Project planning

It is an act of formulating a program for a definite course of action; also a process of drawing layouts
for some project or enterprise. The following are the importances of project plans;
• Use project plans to coordinate rather than to control.

• Make use of different personalities within the project environment.

• Prescheduled frequent revisions to project plans.

• Empower workers to estimate their own work.

• Describe value-creating tasks rather than activities.

• Define specific and tangible milestones.

• Use check lists, matrices, and other supplements to project plans

Planning is an ongoing process that is conducted throughout the project life cycle.

The basic components of a project plan include

i) Outline of Project Plan- This is a brief description of what is planned
ii) Approach- The managerial and technical methodologies of implementing the project should
be specified

iii) Objectives- The objectives should be very detailed in outlining what the project is expected to
achieve

iv) Policies and Procedures- Development of a project policy involving general guidelines for
carrying out project

v) Contractual Requirements- The portion of the project plan should outline reporting
requirements

vi) Project Schedule- The project schedule signifies the commitment of resource against time in
pursuit of project objectives

vii) Resource Requirements Project resources, budget, and costs are to be documented in this
section of the project plan

viii) Performance Measures- Measures of evaluating project progress should be developed

ix) Contingency Plans- Courses of actions to be taken in the case of undesirable events should
be predetermined
x) Tracking, Reporting, and Auditing- These involve keeping track of the project plans,
evaluating tasks, and scrutinizing the records of the project
PROJECT SELECTION PROCESS
Identification of a new project is a complex problem. Project selection process starts with the
generation of project ideas. In order to select the most promising project, the entrepreneur needs to
generate a few ideas about the possible project one can undertake. The project ideas as a process of
identification of a project begins with an analytical survey of the economy (also known as pre-
investment surveys). The surveys and studies will give us ideas. The process of project selection
consists of following stages :
 Idea generation
 Environment appraisal.
 Corporate appraisal
 Scouting for project ideas.
 Preliminary screening.
 Project rating index
 Sources of positive Net Present Value.
 Entrepreneur qualities.
a) Idea Generation :- Project selection process starts with the generation of a project idea.
Ideas are based on technological breakthroughs and most of the project ideas are variants of present
products or services. To stimulate the flow of ideas, the following are helpful:
SWOT Analysis :- SWOT is an acronym for strengths, weaknesses, opportunities and threats.
SWOT analysis represents conscious, deliberate and systematic effort by an organisation to identify
opportunities that can be profitably exploited by it. Periodic
SWOT analysis facilitates the generation of ideas.
Operational objectives of a firm may be one or more of the following.
• Cost reduction.
• Productivity improvement.
• Increase in capacity utilisation.
• Improvement in contribution margin
fostering a conducive climate :- To tap the creativity of people and to harness their
entrepreneurial skills, a conducive organisation climate has to be fostered. Two conspicuous
examples of organisation which have been exceptionally successful in tapping the creativity of
employees are the Bell Telephone Laboratory and the 3M
Corporation. While the former has succeeded in harnessing creativity by providing an unconstrained
environment, the latter has effectively nurtured the entrepreneurial skills of its employees as sources
of idea generation. The project ideas can be generated from various internal and external sources.
These are :-
• • Knowledge of market, products, and services.
• • Knowledge of potential customer choice.
• • Emerging trends in demand for particular product.
• • Scope for producing substitute product.
• • Market survey & research.
• • Going through Professional magazines.
• • Making visits to trade and exhibitions.
• • Government guidelines & policy.
• • Ideas given by the experienced person.
• • Ideas by own experience.
• • SWOT analysis.
b) Environment appraisal :-
An entrepreneur or a firm systematically appraise the
environment and assess its competitive abilities. For the purposes of monitoring, the
business environment may be divided into six broad sectors
The key elements of the environment are as follow :
Economic Sector
• State of the economy
• Overall rate of growth Cyclical fluctuations
• Inflation rate
• Growth rate of primary, secondary and territory sector
• Growth rate of world economy
• Trade surplus and deficits
• Balance of Payment
Government Sector
• • Industrial policy
• • Government programmes and projects
• • Tax structure
• • EXIM policy
• • Financing norms
• • Subsidies incentives and concessions
• • Monetary policy
Technological Sector
• • Emergence of new technologies
• • Access to technical know-how, foreign as well as indigenous
Socio-demographic Sector
• • Population trends
• • Age shifts in population
• • Income distribution
• • Educational profile
• • Employment of women
• • Attitudes toward consumption and investment
Competition Sector
• • Number of firms in the industry and the market share of the top few
• • Degree of homogeneity and differentiation among the products
• • Entry barrier
• • Comparison with substitutes in term of quality and price
• • Marketing polices and practices
Supplier Sector
• Availability and cost of raw material
• Availability and cost of energy
Availability and cost of capital
c) Corporate Appraisal :- A realistic appraisal of corporate strengths and weaknesses
is essential for identifying investment opportunities which can be profitably exploited.
The broad areas of corporate appraisal and the important aspects to be considered
under them are as follow :
Marketing and Distribution
• Market Image
• Product Line
• Product Mix
• Distribution Channels
• Customer loyalty
• Marketing & distribution costs
Production and Operations
• Condition and capacity of plant and machinery
• Availability of raw material and power
• Degree of vertical integration
• Locational advantage
• Cost structure
Research and Development
• Research capabilities of the firm
• Track record of new product developments
• Laboratories and testing facilities
• Coordination between research and operations
Corporate Resources and Personnel
• Corporate image
• Dynamism of top management
• Relation with government and regulatory agencies
• State of industry relations
Finance and Accounting
Financial leverage and borrowing capacity
• Cost of capital
• Tax structure

