MODULE 5

PROJECTS MANAGEMENT, DESIGN AND NETWORK ANALYSIS

A PROJECT:
A project is nothing but a scheme or a design or a proposal of something which
is intended to be achieved. A project is planned to achieve a specific objective which
calls for a specific authority to implement it. Every project has 3 basic attributes: the
input characteristics, the output characteristics and the social cost benefit
characteristics. The input characteristics define what the project will consume. That
may be raw materials, energy, manpower, financial resources and an organizational
setup.
The output characteristics of a project define what the project will generate,
goods or services. In either sense it is essential to have a broad idea of quantitative
as well as qualitative of the project outputs.
Input and output characteristics of a project define the impact of the project on the
project implementing body and the environment. The identification of the project
characteristics provides the basic information, which along with the information
obtained from a study of the project implementing body and the environment forms
the basis of evaluation of the feasibility prospects of the project idea. And also an
appraisal of the project in a very explicit well defined way has to be done.

Search for a business idea:

Choosing an idea:
A successful entrepreneur must have a good business idea, for the project,
marketing and it should be easily manageable without the much help from others.
Searching for an idea should not end with only one, but can be made with 5 or 10 in
numbers, so that an appropriate one could be chosen finally. Choosing an idea is
quite difficult and the entrepreneur has to weigh objectively his intrinsic capabilities
in finalizing an idea. Suggestions for new products can be obtained from all possible
sources like customers, competitors, R&D, distributors and company employees. The
suggested ideas need to be carefully screened to determine which are good enough
to qualify for a more detailed investigation. Established objectives and defined growth
areas provide a basis for developing these criteria.

Selection of product:
At this stage the entrepreneur is concerned with identifying a particular product
that he hopes to market successfully at a reasonable profit. Therefore, the selection
of the right product is very essential for being successful in the business venture. The
Right product means that can be marketed at a reasonable profit which will go
towards business. Various factors influence in selecting the product which include:
(i) Whether important restrictions or the items selected are banned items.
(ii) If the entrepreneur or his partner have substantial amount of experience in
the manufacture and marketing of certain products, then the selection of that
kind of product would be an advantage.
 (iii) The selection of the product will also be based upon the degree of profitability
that generally rules in the market.
(iv) Many concessions are available from the government for producing a product
which serves as an important substitute or even essential item, then choosing
this will be a good idea.
(v) Many products are listed by the government to purchase from the small scale
industries, so these products can be chosen for production.
(vi) The market for the product, if it could be exported also will be a better choice.
(vii) Certain products should have taken license for their manufacturing, so such
product selection is left to the ability of an entrepreneur to select.
(viii) Many products enjoy specific advantages in regard to the scale of manufacture
Or carry locational advantages then choosing that product in a location would
be advantageous.
The study of the project idea is the starting point of the feasibility analysis. The
study is undertaken to identify the logic of the project, the tasks which must be
performed for achieving the objectives and the inputs, outputs and process
involved in each activity.

The Adoption process (making people to buy product)

The adoption of an innovation demands planned management of change. An
adoption process brings about change in buyer’s attitudes and perception.
Consumer adoption process covers the steps that a consumer usually goes
through in determining the feasibility of buying new products: Awareness,
interest, evaluation or mental trial, trial, adoption.
1.Awareness: a person learns about a new idea, product or practice. He has
general information about it, eg: by advertisements but limited knowledge about
Special qualities, usefulness, performance etc regarding the innovation.
2.Interest: he now develops an interest in the innovation. He demands more
information about the new product, its utility, its performance etc.
3.Evaluation: The accumulated information and evidences are weighed by the
person in order to assess the basic soundness or worth of the innovation.
4.trial: the person now is ready to put the idea into practice.
5.Adoption: it is the final stage in which he makes a decision to buy. The person
now develops the new idea, product or practice for continued use.

