Financial management

• ‘A project can be considered to be the
achievement of a specific objective which
involves a series of activities and tasks which
consume resources.’
• Project management is defined as ‘The
planning, monitoring and control of all aspects of
a project and the motivation of all those involved
in it to achieve the project objectives on time and
to the specified cost, quality, and performance.’
Definitions

Projects by size
1. Major Projects
2. Large Projects
3. Medium Projects
4. Small Projects
Types of Projects

Type 2
Projects
Product
Development
(Water)
Type 1
Projects
Engineering
(Earth)
Type 4
Projects
Research &
Organizational
Change
(Air)
Type 3
Projects
Systems
Development
(Fire)
Methods
Well
Defined
Goals Well Defined
Yes
Yes
No
No
Greater
chance of
success
Greater
chance of
failure
Turner & Cochrane’s Goals & Methods Matrix
Projects by Resource Type

• Construction of the warehouse (a Type 1 building project)
• Creation of the establishment to run the warehouse
(a Type 2 logistics project)
• Writing of the computer systems to operate the warehouse
(a Type 3 IS project)
• Redeployment & training of people (a Type 4 personnel project)
• Changing the buying function from hospital to region
(a Type 4 organizational change project)
• Changing the budget from hospital based to region based
(Type 3, systems project)
• Implementing in 15 hospitals (Type 4 organizational change project)
• Commissioning the warehouse (Type 2 logistics project)
Projects by Resource Type

Role of Project Management in Other Functional Areas
of Management
Project
Management
Information Systems Management
• A project of designing new software.
• A project of creating a computer
network in an organization.
• A project of implementing software in
an organization.
Human Resources Management
• A project of recruiting more
employees in a department.
• A project of training a group of
employees in a particular skill.
 A project of designing a new salary
structure of employees
Marketing Management
• A project of launching a new
product in a region.
• A project of designing the
promotion campaign of a product.
• A marketing research project.
Financial Management
• A project of designing a new
financial instrument.
 A project of launching a new
financial instrument in a region.
 A project of reviving an old
financial instrument in a region.

• The projects in which the time duration of various
activities can be determined up to great accuracy
are the ones which can be planned with the help of
a technique called the Critical Path Method (CPM).
• Programme Evaluation & Review Technique
(PERT) is applied in projects where the time
durations of various activities are not known.
This is especially suitable for Research and
Development (R&D) projects.
CPM and PERT

1
2
3
4
5
6
7 8
A18[0,18]
[0,18]
B3[0,3]
[17,20]
D4[7,11]
[20,24]
C1[0,1]
[13,14]
E6[1,7]
[14,20]
F8[1,9]
[16,24]
G6[1,7]
[14,20]
I5[18,23]
[19,24]
J22[18,40]
[18,40]
K7[23,30]
[24,31]
H11[7,18]
[20,31]
L9[30,39]
[31,40]
M5[40,45]
[40,45]
9

Time (days)
Total Available Time
Total Float
(15 days)
Performance Time
(8 days)
LF
LS
Total Float
(15 days)
EF
ES
Performance Time
(8 days)
Activity F
Activity F
Activity F Partial TF
(10 days)
Partial TF
(5 days)
Case 1
Case 2
Case 3
5 10 15 20 25
1 24
0

Time (days)
Free Float
(14 days)
Performance Time
(8 days)
Performance Time
(8 days)
Activity F
Activity F
Case 1
Case 2
5 10 15 20 25
1 24
0
Activity K
If Float
(Head Slack)
Free Float
(14 days)
If Float
(Head Slack)
Activity K
ES=23
LS=24

Time (days)
Available Time
Performance Time
(8 days)
Activity F
5 10 15 20 25
0
Activity K
Activity C
LS LF ES EF
Independent
Float

Programme Evaluation & Review Technique (PERT)
• Optimistic Time (a) – This time estimate is the
shortest possible time estimated to be taken by an
activity.
• Pessimistic Time (b) - This time estimate is the
longest possible time estimated to be taken by an
activity.
• Most Likely Time (m) – This time estimate has the
highest chance of occurrence according to the
past experiences of the project manager.

0 a b
m te
P
R
O
B
A
B
I
L
I
T
Y
Time Duration of an activity
Beta Curve
Maximum Probability

Crashing of a Project
0 1 2 3 4 5 6 7 8 9 10
Crash Time Normal Time
100
90
80
70
60
50
40
30
20
10
D
I
R
E
C
T
C
O
S
T
Time duration of an
activity (days)
o
o
o
(Rs)
Crash Cost
Normal Cost
Linear Approximation
Actual Curve

Earned Value Management (EVM) for Tracking
of Projects
• Budgeted Cost of Work Scheduled (BCWS) It is
the sum of the cost budget for all the activities in
the baseline (original) plan of the project at any
specific future point in time. Thus, this is the
budgeted (planned) cost as per the project plan for
a part of the project to be completed in a given
time frame.
• Budgeted Cost of Work Performed (BCWP)
When a project is under implementation, a certain
part of the project is completed at a given point in
time. The budgeted (planned) cost of all the
activities performed till that point in time is called
BCWP.

Earned Value Management (EVM) for
Tracking of Projects
• Actual Cost of Work Performed (ACWP) It is the
actual cost incurred in implementing a part of the
project till a given point in time.
• Cost variance (CV) = BCWP − ACWP
• A negative value of CV indicates being over budget
and is obviously undesirable.
• Schedule variance (SV) = BCWP − BCWS
• A negative value of SV indicates that less work has
been performed compared to what was scheduled to
be performed till a given point in time.

A Simple Earned Value Management Chart

Financial management

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