PROJECT MANAGEMENT NOTES 1. Define Project. What are the main characteri tic that i!entif" an! !

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

Project is a temporary endeavour undertaken to create unique product or service. Project is also defined as a unique set of coordinated and inter-related and inter-related activities undertaken by an organisation to meet defined objectives; that have an agreed start and finish time; is constrained by cost & resources and has specified performance requirements. Characteri tic of a #roject0 Project has a definite start and finish. Project consists of a well-defined collection of jobs, activities, or tasks which when complete; mark the end project. he jobs may be started or stopped independently of each other, within a given sequence. he jobs are ordered ! i.e., they must be performed in technological order. Project management has become a proven approach to achieving specific objectives in time. "f properly applied, project management techniques supply structure, focus, and control and help to drive a project team to the completion of work. oday, the definition of a project has e#panded to include recurring situations, one time crisis, and dealing with difficult issues, so that projects and project management apply to various business situations that have to deal with comple#ity. $egal offices, hospitals and other services as well as traditional manufacturing firms have become enthusiastic about the ways in which project management is improving their delivery of services or creation of new products. Some t"#ica' e.am#'e are0 %nnual budgeting & auditing e#ercises "ntroduction of new systems '"() *+++, )rgani-ational restructuring (oftware development & implementation .evelopment of new product /ampaign for new product launch )rgani-ing %01 & sales conference

1.

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

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

The Project Mana)ement Co,er 0 'i, "dea generation, analysis and finalisation of one or more ideas for implementation. 'ii, Preparation of feasibility reports for various projects 'ideas,, working out facilities and finance requirements, benefits and long! term viability as well as profitability. 'iii, "dentification of partners needed. 'iv, echnology requirements. 'v, )rganisational requirements. 'vi, Probable sites and building requirements. 'vii, /ommercial aspects. 'viii, 5nvironmental effects and action required. 'i#, %vailability of 0ovt. /oncessions etc.

4.

Define 2Project Mana)ement3. What are the main criteria for a of #roject $

in) %cce

Project 1anagement is planning, organi-ing, directing, and controlling of company resources for a relatively short ! term objective that has been established to accomplish specific objectives. Project 1anagement is the application of knowledge, skills, tools, and techniques to project activities in order to meet or e#ceed stakeholder needs and e#pectations from a project. Criteria for %cce 0 Project is considered to be successful if the project objectives are achieved within its scheduled time, within budgeted cost, meeting the desired performance & technology level while utili-ing assigned resources effectively and efficiently. he measurement and comparison of actual deviations or variances from the schedule, budget and set performance parameters for the project indicate degree of success.

5.

6o/ !oe #roject mana)ement !iffer from the mana)ement of other t"#e man%fact%rin) acti,itie $ MAN78ACT7R9NG (hort & medium term, usually within one year. 3ocus on minor day-today issues (tabilised over a period of time due to e#perience, minimum uncertainty. Plant & personnel already e#ist. .irect control over personnel. 1inimal change is e#pected in set routine. /omparatively (maller

of

PROJECT ime hori-on $ong term, usually for planning much more than one year 1ore strategic thinking involved Process 6as to be developed & designed new each time. /onsiderable uncertainty and many unknown factors. 7esources 8ew multi-disciplinary team to be created usually from of personnel from other departments. /hange Projects are initiated to bring management about change. /apital outlays (ubstantially $arge

:.

6o/ !o the #arameter an! characteri tic of Project 9n,e tment !eci ion !iffer from that of ro%tine man%fact%rin) !eci ion $ What are the main !iffic%'tie in #re#arin) an! ana'"(in) ca#ita' in,e tment !eci ion $

Difference ; $ong term effects9 /onsequences e#tend far into the future. (cope of current manufacturing is governed by capital investment of the past. "rreversibility9 .ecisions can not be reversed without substantial financial loss. $ess or no demand for used machinery when scrapped. (ubstantial financial outlays9 2ery high outlays as compared to operational requirements. Diffic%'tie in #re#aration an! ana'" i of !eci ion 0 1easurement problems9 1easurement of costs and benefits is difficult when they have a bearing on company:s other operations or have intangible effects. ;ncertainty9 ;ncertainty & unpredictability of future costs and benefits. emporal spread9 Projections are spread over long period of <-=+ years. 5stimating discounting rates and establishment of equivalence is difficult.

<.

9t i ai! that the #roject mana)er to +e %cce f%' ho%'! #o e entre#rene%ria' &i'' . Di c% the e &i'' /ith their im#ortance in #roject it%ation .

% project manager to be successful requires qualities and traits of an entrepreneur such as9 >illingness to make sacrifices $eadership .ecisiveness /onfidence in the project (trong ego Wi''in)ne to ma&e acrifice 0 % project is invariably with numerous difficulties and unanticipated problems. he project manager has to sacrifice his time, energy and resources to nurture the project in an inhospitable environment. Project manager:s job is a lot demanding and requires total commitment. =ea!er hi#0 Project manager needs strong leadership qualities that enable ordinary persons to accomplish great feats. hey have to motivate their team to successfully cope with the challenges and frustrations inherent in a new venture. Deci i,ene 0 he project has to accomplish many things in the atmosphere of uncertainty. 8umerous decisions have to be taken in a quick succession on the basis of limited information. 6e does not have a history to fall back on or a well-)rganised database to rely upon. he fluid situation calls for ability to decide quickly and also to revise decisions to adapt to the changing environment. Confi!ence in the #roject0 6aving unbounded faith in the project instills confidence in suppliers, contractors, creditors, customers, employees, team members and others. Stron) e)o0 Project managers need a strong ego to cope with the ups and downs of the project. o endure periods of adversity and to maintain proper perspective when event cast shadow over the enterprise, the project manager needs a strong identity and self-image.

>.

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

4ualities for becoming a successful project manager are the same as that of an entrepreneur ! who has to deal with new and unknown factors under time pressure. % project manager should have the following traits. >illingness to make sacrifices $eadership .ecisiveness /onfidence in project 1arketing orientation (trong ego ?. Who are norma''" the ta&eho'!er in #roject$ mana)er ,i -@-,i ta&eho'!er e.#ectation $ What i the ro'e of #roject

Project stakeholders are individuals or organi-ations who are actively involved in the project, or whose interests may be positively or negatively affected as a result of project e#ecution or its successful completion. ?ey stakeholders in a project include project manager, customers, performing organi-ation and project sponsors. "n addition, owners and funders, suppliers and contractors, team members and their familiars, government agencies and media outlets, individuals, temporary or permanent lobbying organi-ations and society at large are also stakeholders. 1anaging of stakeholder:s e#pectations is difficult because various stakeholders have different objectives and interests, which may be in conflict with each other and with the project objectives. Project manager has to understand these e#pectations and achieve a judicious balance in the interest of successful project implementation. Project manager has to9 /reate an environment for every stakeholder to contribute his skills and knowledge in development of a project plan. %nalyse needs of various stakeholders to ensure that they will be met in the best possible manner %nalyse stakeholders risk tolerances to develop a risk management strategy. A. What are the +a ic f%nction of a Project Mana)er$ What *%a'itie B *%a'ification an! e.#erience /o%'! "o% recommen! for an effecti,e Project Mana)er$

Ca ic f%nction of a #roject mana)er are0 P'annin) D Contro'0 o develop the project plan and ensure that the work is completed on time, within budget and with acceptable quality. Re o%rce Mana)ement0 1anage and direct project resources to achieve project objectives. Co-or!ination0 "nterface with higher management regarding project review, approvals and project issues. %lso relate successfully to line managers and staff.

E%a'itie B E%a'ification D e.#erience to +e a %cce Per ona' *%a'itie 0 stride. make certain moves.

f%' #roject mana)er0

Communication skills both, written & oral Ambition leading to working hard and positively. Energy to deal with problems and take measured risk. Sense of humour to take events, setbacks and success in their Maturity to take things in their stride and sense of timing to oughness and willingness to take contrary positions rather than taking an easy way out, or to take a path of least resistance or to cave in to the pressure. Ability to take directions, suggestions, hints and criticism and converting them in positive action.

Mana)eria' *%a'itie 0 !roblem and conflict solving ability to identify and understand problems, place them in perspective, develop and implement solutions. !eople management !erspective vision to step back and take an overall view to see symptoms of problems. "eing an organi#er managing and allocating time for important issues. $amiliarity with the organisation to understand funding and decision making process. %nitiative and risk taking ability to accept & delegate tasks not done. Technica' &i'' B &no/'e!)e D e.#erience0 Should be a generalist to see a bigger picture i.e. relationship of pro'ect to the company, impact of end product etc. E(perience of not only working on several pro'ects but to integrate it to apply to the current pro'ect Ac)uire knowledge of latest pro'ect planning, budgeting and control techni)ues.

1F. Main feat%re an! a!,anta)e of Matri. t"#e or)ani ation for #roject . "n a matri# organi-ation, the personnel working on the project are responsible to their functional superior as well as the project manager. he authority and influence of the project manager cuts across the traditional vertical line of command. "t has greater organi-ational comple#ity due to the dual reporting structure and needs certain level of

organi-ational maturity to avoid conflicting situations that are inherently created by the structure. A!,anta)e of the matri. or)ani(ationa' tr%ct%re for the #roject are a %n!er0 5nsures effective utili-ation of organi-ational resources. /ritical resources can be shared between projects. @uilds up speciali-ed knowledge & technical base within the organi-ation. eam morale & motivation remains at high level even at the project completion stage. Personnel are not uncertain about their future after project closure, hence focused. %uthority and responsibility is shared and gives more time for team members to comple# problem solving. "t is an ideal for of organi-ation for 5P/ companies. 11. Wh" the tra!itiona' 8%nctiona' or)ani(ation i i not con i!ere! %ita+'e for im#'ementation of #roject in )enera'$ Name the other or)ani(ation tr%ct%re !e,e'o#e! tatin) the t"#e of #roject the e are fo%n! to +e more effecti,e. he traditional A3unctional: organi-ation is not suitable for implementation of projects in general because9 8o (ingle individual is directly responsible for total project. 8o formal authority. "t does not provide project-oriented emphasis necessary to accomplish project tasks. 8eeds e#cessive lead-time for approval of decisions due to comple# co-ordination. .ecisions normally favour strongest functional group. here is no customer focus. (low response to customer needs. .ifficult to pinpoint responsibility. "ndividual motivation and innovation are on low scale. % APure Project: organi-ation is a separate division developed within the company with independent authority and responsibility for project. (uch organi-ation is suitable for companies embarking on major diversification & e#pansion projects generally at sites away from the parent organi-ation. % A1atri# Project: organi-ation combines the attributes of 3unctional & Pune Project )rgani-ations. >hile retaining the basic functional structure, it identifies independent authority and responsibility for a project with a project manager. (uch structure is found generally suitable for organi-ations engaged in project implementation for the clients as their main business. /onstruction contractors, 5P/ companies etc. are some e#amples. 11. E.#'ain the or)ani(ation tr%ct%re of a P%re Project t"#e of or)ani(ation /ith an or)ani(ation chart an! en%merate it a!,anta)e an! !i a!,anta)e . 8or /hat t"#e of #roject %ch or)ani(ation i more %ita+'e$

Pure Project organi-ation is a fully dedicated organi-ation created for project implementation and is separated from the parent system with its )wn technical staff )wn administration 0ive parent firm periodic reports and overview
5B"( "80 )70%8"C% ")8

ENGINEERING

PROCUREMENT PROJECT MANAGER

PERSONNEL

FINANCE

PROJECT ENGINEERING

PROJECT PROCURMENT

PROJECT PERSONNEL

PROJECT FINANCE

A!,anta)e 9 Personnel demonstrate loyalty to project @etter employee morale, higher motivation 7apid reaction time, faster communication %ll members are responsible to P1 (pecific technologies for several successive projects /ommitted workers "ndividuals e#cel in project:s area of technical e#pertise Di a!,anta)e 9 .uplication of efforts, facilities, & personnel (tockpile equipment and echnical %ssistance Project takes on a life of its own 8o perpetuation of technology $ack of opportunity for technical interchange between projects $ack of career continuity for personnel he APure Project: type organi-ation is suitable for e#pansion & diversification projects of a company either being implemented at a site that is remote from the e#isting facilities or for the projects that are in a completely diverse fields. 14. A P%re #roject t"#e or)ani(ation i more %ita+'e to han!'e a o/n !i,er ification #roject +eca% e 0 Project 1anager has a complete line authority over project personnel. "ndividual authorities and responsibilities can be clearly spelt-out. 3aster & effective communication due to simplicity of organi-ation. 3acilitates better planning & control. @etter personnel moral & team spirit can be built-up through motivation by the project manager. Project personnel are more committed to project goals.