Product innovation:
The innovation attitude of the marketer is expressed in the watch word”
innovate or die”, such an attitude must be an integral part of the marketing
concept. A product should attract the customers by its marketing and innovation.
All growth industries have an important role for innovation in their marketing and
market penetration plans. Innovation alone assures growth and survival while
customers orientation assures survival. Product development is a general term
covering the search for new products and innovations as well as the improvement
of existing products.
 Product Planning and Development strategy:
Marketers have 4 alternative ways of bringing about an increase in sales and
profits, by: market penetration, market development, product development and
product diversification.
1.Market penetration: it involves the expansion of sales of the existing products
in the existing markets by selling more to present customers or gaining new
customers in the existing markets. The firm can market its present products to
existing markets.
2.Market development: Market development is the creation of new markets by
discovering new applications for existing goods. The firm can offer its existing
products to new markets.
3.Product development: it occurs when a firm introduces new products into a
market in which it is well established. Product development is the introduction of
new products in the present market. Eg: new synthetic fibres for known textile
products. The firm by offering new or improved products to present markets can
satisfy the present customers.
4.Diversification: Diversification occurs when a firm seeks to enter a new
market with a completely new product. The innovations are introduced for the
first time in the new markets. Factors rating for a new product introduction are:
Marketability, durability, productive ability and growth potential.

PRODUCT PLANNING AND DEVELOPMENT PROCESS:

There are 7 steps in the planning and development of a new product:

1. New Product ideas: detailed features of the model product are visualized. Ideas
may be contributed by scientists, designers, rivals, customers, sales force, top
management, dealers etc.
2. Idea screening: All ideas and inventions are evaluated and only most promising
and profitable ideas are picked up for further detailed investigation and
research.
3. Concept Development and testing: All ideas that survive the process of
screening will be studied in detail. They will be developed into mature product
concepts. We will have a precise description of the ideas and features of the
proposed product. Consumers can be called upon to give the comments
regarding new product concept, attributes and expected benefits.
4. Business Analysis: Business analysis is a combination of marketing research,
cost benefit analysis and assessment of competition. Business analysis will
prove the economic prospects of the new product concept. It will also prove the
soundness and viability of the selected product concept from a business view
point.
5. Product development programme: There are 3 steps at this stage when an
idea is duly converted into a physical product. (a)prototype development, giving
a visual image of the product, (b)consumer testing of the model or prototype,
and (c) branding, packaging and labelling. consumer testing of the model
product will provide ground for the final selection of the most promising model
for mass production and mass distribution.
6. Test Marketing: Test marketing is necessary to find out the viability of a full
marketing programme for national distribution. Customer reactions can be
tested under normal market conditions.
7. Commercialization: Once the test marketing is successful with or without
product modifications, the company can proceed to finalize all features of the
product. And finally mass production of the product is done and released to
market.

CONCEPT OF PROJECT AND CLASSIFICATION:

Meaning of a project:
An entrepreneur takes numerous decisions to convert his business idea into
a running concern. His/Her decision making process starts with project/product
selection. The project selection is the first corner stone to be laid down in setting
up an enterprise.
The success or failure of an enterprise largely depends upon the project. The
popular English proverb “well began is half done” applies to project selection
also indicates the significant of good beginning.
The dictionary meaning of project is that is a scheme, design a proposal of
something intended or devised to be achieved. Newman and his associates
define that “a project has typically has a distinct mission that it is designed to
achieve and clear termination point, the achievement of the mission. Gillinger
defines project “as a whole complex of activities involved in using resources to
gain benefits”. According to Encyclopedia of management, “a project is an
organized unit dedicated to the attainment of goal—the successful completion
of a development project on time, within budget, in conformance with
predetermined programme specifications.” Now, a project can be defined as a
scientifically evolved work plan devised to achieve a specific objective within a
specified period of time. Project can differ in their size, nature of objectives,
time duration and complexity.
However, projects partake of the following three basic attributes:
(i) A course of action
(ii) Specific objectives and
(iii) Definite time perspectives.
Every project has starting point, an end point with specific objectives.

Characteristics of a Project:
There are 4 basic characteristics:
(a) Investment patterns
(b) Benefits or gains
(c) Time limit and
(d) Location
A project is an economic activity with well-defined objectives and having a
specific beginning and end. It should be amenable to planning, financing and
implementation as a unit where both costs and returns are measurable. A well
planned project includes a correct consideration and enforceability.
 From the point of view of resource allocation, a project can be considered as a
proposal involving capital investment for the purpose of developing infrastructure
to produce or to give goods and services.

Project Levels:
Project work takes place at 3 levels:
1.At the national level, where national investment plans are formulated, priorities
among sectors are established and the macroeconomic framework of policies for
economic growth is put in place.
2.At the sector level, where priorities for investment within each sector are
determined and the issues and problems affecting the development of the sector
are addressed.
3.At the project level, where individual projects are identified, prepared and
implemented and attention is given to their technical, economic, financial, social,
institutional and other dimensions.

