Lecture notes on Project management

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PONDICHERRY UNIVERSITY (A Central University) DIRECTORATE OF DISTANCE EDUCATION Project Management Paper Code : MBFM 3004 MBA - FINANCE III SemesterNotes MBA (Finance) – III Semester Paper code: MBFM 3004 PAPER – XIV Project Management Objectives ➢ To understand the concept of project and steps in project management ➢ To enable the students to prepare business proposals and ➢ To enable the students to evaluate the Project feasibility Unit - I Project – Classification – Importance of Project Management – An Integrated Approach – Project Portfolio Management System – The Need – Choosing the appropriate Project Management Structure: Organizational considerations and project considerations – steps in defining the project – project Rollup – Process breakdown structure – Responsibility Matrices – External causes of delay and internal constraints. Unit-II Project feasibility studies - Opportunity studies, General opportunity studies, specific opportunity studies, pre-feasibility studies, functional studies or support studies, feasibility study – components of project feasibility studies – Managing Project resources flow – project planning to project completion: Pre-investment phase, Investment Phase and operational phase – Project Life Cycle – Project constraints. Unit - III Project Evaluation under certainty - Net Present Value (Problems - Case Study), Benefit Cost Ratio, Internal Rate of Return, Urgency, Payback Period, ARR – Project Evaluation under uncertainty – Methodology for 1Notes project evaluation – Commercial vs. National Profitability – Social Cost Benefit Analysis, Commercial or National Profitability, social or national profitability. Unit - IV Developing a Project Plan - Developing the Project Network – Constructing a Project Network (Problems) – PERT – CPM – Crashing of Project Network (Problems - Case Study) – Resource Leveling and Resource Allocation – how to avoid cost and time overruns – Steps in Project Appraisal Process – Project Control Process – Control Issues – Project Audits – the Project Audit Process – project closure – team, team member and project manager evaluations. Unit - V Managing versus leading a project - managing project stakeholders – social network building (Including management by wandering around) – qualities of an effective project manager – managing project teams – Five Stage Team Development Model – Situational factors affecting team development – project team pitfalls. Note: Distribution of Questions between Problems and Theory of this paper must be 20:80 i.e., Problem Questions: 20 % & Theory Questions: 80 % References Arun Kanda, PROJECT MANAGEMENT, PHI, Delhi, 2011 Panneerselvam & senthilkumar, PROJECT MANAGEMENT, PHI, Delhi, 2009 Ramakrishna, ESSENTIALS OF PROJECT MANAGEMENT, PHI, Delhi, 2010 2Notes UNIT - I When you travel, you happened to see bridges being built, roads being laid, buildings being constructed and a lot of other activities, which are unique in nature and which deliver physical outputs. The same way, you might come across several activities, which deliver services like marriage contract, software development, health camp, literacy camp, etc. If you look at the above activities, they are unique in nature and they require defined time and resources. We can call these activities as projects and managing these projects has become more critical with the limited time and resources at our disposal. Thus, project management has become an important area and its application is found in almost all the business and non-business activities. Let us study in this unit, the meaning of project management, its importance, classification of projects, project portfolio management system, project management structure, steps in defining project, causes and constraints in executing project. Unit Structure Lesson 1.1 - Project Management – An Overview Lesson 1.2 - Project Portfolio Management System and Structure Lesson 1.3 - Steps in Defining Project and Project Delays 3Notes Lesson 1.1 - Project Management – An Overview Learning Objectives ➢ To understand the concept, characteristics and elements of projects. ➢ To understand the stages in Project Life Cycle. ➢ To know the classification of projects on various bases. ➢ To appreciate the importance of project management. ➢ To understand the importance of integrated approach in project management. Concept of Project Project is defined as temporary but interrelated tasks undertaken to give a unique product or service or result. Projects are different from other ongoing operations in an organization, because unlike operations, projects have a definite beginning and an end - they have a limited duration. Projects are critical to the realization of performing organization’s business strategy because projects are a means by which the strategy of the company is implemented. A project is a temporary endeavor, having a defined beginning and end (usually constrained by date, but can be by funding or deliverables), undertaken to meet unique goals and objectives, usually to bring about beneficial change or added value. The temporary nature of projects stands in contrast to business as usual (or operations), which are repetitive, permanent or semi-permanent functional work to produce products or services. A project is an investment made on a package of interrelated time- bound activities; consequently, a project becomes a time-bound task. Every project has two phases basically; the first is preparation and construction, and the second, its operation. Project planning deals with specified tasks, operations