Proj - Imp - Manual

Project Implementation Manual
PROJECT IMPLEMENTATION MANUAL

TABLE OF CONTENTS
S. No. TOPIC Page No.

CHAPTER - 1
1 PROJECT CONCEPTUALIZATION, FORMULATION & SANCTION 1
1.1 Objective & Scope of the Manual 1-2
1.2 Project Implementation Agencies 2-3
1.3 Role of the Public Sector Enterprises 3
1.4 Conceptualizing the Project 4-5
1.4.1 Factors to be Considered for conceptual Study of a Project 4
1.4.2 Pre-project Estimation at Conceptual Study Stage 4-5
1.4.3 Assessment/Appraisal of the Project at Conceptual Stage 5
1.5 Project Organization for Project Management 5-7
1.5.1 Role of Project Authority 5
1.5.2 Project Organization 5-6
1.5.3 Role of Project Manager/Nodal Officer 6-7
1.6 Project Formulation Identification, Appraisal & Approval 8-17
1.6.1 Government Guidelines for Project Formulation, Identification 8-9
and appraisal
1.6.2 Government Sanction for Projects 9
1.6.3 Adoption of PPP Mode 9-11
1.6.4 Project Identification/Formulation 11
1.6.5 Preparation of Feasibility Report (FR) 11-13
1.6.6 Public Investment Board(PIB) and Main Expenditure Finance 13-14
Committees (EFC’s)
1.6.7 Preparation of Detailed Project Report (DPR) 14
1.6.8 Regulatory/Statutory Clearances 14
1.6.9 Environmental Impact Assessment (EIA) 14-15
1.6.10 EIA Clearance 15-16
1.6.11 Forest Clearance 16
1.6.12 Compensatory Afforestation 16
1.6.13 Project Infrastructure Development & Integration of Inter- 16-17
related Projects.
1.6.14 Sectoral Check List 17
1.7 Project Preparedness Appraisal 18-19
1.8 Preparation of Check List for allocation of Responsibilities 19-20
PROJECT CONSULTANTS
1.9 Selection of Consultants, Advisors, Venture Managers, and 20-23
their respective relationship with the Project Authority.
1.9.1 Selection of Consultant(s) 20-21
1.9.2 Engagement of Consultant(s) 21-22
1.9.3 Linkage with Project Authority 22-23
Ministry of Statistics & Programme Implementation


PROJECT COST ESTIMATION /BUDGETING AND FUNDING
1.10 Financing the Projects, Organization of Venture Capital, 23-28
Selection of Fund Managers. Alternate Sources of Funding.
1.10.1 Project Cost Estimates 23
1.10.2 Cost Estimation Software 24
1.10.3 Major Sources of Project Funding 24
1.10.4 Internal Generation of funds 25
1.10.5 Extra Budgetary Resources (EBR) 25
1.10.6 Budgetary Support 25
1.10.7 External Aid 25-28
TECHNOLOGY CHOICE
1.11 Technology Policy 28-30
1.11.1 Objective of Technology Import 28-29
1.11.2 Procedure for obtaining Govt. approval 29
1.11.3 Taking of Agreements on Record 29
1.11.4 Annual Returns 30
CHAPTER – 2
2 PROJECT PLANNING & SCHEDULING 31-66
2.1 Time Management in Project Implementation 31-38
2.1.1 Engineering Schedule 32
2.1.2 Procurement Schedule 32-33
2.1.3 Manufacturing and Delivery Schedule 33
2.1.4 Construction Schedule 33-34
2.1.5 Commissioning Schedule 34
2.1.6 Manpower Scheduling 34
2.1.7 Project Management Information System (PMIS) 34-35
2.1.8 Activity Flow Charts 35-36
2.1.9 Format for Project Management System 36
2.1.10 Project Management Information System (PMIS) Group 36
2.1.11 Master Network Schedule 36-37
2.1.12 Application of Artificial Intelligence in Decision Making 37
2.1.13 Project Monitoring and Reporting 37
2.1.14 Project Review Team (PRT) 38
2.2 Project Cost Management & Control 38-44
2.2.1 Importance of Cost Control 38-39
2.2.2 Preparation of Budget Manual 39
2.2.3 Identification of Cost Centers 39
2.2.4. Identification of Responsibility Centres 39
2.2.5 Codification of Expenditure Heads 39
2.2.6 Coordination, Data Collection of Actuals, Comparison and 39-41
Analysis of variance
2.2.7 Cost and Expenditure Reporting 41
2.2.8 Project Cost Performance 41-44


2.3 Development of a Database, Data Management and Data 44-47
Mining
2.3.1 Data Sets 45-47
2.3.2 Distributed Data Processing Facilities 47
2.4 Application of Project Management Software in Project Planning, 48-50
Implementation, Monitoring and Control
PROJECT IMPLEMENTATION
2.5 Selection of Construction Agency, Contract Management and 50-60
Administration.
2.5.1 Contract Management System 50-51
2.5.2 Contract Strategy 51-53
2.5.3 Contract Planning and Scheduling 53
2.5.4 Compilation of Tender Specifications and Issue of NIT 53-56
2.5.5 Processing and Evaluation of Bids 56-57
2.5.6 Award of Contract 57-58
2.5.7 Management of Contract Changes 58
2.5.8 Control of Claims by Contractors 58
2.5.9 Guarantee on Performance and Maintenance of Quality 59-60
2.5.10 Imposition of liquidated Damages (LD) 60
2.5.11 Bidding by Public Enterprise 60
2.6 Materials Management System 60-65
2.6.1 Material Management’ 60-61
2.6.2 Material Planning/Procurement 62
2.6.3 Post Award Follow up of Equipment/Machinery Supplies 63-64
2.6.4 Site Stores Management 64-65
2.7 Use of Management Information System for Progress Review 65-66
& Mid Course Corrections for Project Implementation
2.7.1 Mid Courses Corrections 65-66
2.7.2 Crash Actions to meet Project Schedule and Recovery of lost 66
Time
CHAPTER – 3
3 PROJECT STARTUP: PRE-COMMISSIONING AND MONITORING 67-75
3.1 Pre Commissioning-Startup 67-70
3.1.1 Planning For Startup 67
3.1.2 Pre-Commissioning 67
3.1.3 Pre-commissioning Activities 67-69
3.1.4 Statutory Clearances before Commissioning 69-70
3.2 Commissioning and Start up 70-73
3.2.1 Recruitment of Key Personnel 70
3.2.2 Operating Manual 70
3.2.3 Maintenance Manual 70
3.2.4 Other Manuals 70


3.2.5 Other Requirements 70
3.2.6 Training of Personnel 70-71
3.2.7 Safety Integrity Check 71
3.2.8 Safety Audit 71
3.2.9 Commissioning 71
3.2.10 Startup 71
3.2.11 Coordination and Control 72
3.2.12 Guarantee Test and Acceptance 72
3.2.13 Pre-operational Expenses 72-73
3.2.14 Fixing the Date of Commercial production 73
3.2.15 Completion Report 73
3.3 Plant Improvement, Energy Conservation and 73-75
Debottle-necking
3.3.1 Plant Improvement 73
3.3.2 De-Botllenecking 73-74
3.3.3 Optimization of Feed Stock, Utility Consumption and Recovery 74
of Valuable By-products
3.3.4 Minimization of Outages 74
3.3.5 Energy Conservation 74
3.3.6 Down Stream Processing Facilities 74
3.3.7 Plant Development / Improvement Process 75
CHAPTER - 4
4 MANAGEMENT TOOLS & TECHNIQUES 76-91
4.1 Integrated Project Management Systems for Planning and 76-77
Control
4.1.1 Integration of Various Project Activities 76
4.1.2 Automation of Project Management Tools 76
4.1.3 CPM Network 77
4.1.4 Resource Allocation 77
4.1.5 Work Break Down Structure (WBS) 77
4.1.6 Cost/Schedule Integration 77
4.2 Electronic/Artificially Intelligent Project Management/ 77-80
Monitoring Systems
4.3 Information Systems for Project Implementation and 78-80
Monitoring.
4.3.1 Designing of Information Systems 78
4.3.2 Project monitoring reports 78-80
4.4 Project Risk identification, Profiling and Mitigation 80-87
techniques.
4.4.1 The Agencies to be Graded 81
4.4.2 Factors for Risk Estimation 81
4.4.3 Expected Benefits from a comprehensive Grading System 82-83
4.4.4 Risk Mitigation 83


4.4.5 Business risk drivers 83-85
4.4.6 Financial Risk Drivers 85
4.4.7 Past financial performance 85-86
4.4.8 Insurance Coverage of Risks 86-87
4.5 Electronic / Artificially Intelligent Risk Management Systems. 87

4.6 Performance Evaluation Systems. 87
4.7 Evaluation of productivity 87
4.8 Quality Appraisal/Assessment Systems. 88-91
4.8.1 Need of Quality Assurance 88
4.8.2 Quality Assurance System 88
4.8.3 Management of Quality Assurance (QA) in Projects 88-91
4.8.4 Attainment of Quality 91
CHAPTER - 5
5 PROJECT SOCIAL RESPONSIBILITY 92-93
5.1 Social Impact of a Project 92
5.2 Relief & Rehabilitation (R&R) of Project Affected People (PAP) 92
5.3 Acquisition of Land & Rehabilitation of Land Oustees 92-93
5.4 Training of Project Affected People (PAP) 93
APPENDIX
1.6.1 Guidelines on Public Investment / Expenditure – Office 94-110
Memorandum
1.6.6 (A) Format of EFC Memorandum 111-114
1.6.6. (B) Format of PIB Memorandum 115-120
1.6.7 Generic Structure of The DPR 121-123
1.6.8 Regulatory / Statutory Clearances 124-125
1.6.10 Sectoral Checklists 126-161
1.8 Preparation of Check List for Allocation of Responsibilities 162-168
2.1.9 Format for Project Management System 169-171
2.4 Project Management Software Selection Criteria 172-175

CHAPTER – 1
1. PROJECT CONCEPTUALIZATION, FORMULATION & SANCTION
1.1 OBJECTIVE AND SCOPE OF THE MANUAL
This Manual has been prepared with the objective of laying down appropriate guidelines covering the
subject of project management from the very beginning before a project even exists. It discusses the
entire gamut of project activities commencing from inception to commissioning covering the complete
life cycle of a project.
As a project has to deal with a large number of agencies of the Government, both State and Central,
throughout its implementation cycle, considerable coverage in the Manual has been given to Project
Authority’s & Government’s interface. It is common knowledge that considerable delays take place at
this interface and a proper understanding of the general principles and broad policies of government
relating to projects may help in improving the pace of project implementation.
A project can belong to any of the following sectors.
a. Social and Community development sector covering Education and HRD, Health and Medical
Services.
b. Economic Sector covering Agricultural, Irrigation, Fisheries, Forestry, Industry and Industrial
Estates and Tourism.
c. Infrastructure and Utilities Sector covering Roads and Bridges, Shipping and Ports, Airports and
Civil Aviation, Energy and Power Generation, Telecommunications, Water Supplies and
Sewarage, Housing and Railways.
Conceptually the project design in all these sectors are based on the same principle. However, the
process of planning and implementation may differ from sector to sector. Similarly, the measurement of
inputs and outputs of activities that are identified for achieving objectives laid down in a project will also
differ.
The projectization philosophy has been adopted even in programmes which are meant for poverty
alleviation, creating social infrastructures and implementing other development programmes to ensure
proper measurement and accountability. Keeping these objectives in mind, this project implementation
manual has been designed. It does not attempt to cover every possible factor which may need to be
taken into account when formulating and implementing a project but these guidelines, highlight the key
factors required to be considered in each project/programme.
Essentially the project cycle envisages 5 basic stages.
a. Pre-project stage
Ministry of Statistics & Programme Implementation 1

b. Project approval
c. Project Implementation Planning and implementation
d. Project commissioning / operation
e. Evaluation
a. Pre-project stage — In the first stage, the project conceptualization takes place which includes
identification, formulation of ideas and preparation of the project idea (white paper) for stake-holders,
preparation of feasibility report, based on the best selected option and preparation of detailed project
report.
b. Project approval — In the second stage, the project is approved by the concerned authorities
including required statutory and other clearances followed by project financing and approval by the
Government (Centre/State).
c. Project Implementation Planning and Implementation — In the implementation phase, detailed

planning and scheduling is carried out for implementation of various aspects of Project Management
including human resource planning, detailed design and engineering, material management,
construction, control and supervision. The actual implementation starts in this phase based on the
approved plan.
d. Project Commissioning — In this phase, the project is commissioned to achieve the laid down
objectives of producing goods and services within the specified quality and other parameters.
e. Evaluation — During this phase, over a period of time till the plant / services are stabilized lots of
improvements and debottlenecking efforts are made to ensure the best results both in terms of quality
and quantity. In the evaluation phase, the project is evaluated with respect to the objectives and the
observations made are utilized for bringing improvements in future designs of similar projects /
programmes.
1.2 PROJECT IMPLEMENTATION AGENCIES

The projects / programmes are implemented in India either by the Government directly, or through its
agencies like Central Public Sector Enterprises, State Public Sector Enterprises or by the autonomous
institutions/ special purpose vehicles/ non-Government organizations or by adopting various types of
partnerships with public community/ private sector, etc. This manual emphasizes on the role of
Government Agencies/ enterprises for project planning, implementation and management of project
and programmes.
As the size, duration and complexity of present day projects have enormously increased and as the
organizations responsible for their implementation have different structures, systems and practices, it is
imperative that each Public Sector Enterprise (PSE) should have Procedural Codes & Manuals
prescribing in detail the systems and procedures for various facets of project implementation, such as:
• Project Planning
• Engineering & Technology
• Contracts Management
• Materials Management
• Health, Safety & Environment Management
• Human Resources Management
• Accounts & Finance Management
2 Ministry of Statistics & Programme Implementation

• Commissioning etc. and

• Post commissioning evaluation
Each PSE, in view of their varying organization structure and delegation of authority at different levels of
project hierarchy, a clear-cut definition of all important words/terms viz. Project Owner/Project
Authority/Project Manager/ Nodal Officer, Responsive Bidder, Competent Authority etc., should be
clearly stated in their Works Manual so that all concerned officers are fully aware of their responsibilities
for project execution and they do get the things done in the best way without constraint.
In order to keep the size of the Project Manual within manageable proportions, and to have general
applicability to all kinds of projects in diverse Infrastructure Development sectors which are of highly
technically complex in nature but also to cover social Infrastructure projects to meet social
commitments, the emphasis has been laid on broad principles of “what constitutes good project
management?” in this manual.
1.3 ROLE OF THE PUBLIC SECTOR ENTERPRISES

In India, Public Sector has been envisaged to be the pillars of the country's economic infrastructure
development. To ensure this, massive investments have been made in the Public Sector right from the
beginning of the First Five Year Plan. This ever increasing investment has enabled this sector to occupy a
dynamic position in the national economy. Public Sector Enterprises (PSEs) have come to command a
very substantial share of the country's total capacity in production of the basic industrial inputs, raw-
materials and sophisticated engineering products in the core sectors of the economy.
One of the main responsibilities of Public Enterprises is to ensure that the investments produce
adequate returns to the society. While, the government has kept up the tempo of investment in public
sector, with the globalization of Indian economy and rapid changes in the Domestic and International
business environment, Government’s emphasis has shifted, by granting enhanced autonomy and
delegation of powers to selected Public Enterprises (Navratnas and Mini-Ratnas), to encourage them to
get turned into global giants. One of the most important reasons for the special status granted to these
Public Enterprises was their performance in completion of projects with minimum cost and time over-
runs which met the Government’s confidence in these Enterprises and, thus, Government granted them
liberalized powers to take investment decisions, both in regard to the quantum of investment and scope
of new projects and revamp/modifications of their existing production/service units.
There are many Public Enterprises, however, which have failed to meet the Government’s aspirations
both for the cost and time over-runs in the completion of the projects undertaken by them as well as
generation of adequate returns on the investments already made by them. Such Public Enterprises need
to adopt and use highly effective project management techniques and skills which have evolved in order
to coordinate and control complex activities involved in implementing projects.
Therefore, the Ministry of Programme Implementation has given special emphasis to public sector
enterprises on general guidelines, taking into account the various problems faced in effective project
management and various government instructions/orders relating to Project Implementation by
Public Sector Enterprises (PSEs) while preparing this Manual.
Effective project management being a complex and difficult exercise, it is emphasized that while general
guidelines can be followed on the various facets of project management as attempted in this Manual,
the same have to be tailored to the unique characteristics of each project and programme and its impact
on environment. It is imperative that each Public Sector Enterprise must prepare its own project
implementation manual covering various aspects to meet its commitments to the nation and to suit
needs of the society.

1.4 CONCEPTUALIZING THE PROJECT

1.4.1 Factors to be Considered for conceptual Study of a Project
The eventual success of the project, depends mainly on the way it has been conceptualized. Following
factors need to be addressed very carefully, while conceptualizing any project.
a. The need
b. The beneficiaries
c. Tangible and intangible benefits
d. The cost and the returns, both in tangible and intangible terms.
e. The features governing the choice of execution agency
f. The features governing the supervisory agencies
g. The technology and methodology of implementation
h. Relevance and suitability of the technology and methodology in the context of sustained
applications.
i. Geographical location and its specific features if any.
j. Availability of support infrastructure for sustaining the employed technology.
k. Any other relevant feature affecting the overall implementation management.
It is to be noted that, deliberations on the above factors and proper analysis shall go a long way in
making the project execution successful
1.4.2 Pre-project Estimation at Conceptual Study Stage
To provide an independent, objective, appropriate and reliable conceptual design of a project, a team of
experts and qualified professionals having experience in projects/programmes of similar nature in
domestic and international arena should be picked-up. This dedicated team may configure experts in
Architecture, concerned engineering technology and processes, business planning and management,
and cost engineering who would generate well documented answers to following basic pre-project
queries, related to conceptual study.
Design Questions
a. Where are the objectives and what demands are satisfied? Explain with and without situation.
b. Who are the beneficiaries?
c. What is the scope & capacity of the porgramme / project
d. Which technology/process to be adopted?
e. What will it cost using the chosen technology/process?
f. Will it show profit, facilities it will result in & when?
g. Whether running costs are fully financed?
h. Where shall it be built?
i. Time it will take to be built?
j. How it will be built within scheduled time ?
The answer to these basic queries would help in the development of a sound proposal.

“The basic objective of project conceptualization is to have the right products, in the right quantities,
at the right place, at the right moment & at the right (minimum) cost.”
1.4.3 Assessment/Appraisal of the Project at Conceptual Stage
Public sector enterprises are governed by government procedures and policies. Since PSE’s will continue
to play most significant role in project implementation through all phases of project from concept to
commissioning whether it is in the form of new industrial/infrastructure unit or re-vamping of existing
unit or expanding the facility etc., they should thoroughly examine the project conceptual studies
entrusted to the project evaluation team on following critical issues:
a. Type of project: developmental project, first experience, etc.

b. Elements of uncertainties viz. site selection/site availability, licensing and technical know-how
fees, contingencies, inflation, escalation etc.
c. Quality and reliability of the process and engineering data
d. Validity of the estimating data and methods used in preparing the estimates based on cost data,
time schedule, technical parameters, quantities etc.
The project estimates at the conceptual stage is expected to have costing inadequacies in view of
several contingencies and uncertainties. Since capital investment decision is a long term commitment of
economic resources made with an objective of producing and obtaining net gains in the future, the
estimates worked out at the conceptual stage of the project would enable the authorities to arrive at a
quick and early indication of the required investment level for using it for budgetary purposes and for
guiding investment decisions.
1.5 PROJECT ORGANIZATION FOR PROJECT MANAGEMENT

1.5.1 Role of Project Authority
In the current scenario, most projects are becoming highly complex involving advanced technologies
requiring a strong organizational structure for speedy implementation. Delays are most common in the
early stages of project implementation. The Project Authority, therefore, has to play a key role in
providing utmost importance to the projects in the initial stages of their Formulation & Appraisal. Some
of the main reasons/problems causing delays at the early stages of project Formulation are:
a. Inadequate studies related to the project Conceptualization and Feasibility

b. Incorrect estimation of project costs.
c. Delays in getting various clearances, especially clearance from environmental, forest and wildlife
angle
d. Inadequate assessment of technology
e. Problems of project financing
f. Delay in various approvals and consequent changes in the basic assumptions made.
g. Lack of expertise in project appraisal
h. Low priority assigned by existing units to new projects for expansion, modernization and
integration.
i. Mid-stream changes in the key project parameters.
j. Ambiguity in the relation-ship between various agencies involved in the project

As most projects are unique and the Project Authority may not have the expertise to carry out
specialized tasks which caused such problems, it would be appropriate for the project authority to
engage a consultant/ team of consultants of repute for following project activities:
a. Preparation of Feasibility Studies, Reports (FR)

b. Preparation of Detailed Project Reports (DPR)
c. Preparation of Environmental Impact Assessment (EIA) & Environmental Management Plan
(EMP) Reports
d. Project Planning and Design
e. Preparation of necessary contract documents for procurement of Equipment and Services,
Indigenous & Imported
f. General supervision of Project Execution for Control of Time, Cost and Quality
In addition, the Project Authority/Owner may also have to create core team experts initially and a strong
project management team led by a Project Manager/Nodal Officer who shall play a committed role of a
monitor, progress chaser, reporter and expeditor and a separate team of qualified and experienced
personnel for Quality Assurance and Quality Control, who may be called Quality Monitors. It would be
their duty to keep the top management of their organization to keep abreast promptly of any hold-ups
& constraints causing likely delays and affecting quality of the project with duly analyzed
recommendations of the Consultant/Consultancy organization to effectively deal with such issues.
The Consultant’s role is more comprehensive as it brings expertise and knowledge and guides the
Project Authority on best choice in preparation of feasibility studies, selection of technology, planning,
designing and engineering, procurement of goods, machinery and equipment, preparation of contract
documents, analysis and recommendation of tenders, contract administration, checking quality and
progress, and exercising general supervision over the project. At the project formulation stage, the
Consultant may also be involved in approaching and negotiation with local authorities.
Project Management is a complex and difficult exercise, therefore, it is emphasized that, while general
guidelines can be provided, as attempted in this Manual, for the various facets of project management,
but the same has to be tailored to the unique characteristics of each project and its environment. A
systematic and methodical project management could, thus, by and large, eliminate or hedge against
problems of time & cost over-run in project implementation.
1.5.2 Project Organization
If a project is very large, a project oriented organization may be more desirable, in which all the
functions and the resources necessary to accomplish the objective of the project are put into a single
hierarchical organization under the Chief Executive or Project Head. Such an organizational form entails
additional expenses, which may be justified by the largeness and complexity of the project and are
mostly adopted in cases where a new Public Enterprise is created to launch a complex project viz. DMRC
(Delhi Metro Rail Corporation).
There is another form of Organization termed “Project - Matrix Organization” or ‘Promatrix’

organization which particularly suits a multi-project Public Enterprise. The organization so built is
temporary in nature as it is built around the specific project and lasts only for the finite life of the
project. Such project – matrix organization consists of a multi-disciplinary team for project management
and implementation whose members are drawn from various disciplines or functional units of the
Enterprise. In a Promatrix organization, there are usually two chains of command, one along the
functional lines and the other along project lines. The need for ‘Promatrix’ form of organization has
arisen mainly from two considerations, namely,

a. Top management feels a strong need to have a single source of information and a single point of
responsibility for each project.
b. The necessity for designating the Promatrix team around the tasks to be performed for project
management and implementation.
Promatrix form of project management team is formed in most enterprises which are organized on
functional lines and are engaged in operating & running various plants/units already executed by the
enterprise and also have responsibility for implementation of new or expansion projects. In such
organizations engineering, production, procurement, marketing, finance, personnel and other functions
would be under the charge of functional Divisional Heads with vertical lines of authority, reporting to
respective functional directors at the Board level.
1.5.3 Role of Project Manager/ Nodal Officer
Major projects require multitude of inputs from numerous specialized agencies from both within and
outside the enterprise. The role of the project Manager/Nodal Officer, therefore, assumes great
significance in coordinating the effort of various disciplines involved in all phases of project
implementation such as detailed engineering, procurement etc. He exercises total authority and accepts
full responsibility for the execution of the project. He should be provided with requisite team of
engineers and other support staff and should also be delegated with adequate financial powers. He is
responsible for the management of the interface relationship between his project team and the project
team of the consultant on the one hand and various functional managers within his own organization on
the other. It is essential that the project manager/coordinator, to be really effective, should report
directly to the Chief Executive of the Enterprise.
Where consultants have total responsibility for project management- process/design engineering,
procurement, construction supervision and assistance in commissioning, the role of project manager
assumes even greater importance because of sharing of responsibility of project implementation and
resultant diffusion of accountability. To illustrate the point, a representative of the consultant may be
designated as Engineer-in- charge in the contract agreement, but the ultimate power for selection of
contractor and passing their bills may vest with the project enterprise. It should, therefore, be realized
that consultant works for a fee as advisor to the project and the project Manager/Nodal Officer is solely
responsible for any lapses in project implementation.
The division of responsibility between the consultant and the Nodal Officer for implementation of the
project should always be clear-cut and should leave no scope for any ambiguity about their respective
roles.
The work culture, management style, and quality of leadership and decision making in a project are
significantly different from that in an operating plant. There is a race against time from the inception of
the project and a sense of urgency has to permeate at all levels of the project management team to
ensure timely completion of' the project. The project organization should, therefore, be distinct from
the operating unit in the enterprise.
Project Manager/Nodal Officer must be selected for proven qualities of leadership. It is essential for him
to infuse a sense of mission among the members of the project team from the start. The Project
Manager/Nodal Officer is instrumental in creating a sense of participation by various agencies such as,
consultants, contractors, labour, local community, concerned departments in State or Central Govt. etc.
in successful implementation of a project. Without the willing cooperation of every agency, delays are
inevitable.
Keeping in view the crucial role of the Project Manager/Nodal Officer in the successful
implementation of a project, Government have recognized the importance of continuity of tenure of

the project manager/coordinator in projects. Instructions have now been issued that project
manager/ Nodal Officer should be identified fairly early in the project cycle and he should be in an
appropriate age group so that he will not only see the project through from concept to commissioning
but will have a couple of years of service after commissioning of the project so that he is also
responsible for the operation of the plant at the designed performance level. The underlying idea of
Government's instructions is that there should be a single focal point of accountability for project
implementation.
In specific instances, where the Project Manager / Nodal Officer is likely to superannuate during the
project duration, his term of appointment shall automatically be extended to cover the entire project
duration, including successful commissioning.
This provision would also apply to other team members, who, in the opinion, of the Project Manager /
Nodal Officer may be required to serve on the project.
1.6 PROJECT FORMULATION, IDENTIFICATION, APPRAISAL & APPROVAL

Industrialization along with setting up of infrastructure projects in all related sectors for its smooth
performance is the back bone of economic development and progress. Such development is pursued by
either Government (Public)/its agencies/Institutions/PSEs, or by PPP (Public Private Partnership) set ups,
or by Private Enterprises/Entrepreneurs. India therefore shall continue to need huge amount of capital
and other resources for sustainable economic growth to bring India’s core sectors viz Transport, Power,
Communication, Habitat, Health, Education and Industrial infrastructures upto International Standards.
st
In this modern age of 21 century, innovations and breakthroughs must be utilized in project conceptual
studies for formulating the project to clearly bring about a dramatic change beyond incremental
improvements (on earlier concepts) leading to a major performance improvement in costs, schedule,
quality, safety and life time of the project. Adoption of improved conceptual breakthroughs will yield
better returns and benefits to society due to improved productivity, quality and efficiency thereby
resulting in better and economical products spurring simultaneously the market growth and reducing
environmental hazards and safety impacts.
1.6.1 Government Guidelines for Project Formulation, Identification and appraisal
Government have prescribed, from time to time, procedures/guidelines for project implementation of
projects covered under Government plan funded Projects/ Schemes from project formulation stage to
its commissioning stage.
The guidelines/ procedures always emphatically cover the necessary requirements for increased rigour
and capacity building at the project conceptualization, identification, formulation and appraisal stage
which has a major bearing on the relevance and impact of projects as well as on their timely
implementation. The indifferent quality of project formulation and appraisal have always been
considered as major factors which contribute to bottlenecks at the implementation stage and
consequential time and cost over-runs. Failure to identify constraints in the availability of land,
inadequate environmental impact analysis and lack of consultation with stakeholders at the time of
project formulation can retard the implementation and impact of the project at later stage. Additional
time and effort spent at the project formulation and appraisal stage would be time well spent and result
in qualitative improvement in terms of ultimate project impact.
The details of Directives, Orders and Guidelines issued from time to time by Cabinet Secretariat,
Ministry of Finance, Planning Commission, Ministry of Statistics and programme implementation,
Ministry of Industries, and Ministry of Environment and Forest to be followed by Public Enterprises
from project formulation stage to commissioning for project implementation and list of clearances

required for various types of projects, can be reached from the websites of various Ministries such as
Ministry of Finance (Department of Expenditure), Ministry of Urban Development, Ministry of
Environment and Forest, Planning Commission etc. These websites are available under the big
umbrella website of NIC (i.e. www.nic.in ).
With the commencement of the XI Plan period, Guidelines on the subject are being issued afresh, so
as to rationalize the Scheme of delegation further, align it more closely with the rapidly changing
economic environment, empower Ministries/Departments further for undertaking investment
programmes and make the entire procedure more responsive and resilient in ensuring timely and
well-informed decision making.
The guidelines have been laid down for formulation, appraisal and approval of Government funded
plan schemes/projects, covering all sectors and departments vide O.M. No. 1(3)-PF-II/2001 dated 5th
November 2007 issued by Plan Finance II Division, Department of Expenditure, Ministry of finance,
GOI (refer Appendix-1.6.1).
1.6.2 Government Sanction for Projects
The extant instructions on Project Identification, formulation of Feasibility Reports (FRs), “In principle”
approval of Planning Commission, Preparation of DPR (including Generic Structure thereof), Inter-
Ministerial Consultations, Applicability, Evaluation, Time and Cost Overruns have been issued by
Ministry of Finance, Department of Expenditure for XI Plan as stated in clause – 1.6.1 providing
guidelines on following important aspects of Project Approval and Pre-investment activity.
a. Project formulation
b. Institutional Structure for Appraisal of Plan Schemes/Projects
c. Time Frame for Appraisal and Approval of Plan Schemes/Projects
d. Delegation of Powers for Financial Appraisal of Plan Schemes/Projects
e. Approval of Plan Schemes/Projects – Original Cost Estimates
f. Exceptions to the General Delegation Of Powers for Appraisal and
g. Approval of Public Private Partnership (PPP) Projects
h. Specific Dispensations granted to Ministries/ Departments and CPSEs.
i. Creation of Autonomous Organizations
j. Equity/Loan support by Government/CPSEs in XI Plan including Investment by CPSEs in JVs
k. Appraisal and Approval of Plan Schemes and Projects – Revised Cost Estimates (RCEs)
l. Sanctioning Pre-Investment Activity
m. Miscellaneous Issues
i. Completion cost
ii. Viability
iii. Procedure for capital Restructuring
iv. Procedural requirements for Expenditure Finance Committee
v. (EFC)/Public Investment Board (PIB) Approvals
1.6.3 Adoption of PPP Mode
Though the development of Physical Infrastructure is primarily the responsibility of the State, the Govt.
needs heavy investments for this key activity to sustain growth of Indian economy. It has been realized

that participation of Private Enterprises providing funding and management support to the government
would accomplish this mission speedily. Thus, the State identifies the need and opportunity to seek
partnership of private sector for part financing/funding and adopts project implementation strategy to
achieve the goal by seeking and identifying the partner who develops the execution plan in close
interaction with concerned Government Authority/Department. Such venture is known as PPP (Public –
Private Partnership) Venture.
Build Own and transfer (BOT) venture and its variations like BOOT (Build, Own, Operate and Transfer),
BOO SPV (Build, Own, Operate Special Purpose Vehicle) etc. have become prevalent in many
Infrastructure sectors especially in Bridges, Roads/ Highways/Expressways etc. wherein the Private
venturist builds the project with his money and subsequently recovers the money from the tariff
collected from the users for a pre-laid time and these type of Project Execution Strategies are gaining
momentum.
Another unique way of identifying a most suited and committed project partner lies in following the
mechanism of “Swiss Challenge Approach”. For this strategy, the Nodal Government Agency/Authority
who has to take up duly identified Infrastructure Development Project, through its web site, seeks Suo
Motu proposal from an interested Private sector participant (individual, group of individuals or a body
corporate) to be named as “Original Project Proponent” furnishing details of his technical, commercial,
managerial and financial capability and details of the proposal besides submitting details of concession
agreement. After thorough evaluation of the Original Project Proponent’s proposal and ascertaining that
the scale and scope of the project is in line with the requirements of the Project Authority and whether
sharing of the risks as proposed in the concession agreement is acceptable in conformity with long term
objectives of the Government and if such proposal is once accepted and approved, the Govt.
Agency/authority invites competing counter proposals. In case the original project proponent matches
or improves on the competing counter proposal, The project will be awarded to the original project
proponent, otherwise bidder making the competing counter proposal will be selected to execute the
project. In this event when the project is not being awarded to the original project proponent and being
awarded to another bidder, the Nodal Agency/Authority will reimburse reasonable costs incurred for
preparation of the Suo- motu proposal and the concession agreement (which is a much larger activity
compared to preparation of DPR) to the Original Project proponent.
It is noteworthy to mention that the PPP approach is quite workable catering to many exigent
constraints of fund availability resulting in improving the quantum of overall economic progress, more
sustained efforts should be made to adopt PPP approach in majority of cases viz. Power generation,
Transport Networks like Highways & Roads, Railways, Jetties, Bridges, Flyovers, Sub-ways, Tourism
Infrastructure, Community Welfare Hospitals & Commercial buildings, docks, ports & harbors,
Airports, information technology parks, convention centers, seminar centers, exhibition complexes,
etc. The Government Guidelines for Formulation, Appraisal and Approval on Public Private
Partnership (PPP) projects have been issued by the Ministry of Finance, Department of Expenditure,
th
Plan Finance II Division vide O.M. No. 24(1)PF.II/06 dated 16 May, 2007. The Government of India
website www.infrastructure.gov.in may also be approached for related matters. Reference may also
be made to Annex-V (APPENDIX-1.6.1). Sector guidelines have also been issued by the Planning
commission. These can be seen on http://www.planningcommission.gov.in (Also refer clause 1.6.10
for sectoral check list.)
In this case, the selection of partner shall only be done after a thorough due diligence process, taking in
to cognizance following risks.
a. Technology risks
b. Financial risks

c. Political risks
d. Organizational risks
e. Business risks
Chapter 4 clause 4.4 may be referred for elaboration.
1.6.4 Project Identification/Formulation
There are two distinct stages through which a project idea travels before public investment approval
takes place. These are:
a. Project Identification : Feasibility Report (FR)
b. Detailed Project Report (DPR)
At the project Identification/formulation stage, a preliminary consideration is given to the question of
priority and to the position of investment proposal in the context of the Annual and Five year Plans. The
project will be considered for ‘in-principle’ approval by the Planning Commission at the First Stage for
inclusion in the Plan based on evaluation of the FR which shall focus on analysis of following broader
issues:
a. Contribution of the project to the economic and social objectives and adherence to concerned
policies of Government;
b. Need and justification for the project in the context of National priorities;
c. Alternative strategies i.e. advisability of undertaking the project in the public sector, in the joint
sector, in Public Private Participation (PPP) mode or leaving it entirely to the private sector;
d. Initial environmental and social impact analysis;
e. Preliminary site investigations;
f. Stake holder’s commitments and sharing of risks;
g. Project is conceptually sound and feasible both for its economic benefits as well as financial
returns;
h. FR should also present a rough estimate of the project cost;
Criteria for selection of consultants / Advisors to accomplish these tasks may be referred at Clause 1.9.
1.6.5 Preparation of Feasibility Report (FR)
The Feasibility report (FR) is prepared when the project is past the conceptual stage. The FR of a project
should provide enough information to enable various appraising agencies to objectively evaluate the
project proposal for its ‘In-Principle’ approval by the Planning Commission for inclusion in the Plan Based
on the FR.
All technical details, which form the basis of the cost estimates, are generated in stages as a function of
advancement in design activities. At FR stage, the project is broken down into major elements such as
battery limit of plants, storages, major off-site and utility units etc. the information that should be
available at this stageis as follows:
a. Location of facility, whether land acquisition involved, if so, its implications i.e. legal, social,
financial etc.
b. Product pattern
c. Process licensor

d. Type and capacity of off sites

e. New plant or Expansion/Modification/integration with existing facilities
f. Proposed project schedule
g. Other data facilities/references to permit more accurate costing of the units, facilities or
systems, such as similar jobs previously executed
h. Pollution control measures required
i. Environment assessment study
j. Clearance required from various regulatory agencies/statutory bodies
The FR should focus on analysis of the existing situation, nature and magnitude of the problems to be
addressed, need and justification for the project in the context of national priorities, alternative
strategies, initial environment and social impact analysis, preliminary site investigations, stake holder’s
commitment and risk factors.
FR estimate is generally based on the overall cost of projects executed in the past and is derived by
indexing the historical data base to current price level. Equipment specifications, materials take offs etc.
together with historical information available from in-house data base for many of the units, is the
starting point for the preparation of the estimate. The cost estimates prepared at this First stage are
"order of magnitude" type. Accuracy rating of such estimates may vary from -30% to +30%.
The accuracy of project cost estimate and the level of confidence in the estimates improves as the
design and engineering of the project advances further. Since these cost estimates are required for first
stage clearance of a project, too much expenditure on effort and time in collection of data and
refinement of the designs, etc., may not be justified at this stage.
Capital cost escalation curves and capacity cost correction curves together with location factors are used
to adjust the historical cost data of the projects executed in the past. Such estimates are acceptable for
the main process units and the off sites. The estimate for the infrastructure may at this stage be made
only by means of a fiscal comparison with other projects and a rough estimate may be made as per
system.
The State Government's & Local Govt. authority’s commitment and their willing cooperation are crucial
to successful project implementation, as serious bottlenecks are encountered in the acquisition of land,
resettlement of people dispossessed of their land, tackling law and order situation at the project site,
etc. Apart from obtaining requisite clearances from the state agencies, it is desirable to obtain their
commitment to the success of a project before it is sanctioned by G.O.I.
While submitting the FR for ‘In-Principle’ approval, the project enterprise may request specific
authorization from EFC/PIB for incurring expenditure on the following
a. Preparation of Detailed Project Report

b. Site investigation
c. Tying up of know-how and technology
d. Identifying the list and sources of equipment
e. Certain amount of detailed engineering
f. Engaging of consultants
g. Collection of data and preparation of Environmental Management Plan (Air, Water, Soil,
Ecology)

h. Acquisition of land and related Social Aspects (Resettlement & Rehabilitation)

i. National Security, Safety & Public Health
j. Minimum infrastructure development
Consultation with the stakeholders involving owners, beneficiaries, land owners, State Government,
clearing agencies and all other participating agencies should be held to ensure their involvement in the
project conceptualization and project feasibility for carrying out its formulation. The Investment
Proposal at the Project Formulation stage should closely examine the possibilities of Private
Participation for part financing the project in PPP mode or Swiss Challenge mode. The Financial advisor
of the concerned Administrative Ministry should also be involved in this exercise.
In case the cost of process know-how and basic design package is high, it should be clearly indicated in
the FR. The implications of the technological obsolescence in a fast changing process industry should
also be discussed in sufficient detail to enable the EFC/PIB to take a decision at the stage-I clearance
whether to give the authorization for acquisition of the technology.
Since the project cycle commences with the submission of the project Feasibility Report (FR) to the
concerned Ministry, the Administrative Ministry should send the duly appraised FR to the Planning
Commission for ‘in-principle’ approval to enable the project/scheme to be included in the plan of the
Ministry/Department. The time frame for appraisal and approval of FR is specified by the Ministry of
Finance as per the table at Annex II, Appendix 1.6.1.
Also, Guidelines for Appraisal and Approval of PPP Projects have been laid by the Government as per
table at Annex V, Appendix –1.6.1.
1.6.6 Public Investment Board(PIB)/ Departmental and Main Expenditure Finance

Committees(EFC’s)
Public Investment Board (PIB), a high powered committee of the Central Government, is charged with
the responsibility for taking investment decision on proposals for public investment to produce goods
and to provide services. Projects involving expenditure of Rs.150 crore and above which may include
Budgetary support, Internal Resources, External Aid, Loans etc. or where the revised cost estimates
(RCE) exceeds Rs.150 crore are considered by Public Investment Board. These also require the approval
of the Cabinet.
As a result of enhanced delegation of powers to the administrative Ministries, the functions of the
Expenditure Finance Committee (EFC) is performed in the respective Ministries/Departments itself for
sanctioning investment in projects up to Rs.150 crore. Comments of the Planning Commission and other
appraising agencies should be duly considered before sanctioning the investment for the project at
stage-II.
The financial risk at the ‘In-Principle’ Approval i.e. stage -I clearance is quite small. Besides, the delay at
implementation stage is considerably reduced as many of the preliminaries would have been completed
by the time the project is proposed to the Government for Stage-II clearance. If there are
insurmountable problems in the matter of site selection, acquisition of land, adverse impact of project
on environment, unanticipated changes in the market conditions, etc., Government may not sanction
the project at Stage-II.
EFC/PIB normally considers only those projects with a financial internal rate of return and an
economic internal rate of return both exceeding 12% over the operating life of the project. Certain
exceptions to the general delegation of powers for appraisal and approval of plan schemes and
projects have been laid recently (refer clauses 1.6.1 & 1.6.2 stated above and item Serial Nos. 6.0, 7.0
& 8.0 of Appendix- 1.6.1).