4uicker decisions and faster reaction & response time. )70%8"C% ")8 /6%7 3)7 P;75 P7)D5/ )70%8"C% ")8 PROJECT MANAGER

Civil Construction Consult"nts Process Tec#nolog$

Project Engineering

Accounts & A !inistr"tion

Coll"%or"tors

M"teri"ls & Purc#"se

15. Di c% 6%man A #ect of Project Mana)ement in re'ation to A%thorit"B Per onne' OrientationB Moti,ation an! Team C%i'!in). %lthough the use of proper planning and budgetary control techniques help in successful project management, their use and effectiveness depends on the people who are involved and are responsible for various project activities at various levels. "t is therefore very important to understand human nature and to achieve satisfactory human relations in project setting. Project manager has to handle problems and challenges relating to following issues. 'i, A%thorit"0 Project manager very often does not have a direct authority over the project team. 6e has to co-ordinate efforts of various functional groups, e#perts, consultants, e#ternal agencies etc. eam leadership and influencing professionals assumes importance than e#ercising authority. Project manager:s authority therefore emanates from his ability to develop rapport with the team members, skilful resolution of conflicts, skill of communication and persuasion and ability to act as a buffer between technical, engineering, financial and commercial personnel. Per onne' Orientation0 )veremphasis on planning and control techniques that are mathematics and accounts oriented tends to adopt a structured and mechanical approach to project management. 6owever, project being subject to many uncertainties, a more creative and adaptive approach is necessary to solve un-programmed and un-structured problems as the project progresses. (uch orientation is required for all the project team. Moti,ation0 Project being a short team endeavour carried out by loosely bound professional team, it is very difficult to keep it motivated throughout the project term. he team members sometimes tend to get confused due to split authority and dual subordination structure of the organisation. o keep a high level of motivation, the project manger has to ensure that the project goals are clearly defined and are visible to all involved. 6e has to encourage participative management with proper delegation of authority and responsibility that creates a sense of belonging to the project and to make individual:s job sufficiently challenging to have greater personal commitment.

'ii,

'iii,

'iv,

Team C%i'!in)0 1ost of the project activities are inter-related and inter-dependant and most of the problems need interdisciplinary solutions. (uccessful management of project therefore is not possible without proper teamwork. .evelopment of mutual trust and acceptance, open communication and co-operation and development of right attitude toward project are essential for team building.

1:. =i t of in!% trie re er,e! for P%+'ic Sector an! in!% trie for /hich 9n!% tria' =icen in) i com#%' or" %n!er the c%rrent 9n!% tria' Po'ic" of the Go,ernment. =9ST O8 9ND7STR9ES RESERGED 8OR T6E P7C=9C SECTOR E. %rms and ammunition and allied items of defence equipment, defence aircraft and warships. =. %tomic 5nergy F. 7ailway transport =9ST O8 9ND7STR9ES 8OR W69C6 9ND7STR9A= =9CENS9NG 9S COMP7=SORH E. .istillation and brewing of alcoholic drinks. =. /igars and cigarettes of tobacco and manufactured tobacco substitutes. F. 5lectronic %erospace and defence equipment9 all types. G. "ndustrial e#plosives including detonating fuses, safety fuses gunpowder, nitrocellulose and matches. <. 6a-ardous chemicals. H. .rugs and Pharmaceuticals 'according to modified .rug Policy issued in (eptember, E**G,. 8ote ! he compulsory licensing provisions would not apply in respect of the small-scale units taking up the manufacture of any of the above items reserved for e#clusive manufacture in small-scale sector. '"t may be further noted that the government has recently announced opening-up of certain defence sector production to the private sector. .etail notification is awaited,.

1<. What are the criteria %n!er the c%rrent 9n!% tria' Po'ic" of the )o,ernment of 9n!ia for accor!in) A%tomatic a##ro,a' for 8orei)n Techno'o)" A)reement$ 7n!er /hat circ%m tance one ha to o+tain #ecific )o,ernment a##ro,a' for enterin) into a 8orei)n Techno'o)" A)reement$ he 7@" accords automatic approval to all industries for foreign technology collaboration agreements subject to 'i, he lump sum payments not e#ceeding ;( I =nd 1illion; 'ii, 7oyalty payable being limited to < per cent for domestic sales and J per cent for e#ports subject to a total payment of J per cent on sales over a E+ years period; & 'iii, he period for payment of royalty not e#ceeding K years from the date of commencement of commercial production, or E+ years from the date of agreement, whichever is earlier 3or the following categories, specific 0overnment approval would be necessary9

'E, licensing provisions '=, the small scale sector 'F,

Proposals

attracting

compulsory

"tems of manufacture reserved for

Proposals involving any previous joint venture or technology transfer trademark agreement in the same or allied field in "ndia. 'G, 5#tension of foreign technology collaboration agreements 'including those cases, which may have received automatic approval in the first instance, '<, Proposals not meeting any or all of the Parameters for automatic approval. 'H, 3urther, automatic approvals for 5); & 56 P & ( P units are governed by separate provisions.

1>. What are the e'i)i+i'it" criteria %n!er the c%rrent 9n!% tria' Po'ic" of the )o,ernment of 9n!ia for an in!% tr" to +e co,ere! %n!er Sma'' Sca'e 9n!% tria' IS.S.9.J Sector$ What are the #ecia' #ro,i ion B conce ion B an! incenti,e a,ai'a+'e to the S.S.9. ector %n!er the #o'ic"$ 5ligibility criteria for industry to be covered under ((" sector are9 he investment in Plant and 1achinery should not e#ceed 7s. E+ million Paid-up capital held by a large industrial undertaking - domestic for foreign ! should not e#ceed =GL. (pecial provision, concessions, & incentives available to (("9 ((" sector is completely e#empt from "ndustrial licensing provisions under the policy. ((" sector is free from M$ocational restrictionsN under the policy. %bout J++ products have been e#clusively reserved for manufacture under ((" sector. %ny large scale undertaking or a foreign company having more than =GL equity stake can not manufacture these products without undertaking a <+L e#port obligation @ank & "nstitutional & (".@" loans are available at concessional rates. Products manufactured by ((" get priority and price preference in government purchases.

1?. Main feat%re of the c%rrent in!% tria' #o'ic" %n!er the )o,ernment 'i+era'i(ation D economic reform Pro)ramme 0 'E, 9n!% tria' =icen in) 0 "ndustries are e#empt from obtaining "ndustrial $icense to manufacture e#cept9 'a, "ndustries reserved for Public sector covering arms & ammunition, .efence equipment, .efence aircrafts & warships, %tomic energy, %tomic minerals & 7ailways.

'b,

"ndustries for compulsory licensing covering %lcoholic drinks, tobacco processing & products, 5lectronic aerospace & defence e#plosives & ha-ardous chemicals, .rugs & pharmaceuticals. 'c, "tems reserved roe e#clusive manufacture under ((" sector '$ist covers about G++ items, 'd, "f proposal attracts locational restrictions. "ndustries e#empt from "ndustrial $icensing are required to file "ndustrial 5ntrepreneurs 1emorandum '"51, with the (ecretariat of "ndustrial %pprovals '("%, '=, 9n!% tria' =ocation 0 'a, "ndustrial location should be =< ?1 away from the (tandard ;rban %rea '(;%, limits in case of cities with population of more than Est.+ million. 'b, he above restriction does not apply for $ocations notified as "ndustrial areas by the government. ((" (ector 5lectronics, computer software & printing industries "ndustries obtaining "ndustrial $icense for specified location. 'c, $ocation will also be governed by local -oning, land use and environmental regulations of the state & central governments. I4J SS9 Sector 0 'a, "nvestment in fi#ed assets in specified plant & machinery less than 7s. F.+ million '7educed to Est.+ million; notification awaited, qualifies unit to be registered as a (mall (cale "ndustry '((", 'b, %bout G++ items are reserved for e#clusive manufacture under ((" 'c, $arge units are permitted to manufacture items reserved for ((" only after obtaining an industrial license and with a <+L e#port obligation. 'd, 5quity holding of a large scale unit including foreign equity should not e#ceed =GL. )btaining "$ is compulsory for higher equity and unit loss ((" status.

'G,

8orei)n Co''a+oration D Techno'o)" Tran fer 0 7eserve @ank of "ndia '7@", is a authori-ed to give automatic approval to foreign technology agreements and collaborations provided9 'a, $ump sum payment does not e#ceed ;( I =.+ million 'b, 7oyalty is limited to <L on domestic sales and JL on e#ports subject to a ma#imum of JL of total sales over a period of E+ years. 'c, 7oyalty payments should not continue after K years of starting of commercial production or E+ years after the date of agreement whichever earlier. %ll cases pertaining to "ndustrial $icensing, ((" reserved items, 5#port )riented ;nits '5);s,, (oftware echnology, Parks '% Ps,, 5lectronic 6ardware echnology Parks '56 Ps, are not covered by automatic approval and require specific government approval.

1A. Short Note 0 9m#act of 'i+era'i(ation on in!% tria' !e,e'o#ment in 9n!ia0 $iberalisation process in "ndustrial, fiscal, trade & commerce, import & e#port e#change control policies of the government that has continued since E**+ has given a boost to "ndian industry. 8o controls by government on industrial licensing e#cept in defence, nuclear, drugs & pharmaceuticals, tobacco, alcohol & railways.

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

1F. What are the it%ation /hen Tren! or Time Serie ana'" i metho! cannot +e % e! for !eman! foreca tin)$ Name an" three other metho! % e! in %ch it%ation an! !e cri+e an" one of them /ith a %ita+'e e.am#'e. rend or time series analysis method is not an appropriate approach to use in a new product & new business situation, or in situations where circumstances have radically changed, and the past is no guide to the future. (ince the underlying processes producing the forecast are not being modeled there is a danger of overlooking some fundamental change in the process, which makes it unwise to assume any continuity of events. 6owever, whenever there have been major changes in the environment, such as a competitor introducing a radical new product, e#trapolative forecasting methods become less appropriate. rend analysis methods would not be appropriate where relevant historical data is not available. 8or would they be appropriate where the historical data is unreliable, perhaps because it has not been recorded in a consistent manner over the relevant time period. %lso it is necessary to ensure comparability of data. ;sing sales values instead of volumes will neglect the effect of inflation. %lso it is necessary to ensure comparability of data. ;sing sales values instead of volumes will neglect the effect of inflation. %lso, when a company sells a range of products or services and that mi# has changed over time, e#trapolation of values would be misleading. he forecasting methods to be used in such circumstances are9 '%ny three names are e#pected with detail description & e#ample of any one of them, 'i, /hain 7atio 1ethod9 Potential sales are estimated by applying a series of factors to a measure of aggregate demand. 'ii, /onsumption $evel 1ethod9 3or products that are directly consumed, the consumption level is estimated on the basis of elasticity coefficients ! income elasticity and price elasticity ! of demand. 'iii, 5nd ;se 1ethod 'a.k.a. /onsumption /oefficient 1ethod,9 (uitable for estimation demand for intermediate products that are consumed for various end uses. 5stimate is based on estimated output levels of various end use products and proportion of use of concerned intermediate product in those. 'iv, $eading "ndicator 1ethod9 $eading indicators are variables that change ahead of its dependant or lagging variables. )bserved changes in leading variables are used to predict changes in lagging variables. 'v, 5conometric 1ethod9 5conometric model is mathematical representation of economic relationships derived from economic theory.