Project Classification:
Project classification helps in expressing and highlighting the essential features
of project. Different authorities have classified projects differently. The following
are some of the important classification of projects.
(1) Quantifiable and Non-Quantifiable Projects
Quantifiable projects are those in which possible quantitative assessment of
benefits can be made. Non-quantifiable projects are those where such
assessment is not possible.
Projects concerned with industrial development, power generation, mineral
development fall in the first category while projects involving health, education
and defense fall in the second category.
(2) Sectional Projects
Here the classification is based on various sectors like
● Agriculture and allied sector
● Irrigation and power sector
● Industry and mining sector
● Transport and com munication sector
● Information technology sector
● Miscellaneous
This system of classification has been found useful in resource allocation at macro
level.
(3) Techno-Economic Projects
Classification of projects based on techno-economic characteristic fall in this
category. This type of classification includes factors intensity-oriented classification,
causation oriented classification as discussed below.
(a) Factor intensity-oriented classification: Based on this projects may be
classified as capital intensive or labor intensive if large investment is made in plant
and machinery the project will be termed as capital intensive. On the other hand,
project involving large number of human resources will be termed as “labor
intensive”.
(b) Causation-oriented classification: On the basis of causation, projects can be
classified as demand based and raw material based projects. The availability of
certain raw materials, skills or other inputs makes the project raw-material based
and the very existence of demand for certain goods or services make the project
demand-based.
(c) Magnitude-oriented classification: This is based on the size of investment
involved in the projects, accordingly project is classified into large scale,
medium-scale or small-scale projects.
The selection of a project consists of two main steps: Project identification and
project selection.

4. Financial institutions classification:

All India and state financial institutions classify the projects according to their
age and experience and the purpose for which the project is being taken up. They
are as follows: (i) New projects, (ii) Expansion projects, (iii) modernization projects,
(iv) diversification projects.

5.Services projects:
The service oriented projects are classified as follows:
(i) Welfare projects
(ii)service projects
(iii)Research and development projects
(iv)Educational projects

Aspects of a Project:
There are two aspects of a project. First, a preliminary aspect of analyzing the
product, its marketing, technical, financial and economic aspects. Second the
feasibility aspects. It contains adequate information for decision making and
sometimes even implementation.
1.PRELEIMINARY ASPECTS:
Product/service, marketing, technical, financial, economic aspects
2.FEASIBILITY ASPECTS:
Financial viability, profitability, financial projections, Socio-economic desirability.
Most of the aspects mentioned above are studied simultaneously because they are
interrelated. A sound project is one which is socio-economically desirable and it aims
at social good of a larger segment of the society.

The Project cycle:

The project work comprises of several distinct stages, commonly referred to
collectively as the project cycle. The stages are closed linked and follow a logical
progression, with the later stages providing the basis for a renewal of the cycle. The
principal stages of the cycle are the identification of a project; its design, preparation
and appraisal, its implementation and its evaluation once the investment phase has
been completed. The project cycle is illustrated as follows:
 IDENTIFICATION

PRE-SANCTION
FOLLOW-UP

FEEDBACK
DIRECT AND
INDIRECT SUPERVISION, FOLLOW-UP
AND RECOVERY

IMPLEMENTATION APPRAISAL

Project Features:
Every project must have certain features to maintain uniformity and ensure
success. These include:
(i) Simplicity and clarity.
(ii)Availability of attractive technology to promote the project.
(iii) Integration of basic production services, especially those of input supply,
credit, marketing and extension.
(iv)Compatibility of the project within the existing administrative mix.
It is ultimately through the management of the resources by application of
tools that success is ensured in project financing.

Phases of Project Management:

The process of project management may be divided into 6 broad phases:
identification, formulation, appraisal, selection, implementation and
management of projects.
1.Identification: selection of a project after a careful scanning of the
environment of investment opportunity and its likely return.
2.Formulation: Translation of the idea into a concrete project with scrutiny
of its important preliminary aspects. Preparation of feasibility reports.
3.Appraisal: searching scrutiny, analysis and evaluation of market, technical,
financial and economic variables. Assessing profitability, return on investment.
 4. Selection: rational choice of a project in the light of objectives and inherent
constraints.
5.Implementation: completion of the project within the allocated resources.
The project management is all about total control during design and implementation,
feasibility analysis, finally success/failure review.