Project Feasibility Analysis

The most important step in any project after a project plan should be determining the viability of
the idea. This is called Feasibility study /analysis.
Feasibility analysis (FA, also called feasibility study)
Feasibility literally means whether some idea will work or not. It knows before hand whether there
exists a sizeable market for the proposed product/service, what would be the investment
requirements and where to get the funding from, whether and wherefrom the necessary technical
know-how to convert the idea into a tangible product may be available, and so on
A feasibility study is essentially a process for determining the viability of a proposed initiative or
service and providing a framework and direction for its development and delivery. It is a process for
making sound decisions and setting direction. It is also a process which:
i) Is driven by research and analysis
ii) Usually involves some form of consultation with stakeholders, community, users, etc.
iii) Focuses on analyzing, clarifying and resolving key issues and areas of concern or
uncertainty
iv) Very often involves basic modeling and testing of alternative concepts and approaches
It is used to assess the strengths and weaknesses of a proposed project and present directions of
activities which will improve a project and achieve desired results. The nature and components of
feasibility studies depend primarily on the areas in which analyzed projects are implemented.
The elements of feasibility analysis for a project should cover the following
i) Need Analysis
ii) Process Work
iii) Engineering & Design
iv) Cost Estimate
v) Financial Analysis
vi) Project Impacts
vii) Conclusions and Recommendations
Types of feasibility
Feasibility is of the following types:
i) Technical Feasibility:
This area reviews the engineering feasibility of the project, including structural, civil and other
relevant engineering aspects necessitated by the project design. The technical capabilities of the
personnel as well as the capability of the projected technologies to be used in the project are
considered. In some instances, particularly when projects are in third world countries, technology
transfer between geographical areas and cultures needs to be analyzed to understand productivity
loss (or gain) and other implications due to differences in topography, geography, fuels availability,
infrastructure support and other issues.
ii) Economic Feasibility:
Economic feasibility is the process of identifying the financial benefits and costs associated with a
development project. It involves the feasibility of the proposed project to generate economic
benefits. A benefit-cost analysis (addressing a problem or need in the manner proposed by the project
compared to other, the cost of other approaches to the same or similar problem) is required. A
breakeven analysis when appropriate is also a required aspect of evaluating the economic feasibility
of a project. (This addresses fixed and variable costs and utilization/sales forecasts). The tangible and
intangible aspects of a project should be translated into economic terms to facilitate a consistent basis
for evaluation. Even when a project is non-profit in nature, economic feasibility is critical
 iii) Managerial Feasibility:
Demonstrated management capability and availability, employee involvement, and commitment are
key elements required to ascertain managerial feasibility. This addresses the management and
organizational structure of the project, ensuring that the proponent's structure is as described in the
submittal and is well suited to the type of operation undertaken.
iv) Financial Feasibility:
Financial feasibility should be distinguished from economic feasibility. Financial feasibility involves
the capability of the project organization to raise the appropriate funds needed to implement the
proposed project. In many instances, project proponents choose to have additional investors or other
sources of funds for their projects. In these cases, the feasibility, soundness, sources and applications
of these project funds can be an obstacle. As appropriate, loan availability, credit worthiness, equity,
and loan schedule still be reviewed as aspects of financial feasibility analysis.
Also included in this area are the review of implications of land purchases, leases and other estates in
land.
v) Cultural Feasibility:
Cultural feasibility deals with the compatibility of the proposed project with the cultural environment
of the project. In labor-intensive projects, planned functions must be integrated with the local cultural
practices and beliefs. For example, religious beliefs may influence what an individual is willing to do
or not do.
vi) Social Feasibility:
Social feasibility addresses the influences that a proposed project may have on the social system in
the project environment. The ambient social structure may be such that certain categories of workers
may be in short supply or nonexistent. The effect of the project on the social status of the project
participants must be assessed to ensure compatibility. It should be recognized that workers in certain
industries may have certain status symbols within the society.
vii) Safety Feasibility:
Safety feasibility is another important aspect that should be considered in project planning. Safety
feasibility refers to an analysis of whether the project is capable of being implemented and operated
safely with minimal adverse effects on the environment. Unfortunately, environmental impact
assessment is often not adequately addressed in complex projects.
viii) Political Feasibility:
Political considerations often dictate directions for a proposed project. This is particularly true for
large projects with significant visibility that may have significant government inputs and political
implications. For example, political necessity may be a source of support for a project regardless of
the project's merits. On the other hand, worthy projects may face insurmountable opposition simply
because of political factors.
Political feasibility analysis requires an e
xi) Environmental Feasibility:
Often a killer of projects through long, drawn-out approval processes and outright active opposition
by those claiming environmental concerns. This is an aspect worthy of real attention in the very early
stages of a project. Concern must be shown and action must be taken to address any and all
environmental concerns raised or anticipated. This component also addresses the ability of the
project to timely obtain and at a reasonable cost, needed permits, licenses and approvals.
ix) Market Feasibility:
This area should not be confused with the Economic Feasibility. The market needs analysis to view
the potential impacts of market demand, competitive activities, etc. And market share available.
Possible competitive activities by competitors, whether local, regional, national or international,
must also be analyzed for early contingency funding and impacts on operating costs during the start-
up, ramp-up, and commercial start-up phases of the project. valuation of the compatibility of project
goals with the prevailing goals of the political system.

