Module: 05

Establishing An Enterprise and

Project Management
 Project
•A temporary endeavor undertaken to create a
unique product or service.
•Defined as scientifically evolved work plan
devised to achieve a specific objective with the
specified period of time
 Project Management:
The application of knowledge, skills, tools,
and techniques to project objectives to
meet stakeholder needs and expectations.
 Characteristics and features
• Investment patter • Uniqueness
• Benefits of gains • Change
• location • Successive principles
• Objectives • Made to order or
• Life span customer specific
• Single entity • Unity in diversity
• Team work • High levels of sub-
contracting
• Life cycle
• interrelated • Risk and uncertainty
 Knowledge Areas:
• Scope Management
• Time Management
• Cost Management
• Quality Management
• Human Resources Management
• Communications Management
• Risk Management
• Procurement Management
• Integration Management
 Project life Cycle Stages
1. Conception Stage or Project Identification
2. Definition stage or project formulation
3. Planning and Organizing stage or project
design
4. Implementation
5. Project clean up stage
 1. Conception Stage or Project Identification

• Idea germination
• Problem identification
• Project identification
2. Definition stage or project formulation

• In this stage the project will develop the idea generated

during the conception stage
• The areas examined in this stage are (Eg ..cement plant)
– Raw materials
– Plant size
– Location
– Technology
– Project layout
– Plant layout
– Electrical works
– Civil works
– Utilities – fuel, power,
– Manpower
– Financial
3. Planning and Organizing stage or project design

• Prepare project execution plan

• 8% of the work done
• Take necessary action for realization of project
like,
– Project infrastructure
– System design
– Licensing
– Identification of project manager
 4. Implementation
• 85% of the work done in this stage
 5.Project Clean-up stage
• 3 % effort needed
• Drawing, documents, files, operation and
maintenance manuals are catalogued and
handed over to the customer
• Handing over
Project Management and other disciplines

• Finance
• HRM
• Operations
• Purchase and logistics
• R&D
• Marketing
 Project Classification
1. Quantifiable and Non-Quantifiable projects
2. Sector projects
3. Techno-economic projects
4. Financial institutions classification
5. Services projects
 1. Quantifiable and Non-Quantifiable
projects
• Quantifiable projects are those in which a
reasonable quantitative assessment of
benefits can be made
• Non-quantifiable projects are those where
such an assessment not possible
 2. Sector Projects
• Agriculture
• Industry and mining
• Transport
• Social services
 3. Techno-economic projects
1. Causation-oriented classification
2. Factor intensity oriented classification
3. Magnitude oriented classification
 4. Financial Institutions classification

1. New projects
2. Expansion projects
3. Diversification projects
 5. Services Projects

1. Welfare services
2. Service projects
3. Educational projects
 Project Formulation
• Defined as “ taking a first look carefully and
critically at a project idea by an entrepreneur
to build up an all round beneficial to project
after carefully weighing its carious
components”
 Phases of Project formulation

ANALYSIS OF FORMULATION DESIGN OF A

CONCEPTION
RELATED ASPECTS OF A PROJECT PROJECT
OF AN IDEA
 Steps in Project Formulation
1. General Objectives
2. Operational Objectives
 Sequential Stages in Project Formulation

1. Feasibility study
2. Techno-economic analysis
3. Project Design and Network analysis
4. Input Analysis
5. Financial analysis
6. Social cost benefit analysis
7. Pre-investment analysis
 Project Planning
• Project Planning
– “is a formal, approved document used to manage
and control project execution”
 Project Plan Development

Output of Planning
P
processes in other
knowledge areas
_______________________
Historic Information M
_______________________
Project Planning Project
Stakeholder skills and
Methodology Plan
knowledge
_______________________
Organizational Policies
I
_______________________
Limitations and Assumptions

S
 Project Scope
• To whom is the project is prepared
• The target audience
• The usefulness
• the stakeholders
 Project Planning Objectives
• To satisfy the stakeholder
• To show one’s expertise
• To get the approval
 What is a Feasibility Study?
• A feasibility study is an analysis of the viability of an idea
through a disciplined and documented process of thinking
through the idea from its logical beginning to its logical end.

