University of Kerala

School of Distance Education

Third Semester Master of Business Administration

Innovation Management
MGT 303

Prepared by

Venugopal S
JOINT GENERAL MANAGER
HLL LIFE CARE LTD
TRIVANDRUM

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 Innovation Management MGT 303

Unit I:

Innovation - Basic concepts of Innovation-Factors affecting Innovation – Introduction to

Entrepreneurship. Its role- Defining Entrepreneurs. Entrepreneurial traits. Developing Entrepreneur -
Dynamics of small business Environment- causes for small business failure. Success factors for small
business.

Unit II:

New ventures and Business plan-Need for business plan-steps in the preparation of business
plan-Need for marketing research-operating plans and financial plans – Corporate planning process and
investment decisions- Expenditures of different types - formulation of capital expenditure - Appraisal
and evaluation-Estimation of cost of project-Financing-Estimation of profitability- processing for
administrative approval.

Unit III:

Execution of project-Need for a project organization -Functions of a project department-Project

admission- Sanction letter and its contents - Types of project- Finalization of strategies for executing
projects. Engagement of consultants - preparation of technical specification – contracts finalization.
Execution of contracts.

Unit IV

Project implementation - Project management organization - Importance of project

management organization - Monitoring and control of projects- parameters for monitoring and control -
process of monitoring - PERT/CPM and network techniques in project monitoring and control -
Computer based project management - Completion of projects and post project evaluation -
Completion of projects and handing over to operations–closure of contracts - Completion cost of
projects - capitalization of assets of project.

Unit V

Post project evaluation and Post completion audit report -Contents of post project evaluation
and completion audit report-Diagnosis of delay in projects- Consequences of delay in projects- Key
lessons learned from the executed projects- Environmental appraisal of projects- stresses on
environments - Environmental impact assessment (EIA) and Environment impact statement (EIS) –
Impact assessment methodologies.

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 Unit I

Innovation: Basic concepts of Innovation-Introducing to Entrepreneur ship- Its role-Defining an

entrepreneur-Entrepreneurial traits-Developing Entrepreneurs- Dynamics of small business
environment -Causes for small business failure- Success factors for small business.

Innovation is an idea, Practice or object that is perceived as new by an individual or other

unit of adoption.

Innovation is the use of new knowledge to offer a new product or service that customer
wants

Innovation= Invention + Commercialization

Innovation is the search for and the discovery, developed, improvement, adoption and
commercialization of new processes new products and new organization structures and procedures.

Innovation is the successful exploration of new ideas.

Innovation is the process of translating an idea or invention into a good or service that creates
values on for which the customers will pay. The idea must be replicable at an economic cost and must
satisfy a specific need.

In business the innovation often results when ideas are applied by the company in order to
further satisfy the needs and expectations of customer.

Benefits of Innovation in business

1. Solve the business problem easily

2. Increase in productivity
3. Marketing the business
4. Beating the competitors

Characteristics of Innovation

1. There is an object or target which is being changed

2. It can be a product, Process, an individual’s life style, an organization strategy, a society
culture.
3. Innovation vary in extend or magnitude ie. Degree to which one deviate from Past.
4. It is closely related to problem solving –Since generation and implementation of ideas for
change never transpires without difficulty.
5. A final characteristic is the impact of change the significance or range of its effects.

Why Innovate?

1. Turbulent and rapidly changing economy

2. Organization prepares themselves to innovate on a continuing bases.
3. Survival chance are seriously threatened

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 Difference between Innovation and Invention

Innovation Invention
1. It is creation of new product, Service or It is the introduction of new product, services or
processes processes into the market
place.
2. May not be commercialized Results into commercialization
3. It can be automatic or induced Usually Induced
4. Can be for economic or non- Economic motive
economic motive
5. Usually restricted to R & D Spread across the Organization
centers
6. May bring few changes in Brings Organizational change
Organization

Goals of Innovation

1. Improving quality
2. Creating new market
3. Extension of product range
4. Reducing labour cost
5. Improving production process
6. Reducing environmental change
7. Replacement of products / Services
8. Reducing energy consumption
9. Conformance to regulations

Types of Innovation

1. Product and Process Innovation

2. Open and closed innovation
3. Incremental and Radical Innovation
4. Modular and Architectural Innovation

1. Product Innovation: Deals with what we produce and sell. Introduction of new or
significantly improved the product that generates new customers values.
2. Process Innovation: Continuous improvement of how we do things. It includes
implementation of a new and significantly improved production or delivery method.
3. Open Innovation / Closed Innovation

Project start Concept frozen Market Introduction

Concept development 4
Open Innovation includes working beyond boundaries and collaborating globally
Closed Innovation Include working within closed boundaries.

4 Ps of Innovation
1. Product
2. Process
3. Position
4. Paradigm
Open and closed innovation are primarily different by the way in which innovation is
generated.Closed innovation companies operate under a self contains innovative environment while
open innovation companies sources external knowledge for their innovation management strategies.

For business, open innovation is a more profitable way to innovate because

1. It can create new products and services.
2. Innovating old products and services
3. Building a strong community
4. Keeping employees engaged
5. Reduction in cost
6. New revenue streams

3. Incremental and Radical Innovation

Radical innovations are focused on developing revolutionary new technologies, market and
business models that change the world,

Eg:- i phone

Incremental Innovation refers to the innovation processes that seek to improve the existing systems
and products to make them better, cheaper or faster, competitive differentiation.

Reduced innovation focuses on long term impact and may involve displacing current
products, altering the relationship between customers and suppliers and creating completely new
product categories.

Radical Innovation prepares for future growth and creates new market niches.

Incremental Innovation enhances efficiency and Increase quarterly profits

5. Modular and Architectural Innovation

Modular Innovation is about changing a component without changing how a system is configured
Architectural Innovation refers to a change in configuration of the entire systems and how the
components interact.

Modular system refers to a software engineering approach geared towards developing software
applications in terms of modules or components.

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Process of Innovation
The innovation process describes the path of translating new and or existing knowledge into
marketable solutions. Companies that pursue a successful innovation process have something decisive
that puts them ahead of others-they have designed the path of an idea from generation through
development to market entry. The stages of successful innovation include

1. Stage I: Idea Generation and Mobilization

The generation stage is the starting line for new ideas
2. Stage II: Advocacy and screening
3. Stage III: Experimentation
4. Stage IV: Commercialization
5. Stage V: Diffusion and Implementation
Once an idea is refined, it can be appointment target and meet the needs of audience.
Commercialization is the stage of innovation process when the focus shifts from development
to persuasion. After the idea is clarified and a business plan is created, it will be ready for diffusion
and implementation.

Risks in Innovation ways to overcome

1. Technological failure of innovation

To manage this risk, company may carryout trials on a small scale to test its effectiveness once
this is done and observations made on, the necessary adjustments may be made accordingly to
avert any huge losses once the product is mass produced.

2. Financial Strain

Often the innovation process is faced with the challenge of draining out the company resources
as returns are usually long term as opposed to immediate. This may lead to abortion of the product
or idea once it is perceived to be non- profitable. We should focus on the projected returns and
consider whether or not the innovation aligns with its long term goals.

3. Market failure

For innovations which involve the introduction of new products or technology to the market it
is imperative that the product meets the needs, tastes and preferences of the consumers. Failure to
do this would mean that the demand would be low and therefore the innovation not viable
commercially. To avoid this extensive and in depth market research before committing limited
resources to its development and production.

4. Rebundancy

With trends in the market constantly changing and many innovations emerging, it is possible
that a profitable innovation today may be rebundent in the near future. To counter this, there must
be constant research on how to improve the existing systems and a keen observance of global
trends and factors influencing them.

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 5. Lack of capacity for implementation

This is especially a challenge for startups. Where they lack the structural and financial
capacity to roll out the innovation. Hence partners may be chosen to assists in the area of lack and
overcome the challenge. The partner also shares in the vision of innovation to avoid conflicting
interests in future.

6. Organizational Risks

This relates to the risks that are faced in the structure and running of the business once the
innovation is introduced. For instances company may revert to focusing all resources and time
towards innovation at the expense of its daily activities. Proper planning and allocation of
resources has to be ensured to ensure this will not happen

7. Unprecedented risks

These are risks that would not have been foreseen and may be influenced by factors outside the
company’s control. They may involve changes in polices or political instability whose ripple effect
spills over hindering the effectiveness of innovation. It is important for the business to keep a
contingency plan to buffer it against such unseen events.

Innovation Process

1. Recognizing or scanning the environment

2. Aligning the overall business strategy and proposed innovation
3. Acquiring technology from outside
4. Generalizing technology in house
5. Exploring and selecting the most suitable response to environment
6. Executing and Implementing Innovation
7. Learning sessions for improvement
8. Developing the organization

Challenges face while managing innovation

1. Why change?
Only innovation matters
2. What do change?
Ranging from changes in product and service to the ways (ie, process innovation)
3. Understanding innovation
Understanding common problems associated with the partial views of innovation.
4. Building an Innovation Culture
Managing innovation is all about creating firm specification routines (ie, repeated,
reinforced patterns or behavior which define its particular approach to problem)
5. Continuous learning
Firms constantly need to develop their routines to deal with the environmental
challenges.
6. High involvement innovation
Higher level of participations in innovation represents a competitive advantage.

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 7. Managing Connections
In current scenario business organization are require to operate in relationship with others
than in splendid isolation

Barriers to Innovation
External barriers
Market related barriers
Government and its polices
Others (Technical, Societal and Inter organizational barriers)

Internal barriers

People related
Structural related
Strategy related
Ways to overcome the barrier

1. Shared vision, leadership and the will to innovate

Clearly articulated and shared sense of purpose stretching strategic intent .
Top Management commitment.

2. Appropriate Culture
1. Encouraging creativity
2. Enabling learning and interaction
3. Balancing between organic and mechanistic

3. Key Individuals
Promotion champion and other roles which facilitate Innovation.

4. Effective Team working

Use of team at cross functional and inter organizational level Investment in
team selection and building

5. Continuing and stretching individual development

Education and training of employees to improve skill and competency

6. Extensive Communications
Within and between the organization and outside

7. Creative Climate
Positive approach to creative Ideas supported by relevant motivating systems

8. Learning organisation
High level of involvement within and outside the firm in proactive experimentation
Knowledge, capture and discrimination

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Innovation Management

Innovation management is the management of innovation process. It refers both to product and
organizational Innovation. Innovation management includes a set of tools that allow managers and
engineers to co-operate with a common understanding of process and goals

Entrepreneur

Any person who starts and operates a business is an Entrepreneur

An Entrepreneur is a person who organizes and manages a business undertaking assuming the
risk for the sake of project.

Entrepreneur is one who creates a new business in the face of risk and uncertainty for the
purpose of achieving profit and growth by identifying and assembling the necessary resources to
capitalize on them.

Innovation is a special tool of Entrepreneurs the means by which they exploit changes as an
opportunity for different business or a different service

Characteristics of Entrepreneur

1. Desire for responsibility

2. Preference for moderates risks
3. Confidence in their ability to succeed
4. Desire for immediate feedback
5. High level of energy
6. Future Orientation
7. Skilled at Organizing
8. Value achievement over money

Functions of Entrepreneur

1. Innovation
2. Risk taking
3. Organization building
4. Absorb uncertainty
5. Frame the challenge
6. Build Commitment

Essential Traits needed for an Entrepreneur

1. Self - confident and optimistic

2. Able to take calculated risk
3. Respond positively to changes
4. Flexibility and able to adapt
5. Knowledgeable of markets
6. Able to get along with others
7. Independent minded

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 8. Energetic and diligent
9. Creative, need to achieve
10. .Dynamic leader
11. Responsive to suggestion
12. Take initiatives
13. Resourceful and Persevering
14.Perceptive with foresight

Factors responsible for Entrepreneur Internal factors

Desire to do something new

Educational background Experience

External factors

● Govt. Assistance and Support

●Availability of labour or raw material
●Encouragement from big business houses
●Promising demand for the product
Types of Entrepreneurs According to the

type of business

1. Business Entrepreneurs: Who starts business after developing ideas for new products /
Services
2. Trading Entrepreneurs: Who undertake buying and selling of goods, but not engage in
manufacturing
3. Corporate Entrepreneurs: Who establish and manage corporate form of organization which
have separate legal existence.
4. Agricultural Entrepreneurs: Who undertake the activities like raising and marketing of crops,
fertilizers and other allied activities

II On the basis of stages of development

1. First generation Entrepreneur

Who do not possess any Entrepreneurial background. They start industry by their
own innovation skills
2. Second generation Entrepreneurs: Who inherit the family business and pass to next
generation
3. Classical Entrepreneur: Who aims to maximum economic returns at a level consistent with
the survival of the unit with or without an element of growth.

III On the basis of motivation

1. Pure Entrepreneurs: Who are basically motivated to become entrepreneurs for their
personal satisfaction, ego..etc
2. Induced Entrepreneurs: Who are induced to take up entrepreneurial role by assistance
and policy of Government including incentives, subsidies etc
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IV On the basis of Technology

1. Technical Entrepreneurs: Who are task oriented and crafts man type. They prefer doing to
thinking

2. Non-Technical Entrepreneur: Who are not concerned with technical side, but rather with
marketing and promotion
3. Professional Entrepreneur: Who start a business units ,but later sell the running business
and start a new unit latter.

V On the basis of capital ownership

1. Private Entrepreneurs: Industrial or group set up enterprise, arrange, finance, share risk
etc.
2. StateEntrepreneurs: means the trading or Industrial ventures
undertaking by the state or Government itself
3. Joint Entrepreneurs: Combination of private and Government
entrepreneurs.

Other classifications

VI According to Gender and Age

1. Man Entrepreneurs: Business enterprise owned and managed and controlled by men
2. Women Entrepreneurs: Women having a financial interest of 51% of capital and giving
at least 51% of employment generated by enterprise to women.
3. Young Entrepreneurs
4. Old Entrepreneurs
5. Middle Aged Entrepreneurs
According to Area

1. Urban Entrepreneurs
2. Rural Entrepreneurs
According to Scales

1. Large scale Entrepreneurs: Made investment in the plant and machinery

> 5 cores
2. Medium Scale Entrepreneurs: Made investment the plant and machinery
> 1 cores < 5 cores
3. Small scale Entrepreneurs: Investment in plant and machinery up to 1 cores

4. Tiny Scale Entrepreneurs

IX Others

1. Spiritual Entrepreneurs
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 2. Social Entrepreneurs
3. Edupreneurs
Entrepreneurship

Entrepreneurship is an activity of selling up a business or businesses, taking on financial risks

in the hope of profit.

Entrepreneurship is the process of designing, launching and running a new business, which is
often initially a small business. The people who create these businesses are called entrepreneurs.

Different types of Entrepreneurship

1) Small business Entrepreneurship

Small business are grocery stores, hair dressers, consultants, Travel agents, Internet
commerce store fronts, carpenters etc.
2) Scalable start up Entrepreneurship
3) Large company Entrepreneurship
4) Social Entrepreneurship
Scalable startup Entrepreneurship

These entrepreneurs start a company knowing from day one that their vision could change the
world. They attract investment from equally crazy financial investors. They hire best and the
brightest. There job is to search for a repeatable and scalable business model. When they find it, their
focus on scale requires even more venture capital to fuel rapid expansion.

Eg: Silicon Valley

3) Large Company Entrepreneurship

These companies have finite life cycle. Most grow through sustaining Innovation, offering new
products that are variants around there core product. Changes in customer tastes, new technologies,
legislation, new competition etc can create pressure for more disruptive innovations. Requiring large
companies to create entirely new product sold into new customers in new market. Existing companies
do this by either acquiring innovation companies or attempting to build a disruptive product inside.

4) Social Entrepreneurship
Social Entrepreneurs are innovators who focus on creating product and services that solve
social needs and problems. But unlike scalable startup their goal is to make the world a better place not
to take market share or to create to wealth of the founders. They may be non profit, for profit or hybrid.

Developing Entrepreneurs

Entrepreneur’s development is the process of improving the skills and knowledge of

Entrepreneurs through various training and class room programs with the main intention to increase the
number of entrepreneurs.

Entrepreneurship development is a programme , method or process that aims to identify,

nurture, support and grow the talents in bigger level so that it brings new business leader in the
market reduce employment health, educational, business and environment problem.

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 Entrepreneurial development Cycle

Simulation Support

Entrepreneurial Cycle

Sustaining

Entrepreneurship development Process

1. Identify, select, train, counsel and support potential entrepreneur for creating need
entrepreneurship
2. Facilitate growth of existing entrepreneurs and groom successors
3. Contribute towards developing entrepreneurial culture.
4. Facilitate creation of a conductive environment for emergence and growth of enterprises
5. Intervene for developing enterprise -Technology and management (market, quality, finance,
HR)

Stages of Entrepreneurial Process

1. Conducting Opportunity analysis

2. Developing the plan and setting up company
3. Acquiring financial partners and resources of funding.
4. Determine resources required and implementing the plan
5. Scaling and harvesting the venture.
Theories of Entrepreneurship

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 1. Economic Entrepreneurship theory
2. Sociological theories of Entrepreneurship
3. Entrepreneurship- Innovation Theory
4. Psychological Theory
5. Theory of high Achievement
6. Resource based theories
7. Opportunity based Theory
8. Status withdrawal Theory

1) Economic Theory
This is the main economic theories of Entrepreneurship. This theory asserts that the economy and
entrepreneurship are closely linked together. Entrepreneurship and economic growth takes place when
economic conditions are favourable. Economic incentives are the main motivators Economic
incentives include

1. Taxation Policy
2. Industrial Policy
3. Investment and marketing opportunities
4. Access to information-Market conditions and Technology

The economic theory failed to provide a satisfactory analysis of either the role of entrepreneurship or its
supply.