Format of EFC Memorandum is placed at Appendix-1.6.6 (A) & Format of PIB Memorandum is placed
at Appendix-1.6.6 (B)
1.6.7 Preparation of Detailed Project Report (DPR)
Every Public Sector Enterprise, after the ‘In-Principle’ investment decision is taken by the Government,
should prepare a detailed project report (DPR), which actually contains complete break down of all
components of the project with specific time schedule and firmed up costs. It is used as an instrument
for controlling and monitoring the physical as well as financial progress of the project. As there is likely
to be variation in cost from the one indicated in the FR and the DPR, sufficient information should be
furnished in the DPR for proper valuation of the cost systems. The services of Experts/professional
bodies may be hired for preparation of the DPR, if considered necessary. DPR should contain
information on all deviations from feasibility report (FR) like deviations in cost, profitability analysis,
technology, scope of the work, market demands, pricing, location etc. The DPR must address all issues
related to the justification, financing and implementation of the Project/Scheme.. The Terms of
Reference (TOR) for preparation of DPR should cover all aspects of the generic DPR structure. In
addition, sectoral/ project specific aspects should be incorporated in the TOR as required. The
requirements of the EFC/PIB format may also be kept in view. The final DPR should be circulated along
with draft EFC/PIB Memo to the Department of Expenditure, Planning Commission and other concerned
Ministries for seeking comments for official level appraisal. Techno-economic clearance should also be
obtained from agencies like Central Electricity Authority (CEA) and Central Water Commission (CWC)
wherever required. Thereafter, the EFC/PIB memo along with appraisal note/comments of the relevant
Ministries and Planning Commission should be placed before EFC/PIB for consideration.
A generic structure of the DPR is given in “Appendix-1.6.7”.
1.6.8 Regulatory/Statutory Clearances
The basic purpose of a project clearance by the Government is to facilitate perspective planning and
formulation for optimally exploiting resources such as water, power, mineral resources, land etc. Equally
important are issues of discharge of treated affluent for sustenance of ecology and upkeep of the
environment in the area in which the proposed project is to be located besides occupational safety and
health management for any industrial operation. The task of obtaining requisite regulatory/
environmental clearances guided by policy framework laid down by Ministry of Labour, Ministry of
Industry & Ministry of Environment & Forests is thus extremely crucial which would require collection of
environmental data, preparation and approval of Environment management plans, Forestry and wild life
clearances etc. in a well - planned way.
Note: Details of various Regulatory/ Statutory clearances required to be obtained from concerned
Ministries/Departments are placed in Appendix-1.6.8.
1.6.9 Environmental Impact Assessment (EIA)
The anti-pollution measures or measures for safeguarding the environment should be treated as an
integral part of all projects being setup. Ministry of Environment and Forest is the nodal ministry
charged with the responsibility to ensure that development in the country is carried on with minimum
environmental degradation. The project authorities should select a site for the project taking into
account the environmental features of the location and should take necessary steps to minimize
possible adverse effects on the environmental resources and quality of life. It would be essential to
collect 3 seasons data for preparation of environmental impact assessment (EIA) studies. It has been
noted that considerable delay takes place in the preparation of a suitable environmental management
plan (EMP) and obtaining its approval from the Department of Environment and Forests. Planning for
obtaining clearance from the State Government for air/water pollution control measures should also be

initiated in good time so as to be available before the investment proposal is posed to EFC/PIB for
second stage clearance.
1.6.10 EIA Clearance
No objection certificate is needed for the site from the respective State/Central Pollution Control Board/
Authorities for setting up the project. In addition, the following conditions must be fulfilled before a
letter of intent is converted into industrial license.
a. State Director of Industries confirms that the site of the project is approved from environmental
angle by the competent State Authority;
b. The Project Authorities commit both to the State Government and the Central Government that
they will install the appropriate equipment and implement the prescribed measures for
prevention and control of pollution and environmental degradation.
c. The concerned State Pollution Control Board has certified that the proposal meets with the
environmental requirements and that the equipment installed or proposed to be installed are
adequate and appropriate to the requirement The State Department of Environment is the
competent authority for approval of project sites from environmental angle.
A project enterprise will be well advised to follow the relevant guidelines in the spirit in which they have
been prepared while formulating the project proposal.
The purpose of environmental impact assessment (EIA) is to identify and evaluate the potential impacts
of the developmental project on the environment. EIA should be prepared on the basis of the existing
background pollution levels vis-à-vis contributions of the pollutants from the proposed plant project,
and should be supported by scientifically established data covering the three seasons, i.e., winter,
Summer and Monsoon. Some of the factors addressed to in an EIA include:
a. Meteorology & air quality

b. Hydrology & water quality
c. Impact during construction: Sources of raw materials, etc.
d. Changes in land use pattern, leading to concentration of working and service population
e. Treatment and disposal of effluents (liquid, air & solids) and the method of alternative uses
f. Occupational safety and health
g. Transportation of raw materials and details of materials handling
h. Details of pollution control equipment and measures (dust control, avoidance of thermal
pollution, etc.) proposed to be adopted.
i. Details of post-operational environmental monitoring and the redundancies incorporated in
pollution control technologies.
This exercise should be undertaken early enough at the planning stage of the project for selection of
environmentally compatible site, process technology and other environmental safeguards. Preparation
of environmental management plan is required for formulation, implementation and monitoring of
environmental protection measures during and after commissioning of the project. Cost measures for
environmental safeguards should be treated as an integral component of the project cost.
Collection of data for environmental appraisal should be started at the earliest stage in the planning of
the project and should form an integral part of the project formulation and approval cycle.
Necessary safeguard must be built in during the construction phase of the plant. An environment survey
lab at the project site operating throughout the lifetime of the project should normally be planned to

monitor the impact of the project on the environment and to initiate remedial measures as deemed
necessary.
In case of projects relating to modernization/expansion of running plant, the Department of

Environment insists on review of pollution control measures in the existing production facilities. This
should be planned in advance, as otherwise the environmental clearance to the expansion project may
get unnecessarily delayed.
1.6.11 Forest Clearance
All proposals for diversion of forest land to any non-forest purpose, even if the area is privately owned,
would require the prior approval of Central Government under the Forest (Conservation) Act, 1980.
Prior permission of the Central Government is also essential for laying and construction of transmission
lines in forest areas
A project enterprise may take special care to adequately cover the following issues while submitting the
proposal to Central Government for forest clearance, to avoid a back reference:
a. Justification for locating the project in the forest area, giving alternatives that were examined
and the reasons for their rejection. Particularly, in the case of transmission lines, cutting of trees
should be avoided as far as possible
b. Non-forest land must be identified for rehabilitation.
c. In case of mining projects, procedure for stocking of the top soil for reuse and phased
reclamation program concurrently with the mining operation to be laid.
d. Extent of subsidence expected in the underground mining operations and its impact on water,
forest and other vegetation.
e. Reasons why forest land asked for any of the activities under the project cited cannot be located
outside forest area.
f. Cost benefits analysis of all proposals involving 5 ha in plains and 2 ha in hills for diversion of
forest land for non-forest use.
g. Monitoring mechanism for the implementation of the condition of compensatory afforestation
and other stipulated conditions.
h. Diversion of forest land for construction of houses is to be avoided.
1.6.12 Compensatory Afforestation:
Forest (Conservation) Rules 1981; prescribe the steps proposed to be taken to compensate for the loss
of forest area. Compensatory afforestation is one of the most important conditions stipulated by the
Government in approving proposals for de-reservation or diversion of forest land for non forest use.
Lands identified for compensatory afforestation as per Ministry of Environment and Forests (MoEF)
guidelines are to be transferred to the control of the State’s Forest Department. They should also be
declared as protected forests to ensure their safety from biological interference. The afforestation, as
distinct from the annual plantation program, should be specifically identifiable as related to the project.
1.6.13 Project Infrastructure Development & Integration of Inter-related Projects.
In order to implement major projects in the shortest possible time after second stage clearance is given
by Government, it is essential to keep every thing ready, like layout plans, planning for construction of
access roads, minor bridges, culverts, power lines, water lines, site offices, temporary accommodation
etc. for the infrastructure needed for the project.

Large projects require considerable planning in terms of inputs such as water and power supply sources,
approach roads and services such as transport and communication. In most cases, in order to support
one project, several related investments need to be taken simultaneously to provide the required
infrastructural support. To ensure successful implementation of a major project, it is essential that inter-
related or infrastructural projects should be identified and appraised together as part of an integrated
economic program. As many of these schemes/projects may be implemented by other "Administrative
Ministries/Departments, it is essential that similar priority is accorded to the linked schemes/projects as
the main project. Concrete implementation plans may be drawn for the related projects and resource
commitments made matching the schedule of completion of major projects. The related investments
should be reviewed together and their cross impact should also be analyzed.
It may also be beneficial to carry out pre-project planning to the extent of identifying the number of
contractors that are likely to be engaged for the work, approximate requirement of space for their
workforce, requirement of cranes, concrete batching plant and other major construction equipments
etc., so as to initiate appropriate advance action.
1.6.14 Sectoral Check List
In order to make the Manual generally applicable to all sectors, sectoral check lists given in Appendix
1.6.10 are intended to highlight the issues and facts applicable to individual sectors. It must be noted
that the form of the final project documentation needs to comply with individual donor formats if
funded by them. In such cases it will be necessary to refer to the individual donor’s project preparation
manuals which setout their particular requirements and the forms to follow. Checklists are not intended
to be, nor could they be, totally comprehensive since there is almost infinite number of possible facts
and factors which could be taken into account in formulating any particular project.
Sectoral Check List
a. Social and Community development sectors

i. Education and HRD
ii. Health and Medical Services
b. Economic Sectors
i. Agricultural
ii. Fisheries
iii. Forestry
iv. Industry and Industrial Estates
v. Tourism
c. Infrastructure and Utilities
i. Roads and Bridges
ii. Shipping and Ports
iii. Airports and Civil Aviation
iv. Energy and Power Generation
v. Telecommunications
vi. Water Supplies and Sewerage
vii. Housing
viii. Railways

1.7 PROJECT PREPAREDNESS APPRAISAL

Need for Preparedness Appraisal
The preparedness appraisal is normally carried out by the concerned implementing agency before the
start of the project so that the investment made during the course of the implementation is objectively
utilized for performing specific activities to achieve desired outputs. Time and cost overruns in
implementation of projects and programmes is a happening factor and this is because of the fact that
projects were launched without ensuring adequate preparation. The experience shows that a large
amount of funds drawn from World Bank, ADB, Commonwealth USAID,Swed Fund and other
cooperation and country loans have suffered a set back due to inadequate preparation and as a result of
the Government of India had to incur expenditure on account of commitment charges which in case of
World Bank loan is 0.75% in a year on the undisbursed balance of loan commitment. The another
important observation is the impact on the liquidity position of the Government which enables the
Government to meet its payment obligations against loan. It is, therefore, very important to launch a
project or a programme only after ensuring adequate preparation.
Reasons for Inadequate Preparation
In the public sector undertakings and in the Government set up, a large number of projects are in the
pipeline or under preparation which does not allow funding of projects with adequate resources.
Besides, due to inadequate fund allocation, projects are launched without adequate preparation while
they are still in design stage and the entire scope has not been finalised without proper survey and
investigation. Such projects are bound to delay during the implementation. The projects may also suffer
on account of input requirements such as land, raw material, non-availability of proper contractors,
technical manpower etc. In fact all these aspects are to be addressed before the launch of a project or a
programme.
Defining Preparedness Appraisal
Project preparedness appraisal looks into the aspects of quality of detailed studies and investigations
without any loose ends which allows a project to progress smoothly without interruption during
implementation.
The poor quality of detailed studies and investigations sometimes lead to surprises particularly in case of
civil works and underground activities like mining, tunneling, etc. Loose ends refers to the arrangements
which are required for smooth implementation and operation of the project. This may include
availability of land free of encumbrances, availability of water supply from a canal system to be
implemented by the State agencies, non-availability of environment, impact mitigation plan,
preparedness of the community in community based projects etc.
In fact preparedness is a comparative judgment of the individual Project Managers who may say that
they are prepared to implement a project or a programme assuming that some of the facilities which are
expected to be made available by the State Government or any other agency would be available. This
could be a serious mistake, if a project starts without ensuring or without written commitments of the
concerned agencies.
Parameters
a) Reliability of Cost Estimates
The cost estimates prepared by the formulation agency or Ministry are normally prepared with the help
of the consultants in the absence of inadequate in-house capacity. The cost estimates prepared by the
consultancy organization are based on the estimates prepared in case of some on-going projects or

completed projects in the past. It may be borne in mind that each project or a programme at a different
location have unique features. The cost parameters may change due to location and time related
problems. Sometimes the projects estimates are prepared on the basis of the estimates submitted by
the contractors. Contractors may not be able to bring out all the facts or they prepare project estimates
to secure orders leaving behind some of the important input requirements and activities. The lack of
knowledge among the stake-holders and inexperience of the project team and consultants may cause a
serious problem in preparing proper estimates.
b) Gestation Period
The Gestation Period of a project depends upon the preparedness of the project in terms of the detailed
geological investigations have not been carried out, availability of land, plan for preparation of design
drawings, speed of finalization of packages, contracts, equipment procurement etc. The experience of
the project management team is a very important factor in deciding on a time-frame as it will be able to
foresee the possible uncertainties relating to availability of funds, technology and other implementation
problems right in the beginning of a project and experience team will be able to design mitigation plans
to uncertainties and would be able to complete the project in a lesser time compared to others.
c) Constraints in Implementation
Constraints in implementation do come due to inadequate preparation. If certain issues have not been
addressed and solutions have not been found in the project document on the assumption that these
would be sorted during the course of the implementation, may cause serious constraints in
implementation of a project/programme. The Project Managers must take a view on verbal assurances
given by supporting organizations like Railways, Highway authorities or State Government providing
necessary infrastructure matching with the requirement of the project. In some projects particularly
which are funded by external agencies, there are special requirements for reporting. If adequate
arrangements are not made right in the beginning to meet MIS reporting requirements of funding
agencies, then funds would not be available in time and this may cause delay in implementation.
d) Management Team and Control Systems
The successful implementation of projects would depend upon the nature of organization, core team of
experts and the quality of the team leader. In addition, the project must be supported right from the
beginning with a project management software or a computerized project control system which will
provide support for procurement, quality control and management information system. These systems
enable the project management team.
The Project Managers whether in public or in Government have the basic responsibility of overseeing
the project and programmes and if they are aware of the aspects of the project preparedness as
discussed above, it will not only help timely implementation but also keep all stake-holders informed
about the development at any stage of the project.
1.8 PREPARATION OF CHECK LIST FOR ALLOCATION OF RESPONSIBILITIES

While formulating the project it is necessary that the human resource planning team must develop a set
of all organizational hierarchies, keeping in view the administrative and operative structures involved in
project implementation whereas specific responsibilities should become part of a detailed set of
instruments. The responsibilities must be allocated in a generic manner making an estimate/assessment
of the organizational structure, which is needed not only for supervision and monitoring, but also for
execution and specialized services, such as consultancy, engineering and design, Quality enforcement,
Safety etc.

The entire project life cycle, from conceptual studies to completion stage, needs to be planned for in
careful detail for expecting the achievement of desired objectives. This involves all stages from
feasibility and viability evaluations to financial and technical closures of the project including providing
data to knowledge bank(s). A generic checklist is provided hereunder for general reference.
Modifications, additions and subtractions can be made to suit each project.
The checklist design provides for breakdown of the entire project life cycle into manageable and distinct
activities, each ACTIVITY with its own predetermined Project Coordinator (to be entered in the
RESPONSIBILITY column) and the Project Manager/ verifier (to be entered in the AUTHORITY column)
who records due compliance, or its absence, in the YES & NO columns. (Refer Appendix – 1.8)
PROJECT CONSULTANT(S)
1.9 SELECTION OF CONSULTANTS, ADVISORS, VISUALIZERS, VENTURE MANAGERS, AND

THEIR RESPECTIVE RELATION SHIP WITH THE PROJECT AUTHORITY
1.9.1 Selection of Consultants
The selection of Consultants, Advisors and Venture Managers having professional knowledge and
experience in the area of specialization for which they are being engaged is a very important facet and
should be done with utmost care after requisite evaluation and prequalification. The organizations
whether in the Govt. sector or private sector rely on external Consultants for various Consultancy
services such as project feasibility studies, detailed design, strategy formulation, business re-
engineering, corporate restructuring, bidding strategies & processes etc. and are in a position to give
independent and unbiased views. Sometimes, it may be necessary to employ more than one consultant
depending on the complexity of the project and on the needs of the project organization.
Consultancy companies both in the private and public sector offer a wide range of services to choose
from. An illustrative list of services offered for Projects is indicated below:
i. Pre-project activities like preparation of Feasibility report (FR), detailed project reports (DPR),
project cost estimates, etc. This would include preparation of reports for obtaining clearances
from various statutory agencies.
ii. Suggesting type of construction/plant keeping in view nature and requirement of the Project
iii. Selection of process license, transfer of know-how and basic engineering
iv. Process engineering and detailed engineering services, Preparation of material take off (MTO),
etc.
v. Full range of procurement Assistance services covering preparation and issue of Purchase
Enquiries, pre-qualification of prospective Manufacturers/ Suppliers, processing and evaluation
of offers/bids, recommendation of vendors, preparation and issue of purchase orders.
vi. Expediting of the purchase orders
vii. Inspection and follow up of the equipment and material supplies, including quality assurance
and witness of tests etc. at vendor’s/ manufacturer’s works.
viii. Compilation of tender specification for construction activities, Preparation of Bids and selection
of Construction Contractors, Construction and erection supervision including management of all
site activities, e.g., materials management, quality assurance, progress monitoring etc.
ix. Full range of project management services, such as, planning and scheduling, cost and schedule
control, monitoring and generation of information reports for management levels.
x. Assistance in commissioning and demonstration of performance guarantees.
xi. Training of owner's personnel

xii. Other Advisory services viz. Policy & Strategy, Re-organization/ Privatization,
Technical/Operating Advice etc.
Some of the consultancy companies can take up a consultancy job on turnkey basis, which not only
includes all of the above services but also arranging grant of process license and commissioning after
successful completion of performance guarantee tests.
1.9.2 Engagement of Consultant(s)
When engaging Consultants, the Project Authority must ensure application of good practices and
efficient selection procedures for successful formulation and implementation of projects that are
financed directly through budgetary resources or wholly or partly by loans from the International Bank
for Reconstruction and Development (IBRD), credits from the International Development Association
(IDA) or other lending agencies e.g. ADB, JBIC etc.
Technical suitability and competence of the Consultant to perform for the required activity of the
project is the most important criteria in the selection of consultant. In majority of cases, the selection
should be carried out through seeking competition amongst qualified short-listed firms. The pre-
qualification evaluation may be carried out by seeking “expression of interest” published by clearly
defining the scope of services to be rendered by willing Consultants. This process shall enable the
Project Authority to adopt Quality and cost based selection (QCBS) by inviting competitive bids from
duly pre-qualified Consultants.
The scope of services to be provided by the Consultant should be very specifically and clearly
incorporated in the contract signed with him. Consultant's responsibilities in the areas of source of
technology-foreign/indigenous, requirement of process license, guarantee on the performance of the
process, transfer of know-how documentation, training of employees, etc., should be brought out in the
agreement. In addition, it is preferable to have another instrument known as "coordination procedure"
to integrate and detail the activities of the various agencies involved in the project, in a mutually
supportive and harmonious manner. It provides an agreed basis and code of conduct of work, bringing
in uniformity and understanding of the project amongst all involved. It lays down a routine for the
project activities so that all speak in the same language and proceed in the same sequence. The scope of
technology, process engineering, and basic engineering should be clearly indicated in the tender
documents, as the meaning of the term “Basic Engineering” means different things in different
countries.
Remuneration for consultancy service, as far as possible, should not be based as a percentage of the
cost of the project, but should be a fixed fee. Installment of payments should be linked to
achievement of pre-determined milestones.
The criteria for evaluation of tender and selection of consultants should be included in the bid
documents. These may include:
i. Experience and past performance of the consultant in executing projects of similar nature, both
in magnitude and technology. The units which are already in operation should be listed along
with their level of operational efficiency at least for the last 2-3 years
ii. Availability of professional manpower in various disciplines relevant to the project experience
and technical qualification of the key personnel in the consultant's organization and their
turnover in -the last five years
iii. Project management and construction supervision capabilities
iv. Availability commitments. in the consultancy and anticipated future
v. List of clients whom the consultant has served in the recent past and the type of service

rendered to them
vi. Familiarity with the requirements of lending institutions; local laws and regulations, especially
those governing Health, Safety and Environment Issues related to habitats surrounding Project
sites.
1.9.3 Linkage with Project Authority
The linkage of consultant with the project authority must be clearly delineated in the contract
agreement between Project Authority and the Consultant and may include the following:
a. Split of work between the project enterprise and the prime consultant, depending on the
strategy adopted for project implementation.
b. Names of key personnel to be associated with the project in each of the major phases of the
project-engineering, procurement, construction and commissioning
c. Composition of the consultants' organization in home office, project office and project site. The
areas of responsibilities and broad organization set up in each phase of the project
implementation may be identified.
It is essential that a competent and experienced Engineer-in-Charge from the consultant’s organization
is positioned quickly. The project enterprise should have power to require the consultants to replace the
Engineer-in-Charge in case of any dissatisfaction over his performance.
It is desirable to appoint a consultant right from the conceptual stage so that he may play a useful role in
undertaking preliminary market survey and Feasibility Study (FS), followed by preparation of Feasibility
Report (FR) and Detailed Project Report (DPR), and the subsequent functions assigned to him during
implementation phase.
Induction of consultant at the beginning will not only provide continuity and uniformity in approach but
will also lead to greater sense of involvement and commitment to implementation of the project within
the scheduled time and cost. In case of foreign aided projects; it may be a stipulation of the donor
country to engage a foreign consultant of International repute to prepare a realistic project concept and
to assist in selection of vendors through international competitive bidding, etc.
It is desirable that a single consultant, known as prime consultant or lead consultant is appointed for the
total project. The exceptions could be appointment of Retainer consultants for special areas like town
planning and architecture and other needed support facilities not directly impacting the project
commissioning, such as, environmental engineering, Rail/Road transportation, captive power system,
etc. The prime consultant could engage retainer consultants to aid and advice in specific high-tech needs
viz. instrumentation & control systems, training & knowledge transfer, use of appropriate Information
and Communication Technology (ICT) in Plant operation & stabilization etc.
The Owners' Project Management Team should also be formed as early as possible. As mentioned
earlier (refer Clause 1.5.3), a project Manager/Nodal officer in appropriate age group should be
appointed fairly early in the project implementation cycle. The channels of communication between the
management team of the project enterprise and the consultant will be both formal and informal. The
formal communications will flow directly from the project Manager/Nodal officer of the project
enterprise to the Engineer-in-Charge of the Consultant.
The areas of functions in which the consultant has to take specific approval from the project authority
must be decided in advance and spelt out in coordination procedure. While project enterprise is
required to obtain approval from various regulatory authorities and statutory agencies, the engineering
consultant will prepare documentation and work with the owner and the project management team for
obtaining various approvals.

The areas to be covered under progress reporting and the formats thereof, procedure for meeting and
drawing out minutes of the meeting, the list of drawings/documents to be prepared along with those
which are to be approved by the owner, the procedure to be followed in procurement of equipment and
finalization of construction sub-contracts, procedure for expediting, inspection and follow up, should be
incorporated in the "Coordination Procedure" which forms part of the contract agreement. Structured
progress review meetings should be held periodically at various levels between the project enterprise
and the consultant. A record should be kept of the corrective actions in areas where progress is not as
per schedule.
It may be realized that the consultant sells advice and guides the public enterprise at various stages in
the development of the project. It is for the client enterprise to accept or reject the advice of the
consultant. It is, therefore, essential that the project management team of the project enterprise have
the desired level of expertise and self-confidence to evaluate objectively the advice tendered by the
consultant, as in the ultimate analysis, the project implementing authority is responsible for the
implementation of the project within time and cost. The final decision making authority in all major
matters, such as, selection of vendors, award of contracts, inspection etc., rests with the project
authority, and they cannot delegate their responsibility for completing the project within scheduled
time and cost to the consultant, except to bind him to his contractual obligations.
It would be worthwhile to advise all concerned that Consultancy Development Centre (CDC), the apex
body of Consultancy Organizations in India supported by Department of Scientific & Industrial Research,
Ministry of Science & Technology, Govt. of India have evolved a Standard Procedure for selection of
Consultants, Model Agreement and Recommended Professional Fee Structure for Consultancy Services
which may be referred to by Public Enterprises for seeking appropriate guidance for the purpose of
appointing Consultants required for the Project. International Council of Consultant (ICC) can also be
approached for similar help.
PROJECT COST ESTIMATION/BUDGETING AND FUNDING

1.10 FINANCING THE PROJECTS, ORGANIZATION OF VENTURE CAPITAL, SELECTION OF
FUND MANAGERS, ALTERNATE SOURCES OF FUNDING
1.10.1 Project Cost Estimates
The project cost estimates are required during conceptual stage and detailing stage. The accuracy of
estimates is largely dependent on the quality of the estimating program and the experience of the
estimator (consultant). The conceptual estimation systems are generally used to give a quick and early
indication of required investment level and normally used for budget purposes and investment
possibilities. The estimates at this stage, however, shall be substantially controlled by project location
conditions, future economic conditions and quality of project performance.
1.10.1.1 Capital Cost
The capital investment required for a project may be divided into two main categories.
a. Project’s Engineering, Procurement and Construction (EPC) Costs
b. Owner’s Costs
The Major components in a project’s EPC cost are

a. Equipments & Materials
b. Civil & Structural Works
c. Mechanical, Piping, Electrical & Instrumentation Works

d. Erection Works
e. Utilities & Offsite Packages
f. Infrastructure Facilities
The Owner’s costs cover the following main items
a. Land Acquisition
b. License, Technical Know-How & Expatriate’s Fees
c. Statutory Clearances
d. Owner’s Project Team and Team’s Operating Expenses
e. Training Expenses for the Owner’s Operating Personnel
f. Commissioning Costs
g. Pre-Project Expenses
h. Working Capital
i. Financing Costs etc.
1.10.2 Cost Estimation Software
Since the estimate is used for obtaining budget sanctions, the expenditures made during the execution
phase are to be closely monitored with the budgeted sanction as a reference point. To facilitate this
activity it is required to allocate the sanctioned costs for the various activities to be performed with
reference to the Work Breakdown Structure (WBS) and the Cost Breakdown Structure (CBS) of the
project (refer Clause-4.1). It is therefore necessary to have a Cost Coding Structure developed at an early
stage of the project sanction and follow the same throughout the project implementation phase for
effective cost monitoring.
1.10.3 Major Sources of Project Funding
The decision on the pattern of financing a project would have far reaching effect on the ultimate
profitability of the project. The pattern has to fall in line with statutory regulations and also the debt-
equity norms. Correct estimation of the cost of a project is essential to decide the pattern of financing. If
the cost of the project is not estimated correctly, the preparation of cash flow and profitability estimates
will be a futile exercise because the amount of depreciation, interest and dividend etc. depend on the
capital cost of the project. The project has to tie up resource according to the cost.
Normal methods of financing a project are:
a. Internal generation of funds

b. Extra budgetary resources (EBR)
c. Budgetary support
EBR and the budgetary support are controlled by various agencies in the Government and form part of
the overall resource mobilization effort of the Government to fund its development programmes. The
project enterprise should clearly spell out the funding programme of the project (including foreign
exchange component) taking into account its ability to generate funds from various sources including
Private Equity, Venture Capitalists etc viz. PPP mode.

1.10.4 Internal Generation of funds
Depreciation and retained earnings in case of profit making enterprises are the main sources of internal
generation of funds. The new public sector enterprises set up for implementing a new project, however,
have to depend entirely on the other two sources i.e. E&R budgetary support by Government.
1.10.5 Extra Budgetary Resources (EBR)
The following are the major external sources of funds available to a public sector enterprise for funding
a project:
a. Public sector bonds

b. Lease financing
c. Term loans from financial institutions
i. Development Banks like lDBI, IFCI, ICICI, HDFC, Axis etc.
ii. All India Investment Institutions such as LIC, UTI, GIC, etc
d. External commercial borrowings (ECB)
i. Direct - Export credits: Supplier’s/Buyer’s credit
ii. Indirect – Foreign currency loans from Indian Financial Institutions,
iii. Inter - corporate transfers
Even though these sources are considered as part of the overall mobilization effort of the Government,
they do not form part of the budgetary provisions.
1.10.6 Budgetary Support
Central Government provides budgetary support to various central sector projects in the form of loan
and equity in the ratio of 50:50. A different debt equity ratio can, however, be considered. Since the
debt equity ratio has a direct bearing on the profitability, the assumption made in this regard in
financing the project should be clearly indicated in the feasibility reports together with the reasons for
making such assumptions, so that at the time of taking investment decision, this question may also be
gone into and necessary decision taken.
The rate of interest on investment loans fixed by government varies from time to time. The interest on
loans due during the period of construction is allowed to be capitalized to the extent of provision made
for this purpose in the approved project report. The repayment of principal should ordinarily commence
one year after the project commences production, the number of installments being determined with
respect to the financial projections and repaying capacity specified in the project report. In the event of
default in repayment of installments of principal and/or interest, penal rate of interest is payable at a
rate 2% more than the normal rate.
1.10.7 External Aid
1.10.7.1 Sources of External Aid
External assistance has an important role in our balance of payments, at a time when the wide ranging
policy initiatives of recent years have led to a higher demand for project imports to sustain the
accelerated pace of economic growth. Aid received from external sources can broadly be classified
under the following two heads:
a. Multi-lateral Aid (IDA, IBRD, ADB, OPEC Funds, etc.)

b. Bi-lateral Aid
Multi-lateral Aid Funds are those made available by subscribing countries to such development agencies
as the World Bank. Asian Development Bank, etc. These funds are on-lent, normally on concessional
terms, in respect of developmental projects in those countries which are members of the development
agencies.
Bi-lateral Aid is provided on direct country to country basis. The Governments of different countries
operate their own individual bi-lateral aid programmes, the policies and objectives of which differ and
which have been developed as a result of discussions between donor and recipient nation. Each donor
country has established its own organization e.g. in West Germany ‘Kreditanstalt for Wiederaufbau’
(KFW) and in Japan ‘Overseas Economic Cooperation Fund’ (OECF). The United Kingdom Aid Programme
is administered by the Overseas Development Administration (ODA). Under Bi-lateral arrangements, the
credit in most instances is tied to the imports from the donor country.
It is necessary to appreciate that all aid under multilateral and bi-lateral arrangements are extended to
government of India and not direct to the project enterprise. Foreign aid received is credited to the
account of Government of India. Expenditure on the project is incurred by the enterprise out of funds
provided under their normal budgetary procedure.
All the external aid is project specific. Donor countries insist on this requirement so that the aid is not
diverted to projects/schemes not approved by them. To avoid the possibility of cartel formation in the
source country, it may be desirable to place order for major equipment imports only through
international competitive bidding. Even, if it is decided by the Government to place an order on a
particular country in order to utilize the available aid under bi-lateral arrangements, the cost, if any, of
doing so will be explicitly known. Foreign institutional donors invariably provide international
competitive bidding for procurement of major equipment.
1.10.7.2 Forms of external aid
Most of the external aid flows in one of the following forms:
1.10.7.3 Soft Loans
The loan is extended from Government to Government on highly concessional terms. Major sources for
the soft loan are IDA, OECF, FRG under bi-lateral assistance, etc.
1.10.7.4 Mixed Credit:
Under this form of financing, a project is provided both soft loan and commercial loan. Soft loan and
commercial loan could be in the ratio of 1:1.
1.10.7.5 Grants:
The aid is given entirely in the form of grants. Major countries for this type of aid are U.K., Denmark etc.
1.10.7.6 Technical Assistance:
Technical assistance is provided under various Technical Cooperation Programs for the training of
personnel in various fields. Limited financial assistance may also be provided for import of sophisticated
equipment for research projects or other pilot projects. UNDP, OECF, OPEC are some of the major
sources for this type of assistance.

1.10.7.7 Procedure for Obtaining External Aid:
All the project proposals posed for external assistance in the Central as well as State sector, should have
the requisite clearances from Planning Commission, Department of Environment(DEA), PIB, etc. The
donor country wants to be certain of (i) Government's earnestness to implement the project and (ii) the
availability of budgetary provisions for funding it. The approved project proposal is sent by the
administrative Ministry to the Department of Economic Affairs. It passes through the following stages
before foreign assistance becomes available:
a. A shelf of project proposals is posed to the donor country/ institutional lender in the specified
month.
b. The donor country/institutional lender sends an appraisal mission for appraisal of projects
picked up by them for their study/appraisal.
c. Once the project is accepted for assistance, it finds a place in the relevant Article of the
particular economic and technical cooperation -agreement between the Government of India
and the donor country. This procedure is generally adopted in case of bi-lateral assistance
arrangement.
d. In case of OECF, IDA, IBRD loans etc., pledge of assistance is made at Aid India Consortium
meeting. Thereafter, Note Verbales is exchanged, wherein the Government of India conveys its
acceptance of the pledge and its terms and conditions. Exchange of notes takes place
establishing the intention of the two Governments to proceed further with the loan.
e. Modalities of keeping the accounts and the method of withdrawal under the credits granted by
the donor country/lending institution are mutually agreed upon and the loan/credit agreement
is concluded.
f. The contract for implementation of the project i.e. “Project Agreement” is finalized between the
public sector enterprise and the donor country/institutional lender spelling out the procedures,
for the following:
i. Employment of consultants
ii. Approval of project plans, specifications, reports, contract documents, etc.
iii. Guidelines for procurement of goods' and services
iv. Monitoring progress of the project and site inspection by representative(s) of the donor
country
v. Availability of raw materials, product pricing and setting of tariffs, etc. for ensuring viability
of operations after the project is completed
vi. Management and operations of the public sector enterprise
g. A Subsidiary Loan Agreement is concluded between Government (administrative ministry) and
the project enterprise relating to provision of funds, facilities, services and other resources for
speedy implementation of project in terms of Loan Agreement and Project Agreement.
h. Necessary letters of authority releasing required foreign exchange under the particular credit
are issued by DEA to the concerned banks for effectuating the loan agreement for utilization of
loan for preparation of DPR, import of equipment, services, material, components, etc.
1.10.7.8 Procedure for Disbursement of External Aid
Requests for disbursements from the loans/credits are made to the foreign donor by the Government of
India as authorized applicant and disbursements are made by the donor for credit to the account of
Government of India. For drawl of external assistance, following procedures are in vogue:

a. Reimbursement
b. Direct payment
I. To foreign supplier
II. To a foreign commercial bank
c. Advance payment
d. Pre-financing
The assistance extended by foreign donors relates to projects in various sectors. The projects in different
sectors are implemented by different agencies such as State Governments, Departments of Central
Government and Public Sector Organizations. Basically the implementing authorities incur expenditure
on the projects which is financed by the foreign donors to the extent agreed upon in the agreement with
Government of India, both by way of reimbursement of expenditure incurred, and direct payment of
expenditure to be incurred, as the case may be. For this purpose the project implementing authorities
are required to furnish statements of expenditure together with supporting documents, where
necessary, to Dept. of Economic Affairs (DEA), for the purpose of lodging the same with the foreign
donor under an authorized signature. "Guidelines for submission of claims for reimbursement under
World Bank/ADB assisted projects", are issued by DEA, Government of India from time to time, which
may be referred.
TECHNOLOGY CHOICE
1.11 TECHNOLOGY POLICY
The comprehensive technology policy announced by the Government in 1983 emphasizes development
of indigenous technology and efficient absorption & adoption of imported technology appropriate to
national priorities and resources. The aims of the policy inter alia include:
I. Attaining technological competence and self-reliance;

II. Identify obsolescence of technology in use and arrange for modernization of both equipment
and technology &
III. Develop technologies which are internationally competitive, particularly those with export
potential.
The technology policy announced in 1983 lays emphasis on the following objectives:
a. Technological competence and self reliance particularly in strategic and critically making the
maximum use of indigenous resources;
b. Provide the maximum gainful and satisfying employment to all strata of society, with the
emphasis on employment of women and weaker sections of society;
c. Use of traditional skills and capabilities, making them commercially competitive;
d. Ensure maximum development with minimum capital outlay,
e. Identify obsolescence of technology in use and arrange for modernization of both equipment
and technology;
f. Develop technologies which are internationally competitive particularly those with export
potential;
g. Improve production speedily with greater efficiency and fuller utilization of existing capabilities
and enhance the quality and reliability of performance and output.

h. Reduce demands on energy particularly energy from nonrenewable sources.
1.11.1 Objectives of Technology Import
The Current Government policy is a selective policy towards import of technology based on national
priorities. Generally, import of technology is allowed in sophisticated and high priority areas either, in
export oriented manufacturing or import substitution manufacturing or for enabling indigenous industry
to up date the existing technology in India to efficiently improve domestic requirement or to become
competitive in export market.
An increasingly diversified industrial base has already been built up and a substantial pool of industrial
capability and technology skill now exists in the country. The policy is, therefore, highly selective and is
designed to channelize such import of technology into areas which would reinforce efforts to accelerate
the country's economic growth. While considering import of a technology, due regard is given to
technical competence, magnitude of operation, economic viability of the projects and availability of
indigenous resources. The objective is to develop technologies which are suited to the needs of the
country in a given time frame and with increasing degree of self reliance. The Government of India has
issued comprehensive guidelines to be followed by Public Sector Undertakings for entering collaboration
agreement for import of technology.
1.11.2 Procedure for obtaining Govt. approval
Public Sector Undertakings, proposing to set up an industry with foreign collaboration have first to
obtain a letter of intent, if the item of manufacture pertains to a scheduled industry and the undertaking
is not exempt from licensing under the current Licensing Policy of the Government. They may submit
composite applications for a letter of intent as well as for foreign collaboration. In such cases, it is the
intention of Government to give simultaneous disposal to both applications.
1.11.3 Taking of Agreements on Record
The approvals given for foreign collaboration are normally valid for a period of two years from the date
of issue. Government has been conscious that the procedure for taking foreign collaboration
agreements on record has in some cases led to considerable delays in implementing industrial projects.
With a view to encourage speedier implementation of technology up gradation, foreign collaboration
agreement is now not taken on record and the following procedure is to be followed:
a. After the clearance on foreign collaboration is given by the Secretariat for Industrial Approvals (SIA),
as at present, would issue the approval.
b. In the letter of approval to be given by the SIA, the following clause would be added:
"This approval letter is made a part of foreign collaboration agreement to be executed between you
and the foreign collaborator and only those provisions of the agreement which are covered by the
said letter or which are not in variance with the provision of that letter shall be binding on the
Government of India or the Reserve Bank of India."
c. The foreign collaboration approval letter will from part of the foreign collaboration agreement.
A copy of the collaboration agreement signed by both the parties may be furnished to the
Administrative Ministry/Department referred to in the letter. One copy should be sent to the
following:
i. SIA (FC.II Section)
ii. Deptt. of Scientific & Industrial Research.
iii. Deptt. of Economic Affairs.

1.11.4 Annual Returns
The public sector undertaking should submit an annual return about the progress of the undertaking, till
the date of expiry of foreign collaboration agreement. This return should be addressed to the following
authorities:
a. The Administrative Ministry/Deptt. concerned with the field of collaboration.

b. The Secretariat Collaboration-II Sec., Deptt. Of Ind. Dev., Udyog Bhavan Delhi - 110011.
c. Ministry of Finance (Deptt. of Economic Affairs) North Block, New Delhi-110001
d. Deptt. of Scientific and Industrial Research, Technology Bhavan, New Mehrauli Road, New Delhi-
110016.
As practically every project with foreign collaboration would generally involve import of capital goods /
raw materials/components, it is essential that the project authorities are familiar with import
procedures.

CHAPTER - 2
2. PROJECT PLANNING AND SCHEDULING
The starting point of any project planning system is the planning of overall Time and Cost schedules for
completing each and every activity related to the project within sanctioned limits. The project planning
has to commence with planning of following key activities of the project which have to be pursued
critically.
• Land Acquisition
• Project Roads
• Construction power and water
• Field survey and soil investigation
• Construction of temporary infrastructure for field staff
• Site organizational build up
All these activities have to be completed before the main plant/equipment on critical path start reaching
site.
2.1 TIME MANAGEMENT IN PROJECT IMPLEMENTATION

Time management would involve project planning, scheduling, monitoring and control, using CPM
(PERT) network as the basic management tool. The crucial element of project implementation is laying
down following basic functional activity schedules with respect to the Master Network Chart.
• Engineering schedule
• Procurement schedule
• Manufacturing and Delivery schedule
• Construction schedule, and
• Commissioning schedule
It is preferable to generate the functional schedules in the form of bar charts, which would also enable
quantum scheduling in a time frame for major items of work in a project. This will give peak rates of
achievement required for each item of work such as civil & structural works, equipment erection, piping,
electrical works, instrumentation works, etc. which govern 90 to 95% of the total project activities. It

would also enable identification of approximate requirement of resources for carrying out the works
within the scheduled time frame.
2.1.1 Engineering Schedule
The Engineering Services group in the Enterprise or Consultant’s organization plans and schedules
project engineering activities within the time frame specified for the 'Engineering Completed' milestone
for various work packages in the finalized master Schedule network. Engineering being the originating
point for the subsequent activities, like procurement and construction, it is essential to prioritize the
requirements of engineering drawings/specifications. To ensure timely performance of the engineering
activities, it is important to identify and track the inputs required for the engineering disciplines, like
process data, vendor data, etc.
The engineering programmer should show the dates for data availability, tender drawing release,
specification release, bid evaluation and construction drawings release, etc. Engineering schedule
system should be capable of generating the performance reports indicating documents/ specifications
released together with dates, documents/specification expected to be released in the next two months,
percentage progress and lack of inputs which are delaying the engineering outputs. The engineering
manpower resources should be allocated depending upon the priorities in the schedule of each
engineering discipline.
Departmental review should be conducted by the heads of respective engineering disciplines to check
the up to date progress with the scheduled progress. If any delay is expected to affect the schedule of
other disciplines, corrective action could include:
a. Reallocation of priorities of internal resources; and
b. Seeking assistance of external engineering agencies.
If it is anticipated that even seeking external assistance may not remedy the situation, the matter may
be reported to the Project Review Team (PRT) to analyze the possibility of adjusting the schedule of
subsequent activities to maintain the overall project schedule.
This control process should continue till completion of project/contract.
2.1.2 Procurement Schedule
The area of responsibility of Procurement Department should cover all contracts having long delivery
periods for the equipment, or requiring intense engineering co-ordination and specialized engineering
procurement knowledge. The planning and control responsibility of the Procurement Department starts
from the pre-award contract planning stage (i.e. from the stage of specification finalization) up to the
stage of equipment delivery in the field.
The starting point for procurement activity is the material requisition generated by engineering
department. Based on the master network, Procurement Department should finalize the level II
schedule for the procurement activities. This level II schedule should form the basis of all controls within
the department.
At the time of award of each purchase order/contract, detailed manufacturing/field activity schedules
are also tied in for subsequent monitoring and control purposes. Procurement schedules should
generally have two distinct categories of milestone, one for .the procurement of indigenous materials
and the other for procurement of imported items.

