session1 introduction to project management

8/6/2019 Session1 Introduction to Project Management

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Introduction to Project ManagementIntroduction to Project Management



What is a Project?Defined start and end, specific scope, cost

and duration

A temporary endeavor undertaken to createa unique product, service or result

A series of activities aimed at bringing aboutclearly specified objectives within a definedtime period and with a defined budget



What is a project? The differences between projects and operations:

Characteristics of Operations

Ongoing – Continuous cycleRepetitive – Expected inputs and outputs

Characteristics of Projects

Temporary – Definitive beginning and end

Unique – New undertaking, unfamiliar ground



Project situations

Startup or shutdown of plantInstallation of equipmentManufacture of aircraft, ships, and large machinesSpace shotsAuditing accounts

Fund-raisingPlanning a military invasionBuilding constructionMovie making

New product R & D & introductionLaunching a courseDesigning an advertising campaignComputer system development



Project Success

CustomerRequirements

satisfied/exceeded

Completed within

allocated time frame

Completed withinallocated budget

Accepted by thecustomer



Project Failure

Scope CreepPoor Requirements

Gathering

Unrealistic planningand scheduling

Lack of resources



What is Project

Management?Project Management is the application of

skills, knowledge, tools and techniques to

meet the needs and expectations of stakeholders for a project.

The purpose of project management isprediction and prevention, NOT

recognition and reaction



Triple Contraint

Quality

Scope

Time

Cost



Triple ContraintIncreased Scope = increased time +

increased cost

Tight Time = increased costs + reducedscope

Tight Budget = increased time + reducedscope.



Key Areas of Project

ManagementScope Management

Issue Management

Cost Management

Quality Management

Communications Management

Risk Management

Change Control Management



Scope ManagementPrimarily it is the definition and control of what IS

andIS NOT included in the project.



Issue Management Issues are restraints to accomplishing the

deliverables of the project. Typically identified throughout the project and

logged and tracked through resolution.

Rope not thick

Issue… already impacting the cost, time or quality



Cost Management This process is required to ensure the project

is completed within the approved budget andincludes:

Resources people

equipment

materials

Quantities

Budget



Quality ManagementQuality Management is the process that

insure the project will meet the needs

“conformance to requirements” - Crosby

“fitness for use” - Juran

“the totality of characteristics of an

entity that bear on its ability tosatisfy stated and implied need’ - ISO 8402:1994



Communications

Management This process is necessary to ensure timely and

appropriate generation, collection, dissemination,and storage of project information



Risk Management Risk identification and mitigation strategy

Risk update and tracking

Risk… POTENTIAL negative impact to project



Change Control

ManagementDefine how changes to the project

scope will be executed

Scope Change

Schedule changes

Technical Specification Changes

All changes require collaboration and buy in via the project sponsor’s signature

prior to implementation of the changes



Project Life Cycle



Initiation PhaseDefine the need

Return on Investment Analysis

Make or Buy DecisionBudget Development



Definition PhaseDetermine goals, scope and project

constraints

Identify members and their rolesDefine communication channels, methods,

frequency and content

Risk management planning



Planning PhaseResource Planning

Work Breakdown Structure

Project Schedule DevelopmentQuality Assurance Plan



Work Breakdown

StructureFor defining and organizing

the total scope of a project

First two levels - define aset of planned outcomesthat collectively andexclusively represent 100%of the project scope.

Subsequent levels -represent 100% of thescope of their parent node



Implementation PhaseExecute project plan and accomplish project

goals

Training Plan

System Building

Quality Assurance



Deployment PhaseUser Training

Production Review

Start Using



Closing PhaseContractual Closeout

Post Production Transition

Lessons Learned



Project Management

ToolsPERT Chart - designed to analyze

and represent the tasks involved incompleting a given project

Gantt Chart - popular

type of bar chart thatillustrates a projectschedule

http://upload.wikimedia.org/wikipedia/commons/e/e2/GanttChartAnatomy.png

http://upload.wikimedia.org/wikipedia/commons/b/b9/Pert_chart_colored.gif



Gantt Chart

Program or Project Evaluation and

http://upload.wikimedia.org/wikipedia/commons/e/e2/GanttChartAnatomy.png



Program or Project Evaluation and

Review Technique)Chart (First

class-17/3/11)



Scope ManagementProject Scope Management is the process to

ensure that the project is inclusive of all the workrequired, and only the work required, for

successful completion.

