Fundamentals of Project Management101.ppt

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Fundamentals of Project Management
Tsega A. (PhD)
2024

Chapter One
Understanding the Essence of Project and
Project Management
Chapter objective
At the end of this chapter you could be able to understand
 The meaning of project and project management
 The difference between project, program and operation
 The success and failure factors of projects
 The various types of projects

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Concept of Project
The basic concept of project
The concept of project planning has originated some
70 years ago.
It appeared in USA and former Soviet Union in late
1930s
It has been widely adopted particularly in the
external funding agencies who finance public sector
projects.
The last 40 years an extensive application of
project analysis methods particularly in developing
countries were observed.
Currently managing a project is becoming exciting
new profession.

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Concepts of Project (con…)
Project managers are in great demand. They are highly
demanded nearly everywhere
 University
 Agricultural rural development
 Social works
 Individual construction projects and the like
 It appears that they are required wherever there is
work
 Any one holding a responsible position in a project is a
project manager

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Concepts of Project (con…)
 In order to understand issues related to project, we must
first understand what a project really is.
It is common to hear
 Cement project
 Power project
 Refinery project
 Road project, Etc.
While the term project is common to all of them, the
plants are not.
In each cases the project is for the plant.
 Which means as soon as the plant is operational the project is
deemed to be completed.

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Concepts of Project (Cont…)
For better understanding let us summarize how a project is
conceived first,
In a business setting an organization must grow at least for the
sake of its survival
the idea must be
 Technically feasible
 Economically viable
 Politically suitable and
 Socially acceptable
 Environmentally sustainable
Once the idea pass these test then an investment proposal is
made. When the investment proposal is approved the project
commences.
.

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The concepts of Project (Cont…)
Thus, a project is initiated to
achieve a particular mission.
 What ever the mission may be, the
project is completed as soon as the
mission is accomplished.
The project lives between these
two cut-off points.

Fundamentals of Project Management101.ppt

During Successful project completion.
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Project manager's health, but do not be pessimist for project! 10

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Definition of Project
What is project?
No definition of project will suit every
situation.
In other words there are a number of ways to
define a project.

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Definition of Project (Cont…)
According to USA Project Management Institute,
“Project is a one shot, time limited, goal
directed, major undertaking, requiring the
commitment of varied skills and resources”
It also describes a project as “a combination of human
and non-human resources pooled together in a
temporary organization to achieve a specific purpose.”
“Project is an effort that starts from scratch with a
definite mission, generates activities involving a variety
of human and non-human resources all directed to
wards fulfilment of the mission and stops once the
mission is fulfilled.”

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Def. of Project (Cont…)
ISO-8402. ( ISO document defines project as)
“A unique process consisting of a set of
coordinated and controlled activities with
start and finish dates, undertaken to
achieve an objective conforming to
specific requirement including constraints
of time, cost and resources”

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Def. Project (Cont…)
From the above all definitions we can learn that
 A project is an economic/development activity
 It requires a commitment of scarce resources
 It brings some benefit from its accomplishment
 The benefit should exceed its cost
Every project converts the given inputs into outputs
The out puts in the short run lead to outcomes
while in the long run it will result in impact

Project management
Project management is the skills, tools, and
management process required to undertake a project
successfully.
It comprises of:
 Set of skills – for success
 A suite of tools- various tools used by project
managers to improve chances of success eg-
templates, audit checklists, software …
 A series of processes and mgt techniques- to
monitor and control time, cost, quality, risk
management..

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Characteristics of Project
A project is a big-work. It is basically a work of one
whole thing
This means that while there may be contribution from
many people, it can be regarded as one whole thing.
A comparison can be made with a book
There may be many chapters in the book sometimes written
by different authors (which can be considered as sub-
project), the book is a single entity and is supposed to serve
a single purpose.
The various work that constitute the whole are inter-related
and together they tell the whole story.

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Characteristics of Project (cont…)
In the same way all works that are interrelated can
be grouped together and termed as a project
Thus, with project there is a concept of
Wholeness despite diversity of work.
The wholeness concept does exist in a factory or any
organization in any other work. But, in case of a
project the whole has to be completed in one-shot (once
for all)
There is a missionary zeal, an unknown force, pushing
people forward for achievement of something beyond
their immediate work.
.

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The special feature of project that differentiate it
from any other ongoing activities, are
Objective: A project has a fixed set of objectives. Once the
objectives are achieved the project ceases to exist
Life span: A project can not continue endlessly. It has to
come to an end at some time.
Single entity: A project is a single entity and is normally
entrusted to one responsibility centre, while participants in the
project are many.
Team work: Any project calls for team work-. The team
members may be from different
 discipline,
 organization,
 and even country
Life cycle: A project has a life cycle reflected by growth,
maturity and decay.

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Uniqueness: No two projects are exactly similar even if the
plants are exactly identical or are duplicated.
 the location,
 the infrastructure,
 the agencies and
 the people make each project unique.
Change: A project sees many changes through out its life.
While some of these changes may not have any major impact,
there can be changes which will change the entire course of
the project.
Unity in diversity: A project is complex set of varieties.
Varieties in terms of
 Technology
 Equipments and material
 People and machinery
 Work culture and ethics
But they remain interrelated

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High level of sub contracting : A high
percentage of a work in a project is done
through contractors. The more complex is a
project, the more will be the extent of
contracting.
Risk and Uncertainty: Every project has a risk
associated with it.
The degree of risk and uncertainty will depend on
how a project has passed through the various
stages its life cycle.

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Project Vs program
A project is normally originated from a plan
which can be a national plan or corporate plan.
Some people use the term ‘project’ and
‘program’ interchangeably. However, there is a
quite difference between the two.

PROJECT
C
PROJECT
B
PROGRAM A
PROJECT
A
PROJECT
D
PROJECT
E
A group of related projects managed in a coordinated fashion to satisfy the objectives
of a program
1
Fanta Tesgera (PhD)

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Program
Program in general is a group of related
projects that are managed in a coordinated
ways to achieve certain objective. Any
development plan can be considered as a
program
A program is thus,
 larger in scope,
 activity oriented
 not necessarily time bound and
 its objectives are broader

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Program (Cont …)
Example,
The national goal: Poverty Eradication
Strategy: Increase productivity ( in all sectors)
Development program: Increase agricultural productivity
This may result in a number of projects like,
Construction of dams ( irrigation infrastructure)
Upgrading the skill of agricultural practices
Construction of training centers
Health program may have a number of projects like,
Construction of hospitals
Training of health officers
Expansion of health centres

Project versus operation
Project
Projects are unique and temporary
Projects have a fixed budget,
Projects are executed to start a new
business objective and terminated
when it is achieved,
Projects create a unique product,
service, or result,
There are more risks in projects as
they are usually done for the first
time,
Projects are performance intensive
a project can produces an output.
 If it is construction-related, the
output will be any physical structure.
 If it is a research-related project, it
may produce a report
Operation
while operations are ongoing and
permanent , with a repetitive
output.
while operations have to earn a
profit to run the business.
while operational work does not
produce anything new and is
ongoing.
while operations produce the
same product, aim to earn a profit
and keep the system running.
while in operations there are
fewer risks as they are repeated
many times.
while operations are efficiency
intensive.
Eg Production, manufacturing, and
accounting are examples of operations.

Project versus operation ….
Example: Assume you were given a project to build a car
manufacturing facility.
You build the facility and deliver it to the client. Your job is
completed, and the client has started manufacturing cars.
 building the facility is an example of a project, because here you
constructed a car manufacturing facility and handed it over to the
client and signed off.
 However, once the facility starts working and the car
manufacturing process begins, this is an example of operations,
because here the facility is producing a repetitive output, cars.

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Classification of Project
Revenue Vs capital project
Project can come in many size and form. They may be very
simple or complex. Major project types are two. These
are,
Revenue project: Are those which can be carried out within the normal organizational structure and normally will be completed
within a single accounting period.
Capital Project: Are those which can not be carried out
within the normal organizational structure and are normally
stretched over a number of accounting periods.
In practice many projects fall between these two broad
categories

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Classification of Project (cont …)
Capital project always require considerable capital
investment.
The main feature of capital projects are,
 They usually occupy considerable time
 They usually employ huge capital investment
As a result they do not fit readily into conventional
organizational structure but cut across functional
and time boundaries and thus, require an
organizational structure particular to themselves.
When we say project we are mainly referring to the capital projects.

