DBB1207 : Project Management

BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
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Unit - 1
Basics of Project Management

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
5-6
1.1 Objectives - -

2 Definition - 1 7-8

3 Need For Project Management - 2 9-10

Project Management Knowledge Areas And 1 3
4 11-13
Processes

5 Different Types Of Projects - - 14-15

6 Difference Between Projects & Operations - - 16-17

7 Difference Between Project & Program - - 18

8 The Project Life Cycle 2 4 19-20

9 The Project Manager (PM) - 5, I 21

10 Phases Of Project Management Life Cycle 3 6 22-23

11 Project Management Processes - -

11.1 Project processes 4 -

11.2 Process groups 5 -

- - 24-27
11.3 Process groups and knowledge area
matrix
11.4 Process interactions - -

11.5 Customisation - 7

12 Impact Of Delays In Project Completions - 8 28-29

13 Essentials Of Project Management Philosophy - 9 30-31

14 Project Management Principles 6, 7 10 32-34

15 Summary - - 35

16 Glossary - - 36

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17 Terminal Questions - - 37

18 Answers - - 38-40

19 Case Study - - 41

20 References - - 42

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1. INTRODUCTION
The economy of India has a healthy growth for the last few years. Indian economy recorded the
utmost growth rate in mid-2000. In the existing situation, Indian economy has a long way way to go
in terms of development to achieve its growth objectives. The credit of boosting economic health
despite global downturn in the last decade goes to various projects undertaken by the government
both directly and indirectly. Some of the major projects that saw the light of the day were golden
quadrilateral project connecting the major cities through superb highways to smoothen the
distribution channel, construction of roads, bridges, dams, and large real estate projects to meet the
growing demands of urban and rural population.

Other than this, projects of importance such as oil and gas projects and energy projects. boosted the
agricultural output and saved the economy from succumbing to the global recession crisis. On the top
of it, the Indian IT sector also contributed greatly by supporting and supplementing heavy industry
and infrastructure projects to absorb the employment potential of the country.

Project management is a valuable means to administer and develop any kind of infrastructure which
is required to meet the growing requirements of Indian economy across various sectors like Power,
Roads, Ports, IT and so on. In current scenario, it a method vital to the success of both public and
private sector projects in India.

The popularity of term ‘Project Management’ among businesses began in the early 1960s. Businesses
understood that there were advantages to be achieved from organising work into distinct, definable
units and from co- ordinating various kinds of skills among departments and professions.

Basically, a task with a known end point is called project. For example, construction of a new home is
a project, the end point being when the home is constructed and ready to live-in. Likewise, developing
a new computer software, launching a new product is a project. These projects include huge
technology development as well as huge financial resources. So, they need to be administered by
managers in an effective way to increase returns.

A cautiously planned and organised effort to complete a successful project is called project
management. In the absence of structured approach, it is difficult to complete the projects effectively.
Furthermore, project management is aimed at reaching the end point predictably, within the specified
time limits and pre-decided cost.

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Though the term project management is now universally familiar, still many people do not
understand what exactly project management involves. In proper terms, it includes developing a
project plan, identifying the tasks and how the goals will be achieved, quantifying the resources
needed, and determining the budgets and timelines for completion. It involves the activities that meet
the specific objectives and can be used to introduce or improve new or existing products and services

In this book, a practical approach has been taken to explain the development, evaluation, initiation,
implementation and administration of projects. This will help you to understand and examine the
concepts of project management and guide you to handle any type of projects.

In this unit, we would first attempt to explain the term project management and its importance. To
make the learning easier, we will take the help of globally recognised best practices. Various sections
and sub-sections of this unit cover key aspects, concepts, and scope of project management and the
role of a project manager. This will help you to understand the qualities and skills that are required
in a project manager.

1.1 Objectives
After studying this unit, you should be able to:
• recall the need for project management

• identify the project management knowledge areas

and processes

• discuss the role of the project manager (PM)

• describe the phases of project management life

cycle

• identify the impact of delays in project completions

• describe the essentials of project management philosophy

• use the project management principles

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2. DEFINITION

We will start with the definition of some terminologies and concepts that are necessary to understand
the concept of project management.

Project: A project is a set of activities which are networked in a particular order aimed at achieving
the defined goals of the work to be undertaken. Only when the goal is achieved, all the activities of the
project are completed.

Management: Management is the technique of understanding the problems and needs and
controlling the use of resources, such as money, time, manpower, and materials.

Project management: Project management is the art of organising, coordinating, and controlling the
various tasks and resources in order to complete a project successfully.

Project cycle: A collection of generally sequential project phases whose description and order of
occurrence are determined by the control needs of the organisation or organisations involved in the
project.

Process: A process is a part of the project which consists of simple and routine instructions to
achieve a desired result of any activity of the project.

Resource: Resource refers to the manpower, machinery, money, and materials required in the
project.

Project budget: The amount and distribution of money allocated to a project.

Project cost: Project cost is the budgeted expenditure of the project.

Project management principles: The tools, processes, skills, and behaviours that are used to guide
the project performance.

Project manager (PM): The individual responsible for managing a project.

Project objectives: Project scope expressed in terms of outputs, required resources, and timing.

Project scope: Project scope refers to the various parameters that affect the project in its planning,
formulation, and execution.

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Examples of projects

The projects most frequently undertaken are the following:

• Integrating all the functions of an organisation using Enterprise Resource Planning (ERP)
software.
• Setting up an intranet or an extranet
• Configuring a Customer Relationship Management (CRM) system
• Setting up a Knowledge Management (KM) process
• Developing a technology
• Launching a new product
• Setting up a new location for the factory

SELF-ASSESSMENT QUESTIONS – 1
True or False Questions:
1 Project cycle is a collection of generally sequential project phases whose description and
order of occurrence are determined by the control needs of the organisation or organisations
involved in the project. (True/False)
2 Project management is the job of organising, coordinating, and controlling the various tasks
and resources in order to successfully complete a project. (True/False)

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3. NEED FOR PROJECT MANAGEMENT

The primary reason for commencing a project is to fulfil some specific goals. Project Management
assists in realising those goals. To maximize returns in the current cut throat competitive
environment, it is vital to manage the projects effectively. The present corporate environment
requires proper and effective project management to achieve growth in business.

Project management is vital for the success of a project. Without proper project management, there
are chances that the teams may pursue the wrong goals, activities may prolong, actual expenditure
may exceed budget, and resources may be under allocated or over allocated. Project management
helps an organisation to execute a project successfully by:

• Preventing failures in projects. A project needs large funds and society is affected directly or
indirectly by a loss in any project.
• Helping an organisation to define an project scope control the project creep.
• Helping the managers to understand the project and its purpose, as lack of understanding of
the project among managers leads to failure.
• Assessing and mitigating the risks from change of technology used during the course of project
implementation.
• Helping to identify and communicate the problem areas.

Project management provides a shared vision to the project team to guide their day-to-day work
much more actively. The team members are expected to focus exclusively on this shared vision. Their
sharp focus leads them to greater productivity.

The project manager is responsible for optimising the productivity of his team. In simple terms, it is
his/her responsibility to do everything possible to minimise the obstacles. The project manager has
to match and combine all activities required to attain project’s goals.

Specifically, the project form of organisation permits the manager to be reactive to:

• The client and the environment,

• Identification of problems at near the beginning stage and correct them,
• Taking well-timed decisions concerning to trade offs among differing project goals, and
Guarantees that managers of separate tasks of the project do not optimize the performance of
their individual tasks at the expense of the total project.

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Practical experiences of several organizations prove that project management helps them to
experience better control and better customer relations, and increase their project's return on
investment. A significant proportion of users also reported shorter development times, lower costs,
higher quality and reliability, and higher profit margins. Other reported benefits include a sharper
orientation toward results, better interdepartmental coordination, and higher worker morale.

SELF-ASSESSMENT QUESTIONS – 2
Fill in the blanks:
3 To maximize returns in the current cut throat competitive environment, it is vital to manage
the ______________________ effectively.
4 _____________________ helps an organisation to prevent failures in projects.

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4. PROJECT MANAGEMENT KNOWLEDGE AREAS AND

PROCESSES
The Project Management Body of Knowledge (PMBOK) describes ten knowledge areas of the project
management discipline. The in-depth understanding, application and attaining proficiency in any one
of these knowledge areas will be extremely helpful to you.

The ten knowledge areas are:

• integration
• scope
• time
• cost
• quality
• risk
• human resources
• communications, and
• procurement
• stakeholders.

All the knowledge areas are interlinked and each must be effectively considered during project
planning. Figure 1.1 lists the ten knowledge areas.

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Integration
Management

Stakeholder Time
Management Management

Risk Quality
Management Management

Project
Management

Communication Scope
Management Management

Cost HR
Management Management

Procurement
Management

Figure 1: Project Management Knowledge Areas

Let us now discuss about each of these Ten project management knowledge areas one by one.

Project integration management ensures that various elements of a project are properly integrated
and coordinated for smooth flow of information and resources.

Project scope management includes developing the scope statement that defines the boundaries of
the project and guarantees that a project contains all the necessary elements and specifies scope
change control procedures to complete the project effectively.

Project time management stresses on timely completion of project.

Project cost management ensures that the completion of project within the permitted budget.

Project quality management focuses on the processes required to make certain that the project will
suit the needs for which it was undertaken.

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Project human resource management ensures that the most appropriate manpower with
necessary skills is deployed for an effective execution of the desired project.

Project communications management consist of the processes necessary for timely and suitable
generation, collection, dissemination, storage, and final disposition of project information.

Project risk management is the orderly process of identifying, analysing, and reacting to project
risks. It consists of increasing the chances and outcomes of positive events and minimising the
chances and outcomes of unfavourable events to project objectives.

Project procurement management assists the project managers to acquire the right goods and
services to meet the demands of the project as described in the scope of project.

Project stakeholder management contains processes to identify stakeholders, plan stakeholder

management, manage conflicting interests and foster engagement.

SELF-ASSESSMENT QUESTIONS – 3
True or False Questions:
5 Project Human Resource Management ensures that the most appropriate manpower with
necessary skills is deployed for an effective execution of the desired project. (True/False)
6 Project Integration Management ensures that various elements of a project are properly
integrated and coordinated for smooth flow of information and resources. (True/False)

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5. DIFFERENT TYPES OF PROJECTS

Projects vary on different grounds like their grounds, characteristics, methodologies, and goals. The
projects hold the following differences and thus are distinct in nature:

1. Construction Projects

Construction projects take up activities like construction of bridges, damns, buildings, roads and more.
Construction of a new office building, Construction of a new bridge or dam, making a modular kitchen
are a few examples of the same.

2. IT Projects

The projects that deal with developing or coming up with software, hardware or any other
technology-based system falls under this category. Development of a new software, developing a
debug system or upgrading an organization’s IT system are a few examples of this type of projects.

3. Research & Development Projects

The projects that demand a complete level of thorough research or which aims at development will
be categorized as R& D projects. Developing a new vaccine or creation of a new technology are
examples of R&D projects.

4. Event Management Projects

These types of projects start from planning, organizing, arranging, and executing big events are the
event management projects. Organizing corporate events, wedding, large music festivals and more
are examples of these.

5. Marketing Projects

Whenever a project aims at promoting a product or service and makes constant efforts to reach the
large pool of audience. A new advertising campaign being launched, or holding a market survey falls
under this category.

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6. New Product Development Projects

Creating and then bringing the new product in the market, brings with it a lot of challenges and these
challenges are being dealt with under different projects taken up. Such projects are the product
development projects. Supposedly if a new product line is to be brought up or some new eco friendly
gadgets are to be designed and developed then such projects will be a part of this type of projects.

7. Educational Projects

Some projects are even a part of educational field and demands designing, planning, organizing, and
developing new educational policies, programs, or courses. If a project desires creation of n new
online learning platform or designing a new school’s curriculum, then such projects are a part of the
educational projects.

8. Engineering Projects

The projects that demand engineering principles to be applied in order to design, develop, maintain
and optimize machines or systems like designing of a completely new transportation system or
development of a new renewable energy plant, are examples of the engineering projects.

Each type of project is unique in nature and serves different purpose. These different purposes and
approaches require different understanding of the goal of the project and deeper understanding of
the uniqueness the project holds. Diving into the uniqueness of the project helps to effectively
organize, plan, execute and manage the project while achieving the desired outcomes.

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6. DIFFERENCE BETWEEN PROJECTS & OPERATIONS

Project and Operations are two fundamental concepts of project management. While one is a
continuous work the other one is of temporary nature. Each of them holds different characteristics
and places. Here’s a detailed comparison:

Key Differences

Definition:

Project: A project is a temporary endeavour that works towards achieving a unique or distinct output.

Operations: These are the continuous activities which are repetitive in nature. These activities are a
part of an organization which aids in production of goods & delivery of the services.

Purpose:

Project: The purpose of a project is to come up with a completely unique or distinctive deliverable.
Organizing an event, developing a new software, construction of a bungalow can be a few examples.

Operations: The purpose of operations is to maintain & manage the day-to-day functions happening
at an organization. Handling the clients’ mail, managing the accounts , day to day manufacturing are
some examples of operations.

Timeframe:

Project: As a project is a temporary endeavour, it has a specific start date and a specific end date.

Operations: Operations are repetitive and ongoing in nature, hence does not hold any predefined end
date.

Scope:

Project: As per the deliverable that has to be achieved under the given project, the scope and outlines
are built and thereby becomes project specific.

Operations: Broader scope that encompasses all activities necessary to keep the organization running
smoothly.

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Resource Allocation:

Project: The resources requirement and allocation varies as per the project. The requirements
pertaining to time, budget, team members hence would vary from project to project.

Operations: Resource allocation and requirement are almost constant as the functions to be
performed, does not go under any transformation. At the same time operations aim to accomplish the
same goal every time.

Change Management:

Project: Scope for requirement of changes is there as the deliverable is concerned with new processes,
products, or systems.

Operations: As the activities are of same nature hence rather than facing issues of changes, the focal
point is maintaining stability and efficiency.

Risk:

Project: Projects are exposed to higher risks, as the output is unique in nature and therefore
possibility of risks is there.

Operations: As the activities are of repetitive nature and have been undertaken many times, exposure
to risks is minimum.

Examples:

Project: Development of a new software, construction of a damn, organizing a corporate event.

Operations: Maintenance of equipment at daily basis, replying to the customers’ grievances, daily
manufacturing processes.

In essence, projects are the unique and temporary endeavours that aims to develop an output or
deliverable as per the client’s requirement. It has definite time duration to accomplish the given goal.
Moreover, projects are exposed to more risks and complexities. Whereas, operations are repetitive
and continuous activities being undertaken in an organization, that helps in handling day to day
functioning of an organization. These activities do not have any specific end date and the objectives
to be attained are more on less constant. The level of risk associated are also comparatively lower in
operations.

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7. DIFFERENCE BETWEEN PROJECT & PROGRAM

Though projects and programs are complementary to each other, still they hold certain distinctive
features. A project aims to deliver a completely unique and different output/ deliverable that is
generated as a result of a temporary endeavour, with distinct objectives, stipulated scope, timeline
and budget. The project manager looks after the successful completion of the said project within the
predetermined budget and timeline.

On the other hand, the program is an amalgamation of closely knitted multiple projects which are
managed in a coordinated manner, so as to achieve the broader strategic objectives and benefits,
which are otherwise difficult to be achieved by the projects individually. The programs are often of
longer duration and are also in alignment of the broader objectives of the organization. The programs
are handled by a program manager who ensures that all of the projects falling within the given
programs are aligned and also are contributing well to the overall objectives of the organization.

To measure the success of a project the adherence to the given scope, timeline and budget is adjudged,
at the same time the success of a program is measured by the alignment of all the projects falling
under the program and their achievement of the overall objectives of the organization.

Projects and programs both are crucial to the success of the organization as projects develops the
desired outcomes within the constraints of scope, time and budget, and at the same time programs
ensures that all projects effectively contribute to the long-term objectives and advancement of the
organization.

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8. THE PROJECT LIFE CYCLE

A rational order of activities that are applied to attain the project’s goals or objectives is known as the
project life cycle. Most projects experience similar stages on the path from origin to completion.
Figure 1.2 depicts the stages of a project’s life cycle.

Figure 2: Project Life Cycle

Let us now discuss about each of these stages.

Start-up phase: The project is started and a manager is chosen, the project team and primary
resources are assembled, and the work program is organised.

Quick momentum: Progressively, the work gains momentum. This continues until the end is near.

Finish (Slow): Completing the final tasks take some extra amount of time, partly since there are often
a number of parts that must come together and partly because team members “drag their feet” for
different reasons and avoid the final steps.

The pattern of slow progress towards the project goal is common. If we consider the construction of
a house or building, this phenomenon can be observed. For the most part, it is a consequence of the
changing levels of resources utilised throughout the successive stages of the life cycle. Least effort is
necessary at the beginning, when the project is conceptualised and subjected to project selection
processes. If this obstacle is passed, activity increases as planning is completed and the real work of
the project gets in progress. This rises to a peak and afterwards begins to taper off as the project nears
fulfillment, at last ceasing when assessment is complete and the project is finished. However, the rise
and fall of effort usually occurs, there is no definite pattern that is suitable to all projects, nor any
reason for the slowdown at the concluding stage of the project to look like the build-up at its beginning.

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The ubiquitous goals of meeting performance, time, and cost are the major considerations throughout
the project's life cycle. It was generally thought that performance took precedence early in the
project's life cycle. This is the time when planners focus on finding the specific methods required for
meeting the project's performance goals

Early in the life cycle, performance took priority over schedule and cost. During the periods of high
activity cost was thought to be of prime importance, and then schedule became paramount during the
final stages, when the client demanded delivery.

SELF-ASSESSMENT QUESTIONS – 4
Fill in the blanks:
7 A _____________________ of activities that are used to achieve the project’s goals or objectives is
known as the project life cycle.
8 In the _______________________ phase of the project life cycle the work gains momentum.
9 _______________________ types of projects start from planning, organizing, arranging, and
executing big events are the event management projects.

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9. THE PROJECT MANAGER (PM)

A project manager is a qualified person in the field of project management. She/He is the person who
manages the four basic elements of a project: resources, time, money, and most importantly, scope.
All these elements are interrelated and each must be managed effectively. Other responsibilities of
the project manager include:

• Budgeting and cost control

• Scheduling tasks
• Allocating resources
• Tracking project expenditures
• Ensuring technical quality
• Managing relations with the customer and company

The life cycle of a project manager overlaps with the development life cycle because duties of a project
manager start before the development and continue even after the delivery of the product.

Activity - 1

Find out the roles of consultant in project management.

SELF-ASSESSMENT QUESTIONS – 5
Fill in the blanks:
10 The ____________________ manages the four basic elements of a project: resources, time, money,
and scope.
11 Life cycle of a project manager __________________________ with the development life cycle.

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10. PHASES OF PROJECT MANAGEMENT LIFE CYCLE

Project management is a rationally planned and organised effort to attain a specific goal. It comprises
of organising, coordinating and managing different tasks and resources for successful completion of
project. A project lasts for a definite period of time and then finishes. Projects are usually made up of
different diverse elements or mini-tasks that are completed separately and finally combined together
to make the completed project. Figure 1.3 depicts the phases of project life cycle which is followed by
the project management.

Figure 3: Phases of Project Life Cycle

Let us now discuss each phase in detail.

1. Project initiation: Project initiation is the first step in the project development cycle, and in simple
terms: starting up the project. A project is initiated by defining its reason, business goals, and scope.
The cause for initiation and the suggested solution to be implemented must be defined. A project team
is put together to define early milestones, and preliminary budget proposal. The information in
project initiation assists in performing an end of phase study for getting a “GO No GO” decision.

2. Project planning: Once the project is defined and project team is assembled, the next phase is the
in-depth Project Planning phase. This includes developing the “PMP” (Project Management Plan), for
guiding the team throughout the project development stage. In this phase the required skills of
development team, non-labour resources, risks plan, detailed action items and milestones are
explained.

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3. Project development: On the basis of inputs received in the shape of project feasibility study,
preliminary project evaluation, project proposal and customer interviews, the following outputs are
produced:

• System design specification

• Programme functional specification
• Programme design specification
• Project plan

4. Project implementation: In this phase, the requirements are built and programmed. The product
is presented for client acceptance and full implementation after the quality assurance analysis. If the
client has accepted the final product, the project is finished and closed down.

5. Project closure: It includes giving the final output to the customer, handing the project
documentation, manuals, source code, and network layouts. At last a Post Implementation Review is
to be carried out to identify the extent of project success and document review outcomes.

SELF-ASSESSMENT QUESTIONS – 6
True or False Questions:
12 Project management is a irrationally planned and ill-organised effort to achieve a specific
goal. (True/False)
13 Project closure involves developing the “PMP” (Project Management Plan), for guiding the
team throughout the project development stage (True/False)

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11. PROJECT MANAGEMENT PROCESSES

Project management consists of the following interacting processes organised in groups. Figure 1.4
depicts the project management processes.

Project
Management
Processes

Project Process Process

groups Customisation
processes interactions

Figure 4: Project Management Processes

11.1 Project processes

Project processes are a series of activities undertaken to accomplish the target. Project process is
classified into two main categories. These categories are:

• Project management process

• Product-oriented process

Project management process: Project management process is defined by the organisation. It describes
and organises the work of the project.

Product-oriented process: Product-oriented process is defined by the life cycle. It specifies and
creates products and related works.

11.2 Process groups

Project processes are categorised under five process groups. Figure 1.5 depicts the connection
between process groups in a phase.

Figure 5: Connection between Process Groups

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Let us now look at the process given in figure 1.5 one by one.

• Initiating processes start the project and ascertain commitment.

• Planning processes are meant for devising and maintaining a workable scheme to accomplish
the business need.
• Executing processes are used for coordinating people to carry out the plan.
• Controlling processes monitor and measure the progress to take remedial action.
• Closing processes are meant for formalising acceptance and bringing project to an orderly end.

11.3 Process groups and knowledge area matrix

Project management is composed of 47 processes that are mapped to one of ten project management
knowledge areas. Each of these processes also falls into one of the five process groups. This gives us
a matrix structure wherein every process can be related to one knowledge area and one process
group. Table 1.1 depicts the process groups and knowledge areas matrix.

Table 1: Process Groups and Knowledge Areas Matrix

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11.4 Process interactions

The individual processes overlap and interact throughout a project or its various phases such as
initiating processes, planning processes, executing processes and controlling. It includes giving the
final output to the customer, handing the project documentation, manuals, source code, and network
layouts. At last a post implementation review is to be carried out to identify the extent of project
success and note down review outcomes.

The common features of process interactions are:

• Inputs: It refers to the client documents converted to action plans to be acted upon.
• Tools and techniques: It refers to the mechanisms applied on to the inputs to create the desired
outputs.
• Outputs: It refers to the documents that are the results of the process.

11.5 Customisation
Sometimes, project management processes need to be customised based on the requirement of the
product. Some examples of customisation are given below:

• Large projects may need details: A detailed project management plan might be necessary to
indicate every detail in the initial stages.
• Smaller projects may need relatively less details: A detailed plan may not be required in
the initial stages.
• Process details might change for other reasons: Resource
identification might be required for scope definition.

Example: In a project of a FMCG industry product development the marketing feasibility study is of
longer duration, while in case of construction of a dam project the market feasibility study does not
involve a relevant scope.

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SELF-ASSESSMENT QUESTIONS – 7
Fill in the blanks:
14 Project managementconsists of interacting processes namely _____________________ ,
_____________________, ______________________ process interactions, and __________________ which are
organised in groups.
15 Project process is classified into ______________________ and _______________________ process.
16 ______________________ and ____________________ refer to the mechanism applied on the inputs to
create the desired outputs.

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12. IMPACT OF DELAYS IN PROJECT COMPLETIONS

The most important problem faced in the implementation phase of a project is delay in execution.
This is also referred to as slippage of projects, which results in escalation of costs and also the loss of
revenue. The result is that the initial assumption in the feasibility report is thrown completely out of
gear. The delays may be caused by internal as well as external factors.

The internal factors, which cause delays, are:

• Inadequate planning based on wrong and inadequate information

• Inadequate financing
• Choice of wrong technology
• Lack of coordination among execution departments
• Absence of delegation of power
• Lack of reasonable norms of accountability
• Wrong selection of vendor
• Non-involvement of people

The external factors, which may cause delays, are:

• Input problems
• Transportation problems
• Frequent change in administration at the senior level, affecting the continuity of policy
• Lack of public cooperation

Despite taking all the care, there are bound to be factors beyond the control of a manager, which are
likely to cause delays in project implementation. Therefore, it is necessary to build a system, which
can correct deviations from the initial expectations and ensure that the schedule of the project is not
disturbed. To perform such tasks, there needs to be a scientific system of flow of management
information to the executives at the various levels in the organisation. The system of monitoring and
control is more effective when, along with the time-frame, there is linkage between the physical work
to be performed in each activity and the financial expenditure to be incurred.

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The operational plan should include the following aspects:

• The breakdown of the project’s final objectives into various subsystems and these subsystems
into activities and sub-activities.
• The time schedule for starting and completion of each activity and sub activity and their
sequencing.
• Linking of physical work involved in each activity with financial expenditure.
• The timetable indicating the requirements of financial resources during the pre-
implementation phase.
• Monitoring and control system.

SELF-ASSESSMENT QUESTIONS – 8
True or False Questions:
17 The most important problem faced in the implementation phase of a project is delay in
execution. (True/False)
18 The system of monitoring and control is more effective when, along with the time-frame,
there is linkage between the physical work to be performed in each activity and the financial
expenditure to be incurred. (True/False)

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13. ESSENTIALS OF PROJECT MANAGEMENT

PHILOSOPHY

Effective project management is the most important factor in achieving the desired results of any
project. Project management requires team knowledge of the project cycle and the skilled
implementation of proven techniques and tools to manage the project through the cycle. Project
management provides the project managers and team members with the principles they require to
effectively meet the needs of the customer. It is designed as a practical, hands-on learning experience
to give participants some skills and techniques that they can immediately implement in their work
environment. A project has the following characteristics:

A programme of non-routine work bringing about a beneficial change

Guided by at least one well-engaged sponsor who has both adequate authorities and resources to
charter the project effort

• A programme that has a definite start and an end date

• A multi-disciplinary team brought together for the project
• Scope of work is well defined
• Constrained by cost, time, and quality

During the course of a project, a team negotiates for scope, cost, and schedule objectives; changes to
scope; cost or schedules; contract terms and conditions; and resources.

Now, the question arises as to how does project management “add value” to a project. The projects
may be completed with one or more of the following:

• Stretched deadlines
• Over-stressed team
• Wasted resources
• Unmet customer functional requirements
• Overshot budget

As you all know that a good project management methodology provides a framework for the
processes. It provides guidelines for the execution of the project that increases the chances of the
project being successful, and therefore provides value to the project.

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The following are some of the steps of a good project management:

• Define the project scope

• Reduce it to a set of manageable tasks
• Obtain appropriate and necessary resources
• Build a team to perform the project work
• Plan the work and allocate the resources to the tasks
• Monitor and control the work
• Report progress to the senior management and/or the project sponsor stakeholders
• Close down the project when completed
• Review it to ensure that the lessons are learnt and widely understood

SELF-ASSESSMENT QUESTIONS – 9
True or False Questions:
19 Project management provides the project managers and team members with the principles
they require to effectively meet the needs of the customer. (True/False)
20 Scope, cost, and schedule are some of the parameters used for project negotiation.
(True/False)

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14. PROJECT MANAGEMENT PRINCIPLES

Every project takes place in its own specific context. It brings together a group of people as a project
team and gives responsibilities and roles to people. While every project is unique in its own way, there
are certain basic principles which define project management in clearer terms. All these factors need
to be identified and considered in order to complete a project successfully. Figure 1.6 depicts the basic
principles of project management.

Objectives

Constraints

Lifecycle

Figure 6: Basic Principles of Project Management

Let us now discuss each of these principles in detail.

Objectives

The main point of any project is to achieve specified goals and objectives. Once these objectives have
been fulfilled, the project is said to be complete. It is, therefore, essential that the goals and objectives
should be clearly defined, measurable, and achievable. In the absence of a focused approach, chances
of project failure will increase.

Once the objectives of a project have been established, they should be clearly communicated and
agreed with all the working on the project.

Constraints

A constraint is any factor which can limit or have an impact on a project. Some typical constraints are
funding, the scope of the project, available resources, and time. In order to clearly define the
boundaries, it is important to understand what the constraints of any project are Projects which do

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not consider their constraints are often regarded as failures and tend to incur a significant cost to
their business.

Activity - 2

Give an example of a project in each of the following sectors specially taking into account the
public enterprises.
1. Manufacturing
2. Banking
3. Lifecycle
Marketing

Projects have a definite start and finish point within which their objectives need to be fulfilled. This
is known as the project life cycle.

Apart from the above principles, there are five dimensions that must be managed on a project. They
are scope, quality, cost, schedule, and staff. These dimensions are not independent. For example, if
you add staff, the schedule may be shortened (although not necessarily), and the cost may increase.
A more common trade-off is to shorten the schedule or increase scope, and sacrifice quality. The
trade-offs among these five dimensions are not simple or linear. For each project, we need to decide
which dimensions are critical and how to balance the others so we can achieve the key project
objectives. Figure 1.7 depicts the five dimensions of a project.

Figure 7: The Five Dimensions of a Project

Source: http://www.processimpact.com/articles/principle.html

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Each of these five dimensions can take one of three roles on any given project: a driver, a constraint,
or a degree of freedom. A driver is a key objective of the project. A constraint is the limiting factor
beyond the control of a project team. Any project measurement that is neither a driver nor a
constraint becomes a degree of freedom. A constraint gives the project team virtually no flexibility. A
driver has low flexibility and a degree of freedom that provides wider latitude to balance that
dimension against the other four.

SELF-ASSESSMENT QUESTIONS – 10
Fill in the blanks:
21 Five dimensions that must be managed on a project are ________________________ ,
____________________ , cost, ______________________, and staff.
22 _________________________ of a project should be clearly defined, measurable, and achievable.

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15. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• Organisations launch projects for different reasons, such as to meet a business or legal
requirement, or to take on an opportunity offered by the market.
• The project management is the application of knowledge and skills to project activities in order
to meet the project objectives. It involves performing a set of processes that constitute nine
knowledge areas of project management.
• Each process is part of a knowledge area and has a membership in one of the five process
groups: initiating, planning, executing, monitoring/controlling, and closing. The process
groups represent the different stages of a project lifecycle.
• After going through this unit, you must have realised the importance of project management
in business applications and the scope of project planning. Also, you are now familiar with the
various phases involved in project management.

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16. GLOSSARY

Project The art of organising, coordinating, and managing the various tasks and
-
management resources in order to successfully complete a project.

A collection of generally sequential project phases whose name and

Project cycle - number are determined by the control needs of the organisation/s
involved in the project.

Project budget - The amount and distribution of money allocated to a project.

Project A knowledge area of project management that includes the processes

integration - required to ensure that the various elements of the project are properly
management coordinated.
Project A knowledge area that includes the processes required to acquire goods
procurement - and services to attain the project objective from outside the performing
management organisation.

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17. TERMINAL QUESTIONS

1. Define project management, resource, process, and project cycle.
2. Why is project management important?
3. Explain the life cycle of a project.
4. Describe the various phases of project management life cycle.
5. What are the steps in good project management?
6. Explain the five dimensions that must be managed on a project.
7. Discuss the differences between project & operations.

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18. ANSWERS
Self-Assessment Questions
1. True
2. True
3. Projects
4. Project management
5. True
6. True
7. Rational order
8. Quick Momentum
9. Event Management Projects
10. Project Manager
11. Overlaps
12. False
13. False
14. Project processes, process groups, customisation
15. Project management, product oriented
16. Tools and techniques
17. True
18. True
19. True
20. True
21. Scope, quality, schedule
22. Objectives

Terminal Questions Answers

Answer 1: The job of organising, coordinating, and managing the various tasks and resources in order
to successfully complete a project. Refer to section 1.2.

Answer 2: The basic purpose for initiating a project is to accomplish specific goals. Refer to section
1.3.

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Answer 3: A logical sequence of activities that are used to achieve the project’s goals or objectives is
known as the project life cycle. Refer to section 1.8.

Answer 4: It includes organizing, coordinating, and managing the various tasks and resources in
order to successfully complete a project. Refer to section 1.10.

Answer 5: It provides guidelines for the execution of the project that increases the chances of the
project being successful, and therefore provides value to the project. Refer to section 1.13.

Answer 6: There are five dimensions namely, scope, quality, cost, schedule, and staff. Refer to section
1.14.

Answer 7: Projects & Operations, both are inevitable parts of an organization. Despite this fact both
hold a lot of differences too. Refer to section 1.6

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19. CASE STUDY

Enercon India Limited

Enercon India Limited (EIL) was founded in 1995 as a collaboration between the Mehra family and
Enercon GmbH of Germany. Enercon GmbH holds 56 per cent in EIL while the Mehra Family holds the
rest. Enercon India is ISO 9001:2000 certified for manufacturing, installation and services. It is
supported with the latest design and development from its Principals, Enercon GmbH.

In 1991, Enercon GmbH introduced gearless Wind Generators (WEC). A gearless WEC could deliver
optimal power under any wind speed and did not draw reactive power from the grid during low wind
periods. Due to its design, the wear and tear of mechanical parts was also reduced. The success of
Enercon’s gearless design helped EIL introduce this product range in India. Enercon claimed that its
gearless machines with Synchronous Generators, Variable Slow speed, Continuous Pitch Regulation
were the most efficient machines available in the market when compared to the Induction Generator,
Constant speed, Stall Regulated, High speed Gear Box type machines with Lattice Towers.

EIL offered a complete gamut of services, “from concept to operation”. This included a number of
services like exploration of potential high wind location, micrositing the WECs within a location,
interfacing with regulatory authorities for permissions required, agreements with State Electricity
Boards for evacuation of power, preparing approach roads, construction of the WEC, erection and
commissioning of the WEC, installing transformers and internal grid for evacuation of power to the
electrical substation, and operation and maintenance of the WECs. In addition, EIL offered a guarantee
of 95 per cent uptime, subject to grid availability from the Electricity Board. EIL’s strategy was to offer
its clients a low risk opportunity to invest in wind power.

EIL had its corporate office in Mumbai and manufacturing facilities (two plants) were located in the
union territory of Daman. These manufactured various components of 230 KW and 600 KW WECs. It
had staff strength of nearly 1000 people. This included 500 at the two plants, 200 in operations and
maintenance of WECs, 125 in installation, 50 in project offices and 70 in the corporate office. Business
Development Managers (BDMs) were located at the different regions. The location of the BDM in a
particular state depended on the location of the regulatory authority in that state. For example, for
the state of Gujarat, the BDM was located at Vadodara.

The Vadodara office was running a project at Nawapur. Jayant Shah, the Site Engineer, reported a snag
with the 220-tonne crane. The crane stopped functioning due to a Printed Circuit Board (PCB)

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blowout. Repairing such faults usually meant replacement of the PCB. Jayant reported that he had
already informed the firm that supplied the crane. A similar PCB blowout had happened two weeks
earlier and it had taken two days to replace the PCB. There were only six or seven cranes of 220 tonne
capacity available for hire in the entire country and smaller cranes would not do the job. Enercon had
already hired four, which were working at its different sites. Hence, there seemed to be little
possibility of hiring or replacing the crane and a replacement crane would result in a huge increase
in the project cost.

The Nawapur project was already running late due to a villager’s agitation against the project and
heavy rainfall during the ongoing monsoon season arefurther impeded progress. Any further delay
would significantly affect the probability of finishing the project within the due date of end-September.
The financial deal stipulated that the WECs would be erected and commissioned before 30th
September and EIL would have to compensate any financial loss suffered by the client due to delays.
Delay might affect the customer confidence in EIL’s ability to handle wind energy projects “from
concept to commissioning and beyond”. More importantly, a delay carried the risk that the project
might not reach completion if the agitated villagers started a bigger movement. The villagers believed
that the construction of wind turbine generators near their agricultural land would affect the growth
of their crops.

The project office at Daman was of the opinion that nothing much could be done except expediting
the repair of the crane by the vendor. The option of moving another project team to Nawapur would
result in stopping the work on some other project. Such a decision could be taken by the VP Project
after considering the workloads of the other project teams, but seemed improbable. Prithwiraj
Rathore, the Team Leader of the Nawapur project, knew that the remoteness of the Nawapur project
site would imply that any supply of spare parts would take time. He was now on his way to the project
site wondering what he should do.

1. What type of problem is Mr. Rathore facing?

Hint: Mr. Rathore’s is facing a Project Management problem.

2. Is Project Management just a variant on general management?

Hint: The answer is both ‘yes’ and ‘no’. There are a lot of similarities, but there are enough differences
to warrant treating project management as a discipline separate from general management.

Source: Profs. S. Mukerjee and G. Rughuram, ‘Enercon India: Project Planning’, IIM (A), 2004.

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20. REFERENCES
• Clements and Gido. Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning: Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 7/01/2012

• www.projectmanagement.com. Retrieved on 8/01/2012
• www.pmearth.com. Retrieved on 9/01/2012

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BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 2 - Project Identification and Selection 1
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Unit - 2
Project Identification and Selection

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
4
1.1 Objectives - -

2 Project Identification Process - -

2.1 Steps in project identification 1 -

5-9
2.2 Importance of project identification - -

2.3 Sources for new project ideas - 1

3 Project Initiation 2 2 10-12

4 Pre-Feasibility Study I -
13-15
4.1 Elements of pre-feasibility study - 3

5 Feasibility Studies - -

5.1 Nature of project feasibility analysis - -

16-21
5.2 Need for feasibility studies - -

5.3 Complements of feasibility study - 4

6 Types Of Feasibility Studies - - 22-24

7 Project Break-Even Point - 5, II 25-26

8 Summary - - 27

9 Glossary - - 28

10 Terminal Questions - - 29

11 Answers - - 30-31

12 Case Study - - 32

13 References - - 33

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1. INTRODUCTION
In the previous unit, we dealt with the definition of project management, need for project
management, project management knowledge areas and processes, the project life cycle, the project
manager, phases of project management life cycle, project management processes, impact of delays
in project completions, essentials of project management philosophy, and project management
principles. In this unit, we will deal with project identification, project initiation, pre-feasibility study,
feasibility studies, and project break-even point.

Identification and selection of a project is one of the critical steps in the project management process.
This is an important stage such that it can affect the whole process including that of sustainability of
the project after completion and transferring to operational phase. This process is based on certain
essential conditions, which may differ from project to project. Project ideas do not take concrete
shape immediately, thus, projects should be identified from the perspective of the needs or demand
whether at the community or national levels. Countries need to craft their strategic plan according to
the interests of the people.

1.1 Objectives
After studying this unit, you should be able to:
• define project identification process

• identify the project initiation stage

• describe the concept of pre-feasibility study

• explain the nature and significance of feasibility

study

• describe the project break-even points

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2. PROJECT IDENTIFICATION PROCESS

Project Identification is a continuous and repetitive process involving screening, documentation,
validation, ranking and approval of viable project ideas for an organization. “The systematic effort of
screening the ideas generated through various sources and bringing out most viable and feasible
alternative project ideas in the domain of Project Identification”. While examining the filtered project
ideas for further approval, it is imperative to check on the availability of resources and potential skills
to execute the project and make it realisable. It is futile to select such an idea for which potential skills
are either unavailable and or resources are insufficient to deploy. Thus, identifying a worthy project
idea is not a simple mechanism but rather calls for a conscious and robust investigation on the part
of the organisation.

2.1 Steps in project identification

Project ideas are like other ideas don’t take concrete shape immediately. An idea is first born, it is
under incubation for some time, and consequently, it begins to take some definite shape. This process
of project identification can be broadly divided into four stages. Figure 2.1 depicts the four stages
involved in project identification.

Figure 1: Stages in Project Identification

In the conceptual stage, a number of project ideas are generated through interaction amongst various
groups of intellectually and entrepreneurially inclined people in the organisation having good
knowledge and concern about the field where contributions are sought. . In this context, one has to
examine the potentialities of development and the problems, needs and aspirations of the people in
the concerned area. For example in an Aerodrome project in the vicinity of a developing city the

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problems that the people of that city will face due to the impact of noise pollution, traffic, evacuation
from the area to other non-developed areas have to be considered.

In the screening stage, i.e., the second stage, the project ideas generated above are screened and a
preliminary exercise is conducted to weed out the bad or unviable ideas. Therefore, it is
understandable that all the given project ideas would not pass the screening test and only few get
short listed for further examination. Such short listed ideas will be considered while promoting pre-
feasibility studies.

The third and fourth stages can be termed as ‘investment opportunity study’. It is a preliminary level
investigation, yet extensively conducted to analyse fundamental strengths of the project idea, and to
explore various opportunities of the project. It has a limited objective of providing planners with a
choice of project alternatives from which they can make a selection.

Pre-feasibility study focuses on answering the essential questions such as; should we proceed with
the proposed project idea? What are the benefits and drawbacks of proposed project idea? How much
time will it take to conduct the preliminary study i.e. pre-feasibility study on the financial and other
related economic aspects of the project viability. In order to support those prefeasibility studies, all
the organizational efforts get directed towards compiling suitable answers to those questions. After
gaining confidence through the answers so supplied, a pre-feasibility study will be commenced either
by the internal sources or by outsourcing to consultants. Furthermore, upon the satisfaction of
prefeasibility report, a detailed feasibility studies can be conducted to document a detailed project
report.

2.2 Importance of project identification

Project identification helps solve major problems in the planning stage and addresses to meet diverse
needs, while setting clear objectives of proposed project. Good projects act as catalysts for economic
growth and development, which help to streamline the fruitful ideas through appropriate actions and
achieve the desired results. This encourages creativity and innovation so as to optimise the resources
utilisation that is available in the economy viz., manpower, capital, and raw materials and so on.
Project identification helps the management in the following ways:

• Identifies and analyses the purpose and scope of a project in the given situation of an
organisation or an economy
• Encourages value addition to the existing wealth and capital of an organisation or economy as
the case may be through raising more funds for project execution
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• Encourages multi-cultural environment and gives scope of social and cultural compatibility in
the organisation as well as economy
• Improves and develops the specific and general infrastructure of an organisation and the
economy
• Determines basic benchmarks for deciding on various types and forms of project ideas to
materialise
• Helps to identify size of investment and indicates on the complexity of the project
• Helps define the location and find appropriate technology to be used while executing the
project
• Helps to formulate better marketing strategies to enhance profitability
• Identifies different constraints in project environment and formulation
• Evaluates the potential resources to convert an idea into reality
• Analyse the policies of government and various legal restrictions

2.3 Sources for new project ideas

Following are some of the sources from which new project ideas may emerge.

Performance of existing industries

The present trends and past experiences of industries provide a good indication about the health of a
particular industry. Changing profitability structure and break-even analysis of industries offer
adequate information about the financial health of various industrial sectors. This provides a
superficial outlook on the industrial health, and thus a carefully forecasted trend lines help in
determining the future prospects in emerging project proposals. It is necessary to carefully analyse
the changing phases of business cycles in which different industries play their respective roles from
time to time. For example, the telecommunications sector especially mobile communications is
growing tremendously in India having a mobile market crossing 5 billion by the beginning of 2012.
This ever growing market gives the investors good chance to innovate cheap and trendy designer
mobile instruments that can withstand rigorous utility. Chinese manufacturers are taking advantage
of this growing market by distributing mobile sets at moderate prices to attract the consumers.

Availability of raw materials

Availability of suitable resources is a must for any project to take off. Easy availability of good quality
raw materials at cheaper prices is a boon for any project. Identifying appropriate technology and
resource base will help design a good project idea and also make use of those untapped resources for
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the betterment of the organisation as well as economic health. For example, Compressed Natural Gas
(CNG) engines were innovated for the automobile sector as it was a feasible substitute for petrol.
These new resources help the organisation have an edge over its competitors and also help the
economy boost its GDP.

Availability of skilled labour

Not all projects can be implemented universally. There are specific projects which need defined
locations, specified environmental conditions and suitable manpower resources. For instance,
cement manufacturing unit, automobile manufacturing unit, textile units, pharmaceutical units, sugar
factories, power plants etc. All these projects need not only good infrastructure base but also to be
supported by appropriate technology and availability of suitable manpower. Gujarat state is suitable
for Cement industries, which is why most of the cement manufacturers are situated in that area to
drain out chemical waste into sea waters. Mobility of manpower and also natural environment such
as water and coal is a major challenge, which is why power projects are developed in the areas
surrounded by water facilities and coal mines. Solar and wind power projects are developed in
Rajasthan and Shimla where abundant heat is produced through sand and sun and heavy winds pass
through to produce power by maintaining good environmental and duly supported by UNIDO.

Import/export statistics

Statistics on international trade reveals the scope to evolve good projects. Fruits, handicrafts, cereals,
pulses, drugs etc. all have equal opportunity to get exported as well as imported depending on the
demand by the country from time to time. Therefore, a clear understanding on the routine and specific
international transactions between various segments of society will make project ideas clearer and
help reveal potential areas. Usually any product having high imports can be thought as potential
project proposal for indigenous development and vice versa. It may not be true in all cases. For
example, 80% of the caprolactum (raw material used to manufacture Nylon filament yarn) gets
imported in India and SRF thought of developing the project in the early 1990s but was unable to do
so due to heavy cost factors. Sometimes, it is found that importing costs are less than cost of
indigenous development.

Price trend

Price of the product is a major driving force for any project to take off. Fundamentally every
organisation will have twin focus, profit maximisation and cost minimisation. From both the angles it
is the price that gets determined and thereby guides the project initiator on the functionality. If the

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general price level is found to be rising over the past few years and a specific item is having a steeper
rise, that would indicate a huge gap in the demand-supply and can be thought as a project opportunity.

Data from various sources

Various publications of government, banks, financial institutions, consultancy organisation,

manufacturer's associations, export promotion councils, research institutions, and international
agencies contain data and statistics which may indicate prospective ventures. A study of the balance
sheets of existing companies will be useful in knowing the sectors of industry that are performing
well. The study of profitability, break-even level, Earnings Per Share (EPS) of various industries may
indicate those industries where opportunities exist for new investments.

Project identification precedes project initiation. Let us now discuss the concept of project initiation.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 _____________________ is a continuous and repetitive process involving screening,
documentation, validation, ranking and approval of viable project ideas for an organization.
2 In the _______________________ stage, of project identification the project ideas generated above
are screened and a preliminary exercise is conducted to weed out the bad or unviable ideas.
3 _________________________ study focuses on answering the essential questions such as; should we
proceed with the proposed project idea? What are the benefits and drawbacks of proposed
project idea?

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3. PROJECT INITIATION
The project initiation phase is the 1st or beginning phase in project management life cycle, since it
includes starting up a new project. For starting a new project you have to define its objectives, scope,
purpose and deliverables. You will also appoint a project team, setup the project office and evaluate
the project, for gaining sanction to begin the next phase.

The function of project initiation is to describe all the parameters of a project and establish the
suitable project management and excellence environment necessary to complete the project. The
project charter development is a crucial initial point for the project, establishing the project definition
which acts as the base for all future efforts.

Project charter is a statement of the scope, purpose and participants of the project. It presents an
initial explanation of roles, responsibilities and authority of the project manager.

A project manager is assigned at the commencement of project Initiation. The project manager and
project sponsor work together to identify the essential resources and required team members for
further development of key project parameters which are Cost, Scope, Schedule, and Quality (CSSQ).
The project team documents its charge in the form of a project charter, which is based on the project
proposal and business case. Approval of the project charter by the project sponsor authorises the
designated team to begin project planning. A project is initiated and submitted to the competent
authority for approval. On approval, the project is taken up for further processing. Figure 2.2 depicts
the process flow.

Figure 2: Process Flow

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Let us now discuss each of these points in detail.

Formulate a case study

Evaluate all proposed projects that has been provided by the client organization or that has been
gathered by technical analyst. If additional information is needed, issue an information request to the
requester. Formulate a case study and assign a new project code to the nominated project. The
business case will be examined by a screening committee with help of management to decide whether
to accept or reject a nominated project. When a business case is accepted, the proposed project is
forwarded for ranking and selection. When additional information is received on such proposed
project, the case study may be revised based on the data and appropriate decision would be taken on
the final selection.

Approval and selection of proposed project

Based on the priority and rankings revealed by the expert committee, the management may then
authenticate the final selection of project . However, despite its selection, it may not deem to be ‘active’
project until resources are approved and deployed for initiating. It is critical to remember that when
resources are assigned from the skills inventory, this deployment has a proportionate impact on the
resource’s availability.

Rank candidate projects

All databank nominated projects must be impartially ranked in order of importance. The ranking
criteria must include:

• Target due dates

• Impact on the total business
• Impact on the technology architecture
• Impact on other applications
• Project size, cost and duration
• Project risk
• Forecasted ROI

Initially the projects are ranked against each of these criteria individually and subsequently, compiled
to a single ranking which weighs each of these criteria against each other. This ranking process is
usually used for quarterly budget decisions.

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Evaluate resources

For all corporate resources, an updated skills inventory must be maintained which is accessible for
project assignment. Moreover, an inventory of available contract resources must be captured too.
These skills inventory helps to understand the accurate capabilities and capacities of these resources.

Determine resource needs

Through evaluation of skills inventory and the candidate project repository, this process will
recognize the expected needs for quantities and capabilities of future resources. This information will
provide:

• The identification of critical training needs

• A basis for employment opportunities
• Criteria for contract personnel

This process must be reviewed on a standard basis by the organisational Resource Managers and can
be applied for staff career counselling.

SELF-ASSESSMENT QUESTIONS – 2
True or False Questions:
4 The function of project initiation is to describe all the parameters of a project and establish
the suitable project management and excellence environment necessary to complete the
project. (True/False)
5 The project manager works with the project sponsor to identify the necessary resources and
team members needed to further develop the key project parameters – Cost, Scope, Schedule,
and Quality (CSSQ). (True/False)

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4. PRE-FEASIBILITY STUDY
Initially, a pre-feasibility study is conducted for sorting out significant scenarios. Prior to conducting
a full-blown feasibility study, you are required to carry out certain pre-feasibility analysis . If your
finding suggests that the proposed business idea is not feasible, it will save your time and money. If
your findings suggest that you to continue with the feasibility study, then certain basic issues have
been resolved. A consultant’s assistance is helpful in conducting the pre-feasibility study, but your
involvement is a must. It provides you with an opportunity to know the issues of business
development.

The chief objectives of conducting a pre-feasibility study are to determine whether the project is
promising or not and also whether an investment decision can be taken on the basis of the
information furnished at the pre- feasibility stage. Moreover, it analyses whether the information is
adequate to decide that the project idea is lucrative. Many project ideas gain life after such a pre-
feasibility analysis. By focusing on the special characteristics of the project, a detailed study and a
plan can be constructed through which an appropriate resource base such as people, materials, time,
and costs can be conveniently estimated.

Activity - 1

What are the Broad considerations and guidelines helpful in the generation and screening of
project ideas?

4.1 Elements of pre-feasibility study

According to Clyfton and Fyffe, a pre-feasibility study may include the following elements:

Project description

The nature of the project output must be clearly described stating all relevant advantages and
disadvantages in comparison with all the competitive projects in the pipeline. Also, allied project
offers may be identified, which can be simultaneously developed with the project under mock-up.

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Description of market

The present and potential market, with its competitive nature, should be delineated. The description
of the market should include the following:

• Outline of technological variants

Various choices of techniques that are available for constructing and developing the project
should be examined. Also, some vital factors such as plant location must be clearly identified
such as labour (quantity, special skills), proximity to markets and raw materials (distance in
km), transportation facilities and costs (roads, railways, docks, and airways), water (quantity,
quality, restriction, etc), and miscellaneous issues (personal preference, competition, tax
considerations, environmental controls, etc).
• Availability of main production factors
The availability of essential production factors such as raw materials, water, power, fuel, and
labour should be examined thoroughly and com- pared with available alternatives.

Cost estimates

Realistic estimates should be made of all cost factors so as to reflect on all relevant investments and
operational costs of the project including contingencies.

Profitability estimation

The collected information should enable comparison between all competing projects that are in the
pipeline. The information should also help prepare under various estimated profitability statements.

Miscellaneous

In addition to the above, some more factors may be considered especially for new projects. These are:

• General opinion and support of society towards the project or the type of proposal.
• Educational, recreational, and civic-amenities available in the region.
• Availability of any other alternative sites in the region.

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Table 2.1 depicts the focus of pre-feasibility studies.

Table1: Focus of Pre-feasibility Studies

Focus Consumer-oriented Projects Society/economic-

(industrial) oriented (defence,
infrastructure and others)
Competition and survival Economic growth and
Demands and preferences development
Object quality Standard of living of the
New inventions or innovation society
quality Economic sufficiency
Regional disparities
Global competition
Existing demand vs. existing Existing facilities vs.
Scope of supply required facilities
Marketability Gap analysis Present growth rate vs.
Consumer behaviour towards determined growth rate
innovations Social behaviour (taboos,
customs) vs. the proposed
project

SELF-ASSESSMENT QUESTIONS – 3
Fill in the blanks:
6 Various choices of _______________________ that are available for constructing and developing the
project should be examined.
7 ______________________ should be made of all cost factors so as to reflect on all relevant
investment and operational costs of the project including contingencies.

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5. FEASIBILITY STUDIES
Feasibility analysis is the first stage in the process of project development. A feasibility study focuses
on the practicality of an idea by identifying possible problems and gives the answer of one main
question:

The purpose of the analysis is to examine the desirability of investing in pre- investment studies. For
this purpose, it is essential to examine the project idea in the light of the available internal (inputs,
resources, and outputs) and external constraints (environment).

5.1 Nature of project feasibility analysis

In the broadest sense, every rational decision to make a new investment is preceded by an
investigation of the feasibility of the project, whether or not it is carried out in a formal manner. The
larger the project, the greater will be the investment, and the more formalised the investigation.
Assurance is needed in the following matters:

• Whether the market exists or can be developed

• Whether raw materials can be obtained
• Whether sufficient labour supply is available
• Whether the local services vital to the project are at hand
• Whether the overall costs for plant equipment, labour, and raw material input will be of a
certain order

Most importantly, it must be determined that the income will exceed costs by a margin sufficient to
make the project financially attractive. When the project is small, the study format may be quite
informal; perhaps, there will be no formal study at all and little accumulation of actual data.
Nevertheless, the feasibility calculations will have to be computed and evaluated, even if an informal
manner before the ultimate step of actual investment is taken.

5.2 Need for feasibility studies

A company is incorporated for the purpose of setting up a project. The promoters obviously have to
start with some broad idea about the proposed industrial activity. They make mental picture as to
how the idea, when translated into reality, would result in a profitable project, given the demand-
supply pattern, probable cost of production, etc. It is quite likely that the originators get attracted by

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the favourable aspects of the project known to them. It is possible that they may have overlooked the
dark side of the picture, which can only be revealed by a detailed objective study. Too many projects
have floundered at considerable loss to the investors and indeed to the national economy through
waste of scarce resources, because the investment decisions were taken without objective and in-
depth techno- economic feasibility studies.