Procurement schedule system should be capable of generating the list of material requisitions (MRs)
converted into purchase orders (POs) together with vendor’s names, percentage progress of
procurement activity and major areas of concern.
Head of the Procurement Department should evaluate the progress against pre-determined schedules
and initiate corrective action, as required. If any corrective action within the division cannot rectify the
situation completely, the matter should be reported through PMIS (refer clause. 2.1.10) group to the
PRT (refer clause 2.1.14) for analyzing the impact of schedule variance on the overall project
commissioning and initiating required corrective action.
Other outputs that arise out of the procurement function are quality plans and manufacturing programs
as finalized with the suppliers/manufacturers. There is close interaction between Engineering,
Procurement, Expediting, Inspection, Quality Assurance and Project Site in arriving at the Quality Plan
and Manufacturing and Delivery Programmers.
2.1.3 Manufacturing and Delivery Schedule
The manufacturing schedule should indicate duration for engineering, sub-ordering, and delivery of
components by the sub vendors and the manufacturing time at the shop floor. To enforce required
discipline, it is essential to seek manufacturing schedules from all the vendors, where manufacture of
long delivery equipment is involved, before awarding contract, in any case, before at least release of any
kind of advance payment. The manufacturing programmer and the quality plan thus finalized will be
utilized by the Expeditor/Inspector for monitoring manufacturing and quality status respectively, by
generating and sending at regular intervals the specified reports to the Head of Procurement group.
These reports should bring out schedule variance, if any.
Manufacturing and delivery schedule system should be able to generate material status report,
percentage progress completion of manufacturing activity and areas of concern. It should also discuss
and analyze schedule variance, if any, their likely impact on delivery status of critical equipment and
suggest corrective action. In case of slippages, they should again be reviewed by the PRT through
reports sent to PMIS group.
Because of heavy inter-dependence between the functions of Engineering Services and Procurement
Services, a separate Procurement Status Review should be held periodically involving heads of
Engineering Services, Procurement Services and Project Coordinator in the corporate head quarter.
2.1.4 Construction Schedule
Engineer-in-charge at site has a number of specialized groups working under him such as planning,
erection, construction (various technical disciplines), materials, finance, personnel etc., who are
counterparts of the corporate functional set up. They are responsible for all the field activities under
their charge. In addition, they are responsible for award of all contracts finalized at site.
The site planning group should be responsible for identifying the reporting heads under which the
monthly/weekly progress reports are to emanate for erection/construction/materials, etc. They should
also generate schedule variance and impact reports.
Construction phase is the most important stage in the project implementation; Essential features of
construction scheduling system successfully employed on large projects are as under:
a. Schedules developed for each contractor may indicate the major items of work to be performed
by him and the time requirement for the same. This can be considered as Level-I scheduling for
the construction activity.
b. At Level-II scheduling, construction activities may be listed out on area concept basis. The

objective of the detailed week-wise and month-wise planning is to identify the weekly targets to
be achieved by the contractor and the corresponding resources to be deployed by him to
achieve the targets. The necessary inputs to be made available by the construction/erection
wings of the site team may also be specified in the detailed activity schedules.
c. Correlation between the contract schedule and the area wise activity schedule may be
generated by using the former as a basic guideline for the time frame and the latter dictating
the sequence of construction.
The "Work front" availability to various contractors for different items of work should be reflected in the
weekly and monthly reporting system of construction. The major thrust of construction planning and
scheduling should, therefore, be on establishing the work front availability for construction Activities
being planned for the next two or three months through appropriate follow up with various agencies
concerned.
Construction scheduling system should be able to generate the quantum achievements for major items
of work, percentage progress for each contractor, percentage progress for each area of the project, and
major areas of concern.
2.1.5 Commissioning Schedule
At a time when the project is reaching the "mechanical completion stage, it is advisable to develop a
pre-commissioning and commissioning schedule, taking the sequences of commissioning as the prime
criteria. This would mean identification of all the systems in the project and assigning appropriate time
slots for pre commissioning and commissioning of the same. However, care should be exercised to
ensure that such detailed time scheduling for the system commissioning should be within the overall
time frame indicated in the master network.
The commissioning scheduling should be able to generate the status of commissioning of each
system/sub-system and anticipated date of project completion. The construction reporting system
should preferably change over from the usual percentage progress reporting to one of system
completion status reporting. This would enable recasting of the activities from an area management
concept to one of system completion concept. It would also mean that completion of plant construction
work would be looked at from the sequence in which the project enters the pre-commissioning and
commissioning stage. Under the system completion approach, all the balance construction activities of
the plant are regrouped by each system of the project and tracked to completion, giving prioritization in
line with the commissioning sequence and the time required to complete the same.
The project schedules and their subsequent tracking and reporting should invariably be carried out using
the latest available computer software that would best suit the need of the organization.
2.1.6 Manpower Scheduling
Many projects find themselves in difficulties due to improper manpower planning. While, at the time of
project formulation, a small group functions as a nucleus but when the project takes proper shape &
becomes ready for implementation, the need for additional manpower at every level arises. Therefore, a
proper assessment of the manpower requirement should be made and procedure for recruitment,
training, development etc. should be evolved right from the beginning of the project implementation.
2.1.7 Project Management Information System (PMIS),
The management information system should be a comprehensive system of performance evaluation

and activity planning. Normally, the information needed at different levels would depend on the
hierarchical structure in a project. In large projects, there could be three distinct levels, viz., the top or

corporate level, the general or executive management level and the functional or operating
management level. The information needs of all these three levels are not the same. Therefore, the
information system has to be designed in such a way that the needs of all these three levels are
adequately taken care of.
The project information/monitoring system would have to have the following objectives:
a. Record and report relevant information and the status of various components of the project in
such a manner as to bring the most critical activities directly to the attention of concerned
managers at appropriate level.
b. Highlight deviations from the plan, if any, in respect of every component of the project and also
to indicate the effects of such deviations on the overall status and completion of the project as a
whole.
c. Form the basis of revision of project schedule wherever necessary.
d. To identify and report on critical areas which are relevant to different levels of management and
to highlight the corrective action that needs to be taken.
e. To sift the information and report on an exception basis. In other words, emphasis is
concentrated on those activities that are not going according to plan.
f. To provide a basis for the evaluation of the performance of the functions of various managers
and departments by regular comparisons with budgets/plans/schedules.
2.1.8 ACTIVITY FLOW CHARTS
One of the major planning tools to be used for effective project implementation is development of an
activity flow chart, both at MACRO and MICRO levels. The MACRO activity flow chart should comprise of
the major activities which may have a profound bearing on the flow of cost and time of completion of
the project. Such milestones should be clearly identified and proper location be done in the MACRO
activity flow chart.
Having developed the same, the MICRO activity flow chart elaborating the sub-stages of activities be
evolved and drawn.
This must be combined together to perform the overall activity flow chart depicting the key findings
such as time for completion, float time to cover in mid course short falls.
The monitoring instruments should be developed specifying the frequency of inspecting and monitoring
the completion of the activities.
In designing the system, the activities of the undertaking have to be broken up functionally according to
the current and planned organization structure and further into sub-functions depending on the nature.
As far as possible the information system should cover each such sub-function and generate datasets as
detailed in article 2.3 of this manual.
In a project, the information reports are basically used for project monitoring and control with the idea
to ensure that the projects are executed as per schedule and at minimum cost. The following aspects
should be taken care of in the system:
a. The objective of each format or report in brief

b. The distribution chart
c. The periodicity of the reports
d. The persons responsible for preparation of the reports

e. The timing of the reports

f. The sources from which information are to be gathered in preparation of reports.
2.1.9 Format for Project Management System
Each Public Enterprise has to, on the basis of nature of the project requirements and its
management set up, design its own information/monitoring system. The existing system should be
subjected to undergo a critical review with the objective of high level value addition. The right
information at the right time to the right people is the simple motto of a good PMIS. The PMIS should
appraise the management of the current status of works, raise issues and provide multiple solutions as
feasible and viable alternatives to choose from. The extent of details to be provided and the frequency
of reporting would largely depend upon the complexity and magnitude of the project. For example it
may happen that the PROJECT PLANNING incorporates multiple Contracts and it shall be prudent to
provide dedicated reports for large contracts and a compendium report for smaller contracts. In case of
the latter, the format given below shall be suitably abridged without sacrificing the objectives of the
PMIS.
With these clear cut objectives in mind, the format placed at Appendix-2.1.9 is recommended for
immediate implementation for all stages of the project life cycle.
2.1.10 Project Management Information System (PMIS) Group:
A Planning & Monitoring Cell may be assigned the task of managing the above data base & information
system for the project. It may be involved in monitoring all phases of project implementation, both in
the corporate headquarters as well as in the field. It may also provide support facilities to the Project
Manager/ Nodal Officer till such time a proper field organization is set up.
Within the planning cell there should be a Project Management Information System (PMIS) Group
responsible for managing the central data base for all the projects and for generating various
information reports in three categories (Refer Clause – 2.1.7) required at different decision making
levels within the organization and to interact with the outside agencies for progress reporting. The PIMS
Group should report directly to the Director responsible for Project implementation or Chief Executive
of the project enterprise. The main functions of the group include:
a. Co-ordination with various functional departments in the formulation and finalization of agreed
master network:
b. Monitoring critical milestones; and
c. Generating project status report and exception report indicating schedule variance and areas
requiring corrective action.
2.1.11 Master Network Schedule:
The PMIS group, based on past experience in implementation of similar projects, should prepare a draft
schedule and network identifying milestones for the key elements of the project in the areas of
engineering, procurement, manufacturing and dispatch, erection and commissioning. This draft master
network should be discussed with various functional disciplines responsible for the project
implementation. Each functional discipline may be encouraged to develop their own networks for
control of various activities under their own jurisdiction. This will enforce time discipline on various
functional departments in the organization and consultant’s responsible for providing inputs for project
implementation.
Based on the inter-group discussions, PMIS group may make necessary adjustments in the draft master
network within the overall project completion schedule. Finalized master network may then be

circulated to all concerned for finalizing their detailed programs within the Time frame of the master
network.
2.1.12 Application of Artificial Intelligence and delegation of power for Decision Making
One of the major requirements for efficient and successful project implementation is the need of
decision makers and the value decisions taken at the right point in time.
The quality of decision depends on the experience and wisdom of the decision maker, and it is known
fact that, the number of such decision makers is rather low.
Further, even those possessing, sharp analytical and decision making skills, are generally flooded with
several decisions to be taken in a finite quantum of time. Many such decisions taken by them are of
routine in nature and thus the shear numbers inundate the decision makers and present them to focus
on critical decisions.
It is therefore, of vital importance to stratify the types of decisions in following three categories:
Level – I Routine and day to day decisions
Level – II Decisions requiring minor elements of collective wisdom
Level – III Unique and once of a type decisions.
It has been observed that when qualified in terms of derived numbers and percentages, following
distributions emerge:
Level – I - 85 - 90 %
Level – II - 9 – 10 %
Level – III - 2 – 6 %
It is therefore, proposed that in order to release the real decision maker to enable him to take critical
decision the artificial intelligent system should be adopted so that when delegated the powers, the
project team members at the relatively rudimentary level could take several decisions. It is therefore,
suggested that a dynamic E-data base/frequently asked questions along with situational answer be
developed and responsibilities be delegated. Software for such process could be developed using the
standard tools, albeit, to meet the specific exigencies.
It is also advised that such FAQs be prepared to reflect the philosophy with which a project
implementation manual have been designed, and be treated as an integral part of the manual.
2.1.13 Project Monitoring and Reporting
The level-II network reports finalized by each functional department should be reviewed by PMIS group
to ensure that they are in conformity with the master network schedule. Feedback data on project
activities under identified reporting heads from engineering, procurement and field should be submitted
to PMIS group in structured formats at specified regular intervals. The data should be processed by the
PMIS group to generate Project Status Report and Exception Reports indicating reasons for schedule
variance and analyzing its impact on the interface schedules and project completion schedule.
Corrective action recommended by the heads of the functional areas may also be included in the
Exception Report for consideration of the Project Review Team and the top management. A copy of the
Exception Report should be circulated to the Heads of various functional areas along with the directions
of the top management.

2.1.14 Project Review Team (PRT)
In order to ensure effective co-ordination and to resolve interdepartmental (functional discipline)

problems, Project Review Teams (PRT) reporting to Project Manager/Nodal Officer may be constituted.
These may include senior executives of all the functional disciplines including finance, personnel and
corporate planning. PMIS group services the Project Review Team and is responsible for:
a. Conveying the decisions taken by PRT to all concerned, and
b. Keeping the top management informed of the proceedings of the meeting
The Project Review Team should hold meetings at the project site after the project gets under way.
2.2 PROJECT COST MANAGEMENT & CONTROL

2.2.1 Importance of Cost Control
The importance of budgetary and cost control in the process of project implementation needs no
emphasis. Besides all other considerations, a project is approved mainly on the basis of its financial
viability, taking into consideration the quantum of investment and the likely return to the society as per
the Government's guidelines. Therefore, any escalation in the cost of the project would completely
vitiate the original projection on the viability of the project. It would also involve problems of arranging
additional funds to complete the project. Therefore, it is absolutely essential that strict cost control
measures are established right from the beginning and are strictly enforced.
The cost of the project is assessed, normally, three times in the cycle of project implementation process.
The first at the Conceptual/pre-feasibility stage a very rough estimate of the cost, second at the FR
stage, a fairly realistic estimate, and finally, in the DPR stage - practically the final estimate. Therefore,
an estimate assessed/reviewed and finally fixed, after three exercises, should not in the normal course
exceed the DPR estimates. If it does so, it obviously indicates, in most of the circumstances, a lack of
budgetary/cost control.
While there are many well established systems and procedures of budgetary/cost control in many Public
Enterprises, the lack of application/practice of these systems leads to, heavy cost overruns. The ceiling
of the overall project cost is fixed on the basis of FR/DPR by the Government, the yearly expenditure by
annual plans, and the individual segment of cost by the capital budget of the project organization.
Therefore, adhering to the cost estimate indicated in the capital budget (based on the DPR estimates)
would eliminate cost overrun. Therefore, it is essential that proper mechanism of cost control is
established right from the initial stage.
Some of the important steps in the budgetary / cost control process are:
a. Preparation of budget manuals

b. Preparation of functional budgets
c. Codification of expenditure heads
d. Booking of each item of expenditure under proper expenditure heads
e. Identification of cost centers
f. Identification of principal budget factors
g. Coordination
h. Collection of data of actuals
i. Comparison of actuals with budget

j. Analysis of variances
k. Initiation of remedial action
l. Assessment of physical achievement
m. Comparison of physical progress with expenditure progress
2.2.2 Preparation of Budget Manual
The exercise of preparing the budget manual should be one of the prime milestones in the project
implementation schedule. The budget manual would spell out very clearly the responsibility centers, the
delegation of authority, channels of communication, details of and the periodicity of various control
reports/returns etc. This would facilitate in the standardization of measures and procedures of
expenditure and control.
In a project, the main budget is that of capital expenditure budget. While a consolidated capital budget
for the entire implementation period of the project could be kept as a master capital budget, the annual
budget would be more useful for, yearly implementation and control. The capital budget would indicate
the quantum and also the value of each capital item taking into account, in case of imported items,
expenses towards sea/air freight charges, insurance, custom duty etc., and in case of indigenous items,
expenses towards Sales tax, VAT, Central Excise, internal freight etc. These details which are normally
prepared after actual assessment of the cost, would be the basis for calling for tenders/quotations and
the basis for evaluating the price bids received. In addition to capital budget, the revenue expenditure
budget would also be very relevant during project implementation. This would normally cover the
expenditure towards salary and wages of the employees engaged by the organization, giving the
breakup of induction of employees at various levels in various stages of the Project Implementation.
Where, during the implementation of the project, phased production activity is also under taken, then,
the budget would also include the expenses for the production activities.
2.2.3 Identification of Cost Centers
This is another important area in cost control procedures. In Project Implementation each
component of the project can be treated as a separate cost centre and the expenditure incurred and
expenditure to be incurred on each cost centre is to be very clearly identified and the actual in each cost
centre should then be compared with the budgeted amount.
2.2.4 Identification of Responsibility Centre
The identification of responsibility centre normally coincides with that of cost centre. The
purpose of this identification is to not only fix the responsibility but also to delegate necessary authority
so that authority and responsibility go hand in hand.
2.2.5 Codification of Expenditure Heads
It is essential that even at the time of the preparing the detailed project report, the expenses proposed
in the DPR are classified under proper account heads which should normally be followed in the account
books of the undertaking later. At the time of preparation of detailed budget, annual or long term, the
same account heads should be used and the progressive expenditure incurred should also be booked
under the same account heads. This would facilitate in keeping a close watch on the progress of the
expenditure against the budget provisions under each head.
2.2.6 Coordination, Data Collection of Actuals, Comparison and Analysis of variance
As the first step towards cost control, the actuals against each item of capital expenditure should be
computed and should be finalized to find out the reasons for the variation. This analysis should be made

in the same way as has been indicated below. Where ever the expenditure on a particular item is more
than the budgeted amount due to genuine reasons, it should be attempted to ensure that the group
wise expenditure does not exceed, by trying to bring down the cost of other items in the same group.
This could probably be done by re-assessing the requirement or by value analysis. Where ever it is found
that the excess expenditure is due to carelessness/negligence/improper procedure of selection etc.
responsibility be fixed for such irregularities.
The expenditure records are normally maintained in the Finance Department of the Project Enterprise,
as they are responsible for authorizing payment against the budget. In accordance with their standard
procedures and controls, they should check that all invoices are duly authorized, with all materials
properly controlled and accounted for.
As cost control impinges on every facet of project management system, all systems supplying
information on cost to Central Accounts must ensure the following:
a. Cost should be clearly identifiable to facilitate comparison with the control budget estimate at
item level;
b. Scope changes, if any, should be spelt out at item level of the control estimate; and
c. Any bifurcation or regrouping of items should be related at item level to the control estimate.
The purchase order or contract relating to committed costs should show the budget work package
number against which - the costs are to be allocated. Where more than one work package number
applies to a single contract or purchase order, the value of the committed costs must be apportioned
appropriately between those work packages.
Actual commitments should be continuously compared with the corresponding provisions in the budget
estimate to keep effective control on costs. Data on commitment may be organized under the following
heads to facilitate subsequent variance analysis:
a. Planned to date: The estimated value as contained in the budget control estimate and planned
to be committed up to the date of report. It is made use of in estimating schedule variance, the
difference between planned to date and earned to date. It indicates up to the date of report
whether more or less work has been accomplished than planned according to the sanctioned
schedule of investment (S-curve).
b. Actuals: The actual value of commitments made up to the date of report. The actual
commitment should take into account the firm commitment as well as open commitment on
account of agreement. In case of project imports, associated costs such as freight, import duties
and taxes, insurance, etc. should be kept in-view.
c. Earned: This will indicate the provision made in the budget control estimate against the items
which have actually been committed. The control estimate carries the approval of the
appropriate authority and the variance between earned and actual indicates the magnitude of
overrun.
d. Outstanding commitments are total cost committed minus expenditure (at any given time). The
value of outstanding commitments will tend towards zero as work proceeds.
Certain items of expenditure such as insurance premium, etc. which fall outside the normal commitment
routine should not be lost sight of while preparing cost and expenditure reports.
One of the most effective methods to control cost is through close monitoring of changes through
“Change Order System”. It is essential to vest the authority to approve change orders only at a very

senior level, i.e. Project Manager/ Head of functional level. Change order is a tool to keep a record of
changes of cost and time because of deviations from the initially defined scope of the project upon
which the budget control estimate (DPR Estimate) is based. Financial delegation should clearly spell out
the limits for various levels to sanction any major deviation from the sanctioned scope of the project.
2.2.7 Cost and Expenditure Reporting
It may be appreciated that cost reporting is not cost control. The purpose of accurate and detailed cost
reporting is to provide early warning of dangerous trends, giving sufficient time for corrective action. But
corrective action, as earlier stated, can only consist of vigorous progress control and formal vetting and
approval of purchase commitments before they are made, and other incidental expenses before they
are incurred. Cost and expenditure reporting can be done in a standard format as under:
a. Original approved estimate

b. Internal transfers, the net effect of this on the project cost is zero
c. Authorized changes through change order
d. Current control estimate: It is the sum total of original approved estimate, internal transfers and
authorized changes
e. Current forecast: It is the sum total of commitments made as on the date of report and the
estimated cost of the balance items yet to be committed
f. Overall variance: This will show the over/under runs in the anticipated completion cost of the
project as compared to the provisions made in the approved cost estimate.
g. Commitments: Planned/Actuals/Earned
h. Balance to go: The estimated cost of the balance commitments to be made shall be shown here.
i. Expenditure to date: The actual payments made upto the status date of report shall be indicated
under this column.
Each month, the finance department should review the figures shown in the project cost and progress
report, and ensure that they are in line with their accounting records. Each quarter a full reconciliation
should be made, including the setting up of provisions for the cost of work done, but not yet invoiced
(the accruals).
Project Cost Reports should be generated at least once in a quarter. The objective of the report is to give
an early indication of cost overrun to the Top Management for taking crash actions.
2.2.8 Project Cost Performance
For a project to be financially controlled with any degree of success, three factors should be considered
significantly. They are budgets, cost incurred and the progress achieved in relation to cost incurred. The
availability of budget and the cost information by itself is of no use unless corresponding progress can
be gauged systematically and periodically. In many projects, while the system of budgeting and cost
collection is practiced, achievement analysis is not such a regular/normal procedure. Milestone
achievement monitoring does not foot the bill as it has no corresponding linkage with the cost incurred.
2.2.8.1 Achievement Analysis
To have a meaningful cost control mechanism, standards for physical achievement measurement must
be established. All project activities can be grouped into software activities and hardware activities.
While the progresses of the hardware activities are physically measurable, the same should be done in
case of software activities. In a project, normally, hundreds of different activities are involved. Some of
them not started, some of them already completed and some in different stages of progress. In cost

control exercise, the achievement measurement has to be directed to the whole range of project
activities viz. design tasks, manufacturing/production, testing, inspection, installation and
commissioning. In view of this, as has been indicated earlier, special steps to establish cost centers with
defined objectives and responsibilities should be established. The head of the cost centre/department
could, at the micro level, fix achievement targets and suitable mechanism to evaluate the progress. On
the basis of the percentage completion and the cost incurred, the cost/benefit can be computed till the
date of the assessment and with future projection of the cost to complete the work, the ultimate cost
can be measured.
Therefore it is evident that without achievement analysis, forewarning of possible cost overrun may not
be noticed in time to allow any action at all. Periodical achievement analysis would also enable careful
reappraisal of the remaining project activities and to explore all possible avenues which might lead to a
restoration of the original project cost.
If achievement analysis is performed for every department at regular intervals, and the results are
plotted-on a graph, it would certainly indicate the cost trend for taking remedial action. With the current
software systems in vogue, real time on line achievement analysis is feasible depending upon prompt
data input in all datasets by all concerned. The top management should be most concerned with the
progress review of activities on the critical path since time/ cost overruns in these activities would bring
to light adverse factors requiring crash actions at the earliest possible time. Therefore, cost monitoring,
achievement monitoring and prediction are all integral part of cost control.
2.2.8.2 Containment of Cost
In the course of project implementation, in spite of various checks and balances that have been
established to ensure cost control, yet, occasions of cost overruns are bound to occur. Some of the
reasons for the same are:
a. Under-estimation of the cost at the time of preparation of F.R./DPR

b. Increase in scope of the activities after the preparation of F.R./DPR.
c. Increase in statutory levies
d. Fluctuation in foreign exchange rates in case of imported items
e. Inflationary factors
f. Inefficiency/inadequacy of projects procedures
g. Technological obsolescence/new technological inputs
h. lack of visualization of all items in DPR
i. Inadequate design or process details
j. Delay in execution-carrying cost, interest cost, escalation etc
From the above, it can be seen that the reasons for cost escalation could be both within and external to
the organization, controllable and uncontrollable. The Project Management should be more concerned
with the factors which are within their control to ensure that none of the factors within their control
could result in cost escalation. Whenever the cost on a particular item exceeds the budgeted provision,
the reasons for the same should be analyzed threadbare. This could be done by variance analysis which
is one of the basis of cost control measure. This variance analysis would indicate, in detail, the various
components which have resulted in cost increase so that the management could exercise control over
these components.

2.2.8.3 Variance Analysis:
Two types of variances are calculated from the data compiled in project cost reports.
Schedule variance: Indicates how far the work is progressing according, to schedule from cost angle. It is
estimated as under:-
Schedule Variance = Planned Commitments To Date - Earned Commitments To Date
If - ve, more work accomplished than planned,
If + ve, less work accomplished than planned
Schedule Performance = Earned To Date
Planned to Date
If more than 1, more efficient than planned, i.e., ahead of time schedule (time under run)
If less efficient than planned, i.e., behind time schedule (time overrun)
Cost Variance: It indicates how .cost is affected based on commitments made as of date.
Cost Variance = Commitments Up to Date - Earned To Date
If + ve, cost more than control estimate
If - ve, cost less than control estimate
Earned Value Cost Performance = Earned to Date__________________
Commitment actually made Upto Date
If more than 1, more cost efficient than approved budget, i.e., cost under run in the project
If less than 1, less cost efficient than approved budget, i.e., cost overrun in the project.
2.2.8.4 Estimate to Complete
The estimate to complete is the best estimate that can be made at any given time of remaining costs not
already reported as expended /committed, taking into account the current project Scope and
performance trends to date.
At the start of a project, before any costs have been spent or committed, it is usual for the estimates of
complete value to be equal to the control budget. As the project proceeds, the value of the estimate to
complete will reflect all known financial changes to the project which have not already been included in
the total committed costs. Such changes are likely to include:
a. Discrepancies between the estimated quantities and those currently being used
b. Changes of project scope authorized in change orders
c. Changes of project scope which are apparent, but which have not yet been made the subject of
change orders
d. Discrepancies between the estimated inflation or escalation amounts and those actually being
experience, and
e. Future exchange rate fluctuations
The most difficult and challenging aspect of cost control is in determining the estimated final cost of the
project. To complete this task, there is no substitute for a detailed knowledge of the project from both
technical and commercial aspects. The cost engineer will, therefore, need to communicate with
discipline engineers not only in respect to work that is presently being undertaken, and the likely
problem areas, but also in respect to the scope of future work not yet committed. In particular, there is
a need to be aware of any scope changes that are either being contemplated or are in the approval
process.

Completion Variance:
It indicates trend forecast to predict variance at completion.
Completion Variance = Current Forecast - Current Control Estimate
If + ve, cost overrun predicted
If - ve, cost under run predicted
Performance to Completion = Current Control Estimate
Current Forecast
If more than 1, more cost efficient than planned, i.e., cost under run in the project
If less than 1, less efficient than planned, i.e. cost overrun in the project
2.2.8.5 Cash Flow Forecast
Preparation of cash flow budget is an integral part of comprehensive project monitoring system. It
enables the balance to be maintained between the available cash and the cash demanding activities. It
consists of two parts namely forecast cash receipts which in a project are budgetary resources and
forecast of each item of disbursement. The cash budget will have close connection with the capital
budget as the timings of receipt and disbursement of cash should relate to the projections made in the
capital budget. This not only provides guidance to the management towards mobilization of sufficient
funds, it also acts as a controlling mechanism of ensuring cost control. A correlation between the
financial figures and the physical targets at periodical intervals, say monthly or quarterly, would
facilitate analysis of variance as and when the variance takes place.
There may be circumstances where project funds are to be supplied from a number of loan sources,
possibly in more than one currency. The cost engineer should be aware of such arrangements in order
to be able to advise the project manager accordingly. He should ensure that material and equipment
costs are timed to fall into periods when their invoices are expected to fall due for payment. Forecast
value of work done at site should also be derived from project schedule. It may thus be realized that a
cash out flow statement cannot be prepared without the benefit of detailed cost estimates and a
programmed schedule for the project.
Forecast cash flow calculations for the capital cost of project should include:
a. Estimated value of work done over the project time scale, and
b. Calculated provision for escalation, exchange rate changes, etc.
The forecast cash flow is then calculated by:
a. Estimating when invoices are likely to be received in relation to the value of work done, and
b. Estimating when invoices are likely to be paid
For exercising cost control functions effectively, computerized cost dataset as detailed in Clause-2.3.1.3
is essential. Computer aided techniques allow information to be gathered and analyzed rapidly and react
quickly to dynamic situations. It also provides reliable historical data base for future reference. One of
the major benefits of computerization of accounting functions would be quick generation of as-built cost
of the project.
2.3 DEVELOPMENT OF A DATA BASE, DATA MANAGEMENT AND DATA MINING

Execution of any project involves making abreast the project implementation agencies with the latest
information regarding the inputs that may be needed for program of services, selection of technology,

identification of experts, leading the Vendors referring to past case histories for finding solutions of
exigent situation and so on.
It is advised that a generic format of the data base be developed with necessary linkages and comments
to ensure with the required information should be available with least impediments in various
categories of information outputs as stated in clause 2.1.7.
Efforts should be made to not to use ready built packages but to customize and develop the software
clearly amplifying the needs, exigencies of working, and deliverables in the shape required by the
project.
2.3.1 Data Sets
An integrated project management information system should be structured into a number of data sets
which are integrated by the software generating data base. Some of the relevant datasets for a large
project are:
i. Drawing dataset
ii. Network dataset
iii. Cost dataset
iv. Material dataset
v. Vendor dataset
vi. Job card dataset
vii. Rates dataset
viii. History dataset, etc.
Integration of these independent datasets through following processing modules enables high level
control of projects
i. Horizontal integration between disciplines, e.g., cost/schedule integration, or, cost estimates,
cost accounts and project schedule integration via Work Breakdown Structure.
ii. Vertical integration. Data can be aggregated (“rolled up”) to any required level to produce
desired summary reports.
Availability of integrated performance reports (Level – II & III) to higher management is thus possible.
Following Standard processing modules are available for all important project management methods
besides other modules for special requirements.
2.3.1.1 Drawing Dataset: It contains information on
i. Drawing number
ii. Drawing description or title
iii. Date drawn
iv. Date first issued
v. Subsequent revision numbers and issue dates
vi. Draughtsman's name and his Department
vii. Schedule of quantities (standard material take off), etc.
Management control is exercised through queries such as:

i. Identify all drawings which are not yet approved

ii. Drawings which are due for issue in the next four weeks
iii. Listing of drawing for a specific area of the project
By linking the Drawing Dataset with Network Dataset, anticipated drawing issue dates can be compared
with on-site required dates for various activities. Efficient retention and easy access of information are
the key to several record management applications.
2.3.1.2 Network Dataset:
Vertical integration enables a project to be structured into hierarchical networks, where a top level
network may contain about 150 to 200 activities and this is driven by a second or third level network
having many more activities.
Progress information on lower level networks can be ‘rolled up’ and summarized to the management
level network. Key events or milestones reports highlight level-wise networking.
2.3.1.3 Cost Dataset:
This dataset contains details of each project cost account (refer clause 2.2.6).
A large project could contain several thousand records, usually structured so that the cost can be 'rolled
up' to show the position on each section of the project and the overall position. The fields of
information usually include:
i. Account code or cost code

ii. Description of the work package
iii. Person responsible
iv. Budgeted provision
v. Actual cost to date of work completed
vi. Cost forecast of residual works taking into account 'change orders', etc.
As a result of integration of cost data set with project schedule, effective cost control is now possible.
Dynamics of time/cost trade-off can be examined in a more scientific manner after assessing overall
implications before a final decision is made. Cost dataset in conjunction with current schedule can be
used for cost forecasting.
2.3.1.4 Material Dataset:
It contains all the information on the materials required, the dates when they are required, and the
manufacturing location for each item. A typical material management system begins with material take-
off (MTO) listing from the drawings, covers the entire bidding, procurement, expediting and shipping
process, and extends through to site inventory control. Examples of specific functions served by a
material control system include:
i. Material Register
ii. Inventory Control
iii. Purchase order status
iv. Bulk material status
v. Delivery Analysis

vi. Material Quality Assurances
Typical management queries from such a system relating to a specific area, such as "expediting" would
include:
i. Materials required at the site in the next 4 weeks

ii. Late materials only, grouped by vendor or manufacturer
iii. All materials expected ex-works this week.
2.3.1.5 Vendor Dataset:
This provides a record for each supplier, his name, address, telephone and telex and e-mail numbers,
the name of the contact person and line of business. The details of past performance will be included for
use in vendor rating and initial choice of vendor.
The terms and conditions of purchase contract, progress payment schedule, history of delivery and
many other pieces of information about vendor can all be stored, related, and accessed. Since
information relationship can be identified to properly linked multiple datasets, the vendor’s code is
identified on the material dataset that is also linked to the vendor dataset which contains names,
addresses and other pertinent information.
2.3.1.6 Job Card Dataset:
Job Card carries details of each job/activity performed on the project. Typically, the job card level is
directly below network planning in the project hierarchy and facilitates day to day planning.
i. Job/activity Description
ii. Details of job/activity performer
iii. Budgeted amount
iv. Planned start and finish dates
v. Resources required for executing the job/activity
It includes procedures for progress control and effectively provides the mechanism for allocating missed
out job/activity/work, collecting activity wise information and updating the rest of the project systems.
2.3.2 Data Processing & Distributing Facilities
The wide availability of economical computing power, display devices, and advances in software have
now provided a framework for all project information available easily and reachable to all concerned
personnel through modern data communication facilities with adequate secrecy/security as desired.
Various end users can now update and hold the sets of information they need on their personal
computers (PC’s) and communicate with each other with on line transfer of data/information.
Such a framework has the advantage that all the users are using the same data base for different
datasets and consequently integrate between applications up and down the project hierarchy.
Different data inputs are required for projects of different types and sectors but Data sets detailed
above will be common in all projects. The cost and other data required for the project components
including use of cost indices regularly prepared by Construction Industry Development Council (CIDC), a
council set up by Planning Commission may be used for realistic project cost estimation and approvals.

2.4 APPLICATION OF PROJECT MANAGEMENT SOFTWARE IN PROJECT PLANNING,

IMPLEMENTATION, MONITORING AND CONTROL
The development of computer hardware has seen a tremendous change in the computer systems. The
desktop computers available today have very high capabilities in terms of operating systems, storage,
processing speed and in handling large software which were earlier being handled by main-frame
computers. They are very friendly and apt in tackling complex software. There are large numbers of
Personal Computers (PC) based project management software in existence and they are quite
affordable. Project management software now can handle 99999 activities and even more. The project
management software are integrated with many features which encompasses, planning, scheduling,
resource allocation, resource leveling, cost control, material management, project tracking and review.
Project software are capable of handling these aspects on a single as well as for multiple start projects.
The software with relational database facilities are capable of handling multiple projects with integrated
features.
Project management software can operate on a single P.C., on a shared network or on a web platform.
They have very powerful abilities in communication. They can facilitate on line planning, monitoring and
reporting.
Basic principles of project management
The project planning must be carried in 10 steps:
1. Defining the Project structure

2. Defining Task Relationships,
3. Indicating the Duration of, and Resources Required, for each Task,
4. Integrating Known Scheduling Constraints,
5. Generating an Initial Plan
6. Comparing this Plan to the Objectives and Revising the Plan
7. Negotiating Modification of Objectives
8. Creating a final Plan
9. Obtaining Approval
10. Communicating the Final Plan
None of the phases can be ignored, regardless of the method used, only the tracking and control phases
would require different techniques, depending on whether the critical chain method or the critical path
method is used.
The project plan is the main tool used by the Project Manager and his team to coordinate the task
required for carrying out the project. The plan describes all the tasks that must be performed, it also
indicates who is responsible for each task when it must be performed and at what cost. The plan
simplifies the communication between the Project Manager and his team, the upper level management
and the customer. It is also the base document when it comes to obtaining the approval of the project
and the required budget and the resources. Once this plan is validated, it will provide a base for
measuring progress during the entire project. During the planning phase, Project Managers identify the
resources and estimate duration or effort required for performing each task. The best estimates are
those that are based on experience gained during the implementation of similar projects. It is, therefore,
very important to keep the historical database of best projects. Of course, adjustment will have to be
made to account for different constraints, productivity of available resources and other relevant factors.

The Project Management Software can give precise representation on the various constraints that affect
the project. These constraints are set to be external because they are not directly linked to the logic of
the project to be accomplished but to the environment in which it will be carried out. These are often
calendars linked to the company, to a specific task, or to resources used for the project. The project may
also have different constraints that affects the start and finish dates of specific tasks such as funding
starts and delivery deadlines set by for suppliers, etc. With these details, the Project Management
Software will have enough information to tackle the project plan.
The basic information elements are structural list of task, task dependencies (network), external data
constraints, bar chart (Gantt Chart), resource utilization and budget. Now this plan is a comprehensive
description of the task and their organization, the required resources and how they will be used and the
budget. This is the original plan which set the agenda for approval or any modification in relation to the
objectives of the project and the requirement of the stake-holders. The Project Management Software
provides easy way of looking at what if scenario and preparing a plan for tackling uncertainties and the
unexpected. The Project Management Software provides a very strong tracking features and help in
keeping tight control on the project schedule.
When the project is finished, the Project Management Software can generate all the historical
information which may be useful in the analysis of the approaches, the management applied for
resolving various types of constraints which would be ultimately used for planning new projects with
similar objectives.
Available Project Management Software
Some of the project management software are used in India which have integrated capabilities of
handling various aspects of a project including planning, tracking and control, reporting etc. are:
1) Artemis
2) Microsoft 2007
3) Prima Vera Project Planning
4) Project Scheduler 8 or Cater versions
5) Suretrack
List of such software with different features and application capabilities can be seen at
http://en.wikipedia.org/wiki/List_of_project_management_software . But reference to this site is not
the end, other expert references can also be explored.
Approaches to Project Management Software
There are basically 6 approaches to Project Management Software
1) Desktop: Project Management Software can be implemented as a programme that runs on the
desktop of each user. Some of the desktop applications are powerful enough to work in a
collaborative environment which can be shared between users on a network drive.
2) Web-Based: Project Management Software can be implemented as a Web Application, accessed

through an intranet or extranet using a web browser. Some of these applications do allow off-line
applications as well.
3) Personal Project Management Software: A personal project management software application is

one used at home, typically to manage lifestyle or home p. There is considerable overlap with single
user systems, although personal project management software typically involves simpler interfaces.

