1

PROJECT MANAGEMENT

Gemechu Nemera, PhD

[email protected]
Phone No: 0911877124

March 2020
Evaluation
1) Assignment --project proposal prepared by
Individually ………… 35%
2) Review of an article---- 15%
3) Final exam 50%
 6

1. THE CONCEPT OF PROJECT

MANAGEMENT
 Introduction
7

 Projects exist in every sphere of business, markets, and

industry.
 They come in a myriad of types, sizes and complexity –
from small initiatives such as weddings, parties,
fundraising drives; to medium-size initiatives such as
advertising campaigns, capital acquisitions, business re-
engineering, restructuring, information systems; through
to mega-projects such as the Channel Tunnel, NASA
space station, hydro-electric dams and military
campaigns.
8
What is a Project?
 Definitions:
 Project (characteristics-PMBOK*)
A project is a unique endeavor to produce a set of
deliverables within clearly specified time, cost and
quality constraints.
Projects are delivered under certain constraints,
traditionally listed as "scope," "time," and "cost.”
 Temporary
 Unique results
 Progressive elaboration

*Project Management Institute (PMI): PMBOK = Project Management Body of Knowledge

What is a Project?

“Unique process consisting of a set of coordinated and controlled

activities with start and finish dates, undertaken to achieve an
objective conforming to specific requirements, including
constraints of time, cost, quality and resources”

 A Project is a planned set of activities

 A Project has a scope
 A Project has time, cost, quality and resource constraints
What is Project Management?
 The art of organising, leading, reporting and
completing a project through people
What is Project Management?

 A project is a planned undertaking

 A project manager is a person who causes things to
happen
 Therefore, project management is causing a planned
undertaking to happen.
Exercise 1

 Write down three attributes of a good Project

Manager
Project Manager Role

 A Good Project Manager

 Takes ownership of the whole project
 Is proactive not reactive
 Adequately plans the project
 Is Authoritative (NOT Authoritarian)
 Is Decisive
 Is a Good Communicator
 Manages by data and facts not uniformed optimism
 Leads by example
 Has sound Judgement
 Is a Motivator
 Is Diplomatic
 Can Delegate
 Comprehensive definition:
 Project is a temporary endeavor involving a
connected sequence of activities and a range of
resources, which is designed to achieve a specific
and unique outcome, which operates within time,
scope, cost and quality constraints and which is
often used to introduce change.

14
 Key concepts:
 Purpose-the basic reason for the existence of a project-
to solve a problem, address a need or take the
advantage of opportunity.
 “Juran defined it as a problem scheduled for solution”
 Every project is conducted to solve problems
 Temporary: means that a project is something that has a
specific start date and a specific end date.
 projects are of a transient nature, with a defined beginning and
end. The end is reached when the project’s objectives have been
achieved and effectively handed over to the business
 In certain situations the project itself is a one-off event and not integrated into an organization,
for example an election, or the Olympic Games. Change is still created by these initiatives, in
terms of stakeholders’ benefits
15
 Key concepts:

 Sequences of Activities: the works and the steps we

perform and the methods and knowledge we use to
achieve the project objective.

16
17

 Unique in nature: A project brings about a unique product, service or

result - something that has not existed in the organization here-to-
fore.
 Uniqueness derives either from activities that have not been
done before, or from some product or service feature that
distinguishes it from all other products or services the organization
has produced before.
 Identifying and focusing on uniqueness is important to project
management.
 It helps identify new organization risk areas, enabling
management to develop and implement timely risk management
strategies.
  Have a definite Time scale: any project should be time
bounded-it has a start and end time
 Has approved budget: Projects are allocated a level
of financial expenditure within which the
deliverables are produced.
 Have limited resource: an agreed amount of labor,
equipment and materials
 Quality: the project needs to produce quality products
to maximize the satisfaction of the users.
 Involve risk: Projects entail a level of uncertainty
 Introduce change: A project is often used as an
instrument for change - change for the betterment of
18 the society.
22

 Projects range in size, scope, cost and

time from mega international projects
costing millions of dollars over many
years to small domestic projects with
a low budget taking just a few hours to
complete.
 Examples of projects:
23

 Build low cost houses/ condominium

 Build a dam for hydroelectric/irrigation
 Improve the standard of a road
 Develop training program for CSOs about human
rights
 Redesigning the IT system

More examples from your experiences?

 Project Vs program
24

 “project” – a group of activities to produce a Project Purpose

in a fixed time frame –
 A “program” – a series of projects whose objectives together
contribute to a common Overall Objective, at sector, country
or even multi-country level.
 A program is an assortment of related/associated projects
that are managed together to achieve a number of
objectives.
 Programs may also contain elements of ongoing operations.
Since programs comprise multiple projects, they are larger in
scope than a single project.
 Generally, the word program refers to a
series of planned ongoing activities with a
broader scope than a project. However, a
project is a temporary investment activity
where resources are used to create assets,
which produce benefits over time and has a
beginning and an end with specific
objectives.
25
 Project Program
Narrow in scope Wide in scope; can comprise
many projects as components.
Specific and detail Comprehensive and general
Differences

More precise and accurate in Broader goal related to

its objectives and features sectoral policy
Possible to calculate the Difficult to calculate costs
costs and returns and returns
• Have purpose/ objectives
Similarities

• Require input (financial, manpower, material)

• Generate output (goods and/or services)
• Operate over space and time
26
 Projects Vs operations
27

Organizations perform two types of work: project

work and operational work
 Operations are ongoing and repetitive while
projects are temporary and unique.

 The purpose of a project is to attain its objective

and then terminate whereas the objective of an
ongoing operation is to sustain the business.
 Feature Projects Operations
Purpose Attain objectives and Sustain the
terminate organization
Time Temporary Ongoing
Unique product, service, or Non-unique product,
Outcome result service, or result
Key Differences

Dynamic, temporary teams Functional teams

formed to meet project generally aligned
People
needs with organizational
Generally not aligned with structure
organizational structure
Varies by organizational Generally formal,
Authority structure direct line of
of
Manager
Generally minimal, if any, authority
direct line authority
28
 Examples
 Government Vision:
Freeing the Ethiopian People from poverty and seeing
economically strong and prosperous citizen

 Government Goal:
Improving the living standard of the
Ethiopian People within ten years .

29
 Example cont’d …
 Government Strategy:
Agricultural Development Led Industrialization.
 Government plan: Plan for Accelerated and
Sustained Development to End Poverty (PASDEP),
GTP I, GTP II
 Government Program:
Human Rights Education, Human Rights protection , Human Rights
monitoring, Democratic institution

30
Stakeholder Engagement
Stakeholder

“A person or group of people who have a vested

interest in the success of an organization and the
environment in which the organization operates”
Project stakeholders are individuals and
organizations who are actively involved in
the project, or whose interests may be
positively or negatively affected as a result of
project execution or successful project
completion.
Exercise 2

 Write down three typical project stakeholders

Exercise 2 - Typical Stakeholders

 Sponsor
 Funding Body
 Customer
 Suppliers
 End User
 HSE/Environmental Agency
 Maintenance Team
 Neighbours/Community/Shareholders
 Fusion Community
 Interfaces
35

The key stakeholders on every project include:

 Project manager - the individual responsible for managing the project.
 Project beneficiaries/Customer - the individual or organization that
will use the project product.
 Performing organization—the enterprise whose employees are most
directly involved in doing the work of the project.
 Sponsor - the individual or group within or outside the performing
organization who provides the financial resources, in cash or in kind,
for the project.
36

The key stakeholders on every project include:

 Suppliers and contractors – e.g. Construction companies, Skills
development and education and training organizations, legal firms,;
 Project team members and their families;
 Government agencies – e.g. local municipality.
 Community representatives and organizations
Stakeholder Engagement process

 Identify Stakeholders
 Assess needs
 Define actions
 Establish communication channels
 Gather feedback
 Monitor and review
 PROJECT MANAGEMENT
38

 Project management is a process of leading a team

of capable people in planning and implementing a
series of related activities that need to be
accomplished on a specific date with a limited
budget.
 Project Management is the application of
knowledge and expertise to the development
and completion of a project.
Cont’d
 Project Management is the skills, tools and
management processes required to undertake a
project successfully. It incorporates:
 A set of skills- knowledge, skills and experience
 A suite of tools - document templates, registers,
planning software, modelling software, audit
checklists and review forms
 A series of processes - time management, cost
management, quality management, change
management, risk management and issue
management
 Defining Project Management
40

 Project management is the process of planning,

controlling and directing a project from its inception to
its completion, in a given time, at given cost, and for a
given purpose.
Project management
 Projects must be:
 Planned

 implemented

 Evaluated for results

Project Planning

 Adequate planning leads to the correct completion of

work
Planning

 Inadequate planning leads to frustration towards the

end of the project & poor project performance

Project Start Project End

Work Breakdown Structure (WBS)

 The Work Breakdown Structure is the foundation for

effective project planning, costing and management.
 It is the most important aspect in setting-up a Project

◼ It is the foundation on which

everything else builds
Work Breakdown Structure - Definition

“A Work Breakdown Structure (WBS) is a hierarchical

(from general to specific) tree structure of
deliverables and tasks that need to be performed
to complete a project.”
46

 The basic objective of Project Management is to

integrate or connect 3P’s of project:

 Purposes – why we do the project

 People – who does the project

 Processes – how we do the project

 Characteristics of project
47

 Change
 Temporary
 Cross functional
 Uniqueness
 Uncertainty
 Purposeful
 Logical having a lifecycle
 Structured
 Involve conflict
 Characteristics (cont’d)
48

 Limited by resource availability

 Specific- detailed plans, tasks,
 Measurable benefits- monetary, tangible and
intangible benefits
 Achievable- should not be too ambitious
 Relevant- benefit to the stakeholders
 Time bound
 Classification of projects
49

 Based on technological uncertainty

 Established,traditional – low tech projects
 Mostly established- medium tech projects

 Advanced technology- high tech

 Highly advanced or exploratory – super high tech

 Based on level of Complexity

 Simple- single unit
 Complex project- interactive elements

 Program or set of projects- large projects with many

sub projects
 The Project Life Cycle
 is the stages through which the project
passes from inception to its completion.
 Is a continuous process made up of
separate and complementary stages
(phases) each with its own characteristics
and each setting a ground for the next
one.