2) Sociological theory of Entrepreneurship

Entrepreneurship is likely to get a boost in a particular social culture. The entrepreneurial behaviors of
individuals in a society is influenced by

Society value Religious

beliefs

Customs etc

The entrepreneur merely performs a role as per expectations of the society. As per Jean

Baptiste, an aristocratic industrialist Entrepreneurs combine land of one, labour of another,

and capital of yet another to produce a product.

By selling the product he pays interest on the capital and rent on land and wages to labourers and
what remains is profit.

3) Entrepreneurship Innovation Theory (1949)

● This Theory was promoted by Joseph and Schumpeter
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● Entrepreneurship is Innovation

● This theory ignores earlier two abilities which were till then considered key for an entrepreneurs
Such as organizing abilities and taking abilities

According to this theory

Entrepreneurs is a man who sees opportunity for

● Introducing new techniques or commodity

● Improving organization

● Development resources

● Entrepreneurs embarks upon new combination of factors of production resulting in new product
termed as Innovator

● Entrepreneur is dynamic
Features of Innovation Theory

1) High degree of risk and uncertainty

2) Highly motivated and talented individual
3) Profit is merely a part of objective of entrepreneurs
4) Progress under capitalism is much slower than actually it is so
5) It is leadership rather than ownership which matters

4) Physcological Theory

According to this theory, an entrepreneurs experiences growth when the society has several
individuals with necessary Physiological characteristics. These characteristics include having a vision,
being able to face opposition and having needed to achieve highly. A person can only posses these
traits during their upbringing, when they excel, when they are self reliant

Physiological theories of entrepreneurship put emphasis on the emotional and mental aspects
of the individuals that drive their entrepreneurial activities. The various psychological theories of
entrepreneurship include

1. McClelland Theory: Explain need for achievement that often regulates the action of an
entrepreneur
2. Rotters Locus of control Theory: Puts light on the locus of control whether internal or
external that influence entrepreneur actions.
3. Action regulation theory: It elucidates that performance of entrepreneur depends
on their action

5) Mcelland Theory

According to David Mclelland, outline why few communities are more economically booming
as compared to others. Furthermore, according to him, entrepreneurs are classified on the basis of
their need for achievement which is the driving factor for their economic grounds. This theory also
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 tells that the traits of entrepreneurship are incorporated by individuals through learning can be
motivated to achieve a higher level.

Based on this theory, three motivations or needs have been prioritized for

1. Affiliation
2. Achievement
3. Powers
Furthermore individuals posses these three document motivators irrespective of their age, gender
or culture. These three motivators are directly proportional to life experience and culture
experienced by individuals. Entrepreneurs use these motivators to influence the performance of
employee by setting goals for them, offering motivation and rewards.

Rotters Locus of control theory

This theory was formulated in 1954 by Julian Rotter. The locus of control offers people the
belief that control offers people the belief that control resides within them.

Locus of control theory of Entrepreneurship

Four common attributed causes Locus of control

Internal External

Task
Stable
Ability difficulty

Unstable
Effort Luck

High internal locus of control

In this case people believe that they are in charge of their actions and fortune. Event would be
determined on the basis of their qualities and conduct.

High External locus of control

In the scenario, individuals believe that outcomes are out of their control and it completely
depends on external factors such as fate, change etc.

Individual who have a high tendency towards risk are more likely to become an
Entrepreneur. Furthermore, risk taking is the most elementary action that entrepreneurs do to achieve
high level performance and success. Therefore this theory manages to explain that entrepreneurs with
internal locus believe that emergence of success is due to their capabilities and action. While
entrepreneurs new with external locus assume chances of success or survival are driven by institutional
and external factors.

Action regulation Theory

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 Michael Frese outlines the application of Action theory of entrepreneurship. It is elaborated as
the meta theory which regulates the goal oriented behavior. This theory explains how individuals
control the cognitive behavior with the help of cognitive Process which consists of selection and
development, orientation, monitoring and planning and processing feedback

In order to examine human action according this theory, there are 3 dimensions are,

1. Sequence highlights the path taken from goals to the feedback

2. Focus extends to activities to self.
3. Structure outlines the level of actions coherence often regulated.
The basic application of this theory to Entrepreneurship is seen in terms of planning In order to
describe Entrepreneurial planning behavior, four action processes have to suggested - opportunistic,
complete planning and review. As per the theory, early stage entrepreneurs are likely to observe a new
task, Also, this occurs repeatedly and this occurrence of action likely to feature in the coming few year.
It highlight the fact cognitive ability is much more crucial to entrepreneurs.

5. Theory of high Achievement

David McClelland argued that the people who aim to become entrepreneurs must have a need
for achievement, a need for affiliation and a need for power. These act as the basis upon which an
entrepreneurial personality is established. Achievement motivation has lot of significances in
entrepreneurship because it is the one that leads to economic and social development. Entrepreneurs
always want to achieve success in that endeavors. The need for power comes from the urge to gain
dominance in a certain field and these cause influences among other people.

High achievement motivation is a sign that an individual is likely to become an enterprise new
because they are passionate about it. As such even though they are stressed, lack of money or face
external pressure, they will work hard to become successful. The performance of an entrepreneur can
be enhanced through education and training.

6. Resource based theories

According to this theory, entrepreneurs require resources to go about their businesses. There
efforts must be combined with resources such as time, money and labour. Failure to access resources
can cause their efforts to become futile. Capital for instances, enables an entrepreneur to grow their
business. Other aspects that can be considered as essential resources include access to information,
education and leadership. Getting sufficient resource can be quite hectic at times and that is why
entrepreneur are considered to be people who required to work hard and smart.

7. Opportunity based theory

With the aim of being successful, entrepreneurs grab any opportunity they come across. These
opportunities are made available through the changes in technology, Society or culture. Notably as
these changes occur, consumers change there preferences. An entrepreneur must therefore take those
changes as opportunities of succeeding in their business. Also technology sets a basis upon which
innovation is created and facilitated. Therefore this theory suggests that entrepreneur is always on the
lookout for opportunities that will enable the increase growth of ventures.

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8. Status with drawl theory
This theory argues that entrepreneurs aggressiveness can be created when people of a certain
class lose their prestige they initially had or when they belong to a minority group. Therefore
individuals will attempt by all means to become prestigious as they were in the past. If they come from
a minority group, they must be better their lives by working hard at being entrepreneurs. Also being a
successful entrepreneur evokes repeat from the society. Producing an innovative product or service that
will help solve various societal concerns can make a person to be highly valued and admired by the
community. As such some people aim at achieving this administration, fame or popularity through
entrepreneurship.

Causes for small business failure

1. Lack of experience
2. Insufficient capital (money)
3. Poor location
4. Poor inventory management
5. Over investment in fixed assets
6. Poor credit arrangements
7. Personal use of business funds
8. Unexpected growth
9. Poor market research and unrealistic plan
10.External shocks, Economic change

Success factors of small business

1. Reduction in overhead cost

2. Focus on service
3. Locational advantage
4. Motivation of entrepreneur and increase in confidence level
5. Vision on enterprise
6. Good Team: Right people. Team will play a decisive role in getting success
7. Good Partner: Entrepreneur needs Partner. Every project needs partner. If the partners are
not good and cohesive with the idea of entrepreneur they are one of the reasons of failure.
8. Leadership
9. Effective communication
10. Powerful decision.

Dynamics of small business environment

Dynamic nature of small business environment includes constantly adapt to customer needs, vigorous
market place activity, new and evolving products, expanding market, advancing technology

Characteristics of dynamic environment in small business

To adapt the dynamic environment, small business owner should not only know that fast moving
conditions and some degree of in unpredictability represents dynamics environment but also know
where to look for signs of accelerating change

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Political

The macro environment refers to the conditions all companies encounter. A PEST analysis scans the
political, economic social and technological macro environment for elements that affect business. The
small business owner should make it a habit to analyze the micro environment for elements that open
the door to change in the political arena.

Economic

Economic changes can spark a dynamic business environment too. Falling interest rates may allow a
business or it competitors to expand, rapidly changing the industry growth rate. Falling prices for
needed raw resources may do the same

Societal

Socio cultural conditions can act to catalyze the small business environment. Social net
working has changed industry thinking about how to connect with markets.

In the news industry, anchors now regularly ask viewers to tweet information seeking to
interact rather than merely present. Shifting demographics may also lead to a dynamic environment, as
business respond with new and improved products and service.

Technological

A new inventions or discovery can revolutionary industry. The small business owner should be on the
lookout for innovations that promise to change the business is conducted. Sometimes a break through
heralds a period of continual technology advancement. Such is the case in cell phone Industry. Now
phones can open garbage door. Such continuous change signals a business dynamic environment

Market

New players in a market place can become chain agents especially of these competitors are
aggressive or employ new approached to courting customers or creating products. Additionally the
markets themselves may create dynamic conditions.

Eg: Untapped markets in foreign location may open, presenting vast new opportunities. Examing
market events, small business owner should consider both direct and indirect effects on company what
affects a company’s suppliers for instance may affect the small business itself.

Activity questions Unit I

1. Define Innovation. Explain the concept of Innovation

2. Explain the different types of Innovation
3. Explain the 4 ps of Innovation
4. Describe the process of Innovation
5. Describe in detailed the risk involved in Innovation and how can we cope up the risks
6. Describe the challenges faced while managing innovation and how to overcome the challenges
7. Define Innovation management

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8. Explain the term Entrepreneur. What are the function of Entrepreneur
9. What are the characteristics of entrepreneur

10. .Describe the traits needed for an entrepreneur

11 .Explain in detailed the factors responsible for entrepreneur
12. Outline the classification on types of entrepreneur
13.Define Entrepreneurship
14. Elaborate the different types of Entrepreneurship
15.Discuss the process of developing Entrepreneur
16.Describe in detailed the various theories of Entrepreneurship
17.Describe in detailed about dynamics of small business environment
18.Describe the causes for the failure of small business
19.Describe the success factors of small business 20.Describe the types of project management

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 Unit -II

Topics

New ventures and business plan- Need for a business- plan steps in preparation of business
plan- Need for marketing research. Operating plan and financial plan- corporate planning process and
investment decisions-Expenditure of different types- Formulation of capital expenditures- Appraisal
and evaluation- Estimation of cost of project Financing –Estimation of probability- processes for
administrative proposal

Business venture

A business venture is usually formed out of a need for a service or product that is lacking in the market.

Business venture is also defined as the start up entity developed with the intent of profiling
financially. A business venture may also be considered as a small business. Eg. If a particular market
has a large demand for a product or service, a business venture will be created to meet this demand.
Most business venture are created based on the demand of the market or lack of supply in the market.
Needs of customers are identified for a product or a service and the entrepreneurs and investors will
proceed to develop the idea, market the idea and sell the product or service developed

Business plan

A business plan is a document that summaries the operational and financial objectives of a business
and contain the detailed plans and budget showing how the objectives are to be realized. It is a road
map to the success of business

Business plan is a document setting out a business future objectives and strategies for
achieving them.

Components of a business plan

The various components of a business plan include

1. Overview of the industry

2. Market analysis
3. Competitive analysis
4. Marketing plan
5. Management plan

Good business plans are usually highly detailed and include information on all aspects of business
including the industry, marketing , finance personnel and various operating procedures. They are
specific, communicate to all company employers and require commitment from every one.

A business plan serves as a road map for the next three to five years of company and contains the
following essential elements.

1. Executive summary
2. Company description
3. Market analysis

21
 4. Competitive analysis
5. Management and operation
6. Marketing and sales
7. Financial summary

Importance of a business plan

A business plan is an important tool to help, guide the decision to start a small business or exploring
ways to expand an existing one. Business plan is a road map to success providing greater clarity on all
aspects of business and from marketing and finance to operations and product/ service details.

1. Need for a business plan

To prove that all interested parties such as employees, investors partners are committed to build the
business

2. To establish business milestones

The business plan should clearly lay out the long term milestones that are most important to the
success of the business

3. To better understand the competitors

Creating the business plan forces you to analysis the competition. All companies have competition
in the form of either direct or indirect competitors and it is critical to understand the company’s
competitive advantages.

4. Better understanding the customers

An in depth Customer analysis is essential to an effective business plan and to a successful

business

5. To enunciate previously unstated assumptions

The process of actually writing the business plan helps to being previously hidden assumptions to
the foreground. By writing them down and assessing them, you can test them and analyze the validity.

6. To assess the feasibility of the venture

Business plan process involves researching the target market as well as the competitive land scape
and services as a feasibility study for the success of venture

7. To document the revenue model

Documenting the revenue model helps to address challenges and assumptions associated with the
model to answer the critical questions that how exactly will your business make money

8. To determine your financial needs

One of the purposes of a business plan is to help you to determine exactly how much capital you
need and what you will use for it. The process is essential for raising capital for business and
effectively employing the capital.

9. To attract investors

A formal business plan is the basis for financing proposals. The business plan answers investor’s
22
questions such as.

Is there a need for this product/ service? What are the financial projections?
What is the companies exit strategy?

10. To reduce the risk of pursuing the wrong opportunity

The process of creating the business plan helps to minimize opportunity costs. Writing the business
plan helps to assess the attractiveness of this particular opportunity Vs. other opportunities

11. To force to research and understand the market

Creating the business plan help to gain a wide, deeper understanding of market place. To
understand the threats of industry, to know whether the market is growing or striking and to have
understanding on size of target market.

12. To attract employees and management team

To attract and retain top quality talent, a business plan is necessary. The business plan inspire
employers and management that the idea is sound and the business is poised to achieve strategies goals.

13. To attract partners

Partners also want to see a business plan, in order to determine whether it is worth partnering with
the business. Establishing partnership often requires time and capital.

14. Positioning of brand

Creating the business plan helps to define company’s role in the market place. This allows to
succinctly describe the business and position the brand to customers, investors and partners

15. To document the marketing plan or to understand and companies staffing need 16.To uncover
new opportunities

Marketing research

Marketing research is the process or set of process that links the producers, customers and end users to
the marketer though information used to identify and define marketing opportunities and problems and
generate refine and evaluating of marketing action and monitoring of marketing performance.

Marketing research is the systematic, collection analysis and interpretation of data pertaining to
marketing conditions

The basic reason for carrying out marketing research is to find out the change in the consumer
behavior due to the change in the elements of marketing mix (product, price, place, promotion)

The marketers need to know about the changing trends in the market viz change in the
customer tastes and preferences, the new products launched in the market, prices of the competitive
product, the close substitutes of the product etc.

23
 Steps involved in marketing research process

Market research process

Step I Define the problem

Step II
Develop research plan
Step III
Collect the information
Step IV

Analysis the information

Step V

Step VI Present the findings

Make the decision

1. Define the problem: We have to find out the problem for which research is to be conducted. The
problem must be defined accurately because it is too vague. Then it may result in the wastage of
scarce resources and if it is too narrow, then the exact conclusion cannot be drawn

2. Develop the research plan: This step involves gathering the information relevant to the research
objective.

It includes

• Data source: Data collection pertaining to research problem from either the primary source
or secondary source or both the sources

• Research approaches: The secondary data are readily available in books, Journals,
magazines, reports, online etc. But the primary data have to be collected though
observational research, ethnographic research, focus group research, survey research and
Experimental research to study the effect of change in the customers behavior due to change
in products attributes.
• Sampling plan: Once the research approach is decided, the researcher has to design a
sampling plan and we have to decide on the sampling unit, sample size, sampling procedure.

The researcher has to choose the medium though which the respondents can be contacted.
The respondents can be reached via emails, telephone in person on or online

3. Collect the information: In this step, raw data or information is collected using the research
tools identified during research design stage. It can be primary data collection using qualitative
and quantitative methods
24
4. Analysis and interpretation of data: The data collected is raw and not useful unless statistical
tool are applied on it. The techniques can be decided in advance. It can be done with the help
of various statistical package

5. Preparing of research project: it involves final finding, recommendations and decisions in an

accurate, clear, concise and complete form.

Need and Importance of marketing research

1. Identifying the problem and opportunities in the market

2. Formulating market strategies
3. Determine customs needs and wants
4. For effective communication mix
5. Improving selling activities
6. For sales forecasting
7. To find the existing brand position and recall the value of brands and popularize and retain
brand loyalty
8. To facilitate smooth introduction of new products
9. Determination of export potential
10.Managerial decision making

Main application of marketing research

1. Marketing research: may be used in the area of product planning and development, to
evaluate new product mix for testing new product acceptance, protection for the product and
ability to withstand transportation and stocking.

2. Advertising research: Marketing research may be used to examine the important element of
advertising copy like basic theme, ideas, appeals headlines, communication, and clarity.

Marketing research may be applied to determine the most cost effective media plan for
ascertaining advertising effectiveness.

3. Distribution research: It includes identification of existing and potential distribution

channels, selection of appropriate intermediates, determination of channel expectations,
reduction of distribution cost etc.

4. Pricing research: The objective of this research is to find out the price expectations of
consumers and their reactions and responses to different price level of product to ascertain
elasticity of demand.

5. Sales research: The basic purpose of sales research is to find out the sales potential of the
company’s products and evaluation of the company’s sales performance.

6. Making environmental research: This is very important area of marketing research. The
basic purpose of this is to assess environment fitness of the firm.

25
 Types of market research technique includes

• Surveys
• Interviews
• Focus group
• Customer observation

Operating plans and financial plan

Operational plan and financial plan are elements of the business plan that support each other to move
the business ahead in a chosen direction. Operational plan runs the business where as the financial plan
is the bread and budget

An operational plan is a highly detailed plan that provides a clear picture of how a team,
section or department will contribute to the achievement of the organization goals. The operational plan maps
out the day to day tasks required to run and business and cover.