11. Short Note 0 Ga'i!it" of tren! ana'" i in !eman! foreca tin) for #roject fea i+i'it"0 .emand forecasts made on the basis of market trend data are subject to error and uncertainty since9

'a, .ata on past and present market parameters such as products, price, costs, quantities etc. may be vitiated by inadequacies due to lack of standardi-ation, uniformity on concepts and measures. /onclusions may not be statistically reliable due to inadequate sample si-e or may be influenced by certain abnormal factors. 'b, 1ethods of forecasting are characteri-ed by certain limitations such as inability to handle unquantifiable factors, errors due to unrealistic assumptions and procession needs of e#cessively voluminous data. 'c, 5nvironment in which projects are set up is characteri-ed by uncertainty and unpredictability in may factors such as technological changes, government policies, international developments, climactic effects etc. 11. Short Note 0 Main a #ect to +e con i!ere! in technica' ana'" i of a #roject0 echnical analysis of the project is concerned primarily with the following9 15 7"%$ "8P; ( %8. ; "$" "5(9 - 7aw materials, processed industrial materials and components, au#iliary materials & factory supplies and utilities required are to be studied for their sources and availability as they have a bearing on location, technology and equipment selection. 1%8;3%/ ;7"80 P7)/5(( & 5/68)$)0O9 - Dustification for the chosen technology and manufacturing process among various alternatives. P7).;/ 1"B %8. 1%8;3%/ ;7"80 /%P%/" O9 - Product mi# is basically guided by market requirements. 6owever, fle#ibility in manufacturing capacity should be considered to enable quick response to changed market conditions. $)/% ")8 %8. (" 59 - /hoice of location is decided by factors such as pro#imity to raw materials and markets, availability of skilled labour and infrastructure, government incentives etc. (pecific site or plot to be selected on the basis of its suitability and cost to develop the same for the particular industry. 1%/6"857O & 54;"P158 (9 - "t is dependant on production technology, process and plant capacity. % proper balance has to be obtained between capacities of individual sections or production departments. @;"$.."80( %8. ( 7;/ ;75(9 - %ny special requirements for structures to be considered. %reas for manufacturing, services, utilities, administration, welfare etc. to be planned. P7)D5/ /6%7 ( %8. $%O); (9 - hese are general functional layouts, material flow diagrams, Production line diagrams, ransport layout, 1aterial consumption charts, )rgani-ational layout and plant layout.

14. Short Note 0 7 e of +rea& ; e,en ana'" i in in,e tment !eci ion 0 he manufacturing capacity to be set-up is decided on the basis of peak market requirements to be fulfilled within the constraints of decided budget for the project. 6owever it is not possible to run the plant at its full capacity from the beginning due to various reasons such as time for learning and process stabili-ation, time taken for market development etc. "t is therefore a generally accepted practice to reach the full manufacturing capacity in stages over a period of time. 6owever, it is uneconomical to operate the plant at a lower capacity as the fi#ed overhead e#penses do not get scaled down in proportion of the utilised capacity and they more or less remain constant. "t is therefore necessary to know the minimum operating capacity at which project does not

make any losses. his operating capacity is known as A@reak ! even capacity:. "t is generally seen that plant at least achieves a break ! even in the first year of its operation. @reak ! even capacity is calculated by dividing fi#ed costs by the unit Acontribution margin: of the product. 3i#ed /osts @reak even point P ;nit (elling Price ! ;nit 2ariable /ost

15. What are the main com#onent of 8inancia' Ana'" i /hi'e /or&in) o%t the Detai' Project Re#ort$ Wh" Mar)in Mone" for /or&in) ca#ita' i i re*%ire! to +e #ro,i!e! a 9nitia' 9n,e tment for the fir t "ear of o#eration$ 1ain components of financial analysis are9 i, /ost of Project covering basic investments ii, 1eans of financing iii, 5stimates of sales & Production volumes iv, /ost of production v, >orking capital requirements, it:s financing & margin provisions vi, 5stimates of working results for the project life vii, @reak-even point viii, Projected cash flow i#, Projected balance sheets. he commercial banks financing the working capital requirements against the security of current assets do not finance E++L needs but specify certain margin to be provided by the company from their own resources. (uch margin money is generally provided from the cash surplus generated during the operational phase. 6owever, there is no such surplus generated out of project operations at the beginning the first year of production and the margin requirements are to be provided from the long term funds as initial investment and is included in A/ost of Project:.

1:. Com#are NPG an! 9RR a metho! for e,a'%ation an! ran&in) of #roject . Which metho! /o%'! "o% % e for !eci ion in,o',in) e'ection of a mi. of m%'ti#'e #roject /ithin an o,era'' 'imit on in,e ti+'e f%n! $ @oth 8P2 and "77 methods use discounted cash flows and therefore recogni-e time value of money. @oth methods lead to the same decision in case of evaluation for accept & reject criterion. @oth methods lead to same decisions in case of comparative evaluation of conventional independent projects. 6owever, for the comparison of mutually e#clusive or unconventional investments, the two methods may give contradictory or confliction results. /hoice between the two in such cases is based on their applicability in different situations. NPG 9RR 8P2 method finds the present value of "77 finds the rate of discounting at which future cash flows at the given rate of the 8P2 becomes -ero. discounting /omputation of 8P2 is comparatively /omputation of "77 is complicated

simple.

process as it involves trial & error method with multiple computations to arrive at the right value. % project with positive value of 8P2 at the % project with an "77 greater than >%// rate of discounting equivalent to the is considered acceptable while the one >%// is considered acceptable while the with a lower "77 is rejected. one with negative 8P2 is rejected. 2alue of 8P2 depends on the rate of "77 is independent of the discounting rate discounting used and therefore, and therefore can give a direct comparison comparative ranking of projects may between projects. change as discounting rate changes. 8P2s of different projects can be added to "77s for different projects cannot follow find total addition in value of the firm. the value additivity principle. 8P2 criterion can be used in case of "77 criterion cannot be used in case rate varying cost of capital i.e. rate of of discounting changes from year to year. discounting from year to year. (ince the 8P2 method follows the value additivity principle, it can be used for decisions involving selection of a mi# of multiple projects within an overall limit on investible funds.

1<. What are the main a #ect to +e con i!ere! %n!er Mar&et Ana'" i /hi'e /or&in) o%t the #roject fea i+i'it"$ Which of the main o%t#%t of mar&et ana'" i that i % ef%' in financia' ana'" e $ 1ain aspects to be considered under market analysis while working out the project feasibility are9 a, Product features ! 1ajor uses, scope of market, possible competition from substitute products, special features resulting in consumer preference. b, Product .emand ! Past & present demand, forecast of future trends, market segmentation by nature of product, consumer groups, geographical division etc., other demographic, sociological, economical, technological factors affecting demand. c, 1arket share ! e#pected market share and its growth from the projected demand d, Product pricing ! Price trends in the past, income and price elasticity of demand e, 5#port possibilities ! nature of competition in foreign markets, competitive pricing & costing f, .istribution & sales promotion methods ! distributors, selling agents, selling organi-ation for direct selling g, 0overnment controls ! government controls on pricing, distribution, imports, e#ports if any. he main outputs of market analysis useful for financial analysis are9 3orecast of sales quantities based on demand projections, e#pected market share and their growth Projected selling prices 3actors affecting demand & prices and their possible ranges of variation.

1>. What are the !ra/+ac& of non-!i co%nte! #a" +ac& #erio! metho! for financia' e,a'%ation of in,e tment #ro#o a' $ 6o/ !oe the DC8 ana'" i o,ercome the e !ra/+ac& $ Di c% the re'ati,e merit D !emerit of N.P.G. D 9.R.R. criteria for e,a'%ation D com#ari on of in,e tment #ro#o a' . he non-discounted Pay @ack Period gives the length of time required to recover the initial cash outlay for the project. 9t %ffer from fo''o/in) !ra/+ac& 0 "t ignores time value of money. "t treats all present and future cash flows having same value. "t overlooks cash flows beyond payback period and discriminates against projects that generate substantial cash flows in later years. @y focusing attention on capital recovery, it diverts attention from profitability. hought it measures project:s liquidity, it does not indicate firm:s liquidity. @y ignoring cash flows beyond pay back period, the risks beyond pay back period are also ignored. The Di co%nte! Ca h 8'o/ IDC8J metho! o,ercome the e !ra/+ac& ince0 3uture cash flows are discounted to the present value and therefore can be compared to initial investment directly. %ll project cash flows for its entire life are considered in ./3 evaluation @oth profitability of project during its operations and recovery of initial investment are calculated in ./3 analysis. NPG Metho!0 (ince 8P2 method gives 8et value of returns in Present 7upee terms, 8P2s of different projects can be directly added. his helps in deciding the projects that can be accepted amongst several contenders under limited funds situation. (ince 8P2 gives net value of returns in absolute 7upee terms, it cannot be used to compare projects that require different initial investments. 7anking of projects by 8P2 method is influenced by nature of cash flow patterns & discount rates. Projects with similar initial investments give different rankings at different discount rates. he method also does not indicate the risk margin available over the hurdle rate or the cost of capital. 9RR Metho!0 "77 indicates margin of safety over cost of capital. 7anking of projects can be done for projects with different initial investments. 7anking of projects does not change with change in cost of capital. "f cash flows change sign more than once, there can be multiple values for "77. 1?. The main con tit%ent of the Project Co t an! their +a ic e'ement con i!ere! for #re#arin) #roject re#ort are 0 E, $and 9 $and, $ease premium, conveyance charges $and leveling & development %pproach roads, internal roads 3encing, gates, tubewells etc. 9 1ain @uildings for plant & equipment to +e

=, @uildings

;tility buildings such as boiler house, pump house, $abs, warehouses, electrical distribution etc. )ther non-factory buildings ! %dministration, /anteen F, Plant & 1achinery 9 "mported machinery "ndigenous machinery /ost of machinery to include all costs landed at site, (pares, foundation & installation. G, echnical know-how 9 3oreign /ollaborators fees 9 echnical consultant fees 9 /ost of Project report <, 3oreign echnicians & 9 5#penses for foreign technicians for plant set-up raining abroad 5#penses for training of personnel abroad H, )ther fi#ed assets 9 ;tilities ! @oilers, transformers, compressors etc. )ffice equipment & furniture, 2ehicles K, Preliminary e#penses 9 Project identification, market survey, feasibility study. /ompany formation and equity issue e#penses etc. J, Pre-operative e#penses 9 /overs all e#penses of revenue nature prior to /ompletion of project & commencement of production. Project office running e#penses, salaries & wages. ravelling & conveyance, rents, ta#es, insurance etc. "nterest & commitment charges before completion (tart-up e#penses. *, 1argin for working capital9 >orking capital margin for the first year of operation E+, "nitial /ash $oss 9 "f the profitability projections show cash losses in the "nitial years of operation. EE, /ontingency 9 Provision for unforeseen capital e#penditure and price 5scalation. 1A. Economic A##rai a' of a Project 0 % project should be capable of producing an adequate return on the investment and the rate of return should be higher than the cost of funds or the required rate of return. >ithout 5conomic viability, a project is doomed to fail. SCOPE0 a. "nitial investment b. (ubsequent investment c. 5conomic life of the project d. (alvage value e. )perating /ash 3low f. .epreciation g. 7ate of a# h. /ost of 3unds i. )pportunity cost MET6ODS0i. Pay back period ii. %ccounting rate of return iii. Present value method iv. "nternal rate of return v. Profitability "nde# vi. .iscounted Payback period method vii. "nternal 5#change rate etc.