• A feasibility study provides an Investigating function that

helps answer “Should we proceed with the proposed project
idea? Is it a viable business venture?”

• A feasibility study should be conducted to determine the

viability of an idea BEFORE proceeding with the development
of a business.
Distinction between pre-feasibility study and
Feasibility study
Pre-Feasibility Study Feasibility Study
• No thoughts on • Deeper knowledge on
– The viability of the project various feasibility, such as
from economic, social, – economic, social, technical,
technical, managerial, market managerial, market and
and financial point of view financial
 Various Feasibility Studies
• Socio-Economic Feasibility
• Technical Feasibility
• Managerial Feasibility
• Market Feasibility
• Financial Feasibility
 Socio-Economic Feasibility
• Identify and Estimate all Capital Expenditures
• Identify and Estimate all Variable Costs related to the
Proposed Business Venture
– Identify People and Skills required to operate
• Determine Wages, Salaries, and Benefits
• Identify and Estimate Project Related Costs
– Infrastructure development or improvements
– Advertising and Promotion
– Legal Fees
– Municipal & State Development taxes
• Identify and Estimate all Fixed Costs
 Technical Feasibility
• Manufacturing process/technology selected
• Technical collaboration
• Capacity/size of the project/ scale of operation
• Location of the project
• Availability of physical and social
infrastructure
• Plant layout
• Factory building
 Managerial Feasibility
• The levels of Management
• Designing about the posting and recruitment
• Allocating of power
 Market Feasibility
• The target audience
• Segments of your projects
• The end users
• The cost of the project
• The competitors
• Market entry
• Supply chain management
 Financial Feasibility
• Capital and operating costs
• Funds flow
• Cash flow
• Ratio analysis
• Break-even
• Profitability
• Investment process
 Feasibility Reports presentation
• A feasibility report provides primary
economic information, financial data and
technical details which serves as the basis for
carrying out the project successfully
• The feasibility report should cover the
following important aspects
– all the feasibilities studies such as market,
financial, economic, social etc
Project Feasibility Report Checklist
• Socio-Economic Feasibility
• Technical Feasibility
• Managerial Feasibility
• Market Feasibility
• Financial Feasibility
• HR feasibility
• Operational Feasibility
 Sources of Finance
1. Short term finance
2. Mid-term finance
3. Long term finance
 Sources of Finance
Short Term Medium Long Term
Term
1. Bank credit 1. Issue of shares 1. Issue of shares
2. Trade credit 2. Issue of debentures 2. Issue of debentures
3. Installment credit 3. Loans form banks 3. Loans form financial
4. Customer advances and other financial institutions
institutions 4. Ploughing back of
4. Public deposits (For profits
existing concerns)
5. Ploughing back of
profits
 Break Even Analysis
• Refers to determining the level of activity where
total cost is equal to the total sale
• Break even is a point of zero profit and zero loss
• BEP in terms of sales = Fixed Cost * Total amount of sales
Total Contribution
 Utility of BE Analysis
• It serves as the most useful and important
managerial tool to study cost-output-relationship
at varying levels of output
• It is useful in reviewing pricing policies
• It aids in planning capitalization of the enterprise
• It provides the entrepreneur to decide whether
to acquire or not assets involving additional fixed
costs
 Project Design
• In project design, the entrepreneur is expected
to design prototypes, testing them
• Design is the new weapon and key driver is
innovation to fight out the competition
• For design to become culturally embedded in an
organization three forces have to be considered
1. A deeper user understanding
2. Multiple prototyping
3. Strategic business design
 Steps in design thinking
1. Make a long term commitment
2. Build it into your corporate strategy
3. Assign a leader, but do not limit it to a
function
4. Collaborative and internalize it
5. Inspire, don’t legislate
6. Feed it and reward it
7. The future starts today
 Network Design
• Is a system which plans both large and small
projects by analyzing the project activities
• Projects are broken down into simple
activities, which are then arranged in a logical
sequence
• Network Tools
1. PERT
2. CPM
 History of CPM/PERT
• Critical Path Method (CPM)
– E I Du Pont de Nemours & Co. (1957) for construction of new
chemical plant and maintenance shut-down
– Deterministic task times
– Activity-on-node network construction
– Repetitive nature of jobs
• Project Evaluation and Review Technique (PERT)
– U S Navy (1958) for the POLARIS missile program
– Multiple task time estimates (probabilistic nature)
– Activity-on-arrow network construction
– Non-repetitive jobs (R & D work)