or activities which must be performed to achieved the project 4Notes goals. Any project that we may consider has an objective, or a set of objectives, to achieve. It has to be operated within a given set of rules, regulations, constraints and restrictions. Implementation of projects needs resources or inputs. Every project converts the given inputs into outputs through a process of implementation. The outputs in the short run lead to outcomes, which, in the long run, should result in impact. A project can be defined as a complex of non-routine activities that must be completed with a set amount of resources and within a set time limit. The following figure explains the basic tenets of project management. Typical examples of projects include: construction of a house, performing a marriage, overhauling a machine, maintenance of equipment, commissioning of a factory, conducting national elections, research on developing a new technology, launching a new weapon system, conducting a war, pre-crisis planning for preventing a riot, recruitment of a project manager, etc. Each of the above cases involves investment of resources on a package of inter-related, time-bound activities, thereby constituting a project. Projects also involve one or more elements that have not been done in the past, and are therefore unique. A product or service may be unique even if the category to which it belongs is large. For example, although several residential complexes have been built in the past, creation of a new house will be a project because each facility can have elements such as a unique - location, customized or adapted design, regionally available resources, and/or discrete owners. 5Notes Characteristics of a Project 1. Temporary: Projects are temporary in nature. Every project has a beginning and end. The word ‘temporary’ here may refer to an hour, a day or a year. Operational work is an ongoing effort which is executed to sustain the business. But projects are not ongoing efforts. A project is considered to end when the project’s objectives have been achieved or the project is completed or discontinued. Only projects are temporary in characteristic and not the project’s outcomes. It will not generally be applied to the product, service or result created by the project. Projects also may often have intended and unintended social, economic and environmental impacts that long last.Eg. Building Eiffel Tower was a project. The structure was built between 1887 and 1889. Project Eiffel Tower ended on 1889. But still the outcome of the project exists as a monument. 2. Definite Beginning and Completion: Project is said to be completed when the project’s objectives have been achieved. When it is clear that the project objectives will not or cannot be met the need for the project no longer exists and the project is terminated. Thus, projects are not ongoing efforts. Thus, every project has a definite beginning and end. 3. Definite Objective/Scope and Unique: All the projects have their own defined scopes/objectives for which they are carried out. Every Project is undertaken to create a unique product, service, or result. Eg. Hundreds of house buildings may have been built by a builder, but each individual building is unique in itself like they have different owner, different design, different structure, different location, different sub-contractors, and so on. Thus, each house building is to be considered as a Project and each Project produces unique outcome. 4. Defined Time and Resources: As the projects have definite beginning and end, they are to be carried out within the time and resources constraints. Each project will have defined time and resources for its execution. 5. Multiple Talents: As projects involve many interrelated tasks done by many specialists, the involvement of people from several 6Notes departments is very much essential. Thus, the use of multiple talents from various departments (sometimes from different organizations and across multiple geographies) becomes the key for successful project management. For example, take the construction of house building; the expertise of very many professionals and skills of various people from various fields like architect, engineers, carpenters, painters, plumber, electrician, interior decorator, etc, are being coordinated to complete the house project. Basic Elements of Project There are three basic elements which must be considered in a project cycle. These are discussed below: Operations Operations are the activities or jobs which must be performed to meet the project objectives. These activities should be identified and arranged in a logical sequence. After determining the job sequence, the method of performing each operation must be determined in advance. The method, in turn, predetermines the time and cost required to perform each activity. Resources The second of the project elements, resource can be classified under manpower, money, methods, material, machines and time. Time and cost estimates are associated with the method of performance, where the cost estimate relates resource expenditure to a common measure of cost in money alone and the time estimate defines the expected duration of the resource use. Conditions or Restraints The third project element refers to externally imposed conditions or restraints, like supply of materials, machines, and designs by outside agencies. The delivery system should be planned carefully in co-ordination with the activities to be undertaken. 