Primarily it is the definition and control of what IS andIS NOT included in the project.



Issue Management Issues are restraints to accomplishing thedeliverables of the project.

Issues are typically identified throughout the

project and logged and tracked throughresolution.

In this section of the plan the following processesare depicted:

Where issues will be identified and tracked The process for updating issues regularly The escalation process The vehicle by which team members can access

documented issues



Quality ManagementQuality Management is the process that

insure the project will meet the needs via:

Quality Planning, Quality Assurance, andQuality ControlClearly Defined Quality Performance Standards

How those Quality and Performance Standards aremeasured and satisfied

How Testing and Quality Assurance Processes willensure standards are satisfied

Continuous ongoing quality control



Communications

Management This process is necessary to ensure timely andappropriate generation, collection, dissemination,and storage of project information using:

Communications planning Information Distribution Performance Reporting

Define the schedule for the Project Meetings(Team, OSC, ESC), Status Meetings and IssuesMeetings to be implemented



Risk Management Risk identification and mitigation strategy

When\if new risks arise

Risk update and tracking



Change Control

ManagementDefine how changes to the project

scope will be executed Formal change control is required for all of the following

1. Scope Change

2. Schedule changes

3. Technical Specification Changes

4. Training Changes

All changes require collaboration and buy in via theproject sponsor’s signature prior to implementation of the changes



Role of a Project

Manager

Process

Responsibilities

People

Responsibilities

• Project issues• Disseminating project information• Mitigating project risk• Quality• Managing scope• Metrics• Managing the overall work plan

• Implementing standard processes• Establishing leadership skills• Setting expectations• Team building• Communicator skills



Management Knowledge

Areas – by PMIProject Integration Management

Project Scope Management

Project Time Management

Project Cost Management

Project Quality Management

Project Human Resource Management

Project Communications ManagementProject Risk Management

Project Procurement Management



Capital Investments asProjects: Classification I

Physical

Monetary

Intangible



Capital Investments asProjects: Classification II

Strategic Investments Tactical Investments

Capital Investments as



Capital Investments asProjects: Classification

III

Mandatory Investments

Replacement Investments

Expansion Investments

Diversification Investments

R & D Investments

Miscellaneous Investments

h f i l



Phases of Capital

InvestmentsPlanning

AnalysisSelection

Financing

Implementation

Review



Planning

Articulation of broad investmentstrategy

Generation of project proposalsPreliminary screening of project

proposals -

To see if the project is worth while to justify afeasibility study and

To identify aspects critical to the viability of theproject and hence warrant in-depth investigation



Market Analysis

Potential marketPotential market share



Technical Analysis

Technical ViabilitySensible Choices



Financial Analysis

RiskReturn



Economic Analysis

Cost – Benefit Analysis inshadow prices

Other impacts



Ecological Analysis

Potential environmentaldamages

Restoration measures



SelectionAppraisal Criteria:

Non DCF

Payback period (PBP)

Accounting rate of return (ARR)

DCF

Net Present Value (NPV)

Internal rate of return (IRR)Benefit cost ratio (BCR)



FinancingEquity

Paid-up capital

Share premium

Retained earnings

Debt

Term loan

DebentureWorking capital loans and advances



ImplementationProject and engineering designs

Negotiation and contractingConstruction

TrainingPlant commissioning



ReviewCompare actual with projected

performance – usefulness –

Throws light on how realistic were theassumptions

Provides a documented log of experience

Suggests corrective actions to be taken



Feasibility Study (Second

class – 21/3/2011)

Planning

Analysis

Selection

Financing



Key Considerations in

Investment DecisionsInvestment: Does the firm has comparative

advantage over competitors in investing in the

project?Risks: Assess risks and how do you handle

them?

DCF Valuation for selection

Financing decision

Impact on short-term EPS

Value of Options available



Weaknesses in Capital

BudgetingPoor alignment between firm

strategy and capital budgeting

Deficiency in analytical techniques–Analysis of with and with out the project

Inadequate treatment of riskLack of identification and evaluation of options

Lack of uniformity in assumptions

Ignoring side effects



Weaknesses in Capital

BudgetingNo linkage between compensation

and financial measures Reverse Financial engineering

Weak linkage between capital

budgeting and expense budgetingInadequate post-audits

i f j



screening of project

ideas The key to success lies in getting into the right business

at the right time

A simple advise but very difficult to accomplishRequires –

Imagination

Sensitivity to environmental changes

Realistic assessment of what the firm can do

Identification is often the outcome of a triggering processrather than an analytical exercise