4) Personal: A personal project management application is a single user system. The single user system
can be used for small companies particularly on smaller projects where a single person is able to
manage the plans and make changes on the desktop.
5) Collaborative System: A collaborative system is designed to support multiple users modifying

different sections of the plan at once, for example, updating the areas they personally are
responsible for such that those estimates get integrated into the overall plan. Web-based tools
which can use extranet generally falls into this category but have limitations for them as it can only
be used with live internet access. To address these limitations client-server-based software tools
exist that provide a Rich Client that runs on users’ desktop computer and replicate project and task
information to other project team members through a central server when users connect
periodically to the network and other tasks. Some tools allow team members to check out their
schedules (and others as read only) to work on them while not on the network. When reconnecting
to the database, any changes are synchronized with the other schedules.
6) Integrated System: An Integrated system combines project management or project planning with
many other aspects of company life. For example, projects can have bug tracking issues assigned to
each project, the list of project customers becomes a customer relationship management module,
and each person on the project plan has their own task lists, calendars and messaging functionality
associated with their projects. Similarly, specialized tools like ‘Source Forge’ integrate project
management software with source control (CVS) software and bug-tracking software, so that each
peace of information can be integrated into the same system.
P.M. Software Selection Criteria
While reviewing potential software, many companies tend to focus only on the potential product’s
functionality and not but its importance to evaluate the suppliers ability to deliver product services well
beyond feature options.
The Appendix 2.4 gives an idea of the various parameters of selection and also provides a comparison of
10 Nos. P.M. software.
PROJECT IMPLEMENTATION
2.5 SELECTION OF CONSTRUCTION AGENCY, CONTRACT MANAGEMENT AND

ADMINISTRATION
2.5.1 Contract Management System
Selection of proper contractors and contract management is one of the most important functions in the
project implementation phase. An ounce of extra effort in the early stages in the selection of
appropriate agencies for construction and reliable suppliers of equipment is worth tons of money and
effort later in chasing defaulting contractors and avoiding costly slippages. The contracting function
includes the following areas:
i. Contract strategy
ii. Contract Planning
iii. Compilation of tender specifications and issue of notice inviting tenders (NIT)
iv. Processing and evaluation of bids
v. Award of contract
vi. Post award follow up of construction activities and Quality supervision

vii. Management of contract changes

viii. Control of claims
Each of the above functions is discussed in subsequent paragraphs.
2.5.2 Contract Strategy
Contract strategy depends on the philosophy of project implementation. Several types of contractual
arrangement are feasible. They differ only in the way in which contract price is expressed or calculated.
These include:
i. Turnkey or lump sum contract (LSTK)

ii. Engineered package contract (EPC)
iii. Schedule of Rates Contract (item rate contract) with bills of approximate quantities,
iv. Cost reimbursement contract
The degree of financial risk that the contractor/JV is willing to assume is directly related to
compensation basis. The two types of contracts that reflect the extremes of contractor’s financial risks
are lump sum, representing the highest financial risk to the contractor, and cost reimbursement under
which the contractor takes minimum financial risk.
Each type of contract has its own advantages and disadvantages, and in any project, more than one type
can be profitably adopted. Salient features of each type of contract are discussed in the subsequent
paragraphs.
2.5.2.1 Turnkey or lump-sum Turnkey Contracts (LSTK):
The greatest advantage of this contract strategy is that the cost of the total project is known with
maximum certainty. The contractor assumes all the risk and there is a strong motivation for him to
complete the project on time, because any delays shall result in his suffering loss. The project
management effort is considerably reduced and simplified in this approach. This strategy may also be
suitable in view of the globalizing economy which equipment and services from the most technically
advanced companies anywhere in the world.
The fundamental pre-requisite to adopting this approach to project implementation is that a sufficient
number of qualified and competitive contractors should be willing to bid and to assume the financial risk
associated with the project. There must be completely defined Scope of Works, available facilities and
site working conditions to enable the bidders to accurately price their bids. There must also be stable
economic, political and social conditions at the project site so that the bidders do not unnecessarily
provide for large risk contingency in their bids.
The disadvantages of adopting this strategy is that the overall project cost in this type of contract is
bound to be higher, due to the contractor’s inclination to cover up the financial risk and uncertainty in
his price bid. In a lump-sum fixed price turnkey bid, the contractor normally provides, absolutely
minimum design margin in order to be cost wise competitive with others. This may sometimes prove as
a constraint to achieve even the rated capacity performance resulting in huge consequential losses
incurred due to poor lifelong performance whereas the compensation through penalty could be
comparatively insignificant.
As the prospective turnkey contractors may not have experience in all disciplines and specialties
involved in design and execution of the project, they can be permitted to form Consortium or Joint
Venture in which each member is having proven experience in his respective field. In such a case, the
members should be required to agree for joint/several responsibility clause for timely execution, quality

of work and total performance of the Plant. One of the members is required to be nominated as a leader
with whom the client will deal and coordinate for all purposes. A common form of joint venture is where
an overseas firm joins with a local firm in undertaking a project whereby the knowledge and expertise of
the overseas organization and the experience and facilities of the local organization are combined.
It is essential that at the very beginning of the contract negotiation, agreement is reached on the
following major aspects:
i. Overall schedule is established indicating various critical areas of procurement, manufacturing,

delivery, installation and commissioning.
ii. Detailed schedules for all the major works are furnished by the contractor and agreed to by the
Owner/Consultant
iii. Weight-ages assigned by the Contractor to the various components of the work together with
the basis, is carefully evaluated by Owner/Consultant. Any inappropriate weight-age system can
depict wrong percentage completion. This weight-age evaluation is to be more thoroughly done
in case the payments to the contractor are tied up to progress measurement system.
iv. Quality assurance programme of the Contractor is required to be obtained and major
milestones, at which Owner/Consultant’s clearance is required, need to be established.
v. The evaluation criteria on the parameters to be measured as part of performance/guarantee
runs need to be mutually agreed along with the system of measurement.
vi. Points at which Owner's obligations/inputs will be met.
2.5.2.2 Engineered Package Contract EPC)
Engineered package or bid package strategy for contracting is governed by extent of detailed
engineering of the project which can conveniently and profitably be done in the owner/consultant's
organization. Normally, process engineering and front-end engineering is done in house, or by the
consultant. In certain cases, basic engineering can be more competently done by the equipment supplier
himself who has full design capabilities, such as in the case of supply of Generators for a power plant.
For systems, such as material handling, ash handling, water treatment, etc., Basic / system engineering
may be done in house and detailed engineering is left to be done by equipment supplier as he can
develop more economical designs of the system keeping in view the items manufactured by him and the
availability of bought-outs in the market. In such cases, engineered package approach to contracting
may be more economical.
2.5.2.3 Contracts Based on Schedule of Rates (Item Rate Contract/Percentage Rate Contract) With
Bills of Approximate Quantities
Most contracts for civil works and equipment supply (piping, electrical, instrumentation works,
storages/Tankages etc.) are framed on the basis of schedule of rates with bills of approximate quantity
based on detailed design & engineering of the project. The Percentage Rate Tendering could be used
most suitably on repetitive type of works such as storm water drainage, water supply and sewer lines
etc.
The problem can, however, always arise on account of large variation in the quantity from the estimated
to the actual. The contractor may be entitled to an adjustment of the rate if there is a change in
quantities which makes the quoted rate unreasonable or inapplicable, which leads to delay and
contractual complications. It is, therefore, essential that the site is investigated properly and designs are
worked out in sufficient details so that items involved in the project are fully identified and quantities of
individual items are worked out within reasonable accuracy. While evaluating the tenders, special care
should be taken to check reasonableness of rates by caparison with pre-determined estimates and very

high or very low rates should not be accepted so that the contractor does not draw any advantage due
to variations in quantities. The clause for determination of rates for extra items as well as variation in
quantities should be unambiguous.
2.5.2.4 Cost Reimbursement Contracts:
This type of contract is normally encouraged for large World Bank financed Projects for developing
countries where engineering and Project management expertise and capability with engineering base is
available. In this type of contract also, time schedule for procurement of hardware can be maintained by
completing pre-qualification and registration of vendors before the zero-date for different categories of
equipment as packages. It has been observed in many occasions, that while foreign prime engineering
contractor is agreeable for turnkey responsibility with lump-sum fixed price contract for his services and
supplies on imported origin, he invariably insists on payment on actuals for Indian equipment and
machineries. The fees for software payable to the contractor is fixed, whereas the equipment and
supplies and construction costs are reimbursable for which a maximum ceiling cost can be fixed. Penalty
and incentive clauses can be introduced for timely completion of the project within the guaranteed
maximum cost.
2.5.3 Contract Planning and Scheduling
Based on time schedules indicated on the Master network, the contract schedule may be prepared
indicating the time limits for achievement of the following milestones / activities up to the stage of
award of each contract:
i. Finalization of Technical specifications, form of bid and standard conditions of tender by the
Consultant
ii. Approval by the client
iii. Approval by external donor, where applicable
iv. Issue of bid documents
v. Bid opening, technical and commercial
vi. Evaluation of bids and finalization of recommendations for price
vii. Price bid opening
viii. Evaluation of price bids and recommendation for award of contract
ix. Approval of recommendations
x. Government
xi. Foreign donor
xii. Issue of Letter of Intent
xiii. Final contract agreement
The contract schedule for each contract should form the basis of monitoring the contracting activity.
Further, a detailed schedule for bid evaluation may be prepared before the bids are opened. This would
enforce time discipline on various agencies involved in the process.
2.5.4 Compilation of Tender Specifications and Issue of NIT
2.5.4.1 Methods of Tendering:
The following methods of tendering should be resorted to:
i. International competitive bidding (ICB) as per the general procurement guidelines of the foreign

donor
ii. Open tendering, limited tendering and single tendering (within India) as per the guidelines
contained in project enterprises Contract Manual/Works Manual/Work Policy.
World Bank has issued Sample Bidding Documents for Procurement of Goods, and Guidelines for
procurement under World Bank Loans and IDA credits which may be referred to.
In the case of open tendering, the project enterprise may follow one of the following two procedures:
i. Pre-qualifying the bidders before Bid submission

ii. qualifying the bidders after submission of Bids
In case of major and complex contracts, pre-qualification of bidders is desirable to ensure that eligible
bidders will have the necessary means and capabilities to execute the contract effectively and
efficiently.
2.5.4.2 Pre-qualification of Bidders
The criteria for pre-qualification of the Bidders, e.g., technical competence, past performance, financial
soundness, organizational capability, shop loading, particulars of sub-vendors who are also to be pre-
qualified based on their past experience, etc., should be clearly spelt out in the tender along with other
salient details of the work. The responses received to the open advertisement in the press are-tabulated
and Bids of only those Bidders who meet the criteria, should be short listed for further processing of the
bids. Pre-qualification is particularly desirable in case of turn-key approach to project.
2.5.4.3 Mode of submission of Tenders
The tenders may be invited separately sealed in two parts (two envelope system)
i. Technical and commercial part, and

ii. Price part
Of particular importance is to emphasize that, (i) the bidding documents contain strict technical
specifications and requirements which will ensure proper performance and quality and (ii) state in
unambiguous and quantitative terms, the eligibility for bidding and the criteria by which the bids will be
evaluated. Efforts should be made to make the general and special conditions of Contract equitable and
technical details and specifications unambiguous. For all large projects, pre-bid conference should be
called, in which, all the Contractors should be given an opportunity to seek clarification, thereafter
conditional tenders should not be accepted. No negotiation should be held after tender opening except
as provided in B.P.E. guidelines. In case it has not been possible to hold pre-bid conference, efforts
should be made to bring all the bids technically at par, either through discussions, or issue of
telex/letters/ e-communication seeking clarifications prior to opening of price bids. Evaluated prices
should be worked out for comparison purposes after pricing the deviations retained, if any, on a
predetermined basis. The price part of the offers should be opened only of the technically and
commercially acceptable bids.
2.5.4.4 Conditions of Contract:
The inequity conditions in Contracts for construction has been identified as one of the major maladies in
Project Execution. Traditionally, the text of contract documents is drafted by the owner and this
normally results in a document which, sometimes, is drafted to favor one of the parties entering into a
contract. An inequitable contract hurts all parties at all times, and therefore, is not a workable contract.
Then, there is a question of multiplicity of contract texts. Almost all wings of Government, be they the

Union Ministries, State Departments, or even the Public Sector Undertakings, both at the Central as well
as State levels, have evolved and practiced their own contract texts. Several of these are not relevant or
designed to meet the exigencies posed by the complexities of present day contract management
requirements. In this backdrop, this ministry (Ministry of Statistics & Programme Implementation)
took the initiative to develop a harmonized and transparent Contract Management System and
finalized a Standard Contract Document which was initially published in year 2001 requesting all
wings of Government and all public enterprises both at the Centre as well as State levels to adopt the
Standard Contract Clauses of this Document in their bidding documents.
Based on feedback received from the concerned Govt./Public departments and public enterprises,
the Standard Contract Document has been further revised by the Ministry, after wide consultations
with the Construction Industry Development Council (CIDC), A body formed by Planning Commission
jointly with Govt. Ministries and Public & Private Enterprises engaged in Project Implementation and
the revised Contract Document for Domestic Bidding was published by Ministry of Statistics and
Programme Implementation (MS&PI) in Year 2005.
2.5.4.5 Model Contract Document for Domestic Bidding
The Contract Conditions provided in the Model Contract Document of MS&PI, should be considered for
adoption by all Public Sector Enterprises in their tenders for domestic bidding and the technical
specifications & special conditions should be added to suite the concerned project requirements. They
should inter - alia cover the following:
i. Bidder's qualifying requirements

ii. Work schedule (Scope of Work)
iii. Owner supply items, if any,
iv. Price basis
v. Price adjustment
vi. Differential price factors for evaluation
vii. Terms of payment
viii. Service and spare parts availability
ix. Repeat order option
x. Warranty for the goods supplied
xi. Performance guarantee
xii. Liquidated damages for short-fall in equipment performance
xiii. Liquidated damages for delay in completion
xiv. Training of Owner's personnel
xv. Terms and conditions relating to sub contracts
xvi. Accommodation to provide for contractor's office, employees stores, etc.
xvii. Determination of contract
xviii. Safeguards during construction
xix. Inputs to be provided by the project enterprise
xx. Conciliation/Arbitration
xxi. Infrastructure facilities
xxii. Contractor’s equipment deployment schedule

xxiii. Contractor’s Organization and man power deployment schedule

xxiv. Quality assurance
xxv. Construction schedule
xxvi. Mobilization and equipment advance
xxvii. Schedule of payment
For each contract there should be a specific condition requiring the contractor to deploy specified
minimum machinery/equipment and qualified man power with appropriate skill certification according
to a laid down schedule. It is also essential to develop scientific price adjustment and escalation
formulae for different types of works to avoid complications and disputes in long duration contracts.
CIDC has construction cost indexing set-up which can be adopted for appropriate computation of price
escalation.
2.5.4.6 Issue of Bid Documents:
Various sections of the bid documents should be comprehensive and contain separate chapters and
formats in such a manner that evaluation of bids and preparation of contract agreement on award are
simplified. Detailed cost estimates may be prepared for obtaining internal approval prior to issue of bid
documents. In case of bid documents prepared for International Competitive Bidding (ICB) as per the
general procurement guidelines stipulated by the foreign donor, these should be sent to the donor for
their concurrence with a covering note summarizing the salient features of the bid documents. The
Notice Inviting Tenders (NIT) may be published in leading national newspapers and in the Indian Trade
Journal and Enterprise’s Web Site. Apart from this, copies of the advertisement should be sent to the
Embassies/High Commissions located in India, as well as to the interested bidders who enlisted
themselves beforehand in response to the general advertisement issued for a Project. Bid documents
should generally be issued in complete sets to the prospective bidders only. Sometimes it may be
necessary to hold bidder’s conference after issue of tenders and before receipt of quotations to clarify
ambiguities in Bid Documents, if any.
2.5.4.7 Submission of Bids and Bid Opening:
Bids should be received in sealed covers either by post or by hand before the date set for opening of the
bid. Telex/telegraphic bids and late offers may normally not be accepted. Bids should be opened in the
presence of the representative of bidders and relevant portions of the bids should be read out to all
bidders present and the minutes of the bid opening should also be recorded.
2.5.5 Processing and Evaluation of Bids
During the evaluation of the Bids, the following aspects need to be examined:
a. Completeness of the Bid-whether the bid is quoted for the entire scope of job put to tender,
b. Furnishing of all the information/ documents necessary as per requirements of Bid Document,
c. Whether the Pricing Schedules are strictly as per the proposal forms or the Bid Documents.
d. If any special condition has been included by the bidder in his offer, their financial effect is
evaluated for comparison with other bidders before acceptance
e. Schedule of Labour Rates and Equipment hire charges, etc. have been submitted in specified
proforma
f. Financial Documents and concurrent commitment statements
g. Schedule for payments

h. Erection schemes and work methods

i. Proposed Equipment and Organizational Deployment
j. Specific commitments for Quality Assurance Plans
k. Health, Safety and Environment protection Plans
l. Planning and Monitoring systems proposed
m. Overall schedule commitment
The evaluation of the bids should be made as per specifications and conditions included in the bid
documents. All the deviations from the specifications and/or conditions of contract should be evaluated
to ascertain the responsiveness of the offer and categorical recommendations may be made regarding
their acceptability or otherwise. If the bids are substantially responsive, final comparison of bid prices
are made after adjustment for all commercial and technical deviations, based on differential price factor
for evaluation already specified in the bid documents, and domestic price preference, if any. It is
advisable to compile a comparative statement, clearly depicting the various technical and commercial
items to facilitate correct assessment of offers. Alternative offers satisfying the specification
requirements are also accepted. After selecting the lowest evaluated offer on the above basis, the
lowest bidder may be persuaded to withdraw his deviations before award of contract. Utmost care
should be taken to check reasonableness of individual item rate/rates of different components of
tenders. Cases have come to notice when the Contractors quote high rates for supply of items and low
costs for their erection. During execution they abandon the work after supply is completed when they
have collected major parts of the payment. Similarly for item rate contracts they quote high rates for
initial items of work and low rates for items coming up at later stages of the project and abandon the
work at later stages when they have not much to loose.
2.5.6 Award of Contract
System for Award of contract:
The contract is awarded to the lowest evaluated responsive bidder. The authority for award of the
contract depends on the value of the contract and as per the delegation of powers authorized to the
Board of the public sector enterprise. For all externally funded projects, concurrence of the foreign
donor is obtained before the award.
2.5.6.1 Tie-ups for Award: Before a contract is awarded, the following aspects are to be agreed
upon by the contractor formally:
i. Engineering information flow schedule

ii. Detailed technical specification
iii. Quality assurance plans
iv. Health, Safety & Environment for Manpower at site and surrounding Habitat.
v. Work schedule
vi. Contractor’ organization for implementing the contract
vii. Progress reporting schedules
viii. Co-ordination procedure
ix. Price adjustment details
x. Payment schedules

xi. Resolution of commercial & technical deviations

xii. Issue rates for material supplied by the project authorities.
Contract documents should contain the original Bidding Documents as put to tender; agreement on
appropriate value of stamp paper duly signed by holder of Power of Attorney, and agreed variations to
the Document as floated.
2.5.6.2 Detailed quality assurance program:
As a part of the overall objective of procurement of equipment and services of specified quality, the
bidders may be asked to furnish a quality plan detailing the quality control to be exercised at various
stages of manufacturing and field activities. The subject has been more comprehensively covered in
Clause - 4.8.
2.5.7 Management of Contract Changes:
During execution of individual contracts, certain changes in scope & specifications etc., may sometimes
become necessary. Such changes may have financial impact as well as may have impact on other
contracts. It is, therefore, necessary to have a system for introducing contract changes through issue of
a change order. For construction and erection contracts, the authority for all day to day interpretation of
contract conditions and changes/additions/deletions in the scope of work may be delegated to the
Project Manager/Nodal officer, if these conform to engineering drawings.
In any type of contract, occurrence of extra item of works is normally inevitable. Specific clause and
procedure should be laid down in the contract to arrive at rate of such extra items to avoid disputes.
Provision should also be kept for provisional rate approval for release of prompt Payment pending
finalization of extra item rates (around 75% of claimed rate or full SOR for that item may be released
provisionally till market rate is established).
2.5.8 Control of Claims by Contractors
The claim is a request for payment for costs incurred in completing a contract, where the basis for
payment is not precisely defined within the terms of the contract. The amount involved is, therefore,
the subject of negotiation.
A major cause of claim is construction delays. The contractor raises claims for:-
i. Increased cost due to extension of time on site (increased site and home office overheads)
ii. Loss of productivity due to working at a slower tempo
iii. Retention, reduction & remobilization of manpower
iv. Loss of productivity due to ensuing inclement weather
v. Increased cost due to escalation, etc.
The best defense against claims is the availability of facts and figures and that demands careful and
comprehensive records. Historical records of the project should, therefore, be carefully maintained for
future reference. This will enable many such claims to be evaluated or refuted.
The best way to minimize dispute is to resolve them as the project proceeds and not to defer them to
the end of the day. It is also essential that the project implementation plan should be based on field
realities. The contractor's schedule should be carefully determined taking into account various site
constraints and the obligations to be discharged by project authorities.

2.5.9 Guarantee on Performance and Maintenance of Quality
Performance guarantee bond -- preferably in the form of bank guarantee should clearly indicate the
liability of the Contractor/Consultant for unsatisfactory performance and non-fulfillment of the contract
in respect of Quality, faultless operation, and achievement of rated capacity etc.
(A) Guarantee of the production performance of the plant or system or sub-system as applicable, in
respect of:-
• Capacity for production

• Quality or product/co-product/by-product
• Quality & volume of effluents -- liquid/gaseous
• Rate of consumption of utilities, catalysts and chemicals
(B) Warranty
Warranty on performance, materials of construction and workmanship of hard-ware, equipment &

Machinery supplied or construction services provided.
Warranty that the engineering designs/services provided are in full conformity with the process design
given by the licensor/Basic Engineering Contractor, in compliance with applicable statutory regulations
and as per applicable design codes/standards and accepted engineering practices.
(C) Guarantee to deliver goods/services within an agreed time or as per an agreed programme (viz. in
specified installments).
Each of the above deals with distinct facets of the performance of a contractor, each individually
assessable and measurable. The remedial measures provided are also different.
2.5.9.1 Remedial Measures
The Remedial measures provided as deterrent against failure in above obligations of a

Vendor/Contractor are briefly discussed below:
(i) Capacity for Production
For a small percentage of 3 to 5% short fall in production capacity, a compensation can be levied by way
of Liquidated Damages at specified sum for each 1/2% shortfall. But if the shortfall exceeds the limit, the
contractor should be obliged to rectify the shortfall fully at his own cost and meet the guarantees.
(ii) Quality of Product
In most cases there cannot be a compromise on quality of product and no deviations can be accepted
and provisions for compulsory rectification by contractor at his own cost should be made. Only in cases
where the shortfall in quality does not lead to rejection of product but may only cause marginal increase
in consumption of utilities or shortfall in rated output, compensation by way of Liquidates Damages
should be provided in the Contract.
(iii) Effluents
Here again no compromise is possible and only compulsory rectification of Plant is the remedy available
(iv) Rate of Consumption of Utilities, chemicals & Catalysts
For marginal variations, compensation is levied by way of Liquidated Damages. The amount of damage is
calculated at the Capitalized value of the increase in operating cost due to the shortfall in performance.

2.5.9.2 Warranty on performance, materials of construction, workmanship, engineering design, etc.
This is also called "Defect Liability" and deals with defects in individual equipment or element of a plant
or system which does not substantially affect the performance of the plant but comes in the way of
proper operation with high on-stream factor. Such flaws may get revealed only gradually in the course
of prolonged operation and hence the warranty should necessarily survive acceptance of plant after
demonstration of performance guarantees. At the same time contractor should not be put to undue
hardship in case the commissioning and demonstration of performance guarantee are delayed due to
reasons not attributable to contractor.
Usually the period aimed at is 12 months in service with a ‘longstop’ of 18 months from mechanical
completion or 24 months from date of shipment as the case may be depending upon the Project
schedule.
The guarantee tests of plant and equipment ought to be conducted under the prescribed operating
conditions to which the guarantee relates and certificates of performance guarantee should not be
issued unless the management is thoroughly satisfied on all aspects during actual trial runs that the
plant and equipment are capable of working to the guaranteed capacity.
In case there is some delay in proving performance after the stipulated date due to factors for which the
contractor may be responsible, the period of guarantee should automatically stand extended by
corresponding period of delays and a provision to this effect should be made in the agreement itself.
2.5.10 Imposition of liquidated Damages (LD):
The application of liquidated damages clause should be invoked with abundant care and caution, as it
may have serious deleterious effects by way of non –cooperation/demobilization by the contractor. If
maximum imposable LD have already been levied, the contractor may have nothing more to lose. This
could lead to serious delays. Hence, a cautious approach to make sure that the contractor is served
enough appropriate notices and follow up so that a final decision to levy LD may be taken in this regard
during execution but in any case before the completion of the project.
2.5.11 Bidding by Public Enterprise:
The Government of India has a purchase and price preference policy for Public Enterprises if it has bid
for the Works. It is thus advised that while inviting tenders, an indication should be given in the notice
inviting tenders that the authority concerned reserves its right to allow to the public enterprises, price
preference facilities as admissible under the existing policy.
The Government of India has laid down separately, guidelines for settlement of disputes between one
Public Sector Enterprise and the Government Department or between two Public Sector Enterprises vide
provisions of Bureau of Public Enterprise (BPE) Office Memorandum. All tenders should specifically
stipulate application of the above memorandum in the case of contractor being a Public Sector
Enterprise under appropriate clause dealing with settlement of disputes.
2.6 MATERIALS MANAGEMENT SYSTEM

2.6.1 Material Management
One of the most important aspects of Project Implementation is to have a good system of material
management. Material Management normally involves the following activities:
i. Materials Planning,
ii. Procurement,

iii. Receipt and Inspection,

iv. Storage and Issue,
v. Inventory Control,
vi. Transportation,
vii. Reporting
For a good system of material management, the basic requirements are a well knitted Materials
Management Group and a well written codified manual for Materials Management. As far as the
organizational set up of the Materials Management Group is concerned, it would depend on the size and
nature of the project.
The Manual for materials management should normally contain detailed procedures for the following
activities of material management:
i. Codification of all materials including spares

ii. Indenting
iii. Vendor listing and vendor analysis
iv. Commercial conditions of supply
v. Schedule of supply
vi. Issue of procurement enquiry
vii. Opening of offers
viii. Procedure for evaluation of offers from vendors
ix. Negotiations with vendors
x. Final approval procedures
xi. Transport/Trans-shipment
xii. Risk purchases
xiii. Transit insurance
xiv. Inspection & test procedures
xv. Storing
xvi. Issues and disposal
xvii. Stock verification
xviii. Accounting and documentation
xix. Various inventory analysis like ABC analysis, EOQ Analysis etc
xx. Minimum/maximum stock level
xxi. Re-ordering level
xxii. Disposal or document items
xxiii. Disposal of obsolete and unwanted items
xxiv. Stores insurance etc
Some of the important activities are detailed below:

2.6.2 Materials Planning/Procurement
Planning of materials involves detailed estimation of materials needed to achieve each of the projected
activity targets. The target is converted into material input requirements and a procurement plan should
be drawn based on lead time, stock policy for bulk items depending on their easy or difficult market
availability etc. This plan forms the basis of all budgeting activities during the project formulation.
2.6.2.1 Material Receipt and Issue
Detailed systems will have to be established for receipt, inspection, storage and issue of materials.
Procedure relating to quality control check should also be evolved. Wherever materials are issued to
contractors, proper accounting control should be established so that proper debit is raised both in
quantity as well as in value. A perpetual inventory system for reconciling actual quantity with quantity as
per records should be ensured.
2.6.2.2 Material Status Reporting
Reporting for material status is carried out based on information available through inventory records. As
per the needs of project organization, various reports could be prepared from these records. Some of
the important ones are:
i. Inventory status report

ii. Stock out report
iii. Procurement status report
iv. Delivery status report
v. Rejected material reports
vi. Vendor performance report
vii. Commitment status report
These reports ensure that managerial action is concentrated in areas where actual results are not in
accordance with a planned action. In other words, exceptional reports of level-II or III highlighting
problem areas should be generated.
2.6.3 Post Award Follow up of Equipment/ Machinery Supplies
2.6.3.1 Project engineering information flow schedule should be tied up at the time of ordering of
Critical Equipment and machinery for the Project. Unless the load data is furnished by the
equipment vendor for critical equipments, further design and drawing activity for foundation
and structural work for installation of concerned equipment at site may get delayed. This is
one of the major causes of delays in project implementation.
2.6.3.2 Expediting of Equipment supplies:
A close watch needs to be kept at all times on procurement of all critical materials/components by the
equipment supplier before delay becomes a fact of life. For monitoring the status of fabrication of
equipment in vendor’s works, a detailed network consisting of all key activities should be agreed upon
with the supplier before signing of the purchase agreement. From the agreed network, earliest and
latest start and completion dates for each of the key/major activities may be identified. As one of the
major reasons for slippages in the scheduled completion of the project is delay in supply of equipment
by the vendor, indigenous and foreign, the importance of effective monitoring of the fabrication activity
on the shop floor of the equipment supplier cannot be over emphasized. Whenever the status report

indicates that Equipment is in danger of being delayed or has already failed to achieve the requirements
of the agreed program, corrective action may include:
i. Establishment of additional check points

ii. Resolving priorities
iii. Overtime working
iv. Additional facilities
v. Sub-contracting of work
vi. Possibility of air freighting
Status Report should be filed by the expeditor to the project manager and his functional manager
indicating clearly the actual position as it is found to exist on the shop floor and an estimate of likely
dispatches and also if he has noticed any rejects or technical snags in the manufacturing process which
may put the entire manufacturing programme in jeopardy.
Spares list and operating and maintenance instructions must not be overlooked by the progressing and
expediting function.
2.6.3.3 Inspection & Quality Control:
As progress payments for supply of large capital equipment are related to progress achieved, it is
necessary for financial control purpose to ensure that appropriate checks are carried out. The product
verification plan should be prepared with mutual agreement of the manufacturer. The plan defines in
detail the inspections and tests to be carried out & Quality assurance procedures are built into the plan.
In preparing the plan, the following issues may be kept in view
i. Operational importance of the proposed equipment

ii. Design assessment of the equipment and its susceptibility to failure in relation to highly loaded
or stressed areas
iii. Any weaknesses in the manufacturing process
iv. Manufacturer’s experience in producing similar equipment
v. Manufacturer's history of achievement in quality
Inspection activities should be in proportion to the operational importance of the plant items
concerned.
2.6.3.4 Shipping is yet another area of special attention. 'Freight accounts and classification of
materials’ have to be checked in order to ensure minimum freight rates. The necessary
transport has to be chartered and decisions made as to routing either by rail, road, sea or air.
Some equipment can be massive in terms of size or weight and routing of such heavy and
difficult loads & Over Dimensional Consignments (ODCs) has to be studied in great detail in
order to resolve the problem of getting such loads to site in minimum time. This may require
detailed survey of the entire route over which shipment may have to move. Some of the roads
and culverts may have to be even strengthened. The convoy would have to be escorted and it
could move only in day light hours. All this requires meticulous planning in advance. Necessary
transit insurance should be taken against any possible loss or damage during transit.
Goods inward inspection is normally carried out by site inspecting team rather than by the procurement
group. Materials received at site are normally delivered to the stores receiving bay. When the material is
large or heavy and requires handling equipment, it can be stored in a suitable location clearly labeled

“Hold for Inspection” The receiving inspector, on receipt of the delivery note and copy of the purchase
order, should check through the documents to determine what attributes are to be inspected and
obtain necessary documentation and instruments for the purpose.
Non-conformance found during goods in-ward inspection or any damage in transit should be reported
to the appropriate authorities.
2.6.3.5 Material Stores Management
In a typical industrial project, the equipment and materials may account for more than half of the total
project cost. Proper records of purchased stock materials, components and on-delivery equipments,
both imported and indigenous has to carefully maintained. Stores Documentation Details used for stores
management will be spelt out in the Stores Manual. Test Certificates from suppliers are necessary for
pressure vessels and other equipments where safety is to be ensured.
Operating and Maintenance Instructions for equipment and components are obviously necessary for
project management to ensure that the commissioning engineers are fully briefed. All these documents
would have to be ultimately passed on to the operating and maintenance personnel in the enterprise at
the completion of the project.
2.6.4 Site Stores Management
As most large projects involve establishment of storage facilities at sites remote from enterprise
corporate headquarters, the project manager must ensure that those responsible for managing and
operating the site stores are fully experienced, competent, trustworthy and resourceful. They will be
required to deal with large number of shipping agents from all over the country and handle documents
which may be more difficult to manage and comprehend, such as international shipping documents,
customs documents, etc.
Security of project stores is of paramount importance, especially, if valuable items are held in stock,
particularly where these include readily saleable goods.
Warehousing and storage facilities should be arranged carefully so that passage of materials and
supplies into and out of stores can proceed during the course of the project in the most efficient manner
possible, with short routes and with as little risk as possible of those routes being interrupted through
excavation, and the like. Adequate provision for the stores may be made for roadways, gates, fencing,
yard and road lighting, etc. Covers for externally stored supplies must be made available, such as
tarpaulins. Also available should be items such as sleepers (so that equipment can be kept raised off the
ground) and spare pallets.
As the risk of fire is real, it must be guarded against. All dry bushes and weeds within a specified distance
from the stores perimeter should be systematically cleared.
Proper off-loading facilities for goods may be provided right at the start of the project in order that the
first delivery of heavy items can be properly handled. The responsibility for off-loading and internal
handling must he clearly established. The site management team should normally be responsible,
through their stores staff.
Goods received in the site stores must .be checked against the accompanied documents to ensure that
they are present in the correct quantities and they tally with the description. Any deficiency, sign of
damage or other discrepancy must be noted on the receipt copy of the shipping documents or other
dispatch note, and separate report may be made to the appropriate authority.

It may be necessary to arrange for stock control procedures to govern the procurement and
stockholding levels of certain construction bulk materials and consumables. Physical stock verification
should be arranged from time to time and total reliance may not be placed on the records alone.
The following guidelines apply to storage and maintenance of project equipment supplies which are to
be held in storage for significant periods. It is not uncommon to find in a major project that even though
goods are available, they have been damaged or allowed to deteriorate due to improper storage
methods
Mechanical Equipment: Such as pumps, compressors, turbines, should be:
a. Stored off the ground

b. Protected from rain and moisture
c. Kept lubricated
i. Piping: Should be stored with ends covered and on suitable racks, grouped in various sizes
and specifications.
ii. Valves: and other flanged components should be protected with grease. Where provided,
wooden covers should be kept bolted in place.
iii. Instruments: Must be stored under cover, indoors, away from any risk of damage through
shock or vibration.
iv. Electrical Equipment: Must also be stored indoors wherever possible but, where items are
too large for accommodation indoors, they must be well covered for protection against the
damage and stored off the ground.
v. Cement: Proper go downs should be provided for storage of cement. Wherever supplies are
received in bulk, adequate silo capacity should be created.
vi. Steel: Steel rods & structural of various sizes and sections should be stored in the yard in
separate lots. Care should be taken to prevent rusting.
2.7 USE OF MANAGEMENT INFORMATION SYSTEM FOR PROGRESS REVIEW & MID
COURSE CORRECTIONS FOR PROJECT IMPLEMENTATION
For each contract package, structured Review Meeting should be held on a fixed day and time every
week/month with the representative of the contractors when all the functional discipline personnel of
the project management team may also be present. The variances with respect to pre-determined
schedules should be discussed in detail and the plans for the next week/month should be finalized. The
requirement of resources (Manpower and equipment) should also be considered, at these meetings.
Based on these review meetings, the PMIS group should prepare contract status reports along with
impact Reports and Schedule Variance and generate monthly Level II and Level III Exception Reports for
the information and directives of the functional heads and top management respectively.
2.7.1 MID COURSE CORRECTIONS
It is a known factor that when a project is conceived and conceptualized, the emergent situations
warrant changes in the way the project needs to be executed. This situation could arise on several
counts, some of which are listed below:
a. Fluctuating market conditions affecting the prices of inputs.

b. Change in the relevance of technology
c. Sudden depletion of completion and experienced manpower due to attrition or any other

reason.
d. Socio - political changes leading embargos
e. Change in international trade operations.
It is, therefore, essential that the project team bears in mind that at every stage of the project a mid
course modification/correction is needed. Various evaluation and review techniques could be followed
to make an assessment and identification of changes that are required.
One, however, has to look into the holistic picture, keeping in mind the overall deliveries and be
prepared for changes in various sub-steps of the over all set-ins in the context of project execution. The
mid-course corrections would be applied to.
a. Man-power
b. Financial structure
c. Regulatory situations
d. Technology
e. Administrative structure
While making the changes, the interdepartmental influences of each of the parameters of other policy
needs should also to be looked into.
2.7.2 Crash Actions to meet Project Schedule and Recovery of lost Time
One of the most important tasks of Project Management is to ensure that the project implementation
progresses as per time schedule. In case of necessity, they should be in a position to take crash action at
the highest level to achieve all milestones as per time schedule and wherever there are slippages, they
should be in a position to recover the overall lost time by taking suitable crash actions.

CHAPTER 3
3. PROJECT START UP: PRE-COMMISSIONING AND MONITORING
3.1 PRE-COMMISSIONING-STARTUP
3.1.1 Planning for startup
The problems involved with startup should be examined and planned right at the beginning, even before
the plant lay out is finalized. With complex installations, comprising process units and their support
services, the services will need to be started up well before the process units. But, in many instances,
layout and the progress of design are such that the services are completed last, instead of first. The total
scale of efforts involved in startup in a three year project execution cycle could easily extend from three
to six months. It should, therefore, be adequately catered for in the schedule of the project.
System Integration: Any major plant comprises several systems, which, in, turn comprise sub-
systems/equipments. Integration of the individual equipment into, the sub-system and integration of
sub-systems into the total system has to be planned in appropriate stages and pre-commissioning and
commissioning activities have to be scheduled according to the logistics of the whole system.
3.1.2 Pre-Commissioning
Preparatory to commencement of pre-commissioning operations, a “Walk Down” check may be carried

out in the following areas to eliminate potential safety hazards:
a. Areas of work left out if any in the completion of the erection

b. Adequacy of lighting arrangements
c. Availability of fire protection equipment
d. Cleanliness of the area of operations
e. Safety of approaches to working areas, provision of hand railing and platforms, etc. at essential
locations
A check list should be prepared based on the logistics of the system indicating:
a. Sequential operations involved in pre-commissioning/commissioning

b. Safety inter-locks
c. Basic infrastructure and temporary arrangements required for preparatory activities.
3.1.3 Pre-commissioning Activities:

Before commencement of pre-commissioning activities, involvement of operation and maintenance
personnel is desirable. These will vary from sector to sector. An illustrative list of pre-commissioning
activities is outlined below:

a. Checking of work as per drawings

b. Physical verification of process lines
c. Starting of Utilities (electricity, water, compressed air, steam system, etc.)
d. Flushing of the lines and hydro-testing
e. Air- blowing of lines
f. Leak checking
g. Electrical systems check
h. Calibration of the instruments
i. Loop checking of the instruments
j. Stroke checking of the control valves
k. No-load testing of rotary equipments
3.1.3.1 Checking of work as per drawings:
Each and every line of the plant should be checked with respect to general arrangement and piping
drawings. All the deviations should be listed out and given to the contractor for rectification. After all
the checks, a certificate may be issued by the Engineer-in-Charge (Consultant).
3.1.3.2 Physical Verification of Process Lines:
Each process line should be traced by walking along the line and noting process details like slope, low
pocket drain, no pockets, high point vents, insulation-hot/cold tracing, sample points, instruments,
approachability of instruments, etc. Any deviations in the executed work with respect to approved
drawings should be recorded and given to contractor for rectification. A certificate should be issued by
the Engineer-in-Charge after completing these checks.
3.1.3.3 Starting Utilities:
Before starting the plant, all the plant utilities (electrical, D.M. water, coolers, compressed air, steam,
inert gas, etc.) are to be started and stabilized. The first activity is to energize the electrical system
which will feed power to all the systems. Next comes cooling water system as most equipment needs to
be cooled during operation. Air systems are required for energizing various control valves. The check list
prepared for the main plant is equally applicable to commissioning of utilities.
3.1.3.4 Flushing of Lines and Hydro-Testing:
All the lines (process piping, steam piping, etc.) are flushed with water to clear the scraps left in the
pipelines during the process of welding. The flushing of the lines also establishes that there are no major
obstacles or leakages in the pipeline. After completing this activity, a certificate is issued by the
Engineer-in-Charge.
3.1.3.5 Air blowing of lines:
After flushing the lines, the lines are required to be blown with compressed air. Air blowing ensures
clearing of the finer particles of scrap from the pipe line. It also helps in drying up the piping system. The
dew point of the released air from the pipe line is monitored to ensure that the lines are completely dry.
Air blowing operation needs high discharge capacity compressors which may not be readily available for
hire. This requirement can also be met by suitably designing plant process compressors along with
required piping jump-over for test purposes. After completing this activity a certificate is issued by the
Engineer-in-Charge.

3.1.3.6 Leak Checking:
Since most of the piping connections with valves and the process equipment are flanged connections,
leakages at the joints are to be checked thoroughly before charging the system. Leak check becomes
very important. Sufficient number of gaskets of various sizes and ratings should be available during this
activity so that waiting time is reduced. Gaskets in the flanged connection may require changing after
each opening. After each opening, leak check cycle must be repeated before re-pressurization.
3.1.3.7 Electrical Systems Check:
All electrical systems should be thoroughly checked by simulation of individual panels, operation of
protective relays and ensuring adherence to specified ratings.
3.1.3.8 Calibration of Instruments:
Instrument lines should be blown through with dry instrument quality air and appropriate filters
inserted in the stipulated locations. All instruments such as pressure gauges, safety valves, level gauges,
transmitters etc. should be calibrated for the required set conditions.
3.1.3.9 Loop Checking of the Instruments:
The control loops should be checked for their continuity. Signals may be simulated from the field to
check the response of controllers.
3.1.3.10 Stroke Checking of Control Valves:
Stroke operation of all control valves should be checked and adjusted by simulating the operating signals
from the controllers.
3.1.3.11 No Load Test Run of Rotary Equipment:
The rotary equipments (pump, compressors. blowers, etc.,) are run on no load to check their
alignments, direction of rotation of drives, and functioning of their auxiliary systems. Sufficient number
of commissioning spares and consumables should be procured and kept at site before starting this
activity.
3.1.3.12 Purging:
The lines after leak test should be purged with nitrogen or any other inert gas, to make it oxygen free,
where required. The gases released from vents are analyzed to check the oxygen content. The system is
said to be fully purged when oxygen available is 0.1% or lower. Since the quantity of inert gas required
may be quite large, the small size inert gas plant may be run well in advance and the gas stored in some
big process vessels for release at a later date. Protection and interlocks should be checked to ensure
safety of operation.
After completing this activity, a certificate may be issued by Engineer-in-Charge to declare that the plant
is ready for startup and commissioning.
3.1.4 Statutory Clearances before Commissioning
Before commissioning, the plant authorities should also ensure that all applicable approvals/NOCs have
been taken from the concerned Government agencies, such as:
a. Approval from Electrical Inspectorate for equipment installation

b. Approval from Factory Inspectorate. It is generally given by the State Industries Department

c. IBR approval for equipment and piping erection. This permission is required under Indian Boiler
Regulation Act and is also given by the State Industries Department
d. Inspectorate of explosives
e. State pollution control board
3.2 COMMISSIONING AND STARTUP

In order to ensure the success of the commissioning programme and subsequent running of the plant to
the required performance standards, it is necessary that the following essentials are taken care of:
3.2.1 Recruitment of Key Personnel
Recruitment of key personnel for Operation, Maintenance, Quality Control, and Technical services: In an
operating company it is sometimes possible to select the key personnel who will ultimately manage the
new plant and assign them to the Project Authority right from the engineering stage. Such association is
found useful in activities such as equipment selection, pre-commissioning startup/emergency
requirements, standardization, and identification of bottlenecks in the existing plant from the point of
view of integration of the new plant etc. Of course, this situation may vary from plant to plant and the
type of project. In any case, such personnel should be available before the plant start-up. The operating
strength could be added subsequently in a phased manner but completed at least 3-6 months before
the start-up to give sufficient time for training.
3.2.2 Operating Manual:
This is normally prepared by the Engineering Contractor/Licensor and must be available at least a year
before the start-up.
3.2.3 Maintenance Manual:
A typical Maintenance Manual, compiled discipline wise (i.e. Mechanical equipment, rotary equipment,
Instruments, Electrical, Laboratory, Work-Shops etc.) contains:
i. Purchase specifications, vendor reference

ii. Equipment catalogues with drawing, Spare parts list, instructions for start-up/shut-down/over-
hauling/lubrication etc.
iii. Performance curves, test curves for rotary equipment
3.2.4 Other Manuals:
i. Statutory codes and practices

ii. Safety Manual with work permits & work procedures
iii. Fire Fighting Manual Including Disaster Plan
3.2.5 Other Requirements:
A well laid out main store/Unit stores with easy access to spares, consumables required during
re- commissioning / commissioning. Appropriate shop facilities for emergency repairs, Log sheets etc.
for documentation.
3.2.6 Training of Personnel
Training of plant operators and maintenance technicians must be done well in advance. Class-room
lectures covering each aspect of operation, operation of each piece of equipment, including

instruments, maintenance of each piece of equipment, handling of emergencies, field training in first aid
/ fire-fighting, mock drills etc. constitute the training. If feasible, selected personnel can be deputed to
similar plants for practical experience.
3.2.7 Safety Integrity Check:
Such a check is generally carried out by Engineering contractor as soon as the process engineering work
is completed. The basic idea behind this check is to ensure that the safety systems are in conformity
with safety philosophy adopted for the plant and that all safety devices work in proper sequence for
overall safety of the plant, personnel and environment.
3.2.8 Safety Audit:
Generally a preliminary safety audit is carried out when the plant is about 80% complete. This is
followed by detailed audit the plant is a few weeks away from the startup.
3.2.9 Commissioning
The commissioning activities of the plant commence after successful completion of the pre-
commissioning of various sub systems. Preparation for the startup includes the following activities:
i. Deployment of operation and maintenance staff throughout the plant. Each staff should know
precisely his duties
ii. Build up of inventory of raw materials/feed stock
iii. Setting up of quality control laboratory
iv. Availability of various chemicals, lubricants, etc
v. Availability of operating and maintenance manuals
vi. Availability of vendors service-engineers and commissioning experts from foreign collaborators,
if any
vii. Preparation of check list based on the logics of the commissioning sequence
3.2.10 Startup
Some of the major activities included in commissioning and startup of the trial run are:
i. Introduction of feed stock, raw materials and other materials required for the process;
ii. Laying and Loading of catalysts;
iii. Run-in tests on compressors, blowers and pumps with normal fluid;
iv. Cleaning and charging of lubricants in various systems;
v. Stabilizing the plant at sustained load; and
vi. Conducting sustained load test and "guarantee test run".
Protection and interlocks should be checked and permissive, if any, should be established to ensure
safety of operation.
The division of responsibilities for startup and commissioning between the consultant and the project
enterprise should be clearly demarcated.

