MBAD 782: Project Management By Nyaoga B.

Richard 0721 464 673

Sept 2011

PROJECT MANAGEMENT
INTRODUCTION All of us have been involved in projects, whether personal projects or in business and industry. Examples of typical projects are for example: Personal projects (obtain a degree, diploma, write a report, plan a wedding, plant a garden, build a house extension) Industrial projects (construct a building, provide a gas supply to an industrial estate, build a motorway, design a new car) Business projects (develop a new course, develop a new course, develop a computer system, introduce a new product, prepare an annual report, set up a new office) Projects can be of any size and duration. They can be simple, like planning a party, or complex like launching a space shuttle. Generally projects are made up of: a defined beginning, multiple activities which are performed to a plan, a defined end. Therefore a project may be defined as a means of moving from a problem to a solution via a series of planned activities. A project is a means of moving from a problem to a solution via a series of planned activities. A project has a definite beginning and end. Projects consist of several activities. Two essential features are present in every project no matter how simple or complicated they are. In the first place, all projects must be planned out in advance if they are to be successfully executed. Secondly, the execution of the project must be controlled to ensure that the desired results are achieved. On most projects it is possible to carry out multiple activities simultaneously. Usually it is possible to perform several activities at the same time; however there will be activities which

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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cannot begin until a preceding activity has been completed. Such relationships are referred to as dependencies or precedences, and when planning a project it is important to establish the order of precedence of dependent activities, and to establish those activities which can be performed in parallel with other activities. Regardless of the nature or size of your project a successful outcome can only be achieved by using sound project management techniques. The most widely used and popular methods of project management are Gantt Charts, Critical Path Method (CPM) and Programme Evaluation and Review Technique (PERT). However, it is important to remember that projects are carried out by people, and the human aspects of project management are critical for the project success. Definition 1 A project is a set of activities which should be undertaken in a logical sequence for the propose of attaining some specified objectives within a given time period, budget and at a given quality specification Definition 2 A project is a temporary endeavor undertaken to provide or to produce a unique service or product. Temporary means it has a specified beginning and time to end. Unique means no two projects are the same, they differ from one another unlike operations. Examples of projects include: - Construction activities, roads, bridges, houses: Research and development activities: Campaigns, political, diseases, promotions, marketing: Information System Developments, Launching of new fields, undertaking a Degree course etc. Definition 3 A project is an interrelated set of activities that has a definite starting and ending point and results in the accomplishment of a unique, often major outcome. "Project management" is, therefore, the planning and control of events that, together, comprise the project. Project management aims to ensure the effective use of resources and delivery of the project 2

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objectives on time and within cost constraints. An activity or task is the smallest unit of work effort within the project and consumes resources which are both financial and non-financial and which are under the control of the project manager. A project is a sequence of activities that has a definite start and finish, an identifiable goal and an integrated system of complex but interdependent relationships. A schedule allocates resources to accomplish the activities within a timeframe. The schedule sets priorities, start times and finish times. Project management is: the adept use of techniques and skills (hard and soft) in planning and controlling tasks and resources needed for the project, from both inside and outside of the organization to achieve results. The purpose of project management is to achieve successful project completion with the resources available. A successful project is one which: has been finished on time is within its cost budget Performs to a technical/performance standard which satisfies the end user. In recent years more and more activities have been tackled on a project basis. Project teams and a project management approach have become common in most organizations. The basic approaches to project management remain the same regardless of the type of project being considered. Examples of Projects 1. Engineering and construction The projects are concerned with producing a clear physical output, such as roads, bridges or buildings. The requirements of a project team are well defined in terms of skills and background, as are the main procedures that have to be undergone. Most of the problems which may confront the project team are likely to have occurred before and therefore their solution may be based upon past experiences. 2. Introduction of new systems These projects would include computerization projects and the introduction of new systems and procedures including financial systems. The nature and constitution of a project team may vary with the subject of the project, as different skills may be required and different end-users may be involved. Major projects involving a systems analysis approach may incorporate clearly defined procedures within an organization. 3. Responding to deadlines and change An example of responding to a deadline is the preparation of an annual report by a specified date. An increasing number of projects are concerned with designing organizational or environmental changes, involving developing new products and services. Some of the characteristics of a project include:-

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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1. Specific Objectives: The three generic objectives of a project are a) Time-determined by the schedule of activities b) Cost-determined by the budget c) Quality-determined by the specification of customers Projects should meet the requirements/specifications of the stakeholders. Stakeholders include:-beneficiaries, financiers, implementers, victims of the project. (For example Titanium in Kwale- if mining activities has to displace some people) 2. Limited Life Span i.e. it is temporal 3. Single Entity i.e. it is a stand alone. It comes up to specific product. 4. Relies on Teamwork: Implemented by teams 5. Follows a Specific Life Cycle 6. Unique i.e. no two projects are the same. Even when undertaking a similar project, the achieve project provides a template. 7. Keep Changing i.e. projects keep changing depending on circumstances. Thus they must be adaptable. 8. Projects Are Made To Order: Unlike operations where one produces and then look 4 customers. 9. Have High Level of Risk and Uncertainty What is Program Management? A program consists of a related group of projects. Program management is the process of managing multiple on-going projects. An example would be that of designing, manufacturing and providing support infrastructure for an automobile make. Program management involves centrally managing and coordinating groups of related projects to meet the objectives of the program. In some cases Project Management is a subset of Program Management. The project manager may report to the program manager in such cases. A portfolio consists of multiple programs. Roles and Responsibilities of the Project Manager The following make the roles and responsibilities of a project manager: 1. To plan thoroughly all aspects of the project, soliciting the active involvement of all functional areas involved, in order to obtain and maintain a realistic plan that satisfies their commitment for performance. 2. To control the organizations manpower needed by the project. 3. To control the basic technical definition of the project, ensuring that "technical" versus "cost" trade-offs determine the specific areas where optimization is necessary. 4. To lead the people and organizations assigned to the project at any given point in time. Strong positive leadership must be exercised in order to keep the many separate elements moving in the same direction in a co-operative way. 5. To monitor performance, costs and efficiency of all elements of the project and the project as a whole, exercising judgment and leadership in determining the causes of 4

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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problems and facilitating solutions. 6. To complete the project on schedule and within costs, these being the overall standard by which performance of the project manager is evaluated. 7. Responsible for defining and maintaining the integrity of a project. 8. Develops the execution plan and organizes for its execution. 9. Involved in negotiation for commitments with the various stakeholders. E.g. teams and conditions of grants, employees Contracts, 10. He is the director/coordinator and controller of project activities. 11. He manages resources used in the project including equipment, finances and human resources. 12. Responsible for satisfying a customers needs, for instance the government, public etc. 13. Responsible for problem solving and conflict resolution. Difference between Project Management and General Management 1. 2. 3. 4. 5. Project Management involves a temporal undertaking while General Management is In general Management, budgeting is done periodically while in Project General management tends to be specialized e.g. Finance, Operations, Marketing, The environment of General Management usually tends to be stable while Project The General Management tends to rely on positional authority- main source of a going concern. Management budgeting is done for the whole project. Accounting etc while Project Management requires a multiplicity of skills. Managements environment tends to be dynamic- uncertainties and risks are many. authority while Project Management tends to rely on other sources of influence such as technical expertise, ability to negotiate with various stakeholders. Project Management will involve all functions of Management i.e. POSDCORB. PROJECT PARAMETERS These are the key issues in Project Management. They include: A. Quality of the Project. These are the specifications of the project deliverables. The quality of the project should be agreed upon by the client and the project team. At the end this, it has to be evaluated for achievement. B. Cost These are the budgetary provisions for projects. This has to be ascertained before the start of 5

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the project. At the end we may experience cost overruns which may be as a result of: Poor budgetary estimates Probably there are extra-ordinary occurrences like inflation, bad political climate etc. When these happens, two things will happen Need to look for additional funds The project stalls. Overprovision of the cost of the project provided Gains in foreign exchange

A cost under-run is a result of

C. Time There should be a project schedule to guide the implementation. Promised delivery time has to be achieved. This may not be achieved due to: Time over-run which is as a result of poor management skills for the project Extra-ordinary occurrences like bad weather, developments in regulatory environment e.g. KRA IT based clearing system. Ways of dealing with time over-runs include: project crashing, penalties, bonuses, etc. Project Management Skills: Many of the tools and techniques for managing projects are specific to project management. However, effective project management requires that the project management team acquire the following three dimensions of project management competencies:

Project Management Knowledge Competency: This refers to what the project management team knows about project management. Project Management Performance Competency: This refers to what the project management team is able to do or accomplish while applying their project management knowledge.

Personal Competency: This refers to how the project management team behaves when performing the project or activity.

Interpersonal Skills Management: The management of interpersonal relationships includes:

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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Effective communication: The exchange of information Influencing the organization: The ability to "get things done" Leadership: Developing a vision and strategy, and motivating people to achieve that vision and strategy Motivation: Energizing people to achieve high levels of performance and to overcome barriers to change Negotiation and conflict management: Conferring with others to come to terms with them or to reach an agreement Decision Making: Ability to take decision independently. Political and cultural awareness: Important to handle various personal and professional issues. Team Building: Ability to create a productive team.

Ten Commandments of Project Management i. Set a clear project goal. (Covey: Begin with the end in mind.) ii. Determine the project objectives. (Sub-units or Sub-goals) iii. Establish checkpoints (milestones), activities, relationships (how tasks are interrelated), and time estimates. iv. Draw a picture of the project schedule (MS Project). v. Direct people individually and as a project team. vi. Reinforce commitment (walk the talk) and excitement of the project team. vii. Keep everyone connected with the project informed. viii. Build agreements that vitalize (win/win) team members. ix. Empower yourself and others of the project team. x. Encourage risk taking and creativity but manage it closely. PROJECT LIFE CYCLE. This consists of sequential phases through which projects undergo. The phases are important in planning a project since they provide a framework for budgeting, manpower, resource allocation, scheduling project milestones, project reviews etc. All projects go through the following stages whether big or small Project idea Identification Preparation 7

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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(Conception)

Terminal Evaluation

Appraisal

Selection Ongoing Evaluation Negotiation & Financing

Participatory Reporting

Implementation

Planning for Implementation

a) Project idea /conception An idea regarding intervention in a specific area to address and identify a problem is developed or formed. Sources of ideas include Market demand where one may be facing increasing demand thus becoming a problem Technological changes- this forces an organization to change in order to make use of the new technology e.g. utilization of internet, mobile telephony Natural calamities like fire, floods, landslides, drought etc. Resource availability- makes use of the available resources e.g. waste products in a manufacturing plant to generate by-products. Political considerations Need to avail basic requirements or necessities to a community

b) Project Identification 8

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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After conception of ideas, Potential projects arising from the ideas crystallised above are identified. The information may be captured in the form of a proposal or proposals and submitted to an agent or agency for consideration and objective judgement to assess the potential and justification for the intervention before the idea goes to the next stage in the cycle. c) Project Preparation Involves a more thorough and detailed collection of data and information on the proposed project. This is normally done by people with technical and analytical skills in consultation with the target beneficially. The objective of the project is defined and alternative solutions described. Its usually conducted by people with technical and analytical skills in order to determine whether the project can be achieved and to establish whether the project is feasible. Feasibility involves viability of the project i.e. costs of the project and benefits of the project. This include Financial feasibility Economic feasibility Technical feasibility Reasons Projects may be made on the scope, location and size of the project based on the analyzed of he data collected In big projects, careful preparation including feasibility analysis may take upto 10% of the total cost of the project. Do all projects (whether government or public) go through feasibility studies? Yes e.g. Eldoret Airport, Kenya Nyayo car, Kabarak Airport, white Elephants projects. d) Project appraisal This involves further comprehensive and systematic analysis of the proposed projects by an independent team of experts in consultation with the stakeholders of the project, so as to assess whether the proposal is justified before large amounts of money are committed. The effects of the project on the organization and society are investigated and documented. On the basis of appraisal a decision is made on whether to go ahead with the project or not where a critical a view is done by a team of independent experts who are not involved in feasibility studies done 9 Environment feasibility Market feasibility Legal feasibility & Social feasibility