Eg. A large corporation (strategic plan) has a manufacturing division (tactical plan) that provides
products A, Band C. Each product is manufactured in a separate plant run by a plant managers who
prepares and separate operational plan

Types of operating plan

1. Standing plans: Are plans designed to be used again and again Eg. Policies,
procedures and regulations

2. Single use plans: refer to plans that adress a one- time projector event
Five major categories of operating planning includes

1. Strategic planning
2. Tactical planning
3. Operation planning
4. Contingency planning

Financial plan

A financial plan is a document containing a person’s current money situation and long term monetary
goals as well as strategies to achieve these goals. A financial plan may be created independently or
with the help of a certified financial planner

Essential components to a financial plan

• Goals and objectives

• Income tax planning
• Balance sheet
• Issues and problem
• Risk management and insurance
• Cash flow statement
• Investment planning
26
Designing an effective financial plan

1. Define the goals (short time and longtime)

2. Organize the financial record
3. Create a preliminary budget
4. Analysis the spending habits
5. Set a time frame and finalize the budget
6. Devise an income strategy that will reach the goals

Importance of financial plan

• Financial planning helps to determine the short and long term financial goals and create a
balanced loan to meet those goals
• Tax planning and budgeting help to keep more of hard earned cash
• Capital : Increase in cash flow lead to increase in capital
Financing planning is the process of estimating the capital required and determining its
competition. It is the process of framing financial policies in relation to procurement, investment
and administration of funds of an enterprise

Objectives of financial planning

1. Determining capital requirements

2. Determining capital structure
3. Framing financial policies with regards to cash control, lending and borrowing
4. Financial manager ensures that scarce financial resources are maximally utilized in the best
possible manner to get the maximum returns on investment

Corporate planning process

Corporate planning is an important and vital business process. The organizations top management sits
down to formulate policies and strategies and communicate them downward for implementation.

The process of corporate planning entails preparing the company’s mission, goals and
objective.

Elements of corporate planning process

1. Establishing corporate goals and objectives

2. Setting environmental premises
3. Collecting information and forecasting
4. Establishing divisional goals and objectives
5. Developing divisional plans
6. Revising objectives and plans if objectives are not met

Types of corporate planning

1. Initiation plans: These are also known as start up plans and drawn by the entrepreneurs
27
 whenever he is about to venture into the business.
2. Strategic plans
3. Growth plan
4. Financial plan
5. Human resources plan
6. Internal plans

Corporate planning is a systematic approach for clarifying corporate objectives, strategic decision
making and checking progress towards objective. A corporate plan is a set of instruction to managers
of an organization on describing what role each department is expected to full fill in the achievement
of companies objective

Strategic planning

Planning at various management level

1. Strategic planning
2. Intermediate planning
3. Operational planning
Strategic planning refers to the process of determining the major goals of the organization and the
policies and strategies for obtaining and using resources to achieve those goal.

The top management of any firm is involved in this type of planning

In strategic planning the whole company is considered specifically its objectives and current
resources. The output of strategic planning is the strategic plan which spells out the decision about long
range goals and the course of action to achieve these goals.

Intermediate planning

This refers to the process of determining the contributions that subunits can make with
allocated resources.

Under intermediate planning the goals of the sub unit are determined and plan prepared to
provide a guide to the relations of the goal. The intermediate plan is designed to support the strategic
plan. This type of planning is undertaken by middle management

Operational planning: refers to the process of determining has specific tasks can best be
accomplished on time with available resources.

This type of planning is a responsibility of lower management. It must be performed in support of

strategic plan and intermediate plan.

Advantages of corporate planning

1. It allows organization to set proper plans and objectives that easily assets the company to
measure its success
2. It also defines business methods that are very cost effective
3. Corporate planning power and vision for the company future which is well established
4. Corporate planning reduces uncertainty by reducing risk
5. Decreasing cost and improving profitability
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Investment decisions

Investment decision relates to the decisions made by the investors or the top management with respect
to the amount or funds to be deployed in investment opportunities

Selecting the type of assets in which the funds will be invested by the firm is termed as
investment decision

Types of investment decisions

There are four main financial decisions

1. Capital budgeting or long term investment decision (Application of funds)

2. Capital structure or financing decision (Procurement of funds)
3. Dividend decision (distribution of funds)
4. Working capital management decision: In order to accomplish goal of the firm to maximize
profit

Types of investment decision

Two types of investment are

1. Long term
2. Short term
An example of a long term capital decision would be to buy machinery for production. This is
important as it affects the long term earnings of the firm

Short term investment is related to the levels of cash, inventories etc. These decision affect day
today working of the business

Importance of investment decision

Investment decision taken by individual concern is of national importance because it determines

employment economic activities and economic growth. It involves not only large amount of fund but
also long term on permanent basis. It increases financial risk involved in investment decision

Factors affecting investment decisions

• Management out look

• Competitors strategy
• Opportunities created by technological changes
• Market forecast
• Fiscal incentives
• Cash flow budget
• Non-economic factors

The key steps involved in determining whether a project is worthwhile or not …

1. Estimate the costs and benefits of the project

29
 2. Assess the riskiness of capital
3. Calculate the cost of capital
4. Compute the criteria of merit and judge whether the project is good or bad The important

investment criteria Classified into two board

Categories .Discounting criteria and non-discounting criteria

Investment criteria

Discounting Criteria Non discounting Criteria

Net Present Beneficial Internal rate Payback Accounting rate

Value Cost Value of return Period of return

Net present value

Net present value (NPV) of a project is the sum of present values of all the cash flows positive as
well as negative that are expected to occur over the life of the project.
n
NPV = Σ
S=i
Where Ct is the cash flow at the end of the year t and n is the life of the project

r is the discount rate

The net present value represents the net benefit over and above the compensation for time and risk.
Hence the decision rule associated with the net present value creation is accept the project if the net present
value is positive and reject the project if the net present value is negative

Properties of NPV rule

Net present values are additive

Net present value of a package of projects is simply the sum of the net present values of undivided
projects included in the package. This property has several implications

1. The value of the firm can be expressed as the sum of the present value of projects in place as
well as the net present value of prospective projects
30
 Value of a firm=∑ present value of projects + ∑ NPV of expected future projects

2. When the firm terminates an existing projects which has a negative NPV based on the expected
futures cash flows, the value of firm increases by that amount. Likewise when a firm
undertakes a new project that has a negative NPV, the value of firm decreases by that amount.
3. When a firm divests itself of an existing project, the price at which the project is divested
affects the value of the firm. If the price is greater/ lesser than the present value of the
anticipated cash flow of the project ,the value of firm will increase/ decrease with that amount

4. When the firm divests itself of an existing project ,the price at which project is divested affects
the value of the firm. If the price is greater / lesser than the present value of the anticipated
cash flow of the project, the value of the firm will increase/ decrease with the divestiture
5. When a firm takes on a new project with a positive NPV, its effect on the value of the firm
depends on whether NPV is in line with expectation
6. When a firm make a acquisition and pays a price in excess of present value of the expected
cash flows from the acquisition it is like taking on a negative NPV project and hence will
diminish the value of firm

2. Benefit cost ratio or (profitability index)

There are two ways of defining the relationship between benefits and cash Benefit cost ratio

BCR =

NET benefit cost ratio NBCR = PVB–I = BCR – I

I

Where PVB is the present value of benefits and I is the initial investment

3. Internal rate of return

Internal rate of return (IRR) of a project is the discount rate which its NPV equal to zero. It is the
discount rate which equals the present value of future cash flows with the initial investment. It is the
value of r in the following equation
n
Ct
investment = Σ t
(1 + r)
t=1
Where Ct is the cash flow at the end of year t, r is the internal rate of return (IRR) and n is the
life of the project

In the NPV calculation we assume that the discount rate (Cost of capital) is known and
determine the NPV. In the IRR calculation we set the NPV equal to zero and determine the discount
rate that satisfies then condition

Decision rack for IRR is a follower

1. Accept: if IRR is greater than the cost of capital

2. Reject: if the IRR is less than the cost of capital
Payback period

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Payback period is the length of time required to recover the initial cash out lay on the project

According to the payback criterion, shorter the payback period the more desirable Is the
project. Firms using this criterion generally specify the maximum acceptable pay back ground

Advantages of payback period

1. It is simple both in concept and application

2. It is a rough and ready method for dealing with risk
3. It is a sensible creation when the firm of passed with the problems of liquidity

4. Accounting rate of return

The accounting rate of return is referred to as the average rate of return on investment it is a
measure of probability which relates income to investment, both measured in accounting terms.

The measures employed in practice includes

1. Average income after tax

Internal investment

2. Average income after tax

Average investment

3. Average income before taxes and Interest Average

investment

Different types of expenditure

Expenditure increases the value of assets or reduces a liability. Three types of expenditure that a
business can in incur include

1. Capital expenditure
2. Revenue expenditure
3. Deferred revenue expenditure
Capital expenditure is one time cost the benefit of which is expected to be spread over multiple years

1. Capital expenditures
A business is set to have increased capital expenditure when the payment is made to acquire an asset,
the benefit of which would be spread over several years. Business invests in capital expenditure to
acquire new assets or to improve the performance of the exiting assets and is usually a onetime
expenditure. Investing in new assets or new technologies would increase revenue and bring substantial
benefits to the business in long run.

2. Revenue expenditures
Revenue expenditure refers to payments made or increased during the normal course of the
business the benefits of which are usually reserved within the same accounting year. Revenue
expenditures are mostly recurring expenses that are incurred by the business to generate revenues for
the accounting period. A company can increase revenue expenditure in one of the following two ways

32
 1. Cost of sales or direct expense
2. Operating expenses or on direct expenses Eg.

Advertising expenses,utility, office rent

3. Deferred Revenue Expenditure

Deferred revenue expenditure is less common composed to the first two but also contributes to the
increase in the value of asset in the balance sheet. Deferred revenue expenditure refers to an advance
payment for goods or services the benefits of which is to be received only in the future either during
current accounting period or over the subsequent accounting periods

As and when the benefit is received by the company, the asset value gets reduced by the amount of
benefit received and that amount is charged off in income statement of that according period

Formulation of capital expenditure

Formulation of capital expenditure is the first stage in the investment decision making and total project
life cycle. Formulation of capital expenditure is divided into several steps

1. Conceptualization
2. Formulation
3. Idea generation for investment
4. Data collection
5. Documentation
6. Feasibility study report
7. Project report and conclusion

Conceptualization or formulation

Conceptualization step involves pre formulation of ideas generated by owner relating to expansion,
renovation etc. Formulation stage involves examination of project from different aspects like technical,
commercial, economic and financial

Generation of investment proposal

It is the first stage in the formulation of capital expenditure. Investment ideas are generated related to
investment decisions for proposal of new units, expansion plans, diversification, modernization,
replacement or automation.

Problems create ideas

Identifying the problem itself is the guiding initial step for generation of ideas for investment decision.
Problems may relate to any production process, quality of the product, safety, pollution or
administrative matters or any other matter. To eliminate these problems investment proposals are
generated by the manager

Guiding factors for investment proposals

Once proposals are indicated to eliminate the problems, it provides with opportunities for
research and development

Along with that, the other guiding factors are national requirement/ government policies
33
environmental changes, Globalization, public/ private sector investments etc.

Changes in Government Policies

Changes in Government policies including industrial policies focusing the area in national interest. It
provides scope for setting up new projects/ expansions / diversification.

Data collection: It is the next immediate step once the idea about investment decision is finalized
.Data collection is necessary for firming up the concept. Data is collected on various aspects viz
technical, commercial, economic, financial etc.

Data collection objectives

Since the quality of data will affect the quality of decision, data collection process must be done
bearing the following objectives.

Data collected should be reliable

Agency collecting data must be reliable, capable and experienced

Documentation

Once the reliable data is collected on various aspects it is to be properly documented which is done by
preparing feasibility report and the project report

Feasibility report (FR) is prepared to support the investment proposal which evaluates feasibility of the
proportion different grounds via technical, economic etc.

Detailed project report (DPR) is the further step in firming up the proposal once (FR) is approved. It
details the plan of action.

Feasibility report

It will includes

a. Broad indication of the demand and availability of product

b. Site selection
c. Requirement and sources
d. Capacity fixation and plant set up
e. Cost/production/ profitability / requirement analysis etc.

Detailed project report includes

1. Site investigation
2. Capacity examination
3. Requirement and sources of service facilities
4. Plant/ plot etc selection
5. Detailed cost/ production/ probability/ requirement analysis etc.

Need for feasibility report and detailed project report

Feasibility report is necessary to take pre investment decisions on the basis of technical, commercial
34
and financial parameters

• It is the primary report for formulating investment

• Project report is necessary to take investment decisions as well as execution of project

• Project report is the complete document for investment decision making, approval
construction and thereafter to operate unit long life.

Feasibility report as well as detailed project reports are said as project profile.

Appraisal and evaluation of project

Project Appraisal is the process of assessing in a structured way the case for proceeding with a project
or proposal or the projects visibility. It often involves comparing, various options using economic
appraisal or some other decision analysis techniques. The project appraisal is complete process of
scrutiny and examination of various aspects of investment proposal

Examination is being done on technical, commercial economic, financial aspects related to investment
proposals. The objective behind it is that the proposals invested and implemented are most techno
economically viable projects.

The project appraisal will be carried out by the owner of the project who is the manager of project
department or his authorized expert. Banks and financial institution to ensure viability of the project
and reputation of the organization and to ensure repayment of advances

Appraisal by government agencies

The investment proposals of public sector companies and organization are appeared by
Government agencies. These agencies are project appraisal division in planning commission, pollution
control department of Ministry of forest and environment, Minister of finance department, Department
of public enterprises etc.

The objective behind is that the proposal invested and implemented are most techno
economically viable projects.

Appraisal and evaluation parameters

• Basic parameters
• General and miscellaneous
• Advanced investment appraisal parameter

Basic evaluation on parameters

Technical, Economical, Financial, Organizational and managerial

Technical parameters

• Manufacturing of process and technology

• Selection of process know how
• Fixation of plant capacity
• Selection of plant and equipment
• Process description and plant layout
35
 • General layout material flowchart and location
• Construction/work schedule
• Studying method inputs and utilities
• Product mix etc.

Commercial parameters

Main aim is to ensure that the proposal should be commercially sound.

Points to be considered are

1. Demand and availability of product

2. Site selection
3. Requirement and sources of raw material
4. Banking facilities

Economic aspects

• Proposal should be viable from national point of view

• The economy of the country must improve on execution of project
• Tangible gains may not be vital and necessary
Financial parameters

1. Capital cost
2. Financing of proposal
3. Production cost
4. Profitability analysis

A proposal with least payback period and high return on investment will be accepted

Organization aspects

The evaluation of the organization is necessary from two angles

a. Study of organizational strength for project execution

b. Study from angle of financial assistance being considered by banks/ financial institutions
Managerial aspects

• Sound project organization

• Competent, qualified and experienced project head
• Sound organizational set up
• Adequate staff managerial effectiveness and stability

General or miscellaneous parameter

• Project evaluation under risk and uncertainty

• Examination and review of non-financial aspects
36
 • Micro or macro parameters in project selection
• Market and demand analysis
• Options and flexibility
• Qualitative analysis
• Tax burden and project appraisal etc.

NB: please refer notes and problems in the topic capital budgeting in the study material of
financial management second semester unit III( page 67 to 78) of SDE

Estimation of cost of project

Project cost estimation is the process of predating the quality cost and price of the resources required
by the scope of project since cost estimation is about the prediction of costs rather than counting the
actual cost, a certain degree of uncertainty is involved.

Tools of estimating project cost

1. Analysis Estimating
2. Parametric Estimating
3. Three points Estimating
4. Bottom up Estimating

Among all analogous estimation is least accurate and bottom up estimating is the most precise

Analogues estimating

In this case, cost of project is estimated by comparing it with similar project in the past by looking into
the historical data. This depicts precedents that help define the future costs will be in the early stages of
projection

Parametric estimating

This is also referred as statistical modeling which uses historical data of key cost driver and then
calculate what those costs would be if the duration or another aspects of project is changed.

Three Point Estimates

This approach comes up with three scenarios. Most likely, optimistic and pessimistic ranges. These
are then put into an equation to develop estimation.

Bottom up estimating

In this method uses estimates of individual tasks and adds those up to determine the overall cost of
the project.

Processing for administrative proposal

Application for administrative proposal should be submitted to the authority component to accord it
accompanied by a preliminary report, by an approximate estimate and by such preliminary plans
information as to site and other details as may be necessary fully to elucidate the proposals and reasons
37
therefore.

Administrative proposal is the last stage in the investment decision making before execution of project
starts.

The approval is necessary for the original cost and for revised cost

Authority responsible for the sanction of the proposal may be chief executive of the plant, chairman
of the company. Board of directors, Ministry of finance for public sector companies or Public
investment board as the case may be

For simplicity and timely decision making powers are delighted to the subordinates

Delegation of power means granting of authority for taking financial decisions. Process are generally
delegated on the basis of levels of authorities

Standing finance committee and public investment board

SFC is appointed for Public Sector Company to approve the capital expenditure proposals while Public
investment board (PIB) is a body of government recommending capital expenditures of public sector
and Government corporations proposals having process beyond ministry

Documentation for approval

For the approval of original cost, investment proposals are divided into

• Major proposal and proposal for additions, modifications and replacements

• On the basis of value of investment proposals, documentation will be prepared.
The main documents includes management note, Chairman note, Board note, SPC notes and PIB notes
etc.