Project Management Processes:

The process of project management is an integrative one, an action in one
area usually effects other areas. Successful project management requires actively
managing the interactions. The common project management processes can be
categorized into the following:
a. Operational management processes:
These activities are seen as ongoing activities with neither a clear beginning
nor an expected end. they are planning, executing and controlling.
b. Additional project management processes:
They are, initiating: recognizing that a project should begin and committing to
do so.
Closing: formalizing the acceptance of the project and bringing it to an orderly
end.
c. Technical processes:
These vary by application areas and are to be identified, handled by application
experts. These processes are not discrete and in an actual project, there will
be many overlaps. Basic process interactions occur within each phase that
closing one phase provides inputs for initiating the next.

PROJECT FEASIBILITY ANALYSIS:

Project feasibility analysis is carried out to ensure viability of project. The
important project feasibility study is
1. Market feasibility
2. Technical feasibility
3. Financial feasibility
4. Economic feasibility
5. Ecological feasibility

Market feasibility
Market feasibility is concerned with two aspects the aggregate demand for the
proposed product/service, the market shares of the project under consideration. For
this market analysis requires variety of information and appropriate forecasting
methods. The kind of information required is:
● Consumption trends in the past and the present consumption level

● Past and present supply position

● Production possibilities and constraints

● Imports and exports

● Structure of competition

● Cost structure

● Elasticity of demand

● Consumer behavior, intentions, motivations, attitudes, preferences and

Requirements.
● Distribution channels
● Administrative, technical and legal constraints.

Technical Analysis
Technical analysis seeks to determine whether prerequisites for successful
commissioning of the project have been considered and reasonably good choices
have been made with respect to location, size, and so on. The important questions
raised in technical analysis are:
● Has the availability if raw material, power, and other inputs been established.
● Is the selected scale of operation optimal with respect to project.
● Is the production process chosen suitable according to project.
● Are the equipment and machines chosen appropriate with respect to project.
● Have the auxiliary equipment and supplementary engineering works been
provided for project
● Has provision been made for treatment of effluents from industry.
● Is the proposed layout of the site, buildings and plant are appropriate.
● Have work schedules been drawn up realistically.
● Is the technology proposed to be employed appropriate from the social
point of view.

Financial Analysis
Financial analysis is necessary as ascertain whether the propose project is
financially viable in the sense of being able to meet the burden of servicing dept
and whether the propose project will satisfy the return expectations of those who
provide the capital.
The aspects to be looked into while conducting financial appraisal are as follows.
● Investment outlay and cost of project.

● Means of financing.

● Project profitability.

● Break-even point.

● Cash shows of the project.

● Investment worthiness judged in terms of various criteria of merit.

● Project financial position.

● Level of risk.

Economic/Social Cost-benefit Analysis

This is concerned with judging a project from the larger social point of view, where
in the focus is on social costs and benefits of a project, which may often be different
from its monitory costs and benefits. The aspects considered in this analysis are:
● The direct economic benefits and costs of the project measured in terms of shadow

(efficiency) prices and not in terms of market prices.

● The impact of the project on the distribution of income in the society.

● The impact of the project on the level of savings and investment in the society.

● The contribution of the project towards the fulfillment of certain factors like self-

sufficiency, employment and social order.

Ecological Analysis
Today, environmental concerns assured a great deal of significance and hence
ecological analysis should be done, particulars for project which have significant
ecological implications like power plants and irrigation schemes and for
environmental polluting industries like chemicals, leather processing etc. The key
factors to be considered in ecological analysis are as follows.
● The likely damage caused by the project to the environment.

● The cost of restoration measures required to ensure that the damage to the

environment is contained within acceptable limit.

NETWORK ANALYSIS
A project consists of a number of constituted activities. It is examined in detail
and the details are utilized to compile the sequential narration of the constituent
activities of a project. The compilation is known as the project logic. When it is
represented in the form of a graphical portrayal it is called as network. Network in
simple words is defined as the graphical representation of interrelated activities of
the project.
A network generally comprises a set of symbols connected with each other in
a sequential relationship with each step making the completion of an event. The
network diagram and scheduling computations enable the project formulation team
to identify the longest series of activities through the project implementation phase
which determines the project duration.