50
Cont’d
 The main features and elements of this process are
information gathering, analysis and decision
making.
 The project cycle consist of various stages in which
each stage, not only is grown out of the preceding
ones, but also leads into the subsequent ones.
 There is no single way of devising the different
phases of a project there are many equally valid
ways in which the project cycle may be divided.
Cont’d
 There are three basic models of project life cycles
they are:
 The Baum project life cycle (World Bank approach)
 UNIDO project life cycle

 Development Project Studies Authority (DEPSA)

project life cycle
The Baum(World Bank) project life
cycle
 The first basic model of a project cycle was that of
Baum developed in 1970, which has been adopted
by the World Bank and initially recognized four
main stages, namely
 Identification

 Preparation

 Appraisaland selection
 Implementation

 At a later stage in 1978 the author has added

another stage called “Evaluation “thus making the
stages 5 in number.
 Identification Phase:
 The first stage in the project life cycle is to find potentially promising
projects which are worthwhile for investment. Some of the sources of such
projects are listed below:
 Some projects are resource based and stem from the opportunity to make
profitable use of available resources.
 Some may be market based arising from an identified demand in home or
overseas markets.
 Others may be need based and initiated to make available certain basic
material requirements and services to all people in an area at minimal amounts.
 Well informed technical specialists and local leaders are also common source of
projects. Technical specialists will identify many areas where they feel new
investment might be profitable, while local leaders may have suggestions about
where investment might be carried out.
 Ideas for new projects also come from proposals to extend existing program.
Preparation Phase:
 Once projects are identified, there begins a process of
progressively more detailed analysis of the projects and
preparation of the project plans.
 This phase of the project life cycle which normally includes both
the prefeasibility and feasibility study.
 Project preparation covers the establishment of all the
technical, economic, social, financial, institutional and
environmental feasibility analyses.
 From the inferences of such analysis, decisions have to be
made on the scope of the project, location and site, soil and
hydrological requirements, project size etc. At this stage the
project exists as asset of tangible proposals.
Appraisal Phase
 At this stage critical review of the project is to be
conducted. This provides an opportunity to re-
examine every aspect of the project proposal
(project plan) to assess whether the proposal is
appropriate and sound before large sums are
invested. Generally only internal
institution/government staffs are used for this work.
Projects are appraised both in the field and at the
desk level.
 Appraisals should cover at least seven aspects of the project, each of which
must have been given special consideration during the project preparation
stage.
 Technical-whether the proposed project will work in the way suggested or not
 Financial- requirements for money needed by the project have been calculated
properly, their sources are all identified and reasonable plans for their
repayment are made where necessary
 Commercial- inputs for the project are conceived to be supplied is examined
here and also the arrangements for the disposal of the products are verified
 Incentive- will participants interested in to the project
 Economic- projects contribution to the nations economic interest
 Managerial- capacity for operating the project
 Organizational- if it is organized internally and externally into units
Implementation Phase:
 The clear objective of any effort in project planning and
analysis is to have a project that can be implemented to the
benefit of the society.
 Thus implementation is perhaps the most important part of the
project cycle. In this stage, funds are actually disbursed to get
the project started and keep running.
 A major priority during this stage is to ensure that the project is
carried out in the way and within the period that was planned.
Problems frequently occur when the economic and financial
environment at implementation differs from the situation
expected during appraisal.
Evaluation Phase
 Once a project has been carried out, it is often useful, to look back over
what took place, to compare actual progress with the plans, to judge
whether the decisions and actions taken were corrective, to see whether the
results obtained are optimal in a sense that the resources are efficiently
utilized and whether the project’s goals and objectives are effectively
achieved.
 The extent to which the objectives of a project are being realized provides
the primary criterion for an evaluation.
 The analysts look systematically at the elements of success and failure in the
project experience to obtain insights about how to plan more productive
projects in future.
 Evaluation is not limited only to completed projects.
 It is the most important managerial tool in ongoing projects and rather
formalized evaluation may take place at several times in the life of project.
 The project cycle Resource, market demand,
need, technical/expertise,
Identification extension of existing
projects

Evaluation Preparation

Proposal
development

Implementation Appraisal

Financing
decision
60
 Identification Potential projects emerge from specialists, local leaders and national
development strategies.
Identification of potential stakeholders, particularly primary stakeholders.
Carry out problem assessment and decide upon key objectives. Assess
alternative strategies for meeting objective.

Preparation The technical, institutional, economic, environmental, and financial

and analysis issues facing the project studied and addressed —including whether there
are alternative methods for achieving the same objectives.
Assessing feasibility as to whether and determining whether to carry out
more advanced planning. Project plan developed which can be appraised.

Appraisal Critical review or independent appraisal of project plan.

Implementation The project plan is implemented over a specified time period.
and Monitoring of project performance with a management information system to
monitoring enable correction of implementation problems as they arise.

Evaluation On-going and final assessment of the success of the project against original
objectives, to learn lessons to help improve future projects.
61
The UNIDO model
 The United Nations Industrial Development organization’s
(UNIDO) the project development cycle comprises three distinct
phases, they are:
 Pre- investment phase
 Investment phase and
 Operational phase
Pre- investment phase
 Opportunity study( identification of project ideas)
 Pre-feasibility study (preliminary project
formulation , selection of alternatives)
 Feasibility study (techno-economical project back
ground, final project formulation stage)
 Evaluation report ( decision making about project
availability)
Contents of feasibility study
 Executive summary
 Project back ground and history
 Market and plant capacity
 Location and site
 Project engineering works
 Factory, administrative and sale overheads
 Man power
 Project implementation
 Financial analysis and
 Project risk analysis
Investment phase
 Project design stage
 Construction stage
 Pre-production marketing stage
 Training
 Start-up stage
Operational phase
 Replacement of equipment
 Development, invasion or liquidation
The DEPSA Model
 Development Project Studies Authority
(DEPSA) made certain efforts and developed a
model for Project life cycle which is known as
DEPSA’s Project life cycle. This life cycle comprises
three major phases:
 Pre-investment phase
 Investment and
 Operation
Pre- investment Phase
 Identification Stage
 Formulation Stage
 Pre-feasibility study
 Feasibility study

c. Appraisal
 Appraisal

 Decision
Investment Phase

 Implementation
 Tendering negotiation and contractual
 Detailed engineering design
 Construction, erection and commissioning
Operation Phase
 Operation
 Ex-post evaluation
 71

2. PROJECT IDENTIFICATION

Nov 2020
 Project identification
72

 A project idea may emerge from:

 challenges and problems to be solved
 Ample resources to be utilized

 Government development efforts to correct social and

regional inequalities or to satisfy basic needs of the
people
 Entrepreneurial efforts of investors

 Multi or bilateral agreement

 Steps in project identification
76

 Project ideas may not take complete shape

immediately. Develops in
to concrete
Idea shape
incubated
Idea born
 Steps in project identification
77

Conceptual • Potentials and problems;

stage needs and aspirations of
people assessed

Screening • Unviable
ideas are
stage eliminated

Identification • Viable
projects are
stage selected

Prefeasibility • The use of

data and
study metrics
 Project identification for existing
78
companies
 Existing companies are continuously developing
various projects for their developmental purposes.
 A need to make a more intensive review of
resources and environment to consider projects on
the basis of existing activities.
 SWOT analysis needs to be undertaken
 Brief summary of points needed for
79
SWOT analysis
 Availability of internal finance
 Capability to raise external finance
 Availability of production facilities
 Technological capabilities
 Availability of different sources of raw materials
 Availability of infrastructural facilities
 Cost structure and profit margins of the company
 Distribution network of the company
 Market share of the company
 Cont’d
80

 Top management capability

 Industrial relation in the company
 Impact of corporate laws on the growth of the
company
 Probable changes in government policies
 Possibility of evolving new technology and its
impact on cost structure of the company
 Existence and severity of competition
 Changes in customer preferences and tastes
 Cont’d
81

 SWOT analysis helps to provide the basis for the

corporate strategy to be followed and indicate the
major areas of thrust.
 Expansion of the capacity of existing product range
 Vertical integration

 Diversification

 Mergers and acquisition

 Tools for identifying investment
82
opportunities
 Porter’s Model – profit potential for companies
depends on the combined strength of:
 Threat of new entrants- participating in a market that is
closed to others.
 Rivals among the existing competitors- the extent
competition
 Bargaining power of buyers-information availability,
price sensitivity, geographic concentration, switching
cost
 Bargaining power of suppliers- lead time, price, quality

 Threat of substitutes- availability of other product that

satisfies similar needs
 Tools cont’d
83

 Life cycle Approach- products evolve through

different product life cycle that each poses
different investment opportunities
 Pioneering stage- new technology, and product. Keen
and chaotic competition.
 Rapid growth- significant expansion in sales and profits

 Maturity and stabilization- fully developed;

 Decline stage- encroachment of new products, change

in consumer prefrences
 Sources of project ideas
87

 Identification of suitable ideas which merit further

examination and appraisal- a need to search for
sound and workable business idea and give
practical shape to the idea.
 Good project ideas are elusive, hence a need to
trap various sources to stimulate the generation of
project ideas.
 Sources (cont’d)
88

 Success story of others

 Examining imports and exports
 Examining the inputs and outputs of other industries
 Plan outlays and government policies
 Suggestion of financial institutions and development
agencies
 Economic and social trend of the economy
 New technological developments
 project profiles and industry potential surveys
 Visit to trade fair
 Cont’d
89

 Explore possibility of reviving sick units

 Draw clues from consumption abroad
 Identify unfulfilled psychological needs
 Stimulate creativity to develop new products
 Screening potentially promising
90
ideas
 During preliminary screening to eliminate ideas, it is needed to
look at:
 Compatibility with promoter: interest, personality, and
resource
 Consistency with government policy: goals and regulatory
frameworks
 Availability of inputs: capital, technical know how, raw
material, power supply and utilities
 Adequacy of the market : prospect for adequate sales
volume, growth potential and return on investment
 Reasonableness of cost: must enable to realize profits

 Acceptability of risk level

 Cont’d
91

 During preliminary selection, the analyst should

eliminate:
 Technically unsound and high risky
 Projects that do not have markets

 That do not have adequate supply of inputs

 That are very costly in relation to their benefits

 Assume over ambitious sales and profitability

 Project planning can be viewed as a process of

elimination of inferior alternatives
 Project rating index (PRI)
92

 Steps involved in project rating index are:

 Identify factors relevant for project rating
 Assign weights for the factors

 Rate project proposals on various factors using suitable

rating scale
 For each factor, multiply the factor rating with the
weight to get factor score
 Add all the factor scores to get the overall project
rating index
 Cont’d
93