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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earlier. This provides an opportunity to reexamine every aspect of the project before funds raised are committed. e) Project selection From appraisal, several projects may be found to be beneficial. However not all viable projects can be implemented. We therefore need to choose one or a few based on available resources and the priorities of the shareholders. Where all projects are viable we may also need to prioritise them in order of possible implementation. This is due to scarcity of resources for project implementation f) Negotiation and Financing Once the project to be implemented is selected and agreed upon, the next step is to negotiate for funding and other related aspects e.g. conditions for grants, repayment period, interest rates, graze period, flow of funds, contributions from stakeholders etc. This culminates into a binding document for all concerned. g) Planning for implementation This is done before final implementation of project. This stage involves all stakeholders including implementers, beneficiaries, funding agency. It enables the Project Manager to address issues like the project objectives, scope of the project, financial arrangements, implementation schedules, project environment, likelihood of changes to design, monitoring and evaluation plans etc. It enables definition of objectives, outputs, inputs, activities that will go into the project, the indicators, means of verification and assumptions of the project. The most important outcomes of such planning include time schedules. Budget committed for various activities and quality plans. It is also important to come up with project log frames (logical formulae) i.e. PPM (project planning matrix) especially for developmental project. h) Project Implementation It is the most crucial stage for most projects since project activities are carried out at this stage. Many projects that fail normally do so at this stage. Monitoring of progress and reporting are crucial. Implementation is considered to be a mini-cycle within the project life cycle. It has three phases: Investment, development, and the full development phase. It goes through three 10

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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development phases i. Investment period It can take 1-3 years depending on the project. The major investment like buying of capital items, warehouses etc of the project undertaken. ii. iii. Development period Full development period This occurs when production builds up and the actual activities are being done. This is reached when production picks up and continues until the project ends.

Full development

Development

Investment

i) Monitoring and Reporting) This is an on-going activity during implementation. Monitoring is the collection of data on project implementation. The aim is to ensure that the activities go on according to plan. Any problems can be easily detected and corrective action taken. It can be done by beneficiaries, implementing staff, supervisory staff and PM team. Communication channels should be clear and easy to allow transparency and accountability of those involved. j) Evaluation It involves a systematic review or examination of the element of success and failure in projects. The information collected from monitoring is the main input into evaluation. Is conducted at three stages:11

MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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Ex-Ante evaluation-done before implementation is done e.g. skills, resources required Concurrent/ongoing Evaluation-done during process of implementation Ex-Post Evaluation-done at the end of the implementation i.e. what has been achieved? What is not achieved? Why we didnt achieve.

Reasons for failure of projects (e.g. government) What is project failure? This is a project which does not meet any of the following i. ii. iii. iv. v. vi. Cost estimates Time estimates Quality specifications Acceptance from stakeholders Insufficient resources Poor implementation Corruption Dependency on donor funding Natural calamities Macroeconomic factors vii. viii. ix. x. xi. Poor selection criteria Deliberate sabotageeither

The following are some of the reasons why projects fail

through political interference Changes in environment Poor feasibility studies Lack of monitoring

There can be many other reasons why projects go wrong. The most common reasons are as follows: i. Project goals are not clearly defined ii. There can be constraints on the completion of projects arising from the different objectives of: Short time scale; Resource availability; Quality factors; Human factors There are perhaps two stages which can help in ensuring that goals are properly defined and achievable: 1. Ensuring that the client specification is clear and understandable. To do this you must first of all establish the objectives of the project. It would help to ask the following questions: What is it that the organization is setting out to achieve or is being asked to achieve? Will the suggested project fulfill these objectives? 12

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Have all the alternatives been considered and is the chosen option the best one available? Have the full effects of the project, both inside and outside the organization, been considered? 2. Preparation of Project overviews (Project brief). The brief should take the objectives set out in the previous exercise and translate them into targets and goals. Any key constraints should also be identified and stated at this stage. This brief should be agreed by the sponsor/client and communicated to the project manager. Any ambiguities or queries should be sorted out as soon as possible.

Constraints on the Completion of Projects 1. Time Our definition of a project stated that it was an activity which had a defined beginning and ending point. Most projects will be close-ended in terms of there being a requirement for completion by a certain point in time. This point may be the result of an external factor such as new legislation, or may be derived from organizational requirements. It may also be partly determined by other constraints. There is likely to be some relationship between the time taken for a project and its cost. A trade-off between the two constraining factors may then be necessary. 2. Resource Availability There is likely to be a budget for the project and this will clearly be a major constraint. Cost constraints may be set in a number of ways, for example as an overall cash limit or as a detailed budget broken down over a number of expenditure headings. Labour resources in particular may be a limiting factor on the completion of the project. In the short run it is likely that labour will be fixed in supply. Whilst the overall resource available may in theory be sufficient to complete the project, there may be difficulties arising out of the way in which the project has been scheduled. That is, there may be a number of activities scheduled to take place at the same time and this may not be possible given the amount of resources available.

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MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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3. Quality factors You need to ask yourself whether the project delivers the goods of the right quality. There are techniques which can be used to overcome the problems referred to above. These include: Budgeting and the corresponding control of the project budget through budgetary control procedures. Project planning and control techniques such as Gantt charts and network analysis. An important point to note at this stage is how the various constraints on project completion are likely to be interlinked with each other. For example, problems with time constraints or resource constraints may be overcome by spending more through working overtime, employing more people or purchasing better machines. Budget problems may have a knock-on effect on the achievement of deadlines. It is important to remember that while project management techniques are important, they tend to understate the importance of the key resource: people. In a fact changing environment where tasks are often difficult, controversial with uncertain outcomes, "people management" skills are called for. NB/Summary: A project should possess identifiable goals and a definite starting and finishing point. Project goals must be defined clearly. A useful checklist can be developed in relation to success criteria. Criteria may be hard and concerned with what the project should achieve, or soft when they will cover how the project should proceed. The major constraints on the completion of projects are Time, Resource Availability and the need to achieve the required standard of performance for the project. CHARACTERISTICS OF SUCCESSFUL TEAMS These ten main characteristics of successful project teams are:

Clearly defined goals Clearly defined roles Open and clear communication Effective decision making Balanced participation

Valued diversity Managed conflict Positive atmosphere Cooperative relationships Participative leadership

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MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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Clearly defined goals Clearly defined goals are essential so that everyone understands the purpose and vision of the team. Its surprising to learn sometimes how many people do not know the reason they are doing the tasks that make up their jobs, much less what their team is doing. Everyone must be pulling in the same direction and be aware of the end goals. Clear goals help team members understand where the team is going. Clear goals help a team know when it has been successful by defining exactly what the team is doing and what it wants to accomplish. This makes it easier for members to work together and more likely to be successful. Clear goals create ownership. Team members are more likely to own goals and work toward them if they have been involved in establishing them as a team. In addition, the ownership is longer lasting if members perceive that other team members support the same efforts. Clear goals foster team unity, whereas unclear goals foster confusion or sometimes individualism. For example If team members dont agree on the meaning of the team goals, they will work alone to accomplish their individual interpretations of the goals. They may also protect their own goals, even at the expense of the team. Clearly defined roles If a teams roles are clearly defined, all team members know what their jobs are, but defining roles goes beyond that. It means that we recognize individuals talent and tap into the expertise of each member both job-related and innate skills each person brings to the team, such as organization, creative, or team-building skills. Clearly defined roles help team members understand why they are on a team. When the members experience conflict, it may be related to their roles. Team members often can manage this conflict by identifying, clarifying, and agreeing on their individual responsibilities so that they all gain a clear understanding of how they will accomplish the teams goals. Once team members are comfortable with their primary roles on the team, they can identify the roles they play during team meetings. There are two kinds of roles that are essential in team meetings. Open and clear communication

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MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673

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The importance of open and clear communication cannot be stressed enough. This is probably the most important characteristic for high-performance teams. Many different problems that arise on projects can often be can be traced back to poor communication or lack of communication skills, such as listening well or providing constructive feedback. Enough books have been written about communication to fill a library. And Ive personally written several articles on this subject alone for this site over the past few months. Excellent communication is the key to keeping a team informed, focused, and moving forward. Team members must feel free to express their thoughts and opinions at any time. Yet, even as they are expressing themselves, they must make certain they are doing so in a clear and concise manner. Unfortunately, most of us are not very good listeners. Most of us could improve our communication if we just started to listen betterto listen with an open mind, to hear the entire message before forming conclusions, and to work toward mutual understanding with the speaker. We allow distractions to prevent us from giving our full attention to the speaker. We allow our minds to wander instead of focusing on the speaker. We allow our biases and prejudices to form the basis for our understanding. Instead, we should allow the new information we are hearing to form the basis for our understanding. Many benefits exist for working toward improving communication for your team. Consider these.

Open communication encourages team members to express their points of view and to offer all the information they can to make the team more effective. Clear communication ensures that team messages are understood by speakers and listeners. Two-way communication increases the likelihood that all team members hear the same message. Good listening skills ensure that both the speakers content (words) and the intent are heard. Attention to nonverbal communication helps further identify feelings and hidden messages that may get in the way of teamwork.

If team members attend to no other high-performing team characteristic, working to improve their communication with other team members will increase trust, decrease problems and rework, and build healthy interpersonal relationships. Invest in improved communication the payback can be enormous. 16

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Effective decision making Decision making is effective when the team is aware of and uses many methods to arrive at decisions. Consensus is often touted as the best way to make decisionsand it is an excellent method and probably not used often enough. But the team should also use majority rule, expert decision, authority rule with discussion, and other methods. The team members should discuss the method they want to use and should use tools to assist them, such as force-field analysis, pair-wise ranking matrices, or some of the multi-voting techniques. Effective decision making is essential to a teams progress; ideally, teams that are asked to solve problems should also have the power and authority to implement solutions. They must have a grasp of various decision-making methods, their advantages and disadvantages, and when and how to use each. Teams that choose the right decision-making methods at the right time will not only save time, but they will also most often make the best decisions. This completes the four basic foundation characteristics: clear goals, defined roles, open and clear communication, and effective decision making. The next three blocks in the model build on their foundation. Balanced participation If communication is the most important team characteristic, participation is the second most important. Without participation, you dont have a team; you have a group of bodies. Balanced participation ensures that everyone on the team is fully involved. It does not mean that if you have five people each is speaking 20 percent of the time. Talking is not necessarily a measure of participation. We all know people who talk a lot and say nothing. It does mean that each individual is contributing when its appropriate. The more a team involves all of its members in its activities, the more likely that team is to experience a high level of commitment and synergy. Balanced participation means that each team member joins the discussion when his or her contribution is pertinent to the team assignment. It also means that everyones opinions are sought and valued by others on the team. Participation is everyones responsibility. As a team moves from a forming stage to more mature stages of group development, team members must make certain that everyone is an active participant. If you have team members who did not 17

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participate early in the formation of the team, they will withdraw even more as the going becomes more difficult. To achieve the best participation, a team might start by asking some of these questions:

Did everyone on the team give his or her point of view when we established the ground rules? Did everyone have input into our goals? When we solve problems, do we make sure everyone has spoken before we decide? Do we consistently ask the shy members of our team what we think? Do we seek opposing points of view? Do we ask all team members what they want?