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In general, projects, be it revenue or
capital, can be classified from different
perspectives.
a) On the basis of time horizon
project can be
Long term project : Power plant project
Medium term project : Construction of a
factory
Short term project: Exhibition, trade fair

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b) On the basis of the type of output:
Project producing tangible Products : Oil mill
Project providing services: Telecom project,
Education etc.
c) On the basis of the scope of the project:
International project : Euro tunnel project
National Project: Eth Hydro power project
Regional Project: Elementary school project
d) Based on the economic sector:
Agricultural project: Irrigation project
Industry project : Cement Project
Service sector project : Bank projects

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e) On the basis of technology:
Capital intensive project : Brewery project
Labour intensive project : Textile industry
project
f) Based on location :
Rural Projects
Urban project
g) On the basis of the nature of the project
Independent project : Hospital, Hydroelectric
power
Complementary project : Airport project, Run Way
and airport services are different projects which
are complementary to each other.

Group discussion (10’)
List exhaustively the success and failure
factors for a project?
What do you think is the importance of
project management?
What do you think is the difference between
projects and standard business activities?

Project Success Criteria
-On time
-On budget
-Meeting the goals that have been agreed upon

Reasons for Project Failure
1. Poor project and program management discipline
2. Lack of executive-level support
3. No linkage to the business strategy
4. Wrong team members
5. No measures for evaluating the success of the
project
6. No risk management
7. Inability to manage change

 Project Management Knowledge (PMOK) refers to
knowledge standards or guides for application in the project
management environment, or
 They refer to bodies of knowledge and competency
standards, which project management practitioners need to
know to perform projects successfully.
 The PMOK areas include the following:
Fanta Tesgera (PhD)
1.4 Project Management Body of Knowledge (PMOK)

 Project Scope Management
 Project Quality Management
 Project Cost Management
 Project Time Management
 Project Risk Management
 Project Procurement Management
 Project Communication Management
 Project HR Management
 Project Stakeholders Management
 Project Integration Management
1.4 Project Management Body of Knowledge (PMOK)

09/16/24 Fanta Tesgera (PhD) 2
World Bank PLC
Project Life Cycle

Fanta Tesgera (PhD)
Africa Development
Bank PLC
Project Life Cycle

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An Overview of Project cycle (Cont…)
The European Commission/Europe Aid Approach
This approach consists of six phases and has
been considered as the most recent approach
developed as guideline for development
projects:
 Programming
 Identification
 Appraisal
 Financing
 Implementation
 Evaluation

PMI: Project Management Institute: A
Professional Institute coins the cycle in terms of:
 Initiating
 Planning
 Executing
 Controlling
 Closing
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However, in most literature and guide books
the stages or phases of projects are
divided into six phases and this approach
is preferred in this discussion:
Identification
Pre-feasibility study.
Feasibility study
Selection and project design
Implementation.
Termination/closure/Ex-post evaluation

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I. Identification
Project starts by generating potential idea
that can be converted into a meaningful
project.
Project identification involves finding project
idea, which could contribute towards achieving
specified business/development objectives.
In many cases, projects start as a simple idea
and later on grow up into a full-fledged project.

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If the project is a private project the
initiating entity will define the
concept,
expectation and
objectives of the project.
Identification (Cont …)

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II. Pre feasibility study
After we have identified project ideas the next step is
project preparation and analysis.
Project preparation includes both Pre-feasibility and
Feasibility studies
Once a project idea is identified a preliminary project
analysis will be done (i.e., pre-feasibility study).
Which means the project idea must be elaborated in
sort of study.

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Pre feasibility study (Cont…)
Why pre-feasibility study?
Because, undertaking a feasibility study that
enables a definite decision to be made on the
project is a costly and time – consuming task.
Therefore, before assigning larger funds for
such a study, preliminary assessment of the
project idea might be made in a pre-feasibility
study.
In the pre-feasibility study stage, the analyst
obtains rough estimation of the major
components of the project’s costs and
benefits.

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Pre feasibility study (Cont…)
Some of the main components examined during
the pre-feasibility study include:
 Need assessment=Availability of adequate market
(or beneficiaries)
 project growth potential
 investment costs, operational cost and
distribution costs
 demand and supply factors; and
 social and environmental considerations
If the project is appeared to be sound the
next sages is a feasibly study.

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III. Feasibility study
Pre – feasibility study should be viewed as
an intermediate stage.
A feasibility study should provide all data
necessary for an investment decision.
 Technical,
 Financial,
 Economic and
 Environment
because an investment project should be
defined and critically examined.

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Feasibility study (Cont …)
Therefore, the structure of a pre –
feasibility study should be the same as that
of a detailed feasibility study.
The major difference between them lies on
the amount of work required in order to
determine whether a project is likely to be
viable or not.

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Feasibility study (Cont …)
Once the project is decided as viable using
pre-feasibility study, finally, the feasibility
report should include (but not limited) the
following analysis:
 Market analysis
 Technical analysis
 Organizational analysis
 Financial analysis
 Social – economic analysis, and
 Environmental analysis

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IV. Selection (project appraisal)
The feasibility study would enable the project
analyst to select the most likely project out of
several alternative projects.
Selection follows, and often overlaps with the
feasibility analysis.
It addresses the question
 is the project worthwhile?
A wide range of appraisal criteria have been
developed to judge the benefits of a project.
The criteria are divided into two broad categories:
 non-discounting criteria and
 discounting criteria.

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V. Implementation
The objective of any effort in project planning
and analysis is to have a project that can be
implemented to the benefit of the society.
After the project is prepared and evaluated, the
next step is implementing the project.
Implementation is the most important part of the
project cycle.
In this stage,
 funds are actually disbursed to start the
project and keep running
 contracts are signed

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Implementation (Cont …)
• A major priority during this stage is to
ensure that the project is carried out in
the way and within the period that was
planned.
All the stages of implementation should be
completed with in the time schedule
allotted.

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Implementation (Cont …)
However, Problems frequently occur when
the economic and financial environment
at implementation differs from the
situation expected during appraisal.
For example, price or political environment may
change
Due to these facts, project implementation must
be flexible and original proposals are modified
frequently to capture these changes.

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VI. Termination and then evaluation
Terminate the project
Expost-Evalutn= Once a project has been carried
out the actual progress with the plans should be
evaluated in order to judge whether the decisions
and actions taken were responsible and useful.
However, evaluation is not limited only to completed
projects.
The evaluation may be done by ,
 the project management,
 the sponsoring agency,
 or other bodies.

Next, chapter 2, we will see the detail
of identification
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Chapter II
Project Identification (Idea Generation)
Reading assignment
Where can you find project idea?

The search for promising project idea is the
first step towards establishing a successful
venture
As traditional saying goes
“ the key to success lies in getting into the
right business at the right time”
Identification of meaningful project idea
requires,
 Imagination
 Sensitivity to environmental changes
 Realistic assessment of what a firm or
organization can do
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Idea Generation (Cont …)
There are certain broad guidelines which are
helpful in the generation and screening of
project ideas
Project identification commonly follows the
following procedure
1. Generation of ideas
2. Monitoring the environment
3. Corporate appraisal (self assessment)
4. Preliminary screening
5. Project rating index.