4F. Princi#a' i

%e con i!ere! in #roject a##rai a' +" 8inancia' 9n tit%tion

Mar&et a##rai a'0 Reasonableness of demand forecasts is e#amined utili-ing findings of available information and surveys. %dequacy of marketing infrastructure is assessed in terms of promotional effort, distribution network, transport facilities, stocking policies and knowledge, e#perience and competence of marketing personnel. Technica' a##rai a'0 echnical review of product mi#, capacity, manufacturing process, technical know-how, materials, labour skills, buildings, plant & machinery etc. is made. 8inancia' a##rai a'0 %ssessment of reasonableness and adequacy of estimates for capital cost, working results, returns is made and appropriateness of financing pattern is checked. Economic a##rai a'0 Project is reviewed from larger social point of view in terms of social cost-benefit analysis. 1anagerial appraisal9 1anagerial capability of promoters is judged by their resourcefulness, their understanding of the project details and their commitment to the project. for

41. Di c% the !ifferent a##rai a' criteria for e,a'%ation of ca h f'o/ com#arin) m%t%a''" e.c'% i,e in,e tment #ro#o a' .

he appraisal criteria for evaluation of mutually e#clusive investment proposals are broadly categori-ed as9 Di co%ntin) Criteria0 Net Pre ent Ga'%e INPGJ is the sum of the present values of all cash flows associated with the project. 3uture cash flows are discounted at a certain hurdle rate to arrive at their present value. 6igher 8P2 indicates a better proposal in case the initial "nvestment is similar. Cenefit - Co t Ana'" i calculates the ratio of either Present 2alue of benefits to the "nitial "nvestment '@enefit /ost 7atio @/7, or the 8et Present 2alue to "nitial "nvestment '8et @enefit /ost 7atio 8@/7,. he criterion is preferable to 8P2 criteria for comparing proposals having widely differing initial investments. 9nterna' Rate of Ret%rn I9RRJ is the discount rate at which 8P2 of the project is Cero. 6igher "77 indicates better proposal irrespective of the amount of initial investment. Non-Di co%ntin) Criteria0Pa" Cac& Perio! is the length of time to recover initial cash outlay on the project. (horter the payback period, the more desirable the project. his criterion tends to shield the project from the risk of future uncertainties in the cash flows to certain e#tent. Acco%ntin) Rate of Ret%rn is a measure of project profitability that relates income to investment, both measured in accounting terms. "t is generally e#pressed as a ratio of %verage "ncome after a# to "nitial "nvestment. 5#cept for the 8P2 criterion, which can not be used for comparing mutually e#clusive proposals unless the investment amounts are similar, all other criteria enable a good comparison within their own limitations. "n general, the non-discounting methods are simpler to calculate and therefore give a quicker comparison between various proposals. hey however, do not take time value future cash flows into consideration and therefore may result in misleading conclusions.

hese criteria are therefore used to compare smaller investments or as a quick method to discard weak proposals. .iscounting methods are considered to be more dependable for comparing large investments and are recommended for use by the financial institutions. 41. Scenario Ana'" i 0(cenario %nalysis is one of the methods of risk analysis to evaluate the effect of changes in project assumptions on its profitability. "n simple sensitivity analysis, typically one variable is varied at a time to observe its effect on the project profitability. 6owever, if the variables are inter-related, it is advisable to analyse certain plausible scenarios, each scenario being a consistent combination of a few variables. he primary factors that affect the project profitability are generally the sales price, sales volumes, material costs, labour costs, project costs etc. /oncurrent changes in these factors within the possible range will give rise to many plausible combinations. hese can be categori-ed as optimistic, normal and pessimistic scenarios and their effects studied. 3urther attaching probability estimates to the scenarios, overall evaluation can be carried out. 44. When !o "o% j%!)e a #roject to +e a fai'%re$ What are the #o #roject fai'%re $ i+'e ca% e of

% project is considered to be a failure if it fails to complete in scheduled time or it e#ceeds the budgeted cost or is not able to fully accomplish the project objectives. >hile time overruns and cost overruns are the common causes of project failure; inability to meet the key performance indicators is also observed occasionally. %lthough the project is may not be a total failure as it is finally implemented and starts functioning, it tends to be uneconomical to run, does not create sufficient surplus for investing into future growth of the organi-ation and eventually becomes a drain on organisations: funds. /ommon causes that result in time & cost overruns or failure to meet specifications are9 9na!e*%ate #roject form%'ation0 (uperficial field investigations, ill-defined project scope, wrong assessment of input requirements, inaccurate methods for estimation of costs & benefits, deliberate underestimation of costs and overestimation of benefits etc. 7n %ita+'e Project Or)ani(ation0 "ncompetent project leader, inadequate authority to the project leader, confusing or improperly understood roles of project team members. 9m#ro#er 9m#'ementation P'annin)0 "nsufficient breakdown of project activities, undue reliance on intuition and judgment rather than available information and data, improper definition of interlink ages between activities. 8ai'%re to ta&e a!,ance action0 %s project is subjected to a lot of risks during its course of implementation, it is necessary to be proactive at the signs of impending problems rather than react only when the problems are fully blown up. Non-a,ai'a+i'it" of f%n! in time0 Proper cash flow management is the key to success of the project. 8on-availability of funds in time delays the project implementation as well as increases the project costs. 9nj%!icio% e*%i#ment ten!erin)B #roc%rement an! contract mana)ement0 "t is generally observed that equipment and materials form H< Q K+L of the project cost and procurement of the same covers almost K+L of the project implementation time. (imilarly, Proper selection of contractors ensures timely completion within budgeted costs.

9neffecti,e #roject monitorin)0 %s the projects are implemented under a dynamic, ever changing environment, effective monitoring and timely modifications in implementation strategy are required for the success of the project. 45. What are the t"#e of #roject ri & $ What mea %re of ri & are % e! to a the ri & factor in #roject mana)ement$ e

he three types of project risks are9 (tand %lone 7isk 9 he risk when the project is viewed in isolation 3irm 7isk or /orporate risk9 his represents contribution of project to the risk of the firm. (ystematic 7isk or 1arket 7isk9 his represents the risk of project in the conte#t of market portfolio. 1easures of risk9 7ange 1ean %bsolute .eviation (tandard .eviation /oefficient of variation (emi 2ariance he (tandard .eviation is the most commonly used measure of risk in finance because it is analytically easily tractable. %lso if the probabilities are normally distributed, the mean and standard distribution gives all information about the same. 4:. What i a ri & re)i ter$ When ho%'! it +e o#ene! an! ho/ 'on) ho%'! it +e maintaine!$ he 7isk 7egister records details of all risks identified at the beginning and during the life of the project, their grading in terms of likelihood of occurring and seriousness of impact on the project, initial plans for mitigating each high level risk and subsequent results. "t usually includes9 % unique identifier for each risk; % description of each risk and how it will affect the project; %n assessment of the likelihood it will occur and the possible seriousness&impact if it does occur 'low, medium, high,; % grading of each risk according to a risk assessment table >ho is responsible for managing the risk; %n outline of proposed mitigation actions 'preventative and contingency,; and "n larger projects, costing for each mitigation strategy. his 7egister should be maintained throughout the project and will change regularly as e#isting risks are re-graded in the light of the effectiveness of the mitigation strategy, and new risks are identified. "n smaller projects, the 7isk 7egister is often used as the 7isk 1anagement Plan. 4<. Wh" i Ri & Ana'" i con i!ere! a an inte)ra' #art of #roject e,a'%ation$ Name an" three metho! of incor#oratin) ri & factor in #roject e,a'%ation an! e.#'ain the #roce!%re te# for an" one of them. he projections of initial investments and operating results of the project are based on various assumptions relating to various input parameters such as sales quantity and prices, material prices, labour costs and their output levels, project life etc. hese parameters are likely to be affected adversely by the future turn of events that are uncertain and beyond our control. his uncertainty about the future gives rise to a risk of

making project unviable. herefore, one cannot depend on just one set of projections but it is very necessary to analyse the risks involved and their impact on the project. hree commonly used methods for incorporating risk factor in project evaluation are9 (ensitivity analysis (cenario analysis 1onte /arlo (imulation analysis Ste# in,o',e! in Sen iti,it" ana'" i 0 (et up relationship between basic underlying factors i.e. sales quantity, unit price, material & labour costs, project life etc. and the 8et Present 2alue or "77. 5stimate range of variation and most likely value for each of the basic underlying factors (tudy the effect of variations in the basic variables on 8P2 or "77; with one factor carried at a time. Ste# in,o',e! in Scenario ana'" i 0 (ince many variable factors are interrelated, plausible scenarios with a combination of changes in variables are worked out. 5ffect on 8P2 or "77 is found under different scenarios. ypically; optimistic, pessimistic and base case scenarios are evaluated. Ste# in,o',e! in Monte Car'o Sim%'ation ana'" i 0 4>. Define Ri & an! in!icate ,ario% t"#e of ri & a ociate! /ith a #roject.

% risk is any uncertain event, if it occurs, could prevent the project reali-ing the e#pectations of the stakeholders. % risk always has a cause and if it occurs, a consequence, positive or negative. T/o T"#e ; a, Project 7isk ! %ssociated with the technical aspects of the work to achieve the required outcomes. b, Process 7isk ! %ssociated with the project process, procedures, tools and technique employed, controls, communication and team performance. T"#e of Ri & IProject Ri & J i. Project /ompletion 7isk ii. 7esource 7isk iii. Price 7isk iv. /ompetitor:s 7isk v. echnology 7isk vi. Political 7isk vii. "nterest rate risk viii. 5#change rate risk i#. 7isk from global competitors #. 7isk due to trading activities etc. 4?. 7 e of ri & ana'" i for #roject e,a'%ation an! a##rai a'. he market forecasts and other projections used for project feasibility and evaluation such as sales prices and quantities, cost of capital assets and inputs, ta#ation rates, foreign

e#change rates etc. are subject to a risk that they may not turn out in reality as projected. .eviations from the projections in reality may adversely affect the project feasibility. here are various statistical and other techniques for understanding risks and evaluating their effects. (ensitivity analysis, scenario analysis, 1onte-/arlo simulation methods etc. hat evaluates effects of variability of various factors either singularly or multiply. (ubjective probabilities are further attached to evaluate the project under optimistic, pessimistic and most likely situations out of various possible outcomes before a final decision is made. "n absence of e#tensive analysis, project feasibility worked out on the basis of conservative estimates for project revenues, adequate safety margins in cost provisions and fle#ibility in investment appraisal yardsticks is considered to be adequately covered for risks.