Contents of board note/ chairman note

It includes

1. Background of the proposal

2. Existing facilities
3. Existing practices of operation in case of ongoing organization
4. Constraints
5. Alternatives to remove such constraints
6. Justification of selected alternative
7. Provision for infrastructure
8. Detailed chart of capital costs
9. On approval of this note, the proposals are examined at corporate level

Approved for Public Sector Company

In case of public sector communes note ones adopted at corporate level is forwarded to concerned
ministry

After that it is put up for consideration of SFC for approval by the government, same
process will be followed
38
 SFC/PIB notes includes all the points of board notes and additionally contain the points like
evaluation of proposals from national point of view economic evaluation calculation of economic IRR
etc.

Process of approval at government level

● Pre SFC or pre PIB meetings will be held

● Respective notes will be prepared and submitted to concerned ministry
● If the proposal is agreed by all the members, the same is recommended for approval by cabinet
and President of Government of India.

Revised cost estimate

During the project completion the actual cost or revised cost of the project does not remain as
estimated which affects project cost and results in cost over run
If there is increase in cost over run beyond the limit, then approval for revised cost
estimate from the competent authorities is very mandatory

Note for approval of rescored cost estimate

Note for approval of chief executive or chairman (BOD) Government for revised cost shall include the
following

1. Revised cost of each activity shall be prepared including foreign exchange component if any
2. Committed costs which represents the value of finalized contract
Project profitability

Profitability of the project is defined as the cash balance or amount left from revenue after
subtracting all expense like operating employee salary etc.

To determine whether a company is profitable pay attention to the indicators such as sales
revenue, merchandise expenses, operating charges and net income

Project profitability is determined by calculating profitability index which is obtained by

dividing the present value of future cash flows by initial cost or initial investment of the project. The
initial cost include the cash flow required to get the team and project off the ground

&5 () )6+6'3 7,89 ).(:

&'()*+,-*.+/ 01234 =
;01*+*,. 01<38+=31+

Where PV= Present value of future cash flows

Profitability index is a decision making exercise that helps, evaluate whether to proceed profitability
with a project index or ratio > 1- project should proceed profitability index into < 1- project should be
abandoned.

Eg. A company invested Rs. 20,000 lakhs for a project and expected NPV of that project is RS. 5,000
lakhs
20,000,000,00 + 50,000,000,00
Profitability index = 1.25
20,000,000,00

39
This means the company should perform this investment project because profitability index is greater
than 1.0

Hence profitability index is a financial tool which tells us whether an investment should be accepted or
rejected

Profitability index greater than one indicates the present value of future cash inflows from the
investment is more than the initial investment there by indicating that it will earn profits

Profitability tool is a useful tool for ranking investment projects and showing the value. It can apply to
products, services, companies, management and created per unit of investment

Activity questions Unit 2

1. Explain the various components of a business plan

2. Define business venture
3. State the importance of business plan
4. Describe the needs of a business plan
5. Define market research. Clearly elaborate the need for marketing research
6. Describe the difference between operating plans and financial plans
7. State the type of market research techniques
8. Describe the applications of market research
9. Explain how an effective financial plans is implemented
10. State the importance of financial plan
11. Write short note on corporate planning. Elaborate the various process of corporate planning
12. State the elements of corporate planning
13.Describe the types of corporate planning
14. Explain strategic planning. State the classification of strategic planning
15.State the advantages of corporate planning
16. Explain investment decision, state the classification and importance
17.State the factors affecting investment decision
18. State NPV. IRR, Payback, ARR and capital rationing. Elaborate its signification in capital
expenditure
19. State the different types of capital expenditure
20. 20.Briefly explain has a capital expenditure is formulated
21. State the difference between project appraisal and evaluation
22.Describe the methods of estimation cost of project
23. Explain the methods for estimation of profitability of a project
24.Describe the process of administrative approval of projects

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 Unit 3

Execution of project

Project execution is the phase in which the plan designed in the prior phases of the project life
is put into action. The purpose of project execution is to deliver the project expected results
(deliverable and other direct out puts)

Execution and control phase is where the project team builds and produce the deliverable
required. It begins after the approval of project plans and the allocation of the resources necessary for
executing the tasks.

The execution and control phase is usually the longest phase in project management life cycle.

The chief purpose of project execution is to develop and produce the projects expected
deliverables that must be delivered on time and within budget and must meet the agreed upon scope
and fulfill customer quality requirements

The five phases of project management includes

1. Conception and initiation

2. Planning
3. Execution
4. Performance monitoring
5. Project close

Steps involved in project execution plan

1. Project definition and summary of projects

2. Drawing Preparation
3. Project programme
4. Cost plan, cost management and accounting procedures
5. Contracting and procurement strategy
6. Roles, responsibilities and authorities

Phases in project execution

1. Project design
2. Project scope management
3. Change management
4. Managing project performances
5. Documentation

Project execution phase is usually the longest phase in the project lifecycle and it typically
consumes the most energy and the most resources to enable to monitor and control the project
during the process, a range of management process.

41
 Flow chart of project execution

Selection of supplies and sub-contractors

Procurement and delivery control

Subcontractor meeting

Project group meeting

Data management

Site work

Need for project organization

Project organization is created when the project is big in size and subject to high standards of
performance. A project organization is solely responsive to the planning, design, development,
production, evaluation and support of a single system or product

Need for project organization

1. The project is an onetime task with well-defined specifications and the firm wants to continue
to concentrate on its regular activities
2. The project presents a unique or unfamiliar challenge
3. Successful completion of project is critical for the enterprise/ organization
4. Project is to be completed within the given time limit
Advantages of project organization

1. It does not interface with the existing organization

2. It provides concentrated attention that a complex project demands
3. It allows maximum use of specialists available in the enterprise
Limitations of project organization

1. Project manager has to deal with the persons of varied nature and interest

42
 2. Every one working in the existing organizations is allocated to the projects
3. Since work differs from project to project, experience gained in the project may not be relevant
to the other projects
4. Project work being temporary, there is quite uncertainty and insecurity of jobs for specialists
hired from outside
5. Decision making is very difficult because these are unusual pressures from specialist from
diverse fields

Definition of project organisation

Project organization is one in which a project structure is created as a separate unit or division
within a permanent functional structure, drawing specialists and worker from various functional
department who work under the overall leadership control and coordinating project manager to
complete projects of a technical or costly nature

Conditions requiring the creation of a project organization

1. Project is of technical nature requiring at most precession and accuracy

2. Project completion require huge cost
3. Time factor is the critical factor requiring project competition within a limited prescribed time

Flow chart of project organizational structure

President

Production Finance
Marketing Engineering R&D
Department Department

Project Production Finance Market

Engineering Research
Manager Group Group Group

The chart explains the permanent financial structure of organisation. The project manager for project I
has a project team comprising of personal drain from various functional department and working under
the leadership and control of project manager

Functions of project department

1. Development of project plan

43
 A project plan act as a guide to implement and monitor the work flow and progress. It is the
duty of the project department to ensure that the plan should be flexible and dynamic

2. Establish the project structure

It involves identification of the structure of the company, recognize the roles and positions
needed to complete the project

3. Directing the project lead individuals

Project department leads the individuals as a team in a unified manner

4. Organizing and motivating project team

5. Controlling time management
6. Cost estimating and developing budget of the project
7. Ensuring customer satisfaction
8. Analyzing and management of project risk
9. Monitoring the progress of the project
Types of project

Project is defined as the scientific and systematic study of a problem which is intended to be
resolved through the application of management concepts and skills evolving a work plan devised to
achieve a specific set of obligations within a specific period of time

Characteristics of project

1. It is an Instrument of change
2. It has clearly identifiable starts and end
3. It uses wide variety of resources and skill
4. It is dynamic in nature
5. It is concerned with production of goods and services
6. It envisages better utilization of resources by bringing about economy in expenditure
7. It contains an invisible nature of capital commitment once made
8. It enjoys benefits in future over a longer period

Types of projects

1. Manufacturing projects
2. Construction project
3. Management projects
4. Research projects
44
In the case of manufacturing projects the final results is a vehicle ship, aircraft, a piece of machinery
etc.

Example of consultation projects includes erection of buildings, bridges, road, mining and
petrochemical projects can be included in this group

Management of projects includes organization or reorganization of work without necessarily producing

a tangible result. Example would be the design and testing of a new computer software package,
relocation of companies head quarters

In research projects the objectives may be difficult to establish and the results are
unpredictable

Classification of projects

1. Quantifiable and non qualifiable project

Quantifiable project Eg. Industrial development Power generation Non quantifiable

project is the project where assessment is not possible
E.g. Health, education, defense projects etc.

2. Sectoral projects
a. Agricultural and allied sector
b. Irrigation and power sector
c. Industry and mining sector
d. Transport and communication sector
e. Social service sector

3. Techno economic project

Here the projects are again classified in 3 groups which is useful in the process of
feasibility approval
a. Factor intensity oriented classification
b. Causation oriented classification
c. Magnitude oriented classification
4. Financial Institution Project (Profit oriented classification)
a. New or green field projects
b. Expansion projects
c. Modernization projects
d. Diversification projects

45
 5. Service projects
a. Welfare or non commercial projects
b. Service projects
c. Research and development projects
d. Educational projects
6. Ownership and control based classification
a. Corporate projects
b. Partnership project
c. Sole proprietor project
7. Risk based classification
a. High risk projects
b. Medium risk projects
c. Small risk projects
8. Other classification
a. Renewal / reconstruction/ revamping projects
b. Addition/modification projects
c. Automation/ computerization projects
d. Energy conservation project
e. Infrastructure projects
f. Government projects
g. Export oriented unit projects (EOU)
h. Joint sector projects
i. International projects
j. Simple and major projects
k. Social projects
l. Import substitution projects
m. Strategic projects
n. Soft projects
Project administration

Project administration deals with the project management duties. Project administration
performs administrative functions concerned with project. Eg. Include calling contractors, making
appointments, ordering supplies, doing site visits and preparing report.

46
 Project administrators are administrative professionals who assist in the preparation, reporting
and analysis of projects under the supervision of a project Manager. They assist the Project manager by
performing many of the administrative tasks required for smooth running of the project

Project administration refers to the support, planning documentation, time recording, cost
monitoring billing and evaluation done during a project

It is an effective running and maintenance of project resources. Various activities involved in

project administration include managing human, material and financial resources of a project

Project administration delivers not only key performance indicates, but also a current overview
of the project status, progress, costs and budgets.

Importance of project administration

Project administration is necessary to

a. Avoid wastage as a project requires huge investments

b. Keep check the loss in any project as it will have direct and indirect impact on the society
c. Prevent failure in projects
d. Adjust with the changes of the projects activity in future.
e. Gets acquainted with the changing technology during project execution
f. Control the effects of changing economic conditions on the project
Benefits of projects administration

a. Project administration allows orderly and accurate purchase and

procurement of equipment, payment of bills and preparation of final reports
b. It facilitates making timely request for resources in order to avoid unnecessary breaks in the
implementation of the project
c. It allows sufficient time for carrying out technical and scientific tasks in the project
Finalization of strategies for project execution

A project execution strategy PES) is the strategic approach that will outline the execution of tasks to
complete the project. It is usually developed by the project leader along with one or more
representatives of the Client

Components of strategy execution

There are 4 ps of strategy execution in project management this includes

1. Port folio
2. Programme
3. Project
4. Performance management

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 Portfolio Management Process

A project portfolio is a collection of projects or programs that are grouped to facilitate effective
management of work to meet strategic objectives. Project portfolio management provides a consistent
way to evaluate, prioritize, select, budget for and plan the right projects those that offer the greatest
value and contribution to the strategic interest of the organization. When used effectively, project
portfolio management ensures that the projects are aligned with corporate strategies that the portfolio
contains the right mix of projects and the resource allocation is optimized. It bridges the gap between
strategic planning process and programme / project execution

Project portfolio management is accomplished though the application and integration of project
portfolio management processer

• Inventory: Process for capturing project data and organizing for portfolio analysis
• Analysis: Process for aligning projects to business strategy, examining business and project
risks and prioritizing projects in the portfolio
• Planning :Process for approving and funding the project business plans, allocating resources
and scheduling projects
• Execution :Process for executing the portfolio of programmes and projects by means of
budgeted resources allocation focus on getting the work done efficiently and effectively.
• Monitoring/control :Process for tracking a portfolio as programs/projects are executed,
detecting problems or changes in underlying premises and reporting to appropriate
management levels.
• Port folio improvement: Process for making necessary adjustments to portfolio (strategic
realignment, replanning) based on monitoring/control information and portfolio performance
review.

Programme/ project management processes

Programme /project management is the application of knowledge skills and tools and technique to
program /project activities to meet programme/ project requirements. Programme are collection of
projects that unify and leverage the contribution of projects in the portfolio, a programme of projects
may be established to meet a key strategic objective. Good project management is a fundamental
building block of good progress

Programme/project management is accomplished through the application and integration

programme/project management process

a. Opportunity assessment
Process for identifying and screaming programme/project ideas to meet the minimal criteria
based on alignment to strategy and feasibility

b. Initiation: process for formally recognizing new programme/projects, verifying feasibility and
strategic alignment and documenting business needs and objectives and customs requirements
c. Planning: process for stake holder agreement of program/project objectives, scope,
deliverables approach and plans for carrying out the program/project formally planed resourced
funded
d. Execution: process for carrying out the work planned, managing the scope ofwork,
coordinating the people and resources.
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 e. Monitoring/control: process for measuring programme project performances to identify
variances from the plan communicating status , assessing and responding to risks
f. Closing: process for assuring all required work is complete and program/project information is
captured including lessons learned.

Performance management processes

Making strategy work requires feedback about organizational performance and then using that
information to fine tune strategy, objectives and execution process itself. Corporate performance
measurement is augmented by business unit performance measurement, focusing on business unit
contribution to execute strategies. Portfolio programme and project performance measurement
follows and is logically linked to business unit performance measuring

Performance management is accomplished though the application and integration of

performance management process

a. Planning
b. Measurement development
c. Performance measurement
d. Data analysis
e. Performance reporting
f. Continuous improvement
Engagement of consultants

Project consultant is a multi focus expert involved in better planning decision making and
long team goal achievements of the project. They typically provides over sight and leadership in
executing projects from planning to completion

Project consultants contribute their operational, strategic or technical expertise to projects.

They collaborate with clients to determine project parameters, develop project plans in line with
business objectives and assign project tasks and resources.

Project consultant is a general position that encompasses a large scope of work across various
industries. Project consultants offer their expertise on a project to their employee or clients to help
them achieve their business goals. Project consultants are experts in their chosen field. Since this
portion is so broad, projects consultants can find employment in virtually any industry.

Duties and responsibilities of project consultant

1. Evaluate project parameters

2. Analysis project strength and area needing improvement
3. Describe a project plan based on client needs
4. Delegate project tasks to employs
5. Test and tweak project solutions to perfection
6. Present plans and results to project stake holding
7. Play the role of advisor, planner and leader in working with internal and external clients to
devise and implement solution in project area.

49
Project consultant skill

Project consultants must be expects in the Principles of project management as they define the scope
and tasks of each projects. Performing basic cost calculations and analysis is another technical skill
project consultants call upon often.

Skills needed for project consultant includes

1. Interviewing clients to determine the specific project needs

2. Defining project parameters based on Client needs
3. Analyzing current project strength and weakness using SWOT analysis
4. Creating specific project plans based on the principle of project management
5. Delegating tasks to employees using project management software

Challenges in the engagement of project consultant

1. Limited experience and knowledge of project consultant

2. Consultant fee Vs quality
3. Conflict of interests
4. Clients extended expectation

Preparation of technical specification

A technical specification is document that explains what a product or project will do and how
will the goals be achieved.

A project technical specification is a detailed description of activities for any given

development project. It lists goals, functionality and any other information that is required for the
developers to successfully complete the project.

Technical specifications have immense benefits everyone involved in a project. A technical

specification is a straight forward and efficient way to communicate project design ideas between a
team and stake holders. The whole team can collaboratively show a problem and create a solution

Investing in a technical specification ultimately results in a superior product. Since the team is
aligned and in agreement on what needs to be done though the specification, a big projects can
progress faster. A specification is essential in managing complexity and preventing scope and feature
creep by setting project limits. It sets priorities there by making sure that only the most impactful and
urgent parts of a project go out first.

Contents of a technical specification

Technical specification may not be standard even within companies divisions, terms and even
among engineers on the same team. Every solution has different needs and we have to tailor our
technical specification based on the project.

These are seven essential parts of a technical specification

1. Font matter: includes title author(s), team, Reviewer(S) created on, last updated, ticket, issue
50
2. Introduction

a. Overview, problem description, summary

b. Glossary or terminology
c. Context on back ground
d. Goal of production and technical requirements
e. Future goals
f. Assumption
3. Solutions

a) Current or existing solution/ design

b) Suggested or proposed solution/ design
• Dependencies of current solution
• Data model/ scheme changes
Scheme definition
New data models, modified data models
Business logic
API changes, flow charts, error states, conditions that lead to errors and failures,
limitations
Presentation layer: user requirements mobile concerns, error handling

c) Test plan
d) Monitoring and alerting plan
e) Realize / roll out deployment plan
f) Roll back plan
g) Alternate solutions / design
4. Future considerations

a. Impact on other teams

b. Third party services and platform consideration
c. Cost analysis
d. Security consideration
e. Privacy consideration
f. Regional consideration
g. Accessibility consideration
h. Operational consideration
i. Risk
5. Success evaluation
a. Impact
b. Metrics
51
 6. Work
(a) Work estimate and time line

(b) Prioritization

(c) Milestones

(d) Future Work

7. Deliberation

(a) Discussion

(b) Open question

End matter

Execution of project condition

An agreement between two or more parties to accomplish a certain goal in a certain way is
called project contract. Project contacts are important to have in the event of a dispute.

A project contact has three distant stages

1. Preparation
2. Perfection
3. Consummation
Preparation or negotiation begins when the prospective contracting parties manifest their interests in
the contract and ends at the moment of their agreement.