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2.1. Generation of ideas
To stimulate the flow of project idea the following
are helpful
i. Analysis of Strength, Weaknesses, Opportunities
and Threats (SWOT):
 SWOT analysis represents a conscious and deliberate ,
and dynamic effort by an organization to identify
opportunities that can be exploited.
 Periodic SWOT analysis facilitates the generation of
new idea

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Generation of Ideas (Cont …)
ii. Clear articulation of objectives
 The operational objectives of the organization may help
to generate ideas
 The operational objective of business firm for example,
 Cost reduction
 Productivity improvement
 Increase in capacity
 Expansion and growth
 New startup
Can be helpful in generating the project idea

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3.2.Monitoring the environment
In other words the organization is
expected to monitor the following key
environmental factors in relation to each
of identified ideas.
Economic aspects
State of the economy
Possible fluctuation in the economy
The degree of integration with the world
economy

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Monitoring the environment (Cont …)
National policy
Sectoral policy
Government program
Tax policy
Government support
Financial policy
Technological factor
Availability of technology
Accessibility of the available technology

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Monitoring the environment (Cont …)
Socio demographic factor
Population size and distribution
Education level
The nature of competition (for
business firms
Number of firms in the industry
Nature of entry
Nature of input supply
Availability
Cost of row material

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2.3. Self assessment and scouting the
project idea
• Analyze the industry (sector) and analyzing the
organization in terms of,
Its capacity (I.e., whether the organization has the
capacity to implement or to put into practice the
proposed idea).
• Review its innovativeness
• Study government plan,
• It will help to see if the idea is in line with the government
priority area
To check if there are guideline that need to be followed if
the project idea is acceptable.
f) Suggestion of financial institutions and
development agencies. (is it priority to them)

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3.4. Project rating index
For that purpose a preliminary
evaluation may be translated into a
project rating index.
Steps involved in the process of the
project rating index are,
Identify factors relevant for project
rating
Assign weight to those factors ( the
weight are suppose to reflect their
relative importance)

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Project rating index (Cont…)
Rate the proposed idea on various
factors using a suitable rating scale
(typically a 5-7 point scale is used)
For each factor, multiply the factor
rating with the factor weight to get
the factor score
Add all the factor score to get the
overall project rating index
The following table illustrate the
determination of the project rating
index

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Factors
Factor
weight
VG
5
G
4
A
3
P
2
VP
1
Factor
score
Input availability 0.25 X 0.75
Technical know how 0.1 X 0.40
Reasonableness of cost 0.05 X 0.20
Adequacy of market 0.15 X 0.30
Complementary relationship 0.05 X 0.20
Stability 0.1 X 0.5
Dependency on firm’s
strength
0.2 X 0.2
Consistency with government
policy
0.1 X 0.1
Total 1.00 3.15

Homework
Initiate a project ideas for your
respective group and you are going to
develop a project proposal
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project identification: Further analysis
Stakeholders analysis
SWOT analysis
Problem analysis
Objective analysis
Alternative Tree Analysis
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Problem tree analysis: Example
Subject of the workshop is food
security, the possible problems mentioned in
relation to this subject are:
Food production
decreasing
on hills
 Dikes are degraded
Soil fertility on hill slopes
is decreasing
Soil erosion on hill slopes
Irregular supply of inputs
for rice production
High immigration rates
Irrigation water does not
reach fields in desired
quantity


Ethnic clashes
districts
in neighboring



Food shortages
High incidence of
malnutrition
Canals are blocked
Rice production in low
decreasing
Poor maintenance of
irrigation facilities





 lands

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Problem Tree
rates
districts
degraded
Poor maintenance
system for irrigation
facilities
Cause
Dikes are
Canals are
blocked
Soil erosion on
hill slopes
Effect
Ethnic clashes in
neighboring
Soil fertility on
hill slopes is
decreasing
Irrigation water does
not reach field in
desired quantity
Irregular supply of
inputs for rice
production
High immigration
Food production
on hills decreasing
Rice production in
low lands
decreasing
Food shortages
High incidence of
malnutrition

Chapter III
Project preparation and feasibility analysis
Objective
At the end of this secession, you
could be able to understand and
practice
 The technical, economic, financial, social
and environmental analysis of a project
 The way of appraising / selecting a
project
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Project Preparation…..
After Identifying promising project idea, the next
step is project preparation or developing the
idea into project and analyzing it further.
Project formulation ( preparation) involves the
analysis of a number of factors like,
1. Market analysis
2. Technical issues,
3. Economic
4. Social aspect
5. Financial aspect
6. Location, Site and Environmental aspect
7. Institutional, Organizational and Human Resource
.

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3.1. Market Analysis
is to estimate the potential size of the market or
beneficiaries.
This is done in order to get an idea about the
size of the market or customers in need of the
good or service.
The market demand analysis is concerned with
two questions:
 What would be the aggregate demand of the
proposed product/service in future?
 What would be the expected market share of
the project under appraisal?

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Market and Demand Analysis (Cont…)
To address the above two questions, we require
information about the following issues:
 Consumption trends in the past and current
consumption level.
 Past and present supply positions.
 Production possibilities and constraints.
 Imports and exports (when necessary).
 Structure and nature of competition.
 Elasticity of demand.
 The nature of the customers, their attitudes, and
preferences.
 Distribution channels and marketing policies in use.
 constraints (Administrative, technical, and legal, etc)

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Market and Demand Analysis (Cont…)
Given the importance of market and demand
analysis, the analyst is advised to follow the
following steps:
 Situational analysis
 Collection of necessary information (both
primary and secondary)
 Characterization of the market
 Demand forecasting
 Market planning

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3.1.1.Situational analysis and
specification of objectives
This analysis is used in order to get general
picture and basic information about the
industry and /or the sector in general.
In this analysis the project analyst may
informally talk to:
Customers,
Competitors,
middlemen,
and others in the industry (sector )

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Situational analysis spec. objectives (Cont …)
It is advisable to clearly spell out the
operational objective of the project.
The best way of spelling out the objective would
be to put the operational objectives in the form
of questions.
Example
Suppose Dukem Flour Factory is considering to
expand its business activity by producing Biscuit.
In undertaking the situational analysis, there is a
need to clearly spell out the specific objective of
the project.

109
Situational analysis (Cont …)
For the sake of spelling out the objective it
could put relevant issues in the form of
questions like,
Who are the potential customers of the
product?
What is the total current demand for biscuit
in the town/in the country?
How is the demand currently distributed?
What is the current price of the product and
what price will the consumers be willing to pay
for the product?

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Situational analysis (Cont …)
Do consumers need the new biscuit product
as a substitute for the biscuits in the
market?
What is the nature of distribution and
what market channels are most suited for
the product?
What are the possible sales of the
product ?

111
3.1.2. Collection of necessary Information
In order to address the above questions, formal
study may be needed if the situational analysis
fails to address all of them adequately.
Further investigation requires collecting
necessary information from variety of sources.
These sources are:
 Secondary sources : Provide secondary
data (basic)
 Primary sources: Provide primary data eg. Mkt survey –
customers motives to buy, satfn from existing product, preferces

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Collection of Information (Cont…)
Some of the sources of secondary information
are:
 Census data
 National sample survey
 Records of different organization and market agents
 Plant report
 Newspapers
 Etc.
However, the relevance, accuracy and reliability
of the data has to be carefully scrutinized.

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3.1.3. Characterization of the market
On the basis of the collected data and its
analysis, the market for the product or
service may be described in terms of the
following aspects:
a) Effective demand in the past and present:
This is measured by the actual consumption
level.
b) Breakdown of demand : In order to get a
better picture about demand, it is better to
breakdown the entire market into demand of
different segments of the market .

114
Characterization of the market (Cont…)
The market can be segmented on the basis of
different characteristics like,
Income group
Geographic Location
Sex
Age category
Religion, etc
Segment analysis is required because the nature of
demand (consumption) vary from one segment to
another. (e.g. Consumers in high income group
tends to be less sensitive to price change ).

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c) Prices: Price analysis is important in order to
distinguish different types of prices like,
 Manufacturing price
 Whole sale price
 Retail price
d) Methods of distribution: method of distribution
varies with the nature of the product.

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e) Suppliers: The market need to be characterized
in terms of supply of similar products.
Sources of supply
Location of suppliers
Present capacity
Planned expansion (if any)
Problems in production
Cost consideration ( if possible)
f) Government policy: The market is
characterized in terms of the prevailing
government policy regarding the market.

117
Demand forecasting
After collecting information from varities of
sources, the next step is to estimate or forecast
future demand
There are different forecasting techniques:
 Qualitative method
 Statistical methods
a) Qualitative Methods
These methods are more difficult to describe since
there does not exist explicit model or method that can
serve as a reference point.