4A. What are the ,ario% /a" of financin) a #roject a'on) /ith re'ati,e merit an! !emerit of each of them$ 1ain sources of project 3inance i. )rdinary (hares ii. Preference (hares iii. .ebentures iv. @onds v. erm $oans vi. .eferred /redits vii. /apital investment subsidy viii. $ease 3inancing i#. ;nsecured loans #. "nternal accruals #i. @ridge $oans #ii. Public .eposits. )rdinary (hares ! (ource of permanent capital. (hareholders bear the risk of ownership. (hareholders e#pect altercative dividends and price appreciation of their shares. Preference (hares ! hey bear pre-determined rate of dividend. hey have priority over equity shares on the assets of the company in the event of liquidation of the company. .ebentures ! "nstruments for raising long-term debt capital. creditors of the company. @onds ! (imilar to debentures. erm $oans ! $ong term loan offered for project financing. he period of repayment various from < to E+ years depending upon the nature of the project. 1ore for infrastructure projects say =+ to =< years. he length of the repayment period depends upon the period of implementation of the project. .eferred /redits ! 2ia @ank payment is made. /apital investment subsidy ! 'a, %re a (ubsidy 'b, Product (ubsidy .ebenture holders are

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

5F. Short Note ; Gent%re ca#ita' 8inancin) ; % young private company that is not ready or willing to tap the public financial market may seek venture capital. 2enture capital funds are free standing pools of capital, raised mostly from institutional investors and high network individuals who have the ability to provide long term capital. 2enture capital investments involve businesses with potential for high growth in sales and profitability, equity or quasi ! equity financing instruments, medium or long term investment hori-ons, above average investment risks and returns and active post financing involvement between investor and investee. 2enture capital investment process is different from that of appraising a term loan. 2enture capital investors place greater emphasis on assessing the capability of the management team, analy-ing the strategic strengths of the business in question and on whether, how and over what time frame investors will achieve liquidity on the investment. 51. Short Note ; Com#onent of Ca#ita' Co t of a Project i. ii. iii. iv. v. vi. vii. viii. i#. #. $and and $and .evelopment @uildings Plant & 1achinery 5lectrical ransport and erection charges ?now-how and consultancy fees 1isc. %ssets Preliminary and Pre-operative e#penses Provision of contingencies 1argin money for working capital

51. Emer)ence D !e,e'o#ment of Gent%re Ca#ita' 8inancin) in 9n!ia. /oncept of venture capital vis-R-vis traditional security oriented approach9 2enture capital is primarily for the kind of business ideas that have good market potential but do not have any background to base the projections. (uch ventures also could suffer very heavy losses if the new products are not accepted in the market. 1any new promising business ideas floated by unknown entrepreneurs were being rejected by financial institutions due to their very guarded and security oriented approach to minimi-e the risk of loss. %s a developing nation, availability of project capital was scarce and priorities were naturally towards comparatively risk free investments. $iberalisation & opening-up of global markets9 ;nder the new liberali-ed scenario, there has been a positive change in the outlook of financial institutions. 3inances are also available from the foreign investors who are more familiar with the venture capital business. 5ven the "ndian financial institutions have reali-ed the possibility of very high returns by backing promising ventures after due evaluation of their potential. 2enture capital funds in "ndia9 1any financial institutions such as "/"/", 0""/ etc. have set-up their venture funds and there are many private funds also. %lthough there are no financiers purely in venture capital field, most are allocating about <L to

E+L of their investible funds for venture financing to adequately cover foe the risk of failures in some cases. 54. Short note 0 A!,anta)e of 2Prece!ence Dia)rammin)3 a'ia AON net/or& . %)8 networks can represent comple# activity relationships or dependencies such as (tart-(tart, 3inish-3inish, and (tart-3inish etc. apart from the normal 3inish-(tart. %)8 networks can represent $ead & $ag times for dependant activities. %)8 representation eliminates necessity for Adummy: activities to maintain the logic. %)8 networks are comparatively simpler to draw and more useful for activity oriented networks. 8etwork calculations are possible in A1ultiple (tart: & A1ultiple 3inish: networks. 55. Short note 0 Si)nificance of Tota'B 8ree an! Ne)ati,e f'oat . Tota' 8'oat is the total e#tra time available to complete the activity without affecting project completion date. "t is therefore calculated as the difference between $ate (tart and 5arly (tart for an activity '$(-5(, or the difference between $ate finish and 5arly 3inish '$3-53, or '$3-5(-duration,. otal float signifies the e#tent to which an activity completion can be delayed without affecting the final completion date. 8ree 8'oat is the float available to a non-critical activity without affecting the early (tart of the immediately succeeding activity. "t is calculated as 5s of "mmediate successor minus 53 of predecessor minus the estimated duration. "t signifies the e#tent to which a particular activity can be delayed with the succeeding activity maintaining its early schedule. "t is useful to know the free float when the responsibility for the successor activity lies with another agency and one cannot disturb its schedule in any manner. Ne)ati,e 8'oat for an activity means that the time available to carry out the activity is less than the time required to complete the same. >hen the project is to be completed by a given deadline and critical activities are delayed, the negative value of float indicates the e#tent to which the activities are required to be crashed in order to meet the deadline. 5:. What are the +a ic characteri tic of PERT mo!e' for Net/or& !e,e'o#ment an! /h" the" are more %ita+'e for re earch or !e,e'o#ment oriente! #roject $ E.#'ain the metho! for e timation of time !%ration of in!i,i!%a' acti,itie in PERT mo!e'. P57 model is an event oriented network that recogni-es the specific :stages: of completion or Amilestones: in the project. he events are the end results of a process or an activity. he interdependence between events is indicated by defining predecessor relationships. 6owever, the nature of activities or process to achieve the end result or an Aevent: is not well defined and is not fully controllable. "t therefore introduces a lot of uncertainty about the time estimates and efforts required to complete the activity. his is the typical situation commonly e#perienced in 7 & . projects. "n order to estimate the time required to perform an activity, there is no past e#perience or data about the similar work. 5stimates are therefore made in the following manner9 O#timi tic e timate9 "s an estimate of time to complete if activity does not encounter any risks. Pe imi tic e timate9 "s an estimate of time to complete if activity encounters all possible risks.

Mo t 'i&e'" e timate9 "s an estimate of time to complete under most likely situation that will have to face certain amount of risks %n average time is then worked out using the above estimates using the formula9 %verage ime P )ptimistic ime S G # 1ost $ikely ime S Pessimistic ime TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT H

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

5<. What !o "o% %n!er tan! +" the term acti,it" cra hin) an! ho/ !oe cra hin) he'# in re!%cin) the #roject !%ration$ Wh" i the time-co t tra!e-off re'ation hi# im#ortant in !eci!in) the o#tim%m !%ration of the #roject$ E.#'ain /ith a %ita+'e !ia)ram. A/rashing: is a process of reducing the normal estimated duration of an activity by adopting a different and more efficient process, equipment or skills to perform the activity at an A5#tra /ost:. he initial estimation of activity duration is based on the normal methodology and normal resource allocation. 6owever, if the project completions date as indicated by the critical path is beyond the desirable or committed completion date, it becomes necessary to reduce the project duration. "t is also seen that the indirect costs such as administration, establishment, and interest etc. rise in proportion of the project duration. herefore, there could be a saving in total project costs if the duration is reduced. his can be achieved by shortening the duration of activities on critical path at an e#tra cost and thereby resulting in reduction in total project duration. %s seen earlier, there will be a reduction in indirect costs of the project if the total duration is shortened. 6owever, the e#tra cost required to reduce the activity duration will increase the total direct costs of the project. 6ence, it becomes economical to reduce the project duration only if the savings in indirect costs are more than the increase in direct costs. his is known as the ime-cost trade-off. "t is also observed that as the various project activities are crashed more and more, the cost of crashing per unit time starts rising sharply. herefore, the crashing could be economical only up to some reduction and then becomes uneconomical to crash any further. he project duration at which the project costs are minimum is therefore known as Aoptimum: duration. his is illustrated in the following diagram9

)P "1;1 .;7% ")8

) /
)

."75/ /)(

% $ / ) (

( "8."75/ /)(

8)71%$ .;7% ")8

PROJECT D7RAT9ON 5>. A'tho%)h the Net/or& Techni*%e %ch a PERT D CPM /ere intro!%ce! to o,ercome certain hortcomin) of Gantt Chart B it i een that the Gantt Chart are #o#%'ar'" % e! +" #roject mana)er to re#re ent che!%'e in tea! of Net/or& !ia)ram . What !o "o% thin& are their feat%re that are ti'' fo%n! to +e % ef%' D effecti,e$ 0antt /harts are very effective visual representation of schedule and therefore are used everywhere from boardroom presentations to semiliterate project workers. 0antt charts can be easily understood and interpreted at all levels. 0antt charts can also be presented in a summary form to avoid unimportant details. 7esource loading, leveling and allocation e#ercise can also be carried out using a 0antt chart. 5?. Wh" the acc%rac" of e timation of time !%ration of in!i,i!%a' acti,itie i i im#ortant in Critica' Path Ana'" i $ E.#'ain the metho! an! too' % e! for time D Re o%rce e timation. he /ritical Path %nalysis focuses on competing the project at he earliest possible time and if possible at minimum cost. %ccurate time estimation is essential to good project management. "t is important to get time estimates right for two main reasons9 ime estimates drive the setting of deadlines for delivery of projects, and hence clients: assessments of your reliability. hey often determine the pricing of contracts and hence their profitability. (ince /P1 is used for the projects in which the organi-ation has previous e#perience or can have access to certain data & back-up information available about the activities. %s a first step it is essential to understand the correct scope of work estimate the total work content of the activity / 7 /harts '/ost- ime-7esource /harts, that are available for different trades such as civil construction, structural fabrication, etc. further help in preparation of estimates of time, resource requirements and costs quite accurately. he / 7 catalogue defines the scope of each activity in the network along with its estimated cost, resources required, and the time for completion. he network then read in

conjunction with / 7 catalogue becomes the basis for measuring progress; valuing the work done, cost reporting, forecasting and overall control of the project. 5A. E.#'ain the % e of f'oat ana'" i in #roject #'annin). E.#'ain !ifferent t"#e of f'oat K e.#'ain ho/ the" are ca'c%'ate! an! their i)nificance. 3loat can be generally defined as the difference between time available and the time required to carry out a given activity. "n /ritical Path %nalysis, the non-critical activities can afford certain amount of rela#ation in their performance. his gives a good amount of fle#ibility to the project manager in planning of schedules, resource leveling, allocation and their efficient utili-ation. %lso, efforts & resources can be concentrated or diverted if necessary from the jobs with float to the critical activities to ensure their completion in time. %ctivities with float can be delayed to save resources & cost. he different types of floats are as under9 i. Tota' 8'oat0 ! 3or the non-critical activities the difference between the $( & the 5( or $3 & 53 is known as otal 3loat. 3inish of the predecessor activities or the start of successor activities can be delayed to the e#tent of this difference without affecting the project completion date. Tota' 8'oat IT8J0 L =Si - ESi ii. or L =8i - E8i

8ree 8'oat0 - "n some cases it is observed that is the total float available for an activity is used on the same activity, the total float available on successor activities in the path will reduce by the same e#tent. his means that the total float can not be e#clusively available to the activity but is shared between successor activities in the non-critical path. 6owever, some amount of float is sometimes available to individual activity such that its use does not affect he successor activity. he measure of e#tent to which timing for activities can be altered without affecting successor activities in any way is the 3ree 3loat. his is the float available if the immediately succeeding activity has to start at the earliest start time. 8ree 8'oat I88J0 L 88i L ESi - E8i

iii.