Factor Factor Ratings Factor

weight score
VG G (4) A P VP
(5) (3) (2) (1)
Input availability 0.2 √ 0.8
Technical know how 0.1 √ 0.3
Cost reasonableness 0.1 √ 0.4
Market adequacy 0.15 √ 0.75
Supporting facilities 0.05 √ 0.2
Project risk 0.1 √ 0.3
Dependency on firm’s strength 0.2 √ 1
Consistency with gov’t policy 0.1 √ 0.4
Rating Index 4.15
 94

3. PROJECT PREPARATION AND

ANALYSIS
 Overview of feasibility study
95

 A key process that justifies whether to go a head

with certain project idea or disregard it.
 A feasible business venture is one where the
business will:
 Generate adequate cash-flow and profits
 Withstand the risks it will encounter

 Remain viable in the long term and meet the goals of

the founders
 Why do feasibility study
96

 Give focus to the project and outline alternatives by

narrowing them
 Surfaces new opportunities through the investigative
process
 Identify reasons not to proceed
 Enhance the probability of success
 Provide quality information for decision making
 Help to increase investment in the company
 Help in securing fund
 Reasons not to do feasibility study
97

 We know what is feasible as an existing business is already

doing it
 Why do another feasibility study when one was done few
years a go
 Feasibility studies are a way for consultants to make money
 The market analysis is done by the company that sell us the
equipment
 Why not just hire a general manager who can do the study
 Feasibility studies are waste of time
 Consequences of poor project
98
preparation
 Low capacity utilization
 Heavy cost overruns
 Deteriorated financial profitability
 Lingering illness or the sudden death syndrome
 Overestimated returns
 Underestimated costs
 Omission of a necessary component
 Optimistic projections (yield and date)
 Failure to consider the variability of climate
 Optimistic calendar for implementations
 Cont’d
99

 In order for a project to be viable it has to gone

through a series of rigorous testing.
 This is basically done at an appraising stage of
project lifecycle.
 Market, technical, institutional feasibility, commercial
profitability and social cost benefit analysis which
are pre requisite for an investment project should,
therefore, be defined and critically examined on
the basis of alternative solution already reviewed
 Market and Demand Analysis
100

 first step in project analysis is to estimate the

potential size of the market proposed for to be
manufactured.
 Market and demand analysis is concerned with two
broad issues;
 whatis the likely aggregate demand for the product?
 What share of the market will the project enjoy
 Cont’d
101

 in-depth study and assessment of various factors:

 patterns of consumption,
 growth,

 income elasticity
 price elasticity of demand,

 composition of the market,

 nature of competition,

 availability of substitutes
 Situational analysis and specification of objectives
102

 to get a 'feel' for the relationship between the

product and its market, the project analyst may
informally talk to customer competitors, middlemen,
and others in the industry
 look at the experiences of the company to learn
about the preferences and purchasing power of
customers, actions and strategies of competitors.
 Cont’d
103

 If situational analysis generate enough data to

measure the market and enable us to have a clear
picture of projected demand and revenue, a formal
study need not be carried out, particularly when
time and cost consideration so suggest.
 In most cases, of course a formal study of market
and demand is warranted
 Cont’d
104

 suppose that a small but technological competent

firm has developed an LCD projector based on a
new principle that appears to offer several
advantage over the conventional (former) LCD.
 chief executive of the firm needs information about
where and how to market the new LCD projector.
 Cont’d
105

 The objectives of market and demand analysis in

this case may be to answer the following questions:
 Who are the buyers of LCD?
 What is the total current demand for LCD?

 How is the demand temporarily distributed (pattern of

sales over the year) and geographically?
 What is the break-up of demand for LCD of different
size?
 What prices will the customers be willing to pay for the
improved LCD?
 Cont’d
106

 How can potential customers be convinced about the

superiority of the new LCD?
 What price and warranty will ensure its acceptance?

 What channel of distribution are most suited for the

LCD?
 What trade margin will induce distributors to carry it?

 What are the prospects of immediate sales?

 COLLECTION OF SECONDARY
107
INFORMATION
 information may be obtained from secondary and/or primary
sources.
 Secondary information is information that has been gathered
in some other context and is already available.
 Primary information represents those information which are
collected for the first time to meet the specific purpose on
hand.
 Secondary information provides the base and the starting
point for market and demand analysis.
 It indicates what is known and often provides leads and cues
for gathering primary information required for further
analysis.
 source of secondary information
108

 census of Ethiopia
 national sample survey reports
 statistical abstracts
 annual survey of industries/agriculture and export
 economic survey
 annual report by national bank of Ethiopia
 bulletin on import and export
 other publications
 MARKET SURVEY
109

 For undertaking a market survey there is a need to

have a sample, which represents the entire market.
 Thus, sampling is the process of drawing a limited
number of subjects from a larger population or
universe.
 Since, the researcher cannot survey the entire
universe or population that they are interested, they
usually draw a sample of subjects from the
population for investigation.
 Steps in a Sample Survey
110

 Define the target population

 Select the sampling scheme and sample size
 Develop the questionnaire
 Recruit and Train the Field Investigators
 Obtain information as per the questionnaire from the
sample respondent
 Scrutinize the information gathered
 Analyze and Interpret the Information- parametric and
non parametric
 Cont’d
111

 Results of data based on sample survey will have to be

extrapolated to the target population.
 Here it should be noted that the results of the market survey
can be affected by:
 non representativeness of sample
 imprecision and inadequacies in the questions,
 failure of the respondent to comprehend the questions
 deliberate distortion in the answer given by the respondent
 slipshod scrutiny of data
 incorrect and inappropriate analysis and interpretation of data.
 Market characterization
112

 Based on the information gathered from secondary

sources and through the market survey, the market
for the product may be described in terms of:
 Effective
demand in the past and present
 Breakdown of demand

 Price

 Methods of distribution and sales promotion

 Consumers

 Supply and competition

 Government policy
 Effective Demand in Past and
113
Present
 To gauge the effective demand the starting point is apparent
consumption which is defined as:
ED= Production + Imports – Exports – Changes in Stock Level
 In a competitive market, effective demand and apparent

consumption are equal.

 However, in most of the developing countries, where
competitive markets do not exist for a variety of products due
to exchange restrictions and controls on production and
distribution.
 The figure of apparent consumption may have to be adjusted for
market imperfections
 Breakdown of Demand
114

 To get a deeper insight into the nature of demand,

the aggregate (total) market demand may be
broken down into demand for different segments of
the market:
 Natureof product: commercial vehicles covers trucks
and buses of various capacities
 Consumer groups: industrial users and domestic consumers

 Geographical divisions
 Price
115

 Price statistics must be gathered along with statistics

pertaining to physical quantities.
 It may be helpful to distinguish the following types
of prices.
 manufacturer's price quoted as FOB (Free on board)
price or CIF (Cost, insurance and freight) price
 landed price for imported goods

 average wholesale price, and

 average retail price

 Method of Distribution and Sales
116
Promotion
 The method of distribution may vary with the nature
of product.
 Capital goods, industrial raw materials or
intermediates, and consumer products tend to have
differing distribution channels.
 Further, for a given product, distribution methods
may vary.
 Likewise, methods used for sales promotion
(advertising, discount gift schemes) may vary from
product to product.
 Consumer classification
117

Demographic & sociological Attitudinal

 Age  Preference
 Sex  Intention
 Income  Habits
 Profession  Attitudes
 Residence  Responses
 Social background
 Supply and Competition
118

 It is necessary to know the existing source of supply

and whether they are foreign or domestic.
 For domestic sources of supply, information along
the following lines may be gathered:
 location,

 present production capacity,

 planned expansion,

 capacity utilization level,

 bottlenecks in production and cost structure

 Competition
119

 Competition from substitute and near substitute

should be special because almost any product may
be replaced by some other product as a result of:
 relative charges in price,
 quality,

 availability,

 promotional effort and so on.

 Government Policy
120

 The role of government in influencing the demand and

market for a product may be significant.
 Governmental plans, policies, legislation and orders
which have a bearing on the market and demand of
the product under examination should be spelt out.
 These are reflected in: production target in national
plans, import and export trade controls, import duties,
export incentives, excise duties, sales tax, industrial
licensing, preferential purchase, credit controls,
financial regulation and subsidies/penalties of
various kinds
 DEMAND FORECASTING
121

 After gathering information about various aspects

of the market and demand from primary and
secondary sources, an attempt may be made to
estimate future demand.
 A wide range of forecasting method is available to
the market analyst.
 This may be broadly divided into two categories:
 qualitative and
 quantitative methods.
 Qualitative Methods
122

 These methods rely essentially on the judgment of

experts to translate qualitative information into
quantitative estimate
 Jury of executive opinion method- method calls for
the pooling of views of a group of executive and
combining them into sales estimate by averaging
 Delphi method: this method involves converting the
views of a group of experts, who do not interact face
to face into a forecast through an iterative process
◼ Opinionsof sales persons
◼ Customers expectations
 Quantitative Methods
123

 time series projection and causal methods.