118
Demand forecasting (Cont…)
This method relies on the judgment of experts to
translate qualitative information into quantitative
estimates.
The major qualitative methods are,
 Jury of Executive Methods
 Delphi Method

119
Jury of executive opinion methods: this method
involves soliciting the opinion of a group of
managers/ experts on expected future sale and
combining them into a sales estimate.
Delphi method: This method involves converting the
views of a group of experts, (do not interact
directly to each other), into a forecast through
an iterative process.
That is, there is no direct contact between
experts selected for this purpose.

120
b) Statistical Methods
This method employs explicit models or methods
that can be replicated by another analyst.
That is, the result of statistical method can
be replicated by different researchers.
The statistical methods are categorized into,
Time Series, Econometrics model

121
i. Time Series Model: Uses only the time-series
history of the variable to predict the future value.
The focus of time series analysis is to identify the
components of change in the historical data.
Traditionally these components are,
Trend: It is a long term increase or decrease in the
variables. (e.g. The time series of human
population of Ethiopia exhibited an upward trend)
Seasonality Component: Represents changes that
occur at regular interval. (e.g. A large increase in
meat sales in the month of April and fall in the
months of February and march would be an
example of seasonality).

122
Random fluctuation: Variables that do not follow any
pattern; are not predictable.
Various methods can be used to determine trend,
seasonality, and cyclical pattern using time-series
data..
It is necessary to specify a mathematical model

123
There are a number of forecasting method. Some
of them are,
Linear Trend projection method: very popular in
practice, the trend projection method involves
extrapolating the past trend on the future.
Exponential smoothing: in this method, forecasts
are modified in the light of observed errors.
Moving average method: in this method, the
forecast for the next period represents a simple
arithmetic average or a weighted arithmetic average
of the last few observations.

124
4.2. Technical Analysis
The purpose of technical analysis is
To select the most optimal formulation of the
project in terms of technology, size and location
task of engineering to design the functional and
physical layout of the plant in order to produce
the needed output
and
The determination of the corresponding
investment expenditure and costs arising during
the operational phase

125
Technical Analysis (cont…)
How to evaluate technology?
Technology should be evaluated in terms of:
 Whether the technology utilizes local raw
materials
 Whether the technology utilized local man
power
 Whether the technology protects ecological
balance
 Whether the technology is harmonious with
social and cultural conditions

126
Technology which is most appropriate in
industrialized economies may not necessarily
be appropriate in the developing countries.
Thus, the project planner needs to have a
good knowledge of the present trends in
technology development and local conditions
to evaluate all possible technological
alternatives

127
When selecting a particular technology we
have to considered issues like,
 The trade – off between the capital and labor
intensive technologies
 countries which have more capital resources than
labor, capital – intensive technologies may be
appropriate and economically justified
 On the other hand, countries with excess labor
resources, labor saving techniques may prove
unnecessarily expensive and erroneous

128
In addition the technology should also be
evaluated with regard to its
environmental impacts.
Critical elements such as;
 Economic use of raw materials
 Low emission technologies, and
 Low – waste production processes must be
considered for the selection of suitable
technologies

129
3.3. Institutional and Social aspects
Institutional aspects incorporate the socio-
cultural patterns and institutions or the
population that the project is believed to serve.
Does the project takes into account the cultural
setup and customs of the beneficiaries? Or
Will it disturb the accepted pattern norm and
believe?
If so how should this be included as part of the
project design

130
Institutional and Social aspects (Cont…)
Thus, a Project analyst needs to examine the
broader social implications of the proposed
project.
This is particularly related to,
the income distribution implications of the project
in relation to employment creation,
The displacement impact of the project,
The gender implication of the adopted technology;

Group exercise
Make a rough market and Demand
Analysis for your project?
131

Financial analysis and projection
Specifically here we will focus on the estimation
and projection required for financial appraisal.
Issues focused in this part are,
• Estimating Cost of project
• Means of Financing the project
• Estimation of sales and production
• Cost of production
• Estimation of working capital requirement
• Cash flows in financial analysis

5.1. Cost of project
The cost of project represents all cost items
associated with a project
It is the sum of the outlays on the following
items,
1. Land and Site development: This includes
costs related to
 Basic cost of land
 Lease payment
 Cost of leveling and development
 Cost of road (internal), Etc
Cost of land varies from one location to another.
Similarly cost of developing the land varies as well

Cost of project (Cont…)
2. Buildings and civil works:
Costs of building and civil works include costs like,
 Cost of building for the main plant and equipments
 Building for auxiliary service like workshop,
laboratory, etc.
 Warehouse, and open yard facility
 Non factory buildings like canteen, gust house,
offices etc.
 Silos, tanks, wells, bins, and other structure
 Garage
 Drainage, etc
The cost of building and civil work depends up on the
kinds of structure required

3. Plant and machinery:
This is the most significant component of project
cost which includes,
• Cost of imported machinery which might include
shipping freight and insurance costs, import
duty, clearing, loading, unloading, and
transportation costs )
• Cost of locally produced machinery
• Cost of spares
• Foundation and installation charges
These cost estimation has to be based on the
latest price quotation

4. Technical know-how and engineering fees:
Either local or foreign consults will be required
to advice and help in different technical matters
such as,
 preparation of project report,
 choice of technology,
 selection of the plant and machinery etc.
Thus, the amount payable for such technical know-
how is one of the components of the project
cost and is included in cost estimation

It also include costs like expenses on
foreign technicians and training of local
staff
Here belongs costs like
• Travel expense
• loading
• Salary and allowances

5. Miscellaneous fixed asset :
This include costs like
 Furniture
 Office machinery and equipment
 Tools
 Vehicles, etc.
6) Preliminary expenses:
 Expenses incurred for identifying the project
 Conducting market survey
 Preparing feasibility report

7. Pre-operative expenses:
These are expenses incurred till the commencement
of production. These are costs like
 Rents and taxes
 Traveling expenses, interest and commitment
charges on borrowings
 Insurance charges
 Mortgage expenses and interest on differed
payments,
 Miscellaneous expenses

8) Provision of contingency:
A provision for contingencies is made to
provide for certain unforeseen expenses
and price changes

5.2. Means of finance (Project
financing)
After projecting or estimating the cost of the
proposed project , the next step is to identify
means of financing the project.
That is, to identify the sources of finance.
The major sources of finances are
Capital (equity) financing
Loan financing (debt financing)
Supplier credit (credit financing)
Incentive sources

Project financing (Cont…)
1. Capital (Equity Financing):
On way of financing the project is by issuing equity.
Equity and long term investment are often used
to cover the initial capital investment for an
industrial project and to meet working capital
requirements.
When institutional capital is scarce and cost of
borrowing is very high, equity capital covers the
initial capital investment and working capital
requirement.

2. Loan (debt) financing:
• Another way of financing the project is through
external sources, i.e., debt financing.
• In many countries it is relatively easy for a
sound project to get loans from financial
institutions
• the financial analysis will identify such sources
and the extent to which loan capital can be
secured, (with the interest rate)
• Short and medium term loan can be obtained
from commercial banks or from suppliers credit
for working capital

• Long Term Loans: Such loan is usually subjected to
certain regulations (convertibility to share).
Investment may also be financed partly by issuing
bonds.
• An important source of finance is also available at
government-to-government level.
• This can be a bilateral credit or tied credit, which may
be related to the purchase of machinery and equipment
from particular country or sources.