In modern times, business operations are complex, requiring carefully prepared plans. The
shareholders, creditors, term leaders, etc insist on completing the analysis of the scheme. Without
their co-operation, it would not be possible to translate the idea into action. This feasibility study
helps the promoter to make the investment decisions correctly and to obtain funds without many
difficulties.

5.3 Complements of feasibility study

Project feasibility study comprises of market analysis, technical analysis, financial analysis, and social
profitability analysis. The analysis is mainly interested only in the commercial profitability and thus,
examining only the market, technical, and financial aspects of the project. But, generally the gamut of
feasibility of a project covers the following areas:

• Commercial and economic feasibility

• Technical feasibility
• Financial feasibility
• Managerial feasibility
• Social feasibility or acceptability These areas are briefly described below.

Commercial and economic feasibility

The economic feasibility aspect of a project relates to the earning capacity of the project. Earnings of
the project depend on the volume of sales. Here, the following important indicators are taken into
consideration:

• Present demand of the goods produced through the project i.e. market facility (or) getting a
feel of the market.
• Future demand of the goods. A projection may be made about the future demand. The period
normally depends upon the scale of investment.
• Determining the extent of supply to meet the expected demand and arriving at the gap.

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• Deciding in what way the project under consideration will have a reasonable chance to share
the market.
• Anticipated rate of return on investment. If it is positive, the project justifies the economic
norm in the relationship between cost and demand.

Future demand can be estimated after taking into consideration the potentialities of the export
market, the charges in the income and prices, the multiple uses of the product, the probable expansion
of industries and the growth of new industries. The market share of the proposed project could be
identified by considering the factors affecting the supply position such as competitive position of the
unit, existing and potential competitors, the extent of capacity utilisation, unit cost advantages and
disadvantages, structural changes, and technological innovations bringing substitute into the market.

The commercial feasibility of a project involves a study of the proposed arrangements for the
purchase of raw materials and sale of finished products, etc. This study comprises the following two
aspects:

• Arriving at the physical requirement of production inputs such as raw materials, power, labour,
etc at various levels of output and converting them into cost. In other words, deciding costing
pattern.
• Matching costs with revenues with a view to estimating the profitability of the project and the
break-even point. The possibility ultimately decides whether the project will be a feasible
proposition or not.

The technical analysis of a project feasibility study serves to establish whether or not the project is
technically feasible and it also provides a basis for cost estimating.

Technical feasibility

The examination of this aspect requires a thorough assessment of the various requirements of the
actual production process and includes a detailed estimate of the goods and services needed for the
project. So, the feasibility report should give a description of the project in terms of the technology to
be used and the requirement of equipment, labour, and other inputs. Location of the project should
be given special attention in relevance to technical feasibility. Another important feature of technical
feasibility relates to the types of technology to be adopted for the project. The exercise of technical
feasibility is not done in isolation. The scheme has to be viewed also from economic considerations;
otherwise, it may not be a practical proportion, however sound, technically it may be.

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The promoter of the project can approach the problem of preparation of technical feasibility studies
in the following order:

• Undertaking a preliminary study of technical requirements to have a quick evaluation.

• If preliminary investigation indicates favourable prospects working out further details of the
project, the exercise begins with engineering and technical specifications and covers the
requirements of the proposed project as to the quality, quantity, and specification type of
components of plant and machinery, accessories, raw materials, labour, fuel, power, water,
effluent disposal, transportation, etc.

Thus, the technical feasibility analysis is an attempt to study the project basically from a technician’s
angle. The main aspects to be considered under this study are technology of the project, size of the
plant, location of the project, pollution caused by the project, production capacity of the project,
strength of the project, emergency or stand-by facilities required by the project sophistication such
as automation, mechanical handling, required collaboration agreements, production inputs, and
implementation of the project.

Financial feasibility

The main objectives of this feasibility study are to assess the financial viability of the project. Here,
the main emphasis is on the preparation of the financial statement, so that the project can be
evaluated in terms of various measures of commercial profitability and the magnitude of financing
required can be determined. The decision about the financial feasibility of the project should be
arrived at based on the following considerations:

• For existing companies, audited financial statements such as balance sheets, income
statements, and cash flow statements.
• For projects that involve new companies, statement of total projects cost, initial capital
requirements, and flow relative to the projective time table.
• Financial projections for future time periods, including income statements, cash flows, and
balance sheets.
• Supporting schedule for financial projections stating the assumptions used such as collection
period of sales, inventory levels, payment period of purchases and expenses, and elements of
production cost, selling administrative and financial expenses.

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• Financial analysis showing return on investment, return on equity, break- even volume, and
price analysis.
• If necessary, sensibility analysis to identify items that have a large impact on profitability or
possibly a risk analysis.

A project should earn sufficient return on the investment. The very idea of promoting a project by an
entrepreneur is to earn attractive returns on the investment on the project.

Managerial feasibility

The success or failure of a project largely depends upon the ability of the project holder to manage
the project. A project is a bundle of activities and each activity has its own role. For the success of a
project, a project holder has to co-ordinate all the activities in such a way that the additive impact of
different inputs can produce the desired results. The ability to manage and organise all such inter-
related activities comes within the concept of management.

There are three ways to measure the managerial efficiency. They are:

• Skill acquired through training

• Skill acquired through the course of work

Social feasibility

A project may cross all the above barriers mentioned above and be found very suitable but it will lose
its entire creditability if it has no social acceptance. Though the social customs and conventions such
as caste, community, regional influence, etc are creating a hindrance for the development of a project,
it should avoid all such social conflicts which will stand on the successful implementation of the
project. For example, considering the interests of the general public, projects which offer large
employment potential, which channelise the income from less developed areas, will stimulate the
small industries.

In a nut shell, the feasibility report should highlight on these five testing stones before it can be
declared as complete. And, after judging through these indicators, a project can be declared as viable
and can be submitted for finance or any other assistance from institutions.

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SELF-ASSESSMENT QUESTIONS – 4
True or False Questions:
8 Feasibility analysis is the first stage in the process of project development. (True/False)
9 The purpose of the analysis is to examine the desirability of investing in pre-investment
studies. (True/False)
10 The technical feasibility aspect of a project relates to the earning capacity of the project.
(True/False)

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6. TYPES OF FEASIBILITY STUDIES

Once the client comes up with a project, screening of the project is done on the basis of viability of the
project idea. The idea will either be accepted, rejected or accepted with modifications. The project
ideas are judged on the basis of technical, economical, legal and practical viability. The main types of
feasibility studies are:

1. Technical Feasibility

Whether the required technology and resources for the prospective project is there with the
organization or not, whether a team which holds complete technical knowledge for the proposed
project is there or not is checked for under this type of feasibility.

Example:

Elixa ltd, wants to develop a mobile app. Under technical feasibility it would be examined that whether
the company has the required skills for software development and a team that has prior experience
to handle such software development.

2. Economic Feasibility (or Financial Feasibility)

Under economic feasibility the financial aspects of the project are looked at and the financial benefits
being generated by the project are compared in relation to the costs incurred.

Example:

A designer boutique is planned to be opened soon by Mr. Ronit. He is ascertaining that whether the
project would be economically viable, looking at the initial investment, operating costs, potential
revenue, and profitability.

3. Legal Feasibility

The legal obligations being set by the court of law of the given jurisdiction are examined before start
of a project, to check that whether the project is in sync or against any of the given laws or regulations.

Example:

If a company wants to setup a new manufacturing plant at a new location, then the local zoning laws,
environmental regulations, and labour laws would be examined to ensure the legal feasibility of the
given project.

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4. Operational Feasibility

For executing any project, the viability of a project is ascertained on the basis of personnel, skills, and
management, in order to ensure smooth implementation and operation of the project.

Example:

A hospital is considering implementing a new electronic health record (EHR) system. An operational
feasibility study would evaluate whether the hospital staff has the necessary training and skills to use
the new system effectively.

5. Market Feasibility

Analysis of the proposed product or service in relation to the target markets, level of competition,
demand & supply, and potential customer base.

Example:

A company wants to launch a new range of hair conditioners. In order to analyze the market feasibility
the target market size, customer preferences, market trends would be determined.

6. Schedule Feasibility

Schedule feasibility assesses whether the project can be completed within the desired or required
timeframe.

Example:

Supposedly a stadium is to be built before the upcoming big sports event in the city, the schedule
feasibility would check that within the given scope, budget and time, is it possible to create such a
stadium.

7. Environmental Feasibility

Under this wing of feasibility, projects’ adherence to the environmental rules & regulations are
adjudged on the basis of the potential impacts of the proposed project on the environment.

Example:

A company intends to setup a new manufacturing pant near a residential area. The given project
needs to be checked for environmental feasibility to check the impacts the manufacturing plant would
be having on the surrounding areas and what measures are being taken to make it meet the
environmental protection standards.

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Feasibility studies are essential in project planning as they help stakeholders make informed
decisions by evaluating various aspects of a project's viability. Each type of feasibility study addresses
different concerns, ensuring a comprehensive analysis of the project's potential success and risks.

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7. PROJECT BREAK-EVEN POINT

Break-even is a financial term to describe a business or project where the sales revenue is equal to
total expenses.It is easy to calculate it if the expenses incurred are fixed, i.e. expenses do not change
as revenue changes. The expenses are divided into fixed and variable expenses. The presence of
variable expenses makes it difficult to calculate the break-even point. This is because the variable cost
will increase as the number of units sold increases. The answer can be determined by working out
the total gross profit of the unit sold to be equal to the total fixed expenses.

Now, we can say that, break-even analysis provides information regarding whether revenue from a
product or service has the ability to cover the relevant costs of production. Managers can use this
information in making a wide range of business decisions, including setting prices, preparing
competitive bids, and applying for loans. Break-even analysis specifies the minimum quantity of sales
that will cover both variable and fixed costs. Such analysis provides managers a quantity to compare
to the forecast of demand. If break-even point is above predictable demand, it implies a loss on the
product. Then the product may be discontinued or, by contrast, may receive additional advertising
and/or be re-priced to increase demand. One of the most valuable uses of break-even analysis is the
detection of relevant fixed and variable costs.

Activity - 2

Find out who is the project champion, who is the project sponsor, and who are the stakeholders?
What influence do they have on a project?

SELF-ASSESSMENT QUESTIONS – 5
Fill in the blanks:
11 _______________________ is a financial term to describe a business or project where the sales
revenue is equal to total expenses.
12 If the break-even point lies ___________________________ anticipated demand, implying a loss on
the product, Then the product may be discontinued or, may receive additional advertising
and/or be re-priced to increase demand.

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13 _________________________ feasibility assesses whether the project can be completed within the
desired or required timeframe.

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8. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• The process of identifying an idea for developing into a project is called project identification.
• When examining projects for approval, it is vital to examine the resource capacities and
capabilities available for assignment.
• The purpose of project initiation is to define the overall parameters of a project and establish
the appropriate project management and quality environment required to complete the
project.
• Development of the project charter is a pivotal starting point for the project, establishing the
project definition that will serve as the foundation for all future efforts.
• The business case will be examined by a screening body with the corporate authority to accept
or reject a project idea.
• The chief objectives of conducting pre-feasibility study are to determine whether the project
is promising or not and whether an investment decision can be taken on the basis of the
information furnished at the pre-feasibility stage.
• Project feasibility study comprises of market analysis, technical analysis, financial analysis,
and social profitability analysis.
• Break-even is a financial term to describe a business or project where the sales revenue is
equal to total expenses.

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9. GLOSSARY

The information necessary to enable the approval and authorisation of

Business case - policy making bodies to assess a project proposal and reach a reasoned
decision.

Commercial A study of the proposed arrangements for the purchase of raw materials
-
feasibility and sale of finished products, etc.

Feasibility
- The first stage in the process of project development.
analysis

Financial
- To assess the financial viability of the project.
feasibility

Project A repeatable process for documenting, validating, ranking, and approving

-
identification candidate projects within an organisation.

To define the overall parameters of a project and establish the appropriate

Project initiation - project management and quality environment required to complete the
project.

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10. TERMINAL QUESTIONS

1. Define project identification and discuss the steps in project identification.
2. Explain the importance of project identification.
3. What do you mean by the term project initiation?
4. Describe the feasibility studies and also discuss the nature of project feasibility analysis.
5. Describe the need for feasibility studies.
6. Explain the complements of feasibility study and write short notes on:
a) Commercial and economic feasibility
b) Technical feasibility
c) Financial feasibility
d) Managerial feasibility
e) Social feasibility or acceptability
7. Discuss the project break-even points.
8. Elucidate the different types of feasibility studies

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11. ANSWERS
Self-Assessment Questions
1. Project identification
2. Screening
3. Pre-feasibility
4. True
5. True
6. Techniques
7. Realistic estimates
8. True
9. True
10. False
11. Break-even
12. Above
13. Schedule

Terminal Questions Answers

Answer 1: The process of identifying an idea for developing into a project is called project
identification. This project identification may be broadly divided into four stages. Refer to section 2.2.

Answer 2: It has long-term results. Project identification involves creative and innovative use of
resources- manpower, capital, raw materials, etc. Refer to section 2.2.2.

Answer 3: The purpose of project initiation is to begin to define the overall parameters of a project
and establish the appropriate project management and quality environment required to complete the
project. Refer to section 2.3.

Answer 4: Feasibility analysis is the first stage in the process of project development. The purpose of
the analysis is to examine the desirability of investing in pre-investment studies. Refer to section 2.5.

Answer 5: A company is incorporated for the purpose of setting up a project. The promoters
obviously have to start with some broad idea about the proposed industrial activity. Refer to section
2.5.2.

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Answer 6: The economic feasibility aspect of a project relates to the earning capacity of the project.
Refer to 2.5.3.

Answer 7: Break-even is a financial term to describe a business or project where the sales revenue is
equal to the total expenses. Refer to section 2.7.

Answer 8: Projects are often assessed on multiple grounds before beginning with, these grounds are
the aspects of differentiation. Refer to section 2.6

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12. CASE STUDY

Municipal Corporation of Kanpur

Municipal Corporation of Kanpur is considering to construct a water reservoir to facilitate the setting
up of industries. The project manager has been furnished with the following information by the
concerned engineers of the department. The project comprises laying two lengths of large-diameter
pipelines with flexible joints for 16 km from pumping station A to reservoir B. It is found that there is
continuous outcrop of rock from chainage for 10 to 13 km, and special river, rail, or road crossings
are to be constructed at chainages for 2, 7, 13, 18 and 22 km. It is advised to install isolating valves at
each end point and at intervals of 3 km throughout the main, providing a suitable flange and an anchor
for test purposes. Water for testing will be supplied free by the promoter following completion of the
pumping station during week 33. The reservoir will be commissioned during week 35. The industrial
plant will be completed by week 40, but cannot become operational until water is available. The pipes
are available at a maximum rate of 1000 m/week (commencing week I). The contractor is responsible
for off-loading from supplier's lorries, storing and stringing out. Each stringing gang can handle 1000
m/week. Produce a time-location programme for the project on the assumption that one stringing
gang and four separate pipe laying gangs are to be employed. The average rate of pipe lying per gang
may be taken as 300 and 75 m/week in normal ground and rock respectively. Testing and cleaning
each 3 km length will take 2 weeks. A river, rail, or road crossing is estimated to occupy a bridging
gang for

4 weeks. Because of access problems, pipe laying and stringing gangs should not be operating
concurrently in the same I km length. Attention should be paid to manpower resources and continuity
of work.

Question:

Analyse the case and discuss the activity in your group.

Hint: The project comprises laying two lengths of large-diameter pipelines with flexible joints for 16
km from pumping station A to reservoir B.

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13. REFERENCES
• Gray, C. F. and Larson, E. W., Project Management, Publication: Tata McGraw Hill.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.

E-References

• www.projectsmart.co.uk. Retrieved on 14/01/2012

• www.projectmanagement.com. Retrieved on 15/01/2012
• www.pmearth.com. Retrieved on 16/01/2012

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BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 3 - Project Planning 1
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Unit - 3
Project Planning

Unit: 3 - Project Planning 2

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
4-5
1.1 Objectives - -

2 Project Planning - 1 6-7

3 Need Of Project Planning - 2 8-9

4 Project Life Cycle 1 -

4.1 Project origination - -

4.2 Project initiation - -

10-12
4.3 Project planning - -

4.4 Project execution and control - I

4.5 Project closeout - 3

5 Roles, Responsibility And Team Work - -

5.1 Roles & Responsibilities of a Project - 4 13-16

Manager

6 Project Planning Process 2 5 17-19

7 Work Breakdown Structure (WBS) 3, 4 II 20-21

8 Project Management Tools - 6 22-23

9 Summary - - 24

10 Glossary - - 25

11 Terminal Questions - - 26

12 Answers - - 27-28

13 Case Study - - 29-30

14 References - - 31

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1. INTRODUCTION
In the previous unit, we dealt with project identification, project initiation, pre- feasibility study,
feasibility studies, and project break-even point. In this unit, we will deal with project planning; the
need for project planning; the project life cycle; the roles, responsibility, and team work; the project
planning process; and the work breakdown structure.

A project consists of a set of activities performed either sequentially by adhering to planned objectives.
Project objectives will be unique and non- repetitive in nature. Thus, a project gets distinguished from
routine and continuous production processes by virtue of its characteristics of uniqueness. In fact,
organisations often pursue various ventures, having programmes and projects as their sub-sets.
Perhaps the success of any project depends critically upon the effort, care and skill applied in its initial
planning. To make any project or assignment successful, time, cost and quality are the key parameters
to concentrate. Once the project gets completed in time under the budgeted costs, and delivers the
expected quality, it is said to be a successful project. Such focused and standard projects will bring
name and fame to the whole team of project management and in turn helps organisation sustain, grow
and compete in the dynamic business environment. However, some projects involve both routine as
well as unique processes. In such cases, a mixture of functional management and project management
tools are applied to deal with such type projects. In this regard a detailed analysis of both routine and
non-routine activities is performed to make operational plans more optimal and effective. Such
project plans have to be carefully designed by managers having experience and knowledge of related
project environment. Good planning with focus on different project life-cycle stages makes the total
project planning more promising and prospective for the organisation. This unit deals with the project
planning and project life cycle stages.

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1.1 Objectives
After studying this unit, you should be able to:
• explain the meaning of project planning

• describe the project life cycle and its process flows

• identify the roles, responsibility, and team work

• describe the project planning process

• explain the work breakdown structure

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2. PROJECT PLANNING
Project planning is a discipline for stating how to complete a project within a certain timeframe,
usually with defined stages, and with designated resources. This process helps draw a blue print for
execution with little or no modifications. Project plans do not allow much deviation and are strictly
guided by defined parameters viz., time scale, categorical budgets, and output with quality standards.
The following activities helps take care of the total project planning episode:

• Set clearly focused and measurable objectives

• Identify the quality of deliverables
• Outline the schedules and work-break down structures
• Prepare sequential and alternate plans to substantiate uncertainty

Project Planning is a significant facet of project management. PERT, CPM and Gantt charts etc., tools
are used in the planning and scheduling to understand the interdependence of various activities.

It serves the planning process in many respects such as:

provides a basis for organising the work and allocating responsibilities to individuals

helps the manager to forecast and plan for various activities, keeping in view of the resource
availability and time slots

helps in communicating effectively to all those who are connected to the project

helps in monitoring and controlling the whole project activities carefully without much deviations if
any

A comprehensive project planning involves:

• Planning project scope

All activities of the project are defined clearly considering their time durations and the
expected resource consumption and exhibited through a flow chart, with their early start and
latest finish. Usually PERT (project evaluation review technique) is used to perform this task.
• Planning resources
Resources to meet the planned activities are needed such as manpower – managers,
supervisors and operators; and responsibility of carrying out the assigned job must be
reflected.

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• Planning cost
All projects are basically capital projects, requiring huge money for completion and earning no
return till their successful completion and operation of the same and keeping in view “the time
value for money”, all expenses must be well planned in a time-phased manner.
• Planning information system
Proper MIS is needed at all stages of the project. It is essential for an effective communication,
efficient use of resources, and keeping the project well within control, from time as well as cost
point of view.

This clearly shows that project planning can be regarded as a value-added activity.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 ______________________ is a significant facet of project management.
2 All projects are basically _______________________, requiring huge money for completion and
earning no return till their successful completion.

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3. NEED OF PROJECT PLANNING

The purpose of project planning is to identify various areas of the project work and the influencing
factors, and subsequently define the boundaries of the project performance. In addition, scope of the
project also needs to be explicitly mentioned in the list project objectives. Further it serves as a guide
through its well defined directions to perform the project.

Planning is basic to all human activities and requires common sense. It is a trap laid down to capture
the future. It helps in bridging the gap between where you are to where you want to be. In a way, the
complexity of the process aids in identifying the implication of such a plan and whether it relates to
immediate future or a long term perspective.

Planning thus involves:

• brainstorming on various possible alternative courses of action,

• choosing the most appropriate one (or ones)
• agreeing what you can expect to achieve
• calculating the human and material resources needed to reach your objectives
• anticipating possible problems, and
• getting agreement among all concerned about clear targets and timetables for the work in
view.

Planning techniques can address many organisational problems and opportunities, including
institutional development of your organisation and planning of disaster preparedness activities.
Whether the priority is capacity building, disaster preparedness, immediate emergency action, or
new initiatives such as advocacy for vulnerable groups, good planning can increase your chance of
success. It helps you to analyse and assess the present needs and future challenges. It gives you the
means to test out various possibilities, think through the difficulties that might occur, and prepare to
overcome them. Good plans always allow for flexibility to adapt to the changing circumstances.

The planning and scoping should be such that the project manager can assess every stage of the
project and the quality of the deliverable of the project at every stage. First, let us list the steps
involved in project scoping.

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These steps include:

• classifying the different parametric forces related to the project and its stages,
• facilitating the team members to work on tools to keep track of the stages and thereby proceed
in the planned manner,
• eradicating the factors accountable for inducing the problems,
• examining the financial implications and cost factor at various stages of the project,
• knowing and developing the various designs necessary at various stages of the project,
• identifying the key areas to be included in the scope through various meetings, discussion, and
interviews with the clients,
• providing a base and track to enable alignment of project with the organisation and its
business objectives,
• finding out the dimensions applicable to the project and also the ones not applicable to the
project,
• listing out all the limits, boundary standards and constraints in the project.

SELF-ASSESSMENT QUESTIONS – 2
True or False Questions:
3 The purpose of project planning is to identify various areas of the project work and the
influencing factors, and subsequently define the boundaries of the project performance.
(True/False)
4 Good plans always do not allow for flexibility to adapt to changing circumstances.
(True/False)
5 The planning and scoping should be such that the project manager can assess every stage of
the project and the quality of the deliverable of the project at every stage.(True/False)

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4. PROJECT LIFE CYCLE

The project life cycle (PLC) describes the start and the end of the project and the various stages in it.
It begins with concept of idea, incubation, feasibility studies and further on towards initiation,
planning, execution and closeout. Irrespective of the type and complexity of project being undertaken,
its life cycle stages remain same only content and duration of the stage being different. All projects
would tend to progress through these five project life cycle phases as indicated in the figure below:

Phase 1: Phase 2: Phase 3: Phase 4: Phase 5:

Project Project Project Project Execution Project
Origination Initiation Planning and Control Closeout

Figure 1: Project Life Cycle

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Let us now discuss in detail the life cycle stages as depicted in the figure above.

4.1 Project origination

In project origination, a project proposal is raised by a client (individual investor, company,
government or joint venture) to create a product or develop a service that can solve a problem or
satisfy an evolving need in the market. The client then submits the proposal to get it investigated on
its viability, evaluation and selection. If the viability tests conducted reveal positive results the
proposal gets selected, and management or the client fixes up the budget and time to execute the
project. The team to manage the project will then be appointed and given the responsibility to initiate
and implement the project. Based on the predetermined standards of performance, the time frame
and acceptable variances in proposed project vis-à-vis initiation and implementation may also be
decided. For this a

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proper ‘project origination team’ will be assigned the duty of conducting a deep study and help the
client to take a decision on its final approval. For example, Atlantis Resource Corporation has been
assigned the task of assessing the viability of a large scale projects in the tidal resource rich state of
Gujarat in India. The Atlantis project origination team is working with local and state government to
assess the economic viability of 100+MW tidal turbine farms in the Gulfs of Khambhat and Kutch.

4.2 Project initiation

Soon after receiving a positive report on the proposed project from the project origination team, the
client may then proceed to get it initiated. A project manager is assigned to make this project
executable. The project manager will coordinate with the project sponsor to identify necessary
resources and induct appropriate team members to ensure project begins on the tract within the key
indicators – Cost, Scope, Schedule, and Quality (CSSQ). The project team documents its charge in the
form of a project charter, which is based on the project proposal and business case. Approval of the
project charter by the project sponsor authorizes the designated team to begin project planning.

4.3 Project planning

Project Planning is the third phase of project life cycle. Project planning builds on the work done in
project initiation, through the development of a project plan. The project plan defines CSSQ, and
includes plans to involve and communicate with all the parties that are affected by the project, and
also attempts to identify risks and threats associated with project . As projects leads to change both
within and outside the organisation, managing resistance to change through transitions need to be
focused on while drawing project plans. Project planning phase is completed by effectively revising
and re-evaluating all the essential elements of project based on the documents furnished and a
decision is made either to halt the project or to commit the resources necessary for project execution
and control.

4.4 Project execution and control

Project execution and control is where most of the resources are applied/expended on the project.
This phase consumes the maximum time of the project life cycle and more than 80% of the resources
get consumed in the process. The project management team ensures that all the laid out plans,
schedules, procedures, and models that were prepared and estimated during prior work are adhered
to. Unpredicted situations and overhead costs will inevitably be taken care of by the project team to
minimise the impact on the project constraints. This phase comes to end as soon as the final product

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or service is ready for delivery. All the documents relating to all activities and their linkages, actual
consumption of time and resources need to be maintained consistently so as to enable the post project
audit to take up during the project close out.

Activity - 1

Find out the project planning and performance evaluation techniques in respect of any project of
4.5 Project closeout
your choice.

This is the final phase of project life cycle, the project team assesses the outcome of the project vis-à-
vis performance of the project team and the performing agency. This is accomplished primarily
through soliciting and evaluating feedback from customers, project team members, consumers and
other stakeholders. The primary purpose of this assessment is to document best practices and lessons
learned for use on future projects. Key project metrics are also captured to enable the client
organisation to compare and evaluate performance measurements across projects.

SELF-ASSESSMENT QUESTIONS – 3
Fill in the blanks:
6 The ______________________ then submits the proposal to get it investigated on its viability,
evaluation and selection
7 The project team documents its charge in the form of a _______________________, which is based
on the project proposal and business case.
8 __________________________ builds on the work done in project initiation through the development
of a project plan.
9 _________________________ is where most of the resources are applied/expended on the project.
10 The _______________________ of project close out assessment is to document the best practices
and lessons learned for use on future projects.

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5. ROLES, RESPONSIBILITY AND TEAM WORK

The basic purpose for initiating a project is to accomplish specific goals. Such specified goals will be
achieved only through clarity over roles and responsibilities of all those individuals who are working
as a ‘team’. Despite clarity over respective roles, team members or even the project manager may
overlap certain functions with one or more lateral or parallel levelled authority to coordinate and
integrate various dispersed activities and reach the project's goals as desired.

The roles played in a project environment include individuals, the collaborating organisations and
the financier whose stakes get affected (positively or negatively) by the outcome (success or failure)
of the project. Invariably these role players labelled as ‘stakeholders’ in the project, exert influence
over the project and its results.

Some of the actively involved role players/stakeholders in a project are:

• Project manager
Project Manager refers to the individual assigned with additional and specific responsibilities
to manage a project and will lead his team of experts
• Customer/ Beneficiary
Customer refers to the individual or organisation, which will use the product or service and
the ultimate beneficiary of the outcome.
• Performing organisation/client organisation
Performing organisation refers to the organisation whose employees get involved in doing the
project work.
Project team members accountable for his/her deliverables. Resources are made available to
team members to complete the project work.
• Sponsor:
Sponsor refers to the individual or a consortium that funds the project may or may not have
direct link with the performing organisation.

In particular, the project organisation structure enables the manager to exhibit his responsibility
towards:

• The client and the environment

• Identify and correct problems at early date

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• Make timely decisions about trade-off between two or more project goals
• Ensuring optimality while dealing with managers of the independent activities in the project
and discount cost overruns in the process.

Actual experience by way of project management specify that the majority of organisation’s using it
experience better control and better customer relations, and possibly an increase in their project's
return on investment. A considerable amount of users also report shorter development times, lower
costs, higher quality and reliability, and higher profit margins. Other reported advantages comprise
of direction toward results, for better interdepartmental coordination, and higher worker morale.
Other reported advantages include a sharper orientation toward results, better interdepartmental
coordination, and higher worker morale.

An organisation at a given time may be working on a number of projects. It is impractical for one
individual to manage all the projects. Hence, a team of managers will manage the projects. Also there
may be different teams working on different projects. A knowledgeable project manager and his team
may manage several projects at a time. The project team is accountable for ensuring that the project
is profitable upon completion.

5.1 Roles & Responsibilities of a Project Manager

A project manager plays the role of a captain in the project that he leads. Right from the point of
beginning of the project till its closure he performs several duties like selection of the best idea for
the project, planning, executing, monitoring, controlling and closing of the project. Moreover, the
tasks also require to handle the constraints of scope, time, resources and budget. The project manager
performs & delivers the following roles and responsibilities:

1. Planning and Defining Project Scope

The project manager designs and develops a detailed outline of the objectives, goals, timelines,
requirement of resources, deliverables and more. All of this is well planned with taking the inputs
from all the stakeholders involved.

2. Resource Management

Right from the moment of the idea inception of the project, the project manager starts to identify and
plan the allocation of all the resources that would be required during the entire project duration. The
resources are sometimes man made, natural and sometimes even the man himself (personnel &
workers).

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3. Budget and Cost Management

The project manager also deals with the cost that would be incurred on each and every single activity
that the project entails, as in a bigger view he also has to ensure that the overall budget of the project
should not be hampered while managing the expenses and financial performance of the project.

4. Time Management

Time, being one of the three most important pillars of the project, is also being managed by the project
manager. It requires him to plan the timelines and the deadlines for even the minutest of the tasks
and activities, which are part of the project.

5. Risk Management

Risks are the challenges and issues that might arise during the course of the project, which are
predetermined. The probability of risks arising differ from project to project. The project manager
even develops a path to manage the risks and minimize the potential impacts it might have.

6. Communication

The project manager serves as the main point of contact for all stakeholders involved in a project,
may it be the client, team members, the organization or any other party that is may be directly or
indirectly involved in the project. Any changes that arise during the duration of the project are also
being communicated through the project manager only.

7. Quality Management

One of the many tasks being handled by the project manager is ensure that the deliverable meets the
requirements of the standards and specifications. He makes sure that the proper quality checks are
being carried out and the quality assurance process is duly followed.

8. Stakeholder Management

Managing the stakeholders, is also a responsibility that the project manager shoulders. Building
positive relationship internal and external stakeholders, engagement and regular periodical updates
are being managed by the project manager only.

10. Project Monitoring and Reporting

Monitoring all the tasks and activities, while controlling the deviations if any is also a role of the
project manager that he has to abide by.

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11. Change Management

Sometimes, the project requires some changes to be made which arises from the end of the client or
even due to some challenges. Such changes are required to be dealt with and all the associated
activities are also required to be adjusted accordingly. All of this also falls under the responsibility of
the project manager.

12. Project Closure

The successful completion of the project calls for celebration but also requires several obligations to
be met with. Before handing over the deliverable to the client, all the open contracts must be closed,
documentation of all the relevant vouchers and sheets to be done, feedback must be provided and all
the closure formalities are to be made. All of this and more is also required to be done by the project
manager.

SELF-ASSESSMENT QUESTIONS – 4
True or False Questions:
11 The players in a project management are the individuals and the organisations. (True/False)
12 Other reported advantages include a sharper orientation toward results, better
interdepartmental coordination, and higher worker morale. (True/False)
13 Closure of the project is a task, that needs to be performed only by the project team
members. ( True/False)

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6. PROJECT PLANNING PROCESS

After completing the project scoping, you can start your project plan. Project planning involves three
processes. Figure 3.2 depicts the project planning process.

The The
identification review
process process
Project
Planning
Process

The
analysis
process

Figure 2: Project Planning Process

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Let us now list the steps involved in each process of project planning. These are:

The identification process

The main steps in the identification process of any project are:

• Identifying initial requirements. For example, when a company identifies a need for a new or
improved product due to R & D results or a consumer survey, the management of that company
will acknowledge the necessity of improving the existing product in accordance with the
consumer’s demands.
• Validating them against the project objective.
• Identifying the criteria such as quality objectives and quantitative requirements for assessing
the success of both the final product and the process used to create it.
• Identifying the framework of the solution.
• Preparing a template of the framework of solution to illustrate the project feasibility.
• Preparing relevant charts to demonstrate the techniques of executing the project and its
different stages.
• Preparing a proper project schema of achieving the defined business requirements for the
project.

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• Identifying training requirement.

• Making a list of the training programme necessary for the personnel working on the project.
• Identifying the training needs of the individuals working in various functions responsible in
the project.
• Preparing a training plan and a training calendar.
• Assessing the capabilities and skills of all those identified as part of the project organisation.

The review process

The main steps in the review process of any project are:

• Instituting a training plan to explain the project team members with the methodologies,
technologies and business areas under study.
• Updating the project schedule to accommodate scheduled training activities
• Identifying the needs for review and reviewing the project scope
• Re-evaluating a project with respect to its stages and progress by organising a plan for the
review, fixing an agenda to review the project progress and maintaining the reports ready for
discussion about stage performance
• Reviewing the project scope, the objective statement, and the non- conformances in the project
stages and identifying the need to use the project plan
• Preparing a proper project plan indicating all the requirements from start to finish of the
project and also at every stage of the project
• Preparing a checklist of items to be monitored and controlled during the course of execution
of the project

The analysis process

The main steps in the analysis process of any project are:

• Comparing the actual details with that in the plan with reference to project stages
• Measuring various components of the project and its stages frequently to control the project
from deviating and also monitor the performance
• Deciding how the task, the effort, and the defects are to be tracked; what tools to be used; and
what reporting structure and frequency will be followed at various stages
• Identifying the preventive and corrective steps to be taken in case of any variance
• Performing root cause analysis for all problems encountered

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If all the above steps are performed successfully, scoping and planning become effective and the ideal
outcomes are achieved. The team must strategise as to how they will work the project with the
customer and how they will achieve the end goals of the project successfully and to the customer’s
satisfaction. Then they must write a scope statement to define the project boundaries. The scope, such
as what will and will not be done on the project, should be part of the project plan.

Developing a Work Breakdown Structure (WBS) is the next step in project planning. This involves
detailing all the tasks and sub-tasks that will go into production of the final.

Subsequent to preparing WBS, the team plans the project schedule and budget. This comprises of the
tasks identified in the work breakdown structure and allocating resources or at least resource
positions, if the actual resource names have not been identified yet. The step that follows is deciding
on the project organisation structure and documenting the proposed project organisation structure
as a part of the project planning process. Now, the team must identify whether it will be a matrix or
hierarchical reporting structure. At last, the manager must put the formal project plan through a
formal review process by his project team, possibly senior management if it’s a visible enough project,
and definitely the customer. Now, he must get a formal approval sign-off from the customer and store
the document with all other project materials.

SELF-ASSESSMENT QUESTIONS – 5
Fill in the blanks:
14 Project planning involves three processes: _______________________ review, and ___________________.
15 Subsequent to preparing ________________________, the team plans the project schedule and
budget.
16 If all the steps of project planning are performed successfully, ________________________ and
planning become effective and the ideal outcomes are achieved.

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7. WORK BREAKDOWN STRUCTURE (WBS)

The entire project may be considered to be made up of a number of tasks and sub-tasks placed in
different stages called the Work Breakdown Structure (WBS).

The format for WBS design is used differently by different organizatiions. Mostly graphics is used to
display the project components as a hierarchical tree structure or diagram. Figure 3.3 depicts the WBS
of project XYZ.

Figure 3: General WBS of Project XYZ

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Here, the project is first broken down into blocks or groups or tasks and these are placed at level 1.
Each block of level 1 is then composed into sub- blocks or sub-tasks and is placed at level 2. This
process is continued up to the level beyond which it cannot be sub-divided. The smallest block is often
termed as work-package or activity.

Figure 3.4 depicts a typical example of a WBS of a recruitment process.

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Figure 4: Work Breakdown Structure (WBS)

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Activity - 2

Develop WBS for the proposed 7 storey Mall at the outskirts of Pune.

Therefore we can say that, it is the method to examine the content of work and cost by breaking it
down into its component parts. Project key stages form the highest level of the WBS, which is then
used to demonstrate the details at the lower levels of the project. Every key stage includes many tasks
identified at the start of planning and later this list will have to be validated. WBS is formed by
recognising the key elements, breaking every element down into component parts and continuing to
breakdown until controllable work packages have been identified. These can then be allocated to the
appropriate person. The WBS does not show dependencies other than a grouping under the key
stages. It is not time based. There is no timescale on the drawing.

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8. PROJECT MANAGEMENT TOOLS

Network diagrams and Gantt charts are crucial project management tools that support scheduling,
planning, and tracking the advancement of projects. A visual timeline of jobs with start and finish
dates, durations, and dependencies is provided by Gantt charts. They are perfect for monitoring
project schedules and making sure work is finished on time. In contrast, network diagrams use nodes
and arrows to show the order and dependencies of tasks. They are essential for managing task
dependencies, determining the critical path, and allocating resources as efficiently as possible. When
used in tandem, these resources increase project effectiveness, foster better collaboration, and enable
efficient project management.

• Gantt Charts: An effective tool for project management, a Gantt chart shows tasks and their
durations on a project timeline. It was created in the 1910s by Henry L. Gantt and has a vertical
axis that lists project tasks or activities and a horizontal axis for time (days, weeks, or months).
A horizontal bar representing each task's length indicates how long the task will take to
complete. Task length, interdependence shown by arrows or lines between bars, milestones
denoted by diamonds, and progress tracking via colored or shaded bars are important
elements.
• Network Diagram: An essential tool for project management, a network diagram shows the
order of tasks and their dependencies in a project graphically. A network diagram, which is
commonly depicted as a flowchart, consists of nodes (or boxes) that stand in for tasks and
arrows that show the connections and dependencies among these jobs. Understanding the
project's critical path—the longest chain of interdependent jobs that establishes the project's
minimal completion time—requires an understanding of this diagram. Network diagrams are
a great tool for project management, scheduling, and planning since they show which tasks
may be postponed without impacting the project's overall timeframe, as well as how activities
should be scheduled in order to avoid bottlenecks.

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SELF-ASSESSMENT QUESTIONS – 6
True or False Questions:
17 The entire process of a project may be considered to be made up on a number of sub-
processes placed in different stages called the Work Breakdown Structure. (True/False)
18 WBS is produced by identifying the key elements, breaking each element down into
component parts and continuing to breakdown until manageable work packages have been
identified. (True/False)

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9. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• Project planning is a very vital aspect of project management. The purpose of project planning
and scoping is to first identify the areas of the project work and the forces affecting the project
and then to define the boundaries of the project.
• The project management life cycle defines how to manage a project. It includes processes such
as origination, initiation, planning, execution/control, and closeout. While no two projects are
exactly alike, the project management life cycle will always be the same, regardless of the
project type.
• The team must strategise as to how they will work the project with the customer and how they
will satisfy the end goals of the project successfully and to the customer’s satisfaction.
• The entire process of a project may be considered to be made up on a number of sub-processes
placed in different stages called the Work Breakdown Structure (WBS). WBS is the technique
to analyse the content of work and cost by breaking it down into its component parts.

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10. GLOSSARY

States the sequence and schedule of tasks of the project to be completed

Project planning - within a certain time with well assigned resources and cost factors
affecting the project and boundaries of the project.

Project manager - Refers to the individual responsible for managing the project.

Performing Refers to the enterprise whose employees are directly involved in doing
-
organisation the work of the project.

Project The project management life cycle defines how to manage a project. It
management life - includes origination, initiation, planning, execution/control, and closeout
cycle processes.
In project origination, an individual proposes a project to create a product
Project
- or develop a service that can solve a problem or address a need in the
origination
performing organisation.

Project execution Project execution and control is where most of the resources are
-
and control applied/expended on the project.

Work Breakdown Division of a project into sub-tasks numbered to portray their relationship
-
Structure (WBS) with the each other and the project as a whole.

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11. TERMINAL QUESTIONS

1. Define project planning. Describe it in detail.
2. Why is project planning important? Also discuss the need of project planning.
3. Explain the life cycle of a project.
4. Describe the various stages of project life cycle.
5. Discuss the roles, responsibility, and team work.
6. Elucidate the responsibilities of a project manager.
7. Describe the project planning process and explain it in detail.
8. What do you mean by work break down structure? Discuss it briefly.

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12. ANSWERS
Self-Assessment Questions
1. Project planning
2. Capital projects
3. True
4. False
5. True
6. Client
7. Project charter
8. Project planning
9. Project execution and control
10. Primary purpose
11. True
12. True
13. False
14. Identification, analysis
15. Work Breakdown Structure
16. Scoping
17. True
18. True

Terminal Questions Answers

Answer 1: Project planning is part of project management, which relates to the use of schedules such
as Gantt charts to plan and subsequently report progress within the project environment. Refer to
section 3.2.

Answer 2: The purpose of project planning and scoping is to first identify the areas of the project
work and the forces affecting the project and then, to define the boundaries of the project. Refer to
section 3.3.

Answer 3: The project management life cycle defines how to manage a project. It includes processes
such as origination, initiation, planning, execution/control, and closeout. Refer to section 3.4.

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Answer 4: All projects should progress through these same five project management phases. Refer
to section 3.4.

Answer 5: The reason for organising the task as a project is to focus the responsibility and authority
for the attainment of the goals on an individual or small group. Refer to section 3.5.

Answer 6: The project manager undertakes and shoulders responsibility of several different areas of
project and thereby his omnipresence is required in every part of the project. Refer to section 3.5.1

Answer 7: After completing the project scoping, you can start your project plan. Project planning
involves three processes;, viz, the identification process, the review process, and the analysis process.
Refer to section 3.6.

Answer 8: The entire process of a project may be considered to be made up on a number of sub-
processes placed in different stages called the Work Breakdown Structure (WBS). Refer to section 3.7.

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12. CASE STUDY

Saras

For more than a decade, K.Yegna Narayana, director of the Light Transport Aircraft (LTA) project at
the National Aerospace Laboratories (NAL) in Bangalore had little else to do than thinking, talking
about, and working on his project. At NAL hangar near his office, the aircraft is getting finishing
touches. The 14-seater LTA, now named Saras looking impressively big near the tiny two-seaters
designed and made by NAL, is set to roll out on 4th February. It will fly by the end of June. Saras is the
first civilian aircraft to be designed and manufactured completely in India. India is entering the civil
aircraft industry this year. India contributes 0.1% to the world aircraft manufacturing market of $350
billion. Saras is the first serious attempt to address this anomaly.

The project was conceived by Roddam Narsimha, who was the director of NAL in the 80s and early
90s. Narsimha had decided that NAL needed to design aircraft and not just do research. The first
attempt was an assembly: the experimental light canard aircraft. NAL then designed the two-seater
Hansa, the only all-composite two-seater in the world. Hansa got certified in 2000. Even while the
Hansa work was in progress, NAL decided to make Saras. The first feasibility study was done in 1989.
Russia’s Myasischev Design Bureau was a partner. But Saras got stuck due to lack of funding. The
Russians pulled out due to economic difficulties. By the end of 90s, it seemed that Saras would never
be developed. In 1999, the Department of Science and Technology’s Technology Development Board
(TDB) agreed to help. TDB sanctioned a grant of Rs. 65 crore for the development of Saras. The
estimated development cost was Rs. 132 crore. The Council of Scientific and Industrial Research, of
which NAL is a part, put in Rs. 52 crore. Hindustan Aeronautics Limited (HAL) and the ministry of
Civil Aviation put in Rs. 9 crore and Rs. 5 crore respectively. The project got underway by the end of
1999, 10 years after the feasibility study.

A number of companies worked on the project. HAL designed and developed the landing gear,
electrical systems, and few other parts. Taneja Aerospace made most of the sheet metal parts. NAL
did the design and development, structural and qualification testing, and the project management.
The Central Mechanical Engineering and Research Institute, Durgapur, developed the throttle control
box. About 20 firms in Bangalore did the machine tooling. To reduce development costs, developers
used off- the-shelf components as much as possible. T.S. Prahlad, who was NAL’s director till recently,
says, “Saras is specially designed for Indian conditions.” It can take off from short run ways, in hot
conditions, and on high altitudes. It can fly in any kind of weather. India’s feeder airline services are

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poorly developed; even existing services, like Vayudoot, have stopped operations. Other than poor
management, two major problems have been the lack of cheap Indian aircraft and poor economies of
scale for maintenance. Saras could solve both.

NAL now estimates an Indian market of 200 planes in the next 10 years.The aircraft industry has a
considerable influence on the economy of a country. The economic impact of aviation on the world’s
GDP is about 10%. After Saras, the next civil aircraft project is the 100-seater from HAL. Can these
two projects kickstart an aircraft industry in the country?

1. Project ‘Saras’ got underway ten years after the feasibility study. According to you what could have
been the reasons of the delay in the development of a prototype?

Hint: In a project which is highly R&D oriented and does not have industry backing usually don’t find
any takers and the progress is slow. The main hindrance faced by such projects is their lack of funds.
Another reason is the lack of trust by Indian aviation sector on the local manufacturers. The project
‘Saras’ also suffered from the problem of coordination.

2: Project ‘Saras’ involved several organisations in the design and development of the prototype.
According to you what kind of organisational structure will suit this kind of project? Discuss the
advantages.

Hint: The organisation should have a matrix structure. This provides the advantage of both
traditional and product organisation structure. In this form, there are two lines of reporting one to
the functional heads and other to the project managers. The project manager is given the overall
responsibility for the implementation of the project.

(Source: http://www.scribd.com/doc/6929735/Project-Management0406)

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13. REFERENCES
• Clements/ Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P. C. K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 19/01/2012

• www.projectmanagement.com. Retrieved on 20/01/2012
• www.pmearth.com. Retrieved on 22/01/2012

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BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 4 - Organisational Structure and Organisational Issues 1
DBB1207 : Project Management

Unit - 4
Organisational Structure and
Organisational Issues

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction 1 -
5-6
1.1 Objectives - -

2 Concept Of Organisational Structure 2 -

2.1 Functional-type organisation 3, 4 -

7-15
2.2 Project-type organisation 5, 6 -

2.3 Matrix-type organisation 7, 8 1

3 Roles And Responsibilities Of Project Leader - 2 16-17

Relationship Between Project Manager And 9 3, I
4 18-20
Line Manager

5 Leadership Styles For Project Managers - -

5.1 Daniel Goleman’s six leadership styles - -

21-25
5.2 McGregor’s theory X and theory Y 10 4
managers

6 Conflict Resolution 11, 12, 13 -

6.1 Forcing - -

6.2 Smoothing - -
26-29
6.3 Compromise - -

6.4 Problem solving - -

6.5 Withdrawal - 5

Team Management And Diversity 14 6

7 30-31
Management

8 Change Management 15 -

8.1 Cummings and Worley’s 5-phase change - -

32-35
model
8.2 Kotter's eight-step change model 16 -

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9 Summary - - 36

10 Glossary - - 37

11 Terminal Questions - - 38

12 Answers - - 39-40

13 Case Study - - 41-42

14 References - - 43

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1. INTRODUCTION
In the previous unit, we dealt with project planning; the need for project planning; the project life
cycle; the roles, responsibility, and team work; the project planning process; and the work breakdown
structure. In this unit, we will deal with the concept of organisational structure, the roles and
responsibilities of a project leader, the relationship between project manager and line manager,
leadership styles for project managers, the concept of conflict resolution, the concepts of team
management and diversity management, and the concept of change management.

An organisation consists of people, process and its structure. Devoid of people organisations would
be mere life less skeletons. It is the people who pour life into the organisations through their
contributions. Similarly people cannot perform in vacuum; they need proper structure to track their
efforts. Thus, organisations will have defined structures either in the form of line structure as the case
of armed forces, functional structures as the case any private sector companies, or a mixture of both.
However, project organisations are little different in terms of defining their structures which will

be tentative in nature and people from different fields of specialisations to create an atmosphere to
complete the given task. In such environment onlymatrix form of structures are suited. Figure 4.1
depicts the factors of an organisation.

Figure 1: Factors of an Organisation

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

In an organisation, a proper and effective human relation system is necessary for the successful
completion of a project. If such a system is not present, the other systems of project management are
not likely to work well, however good they may be. In the short period of a project life, the technical
problems can be easily solved using additional investment and resources, but people’s problems may
not be solved so easily and may prove to be a big hindrance to the successful execution of the project.

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Keeping this in view, employee satisfaction, social relations, and motivation become key factors in an
organisational structure. This unit revolves around the organisational structure, organisational issues,
project leadership and team management.

1.1 Objectives
After studying this unit, you should be able to:
• explain the concept of organisational structure.

• describe the various organisational structures

• describe the roles and responsibilities of the project

leader

• distinguish the relationship between project

managers and line managers

• explain project leadership and various leadership styles for project managers

• discuss the resolution of conflict in organisation

• explain team management

• describe the meaning of diversity management

• explain change management

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2. CONCEPT OF ORGANISATIONAL STRUCTURE

There cannot be a single ideal structure for all organisations as different organisations have different
size, environment, resources, technologies, and goals. There are many different ways in which people
can be organised to work on projects.

The most common types of organisation structures are:

• Line Structure
• Line and Staff Structure
• Functional Structure
• Project or Matrix Structure

These structures are also referred as the Organisational Chart. Each of these structures has their own
strengths and weaknesses. Figure 4.2 depicts the four types of organisational structures.

Figure 2: Four Types of Organisational Structures

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Usually, the first two types of organisational structures are found in military form of organisations
and conventional business houses respectively, where joint family system of business exists. They are
inappropriate for the modern multinational organisations and also do not fit in to the bill for any
project environment. Thus the discussion will be confined to the remaining two types of organisation
structures in this section namely functional structures and project/matrix structures.

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2.1 Functional-type organisation

The functional type structure organises teams of employees based upon the specific jobs within the
organisation. The employees work in departments based on what they have to do such as marketing
department, purchasing department, maintenance department, HR department and finance
department. Figure 4.3 depicts the organisational chart of functional-type organisation.

Figure 3: A Typical Organisational Chart of Functional-Type Organisation

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

This type of structure is generally used in businesses that are into trading or manufacturing and
marketing of standardised products and are usually not inclined towards new products or services
unless there is a pressure of competition. For example a standard book publishing company indulges
in printing and publishing standard text books for a defined audience either at the school or college
level. School book publishers will not publish college level books unless the economies of scale are
focused. Such a publishing house will have different functional departments viz., editing, proof
reading, printing, book binding, cover designing, (all in-house jobs), purchasing paper and stationary,
marketing, distributing, financing, maintaining payroll to all the staff etc.

In the functional structure, groups consist of employees performing the same function and having the
same type of skills, such as software development or software testing. Each group performs its own
activities to support the company's business.

Advantages of functional structure

Specialisation: There is a better division of labour resulting in specialisation of functions as people

are grouped according to capabilities and similarities in positions.

Economy: Standardisation combined with specialisation helps in maximising production.

Efficiency: Better efficiency is achieved as every employee performs a limited number of specialised
functions.

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Up-to-date knowledge: Employees can share and keep up-to-date with the skills and knowledge of
their specific discipline.

Efficient control: Internal control is simplified as manual functions are separated from the mental
functions. Checks and control keep the authority within specified limits.

Expansion: Expert knowledge of functional manager assists in better supervision and control.

Disadvantages of functional structure

Confusion: This system is quite complex to put into operation, particularly at low levels. There can
be delays when one function waits for another function to complete its work. Thus, coordination
becomes hard as each function focuses on its own unit and communicates with the top management.

Costly: Upkeep of specialist staff at higher hierarchy is costly as varying amount of skills are required
at different times.

No unity of command: Checks and control can become weak as a worker is controlled by a large
number of people. Functional authority reduces the line manager’s authority and line workers end up
receiving orders from various staff groups. Also operating people receive printed directives from
different groups. Hence it destroys the unity of command and creates problems in discipline.

Conflicts: There may be disputes between the supervisory staff of different departments as they may
not agree on some issues.

Difficulty in fixing responsibility: As there are multiple authorities, it is hard to fix responsibility.

Slow process: The hierarchical structure causes problem-resolution and decision-making to be slow.

Let us consider an example of a car manufacturing company. If there is a problem with the clutch
system of the car, while the management questions the responsibility of such disqualified output,
engineering department blames manufacturing department by considering itself separate from
production unit and not directly linked to process cycles. Manufacturing department passes the buck
back on engineering department mentioning the flaws in the design that was supplied by engineering
branch. In the process, quality control checks gets lost in the riff-raff and loses control over the whole
purpose of assembly line which subsequently slows down the production process.

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Examples of functional-type organisation

• Car manufacturing companies

• Electronics manufacturing units
• Brick kilns
• Hospitals
• Hospitality units

Figure 4.4 depicts the various departments of a car manufacturing company and its nature of working.

Figure 4: Organisational Chart of a Car Manufacturing Company

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

2.2 Project-type organisation

In a project-type organisational structure, the employees work for different projects in a team-like
structure. Examples are construction companies, where different teams work on different projects.

Teams are put together for a project. Each project is headed by a project leader. Each team will have
employees to suit its demands and complete the project successfully. Only employees with requisite
specialised skills are considered for project teams. These members of project team will join back their
parent company once the project gets finished.

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Figure 5: A Typical Organisational Chart of Project-Type Organisation

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

In project-type organisational structure, each project is handled like a small company. All the essential
resources and paraphernalia needed to execute projects are procured for full-time till the project
closes out. Employees having specialised knowledge and exposure to similar project environment will
be appointed on contractual terms to work in a group and deliver the project expectations.

Advantages of project-type structure

• Clear line of authority: The project manager has complete authority over the project. All the
members of the project team are responsible only to the project manager.
• High level of commitment: The project team has a separate and strong identity, and all
members are committed to the project and to each other strongly.
• Swift decision making: Because the authority is only with the project manager, the capacity
to make swift decisions is increased.
• Simple and flexible: Project-type organisations are structurally flexible and simple, which
makes them comparatively easy to implement.

Disadvantages of project-type structure

• Duplication of effort: Each project team is fully staffed, which can result in a duplication of
effort in every area from clerical staff to technological support.
• Cost inefficient: The project organisation structure can be cost-inefficient because of
underutilization of resources or stockpiling equipment for future use.
• Stretching out work during slow periods: During slack times, team members may not work
at high level of productivity.