9n!e#en!ent 8'oat0 - "t is independent of time of preceding activity & if used up does not affect time of succeeding activity. "t is measure indicating the float available if the predecessor activity finishes at its $3 and the successor activity starts at its 5(. 9n!e#en!ent 8'oat I98J0 L 98i L ESi =Si - !i

:F. De cri+e the t/o main con,ention % e! for !ra/in) CPM net/or& /ith their re'ati,e merit . Which con,ention i norma''" % e! +" the mo!ern oft/are #ac&a)e for #roject mana)ement$ Acti,it" on Arro/ IAOAJ0 "t is also known as %rrow .iagramming 1ethod. he basic diagram in a network is the arrow diagram. 5ach arrow represents one activity. %n arrow is pointed towards finishing event. 8etwork starts in a single starting node and ends in a single finishing node.

8etwork consists of collection of arrows linked in logical sequence according to technical characteristics of the project. %n arrow in broken line represents Adummy: activity; i.e. an arrow indicating logical interdependence of two events in a network without any physical activity required to be performed in between. .ummy does not consume any time or resource. .escription of activity is written along the arrow for easy reference. $ength of an arrow is not drawn to any scale does not represent time for activity. %)% network can represent only 3inish-(tart relationship without any lead or lag between activities.

Acti,it" on No!e IAONJ0 "t is also known as Precedence .iagramming 1ethod. 5ach node in the network diagram represents an activity. ';sually drawn as a rectangular bo#, %n arrow is drawn between two activities indicating their logical interrelationship. 8etwork may start in multiple nodes as starting activities and also end in multiple nodes as finishing activities. .escription of activity is usually written within the space available in rectangular bo#. (uch diagrams eliminate the need for showing of dummy activities. "t is also possible to represent different types of relationships between activities with their $ead-$ag time restraints such as9 o 3inish-(tart '3(,, o (tart-(tart '((,, o 3inish-3inish '33, & o (tart-3inish '(3, he project management computer packages mainly use %ctivity on 8ode convention. :1. Define Critica' Path in a CPM net/or&. 6o/ i it i)nificant of #roject contro'$ Doe the critica' #ath once i!entifie!B remain ame ti'' com#'etion of #roject$ 9f notB /hat are the rea on for it chan)e$ /ritical path is the sequence of activities from the starting activity to the finishing activity, with value float equal to -ero. "t is also the longest path of activities in a network indicating the minimum time required to complete the project. he activities on the critical path are known as critical activities and they must be completed within the time allotted without any delay so that the project could be completed within scheduled time. %ny delay in performing critical activity will delay the project completion by same time. "t is therefore necessary focus the attention and efforts, give priority in allocating resources to critical activities to ensure their timely completion. "t may also be necessary to Acrash: the critical activity duration by spending e#tra resources either to avoid delay or to optimi-e overall project costs. he critical path 'or Paths, once identified at the beginning of the project, does not remain same till completion of the project but is likely to change or shift at the time of every project update. >hile the project is under progress and a periodic updating is carried out, it may be observed that the actual time taken for completion of various activities is different from their estimated time for completion. "t is also likely that some critical activities may have been completed before their scheduled time and & or some non-critical activities have delayed even beyond the entire Afloat: available. (uch situations result in change in Afloat: values of activities and therefore in emergence of a new critical path.

:1. What are the main rea on che!%'e$ E.#'ain the term re o%rce 'e,e'in).

for attem#tin) re o%rce 'e,e' for a #roject Shiftin)B S#'ittin) D Stretchin) in re'ation to

%s the resource loading is done on the A5arly (tart: schedule, it is observed that the periodto-period requirements of different resources vary considerably. 6owever, it is always economically desirable to keep the resources at constant minimum level and ensure uniform workload over a period of time when they are engaged on a project. (uch uniform loading can be achieved by the process of Aresource leveling:. he process moves resource requirements from peak demand periods to low demand periods by rescheduling non-critical activities within available floats without affecting completion date. he critical activities that do not have floats are allocated resources on priority and are carried out as per schedule to ensure timely completion of project. 7escheduling of non-critical activities can be done in different ways9 ". (hifting9 %ctivity is shifted to start at a later date than A5arly (tar: date; without e#ceeding available float; and is completed without interruption. 7esources thus released can be deployed on critical activities. "". (plitting9 %ctivity is split in two or more parts and each part is carried out with time gaps to avoid peak resource requirement periods. 6owever, the entire activity is completed within the total time available including float. """. (tretching9 %n activity can be stretched in duration by reducing the resource allocation than its normal requirement. he total duration after stretching is maintained within total time available to carry out the activity. he released resources can be diverted to more critical activities. :4. E.#'ain the circ%m tance /hen Cra hin) of acti,itie i con i!ere! nece ar". Wh" the conce#t of cra hin) can not +e a!o#te! for PERT metho!o'o)"$ he critical path of the /P1 network gives the minimum time and therefore, the earliest date required completing the project by working under normal circumstances. "t is possible to reduce the total project duration by resorting to Acrashing: the critical path activities i.e. reducing the e#pected duration by assigning e#tra resources or adopting more efficient processes. /rashing is considered necessary under the following circumstances9 "f it is required to complete the project before the date indicated by the critical path, it becomes necessary to complete the activities on critical path before their estimated times. "f the project is delayed during the process of implementation, crashing is done to meet the project deadline to avoid heavy penalties, cancellation of order, loss of goodwill etc. /rashing can also be done to optimi-e project duration to minimi-e total project cost. his is done by achieving a balance or trade-off between project:s direct & indirect costs vis-R-vis project duration. P57 methodology uses probabilistic time estimates for activity durations and the activity costs are also not very certain. 5ven the longest path identified in the network may not be the real critical path is another Anear critical: path has higher variability 'i.e. (tandard .eviation,. ;nder such circumstances, it is not possible to consider crashing as precise information on timings and costs can not be obtained. :5. Three Time E timate metho! for Net/or& Sche!%'in) 0

5stimation of time required for completion of various activities in the project is one of the crucial issues in network scheduling. >hen the activities are being performed for the first time in a new project and there is no back-up data available for time estimation, a method of A hree ime 5stimates: is used. he method is used for P57 technique where the project team estimates three different time durations for each activity namely; Pe imi tic time e timate9 considering that activity faces ma#imum possible problems & delays. O#timi tic time e timate9 considering that activity is carried out without encountering any problems Mo t 'i&e'" time9 considering the activity faces moderate delays as normally e#pected. An a,era)e time9 for the activity to be used for network calculation is given by formula Pessimistic time P G B 1ost likely time S )ptimistic time %verage time P H he method is used for development of network schedules for research & development type projects. he probability of the project completing within the total schedule time calculated on the basis of three time estimates is <+L.

::. The re o%rce con traint /ithin the che!%'e.

#o e ,ario%

#ro+'em

in im#'ementation of #roject

he resource allocation may be such that it gives very wide fluctuations in day to day requirements. his gives rise to inefficient utili-ation and uneven loading. he actual availability of certain resources may be less than the allocation on certain days making it difficult to perform the task. 7equirement of more than one resource for an activity makes the situation more difficult to cope. he above problems may necessitate delays in schedules of certain activities due to unavailability of sufficient resources when required and may even result in delay in completion date. he different alternatives to overcome resource constraints and to avoid delay in the final completion date are various empirical methods trying to find optimum allocation within fle#ibility of the network. he main methods used are9 a, Postponing or shifting of non critical activities within available activity floats to smoothen out day to day resource requirements. his method achieves reduction in difference between peak requirements and minimum requirements when there are no limitations on availability. "t further tries to adjust the schedule within resource limitations as far as possible. b, (tretching the activity durations of non critical activities within the activity floats by reduction in resource allocation. he resources thus released can be utili-ed on critical activities. c, (plitting of non critical activities in parts when technically feasible. he parts can be performed within lean activity periods thereby prioriti-ing allocation on critical activities.

:<. E.#'ain the % e of f'oat ana'" i in #roject #'annin). E.#'ain !ifferent t"#e of f'oat K e.#'ain ho/ the" are ca'c%'ate! an! their i)nificance. 3loat is the spare time available in any non-critical activity. 3loat can be absorbed 'utili-ed, either by delaying the activity or by enlarging its duration. 3loat is useful in resource planning. hose activities which have large float can be delayed for want of resources. here are G types of 3loats. i. otal 3loat ii. 3ree 3loat iii. "ndependent 3loat iv. "nterfering 3loat Tota' 8'oat9 "t is that spare time available in any non-critical activity, if absorbed then neither it delays the project nor it changes the critical path %ll critical activities have -ero otal 3loat. "t is defined as9 3 P $3 - 5( - .uration 8ree 8'oat9 "t is that spare time available in a preceding activity, if absorbed them it does not disturb the start of the succeeding activity. 33 P 5( of succeeding activity - 5( of the preceding activity - .uration of the activity 'preceding, 9n!e#en!ent 8'oat9 3or an activity which neither disturbs the start of the succeeding nor finish of the preceding activity. 5( of succeeding - $3 of proceeding - .uration of the activity. :>. Short Note 0 7 e of CPM in o#timi(ation of #roject co t ; he principal focus of /P1 analysis is on variation in activity times as a result of changes in resource assignments. "t further determines project schedule to minimi-e total cost on the basis of time-cost relationships. otal project cost comprises of the Adirect cost: for performing activities 'material, labour & machinery costs, equipment hire costs etc., and Aindirect cost: 'overheads, supervision, interest, down-time cost, loss of revenue etc., it is observed that while the indirect costs are directly proportional to the project duration; the direct costs are inversely proportional to activity duration. his means that the indirect cost reduce with the project duration while an e#tra e#penditure has to be incurred on activities to reduce their duration. /P1 tries to achieve the optimum duration for which the total cost of the project is the minimum. "n practical use, it is difficult to obtain accurate cost-time relationship on various activities either because data are not available or because estimates are too bothersome and e#pensive to compile. @ut even if the accurate data are not available, best guesses, unless completely arbitrary, are useful information and help project manager to arrive at better decisions. :?. Short Note 0 Time e timation metho! in PERT D CPM a##roache ;

P57 9 P57 methodology deals with the uncertainties involved in performing various activities and therefore, difficulties in determining e#act duration of activities in the project. he model generally considers development-oriented projects where many activities do not have precedents to estimate their likely duration. 6ence, the model adopts a statistical average time estimate based on three time estimates ! optimistic, pessimistic and most likely time ! criteria. he total project duration worked out on this basis thus also has certain probability value. /P19 /P1 approach considers day to day work situations and therefore, the activity durations can be estimated with a fair accuracy. /onsiderable amount of past data can be available for similar activities. he total time for completion based on critical path duration is also quite accurate and helps in controlling the project schedules more effectively. :A. WCS IWor& Crea&!o/n Str%ct%reJ >@( is a systematic and logical breakdown of the project into its component parts or work packages. "t is constructed by dividing project into its major parts, each of which is further sub divided. he process is continued till the breakdown reaches such manageable level where schedule, cost and responsibility can be clearly defined for units of work or individual activities. >@( therefore helps in 5ffective planning of the project by dividing large project into manageable elements that can be easily comprehended and planned. /osts and responsibilities can be assigned to >@( elements at the lowest levels and summari-ed at the higher levels of the structure. 5ffective planning, monitoring and controlling structure can be developed. 5ffective information system is developed with help of proper codification for cost accounting and progress reporting. <F. Short Note 0 Re o%rce =e,e'in) M Smoothenin) ; he initial network schedule considers all activities to start at their earliest times and does not consider the resource requirements for performing activities. he implicit assumption is that the normal deployment of resources can be done as and when required and there are no constraints on resources. (uch schedule invariably gives rise to a situation where peak requirements of various resources on day-to day basis show very large variations. (uch situation is not desirable as it does not ensure uniform workload on day to day basis and pose difficulty in determining optimum resource strength for the project. "t is therefore necessary to smoothen-out the peak requirements and contain the ma#imum resource level within available level. his is known as resource leveling and smoothening and is achieved by adjusting the schedules of non-critical activities within the available floats. he schedule adjustment can be done either by just shifting the entire activity within the float or by stretching the activity duration with reduction in resource allocation or by splitting the activity to be carried out in parts at convenient times within the available time. %s this e#ercise is very complicated, comple#ities increasing as more variety of resources are considered, heuristic algorithms are developed to perform this e#ercise with help of computer programs.

