are expecting from it?
• What is the proposed schedule?
• What is the cost of resources?

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 2.0 Project Appraisal and Formulation

• What are significant and limitations?

• How the outputs are measured?

Proposal writing: science or Art?

Proposal writing may be considered as management science as well as an art. It is management

science in the sense that writing proposal essentially requires a careful consideration of the
following points:

• Identification and selection of right project/s from different point of view

• Formulation of reasonable and achievable objective or objectives
• Selection of appropriate design/method for executing project activities
• Effective and efficient use of scarce resources (doing right things at right time)

On the other hand it is an art in the sense that the proposal you prepare should have a sales value.
The sales value depends upon how much convincing strength lies in your proposal and how
tactfully you organize and present it. The words you use, the sentences you construct and the
logic you give in your project proposal make significance for its approval and disapproval.

Consideration for preparing project proposal

A project proposal is basic document for the project. Thus it should be prepared incorporating
technical and professional details. The project manager must work as the role of the proposal
manger. The project manager has to consider various aspects while developing or preparing
project proposal.

1. Project problem
The proposal manger should identify the project problem. The problem of the proposed
project is given in the terms of reference by the client. Client may be departments,
donors, individual etc. the organization should have enough capability to handle the
technical problem and issued as specified in TOR.
2. Organization and staffing provisions
How the proposal preparing process should be organized and what are the staffing
provisions should be answered by the project manager. Generally multi-disciplinary cross
functional teams should be formed in this process.
3. Cost of proposal
How much should be spent in preparing proposal for bids is considered while preparing
project proposal. The proposal development involves cost for the organization. The
guidelines can be:
a. Cost estimates
How should the proposed bid price should be set is the customer’s ability to bear. So
cost estimates (proposed project cost of work) should be prime considerations in
estimating the cost of the proposal.
b. Bidding strategy

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 2.0 Project Appraisal and Formulation

Bidding strategy of the organizations (who calls proposal) affects the proposal so the
cost of preparation. It can be:
• Winning the project at any cost
• Competing the bid
• Participating in the bid

Contents of proposal

Every project is unique and different to each other. For instance, the development of project
proposals relating to establish drinking water supply, to construct school building, conducting
detailed feasibility study of hydropower (DPR), to provide some health facilities, to conduct
socioeconomic survey, to conduct training packages etc. may differ to great extent. Since each
project proposal entails its own uniqueness, it is not possible to get a standard format for
developing a project proposal equally applicable for all types and natures of projects. However,
the contents of all types of project proposal are broadly classified into two parts: technical and
financial. Some time management part is highlighted separately from technical part.

1. Technical part of project proposal

Technical part of the proposal gives the technical details and descriptions of the project.
The contents of technical part are:
a. Problem statement : description of the project problem
b. Special requirements: any special requirements as specified in TOR by client is
described
c. Test and inspection: procedures related to testing, quality assurance, reliability and
compliance along with specifications are prepared
d. Logistics: details of equipment, facilities, skills and administrative aspects are listed
e. Reporting: formats, timing and nature of reporting should be highlighted
f. CV: CV of key persons for the execution of the proposed project is listed along with
details
g. Capability statement: organizational capability and past similar work experience is
focused in this part
2. Financial part of the project proposal
It deals with the financial details of the project. The financial part of proposal covers the
aspects like:
a. Cost of basic materials
b. Statement of work
c. Cost summary
d. Supporting schedules
e. Profit statement
f. Elements of cost
g. Cost break down and work break down structures
h. Cost estimating techniques

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 2.0 Project Appraisal and Formulation

In this part generally format of BOQ (provided along with TOR or bid document) is
prepared and rate is quoted for the proposed work.

Management part of the proposal

It incorporates the administrative and management capability of the proposing organization

interms of:

• Organizational structure
• The financial stability
• Financial litigation history
• Accounting system
• Employee safety, health & Labor related aspects
• Cost and schedules
• Past work experiences

2.3 Procedures of Developing Project Proposal

A project proposal development is logical, systematic and professional activities which involves
various steps.

Step 1: Project brief (Statement of Work)

Statement of work is prepared by the client at the project formulation phase. It is also
known as wish list of the client which describes the needs and requirements. It is provided by the
client in the form of TOR. SOW some time called as scope of the work. The major contents
covered in SOW are:

• Need and description of the project

• Scope of the project
• Predetermined objectives and output / outcomes of the project
• Funding constraints and budget
• Specifications, quality assurance and acceptance criteria
• Project schedules
• Reporting system
• Monitoring and evaluation mechanism etc

Step 2: Pre/Feasibility study

This study is carried to find the implement ability of the proposed project. If the proposed
project work is to carry out the detailed feasibility study (DPR) then client has prepared the pre-
feasibility study report but if the proposed project is the construction of infrastructure client
should prepared the feasibility study. It covers the aspects like technical analysis, economic
analysis, financial analysis, marketing analysis, management analysis and environmental
analysis. Technical feasibility is the main focus aspect of pre/feasibility study.

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 2.0 Project Appraisal and Formulation

Step 3: Preliminary/detailed design

This phase is also known as conceptual design or architectural design. It is the expanded form of
project idea and is based on pre/feasibility study. The objective of this phase is to create a design
that will correctly and completely implements the requirements shown by study. It includes
technical aspects like survey, engineering drawings, project schedule, WBS, estimated project
cost etc.

Step 4: Proposal Development

This is the final step of the procedures in developing project proposal. According to the SOW,
pre/feasibility study and preliminary design the project proposal is then developed integrating
with the goal and objectives of the proposing organizations. It contains following details:

• Project title: a proposal begins with the title. Generally it is written in present participle of
an action verb
• Executive summary: a brief ES should be prepared which describes the brief information
and objectives of the project
• Project description: it provides the general description of the project. The major areas of
descriptions include:
o Project objective: the objective should be SMART. General objective is set up
followed by specific
o Project component: major sub sectors are specified if any
o Methods of implementation: it deals with the description about the
implementation methods proposed for the project
o Project schedule: Bar chart, network schedule for proposed project duration etc
o Project budget: cost component and sub components are detailed. Itemized in
expenses head should be mentioned
o Project monitoring and evaluation: mechanism of M&E. logical framework can
be provided.

Appendices for separate supporting documents like tax clearance certificate, firm registration
certificate, VAT registration certificate, previous work experience, signed CVs etc. can be
provided with proposal.

Step 2 Step 4

• Project Brief • Proposal

(SOW) • Pre -feasibility • Preliminary Design Development
Study Step 3
Step 1

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 2.0 Project Appraisal and Formulation

2.4 Techniques of Project Formulation

Various techniques are available for project formulation. They are

1. Feasibility analysis
2. Cost Benefit analysis
3. Input output analysis
4. Environmental / ecological analysis
5. Network analysis
6. Financial analysis
A. Feasibility analysis

Project involves massive investments. Project decisions have long term impacts and cannot be
easily altered. Before investing in ay project, investors would like to know the potential of the
project. Potential of project can be financial potential as well as socio-economic development
potential or technical potential. Feasibility analysis makes it possible to screen out non-feasible
project idea and selection of project idea. Feasibility analysis answers which project (s) to
undertake. The aspects of feasibility analysis are described as follows:

feasibility Study

preliminary Work Analysis Evaluation

Conduct technical is the project

Generation of ideas worthwhile?
analysis

if yes prepare funding

Initial Screening conduct financial proposal
analysis

Is the idea promising? conduct economical if no terminate

analysis

If yes plan for Study conduct ecological

analysis

If no terminate

a. Technical analysis:

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 2.0 Project Appraisal and Formulation

In the technical part of the feasibility study the alternate methods of selection of best
available technology and course of action are identified. In this study following works are
carried out.
• Location of suitable site
• Selection of appropriate method of construction
• Selection of suitable equipment for construction
• Specifications of construction materials
• Determining the availability of different resources
• Choice of available technology
• Design requirements and HR requirements
• Technical risks and uncertainties
b. Economic analysis:
It is also required at the time of feasibility study stage of the project. Economic analysis
is the systematic approach to determining the optimum use of scare human and non-
human resources involving comparisons of two or more alternatives in achieving a
specific objectives under the given assumptions and constraints. It measures the effect of
the project on the community and national economy. It gives the answers about the
economic viability of the project and also known as cost benefit analysis. The economic
viability of a project is analyzed using four basic steps as:
i. Identify the economic costs and benefits
ii. Quantity the costs and benefits as much as possible
iii. Value the costs and benefits
iv. Compare the benefits and costs.
c. Marketing analysis:
Marketing analysis is carried put to find out the project’s capability to address customer
needs along with the integrity and consistency of the marketing assumptions and helps to
reformulate the project if necessary on its likelihood of viability and sustained market
performance. This analysis is carried out in four basic steps as:
i. Marketing definition
ii. Market analysis
iii. Strategic appraisal
iv. Expected performance
d. Management analysis:
Management analysis during feasibility analysis deals with the assessment of managerial
capability in terms of planning, organizing, staffing, leading and controlling. The areas of
focus in management analysis include:
i. Institutional relationship with the project, funding agency, contracting authority,
implementing agency and beneficiaries
ii. Project management
iii. Stakeholder analysis

e. Financial analysis:

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 2.0 Project Appraisal and Formulation

Financial analysis during feasibility analysis examines the adequacy of return to the
project operating entity and to the project participants. In financial analysis, all
expenditures incurred under the project and revenues from it are taken into account.
Financial analysis also identifies the estimation of the capital cost requirements, and the
sources and means of financing, cash flow, accounting and reporting system,
profitability. Generally six approach step is carried in financial analysis as:
i. Preparing cost estimates
ii. Forecasting incremental project net cash flow
iii. Determining the financial NPV
iv. Calculating financial IRR
v. Understanding risk
vi. Performing sensitivity analysis
f. Environmental analysis:
It studies the impact of the project on the environment. Study of EIA or IEE is carried
simultaneously during the feasibility analysis. Environmental assessment is the process of
identifying, predicting, evaluating and mitigating the bio-physical, social and other
relevant effects of development proposals prior to major decisions being taken and
commitments made. The areas of focus during environmental analysis are environmental
sustainability, environmental impact and its mitigation measures.
g. Socio-political analysis:
Socio-political analysis is a systematic study of the social, political and economic relation
and factors that shape a particular environment and how these affect the lives and
opinions of those live within it. It is necessary because this forces positively or negatively
impact project implement-ability a lot.
B. Cost- Benefit analysis:

In simple term it is known as economic analysis of the investment proposal from the larger social
point of view. Therefore it is regarded as social cost benefit analysis (SCBA) in general. Cost
benefit analysis is the comparison of different projects competing for the same resource budgets.
The use of payoffs matrices is currently fashionable in this regard. It evaluates the cost involved
and the benefits of the projects. In developing economy, governments are involved large sum of
investments; consider a SCBA in their investment including donor agencies.

SCBA measures the income gained or lost by individuals, groups within the society, other
private business, government, workers, consumers, external forces. The gain or loss to an
individual group within the society as a result of the project is equal to the difference between
the shadow price and the market price of each input in case of physical resources or the
difference between the price paid and the value received in the cost of financial transactions.

It is an analytical tool in decision making which enables a systematic comparison to be made

between the estimated cost of undertaking a project ad the estimated value and benefits which
may arise from the operation of such a project. It is used in both sectors public and private. For
private sectors, CBA examines the profitability but for public sector in examines the social

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 2.0 Project Appraisal and Formulation

profitability. Social profitability is determines in terms of economic growth, income

redistribution, employment generation, social development and poverty reduction.

Rationale for SCB Analysis

Market imperfections:

Actual monetary costs and benefits of the project can be obtained only on perfect market system.
When imperfection exists, market prices do not reflect social values. Market imperfection is due
to rationing of commodity, minimum wages and foreign exchange regulations.

Externalities:

A project may have a beneficial effect externally or may have a harmful effect externally. The
monetary value may not capture the beneficial or harmful effect to external.

Taxes and subsidies:

From the private point of view, taxes are definite monetary costs whereas subsidies are definite
monetary gains. But from a social view point they are just regarded as transfer payments and
hence considered as irrelevant.

Concern for savings:

For the private point of view, it is not a different valuation of consumption or saving in the
economy. Form a social point of view, higher valuation for savings and lower valuation for
consumption.

Merit wants:

Goals and preferences are not expressed in the market place, but believed by policy makers to be
in the larger interest. It is referred as merit wants. The merit wants are not relevant form a private
view point but are important in social point of view.

Concern for redistribution:

A private firm do not bothers how its benefits are distributed across various groups in the
society. In contrary to this, the society concerns about the distribution of benefits across different
social groups.

Procedure for SCBA

• Determine the problem

• Ascertain alternative solutions to the problem
• Estimate costs and benefits
• Decide on the optimal solution
• Comparison of cost and benefits
• B/C ratio computing

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 2.0 Project Appraisal and Formulation

• IRR
• NPV

Limitations of SCBA

• The estimation of costs and benefits are subjective and lack accuracy
• Social costs and benefits are difficult to forecast and quantify
• Spin-off benefit remains un quantified
• Shadow price provides room for discretion and arbitrariness

Concept of Shadow price:

The shadow price is imputed market valuation of a commodity or service which has no market
price. It is worth of obtaining an extra unit of a scarce resource.

Basis of shadow pricing

• User’s willingness to pay

• Cost of production and marginal cost of production
• Border pricing
• Foreign exchange value
• Consumption rate of interest
• Investment rate of interest
• Marginal productivity of labor
C. Input output analysis:

It is used to analyze the inter industrial relations and dependencies among the sectors in a
comprehensive economic system. The IOA can be used to determine intermediate materials,
labor, capital and import requirements with mutually consistent production level and resource
requirements. It is based on empirical investigations.

Input analysis:

It deals with the analysis of human and non-human resources that serves as inputs for the project.
The inputs such as labor, capital, HR, information and physical resources etc. are used in order to
produce finished goods or services in sectors and industries. In any investment project the inputs
are analyzed and reviewed. The key areas of inputs are:

• Human resources: to ascertain the right people at right post at right time
• Materials: procurement, quantity and specification
• Equipment: procurement, hiring, repair and maintenance, operating manual and technical
know-how
• Money: financial obligations, financial capability, cost of capital etc
• Information: PMIS, reliable, accurate, updated and sufficient information for decision
making

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 2.0 Project Appraisal and Formulation

D. Environmental analysis:

It studies the impact of the project on the environment. The areas of focus for environmental
analysis are Environment Suitability and Environment Impact.

a) Environmental Suitability: A Resource management aspect of project is given prime

consideration to examine the project as environmental suitability.
b) Environmental Impact: Environmental Impact Assessment is carried out to identify the
impact of the project in environment. The mitigation measures for the probable impact
are justified in EIA.

An overview of EIA

Definition:

Need to “identify and predict the impact on the environment and in human’s health and
wellbeing of legislative proposals, policies, programmes, projects and operational procedures
and to interpret and communicate information about the impact.”

Usefulness of EIA:

EIA is considered as a project management tool for collecting and analyzing information on the
environmental effects of projects to aid planning and implementation of decisions. It is used to:

• Identify potential environmental impacts

• Examine the significance of environmental implications
• Recommend preventive and corrective mitigating measures
• Inform decision makers and concerned parties of environmental implications
• Advise whether development should go ahead

Purpose of EIA

• EIA provides a systematic examination of environmental implications of proposed

actions and alternatives to assist decision making.
• The cost benefit and tradeoff analysis between the project implementation and associated
environmental costs facilitate the decision makers in making decisions which are more
likely to result in sustainable projects.

Project types:

EIA generally applies to projects, which require construction (e.g. infrastructure or

manufacturing projects)

There are two types of projects

a. Line projects (bridge, power station)

b. Band project (road, electrical T & D line)

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 2.0 Project Appraisal and Formulation

The EIA process

The main activities of EIA process are explained in brief in their logical sequence

1. Project screening
2. Scoping
3. Project descriptions and consideration of alternatives
4. Description of environmental base line
5. Prediction of impacts
6. Evaluation of impacts
7. Mitigation measures
8. Stakeholder involvement
9. Monitoring and auditing measures
10. EIA report
11. Review
12. Decision making

Screening the project

EIA needs for only those projects which adversely affect the environment and possessed likely
impact.

Screening procedures in Nepal

Environment protection ACT 2053 B.S and Environmental protection rules categorize the project
according to output. Act and rule clearly defines the project types which need either EIA or IEE.

IEE is carried out to determine if significant adverse effects are likely to occur which requires
detailed study before mitigation measures can be determined

Mitigation measures

• Mitigation measures are recommended actions which reduce, avoid or offset the
potential adverse environmental consequences of development activities.
• The objective of mitigation measures is to maximize benefits and minimize
undesirable impacts.

Types of mitigation measures

Corrective measures:
To reduce the adverse impacts to acceptable level Example: pollution control device, fish
ladder
Compensatory measures:
To address adverse impacts which are un-avoidable. Example:restoration, compensation
Preventive measures:
To prevent from the occurrence. Example: awareness, capacity development
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 Chapter- 3: Project Planning and Scheduling
Planning
 Thinking ahead of an operation to be performed.
 Function of deciding what has to be done, how, by whom, by when and with what i.e.
doing the job in the mind.
 Managers who do not plan cannot control because they have no yardstick to judge the
progress.