3.2.11 Coordination and Control:
All activities should be planned according to the commissioning schedule discussed in Clause 2.1.5. The
commissioning should indicate the activities, their sequences and other restrictions or special
requirements, if any. The network may be updated on daily basis to reflect the up to date status of
commissioning. It may be discussed daily with the consultants in daily pre-commissioning meeting and
required corrective action should be initiated well in time.
3.2.12 Guarantee Test and Acceptance
The guarantee test of all plants should be conducted after sustained load test i.e. after the plant has run
satisfactorily at about 85% load of the rated capacity for a period of about one to two months. The
guarantee test run is made for proving the following performance tests as agreed to by the
consultants/foreign collaborator in the contract:
i. Production capacity of the plant;

a. Works cost: consumption of raw materials and utilities per ton or stated quantum of the
product;
b. Quantity and quality of effluent (liquid, gaseous, etc.) from the plant;
ii. Adequacy of common facilities, etc.
The details of procedures to be followed for conducting the performance test should be developed by
the consultant and have the approval of the project enterprise. The following should generally be
included:
i. Duration (No. of Hours) of continuous running for calculation of works cost, etc.
ii. Record should be maintained of the performance test in separate log sheets/log books and
other agreed forms. These should be made available before the start of the run.
iii. Impact of climatic conditions on raw materials/chemicals etc.
iv. Acceptance criteria
The plant has not only to be brought up to full production capacity as quickly as possible, but it has also
to be kept running at peak on-stream efficiency.
3.2.13 Pre-operational Expenses
Pre-operational expenses are the startup and commissioning expenses in the operations area of project
implementation prior to producing a product. These should not be under estimated as they may amount
to some 2% of the capital cost estimate, and sometimes much more. Pre-operational expenses are going
to be incurred much before the startup.
Pre-operational expenses mainly comprise:
i. Training expenses of operating and maintenance personnel

ii. Salaries and wages for supervision during startup
iii. Minimum raw material required during the start up period, including an allowance for spoilage
or for off grade material, before the plant is considered operational.
iv. Miscellaneous materials and supplies.
v. Expenses on utilities.
vi. Interest on loan during construction period.
vii. Expenses relating to legal documentation etc.

viii. Other financial charges
Then, there are items such as the first filling of catalysts, tower packings, initial filling of lubricating and
hydraulic oils, all required in some volume before the plant can be started up. In view of their relatively
short life, such items should also form part of pre-operational expenses and should be catered for.
3.2.14 Fixing the Date of Commercial production
In any project having a long period of construction, selection of a cut-off date based on the date when
the project is officially recognized as being ready for commercial production has to be specific. This is
necessary to decide the treatment of expenses incurred during trial runs and guarantee period
performance, particularly in case of process industries in Public Sector.
The term Commercial Production refers to production in commercially feasible quantities in a

commercially practicable manner. The cut off date will be taken when the plant is ready for commercial
production and not the date when the plant actually commences commercial production. Therefore, if
the plant has been completed and commissioned, and is ready for commercial production and the
enterprise for one reason or the other, does not start commercial production immediately thereafter,
the expenditure incurred, during that period must be treated as revenue expenditure and should not be
capitalized. Only those expenses should be capitalized as part of the cost of an asset which relates to
acquisition or construction of the asset or which add anything to the value or utility of the asset.
In case the guarantee period is very long, the date of commercial production may be taken on the basis
of completion of the trail runs or six months from trial runs, whichever is earlier.
All expenses incurred, during the period of trial runs or guarantee period performance test, may be
treated as development expenditure and should form part of the deferred revenue expenditure.
3.2.15 Completion Report:
Every project authority, after the completion of the project should send completion report in the
prescribed formats to various ministries as enjoined by their instructions.
3.3 PLANT IMPROVEMENT, ENERGY CONSERVATION AND DE- BOTTLENECKING

3.3.1 Plant Improvement
The basic objective of the plant improvement is to achieve more efficient plant operation for longer
periods of time, at a lower cost. The various areas that need to be reviewed are:
i. De-bottlenecking studies to increase capacity

ii. Optimization of feed stock and utilities consumption
iii. Recovery of valuable by-products
iv. Minimization of outages
v. Energy conservation
vi. Downstream processing facilities
Once the plant starts up, it is only natural that those responsible for its operation should be seeking
change, development and improvement.
3.3.2 De-Bottlenecking:
After commencement of plant operation, activities of some sections in the Process delivery show
available excess capacity and some sections show just the planned rated output. A study undertaken by

specialists/technical experts may come out with appropriate recommendations that by incurring
insignificant capital expenditure on those parts of the plant where the throughput ability is lower than
elsewhere, the overall capacity of the plant can be raised substantially above the original design
capacity. Decision on the recommendation should be taken by the plant operation In-charge after
proper techno-commercial assessment and obtaining approval of competent authority.
3.3.3 Optimization of Feed Stock, Utility Consumption and Recovery of Valuable By-products:
After the plant is installed, it is likely that the relative costs of the different forms of energy used for
plant operation viz. electricity, gas, fuel, steam etc. have changed so that the use of one form of energy
rather than another is more desirable. There could also be vital advances in technology, which could
bring improvement in the operation and the control of the plant, improvement in the range and quality
of the products, savings in manpower and maintenance cost etc. Action for undertaking prompt
implementation of such measures to improve fiscal, financial and technological performance should be
always a major responsibility of plant operators.
3.3.4 Minimization of Outages:
It is often possible by a scrutiny of the plant history to ensure a higher utilization of the plant by quite
minor modifications. This can greatly improve the plant reliability and safety.
3.3.5 Energy Conservation:
The cost of energy has been increasing out of proportion compared to all other costs, including the
raw materials used for production in the plant, so that modifying the plant or its operation to conserve
energy can be a most profitable exercise. In the context of present energy scenario in the country,
energy conservation assumes very high importance. Broad guidelines for energy conservation through
efficient utilization of various energy sources are given below:
i. Administrative Control through better house-keeping, load management etc.

ii. Introduce proper measurement system and monitor energy consumption closely
iii. Energy efficiency improvement for Buildings, Plant, Equipment and Machinery
iv. Recover waste heat
v. Change of energy Source
vi. Upgrade the technology
vii. Introduce cogeneration system
viii. Use high efficiency equipment
ix. Design modifications to improve efficiency
x. Improve maintenance
The urgency and necessity of conservation has to spread from top and reach down below into the heart
of each and every employee at the shop floor level, who must realize his responsibility and rise to the
occasion in implementing energy conservation measures in his own areas of performance.
3.3.6 Down Stream Processing Facilities:
Another area of plant improvement worth looking into is addition of down stream processing facilities
for producing more value added products. Apart from creating a brand preference and increasing the
market share, this approach may also lead to substantial improvement in margins.

3.3.7 Plant Development / Improvement Process
The exercise of plant improvement has to be carried out in a systematic manner. Hiring the services of a
consultant may also be useful. Some of the areas which need to be looked into in detail are:
i. Constraints with regard to factors, such as production rate, product requirements, stocks, etc;
ii. Contemplated changes to meet future requirements;
iii. Policy regarding sourcing of raw materials, energy and other utility supplies basd on unit prices;
iv. Environmental requirements and constraints, including changes brought out in statutory
regulations since the plant was set up.
Following systematic studies of the plant operation and analysis of all the relevant data, the consultant
should develop recommendations in specified areas. This may involve:
i. Modifying operation of the plant to reduce production costs both variable and fixed, by
improving product recovery, reducing energy costs, utilities and chemicals consumption,
reducing manpower, reducing maintenance, reducing working capital;
ii. Modifying the plant itself, to reduce production costs. This could involve modifying equipment
to improve process and energy efficiency, modifying or adding heat recovery equipment, and
the like.
iii. Modifying operation to improve reliability or safety; and
iv. Modifying the operation of the plant, or the plant itself, in order to improve product range or
quality in order to increase sales and income.
Plant development and improvement involves live site working or requiring plant shut down. The cost of
shut down has, therefore, to be weighed against the increased construction cost that will have to be
incurred if the shut down period is shortened. Live site working requires a high degree of sophistication
in the planning of the site construction work if it is to be successful, but it may result in an overall saving
despite the increased cost of the works themselves.

CHAPTER- 4
4. MANAGEMENT TOOLS & TECHNIQUES
4.1 INTEGRATED PROJECT MANAGEMENT SYSTEMS FOR PLANNING AND CONTROL

4.1.1 Integration of Various Project Activities
A major project encompasses numerous areas and disciplines. Each operates as a separate autonomous
unit. Integration is the approach of bringing them together. It is the key to effective project
management. It involves:
i. Planning, coordinating and controlling resources;

ii. Effective decision making after evaluating possible alternatives
Project success is completely dependent on adequate planning direction, scheduling, monitoring and
control. These project functions must be closely bound together by an adequate information and control
system if project performance is to be adequately measured and controlled. For efficient project
operation, a single information and control system should be used. The integrated information and
control system should be compatible with the needs of the project and the functional managers.
4.1.2 Automation of Project Management Tools:
Revolution in computer technology has given a new thrust to the automation of various project
management tools such as, CPM/PERT Network, Work Breakdown Structure (WBS), Resource Allocation,
Cost Breakdown Structure (CBS), Cost/Schedule Integration, etc. The main thrust for automation of
project management tools has come as a result of economic availability of distributed computing power
and simplification of man computer interface. The way in which we understand and communicate with
the computer, has been greatly simplified with the latest advances in software development. Major
breakthrough came with:
i. Interactive computing (User Friendly Languages): User carries on conversation with the
computer through menu systems; ease of communication with the system has greatly improved.
ii. Introduction of relational-type Data Base: Allows user to access and combine information on
demand from more than one data set. This has greatly simplified data management.
iii. Ease and flexibility in modifying standard reports to end users needs and procedures.
Project control tools should be selected and, implemented as early in the project life cycle as possible.

4.1.3 CPM Network:
Complexities of modern projects have made network scheduling mandatory for adequate project
control. If a project requires many independent subcontracting companies to interact, coordination
becomes highly complex. The basic premise of the project network planning method is that a network
can be used to reasonably represent performance sequence of a project. Accurate project plans and
schedules depend upon competence and experience of the planner.
The detail of activities to be included in a network is a matter of judgment. The type, duration, cost and
risk in the project are all factors to be considered. Manipulating data of all the activities and the WBS of
a project is not feasible without the use of latest IT Tools. While the computations involved are easy, the
magnitude of the data manipulation problem is large. The application and use of automated project
control techniques is a must in all major projects.
4.1.4 Resource Allocation:
Resource allocation or leveling is commonly possible with present software programme for network
scheduling. By using positive float available on non-critical path through the project, the project planner
can arrange a schedule of work that accomplishes the same result in the same time while smoothing or
leveling the peaks and valleys in the resources to be consumed. Resource leveling is more important
from the point of view of contractor who actually executes the work.
4.1.5 Work Break Down Structure (WBS):
Project WBS breaks the total task into a logical series of smaller tasks, each of which is chosen for size
and scope to fit in with the management structure of the project so that it can be subject to efficient
planning and execution. The work package is a logical element chosen to suit the requirement of
engineering, planning, contract administration and cost control. Each work package carries a duration
and cost estimate. Relating cost estimates to elements of cost control is simplified by the use of a logical
and well ordered WBS of the project.
4.1.6 Cost/Schedule Integration:
WBS plays an important role in achieving an integrated cost schedule control system. Fundamental to
this integration is cost tracking by activity and reporting of cost based on the schedule of planned work.
It is felt that accurate status of the project can be cost and time consumed of completed activities
figures with the remaining project duration and budget. These comparisons yield cost and time
estimates to complete the project. Cost control, schedule control and performance monitoring functions
should be operationally integrated at the cost account level.
4.2 ELECTRONIC / ARTIFICIALLY INTELLIGENT PROJECT MANAGEMENT /

MONITORING SYSTEMS.
The use of advanced information technology (IT) to manage and solve the challenges being faced by the
project management teams is a must in today’s technologically advanced scenario. The strategic use of
IT at all stages of Project implementation from conceptualization to commissioning shall help all
concerned participants to achieve all major targets of time and cost thus enhancing the Capital.
The use of appropriate IT tools and software for online coordination of total project activity framework
would bring direct impact on effective project management. Selection of an appropriate project
management (PM) software package with inbuilt graphic and database management capabilities should
be done which not only should fulfil immediate requirements but also take care of futuristic needs.

The information databases for various project activities as listed in Clause-2.3 may be kept during the
project life cycle and data mining can be done for execution of future projects effectively. A powerful
PM software allows the Project manager to quickly and easily enter information about the project and
generate corresponding status, with the help of the graphs, charts and tables for various portions of job
completed or to be completed and effective use of resource on different tasks and likely future potential
problems. The generally required information outputs for project team for effective project
implementation are as follows:
i. Project plan / Tasks list

ii. Network analysis
iii. Gantt chart
iv. Pert chart
v. Resource list
vi. Manpower loading
vii. Critical path highlights
viii. Subcontracts
ix. Updated project plan
x. Access to pre-determined levels of hierarchy
xi. Scheduling as needed (Hrs./Days/Wks./Mths./yrs.)
4.3 INFORMATION SYSTEM FOR PROJECT IMPLEMENTATION AND MONITORING

4.3.1 Designing of Information Systems
The success of timely implementation of projects depends on the availability of essential information at
appropriate time. Most of the public sector projects, being either engaged in production of basic items
or public utility items, the social cost of delay can be of a very high order and, therefore, the need for
timely completion of the projects is of paramount importance.
As has been emphasized in the chapter on Cost Control, more physical progress reporting and
monitoring does not ensure timely completion of the project with minimum cost. Along with monitoring
on physical status, another parameter namely, value of work done and cost implication of delays in
commissioning the project should also have to be monitored. For this purpose, the physical progress of
each activity has to be converted into monetary terms, using unit rates established by apportioning the
cost over all the activities.
4.3.2 Project monitoring reports
Each Public Enterprise has to, on the basis of nature of the project requirements and its management
set up, design its own project monitoring reports. The underlined idea is that the information required
for corrective action should be available at the appropriate time. In addition to these reports, it would
be more appropriate, to deliberate and take stock of the situation periodically by having meetings with
all the functional heads wherein critical analysis of the performance in all areas of the project
management can be made and decision on the course of action decided.
Overall Status Reports

i. Monthly project status report
ii. Delay report assessment
iii. Township progress report

Value Reports
i. Format for contract cost allocation
ii. Activity cost break up
iii. Record for compilation of value of work done
iv. Value of work done (project)
v. Summary of value of work done (site)
vi. Report on value of work done (site)
vii. Contract progress report
viii. Project value report
Contracts
i. Schedule for contract activities
ii. Schedule for mile-stones activities
iii. Contract package-wise activities
iv. Contract progress summary
v. Departmental performance summary
vi. Contract progress summary
vii. Delay report - contracts
Contractor's Works
i. Activities schedule - contractor's works
ii. Physical progress summary - contractor is works
iii. Bulk material procurement progress
iv. Delay report – contractor’s works
v. Schedule activities
vi. Physical progress targets
vii. Physical progress targets
viii. Delay report-site
ix. Physical progress report
x. Report on construction machinery deployed
xi. Contractor's man power status report
xii. Bulk material procurement progress
xiii. Daily critical activities progress report
xiv. Daily progress record
xv. Daily progress report
Infrastructure
i. Schedule for site contracts
ii. Site contracts progress summary
iii. Infra-structure progress report
iv. Infra-structure progress summary

Technical Services
i. Status on project engineering report
ii. Contracts status report
iii. Achievement of objectives report
Material Status
i. Inventory status report
ii. Inward rejection report
iii. Material issued to contractors report
iv. Delays in procurement report
v. Delays in supplies report
vi. Demurrage paid report
Construction Facilities
i. Construction equipment control report
ii. Construction utilities control report
iii. Maintenance report
iv. Auto base control report
Personnel
i. Manpower and recruitment report
ii. Staffing report
iii. Training and development report
iv. Manpower cost report
v. Divisional manpower cost report
Finance
i. Funds report
ii. Loans utilization report
iii. Payments to contractors report
iv. Cash flow report
v. Cash flow analysis report
vi. Divisional cash flow report
vii. Indirect expenses report
viii. Indirect expenses analysis report
ix. Divisional indirect expenses report
x. Divisional indirect expenses analysis report
xi. Expenses control report
4.4 PROJECT RISK IDENTIFICATION, PROFILING AND MITIGATION TECHNIQUES

Exponential growth in the volume of Infrastructure Development recently has outpaced the growth of
reliable, efficient construction agencies by such a huge margin that it often becomes impossible to weed
out unsuitable players from the field with existing methods of grading of or ‘classifying’ construction

agencies used by client organizations and bankers and financing institutions who have to support
construction activities. The industry is, also, plagued by a lack of a regulatory framework and effective
entry barriers.
Considering the post–facto scrutiny and accountability often faced by senior executives in government
and public institutions, the absence of an objective and comprehensive system makes their decision
making conservative on one hand while, on the other hand, they find it difficult to justify on record any
weeding out that they would like to otherwise resort to. Seized with this problem, CIDC has joined
hands with ICRA to develop a more comprehensive and objective system of grading different agencies
involved in a construction project.
4.4.1 The Agencies to be graded
Success of a Project depends on the following:-
i. The Project Owner / Client / his project construction organization and management system.
ii. The Contractor (or the Construction company), his experience, financial and technical strength
and overall competence.
iii. The Consultant, his knowledge and experience.
iv. The Project entity itself, its viability and practicability in the condition’s obtaining.
4.4.2 Expected Benefits from a comprehensive Grading System :
To the Project Owner
A vital input in the project tendering and award decisions as well as in selecting his consultants etc.
To the Contractor
Facilitates acceptance of a competent party based on his grading. He need not resort to unrealistic
bidding. The proposed system being more objective and transparent, a Contractor is also aware of the
ground realities through the grading or other players and can use this as an input while making the
decision to bid for a particular job. This will later result in smooth execution, better control and
minimum disputes.
To the Consultant
With the rating of the project owner, the contractor and the project itself on this system, the Consultant
can have a higher degree of confidence in timely execution and completion of work, and adherence to
quality / safety standards.
To the Project
Project as an entity is the biggest beneficiary in terms of efficient execution, successful completion,
lower costs of indemnities and an easier access to sources of funds.
To the Financial Institutions & Bankers
A scientifically graded project would lend itself to a more accurate and reliable estimation of risks
involved in the lending and would enable them to decide the extent and depth of support they can offer
to the project owner, consultant, contractor and the project.

4.4.3 Factors for Risk Estimation:
Business risks
• Construction industry specific risk

• Market position
• Sector of operation
• Ability to be an integrator
• Project quality track record
• Client category and diversity
• Human resources and management quality
• Design systems
• Contract evaluation
• Ability to provide project financing
• Project composition
• Labor relation track record
• Dispute with client track record
Financial risks
• Leverage
• Financial flexibility
• Accounting Quality
• Creditworthiness of clients
• Customer advances for working capital financing
• Receivable Management
• Liquidated Damage exposure
• Tax dispute contingent liabilities
• Bank guarantee rates
• Cost structure
• Contract composition
• Insurance cover
• DSCR (considering and without considering contingent liabilities)
• Group risk
• The Project
• Assessment of the project risk on a stand alone basis and ways of mitigation of these risks
Project Risks
The risks in a standalone project are big. The risks include:

• Completion risk
• Price risk

• Resource risk
• Technology risk
• Operating risk
• Political risk
• Casualty risk
• Environmental risk
• Permitting risk
• Exchange rate risk
• Interest rate risk
• Insolvency risk
• Project development risk
• Site risk
• Financial closure risk
4.4.4 Risk Mitigation
How project risks have been mitigated determines the chances of project success and hence the project
quality. This in a nutshell includes, estimating the cash generation capacity of the project through
operations (primary cash flows) vis-à-vis its requirements for servicing obligations over the tenure of the
fund supply. Additionally, an assessment is also to be made of the available marketable securities
(secondary cash flows) which can be liquidated if required, to supplement the primary cash flows.
All the factors which have a bearing on future cash generation and claims that require servicing can be
conceptually classified into business risk and financial risk drivers.
4.4.5 Business risk drivers
• Industry characteristics
• Market position and Operational efficiency
• New projects
• Management quality
4.4.5.1 Industry characteristics:
Demand factors
• Drivers & potential
• Nature of product
• Nature of demand - seasonal, cyclical
• Bargaining position of customers
State of competition
• Existing & expected capacities
• Intensity of competition

• Entry barriers for new entrants
• Exit barriers
• Threat of substitutes
Environmental factors
• Role of the industry in the economy
• Extent of government regulation
• Government policies - current and future direction
Bargaining position of suppliers
• Availability of raw material
• Dependence on a particular supplier
• Threat of forward integration
• Switching costs
For credit risk evaluation, stable businesses (low industry risk) with lower level of cash generation are
viewed more favorably compared to businesses with higher cash generation potential but relatively
higher degree of volatility (higher industry risk).
It needs to be mentioned that with the opening up of the Indian economy, it is also critical to establish
international competitiveness both at the industry and the unit level
4.4.5.2 Market position and Operational efficiency
In a competitive market, it is critical for any business unit to control its costs at all levels. Cost of
production to a large extent is influenced by:
• Location of the production unit(s)
• Access to raw materials
• Scale of operations
• Quality of technology
• Level of integration
• Experience
• and last but not the least the ability of the unit to efficiently use its resources.
Some of the indicators for measuring production efficiency are : resource productivity (both assets and
manpower), material usage (or input-output ratios) and energy consumption. Collection efficiency and
inventory levels are important indicators of both the market position and operational efficiency.
4.4.5.3 New project risks
The scale and nature of new projects can significantly influence the risk profile of any issue. Unrelated
diversification into new products is invariably assessed in greater detail.

The main risks from new projects are: Time and cost overruns, even non-completion in an extreme case,
during construction phase; financing tie-up; operational risks; and market risk.
Besides clearly establishing the rationale of new projects, the protective factors that are assessed
include: track record of the management in project implementation, experience and quality of the
project implementation team, experience and track record of technology supplier, implementation
schedule, status of the project, project cost comparisons, financing arrangements, tie up of raw material
sources, composition of operations team and market outlook and plans.
4.4.5.4 Management of Quality:
The importance of this factor can not be overemphasized. When the business conditions are
adverse, it is the strength of management that provides resilience. A detailed discussion is held with the
management to understand its objectives, plans & strategies, competitive position and views about the
past performance and future outlook of the business.
Other important factors are : labour relations, track record of meeting promises specifically
relating to returns and project implementation, performance of “group” companies, transactions with
the “group” companies etc.,
4.4.6 Financial Risk Drivers
4.4.6.1 Funding policies:
This determines the level of financial risk. Management’s views on its funding policies are discussed in
detail. These discussions are generally focused on the following issues:
• Future funding requirements
• Level of leveraging
• Views on retaining shareholding control
• Target returns for shareholders
• Views on interest rates
• Currency exposures including policies to control the currency risk
• Asset-liability tenure matching
4.4.6.2 Financial flexibility:
While the primary source for servicing obligations is the cash generated from operations, an assessment
is also made of the ability of the issuer to draw on other sources, both internal (secondary cash flows)
and external, during periods of stress.
These sources include: availability of liquid investments, unutilized lines of credit, financial strength of
group companies, market reputation, relationship with financial institutions and banks, investor’s
perceptions and experience of tapping funds from different sources.
4.4.7 Past financial performance
Indicators of financial performance:
Profitability:

• Return on capital employed
• Return on net worth
• Gross operating margins
Higher profitability implies greater cushion to debt holders. Profitability also determines the market
perception which has a bearing on the support of share holders and other lenders. This support can be
an important factor for risk mitigation.
4.4.8 Insurance Coverage of Risks
An important risk cover to infrastructure projects is called “general insurance”. Insurance is a cover
against financial loss arising from unexpected event. Insurance companies charge premiums to provide
this protection. Typically, Infrastructure projects are capital intensive and have long gestation periods.
Therefore, they are fraught with a multitude of risks through development, construction and operation
stages. These risks are associated with project implementation, including geological, environmental,
politico-social, commercial and maintenance risks. The general insurance was being provided by General
Insurance Corporation (GIC) and its subsidiaries until March’2000 when the insurance sector was
liberalized with the passing of the IRDA Bill which lifted entry restrictions for Private Insurance Players to
provide general insurance to cover various project risks. IRDA’s objective is to promote and ensure
orderly growth of the insurance sector. It grants licenses and sets the ceilings for various insurance
policies and broad guidelines for the sector. The task of fixation of premium rates for general insurance
policies is under the purview of the Government-appointed Tariff Advisory Committee.
The insurance coverage of gamut of risks covering entire project period from formulation to targeted
production performance, which usually ranges from four to five years, should be carefully chosen by
selecting highly customized and tailor-made need of the specific project. The opening up of general
insurance has led to competitive market conditions, which has not only brought down the premium
rates for certain products but also improved the quality of service provided. A list of some of the
insurance products currently available for coverage of risks faced in Infrastructure projects is given
below:
i. Fire insurance – “Standard Fire and Special Perils Policy (SFSP)

ii. Machinery Breakdown Insurance
iii. Consequential Loss Policy
iv. Contractors All Risks (CAR) Policy
v. Erection All Risks (EAR) Policy
vi. Advance loss of Profits Policy
vii. Electronic Equipment Insurance Policy
viii. Boiler and Pressure Plants Policy
ix. Contractors plant and Machinery Policy
x. Storage-cum-Erection Policy
xi. Industrial All Risks Policy
xii. Marine or Transit Policy
Many Insurance Companies have now started providing Single Insurance Policy covering multiple risks.
The advantage of seeking such a single package policy is that it is both cost and risk effective. It also

simplifies administration for Clients as it is more convenient for them to renew a single insurance policy
instead of renewing different insurance policies.
4.5 ELECTRONIC / ARTIFICIALLY INTELLIGENT RISK MANAGEMENT SYSTEMS

As detailed in Clause-4.4, several parameters need to be completed on evaluation matrix to make the
management system of the Project risks. Various weight-ages on important factors need to be allotted
for each parameter, including the interface influenced sub-matrices. The evaluation of overall risk, both
in terms of time, money, and physical risks such as risk to lives and resources be generated and
developed in a monitoring program in electronic mode using standard tools.
It is noteworthy to mention and make a reference to the Clause-4.4 with the least important risk related
issues should be offered in standard formats whereas those covers should be decided, using the
experience and project wisdom of the important decision makers. Necessary program and software
should be developed both for evaluation as well as for monitoring report.
4.6 PERFORMANCE EVALUATION SYSTEMS

A number of projects which at the time of approval were found justified on the basis of time and cost
schedules as set out in the feasibility reports presented to the PIB were subsequently seen to have come
totally unviable because of inordinate delays in implementation and cost over-runs. Also many
projects, after completion fail to meet stipulated installed capacity performance levels on long term
basis. Therefore, performance of every project after its completion shall require regular review by the
Administrative Ministry concerned and information regarding extent of deviations/variations of various
elements of the project not complying with the stipulated project requirements/specifications with the
gestation period of the project laid down in the DPR shall require regular review and actions necessary
to be undertaken.
An integrated information system has to be followed for evaluation of performance. 14 nos. of

datasets are to be created as stated in “Clause - 2.3” and information for level-I, II and III as defined in
Clause-2.1.12 may be generated to enable action to be taken by concerned management levels. The
information input and output periods may be laid down by each Public enterprise to enable all
concerned to locate deviations/variations and where they are significant to identify reasons for the
same.
4.7 EVALUATION OF PRODUCTIVITY

In order to arrive at the overall evaluation of the project performance the productivity parameters for
different activities / sub-activities, drawn from activity flow charts as defined in Clause - 2.1.8 need to be
identified for inclusion and development of an overall productivity matrix.
The above matrix should be applied not only to the execution of works, but also during the post
execution, and maintenance works.
The parameters for development of this matrix could be the items of work properly bench-marked with
the national/international conventions of productivity.
Monthly/quarterly/annually productivity report should be generated for consumption by the project

authorities.

4.8 QUALITY APPRAISAL / ASSESSMENT SYSTEMS

4.8.1 Need of Quality Assurance
Quality could be defined as "the totality of features and characteristics of a product or service that bear
on its ability to satisfy a given need", (BS 4778). It is essential for the Project Manager to inculcate a
feeling in every member of the project team that quality is the responsibility of everyone and it
embraces all activities and functions related to the project.
Quality can be achieved only by:
i. Working in a systematic well disciplined manner, and

ii. Adhering to formalized procedures which are designed to eliminate the occurrence of
deficiencies in any item/activity of the project,
The application of quality assurance concepts aims that all activities and functions are carried out in a
systematic manner, so that they are right first time. This will obviously promote efficiency, improve
productivity and reduce costs.
4.8.2 Quality Assurance System
4.8.2.1 Quality Manual
Each enterprise should develop a Quality Manual which may set out the general quality policies,
procedures and practices of an organization. Quality Manual sets out the company's intentions which
would typically include, as a minimum,
i. Policy statement
ii. Authority and responsibilities
iii. Organization
iv. Procedure outlines
v. List of procedures
4.8.2.2 Project Quality Policy
Project quality requirements should be established by the enterprise/consultant and imposed upon all
the main contractors/vendors/suppliers who will each, in turn, develop a Quality plan in respect of all
the activities in their scope of work. The Project Quality coordinator should assign quality monitoring
tasks to concerned Quality Monitors to review these documents and define the purpose and scope of
the relevant activity and specify how his team of Quality Monitors would ensure compliance of quality
norms and procedures at various stages of project execution.
4.8.3 Management of Quality Assurance (QA) In Projects
The quality assurance in project would require quality coverage of following six main functional
elements with clearly laid procedures and control systems to cover all the activities in each function:
i. Design
ii. Procurement
iii. Site Construction
iv. Installation
v. Commissioning

Each of these is discussed in the following paragraphs.
4.8.3.1 Design Control
The design has to be right before the specification can be framed for placement of order on the
manufacturer. It is, therefore, desirable to develop a Q.A. design control plan which meets the needs of
the contractual scope of work. Each manager of an engineering discipline or department should be
responsible for maintaining upto date procedure manuals for his area of management. The most
important design controls are:
Contract Review:
Work scope, specifications, design criteria, regulatory requirements, etc., are available and clearly
understood by all concerned.
Document Preparation:
Proper Q.A. standards for design document identification, approval and distribution should be framed.
Discipline Check:
It is carried out to verify the content and accuracy of a document origination from a single engineering
discipline. The checking engineer should not be the same person who carried out the original work.
Inter-discipline Check:
Checks not only the accuracy and contents of a document, but also assures compatibility between all the
design disciplines involved.
Design Interface Control:
It sets out to control the interfaces between systems, contractors and regulatory bodies. There are
instances where projects use more than one design contractor, creating interfaces not only between
disciplines within one organization, but complex interfaces between different contractors.
i. Design Change control: Check changes in design criteria

ii. External design review: Adequacy of design, adherence to contract, account taken of studies
iii. Audit and corrective action: Ensure that non-conformances, identified during the checks and
audits, are dealt with immediately and steps taken to prevent recurrence.
Change Control:
Many of the project problems arise through the lack of change control, with changes being made to a
design without reference to the original design source. All changes must be documented and they must
be subjected to consideration and review in the same systematic manner as the original documents.
External Design Review:
These reviews amount to a detailed design audit, verifying such items as design adequacy, adherence to
contract and the account taken of studies. The timings of these reviews should be specified in the
project schedule so that they should not come as surprise to anyone.
Audit & Corrective Action:

All non-conformances identified during the checks and audits already described, whether covered by the
Q.A. staff or by the Discipline engineers themselves should be dealt with immediately and steps taken to
preclude their recurrence. Senior management support is essential for this function.
The function of design control is to ensure that the eventual design meets the requirements of the
project and the regulatory agencies.
4.8.3.2 Quality Control of Procurement and Vendors
The activities considered being the most significant in controlling procurement and vendors are:
Inspection & Test Plan:
It will identify all inspection check points relevant to the criticality of the equipment. It will also identify
requirements for non-destructive testing, acceptance testing, certification and documentation. It is
basically a schedule of inspection points which the design engineer would expect the potential supplier
to include in his own controls. It will also identify mandatory hold points, beyond which the supplier
cannot proceed unless cleared by the Inspector assigned by the project enterprise/consultant.
Supplier Assessment:
Does the intended supplier have an effective quality programme which operates well in practice with
full management support?
Pre-Award Meeting:
Will verify the supplier’s intended compliance with the contract and will also take into account quality
programme deficiencies observed when the supplier was assessed.
Post Award Meeting:
The supplier should be asked to present the project enterprise with his quality plan. An audit
programme should then be worked out with him together with inspection hold points, certification and
other documentation requirements, and the test program. Quality control activity should also be
reviewed with the supplier who should be made responsible for the quality of the material and or
services which he has sub-contracted to sub-vendors.
4.8.3.3 Quality Control at Site
The Project Quality coordinator must ensure that there are satisfactory arrangements for the following:
i. Examination of the material upon receipt at site to check quantities, identities and to detect any
damage caused during transit. Periodic inspection during storage to detect any sign of
deterioration; to check on any out-dating risk where storage time exceeds recommended shelf-
life
ii. Compliance with any contractual requirement for re-inspection
iii. Appropriate identification and safeguarding of material to prevent un-authorized use or
improper disposal. Procedures should exist which define the manner in which any shortages,
damage or other factors rendering the material unfit for use are reported to the project
manager and project authorities.
4.8.3.4 Quality Control of Installation
Installation of equipment be carried in accordance with applicable codes, specifications, standards,

regulatory requirements, etc.

Of the various aspects of installation activities at site to be quality controlled, the most significant is the
quality control of the site welding. There has to be detailed preparation for this, with the drawing up of
the welding procedures, the testing and certification of the welders & the non-destructive testing of the
work as it is done in accordance with the relevant specifications. All these require the most meticulous
supervision.
4.8.3.5 Quality Control of Commissioning
The supporting documentation for all the activities is the most significant item for avoiding any delays at
the commissioning stage. The methods for determining documentation/certification requirement should
be established at the design stage itself.
4.8.4 Attainment of Quality
Quality Assurance is performance of all activities and functions concerned with the attainment of
quality. What a quality assurance scheme should give, if well implemented and totally supported, is
confidence to the project manager that all activities and functions are right first time. This confidence
can be achieved only by the cooperation of all concerned. Quality Assurance can be summed up,
therefore, by four ‘C’s --- communication plus cooperation leading to capability which results in
confidence that fitness for purpose has been achieved in the most efficient manner.

CHAPTER - 5
5. PROJECT SOCIAL RESPONSIBILITY
5.1 SOCIAL IMPACT OF A PROJECT
A project affects the area in a variety of ways in which it is proposed to be set up. It causes serious
strain on the social fabric in the community. On one hand, there is a general rise in expectations of the
people in the area as a result of development project being set up by the Government’s support, on the
other hand, there is a great deal of resistance to induction of large force of labour, technicians,
contractors, sub-contractors and others from outside the area who will be required for project
execution. This results in social tension at the project site. A socio-economic problem at the project site
could easily become a law and order problem.
A project is often faced with conflicting demands from various constituencies: A sympathetic
understanding of the pulls and pressures from different groups can go a long way in avoiding
confrontations and work stoppages at the project site. It is vital for the success of the project that the
project team is sensitive to the aspirations of the local community and their perception of the benefits
flowing to them from the project. It is thus vital for the success of the project that the project
Authorities and the project team are supportive to the aspirations of the local community and attempt
to meet their expected benefits reaching to them during project execution.
5.2 RELIEF AND REHABILITATION (R&R) OF PROJECT AFFECTED PEOPLE (PAP)

The problem of rehabilitation of those PAPs whose land or homesteads are acquired, their insistence on
securing employment in the project, and the resultant social strife at the project site need to be viewed
as socio-economic rather than a law and order problem.
At the project formulation stage, therefore, it is essential to reconcile the conflicting objectives of
various pressure groups affected by a project. Providing employment to every individual, whose land has
been acquired, may not be a practicable proposition. At the same time, ignoring the aspirations of the
people and the socio-economic problems caused by the acquisition of land would be a short-sighted
approach.
5.3 ACQUISITION OF LAND AND REHABILITATION OF LAND OUSTEES

Active involvement of the State Government at the site selection stage and their willingness to acquire
the land for the project can considerably smoothen subsequent implementation process. Initial land
requirement of the project as well as that needed for future expansion should be kept to a bare
minimum. While selecting the site, every effort should be made to avoid acquisition of valuable
agricultural land. It is also essential that land compensation amount is disbursed to the real beneficiaries
in a reasonable time to keep down the level of discontent.

Government's policy in regard to rehabilitation of PAP and alleviating the difficulties of families whose
land has been acquired for setting up of the project is based on the following considerations:
i. In the first instance, it is necessary to identify who are to be treated as displaced persons for the
purposes of extending benefits through the project authorities or through the State agencies. In
order to identify these families, it is essential to have a small rehabilitation cell as part of the
land Acquisition Unit whose cost would be fully borne by the project authorities.
ii. A list of persons eligible for rehabilitation assistance should be prepared by the rehabilitation
cell.
iii. In case where homesteads have been acquired, provision for alternative site should form an
integral part of rehabilitation scheme, and expenditure on account of infrastructural amenities
like roads, water supply, sanitation, educational and medical facilities, etc. should be debited to
the project.
The entire cost of rehabilitation programme for the affected families should form part of the project
cost. Financial calculations should take into account these costs while working out the economics of the
project. If need be, the amount that is required for meeting the rehabilitation cost could be given by
Government either as grant or equity depending on the merits of each case.
5.4 TRAINING OF PROJECT AFFECTED PEOPLE (PAP)

With a view to encouraging the dispossessed families taking to useful avocations like poultry farming,
animal husbandry, health, nursing & teaching etc, or developing Human Potential in the field of
Construction Trades, the project authorities should assist the concerned State Governments in
organizing and financing to establish suitable training setups for such activities.
At the time of preparation of list of awardees for compensation, project authorities should take stock of
the educational level and human potential and any other ongoing effort/schemes for such awardee’s
families and arrange for suitable education and training of eligible persons.
In order not to burden the project authorities with starting new training institutions, the project
authorities should fund the existing training institutions to under-take such activities.
The training given at the cost of the project enterprise is not a commitment for ultimate employment in
the enterprise, but the idea is to enable some members of the evictee families to equip & qualify
themselves for employment and compete for the same along with others.
The whole plan of training and improving the skills of the local population needs to be carefully
conceived and imaginatively executed, taking into account the sensitivity of the local population so
that the goodwill and confidence of the community affected by the project can be regained. This is
going to be a major nation building support & challenge for Project Authorities to fulfill their Social
Responsibility.