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• Low level of knowledge transfer: There is low level of knowledge transfer between projects
as employees are committed to working only on one project. So, there is no source of
knowledge transfer and shared functional expertise.
• Job insecurity: At the completion of a project, the employees may be fired if there is no similar
type of project.

Examples of project-type organisation

• Rapid transit projects

• Construction projects
• IT projects

Figure 6 depicts the project organisation structure of a company selling rapid transit projects.

Figure 6: Project Organisation Structure of a Company Selling Rapid Transit Projects

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

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2.3 Matrix-type organisation

Matrix-type organisation is the most common type of project organisation. It is the combination of
both the functional and project organisation structures. It provides functional expertise of the
functional structure and the project focus of the project structure.

The combination of both the structure contributes jointly to the success of every project and
ultimately, the company. Here, the functional managers provide the resources needed and the project
manager is responsible for the project results. In Matrix structure, the organisation uses teams to
execute various tasks. The teams are organised depending on their expertise (for example, web
designers) and the product they are involved in (for example, project A).

Figure 7 depicts the organisational chart of matrix organisation.

Figure 7: A Typical Organisational Chart of Matrix Organisation

Source: http://thecriticalpath.info/wp-content/uploads/2009/12/composite_org.png

In this way, many teams are formed in the organisation such as web designers of project A, web
designers of project B, software developers of project A, etc.

Advantages of matrix structure

• Efficient utilisation of resources: Resources are used efficiently, as the staff can shift to a
different project if there is a delay in any one of them.

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• Expert utilisation of knowledge: Employees can utilise the latest knowledge and the
expertise of the department.
• Job security: The career of employees is safe.
• Quick response: The organisation can react promptly to the need of projects.

Disadvantages of matrix structure

• Conflict of priorities: There might be a conflict of priorities between different projects.

• Dual reporting: There may be conflict of loyalties between the departmental manager and
project manager because of the dual reporting demands.
• Delay in communications: There may be delay in communications between team members if
the departments are located far apart.
• Morale: The morale of the employees is very low in a matrix organisation as they work on
different projects at different times.

Examples of matrix organisation

• Oil and gas companies providing oil, gas, chemicals, services, etc.
• Financial companies providing banking, insurance, etc.
• Technology solution companies.

Figure 8: Matrix Organisation Structure of Software Development Company

Source: http://www.peoi.org/Courses/Coursesen/orgbeh/Resources/fwk-bauer- fig14_006.jpg

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SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 _________________________ structures are typically used in businesses that primarily sell and
produce standard products and seldom conduct external projects.
2 In a __________________, the employees work for different projects in a team-like structure.
3 ________________________ is the most common type of project organisation.
4 In matrix-type organisation, ________________ provide the resources needed and the
______________ is responsible for the project results.
5 __________________________ structures are also referred as the Organisational Chart.

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3. ROLES AND RESPONSIBILITIES OF PROJECT LEADER

A project leader or manager is a person selected to lead a project. He is expected to be completely
accountable for his team members and for meeting the team’s targets. In short, the project manager
is responsible for the project.

The project leader must have various skills such as general management skills, sharp probing skills,
making decisions, resolve conflicts, etc. The project leader is responsible for seeing the following tasks
are completed in time:

• Getting approval for the project objectives

• Choosing and heading the team
• Setting up individual objectives
• Creating a feasibility report
• Performing a risk analysis
• Assuring that the project is planned properly and in detail
• Allotting and supervising the work and cost
• Motivating team members
• Reporting progress to management
• Assisting team members to solve problems
• Achieving the team goals

Other roles and responsibilities include:

• Documentation
• Strategic influencing
• Business partnering
• Working with vendors
• Controlling quality

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SELF-ASSESSMENT QUESTIONS – 2
True or False Questions:
6 A project leader or manager is expected to be completely accountable for his team members
and meeting the team’s targets. (True/False)
7 Project leader role will require an individual with strong management skills. (True/False)
8 The Project Leader is the person responsible for the overall project. (True/False)

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4. RELATIONSHIP BETWEEN PROJECT MANAGER AND

LINE MANAGER
Figure 9 depicts a typical organisational chart of “Line Manager” with the major functions of
production manager.

Figure 9: Project Manager and Line Manager

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Generally, an organisation is divided into various divisions. They are:

• Production division
• Marketing division
• Finance division
• Human resource management
• Material management

Line organisation is the oldest and simplest type of organisation. Here, the line of command is fulfilled
from top to bottom. This is why it is called line organisation.

The line organisation represents a direct vertical structure through which authority flows. Line
managers have the primary responsibility of accomplishing the target goals of the organisation. They
have complete decision-making authority.

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Line organisation is best suited where the work is of repetitive type and relationships between
departments, and within the department, are relatively stable. In line organisation, the
communication channels are very well defined.

Activity - 1

In the present day Indian business context, what factors mostly influence the design of
organisation structure? Which type of structure do you prefer, for a fast growing software unit in
Line
the organisation has the following advantages:
IT sector?

• Easy to implement and less complicated.

• Flexibility to expand and easy to cut back.
• Clear division of responsibility and authority.
• Clear channel of communication.
• Fast decision making and swift action.
• Better discipline.
• Better in-house training.
• Cost effective.
• Less confusion.

Even with all its advantages, the line management is not conducive for project management. The
matrix organisation is very much conducive for project management.

In large organisations where the capital expenses are a major part in the annual outlay of the company,
it is advisable to have an in-house project manager for assuring the quality of work and timely
culmination of the projects.

In such cases, the project management should be of line type in which the project manager should
bear the full line authority and has total control over the departments he or she heads.

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SELF-ASSESSMENT QUESTIONS – 3
Fill in the blanks:
9 _________________________ is the oldest and simplest type of organisation where the line of
command is fulfilled from top to bottom.
10 __________________________ have the principal responsibility of achieving the target goals of the
firm and have the decision-making authority.
11 The matrix organisation is conducive for _____________________.
12 In large organisations, project management shall be of line type function where the project
manager shall have ________________ and has total formal control over the division he or she
heads.

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5. LEADERSHIP STYLES FOR PROJECT MANAGERS

A good project manager needs to have leadership skills, motivating potential, and breadth of
experience. A brilliant project manager leads, manages and uses the most appropriate resources to
get the work done. As a popular saying goes, ‘there is no single author for success’, every project
manager recognises the importance of team efforts and comprehends that projects are accomplished
only through team-effort. To make those teams perform as desired, project manager may exhibit
number of styles from time to time.

5.1 Daniel Goleman’s six leadership styles

Daniel Goleman identified six distinct leadership styles. He found that leaders use six different
leadership styles in various situations. Table 4.1 gives the summary of these styles, time to apply, and
the demerits and its impact on the performance of people at work.

Table 1: Daniel Goleman’s Six Leadership Styles

Source: http://www.educational-business-articles.com/images/six-leadership- styles.gif

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Let us now discuss these leadership styles in brief.

• Coercive style: In this style, a leader issues orders without any discussion with the members.
Used when there is a deficiency of time or when subordinates do not know how to find the
solution.
• Authoritative style: In this style, the project manager shares his or her vision with the team
but permits them to use their respective ideas to come up with a solution.
• Affiliative style: In this style, the team leader encourages each member to think of themselves
as 'one of the members of the family'. Open communication and good team work are some
characteristics of this style.
• Democratic style: In this style, everyone has a say in the decision making. While this style is
time consuming, team morale is usually high.
• Pace-setting style: In this style, high-performance standards are set for team members. The
team leader concentrates on high productivity without focusing on quality.
• Coaching style: This type of leader is always ready to teach the team members and permit
them to work on their strengths and weaknesses. The leader encourages all team members to
do better and is supportive in case of any failure. Such a leader delegates and assigns
challenging tasks to team members.

5.2 McGregor’s theory X and theory Y managers

Douglas McGregor, an American social psychologist, suggested his famous X and Y theory in his book
'The Human Side of Enterprise'. McGregor's X and Y theory are commonly referred in the field of
management and motivation, and whilst more recent studies have questioned the rigidity of the
model, but this theory remains a valid basic principle from which to develop positive management
style and techniques. McGregor’s theory of X and Y managers states that there are two kinds of
managers, first, Theory X and second, Theory Y. Figure 4.10 depicts McGregor’s Theory X and Theory
Y managers.

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Figure 10: McGregor’s Theory X and Theory Y Managers

Source: http://t3.gstatic.com/images?q=tbn:ANd9GcQPljhbitJy3FAV_akZdIiXyIEFY_cvjSk6X

tJi2touA_f6zsnV8hNcKz4b

Let us now discuss these two types of managers in brief.

Theory X (authoritarian management style) managers believe that all people are fundamentally
lazy and unless they are pushed to do work, they will avoid doing any work. These managers dictate
and direct employees to work.

Theory Y (participative management style) managers believe that individuals will do good work
for the sake of doing it. They believe in sharing information with the workers. These managers will
also listen to problems that are brought up by their staff.

Table 4.2 compares the characteristics of both types of management leadership styles.

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Table 2: Comparison of Theory X and Theory Y

Source: http://www.ccel.us/hans.ch5.html

Disadvantages of Theory X

• Lack of motivation: Absence of trust and inspiration has a demotivating effect on workers.
• No innovation: The incentives to be made from using the ideas and motivation of staff are
lost.
• Low quality: Low motivation makes it difficult to accomplish high quality standards of
services and products.
• Staffing problem: It is harder for managers to recruit and hold skilled and experienced
workforce.
• Low profitability: Lack of staff motivation, creativity, difficulty in staffing, and low quality
standards affect the profitability of the business.

Advantages of Theory Y

• Motivation: Increased motivation and eagerness seen in staff.

• Innovation: The exchange of ideas and innovation are present.
• Quality: Superior quality standards.

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• Staffing: Easiness in recruiting and retaining the gifted staff.

• Profitability: Improved competitiveness and profitability for the business due to motivated
and dedicated staff.
• Better relations: Because of a harmonious work environment, there is better relation
between workers and managers.

Theory X is only good in conditions that are either very favourable or very unfavourable. This is why
military leaders in combat use theory X type management because in combat, it is essential to give
an order and to see that it is followed precisely.

SELF-ASSESSMENT QUESTIONS – 4
Fill in the blanks:
13 _____________________ identified six distinct leadership styles.
14 In ___________________ style, a leader issues orders without any discussion with members.
15 In _____________________ style, project manager shares his or her vision with the team but
permits them to use their respective ideas to come up with a solution.
16 High-performance standards are set for team members in ______________________ style.
17 Lack of motivation among employees and low quality of production occurs in
__________________.

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6. CONFLICT RESOLUTION
Conflict in the workplace is common. Conflicts occur when different people have different goals and
needs; when one party thinks that the other party has done something to block the completion of
their goals.

Conflict, however, is not necessarily a bad thing. As long as it is solved efficiently, it can contribute to
professional growth.

Project teams have many interlinked parts such as members who have their own interests and goals.
Besides the team goal, each member of the team attempts to satisfy his or her own goals also, which
leads to differences and conflict.

In project management, one of the main skills necessary for the project manager is the resolution of
these conflicts. In a team, sometimes it is difficult for each member to completely understand the goals
of others. The solution lies in the skills of the project manager. He or she has to keep each member
from meddling and frustrating the other members while letting team activities to take place and move
the project toward its target.

Many managers consider conflict to be good for the organisation. If the establishment is active and is
trying to reach towards difficult targets, conflict would definitely arise. If there is no conflict, then the
organisation is not dynamic and is not working towards achieving the goals. In case of project
management, this is not necessarily the case.

Conflicts can be settled promptly and amicably without having any disagreements. The frustration in
the parties can be minimised in a well-managed project team.

There are many methods of conflict resolution. Figure 4.11 depicts a flow chart that shows a
simplified method of conflict resolution that is generally used in organisations.

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Figure 11: A Simple Method of Resolving Conflicts

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Generally, there are five methods of conflict resolution. They are:

• Forcing
• Smoothing
• Compromise
• Problem solving
• Withdrawal

These five methods have different results; some temporary and others permanent. They also have
different effects on the attitude of the conflicting parties. Figure 4.12 and 4.13 depict conflict
resolution and solving disagreements respectively.

Figure 12: Conflict Resolution

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

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Figure 13: Solving Disagreements

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

6.1 Forcing
One way of resolving a conflict is when one party pressurises the other party to agree. It is used when
one person has authority over another and uses it. One example is the manager telling the foreman,
“All right, enough of this discussion, and now you listen to my decision.” By this method, a permanent
solution is achieved in resolution of the conflict. Though permanent, this method is not the best
solution as it brings frustration, but it saves the time.

6.2 Smoothing
This method reduces the scale of conflict by making differences seem less important. It occurs when
either one of the parties disagreeing tries to make the differences smaller than they look. If it is
successful, one or both parties will accept the settlement or will accept one of the given options.

This method of resolution is good for building positive relations in the team. All team members are
made to feel that the differences were insignificant. However, this does not contribute to permanent
solutions. After some time, the conflicting parties may catch on that the significance of their
differences has been downplayed. So the conflict may reappear.

6.3 Compromise
This method of compromise is similar to smoothing. In this method, each conflicting party gives up
something to reach a compromise. The parties themselves agree to drop some points of disagreement.
Both parties reach a common agreement that has relatively only few points of disagreement.

Compromise is kind of a ‘middle-of-the-road’ solution. It is a ‘no win, no loss’ situation. Neither of the
conflicting parties is keen to move forward with the compromise plan. This method of resolution is
neither good nor bad for building positive relations in the team. The conflict is deflected, but the

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outcome is something that neither party supported in the first place. Many times, as in smoothing the
problem, the disagreeing parties will continue to disagree and try to implement the original ideas.

6.4 Problem solving

In the method of problem solving, a committee is set up to find a solution. This method is derived
from the idea that all conflicts have one right solution. By working and discussing, the facts will be
revealed, and it will be clear which of the conflicting parties is right.

This method of problem solving is really the most effective way to settle any conflict. Once the
indisputable facts are found out, then there is no point for any of the parties to disagree, and the
conflict is resolved.

6.5 Withdrawal
Withdrawal may be the most defective way to settle conflicts. In this method, one party withdraws
and pulls back. This method does not actually solve the conflict; just postpones it to some other day.
It has a very negative effect on the team. Even the other team feels bad about the withdrawal of one
team. This is like a small child saying, “I do not like the way you are playing, so, I am taking my toys
and going home.” competent, goal oriented, politically sensitive, and having high self-esteem.
Different types of conflict occur at different stages of the project’s life cycle. Prudent planning,
participative management, reasonable negotiations and open communication between all parties
help to resolve conflict.

SELF-ASSESSMENT QUESTIONS – 5
True or False Questions:
18 The smoothing method reduces the scale of conflict by making differences seem less
important. (True/False)
19 In the method of problem solving, a committee is set up to find a solution. (True/False)
20 Withdrawal may be the most effective way to settle conflicts. (True/False)
21 Forcing method of resolving conflict is used when one person has authority over another and
uses it. (True/False)

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7. TEAM MANAGEMENT AND DIVERSITY MANAGEMENT

A project manager should have first class organisational and analytical skills to handle a project team.
The project managers achieve their goals through team work in which different people functioning
together in coordination with each other produce the desired outcomes.

The project manager’s duty is to get the best out of his or her team members as a manager. For this,
he/she needs to have leadership skill and management skills. These skills are:

• Defining the roles of project team member.

• Setting goals for the complete team as well as individual team members.
• Training the team members.
• Developing the team members’ skills.
• Measuring the team and individual performance.
• Getting the team and individual performance feedback.
• Resolving conflicts between team members constructively.
• Delegating responsibilities and tasks.
• Motivating using a combination of intrinsic and extrinsic rewards.

A project manager has to make sure that he/she has the right people in his or her project team for
successful completion of the project. Good teams are much more productive as they are able to take
support from the other team members’ strengths and compensate for the other members’
weaknesses. Carrying out a ‘team profiling work-out’ is an efficient method to make each team
member understand their strengths and weaknesses.

Diversity management is a management strategy to promote and maintain a positive workplace

environment in the organisation. It is crucial for growth in today’s competitive marketplace.

Diversity management works on the principle of “acceptance”. Diversity management inspires the
employees to recognise that everyone is different. They should not be afraid or be biased about these
differences. Employees are encouraged to live with the fact that there are different interests, different
values, and different physical and emotional characteristics present in the organisation. Also, this
does not have to obstruct the productiveness or produce conflict. Figure 4.14 depicts an example of a
complete diversity management programme.

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Figure 14: Example of a Complete Diversity Management Programme

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

A strong diversity management programme encourages the development of skills and talents of the
employees. It boosts the communication among employees and in the long run, increases the
productivity of the department.

SELF-ASSESSMENT QUESTIONS – 6
Fill in the blanks:
22 A ___________________ needs to possess excellent analytical and organisational skills to manage a
project team.
23 Diversity management is a management strategy to promote and maintain a ________________
environment in the organisation
24 A strong ________________ programme encourages the development of skills and talents of the
employees.
25 Diversity management works on the principle of _______________

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8. CHANGE MANAGEMENT
Change management is an integrated approach to repositioning employees and teams in an
organisation from existing state to a needed state in the future. It is a process aimed at assisting the
workforce to accept and welcome the changes in their present business environment.

In project management, change management refers to the processes where changes to the project are

officially brought in and sanctioned.

Examples of change management

• Goal changes
• Strategic changes
• Technological changes
• Changing the attitudes and conducts of employees
• Operational changes

Principles of change management

• Involve and get support from people within the system

• Understand the present position of the organisation
• Understand your changed goals
• Understand what measures you have to take to reach these goals
• Plan in appropriate, achievable, and measurable stages

Every project is unique. Resources and customer demands change. Therefore, the change process is a
continuous process; it will never stop. Now let us look at the different models to manage the change.
Activity - 2

Describe a time when you wanted some change in the working style of the team, but others were
reluctant to do so. How did you go about it?

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8.1 Cummings and Worley’s 5-phase change model

Cummings and Worley (Organisation Development and Change, 1995) explains a complete five-phase
process for managing change. Figure 4.15 depicts Cummings and Worley’s change management
model.

Figure 15: Cummings and Worley’s Change Management Model

Let us now discuss each phase in detail.

1. Motivating change: Motivating change includes getting ready for change in a project team. The
project managers should explain to the team members about the need for change. The project
managers should also listen to the workers and make them feel that change will need their strong
input and involvement.

2. Creating vision: The project managers must have a clear vision. The vision should clearly show
how the changes will help in the growth of the organisation.

3. Developing support: In developing support, the project managers must realise that power is
important among team members. In a change, there are often changes in power structure; it must
have the support of all main power players.

4. Managing transition: The project managers should have a clear idea of all the action plans and
activities needed towards the change initiative and how to implement them.

5. Sustaining momentum: It is the hardest phase in managing change. In this phase, the project
managers have to work hard to maintain the momentum of the execution. Many roadblocks are
encountered in this phase; such as, resistance from employees, abrupt departure of a key leader, or a
drastic reduction in sales. For sustaining the momentum, it is necessary to get strong support from
the top leadership.

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8.2 Kotter's eight-step change model

John P Kotter describes a useful model for managing change. Each stage

recognises a fundamental principle relating to the employees' reaction and

attitude to change, in which, people see, think, and change. Figure 4.16

depicts Kotter’s eight-step change model.

Figure 16: Kotter's Eight-Step Change Model

Kotter's eight-step change model can be summarised as:

• Establish urgency: Inspire people to act, make targets real, and applicable.
• Build a guiding team: Choose the right employees with the right commitment and the right
mix of skills.
• Develop a clear vision: Establish a simple vision and strategy for the team. Concentrate on
the aspects essential for efficiency.
• Communicate the vision: Have clear communication with as many people as possible,
communicate clearly the requirements.
• Empower people: Remove hurdles, get constructive feedback and support from leaders.
Reward and recognise achievements.
• Create short-term wins: Create aims that are easy to reach in small sizes.
• Build on gains: Encourage determination and ongoing progress.
• Make change stick: Strengthen the successful change through recruitment and promotion
and unite change with culture.

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SELF-ASSESSMENT QUESTIONS – 7
True or False Questions:
26 The change process is a one-time process; it will never continue. (True/False)
27 Project managers have to relax to maintain the momentum of project execution. (True/False)
28 Project managers should explain to the team members about the need for change.
(True/False)

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9. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• Functional organisation structures are typically used in businesses that primarily sell and
produce standard products and seldom conduct external projects.
• In project organisation structure for a business that sells rapid transit projects to cities and
counties, an average customer order will be for a multimillion dollar project that will require
several years for engineering, manufacturing, and installation.
• The project leader’s role will require an individual with strong management and
communication skills who understands the operation and objectives of the project
implementation and management.
• The line organisation represents the structure in a direct vertical relationship through which
authority flows.
• Conflict occurs when one party in the conflict thinks that the other party in the conflict has
done something to frustrate the attainment of a goal or goals. Smoothing minimises the
disagreement by making differences seem less important. This kind of resolution occurs when
either one of the persons disagreeing or another person in the group attempts to make the
differences smaller than they seem.
• A project manager needs to possess excellent analytical and organisational skills to manage a
project team. A project is managed by the project manager who is completely in charge of the
project. Multiple projects are handled in an organisation and during this time restructuring is
almost continuous.

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10. GLOSSARY

This style is where a team leader seeks to encourage each member to

Affiliative style -
think of themselves as 'one of the gang', so to speak.

This style is used when a leader issues orders in such a manner that there
Coercive style -
is only one direction to go.

Functional organisation structures are typically used in businesses that

Functional
- primarily sell and produce standard products and
organisation
seldom conduct external projects.

The line organisation represents the structure in a direct vertical

Line organisation -
relationship through which authority flows.

Matrix
Matrix organisation structure is for a business that sells custom
organisation -
computer-based automation systems.
structure

Pace-setting style - This style includes the setting of high performance standards.

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11. TERMINAL QUESTIONS

1. Explain the concept of organisational structure and describe it in brief.
2. What do you mean by functional-type organisation?
3. Define project-type organisation and discuss it in detail.
4. Describe the matrix-type organisation.
5. What are the roles and responsibilities of project leader?
6. Discuss the relationship between project manager and line manager.
7. Describe the leadership styles for project managers.
8. Discuss the various methods of conflict resolution.
9. Explain the change management.

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12. ANSWERS
Self-Assessment Questions
1. Functional-type organisation
2. Project-type organisational structure
3. Matrix-type organisation
4. The functional managers, project manager
5. Organisational
6. True
7. True
8. True
9. Line organisation
10. Line managers
11. Project management
12. Full line authority
13. Daniel Goleman
14. Coercive
15. Authoritative
16. Pace-setting
17. Theory X
18. True
19. True
20. False
21. True
22. Project Manager
23. Positive workplace
24. Diversity management
25. Acceptance.
26. False
27. False
28. True

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Terminal Questions Answers

Answer 1: There are various ways in which people can be organised to work on projects, the most
common types of organisation structures are functional, project, and matrix. Refer to 4.2.

Answer 2: Functional organisation structures are typically used in businesses that primarily sell and
produce standard products and seldom conduct external projects. Refer to 4.2.1.

Answer 3: In a project-type organisational structure, the employees work for different projects in a
team-like structure. Refer to 4.2.2.

Answer 4: In a project-type organisational structure, the employees work for different projects in a
team-like structure. Refer to 4.2.3.

Answer 5: Project leader’s role will require an individual with strong management and
communication skills who understands the operation and objectives of the project implementation
and management. Refer to 4.3.

Answer 6: A typical organisation chart of “line manager” with major functions of production
manager. Refer to 4.4.

Answer 7: An effective project manager is able to invoke various leadership styles. The key is to use
each style at the right time. Refer to 4.5.

Answer 8: There are five methods of conflict resolution. Refer to 4.6.

Answer 9: Change management is an integrated approach to repositioning employees and teams in

an organisation from existing state to a needed state in the future Refer to 4.8.

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13. CASE STUDY

Kamal Food Products Company
Mr. Raj Gopal, the Chairman of the Kamal Food Products Company, was tired of being the only one in
the company actually responsible for profits. While he had good vice presidents, in charge of
finance, sales, advertising, manufacturing, purchasing, and product research, he realised he could
not hold any of them responsible for company profits, as much as he would like to. He often found it
difficult to hold them responsible for the contribution of their various areas to company profits. The
sales vice president, for example, had rather recently complained that he could not be fully
responsible for sales when the advertising was ineffective, when the product wanted by customers
were not readily available from manufacturing, or when he did not have the new products he
needed to meet competition. Likewise, the manufacturing vice president had some justification
when he made the point that he could not hold costs down and still be able to produce short runs so
as to fill orders on short notice; moreover, controls would not allow the company to carry a large
inventory of everything.
Mr. Raj had considered breaking the company down into six or seven segments by setting up
product divisions with a manager over each with profit responsibility. But he found that this would
not be feasible or economical since many of the company’s branded food products were produced
on the same factory equipment and used the same raw materials and a sales person calling on a
store or supermarket could far more economically handle a number of related products than one or
a few. Consequently, Mr. Raj came to the conclusion that the best thing to do was to set up six
product managers reporting to a product marketing manager. Each product manager would be
given responsibility for one or a few products and would oversee, for each product, all aspects of
product research, manufacturing, advertising and sales, thereby, becoming the person responsible
for the performance and profits relating to the products. Mr. Raj realised that he could not give these
product managers actual line authority over the various operating departments of the company
since that would cause each vice president and his department to report to six product
managers and the product marketing manager, as well as the president. He was concerned with this
problem, but knew that some of the most successful larger companies in the world had used the
product structure. Moreover, one of his friends on university faculty told him that he must expect a
certain amount of confusion in any organisation and that this might not be bad since it forced people
to work together as teams. Mr. Raj resolves to put in the product structure in his organisation as

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outlined and hoped for the best. But he wondered how he could avoid the problem of confusion in
reporting relationships.
1. What is the exact problem in the case? Do you view the problem as very serious? or, is Mr.
Raj over reacting?
Hint: Problem is serious therefore Mr. Raj decided to set up six product managers reporting
to a product marketing manager.
2. What would you do to avoid any confusion and to help the company achieve its ambitions of
emerging as a leader in the food products company?
Hint: Each product manager would be responsible for one or a few products, all aspects of
product research, manufacturing, advertising and sales, thereby, to become the person
responsible for the performance and profits relating to the products.
Source: Rao, VSP (2009), Organisational Behaviour: Excel Books, New Delhi.

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14. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 20/01/2012

• www.projectmanagement.com. Retrieved on 21/01/2012
• www.pmearth.com. Retrieved on 22/01/2012

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BACHELOR
z
OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 5 - PERT and CPM 1
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Unit - 5
PERT and CPM

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
5-6
1.1 Objectives - -

2 Development Of Project Network 1, 2, 3, 4, 5, 6 1 7-11

3 Time Estimation 7 2 12-13

4 Determination Of The Critical Path - -

4.1 Calculate the Earliest Occurrence Time 8 -

(EOT) for each event

4.2 Calculate the Latest Occurrence Time 9 -

(LOT) for each event 14-18

4.3 Calculate the slack for each event - -

4.4 Obtain the critical and slack paths - I

4.5 Compute the activity floats 10 3

5 PERT Model - -

5.1 Measures of variability - -

19-22
5.2 Probability of completion by a specified 11 4
date

6 CPM Model - -

6.1 Assumptions 12, 13 -

23-29
6.2 Procedure 14, 15, 16, 17, 5
18, 19, 20
7 Difference Between CPM And PERT - - 30-31

8 Network Cost System - 6 32-33

9 Summary - - 34

10 Glossary - - 35

11 Terminal Questions - - 36

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12 Answers - - 37-38

13 Case Study - - 39-40

14 References - - 41

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1. INTRODUCTION
In the previous unit, we dealt with the concept of organisational structure, the roles and
responsibilities of a project leader, the relationship between project manager and line manager,
leadership styles for project managers, the concept of conflict resolution, the concepts of team
management and diversity management, and the concept of change management. In this unit, we will
deal with the development of project network, time estimation, determination of the critical path,
PERT model, CPM model, and network cost system.

Once a project gets selected, the entire focus will be on its implementation. This involves the
completion of numerous activities (project components) by employing various resources – men,
materials, machine, money, and time so that a project blueprint gets translated into concrete reality.

The project activities have inter-relationships occurring from physical, technical, and other
considerations. For suitable planning, scheduling, and control of the activities of a project, given their
inter-relationships and constraints regarding the availability of resources, network techniques are
found very useful. Note that financial institutions and the Government of India insist that a network
plan must accompany feasibility reports.

The two fundamental network techniques are: PERT and CPM. PERT, an acronym for Programme
Evaluation Review Technique was originally developed to facilitate the planning and scheduling of
the Polaris Fleet Ballistic Missile Project of the US government. Designed to handle risk and
uncertainty, PERT is quite suitable for research and development programmes, aerospace projects,
and other projects relating to new technology. In such projects, there exists variability in the time
requirement for completing different jobs or activities. Therefore, the orientation of PERT is
'probabilistic'.

CPM, a short form for Critical Path Method, is similar to PERT. It was developed in US by the DuPont
Company in 1956-57 for solving industries scheduling problems. CPM is principally concerned with
the matter involving cost and time. Its application is mainly to projects that use a fairly stable
technology and are quite risk free. Therefore, its orientation is 'deterministic'.

Extensively diverse projects are open to analysis by PERT and CPM, for example launching a
spaceship, research and development programme, construction of a plant, building a river valley
project, overhaul of an organisation, training of manpower, starting a new venture, and adult literacy

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programme. This unit discusses the basics of PERT, CPM, and network cost system.

1.1 Objectives
After studying this unit, you should be able to:
• identify the network technique for project
management

• explain the characteristics of network technique

• describe the time estimation

• identify the Critical Path

• describe the term PERT and CPM model

• explain the network cost system

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2. DEVELOPMENT OF PROJECT NETWORK

The network diagram is basic to PERT and CPM. The network diagram, also known as project graph,
depicts the project activities and events and their logical relationships. Figure 5.1 depicts a simplified
network diagram for a dinner project.

Figure 1: Development of Project Network

Activities and events are used to construct network diagram An activity is a specific task, job, or
function to be carried out in a project. For example, 'prepare dinner' (see Figure 5.1) is an activity. An
activity is symbolised by an arrow. The head of the arrow depicts the completion of the activity and
the tail of the arrow depicts its beginning. (There is no significance of length and 'compass' direction
of the arrow.) The event is a specific point in time representing the beginning or end of one or more
activities. It stands for a milestone and does not consume time or resources.

It is essential to detail all the activities of the project because activities are the basic building blocks
of a network diagram. For this reason, it is useful to break the project into some steps. The number of
steps in a project depends upon its magnitude and complexity. For industrial projects, usually, a two-
step procedure is sufficient. In the primary step, there is identification of major parts of the project
and in the next step the activities of each major part are defined. Activities must be so defined that
they are distinct, logically uniform tasks for which time and resource requirement can be estimated.

After specification of activities, it is essential to define for each activity, the activities which precede
it, the activities which succeed it, and the activities which can take place simultaneously. After getting
this information, the network diagram is developed through forward method or backward method,
showing the logical relationship among activities and events.

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The forward method starts with the initial event, showing the beginning of the project, and proceeds
forward till the end event is accomplished. The backward method starts with the end event and works
backwards till the beginning event is reached.

Rules for network construction

The rules to be observed in constructing the network diagram are discussed below:

Every activity must have a preceding and a succeeding event. An activity is numerically represented
by the pair of preceding and succeeding events. In the dinner project, for instance, the activity ‘send
invitations’ is designated as (1-2).

Each event must have a distinct number. The number specified to an event can be chosen in any way,
provided this condition is fulfilled. In practice, yet, events are numbered in the manner that the
number at the head of the arrow is greater than that at its tail.

Figure 2: A Network Diagram

There must not be any loops in the project network; a situation similar to the one shown in Figure 5.2
is not permissible.

The preceding and succeeding events are not same for more than one activity. This signifies that every
activity is represented by a uniquely numbered arrow and a situation depicted in Figure 5.3 is not
permissible.

Figure 5.3 depicts a loop.

Figure 3: A Loop

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To make sure that each activity is uniquely numbered, at times it is necessary to introduce dummy
activities. A dummy activity is an imaginary activity that can be completed in zero time and it does
not consume resources. It is symbolised by a dashed arrow. Figure 5.4 shows a variant of Figure 5.3
with a dummy activity (3-2) introduced to conform to the rules of network construction.

Figure 4: A Dummy Activity

A dummy activity is also be used for representing a constraint, obligatory to show proper relationship
between activities. Figure 5.5 shows part of a network diagram having a dummy activity (dotted
arrow line).

In Figure 5.5, X, represented as (7-6), is a dummy activity showing a certain logical relationship.
According to this figure, activities P (4-6) and Q (5-7) must be completed before activity R (6-8) can
start.

Figure 5: A Dummy Activity

Illustration

A building project consists of the following activities:

A = Lay foundation

B = Erect framework C= Install millwork

D = Install wiring

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E = Install plumbing

F = Plaster walls

G = Install siding

H= Decorate the interior I = Finish the exterior

The interrelationship among these activities is as follows:

A should precede B.

B should precede C, D, E, F, and G. C, D, E, and F should precede H.

G should precede I

Figure 5.6 depicts the network diagram for the project.

Figure 6: Network Diagram for the Project

Given the above interrelationship the network diagram for the project is developed in several steps
using the forward method as shown in figure 5.6.

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SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 The _______________________, also referred to as the project graph, shows the activities and events
of the project and their logical relationships.
2 _________________________ must be so defined that they are distinct, logically uniform tasks for
which time and resource requirement can be estimated.
3 The ________________________ begins with the initial event, marking the beginning of the project,
and proceeds forward till the end event is reached.
4 The ________________________ begins with the end event and works backwards till the beginning
event is reached.

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3. TIME ESTIMATION
After establishing the logic and detail of the network, time estimates must be assigned to each activity.
Usually, three time values are obtained for each activity:

• Optimistic time (to)

• Most likely time (tm)
• Pessimistic time (tp)

If no hurdles or complications happen, the time required is known as optimistic time (to). The time
in which the activity is most likely to be completed is called most likely time (tm). The most likely
time considers normal circumstances and makes allowance for some foreseen delays. The time
required in case abnormal complications and, or unforeseen difficulties arise is known as pessimistic
time (tp ). We shall use figure 5.7 that depicts a network design to explain the aspects of PERT.

Figure 7: Network Design

Obtaining time estimates

The PERT planner must obtain time estimates from the persons who are accountable for estimation.
The following points must be kept in mind while obtaining time estimates:

• Time estimates must be obtained by skipping around the network instead of following a
specific path. In case, estimates are obtained by following one path, there is a chance for the
person giving the estimates to add them mentally and compare them with a pre- conceived
notion of the time of the total path.
• The estimates of to, tm, and tp must be defined independently of each other for each activity
(1-2, 1-3, 2-4, 3-4, 2-5, 4-5)
• The time available for completing the project must not pressure the estimates of to, tm and tp.
• It must be considered that to, tm and tp are estimates and not schedule commitments.

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• The estimates of to, tm and tp must comprise allowances for occurrences which are usually
considered as random variables (weather conditions, administrative delays, etc.) but not for
occurrences which are not considered usually as random variables (flood, wars, etc.)
• The expected time is calculated using the formula:

These expected times are then depicted in the network diagram, for example., as shown in fig. 5.7.

SELF-ASSESSMENT QUESTIONS – 2
True or False Questions:
5 The pessimistic time, to, is the time required if no hurdles or complications arise.
(True/False)
6 The optimistic time, tp, is the time required if unusual complications and, or unforeseen
difficulties arise. (True/False)
7 Time estimates should be obtained by the PERT planner from persons who are responsible
for estimation. (True/False)

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4. DETERMINATION OF THE CRITICAL PATH

Once the network diagram with single time estimates has been developed, the following
computational procedure may be employed for determining the critical path/s, event slacks, and
activity floats.

4.1 Calculate the Earliest Occurrence Time (EOT) for each event
After completion of all leading activities, an event occurs. In the network diagram shown in Figure 5.8,
for example, event 4 occurs when activities (2-4) and (3-4) are completed. Clearly activity (2-4)
cannot begin unless event 2 occurs, which sequentially requires the completion of activity (1-2).

Similarly, activity (3-4) cannot start unless event 3 occurs which sequentially requires the completion
of activity (1-3). Therefore, we establish that event 4 occurs when activities (1-2), (2-4), (1-3), and
(3-4) are completed. Alternatively we can say that, event 4 occurs when paths (1-2-4) and (1-3-4) are
completed.

The time when the event can be completed at the earliest is known as EOT (earliest occurrence time).
Looking at event 4, we locate that as the paths leading to it, viz. (1-2-4) and (1-3-4) take 15 weeks and
20 weeks, respectively, the EOT of event 4 is 20 weeks. In common terms, the EOT of an event is the
duration of the longest path (from the beginning event whose EOT is set at 0) leading to that event.
The EOTs of different events in our illustrative project are shown in Figure 5.8. It is to be considered
that in Figure 5.8 and subsequent figures an event is depicted by a circle. The upper half of the circle
represents the event number, the left quarter in the lower half represents the EOT, and the right
quarter in the lower half represents the Latest Occurrence Time (LOT).

Figure 8: EOT

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The EOT of the end event depicts the minimum time required for project completion. For getting, the
EOT of various events we begin from the start event and move forward towards the finish event. This
procedure of computation is known as the forward pass. For computation, we assume that each
activity starts instantly on the occurrence of the event earlier to it.

Therefore, the starting and finishing time for different activities obtained from the computation are
called Earliest Starting Time (EST) and Earliest Finishing Time (EFT).

4.2 Calculate the Latest Occurrence Time (LOT) for each event
The LOT for an event depicts the latest allowable time by which the event can occur, given the time
that is allowed for the completion of the project (occurrence of end event). Normally, the time allowed
for the completion of the project is set equal to the EOT of the end event. (In other words, the project
is supposed to be completed at the earliest possible time.) This means that for the end event the LOT
and EOT are set equal. The LOT for various events is obtained by working backward from the end
event. This procedure is known as the backward pass. The LOT for event 4 in our illustrative project,
for instance, is equal to the LOT for event 5, the end event, minus the duration of the activity (4-5)
which connects event 4 with 5. As the LOT for event 5 is 28 weeks and the duration of activity (4-5)
is 2 weeks the LOT for event 4 is 26 weeks (28-2). This depicts the latest time by which event 4 should
occur to enable the project to be completed in 28 weeks. Similarly, the LOT for other events can be
calculated by moving backward. Figure 5.9 depicts the LOT for various events (in the right quarter of
the lower half of event nodes).

Figure 9: LOT

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4.3 Calculate the slack for each event

The difference between the LOT and EOT of an event is known as slack. The slacks for different events
of our illustrative project are shown in Table 5.1.

Table 1: Event Slack

(In weeks)
Slack
Event LOT EOT
= LOT
= EOT

5 28 28 0

4 26 20 6

3 18 12 6

2 13 13 0

1 0 0 0

4.4 Obtain the critical and slack paths

The critical path starts with the starting event, terminates with the last event, and is marked by events
which have a zero slack. This is the path on which there is no slack, no cushion. Other paths are slack
paths with some cushion. The critical path is (1-2-5) for our illustrative project. It is specified by
doubled arrows in Figure 5.10.

The critical path is the longest path from the start event to the end event. The project is completed,
only when this longest path is crossed, Critical path duration is the minimum time required for
completing the project. The duration on the critical path of the project is 28 weeks; this is the least
time required for completing the project. (It is previously indicated by the EOT of event 5, the end
Activity - 1
event.)
The following table gives the activities of a construction project and duration:
Activity 1–2 1–3 2–3 2–4 3–4 4–5
Duration (days) 20 25 10 12 6 10
(i) Draw the network for the project.
(ii) Find the critical path

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4.5 Compute the activity floats

Activity floats are calculated from the estimates of activity time and event slacks. The three measures
of float are: (i) total float; (ii) free float; and (iii) independent float. For illustrating these measures,
let us consider activity (2-4) of our illustrative project. Activity (2-4) is shown in Figure 10.

Figure 10: Computing the Activity Floats

Total float of an activity is the additional time available to finish the activity if the activity is started
as early as possible without postponing the completion of the project and is given by

TF(i,j)= LOT(j) – EOT(i) – d(i,j)

Where d is duration of the activity i-j Therefore the total float for activity (2-4) is TF(2,4)= LOT(4)-
EOT(2)- d(2,4)

= 26-13-2

=11 weeks

Free float of an activity is the additional time available to finish the activity when the activity is started
at the EOT of its preceding event and completed by the EOT of the succeeding event.

FF(i,j)= EOT(j) – EOT(i) – d(i,j)

Therefore the free float for activity (2-4) is FF(2,4)= EOT(4)-EOT(2)- d(2,4)

=20-13-2

= 5 weeks

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Independent float of an activity is the additional time available to finish the activity when the activity
is started at the LOT of its preceding event and completed by the EOT of the succeeding event

IF(i,j)= EOT(j) – LOT(i) – d(i,j)

Therefore the independent float for activity (2-4) is IF(2,4)= EOT(4)-LOT(2)- d(2,4)

= 20-13-2

= 5 weeks

Total float denotes the float under most positive conditions whereas independent float denotes the
float under most adverse conditions.

SELF-ASSESSMENT QUESTIONS – 3
Fill in the blanks:
8 The ______________________ of an event refers to the time when the event can be completed at the
earliest.
9 The ______________________ for various events is obtained by working backward from the end
event. This procedure is known as the backward pass.
10 The _____________________ for an event is the difference between its LOT and EOT.

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5. PERT MODEL
So far, the analysis was focused on the determination of the critical path, event slacks, and activity
floats. For this purpose, we used single time estimates of activity duration though initially three time
estimates were developed for each activity. Now we consider the variability of project duration.

5.1 Measures of variability

Variability in PERT analysis is measured by variance or its square root, i.e. standard deviation.
Variance of a set of numbers is the average squared difference of the numbers in the set from their
arithmetic average. A simple example may be given to illustrate the calculation of variance. Let us take
a series that consist of numbers 4, 6, and 8. The average of this series is 6. The differences of various
numbers in the series from this average are -2, 0, and 2. Squaring them we get 4, 0, and 4. Hence, the
variance – the average of squared difference – is 8/3 and standard deviation is √8/3.

The steps involved in calculating the standard deviation of the duration of critical path are as follows:

Step 1: Determine the standard deviation of the duration of each activity on the critical path.

Step 2: Determine the standard deviation of the total duration of the critical path on the basis of
information obtained in step 1.

In order to determine the standard deviation of the duration of an activity, we require the complete
probability distribution of the activity distribution. We, though, have just three values from this
distribution: tp, tm, and to. In PERT analysis, a simplification is used for calculating standard deviation.
It is calculated by the formula:

Standard deviation = (𝑇𝑃 - 𝑇0 )/6

Where, tp = pessimistic time

to = optimistic time

Variance is obtained by squaring standard deviation.

The standard deviation and variance of the activities on the critical path of our illustrative project are
shown in the following table 5.2:

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Table 2: Standard deviation and variance of the activities

Activity tp to O=(tp-to)/6 Variance=O2

(1-2) 21 9 2 5.00

(2.5) 24 10 2.33 5.43

Assuming that the probability distribution of various activities on the critical path is independent, the
variance of the critical path duration is obtained by adding the variance of activities on the critical
path.

In real life projects which have a large number of activities on the critical path, we can sensibly
presume that the critical path duration is around normally distributed, with mean and standard
deviation attained.

A normal distribution looks like a bell shaped curve as shown in Figure 5.11. It is symmetric and single
peaked and is fully described by its mean and standard deviation. The probability of values lying
within certain ranges is as follows:

Range Probability

Mean ± One standard deviation 0.682

Mean ± Two standard deviations 0.954

Mean ± Three standard deviations 0.998

Figure 11: Normal Distribution

Figure 5.11 depicts a normal distribution curve.

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5.2 Probability of completion by a specified date

Armed with information about mean (T) and standard deviation (S.D) for critical path duration, which
is normally distributed, we can compute the probability of completion by a specified date (D) as
follows:

• Find Z = (D – T) / S.D, where Z is known as standard normal variate with mean and variance
• Obtain cumulative probability up to Z by looking at the probability distribution of the standard
normal variate.

Table 5.3 depicts the cumulative probability up to Z for standard normal distribution.

Table 3: Cumulative Probability up to Z for Standard Normal Distribution

z Cumulative probability
– 3.0 0.001
– 2.8 0.003
– 2.6 0.005
– 2.4 0.008
– 2.2 0.014
– 2.0 0.023
– 1.8 0.036
– 1.6 0.055
– 1.4 0.081
– 1.2 0.115
– 1.0 0.159
– 0.8 0.212
– 0.6 0.274
– 0.4 0.345
– 0.2 0.421
0.0 0.500
0.2 0.579
0.4 0.655
0.6 0.726
0.8 0.788
1.0 0.841
1.2 0.885
1.4 0.919
1.6 0.945
1.8 0.964
2.0 0.977
2.2 0.986
2.4 0.992

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2.6 0.995
2.8 0.997
3.0 0.999

The above procedure may be illustrated for our project which has T = 28 and SD = 3.07. Table 5.4
depicts the probability of completing this project by certain specified dates.

Table 4: Probability of Completing the Project

Probability of
Specified Z
completion by D
20 − 28
20 = −2.6 0.005
3.07
25 − 28
25 = −1.0 0.159
3.07
30 − 28
30 = 0.6 0.726
3.07

SELF-ASSESSMENT QUESTIONS – 4
True or False Questions:
11 Variability in PERT analysis is measured by variance or its square root and standard
deviation. (True/False)
12 Standard deviation is obtained by squaring variance. (True/False)

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6. CPM MODEL
For projects considered uncertain, the PERT model was developed and for projects which are
comparatively risk-free the CPM model was developed. Both the approaches start with the
development of the network and a focal point on the critical path. Tthe PERT approach is
'probabilistic' while the CPM approach is 'deterministic'. This does not, however, mean that in CPM
analysis we work with single time estimates. Actually the main focus of CPM analysis is on variations
in activity times as a consequence of changes in resource assignments. These variations are planned
plus related to resource assignments as well as are not caused by random factors outside the control
of management as in the case of PERT analysis. The major focus of CPM analysis is on time cost
relationships and it seeks a project schedule that minimises total cost.

6.1 Assumptions
The usual assumptions underlying CPM analysis are:

1. The costs associated with a project can be divided into two components: direct costs and
indirect costs. Direct costs are incurred on direct material and direct labour. Indirect costs
consist of overhead items like indirect supplies, rent, insurance, managerial services, etc.
2. Activities of the project can be expedited by crashing which involves employing more
resources.
3. Crashing reduces time but enhances direct costs because of factors like overtime payments,
extra payments, and wastage. The relationship between time and direct activity cost can be
reasonably approximated by a downward sloping straight line. Figure 5.12 depicts a typical
cost time line.

Figure 12: A Typical Cost Time Line

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4. Indirect costs associated with the project increase linearly with project duration. Figure 5.13
depicts a typical line for indirect costs.

Indirect
cost of
project

B1632

Procedure Duration

Figure 13: Indirect Costs

6.2 Procedure
Given the above assumptions, CPM analysis seeks to examine the consequences of crashing on total
cost (direct cost plus indirect cost). Since the behaviour of indirect project cost is well defined, the
bulk of CPM analysis is concerned with the relationship between total direct cost and project duration.
The procedure used in this respect is generally as follows:

Step 1: Obtain the critical path in the normal network. Determine the project duration and direct cost.

Step 2: Examine the cost time slope of activities on the critical path obtained and crash the activity
which has the least slope.

Step 3: Construct the new critical path after crashing as per step 2. Determine project duration and
cost.

Step 4: Repeat steps 2 and 3 till activities on the critical path (which may change every time) are
crashed.

Example: The above procedure may be illustrated with an example. Table 5.4 depicts the activities,
durations, and direct activity costs of a project. The indirect cost is Rs. 2,000 per week.

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Table 4: Normal and Crash Time and Cost

Activity Time in Weeks Cost Cost to Expedite

per Weeks
Normal Crash Normal Crash

1-2 8 4 3,000 6,000 450

1-3 5 3 4,000 8,000 2,000

2-4 9 6 4,000 5,500 500

3-5 7 5 2,000 3,200 600

2-5 5 1 8,000 12,000 1,000

4-6 3 21/2 10,000 11,200 2,400

5-6 6 2 4,000 6,800 700

6-7 10 7 6,000 8,700 900

5-7 9 5 4,200 9,000 1,200

45,200 70,400

Figure 5.14 depicts the project network with normal duration.

Figure 14: Project Network (1)

The critical path in the all normal network is (1-2-4-6-7). The project duration is 30 weeks and the
total direct cost is Rs. 45,200.

Examining the time cost slope of activities on the critical path, we find that activity (2-4) has the
lowest slope; in other words, the cost to expedite per week is the lowest for activity (2-4). Hence,
activity (2-4) is crashed. Figure 5.15 depicts the project network after such a crashing.

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Figure 15: Project Network (2)

As per Figure 5.15 the critical path is (1-2-5-6-7), with a length of 29 weeks, and the total direct cost
is Rs. 46,700.

Looking at the time cost slope of the activities on the new critical path (1-2- 5-6-7), we find that the
activity (5-6) has the lowest slope. Hence, this activity is crashed. Figure 5.16 depicts the project
network after such crashing, the critical path is (1-2-4-6-7) with a length of 27 weeks and the total
direct cost is Rs. 49,500.

Figure 16: Project Network (3)

Comparing the time cost slope of the non-crashed activities on the new critical path (1-2-4-6-7), we
find that the activity which costs the least to crash is (1-2). Hence, this is crashed. Figure 5.17 depicts
the project network after such a crashing. As per Figure 5.17, the critical path is (1-3-5- 6-7) with a
length of 24 weeks and the total direct cost is Rs. 52,500.

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Figure 17: Project Network (4)

Looking at the time cost slope of the non-crashed activities on the new critical path, (1-3-6-7), we find
that activity (6-7) has the lowest slope. Hence, it is crashed. Figure 5.18 depicts the project network
after such a crashing. As per Figure 5.18, there are two critical paths (1-3-5-6-7) and (1-3-5-7), both
with a length of 21 weeks, and the total direct cost is Rs. 55,200.

Figure 18: Project Network (5)

Considering the time cost slope of non crashed activities on critical paths (1-3-5-6-7) and (1-3-5-7),
we find that activity (3-5) which is common to both the critical paths is the least costly to crash. Hence,
it is crashed. Figure

5.19 depicts the project network after this crashing. As per Figure 5.19, the critical path is (1-2-4-6-
7) with a duration of 201/4 weeks and the total direct cost is Rs. 56,400.

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Figure 19: Project Network (6)

Looking at the new critical path (1-2-4-6-7), we find that the only non- crashed activity is (4-6). Figure
5.20 depicts the project network given by crashing this. As per Figure 5.20, the critical path again is
(1-2-4-6-7) with a duration of 191/2 weeks and the total direct cost is Rs. 57,600.

Figure 20: Project Network (7)

Since all the activities on the critical path (1-2-4-6-7) are crashed, there is no possibility of further
time reduction. Hence, let us now look at the time-cost relationship. This is shown in Figure 5.20.

From table 5.5, we find that the total cost is minimised for the project schedule represented by the
activities crashed are (1-2), (2-4), (3-5), (5-6), (6-7). The information provided in table 5.5 is useful
for decision-making. Table 5.5 depicts the project duration and total cost.

Table 5: Project Duration and Total Cost

Figure Activities Crashed Project Total Total Total

No. Duration in Direct Indirect Cost
Weeks Cost Cost
5.14 None 30 45,200 60,000 105,200
5.15 (2-4) 29 46,700 58,000 104,700
5.16 (2-4 and (5-6) 27 49,500 54,000 103,500
5.17 (1-2), (2-4) and 24 52,500 48,000 100,500
(5-6)

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5.18 (1-2), (2-4), (5-6), 21 55,500 42,000 97,200

and (6-7)

If the objective is to minimise the total cost of the project, the pattern of crashing suggested by Figure
5.19 is optimal. If the objective is to minimise the project duration, then the pattern of crashing
suggested by Figure 5.20 is optimal. In real life situations, however, both the factors may be
important. In addition, factors like strain on resources and degree of manageability are also
important. The final decision would involve a careful weighing and balancing of these diverse factors,
some quantitative and some qualitative.

SELF-ASSESSMENT QUESTIONS – 5
Fill in the blanks:
13 CPM analysis is on variations in activity times as a result of changes in ____________________.
14 ________________________ seeks to examine the consequences of crashing on total cost (direct cost
plus indirect cost).

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7. DIFFERENCE BETWEEN CPM AND PERT

Project Evaluation and Review Technique (PERT) and Critical Path Method (CPM) both are the tools
which are important to a project, in terms of planning, scheduling and also while controlling the
complex projects. Though they share some similarities, there are some points of distinction also.

1. Definition:

• CPM helps to determine the longest path of the planned activities falling within the project. It
helps to identify the earliest and the latest time, with which each activity can start and finish,
without compromising with the entire duration of the project.
• PERT is a time management tool that helps to determine the minimum time required to
complete the project, by the way of evaluating and analyzing the tasks involved.

2.Purpose:

• CPM aims to identify the critical paths, which is that sequence of activities that would help to
determine the shortest time duration required to complete the project.
• PERT on the other hand, deals with the uncertainties falling in the project schedule, by using
the probability time estimates.

3.Application:

• CPM suits best as a time estimation tool for the projects wherein, time and activity durations
are predictable, for example- construction and manufacturing projects.
• PERT suits best as a time estimation tool for the projects wherein, time and activity duration
of the project is unpredictable, for example- research & development projects.

4.Activity Duration:

• Under CPM the duration of the activities is assumed to be pre known and deterministic.
• Under PERT the activity duration is estimated as per three estimates:

5.Focus:

• CPM pays attention to time and cost optimization.

• PERT on the other hand, emphasises more on the risks and uncertainties in the project
schedule.

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6. Estimation:

• CPM generally makes use of a single time estimate for each of the activity involved.
• Under PERT there are three-time estimates undertaken for each of the activity: optimistic,
pessimistic, and most likely.

7.Flexibility:

• In terms of dealing with the, CPM is less flexible and open.

• Whereas PERT is more flexible in terms of dealing with the uncertainties and variations.

8. Example:

• CPM - A construction project with well-defined tasks and known durations, such as building a
house, where tasks include foundation laying, framing, plumbing, and electrical work.
• PERT - A research project to develop a new pharmaceutical drug where the duration of tasks
like clinical trials, regulatory approval, and market testing are uncertain.

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8. NETWORK COST SYSTEM

The techniques of PERT and CPM discussed above are essentially time oriented. They seek to answer
questions like:

• What is the most desirable time schedule of activities?

• How much time would it take, on an average, to complete the project?
• What is the probability of completing the project in a specified time?

Such analysis largely overlooks the cost aspect which is usually as important as the time aspect and
sometimes even more. To provide a vehicle for cost planning and control of projects, the network cost
system was developed. This represents a very useful supplement to the traditional time-oriented
network analysis. Let us look at cost projection and cost analysis and control under the network cost
system.

