SESSION 1

INTRODUCTION TO PROJECT MANAGEMENT

BASICS AND SCOPE

POST GRADUATE DIPLOMA IN MANAGEMENT

TERM :IV
COURSE OBJECTIVE:
• Focusses on the key concepts of project management and project life
cycle: The conceptualization, definition, design, development,
implementation and control of projects.
• Encompasses conceptual inputs along with case studies and quantitative
analysis to illustrate varieties of projects and the issues involved in
managing them.
• Identify and manage the project scope, build a work breakdown structure,
create a project plan, create the project budget, define and allocate
resources, manage the project development, identify and manage risks,
understand project finance structuring, sustainability and environmental
issues.

TEXT BOOK :
“Project Management: The Managerial Process” by Clifford F. Gray, Erik W.
Larson, and Gautam V. Desai, Tata McGraw Hill Education Private Limited
(Latest Edition)
 Grading Scheme

Component Mode (Open/closed book) Duration Weightage

Mid Term Closed Book 90 minutes 30%

End Term Closed Book 120 minutes 35%

Case Presentation (Group) - 15-20 minutes 10%

Group Project - - 15%

Class Participation - - 10%

Total - - 100%
 Course Schedule
Session Topics to be Readings and Book Chapter Assessment Criteria
covered in the course
Introduction to Project Management, Basics Ch. 1 &2, Gray and Larson Textbook and notes from HBS Mid-term examination
1 & Scope Case
2 Project Organization Structure Ch. 3 & 4, Gray and Larson Textbook Mid-term examination
Case Presentation
3 Project Selection Vertex Pharmaceuticals: R&D Portfolio Management (Case)
(Group 1)
4 Estimating Project Time and Costs Ch. 5, Gray and Larson Textbook/Case 5.5 Mid-term examination
Airbus A3XX: Developing the world’s largest Commercial Case Presentation
5 Project Evaluation (Group 2)
Jet (Case)
Ariba Implementation at MEDX: Managing Earned Vaule Mid-term examination
6 Earned Value Analysis in Projects
(Case discussion)
Ch.6, Gray and Larson Textbook Mid-term examination
7-8 Developing Project Network Sattva eTech: Managing Uncertainties in the Project
Network (Discussion)
Case Presentation
9 Project Risk Management A&D High Tech (A): Managing Projects for Success (Group 3)

Ch.7, Gray and Larson Textbook Mid-term examination

10 Project Risk Management
(Case 7.8/7.10)
11 Project Scheduling Ch.8, Gray and Larson Textbook End-term examination
Project Scheduling Niagara Falls Construction Project: Scheduling, Case Presentation
12
Resources, Costs and Bureaucracy (Group 4)
13 Reducing Project Duration Ch.9, Gray and Larson Textbook End-term examination
14 Reducing Project Duration Nightingale Project A&B(Case 9.3, 9.4 Gray and Larson Case Presentation
Textbook) (Group 5)
15 Managing Project Teams Ch.10, Ch.11 Gray and Larson Textbook End-term examination
16 Outsourcing Project Work Ch.12, Gray and Larson Textbook End-term examination
17 Project Execution and Monitoring Ch.13, Gray and Larson Textbook End-term examination
18 Project Closure Ch.14, Gray and Larson Textbook End-term examination
19 Critical Chain Project Management Critical Chain by E. M. Goldratt End-term examination
20 Project Management in Industry examples -
Manufacturing/Service Industry
 Learning Objectives
• Preliminary concepts and definitions:
– Project and its characteristics
– Project life cycle phases

• Project management context:

– Projects, programs and portfolios
– Project management
– Roles and responsibilities of project manager
– The challenge and rules of project manager

• Project management process groups

– (Classification according to project life cycle)
• Project management knowledge areas
• Project selection
• Project integration
 What is a Project?

• Project is defined as
– A complex, non-routine, one-time effort limited by time, budget,
resources, and performance specifications designed to meet customer
needs.
– Project is a temporary endeavor undertaken to create a unique product,
service or result (PMI).

