Project Analysis and Appraisal.pdf

Maryland International College
Project Analysis and Appraisal
PMgt 652
1
Gemechu Nemera, PhD

Chapter one
BRIEF OVERVIEW OF PROJECT
LIFECYCLE
2

3
The Project Life Cycle
•is the stages through which the project
passes from inception to its completion.
•Is a continuous process made up of
separate and complementary stages
(phases) each with its own
characteristics and each setting a ground
for the next one.

Cont’d
•The main features and elements of this process are
information gathering, analysis and decision
making.
•The project cycle consist of various stages in which
each stage, not only is grown out of the preceding
ones, but also leads into the subsequent ones.
•There is no single way of devising the different
phases of a project there are many equally valid
ways in which the project cycle may be divided.

Cont’d
•There are different basic models of project life
cycles:
•The Baum project life cycle (World Bank
approach)
•UNIDO project life cycle

The Baum(World Bank) project life cycle
• The first basic model of a project cycle was that of Baum
developed in 1970, which has been adopted by the World
Bank and initially recognized four main stages, namely
• Identification
• Preparation
• Appraisal and selection
• Implementation
• At a later stage in 1978 the author has added another stage
called “Evaluation “thus making the stages 5 in number.

Identification Phase:
• The first stage in the project life cycle is to find potentially promising
projects which are worthwhile for investment. Some of the sources of
such projects are listed below:
• Some projects are resource based and stem from the opportunity to
make profitable use of available resources.
• Some may be market based arising from an identified demand in home
or overseas markets.
• Others may be need based and initiated to make available certain basic
material requirements and services to all people in an area at minimal
amounts.
• Well informed technical specialists and local leaders are also common
source of projects. Technical specialists will identify many areas
where they feel new investment might be profitable, while local
leaders may have suggestions about where investment might be
carried out.
• Ideas for new projects also come from proposals to extend existing
program.

Preparation Phase:
• Once projects are identified, there begins a process of
progressively more detailed analysis of the projects and
preparation of the project plans.
• This phase of the project life cycle which normally includes
both the prefeasibility and feasibility study.
• Project preparation covers the establishment of all the
technical, economic, social, financial, institutional and
environmental feasibility analyses.
• From the inferences of such analysis, decisions have to be
made on the scope of the project, location and site, soil and
hydrological requirements, project size etc. At this stage the
project exists as asset of tangible proposals.

Appraisal Phase
•At this stage critical review of the project is to be
conducted. This provides an opportunity to re-
examine every aspect of the project proposal
(project plan) to assess whether the proposal is
appropriate and sound before large sums are
invested. Generally only internal
institution/government staffs are used for this
work. Projects are appraised both in the field and
at the desk level.

• Appraisals should cover at least seven aspects of the project,
each of which must have been given special consideration
during the project preparation stage.
• Technical-whether the proposed project will work in the
way suggested or not
• Financial- requirements for money needed by the project
have been calculated properly, their sources are all
identified and reasonable plans for their repayment are
made where necessary
• Commercial- inputs for the project are conceived to be
supplied is examined here and also the arrangements for
the disposal of the products are verified
• Incentive- will participants interested in to the project
• Economic- projects contribution to the nations economic
interest
• Managerial- capacity for operating the project
• Organizational- if it is organized internally and externally
into units

Implementation Phase:
•The clear objective of any effort in project planning
and analysis is to have a project that can be
implemented to the benefit of the society.
•Thus implementation is perhaps the most important
part of the project cycle. In this stage, funds are
actually disbursed to get the project started and keep
running.
•A major priority during this stage is to ensure that
the project is carried out in the way and within the
period that was planned. Problems frequently occur
when the economic and financial environment at
implementation differs from the situation expected
during appraisal.

Evaluation Phase
• Once a project has been carried out, it is often useful, to look back
over what took place, to compare actual progress with the plans,
to judge whether the decisions and actions taken were corrective,
to see whether the results obtained are optimal in a sense that the
resources are efficiently utilized and whether the project’s goals
and objectives are effectively achieved.
• The extent to which the objectives of a project are being realized
provides the primary criterion for an evaluation.
• The analysts look systematically at the elements of success and
failure in the project experience to obtain insights about how to
plan more productive projects in future.
• Evaluation is not limited only to completed projects.
• It is the most important managerial tool in ongoing projects and
rather formalized evaluation may take place at several times in the
life of project.

Identification
Implementation Appraisal
Evaluation Preparation
Financing
decision
Proposal
development
13
The project cycle Resource, market demand,
need, technical/expertise,
extension of existing projects

Identification Potential projects emerge from specialists, local leaders and national
development strategies.
Identification of potential stakeholders, particularly primary
stakeholders.
Carry out problem assessment and decide upon key objectives.
Assess alternative strategies for meeting objective.
Preparation and
analysis
The technical, institutional, economic, environmental, and
financial issues facing the project studied and addressed —including
whether there are alternative methods for achieving the same
objectives.
Assessing feasibility as to whether and determining whether to carry
out more advanced planning. Project plan developed which can be
appraised.
Appraisal Critical review or independent appraisal of project plan.
Implementation
and
monitoring
The project plan is implemented over a specified time period.
Monitoring of project performance with a management information
system to enable correction of implementation problems as they arise.
Evaluation On-going and final assessment of the success of the project against
original objectives, to learn lessons to help improve future projects.
14

The UNIDO model
• The United Nations Industrial Development organization’s
(UNIDO) the project development cycle comprises three
distinct phases, they are:
• Pre- investment phase
• Investment phase and
• Operational phase

Pre- investment phase
• Opportunity study( identification of project
ideas)
•Pre-feasibility study (preliminary project
formulation , selection of alternatives)
•Feasibility study (techno-economical project
back ground, final project formulation stage)
•Evaluation report ( decision making about
project availability)

Contents of feasibility study
• Executive summary
• Project back ground and history
• Market and plant capacity
• Location and site
• Project engineering works
• Factory, administrative and sale overheads
• Man power
• Project implementation
• Financial analysis and
• Project risk analysis

Investment phase
• Project design stage
•Construction stage
•Pre-production marketing stage
•Training
•Start-up stage

Operational phase
•Replacement of equipment
•Development, invasion or liquidation

2. PROJECT PREPARATION AND
ANALYSIS
20

Overview of feasibility study
A key process that justifies whether to go a head
with certain project idea or disregard it.
A feasible business venture is one where the
business will:
•Generate adequate cash-flow and profits
•Withstand the risks it will encounter
•Remain viable in the long term and meet the
goals of the founders
21

Why do feasibility study
Give focus to the project and outline alternatives
by narrowing them
Surfaces new opportunities through the
investigative process
Identify reasons not to proceed
Enhance the probability of success
Provide quality information for decision making
Help to increase investment in the company
Help in securing fund
22

Reasons not to do feasibility study
We know what is feasible as an existing business
is already doing it
Why do another feasibility study when one was
done few years a go
Feasibility studies are a way for consultants to
make money
The market analysis is done by the company that
sell us the equipment
Why not just hire a general manager who can do
the study
Feasibility studies are waste of time
23

Consequences of poor project preparation
Low capacity utilization
Heavy cost overruns
Deteriorated financial profitability
Lingering illness or the sudden death syndrome
Overestimated returns
Underestimated costs
Omission of a necessary component
Optimistic projections (yield and date)
Failure to consider the variability of climate
Optimistic calendar for implementations
24

Cont’d
In order for a project to be viable it has to
gone through a series of rigorous testing.
This is basically done at an appraising stage
of project lifecycle.
Market, technical, institutional feasibility,
commercial profitability and social cost
benefit analysis which are pre requisite for an
investment project should, therefore, be
defined and critically examined on the basis
of alternative solution already reviewed
25

Market and Demand Analysis
first step in project analysis is to estimate the
potential size of the market proposed for to be
manufactured.
Market and demand analysis is concerned with
two broad issues;
•what is the likely aggregate demand for the
product?
•What share of the market will the project
enjoy
26

Cont’d
in-depth study and assessment of various
factors:
•patterns of consumption,
•growth,
•income elasticity
•price elasticity of demand,
•composition of the market,
•nature of competition,
•availability of substitutes
27

Situational analysis and specification of objectives
to get a 'feel' for the relationship between the
product and its market, the project analyst may
informally talk to customer competitors,
middlemen, and others in the industry
look at the experiences of the company to learn
about the preferences and purchasing power of
customers, actions and strategies of competitors.
28

Cont’d
If situational analysis generate enough data to
measure the market and enable us to have a
clear picture of projected demand and
revenue, a formal study need not be carried
out, particularly when time and cost
consideration so suggest.
In most cases, of course a formal study of
market and demand is warranted
29

Cont’d
suppose that a small but technological
competent firm has developed an LCD
projector based on a new principle that
appears to offer several advantage over the
conventional (former) LCD.
chief executive of the firm needs information
about where and how to market the new LCD
projector.
30

Cont’d
The objectives of market and demand analysis in
this case may be to answer the following
questions:
•Who are the buyers of LCD?
•What is the total current demand for LCD?
•How is the demand temporarily distributed
(pattern of sales over the year) and
geographically?
•What is the break-up of demand for LCD of
different size?
•What prices will the customers be willing to
pay for the improved LCD?
31

Cont’d
•How can potential customers be convinced
about the superiority of the new LCD?
•What price and warranty will ensure its
acceptance?
•What channel of distribution are most
suited for the LCD?
•What trade margin will induce distributors
to carry it?
•What are the prospects of immediate sales?
32

COLLECTION OF SECONDARY INFORMATION
information may be obtained from secondary
and/or primary sources.
Secondary information is information that has
been gathered in some other context and is
already available.
Primary information represents those
information which are collected for the first time
to meet the specific purpose on hand.
Secondary information provides the base and the
starting point for market and demand analysis.
It indicates what is known and often provides
leads and cues for gathering primary information
required for further analysis. 33

source of secondary information
census of Ethiopia
national sample survey reports
statistical abstracts
annual survey of industries/agriculture and
export
economic survey
annual report by national bank of Ethiopia
bulletin on import and export
other publications
34

MARKET SURVEY
For undertaking a market survey there is a
need to have a sample, which represents the
entire market.
Thus, sampling is the process of drawing a
limited number of subjects from a larger
population or universe.
Since, the researcher cannot survey the entire
universe or population that they are
interested, they usually draw a sample of
subjects from the population for investigation.
35

Steps in a Sample Survey
Define the target population
Select the sampling scheme and sample size
Develop the questionnaire
Recruit and Train the Field Investigators
Obtain information as per the questionnaire
from the sample respondent
Scrutinize the information gathered
Analyze and Interpret the Information-
parametric and non parametric
36

Cont’d
Results of data based on sample survey will have to
be extrapolated to the target population.
Here it should be noted that the results of the market
survey can be affected by:
•non representativeness of sample
• imprecision and inadequacies in the questions,
•failure of the respondent to comprehend the
questions
•deliberate distortion in the answer given by the
respondent
•slipshod scrutiny of data
•incorrect and inappropriate analysis and
interpretation of data.
37

Market characterization
 Based on the information gathered from
secondary sources and through the market survey,
the market for the product may be described in
terms of:
 Effective demand in the past and present
 Breakdown of demand
 Price
 Methods of distribution and sales promotion
 Consumers
 Supply and competition
 Government policy
38

Effective Demand in Past and Present
 To gauge the effective demand the starting point is apparent
consumption which is defined as:
ED= Production + Imports – Exports – Changes in Stock
Level
 In a competitive market, effective demand and apparent
consumption are equal.
 However, in most of the developing countries, where
competitive markets do not exist for a variety of products
due to exchange restrictions and controls on production and
distribution.
 The figure of apparent consumption may have to be adjusted for
market imperfections
39

Breakdown of Demand
To get a deeper insight into the nature of
demand, the aggregate (total) market demand
may be broken down into demand for
different segments of the market:
•Nature of product: commercial vehicles
covers trucks and buses of various
capacities
•Consumer groups: industrial users and
domestic consumers
•Geographical divisions
40

Price
Price statistics must be gathered along with
statistics pertaining to physical quantities.
It may be helpful to distinguish the following
types of prices.
•manufacturer's price quoted as FOB (Free
on board) price or CIF (Cost, insurance and
freight) price
•landed price for imported goods
•average wholesale price, and
•average retail price
41

Method of Distribution and Sales Promotion
The method of distribution may vary with the
nature of product.
Capital goods, industrial raw materials or
intermediates, and consumer products tend to
have differing distribution channels.
Further, for a given product, distribution
methods may vary.
Likewise, methods used for sales promotion
(advertising, discount gift schemes) may vary
from product to product.
42

Consumer classification
Demographic & sociological
 Age
 Sex
 Income
 Profession
 Residence
 Social background
Attitudinal
 Preference
 Intention
 Habits
 Attitudes
 Responses
43

Supply and Competition
It is necessary to know the existing source of
supply and whether they are foreign or
domestic.
For domestic sources of supply, information
along the following lines may be gathered:
•location,
•present production capacity,
•planned expansion,
•capacity utilization level,
•bottlenecks in production and cost structure
44

Competition
Competition from substitute and near
substitute should be special because almost
any product may be replaced by some other
product as a result of:
•relative charges in price,
•quality,
•availability,
• promotional effort and so on.
45

Government Policy
The role of government in influencing the
demand and market for a product may be
significant.
Governmental plans, policies, legislation and
orders which have a bearing on the market and
demand of the product under examination should
be spelt out.
These are reflected in: production target in
national plans, import and export trade controls,
import duties, export incentives, excise duties,
sales tax, industrial licensing, preferential
purchase, credit controls, financial regulation
and subsidies/penalties of various kinds 46

DEMAND FORECASTING
After gathering information about various
aspects of the market and demand from
primary and secondary sources, an attempt
may be made to estimate future demand.
A wide range of forecasting method is
available to the market analyst.
This may be broadly divided into two
categories:
•qualitative and
•quantitative methods.
47

Qualitative Methods
These methods rely essentially on the judgment
of experts to translate qualitative information
into quantitative estimate
•Jury of executive opinion method- method
calls for the pooling of views of a group of
executive and combining them into sales
estimate by averaging
•Delphi method: this method involves
converting the views of a group of experts,
who do not interact face to face into a forecast
through an iterative process
•Opinions of sales persons
•Customers expectations 48

Quantitative Methods
time series projection and causal methods.
Time series projection methods: generates
forecasts on the basis of an analysis of the
historical time series.
The important time series projection methods
are as follows:
•Trend projection method
•Exponential smoothing method
•Moving average method
49

Causal methods
 Chain ratio method: a simple analytical approach, this method
calls for applying a series of factors for developing a demand
forecast.
 Adult male in Ethiopia= 20 ml
 Proportion of adult male popl using shaving blades= 0.6
 Adult male using shaving blade= 20 mlx0.6= 12 ml
 Number of times person shaves/year= 100
 Total shaves/year 1200 ml
 Prop. Of shaving done with stainless blade= 0.4
 Average shaves per stainless blade = 6
 Stainless blades used per year= (1200 mlx0.4)/6= 80 ml
 Market share the firm could capture= 0.2;
 Hence, potential sale of the firm will be 0.2x80 ml= 16 million
50

Cont’d
 Consumption level method: useful for a product
that is directly consumed, this method estimate
consumption level on the basis of elasticity
coefficient, the important ones being the income
elasticity of demand and the price elasticity of
demand.
51

Income elasticity of demand

52

Cont’d
 Projected aggregate dd=
(Projected pop)x (current per capita dd)x(per
capital change in income level)x EI
Example
Increase in per capita income= 10%
Present per capita income for coffee= 3 Kgs
Projected population next year= 100 ml
Aggregate dd for coffee=
(100 ml) (3kg)(1+0.10x0.85)= 325.5 million Kgs
53

Cont’d
End use method: suitable for intermediate
products, the end use method develops demand
forecasts on the basis of the consumption
coefficient of the product for the various uses.
Involves:
•Identification of possible uses of the product
•Define consumption coefficients of the
product for various uses
•Project the output level for the consuming
industry
•Derive demand for the product
54

Cont’d
 Harar coffee is used by four different coffee
producers. The relevant data given below
55
Consumption
coefficients
Project output
next year
Project dd for
harar Coffee
Starbucks 1 50,000 50000
Green bond 0.5 25,000 12500
Silver
diamond
0.8 30,000 24,000
Oda star 0.25 80,000 20000
106,500 Kgs

Cont’d
Leading indicator method: observed changes
in leading indicators are used to predict the
change in lagging variables.
•Change in the level of urbanization may
change the need for air conditioners
•Can be estimated using regression equation
56

Technical analysis
Analysis of technical and engineering aspect
is done continually when a project is being
examined and formulated.
Other types of analysis are dependent and
closely intertwined with technical analysis.
The technical feasibility of a project is
examined by the engineers in the bank.
58

 Technical analysis is concerned primarily with:
material inputs and utilities
manufacturing process/technology
product mix
plan capacity
location and site
machineries and equipments
structures and civil works
project charts and layouts
work schedule
59

MATERIAL INPUTS AND UTILITIES
An important aspect of technical analysis is
concerned with defining the materials and
utilities required, specifying their properties in
some detail and setting up their supply program.
Material inputs and utilities may be classified
into four broad categories:
•Raw Materials,
•Processed Industrial Materials and
Components
•Auxiliary Materials and Factory Supplies and
•Utilities.
60

MANUFACTURING PROCESS/
TECHNOLOGY
It is to be ensured that the manufacturing process to
be adopted is modern and at the same time
appropriate to the level of economic development of
the country.
the choice of technology is influenced by:
• Plant capacity
• Principal Inputs
• Investment outlay and production cost
• Use by other units
• Latest development
• Ease of absorption
61

Acquiring Technology
 The company can acquire technology by
Technology licensing- gives the licensee (the
one who receive the technology) the right to
use patented technology and get related know
how on a mutually agreed bases.
Outright purchases-
Joint ventures arrangement- supplier of
technology may participate technically as
well as financially in the project
62

Appropriateness of Technology
Appropriate technology refers to those methods of
production which are suitable to local economic,
social and cultural conditions
technology should be evaluated in terms of:
• Whether the technology utilizes local raw materials?
• Whether the technology utilizes local manpower?
• Whether the goods and services produced cater to the
basic needs?
• Whether the technology protects the ecological balance?
• Whether the technology is harmonious with social and
cultural conditions?
63

Cont’d
Product Mix- items, variation in size and quality
Plant Capacity- Feasible Normal Capacity and
Nominal Maximum Capacity
Locations and Site – proximity, infrastructure,
government policy,
Machineries And Equipment- plants, equipment
(mechanical and electrical), instruments,
controls, and internal transportation systems
Structure and Civil Works- site development and
preparation, building and structure, outdoor
works
64

Management
Management is one of the most vital inputs for
the success of a business enterprise.
It is the backbone of a project from appraisal
stage to successful implementation and future
growth.
It is the quality of management that makes all
the difference between success and failure of a
project.
Though management is the most important
factor, yet it is the most difficult to assess and
evaluate because it is abstract, intangible and
non quantifiable. 66

Cont’d
Assessment of management is more an art
than a science.
In management appraisal we are concerned
with integrity, caliber, resourcefulness, and
quality of management.
The aim is to identify management gap and
inadequacies and supplement them wherever
necessary having regard to the background,
experience and managerial capability to the
entrepreneurs
67

Issues to address
•How the project is organized and the
implication of that on the feasibility of the
project
•Project team, their experience, level of
education, skill, field of study and
specialization
•Coordination and communication in the
project
•Authority, responsibility and accountability
issue in the project

Why
to determine, analyze and interpret all
the financial consequences of an
investment that might be relevant to and
significant for the investment and
financing decisions.
70

Why Financial analysis
It provides an adequate financing plan for the
proposed investment
It determines the profitability of a project
It assists in planning the operation and control of
the project by providing management
information to both internal and external users
It advises on methods of improving the financial
viability of a project entity
It illustrates the financial structure of the project
and its existing and potential financial viability.
71

METHODS OF FINANCIALANALYSIS
Resource flow statements
Profit and loss statements
Cash flow statements and
Balance Sheet
72

Resource flow
The benefit and cost items included in the
statement should include only those items,
which are incremental.
The resource flow statement shows: (1) the
list of resources used in the project and (2) the
resources generated by the investment on the
project.
73

Elements of resource flow
Investment costs: investment costs cover capital expenditure items
such as land, buildings, equipment and furniture
a) Initial fixed investment costs. This includes investment made
for the acquisition of land, development of land for
construction purpose, civil works (laying the foundation),
equipment and machinery costs, installation of the machines or
the plant, vehicle, furniture, building
b) Pre-production capital expenditure
• Research and development
• Pre-feasibility or feasibility study cost
• Training costs incurred before the commencement of the
operation
• Recruitment of personnel costs
• Arrangement for marketing of the product
• Arrangements for supplies 74

Investment cost cont’d
c) Working capital
•Working capital is simply a revolving fund. It is
the difference between current asset and current
liability.
•This is known as a circulating fund because at the
end of the project's life it can be put as a benefit of
the project.
•Defining the working capital requirement
appropriately is important because many projects
fail while they are in operation due to shortage of
cash or working capital.
•The amount of the total working capital required
depends upon the operating costs for the project
75

Working capital (Cont’d)
There are three basic components of physical
working and capital inventories needed for
production to be continuous. These are:
•Initial stock and materials
•Work-in-process and
•Stock of outputs
76

Working capital (cont’d)
the amount of funds required for operating needs
varies from time to time in every business.
But a certain amount of assets in the form of
working capital are always required; if the business
has to carry out its functions efficiently and without
a break.
The two types of requirements are permanent (fixed)
and variable.
•The permanent working capital is that part of
capital which is permanently locked up in the
circulation of current assets and in keeping it
moving.
•variable working capital changes with the volume
of the output of the project 77

Elements of resource flow (cont’d)
Operating Costs/Production Costs.
Operating costs can be divided into two:
Fixed and Variable components.
Variable cost includes items such as
materials, power, labor inputs required for
manufacture which will vary directly with the
volume of production; while fixed costs will
include maintenance, administration and
managerial charges which will be relatively
fixed with respect to the volume of
production.
78

No
Years
Items 1 2 3 4 5 n
Capacity Utilization Rate (%) 50% 75% 80% 85% 90% 100%
1 Raw material
2 Labor
3 Utilities
4 Repair
5 Maintenance and Repair
6 Factory Overhead
Factory Costs (1-6) (a) XX XX XX XX XX
7 Administrative costs
8 Sales costs
9 Distribution cost
Operating Costs (7-9) (b) XX XX XX XX XX
10 Depreciation (c)
11 Interest expenses (d)
Total production Cost
(a + b + c + d) (Bold) XX XX XX XX XX
79

operating cost includes
1. Cost of Production
 Material cost
 Wages including salaries for executives
 Utilities
 Repairs and maintenance
 Factory over heads. These items include expenses for the
factory as:
 rent, for factory, if any
 insurance premium for factory assets and factory workers
 postage, telephone, fax, e-mail, etc, in the factory
 traveling expenses
 depreciation of plant and machinery and other factory
equipment
 proportionate management expenses 80

2. Administrative Expenses
 This represents all indirect expenses incurred in
the organization including estimates for
salaries of all indirect staff
postage, telephone, fax, e-mail
traveling expenses
insurance other than for the factory assets
rent, rates, taxes, electricity and
depreciations of all fixed assets other than
factory fixed assets
81

3. Selling Expenses
 estimated expenses in sales divisions as per
projected organizations and includes the items:
salaries and personnel cost for sales staff and
managers as planned
publicity, advertisement, exhibitions, etc.
subsidies, commissions, discounts to dealers,
etc.
administrative expenses of sales office
including rent.
82

4. Depreciation
 Depreciation expenses represent
consumption of utility units contained in an
asset.
 It relates to the cost center where such assets
are installed.
83

Benefits
Benefits can be direct (production output)
which may include items like:
•main product
•by product
•residual and other income
Benefits can also be indirect or external: in a
road projects reducing transportation costs,
reducing operating costs for maintenance of
vehicles and saving time of the society are
indirect benefits of the project
84

Project Resource Statements
No
Project Period
Items 1 2 3 4 5 6
1 Land preparation
2 Buildings
3 Equipment
4 Vehicles
5 Total investment cost (1 + 2 + 3 + 4)
6 Factory costs
7 Administrative costs
8 Selling expenses
9 Depreciation
10 Total operating costs (6 + 7 + 8 + 9)
11 Incremental working capital
12 Benefits
13 Net Benefits (12-10-11)
85

Project Financial Statements
Financial analysis also involves formulation
of various financial statements, which enable
project owners and other interested
stakeholders to know whether the projects
worthy or not.
commonly prepared financial statements are:
•balance sheet,
•loss and profit statement, and
•cash flow statements
86

Criteria for evaluating financial viability of
projects
There are different criteria to assess the
financial feasibility of projects:
Payback period
Discounting pay back period
Net present value
Internal rate of return
Accounting rate of return
87

Example 1: NPV calculation
 AMA company is considering to invest in a particular project.
The initial investment cost is Br. 100,000. It is expected that the
project may generate a benefit for 5 years as shown below:

Year Operating cost Annual cash inflow
1 Br. 100,000 --
2 6,000 Br. 20,000
3 10,000 30,000
4 2,000 40,000
5 1,000 35,000
 The discounting rate is 10%
 Required: Calculate the NPV
88

Solution
Year Cost Revenue
(Cash in flows)
Present Value
Factor
P.V. C PV.Rev
0 Br. 100,000 -- 1 100000 0
1 6,000 Br. 20,000 0.9091 5454.545 18181.82
2 10,000 30,000 0.8264 8264.463 24793.39
3 2,000 40,000 0.7513 1502.63 30052.59
4 1,000 40,000 0.6830 683.0135 27320.54
5 1,000 35,000 0.6209 620.9213 21732.25
Total
116525.6 122080.6
89

Solution
 Net present value of the project = PV of Revenue
– PV of Costs
= 122,080.6 – 116525.6
= Br. 5555
90

Cont’d
 Example: A company is considering investing on a particular
project. The alternative projects available are: Project A that
costs Br. 100,000, and Project B that Costs Br. 70,000. The net
cash in flows estimates are as follows:
Year Project A Project B
1 30,000 7,000
2 30,000 15,000
3 35,000 20,000
4 35,000 56,000
5 40,000 45,000
 Which project is good? Use payback period and NPV
91

IRR
•Internal Rate of Return (IRR): is defined as
the discount rate that makes the net present
value zero. IRR method finds out the rate at
which – when applied on future cash inflows
– the present value of such inflows taken
together should equal with the present value
of the cost of investment.
92

IRR (CONT’D)
•IRR = LDR + (HDR-LDR)  NPV of
LDS/abs. D/ce the NPVs
•As you can see in the formula, you need to
have two net present values i.e., positive and
negative NPVs that can be determined by the
trial and error method.
•The higher the discount rate is the lower NPV
and the lower the discount rate is the higher
the NPV 93

Example
 Example 1: NPV calculation
 AMA company is considering to invest in a particular project.
The initial investment cost is Br. 100,000. It is expected that
the project may generate a benefit for 5 years as shown below:
Year Operating cost Annual cash inflow
0 Br. 100,000 --
1 6,000 Br. 20,000
2 10,000 30,000
3 2,000 40,000
4 1,000 40,000
5 1,000 35,000
 Find the internal rate of return 94

Calculate NPVs at 10%, 11%, % 12%
 At 10%, NPV = 5555.011
 At 11%, NPV= 2498.187
 At 12%, NPV= -430.755
 Hence, the IRR lies between 11% and 12%.
 Using the previous formula, IRR = 11%
+(12-11)%(2498.187/2928.943)= 11.85%
95

Financial Ratio Analysis
 If you look at the figures in a Balance sheet
or Income statement, it is sometimes difficult
to see their significance. A better
appreciation may often be gained by a
consideration of the relationship between
figures, rather than examining their absolute
values.
96

 Profitability
 The relationships of profits made to the sales
or assets which have generated them:
i) Gross Profit at % of sales = (gross
profit/sales) x100
 This shows the extent to which the direct
costs of sales absorb the sales revenue. The
gross profit is the fund out of which the
company must meet its expenses and still
leave a balance of profit.
97

 Net Profit as % of Sales = (Net profit after
interest and tax/sales)/100
 This shows the extent to which all costs
(direct costs + expense) absorb sales revenue
and what net profit remains per $ of sales.
98

 Return on Assets = (net profit before tax and
interest/total net asset)x100
 This shows how much profit is made for
every $ of assets which have been used to
generate it. It is a measure of the efficiency
with which assets have been used by the
company.
99

iv) Shareholders Return =
(Net Profit (After tax and interest) x 100
Shareholders’Equity (Share Capital + Reserves)
 This shows how much profit is made for the
shareholders for each $ the shareholders have
invested in the project. It shows how successful the
investment has been from the shareholder’s point of
view.
100

 Liquidity
Current Ratio = Current Asset
(Working Capital Ratio) (Current
Liabilities)
By comparing assets and liabilities we try to
see if the company is in the position to pay its
debts. i)
101

 Comparison of the total current assets with the
total current liabilities will show whether the
company is in a position to settle its liabilities or
whether there is some deficiency of assets. As a
general rule a current ratio 2:1 is thought to be
satisfactory.
ii) Quick Ratio =Current Asset – Stocks
(Acid Test Ratio) Current Liabilities
102

 Consideration of the Current Assets as a
whole in relation to Current Liabilities is
often considered as dubious, as some of the
current assets (particularly stocks) are less
readily realizable than others. The quick
ratio compares those assets which are cash,
or readily turned into cash (e.g., debtors) to
the Current Liabilities. These are generally
expressed as ratios. It is considered that a 1:1
ratio indicates a satisfactory situation.
103

 d) Cover
i) Times Interest Earned =
Net Profit (before tax and interest
Interest Paid
ii) Dividend Cover =
Net Profit (After tax and interest
Dividends
 This compares the amount of a charge such as interest or
dividends with the funds out of which it has to be paid. It is
measure of how far profits could fall before the company
would be unable to meet the relevant obligation. These are
expressed as “times” the relevant factor (e.g., dividends are
covered three times by profits). The Dividend Cover Ratio
is sometimes expressed as a % of profit paid out as
dividend, or payout ratio.
104

d) Efficiency
 The smaller the asset base upon which a given volume
of business can be generated, the greater will be the
profitability of the company. This can be measured by
the efficiency with which various cases of assets are
used.
 i) Fixed Asset Turnover = (Sales)
Fixed Assets
 The more sales that are achieved from the fixed asset
base, the greater will be the number of times the net
profit per birr of sales will be earned in a year and this
will give rise to greater profitability. This is expressed
as a turnover ratio, e.g., x times p.a.
105

 ii) Total Net Asset Turnover = (Sales)
Total Net Assets
 Has similar significance but considers all assets.
iii) Stock Turnover Period (in days) = Sales
Stocks =
Times
106

 The more quickly the stocks can be sold, the
less the average investment will be and the
more efficiently the company will be
operating.
 iv) Debtors’ Turnover Period (in days) =
(Debtors x 365)
Sales
 v) The more quickly debts can be collected, the
lower the average amount advanced to
customers will be and the more efficiently the
company will be operating. 107

Market Ratings
 a) Earnings Per Share =
Net Profit (after tax + interest)
Number of Ordinary Shares
 How much profit has been earned for each
outstanding Ordinary share?
108

b) Price/Earning Ratio = (Market Price per Share)
Earning Per Share
 This expresses the relationship between the earning
made in respect of a share and the price the market
demands for it. It is measure of the way the market
regards a particular share. The higher the opinion of
the market, the greater price will be in respect of a
given amount of earnings and the higher the P/E
Ratio will be. The same information is sometimes
presented in a different format as the capitalization
ratio:
(Earnings Per Share x 100)
Market Price Per Share
109

 c) Dividend Yield =
(Dividends per Share x 100)
Market Price Per Share
 This translates the dividends and market
price into an effective currently yield which
the investor is earning on the share. It does
not, however, take account of the capital
appreciation, which may be a substantial
element of the investors’ anticipated return.
110

Limitations of ratio analysis
 Differences between companies will render many
comparison meaningless
 Ratios are susceptible to “window-dressing” to enable
them to seem better than they are
 Changes in the general level of prices will affect some
ratios (but not others) making comparison of dubious
value.
 Differences in the definition of assets, profits, etc., in
different companies will render some comparison invalid.
 Ratios typically show past data.
 There is a danger that the ratio (which is only a control
device) becomes substituted for the real objective in the
minds of the managers concerned, resulting in a non-
optimal expenditure of managerial effort.
111

Environmental analysis
Projects have a significant impact on the
environment: positive and negative.
The positive environment effects needs to be
enhanced and the negative effects need to be
prevented or reduced thorough appropriate
mitigation measures to achieve this, project
should be subject to an environmental
assessment.
Concern for environmental degradation in
Ethiopia has been growing in recent years.
113

Cont’d
The constitution states that everyone has the
right to live in a clean and healthy
environment and the government will make
every effort to provide such an environment.
Article 44/1
The constitution also holds the government
and the people of Ethiopia responsible for the
preservation of natural resources and
maintenance of ecological balances.
114

most urgent areas of environmental concerns
The considerable land degradation including
loss of nutrients owing to removal of animal
manure a crop residues for use as a fuel and
cattle feed
The low quality and availability of water, as a
result of which only about one-fifth of the
population has access to safe water.
The rapidly growing urban environmental
problems including lack of sanitary facilities,
inadequate refuse collection, and low
standard of housing. 115

ENVIRONMENTAL IMPACT
ASSESSMENT
In environmental assessment there
are two main level of assessment.
• impact of projects - Environmental Impact
Assessment (EIA) and
• impact of policies, plans and program-
Strategic Environmental Assessment (SEA).
116

Stages of Environmental Impact Assessment
Screening Scoping
Impact
Assessment and
Evaluation –
preparation of
environmental
impact statement
Monitoring and
Auditing
117

Screening
Screening is the initial review of a project to determine if
an EIA is required.
For certain types of project it can be a mandatory
requirement to undertake an EIA.
For others it will be a matter of decision by the relevant
regulatory authority.
For all major agricultural project it is likely that an EIA
would be required, and desirable
118

Scoping
 Once a decision has been made to commence an EIA
the next exercise is to assess the likely major impacts
of the project on the environment.
 This is known as scoping an initial environment
evaluation.
119
Major adverse
impacts
• ,outright rejection
of the project
No possible significant
adverse impact
• move on to its
implementation
stage

Impact Assessment &Evaluation
 This is the identification and prediction of all
the environmental impact of the proposed
project, their likely affects both positive and
negative, the way to enhance or mitigate
these impacts.
 The outcome of this stage will be a report of
the assessment, this is commonly called an
Environmental Impact Statement (EIS).
120

Cont’d
 EIA the EIS may include recommendation
on whether the project should proceed of the
changes, which should be made to its design
to allow it to proceed to implementation.
 The EIS should also include
recommendations on environmental
monitoring to take place after project
implementation
121

Monitoring & Environmental Auditing
 The final stage of the Environmental Impact
Assessment (EIA) process, or a component of
project management, is environmental auditing
 Auditing can be undertaken either by the project
itself or by an external agency.
 The objective of auditing is to assess the impact
of the project against established standard.
122

Cont’d
 Auditing can also be linked to the socio-
economic impacts of a project.
 An irrigation project may have the potential to
increase water born diseases, and measure to
mitigate these may have been part of the project
design, monitoring of health statistics and
auditing of these figures can be used to assess if
this impact has occurred or been mitigated
against.
 Monitoring and auditing require resources and a
commitment by the project operator and
regulatory authorities. 123

TIMING OF ENVIRONMENTAL
ASSESSMENTS
 In the past the environmental assessment of a project, if it
happened at all took place toward the end of the
development of the project.
 This would often have been after the identification, design
and financial appraisal of the project.
 But the environmental viability of a project is essential for a
successful and sustainable project.
 This to undergo the preparation of project leaving the
environmental to the end makes no sense, especially, if this
assessment indicates that the project is not environmentally
viable and sustainable.
124

Who conducts
 Participation of project beneficiaries is also
crucial when undertaking an Environmental
Impact Assessment (EIA).
 Unless local communities have been
involved in the original identification and
design of a project, the onset of an EIA may
be the first thing they know about the
project.
125

ENVIRONMENTAL IMPACTS
Project will have its own positive as well as negative
impact on the environment
the impact of agricultural project can be grouped into:
• Ecological impact: loss of fauna and flora (including
deforestation)
• Impact on soil: erosion, salinization, alkalinization,
fertility and structure
• Hydrology: water quality, surface flow, flooding,
pollution
• Socio-economic impact: crop production, nutrition,
employment, and health
• Infrastructure: transport, water supply,
telecommunication
• Socio-cultural: cultural sites, and archeological sites
• Land use: land tenure, land rights, 126

VALUATION OF COST AND BENEFIT WITH
REGARD TO ENVIRONMENT
 Economic analysis are to take into account all costs and
benefits of a project.
 With regard to environmental impacts, however, there are two
basic problems.
 First, environmental impacts are often difficult to measure in
physical terms.
 Second even when impacts can be measured in physical terms,
valuation in monetary terms is difficult.
 In spite of such difficulties, a greater effort needs to be made
to "internalize" environmental costs and benefits by measuring
them in money terms and integrating these values in economic
appraisal.
127

Issues in measuring environmental costs and
benefits
Determining
physical
impacts and
relationship
Valuing
impacts in
monetary
terms
Discounting;
and
Risk and
Uncertainty
128

Physical Impacts and Relationship
The first step in environmentally sound
economic analysis is to determine the
environmental and natural resource impacts of
the project or policies in question.
These impacts are determined by comparing the
"with project" and the "without project" impacts.
For determining physical impacts, an economist
will have to rely on the expertise of engineers,
ecologists, agronomists, social scientists, and
other specialists.
129

Valuing the Impacts in Monetary Terms
 A number of conceptual approaches have
been developed for valuing physical impacts
and relationships.
 An environmental impact can show itself in
a measurable change in production or
environmental quality. Different methods are
appropriate depending on the types of
effects.
130

Evaluation methods
Market Based Methods
The primary feature of these methods is that they
are based directly on market prices productivity.
They are applicable where a change in
environmental quality affects actual production or
production capability.
•Change in Productivity Approach
•Loss-of-earnings Approach- lost earning due to
premature death
•Defensive or Preventive Expenditures- to avoid
or reduce unwanted environmental effects
131

 Methods Based on Surrogate Market Values
 The methods and techniques described in this
section use market information indirectly.
 the property value approach, - in the area as
compared to property in some other place.
 the wage differential approach- the additional cost
or cost saving on wage because of the project
 the travel cost method-
 uses of marketed goods as surrogates for non-
marketed goods- where environmental goods have
close substitutes that are marketed
132

Cont’d
 Methods Based on Potential Expenditures or
Willingness-to Pay
Sometimes it is not possible to estimate the
benefits of environmental quality protection
or improvements.
In some of these cases it may be possible to
estimate benefits by calculating the costs of
replacing the environmental services that
have been or might be destroyed by a project,
or by estimating what people might be willing
to pay (WTP) to protect an environmental
asset. 133

Potential Expenditures or Willingness-to Pay
(cont’d)
 Replacement Cost Approach- the costs of
replacing a damaged asset are estimated
 Shadow project approach- involves design and
costing of one/more shadow projects that would
provide substitute environmental services to
compensate for the loss of the original assets
 Contingent valuation- direct questionnaire
about willingness to pay for a benefit or
willingness to accept compensation for
tolerating costs 134

The Discount Rate Issue
 past costs and benefits are treated as "sunk"
and are ignored in decisions about the
present and future.
 Future costs and benefits are discounted to
their equivalent present value and then
compared.
 the interest rate measures both the subjective
rate of time preference and the rate of
productivity of capital
135

The Discount Rate Issue (Cont’d)
 The main recommendations, therefore, are that:
 the standard opportunity cost of capital be used
(e.g., 10 percent) for environmental cost-benefit
analysis, as it is for NPV calculations and for
computing the IRR comparator:
 short-and long-term costs and benefits be
estimated as carefully as possible; and
 a rigorous analysis of non-monetary
consequences (including those that might be
irreversible) be made to supplement standard
cost-benefit analysis.
136

Issues of Risk and Uncertainty
Projects and policies alike involve risks and
uncertainties.
Risks are involved when probabilities can be
assigned to the likelihood of an event
occurring, such as an industrial accident.
Uncertainty describes a situation where little
is known about future impacts and where
therefore no probabilities can be assigned to
certain outcomes, or where even the
outcomes are so novel that they cannot be
anticipated. 137

What is risk?
•A Risk is characterised by the combination
of the probability that a program or project
will experience:
• an undesired event and the
consequences,
•impact, or severity of the undesired event
139

What is risk?
Risk always involves
the probability
that an undesired
event will occur
140
Risk should
consider the
impact of the event
should it occur
Risk = Probability x Impact

Risk Management
An organised, systematic decision making
process that efficiently identifies, analyses,
plans, tracks, controls, Communicates, and
documents risk to increase the likelihood
of achieving program/project goals
141

Risk Management Process
•Step 1: Risk Identification
•Step 2: Risk Assessment
•Step 3: Risk Response Development
• Contingency Planning
• Contingency Funding
•Step 4: Risk Response Control
• Change Control Management
142

Risk Identification
Business risk
– Market risk
– Shifts in business strategy or senior management
Technical risk
– Design and development problems
– Testing and maintenance problems
– Technical uncertainty
Project risk
– Budget
– Schedule
– Personnel
– Requirements problems
143

Methods of Describing Project Risk
•Sensitivity Analysis: a means of identifying the project
variables which, when varied, have the greatest effect on
project acceptability.
•Break-Even Analysis: a means of identifying the value of a
particular project variable that causes the project to exactly
break even.
•Scenario Analysis: a means of comparing a “base case” to
one or more additional scenarios, such as best and worst case,
to identify the extreme and most likely project outcomes.
144

Sensitivity Analysis
•What if expenses are 10% higher than
expected—is the project profitable?
•What if sales revenue is 15% lower than
expected?
•What change in either expenses or revenues
will cause the project to be unprofitable
(decision reversal)?

Risk Analysis
•For each identified risk, evaluate the
probability of occurrence
•For each identified risk evaluate the impact
if the risk should occur
•Prioritise your risk handling effort based on
both (1) probability and (2)impact
146

Assigning Probabilities
•What is the likelihood that something will go
wrong?
•Establish a scale that reflects the perceived
likelihood of a risk
– Probability scales are commonly used
– Can be qualitative or quantitative
e.g. highly improbable, improbably,
moderate, likely, highly likely
0-100% probability
147

Assessing Impact
•What is the damage or impact if something does go
wrong?
•Three factors can be used to assess impact
– Nature of the risk (i.e. the problems that are
likely if it occurs)
– Scope of the risk (i.e. how serious is the risk
and how much of the project will be affected?)
– Timing of the risk (i.e. when and for how long
will the impact be felt)
148

Risk management Strategies
1.Risk Reduction: For example, if a lack of
experienced staff has been identified
2.Risk transference: Insurance, contracting
3.Risk avoidance: Redefine project to exclude
the risk area, canceling implementation as an
extreme measure if risks will be unacceptably
high
4.Risk acceptance: through constant monitoring
5.Contingency plans: Backup plans
149

Risk Monitoring
•Should be done periodically
– (e.g., when certain milestones are reached, at the
end of project phases, at steering committee
meetings, etc.)
•Useful to regularly assess and update project risk
exposure
•Senior management should be involved in
monitoring and should be aware of exposures
•Listen to the project group
150

Project appraisal, selection and
negotiation
151

Project appraisal
•Project appraisal is a pre-investment analysis of a
project to determine the overall feasibility
•it measures its investment worth and
comprehensive review of all aspects of the project
that lays foundation for the implementation and
evaluation.
•Project appraisal is the process of evaluating
project ideas in terms of their technical, economic,
financial, and social feasibility.
•It is a technique used to prioritize or select project
ideas
• Different decision criteria will be used in the
appraisal process.

Aspects of project appraisal
Project
appraisal
Market
appraisal
Technical
appraisal
Economic
Appraisal
Ecological
appraisal
Financial
appraisal

Market appraisal
What would be the aggregate
demand for the proposed
product/service
What would be the market
share of the project under
appraisal
Should we there go for the
investment given the demand
and our market share?

Market appraisal
Past and current
demand trends
Past and Current
supply positions
Production
possibilities and
constraints
Import and exports
Nature of
competition
Cost structure
Elasticity of demand
Consumer Behavior:
Motivation, attitude,
preferences and
requirements
Distribution Channel

Technical appraisal
Whether the prerequisite for the success of the project is
considered
Preliminary tests and studies
Availability of raw materials, power and other inputs
Optimal scale of operations
Choice of suitable production process
Effluents and Waste disposal
Layouts and buildings
Realistic work schedule and socially acceptable technology

Economic Appraisal
Social cost benefit
analysis
Impact on the level of
savings and
investments in the
society
Impact on fulfillment
of national goals
• Self-sufficiency
• Employment
• Social order

Ecological appraisal
Impact of the project on the quality of
• Aire
• Water
• Noise
• Vegetation
• Human life

Financial appraisal
•Whether the project is financially viable
•Servicing the debt
•Meeting return expectation
•Investment and phases of total cost
•Means of financing
•Break even point
•Cash flows in the project
•Analysis of if the project investment worth:
•Net present Value
•Payback period
•Internal rate of return

Project selection
•Non-numeric project selection models:
•Sacred cow- Project suggested by officials
•Operating necessity- required to keep the
system running
•Comparative necessity- projects needed to
sustain competitive position
•Product line extension- fit of the project to
the current product line, fill a gap,
strengthen a weak link
•Comparative benefit model- More
beneficial projects are selected

Numerical models: Profit/profitability
•Net present value
•Internal rate of return
•Pay back period
•Return on investment
•Discounted cash flow

Scoring method of project selection
•Unweighted 0-1 Factor model
•Unweighted factor scoring model
•Weighted factor scoring model

Project negotiation
•Back and forth communication to make joint
decision
•It is a way of finding a mutually acceptable
solution to a shared problems
•Negotiators try to get the other party choose
what they want for their own reason
•Ideal outcome is a wise decision, efficiently
and amicably agreed upon.

Negotiation styles
•Hard (controlling)
•Hard bargaining is adversarial- you assume
that your opponent is your enemy and the
only way you can win is if the other part
loses.
•Soft (giving in) – The relationship with
your opponent is so important that you
concede more easily than you should.

Effective negotiation
•People – separate people form the problem
•Position- focus on the interest not on the
position
•Options- generate options for mutual gain
before choosing
•Objective criteria- Decide bade on objective
criterial

Basic forces in Negotiation
•Power
•Information
•Timing
•Approach

Sustainability
•Maintaining the outcomes, goals, and
products
•Institutionalizing the process

SWOT Analysis
•A system of analysis the environment( both
external and internal) to come up with list of
opportunities, weaknesses, strengths and
weaknesses.
•External environment analysis
•Internal Environmental Analysis
•How that affects project sustainability?

3.2. Project planning and management
•Role of a manager
•Charts and Critical Path Analysis
•Estimation Techniques
•Monitoring

Role of a manager
•Directs resources for the achievement of
goals
•LEADER also provides
•Vision
•Inspiration
•Rises above the usual
•No one right way to manage

Management Continuum
Autocratic Consultative Participate
Authoritarian Democratic
Solves problems alone
Dictates decisions
Discusses Problems
Makes decision
Chairperson
Agrees problem
Creates consensus

Managerial Roles
• (after Henry Mintzberg)
• Interpersonal
• Figurehead
• Leader
• Liaison
• Informational Roles
• Monitor
• Disseminator
• Spokesperson
• Decisional Roles
• Entrepreneur
• Resource Allocator
• Disturbance Allocator
• Negotiator

Qualities
• Technical/Professional knowledge
• Organisational know-how
• Ability to grasp situation
• Ability to make decisions
• Ability to manage change
• Creative
• Mental flexibility - Learns from experience
• Pro-active
• Moral courage
• Resilience
• Social skills
• Self Knowledge

Variables
•Resource
•Time
•Function
•“ You can have any two of quick, good or
cheap, but not all three”

Development cycle:
Effort
Time
Specification Analysis Build Test Maintain
Alpha Beta

Approaches and methodologies
•Top Down
•Waterfall decomposition
•Bottom Up
•meta machine
•Rapid Prototype
•successive refinement
•Muddle through

Pert and Gantt Charts
•Visual representation of project
•Microsoft Project

Example: Getting up in the morning
Task Duration (mins)
1 Alarm rings 0
2. Wake Up 3
3. Get out of bed 5
4. Wash 5
5. Get dressed 5
6. Put kettle on 2
7 Wait for kettle to boil 5
8 Put toast on 2
9 Wait for Toast 3
10 Make coffee 3
11 Butter Toast 2
12 Eat Breakfast 10
13 Leave for Lectures 0

Critical Path Analysis
•Compute earliest and latest start/finish for
each task
•The difference is the slack
•The Critical Path joins the tasks for which
there is no slack
•Any delay in tasks on the on the critical path
affects the whole project

Levelling
• Adjust tasks to match resources available
• Automatic systems available, but do not always give an
optimum result
• Tasks may be delayed within slack without affecting project
dates
• Otherwise consider extending project, or using more resource
• Adding resource to late project may cause RECURSIVE
COLLAPSE
• consider carefully whether the benefits outweigh the
additional learning delays and overheads
• Derive costings

Estimation Techniques
•Experience
•Comparison with similar tasks
•20 lines of code/day
•can vary by 2 orders of magnitude
•Decomposition
•Plan to throw one away
•20 working days per month BUT 200 per year

Rules of Thumb
• Software projects:
• estimate 10 x cost and 3 x time
• 1:3:10 rule
• 1: cost of prototype
• 3: cost of turning prototype into a product
• 10: cost of sales and marketing
• >>Product costs are dominated by cost of sales
• Hartree’s Law
• The time to completion of any project, as estimated by the project leader,
is a constant (Hartree’s constant) regardless of the state of the project
• A project is 90% complete 90% of the time
• 80% Rule
• Don’t plan to use more than 80% of the available resources
• Memory, disc, cycles, programming resource....

Cynic’s Project Stages
•Enthusiasm
•Disillusionment
•Panic
•Persecution of the innocent
•Praise of the bystander

Conditions needed
•Knowledge of what is being done and why it
is being done by the community
•Acceptance of the project outcome
•Participating in the entire process
•Skill, knowledge, and attitude of the
community and society
•Motivation and commitment of the people to
sustain the project

Project Sustainability
• The aim of any development project is to meet its
predetermined objectives/goals on sustainable
basis.
• The ability of a project under consideration to
continue its operation or provision of services and/or
production without interruptions for the period under
design.
 Transition planning
• It is important to plan for and execute a smooth
transition of the project into the normal operations of
the company
188

Tools
• Project management tools are the project manager’s
answer to manage projects.
• Simple projects require nothing more than a checklist
while other complex ones require proper planning,
assigning tasks, setting deadlines, making sure that
everyone sticks to them, and tracking the time spent.
• The need to quantify, objectify, segregate and delegate
tasks properly and proportionately is of high importance
and that’s where the use of modern tools comes in.
• There’s a lot of project management software tools out
there
• Search the net for possible project management software.

Cont’d
•Microsoft Project will be illustrated here.
•See the guideline.

Project Analysis and Appraisal.pdf

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