PLANNING

ESTIMATING SCHEDULING CONSTRUCTION

COST RESOURCES TASKS COST RESOURCES SITE LAYOUT TECHNOLOGY

DIRECT INDIRECT Material Activity start & finish Cost Profile Resource Aggregation Materials Methods
Equipment dates Resource Levelling Equipment Organization
Manpower Limited Resource Manpower
Materials Overheads Project start & Allocation
Equipments Profits finish dates
Manpower

Sequence of operations

Reasons for Planning

 To eliminate or reduce uncertainty

 To improve efficiency of the operations
 To obtain better understanding of the objectives
 To provide basis for monitoring and controlling the work – to monitor
performance in terms of output, time and money
 To keep the plan under constant review and make action when necessary
to correct the situation
Objectives for Planning

 Analysis – how, in what order, with what resources

 Anticipation – foreseen potential difficulties, anticipate risk and plan to
overcome them accordingly.
 Scheduling resources
 Coordination and control – provide basis for co-coordinating the work
among concerned; provide a basis for predicting & controlling time
and cost.
  Production of data - to provide a framework for decision making
in the event of change.
Planning must consist of:

 Objectives
 Programs
 Schedules
 Budget
 Forecast
 Organization
 Policy
 Procedure
 Standard

Major dimensions of a plan as follows

Time Dimension Use Dimension Scope Dimension

1. Short-range 4. Single Use 6. Strategic

2. Medium-range 5. Standing Use 7. Tactical

3. Long-range 8. Operational

Scheduling

Scheduling is laying out of the actual jobs of the project in the time order in which they have to be
performed. Manpower and material requirements needed at each stage of construction are calculated,
along with the expected completion time of each of the jobs.

Bar Chart –

o Gantt Chart
o Linked Bar Chart
o Milestone Chart

Network Diagrams –

o CPM (Critical Path Method)

o PERT (Program Evaluation & Review Technique)

Bar Chart or Gantt chart

It is a graphical representation of project activities shown in a time scaled bar line with no links shown
between activities. A bar chart is a scheduling technique in which activity duration is drawn to scale on a
time base. A bar chart is also called a Gantt chart since it was developed by Henry Gantt.

It is one of the most popular and widely used techniques for planning and scheduling activities because
the graphical representation of a bar chart makes it easy to read and understand.

How to draw a Bar Chart ?

 Listing of work activities

 Estimation of work duration
 Identifying start and completion date in calendar format
 Drawing each activity as a horizontal bar in chronological order according to its start
date.
Sample of a Bar Chart
Advantages of a Bar Chart

 Easy to understand
 The status of the project can be assessed in a short time
 Easy to develop and implement
 No training is required
 Appropriate for small projects
 Starting point for planning
Disadvantages of a Bar Chart

 The length of the bar indicates rough time estimate.

 Difficulties in seeing immediately and exactly overall project duration if changes occur in
any particular activity.
 Not detail but gross planning
 It does not show specifically which activities to control and expedite and how much.
 It does not depict the dependencies of activities upon each other.
 Updating means to redraw the entire chart again and again.
Linked Bar Chart

Linked Bar Chart is a modified version of Gantt bar chart. It was developed to overcome some of the
inherent limitations of bar chart. It shows the links between an activity and the preceding or succeeding
activities. The linking bars are very complicated, difficult and sometimes impossible to show graphically.

 Start to Finish
 Finish to Start
 Start to Start
 Finish to Finish
The linked bar chart has advantage of exhibiting the effect of delay on succeeding activities and also it
can provide some information of the extra time available (if there is) with an activity for its completion.
The extra time available for an activity for its completion is called float. Similarly, the activities, which do
not have extra time for completion, are called critical activities.

Milestone Chart

Milestone Chart is an improved version of a bar chart in which some of the limitations of bar chart are
eliminated. As Henry Gantt invented it, it is called Gantt Milestone Chart. Combined activity bar charts
can be converted to milestone bar charts by placing small triangles or circles or a flag at strategic
locations in the bars to indicate completion of certain milestones within each activity or group of activities
as shown in figure below. A milestone implies some specific stage or point where major activity either
begins or ends, or cost data become critical.

Each bar in a milestone chart again represents an activity or job or task and all the bars taken together
represent the entire project.

A milestone chart shows relationship between the milestones within the same activity or job or task. Thus
as compared to bar chart better control can be achieved with the help of a milestone chart, but it still
possesses the same deficiency that it does not depict the interdependencies between the various tasks or
the relationship between the milestones of different tasks.
Network Diagrams

CPM - Critical Path Method

PERT - Program Evaluation & Review Technique

Network Diagrams

o Critical Path Method (CPM) is a graphical network- based scheduling

technique that evolved in late 60’s. US Government agencies insisted on
their use by contractors on major government projects.
o Basic concepts of CPM such as activities, events and predecessors have
become a regular part of the language of Project Managers.
o CPM enables planners and managers to thoroughly analyze the timing and
sequential logic of all operations required to complete a project.
o In the 1950s, the US Navy developed the project management tool known as
PERT (Project Evaluation and Review Technique).
o In the same decade (in 1956) CPM (Critical Path Method) was developed
jointly by Engineers at DUPont and Remington Rand.
o Since the mechanics of the two approaches are so similar, they are now
commonly referred to as CPM/PERT.

Activities

What causes the change of a project from one event to other.

Represented by Arrow Head from Tail event to Head Event, but length of arrow doesn’t represent the
length of duration.

 Critical & Non-critical Activities

  Preceding, Succeeding & Concurrent Activities

Dummy Activity

It is the activity, which doesn’t consume resources like time, cost, manpower, equipments etc. but is only
used to show relationships.

It is represented by Dashed Arrow

Events

Occurrences before or after an Activity

Head Event

Tail Event

Dual Role Event

Represented by Circles, marked by Number.

Logical sequence of Events and Activities form the CPM / PERT Networks.

Numbering the Events

Fulkerson’s Rule

For any activity, the number on the Tail Event should not be greater than that on the Head Event.

In other words, the number on Head Event must always be greater than that on Tail Event.

Critical Path
  It is the longest path of activities.

 It determines the total project duration.

 There may be more than one Critical Path in a network.

 A Critical Path may consist of less no. of activities than Non-critical Path.

 It is the starting point for project planning.

 The Critical Activities demand the requirement of resources prior to other activities to
complete the project in time.

Earliest Time & Latest time

 Earliest Start time (EST)

 Earliest Finish Time (EFT)

 Latest Start time (LST)

 Latest Finish Time (LFT)

They can be determined by calculation in:

 Forward Pass

 Backward Pass

Floats

Float means the available free time for an activity, which is useful for managers to manage the limited
resources.

Total Float (TF)

Free Float (FF)

Independent Float (IF or Ind. Float)

Interfering Float (Int. Float)

Total Float (TF)

It is the total free time for an activity.

Free Float (TF)

It is the spare time allowable for an activity so that the start time of succeeding activities are not affected.

Independent Float (IF or Ind. Float)

It is the maximum delay allowable for an activity so that the start time of succeeding activities are not
affected. It may come negative but should be taken as zero.

Interfering Float (Int. Float)

It is the difference between TF & FF.

- For development works, researches, space programs etc., with no fixed time.

- Three Time Estimates

  Optimistic Time (to)

 Latest Event Time (tm)

 Optimistic Time (tp)

CPM PERT
  CPM is a deterministic tool, with  PERT is a probabilistic tool used with
only single three
estimate of duration.  estimate of duration.
 CPM is activity oriented.  PERT is event oriented.
 The deterministic factor is more so  The probability factor is major in PERT,
values or so outcomes may not be exact.
outcomes are generally accurate  PERT considers more uncertainty.
and realistic.  PERT is more suitable for R&D related
 CPM considers less uncertainty projects where the project is performed for
 CPM is best suited for routine the first time and the estimate of duration
projects requiring accurate time and are uncertain.
cost estimates.  This tool is basically a tool for planning
 CPM also allows and explicit and control of time.
estimate of
costs in addition to time, therefore
CPM can
control both time and cost.

Similarities between CPM / PERT

Both tools lead to the same end: a Critical Path and Critical Activities with slack time equal to zero.

Extensions of both PERT and CPM allow the user to manage other resources in addition to time and
money, to trade off resources, to analyze different types of schedules, and to balance the use of resources.
tensions of both PERT and CPM allow the user to manage other resources in addition to time and money,
to trade off resources, to analyze different types of schedules, and to balance the use of resources.

Project Scheduling with Limited Resources

Planning is usually done for unlimited and readily available resources.

However, in practice, resources are usually limited and scarce. There are many jobs sharing common
resources and available resources are not adequate enough.

But, the beauty of the scarce resources is that they can be managed.

The completion of a construction project at maximum efficiency of time and cost requires the judicious
scheduling and allocation of available resources. Men power, equipment and materials are important
project resources that require close attention.

The supply and availability of resources is seldom be taken for granted due to seasonal shortage, labor
disputes, equipment breakdowns, competing demands, delayed deliveries and many other uncertainties.
Most project managers are faced with:
 The problem of relatively fixed manpower availabilities, a certain number of machines or other
pieces of equipments, and – considering money as a resource- a limited budget.
 Jobs that occur on parallel paths through the network may compete for the same resources, and
even though precedence constraints would not prevent their being scheduled simultaneously, a
limited supply of resources might force them to be scheduled sequentially.
 If there will be adequate resources available, the work goes according to established schedule and
no adjustment of the job completion date is required.
 If the resources demand exceed the supply, remedial measures to combat inadequate resource
supply is to be made. If there are conflicts among project activities for the same resource items,
activity duration & precedence relationships should be considered and rescheduling the non-
critical activities will often solve the problem.
 In most project situations resources can be acquired or released in practically any desired amounts
if one is willing to pay expenses involved in changing resource levels, such as the costs of hiring,
training, unemployment insurance, and so on.
 It is usually prudent, however, to maintain relatively stable employment levels and to utilize
resources at a more constant rate.
 The scheduler may use activity slack as a means of smoothing peak resource requirements.