Types of Project contract

Contract types are several methods between contract parties, owner and contractor, depending
on project environment and project approaches. The project execution plan (PEP) and procedures are
developed based on the actual terms and condition.

There are two main types of contract a fixed price and a reimbursement contract and can be
decided into

(a) Fixed price (Lump Sum) contract

(b) Cost plus (Reimbursable) fee contract
(c) Incentive contract
(d) Unit price contract
1. Fixed price contact (Lump sum contract

It is the type of contract where the contract amount does not depend on the resources used or time
expended
52
Lump sum contract known as fixed price contract is a contract with single lump sum price for
all of the works and the contractor is responsible for completing the project within the agreed
fixed cost set forth in the contract. If the contractor completes the project under the fixed total
cost, then the contractor makes additional profits from the project. The lump sum contract is
normally used in the contribution industry to reduce the contract administration costs. The
lump sum contract is the most recognized agreement form on simple and small projects and
generally appropriate where the project is already well defined in scopes and responsibilities
of both parties. The lump sum contract can include incentives or benefits for early completion
or can also have penalties called liquidated damages for a late completion.

b)Cost plus ( Reimbursable contract)

It is a contract where a contractor is reimbursed by the owner for the actual cost of
performing work plus additional payment to allow for contractors over head and profit in
accordance with the contractor. The owner and contractor agree and specify what is considered
the cost item and the reimbursable expenses to the contractor and the contractor’s fee that the
contractor will retain for project and overhead. The cost plus fee contract is an adequate for the
experienced owner in the construction industry. under the terms and conditions of contracts,
complete records of all time and material spend by the contractor on the work must be
maintained.

3) Incentive contract. It is one of the contract types that is an owned to make a additional
compensation to a contractor based on contractors execution performance of cost, schedule,
quality and safety according to the contract terms and conditions. There is too possible
incentive contracts, fixed price incentive contracts. Fixed price incentive contracts are
preferred when contract costs and performance requirements are reasonably certain.

4) Unit Price Contract: It is a type of contract based on estimated quantities of items

included in the project and unit prices (hourly rates ,rate per unit work volume etc). In general
contractors overhead and the profit are included in the rate. The final price of the project is
dependent on the quantities needed to easily out and complete the work.

In general this contract is only suitable for well known resources involved project but
unknown quantities at the time of contract which will be defined when the design and
engineering or contribution work is completed.

Activity questions (Unit 3)

1. Explain the concept of execution of projects. Describe the steps involved in project
execution
2. What is project organization State the need for project organization
3. State the advantages of project organization
4. State the limitations of project organization
5. State the definition of project organization
6. Describe the flowchart/process of project organization structure.
7. State the functions of project department
53
8. Describe the types of project
9. Explain the classification of projects
10. Write short notes on project administration? State the benefits of project administration
11. Describe the finalization of strategies for project execution
12. State portfolio management process
13. Describe the finalization of strategies for project execution
14.State the components of strategy execution
15. Describe the project management process
16. Write short notes on engagement of consultants what are the duties of project consultants
17. Explain the different types of project contract
18. Define technical specification of project? Describe the method of preparation of technical
specification.
19. Describe the contents of technical specification
20. .Explain the method of execution of project contact
21. Define project sanction letter a contents of sanction letter
22. .Write short notes on project finalization.

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 Unit IV

Project Implementation, Monitoring and control

Project implementation is step 5 in project management. This stage is also called project execution.
This stage is the actual start and execution activities on the project. This step mainly involves setting
up of manufacturing facilities. This follows with the monitoring of the progress under various
activities.

According with this, there are special jobs in project implementation such as project
organization, project management site supervisors and to follow the best norms achieved so far.

Traditional project management process included only project implementation phase.

Therefore the traditional description of the project life cycle is the actual screen of project
implementation.

Project implementation phase can be called as work break down structure A work break down
structure (WBS) is a task oriented family tree of activities which organizes, defines and graphically
displays the works to be accomplished.

The important stages or work break down structure of project implementation are described below

1. Clearances and approval of government analysis

2. Project and engineering design

3. Negotiations and contracting

This stage is concerned with negotiating and drawing up of legal contracts in respect of project
financing, acquisition of technology, construction of building and civil works, provision of
utilities, supply of machinery and equipment, follow up, deployment of man power by the
contractor, handing over the site to contractor, finalization of sources of financing for the
procurement of fund etc.

4. Construction: This stage is concerned with the site preparation, construction of building
structural fabrication, civil works, erection and installation of machinery and equipments,
preliminary acceptance test and performance guarantee test etc.

5. Training: This stage is connected with the training of engineers, technicians, workers and
transfer of responsibilities. This phase is also called clean up phase or Termination phase.
6. Plant commission: This is the start up of the plant. This is concerned with the
commencement of commercial production.
To be an effective in the conception and definition phases a WBS must.
a. Establish an information structure for describing project scope
b. Serve as an effective means of communication to integrate the objectives and activities of
all internal and external organization involved in the project.
c. Represent the planning of the project step by step
d. Separate sequential and parallel activities assigned to different group who will schedule
measure and control their own performance
e. Reflect the procurement strategy during the various stage of the project life cycle.
To be an effective in execution a terms and transfer phase, a WBS must have

55
 a. Flexibility and expandability
b. Early implementation
c. Universal application
There are project segments which need regular watch and monitoring viz

a. Contractor activities
b. Project time schedule of completion
c. Approved cost of project
d. Physical progress
e. Financial progress
f. Quality of consultation
g. Guarantee Parameters
h. Reports review and rectification

Project management organization

A sound organization for implementing the project is critical to its success. The characteristics of such an
organization are

1. It is led by a competent leader who is accountable for project performance

2. The authority of the project leaders and his time commensurate with their responsibility
3. Systems and methods are clearly defined
4. Rewards and penalties to individuals are related to performances

Project organization is a temporary thing. It will only exist from projects stat until its end. All the
project team members coming from different organization of the part of organization. They will all
have a temporary assignment in the project.

An organization structure consists of activities such as task allocation, coordination and

supervision which are directed towards the achievement of organizational aims. It can also be
considered as the viewing glass or perspective though which the individuals see their organization and
its environment.

The project organization should be constructed in such a way that the strategy can be
implemented within the environment of the project. The project team that does the work should be as
small as possible. The project organization can be used to satisfy some wishes of stoke holders to
create the much needed win win situation

Different types of project organisation structure

1. Functional structures

A functional organization is the most common structure. It works best in small organization in which
the different sections are geographically close together and which provide only a small number of
goods and or services. In a functional structure, the organization is broken into different sections based
on specialty

For example, there may be one area for sales, one for customs service and one for the
supervisors who deal with escalated problem. The project manager role is to ensure smooth execution
of the processes and projects. The functional manager has the most power and makes the final
56
decision.

Advantages of Functional structure

1. The role of functional manages which mean there is only one boss
2. This structure reduces or prevents conflicts of interest and make easier to manage specialized.

3. Projectised structure

In this structure, all the work is located as a project. The project manages has complete control,
unlike in the functional structure and all team members report directly to the project manager.
Sometimes these team members are permanent and sometimes they are hired as temporary worker
to help with the project until its completion. If the organization takes on a large project, it will have
all necessary resources available to sustain the project and will act a small self- contained company

Advantages of Projectised stricture

1. Project managers opportunity for carrier progression

2. Since good communication exists within the project work, the team members tend to be more
communicated and excel in their responsibilities.

Disadvantages of Projectised structures

1. Since the team brakes up and disperses after the completion of project, there are no long team
goals sense of job security for the rest of workers
2. Organization has to essentially clone the same, resources fix for each project

3. Matrix structures
The matrix structures combine both the functional and projectised structures. Each team members
has two bosses, they report both to the functional manager and the project manager. If the matrix is
strong, the power resides more with the project manager. If the matrix is weak, the power resides
more with the functional manager. The key is to find a balance in which the power is shared equally.
Because of its complexity, this type of structure can lead to problems if it is not used careful and
properly. Good communication is essential for success.

Advantages of matrix structures

1. Efficient of resources because of ease of access

2. This structures also demonstrable efficient communication both vertically and horizontally
3. Once the projects have ended, the team members are like to receive a job elsewhere in the
organization

Disadvantages of matrix structures

1. Structure is more complex which is difficult to manage

7. Free form organizational strictures (FFO)

Hence the organization is an open system and the basic task of a manager is to facilitate
changes in the organization. This requires greater operational flexibility and adaptability.

57
Importance of project management organization

Project organization is created when the project is big in size and subject to high standards of
performance. A project organization is solely responsive to the planning design, development,
production, evaluation and support of a single system or product

A project organization is time limited ,directly oriented to the life cycle of that system and
commitment of varied skills and resources required is purely for the purpose of accomplishing system
tasks

The project team is created consisting of specialists from different departments of the existing
organization. The specialists of each department get the services and support of its members as and
when required

Need for project organization

1. The project is a one line task with well defined specification and firms wants to continue to
concentrate on its regular activities
2. The project presents unique or unfamiliar challenge
3. Successful completion of the project is critical for the enterprise
4. The project is to be complemented within the given time limit.
Importance of Project management Organization

The importance of project management organization is large at one time or other in implementing new
undertakings. Project management organization can be focused on business advantage by timely
achievement of goals, optimal resource utilization and information based decision making. Project
management organization can apply compressed product life system. PMO can actuate knowledge
explosion, corporate downsizing, increased customer focus. It ensures what is being delivered is
right and will deliver real value against business opportunity. Good project management organization
ensures that the goals of the project closely align with the strategic goal of business, project
management bring leadership and direction to projects. It provides leadership and vision, motivation,
removing road blocks, coaching and inspiring the team to do their best work. It also ensures clear lines
of accountability.

Project management organization ensures proper expectations are set around what can be
delivered, by when and for how much.

Project management organization estimates budget and project delivery timeless can beset that
ambitious or lacking in analogous estimating insight from similar projects.

Project management Organization ensures the quality of whatever being delivered. Project
management organization support and buy in of executive management, tasks are under estimated,
schedules tightened and process rushed.

Project management organization tested the output quality of the project at every stages.

Project management Organization ensures risks are properly managed and mitigated against to
avoid becoming issues.

Project management organization ensures right people to do things at the right time and ensures
project process is followed throughout the project life cycles.

Project management organization is important because it ensures a project progress is tracked

58
and reported properly. Also project management organizations learn from the success and failures of
the past. Project management organization delivers the return on investment and that make happy
clients.

Project management organization learns a new thought process that helps organized thinking
&structural approach. Hence project management organization is essential to meets the needs of
executing of project.

Computer based Project management

Computer based project management is required for information system and is referred as PMIS
(Project management information system)

PMIS is typically a computer driven system to aid a project manager in the development of the
project. A PMIS can calculate schedules, cost, expectations and likely results. The goal of PMIS is to
automate organization and provide control of the project management process.

A computer based project management system though software comprising

of

1) WBS creating tools

2) Calendaring features
3) Scheduling abilities
4) Work authorization tools
5) EVM Controls
6) Quality control charts, PERT Charts, GANTT Charts and other charting features.
7) Calculation for critical path, EVM, target dates based on project schedule.
8) Resource tracking and leveling
9) Reporting functionality.

Computer based project management information systems used by the upper and lower
management to communicate each others. It is an automated system to quickly create, manage and
stream line the project management process. In the develop portion of the project, PMIS can be used to
help the project management team create the schedules, estimates and risk assessment and to gather
feedback from stake holders. This also includes a configuration management system which is an
approach for tracking all approved changes, versions of project plans; blue prints, software numbering
and sequencing. A configuration managed computerized system helps to manage.
1) Functioned and physical characteristics of the project deliverables
2) Control, track and manage any changes to the project deliverables
3) Tracking changes within the project
4) Allow the project management team to audit the project deliverables to confirm conformance
to defined criteria for acceptance.

During the close of the project, Project management computerized systems to review the goals to
check of the tasks were accomplished. Then it is used to create a final report of the project close.
Project management computerized system for information used to plan schedules, budget and execute
work to be accomplished in project management. The system should support the change control
procedures defined in the project.

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Microsoft Project

Microsoft project is considered by for planning the project planning software. It act at building
professional diagrams and chart. Draw back includes the lack of dash board, which allows the project
manager to see the current project at once. Document tracking could be better. It doesn’t allow tracking
of different versions of the same document, meaning that different team members could unwittingly be
getting information from out dated document versions.

PROJECT Kick start 5

Project Kick start 5 integrates with application like power point, Excel, Word or outlook. Its
perfect for basic project planning. Its best features include the plan creation wizard, a question / answer
process and sample projects.

PMIS software support all project management knowledge area such as Integration
management, Project scope management project time management, project cost management, project
quality management, Project human resources management. Project risk managements, project
procurement management and project stake holder management. It manages all the stake holders in a
project such as project owner, client contractors, sub contractors in house staff ,workers, managers etc.

Project management information system (PMIS) help plan, execute and close project
management goals. During the planning process, project manager use PMIS for budget frame work and
estimating costs. The project management information system is also used to create a specific schedule
and define the scope base line. At the executing of the project management goals, the project
management teams collect information into one data base. PMIS is used to compare base line with the
actual accomplishment of each activity, manage materials, collect financial data and keep a record for
reporting purpose. During the close, the project PMIS is used to review the goals to check if the tasks,
were accomplished. Then it is used to create a final report of project close.

Completion of project and post project Evaluation

Every project needs to end and that’s what project completion is all about in the last phase of
the project life cycles. The whole point of the projects to delivers what was promised. Once that
happens, project can end. In the closure phase of the project, final deliverable will be provided and
release project resources and determine the success of the project.

1. Analyzing project performance

Determine whether the projects goals were met (tasks completed on time and on budget) and
the initial problem solved using a prepared check list.

2. Analyzing team performance: Evaluate how team members performed, including whether
they met their goals along with timeliness and quality of work.
3. Documenting project closure: Make sure that all the aspects of the project are completed with
no loose ends requiring and providing report to key stake holders.
4. Conducting Post implementation reviews
Conduct a final analysis of project taking into account lessons learned for similar projects in
the feature.
5. Accounting for used and unused budget
Allocate remaining resources for future projects.

Post Project Evaluation

Post project evaluation is defined as the assessment of project after its completion, analyzing
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the actual as against the projected estimate in respect of time, cost and quality specification. The
evaluation includes investigation of the variances per constituent of the project objectives leading to
the assessment of the overall situation.

Post project evaluation is the audit and assessment of the actual as against the project budgets,
based on which the project was launched and completion.

In India, evaluation of many government projects is carried out by Programme Evaluation

Organisation. (PEO)

Objectives of Post Project Evaluation

1. The objective of evaluation of the project affects completion is to learn from such experience.
The fundamental objective is the possible use of valuable knowledge and experience gathered
from the completion of project.
2. The project owner as well as the project management is on the completion of the project,
equipped with a store of information the invaluable data base which can be retained for
possible future usage.
3. The financial institution may find from the post project evaluation, the weakness in the project
appraisal at the initial stage and for or lack of necessary monitoring by itself during the
implementation process and thus modify its lending policy for the future.
4. A contractor may achieve his scheduled target but in doing so, suffer financial loss due to
inadequate in his bidding and by post project evaluation, he can make use of his experience
and take necessary safe guard measure in his tender for the projects.
5. The need for assessment of the situation on completion of project as such evaluation may
reveal the need for some corrective measures.

Process of Posts Project evaluation

The process of post project evaluation can be carried out in two phases.
1. Soon after completion of the project
2. After the lapse of about two years since the completion of project. Case I
Evaluation soon after completion of project

The process of evaluation can be carried out by questioning method and it includes

a) What has happened in actual

b) How do the actual stand as compared to projected estimates
c) What are the areas showing vacancies
Case II After the lapse of about two years since the completion of project

Question include

a) Whether the goal with regard to the technology envisaged is achieved. Eg: quality,
capacity of the plant

b) Reasons for short fall if any which includes deficiency in plant lay out, machineries installed,
standard of inputs etc.
c) Whether the market share is envisaged in the project is being achieved? If not, what the reasons
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 are for missing the target.

The process of evaluation also aims towards the assessment of necessary corrective measures.

Observations in the post Projects Evaluation

Observations may be graphed in two categories

1) Success in project implementation

2) Failures in project implemented

The success revealed in the evaluation is measured according to the different perspective of the
concerns interested in the project and can be identified

1. Project Owner: Financial performance of the project is the prime yard stick to measure the
success of the project for which project owner declares based on the success factor on financial
performance.
2. Financial Institution
The financial institution arranging long term finance for the project will measure the success in
accordance with the timely redemption of loan and interest from the project as per the teams of
lending
3. Project management
Project management will measure the success considering the project implementation as
against the project adjectives. The project management is interested on having the actual cost
incurred. Time spends and technical specification achieved within the project budgets agreed
and approved.
4. Project Contractor
To the contractor the success in project implementation is reflected by the financial benefit
derived from the services rendered in the execution of the project
5. Society at large
The success in implementation of a project will be measured by the society, particularly
representing the residents surrounding the project by the services rendered and / or convenience
engaged from it.

Eg: In health, education ,road, bridge etc

Consequence of the delay in the projects.

1. Over run of the actual cost compared to projected cost.

2. Lack of sufficient coverage for inflation and or currency exchange rates, possible unfavorable
changes of exchange rate
3. Technological change leading to obsolescence in technology
4. Problems in authority, responsibility communication and coordination among team members.
Completion of Projects and handing over to operation

Project handover is a process of transition not a date and should not only be initiated once a
project is completed or approaching completion.
When one or more components of a project transfer from one person to the next it is called
project hand over. Project handover is a pivotal time in a project that can either make or break its
success.