 Time series projection methods: generates
forecasts on the basis of an analysis of the historical
time series.
 The important time series projection methods are as
follows:
 Trendprojection method
 Exponential smoothing method

 Moving average method

 Causal methods
124

 Chain ratio method: a simple analytical approach, this method calls for
applying a series of factors for developing a demand forecast.
 Adult male in Ethiopia= 20 ml

 Proportion of adult male popl using shaving blades= 0.6

 Adult male using shaving blade= 20 mlx0.6= 12 ml

 Number of times person shaves/year= 100

 Total shaves/year 1200 ml

 Prop. Of shaving done with stainless blade= 0.4

 Average shaves per stainless blade = 6

 Stainless blades used per year= (1200 mlx0.4)/6= 80 ml

 Market share the firm could capture= 0.2;

 Hence, potential sale of the firm will be 0.2x80 ml= 16 million

 Cont’d
125

 Consumption level method: useful for a product that is

directly consumed, this method estimate consumption
level on the basis of elasticity coefficient, the
important ones being the income elasticity of demand
and the price elasticity of demand.
 Income elasticity of demand
126


 Cont’d
127

 Projected aggregate dd=

(Projected pop)x (current per capita dd)x(per capital
change in income level)x EI
Example
Increase in per capita income= 10%
Present per capita income for coffee= 3 Kgs
Projected population next year= 100 ml
Aggregate dd for coffee=
(100 ml) (3kg)(1+0.10x0.85)= 325.5 million Kgs
 Cont’d
128

 End use method: suitable for intermediate products,

the end use method develops demand forecasts on
the basis of the consumption coefficient of the
product for the various uses.
 Involves:
 Identificationof possible uses of the product
 Define consumption coefficients of the product for
various uses
 Project the output level for the consuming industry

 Derive demand for the product

 Cont’d
129

 Harar coffee is used by four different coffee

producers. The relevant data given below

Consumption Project output Project dd for

coefficients next year harar Coffee
Starbucks 1 50,000 50000
Green bond 0.5 25,000 12500
Silver 0.8 30,000 24,000
diamond
Oda star 0.25 80,000 20000
106,500 Kgs
 Cont’d
130

 Leading indicator method: observed changes in

leading indicators are used to predict the change in
lagging variables.
 Change in the level of urbanization may change the
need for air conditioners
 Can be estimated using regression equation
 131

TECHNICAL ANALYSIS
 Technical analysis
132

 Analysis of technical and engineering aspect is

done continually when a project is being examined
and formulated.
 Other types of analysis are dependent and closely
intertwined with technical analysis.
 The technical feasibility of a project is examined by
the engineers in the bank.
133

 Technical analysis is concerned primarily with:

 material inputs and utilities
 manufacturing process/technology

 product mix

 plan capacity

 location and site

 machineries and equipments

 structures and civil works

 project charts and layouts

 work schedule
 MATERIAL INPUTS AND UTILITIES
134

 An important aspect of technical analysis is

concerned with defining the materials and utilities
required, specifying their properties in some detail
and setting up their supply program.
 Material inputs and utilities may be classified into
four broad categories:
 Raw Materials,
 Processed Industrial Materials and Components

 Auxiliary Materials and Factory Supplies and

 Utilities.
 MANUFACTURING PROCESS/
135
TECHNOLOGY
 It is to be ensured that the manufacturing process to be
adopted is modern and at the same time appropriate to
the level of economic development of the country.
 the choice of technology is influenced by:
 Plant capacity
 Principal Inputs

 Investment outlay and production cost

 Use by other units

 Latest development

 Ease of absorption
 Acquiring Technology
136

 The company can acquire technology by

 Technology licensing- gives the licensee (the one who
receive the technology) the right to use patented
technology and get related know how on a mutually
agreed bases.
 Outright purchases-

 Joint ventures arrangement- supplier of technology may

participate technically as well as financially in the
project
 Appropriateness of Technology
137

 Appropriate technology refers to those methods of

production which are suitable to local economic, social
and cultural conditions
 technology should be evaluated in terms of:
 Whether the technology utilizes local raw materials?
 Whether the technology utilizes local manpower?

 Whether the goods and services produced cater to the

basic needs?
 Whether the technology protects the ecological balance?

 Whether the technology is harmonious with social and

cultural conditions?
 Cont’d
138

 Product Mix- items, variation in size and quality

 Plant Capacity- Feasible Normal Capacity and
Nominal Maximum Capacity
 Locations and Site – proximity, infrastructure,
government policy,
 Machineries And Equipment- plants, equipment
(mechanical and electrical), instruments, controls,
and internal transportation systems
 Structure and Civil Works- site development and
preparation, building and structure, outdoor works
 139

INSTITUTIONAL AND SOCIAL

ASPECTS
 Management
140

 Management is one of the most vital inputs for the

success of a business enterprise.
 It is the backbone of a project from appraisal stage
to successful implementation and future growth.
 It is the quality of management that makes all the
difference between success and failure of a project.
 Though management is the most important factor,
yet it is the most difficult to assess and evaluate
because it is abstract, intangible and non
quantifiable.
 Cont’d
141

 Assessment of management is more an art than a

science.
 In management appraisal we are concerned with
integrity, caliber, resourcefulness, and quality of
management.
 The aim is to identify management gap and
inadequacies and supplement them wherever
necessary having regard to the background,
experience and managerial capability to the
entrepreneurs
 Project Organization and Responsibilities
142

 In Project Management, the structural organization

has to show:
 how a project organization is embedded within the
parent organization
 how the organization is structured internally within the
project team.
 Project Organization and Responsibilities-Cont’d
143

 In Project Management
 Project organization & responsibilities
144

 A Project Management Office (PMO) is a separate office,

staffed with full time employees, to help coordinate all project
activities within the organization.
 Project sponsor: manager or executive who can oversee a project,
delegate authority to the Project Manager and can provide support as a
trainer or coach to the Project Manager
 The steering committee :
 is a group of senior managers responsible for business
issues affecting the project.
 They usually have budget approval authority, make decisions
about changes in goals and scope and are the highest
authority to resolve issues or disputes
 Both the project sponsor and the steering committee are
responsible for project governance
 Project organization & responsibilities
145

 An advisory committee is a group of people that

represents key project stakeholders and provides
advice to the project.
 The project manager is naturally the key person
within the project organization and has the overall
responsibility for meeting project requirements within
the agreed to time, cost, scope and quality constraints
which form the framework of the project plan.
 A team leader is a person responsible for managing
one part of a project, or a “subproject.”
 Team member
 As a Project Manager - What do you Manage?
146

 Schedule
 The project timeline, identifying the dates (absolute or relative
to a start date) that project tasks will be started and completed,
resources will be required and upon which milestones will be
reached.
 Scope
 Project scope involves identifying and describing the work that is
needed to produce the deliverables of the project in sufficient
detail to ensure that:
 All the appropriate work is completed
 And ONLY the appropriate work is completed

 Resources
 Team Members who perform project work
 Executive Sponsor and Guiding Team expectations
 Roles of the Project Manager

Communicate

Communicate

The role of the project manager is to direct, supervise and

control the project from beginning to end.

147
Types of Project Organizations
148

 There are two fundamentally different ways of

organizing projects within the parent organization
 The project as part of the Functional (divisional)
Organization
 The project as a free-standing part of the parent
organization
 A third type, called a Matrix Organization is a hybrid
of the two main types
 Each has advantages and disadvantages
 Types of Project Organizations-Cont’d
149

 Pure Functional (Divisional) organization

 Projects fall within the organizational units
 Pure Project organization
 Company consists solely of project teams
 Used by companies that “do” projects

 Matrix organization
 Projectmembers belong both to project and functional unit
 Various levels of matrix organizations
 Project Management Structures
150

The Project as Part of the Functional Organization

 Different segments of the project are delegated
to respective functional units.
 Coordination is maintained through normal management
channels.
 Used when the interest of one functional area dominates
the project or one functional area has a dominant
interest in the project’s success.
 Functional Organizations

151
 Organizational Models-Cont’d
pure line organization or functional organization
152
 Functional Organization of Projects
153

Advantages
 Disadvantages


1. No Structural Change 1. Lack of Focus

2. Flexibility 2. Poor Integration
3. In-Depth Expertise 3. Slow DM
4. Easy Post-Project 4. Lack of Ownership
Transition
 Pure Project Organization
(Projectized Organizational Structure)
154
 Organizational Models-Cont’d
pure project organization (“task-force”)
155
 Pure Project Organization
156
 Advantages of pure project
157

 PM with full project authority

 Shorter communication lines than hybrid
organization
 Higher project commitment of team

 Faster decision making

 Unity of command makes life easier for staff

 Organization is structurally simple and flexible

 Problems with pure project
158

 Stockpiling of expertise and equipment to assure

critical state never reached
 Experts develop too much depth --- not enough
breath
 Inconsistency in carrying out policies and
procedures
 Projectitis: excessive attachment of team to
project
 Team worries of “life after the project ends”
 Project Management Structures (cont’d)
159

 Organizing Projects: Matrix Structure

 Hybrid organizational structure (matrix) is overlaid on
the normal functional structure.
◼ Two chains of command (functional and project)
◼ Project participants report simultaneously to both functional
and project managers.
 Matrix structure optimizes the use of resources.
◼ Allows for participation on multiple projects while
performing normal functional duties.
◼ Achieves a greater integration of expertise and project
requirements.
 Matrix Organization Structure
160
 Different Matrix Forms
161

 Weak Form (functional matrix)

 Theauthority of the functional manager predominates
and the project manager has indirect authority.
 Strong Form (Project Matrix)
 Theproject manager has broader control and functional
departments act as subcontractors to the project.
 Balanced Form
 The project manager sets the overall plan and the
functional manager determines how work to be done.
 Project Organization: Matrix Form
162

 Advantages  Disadvantages

1. Efficient 1. Dysfunctional Conflict

2. Strong Project Focus 2. Infighting

3. Easier Post-Project 3. Stressful

Transition 4. Slow
4. Flexible
 Choosing the Appropriate Project Management Structure
163

 Organization (Form) Considerations

 How important is the project to the firm’s success?
 What percentage of core work involves projects?

 What level of resources (human and physical)

are available?
 Choosing the Appropriate Project Management Structure
(cont’d)
164

 Project Considerations
 Size of project
 Strategic importance

 Novelty and need for innovation

 Need for integration (number of departments involved)

 Environmental complexity (number of external

interfaces)
 Budget and time constraints

 Stability of resource requirements

 165

FINANCIAL FEASIBILITY
ANALYSIS

January 2016
 Why
166

 to determine, analyze and interpret all the financial

consequences of an investment that might be
relevant to and significant for the investment and
financing decisions.
 Why Financial analysis
167

 It provides an adequate financing plan for the

proposed investment
 It determines the profitability of a project
 It assists in planning the operation and control of the
project by providing management information to
both internal and external users
 It advises on methods of improving the financial
viability of a project entity
 It illustrates the financial structure of the project and
its existing and potential financial viability.
 METHODS OF FINANCIAL
168
ANALYSIS
 Resource flow statements
 Profit and loss statements
 Cash flow statements and
 Balance Sheet
 Resource flow
169

 The benefit and cost items included in the statement

should include only those items, which are
incremental.
 The resource flow statement shows: (1) the list of
resources used in the project and (2) the resources
generated by the investment on the project.
 Elements of resource flow
170

 Investment costs: investment costs cover capital expenditure

items such as land, buildings, equipment and furniture
a) Initial fixed investment costs. This includes investment made for the
acquisition of land, development of land for construction purpose, civil
works (laying the foundation), equipment and machinery costs,
installation of the machines or the plant, vehicle, furniture, building
b) Pre-production capital expenditure
◼ Research and development
◼ Pre-feasibility or feasibility study cost
◼ Training costs incurred before the commencement of the operation
◼ Recruitment of personnel costs
◼ Arrangement for marketing of the product
◼ Arrangements for supplies
 Investment cost cont’d
171

c) Working capital
 Working capital is simply a revolving fund. It is the
difference between current asset and current liability.
 This is known as a circulating fund because at the end of the
project's life it can be put as a benefit of the project.
 Defining the working capital requirement appropriately is
important because many projects fail while they are in
operation due to shortage of cash or working capital.
 The amount of the total working capital required depends
upon the operating costs for the project
 Working capital (Cont’d)
172

