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PUBLIC SERVICE COLLEGE OF

OROMIA
Department of Business Management
&Entrepreneurship
Course outline

Well come to the PROJECT


ANALYSIS AND MANAGEMENT

BME-432
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Chapter One
INTRODUCTION TO PROJECT
A project can be defined in different ways.
A project is a in
which we commit scarce resources in expectation
of benefits that exceed these resources.
A project is made on a package of
interrelated time-bound activities; consequently, a
project becomes a time-bound task.
A project is it dedicated to the
allotment of a goal within specified budget, in
conformance with the pre-determined performance
4 specifications
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Continued
is a that are usually
prepared only once and have well designed objectives,
using a combination of human and non-human resources
within limits of time.
consists of a , interrelated
activities with a goal that must be completed with a set
amount of resources and within a set time limit.

in order to increase the


production of goods and/or services in a community
during a certain period of time (UNIDO).
5 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
is a sequence of
having and that
must
within

.
6 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
is a e or for
investing scarce resources, which can be
reasonably evaluated and analyzed as an
independent unit.
refers to in
which resources are committed within a
given time framework, to create assets
over an extended time in expectations of
benefits which exceeds the committed
resources.
7 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
CONT
is a
in which we commit scarce
resources in expectation of benefits .
Although the definitions above seem
different, all definitions imply the same
concept:
for investment
of resource in to a clearly identified set of
actions that are expected to produce future
Department of BME,set by Lemmi Tafa(MA)
benefits of a specific kind,
8 10/1/2017
From these definitions, it is clear that a project:

9 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


cont
In most cases, it is easier to describe
than to define a project.
As more understanding is gained among
the stakeholders and deeply
conceptualizes its aspects,
a good deal of confusion can be
avoided by describing the project than
trying to define it precisely.
10 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
However, project preparation is not the
only aspect of development planning;
rather it includes
identifying national development objective;
selecting priority areas for investment;
designing effective regulatory framework for
free market operations;
designing effective ways of government
intervention
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Additional descriptions of projects

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Additional descriptions of projects

One should avoid attributing too few or


too many positive (negative) effects to a
project.
Distribution of costs (investment and
recurrent costs, intangible costs) and
benefits differs based on the nature of
projects.
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from which the
project is being appraised.
Boundary of a project is

where to
delineate its boundary
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Project boundry

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.
As to their type, projects may be
agricultural, industrial, transportation,
commerce etc.
in relation to input use, projects
may be capital intensive, labor intensive, and/ or
energy intensive.
It should be neither too small nor too
large. A plan of action that deals with the agricultural
sector cant be called a project.
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Project scope and type

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Project type

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duration

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Size of a project is a
),
total value of inputs used and
total value of goods and services produced by the project.
A project has a limited duration. We
can find projects of long and short duration (number
of years required to complete the project)
Economic life of the project (the number of years the
project remains economically productive) is different
from the duration of the project.
20 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Duration of project is 10 years does not
mean that economic life of the project
is 10 years.
From all the discussions above, one can
derive the following more dynamic and
comprehensive definition of a project, which
links
development planning,
development programs, and
project planning together
21 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
development planning, development programs,
and project planning together.
A project is an instrument of
change.
A project is beneficiary-oriented
(responds to peoples needs).

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It is coordinated
decision to change resource combinations
Projects should, according to this definition, be
formulated within the framework of the countrys
development priority objectives, which may
include :-

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25 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
A project is beneficiary-oriented (responds to
peoples needs).
Projects can also be developed on the basis of the
peoples need/ demand to satisfy unsatisfied
needs.
Example: Hydroelectric power supply project is
oriented by societys demand for electricity.
Hence, projects should forecast the response of
their ultimate beneficiaries.
A project within the framework of a national
development changes plan into action at a micro-
26
level.
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Cont
Hence, a project is undertaken, among other things, for
development reasons, which may include
executing national objectives at the micro level,
national increases in agricultural production,
promoting exports,
employment creation, and
utilizing non-utilized and
under-utilized resources
- full employment, and
pursuing agricultural diversification policies (minimizing
risk).
To understand the role of projects as instrument of change,
it is indispensable to conceptualize the meanings of national
development (goal) objective, national development plan,
29 national development strategy.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Programs Vs Projects
Some time, people confuse a project with a
program and often use interchangeably, but
the terms are not the same.
Unlike a project, a program is an ongoing
development effort or plan.
is a group of related projects
manaeged in a coordinated way to obtain
benefits and control not available from
managing them individually.
Imagine, it is often more economical to group
projects together to help streamline
management, staffing, purchasing, and other
30 work. The following are examples of programs
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Continued
firm has programs for building
single-family homes, apartment buildings, and
office buildings. Each home, apartment
building, and office building is a
for a specific sponsor,
but each type of building is part of a program.
There would be several benefits to managing
these projects under one program,.
For example, for the single-family homes, the
program manager could try to get planning
approvals for all the homes at once, advertise
them together, and purchase common
materials in bulk to earn discounts.

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, which includes
for expectant mothers,
a project to immunize newborns and young
children, and
a project for developmental testing for pre-school
children., to name a few.
A program manager provides
heading the projects within the
program.
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therefore.
also coordinate the efforts of
project teams, functional groups, suppliers, and
operations staff supporting the projects to ensure
that project products and processes are
implemented to maximize benefits.
are responsible for more than
the delivery of project results; they are change
agents responsible for the success of products and
processes produced by those projects.
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38 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
A program may include various projects at
various times as its constituent units.
Hence, a project is a specific activity, with a
specific starting point and specific ending
point intended to accomplish a specific
objective.
A project is narrower than a
program in terms of technical
performance, time and resources
39 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
(scope).
Bases of comparisons Program
P Project
Scope/objectivities wide /diverse Narrower
/limited
Location diffused /wide Specific

Lifetime Non-time bound Time


bound
Resources Larger budget Limited
40 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
budget
Projects can be classified based on several criteria.

Private sector mostly projects undertaken by business


enterprises
Public sector projects undertaken by national and local
government body,
NGOs
41
development
Department of BME,set by Lemmi Tafa(MA)projects undertaken by non-
10/1/2017
Government treasury
Government treasury and external sources
External sources of finance
3.
Demand driven/need driven- based on identified
unsatisfied demand project can be created or on
unsatisfied basic needs like food, water, and shelter ,
Donor driven the force behind the financing
organization
Political driven
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Where most projects fail
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1.4 Why projects are undertaken
1. Projects as policy instruments
2. Project as capital Expenditure
decision
The purpose (goals) to a project depends on
the nature of the project.
Development projects (usually undertaken by
government or NGOs) may have the following
objective.
45 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
Projects are very powerful and efficient means
to achieve development (growth), rightly
called cutting edge of development.
They are mechanisms for improving income
distribution (as government policy
instrument).
a project that enhances the income of the poor
people to benefit the poor;
46 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
cont..

47 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


The specific sectoral and national objectives specified in
plans can be achieved through various means:
projects,
fiscal policy,
monetary policy etc.
Therefore, projects are policy instruments through
which national and sectoral plans are translated into
action.
Thus, projects are rightly called cutting edge of
development.
48 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
Projects aim at increasing the production of goods and
services
projects are not a panacea, (cant cure all social and
economic ill of a country)
projects are capable of serving many purposes,
projects are inferior as policy instrument in
comparison with other policy instruments in addressing
specific issues.
For example, Fiscal and monetary policy instruments are
more effective in correcting macro economic instability
thanDepartment
49
project (immediate response to the problem 10/1/2017
of BME,set by Lemmi Tafa(MA)

Almost all projects involve a capital expenditure


decision.
Capital expenditure decisions often represent
the most important decisions taken by an
economic entity.
The importance of project as capital expenditure
decision
50 Department ofstems from
BME,set by Lemmi Tafa(MA) three inter related facts:
10/1/2017
Cont
the consequence of capital
expenditure decisions extend far into the future.
expenditures in the past. Likewise, current capital
expenditure decisions provide the framework for
future activities.
Most of the time, wrong capital
investment decision can not be reversed without
incurring a substantial loss.
Capital expenditures usually
involve substantial outlays.
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The basic economic problem facing all developing
countries is that of allocating inherently limited
resources
(such as labor, capital, and other natural
resources, as well as foreign exchange) to a
variety of different uses (such as current production of
consumer goods and public services as against
investment in infrastructure, industry, agriculture,
or other sectors of the economy in such a way that the
net benefit to society is as large as possible.