3. Suppliers credit (credit financing):
• Imported machinery and spares can often be
financed on deferred credit term.
• Machinery suppliers are usually willing to sell
machinery on deferred – payment terms with
payments is spread over 6 to 10 years
 This means, payment for the purchase of plants and
machinery can be made over a period of time

4. Debenture capital:
Akin to promissory notes they are an instrument
to raise fund (debt financing). These are two
types,
• Non convertible and convertible debenture
• Non-convertible debenture: these are debt
instruments which will be redeemed at the date
of maturity.
• They pay a fixed amount of interest and usually have
5 to 10 years of maturity.
• Convertible debenture: these are partly or
entirely convertible into a certain amount of
equity (share) after certain period of time

5. Incentive Sources:
• The government and its agencies may
provide financial support as an incentive
to certain types of projects or for
setting up industrial units in certain
location
This incentive may have a form of
• Seed money (seed capital investment)
• Capital subsidy

5.3. Estimation of sales and production
The starting point for profitability projection
is an estimation of production and sales.
This helps to estimate potential revenue of the
project
In estimating sales revenue the following issues
should be considered
a) It is advisable not to assume a high capacity
utilization level in the first year of operation.
This is because, even for simple technology and
with no technical problem, firms may face
other constraints like,

Estimation of sales and production (Cont…)
 Row materials
 Limited power supply
 Marketing problem
 And other unexpected constraints
Thus, it is advisable to assume that the
capacity would be somehow lower in the
first year of operation.
Gradually the level is increased year by
year and at third and fourth years of
operation the full capacity utilization
can be assumed.

A reasonable assumption with respect to
capacity utilization would be,
 40-50% in the first year
 50-80% in the 2nd year of operation
 80-90% year three and above
b) It is not necessary to make adjustment for
stock in the first year of operation.
That is, it is better to assume that production =
sales
c) Selling price considered should be realistic and
the price considered should be on the basis of
the current price

Production
Production
S.N
S.N Items
Items
1
1st
st
year
year 2
2nd
nd
year
year 3
3rd
rd
year
year 4
4th
th
year
year
1
1 Installation Capacity (Qt per day)
Installation Capacity (Qt per day)
2
2 Number of working days
Number of working days
3
3 Number of shifts
Number of shifts
4
4 Estimated production per day
Estimated production per day
5
5 Estimated annual production (Qt)
Estimated annual production (Qt)
6
6 Estimated output as % of plant capacity
Estimated output as % of plant capacity
7
7 Sales (quantity) after adjustment
Sales (quantity) after adjustment
8
8 Value of sales
Value of sales

5.4. The cost of production
Given the estimated level of production, the cost
of producing the estimated amount can be
worked out
The major components of cost of production are:
 Material Cost
 Utilities cost
 Labor cost
 Overhead cost
 Other costs
For instance, for an agricultural project the
following costs can be considered as costs of
production

The cost of production (Cont…)
Material cost: These costs are comprise of
the cost of raw materials such as
 seeds,
 chemicals,
 fertilizer and
 pesticides ,
 concrete for irrigation canal construction,
 material for the construction of buildings
 and consumable supplies required for
production.

Utilities: consisting of power, water, and fuel are
production cost components.
Labor: this is the cost of all manpower/wage
salary/ employed in the farm- consider the project is farming.
• It will not be difficult to identify and quantify
labor required for the production process.
• From the highly skilled manager to the unskilled
daily laborer requirement can easily be identified.
 Problems may be in the case of valuing unskilled
labor and family labor Row material
requirement estimation

Farm’s Overhead: the expense on repairs and
maintenance, rent, taxes, insurance on farm’s
assets, etc. are collectively referred as farm
overheads
Land: The land needed for the project can also be
easily identified and quantified.
• It will not be difficult to know how much land is
need and its location.
• However, problems might arise in valuing land
because of the special kind of market conditions
that exist when land is transferred from one owner
to another.

Contingency allowances: are usually included as a
regular part of the project cost.
In general project costs estimates are assume
that there will be no relative changes in
domestic or international prices and no inflation
during the investment period is expected.
• It was not also assumed that there will be
modification in design, no exceptional
conditions such as unanticipated
environmental conditions like,

 flood,
 landslides,
 or bad weather
It would be unrealistic to base project cost
estimates entirely on these assumptions of
perfect knowledge and complete price
stability
Thus, provision has to be made in advance for
possible adverse changes in physical
conditions or prices that would add to the
baseline cost

Taxes: payment of taxes including tariffs and duties
are also considered
Debt service: the same approach applies to debt
service - the payment of interest and the repayment
of capital.
• Both are treated as an outflow in financial analysis.
Sunk costs: sunk costs are those incurred in the past
and upon which the proposed new investment will be
based.
• When we analyze a proposed investment, we consider only
future returns to future costs; expenditures in the past or
sunk costs do not appear in our account

. Cash flows in financial analysis
• Investment has been defined as a long-term
commitment of economic resources made with
the objective of producing and obtaining net
gains in the future.
• Cash flows are basically either receipts of cash
(cash inflows) or payments (cash outflows)
• that will be generated by the project over its
economic life.
• Cash out flows are typically broken into
• investment or
• operating costs.

5.6.2. Components of the cash
flow stream
• The project cash flows are defined with the help of
inputs (information) provided by marketing, production,
engineering, costing, purchasing, and other departments.
The cash flow of a project usually has:
 An initial investment
 Operating cash inflows
 A terminal cash flow
The initial investment: represents the relevant cash outflows when
the project is set up.
The operating cash inflows: are the cash inflows that arise from
the operation of the project during its economic life.
The terminal cash flow: is the relevant cash flow occurring at the
end of the project life on account of liquidation of the project

Components of the cash flow stream (Cont…)
As cash flows have to be forecasted far into the
future, errors in estimation are bound to occur.
Thus, in estimating the future cash flow of a
project, adequate care should be taken to minimize
biases, which may lead to over-estimate or under
statement of project profitability
An important consideration is to discount all income
generated in the future
• In an inflationary period, one birr today
represents a greater real purchasing power than
one birr a year from now.

Generally,
time value of money is required.
Considering that a project may obtain a
certain amount of funds F, if this sum is
repaid after one year including an agreed
interest I, the total sum to be paid after one
year would be (F + I), where
F + I = F (1 + r)

The general formula for the future value of a
single amount is
FV = PV (1+r)n
Where:
FV = Future value
PV = Amount today (present value)
r = Interest rate per year
n = Number of years for which compounding is
done.

5.6.3. Biases in cash flow estimation
Since cash flows have to be forecasted far into
the future, errors in estimation are bound to
occur.
However, given the importance of cash flow
forecasts in project evaluation, adequate care
should be taken to guard against certain biases,
which may lead to
 over statement or
 understatement of
future project profitability. Let us now look at
causes of such biases.

Biases in cash flow estimation (Cont…)
I. Overstatement of Profitability
• Profitability is often overstated because the
initial investment cost is under - estimated and
the operating cash inflow exaggerated.
• The major reasons for such optimistic bias
appear to be
• Intentional overstatement: project promoters
may intentionally over-estimate the benefits
and under-estimate the costs.
• Lack of experiences: inadequate experience on
the part of project promoters generally leads
to over-optimistic tendencies..

Myopic Euphoria: individuals responsible for
preparing forecasts may become too involved and
lose their sense of proportion unintentionally.
(This lack of objectivity is not due to lack of
experience)
Capital rationing: companies typically operate
under capital rationing which may be externally
determined or internally imposed. Awareness of
such constraint induces to exaggerate the
benefit of the project.

II. Under-Statement of profitability
There could be an opposite kind of bias
relating to the terminal benefit which may
understate a project’s true profitability.
This can happen if:
• Salvage values are under-estimated
• Intangible benefits are ignored

168
Environment Analysis
Environmental assessment is increasingly getting
importance in any project appraisal.
Ignoring the environmental aspects or
underestimating its importance may result in
negative outcomes such as:
Poor human health,
Socioeconomic problem
Depletion of natural resources,
Decreasing productivity and thereby undermining
development
And other irreversible consequences

169
Environment Analysis (Cont…)
Thus, when a new project is planned an
environmental assessment should be carried out.
In most jurisdiction (country) an environmental
assessment is mandatory before permission is
given
This is the case for major development projects
such as
 Power Plants,
 Flood control system,
 Dam construction,
 Mining projects, etc

170
What is Environmental Impact
Assessment ?
The term ‘Environmental Impact Assessment'
(EIA) refers to a procedure that must be
followed for certain types of project before
they can be given 'development consent'.
The procedure is a means of systematically
assessing a project's likely environmental
effects
This is important because,
 the scope of the predicted effects
 and ways of reducing them,
will be properly understood by the public and by the
concerned authority before making any decision.