G i f j



Generation of project

ideasStimulate the flow of ideas by

SWOT analysis

Clear articulation of organisational objectivesCost reduction

Productivity improvement

Increase in capacity utilisation

Improvement in contribution margin

Entry /Expansion in to promising fields

Fostering a conducive climate for employees

id i i h



ideas – monitoring the

environment

id it i th




environmentGoverning environment

Industrial policy

Government programmes and projects

Tax structureSubsidies, incentives and concessions

Import and export policies

Financing norms

Lending conditions of banks and financial institutions

id it i th




environment Technological factors

Emergence of new technologies

Access to technical know-how

Receptiveness on the part of industrySocio-demographic environment

Population trends

Age shifts

Income distributionEducational profile

Women employment

Attitude towards consumption and investments

id it i th




environmentCompetitive environment

Number of firms in industry and market shares of the top few

Degree of homogeneity / differentiation amongproducts

Entry barriers

Comparison with substitutes in terms of quality,

price, appeal and functional performanceMarketing policies and practices

id it i th




environmentSupplier environment

Availability and cost of raw materials and sub-assemblies

Availability and cost of energy, water, etc

Availability and cost of money

id C t



ideas – Corporate

appraisalMarketing and Distribution

Market image

Product line

Market share

Distribution network

Customer loyalty

Marketing and distribution costs

id C t



ideas – Corporate

appraisalProduction and Operations

Condition and capacity of plant and machinery

Availability of raw materials, sub-assemblies

and power

Degree of vertical integration

Locational advantages

Cost structure

id C t



ideas – Corporate

appraisalResearch and Development

Research capabilities of the firm

Track record of new product developments

Laboratories and testing facilities

Coordination between research and operations

id C t



ideas – Corporate

appraisalCorporate resources and personnel

Corporate image

Clout with government and regulatory

agencies

Dynamism of top management

Competence and commitment of employees

State of industrial relations

–i l (3rd i



appraisal (3rd session –

22/3/2011)Finance and Accounting

Financial leverage and borrowing capacity

Cost of capital

Tax structure

Relation with share holders and creditors

Accounting and control systems

Cash flows and liquidity

i t t



investment

opportunities

Porter modelLife cycle approach

Experience curve



Porter’s modelProfit potential of an industry depends onstrength of five basic competitive forces

Threat of new entrantsRivalry among existing firms

Pressure from substitute products

Bargaining power of buyersBargaining power of sellers

Product life c cle



Product life cycle

approach

Pioneering stage

Rapid growth stage

Maturity and stabilisation stage

Decline stage



Experience curve The unit cost decreases by 20% for eachdoubling of the accumulated volume



Experience curveFactors contributing to decline in unit

cost

Learning effects on labour skills

Technological improvements

Economies of scale: Usually a doubling incapacity leads to 52% to 74% increase incosts



Scouting for project ideasAnalyse performance of existing industries

Review imports and exports

Study plan outlays and government outlays

Suggestions of financial institutions and developmentagencies

Analyse economic and social trends

Explore reviving sick units

Identify unfulfilled needsAttend trade fairs



Preliminary screeningCompatibility with the promoter

Consistency with government priorities

Availability of inputs

Adequacy of market

Reasonableness of cost

Acceptability of risk level



Project rating indexIdentify relevant factors for project rating

Assign weights to each factor

Rate the project proposal on various factors

Multiply each factor rating with respectiveweights to get factor scores

Add all the factor scores to get a project

rating index



Sources of positive NPVEconomies of scale

Product differentiation

Cost advantage

Marketing reach

Technological edgeGovernment policy

On being a successful



On being a successful

entrepreneur - traitsWillingness to make sacrifices

Leadership

Decisiveness

Confidence in the project

Marketing orientation

Strong personality

– ,Market and Demand



,Market and Demand

AnalysisObjective: To analyse market demand

To find out the market share of the company

Sources of information:

Primary

Secondary

Characterisation of the



Characterisation of the

market:Overall demand

Break up of demand

Prices

Methods of distribution and salespromotion

ConsumersSupply and competition

Government policy

Demand Forecasting (4th



g (Session – 24/3/2011)Qualitative methods: Jury of executive opinion method

Delphi method

Time Series projection

Trend / regression analysisExponential smoothing

Moving averages

Causal methods:

Consumption level method – use elasticities of demandEnd use method, Bass diffusion model, leading indicator

method

Econometric method – single and multiple equations

Uncertainties in demand



Uncertainties in demandforecasting

Data about past and presentLack of standardisation

Less observations

Abnormal factors

Methods of forecastingUnrealistic assumptions

Environmental changes Technology, policies, sources of RM, weather,

etc.