Activity - 2

The managing director of M/s Raj Kumari Manufacturing Company had an opportunity to deal with
a project. The project x is required to be completed within 8 months at a cost of `1,00,000. The
president received a letter of intent in November. The managing director called production
manager Shri L.N. Gupta and the finance manager Shri. Srinivas Gupta in the 1st week of December
to finalise the appropriate time and cost based on past jobs and new technology acquired in the
organisation. President needs positively the answer in the 3rd week of December, so that project
can be started, if profitable, from 1st January. Therefore, production manager and finance manager
have been requested to determine profitability of the project on a 8 month basis. The time and cost
under normal conditions and crashing conditions has been calculated as follows:

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Main issues involved are:

1. What suggestions should be given to managing director for undertaking the project?
2. After having long discussions with the general manager, who is the second in command in
the organisation, the management some how feels that during implementation of the project, it
will not be possible to crash the activity 2 – 4 from its normal time. If so, how will the production
manager and finance manager respond?
Projected costs or budgeted costs assists in analysing variances while balancing actual costs incurred
on the project from time to time and keeps a proper check on the overall budget. Budgeted costs also
happen to be an indicator of the extent the project can be crashed in case of emergency. For instance
Common wealth games project for Delhi crossed the budgeted costs by more than 40 % to meet the
project deadlines in time. When work on the project began in 2006 the mega budget was Rs. 22,000
crore. Four years later the budget is Rs. 30,000 crore. It swell by nearly 40 per cent forcing the Delhi
government to increase taxes and roll back crucial subsidies. The budget for 11 stadia was Rs. 1200
crore in 2004 and it rose to Rs. 5000 crore . Also, construction was way behind the deadline. All
projects were delayed, including the Commonwealth Village sub-project, which had a budget of Rs.
465 crore in 2004 and got completed with Rs. 1400 crore. All this happened because of the lack of
knowledge on fundamentals of networking times and costs factors .

SELF-ASSESSMENT QUESTIONS – 6
True or False Questions:
15 Time estimation while trying to develop a vaccine for the first time, will fall under CPM.
(True/False)
Fill in the blanks:
16 To provide a vehicle for ___________________ and control of projects, the network cost system
was developed.
17 PERT and CPM analysis largely overlooks the ______________________ which is usually as
important as the time aspect and sometimes even more.

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9. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• In order to properly plan, schedule, and control of the activities of a project, given their
interrelationships and constraints on the availability of resources, network techniques are
found reasonably helpful.
• The two fundamental network techniques are PERT and CPM.
• PERT is applied mainly to projects containing uncertainty; its orientation is probabilistic.
• CPM is useful to projects which are comparatively risk-free; its orientation is deterministic.
Extensively varied projects are open to analysed by PERT and CPM.
• The construction of network diagram is in terms of activities and events. The activity in a
project is defined as a definite task, job or function to be performed.
• A definite point of time indicating the beginning or end of one or more activities is known as
event. To make sure that each activity is uniquely numbered it is required to introduce dummy
activities.
• A dummy activity is imaginary activities that can be completed in zero time and does not
consume resources. A dummy activity is utilised to depict a constraint needed to show the
correct relationship among activities.

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10. GLOSSARY

CPM - Critical Path Method

EFT - Earliest Finishing Time

EST - Earliest Starting Time

LOT - Latest Occurrence Time

PERT - Programme Evaluation Review Technique

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11. TERMINAL QUESTIONS

1. Define activity, event, and path as used in network development. What is a dummy activity?
2. Discuss the time estimation.
3. What do you mean by determination of the critical path?
4. Define PERT model.
5. Describe the CPM model. Briefly explain.
6. Explain network cost system.

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12. ANSWERS
Self-Assessment Questions
1. Network diagram
2. Activities
3. Forward method
4. Backward method
5. False
6. False
7. True
8. EOT
9. LOT
10. Slack
11. True
12. False
13. Resource assignments
14. CPM analysis
15. False
16. Cost planning
17. Cost aspect

Terminal Questions Answers

Answer 1: Basic to PERT as well as CPM is the network diagram. The network diagram, also referred
to as the project graph, shows the activities and events of the project and their logical relationships.
Refer to 5.2.

Answer 2: Once the logic and detail of the network have been established, time estimates must be
assigned to each activity. Refer to 5.3.

Answer 3: Once the network diagram with single time estimates has been developed, the following
computational procedure may be employed for determining the critical path/s, event slacks, and
activity floats. Refer to 5.4.

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Answer 4: For this purpose, we used single time estimates of activity duration though initially three
time estimates were developed for each activity. Variability in PERT analysis is measured by variance
or its square root, standard deviation. Refer to 5.5.

Answer 5: The CPM model was developed for projects which are relatively risk- free. Refer to 5.6.

Answer 6: To provide a vehicle for cost planning and control of projects, the network cost system
was developed. Refer to 5.8.

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13. CASE STUDY

Unconventional Fibres

A project for identifying the use of unconventional fibres for the manufacture of fabric was sponsored
by a known Indian organisation and a leading research institute in North India was entrusted with
the task. The research institute decided to explore the scope for extracting fibre from pineapple leaf
and also the machinery for spinning the fibre into yarn. The machinery designed for the extraction of
fibre from leaf performed well and came out successful.

But, the discouraging factor was that the recovery rate of fibre from the leaf was only around 2% to
3%. Moreover, in view of the very low fibre recovery rate, the cost of pineapple leaf fibre was found
to vary between 1.60 to 1.75 times the costs of cotton fibre. Since cotton, though a conventional fibre
was cheaper than pineapple leaf fibre and as cotton had all favourable qualities for making a fabric
suited for man, pineapple leaf fibre was not found competitive and was found incapable of replacing
cotton.

In order to improve the financial viability of the project, the research institute explored the possibility
of using the wastage recovered from the fibre extraction machine for producing some other by-
product. This was considered essential since the waste material constituted about 97% to 98% of the
total raw material (i.e., pineapple leaf). Further research into the above aspect yielded encouraging
results. The pineapple leaf waste was made useful for the manufacture of paper boards.

The paper board manufactured using pineapple waste was found to possess the required physical
properties. Since the leaf waste was used for producing a by-product, the financial viability of the
composite project showed improvement. However, even after assuming that the boards
manufactured using pineapple leaf waste could be sold at a price on par with the boards
manufactured using other raw materials (like waste paper, waste cloth, etc), the composite project
was found to break-even only if the pineapple leaf fibre could be sold at a price about 20% more than
that of cotton fibre. Hence, the research institute concluded that the fabric produced out of pineapple
leaf fibre could not replace cotton fabric as it would not be price competitive, even if a composite
project is opted for. The institute hopes that the fabric produced using pineapple leaf fibre could be
exported to high-end markets by propagating it as a novel, eco-friendly, and natural product.

The institute has also received enquiries from abroad for the procurement of pineapple leaf fibre at a
price that is nearly 40 times the price of cotton fibre, These are, however, initial phases and full

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exploitation of commercial potential is yet to be ascertained. The technology is available with the
research institute.

1. Analyse the case. Can a promising entrepreneur opt for the composite project? If so, what are his
or her prospects and problems?

Hint: A leading research institute in North India explore the scope for extracting fibre from pineapple
leaf and also the machinery for spinning the fibre into yarn. The cost of pineapple leaf fibre was found
to vary between 1.60 to 1.75 times the costs of cotton fibre. The research institute explored the
possibility of using the wastage recovered from the fibre extraction machine for producing some
other by-product (paper boards.).

Source: Mishra Rajendra (2012), Project Management: Excel Books,New Delhi

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14. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D, Project Management, Ninth Edition, Publication: Gower
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P, Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V, Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 21/01/2012

• www.projectmanagement.com. Retrieved on 22/01/2012
• www.pmearth.com. Retrieved on 23/01/2012

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BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 6 - Resources Considerations in Projects 1
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Unit - 6
Resources Considerations in Projects

Unit: 6 - Resources Considerations in Projects 2

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
4-5
1.1 Objectives - -

2 Resource Allocation - 1 6

3 Scheduling 1 2 7-8

4 Project Cost Estimate And Budgets 2 I

4.1 Cost estimating: inputs - -

9-16
4.2 Cost estimating: tools and techniques - -

4.3 Cost estimating: outputs - 3

5 Cost Forecasts - -

5.1 Pay Back Period method (PBP) - -

5.2 Average Rate of Return (ARR) method I, II -

17-24
(or Accounting Rate of Return method)

5.3 Net Present Value (NPV) method - -

5.4 Internal Rate of Return (IRR) Method - 4, II

6 Summary - - 25

7 Glossary - - 26

8 Terminal Questions - - 27

9 Answers - - 28

10 Case Study - - 29

11 References - - 30

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1. INTRODUCTION
In the previous unit, we dealt with the development of project network, time estimation,
determination of the critical path, PERT model, CPM model, and network cost system. In this unit, we
will deal with resource allocation, scheduling, project cost estimate and budgets, and cost forecasts.

After planning and scheduling the project and putting it on the track, it is the resources that must be
considered . Resource availability cannot be taken for granted as some may be available in abundance
and some may be scarcely available. For example unskilled labour during festival seasons will be
scarce and similarly fund management during financial closure becomes difficult. Therefore, project
manager needs to understand the intricacies of resource balancing through levelling and smoothing
tools. Resource levelling, or smoothing, is a technique used to minimise fluctuations in resource
utilisation. This method attempts to utilise resources uniformly without extending the project
schedule beyond the deadlines.

The resources so required for the project activities should be made available as and when the need
arises. These resources include land and building, people, equipment, machines, tools, facilities etc,.
The manpower would include both skilled and unskilled labour, executives, and other specialist staff
viz., software developers, assembly line foremen, supervisors and line men.

Resource management adds a vital dimension to planning and scheduling. In many projects, the
quantum of various types of resources available to pursue the project activities is limited. Some
simultaneous activities would require same resources while some activities which are performed
subsequent to predecessor activities require limited resources. In other words, there will be a heavy
usage of a particular (standard) resource during those activities which are performed at the same
time. If sufficient resources are not available during that specified time period, these activities may
have to be rescheduled for a later time when resources are available. Therefore, resource constraints
will influence the project planning and scheduling scenario.

There are certain activities, also known as critical activities, which deserve maximum attention of the
project manager since any delay in completing these activities will lead to delay in project completion
time. The objective of identifying critical activities in a project is to ensure that the project is
completed in the shortest possible time by proper monitoring and control of the critical activities. It
is the cost consideration that prompts the project manager to aim at time reduction. The relationship
between cost and time is not that simple. It cannot be said that time reduction will always lead to cost

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reduction. If a particular activity can be completed at a certain cost in a normal time, the activity may
cost less or more when its completion time is shortened. This depends upon the nature of the activity
and the resources used for completing the activity.

In this unit, we would first attempt to explain the term resource allocation, and then, we will focus on
the cost aspect of the project.

1.1 Objectives
After studying this unit, you should be able to:
• define resource allocation

• explain the term scheduling

• describe the cost estimates and budgets

• explain the cost forecasts to a proactively controlled

future

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2. RESOURCE ALLOCATION
The term resource allocation refers to fixing the available resources to the prioritised project
activities. Resource allocation is the part of resource management. In project management, the term
resource allocation can be defined as the allotment of activities to the resources required while
considering both the resource availability and the project time. In strategic scheduling, resource
allocation is a plan for using available resources, such as human resources, to achieve goals for the
future. It is the systematic way of allocating resources between the various projects or business units.
The job of a project manager is to plan and assign the resources for different activities so that the
resource utilisation is optimised. Due to resource constraints, a project manager may face one of the

following two situations:

Resource levelling

Resource smoothing (fixed resource limit scheduling)

In resource levelling, the resources are adjusted / compromised so that they are applied uniformly
without any delays on the scheduled time. A project manager often encounters an imbalance between
the availability of resources and the requirement of resources. Since the requirement of people to
work varies from day to day, the project manager plans accordingly so that available manpower is
optimally utilised. There are multiple techniques available for handling such problems.

There are different heuristics existing for resource smoothing, devised by different experts in the field.
These rules differ greatly in their difficulty. A more complex set of rules is bound to give an enhanced
solution since it takes care of many facets of the problem in contrast to a simple set of rules

SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 The term _________________ refers to fixing the available resources to the prioritised project
activities.
2 In _________________ the resources are adjusted / compromised so that they are applied
uniformly without any delays on the scheduled time.

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3. SCHEDULING
Scheduling the scarce resource is a method for developing the shortest schedule when the number or
quantity available is fixed. It is the process of deciding how to arrange resources between a variety of
possible activities and tasks. Time can be particular or floating as part of a sequence of events.
Scheduling significantly drives the project manufacturing and engineering activities and has a impact
on the overall productivity. It also aids in the timely completion of a project. The purpose of
scheduling is to minimise the production time and reduce the costs. Project scheduling aims to
maximise the efficiency of the operation. Project scheduling tools greatly outperform old manual
scheduling methods. The tools provide the project scheduler with graphical interfaces which can be

used to optimise real-time workloads in various stages of project. Project plan recognition allows the
software to automatically create scheduling opportunities which may not be apparent without this
view into the data.

Figure 1: Types of Scheduling

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Primarily, companies use backward and forward scheduling to allocate plant and machinery
resources, plan human resources, plan production processes, and purchase materials. The term
forward scheduling can be defined as the planning of tasks from the date resources become available

to determine the shipping date or the due date. On the other hand, backward scheduling is planning
the tasks from the due date or required-by date to determine the start date and/or any changes in
capacity required.

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Benefits of Scheduling

One biggest benefit of scheduling is predictability. A scheduling system makes everyone’s job easier
by adding predictability to the AIS environment. To your superiors, it provides a means of holding
down costs through better use of personnel and equipment. Other possible benefits of scheduling
areas are:

• Process change-over reduction

• Inventory reduction, levelling
• Reduced scheduling effort
• Increased production efficiency
• Labour load levelling
• Accurate delivery date quotes
• Real-time information

SELF-ASSESSMENT QUESTIONS – 2
True or False Questions:
3 Scheduling means the process of deciding how to arrange resources between varieties of
possible activities and tasks. (True/False)
4 Backward scheduling can be defined as the planning of tasks from the date resources become
available to determine the shipping date or the due date. (True/False)
5 Forward scheduling is planning the tasks from the due date or required-by date to determine
the start date and/or any changes in capacity required. (True/False)

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4. PROJECT COST ESTIMATE AND BUDGETS

Budgeted costs of project activities are prepared by estimating scheduled activities and the relative
costs of the resources needed to complete each activity. In this process, the project manager considers
the possible causes of variation in the cost estimates including associated risks.

Cost estimating is the process of identifying and considering different costing alternatives. For
example, additional work during a design phase may hold the possibility for reducing the cost of the
execution phase and product operations. In cost estimating process we consider whether the
expected savings can offset the cost of the additional design work. Cost estimates are expressed in
currency units (Rupees, Dollars) to facilitate comparisons both within and across projects. Often in
Indian projects, the estimator uses man hours or man-days to measure cost factors and facilitate
appropriate management control. Figure 6.2 depicts the components of a successful project.

Figure 2: Components of a Successful Project

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Cost estimates can help to refine the course of the project to reflect the additional details. The
accuracy of a project approximation will increase as the project progresses through the project life
cycle. For example, a project in the initiation phase could encompass a vague idea of estimate in the
range of -75 to +100%. Later in the project, when more information is known, estimates could narrow
down to a range of -10 to +15%. In some application areas, there are guidelines to refine and modify
the degree of accuracy as expected.

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The costs for schedule activities are estimated for all resources which charged to the project. This
comprises, but is not limited to, labor, materials, equipment, services, and facilities, with special
categories such as an inflation allowance or a contingency cost. A schedule activity cost estimate is a
quantitative evaluation of the expected costs of the resources required to complete the scheduled
activity. If the performing organisations do not have formally trained project cost estimators, then the
project team will require supplying both the resources and the knowledge to perform project cost
estimating activities.

Activity – 1

List various factors that contribute to cost estimation for an infrastructure project?
4.1 Cost estimating: inputs
Enterprise environmental factors

The cost estimating process considers:

• Marketplace conditions – Type of products, services, and results that are available in the
marketplace, and associated terms and conditions of their availability.
• Commercial databases – Resource cost rate information is often available from commercial
databases that track skills and human resource costs and provide standard costs for material
and equipment. Published seller price lists are another source.
• Organisational process assets – In developing the cost management plan existing formal and
informal cost estimating-related policies, procedures, and guidelines are considered, in which
cost estimating
• tools, examining and reporting methods are used.
• Cost estimating policies – a number of organisations have predefined approaches to cost
estimating. Where these exist, the project operates within the boundaries defined by these
policies.
• Cost estimating templates – several organisations have developed templates (or a pro forma
standard) for the use of the project team. The organisation can constantly improve the
template based on its application and usefulness in prior projects.
• Historical information – Information that pertains to the project’s product or service which
is obtained from various sources within the organisation can influence the cost of the project.

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• Project files – One or more of the organisations involved in the project will maintain records
of previous project performance that are detailed enough to aid in developing cost estimates.
In some application areas, individual team members may maintain such records.
• Project team knowledge – members of the project team may recall previous actual costs or
cost estimates. While such recollections can be useful, they are generally far less reliable than
documented performance.
• Lessons learned – lessons learned could include cost estimates obtained from previous
projects that are similar in scope and size.

Project scope statement

The project scope statement describes the business need, justification, requirements, and current
boundaries for the project. It provides important information about project requirements that is
considered during cost estimating. The project scope statement includes constraints, assumptions,
and requirements. Constraints are specific factors that can limit cost estimating options. One of the
most common constraints for many projects is a limited project budget. Other constraints can involve
required delivery dates, available skilled resources, and organisational policies. Assumptions are
factors that will be considered to be true, real, or certain. Requirements with contractual and legal
implications can include health, safety, security, performance, environment, insurance, intellectual
property rights, equal employment opportunity, licences, and permits – all of which are considered

when developing the cost estimates. The project scope statement also provides the list of deliverables
and acceptance criteria for the project and its products, services, and results. All factors are
considered when developing the project cost estimate. The product scope description, within the
project scope statement, provides product and service descriptions and important information about
any technical issues or concerns that are considered during cost estimating.

Work Breakdown Structure

The project’s Work Breakdown Structure (WBS) provides the relationship among all the components
of the project and the project deliverables.

WBS dictionary

The WBS dictionary and related detailed statements of work provide an identification of the
deliverables and a description of the work in each WBS component required to produce each
deliverable.

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Project management plan

The project management plan gives the overall plan for executing, monitoring, and controlling the
project, and comprises of subsidiary plans that offer guidance and direction for cost management
planning and control.

Schedule management plan

The type and quantity of resources and the amount of time those resources are applied to complete
the work of the project is a major part of determining the project cost. Schedule activity resources
and their respective durations are used as key inputs to this process. Activity resource estimating
involves determining the availability and quantities required of staff, equipment, and material needed
to perform schedule activities. It is closely coordinated with cost estimating. Activity duration
estimating will affect cost estimates on any project where the project budget includes an allowance
for the cost of financing, including interest charges and where resources are applied per unit of time
for the duration of the schedule activity. Schedule activity duration estimates can also affect cost
estimates that have time-sensitive costs included in them such as union labour with regularly expiring
collective bargaining agreements, materials with seasonal cost variations, or cost estimates with
time-related costs such as time-related field overhead costs during the construction of a project.

Staffing management plan

Project staffing attributes and personnel rates are necessary components for developing the schedule
cost estimates.

Risk register

The cost estimator considers information on risk responses when producing cost estimates. Risks can
be either threats or opportunities. They usually have an impact on both schedule activity and project
costs. As a general rule, when the project experiences a risky event, the cost of the project will always
increase, and there is likelihood of delay in the scheduled project.

4.2 Cost estimating: tools and techniques

Analogous estimating

Analogous cost estimating implies using the actual cost of previous, similar projects as the basis for
estimating the cost of the current project. Analogous cost estimating is frequently used to estimate

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costs when there is a limited amount of detailed information about the project (e.g., in the early
phases). Analogous cost estimating uses expert judgment.

Analogous cost estimating is generally less costly than other techniques, but it is also generally less
accurate. It is most reliable when previous projects are similar in fact and not just in appearance, and
the persons or groups preparing the estimates have the needed expertise.

Determine resource cost rates

The person determining the rates or the group preparing the estimates must know the unit cost rates
such as staff cost per hour and bulk material cost per cubic yard for each resource to estimate
schedule activity costs. Gathering quotes is one method of obtaining rates. For products, services, or
results to be obtained under contract, standard rates with escalation factors can be included in the
contract. Obtaining data from commercial databases and seller-published price lists is another source
of cost rates. If the actual rates are not known, then the rates themselves will have to be estimated.

Bottom-up estimating

This technique involves estimating the cost of individual work packages or individual schedule
activities with the lowest level of detail. This detailed cost is then summarised or “rolled up” higher
for reporting and tracking purposes. The cost and accuracy of bottom-up cost estimating is typically
motivated by the size and complexity of the individual schedule activity or work package. Generally,
activities with smaller associated effort increase the accuracy of the schedule activity cost estimates.

Parametric estimating

It is a technique that makes use of a statistical relationship between historical data and other variables
(e.g., square footage in construction, lines of code in software development, requisite labour hours)
to compute a cost estimate for a schedule activity resource. This technique can generate higher levels
of accuracy depending upon the sophistication, the underlying resource quantity and cost data build
into the model. A cost-related example consists of multiplying the planned quantity of work to be
executed by the historical cost per unit to obtain the estimated cost. Project management software
This includes cost estimating software applications, computerised spreadsheets, and simulation and
statistical tools, that are extensively used to assist with cost estimating. Such tools make it simpler to
estimate cost and thus facilitate the consideration of various cost estimate alternatives.

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Vendor bid analysis

Vendor bid analysis is the analysis of what the project should cost. In problems where projects are
won under competitive processes. Additional cost estimating may be required from the project team
to scan the price of individual deliverables, and derive a cost that supports the total project cost.

Reserve analysis

Various cost estimators include reserves (contingency allowances) as costs in many schedule activity
cost estimates. This may lead to potentially overstating the cost estimate for the schedule activity.
Contingency reserves are estimated costs to be employed at the discretion of the project manager to
deal with probable, but not certain, events. These events are “known unknowns” and are an element
of the project scope and cost baselines.

One alternative to manage cost contingency reserves is to aggregate each scheduled activity’s cost
contingency reserve for a group of correlated activities into a single contingency. This scheduled
activity may be a zero period/duration activity that is placed in the entire network path for that group
of scheduled activities, and is employed to hold the cost contingency reserve. An example of this
solution to manage cost contingency reserves is to assign them at the work package level to a zero
duration activity which spans from the start to the end of the work package sub-network.

As the schedule activities progress, the contingency reserve, as measured by resource consumption
of the non-zero duration schedule activities, can be adjusted. As a result, the activity cost variances
for the related group of schedule activities are more accurate because they are based on cost
estimates that are not pessimistic. Alternatively, the schedule activity may be a buffer activity in the
critical chain method and is intentionally placed directly at the end of the network path for that group
of schedule activities.

Cost of quality

Cost of quality can also be used to prepare the schedule activity cost estimate.

4.3 Cost estimating: outputs

Activity cost estimates

An activity cost estimate is a quantitative assessment of the likely costs of the resources required to
complete schedule activities. This type of estimate can be presented in summary form or in detail.
Costs are estimated for all resources that are applied to the activity cost estimate. This includes, but

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is not limited to, labour, materials, equipment, services, facilities, information technology, and special
categories such as an inflation allowance or cost contingency reserve.

Activity cost estimate supporting detail

The amount and type of additional details supporting the schedule activity cost estimate vary by
application area. Regardless of the level of detail, the supporting documentation should provide a
clear, professional, and complete picture by which the cost estimate was derived.

Supporting detail for the activity cost estimates should include:

• explanation of the schedule activity’s project scope of work

• documentation of the basis for the estimate (i.e., how it was developed)
• documentation of any assumptions made
• documentation of any constraints
• signal of the range of possible estimates (e.g., Rs.10, 000 (-10% / + 15%) to indicate that the
item is expected to cost between Rs.9, 000 and Rs.11,500).

Requested changes

The cost estimating process may generate requested changes that may affect the cost management
plan, activity resource requirements, and other components of the project management plan.
Requested changes are processed for review and disposition through the integrated change control

process.

Cost management plan (updates)

If approved change requests result from the cost estimating process, then the cost management plan
component of the project management plan is updated if those approved changes impact the
management of costs.

SELF-ASSESSMENT QUESTIONS – 3
Fill in the blanks:
6 The ___________________ describes the business need, justification, requirements, and current
boundaries for the project.

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7 ________________ estimating involves determining the availability and quantities required of

staff, equipment, and material needed to perform schedule activities.
8 _________________ means using the actual cost of previous, similar projects as the basis for
estimating the cost of the current project.

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5. COST FORECASTS
A project should earn sufficient return on the investment. The very idea of promoting a project by an
entrepreneur is to earn attractive returns on investment on the project. Projects sponsored/
undertaken by the government may take into account social cost benefits of the proposed project and
in such cases, financial return alone need not be the criterion. But for such government projects, all
other projects have the prime motive of getting maximum return on investment.

If there are many alternative projects, all of which, at first sight, appear to be more or less equal in
profit earning capacity, the investor should make a comparative study of the return on the different
alternative proposals before choosing one.

Such financial analysis broadly falls under two categories. They are:

• No discounted cash flow techniques

• Discounted cash flow techniques
• The subdivisions within these two techniques are:

No discounted cash flow techniques

• Pay Back Period (PBP) method

• Accounting Rate of Return (ARR) method

Discounted cash flow techniques

• Net Present Value (NPV) method

• Internal Rate of Return (IRR) method
• Profitability Index (PI) method
• Benefit Cost Ratio (BCR) method

5.1 Pay Back Period method (PBP)

This is one of the simplest method of evaluating investment proposals and also widely used. PBP is
defined as the length of time required to recover the original investment on the project, through cash
flows earned. The cash inflow includes operating profit, less income tax payable, plus depreciation.

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The following illustration explains the method.

Illustration 1:

The likely investment on a project is Rs. 1,400,000.00. It is expected to take 2 years for
implementation of the project and the project is expected to earn profits from the third year onwards.
The estimated profits, tax, and depreciation are as under in Table 6.1:

Table 1: The estimated profits, tax, and depreciation

The initial investment of Rs.1,400,000 is likely to be received after the sixth

Cumulative profit

(4 years after implementation) Rs. 1,295,000.00

Cumulative profit

(5 years after implementation) Rs. 1,494,000.00

------------------------
Difference Rs. 199,000.00

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5.2 Average Rate of Return (ARR) method (or Accounting Rate of

Return method)
The ARR is also called the Accounting Rate of Return.

ARR = (Profit after tax)/(Book value of investment)

Profit after tax is the average annual post tax benefit over the life of the project. Unlike PBP method,
under ARR method, the entire life of the project is taken into account.

The following illustration explains the comparison of projects by ARR method:

Illustration 2:

There are three projects A, B, and C. The details about the three projects are as under Table 6.2.
Compare the three projects by ARR method and choose the one that is most attractive among the
three.

Table 2: Cash Flows and Book Values of Investments for Three Projects A, B, and C

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Solution:

As per ARR method, Project 'B' gives a higher return on investment than projects A and C. Limitations
of ARR. method:

This method does not take into account the time value of money.

This method is based on accounting profit and not on cash inflow.

5.3 Net Present Value (NPV) method

This method is one of the discounted cash flow techniques and it recognises the time value of money.

Net present value (NPV) of cash flow = [Present value of all future cash inflows over the life of the
project] – [Present value of cash out flow]

The present value of future cash inflows is arrived at by discounting the future cash inflows at an
interest rate equal to the cost of capital.

Symbolically, it can be expressed as:

Where,

CF , CF …… are the Future cash inflows occurring at the end of first year,

second year, etc.

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n = life of the project in years.

r = discount rate (cost of capital)

CF0 = Present cash out flow.

If,

NPV = 0, it indicates that the present cash outflow and the present value of future cash inflows are
equal.

NPV < 1, it indicates that the present value of future cash inflows is less than the present cash out flow.

NPV > 1, it indicates that the present value of future cash inflows is more than the present cash out
flow.

5.4 Internal Rate of Return (IRR) Method

The internal rate of return of a project is the discount rate that makes the net present value equal to
zero. In other words, internal rate of return is that rate of discount which would equate the present
value of cash out flows (investments on the project) to the present value of cash inflows.

In the calculation of net present value of a project, the discount rate (cost of capital) is assumed and
the net present value is calculated by discounting future cash inflows at the assumed discount rate.
In the calculation of internal rate of return from a project, the net present value is set equal to zero
and the corresponding discount rate is determined; the discount rate at which the net present value
isActivity
zero is –2
the internal rate of return.

Elaborate and compare the project appraisal methods NPV and IRR with example? Which one is
better method in estimating returns on investment in a particular project?

The following illustration will explain the method of arriving at the IRR.

Illustration 3:

For a project with the given data, calculate the internal rate of return.

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Solution:

Let Y be the internal rate of return. The IRR is arrived at by equating the present value of cash out
flow and the present value of cash inflows.

The IRR is arrived at by trial and error.

Let us first assume r = 12% p – a

Present value of cash inflows:

The present value of cash inflows is nearly equal to the present value of cash outflow at a discount
rate of 12% p.a. If we want a more accurate result, we can arrive at the present value of cash inflows
assuming a slightly higher discount rate than 12%.

Let us assume a discount rate of say, 13% p.a. Present value of cash inflows at a discount rate of 13%
p.a.

Though r = 13% p.a. is a closer approximation than r = 12% it can further be improved.

Assume r = 14% p.a.

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Present value of cash inflows at a discount rate of 14% p.a.

= Rs. 10,02,587

The difference between the present value of cash outflow and the present value of cash inflows
(discounted at a rate of 14% p.a.) is only Rs. 2,587. Hence, the IRR can be taken as 14% p.a.

However, for academic interest, let us workout the present values of cash inflows at a discount rate
of 15% and see the results. Present value of cash inflows at a discount rate of 15% p.a.

= Rs. 9,79,879

At a discount rate of 15% p.a. the present value of cash inflows falls short of the present value of the
cash out flow by Rs.20,121 (10,00,000 – 9,79,879). Thus, the correct value of Y lies between 14% and
15%. The correct value of Y at which the present value of cash outflows is equal to the present value
of cash inflows can be arrived at by interpolating between 14% and 15%.

Data required for the calculation of NPV/IRR

For the calculation of the above factors the following information are relied

upon:

(a) Life of the project

(b) Cash outflow

(c) Cash inflow

(d) Cost of capital

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SELF-ASSESSMENT QUESTIONS – 4
True or False Questions:
9 Payback period is defined as the length of time required to recover the original investment
on the project through cash flows earned. (True/False)
10 The internal rate of return is also called the accounting rate of return. (True/False)
11 The average rate of return of a project is the discount rate that makes the net present value
equal to zero. (True/False)

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6. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• The term resource allocation is widely used to allocate the available resources in an efficient
manner. Resource allocation is a part of resource management. In resource levelling, there are
situations demanding that the project should be completed by a specified due date.
• The due date for project completion is decided by the management for various reasons.
Scheduling is a significant means for project manufacturing and engineering, where it can have
impact on the productivity of a process, also helps in completion of project on time.
• Cost estimating includes identifying and considering the various costing alternatives. The
project scope statement describes the business need, justification, requirements, and current
boundaries for the project.
• The Average Rate of Return (ARR) is also called the Accounting Rate of Return. A project
should earn sufficient return on the investment.
• The very idea of promoting a project by an entrepreneur is to earn attractive returns on
investment on the project. Payback period is defined as the length of time required to recover
the original investment on the project through cash flows earned. The cash inflow includes
operating profit, less income tax payable, plus depreciation.

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7. GLOSSARY

Activity resource Involves determining the availability and quantities required of staff,
-
estimating equipment, and material needed to perform schedule activities.

Average rate of
- Also called the accounting rate of return.
return

Cost estimating - Includes identifying and considering various costing alternatives.

Internal rate of
- The discount rate that makes the net present value equal to zero.
return

The length of time required to recover the original investment on the

Payback period -
project through cash flows earned

Project scope Describes the business need, justification, requirements, and current
-
statement boundaries for the project.

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8. TERMINAL QUESTIONS
1. Discuss the importance of resource allocation.
2. Define the term scheduling.
3. What do you mean by forward and backward scheduling?
4. Explain the project cost estimate and budgets.
5. Describe the cost forecasts to proactively control the future.

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9. ANSWERS
Self-Assessment Questions
1. Resource allocation
2. Resource levelling
3. True
4. False
5. False
6. Project scope statement
7. Activity resource
8. Analogous cost estimating
9. True
10. False
11. False

Terminal Questions Answers

Answer 1: The term resource allocation is widely used to allocate the available resources in an
efficient manner. As you all know that resource allocation is the part of resource management. Refer
to 6.2.

Answer 2: Scheduling is a significant means for project manufacturing and engineering, where it can
have impact on the productivity of a process also helps in completion of project on time. Refer to 6.3.

Answer 3: The term forward scheduling can be defined as the planning of tasks from the date
resources become available to determine the shipping date or the due date and backward scheduling
is planning the tasks from the due date or required-by date to determine the start date and/or any

changes in capacity required. Refer to 6.3.

Answer 4: Cost estimating includes identifying and considering various costing alternatives. The
project scope statement describes the business need, justification, requirements, and current
boundaries for the project. Refer to 6.4.

Answer 5: A project should earn sufficient return on the investment. The very idea of promoting a
project by an entrepreneur is to earn attractive returns on investment on the project. Refer to 6.5.

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10. CASE STUDY

S Company
Following are the data on a capital project with equal annual cash savings evaluated by the
management of S Company —

1. Find the missing values.

Hint: 1. Annual Cost Saving = Cost of Project/Payback period
2. At IRR rate of discount (i.e. 19%)
Cost of the project = PV of cash inflows
Hence, Cumulative Present Value at 19%
If we refer to Cumulative Present Value @19% Cumulative Present
Value of 5.07 is computed at 19 years. Therefore, useful life =19 years.

2. PI = 1.14 at cost of capital rate of interest; at IRR rate of discount

PI index = 1. Hence Cumulative Present Value at cost of capital rate of interest = 5.07 × 1.14 =
5.778. By referring to Cumulative Present Value table up to 19 years. We find at 17% Cumulative
Present Value 5,585 and at 16% = 5.877. Since 5,778 Cumulative Present value is lying between
5.877 and 5,585

3. NPV at IRR rate of discount = 0 when PI = I

Since PI = 1.14
Therefore, NPV = 0.14 × Cost of the project = 0.14 × 1,01,400 = Rs. 1, 41,196

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11. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 27/01/2012

• www.projectmanagement.com. Retrieved on 28/01/2012
• www.pmearth.com. Retrieved on 29/01/2012

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BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 7 - Project Risk Management 1
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Unit - 7
Project Risk Management

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
4-5
1.1 Objectives - -

2 Risk - -
6-11
2.1 Types of risks I, II 1, I

3 Risk Management - -
12-14
3.1 Risk management plans - 2

Role Of Risk Management In Overall Project 1, 2 3

4 15-16
Management

5 Steps In Risk Management - 4 17

6 Risk Identification - 5 18-19

7 Risk Analysis III, IV, V, 3 6, II 20-23

8 Reducing Risks - 7 24-25

9 Summary - - 26

10 Glossary - - 27

11 Terminal Questions - - 28

12 Answers - - 29-30

13 Case Study - - 31-32

14 References - - 33

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1. INTRODUCTION
Risks are the inherited part of every project. There should be proper project planning and assessment
to reduce the impact of risks. There are risks of cost over-runs, jobs taking too long, insufficient
product or service quality, etc.

In the previous unit, we dealt with resource allocation, scheduling, project cost estimate and budgets,
and cost forecasts. In this unit, we will deal with the concept of risk, types of risks, risk management,
role of risk management in overall project management, steps in risk management, risk identification,
risk analysis, and strategies to reduce risks.

In any project, you can avoid the potential impact of risks. The unit covers the different types of risk
and risk management strategies. Risk refers to the possibility that the expected return may not
materialize. There may be loss of capital, i.e., investment has to be sold for an amount less than the
amount paid for it. There may be no income from investment or the income may be less than expected.
The natural query is “why does the investor go for risky investment”? The answer is that the desire
for higher returns entices them to go for risky investment.

The success of any project is based on the future estimates by the project management team. Project
risk management is a discipline for dealing with the possibility that some future event will cause harm.
Project risk relates to the uncertain events or situations that can potentially affect a planned project
adversely, usually in terms of cost, schedule, and/or product quality. Project risk is a function of two
components: likelihood and consequence. You will also study about the key strategies and techniques
in recognising and confronting any threat faced by an organisation at different project levels.

1.1 Objectives
After studying this unit, you should be able to:
• define risk and uncertainty

• identify different types of risks

• recognise the role of risk management in overall

project management

• identify the steps necessary in risk management

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• describe the process of risk identification and analysis

• list the key strategies to mitigate risks

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2. RISK
Risk is the potential that a chosen action or activity will lead to a loss (an undesirable outcome).
Potential loss itself may also be called "risks". Almost any human endeavor carries some risk, but
some are risky than the others. Risk marks a potential negative impact to some characteristic value
that may arise from a future event. Exposure to the consequences of uncertainty constitutes a risk. In
general, risk is often used synonymously with the chance of an expected loss.

Two factors that are essential to all human decision making are risk communication and risk
perception. There are various definitions of risk that differ by specific application and context. Risk
can be described both qualitatively and quantitatively.

• Qualitatively, risk is proportional to the expected losses that may be induced by an event and
to the probability of the event. Greater loss and greater event probability culminate in a greater
overall risk.
• Quantitatively, there are various formal methods that can be used to evaluate or to "measure"
risk. Some of the quantitative definitions of risk can be related to the statistics theory and
naturally lead to statistical estimates, while others are more subjective. For example, in many
cases, a decisive factor is human decision making.

As a matter of fact, risk is defined in pseudo-formal forms where the components of the definition are
vague and ill-defined. For example, risk is considered as an indicator of threat or depends on threats,
vulnerability, impact, and uncertainty.

There are many reasons for which risks occur. Some of the reasons are internal to the project, and
some are external. The project environment, the planning process, the project management process,
scarce resources, etc. add to risk. There are risks that you can foresee and make plans to handle them,
while there are some that occur unexpectedly during a project. For example, financial risks can be
foreseen but risks arising out of natural calamities or any key member falling sick during the project
are unexpected.

Risk is affected by both, internal and external factors. It is vital to understand, as a part of the project
plan, the internal and external risks in project management. Usually, internal risks can easily be
identified ad managed while external risks are more elusive.

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• Internal factors: Project managers must identify and prioritise the risks to the project at hand
that are internal to the organisation. When looking internally, risks to the project may involve
labour strike, change in management, change in consumer preferences, the financial solvency
of the company, the ability of the company to have the required equipment and other
resources in hand in time to support the project. Personnel issues such as sickness or
unanticipated termination of a key team member also can be considered as internal risks to
the project.
• External factors: External risks are those risks that cannot be controlled by the project team
and its host organisation. Due to this, external risks are usually more difficult to foresee and
control. External risks include key vendor going bankrupt, level of economic activities –
recession or boom, inflation, political development, change in credit policies, and related
events. These factors may have a direct impact on project's effectiveness. Some risks may be
hard to predict such as a plant in a foreign country providing necessary elements for the
project being taken over by a radical government. An event like this can not only directly
threaten the project, but it often takes project managers by surprise because of a poor analysis
of external threats. Risk caused by external factors also affects the return on investment. Such
risks are non-diversifiable.

Activity - 1

How risk can be diversified? List few examples of quantitative and

qualitative risks?

2.1 Types of risks

There are various types of risk that can affect business project. While some of these risks can be
controlled through a number of options, some of them simply have to be accepted and planned for
any project environment. Before discussing the concept of risk management, we should be aware
about various types of risks that can affect a project. Let’s look at the various types of risks:

Macro risk levels

A chance of a loss or injury is called risk. It has two components the systematic risk and unsystematic
risk. Risks that are caused by factors external to the particular organisation and cannot be controlled
by the company are termed as systematic risks. Such a risk affects the market as a whole. On the other

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hand, in case of unsystematic risk the factors are unique, specific and related to the particular industry
or organisation.

• Systematic risk: A systematic risk cannot be controlled or foreseen in any manner, therefore
it is almost impossible to predict or protect the organisation or a project against this type of
risk. Such a risk affects the entire market. Often we hear that the stock market is in bear hug
or in bull grip. This shows that the whole market is moving in particular direction either
downward or upward. The changes in the economic, political and the sociological conditions
affect the security market. These are the factors that cannot be controlled by the organisation
and investor. The smartest way to tackle this risk is to simply recognise that this type of risk
will occur and plan for your project to be affected by it.
• Unsystematic risk: Unsystematic risk is sometimes referred to as "specific risk". It is unique
and peculiar to a firm or an industry and can usually be eliminated through process called
diversification. Unsystematic risk stems from managerial inefficiency, technological change in
the production process, availability of raw material, changes in the consumer preference, and
labour problems. For example, the changes in the consumer preference affect the consumer
products like TV, washing machines, refrigerators, etc more than that of consumer product
industry.

The nature and mode of raising finance and paying back the loans involve a risk element.

• Business risk: It is that portion of unsystematic risk caused by the operating environment of
the business which arises from the inability of a firm to maintain its competitive edge and the
growth or stability of earnings. Variation that occurs in the operating environment is reflected
on the operating income and expected dividends. The variation in expected operating income
indicates the business risk.
• Financial risk: It refers to the variability of the income to the equity capital due to the debt
capital. Financial risk in a company is associated with the capital structure of the company.
Capital structure of the company consists of equity funds and borrowed funds.

Micro risk levels

The types of risks discussed above were the macro scale levels of risk, but in addition to these, there
are some more significant micro (small-scale) types of risks that are vital when talking about a
business.

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• Project risk: Project risk relates to the uncertain events or situations that have the potential
to adversely affect a planned project, usually in terms of cost, schedule, and/or product quality.
Project risk is a function of two components: likelihood and consequence.
• Country risk: Country risk, also referred to as political risk, is an important risk for investors
today. With more investors investing internationally, both directly and indirectly, the political
and economic stability and viability of a country's economy needs to be considered.

For example, the countries that needed careful monitoring in the 1990s because of country risk
included the former Soviet Union and Yugoslavia, China, Hong Kong, and South Africa.

Factors affecting CR can be classified into four broad groups. Table 7.1 depicts the factors affecting
country risk.

Table 1: Factors Affecting Country Risk

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Market risk

The price fluctuations or volatility increases and decreases in the day-to-day market. It is defined as
that portion of total variability of return caused by the alternating forces of bull and bear market.
When the security index moves upward haltingly for a significant period of time, it is known as bull
market. In bull market, the index moves from a low level to the peak. Bear market is just a reverse to
the bull market.

Interest rate risk

Interest rate risk is simply the risk to which an institution is exposed because future interest rates are
uncertain. The assets and liabilities of a financial institution have different maturity and liquidity.
Financial institutions create assets and at the same time create liabilities. These loans are invested
by the financial institutions at a certain rate of interest and similarly interest cost has to be paid to
the lenders of deposit. The mismatches of interest rates of the assets and liabilities expose to interest
rate risk.

For example: An Indian bank borrows Rs. 200 crore from the market for 4 years @ 10% (Floating p.a.)
and creates a loan asset of the same amount for 4 Year period @ 13% (Fixed p.a.). If, there is a an
upward trend of interest rate after 2 years and the rate of interest goes up to 15% then Interest Loss
= Crores = 200 (15% – 13%)

Purchasing power risk

Variations in the returns are caused also by the loss of purchasing power of currency. Inflation is the
reason behind the loss of purchasing power. The level of inflation proceeds faster than the increase
in capital value. Purchasing power risk is the probable loss in purchasing power of the returns to be
received. The rise in price penalises the returns to the investor, and every potential rise in price is a
risk to the investor.

For example, the table 7.2 depicts the risks associated with each investment from the perspective of
an Indian investor:

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Table 2: Risks involved in different investments

Liquidity risks

Liquidity risk is that part of an asset’s total inconsistency of returns which consequences from price
discounts given or sales commissions paid in order to sell the asset without delay. It is a condition
wherein it may not be possible to sell the asset. Assets are inclined at great inconvenience and cost in
terms of money and time. Any asset that can be bought and sold promptly is said to be liquid. Failure
to realise with minimum discount to its value of an asset is called liquidity risk.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 Risk communication and risk ______________ are essential factors for all human decision
making.
2 Project risk is a function of two components: likelihood and ______________.
True or False Questions:
3 The unsystematic risk affects the entire market. (True/false)
4 Financial risk refers to the variability of the income to the equity capital
due to the debt capital. (True/false)

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3. RISK MANAGEMENT
Risk Management is a field of management that deals with the possibility that various future events
may cause harm or threat to the organisation. Risk Management comprises of strategies and
techniques to recognise and confront any threat faced by a business in fulfilling its mission.

Risk management deals with following three basic questions:

• What might go wrong?

• What can we do (both preventive and corrective measures to deal with the incident must be
thought of)?
• If something occurs, how are we going to tone down its effect?

Risk Management is concerned with the effective management of risk data and information of an
organisation's.

Risk management information systems/services (RMIS) are often used by enterprises to provide
expert advice and cost-effective information management solutions. It deals with key processes such
as:

• Risk identification and assessment

• Risk quantification
• Risk control

These points are being explained in greater detail in sections 7.6, 7.7 and 7.8, respectively.

3.1 Risk management plans

An effective risk management plan comprises of following steps:

Creation

To create a risk management plan, you must carefully select appropriate controls and counter
measures to quantify each risk. Risk mitigation must also be approved by the suitable level of
management as per the level/domain of risk.

For example: Let us suppose there is a risk concerned with the reputation of the organisation then it
should be dealt by the top management. Whereas if there is risk to computer system or information
system because of a computer virus then the IT department would have the authority to deal with it.

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The risk management plan must also suggest valid and effectual security controls for managing the
risks. For example, If there is high risk of computer viruses then it could be mitigated by installing an
antivirus software on the system.

A good quality risk management plan consists of a schedule for control operation and people
accountable for those actions.

As per ISO/IEC 27001, after the commencement of risk assessment phase, a risk treatment plan must
be designed. A risk treatment plan must clearly state the decisions about how each of the identified
risks should be dealt with. Mitigation of risks seldom means the selection of apt security controls that
must be documented in a statement of applicability. this statement of applicability identifies which
particular control objectives and controls from the standard have been selected, and the reasons for
its selection.

Implementation

The next step is the implementation of the plan. Firstly, you must undertake measures for mitigating
the effect of the risks. You must purchase insurance policies for all those risks that could be insured.
You must try to avoid and minimise all risks without sacrificing the entity's goals. The risks left after
all these are retained.

Review and evaluation of the plan

Initial risk management plans are certainly not going to be perfect. The actual risk control measures
are largely based on a number of factors and hence there is always a high probability that
management might have to consider to change its plan.

Also, it is necessary that the risk results and management plans must be periodically updated. It is
done basically for two underlying reasons:

• To find out if the previously selected security measures are still valid and effective, and
• To determine the possible risk level changes in the business atmosphere.

For example, Market risks are an example of rapidly changing business environment.

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SELF-ASSESSMENT QUESTIONS – 2
Fill in the blanks:
5 _______________ is a discipline for dealing with the possibility that some future event will cause
harm.
6 ____________ needs to be approved by the appropriate level of management.

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4. ROLE OF RISK MANAGEMENT IN OVERALL PROJECT

MANAGEMENT
Risk analysis and management is a process which enables the analysis and management of the risks
associated with a project. Properly undertaken, it will increase the likelihood of successful completion
of a project to cost, time, and performance objectives. There are a lot of benefits of proper risk
management in projects. Organisations can generate a lot of profit if they deal with uncertain project
events in a proactive manner. You can deliver a project on time, on budget, and with proper quality if
you are able to manage the risks properly. The proper risk management can increase the productivity
and efficiency of the project team.

A project life cycle includes the key phases like initiating, planning, executing, controlling, and closing.
The probability of project risk depends on the project life cycle. Figure 7.1 depicts the relationship
between the risks and their probability of happening.

Figure 1: Probability of Risks versus Stages of Project Life Cycle

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Figure 7.1 explains the probability of risk in different stages of project life cycle. It shows that the
probability of risks is higher in the initial phases in comparison to closing phases. The highlighted
point shows the maximum probability of risk happening.

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In comparison to probability of risk, the impact of risks is opposite. The impact of risks is less in the
initial stages of a project life cycle and higher in the closing phases. Figure 7.2 depicts the impact of
risks on various stages of a project life cycle.

Figure 2: Impact of Risks Versus Stages of Project Life Cycle

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

In Figure 7.2, the highlighted point shows the maximum impact area of a project life cycle.

SELF-ASSESSMENT QUESTIONS – 3
True or False Questions:
7 The probability of project risk depends on the project life cycle. (True/False)
8 The impact of risks is higher in the initial stages of a project life cycle. (True/False)
9 The probability of risks is less in the initial phases in comparison to closing phases.
(True/False)
10 Proper risk management can increase the productivity and efficiency of the project team.
(True/False)

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5. STEPS IN RISK MANAGEMENT

In risk management, the following steps should be considered for effective risk management:

Step 1 – Recognition of assets at risk: The foremost step in the risk management technique is to
carefully identify the assets which might generate risks in project operations. These assets may fall
under various groups, such as tangible and intangible assets, movable and immovable assets etc.

Step 2 – Valuation of assets: The assets identified and grouped in the previous step are to be valued
and categorised into different classes such as critical and essential.

Step 3 – Identifying the intimidation: Threats can be distinct as anything that contributes to the
intermission or devastation of any service/product. Various compulsions can be grouped into
environmental, internal, and external threats.

Step 4 – Risk consideration: The process of risk appraisal includes not only assessment as to the
provability of occurrence but also the assessment as to the impending severity of loss, if risk
materialises. This will support in determining the appropriate risk lessening strategy, the residual
risk, and the investment required to alleviate the risk.

Step 5 – Emergent strategies for risk management: After risks identification and assessment, one
must apply various risk management techniques such as risk avoidance, risk reduction, risk retention
and risk transfer etc.

The detailed explanations of risk reducing strategies are given under section 7.8.

SELF-ASSESSMENT QUESTIONS – 4
Fill in the blanks:
11 The process of ____________ includes not only assessment as to the provability of occurrence
but also the assessment as to the impending severity of loss, if risk materialises.
12 After risks identification and assessment, one must apply various risk management
techniques such as risk avoidance, risk reduction, ____________ and risk transfer etc.

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6. RISK IDENTIFICATION
The risk identification is done at each stage of a project life cycle. During risk identification, we
identify and categorise the risks. Risks must be carefully identified with the help of techniques such
as brainstorming or reviewing a standard list of risks. Risk identification must be done by the
concerned people such as IT people, marketing managers or top level management.

There are basically two different sorts of risks. These are as follows:

Business risks: These are the ongoing risks that are best handled by the business. For example, if a
key team member becomes unavailable or sick then it may delay the project and the organisation
might not be able to complete the project in the given financial year.

Generic risks: Generic risks are those risks that are common to all projects. For example, system
failure or flaw may cause the project to be delayed.

Risks must be defined in two parts. The first part must define the cause of the risk and the other must
define the impact of the risk. For example, a risk may be defined as "The supplier not meeting deadline
will mean that budget will exceed". If the above format is used, then it would be much easier to remove
duplicates, and understand the risk.

For comprehensive identification of risks, we may adopt risk matrix as suggested by Well-Stam et al.
Vertical axis of matrix represents various phases of the project and horizontal axis represents various
points of view or perspective. Points of view for infrastructure project may include: technical,
organisational, zoning, political, administrative, legal/legislative, financial/economic,
social/community related.

For each class (phase and point of view), we may use some proven risk identification techniques
quoted in the literature to identify the possible risks. These techniques include:

• Assumption analysis: Assumptions made in planning stage of the project are taken as true,
real, or certain. A closure scrutiny of these may reveal possible risks.
• Brain storming: Brain storming is a useful tool to generate the possible risk events in quick
time. It is performed by a cross-function team following set procedures.
• Checklist: The checklist is developed based on past experience. It provides a useful guide in
listing foreseeable risks.

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• Delphi: Delphi study is carried out with the help of a group of experts. Since the experts are
people who have a deep insight into the system functioning, it is possible to gather useful
information in this way.
• Interview: Interview may be held with knowledgeable people to identify or to gain more in-
depth knowledge of certain risks or to create a list of control measures.
• Observations: We may visualise the risks by directly examining/observing the current
process.
• Previous documentation: Past experiences recorded in company files, reports, third party
reports, or newspaper reports on electronic or paper format provide help in listing risks.
• Modelling: Use of risk tool kits or simulation by computer or other aids may uncover risks.

There are a number of diagrams like cause and effect diagram, fault tree, event tree, influence
diagram, etc to capture risks.

SELF-ASSESSMENT QUESTIONS – 5
True or False Questions:
13 Business risks are ongoing risks that are best handled by the business. (True/False)
14 Generic risks are risks to all projects. (True/False)
Fill in the blanks:
15 The checklist is developed based on _____________________.

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7. RISK ANALYSIS
During the identification process, a large number of risks may emerge. It is not prudent to focus equal
attention on all the identified risks. Hence, there is a need to evaluate and prioritise them. The risk
need to be quantified in two dimensions -the impact and probability of the risks occurring. For
simplicity, rate each on a 1 to 4 scale. The larger the number, the larger is the impact or probability.
By using a matrix, a priority can be established.

Figure 7.3 depicts the risk analysis.

Figure 3: Risk Analysis

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

It must be noted that when probability is high, and impact is low, it is a medium risk. Contrary to this,
if impact is high, and probability low, it is high risk. Even the slightest chance of a disaster requires
more– 2attention than a
Activity high chance of a hiccup.
What are the dimensions for quantifying different risk in investment projects? Elaborate with
example?

Evaluation / prioritisation of risks under multi-objective situation is illustrated through an example.

Let there are 5 risks – A, B, C, D and E for a project. The project has three objectives-time, cost and
quality. The steps for evaluation/prioritisation include:

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Step 1: Choose nominal scale for probability and consequence for each objective.

Scale for probability

Scale to measure consequence for various objectives:

Project duration

Cost

Quality

Step 2: Obtain measure of probability and consequence under various objectives for each risk.

Probability measure and consequence for each objective for all risks may be obtained by using any of
the techniques discussed in the previous section.

Table 7.3 depicts the outcome.

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Table 3: Calculation of Total Weighted Measure of a Risk

*denote weighted attached to objective, duration.

**denote weighted measure of consequence of risk B under objective duration (0.5 = 1 x 0.5).

***denotes total weight and rank of risk D.

Step 3: Weightage to each objective

Weightage to each objective may be determined by a group of experienced persons related to the
project using Delphi or other techniques. For this example, weightage attached to each objective are
given below:

Step 4: Calculate total weighted measure of a risk and its rank.