PROJECT APPRAISAL
Project appraisal means the assessment of a project. Project appraisal is made for both proposed and
executed projects. In case of former project appraisal is called ex-ante analysis and in case of letter
‘post-ante analysis’. Here, project appraisal is related to a proposed project.
Project appraisal is a cost and benefits analysis of different aspects of proposed project with an
objective to adjudge its viability. A project involves employment of scarce resources. An
entrepreneur needs to appraise various alternative projects before allocating the scarce resources for
the best project. Thus project appraisal helps select the best project among available alternative
projects. For appraising a projects its economic, financial, technical market, managerial and social
aspect are analysed.
Financial institutions carry out project appraisal to assess its creditworthiness before extending
finance to a project.
Method of Project Appraisal
Appraisal of a proposed project includes the following analyses,
i) Economic analysis
ii) Financial analysis
iii) Market analysis
 iv) Technical analysis
v) Managerial competence
vi) Ecological analysis
Economic Analysis:
Under economic analysis the aspects highlighted include
• Requirements for raw material
• Level of capacity utilization
• Anticipated sales
• Anticipated expenses
• Proposed profits
• Estimated demand
It is said that a business should have always a volume of profit clearly in view which will govern
other economic variable like sales, purchase, expenses and alike.
Financial Analysis
Finance is one of the most important prerequisites to establish an enterprise. It is finance only that
facilitates an entrepreneur to bring together the labour, machines and raw materials to combine them
to produce goods. In order to adjudge the financial viability of the project, the following aspects need
to be carefully analysed:
• Cost of capital
• Means of finance
• Estimates of sales and production
• Cost of production
• Working capital requirement and its financing
• Estimates of working results
• Break-even point
• Projected cash flow
• Projected balance sheet.
The activity level of an enterprise expressed as capacity utilization needs to be well spelled out.
However the enterprise sometimes fails to achieve the targeted level of capacity due to various
business vicissitudes like unforeseen shortage of raw material, unexpected disruption in power
supply, instability to penetrate the market mechanism
Market Analysis
Before the production actually starts, the entrepreneur needs to anticipate the possible market for the
product. He has to anticipate who will be the possible customer for his product and where his product
will be sold. This is because production has no value for the producer unless it is sold. In fact, the
potential of the market constitutes the determinant of possible reward from entrepreneurial career.
 Thus knowing the anticipated market for the product to be produced become an important element in
business plan. The commonly used methods to estimate the demand for a product are as follows:
Opinion polling method
In this method, the opinion of the ultimate users. This may be attempted with the help of either a
complete survey of all customers or by selecting a few consuming units out of the relevant
population.