7Notes The two basic activities which normally get completed before undertaking the installation of equipment in any project are: (a) land acquisition, and (b) infrastructural development. Most of the projects are undertaken next to a river or road/railway junction, or a busy commercial centre with a view to cutting down the expenditure for developing the external infrastructure needed for the project, such as road/railway points, schools, commercial centers, and residential accommodation, which otherwise put a heavy burden on the project authorities. There is a general sentimental opposition from the landowners as well as tillers to handover their land for fear of losing their earning opportunities, and the project team must try to cope with such contingencies. White Elephants In India, almost every project in infrastructural sectors has been delayed for one reason or the other. The reports of Ministry of Project Implementation, Government of India carry alarming information on project cost and time overruns, which have become a serious economic problem. One can go on and on to show that these modern temples are becoming white elephants and it is the duty of the professional project managers to identify the reasons and try to reduce the delay in building modern India. Stages in Project Life Cycle: The project life cycle typically passes through four stages, viz., Initiating, planning, executing and closing. The following figure shows the Project Life Cycle. The starting point begins the moment the project is given the go- ahead. Project efforts starts slowly, build to a peak and then declines to delivery of the project to the customer. The stages in the project life cycle are discussed below: a) Project Initiation Stage: In this stage, the specifications of the project are defined along with the clear cut project objectives. Project teams are formed and their major responsibilities are assigned. More specifically, this stage defines the goals, specifications, tasks and responsibilities. 8Notes b) Project Planning Stage: In this stage, the effort level increases and plans are developed to determine what the project will entail, when it will be scheduled, whom it will benefit, what quality level should be maintained and what the budget will be. More specifically, this stage will include planning schedules, budgets, resources, risks and staffing. c) Project Execution Stage: In this stage, a major portion of the project work takes place. The physical product is produced (For eg., house, bridge, software program, report, etc). Time, cost and specification measures are used for control. More specifically, this stage will take care of status reports, changes, quality and forecasts. d) Project Closure stage: This is the final stage which includes two activities, viz., delivering the outcome of the project to the customer and redeploying the project resources. Delivery of the project might include customer training and transferring documents. Redeployment usually involves releasing project equipment/ materials to other projects and finding new assignments for team members. More specially, this stage will undertake activities relating to training the customer, transfer of documents, releasing resources, releasing staff and learning lessons. 9Notes Classification of Projects The projects can be classified into various types: 1) Based on Ownership a) Public Projects: These are the projects which are done by public projects. E.g. Construction of Roads & Bridges, Adult Education Programmes, etc. b) Private Projects: These are the projects which are undertaken by private enterprises. Eg. Any business related projects such as a construction of houses by real estate builders, software development, marriage contracts, etc. c) Public Private Partnerships: These projects which are undertaken by both government and private enterprises together. E.g., Generation of Electricity by Windmill, Garbage Collection, etc. 2) Based on Investment a) Large Scale Project: These projects involve a huge outlay or investments, say, crores. Eg. Real Estate Projects, Road Construction of manufacturing facilities, Satellite sending projects of ISRO, Unique Identification Number project of India, etc. b) Medium Scale Project: These projects involve medium level investment and are technology oriented. Example: Computer industry and electronic industry. c) Small Scale Project: These projects involve only a lesser investments. E.g., agricultural projects, manufacturing projects. 3) Based on Research in Academia a) Major Projects: In academia, the major projects are those projects which involve more than one year to 3 or 5 years and minimum funding of ` 3 lakhs in case of social sciences and ` 5 lakh in case of sciences. b) Minor Projects: The minor projects in academia are those projects which will be completed within a year and have a maximum funding of ` 1 lakh in social science and ` 3 lakh in case of sciences. 