171
Background of EIA
Early 1950 EIA for development projects were
undertaken particularly
 North America,
 Europe, and
 Japan
The main objective was to ensure that public safety
and health were adequately protected.
Separate documents were submitted to each of the
regulatory agencies.
 water authority
 air pollution control branch, etc.
The document were reviewed by the appropriate
regulatory bodies.

172
EIA (Cont…)
At early stage the focus was on measurable
physical factors, (for factors there were
standards and codes)
 air quality,
 water quality,
 solid waste disposal
After a few years EIA, began to include biological
and ecological factors even if they were difficult
to quantify.
More recently the EIA were broadened further to
include socioeconomic factors (employment
opportunity, cultural impact, etc) so that trade
off among socioeconomic and environment factors
could be evaluated.

173
Why EIA?
i. Environmental impact assessment enables
environmental factors to be given weight,
along with economic or social factors, when
any project is considered.
ii. It helps to promote a sustainable approach to
 physical development,
 land and natural resource use,
 and property use
in cities, towns and the countryside.

174
Why EIA? (Cont…)
iii. For developer’s EIA may indicate ways in which
the project can be modified to avoid possible
adverse effects,
(through considering more environmentally friendly
alternatives (taking such steps will make the approval
of the project more smooth)
iv. For the authority with environmental
responsibilities, EIA provides them a basis for
better decision making.
The provision of more comprehensive information
should enable them to make swifter decisions.

175
Why EIA? (Cont…)
v. For the general public's, EIA provide a full
analysis of a project's effects, and the
developed document called an Environmental
Impact Statement can help to allay fears
created by lack of information
In general, with the EIA the likely effects of
new development project on the environment
are fully understood before the development
activity is allowed to go ahead

176
EIA (Cont…)
In many countries the EIStamnt is open to public
scrutiny and may be reviewed at public hearing
But the decision is made at political level. The
decision can be ,
Accepting the development
Accept an amended form of the proposed
development
Accept an alternative proposal or
Reject the development
Often a base line report must be prepared for
submission in advance the EIS

177
Contents of the EIS (Cont…)
a) Physical: These are, for instant,
 earthquake probabilities,
 water quality in ground water,
 rivers, and lakes;
 soil and air quality
Using scientific practices prediction of
physical impact are relatively easy to make.
There are several method that can be
employed to do this analysis

178
b) Biological and Ecological: here included issues related
to
 Vegetations,
 wildlife,
 and endangered species are some of the examples
Prediction of biological and ecological impact is much
more uncertain.
This is because, living organisms are subjected to many
natural stresses like,
 drought,
 floods,
 overgrazing as well to stresses created by
society.

179
In addition living organisms are highly adaptive.
As a result their reaction to multiple
environmental stress are not always
predictable
c) Socioeconomic: These include,
 Demographic,
 economic,
 and social value and attitude:
Prediction of socioeconomic impact are also
extremely uncertain even in a qualitative
sense.

180
Project category (cont…)
Not all projects need EIA to the same degree and intensity.
Size: large projects are more likely to require more
detailed assessment.
Location: Projects that are being implemented in
environmentally sensitive areas are liable to need
further assessment.
Complexity: A project that has a number of different
components is likely to have many environmental
impacts thereby it needs more consideration.
Type of project: Projects such as mines and dams are
liable to cause more environmental impacts than other
projects thereby they need careful consideration.

181
The UN environmental program, categorized projects
under four categories:
Category A: category “A” projects are those projects
and components that have diverse and significant
environmental impacts. These are projects like,
 Dams,
 mineral development,
 resettlement and urban development are some of the
examples.
These types of projects require full EIA.
Category B: Category “B” projects are those projects
that have specific environmental impacts. Small scale
projects can be categorized under this category

182
Category C: Category “C” projects are those
projects that do not result in significant
environmental impact. Here belongs,
 Technical assistance,
 training and workshops
Such projects do not require environmental impact
assessment
Category D: Category “D” projects are
environmental projects such as,
 Waste disposal management ,
 Desalination and
 Wild life protection
are some of the examples.

183
Assessment of Mitigation Measures
To overcome some of environmental impacts of a
project, it is possible to list out many mitigation
measures and strategies.
Some of the measures that can be considered are,
1. Avoid negative impacts: The most extreme
example of this strategy is to abandon the project
altogether because the potential impacts are too
serious..
 Changing the projects location,
 establishing buffer zones around sensitive
ecosystems,
are some of the avoidance strategies

184
Assessment of mitigation measures
(Cont…)
2. Reduce negative impact: This involves
comparing the cost of reducing impacts with the
potential cost of the unmitigated impact.
 treatment plants to reduce pollution,
 landscaping and using local materials to
reduce impacts of new structures,
 scheduling project activities during the dry
season to reduce problems of soil erosion
and sedimentation
 and introducing training schemes to educate
project workers as how to reduce
environmental change are among the
reduction activities

185
Assessment of mitigation measures
(Cont…)
3. Compensate for the negative impact:
Sometimes it is difficult to avoid
environmental damages.
In this case, it will be necessary to provide
compensation for the affected
populations either through financially or
by providing benefits through
compensated projects.
When we choose a strategy we have to
consider the associated costs.

186
Social Cost Benefit Analysis
It became important in late 1960s and early 1970s
(Public Projects)
Social Cost Benefit Analysis (SCBA) is a tool developed
for evaluating projects from the society’s point of view
SCBA is different from financial analysis in that,
 Financial analysis takes into account only those costs
and benefits falling on the decision maker
 It also focuses only on those tangible benefits or
costs.
 fails to evaluate or assign value for intangibles like benefit to the
natural environment and to the society.

187
Social Cost Benefit Analysis(Cont …)
As a result, SCBA deviates from the financial
(private) cost and benefit of the project.
The major sources of differences are due to
market failure.
This is due to the existence of:
 Public Goods (Collectively consumed goods)
 Externalities

188
Public Good (Collectively consumed goods)
These are goods served (consumed) on the basis of
first come first served.
Public goods are goods that are:
Non-excludable: It is not possible to exclude others
from consuming public goods.
Non rival in consumption: Once they are available the
additional consumption up to capacity constraint does
not reduce the availability of the good.
The free rider problem arises when a consumer or
producer doesn't pay for the use of them.

189
Externality
Due to the existence of public goods (collectively
consumed good) for which everyone has free
ride, the problem of externality exists.
Market fails to assign value to externalities as
they occur outside the market transaction.
Externality is said to exist when the
production/consumption activity of one party
affects the production/consumption activity of
another party without any payment for the
effect.
Externality can be either positive or negative.

190
Negative externalities
Project may have a harmful external effect like
pollution:
- pollution produced by local automobiles,
- Sound produced by economic agents
- Water pollution by a steel industry
Positive externalities:
Projects may create certain infrastructure
facilities like road which will benefit people in
the nearby community
 pleasure from observing your neighbor's flower
garden
 an orchard located next to a beekeeper.

191
For Example:
Consider a development project - Construction of Dam.
In this step the possible intangible benefits that
project may bring to the community and on the
environment is predicted.
These are benefits like,
-The number of unemployed people that would get
employment opportunity.
-Benefits obtained from the infrastructure improvement
(saved time , reduced cost, etc.)
-Decrease yearly flood damage (soil erosion,
deforestation, reduced property damage )
-Recreational benefit to the society.

192
Intangible Cost (harmful impact of the project)
 Deforestation created by the project
 Number of people displaced from the site
Example 2
Consider the Railway project:
Here we need also to identify and describe
changes that can be brought out by the project
in the transport sector.
The Railway projects might have the following
social benefits and costs:

193
Potential benefits:
It reduces motor vehicles operation and
maintenance cost to both government and
private sector as they switch over from road to
railways.
It will reduce travel time of people using the
road (opportunity cost of time)
Reduce atmospheric pollution in the city
Reduce investment and operation cost of road
Reduce traffic accident in the city
Expected cost of the project
Loss of revenue to private investor
Number of people losing their job

194
Chapter III, Part II
The Project Selection Criteria
Once the project preparation activity is
completed the next step will be to select the
project on the basis of different criteria
The important selection criteria are classified
into two broad categories. These are
 Non-discounting criteria
 Discounting criteria

195
7.1. Non-discounting methods
The non-discounted criteria will not in general take
into account the time value of money.
That is inter-temporal variations of costs and
benefits and its influence on cash flow is largely
ignored.
As a result a time dimension is not included in
the evaluation.
There are different methods under this category
1. Ranking by Inspection
By simple inspection it is possible to determine
which of the two or more investment projects is
more desirable.