APPENDIX – 1.6.1
GUIDELINES ON PUBLIC INVESTMENT/EXPENDITURE
File No 1(3)/PF.II/2001
Ministry of Finance
Department of Expenditure
PLAN FINANCE II DIVISION
New Delhi : November 15, 2007
OFFICE MEMORANDUM
SUBJECT: Guidelines for Formulation, Appraisal and Approval of Government Plan Funded Projects/
Schemes to be made effective over the duration of XIPlan
Government have prescribed, from time to time, procedures/mechanism for taking for public
investment/ expenditure programmes that are viable from the socio-economic point of view, avoid thin
spreading of resources and/or multiplicity of implementation structures and channels and facilitate
simple, speedy, efficient and streamlined decision making. With the commencement of the XI Plan
period, Guidelines on the subject are being issued afresh, so as to rationalize the Scheme of delegation
further, align it more closely with the rapidly changing economic environment, empower
Ministries/Departments further for undertaking investment programmes and make the entire
procedure more responsive and resilient in ensuring timely and well-informed decision making.
1.1 The Guidelines in this regard, which will be applicable over the duration of XI Plan period are as
follows.
PROJECT FORMATION
2.0 Extant instruction on Project Identification, formulation of Feasibility Reports (FRs), “In
principle” approval of Planning Commission, Preparation of DPR (including Generic Structure
thereof), Inter-Ministerial Consultations, Applicability, Evaluation, Time and Cost Overruns, as
laid down vide OM no 1(2)-PF.II/03 dated May 7, 2003 1 will continue to apply, subject to
following clarifications/modifications:
1. The revised instruction on Time frame, Appraisal, Approval and Pre-Investment activity will
be as prescribed hereinafter;
2. Procedure to be followed for continuation of Plan Schemes from X Plan to XI Plan will be
governed by OM of even number dated May 29, 2007;
3. “In principle” approval from Planning Commission in respect of Power and coal Projects is
not required any longer;
4. All new Schemes/Projects proposed to be included in the five Year Plan/Annual Plan,
irrespective of source of funding (NBS, Internal Resources, Commercial borrowings and so
on) would be governed by the general principles laid down in the Guidelines, with the
exception as cited in 3 above.
1
Paras 3(i, ii, iii, iv, vi(Part, viii), 5, 6 and 8 of the OM.
94 94
INSTITUTIONAL STRUCTURE FOR APPRAISAL OF PLAN SCHEMES/PROJECS
2.0 The Institutional Structure for appraisal of Plan Schemes/Projects shall be as per the Table in
Annex I. The broad functions of the Committees Listed therein are as follows.
1. To Examine, in detail, an Investment Proposal at the Project Formulation stage, with a

view to arrive at a conclusion whether investment of Public funds therein is justified on
socio-economic considerations;
2. To examine whether the objectives sought to be met by the Project/Schemes and/or
activities proposed therein can be subsumed in existing Project/Schemes in a more
rational manner and unwanted proliferation/multiplicity of implementation structures
and mechanism avoided;
3. TO examine whether issues relating to displacement, resettlement and rehabilitation of
affected families/persons have been suitably taken care of;
4. To examine, in detail whether risk factors in project execution and management are
expressly specified and taken note of; and, mitigation strategies fleshed out in detail in
respect of the same ; and,
5. To recommend the proposal, to the appropriate forum of approval, if the factors stated
above and other factors found to be relevant in the peculiar circumstances in which the
Project/ Scheme has been formulated, have been addressed to the satisfaction of the
appraisal forum.
TIME FRAME FOR APPRAISAL AND APPROVAL OF PLAN SCHEMES/PROJECTS
3.0 The Project Cycle commences with the submission of the Feasibility Report (FR) to the Planning
Commission by the Administrative Ministry/Department. The time frame for appraisal and
approval is specified as per the Table in Annex II.
APPRAISAL OF PLAN SCHEMES/PROEJCTS
4.0 The Revised delegation is as per the Table in Annex III. For Pan Schemes, recurring/operating
costs/revenue expenditure as also revenue realization, if any, is to be reckoned over a minimum
duration of Five years.
APPROVAL OF PLAN SCHEMES AND PROJECTS – ORIGINAL COST ESTIMATES
5.0 The Revised delegation is as per the Table in Annex IV.
5.1 The Process for seeking approval would be identical both for new Projects as well as those
entailing contingent liability on Government.
EXCEPTIONS TO THE GENERAL DELEGATION OF POWERS FRO APPRAISAL AND APPROVAL OF PLAN
SCHEMES AND PROEJCTS
Appraisal and 6.0 For Projects costing more than Rs 100 Crore, the guidelines have been
Approval of Public
Private Partnership modified recently by Department of Economic Affairs2. The Alteration of
(PPP) Projects thresholds for approval and appraisal of Plan Schemes and Projects has
Costing less than
Rs. 100 Crore
necessitated a corresponding alteration in the extant guidelines of DoE, for
projects costing Rs. 100 Crore and less, and the modified dispensation is as
per the Table in Annex V.
2
Notification No 10/32/2006-Infra dated April 2, 2007

Specific 7.0 The delegation of powers does not supersede any specific powers granted
dispensations to a Ministry/Department/PSU by the Cabinet/CCEA. The special
granted to
Ministries/
dispensations that have been decided by cabinet/CCEA in this regard are as
Departments and follows:
CPSEs
1. Investment proposals of the Ministry of Defence, Department of Atomic Energy and
Department of Space are outside the purview of appraisal by EFC/PIB;
2. Appraisal and Approval Fora for National Highway Projects of Ministry of Surface Transport
3
;
3. Appraisal and Approval Fora for Projects/schemes of Ministry of Railways 4;
4. Procedure for Formulation, appraisal and Approval of Projects under national Rail Vikas
Yojana (NRVY) to be executed by Rail Vikas Nigam Limited (RVNL)55;
5. A special dispensation is established for appraisal of specified 45 Hydro generation projects
and 29 Transmission projects (Annex VI) costing less than Rs. 500 Crore. These projects will
be appraised by a Power Projects Investment Committee (PPIC) the composition of which
has been specified in Annex I. The approval authority will be as applicable in other
Projects/Schemes;
6. Navratna, Mini-Ratnas, Other Profit making CPSEs and MoU signing PSUs have been
delegated enhanced powers66;
7. In respect of Scientific Ministries/Departments, the appraisal forum (EFC) is chaired by the
Secretary of the administrative Ministry, irrespective of outlay of the Scheme. The Approval
authorities, however, are as specified in the extant instructions.
Creation of
8.0 For Schemes/ Projects involving setting up of new Autonomous Bodies,
autonomous Institutes Of national Importance, Central Universities or deemed to be
organizations Universities, Special Purpose Vehicles etc.; appraisal would need to be
carried out by EFC chaired by Secretary (Expenditure) irrespective of outlay
or nature of Ministry/Department; similarly, all such cases would need to be approved at the
level of Cabinet/CCE
9.0 Equity/loan support, being an investment decision by Government, needs to

Equity/Loan
support by be appraised and approved by the competent authority as per standing
Government/C guidelines. Accordingly, the following is specified in this regard:
PSEs in XI Plan
including
investment by 1. No fresh appraisal/approval will be required for providing
CPSEs in JVs. Equity/Loan support in the XI Plan provided the support is within the
overall limit for Equity/Loan support already approved by Competent
Authority. Any Equity/Loan support beyond the approved limit by way of participation
by Central Government or a CPSE in providing Share Capital to a new or any existing
Corporation or Company will require fresh appraisal/approval by Competent authority
as per extant power of delegation in this regard:
a) In respect of CPSEs, like NHPC, THDC, NHAI and DMRC, where Equity/Loan support
is Project related, equity/Loan support will be linked to the approval of the
concerned Project by the Competent Authority;
3
MoST OM No RW/NH-11029/1/97-D.I dated January 4, 1999.
4
MoR OM No 93/PL/1/11/CCEA dated April 30, 2003 and OM No 99/PL/22/7 dated January 19, 2004.
5
MoR OM No 2002/PL/1/7 PMO Pt III dated July 29, 2003.
6
OMs of Department of Public Enterprises (DPE) bearing No 1(18)/86-DPE(MoU) dated August 29, 1990;
No DPE/11(2)/97-Fin dated July 22, 1997; and Nos 18(24)/2003-GM-GL.65 & 66 dated August 5, 2005.
96 96
b) In respect of CPSEs like Finance & Development Corporations, where Equity/Loan

support is not Project related, Equity/Loan support for the XI Plan as a whole should
be appraised/ approved by Competent authorities specified in this regard.
2. The above clarifications reply to all cases of Plan Equity/ Loan support to CPSEs in the XI
Plan, except in respect of Ministry of Railways.
9.1 Cases relating to formation of joint Venture (JV) Companies by CPSEs are, in general, to
be governed by the stipulations laid down in the relevant Circular7. Equity Investments
in excess of the ceilings laid down therein would need to be appraised and approved at
the level of the competent authorities in this regard.
APPRAISAL AND APPROVAL OF PLAN SCHEMS AND PROJECTS-REVISED COST ESTIMATES (RCES)
10.0 The Revised delegation is as per the Table in Annex VII. The new dispensation is to be read with
the following clarifications:
1. Criterion for appraisal forum and level of authority for approval of RCE will be cost overrun
and not time overrun;
2. Revised Cost Estimates (RCEs) which are within the powers delegated to a Ministry/
Department/CPSE by a notified decision of Cabinet/CCEA, irrespective of the authority
which had initially approved the project, shall be approved at the level of Competent
authority as per powers of fresh approval;
3. Where the revised/ firmed up cost estimates of schemes/projects exceed the limit of
competent authority who approved the original cost of the scheme, the approval of higher
competent authority will be obtained;
4. Increase in cost due to certain related factors such as Interest during Construction (IDC),
working capital margin, financing cost and contingencies which are consequential to the
changes in the three allowable factor viz., exchange rate variations, statutory levies and
price escalation within the approved Project Time Cycle may also be allowed and such
increases in cost can be approved by the respective administrative Ministries/Department
within their delegated powers independently/in consultation with Planning Commission, as
the case may be.
5. In all cases where Planning Commission has to be consulted for arriving at the increases in
the cost of a project, the project Appraisal Division of the Commission will estimate afresh
the viability of the Project on the increased cost, for which necessary data will be furnished
by the concerned Ministries/Departments to the Commission. Ministries/Departments will
have to take suitable action to ensure the viability of the Project.
10.1 The position with respect to RCEs of NH projects of ministry of Surface Transport and Ministry of
Railways is prescribed as under:
1. For MoST: For RCE cases, the dispensation laid down in Table at Annexure VII will be
applicable, with the modification that the figure of Rs. 150 Crore may be substituted by Rs.
500 crore, wherever it appears;
2. For MoR: All RCE cases in excess of Rs. 150 Crore, which have suffered a cost overrun in
excess of 20% of the last approved cost estimate (for 1st RCE) and 5% (for 2nd and
subsequent RCEs) will need to be appraised by Expanded Board of Railways (EBR) headed by
Chairman, Railway Board and approved by CCEA.
7
DPE OM No 18(24)/2003-GM-GL. 65 dated August 5, 2005.

10.2 RCE cases of Joint Ventures (JVs) of Navratna/Miniratna CPSEs, where the powers of approval do
not vest with the Board of Directors of navratna/Miniratna companies will continue to be appraised and
approved by the Competent Authority by following the extant procedure laid down in this regard.
10.3 It is proposed to be clarified that no RCE case will be considered by PIB/EFC unless the report of
the Standing Committee and action taken thereupon is appended to the PIB/EFC Memo. It may be made
incumbent on project authorities to have a “mandatory review” of cost estimates with a view to
determine whether these would require upward revision at the stage when funds to the extent of 50%
of the approved costs have been released; it is necessary to draw up a Revised Cost Estimate and have it
appraised and approved as per extant procedure, if it is discovered that the cost of the project is likely to
exceed the originally approved cost by more than 20% of the same as a consequence of the review.
SANCTIONING PRE-INVESTMENT ACTIVITY
11.0 With a view to introducing a greater degree of selectivity in projects to be taken up for
implementation, project approvals are given in two stages – proposals for preparation of Feasibility
Reports being cleared in the first stage (by Committee of PIB – CPIB) and investment decisions being
taken at the second stage (by the PIB) on the basis of well prepared Feasibility Reports. The revised
Delegation of Powers for sanctioning pre-investment activity is as per the Table in Annex VIII.
11.1 The threshold for holding pre-PIB meetings8 at the level of the Financial Advisors is raised to
Rs. 1,000 Crore. The requirement of pre-PIB clearance is dispensed with for all Power and Coal sector
Projects.
11.2 The powers for deciding Pre-investment cases of CPSEs are delegated to their Board of Directors
in the same manner as powers of fresh approvals. However, this is applicable only with respect to their
own projects. The Pre-investment cases of JVs where the powers for approval do not vest with the
Board of Directors of such companies will continue to be approved by the Competent
Authority/Government by following the procedure laid down as above.
MISCELLANEOUS ISSUES
12.0 The cost of the proposal will be inclusive of all components under which
Completion
Cost expenditure is required to be incurred (like revenue, capital and loans etc.). It will be
obligatory to compute the Project cost on Constant and completion Cost Basis, so that
the FIRR/EIRR can be calculated for both scenarios. Completion Cost is proposed to be worked out as
under;
i. Labour component of the project cost may be updated using the average (of 12 months)
of the consumer price index for industrial workers.
ii. For all other components of cost, except labor, the average (of 12 months) of wholesale
price index of the sector which the particular component belongs may be used;
iii. For components, in respect of which, esctoral wholesale price index is not available,
wholesale price index for all commodities may be used.
8
Detailed objectives behind holding of pre-PIB meeting may be seen in OM No 1(4)/PF.II/84 dated August 25,
1984.
98 98
Viability
13.0 Only those projects with a financial rate of return and an economic internal rate
of return both equal to or exceeding 12% should be posed to the PIB for its
consideration9. In those cases where either the financial rate of return or the economic
internal rate of return is over 12% but the other one falls short of the norm, and the administrative
ministry still considers it essential that the project should be taken up for implementation, the reasons
therefor should be gone into in detail at the pre-PIB meetings and also set out in the memorandum for
the PIB. PIB shall consider such cases only in exceptional circumstances and that too only if the projects
are in the core sector. Under no circumstances shall projects with both the financial and economic
internal rates of return falling below 12% are to be considered by the PIB. In the case of projects, in
which institutional financing is contemplated, the appraisal report of the financial institutions should
also be submitted along with the PIB proposals so that it is available before the PIB also be submitted
along with the PIB proposals so that it is available before the PIB at the time of consideration of the
proposal. Project Appraisal and Management Division (PAMD) of Planning Commission shall, in its
appraisal, carry out a “Sensitivity Analysis” of the Internal Rate of Returns (IRR) for different levels of
time and cost overruns. In respect of Undertaking, which have implemented and/or are implementing
Projects, one of the points in the Sensitivity Analysis shall be the “average” delay noticed in the
implementation of projects by the undertakings.
Procedure for
14.0 The procedure for Capital Restructuring of CPSEs had been prescribed by DoE
Capital in the past10. This was before the prescribed procedure extant presently involving
Restructuring examination by the Bureau for Restructuring of Public Sector Enterprises (BRPSE) was
laid down11. It is clarified that the system prescribed by Department of Public
Enterprises (DPE) in this regard will hold valid.
Procedural 15.0 The instructions regarding Procedural Requirement of EFC/PIB are proposed as
requirements
for EFC/PIB
under:
1). The format for Memorandum for PIB.EFC shall continue to be as laid down12;
2). Instructions regarding keeping Financial Advisor intimately associated with the formulation of all
projects, incorporation of comments of Financial Advisor and response of Administrative
Department thereto in the Draft EFC/PIB Memo; and the need to ensure that all Cabinet/CCEA
Notes are shown to FA and comments of FA taken into consideration before circulation of Note
for Inter-Ministerial consolations are re-iterated13;
3). The stipulated governing Project Financing, Project Implementation Schedule, Project
Implementation Team, Track Record of PSU, Consultants Resettlement cost and Project
Location, as laid down14 will continue to apply;
4). The Resettlement and Rehabilitation (R&R) shall be as per the notified National Policy in this
regard, or as per specific dispensations allowed to a Ministry/Department by Competent
Authority.
5). Instruction on Environment Clearance will continue to apply15; however, for Power and coal
Projects, environmental clearance shall be mandatory prior to CCEA approval (with existing
9
These rates are being worked afresh by Planning Commission and shall be notified in due course.
10
OM No 66(7) PF.II/99 dated August 16, 1999.
11
DPE Resolution No 16(25)2004-Fin dated December 6, 2004.
12
OM No 1(8)/PE.II/98 dated October 30, 1998 read with Planning Commission DO No O-14014/5/98-PAMD dated
September 24, 1998;
13
OM No 1(2)/PE.II/97 dated July 28, 1997, OM No 66(14)-PE.II/2002 dated June 25, 2004;
14
Paras 7,8,9,10,11,12 of OM No 1(5)/PF.II/96 dated August 6, 1997.
15
OM No 1(7)/PE.II/80 dated May 22, 1980; 1(2)/PF.II/84 dated April 21, 1981; 1(7)/PE.II/92 dated June 23, 1992.

special dispensation for Transmission Projects). Further, if the cost estimates have escalations
after/due to E&F clearance, the proposal would need to be referred back to PIB, before it is
considered by CCEA, in cases where the overall cost escalation exceeds 10% of the Cost Estimate
last recommended by PIB, regardless of reasons for cost escalation;
6). Extant instruction on procedure to be followed for seeking EFC/PIB approval for Externally Aided
Projects/schemes are re-iterated16;
7). Instruction regarding PIB/EFC procedure in respect of renewals and replacements, zero date of
projects, need to refrain from approaching State Government for provision of land and services
free of cost/at confessional rates are re-iterated17;
8). Extant instructions regarding the need to look into sectoral issues, including Track Record of
Implementing CPSE/Organization, financing and tie-up of resources are re-iterated18.
16.0 The delegation of financial powers contained in this OM will be exercised only where
necessary/requisite funds are available in the Annual Plan and the Five Year Plan outlay as per the
Phasing of the Project/Scheme. The powers will continue to be governed by procedural and other
instructions issued by Government from time to time, e.g. General Economy Instructions.
17.0 The OMs of Department of Expenditure/other Ministries/Departments which stand superseded

may be seen at Enclosure to the OM.
OM will be effective from date of issue.
OM issues with approval of Finance ministry
(BS Bhullar)
Joint Secretary to Government of India.
Secretaries of all Ministries/Department;

Financial Advisors (FAs) of all Ministries/Departments;
Copy to:
1. Advisor (PAMD), Planning Commission;

2. Cabinet Secretariat (Sri Vijay Sharma, Additional Secretary);
3. Prime Minister’s Office (Ms Vini Mahajan, Joint Secretary).
16
OM No. 1(6)/PF.II/91(Pt) dated January 28, 1993.
17
OM No 1(3)/PF.II/84 dated August 21, 1984, OM No 1(6)/PF.II/91 dated August 24, 1992, OM No PF.II/End
(33)/69 dated July 16, 1969;
18
OM No 1(7)/PF.II/92 (Pt) dated September 22, 1995;
100 100
ENCLOSURE
List of previous OMs superseded
S. Details of OM/UO Paras

No. No Date Subject revoked
1 1(5)/PF.II/1996 August 6, 2007 Additional Guidelines in respect of PIB/EFC 1,2,3,4,5,6
procedures and delegation of Financial
powers-regarding
2 1(3)/PF.II/2001 February 18, Public Investment/Expenditure – Guidelines Full
2002 for appraisal and approval.
3 1(3)/PF.II/2001 May 13, 2002 Public Investment/ expenditure – Guidelines Full
for a appraisal and approval – clarifications.
4 1(3)/PF.II/1998 September 5, Composition of EFC. Full
1998
5 1(6)/PF.II/1982 May 16, 2005 Composition of PIB. Full
6 1(8)/PF.II/1982 March 29, 1985 Composition of CPIB. Full
7 33(2)/PF.II/1981 October 16, 1981 Ministries/ Departments exempted from Full
purview of EFC/PIB.
8 66(B)/PF.II/2006 June 25, 06 Guidelines for formulation, appraisal and 2
approval of Public Private Partnership (PPP)
Projects
9 24(16)/PF.II/200 July 31, 2002 Exemption to MoST for NH Proejcts. Full
0
10 1(8)/PF.II/1993 October 12, 1993 Revised guidelines for PIB/EFC procedures – Full
clarifications thereof.
11 1(3)/PF.II/2002 October 8, 2002 RCE cases for Navratnas/Miniratnas. Full
12 1(3)/PF.II/2000 February 26, Approval of RCE – Submission of cases Full
2001 regarding.
13 1(3)/PF.II/2000 October 12, 2000 Approval of RCE – Submission of cases Full
regarding
14 1(8)PF.II/1982 March 29, 1985 Introducing of “Two stage” clearance for Full
Projects
15 3(7)/PF.II/1997 September 18, Proposals for approval of CPIB Full
2000
16 1(1)/PF.II/2002 September 23, Expenditure on Pre-investment Full
2002 activities/preparation of DPR.
17 16(10)PF.II/1988 April 7, 1989 Delegation of Powers to Department of Coal Full
for sanctioning Advance Action Plan (AAP)
18 16(10)PF.II/1988 December 24, -do- Full
1996
19 1(2)/PF.II/2003 May 7, 2003 Guidelines for formulation, appraisal and 3(v, vi (part),
approval of Government funded Plan vii), 4.
Schemes/Projects
20 1(3)/PF.II/2005 August 22, 2005 Guidelines for formulation, appraisal and Full
approval of Government funded Plan
Schemes/Projects – Revised for Power and
Coal Projects.
21 1(4)/PF.II/1984 August 23, 1984 Public Investment Board Procedure Full
22 1(4)/PF.II/1984 January 27, 1993 Public Investment Board Procedure Full

ANNEX 1
Institutional Structure for appraisal of Plan Schemes/Projects
Standing Finance Committee (SFC)

Secretary of the Administrative Ministry/Department Chairperson
Financial Advisor of the administrative Ministry/Department Member
Joint Secretary in Charge of the Subject Division Member
Representative of the Planning Commission, Department of Expenditure and any other Ministry/
Development that the Secretary/ Financial Advisor may suggest can also be invited, as per requirement.
Expenditure Finance Committee (EFC)
For proposals costing less than Rs 150 Crore
Secretary of the Administrative Ministry/Department Chairman
Secretary (Planning Commission) or his representative Member
Secretary (Department of Expenditure) or his representative Member
Financial Advisor of the administrative Ministry/ Department Member - Secretary
For proposal costing Rs 150 Crore and Above
Secretary (Department of Expenditure) Chairman
Secretary (Planning Commission) or his representative Member
Secretary of the Administrative Ministry Member
Financial Advisor of the administrative Ministry/ Department Member - Secretary
Public Investment Board (PIB)
Secretary (Department of Expenditure) Member
Secretary (Department of Economic Affairs) Member
Secretary (Ministry of Statistics and Programme Implementation) Member
Secretary (Planning Commission) Member
Secretary (Ministry of Environment and Forests) Member
Secretary of the Administrative ministry concerned with the Public Member
Investment proposal
Joint Secretary (PF.II), Department of Expenditure Member - Secretary
Meetings of PIB shall be attended, in normal course, by the nominated Member personally. The next senior
most officer representing the Ministry/Department may be nominated only in most extraordinary
circumstances when the nominated principle Member is unable to participate personally.
Power Projects Investment Committee (PPIC)
Secretary (Ministry of Power) Member
Secretary (Department of Expenditure) Member
Secretary (Department of Economic Affairs) Member
Secretary (Ministry of Statistics and Programme Implementation) Member
Secretary (Ministry of Environment and Forests) Member
Financial Advisor, Ministry of Power Member – Secretary
Chairman, Central Electricity Authority Special Invitee
Chairman, Central Water Commission Special Invitee
Committee of Public Investment Board (CPIB)
Secretary (Department of Expenditure) Chairman
Secretary of the Administrative Ministry/ Department concerned with the Member
Public Investment proposal
Joint Secretary (PF.II), Department of Expenditure Member - Secretary
102 102
ANNEX II
Detailed time frame for appraisal and approval
Stage Description Time frame in weeks

For Projects Ministries For other proposals,
of Coal and Power including non-PIB
requiring appraisal by cases of Ministries of
PIB Power and coal
i Decision on “in principle” approval based on Dispensed with vide
Feasibility Report (FR) Planning Commission
DO No M
4
12043/10/2005-PC
dated September 5,
2007
ii Preparation of DPR by Administrative The time limit will very from project to project.
Ministry/ Department and circulating the The time limit for preparation of DPR should be
same alongwith Draft EFC/PIB Memo stipulated by the competent authority while
according approval for preparation of DPR.
iii Comments to be offered on DPR and Draft
EFC/PIB Memo by Planning Commission and
5 6
concerned Ministries/ Departments/
Agencies.
iv Preparation of final EFC/PIB Based on DPR
and comments received, and circulating the
same to Planning Commission, Department 2 1
of Expenditure and other concerned
Ministries/ Departments/Agencies
v Convening of EFC/PIB meeting after
4 4
receiving final EFC/PIB Memo.
vi Issue of minutes after EFC/PIB meeting 2 2
vii Submission of proposal for approval of
Administrative Minister and Finance na 2
Minister.
viii Circulation of Draft CCEA Note. 4 4
ix Issue of comments by different
Ministers/Departments on draft CCEA Note 2
To be governed by
with approval of Minister-in-charge.
guidelines of cabinet
x Forwarding the proposal finalized by
Secretariat bearing No
Administrative Ministry to Cabinet 3
1/16/1/2000 dated
Secretariat for consideration by CCEA
April 15, 2002
xi Meeting of CCEA and issue of minutes of
2
CCEA

ANNEX III
Appraisal Limits
Rs Cr.
Limit Appraisal forum
< 15.0 Ministry in normal course
> 19 150.0 & < 50.0 Standing Finance Committee (SFC)
Expenditure Finance Committee (EFC) chaired by Secretary of
> 50.0 & 150.0 Administrative Ministry/ Department.
Public Investment Board (PIB)/Expenditure Finance Committee
(EFC) chaired by Secretary (Expenditure); projects/ schemes where
> 150.0 financial returns are quantifiable will be considered by PIB and
others by EFC.
Note: The Financial limits as above are with reference to the total size of the Project/Scheme, which
may include Budgetary support, Internal Resources, External aid. Loans and so on.
19
Greater than or equal to.
104 104
ANNEX IV
Approval Limits
Rs Cr.
Limit Approval forum
< 15.0 Secretary of Administrative Ministry /
Department.
> 15.0 & < 75.0 Minister – in – Charge of Ministry / Department.
> 75.0 & 150.0 Minister – in – charge of Ministry / Department
and Minister of Finance.
> 150.0 Cabinet/Cabinet Committee on Economic Affairs
(CCEA).
may include Budgetary support, Internal Resources, External aid. Loans and so on.

ANNEX V
Guidelines for PPP Projects
Rs.Cr
Type of Proposal Financial Limits Appraisal Forum Approval forum
< 15.0 Ministry in normal Secretary of Ministry/
course Department
≥ 15.0 and < 50.0 SFC Minister-in-charge
≥ 50.0 and < 75.0 EFC headed by Minister-in-charge
All Public Private Secretary of Ministry/
Partnership Projects of Department
20
Central Ministries or ≥75.0 and ≤ 100.0 EFC headed by Minister-in-charge
Central CPSEs, Secretary of Ministry/ And Finance Minister
statutory authorities or Department
other entities under >100.0 As per the Notification
their administrative No 10/32/2206-Infra
control As per normal
dated april2, 2007
delegation of powers
issued by Department
for approval of Plan
of Economic Affairs and
Schemes and Proejcts.
guidelines framed
thereunder.
Composition of SFC/EFC will be as a applicable in other cases with the additional representation of
Department of Legal Affairs for vetting of concession agreements etc.
may include Budgetary support, Internal Resources, External aid. Loans, contribution from private
sources and so on.
20
Less than and equal to.
106 106
ANNEX VI
50,000 MW HE.INITIATIVE
Selected low tariff schemes
List of projects below 300 MW
Rs.Cr
S. No. Scheme State IC (MW) Allotted to
1. Kapak leyak Arunachal Pradesh 160 NEEPCO
2. Badao Arunachal Pradesh 120 NEEPCO
3. Dibbin Arunachal Pradesh 100 NEEPCO
4. Panan Sikkim 200 IPP
5. Dikchu Sikkim 105 IPP
6. Lachen Sikkim 210 NHPC
7. Khoksar HP 90 HPSEB
8. Gharopa HP 114 HPSEB
9. Gondhala HP 144 HPSEB
10. Chamba HP 126 HPSEB
11. Bajoli Holi HP 180 HPSEB
12. Yagthang HP 261 HPSEB
13. Tidong-II HP 70 IPP
14. Sela Urthing Uttaranchal 230 THDC
15. Bogudiyar-Srikari Bhyal Uttaranchal 170 UJVNL
16. Karmoli Uttaranchal 140 UJVNL
17. Bhaironghati Uttaranchal 65 UJVNL
18. Nand Prayag Uttaranchal 141 UJVNL
19. Tamak lata Uttaranchal 280 UJVNL
20. Harsil Uttaranchal 210 UJVNL
21. Sirkari Bhyol Rupsiabagar Uttaranchal 210 UJVNL
22. Gangotri Uttaranchal 55 UJVNL
23. Badrinath Uttaranchal 140 IPP
24. Mapang-Bogidiyar Uttaranchal 200 IPP
25. Arakot Tiuni Uttaranchal 72 UJVNL
26. Rupsiabagar Khasiyabara Uttaranchal 260 NTPC
27. Taluka Sankri Uttaranchal 140 UJVNL
28. Jelam Tamak Uttaranchal 60 THDC
29. Malerijelam Uttaranchal 55 THDC
30. Chhunger-Chal Uttaranchal 240 NHPC
31. Jakhol Sankri Uttaranchal 33 SJVNL
32. Naitwar-Mori Uttaranchal 33 SJVNL
33. Jadh Ganga Uttaranchal 50 THDC
34. Gohana Tal Uttaranchal 60 THDC
35. Maphu Meghalaya 120 NEEPCO
36. Nongkolait Meghalaya 120 MeSEB
37. Nongnaw Meghalaya 50 MeSEB
38. Rangmaw Meghalaya 65 MeSEB
39. Umduna Meghalaya 57 CWC
40. Selim Meghalaya 170 CWC
41. Bichlari J&K 35 WAPCOS
42. Tidong -I HP 60 IPP
43. Deodi Uttaranchal 60 IPP
44. Kalika Dantu Uttaranchal 230 IPP
45. Karmoli Lumti Talli Uttaranchal 55 NHPC
Grand Total 5746

ANNEX VI (CONTINUED)
Transmission Projects in the Pipeline

Rs.Cr
S.No. Project Estimated Cost
1 Parbati-II Tr. System 374.18
2 Koldam Tr.System 478.37
3 East-West Tr.Corridor Strengthening Scheme 690.05
4 North-West Tr.Corridor Strengthening Scheme 476.27
5 Western Region System Strengthening Scheme-I 4987.89
6 Barth Transmission System 3779.46
7 Gandhar-II Tr. System 539.44
8 Kawas-II Tr. System 776.24
9 Parbati-III Tr. System 515
10 Northern Region System Strengthening Scheme-V and RAPP 976.59
5&6 Suppl.
11 Tehri PSP-II tr. System 900
12 RAPP – 7&8 Tr. System 450
13 Chamera-III Tr. System 400
14 Maithon RightBank Tr. System 1700
15 Eastern Region System Strengthening Scheme-I 500
16 Eastern Region System Strengthening Scheme-II 1200
17 Eastern Region System Strengthening Scheme-III 800
18 North Karanpura Trans System 2500
19 Nabinagar Tr. System 1600
20 Lower Subnsari Strengthening Tr. System 6300
21 Kameng Transmission System 1200
22 Tipaimukh Tr. System 1300
23 Lohari Nagpal Tr. System 400
24 Tapovan Vishnugadh Tr. System 400
25 Kayamkulam-II Tr. System 500
26 Tuticorin Tr. System 400
27 Tr. System for ILFS Gas Proejct in Tripura (system beyond 1000
Bonagaigaon)
28 Palamaneri Tr. System 400
29 Srinager Tr. System 325
108 108
ANNEX VII
Procedure for RCEs

Rs.Cr
S. No. Limit Appraisal and Approval
1 Increase in costs where such increases are Appraisal by Planning Commission, Approval by
due to increase in price escalations, within Administrative Minister-in-Charge.
the originally approved time cycle
irrespective of cost of project/scheme
2 Increase in costs where such increases are No appraisal; Approval by Administrative Minister-
due to increase in statutory levies21 and in-charge.
exchange rate variation within the
originally approved time cycle irrespective
of cost of project/scheme
3 <150
1. Increase in costs upto 20% of the last No appraisal; approval by concerned Ministry/
approved cost estimate, beyond Department with approval of Minister concerned.
changes due to three factors as
above22; Appraisal by EFC under Secretary of the Ministry/
2. Increase beyond 20% of the last Department, Approval of Minister concerned.
approved cost estimate, resulting in an Composition of EFC as per standard guidelines.
absolute cost escalation of less than or
equal to Rs. 50 Crore. Appraisal by EFC under Secretary of the Ministry/
3. Increase beyond 20% of the last Department; Approval as per extant powers of
approved cost estimate, resulting in an delegation. Composition of EFC as per standard
absolute cost escalation of greater guidelines.
than Rs. 50 Crore.
4 >150
1. Increase in costs upto 20% (first Appraisal by EFC under Secretary of the Ministry/
RCE) and 5% (second RCE) of the last Department; Approval of the Minister and Finance
approved cost estimates beyond Minister. Composition of EFC as per standard
changes due to three factors as guidelines.
mentioned above.
2. Increase in costs beyond 20% (first Appraisal by EFC/PIB under Secretary (Expenditure)
RCF) and 5% (second RCE) of the last and approval of CCEA. Composition of EFC/PIB as
approved cost estimates beyond per standard guidelines.
changes due to three factors as
mentioned above.
Note: 1. The financial threshold of Rs. 150 Crore in the revised formulation refers to the final RCE.
21
Statutory levies include State/Central taxes, including import and export duties as notified by GOI and paid by
the Project authorities, but excludes water, electricity charges and POL price increases.
22
Three factors being: price escalations, statutory levies and exchange rate variations – however, price escalations
would have to separately follow prescribed at Sl No 1.

ANNEX VIII
Proposals for limits in respects of Pre-Investment activity

Rs.Cr
Sl. No. Limit Appraisal forum
1. < 10.0, if budgetary support is being sought, subject to Administrative Sectary
availability of budget/ plan funds and requisite
regulatory/ environment clearance as prescribed.
2. <50.0, subject to requisite regulatory/ environment Administrative Ministry/

clearances as prescribed, establishment of viability Department
through a preliminary feasibility report and conditions
(i) the project will not be financed through budgetary
support; (ii) the enterprise concerned is profit making
entity in the last 3 years; and (iii) project being included
in Five Year Plan projections.
3 All Other cases Appraisal by Committee of PIB and

approval by Competent Authority
as per extant delegation of powers.
Pre-investment activities to include the following:
1. Preparation of PFRs/FRs/DPRs;
2. Undertaking survey/investigations of all types required for the project;
3. Land acquisition for project site and right of way subject to ceilings as under:
a. Rs. 5 Crore for Sl No 1 in Table;
b. Rs. 25 Crore for Sl No 2 in Table;
c. Rs 50 Crore for Sl No 3 in Table.
4. Collection of environmental data, preparation and approval of Environment Management Plans,
Forestry and Wild Life clearances;
5. Construction of access roads, minor bridges, culverts, power lines, water lines, site offices,
temporary accommodation and so on;
6. Compensatory aforestation as per MoEF guidelines;
7. Payment of NPV towards conversion of forest land for non-forest purposes.
110 110
Appendix – 1.6.6 (A)
Format of EFC Memorandum
1) Sponsoring Ministry/Department
2) Statement of proposal :-
• whether Central Scheme or Centrally Sponsored? In the case of new CSS or CSS with changed
parameters, funding pattern etc. whether approval of full Planning Commission has been
obtained.
• Whether there are schemes with overlapping objectives and coverage in other inistries and
States? If so, the details of such schemes and the scope for integration.
• New Proposal/Modified/Revised Cost Estimate.
• Reasons and justification for proposal, indicating historical background, circumstances in which
the need have arisen, whether other alternatives have been considered and what detailed
studies have been made in regard to the proposal for establishing its need, its economics and
other relevant aspects.
• If it is location specific, basis for selection of location.
• Has the proposal been included in the Five Year Plan and what are the provisions in the Five
Year Plan and in the current annual plan? Is any modification proposed?
• What is the estimated yield from the Project and what are the economic implications?
• In case of ongoing scheme/project, present status and benefits already accrued to the
benefeciaries may also be furnished.
• Have other concerned Ministries and Planning Commission been consulted and if so, with what
results?
• Whether any evaluation had been done? If so, broad findings of such evaluation studies may be
given.
• Has the proposal or its variant been gone into by any Committee, Departmental or
Parliamentary, if so, with what result and what decisions have been taken.
3) Programme Schedule :-
• Has the project/scheme been worked out and scrutinised in all its details?
• What is the schedule for construction, indicating the position separately relating to plant and
machinery and civil works, raw materials, manpower etc. together with year-wise phasing.
• Whether physical and financial targets match with each other.
• What is the target date for completion and when will the expected benefits commence?
• If the project involves dislocation of human settlements, the resettlement costs should be
included fully in the project cost. The resettlement Plan should also be indicated in the project
implementation schedule. The resettlement cost may be worked out on the following basis :-
o the cost of land required to resettlement would be as indicated by the District/State
Authorities;
o the compensation to be paid to the displaced persons. This compensation cost is dependent
on the rates indicated by District/State Authorities. Thus the total compensation cost may
be worked out on the basis of these rates. [1(5)/PF.II/96 dated 06.08.97].
4) Expenditure involved:
• What is the total expenditure (non-recurring and recurring):- Indicate the position year-wise and
also whether any budget provision has been made and if not, how it is proposed to be
arranged? Has any expenditure been incurred already.
• Details of the scheme of financing clearly bringing out the financial obligations undertaken by
the PSU/Ministry with or without the proposal under consideration. In other words, details of

commitment on account of on-going projects to be funded from internal resources of the PSU
may be given in the EFC Note along with the requirement and availability of funds for the
project under consideration. In case of schemes/programmes, Five Year Plan Outlay for the
Ministry/Department and commitments on on-going schemes/programmes alongwith the
requirement and availability of funds for the scheme/programme may be furnished.
[1(7)/PF.II/92 dated 23.06.92].
• What is the foreign exchange component (separately for non-recurring and recurring
expenditure)? What are the items of expenditure involving foreign exchange and expenditure
on foreign experts? Has clearance of E.A.D. been obtained and has availability of credit facilities
been explored and if so, with what result?
• Phasing of expediture (non-recurring and recurring) :-
• on constant prices;
• on completion cost [1(5)/PF.II/96 dated 06.08.97].
Reference date and basis of cost estimates of various components.
5) Reliability of Cost Estimates and other parameters:

• Has pre-project investigations been arrived at in detail and details of area where changes in
project parameters could be anticipated?
• To what extent cost estimates are firmed up?
6) Operational Capabilities:
• Operational capability of PSU/Department/Implementing Agency/Ministry to undertake the
tasks required for the implementation of the proposal under consideration. For this purpose,
track record of the PSU in respect of the projects already implemented/under implementation
may be highlighted and also steps proposed for ensuring timely execution of the project under
consideration.
• In case of RCE proposals, variance analysis of cost increase due to price escalation, variation in
exchange rates/custom and other statutory duties and levies, change in scope, under
estimation, addition/alteration, etc. is to be given. [1(5)/PF.II/96 dated 06.08.97].
• In case of continuing Social Sector Schemes of :-
i). Estimate of committed liabilities at the end of previous plan;
ii). Whether this been transferred to States/non-plan head.
7) Add statements showing :

i). the number of posts required and the pay scales, together with basis adopted for staffing, both
in current year and future years; (A separate proposal for creation of posts may be sent to
JS(Pers.), Department of Expenditure at least two weeks before the circulation of EFC Note).
ii). expenditure on buildings and other works and its basis and phasing; and;
iii). expenditure on stores and equipment.
8) Viability :-
Information is to be given if benefits accruable from the projects/schemes are quantifiable and can be
translated in monetary term [1(5)/PF.II/96 dated 06.08.97].
(a) Financial IRR
i). at constant prices;
ii). on completion cost basis.
(b) Economic IRR
i). at constant prices;
ii). on completion cost basis.
112 112
9) Whether Nodal Officer (Chief Executive for the project) has been appointed.
If yes, give details about his status, past experience in implementing such projects, number of years left
for superannuation etc. (M-12016/5/97-PAMD dt. 29.12.97).
For RCE proposals :-
10) Date of approval of original cost or firmed up cost.
11) Original or firmed up approved cost together with FE component.

i). fixed cost;
ii). completion cost [1(5)/PF.II/96 dated 06.08.97].
(For projects approved before August, 1997, there may not be any approved completion
cost).
12) Present cost (completion cost) together with FE component [1(5)/PF.II/96 Dated 06.08.97].
13) Earlier project completion schedule.
14) Revised project completion schedule.
15) Brief reasons for time overrun in clear terms.
16) Variance analysis * of increase in completion cost under the following heads:-
(a) Escalation.
(b) Exchange rate variation.
(c) Change in scope.
(d) Statutory levies.
(e) Addition/deletion.
(f) Under estimation.
(g) Other (Specify).
(* Variance analysis should be worked out with reference to latest instructions contained in
O.M.No.1(6)/PF.II/91 dt. August 24th, 1992).
17) Quantification of increase in cost on account of time overrun.
18) Present status of physical progress of the project.
19) Expenditure incurred and commitments made so far.
20) Effect of revision in capital cost estimates on cost of production and Profitability with reference to
earlier approved capital cost of the project.
21) Whether, at the stage when funds to the extent of 50% of the approved cost were released, the
mandatory review of the cost estimates was done by the project authorities and the administrative
ministry? If so –
(a) The date when, as a result of mandatory review, project authorities and the administrative
Ministry became aware that the cost of the project is likely to be exceeded by more than 5%

of the originally approved cost due to reasons other than price escalation, exchange rate
variations statutory levies etc. and the date when RCE was drawn up and brought before
EFC. [1(6)/PF.II/87 dated 16.11.1987 and 1(6)/PF.II/91 dated 24.08.1992].
(b) A statement showing commitments made by the project authorities/Administrative
Ministries in the EFC/PIB Memorandum regarding reliability of cost estimates, pre-project
investigations, land acquisition, completion schedule etc. and during the PIB meeting with
regard to the project at the time of seeking project approval and the status regarding their
fulfillment. [1(1)/PF.II/85 dated 14.10.98].
(c) Have the reasons for the time and cost overrun been gone into thoroughly and
responsibility fixed? If so, details in this regard be indicated.
[1(1)/PF.II/85 dated 17.09.91].
22) Whether the issue of cost and time over run was brought before EC/QPR? If so, details of decision
taken in EC/QPR & further follow up action.
[M-12016/5/97- PAMD dt. 29.12.97].
23) For RCE proposals requiring CCEA approval, report/recommendations of The Standing Committee
and Action Taken Report may be appended.
24) * Whether on EFC Memo Financial Adviser’s concurrence/comments have Been obtained? If so,
details thereof. [66(14)/PF.II/98 dated 11.08.1998].
25) * Supplementary Information.
26) * Points on which decisions/sanctions are required.
*Items at Sl.No.24, 25 and 26 are common to the Original and RCE proposals. (Planning Commission’s
D.O.No.O-14014/5/98-PAMD dated 24.9.1998). O.M.No.1(8)/PF.II/98 dated 30.10.1998
114 114
Appendix – 1.6.6 – B
Format of PIB Memorandum
1. Name of the Project
2. Whether it is a case for fresh approval or Firmed up or Revised Cost Estimate
3. Administrative Ministry/Department
4. (i) Location (State/District/Town)

(ii) Basis for selection of location in respect of a new project
5. (i) Agency which prepared the Feasibility Report/Detailed Project Report/ Detailed Cost
Estimates
(ii) Date of preparation of FR/DPR/DCE
(iii) Is this agency on the approved list of Consultants of the Ministry for
preparation of FR/DFR/Cost Estimate
6. (i) Name of the Implementing Agency

(ii) Track record of the PSU in project preparation and execution,
highlighting cost/time over-runs and instances of unsuccessful project
implementation (say during last three years). Corrective measures, if any
taken by the Ministry/PSU.
7. Extent and Type of Studies and Investigations – whether feasibility report is based on complete
studies and investigations.
8. Infrastructure Facilities/Back up
(i) Requirement and availability of non- forest land.

(a) Categorywise (e.g. Government agricultural, homestead, etc.) area of land required.
(b) Categorywise area of land acquired, if not fully acquired, the exact status of acquisition process,
whether compensation has been paid and accepted by land losers.
(c) Number of persons likely to be displaced; the rehabilitation package and the time frame within
which the rehabilitation package will be implemented. [1(5)/PF.II/96 dated 06.08.1997]
(d) Whether any area including Government land, occupied by encroachers, if so, the status of
action being taken to remove the encroachers.
(e) Any other specific problem in acquisition or starting project activities e.g. law & order problem
due to local protests.
(ii) Requirement and availability of forest land

(a) Area of forest land required (if in more than one State, Statewise break-up)
(b) Area of forest land (statewise) acquired, if not fully acquired, the exact status of acquisition
process.
(c) Area required and acquired for compensatory afforestation (statewise).
(d) Number of persons likely to be displaced; the rehabilitation package and the time frame within
which the rehabilitation package will be implemented.
(e) Any other specific problem in acquisition or starting project activities e.g. law & order problem
due to local protests.

9. Status of Law and order and provision for Security Measures :-

(i) Status of law and order situation in the area where project is proposed tobe set up.
(ii) Arrangements made for providing proper security cover during the construction and after
commission (agency to be identified).
10. Whether the state of preparedness has been considered with regard to the following:-
(a) Decision about the agency to implement, whether departmentally, or through turn key
contractor, and/or through more than one contractor.
(b) Decision about engaging consultants.
(c) Track record of the implementing agency/agencies and consultants.
(d) Choice of technology, Status of transfer of technology, availability of designs/drawings.
(e) Finalisation of configuration of equipment and the number of packages in which the project
would be divided for tendering/contracting.
(f) Availability of water, power, road, rail and port facilities required during and after construction
period.
(g) Whether Implementation Plan has been prepared and Master PERT/CPM network enclosed.
11. Demand-Supply gap and the contribution of the project to bridge the gap. Protection for the export,
if any, may be identified.
12. Principal raw materials/components and sources thereof, indicating annual imports in quantity and
value.
13. Where import of technology is involved, brief justification for the same.
14. Major facility with capacity of each (e.g. Ammonia Plant, Urea Plant, etc., in a Fertilizer Project of Gas
Cracker, PVC, LDP, etc. down stream plants in a Petrochemicals Project).
15. Product- mix and capacity for the end product.
16. Capital cost with breakup under broad headings (like plant & equipment, Civil works, utilities etc.)
(a) at constant prices;
(b) on completion cost [1(5)/PF.II/96 dt. 06.08.1997] (In case of firmed up cost/revised cost
estimates, the latest approved cost and its date of approval may be indicated.
17. Foreign Exchange Component.