52 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


comprehensive macro-economic plans and sectoral
programs are valuable
in identifying development projects and
in providing the framework within which the
projects should be evaluated.
project formation, implementation and evaluation
require concrete (realistic) information for the
project implementation involve substantial resource
commitment;
most of the decisions are irreversible and projects
have long term effect.
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1.6 Characteristics of projects

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Cont
Every project should have a
well-defined objective. For example, many people hire firms to
design and build a new house, but each house, like each person, is
unique.
A project has a definite beginning
and a definite end. For a home construction project, owners
usually have a date in mind when theyd like to move into their new
homes.

: Projects are often defined broadly when


they begin, and as time passes, the specific details of the project
become clearer. For example, and there are many decisions that
must be made in planning and building a new house
56 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

Resources include people, hardware, software, or other assets. Many


different types of people, skill sets, and resources are needed to build a
home.
Most
projects have many interested parties or stakeholders, but someone
must take the primary role of sponsorship. The project sponsor usually
provides the direction and funding for the project.
every project is unique,
it is sometimes difficult to define the projects objectives clearly,
estimate exactly how long it will take to complete, or determine how
much it will cost. External factors also cause uncertainty, such as a
supplier going out of business or a project team member needing
unplanned time off.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
57
Every project is constrained in different ways. Some project
managers focus on scope, time, and cost constraints. Other people
focus on the , which adds as a fourth
constraint. The scope, time, and cost limitations are sometimes
referred to in project management as
To create a successful project, a project manager must consider
scope, time, and cost and balance these three often-competing goals:
What work will be done as part of the project? What unique
product, service, or result does the customer or sponsor expect
from the project?
: How long should it take to complete the project? What is the
projects schedule?
What should it cost to complete the project? What is the
58 projects budget?
Department What
of BME,set by resources are needed?
Lemmi Tafa(MA) 10/1/2017
Cont
Other people focus on the quadruple constraint,
which adds quality as a fourth constraint.
Quality: How good does the quality of the
products or services need to be? What do we need
to do to satisfy the customer? Other also suggests
these four constraints plus risk.
Risk: How much uncertainty are we willing to
accept on the project?
Whatever its size, a projects success is based on
the three main criteria as shown by the following
59 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
triangle
60 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
61 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

62 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Therefore, project will deem to be :
with an agreed upon quality.
its end date.
(cost of resources).
Note however, that are
interrelated, and during a project you may need to do
trade-offs between them.
For example, if you want to get something done more
quickly, you may have to pump in more money into your
project for additional resources.
63 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..

64 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


1.8 Why are organizations using project management?

Organizations therefore are increasingly using project management


because:
it allows them to plan and organize resources to achieve a specified
outcome within a given timeframe.
managers manage and anticipate risks in a structured manner.
project management allows for
better utilization of resources,
shorter development times, r
educed costs,
interdepartmental cooperation that builds synergies across the
organization, and a
better focus on results and quality.
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1.9 Project Stakeholders

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Stakeholders are the people
. These include

These stakeholders often have very different needs and expectations.


For example, there are several stakeholders involved in a home
construction
67 project.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Stakeholder Engagement
would be the potential new
homeowners. They would be the people paying for the house and
could be on a very tight budget, so they would expect the
contractor to provide accurate estimates of the costs involved in
building the house
The new homeowners would have to make important decisions to
keep the costs of the house within their budget.
Can they afford to finish the basement right away?
If they can afford to finish the basement, will it affect the projected
move-in date?
In this example, the project sponsors are also the customers and
users for the product, which is the house.
The project manager in this example would normally be the
general contractor responsible for building the house. 10/1/2017
Department of BME,set by Lemmi Tafa(MA)
69
for building the house would include several
n.
These stakeholders would need to know exactly what work they
must do and when they need to do it.
They would need to know if the required materials and equipment
will be at the construction site or if they are expected to provide
the materials and equipment.
might include the employers of the homeowners,
the general contractors administrative assistant, and other people
who support other stakeholders.
The employers of the homeowners might expect their employees to
complete their work but allow some flexibility.
Building a house requires many suppliers
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
70
The suppliers would provide the wood, windows, flooring
materials, appliances, and other items.
Suppliers would expect exact details on what items they need to
provide, where and when to deliver those items, and similar
information.
There are many different stakeholders on projects, and they all
have different interests.
Stakeholders needs and expectations are important in the
beginning and throughout the life of a project.
Successful project managers develop good relationships with
project stakeholders to understand and meet their needs and
expectations.
71 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Program managers often have review meetings with all their
project managers to share important information and coordinate
important aspects of each project.
Many program managers worked as project managers earlier in
their careers, and they enjoy sharing their wisdom and expertise
with their project managers.
Effective program managers recognize that managing a program is
much more complex than managing a single project.
They recognize that technical and project management skills are
not enough.
In addition to skills required for project managers, program
managers must also possess strong business knowledge, leadership
capability, and communication skills.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
72
Project cycle is referred to as the various
stages through which
.
It is the projects life span through which a
project advances from .
Different guidelines, manuals and foreign
authors have called

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The Project Process Readiness for
Project Justification Design Approval
Strategic and Budgetary Gate 1 Gate 2 - Approval of
Gate 0 - Approve Project Definition Gate 3 Manufacture
Approval Undertake Design Final Documents - Approval to
place Contract

Initiate Project
Prepare Technical Design
Ensure Machine Compatibility Prepare
Safety Case Modification
Undertake Tender
Project
set-up Project
Major
Definition Conceptual
Project Scheme
Design
Proposals Design Detailed Tender
Appoint Project Sponsor Design Invitation &
Assess Project Priority
Assess Budget Implications
Est. Proj. Deliverables and Objectives
Raise/Extend/Update initial TCD-R/PERF Assessment
Prepare Outline Conceptual Design
Appoint Project Leader
Define Design Constraints Prepare Extend TCD-Rs/PERFs
Approve Project Set-up
Interface Requirements Spec. (IRP) Prepare Sub-system Detailed Design Hold
Finalise Conceptual Design Detailed Design Review (DDR)
EFDA/CSU/JOC Management Hold Conceptual Design Review (CDR) Clear Sub-system DDR Issues
Clear CDR Issues Use TCD-I/MMAC for Sub-system DD Approval
Initiate Modification Safety Case Prepare Final Documents including:
Update PMP - Design Documents., Machine Compatibility *** These will comprise:
Approve Proceed to Detailed Design Documents., Safety Case Modification - Technical Specification
- Drawings
Project Team/IRP/EFDA/CSU/JDC Project Team/Interfaces/EFDA/CSU/JDC - Contractual Requirements

Draft Statement of Requirements (SoR) Compile Tender Docs.***


* This will include: Review & Approve SoR Identify Send out Invitations (ITTS)
Resources Appoint Project Raise/Extend Sub-system TCD-Rs/PERFs Hold Clarification Meetings
- Initial WBS, OBS and CBS Agree Classifications & Interfaces
Team Produce & Maintain Receive Tenders
- Project Plan Prepare Sub-system Scheme Design
Procurement Plans Evaluate Tenders
- Risk and Procurement Strategies Hold Sub-system Scheme Design Review (SDR)
Undertake Project Risk Assessment Arrange site visits
Prepare Project Boundary Document Clear Sub-system SDR Issues Approve changes to Specs.
Develop Project Management Plan (PMP)* Update PMP Choose preferred Company
** These will only take place here Use TCD-I/MMAC for Sub-system SD Approval
Raise initial TCD-R/PERF**
for large projects demanding DO
Prepare Preliminary Conceptual Design** Project Team/Contracts/EFDA
effort for preliminary Conceptual Project Team/Interfaces
work
Project Leader/Project Team/EFDA/CSU