196
1. Ranking by Inspection
There are two cases under consideration
(i) When two projects have identical cash flows but
different project life, i.e.,
One has shorter life
while the other has longer project life
then, the project with the longer life would be more
desirable.
(ii) When two projects have the same initial outlay the
same earning life and earn the same total proceeds
(profits), but one project has more of the flow
earlier in the time sequence,
Then we choose the project having higher proceeds
in the earlier period than later.

197
Ranking by Inspection (cont…)
Consider the following example
Investment
(project) Initial cost
Net cash proceeds per
year
Year I Year II
A 10,000 10,000 ---
B 10,000 10,000 1,100
C 10,000 3,762 7,762
D 10,000 5,762 5,762

198
Ranking by Inspection (cont…)
From the above table, comparison of project A
and B
Investment B is better than investment A,
since all things are equal except that B
continues to earn proceeds after A has been
retired.
More analysis is required to decide between C
and D.
Investment D is more profitable than
investment C, since D earns 2000 more in
year 1 than investment C, which does not
make up the difference until year two.

199
2. The Payback Period
What is payback Period?
The pay – back period is defined as the period
required to recover the original investment
outlay through the accumulated net cash flow
earned by the project
Or payback period is defined as the number of
years it is expected to take from the
beginning of the project until the sum of its
net earnings (receipts minus operating costs)
equals the projects initial capital investment

200
The Payback Period (Cont…)
If a project involves cash outlay of Birr 600,000
and generates cash inflows of
 Birr 100,000,
 Birr 150,000,

Birr 150,000 and Birr 200,000
in the first, second, third and fourth years
respectively
If the payback period is smaller than or equal to
an acceptable time period – a firms maximum
desired payback period

201
Amount paid
back “profit”
Balance at the
end of year
Year 1 and 2
(construction
period)
- 10,300
Year 3 870 -9,430
Year 4 2,030 -7,400
Year 5 2,330 -5,070
Year 6 3,500 -1,570
Year 7 3,500 1930

202
Discounted payback period
A major deficiency of a conventional payback
period is that it does not take into account the
time value of money.
To overcome this limitation, the discount
payback has been suggested.
In this modified method,
 cash follows are first converted into their
present values
 and then added to determine the period of time
required to recover the initial outlay on the project.

203
3. Proceeds Per Unit of Outlay
In this method, investments are ranked
according to their total proceeds divided
by the amount of the corresponding
investments.
Let us consider the previous example used
in the inspection criteria.

204
Proceeds per Unit of Outlay (Cont…)
Alternative
Investment
Total
proceeds
Investment
outlay
Proceeds per
unit of
outlay
Rankin
g
A 10,000 10,000 1.00 4
B 11,100 10,000 1.11 3
C 11,524 10,000 1.15 1
D 11,524 10,000 1.15 1

205
Proceeds per Unit of Outlay (Cont…)
Using the above method, since project
C and D are given the same rank both
are selected.
However, we know that project D is
superior because D generates Birr
2000 of proceeds in year 1.
The limitation of this method is thus, it
fails to consider the timing of
proceeds.

206
4. The average annual proceeds
per unit of outlay
This is similar to the proceeds per unit
of outlay.
It is the ratio of the average
proceeds to the original investment
That is,
The total proceeds are first divided by
the number of years during which they
are received, and then expressed as a
ratio of the original outlay.

207
The average annual proceeds per unit
of outlay (Cont…)
Projects Total
proceeds
Average
annual
proceeds
Original
outlay
Average annual
proceeds per
unit of outlay
Ranking
A 10,000 10,000 10,000 1.00 1
B 11,100 5,550 10,000 0.555 4
C 11,524 5,762 10,000 0.576 2
D 11,524 5,762 10,000 0.576 2

208
The average annual proceeds per unit
of outlay (Cont…)
We know that project D is superior to C
although this method gives them equal ranks.
Investment A and B are also incorrectly ranked.
This criteria ranked A above B in spite of the
fact that the latter is obviously superior.
No weight is given to the time distribution.
For instance, a project that earns 10000 Birr
for 10 years would also have an average proceed
of 10000 per year and it would be given the
same rank as project A

209
Discounting methods of project
selection
inter-temporal variations of costs and benefits
influence their values and a time adjustment is
necessary before aggregation.
Suppose one is offered the choice between
receiving Birr 100 today and receiving the same
amount in a year’s time. It will be rational to
prefer to receive the money today for several
reasons.
1. One may expect inflation to reduce the real
value of Birr 100 in a year’s time.
2. If there is no inflationary effect it would still be
preferable to take the money today and invest it at
some rate of interest, r. Hence, receiving a total of Birr
100 (1+r) at the end of the year.

210
selection (Cont…)
3. Even if no investment opportunities are available,
Birr 100 today would still be preferable on the
grounds that there is a high risk of not being around
to collect the money next year.
4.Even where inflation, investment opportunities, and
risk are ignored, there is pure time preference, which
would lead one to prefer the immediate offer
Due to the above reasons, there is a positive rate
of discount, which leads us to place a lower
value on a given sum of money that will be
received some times in the future.

211
selection (Cont…)
The most important discounted cash flow
measures include
The Net Present Value (NPV)
The Internal Rate of Return (IRR)
and the Benefit Cost Ratio (BCR)
1. Net Present Value (NPV)
The net present value of a project is the sum of
the present values of all the net cash flows that
are expected to occur over the life of the
project

212
Net Present Value (NPV) (Cont…)
NPV = Net present value
CFt = Cash flow occurring at time
period (year) t (t = 0 ….n)
n = Life of the project
r = discount rate

 








n
t
t
t
n
n
r
CF
r
CF
r
CF
r
CF
NPV
0
1
1
0
0
)
1
(
)
1
(
..
)
1
(
)
1
(

213
Year 0 1 2 3 4 5
Cash flow -1,000,000 200,000 200,000 300,000 300,000 550,000
Therefore,
913
,
118
)
10
.
1
(
000
,
550
)
10
.
1
(
000
,
300
)
10
.
1
(
000
,
300
)
10
.
1
(
000
,
200
)
10
.
1
(
000
,
200
)
10
.
1
(
000
,
000
,
1
5
4
3
2
1
0








NPV

214
We can also use the discount factor (PVIF r, n) from
present value tables and compute the NPV as shown in
following table
Year Cash flow PV Discount
Factor
PV
0 -1,000,000 1 (1,000,000)
1 200,000 .909091 181,818
2 200,000 .826446 165,259
3 300,000 .751315 225,395
4 300,000 .683013 204, 904
5 550,000 .620921 341,507
NPV 118,913

215
Independent projects are projects that are
not in any way substitutes for each other.
In such cases the decision rule is to
accept the project having positive NPV
Which means, if two projects have
positive NPV and there is no budget
constraint both could be accepted and we
do not need to choose the one with higher
NPV.

216
A mutually exclusive project is a project
that can only be implemented at the
expense of an alternative project as they
are in some sense substitutes for each
other.
Example of the mutually exclusive projects
includes two versions of the same project,
say with different technology, scale or
time.
The decision rule for such projects is to
accept the project with the highest NPV.