Importance of network analysis:

The network analysis helps in identifying the hidden stages involved in project
estimates. By identifying them the management can improve on the ongoing project
estimates and learn for future use. The following are some of the points that speak
about the importance of network analysis.

1. The whole project has to be considered with reference to the sequence of activities
and events. Sequence means activities that are to follow on after another leading to
an event.
2. The events should be considered as different branches of operations.
3. The different segments of the project are treated as separate network which are
finally integrated to the overall network. Then the entire project may be put on one
network.
4. The time estimates may be done based on either previous experience of similar
types of operations or may be based on probabilities for the ones where previous
experience does not exist.
5. Cost estimates would depend on the project time estimates and the charge of
prices of different factors of production.
6. The physical progress of the project, nature of events, job formed and snags in
different areas of project work would call for corrective action at appropriate time.
The concept of crashing would be helpful to reduce penalties.
 A number of network techniques have been developed and some of them are
discussed below:

Critical Path Method (CPM): The CPM is a logical mathematical model of the project
based upon the optimal duration required for each activity and optimal use of
available limited resources. It is a deterministic model.

Program Evaluation and Review Technique (PERT): The PERT is primarily a

scheduling technique. It shows any job or project as a set of processes of operations
called ‘activities’ which must take place in a certain sequence. All activities have to
be compelled in order to accomplish the project. It is a probabilistic model and
introduces uncertainties in project network.

Use of PERT: The following steps are used in PERT:

(1) The activities of the project are identified along with their interrelationships
and graphically represented using networks.
(2) The time required for completing each activity is estimated and noted on the
network.
(3) The minimum time required for completing the entire project is estimated.
(4) The critical activities are identified for the efficient allocation of resources in
order to complete the project earlier, if necessary.
(5) Closer watch on critical and other activities so as to complete the project on
time.
The following table gives the activities and the time required to complete each
activity of the project.
Path 1-2-5-6 = 8+5+5 = 18 days
Path 1-3-4-6 = 3+2+4 = 09 days
Path 1-3-4-5-6 = 3+2+6+5 = 16 days
Since the path 1-2-5-6 consumes longest time, it is known as critical path and the
activities 1-2, 2-5 and 5-6 are known as critical activities. Hence the project
completion time is 18 days.

Use of CPM: The CPM is almost similar to the PERT. However, it is activity oriented
and focuses on cost and not time. The CPM is generally used to find the optimum
project cost and time. The optimum project cost is the minimum cost at which the
project can be completed. This can be determined by using the concept of crashing
of activities. Crashing of activity is nothing but reducing the time required to complete
an activity, by allocations additional resources, which adds cost. CPM is also used to
find minimum time at which a project can be completed, irrespective of cost, which
may be necessary under crisis situations.

Advantages of PERT

(1) It determines the expected duration of activities and consequently of the project
duration.
(2) It incorporates risk analysis in project network.
(3) It determines critical activities in the project.
(4) It determines the most economical scheduled for fixed project duration.
(5) It enables optimal allocation of limited resources.

Limitations of PERT
(1) The time estimates to perform activities constitutes a major limitation of this
technique.
(2) The probability distribution of total time is assumed to be normal which in
real life situations may not be true.
(3) The simple PERT technique does not consider the resources required at various
stages. If a certain resource must be used to perform more than one activity
and at the same time if it can be used for only one activity at a time then the
network diagram will become infeasible.
Advantages of CPM
(1) CPM allows for a comprehensive view of the entire project. Because of the
sequential and concurrent relationships, time scheduling becomes very effective.
(2) Identifying critical activities keeps the project manager alert and in a state of
preparedness, with alternative plans ready in case these are needed.
(3) Selective management principle may be used in project management. In the
network analysis, the critical activities become item ‘A’ the sub-critical activities
item ‘B’ and all others, item ‘C’. Breaking down the project into smaller
components permits better and closer control.
(4) Through the plan schedule derived from CPM, delegation can be effectively
practiced.

Limitations of CPM
(1) CPM is deterministic model based on certainty assumptions as regards time. But
it may not be true in practice.
(2) CPM does not use statistical analysis in making time estimates.
(3) It cannot be used as a controlling device since any changes introduced will
alter the entire structure of network.

Differences between PERT and CPM

Though both PERT and CPM are used for managing projects, yet there are differences
between them. These are listed in table:

PERT CPM