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 Project Network
• Network analysis is the general name given to certain specific techniques which can be
used for the planning, management and control of projects

• Use of nodes and arrows

Arrows  An arrow leads from tail to head directionally
– Indicate ACTIVITY, a time consuming effort that is required to perform a
part of the work.
Nodes  A node is represented by a circle
- Indicate EVENT, a point in time where one or more activities start and/or
finish.
• Activity
– A task or a certain amount of work required in the project
– Requires time to complete
– Represented by an arrow
• Dummy Activity
– Indicates only precedence relationships
– Does not require any time of effort
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 Project Network
• Event
– Signals the beginning or ending of an activity
– Designates a point in time
– Represented by a circle (node)
• Network
– Shows the sequential relationships among activities using nodes
and arrows

Activity-on-node (AON)
nodes represent activities, and arrows show precedence relationships
Activity-on-arrow (AOA)
arrows represent activities and nodes are events for points in time

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AOA Project Network for House

3
Lay foundation Dummy
2 0 Build Finish
3 1 house work
1 2 4 6 7
Design house Order and 3 1
and obtain receive Select 1 1 Select
financing materials paint carpet
5

AON Project Network for House

Lay foundations Build house
2 4
Finish work
2 3
7
Start 1 1
3
Design house and 6
3
obtain financing 5 1
1
1 Select carpet
Order and receive
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materials
 Situations in network diagram
B
A
A must finish before either B or C can start

C
A
C both A and B must finish before C can start

A
C both A and C must finish before either of B or D can start

B
D

A
B
A must finish before B can start
Dummy both A and C must finish before D can start

C
D darla/smbs/vit 48
 Network example
Illustration of network analysis of a minor redesign of a product and its associated
packaging.

The key question is: How long will it take to complete this project ?

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 CPM calculation
• Path
– A connected sequence of activities leading from
the starting event to the ending event
• Critical Path
– The longest path (time); determines the project
duration
• Critical Activities
– All of the activities that make up the critical path

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 Advantages of CPM
• It helps in ascertaining the time schedule
• With its aid, control by the management is made
easy
• It makes better and detailed planning possible
• It provides a standard method for communicating
project plan, schedule, time and cost
performance
• It identifies the most critical elements and thus
more attention can be paid to these activities
 Limitations of CPM
• Fails to incorporate statistical analysis in
determining the time estimates
• It operates on the assumption
• It is difficult to use CPM as a controlling device
for the simple reason that one must repeat
the entire evaluation of the project each time
 PERT
• PERT is based on the assumption that an activity’s duration
follows a probability distribution instead of being a single value
• Three time estimates are required to compute the parameters
of an activity’s duration distribution:
– pessimistic time (tp ) - the time the activity would take if
things did not go well
– most likely time (tm ) - the consensus best estimate of the
activity’s duration
– optimistic time (to ) - the time the activity would take if
things did go well

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 PERT analysis
• Draw the network.
• Analyze the paths through the network and find the critical path.
• The length of the critical path is the mean of the project duration
probability distribution which is assumed to be normal
• The standard deviation of the project duration probability
distribution is computed by adding the variances of the critical
activities (all of the activities that make up the critical path) and
taking the square root of that sum
• Probability computations can now be made using the normal
distribution table.

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 Steps in PERT
1. Development of project network
2. Time estimation
3. Determination of critical path, event slacks
and activity floats
4. Development of project schedule
5. Calculation of variability duration and the
probability of completion in a given time
 Advantages of PERT
• It gives the management the ability to plan the
best possible use of resources to achieve a given
goal within the overall time and cost limitations
• Helps management to handle the uncertainties
involved in programmes where no standard time
data of the Taylor-Gantt variety are available
• It presses for the right action, at the right point
and at the right time in the organization
 Disadvantages of PERT
1. The basic difficulty comes in the way of time
estimates for the completion of activities
because activities are of non-repetitive
2. It does not consider resources required at
various stages of the project
3. Needs frequent updating