<1. What are f'oat or 'ac& in #roject che!%'e an! ho/ the" are % e! in effecti,e mana)ement of #roject $ 6o/ !o term Tota' 8'oat an! 8ree 8'oat !iffer in their i)nificance$ When can #roject che!%'e ca'c%'ation ho/ Ne)ati,e 8'oat $ 3loat or a slack represents the difference between the time available and the time required to perform the activity. >hen time available equals time required, there is no float and the activity is called critical. he float available on non-critical activities therefore indicates the fle#ibility in scheduling the activity and also the ma#imum e#tent to which the activity can be delayed without affecting the project completion date. otal float signifies the ma#imum permissible delay without delaying the final completion while free float signifies the ma#imum permissible delay without delaying the earliest start of its immediate successor activity. ?nowing the available floats on various activities helps the project manager to plan and organi-e day-to-day activities in view of resource constraints and concentrate efforts and resources on critical activities. 8egative float indicates that the time available is less than the time required to perform the activity and unless the activity duration is compressed or Acrashed: to by the e#tent of negative float, the scheduled completion date can not be met. <1. Main feat%re an! a!,anta)e of Matri.K t"#e or)ani(ation for #roject . "n a matri# organi-ation, the personnel working on the project are responsible to their functional superior as well as the project manager. he authority and influence of the project manager cuts across the traditional vertical line of command. "t has greater organi-ational comple#ity due to the dual reporting structure and needs certain level of organi-ational maturity to avoid conflicting situations that are inherently created by the structure. %dvantages of the matri# organi-ational structure for the projects are as under9 5nsures effective utili-ation of organi-ational resources. /ritical resources can be shared between projects. @uilds up speciali-ed knowledge & technical base within the organi-ation. eam morale & motivation remains at high level even at the project completion stage. Personnel are not uncertain about their future after project closure, hence focused. %uthority and responsibility is shared and gives more time for team members to comple# problem solving. "t is an ideal for of organi-ation for 5P/ companies. <4. O,er the #erio! of #roject im#'ementation #ha eB the #roject co#e ma" nee! mo!ification. 6o/ ho%'! %ch chan)e +e mana)e!$ .uring the implementation phase of the project, scope may need modification as a result of %n e#ternal event ! change in government regulations %n error or omission in defining scope of the product or project initially. % value adding change, enhancing project benefits.

%ny such modification should be carried out in such manner that corresponding changes in time of completion, budgeted costs and performance parameters due to change in scope get proper authentication, sanction and approval. o manage and control the scope change, following procedure may be adopted9 he scope base line is first defined by work @reakdown (tructure '>@(, 5stablish scope change control system that defines the procedure by which scope to be changed. his includes paperwork, tracking systems, and approval levels and authorities necessary for authori-ing changes. 1onitor project performance for scope compliance from time to time. %ny deviations should be scrutini-ed to assess the need for scope change in future. ?eep track of change requests oral or written, direct or indirect, e#ternally or internally initiated, legally mandated or optional. 5valuate effect of the scope changes 'either e#pansion or shrinkage, on schedule, cost and performance and "nitiate action to formali-e the changes. "ssue revisions in schedule, budgets and performance parameters on the basis of approved changes. <5. What are the re'ati,e merit of +%i'!in) a #roject +%!)et from +ottom-%# an! from the to#-!o/n metho! $ 6o/ !oe the a i)nment of co t to in!i,i!%a' #roject acti,itie he'# ineffecti,e co t D che!%'e contro'$ A op .own: method of project budgeting is a quick and economical method to prepare project cost estimates with reasonable reliability when the detail information about the project parameters is not available. "t is also known as analogous estimating as it uses actual costs of previous similar project as a basis. 6owever, reliability depends on the degree of similarity between projects, scalability of parameters and e#pertise of the estimating team in given field. A@ottom ;p: method involves estimating the cost of individual work items in the work breakdown structure '>@(, and then summari-ing or rolling-up the individual estimates to get a project total. /ost of estimation and its accuracy depends upon si-e of individual work item in the >@(. (maller work items increase time and cost of estimation but also increase its accuracy. 5arned value management systems attach budgeted costs to individual activities in the project. he actual cost incurred can be found out either as soon as the activity is completed on even while the activity is under progress. his enables the project manager to take timely controlling action as soon as any deviations from the budgeted costs for the current state of physical progress are noticed. 7egular & periodic reporting of project costs is done under the following summary heads9 i. Project e.#en!it%re IACWPJ9 "t is the %ctual /ost of >ork performed till date and covers total cost of work done, goods received and of services used, whether or not these have been paid for. his includes accruals & provisions. ii. Sche!%'e! E.#en!it%re ICCWSJ9 "t is the @udgeted cost of work to be completed till given date if the project runs on schedule. iii. Earne! ,a'%e ICCWPJ9 >hen any of the project activity gets completed it is considered to have Aearned value: equivalent to its budgeted cost. herefore, the total of @udgets cost for the work performed to date is the total Aearned value: of the project. >hen %/>P is higher that @/>P, it indicates cost overrun and when earned 2alue is lower than @/>( it indicates schedule delay.

<:. 6o/ !o "o% !ifferentiate +et/een the term Project Monitorin) an! Project Contro'$ E.#'ain the #roject monitorin) D contro' c"c'e. Project monitoring is a process of i. %ssessing the current status of the project progress in terms of schedule, cost and performance parameters, ii. %nalysing deviations from base-line schedule, budgets and acceptance criteria iii. 5valuating implications of deviations on total project completion, cost and final performance iv. (uggesting alternative strategies in order to bring the project on track project control on the other hand v. Plans and decides control action vi. .ecides authorities and responsibilities to carry out the control actions vii. 7edistributes revised schedules, budgets, and specifications for e#ecution. <<. Pre#arin) a #roject /or& +rea&!o/n tr%ct%re IW.C.S.J i ai! to +e the fir t te# in #roject #'annin) e #ecia''"B che!%'in) D +%!)etin) E.#'ain. >ork breakdown structure is a deliverable oriented breakdown of project into smaller, manageable, and measurable elements. herefore, the >@( helps in defining complete scope of the project and also facilitates clearer definition of project deliverables. he breakdown is carried out in various levels such that the lower level elements contain the components of its higher-level element. he lowest level thus broken down is generally known as a Awork package:. he total project estimates and budgets can be developed either on Atop down: or Abottom-up: basis for each work package. 7esponsibilities are assigned to individuals & contractors for completion of work packages. 5ach work package is further broken down to define tasks or activities that are required to be performed for its completion by the incumbent responsible. hese activities are used as basic elements for scheduling where time estimates and inter relationships are defined to prepare as project network. 7esources required to perform various activities are also assigned so that activity wise costs can be worked out for cost control purposes. >@( also helps in consolidating the project status and cost reports at different levels to evaluate performance of different parts of the project. <>. E.#'ain ho/ the co t +rea&!o/n +a e! on #roject acti,itie he'# in effecti,e co t contro' of the #roject. Which are the main co t fi)%re to +e trac&e! +" a #roject mana)er to achie,e %ch contro' o,er #roject co t $ he normal accounting practice of preparing project budgets on the basis of asset classification does not enable timely comparison with actual costs due to the time delay in collecting and collating the relevant information and thus the information does not remain useful for control purposes. 3urther, such cost data does not directly correlate to the physical progress of the project and therefore cannot be interpreted meaningfully. 6owever, when budgeted cost for each work package is broken down further to indicate budgeted cost for each activity, it forms the basis for project cost control. he actual cost incurred can be found out either as soon as the activity is completed or even while the activity is under progress. his enables the project manager to take timely controlling action as soon as any deviations from the budgeted costs for the current state of physical progress are noticed.

7egular & periodic reporting of project costs is done under the following summary heads9 i. Committe! co t 9 otal value of all works and e#penses contained in contracts and purchase orders awarded to third parties. "n case of reimbursable or measured works contracts, committed costs are in relation to defined scope of work. ii. S%n& co t 9 otal cost, at a given time, which would be incurred should the project be cancelled. iii. Project e.#en!it%re9 otal cost of work done, goods received and of services used, whether or not these have been paid for. his includes accruals & provisions. iv. O%t tan!in) commitment 9 otal costs committed minus project e#penditure. v. E timate to com#'ete9 "s the best estimate that can be made at any given time of remaining cost not already reported as e#pended or committed, taking into account the current project scope and performance trends date. vi. E timate! fina' co t9 "t is committed costs to date plus the estimate to complete. vii. Earne! ,a'%e9 otal of budgeted cost for the work progress to date. <?. PROJECT MON9TOR9NG D COTRO= T6RO7G6S C7RGE Hr 1AAA E. ? aJ Dia)ram he diagram shows a typical curve for a project, based on the schedules and budgeted cost, the e#pected project completion and budgeted e#penditure is potted for different time intervals through the project period. he shape of the curve generally resembles 5nglish letter A(: and hence the curve is popularly known as ( curve. .uring the periodic monitoring process, an assessment of the percentage completion the activates under progress 'but not completed, is made along with actual e#penditure incurred or accrued for the fully & partially completed activities till the review date. he cumulative values based on actual progress are plotted on the curve and compared with the planned curve. 3ollowing variances are observed9 "f hen ACWP - CCWS L %ccounting cost variance ACWP - CCWP P otal cost variance CCWS - CCWP P (chedule variance he hori-ontal component of the schedule variance shows the actual schedule variance by time units. 1onitoring on the basis of ( curve gives the trend indication for the overall state of the project and therefore is very useful reporting tool for the top management. Earne! Ga'%e Conce#t he budgeted cost of each activity is considered as its value for the project. 6ence completion of an activity is considered to contribute value equivalent to its budgeted cost to the total value to the project. "n other words, an activity earns value equivalent to its budgeted cost on its completion. %n activity that is partially completed on a particular date is also considered to have earned value equivalent to its percentage completion on the given date multiplied by its total budgeted cost. "n case actual e#penditure incurred for completion of an activity e#ceeds its budgeted cost, the project does not earn any additional benefit since activity parameters are well specified. he variance therefore indicates cost over run. @/>( P @/>P P %/>P P @udgeted cost of work scheduled, @udgeted cost of work Performed, & %ctual cost of work Performed.

he total value earned for the project on any given date is the total of earned values of all the completed activities till date as well as the total of earned values to date for partially completed activities. he A(: curve drawn between the planned cumulative earned value for the project against the time, based on early start schedule; will indicate the total planned e#penditure for the project at any given point of time during its progress. <A. Project monitorin) D contro' c"c'e. Project implementation phase starts after the project activity schedule is planned, budgets are allocated and responsibilities are assigned. "n order to achieve effective control over the implementation, it becomes necessary to assess the progress from time at regular intervals in terms of physical completion of scheduled activities, actual cost incurred in performing those activities ad achievement of desired performance levels. his assessment process known as Amonitoring: then compares the status with the plans to find deviations. he effect of deviations in schedules and costs are estimated on the final completion time and cost and controlling actions are taken to correct the deviations to the e#tent possible and to bring the project back on its planned course. (chedules, budgets and performance parameters are revised as a result and reissued for further e#ecution. %ctual controlling actions are carried out by the persons authori-ed and responsible for the activities and involve efforts and assistance by entire project team. /)1P%75 P$%8 %/ ;%$ ( % ;(

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>F. E.#'ain /h" an! ho/ the #roject +%!)et are +ro&en-%# on the +a i of #roject acti,itie to achie,e effecti,e co t contro'. Project budgets are initially prepared to conform to the asset classification required by the financial institutions. his classification is generally based on depreciation & amortisation rates and capitali-ation rules in accounting procedure. a# and company statutes. (uch classification is not useful for control as it is more suitable for historical information and does not reflect the time and manner in which the e#penditure is to be incurred. /osts are incurred and become due in a project as various project activities are being performed, by deploying resources.

ime and costs are therefore inseparably linked and it is not possible to control costs without linking them with time schedule of activities. "t is therefore necessary to identify costs with the work involved in project activities. he total cost budget is broken down as per >@( at different levels upto its last level representing individual activity. >hen the duration or schedules for the particular part of the project or for the individual activity are changed, the cost incidence also changes accordingly. 3iner the >@(, more fle#ible and accurate will be the control. echniques such as A5arned 2alue: and A(: curves help in keeping cost and schedule control in an integrated manner.