Readiness for Operation


Implement Project Gate 4
- Acceptance of System
Note: Overall Project
Complete Project Management and Reporting will
Manufacture
be as defined in the Project
Equipment Install Management Plan (PMP)
Equipment Test &
Commission Confirm
Completion Project Gates (Formal Decision Points)
Raise Contract Documentation
Place Contract Review See accompanying notes
Hold Kick off Meeting (KOM)
Clarify Issues (Quality Plan) Test Equipment against Test Schedule
Monitor Progress Commission Complete System
Witness key Procedures
Complete Release Note Undertake Post
Project Team/ICM/EFDA/CSU Project Review
Approve Complete Package****
Approve Release Note
Pack & Dispatch Equipment Project Team/CSU
UNCONTROLLED
Confirm Technical Completion
Receive Equipment
Project Team/Contractor/ICM
Pre-test Equipment
Install equipment
Review Project Records
Handover Documents Resolve
Reservations
Complete

Obtain
WHEN PRINTED
Acceptance of Completed Project
**** This includes Project Team/ICM
supporting documentation
Project Team/EFDA/CSU
Project Planning
Project Planning
Adequate planning leads to the correct completion
of work
Planning
Inadequate planning leads to frustration towards the end of the
project & poor project performance

Project Start Project End


Project Cycle

78 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


UNIDO has divided project cycles into phases and stages as
follows
Identification of
(
(

( ) and
(
)
79 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

Negotiation and contracting stage;


Project design stage,
Construction stage;
Preproduction marketing stage;
Training stage; Start up stage

Long-term views (expansion, innovation);


Short-term views (Replacement and
Rehabilitation).
80 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
81 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
The delineation of each phase and each
activity from the other is not clear
cut/discrete line.
There are several activities undertaken in
more than one phase and the transfer is very
slow and gradual.
Activities are sequential but it is also
possible to go back and revise some of the
activities after once passing that stage.
82 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
I. Pre - Investment Phase cont
Pre-investment phase comprises several stages

are conducted during this


stage.
It is easy to understand the

83 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Opportunity Studies
Identifying investment opportunities is
the starting point in a series of
investment related activities.
Potential investors, private or public,
from
are interested in obtaining information
on newly identified variable investment
opportunities.
84 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
An opportunity study must analyze the following:
Availability of natural resources
The existing agricultural pattern that serves as a basis for
agro-based industries
Future demand
Imports, to identify import substitutes
Environmental impact
Possible inter-linkage with other industries
Possible expansion and diversification possibilities
General investment climate
Availability of cost of production factors
Export possibility
85 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Opportunity studies can be general or specific.

Area studies designed to identify opportunities in a


region or in an area.
Industry studies designed to identify opportunities in an
industrial branch ( such as building materials or food
processing)
Resource based studies designed to utilize natural and
agricultural resources.
A specific opportunity study may be defined as the
transformation of a project idea into a broad investment
proposition. It focuses on a specific project. However,
86
specific studies
Department of BME,set by
should
Lemmi Tafa(MA)
follow the initial identification of
10/1/2017
general investment opportunities.
ii) Pre Feasibility Studies
The idea of the project that is generated from the opportunity studies
must be elaborated in a more detailed study.
But, a feasibility study for a definite decision is expensive and time
consuming.
So, before conducting a feasibility study, a further assessment of the
project idea might be made in pre-feasibility study.

87 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


study should be viewed as an
intermediate stage between a project opportunity
study and a detailed feasibility study.
The structure of pre-feasibility study should be the
same as that of a detailed feasibility study.
The difference is in the degree of detail: the
difference is in the degree of detail of the
information.
Sometimes, a comprehensive opportunity study may
justify by passing the pre-feasibility study stage

88 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont
Support Studies
Support studies cover specific aspects
of an investment project in support of
pre feasibility or feasibility studies.
E.g. Market studies, Raw material
studies, Laboratory tests, Location
studies etc.
89 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Feasibility study aims at providing all data necessary
for an investment decision or against it.
Before the final decision is taken to commit
resources, the
has to be provided in
comprehensive and authentic terms.
These should be clarity about the location, the plant
size, the material and the major inputs.
90 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Proceeding from this base,

have to be ascertained.
It assists in arriving at the final decision to invest.
Feasibility study
the economic viability and the prospects of the
project.

91 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


When the the various parties
involved in the project will carry out their own appraisal of
the investment project in accordance with their individual
objectives.
An evaluation of of the
project will be done.
The project appraisal should be considered
marked by
the final investment and financing decision taken by the
project promoters.
from the
financial institutions.
They reveal the health of the company to be financed and
the protection
92 Department of BME,setof itsTafa(MA)
by Lemmi creditors. 10/1/2017
b. The Investment Phase
The investment or implementation phase comprises of the following
stages.
1) Establishing the legal, financial and organizational basis for the
implementations
2) Detailed engineering design and contracting, including tendering
3) Acquisition of technology, land, construction work and installation
4) Pre-production marketing, including the securing of supplies.
5) Recruitment and training of personnel.
6) Plant commissioning and start-up
Detailed engineering design comprises preparatory work for site
preparation,

93 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


the final selection of technology and equipment, the
whole range of construction planning etc.
Tendering and evaluation of bids are important
to get comprehensive tenders from
competitive suppliers.
This stage covers
, architects,
suppliers of raw materials and financing
institutions.
94 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
The construction stage involves site preparation,
construction of buildings and other civil works.
The personnel recruitment and training stage is very
crucial for the expected growth of productivity and
efficiency operations.
Timely initiation of marketing arrangements to prepare
the market for the new products (pre production
marketing) and securing supplies are also very crucial for
the commencement of operations of the project.

95 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


C. The Operation Phase
The problem of the operational phase should be
considered from
.
The short-term view relates to the initial period
after commencement of production when a
number of problems may arise concerning such
matters
as the application for production

96 Department of BME,set by Lemmi Tafa(MA) 10/1/2017

.
Cont
Most of these problems have their origin in the
implementation phase.
The long-term view relates to chosen strategies
and the associate production and marketing costs
as well as sales revenues.
These have a direct relationship with the
projections made at the pre- investment phase.
If such projections prove faulty, remedial
measures will not only be difficult but may probe
97 highly expensive
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Though the feasibility study aims ,
the same techniques can be applied to the expansion of
existing projects.
The expansion may be in
of
or a combination of the two.
Expansion should be treated as a new project.
In order to prepare a project proposal, the data of the
expansion project must be consolidated with those of the
existing project.
Any other changes in location, administration etc. should
be made clear.
The financial impact may be expressed in terms of the
98
marginal
Department
costs
of BME,set
and
by Lemmi
benefits
Tafa(MA)
. 10/1/2017
The Baum Cycle has five stages. The
breakdown of the phases in the project cycle
is artificial. In reality the process is continuous
and interactive. The phases are:

99 Department of BME,set by Lemmi Tafa(MA) . 10/1/2017


Cont

100 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Initiation Phase

Definition Phase

Planning Phase

Implementation Phase

Deployment Phase

Closing Phase
Cont

102 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


1.10.4. Traditional Project Management Life
Cycle
Phases of Traditional Project Management
There are five phases to the TPM life cycle, each of
which contains five steps:
1. Scope the project.
2. Develop the project plan.
3. Launch the plan.
4. Monitor/control project progress.
5. Close out the project.
103 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
1. Scope the project.

104 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


osal.

105 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


3. Launch the plan. Cont..

106 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


4. Monitor/control project progress.

107 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Project Monitoring and Control
5. Close out the project.Cont..

109 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


The first phase in the TPM life cycle is
.
This phase is the one most often given the least
attention.
The scoping phase plans the project.
Planningor rather, effective planningis painful.
For many people, planning doesnt seem like real
work.
Projects are always behind schedule, so we are
tempted to skip planning so that we can get down to
110 Department of BME,set by Lemmi Tafa(MA) 10/1/2017

the real work of the project.