• Major characteristics of a project

– Has an established objective.
– Has a defined life span with a beginning and an end.
– Typically requires involvement of several departments and
professionals.
– Involves doing something that has never been done before.
– Has specific time, cost, and performance requirements.
 Project Attributes
• A project:
– Has a unique purpose.
– Is temporary.
– Is developed using progressive elaboration.
– Requires resources, often from various areas.
– Should have a primary customer or sponsor.
• The project sponsor usually provides the direction and funding for
the project.
– Involves uncertainty.
 Program
• Group of related projects designed to accomplish a common goal over an
extended period of time.
– Managed in a coordinated way
– Managed to obtain synergy in benefits and control which are not
available if managing projects individually
– Some common related work outside the scope of the discrete projects in
a program
 Portfolio

• Collection of projects and programs that are grouped together for

pursuing objectives focused on some specific business strategy.
• Scope of portfolio is wider than project and program.
• Example: Setting up and operating petroleum refinery
 The Life Cycle of Projects

• All organisms have a life cycle (i.e., they are born, grow, wane, and die) …
and so do the projects

• Some projects follow an S-shaped curve … they start slowly, develop

momentum, and then finish slowly

• Other project follow a J-shaped curve … they start slowly , proceed slowly,
and then finish rapidly
 Project Life Cycle Contd…
• The time span between the start and end of a project in which work to be
carried out is called project life cycle.
• The set of inter-related project activities carried out sequentially during the
project life cycle is called a project phase or stage.
• Project life cycle stages are classified as:
– Defining/Conceptualization (Starting the project)
– Planning/Development (Organizing and preparing the project)
– Executing (Carrying out the project work)
– Closing (Delivering the project)
Project Life Cycle
 Characteristics of Project Phases

• The work content, staffing and cost are small in the early life cycle
phases. They rise to high level in the middle phases and drop off near
the closing phases.

• The level of uncertainty, or risk, to the project success is highest in the

early phases of the life cycle.

• The ability of stakeholders to influence the project is highest during the

early phases and gradually diminishes as project draws to a close.

• The cost of correction or change of scope is small at the project start

and it increases very rapidly as the project progresses.
 Project Management
• The application of knowledge, skills, tools, and techniques to a broad
range of activities in order to meet the requirements of a particular project.
• It includes:
– Planning
• What has to be done, when and by whom
– Organizing
• Resources need to be organized through activities such as
procurement and recruitment
– Directing
• Directing their activities towards a coherent objective
– Controlling
• It ensures that they fit within the limits
 Roles and Responsibilities of Project Manager
• Coordinating and integrating activities across multiple functional lines
• Defining and maintaining the integrity of the project
• Developing the project execution plan
• Organizing for the execution plan
• Setting targets for accomplishment of project objectives
• Negotiating with the suppliers, clients and the project members
• Directing, coordinating and controlling the project activities
• Maintaining the balance between technical and managerial project
functions
• Coping with risk associated with project management
 The Challenge of Project Manager

• The Project Manager

– Manages temporary, non-repetitive activities and frequently acts
independently of the formal organization.
• Organizes resources for the project
• Provides direction, coordination, and integration to the project team
• Manages a diverse set of project stakeholders
• Dependent upon others for technical answers
• Is responsible for performance and success of the project
– Must induce the right people at the right time to address the right issues
and make the right decisions.
 Rules for Project Managers

• Understand the problems, opportunities, and expectations from a

project
• Recognize that project teams will have conflicts, but this is a natural
part of group development.
• Understand who the stakeholders are and their agendas.
• Realize that organizations are very political and use politics to your
advantage.
• Realize that project management is “leader intensive” but that you
must be flexible.
 Project Management Processes

• The knowledge, skills, tools and techniques associated with good project
management practices, the desired results or outputs, and the necessary
data or inputs are collectively identified as project management
processes.