Total weighted measure of a risk and its rank is calculated as,

Total weighted measure of a risk = Probability x each objective x weightage of each objective)

For risk A, refer table 7.3, Total weighted measure of risk = 1 x [2 x 0.5 + 1 x 0.3 + 3 x 0.2] = 1.9

Calculations of total weighted measure of all risks have been done and are shown in column 6 of table
7.3. Figure in the bracket in column 6 indicates the rank of the risk.

In place of using rank, Buttrick uses ‘category of risk’ to measure risk. For determining risk category,
he has suggested the use of risk matrix (table 7.4). Here, X-axis represents probability of occurrence
of risk and Y-axis represents severity of impact of risk. Each cell denotes risk category. Table

7.4 depicts the risk matrix.

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Table 4: Risk Matrix

Risk log is used to record description, probability, impact on project, and rank or category of risks.
Table 7.5 depicts a typical risk log.

Table 5: Typical Risk Log

Note: Category/Rank 1 indicates the highest risk.

SELF-ASSESSMENT QUESTIONS – 6
Fill in the blanks:
16 If probability is high, and impact is low, it is a _________________ risk.
17 If impact is high, and probability low, it is ______________ risk.

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8. REDUCING RISKS
To make the most of the benefits of project risk management, we must integrate the project risk
management activities into well planned project management plan and work activities. Once risks
have been identified and measured, the strategies to control the risk fall into one or more of these
four categories:

• Risk avoidance: It includes not performing an activity that could carry risk. For example, not
buying a property or business to avoid the liability attached to it or not flying an airplane to
avoid the risk of a crash. Avoiding activities may seem to a very easy way of dealing with risks,
but it also means losing out on the potential gain that performing the activities with risk may
have allowed. For example, not entering a business to avoid the risk of loss also ends the
possibility of earning profits.
• Risk reduction: It involves methods that reduce the severity of loss from occurring.
For example, sprinklers are designed to put out a fire to reduce the risk of loss by fire. This
method may cause a greater loss by water damage and therefore may not be suitable. Halon
fire suppression systems may mitigate that risk, but the cost may be prohibitive as a strategy.
• Risk retention: It involves accepting the loss as when it arises. True self insurance is an
example. Risk retention is a feasible strategy for small risks where the cost of insuring against
the risk is likely to be higher over time than the total losses sustained. Risks which are not
avoided or transferred are retained by default. This comprises risks that are so disastrous that
they either cannot be insured against or the premiums would not be feasible. For example,
during a war, most property was not insured against war, so the loss caused by war is retained
by the insured. Also any amount of potential loss (risk) over the amount insured is retained
risk. This can be accepted if there is a small chance of a very large loss or if the cost to insure
for higher coverage amounts is so high it would hamper the goals of the organisation.
• Risk transfer: It means causing another party to accept the risk, usually by means of contract
or by hedging. An example of a risk that uses contracts is insurance. In other cases, it may
involve contract language that transfers a risk to the other party without the payment of an
insurance premium. Very often, the liability among construction or other contractors is
transferred this way. On the other hand, taking offsetting positions in derivatives is normally
how firms use hedging to financially manage risk.

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SELF-ASSESSMENT QUESTIONS – 7
True or False Questions:
18 Risk avoidance involves the methods that reduce the severity of loss from occurring.
(True/False)
19 Risk retention is a viable strategy for small risks where the cost of insuring against the risk
would be greater over time than the total losses sustained. (True/False)

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9. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• The unit has covered the fundamentals of risk in the project management. The unit discussed
about the different types of risks that can impact a project and the necessary steps to mitigate
risk. Risk measurement and management is one of the imperative functions of the project
manager. The changing comprehensive environment continuously affects his or her decisions.
But effective risk measurement and management is a must for all business organisations to
carry on profitably in the long run.
• Interest rates, recession, and wars all represent sources of systematic risk because they
influence the entire market and cannot be avoided through diversification. Whereas this type
of risk affects a broad range of securities, unsystematic risk affects a very unambiguous group
of securities or an individual security. Systematic risk can be mitigated only by being hedged.
• Risk analysis and management is a process which enables the analysis and management of the
risks associated with a project. Properly undertaken, it will increase the likelihood of
successful completion of a project to cost, time, and performance objectives.
• During the identification process, a large number of risks may emerge, but it is not prudent to
focus equal attention on all the identified risks. Hence, there is the need to evaluate and
prioritise them. There are anumber of approaches for risk analysis like matrix, etc.
• The unit also covered the key tools and techniques used for managing risk. The risks should
be managed by using the strategies like risk avoidance, risk reduction, risk retention, and risk
transfer.

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10. GLOSSARY

Business risk - Risk caused by the operating environment of the business.

Risk caused by uncertain events or situations that can affect a

Project risk -
planned project adversely.

Defined as probability or chance of occurrence of adverse effect on

Risk -
project’s objectives like cost, time, and quality.

Concerned with identifying all foreseeable risks

reasonably, assessing the probability and severity of the risk, and deciding
Risk management -
the course of action to reduce their possible impact or avoid them
altogether.

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11. TERMINAL QUESTIONS

1. In everyday usage, risk is often used synonymously with the probability of a known loss.
Discuss.
2. Define risk management. What are the different types of risks that can affect a project?
3. Discuss the role of risk management in overall project management.
4. What are the key steps included in risk management process?
5. What are the strategies used to reduce risk?

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12. ANSWERS
Self-Assessment Questions
1. Perception
2. Consequence
3. False
4. True
5. Risk management
6. Risk mitigation
7. True
8. False
9. False
10. True
11. Risk appraisal
12. Risk retention
13. True
14. True
15. Past experience
16. Medium
17. High
18. False
19. True

Terminal Questions Answers

Answer 1: It is the probability of some negative impact that can happen because of some uncertain
events in the future. Risk is influenced by both internal and external factors. Refer to section 7.2.

Answer 2: It is the process of minimising the impact of risks by using some tools and techniques like
risk avoidance, risk retention, risk transfer, etc. The risk can be classified as project risk, country risk,
systematic and unsystematic risks, and liquidity risk. Refer to section 7.2 and 7.3.

Answer 3: Organisations can generate a lot of profit if they deal with uncertain project events in a
proactive manner. Proper risk management helps in analysing the probability of happening risk and
their impact on the project performance. Refer to section 7.4.

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Answer 4: The process of risk management includes the key steps like identification, analysis, and
risk reduction. Refer to section 7.5.

Answer 5: After the identification and analysis of a risk, the risk can be reduced by using the key
strategies like risk avoidance, risk retention, risk reduction, and risk transfer. Refer to section 7.8.

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13. CASE STUDY

Reliance Industries Dials up Risk with Telecom Move: Moody's

Rating agency Moody's Investors Service has said that Reliance Industries Ltd.'s (RIL) acquisition of
Infotel has business risk and negative implications. However, it affirmed Reliance Industries' stable
outlook post the announcement of the Infotel acquisition. On the 95% stake acquisition in Infotel, Mr.
Philipp Lotter, Senior Vice President, Moody's Investors Service, said RIL is “dialling up risk and
negative credit implications by making a strategic move into the untested but promising fourth
generation (4G) wireless broadband spectrum technology in India.”

Its strong financial balance sheet, with current cash and cash equivalents of more than $6 billion
(about Rs. 28,000 crore) and $7-8 billion in projected annual cash flow, can easily accommodate the
price tag for Infotel and the expected $2-3 billion in additional capital outlays (excluding licence fees)
during the initial years, according to Moody's weekly credit outlook. The credit rating agency cites
certain risks in RIL's telecom move. “RIL is opting for an unproven Long-Term Evolution (LTE) 4G
technology that has had commercial trials so far only in Norway and Sweden. Additionally,
competition among 15 players has driven calling rates in India, the world's second largest mobile
market, to less than one cent per minute, led to a £2.3 billion write-down by mobile operator
Vodafone.

“This has sparked concerns of overbidding for third generation 3G and 4G spectrum, akin to loss-
generating overpayments for 3G made a decade earlier in Europe,” the report said. The report also
pointed out the exit of the Anil Ambani-led Reliance Communications and Vodafone from the 4G

auction, citing the high cost. Nevertheless, RIL has calculated that nationwide access to the world's
fastest growing market, which is adding up to 20 million new mobile subscribers a month, is worth
the price, the report said. Other than the power sector, RIL may also look for minority stakes in
financial services, the report said.

(Source: www.thehindubusinessline.com)

1. Why do you think rating agency Moody's Investors Service told that Reliance Industries Ltd.'s (RIL)
acquisition of Infotel has business risk and negative implications?

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Hint: RIL is opting for an unproven Long-Term Evolution (LTE) 4G technology that has had
commercial trials till date only in Norway and Sweden

2. Identify different risks and implication of the investment discussed under present case?

Hint: Business, financial, credit, technology acceptance risk

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14. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 27/01/2012

• www.projectmanagement.com. Retrieved on 28/01/2012
• www.pmearth.com. Retrieved on 29/01/2012

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BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 8 - Project Quality Management and Value Engineering 1
DBB1207 : Project Management

Unit - 8
Project Quality Management and
Value Engineering

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TABLE OF CONTENTS

SL Fig No / Table SAQ /

Topic Page No
No / Graph Activity

1 Introduction - -
4
1.1 Objectives - -

2 Quality - 1 5-7

3 Quality Concepts 1, 2 -

3.1 Quality Planning - -

8-16
3.2 Quality assurance - -

3.3 Quality control - 2, I

4 Value Engineering - -

4.1 Value engineering process - -

4.2 Stages in value engineering - - 17-21

4.3 Scope of applying VE in project 3 II

4.4 Benefits of VE in projects - 3

5 Summary - - 22

6 Glossary - - 23

7 Terminal Questions - - 24

8 Answers - - 25

9 Case Study - - 26-27

10 References - - 28

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1. INTRODUCTION
In the previous unit, we dealt with the concept of risk, types of risks, risk management, role of risk
management in overall project management, steps in risk management, risk identification, risk
analysis, and strategies to reduce risks. In this unit, we will deal with the concepts of quality and value

engineering.

Good projects ensure quality processes for a standard output. Quality management principles are
used in conjunction with the project management tools to ensure the project deliverables to be in
tune with customer's expectations. It is important to monitor the project activities continuously to
maintain quality standards and avoid mishaps.

“Quality" refers to the ability of a process or product to satisfy both stated and implied goals as defined
by the stakeholders. Quality has become a key economic factor in terms of staying competitive on a
global basis. The quality management of a project means that the project meets the needs that it was
originally created to meet. The unit also covers the concept of value engineering. Value Engineering
(VE) is an effective productivity improvement tool. It originated during World War II in General
Electric Company (GEC). Over the years, its usage spread to the whole world. Now it is being practised
almost in every sector of the economy in different countries in varying degrees. However, its full
potential is yet to be realised by organisations.

1.1 Objectives
After studying this unit, you should be able to:
• describe the meaning and importance of quality

• evaluate the quality concepts

• state the implication of quality planning, quality

assurance, and quality

• control for project quality management

• define Value Engineering (VE)

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2. QUALITY
Quality begins with designing a product as per customer specifications. Further, it covers the
application of standard measuring units, the suitable raw material, selecting appropriate
manufacturing process, etc. Quality is a relative term and it can better understood by a comparison
with the utility of the product.

Crosby defined it as, “Quality is conformance to requirement or specifications”.

Juran defined it as “Quality is fitness for use”. The Quality of a product or service is the fitness of that
product or service for meeting or exceeding its intended use as required by the customer.

Quality characteristics

Quality characteristics such as performance, functionality, suitability, reliability, and consistency are
commonly used to measure the project deliverables. These quality characteristics are not only
applicable to the deliverable itself, but also to the processes or methods used to deliver the final
product, such as equipment or computers. Therefore, the required quality characteristics must be
fully stated and understood before procurement of any services, materials or equipment used in the
project.

Companies that offer a powerful combination of low prices and high quality are capturing the hearts
and wallets of consumers. Today, as companies are becoming more value driven, there is a shift in
competitive terrain from ‘price orientation’ to ‘quality and convenience’ orientation. As these value
driven companies gain share, at varying speeds, across economies, they change the nature of
competition by transforming consumer attitudes about trade-offs between price and quality. Today,
quality is considered an 'order qualifying' rather than an 'order winning' attribute of the product or
service.

How do consumers assess quality? One approach that customers use to evaluate quality is to mention
attributes of the product or its product delivery process. For example, if someone were to ask you to
assess the quality of a notebook computer, you might reply by referring to things such as: the way it
looks, aesthetic appeal, system configuration - how long it took to set up, hard disk capacity and other
software installed - how long it takes to boot up, and whether or not it has Intel Chip Inside.

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In the case of services, such as meal at a restaurant, the determinants of quality might include: the
meal itself, its presentation, aroma of food, the manner in which it was served, behaviour of waiter,
and the behaviour of the other co-customers who are on the neighbouring tables.

In effect, you are citing attributes of quality, i.e., the traits associated with quality that can be identified
and, more importantly, measured. However, attributes are not the same as quality. Identifying every
attribute of quality for a product would not describe that product's quality level. Some attributes used
to help define quality are thus:

Freshness: Some products are perishable, i.e., the quality declines over time. For example, vegetables
fall into this category. Fashion items also are subject to obsolescence. At the other extreme, the value
associated with some products increases with age, as is the case with antiques and red wine.

Reliability: The quality associated with a product often increases with the dependability of the
product and customer experience. For example, the patients expect the hospitals to have competent
staff. The customers expect telephones to work. Ni-Cd Batteries manufactured by ECIL should be as
reliable as other internationally manufactured batteries.

Durability: The quality attribute that implies product performance under adverse conditions. For
example, Eveready's Red commercials are designed to convey the durability of its batteries.

Safety: This is an attribute of quality that measures the likelihood of harm from goods or service.
What is safe can be a controversial issue. For instance, is a gun with a safety clip safe? Is the packaging
of a product tamper proof?

Environmental friendly: As is the case with safety, this quality attribute has both societal aspects
and is individual specific. The requirements for being considered an environmental friendly product
are becoming more stringent. For example, firms must now also focus on how a product is disposed
off after its useful life.

Serviceability: This attribute relates to the ease and cost associated with servicing a product after
the sale has been made. Products are now being increasingly designed so that they do not need service,
such as car batteries. But many others do require service and this capability must be both designed
into the product and the post-sale service system. This is especially important for consumer durables.
For example, ECIL perhaps has not been able to convey that it has an adequate service organisation
for the televisions it manufactures.

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Attribute consistency: The attributes associated with a product should be internally consistent. It
would make little sense to build a Maruti Alto with airfoils or a biodegradable cigarette filter. Products
with inconsistent combinations of features aren't likely to match the needs of their buyers.

To a certain degree, the functionality and the quality overlap. Products with excellent designs will
excel in attributes that matter. These, in turn, increase the functionality of the product. From the
above meaning and definitions of quality, we can conclude that quality plays an important role in the
overall project performance. In the absence of quality, the following will result:

• There will be no standard for comparing the quality of goods/services

• There will be no consistency in quality
• The customers will be dissatisfied due to increased maintenance and operating costs of
products/services
• Increased rework cost while manufacturing products/providing services
• Reduced life time of the products/services
• Reduced flexibility with respect to usage of standard spare parts

SELF-ASSESSMENT QUESTIONS – 1
Fill in the blanks:
1 Quality characteristics such as performance, functionality, suitability, reliability, and
consistency are commonly used to measure the _______________________.
2 Quality begins with designing a product as per customer specifications ______________________.
3 The attributes associated with a product should be internally ______________________.
True or False Questions:
4 The quality associated with a product often decreases with the dependability of the product
and customer experience. (True/False)
5 Today, quality is considered an 'order qualifying' and not an 'order winning' attribute of the
product or service. (True/False)

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3. QUALITY CONCEPTS
New dimensions to the concept of quality have emerged in addition to the folklore philosophy.
Conventional definitions are aimed at conformance to standards while the modern thinkers focus on
deriving ‘value for money’. Quality can be referred to as a state in which value entitlement is realised
for the customer and supplier in every aspect of the business relationship. 'Value' represents the
economic worth, practical utility and availability for customer and the company that creates the
product or service. This definition acknowledges the fact that the quality of products or services
rarely comprises a single element. 'Value entitlement' means:

• For the customer: a fair level of expectation to buy high-quality products at the lowest
possible cost.
• For the provider: a fair level of expectation to create quality products at the highest possible
profits.

The philosophical leaders of the quality movement, notably Phillip Crosby, W. Edward Deming and
Joseph S. Juran provide different perceptions to the concept of quality. It is because they use different
frameworks for defining quality.

The Shewhart Cycle

PDCA (plan–do–check–act) is an iterative four-step management method used by the companies to

control and continually improve their processes and products. PDCA is also referred to as the Deming
circle/cycle/wheel, Shewhart cycle, control circle/cycle, or plan–do– study–act (PDSA).

Figure 8.1 depicts the Shewhart cycle.

Figure 1: Shewhart Cycle

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delh

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Let us now discuss these steps in detail.

(i) Plan: Establish the objectives and processes essential to deliver results in agreement with the
expected output (the target or goals). With the establishment of output expectations, the
completeness and correctness of the specification also becomes a part of the targeted improvement.
When possible start on a small scale to test likely effects.

(ii) Do: Execute the plan, implement the process, and make the product. Collect data to be used in the
charting and analysis in the following " CHECK" and "ACT" steps.

(iii) Check: Study the results achieved (measured and collected in the above step) and compare
against the expected results (targets or goals from the "PLAN") to find out any mismatch between the
two. Look for deviation in implementation from the plan and also look for the appropriateness/
completeness of the plan to allow the execution i.e. 'Do'. Charting data can make this much easier to
see trends over several PDCA cycles and to convert the collected data into meaningful information.
Information is what you need for the next step "ACT".

(iv) Act: Request corrective actions on considerable differences between actual and expected results.
Analyse the differences to find out their root causes. Determine the areas where changes could be
applied to improve the process or product. If completion of these four steps does not show any need
for improvement, then the scope to which PDCA is applied may be fine-tuned to plan and improve
with more detail in the subsequent iteration of the cycle, or attention needs to be put in a different
stage of the process.

Project quality management

Project quality management begins by defining the quality standards to be used for the project. This
definition will come from the stakeholders, beneficiaries, and often from the overall standards for the
organisation. Careful identification of the quality standards will help to ensure a successful project
outcome that will be accepted by the stakeholders. In addition to quality standards for the end result
of the project, there may also be organisational quality standards that must be met for the actual
management of the project, such as certain types of reporting or project tracking methods.

It describes the processes required to ensure that the project will satisfy the needs for which it was
undertaken. The knowledge area of project quality management includes the organisational
processes that determine the quality policies, objectives, and responsibilities. It consists of quality
planning, quality assurance, and quality control. Figure 8.2 depicts the project quality management
process.
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Figure 2: Project Quality Management Process

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Table 8.1 depicts an overview of project quality management.

Table 1: Project Quality Management

Let us now discuss the project quality management process in detail.

3.1 Quality planning

Quality planning is the process of identifying the quality standards that are related to the project and
determining how to these standards can be achieved. It is one of the significant processes of project

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planning and should be performed on a continuous basis and in parallel with the other project
planning processes.

A good quality planning process starts with a clear definition of the goals of the project. What is the
product or deliverable likely to achieve? What does the product look like? What functions will it
perform? How do you evaluate customer satisfaction? What determines the success of a project?

Answering these questions will help you in identifying and defining quality goals. It will also allow
you to discuss the approach and plans required to accomplish those goals. This includes measuring
the risks to success, setting high standards, documenting everything, and defining the methods and
tests to attain, control, forecast and validate success. You should make sure that you include quality
management tasks in the project plan and delegate the tasks to work groups and/or individuals who
will report and track quality metrics.

For example, the desired management quality may need cost or schedule adjustments, or the desired
product quality may need a detailed risk analysis of an identified problem.

Before ISO 9000 Series was developed, the activities mentioned here as quality planning were broadly
considered as part of quality assurance.

Inputs to quality planning

• Quality policy: Quality policy refers to the overall intentions and direction of an organisation
pertaining to quality, as formally expressed by top management.
• Scope statement: The scope statement comprises the key objectives of the project that are
needed by different stakeholders.
• Product description: It includes the details of technical issues and other concerns which may
influence quality planning.
• Standards and regulations: The project management team must acknowledge all the
relevant standards or regulations that may influence the project.

Tools and techniques to quality planning

• Benefit/cost analysis: The quality planning process should acknowledge benefit/cost trade-
offs. The benefits should cover higher productivity, lower cost and high customer satisfaction.
• Benchmarking: In this, we compare actual or planned project practices to practices of other
projects to produce ideas for improvement and to find a suitable standard to measure
performance.

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• Flowcharting: It is a diagram that depicts how different elements of a system relate to each
other.
• Design of experiments: It is an analytical technique that helps identifying which variables
affect the overall income the most.

Outcomes from quality planning

• Quality management plans: It provides input to the overall project plan and must deal with
quality control, quality assurance, and quality improvement for the project.
• Operational definitions: It particularly explains what something is, and how it is measured
by the quality control process.
• Checklists: It is a structured tool that helps in verifying if a set of required steps has been
performed.
• Inputs to other processes: The quality planning process may discover a need for further
activity in some other area.

3.2 Quality assurance

Quality assurance means all the systematic and planned activities executed within the quality system
give confidence that the project will meet the applicable quality standards. It also comprises the
examination of data at stations and centres to validate that the data are in line with the quality system
goals, and to identify errors so that the required action could be taken on time. A quality system
should incorporate procedures that allow to feed back into the measurement and quality control
process to avoid the errors from occurring again. We can apply quality assurance in real-time post
measurement, and can also feed into the quality control process for the subsequent process of a
quality system, but usually it tends to operate in non-real time.

Quality assurance tests make use of a system of metrics to decide whether or not the quality plan is
progressing in an acceptable manner. You can measure project quality with customer satisfaction
effectively by using both qualitative and quantitative metrics. These tests or quality audits will assist
you in forecasting and verifying the accomplishment of goals and identify need for corrective actions.
Additionally, quality assurance tests will also help you in mapping quality metrics to quality goals,
thereby allowing you to report on quality status at periodic project review meetings.

In most cases, quality assurance provided by a quality assurance department or similarly titled
organisational unit, but it is not mandatory that only these departments do this. Quality assurance
may be provided to the team managing the project. It may also be provided to the management of the
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performing organisation (internal quality assurance) or it may be provided to the customer and
others not actively involved in the work of the project (external quality assurance).

Inputs to quality assurance

Apart from the quality management plans and operational definitions discussed under inputs to
quality planning, the inputs to quality assurance includes the following:

• Results of quality control measurements: These are the records of quality control testing
and measurement for comparison and analysis.

Tools and techniques for quality assurance

• Quality audit: It is a structured review of other quality management activities. Quality audit
may be carried out by properly trained in-house auditors or by third parties such as quality
system registration agencies.

Outputs from quality assurance

• Quality improvement: It includes all the actions taken for increasing the effectiveness and
efficiency of the project to provide added benefits to the project stakeholders.

3.3 Quality control

Quality control involves scrutinising particular project results to determine if they abide by relevant
quality standards and identifying ways to removing causes of unsatisfactory results. Quality Control
(QC) refers to a system of routine technical activities that assists in measuring and controlling the
quality of the project as it is being developed. This includes identifying, analysing, and correcting
problems.

While quality assurance is provided prior to problem identification, quality control is reactionary and
occurs after the identification of a problem. Quality control examines specific project results and
determines conformity with relevant standards. In addition to this, it also identifies risk factors in a
project, their mitigation, and looks for ways to avoid and eliminate unsatisfactory performance.

The quality control system:

• Provides routine and consistent checks to make sure that data is reliable, correct and
complete;
• Identifies and deals with errors and omissions;
• Documents and collects inventory material, and records all quality control activities.

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Quality control activities comprise general methods like accuracy tests on data acquisition and
calculations and the use of accepted standardised procedures for emission calculations,
measurements, estimating uncertainties, recording information and reporting. Higher tier quality
control activities comprise technical reviews of source categories, activities and emission factor data,
and methods.

Quality control implies working to a set standard of quality which is achievable and which has a ready
market. Thus, quality control means adherence to a standard or prevention of a change from the set
standard. In general, this is essential because when there is an acceptable quality, a manager must
ensure that there is no deterioration from the standard. However, in a changing world, one is often
faced with the fact that the quality which is acceptable today by the customer may not be acceptable
to him a year later. Therefore, there is need for a breakthrough, (creation of change) for improving
the existing standards. Thus, preventing change (control) and creating change (breakthrough) are
two important functions of quality management. Unfortunately, a large number of managers simply

have no time for breakthrough because they are obsessed with day-to-day problems of keeping
controls at the existing levels.

Following are the steps in quality control process:

• Formulate quality policy

• Set the specifications or standards based on customer’s preference, cost and profit
• Select inspection plan and set up procedure for checking
• Detect deviations from set standards of specifications
• Take corrective actions or essential changes to achieve those standards
• Take decision on salvage method i.e., to decide how the faulty parts will be disposed off, entire
scrap or rework
• Coordination of problems concerning quality
• Developing quality awareness both within and outside the organisation
• Developing procedures for good buyer-supplier relations.

The project management team should have practical knowledge of statistical quality control,
specifically sampling and probability, to help them assess quality control outputs.

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Activity – 1
Inputs to quality control
Suppose you are a quality controller at Oberoi Hotels and resorts. As a quality controller, What will
beThe
your quality
inputspolicies. Explain briefly.
to quality control include the work results, quality management plans, operational
definitions, and checklists. Apart from work results, the explanation of other inputs is discussed
above.

• Work results: It includes both process results and product results. In order to get the work
results, information about the planned and actual results should be available.

Tools and techniques for quality control

• Inspection: It includes activities such as measuring, examining, and testing undertaken to

determine whether the results conform to the requirements.
• Control charts: Control charts are a graphic display of the results, over time, of a process.
These are prepared to determine the variation actual and planned outputs.
• Pareto diagrams: A Pareto diagram is a histogram, ordered by frequency of occurrence that
shows how many results were generated by type or category of identified cause.
• Statistical sampling: It determines the number of items to sample. For example, selecting 10
paintings at random out of a list of 100.
• Flowcharting: It is used in quality control to help analyse how problems occur.
• Trend analysis: It involves using mathematical techniques to forecast the future outcomes
based on historical results.

Outcomes from quality control

Apart from the quality improvements, the following are the key outputs from

• quality control: Acceptance decisions: The items inspected will be either accepted or rejected.
• Rework: Rework is action taken to bring a defective or non-conforming item into compliance
with requirements or specifications.
• Completed checklists: It should become part of the project’s records.

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• Process adjustments: It includes the key preventive and corrective actions taken as a project
control measure.

SELF-ASSESSMENT QUESTIONS – 2
Fill in the blanks:
6 ___________________ represents economic worth, practical utility, and availability for both the
customer and the company that creates the product or service.
7 ___________ refers to the overall intentions and direction of an organisation pertaining to
quality, as formally expressed by top management.
8 Prior to development of the ISO 9000 series, the activities described under quality planning
were widely included as part of ______________.
True or False Questions:
9 Quality Control (QC) means all the planned and systematic activities implemented within the
quality system to provide confidence that the project will satisfy the relevant quality
standards. (True/False)
10 Quality assurance is a system of routine technical activities, to measure and control the
quality of the project as it is being developed. (True/False)

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4. VALUE ENGINEERING

Value engineering is the systematic application of recognised techniques that identifies the function
of a product, process or services, accomplishes a monetary value of that function, brings out areas of
avoidable costs and provides the essential functions consistently at the lowest overall cost. In short,
it tries to improve function or reduce cost or achieve both without compensating quality, reliability
and safety.

The ‘avoidable costs’ depict that cost which does not provide desirable function, or quality, or life or
appearance to the product.

• Cost: Cost is the amount that we generally pay. Cost is the total sum of money spent on
materials, labour, overheads, profit, etc., to manufacture a product.
• Value: Value is something that a customer believes the product is worth to meet his minimum
specific requirements. It refers to the lowest price that a customer must pay to get a function
or service.

A product is said to be some value if it has suitable performance and cost.

Value is thus defined as,

4.1 Value engineering process

A prime feature of value engineering (VE) is that a design or initial solution is usually in place before
undertaking the process. This initial design is used right through the value engineering process to
create optional approaches.

The process of actually performing value engineering occurs in various circumstances. In the US, in a
40-hour workshop, a design that is prepared by the client’s design team is re-engineered by some
other independent team. This team spends a week just looking at the original design in a workshop
environment and makes its suggestions about substitute solutions. There is usually only one 40-hour
workshop on any particular project. In Europe, this 40-hour workshop has been modified into a two-
day session with the original design team. The members of the design team meet to specifically
challenge the team’s own design and seek viable options. This workshop is typically repeated during

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different phases of the design process and can extend onto the construction phase, in which the
capability of the contractor can be exploited to pursue substitutes to be used in particular design
solution.

Similar to the value management process described above, we can also implement value engineering
through a five-stage plan, in which each stage is aligned to a generic problem-solving procedure.

4.2 Stages in value engineering

Information: An information gathering process in which the prime focus is on the client’s business
drivers for the project. Special relevance is given to the use of facilitated workshops.

Speculation: Creative-thinking techniques are put into use to generate alternative ways to provide
the business drivers identified in stage.

Evaluation: The solutions generated are evaluated for their viability and cost. Ideas are combined
and consolidated to generate a list of some five or six ideas that are worthy of further consideration.

Development: The ideas generated and shortlisted in previous stage are developed in detail,
ensuring that all the interfaces with the client’s business are considered.

Recommendation/implementation: The most appropriate solution is identified and a formal

recommendation is made to the client for implementation.

Activity – 2

What information according to you would be required to begin the process of preparing the
business case for the Value engineering of an

4.3 Scope of applying VE in project

Projects aim to produce some product, process, services, or others. A good number of these are
concerned with building plants to produce goods and services to satisfy the human wants and needs.
A typical life cycle of such projects includes project selection, planning, execution, and close-out.

VE may be applied in all the phases of project life cycle. However, the saving potential of a phase
decreases as we move down the phases of a project. Figure 8.3 depicts the saving potential over life
cycle phases of a typical project. From Figure 8.3, we observe that when the saving potential decreases,
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the cost to implement the changes to reap the benefit increases over the phases. As a result, the net
saving decreases over the phases. It is why one should embark on VE as early as possible in a project.

Figure 3: Saving/Cost to Implement

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Some important areas of VE application in various phases of a project include the following:

I. Project Selection Phase

• Listing of all potential projects

• Shortlist potentially good projects on technical and financial consideration
• Market Analysis: Product-mix, demand and supply, existing and future competition, etc.
• Technical Analysis: Plant capacity, product – mix, plant location, process selection, selection
of equipment including specification, requirement of auxiliary and utilities, design and
engineering of fabrication and civil work, etc.
• Financial Analysis: Estimation of capital and operating cost, profitability analysis and
sensitivity and risk analysis.

II. Planning and execution phase

Procurement of material and equipment accounts for over 50% of project cost. VE can play a useful
role in cutting the cost and lead time.

Some VE approaches suggested by Miles to improve procurement are summarised below:

• Analyse the function performed by a part, particle, or specification. If any of these contributes
little or nothing, designer should reconsider.
• Aesthetic function may be performed by various alternatives. Select the alternative performing
the desired aesthetic at the least cost.

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• Avoid extra cost needed to make the material ready to use.

• Analyse the different products performing the needed functions. Choose the least cost product.
• Compare the function provided by the buyer’s process with the desired function. Select the
process offering close fit.
• Identify the parts performing the needed function and parts which support the primary parts.
Cut down the cost of supporting parts.

4.4 Benefits of VE in projects

Value engineering is a systematic process that aims to achieve the required functions at least cost.
Unlike value management, it tries to provide an optimal answer to a design problem. Value
engineering advances from an initial solution to offer function-oriented alternatives created in an
unconstrained, creative environment. Some other benefits of application of VE in projects are as
follows:

• Reduce the complexity of the product

• Achieve standardisation of components
• Improvement in functional aspect of the product
• Improvement in job design and safety
• Improved maintainability (serviceability)
• Robust design

SELF-ASSESSMENT QUESTIONS – 3
Fill in the blanks:
11 _____________ is the systematic application of recognised techniques.
12 _____________ is the total sum of money spent for materials, labour, overheads, profit, etc to
produce any product.
13 ____________ is what the customer thinks the product is worth to meet his minimum specific
requirements.
14 A product is considered to have value if it has appropriate ____________ and cost.
True or False Questions:

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15 Quality Control (QC) means all the planned and systematic activities implemented within the
quality system to provide confidence that the project will satisfy the relevant quality
standards. (True/False)

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5. SUMMARY

Let us recapitulate the important concepts discussed in this unit:

• The unit covered the role and importance of quality management during the different phases
of project life cycle. The meaning of quality has changed over the years. According to some
emerging definitions, quality is a state in which value entitlement is realised for the customer
and provider in every aspect of the business relationship.
• We also covered the basic processes of project quality management including quality planning,
quality assurance, and quality control. These processes interact with each other and with the
processes in the other knowledge areas as well. Each process may involve an effort from one
or more individuals or groups of individuals based on the needs of the project. Each process
generally occurs at least once in every project phase.
• We studied the concept of value engineering in project life cycle. The Value Engineering (VE)
or Value Analysis (VA) is an important and powerful tool for improvement in the performance
of the products, systems, or procedures. It is a cost effective approach which improves the
performance without disturbing the function(s) and without compromising on quality,
reliability, etc.

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6. GLOSSARY

Project quality It describes the processes required to ensure that the project will achieve
-
management its desired goals.

Quality of any product or service is defined as its conformance to

Quality -
the standards or the stated requirements.

QA means evaluating the overall project performance on a regular basis

Quality Assurance
- to provide confidence that the project will satisfy the relevant quality
(QA)
standards.

It is a system of routine technical activities to measure and control the

Quality control -
quality of the project as it is being developed.

It means identifying the relevant standards to the project and determining

Quality planning -
how to satisfy them.

Value Engineering VE is a systematic approach for obtaining the optimum value for every
-
(VE) rupee spent.

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7. TERMINAL QUESTIONS
1. Define Quality. What are the key attributes of quality?
2. Discuss the concept of quality and project quality management.
3. What are the different processes of project quality management?
4. Define value engineering.
5. Discuss the scope of applying VE in project.

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8. ANSWERS
Self-Assessment Questions
1. Project deliverables
2. Specification
3. Consistent
4. False
5. True
6. 'Value'
7. Quality policy
8. Quality assurance
9. False
10. False
11. Value engineering
12. Cost
13. Value
14. Performance
15. False

Terminal Questions Answers

Answer 1: Quality means the product and process should be designed in such a way that it can
achieve the maximum customer satisfaction. Refer to section 8.2.

Answer 2: It includes some processes to ensure that the project is going as per the planning and will
achieve the desired goals for which it was undertaken. Refer to section 8.3.

Answer 3: It consists of quality planning, quality assurance, and quality control. Refer to section 8.3.1,
8.3.2 and 8.3.3.

Answer 4: It is a systematic approach of obtaining the optimum value for every rupee spent. Refer to
section 8.4.

Answer 5: VE may be applied in all phases of project life cycle. During the planning phase, it includes
the listing and shortlisting of potential projects on the terms of both the financial and technical. Refer
to section 8.4.3.

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9. CASE STUDY
Why PRINCE2's Approach to Quality is Flawed

PRINCE2 has many excellent ideas for project management, but I think its approach to quality is at
best weak and at worst entirely inappropriate. My first gripe is that PRINCE2 redefines what the word
quality usually means. My dictionary defines it as a "degree or standard of excellence, especially a
high standard." If I've bought myself a quality car, I've probably purchased something like a Mercedes
or Rolls Royce. PRINCE2's definition is something that is "fit for purpose" of satisfying stated needs.
So for example, according to PRINCE2, my Land Rover is a quality product. It's not luxurious but, as a
keen skier, I can use it to haul equipment to the Alps each year.

This re-definition of the word quality often confuses people before they even look at the detail. At the
beginning of a PRINCE2 project, you agree with the customer a set of measurable attributes about
the products you will build. These are called acceptance criteria. Later, when you deliver the products,
the client will only sign them off if they conform to these criteria. This assumes that the client knows
what they want. They often don't. When Henry Ford was designing the Model T car, he was asked why
he didn't consult with potential users. He replied, "If I had asked people what they wanted, they would
have said faster horses!"

Users' not knowing what they want is often a problem in ground breaking projects. People in the early
1900s knew they wanted to get places faster, but their idea on how to achieve this was limited by
their own experience. Another example is the project to create the iPhone. Steve Jobs did not consult
with the potential users. Instead he went through many iterations of building prototypes, playing with
them, deciding what worked and what didn't, until he ended up with the final design. So this idea in
PRINCE2's Quality Theme, that you can simply ask a group of potential users at the outset, to specify
what products they want, doesn't always work. PRINCE2 defines a project as a piece of work that is
unique. The more unique and ground breaking it is, the more difficult it becomes to define exactly
what is required at the end. Project work is a creative process. Sometimes it takes trial and error and
a certain amount of vision to create something the end users will eventually be satisfied with.

As I said at the outset, PRINCE2 has many useful ideas. But the Quality Theme should be used with
caution. In groundbreaking projects, they can hinder the creation of products the client is going to be
satisfied with.

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1. What is the major problem in ground breaking projects ?

Hint: The major problem in ground breaking project is that users clearly don’t know what they
actually want.

2. How PRINCE2 defines a project?

Hint: The PRINCE2 defines a project as a piece of work that is unique.

(Source: http://www.projectsmart.co.uk)

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10. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth
Edition, Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-References

• www.projectsmart.co.uk. Retrieved on 4/02/2012.

• www.projectmanagement.com. Retrieved on 5/02/2012.
• www.pmearth.com. Retrieved on 6/02/2012.
• http://ethics.artcony.com/2012/04/07/why-prince2s-quality-management-
• process-is-flawed/ . Retrieved on 6/02/2012.

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BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 9 - Project Management Information System 1
DBB1207: Project Management

Unit – 9
Project Management Information
System

Unit: 9 - Project Management Information System 2

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TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4
1.1 Objectives - -
2 Project Management Information System (PMIS) 1 1 5-6
3 Planning of PMIS - -
3.1 Identify the information needed i, ii, 2 -
3.2 Capture data - i 7 - 21
3.3 Process data into information - -
3.4 Communicate information to stakeholders iii, iv, v, 3, 4 ii, 2
4 Design of PMIS - 3 22 - 23
5 Summary - - 24
6 Glossary - - 25
7 Terminal Questions - - 26
8 Answers - - 27
9 Case Study - - 28
10 References - - 29

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1. INTRODUCTION
In the previous unit, we dealt with the concepts of quality and value engineering. In this unit, we will
deal with the concept of PMIS, planning of PMIS, and design of PMIS.

Quality is important for overall project management. Quality consists of features and characteristics
of a product or service that bear facility to assure stated or implied needs. There must be appropriate
quality planning, quality assurance and quality control to ensure that the project will meet the

required goals.

The success of timely implementation of projects depends on the availability of essential information
at the appropriate time. The information is needed for taking various decisions during selection,
planning, execution, and closure of a project. Project Management Information System (PMIS) aims
to provide relevant information on time, resulting in improved performance.

Traditionally, this system was manual, paper based, and labour intensive. It was slow to respond and
update. The advancement of computer and telecommunication technology made a phenomenal
change in it. The features of present PMIS include:

• Speed: Processes speed up the creation of information within a blink of an eye

• Capacity: Ability to process and store large data
• Efficient: Fewer people are needed to manage the system
• Economic: Provides cost advantage over manual system
• Accuracy: Provides better accuracy over manual system

1.1. Objectives
After studying this unit, you should be able to:
• Define Project Management Information System
(PMIS)
• Identify the key steps involved in the planning
of PMIS
• Design an effective PMIS

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2. PROJECT MANAGEMENT INFORMATION SYSTEM

(PMIS)
Project Management Information System (PMIS) is the system tools and techniques used in project
management to deliver information. Project managers use the techniques and tools to collect,
combine, and distribute information through electronic and manual means. PMIS is used by the upper
and lower management to communicate with each other.

It is a Management Information System (MIS) related to a project. A PMIS consists of people,

equipment, and procedure to collect, process, store, combine, and communicate the needed
information to users (stakeholders) for carrying out project management functions.

Project Management Information System (PMIS) helps in planning, executing and closing project
management goals. Project managers use PMIS for budget framework such as estimating costs at the
time of planning process. Furthermore, the PMIS is employed to build a specific schedule and classify
the scope baseline. The project management team collects information into one database while
executing the project management goals. It is used to compare the baseline with the actual
achievement of each activity, manage materials, collect financial data, and keep a record for reporting
purposes. The PMIS is used to assess the goals to ensure if the tasks were accomplished when project
is closed after that, it is employed to make a final report of the project close. To understand this
concept better, we should first understand the distinction between data and information.

Data
Data are values of qualitative or quantitative variables belonging to a set of items. They represent
something in the real world, expressed as a number or a statement or a picture and act as an input to
MIS.

Information
Information may be defined as, (i) data within a context, (ii) data in a relationship, or (iii) processed
data. It does not convey much. But, when we say it denotes an age of a student of a class, it gets some
meaning. Log of daily production figures in a year do not convey much. But when we calculate their
average, standard deviation, range, and trend, we get much more meaning out of them.

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System
A system consists of a set of sub-systems/components that work together to achieve a common goal.
It comprises of interacting or interdependent components forming an integrated whole. Figure 9.1
depicts a data processing system.

Fig. 9.1: A Data Processing System

Source: Mishra Rajendra (2012), Project Management: Excel Books,New Delhi

Most systems share common characteristics including:

• Systems have structure, defined by components/elements and their composition

• Systems have behaviour, which involves inputs, processing and outputs of material, energy,
information, or data
• Systems have interconnectivity, the various parts of a system have functional as well as
structural relationships to each other
• Systems may have some functions or groups of functions

As shown above, data processing system has four stages. They are:

• Input: In input data are collected and entered into computer

• Data processing: Data is transformed into information using mathematical, statistical or
other tools.
• Output: Information which is displayed or presented.
• Storage: Data and information are maintained for later use.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the Blanks:
1 A ___________ consists of people, equipment, and procedure to collect, process, store, combine,
and communicate the needed information to users (stakeholders) for carrying out project
management functions.
2 A _________ consists of a set of sub-systems/components that work together to achieve a
common goal.
3 Under data processing, data is transformed into _________ using mathematical, statistical, or
other tools.

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3. PLANNING OF PMIS
The success of a PMIS depends on its effective planning. The PMIS is used for many purposes by a

project manager like budget estimation of costs, creating a schedule, define the scope, etc. Hence,

these should be considered while planning for PMIS.

The planning of PMIS includes the following steps:

• Identify the information needed
• Capture data
• Process data into information and store it
• Communicate information to stakeholders

3.1. Identify the information needed

Identification of the information that is needed is necessary for improving the decision making and
the structure of the PMIS. Information requirements of project stakeholders include the recipients of
information, the type of information that is needed, which includes format, contents, and level of
details, the time the information is required and how (by what media) will it be communicated to
them.

(i) Who needs information?

Recipients of information may include any stakeholder of a project. They are persons or groups that
have claim or ownership rights or interests in a project and its activities that may have occurred in
past, present, or future.

Primary stakeholders are the ones who have a legal/contractual relationship to the project.
Secondary stakeholders include those who influence or affect or are influenced or are affected by the
project but may not be essential for the project survival.

Let us find how a project management information system is used by different stakeholders (Table
9.1).

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Table 9.1: Different stakeholders in a project management information system

• Organisational managers - Directors, general managers, functional
managers, project managers, project team members
Primary • Customers, suppliers, and contractors
stakeholders • Local, state, and central agencies, commissions and judiciary, legislative
and executive organisations.
• Unions, shareholders, creditors, and employees
• Social and political organisations stakeholders
• Environmentalists
• Competitors
Secondary
• Local communities and general public
stakeholders
• Media, various institutions (schools, hospitals, etc)
• Tourists
• Professional institutions

Recipients of information may be decided on a ‘need to know’ basis. The list needs to be reviewed
periodically to weed out obsolete and add new ones.

(ii) What type of information is needed ?

The information need of various stakeholders differ in contents and time of need. A survey may be
conducted to identify the specific information requirements of stakeholders related to the various
decision areas in a project. However, most projects require information on some or all of the following:
scope, time, cost, quality, resource utilisation, procurements, and risk.

A comprehensive list of information needed during the various phases of a project is explained as
follows:

Selection phase
The selection phase includes the following components:
• Organisational guidance and support information: Project manual, project methodologies,
policies, procedures, etc.
• Information from other projects: Performance and best practices, budget, schedule, and
technical performance measures.

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• Statutory approvals and clearances: Several approvals and certifications such as

environmental, labour, site approvals, safety standards, use of explosives, and for high
pressures/critical process operations are required.

Planning phase
The planning phase comprises of the following:
• Project scope
• Project cost
• Details of activities which include descriptions, time, cost, resource needs, and precedence
relationships
• Project schedule and budget
• Drawing and documents: specifications, civil and structural drawings, and layouts and
schematics.
• Communication: correspondences, minutes of the meetings, reports, and communication
scheduled.

Execution and control phase

The following are the components of the execution and the control phase:

• Project organization: Project organisation structure includes the various functions and
responsible agencies for the project and the coordination between the same.
o List of stakeholders
o Disciplines, departments, and specialties involved in the project
o Procedure for project execution, critical execution steps, deliverables and checks.
o Safety and environment, training and inspection, cost, disaster management
o Issue logs – Various issues arise during a project. Issue logs report their status.
o Change logs – Changes in scope, cost, and time schedule are to be logged and reported.

• Project reporting: Project reporting comprises of three phases. They are project scope, resource
requirement and the closure phase. These are explained one by one as follows:
o Project scope:
The scope of the project includes the following:
✓ Project schedule and cost: Two methods (variance analysis and earned value methods)
are used to provide information on cost and schedule. Performance Information generated

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by two methods includes cost variance, schedule variance, cost performance index,
schedule performance index, months behind schedule and cost overrun.
✓ Quality records: A project sets up quality system to ensure that incoming items (materials,
parts, and equipment), construction work construction work, erection of equipments, etc.,
conforms to design specification. Quality system generates a list of items which are below
par for taking appropriate actions by the Project Manager.
✓ Project risk assessment: It should be carried out at the start of the project as well as
during the execution of the project; covering anything noticed or identified that may affect
the future project schedule/cost. In unit 6, it was suggested to draw plans to implement
measures to deal with risks. These plans are to be implemented along with the project plan
and monitored to identity any deviations for taking corrective actions.
o Resource requirement:
The resource requirement can be classified under the following heads:
✓ Manpower: Report on manpower requirement can be presented in a tabular/graphical
form or a combination of both. Figure 9.2 shows manpower requirement during various
phases of a project.
✓ Manpower requirements may be prepared for different skill separately. Actual
manpower may be shown by superimposing it on the requirement histogram.

Fig. 9.2: Manpower Needed for a Project

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

✓ Materials, parts and equipment: A project needs a large number of materials, parts and
equipment. Based on network, requirements of such materials at different points of time
can be determined. With this input, material requirement planning is carried out for
making these materials available on time. Many a time, proper linkage of requirements and

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availability are not ensured, resulting into time and cost over-run. At times, it affects the
quality of work, as procurement of materials is hurried or substitute materials not up to
par are procured.
✓ Follow-up of procurement process provides list of materials which need to be expedited
(when materials are likely to arrive late) or de-expedite (When usage of materials is
delayed due to some reasons).
✓ Contracts: Besides other things, this function should include the following: Sources of
inputs materials/services: This may prove a major source of advantage for the execution
of the project and is kept at many organisations with secrecy. Many of the successful project
managers can be seen to have such information.
✓ Suppliers/Vendors performances–strengths and weaknesses: It includes the
performance of the various suppliers and vendors as was visible during the execution of
the project.
o Closure phase:
The closure phase consists of the following:
✓ Review of achievement of goals
✓ Feedbacks on the performance, supports during post handover and the defect liability
period
✓ Lessons learnt: These include key challenges, bottlenecks faced and their mitigations and
miscalculations in terms of cost, scope, lead time or project execution environment. The
lessons learnt may be used as inputs for the future projects.

(iii) When information is needed?

Time of need of each stakeholder may be different. Some may need it on daily, weekly, or monthly
basis.

Table 9.2 depicts the format to summarise the information need of stakeholders.

Table 9.2: Format to Summarise Information Need

How often? (weekly/ Content and format What media?

Information
Stakeholders fortnightly/ (summary/ details, (report/ meeting/
description
monthly) tabular/graphical) electronic)

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3.2. Capture data

Term “Capture data” is used to state a process of preparing and collecting data i.e., as element of a
process improvement or similar project. The function of data collection is to attain information to
maintain record, to make decisions for vital issues, and to pass information on to others. Data can
come from actual observation or from records. Data collected from records is known as secondary
data. Data collected from direct observation is known as primary data. It should be ensured that all
relevant groups are represented in the data. A formal data collection process is essential as it makes
certain that the gathered data are both defined and precise and that subsequent decisions based on
opinion embodied in the findings are valid.

Data possibly be arranged in tabular form, data array or frequency distribution.

Activity - 1
List various factors in planning and implementing PMIS for an IT or educational project?

3.3. Process data into information

An organisation, to achieve its aims, needs to process the data collected into meaningful information.
It should be presented in its most useful formats. Data must be processed in a context to give it
meaning. Data is transformed into information using mathematical, statistical, or other tools
including computer software. Information can be stored in electronic form or hard copies represented
in the most useful form.

3.4. Communicate information to stakeholders

Communication is the process by which information is exchanged between individuals through a
common system of symbols, signs, or behaviour. To show the importance of communication, Cleland
quotes the following statements:

• Peter Drucker states that the ability to communicate, heads the list of criteria for success.
• Harvard Business Review reports that the ability to communicate was at the top among 22
personnel attributes in promotions.
• A project manager uses communication more than any other force to manage the project.

Channels of communication
Following are the three most important means through which people generally communicate:

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• On actual physical touch, such as pat on the shoulder, a pat on the back or the ritualistic
expression of the handshake.
• By visible movement of some portion of their bodies such as the pointing of a finger, the wink
of an eye, a smile, a nod, or a grimace.
• With the use of symbols, spoken or portrayed, which encompass some meaning based on
experience.

The first two are referred to as non-verbal and the last one is referred to as verbal channel of
communication.

Some examples of means and channels of communication include plans, policies, procedures,
objectives, goals, strategies, organisation structure, linear responsibility chart, meetings, letters,
telephone calls, e-mails, and project meetings.

Communication model
Figure 9.3 depicts the communication model as quoted by Cleland.

Feedback

Fig. 9.3: A Communication Model

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

The parts of this model are as follows:

Message source: The sender is the message source or the one who is trying to send a message to the
receiver.

Encoding: It is the process of sending message by encoder. Encoder is a person who sends a message.
You express your message so that the receiver(s) will understand it and react with the response you
desire. When you translate your message on the telephone, the sound (message) across the wire for
any distance is not actually transmitted. It’s a microphone which actually converts the sound into

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electrical impulses that can be transmitted by wires. After that electrical impulses are influenced by
the electronics in the phone so they match up with what the telephone system expects.

• Message: It is the actual encoded sound that is transmitted by the medium.

• Channel: It is the means through which encoder conveys the message to receiver(s). It
includes the phone system, Internet, and many other electronic systems use wires. Television
and radio can use electromagnetic radiation. Even bongo drums can be used as a medium.
• Decoding: The decoder receives the encoded message and converts it to an understandable
structure. For example, you do not understand electrical impulses of a phone system directly.
• Receiver: The receiver is the audience who finally receive the message, in other words we can
say that they are the target of the message.
• Feedback: A receiver decodes the message and provides feedback. Feedback ensures that the
message has been received by the receiver.

Some common means of communicating information

There are a number of traditional as well as emerging methods of communicating information. The
project manager may choose any combination of these. Some of the popular means of communication
are discussed below.

• Traditional methods of communication: Even with the arrival of modern methods of

communication, some traditional methods are still more prevalent for the purpose of
communication. Some of them are described as follows:
o Written reports: Written reports are age old methods to communicate project information in
many organizations. These reports are generated at various levels of details and use tables,
charts, and graphs.
It should be borne in mind that written report costs money in preparing, distributing, using
and archiving. Longer is the report, more is the cost. A Report normally should not exceed 5-
10 pages. To minimize cost, standard report formats may be defined that focus on key metrics
by which projects should ideally be tracked and measured. Usually, distribution of these
reports is displayed in a matrix. Column in a matrix shows the authorized recipients and a row
shows each category of the report. Entry in the square at each intersection shows the recipient
of a particular document at a particular frequency. If reports are made available over a
network, appropriate security measures should be taken. Table 9.3 depicts the distribution of
a report.

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Table 9.3: Distribution of Report

Reports Recipients
1 2 3 4 5
1 D D W D D
2 D W F
3 W W F W
4 F D W
Legend:
D- Daily
W- Weekly
F- Fortnightly

• Face-To-Face meeting: In Face-to-Face meetings, all participants sit in a room and participate in
the agenda. The opinions about this form of communication are aptly described as, “this is most
active form of communication and decision making” or “this is most ineffective use of time, an
occasion the minutes are kept but hours are lost” the difference is made by the way meetings are
conducted.

Here are some tips for the participant and person on chair to get the best of the meeting:

Tips for Attendees:

o Do your home work – know the purpose of the meeting
o Go through relative papers – prepare yours views
o Arrive on time
o Listen to others points of view with open mind – do not be impatient to express your views
o Speak, but don’t bully or monopolize
o Don’t attack others and cause conflict
o Don’t undermine the chair

Tips for the person on the chair:

o Planning of meeting:
✓ Purpose of meeting and expected outcome
✓ List items and prioritize them

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✓ Mentally allocate time for each item

✓ Decide who are required to attend the meeting
✓ Choose meeting place consonant with the purpose of meeting and participants
✓ Circulate written agenda prior to the meeting
o Opening the meeting:
✓ Start on time: If late due to unavoidable reason, apologize
✓ State the purpose of meeting and agenda
✓ State the procedure/time table
o Keep control:
✓ Stick to the agenda: Do not add new items, unless absolutely essential
✓ Keep an open mind
✓ Allow debate on a point: Be a facilitator for the debate
✓ Get those not talking to talk
✓ Do not allow bullying/monopolizing
✓ Discourage cross discussion
✓ Recap the outcome of each topic before going to next
✓ When discussion is over, ask every one if he has to add
o Summaries:
✓ What has happened?
✓ What is the decision?
✓ Who is responsible for actions?
o Closing of meeting:
✓ Prepare minutes and get it signed immediately after the meeting
✓ Declare the meeting as closed

Why do the meetings fail?