Resource Leveling
It is the method of scheduling activities within their available float so as to minimize fluctuations in
day- to- day resource requirements. By resource leveling, we try to optimize the use of resources
required to complete a project. Resource leveling helps in obtaining uniformity (so far as possible) in
resource requirement throughout the life of a project. The benefit of resource leveling is to ease
resource management so that cost involved in managing resources can be minimized.

 If resource is manpower, its leveling is called “Manpower Leveling”

 Usually, activities and their logical sequence are determined, then time duration of each activity is
determined. After that only, resources are allocated by Resource Aggregation, Resource
Allocation and Resource Leveling.
 Like manpower, Materials schedule is also done based on CPM/PERT analysis.
 It helps to deliver materials at site well in advance but avoids delivery far in advance, as a result
of which deterioration, damages etc. are avoided.
 4.0 Project Implementation and Controlling

4.1 Introduction to Monitoring, Evaluation and Controlling

Concept of Monitoring and Evaluation

Monitoring and evaluation (M & E) are of critical importance for achieving the objectives of
project. They are related but distinct activities. The key things for M & E are time, cost and
performance standards.Monitoring is usually an on-going activity throughout the life of the
project. Evaluation is periodic. It is undertaken at certain times, such as mid-term or termination
of project.

Monitoring

Monitoring refers to the timely gathering of information to review of project implementation. It

is on-going management review key factors of project implementation performance. It aims to
ensure that project inputs, schedules, outputs and other actions are proceeding according to the
project plan. It is done during the project implementation phase. It is concerned with results.
Benefits can also be monitored.

Evaluation

Evaluation is an objective and systematic judgmental process for determining relevance,

efficiency, effectiveness and impact of project performance. It is assessment of project during
implementation.

Evaluation is done to improve project implementation and to improve future project planning
and decision making. It is an external activity in the project.

The objectives of project evaluation are:

a) To verify whether the project implementation progress is as planned.

b) To take corrective measures for deviations in performance.
c) To ascertain that actual costs are within the budgets.
d) To ensure that quality standards are being attained.
e) To identify unexpected problem areas and manage them.
f) To bring about overall improvement in project performance to achieve project
objectives.
Evaluation can be of the following types:

• On-going: Conducted during the implementation phase. Its purpose is to correct

deficiencies as they occur to improve project performance.
• Mid-Term: it is carried out mid-way during implementation. Its purpose is to improve
implementation.

1
 4.0 Project Implementation and Controlling

• Terminal: It is conducted after project completion. it provides lessons for future project
planning.
• Ex Post: It is conducted some years after project completion to evaluate the impact of the
project.
Controlling

Controlling is the management function of comparing the actual achievements with the planned
ones at every stage and taking necessary action, if required, to ensure the attainment of the
planned goals. It includes three step processes- measuring, evaluating and correcting.

Measuring: determining through formal and informal reports the degree to which the progress
towards objective is being made

Evaluating: determining cause and of possible ways to act upon significant deviations from
planned performance

Correcting: Taking control action to correct an unfavorable trends or to take advantage of an

unusuallyfavorable trend

Measuring

Correcting Evaluating

4.2 Project Control

Concept of Control

Control is an essential function of management. it ensures that the right things are done in the
right manner and at the right time. Control is measuring, evaluating and correcting actual
performance to achieve planned targets.

Control is managerial process. It is interrelated with planning. Planning provides standards for
control. Control measures actual performance and compares it with standards to identify
deviations. Deviations are analyzed to take corrective actions.

Control is a continuous process. To be effective, it should give attention to critical control points
or benchmarks where deviations adversely affect the attainment of targets.

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 4.0 Project Implementation and Controlling

Types of Control

Control can be of the following types:

Pre-control (Feed-forward control): It is inputs-based. It is initiated before the start of the

activity. It anticipates problems in advance and takes preventive corrective actions. Examples
are: specifications for quality control, capital budgeting methods, acquisition of right human
resources.
Concurrent Control (Yes/No Control) : It is transformation-based. it is initiated during the
implementation of the activity. It consists of actions to ensure that operations are being
conducted according to plans. Problems are corrected as they arise. Example is quality control
from process to process.
Post Control (Feedback Control): it is output-based. it is initiated after the completion of the
activity. It is based on feedback of performance results. Example is financial analysis.

4.3 Project Control Cycle

Control Cycle

Control is a cyclical process. It involves the following steps:

Setting
Standards

Corrective Goals Measuring

Actions Performance

Finding and
Analyzing
Deviations

Fig: The Process of Control

1. Setting Standards (What should be done?)

Planning sets standards for performance. Standards are the starting point of control. They are
target or yardstick of performance. Standards should be clearly understandable. They should be
reasonable. Employees should see them fair and attainable

Standards can be in terms of quality, quality, costs, income, and time. Standard costs, standard
operating time, sales goals per salesperson, quality standards, kilometers per liter are examples of
standards.

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 4.0 Project Implementation and Controlling

2. Measuring Performance (What actually was done?)

The second step in control is measurement of actual performance within a given period. It is a
continuous on-going process to get feedback.

Internal reports relating to quantity, quality, costs, income, time etc., provide information about
actual performance.
3. Finding Deviations (Extent and causes of difference)

The third step in control is comparison of actual performance with standards. Performance can
be equal to, be higher, or be lower than standards.

The magnitude of deviation is identified. The causes and incidence of deviation are analyzed.
The responsibility for deviation is located.
4. Corrective Actions (Future Standards)

The performance is evaluated in terms of deviations. Corrective actions are taken. The actions
can be:

Do nothing: If the performance deviations are within the allowable tolerance, status quo is
maintained.
Correct deviations: Actions are taken to correct the deviations. They can be more training, better
raw materials, improvements in design, greater motivation, etc.
Change Standards: Standards are revised to make them appropriate and realistic.

Project control system

Project control system is a process or mechanism for continuing regular monitoring and
controlling of a project. It serves two major functions.
• Ensures regular monitoring of performances
• Motivates project personnel to strive for achieving project objectives
Some important information a project control system should provide to the project
manager:

1. True picture of work progress

2. Relationship between cost and schedule performances
3. Potential problems
4. Practical level of summarization of the problem and action take
5. Audit ability

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 4.0 Project Implementation and Controlling

A successful project management system is one which monitors and responds by a control action
as early as possible after an event. Figure shows the elements of a project control system

Fig: Elements of Project Control System

Pre-requisites of Control system

• Planning
• PMIS
• Project Organization Structures
• Participation
• Timeliness
• Flexibility

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 4.0 Project Implementation and Controlling

4.4 Elements /Areas for Project Control

The project constraints consisting of time, cost, and quality performance serve as the key areas
for project control.

Time / schedule Control

Time control can be of two types:

• Normal Time Control: It is the estimated time for completion of an activity. Increase
beyond this time is not likely to result in cost reduction.
• Crash Time Control: It is the estimated time of completion of an activity which cannot be
reduced further irrespective of cost considerations.
Every project has an optimal time schedule which is effectively controlled to check time
overruns. Time delays result in cost overruns. Bar Chart and Network analysis are used to
control schedules.

Cost Control
Project cost estimation and budgeting serves as a foundation for cost control. Evaluation and
control of project costs are important components of project evaluation and controlling.
It involves the following:
• Establishing a project cost baseline plan
• Developing standard costing and budgetary control system for the project
• Establishing authority, responsibility and accountability for cost control at task level
• Ensure proper allocation of cost to project codes, authorization for decision making
• Measuring actual cost and comparing with standards
• Tracing out deviations
• Maintain financial discipline through internal auditing and external auditing
• Taking remedial and corrective actions
Quality Control
Quality control is checking errors during project implementation. Quality control inspectors are
used for checking quality. Statistical quality control techniques are also applied for monitoring
quality. Conformity to agree specifications are monitored. Adjustments are made for deviations.
Project outputs not meeting the standards are rejected, scrapped or reworked.

The elements of project quality are:

• The project’s product

• Management process
• Quality planning
• Quality assurance
• Quality control
• Corporate culture

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 4.0 Project Implementation and Controlling

4.5 Project Schedule Control

Schedule control

Time is on resources that we manage and control; it is non renewable. Schedules are graphical
representation of time management on a project.

Control of project progress is an on -going activity. Progress must be marked on the plan for
everyone to see; it should be reported from site and must be supplemented by the report on
expediting procurement activities so that reliable updated reports can be prepared at regular
intervals. During the process of implementing the plan according to the schedule, we may come
across one or more of the following possibilities:

• That some or all activity are progressing according to schedule

• That some or all activities are ahead of schedule and
• That some or all activity are behind the schedule

If all activities are progressing according to the schedule, there is no need for the updating the
network but this is seldom the case. Therefore, based on the progress of the work and revised
durations of unfinished activities due to delays, the schedule has to be re drawn. Hence the
network diagram should be update to control the delays in schedule.