• PMBOK® Guide recognizes 42 discrete project management processes

and classifies them into 5 process groups and 9 knowledge areas.
Project Management Process Groups
(Classification according to Life Cycle Phases)

• Initiating: Defines and authorizes a project

• Planning: Defines and refines objectives, prepares detailed
action plan for project activities to meet project objectives on
scope, time, cost, and quality
• Executing: Manages people and use of other resources to carry
out project activities
• Monitoring & Controlling: Continually measures the
performance against the standards and takes corrective actions
• Closing: Formal acceptance of the project product or result and
orderly end of the project activities.
 Project Management Knowledge Areas

• Project Integration Management

• Project Scope Management
• Project Time Management
• Project Cost Management
• Project Quality Management
• Project Human Resources Management
• Project Communication Management
• Project Risk Management
• Project Procurement Management
 Project Selection
• Projects are vehicles of change for an organization creating a new product,
service or result useful for implementing the organization’s business
strategy.

• Project selection may be based on:

– Non-financial criteria
• These include meeting legal or social obligations, compulsion based on competitive
economic pressure for survival or continuation of business (market trends, new
products, or cost saving and adoption of new technology), or management’s vision
for new direction

– Financial criteria
• Projects for setting up new manufacturing facility or infrastructural set up for
providing a new product or service, major expansions for raising the production
level, backward or forward integration of operations, and major diversifications
are usually selected on the basis of financial criteria
 Importance of Rigour in Application of
Financial Criteria

• Rigour in application of financial criteria is important,

because:
– Projects are usually large and investments are huge compared to routine
operations.
– Investment decisions are irreversible.
– Large risks involved with future operations viability – a wrong move
may cripple a healthy organization.
 Cash Flows

• Project selection methods using financial criteria are based on estimating

the future cash flows related to the project.

• The future cash flows for a project are estimated using certain principles
and calculation procedures.

• Project cash flows may be classified as investment for fixed assets,

margins for working capital, surplus generated from project
operations and economic recovery from the project’s assets at the end
of project life.
 Selection Methods using Financial Criteria

• Raw Cash Flows (Without Discounting):

– Return on Investment (ROI)
– Payback Period (PBP)

• Discounted Cash Flows:

– Net Present Value (NPV)
– Internal rate of Return (IRR)
 Calculation Procedures

• Return on Investment (ROI) Method:

ROI % = Average annual cash flow x 100 %

Project investment
The higher the percentage, the more attractive the investment

Example: An investor purchases property A, which is valued at $500,000; two

years later, the investor sells the property for $1,000,000.What is the ROI?

• Pay-back Period (PBP):

Pay-back period (years) = ( Project investment) / (cumulative annual
project returns) years
Or
Payback period (yrs.) = Estimated project cost/Annual savings

The shorter the period, the more attractive the investment

 Example of PBP

• Assume Company A invests $1 million in a project that is expected to save the

company $250,000 each year. The payback period for this investment is 4 years
(which is found by dividing $1 million by $250,000).

• Consider another project that costs $200,000, has no associated cash savings, but
will make the company an incremental $100,000 each year for the next 20 years ($2
million).

• Clearly, the second project can make the company twice as much money, but how
long will it take to pay the investment back?
– The answer is found by dividing $200,000 by $100,000, which is 2 years. The second project will take
less time to pay back and the company's earnings potential is greater. Based solely on the payback
period method, the second project is a better investment.
 Discounting Cash Flows
• Future cash flows are discounted to equate them with their present values
using a pre-selected annual discounting factor.

• The most common factor is 14 % to 16 % per annum.

• The advanced financial investment theory recommends use of weighted

average cost of capital to be used as discounting factor.

if r % = annual discounting factor,

pv = present value of cash flow and

pf = raw estimated value of future cash flow in the nth year

pv = pf / ( 1 + r) n and pf = pv * ( 1 + r) n
 Calculation of NPV and IRR

• Calculation of NPV:
– If CF1, CF2, … CFn are the estimated cash flows in the first, second and
nth year of the operation and I is the initial project investment in the
first year,

NPV = CF1 /(1+r) + CF2 /(1+r)2 + … +CFn /(1+r)n - I

– The higher the positive value of NPV, more attractive the project
investment.

• Calculation of IRR:

– In the above equation of NPV, that value of r , which makes NPV equal
to zero is the internal rate of return for the project.