18. Specific investment per unit (e.g. per tonne of coal, per tonne of fertilizer, Per tonne of steel, per
MW of power).
19. Base price for cost estimates.
20. Basis of cost estimate – in house data/data of similar projects implemented recently/budgetary
quotations, etc.
21. Degree of reliability of cost estimates (excluding future escalations).
22. If it is an expansion proposal, comparison of cost with a grass root facility.
23. System cost not included in the estimates (e.g. investment on the linked coal mine in the case of a
power project or investment on Railways/Ports facilities etc.)
116 116
24. Project Implementation Schedule (PIS) :-

(a) It should indicate in detail all important milestones following the approval such as various
clearances, preparation of DFR, calling and approval of tenders, major construction works,
procurement and installation of plant and machinery, etc. PIS should be consistent with the
phasing of expenditure.[1(5)/PF.II/96 dt. 06.08.1997]
(b) PERT network in support of gestation period or atleast a PERT network covering essential
activities to be completed during the first year of sanction. The essential activities should, inter-
alia, include :-
(i) Financial closure where resources are to be raised from the market or financial institutions
or foreign lending agencies.
(ii) Acquistion of forest/ non-forest land;
(iii) Appointment of consultants, preparation of detailed engineering designs and drawings,
floating of tenders and award of contracts;
(iv) Obtaining all mandatory clearance (it is presumed that the environment clearance has been
obtained before the sanction).
(v) Appointment of necessary project personnel. (it is presumed that the nodal officer and his
team will be in position from the beginning).
(vi) Whether the accountability of the persons associated with project implementation has been
fixed to avoid time and cost over-run.
(vii) Whether performance clause and stringent liquidated damages clause to deter the
contractors from abandoning the project has been incorporated in the contract.
25. Production build-up.
26. Phasing of investment.

(i) fixed cost basis;
(ii) completion cost basis. [1(5)/PF.II/96 dt. 06.08.1997]
27. Likely expenditure during plan period and the approved plan provision.
28. Justification for taking up the project, if not included in the approved Five Year Plan.
29. Sources of financing, indicating the extent of budgetary support required during the plan period. (It
may be clearly indicated whether financing arrangements have been fully tied up and must contain
detailed credible resource packages for the project such as internal resources, raising of share capital,
institutional financing, GDR & budgetary support. Tying up of resources for financing of the project and
cash availability position should be indicated in respect of each projected source, detailed description
should be given including the basis for the projection, progress made so far, views of financial
institutions, etc. [1(5)/PF.II/96 dt. 06.08.1997]
30. Financial obligation of the PSU Ministry ‘with and without’ the proposal Under consideration i.e.
details of commitments on account of on- going projects to be funded from internal resources of the
PSU may be indicated along with requirement and availability of funds for the project under
consideration. The underlying assumption regarding internal resource availability must also be
indicated. [1(7)/PF.II/92 dt. 23.06.1992]
31. Financial Position of the Company/PSUs implementing the project may be indicated for last three
years. [1(5)/PF.II/96 dt. 06.08.1997]
32. Cost of production per unit.

33. Selling price per unit.
34. Value of annual output.
35. Financial IRR, indicating assumption about extent of capacity utilisation.

(i) on fixed cost.
(ii) On completion cost. [1(5)/PF.II/96 dt. 06.08.1997]
36. Economic IRR, without premium on foreign exchange.

(i) on fixed cost.
(ii) on completion cost. [1(5)/PF.II/96 dt. 06.08.1997]
37. Annual foreign exchange savings (excluding value of imported raw Materials components, royalty,
etc.)
38. Direct employment generation.
39. Annual subsidy, if any, for sale at administered prices.
40. Assumptions made in the proposal which are uncertain(apart from current Cost and prices).
41. Alternatives considered in making the proposal.
42. Information about the number of projects which will be implemented concurrently by the same
implementing agency, and if the organisation is geared to tackle all of them.
43. Whether taking up of this project will affect, in any way, implementation of Other on-going projects
of the PSU/Department.
44. A small paragraph on energy conservation.
45. If funding is through F.I. appraisal report of the F.I. should be attached and Broad observations of the
report indicated here.
46. If the proposal involves creation of posts for the project, it should be clearly brought out in the PIB
memo. Further, the proposal for creation of posts should separately be sent to J.S.(Pers.), Department of
Expenditure, at least few weeks before the submission of PIB note. [1(7)/PF.II/92 dt. 23.06.1992]. Details
of the project Management Team which will be assisting the Nodal officer in Implementation may also
be furnished.
47. Whether Nodal Officer (Chief Executive for the project) has been appointed. If yes, give details
about his status, past experience in implementing such projects, number of years left for
superannuation, etc. [M-12016/5/97-PAMD dt. 29.12.1997]. Details of the Project Management Team
which will be assisting the Nodal Officer in implementation may also be furnished.
48. Date and authority from which environment clearance has been obtained in Case with
conditionalities, if any a time bound programme for meeting the conditions.
a). Details of commitments obtained from the concerned State Governments inregard to the
services expected from them in facilitating execution/operation/future expansion of the Project.
118 118
Conditionalities, if any, imposed/proposed by the State Governments, in this regard, may also
be elaborated. (O.M.No.1(8)/PF.II/98 dated 19.03.2002)
49. Comments/observations of appraising agencies (Additional information in the case of firmed up or

revised cost estimates).
50. Date of approval of original cost or firmed up cost.
51. Original or firmed up approved cost together with FE component.

(i) fixed cost.
(ii) Comple tion cost. [1(5)/PF.II/96 dt. 06.08.1997]
(For projects approved before August, 1997, there may not be any approved completion cost.)
52. Present cost (completion cost) together with FE component [1(5)/PF.II/96 dt. 06.08.1997].
53. Major variation in the capacity or the project concept, if any, from the earlier approved proposal.
54. Change in pattern of funding, if any.
55. Earlier project completion schedule.
56. Revised project completion schedule.
57. Brief reasons for time overrun in clear terms.
58. Variance analysis* of increase in completion cost under: [1(5)/PF.II/96 dt. 06.08.1997].
(a) Escalation.
(b) Exchange rate variation.
(c) Change in scope.
(d) Statutory levies.
(e) Addition/Deletion.
(f) Under estimation.
(g) Other (Specify).
(* Variance analysis should be worked out with reference to latest instructions contained in
O.M.No.1(6)/PF.II/91 dt. August24, 1992).
59. Quantification of increase in cost on account of time overrun.
60. Present status of physical progress of the project.
61. Expenditure incurred and commitments made so far.
62. Effect of revision in capital cost estimates on cost of production and Profitability with reference to
earlier approved capital cost of the project.
63. Whether, at the stage when funds to the extent of 50% of the approved cost Were released, the
mandatory review of the cost estimates was done by the Project authorities and the administrative
ministry? If so,
(a) The date when, as a result of mandatory review, project authorities and the administrative
Ministry became aware that the cost of the project is likely to be exceeded by more than 5% of
the originally approved cost due to reasons other than price escalation, exchange rate variations

statutory review etc. and the date when RCE was drawn up and brought before
EFC;[1(6)/PF.II/87 dated 16.11.87 and 1(6)/PF.II/91 dated 24.08.92].
(b) A statement showing commitments made by the project authorities/Administrative Ministries in
the EFC/PIB Memorandum regarding reliability of cost estimates, pre-project investigations,
land acquisition, completion schedule etc. and during the PIB meeting with regard to the project
at the time of seeking project approval and the status regarding their fulfillment. [1(1)/PF.II/85
dated 14.10.98].
(c) Have the reasons for the time and cost overrun been gone into thoroughly and responsibility
fixed? If so, details in this regard be indicated.
[1(1)/PF.II/85 dated 17.09.91].
64. Whether the issue of cost and time over run was brought before EC/QPR? If so, details of decision
taken in EC/QPR & further follow up action. [M-12016/5/97- PAMD dt. 29.12.97].
65. Whether the issue of fixa tion of responsibility for time and cost over run has been examined by the
Standing Committee. If so, report/recommendations of the Committee and Action Taken Report may be
appended.
66. * Whether on PIB Memo Financial Adviser’s concurrence/comments have Been obtained? If so,
details thereof. [66(14)/PF.II/98 dated 11.08.98].
67. * Supplementary Information.
68. * Points on which decisions/sanctions are required.

*Items at Sl.No.66, 67 and 68 are common to original and RCE proposals.
The PIB Secretariat has been authorized to return the PIB Memorandum which do not contain
all the relevant information and are considered incomplete.
(Planning Commission’s – D.O.No.O-14014/5/98-PAMD dated 24.9.1998).
O.M.No.1(8)/PF.II/98 dated 30.10.1998
120 120
APPENDIX–1.6.7
GENERIC STRUCTURE OF THE DPR
(i) Project Summary : This section is concise and should not require more than 3 pages. This may
include, project title, sector, Ministry, objectives description (main activities, outputs and linkages,
location, duration, cost and viability.
(ii) Context/background: This section should provide a brief description of the sector/sub-sector, the
national priority, strategy and policy framework as well as a brief description of the existing situation.
(iii) Problems to be addressed: This section should elaborate the problems to Be addressed through the
project/scheme at the local/regional/national level, as the case may be. Evidence regarding the nature
and magnitude of the problems should be presented, supported by baseline data/surveys/reports. Clear
evidence should be available regarding the nature and magnitude of the problems to be addressed.
(iv) Project Objectives: This section should indicate the Development Objectives proposed to be
achieved, ranked in order of importance. The deliverables/ outputs for each Development Objective
should be spelt out clearly. This section should also provide a general description of the project.
(v) Policy Context : This section should link the project to statements of the concerned Government
policy. Particular experience should be made to the draft Strategic Development Plan Document of the
Planning Commission.
(a) Relationship to Sectoral Policies : Clearly indicate which sectoral policies and the priority of these
particularly policies in relation to policy for sctor as a whole.
(b) Relationship to National Policies : Sectoral policies must be considered with national policies, so
trace the links between the sectoral policies and national policies.
(vi) Structure of the Project : This section develops a simple logical framework analysis of the project.
This form of analysis now features in the project documentation required by most aid donors, and
provides a useful check on the efficiency on the design of the project though the approach is a little
different in each case.
Objectives : These should be as specific as possible, so that the implementation of the project can be
monitored effectively and the success or otherwise of the project can be evaluated at a later stage. It is
sometimes appropriate to indicate a broad overall objective for the project (which is often referred to
as the “goal” or “goal” of the project), and then to list a limited number of specific sub-objectives.
Activities : Specify the areas of work, which will be undertaken in implementing the project.
Inputs : List all of the physical and human resources that will be applied to the above activities, and
indicate quantities wherever possible.
Outputs : Indicate what the above activities will produce, and quantity these expected outputs where
possible.
Links: inputs-activities-outputs : Develop a tree diagram linking every output to a particular objective,
every activity to a particular output and every input to a particular activity (this may assist in streaming

the design of the project and eliminating unnecessary inputs). Also indicate how the performance
indicators identified in section 8.3 and 8.5 could be used to assess the effectiveness of the project in
terms of achieving the project objectives through the application of the designated inputs.
(vii) Options available to address the problem/situation : Indicate the possible alternative approaches
which would be adopted inputting together the project and why a particular choice has been made.
(viii) Target beneficiaries: There should be clear identification of target beneficiaries. Stakeholder
analysis should be undertaken, including consultation with stakeholders at the time of project
formulation. Options regarding cost sharing and beneficiary participation should be explored and
incorporated in the project. Impact of the project on weaker sections of society, positive or negative,
should be assessed and remedial steps suggested in case of adverse impact.
(ix) Project strategy: This section should present an analysis of alternative strategies available to achieve
the Development Objectives. Reasons for selecting the proposed strategy should be brought out.
Involvement of NGOs should be considered. Basis for prioritization of locations should be indicated
(where relevant). Options and opportunity for leveraging government Funds through public-private
partnership must be given priority and explored in depth.
(x) Legal Framework: This sector should present the legal framework within which the project will be
implemented and strengths and weakness of the legal framework in so far as it impacts on achievement
of project objectives.
(xi) Environmental impact assessment: Environmental impact assessment should be undertaken,

wherever required and measures identified to mitigate adverse impact, if any. Issues relating to land
acquisition, diversion of forest land, rehabilitation and resettlement should be addressed in this section.
(xii) On-going initiatives: This section should provide a description of Ongoing initiatives and the
manner in which duplication will be avoided and synergy created through the proposed project.
(xiii) Technology issues: This section should elaborate on technology choices, If any, evaluation of
options, as well as the basis for choice of technology for the proposed project.
(xiv) Management arrangements: Responsibilities of different agencies for project management and
implementation should be elaborated. The organization structure at various levels as well as monitoring
and coordination arrangements should be spelt out.
(xv) Means of Finance and Project Budget: This section should focus on Means of finance, evaluation of
options, project budget, cost estimates and phasing of expenditure. Options for cost sharing and cost
recovery (user charges) should be considered and built into the total project cost. Infrastructure projects
may be assessed on the basis of the cost of debt finance and the tenor of debt. Options for raising funds
through private sector participation should also be considered and built into the project cost.
(xvi) Time frame: This section should indicate the proposed ‘Zero’ date for commencement and also
provide a PERT/CPM chart, wherever relevant.
(xvii) Risk analysis: This section should focus on identification and assessment of project risks and how
these are proposed to be mitigated. Risk analysis could include legal/contractual risks, environmental
risks, revenue risks, project management risks, regulatory risks, etc.
122 122
(xviii) Evaluation: This section should focus on lessons learnt from evaluation Of similar projects
implemented in the past. Evaluation arrangements for the project, whether concurrent, mid-term or
post-project should be spelt out. It may be noted that continuation of projects/schemes from one Plan
period to another will not be permissible without an independent, in depth evaluation being
undertaken.
(xix) Success criteria: Success criteria to assess whether the Development Objectives have been
achieved should be spelt out in measurable terms. Base-line data should be available against which
success of the project will be assessed at the end of the project (Impact assessment). In this regard, it is
essential that baseline surveys be undertaken in case of large, beneficiary-oriented projects. Success
criteria for each Deliverable/Output of the project should also be specified in measure able terms to
assess achievement against proximate goals.
(xv) Financial and economic analysis: Financial and economic analysis of The project may be undertaken
where the financial returns are quantifiable. This analysis would generally be required for investment
and infrastructure projects, but may not always be feasible for social sector projects where the benefits
cannot be easily quantified.
(xvi) Sustainability: Issues relating to sustainability, including stakeholder commitment, operation and
maintenance of assets after project completion, and other related issues should be addressed in this
section. Note: Requirements of the EFC/PIB format may also be kept in view while Preparing the DPR.
O.M.No.1(2)-PF II/03, dt.7th May, 2003.
(xvii) List any major assumptions or pre-conditions on which the project is based (for example, these
could include other projects proceeding, the private sector taking certain action, considerations relating
to Government Policy).

APPENDIX – 1.6.8
Statutes Central Agency Enforcement Agency

Ministry of Labour (MoL)
Factories Act 1948 DGFASLI State Factory
Inspectorate
Dock Workers (Safety, Health & Welfare) Act, 1986 DGFASLI DGFASLI
Mines Act 1952 DGMS DGMS
Building and other Construction Workers Chief Labour State Labour Dept.
Commissioner
Employees State Insurance Act 1948 ESIC ESIC
Ministry of Environment and Forests (MoEF)
Environment Protection Act 1986 CPCB SPCB
Environment Protection Rules 1986 CPCB SPCB
Manufacturing, Storage & Import of Hazardous CPCB SPCB, CCIE, CIF, CID,
Chemicals Rules 1989 CIM, AERB, CCE,
District Collector, CEES,
DRDO
Hazardous Wastes (Management & Handling) Rules, MoEF
1989
Chemical Accident (Emergency Planning, Preparedness
& Response) Rules 1996.
Public Liability Insurance Act, 1991 MoEF District Collector
Bio medical Waste (Management & Handling Rules CPCB SPCB
1998)
Notification of Requirement of Environment Clearance MoEF
of Project, 2006
Ministry of Industry (MoI)
The Indian Explosives Act, 1984 Chief Controller of CCE
Explosives (CCE)
The Indian Explosive Rule 1983
Static & Mobile Pressure Vessel (unfired) Rules, 1981
The Gas cylinder Act, 1934
The Petroleum Act, 1934
The Petroleum Rules,1976
The Boiler Act, 1923 Central Boiler Board States Boiler
Inspectorate
124 124
Acronyms
DGFASLI Directorate General of Factory Advice Service & Labour Institutes
DGMS Directorate General of Mine Safety
ESIC Employee State Insurance Corporation
CPCB Central Pollution Control Board
SPCB State Pollution Control Board
MoEF Ministry of Environment & Forests (Govt. of India)
CIF Chief Inspector of factories (State Government)
CCIE Chief controller Imports & Exports
CIDS Chief Inspector of Dock Safety
CIM Chief Inspector of Mines
CCE Chief Controller of Explosives
AERB Atomic Energy Regulatory Board
CEES Centre for Environment and explosives Safety
DRDO Defence Research and Development Organisation

APPENDIX – 1.6.10
SECTORAL CHECKLISTS
1.0 SOCIAL AND COMMUNITY DEVELOPMENT SECTORS
1(a) EDUCATION AND HUMAN RESOURCE DEVELOPMENT
1. GENERAL
1.1 Objectives
• Specific objectives of the project
1.2 Sectoral Linkages

• Does the project have any impact on, or implications for, activities in other sectors,
commercial and industrial development, tourism development, youth and social welfare.
• How have these been taken into account
• Relation of project to national education development policy and the education sectoral
plans
• Relationship to the national manpower plan
• Relation of project to regional development plans
2. PROJECT DESCRIPTION AND INPUTS
2.1 Physical Aspects
• Nature of the project; primary. Secondary, technical or vocational
• Background project data on catchment population (national, regional or district)
• school-age population
• current numbers of students at different levels of education
• teachers, pupil/teacher ratio
• average distances traveled to school etc.
• Description of project in terms of education programme and in terms of the specific
national/provincial context.
1.2 Technical Aspects

• Details of the project components
o classrooms and facilities
o equipment and teaching materials, any specialist requirements for equipment or
facilities
• Provision of inputs
o capital investment
o recurrent inputs, teaching aids and materials
• Supply of teachers
• will teachers be available in sufficient quantity and quality for this project
• improved conditions of service or housing
• improved career structure
• Physical facilities
126 126
• could the objectives of the project be met through more effective utilization of the existing
facilities, with modifications or improvement perhaps
• greater utilization of existing school buildings/classrooms
• shift to neighbouring schools with excess supply
2. MARKET AND OUTPUTS

• Forecasts of school-age population, (or other student type), in catchments area by age and
sex:
• demand for educational infrastructure, teachers etc, given standard education sector key
parameter ratios (e.g. classroom space per student, teacher student ratio etc.)
• Manpower planning and labour market studies
o trends in relative wages, unfilled vacancies, the “educated unemployed”, likelihood of
emigration etc.
• impact on policies for youth employment
• role of women in development
4. FINANCING
(see detailed cost schedule at Figure 2)
• Capital costs by major works category, phased over construction period
• Recurrent costs – school maintenance, (who is responsible), teacher salaries, educational
supplies; has adequate budgetary provision been made or arranged
• Is this the most cost-effective of the technical alternatives
• How do key cost parameters (e.g. cost per square foot of classroom, cost per student)
compare with elsewhere and why the difference
• Any proposals for cost recovery
° school fees
° what revenue flows can be expected
5. ECONOMIC AND SOCIAL JUSTIFICATION

• Consideration of improvements in the quantity and quality of education that will result from
this project
• Any cost economies achieved in comparison with present methods/situation
• Long term benefits to students – e.g. expectations of higher pay
• Will the output of educated students be beneficial to society, or could it be destabilizing. If
students emigrate, will they remit part of their earnings back into the economy.
• Does the project have any special focus on women, youth or other disadvantaged groups.
6. MANAGEMENT
• Is this project coherent with the overall manpower planning perspective of the Ministry of
Education, the Ministry of Employment or the Ministry of Youth and Sport, the Department
of Social Welfare.
• Will there be any requirement for specialist teachers
° technical assistance requirements from overseas
° what plans for teacher training

1(b) HEALTH AND MEDICAL SERVICES
1. GENERAL
1.1 Objectives

• Does the project have any impact on, or implications for activities in other sectors, training
needs, infrastructure and utilities.
° how have these been taken into account
• Relation of project to national health development policy and the health and social welfare
services sectoral plans
o emphasis on preventative or curative services
o relationship to primary health care programme

• Description of project in terms of the overall health development programme and in terms
of the specific regional context
o primary health care or family planning
o institutional strengthening or facilities
• Is this project seen as an intermediate stage to further upgrading of medical center facilities
– e.g. from a rural clinic to a rural medical center to a regional hospital
• Background project data on catchment population (geographic and age distribution)
o state of health of population (statistics available)
o any particular disease pertinent to area/region
o current health facilities in area/region
o present system and availability of health care
o what are the main courses of morbidity at present

• Consideration of alternatives
o is the upgrading of existing facilities technically feasible
o is the proposed design appropriate to the size of population to be served and the
treatment facilities to be offered.
• Provision of inputs especially the recurrent costs of drugs, materials and equipment
o are the supplies assured
• Supply of medical personnel
o staff availability
local or expatriate
housing
128 128

• Forecasts or catchment population, hence demand for health infrastructure, given
standards health sector key parameter ratios (e.g. hospital beds per 1,000 capita, bed
occupancy rate, average length per patient stay)
• Demand for final product i.e. a healthier population
o is the project area especially poorly served in health services
o are services presently absent completely or just inadequate for the population being
served
o how do the people get access to medical care
o any other pertinent factors affecting the demand for medical care
• infant mortality rates
• malnutrition
• Given the above demand factors is the project justified
• could existing facilities suffice with some improvements or modifications or simple
upgrading of existing facilities
• could the target patients be referred to neighbouring health centers
4. FINANCING
• Capital costs by major works category, phased over the construction period
• Recurrent costs, is there sufficient budgetary provision for:
o building and equipment maintenance
o personnel costs
o medical supplies
• Is the project proposed the most cost-effective of the technical alternatives
o how do key cost parameters (e.g. cost per square foot of medical center, cost per bed)
compare with elsewhere and why the difference
• Are there any prospects for cost recovery (medical fees)
o what (if any) revenue flows can be expected

• Consideration of the improvement in the quality of health that will result from this project
(do not try to quantify this in terms of man-hours saved from reduced absence from work,
but note any special productivity impact, e.g. benefits to agriculture, education etc.)
• Any cost economies achieved in comparison with present methods/situation
o to the target socio-economic group
o to other groups in the country
6. MANAGEMENT
• Is this project consistent with the overall manpower planning programme of the Ministry of
Health and other related agencies e.g. Department of Social Welfare
o can they cope with the new demands
• Will there be disruption to medical services during the construction or implementation
phase of the project
o What plans are there to minimize this?
• Will there be a requirement for specialist medical personnel

o technical assistance requirements from overseas

o what plans for training local counterparts
2.0 ECONOMIC SECTORS
2(a) AGRICULTURE
1. GENERAL
1.1 Objectives

• Does the project have any impact on, or implications for, activities in other sectors
• processing or industrial development
• land or sea transport for getting produce to market
• development of credit facilities and institutions
• how have these been taken into account
• Relation of project to national agricultural development policy and strategies, including
diversification, research, extension and training
2. Project Description and Inputs

• nature of the project; diversification, new varieties, improved technology
• location
o Description of project area
• topography, climate, geology, hydrology, soil surveys, land classification, drainage
conditions, land use, water useage, farm size, land tenure, farm ownership, agricultural
processing
• Other related development activities in the area
o what are their outputs
o is a local marketing network in existence
o are local storage or processing facilities available
o What type and size of farmer is the project aimed at
o smallholders
o nuclear estates
o cooperatives
o subsistence farmers
o Principal crops/livestock to be promoted
o are these new or do the farmers already have experience of the proposed
crops/livestock
o inputs required
o yields
o gross margins
o training and extension activities required
130 130
o availability of land
o results of any surveys in the project area to support proposal
• Other sociological factors to be considered
• Environmental implications
3. Market and Outputs

• Raw product or processed
• Where is the intended market
o domestic (local or distant urban center)
o export (direct or transshipped through main port)
• Price projections
o to the farmer
o the final consumer
• Any subsides or price support systems proposed
• Sensitivity of project to price or output variations
4. Input Costs
5. Management
• research and development support
• extension activities
• training programmes
• supply of seeds, fertilizers etc
• supply of marketing information
6. Benefits
• quantify expected increases in farm incomes
• distribution of benefits
• impact on target group
SPECIFIC ITEMS FOR INDIVIDUAL SUB SECTORAL PROJECTS
1. RESEARCH PROJECTS
• Specific objectives of the research programme
• Is the research aimed at overcoming a specific problem
o if so what
o if not what are its practical applications
• What is the institutional structure of the research programme
• how dependent is it on external technical assistance
• what are the arrangements for the transfer of technology to local staff
• How is the research linked to extension activities?
• How will the research be turned into practically oriented farmer development programmes
• What are the linkages to the marketing system

2. EXTENSION SERVICES AND TRAINING PROGRAMMES

• What are the objectives for the extension project
• Organisational structure of the extension programme
o number of extension officers
o ratio to farmers served
o training programmes for both extension officers and farmers
o linkages with research
o arrangements for translation research results into extension programmes
• Linkages with credit and marketing organisations
• How will the proposed project improve the extension services to farmers
o more frequent farm visits
o more training courses
• Impact of extension project on production costs
o to what extent will the project help farmers increase their gross margins
• How does the project link cost the overall agricultural development
• programme
• Does the project have any specific components related to women and/or nutrition
• Are there linkages with local community groups
3. LIVESTOCK PROJECTS
• What are the specific objectives of the project
• Is the project technically sound
- for livestock projects, is there evidence to support the claims for survival
rates, mortality and weight gains
• Does the project require the application of new techniques of husbandry
- what are they
- are they acceptable to farmers
- what training will there be
- are extension, veterinary and other supporting services available.
• is local feed suitable and available
• does the project require a high level of capital investment in equipment and facilities
• are the skills available for operation maintenance
- Outputs and marketing
• Is the product aimed at meeting domestic or export markets
• Is the demand for the product already established
• How is it presently satisfied
• Where will the demand for the projects output be generated
• How will quality control be maintained
• Is any processing required
• What are the price projections for the output; on what are they based.
o How will the project be marketed?
o Are transport and storage facilities adequate?
o What are the financial returns to the farmers?
132 132
o Institutional structure for the project

smallholders
estates
o Social impact
will the project require changes to the social attitude towards the particular
animal.
• will such changes be acceptable and sustainable
• is there adequate land/space within the project area for the required number of livestock
• Are there any environmental considerations
• Economic considerations
• have realistic estimates been made for the financial returns to the farmer
• price and market projections
• input costs
o local
o foreign
• does the project require market protection or subsidies
o if so why
o for how long
o at what level
• Is the project of economic benefit to the country
• if it requires protection or subsidies why go ahead with it
4. AGRICULTURAL CREDIT
• Who are the target group of borrower
o smallholders
o subsistence farmers
o large commercial farmers
o cooperatives
o Why is the project needed
o What are the institutional arrangements for the administration of the loans.
• which agency is to administer the loans
• does the credit institution provide extension and advisory services to borrowers
o What is the estimated average loan size expected to be
• rate of interest charged repayment term
• are these standard or can they vary according to the nature of the project
• will the loans be primarily for capital as recurrent costs
• will the project to be financed by the loan be able to cover the repayments immediately or
is there a lead time or grace period before the particular project generates income
• is the repayment linked to output and marketing arrangements
• what is the expected proportion of bad debts
• how does this compare with other loans.

2(b) FISHERIES
1. GENERAL
1.1 Objectives

• Does the project have any impact on, or implications for, activities in other sectors
o processing or industrial development, e.g. refrigeration or freezing facilities for holding
catch for collection
o land or sea transport for getting catch to market
o availability of credit facilities and institutions to assist in the development of the sector
o how have these been taken into account
• Relation of project to national fisheries development policy and the fisheries and marine
resources sectoral plans, including research, extension and training
2. Project Description and Inputs
• location
o Description of project area
o inshore reefs, sea-mounts, water depths, deep-water fishing, wharves and jetties,
fisheries processing and holding capacity
• Other related development activities in the area
• what are their outputs
• is a local marketing network in existence
• are local refrigerated storage or processing facilities available
• What type and size of fisherman is the project aimed at
o artisanal fishermen
o community based enterprises
o cooperatives
o subsistence fishermen
• Principal fish or marine resource species to be caught
• are these new or do the fishermen already have experience of the required catching
techniques
• inputs required
• yields/catch per unit effort
• maximum sustainable yields
• gross margins
• training and extension activities required
• results of any surveys in the project area to support proposal
o Other sociological factors to be considered
o Environmental implications, depletion of resources etc.
134 134
3. Market and Outputs

• Raw product or processed
• Where is the intended market
• domestic (local or distant urban center)
• export (direct or transshipped through main port)
Price projections
• to the fishermen
• the final consumer
• Any subsides or price support systems proposed
• Sensitivity of project to price or output variations
4. Input Costs
5. Management
• research and development support
• extension activities
• training programmes
• supply of boats, engines and fishing gear etc.
• supply of marketing information
6. Benefits
• identify as clearly and quantitatively as possible
• distribution of benefits
• impact of target group
SPECIFIC ITEMS FOR INDIVIDUAL SUB SECTORAL PROJECTS
1. RESEARCH PROJECTS
• Specific objectives of the research programme
• Is the research aimed at overcoming a specific problem
• if so what
• if not what are its practical applications
• What is the institutional structure of the research programme
• how dependent is it on external technical assistance
• what are the arrangements for the transfer of technology to local staff
• How is the research linked to extension activities?
• How will the research be turned into practically oriented fishermen development
programmes
2. EXTENSION SERVICES AND TRAINING PROGRAMMES

• What are the objectives for the extension project
• Organizational structure of the extension programme

• number of extension officers

• ratio to fishermen served
• training programmes for both extension officers and fishermen
• linkages with research
• arrangements for translation research results into extension programmes
• Linkages with credit and marketing organisations
• How will the proposed project improve the extension services to fishermen
• more frequent visits by extension staff to the fishing villages
• more training courses
• Impact of extension project on production costs
• to what extent will the project help fishermen increase their gross margins
• How does the project link cost the overall fisheries and marine resources development
programme
• Does the project have any specific components related to women and/or nutrition
• Are there any linkages with local community groups
3. AQUACULTURE PROJECTS
• Outputs and marketing
• Is the product aimed at meeting domestic or export markets
• Is the demand for the product already established
• How is it presently satisfied
• Where will the demand for the projects output be generated
• How will quality control be maintained
• Is any processing required
• What are the price projections for the output; on what are they based.
• How will the product be marketed
• Are transport and storage facilities adequate
• What are the financial returns to the fishermen or aquaculture farmers
• Institutional structure for the project
• artisanal fishermen
• community based enterprises
• cooperatives
• Is the project technically sound
• for aquaculture projects, is there evidence to support the claims for survival rates, mortality
and weight gains for the particular species
• does the project require the application of new techniques of culture
o what are they
o are they acceptable to the project sponsors
o what training will there be
o are extension, and other supporting services available.
• is local feed suitable and available
136 136
• does the project require a high level of capital investment in equipment and facilities
• are the skills available for operation and maintenance
• Social impact
• will the project require any changes to social attitudes
• will such changes be acceptable and sustainable
• Are there any environmental considerations
• Economic considerations
• have realistic estimates been made for the financial returns to the fishermen or aquaculture
farmer
• price and market projections
• input costs
o local
o foreign
• does the project require market protection or subsidies
o if so why
o for how long
o at what level
• Is the project of economic benefit to the country?
• if it requires protection or subsidies why go ahead with it.
4. FISHERIES CREDIT
• Who are the target group of borrower
o artisanal fishermen
o subsistence fishermen
o large commercial fishermen
o cooperatives
• Why is the project needed
o What are the institutional arrangements for the administration of the loans
• which agency is to administer the loans
• does the credit institution provide extension and advisory services to borrowers
• What is the estimated average loan size expected to be
o rate of interest charged repayment term
o are these standard or can they vary according to the nature of the project
o will the loans be primarily for capital as recurrent costs
o will the project to be financed by the loan be able to cover the repayments
immediately or is there a lead time or grace period before the particular project
generates income.
o is the repayment linked to output and marketing arrangements
o what is the expected proportion of bad debts.
° how does this compare with other loans.

2(c) FORESTRY
1. GENERAL
1.1 Objectives

• Does the project have any impact on, or implications for, activities in other sectors, e.g.
infrastructure and transport requirements to serve a new plantation area, industrial
development for saw-milling, furniture manufacturing etc.
• Relation of project to national forestry policy and forestry sector action plan

• Description of physical and geographical aspects of project, including map of location
• Description of major purpose
o exploitation of natural forest, afforestation or reafforestation
o native land, plantation or government land
o to supply an existing or proposed wood processing industry

• Description of project area
o land ownership, present land use, rights of use,
o existing infrastructure, topography, soils, maps, climate etc.
• Description of silviculture
o existing vegetation, arrangements for site clearing (manual/mechanical)
o species and provenances of seed
o supplies of planting stock
o other inputs
o rotation length, length of thinning cycle, volume of timber per thinning per hectare
o necessity of pruning
o projected mean annual increment (mail)
o projected harvesting volumes
• Utilisation tests on timber from species trials
• markets for first thinnings
• Protection against erosion, fungus, insects, cyclones
• Volume and type of transport required
• shipping or air links to project area
• Infrastructure requirements
• roads, buildings, housing and services
138 138
• What are the environmental implications of the project, erosion, land degradation, pollution
of rivers

• Present areas under cultivation and under production, yields (cubic metres/hectare) of
timber by type/grade, total production
• Domestic consumption and exports by type/grade over last ten years
• For a harvesting project identify the prices of the timber product in the domestic

• Description of physical and geographical aspects of project, including map of location
• Description of major purpose
o exploitation of natural forest, afforestation or re-afforestation
• native land, plantation or government land
• to supply an existing or proposed wood processing industry

• Description of project area
• land ownership, present land use, rights of use,
• existing infrastructure, topography, soils, maps, climate etc.
• Description of silviculture
• existing vegetation, arrangements for site clearing (manual/mechanical)
• species and provenances of seed
• supplies of planting stock
• other inputs
• rotation length, length of thinning cycle, volume of timber per thinning per hectare
• necessity of pruning
• projected mean annual increment (mai)
• projected harvesting volumes
• Utilisation tests on timber from species trials
• markets for first thinnings
• Protection against erosion, fungus, insects, cyclones
• Volume and type of transport required
• shipping or air links to project area
• Infrastructure requirements
o roads, buildings, housing and services
• What are the environmental implications of the project, erosion, land degradation, pollution
of rivers

• Present areas under cultivation and under production, yields (cubic metres/hectare) of
timber by type/grade, total production

• Domestic consumption and exports by type/grade over last ten years

• For a harvesting project identify the prices of the timber product in the domestic and
international markets over the last ten years
• For a plantation project provide supporting evidence that the timber products will find a
market at the expected date of harvesting
• Forecasts of future prices
• does the project itself have an impact on the likely future price
• Forecasts of world market prices (IBRD) commodity forecasts) over lifetime of project
• Arrangements for storing, shipping and marketing timber overseas
• Plans for local milling –saw, ply, pulp etc.
3. FINANCING
(see detailed schedule for estimating costs at Figure 2)
• Capital costs by major works category e.g. site clearance, fencing, planting, infrastructure,
plant and equipment plus working capital, phased over the implementation period.
• Maintenance and operational costs of works
• Unit costs (per hectare) of site clearance, fencing, planting, replacement of failed stands,
weed control, pruning, logging, extraction
• Costs of providing alternative grazing, arable or fuelwood areas for local inhabitants who
lose their traditional rights to the project areas
• Revenues to administering authority, financial analysis
• Nature of funding to cover development or plantation activities
• Sensitivity of analysis to alternative forecasts of yield, costs and, especially, long term prices
• Revenues to government (and/or landowners) in terms of royalties from timber concession
agreements
• Costs incurred by government, government cash flow.

• Border prices and forecasts of timber outputs and required inputs (e.g. fertilizer) – use IBRD
commodity price forecasts
• Economic analysis, with economic valuation of all costs incurred by government and by the
administering authority, and benefits from economic valuation of timber output
• Sensitivity of analysis to yield and price forecasts
• Indirect costs (e.g. opportunity cost of land in terms of alternative land use, especially
agriculture and pasture) and benefits (tourism, soil conservation etc).
6. MANAGEMENT
• What are the institutional arrangements for the project
• Statutory body, Ministry of Forests or commercial joint venture.
2(d) INDUSTRY AND INDUSTRIAL ESTATES

1. GENERAL
1.1 Objectives
140 140
infrastructure, housing and transport requirements to serve a new industrial area or
venture.
• how have these been taken into account
• Relation of project to national industrial development policy and industry sectoral plan

• For an Industry project give a description of the plant and the specifications of the quantity
and nature of the output.
• For an Industrial Estate Development give a description of the estate, services to be
provided and factory units and offices to be erected.
• Map showing location of project in relation to sources of raw materials, transport network,
market outlets, population centers, existing utilities.

• How appropriate is the technology proposed to the context, have alternatives been
considered
• Analysis of inputs
o source of raw materials, is supply sufficient, regular, at right price
o transfer and storage
• Considerations of use of second hand plant
• Supervision of construction and plant installation
• Commissioning and initial operations
o provision of operator training
• Acquisition of land
o is project compatible with local by-laws, planning regulations and environmental
legislation
• have site development and site service funds been secured
• Location of industry or estate, has an evaluation of alternatives been made
o near source of raw materials if large element in costs or if much waste material is
generated during processing (e.g. mineral refining, timber products, processing of
perishable crops)
o near market outlet for industries that add weight (e.g. mineral refining, timber products,
processing of perishable crops)
o near labour source if labour intensive (e.g. garment manufacturer)
• Requirement for external skills and management
• what is training programme

• Demand determinants – per capita income, population etc
• Past and present demand (for product or for units within existing industrial estate)
• local and foreign

• results of any market surveys

• is there expected to be a request for protection against imports, is there an economic
justification for this
• price sensitivity
• Future demand projections
• with or without import protection
• price assumptions
• Existing and planned future supply
• with or without project
• role of project in demand/supply gap
• Length of time needed for project to reach full working capacity
• Marketing considerations
• competitiveness in terms of price, quality, supply
• marketing strategy
• Sales forecasts
• Rentals for units within the estate
4. FINANCING
(See detailed schedule for estimating costs at Figure 2)
• Capital costs by major works category, phased over implementation period
• Working capital requirements
• depending on the nature of the business these could be up to six months of operating costs
• Operational costs as production builds up to full capacity
• Financial analysis, sensitivity analysis, prospects for maintenance of liquidity
• Where foreign partner is involved, what are terms of involvement (equity, management
contract, royalties) Restrictive conditions (e.g. exports, sources of new technology,
suppliers, repatriation of fees and profits)
• What official incentives, subsidies, or protection is available
o for how long will these be required
o when will output become internationally competitive
• What are the effects on government budget
o loss of import duty
o cost of financial incentives and allowances, equity participation, loan servicing,
recurrent subsidies etc.
o Government cash flow.

• If the data is available a revaluation should be made of all project tradeable inputs and
outputs into border prices and all non-tradeables into shadow prices to determine whether
the project products an acceptable economic as well as financial rate of return.
• Sensitivity of the financial and economic analysis to cost, output and price fluctuations in
particular
• What are the indirect costs and benefits
o impact on other firms
• linkages with suppliers
142 142
• Distribution of benefits
o impact on target socio-economic groups
• Balance of payments implications
6. MANAGEMENT
• If project is expansion of existing industry or industrial estate, what is the record to date of
operations
• If foreign partner involved, what are the arrangements for transfer of technical know-
how/training
• Prospects for attracting good labour at wages offered
• labour relations record
• Institutional arrangements for the management of the estate
2(e) TOURISM
1. GENERAL
1.1 Objectives

• Does the project have any impact on, or implications for, activities in other sectors, eg.
Infrastructure, housing and transport requirements to serve a new tourism development
area or venture, commercial development potential for secondary activities.
- how have these been taken into account
• Relation of project to national tourism develoment policy and tourism sectoral plan
• Relation of project to regional development plans, will the project assist in distributing the
benefits of tourism development to new areas

• Description tourism project and identify output
o hotel, resort, airport/port improvement, tourist, transportation, cultural event etc.
o secondary activities
• Physical plan (zoning) and policies for tourism
• Role of project
• involvement of visitors bureau
• international and domestic airline carrying capacities for tourism
• Location of project, maps
• reasons for location and suitability
• availability of land
• Origin of project proposal
• from private sector
• has a feasibility study been carried out
o is it objective and realistic

o has it been properly appraised

• any local or foreign groups likely to gain disproportionate benefits

• Consideration of technical alternatives
• size of project (e.g. number of rooms), location, design (modern or ‘local’ style etc)
• Associated infrastructure requirements
• improvements to beaches, construction of marinas, roads, water, sewerage, electricity etc.’
• Supply of inputs
• local availability of building materials, furnishings
• Availability of labour
• local staff and technical assistance
• training programmes required

• Past and present trends in tourism, likely future growth
o identification of demand determinants and bottlenecks
o type of tourists (high income, back-packers, selective e.g. diving or mass e.g. cruise
ships)
o sensitivity of tourists to prices (especially exchange rates), politics and health
• Existing and future supply and competitors
• price/quality vis-à-vis competitors
• price/quality vis-à-vis competitors
• sufficient demand to satisfy all supply outlets, or will project have to poach demand from
existing ventures
• marketing strategy
• Fiji Visitors Bureau presence/agents in countries of origin
• Seasonal pattern of tourist arrivals and implications
• Impact of forecast trends in air routes and fares
4. FINANCING
• Capital costs by major works category e.g. land, compensation, building, furnishings and
fittings, infrastructure, amenities etc, plus working capital, phased over implementation
period.
• Analysis of costs per room for international comparison
• Operation and maintenance costs
• Sales forecasts, financial analysis
• Sensitivity of analysis to fluctuations in rooms sold, revenues per room sold (discounts etc),
build-up of full capacity operations/optimal occupancy rates.
• Analysis of local purchases, can these be increased so as to retain more of the foreign
exchange earnings in the country.
• Local multiplier effects
144 144

• Identify foreign tourist element in total sales
• here are they from
• what is average length or stay per foreign tourists
• Tourist expenditure outside hotel on food and drink, travel, handicraft purchases etc.
o basis of estimates
o estimate of import content
• Government revenue generation directly through accommodation tax, airport tax etc, basis
of estimates
• Indirect costs and benefits to be identified
• Sensitivity of analysis to tourist arrivals and expenditure per tourist
• Distribution of benefits between local and foreign partners
• Impact of project on international and other domestic air services, also on road transport
carriers
• Adverse impact on other sectors e.g. loss of labour to agriculture
• Employment generation
• directly within hotel, indirectly in ancillary services and in construction
• Balance of payments net effect
• Social, environmental and cultural impact on location area
• attitudes of local people to tourism/mass tourism
• extent of local participation in project, especially from neighbouring
• villages
• impact on local fishing rights and coastal areas
6. MANAGEMENT
• Involvement of foreign partners, foreign travel agencies, foreign airlines
• nature of local participation
• is getting a fair return for the value of the inputs
o Requirement for foreigners to take managerial and specialist positions in project
o arrangements for training/eventual replacement by nationals
• Labour relations
• high proportion of female staff
• staff amenities/housing
3.0 INFRASTRUCTURE AND UTILITIES SECTORS
3(a) ROAD AND BRIDGES
1. GENERAL
1.1 Objectives
• Specific objective of the project

opening new agricultural areas or providing access to other development projects,
improving access to catchment areas for schools or health facilities.
• How have these been taken into account.
• Relation of project to national transport development policy and road transport sectoral
plan.
• Relation of project to regional development plans.