Updating

When the progress report has been received from the site, it is necessary to compare it with the
original schedule. Although the duration of each activity can be compared with its planned
duration, this does not give an accurate picture of actual performance. For a clear understanding
of what a delay on an activity means to the complete project plan, it is necessary to perform an
update. In effect this involves entering the progress information into the network plan and
analyzing the network with this added information.

The process of re-planning and rescheduling based on the results which serve as a guidance for
decision by performing calculations made by taking into consideration of new knowledge and
latest information at an intermediate stage of the project thus modifying the original network, is
known as the process of Updating

Data required for updating

The following information is necessary to update the plan at an intermediate stage of execution
of a project:
• Original network
• Original network calculation chart
• Stage at which the updating is being done
• Execution position of the project at that stage and

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 4.0 Project Implementation and Controlling

• New information and knowledge, that affects the duration time of the activities to be
performed
Steps in updating process

• DESCRIBE updating point as per the original plan

• RECORD what has happened actually till that point
• SUMMARIZE the knowledge attained in the tabulated form
• PLACE the information contained in the updating table on to the original
network
▪ Assigning the time of update as earliest occurrence time for the tail event
of the project
▪ Allocating a zero time duration for all activities which have been
completed
▪ Entering the remaining estimated durations of those activities which are in
progress and
▪ Entering the estimated durations based on knowledge of activities which
are still to be commenced
• PERFORM calculations of earliest occurrence time and latest occurrence time and
mark these on the network known as updated network

The updating cycle

Re-Plan / Re Schedule Compare Progress to Schedule: Is

Project Network it Satisfactory?

Issue Directions Report Progress

Execute the project Record and Assess Progress

Project Completed

Scheduling Control: They control technical performance.

The techniques are:

• Work Breakdown Structure (WBS)

• Network Analysis (PERT/CPM)
• Line of Balance (LOB)
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 4.0 Project Implementation and Controlling

• Gantt Chart (Bar chart)

4.6 Project Cost Control

Cost control may be broadly defined as the process of controlling the expenditure in a project at
all stages from its inception through its development. Cost control is not only “monitoring” of
costs and recording perhaps massive quantities of data, but also analyzing the data in order to
take corrective actions before it is too late. Cost control should be performed by all personnel
who incur costs not merely the project office.

Cost control implies good cost management, which must includes

• Cost estimating
• Cost accounting
• Project cash flow
• Company cash flow
• Direct labor costing
• Overhead cost
• Others such as incentives, penalties and profit sharing

Cost control can be achieved by appropriate decision making process and financial control
system

• Delay in decision making incurs more cost

• Prompt decision is prerequisites for better cost control
• Decision should be well received in time and disseminated correctly to lower levels to
make it cost effective

Purpose or function of cost control

Important function of accost control are as follows:

• The most important day to day use of cost control system to a contractor is to draw
his attention to any operation which proving to be costly
• To provide feedback to the estimator for guiding him for pricing of tender in future
• The cost control system must provide data for the valuation of those operations,
whose cost is found to differ from original estimated cost during the course of
construction.

General methods of cost control

1. Short term planning and control

2. Accounting methods of control
3. Project Cost Models (S-curves)

Short term planning and control

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 4.0 Project Implementation and Controlling

In this method project is broken down in much smaller components and short term plan for
weeks or even days are prepared. Such plans are easy to evaluate and monitor. Also since the
short term plans have lesser degrees of uncertainties, there is very chance of project being
controlled effectively.

Accounting methods of control

There are various types of accounting model of cost control, but all of them give historical record
only and generally not suitable for ongoing projects, some of the accounting models are as
follows

Overall profit/ loss account

Profit/loss account is prepared after the project is completed. Profit or loss is determined and the
reason is analyzed. This information is used for next project. This system is generally used for
small projects only.

Profit-loss on valuation dates

In this method, profit loss account is prepared for various periods after the project is started. This
principal is used for large projects.

Unit costing

In this method unit cost of each item is checked and compared with the planned for quoted by the
contractor) cost of item. Cost per cubic meter of earthwork, concrete etc is determined to check if
the items yield some profit.

Item of work Unit Tender Cost Actual Cost Variance Remarks

E/W in Cu.m 200 130 70 Profit
Excavation
PCC (1:3:6) Cu.m 4800 4600 200 Profit
RCC Cu.m 6500 6700 200 Loss

Project cost curves (models/ s-curve) / Earned Value Analysis

EVA is a way to measure the amount of work actually performed on a project (i.e., to measure its
progress) and to forecast a project's cost and date of completion. The method relies on a key
measure known as earned value (also known as budgeted cost of work performed or BCWP).
This measure enables one to compute performance indices for cost and schedule, which tells how
the project is doing relative to its original plans. These indices also enable one to forecast how
the project will do in future.

Earned value actually uses three data values, which are computed each week, month or whatever
other period we wish to use. We use the term analysis date to refer to the date when three values
are analyzed. For example if we use the analysis date as October 31, it would include all values

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 4.0 Project Implementation and Controlling

form project inception until the end of October. If we plot these three data value with respect to
time, we will able to get the graph known as S-Curve.

$max

TIME VARIANCE
BCWS
ACWPt
RESOURCE FLOW VARIANCE
BCWSt COST VARIANCE
SCHEDULE VARIANCE
BCWPt

ACWP

BCWP

t-p t tmax Time

The three data values are:

BCWS - Budgeted Cost of Work Scheduled

ACWP - Actual Cost of Work Performed
BCWP - Budgeted Cost of Work Performed

Earned Value Definitions

BCWS: “Budgeted Cost of Work Scheduled”

• This the total budgeted/ planned /estimated /targeted /projected cost up to the analysis
dates. It answers the question "how much did we plan to spentas of this date?"

• Planned cost of the total amount of work scheduled to be performed by the milestone
date.

ACWP: “Actual Cost of Work Performed”

• This is actual cost to accomplish all the work completed s of the analysis date. It answers
the question "how much have we actually spent?". This is usually determined from the
organization's accounting system or can often be approximated by multiplying the
number of people by the number of hours or days or weeks worked.

• Cost incurred to accomplish the work that has been done to date.

BCWP: “Budgeted Cost of Work Performed”

• This is the total budgeted / planned / targeted / planned / projected to accomplish the
work that has been completed as of the analysis date. This is the value of work that has
been earned up to the analysis date. It answers the question "how much work has actually
been completed?'

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 4.0 Project Implementation and Controlling

• The planned (not actual) cost to complete the work that has been done

Some Derived Metrics

Variances Formula Interpretation
Cost Variance CV = BCWP - ACWP • If CV is +ve, cost under run (actual
budget expense is less than planned)
• If CV is -ve, cost overrun (actual
budget expense is greater than planned)
• If CV is 0 No cost variance (actual
expense is equal to planned)
Schedule Variance SV = BCWP - BCWS • If SV is +ve, Schedule under run
(actual schedule is ahead of planned)
• If SV is -ve, Schedule overrun (actual
schedule is behind of planned)
• If SV is 0 No Schedule variance (actual
Schedule is equal to planned)
Variances expressed in percentage
Cost overrun (under run) % Over budget or under budget expresses in % ,
𝐵𝐶𝑊𝑃 − 𝐴𝐶𝑊𝑃 by what % does the cost under run or over run
∗ 100
𝐵𝐶𝑊𝑃
Schedule overrun (under Behind or A head Schedule expressed in % ,
run) % 𝐵𝐶𝑊𝑃 − 𝐵𝐶𝑊𝑆 by what % does the Schedule under run or
∗ 100
𝐵𝐶𝑊𝑆 over run
Cost trends (Index)
Cost performance index CPI = BCWP / ACWP • If CPI ≥ 1, Better Performance for
Cost, less budget
• If CPI < 1, Poor Performance for Cost,
more budget
Schedule Performance SPI = BCWP / BCWS • If SPI ≥ 1, Better Performance in
Index Schedule, ahead of schedule
• If SPI < 1, Poor Performance in
Schedule, behind of schedule
Cost trends (Fore Cast)
Estimate at EAC = Total project Cost / CPI
Completion
Schedule at SAC = original project duration / SPI
Completion
Requirements of Earned Value
• Proper WBS Design
• Baseline Budget Control Accounts
• Baseline Schedule
• Work measurement by Control Account work-hours, dollars, units, etc.
• Good Project Management Practices
EVA & EVMS will help reduce guesswork in:
• Measuring performance
• Forecasting

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 4.0 Project Implementation and Controlling

Reasons to use EVA and EVMS:

• Good project management practice
• OMB requirement

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 4.0 Project Implementation and Controlling

4.7 Project Quality Control

What is Quality?
According to advanced learner dictionary, quality is degree of goodness. Similarly cross-by
defines as conformance to requirements. According to Juran, Quality is fitness for purpose.