Two important things influence team participation: the leaders behaviour and the participants expectations. Leaders behaviour A leaders behaviour comes as much from attitude as from anything. Leaders who are effective in obtaining participation see their roles as being a coach and mentor, not the expert in the situation. Leaders will get more participation from team members if they can admit to needing help, not power. Leaders should also specify the kind of participation they want right from the start. Will everyone share their own ideas and then decide what to do or will the group discuss the pros and cons of the leaders idea? If everyone knows the answer, then there are no lingering questions. Leaders need to create a participative climate. They must make it a practice to speak last to avoid influencing others. Often a leader may put an idea on the table just to get things started. But what happens? Everyone jumps on the idea and stops thinking. People may feel, Well, if thats what she wants, thats it. Leaders need to reward risk taking. Those half-baked partial ideas that people bring up may be just what gets the team moving toward a solution, idea, or new opportunity. Leaders must always protect the minority views. Anyone can think like everyone else. It takes courage to think and speak differently. Leaders need input from everyone, but usually some team members have been selected for their expertise and experience. To ask for input, the leader must recognize those people for 18

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their expertise and/or experience, direct questions to them, and lead the discussion that results so that everyone is included. Thats what participation is all about. Participants expectations Participants must volunteer information willingly rather than force someone to drag it out of them. They should encourage others participation as well by asking question of others, especially those who have been quiet for a while. Participants can assist the leader by suggesting techniques that encourage everyone to speak, for example, a round robin. To conduct a round robin, someone directs all members to state their opinions or ideas about the topic under discussion. Members go around the group, in order, and one person at a time says whats on his or her mind. During this time, no one else in the group can disagree, ask questions, or discuss how the idea might work or not work, be good or not good. Only after everyone has had an opportunity to hear others and to be heard him- or herself, a discussion occurs. This discussion may focus on pros and cons, on clarifying, on similarities and differences, or on trying to reach consensus. Participants can also encourage participation by establishing relationships with other team members between meetings. Another thing they can do is to call people by name. We all like to hear our names used by othersespecially in positive ways! Remember that each and every member of a team has responsibility not only to participate, but also to ensure that everyone else is given the opportunity to participate. Why Project Communication? Constant, effective communication among all project stakeholders ranks high among the factors leading to the success of a project. It is a key prerequisite of getting the right things done in the right way. As knowledge is power, sharing knowledge is empowering every project stakeholder. Communication Plan A project communication plan is the written strategy for getting the right information to the right project stakeholders at the right time. Each stakeholder has different requirements for information as they participate in the project in different ways. Making Information Timely

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For information to be used, it has to be delivered to its target users timely. As a project manager, while developing your communication plan, you need to decide how often to contact each stakeholder and with what information. Communicating within the Team Internal communication within the project teams is to meet their four major communication needs 1. Responsibility of each team member for different parts of the project 2. Coordination information that enables team members to work together efficiently 3. Status information tracking the progress, identifying problems and enabling team members to take corrective action 4. Authorization information - decisions made by customers, sponsors, and upper management - that relates to the project and its business environment, and enables the team members to keep all project decisions synchronized. Internal communications happen primarily through team meetings, memos, voice mail, and email. Project managers need to be able to write, speak, and listen well, lead meeting and resolve conflicts effectively FEASIBILITY ANALYSIS (FA) Definitions:Feasibility is the measure of how beneficial the development/ project will be to the wishes of the society or the workability of a project. Feasibility analysis is the process by which the feasibility is measured. It is looked at in 2 ways: Whether the organization is be able to implement it i.e. technical ability etc Whether the project justifies the investment i.e. benefits and costs

Feasibility is part of the process of identification, preparation and selection. The purpose of the Feasibility Analysis is to establish whether the proposed project is attractive enough to justify a more detailed preparation of the project. After classifying the nature of the project and defining goals and objectives the next step is to conduct feasibility studies for each of the alternative project identified. The basic questions to asked are:20

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Is the project feasible? How feasible is the alternatives under consideration?

The aim of the FA is to carry out a preliminary investigation which should help to determine whether the project should proceed further and how it should proceed. The relevance of this approach will vary with the nature of the project itself. The more concrete the project is, the more likely that these will be established produces in relation to feasibility. However despite of these benefits of FA, not all projects go through FA. Even those that must undergo FA, they may not all require detailed FA. These will be dictated by the nature of the project.

Projects that may not undergo Feasibility Analysis include: 1. The sacred cow project This is one that is started by powerful individuals in organization or government. These types of projects are started to satisfy the agenda of the powerful persons behind them. In many developing countries there are many projects proposed by rich peoples, and even where F.A are conducted, results may be ignored. 2. The operating Necessity projects They are those that are required to keep a system in operation e.g. those projects that are meant to prevent catastrophe or those required to respond to emergencies e.g. projects to respond to floods, risk (millennium bug) 3. Competitive Necessity projects These projects are conducted in order to maintain a competitive edge over other organization e.g. in response to a competitors actions. They are considered to be of survival importance. And careful analysis may not be carried out e.g.: New look channel for KBC channel 1 News, East Africa Breweries Limited in response to castle Beer. 4. Product line Extension

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These projects are intended to develop and distribute products that can be said to be related to existing products. Such projects are carried out e.g. toothpastes, Ribena apple. 5. Comparative Benefit Model This is where projects are carried based on some criteria e.g. where projects are ranked as good, fair, poor), rank order or through peer review. This is how some projects may be undertaken only to discover that they are not viable. However, not every project idea needs to go through FA. It is only those with promising potential that may be allocated resources for feasibility analysis. These projects may be identified through preliminary screening and pre-feasibility analysis STAGES OF FEASIBILITY ANALYSIS 1. Preliminary screening It examines the new projects ideas in relation to key factors. Key factors determine whether the project is workable e.g. of key factors are availability of raw materials, infrastructure, skilled labour etc 2. Pre-feasibility analysis Look at the basic criteria for those projects that have passed step 1 the purpose is to determine the sustainability of the project i.e. how successful it will be. Qualifying projects are ranked and then evaluated subjectively in relation to a few basic criteria: Availability of adequate machinery Project growth potential Magnitude of investment/investment costs Operation and distribution cost Demand and supply factors Social and environmental considerations Also look at legal viability i.e. not illegal

3. Actual feasibility analysis /study 22

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We conduct a detailed study that culminates in a feasibility report that will be used by the decision makers for project appraisal. It involves collection and analysis of data in the field. It may build on the project plan and beings in any new assumption and questions. A complete FA of a project needs to cover 7 important study areas Technical feasibility: includes man power and technological requirements. Economic justification: such as the costs and benefits Administrative/managerial, including external linkages and internal organization Environmental, including present baseline data and the impact of those data Social and political including demographic data and social needs Financial for funding needs and sources Market needs

Importance of FA a) It provides information in the preliminary design projects. b) Feasibility and appraisal help to guide the implementation of the project. They point out potential trouble spots, and help make contingency plans c) By examining projects, it include criteria and baseline measure to evaluate the project, providing the peacemaker both for monitoring and the project driving implementation and for evaluating its overall success and completion TYPES OF FEASIBILITY STUDIES 1. Technical feasibility This looks at technical and physical parameters of the project. It addresses 3 interrelated questions Is there adequate choice of available technology for alternative design proposes, considering the physical layout, engineering design and availability of raw materials? How wide a choice do we have? What are the costs of constructing and operating project facilities (and services) What are the manpower requirements, from professional to labour, and are they locally including machinery, equipments and space parts? available? 23

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2. Economic Feasibility It examines a proposed project in terms of its net contribution to the economy and to the society. It answers question like: Will the projects planned economic outputs adequately serve the intended propose? Is the project responsive to an agent present or anticipated economic or social need? Will the service proposed to be performed by the project be adequate and will the benefits justify the costs? It is especially important for public projects e.g. roads construction, bridges, fewer supply, water, and health. It looks at variables like:a) Demand and supply of all projects outputs b) Projects ability to increase employment with multiplier effects on increased purchases of goods and services Its effect on increasing public sector revenue its use of locally available resources in cooperate projects, the owners will be interested in the financial return of the project. Upon completion it is possible to asses the net contribution to the economic and social welfare of the community. It is done via a comparison of the social and economic benefits against the costs of construction and operation of the project. Cost-benefit analysis is normally done for each technical alternative. There is therefore need to approximate the costs and benefits expected from the projects for each of the projects years. Costs include capital expenditure, labour, materials, equipment, quality control, maintenance, vehicle operation etc. Benefits include serving in transport costs, people, labour, stimulation of new economic growth, new industries, how housing, and shopping facilities, reductions in accidents, and other tangible and intangible benefits quantified to the extent possible. Include quantifiable and non quantifiable costs and benefits. How do we quantify reductions in accidents, people? 3. Administrative/ managerial Feasibility This is also known as original feasibility. Look at the structures of the firm implementing the project. It may not lead to disqualification of project but comes up with ways of improving the

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project. Evaluate the strategy of the implementing agency in carrying out projects characteristics. Although it is meant to assess f. of this strategy, it should concentrate on providing information and guidelines that can be used to improve overall project administration. External linkages, internal original, personnel and management plan:External linkages Structure of government and private organization will directly or indirectly affect the projects, environment. The administration funding agency, the regulating agency and the human advisory organization that provide political, technical and other types of rapport as seen on construction sites. Internal organizations Internal organization is the actual of he implementation unit. The study should determine whether the proposed organization can implement the project satisfactorily issues include: Is it comprehensive enough? Is it appropriate for carrying out project goals? Is it flexible enough? Is internal communication well established and are lines of authority clearly defined? Management Its the specified management plan of the project. Issues include:Are schedules and networks sufficiently worked out? What are the control techniques and methods of supervision? Is the entire management plan integrated so that the project management can control all aspects of the project? Is the management of the project formulated well enough to ensure that the project will be well coordinated and controlled? Does the plan provide for contingencies? Personnel Its the key issue in administration feasibility. It looks at competency and appropriateness of personnel. Then the impact on every area of a project made by the choice of foreign or local personnel-not only in a duration and implementation but also in preliminary design, technical analysis and general consulting should be examined. The analysis should question whether

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there is adequate provision for hiring expert. 4. Environmental Feasibility We look at two aspects. Namely: a) how the environment affects the project b) how the project will affect the environment Is environment suitable for the success of the project? Is soil quality appropriate for proposed crops? Is water sufficient? Is drainage adequate? Is there adequate sunlight? Is the climate right? What is the projects impact on the environment? The projects effect on soil erosion, water supplies, wildlife, Potential to deplete non renewable resources, Create adverse microclimatic changes, Pollute water, air, land. 5. Social/political Feasibility What is the impact of social/political structures affect on the project and how project will affect the social/political structures? Look at formal social/political structures and formal ones. Start with conducting a study on the baseline economic and social. Data on the community for which this project is intended is as to get the general profile of the areas residents and should include demographic information such as population level and distribution, employment pattern, level and distribution of y, education and housing and health situations We also look at the various stakeholders of the project and how they are affected by the project. The stakeholders may be classified as: - Client gaps-owners, Uses gaps, Agents-managers, Victims-suffix. Their the political structure is studied by focusing on the decision making process and understanding the political relationship to regional and national governments as assess the political autonomy. Its also describes the areas informal and formal political organization and specifies the local ordinances, zoning requirements and status that will affect the project. Finally information must be gathered on the opinions and attitude of residents and leaders towards the project. 6. Financial Feasibility Addresses the following questions: - What are the operation and operating costs of the project? 26

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What are the sources of funds and draw-down schedules and are they Sufficient to cover the costs of activities and implementation? What are the alternative financing schemes from other funding sources? What is the projected cash flow of the project? To what extent are necessary becoming scheduled to meet the running defeats at activation? How soon will initial revenues cover part or all of operating costs? Is there an adequate accounting system to provide regular balance sheets, costs, debt servicing schedules and other financial reports? What are the provisions for completion investment and other means of recovery investment and operating cost? Financial study addresses issues such as: Whether the project can succeed with the amount of money stated in the proposal Whether project is expected (if in the private sector) to show a profit. 7. Market Feasibility We collect information that helps us determine whether the outputs will sold, the targeted gaps, the competition levels, output of competitions etc. This helps us to cater the demand potential for which the project is being established FEASIBILITY REPORT After feasibility studies have been done and completed, they need to be presented in a single document which should be handed to the stakeholders. The report has the following parts/contents:i. The introduction chapter should clearly list the goals and objectives of the project=TITLE OF THE PROJECT ii. EXECUTIVE SUMMARY including terms of reference, brief description of exercise, key finding and recommendations iii. PROJECT DEFINITION covering goals and objectives iv. GENERAL B/GROUND AND INTRODUCTION within outline description of the options/alternatives, general information e.g. analysis of industry, structure of project, description etc. v. CLEAR DEFINITION OF SUCCESS CRITERIA OR FEASIBILITY CRITERIA