Cont
Experience has shown that good planning can
actually decrease the time required to complete a
project, even taking the planning time into
account.
Planning reduces risk and, in our experience, can
increase productivity by as much as 50 percent.
We find it interesting that project teams do not
have time to plan, but they do have time to do the
work all over again. What insanity! .
111 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Every project has one goal.
The goal is an agreement between the requestor and the
project manager about the deliverable: what is to be
accomplished in the project.
The goal tells the project developers where they are going
so that, when the project is completed, they know it.
Ideally, the scoping phase begins with an exchange of
information between a requestor and a provider (usually
the project manager).
The information exchange usually involves a conversation
between the two parties to assure one another that the
request is clearly understood and the response, in the form
of
112
deliverables,
Department of BME,set by
is also
Lemmi
clearly
Tafa(MA)
understood . 10/1/2017
Cont
In the TPM life cycle, the goal is bounded by a
number of .
These objective statements clarify the
Charcehaziness/vagueness of the goal statement.
Taken as a pair, the goal and objective statements
scope the project.
They are the framework within which the entire
project planning process can be successfully
conducted.
Once the scope is complete, it is documented in the
form of the
113 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

What problem or opportunity is addressed by the


project?
What are the projects goal and objectives?
How will success be measured?
What assumptions, risks, and obstacles may affect
the project that you wish to call to the attention of
senior management?
114 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
The POS, or some form of it, is in wide use.
We can trace the early history of the POS back to
Texas Instruments (TI) in the early 1960s.
TI used the POS to allow anyone in the
organization to submit an idea for a project.
It was the companys version of a project initiation
form.
The POS is also referred to as a document of
understanding, scope statement, initial project
definition, and statement of work.
115 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
In our consulting practice, we have encountered
organizations that require

This information is used to decide whether the


project should go forward to the detailed planning
phase.
If the project, as described in the POS, is approved,
it moves on to the detailed plan phase.
116 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Develop the Detailed Plan
The second phase in the TPM life cycle is to develop the
project plan.
In this phase, the details about the project are
determined.
This may be an exercise for one or two individuals, but it
often takes place in a formal planning session attended by
those who will impact or be impacted by the project.
The deliverable from this planning session is the project
proposal.

117 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont

In some organizations there can be any number of


attachments, such
.
The project plan is a description of the events to come.
In that sense, it is a model of the project.
As events occur in the project, the model is affected and
can change to describe how future events in the project
are likely to occur.
Because the project plan is a model, we can use it to test
alternative strategies for redirecting future events.
118 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
As project work begins, the nature of the
project changessometimes radically.
Activities can get behind or ahead of
schedule; team members can be reassigned,
leave the company, or get sick.
Market situations can change, rendering all
or some of the project objectives obsolete.

119 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont
These events can occur once at a time or in clumps, and the project
manager must be ready to analyze, decide, and act.
You should already have an appreciation for the complexity of the
project plan and work.
There are, in fact, several dimensions to consider when trying to
formulate a going-forward strategy.
Here are just a few: If a project activity finishes earlier or later than
the schedule date, can the resource schedule for later activities be
adjusted accordingly?
If one or more project activities finish late, can other resources
assigned to the project be reallocated to restore the project to its
original schedule?
How can the project manager simultaneously compress the project
schedule
120 while avoiding unresolvable resource scheduling conflicts?
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
What resources can be reallocated from one project to
another without adversely affecting each projects schedule?
Any one of these decision situations involves a number of
interdependent variables.
It is unlikely that any project manager could process these
variables and all of the possible variations without the aid of a
computer-based project model and the supporting software,
such as Microsoft Project 2002, ABT Workbench, Open Plan,
or any one of several other software packages.
Once the project proposal is approved, the project enters the
next phase of the TPM life cycle, in which the final details of
the work schedule are completed and project work begins.
121 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Launch the Plan
The third phase in the TPM life cycle is to launch
the plan.
In this phase, the project team is specified.
It is important to eliminate the notion that an
individual is solely responsible for the success (or
failure) of the project.
It is true that you can point to examples in which
the efforts of an individual brought the project to
successful completion, but these events are rare.
Although some of the specific team members could
122 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
have been identified earlier in the life cycle,
Cont
In contemporary organizations, the project team is
often cross-functional and can span other
organizational boundaries.
In addition to identifying the team at this time, the
exact work schedules are determined, detailed
descriptions of the tasks in the project are
developed, and team operating rules, reporting
requirements, and project status meetings are
established.
The completion of this final planning activity
signals the beginning of the monitoring phase.
123 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
Monitor/Control Project Progress
As soon as project work commences, the project enters the monitoring
phase. A number of project status reports will have been defined in the
previous phase and are used to monitor the projects progress. Some of
these reports are used only by the project team, while others are
distributed to management and the customer. Change management is a
big part of this phase, and procedures will have been installed as part of
the launch phase to process change requests. Change requests will always
cause some amount of project replanning. When the requests are
received, the feedback loop is activated, and the project manager revisits
the project plan to identify ways to accommodate the change request.
Problems can also occur as work finishes ahead of or behind schedule. A
problem-escalation procedure will have been defined during the launch
phase to handle these situations
124 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Close Out the Project
The final phase of the TPM life cycle begins when the customer says
the project is finished. The doneness criteria will have been specified
and agreed to by the customer as part of the project plan. A number of
activities occur to close out the project:
Install the deliverables.
File final reports and documentation.
Perform a post-implementation audit.
Celebrate!

125 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont
1.10.5. DEPSAs Project Cycle
(Development Project Studies Authority in
Ethiopia)

I. Pre Investment: Identification, Preparation and


Appraisal/ Decision
II. Investment: Implementation
Operation: Operation/ Functional, and Ex-Post Evaluation

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UNIT TWO
GENERATION AND SCREENING OF
PROJECT IDEAS

127 Department of BME,set by Lemmi Tafa(MA)


. 10/1/2017
The consists of
following stages:

.
128 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
1.1 Idea Generation
Project selection process

Ideas are
based on
and most of the project
ideas are variants of present
.
There is to come
up
129 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
The project ideas can be various internal and
external sources. These are

130 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


1.2 Environment appraisal

133 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Environment appraisal
An entrepreneur or a firm systematically appraise the environment
and assess its competitive abilities. The key elements of the
environment are as follow:

134 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont
B

135 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


136 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

137 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont

138 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont

139 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


1.3 Corporate Appraisal

140 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Corporate Appraisal
A realistic appraisal of corporate strengths
and weaknesses is essential for identifying
investment opportunities which can be
profitably exploited.
The broad and
the important aspects to be considered
under them are as follow

141 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont.

142 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont

143 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont..

144 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


1.4 Preliminary Screening project ideas

After gathering the project ides from the


various sources as ,
it is essential to eliminate ideas which are not
promising.
This process of eliminating the irrelevant and
unviable ideas is called

It can be done with the help of testing the


145 Department of BME,set by Lemmi Tafa(MA) .
10/1/2017
.

146 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont..
The project idea must be
of the entrepreneur.
The project idea must satisfy or go along

Considerations
may include:

.
147 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
The required for the
project must be reasonably assured.
This can be assessed with
the help of determining the following points
relating to a project.

148 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Identifying the is the key factor
to select, the
Total present domestic market
Competitors and their market shares
Export market
Quality price profile of the product.
Sale and distribution system
Projected increase in consumption
Barriers to the entry of new units
Economic social and demographic trends
favorable to increased consumption
Patent
149 protection
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cost factors to screen project
Reasonableness of cost is another factor to
screen the project ideas.
The cost structure of the proposed project
must enable it to realize and acceptable
profit with a competitive price.

150 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cost factors

:
Cost of material inputs,
labor costs,
factory overheads.
General administration expenses,
selling and distribution costs.
Service costs,
economics of scale etc. Acceptability of risk level is
another
151 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Project Rating Index
When a firm evaluates a large number of
project ideas regularly,
it may be helpful to streamline (update) the
process of preliminary screening.
For this purpose, a preliminary evaluation may
be translated into a project rating index.