10Notes 4) Based on Sector a) Agricultural Projects: These are the projects which are related to agricultural sector like irrigation projects, well digging projects, manuring projects, soil upgrading project, etc. b) Industrial Projects: These are the projects which are related to the industrial manufacturing sectors like cement industry, steel industry, textile industry, etc. For example, technology transfer project, marketing project, capital issue project like IPO, etc. c) Service Projects: These are the projects which are related to the services sectors like education, tourism, health, public utilities, etc. For example, adult literacy project, medical camp, general health check up camp, etc. 5) Based on Objective a) Commercial Projects: These projects are undertaken for commercial purpose and return on investment is expected out these projects. For example, Toll roads based on BOLT – Build Own Lease Transfer Model or BOOT – Build Own Operate and Transfer Model, Product Launching project. b) Social Projects: These projects are undertaken for social purposes and welfare of the people is the aim of these projects. These projects are undertaken either by the Government or Service oriented Non- Governmental Organizations. For example, Polio immunization Project, Child Welfare Projects, Adult Literacy Projects, etc. 6) Based on Nature a) Conventional Projects: These projects are traditional projects which do not apply any innovative ideas or technology or method. For ex- ample, conventional irrigational projects, handicraft projects, etc. b) Innovative Projects: These projects involve the use of technology, high R&D, development of new products and services. These innovative projects can be further classified into i) Technology: Depending on the level of technological uncertainty at the time of initiation of projects, the projects can be classified 11Notes into: Low-Tech projects which relay on the existing and well established base technologies; Medium-Tech projects which rest mainly on existing base technologies but incorporate some new technology or feature; High-Tech projects in which most of the technologies employed are new, but existent, having been developed prior to the project’s initiation; and Super High- Tech projects which are based primarily on new, not entirely existent technologies. ii) Research: Based on the type of research, projects can be classified into: Exploratory research projects which may generate novel idea in the domain of knowledge; constructive research projects which are mainly done by many technological corporate to find new or alternative solutions to any particular crisis or problems, eg., renewable energy research or development of the capacity of optical fiber; and Empirical research projects are very impressive observational type of research in which testing on real life data or analysis of pattern of some specific events in order to identify the nature or the class of trend that specific phenomenon maintains. iii) New product development: These projects are undertaken in the life cycle of a product. These projects can be classified into advance development projects which aim at inventing new science or capturing new know-how for the organization; breakthrough development projects which create the first generation of an entirely new product and involve significant change in the product and process technology; platform or next generation development projects which provide a basis for a product and process family and thus establish the basic architecture for follow-on derivative projects; and derivative development projects which refine and improve selected performance dimensions. 7) Based on Time a) Long term projects: These projects take a very long duration to complete. These projects are run for many years till the objective is reached. For example, Eradication of diseases like Polio, Filaria, etc. 12Notes b) Medium term projects: These projects take a medium term duration like 3 to 5 years. For example, Modernization projects, computerization of operations, etc. c) Short term projects: These projects are executed within a short period, normally within a year. For example, Pond cleaning project, health camps, software development, etc. d) Very short term projects: By very name you can understand that these projects are completed within a very short period, say, within a day. For example, product launch project. 8) Based on Functions Based on the functional area of management, the projects can be classified into: a) Marketing Projects which are taken up in the area of marketing a product or service of an organization. Marketing road shows, implementing a marketing strategy, etc. b) Financial Projects are undertaken to raise finance or restructure capital structure. For example, IPO Project, share split project, etc. c) Human Resources Projects are undertaken in the area of human resources of an organization, e.g., Induction training project, campus recruitment project, etc. d) IT and Technology Projects which are undertaken in the area of IT companies or IT related requirement of any organization, e.g., development of Human Resources Information System, Marketing Information System, etc. e) Production Projects are undertaken in the area of production or operations. For example, overhauling projects, preventive maintenance projects, getting an ISO certification, etc. f) Strategic Projects are taken by the organizations to executive a strategy, for example, mergers and acquisition projects, Core Banking Solution project introduced in banks, etc. 13Notes 9) Based on Risk a) High Risk Projects: These projects involve a very high degree of risk, for example, nuclear energy project, thermal energy project, satellite projects, etc. If the project is not handled properly, the effect will be very adverse. Thus, high precautionary measures are to be taken to commission these projects. b) Low Risk Projects: These projects do not involve risk and they are carried out in the normal course of action. For example, road and bridge construction, house construction. 