 There are three basic components of physical

working and capital inventories needed for
production to be continuous. These are:
 Initial
stock and materials
 Work-in-process and

 Stock of outputs
 Working capital (cont’d)
173

 the amount of funds required for operating needs varies from

time to time in every business.
 But a certain amount of assets in the form of working capital
are always required; if the business has to carry out its
functions efficiently and without a break.
 The two types of requirements are permanent (fixed) and
variable.
 The permanent working capital is that part of capital which is
permanently locked up in the circulation of current assets and in
keeping it moving.
 variable working capital changes with the volume of the output of
the project
 Elements of resource flow (cont’d)
174

 Operating Costs/Production Costs. Operating costs

can be divided into two: Fixed and Variable
components.
 Variable cost includes items such as materials,
power, labor inputs required for manufacture which
will vary directly with the volume of production;
while fixed costs will include maintenance,
administration and managerial charges which will
be relatively fixed with respect to the volume of
production.
175

Years
No Items 1 2 3 4 5 n
Capacity Utilization Rate (%) 50% 75% 80% 85% 90% 100%
1 Raw material
2 Labor
3 Utilities
4 Repair
5 Maintenance and Repair
6 Factory Overhead
Factory Costs (1-6) (a) XX XX XX XX XX
7 Administrative costs
8 Sales costs
9 Distribution cost
Operating Costs (7-9) (b) XX XX XX XX XX
10 Depreciation (c)
11 Interest expenses (d)
Total production Cost
(a + b + c + d) (Bold) XX XX XX XX XX
 operating cost includes
176

1. Cost of Production
 Material cost
 Wages including salaries for executives
 Utilities
 Repairs and maintenance
 Factory over heads. These items include expenses for the factory as:
◼ rent, for factory, if any
◼ insurance premium for factory assets and factory workers
◼ postage, telephone, fax, e-mail, etc, in the factory
◼ traveling expenses
◼ depreciation of plant and machinery and other factory equipment
◼ proportionate management expenses
 operating cost includes
177

2. Administrative Expenses
 This represents all indirect expenses incurred in the
organization including estimates for
 salaries of all indirect staff
 postage, telephone, fax, e-mail
 traveling expenses
 insurance other than for the factory assets
 rent, rates, taxes, electricity and
 depreciations of all fixed assets other than factory fixed assets
 operating cost includes
178

3. Selling Expenses
 estimated expenses in sales divisions as per
projected organizations and includes the items:
 salaries and personnel cost for sales staff and
managers as planned
 publicity, advertisement, exhibitions, etc.

 subsidies, commissions, discounts to dealers, etc.

 administrative expenses of sales office including

rent.
 operating cost includes
179

4. Depreciation
 Depreciation expenses represent consumption of
utility units contained in an asset.
 It relates to the cost center where such assets are
installed.
 Benefits
180

 Benefits can be direct (production output) which

may include items like:
 main product
 by product

 residual and other income

 Benefits can also be indirect or external: in a road

projects reducing transportation costs, reducing
operating costs for maintenance of vehicles and
saving time of the society are indirect benefits of
the project
 Project Resource Statements
181

Project Period
No Items 1 2 3 4 5 6
1 Land preparation
2 Buildings
3 Equipment
4 Vehicles
5 Total investment cost (1 + 2 + 3 + 4)
6 Factory costs
7 Administrative costs
8 Selling expenses
9 Depreciation
10 Total operating costs (6 + 7 + 8 + 9)
11 Incremental working capital
12 Benefits
13 Net Benefits (12-10-11)
 Project Financial Statements
182

 Financial analysis also involves formulation of

various financial statements, which enable project
owners and other interested stakeholders to know
whether the projects worthy or not.
 commonly prepared financial statements are:
 balance sheet,
 loss and profit statement, and

 cash flow statements

 Criteria for evaluating financial
183
viability of projects
 There are different criteria to assess the financial
feasibility of projects:
 Payback period
 Discounting pay back period
 Net present value
 Internal rate of return
 Accounting rate of return
 Example 1: NPV calculation
184

 AMA company is considering to invest in a particular project. The

initial investment cost is Br. 100,000. It is expected that the project
may generate a benefit for 5 years as shown below:


Year Operating cost Annual cash inflow

1 Br. 100,000 --
2 6,000 Br. 20,000
3 10,000 30,000
4 2,000 40,000
5 1,000 35,000

 The discounting rate is 10%

 Required: Calculate the NPV
 Solution
185

Year Cost Revenue Present Value

(Cash in flows)
Factor
P.V. C PV.Rev
0 Br. 100,000 -- 1
100000 0
1 6,000 Br. 20,000 0.9091
5454.545 18181.82
2 10,000 30,000 0.8264
8264.463 24793.39
3 2,000 40,000 0.7513
1502.63 30052.59
4 1,000 40,000 0.6830
683.0135 27320.54
5 1,000 35,000 0.6209
620.9213 21732.25
Total
116525.6 122080.6
 Solution
186

 Net present value of the project = PV of Revenue –

PV of Costs
= 122,080.6 – 116525.6
= Br. 5555
 Cont’d
187

 Example: A company is considering investing on a particular

project. The alternative projects available are: Project A that
costs Br. 100,000, and Project B that Costs Br. 70,000. The net
cash in flows estimates are as follows:
Year Project A Project B
1 30,000 7,000
2 30,000 15,000
3 35,000 20,000
4 35,000 56,000
5 40,000 45,000
 Which project is good? Use payback period and NPV
 IRR
188

 Internal Rate of Return (IRR): is defined as the

discount rate that makes the net present value zero.
IRR method finds out the rate at which – when
applied on future cash inflows – the present value
of such inflows taken together should equal with the
present value of the cost of investment.
 IRR (CONT’D)
189

 IRR = LDR + (HDR-LDR)  NPV of LDS/abs. D/ce

the NPVs

 As you can see in the formula, you need to have two

net present values i.e., positive and negative NPVs
that can be determined by the trial and error
method.
 The higher the discount rate is the lower NPV and
the lower the discount rate is the higher the NPV
 Example
190

 Example 1: NPV calculation

 AMA company is considering to invest in a particular project. The
initial investment cost is Br. 100,000. It is expected that the project
may generate a benefit for 5 years as shown below:

Year Operating cost Annual cash inflow

0 Br. 100,000 --
1 6,000 Br. 20,000
2 10,000 30,000
3 2,000 40,000
4 1,000 40,000
5 1,000 35,000
 Find the internal rate of return
 Calculate NPVs at 10%, 11%, % 12%
191

 At 10%, NPV = 5555.011

 At 11%, NPV= 2498.187
 At 12%, NPV= -430.755
 Hence, the IRR lies between 11% and 12%.
 Using the previous formula, IRR = 11% +(12-
11)%(2498.187/2928.943)= 11.85%
 Financial Ratio Analysis
192

 If you look at the figures in a Balance sheet or

Income statement, it is sometimes difficult to see
their significance. A better appreciation may often
be gained by a consideration of the relationship
between figures, rather than examining their
absolute values.
193

 Profitability
 The relationships of profits made to the sales or

assets which have generated them:

i) Gross Profit at % of sales = (gross profit/sales) x100
 This shows the extent to which the direct costs of
sales absorb the sales revenue. The gross profit is
the fund out of which the company must meet its
expenses and still leave a balance of profit.
194

 Net Profit as % of Sales = (Net profit after interest and tax/sales)/100

 This shows the extent to which all costs (direct costs
+ expense) absorb sales revenue and what net
profit remains per $ of sales.
195

 Return on Assets = (net profit before tax and

interest/total net asset)x100
 This shows how much profit is made for every $ of
assets which have been used to generate it. It is a
measure of the efficiency with which assets have
been used by the company.
 iv) Shareholders Return =
196

(Net Profit (After tax and interest) x 100

Shareholders’ Equity (Share Capital + Reserves)

 This shows how much profit is made for the

shareholders for each $ the shareholders have
invested in the project. It shows how successful the
investment has been from the shareholder’s point of
view.
197

 Liquidity

Current Ratio = Current Asset

(Working Capital Ratio) (Current Liabilities)
By comparing assets and liabilities we try to see if the
company is in the position to pay its debts. i)
198

 Comparison of the total current assets with the total

current liabilities will show whether the company is
in a position to settle its liabilities or whether there
is some deficiency of assets. As a general rule a
current ratio 2:1 is thought to be satisfactory.
ii) Quick Ratio =Current Asset – Stocks
(Acid Test Ratio) Current Liabilities
199

 Consideration of the Current Assets as a whole in

relation to Current Liabilities is often considered as
dubious, as some of the current assets (particularly
stocks) are less readily realizable than others. The
quick ratio compares those assets which are cash, or
readily turned into cash (e.g., debtors) to the
Current Liabilities. These are generally expressed
as ratios. It is considered that a 1:1 ratio indicates a
satisfactory situation.
200

 d) Cover
i) Times Interest Earned =
Net Profit (before tax and interest
Interest Paid
ii) Dividend Cover =
Net Profit (After tax and interest
Dividends
 This compares the amount of a charge such as interest or dividends
with the funds out of which it has to be paid. It is measure of how
far profits could fall before the company would be unable to meet
the relevant obligation. These are expressed as “times” the relevant
factor (e.g., dividends are covered three times by profits). The
Dividend Cover Ratio is sometimes expressed as a % of profit paid
out as dividend, or payout ratio.
 d) Efficiency
201

 The smaller the asset base upon which a given volume of

business can be generated, the greater will be the
profitability of the company. This can be measured by the
efficiency with which various cases of assets are used.
 i) Fixed Asset Turnover = (Sales)
Fixed Assets

 The more sales that are achieved from the fixed asset
base, the greater will be the number of times the net profit
per birr of sales will be earned in a year and this will give
rise to greater profitability. This is expressed as a turnover
ratio, e.g., x times p.a.
202

 ii) Total Net Asset Turnover = (Sales)

Total Net Assets
 Has similar significance but considers all assets.