152 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont..
The steps involved in determining the project rating
index are as follows:
Identify factors relevant for project rating,
Assign weights to these factors (the weights are supposed to
reflect their relative importance),
Rate the project proposal on various factors using a suitable
rating scale. (Typically a 5-point scale or a 7-point scale is used
for this purpose).
For each factor, multiply the factor rating with the factor weight
to get the factor score.
And add all the factor scores to get the overall project rating
index.
153 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Table 2.1 Illustrates the determination of the project rating index:
Once the project rating index is determined, it is compared with a
pre-determined hurdle value to judge whether the project is prima
facie worthwhile or not.
Factor Factor VG G A P VP Factor Score
Weight 5 4 3 2 1
Input availability 0.25 x 0.75
Technical Know-how 0.10 x 0.40
Reasonableness of cost 0.05 x 0.20
Adequacy of market 0.15 x 0.75
Complementary relationship 0.05 x 0.20
with other products
Stability 0.10 x 0.40
Dependence on firms strength 0.20 x 1.00
Consistency with government 0.10 x 0.30
154 Department of BME,set by Lemmi Tafa(MA)
priorities 10/1/2017
155 10/1/2017
After the project rating index is determined it will
be compared with the predetermined hurdle
number.
Assume the predetermined hurdle number is 3.
The project under consideration worthwhile as the
rating index is greater than the predetermined
hurdle number; otherwise it will be not
worthwhile

156 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


UNIT THREE
PROJECT FEASIBILITY STUDY

157 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


UNIT THREE
PROJECT FEASIBILITY STUDY

158 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


159 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
UNIT THREE
PROJECT FEASIBILITY STUDY
Outline of the unit
Design, layout, plant and
machinery
Construction process
Inputs
Infrastructure facility
Manpower
Environmental impact assessment

UNIDO approach
Pay-back period method Diamond-Mirrleess approach
Net-present value method
Internal rate of return method Ecological feasibility
Legal and administrative feasibility
Modified internal rate of return
method
Profitability index
160 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
PROJECT FEASIBILITY STUDY
A feasibility study is part of the process of project
.
This process involves the appraising of projects or groups of
projects and choosing to implement some of them.

161 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


PROJECT FEASIBILITY STUDY

162 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont
Feasibility is a multivariate concept; that is, a
project has to be viable not only in

After the problems of an organization or


economy have been determined and
concrete steps have to be
taken.
. These proposals as pointed out above take the
following forms of feasibility studies
163 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
proposals as pointed out above take the following
forms of feasibility studies:

6. Other feasibility considerations like legal,


administrative, ecological
When projects are evaluated
s,

, but
technical
164 and financial feasibility is less emphasized.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
165 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

166 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont
The scope for scrutiny under each of these
five heads The process almost
relating to
technology,
scale,
location,
costs and benefits,
time of completion (gestation
period),
167 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont.
degree of risk and uncertainty,
financial viability,
organization and management,
availability of inputs, know-how,
labor etc.
The detailed analysis is set down in
what is called a feasibility report.
168 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
A. Information requirement
B. Price:
C. Methods of distribution and sales
promotion:
D. Consumers:
E. Governmental policy:
F. Supply and competition:
169 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
170 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
..

From sellers point of view,


market analysis is primarily
concerned with the aggregate
demand of the proposed
product/service in future
segment the market as geographic
scope, demographic and
psychological profile etc.
171 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
knowing who all comprise your customers, require information on
consumption trends, attitudes,
past and present supply preferences and
position, requirements,
production possibilities distribution channels
and constraints, and
imports and exports, marketing policies in
competition, use,
cost structure, administrative,
elasticity of demand, technical and legal
consumer behavior, constraints
intentions,
172 motivations,
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
The exercise of often begins
with an
Before a detailed study of a project is
undertaken, it is necessary to know, at least
roughly, the size of the market because :
the viability of the project depends critically
on whether the anticipated level of sales
exceeds a certain volume.

173 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Requirements for market and demand analysis
A. Information requirement
1. Effective demand: to gauge the effective
demand in the , the starting
point
2. Breakdown of demand: to get a deeper
insight into the nature of demand, the aggregate
1. Effective demand: to gauge the effective
demand in the past and present, the starting point
typically is apparent consumption which is defined
as:
174 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
,

175 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


2, Breakdown of demand:
Nature of product:
Consumer groups:
Geographical division:

176 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


to get a deeper insight into the nature of
demand, the aggregate (total) market demand may be broken down
into demand for different segments of the market.
Market segments may be defined by nature of product,
consumer group, and geographical division.
One generic name often subsumes many
different products: steel covers sections, rolled products, and various
semi-finished products;
Consumers of a product may be divided into
industrial consumers and domestic consumers. Industrial
consumers may be sub-divided industry-wise. Domestic consumers
may be further divided into different income groups.
A geographical breakdown of consumers,
particularly for products which have a small value-to-weight
relationship and products
177 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Price statistics must be gathered along with
statistics pertaining to physical quantities. It may be
helpful to distinguish the following types of prices:
quoted as FOB (
) price or CIF ( )
price,

, and
.

178 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


C. Methods of distribution and sales
promotion
the method of distribution may

Capital goods, industrial raw materials or


intermediates, and consumer products tend to

methods used for sales promotion


(advertising, discounts, gift schemes,
etc.) may vary from product to product.
179 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
two categories of information about the consumers may be
required:
n-, information on: age, sex, income,
avocation, residence, religion, customs, beliefs, and social background, and
information on - preferences, intentions, attitudes, habits,
and responses.
the role of government in influencing the demand and
market for a product may be significant.
These are reflected in:

180 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


F it is necessary to
know the existing sources of supply and whether
they are foreign or domestic. For domestic
sources of supply information along the following
lines may be gathered:

181 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Competition from substitutes and near-substitutes
should be examined
because almost any good may be replaced by some
other good as a result of

182 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Demand estimation
1. Market survey
2. Demand forecasting

The first and most difficult step in market


feasibility analysis is determining the potential
we are
intending to produce/render.
There are different methods of estimation.

183 Department of BME,set by Lemmi Tafa(MA) 10/1/2017



The information sought in a market survey

(i) Total demand and rate of growth of demand;


(ii) Demand in different segments of the market;
(iii) Income and price elasticity of demand;
(iv) Motives for buying;
(v) Purchasing plans and intentions;
(vi) Satisfaction with existing products;
(vii) Unsatisfied needs;
(viii) Attitudes toward various products
(ix) Distributive trade practices and preferences;
(x) Socio-economic characteristics of buyers.
184 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont.

185 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Cont

186 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Qualitative Methods
Quantitative Methods

After gathering information about various aspects of


the market and demand from primary and
secondary sources, an attempt may be made to
estimate future demand.
Several methods are available for demand
forecasting. The important ones are qualitative
and quantitative methods.
187 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
i

Qualitative or judgmental forecasting


but rather on intangible factors.
This method is especially common when sufficient historical data is
not available, i.e., for a new business or a less-established market
environment.
Groups whose judgment is normally surveyed in preparing a
qualitative forecast include
the experts in the field,
the sales force and the customers.
188 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Combining historical data with the judgment of
people or groups presumed
s
Some of the identified qualitative methods of sales
forecasting are

These methods rely essentially

189 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


i. Jury of Executives Opinion Method
This method, which is

It involves
on expected future
sales and combining them into a sales
estimate.

(1) It is an expeditious method for


190 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
developing sales forecast;
(2) it permits a variety of factors like
o economic climate,
o competitive environment,
o consumer preferences,
o technological developments, and so on,
(3). it has an immense appeal to managers who
tend to prefer their judgment to mechanistic
forecasting procedures.
:
(1) the biases underlying subjective estimates
cannot be unearthed easily;
(2) the reliability of this technique is questionable.
191 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
ii. Delphi Method
This method is used for eliciting the opinions of a group
of experts with the .

A group of experts is sent a questionnaire by mail and


asked to express their views.
The responses received from the experts are
summarized without disclosing the identity of the
experts, and sent back to them along with a
questionnaire
The process may be continued for one or more rounds
till a reasonable agreement emerges in the view of the
experts.
192 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Delphi method appeals too many organizations for
the following reasons:
(1) it is intelligible to users;
(2) it seems to be more accurate and less expensive
than the traditional face-to-face group meetings.
While the Delphi method is appealing, there are
certain questions it doesnt answer.
What is the value of the expert opinion?
What is the contribution of additional round and
feedback to accuracy?
193 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Quantitative Methods
forecasts based on the
basis

:
194 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Quantitative Methods
Simply stated, the word quantitative signifies an estimate of
a particular, indefinite or

Quantitative techniques rely primarily on numbers to


conclude forecasts.
These numbers are and
then placed in a formula to predict the company's sales.
You can start by building up to aggregate totals of market
demand, or start with these totals and work the numbers
down into more focused forecasts for individual
products .
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
195
Quantitative techniques are calculated from
important numbers such as

These numbers have been shown to have


significant value in forecasting.
Among others some of the quantitative
forecasting methods include the time series
196 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
A. Time Series Methods: these
methods generate forecasts on the basis
of an analysis of the historical time
series.
The important time series projection
methods are trend projection methods,
exponential smoothing method and
moving average method.
197 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
i. Trend Projection Method
When the trend projection method is used, the most commonly
employed relationship is the linear relationship.
Trend projection: it consists of determining the trend of consumption
by analyzing past consumption statistics, and projecting future
consumption by extrapolating the trend.
Linear Relationship: Yt = a + bt
Where; Yt = demand for year t,
t = the time variable,
a = intercept of the relationship
b = slope of the relationship
a, b and ajs are constants.
This relationship may be estimated by using one of the following
Department of BME,set by Lemmi Tafa(MA)
methods visual curve fitting method and least squares method. 10/1/2017
198
Useful for a product which is directly
consumed,
this method estimates consumption
level on the basis of elasticity
coefficients,
the important ones being the

199 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Income elasticity of demand t
The income elasticity of demand reflects the
responsiveness of demand to variations in income.
It is measured as follows:

Where;Y = income elasticity of demand


Q1 = quantity demanded in the base year
Q2 = quantity demanded in the following year
l1 = income level in the base year
l2 =Department
income level in the following year
of BME,set by Lemmi Tafa(MA)
200 10/1/2017
Cont..
Price elasticity of demand - The price
elasticity of demand measures the responsiveness
of demand to variations in price. It is defined as:

Where, Ep = price elasticity of demand


Q1 = quantity demanded in the base year
Q2 quantity demanded in the following year
P1 = price per unit in the base year
P2 = price per unit in the following year
Department of BME,set by Lemmi Tafa(MA)
201 10/1/2017
End use method
Suitable for estimating the demand for intermediate
products,
the end use method, also referred to as the
consumption coefficient method involves the
following steps:

202 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


uct
D. Leading Indicator Method
Leading indicators are variables which change ahead of
other variables, the lagging variables.
Hence, observed changes in leading indicators may be
used to predict the changes in lagging variables. For
example, the change in the level of urbanization- a leading
indicator may be used to predict the change in the demand
for air conditioners a lagging variable.

203 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


E. Market penetration for the product:
If the aggregate potential domestic supply is likely to be
significantly less than the aggregate potential domestic
demand,
the demand for the product of the project under
examination is likely to be very strong, provided
liberal imports which may hurt domestic
manufacturers are not allowed.
The nature of competition and market-sharing
arrangement (if any) has a bearing on the demand
for the product of the project under examination.
204 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
205 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
206 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Economic feasibility
Economics is the study of costs- and-
benefits.
In regard to the feasibility, the study of
the entrepreneur is concerned
whether the capital cost as well as the
cost of the product is justifiable vis-
-vis the price at which it will sell at the
market place.
207 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
For example, technically, silver can
be extracted from silver bromide, (a
chemical used for processing the X-
ray and photo films);
but, the cost of extraction is so high
that it would not be economically
feasible to do so
208 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
209 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
Economic viability and financial
viability are not different for
companies.
However, from national angle and
from the viewpoint of the economy,
as a whole, economic feasibility and
financial feasibility are not considered
to be the same.
210 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Economic appraisal of a project
deals with

to proposed project are considered


in the economic feasibility test.
211 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Tax revenue, generation of
employment, savings of foreign
exchange and such other factors
differentiate economic feasibility
from financial feasibility.
The government and government
agencies calculate the economic
indicators of a project before
permitting a project or financing it.
212 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont

Apart from the cost-benefit analysis as above,


which we also refer to as private cost-benefit
analysis, it is also useful to do what is known as
social- cost-benefit- analysis (SCBA).
For example, the entrepreneur may be getting
subsidized electricity in which case private cost
would be less than social cost.
Likewise, exporting units earn precious foreign
exchange resulting into social benefits being more
than private earnings.

213 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Many a time, a project that is worthy on
SCBA may find greater favor with the
support agencies.
This tells us that there is a huge overlap
between economic feasibility for a private
project and financial feasibility and social cost-
benefit analysis of a developmental project.
Hence the specific considerations and
technical issue of this part of the analysis will
be covered in the subsequent sub-sections.
214 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Financial feasibility/Analysis
a

)
215 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Financial feasibility/Analysis
The objective of financial analysis is to ascertain
whether the proposed project will be
financially viable in the sense of being able to
meet the burden of servicing debt and
whether the proposed project will satisfy the
return expectations of those who provide the
capital.
Capital budgeting is a required managerial
tool for project appraisal.
One duty of a financial manager is to choose
projects with satisfactory cash flows and rates of
return.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
216
Cont
Therefore, a financial manager must be
able to decide whether a project is worth
undertaking and be able to choose
intelligently between two or more
alternatives.
To do this, a sound procedure to

217 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


218 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Having limited resources to lend, lending
institutions are selective in extending loans
to their customers.
But even if a bank were to extend
unlimited loans to a company,
the management of that company would
need to consider the impact that increasing
loans would have on the overall cost of
financing.
219 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
220 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
The argument that capital is a limited resource is
true of any form of capital, whether debt or equity
(short-term or long-term, common stock) or
retained earnings, accounts payable or notes payable,
and so on.
Even the best-known firm in an industry or a
community can increase its borrowing up to a
certain limit.
Once this point has been reached, the firm will
either be denied more credit or be charged a higher
interest rate, making borrowing a less desirable way
to raise capital.
221 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Faced with limited sources of capital,
management should carefully decide whether
a particular project is economically
acceptable.
In the case of more than one project,
management must identify the projects that
will contribute most to profits and,
consequently, to the value (or wealth) of the
firm.
222
This, in essence, is the basis of capital
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
223 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Basic Steps of Capital Budgeting
I. Estimate the cash flows (initial outflow
and subsequent net inflows)
II. Assess the riskiness of the cash flows.
III. Determine the appropriate discount
rate.
IV. Find the PV of the expected cash
flows.
V. Accept the project if PV of inflows >
224 costs. IRR > Hurdle Rate and/or payback
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Expected Net Cash Flow

Year Project L Project S

0 ($100)
Basic Data
($100)
1 10 90
2 60 30
3 80 50
225 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
. Evaluation Techniques:

226 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Payback Period (PBP):

227 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Initial Investment
Cont
PBP =Annual Net Cash Flows

b
When net cash flows are not annuity,
payback period is obtained by adding
net cash flows for successful years until
the total is equal to initial investment.
Payback period = Expected number of
years required to recover a projects
cost.
228 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Expected Net Cash Flow
Year Project L Project S
0 ($100) ($100)
1 10 90
2 60 30
3 80 50
229 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Payback-L = 2 + $30/$80 years
= 2.4 years.
Payback-S = 1.33 years.
Weaknesses of Payback: it ignores
the time value of money. This
weakness is eliminated with the
discounted payback method. It ignores
cash flows occurring after the payback
230 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
DISCOUNTED PAY-BACK PERIOD
Since the payback period rule ignores the time
value of money, some firms have modified it to
reflect the time value of money. This is the
discounted payback period. This technique
specifies that the cash flow from each period has
to be discounted appropriately by the firms cost
of capital (i.e. a risk-adjusted WACC).

Given a 10% weighted average cost of capital, the


payback period will be:
231 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont
Year Project L Project S

Cash Discounted Cash Discounted


flow cash flow flow cash flow
0 ($100) ($100) ($100) ($100)

1 10 9.09 90 81.82

2 60 49.59 30 24.79

232
3Department of BME,set80
by Lemmi Tafa(MA) 60.12 50 66.55
10/1/2017
Cont
Discounted pay-back project L = 2 +
(41.32/60.12) = 2.7 years
Discounted pay-back project S = 1 +
(18.18/24.79) = 1.7 years
Net Present Value Method: The net
present value of project is the difference
between the present value of net cash inflows
and present value of initial investment.

233 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


n CFt
NPV
t 0 (1 k) t

234 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


235 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
NPVL = $ 18.79
NPV-S = $73.16
Decision: If the projects are independent, accept
both. If the projects are mutually exclusive,
accept Project S since NPVS > NPVL.

Note: NPV declines as k increases, and NPV


rises as k decreases.
236 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
,
237 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
= Initial investment
IRR is determined using trial and error:
the complexity of determining IRR is
greater if net cash flows are not in
annuity form.
This section illustrates the
determination of net cash flows when
cash flows are annuity as well as non-
annuity.
238 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
239 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
240 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
43.02
48.57
$ 0.06 $0
IRRL = 18.1%
IRRS = 38%
Decision: If the projects are independent, accept
both because IRR > k. If the projects are mutually
exclusive, accept Project S since IRRS > IRRL.
Also Note also that IRR is independent of the cost
of capital.
241 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Advantages and Disadvantages of IRR AND
NPV
Advantages
A number of surveys have shown that, in practice,
the IRR method is more popular than the NPV
approach.
The reason may be that the IRR is straightforward,
and it uses cash flows and recognizes the time
value of money, like the NPV.
In other words, while the IRR method is easy and
understandable, it does not have the drawbacks of
242 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Disadvantages
The main problem with the IRR method is that it often
gives unrealistic rates of return. Suppose the cutoff rate
is 11% and the IRR is calculated as 40%.
Does this means that the management should
immediately accept the project because its IRR is 40%.?
The answer is no! An IRR of 40% assumes that a firm
has the opportunity to reinvest future cash flows at 40%.
.

243 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


If past experience and the economy
indicate that 40% is an unrealistic rate
for future projects, an IRR of 40% is
suspect. Simply speaking, an IRR of
40% is too good to be true! So unless
the calculated IRR is a reasonable rate
for project of future cash flows, it
should not be used as a yardstick to
accept or reject a project
244 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Another problem with the IRR method is that it may give
different rates of return.
Suppose there are two discount rates (two IRRs) that
make the present value equal to the initial project.
in this case, which rate should be used for comparison
with the cutoff rate?
The purpose of this question is not to resolve the cases
where there are different IRRs.
The purpose is to let you know that the IRR method,
despite its popularity in the business world, entails more
problems than a practitioner may think.
245 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
k NPVL NPVS
0% $50 $40
5 33 29
10 19 20
15 7 12
20 (4) 5

246 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


247 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
PROFITABILITY INDEX (PI)

The profitability index, or PI, method compares the


present value of future cash inflows with
the initial project on a relative basis.
Therefore, the PI is the ratio of the present value
of cash flows (PVCF) to the initial project of
the project.

248 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


In this method, a project with a PI greater
than 1 is accepted,
but a project is rejected when its PI is less
than 1.
Note that the PI method is closely related
to the NPV approach.
In fact, if the net present value of a
project is positive, the PI will be greater
than 1.
On the other hand, if the net present value
is negative, the project will have a PI of
less than 1.
249 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
250 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Decision: Accept project if PI > 1. Reject if PI < 1.0

0 1 2 3
3

-100.00 10 60 80
PV1 9.09
PV2 49.59
PV3 60.11
PV of cash flows 118.79
118.79 PI 1.10
initial coast 100

251 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


PROJECT DECISION ANALYSIS

252 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Virtually all general managers face capital-budgeting
decisions in the course of their careers. The most
common of these is the simple yes versus no
choice about a capital project. The following are
some general guidelines to orient the decision maker in
these situations.
Focus on cash flows, not profits. One wants to get
as close as possible to the economic reality of the
project. Accounting profits contain many kinds of
economic fiction. Flows of cash, on the other hand, are
economic facts.
253 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Account for time. Time is money.
We prefer to receive cash sooner rather
than later.
Use NPV as the technique to summarize
the quantitative attractiveness of the
project.
Quite simply, NPV can be interpreted as
the amount by which the market value of
the firms equity will change as a result of
undertaking the project.
254 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Not all projects present the same
level or risk.
One wants to be compensated with a higher return for
taking more risk.
The way to control for variations in risk from project
to project is to use a discount rate to value a flow of
cash that is consistent with the risk of that flow.
These 4 precepts summarize a great amount of
economic theory that has stood the test of time.
Organizations using these precepts make better project
decisions than organizations that do not use these
255
precepts.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
CAPITAL RATIONING
Exists whenever enterprises cannot, or choose not
to, accept all value-creating project projects.
Possible causes may be:

.
Analysis is required.
One must consider sets of projects, or bundles,
rather than individual projects.
The goal should be to identify the value-
256 maximizing
Department of BME,set bundle
by Lemmi Tafa(MA)of projects. 10/1/2017
The danger is that the capital-rationing
constraint heightens the influence of
nonfinancial considerations, such as the
following:

The outcome could be a sub-optimal capital budget, or,


worse, one that destroys value!
Some remedies are the following: Relax and eliminate the
budget constraint; Manage the process rather than the
outcomes; Develop a corporate culture committed to
257
value creation.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
3.4.Technical feasibility
1. Objectives:
2. Location and site

Technical feasibility
The technical aspects of a typical project idea can be examined in detail
to evaluate its technical feasibility, as distinct from

258 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Objectives:
First, the project proposal must fall within the
domain of the stated mission of the
sponsor(s).
Next, the proposal must be able to further the
objectives and priorities of the sponsor(s).
These must therefore be ascertained and clearly
recorded, along with detailed specifications for the
output which constitute the basic frame of
reference for all future decisions.
259 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Only for core projects (which are intended to
basically support other highly profitable
projects) may this requirement be relaxed.
The public sector generally has multiple
objectives and profitability normally takes a back
seat.
In either case, it is essential for the project
analyst to keep the organizations objectives - a
along with their interest priorities - in sharp
focus, to ensure that his/her efforts follow the
correct direction
260 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Location and site
Initially, as many locations as possible should be identified which
meet the most fundamental operational requirements of
the proposed project.
These should then be

conditions.
Within the geographical location so selected, alternative sites are
similarly identified and the most optimal one selected after
considering factors like terrain, local climate land its
impact on plant & equipment and their operation,
availability and cost of land
261 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
(plus its development), local infrastructural
facilities and their costs (power; water: road/
air/water transport; telecommunications; etc.),
socio-economic conditions, availability and
quality of labour and construction
equipment,
valid waste disposal alternatives and their costs,
local living conditions,
public policies,
local law, and taxes, etc.
262 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Note: Resource-oriented projects like
mining of minerals involve items like
geological analysis covering geological
structure,
hydrological conditions,
characteristics of the resource,
resource reserves,
prospecting status, and
expected geological problems.
263 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
The location decision should be made after giving due
consideration to various benefits and incentives offered by
governments or local bodies for setting up production or service
facilities in certain specified areas.
These may include assistance in the form of or in respect of
capital loans and grants,
tax, concessions,
clearances,
subsidies,
infrastructure, etc.
One way to do this is to evolve (or use available).
Location Cost Indices (LCI) for different sites. If the cost (in a
specified currency) of setting up a plant is CA at location A and CB at
location B, the LCI for location A is defined as 100 x CA/CB.
264 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Plant Size
Determination of an optimum plant size is critical to the success
of a project.
A plant represents sunk costs and any under utilization of its
capacity means either reduced profits or, for levels below the
Break-Even Point, losses.
The adverse impact of an extra-large capacity is felt all the more
keenly during the early years when profits are all the more
important for survival.
In a feasibility study, one-begins by looking 'at projections of the
demand-supply gap in the market and anticipated
arrives' at the possible range of project sizes after considering
various constants like availability of
265 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
materials, technology, equipment, public
policy (for example, a large company
may be precluded from setting up
capacities beyond a size) and finances,
etc..
The best possible size of plant &
equipment is then recommended after
analyzing the availability, economics, and
practicability of different size options.