Project selection models

There are two basic types of project selection models:
a) Non-numeric-
b) Numeric- use numbers as inputs but the criteria being measured may be either objective or
subjective
Both are widely used. Sometimes a combination of the two types are used
a) Nonmumeric models
They do not use numbers as inputs;
Examples include
i) Sacred Cow : ordered by top management. No other alternative; must be done
ii) The Operating Necessity : the project is required in order to keep the system operating • online
library search system • EMU registration system
iii) The Competitive Necessity : to achieve or maintain competitive position • restructure
undergraduate and graduate programs to in view of declining student enrollment • modernize
manufacturing facility • get a CNC (computer numerically controlled) machine to replace the
old milling machine (freze tezga
iv) The Product Line Extension : a project to develop and distribute new products. The project
would be judged on the degree to which it fits the firm’s existing product line, fills a gap,
strengthens a weak link • the new Apple Ipod which also plays video
v) Comparative Benefit Model : when there are a number of possible projects but they are not
easily comparable in terms of their benefits. The organization has no formal method of selecting
projects; the selection committee think that some projects will benefit the firm more than others
even if they have no precise way or method to define or measure “benefit”
Numeric models
Financial models These models use financial attributes as the sole measure of acceptability for the
project.
i) Payback Period Model
• Payback Period = Estimated project cost/Annual savings (proceeds) •
Measures the time it will take to recover the project investment.
Shorter paybacks are more desirable. •
Emphasizes cash flows, a key factor in business. •
Limitations of payback include:
 Ignores the time value of money.
 Assumes cash inflows for the investment period (and not beyond).
 Does not consider profitability
 This method assumes that the cash inflows will persist at least long enough to pay back the
investment, and it ignores any cash inflows beyond the payback period.
 The faster the investment is recovered, the less the risk to which the firm is exposed 14
Types of Project Selection Models
ii) Average Rate of Return (ARR)
Model Average rate of Return = Average Cash Inflow / Initial Investment To follow on the
preceding
Neither the payback nor the ARR is recommended for project selection, though payback period is
widely used and does have a legitimate value for cash budgeting decisions. The major advantage
of these models is their simplicity, but neither takes into account the time-value of money
iii) Net Present Value (NPV)
Model Uses management’s minimum desired rate-of-return (discount rate) to compute the
present value of all net cash inflows. • Positive NPV: the project meets the minimum desired rate
of return and is eligible for further consideration. • Negative NPV: project is rejected.
iv) Profitability Index
Also known as the benefit-cost ratio. PI = NPV of all future expected cash flows / initial cash
investment Project is selected if PI > 1; otherwise rejected. If more than one project is involved,
the project with the greatest PI is selected from among those with PI > 1.
v) Scoring Models
Projects usually have multiple criteria; therefore models have been developed to evaluate projects
on multiple criteria. These models are labeled “scoring models.”
The scoring model is an objective technique wherein the project selection committee lists
relevant criteria, weighs them according to their importance and their priorities and then
adds the weighted values. Once the scoring of these projects is completed, the project
with the highest score is chosen
 There are many such models;
 Unweighted 0 – 1 Factor Model •
A set of relevant factors is selected by management and then listed in a pre-printed form
One or more raters score the project on each factor, depending on whether it qualifies for an
individual criterion
Advantage: multiple criteria for the decision process
Disadvantage:
It assumes all criteria are of equal importance;
it allows for no gradation of the degree to which a specific project meets the various criteria
 Unweighted Factor Scoring Model The second disadvantage of the 0-1 factor model can
be dealt with by constructing a simple linear measure of the degree to which each project
being evaluated meets each of the criteria in the list.
 Weighted factor scoring model; Uses numeric weights of the relative importance of
each individual factor are added. It is the sum of products of scores and weights on each
criterion

PROPOSAL PREPARATION
The project manager writes proposals for future work. This takes place during the feasibility study,
when the company must decide whether to bid on the job. There are four ways in which proposal
preparation can occur:
 Project manager prepares entire proposal. This occurs frequently in small companies. In large
organizations, the project manager may not have access to all available data, some of which may
be company proprietary, and it may not be in the best interest of the company to have the project
manager spend all of his time doing this.
 Proposal manager prepares entire proposal. This can work as long as the project manager is
allowed to review the proposal before delivery to the customer and feels committed to its
direction.
 Project manager prepares proposal but is assisted by a proposal manager. This is common, but
again places tremendous pressure on the project manager.
 Proposal manager prepares proposal but is assisted by a project manager. This is the preferred
method. The proposal manager maintains maximum authority and control until such time as the
proposal is sent to the customer, at which point the project manager takes charge. The project
manager is on board right from the start, although his only effort may be preparing the technical
volume of the proposal and perhaps part of the management volume.
The project plan sets out:
 The resources available to the project
 The work breakdown
 A schedule for the work
Project plan structure
 Introduction
Objectives, constraints (e.g., budget, time, etc…)
 Project organisation
People involved and their roles in the team
 Risk analysis
Possible risks, their likelihood and reduction strategies
 Hardware and software resource requirements
 Work breakdown
Breaks down the project into activities, identifies milestones, deliverables
 Project schedule
Activity dependencies, estimated milestone time, people allocation
 Monitoring and reporting mechanisms