– The higher the internal rate of return, the more attractive the project
investment is.
 Internal Rate of Return Rule Example
• There are two projects that a company is reviewing. Management must
decide whether to move forward with one, none or both of the projects. The
cash flow patterns for each project are as follows:
• Project A
Initial Outlay = $5,000, Year one = $1,700, Year two = $1,900, Year three = $1,600,
Year four = $1,500, Year five = $700
• Project B
Initial Outlay = $2,000, Year one = $400, Year two = $700, Year three = $500, Year
four = $400, Year five = $300
• Using the above examples, the IRR for each project is calculated as:
• IRR Project A: $0 = (-$5,000) + $1,700 / (1 + IRR) ^ 1 + $1,900 / (1 + IRR) ^ 2 +
$1,600 / (1 + IRR) ^ 3 + $1,500 / (1 + IRR) ^ 4 + $700 / (1 + IRR) ^ 5
• IRR Project B: $0 = (-$2,000) + $400 / (1 + IRR) ^ 1 + $700 / (1 + IRR) ^ 2 + $500
/ (1 + IRR) ^ 3 + $400 / (1 + IRR) ^ 4 + $300 / (1 + IRR) ^ 5
• IRR Project A = 16.61%
• IRR Project B = 5.23%
• If the company's cost of capital is 10%, management should proceed with Project A
and reject Project B.
 Project Evaluation Method

• Different organizations have preferences for different project

evaluation methods. However, two important points should always
be borne in mind:

– Whatever analytical method is used, the integrity and accuracy of data

used plays a very important role.

– The analysis can provide some objective basis for decision making, but
in the final analysis, it is the knowledge, experience, judgment, and
entrepreneurial risk taking capability of the decision maker that lies
behind successful investment decisions.
 Project Scope
• The work that must be performed to deliver a product, service or result with
specified features, functions and satisfaction criteria.
• Scope is the process of developing a detailed description of the project and
the product of the project, the output of this process is project scope
statement.
• Key issues in project scope management
– Prevent indiscriminate scope creep.
– Include all deliverables in project work and complete satisfactorily.
– Use discretion in permitting some scope changes which are crucial for meeting
the project objectives though they may not have been properly spelt out at the
stage of defining scope.
• Verification of scope: Process of formalizing the acceptance of completed
project deliverables.
• Control scope: The process of monitoring the status of the project and
product scope and managing changes to scope baseline.
 Contents of Project Scope Statement
• Project Objectives
• Product scope description
• Project boundaries – inclusions/exclusions
• Project deliverables and project acceptance criteria
• Project Constraints & assumptions
• Project Management Guidelines
– Project Cost
– Major milestones & project schedule
– Quality aspects and acceptance requirements
– Project management team & project organization
Nature of Project Integration Management Processes

• Initiating Process : Develop Project Charter

• Planning Process : Develop Project Management Plan
• Executing Process : Direct and Manage Project Execution
• Monitoring & Controlling Process:
• Monitor & Control Project Work
• Perform Integrated Change Control
• Closing Process: Close Project or Phase
 Purpose of Initiation

• Formally authorizing a new project and informally

ensuring that an existing project continues in the next
phase.
• Documenting the business needs and new product or
service to be created by the project.
• Linking the project undertaken to the on-going operations
of the business.
 Develop Project Management Plan

• Project Management Plan is an integrated result of all

project planning.
• It is meant to define and refine project objectives and
work out in sufficient details the course for effective
execution of all project activities.
 Monitor & Control Project Work

• The process for tracking, reviewing and regulating the project

work in order to meet the performance objectives and
standards defined in the project plan.
 Integrated Change Control

• This process is at the heart of managing changes.

• The process should on one hand try to permit minimal
changes and prevent the frittering away of resources and
project focus on peripheral objectives.
• It should ensure that all changes proposed from thoughtful
review of project should be incorporated.
 Question
• Two new software projects are proposed to a young, start-up
company. The Alpha project will cost $150,000 to develop and
is expected to have annual net cash flow of $40,000. The Beta
project will cost $200000 to develop and is expected to have
annual net cash flow of $50,000. The company is very
concerned about their cash flow. Using the PBP, which project
is better from a cash flow stand point? Why?
• Ans: A
THANK YOU