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 Check list of project handover plan

1. Identifying and managing key stack holders including the group who will receive the handover
2. A clear date for handover of the project
3. Communication plan that starts early in the life of the project and induces the target group
4. Change management issues and how they will be handled
5. Getting target group involved as early as possible including some one being on the project
team who will act as a change agent.
6. Developing appropriate training for this group or ensuring it is included in the hand over plan
7. Clear risk management
8. Having clear roles for the recipients in the dept taking on the new work.
Closure of contracts

Contract closure is the part of close project process described in integration. Contract closure is
done when a contract ends and when a contract is terminated before the work is completed project
closure process is important because lessons learned meeting happen with the client and another
with the internal team.

Project closure process is important because

a) Confirmation of objectives being meet

b) Sense of closure confirming that objectives have met to the clients satisfaction gives the client
and project team a sense of accomplishment and closure
c) Improving future engagements
d) Capturing the knowledge
e) Trying up loose ends
f) Rewarding the team

The tools and techniques used for close project includes

1) Management control
2) Audit
3) Legal and Procurement
4) Legislation and regulation

Data analysis techniques used in project close out includes

1. Document analysis: This is used to extract information to the record in lessons learned
2. Regression Analysis: The technique analyses the inter relationship between different project
variables that contributed to the project outcomes to improve performance on future projects.
3. Meeting includes
a) close out reporting meeting
b) customer wrap up meeting
c) lessons learned meetings

Closure phase of contract is characterized by a written formal project review report containing the
following components. A formal acceptance of final product by the clients , weighted critical
63
measurements rewarding the team, list of lessons learned releasing project resources. No special tool or
methodology is needed in closure phase.

Competition costs of projects

Completion cost of the project is the expected total cost of completing all work expressed as
the sum of the actual cost to date.

The purpose of completion cost of project is to make the site management aware of the
allowances and the costs and to identify the strong or weak commercial aspects of the project so as to
enable the site and department heads to take appropriate management decisions in time to improve
commercial performance.

The basis of completion costs of projects includes

1. Anticipated final account. This must be prepared in detailed with the effect of variations.
2. Anticipated final costs: The labour, plant and general expenses (GE) resources will be
provided by the project manager and costed by QS permanent material and subcontract
resources will normally be in line with the quantities of work on the estimated final
account. Temporary works costs need careful discussion and consideration between project
managers and project QS.

Cost to complete the project is a forensic analysis of the current, in progress job status of an
ongoing construction project combined with a detailed evaluation of the remaining work and budget to
complete it.

Financial closure of project means that all sources of fund required for the project have been
tied up. A key milestone in project implementation, financial closure may take a long time particularly
for infrastructure projects, because several things have to be sorted out to make the project structure
fundable.

Financial closure of projects is achiever when,

1. Suitable credit enhancement is done to the satisfaction of lenders

2. Adequate underwriting arrangements are made for the market related offerings
3. Resources of illness of promoters is well established
4. Process is started early and concurrent appraisal is included if several lending agencies are
involved

Capitalization of assets of projects

When the project is complete and the asset is built and ready to be placed in services, the
associated costs can be send to asset management where assets depreciation begin. This process is
termed as capitalization in project assets.

Capitalization of project assets is an accounting method in which a cost is included in the value
of an asset and expensed over the useful life of that asset, rather than being expensed in the period, the
cost was originally increased.

Capitalizing a project means recording certain costs as an asset. Assets increase a companys
value and economic wealth as reported on its balance sheet.

Companies can typically record all costs associated with bringing a project to operation as an
asset. For example, the acquisition costs, delivery charges, Installation fees and other setup costs fall
64
under capitalization rules. Other projects such as building facilities or building can capitalize other
costs such as direct labour or materials acquisition associated with the project. capitalizing these costs
allows companies to avoid reporting than as expenses creating an immediate reduction in net income.

Many projects that result in long term assets being value to multiple accounting periods.
Companies capitalize these projects to reflect the value added using the assets however will result in a
period cost called depreciation. This represents the amount used from each asset owned by a company.
Companies can use a variety of methods to determine depreciation.

Monitoring and control of projects

Monitoring and control process continually track, review adjust and report on the projects
performance. It’s important to find out how a projects performing and whether is on time as well as
implement approved changes. This ensures the project remains on track on budget and on time.

The purpose of project monitoring and control is to provide as understanding of the projects
Progress so that appropriate corrective actions can be taken when the projects performance deviates
significantly from the plan.

Project monitoring Cycle

Establish operational schedule

Measure and report progress

Compare actual with planned

Determine effect on completion

Plan / Implement correction action

Update operation schedule

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Inputs in project monitoring control process include project plan and progress reports that contain data
collected from the project team. Where progress deviates significantly and this usually means outside
of a predetermined tolerance limit, it is important to identify the underlying causes and take corrective
action.

In the monitoring process of project get the data about current status of the project. Measures and
compare with baseline plan, highlight any deviation make a projection based on current data.

Assess and replan to be made to decide whether the corrective action is necessary. If so plan
document and take corrective actions.

Monitoring and controlling project activities

1. Involves tracking, reviewing and regulating project progress

2. Includes status reporting, progress measurement and forecasting
3. Report on scope, schedule cost resources, quality and risks
4. Control project and project document change
5. Includes control of scope, schedule, costs and risk
6. Formalizes acceptances of deliverables
7. Records quality control results.
8. Implement risk treatment Plans and Action
9. Administer Suppliers

Tools and techniques used in project monitoring and control includes

1. Expert judgment
2. Analytical Techniques
3. Project management information system
4. Meetings

Following are the outputs of monitoring and control project work

1. Change requests
2. Work performance reports
3. Project management plan update
4. Project document update

Different analytical techniques commonly used in project management to forecast potential

outcomes based on possible variations of project or environmental variable and their relationship
with other variable. This include

1. Regression analysis
2. Grouping method
3. Root cause Analysis
4. Forecasting methods
5. Failure mode effect analysis
6. Trend analysis
7. Earned value Analysis
8. Variance analysis
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Techniques to evaluate project performance

1. Earned value Analysis

Objective of EVA includes

1. To measure the progress of an activity, deliverable and or project by comparing the actual
value to planned values, there by indicating the probability of meeting the scope, time and cost
budget of the activity ,deliverable and for project and the need for any corrective actions
2. To analysis the project performance ,calculate the vacancies for schedule and cost and indicates
where the project stands in comparison to the estimate calculated earlier for this point in view
money

BAC = Project Budget

Ac C Actual Cost

Mone y

PV (Planned Value ) Cost Variance

Schedule
EV(Earned Value) Variance

Monitoring date Planned Time

end

EVA formulas Result

Cost Variances CV=EV-AC Positive Value is good Negative value is unfavorable

Value <1.0-Below par performance Value >1.0-

Schedule Variances SV=EV- PV Above par performance Further away the ratio is
from 1.0 the
more urgent need to investigate

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 Cost performance Indicator
>1= project efficient
CPI=EV
ÆC
Compares performance to <1=Project inefficient
Actual cost
Scheduled performance
Indicator SPI
Indictor SPJ SPI=EV/PV >1= project ahead of schedule
Compares work performed to work <1=Project behind schedule
performed

Estimate at completion (EAC) EAC=BAC/CPI

Estimate to complete (ETC) ETC=(BAC-EV)/CPI

Critical ratio

The critical ratio is the product of CPI and SPI. It is also called cost scheduled index CSI. It is
an indicator of overall project health

CR=CPI×SPI

A CR of 1.0 indicates overall project performance is on target.

This may result from both CPI and SPI being close to target. If one of the indicates suggest
poor performance, the other must be indicating good performance. This allows same trade off to reach
dispersed project goals.

3) Line of balance

Line of balance (LOB) scheduling Techniques was originated by Good year in early 1940s for the
programming and control of both repetitive and non repetitive projects.

The line of balance also known as respective scheduling method (RSM) location based
scheduling vertical production method or vertical scheduling method.

Line of growth LOB is a method of showing the repetitive work that may exist in a project as a
single line on a graph.

A LOB chart shows the rate at which the work that makes up all the advices to be undertaken
to stay on schedule.

The purpose of LOB method is to ensure that many of the activities of a repetitive process stay
in balances that is they are producing at a pace which allows an even flow of items produced through
a process and at a speed compatible with the goals set forth in a plan.

4) Graphical Evaluation and Review Technique (GERT)

Graphical evaluation and review technique, commonly known as GERT is a network analysis
technique used in project management that allows probabilistic treatment of network logic and
estimation of activity duration.

Advantage
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 1. GERT approach address the majority of the limitation associated with PERT
/CPM technique. GERT allows loop between tasks.
2. Allow for conditional and probabilistic treatment of logical relationship
3. GERT considered both deterministic and probabilistic branching unlike PERT. It incorporates
both in the network analysis.
4. GERT allows additional branching features not provided by CPM or PERT.

Parameters for monitoring and control

1. Financial ratio method

2. Cash flow Analysis
3. Score index method
4. Decision Trees
5. Checklists
6. Analyze when and why the projects should be used, its potential value, estimation costs,
benefits, resources etc.

7. How will they work- use of specific techniques, how will it last after a few months?

Techniques in project monitoring and control

Networking Techniques

Network scheduling techniques provide the mechanism necessary to conduct a systematic,

disciplined and thorough review of what will be required to conduct and complete a project. Such an
approach is essential for large, complex projects, and is also useful in managing smaller, less
complicated projects.

The different types of network scheduling techniques have many similarities. However each of
them provides different types of information that can be useful to managers in evaluating progress
developing alternatives and managing the allocation of resources within their projects.

Network techniques help managers to plan when to start various tasks to allocate resources so that
tasks can be carried out within schedule.

The network diagram may be defined as a graphical representation of the project activities showing
the planned sequence of work.

There are various terminologies which is used in network technique.

1) Event or node: An event is a specific instant of time which marks the start and end of the
activity
2) Dummy Activity: It is that activity which is accomplished in Zero time and no consuming
resources.

Critical path method (CPM)

It was developed by J.E.Kelly of Remington Rand and M.R.Walker of DuPont to aid on

scheduling maintenance shutdowns in chemical Processing plants.

A path is a sequence of activities that leads from starting node to the finishing node. The
critical parts with the beginning events, terminates with the end events, and is marked by events
69
which have a zero slack, no cushion. Other paths are slack paths with same cushion.

The critical path is the longest path from the beginning event to the end event. Since the end
can be reached is project completed, only when this longest path is traversed, the minimum time
requested for completing the project is the duration on critical path. Thicker line is used to demonstrate
the critical path.

Activity floal

Activity float analysis provides the information on the margin on allowance available for the
commencement and completion of various activities. Activities with zero slack value represent
activities on the critical path.

These types of activities float identified are

1. Total float
2. Free float
3. Independent float
Total Float: Total float is usually referred to as simply float or slack, is the amount of time an activity
can be delayed beyond its earliest possible starting time without delaying the project completion if
other activities take their estimated duration

EOT(i) Gdij
Total float for activity (i-j) = LOT(i) G EOT(

LOTiis the latest occurrence of events ( i)

EOTi Early occurrence of events ( i) dj
GDuration of activity (i G j)

Free float: Free float is the amount of time on the basis of which an activity can be delayed without
delaying the early start of successor activity

Free float for activity (ii G j) OT(i) – EOT(

EOT( EOT(j )G d(i G j)

Independent float

This indicates the time span by which the activity ( i G j) can be expanded or shifted if for the
event (i) LOT and for the event J, EOT shall be maintained. A shifting of activity in this area has no
influence on the further progress of project. Independent float is taken as zero if negative.

The independent float for activity (i G j)

(EOT)i G (LOT)i G d(l G j)

Scheduling

Scheduling the project is the act of producing time table for project showing when each activity
as to begin and finish. The critical activities schedule themselves, but it is necessary to decide when all
the non-critical activities are to take place. In other words there is no flexibility in scheduling the
critical activities, but floats available with non-critical activities provide flexibility in scheduling them.
The choices available in this respect is bounded by two schedules.

● Early start schedule

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 ● Late start schedule

Early start schedule

In this case, refers to the schedule in which all activities start as possible

.In this schedule, all events occur at this earliest because all activities start at their earliest
starting time and finish at their earliest finishing time.

There may be time lags between completion of certain activities and the occurrence of events.

All the activities emanating from an event begin at the same time.

The early start schedule suggests a caution attitude towards the project and a desire to minimize the
possibility of delay. It provides a grater measure of protection against uncertainties and adverse
circumstances.

Late start schedule

The late start schedule refers to the schedule arrived at when all activities started as late as possible. In
this schedule

1. All events occur at their latest because all activities start at their latest finishing time.
2. Some activities may start after a time lag subsequent to the occurrence of the proceeding events
3. All activities leading to an event are completed at the same time
The late start schedule reflects a desire to commit resources late as late possible. However such a
schedule provides no elbow room in the wake of adverse developments. Any anticipated delay results
in increased project duration.

Steps for work Analysis

1. There are six steps of network analysis

2. Prepare list of activities
3. Define the inter relationship among activities.
4. Estimate the activity duration
5. Assemble the activities in the form of a flow diagram
6. Draw the network
7. Analysis the network ie compute EST and LST; Identify critical events, critical path and
critical activities.

Rules for drawing network

1. Each activity is represented by one and only one arrow in network

2. All the arrows must be from left to right
3. Dotted line arrows represent dummy activities
4. A circle represent an event
5. Every activity starts and ends with an event
6. No two activities can be identified by the same head and tail event
7. Do not use dummy activity unless request to reflect the logic

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 8. Avoid looping and crossing of activity arrow by repositioning
9. Every activity except the first or last, must have at least one proceeding and one succeeding
activity
10. For coding use alphabets for all activities including the dummy activity and number for events.

Interrelation between Activities

B D

A F

Critical path and project management

Critical path being shortest project time any delay in the completion any of the activity on the
critical path would delay the entire path. Therefore it is the critical activity that needs to be monitored
for timely completion of the project. However activities with positive event slack could be rescheduled
within the available time frame for efficient utilization.

ie. Smoothing of demand on available resources

If the duration of the project request to be reduced, activities the critical path will be ones to be
considered for completion at early date with allocation of additional resources.

Programme evaluation and review Techniques PERT

The PERT techniques is a method of minimizing trouble spots, programme, bottle necks, delays and
interruption by determining critical activities before they occur so that various activities in the project
can be co-ordinate.

PERT Analysis steps

1. Clearly defined the goal of project

2. Obtaining a work break structure to a set of individual jobs and arranging them in a logical
fashion
3. Estimating the job duration making provisions for optimistic and pessimistic schedule.
4. Identifying the resource requirements constraints
5. Locating the schedule of dates for each activity by planning a detailed control structure.

72
 6. Preparing project control system and identifying the requirements of progress reports for
different levels of management
7. Developing the critical path and slack time
8. Crashing the time optimum cost levels on basis of costs
9. Updating the network continuously by systematized methods
10. Monitoring evaluating and recovering the network constantly
PERT is a probabilistic approach employed in research and development project or in social projects
which are defined as process projects where learning is an important outcome.

PERT Approach is useful because it can accommodate the variation in event completion times
based on an expert or expert committee’s estimates

For each activity in PERT, three time estimates are taken

1. Most optimistic (to)

2. Most likely (tm)
3. Most Pessimistic (tp)
Duration of an activity is calculated using the formula

to + 4 tm + tp
e
t
6
Standard deviation which is a good measure of variability of each activity can be calculated by
formula.

i
S tp–to the variances is square of standard deviation
6

PERT assumes that the expected length of a project is simply the sum of the separate expected
length.

Thus the summation of all the te’s along the critical path gives length of the project.

Similarly the variance of a sum of independent activity times is equal to the sum of their individual
variance square root of variance gives the standard deviation of project length.

Pessimistic time
is the maximum possible time required to accomplish a task,
(tp)
Everything goes wrong

Optimistic time (to) is the optimistic time minimum time assuming everything goes well.

Most likely time (tm) is the modal time required under normal conditions.

Project crashing and project control Time

cost relationship of an activity

The time required for the performance an activity is estimated according to the quantity of
73
resources except for fixed duration activities such as crop duration, gestation period etc it is possible to
manage the duration of an activity by varying the quantity of resources. If cost is not a constant,
Putting more researches to the activity duration could be reduced. This means time and cost of a
project are inversely related.

crash
CC

Activity

Cost Normal cost

Crash Time Normal Time

TC TN

Time cost relation

The time for the activity duration called normal time and the minimum time for the activity is
called crash time. The costs associated with these times are called respectively normal cost and crash
cost. It is difficult to estimate the time and cost of any intermediate stage between these two point. To
overcome this difficulty, it is assumed that the relationship between time and cost as linear in the range
between normal and crash situation.

Project crashing

Project crashing is an exercise carried out to reduce the time of project by investing more
money. Thus becomes necessary when the dead line has to be met. For crashing only the critical are
considered since duration of the project could be reduced by crashing these activities only. It is
possible that when a project is crashed another non critical activity may become critical and in next
cycle this has to be considered for further crashing. The steps involved in crashing as under.

a. Identify critical path and critical activity

crash cost–Normal cost
b. Compute crash cost slope is
Normal Time–Crash Time

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 c. Select the activity with the least cost slope is minimum crash cost pre time
d. Check for critical path
As the project shortening (crashing) continues, a point is reached at which no further crashing is
possible. At this point, same activities might not have reached their crash points. If these activities are
crashed further, costs are increased with no saving in project duration.

Project crashing is a method for shortening the project duration by reducing the time of one or
more of the critical project activities to less than its normal activity of time. Crashing of a project
relates to resources commitment, the more resources expended the faster the project will finish. Here
both cost and time of an activity is reduced.

