Project Planning and Management

PROJECT PLANNING AND
MANAGEMENT
PIYUSH KUMAR
ASST. PROFESSOR

LECTURE 1
• DEFINITION OF PROJECT
• PROJECT Vs. PROGRAM
• PROJECT VS OPRATIONAL PROCESS
• HISTORY OF PROJECT
• CHARACTERISTICS OF PROJECT
• CATEGORIES OF PROJECTS
• TYPES OF PROJECT
• PROJECT PLANNING
• PROJECT FORMULATION
• PROJECT FORMULATION STAGES
• STAKEHOLDERS & ORGANIZATIONAL STRUCTURE
• PROJECT LIFE CYCLE
• PROJECT MANAGEMENT PROCESS MAPPING
• DETAIL PROJECT REPORT

INTRODUCTION:
• One of the most important administrative developments in
the developed as well as in developing countries has been
doing initiation and growth of a large number of new
programs/projects in every field like agriculture, irrigation,
industry, community development, health & social welfare
etc.
• The principle aims and objectives of all these programs
have been to bring about overall changes in the existing
socio-economic structure in the country providing thereby
dignified way of life to a citizen as a unit and socio-
economic upliftment of the society.

The word project comes from the Latin word projectum from projicere,
"to throw something forwards“. The word "project" thus originally
meant "something that comes before anything else is done".
• Oxford English Dictionary which defines a Project as: An individual or
collaborative enterprise that is carefully planned to achieve a particular
aim.
• Definition by (Prof. Srinivasan Rengasamy 2017): “An activity (or, usually, a
number of related activities) carried out according to a plan in order to
achieve a definite objective within a certain time and which will cease
when the objective is achieved. A collection of linked activities, carried
out in an organized manner, with a clearly defined start point and end
point to achieve some specific results desired to satisfy some clearly
defined objectives.
• A project can be defined as a scientifically evolved work plan devised
to achieve specific objectives within a specific period of time.
DEFINITION OF A PROJECT:

Project in general refers to a new endeavor with specific objective and varies
so widely that it is very difficult to precisely define it.
Some of the commonly quoted definitions are as follows. Project is a
temporary endeavor undertaken to create a unique product or service or
result. (AMERICAN National Standard ANSI/PMI99-001-2004)
Project is a unique process, consist of a set of coordinated and controlled
activities with start and finish dates, undertaken to achieve an objective
confirming to specific requirements, including the constraints of time cost and
resource.
Examples of project include Developing a watershed, Creating irrigation
facility, Developing new variety of a crop, Developing new breed of an
animal, Developing agro processing Centre, Construction of farm/ building,
etc. It maybe noted that each of these projects differ in composition, type,
scope, size and time.

• A project is an investment of resources in a package of interrelated time
found activities. Thus a project becomes a time found task. A Project should
have definite beginning and an end.
• A project is a temporary endeavour undertaken to create an unique product
or service. Something with a beginning, middle and end. Something that has
a clear objective and somebody responsible for it.
• A group of activities that have to be performed in a logical sequence to
meet pre-set objectives outlined by the client. It may make it easier to
define if we instead list the characteristics of a project, which would
include:
 A start and a finish date
 A budget
 activities which are essentially unique and not repetitive
 Have definite objectives (goals) to achieve
 Requires set of resources.
 Involves risk and uncertainty.
 Requires cross-functional teams and interdisciplinary approach.
 a life cycle (which we will examine later)

Definition of Project
A project comprises a set of routine and interlinked activities, with a
goal, which has a definite goal and requires to be completed with a
stipulated time and resources. The projects may vary regarding size,
i.e. small, medium, large and very large. After the accomplishment
of the project, a final product is received.
Definition of Program
The program can be defined as a framework of plans of work, which
comprises of a set of projects that are complementary to one
another and aligned in proper sequence to achieve economies of
scale. Projects are grouped into a single program when the resultant
benefit of the collection supersedes the benefits of managing
individual projects. It consists of various projects which are started
to reach organizational goals.
Project vs. Program :

Differences Between Project and Program
1. The temporary activity, which is carried out to create a distinct product or
service, that has specified objectives, is called project. A bundle of projects
which are linked to one another, rationally to attain the combined benefits, is
called program.
2. While the project is content-specific, which focuses on delivering the required
result. Conversely, a program is context-specific, which links different projects
that are related to each other so as to achieve the ultimate goal of the
organization.
3. A project is distinct and is for specified duration. On the other extreme, a
program is everlasting and executed in the business to continuously obtain the
results of the entity.
4. A project deals with specific deliverables, whereas a program is concerned
with the benefits received, from implementing it.
5. The scope of the program is wider in comparison to the project, the project
works on a single functional unit, while the program works on various
functional units.

The tasks performed by the project manager, to complete the project are
technical in nature. On the contrary, the tasks performed to implement the
program successfully, are strategic in nature.
There is a generation of specific output which is demanded by the project. In
contrast, the program produces the general outcomes which are necessary for
the growth and survival of the organization in the long run.
One can measure the effectiveness of the project by evaluating the product
quality, timeliness, cost efficiency, compliance and degree of customer
satisfaction. As opposed, to measure the effectiveness of the program, one
needs to check whether it fulfils the needs and benefits, for which it was
implemented.

Projectvs.Program: Area of Comparison Programme. Project.
Objectives.
Outcomes – often intangible; difficult
to quantify; benefits often based on
changes to organizational culture and
behaviours; introducing new
capabilities into the organization;
tending towards subjective.
Outputs – tangible; relatively easy to
describe, define and measure; tending
towards objective.
Scope
Not tightly defined or bounded; likely
to change during the life cycle of the
program.
Strictly limited; tightly defined; not
likely to be subject to material change
during the life of the project.
Duration
Relatively long term – typically
eighteen months to three years.
Relatively short term – typically three
to six months.
Risk Profile
Program risk is more complex and
potentially the impact on the
organization if a risk materializes will be
greater relative to project risk.
Programme failure could result in
material financial, reputational or
operational loss. Reasons for failure
may not be identifiable
Project risk is relatively easy to identify
and manage. The project failure would
result in relatively limited impact on
the organization relative to program
risk. Reasons for failure can be
identified.

Area of Comparison Programme. Project.
Nature of the problem
Ill-defined; often disagreement between
key stakeholders on the nature and
definition of the problem.
Clearly defined.
Nature of the solution
A significant number of potential solutions
with often with disagreement between
stakeholders as to the preferred solution.
A relatively limited number of potential
solutions. .
Duration
Relatively long term – typically eighteen
months to three years.
Relatively short term – typically three to
six months.
Stakeholders
A significant number of diverse
stakeholders, the beneficiaries cannot be
identified, it is disproportionately divided
and unlimited
A relatively limited number of
stakeholders within defined boundaries
and communities. Scale is relatively
smaller and defined and limited.
Resources
Resources are constrained and limited;
there is competition for resources
between projects. Estimates are
unavailable
Resources to deliver the project can be
reasonably estimated in advance.
Resources are defined.
Relationship to
environment
Environment is dynamic; and programme
objectives need to be managed in the
context of the changing environment
within which the organization operates.
Unstable and broad. May or may not get
implemented.
Environment within which the project
takes place is understood and relatively
stable. It is accepted by the community
and is implemented only after its
feasibility is studied.

An ongoing work effort is generally a repetitive process because it
follows an organization’s existing procedures. The ongoing execution of
activities that produce the same result or product repetitively is what
Operations is all about.
Operations are the ongoing execution of activities that produce the
same output or provide a repetitive service. but projects are temporary
Operations do not produce new things, but they are necessary to
maintain and sustain the system.
Operations are used to run regular business models, achieve the goals of
the business, and support the business.
Operations don’t have a fixed budget or time duration.
Example of Project / Operations : A plumber may be doing a support work to
fix a leak. Each day he fixes leaks in 20 locations. Each leak may require a
different solution (some may need a new washer, or a new pipe, or some
putty), but it is still support work.
What is Operational process / work?

HISTORY OF PROJECT MANAGEMENT :
• As a discipline, Project Management developed from different fields of
application including construction, engineering, and defence. In the
United States, the forefather of project management is Henry Gantt,
called the father of planning and control techniques, who is famously
known for his use of the "Gantt" chart as a project management tool.
• The 1950s marked the beginning of the modern project management
era. Again, in the United States, prior to the 1950s, projects were
managed using mostly Gantt Charts, and informal techniques and
tools. At that time, two mathematical project scheduling models were
developed: (1) the "Program Evaluation and Review Technique" or
PERT, (2) the "Critical Path Method" or CPM. These mathematical
techniques quickly spread into many private enterprises.

WHAT IS A PROJECT?
OUTPUT
(Objectives &
Scope)
Resource (Man
Power, facilities,
Money etc.)
TIME (Duration)
THREE
ELEMENTS OF
PROJECT:
• What will be the final
Output?
• Purpose & Scope
• Start Date?
• End Date?
• What are the requirements?
• How much the cost?
• Benefit from the project?

UNDERSTANDING OF CHARACTERISTICS OF PROJECT :
• Each and every project should have a package of interrelated activities.
 Identification of the poor
 Knowing their choice
 Arranging bank assets
 Follow up / advisory activities Evaluation
• Each activity is time found
• Each and every project should have a set of objectives to be achieved.
 E.g. Eradication poverty by distributing income-generating assets.
 E.I.P-Improving the environment in slums through providing basic amenities
like drinking water, drainage, street lights, toilets and community centers etc.
• Each and every project should be operated with constraints.
 E.g. Eradication of poverty within a democratic framework, within a time
frame, within a limited resource within the present bureaucratic setup.
• Each and every project should specify the (clientele) target group.
 E.g. Rural poor, Urban poor.
• Each and every project should have well defined time sequence of investments.
• Each and every project should have an in built arrangement to evaluate the
program.

DEVELOPMENT PROJECT TYPES:
 Agriculture & Rural Development
 Environmental Protection
 Housing & Urban Development
 Health & Family Planning
 Roads/Bridges/Ports
 Marketing
 Public Administration
 Banking & Capital Market Development
 Education & Training
 Power Generation

 Constrained by limited resources
 Scale of Project
 Planned, executed, and controlled
• Developing a new product or service.
• Designing a new transportation route.
• Developing or acquiring a new or modified information
system.
• Constructing a building or facility.
• Building a water system for a community.
• Implementing a new service procedure or process.

3. Project Life-cycle
Every project, from conception to completion, passes through various phases of a
life cycle synonymous to life cycle of living beings. There is no universal consensus
on the number of phases in a project cycle. An understanding of the life cycle is
important to successful completion of the project as it facilitates to understand the
logical sequence of events in the continuum of progress from start to finish, it is
possible to describe, in general term, the time phasing of project planning activities
common to most projects. The principal stages in the life of a project are :
Identification
Initial formulation/ Preparation
 Planning Evaluation (selection or rejection)/Appraisal
Implementation/ Execution phase
Completion and operation/evaluation/ controlling and monitoring phase
Project closure

Identification:
• Development projects are expressly designed to solve varied problems of
whether in the short or long run.
• The surveys or in depth studies would locate the problems and the project
planner will have to identify the projects that would solve the problems most
effectively.
• At this stage, we are concerned with the kind of action and type of project that
would be required in rather broad term. In other words the surveys and studies
will give us ideas and throw up suggestions which would be worked out in detail
later and then evaluated objectively before being accepted for implementation.
• The current socio-political economic situation has to be critically assessed.
• It will also be necessary to review it in its historical perspective necessitating the
undertaking of a survey of the behaviour and growth during the preceding
decades.

The initiation phase
The initiation phase is the first phase of the entire project management life cycle.
The goal of this phase is to define the project, develop a business case for it, and
get it approved. During this time, the project manager may do any of the
following:
Perform a feasibility study Create a project charter Identify key stakeholders
Select project management tools By the end of this phase, the project manager
should have a high-level understanding of the project purpose, goals,
requirements, and risks.
• Perform a feasibility study
• Create a project charter
• Identify key stakeholders
• Select project management tools

The planning phase
The planning phase is critical to creating a project roadmap the entire team
can follow. This is where all of the details are outlined and goals are defined
in order to meet the requirements laid out by the organization. During this
phase, project managers will typically:
• Create a project plan
• Develop a resource plan
• Define goals and performance measures
• Communicate roles and responsibilities to team members
• Build out workflows
• Anticipate risks and create contingency plans

PROJECT PLANNING:
PLAN
• A plan is a set of decisions made on actions to be taken to reach a
goal. Planning is an active process and it is opposite of simply
allowing events to unfold.
• Plan (appoint in the planning process) is the set of operations
designed to meet a given goal.
• A plan can be a very formal document, or it can simply be the
clear understanding of the actions you are going to undertake.
• Both plan and planning is a never-ending activity. Your plan will
be shaped and reshaped by new forces and new information you
discover as you proceed with your action.
• Planning involves vision, discovery, decision making and action. It
is a purposeful way of looking at the future with the intent to
shape it.

PROJECT PLANNING:
PROJECT PLAN
• A project plan is "A formal, approved document used to
guide both project execution and project control. The
primary uses of the project plan are to document planning
assumptions and decisions, facilitate communication among
stakeholders, and document approved scope, cost, and
schedule baselines. A project plan may be summary or
detailed."
• "a statement of how and when a project's objectives are to
be achieved, by showing the major products, milestones,
activities and resources required on the project”.

PROJECT PLAN COMPONENTS:
PROJECT FORMULATION
Project formulation means developing our ideas in a good shape so as to
present it to decision-makers to take correct investment decisions. Thus,
project formulation refers to a series of steps to be taken to convert an idea
or aspiration into a feasible plan of action.
A Project Plan contains information that will help complete the project
successfully. Success factors can be quickly summarized by answering the
following questions:
• What and Why? - A project plan will contain a description of the project,
what is the Vision and why the project is being executed.
• Who? - Who will be involved and what will be their responsibilities within
the project
• When? - When will the project happen and also major milestones
• How? - How the project will be executed and controlled. Normally this
information refers mostly to the controlling of the project as the detailed
project actions will be detailed in other documents such as the IT plan, the
Procurement plan, the Construction plan, etc.

STAGES OF PROJECT FORMULATION:
1. FEASIBILITY ANALYSIS
2. TECHNO-ECONOMIC ANALYSIS
3. PROJECT DESIGN
4. INPUT ANALYSIS
5. FINANCIAL ANALYSIS
6. COST-BENEFIT ANALYSIS
7. PRE-INVESTMENT ANALYSIS
8. ENVIRONMENTAL ANALYSIS

1. FEASIBILITY ANALYSIS:
 First stage in project formulation.
• Examination to see whether to go in for a detailed investment proposal
or not.
• Screening for internal and external constraints.
 Conclusion could be:
• The project idea seems to be feasible
• The project idea is not a feasible one
• Unable to arrive at a conclusion for want of adequate data
2. TECHNO-ECONOMIC ANALYSIS:
• Screens the idea to-Estimate the potential of the demand
• Choice of optimal technology.
• This analysis gives the project a platform for preparation of detailed
project design/report.

3. PROJECT DESIGN:
• It is the heart of the project entity.
• It defines the sequence of events of the project.
• Time is allocated for each activity.
• It is presented in a form of a network drawing.
• It helps to identify project inputs, finance needed and cost-benefit profile of
the project
4. INPUT ANALYSIS:
• It assesses the input requirements during the construction and operation
of the project.
• It defines the inputs required for each activity.
• Inputs include materials, human resources.
• It evaluates the feasibility of the project from the point of view of the
availability of necessary resources.
• This aids in assessing the project cost.

5. FINANCIAL ANALYSIS:
6. COST-BENEFIT ANALYSIS:
• It involves estimating the project costs, operating cost and fund
requirements.
• It helps in comparing various project proposals on a common scale.
• Analytical tools used are discounted cash flow, and ratio analysis.
• Investment decisions involve commitment of resources in future, with a
long time horizon.
• It needs caution and foresight in developing financial forecasts
• The overall worth of a project is considered.
• The project design forms the basis of evaluation.
• It considers costs that all entities have to bear and the benefit
connected to it.

7. PRE- INVESTMENT ANALYSIS :
8. ENVIRONMENTAL ANALYSIS:
• The results obtained in previous stages are consolidated to arrive at clear
conclusions.
• Helps the project-sponsoring body, the project-implementing body and the
external consulting agencies to accept/reject the proposal.
• The EIA document itself is a technical tool that identifies, predicts, and
analyses impacts on the physical environment, as well as social, cultural,
and health impacts. If the EIA process is successful, it identifies alternatives
and mitigation measures to reduce the environmental impact of a proposed
project.
• It is essential that predicted impacts are evaluated in order to protect the
environment and the quality of life for humans and organisms.
The EIA explores both positive and negative impacts.
• EIA plays a significantly important role in 'Project and its related
environmental management'.

PROJECT STAKEHOLDERS:
Project stakeholders are individuals and organizations that are actively
involved in the project, or whose interests may be affected as a result of
project execution or project completion.
 Key stakeholders: Those who can significantly influence or are important
to the success of an activity.
 Primary stakeholders: Those who are ultimately affected by an activity.
 Secondary stakeholders: All other stakeholders than Primary
stakeholders.
• THE IMPORTANCE OF STAKEHOLDER ANALYSIS
To Know:
 Those around a project, who may affect or be affected by a project
 Opportunities and relationships to build upon in implementing a
project to help make it a success
 Who should be encouraged to participate in a project – Potential
conflicts and risks that could jeopardize a project, etc.

ORGANIZATIONAL STRUCTURE:
The structure of the performing organization often constitute
the availability of resources in a spectrum from functional to
projectized.
• Functional organization : Each employee has one clear
superior. Staff members are grouped by speciality/ functional
departments. ( Finance, Design, Procurement, Construction,
etc). Coordination happens between functional heads.
• Projectized organization : There is team of various specialties.
Team members are collocated and Project managers have a
great deal of independence / authority. Coordination happens
within the team.

PROJECT MANAGEMENT:
It is the application of knowledge, skills, tools and
techniques to project activities to meet project
requirements.
• Identifying requirements
• Establishing clear and achievable objectives
• Balancing the competing demands for quality, scope, time
and cost.
• Adapting the specifications, plans, and approach to the
different concerns and expectations of the various
stakeholders.

PROJECT MANAGEMENT:
Key areas to consider when looking at project management are management
of time, people, and other resources. In general terms, these activities can be
described as follows:
MANAGEMENT OF
TIME
MANAGEMENT OF PEOPLE MANAGEMENT OF OTHER
RESOURCES
Ensuring that the
Project completes its
work on time
Ensuring that people are available
at the right time
Ensuring that appropriate
resources are allocated
Scheduling use of
resources
Ensuring that personnel know
their roles and can perform their
functions properly
Ensuring that the
appropriate resources are
available at the right time
Rescheduling the
project in the light of
experience
Managing people’s expectations Reallocating resources in the
light of experience
Predicting problems
before they arise
Resolving conflicts between
people
Tailoring activities to limited
resources
Changing people’s roles in the light
of experience
Making maximum impact
with available resources

PROJECT MANAGEMENT ACTIVITIES :
• Planning the work or objectives
• Analysis & design of objectives and events
• Assessing and controlling risk (or Risk Management)
• Estimating resources
• Allocation of resources
• Organizing the work
• Acquiring human and material resources
• Assigning tasks
• Directing activities
• Controlling project execution
• Tracking and reporting progress
• Analysing the results based on the facts achieved
• Forecasting future trends in the project
• Quality Management
• Issues management
• Issue solving
• Defect prevention
• Identifying, managing & controlling changes
• Project closure
• Communicating to stakeholders

PROJECT MANAGEMENT PROCESSES:
PROJECT LIFE CYCLE:

PROJECT LIFE CYCLE
3. Project Execution
This stage is where the meat of the project happens. Deliverables
are built to make sure the project is meeting requirements. This is
where most of the time, money, and people are pulled into the
project.
Introductions: Who’s who?
Project background: Why are you doing this project? What are the goals?
Project scope: What exactly will you be doing? What kind of work is involved?
Project plan: How are we going to do this? What does the roadmap look like?
Roles: Who will be responsible for which elements of the project?
Communication: What kind of communication channels will be used? What
kind of meetings or status reports should your team expect?
Tools: What tools will be used to complete the project, and how will they be
used?
Next steps: What are the immediate action items that need to be completed?
Q&A: Open the floor for any questions

PROJECT LIFE CYCLE
4. Project Monitoring and Control
• Monitoring and control are sometimes combined with execution because
they often occur at the same time. As teams execute their project plan,
they must constantly monitor their own progress.
• To guaranteed delivery of what was promised, teams must monitor tasks
to prevent scope creep, calculate key performance indicators and track
variations from allotted cost and time. This constant vigilance helps keep
the project moving ahead smoothly.
5. Project Closure
• Teams close a project when they deliver the finished project to the
customer, communicating completion to stakeholders and releasing
resources to other projects. This vital step in the project lifecycle allows
the team to evaluate and document the project and move on the next
one, using previous project mistakes and successes to build stronger
processes and more successful teams.
• Although project management may seem overwhelming at times, breaking
it down into these five distinct cycles can help your team manage even the
most complex projects and use time and resources more wisely.

PROJECT REPORT:
It is a concise copy of detailed analysis done for the project.
• An entrepreneur/expert prepares the report before the investment in
project is done.
• The report assesses the demand for proposed product/service, works out
cost of investment and profitability on this investment.
• It acts as an instrument to convince investors to invest in the project.
• A project report gives information on the following:
• Economic aspects – present market, scope for growth, justification for
investment.
• Technical aspects – technology, machinery, equipment needed.
• Financial aspects – Total investment needed, entrepreneur’s
contribution, cost of capital and return on capital.
• Marketing aspects – Product details, justification for the choice of
product, sale.
• Managerial aspects – Qualifications, experience of people needed for
managerial posts.

CONTENT OF PROJECT REPORT:
• Objectives and scope of the report.
• Product characteristics (product design, specifications, quality standards, uses
and applications).
• Market position and trends (current capacity for production, potential demand,
sale prospects, price structure etc).
• Raw materials (types, quality, sources, price).
• Construction (process, production schedule, technique used.
• Plant and machinery (types, infrastructure support, cost).
• Land and building (Requirement, building construction schedule, choice of
location, cost).
• Financial implications (Capital structure, capital investment, project cost,
profitability).
• Marketing channels (marketing and advertising strategy).
• Personnel (Requirement of staff, skilled-unskilled labour, salary and wage
payment, qualifications, experience)
• The project report is submitted to financial institutions for grant of loan and
other financial assistance/concessions.
• The financial institutions ascertain from the report, whether the project can
generate enough funds to repay the borrowings in stipulated time frame

PROJECT MANAGEMENT PROCESS MAPPING:
KNOWLEDGE
AREA
PROCESSESS
PROJECT MANAGEMENT PROCESS GROUPS
1.
INITIATING PROCESS
GROUP
2.
PLANNING PROCESS GROUP
3. EXECUTING
PROCESS
GROUP
4. MONITORING &
CONTROL PROCESS
GROUP
5. CLOSING
PROCESS
GROUP
1. PROJECT
INTEGRATION
MANAGEMENT
• DEVELOP PROJECT
CHARTER
• DEVELOP
PRELIMINARY
PROJECT SCOPE
STATEMENTS
DEVELOPMENT PROJECT
MANAGEMENT PLAN
DIRECT AND
MANAGE
PROJECT
EXECUTION
• MONITOR &
CONTROL
PROJECT WORK
• INTEGRATED
CHANGE
CONTROL
CLOSE
PROJECT
2. PROJECT SCOPE
MANAGEMENT
• SCOPE PLANNING
• SCOPE DEFINITION
• CREATE WORK BREAK-DOWN
STRUCTURE
• SCOPE
VERIFICATION
• SCOPE CONTROL
3. PROJECT TIME
MANAGEMENT
• ACTIVITY DEFINITION
• ACTIVITY SEQUENCING
• ACTIVITY RESOURCE
• ESTIMATION
• ACTIVITY DURATION
ESTIMATION
• SCHEDULE DEVELOPMENT
SCHEDULE
CONTROL
4. PROJECT COST
MANAGEMENT
• COST ESTIMATING
• COST BUDGETING
COST CONTROL
5. PROJECT
QUALITY
MANAGEMENT
• QUALITY PLANNING PERFORM
QUALITY
ASSURANCE
PERFORM QUALITY
CONTROL

PROJECT MANAGEMENT PROCESS MAPPING:
KNOWLEDGE AREA
PROCESSESS
PROJECT MANAGEMENT PROCESS GROUPS
1.
INITIATING
PROCESS
GROUP
2.
PLANNING PROCESS
GROUP
3.
EXECUTING PROCESS
GROUP
4.
MONITORING &
CONTROL PROCESS
GROUP
5.
CLOSING
PROCESS
GROUP
6. PROJECT HUMAN
RESOURCE
MANAGEMENT
HUMAN RESOURCE
PLANNING
• ACQUIRE PROJECT
TEAM
• DEVELOP PROJECT
TEAM
• MANAGE PROJECT
TEAM
7. PROJECT
COMMUNICATIONS
MANAGEMENT
COMMUNICATIONS
PLANNING
• INFORMATION
DISTRIBUTION
• PERFORMANCE
REPORTING
• MANAGE
STAKEHOLDERS
8. PROJECT RISK
MANAGEMENT
• RISK MANAGEMENT
PLANNING
• RISK IDENTIFICATION
• QUALITATIVE RISK
ANALYSIS
• QUANTITATIVE RISK
ANALYSIS
RISK MONITORING
AND CONTROL
9. PROJECT
PROCUREMENT
MANAGEMENT
• PLAN PURCHASES
AND ACQUISITIONS
• PLAN
CONTRACTING
• REQUEST SELLER
• RESPONSE
• SELECT SELLERS
CONTRACT
ADMINISTRATION
CONTRACT
CLOSURE

Investment criteria
Investment
Criteria
Non Discounting
Criteria
Payback
Period
Accounting
rate of
return
Discounting Criteria
Net Present
Value
Benefit cost
ratio
Internal Rate
of return

Rate of Return (RoR)
A rate of return (RoR) is the net gain or loss on an investment
over a specified time period, expressed as a percentage of the
investment’s initial cost. Gains on investments are defined as
income received plus any capital gains realized on the sale of
the investment.

The rate of return is used to measure growth between
two periods, rather than over several periods.
The RoR can be used for many purposes, from evaluating
investment growth to year-over-year changes in company
revenues.
The RoR calculation does not consider the effects of
inflation.

What is the Payback Period?
The payback period
shows how long it takes
for a business to recoup
its investment. this type
of analysis allows firms
to compare alternative
investment
opportunities and
decide on a project that
returns its investment
in the shortest time, if
that criteria is
important to them.

Example: Consider the previous investment project. The initial cost is
$600 million. It has been decided that the project should be accepted if
the payback period is 3 years or less. Using the payback rule, should this
project be undertaken?
Year Cash Flow Accumulated Cash Flow
1 $200.00 $200
2 220.00
3 225.00
4 210.00
$420
$645 > $600
$855
ILLUSTRATION

Advantages and Disadvantages of the Payback Rule
Advantages
Simple & quick calculation
Disadvantages
Ignores time value of money
Ignore cash flow after payback period
Popular among many large companies, Commonly used when the:
 capital investment is small
 merits of the project are so obvious that more formal analysis is
unnecessary

An organization has to take many decisions regarding the expansion of
business and investment. In such cases, the organization will take the
help of NPV method and base its decision on the same.
Net present value is used in Capital budgeting to analyze the
profitability of a project or investment. It is calculated by taking the
difference between the present value of cash inflows and present value
of cash outflows over a period of time.
As the name suggests, net present value is nothing but net off of the
present value of cash inflows and outflows by discounting the flows at a
specified rate.
NPV ( Net Present Value )

Formula for NPV
NPV = (Cash flows)/( 1+r)i
i- Initial Investment
Cash flows= Cash flows in the time period
r = Discount rate
i = time period
As seen in the formula – To derive the present value of the cash flows we
need to discount them at a particular rate. This rate is derived considering
the return of investment with similar risk or cost of borrowing, for the
investment.

NPV takes into consideration the time value of money. The time value of money
simply means that a rupee today is of more value today than it will be tomorrow.
Consider it this way: You have Rs. 100 today and you can buy ten chocolates.
The same Rs. 100 will be able to get you not more than the same 5 chocolates
may be after one year. So the cash flows earned today are of more value than as
on a later date.
After discounting the cash flows over different periods, the initial investment is
deducted from it.
 If the result is a positive NPV then the project is accepted.
 If the NPV is negative the project is rejected.
 And if NPV is zero then the organization will stay indifferent.
ILLUSTRATION

Year Flow Present value Computation
0 -1000000 -1000000
1 100000 91743 100000/(1.09)
2 250000 210419 250000/(1.09)^2
3 350000 270264 350000/(1.09)^3
4 265000 187732 265000/(1.09)^4
5 415000 269721 415000/(1.09)^5
Let us say XYZ Ltd wants to do a project and so it is willing to invest Rs 10,00,000.
The investment is said to bring an inflow of Rs. 100,000 in first year, 250,000 in the second year, 350,000
in third year, 265,000 in fourth year and 415,000 in fifth year. Assuming the discount rate to be 9%. Let us
calculate NPV using the formula.
ILLUSTRATION
Here NPV is Rs. 29881.

The internal rate of return (IRR) is a metric used in capital budgeting to
estimate the profitability of potential investments. The internal rate of
return is a discount rate that makes the net present value (NPV) of all
cash flows from a particular project equal to zero. IRR calculations rely
on the same formula as NPV does.
Internal Rate of Return (IRR)
IRR=NPV=t=1∑T(1+r)tCt−C0=0
where:Ct=net cash inflow during the period t
C0=total initial investment costs
r=the discount rate, and
t=the number of time periods T
IRR=NPV= ∑ (Ct) - C0
T=1 (1+r)t
where:
Ct=net cash inflow during the period t
C0=total initial investment costs
r=the discount rate, and
t=the number of time periods

What Does IRR Tell You?
You can think of the internal rate of return as the rate of growth a project is expected to
generate. While the actual rate of return that a given project ends up generating will often
differ from its estimated IRR, a project with a substantially higher IRR value than other
available options would still provide a much better chance of strong growth.
One popular use of IRR is comparing the profitability of establishing new operations with
that of expanding existing ones. For example, an energy company may use IRR in deciding
whether to open a new power plant or to renovate and expand a previously existing one.
While both projects are likely to add value to the company, it is likely that one will be the
more logical decision as prescribed by IRR.

Key Take aways:
• IRR is the rate of growth a project is expected to generate.
• IRR is calculated by the condition that the discount rate is set such that the NPV = 0 for
a project.
• IRR is used in capital budgeting to decide which projects or investments to undertake
and which to forgo.
Compute present values of each net cash flow. Multiply the net cash flow for each period
by its discount factor to obtain its present value. Sum the present values of each cash flow
to calculate the NPV. Find the IRR, the discount rate, that makes the NPV zero.

Cost Benefits Analysis (CBA)
Benefit Cost Analysis (BCA) is an economic tool for
government policy and investment project analysis used widely
Can incorporate environmental impacts of policies/projects
within CBA to correct for market failure
“Social” appraisal of policies and projects, carried out by
aggregation of benefits from, and costs of a policy/project over
individuals and over time
Welfare theoretic underpinning: Economic efficiency with a
temporal dimension

Relates to the environment in three ways:
 Projects/policies may have negative environmental
effects, i.e. negative externalities (public and private)
 Projects/policies may have positive externalities (public)
 Projects/policies may have both positive and negative
externalities (public and private)
Externalities should be included in CBA in order to
correct for market failure

Welfare Economics Background
CBA is firmly based in welfare theory in three ways
In terms of how gains and losses are measured
Consumers: Changes in consumer surplus as a result of changes in
quantity and quality of environmental goods
Producers: Changes in producer surplus as a result of changes in
prices and quantity and quality of inputs
Makes use of the opportunity cost (scarcity rents) concept to
asses costs of using scarce resources

What counts as costs and benefits
◦ Welfare economics evaluates alternative resource allocations in
terms of their effects on utility
◦ CBA includes any impact on utility whether or not they are
reflected in market prices
Welfare Economics Background

In terms of aggregation and comparison of costs and
benefits
◦ Policies and projects have a mixture of gains and losses across
individuals
◦ Gains and losses are calculated in money terms, added up and
compared to find out the net impact on welfare (net gain or
net loss)
◦ Measure of the change in social welfare is based on Kaldor-
Hick Criterion: Could gainers compensate the losers and still be
better off?
◦ This criterion considers economic efficiency but interpersonal
welfare impacts, i.e. Distribution of gains and losses are not
considered

Stages of CBA
Stage 1: Definition of policy/project:
◦ The reallocation of resources being proposed
◦ The population of gainers and losers being considered
Stage 2: Identification of policy/project impacts:
◦ Define all impacts that will result from policy/project
implementation
◦ Consider additionally (net impacts) and displacement (crowding
out)

Stage 3: Identification of economically relevant impacts:
Environmental impacts of a policy/project are relevant in
CBA if either
◦ They change the utility of at least one person in the society
◦ They change the quantity or quality of the output of some
positively valued commodity
Stage 4: Physical quantification of relevant impacts:
◦ Determine physical amounts of costs and benefits and when
they occur in time
◦ Use environmental impact analysis to estimate the impact of
policy/project on the environment
◦ Estimations will be made with uncertainty, calculate the
expected value of costs and benefits

Stage 5: Monetary valuation of relevant
effects
◦All physical measures of impacts should be
valued in common units to be comparable
◦Common unit = money
◦CBA analyst must
◦ Predict prices for value flows extending into the future
◦ Correct market prices where they are distorted
◦ Calculate prices where non exists using environmental
valuation methods

Stage 6: Discounting of costs and benefits:
◦ Once costs and benefits are expressed in monetary
units they should be converted to present value terms
by discounting
◦ PV= Xt[(1+r)-t] where X= cost or benefit; r = discount
rate; [(1+r)-t] discount factor; t= time
◦ The higher the value of t the lower the discount factor
◦ The higher the discount rate for a given t the lower
the discount factor

Stage 7:Applying the net present value test:
◦ Apply NPV test to choose those policies and projects that are
efficient in terms of their use of resources
◦ Where Bt = benefits of the project at period t, Ct = the costs of the
project at period t, r = the discount rate, n = the number of years
over which the project will operate
◦ NPV is the present value of the project’s/policy’s net benefit
stream, obtained by discounting the stream of net benefits
produced by the project/policy over its lifetime, back to its value in
the chosen base period, usually the present.
◦ If NPV>0 accept policy or project (Based in Kaldor-Hicks Criterion)
since it would improve social welfare
( )
( )∑= +
−n
t
t
tt
r
CB
0 1

Alternatives to NPV
Benefit – Cost ratio (BCR): It is the ratio of the sum of the
project’s or policy’s discounted benefits to the sum of its
discounted costs. If BCR>1 go ahead with the project/policy.
t
t
n
t
n
t
t
t
r
C
r
B
BCR
)1(
)(
)1(
)(
0
0
+
+
=
∑
∑
=
=

Stage 8: Sensitivity analysis:
◦ NPV test gives relative efficiency of a project given the data on
prices, environmental and economic impacts and discount rate
but any of these data might change due to uncertainty
◦ Recalculate NPV when the key parameters change to discover
which one(s) of them the NPV is most sensitive to
◦ Once the most sensitive parameter is identified direct forecasting
effort to improve best guess and more effort to manage these
parameters carefully

Total Economic Value (TEV)
Environmental goods are public goods, they are not traded in the
markets and hence they do not have readily available market prices
The value of environmental good is not only derived from its direct
consumption but also from its indirect consumption, as well as non-
use.
The broad concept of value is known as the Total Economic Value
(TEV)

Direct Use
Value
Indirect Use
Value
Actual use
Value
Option Value
Use Value
Existence
Value
Bequest
Value
Altruistic
Value
For Others
Non-use Value
Total Economic Value

TEV Deforestation
Direct use values: Timber values, fuelwood and charcoal
extraction, non-timber forest products (NTFP), biodiversity and
genetic information, tourism and recreational values.
Indirect use values: Protection of watersheds and the storage of
carbon and sequestration.
Option values: values reflecting a willingness to pay to conserve
the option of making use of the forest even though no current
use is made of it
Non-use values (also known as existence or passive use values):
these values reflect a willingness to pay for the forest in a
conserved or sustainable use state, but the willingness to pay is
unrelated to current or planned use of the forest.

Project Planning and Management

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