>1. E.#'ain the incrementa' #rinci#'e for /or&in) o%t the #roject ca h f'o/ . 9NCREMENTA= PR9NC9P=E9 /ash flows must be measured in incremental terms. ".e. he difference between cash flows with the project and without the project has to be ascertained. >hile estimating incremental cash flows, following points should be kept in mind. Con i!er a'' inci!enta' effect 0 %part from the direct cash flows, the incidental effects on the company:s other operations must be considered. he project may enhance profitability of some of the e#isting activities of the company because it has a complimentary relationship with them, or it may detract profitability of some e#isting activities as it has competitive relationship with them. hese effects should be considered in the project cash flows. 9)nore %n& co t0 )utlay incurred in the past or e#penses already committed irrevocably should be considered. he e#penditure that is not affected due to either acceptance or rejection of the project under consideration can not be treated as project cash flow. 9nc'%!e O##ort%nit" co t 9 )pportunity cost for diversion of available resources to the project should be included. "f the project requires some assets already available, the company loses the opportunity to use them for any alternative use. he net value of such loss of opportunity should form part of project cash flow. A''ocation of o,erhea! 9 overhead costs irrelevant to the project should not be considered. "tems such as general administrative e#penses, managerial salaries, legal e#penses, rents etc. that are being already incurred by the company and not increasing due to the project should not be allocated to project cash flows. 6o/ /o%'! "o% treat the fo''o/in) item in #roject ca h f'o/ $ /ost of project feasibility study carried out before final approval of the project9 (unk cost should not be included. /ost of e#isting idle machinery & equipment transferred to new project9 (ince there is no opportunity otherwise to put the machine to any use, not to be included. Portion of 6ead )ffice administrative e#penses allocated on project9 %llocated overheads should not be included. /ost of land purchased in e#cess of current project requirements9 (ince the e#cess land is not required for the project, its cost cannot be considered incremental cost related to project. 6ence not to be included.

>1. What i the criterion % e! for !eterminin) =ife of the #roject for !eterminin) time #an of ca h f'o/ #rojection $ he life of project is considered to be minimum of the following9

i.

Physical life of plant 9 Period for which the plant remains economically and technically functional and productive, plant productivity declines due to normal wear & tear during its use it becomes uneconomical to maintain beyond certain period. ii. echnological $ife of plant9 8ew technologies and processes make e#isting plants obsolete even before they are physically worn out. iii. Product market life9 1arkets for a products shrink change or disappear due to changes in consumer preferences, emerging competition etc. making continued production unjustifiable. iv. "nvestment planning hori-on of the company9 ime period for which the company wishes to look ahead as it:s long-term investment policy. >hen any one of the above occurs, the project cannot be e#pected to run remuneratively. 6ence cash flow projections are carried out only up to that time. >4. E.#'ain the rea on for % in) Wei)hte! a,era)e Co t of Ca#ita' IWACCJ a a 6%r!'e Rate for Di co%nte! Ca h 8'o/ IDC8J ana'" i . What are the 'imitation in % in) WACC a con tant rate of !i co%ntin) thro%)ho%t the #roject 'ife #an$ he ./3 analysis is carried out with cash flows worked out form A$ong erm 3unds: point of view. >%// indicates the average rate of e#pectation from the providers of long-term funds to the project. % positive 8P2 after discounting the project cash flows at the >%// indicate that the project generates surplus in terms of present value after meeting the e#pectations of all the long-term fund providers. 6ence the >%// is considered as a Ahurdle rate: for ./3 analysis. 7ate of discounting generally represent the rate at which project surplus is reinvested. ;sing a constant rate of discounting therefore assumes that the surplus is reinvested every year at the same rate. 6owever in reality, opportunities for reinvestment keep changing from time to time making it necessary to consider different rates of discounting for different years. >5. What i =on) Term 8%n! #rinci#'e for e,a'%ation of #roject ca h f'o/ $ Wh" i it nece ar" to e.c'%!e financin) co t /hen the 'on)-term f%n! #rinci#'e i acce#te!$ he A$ong erm 3unds: principle evaluates project form the point of view of providers of $ong erm 3unds: to the project. he benefits accrued to the suppliers of long term funds i.e. 5quity and preference share holders, debenture holders, and term lending institutions, are compared with the sacrifices made by them for the project. $ong-term fund suppliers provide for outlays in fi#ed assets and margin for working capital. @enefits accrued to the suppliers of long term funds are cash profits after ta#, interest paid on term loans, salvage value of fi#ed assets, and recovery of working capital margin. "nterest on term loans is a considered as an e#pense or cost while working out P & $ account as per normal accounting principles. 6owever, under the long term funds principle, the term loan interest is considered as an accrued benefit, hence, while working out the project cash flows, the interest on long term debt is either ignored while computing profits and ta#es thereon or added back to the cash profits calculated by normal accounting procedures. hese are then compared against the cost of long-term funds that include interest and dividend payments.

>:. Princi#'e fo''o/e! for /or&in) o%t the #roject ca h f'o/ . 9NCREMENTA= PR9NC9P=E9 /ash flows must be measured in incremental terms. ".e. he difference between cash flows with the project and without the project has to be ascertained. >hile estimating incremental cash flows, following points should be kept in mind. Con i!er a'' inci!enta' effect 0 %part from the direct cash flows, the incidental effects on the company:s other operations must be considered. 9)nore %n& co t0 )utlay incurred in the past or e#penses already committed irrevocably should be considered. 9nc'%!e O##ort%nit" co t 9 )pportunity cost for diversion of available resources to the project should be included. A''ocation of o,erhea! 9 )verhead costs irrelevant to the project should not be considered. =ONG TERM 87NDS PR9NC9P=E 0 "t is recommended that the project should be evaluated from the long term funds point of view as the assets for the project are created out of the funds provided by long term fund providers. 6ence the principle focus of financial appraisal should be on profitability of long-term funds. ENC=7S9ON O8 89NANC9NG COSTS PR9NC9P=E0 3inancing costs of the long term funds should be e#cluded from analysis. his corroborates with the long-term funds principle mentioned above. '"nterest on long term funds to be added back to profits after ta#, POST TAN PR9NC9P=E0 %ll cash flows to be defined in post ta# terms since the cost of capital is considered on post ta# basis. ><. Short note ; SENS9T9G9TH ANA=HS9S ; "t is a technique that measures the change in the profitability of a project caused by changes in the factors that affect the cash in flows of a project. "f a small change in one factor leads to a major change in the profitability of the proposed investment the project is considered more sensitive to that factor. >>. Short note ; EARNED GA=7E MANAGEMENT - An activity:s value P its budgeted cost for a project "f actual is more than budgeted, it earns no value i. he project e#penditure '%/>P, %ctual cost of work performed till date and covers total cost of work done, goods received and services used, whether these have been paid for. "t includes accurate and provisions. ii. (chedule e#penditure '@/>(, @udgeted cost of work schedule. @udgeted cost of work to be completed till given date if the project runs or schedules. iii. 5arned value '@/>P,. otal of budgeted cost for the work performed to date is the total A5arned 2alue: of the project. >?. Can the oft/are #ac&a)e for #roject mana)ement rea''" Mana)e Project $ What are the +a ic feat%re of %ch #ac&a)e an! ho/ the" are % ef%' in effecti,e mana)ement of #roject $ (oftware packages cannot really manage the project but they can only aid the project manager in decision-making process. %ny control measure to correct the deviations from

schedule, costs or e#pected performance has to be decided on the basis of various technical issues involved and also needs judgment and discretion on the part of decision maker. % computer cannot be e#pected to carryout such functions. 3eatures of project management packages that are useful in effective project management9 i. 8etwork .evelopment9 Package develops a network with just the basic inputs of activity description, estimated duration, and activity dependencies. "t also identifies critical activities, critical path, and floats. ii. /alendar definition9 .ifferent calendars can be defined to take care of working days, holidays and timings specific to project, location, activity, resource etc. iii. 7esource allocation & leveling9 .ifferent resources ! 1anpower, equipment, and materials can be allocated on activities and leveled to minimi-e periodic fluctuations as well as to optimi-e their deployment. iv. /osting9 /osts related to activities can be worked out and consolidated to give the project cost. v. Progress updating9 Periodic updating of progress works out the revised schedules, costs, and indicates variances for enabling corrective action. vi. 7eports9 2arious reports ! .etail and summary ! can be produced for management information & control. >A. E entia' feat%re of oft/are #ac&a)e for #roject #'annin) D monitorin) he software package for project management should essentially have following features9 (cheduling9 %bility to develop schedules based on three basic inputs; vi-. %ctivity name, estimated duration and precedence relationship. 1onitoring9 3acility to update project status from time to time and workout its effects. 7esource allocation9 3acility to define and allocate resources and resource costs. /alendar dates9 (chedules to be represented o calendar basis rather than on day numbers. /ost allocation9 3acility to define fi#ed and variable costs of activities. 7eporting9 %bility to prepare and print reports in tabular and graphic formats. )ther desirable features could be9 3ormal9 preferably %)8 format with at least three types of relationship 3(, ((, & 33. >@(9 3ull >@( format preferred to outlining. (ub-projects9 3acility to link independent projects as sub-Projects. "nterfacing9 5#port-"mport and linking to databases and other applications. ?F. What are the it%ation in /hich e,a'%ation of in,e tment a'ternati,e i faci'itate! +" !eci ion tree ana'" i $ E.#'ain the +a ic te# in,o',e! in !eci ion tree ana'" i . (ome investment decisions are not isolated or not unconnected with future outcome of events after making the decision are analysed with help of decision tree technique. 1any such outcomes would be beyond the control of the decision maker and will be a result of chance to a greater or lesser e#tent. % decision tree consists of a number of branches springing at each node as a result of one of two conditions. @asic steps involved in the analysis are9 ". "dentify the problem and various alternatives "". 3orm the decision tree .ecision points and alternatives available for action. /hance points when outcomes are dependant on chance """. (pecify probabilities & monetary values for various out comes.

.ata for probabilities associated with each possible outcome at various chance nodes and 1onetary value of each combination of decision alternatives and chance outcomes. "2. 5valuate the alternatives. 5valuate monetary values of chance points & decision points in a backward manner till reaching the original decision point. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO