Department of MBA

Individual Assignment of ADVANCED PROJECT MANAGEMENT

&ANALYSIS.

(APM)

Section A

Name:- kebede Nigussie

Student Name Id NO……….… GSR/MBA/0870/14 E.C

Submitted to:- Mr Abdella Hussen( Ph.D )

Submission date:-November 16,2022
1. Explain the meaning and concept of project, including what is project management?
What is a project?

 A temporary process, which has a clearly defined start and end time, a set of tasks, and a
budget, that is developed to accomplish a well-defined goal or objective.
 A temporary effort of sequential activities designed to accomplish a unique purpose
 A group of inter-related activities, constrained by time, cost, and scope, designed to deliver a
unique purpose
 An undertaking that encompasses a set of tasks or activities having a definable starting point
and well defined objectives.
 A clear set of activities with related inputs and outputs aimed to achieve objectives and goals
linked to anticipated (desired) effects and impacts in a target population

From all these descriptions, one can see that there are some specific attributes that define a
project and separate it from most ordinary work:

 A project has a beginning and an end.

 A project has limited resources
 A project follows a planned, organized method to meet its objectives with specific goals of
quality and performance.
 Every project is unique

What is project management?

Here are some of the standard definitions of project management:

project management is the planning, implementing, and monitoring of project activities to meet
project objectives, achieved by effectively controlling and balancing the constraint of time, cost,
and scope in producing quality deliverables that meet or exceed the expectations of the project
stakeholders.
 What is a Project in Project Management?

A project is defined as a sequence of tasks that must be completed to attain a certain outcome.
According to the Project Management Institute (PMI), the term Project refers to ” to any temporary
endeavor with a definite beginning and end”. Depending on its complexity, it can be managed by a
single person or hundreds.

Characteristics of a project

A project is a set of interdependent tasks that have a common goal. Projects have the following
characteristics:

1. A clear start and end date – There are projects that last several years but a project cannot go on
forever. It needs to have a clear beginning, a definite end, and an overview of what happens in
between.
2. A project creates something new – Every project is unique, producing something that did not
previously exist. A project is a one-time, once-off activity, never to be repeated exactly the same
way again.
3. A project has boundaries – A project operates within certain constraints of time, money, quality,
and functionality. We’ll see more about this in later sections.
4. A project is not business as usual – Projects are often confused with processes. A Process is a
series of routine, predefined steps to perform a particular function, say, expense reimbursement
approvals. It’s not a one-off activity. It determines how a specific function is performed every single
time.

The diverse nature of projects

Projects come in a wide range of shapes and sizes.

A project can:

 Be big: Like the construction of the Hoover Dam, take years to complete, and have a humongous
budget.
 Be small: Like your weekend project of installing a pathway in your lawn
 Involve many people: Like planning a wedding
 Just yourself: rearranging the photos in your wedding album

Types of projects

Projects can be diverse in the ways in which they are implemented. Here are some examples of
projects:

 Traditional projects: These are run sequentially in phases. These phases are typically initiation,
planning, execution, monitoring, and closure. Most high-cost infrastructure projects make use of
traditional project management.
 Agile projects: These are used mainly in software development. They are people-focused and
adaptive. They also typically have short turnaround times.
 Remote projects: Remote project management is usually used by distributed teams that seldom
meet in person. Handling freelance contributors is an example of a remote project.
 Agency projects: Agency projects are outsourced to an agency that is likely to have projects with
multiple clients. Marketing and design projects are commonly outsourced to agencies.

The boundaries of a project

Every project operates within certain boundaries called constraints:

All of these project constraints depend on what the project aims to achieve and when. The outcome
of a project results in deliverables. Anything that’s produced during the project’s development such
as documents, plans, and project reports is considered a deliverable. A deliverable may also be the
result of the project itself.

2. Briefly discuss project life cycle

Project life cycle – 5 stages

Often, projects are divided into five project phases each of which comes with a distinct set of
tasks, objectives, and a particular deadline. Dividing a project into different phases enables
teams to stay on track throughout their entire life cycle.
1. Initiation

The first phase in a project’s life cycle is called project initiation. Here, a project officially launches.
It is named, and a broad plan is defined. Goals are identified, along with the project’s constraints,
risks, and shareholders. At this point, shareholders decide if they want to commit to the project.

Depending on the project, studies may be conducted to identify its feasibility. For IT projects,
requirements are usually gathered and analyzed during the initiation phase.

2. Planning

A roadmap that will guide teams from creating a project plan throughout the project’s execution and
closure phases is developed comprehensively during the planning stage. Deadlines must be set, and
resources must be allotted. Breaking down tasks into smaller, manageable activities makes it easier
to manage project risks, costs, quality, time, and so on.

3. Execution

The project plan is implemented during the project execution phase. At this point, teams will work
on the deliverables to ensure that the project meets the necessary requirements.

Everyone usually gathers for a meeting to mark the official start of the project, where teams can get
acquainted with each other and discuss their roles in the success of the project. Modes of
communication and project management tools are identified before the project plan is executed.

In addition, team members familiarize themselves with the necessary status meetings and reports
that will be conducted throughout this phase to collect project metrics. The project execution phase
is a critical point in a project’s life cycle as it will help everyone determine if their efforts will
ultimately be fruitful or not.
4. Monitoring and Controlling

The project monitoring and controlling phase happen at the same time as the execution phase. It’s
the job of the project manager to oversee operations and make sure that everything is headed in the
right direction, according to plan.

Aside from overseeing the project’s performance, project managers have to monitor resources,
manage risks, head status meetings, and reports, etc. If unforeseen issues arise, the project manager
may have to make adjustments to the plans, as well as the project schedule.

5. Closing

The final phase of the project management life cycle known as the project closure phase isn’t as
simple as delivering the output itself. Project managers have to record all deliverables, organize
documents in a centralized location, and hand over the project to the client or the team responsible
for overseeing its operations during the project closure phase.

Not only that, but teams come together for a final meeting to discuss the insights they’ve learned
and to reward the hard work of each member.

3. Why projects are initiated and undertaken?

What is project initiation?

Project initiation is the first step in starting a new project. During the project initiation phase, you
establish why you’re doing the project and what business value it will deliver—then use that
information to secure buy-in from key stakeholders.

The term “project initiation” comes from a five-phase model created by the Project Management
Institute (PMI).

Why does the project initiation phase matter?

Starting a new project is exciting, but it’s important to make sure your initiative will actually add
value before jumping into the planning phase. That’s where project initiation comes in—it offers
a structured approach to demonstrate your project’s business case and prove that the work you’ll
 do is feasible. Project initiation also ensures that you loop in stakeholders early on, so you can
secure essential resources, gain visibility for your project, and prevent costly roadblocks down
the road.

1. Create a project charter or business case

In this first step, you demonstrate why your project is necessary and what benefit it will bring.
You can do this with either a project charter or a business case. These two documents follow the
same fundamental idea, since they’re both used to outline key project details and pitch your
initiative to stakeholders. The main difference between them is scope—you can use a project
charter for smaller initiatives, and a business case for larger projects that require significant
resources. For example, you might create a project charter for a redesign of your company
homepage, and a business case for a company-wide rebrand.
Regardless of whether you use a project charter or a business case, this is your chance to
demonstrate how your project will add business value and why you need specific resources like
budget, equipment, or team members. Here’s a rough template of what these two documents
typically include:

Project charter

A project charter demonstrates why your project is important, what it will entail, and who will
work on it—all through the following elements:

Business case

A business case includes all the components of a project charter, along with these additional
elements:

 A comprehensive financial analysis, including an estimate of the return on investment (ROI)

your project will bring

 An analysis of project risks and a risk management plan

2. Identify key stakeholders and pitch your project

 Next up, determine who needs to sign off on your project charter or business case. This includes
key stakeholders who have a say in the outcome of your project—for example, executive leaders,
project sponsors, or cross-functional teams that you’re requesting budget or resources from. If
you’re not sure who your key stakeholders are, ask yourself the following questions:

3. Run a feasibility study

At this point you’ve pitched your project, demonstrating that it adds value and fits with your
company’s overall strategic plan. Now, it’s time to run a feasibility study to confirm your project
is possible with the resources you have at your disposal.
Simply put, a feasibility study evaluates whether your project could be successful. It answers the
following questions:

If you can answer yes to both questions, you have a solid rationale to move forward with your
project. If your feasibility study concludes that you don’t have enough budget or resources,
you’ve created a strong case to go back to stakeholders and request more. And if your project’s
ROI isn’t up to snuff, you can use that data to tweak your project plan—or pursue a different
opportunity entirely.

4. Assemble your team and tools

Now that your project is approved and its feasibility proven, you can finally start to assemble
your team, workspace, and tools. Here are some pointers to get you started:

 A good team can go a long way in making your project a success, and it can take time to find
people with the right experiences and skills. It’s a good idea to start this process as soon as
possible once your project is confirmed—especially if you need to hire new employees or
onboard contractors. And depending on your company’s procedures, you may need to file a
request in advance to reassign existing employees to your project.

 Consider how you want to organize your team structure. For example, do you want a simple
hierarchical structure with team members reporting into single team leads—or does it make more
sense to divide your team by geographical region?
 Where you work can influence how you work. If you’re planning to manage your project
remotely, make sure you have the right infrastructure set up to manage a virtual team. And if
your team will work onsite, keep in mind that you may need to request office space well in
advance of your project kick-off meeting.
 Choose the right tools. Consider how your team will work together on daily tasks—for example,
will you use email, Google docs, or more robust project management software? You may want to
consider a tool like Asana, which allows you to centralize team communication in one place,
assign tasks with clear owners and due dates, and easily organize projects in a way that's tailor-
made for your team.
End of a project
The end of a project is considered to be reached when any one of the following conditions are
met:

1. The project’s objectives have been achieved

2. The resources are no longer available to carry out the project (eg. physical resources,
human resources and/ or financial resources)
3. The project is terminated because its objectives cannot or will not be met
4. The project is cancelled when the need for the project no longer exists or
5. The project is terminated due to legal reasons

4. Explain a project and its basic characteristics with some practical examples

Characteristics of Project in Project Management

The following are some of the important characteristics of the project.

 The project is temporary with a certain starting & ending date.

 The opportunities and teams of the project are also for a temporary duration.
 Projects are ended when the goals are accomplished or when the goals are not achieved.
 Often projects continue for many years but still, their duration is finite.
 Multiple resources are involved in the projects along with close coordination.
 Interdependent activities are involved in the project.
  A unique product, service, or result is developed at the end of the project. There is also
some extent of customization in the project.
 Complex activities are included the projects which need repetitive acts and are not
simple.
 There is also some sort of connection in the activities of the project. Some sequence or
order is also required in the activities. The output of certain activity becomes the input of
another activity.
 There is an element of conflict in project management. For resources & personnel, the
management should compete with the functional departments.
 Permanent conflict is associated with resources of the project and leadership roles which
are important in solving the problems of the project.
 Clients desire changes in every project and the parent organization desires to maximize
its profits.
 There is a possibility of two bosses in the project at a single time, each with different
objectives and priorities.

Types of Projects

The following are four types of projects.

 1. Type I Projects (Large Engineering Projects)

These projects contain well-defined project end requirements and methods. An example includes
construction projects.

2. Type II Projects (Early Space Projects, Product Development Projects)

These projects have well-defined project end requirements but have poorly defined project
methods.

3. Type III Projects (Software Development Projects)

The shape of the end products proceeds in these projects. They have poorly defined project
requirements but well-defined project methods.

4. Type IV Projects (Organizational Development Projects)

These projects have both poorly defined project end requirements and project methods.

On the basis of duration, the following are further two types of projects.

5. What is the difference between a project and operational/business as usual activities?

What's the Difference Between Projects and Business as Usual?

When I speak to people in teams, they often tell me they aren’t sure whether they're working on a
project or a business as usual function. Both are required in an organization and are equally
valid, but it helps to understand what you're working on so you can better see where it fits in the
organization.

There are five main differences between project work and business as usual (often abbreviated as
BAU) work.

Changing vs. Identifying Business

First, there’s a difference in how change is handled.

Business as usual operations runs the business. They keep the lights on, serve customers and hit
targets. BAU teams are also the first to know when the existing processes aren’t working and are
no longer useful. When that happens, the BAU teams identify the need for change.

A manager, as part of a strategic review, can suggest what changes need to be made for a unit to
reach its goals. Or a team member may make a suggestion for change. At the other end of the
spectrum, you may have a full business case produced by a senior manager to deliver changes
required to help their division reach its annual targets.

It’s not just streamlining business processes. Those working in BAU roles may also realise
change is essential because of shifts in the regulatory framework or as part of the competitive
landscape for the organization. Frontline staff works to deliver strategy and it knows what it
wants to be different to get there.

Projects, on the other hand, help implement all of this change. Projects deliver change to and
through the BAU functions using project management. We'll clarify what project management is
further. The project organization works on delivering the change BAU teams have identified.
This happens once the project has gone through an approval process, which is normally a
business case and senior management approval.

That isn’t to say people in a project role can’t ever suggest improvements to business practice,
but they’ll be doing so under their role as an employee rather than as part of their project role.
This split, which you’ll also hear summarized as "change the business, run the business," is
noticeable at the end of projects, too. The change a project implements is to deliver an output.
That could be a piece of new software, a building, a new service or something else. The BAU
team is responsible for taking that and making good use of it to deliver benefits. In other words,
the project delivers the capability to get benefits, and the BAU operations use that capability to
get the benefits.

Managing vs. Mitigating Risk

For business as usual functions to be effective, you’ll find BAU teams seek to mitigate all risk to
operations. Taking the uncertainty out of business for better organisational stability and
repeatable processes is a good thing.

By their very nature of being unique and uncertain, projects require an element of risk. The
company is making a bit of a leap into the unknown just by doing a project as it introduces
change and delivers something that wasn’t there before.

Project teams, therefore, approach risk in a different way than BAU teams. Project managers
seek to manage risk — both positive and negative — to get the best outcomes. That might
include mitigating risk to try to limit the likelihood that it is going to happen, but it includes
other risk management strategies as well. It’s unlikely you’ll ever extinguish risk on a project,
but you may be able to do that for good operational reasons for your BAU work.

One is Time-Bound, the Other is Ongoing

Projects have a start, middle and end date, and are a one-off event. This is the project life cycle.
In fact, the most defining characteristic of a project is that it finishes. The project manager
and the team work on the project during this time. At the end, the team is disbanded.

BAU doesn’t stop and is ongoing. You can, of course, close down a function or stop a process if
it's no longer required for the business — although that would be managed as a project! A BAU
function produces ongoing work with no foreseeable end date.

To Capitalize or Not to Capitalize

Projects can be capitalized and often BAU cannot be – you rely on operating expenses for your
ongoing business as usual work. In other words, the accounting treatments for projects and other
tasks are different.

Project funding often relates to bringing an asset into service — meaning the costs can be
capitalized. In some cases, depending on where you are in the world and your local accounting
regulations, you can even take project costs below the line.

BAU costs are normally considered open (operating expenditures) and are tracked in the profit
and loss accounts of the company.

Project funding and business funding, in general, is a very specialized area so it’s always best to
take advice from your finance experts before making judgments about what should and shouldn’t
be capitalized in your organization. Accounting rules vary by country, and even by organization
where individual businesses have particular processes and ways of doing things.

When in doubt, always check!

Cross-Functional vs. Functional Teams

Finally, there’s a big difference in the makeup of project teams. Projects tend to involve multi-
disciplinary teams of experts brought together to deliver a particular output. Knowing how to
motivate a project team is important because not everyone may know the specific goal at the
very beginning. If people don’t have a clear understanding of what they're working on, then they
tend not to do their best work.

It is complicated because there can be overlap. For example, a team leader in that call centre is a
specialist in the field. They may be seconded to a project team to manage a work package and
the resources related to delivering part of a project that relates to customer contact. But in their
project work, they are taking the role of subject matter expert, not customer services team leader.
As a project team member, they will be responsible for their part of the project budget and have a
high degree of discretion around how the work is carried out to meet the end goals.

They might not have this in their BAU role.

BAU and Project Conflicts

Project work and BAU work can sit nicely alongside each other, but there can often be tension. It
happens because projects try to change the status quo. The status quo works pretty well, and, for
the most part, people don’t like change.

Second, when you are asking people to join your project team, they can suffer from a conflict of
loyalties. Is their first responsibility to their day job or to the project? Clear objectives and a
strong commitment to the project from management can help here, as well as keeping lines
of communication open so they know what the priorities should be.

Third, keeping the business running is always the priority. It has an implication for project teams
who might see their funding cut, key resources pulled back to BAU roles and timescales delayed
because keeping the day-to-day operations of the organization going is pulling focus.

Project managers can get frustrated with this but it’s always going to be like that, and it should
be. There’s no point in delivering a fantastic project if the company has gone bust in the
meantime and there is no one left to use what you have built!

6. What are the issues to be dealt with in material inputs and utilities study of the
project

Technical analysis of a project is concerned primarily with:

1. Material Inputs and Utilities

2. Manufacturing Process/Technology

3. Product Mix

4. Plant Capacity

5. Location and Site Development

6. Machineries and equipment

7. Structures and Civil works 8. Projects Charts and Layouts

Technical Analysis of a Project

1) Material input & utilities – It involves defining the requirements for materials and utilities,
specifying their properties and setting up a supply channel. Material input & utilities may be
classified into the following: Raw materials – Agricultural products, Mineral Products,
Livestock, Forest Products, Marine Products Processed Industrial Materials/Components – Base
metals, semi-processed materials, manufactured parts, small component. Auxiliary materials and
factory supplies – chemicals, additives, packaging material, paint, oil, grease, cleaning materials
Utilities – power, water, steam, fuel The following must be kept in mind while taking decisions
regarding material, inputs and utilities:

1. Physical properties of the material

2. Transportation, Handling and Storage costs

3. Quantity available from Domestic/Foreign sources

4. Past and future trends in prices

(2) Manufacturing process/Technology – Taking a

Taking a decision on manufacturing process and technology to be used is one of the most
important decisions in technical analysis of a project. There are various options and alternatives
available for manufacturing a product or service. It is the task of the project manager to select
that process or technology that is easy to acquire, appropriate for the project and feasible with
budget and technical requirements of the proposed project. The choice of technology is
influenced by the following considerations:

 Plant Capacity
 Material Inputs
 Production cost
 Product mix
  Technological Obsolescence
 Ease of adoption

(3) Product Mix – An important aspect in technical analysis of a project is product mix decision.
It is essential to choose an effective product mix as different customers have different taste,
preferences and needs. The choice of product mix is usually guided by market requirements. A
project manager must keep in mind the quality of products and flexibility in production while
taking product mix decisions. (4) Plant capacity – It refers to the volume or no. of units that can
be manufactured during given time period. It is also known as production capacity. It is the task
of the project manager to determine the feasible normal capacity and nominal maximum capacity
for the project. Feasible Normal Capacity – It refers to the capacity attainable under normal
working condition. It is computed keeping in mind the following factors: Installed capacity
(machinery and equipment)

 Technical conditions of the plan

 Normal stoppages

 Holidays, shift patterns

 Downtime for maintenance etc.

The feasible normal capacity is the actual production capacity of a plant and usually depends
upon the following factors: Technical Requirements

 Input Constraints

 Cost of Investment

 Market Conditions

 Resources of the company

 Government policy

 Nominal Maximum Capacity – It refers to capacity that is technically obtainable through use
of machines. It is usually the capacity guaranteed by the supplier of machinery
(5) Location & Site – Location refers to a broad area within the city and while site means a
specific piece of land where project would be set-up. For the purpose of site selection a critical
assessment of the demand, size of plant and input requirements is conducted which involves
examining the following factors: Proximity of Land to Markets

 Availability of raw materials

 Availability of Labor

 Existing Infrastructure i.e. roads, electricity, power, water supply

 Cost of land

 Government Policies

 Miscellaneous other factors like Climatic conditions

 General living conditions

 Proximity to auxiliary inputs / units

 Ease of Waste disposal and dumping

 (6) Machinery & Equipment – Machinery and Equipment requirement depends upon the
production technology and plant capacity of the proposed project. While conducting a technical
analysis of a project the following steps must be used to select machinery and equipment:

Steps to select machinery and equipment for a project- Estimate levels of production over time

 Define various machining and operations

 Calculate machine hours required for each type of operations

 Select equipment and machinery for each function

 Types of Machinery and equipment –

1. Plant equipment (process)

2. Mechanical equipment

3. Electrical equipment

4. Instruments

5. Controls and Internal Transportation System

6. Spare parts and Tools – required with the original equipment and for operational wear and
tear. Things to be considered while selecting machinery and equipment: Availability of power to
run machines

 Transporting heavy equipment

 Ease of use

 Import Policies of Government if the machines are to be imported from a foreign country

 Machinery may be procured in two ways either by placing different orders to different
suppliers

 Or through a turn-key contract Factors affecting procurement of Machinery→

1. Quality of machinery

2. Level of technical sophistication

3. Reputation of supplier

4. Expected delivery schedule

5. Payment terms 6. Performance guarantees

(7) Structure and Civil Works – Tech

(7) Structure and Civil Works – Technical analysis of a project for buildings, structures and
civil works involves preparation and development of site which includes: grading and leveling
of land
 Demolition of existing structures

 Relocation of pipeline, cables, roads

 Reclamation of sewers and drainage

 Connections for utilities

 Arranging for electricity, water etc.

 Buildings & structures – It involves construction of factory buildings

 Ancillary buildings

 Administrative area

 Residential quarters

 non factory buildings – cafe, medical center

 Outdoor works – It involves supply

 & distribution of utilities handling and treatment of emission, wastes, effluents

 Outdoor lighting

 Transportation

 Landscaping

 Enclosure and supervision – boundary, fence, barriers, gates, doors, security post

Environment Aspect –

The project must comply with all environmental rules and regulations All affluent must be
disposed-off properly Eco-friendly standards must be adopted in the production process

(8) Projects Charts & Layout – Once the project manager has sufficient data related to market
size, plant capacity, production technology, machinery and equipment, buildings etc. he prepares
charts and layouts for the proposed project. Project charts and layouts help to
  Define the scope of the project
 Provide basis for detailed project engineering
 Help is estimating investment and production cost

Types of Layout:

 General Function Layout

 Materials Flow Diagram
 Production Line Diagram
 Transport Layout
 Utility consumption layout
 Organizational Layout

Plant Layout

It is concerned with the physical layout of the factory. Plant layout is depends upon the
production process adopted for the project, it involves the following considerations: Consistency
of layout with production process and technology, Smooth flow of goods from 1 stage to
another, Proper utilization of space, Scope for further expansion, Minimization of production
cost, Safety of personnel After conducting a technical analysis, a project implementation
schedule is prepared which reflects the plan of action regarding installation of machinery and
operation of plant.

7. Discuss the factors to be considered in selecting technology, and machinery and

equipment’s for a project.

There is an increase in infrastructure projects, which is a good reason for construction businesses
to have equipment that will help them finish the projects on time, without compromising the
integrity of the built structure. If the equipment is no longer helping you achieve that goal, it is
time to replace it.
However, this is not an easy task as heavy equipment is costly and needs significant investment.
Here are six factors that you must consider before buying:
1. QUALITY
There will be times when you will have to work in a remote location, where the weather
conditions could be unpredictable, unfamiliar or harsh. For example, you could experience
constant rain, snow or hail. These conditions can weaken and damage the heavy-lifting
equipment if they remain exposed to the harsh elements for a prolonged period of time on a
regular basis. The compromised equipment can prove hazardous to the employees working on
the site and impact the integrity of the structure being constructed.
Invest in lifting equipment that is made of good quality materials because they have the ability to
resist weakening caused by exposure to harsh conditions and punishing weather elements.
Moreover, you will save maintenance and repair costs. Always check the quality and strength of
the heavy-lifting equipment before buying.
2. TECHNOLOGY
Embrace technology as it is an ally you want on your side. If you have heavy equipment that has
the latest technology, it will surely impact and enhance the overall performance of your business.
These machines will get more work done in less time and with less manpower as compared to
their ‘non-tech’ counterparts.
It also helps in attracting and retaining more business to the contractors. The work would be
smoother, helping them complete the projects faster and on time. Industrial weighing scales are
an example of such technology.
3. FUEL EFFICIENCY
Heavy construction equipment does not come cheap. Not only is it expensive initially, you will
have to shell out high maintenance costs down the line. One way to bring down your costs is by
opting for fuel-efficient machines. Since fuel is one of the major costs in a construction business,
machines that consume less fuel will save you a lot of money in the long term.
4. COSTS
generally, construction projects span over a long time — ranging from a few months to even
years or decades. Not planning and allocating assets and investments smartly will affect the
overall project and the business. Investing in heavy-lifting machines is a significant part of the
allocated budget. Since some of the heavy-lifting machinery is large in size and boasts of
sophisticated technology, it can make the purchase an expensive affair for your business. Despite
the expenses, it is advisable to invest in them rather than opting for substandard machines as it
will benefit you in the long run. Plan properly and consider the allocated budget as a primary
factor before buying these machines.
5. DEALER
Ensure that you always buy from a reputable dealer. Take your time and check out numerous
dealers before making the purchase. One way to identify a reputable and reliable dealer is if
answers any question you throw his way; if he doesn’t have an answer, he will be honest and get
back to you later with the necessary information. Make sure you also ask about the after-
purchase services being offered.
6. KNOWLEDGE OF USING THE EQUIPMENT
Efficient and reliable lifting equipment will do you no good if you do not have the skill or
dexterity to use it. Working with heavy machinery is quite challenging and poses a workplace
safety hazard if not handled carefully. Ensure that only trained and specialized machine operators
are in-charge of running such machines to keep the workplace safe and eliminate accidents. If
you do not specialize in heavy equipment management, hire an experienced operator for the
same. It would be a wise decision to invest in training your staff.
The right equipment is your biggest asset, so make sure you invest wisely in it to secure your
future. These six tips will greatly help in assisting you in making the right purchasing decisions.
8. Define each of the following terms:
a. Capital budgeting; regular payback period; discounted payback period

What is the Discounted Payback Period?

The discounted payback period is a modified version of the payback period that accounts for
the time value of money. Both metrics are used to calculate the amount of time that it will take
for a project to “break even,” or to get the point where the net cash flows generated cover the
initial cost of the project. Both the payback period and the discounted payback period can be
used to evaluate the profitability and feasibility of a specific project.

Other metrics, such as the internal rate of return (IRR), profitability index (PI), net present value
(NPV), and effective annual annuity (EAA) can also be used to quantify the profitability of a
given project. To make the best decision about whether to pursue a project or not, a company’s
management needs to decide which metrics to prioritize.
Management then looks at a variety of metrics in order to obtain complete information. Usually,
companies are deciding between multiple possible projects. Comparing various profitability
metrics for all projects is important when making a well-informed decision.

Understanding Discounted Payback Period

The discounted payback period is used to evaluate the profitability and timing of cash inflows of
a project or investment. In this metric, future cash flows are estimated and adjusted for the time
value of money. It is the period of time that a project takes to generate cash flows when the
cumulative present value of the cash flows equals the initial investment cost.

The shorter the discounted payback period, the quicker the project generates cash inflows and
breaks even. While comparing two mutually exclusive projects, the one with the shorter
discounted payback period should be accepted.

Discounted Payback Period Formula

There are two steps involved in calculating the discounted payback period. First, we must
discount (i.e., bring to the present value) the net cash flows that will occur during each year of
the project.

Second, we must subtract the discounted cash flows from the initial cost figure in order to obtain
the discounted payback period. Once we’ve calculated the discounted cash flows for each period
of the project, we can subtract them from the initial cost figure until we arrive at zero.

Practical Example

Assume a business that is considering a given project. Below are some selected data from the
discounted cash flow model created by the company’s financial analysts:

As we can see here, the project returns a positive discounted cash flow in its first year and sees
its yearly discounted cash flow grow to $3,000 in later years. We also learn that
In this case, we see that the project’s payback period is 4 years. Since the project’s life is
calculated at 5 years, we can infer that the project returns a positive NPV. Thus, the project will
likely add value to the business if pursued.

Payback Periods

One observation to make from the example above is that the discounted payback period of
the project is reached exactly at the end of a year. Obviously, that may not always be the case. In
other circumstances, we may see projects where the payback occurs during, rather than at the end
of, a given year.

In such situations, we will first take the difference between the year-end cash flow and the initial
cost left to reduce. Next, we divide the number by the year-end cash flow in order to get the
percentage of the time period left over after the project has been paid back.

The next step is to subtract the number from 1 to obtain the percent of the year at which the
project is paid back. Finally, we proceed to convert the percentage in months (e.g., 25% would
be 3 months, etc.) and add the figure to the last year in order to arrive at the final discounted
payback period number.

Pros and Cons of Discounted Payback Period

The discounted payback period indicates the profitability of a project while reflecting the timing
of cash flows and the time value of money. It helps a company to determine whether to invest in
a project or not. If the discounted payback period of a project is longer than its useful life, the
company should reject the project.

One of the disadvantages of discounted payback period analysis is that it ignores the cash flows
after the payback period. Thus, it cannot tell a corporate manager or investor how the investment
will perform afterward and how much value it will add in total. It may lead to decisions that
contradict the NPV analysis.

A project may have a longer discounted payback period but also a higher NPV than another if it
creates much more cash inflows after its discounted payback period. Such an analysis is biased
against long-term projects.
b. independent projects; mutually exclusive projects

Mutually Exclusive, Replacement and Independent Projects Classification of Asset Allocation

Decisions although the pattern of usage is changing to favor NPV as the primary decision
criterion, IRR was favored over other discounted cash flow techniques in the past. One of the
drawbacks of IRR is that if the investment is driven by cost considerations, like those of
equipment replacement choices, the IRR is undefined. As a result, in classifying projects, there
was a primary split of investment types into “revenue-producing investments” and “service-
producing investments.” Revenue-producing investments are conventional projects that generate
cash flows, and all the discounted cash flow techniques, including IRR, are applicable. Service-
producing investments involve the saving of cost, and because IRR is inapplicable, different
techniques are needed. Of course, this distinction between revenue-producing and service-
producing alternatives is not required if NPV is the preferred criterion. Projects are also
classified on the basis of the decision that is required. Revenue and service-producing
alternatives might be mutually exclusive, or mutually non-exclusive (independent). Only one
option can be chosen from alternatives that are mutually exclusive, while several options can be
adopted from alternatives that are mutually non-exclusive. As discussed in Chapter 2,
independent projects require yes/no decisions, while mutually exclusive projects require either/or
decisions. Service-producing projects are about cost savings, which by definition implies a
comparison between alternatives. Because service-producing alternatives are always regarded as
requiring a choice between alternatives (either/or decisions), they are always mutually exclusive.
The classification of projects adopted in this chapter is shown in Figure 7.1. Projects are
separated into mutually exclusive and independent projects. The mutually exclusive options are
usually of two types: replacements, which are projects in which there is a current incumbent, or
projects in which there is no current incumbent. There is no need to further classify independent
projects for the application of the assessment criteria.

What are Mutually Exclusive Projects?

 Mutually Exclusive Projects is the term which is used generally in the capital budgeting process
where the companies choose a single project on the basis of certain parameters out of the set of
the projects where acceptance of one project will lead to rejection of the other projects.
These projects are such that acceptance of project A will lead to rejection of project B. The
projects, in this case, happen to compete with each other directly.

Methods used by Companies to Evaluate Mutually Exclusive Projects

There are various methods adopted by companies to evaluate mutually exclusive projects, and
they serve as the criterion on which the acceptance or rejection decision shall be made.

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#1 – NPV (Net Present Value)

NPV refers to the present value of the future cash flows arising out of the project, which then
deducts the initial outlay or investment.

The decision criteria stand as follows:

 Accept if NPV > 0

 Reject if NPV < 0

#2 – IRR (Internal Rate of Return)

It is nothing but the discount rate that would make all of the present values of cash flows equal to
the initial outlay. IRR is the discount rate at which the NPV of the project equals zero.
Companies often have a hurdle rate or a required rate of return that serves as the benchmark.
 The decision criteria therefore are :

 Accept if IRR > r (Required rate of return/hurdle rate).

 Reject if IRR < r (Required rate of return/hurdle rate).

#3 – Payback Period

The payback Period method takes into consideration the tenure or rather the number of years
required to recover the initial investment based on the cash flows of the project.
#4 – Discounted Payback Period

One drawback of the payback period is that the cash flows do not consider the impact of the
time value of money. Hence discounted payback period, therefore, considers the cash flows by
discounting them to their present values and then calculating the payback.
#5 – Profitability Index (PI)

Profitability Index refers to the present values of the future cash flows arising out of the project,
which is then divided by the initial investment.

Does One Method Have an Advantage Over the Other

 In instances where the initial cash flows are higher, it is noticed that the IRR shows a higher
number, in contrast to the project where the project has cash flows coming in later. Hence IRR
will tend to skew towards a higher range when there are higher cash flows initially.
 Usually, the discount rates change over the life of the company. An unrealistic assumption that
IRR makes is that all cash flows in the future are invested at the IRR rate.
 There may also be instances wherein there are multiple IRRs or no IRR for a project.

Does NPV Seem Like a Better Option than IRR?

 Well yes. An important assumption that NPV makes is that all future cash flows are reinvested at
the most realistic discount rate-opportunity cost of funds. NPV, too, has its disadvantages as it
does not consider the scale of a project.

Nevertheless, when faced with a conflict between IRR and NPV in the case of mutually
exclusive projects, it is suggested to go ahead with the NPV method as this happens to show the
amount of real wealth gain for the company.

Advantages

 The company will be able to optimally select the best project/investment that gives in the best
returns.
 The company will be able to commit their capital only to the optimal project considering the
limited resources.

Disadvantages

 Though both projects generate positive NPVs, companies will have to select the winner and
leave out the rest.

c. DCF techniques; net present value (NPV) method; internal rate of return (IRR)method;
profitability index (PI)

What is NPV vs IRR?

When analyzing a typical project, it is important to distinguish between the figures returned by
NPV vs IRR, as conflicting results arise when comparing two different projects using the two
indicators.

Typically, one project may provide a larger IRR, while a rival project may show a higher NPV.
The resulting difference may be due to a difference in cash flow between the two projects. Let’s
have a look first at what each of the two discounting rates stands for.
What is NPV?

NPV stands for Net Present Value, and it represents the positive and negative future cash flows
throughout a project’s life cycle discounted today. NPV represents an intrinsic appraisal, and it’s
applicable in accounting and finance where it is used to determine investment security, assess
new ventures, value a business, or find ways to effect a cost reduction.

What is IRR?

IRR or Internal Rate of Return is a form of metric applicable in capital budgeting. It is used to
estimate the profitability of a probable business venture. The metric works as a discounting rate
that equates NPV of cash flows to zero.

Differences between NPV vs IRR

Under the NPV approach, the present value can be calculated by discounting a project’s future
cash flow at predefined rates known as cut off rates. However, under the IRR approach, cash
flow is discounted at suitable rates using a trial and error method that equates to a present value.
The present value is calculated to an amount equal to the investment made. If IRR is the
preferred method, the discount rate is often not predetermined, as would be the case with NPV.

NPV takes cognizance of the value of capital cost or the market rate of interest. It obtains the
amount that should be invested in a project in order to recover projected earnings at current
market rates from the amount invested.

On the other hand, the IRR approach doesn’t look at the prevailing rate of interest on the market,
and its purpose is to find the maximum rates of interest that will encourage earnings to be made
from the invested amount.

NPV’s presumption is that intermediate cash flow is reinvested at cutoff rate, while under the
IRR approach, an intermediate cash flow is invested at the prevailing internal rate of return. The
results from NPV show some similarities to the figures obtained from IRR under a similar set of
conditions. At the same time, both methods offer contradicting results in cases where the
circumstances are different.
NPV’s predefined cutoff rates are quite reliable compared to IRR when it comes to ranking more
than two project proposals.

Similarities of Outcomes under NPV vs IRR

Both methods show comparable results regarding “accept or reject” decisions where independent
investment project proposals are concerned. In this case, the two proposals don’t compete, and
they are accepted or rejected based on the minimum rate of return on the market.

Conventional proposals often involve a cash outflow during the initial stage and are usually
followed by a number of cash inflows. Such similarities arise during the process of decision-
making. With NPV, proposals are usually accepted if they have a net positive value. In contrast,
IRR is often accepted if the resulting IRR has a higher value compared to the existing cutoff rate.
Projects with a positive net present value also show a higher internal rate of return greater than
the base value.

Conflicts Between NPV vs IRR

In the case of mutually exclusive projects that are competing such that acceptance of either
blocks acceptance of the remaining one, NPV and IRR often give contradicting results. NPV
may lead the project manager or the engineer to accept one project proposal, while the internal
rate of return may show the other as the most favorable. Such a kind of conflict arises due to a
number of problems.

For one, conflicting results arise because of substantial differences in the amount of capital
outlay of the project proposals under evaluation. Sometimes, the conflict arises due to issues of
differences in cash flow timing and patterns of the project proposals or differences in the
expected service period of the proposed projects.

When faced with difficult situations and a choice must be made between two competing projects,
it is best to choose a project with a larger positive net value by using cutoff rate or a fitting cost
of capital.
The reason the two abovementioned options works is because a company’s objective is
maximizing its shareholder’s wealth and the best way to do that is choosing a project that comes
with the highest net present value. Such a project exerts a positive effect on the price of shares
and the wealth of shareholders.

So, NPV is much more reliable when compared to IRR and is the best approach when ranking
projects that are mutually exclusive. Actually, NPV is considered the best criterion when ranking
investments.

Net Present Value vs. Internal Rate of Return

What Are NPV and IRR?

Net present value (NPV) is the difference between the present value of cash inflows and the
present value of cash outflows over a period of time. By contrast, the internal rate of
return (IRR) is a calculation used to estimate the profitability of potential investments.

Both of these measurements are primarily used in capital budgeting, the process by which
companies determine whether a new investment or expansion opportunity is worthwhile. Given
an investment opportunity, a firm needs to decide whether undertaking the investment will
generate net economic profits or losses for the company.

KEY TAKEAWAYS

 NPV and IRR are two discounted cash flow methods used for evaluating investments or
capital projects.
 NPV is the dollar amount difference between the present value of discounted cash
inflows less outflows over a specific period of time. If a project's NPV is above zero,
then it's considered to be financially worthwhile.
 IRR estimates the profitability of potential investments using a percentage value rather
than a dollar amount.
 Each approach has its own distinct advantages and disadvantages.
Practice trading with virtual money
Determining NPV

To do this, the firm estimates the future cash flows of the project and discounts them
into present value amounts using a discount rate that represents the project's cost of capital and
its risk. Next, all of the investment's future positive cash flows are reduced into one present
value number. Subtracting this number from the initial cash outlay required for the investment
provides the net present value of the investment.

Let's illustrate with an example: suppose JKL Media Company wants to buy a small publishing
company. JKL determines that the future cash flows generated by the publisher, when
discounted at a 12% annual rate, yields a present value of $23.5 million. If the publishing
company's owner is willing to sell for $20 million, then the NPV of the project would be $3.5
million ($23.5 - $20 = $3.5). The NPV of $3.5 million represents the intrinsic value that will be
added to JKL Media if it undertakes this acquisition.

Determining IRR

So, JKL Media's project has a positive NPV, but from a business perspective, the firm should
also know what rate of return will be generated by this investment. To do this, the firm would
simply recalculate the NPV equation, this time setting the NPV factor to zero, and solve for the
now unknown discount rate. The rate that is produced by the solution is the project's internal
rate of return (IRR).

For this example, the project's IRR could—depending on the timing and proportions of cash
flow distributions—be equal to 17.15%. Thus, JKL Media, given its projected cash flows, has a
project with a 17.15% return. If there were a project that JKL could undertake with a higher
IRR, it would probably pursue the higher-yielding project instead.

Thus, you can see that the usefulness of the IRR measurement lies in its ability to represent any
investment opportunity's possible return and compare it with other alternative investments.

What Does a Negative NPV Indicate?

If the net present value of a project or investment is negative, then it is not worth undertaking,
as it will be worth less in the future than it is today.

Which Is Better: NPV or IRR?

It depends. IRR is usually more useful when you are comparing across multiple projects or
investments or in situations where it is difficult to determine the appropriate discount rate. NPV
tends to be better for when cash flows may flip from positive to negative (or back again) over
time, or when there are multiple discount rates.

The Bottom Line

Both IRR and NPV can be used to determine how desirable a project will be and whether it will
add value to the company. While one uses a percentage, the other is expressed as a dollar figure.
While some prefer using IRR as a measure of capital budgeting, it does come with problems
because it doesn't take into account changing factors such as different discount rates. In these
cases, using the net present value would be more beneficial.

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9. You are a financial analyst for the Hittle Company. The director of capital budgeting
has asked you to analyze two proposed capital investments, Projects X and Y. Each
project has a cost of $10,000, and the cost of capital for each is 11%. The projects’
expected net cash flows are as follows:

Year Project A Project B

0 -10000 -10000
1 6500 3500
2 3000 3500
3 3000 3500
4 1000 3500
 A. Calculate each project’s payback period, net present value (NPV), and profitability
index (PI).
B. Which project or projects should be accepted if they are independent?
C. Which project should be accepted if they are mutually exclusive?

9. A PbA = year Nii yearly Cash flow CCF

= 0 10,000 0 0
1 6500 6500
2 3000 9500
3 3000 12500
4 1000 13500
Pb pA = year before Uncovered Cost
Full Recovering + During the next year
= 2year + 500
3000
= 2 year + 0.17 year
2.17 year to cover
Pbp for B

PbpB = Net initial investment

Net Annual Cash on Flows

= 10,000
3500
= 2.86 year
Npv for Object A
NPVA = CF1 + CF2 + CF3 + CF4 – ICO
(1+k)’ 1+k)2 (1+k)3 (1+k)4
= 6500 + 3000 + 3000+ 1000 -10,000
1.11 (1.11)2 (1.11)3 (1.11)4
= 5855.85+2434.87+ 2193.57+6587.31-10,000
= 7071.6
Npv Project B

NpvB = CF1 + CF2 + CF3 + CF4

(1+k)1 (1+k)2 (1=k) (1+k)4

= 3500 + 3500 + 3500 + 3500 -10,000

1.11 (1.11)2 (1.11)3 (1.11)4
 = 3153.15+ 2840.68+2505.56-10,000

= 858.56
Profitability Index = Pv of Future Cash Flow
Initial Cost
n
PIA = Ʃ CFt = 17071.6 = 1.71
(=1(1+k) 10,000
ICO
n
PIB = Ʃ CFt = 20856.58 = 2.09
t =1 (1+k)n 10,000
B. Both project are accepted
9 . C Both Project are profitable, since they are independent project B is accepted.
10. RpbA = ?

Soln. Year Nii Cash flow year cr CCF

0 25n 0 0
1 5 5
2 12 17
3 15 32
4 20 52

RpbA = Year before Uncovered cast

tall Recovering + during the next Year
= 2 year + 8 year
15
= 2 year + 0.53 year
= 2.53 year
10. Your division is considering two investment projects, each of which requires an upfront
expenditure of $25 million. You estimate that the cost of capital is 10% and
that the investments will produce the following after-tax cash flows (in millions of
dollars):

Year Project A Project B

0 -25 -25
1 5 20
2 12 12
3 15 8
4 20 6
a. What is the regular payback period for each of the projects?
 b. What is the discounted payback period for each of the projects?
c. If the two projects are independent and the cost of capital is 10%, which project
or projects should the firm undertake? Using NPV methods
d. If the two projects are mutually exclusive and the cost of capital is 5%, which
project should the firm undertake? Using NPV methods.

10. A 10.B 10. B

Year nii Csh flow cck
Year nii Csh flow cck year
year 0 25 0 0
0 25 0 0 1 20 20
1 5 5 2 12 32
2 12 17 3 8 40
3 15 32 4 6 46
4 20 52

PbPa= Year before + uncovered cost PbPB=Year before + uncovered

cost

Fully recovery during the next year fully recovers during the next
year

=2Year + 8/15 1Year+5/12

=2year +0.53 Year 1Year + 0.42

=2.53 Year 1.42 Year

B. project A

Year1 = _25m+5m= _20M left to cover

Year 2:- _20m +12 = _8m left to cover

Year 3:- _8m + 15 + 7m=7 fully covered

Year 3:- 8/15=0.53 year needed

Payback period for project A+2.53 Year

Project B

Year 1 :- _25 + 20 + ==5 left + cover

Year 2:- _5 +12 ===7 fully covered

Year 2:5/12= 0.42 Year needed

Payback period for project A= 1.42 year

c. project

nPvA= cF1 + cF2 + CF3 + CF4 _1COA

(1+K) 1 (1+K)2 (1+K)3 (1+K)4

= 5 + 12 + 15 + 20 -25,000,000
(1.11)1 (1.11)2 (1.11)3 (1.11)4

= 50 + 12 + 15 + 20 -25,
11 1.21 1.331 1.441
4.53 +9.92 +11.27+13.66-25=====39.4-25
14.4 million

NpvB = CF1 + CF2 + CF3 + CF4 -----ICOB

(1+k)1 (1+k)2 (1=k) (1+k)4

= 20 + 12 + 8 + 6 -25
(1.11) (1.11) (1.11)3 (1.11)4
2

= 20 + 12 + 8 + 20 -25,
11 1.21 1.331 1.441
18.18 +9.92+6.01+13.66-25
47.77-25
22.77million General the two project are accepted but Project B more projected one

10. D project A

NPVa= CF1/D+K)1+CF2/(1+k)2 +CF3/(1+K)3+CF3/(1+k)4=CDA

= 5/(1.0 )+ 12/(1.05 )2+15/(1.05)3+20/(1.05) 4 –25

= 5/1.05+ 12/(1.05)2+ 15/(1.05)3+ 20/(1.05)4-----25

4.76+12/1.1025+ 15/1.157625+ 20/1.21550625 ------- 25

=4.76+10.88+12.95+16.48------ 25

= 45.05---- 25

= 20.05 MILLION

NPVB= CF1/(1+K)1 + CF2/(1+k)2 + CF4/(1+K)4 ------ ICoB

=20/1.05+ 12/(1.05)2 + 8/(1.05)3+6/(1.05)4 ----- 25

= 20/1.05+ 12/1.1025 + 8/1.157625 + 6/1.21550625 ------ 25

=19.05+10.88+6.91+ 4.94 ------- 25

= 41.78 ---- 25

= 16.78 MILLION

SINCE the two Projects are mutuality execlvsiv we choose project A to be undertaken by the
firm.

11. Your dedicated project division is considering an investment project, which requires an
upfront expenditure of $1 million. You estimate that the cost of capital is 10% and
that the investments will produce equal the after-tax cash flows of 320,000 over five years
equally.
Required
A. What is the payback period of the projects?
B. What is NPV of the project?
C. Interpret your result and what is your decision under each alternative?

NIi= 1M

R=10z

Year nii Cash (c)

flow
0 1000000 Feely 64000
0
1 32000
2 32000
3 32000
4 32000
5 32000

A. Pbp=Nii/Nacr=1000/32=1000/32=31.15
B. Npu=

NPV = Ʃ CFt - ICO

t==1
 (1+k)t
====32.000/(1.1)1+32.000/(1.1)2+ 32.000/(1.1)3+ 32.000/(1.1)4+ 32.000/(1.1)5_10000

29090.9+ 26446.28+ 24042.07+21856.43+19869.48_100000

101.435.68_1000,000

==== 898.56

c. the project must reject

12. Discuss the purpose of Technical/technology Analysis during project feasibility study

What is a 'Feasibility Study' and How to write a technical feasibility Study Report

A feasibility study is an analysis of how successfully a project can be completed, accounting for
factors that affect it such as economic, technological, legal and scheduling factors. Project
managers use feasibility studies to determine potential positive and negative outcomes of a
project before investing a considerable amount of time and money into it.

BREAKING DOWN 'Feasibility Study'

For example, a small school looking to expand its campus might perform a feasibility study to
determine if it should follow through, taking into account material and labor costs, how
disruptive the project would be to the students, the public opinion of the expansion, and laws that
might have an effect on the expansion.

A feasibility study tests the viability of an idea, a project or even a new business. The goal of a
feasibility study is to place emphasis on potential problems that could occur if a project is
pursued and determine if, after all significant factors are considered, the project should be
pursued. Feasibility studies also allow a business to address where and how it will operate,
potential obstacles, competition and the funding needed to get the business up and running.

Importance
Feasibility studies allow companies to determine and organize all of the necessary details to
make a business work. A feasibility study helps identify logistical problems, and nearly all
business-related problems, along with the solutions to alleviate them. Feasibility studies can also
lead to the development of marketing strategies that convince investors or a bank that investing
in the business is a wise choice.

Components of a Feasibility Study

There are several components of a feasibility study:

Description – a layout of the business, the products and/or services to be offered and how they
will be delivered.

Market feasibility – describes the industry, the current and future market potential, competition,
sales estimations and prospective buyers.

Technical feasibility – lays out details on how a good or service will be delivered, which
includes transportation, business location, technology needed, materials and labor.

Financial feasibility – a projection of the amount of funding or startup capital needed, what
sources of capital can and will be used, and what kind of return can be expected on the
investment.

Organizational feasibility – a definition of the corporate and legal structure of the business; this
may include information about the founders, their professional background and the skills they
possess necessary to get the company off the ground and keep it operational.

The Technical Feasibility Study Must Support Your Financial Information

Do not make the mistake of trying to entice investors with your staggering growth projections
and potential returns on their investment that only includes income (revenue) to the business.
With any increase in revenue, there is always an increase in expenses. Expenses for technical
requirements (i.e., materials and labor) should be noted in the technical feasibility study.
You should also not strictly rely on feasibility study conclusions to impress an investor.

An experienced investor or lending institution will read your entire report and come to their
conclusions. Therefore, it is critical that the technical and financial data in your study reconcile.
If other parts of your feasibility study show growth, you will also have to project labor and other
costs and the technical ability to support that growth.

The technical component serves as the written explanation of financial data because if offers you
a place to include detailed information about why an expense has been projected high or low, or
why it is even necessary. It demonstrates to potential investors and lenders (and in some cases,
potential clients) that you have thought about the long-term needs your business will have as it
grows.

13. Explain Determinants of projects location and site selection

Site selection for a plant is an important activity for any project. Careful considerations of
various factors keeping in view of the corporate objectives are required for any company. Such
considerations will finally make the plant economically and technologically viable and it will
contribute towards the environment. Strategic, long-term and non-repetitive sound decisions are
required. During the final decision making, a certain degree of imaginative future planning will
help to a great extent.

What are the factors for Site Selection?

Most of the time, the industrial development policies of the Government of the country where the
plant will be situated dictates the allocation of the site. In addition to that, there are various other
factors that need to be considered. A few of such important factors are briefed in the following
paragraphs.

Location Factor for Site Selection

The location factor is of utmost importance and requires careful consideration because of
its long term consequences. Any mistake during the selection of an appropriate location can be
costly. Improper location comes with the following major problems:
 A higher cost means higher investment.

 Difficult marketing and transportation.

 Dissatisfied and frustrated employees and consumers

 Low availability of high caliber professionals.

 Frequent interruptions of production and

 Abnormal wastage.

Also, once a plant is set up at a particular location, it is almost impossible to shift to a better
location later because it will again involve numerous economic, political and sociological
reasons. Employee welfare, employment opportunities, etc are few of the social reasons whereas,
the pursuance of a policy of regional development and planning can be a political reason.

At the same time, the location factor needs the considerations of the following facilities.

District Classification
This will ensure that the license for locating the plant in a no-industry district is obtained.

Transportation Facilities
Proper transportation facilities with linking with ports and railroads are crucial for the
uninterrupted transfer of the raw materials and the end products. Airport-Connection is important
for the easy movement of professionals. In case, foreign collaborations are involved in the plant,
these points will be more crucial.

Availability of Manpower
Local access to skilled and semi-skilled manpower will add to the efficient construction and
operation of the plant.

Industrial Infrastructure
Sufficient Industrial infrastructure will aid all supporting services required for the successful
operation, maintenance and repair of various machines and other items, availability of
workshops, plant services, etc. that may not be feasible to be generated within the factory
premises. The availability of communication facilities plays an important part of the
infrastructure. Existing vibrant infrastructure in the vicinity is much preferred than the need-
based infrastructure getting developed after the plant commissioning.

Community Infrastructure
As all the plants of modern time operate on sophisticated technology, it would be necessary to
attract qualified professionals. This means, ensuring a good quality living is a must. The
availability of good schools and colleges, medical services, good communication facilities,
cultural and recreational opportunities, etc will be required. Attracting qualified professionals
will be very difficult in the absence of good community infrastructure.

Availability of Raw Water

The plant should be located in close proximity to an adequate quantity of water sources. Water
will be required for plant operation and the other non-plant activities. As the groundwater may be
depleted at a future date, drawing the water by boring deep tube wells without the provision of a
perennial source is not recommended. The Natural Water Table and flooding history need to be
duly considered.

Effluent Disposal
The drainage facility for the Effluent disposal must be examined. It would be economic if an
effluent disposal facility after treatment is readily available. Otherwise, there may be legal and
ecological consequences in transporting the effluent by drainage to a safe disposal area that far
away.

Availability of Power
The required amount of uninterrupted and stable power (without fluctuations in voltage and
frequency) for the successful operation of the plant is very crucial. The plant cost can be reduced
by locating the plant near to power source.

Wind and Seismic Factor

Careful consideration of Prevailing wind direction, Maximum Wind Speed and seismic history
for the preferred site must be checked.
Availability of Industrial Gas
Nowadays, Industrial gas is the preferred source of energy for many plants as it is highly
efficient and contributes very little towards industrial pollution. Uninterrupted power supply and
a gas-based captive steam power generation unit is of great importance. Hence, the nearness of
the site to a gas distribution network will be advantageous for long term planning and future
expansions.

Size and Nature of the Site for Selection

The plot area, the topography, the township facilities, and future expansions should meet the
plant requirements. It is preferred if the grade level of the entire area is the same. In case, the plot
area is not flat, it must be leveled to suit the plant requirements. The degree of required leveling
and filling should be looked into from economic considerations.

Load-bearing capacity and acidity of the soil play a major role in the selection of the site. Filled
soil has got less load-bearing capacity as compared to Natural Soil. As a consequence, the civil
foundation will be economic in natural soil because piling to support heavy loads will not be
needed whereas in a case filled soil normally piling is required.

Ecology and Pollution

Nowadays, there is a great deal of awareness towards the maintenance of natural ecological
balance. Regarding the effect of pollution from specific types of plants, social obligations are to
be met. The nature of the site selected should preferably have some advantages to meet these
requirements.

Quantitative Analysis
The above factors are considered at the time of site selection and the data collected are analyzed,
generally by the weight-rating method, in order to finalize the recommendation of the potential
site.

In the weight rating method, variable weights are assigned to each factor. Then each site is
evaluated on a 0-5 sliding scale for each of these factors. The assignment of points for each site
for each factor is obtained by multiplying the rating of the site by the weight of each factor.
The overall site rating is then obtained as the sum of the assigned points for each site. The
recommendation will be for the site having a maximum overall rating

The 8-Step Site Selection Process that Identifies the Optimal Locations for Corporate
Expansion

The site selection process has evolved dramatically over the last 20 years for a variety of reasons.
Some of these factors include the availability of massive amounts of new site selection data, the
development of advanced software applications and tools to analyze site selection data, the sheer
economic growth, and corporate expansion during this period of time, and the general
globalization of corporations.

As a result, it has made the site selection process more complicated and a company’s ability to
find the optimal location for industrial projects such as manufacturing and distribution centers. It
has also complicated the search for corporate function locations such as headquarters, software
engineering, shared service centers, call centers, data centers, and retail sites.

To help companies understand the key steps of the “modern-day” site selection process, the
following seven-step process provides a great roadmap for companies trying to find the best
onshore, near shore, and offshore locations to expand.

Step 1: Identify the project team

The first step is to establish a project team. The team will typically include representatives from
the executive team, business unit, real estate department, logistics department, tax department,
human resources, and outside site selection consultants.

Step 2: Define the project requirement

Project requirements vary significantly based on the project type. The requirements for a
software development operation will dramatically differ from a manufacturing plant. The project
team will need to work closely together to identify key dates, employee skill requirements,
projected headcount, desired labor rates, capital investment, accessibility to customers/suppliers,
real estate needs, and infrastructure requirements.

Step 3: Conduct a geographic filtering process based on the project criteria

To properly filter locations, bulk data will have to be gathered to build a filtering model with
relevant data aligned with your site selection criteria. Typically, companies will use data
variables such as population, demographics, unemployment rate, cost of living, utility costs,
industry presence, inbound/outbound materials, wage rates, union rates, tax rates, time zone, and
other similar variables to narrow the list to a long list of five to 10 locations. Many companies
often think they can make a decision from this level of data which is typically a major mistake.

Step 4: Conduct an in-depth analysis of the long list to identify the finalists

To identify the finalist locations, the site selection team will need to perform a rigorous
workforce, infrastructure, logistics, business climate, economic incentive, and real estate market
analysis of the five to 10 candidate locations. This research will include the gathering of detailed
demographic data as well as the primary research that will be analyzed in various site selection
models that will need to be developed.

Step 5: Site visits to finalist locations

Once the short-listed communities have been agreed upon, the project team will conduct on-site
community due diligence to gain a thorough understanding of what a particular community has
to offer. The tours will typically take one to two days per community in the U.S. and up to a
week in international locations. During the tours, the project team will meet with community
leaders, regional economic development officials, workforce training representatives, staffing
agencies, local employers, utility providers, and real estate brokers. The anecdotal evidence
uncovered during the tours will be crucial to the success of the site selection process and enable
the team to truly understand the qualitative differences of each finalist location.

Step 6: Negotiations
Once the community tours are completed and the finalist locations have been identified, the
project team will initiate the simultaneous negotiation of economic incentives and real estate
terms. It is critical to carefully control the negotiation process to maximum leverage and make
sure commitments for real estate don’t conflict with a company’s ability to secure the economic
incentives.

The economic incentives negotiations will typically be managed by someone from the tax
department or the site selection consultant who will initiate formal discussions with local and
state leaders to confirm the availability of economic incentives such as tax credits, tax
abatements, cash grants, training subsidies, utility rebates, and other related incentives. It is
critical to understand the financial benefit of operating in each site by forecasting the net benefit
of incentives and evaluating claw backs and compliance implications for the various
jurisdictions.

Real estate terms will be negotiated at the same time as economic incentives by the real estate
director or site selection consultant. If a local commercial real estate broker is hired, it is critical
to enlist a firm that only represents tenants, not owners, to ensure there are no conflicts of
interest. The negotiations will revolve around finalizing the deal terms such as the amount of
space, rental rate or purchase price, concessions, improvements, renewals, expansion, and
contraction rights.

Step 7: Build-out of the site

Once the economic incentives and real estate are secured, you will need to address the
construction of the project which ranges in complexity greatly if it is an existing building or a
Greenfield site. The construction team will develop detailed project budgets and schedules for
the project and then follow the project through until move-in. Selecting the vendors such as
architects, engineers and general contractors with experience working on similar facilities can
prove critical to delivering the project on time and within budget.

Step 8: Staying in compliance to get your economic incentives

One of the most frequently neglected steps of the site selection process is economic incentive
compliance. You thought the site selection process was over when in reality it never stops. In
order for you to realize the economic incentives that made the project proforma get final
approval from your executive team, you have to stay in compliance. This will require you to
submit payroll reports, employee training expenses, capital investment, and real and personal
property tax information to multiple economic developments and government entities. This data
will have to be submitted monthly, quarterly, or annually depending on the specific economic
incentive requirement stipulated in your agreement. If you fail to stay in compliance then you
will often lose your ability to access those funds. This is why so many companies fail to actually
receive the full benefit of the economic incentives they thought they would receive.

14. Explain with example what is tradable inputs and outputs, and Non-tradable inputs and
outputs?

Tradable goods and services—goods and services that can be sold in a location, typically
another country, different from where they were produced—are, theoretically, sold at the same
price wherever they are sold.

Tradable goods and services are characterized by lower inflation relative to non tradable goods
and services—goods and services whose price depends on where they are sold. Almost
universally, goods are tradable and services are non tradable, though there are exceptions.

Tradable:

• Manufacturing

• Agriculture & fisheries

• Mining

• Trade, hotels, transport

• (Utilities)

Non-tradable:

• Construction
• Finance & real estate

• Public services

15. Describe the principal source of difference between SCB analysis (economic analysis) and
financial analysis.

The difference between financial analysis and economic analysis

Financial and economic analysis has similar features. Both estimate the net benefits of a project
investment based on the difference between the with-project and the without-project situations.
The basic difference between them is that the financial analysis compares benefits and costs to
the enterprise, while the economic analysis compares the benefits and costs to the whole
economy.
Financial and Economic analyses are essentially used to determine the costs incurred and the
resulting benefits from investing in a project. They both involve ascertaining the NPV or the net
present value of a project based on its estimated present and future cash flows, appropriately
discounted. Both techniques, however, differ in their implications and hence also in what is
defined as a cost and a benefit.
Financial Analysis is largely confined to individual organizations or their units. It involves a
fairly quantitative, fund-based approach that directly compares the expenses and revenues from a
venture to determine profitability and hence sustainability. Such evaluation may often employ
the financial statement of an enterprise – the balance sheet, the income statement, and the cash
flow statement.
For instance, consider an oil drilling company evaluating an independent project - the setting up
of a new well. If the present value of the annual cash flows were to exceed the initial investment
and other costs such as taxes, possible interest payments, and operational expenses, the project
would be looked upon favorably. Additionally, the firm might also look at the project's effect on
its financial ratios to be certain about feasibility.
Economic Analysis, on the other hand, takes a much wider view and entails the impact of a
project on society as a whole. It considers the viewpoints of all stakeholders and how the results
of a project aligned with the broader economic and social policies as well as the international
scenario. The costs in economic analysis are a measure of the resources that society collectively
 invests for the fulfillment of the project. The benefits, however, need not be just monetary and
often include intangible benefits.

Economic analysis is very important as it allows organizations and their donors to compare the
impact of social intervention to the cost of implementing it. These comparisons aid in
determining the most effective resource allocation.
Economic analysis is a type of assessment that helps answer the question "is it worth it?" in
addition to the question "does it work?" that other impact evaluations address. Economic analysis
has been more prominent in the impact measurement practices of charities and donors in recent
years, as the sector has been under increasing pressure to give estimates of what value is created
for every pound invested.
In the above oil well case, for instance, the economic analysis deals with not just the profits from
an industry perspective. Instead, negative externalities such as pollution, displacement, and
deforestation are treated as costs while positive externalities such as employment generation
which is considered benefits. Determining a quantitative measure of such factors remains a
challenge.
Treatment of Taxes and Subsidies
Table of Contents
 1 Treatment of Taxes and Subsidies
 2 Treatment of Interest Payments
Financial analysis tends to rely on exact market prices for calculating costs. Taxes are treated as
costs and subsidies as returns. They are both assumed to already reflect in these market prices
and any adjustments are therefore unnecessary.
In economic analysis, the market price is often modified to arrive at what is popularly known as
the 'shadow price' or 'economic price'. Taxes are levied on a project's returns and are collected
by the government itself. Similarly, subsidies are funds that society as a whole invests into the
project, therefore necessitating differential treatment.
Treatment of Interest Payments
Interest payments are treated as a cost in financial analysis as they are the additional amount that
the stakeholder has to pay to external bodies along with returning the borrowed capital. Often
these interest payments are incorporated into the evaluation of NPV in the discounting factor –
the internal rate of return.
From an economic perspective, however, interest on capital invested by society is also returned
to society as again on the capital, thus again removing the need for any separate computation.
A study of financial feasibility versus economic feasibility can help develop a further
understanding of the two topics. Financial feasibility is based strictly on profitability and
sustainability. A financially feasible project, therefore, might not be economically viable if the
overall impact on society is negative. On the contrary, an economically viable project may not
always be financially sustainable. The government may, however, choose to take up such a
project by supplying additional funds, owing to its positive impact on society.
Differences between Economic Analysis And Financial Analysis
Financial and Economic analyses are essentially used to determine the costs incurred and the
resulting benefits from investing in a project. They both involve ascertaining the NPV or the net
present value of a project based on its estimated present and future cash flows, appropriately
discounted. (Helfert, et.al,2001) Both techniques, however, differ in their implications and hence
also in what are defined as a cost and a benefit. Financial and economic analyses have similar
features. Both estimate the net-benefits of a project investment based on the difference between
the with-project and the without-project situations. In this article we are going to differentiate
between economic and financial analysis.

Financial Analysis– Financial analysis is largely confined to individual organizations or their

units. It involves a fairly quantitative, fund-based approach that directly compares the expenses
and revenues from a venture to determine profitability and hence sustainability. Such evaluation
may often employ the financial statement of an enterprise – the balance sheet, the income
statement and the cash flow statement. For example in an oil drilling company evaluating an
independent project they are setting up a new well. If the present value of the annual cash flows
were to exceed the initial investment and other costs such as taxes, possible interest payments
and operational expenses, the project would be looked upon favorably. Additionally, the firm
might also look at the project’s effect on its financial ratios to be certain about feasibility. To
gather detailed knowledge on financial analysis students can avail instant help from Oman
Essay essay deutsch.
Economic Analysis– Economic analysis takes a much wider view and entails the impact of a
project on society as a whole. It considers the viewpoints of all stakeholders and how the results
of a project align with the broader economic and social policies as well as the International
scenario. The costs in an economic analysis are a measure of the resources that a society
collectively invests for the fulfillment of the project. The benefits, however, need not be just
monetary and often include intangible benefits.
In the above oil well case, for instance, the economic analysis deals with not just the profits from
an industry perspective. Instead, negative externalities such as pollution, displacement and
deforestation are treated as costs awhile positive externalities such as employment generation
which is considered benefits. Determining a quantitative measure of such factors remains a
challenge. Students who need further knowledge on economic analysis can avail instant essay
help from Oman Essay experts.

Financial Analysis

 Financial analysis tends to rely on exact market prices for calculating

costs. (Vanhegan,et.al,2012)
 Taxes are treated as costs and subsidies as returns.
 Interest payments are treated as a cost in financial analysis as they are the additional amount
that the stakeholder has to pay to external bodies along with returning the borrowed capital.
 A financially feasible project, therefore, might not be economically viable if the overall
impact on society is negative.
 The financial analysis compares benefits and costs to the enterprise.
 financial analysis uses market prices to check the balance of investment and the
sustainability of a project,

Economic Analysis

 The market price is often modified to arrive at what is popularly known as the ‘shadow
price’ or ‘economic price’
 Taxes are levied on a project’s returns and are collected by the government itself.
 Interest on capital invested by society is also returned to society as a gain on the capital, thus
again removing the need for any separate computation. (Vogel,2020)
 An economically viable project may not always be financially sustainable. The government
may, however, choose to take up such a project by supplying additional funds, owing to its
positive impact on society.
 The economic analysis compares the benefits and costs to the whole economy.
 Economic analysis uses economic prices that are converted from the market price by
excluding tax, profit, subsidy, etc. to measure the legitimacy of using national resources to
certain projects.

16. Suppose that people in Homesha near project area community will get 100 million kwh of
electricity from GERD hydroelectric power generation plant at Br 0.50 per Kwh. They were
actually willing to pay Br 1 per kwh. Calculate income gained (+) by the people in Homesha.

. Income Nii* PG

=100,000,000*(1pk- 0.5 pkwh)

=100,000,000*0.5pkwh

=50,000,000 birr pkwh

50 m birr pkwh

17. Consider the following data revealing project SCB information

Community Group Gain/loss MPS (marginal propensity to

save of group)

A Br 250,000 0.40

B 450,000 0.20

C 500,000 0.30

D 200,000 0.25

E -350,000 0.15

Required based on the above data determine overall impact of the project on saving.
Impact on saving = Yimisi

250,000*0.4+450,000*0.2+500,000*0.3+200,000*0.25+(_350,000*0.15)

100,000+90,000+150,000+50,000- 52,500=====337,500

18. Suppose the present economic value of a project is Br 15mill before Adjustment for merit
and demerit goods and the ratio of social value(SV) to economic values (EV) is detemined
to be 1.40, how much is Adjusted Economic value of this project in prospect of SCB analysis
using UNIDO approche?

Adjustment factor = 0.4(1.4-1)

Adjustment= 6 million (15million*0.4)

Adjustment economic=21 million (15mIlion+6millon)

19. What is principal difference between UNIDO approach and little Mirrless project SCB
analysis approaches?

Similarities and differences between the UNIDO approach and L-M approach

UNIDO Approach: This approach is mainly based on the publication of UNIDO (United Nation
Industrial Development Organization) named Guide to Practical Project Appraisal in 1978.

L-M Approach: L.M.D Little and J.A.Mirlees have developed this approach for the analysis of
Social Cost-Benefit in Manual of Industrial Project Analysis in Developing Countries and
Project Appraisal and Planning for Developing Countries.

Little-Mirriees and UNIDO similarities –

1. The calculation of shadow price particularly for foreign exchange saving and unskilled
labor is same in both methods.
2. Both methods consider factors of equity.
3. Both methods use DCF (Discounted Cash Flow) method

Little-Mirrlees and UNIDO dissimilarities

 1. UNIDO method also emphasis calculation of financial profitability of market prices
along with SCBA but this is not so done in case of Little-Mirrlces method.
2. Little-Mirrlees method measures cost and benefit in terms of international currency that is
in border price or world price in $. UNIDO approach measure costs and benefits in terms
of domestic currency.
3. The numeracy’s in case of Little-Mirrlees approach measures cost and benefit in terms of
uncommitted social income. On the other hand in UNIDO method it measures the same
in terms of domestic consumption.
4. UNIDO approach focuses efficiency, saving and redistribution of income stage by stage
while Little-Mirrlees approach considers the same in totality.

20. Discuss three Alternative forms of project organization

Organizational alternatives for project

The Functional Organization

The most prevalent organizational structure in the world today is the basic hierarchical structure
This is the standard pyramid with top management at the top of the chart and middle and lower
management spreading out down the pyramid. The organization is usually broken down into
different functional units such as, engineering, research, accounting, or administration. This
hierarchical structure was based on management theories such as specialization, line and staff
relations, authority and responsibility, and span of control. The major functional sub-units are
staffed by disciplines such as engineering or accounting according to the doctrine of
specialization. It is considered easier to manage specialists if they are grouped together and if the
department head has training and experience in that particular discipline.

Project Organizations

The opposite of the hierarchical, functional organization is the single-purpose project or vertical
organization. In a projectile organization all of the resources necessary for the accomplishment
of a specific objective are separated from the regular functional structure and set up as a self-
contained unit headed by a project manager. The project manager is given considerable authority
over the project and may acquire resources from either inside or outside the overall organization.
All of the personnel on the project are under the direct authority of the project manager for the
duration of the project. In effect, a large organization sets up a smaller, temporary, special
purpose structure for the accomplishment of a specific objective. It is interesting to note that the
internal structure of the project organization is functional. That is, that the project team is divided
into various functional areas (

Matrix Organization

The matrix organization is a multi-dimensional structure that tries to maximize the strengths and
minimize the weaknesses of both the project and the functional structures. The matrix
organization combines the standard vertical hierarchical structure with a super-imposed lateral or
horizontal structure of a project co-coordinator (The major benefits of the matrix organization
are the balancing of objectives, the co-ordination across functional department lines and the
visibility of the project objectives through the project co-coordinator’s office. The major
disadvantage is that the man in the middle is working for two bosses. Vertically, he reports to his
functional department head; horizontally, he reports to the project co-coordinator or project
manager. In a conflict situation he can be caught in the middle.

The project manager often feels that he has little authority with regard to the functional
departments. On the other hand, the functional department head often feels that the project co-
coordinator is interfering in his territory.

The solution to this problem is to clearly define the roles and responsibility and authority of each
of the actors. The project co-coordinator specifies what is to be done and the functional
department is responsible for how it is to be done (Figure 5).

Criteria for Selecting an Organizational Structure (Functional — Project — Or

Matrix)
 In the field of management, zealots like to say that their particular model is best. Neophytes want
a simple and unambiguous answer. Experienced and thoughtful observers, however, know that
there is no one particular approach that is perfect for all situations. The current vogue in
management literature is the contingency model. This theory states that the best solution is
contingent upon the key factors in the environment in which the solution will have to operate.

The same is true for the choice of an organizational structure. What we need then is a list of key
factors that will help us to choose the right organizational structure for the given conditions on a
specific project with a given organization and particular environment. A set of such factors is
listed in Figure 6. The use of this table will help you to decide which structure is best for your
situation. For example, an organization developing many new projects consisting of small
projects with standard technology would most likely find a functional structure best. On the other
hand, a company with a long, large complex and important project would find that the project
organizational structure would be best. A company in the pharmaceutical business with many
complicated technologies would probably find a matrix structure best.

It is possible to use all three structures in the same company on different projects. It is also
possible to use all three structures on the same project at different levels. For example, an overall
matrix structure for the project, with a functional substructure in engineering and a project
organization in another functional sub-area.

Before we can make a final choice, however, we must consider the following additional factors:

a. What is the relationship between organizational design, the skills of the project manager and the
project planning and reporting system?

b. Are there ways that we can improve co-ordination and commitment in the functional structure
without moving to a project or matrix structure?

c. What are the different variations of the matrix structure and what are the advantages of each
variation?
 Project Manager

It is not possible to make the organizational design decision without also considering decisions
on the selection of the project manager and on the design of the planning and reporting systems
(Figure 7). These decisions are closely interrelated. For example, a successful project
organization requires a project manager with the broad skills of a general manager. He usually
must combine technical knowledge of the subject matter with management abilities for the
leadership of the entire project team. It makes no sense to select a project organization form if
such a project manager is not available.

Improving Lateral Communications in the Functional Structure

Organizations typically turn to a project organization or a matrix organization because the

normal functional structure has failed on a series of projects. It is not necessary, however, to
“throw the baby out with the bath water.” Rather than give up on the functional organization, you
should first analyze the real problems and see if other steps can be taken short of reorganization.
While some results of a reorganization may be favorable, there are certain to be other unintended
but logical consequences that are not favorable.

What is needed is to develop methods of lateral or horizontal communication across functional

department boundaries. Alternative approaches for lateral communication include:

a. Procedures such as plans, budgets, schedules, and review meetings.

b. Direct contact between managers.

c. Informal liaison roles.

d. Teams.

These are integrating mechanisms short of the establishment of a matrix organization. They are
useful for breaking down the barriers that seem to separate different disciplines, different
departments, and different geographical locations.

Weak to Strong Matrix — A Continuum

The three major organizational forms, functional, matrix, and project, may be presented as a
continuum ranging from functional on one end to project on the other end (Figure 8). Matrix falls
in between and includes a wide variety of structures, from a weak matrix near functional to a
strong matrix near project. The continuum in Figure 8 is based on the percent of the personnel
who work in their own functional department versus the percent of personnel who are full-time
members of the project team. You will note that in a functional organization there are no
personnel on the project team. The dividing line between functional and matrix is when some
individual is appointed with part-time responsibility for coordination across functional
department lines.

The bottom line of Figure 8 shows that a weak matrix has a part-time co-coordinator and the
matrix gets stronger as you move from full-time co-coordinator and then to a full-time project
manager and finally to a project office that would include personnel such as systems engineers,
cost analysts, and schedule analysts. The difference between a co-coordinator and a manager is
the difference between mere integration and actual decision making.

On the far right we have the project organization. Ordinarily, there is a clear distinction between
strong matrixes in which most of the work is still being performed in the functional departments
contrasted with a project organization where the majority of the personnel are on the project
team.

It is rare that a project organization would have all of the personnel on its team. Usually some
functions such as accounting or maintenance would still be performed by the functional
structure.

Some persons have taken issue with the use of the term “strong matrix.” They say that a strong
matrix comes from an even balance of power between the functional departments and the project
office. That may be true in some instances but not in all situations.

Strong and weak are not used in the sense of good and bad. Rather, they refer to the relative size
and power of the integrative function in the matrix.

Measuring Project Authority

Another way to differentiate between a strong matrix and a weak matrix is to analyze the relative
degree of power between the functional departments and the project staff. We can again
construct a continuum with functional on the left and project on the right (Figure 9). For a given
project we can decide where the power rests on the continuum for a number of factors such as
selection of personnel and liaison with top management. On any given project for some factors
the power will be strongly functional and for some the power will be strongly project. However,
a profile line can be drawn from top to bottom which will indicate whether the trend is to the left
(weak) or to the right (strong).

Making Matrix Management Work

Matrix management is a controversial concept. Some persons have had bad experiences
operating in a matrix. On the other hand, some organizations have had a great deal of success
with matrix management. It does require careful definition of authority and responsibility as well
as strenuous efforts towards coordination and diplomacy. The matrix is basically a balance of
power between the goals of the functional structure and the objectives of a specific project.

Overloaded Functional Departments

One key problem with matrix organizations is the overloading of work on the functional
departments. If a functional department makes a commitment to more work on projects than it
has man-hours available, there will inevitably be conflicts over priorities between projects. This
problem, however, can be alleviated, if not solved, by better planning.

A matrix organization will not work effectively unless there is also a matrix strategic plan setting
priorities on objectives and a matrix budget allocating resources. For example, in Figure 10, the
project manager for Project A will add horizontally across functional departments to get his total
budget of 100%. In a similar manner, the Vice. President of Manufacturing must add up
vertically all of the projects for which he has committed funds and resources as well as his
strictly departmental efforts. The matrix budget must add up to 100% in both directions. The
usual picture is that the functional departments are over-committed and they show required man-
 hours of perhaps 120% of actual man-hours available. Politics and disappointment become
inevitable.

The golden rule in matrix management states, “He who has the gold makes the rules.” This
means that if a project manager does not control the budget he can only beg for handouts from
the functional departments. A matrix budget assigns resources to the project manager for
purchases from the functional departments. This takes careful work during long range planning
and yearly budgeting. It also requires regular updating of the matrix plan and budget.

Survival Techniques in the Matrix

A common picture of the project coordinator in a matrix organization is a frustrated diplomat

struggling to cajole the functional departments into performing the work on schedule and within
the budget. It is a difficult position but the following approaches can help:

a. It is important to have a charter from top management defining responsibilities and authority for
the project manager as well as the role of the functional departments.

b. The project coordinator or manager must anticipate conflicts in the matrix. Conflict is inevitable
with dual authority but it can be constructively channeled.

c. Since conflict is inevitable, it is important to take positive steps for developing team work. For
example, regular lunches or social gatherings will help develop a team spirit. In recent years, the
behavioral sciences have developed a number of specific techniques for alleviating or using
conflict effectively. Training programs for matrix managers should include experiences with
such techniques.

d. The project coordinator’s main power comes from the approved objectives, plans, and budgets
for the project. Use these documents to hold departments to their commitments.

e. It is vital that the functional department heads be committed to the plans and schedules for the
project as well as the lower level task leaders. Functional managers should review and sign off
on these documents.

f. It is usually best to avoid direct conflict with the functional department heads. The matrix
manager should use his boss when he is caught in between.
g. It is important to remember that the project coordinator is concerned with the “what” is to be
done, not the “how” it is to be done. Use a management by objectives approach and do not
supervise the functional departments (Figure 5) too closely.

h. Many of the problems of matrix management flow from the uncertainty inherent in the project
environment. By definition, a project is a “new” effort to some extent. Careful and continuous
planning can help reduce uncertainty.

21. Explain why a project planning so important? What do we plan in context of project? List
and explain common projects planning and scheduling tools?

What is project planning?

Project planning is a discipline addressing how to complete a project in a certain timeframe,

usually with defined stages and designated resources.

Why is project planning important?

Project planning is important at every phase of a project. It lays out the basics of a project,
including the following:

 scope

 objectives

 goals

 schedule

Planning enables project managers to turn an intangible idea into reality. Key purposes of
planning include the following:

 facilitate communication and provide a central source of information for project personnel;

 help the project sponsor and other key stakeholders know what is required;

 identify who will perform certain tasks, and when and how those tasks will happen;

 facilitate project management and control as the project progresses;

 enable effective monitoring and control of a project;

 manage project risk; and

 Generate feedback useful for the next project planning phase.

Project managers must have a variety of skills. See the dozen that really matter.
What are the components of a project plan?

The three major parts of a project plan are the scope, budget and timeline. They involve the
following aspects:

 Scope. The scope determines what a project team will and will not do. It takes the team's
vision, what stakeholders want and the customer's requirements and then determines what's
possible. As part of defining the project scope, the project manager must set performance
goals.

 Budget. Project managers look at what manpower and other resources will be required to
meet the project goals to estimate the project's cost.

 Timeline. This reveals the length of time expected to complete each phase of the project and
includes a schedule of milestones that will be met.

What are the 5 phases of a project?

Projects typically pass through five phases. The project lifecycle includes the following:

 Initiation defines project goals and objectives. It also is when feasibility is considered, along
with how to measure project objectives.

 Planning sets out the project scope. It establishes what tasks need to get done and who will
do them.

 Execution is when the deliverables are created. This is the longest phase of a project. During
execution, the plan is set into motion and augmented, if necessary.

 Monitoring and management occur during the execution phase and may be considered part
of the same step. This phase ensures that the project is going according to plan.

 Closing and review is the final Contracts are closed out and the final deliverables are given
to the client. Successes and failures are evaluated.
Why is project planning important?

When a company decides to embark on a project, one of the first things team leaders must do
is create a project plan. Sounds simple, right?

Actually, developing a strong project plan can be quick and easy, but it can also be a complex
and drawn-out process. It really depends on the nature of the project. Either way, you can’t
overstate the importance of project planning.

Project planning isn’t just another stage of project management. It’s one of the most critical
stages of the whole process. Let’s see exactly why project planning is so important — not just
for the project, but for the entire company and its staff, too.

1. It boosts project performance and success rates

Unfortunately, the project failure rate for most companies is 70 percent. Achieving a project’s
objectives is often not as easy as it seems.

There are a number of reasons why projects fail. For example, 38 percent of companies say
the main reason for failure is that team members are confused about their individual roles and
responsibilities. Thirty-seven percent of projects fail because leaders don’t define project
objectives and milestones clearly. When team leads don’t effectively manage requirements, 47
percent of projects fail to hit their targets.

Project planning involves comprehensive mapping and organizing of project goals, tasks,
schedules, and resources before anyone assigns roles for the project and the team begins to
execute the plan. You can avoid almost all of the problems that lead to project failure with
proper project planning.

2. It saves money

Failed projects are expensive. Even when a company is successful in completing a project,
they can still use up a lot of unnecessary, extra budget.
A poorly planned project can easily run into delays, unexpected glitches, and scope creep.
Scope creep is when a project gradually grows in size (and cost) due to unforeseen
circumstances or changes.

Project planning provides structure and foresight for the execution stage, helping to eliminate
wasteful activities and patterns. This is why companies that stick to solid project management
practices waste a lot less money than companies that don’t — an impressive 28 times less, in
fact.

3. It improves team communication

Good communication is essential for smooth project execution, and this applies to projects of
every size and type. Even two collaborators must communicate well to make sure they
complete project tasks on time.

When a project involves multiple employees or teams, outsourced suppliers, and perhaps even
staff members in other locations or time zones, then planning how project leads and team
members will manage communications becomes vital.

A project plan takes into consideration the team’s communication needs and pinpoints the
most effective channels to keep collaborators connected — such as email, chat, virtual
meetings, shared documents, and more.

4. It ensures the best use of resources

One of the key components of project planning is resource planning. Every project is based on
resource use, including staffing, equipment, budget, office space, and time. Without proper
planning, it’s nearly impossible to make sure an organization allocates and uses resources in
the most cost-effective and appropriate way.

Different project tasks often compete for limited resources, so project planners must make
decisions in advance about how best to assign those resources. This entails a cost-benefit
analysis for each project task so that planners don’t simply allocate resources haphazardly but
do it with purpose, based on smart forecasts and with the project’s goals and key performance
indicators (KPIs) in mind.

5. It makes it easy to track project goals and outcomes

Another key part of the project planning process is defining the project’s goals and objectives.
Clearly defined and specific project goals are easier for team leads to translate into
quantitative measures of success.

For example, a company is planning the launch of a new product. One of the project
objectives is to generate 1,000 sales in the first two months. Team leads monitor this specific,
measurable goal over the course of the project, and they can adapt project execution according
to the tracking results. So, if sales by the end of the first month are weak, the team can
reallocate resources to boost marketing activities during the next month.

When the project planning stage includes detailed mapping of KPIs, it’s much easier to gauge
the project’s true performance over time — and decide how to adjust the execution to reach
those goals.

6. It helps keep all collaborators aligned

Teamwork is a critical factor in any group activity — especially in project management.

Good teamwork exists only when all collaborators know their roles and responsibilities, how
their part fits in with the whole, what impact their actions have on other team members’
productivity, and what expectations project leads have for them as individuals and as a team.

A solid project plan provides an official reference point for all collaborators. That way,
everyone is in alignment and up to date about tasks, timelines, expectations, and workflow.
When you use project management software to create a project plan, it’s even easier for all
collaborators to access and view the entire plan at any time — and even contribute their
opinions and expertise to the planning phase.

7. It improves employee retention

Project planning not only benefits the project’s performance and outcome but also plays a role
in employee retention. Employees are eight times more likely to remain with their employer if
they believe their managers are assisting them with workload management. That helps them
feel more connected to their work, and when they feel connected, they are 87 percent less
likely to leave their position.

Involving employees in project planning encourages them to contribute their perspective and
skill, rather than simply telling them what they need to do. This ensures more effective
execution and makes team members feel like a valued part of the company.

The importance of project planning goes way beyond the project itself. It has a direct impact
on how employees feel about their workplace — and whether or not they leave or stay.

Scheduling tools and techniques for Project Management

Project Managers can use a range of tools and techniques to develop, monitor and control project
schedules. Increasingly, many of these can be applied digitally (using programs such as Excel,
Microsoft Project and so on).

GANTT chart

This is a horizontal bar chart plotted over time (e.g. days, weeks or months). Each activity is
shown as a bar (its length based on a time estimate). Depending on task dependencies and
resource availability, these bars may be sequential, or run in parallel. Each bar is plotted to start
at the earlier possible start date. The plan laid out when the Gantt chart was created can be
compared with actual times taken (plotted below the planned time bars in the chart).

Schedule Network Analysis

The schedule network is a graphical display (from left to right across a page) of all logical
interrelationships between elements of work — in chronological order, from initial planning
through to project closure. As a project progresses, regular analysis of this network diagram are a
check to ensure the project is proceeding ‘on track’.
Critical Path Method

The critical path of a project is the sequential string of activities that takes the longest time to
complete, recognizing any dependencies between tasks in this sequence (e.g. one cannot start till
another finishes). Arrowed lines represent activities with circles at each end representing
milestones (start and finish).

The critical path method (CPM) determines by adding the times of all activities on the critical
path, the earliest time that the project can be completed

Non-critical activities have an earliest and latest start time (ES and LS, respectively) and an
earliest and latest finish time (EF and LF, respectively). The ES and EF are found by working
forwards through the project network and the LS and LF by working backwards. The difference
between the LF and EF of each activity have zero float; they must be done when planned or the
project overall will be delayed.

PERT (Program Evaluation and Review Technique)

PERT charts differ from CPM charts in the way times are calculated for activities. They allow
better for uncertainty. For each activity, three estimates of time are obtained: the shortest time
(SP), the longest time (LT) and the most likely time (MT). The estimate assigned for the activity
is a weighted average of these three estimates. The formula is:
Expected time = (SP + 4(MT) + LT) /6.

22. Discuss main issues in project monitoring and evaluations.

What is Monitoring and Evaluation?

Monitoring and Evaluation is a process of continued gathering of information and its analysis, in
order to determine whether progress is being made towards pre-specified goals and objectives,
and highlight whether there are any unintended (positive or negative) effects from a
project/programmed and its activities.
What is a Monitoring?

Monitoring is a continuous process of collecting, analyzing, documenting, and reporting

information on progress to achieve set project objectives. It helps identify trends and patterns,
adapt strategies and inform decisions for project or programmed management.

What is Evaluation?

Evaluation is a periodic assessment, as systematic and objective as possible, of an ongoing or

completed project, programmed or policy, its design, implementation and results. It involves
gathering, analyzing, interpreting and reporting information based on credible data. The aim is to
determine the relevance and fulfillment of objectives, developmental efficiency, effectiveness,
impact and sustainability.

Purpose/Importance of Monitoring and Evaluation

Timely and reliable M&E provides information to: Support project/programmed implementation
with accurate, evidence-based reporting that informs management and decision-making to guide
and improve project/programmed performance. Contribute to organizational learning and
knowledge sharing by reflecting upon and

 Sharing experiences and lessons. Uphold accountability and compliance by demonstrating

whether or not our work has
 Been carried out as agreed and in compliance with established standards and with any other
stakeholder requirements Provide opportunities for stakeholder feedback,.
 Promote and celebrate project/program work by highlighting accomplishments and
 Achievements, building morale and contributing to resource mobilization. Strategic
management in provision of information to inform setting and adjustment of
 Objectives and strategies. Build the capacity, self-reliance and confidence stakeholders,
especially beneficiaries and
 Implementing staff and partners to effectively initiate and implement development initiatives.

Characteristics of monitoring and evaluation

Monitoring tracks changes in program performance or key outcomes over time. It has the
following characteristics:
Conducted continuously Keeps track and maintains oversight

 Documents and analyzes progress against planned program activities

 Focuses on program inputs, activities and outputs

 Looks at processes of program implementation

 Considers program results at output level

 Considers continued relevance of program activities to resolving the health problem

 Reports on program activities that have been implemented

 Reports on immediate results that have been achieved

Evaluation is a systematic approach to attribute changes in specific outcomes to program

activities. It has the following characteristics:

Conducted at important program milestones Monitoring and Evaluation- Provides in-depth

analysis

 Compares planned with actual achievements

 Looks at processes used to achieve results

 Considers results at outcome level and in relation to cost

 Considers overall relevance of program activities for resolving health problems

 References implemented activities

 Reports on how and why results were achieved

 Contributes to building theories and models for change

 Attributes program inputs and outputs to observed changes in program outcomes

 And/or impact

Key benefits of Monitoring and Evaluation

a. Provide regular feedback on project performance and show any need for
‘midcourse’ corrections
b. Identify problems early and propose solutions
c. Monitor access to project services and outcomes by the target population;
d. Evaluate achievement of project objectives, enabling the tracking of progress
towards achievement of the desired goals
e. Incorporate stakeholder views and promote participation, ownership and
accountability
f. Improve project and programmed design through feedback provided from
baseline, mid-term, terminal and ex-post evaluations
g. Inform and influence organizations through analysis of the outcomes and impact
of interventions, and the strengths and weaknesses of their implementation,
enabling development of a knowledge base of the types of interventions that are
successful (i.e. what works, what does not and why.
h. Provide the evidence basis for building consensus between stakeholders