• The agenda was not known/clear/lengthy/unprioritised
• Participants: Too many, wrong ones, unprepared
• Lack of control: Directionless/no control on individuals
• Excessive control: Difference in point of view not permitted, members are afraid to express
views
• Lengthy agenda: Too many items
• Lengthy discussion: No control on time spent on each item

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Disadvantages of meeting
• Takes a lot of time and effort in organising
• For geographically dispersed locations, this form is not suitable. Teleconferences and video
conferences are emerging communication channels. They take care of disadvantages of
meeting

Activity - 2
Describe how different means of communication helps information transfer at various levels under
an infrastructure project?

General tips for improving communication

• Plan what is to be communicated
• Use face to face meetings in which you can observe others body language
• Decide which sequence and combination of telephonic discussion, face- to-face meeting, and
memo will be most effective
• Be consistent and follow through with actions appropriate to your message
• Use simple language
• Effective communication is aided by feedback, issuing notice, locating persons in close
proximity, and follow up

Feedback: Feedback makes communication effective. It may remove vagueness or add value to it. It
should be encouraged.

Notice: It is impossible to hold frequent meetings. It may be desirable to issue project notices and
reminders of priority actions by paper or by e-mail.

Proximity: By locating people in proximity, they can see each other more frequently, and this may
enhance communication.

Follow-up: Follow-up is necessary for communication. Without follow-up, communication is not

taken seriously by the person concerned and the very purpose of it is defeated. There are many
methods of follow-up. A simple method is discussed below:

• Update the list of all actionable point in communication along with the communication
reference, person responsible for action, target date, etc.
• Review the purpose regularly and cross off the completed ones. Send interim reminder if
progress is slow.

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• Continue the above steps.

Table 9.4 depicts a simple format for follow–up of actionable points of communication.

Table 9.4: Format for Follow–up of Actionable Points

S.No Actionable Communication Persons Target Remarks

Point Reference Responsible Date

Emerging methods of communication: The emerging methods of communication or in other words,

you can say the modern-day methods of communications are as follows. These are the methods which
can be used where the traditional methods are not satisfactory. They also have a greater accessibility.
The medium of communication is such that you can communicate with a person or persons sitting at
a far-off place.

(i) E-Mail: E-mail has the advantage of reaching quickly, to many people at dispersed locations.
However, it should be used carefully and thoughtfully. Project report can be distributed as
attachment to e-mail.

(ii) Internet site: Internet site or a website is related with the web pages which restrain content
(media), i.e., text, video, music, audio, images, etc. A website is hosted on no less than one web
server, which is accessible via network for instance the Internet or a private local area network
through an Internet address known as a Uniform Resource Locator(URL). All publicly available
websites together constitute the World Wide Web(WWW). An organization can design internet
site to retrace and view project information by authorized persons.

(iii) Chat room: Chat room is the online meeting of participants on project issues. Under this opinion
are exchanged by typing messages and viewing responses on the computer’s screen. The session

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can be archived for future use. In this case, the party has to obtain lease connection from
authorized body such as Bharat Sanchar Nigam Ltd., India.

(iv) Video conferencing: Video conferencing is the conduct of a videoconference (also known as a
video conference or video-teleconference) by a set of telecommunication technologies which
allow two or more locations to communicate by simultaneous two- way video and audio
transmissions.

Fig. 9.4: Video conferencing

It has also been called 'visual collaboration' and is a type of groupware. Here, two parties exchange
their visual/audio data simultaneously. Infrastructure needed include: computer, high speed
LAN/wan, internet connection, video conferencing software.

(v) Blog: Blog is a white board or web space over internet. It is a portion of national web space,
acquired through purchase. Only blog owner or writer is authorized to write his views on the blog
and edit it. The blog can be read by interested audience. They can write their comments on it.
However; they cannot edit it. Blog writer can accept or reject the comments. Blog writing is similar
to delivering a lecture. Blog can be a part of internet (connecting to outside world), intranet
(covering organization) and extranet (covering organization and business partner).

Every country has its own web-space. Organizations/individuals can purchase a part of the space.
In India, Bharat Sanchar Nigam Limited (BSNL) owns the web-space. National Informatics Centre
(NIC) and Software Technology Parks of India (STPI) are two such web-space sites.

The objective of blog writing may include:

o Disseminating information
o Sharing knowledge on an issue with the purpose of reinforcing or modifying it.

Project manager may use blog to communicate his views on project related issues like safety,
motivational package, resource usages, unforeseen situations and the likes.

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(vi) Wiki: Wiki consists of web space over internet/intranet/extranet, shared by an authorized group
of users to discuss their common objective. Every user has right to read, write, and edit other’s
opinion or view expressed on Wiki. Wiki uses a technology that assists a user in reading, writing,
and editing. Besides, it assists in keeping complete record of history of the process and retrieving
any record. It is similar to case study discussion in a class.

Any member can write his view on any subject on Wiki. Other members can edit the writing and
add their opinions. This process continues till a verified, true, accepted view emerges.

Objective: This is used to arrive at a consensus on an issue or to create knowledge through

collaborative process.

Advantage of using a Wiki:

o A wiki user does not need to have any computing or web related expertise to add, edit or
delete a page.
o It creates an effective library of knowledge.
o Employee can share, edit and access work related information/ knowledge such as reports,
best practices and documents.

Project manager may use this method to build consensus on an issue or find an approach for
doing a thing.

Selecting appropriate communication model: Media’s choice depends on specific purposes such
as assessing commitment, building consensus, mediating a conflict and others, to be addressed.
Schnabel quotes guidelines to select appropriate media to suit specific need to communicate
information. A portion of the guidelines is presented in Table 9.5.

Table 9.5: Media choice Matrix

How well media is

Hard Copy Phone Call Voice Mail E-mail Meeting Website
suited to?
Assessing commitment
Building consensus
Mediating a conflict
Resolving
misunderstanding
Addressing negative
behavior
Expressing
support/Appreciation

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Key:
Excellent
Adequate
Inappropriate

SELF-ASSESSMENT QUESTIONS – 2
Fill in the Blanks:
4 A ________ may be conducted to identify the specific information requirements of stakeholders
related to the various decision area in a project.
5 In ___________ meetings, all participants sit in a room and participate in the agenda.
6 ___________ consists of web space over Internet/intranet/extranet, shared by an authorised
group of users to discuss their common objective.
7 ____________ are age old methods to communicate project information in many organisations.
True or False:
8 Data collected from records is known as primary data. (True/False)
9 Blog is a white board or web space over the Internet. (True/False)
10 Communication is the process by which information is exchanged
between individuals through a common system of symbols, signs, or
behaviour. (True/False)

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4. DESIGN OF PMIS
Following elements should be kept in view in the design, development and operation of a PMIS:
• The PMIS should support the full range of life cycle including project analysis and post project
review.
• Enterprise guidance and project background information must be a part of PMIS.
• PMIS include all information coming from a various sources, including formal reports, informal
sources, observations, project review meetings and questioning.
• The PMIS must interface with larger organisational information system to permit smooth,
well-organised interchange of information in support of organisational and project goals.
• Only relevant information should be a part of PMIS.

Design of PMIS consists of following four sub-systems

• Capture data: This involves capturing data from primary as well as secondary sources
• Processing data into information
• Storing data/information/reports
• Distribute/communicate information

Each sub-system consists of the following components

• Hardware: A computer and its peripheral: Input, output, and storage device. It also includes
communication equipment that facilitates fast transmission and reception of text, pictures,
sound, and animation in the form of electronic data.
• Software: Sets of instructions that tell the computer how to take data in, how to process it,
how to display information, and how to store data and information.
• People: It includes IT professionals and users, who analyse information needs, design, and
construct information system, write computer program, and operate and maintain the system.
• Procedure: Procedures include priorities in running different applications and the security
measures to achieve optimal and secure operations of the system.

SELF-ASSESSMENT QUESTIONS – 3
True or False:
11 The PMIS should support the full range of life cycle including project analysis and post
project review. (True/false)

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12 Only irrelevant information should be a part of PMIS (True/false)

13 Hardware also includes communication equipment that facilitates fast transmission and
reception of text, pictures, sound, and animation in the form of electronic data. (True/False)
Fill in the Blanks:
14 Enterprise guidance and project __________ should be a part of PMIS.
15 ___________ include priorities in running different applications and the security measures to
achieve optimal and secure operations of the system.

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5. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• Successful project management depends greatly on careful design, implementation, and
maintenance of effective PMIS. PMIS should provide appropriate information about the key
factors critical to the success of the project. These factors generally include scope, time, resources,
cost, quality, procurement, and risk.
• Information can be distributed/ shared as printed project reports, as attachment to e-mail, or
through Internet/intranet/extranet sites, blog, or wiki designed for a project.
• Information can be presented at formal and informal project review, face-to-face briefings,
teleconferences, and video conferences.
• A combination of these approaches for information dissemination can result in a powerful PMIS.
• It is important that the PMIS is capable of supporting stakeholders changing requirements for
information needed for decision making. Hence, it should be flexible and reviewed periodically

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6. GLOSSARY
Financial Management is concerned with the procurement of the least cost funds, and its effective

It is the process by which information is exchanged between individuals

Communication -
through a common system of symbols, signs, or behaviour.

It represents something in the real world, expressed as a number or a

Data -
statement or a picture.

Project
A PMIS consists of people, equipment, and procedure to collect, process,
Management
- store, combine, and communicate the needed information to users for
Information
carrying out project management functions.
System (PMIS)

They are persons or groups that have or claim ownership right or interest
Stakeholders -
in a project and its activities in the past, present, or future.

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7. TERMINAL QUESTIONS
1. Define PMIS.
2. Discuss the various steps of PMIS planning.
3. Discuss the commonly used information for all the organisations.
4. Discuss the various methods of communicating information.
5. How will you design an effective PMIS?

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8. ANSWERS
Self-Assessment Questions
1. PMIS
2. System
3. Information
4. Survey
5. Face-to-face
6. Wiki
7. Written reports
8. False
9. True
10. True
11. True
12. False
13. True
14. Background information
15. Procedures

Terminal Questions Answers

1. Project Management Information System (PMIS) helps in planning, executing and closing project
management goals.. Refer to section 9.2.
2. It includes the identification of required information, collecting data, capture data, processing of
data into information, and communication of information to stakeholders. Refer to section 9.3.
3. Most projects require information on some or all of the following: scope, time, cost, quality,
resource utilisation, procurements, and risk. Refer to section 9.3.1.
4. Some of the key methods of communicating the information to stakeholders include written
reports, face to face meetings, etc. Refer to section 9.3.4.
5. A PMIS should be designed in such a way that it can provide support throughout the project life
cycle and include all the information coming from different sources. Refer to section 9.4.

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9. CASE STUDY
ABC is one of Australia’s leading providers of power, transport, defence, and telecommunications
infrastructure with an annual turnover in excess of AUD $1.7 billion. ABC was awarded the A$20
million contract to supply and construct an 1800 mobile phone network in the region stretching from
the city of Gold Coast to Brisbane in Queensland, Australia. This contract involved the site acquisition,
design, supply, and building of approximately 120 antenna sites throughout this region. The
numerous sites being managed necessitated a better information management system to handle the
large quantity of text and visual information associated with each site location.

In order to facilitate more effective management of project information and to address the project
communication requirements, the telecommunications division of ABC proposed to implement a
Project Management Information System (PMIS) on this project. The proposed PMIS can be used to
instantly share, visualise, and communicate the project information amongst the project participants
including staff, clients, consultants, subcontractors, suppliers, and authorities.

1. What are the various project activities carried out by ABC Company in Australia
Hint: Activities involved in supplying and constructing 1800 mobile phone network in the region.

2. How ABC company facilitate an effective management of project information for addressing
various project communication requirements?
Hint: By implementing a Project Management Information System (PMIS) on this project.

Source: www98.griffith.edu.au

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10. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing House.

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 7/02/2012
• www.projectmanagement.com. Retrieved on 8/02/2012
• www.pmearth.com. Retrieved on 9/02/2012

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BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 10 - Purchasing and Contracting for Projects 1
DBB1207: Project Management

Unit – 10
Purchasing and Contracting for Projects

Unit: 10 - Purchasing and Contracting for Projects 2

DBB1207: Project Management

TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4-5
1.1 Objectives - -
2 Purchase Cycle - -
2.1 Indent goods 1 -
2.2 Shortlist suppliers - -
2.3 Invite, receive and choose bid i, ii i
6 - 13
2.4 Preparation and placement of purchase order - -
2.5 Follow-up - -
2.6 Receipt, inspection and storage of goods - -
2.7 Maintenance of records - 1
3 Contract Management - -
3.1 Contract planning - ii
14 - 16
3.2 Contract negotiations - -
3.3 Contract administration - 2
4 Procurement Process - 3 17 - 18
5 Summary - - 19
6 Glossary - - 20
7 Terminal Questions - - 21
8 Answers - - 22
9 Case Study - - 23 - 25
10 References - - 26

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1. INTRODUCTION
In the previous unit, we dealt with the concept of Project Management Information System (PMIS),
planning of PMIS, and design of PMIS. PMIS aims to provide relevant information on time, resulting
in improved performance. PMIS are system tools and techniques used in project management to
deliver information. In this unit, we will deal with the concept of purchase cycle, contract
management, and procurement process.

Materials and equipment structure the core of the entire project. These are the basic materials used
for production of the products or completion of the project. Materials consists of raw materials,
supplements (primary and intermediate goods), iron bars or sheets, cement, bricks, pipes, wooden
planks or boards, hydrogen gas, oxygen cylinders, water etc., are some the widely used materials on
site projects. Industrial projects call for specific raw materials and related intermediary goods that
help manufacture designed output. Indeed, it could mean anything by which finished output can be
made, for a painter a blank canvas can be material along with colours and brush, for a carpenter wood
boards are material and tools will be intermediaries, for builder, cement bricks, sand, etc. will be
materials and cranes, hammers will be intermediary tools.

On the other hand, equipments are the tools required for the handling of materials. It relates to the
movement, storage, control, and protection of materials, goods, and products throughout the process
of manufacturing, distribution, consumption, and disposal.

A Project requires a large variety of materials and equipment for which purchase orders have to be
placed for supplies and contracts have to be negotiated for services. Purchasing plays a major role in
ensuring our capability to achieve quality, cost effectiveness, and timely completion and delivery. The
role of purchase department becomes significant in the project due to the following:
• Purchased goods and services are likely to account for over half of the total project cost.
• Availability of the right quality of goods and services on time are essential to avoid time and
cost over-runs of the project.
• Improper quality of goods influences project performance in the future.

Hence, it is essential to procure goods and services at an appropriate price, quality, and on time. In
this unit, you will study the important steps involved in the purchase and procurement of materials
and equipments.

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1.1. Objectives
After studying this unit, you should be able to:
• Identify the key steps involved in purchasing
cycle
• Recognise the essentials of contract
management
• Describe the procurement process

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2. PURCHASE CYCLE
Purchase cycle is a standard process that corporations and individuals progress through (in order)
when purchasing a product or service. It is also known as the 'buying cycle' or 'purchase process'.
This cycle discusses about the decision points that the buyer or the purchasing team goes through.
Usually, purchase cycle of a project consists of the following elements. Figure 10.1 depicts a purchase
cycle.

Fig. 10.1: Purchase Cycle

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Let us now discuss each of these elements in detail.

2.1. Indent goods

This involves identifying the needs, preparing specification of goods, and filling up indents and obtain
signature of the competent authority. Based on the project network, the project engineers identify the
need (description of goods, quantity, and time of need).

The next task is to specify the goods. Purchase specification is called the heart of procurement. It
describes a product in terms of its design characteristics which includes dimensions, weight, shape,
size, surface finish, physical and chemical properties, and performance. Various types of
specifications including commercial design; materials and methods of manufacturing; performance,
function and fit; brand and trade name; and sample and market goods are available to specify the
goods. Any of these may be used for specifying the goods.

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Next to this, a purchase indent form is filled which shows the details of goods, description, their
specification, quantity, and time of need. The purchase indent is signed by the prescribed authority.
Indent authorises the purchase engineer to procure the material.

2.2. Shortlist suppliers

The buyer's first task is to identify a suitable source of supply. The list of potential suppliers can be
prepared with the help of several sources including the supplier's catalogue, trade register, internet,
trade journals, historical records of purchase sections, etc. Based on the historical records or other
considerations like indigenous or imported, local or global, etc, the suppliers are shortlisted. In case
of limited tender, 8-10 suppliers are listed. In case of open tenders, the number is unlimited.

Besides other things, the number of suppliers short listed depends on the availability of suppliers; if
the product is highly specialised, the number of suppliers available may be limited.

2.3. Invite, receive, and choose bid

Competitive bid (bid and award)

The steps involved in competitive bid are discussed below:

1. The bid or tender is invited from a required number of suppliers. Table 10.1 depicts a typical
structure of bid.

Table 10.1: Typical Structure of a Bid

2. The bid received in prescribed condition are accepted and held in safe custody.

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3. The bids are opened and made public at the stated time and place in the presence of the bidders
who are present.
4. The information received from bidders is tabulated on a comparative statement which allows
comparison of quoted prices, validity periods, and other critical factors. Table 10.2 depicts an
example of a comparative statement of a bid for indigenous bidding.
Table 10.2: Comparative Statement of Bids

5. The comparative statement may present various situations which include:

i) If the price quoted by the lowest bidder(s) when compared with the estimated price is
reasonable, the lowest bidder is selected. The estimated price could be based on past
experience, price of similar products, own estimates, and knowledge of factors influencing the
price.
ii) If the lowest bidders are more than one and their prices are reasonable, the purchase manager
may take one of the following actions to resolve the ties:
• Divide the order among the lowest bidders.
• Request the lowest bidders to review and resubmit their bids.
• Analyse the cost factors such as quality rating, payment terms, and firm price period and
non-cost factors such as lead time, past experience, and fit with the company and choose
the supplier.

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iii) If there is a large variation between the lowest and the highest prices or if there is a negligible
variation among the prices quoted by the suppliers suspecting collusion, then the purchase
manager can discuss with the suppliers or cancel the bid altogether and go for fresh bidding.

Negotiated bids
For new and complex products, prior manufacturing experience may not be available with the
suppliers and the price quoted may not be realistic. Under the situation, the bid-and-award method
may not be suitable and the buyer may prefer to go for negotiated bid.

Negotiated bid also starts with bidding. Up to the comparative statement stage, this is identical to
competitive bidding (bid-and-award). After this, the negotiated bid enters into a negotiation with
bidders.

Activity - 1

Collect bid proposal for a project and try to find out what constitute a typical structure of a bid.

2.4. Preparation and placement of purchase order

The purchase order can be divided into two parts. They are:

Specific conditions to the purchased goods

The specific conditions include purchase order no., name and address of the supplier, delivery
address of the goods, description of the goods, product specifications, quantity, contract price,
delivery date, delivery conditions (liability to transport, packaging, insurance cost, etc.), terms of
payment, liquidated damage (right to recover some specified amount from supplier for delayed
delivery), other features (responsibility for export licence, custom clearance at port of origin,
transportation and insurance cost upto port of loading, shipping document, etc.), and an authorising
signature.These items are typed on the front side of the purchase order form.

General commercial condition of purchase

Normally, companies standardise the commercial conditions of purchase and print them on the
reverse side of the purchase order form. Generally, these conditions include:

• Prices: All prices are fixed for the duration of the contract and unless otherwise agreed.
• Quantity and description: The goods shall confirm in all respect to the specification given by
the company to the seller.

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• Indemnity: The seller at his own expense repairs or replaces all the defects attributed to faulty
design or workmanship which may crop up in the goods within a period of 12 months.
• Loss or damage: All responsibility for any loss or damage to the goods shall lie with the seller.
• Rejection: The rejected goods observed during testing/inspection will have to be lifted by the
supplier at his own cost within a month of receipt of rejection advice from the company.
• Force majeure clause: Neither the company nor the supplier shall be responsible if the
execution of the contract is delayed/interrupted due to the cause absolutely beyond their
control, such as acts of God, war, major civil commotion, etc.
• Termination: The Company reserves the right to terminate the contract either in full or in
part in the event of failure/default/refusal on the part of supplier to perform as per the
contract.
• Arbitration: All disputes related to the contract will be referred to the sole arbitrator chosen
by the company.
• Applicable law: The law of the buyer's country will be applicable.

Time of orders and deliveries

Depending on the situations, the following options may be kept in view while choosing the timing of
placing the order:

• Early ordering of long lead time Items: Items of long lead time are to be identified and
procurement action for these should be initiated as soon as possible.
• Just-in-time: It is a good practice to order goods on just-in-time concept as it eliminates multi
handling and inventory holding cost. However, the risk of delayed arrival of material is to be
kept in view.
• Retarded deliver: Some materials are needed at a later part of the project. Even though the
order is placed earlier, their delivery should be retarded.
• Call off order (similar to phased delivery): If the order size is large, delivery can take place
in small batches at an agreed rate over a specified period. Items are called off as they are
needed for the project. Building supplies, cement, sand, bricks, etc fall under this category.
• Common sense timing: However there are items like screws, nuts, washer, etc which are
relatively less expensive and occupy less space. Such items can be purchased in one lot.

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Use of lot-sizing techniques to find out how much to order and when to order
There are numerous available heuristics which provide better solutions with regard to 'when to
order' and 'how much' to order. Mishra presents the applications of four such heuristics:

• Purchase order: Purchase order, complete with its set of conditions, is sent to the supplier
for acceptance.
• Letter of intent (intention of purchase): Sometimes there is a likely delay in the preparation
of the purchase order. Keeping this in view, a letter of intent is sent to the supplier to minimise
delay.
• Acceptance of purchase order: Purchase order becomes a legal contract only after it has
been accepted by the vendor or any of his authorised agents. To ensure this, two copies of
purchase order are sent to the supplier. One of these acts as an acknowledgement. This copy
is signed and returned by the supplier. It is a good practice to include a phrase, "We
acknowledge and accept the offer" in the acknowledgement copy.
• Amendment in purchase order: If any change in the purchase order is needed, an agreement
with the supplier should be reached considering its impact on price, delivery, etc.

An amendment to the original purchase order must be issued. It should bear the same reference
number as the original purchase order, suffixed by the specific amendment no. (Amendment 1 or 2
or 3).

2.5. Follow-up
Follow-up is a preventive measure that seeks to foresee the problem and preempt late delivery.
Follow-up includes internal follow-up with departments like store, finance, inspection, and project
groups and external follow-up with suppliers.

Internal follow-up includes co-ordination with store for receipt of materials and dispatch of
documents, finance for clearing of invoice and freight charges, and project group for requirements of
material and change of specification, if any.

External follow-up monitors the progress of each order and calculates the deviation between planned
date and expected date of arrival of goods and takes action either to expedite or de expedite the supply
of goods. The need for expediting arises in situations when the item is due, soon going to be due, or
due date is advanced for some reasons. Sometimes, the due date of item is shifted to a later date. In
this case, there is a need to de-expedite the supply to avoid excessive build-up of inventory.

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Method of follow-up includes letter, telegram, telephone call, e-mail, and personal meeting. Some
firms maintain expediters in the field who keep contacts with suppliers on important orders. At times,
the expediters are responsible for a specific territory to follow-up all orders. Heavy construction
items of long lead times call for field expediting.

Alternate sourcing: When follow-up measures (expediting/de-expediting) appear to be failing,

purchase should look for alternate source or the design engineer might be able to support an
alternative item that can be obtained more quickly.

2.6. Receipt, inspection, and storage of goods

On receipt of shipment, the Incoming Material (IM) section receives the challan and excise document
and ensures that the material is as per the seller's packing slip and against the project purchase order.
Then, the material is unloaded and the general conditions of packing are checked. If satisfied, the
material is unpacked. The quantity and general conditions of the material is checked. If an inspection
is to be carried out, the IM section arranges for the same.

After inspection, the IM section raises Goods Receipt Note (GRN) for right (O.K.) material. The
contents of GRN include delivery timing, shipment damage, rejection percentage, shortages, split
shipment, etc. This is used for invoice payment, closing the order, any negotiation with the supplier,
and inventory updating. Information is sent to the concerned agencies like accounts, project, and
others for taking necessary actions. This section arranges for shifting of the material in project stores.

In a good system, the design section develops a unique identification code (also called a Unique
Material Code-UMC) for each material needed for the project right from the beginning. On receipt of
material from IM section, the first task of the project store is to mark each material by the correct
material code.

The project materials are stored in a specific location within closed/ controlled areas. The materials
enter and leave the areas only with authorised documents. No one can enter in the area without
permission. All receipt or withdrawals of materials are recorded in a card or register or computer.

Every storage location has an address. Co-ordinates of a place or part number may serve as address
of the location. Each item is assigned a specific storage space and record of it is kept in an inventory
catalogue or a location index.

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A large number of equipments such as stackable trays, pallets, racks, trolleys, etc. are used to store
the materials. Also, various types of handling equipments including forklift trucks, cranes, truck
mounted with cranes, or stacker are used to handle the materials within the storage area safely.

2.7. Maintenance of records

Records of each stage from indenting to receipt and closing of orders are maintained for the purpose
of monitoring and control. Records are also helpful in identifying vendors for new items at a later date,
resolving any disputes with the suppliers, bringing changes in product specification in the future, and
planning similar projects in the future.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the Blanks:
1 Purchase _____________ describes a product in terms of its design characteristics which includes
dimensions, weight, shape, size, surface finish, physical and chemical properties, and
performance.
2 The purchase___________ is signed by the prescribed authority.
3 Follow-up includes internal follow-up with departments like store, finance, inspection, and
project groups and external follow-up with _____________.
4 The __________ conditions include purchase order no., name and address of the supplier,
delivery address of the goods, description of the goods, product specifications, quantity, etc.
True or False:
5 Purchase order becomes a legal contract only after it has been accepted by the vendor or any
of his authorised agents. (True/False)
6 Follow-up is a corrective measure that seeks to foresee the problem and preempt late
delivery. (True/False)

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3. CONTRACT MANAGEMENT
Contract management is the management of contracts which is entered with clients, sellers, partners,
or employees. It comprises of negotiating the terms and conditions and ensuring the compliance with
the terms and conditions, with documenting and approving on any changes or amendments that may
occur during its implementation or execution. As we discussed in the previous section, a purchase
order becomes a legal contract after accepting by the vendor or the agent. Most of the projects include
a huge amount of capital investment on purchasing the equipment and machinery.

Organisations can also get these equipments on a contractual basis. Hence, the project manager needs
to negotiate with the suppliers on quality, delivery schedule, price, payment schedule, service, and
other relevant legal contractual aspects. The process of deliberation is called negotiation.

Contracting has three phases. They are:

• Contract planning
• Contract negotiations
• Contract administration

3.1. Contract planning

Contract planning should be done at the project schedule stage. The process of contract planning
includes the preparation of resource plans. The following points should be considered for preparing
the contract planning:

• Work Break Down (WBS) and packaging

• Requirement of resources, mainly equipment and manpower for various work packages
• Type and numbers of contracts to be awarded and approximate to whom.
• Technical, financial, and operational capabilities of the contractor
• Scope of work for each contractual job
• Method of contracting - ICB, LCB, open tender, limited tender, etc
• Choosing among suitable and comparable parties
• Obligations of both parties should be reasonable

Activity - 2

What is a contract? List main points come under a sale contract? Elaborate with a practical
example?

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DBB1207: Project Management

3.2. Contract negotiations

The negotiator brings the buyer and the seller face to face. All assumptions and parameters related to
price are analysed. Eventually, a more realistic picture emerges, which is agreed to by both the buyer
and the seller.

The following aspects should be kept in mind at the time of contract negotiations:

• Price-related terms: Price could be fixed or adjustable during the contract period. Fixed price
is generally applicable under stable market conditions and in case of firm specifications and
product schedule. Adjustable price applies to unstable labour market conditions and uncertain
specifications and product schedule. A suitable price adjustable clause is agreed and included
to take care of these situations.
• Payment terms: Any of the payment terms which include advance, credit for specified period,
cash on delivery, and retiring document through bank may be selected mutually. Retiring a
document through bank is adopted by the supplier to obviate any delay in payment after
receipt of the consignment. The process involves the following steps:
❖ Dispatch document in the form of railway receipt, RR (in case of rail transport),
consignment note (in case of road transport), or bill of lading or bill of exchange (in
case of ocean transport) is sent by the supplier to its banker, after receiving the
indicated amount, with a request to handover the document to the purchasing
company. In the document, the supplier puts its name as consigner and consignee. The
supplier signs on the back of the document (like bearer cheque).
o A letter is also written to the consignee to retire the document from the bank.
o The recipient company gets the document after making the specified payment and
collects the consignment from the transporter after producing the dispatch document.
o The bank charges some fee from the consigner for this service.
• Delivery conditions: These may include which mode to be used, how much quantity to be
delivered, and when.
• Agency for inspection: It is to be agreed whether inspection is to be done by a third party or
by buyers or supplier's own inspection.
• Cancellation: Cancellation of contract may be done due to default by the vendor in failing to
perform as agreed in contract while making deliveries, convenience of the buyers, or mutual
consent. In a situation where the seller is not at fault, it is to be ensured that he or she does not
suffer any loses.
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DBB1207: Project Management

• Quantity: Quantity may be fixed or variable in case of variable quantity; the lower and upper
bound needs to be specified.

3.3. Contract administration

Various problems may arise during the execution of the contract such as:

• Extra work including excess quantities of work

• Deleted work including lower quantities of work
• Non-compliance with specifications
• Delays in time schedules
• Late payments
• Taking over of completed works
• Warranties
• Contract close out

As and when the problems arise, they must be sorted out immediately based on the provisions of the
agreed contract.

SELF-ASSESSMENT QUESTIONS – 2
Fill in the Blanks:
7 _________ of contract may be done due to default by the vendor in failing to perform as agreed
in contract while making deliveries, convenience of the buyers, or mutual consent.
8 The process of contract planning includes the preparation of ___________ plans.
9 ____________ is generally applicable under stable market conditions and in case of firm
specifications and product schedule.
True or False:
10 Contract planning should be done at the project planning stage. (True/False)
11 Fixed price applies to unstable labour market conditions and uncertain specifications and
product schedule. (True/False)

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4. PROCUREMENT PROCESS
An effective procurement process plays in important role in the successful implementation of a
project. A procurement process starts with the identification of the required materials and
equipments. Delayed delivery, manufacturing defects, incorrect specifications, belated replacement,
pilferage, shortage, etc are common problems in almost all projects. An efficient project management
can avoid much of these problems by proper planning and control of procurement and efficient post-
procurement materials management.

A project procurement process covers the following functions:

• Request to invite bids or tenders: This covers the listing requirements of equipment,
preparing specifications, and sending request to invite bids.
• Shortlist suppliers: This includes identifying the required number of suppliers out of the
possible ones.
• Invite bids: This element covers the invitation of bids to receiving them.
• Evaluate, negotiate, and choose bid(s): This involves making comparative statement of
various elements of price, negotiate technical and commercial aspects including price, select
the lowest bidder(s), and get the approval of a competent person.
• Prepare and place orders: This includes writing the purchase order which describe the
products and state all the commercial terms in simple and clear words, obtaining the signature
of a competent, authorised person, and send order to supplier and get his or her
acknowledgement.
• Order fulfillment: This includes monitoring the progress of manufacturing of equipment, its
quality, packaging, and associated documentation.
• Transport and shipping: This covers all the formalities needed to get the equipments from
the supplier to the project site.
• Receive, inspect and store equipment at site: This includes activities like general inspection,
marking the identification number, and inspecting and storing it at a secure place.

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SELF-ASSESSMENT QUESTIONS – 3
Fill in the Blanks:
12 ___________ includes monitoring the progress of manufacturing of equipment, its quality,
packaging, and associated documentation.
13 __________ includes identifying the required number of suppliers out of the possible ones.
14 A procurement process starts with the _________ of required material and equipments.
15 An efficient project management can avoid much of these problems by proper planning and
control of procurement and efficient __________ materials management.

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5. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• The role of purchase department is crucial in projects as purchase of goods and services accounts
for over 50% of project cost; the availability of right materials on time obviates time and cost
overruns; and improper quality of goods affects the project performance in the future.
• The chapter discusses various elements of purchase cycle which begins with raising indents.
Indents portray description of goods, quantity, specification, and time of need. It authorises the
purchase to procure goods.
• The purchasing department starts its action by short listing of suppliers and inviting tenders. The
tenders are revised, analysed, and the lowest cost bidder is chosen. Other terms of purchasing,
including price-related terms, agency to inspect, cancellation, and quantity variation are discussed.
The purchase orders are sent and acknowledgement is received from suppliers.
• Follow-up of purchase order ensures the receipt material when needed. On receipt, the material
is inspected and stored in a secure place. The chapter ends with a discussion on maintenance of
records.

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6. GLOSSARY
Financial Management is concerned with the procurement of the least cost funds, and its effective

The total price a buyer has to pay to acquire a product or service. It

Landed price or
- includes the basic price, excise duty, sales tax, transportation cost, and any
acquisition price
other cost.
Purchase It describes a product in terms of its design characteristics which includes
description or - dimensions, weight, shape, size, surface finish, physical and chemical
specification properties, and performance.

It eliminates multi-handling and inventory holding cost. However, the risk

Just-in-time -
of delayed arrival of material is to be kept in view.

It is an offer or proposal to carry out work, supply of goods, etc at a stated

Tender or bid -
price.

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DBB1207: Project Management

7. TERMINAL QUESTIONS
1. What are the key steps involved in purchase cycle?
2. What is the difference between a competitive bid and a negotiated bid?
3. What are the specific and general commercial conditions of purchase?
4. What are the different phases of contract management?
5. Write a note on procurement process..

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8. ANSWERS
Self-Assessment Questions
1. Specification
2. Indent
3. Suppliers
4. Specific
5. True
6. False
7. Cancellation
8. Resource
9. Fixed price
10. False
11. False
12. Order fulfillment
13. Shortlist suppliers
14. Identification
15. Post-procurement

Terminal Questions Answers

1. A purchase cycle starts with the indent of goods followed by short listing of suppliers, invite,
receive and choose bids, preparation and placement of purchase orders, follow-up, receipt,
Inspection and storage of goods, and maintaining records. Refer to section 10.2.

2. A competitive bid is suitable for bid-and-award method; on the other hand, negotiated bid is
suitable for new and complex projects. Refer to section 10.2.3.

3. The specific conditions include purchase order no., name and address of the supplier, delivery
address of the goods while the general commercial conditions include the description of price,
quantity, rejection, termination etc. Refer to section10.2.4.

4. The different phases of contract management include contract planning, contract negotiation, and
contract administration. Refer to section 10.3.

5. A procurement process starts with the identification of required material and equipments. Refer
to section 10.4.

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9. CASE STUDY
Integrating Sustainability into Nike's Procurement Process

A key element of Nike, Inc.'s corporate responsibility strategy is integrating knowledge and values
across our organisation. It's a marathon, not a sprint. One example of integration comes from Global
Procurement, which sources non-product suppliers for Nike (processes for selecting and monitoring
product suppliers are described in the workers and factories section).

Over the past five years, Global Procurement has partnered with several Nike, Inc. functions to
increase the sustainability of the goods and services they buy. The team leverages Nike, Inc.'s
purchasing power by communicating sustainability objectives to suppliers and potential suppliers,
and challenges them to deliver innovative goods and services to meet our objectives.

We think this is an important way to help build markets for more sustainable – and affordable –
choices. We saw this dynamic play out in a multi-year project to shift toward more environmentally
friendly materials and processes in Nike's retail bag programme in the United States. Building on this
and other lessons learned, we began evaluating the CR performance of current and prospective
suppliers.

A better bag
When we began looking into improving the sustainability of retail bags, we first awarded business
only to printers that were third-party certified by the Forest Stewardship Council (FSC). At that time,
FSC-certified paper was available but too costly. We encouraged printers to work on Nike's behalf to
find acceptable FSC-certified materials.

Four years have passed since this process started, and we now source bags using 100% FSC-certified
paper printed at FSC-certified printers using soy-based inks and distributed by an FSC-certified
fulfillment company. The complete chain of custody allows Nike to use the FSC certification number
and logo on all retail bags in North America and Singapore. We will roll other regions into the
programme as materials and providers are available.

We aim to tackle every addressable area to improve sustainability, including looking at angles not
commonly assessed or addressed. In FY07-09 some areas we have improved include reduced energy
waste in retail stores by adopting remote lighting management, reduced traffic and miles traveled by
implementing a pooled distribution network, and reducing long-distance shipping by finding a body

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DBB1207: Project Management

form supplier who uses sustainable materials and delivers from manufacturing plants located near
Nike centers.

A better process
Through these projects, we learned that one of our biggest challenges has been a lack of common
indicators to evaluate the potential suppliers.

Though each category and project has unique attributes, we needed a consistent process for ranking
suppliers' sustainability performance in order to fairly and systematically integrate sustainability as
a factor in our procurement process.

To achieve this goal, we developed a supplier scorecard to assess the match between Nike's CR values
and those of existing and potential suppliers. Several yes/no questions were asked about the policies,
metrics, goals, and performance on relevant topics, including compliance, considered, climate,
community, and competition. The competition section, for example, asks about employee and
supplier diversity practices.

Questions are universal enough to apply to all suppliers and are provided online, enabling us to
review each supplier's profile and establish baselines for peer groups and our overall supply base.

This process is helping us to establish a baseline of Nike's current non- product goods and services
suppliers, evaluate potential new suppliers against that baseline, and analyse and learn from the
collected data to inform future purchasing decisions.

Through FY09, we had requested more than 100 suppliers to complete the survey. To date, responses
have showed wide variation in the effort on the part of suppliers and reveal significant differences
between large and small companies. Only one large company indicated they had no corporate
responsibility strategy or plan, compared to half of the small suppliers.

Moving forward, we expect to establish a minimum acceptable corporate responsibility standard

required for suppliers to do business with Nike. We also plan to establish a supplier partner forum to
share innovations and solutions and to work with smaller suppliers, developing a set of tools to help
companies that do not have the resources or the knowledge to make a strategic approach to building
their corporate responsibility capabilities.

1. What are the various procedures applied by Nike, Inc.'s under its corporate responsibility strategy
for integrating knowledge and values across organisation?

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DBB1207: Project Management

Hint: Global procurement, improving the sustainability of retail bags, establishing a minimum
acceptable corporate responsibility standard)

2. Elaborate the statement, “build markets for more sustainable – and affordable – choices”
Hint: Shifting towards more environmentally friendly materials and processes

Source: http://www.nikebiz.com/crreport/content/environment/4-5-0-case-study-integrating-
sustainability.php

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9. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing
House.

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 8/02/2012.
• www.projectmanagement.com. Retrieved on 9/02/2012.
• www.pmearth.com. Retrieved on 10/02/2012.
• www.nikebiz.com/crreport/content/environment/4-5-0-case-study-
• integrating-sustainability.php. Retrieved on 10/02/2012.

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BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 11 - Project Performance - Measurement and Evaluation 1
DBB1207: Project Management

Unit – 11
Project Performance - Measurement
and Evaluation

Unit: 11 - Project Performance - Measurement and Evaluation 2

DBB1207: Project Management

TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4
1.1 Objectives - -
2 Performance Measurement i 1 5-7
3 Productivity - 2 8-9
4 Project Performance Evaluation - -
4.1 Types of project performance evaluation - - 10 - 13
4.2 Process of project performance evaluation - 3

5 Benefits and Challenges of Performance Measurement ii i 14 - 15

and Evaluation
6 Controlling the Projects 1 -
6.1 Control of major constraints – time, cost, and 2 -
qualities 16 - 20
6.2 Design of control system - -
6.3 Approaches to project control - 4
7 Summary - - 21
8 Glossary - - 22
9 Terminal Questions - - 23
10 Answers - - 24
11 Case Study - - 25 - 28
12 References - - 29

Unit: 11 - Project Performance - Measurement and Evaluation 3

DBB1207: Project Management

1. INTRODUCTION
In the previous unit, we dealt with the concept of purchase cycle, contract management, and
procurement process. In this unit, we will deal with the concepts of performance measurement,
productivity, project performance evaluation, benefits and challenges of performance measurement
and evaluation, and controlling the projects.

Performance measurement and evaluation are important aspects in any project management process.
Performance measurement is the ongoing, regular collection of information for monitoring how a
project, policy, or strategy is doing. It is a systematic way of mapping the evidence of the progress you
are making towards your expected results.

In Performance Measurement we include monitoring and reviewing of programme accomplishments

and movement towards pre-established goals. On the other hand, evaluation involves comparison
of performance with the objectives of the client organisation and determining the change if any, to
ensure whether such changes are in the best interest of project itself. Evaluation is the best way to
collect, look and analyse the information to draw conclusions about the performance of a policy,
project or strategy. Evaluations can also be focused at the programme level.

1.1. Objectives
After studying this unit, you should be able to:
• explain the concept of performance
measurement
• define productivity
• recall the essentials of project performance
evaluation
• identify the benefits and challenges of
performance and evaluation
• describe the key steps and approaches for
effective control of project

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2. PERFORMANCE MEASUREMENT
Pre-established performance measurement is an ongoing process which involves monitoring and
reporting of project progress with respect to predetermined objectives. It is separately undertaken
by programme or agency management. It is an important tool of controlling and helps in examining
whether activities conform to predetermined course of actions. Performance measures can deal with
the type or level of project process, outputs, and/or outcomes.

The control, as suggested by Reeves and Woodward (1970), “is limited to monitoring the outcome of
activities, reviewing feedback information about this outcome, and if necessary taking corrective
action." The technique also involves measurement of performance in relation to standards.

These standards are decided, and then some sort of analysis is performed to measure the activity
against the standards.

The following are the key characteristics of performance measurement:

• It comprises the monitoring and reviewing of project accomplishments and progress towards
pre-determined goals
• It facilitates us to decide how well the information system, service or resource is operating,
compared with some theoretical maximum
• It helps in assessing how a resource or service is performing and, also acts as an accountability
factor to the stakeholders
• It is an important technique for establishing the "value" of information services to the intended
customers or funding authorities
• It is a part of the strategic planning process and is used as an important feedback mechanism
to support decision making in libraries and information centres.

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The performance measurement is a tool which provides quantitative information about products,
services, and the processes that produce them. This tool helps in understanding, managing, and
improving the effectiveness in an organisation.

Three characteristics of the measures have been identified by Lawler and Rhode (1976). They are:

• How complete or inclusive they are

• How objective or impersonal they are
• How much they can be controlled or influenced by the members of an organisation

Performance measures are always set in the context of a goal or an objective. They should be
expressed in units of measure that are most meaningful to those who must use or make decisions
based on those measures.

Various performance measures used can be categorised in Table 11.1:

Table 11.1: Performance Measures and their Roles

Performance
Role of Performance Measures
Measures
This indicates the degree to which a process output, i.e., a service or product
Effectiveness
conforms to the set requirements.
This indicates the degree to which the required service or product is produced,
Efficiency
the required service or product is produced at minimum resource cost.
This measures the degree to which a service or product meets the
Quality
requirements and expectations of the user.
This measures if the product or service was provided on time. The criteria for
Timeliness
evaluation of timeliness are based on customer requirements.
This is calculated by dividing the value added by the product or service by
Productivity
the value of labour and capital cost.

As suggested by, Steuart (2002), measures can be conducted on aspects of extensiveness (i.e., amount
of service provided), effectiveness, efficiency, costing, i.e., cost-benefit or cost effectiveness), service
quality, satisfaction, or any number of other factors.

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SELF-ASSESSMENT QUESTIONS – 1
Fill in the Blanks:
1 performance measurement is an ongoing process which involves monitoring and
reporting of project progress with respect to predetermined objectives.
2 Performance measurement is a part of the process.
True or False:
3 Productivity is calculated by adding the value added by the product or service by the value of
labour and capital cost. (True/False)
4 The measurement of performance is a tool which provides qualitative information about
products, services, and the processes that produce them. (True/False)

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3. PRODUCTIVITY
This is the 21st century, and life is now more competitive than it has ever been. Productivity is the
general term everyone uses to describe the balance between quantity and quality. Due to the fact that
both of these parameters are inversely proportional, we have to elevate the level of quality and the
amount of quantity equally. As we discussed in the previous section, productivity is calculated by
dividing the value added by the product or service by the value of labour and capital cost. It is the
output of a given quantum of inputs. Productivity is always a relative measure and expressed as the
ratio of net outputs to inputs.

By using the coefficient of productivity, we can measure the performance for the total enterprise or
for the individual factors of production. If the productivity is measured for the total enterprise, it is
termed as total factor productivity; and when it is measured for each factor, it is termed as partial
factor productivity.

Given the production function (f), Y = f (L, M, E, T) Where,

Y is net output,
L is labour input,
M is material input, E is energy input,
T is technology input,

Performance coefficient of productivity can be measured in financial as well as physical terms. It could
be the net output by value or physical quantity. It is particularly suitable for measuring performance
of the workers (worker productivity). It could be conveniently applied to functional groups, such as
marketing group (by relating the indicator to turnover).

SELF-ASSESSMENT QUESTIONS – 2
Fill in the Blanks:
5 Productivity is always a relative measure and expressed as the ratio of to inputs.
6 If the productivity is measured for the total enterprise, it is termed as productivity.

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7 When productivity is measured for each factor, it is termed as productivity.

True or False:
8 Performance coefficient of productivity can be measured in financial as well as physical
terms. (True/False)

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4. PROJECT PERFORMANCE EVALUATION

Performance evaluation is an important tool for the assessment of a system or service according to
the measurements specified. We can define it as the systematic process of assessment of effectiveness
against predetermined norms, standards, or expressed goals. In management evaluation of any
service, process or activity typically refers to "determining its worth".

Evaluations of project performance are an independent study which is systematically conducted from
time to time to identify the progress of a project and often these studies are conducted by including
both experts from within and outside the project.

An effective evaluation system has to start from the initial phase of a project life cycle.

Projects are assumed to be evaluated vis-à-vis capital expenditure incurred. This is an misnomer,
since it is not related to the work accomplished. When evaluated in physical terms, the process
ignores costs involved. A given quantum of work (e.g. civil construction of 10,000 cubic meters) is
completed within the scheduled timeframe, but might have cost more by Rs. 2 million over the
budgeted cost of Rs. 20 million. Both methods do not take into account the efficiency of the project
management (in terms of cost and capital inputs in relation to work done or performance).

Evaluation inspects the output of a project, programme or policy against its objectives. It also adds
the additional value by providing lessons from experience to help future management or
development of a specific project, programme or policy. Evaluation is planned from the beginning of
the project, and normally includes the following steps:

• It establishes accurately what is to be evaluated and how past outturns can be measured;
• It chooses the alternative condition of the world and/or alternative management decisions as
counterfactuals;
• It evaluates the actual outcome with the target outcome, and with the effects of the chosen
alternative condition of the world and/or management decisions;
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• It provides the results and recommendations; and

• Disseminates the results and recommendations.

4.1. Types of project performance evaluation

The following are the types of project performance evaluation techniques:

(i) Process (or implementation) evaluation: It is also called formative evaluations which are
designed to improve the implementation of a program, policy or strategy as it unfolds. In this type
of evaluation, we measure the level to which a program is effective as it was planned. It usually
considers the program activities’ conformance to statutory and regulatory requirements,
program design, and professional standards or customer expectations.
(ii) Outcome evaluation: It is also called summative evaluations which are designed to judge a
program, policy or strategy’s relevance, success and/or cost-effectiveness which includes its
relative contribution to the intended outcomes. This type of evaluation measures the level to
which a program attains its outcome-oriented objectives. It mainly focuses on outputs and
outcomes including unintended effects to evaluate program effectiveness but may also consider
program process to understand how outcomes are produced.
(iii) Impact evaluation: This is a type of outcome evaluation that measures the net effect of a
program by evaluating program outcomes with an estimate of what would have happened in the
absence of the program. This type of evaluation is used when external factors are known to
influence the program’s outcomes, in order to isolate the program’s contribution to achievement
of its objectives.
(iv) Cost-benefit and cost-effectiveness analyses: Cost-benefit and cost- effectiveness analyses
compare a program’s outputs or outcomes with the costs (resources expended) in order to
produce them. When applied to existing programs, they are also regarded as a variety of program
evaluation. It measures the cost of meeting a single goal or objective, and can be used to identify
the least cost alternative to meet that goal. This analysis aims to recognize all relevant costs and
benefits, generally expressed in dollar terms.

4.2. Process of project performance evaluation

An essential part of project management is performance evaluation, which determines how well a
project is doing in terms of fulfilling its goals, schedule, budget, and quality requirements. An outline
of the usual steps involved is provided below:

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1. Establishing Criteria and Standards:

• Establish precise performance evaluation standards, including deliverables, milestones,
budgetary compliance, quality standards, and stakeholder satisfaction.
• Establish benchmarks by which the performance will be assessed. These requirements ought
to be time-bound, meaningful, quantifiable, achievable, and explicit (SMART).
2. Collecting Data:
• Compile pertinent information to evaluate performance. This covers financial information,
stakeholder comments, quality indicators, progress reports, and any other pertinent project
paperwork.
3. Performance Measurement:
• Compare actual performance to the set standards and criteria using the gathered data.
• Both qualitative and quantitative metrics are employed, including stakeholder feedback and
quality evaluations, as well as quantitative metrics like earned value, schedule deviation, and
cost variance.
4. Analyzing Performance:
• Examine the performance measurement findings to find trends, patterns, strong points and
places that want improvement.
• Determine deviations and their consequences by comparing the project's current performance
to the baseline (original plan) performance.
5. Identifying Deviations:
• Note any departures from the performance as scheduled. This entails figuring out the
underlying reasons for these variances, be they external (such as shifting market conditions
or regulations) or internal (such as resource limitations or changes in scope).
6. Taking Corrective Actions:
• Corrective action should be taken to address deviations and enhance project performance
based on the findings.
• Make required revisions to the project plan, resource reallocation, timetable revisions, or
quality improvement activities.
7. Reporting and Communication:
• Share the performance evaluation's conclusions with the appropriate parties, including the
project team, sponsors, and clients.

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• Write reports that are easy to read and understand, outlining accomplishments, difficulties
faced, corrective measures done, and suggestions for future development.
8. Continuous Monitoring:
• Performance evaluation is a continuous procedure that lasts the whole duration of the project.
To guarantee project success, track performance indicators consistently and make necessary
strategy adjustments.
9. Learning and Improvement:
• Apply learnings from performance reviews to improve project planning and execution in the
future. For use in upcoming projects, record best practices and lessons learned.
10. Closure and Final Evaluation:
• At the conclusion of the project, conduct a final assessment to gauge overall success in
comparison to the original deliverables and objectives. Record the results, the
accomplishments, and the areas that still need work.

Project managers may successfully monitor and manage project progress, spot problems early, and
take proactive measures to guarantee good project outcomes by adhering to a defined method of
performance review.

SELF-ASSESSMENT QUESTIONS – 3
Fill in the Blanks:
9 is an important tool for the assessment of a system or service according to the
measurements specified
10 Projects are generally evaluated in terms of incurred.
11 In management of any service, process or activity typically refers to "determining its
worth".

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5. BENEFITS AND CHALLENGES OF PERFORMANCE

MEASUREMENT AND EVALUATION
Benefits
It is tools to develop management and improve decision making at all levels. Participatory
approaches, on the other hand, can assist to build capacity for ongoing improvement at local levels.
The following chart shows some of the key benefits of performance measurement and evaluation and
how they can be used.

Table 11.2: Benefits of Performance Measurement and Evaluation

Benefits of Performance Measurement and Evaluation

Policy and programme planning and Results may confirm policy and programme
development direction or identify gaps that need to be addressed.
Decision making about funding Finding out what works well/not so well can be used
to guide future funding decisions/priorities.
Clarifying goals At the outset, developing a “road map” clarifies goals,
explains the “big picture” and ensures that everyone
shares a common focus.
Tracking progress Enables monitoring and if required, permits
adjustments to be made along the way.
Reporting results Promotes accountability and communicates what
works well to facilitate improvement and ongoing
development.

Challenges
Several performance measurement and evaluation challenges related to addressing labour violence
may include:

• The multi-dimensional nature of violence because of individual family influences,

• The developing multi cultural misrepresentations leading to communal chaos
• Dissimilar operational policy environments and priorities in various jurisdictions,
• The unexpected and incidental forces of different people from different backgrounds, cultures and
community settings
• The level of investment (either resources or time) requisite to build collaborative efforts and build
confidence to address such issues, and

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• The long-term commitments to attain the overall result through interacting mechanism discounts
misunderstandings amongst ethnical groups and maintain harmony.

Activity - 1
What are the benefits and challenges of performance measurement and evaluation for the project
of mechanisation of manufacturing system in automobile spare parts business?

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6. CONTROLLING THE PROJECTS

Controlling the project is an independent function in project management. It applies verification and
controlling function throughout the processing of a project in order to emphasize the defined
performance and formal objectives. The controlling role basically consists of the following four steps:

• Establishing Tasks/performance standards

• Measure Actual Performance
• Compare the actual performance with the target (performance standard set for achievement)
and find the duration.
• Take appropriate action to see that the /desired result is achieved.

Fig. 11.1: Graph Showing the Controlling of Project

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

6.1. Control of major constraints – time, cost and qualities

Control systems are required for assessment of cost, time, risk, quality, communication, procurement,
and human resources. Additionally, auditors should consider how important the projects are to the
financial statements, how reliable the stakeholders are on controls, and how many controls exists.
Auditors must evaluate the development practice and procedures for how they are implemented. The
development process and the quality of the final product may also be evaluated if needed or
requested. A business may perhaps desire the auditing firm to be involved throughout the process to

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catch problems in advance so that they can be fixed more easily. An auditor be able to provide controls
to the consultant as part of the development team or as an independent auditor as part of an audit.
Accomplishment of project necessitates control of the above mentioned factors. A control system
controlling time, cost and quality can be shown as:

Fig. 11.2: Control System

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

6.2. Design of control system

Design of an integrated control system for time, cost, and quality includes:

1. Planning stage: The planning stage involves:

o WBS: Work Breakdown Structure, i.e., breaking the total project into manageable activities and
defining them clearly
o Fixing sequence and priority
o Estimating the activity duration
o Drawing an arrow diagram
o Doing forward and backward process
o Constructing network calculations table: Identifying critical activities and determining the
critical path
o Finding floats available
o Drawing the squared network

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2. Scheduling of resources and time

o Assess the resources requirement for each activity and match them with the project estimates
o Make an overall master schedule and master budget
o Make a time-phased construction schedule and integrate the same with the master schedule
and master budget
3. Organising of a project team, infrastructures, and working methods
4. Budgeting: Make and issue detailed budget and performance standards and also make cash flow
statements to suit disbursement for supplies, services, etc
5. Time and cost control

6.3. Approaches to project control

The following are the key approaches to project control:

Variance analysis

It involves a comparison of the actual cost incurred on the project with the budgeted cost of the
project for a given time period to determine the variants. The approach is inadequate for project
control because of the following reasons:

• It is backward looking rather than forward looking.