There are several reasons to crash a project

1. Initial schedule was too optimistic

2. Market needs change and the project is in demand earlier than anticipated
3. The project has slipped considerably behind schedule
Objectives of Crashing

1. To reduce the project duration at minimum cost

2. While minimizing the cost of crashing the project team should estimate require time, cost,
crash time, crash cost for each activities.
3. There may be direct financial penalties for not completing a project an time.

Resources smoothing and Resources Leveling

Resources leveling are used when limits on the availability of resources are paramount’s.
Resource smoothing is used when the time constraints takes priority. The objective is to complete the
work by the required data while avoiding peaks and troughs of resources demand.

Resource smoothing is the process of moving activities to improve the resource loading profile.
The first step is to select the resource to be smoothed. To decide which resource to smooth consider

1. Resource that is most overloaded

2. Resources that is most used on the project
3. The least flexible resources-this could be the resource that come from overseas it is difficult to
get hold of or is least available.
4. Most expensive resource to here.
Resource allocation

Resource allocation is used to assign the available resources in a economic way. It is a part of resource
management. In a project management, resource allocation is the scheduling of activities and resources
required by those activities while taking into consideration both the resources availability and the
project time. Thus resource allocation is the process of allocating resources among the various projects
or business unit

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Key to effective project resource allocation

1. Determine quickly what resource you will need

2. Determine who the best people are in that are
3. Approach their line manger and check on their availability
4. Assuming that they are available, Put their name down against the relevant tasks in your
project plan.
5. Get the project plan into PMO and get it base lined as soon as possible
Refer Network management, CPM and PERT Refer theory and problem Questions &
answer study materials Second Semester operations research (Page 97-141)SDE

7Ps of project management

1. Strategy: Significance of project management in influencing and supporting organization

strategy.
2. Structures: Modification of organizational structures to support project activities.
3. System: Development of specific process, procedures or information systems to support
project management.
4. Staff: Selection of staff in terms of their back ground, characteristics. Such as IT, use of
contractor project consultants etc.
5. Style: Include both the way, in which key manages behave in achieving the organization goods
and cultural style of the organization as a whole
6. Skill: Distinctive capabilities of key staff but can be interpreted as specific skills-sets of team
members
7. Super ordinate goals
The guiding concepts of the digital marketing organization which are also part of shared values
and cultures. The internal and external perception of these goals may vary

Detailed Project report DPR

Preparation of DPR is a further step in financing up the project proposal. Detailed project reports are
prepared before implementation stage.

DPR is an official document which elaborates the objectives of a capital project. It is a

document giving detailed explanation of the following areas covered in the project and there action
taken by the consultant of the company to collect so. These are required by financial institutions for
consideration of the project appraisal for sanctioning of financial assistance to the implementation of
the project.

It also includes the following reports

a) Monthly progress report

b) Quarterly progress report
c) Quarterly/half yearly/yearly statement of accounts

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 d) Working results and financial reports to be reviewed by the management for improving the
effectiveness of results expected after completion of the project. The project reflects upon
thinking, capability and the attitude of the management in the area of capital budgeting and
project management in an organization.

Areas to be covered

1. Company profile and present position

2. Project to be taken up for diversification
3. Technical aspects
4. Market viability
5. Financial viability
6. Risk analysis
7. Economic viability
8. Energy management
9. Environment
10.Managerial viability

Essentials of a detailed project report

DPR is the blue print of activities, time and cost for the implementation of project. It sets the standard
for time, cost and work with which actual can be later compared as and when the work progress. DPR
serve as a guide for project planning and controlling in the following manner

1. Preparation of reports in the standard formats

2. Proper indexing and classification
3. Reliability of data
4. Clarity of assumptions
5. Use of scientific techniques for analysis of data
6. Desired volume and nature of information and its suitable presentation.
7. Mentioning specific features of the project
8. Pictorial presentation for easily understanding of facts and figures
9. Avoiding outdated and relevant information
10.Effective presentation of confidante data 11.Least cost
in preparation
12. Timely preparation
13. Prepared in accordance with laid down procedures of the company

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In case of same projects a number of reinvestment activities such as obtaining sanctions, clearances
and approval of government authorities, compliance of certain statutory requirements financial
negotiation, discussion and negotiations with the collaborators, possible tie up for machinery etc may
be completed even during the DPR preparation stage itself. In such cases, the latest status in respect
thereof should be mentioned in DPR.

A copy of relevant minutes, sanctions, survey reports and other studies, drawings, letter of
commitments and guarantees from Govt. authorities, correspondences with authorities, customer
orders, notification, relevant extracts of published materials should be enclosed to a DPR.

DPR is a voluminous document containing details of training and cost of each activity, activity
sequence, erection schedule with detailed technical specifications resources acquisition with technical
details, responsibilities, document requirement and so on.

Auditing a project report before commencement of work on a project may being to the notice
of project management all cases of errors, negligency, bottle necks, overstaffing, waste misutilisation
of fund etc

Skills required for DPR preparation

1) Engineering technological and operational skill

2) Planning and marketing skill
3) Personal skill
Structure of DPR

DPR is a voluminous document containing detail of timing and cost of each activity, activity
sequencing, erection schedule with detailed technical specification, resources acquisition with
technical details responsibilities, documentation requirement and soon. The chapterisation can be
made as follows.

1. Contents of project feasibility report

2. Basis of the project
3. Need and objectives of project

Importance of Detailed project report.

1. It formalizes capital project

2. It provides a light direction during project implementation
3. It provides a basis for obtaining funds and authority to spend
4. It assists project manager in coordination
5. It services as a hand book for reference, comparison etc
6. It assists management decision on strategic issue

Project completion report (PCR)

This is a report on the project just completed. It usually comprises the actual with planned data and
tries to find out the reasons for delay in completion and over run in cost. It is also called post
completion report. The initial scope and level of attainment is also documented with observation.
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The degree of attainment of goal is also recorded in the PCR. It is usually quite detailed and
informative. It becomes mandatory for the major projects after completion or implementation of
the project in order to document the experience and the reasons for the successor otherwise of
project construction activities.

The following are to enclosed to PCR

Actual cost, cost overrun statement, reasons for variation, actual benefits achieved and
performance statistics.

A PCR is characterized into 5 parts

1. Project description: Plant, installed capacity, major products, construction and gestation
period, cost of project, phasing of expenditure, project profitability figures, capital employed
fixing capital, working capital and project interlinkages during construction stages.
2. Preconstruction information: This includes description about idea of proposal to set up
project, feasibility study report, Govt. approval, technical collaboration details, credit tie up
details consultant/knowhow, compulsory registration details, procedures for award of contract,
operation of contracts such as making payment, final bill’s etc
3. Physical construction information: Includes description about revised timings of project
schedules, list of completed major project activities, equipment procurement, erection, testing
and commissioning etc.

4. Analysis of cost variance: Includes description about revision cost estimates, details of
variations of between originally sanctioned and actual cost estimate, project management etc.
5. Brief narration report: Includes name of project, project history
Importance, agencies involved, project highlights ,implementation, achievements and failures,
problems experienced, suggestion for future projects etc.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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 Activity questions – Unit IV

1. State Project execution

2. Define DPR. Describe the structure and contents of DPR
3. Describe the different steps in project breakdown
4. Define project management organization
5. Elaborate the different types of project organization structure
6. State the importance of project management organization
7. Discuses in detailed computer based project management
8. Explain completion of project
9. Write short notes on post project evaluation 10.Explain the
varies steps involved in project closure 11.State post project
evaluation
12. State the objectives of post project evaluation
13.State the process of post project evaluation
14.Describe the consequence of delay in projects.
15. Describe the concept of completion of projects and handing over to operation
16. Write short notes on closure of contracts
17. Explain the concept of completion cost of projects
18.Describe completion cost of projects
19. Elaborate on capitalization of assets of projects
20.Describe the process of project monitoring control
21.Describe the techniques to evaluate project performance
22.Describe network techniques. State the application
23.Distinguish between PERT and CPM
24. State the different types of foals in project network
25. Distinguish between project crashing and leveling
26. Explain the concept and objective of project smoothing

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 Unit 5

Post project evaluation

Post project evaluation is defined as the review of post implementation of project after
completing a project. Its purpose is to evaluate whether project objectives were met to determine how
effectively the project was run to learn lessons for the future and to ensure that the organization gets
the greatest possible benefit from the project.

It is a systematic and objective assessment of an ongoing or completed project to determine the

relevance and level of achievement of project objectives, development, effectiveness, efficiency,
impact and sustainability.

Objectives of post project evaluation

1. Analyses the process of implementation

2. Focusing on participation of community
3. Assure quality of project management
4. Assure quality of products and services
5. Assess and enhance project performance
6. Identify project risk
7. Best use of resources
8. Successful completion
9. Planning for future
Key area for post project evaluation

There are 8 key areas that need to be assured

1. Overall project management

There is done to ensure whether the project meets all the goals and objectives from the project
charter. It is also done to assess whether the feedback from stake holder regarding project
deliverables positive. It is done to ensure that the project was completed on time and on
budget.

2. Scope management

It is done to ensure that did this project deliver all time that were agreed upon in the original
scope. It also verifies were all the project change requests documented and approved. It also
ensures if the scope was extended, were budget and timeliness adjusted properly.

3. Quality of deliverables

Overall were the stack holders, satisfied with the quality of project deliverables. It checks were
there any exceptional deliverables that really added business value. It ensures were there any

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 deliverables that were met, but not completed very well.

4. Key accomplishments

It discusses particulars project strengths such as team work effective use of tools or any
other items that stood out as positive accomplishments.

5. Opportunity for improvement

• Discuss any areas that were problematic or could be done better next time. Be honest in the
section credibility result from accountability
• What actions could be implemented to prevent future problems

6. Future consideration
● Discuss what work could/will be done in future regarding this project.
● It include any project maintenance procedures that need to be managed

7. Best Practices

Identify any processes or best practices that were established during this project and
describe how these practices will be formalized.

8. Required signaturies

By signing, it emphases that effective post project evaluation has been completed and the
action items for improvement have been assigned.

Post completion Audit

A post completion audit involves checking whether or not expected results of the project are truly
realized. This is the key of the capital budgeting process. It helps to keep managers honest in the
particular investment proposals.

Post completion audit is defined an audit that takes place at the conclusion of project requiring capital
expenditure or other business initiative, intended to evaluate the final costs and benefits to the
company. Post completion audit are typically performed by objective third party auditors in order to
remove any inaccuracies due to bias or preferences

Post completion audit is a proprietary audit and it is not a routine activity and specific to the
project. It aims at improving effectiveness next time a new project is undertaken.

Objective of post completion audit

1. Financial control mechanism

• Helps an evaluating financial and non financial impact of project to company.

• How the actual results of the project compare to data and assumptions included in programme
request.
• Further actions that are necessary or expected regarding project.
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 2. It provides information further capital expenditure decision.
3. Removing certain psychology and political impediments usually
associated with asset control.
4. Psychological impact on individuals proposing capital investment.

Benefits of PCA objectives and results

1. It provides a check on personal biases

2. It improves quality of estimates
3. It improve the productivity as estimate becomes goal
4. It helps to identify limiting factors
5. Recognition to those involved in capital expenditure planning.

Eg of PCA : Strategic projects should be pre audited more frequently than operating capital
projects

The riskiness of areas should also determine the frequency of post audit.

Aspects to be covered in PCA

• Size of the project

• Stake involved in the project
• Scope of the project
• Strategic importance of the project for the organization

Procedure of PCA

Collection of appropriate information

• Starting point –project completion report

• Compare the projected data with the accounting data collected through regular MIS
• The auditor needs to collect information about the incremental cash flows rather than the total
cost figures.

2. Recasting data

• Collected data should be recast/ recognized before they are compared

• Collected data must be first adjusted with external factors like inflation before it is compared

3. Comparison is a starting point from which the real audit begins by comparing the comparable data
4. Establish the possible causes of variences

5. Final recommendations
Once the causes are ascertained, the PCA can give recommendations based on which manager
may take decision for cash flow forecasting to reinvest or abandon the ongoing project

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Techniques of post completion audit

1. Cost variance analysis

In this method only the project cost (actual or estimate is studied

2. Post variance analysis

Profit analysis is caused out by the auditor and the estimated gain adjusted with inflationary
effect is compacted with actuals

3. Cash flow and financial criteria varience analysis

Thus method is developed around four schedules that can provide the management with the
information it needs to find engineering, operational and administration costing faults of past
projects.

a. Project variance analysis schedule

b. Cash flow and financial criteria variance analysis

Thus is used to illustrate project cash flow and return variance between projected and
actual results

c. Projected cash flow schedule (Projected and Actual)

These due used to show the projected and actual cash flows of the project each cash flow
entry is made according to the time it was projected to be incurred or was actually incurred.

d. Supplementary schedules: These schedule explain for significant

variances
4. Present value deprecation technique (PVD)
Calculation of year wise NPV and IRR
It is defined as the decline in the present value of the expected future cash flow dung the year
using IRR as discount rate.

Contents of post project evaluation and completion audit report (PCAR)

Content of PCAR includes

1. Purpose of the project as per sanction

2. Benefits envisaged in the sanctioned project
3. Project approval and execution of the project
4. Strategies of implementation
5. Accomplishment of project objectives
● Project facilities
● Scope of work with reason
● Benefits achieved
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 6. Time over run with examples
7. Completion cost and cost over run statement with reasons for variation
8. Problems encountered
9. Conclusion
10 . Enclosures to PCR

a. Actual costs
b. Reason for variation
c. Actual benefits achieved
d. Performance statistics

PCAR for major projects in respects to major project of expansion, modernization,

technological up gradation, PCAR is prepared in more detailed. The consultants of the project who
possess the facilities and necessary data bank for the project prepares this normally.

Various parts of completion report for major projects includes

. Project planning includes various stages from the formation till the final investment decision
making could be covered. It will highlight all the aspects such as stages of decision in the organization
itself. In the report profitability projection, product will mix together with the objective of the project
as planned will be covered.

• Preliminary investigation
• Selecting suitable technology
• Preparation of feasibility reports, detailed report and its approval
• Planning for necessary resources,
• Operation review
II Project Organization: It concludes an organization structure of the project department as planned
or functioned shall be mentioned. It also covers procurements, coordinating reporting of the progress
also.

● Appointment of consultants to the project

● Enabling work

● System of reporting

● Capital costs estimates

● Required resources

III Financial management

It includes

● Operation of contracts such as repayment, settlement

● Increase in the cost of projects and reasons for variation
● Profitability of the project
● Actual expenditure on completion of the project
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Contents of project audit report

1. Title
2. Address
3. Responsibility of the auditor and management of company
4. Scope of audit
5. Opinion of the auditor
6. Basis of opinion
7. Signatures of auditor
8. Place of signature
9. Date of audit report
10.Date of signature
1. Title
The title of the report mention it is independent auditors report
2. Address
Address is the person/group of persons to who report addresses. In the case statutory audit
report, the addressee is the shareholder of the company. Also the addressee refers to the person
appointing the auditors. Since the shareholder of the company appoint the auditors the report
address to them

3. Responsibility of the auditor and the management of the company

It defines that the responsibility of the auditor is to perform an unbiased audit of financial
statements and give their unbiased opinion
4. Scope of audit

It mentions that audit was done as per the generally accepted auditing standards in the country.
It provides assurance to the shareholders and investors that audit was done as per auditing
standards. It should include that the audit examination of the company’s financial reports was
done and there are no material and misstatements. Auditor shall assess the internal controls and
perform tests, inquiries and verification of the company accounts.

5. Opinion of the auditor

The auditors give their opinions on the final reporting by the company There are four

different types of opinion

1. Unqualified opinion
2. Qualified opinion
3. Adverse opinion
4. Disclaimer opinion

6. Basis of opinion

It should mention the facts of the ground in the report

7. Signature of auditor

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 The partner of the auditor must sign the audit report content at the end.

8. Place of signature

It gives the city in which audit report was signed

9. Date of audit report

10. Date of signature

It gives the date on which audit report was signed

Diagnosis of delay in products and the consequence of delay in projects.

Delay in projects can happen for various reasons

1. Weather
2. Equipment failure
3. Labour shortage
4. Missing or incorrect data
5. Project mistakes and conflicts
There are some reasons like weather that are beyond our control, but most construction project
delays can be avoided.
Delay in project is defined as time over sum either beyond completion data specified in a contract
or beyond the date that the parties agreed upon for a delivery of a project. It is a project shipping
over its planned and schedule and it is considered as common problems in construction project.
Delay is a major delinquent in project.

Actual cases of delay in project are to be defined in order to minimize or preclude the delay in the
project.

Steps involved in diagnosis of delay in project

1. Collection of data from project causes

2. Analyze the data for delay causes
3. Proposed preventive measures to avoid delay of the project.
Steps to avoid project delay

1. Clarify the project objectives

2. Keep the project deadline realistic
3. Analyze the possible risks and make mitigation plan
4. Track the progress
5. Review of the progress

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Consequence of delay in programme

1. Time over runs

2. Cost over run
3. Claims
4. Arbitration
5. Dispute
6. Loss of profit
7. Litigation

Key lessons learned from executed projects

1. Technical aspect of the project

2. Work back down structure of the project: Risk planning, scheduling, cost planning,
procurement planning etc. and all management plans archieved in the documentation. This will
be helpful for future references.
3. Recommendations of management

The documentation should give recommendations on management and also communications and
leadership.
4. Integration management
5. Cost management
6. Procurement management
7. Knowledge transition
8. Change control/change requests
9. Communication management
10. Project methodology
11. Time management
12. Corporate culture

Environmental Appraisal of projects (EAP)

Objectives of EAP

Environment Appraisal of Projects (EAP) is defined as the identification prediction,

interpretation, and communication of information about the impact of project on man’s health and well
being and the study of changes in socioeconomic and physical traits of investment which may result
from project.