iii) Stock Turnover Period (in days) = Sales

Stocks =
Times
203

 The more quickly the stocks can be sold, the less the
average investment will be and the more efficiently the
company will be operating.
 iv) Debtors’ Turnover Period (in days) =

(Debtors x 365)
Sales

 v) The more quickly debts can be collected, the lower

the average amount advanced to customers will be and
the more efficiently the company will be operating.
 Market Ratings
204

 a) Earnings Per Share =

Net Profit (after tax + interest)
Number of Ordinary Shares

 How much profit has been earned for each

outstanding Ordinary share?
205

b) Price/Earning Ratio = (Market Price per Share)

Earning Per Share
 This expresses the relationship between the earning
made in respect of a share and the price the market
demands for it. It is measure of the way the market
regards a particular share. The higher the opinion of
the market, the greater price will be in respect of a
given amount of earnings and the higher the P/E Ratio
will be. The same information is sometimes presented in
a different format as the capitalization ratio:
(Earnings Per Share x 100)
Market Price Per Share
206

 c) Dividend Yield =
(Dividends per Share x 100)
Market Price Per Share
 This translates the dividends and market price into
an effective currently yield which the investor is
earning on the share. It does not, however, take
account of the capital appreciation, which may be
a substantial element of the investors’ anticipated
return.
 Limitations of ratio analysis
207

 Differences between companies will render many

comparison meaningless
 Ratios are susceptible to “window-dressing” to enable them
to seem better than they are
 Changes in the general level of prices will affect some ratios
(but not others) making comparison of dubious value.
 Differences in the definition of assets, profits, etc., in
different companies will render some comparison invalid.
 Ratios typically show past data.
 There is a danger that the ratio (which is only a control
device) becomes substituted for the real objective in the
minds of the managers concerned, resulting in a non-optimal
expenditure of managerial effort.
 208

ENVIRONMENT ANALYSIS
 Environmental analysis
209

 Projects have a significant impact on the

environment: positive and negative.
 The positive environment effects needs to be
enhanced and the negative effects need to be
prevented or reduced thorough appropriate
mitigation measures to achieve this, project should
be subject to an environmental assessment.
 Concern for environmental degradation in Ethiopia
has been growing in recent years.
 Cont’d
210

 The constitution states that everyone has the right to

live in a clean and healthy environment and the
government will make every effort to provide such
an environment. Article 44/1
 The constitution also holds the government and the
people of Ethiopia responsible for the preservation
of natural resources and maintenance of ecological
balances.
 most urgent areas of environmental
211
concerns
 The considerable land degradation including loss of
nutrients owing to removal of animal manure a crop
residues for use as a fuel and cattle feed
 The low quality and availability of water, as a
result of which only about one-fifth of the
population has access to safe water.
 The rapidly growing urban environmental problems
including lack of sanitary facilities, inadequate
refuse collection, and low standard of housing.
 ENVIRONMENTAL IMPACT
212
ASSESSMENT
In environmental assessment there
are two main level of assessment.
• impact of projects - Environmental Impact
Assessment (EIA) and
• impact of policies, plans and program-
Strategic Environmental Assessment (SEA).
 Stages of Environmental Impact
213
Assessment

Impact
Assessment and
Screening Scoping Evaluation – Monitoring and
preparation of Auditing
environmental
impact statement
 Screening
214

Screening is the initial review of a project to

determine if an EIA is required.

For certain types of project it can be a mandatory

requirement to undertake an EIA.

For others it will be a matter of decision by the

relevant regulatory authority.

For all major agricultural project it is likely that an

EIA would be required, and desirable
 Scoping
215

 Once a decision has been made to commence an EIA the

next exercise is to assess the likely major impacts of the
project on the environment.
 This is known as scoping an initial environment evaluation.

Major adverse No possible

impacts significant adverse
impact
• ,outright rejection • move on to its
of the project implementation
stage
 Impact Assessment &Evaluation
216

 This is the identification and prediction of all the

environmental impact of the proposed project, their
likely affects both positive and negative, the way to
enhance or mitigate these impacts.
 The outcome of this stage will be a report of the
assessment, this is commonly called an Environmental
Impact Statement (EIS).
 Cont’d
217

 EIA the EIS may include recommendation on whether

the project should proceed of the changes, which
should be made to its design to allow it to proceed
to implementation.
 The EIS should also include recommendations on
environmental monitoring to take place after project
implementation
 Monitoring & Environmental
218
Auditing
 The final stage of the Environmental Impact
Assessment (EIA) process, or a component of project
management, is environmental auditing
 Auditing can be undertaken either by the project
itself or by an external agency.
 The objective of auditing is to assess the impact of
the project against established standard.
 Cont’d
219

 Auditing can also be linked to the socio-economic

impacts of a project.
 An irrigation project may have the potential to
increase water born diseases, and measure to
mitigate these may have been part of the project
design, monitoring of health statistics and auditing of
these figures can be used to assess if this impact has
occurred or been mitigated against.
 Monitoring and auditing require resources and a
commitment by the project operator and regulatory
authorities.
 TIMING OF ENVIRONMENTAL
220
ASSESSMENTS
 In the past the environmental assessment of a project, if it
happened at all took place toward the end of the
development of the project.
 This would often have been after the identification, design and
financial appraisal of the project.
 But the environmental viability of a project is essential for a
successful and sustainable project.
 This to undergo the preparation of project leaving the
environmental to the end makes no sense, especially, if this
assessment indicates that the project is not environmentally
viable and sustainable.
 Who conducts
221

 Participation of project beneficiaries is also crucial

when undertaking an Environmental Impact
Assessment (EIA).
 Unless local communities have been involved in the
original identification and design of a project, the
onset of an EIA may be the first thing they know
about the project.
 ENVIRONMENTAL IMPACTS
222

 Project will have its own positive as well as negative impact on the
environment
 the impact of agricultural project can be grouped into:
 Ecological impact: loss of fauna and flora (including deforestation)

 Impact on soil: erosion, salinization, alkalinization, fertility and

structure
 Hydrology: water quality, surface flow, flooding, pollution

 Socio-economic impact: crop production, nutrition, employment, and

health
 Infrastructure: transport, water supply, telecommunication

 Socio-cultural: cultural sites, and archeological sites

 Land use: land tenure, land rights,

 VALUATION OF COST AND BENEFIT
WITH REGARD TO ENVIRONMENT
223

 Economic analysis are to take into account all costs and

benefits of a project.
 With regard to environmental impacts, however, there are two
basic problems.
 First, environmental impacts are often difficult to measure in physical
terms.
 Second even when impacts can be measured in physical terms,
valuation in monetary terms is difficult.
 In spite of such difficulties, a greater effort needs to be made
to "internalize" environmental costs and benefits by measuring
them in money terms and integrating these values in economic
appraisal.
 Issues in measuring environmental
224
costs and benefits

Determining Valuing
physical impacts in Discounting; Risk and
impacts and monetary and Uncertainty
relationship terms
 Physical Impacts and Relationship
225

 The first step in environmentally sound economic

analysis is to determine the environmental and
natural resource impacts of the project or policies in
question.
 These impacts are determined by comparing the
"with project" and the "without project" impacts.
 For determining physical impacts, an economist will
have to rely on the expertise of engineers,
ecologists, agronomists, social scientists, and other
specialists.
 Valuing the Impacts in Monetary
226
Terms
 A number of conceptual approaches have been
developed for valuing physical impacts and
relationships.
 An environmental impact can show itself in a
measurable change in production or environmental
quality. Different methods are appropriate
depending on the types of effects.
 Evaluation methods
227

 Market Based Methods

 The primary feature of these methods is that they
are based directly on market prices productivity.
They are applicable where a change in
environmental quality affects actual production or
production capability.
 Change in Productivity Approach
 Loss-of-earnings Approach- lost earning due to
premature death
 Defensive or Preventive Expenditures- to avoid or reduce
unwanted environmental effects
228

 Methods Based on Surrogate Market Values

 The methods and techniques described in this section
use market information indirectly.
 the property value approach, - in the area as
compared to property in some other place.
 the wage differential approach- the additional cost or
cost saving on wage because of the project
 the travel cost method-

 uses of marketed goods as surrogates for non-

marketed goods- where environmental goods have
close substitutes that are marketed
 Cont’d
229

 Methods Based on Potential Expenditures or

Willingness-to Pay
 Sometimes it is not possible to estimate the benefits of
environmental quality protection or improvements.
 In some of these cases it may be possible to estimate
benefits by calculating the costs of replacing the
environmental services that have been or might be
destroyed by a project, or by estimating what people
might be willing to pay (WTP) to protect an
environmental asset.
 Potential Expenditures or Willingness-
230
to Pay (cont’d)
 Replacement Cost Approach- the costs of replacing a
damaged asset are estimated
 Shadow project approach- involves design and
costing of one/more shadow projects that would
provide substitute environmental services to
compensate for the loss of the original assets
 Contingent valuation- direct questionnaire about
willingness to pay for a benefit or willingness to
accept compensation for tolerating costs
 The Discount Rate Issue
231

 past costs and benefits are treated as "sunk" and

are ignored in decisions about the present and
future.
 Future costs and benefits are discounted to their
equivalent present value and then compared.
 the interest rate measures both the subjective rate
of time preference and the rate of productivity of
capital
 The Discount Rate Issue (Cont’d)
232

 The main recommendations, therefore, are that:

 the standard opportunity cost of capital be used (e.g.,
10 percent) for environmental cost-benefit analysis, as
it is for NPV calculations and for computing the IRR
comparator:
 short-and long-term costs and benefits be estimated as
carefully as possible; and
 a rigorous analysis of non-monetary consequences
(including those that might be irreversible) be made to
supplement standard cost-benefit analysis.
 Issues of Risk and Uncertainty
233

 Projects and policies alike involve risks and

uncertainties.
 Risks are involved when probabilities can be
assigned to the likelihood of an event occurring,
such as an industrial accident.
 Uncertainty describes a situation where little is
known about future impacts and where therefore no
probabilities can be assigned to certain outcomes,
or where even the outcomes are so novel that they
cannot be anticipated.
 234

PROJECT SCOPE AND ESTIMATION

OF TIMES AND COST

28/02/2016
 Project scope management
235

 Project scope is a precise explanation of the expected

result of the project or product for the customer from an
external as well as from an internal point of view in a
specific, tangible, and measurable way.
 under the joint direction of the project manager and
customer.
 The project manager is responsible for an agreement
with the customer on project objectives, deliverables at
each stage of the project, technical requirements, etc
 Project scope management
236

 A project scope should contain the following

elements:
1. Project objective
2. Deliverables
3. Milestones
4. Technical requirements
5. Limits and exclusions
6. Reviews with customer
 Discussion questions
237

1. What are the most important things to manage in

project management?
2. What are the constraints or limitations in project
management?
 The ‘Triple Constraint’ Triangle
238

 Understand the ‘Triple Constraint’

 Resources (people, Budget) are
available for the project,
 Time allotted to complete the project,
 Quality expectations involved for
the success of the project
Scope/Quality

 Identify what outside influence could change the scope of

the project
 Understand what is meant by scope creep – is this always bad?
 Identify resources, goals and timeline
239

•Operational Staff •Deadlines

•Volunteer effort •Milestones
•Funds

Scope/Quality

•Degree of user involvement

•Deliverables
•Scope
•Approach
 Determining project scope
240

 Work Breakdown Structure (WBS)

 Project Communication Plan (PCP)- identify stakeholders,
determines appropriate communication paths, levels of data
dissemination, and general guidelines or protocols for the
project team
 Activity Resource Estimating- estimating how many resources a
project team should use to perform project activities
 Project time management- developing a schedule that can be
met, then controlling work to ensure that this happens
 Estimation of project cost- involves estimating the cost of
resources, including people, equipment, materials, and such
things as travel and other support details
 Determining project scope-cont’d
241
 242

4. PROJECT PLAN
 Project Planning
243

“ If you don’t plan for the

project, you are planning for
failure”
“ Plans act as a road map of
complicated process to manage
project”
 PM Process Summary
Define Project
 State need, problem or opportunity
 Define project objectives Monitor & Control Progress
 Identify success criteria  Establish progress reporting system
 List assumptions, risks and obstacles  Set up change control process
 Define project scope and work  Define problem escalation process
breakdown structure  Monitor progress vs. plan
 Revise project plan
We are here Feedback

Develop Detailed Plan

 Identify project activities
 Estimate activity duration
 Determine resource requirements
 Construct / analyze project network
 Prepare project schedule
Close Out Project
 Obtain client acceptance
 Install project deliverables
 Complete project documentation
Launch Plan  Complete post-implementation audit
 Recruit and organize project team  Issue final project report
 Establish team operating rules
 Level project resources
244  Assign work
 The project plan
245

 The project plan sets out:

 The work breakdown
◼ Breaks down the project into activities, identifies
milestones, deliverables
A schedule for the work
◼ Activity dependencies, estimated milestone time, people
allocation
 The resources available to the project
 Activity organization
246

• Activities in a project should be organised to

produce tangible outputs for management to judge
progress
• Milestones are the end-point of a process activity
• Deliverables are project results delivered to
customers
 Project Plan
247

 planning tool
 it will become one of the most important control
instruments and after ending the project it is a
measurement of whether the project has reached its
goal.
Project Planning and Scheduling

Three Basic Steps to a Project Schedule

248
 249

DEVELOPING A PROJECT
NETWORK PLAN
 Importance of PERT/CPM
250

 Project managers rely on Program Evaluation & Review

Technique [PERT]/ Critical Path Method [CPM] to help
them answer questions such as:
 What is the total time to complete the project?
 What are the scheduled start and finish dates for each
specific activity?
 Which activities are critical and must be completed exactly
as scheduled to keep the project on schedule?
 How long can noncritical activities be delayed before they
cause an increase in the project completion time?
 Basic steps in CPM &PERT
251

Step 1: Define activities

 The project & all of its significant activities or tasks
 Efficient tool: WBS
Step 2: Define Activity interdependencies
 The relationship among activities
 Decide which activities must precede and follow others
 It demands the understanding of the whole project and the knowledge
of applied technologies
➢ Result: preceding or succeeding activity list
 Basic steps in CPM &PERT—Cont’d
Step 3: Draw the Network
• Network connecting all of the activities

➢Result: the network itself

Step 4: Assign time and /or resource

•Activity by activity
Time estimation methods:
✓ the use of normal duration: only one activity duration
✓Two time estimation method: Normal and the crash duration
✓PERT estimation: three activity duration times a
• Optimistic time
• Most likely time, and
•Pessimistic time
Steps 1 to 4 are also known as the planning phase
252
 Basic steps in CPM &PERT—Cont’d
Step 5: compute the longest time path through the
network
• this is called the critical path
Key questions:
✓ what is the expected duration of the project?
✓What are the earliest start and finish dates for each activity?
✓What are the latest start and finish dates for each activity that does
not interfere with the project completion time?
➢ Analyzing these times in order to find the critical activities & the
amount of float in the non-critical ones.
➢This step is scheduling

Step 6: use the network to help plan, schedule, monitor, and

control the project.

253
 Network Diagrams
254

The sequence of activities can be represented in

the form of a network
Network diagrams first represent the order that
tasks MUST be completed
They can later be modified to represent how the
tasks are actually going to be completed
 AON Diagrams
255

Activity-on-Node AON
This is the form of Network diagrams most commonly used
Tasks and Milestones are represented as a box called a
node
Each activity has a unique name

TASK A
 AON Diagrams
256

Order & relationships are shown as arrows

Any activity may either:
Succeed (follow) – task B succeeds task A
Precede (go before) – task A precedes task B

TASK A TASK B
 AON Diagrams
257

Any activity may:

Be performed concurrently – Task C can be performed at
the same time as Task D

TASK C

TASK D TASK E
 AON Diagrams –Rules
258

Activity names should indicate the work to be

done and should have a verb & a noun.

 ✓
Prepare Tax
Tax Return Return
 AON Diagrams –Rules
259

Arrows should always go forward

TASK C
 TASK C
✓

TASK D TASK E TASK D TASK E

 AON Diagrams –Rules
260

Arrows should only go from one node to another

node

TASK C
 TASK C
✓

TASK D TASK E TASK D TASK E

 AON Diagrams –Rules
261

Avoid overlapping arrows

✓
TASK C
 TASK C TASK F

TASK D TASK F

TASK D TASK E

TASK E
 AON Diagrams –Rules
262

If overlapping can not be avoided use bridges

TASK C

TASK D TASK E

TASK D
 AON Diagrams –Rules
263

There should be one starting node (Start Project)

and one finishing node (Project Complete)

TASK C TASK D

TASK Start TASK Finish

TASK D TASK E
 AON Diagrams –Rules
264

An AON diagram should not contain more than 50 nodes

For large projects break the project into subprojects to
make it easier to manage
 Network Diagrams

 Activity-on-Node (AON):
 Uses nodes to represent the activity
 Uses arrows to represent precedence relationships

265
 Preparing AON
266

When developing your AON you must consider

 Given where we are in the project, what activity(s)
should be performed next
 Which activity(s) would have to be finished before
this one can start
 Other considerations such as technical restrictions,
policy or procedure restrictions or resource
restrictions
 Preparing AON
267

 Using the WBS identify the order that tasks must

be done (not could be)
 Prepare you AON on scrap paper
 Check your diagram
 Revise your diagram to remove overlapping
arrows
 Check your diagram
 Revise your diagram to reflect resource restrictions
and preferable task order
 AON Example -
Publish Newsletter

Select Submit Design

Designer Designs Approved
Start
Start
Newsletter
Newsletter Gain Article Finish
Project Get Article Complete Review Do Final Articles Complete
Project Ideas
Ideas Approval 1st Draft Articles Drafts Approved Computer Newsletter
Layout Project
Formulate Gain Take Photos
Photo Photo Photos Ready
Ideas Idea
Approval

268
Project Planning and Scheduling

Network Scheduling

• A graphical display of the logical order of activities

that defines the sequence of work in a project where
activities are represented by boxes

• Networks are usually drawn from left to right with

lines drawn between the boxes to show the
precedence relationships between them

• Arrow heads are sometimes placed on the lines to

indicate the direction of the flow through time

269
Project Planning and Scheduling

Network Terminology

• Activity – An item of work that consumes time and

resources to produce some result

• Critical Path –
– The series of activities all of which must be finish
on time for the whole project to finish on time
– Sometimes described as the longest path
through a network, hence the shortest project
time
– A critical path has zero float
– A critical path assumes that the network logic is
sound
270
Project Planning and Scheduling

Computing Critical Path

• Calculate the Forward Pass by adding the durations

along each path in your network to establish the
earliest start (ES) and finish (EF) dates for each activity

• Calculate the Backward Pass by repeat this operation

but working backwards from the last date established in
the Forward Pass or from a specified Required
Completion date to establish the latest start (LS) and
finish (LF) dates for each activity

• This is much easier using scheduling software

271
Project Planning and Scheduling

Computing Critical path-Cont’d

• If you examine the values of (ES-LS) and (EF-LF)

you will note that

– The string of activities where these values are

zero is the longest path through the network

– This is known as the Critical Path

– Where the values are positive indicates that

there is Float for those activities

272
Project Planning and Scheduling

Network Terminology

• Event or Milestone –
– A point in time when certain conditions have been
fulfilled, such as the start or completion of one or
more activities
– Unlike an activity, does not consume time or
resources
– Hence, expresses a state of being
– Activities take place between events

• Float or Slack Time – The additional time available

to complete a non-critical activity
273
 Project Planning and Scheduling

Precedence Diagramming

274
http://www.maxwideman.com/issacons/index.htm
Project Planning and Scheduling

Precedence Network Activity Data Boxes

Suggested display of key data

275
 Activity On Node Network Techniques
276

 An activity is represented by a node represented as a

rectangular box.
 Theactivities are connected by arrows between these
boxes.
 The arrows represent the dependencies between the
different activities and the specific sequence in which
the estimated tasks must be accomplished.
 The length and the slope of these arrows do not provide
any information about operational hours, workload etc.,
 Activity On Node Network Techniques
277

 define the relationships of each activity in the project

context.
 Which activities must be finished before starting this one?
 Which activities can directly start after finishing this one?

 Which activities can be done in parallel to this one?

➢ predecessor, successor and parallel relationships for

each task
 Activity On Node Network Techniques
278

 Examples

 Task A is the predecessor activity for task B and activity A and B are the
predecessor tasks for activity C

 activities Y and Z have to wait until the task X is ready. In this case
activity Y and activity Z can be done in parallel (to save time).
 The activity X is called burst activity because more than one arrow bursts
from its node.
 Activity On Node Network Techniques
279

 Task J, K and L can be done in parallel if enough

resources are available and no other constraints are
existing.
 Activity M has to wait for task J, K and L to be done
until it can be started.
 In this case, activity M is called a merge activity
because more than one task must be completed
before it can start.
 AON-Examples
information about simplified activities that have to be done to install a new
suspension bridge.
280

Activity Description Preceding Duration

activity (in days)
A To apply for approval none 5
B Installation of fundaments A 10
C Fabricate steel elements A 10
D Fabricate tower elements A 20
E Fabricate steel ropes A 15
F Fabricate supporting elements A 10
G Transport “all together” from plants to building site C,D,E,F 5

H Erection of the suspension bridge B,G 10

I Fine tuning H 5
J Testing I 5
 ANO-CONT’D
281
 Exercise: Cables By M company is bringing a new product on line to be
manufactured in their current facility in some existing space. The owners have
identified 11 activities and their precedence relationships. Develop an AON for the
282
project & determine project completion time

Immediate Duration
Activity Description
Predecessor (weeks)
A Develop product specifications None 4
B Design manufacturing process A 6
C Source & purchase materials A 3
D Source & purchase tooling & equipment B 6
E Receive & install tooling & equipment D 14
F Receive materials C 5
G Pilot production run E&F 2
H Evaluate product design G 2
I Evaluate process performance G 3
J Write documentation report H&I 4
K Transition to manufacturing J 2
283
Feedback
 PERT Network analysis /probabilistic/ approach
284

 So far we have talked about projects, where there is high certainty about
the outcomes of activities. In other words, the cause-effect logic is well
known. This is particularly the case in Engineering projects.
 However, in Research & Development projects, or in Social Projects
which are defined as "Process Projects", where learning is an important
outcome, the cause-effect relationship is not so well established.
 In such situations, the PERT approach is useful, because it can
accommodate the variation in event completion times, based on an
expert’s or an expert committee’s estimates.
 For each activity, three time estimates are taken
 The Most Optimistic/O: the shortest amount of time that could be
required to complete the project
 The Most Likely ML:
 The Most Pessimistic/P: the greatest amount of time that could be
required to complete the activity.
 The Duration of an activity is calculated using the following formula:
t= (O+4Ml+P)/6
 Calculating Expected Task Times-Example
285

optimistic+ 4(most likely) + pessimistic

Expected time =
6
Optimistic Most likely Pessimistic Expected
Activity
time time time time
A 2 4 6 4
B 3 7 10 6.83
C 2 3 5 3.17
D 4 7 9 6.83
E 12 16 20 16
F 2 5 8 5
G 2 2 2 2
H 2 3 4 3
I 2 3 5 3.17
J 2 4 6 4
K 2 2 2 2
 Exercise-PERT Network analysis /probabilistic/
approach
286

Activity Preceding O ML P Expected time

activity (in days)

A - 2 3.5 4

B - 4 5 6

C A 0.5 1 1.5

D B,C 5.6 7 15

E B,C 5 6 8

F D 3 4.5 5.4

Construct Network diagram and find project’s expected time

 287

5. PROGRESS AND
PERFORMANCE MEASUREMENT
 The Project Control Process
288

1. Setting a baseline plan

2. Measuring progress and performance
3. Comparing plan against actual
4. Take corrective action
 The Project Control Cycle
289

1. Setting a Goal

4. Taking Action 2. Measuring

and Recycling Progress
the Process

3. Comparing Actual
with Planned
 290

6. RISK MANAGEMENT
 What is risk?
291

 A Risk is characterised by the combination of

the probability that a program or project will
experience:
 an undesired event and the consequences,
 impact, or severity of the undesired event
 What is risk?
292

Risk always involves Risk should

the probability consider the
impact of the event
that an undesired
should it occur
event will occur

Risk = Probability x Impact

 Risk Management
293

An organised, systematic decision making

process that efficiently identifies, analyses,
plans, tracks, controls, Communicates, and
documents risk to increase the likelihood
of achieving program/project goals
 Risk Management Process
294

 Step 1: Risk Identification

 Step 2: Risk Assessment
 Step 3: Risk Response Development
 Contingency Planning
 Contingency Funding

 Step 4: Risk Response Control

 Change Control Management
 Risk Identification
295

Business risk
– Market risk
– Shifts in business strategy or senior management
Technical risk
– Design and development problems
– Testing and maintenance problems
– Technical uncertainty
Project risk
– Budget
– Schedule
– Personnel
– Requirements problems
 Methods of Describing Project Risk
296

 Sensitivity Analysis: a means of identifying the project

variables which, when varied, have the greatest effect on
project acceptability.
 Break-Even Analysis: a means of identifying the value of a
particular project variable that causes the project to exactly
break even.
 Scenario Analysis: a means of comparing a “base case” to
one or more additional scenarios, such as best and worst
case, to identify the extreme and most likely project
outcomes.
 Sensitivity Analysis

297
297
 Risk Analysis
298

 For each identified risk, evaluate the

probability of occurrence
 For each identified risk evaluate the impact if the
risk should occur
 Prioritise your risk handling effort based on both
(1) probability and (2)impact
 Assigning Probabilities
299

 What is the likelihood that something will go wrong?

 Establish a scale that reflects the perceived
likelihood of a risk
– Probability scales are commonly used
– Can be qualitative or quantitative
e.g. highly improbable, improbably,
moderate, likely, highly likely
0-100% probability
Scale of Probability
 Assessing Impact
301

 What is the damage or impact if something does go

wrong?
 Three factors can be used to assess impact
– Nature of the risk (i.e. the problems that are
likely if it occurs)
– Scope of the risk (i.e. how serious is the risk
and how much of the project will be affected?)
– Timing of the risk (i.e. when and for how long
will the impact be felt)
Evaluation of Impact
Risk matrix
 Risk management Strategies
304

1. Risk Reduction: For example, if a lack of

experienced staff has been identified
2. Risk transference: Insurance, contracting
3. Risk avoidance: Redefine project to exclude the risk
area, canceling implementation as an extreme
measure if risks will be unacceptably high
4. Risk acceptance: through constant monitoring
5. Contingency plans: Backup plans
 Risk Monitoring
305

 Should be done periodically

– (e.g., when certain milestones are reached, at the
end of project phases, at steering committee
meetings, etc.)
 Useful to regularly assess and update project risk
exposure
 Senior management should be involved in
monitoring and should be aware of exposures
 Listen to the project group
 306

7. PROJECT CONTRACT
 Project contract
307

 the process of establishing a relation between the owner

and the contractors to execute the project work
 The following are the usual steps in contracting:
1. Work packaging and scheduling
2. Preparation of Tender Documents
3. Determination of Contractor's Qualifications
4. Tender Invitation
5. Tender submission
6. Tender Opening
7. Evaluation and recommendation
8. Award of contract
9. Signing of Agreement with detailed contract conditions.
 Project contract-Cont’d
308

 Bid security:
• in cash or bank guarantee/CPO/ letters of credit
• shall be returned to unsuccessful bidders immediately after
signing of the contract with the winner.
• It will be forfeited if a bidder withdraws his/her bid within
the validity period
 Performance Bond/ Contract security:
• Is produced by the successful bidder
• is a guarantee to fulfill the contract in regard to completion
of work, workmanship, defect- free working of the plant
and the quality and the quantity of the output.
 309

8. DOCUMENTATION, AUDIT,
TERMINATION AND CLOSURE
 Project Auditing
310

 Project Auditing
• the process of detailed inspection of the management
of a project, its methodology, its techniques, its
procedures, its documents, its properties, its budgets, its
expenses and its level of completion.
• It conducted by a party external to the project
• Project audit contains six phases: (1) audit initiation, (2)
project baseline definition, (3) establishing a database,
(4) preliminary project analysis, (5) preparing final
report and (6) terminating the project.
• is a key step in the process of closing a project.
 Project termination
311

 The term termination is used for an ending of a project

before it was planned.
 If a project ends in the planned time it is mostly called
project closure.
 Reasons for project termination:
 Technology
 Organization-access to resources
 Market forces
 Planning
 Project team
 Economic factors
 New government regulations
 Project termination-Cont’d
312

 Types of project termination

 “natural termination” and “unnatural termination”.
◼ “Natural termination” reflects the fact that the aims of the
project objective have been attained.
◼ “Unnatural termination” means that work on the project has
stopped because the project constraints have been violated
or the project objective has become irrelevant to the overall
goals.
 There are four common ways for terminating a project:
 1. Extinction 2. Addition 3. Integration 4. Starvation
 Project termination-Cont’d
313

a project may be terminated by:

1. Extinction
 The project may end because it has been
successful and achieved its goals ;the client has
accepted it
 The project may also be stopped because it is
unsuccessful or has been superseded
 A special case of termination by extinction is
“termination by murder” which can range from
political assassination to accidental projecticide
 Project termination-Cont’d
314

a project may be terminated by-Cont’d

2. Addition
 occurs when the project team becomes a new part of
the parent organization.
 Resources are transferred to the new organizational
unit, which is integrated into the parent organization.
 This type of project termination is typical for
organizations with a project structure.
 Project termination-Cont’d
315

a project may be terminated by:

3. Integration
 The project is successfully completed.
 The project product is integrated into the
operations of the client.
 This approach is very common in a matrix
organization because most people involved in a
project are also affiliated with one or more
functional units.
 When the project terminates, team members are
reintegrated into their corresponding units.
 Project termination-Cont’d
316

a project may be terminated by-Cont’d:

4. Starvation
 The project is terminated by budget decrement.
 Itis also known as withdrawal of “life
support”.
 Project Closing
317

 Project Closure
• Project completed and results delivered
• Project killed if unable to deliver what is needed
• Lessons learned captured
• Documentation completed and filed
• Final payments made and account closed
• Project Close Out Report completed

➢ Closing a project involves the review of the entire Project

Lifecycle to date
➢ A project can be said to be closed successfully only when it
has a proper final report in place
 Project Closing-Cont’d
318

 The key elements of project close-out :

✓ Verify acceptance of final project deliverables
✓ Conduct post project assessment on lessons learned

✓ Conduct post-project review and evaluation/ Post

implementation review. Or Audit
✓ Recognize and celebrate outstanding project work

✓ Disburse project resources-staff, facilities, and

automated systems
✓ Complete and archive final products

✓ Ensure transfer of knowledge

 Project Sustainability
319

• The aim of any development project is to meet its

predetermined objectives/goals on sustainable
basis.
• The ability of a project under consideration to
continue its operation or provision of services and/or
production without interruptions for the period under
design.
➢ Transition planning
• It is important to plan for and execute a smooth
transition of the project into the normal operations of
the company
320

Thank you very much!