• Physical and geographical characteristics of area.
• Relevant features of terrain, relief, drainage, soil, rocks.
• Climate, Vegetation
• Major economic activities.
• Population distribution in catchment area, trend growth, occupational distribution.
• Map showing location of project in relation to population centres and to transport network.
• The extent to which the absence/insufficient design of the road is a constraint on economic
growth in the area.
• The road/bridge in relation to the existing transport system in the area, including roads,
coastal river, air networks, and to other transport investments taking place or planned.
• Present distribution of traffic among the various types of transportation in the area.
o Results of any traffic surveys.
o Vehicle fleet, size and composition over last few years.
• Relevant features of Government transport policy.
• Organization of road transport sector in area.
o Relative availability of vehicles (Private, Public, commercial etc.), operating
personnel, fuel, servicing etc.
o Have technical alternatives been explored?
2.2 Technical aspects
• Nature of project (New road or bridge, upgrading, repair and rehabilitation, maintenance,
bridge etc.)
• Design features: pavement width, design speed, pavement strength, materials, high or low
level structure.
• Strength and longevity: maximum axle load.
• Type and quantity of materials required.
o Volume of cut and fill.
o Local availability of gravel, sand, bitumen etc.
• Method of construction (degrees of mechanization, labour intensity etc.)
• Maintenance requirements and responsibilities.
• Environmental impact of new road, erosion from run-off, land slips where cuttings have
been made or flooding where there are embankments.
3. MARKET AND OUTUTS

• Volume (Annual Average Daily Traffic – AADT) of existing traffic (results of traffic surveys)
o Classified by vehicle type e.g. passenger car, pickup, bus, small truck or large truck.
146 146
o Origin/destination or journey motive information if available.

o Growth of traffic over last ten years for each major section of road.
o Projected growth of traffic with and without the new or improved road; assumption for
projections.
o Amount of diverted traffic (traffic that can be expected to divert from usage of other
roads of another transport mode e.g. from coastal shipping, to the project road once
built/upgraded) and projected growth.
o Amount of generated traffic (traffic that can be expected to develop as a direct
consequence of the new or improved road) and projected growth. (Generated traffic is
often overestimated in the appraisal of new roads. Forecasts can be very speculative
especially in relation to rural agricultural output. The aim should be to translate
relatively firm project prospects into demand for transport (in ton-kilometers). This
should be done on a without/with project basis.)
o Total traffic projections by vehicle type by road section. This is calculated as the sum of
existing traffic plus diverted traffic plus diverted traffic plus one half of generated traffic
(for purposes of computation of economic benefits, only one half of the benefits of
generated traffic should be attributed to the road)
o Capability of existing road to handle traffic projections.
4. FINANCING
(See detailed sch1edule for estimating costs at figure 2)
• Capital costs per section, (including land acquisition where appropriate), phased over
construction period.
• Unit cost per kilometer
• Unit cost of major structures
• Domestic and offshore costs breakdown.
• Equipment/labour/materials breakdown.
• Recurrent costs
• Regular/periodic maintenance
• Future resurfacing and rehabilitation costs
• Comparison of unit costs with other roads.
• Cost effectiveness of road.
• Any evidence of over-design for given traffic projections
• Are there any direct financial revenues from the road.
o Additional licence fees, road taxes, duties etc.
o Financial analysis of the project.

• Vehicle operating Cost (VOC) savings in economic values by vehicle type on upgrading form
earth to coral or coral to sealed. Direct estimates, or adapted from elsewhere.
• Maintenance savings in theory, i.e. assuming maintenance is carried out as it should be and
in practice, i.e. assuming it will not be and that a sealed road will receive more of its due
maintenance than would a coral road.
• Time savings.
o Type of road user, average income, time saved, time savings (time savings should not
normally be counted in the benefits for rural road projects)

o Would time saved have been put to other productive uses (this is important for truck
operators)
o Assume value of leisure time nil and then at average income.
• Reduction in accidents from road improvement, (note that the sealing of roads thereby
raising the design speed, can sometimes lead to an increase in accidents.
• Induced benefits. Developments which are initiated as a result of the road, which would not
have occurred in the absence of the road, and which give rise to generated traffic, will have
had some economic benefits already included via vehicle operating cost savings. It might
also be appropriate to attribute some of the non-traffic benefits to the road projects e.g. If
agricultural development would not have been possible without the road, then a proportion
of the net farm out should be included as an economic benefit to the road. However, these
benefits must be taken at the net level i.e. net benefits should be taken to include all other
pertinent capital (land clearing, land preparation, equipment, vehicles, structures etc.) and
operational (labour, marketing, transportation, credit etc.) costs associated with that
agricultural development. The road may be only one of many constraints to the realization
of the agricultural potential of the area. In general, it is advisable to take only modest
assumptions for the net value added from new developments stimulated by road projects.
• Any indirect/external costs and benefits, e.g. environmental and social impact.
• In the economic analysis, test sensitivity to generated traffic/induced benefits assumptions,
construction cost variations
• Distribution of economic benefits.
o who are the principal beneficiaries.
o if truck owners, will the benefits be passed on to others through reduced freight
charges.
6. MANAGEMENT
• Capability of MIPU to handle road projects
• Supervision
• Record to date in construction and maintenance (vis-à-vis comparative costs with
contractors)
• Manpower capabilities.
• Arrangements for maintenance, budgetary provision.
3(b) SHIPPING & PORTS
1. GENERAL
1.1 Objectives
• Specific objectives of the project.
opening new agricultural areas or providing access to other development projects,
relationship to other road or airport developments.
• how have these been taken into account.
• Relation of project to national transport development policy and the marine transport
sectoral plan.
148 148

• Description of the area to be served by the wharf, population, agriculture, forestry, tourism,
industry etc.
• Linkages of the wharf in relation to the system of transportation in the general area: other
wharves, airports, roads, rivers etc.
• Map showing location of wharf in relation to the regional transportation network.
• The extent to which the lack of the wharf represents a constraint on regional economic
growth.
• Major physical characteristics of proposed new wharf or improvements to existing structure.
• Outline of proposed engineering and construction woks.
• Ancillary construction.
o Filling/leveling, storage, warehouses, administration, navigation aids, water supply,
roads.
o Effect of foreseeable technical progress on or fleet development project e.g. size of
ships, types of cargo handling.
3.1 Past and Present Traffic

• Tonnages of cargo from existing wharf over last ten years by commodity type and
origin/destination (if data available from PAF etc.)
• Tonnages of cargo through wharves, loaded, discharged, transshipped, entering/leaving port
by what means of transport.
• Number of ships arriving at/departing from existing wharf in last ten years, vessel waiting
time.
• Number of passengers.
3.2 Future Traffic

• Forecasts (20 Years) by major commodity or commodity grouping
o Basis of forecasts, sectoral projections for outward cargo/exports e.g. copra, cocoa etc.
o Conversion of commodity forecasts to cargo forecasts by type of cargo.
o Frequency of vessels required to handle forecast passenger and cargo throughput.
• Assessment of the extent to which forecasts of incremental demand can be met though
operational, e.g. more frequent calls by small vessels, as opposed to infrastructural,
solutions.
4. FINANCING
• Capital costs by major works category, phased over construction period.
• Land and compensation, civil engineering, channel clearance, mechanical and electrical
equipment, design and supervision fees etc.
• Local and offshore costs breakdown.
• Equipment, labour and materials.
• Recurrent costs.

o maintenance of infrastructure.
o incremental wharf operations
o recurrent channel clearance
• Revenues arising from the wharf, dues on ships, cargoes, goods etc directly attributable to
project, any increase in charges necessary.
• Any reduction in cargo handling costs likely as a result of the project: ease of handling and
reduction in loss and damage.
• Financial analysis of investment to port authority (if responsible)

For small island wharf projects, many of the following benefits may be difficult to quantify but it
is useful to consider to what extent these considerations are applicable to island wharf projects.
Economic appraisal of a wharf project should incorporate some market analysis and cost
effectiveness analysis, if the project is for the replacement of an existing dilapidated wharf
facility, then the appraisal must include an assessment of the likely change in demand for wharf
use and in design techniques since the original wharf was built and, presumably, justified.
• Savings in ship waiting time costs as a result of reduced congestion.
• Savings in ship lay time costs as a result of improved cargo handling procedures.
• Savings in cargo-handling costs due to improved productivity.
• Savings in diversion costs now that cargoes, formerly diverted through neighboring wharves
or alternative transport systems, can pass through the new wharf.
• Savings in unit shipping costs due to economies of scale in shipping with improved port
facilities – e.g. through use of larger, more heavily laden and more efficient ships.
• Induced benefits to agricultural and other production in area served by facility net of
requisite incremental investment and operational costs.
• Benefits from generated traffic.
• In the economic analysis, test sensitivity to high and low commodity/cargo and passenger
traffic forecasts.
• Distribution of benefits.
o to local farmers etc or to shipowners
o probability of benefits being passed on by way of reduced freight charges to domestic
producers/consumers.
6. MANAGEMENT
• Is the PAF or the Marine Department to be responsible for the management and
maintenance of the facility.
• Feasibility of realizing productivity gains given actual labour situation at wharf.
3(c) AIRPORTS AND CIVIL AVIATION
1. GENERAL
1.1 Objectives
150 150

opening new tourism development areas or providing access to other development
projects, relationship to wharves or road developments
• Relation of project to national transport development policy and the civil aviation sectoral
plan

• Description of airport in relation to national air network and existing/ planned airports, with
map
• Description of airport in relation to the system of transportation in the area, including
wharves, roads, etc.
• Present distribution of traffic in the area or island amongst the various types of
transportation
• The extent to which the lack of an airport at the particular location represents a constraint
on regional economic growth
• Description of area to be served (physical and economic in relation to the demand for air
services)

• Ensure full documentation on:
o land availability
o mapping/lay-out plan/consideration of obstacles
o climatic factors
o geological factors
o demand influences on pavement design
o pilot reports on utilization of existing airport
o buildings and structures, eg terminal control tower
• Is the project justified by reference to ICAO standards or recommended practices. How
applicable are these to local circumstances
• Requirements for
o communications and navigation aids
o fire fighting equipment
o fuel storage facilities

The following questions need to be addressed in the context of whether the project is for the
construction of a new airport or whether it is to improve an existing facility. In the case of a new
airport the main considerations will relate to the proximity of population centres, schools,
tourist resorts or other economic activities likely to generate air traffic.
• Past and present levels of traffic, in terms of flights arrivals and departures, passenger
disembarkations and embarkations and freight landed and dispatched

o origin/destination patterns
o analysis of daily, weekly or seasonal patterns
• Projected future levels, with and without project, taking into account all possible transport
generating sources
• Availability of alternative transport sevices and relative costs
• Future size and type of aircraft to use airport.
• Existing capacity of airport and the ability to meet demand projections
• Relationship of expected fares to local per capita incomes
4. FINANCE
• Capital costs by major category of works, phased over construction period
• runway, taxiway, apron, terminal, fire-fighting equipment, airport approach aids,
navigational aids, night-landing facilities etc.
o local and offshore costs breakdown
o equipment, labour and materials
• Recurrent costs
o maintenance of infrastructure
o incremental airport operations
• Current and proposed airport charges
o landing fees, parking fees, air navigation charges for over flying aircraft, terminal rentals
etc.
o have airlines been consulted in any proposed fee increases
• Financial analysis – extent to which airline cost savings will be translated into airport
revenues as cost recovery
• Will the likely traffic volumes be sufficient to make the airport a commercial destination for
the airlines
o what will be the fares
• will these affect the likely volume of traffic

For small island or regional airstrips many of the following benefits may not be quantifiable and
the project may be determined on other considerations e.g. social or political. The formulation
and appraisal should still consider the forecast demand for and the cost effectiveness of the
project and also the project design to ensure it is appropriate to anticipated usage. Surface of
runway and apron (coral, even grass, strips should suffice in the majority of instances), length of
runway (check for minimum length requirement for type of aircraft expected) and flight path
proposals (check for plans to e.g. flatten hills, pull down trees or buildings etc) should be
checked
• Economics of scale to airlines through use of larger aircraft or the extension of the route
network.
• Savings in airline operating and maintenance costs
• Time savings to aircraft and crew
• Improved convenience for airlines and comfort for passengers
• Time savings for passengers
152 152
• Induced benefits, e.g. to international tourism (if net value added is to be included, then so
too must be the full costs of complementary investment)
• Opportunity costs of land utilized for airstrip e.g. for agricultural usage (this can be very
significant in some locations with scarce flat, fertile land)
• Economic analysis, with sensitivity to traffic projections
o likelihood of benefits being passed on to users (passengers and/or shippers)
6. MANAGEMENT
• Who is to be responsible for the operation, maintenance and administration of the facilities
• Is the airport management/manpower familiar with facilities proposed, or is special training
required
• Do the new facilities require more labour, or will they be labour saving.
3 (d) ENERGY AND POWER GENERATION
1. General
1.1 Objectives
• Specific objective of the project

• Does the project have any impact on, or implication for activities in other sectors et,
commercial or industrial development, availability of fuel storage, water supply, access to
remote areas.
o how have these been taken into account.
• Relation of project to national energy development policy and the energy and rural
electrification sectoral plans.
2. PROJECT DESRITPTION AND INPUTS

• Description of project and location in relation to electricity network.
• Relation of project to transportation system for providing energy source – e.g. fuel, water.
• Arrangements for transmission, map

• Consideration of alternative technical solutions to meeting the demand-supply gap
identified in the market analysis.
• Has a detailed feasibility study been undertaken and independently appraised.
• Consideration of:
o Hydro alternatives, mini or micro level as well as large scale projects.
o Diesel generating sets.
o Photovoltaic for rural locations.

• Choices of alternatives dependent therefore on:

o Capacity requirements
o Total discounted cost of providing unit of energy
o Base load or peak load requirement
o Availability and cost of fuel
o Ease of maintenance
o Duration of power requirement
o Availability of indigenous energy resources, (includes consideration of
hydrogeological and geological conditions at any proposed hydropower site)
• Choice of generator configuration, based on relative consideration of security of supply and
capital cost of additional generators
• Requirement for “firm” capacity (one generator down), the largest or the average
• Cost-effectiveness of all technical alternatives
• Availability of inputs
• fuel, water, maintenance, labour, distribution poles etc.
• Implementation schedule

• Recent trends in peek demand (kilowatts or megawatts) consumption (megawatt-
hours), ADMD (allowing for diversity, maximum demand) and load factor (actual
consumption divided by notional peak consumption represented by peak demand
multiplied by hours of supply)
• Breakdown of peak demand and consumption by type of consumer (industrial,
commercial, public, domestic, street lighting, powerhouse etc.)
• Projections of future peak demand and consumption, based on extrapolation or on
econometric study of demand components
• Assumptions in projections regarding future tariffs, including effects of future fuel prices
• Description of existing supply system
• The main elements for generation, transmission and distribution of power
• The contribution of private generating sources to total power supply
• Total capacity (allowing for derating of old plant) and firm capacity ( assuming largest
generator down)
• Number of households with power connections and percentage coverage
• Other plans for expending supply network
• Main constraints in present system
• Extent of power losses in system and potential for reduction
• Capability of existing supply system to handle demand projections
• Required incremental firm capacity to meet peak demand projection over forecast
period
• Schedule for ordering ( allowing for delivery and installation times) to avoid incidence of
power deficits
154 154
4. FINANCING
(See detailed schedule for estimating costs at figure 2)
• Capital costs of investment by major category of works, dams, tunnels, buildings,
housing and other facilities, access roads, transmission line etc, phased over
construction period.
• Incremental operating costs of generator, transmission and distribution, (any cost
savings, e.g. more efficient engines, less supervision required)
• Present tariffs and proposed changes
o are they adequate to cover financial outlays.
o are they, economic’ (i.e. based in long run marginal costs)
o will they rise with inflated costs.
• What is the tariff structure
• what are typical bills to consumer groups and how do these bills compare with incomes.
• what incentives are to be given for rural households for rural electrification.
o subsidized connection fees
o low fixed tariffs for minimum consumption
• forecast revenues and financial return on project
• liquidity forecasts for FEA relative to outstanding commitments and loan covenants.
• Requirement for subsidy
• Impact on fuel import costs.

• Benefits from improved quality of supply
o fewer power cuts, voltage reductions etc.
o stimulus to industry and commercial development
• Distribution of benefits, which consumers will benefit most
• Considerations of consumer surplus
• For rural electrification projects
• Valuation of economic benefits in terms of alternative costlier energy source foregone (e.g.
kerosene for lighting, wood for heating, diesel for cottage industries etc) for existing energy
usage and at 50% of savings for generated energy usage.
o Social and public benefits
o Environmental impact of hydropower schemes, dams, river flows, access roads,
flooding of dammed valleys etc.
6. MANAGEMENT
• Responsibility for management and operation of rural electrification projects
• Financial obligations of FEA in theory and in practice.
• Scope for improved revenue collection performance.
• Capability of maintenance operations and personnel.

3(e) TELECOMMUNICATION
1. GENERAL
1.1. Objectives

infrastructure, power or housing requirements, does it link with new education or health
institutions, emergency services or other developments
o How have these been taken into account
• Relation of project to national telecommunications development policy and sectoral plan

• Map showing location of project in relation to population centers, transport network,
existing utilities, health and education institutions and administrative centers

• Condition and capacity of existing facilities available at the proposed project location
• Type of telecommunications system or equipment prposed:
• Telephone, telefax, facsimile, satellite, microwave or HF radio
• How appropriate is the technology proposed to the context, have alternatives been
considered, power source
• Analysis of inputs
o Source of equipment, is it compatible with that already in service
o Maintenance and repair facilities
• Supervision of construction and plant installation
o Commissioning and initial operations
• Provision of operator training
• Acquisition of land
o Is project compatible with local by-laws, planning regulations and environmental
legislation
o Have site development and site service funds been secured
• Requirement for external skills and management
o What is training programme

• Demand determinates – per capita income, population, proximity, to administrative center
or other health or education institution or other economic activity
• Past and present demand for telecommunications services within the area
• Domestic or international traffic by type, eg telephone, telefax, facsimile etc
156 156
• Results of any customer serves

• Is the demand for telecuminations likely to be price sensitive at the project location
• Future demand projections
o With or without new equipment and services
o What is the basis for the projections
o Price assumption
• Length of the time needed for project to reach full working capacity
4. FINANCING
• Capital costs by major works and equipment category, phased over construction period
• Operational costs of the facilities and equipment
• Financial and sensitivity analysis based on traffic projections
• What official subsidies are available or required for the operation of uncommercial services
in the rural areas
o For low long will these be required
o When will demand for the services eliminate the need for subsidies
• What are the effects on Government’s budget
o Cost of financial incentives and allowances, equity participation, loan servicing,
recurrent subsidies etc
o Government cash flow.

• Will the improvement to telecommunications promote the development of other economic
activities in the area
o Effect on income generation and employment
• Sensitivity of the financial and economic analysis to cost, demand and price fluctuations in
particular
• What are the indirect costs and benefits
o Social impactions of improved telecommunications
o Education
o Health
o Expected benefits to regional administration
o Impact on socio – economic groups most likely to benefit from the services
6. MANAGEMENT
• Institutional arrangements for the management of the facilities
3 (f) WATER SUPPLIES AND SEWERAGE
GENERAL
Objectives

Sectoral Linkages
• Does the project have any impact on, or implications for, activities in other sectors e.g.
commercial or industrial development, housing, development of educational or health
facilities
o How have these been taken into account
• Relation of project to national water resources development policy and the water resources
sectoral plans

• Location maps showing
o Pumping stations and main distribution system
o Sewage outfalls and treatment plants

• What alternatives have been considered
• Different levels of services (e.g. public stand pipes vis-à-vis household tanks or village wells)
o Different sources of supply (preferably gravity fed piped system in rural areas)
• Alternatives of water quality
• To be potable directly or only after boiling
• Availability of water in sufficient volumes

• Past and present demand for water
o In terms of water consumed (liters per day)
o Water / sewerage disposal
o In comparable urban / rural location
o Special factors (e.g. climate, high waste, gardens,
o swimming pools etc)
• Household, industrial, commercial and institutional coverage at present
o Individual connections (%),
o Number of public stand – pipes
o Number of metered connections
• Evidence of present unsatisfied demand, people using contaminated natural sources in
absence of potable supplies
• Future demand projections and relation to past trends
o Demand determinates e.g. houses, population, incomes, industries etc.
• Existing supply sources, treatment, storage, distribution
• Capacities (public matters per day) of major components in water supply or sewerage
system, (e.g. pipes, treatment plant)
• Possibilities for reduction of system wastage, discouragement of superfluous consumption
• Demand for project to fill demand – supply gap
158 158
4. FINANCING
• Capital costs by major works category (reservoir, treatment plant, pipes, storage etc.),
phased over construction period
• Operational and maintenance costs
• Cost- effectiveness (i.e. present value of all capital and operating costs) in market prices of
this chosen alternative compared with others
• Cost recovery to water/ sewerage authority
o Any revision proposed in water/ sewerage charges
o Collection methods to be improved
• Recovery of installation and connect costs through such fees
• Required subsidy to authority from Government
• For rural water supply schemes will any revenue be generated and if so will the revenue
received be sufficient to cover normal operating and maintenance costs
o If not how are these costs to be met

• Benefits from water supply
• Convenience, health and productivity (time and energy saved from fetching water)
• Commercial and industrial benefits
• Benefits from sewerage
o Public health, amenity, financial savings from improved means of sewage disposal
• Environmental benefits from reduction in raw sewage discharge into inshore waters
6. MANAGEMENT
• Capacity of MIPU to administer extended system
• Scope for improving maintenance, collection etc aspects of management
• Is the proposed technology familiar?
o What technical assistance is required?
3 (g) HOUSING
1. GENERAL
1.1 Objectives

• Does the project have any impact on, or implications for, activities in other sectors, eg
requirements for education and health facilities in the housing areas, proximity to
employment centers, availability of transport facilities and public utilities?
o How have these been taken into account?
• Relation of project to national housing policy and the housing sectoral plan


• Background project data on population to be served, housing stock by type by income
group, materials used, rate of new construction in private and public sectors
o Target population, urban or rural low income
• Description of project in terms of housing programme and in terms of specific area context
o How many housing units and location
o How many residents are there expected to be, destiny of houses etc.
o Is the project providing institutional housing for teachers, medical staff etc.

• Consideration of alternatives
o Low, medium or high cost types of house
o Design and materials options
o Is the project for HA houses or site development and private construction?
• Availability of skilled building labour
o For rural housing is self / community help feasible
• Use of materials
o How to reduce costs
o Increase use of locally available materials
o Can local industry provided required fabrications
• Availability of site services, water, sewerage, electricity, schools, clinics etc
o Location of site
o Communications, proximity to work place
• Land amiability
o Alternative use and opportunity costs
o Land tenure proposals for purchasers
3. MARKET AND OUTPUT

• What is the intended output
o What kind of housing
o Low /high destiny
o Target population and income group
o Where are these people living at present
o Is the project aimed at providing tied housing for specific groups of workers e.g.
teachers, medical staff or police etc
o Is it linked to other developments
• What is the evidence for unsatisfied demand for this type of housing in this area
o Has the housing deficit been quantified
o Is there overcrowding or are the existing houses unsatisfactory
• Is there a demand for publicly built or assisted housing
• Given income distribution data and target socio – economic group, what proportion of total
income will be spent on this housing i.e. is the demand effective
160 160
• What plans are there for increased supply of housing without this project, at this or at
similar standards of housing (i.e. for similar income groups)
4. FINANCING
• Capital cost by major works category, phased over construction period
• Operating costs of upkeep and administration
• Cost effectiveness of project in relation to alternatives
• How to key cost parameters (e.g. cost per square foot, cost per household) compare with
elsewhere and why the difference
• Cost recovery plans
o Cost recovery is the key to the establishment of a revolving fund for the continuation of
the flow of finance for housing projects, the lower the cost recovery, the lower the
likelihood of further projects
o Is there an explicit subsidy, or is it implicit in the house price or credit terms
• Financial arrangements
• Rate or sale
o Sources of finance for purchase
• Loan repayment terms
o Fixed, or provisions for rent review, changes in interest rates etc
o Sales/ revenues projections
• Cash flow/ financial analysis to administering authority
o Sensitivity to cost increases and resultant rigidity in rent charges.

• Economic cost – effectiveness of project in relation to alternatives, valued in shadow prices
• Consideration of benefits
o Income to the authority plus consumer surplus, reflecting e.g. improvements to health,
services, savings in transport costs etc
• Indirect effects
o Employment impact, direct and indirect
o Linkages to other developments
o Will the target socio- economic group be reached
o How will this be guaranteed
6. MANAGEMENT
• Does HA have adequate management capacity for the project
• Strict monitoring of overheads by the administering authority
• Need for sufficient budgetary provision for upkeep of properties if they are to be
Government owned
• Are the rent collection and loan repayment procedures adequate.

Appendix 1.8
NOTE: The Project activity Coordinator and activity verifiers (Project Manager) need to be appropriately
selected, by relative evaluation on the basis of predefined selection criteria based on the project
complexity and their merits in handling the tasks.
SR ACTIVITY COMPLIANCE REMARKS
NO
YES NO RESPONSIBILITY AUTHORITY
I PROJECT CONCEPTUALIZATION
1. Does the background note Note: the person given the Note: the verifying
cover the entire environment responsibility of drafting authority shall be
of the project? the background note could an officer from top
9 Physical be an officer from middle or near top level
9 Social management be with management with
9 Cultural medium level experience intensive project
9 Climatic conditions experience
9 Security concerns
9 Political
2. Does the background note
provide relevant quantifying
data elucidating the
background?
3. Does the background note
clearly, and succinctly, establish
the problems, due to absence
of the project, and the
solutions the proposed project
has to offer?
4. Is the background note logical
and sequential in establishing
the background and subtly
leading to and eliciting interest
in detailed description of issues
involved?
II DETAILING OF ISSUES
5. Are the issues listed in
descending order of severity?
6. Do the details of each issue
logically and sequentially bring
out its severity?
7. Is each issue supported with
relevant quantifying data?
8. Is the listing of issues
exhaustive?
III PROJECT PROPOSAL
9. Does the proposal contain
multiple choices (alternatives)
for consideration of the project
owner?
10. Is each alternative supported
162 162

NO
with sound unit costs (tangible
and intangible) for
comparison?
11. Does each solution have
estimated completion period
for comparison?
12. Does each alternative provide
for solution of all issues?
13. Is the impact of each solution
on its total environment
evaluated?
14. Are the solutions provided in
the proposal exhaustive?
15. Does the project proposal note
contain tabulated and/or
pictorial comparison of relative
merits and demerits of each
solution?
16. Does the project proposal note
contain clear and separate
recommendations from the
owner and verifier?
IV PROJECT FORMULATION
17. Is the checklist an integral part Note: the authority
of the proposal note? here shall be the
project owner or
his representative
only
18. Is the compliance on each
preceding item on the checklist
a YES?
19. Is the owner satisfied with the
treatment given to background,
issues and proposal note?
20. Is the proposal note Note: in case the
unambiguous and sufficient to compliance is NO the
elicit the right decision? proposal note shall be
reverted to the owner and
verifier for necessary
review, with the project
owner recording clear cases
of dissatisfaction; the
process to be repeated till a
YES is recorded.
21. Is the approved alternative the Note: in case of the
BEST? compliance is NO; the
project owner to record the


NO
compulsions clearly for
future reference
V PROJECT APPROVAL – STAGE I – FEASIBILITY & VIABILITY
22. Has the approved solution
been dealt with sufficiently
greater detail to justify its
feasibility and viability?
23. Has the basis of unit rates
established in a sound manner?
24. Is the target time frame
realistic in respect of the
project environment and
complexity?
25. Are quality, quantity, time and
resource estimates included?
26. Is an activity network with
interrelationships in quality,
quantity, time and resource
included?
27. Does the Feasibility and
Viability report form a sound
basis for the Detailed Project
Report (DPR)?
VI PROJECT APPROVAL – STAGE II – DETAILED PROJECT REPORT
28. Does the DPR establish the
impact of the project on its
environment with current
relevance?
29. Has the Work Breakdown
Structure (WBS) for the entire
project included in the DPR?
30. Is the WBS designed in
accordance with the existing
and emerging norms and
techniques?
31. Are fully detailed quality,
quantity, time and resource
estimates included?
32. Is a detailed activity network
with interrelationships in
quality, quantity, time and
resource included?
33. Does the DPR contain a
detailed methodology for
project implementation?
9 Assumptions, norms and
basis for estimates
164 164

NO
9 Details of surveys and
investigations
9 Tendering process
breakdown, if any, the
program for each and
reasons thereof
9 Execution methodology
9 Technical closure method
9 Financial closure method
9 Project learning method
34. Are any reviews necessary in Note: in case the
any area of the DPR? compliance is NO the DPR
shall be reverted to the
owner and verifier for
necessary review, with the
project owner recording
clear cases of
dissatisfaction; the process
to be repeated till a YES is
recorded.
35. Is the approved DPR the BEST? Note: in case of the
compliance is NO; the
future reference
VII CONTRACT PROCESS FOR CONSULTANCY, ENGINEERING, PROCUREMENT & CONSTRUCTION
36. Is the Daft Bid Document (DBD)
based on existing norms and
emerging proactive trends?
9 Prequalification criteria for
short listing of suitable
agencies for outsourcing
9 Innovative clauses
9 Clauses for coordination
and cooperation between
different agencies
9 Chance to quote based on
emerging technologies
9 Copy of survey and
investigation reports
9 Requirement of quality
(methodology and
specifications), resource
(manpower, machinery,
equipment, and funds),
establishment costs and
time estimates
9 Pre-bid interactions


NO
37. Is each condition of the DBD
complete in terms of:
9 Onus of compliance
9 Consequence, with its
severity, of non-compliance
9 Remedy
9 Time and financial
implications of compliance
and non-compliance
38. Does the DBD contain approval
criteria and period for
approval?
39. Are any reviews necessary in Note: in case the
any area of the Bidding compliance is NO the DPR
Process? shall be reverted to the
owner and verifier for
necessary review, with the
project owner recording
clear cases of
dissatisfaction; the process
to be repeated till a YES is
recorded.
40. Is the approved agency the Note: in case of the
BEST? compliance is NO; the
future reference
VIII PROJECT EXECUTION
41. Is the project execution
methodology valid at the start
of the execution?
42. Is there a project management
expert in executive or advisory
role in the team?
43. Is the project team formed, and
its members selected, on the
basis of merits in terms of
criteria decided on the project
size and complexity?
44. Do the project team members
possess requisite knowledge,
skill and expertise in the
project management
methodology?
45. Is the frequency of monitoring
the various execution activities
appropriate with respect to
166 166

NO
project size and complexity?
46. Is there a time frame attached
to review measures?
47. Is there a real time dispute
resolution committee in place
and whether the frequency of
their meetings appropriate
with respect to project size and
complexity?
48. Is data for future analysis and
reference being identified and
collected?
49. Is the monitoring with respect Note: it is considered to be
to the first plans or with essential that the
respect to the last approved monitoring be carried out
plans? with respect to the first
plans only to keep the
project performance in
perspective. In case of
severe drawbacks noticed
in the first plans, the
revised plans have to be
approved by the project
owners only
50. Is there a Quality Assurance
manual in place and being
implemented?
Specifications
Methodology
Procedures
Verifications
Validations
Time periods
Costs
51. Is there a system for owner
feedback during and after
completion?
52. Are the resources being
provided as per plan?
IX TECHNICAL CLOSURE
53. Is all technical documentation
for the project complete?
9 As executed processes
9 Variations, their reasons
and approvals
9 Verification and validation
documents


NO
9 Project technical learning
9 Consents from
agencies/consultants
54. Can the project be declared
closed technically?
X FINANCIAL CLOSURE
55. Is all financial documentation
for the project complete?
9 As carried out expenditure
9 Variations, their reasons
and approvals
9 Project financial learning
9 Consents from
agencies/consultants
56. Can the project be declared
closed financially?
57. Is the overall project learning
document finalized and added
to knowledge bank?
58. Has the project team been
dismantled?
168 168
Appendix - 2.1.9
FORMAT for PROJECT MANAGEMENT SYSTEM
A) PROJECT INFORMATION: (this part can be submitted as one time data for reference, needs to be
replaced after each addition, alteration, deduction and modification)
1.1. NAME:
1.2. PROJECT CODE:
1.3. CATEGORY:
1.4. FEASIBILITY REPORT SUMMARY:
1.5. DETAILED PROJECT REPORT SUMMARY:
1.6. ESTIMATE DETAILS:
1.6.1. COST:
1.6.2. BASIS FOR COST:
1.6.3. NORMS & ASSUMPTIONS:
1.6.4. EXECUTION METHODOLOGY:
1.6.5. CONTRACT PLAN:
1.6.6. TIME FRAME:
1.6.7. BASIS FOR TIME FRAME:
1.6.8. EXECUTION PLAN:
1.6.9. ACTIVITY NETWORK:
1.6.10. ENVIRONMENT IMPACT ASSESSMENT SUMMARY:
1.6.11. RELEVANT FILE/PROPOSAL NOS
1.7. CONTRACT AWARD DETAILS FOR EACH CONTRACT/PURCHASE ORDER:
1.7.1. QUOTED COST:
1.7.2. ACCEPTED COST:
1.7.3. BASIS FOR OFFER ACCEPTANCE:
1.7.4. EXECUTION METHODOLOGY:
1.7.5. RESOURCE PLAN:
1.7.6. REQUIREMENTS SCHEDULE:
1.7.6.1 CASH FLOW:
1.7.6.2 DECISIONS:
1.7.6.3 WORK SPACE:
1.7.7. PROJECT MONITORING & REVIEW SYSTEM:
1.7.8. DISPUTE RESOLUTION MECHANISM:
1.7.9. START DATE:

1.7.10. COMPLETION DATE:

1.7.10.1. TECHNICAL:
1.7.10.2. FINANCIAL:
1.7.11. DEFECTS LIABILITY PERIOD:
1.7.12. MAINTENANCE & OPERATION PERIOD:
1.7.13. STATUTORY & ESSENTIAL CONDITIONS OF CONTRACT:
1.7.14. DATE OF ISSUE OF LETTER OF INTENT:
1.7.15. DATE OF ISSUE OF WORK ORDER:
1.7.16. DATE OF HANDING OVER OF SITE:
1.7.17. DEVIATIONS IN TENDER DOCUMENTS:
B) PROJECT STATUS: (this parts shall be submitted at predetermined, or revised intervals as ordered
by the project authority / nodal officer)
1.8. REPORT DATE:
1.9. TIME ELAPSED FROM START DATE:
1.10. TIME LEFT FROM TECHNICAL COMPLETION DATE:
1.11. TABLE OF PROJECT ACTIVITIES: (it is essential that all activities be listed here, whether in
progress or not)
1.11.1. ACTIVITIES WITH TIME OVERRUN:
1.11.1.1. NAME:
1.11.1.2. TYPE:
1.11.1.3. PLAN START DATE:
1.11.1.4. PLAN COMPLETION DATE:
1.11.1.5. ACTUAL START DATE:
1.11.1.6. ACTUAL COMPLETION DATE:
1.11.1.7. PREVIOUSLY APPROVED TIME OVERRUNS:
1.11.1.8. DATE OF APPROVED TIME OVERRUNS:
1.11.1.9. PERCENT COMPLETION ON REPORT DATE:
1.11.1.10. PROBLEM STATEMENT:
1.11.1.11. SOLUTIONS PROPOSED:
1.11.1.12. RECOMMENDED SOLUTION:
1.11.1.13. MERITS FOR RECOMMENDATION:
1.11.1.14. EXPECTED DATE FOR COMPLETION:
1.11.1.15. APPROVAL BY PROJECT OWNER:
1.11.2. ACTIVITIES WITH COST OVERRUN:
1.11.2.1. NAME:
1.11.2.2. TYPE:
170 170
1.11.2.3. PLAN COST:

1.11.2.4. COST INCURRED TILL REPORT DATE:
1.11.2.5. ACTUAL COST:
1.11.2.6. PREVIOUSLY APPROVED COST OVERRUNS:
1.11.2.7. DATE OF APPROVED COST OVERRUNS:
1.11.2.12. EXPECTED COST FOR COMPLETION:
1.11.2.13. APPROVAL BY PROJECT AUTHORITY:
1.11.3. ACTIVITIES WITH DEVIATIONS IN SPECIFICATIONS:
1.11.3.1. NAME:
1.11.3.2. TYPE:
1.11.3.3. PLAN SPECIFICATIONS:
1.11.3.4. PREVIOUSLY APPROVED DEVIATIONS:
1.11.3.5. DATE OF APPROVED DEVIATIONS:
1.11.3.10. APPROVAL BY PROJECT AUTHORITY:
1.11.4. OTHER ACTIVITIES:
1.11.4.1. NAME:
1.11.4.2. TYPE:
1.11.4.3. PERCENT COMPLETION ON REPORT DATE:
1.11.4.4. COST INCURRED TILL REPORT DATE:
1.11.4.5. POINTS OF CONCERN, IF ANY:
1.11.4.6. REMARKS BY PROJECT AUTHORITY:

Appendix 2.4
Project Management Software Selection Criteria
Rank #1 #2 #3 #4 #5 #6 #7 #8 #9 #10
Excellent Microsoft Intellisys OpenMind Project RationalPlan FastTrack Service Desktop Pro Milestones MinuteMan FusionDesk
Very Good Project Project KickStart Multi Project Schedule Professional
Good
Fair
Poor
Reviewer
Comments
Lowest Price
$509.99 $159.00 $389.00 $199.00 $98.00 $360.99 $99.95 $269.00 $49.95 $89.95
Overall Rating
Ratings
Collaboration
Resource
Management
Project
Management
Ease of Use
Help/Support
View Specifications Go! Go! Go! Go! Go! Go! Go! Go! Go! Go!
View Screenshots
Purchasing and Product Configuration
Price $599.99 $159 $389 $299 $93 $349 $99.95 $249 $49.95 $89.95
Users per Account 1 Unlimited 1 1 1 1 1 1 1 1

Rank #1 #2 #3 #4 #5 #6 #7 #8 #9 #10
Project
Upgraded Version Professional Enterprise KickStart MinueMan Plus
Pro
Collaboration
Dashboard
Team
Calendars/Timelines
Issue Tracking
Forums
Email Integration
RSS Feed
MS Project
Integration
Resource Management
Resource Details
Skill Sets
Timesheets
Materials / Supplies
Check In / Check
Out
Import Resources
eMail Addresses
Costs
Resource Notes
Groups
Project Management
Task Management
Task Feedback
Recurring Tasks
Scheduling

Rank #1 #2 #3 #4 #5 #6 #7 #8 #9 #10
Calendars
Time Lines
Events
Gantt Charts
Interactive Gantt
Charts
Mind Maps
Reporting
Statistics
Work Load
Financials
Custom
Document
Management
Budgeting
Critical Path
Method
Project Templates
Scope
Milestones
Baseline
Risk/Benifit
Analyzer
Automatic
Notifications
Privacy Settings
Remote Capability
Multilingual
Smartphones
Help/Support

Rank #1 #2 #3 #4 #5 #6 #7 #8 #9 #10
General Support
Forum
FAQs
Online Video Demo
System Requirements
Windows (Vista, XP)
Mac OS X
Linux
Reviewer
Comments
Lowest Price
$509.99 $159.00 $389.00 $199.00 $98.00 $360.99 $99.95 $269.00 $49.95 $89.95

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Project Implementation Manual

PROJECT IMPLEMENTATION MANUAL

S. No. TOPIC Page No.

Ministry of Statistics & Programme Implementation

S. No. TOPIC Page No.

Ministry of Statistics & Programme Implementation

S. No. TOPIC Page No.

Ministry of Statistics & Programme Implementation

S. No. TOPIC Page No.

Ministry of Statistics & Programme Implementation

S. No. TOPIC Page No.

4.5 Electronic / Artificially Intelligent Risk Management Systems. 87

Ministry of Statistics & Programme Implementation

A project can belong to any of the following sectors.

Essentially the project cycle envisages 5 basic stages.

Ministry of Statistics & Programme Implementation 1

c. Project Implementation Planning and Implementation — In the implementation phase, detailed

1.2 PROJECT IMPLEMENTATION AGENCIES

2 Ministry of Statistics & Programme Implementation

• Commissioning etc. and

1.3 ROLE OF THE PUBLIC SECTOR ENTERPRISES

Ministry of Statistics & Programme Implementation 3

1.4 CONCEPTUALIZING THE PROJECT

1.4.2 Pre-project Estimation at Conceptual Study Stage

4 Ministry of Statistics & Programme Implementation

1.4.3 Assessment/Appraisal of the Project at Conceptual Stage

a. Type of project: developmental project, first experience, etc.

1.5 PROJECT ORGANIZATION FOR PROJECT MANAGEMENT

a. Inadequate studies related to the project Conceptualization and Feasibility

Ministry of Statistics & Programme Implementation 5

a. Preparation of Feasibility Studies, Reports (FR)

1.5.2 Project Organization

There is another form of Organization termed “Project - Matrix Organization” or ‘Promatrix’

6 Ministry of Statistics & Programme Implementation

1.5.3 Role of Project Manager/ Nodal Officer

Ministry of Statistics & Programme Implementation 7

1.6 PROJECT FORMULATION, IDENTIFICATION, APPRAISAL & APPROVAL

1.6.1 Government Guidelines for Project Formulation, Identification and appraisal

8 Ministry of Statistics & Programme Implementation

1.6.2 Government Sanction for Projects

1.6.3 Adoption of PPP Mode

Ministry of Statistics & Programme Implementation 9

10 Ministry of Statistics & Programme Implementation

Chapter 4 clause 4.4 may be referred for elaboration.

1.6.4 Project Identification/Formulation

1.6.5 Preparation of Feasibility Report (FR)

Ministry of Statistics & Programme Implementation 11

d. Type and capacity of off sites

a. Preparation of Detailed Project Report

12 Ministry of Statistics & Programme Implementation

h. Acquisition of land and related Social Aspects (Resettlement & Rehabilitation)

1.6.6 Public Investment Board(PIB)/ Departmental and Main Expenditure Finance

Ministry of Statistics & Programme Implementation 13

1.6.7 Preparation of Detailed Project Report (DPR)

A generic structure of the DPR is given in “Appendix-1.6.7”.

1.6.8 Regulatory/Statutory Clearances

1.6.9 Environmental Impact Assessment (EIA)

14 Ministry of Statistics & Programme Implementation

1.6.10 EIA Clearance

a. Meteorology & air quality

Ministry of Statistics & Programme Implementation 15

In case of projects relating to modernization/expansion of running plant, the Department of