1. Ensuing environmental factors are considered in the decision making process

2. Ensuing that the possible adverse environmental impacts are identified and avoided or
minimized
3. Informing the public about proposal

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Factors affecting environmental appraisal of projects

1. Strategist related factors

2. Age, size and power of the organization
3. Geographic dimension of the organization.
4. Influence of business organization
5. Volatility of the environment
6. Managerial culture

Environment appraisal is the process of assessment of environmental effect or consequences

of a proposed project. Environmental appraisal of project consists of two components
1. Environmental report of the approval or clearance
2. Sustainable growth of the form
The environmental appraisal of projects are carried out by the following approaches
1. Feasibility approach
2. Proactive approach
Feasibility approach

In this approach minimum environmental standards prescribed in the county are to be met. For
international companies, beyond environmental standards, company aims at achieving environmental
certifications such ISO14000 (General Industries) or LEED certificate (Building or construction
industries)

There are two feasibility approaches namely reactive approach and proactive approach

Reactive approach

Environment impact assessment is caused out for the sole purpose of getting environmental
clearance

Proactive approach

Environmental project impact assessment is used as a tool to improve planning process, cost
effective, carbon credits, safety of work place etc.

Techniques of environmental approach

1. SWOT analyses
2. ETOP analyses
3. ANSOFF matrix
4. BCG matrix

SWOT Analyses
It was developed in 1960’s at Standard research institute. SWOT Analysis is a strategic
management technique to understand the internal and external environment of an organization in terms
of strength, weakness, opportunities, and threatens.
There are four sequential step of conducting SWOT Analysis.

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1. Setting up objectives for the concerned organization.
2. Identifying the strength, weakness, opportunities and threats of business
Based upon the result of the above analysis, a SWOT matrix is prepared which consists of
strength, weakness opportunities and threats present in organizations, internal and external
environment and its impact on the business.

A frame must direct its strength towards exploiting opportunities and blocking threats which
minimizing the exposure of weakness at same time. SWOT Analysis is an important tool for
auditing the overall strategic position of project and its environment.

The basic objective of SWOT analysis is to reflect a firm’s ability to overcome barriers
(threats) and avoid opportunities emerging in the environment.

Advantages of SWOT Analysis of project

1. It is simple to use low cost is involved it is flexible and can be adapted to varying
situation.
2. It leads to classification of issues
3. It helps in development of goal oriented objectives of a project
4. It is useful as standing point for strategic point for a strategic analysis of a project.
ETOP Analysis

Environmental threat and opportunity profile

It is a technique to structure, the environment for fundamental business analysis

The preparing of ETOP involves dividing the environment into different sectors and analysis of
impact of each sector on the project. A comprehensive ETOP enquires subdividing each
environment sector into subsectors and then the impact of each sector is described in the form of
statement.

Environmental Nature of project Impact each sector

sector impact

Economic ↓ Economy slowdown.

Increase ininterest Rates
Project ↓ Less growth in demands

Regulatory ↓ Decrease in import duty,

environmental clearance hurdle
Technological ↓ Less advanced
Technologies in projects

III Ansoff matrix or Ansoff product market growth matrix

It is a tool that helps business decide their product and market growth strategy. It was
developed by Ansoff in 1957. It suggests that a business attempts to grow developing upon
whether it makes a new or existing products in new or existing market.

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 The four business strategies that can be adopted by a business based upon the Ansoff
matrix

Market development Diversification

Market Penetration Product development

1. Market penetration
It is a growth strategy where the business focuses on selling existing products into existing market.

2. Market development

It is a business strategy where the business seeks to sell its existing products into new market.

3. Product development: This is a strategy in ANSOFF matrix where a business markets new
production existing markets. It requires development of new

Competencies and development of modified products which can appeal to existing markets.
4. Diversification: Under this strategy the business markets new products in new markets. It is a
risky strategy as the business is moving into markets where it has little or no expertise .Such a
strategy is chosen when the project risk can be compensated with a good return on investment.
5. BCG Matrix
Boston consultancy group growth share matrix commonly known as BCG MATRIX is a
famous portfolio analysis techniques developed by Boston consultancy group in 1970s. It was
developed for managing portfolio of different business units. The BCG matrix shows a
relationship between products that are generating cash and products that are eating cash
Large components who want to be organized in single business units (SBU) face a
challenge of allocation resources among these units. BCG matrix shows various business units
on a graph of market growth Vs market share relative to competitors Resources are allocated to
business units according to where they are situated on the graph.

Four cells of BCG Matrix

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1. Cash cow: It is a business unit with large market show in a matrix and slow growing industry.
Cash cow require little investment and generate cash that can be used to invest in other business
units. They are generally large and matrix business units reaping the benefits of experience and
estimates loyalty.
2. Stars: it is a business unit that has large market share in a fast growing industry. It may generate
cash but due to rapid growing market it requires investment to maintain its needs. It is a high
growth high market share business unit.

3. Question mark: It is also called problem child. It is a business unit which has a small market share
in a high growth market. Such a business unit requires huge investment to grow market share but
whether it will be a star or not is unknown

4. Dogs: These are business units with a small market share in a matrix industry. A dog may not
require substantial cash but ties up capital that could be invested elsewhere such a business unit but
be liquidated unless it has some special strategic purpose or prospects to gain market share in the
future.

BCG matrix produces frame work for allocating resources among different business units and
allows one to compare many project businesses at a glance.

Stresses on environment

There are multiple stress source in project management is affected by stress

As a boundary spanner, the project manager has to lead the stake holders group towards
conflict resolution and resuming the work towards the project goal.

Most popular stress factors that the project manager have to face.

1. Inadequate resource allocation to the project

2. Unrealistic dead lines
3. Unclear goals
4. Lack of team members motivation
5. Insufficient planning
6. Ineffective communication
7. Goal shift or resource availability
8. Internal conflicts in the organization
9. Team availability
10.Project environment

Stress management techniques

1. Detach or dissociate
2. Monitor what if ? thinking
3. Develop potent conflict resolution subjects
4. Know when enough is enough and stay away from debating
5. Look for a paradoxial component in the project

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Other techniques of stars management in projects

1. Prioritization of task
2. Avoid extremes reaction
3. Applying neuro linguistics programming to stress reduction
4. Exercise
5. Meditation

Environment Impact Assessment (EIA)

Environment impact assessment of projects (EIA) is an instrument enabling the preservation of

national resources and the defence of the environment by introducing the environmental variables into
decision making on projects which are predicted to have a significant impact on environment.

EIA is defined as the instrument through which the environmental management tries to
accomplish its objective. The basic premise behind EIA is that no one has any right to use the precious
environmental resources resulting in greater loss than gain to society by means of project activities.

EIA is defined as an activity designed to identify, product, interpret and communicate information
about the impact of an action on mans health and well being.

Objectives of EIA

1. To identify and describe (In quantified members) the environmental resources/ values or the
environmental attributes (EA) which well be affected by the proposed project
2. To describe the measure and assess the environmental effect that the proposed project will have
on the ER/V (again in as quantified manner mannered) including positive effects which
enhance ER/Vs as well as the negative effects which impacts them.
3. To describe the alternatives to the proposed project which could accomplish the same result but
with a different set of environmental effects

Process of EIA

EIA process make sure those environmental issues are caused when a project or plan is first
discussed and that all concerns are addressed as a project gains momentum through to implementation.
An EIA should lead to a mechanism whereby adequate monitoring is undertaken to realize
environmental management.

The various steps involved in the process of EIA area are follows.

1. Screening
2. Scoping
3. Prediction and mitigation
4. Management and monitoring
5. Audit

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 I. Screening: It is the process of deciding on whether an EIA is required. This may be determined by
size. Alternating it may be based on site specific information. The output from the screening
process is often a document called Initial environmental evaluation (IEE). The main conclusion
will be a classification of the project according to its likely environmental sensitivity. This will
determine whether an EIA is needed.
II. Scoping: Scoping occurs early in the project cycle at the same time as outline planning feasibility
studies. Scoping is the process of identifying key environmental causes and its perhaps the most
important step in EIA.
Scoping is important due to
1. The problem can be pinpointed early showing mitigating design changes to be made before
expensive detailed work is caused out
2. To ensure that detailed prediction work is only carried out for important issues.
III Prediction and mitigation

Once the scoping exercise is complete and major impacts to be studied have been identified,
prediction work can start. This stage forms the central part of an EIA. Several major options are reply
to have been proposed either at the scooping stage or before and each option may require separate
prediction studies. Realistic and affordable mitigating measures cannot be proposed without estimating
the scope of impacts which should be in monetary term where ever possible. It then becomes
important to quantify the impact of suggested improvements by future prediction work.

An important outcome of this stage will be recommendations for mitigating measures. This
could be contained in the environmental impact statement. The aim will be to introduce measures
which minimize any identified adverse impact and enhance positive impact. Formal and informal
communication links are needed to be established carrying out feasible studies so that their work can
take proposals into account.

IV Management and monitoring

The part of EIS covering monitoring and management is often referred to as the Environmental
action plan or Environment management plan. It not only sets out mitigation measures needed for
environmental management, both in the short and long terms but also the institutional requirements for
implementation. The term Institution

1. Established by law between individuals or government

2. Between individuals and groups involved in economic transaction
3. Developed to attitude legal, financial and administration links among public agencies.
The purpose of monitoring is to compare predicted and actual impacts, particularly if the
impacts are either very important or the scale of the impact cannot be accurately predicted. The
results of monitoring can be used to manage the environment particularly to the highlight
problems early so that action can be taken.

V. Auditing: In order to capitalize on the experience and knowledge gained, last stage in EIA is to
carry out an environmental audit after competition of the project or implementation of programme. It
will be therefore usually done by a team of specialists to that working on the bulk of EIA. The adult
should include an analysis of technical, procedural and decision making aspects of EIA

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Some major issue in the preparation of EIA

1. Determining the environment impact: It is a very complex process. The determination of

environmental impact involves.

a. Identification of impacts on environmental attributes

b. Measurement of impacts on attitudes

c. Aggregation of impacts on attitudes to reflect the total impact on environment

2. With and without project

The environmental impacts are measurement of attitudes with and without the project or
activity at a given point in time.

3. Identifying the impacts:

The number of attributes to be practically infinite becomes any
characteristics of the environment is considered to be attribute.

Therefore they have to be reduced to manageable member.

4. Characteristics of the base: conditions to the activity. The nature of impact is determined by the
conditions of the environment existing before the project.

5. Measurement of impact

Ideally all the impacts must be translated into common units. However this is not possible
because of the difficulty in defining impacts in common units.

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 General EIA of project process flow chart

Proposal Identification

Screening

EIA required Initial environmental estimation No EIA

Scoping public involvement

Impact analysis

Mitigation impact management

EIA report

Review public involvement

Decision making

Resubmitted

Redesign

Not approved Approved Information from the

process contribute

to effective future EIA

Implementation and follow up

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 Benefits of EIA

1. More environmentally sustainable designs or important in the design of project.

2. Better compliance with environmental standards
3. Savings in capital and operating cost
4. Reduces time and cost of approvals of development application
5. Resolves conflicts, solves problem and their increase project
acceptability
6. Improves accountability and transparency in planning and decision making
7. For business and government EIAis an important planning and management tool
Impact assessment methodologies

Several methodologies have been developed for identifying the impact of development activities
on the environment

This includes

1. .Ad-hoc
2. Checklist
3 Matrices
4Network
5Outlays
6. Combination computer aided

1. Ad-hoc

There methodologies provide a minimum guidance for impact for impact assessment. They nearly
suggest broad areas of possible impacts (E.g. Impact on lakes, forests etc) either than defining specific
parameters to be investigated

This method is useful when time constraints and lack of information require that EIA must rely
exclusively on expert option. When more scientific methods are available it is not recommended.

Types of ad-hoc method

1. Opinion poll
2. Expert opinion
3. Delphi methods etc
Check list method

Check lists means listings of planted environmental impacts. This method is done to assess the nature
of impacts such as

a. Adverse / Beneficial
b. Short term/long item
c. No effect/ significant impact
d. Reversible/ irreversible

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Types of check lists method

This includes

1. Simple lists
2. Description check lists
3. Scaling check lists
4. Questionnaire check list etc.

The methodologies present a specific list of environmental attributes to be investigated for

possible impacts. They need not necessary attempt to establish the cause effect link to project
activities. They may or may not includes guide lines about how attributes data are measured and
interpreted

4. Matrices

These methodologies incorporate a list of project activities with a check list of potentially
impacted environmental attributes. Then the two lists are related in a matrix from which defnes the
cause effect relationship between specific activities and impact. The matrix technologies may either
specify which actions effect which attribute or may simply list the range of project activities and
environmental attributes in an open matrix to be complied by the analyst.

A simple interaction matrix is formed where the project actions are listed along one side vertically and
EI are listed along other side horizontally

It is about 100 project actions and 88 environmental characteristics and conditions.

5. Network

This methodology work from a list of project activates to establish cause condition effect
relationship. It is generally felt that series of impact may be triggered by a project action. They
define a set of possible and allow the user to identify impact by selecting and tracing networks out
of the appropriate project actions. It is visual description of linkage shown in the form of tree
called as Network Diagram.

Example of network analysis

Network

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5. Overlays method

It rely on set of maps or a project access environmental characteristics covering physical,

social, ecological, aesthetic aspects.

Two techniques had applied till now

a. Older techniques: Environmental features are mapped on transparent plastic in different colors
b. Newer Technique: Geographic information System.
These maps are overlaid to produce a composite characterization of the proposed projects
vicinity. These maps are overload to produce a composite

Characterization of the regional environment. Impacts are then identified by nothing these
impacted environmental attributes within the project boundaries. The main advantages of
overlay method are easy to understand and use Good display Method, Good for site selection
setting etc.

6. Combination computer aided

These methodologies use a combination of matrices, network, analytical models and computer
aided systematic approach. It is a multi objective approach to

1. Identify activities associated with government policies and programme

2. Identify pointed environmental impacts at different levels
3. Provide guidance for abatement and mitigation technique
4. Provide analytical models to establish cause effect relationships and to quantitatively
determine political environmental impact
5. Provide a methodology and a procedure to utilize their comprehensive information in
decision making

Environment impact statement (EIS)

Environment impact statement (EIS) is a document prepared to describe the effects for proposed
activities on the environment

Environmental impact statement (EIS) content process includes

1. Summary: The summary presents the overview of EIS and a comparison of impacts expected
for the proposal and alternatives
2. Purpose and need
3. Proposed action and alternatives
4. Affected environment
5. Expected impacts
6. Consultation and coordination
7. Appendices
Environment impact statement (EIS) required when proposed action has significant impact on environment

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 Process of environment Impact Statement (EIS) The

process of EIS includes

1. Scoping: Scoping is the process used to determine the appropriate contents of EIS. Public
participation is an integral part of scoping. The first scoping step is to announce to the public that EIS
will be prepared and asked for the comments about what should be included. Generally input from as
many affected and interested parties as possible are an important part of preparing in EIS.

An important objective of scoping is to identify specific elements of the environment that might be
affected if the proposal is carried put. If we determine that there might be significant impacts
associated with a concern that is raised during scoping it is analyzed in detail in the EIS.

Based on the information received during the scoping effort and other information such as the
location of sensitive natural resources estimates of oil and gas resources or projected oil and gas
activity we identify alternatives to the proposal that might reduce possible impact.

2. Analytical Sceneries

After the alternatives to the proposal are determined we develop scenarios for the proposal and
each alternative. Those are the bases for the analysis of possible impacts

3. Impact analysis

EIS analyses the particular environmental concerns that were identified. A separate analysis is
prepared for the proposal and each alternative. The objective of the analysis is to estimate the nature
severity and duration of impacts that might occur and to compare the impacts of the proposal and
alternatives.

4. Draft EIS and public review

The impact analysis is first documented in a draft EIS. The purpose of the review is to ensure
the technical accuracy of all aspects of the document.

5. Final EIS

The principal concern in developing the final EIS is to address and public comments on the draft
EIS in a responsive and responsible fashion. The final EIS include a summary of all comments and the
response. For appropriate EIS, the department reviews them for technical accuracy and adherence to
policy.

After the comments on the draft EIS are received, document may be revised to correct technical errors
and add any relevant new information that become available since the draft EIS was published. On
occasion, a new alternative or mitigation measure will be added and evaluated. A summary of the
comments received on the draft EIS and r response to those comments is also put into the EIS
document.

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Benefits of EIS

1. EIS outline the status of environment in the affected area.

2. It provides a base line for upstanding the potential consequences of the proposed projects.
3. It identifies possible and negative effects for the environment.
4. EIS offers alternative actions including inaction in relation to the proposed project.

Activity Questions Unit V

1. Define post project evaluation

2. State the objectives of post project evaluation
3. Define post completion audit. State its advantages and benefits with suitable example
4. State the procsess of post completion audit
5. Describe the various techniques of post completion audit
6. Describe the contents of PCAR
7. Explain the steps involved in diagnosis of delay in periods
8. Describe the steps to avoid project delay
9. Describe the consequences of delay in projects

10. Describe the key lessons learned from the executed projects
11. Define environmental appraisal of project. State its objectives
12.Explain the factors affecting environmental appraisal of project
13.Describe the approaches used in the environmental appraisal of project
14.Describe the techniques of environmental appraisal
15. Describe the stress management techniques in project management
16.Define EIA. state the objectives of EIA
17. State the process of EIA
18.Describe the process of EIA
19. Describe the major issues in preparation of EIA
20. With a EIA process flow chart, explain the various process in EIA
21. Explain the various project impact assignment methodologies
22. Define environment impact statement. Explain the process and benefits

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