• It only indicates budget variance within a given time period and provides no information on
the value of work done on that period which is vital for integrated project control.

Performance analysis

The effective control over a project can be exercised by systematic performance analysis. It provides
useful information on variations in project schedules and costs, whenever they occur indicating their
cause, their implications and fixing responsibility. The performance analysis provides an analytical
framework for project control based on the following terms:

• BCWS (Budgeted Cost for Work Scheduled): It represents the total of three components:
o Budgets for all work packages scheduled to be completed
o Budgets for the portion of in-process work scheduled to be completed
o Budgets for the overheads for the period
• BCWP (Budgeted Cost for Work Performed): This is equal to the sum of three components:
o Budgets for work packages actually completed
o Budgets applicable to the completed in-process work

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o Overhead budgets
• ACWP (Actual Cost for Work Performed): This represents the actual cost incurred for
accomplishing the work performed during a particular time period.
• BCTW (Budgeted Cost for Total Work): This is the total budgeted cost for the entire project
work.
• ACC (Additional Cost for Corporation): It represents the estimate for the additional cost
required for completing the project.

Based on these terms, the project control may be exercised based on the following indices:
Cost variance BCWP - ACWP
Schedule variance BCWP - BCWS
Cost performance index BCWP / ACWP
Schedule performance index BCWP / BCWS
Estimated cost performance index (ACWP + ACC) / (BCTW)

Reasons of over-sum of a project

The various reasons of an over-sum of a project can be stated under each phase of the project.

• Pre-feasibility study phase

o Delay in land acquisition
o Delay in environmental clearance (pollution control certificate)
o Delay by an incompetent consultant.
• Detailed project study phase
o Inadequacy of the various requirements
o Poor technique selection
• Scheduling phase of the project
o Delay due to award of contracts
o Delay due to performance of equipment, etc
o Delay during construction and erection work due to poor planning by contractors
o Delay due to indecisions and delayed decision making
• Development during start-up phase: This can happen during the project phase.
o Delay in arranging special tools, manuals, etc
o Delay due to design changes
o Delay due to absence of commissioning specialties

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o Delay due to teething problems resulting from bad qualities control during construction and
erection stages
• General delays: This can happen during any of the project phase:
o Weak project team
o Poor quality awareness
o Ignorance of second project measurement practices
o Unwarranted enquiries by government agencies, etc
o Poor or no M/S system

It may not be out of place to mention that the principal causes of over-sum of a project are
management failure and lack of commitment on part of the executives.

SELF-ASSESSMENT QUESTIONS – 4
Fill in the Blanks:
12 involves a comparison of the actual cost incurred on the project with the budgeted
cost of the project for a given time period to determine the variants.
13 represents the estimate for the additional cost required for completing the project.
True or False:
14 ACC represents the actual cost incurred for accomplishing the work performed during a
particular time period. (True/False)
15 ACWP represents the actual cost incurred for accomplishing the work performed during a
particular time period. (True/False)

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7. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• The unit covered the tools and techniques used for project performance measurement.
• Performance measurement provides quantitative information about products, services, and the
processes that produce them. These measures help to understand, manage, and improve the
effectiveness of an organisation.
• Productivity is the ratio of net outputs to inputs. The coefficient of productivity is used to measure
the performance for the total enterprise or for the individual factors of production.
• Performance evaluation is defined as the process of systematically assessing the effectiveness
against a predetermined norm, standard, or expressed goal. An effective evaluation system has to
start from the initial phase of a project life cycle. Projects are generally evaluated in terms of
capital expenditures incurred.
• An effective control of time, cost, and quality is important for the success of a project. The key
approaches of project control are variance analysis and performance analysis.
• Variance analysis involves a comparison of the actual cost incurred on the project with the
budgeted cost of the project for a given time period to determine the variants.
• Performance analysis provides useful information on variations in project schedules and cost,
whenever they occur indicating their cause, their implications and fixing responsibility.

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8. GLOSSARY
Financial Management is concerned with the procurement of the least cost funds, and its effective

It is the comparison of actual results with anticipated results on the basis

Evaluation -
of objectives of an information organisation

Performance It helps to assess how well a system or service is working with respect to
-
evaluation some predefined measures.

Performance It means investigating and measuring how well an operational system

-
measurement meets the needs of its users.

Productivity - It is the ratio of net outputs to inputs.

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9. TERMINAL QUESTIONS
1. Define performance measurement. What are the key characteristics of performance measurement?
2. Productivity is always a relative measure and expressed as the ratio of net outputs to inputs.
Discuss.
3. Describe the process of project performance evaluation.
4. How will you design an effective controlling system?
5. What are the important approaches to project control?

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10. ANSWERS
Self-Assessment Questions
1. Pre-established
2. Strategic planning
3. False
4. False
5. Net outputs
6. Total factor
7. Partial factor
8. True
9. Performance evaluation
10. Capital expenditures
11. Evaluation
12. Variance analysis
13. ACC
14. False
15. True

Terminal Questions Answers

1. It is a tool used to measure the performance of different projects’ activities in order to achieve the
predetermined goals. For more details, refer to section 11.2.
2. Productivity is used to compute the performance of the total enterprise or for the individual factor
of production. For more details, refer to section 11.3.
3. It is an assessment of how well a system or service is working according to some previously
decided measure. For more details, refer to section 11.4.
4. An effective control system should be designed and implemented throughout the project life cycle.
Under planning stage there should be proper planning and estimation which is followed by timely
assessment and evaluation. For more details, refer to section 11.6.2.
5. The key approaches used for performance control includes variance analysis and performance
analysis. Variance analysis is computed by comparing the actual cost with the projected cost. For
more details, refer to section 11.6.3.

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11. CASE STUDY

The Royal Canadian Mint: Improving Energy Performance

The Royal Canadian Mint is the crown corporation responsible for minting and distributing Canada's
circulation coins. It also designs and manufactures collector, commemorative, and gold bullion coins
as well as customised medals and tokens for customers across Canada and around the world.

With headquarters in Ottawa, Ontario, where it designs the coins, and a production facility in

Winnipeg, Manitoba, the Mint employs over 450 people in all aspects of coin design, production, and
marketing.

In the fall of 2003, the Mint recognised an opportunity to improve the energy performance of its
historic building on Sussex Drive in Ottawa, which it has occupied since its founding in 1908. It
concluded that by using energy and water more efficiently, it could substantially reduce the operating
costs and lower the Green House Gas (GHG) emissions that contribute to climate change.

In addition, by introducing energy-efficient design elements including new systems and equipment,
the retrofit would improve the building's air quality, creating a healthier and more comfortable work
environment for employees.

In January 2004, the Mint issued a request for proposal for energy efficiency improvements to its
facility. By March of that year, representatives of the Mint began to evaluate proposals from four
Energy Service Companies (ESCs) which were pre-qualified under the Federal Buildings Initiative
(FBI).

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The first steps

The project was underway in the fall of 2003 when the Mint began working with the FBI to develop
an energy efficiency opportunity assessment.

An opportunity assessment considers the age and maintenance characteristics of buildings, provides
an overview of their energy systems, and reviews energy and water consumption. Like an energy
audit, the assessment offers clients technical data and analyses, possible energy- savings
opportunities, and preliminary savings estimates.

A critical first step, the opportunity assessment, helped the Mint to determine whether an Energy
Performance Contract (EPC) would be beneficial. It also ensured that the project would be of market
value to the pre-qualified ESC.

Once the Mint was identified as a candidate for an EPC, the project team, which would work closely
with the ESC, began outlining some of the energy efficiency goals and objectives of the retrofit.

This early planning allowed the project team to identify the issues facing the Mint, including
inefficiencies in water and energy use and high operating costs. It also laid some of the groundwork
that would later help in selecting the ESC for the project.

The project team identified the following goals for the project:

• Improve energy efficiency in the facility

• Reduce the facility's operating and maintenance costs
• Reduce GHG emissions
• Create a healthier, more comfortable work environment for employees

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The Mint and Siemens: partners for success

Careful planning and preparation before selecting an ESC can make the difference between choosing
a “good” ESC and the “right” ESC for the job.

As a long-term partner, the ESC must work closely with the organisation to plan the project,
implement the recommended measures, and monitor the resulting changes in energy and water use.
After carefully reviewing proposals from the four ESCs, the Mint selected Siemens Building
Technologies Ltd. to implement the project.

Siemens was chosen because its scope of work was innovative and dealt extensively with converting
costly maintenance improvements into significant savings.

As Dr. Albert Maringer, President and CEO of Siemens Canada Ltd. explained, “It was our goal to
provide the most innovative solutions to reduce future energy costs and provide a new infrastructure
programme that will reduce the overall maintenance requirements at the Mint.”

Once the ESC was selected, the process of preparing a detailed feasibility study and negotiating the
final contract was underway. On March 24, 2005, the Mint and Siemens Building Technologies Ltd.
finalised and signed the EPC.

Project scope

The proposed total costs of the energy efficiency improvements at the Mint are estimated at $8 million.
Potential cost savings are estimated to reach as high as $1 million annually.

The project's design integrates a variety of systems, technologies, practices, and programmes
including the following energy efficiency measures:

• Installation of new chillers and boilers in response to the rising cost of purchasing steam from an
outside supplier. The feasibility study conducted by Siemens concluded that the installation of
new chillers and boilers in the facility would be the most economical solution for the Mint.
• Replacement of aging air compressors with new energy-efficient ones to increase the reliability of
operations and to lower the maintenance costs.
• Installation of two new supply air units with Variable Air Volume (VAV) terminal boxes to replace
the old fan coils. The VAV system varies the amount of air delivered to ensure that the workspace
conditions are maintained. The system also substantially lowers energy and maintenance costs.
• Modernisation of the filtration unit in the Mint's process operation to increase water filtration
capacity and reduce energy use.

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Project implementation

Work to implement the energy efficiency improvements began in January 2005. During the
construction period, the Mint and Siemens worked together to ensure that all the project components
were implemented seamlessly and that the Mint would benefit from the energy management
solutions being integrated.

Because of the Mint's manufacturing environment, care was taken to avoid shutting down the process.

1. What are the goals identified by the project team of the Royal Canadian Mint for -‘Improving
energy performance’?
Hint: The various goals for ‘Improving energy performance’ are reducing facility operation and
maintenance cost and creating healthier and comfortable environment.

2. What are the different energy efficiency measures that the project's design includes?
Hint: The different energy efficiency measures include installation of new chillers and new air
units with VAV, mordenisation of filtration unit and replacing air compressors.

Source: http://oee.nrcan.gc.ca/publications/federal-buildings-initiative/12608

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12. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing House.

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 12/02/2012
• www.projectmanagement.com. Retrieved on 12/02/2012
• www.pmearth.com. Retrieved on 13/02/2012

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BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 12 - Project Execution and Control 1
DBB1207: Project Management

Unit – 12
Project Execution and Control

Unit: 12 - Project Execution and Control 2

DBB1207: Project Management

TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4-5
1.1 Objectives - -
2 Project Execution 1 -
2.1 Project manager’s responsibilities - -
6-9
2.2 Project team responsibilities - -
2.3 Issue of network, work to list, and work order form i, ii 1
3 Project Control Process 2 -
3.1 Identify output and performance objective - -
3.2 Performance monitoring for schedule and cost iii, iv - 10 - 16
3.3 Cost and schedule performance measure –Earned 3, 4, v, vi i
Value Method (EVM)
3.4 Choose/implement corrective measures - 2
4 Purpose of Project Execution and Control - - 17
5 Summary - - 18
6 Glossary - - 19
7 Terminal Questions - - 20
8 Answers - - 21
9 Case Study - - 22 - 23
10 References - - 24

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DBB1207: Project Management

1. INTRODUCTION
In the previous unit, we dealt with the concepts of performance measurement, productivity, project
performance evaluation, benefits and challenges of performance measurement and evaluation, and
controlling the projects. In this unit, we will deal with project execution, project control process, and
purpose of project execution and control.

Performance measurement and evaluation are important aspects in any project management process.
Performance measurement is the ongoing, regular collection of information for monitoring how a
project, policy, or strategy is doing.

On the other hand, evaluation involves comparisons of performance with the objectives of the
information organisation in order to determine the change in performance over a given period or to
see whether the change is in the right direction or not and if so then to what extent.

In this unit, you will study about the project execution and control phase of a project life cycle. Project
execution (or implementation) is the phase in which the plan designed in the prior phases is put into
action. The purpose of project execution is to deliver the project expected results (deliverable and
other direct outputs). Typically, this is the longest phase of the project management lifecycle, where
most resources are applied. During the project execution, the execution team utilises all the schedules,
procedures, and templates that were prepared and anticipated during prior phases. The completion
of start-up activities ensures that all elements are in place and project is ready to take-off. Project
execution converts the plan into tangible asset, fulfilling a set of objectives. However, in real life, this
transition from plan to tangible asset is not smooth.

In the standard division of project management discipline, this phase is called "project execution and
control"; the term "control" is included here because execution is not a blind implementation of what
was written in advance but a watchful process where doing things goes along with understanding
what is being done, and re-do it or do it differently when the action does not fully respond to what
was meant for. This "control" is an integral part of project management and is a necessary task of the
project manager.

As per Fayol, to control means “seeing that everything occurs in conformity with established rules
and expressed command”. In the context of project management, the project control may be defined
as “taking corrective measures to resolve deviation or discrepancies between plan (where one should

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be) and performance (where one is)”. The task of a project manager is to periodically monitor the
performance, calculate the deviations, and make adjustment in input, process, or plan so as to resolve
the deviation and bring back the project to the desired state.

1.1. Objectives
After studying this unit, you should be able to:
• describe the introduction of project execution
phase
• identify the key elements of a project control
system
• understand the roles of a project manager
• outline the responsibilities of project teams

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2. PROJECT EXECUTION
At the time a project moves into the execution phase, the project team and the necessary resources to
carry out the project should be in place and ready to perform project activities. The project plan
should have been completed and base-lined by this time as well. The project team and specifically the
project manager’s focus now shifts from planning the project efforts to participating, observing, and
analysing the work being done. Once all essentials are in place, the project manager plans to
commence the project. He or she organises a meeting called 'kick-off meeting or event' of all
concerned to mainly announce the start of the project. He or she takes the opportunity to present the
main features of the project, project objectives, organisation, etc. Purpose of the meeting is to ensure
that:

• Team members understand the features of the project

• Team members understand the project objectives
• All issues and apprehensions are clarified, so that each starts the project with a clear mind
• Each member understands his/her role, authority, and responsibility

Figure 12.1 depicts where in the project management the execution phase occurs.

Fig. 12.1: Project Management Execution Phase

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

2.1. Project manager’s responsibilities

A project manager’s responsibilities do not stop once the planning of the project is done. Because a
project manager is responsible to internal and external stakeholders, the project team, vendors,

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executive management, etc, the visibility of the position is intensified. Many of these people will now
expect to see and discuss the resulting deliverables that were so meticulously detailed in the planning
phase. As a project manager, keeping oneself from getting “down in the weeds,” especially on large
projects, will be important during project execution. This will allow the project manager to focus their
attention on enabling the project plans, processes, and managing the expectations of customers and
stakeholders.

Particular attention during project execution will need to be paid to keeping interested parties up to
date with project status, dealing with procurement and contract administration issues, helping
manage quality control, and monitoring project risk. While the processes to control many of these
elements are discussed within the project control phase, it is still important that the project manager
be cognizant of the issues as the project is being performed. Daily interaction and feedback from team
members will be vital to project success.

2.2. Project team responsibilities

The project team members are expected to assist in the management of the project as well; albeit, at
a more functional level. The critical project management elements for the project team to provide
assistance with include:

• Performance monitoring: Implement an execution plan to measure the actual performance as

compared to planned performance. For example, the actual project schedules will need to be
reviewed periodically and compared to baseline schedules in order to discern if the project is
performing according to plan. If the project is not performing according to baseline, steps will be
taken to get the project back on track. The same monitoring and analysing should take place on
budgets, quality, risks, scope, etc.
• Provide project status: While the project manager is responsible for relaying project status to
parties outside the project team, the project team is expected to report the status to the project
manager. This includes communicating information both on a formal and an informal basis.

2.3. Issue of network, work to list, and work order form

For execution of a large project, many-a-times three types of network are prepared. These include:

Critical path network: Critical path networks highlight which tasks are critical for a project to stay on
schedule and which can slide without affecting the completion date of the project. This allows tasks
to be prioritised. This shows only critical path activities. This may be used by senior level executives.

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Detailed network: This is the final network which has been arrived at after the resource rescheduling
process, satisfying resource constraints and shows all activities including activities of critical path.

Agency wise network: This network only shows the activities to be executed by a particular agency.
This provides easy accounting for executing agency.

Work-to List: Work-to list is a list prepared separately for each agency, after resource scheduling
process. It is a recommendation to the concerned managers of the sequence and timing of work to be
done — a list to be worked upon. A work-to list is usually prepared to cover only a few weeks ahead.
However, it may cover the details of longer periods as per the need. Table 12.1 depicts an example of
work-to list.

Table 12.1: Work-to List

Source: US – Unskilled labour, S – Skilled labour

In addition to agency-wise network and work-to list, some organisations also release work order form
for executing agency.

Table 12.2 depicts a work order form.

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Besides giving complete account of resource allocation on a day-to-day basis, the progress made and
holds, if any, need to be stated. Work order form acts as a history sheet. It can help in managing the
future network.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the Blanks:
1 The _____________ is an integral part of project management and is a necessary task of the
project manager.
2 ________________ is a list prepared separately for each agency after resource scheduling process.
3 ___________ networks highlight which tasks are critical for a project to stay on schedule and
which can slide without affecting the completion date of the project.
4 ________________ is the final network which has been arrived at after resource rescheduling
process, satisfying resource constraints and shows all activities.
True or False:
5 Work-to list is usually prepared to cover only a few weeks ahead. (True/False)

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3. PROJECT CONTROL PROCESS

Control of the project is exercised through formal and informal processes exercised by the project
manager, project team, and stakeholders. The process of conducting reviews and monitoring reports
exerts a degree of control over the project. This discussion will, however, focus on the formal
processes of control established by the project plan. As a project has a lot of associated uncertainties,
project control is essential. Figure 12.2 depicts the system of project control.

Fig. 12.2: System of Project Control

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

3.1. Identify output and performance objective

There are three basic performance objectives/standards for a project which a manager is expected to
control. These include time schedule (project duration), project cost, and conformance to design
specifications which ensure quality.

Two common methods to evaluate these objectives are variance analysis and earned value method.
However, variance and earned value analysis are not applied to the objective, quality, as there is
difficulty in quantifying it. In this case, the project manager may develop his or her own standards or
adopt available ones and tries to ensure that they are met.

3.2. Performance monitoring for schedule and cost

This tells who is to monitor the information and at what frequency. Normally, for a moderate size
project, a separate project monitoring cell is created for collecting, analysing, and reporting
information to all concerned for the purpose of information and controlling the project. The task of
the group may include:

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1. Monitor progress
2. Calculate variance/earned value
3. Prepare variance/earned value report and other reports and send them to all concerned
4. Present the report in review meeting
5. Compile the measures arrived at in the meeting to deal with variances
6. Follow up the implementation of suggested measures

Frequency of monitoring depends on nature, duration, and importance of projects and the
stakeholder’s need. Time between monitoring may vary from continuous to several days. Table 12.3
depicts some typical examples.

Table 12.3: Some Examples of Time between Monitoring

Table 12.4 depicts the format to record the performance data regarding schedule and cost.

Table 12.4: Performance Monitoring Form

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3.3. Cost and schedule performance measure – Earned Value Method

(EVM)
The Earned Value Method (EVM) is a useful tool that allows the calculations of cost and schedule
performance measures including cost variance, schedule variance, cost and time over-runs for a
project. EVM uses the following parameters to calculate these measures:

• Budgeted Cost of Work Schedule (BCWS): This is the budgeted cost of work scheduled up to
status date and calculated as:

BCWS = (Budgeted cost of work/day × Scheduled days of work up to status date for each activity)

• Budgeted Cost of Work Actually Performed (BCWP) or Earned Value (EV): This is budgeted
cost of work actually accomplished up to the status date and calculated as:

BCWP = (Budgeted cost of an activity x proportion of it actually accomplished up to status date).

Where,
Proportion of an activity = (work completed in physical units)/(Total work planned in physical
units)

• Actual Cost of Work Performed (ACWP): This is the cumulative actual cost of work performed
up to the status date and calculated as:

ACWP = (Actual cost of work performed for each activity up to status date)

Using above parameters, performance measures can be calculated as:

Cost Variance = BCWP – ACWP …(1)

A negative cost variance means that the project is spending more than it should.

Schedule variance (cost) = BCWP – BCWS …(2)

Negative schedule variance indicates that project is behind the schedule.

Cost performance index (CPI) = BCWP/ACWP …(3)

CPI less than one, indicates that the project is spending more than the schedule and is
unfavourable.

Schedule performance index (SPI) = BCWP/BCWS …(4)

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SPI less than one suggests that the work performed is less than the schedule and is naturally
unfavourable.

Figure 12.3 depicts the plot of BCWS versus time. This curve shows the cumulative spending planned
for a project and referred to as baseline plan and also referred to as the S-curve.

Fig. 12.3: Budgeted Cost of Work Scheduled

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Figure 12.4 depicts the plots of three spending BCWS, ACWP, and BCWP for a typical project. It helps
to calculate the cost as well as schedule variances, and hence, is quite useful in controlling the project.

Fig. 12.4: Spending Curves for BCWP, BCWS, and ACWP

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Variances and cost of overrun

Vertical distance between point R2 and R3 (i.e. ACWP – BCWP) give the cost variance (in this case
overrun).

𝐴𝐶𝑊𝑃 – 𝐵𝐶𝑊𝑃
Cost of over-run (%) = =×100
𝐵𝐶𝑊𝑃

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Schedule variance and months behind schedule

Point R3 falls below point R1, indicating that the project is behind schedule.

Schedule variance in monetary unit is given by vertical distance R1R3 (i.e. BCWS – BCWP) and months
behind sis given by horizontal distance from point R3 on BCWP curve to R4 on BCWS curve which is
equal to (t2 – t1).

Above analysis of various spending (BCWS, BCWP, and ACWP), variances and their plots is carried
out on aggregate basis. Aggregate analysis simply shows whether a project is under control or not
with respect to cost and time objective. However, it does not pinpoint the specific actionable areas for
bringing the project on track. For this reason, variance analysis needs to be conducted on activity to
activity basis, besides aggregate analysis.

Table 12.5 depicts a format for summarising the variance analysis for activities.

Schedule performance measure using variance analysis

Variance is the deviation of actual value from the planned value of a parameter. Variance analysis is
used to calculate the variances of parameters.

Table 12.5 Scheduled Times and Cost Variance for Activities

Schedule Variance (time) is used to measure schedule performance of an activity in terms of time and
calculated as:

Schedule Variance = Plan time – actual time

Where, time can be measured in physical unit (days/months) or % complete

The variance report may be presented in tabular form or graphical form. The data can be provided
for the current period as well as on cumulative basis for an activity. Table 12.6 depicts the format of
tabular form.

Graphical report may include Gantt chart, milestone chart, and network diagram. Here, the progress
of any activity may be depicted by drawing another line or bar (usually in different colour) over the

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line or bar indicating the activity in plan. Difference in the length of these two lines shows whether
the activity is lagging, leading, or on schedule.

Table 12.6: Tabular Form to Show Schedule Variance (Time)

Forecast: Once the current status of the project in terms of variances is known, the next task is to
make forecast about the project at completion. The forecast is an estimate of the future based on
current progress and other factors (risks, resource availability, etc)

Activity - 1
How can a project manager manage the Project Schedule if team members don’t accurately report
when they are behind?

3.4. Choose/implement corrective measures

The findings about variance and forecast are compiled in the form of report. The report is circulated
to all concerned and discussed in a review meeting. Various options including re-planning,
reallocating resources or changing the way the project is managed, etc are discussed to resolve the
variances. Of these, a set of options are chosen. Plan to implement these options are drawn and
executing agencies are identified. The progresses of such plansare monitored in the review meeting.

SELF-ASSESSMENT QUESTIONS – 2
Fill in the Blanks:
6 Two common methods to evaluate the performance objectives are variance analysis and
_______________ method.
7 The _____________ is a useful tool that allows the calculations of cost and schedule performance
measures including cost variance, schedule variance, cost and time over-runs for a project.
8 The variance report may be presented in tabular form or _______ form.
9 The ___________ is an estimate of the future based on current progress and other factors.
10 The report is circulated to all concerned and discussed in a _________
True or False:

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DBB1207: Project Management

11 Frequency of monitoring depends on nature, duration, and importance of projects and

stakeholders need. (True/False)
12 Schedule Variance =Plan time – actual time. (True/False)

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4. PURPOSE OF PROJECT EXECUTION AND CONTROL

The purpose of project execution and control is to develop the product or service that the project was
commissioned to deliver. Typically, this is the longest phase of the project management lifecycle,
where most resources are applied.

Project execution and control utilises all the plans, schedules, procedures, and templates that were
prepared and anticipated during prior phases. Unanticipated events and situations will inevitably be
encountered, and the project manager and project team will be taxed to capacity to deal with them
while minimising the impact on the project’s CSSQ (Cost, Scope, Schedule, and Quality).

The conclusion of the phase arrives when the product of the project is fully developed, tested,
accepted, implemented, and transitioned to the performing organisation. Accurate records need to be
kept throughout this phase. They serve as input to the final phase, project closeout.

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5. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• Project execution converts the plan into tangible asset, fulfilling a set of objectives. This
conversion is seldom smooth and needs mid course correction, provided by project control.
• Project control may be defined as “taking corrective measures to resolve deviation between plan
and actual”. Activities associated with project control include monitoring the performance,
calculating variances, forecasting future state, and making adjustment into input, processor plan
so as to bring the project to a desired state.
• Two methods, i.e., variance analysis and earned value method are used to calculate variances of
cost and schedule.

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DBB1207: Project Management

6. GLOSSARY
Financial Management is concerned with the procurement of the least cost funds, and its effective

It is defined as the difference of budgeted cost and actual cost of work

Cost variance -
performed.

Earned value - This is budgeted cost of work actually accomplished up to the status date.

The Earned Value Method (EVM) allows the calculations of cost and schedule
Earned value
- performance measures including cost variance, schedule variance, cost, and
method
time over-runs for a project.
Project control may be defined as “taking corrective measures to resolve
Project control - deviation between planned (where one should be?) and actual (where one
is?)”.

Schedule It is the difference of budgeted cost of work performed and budgeted cost of
-
variance (cost) work scheduled.

Schedule
- It is the difference between the schedule time and the actual time.
variance (time)

Variance - It is the deviation of actual value from the planned value of any parameter.

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7. TERMINAL QUESTIONS
1. Discuss kick-off meeting.
2. What is project control?
3. Discuss the various elements of project control.
4. Discuss the earned value method to calculate cost and schedule performance measures.

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8. ANSWERS
Self-Assessment Questions
1. Control
2. Work-to list
3. Critical path
4. True
5. Detailed network
6. Earned value
7. Earned Value Method (EVM)
8. Graphical
9. Forecast
10. Review meeting
11. True
12. True

Terminal Questions Answers

1. A Kick-off meeting is organised to announce the commencement of the project. For more details,
refer to section 12.2.
2. In order to achieve the project objectives, it is necessary to control the project activities by
establishing certain performance standards and project monitoring. For more details, refer to
section 12.3.
3. The key elements of project control are identification of objectives, project monitoring, etc. For
more details, refer to section 12.3.
4. It is a useful tool that allows the calculations of cost and schedule performance measures including
cost variance, schedule variance, cost, and time over-runs for a project. For more details, refer to
section 12.3.3.

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9. CASE STUDY
Building a Project Team

DuPont and Environmental Defense Fund-Framework for Responsible Nanotechnology

Nanotechnology holds great promise for new applications in materials, energy, medicine, and other
fields, but more needs to be known about the potential risks. In 2005, DuPont and Environmental
Defense Fund partnered to ensure the responsible development of nanoscale materials and develop
a tool to share information with stakeholders. The project also aimed at facilitating public
understanding of the new technology and providing an input for future government policy.

Tackling a project of such scope and complexity required a wide range of expertise. The partnership
brought together a multidisciplinary team from both organisations, with experience in relevant
branches of science, law, and business. The team solicited input from stakeholders including large
and small companies, government agencies, universities, and public interest groups. Based on
discussion, analysis, interviews, and research, a Nano Risk Framework was released by DuPont and
Environmental Defense Fund in 2007. DuPont pilot tested the framework on several materials and
applications to ensure that the approach is flexible, practical, affordable, and effective. Since launching
the Framework, the partnership has presented to government and industry audiences and worked
with other companies to implement the Framework in their own operations.

Environmental Defense Fund considered DuPont to be an optimal partner for the project considering
the company’s research and technology capabilities, commitment to product stewardship, powerful
marketplace position, role in the value chain as a potential purchaser and seller of nanoscale materials,
global reach, reputation, and outlook toward nanotechnology policy. DuPont and Environmental
Defense Fund have collaborated on several other projects for over 20 years.

The partnership was extremely effective – the project goals were achieved in less time than originally
planned, and the feedback has been overwhelmingly positive. Using the Framework has greatly
enhanced DuPont’s interactions with regulatory agencies over the nanoscale materials that they are
developing. Other companies have also reported the effectiveness of the framework in simplifying
decision making regarding environmental, health, and safety issues around nanomaterials.

1. What are the key goals of implementing nanotechnology by EDF. What factors lead to
development of Nano Risk Framework released by DuPont and Environmental Defense Fund?

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Hint: Development of nanoscale materials and develop a tool to share information with
stakeholders.

2. Give proponents in favour of the EDF and DuPont partnership?

Hint: Goals achieved in less time, positive feedback.

Source: http://www.gemi.org/resources/GEMI-EDF%20Guide.pdf

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10. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing House.

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 13/02/2010.
• www.projectmanagement.com. Retrieved on 14/02/2010.
• www.pmearth.com. Retrieved on 15/02/2010.

Unit: 12 - Project Execution and Control 24

 DBB1207: Project Management

BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 13 - Project Close-out, Termination and Follow-up 1
DBB1207: Project Management

Unit – 13
Project Close-out, Termination and
Follow-up

Unit: 13 - Project Close-out, Termination and Follow-up 2

DBB1207: Project Management

TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4
1.1 Objectives - -
2 Project Close-out - - 5-6
3 Steps for Closing the Project - -
3.1 Finishing the remaining work 1 -
3.2 Get client acceptance of the deliverables - -
3.3 Contractual aspects and final accounting - -
3.4 Update and archive all documents - - 7 - 13
3.5 Conduct post-implementation audit of the project - i
3.6 Prepare final project report i -
3.7 Release all resources – materials, equipment, and - -
people
3.8 Organising closure meeting - 1
4 Project Termination - 2, ii 14 - 15
5 Project Follow-up - 3 16
6 Summary - - 17
7 Glossary - - 18
8 Terminal Questions - - 19
9 Answers - - 20
10 Case Study - - 21 - 22
11 References - - 23

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1. INTRODUCTION
In the previous unit, we dealt with project execution, project control process, and purpose of project
execution and control. The unit also discussed about the key tools and techniques for an effective
project control. In this unit, we will deal with project close-out, steps for closing the project, project
termination, and project follow-up.

The project close-out phase is the last phase of any project. It is often neglected as the excitement and
enthusiasm level of people is low. Nevertheless, it is an important phase. It brings the project to an
orderly close with lots of benefits to the organisation and also for any future project. It is to be
remembered that no one remembers effective start-up, but everybody remembers an ineffective
closure, Frigenti et al quotes Turner. This phase covers a number of activities including completing
unfinished activities, getting client acceptance of deliverables, updating and archiving documentation,
conducting post-implementation audit, preparing the final report, releasing all the resources, and
organising the closing meeting.

1.1. Objectives
After studying this unit, you should be able to:
• recognise the aspect of project close-out
• identify the key steps for closing the project
• state the key reasons of project termination
• describe the project follow-up

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2. PROJECT CLOSE-OUT
The project is almost complete! Before it can be declared finished, however, a number of activities
must take place and several responsibilities must be fulfilled. Many contractors are guilty of putting
too little emphasis on this final phase in the construction project life cycle, choosing instead to look
beyond the end of the current project and on to the next project.

The very familiar English saying "last but not least" best illustrates how important the project
closeout phase is. Project Close-out is the final stage of the project life-cycle and it is mostly ignored
by large organisations, in particular when they operate in multi-project environments. They learn to
switch from one project to another and complete the finishing of each project as time and resources
are costly. Subsequently projects keep deteriorating and organisations take no counteractive actions,
simply for the reason that they do not have the time to consider what went wrong and what should
be fixed next time. A lesson that is learned can be discussed at project reviews as part of the closeout
phase. Moreover closure also deals with the final details of the project and presents a normal ending
for all procedures, which includes the delivery of the final product.

The project closeout and termination phase can be thought of as a project unto itself. Often termed
commissioning, this phase must be planned and programmed, tasks must be assigned, the phase must
be executed effectively and its costs, schedule and quality must be controlled. On large projects, a
specialist team is often engaged to assure that project closeout is carried out in the best manner
possible. We have chosen to divide the tasks into two categories: (1) completing the work, which
includes the physical activities that must be accomplished on the site and (2) closing out the project,
involving the multitude of required documents and other paper work issues, some related obviously
to finances but others to certificates, project records and provision to the owner of the required
training, operational information, spare parts and the like. The two categories overlap and interact.
The presentation in each category is generally in the order in which the activities occur on the project,
although many activities take place concurrently.

Most frequently project managers identify when to finish a project but they overlook how to do it.
They are so willing to complete a project that they hardly miss the completion indicators. "Ideally, the
project ends when the project objective has been attained and is ready to hand over to customer". At
the boom and bubbles period, senior management can instruct the immediate termination of costly
projects. A quality example of that is Bangkok's over investment in construction of sky-scrapers,
where most of them left abandoned without finalising the last floors because of enormous costs
Unit: 13 - Project Close-out, Termination and Follow-up 5
DBB1207: Project Management

(Tvede, 2001, p267). Those projects that are greatly attached to time can be terminated earlier than
normal finishing point if they miss a critical deadline, such as an invitation to tender.

Several behavioural grounds for untimely termination is added by Kerzner (2001, p594) such as
"poor morale, human relations or labour productivity". The aggressive nature of premature
termination is also known as 'killing a project' since it "entails serious career and economic
consequences" (Futrel, Shafer D & Shafer L, 2002, 1078). Assassination a project can be a hard
decision because emotional concerns create satisfaction within an organisation and a fear of being
viewed as quitters blurs managerial decisions.

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3. STEPS FOR CLOSING THE PROJECT

To make sure that the project is completed and finished in a proper manner, a sequential process
should be followed. Therefore, the steps involved in the sequential process in the project closure
include the following subsections:

3.1. Finishing the remaining work

As the project nears completion, the project manager tends to relax and keeps out of meeting, out of
sight, and out of focus. The team members follow the lead and relax as well. As a result, commitment
to the project gets affected. Figure 13.1 depicts the graph of commitment to project vs. action of
project manager and team members given by Philips.

Fig. 13.1: Graph of Commitment to Project vs. Action of Project Manager and Team Members
Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Further, there is a tendency for the members to do the work directly related to meet time and quality
standard, while leaving a number of small work outstanding.

Besides, many issues crop up during the various stages of a project and some of them remain
unresolved. For proper closure of the project, such tasks and issues are to be listed and a network
may be drawn to complete them.

3.2. Get client acceptance of the deliverables

The first task of a project manager is to prepare a checklist of all activities which must be completed
before we seek acceptance of the deliverables.

A typical list may include the following:

• Unfinished non-critical work

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• The project tasks based on the WBS

• The deliverables
• Quality standard attained
• Installation, testing, and validation of equipment/process
• Documentation manuals
• Operating procedures
• Training of users
• Compliance of provision of drawing and specification
• Outstanding issues to be resolved

In formal acceptance, each activity is to be checked with reference to the performance specifications
jointly by the project team representative and the authorised representative of the client and
accepted. Once an agreement is reached on all activities, the project manager may proceed with other
tasks leading to the final close-out meeting.

3.3. Contractual aspects and final accounting

All contractual commitment to clients, vendors, and suppliers are settled. Also, the final project
accounting is carried out. The final accounting includes totalling the cost and revenues, producing the
final cost evaluations and reports, paying all accounts, and closing the project’s book.

3.4. Update and archive all documents

A project generates substantial volumes of documents, and it is essential that these are collated and
filed for future use. However, this task is monotonous and least exciting.

Why project documentation?

• Reference for future changes in deliverables such as features to be added/deleted
• Historical record for estimating the duration and cost on future projects, activities, and tasks
• Training resource for new project managers/existing managers
• Input for performance evaluation by the functional managers of the project team members
• Basis for settling any future questions/disputes that may arise from the project
• Basis for any future team to identify, control, audit, and account for historical project
information

Contents of project documentation

The contents of project documentation may include:

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• Originating documents (business case, project proposal)

• Definition and planning schedules and documents
• Performance and information documents (cost reports, performance evaluation reports,
audits, minutes of meetings)
• Contractual documents
• General correspondence (memos, letters, electronics communications, faxes)
• Accounting and cost information
• Change control documents (Variation in orders, change control register)
• Technical documents (specifications, drawings)
• Procurement documents (purchase orders, quotations, brochures)

The documentation can be stored in various media (Video, photographic, electronic, and paper).

3.5. Conduct post-implementation audit of the project

Valuable experience and information are gained during the various phases of project. The Post- a
Implementation Review (PIR) is to reflect on the events that took place in the course of the project
and identify what went well, what did not, and then ask why and consider what might have been done
differently to improve the performance.

Why post-implementation audit?

• To learn from experience to evolve better management practices
• To assess the actual benefit of the project against plan

Evaluate what?
Wysocki suggests, following six important questions to be answered during the review:
• Was the project goal achieved?
• Was the project work done on time, within budget, and according to specifications?
• Was the client satisfied with the project result?
• Was the business value realised? The value may be in terms of return
• on investment, market share, etc.
• What lessons were learned about your project management methodology?
• What worked? What did not?

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Methodology
Post implementation review may be carried in two stages – a lesson learnt review immediately after
completion of the project when project team has actual events of the project fresh in their minds and
post-implementation review some months after project has been in operation when the benefits can
be more accurately assessed.

Further, a PIR can be conducted as a formal audit or as a workshop involving the project participants.
The participants may include project sponsor, members of the team (including suppliers and
subcontractors), and future project manager. For an honest review, it is imperative to create a climate
of trust and fearlessness. Here, the aim is not to find fault or apportion blame. Finger pointing and
reprimanding serve no purpose. Focus should be on what has gone wrong and why; and not who has
done wrong.

• Knutson suggests the following points while conducting a PIR:

• Establish clear and explicit ground rules about openness and communications. For example,
each person will speak for himself. Every one need not agree to the other’s view, participants
will listen to the others respectfully.
• Focus of the review is on what happened and not on perception.
• Concentrate on extracting lessons for future, rather than establishing blame for what has
happened in the past.

The results of PIR should be communicated to everyone who needs to know what happened. A copy
of the report should be archived.

Activity - 1
Prepare a project closure checklist for the project of constructing a new educational wing for
primary section of a school.

3.6. Prepare final project report

The final Project Report (PR) should be written by the project manager himself. The PR should
present project evolution, its success, its management, any outstanding and team recommendation.

Frigenti et al quotes Meredith and Mantel on the intents of the project final report as, “The final report
is not another evaluation, rather it is the history of the project. It is the chronicle of the life and times
of the project, a compendium of what went right and what did not, who served the project in what
capacity, what was done to create the substance, and how it was managed”. The contents of the final
Unit: 13 - Project Close-out, Termination and Follow-up 10
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report presented by various authors differ widely. Based on these, the suggested contents of a final
PR are given below:

• Evolution of project: Narrate the various activities undertaken from project selection, planning,
execution, control, and termination phase; problem faced, what went well, what did not, and why.
• Overall success of the project: Some typical criteria to measure the overall success of the project
are given below:
o Business objectives: Restate the business objectives as given in the business case including
any changes incorporated later. Comment on how far these objectives have been or likely to
be met.
o Project efficiency: State the actual cost, resource, and schedule against the plan as shown in
the table 13.1:

Table 13.1: Project Efficiency Chart

• Closure statement: State the circumstances under which the project is being closed as one of the
following:
o The project has been successfully completed.
o The project has been terminated prior to the completion. In this case, describe the reason for
termination.
• Outstanding issues and deliverables: List any issues or key deliverables not yet accepted. For
each, give:
o The nature of the issue and reason of non-acceptance
o Proposed resolution (include date, person responsible)
• Managing of projects: How the project’s different phases were managed? Specifically, comment
on the following aspects:
o Quality of decision making (fact based, timeliness, etc)
o Use of tools/techniques in selection, planning, and control phase
o Use of best practices

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• Lessons learnt and recommendations: A number of insight and innovative methods have been
adopted in tackling the various problems.
These should be recorded for posterity. Specifically, the following aspects are to be covered:
o What worked well and why?
o Recommend methods, processes, procedures, best practices, and tools which can be gainfully
used in the future.
o Identify the areas where time, money, or resources could have been better utilised.
• Acknowledgement: Acknowledge all the individuals who have made special contributions to the
project.

3.7. Release all resources – materials, equipment, and people

On completion of the project, all resources – materials, equipments, and people – are to be released
from the project. Equipment and materials are simply released to stores or suppliers. But release of
people needs special attention. People have made significant contribution to completing the project.
This should be kept in mind while reassigning assignments to them.

Usually they can be returned in any of the following manner:

• They may be absorbed in the client’s organisation

• They may be reassigned jobs in the organisation and department from which they were
borrowed
• They can be simply let off

Early communication about reassignment of people is helpful. In any case, the project manager should
ensure that the people are released in a fair and proper manner.

3.8. Organising closure meeting

Once the project manager is satisfied that the project is complete in all respects, he or she fixes a date
in consultation with other stakeholders to organise the closure meeting. The primary objectives of
this meeting are:

• Get formal agreement of the sponsor

• Recognise the specific individuals and the team for making valuable contribution
• Acknowledge the contribution made by all
• Formally close the project

A typical Agenda for the closure meeting is given below:

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• Welcome by project manager

• Summary of the project including major achievement, business benefits, major obstacles faced,
impact of project on stakeholders, and lessons learnt.
• Outstanding issues: Review outstanding issues, indicate persons who will resolve the issues.
• Post-implementation review: Indicate the terms of reference, persons accountable, team
members, and time table.
• Recognition of team members: Recognise the specific contributions made by individuals and
team and present awards to them.
• Formal acceptance: Get formal acceptance of the sponsor by signing the certificate of
acceptance.
• Acknowledgement and formally closing the project: Thank the customer, sponsor,
stakeholders, and team for their effort and contributions to achieve a success. Declare the
project as closed.

After t
he closure meeting
• Finalise the project closure report
• Prepare a communication enclosing the approved closure report to the sponsor, project team,
and stakeholders, confirming the decision to close the project
• Feedback any suggested process improvement to the relevant project office and/or process
support group

SELF-ASSESSMENT QUESTIONS – 1
Fill in the Blanks:
1 The ______________ phase is the last phase of any project.
2 A PIR can be conducted as a formal audit or as a workshop involving the project
_________________
True or False:
3 On completion of the project, all resources – materials, equipments, and people are to be
released from the project. (True/False)
4 The final Project Report (PR) should be written by a professional. (True/False)
5 The project manager should ensure that the people are released in a fair and proper manner.
(True/False)

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4. PROJECT TERMINATION
Project termination is one of the most serious decisions of a project management team and its control
board. The decision of project termination affects all the stakeholders of the project and can put some
negative impact on the organisation’s growth. So it is important to critically evaluate all the aspects
before taking the decision. The project manager and his or her team members will feel that they
personally failed. It can also put a negative impact on the team member’s motivation level and their
productivity.

The following are the key reasons to terminate a project:

• Technological reasons
• Results of project requirements or specifications are not clear or impractical
• Fundamental change in project requirements or specifications, so that the underlying contract
cannot be changed accordingly
• Lack of project planning, especially risk management
• The planned result or product of the project turn into obsolete, is not any longer needed
• Sufficient human resources, tools, or material are not accessible
• The increase in project cost leads lower profit than expected
• The parent organisation do not exist longer
• The change in strategy of parent organisation, leads towards the project does not support the
new strategy
• Essential conditions disappear
• Lack of management support
• Insufficient customer support

Activity - 2
You are a project manager in an IT company working on a project of developing new software to
stop hacking. Because of technical and competitive reasons your project looses its significance to
a large extent. Will you terminate the project or continue with it. Justify your answer with
suitable reasons.

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Strategy to avoid the negative impact of project termination

The following are the key strategies that should be followed to avoid the negative impact of project
termination decision:

• There should be a clear strategy for project termination, and it should be communicated to all
the stakeholders
• The criteria of project success and termination should be clear and communicated to every
stakeholders
• High level management attention, even for smaller projects, and in times when everything
seems to be on track
• There should be periodical review meetings with the control board before taking the decision
• There should be open discussions with the control board about the problems and possible
solutions or alternatives, including termination
• There should be a clear commitment of control board and high level management towards the
project management team in order to enable the team to follow the project closure procedures
• Upon successful termination, the project manager and his or her team should be appreciated
for regular project closure

SELF-ASSESSMENT QUESTIONS – 2
Fill in the Blanks:
6 The decision of project termination affects all the ____________ of the project and can put some
negative impact on the organisation’s growth.
7 There should be a clear ___________ for project termination, and it should be communicated to
all the stakeholders.
8 There should be periodical __________ with the control board before taking the decision.
9 The ___________ of project success and termination should be clear and communicated to every
stakeholder.
10 In case the project has to be terminated, there should be a clear commitment of control board
and high level management towards the project management team in order to enable the
team to ____________ the project closure procedures.

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5. PROJECT FOLLOW-UP
Traditionally, this stage is considered as a part of project completion phase but now it is considered
as a separate phase of project life cycle. This is particularly so in very political environments, and/or
where project benefits have relatively low visibility and meaning to stakeholders (staff, customers,
investors, etc), especially if the project also has very high costs.

For example, ICT (Information and Communications Technology) projects often are like this – low
visibility of benefits but very high costs, and also very high stress and risk levels too.

After delivery or completion of the project, the staff performance has to be evaluated. The tasks
involved in this phase are:

• Documenting the lessons learnt from the project

• Analysing project feedback
• Preparing project execution report
• Analysing the problems encountered during the project

SELF-ASSESSMENT QUESTIONS – 3
Fill in the Blanks:
11 Traditionally project follow-up stage is considered as a part of project ______________ phase.
12 After delivery or completion of the project, the ___________ has to be evaluated.
13 ____________________ projects often have low visibility of benefits but very high costs, and also
very high stress and risk levels too.

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6. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• The project closeout and termination phase can be thought of as a project unto itself. Often termed
commissioning, this phase must be planned and programmed, tasks must be assigned, the phase
must be executed effectively and its costs, schedule and quality must be controlled.
• The closing phase covers a number of activities including completing unfinished activities, getting
client’s acceptance of deliverables, updating and archiving documentation, completing post
implementation audit, preparing final report, releasing all resources, and organising closing
meeting.
• Updating and archiving documents provides a wealth of information/data for making changes in
deliverables, managing future projects, organising training, performance evaluation, and setting
any future disputes.
• Post-implementation audit is helpful for learning from experience to evolve better management
practices and to assess the actual benefits against the plan.
• Besides many things, over all reports contains innovative ideas to deal with complex issues which
will be helpful for posterity.
• Finally, closure meeting give the opportunity to recognise the good efforts put in by individuals
and team. This helps in motivating the team members and allows them to part in a positive frame
of mind.

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DBB1207: Project Management

7. GLOSSARY
Financial Management is concerned with the procurement of the least cost funds, and its effective

Completion - Project objectives have been achieved.

It is a situation where there exists no longer requirement to achieve

project objective due to reasons including changing market conditions,
Convenience -
steep rise in project cost, constrained critical resources, new technology,
opportunity cost, etc.

The project fails to achieve the franchised objective due to unsatisfactory

Default -
performance, poor quality, violation of contract, legal violation, etc.

Post- It is the reflection on the events that took place in the course of the project
Implementation - and identifies what went well and what did not and then ask why and
Review (PIR) considers what should have been done.

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DBB1207: Project Management

8. TERMINAL QUESTIONS
1. Briefly discuss the steps to close the project.
2. Discuss the methodology of conducting a post-implementation review.
3. Discuss the major contents of the project’s final report.
4. Discuss the primary objectives of closure meeting.
5. What could be the reasons for project termination?
6. Write a note on project follow up.

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9. ANSWERS
Self-Assessment Questions
1. Project close-out
2. Participants
3. True
4. False
5. True
6. Stakeholders
7. Strategy
8. Review meetings
9. Criteria
10. Follow
11. Completion
12. Staff performance
13. ICT (Information and Communications Technology)

Terminal Questions Answers

1. It includes completing unfinished activities, getting client acceptance of deliverables, updating and
archiving documentation, conducting post implementation audit, etc. For more details, refer to
section 13.3.
2. Post-implementation review may be carried immediately after the completion of the project. For
more details, refer to section 13.3.5.
3. It should present project evolution, its success, its management, any outstanding, and team
recommendation. For more details, refer to section 13.3.6.
4. The key objectives include getting formal agreement of the sponsor, recognising specific
individuals and the team for making valuable. contribution, acknowledging the contribution made
by all, and formally closing the project. For more details, refer to section 13.3.8.
5. A project can be terminated because of technology failure, internal conflicts, lack of management,
customer support, etc. For more details, refer to section 13.4.
6. A project follow-up is initiated to get the feedback of the project team and to make a review of the
project. For more details, refer to section 13.5.

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10. CASE STUDY

Reliance Petro Jamnagar Refinery Ahead of Schedule

For the June quarter, Reliance Petroleum Ltd. has overshot its budget by Rs.1,390 crore for setting up
the Greenfield refinery at Jamnagar.

The refinery project is expected to be completed ahead of the December deadline. It has achieved 94%
overall progress in implementing the project, the company said in a BSE statement.

Reliance Petroleum is setting up the export-oriented refinery with a capacity to process 580,000
barrels a day of crude. It is also setting up a 900,000 tonnes a year polypropylene plant.

Reliance Petroleum in the statement said, “As on June 30, the company has utilised Rs. 25,515 crore
for the project against a projected utilisation of funds of Rs. 24,125 crore. The variation is mainly due
to payments in advance under project contracts for continued, efficient, and speedy implementation
of the project.”

The company added that the project engineering, procurement, and contracting activities have been
completed for the refinery.

Pre-commissioning Activities
Construction activities are progressing rapidly to meet the pre- commissioning requirements.
Planning for project start-up is completed.

The statement said the pre-commissioning activities are proceeding at a fast pace with necessary
infrastructure facilities already under commissioning. The company has mobilised sufficient
resources to sustain the pre- commissioning and commissioning activities on fast track.

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The quarter witnessed a close-out of procurement and contracting activities for equipment and bulk
materials.

Deliveries of equipment are nearly complete. Deliveries of bulk materials including pipes, fittings,
electrical, and instrumentation bulks matched the pace of equipment deliveries and their installation
at site. Focus has now shifted towards achieving a rapid close-out on this front, the statement

added.

1. Why Reliance Petroleum Ltd. has overshot its budget?

Hint: Reliance Petroleum Ltd. has overshot its budget in order to set a new refinery and it makes
advance payments for project under contracts.
2. Why are the pre-commissioning activities are proceeding at a fast pace?
Hint: Pre-commissioning activities are proceeding at a fast pace since necessary infrastructure
facilities are already under commissioning and equipment delivery is nearly complete.

Source: http://www.thehindubusinessline.in/2008/07/23/stories/2008072351730200.html

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11. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing House.

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 14/02/2012.
• www.projectmanagement.com. Retrieved on 14/02/2012.
• www.pmearth.com. Retrieved on 15/02/2012.
• www.sify.com/finance/reliance-petroleum-jamnagar-project-ahead-ofschedule-news-equity-
jehboqicafe.html. Retrieved on 14/02/2012.

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 DBB1207: Project Management

BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 14 - Project Management Software 1
DBB1207: Project Management

Unit – 14
Project Management Software

Unit: 14 - Project Management Software 2

DBB1207: Project Management

TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4
1.1 Objectives - -
2 Advantages of Using Project Management Software - 1 5

3 Common Features Available in Most of the Project i, ii, 1 i, 2 6 - 10

Management Software
4 Illustration iii, iv, v, 2, 3, ii, 3 11 - 16
4, 5, 6
5 Summary - - 17
6 Glossary - - 18
7 Terminal Questions - - 19
8 Answers - - 20
9 Case Study - - 21 - 24
10 References - - 25

Unit: 14 - Project Management Software 3

DBB1207: Project Management

1. INTRODUCTION
In the previous unit, we dealt with project close-out, steps for closing the project, project termination,
and project follow-up. The unit discussed about the project close-out activities including completing
unfinished activities, getting client acceptance of deliverables, updating and archiving documentation,
conducting post implementation audit, preparing final report, releasing all resources, and organising
the closing meeting. In this unit, we will deal with the advantages of using project management
software, common features available in most of the project management software, and illustration of
project management software.

In the early days, project management software was used only on main frame computers. The
software had limited capability and was relatively less user friendly. Its application was limited. With
the growth of business, more and more projects of varying complexity have come up for managing.
This forced the qualitative and quantitative growth of software. Gradually, more and more features
and functions were added into the software.

Today, we have a large number of PC-based project management software packages available. These
are more flexible to accommodate user requirements, capable to handle increased functions and
larger size projects with speed and accuracy, and are available at a reasonable cost.

This unit also discusses the various aspects like the need for software, an overview of common
features available in most packages, how to get the best of these, and general information about them.

1.1. Objectives
After studying this unit, you should be able to:

• state the advantages of using project

management software.
• discuss the common features available in most
of the project management software.
• illustrate the implication of project
management software.

Unit: 14 - Project Management Software 4

DBB1207: Project Management

2. ADVANTAGES OF USING PROJECT MANAGEMENT

SOFTWARE
The following are the key advantages of using project management software:

• Speed, effort, and accuracy: For a large project, manually carrying out activities like drawing a
network, carrying out time analysis, reporting project progress, generation of various types of
reports, updating network, and maintaining records is quite time and effort consuming. Accuracy
level is also below par.
Use of the software package greatly reduces the time and effort needed for these activities and at
the same time enhances accuracy.
• Ability to carry out special functions: The software has the ability to carry out some special
functions like resource scheduling, what if experiment, and export and import of data with ease
and within reasonable time. Manually carrying out these functions is extremely difficult or not
feasible.
• Affordability: The price of PC-based software is under $500 which is affordable for an
organisation.
• Easy to use: Over the years, the project management software packages have become easy to use.
The package can be handled with minimum training.
• Maintenance of record: A project generates a lot of data, reports, documents, etc. Manually
archiving and retrieving these are time and effort consuming. The software package can handle
these functions with relatively less time, effort, and cost.

SELF-ASSESSMENT QUESTIONS – 1
Fill in the Blanks:
1 The price of PC-based software is under _______________ which is affordable for an organisation.
True or False:
2 The project activities like drawings cannot be performed by using project management
software. (True/False)
3 The project management software package can be handled with minimum training.
(True/False)

Unit: 14 - Project Management Software 5

DBB1207: Project Management

3. COMMON FEATURES AVAILABLE IN MOST OF THE

PROJECT MANAGEMENT SOFTWARE
Before knowing the practical use of project management software, we should study some of the
common features available in most of the project management software. An attempt is made to
present an overview of generic features associated with various project management software
packages available today. These generic features include:

• Data entry features

o Project data and calendar: A project start date is specified. A calendar can be used to define
the working days and hours for each individual resource on a project. The calendar is used in
calculating the schedule for the project. Most systems provide a default for the standard
working period, such as Monday to Friday from 8:00 AM to 5:00 AM, with an hour for lunch.
The calendar can be modified for each resource.

• For example, work hours can be modified, company holidays can be entered as non-
working days, and various shifts can be entered.

o Human resources: Suppose a particular activity needs 2 unskilled person and 1 skilled person
to complete the task. These two resources may be entered separately and will appear as 2L
and 1S on activity description in network.

Table 14.1: Types of Resources and Amount Available

o Labour cost: One of the many ways to specify labour cost is as,
• Skilled worker – $ 2.0
• Unskilled worker – $1.2

o Human resources available: All software requires periods and amount of resources that are
available for the project.

o Cost of construction materials: Materials needed for each task and their estimated costs for
the project may be as given below:

Unit: 14 - Project Management Software 6

DBB1207: Project Management

Table 14.2: Materials needed and Estimated cost is to be Entered Against each Activity

o Activity identifier: Each activity of the project is assigned a code or identifier.

o Activity description: Each activity has a description. The number of characters should be
within the number of characters specified by the software for the activity name field.
o Precedence relationship: There are various options to show the linkage between two
consecutive activities in a network. One common option is Finish-Start type. It means that the
succeeding activity can start only if all preceding activities to it have been completed. This
option (Finish-Start type) is the default option in all project management software today for
linking two activities.

Figure 14.1 depicts the various options for linking activities. These are quite useful in reflecting
the real-world situation in network.

Fig. 14.1: Various Options to Link Activities

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DBB1207: Project Management

o Data entry error: All good management software contains error detection routines that
identify and reports errors. However, there are certain errors which cannot be detected by
software. These include:
• An incorrect activity duration
• An incorrect activity name
• An Incorrect precedence logic
• An Incorrect cost data
• A wrong resource entered

These errors have to be corrected manually by listing of the activity records.

Activity - 1
List example of some commercially used project management software and their characteristics?

• Graphics: For a project involving a large number of activities, drawing a correct network,
manually takes a lot of time and effort. One of the important features of PM software is its ability
to generate a variety of charts including network diagram, activity-linked Gantt chart, and Gantt
chart quickly. Further, changes in base line plan are quite easy.

• Time analysis: If there is unlimited and flexible resource or if resource can be outsourced, the
network may be prepared at the earliest start time of activities. In the real world, many projects
are managed on this basis.

PM packages carry out time analysis which includes calculation of early start, early finish, late
start, and late finish; free slack and total slack with ease. Manually carrying out time analysis is
tedious.

• Resources scheduling: Resources scheduling problems are of two types:

o Resource leveling where unlimited and flexible resources are available
o Resource allocation problem where resources are limited

In resource leveling, activities are scheduled to minimise the variation in level of resource
deployment.

Resource allocation problem is concerned with scheduling activities in such a way so as to find
the shortest project schedule.

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The project management software uses heuristics to solve both types of problems. For a moderate
size problem involving 100 activities, it becomes extremely difficult to carry on resource
scheduling. PM software is an invaluable tool to deal with this problem.

• Output reports: Most PM software packages have extensive report generation capabilities. They
can generate a range of reports in various forms (graphical, tabular, or textual). The reports are
standard or customised.

The content of each report for a recipient is based on a “need-to-know basis” and is presented in
a particular order. These requirements are met by two features of the software namely, filtering
(editing) and sorting.

Filtering enables the user to select only certain data that meet some specified criteria. Sorting, on
the other hand, allows the user to view information in a desired order such as pay rates from
highest to lowest or in alphabetical order. Most software allows multiple level of sorting (for
example, by year and then by dates).

Among the reports generated by the software include:

• Project schedule: Network (based on AON systems), linked Gantt chart, Gantt chart
o Work-to list
• Cost related report: Budgeted vs. actual cost (daily and cumulative)
o Resources utilisation report
• Progress report: Overall project, milestone chart, critical path
o Chart showing responsibility of department/function to carry out particular activities
o Progress summary report
• Updating: Updating is the process of producing a fresh set of schedule and other reports to
take account of one or more of the following:
o A change to the project parameter, an unexpected increase or decrease in the resource
available, changed cost rate, or new target dates.
o A change in network logic due to change in project scope, design change, etc.
o To have a new schedule that take into account the progress made to date.

• Importing/exporting: The process of bringing information into the PM software from other
application such as word processing, spread sheet, etc is called importing. Similarly, sending
information from PM software to other application is called exporting.

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The exporting and importing obviates typing/data entry effort and eliminates the possibility of
associated error.

• Project monitoring and tracking: Tracking the progress about schedule and cost is an important
aspect of project management. Most PM software packages permit the users to define a baseline
plan and compare the actual progress with respect to those in the baseline plan.

• What if analysis: This is a useful feature of PM software. This permits to know the effect of
changes in project variable (people, cost, and change in scope) on project objective. This analysis
helps the project manager in taking an appropriate decision.

SELF-ASSESSMENT QUESTIONS – 2
Fill in the Blanks:
4 Resource allocation problem is concerned with _____________ activities in such a way so as to
find the shortest project schedule.
5 The process of producing a fresh set of schedule is known as ______________.
6 _____________ allows the user to view the information in a desired order, such as pay rates from
highest to lowest or in alphabetical order.
7 ________________ enables the user to select only certain data thatmeet some specified criteria.
True or False:
8 Most software allows single level of sorting. (True/False)

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4. ILLUSTRATION
Gantt Charts is a tool for examining and scheduling more complex projects. It facilitates to plan tasks
that need to be completed and provide a basis for scheduling when these tasks will be carried out.
When a project is under way, Gantt Charts helps to monitor whether the project is on schedule or not.
If it is not, it helps to locate the corrective action which is required to put it back on schedule. Now,
let us illustrate how actually Gantt chart works:

Consider the following illustration of some features of MS project on a sample project:

A sample project is described by the following data depicted in table 14.3:

Table 14.3: Sample Project Data

Labour cost rate = Rs. 25/hour

With maximum labour available as unlimited and 8 persons, prepare the following using MS project:

1. Network diagram
2. With unlimited resources
(i) Gantt chart
(ii) Time analysis
(iii) Resource graph
3. With limited resources (8 persons)
(i) Gantt chart
(ii) Time analysis
(iii) Resource graph
4. Tracking Gantt chart
5. Network diagram showing work status
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Solution

Using MS Project, solutions for the above questions pertaining to the sample project were obtained
and these are depicted in Figure 14.2 to Figure 14.6. Based on these outputs, some observations are
given below.

Fig. 14.2: Network Diagram

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

1. With unlimited resources (14 men or more), the project will take 26 days to complete.
2. With limited resources of 8 persons, the project duration would be 33 days.
3. We get early start, early finish, late start, late finish, and total slacks of each activity.
4. Tracking chart and network diagram may be used to track the progress of work.

Above are only a few application of MS project. Many more applications including project tracking,
what if analysis, and others can be done with the help of the package.

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Assumption:

(i) 7 day working for manpower

(ii) No constraint on manpower

With Unlimited Manpower:

Table 14.4: WBS for the project

a. Gantt Chart

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

b. Time analysis

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c. Resource graph

Fig. 14.3: Gantt Chart, Time Analysis, and Resource Graph with Unlimited Manpower
Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

For Limited Manpower (8 no.):

Table 14.5: WBS with Total Slack

a. Gantt chart

Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

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b. Time analysis

c. Resource graph

Fig. 14.4: Gantt Chart, Time Analysis, and Resource Graph with Limited Manpower (8 no.)
Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Tracking Gantt Chart:

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Note: Dark Lines within the Gantt chart bars indicate the completion status of the activity. Here
activities A, B, and C are fully completed and activity D is partially complete
Fig. 14.5: Tracking Gantt Chart (Status as on 15th Jan 2010)
Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Note: Fully crossed boxes denote the completed tasks and half crossed denote the partially completed
tasks
Fig. 14.6: Network Showing the Work Progress
Source: Mishra Rajendra (2012), Project Management: Excel Books, New Delhi

Activity - 2
Take any project of your choice. What are you trying to achieve with the project? What need does
it satisfy for your customer? Who exactly is going to actually use the project deliverable(s) when it
is finished? (That is, who is your real customer?) What will distinguish your deliverables from
those already available to the customer?

SELF-ASSESSMENT QUESTIONS – 3
Fill in the Blanks:
9 _____________ is a tool for examining and scheduling more complex projects.
True or False:
10 When a project is under way, Gantt Charts helps to monitor whether the project is on
schedule or not. (True/False)

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5. SUMMARY
Let us recapitulate the important concepts discussed in this unit:

• Earlier, PM software was run on mainframe computers. Its capability was limited, and it was
relatively not easy to use. Its application level was low.
• Generally, more and more projects of varying sizes and complexities emerged forcing the PM
software to grow in quantity and quality.
• Today, we have a large number of PC-based PM software packages available. They are more
flexible with improved capability and can handle large size projects with speed and accuracy.
• The unit has discussed many common features of available packages which include data entry
features, graphics, time analysis, resource scheduling, output reports, updating,
importing/exporting, project monitoring, and tracking.
• The unit gives guidelines to make the best use of software. Finally,general information about
software package has been presented.

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6. GLOSSARY
Financial Management is concerned with the procurement of the least cost funds, and its effective

It is a feature of PM software that enables the user to select only certain

Filtering (editing) -
data that meet some specified criteria.

The process of bringing information into the PM software from other

applications such as word processing, spreadsheet, etc is called
Importing/exporting -
importing. Similarly, sending information from PM software to other
applications is called exporting.
It is a feature of PM software that enables the users to view the
Sorting - information in a desired order (alphabetical order, ascending or
descending order, of value).
What-if analysis evaluates the effect of change(s) in project variable(s)
What-if analysis - (people, cost, change in scope, etc) on project objectives. This analysis
enables the project manager to take appropriate decisions.

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7. TERMINAL QUESTIONS
1. Discuss the advantages of using PM software package.
2. What are the common features available in PM software packages?
3. Define filtering. How is it different from sorting?

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8. ANSWERS
Self-Assessment Questions
1. $500
2. False
3. True
4. Scheduling
5. Updating
6. Sorting
7. Filtering
8. False
9. Gantt charts
10. True

Terminal Questions Answers

1. Project management software enhances the speed, effort, and accuracy of the project. It is also
helpful in maintaining record and time efficiency. For more details, refer to section 14.2.
2. There are some common features which are associated with all the project management software
like data entry, time analysis, maintaining graphics, etc. For more details, refer to section 14.3.
3. Filtering enables the user to select only certain data that meet some specified criteria; on the other
hand, sorting allows the user to view the information in a desired manner. Refer to section 14.3.

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9. CASE STUDY
Microsoft Project AMS

The company

AMS is a global business and IT consulting firm to the government, financial services, and
communications industries. AMS applies both proprietary and partner technologies and provides
solutions through business consulting, system integration, and outsourcing. Founded in 1970, AMS is
headquartered in Fairfax, Virginia, and has offices worldwide. The company has approximately 6300
employees.

The challenge

Several years ago, AMS developed an internal project management system called Project in a Box.
Based on Lotus Notes, the homegrown system was becoming inefficient and costly to operate,
particularly because it was designed as a standalone, non-collaborative product. When a new
consulting project was set up, a new instance of the database was created, leading to a chaotic system
with literally hundreds of separate databases.

Without any kind of centralised information sharing, it was difficult to use information from one
project on another project. The system also prevented AMS’s managers from viewing companywide
metrics, such as project completion rates and whether projects were being completed on time and on
budget. AMS’s executives needed a system to allow them to have a portfolio view of the health of the
company’s projects in progress. A collaborative project management system would allow AMS
managers to:

• Measure project performance and Earned Value Metrics (EVM) allowing for improvements in
on-time and on-budget delivery to customers
• Standardise processes
• Understand the impact of task dependencies within complex projects
• Share information across different product lines

The strategy

Many AMS project managers were already using Microsoft Project as a desktop application,
developing project plans and Work Breakdown Structures (WBS) on their individual PCs. However,

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these individual installations were not networked together and did not feed critical project
performance information to executives.

Therefore, in October 2002, when AMS began the vendor selection process for a company-wide
project management solution, Microsoft Project was the natural choice, both because many internal
users were already experienced with the application’s scheduling and planning functionality and
because Microsoft offered the best price point.

In March 2003, AMS chose Microsoft as its project management software vendor and began a pilot
programme. In June 2003, AMS selected the public sector product engineering group as the first
department to begin the pilot programme. AMS divided this initial pilot programme into four distinct
phases:

• Phase 1: In early July, AMS installed Microsoft Project for and trained 5–20 project managers
working on a common product line.
• Phase 2: In late August, AMS expanded the installation to 170 people in another product line
within the same group.
• Phase 3: In late September, AMS rolled out Project’s decision support capabilities to ten
executives, allowing them to mine data for reporting purposes.
• Phase 4: If the pilot is successful, AMS will expand the Project programme to 4,000 users
company wide in a staged rollout.

Key benefit areas

With the pilot programme well under way, AMS is already seeing benefits from Microsoft Project. The
system has helped AMS to meet its goal of creating a more collaborative project management system
that allows managers to view metrics and create schedules with a view of resources across projects
and across the entire organisation. The collaborative nature of Microsoft Project Server allows team
members, team leaders, and project managers to complete EVM reporting more quickly, leading to
more available time for billable hours. The quantifiable benefits from the Microsoft

Project deployment include:

• Productivity gains from automated weekly reporting process. Consultants and developers now
spend less time each week creating weekly status and performance reports, leading directly
to more time available for billable hours.

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• Productivity gains from automated EVM analysis. Team leaders and project managers now
spend less time processing and analysing status and performance reports from team members,
allowing them to also have more time available for billable hours.
• The Microsoft Project deployment also allows AMS project managers to get a better sense of
project status metrics in real time. This leads to fewer project budget and cost overruns,
because project managers can quickly make adjustments to keep projects profitable.

Key cost areas

The largest cost area for AMS’s deployment of Microsoft Project was the software license cost, making
up 63% of the total cost of the project. Other cost areas over the 3-year period included consulting,
training, ongoing maintenance, and personnel costs associated with the everyday use of the system.

Lessons learnt

Overall, AMS’s Microsoft Project implementation went smoothly. AMS’s managers attribute the
project’s success to their careful planning and staged pilot programme approach. AMS’s managers
recommend that companies considering similar implementations should not underestimate the
change management necessary to make Microsoft Project work effectively. Project managers,
especially those without PMI certifications, will often need to undergo training on how to build
effective WBS’s, how to plan and schedule complex projects, and how to adjust WBS’s to changing
project conditions.

A successful Microsoft Project implementation also requires a high level of communication between
team members and project managers. This is especially important with regard to communicating the
inputs, steps, expected output, and dependencies of complex business processes.

AMS’s managers also recommended that companies carefully look at their internal processes for
building WBS’s, especially the ones for complex projects that require more than 500 tasks. Some of
AMS’s projects contained upwards of 2500 tasks, which was well above Microsoft Project’s practical
limit of 500 tasks for a single project.

Calculating the ROI

Nucleus Research analysed the costs of software, personnel, consulting, and training over a 3-year
period to quantify AMS’s investment in Microsoft Project. Direct and indirect benefits were also
quantified over a 3-year period. Direct benefits quantified included productivity gains for both team
members and team leaders when creating EVM reports. Because AMS was an early adopter and

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because it agreed to participate in trade shows and in marketing ventures, the company received
consulting services from Microsoft at no cost, though AMS did use internal consultants for a portion
of the implementation.

Companies currently considering Microsoft Project for similar enterprise implementations must take
consulting costs into account when evaluating potential ROI. Benefits not quantified because of the
early stage of AMS’s Project deployment included reduced project budget and schedule overruns.
However, Nucleus recommends that companies considering Microsoft Project evaluate this potential
benefit.

1. What difficulties were encountered by AMS while dealing with information transfer problem
in the company? What strategy is used by AMS for dealing with this problem?
Hint: Without any kind of centralised information sharing, it was difficult to use information
from one project on another project
2. How project management through pilot programmes became successful in above mentioned
case. Explain?
Hint: initial pilot programme, With the pilot programme well under way, AMS is already seeing
benefits from Microsoft Project., cost benefits

Source: http://nucleusresearch.com/library/microsoft-roi/d134.pdf

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10. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F/ and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V. Project Management, Second Revised Edition, Publication: Himalaya Publishing House.

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 14/02/2012.
• www.projectmanagement.com. Retrieved on 15/02/2012.
• www.pmearth.com. Retrieved on 15/02/2012.

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BACHELOR OF BUSINESS ADMINISTRATION

SEMESTER 2

DBB1207
PROJECT MANAGEMENT
Unit: 15 - Case Studies in Project Management 1
DBB1207: Project Management

Unit – 15
Case Studies in Project Management

Unit: 15 - Case Studies in Project Management 2

DBB1207: Project Management

TABLE OF CONTENTS

Fig No /
SL SAQ / Page
Topic Table /
No Activity No
Graph
1 Introduction - -
4
1.1 Objectives - -
2 Practical Case Study I - - 5 - 13
3 Practical Case Study II - - 14 - 20
4 Practical Case Study III - - 21 - 24
5 Exercises - - 25
6 Summary - - 26
7 Answers to Exercises - - 27
8 References - - 28

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1. INTRODUCTION
In the previous unit, we dealt with the advantages of using project management software, common
features available in most of the project management software, and illustration of project
management software.

After gaining the fundamental knowledge of project management, it is important for you to attempt
converting your study into a practical mode. This unit provides you with an opportunity to convert
the concepts into practical project working models. In this unit, therefore, we will understand a few
case studies related to project management. You will also attempt some practical exercises for putting
these structured concepts into standardised formats and analyse them. For this purpose, a few
practical examples have been provided with generic input data, typical of such projects.

1.1. Objectives
After studying this unit, you should be able to:
• Analyse a case study
• Design the strategies for project management
• Prepare a feasibility report

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2. PRACTICAL CASE STUDY I

Design and commissioning of underground and elevated Delhi Metro sections

Scope of the project

The scope of the project included planning, design, tender management, construction supervision,
contract management, and commissioning of underground and elevated sections of the Delhi Metro.

Strategy for project management

RITES is one of the key constituents of the five-member consortium of general consultants and
contributed more than 85% of the total project man- months.

At a wider level, RITES experts, with their skills, supplement the understanding of their counterparts
within the consortium on construction, operation, and maintenance of railways in India. They also act
as a vital communication link in various technical issues between the foreign experts and the client.

RITES deployed about 150 experts (only about 30 expatriates deployed by four foreign partners) in
all spheres of activities like:

• Planning and scheduling

• Design proof checking
• Tender and contract management
• Construction supervision
• Interface management
• System integration
• Trial run, commissioning, etc

RITES experts have been able to clearly define the needs and moderate the international requirement
in a manner that is best suited for the project and the country as a whole.

In short, RITES have competently demonstrated the expertise in delivering a multi-disciplinary

project from concept to commissioning.

Man-months input: 9262 (88%) (including underground and elevated sections).

Initial planning and system design

• Field investigations including topographic survey, geo-technical survey, utility investigation

and diversion planning, survey of the existing buildings and structures along the MRTS routes.
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• Initial system plans including physical location of stations, detailing of route alignment, and
passenger data including passenger flow diagram, train operation plan, etc.
• Initial system designs including alignment design, track layout plan, station layout, rail car
depot and inspection facilities, sub-station and power supply systems, current collection, train
controls, operation control centre, project estimation, annual budget requirement, cash flow
planning, and finalisation of the same in consultation with foreign experts.

Tender management (elevated corridors)

• Tender design and tender documentation for various packages of elevated sections (22km of
route length) including design approach and criteria; specifications; appointment of detailed
design consultants; coordinating with them for design of viaduct, stations, and other service
buildings including proof checking of their final design, drawings, bill of quantities, and
construction details for various packages as proof consultant.
• Preparing tender packages; pre-qualification documents; tender documents; PQ and tender
evaluation criteria for the various packages of elevated sections including viaduct, stations,
and related electrical and mechanical works.
• Pre-qualification of the contractors, invitation of the bids, pre-bid meetings, technical
evaluation, financial evaluation, negotiations with the tenderers, and recommendation of
award of work for rail corridors (elevated sections) contractors.

Tender management (Underground corridor)

• Preparing tender documents (excluding specifications) and pre- qualification documents for
underground section involving about 11 km of twin tunnels.
• Associating with foreign consultants in preparing and finalising the tender design of cut and
cover tunnels, underground stations, signalling and telecom system, fare collection system,
traction and power distribution system, field instrumentation for monitoring, lifts and
escalators, and rolling stock as design and construct basis.
• Pre-qualification of tenderers, invitation of bids, pre-bid meetings, receiving offers, technical
evaluation and financial evaluation of bids, and negotiation and recommendation of award of
work for various contract packages involving:
o Underground civil construction
o Traction and power distribution
o Signalling and telecom

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o Lifts and escalators

o Automatic fare collection
o Procurement of rolling stock, etc. for the underground section
• Proof checking of detailed designs for cut and cover, tunnels, signalling and telecom system,
power supply and traction system (for underground section), fare collection system, and
rolling stock as submitted by design and built contractor in association with foreign
consultants (partners).
• Coordinating with manufacturers of the rolling stock with respect to proof checking of design
giving due consideration for low energy consumption, low operation and maintenance cost,
passenger safety, minimum life cycle cost having the facilities of passenger information display
system and passenger alarm system, etc.

Construction supervision

• Construction supervision and project management for construction of viaduct, stations,

maintenance depots, track work and power supply and distribution system, and traction
system of various contract packages of rail corridors (elevated section).
• Construction supervision of 11 km of twin tunnels involving:
• Cut and cover section (7 km) using various ground support systems viz. diaphragm wall, sheet
piles, ground anchors, soldier piles/mini piles/secant piles, shotcreting, etc.
• Bored tunnel section (4 km) using laser-guided Tunnel Boring Machines (TBM).
• Supervision of system works comprising of track; traction system; power supply and
distribution system; signalling and telecom system using state-of-the-art automatic train
protection, automatic train operation, automatic train supervision, etc; automatic fare
collection system using contact-less smart cards/tokens; procurement of rolling stock using
regenerative braking, minimum life cycle cost, asynchronous traction motors, high
acceleration/deceleration, etc including their inspection, testing, and commissioning for
metro corridors (underground section) and rail corridors (elevated section).
• Supervising the work of elevated and underground corridors with respect to high safety
standards and construction in an environment-friendly way. This included initiative in
implementing ISO 14001 environment management system in elevated and underground
corridors.
• Co-ordination with manufacturer of the rolling stock and other contractors/suppliers for
system works for manufacture, installation, testing, and commissioning.

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• Preparing various manuals including track manual, civil work manual, signalling manual,
telecom manual, operating manual, safety manual, rolling stock manual, quality assurance
manual, and traction manual.

Innovation and complexity of the work

Construction methodology

The Delhi Metro project is the first of its kind in India though the first metro rail system was
constructed in Kolkata by conventional methods. It took about 20 years to construct 16 km of corridor
and caused severe inconvenience to the public, whereas Delhi Metro has been planned with the latest
technology in all fields of construction with meticulous planning and has resulted in on-schedule
commissioning of various sections with least inconvenience to the public.

For elevated sections (22km), generally pre-cast, pre-stressed segmental construction has been used
to minimise the construction period and inconvenience to public with minimum space requirement
on ground. For long spans (60 m), pre-stressed, balanced cantilever construction has been

adopted.

The underground corridor traverses under the old walled city of Delhi. A total of 11 km of
underground twin metro tunnels have been constructed out of which about 4 km including Chawri
Bazar station have been bored using state-of-the-art laser-guided Tunnel Boring Machines (TBM) and
Earth Pressure Balance Machines (EPBM) through rock and soft ground under heavily built-up area.
Highly sophisticated tunnel boring machines with record production rate have been used for the first
time in India and are considered to be trend setters for future metro rail construction.

Construction of tunnels under thickly populated and commercial hub of Chandni Chowk and Chawri
Bazar area of old Delhi encountered a number of unknown wells/ponds which resulted in loss of
pressure for TBMs and required plugging/ground stabilisation. Also, the unexpected type of
geological strata varying from sandy silt to quartzite encountered during tunnel boring required
major design changes in the cutter head of TBM. The existing buildings within the influence zone of
the tunnels were in very poor condition and required condition survey. Based on the same, the
buildings were assessed for their expected settlement using a limited tensile strain approach. Using
this data, analysis of the structures was carried out to assess the behaviour of the buildings by the
predicted settlement and take necessary protection measures including strengthening of the
buildings. Continuous monitoring with electronic gadgets viz. tilt meters, crack gauges, etc was
carried out to ascertain the condition of the structures and take additional protection measures if the
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situation so warranted. Stringent criteria of allowable ground settlement and maximum draw down
of 2 m of ground water table, including recharging of the ground water, helped in controlling the
damage to the existing structures. All this was achieved without losing even a single day of business
activities above.

Limited working space, densely populated commercial area, difficult approach, a lot of existing
utilities, and running traffic required specialised machinery like road headers, compact size
excavators/loaders, silent generators, etc and innovative construction methodology involving use of
top-down construction method, secant piles, advance ground probing, soil anchors, self drilling rock
dowels, self compacting concrete, fibre reinforced concrete, controlled blasting based on pattern
design of explosive and online, real-time monitoring of geo-technical and structural parameters using
sophisticated electronic instrumentation.

The balance underground section of about 7 km (including stations, except Chawri Bazar Station) has
been constructed by cut and cover method using various ground support methods such as diaphragm
wall, sheet piles, and soldier piles with lagging and secant piles. Depth of excavation at underground
stations varies from 15 to 20 m.

Another innovation of utilising the sunlight in the underground station has been used wherever
possible so as to minimise the energy consumption.

Despite the difficulties, site-specific construction methodology and constant monitoring by RITES
experts resulted in timely completion of the construction. Successful construction of the underground
Chawri Bazar Station within a thickly populated and commercial area and Kashmiri Gate
underground station across the existing elevated station is a marvel of engineering excellence.

System design

Traction and power supply

Traction and power supply system adopted is energy efficient with complete automation and safety,
modern lighting with varying degree of illumination as per functional requirement, and maximum
utilisation of daylight and natural ventilation particularly for underground construction to minimise
energy consumption.

Signalling and telecommunication system

Signalling and telecommunication system has been planned using state-of- the-art technologies. Some
of them have been used for the first time in India namely:

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• Automatic Train Protection (ATP)

• Automatic Train Operation (ATO) and Automatic Train Signalling (ATS) with combined
Operation Control Centre (OCC) along with cab signalling and continuous automatic train
control (This enables safe running of trains at 2.5 minutes frequency)
• Trailable point machines
• Coded audio frequency track circuits
• Automatic train supervision and automatic route setting including headway optimisation
• Stainless steel miniature location/junction boxes
• Zero halogen low smoke cables
• Centralised monitoring and control with data logging
• Non-power SCADA
• Allowing public GSM/CDMA operations in tunnel environment

The system also provides for terrain mobile radio, closed-circuit TV, and state-of-the-art PA/PID
system for passenger safety and uses optical fibre cable transmission.

The Operation Control Centre, first of its kind, supervises the train operation, monitors passenger
information, automatic fare collection system, rail temperature, fire detection, and gate control and
lifts/escalator functioning.

Automatic fare collection

State-of-the-art automatic fare collection system has been adopted using contact-less smart card and
tokens for regular and occasional travellers. Contact-less magnetic tokens have been used for the first
time in the world. The system allows 45 passengers/minute per ticket gate and does not permit any
ticketless travel.

Rolling stock

Design of rolling stock incorporates highly efficient drive system, high acceleration/deceleration, re
generative braking, stainless steel body, and asynchronous traction motors for minimum life cycle
cost. The lightweight coaches are fully vestibuled; air-conditioned; equipped with automatic door
closing, Passenger Information Display System (PIDS), and Passenger Alarm (PA) system with
automatic audio announcement facility.

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Operation and maintenance

With the use of state-of-the-art technology, the system requires reduced Operation and Maintenance
(O and M) expenses as compared to Kolkata Metro. Also, only about 45 persons are required per route
km for O and M as compared to more than 100 persons per route km of Kolkata Metro.

Passenger safety

The system provides for high standards of passenger safety and includes special walkways
throughout the elevated as well as tunnel sections. Evacuation facilities are as per America's safety
provisions (NFPA 130) and allows 3 train load of passengers (5000 to 6000) to be evacuated in 3
minutes from underground platform to a safe place (concourse) and in 6 minutes to the ground
(outside station). For the elevated section, this time is 4.5 minutes to 7.5 minutes respectively.

Services for handicapped persons

For first time in India, facilities for handicapped persons have been provided at all stations and in
trains in the forms of lifts, ramps, toilets, tactile flooring (guide-way for visually handicapped), and
nominated wheelchairs in trains.

High standards in construction

Advance planning of traffic diversion, advance diversion of affected utilities/services, carrying out
heavy transportation work during night, barricading the entire construction area from public view to
minimise inconvenience to public, close coordination with civic authorities, vigilant construction
supervision/monitoring, and active participation in implementation of safe construction techniques
and ISO 14001 requirements are some of the key factors for establishing high standards of
construction.

Achievements

• Completion on schedule: Despite the involvement of a number of civic authorities, multi-

disciplinary activities, and working in congested areas like Old Delhi and Chawri Bazar, the
project has been commissioned ahead of schedule. Line 1 of the project was commissioned 3
months ahead of schedule; the first section of line 2 was commissioned 7 months ahead of
schedule whereas the second section of line 2 was also commissioned 3 months ahead of
schedule.
• Efficient site and traffic management: The revolutionary site management and efficient
traffic management at construction sites have been planned in a manner so as to cause

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minimum inconvenience to public which has been widely appreciated and is being adopted by
other government agencies within the country.
• High safety standards: Best safety record during construction. Achieved an accident
frequency rate of 0.123 per 1,00,000 man hours which is the best in India and is better than
most foreign countries.
• ISO 14001 certification: RITES experts were involved in getting ISO 14001 certification for
construction sites for elevated (22km) and first section of underground corridor (4km) within
a record period of 11 months. This has led to the construction in an environment-friendly way.
• Timely payment to contractors: 80% in seven days and 100% in 28 days for elevated
corridors and 100% in 60 days for international contracts. This has led to effective control at
site and timely completion.
• Early delivery of coaches: Due to constant proof checking of the design and effective
monitoring of production, the delivery schedule of coaches from Korea was advanced by 4
months and was highly appreciated by the client.
• Less O and M cost: With the use of state-of-the-art technology, the O and M cost of Delhi Metro
is about 60% of that of Kolkata Metro, thus considerable saving to the client.

Value addition

By using modern planning, construction methodologies, and management techniques, RITES have set
new standards for the construction industry and shown a way to rapid, safe, environment-friendly,
and timely construction of such a complex and multi-disciplinary project within the budget and with
least inconvenience to the public. During the execution, the safety standards have been one of the
highest in the world with minimum rate of accidents. The construction industry in India started
following the construction techniques and level of standards introduced by the metro construction,
which has gone a long way in safe and timely construction in India.

Benefits to society/economy

• World class metro rail transport with state-of-the-art technology with transfer of technology
to India.
• In-house expertise leading to reduced cost of metro construction in other cities of the country.
• Control of air and noise pollution during construction.
• Water conservation during construction by way of recycling of water and ground water
recharging.

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• Saving on national resources by segregation and reusing construction waste during

construction.
• Increased confidence of funding agencies and government/people due to low accident rate
and timely completion.
• Generation of vast employment.
• Opening avenues to the other developing countries for sale of expertise on metro construction.
• Improvement in international relations

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3. PRACTICAL CASE STUDY II

Design and manufacturing of Cape gauge locomotives and coaches

Scope of the project

The scope of the project included technical assistance, workshop modernisation, designing, planning,
manufacturing, testing, commissioning and field trials of Cape gauge locomotives and coaches in
Angola.

Strategy for project management

RITES specialises in providing complete engineering and managerial solutions on a turnkey basis for
all transportation problems. It has successfully executed a variety of projects related to design,
development, commissioning, and field trials of locomotives and coaches in the past in a number of
countries. But, RITES had never undertaken the job of designing, developing, manufacturing, testing,
commissioning, and doing field trials of Cape gauge locomotives and coaches.

For the first time, RITES had made an endeavour in the field of developing Cape gauge rolling stock.
The RITES technical team made visits to the premises of the client, understood their requirements,
worked out technical details, organised a series of discussions with RDSO, DLW, ICF, and BHEL and
designed and developed Cape gauge locomotives and coaches. The prototype rolling stock were
developed and manufactured as per customer requirements.

Since Cape gauge does not exist over Indian railway, it was, therefore, not possible to conduct field
trials of Cape gauge rolling stock in India before their dispatch to Angola. RITES in association with
BHEL designed and developed the Complete Engine Testing Laboratory (CET Lab) at BHEL for
conducting full load tests of the new system. The synchronisation of the power generation and
transmission to the traction system along with working of governing system and the control system
was tested in the lab. Working of the complete system was tested in the lab as per actual field
conditions.

Successful testing of the complete system in the lab gave RITES confidence about the efficacy of the
system developed even in the absence of availability of any facility to conduct actual field trials in
India. The Cape gauge locomotives were subsequently supplied to Angola and were commissioned
after conducting successful field trials there. The technology has now been successfully proved and
established.

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After successful commissioning of locomotives and coaches in Angola, RITES had obtained continuous
feedback from the customer and on the basis of customer feedback, carried out necessary
modifications in the critical sub-systems to ensure their reliability.

RITES offered comprehensive services to CFM, Angola, in the fields of upgradation and management
of workshop situated at Lubango. Layout optimisation, material storage system planning, assessment
of equipments required for proper maintenance of rolling stock, supply and commissioning of the
equipments and other facilities, standardisation of procedures in repairs of rolling stock in the
workshop, etc were successfully carried out within the scheduled time frame.

RITES deployed about 20 experts in all spheres of activities like planning and scheduling, designing,
development of prototype, system integration, trial run and commissioning, etc. RITES experts have
been able to clearly define the needs and moderate international requirements in a manner that is
best suited to meet the customer requirement.

In short, RITES has competently demonstrated the expertise in delivering a multi-disciplinary project
from concept to commissioning.

Initial planning and system design

Preliminary discussions with the customer to access his requirements, visit to site for understanding
technical details of the project, accessing the requirement of technical assistance for CFM, assessment
of facilities required for modernisation of Lubango workshop, and coordination and discussions with
RDSO, DLW, ICF, and BHEL for complete system design and development of prototype of locomotive
and coaches including evolution of design of major sub-assemblies like couplers, bogies, traction
motors, traction generators, power pack, electrical control system, braking system, governing system,
safety protections, etc

Planning, design, and development of Complete Engine Testing Laboratory (CET Lab) in association
with BHEL for testing the system for synchronisation of power generation and transmission as well
as functioning of the governing and control system.

Prototype manufacture and project management

1. Finalisation of technical specification of the equipments required for the modernisation of

workshop at Lubango, their procurement, co-ordination with vendors for the manufacture of
equipments as per customer requirement, inspection and testing of the equipments at
vendor's premises, and supply and commissioning of these equipments in Angola.

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2. Coordination and project management with DLW for design, development, and prototype
manufacture of Cape gauge locomotives.
3. Coordination and project management with ICF for the design, development, and manufacture
of prototype Cape gauge coaches.
4. Co-ordination and project management with BHEL for design, development, and prototype
manufacture of complete electrical system including traction and control system for rolling
stock.
5. Co-ordination with other contractors/suppliers for design and development of major sub-
assemblies and other components for their use in the rolling stock system works for
manufacture, installation, testing, and commissioning.
6. Co-ordination for design and development of wheel discs to suit track profile and their import
for fitment in Cape gauge locomotives and coaches.
7. Preparing various manuals, including maintenance and troubleshooting manuals for Cape
gauge locomotives and coaches, driver’s instruction manual, safety manual, brake system
testing manual, etc.

Innovation and complexity of the work

System design

Rolling stock design

The Cape gauge locomotives and coaches have been designed and developed for the first time by
RITES to meet the customer requirements. Design of rolling stock incorporates highly efficient power
generation system, power transmission system, asynchronous traction motors suspension and
driving system, high acceleration/deceleration, regenerative braking system, and effective governing
and control system for minimum life cycle cost. Light weight coaches are fully vestibuled, equipped
with Passenger Alarm (PA) system, reliable air brake system for effective braking, and all passenger
amenity fittings including modern lighting with varying degree of illumination as per functional
requirement.

Design and development of sub-assemblies

The design and development of sub-assemblies for the rolling stock was a very complex job keeping
in view the fact that these sub-assemblies had never been developed in the past for the Cape gauge
rolling stock. Their development required complete understanding of the design features of Cape
gauge rolling stock. Development of vendors for manufacturing of prototype sub-assemblies, that too

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for a batch size of very small quantity, and simultaneous confidence building in them was a highly
complex job which has been handled successfully on the strength of past record and relationship of
this organisation with them.

Design and development of CET Lab

Since Cape gauge does not exist over Indian railway, it was, therefore, not possible to conduct field
trials of Cape gauge rolling stock in India before their dispatch to Angola. RITES in association with
BHEL designed and developed the Complete Engine Testing Laboratory (CET Lab) at BHEL for
conducting full load tests of the complete system. The synchronisation of the power generation and
transmission to the traction system along with the working of governing system and control system
was tested in the lab. Working of the complete system was tested in the lab as per actual field
conditions.

Development of CET Lab and successful testing of the complete system in the lab gave us confidence
about the efficacy of the system developed by us even in the absence of availability of any facility to
conduct actual field trials in India.

Operation and maintenance

With the use of state-of-the-art technology, the system required reduced O and M expenses as
compared to the existing system in Angola. The successful completion of technical assistance
programme, including imparting training to CFM personnel, shall accrue to them substantial benefits
in the long run by ensuring proper maintenance of rolling stock and thereby increase its availability
and productivity.

Passenger safety

Rolling stock supplied by RITES provides for high standards of passenger safety. The audio-visual
system provided in the locomotive indicated any abnormality of the system to the driver to enable
him or her to take timely preventive action and thereby save any eventuality. The passenger alarm
system provided in coaches enabled them to raise alarm to the driver to stop the train in emergencies.
The provision of CBC couplers to prevent parting of trains, anti-telescopic features, air brake system
for reliability during brake application, use of fire resistant material, etc are some of the other salient
safety features.

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Modernisation of the workshop

Comprehensive services in the fields of upgradation and management of workshop situated an

Lubango, layout optimisation, material storage system planning, assessment of equipments required
for proper maintenance of rolling stock, supply and commissioning of the equipments and other
facilities, standardisation of procedures in repairs of rolling stock in the workshop, etc were highly
complex jobs and required extensive planning and complete reorganisation of the workshop which
was successfully carried out within the scheduled timeframe.

Achievements

Timely completion of the programme of technical assistance The complete programme of technical
assistance for imparting training to CFM officials for technical know-how of rolling stock and review
and revision of their maintenance systems for safe running of trains was completed well within the
scheduled timeframe. This led to the effective management and utilisation of their existing rolling
stock assets.

Timely submission of the technical study report for rehabilitation of CFM railway system and
maintenance workshops

Timely submission of the technical study report for rehabilitation of CFM railway system and related
maintenance workshops enabled them to take proper measures for setting up new standards of
maintenance and procurement and commissioning of state-of-the-art machinery and equipment for
the proper maintenance of rolling stock.

Timely supply and commissioning of new rolling stock

In spite of the fact that the Cape gauge rolling stock had been designed and developed for the first
time in India and no facilities existed for conducting their field tests, RITES not only organised the
testing of complete system as per field conditions by developing CET Lab at BHEL, but also ensured
timely manufacture of rolling stock as per customer requirement. Complete rolling stock has been
delivered and commissioned on time after conducting field trials in Angola.

Timely upgradation of maintenance workshop

Timely provisioning of infrastructure facilities in workshop situated in Lubango, layout optimisation,

material storage system planning, assessment of equipments required for proper maintenance of
rolling stock, supply and commissioning of the equipments and other facilities, standardisation of
procedures in repairs of rolling stock in the workshop, etc benefited the client in revamping its

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railway system and introduce the best maintenance practices of the rolling stock. New train services
were introduced over CFM Angola on account of better availability of rolling stock.

Less O and M cost

With the use of state-of-the-art technology, the system required reduced O and M expenses as
compared to the existing system in Angola. The successful completion of technical assistance
programme, including imparting training to CFM personnel resulted in confidence building among
CFM, Angola staff in handling their assets efficiently. They had already rehabilitated their assets,
which otherwise were lying defunct for long. Substantial benefits in the long run would accrue to
them.

Value addition

Imparting technical assistance to CFM, Angola, including training of CFM officials in the field of
maintenance and operation of rolling stock, conducting review of their maintenance systems,
redefining of existing maintenance practices for safe running of trains, and optimisation of layout of
existing maintenance workshop enabled the client to ensure effective management and utilisation of
their existing rolling stock assets.

Modernisation of maintenance workshop at Lubango resulted in proper upkeep and timely

maintenance of rolling stock, thereby regular train services were restored over CFM, which had
earlier been discontinued since a long time.

Introduction of new assets in terms of machinery and plant as well as new rolling stock transformed
CFM, Angola completely from a non-existent entity to a fully functional railway.

ROI to the client

By engaging RITES for executing the complete project on a turnkey basis, the client could have:

• Easy and quick access to the state-of-the-art technologies in the field of workshop
maintenance facilities, resulting in higher efficiency in their working system leading to low
operation and maintenance cost and huge savings to the client.
• Access to modern design lightweight train coaches equipped with ultramodern passenger
amenities for passenger comfort as well as all safety features related to safe running of the
trains.
• Access to highly efficient Cape gauge locomotives equipped with microprocessor-based state-
of-the-art control and diagnostic system.

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• Availability of trained manpower for efficient maintenance and management of their costly
assets of rolling stock and machinery and plant.
• Road and easy access to the expertise in various fields related to operation and maintenance
of rolling stock without incurring a permanent establishment liability, leading to lean client
organisation, resulting in better management efficiency.
• Timely identification of the requirements of equipments for modernisation of the maintenance
workshop, prompt reorganisation of workshop layout leading to improved productivity and
efficiency and optimum utilisation of the resources, early solution to the various difficulties
encountered in the re-introduction of new train services, quick and sound decisions, etc.

Benefits to society/economy

The technology for the design and manufacture has now been successfully proved and established.
This shall lead to opening up of new avenues for sale of expertise to the other developing countries
and shall enable RITES to establish its credentials in all those countries where railway system is

running on Cape gauge.

• Increased confidence of funding agencies and the government due to timely completion
• Generation of employment
• Improvement in international relations
• Foreign exchange earning
• Improved transport services for Angola

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4. PRACTICAL CASE STUDY III

Strategy for preparation of feasibility report

Introduction

The Golden Quadrilateral of the Indian Railways which connects Delhi, Mumbai, Chennai, and Howrah
and its two diagonals (Delhi-Chennai and Mumbai-Howrah) constitute about 25% of the broad gauge
network of Indian Railways and carry about 55% of the freight carried by the railways. These routes
connect centres of production and centres of consumption/transshipment.

These routes also carry heavy volumes of passenger traffic which shares right of way with freight
traffic. Due to fixed schedule of priorities, passenger services are accorded priority resulting in heavy
detention of freight services. Further, stations are spaced considering requirements of passenger
services whereby freight services are unable to attain average speed of more than 25 kmph. Line
capacity utilisation exceeds 100% in certain sections causing delay to all services. Capacity
enhancement works like improved signalling, addition of lines, and electrification are found
inadequate to meet the long-term demand.

Freight is being diverted to road, thus causing avoidable incremental loading of roads and consequent
direct and indirect economic dis-benefits.

Against the above backdrop, the government of India decided to implement rail freight corridors
operating on dedicated right of way, connecting Delhi-Mumbai and Delhi-Howrah.

Scope of the project

The assignment proposed for award is the feasibility study for a length of 3,800 route kms which
included evaluation of one alternative route 1000 kms long. This study was followed by a preliminary
engineering survey.

This study included assessment of feasibility of DFC, preliminary design of alignment, traffic study,
signalling and telecommunication study, study for requirement of rolling stock, study for
electrification, assessment of cost, and project appraisal.

This feasibility study was intended to serve as the basis for the broad alignment of the DFC and for
principles of the operation and design of the DFC.

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The study was carried out as per terms of reference communicated by Nodal Ministry, i.e., Ministry of
Railways through the Railway Board.

About twenty five experts were handpicked for this project and were drawn from the RITES cadreand
senior officers of Indian Railways with vast hands-on experience. They were supported by twenty
personnel from associate firms.

Terms of reference of this study are summarised as follows:

• To assess the projected growth of freight traffic including containerised traffic on this route
considering the existing capacity constraints.
• Transport demand from core sectors including shipping, power, steel, and coal during the next
15 years.
• Feasibility of constructing single/double line dedicated freight corridor on one side of the
existing double line track between JNPT and Dadri with connections at major identified
junctions for transferring of loads, etc.
• DFC along and close to existing line where feasible.
• Provision of bye-passes to avoid junction stations.
• Provision of block station at a spacing of 30 to 60 km.
• Optimal length of loop lines appropriate for 15000 tonne-trailing load.
• Electrification of the lines.
• Bridges to be fit for 30 tonne axle load and track structure to be fit for 25 tonne axleload.
• Feasibility of induction of special type of wagons for carrying double stack container trains
under wire.
• Computerised train control system with GPS-based train-tracking system.
• Construction of new bridges.
• Connectivity and upgradations at Delhi and Mumbai ends.
• Connections avoiding surface crossings by means of rail flyovers and road over/under bridges.
• Assessment of cost of project.
• Working out financial and economic rates of return.
• Requirement of rolling stock (wagons and locomotives).

Highlights of the methodology

Based on base year (2004-05) origin-destination matrix of traffic, a projection of freight traffic for the
next 15 years was made, separately identifying the component of container traffic. The number of
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trains and lines, crossing stations, and interchange stations with the existing route and terminals
were identified.

Traffic forecast was finalised after extensive consultations with producers, user industries, ports as
well as railways. All major developments in infrastructural and industrial growth were taken into
account.

The feasibility study has been carried out for construction of the Dedicated Freight Corridor (DFC) on
both the routes with connections at major identified junctions for transferring of loads. The lines are
designed to carry 25 tonne axle load and bridges will be fit for 30 tonne axle load. Maximum speed is
100 kmph with ruling gradient of 1 in 200. Foot-foot survey was carried out to assess the feasibility
of alignment, especially at locations of detour. Field verification was taken up in terms of a number of
sections on both corridors.

Existing signalling and telecommunication system and its suitability for DFC, computerised train
control system with GPS, and requirement of signalling system for level crossing gates and Junction
stations was studied.

Based on maximum moving dimension, axle load, track loading density, wheel diameter, and coupler
height, requirement of rolling stock was recommended.

Traction system for DFC was based on evaluation of its reliability and economics.

The working expenses and gross earnings have been calculated over the project life for hauling the
projected level of traffic. The net earnings, thus, arrived at have been compared with the capital costs
comprising of construction and rolling stock to arrive at the Financial Internal Rate of Return (FIRR).

Value addition

Tight completion schedule: Despite the involvement of a number of zonal railways, multi-
disciplinary activities, and working in the congested areas like JNPT, Mumbai suburban areas and
major towns like Ahmedabad, Vadodara, Bharuch, and Palanpur in the Western Corridor and
Sonnagar, Mughalsarai, Kanpur, and Dadri in the Eastern Corridor and adverse climatic condition
during summer and monsoon period, the project has been completed within the scheduled timeframe.

Importance of this study: The total route length for the Golden Quadrilateral and its two diagonals
is approximately 10,122 km. These routes annually carry more than 3,000 million passengers and
about 55% of the over 600 million tonnes of revenue earning freight traffic lifted by IR. What is

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DBB1207: Project Management

equally important is that these routes serve the core sectors of the Indian economy by carrying raw
materials to the plants and finished products to centres of foreign trade.

Return on investment to client

• Easy and quick access to state-of-the-art technologies in the field of dedicated freight corridor,
design of optimised alignment, maintainable track structure, and efficient signalling system
affording huge potential operational savings to the project.
• Ready and easy access to the expertise in various engineering disciplines/fields and
management techniques without incurring a permanent establishment liability leading to lean
client organisation,resulting in better management efficiency, early resolution to
variousconstruction issues, and optimal utilisation of manpower resources.

Benefits to society/economy
• Development of indigenous knowledge of technology leading to steeper learning curve, thus,
reducing the cost of planning and implementation of advanced concepts and technologies like
DFC.
• Evolution of experience in project planning and management of mega railway projects which
could be utilised in this as well as other major projects.

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DBB1207: Project Management

5. EXERCISES
1. Critically evaluate the design and commissioning of underground and elevated Delhi Metro
sections.
2. Analyse the design and manufacturing of Cape gauge locomotives and coaches.
3. Try to prepare the strategy for preparation of feasibility report.

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DBB1207: Project Management

6. SUMMARY
Let us recapitulate the important concepts discussed in this unit:
• After completing this unit, you would have learnt to design the project management strategies.
You would have also learnt to analyse the key options and freeze on acceptable key project
management practices.

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DBB1207: Project Management

7. ANSWERS TO EXERCISES
1. For elevated sections pre-cast, pre-stressed segmental construction has been used. For long spans
pre-stressed, balanced cantilever construction has been adopted. Analysis of the structures was
carried out to assess the behaviour of the buildings by the predicted settlement. Continuous
monitoring with electronic gadgets viz. tilt meters, crack gauges, etc., was carried out to ascertain
the condition of the structures. Site specific construction methodology and constant monitoring
by RITES experts resulted in timely completion of the construction. Refer section 15.2.

2. The cape gauge locomotives and coaches have been designed and developed for the first time by
RITES to meet customer requirements. Since cape gauge does not exist over Indian Railway, it was
therefore, not possible to conduct field trials of cape gauge rolling stock in India. RITES in
association with BHEL designed and developed Complete Engine Testing Laboratory (CET Lab) at
BHEL for conducting full load tests of the complete system. Refer section 15.3.

3. This feasibility study was intended to serve as basis for the broad alignment of the DFC and for
principles of the operation and design of the DFC. The feasibility study has been carried out for
construction of the Dedicated Freight Corridor on both the routes with connections at major
identified junctions for transferring of loads. Refer section 15.4.

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8. REFERENCES
• Clements/Gido, Effective Project Management, Publication: Thomson.
• Gray, C. F. and Larson, E. W. Project Management, Publication: Tata McGraw Hill.
• Lock, D. Project Management, Ninth Edition, Publication: Gower.
• Nagarajan, K. Project Management, Third Edition, Publication: New Age International.
• Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition,
Publication: Tata McGraw Hill.
• Rao, P.C.K. Project Management and Control, Publication: Sultan Chand & Sons.
• Desai, V Project Management, Second Revised Edition, Publication: Himalaya Publishing House

E-REFERENCE
• www.projectsmart.co.uk. Retrieved on 14/02/2012
• www.projectmanagement.com. Retrieved on 15/02/2012
• www.pmearth.com. Retrieved on 15/02/2012

Unit: 15 - Case Studies in Project Management 28

PROGRAMME Bachelor of Business Administration (BBA)

SEMESTER II

COURSE CODE & NAME DBB1207 – PROJECT MANAGEMENT

Section A
Multiple Choice Questions (2 Marks each)
[Please answer all the questions]

1. Project management is the job of organising, , and the various tasks and
resources in order to successfully complete a project.
a) Planning, Distributing
b) Coordinating, controlling
c) WBS, future estimated
d) Estimating, accessing

2. is a statement of the scope, purpose and participants of the project. It

presents an initial explanation of roles, responsibilities and authority of the project manager.
a) Project charter
b) Project planning
c) Project estimating
d) Project identification

3. Division of a project into sub-tasks numbered to portray their relationship with the each-other and the
project is known as .
a) Project feasibility
b) Project pre-feasibility
c) Work break-down structure (WBS)
d) Project initiation

4. In method of conflict solving, one party pulls itself back. This is also not considered as a
permanent solution of the problem.
a) Forcing
b) Smoothing
c) Compromising
d) Withdrawal

5. is applied mainly to projects containing uncertainty and its orientation

nature is probabilistic. Whereas is useful to projects which are
comparatively risk-free; its orientation is deterministic.
a) PERT, Crashing
b) CPM, Crashing
c) CPM, PERT
d) PERT, CPM

6. Which of the following is non discounting cash flow activity?

a) Pay-back period
b) NPV
c) IRR
d) PI

7. risks are sometimes considered as “Specific Risk”.

a) Micro risk
b) Systematic risk
c) Unsystematic risk
d) Financial risk

8. include priorities in running different applications and the security measures to

achieve optimal and secure operations of the system.
a) Software process
b) Physical process
c) System process
d) Procedures

9. performance measurement is an ongoing process which involves

monitoring and reporting of project progress with respect to predetermined objectives.
a) Established
b) Tools based
c) Pre-established
d) Computer based
10. The process of bringing information into the PM software from other applications such as word
processing, spreadsheet, etc is called . Similarly, sending information from PM
software to other applications is called .
a) Exporting, importing
b) Importing, exporting
c) Scheduling, sending
d) Engagement, detailing

Section B
SHORT ANSWERS (5 Marks each)
[Please answer Any Four questions]

1. Write down a note on project management knowledge areas.

2. What should be the focus of Pre-feasibility study of a project?
3. Write down the steps of project planning process.
4. Explain the six leadership styles suggested by Daniel Goleman.
5. Write down a note on Net Present Value Method (NPV).
6. Write down the key reasons for terminating a project.

Section C
LONG ANSWERS (10 Marks each)
[Please answer Any Three questions]

1. Explain in detail the factors affecting country risk.

2. Consider the following problem involving activities from A to J.
Activity Immediate Predecessor (s) Activity Duration
(months)
A - 1
B A 4
C A 2
D A 2
E D 3
F D 3
G E 2
H F,G 1
I C,H 3
J B 2

(a) Determine the critical path.

(b) Compute the total floats and free floats for critical path.
3. What do you mean by value engineering? Write down each stage of value engineering creation.
4. What do you mean by purchase cycle? Explain its each step in detail.