10) Based on Investment Decisions On the basis how the projects influence the investment decision products, project can be classified into a) Independent Projects: An independent project is one, where the acceptance or rejection does not directly eliminate other projects from consideration or affect the likelihood of their selection. For example, if management plans to introduce a new product line, as well as, replace a machine which is currently producing a different product. These two projects can be considered independent of each other, if there are sufficient resources to adopt both, provided, they meet the firm’s investment criteria. b) Mutually exclusive Projects: The mutually exclusive projects are projects that cannot be followed at the same time. The acceptance of one prevents the substitute proposal from accepting. Most of them have ‘either or’ decisions. You will not be able to follow more than one project at the same time. The evaluation is done on a sep- arate basis so that one that brings the highest value to the company is chosen. c) Contingent Projects: A contingent project is one where the ac- ceptance or rejection depends on the decision to accept or reject multiple numbers of other projects. Such projects may be comple- mentary or substitutes. Let us take the example of bio fuel plant cultivation in a large scale and the decision to set up a bio fuel manufacturing unit. In this case, the projects are complementary to 14Notes each other. The cash flows of the plant cultivation will be enhanced by the existence of a nearby manufacturing plant. Conversely, the cash flows of the manufacturing unit will be enhanced by the exist- ence of a nearby cultivation farm. 11) Based on Output Based on output, projects are classified into quantifiable and non- quantifiable ones. a) Quantifiable projects: In these projects, the benefits / goals of which are amenable for measurement. Quantitative expression of the outcomes is possible. It is easy to understand and appreciate quantitative projects as it is easy to communicate them. For instance, enterprises engaged in the production of various goods and services come under this category. b) Non-quantifiable projects: In these projects quantification of the benefits / outcome may not always be possible as the impact of the project is spread over a longer period. The benefits accrue to the intended beneficiaries in the long run. Projects concerning health, education, and environment fall under this category. 12) Based on Techno-Economic Characteristics Based on the technology intensity, size of the investment, and scope of the project, projects are also classified as techno-economic projects. For instance, the United Nations Organization (UNO) and its various developmental agencies use the Standard Industrial Classification of all economic activities in collection and compilation of economic data regarding projects. On the basis of Techno-economic factors, projects can be further classified into a) Factor Intensity Oriented; b) Causation Oriented and c) Magnitude Oriented. a) Factor Intensity Projects: It is anybody’s knowledge that some projects are capital intensive while some are labour intensive. However, as technological advancements are taking place in every sector in a big way, many projects are becoming more technology intensive and less labour intensive. The gestation period of some of the projects also is quite long. Large scale investments are made 15Notes in the plant and machinery. Economies of scale and the associated cost competitiveness also prompt the establishment of large scale organizations. b) Causation-Oriented Projects: The availability of a particular raw material in abundance in a particular region could be the reason for conceiving projects at times. To make use of the locally avail- able raw material, skilled workforce and to promote development of a backward region, some projects are conceived and formulated. Similarly, in a few cases, where the supply of a particular good falls short of demand necessitating imports from abroad, entrepreneur- ial projects are conceived. Thus, in some case, the existing demand for goods and services cause the establishment of business organi- zations. The demand pull plays a dominant role in such projects. c) Magnitude Oriented Projects: Based on the size of the project, projects may be classified under large, medium and small scale projects. The size of the investment, gestation period, employment generation, etc. is some of the factors that influence the size of the project. 13) Based on Financial Institutions’ Classification Financial institutions – both central and state level have classified projects into profit-oriented projects and service-oriented projects. a) Profit-Oriented Projects: They are classified into a) New Projects; b) Expansion Projects or Development projects; c) Modernization Projects or Technology Projects and d) Diversification Projects. b) Service-Oriented Projects: They are classified into a) Welfare Projects; b) Service Projects; c) Research and Development Projects and d) Educational Projects. Project Management Project management is the discipline of planning, organizing, securing and managing resources to bring about the successful completion of specific project goals and objectives. Project management is the application of knowledge, skills and techniques to execute projects 16Notes effectively and efficiently. It’s a strategic competency for organizations, enabling them to tie project results to business goals — and thus, better compete in their markets.It has always been practiced informally, but began to emerge as a distinct profession in the mid-20th century. It is no longer a special-need management. It is rapidly becoming a standard way of doing business. Project Management Institute’s A Guide to the Project ® Management Body of Knowledge (PMBOK Guide) identifies its recurring elements. Project management processes fall into five groups such as initiating, planning, executing, monitoring, controlling and closing. Project