Marketing planCurrent marketing situationMarket situation, competitive situation,

distribution situation, macro-environment

Opportunity and issue analysis - SWOT

ObjectivesWhen breakeven, market share, sales target,

brand image, brand recall, etc.

Marketing strategy

Target segment, product line, price, distribution,sales force, promotion, advertising, etc.

Action program to operationalise strategy



Technical Analysis1. To ensure that the project istechnically feasible – all inputs

required to set up the project areavailable

2. to facilitate the most optimal

formulation of the project in termsof technology, size, location, etc.

Technical Analysis:



Technical Analysis:

Choice of technologyPlant capacity

Principal inputs

Investment outlay and production costsPast experience of others

Product mix

Latest developmentsEase of absorption

material inputs and



material inputs and

utilitiesRaw materials:

Agriculture products

Mineral products

Livestock and forest products

Marine products

Processed industrial materials and components

Auxiliary materials:chemicals, packing materials, additives, etc.

Utilities:Power, water, steam, fuel, etc.

Technical analysis:



Technical analysis:

Product mix

Technical Analysis: Plant



Technical Analysis: Plant

capacity Technological requirement

Input constraints

Investment costC2 = C1 *(Q2 / Q1)^a , 0.2 < a < 0.9

Market conditions

Resources of the firmGovernment policy

Technical Analysis:



Technical Analysis:

Location and siteProximity to raw materials and markets

Availability of Infrastructure

Labour situation

Government policies

Other factors

Climatic conditions

General living conditionsProximity to ancillary units

Ease in coping with pollution

Site selection



Technical Analysis:Machineries and equipments:

Production technology and plant capacity

Constraints in selection

Procurement of plant and machinery

Structures and civil works:

Site preparation and development

Buildings and structuresOutdoor works

Environmental aspects

Project charts and



Project charts and

layoutsGeneral functional layout

Material flow diagram

Production line diagrams

Transport layout

Utility consumption layout

Communication layout

Organisational layoutPlant layout

Schedule of project implementation and workschedule

Technical Analysis:



Technical Analysis:

Consider alternativesNature of project

Production processProduct quality

Scale of operation and time scaling

Location



Financial AnalysisFinancial estimates and

projections for preparingProfit and loss statement

Balance sheet

Cash flow statement

projections: Cost of



projections: Cost of

ProjectLand and site development

Buildings and civil works

Plant and machinery

Technical know-how and engineering fees

Foreign / local technicians and training costs

Miscellaneous fixed assets

Preliminary and capital issue expensesPre-operative expenses

Margin money for working capital

Initial cash losses

Means of finance (session



Means of finance (session

6 on 6/4/2011)Share capital

Term loans

Debentures

Deferred credit

Incentive sources

Miscellaneous sources

considerations for



considerations for

project financingCost of funds

Risks

Business risk

Financial risk

Control

Flexibility

Estimates of sales and



Estimates of sales and

production



Cost of productionMaterial cost

Utilities cost

Labour cost

Factory overhead cost

Working capital



Working capital

estimates and sources



Profitability projections



Projected statementsProfit and loss account

Balance sheet

Cash flow statement

(session no.8 on



(session no.8 on

8/4/2011)

Selection (session no.9



Selection (session no.9

on 9/4/2011)Criteria:

DCF basis

NPV

Cost benefit ratio

IRR

Non-DCF basis

Pay back period

A/c rate of return



Net Present Value (NPV)Properties:

NPVs are additive

Intermediate cash flows are invested at cost of capital

Can use varying discounts ratesLimitations:

NPV is expressed in absolute terms and not in relativeterms

Does not consider the life of the project: in mutually

exclusive projects comparison may be imbalanced

Benefit – cost ratio or



Benefit cost ratio or

Profitability IndexBCR = PVB / I

NBCR = (PVB /I) – 1

Evaluation:

Accept / reject similar to NPV

Rank projects in the order of decreasingefficiency (benefit per rupee investment)

No means of aggregating several projects intoa package

When cash flows occur beyond the initialperiod, it is not suitable

Internal rate of return



Internal rate of return

(IRR)Problems:

Multiple IRRs with non-conventional cash flows

Comparing mutually exclusive projects – should analyseincremental cash flows

Can not distinguish lending and borrowingCan not have multiple rates (like short term and long term

lending rates)

Modified IRR (MIRR):

PVC – PV of Investment / cost, TV – Terminal value of cash

inflows, MIRR given by PVC = TV / (1+MIRR)^n



Pay back periodEvaluation:

Simple – both in concept and application

Favours projects which generate substantial cash flowsin early years then those which bring more cash inflowslater. May be suitable for firms with cash problems

Limitations:

Does not consider time value of money

Ignores cash flows after pay back

It is a measure of capital recovery not profitability

SO Discounted pay back period



Accounting rate of returnEvaluation:

It is simple

Considers entire life of the project

Based on accounting profit and not cash flow

Limitations:

There are many – may lead to confusion

Accounting profit varies depending on methodof depreciation, stock valuation, etc



Project cash flowsEstimating cash flows is the most critical and the mostdifficult task of capital budgeting

Many players in estimation:

Capital outlays – engineering and product development

Revenue projections – marketing department

Operating costs – production people, cost accountants,purchase managers, tax experts, personnel people, etc.

Project manager / Finance managers – coordinate efforts

of all departments and examine forecasts based onconsistent economic assumptions

Project cash flows:



Project cash flows:

elements

Initial InvestmentOperating cash inflows

Terminal cash inflows / outflows

P j t h fl Ti



Project cash flows: Time

horizon of projectMinimum of:

Physical life of the plant Technological life of the plant

Product market life of the plant

Investment planning horizon of thefirm

estimation (session



(

no.10 on 11/4/2011)

Separation principle

Incremental principle

Post-tax principle

Consistency principle



Separation principle

Separate investment andfinancing sides



Incremental principleMeasure cash flows on incremental basis

Consider all incidental effects

Product cannibalisation

Ignore sunk costs

Include opportunity costs

Estimate net working capital properly



Post – tax principle Tax rate

Treatment of losses

Effect of non-cash charges

Deferred tax liability / benefit



Consistency principleInvestor group: equity holders alone or allinvestors?

Inflation

Cash flows for



replacement projectsInitial investment = Cost of project +incremental WC – (Salvage value of old + WCrecovery from old)

Operating cash flow = OC new – OC old Terminal cash flow = Salvage + WC recovery

of new - Old

Biases in cash flow



estimationsOver statement of profitability: Optimism

Understatement of profitability:

Ignored intangible benefits

Value of Options overlooked



Feasibility Study Generation of Ideas

Initial Screening

Promising

Project Management: Official



Project Management: OfficialDefinition

A project is a temporary endeavor undertaken to create a unique product or service. It implies

a specific timeframea budget

unique specifications

working across organizational boundaries

Project Management: Unofficial



Project Management: UnofficialDefinition

Project management is about organization

Project management is about

changing people’s behavior

Project management is about

decision making

Project management is about creating an environment conducive to

getting critical projects done!



Why Projects FailFailure to align project with organizational

objectives

Poor scope

Unrealistic expectationsLack of executive sponsorship

Lack of project management

Inability to move beyond individual and

personality conflicts

Politics



Why Projects Succeed!Project Sponsorship at executive level

Good project charter

Strong project management

The right mix of team players

Good decision making structure

Good communication

Team members are working toward commongoals



Why this matters to YOUMost of us get to where we are by some technical

or specific set of skillsIf you want to get things done, you need a good

blend of

Business knowledgePeople managementKnowledge of organizational politicsAND an area of technical expertise

Those are the people that make thingshappen!

Laws of Project



jManagementNo major project is ever installed on time,

within budget, or with the same staff thatstarted it. Yours will not be the first.

Projects progress quickly until they become90% complete, then they remain at 90%complete forever.

When things are going well, something will gowrong.

When things just cannot get any worse, theywill.

Laws of Project



ManagementWhen things appear to be going better, you have

overlooked something.

No system is ever completely debugged. Attempts

to debug a system inevitably introduce new bugsthat are even harder to find.

A carelessly planned project will take three timeslonger to complete than expected

A carefully planned project will take only twice aslong.

Project teams detest progress reporting because itvividly manifests their lack of progress.



Core Project Management ToolsProject Charter

Work Breakdown Structure (WBS)

Project Schedule

Project Budget



Thank You

session1 introduction to project management

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