Other defines quality as:

• Zero defects
• Consistent conformance to expectation
• Doing things right the first time
• Quality is the totality of characteristics of an entity that bears on its ability to satisfy
stated and implied needs

Facts regarding quality

• Quality is not grade (grade is an indicator of category or rank related to features that
cover different sets of needs for products or services intended for the same functional use.
Level is a general indication of the extent of departure from the ideal. A high grade
article can be of inadequate quality as far as satisfying needs and vice versa. E.g. a
luxurious hotel with poor services or small guest house with excellent service)
• Quality costs more, but lack of quality costs even more
• Quality is means of achieving project success. It is not the goal in itself
• Process quality is more than product quality
• Quality standards do not demand the best quality; they establish the minimum
requirements to be achieved
• Quality does not happen by accident, it has to be properly planned and implemented

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 4.0 Project Implementation and Controlling

Evolution of Quality management Concept

Quality Management

QUALITY CONTROL QUALITY ASSURANCE TOTAL QUALITY

What to do? • Detection • Prevention • Improvement
How to do? Output Verified • Work Procedures • Work Processes
•Adequate • Improvement
• Authorized
• Implemented
Method? • Inspections • Audit • Quality Circles
•Sample or 100% •Samples •all work processes
Who does? • Inspectors • QA Organization • All Employees
•Client
• Suppliers

1.Quality Control

Quality Control is the operational techniques and activities that are used to fulfill requirements
for quality. Quality Inspection is done first for quality control. Activities such as measuring,
examining, testing, gauging one or more characteristics of a product or service and comparing
these with specified requirements to determine conformity is quality inspection.

Inspection is concerned with sentencing the product as good or bad, by comparison with the
standard. On the other hand, quality control is concerned with feedback of the comparative
information in order to regulate the process. In quality control, the limits are set so that the
process can be adjusted before product from the process reaches the limit where it has to be
rejected.

2.Quality Assurance

All planned and systematic actions necessary to provide adequate confidence that a product or
service will satisfy given requirements or quality both within the organization and Quality
assurance:

• Is a systematic way of ensuring those organized activities happen in a way that they
are planned
• Is concerned with anticipating problems and with creating the attitudes and control
that prevent problems from arising.

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 4.0 Project Implementation and Controlling

3. Quality Management

Quality management includes Quality Assurance (QA) and Quality Control (QC) as well as
other concepts of quality planning, quality policy and quality improvement. Total quality
management (TQM) develops these concepts as a long – term global management strategy
and the participation of all members of the organization for the benefit of the organization
itself, its members, its customers and society as a whole.

4.Total Quality Management

Total quality management is a new concept of quality management and is that aspect of the
overall management function that determines and implements the quality policy. The
essential elements of TQM are:

• Quality Planning
• Quality Control
• Quality audit
• Quality surveillance
• Quality Assurance
• quality Circles

Fig: TQM

Some Quality Related term and its definitions

Quality System
The provision made by management to ensure that quality is protected and promoted throughout
all an organization's activities is referred to as the 'Quality System' or Quality Management
System'.

Quality Plan
A Quality Plan (QP) is a document setting out the specific quality practices, resources, and
sequences of activities relevant to a particular product, service, contract or project. It should
define:
• The quality objectives to be attained
• The specific allocation of responsibilities/authority during the different phases of the
project.
• The specific procedures, methods and work instructions to be applied.
• Suitable testing, inspection and audit programs at appropriate stages.
• A method of modification for the quality plan as the project proceeds.
• Other measures necessary to meet the objectives

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 4.0 Project Implementation and Controlling

Quality Circle
Quality circle is a small group of employees in the same work area of doing a similar type of
work who voluntarily meet regularly for about an hour every week to identify, analyze and
resolve work related problems, leading to improvement in their total performance and
enrichment of their work life.QC is a technique of participative management for continuously
improving quality, quantity, efficiency and safety.

QC is a work group of employees, who meet regularly to discuss their quality problems,
investigate causes, recommend solutions and take corrective actions.

Quality Management Tools

• Brain Storming: Brainstorming is an idea-generating process. Alternatives are generated
spontaneously through group creativity.
• Cause and Effect Analysis: Cause and effect analysis is very useful for investigating root
causes of problems. A solution applied after finding root causes of problem will have
chance of lasting success in eradicating the problem.
• Process Flow Chart: A process is anything, which converts an input into an output by
doing work. Flow chart provides substantial help to picture a process where overlaps,
duplication and iterative loops are easily identified.
• Check List: Check list is the collection of different activities accompanied with required
quality standards in each activity expressed in a sequential order so that each item is
checked with the stipulated performance standard.

Quality Costs
Quality cost can be divided into two parts:

a.Quality Management Cost

Prevention Cost: Cost involved in activities to ensure right first time performance, e.g., costs of:
• quality planning
• new products review
• process planning
• process control
• quality audits
• supplier quality evaluation
• training
Appraisal Cost: Cost involved in activities that check whether right first time is achieved, e.g.,
cost of:
• incoming inspection and test
• final inspection and test
• product quality audits
• maintaining accuracy of test equipment
• Evaluation of stocks etc.

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 4.0 Project Implementation and Controlling

b. Failure Cost
Cost involved in the activities which result from not confirming to right first time and includes:
• Internal Failure Cost (Scrap, Rework, Failure Analysis, Re-inspection, Scrap and
rework from suppliers etc.)
• External Failure Cost (Warranty Charge, Returned Material etc.)
• Intangible Quality Cost (Loss of goodwill of the company)

Cost Per Unit

Of Production Economic Balance
Total Cost

Prevention and
Failure Appraisal Cost
Cost

Quality Level

Fig: Cost of Quality

The Fundamentals of Quality System ISO 9000

• International quality system standard
• The ISO 9000 series actually consists of Five Documents
1. ISO 9000 : Principal Concepts and Applications (Definitions)
2. ISO 9001 : Quality Systems – Model for Quality Assurance in Design/Dev./Prod./
Installation/Servicing
3. ISO 9002 : Quality Systems – Model for Quality Assurance in Production/ Installation
4. ISO 9003 : Quality Systems – Model for Quality Assurance in Final Inspection and
Testing
5. ISO 9004 : quality Management and Quality System Elements Guidelines
• ISO 9000-9003 issue orders. Use the word "shall".
• ISO 9004 offers advice, using the word "should". It is an advisory or guidance document.
• Needed for international trade.
• For selling the products of developing countries to the developed countries and to compete
with international market, one has to be attached to ISO 9000 and produce its goods or
services as per the attached standard.

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 4.0 Project Implementation and Controlling

4.8 Introduction to Project Management Information System

Project Management Information System (PMIS)

Project Management Information System is a database for the project. It collects, analyses,
stores, retrieves, and disseminates project information for making project decisions. It consists of
people, equipment and procedures. It is generally of an ad-hoc nature till the life of the project.

PMIS is a communication device. Project Management Information System is based on various

forms and reports that generate written information for decision making and control.

Essentials requirements of PMIS

• The PMIS should be factual and objective based on reliable data
• A report on achievement and deviations should be quick hitting
• It should contain the appropriate information with required level of accuracy
• It should strive to pinpoint root causes with accuracy
• It should be easily understandable and usable
• It should not wait for deviations and disasters to happen but predict their potential presence
ahead, so that the project can stay clear of them
• Management information system and communication should be well coordinated, so that
information is carried and distributed effectively
• It should be consistent with organizational and project policies, procedures and guidelines
• It should provide essential information on cost, time and performance parameters of project
and on the interrelationship of these parameters
• It should provide information in standardized form to enhance its usefulness to all
managers
• It should be decision and exception oriented
• It should reflect management needs for making and executing decisions in management of
the project resources

Advantages of PMIS
PMIS is vital for proper functioning of the project. It offers the following benefits

• Promote better understanding in project

• It helps to target control by quantifying risks and initiating correcting action
• It helps to comprehend change in project
• It provides basis to monitor, evaluate and show the interrelationship among cost. Schedule
and technical performance of entire project
• It helps to identify project problem before they occur
• It helps to make better decision and execution of those decisions
• It facilitates project planning
• It informs the project stakeholders about the progress and status of project

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 4.0 Project Implementation and Controlling

• PMIS simplifies project control

• It reduces information overload in project
• It facilitates project transaction such as progress payments
• It targets control by quantifying risks, testing proposed control and initiating corrective
actions

Project Management Information Cycle

The cycle of events in report generation by PMIS is:

Measure

Act Record

Analyze
Report

Fig: Project Management Information Cycle

A project's performance is measured and recorded in prescribed forms. The forms are analyzed
and combined into reports by PMIS to act for corrective actions. Data are not collected if they
are not going to be analyzed. This is essential to avoid information overload.