management knowledge draws on nine areas, viz., integration, scope, time, cost, quality, procurement, human resources, communications and risk management. All management is concerned with these, of course. But project management brings a unique focus shaped by the goals, resources and schedule of each project. The value of that focus is proved by the rapid, worldwide growth of project management as a separate area of study and as a mode of functioning. Project management deals with planning, scheduling, controlling and monitoring the complex non-routine activities that must be completed to reach the predetermined objectives of the project. On critical examination, we see that each project has a feedback mechanism. The elements of project management control include programmed objectives, policy restrictions, resource constraints, government regulations, process implementation, review of output, feedback, and revision of objectives. Thus, project management involves the coordination of group activity, wherein the manager plans, organizes staffs, directs, and controls to achieve an objective, with constraints on time, cost and performance, of the end product. Network techniques are primarily used for project planning and controlling. Planning is the process of preparing for the commitment of resources in the most economical manner. Controlling is the process of making events conforms to schedules by coordinating the action of all parts of the project to achieve the objective. Importance of Project Management Project management is the art of managing the project and its deliverables with a view to produce finished products or service. There are many ways in which a project can be carried out and the way in which 17Notes it is executed is project management. Project management includes: identifying requirements, establishing clear and achievable objectives, balancing the competing demands from the different stakeholders and ensuring that a commonality of purpose is achieved. It is clear that unless there is a structured and scientific approach to the practice of management, organizations would find themselvesaimless and hence would be unable to meet the myriad challenges that the modern era throws at them. Hence, the importance of project management to organizations cannot be emphasized more and several reasons why project management is important is discussed below. a) Reduction in the Product Life Cycle The product life cycle is one of the most significant driving forces behind the demand for project management. As the lives of the products are shortened, time to market for new products with short life cycles has become increasingly important. Innovation and invention becomes the key for success and speed to innovate or invent becomes a competitive advantage. More and more organizations are depending on cross- functional project teams to get new products and services to the market as quickly as possible. b) Global Competition In the globally competitive today’s market, customers want cheaper products and services with better quality at cheaper prices. This had led to the emergence of the quality movement across the world in International Standards Organization certification requirements for doing business. Quality management and improvement essentially requires project management. As the basic elements of project management concentrate on time, cost and quality, project management has become style of managing business. c) Knowledge Explosion The knowledge explosion world over has increased the complexity of managing projects. Product complexities have increased and demanded integration of divergent technologies. To manage all this, project management is the only way. 18Notes d) Corporate Downsizing Restructuring of organizations in the recent years has resulted into the downsizing or rightsizing. Downsizing and sticking to core competencies have become essential for survival for many organizations. e) Increased Customer Focus Increased competition has increased the expectation of customers. Customers expect customized products and services instead of generic ones. The customization of products and services required better understanding of the customers’ needs by project team members. The customers are more aware and their changing needs are to be taken into account to survive in the market. f) Managing Small Projects In today’s competitive world, a situation has emerged in the organizations that many projects are run concurrently. This resulted into the multi-project environment and also plethora of new problems. Sharing and prioritizing resources across a portfolio of projects is a major challenge for top management. In the course of managing many projects, large projects are given more importance than the small projects. Small projects typically carry the same or more risk as do large projects. Small projects are perceived as having little impact on the bottom line because they do not demand large amount of scarce resources and/or money. Unfortunately, many small projects soon add up to large sums of money and their inefficiency would result into adverse impact. g) Upsurge of Third World and Closed Economies The gradual opening of emerging economies has created an explosion of demand for goods and services within these economies for their development. Thus, new markets emerge in the scenario. The developed markets have started introducing their products and services into these markets. Many firms are using project management techniques to establish distribution channels and foreign bases of operations. 19

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