266 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Technology
The same product or service can generally be obtained using quite
different technologies.
Electricity, for example, can be generated using solar panels, coal
(thermal plants), hydraulic power plants, and nuclear power plants and
so on. Basic telephone Sol-vices can similarly be provided using manual,
semiautomatic, or automatic exchanges.
And, even the last-named category is available if] various technological
versions like Stronger, Crossbar, Analogue electronic and Digital
electronic.
Needless to say, the latest technologies usually represent many
improvements over the existing or older ones. They may also offer
certain unique features. However, newly emerging technologies may
have some inherent dangers as well.
267 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
the following aspects in lie specific situation of
the project.
Specifications of the task/product
Task uncertainties and interdependence
[Especially for public sector] Developmental imperatives
(e.g. growth of employment; maximizing use of local
resources; reduction of disparities in income levels)
Required gestation period versus the time actually
available of the project.
Source(s) and ease of availability.
Indigenous availability of comparable technology
Field validation status in comparable situations. If
necessary, field trials may have to be set up.
268 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Cont..
Adaptability to the qualitative characteristics of the locally (or
indigenously) available resources including energy and efficiency
in their usage
Dependence on nonrenewable sources of energy
Capacity of the organization to absorb/adopt the technology
Timely availability of manpower with requisite skills for
installation, operation and maintenance
Cost of' acquisition, installation, repairs and maintenance versus
availability of funds (local/foreign)
Safety characteristics
Requirement or availability of R & D facilities Environmental
and sociocultural sensitivities
Likelihood,
269 Department ofand time
BME,set frame,
by Lemmi Tafa(MA) of obsolescence 10/1/2017
UNIT 4: PROJECT PLANNING

270 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


271 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Outline of the unit

272 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


4.1 Nature of project planning
One cannot conceive a project in a linear manner.
It involves for

However, when a project crosses a certain


threshold level of size and complexities, informal
planning has to be substituted by formal planning. .
So, the need for formal planning is indeed much
greater for project work than for normal
operations.
273 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Planning for the optimum utilization of
available resources becomes a pre
requisite for rapid economic development of
a country or a region.
Project planning makes a possible to list out
the priorities and promising projects
with a view to exercising national choice
among various alternatives available.
It is a tool by which a planner can identify a
good project and to make sound investments
decisions.
Department of BME,set by Lemmi Tafa(MA) 10/1/2017
274
4.2 Need for project planning
One of the objectives of project planning is to
completely define all work requested so that it will
be readily identifiable to each project participant.
Besides that there

275 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


4.3 Functions of project planning

.
276 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
.
Project planning must be

through reviews and control and capable of


accepting multifunctional inputs.
277 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
4.4 Steps in project planning
Planning decisions involves a conscious choice
or selection of one alternative from among a
group of two or more alternatives.
The three main steps involving project
planning decisions are:

278 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


one has to make a decision with
maximum input,
feedback and participation of
superiors as well as subordinates.
. Broadly speaking planning
involves two differences
methodologies:
279 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Planning by incentive mainly depends on

Planning by direction

280 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


Planning
is decision making based upon futurity.
It is a continuous process of making
entrepreneurial
It is methodically organizing the effort
needed to carry out these decisions.
This type of well structured project plan
helps to establish an effective monitoring
and control system.
281 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
4.5 Project Planning Structure
The various activities involved in Project
planning is given in the following chart as
Project Planning Structure.
Work Description and Net work Scheduling
Instruction

Project Objectives Master Schedules

Management Decision Budgets


making

282 Department of BME,set by Lemmi Tafa(MA) 10/1/2017


The different way of allocating the activities of a
project are important means of
decentralization.
which project
planning can be decentralized into manageable
divisions viz.,
I. Project planning by subject
II. Project planning by type of plan and
III. Planning in phases
283 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Planning by subject
is a simplest way of dividing the powers of
planning.
The planner takes decision on related operation
and planning by subject.
He plans, decides and directs the part of plan.
He is the sale in charge of the plan from
beginning to final completion.
Planning to type of plan broadly defines premises
and assumptions leaving the detailing to be done by
persons at the grass root level of planning.
284 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Generally such cases involve decisions which
are rather routine and involve a lower
degree of professional and financial
risk.
Planning in phases are designed to several
individuals who participate at the formulation
stage.
The level of people involved is directly
related to the phase and the degree of risk
involved.
285 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
Comprehensive project planning covers the
following;
i. planning the project work:
must be spelt out in detail. They should be
properly scheduled and sequenced.
ii. Planning the manpower and organizations:

the responsibility for carrying out the project work


must be allocated.
iii. Planning the money: the expenditure of money in a
time-phased manner must be budgeted
iv. Planning the information system: The information
required for monitoring the project must be defined
286 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
4.6 Types of project plan
The planning process can be done in different ways
depending on the type of plan. =2:

It includes
of operating under particular
circumstances.
Single plans are meant as objectives which center on
focused and desired results.
It can also be known as short term plans, to deal with
the specific problem for specific place with prescribed
time limit.
287 Department of BME,set by Lemmi Tafa(MA) 10/1/2017
: Standing plans are those plans
which include

They are designed to deal with recurring


problems.
It may be treated as standard document to be used in
different plans to deal with a set of problems.
The design procedure and steps are already
described. It may require adjustment considering the
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Project objectives and policies
Project planning begins with the end result, the goal
and works backward.
Often the focus of project planning is on questions like
who does what and
when before such operational planning is done,
the objectives and policies guiding the project
planning exercising must be articulated.
If the project team lacks a clear goal, even excellent skills
and the best equipment will not enable the team to
do a good job.
Well
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defined
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objectives
BME,set by Lemmi Tafa(MA)
and policies serve as the 10/1/2017
framework for the decisions to be made by the
An effective project goal has the following
characteristics.
These characteristics are captured in the term
SMART, an acronym for the aspects of a goal
commitment.
These characteristics of a project goal are

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. Some of
the policies of a project are 03:

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There are two categories of drawing the project

The common traditional tool is Gantt


chart.
Work break down
Gantt chart
1. Gantt chart
It is the oldest formal planning tool designed by
Henry Gantt in 1903. Under this, the activities of
project are broken down into a series of well-
defined jobs of short duration whose cost and
time can be estimated.
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The project review dates are indicated by a vertical dotted line and at this
time a horizontal line is drawn beneath each bar to indicate the progress
actually made upto that date. The length of the progress line is then drawn to
represent the percentage of the job that has been completed at the review date.
The merits and demerits of Gantt are below:
1

: 1.

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2. Network techniques
The foundation of the approach came from the Special
Projects Office of the US Navy in 1958.
It developed a technique for evaluating the performance
of large development projects, which became known as
PERT - .
Other variations of the same approach are known as the
or
).
The heart of any chart is a network of
, showing the order in which the tasks
need to be completed and the dependencies between
them. This is represented graphically:
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Example of an Activity Network
The diagram consists of a number of circles,

such as the start or completion of a task,


and lines, which represent the tasks
themselves.
Each task is additionally labeled by its
time duration. Thus the task between
events 4 & 5 is planned to take 3 time units.
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The primary benefit is the identification of
the critical path.
The critical path = total time for activities
on this path is greater than any other path
through the network (delay in any task on
the critical path leads to a delay in the
project).
Tasks on the critical path therefore need to
be monitored carefully. The technique can
be broken down into 3 stages:
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1. Planning: (identify tasks and
estimate duration of times; arrange in
feasible sequence; Draw diagram).
2. Scheduling: (Establish timetable of
start and finish times).
3. Analysis: (establish float; Evaluate
and revise as necessary).

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for an activity is
the time between its earliest and latest start time,
or between its earliest and latest finish time.

The critical path is the path through the project


network in which none of the activities have
slack, that is,
the path for which ES=LS and EF=LF for all
activities in the path.
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A delay in the critical path delays the project.
Similarly, to accelerate the project it is necessary to
reduce the total time required for the activities in
the critical path.
Activity is an individual task needed for the
completion of a project.
Duration is the length of time (hours, days,
weeks, months) needed to complete an
activity.
Float is the amount of time that an activity
can slip past its duration without delaying
the rest of the project.
Free float is the excess time available before
the start of the following activity.
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There is a single start and end event;
Time flows from left to right (so does the numbering
sequence);
Events are given a unique number (activities then have a
unique label i.e. head & tail event numbers);
The network can then be drawn taking into account the
dependencies identified;
Working from the start event forward, calculate the
earliest times, setting the earliest time of the first event
to zero. Add the job duration time to the earliest event
time to arrive at the earliest time for the successor event.
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Where the successor has more than one activity
dependent on to the latest time is entered;
Workings from the finish event backwards, calculate
the latest times. Set the latest time to the earliest time
for the finish event. Subtract job duration from the
latest time to obtain predecessor latest event times.
Where the predecessor event has more than one arrow
emanating from it enter the earliest time;
Event slack is calculated by subtracting the earliest
event time from the latest event time;
Critical path(s) are obtained by joining the events with
zero event slack.

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