Elements of PMIS
The project management information system consists of inputs-transformation-outputs-feedback,

INPUTS
INPUTS PROCESSING OUTPUTS

Data Generation • Data analysis • Regular reports

• Internal Source • Data storage • Special reports
• External source • Data retrieval
• Data dissemination

Feedback

Fig: Project Management Information System

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 4.0 Project Implementation and Controlling

• Inputs: It consists of data generated internally by various project forms on a periodic basis.
External sources can also generate data, for example functional departments can provide
data to project.
• Transformation: it consists of analysis, storage, retrieval and dissemination of data and
information.
• Outputs: it consists of regular and special reports about project performance.
• Feedback: it provides information to redesign PMIS for inputs and transformation
activities.
Computerized PMIS are most commonly used to consolidate data in projects. Decision
support system database are used to analyze data. Software is carefully selected.

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 5.0 Project Risk Analysis and Management

5.1 Introduction to Project Risk

When our World was created, nobody remembered to include Certainty
- PETTER BERNSTEIN
Every project is risky, meaning there is a chance things won't turn out exactly as planned. Project
outcomes are determined by many things, some that are unpredictable and over which project
managers have little control. Risk level is associated with the certainty level about technical,
schedule and cost outcomes. High certainty outcomes have low-risk; low- certainty outcomes
have high risks. Certainty derives from knowledge and experience gained in prior projects, as
well as from management's ability to control project outcomes and respond to emerging
problems.

In general, risk is a function of uniqueness of a project and the experience of the project
team.Risk = f (uniqueness, experience of project team)

Project Risk
Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect
on a project objective. A risk has a cause and, if it occurs, an impact. For example, the cause may
be requiring a permit or having limited personnel assigned to the project. The risk event is that
the permit may take longer than planned or the personnel may not be adequate for the task.
Project risk includes both threats to the project’s objectives and opportunities to improve on
those objectives.
The notion of project risk involves two concepts:

• The likelihood that some problematical event will occur.

• The impact of the event if it does occur.

Risk is also the joint function of: Risk – f (likelihood, impact)

A project will be ordinarily considered risky whenever at least one factor – either the likelihood
or the impact- is large. For example, a project will be considered risky where the potential impact
is human fatality or massive financial loss even when the likelihood of either is small.

Risk & Reward

• Risk should be related to reward.
• Risks accepted should be in balance with the reward that may be gained by taking the
risk.
• For example, a fast-track schedule is a risk taken to achieve the benefit of a shortened
schedule.

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 5.0 Project Risk Analysis and Management

5.2 Types of Project Risk

Broadly, there are five main categories of risk types associated with project management.

1. External Risks

External events are mainly outside the control of the project manager and, in most cases, the
organization. Examples include:

• Marketplace developments—rapid developments can cause an abrupt change of direction

• Market risks include competition, foreign exchange, commodity markets, and interest
rate risk, as well as liquidity and credit risks
• Government regulatory changes
• Industry-specific procedures—new standards, issues
• Legal issues-disputes, lawsuits, and court orders
• Change-driven factors-new products, services, changes in market
• Corporate strategy and priority changes
• Disasters such as fire, flood, earthquake, or other natural disaster
• Risks associated with labor strikes; and civil unrest
• Risk Associated with Loss of power, heating, or ventilation; air conditioning failure
• Communications systems and security sensor failures
• Emergency destruction of communications

Most of these risks are very difficult to control at the project manager level but can be identified
and, therefore, managed. This means that senior management must be involved in the risk
management process and have input into risk control issues.

2. Cost Risks

Many of these types of risks are directly or indirectly under the project manager's control or
within his or her area of influence. Cost risk, typically escalation of project costs due to poor cost
estimating accuracy and scope creep.

Examples of cost risks include those arising from:

• Cost overruns by project teams or subcontractors, vendors, and consultants

• Scope creep, expansion, and change that has not been managed
• Poor estimating or errors that result in unforeseen costs
• Overrun of budget and schedule

3. Schedule Risks

Schedule risks can cause project failure by missing or delaying a market opportunity for a
product or service. Schedule risk is the risk that activities will take longer than expected.
Slippages in schedule typically increase costs and, also, delay the receipt of project benefits, with
a possible loss of competitive advantage. Such risks are caused by:

• Inaccurate estimating, resulting in errors

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 5.0 Project Risk Analysis and Management

• Increased effort to solve technical, operational, and external problems

• Resource shortfalls, including staffing delays, insufficient resources, and unrealistic
expectations of assigned resources
• Unplanned resource assignment—loss of staff to other, higher-priority projects

4. Technology Risks

Technology risks can result from a wide variety of circumstances. The result is failure to meet
systems' target functionality or performance expectations. Performance risk is the risk that the
project will fail to produce results consistent with project specifications. Typical examples are:

• Problems with immature technology

• Use of the wrong tools
• Software that is untested or fails to work properly
• Requirement changes with no change management
• Failure to understand or account for product complexity
• Integration problems
• Poor Software/hardware performance issues—poor response times, bugs, errors

5. Operational Risks

Operational risks are characterized by an inability to implement large-scale change effectively.

Such risks can result in failure to realize the intended or expected benefits of the project. Typical
causes are:

• Inadequate resolution of priorities or conflicts

• Failure to designate authority to key people
• Insufficient communication or lack of communication plan
• Size of transaction volumes—too great or too small
• Rollout and implementation risks—too much, too soon
• Poor implementation, procurement etc

5.3 Analysis of Major Sources of Risk

Any factor with an uncertain probability of occurring that can influence the outcome of a project
is considered as risk source or risk hazard. The most difficult part of risk identification is
discovering things we don’t already know! Project risk’s source can be classified as internal risks
and external risk

1. Internal Sources of risk:

Internal risks originate inside the project and project managers and stakeholders usually have a
measure of control over these. Two main categories of internal risk source are market risk and
technical risk

a. Market risk

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 5.0 Project Risk Analysis and Management

Market risk is the risk of not fulfilling either market needs or the requirements of particular
customers. The sources of market risk include

• Incompletely / in adequately defined market or customer needs

• Failure to identify changing needs
• Failure to identify newly introduce products by competitors

b. Technical risk

Technical risk is the risk of not meeting time, cost or performance requirements due to technical
problems with the end-item or project activities. These risks are high in projects involving
activities that are unfamiliar or require new ways of integration and especially high in projects
with untried technical applications.

One approach to expressing technical risk is to rate the risk of the project end item or primary
process as being high, medium or low according to the following features:

Maturity An end item or process that is pre- existing, installed and

operational or based on experience and pre- existing knowledge
entails less risk than in the early stage of development or new

Complexity An end item or process with numerous interrelated steps or

components is more risky than one with few steps and components
having simple relationship

Quality An end-item or process that is known to be completely producible,

reliable or testable is less risky than one that has not yet been
produced or has low reliability or testability

Concurrency or Dependency In general risk increases the more that activities overlap
one another. Sequential, dependent activities with no overlap are
much less risky than those with much overlap

2. External Sources of risk:

External risk include only risk that stem from sources outside the project. Project managers and
stakeholders usually have little or no control over these. External risk hazards include changes
in:

• Market conditions
• Competitor’s actions
• Government regulations
• Interest rates
• Decisions made by senior management / customers regarding project priorities, staffing
or budgets
• Customer needs and behavior
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 5.0 Project Risk Analysis and Management

• Weather (adverse)
• Labor availability (Strikes / Walkouts)
• Material / labor resources (Shortages) etc.

5.4 Effective Management of project Risk /Risk management Processes

Risk Management

Risk management is the systematic application of the risk management processes on a project.
The processes consist of risk management planning, identification, analysis, responding, and
monitoring & control.
The objective of risk management is to maximize the probability and impact of positive events
and minimize the probability and consequences of events adverse to project objectives.

The curved line indicates the 'acceptable level of risk', whatever that may be in the
individual case. The risk may be reduced to an acceptable level by reducing either or
both of uncertainty and constraint. In practice, few people have the opportunity to
reduce constraint, so most focus on the reduction of uncertainty. It is also worth noting
from the diagram that total elimination of risk is rarely achieved. So we have to
consider how to manage that remaining risk most effectively.

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 5.0 Project Risk Analysis and Management

The processes of risk management are updated throughout the project life. It involves following
steps:

1. Risk Management Planning

Deciding how to approach and plan the risk management activities for a project.
2. Risk Identification
Determining which risks might affect the project and documenting their characteristics.
3. Qualitative Risk Analysis
Prioritizing risk by their effects on project objectives through assessment of their probability,
impact, and the combination of both
4. Quantitative Risk Analysis
Quantitatively analyzing the effect of identified risks on project objectives
5. Risk Response Planning
Developing options and ways to enhance opportunities and to reduce threats to the project’s
objectives
6. Risk Monitoring and Control
Monitoring identified and residual risks, identifying new risks, executing risk response plans
and evaluating their effectiveness throughout the project life cycle

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 5.0 Project Risk Analysis and Management

1. Risk Management Planning

Risk management planning is the process of deciding how to approach and perform the risk
management activities for a project.

Objectives of Risk Planning

• Ensure that the risk management effort is proportionate to both the risk and importance of
the project to the organization.
• Provide enough resources for risk management activities.
• Establish basis for evaluating risk.
Risk management planning is the first step of risk management process in a project. The
documents related to project environment factors, project scope, project management plan
required for the risk management plan are required for the risk management planning.
Stakeholder’s risk tolerance is prime matter. After having these documents a risk planning
meeting is carried out on the behalf of PM and all other stakeholders to prepare the risk
management plan.