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vi. FINDINGS OF the FA on marketing analysis, operating requirements and costs, technical analysis, original analysis, financial analysis, economic analysis, political and social analysis, environmental impact assessment etc vii. PRELIMINARY COMPLIANCE-Show the project meets or complies to all the criteria viii. PLAN FOR THE MANAGEMENT of the project including implementation ix. CONCLUSION PROJECT FINANCING Project financing is an innovative and timely financing technique that has been used on many high-profile corporate projects, including Euro Disneyland and the Eurotunnel. Employing a carefully engineered financing mix, it has long been used to fund large-scale natural resource projects, from pipelines and refineries to electric-generating facilities and hydro-electric projects. Increasingly, project financing is emerging as the preferred alternative to conventional methods of financing infrastructure and other large-scale projects worldwide. Project Financing includes understanding the rationale for project financing, how to prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one must understand the cogent (intellectual, powerful) analyses of why some project financing plans have succeeded while others have failed. A knowledge-base is required regarding the design of contractual arrangements to support project financing; issues for the host government legislative provisions, public/private infrastructure partnerships, public/private financing structures; credit requirements of lenders, and how to determine the project's borrowing capacity; how to prepare cash flow projections and use them to measure expected rates of return; tax and accounting considerations; and analytical techniques to validate the project's feasibility Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project. Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no 28

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recourse to the non-project assets of the borrower or the sponsors of the project. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project. Risk minimization process Financiers are concerned with minimizing the dangers of any events which could have a negative impact on the financial performance of the project, in particular, events which could result in: (1) the project not being completed on time, on budget, or at all; (2) the project not operating at its full capacity; (3) the project failing to generate sufficient revenue to service the debt; or (4) the project prematurely coming to an end. The minimization of such risks involves a three step process. The first step requires the identification and analysis of all the risks that may bear upon the project. The second step is the allocation of those risks among the parties. The last step involves the creation of mechanisms to manage the risks. If a risk to the financiers cannot be minimized, the financiers will need to build it into the interest rate margin for the loan. STEP 1 - Risk identification and analysis The project sponsors will usually prepare a feasibility study, e.g. as to the construction and operation of a mine or pipeline. The financiers will carefully review the study and may engage independent expert consultants to supplement it. The matters of particular focus will be whether the costs of the project have been properly assessed and whether the cash-flow streams from the project are properly calculated. Some risks are analyzed using financial models to determine the project's cash-flow and hence the ability of the project to meet repayment schedules. Different scenarios will be examined by adjusting economic variables such as inflation, interest rates, exchange rates and prices for the inputs and output of the project. Various classes of risk that may be identified in a project financing will be discussed below. STEP 2 - Risk allocation Once the risks are identified and analyzed, they are allocated by the parties through negotiation of the contractual framework. Ideally a risk should be allocated to the party who is the most appropriate to bear it (i.e. who is in the best position to manage, control and insure against it) 29

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and who has the financial capacity to bear it. It has been observed that financiers attempt to allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such risks. Generally, commercial risks are sought to be allocated to the private sector and political risks to the state sector. STEP 3 - Risk management Risks must be also managed in order to minimize the possibility of the risk event occurring and to minimize its consequences if it does occur. Financiers need to ensure that the greater the risks that they bear, the more informed they are and the greater their control over the project. Since they take security over the entire project and must be prepared to step in and take it over if the borrower defaults. This requires the financiers to be involved in and monitor the project closely. Such risk management is facilitated by imposing reporting obligations on the borrower and controls over project accounts. Such measures may lead to tension between the flexibility desired by borrower and risk management mechanisms required by the financier. Types of risks Of course, every project is different and it is not possible to compile an exhaustive list of risks or to rank them in order of priority. What is a major risk for one project may be quite minor for another. In a vacuum, one can just discuss the risks that are common to most projects and possible avenues for minimizing them. However, it is helpful to categorize the risks according to the phases of the project within which they may arise: (1) the design and construction phase; (2) the operation phase; or (3) either phase. It is useful to divide the project in this way when looking at risks because the nature and the allocation of risks usually change between the construction phase and the operation phase. 1. Construction phase risk - Completion risk Completion risk allocation is a vital part of the risk allocation of any project. This phase carries the greatest risk for the financier. Construction carries the danger that the project will not be completed on time, on budget or at all because of technical, labour, and other construction difficulties. Such delays or cost increases may delay loan repayments and cause interest and debt to accumulate. They may also jeopardize contracts for the sale of the project's output and supply contacts for raw materials.

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Commonly employed mechanisms for minimizing completion risk before lending takes place include: (a) obtaining completion guarantees requiring the sponsors to pay all debts and liquidated damages if completion does not occur by the required date; (b) ensuring that sponsors have a significant financial interest in the success of the project so that they remain committed to it by insisting that sponsors inject equity into the project; (c) requiring the project to be developed under fixed-price, fixed-time turnkey contracts by reputable and financially sound contractors whose performance is secured by performance bonds or guaranteed by third parties; and (d) obtaining independent experts' reports on the design and construction of the project. Completion risk is managed during the loan period by methods such as making precompletion phase draw schedules of further funds conditional on certificates being issued by independent experts to confirm that the construction is progressing as planned. 2. Operation phase risk - Resource / reserve risk This is the risk that for a mining project, rail project, power station or toll road there are inadequate inputs that can be processed or serviced to produce an adequate return. For example, this is the risk that there are insufficient reserves for a mine, passengers for a railway, fuel for a power station or vehicles for a toll road. Such resource risks are usually minimized by: (a) experts' reports as to the existence of the inputs (e.g. detailed reservoir and engineering reports which classify and quantify the reserves for a mining project) or estimates of public users of the project based on surveys and other empirical evidence (e.g. the number of passengers who will use a railway); (b) requiring long term supply contracts for inputs to be entered into as protection against shortages or price fluctuations (e.g. fuel supply agreements for a power station); (c) obtaining guarantees that there will be a minimum level of inputs (e.g. from a government that a certain number of vehicles will use a toll road); and (d) "take or pay" off-take contacts which require the purchaser to make minimum payments even if the product cannot be delivered. a) Operating risk These are general risks that may affect the cash-flow of the project by increasing the operating costs or affecting the project's capacity to continue to generate the quantity and quality of the planned output over the life of the project. Operating risks include, for example, the level of experience and resources of the operator, inefficiencies in operations or shortages in the supply 31

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of skilled labour. The usual way for minimizing operating risks before lending takes place is to require the project to be operated by a reputable and financially sound operator whose performance is secured by performance bonds. Operating risks are managed during the loan period by requiring the provision of detailed reports on the operations of the project and by controlling cash-flows by requiring the proceeds of the sale of product to be paid into a tightly regulated proceeds account to ensure that funds are used for approved operating costs only. b) Market / off-take risk Obviously, the loan can only be repaid if the product that is generated can be turned into cash. Market risk is the risk that a buyer cannot be found for the product at a price sufficient to provide adequate cash-flow to service the debt. The best mechanism for minimizing market risk before lending takes place is an acceptable forward sales contact entered into with a financially sound purchaser. 3. Risks common to both construction and operational phases a) Participant / credit risk These are the risks associated with the sponsors or the borrowers themselves. The question is whether they have sufficient resources to manage the construction and operation of the project and to efficiently resolve any problems which may arise. Of course, credit risk is also important for the sponsors' completion guarantees. To minimize these risks, the financiers need to satisfy themselves that the participants in the project have the necessary human resources, experience in past projects of this nature and are financially strong (e.g. so that they can inject funds into an ailing project to save it). b) Technical risk This is the risk of technical difficulties in the construction and operation of the project's plant and equipment, including latent defects. Financiers usually minimize this risk by preferring tried and tested technologies to new unproven technologies. Technical risk is also minimized before lending takes place by obtaining experts reports as to the proposed technology. Technical risks are managed during the loan period by requiring a maintenance retention account to be maintained to receive a proportion of cash-flows to cover future maintenance expenditure. c) Currency risk 32

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Currency risks include the risks that: (a) a depreciation in loan currencies may increase the costs of construction where significant construction items are sourced offshore; or (b) a depreciation in the revenue currencies may cause a cash-flow problem in the operating phase. Mechanisms for minimizing resource include: (a) matching the currencies of the sales contracts with the currencies of supply contracts as far as possible; (b) denominating the loan in the most relevant foreign currency; and (c) requiring suitable foreign currency hedging contracts to be entered into. d) Regulatory / approvals risk These are risks that government licenses and approvals required to construct or operate the project will not be issued (or will only be issued subject to onerous conditions), or that the project will be subject to excessive taxation, royalty payments, or rigid requirements as to local supply or distribution. Such risks may be reduced by obtaining legal opinions confirming compliance with applicable laws and ensuring that any necessary approvals are a condition precedent to the drawdown of funds. e) Political risk This is the danger of political or financial instability in the host country caused by events such as insurrections, strikes, suspension of foreign exchange, creeping expropriation and outright nationalization. It also includes the risk that a government may be able to avoid its contractual obligations through sovereign immunity doctrines. Common mechanisms for minimizing political risk include: (a) requiring host country agreements and assurances that project will not be interfered with; (b) obtaining legal opinions as to the applicable laws and the enforceability of contracts with government entities; (c) requiring political risk insurance to be obtained from bodies which provide such insurance (traditionally government agencies); (d) involving financiers from a number of different countries, national export credit agencies and multilateral lending institutions such as a development bank; and (e) establishing accounts in stable countries for the receipt of sale proceeds from purchasers. f) Force majeure risk This is the risk of events which render the construction or operation of the project impossible, either temporarily (e.g. minor floods) or permanently (e.g. complete destruction by fire). Mechanisms for minimizing such risks include: (a) conducting due diligence as to the 33

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possibility of the relevant risks; (b) allocating such risks to other parties as far as possible (e.g. to the builder under the construction contract); and (c) requiring adequate insurances which note the financiers' interests to be put in place. SOURCES OF FUNDS a) Tax Payers through Government budget b) User of the service or product c) Private participation d) External sources such as NGOs, Philanthropic organizations, lending Institutions etc providing free money in the form of grants or subsidised loans

PROJECT SELECTION
Everything that can be counted does not necessarily count and everything that counts cannot necessarily be counted. (Albert Einstein (1879-1955) After feasibility studies are finalized we may have several projects that are viable. These viable projects will be competing for the same scarce resource. Thus project selection enables us to choose the best alternative or to practice the projects (Rank). Project Selection: Is the process by which we identify the projects to be implemented based on the priorities of the stakeholders. In order to choose the projects, we make use of models that may be qualitative or quantitative or both. Whichever models we choose, they need to meet at least some basic criteria. The criteria of choosing a selection model are:a) Realism: The model chosen should reflect the reality of the managers dream and situation. This way we can have a common basis for comparisons on of projects. b) Capability: The model chosen should allow the manager to remain focused on the organization abilities and goals; it should also enable the manager to consider the likely risks benefits and costs and provide a way of considering the multiple changes in the environment. c) Flexibility: The model should be able to accommodate changes within the environment. It should be self adjusting and responsive to the changes in the projects environment with speed and accuracy e.g. it should be easy to carry out each analysis 34

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d) Ease of use: The model should be easy to use and understand. It should be possible to interpret the results without unnecessarily looking for specialist interpretation. It should also take a shorter time to execute. Also relates to the case with which the relevant information is required. e) Cost: The cost of data gathering and modeling should be moderate, i.e. the cost of choosing the project should be reasonable in relation to the benefits of project selection f) Ease of computerization: It should be easy to automate Earned Value Management This is a project management technique for measuring project progress in an objective manner. EVM has the ability to combine measurements of scope, schedule, and cost in a single integrated system. When properly applied, EVM provides an early warning of performance problems. Additionally, EVM promises to improve the definition of project scope, prevent scope creep, communicate objective progress to stakeholders, and keep the project team focused on achieving progress. Essential features of any EVM implementation include 1. A project plan that identifies work to be accomplished, 2. A valuation of planned work, called Planned Value (PV) or Budgeted Cost of Work Scheduled (BCWS), and 3. Pre-defined earning rules (also called metrics) to quantify the accomplishment of work, called Earned Value (EV) or Budgeted Cost of Work Performed (BCWP). EVM implementations for large or complex projects include many more features, such as indicators and forecasts of cost performance (over budget or under budget) and schedule performance (behind schedule or ahead of schedule). However, the most basic requirement of an EVM system is that it quantifies progress using PV and EV. Project tracking without EVM

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Project tracking with EVM Consider the same project, except this time the project plan includes pre-defined methods of quantifying the accomplishment of work. At the end of each week, the Project Manager identifies every detailed element of work that has been completed, and sums the PV for each of these completed elements. Earned value may be accumulated monthly, weekly, or as progress is made. Earned value (EV)

The following figure shows three curves together which is a typical EVM line chart. The best way to read these three-line charts is to identify the EV curve first, then compare it to PV (for schedule performance) and AC (for cost performance). It can be seen from this illustration that a true understanding of cost performance and schedule performance relies first on measuring technical performance objectively. This is the foundational principle of EVM

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Intermediate implementations (integrating technical and schedule performance) In many projects, schedule performance (completing the work on time) is equal in importance to technical performance. It is not that cost is unimportant, but finishing the work later than a competitor may cost a great deal more in lost market share. The project manager may employ a critical path or critical chain to build a project schedule model. The project manager must define the work comprehensively, typically in a WBS hierarchy. He/she will construct a project schedule model that describes the precedence links between elements of work. It should be noted that measuring schedule performance using EVM does not replace the need to understand schedule performance versus the project's schedule model (precedence network). However, EVM schedule performance provides an additional indicator one that can be communicated in a single chart. Although it is theoretically possible that detailed schedule analysis will yield different conclusions than broad schedule analysis, in practice there tends to be a high correlation between the two. Although EVM schedule measurements are not necessarily conclusive, they provide useful diagnostic information. The following EVM formulas are for schedule management, and do not require accumulation of actual cost (AC). This is important because it is common in small and intermediate size projects for true costs to be unknown or unavailable. Schedule variance (SV) EV-PV greater than 0 is good (ahead of schedule)

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Schedule performance index (SPI) EV/PV greater than 1 is good (ahead of schedule) Advanced implementations (integrating cost, schedule and technical performance) In addition to managing technical and schedule performance, large and complex projects require that cost performance be monitored and reviewed at regular intervals. To measure cost performance, planned value (or BCWS - Budgeted Cost of Work Scheduled) and earned value (or BCWP - Budgeted Cost of Work Performed) must be in units of currency (the same units that actual costs are measured.) In large implementations, the planned value curve is commonly called a Performance Measurement Baseline (PMB) and may be arranged in control accounts, summary-level planning packages, planning packages and work packages. Budget at completion (BAC): The total planned value (PV or BCWS) at the end of the project. If a project has a Management Reserve (MR), it is typically in addition to the BAC. Cost variance (CV) EV - AC, greater than 0 is good (under budget) Cost Performance Index (CPI) EV/AC, greater than 1 is good (under budget) < 1 means that the cost of completing the work is higher than planned (bad) = 1 means that the cost of completing the work is right on plan (good) > 1 means that the cost of completing the work is less than planned (good or sometimes bad). Having a CPI that is very high (in some cases, very high is only 1.2) may mean that the plan was too conservative, and thus a very high number may in fact not be good, as the CPI is being measured against a poor baseline. Management or the customer may be upset with the planners as an overly conservative baseline ties up available funds for other purposes, and the baseline is also used for manpower planning. Estimate at completion (EAC) EAC is the manager's projection of total cost of the project at completion.

ETC is the estimate to complete the project.

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To-complete performance index (TCPI) The To Complete Performance Index (TCPI) provides a projection of the anticipated performance required to achieve either the BAC or the EAC. TCPI indicates the future required cost efficiency needed to achieve a target BAC (Budget At Complete) or EAC (Estimate At Complete). Any significant difference between CPI, the cost performance to date, and the TCPI, the cost performance needed to meet the BAC or the EAC, should be accounted for by management in their forecast of the final cost. For the TCPI based on BAC (describing the performance required to meet the original BAC budgeted total):

or for the TCPI based on EAC (describing the performance required to meet a new, revised budget total EAC):

Independent estimate at completion (IEAC) The IEAC is a metric to project total cost using the performance to date to project overall performance. This can be compared to the EAC, which is the manager's projection.

Limitations of EVM 1. EVM has no provision to measure project quality, so it is possible for EVM to indicate a project is under budget, ahead of schedule and scope fully executed, but still have unhappy clients and ultimately unsuccessful results. 2. Because EVM requires quantification of a project plan, it is often perceived to be inapplicable to discovery-driven or Agile software development projects. For example, it may be impossible to plan certain research projects far in advance, because research itself uncovers some opportunities (research paths) and actively eliminates others.

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3. Traditional EVM is not intended for non-discrete (continuous) effort. In traditional EVM

standards, non-discrete effort is called level of effort" (LOE). If a project plan contains a significant portion of LOE, and the LOE is intermixed with discrete effort, EVM results will be contaminated. This is another area of EVM research. Definition of Terms Estimate at Completion (EAC): Computes project performance by looking at the total cost of the project when it is completed based on the current rate of progress. Estimate to Complete (ETC): Calculates project performance by looking at the amount of money required to complete the project based on the current rate of progress. Variance at Completion (VAC): Computes project performance by looking at the variance of the total project cost at completion when compared with the project budget. To-Complete Performance Index (TCPI) based on BAC: Represents the level of project performance that future project work needs to be implemented to meet the budget. TCPI based on EAC: Represents the level of project performance that future project work needs to be implemented to meet the projects cost based on past project performance. Earned Value Project Performance - Example 1 Suppose you have a budgeted cost of a project at $900,000. The project is to be completed in 9 months. After a month, you have completed 10 % of the project at a total expense of $100,000. The planned completion should have been 15 %. Now, lets see the project performance. From the scenario, you can extract the following project performance parameters:

BAC = $900,000 AC = $100,000

The project performance in terms of Planned Value and Earned Value can then be computed as follows:

Planned Value = Planned Completion (%) * BAC = 15 % * $ 900,000 = $ 135,000 Earned Value = Actual Completion (%) * BAC = 10 % * $ 900,000 = $ 90,000 Cost Performance Index = EV / AC = $90,000 / $100,000 = 0.90

The Earned Value Project Performance formulae are as follows:

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Estimate at Completion (EAC) = BAC / CPI = $ 900,000 / 0.9 = $ 1,000,000. At the current rate, the project performance in terms of cost is: Project completion in $1,000,000 as opposed to a planned budget of $900,000.

Estimate to Complete (ETC) = EAC AC = $ 1,000,000 - $ 100,000 = $ 900,000. If the project performance continues at this rate, the project requires $ 900,000 to be completed.

Variance at Completion (VAC) = BAC EAC = $ 900,000 - $ 1,000,000 = - $ 100,000. The project will be $ 100,000 over-budget at completion. The project will run $ 100,000 over-budget at completion.

To-Complete Performance Index (TCPI) based on BAC = (BAC EV) / (BAC AC) = ($ 900,000 - $ 90,000) / ($ 900,000 - $ 100,000) = $ 810,000 / $ 800,000 = 1.01 TCPI based on EAC = (BAC EV) / (EAC AC) = ($ 900,000 - $ 90,000) / ($ 1,000,000 - $ 100,000) = $ 810,000 / $ 900,000 = 0.9

Earned Value Project Performance - Example 2 Suppose you are managing a software development project. The project is expected to be completed in 8 months at a cost of $10000 per month. After 2 months, you realize that the project is 30 % completed at a cost of $40,000. You need to determine whether the project is on-time and on-budget after 2 months. Let's see the project performance. Step 1: Calculate the Planned Value (PV) and Earned Value (EV) From the scenario, you can extract the following project performance parameters:

Budget at Completion (BAC) = $ 10,000 * 8 = $ 80,000 Actual Cost (AC) = $ 40,000 Planned Completion = 2/8 = 25 % Actual Completion = 30 %

Therefore, the project performance in terms of Planned Value, Earned Value, and Cost Performance Index is:

Planned Value = Planned Completion (%) * BAC = 25% * $ 80,000 = $ 20,000 Earned Value = Actual Completion (%) * BAC = 30 % * $ 80,000 = $ 24,000 Cost Performance Index = EV / AC = $ 24,000 / $ 40,000 = 0.6 41

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The Earned Value Project Performance formulae are as follows:

Estimate at Completion (EAC) = BAC / CPI = $ 80,000 / 0.6 = $ 133,333. At the current rate, the project performance will be such that it will be completed in $133,333 as opposed to a planned budget of $80,000.

Estimate to Complete (ETC) = EAC AC = $ 133,333 - $ 40,000 = $ 93,333. Project performance at this rate means that the project requires $ 93,333 to be completed. Variance at Completion (VAC) = BAC EAC = $ 80,000 - $ 133,333 = -$ 53,333. The project performance in terms of budget will be: $ 53,333 over-budget at completion.

To-Complete Performance Index (TCPI) based on BAC = (BAC EV) / (BAC AC) = ($ 80,000 - $ 24,000) / ($ 80,000 - $ 40,000) = $ 56,000 / $ 40,000 = 1.4 TCPI based on EAC = (BAC EV) / (EAC AC) = = ($ 80,000 - $ 24,000) / ($ 133,333 - $ 40,000) = $ 56,000 / $ 93,333 = 0.6

There are 2 types of model selection i) Numeric ii) Non numeric (discussed in last class) QUANTITATIVE/NUMERIC METHODS Cost Benefit Analysis (CBA) Methods Cost benefit analysis involves evaluating quantitatively whether to follow a given course of action. CBA is the weighing scale approach to decision making. All the pluses (cash inflows and other intangibles) are put one side and all the minuses (cash outflows i.e. cost and disadvantages) are put on the other side of the scale, whichever is heavier wins! Cost benefit analysis is a tool for judging efficiency in the case where the public sector goods apply. Because of many failure and wastage in the past, most institutions including civil society and development partners insist that the public projects needed currently by society should be executed by abandoning less useful projects. CBA is an economic accounting approach that originated with the work of Julies DuPont a French Engineer in his 1848 with contributions in the 20th century coming from Alfred Marshall. Since 1950s economists tried to provide a rigorous, consistent set of methods for 42

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measuring benefits and costs and deciding whether a project is worthwhile. CBA imposes an accounting framework that prescribes classes of benefits and costs to consider means to measure them and approaches for aggregating them. CBA is used to i. ii. iii. Choose among a range of alternatives Make comparable projects of differing lengths and To identify instances where costs and benefits place identifiable groups and special; advantage or disadvantages. RATIONALE UNDERLYING CBA CBA is a tool created tool created to aid public policy making in raison detre derives from the legitimacy of public. Public policy aims at improving efficiency and to improve. Efficiency relates to optimization of net benefits to society independent of who receives the net benefits. Equity on the other hand is not concerned with the size of the pie but on how the pie is distributed among the members of the society. CBA focuses on efficiency by providing policy makers with an indication of the magnitude of benefits from a particular project. CBA AND TIME CBA analysis measures the net benefits of projects or policies that generate costs and benefits over a period of time, with costs and benefits often occurring in different time periods but a dollar costs or benefits ten years from today is not directly comparable to a dollar of costs or benefits today. We use discounted or discounting as a common denominator. CHOICE OF INPUT VALUES 1. 2. Discounting rate. The rate is influenced by factors like Future rates of economic growth Future rates of population growth Future rates of inflation Future rates of change in technology etc Benefits May include monetary values of marketed goods Monetary values for non-marketed directly used goods

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3.

Monetary values for non-marketed passively used goods and Goods or services for which monetary values cannot be measured Costs This include monetary values for marketed input goods Monetary values for non-marketed directly used goods that must be given up Monetary values for non-marketed passively used goods that must be given up Costs for which monetary values cannot be measured

SOCIAL COST-BENEFIT ANALYSIS (SCBA) SCBA or Economic analysis is also used to describe projects. It is a methodology developed for evaluating investment projects from the point of view of the society or economy as a whole. APPROACH TO SCBA 1. Little- Mirrles approach (L-M Method) which is commonly adopted by World Bank 2. The UNIDO (U.N Industrial Development Organization) method DIFFERENCES BETWEEN LITTLE-MIRRLES METHOD AND UNIDO 1. The UNIDO approach measures costs and benefits in terms of domestic prices while L-M method measures costs and benefits in terms of international prices (also referred to as border prices) 2. The UNIDO approach measures the costs and benefits in terms of consumption while L-M method measures them in terms of uncommitted social income. 3. The UNIDO approach uses a step by step analysis that focuses on efficiency, savings and redistribution while the L-M method views all these together. STEPS IN CBA 1. Identify the target population who are to benefit from them project. What are the socioeconomic conditions without the project? How many are they? What are the peculiarities of each region? 2. Identify the cost and benefit items of the project 3. Value the items of costs and benefits in monetary terms 4. Discounting so as to get the present value of the cost and benefits 5. Sensitivity analysis to determine selection or rejection of project in case of changes in some of the assumption underlying the project- what if analysis. 44

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6. Measurement of the projects impact on the target population 7. Decision-making i.e. whether the project justifies allocation of resources PRINCIPLES OF CBA 1. Common unit of measurement 2. CBA valuation should represent consumers or producers valuation as revealed by their Actual behavior-benefits and costs should reflect preferences revealed by choices which have been made. For example if a dual carriage is constructed improvements in transportation frequently involve saving time and reduction loss of lives to accidents. CBA involves a particular study area be it a city, region, state, nation or the world. Benefits are usually measured by market choices. People normally purchase at market prices they reveal the things they buy are at least a beneficial to them as the money they relinquish. The analysis of the project should involve a with versus without comparison. Double counting of benefits or costs must be avoided. Decision criteria for projects Incorporate the value of time Reflect all future Incorporate risk into the calculation of the value

APPRAISAL CRITERIA Capital value of the projects is determined when benefits of any capital projects are subtracted from the costs associated with that in a given time period once a capital value is determined for each potential capital project. Projects under consideration can be ranked according to the value. Methods of Appraisal a) Payback Period Method (PBP) Length of time required to recover the initial amount of a capital investment. If the cash inflows occur at a uniform rate, it is the ratio of the amount of initial investment over expected annual cash inflows, or: Payback Period = Initial Investment/Annual Cash Inflows For example, assume that Length of time required to recover the initial amount of a capital 45

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investment. If the cash inflows occur at a uniform rate, it is the ratio of the amount of initial investment over expected annual cash inflows, or: Payback Period = Initial Investment/Annual Cash Inflows For example, assume projected annual cash inflows are expected to be $6000 a year for five years from an investment of $18,000. The payback period on this proposal is three years, which is calculated as follows: Payback period = $18,000/$6000 = 3 years. If annual cash inflows are not even, the payback period would have to be determined by trial and error. Assume instead that the cash inflows are $4000 in the first year, $5000 in the second year, $6000 in the third year, $6000 in the fourth year, and $8000 in the fifth year. The payback period would be 3.5 years. In three years, all but $3000 has been recovered. It takes one-half year ($3000/ $6000) to recover the balance. When two or more projects are considered, the rule for making a selection decision is as follows: Choose the project with the shorter payback period. The rationale behind this is that the shorter the payback period, the greater the liquidity, and the less risky the project. Advantages of the method include (1) it is simple to compute and easy to understand and (2) it handles investment risk effectively. Disadvantages of the method include (1) it does not recognize the Time Value of Money and (2) it ignores profitability of an investment. b) Net Present Value (NPV) This is a method used in evaluating investments whereby the net present value of all cash outflows (such as the cost of the investment) and cash inflows (returns) is calculated using a given discount rate. Example: A proposed land investment requires $10,000 of cash now, and is expected to be resold for $25,000 in 4 years. For the Risks involved, the investor seeks a 20% Discount Rate (same as Compounded Rate of Return). The $25,000 amount to be received in 4 years, when discounted by 20% annually, is worth $12,056 now. Since the investment costs $10,000, the net present value is $2,056. $25,000 - $10,000 = $2,056 (1 + 0.20)4 NPV is an indicator of how much value an investment or project adds to the value of the firm. With a particular project, if Ct is a positive value, the project is in the status of discounted cash 46

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inflow in the time of t. If Ct is a negative value, the project is in the status of discounted cash outflow in the time of t. appropriately risked projects with a positive NPV could be accepted. This does not necessarily mean that they should be undertaken since NPV at the cost of capital may not account for opportunity cost, i.e. comparison with other available investments. In financial theory, if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected. The following sums up the NPVs in various situations. If NPV > 0 NPV < 0 NPV = 0 Accept Reject Use other methods

However, NPV = 0 does not mean that a project is only expected to break even, in the sense of undiscounted profit or loss (earnings). It will show net total positive cash flow and earnings over its life. Advantages Disadvantages Example A corporation must decide whether to introduce a new product line. The new product will have startup costs, operational costs, and incoming cash flows over six years. This project will have an immediate (t=0) cash outflow of $100,000 (which might include machinery, and employee training costs). Other cash outflows for years 1-6 are expected to be $5,000 per year. Cash inflows are expected to be $30,000 per year for years 1-6. All cash flows are after-tax, and there are no cash flows expected after year 6. The required rate of return is 10%. The sum of all these present values is the net present value, which equals $8,881.52. Since the NPV is greater than zero, it would be better to invest in the project than to do nothing, and the corporation should invest in this project if there is no alternative with a higher NPV. c) Benefit Cost ratio (BCR) or Profitability Index (PI) Profitability index identifies the relationship of investment to payoff of a proposed project. This is the ratio of discounted inflows to outflows. The ratio is calculated as follows:

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Profitability Index is also known as Profit Investment Ratio, abbreviated to P.I. and Value Investment Ratio (V.I.R.). Profitability index is a good tool for ranking projects because it allows you to clearly identify the amount of value created per unit of investment, thus if you are capital constrained you wish to invest in those projects which create value most efficiently first. Statements below this paragraph assume the cash flow calculated does not include the investment made in the project. Where investment costs are included in the computed cash flow a PV > 0 simply indicates the project creates more value than the cost of capital which is determined by the Weighted Average Cost of Capital (WACC). A ratio of 1 is logically the lowest acceptable measure on the index. Any value lower than one, will indicate that the project's Present Value is less than the initial investment. As values on the profitability index increase, so does the financial attractiveness of the proposed project. Rules for selection or rejection of a project: If PI > 1 then accept the project If PI < 1 then reject the project For Example, given: Investment = 40,000 Life of the Machine = 5 Years Year CFAT Year 1 2 3 4 5 1 18000 CFAT 18000 12000 10000 9000 6000 2 12000 PV@10% 0.909 0.827 0.752 0.683 0.621 PV 16362 9924 7520 6147 3726 43679 48 3 1000 4 9000 5 6000

Calculate Net present value at 10% and PI:

Total present value

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(-) Investment NPV = 1.091 = >1

40000 3679

PI = 43679 / 40000

= Accept the project Rule: Accept project if BCR greater than 1. Use caution if using to compare mutually exclusive projects. d) Similar BCRs can have radically different NPVs. Internal Rate of Return (IRR) The NPV calculation finds the net present value using a

The internal rate of return is simply the rate of return on an investment. IRR is similar to the net present value calculation. predefined discount rate. IRR finds the discount rate that makes the NPV equal to zero. The discount rate is the cost of borrowing or using money for investments. The decision to accept or reject the purchase depends on the whether the internal rate of return is higher than the discount rate. The decision criteria for these projects are simple, accept the project if the IRR is higher than the discount rate or the cost of borrowing. There are also financing decisions, where there are cash inflows followed by cash outflows. For example, magazine publishers receive subscription payments in the beginning and then incur delivery costs later. In the case of financing projects the decision criteria is opposite to that of the investing projects, accept the financing project if the IRR is less than the discount rate or cost of borrowing. In the magazine example accept the project if it is cheaper to finance or borrow the money from the subscribers than the bank. IRR is that r that makes the NPV=0 Accept the project if the IRR is greater than the required rate of return. Otherwise, reject the project. Comparison of NPV and IRR If cash flows are conventional and project is independent, then NPV and IRR lead to same accept and reject decisions. Unconventional cash flows: A negative cash flow after a positive one. Year 0 1 2 49

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Cash flow e)

-60

155

-100

Advantages: Easy to understand Conventional Cash Flows and Independent Projects: Same Decisions as NPV Rule Required Rate of Return Benchmark Often same discount rate in NPV MIRR has more realistic reinvestment rate (use instead of IRR if possible) Unconventional cash flows may result multiple answers If projects are mutually exclusive may lead to incorrect decisions Not always easy to calculate Difficult to interpret (particularly if the project has multiple rs) IRR may have unrealistic reinvestment rate 99% use IRR Rule 85% use NPV Rule Accounting Rate of Return (ARR)

Disadvantages:

Very Popular: People like to talk in terms of returns

This method of evaluating business investments considers the profitability of a project based on accrual accounting amounts found in the financial statements. The drawback of the accounting rate of return is that the net income amounts are not adjusted for the time value of money. In other words, $10,000 of net income in Year 4 is considered to be as valuable as $10,000 of net income in Year 1. A fairly simple way of gauging your return on an investment in a major project or purchase is the accounting rate of return (ARR). The formula is:

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As an example of how ARR works, let's say you're looking at equipment costing $7,500 that is expected to return roughly $2,000 per year for five years. After five years you'll sell the equipment for $500. The depreciation would be ($7,500 - $500) 5, or $1,400. Using ARR can give you a quick estimate of the project's net profits, and can provide a basis for comparing several different projects. Under this method of analysis, returns for the project's entire useful life are considered (unlike the payback period method, which considers only the period it takes to recoup the original investment). However, the ARR method uses income data rather than cash flow and it completely ignores the time value of money. To get around this problem, you should also consider the net present value of the project, as well as its internal rate of return f) Discounted Pay-Back Period A method of investment analysis in which anticipated future cash income from the investment is estimated and converted into a rate of return on initial investment based on the time value of money. In addition, when a required rate of return is specified, a net present value of the investment can be estimated. Example: An asset may be purchased for $1,000. It is expected to generate $100 in income per year for 10 years, after which time it is expected to sell for $1,200. Discounted cash flow analysis shows that the Internal Rate of Return on the investment is expected to be 11.2% per year. Things to Consider Disadvantages May reject NPV>0 projects 51 Involves discounting How do you choose r? How do you choose the cut-off period? If project ever pays back then NPV>0 Biased toward liquidity Easy

Advantages

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Cut-off period is arbitrary Biased against long term projects

PROJECT FORMULATION Difficulties arising from formulating development projects include: 1. Technical and Economic difficulties This comes as a result of lack of enough study to understand the environment in which we operate- vegetation, rainfall patterns, cycle of seasons etc. 2. Social-Cultural Difficulties This is the problem of ignoring gender issues, many development projects are designed in a way that only men participate, and this is wrong since gender equality should be embraced. Young people are also not given chance to participate in the projects, marginalized groups, disabled groups are also ignored. Care should be taken to make sure that all the stakeholders are given equal chance to participate in project formulation. Never design a project which will not involve almost everybody in the area. The irresponsibility of beneficiaries in terms of paying loans (cultural credit problems). At independence the government decided to give credit to farmers who later thought the government was giving them free money and hence difficulties in payment. Even the issue of collateral was difficulty because some defaulted to pay. Some money was used for specific purpose but never used them for intended purpose hence problem of repayment Way forward 1. The best way forward is to give the credit in stages as you make observations on how the credit is being put into use and you will have a chance to discover those who might not repay. 2. Channel the credit through organized groups which must have a fair composition of men and women. It is the group that is going to deal with the individuals and not the lending firm. 3. Food Security first. When formulating a project, there should be a provision for planning for food security and not ignore the issue of food security which must be given first priority. 52

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4. The disappointed hopes of Co-Operative- Revive the Co-operatives 5. Increase the degree of participation of peasant farmers PROJECT DESIGN This goes in hand with formulation but focuses on the physical aspect of the project. The formulation informs the design of the project. Designing a project is a challenging task which may be difficult in situations in which we are doing it for the first time. It is recommended that the design be done using some framework. The World Bank has designed a framework with the following Research Project Pilot Project Demonstration Project Replica Project Some projects should not be implemented full especially if they are huge and if we do not clearly understand how the project is going to respond to a given environment. Design features keep on improving if the project is implemented at stages. A NEW APPROACH TO FORMULATING DEVELOPMENT PROJECT 1. Global approach to the environment: This is an integrated development. The people we are planning for should be seen as belonging to a given area which belongs to a global environment. 2. Responsible and organized beneficiaries. Those people we are planning for must be responsible and organized and also have a say in the development of the project and not passive, you cannot develop for people; it is people who develop for themselves. Never give any resource free of charge since people cannot value that resource, charge them a token even if they cant afford, they have to contribute. 3. Adult training. The farmers training centers should be encouraged where individuals learn new techniques and ways of doing things. Adult training should be availed to everybody, men and women. Resistance is the main challenge- overcoming this is to use trainers who understand the culture and values of those being trained. PROJECT IMPLEMENTATION MANAGEMENT Implementation in terms of: Scope, Time, Quality It deals with the scope: Breath and wealth, How far to go, Coverage

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Project scheduling: Involves the determination of project activities and the interrelationships between the activities are as to determine the sequence of implementation. It is commonly used when managing the time and resource dimension of the project. Time-CPM and PERT Time Dimension In managing of projects one need to be very careful when planning, scheduling and controlling project activities. This is especially important for huge and complex projects e.g. Apollo project 3000 people and 4000 activities There are a number of tools available to the project manager in managing the induced project. These tools include:1. CPM Critical path Network This was developed by the French firm DuPont Remington Rand to assist in the managing industrial projects. It assumes that activities times are deterministic i.e. they known with certainty. 2. PERT- Project / program Evaluation and Review Technique This was developed by the US Navy for the Polaris Missile project. It assumes activity times are more realistic than CPM because it recognizes the fact that activity terms cant be know with certainty. It uses 3 time estimates i.e. i. most optimistic time - a ii. most likely time- m iii. most pessimistic time- b This method use the following formula te = a + 4m + b 6 The 3 are used to determine the expected activity time. Because of the variability in the time estimates for every strategy, we also compute the variance of the activity time (2) 2= b a 2 6 and = (b-a)/6 FEATURES OF THE NETWORK DIAGRAM 1. Arcs/ Arrows Arcs or arrows are used to represent activities network.

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Every activity is described by a letter on the network. It also carries a description on the activity time e.g. A Dummy activities are show by broken arrows on the B network. They do not consume resources -----------------. They are only introduced on the Network to bring logic. 2. Nodes Nodes are used to represent events marking the beginning or end of an activity. They do not consume resources. i
Tail event

j
Head text

The event at the beginning is known as the HEAD event while the one at the end is the TAIL event. The event at the beginning is also known as the initial event while the one on the end is known as the Terminal event. In any project there is only one terminal event. No two activities may share a common start event and common end event. No two arrows should cross each other in a network diagram. Once the network diagram is drawn, the events should be numbered sequentially from the event up to the terminal event. General the diagram flows from the left to the right. D i E i

In the above case, we introduce a dummy activity

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Dummy

Dummy Activity E

activities dont consume any resources. They are only introduced in a network to maintain or to being logic into the diagram 3. Critical Activities This is a series of connected activities starting from Node 1 to the completion node. The longest path in the network is known as the critical path. It determines the total time required to complete the project. The non-critical activities can be delayed. Every project has only one initial event and only one terminal event. Steps in the CPM/PERT process 1. Development a list of activities that make up the project 2. Determine the immediate predecessor activities for each activities in the project 3. Estimate the competition time for each activity 4. Draw a network depicting the activities and there immediate predecessors listing in step 1 and 2 alone. 5. Determine the earliest start and the earliest finish times for each activity. By making product pass through the network. The earliest finish time for the last activity in the project identifies the total time required to complete the project 6. Identify the latest start and the latest finish times for each acting using the backward pass, starting from the project completion time as the latest finish time The latest finish time for an activity entering a particular node/event is equal to the largest of the earliest finish times for all activities ending at the event (step 5) 7. Use the difference between latestof each time and the earliest start time for each activity to identify the slack time available for the activity i.e. slack = LS- ES or LF - EF. Activities 56

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with zero slack time are critical activities. These activities must be implemented as scheduled so as not to affect the project completion time. Using the PERT, we are able to compute the expected project duration and its Standard Deviation (SD). With these two, we are able to estimate the probability of completing the project within a given time frame. EXAMPLE Mary is constructing a shopping Mall in Nakuru Town. The activities for this project have been identified as follows:Activity A B C D E F G H I Description Prepare architectural Identify potential tenants Development prospectus for training Select contractors. Prepare building permits Obtain approval 4 Perform construction Finalize construction Tenants move in Predecessor A A A E D,F B,C E,G,H Time 8 4 3 5 2 4 18 11 3

Construct the project network and identify The critical path and hence estimate the projects completion time

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8 8 2
A

14 14
D

5 E 4 F X 10 H 21 A-E-F-G-I 35 days 6 32 32
I

1 0 0

B 4

C 3
11

10

7
35 35

Critical path: Duration EXAMPLE 2

A project has the following activities: Activity A B C D E F G H I Required:a) completion time b) c) What is the probability that project will be completed If you would like to complete. The project on time with a probability of 99.5%, how easy should the project start. Both CPM and PERT utilize a network diagram that should show the interrelationship between the activities visual impression. Despite the differences that existed between the two methods, they are used together in scheduling project activities. 58 Predecessor A C B,D E B,D G F,H Most optimistic 3.5 2.0 1.5 0.5 6 4 3 1.5 Most likely 4.0 3.0 2.5 2.0 1.0 9 5 4 8.0 Most optimistic 4.5 4.0 6.0 2.5 1.5 12 6 5 8.5

Construct the project network and designate the expected

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In both methods, we start by identifying the activities and the interrelationships. A team approach involving creativity and attention to detail is required depending on the complexity of the project. PROJECT PLANNING MATRIX (PROJECT LOGFRAME) The Project Logframe is a management tool that aims to promote good project design by clearly stating the key components how the project is expected to work and how success in the project will be measured. It ensures that the whole project process is considered before the work begins thereby avoiding problems that may be costly and difficult to address at a later stage. The project Logframe takes the form of a 4 x 4 matrix which enables the decision maker to identify the project purpose and goals and hence plan for the projects outputs and inputs. This approach was developed for World Bank projects but it has found application in other projects including the private sector. It was introduced as a way of ensuring continuous monitoring of projects so as to take necessary steps as the project progress. The project Logframe has two types of logic a) Horizontal logic- this is made up of objectively verifiable indicators, means of verification and the critical assumptions. b) Vertical logic- this is made up of the project goal, purpose, project outputs & inputs, activities to the project. Project Tittle: Total funding Narrative summary Goals Purpose Outputs Inputs Activities 1. Goals: This is the highest level objective that the project will help to address. It is also known as the sector goal. The goal is value judgement which satisfies one or more Objectively Project duration: FromTo.. Date Prepared Means of Important assumptions

verifiable indicators verification

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organizational goals. 2. Purpose: This is the immediate objective of the project and is more specific than a goal. It is the immediate impact or accomplishment of the project. It is the reason why the project is designed. 3. Outputs: These are the specific deliverable results that the manager and the entire team can guarantee. 4. Inputs: These are people, information, and other resources that are expended to produce the outputs. 5. Activities: These are the tasks undertaken by the project team to produce the outputs. 6. Objectively Verifiable Indicators (OVIs): This is the evidence which will be used to judge achievements of the various levels. For inputs the OVIs will be a summary of the project budget and other inputs. 7. Means of verification: These are the specific sources of data necessary to verify the indicators of the goal, purpose, outputs, and inputs. They may include research, project document etc. 8. Important assumptions: These are the external factors that are beyond the control of the project manager that may affect the sustenance of the objectives, purpose, outputs etc. Importance of the Logframe 1. It forces the project manager to carefully think through the project and see various interrelationships in the project. 2. it provides the basis for monitoring and evaluation of the project 3. It guides the implementation of the project 4. It is a requirement by most development partners to give funds. Example Name of the Project: Total Cost Narrative summary Goal: To improve the living conditions of people living in slums 60 OVIs From................ To................. Date prepared........................... Means of Important verification Assumptions

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Purpose: improve

To

sanitation Outputs: pit latrines, piped water, drainage system, system Inputs: Funds, labor/skills, Land, Materials Activities: construction, sensitization, training. sewerage

PROJECT IMPLEMENTATION
Project implementation is the most important part of the project because this is where we put the plans into action. Result shows that many projects that fail do so during implementation. Project implementation therefore requires that the project manager utilizes the resources carefully to achieve project success. The responsibilities of the project manager during implementation include the following: Monitoring the activities Availing resources Releasing resources The responsibility can be categorized into 1. Controlling Work In Progress 2. Providing feedback 1. Controlling Work In Progress The project manager has the responsibility of ensuring that implementation meets the defined project parameters specified in the plan. These parameters will normally have specified standards to be met. Controlling WIP involves three things. Namely 61 3. Providing resources 4. Resolving differences Coordinating/scheduling Giving feedback to stakeholders Taking corrective action.

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Establishing performance standards Monitoring performance A. Establishing performance standards

Taking corrective action.

The project standards are normally detailed at the planning stage. The responsibility of the project manager during implementation is mainly to keep referring to these standards so as to ensure that the project team pays attention to them. The project manager has a number of tools that will enable him/her to ensure that the standards are met. They include i. ii. The PERT/CPM charts (discussed earlier) Control Point identification charts. This is a technique that enables the project manager to carefully think about what is likely to go wrong in each of the projects parameters. The project manager is then able to know how to identify that something is a miss during implementation and come up with possible corrective action if this occurs. Control element Quality What is likely to go wrong Quality of materials Compromised Cost Workmanship Cost overrun Theft How and when will I What will I do? know? Testing Inspection Variance analysis suppliers Timeliness Physical counting Activity may take longer than Use more labor scheduled iii. Project control charts. This uses the budget and scheduled plans and compares them with the actual performance. Variances on each completed step are then calculated and tallied to provide accumulated variance for the whole project. Corrective action may be taken at each step. Project step Budget Foundation 62 Cost (Kshs) Actual Variance Schedule (Time) Actual Variance Reject Rework Scale down scope sources of materials Prosecuting Increase efficiency

Communication from Alternative

Planned

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Finnish Total iv. Milestone charts Milestone charts presents a broad-brush picture of a project schedule and control dates. It lists the key events that are clearly verifiable by others or that require approval before the project can proceed. It is particularly useful because it provides a concise summary of the progress of the project. Milestone Foundation completed Walling completed v. Budget control chart Schedule completion August 20th January 3rd Actual completion September 21st September 16th

A budget control chart compares the actual cost against the budget. They are of two types A listing of all the project sub-units with the actual costs compared to the budget. These are like the project control charts. A graph of budgeted costs compared to the actual cost. The graph may be a bar graph or line graph.

Cost

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Time vi. Gantt charts Are used for managing resource allocation against time e.g. labor hours needed. Designed by Henry Grant and mainly used in construction

vii.

Work Breakdown structure (WBS)

A Work break down structures shows the decomposition of a project into sub project and activities it is a deliverable oriented grouping of project elements that organize and defines the total scope of the project. The work not in a work break down structures would be considered outside the scope of the project. The work break down structures is a project work equivalent of the path bill of materials in manufacturing. viii. Responsibility matrix

They indicate who is responsible for each kind of the work in a project. It shows the sharing of responsibility in a project. It is specified by the project organization structure. 64

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Health Centre

Walls

Fittings

Landscaping

Fencing

Waiting Room

Counselling room

Rest room

Eating room

ix.

Project Management Manual

It indicates how each activity in the project should be undertaken or its condition. The project manual is a very important aspect of implementation because it ensures continuity, of the project or similar projects. B. Monitoring performance This helps the project manager to know what is going on and how actual implementation compares to planned implementation. With effective monitoring, the project manager will be able to know if and when corrective action is necessary. The common ways of monitoring include: Reviews/appraisal Progress report Auditing Progress reviews are communications between the project manager and those responsible for various sub-units of the project. They can be done in a group or on an individual basis. They can be either oral or written report. Unlike inspection, they tend to be on a fixed time schedule e.g. weekly, monthly, quarterly etc. Reviews are done in three key areas. Namely: Inspection Testing

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Review of progress against the plan Review of problems encountered during implementation and how they were handled Review of anticipated problems and the proposed strategies of handling them. Auditing This is used during the project implementation and after completion of the project. Common areas to be audited include: Financial records The purchasing practices Security practices Maintenance procedures Disbursement of funds and materials etc. Auditors used should be experts in the areas of the project and non-members of the project team. A report should be written citing the deviations from the desired procedures and provide recommendations on how to improve these procedures. Testing This is done to confirm that the desired quality is being achieved. It is normally done to check whether the specifications are met. C. Taking corrective action As we monitor performance, it may be necessary to take corrective action if implementation doesnt measure up to planned. The corrective actions involve reworking, use more resources, renegotiation for implementation schedule, abandoning, do nothing, narrow the project scope, court order, seek alternative sources of materials, offer incentives, demand compliance etc. 2. Providing feedback The project manager needs to communicate constantly with the various stakeholders. Through the feedback, the various groups will learn about the effect of their behavior on the project. Feedback serves to maintain good performance and correct poor performance. 3. Provision of resources (and negotiating for the resources). The project manager has to ensure that materials, supplies, and services are available as and when they are required. Negotiating is one of the ways to ensure that the resources are

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available. The project manager may need to negotiate with suppliers so as to ensure that the materials are available on time and in the desired quality specifications. 4. Resolving conflicts Conflict on a project is almost always a certainty. A project manager who goes says they never have conflict to deal with on their projects just isnt paying close enough attention to whats going on. Or theyre in denial. Conflict is going to happen and its the Project Managers responsibility to help team members and customers control and resolve these conflicts. It must happenthe conflict must be dealt within order for success to be realized on the project. Controlling conflict on the Project On almost every project, the potential for conflict arises at some point. This is a natural trend. The project manager should work proactively with all staff to avoid possible conflicts that may arise. In the event of a conflict, the project manager should be aware that talking can only resolve so much. The project manger require the necessary skills to enable him/her resolve such differences so as to ensure successful implementation. For situations where conflict cannot be resolved through negotiations or arbitration, it is recommended that the identified individuals be separated or be removed from the project. It is important to understand that project staff react differently to daily situations and that during the project life cycle, these members all experience various emotions such as joy, sadness, jealousy, anger, frustration, and stressto name but a few. Many conflicts can be reduced or eliminated by constantly communicating the project objectives to the project team members. Some of the most common conflicts are:

Conflict over project priorities Conflict procedures over administrative

Conflict over technical opinions and performance Conflict over staffing resources Conflict over cost Conflict over schedules

Personality conflicts Lack of respect for one another

When conflicts do arise, there are several methods to try to resolve them;

Compromise. Parties consent to agree; each side wins or loses a few points. Confrontation. Parties work together to find a solution to the problem. Forcing. Power is used to direct the solution. One side gets what the other does not. 67

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Smoothing. This technique plays down the differences between two groups and gives strong attention to the points of agreement. Withdrawal. This technique involves one party removing him- or herself from the conflict.

Other include: Arbitration, Legal action etc

MONITORING AND EVALUATION OF A PROJECT

What is monitoring? What is evaluation? Monitoring is the periodic review of the project inputs, activities, and outputs undertaken during implementation. It includes the review of the procurement and delivery of inputs, the schedules of the activities and the extent of progress made in the production of outputs. Monitoring therefore involves the process of collecting the information about the actual project performance during implementation. The gap between planned and actual performance during implementation The gap between the planned and actual performance is addressed using various control strategies. The whole purpose of monitoring is to be able to take actions against information gathered. Monitoring serves and important functions Monitoring helps the project manager and other stakeholder to decision aimed at improving the project. Ensure accountability to all those who has stakeholder in the project Allows the project management to identify impact of the project, on various parties involved Evaluation is a judgement on the effectiveness (operational and strategic) of a project. There will be no effective judgement if monitoring has not been done. There are three types of evaluation. Namely 1. EX- ANTE evaluation. This is undertaken before the project starts and it examines the feasibility of the project. 2. ON-GOING (CONCURRENT) evaluation. This is undertaken during the project implementation, it analyses the relationship between the project output and its effects for the purpose of adapting the project to changes in the environment; and as a project manager try to match the project with the environment. Realign the project for the better e.g. stop it, 68

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dump it, or change strategy. 3. EX-POST (IMPACT) Evaluation. This is done after the project has been implemented and it examines its stated goals and the types of changes resulting from the project. The process of project Monitoring and Evaluation includes seven steps. Namely: 1. Preparation of a logical framework 2. Specification of information requirements- what is to be measured? 3. Identify the sources of information 4. Formulation of the research design- how to collect and analyze data OVIs Means of Type of verification data Method of collection Method of analysis Frequency of reporting Who is responsible

5. Determination of the timing of research- when and how often must data be collected? 6. Reporting findings- how should the findings is reported? 7. Assignment of responsibilities: who is to perform the monitoring and evaluation tasks? Involve both the internal and external evaluators

PROJECT TERMINATION
Termination rarely has impact on technical success or failure of projects. But huge impacts on other areas like residual attitudes towards the project (client, senior management, and project team). So it makes sense to plan and execute termination with care. WHEN DO PROJECTS TERMINATE? 1. Upon successful completion. 2. When the organization is no longer willing to invest the time and results required to complete the project given its current status and expected outcome. REASONS FOR PROJECT TERMINATION 1. Low probability of technical/ commercial/ success. 2. Low profitability/ Return On Investment/ Market potential. 3. Damaging cost growth.

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4. Change in competitive factors / market needs. 5. Irresolvable technical problems. 6. High priority of completing projects 7. Schedule delays. TYPES OF PROJECT TERMINATION Spencer addresses project termination as consisting two broad types: first a natural termination when the project goals have been met, and second , an unnatural termination when some project constraints have been violated, performance is inadequate or the project goals are no longer relevant to some overall needs. Emotional issues with a project termination include: 1. Fear of no future work 2. Loss of interest in task remaining 3. Loss of project driven motivation 4. Loss of team identity 5. Selection of personnel to be reassigned 6. Reassignment methodology 7. Division of interest TERMINATION BY EXTINCTION Here the project has successfully completed or failed i.e. natural passing or termination by murder. Project substance ceases but much work needs to be done like administrative, organizational, disposing of the project material, communicating closures, closing down physical facilities etc. TERMINATION BY ADDITION The project becomes a formal part of the parent organization. People, Materials, facilities, transition are some of the issues to be handled.

TERMINATION BY INTEGRATION Project assets are integrated/distributed to and absorbed by the parent organization. TERMINATION BY STARVATION 70

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This is done through the withdrawal of support or resources. Can save face avoid embarrassment, evade admission of defeat. TYPICAL ACTIVITIES IN PROJECT TERMINATION There are seven categories of examples of activities on project termination. Namely 1. Personnel Dealing with trauma of termination Finding homes for the team Who will close the doors Rethinking systems Provision of training, maintenance, spares etc. Accounts closed and audited Resources transferred Drawings completed/ on file Changing procedures clarified Configuration and documentation in place Systems integrated Sales and promotion efforts in line All organizations are aware of change

2. Operations/ Logistics/ manufacturing.

3. Accounting and Finance

4. Engineering

5. Information systems

6. Marketing 7. Administration

STEPS IN THE TERMINATION PROCESS Review the project and its strategic context on a regular and disciplined basis Recognize the psychological and social forces that motivate one to stay the course Recognize that there are prevailing beliefs and cultural forces that encourage the

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commitment of more resources to solve current difficulties and assure that success is just around the corner. Define with senior management participation what constitutes both success and failure on the project. Listen carefully to the concern of others about the project Evaluate the real ability of the project team to listen to and hear bad news. Ask whether the managers bet too much of the farm on the project where a termination would break the bank resulting in perception of both organizational and personal failures. Determine if the project manager feels that a lot of people will have their futures adversely affected if the project is terminated. Step back and evaluate the project from an outsiders perspective. Encouragement project team members always to provide accurate information Consider replacing key members of the project team with new people who can bring a perspective less influenced by the project and past events. Build an organizational culture that supports the philosophy that projects are experimental, temporary use of resources to support organizational strategies and require constant surveillance to guard against a project becoming a permanent fixture in the organization PROJECT REPORT/ HISTORY One of the major aims project termination is development and transmittal of lessons learned to future projects. One way to do this is through the project report. CONTENTS OF A PROJECT REPORT The project status report should contain the following: 1. Project title. Self-explanatory, but follow whatever format your organization requires while still making it obvious to you, your team, and your customer what project it is. 2. Project Summary Provide a brief summary of your projectits purpose, what you were hoping to find out, and a short description of your main findings.

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3. Introduction to Topic Provide an introduction to the problem being studied and what led to the development of this project. This may be a re-statement of the problem as defined in your original project proposal. 4. Objectives Statement State your original objectives as outlined in your project proposal. Include any supplemental objectives that OFRF requested during our review of your project. Were there any changes in your objectives as the project unfolded? Please describe any differences from the original proposal and why these changes were made. This is valuable information for others who are studying the same topic and essential for our evaluation of the project. 5. Materials and Methods Describe your project methodologies and materials used. How were treatments applied? What data were collected and how? Maps or drawings of the site and/or any special apparatus used are very helpful (hand drawings are fine). Provide as much detail as possible in this section. 6. Project Results Present your project results. Quantitative results (numerical and/or statistical data) and qualitative results (descriptions of how well or poorly something worked) are both important. Tables, graphs and other figures representing your data are excellent ways to summarize data and present them in an accessible way. 7. Conclusions and Discussion Discuss the results of the project and what you found out. What do the results lead do you believe the project did, or did not, happen? In the end, how useful was this project to you and the farm operation? How useful do you feel the study and results will be to other organic farms? Did you encounter any problems during the project? What would you do differently if you did this project again? Based on what youve learned, what do you think should be studied next? 8. Outreach Describe very briefly the type of outreach that you did, or expect to do, including any publications, tours, or other presentations of your project to the public. 9. References

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Provide a list of references you used to help develop your project and/or that you referred to in the body of your report. 10. Addenda This is the submission of photos of the project site, of the results of different treatments, and/or of project co-operators and field demonstrations. Additional materials, such as articles about the project, academic publications, theses or related research reports, are welcome and appreciated Additional information that can be included:

Detailed budget status. Showing detailed budget information including forecast

information for the project keeps everyone informed and ensures that they budget will never get too far off track before everyone sees it and it becomes a discussion point.

Issues status. You can track all issues separately or as part of the status report. If you

include it on the status report it makes it harder to skip the discussion of this key piece of information.

Risks status. Same as issues status. Track it either way, but be sure its tracked and

discussed often. CHALLENGES OF PREPARATION OF THE REPORT Since the project history has so much potential benefit, why is it not often done? Possible reasons include: no one sees if as their job, Project manager has many other priorities as the project winds down, long duration projects mean many project managers, voluminous record, little corporate memory, Project managers may be more looking forward than looking back. Review questions. 1. Discuss various situations in which projects may fail that indicate the need for project termination. How can mangers recognize these situations? 2. Discuss the project termination strategies 3. What are the steps involved in the termination process? Individual assignment Kenya Airports Authority is considering putting up an airstrip at Nyangoso town to link the town to Maasai Mara game reserve. A feasibility study is necessary before deciding whether to

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put up the airstrip in that town. Explain how such a study may be carried out and point out the information you might collect for the study. Date due: 22nd Oct 2011

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