Risk Management Plan (RMP)

It is the document prepared after the risk management planning meetings which shows/describes
the way, mechanism and methods of performing risk identification, risk analysis, response
planning and risk Monitoring and controlling mechanism. RMP includes:

• Methodology
• Roles and responsibilities
• Timing
• Budgeting
• Risk categories and Risk Break down structure
• Risk Probability and impact
• Revised stakeholder’s risk tolerances
• Reporting format
• Tracking

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 5.0 Project Risk Analysis and Management

2. Risk Identification

The process of identifying the risk with the involvement of various participants of project is
known as risk identification. The participants can be project team, risk management team,
subject matter experts, customers, end users, outside experts etc. The various sources are
analyzed in order to identify the associated risk with the project through risk identification. Risk
management plan and risk break down structures are required for the risk identification process.

Objective of risk identification

• To determine the risks that may affect the project

• To document their characteristics.

Risk management plan and risk break down structures are required for the risk identification
process. Review of documents related to project files, checklists information gathering technique
like brainstorming, Delphi technique, interviewing, SWOT analysis, assumption analysis and
diagramming techniques are used for risk identification process. Risk register is prepared after
completion of the risk identification process.

Risk Register (RR)

Risk register is a record to document the results of the risk management process. It contains the
following information.

• List of identified risks with description

• List of potential responses
• Root causes of risk
• Updated risk categories

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 5.0 Project Risk Analysis and Management

3. Qualitative Risk Analysis

Qualitative risk analysis is the application of methods for ranking the identified risks according
to their potential effect on project objectives. This process prioritizes risks according to their
potential effect on project objectives.
Qualitative risk analysis is one way of determining the importance of addressing specific risks
and guides risk response measures. The RMP and RR is required for the qualitative risk analysis
process. The risk probability and impact assessment is carried out. The risk probability and
impact are rated and presented in matrix known as probability-impact matrix. The risk register
will be updated after completing the qualitative risk analysis. Updates of risk categories
according to the impact scale and urgency is done.

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 5.0 Project Risk Analysis and Management

4. Quantitative risk analysis

Quantitative risk analysis analyzes numerically the effect a project risk has on a project
objective. The process generally follows qualitative analysis and utilizes techniques such as
Monte Carlo simulation and decision analysis to:
• Determine the probability of achieving a specific project objective.
• Identify risks requiring the most attention by quantifying theirrelative contribution to
project risk.
• Identify realistic and achievable cost, schedule or scope targets.
• Quantify project outcomes and their probabilities.
• Guides project management decisions under conditions of uncertainty such as
determination of size of contingency.
The RMP, updated RR, Project scope statement and project management plan (cost, schedule
plan) are required for the quantitative risk analysis. Interviewing and expert judgment is carried
out for gathering and representation of data where as various modeling technique like Monte
Carlo, simulation, sensitivity analysis, decision tree analysis are used for the quantitative risk
analysis process. The risk register is again updated after the quantitative analysis. The updated
information is added like probability of the risk, forecast of potential impact, prioritized list of
risk etc.

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5. Risk Response Planning

Risk response planning addresses the matter of how to deal with risk. Risk response must be
proportional to the severity of the risk, cost effective, timely, realistic and accepted as well as
owned by all concerned parties of the risk management.

Objective of risk response planning

• Develop options and determine actions to enhance opportunities and minimize threats to
project objectives.
• Assign responsibility to individuals or parties for each risk response.

Various data and documents are required for the risk response planning like RMP, RR, Risk
thresholds, Risk owners, risk priorities list etc. risk response can be carried out by using
following two strategies.

a. Strategies for negative risk (threats)

b. Strategies for positive risk (opportunity)

Avoid

Transfer
For Threat
Mitigate

Accept
Risk Response Planning
Exploit

Share
For oppurtunity
Enhance

Accept

a. Negative risks are response by either of the following techniques

1. Risk avoidance

Risk avoidance is the process to avoid the risk by changing the project plan to eliminate the risk.
It can also be carried out by relaxing the relevant objectives by extending the schedule or
increasing the cost in project. All risk cannot be avoided, but some may. Examples of risk
avoidance are: add resources, improve communication, avoid unfamiliar sub-contractor, adopt
familiar approach etc.
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 5.0 Project Risk Analysis and Management

2. Risk Transfer

Transfer the risk to the third party who will carry the risk impact and ownership of the response.
Risk transfer is most effective in dealing with financial risk exposure. The transfer of risk
liability to sub-contractor, the use of risk insurance and payment of risk premium, performance
bonds, warranties etc. are examples of risk transfer.

3. Risk Mitigation

Risk mitigation aims at reducing the probability and/or impact of a risk to within an acceptable
threshold. The probability/Impact should be mitigated before the risk takes place. Thus avoiding
dealing with the consequences after the risk had occurred. Mitigation costs should be appropriate
given the likely impact and probability of the risk. Examples of risk mitigation are: adopting less
complex process, adding resources to the schedule, conducting more engineering tests and
inspections etc.

4. Risk Acceptance

Acceptance indicates a decision not to make any changes to the project plan to deal
with a risk or that a suitable response strategy cannot be identified. This strategy can
be used for both negative and positive risks
There are two types of acceptance:
Active acceptance: may include developing a contingency plan to execute should a risk occur.
Passive acceptance: requires no action. The project team will deal with the risk as it occurs.

Contingency Plan

A contingency plan is developed in advance to respond to risks that ariseduring the project.
Planning would reduce the cost of an action the risk occurs. Risk triggers, such as missing
intermediate milestones, should be defined and tracked. The most usual risk acceptance response
is to establish a contingency allowance, or reserve, including amounts of time, money or
resources to account for known risks. The allowance should be determined by the impacts,
computed at an acceptable level of risk exposure, for the risks that have been accepted.

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 5.0 Project Risk Analysis and Management

b. Positive risks are response by either of the following techniques

1. Exploit the opportunity

Ensure that the risk event happens by eliminating the uncertainty. to take advantage of the
opportunity. Examples: assign qualified personnel, select an appropriate project delivery, and
provide better quality.

2. Share the risk

Allocate ownership to a third party who has a better chance of achieving the required results.
Examples: joint ventures, partnerships, rewards.

3. Enhance

Increase the likelihood of occurrence or the impact of the event. Improve chances for the event to
happen so the opportunity becomes more certain. Consider how the impact can be increased and
choose a course of action that in the increased impact

4. Accept the risk

Active acceptance: may include developing a contingency plan to execute should a risk occur.
Passive acceptance: requires no action. The project team will deal with the risk as it occurs.
Risk response planning will update the risk register. The risk register is updated to reflect the
results of the response planning process. Level of detail of documenting a risk should be
appropriate to the ranking of the risk (high risks in detail, low risks by listing). Items in the risk
register are:
• Identified risks
• Risk owners
• Results from risk analysis
• Budget and schedule activities
• Response strategies
• Contingency plans
• Fallback risks
• Residual risks
• Secondary risks

Similarly project management plan will be updated and contractual agreements are set up for the
risk response.

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6. Risk Monitoring and Controlling

Risk monitoring and control is required in order to:

• Ensure the execution of the risk plans and evaluate their effectiveness in reducing risk.
• Keep track of the identified risks, including the watch list.
• Monitor trigger conditions for contingencies
• Monitor residual risks and identify new risks arising during project execution.
• Update the organizational process assets.

Purpose of risk monitoring

The purpose is to determine if:
• Risk responses have been implemented as planned.
• Risk response actions are as effective as expected or if new responses should be
developed.
• Project assumptions are still valid.
• Risk exposure has changed from its prior state, with analysis of trends.
• A risk trigger has occurred.
• Proper policies and procedures are followed.
• New risks have occurred that were not previously identified.

Risk monitoring needs a data like RMP, updated RR, change request if any from the response
and performance indicators. Risk monitoring and control is carried out by following methods:
a. Risk Reassessment
Project risk reviews at all team meetings. Major reviews at major milestones
Risk ratings and prioritization may change during the life of the project. Changes may require
additional qualitative or quantitative risk analysis.
b. Risk audits
Examine and document the effectiveness of the risk response planning in controlling risk and
the effectiveness of the risk owner.
c. Variance and Trend Analysis
Used for monitoring overall project cost & Schedule performance against a baseline plan.
Significant deviations indicate that updated risk identification and analysis should be
performed.
d. Reserve Analysis
As execution progresses, some risk events may happen with positive or negative impact on
cost or schedule contingency reserves. Reserve analysis compares available reserves with
amount of risk remaining at the time and determines whether reserves are sufficient
e. Status meetings
Risk management can be addressed regularly by including the subject in project meetings.

Risk M&C helps to update the RR, it suggest the corrective and preventive actions along with
change request. More over project management plan will be finally updated.

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Table: Comparison of Risk management Guidelines among various agencies

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