217
Advantages of NPV Approach
It is simple to use
It recognize the time value of money
It is consistent with the firm’s goal
In addition it is the only selection criteria that can
be used to choose between mutually exclusive
projects
Limitations of the Net Present Value
The selection of an appropriate discount rate is
one major limitation of this method
It require detailed long-term forecast of
incremental costs and benefits of the project

218
The NPV is expressed in absolute term, hence does
not consider the scale of investment.
Example,
Consider two projects
 Project A may have NPV of birr 5000 with
initial investment of birr 50000
 Where as project B may have NPV of birr
2500 with initial investment of birr 10000.
 Project A would be selected regardless of its
initial capital requirement

219
The ratio of the NPV and the present value of initial
investment (PVI) is called the net-present-value ratio
(NPVR)
This should be used for comparing alternative projects.
Given alternative projects, the one with the highest
NPVR should be chosen.
However, when comparing alternative projects, care
should be taken to use the same discount rate for all
projects.
PVI
NPV
NPVR 

220
2. The Internal Rate of Return of
a Project (IRR)
The Internal Rate of Return (IRR): is the
discount rate at which the present value of all
cash flows is equal to the present value of the
initial cash outflows.
Here an attempt is made to find the discount
rate which just makes the net present value of
the cash flow equal to zero

221
The Internal Rate of Return (Cont…)
If the net cash flow of the project is a
constant amount throughout the project life,
then the determination of the IRR is some how
easier.
Take for example, a hypothetical project with the
initial cash outlay of birr 10,000 and has a net cash
flow after tax birr 3000 each year up to five years
where the project will be retired.
5
4
3
2
1
)
1
(
000
,
3
)
1
(
000
,
3
)
1
(
000
,
3
)
1
(
000
,
3
)
1
(
000
,
3
000
,
10
r
r
r
r
r 










222
Year Cash flow
0 -100,000
1 30,000
2 30,000
3 40,000
4 45,000
The IRR is the value of r, which satisfies the said
condition
Let us, begin with, say, r = 12 percent. The right –
hand side of the above equation becomes:
30,000 + 30,000 + 40,000 + 45,000 = 107,773
(1.12) (1.12)2
(1.12)3
(1.12)4

223
Since this value is higher than the target value of
100,000, we have to try a still higher value of r.
Now let us try r = 15 percent. This makes the right –
hand side equal to:
30,000 + 30,000 + 40,000 + 45,000 =100,806.5
(1.15) (1.15)2
(1.15)3
(1.15)4
This value is still higher than our target value,
100,000. So we increase the value of r from 15
percent to 16 percent
30,000
30,000 +
+ 30,000
30,000 +
+ 40,000
40,000 +
+ 45,000
45,000 =
= 98,637.5
98,637.5
(1.16) (1.16)
(1.16) (1.16)2
2
(1.16)
(1.16)3
3
(1.15)
(1.15)4
4

224
Now this value is less than 100,000, we conclude
that the value of r lies between 15 percent and
16 percent.
For most of the purposes this information is
sufficient.
However, if a single value is required, we have to
resort to interpolation
For that purpose we can use the following
procedures
(High value – Initial investment)/(High value –
Lower value) = (Lower interest rate – X) /
(Lower interest rate – Higher interest rate)

225
Thus, the IRR would be 15.3711
Another approximate solution to the IRR is to plot the NPVs
corresponding to several discount rates to give what we
call the NPV curve
The present values are plotted on the y-axis and the
discount rates on the X-axis.
A curve is then drawn to connect the various points on the
graph. The point at which the curve cuts the X-axis
represents the rate at which the present value of the
investment is equal to 0.
Decision appraise= IRR on a project or investment is greater than the
minimum
3718
.
15
)
16
15
(
15
)
5
.
98637
5
.
806
,
100
(
000
,
100
5
.
100806







 X
X

226
Advantages of the IRR
 Useful for international institutions like the
WB since they are dealing with different
discount rate for different countries.
 It is a measure that could be understood
easily by non-economists since it is closely
related to the concept of the return on
investment.
 It is a pure number and hence allows projects
of different size to be directly compared

227
Disadvantages of IRR
Requires detailed long term forecasts of
the projects incremental costs and
benefits
It assumes that cash flows over the life of
the project are reinvested at the IRR
The IRR is inappropriate to use for
mutually exclusive projects

228
3. The Benefit Cost Ratio (BCR)
The Benefit Cost Ratio is also called
Profitability Index (PI)
It is defined as the ratio of the sum of the
project’s present value of benefits to the sum
of present value of its initial investment.
This is given as
BCR
B
r
C
r
t
t
t
n
t
t
t
n







( )
( )
1
1
0
0

229
The Benefit Cost Ratio (BCR) (Cont…)
Consider a project, which has a cost of
capital 12 percent annually and the initial
investment Birr 100,000
Year Benefit
1 25,000
2 40,000
3 40,000
4 50,000

230
The benefit – cost ratio measures for this
project are:
NBCR = 1.145 - 1 = 0.145
The two benefits – cost ratio measures give
the same signals because the difference
between them is simply unity.
145
.
1
000
,
1000
/
)
12
.
1
(
50000
)
12
.
1
(
40000
)
12
.
1
(
40000
)
12
.
1
(
25000
4
3
2













BCR

231
Since benefit – cost ratio measures net
present value per Birr of outlay, it can
discriminate better between large and
small investments.
The Decision rule for BCR
A project is accepted if its BCR is greater
than or equal to 1 (i.e. if its discounted
benefits exceed its discounted costs).
But if BCR is less than 1, the project is
rejected.

232
The following decision rules can be taken as
a summary for the two criteria.
When BCR When NBCR Decision
>1 > 0 Accept
=1 = 0 Indifferent
?
<1 < 0 Reject

?
Once the project is appraised, the next task is
planning
233

WHAT IS PLANNING
What is project planning?
Project planning involves the creation of resource plan, financial plan,
quality plan, risk plan ,acceptance plan, communication plan and
procurement plan.

project planning is “the answering of the following
questions:
What must be done?
How should it be done?
Who will do it?
By when must it be done?
How much will it cost?

Project Charter
A project charter is a document that briefly describes
the statement of work, expected /end-items or results,
and required resources.
If the work is being performed under contract, the
contract will serve as the charter.
The purpose of the charter is to enable the project
manager, senior management, and functional
managers to reach agreement about the scope of the
project and the resources they will commit to it.

STEPS IN PROJECT PLANNING
Once key members of the project team have
been assembled/identified, they begin
preparing the detailed project plan. The plan
includes:-
1. Project objectives, requirements, and scope
are set.
 specify project end items/results, and time, cost,
and performance targets.

2. The specific work activities, tasks, or jobs to
achieve objectives are broken down, defined, and
listed. (What?)
3. A project organization is created specifying the
departments, subcontractors, and managers
responsible for work activities. (Who?)
4. A schedule is prepared showing the timing of
work activities, deadlines, and milestones. (When,
in what order?)
5. A budget and resource plan =showing the
amount and timing of resources for work
activities. (How much and when?)

THE PROJECT MASTER
PLAN
The project is initiated with the preparation
of a formal, written master plan. The
purpose of this plan is:
 to guide the project manager and team
throughout the project life cycle;
 to tell them what resources are needed, when,
and how much they will cost; and,
 to permit them to measure progress and
performance.

Summary Plan Vs. Master Plan
The difference between the summary plan in
the proposal and the master plan is that the
former is intended for the customer, and the
latter for the project team.
The summary plan need only contain enough
detail to give the customer an overview; the
master plan must be of sufficient detail to guide
the team in the execution of the project.
oOnce top management approves the plan it
gives the project manager tacit authority to
conduct the project in accordance with the plan.

Contents of Master Plans
The contents of master plans vary depending on
the size, complexity, and nature of the project.
Usually, the plan has three major sections:
I.Management Summary- Brief explanation of the
project in favor of top-level management
II.Organization Section- specifies the organization and
personnel requirements for the project
III.Technical Section- Describes major activities,
timing, and cost

Work Breakdown Structure(WBS)
♥ Large & complex projects consist of several smaller,
interrelated tasks and work elements.
♣ The procedure for decomposing the overall project
into sub-elements is called the work breakdown
structure or WBS.
☺The purpose of a WBS is to divide the total project
into small pieces, sometimes called work packages.
 The WBS and WPs become the basis for budgeting and
scheduling
♠ Decomposing the project into work packages enables us to
prepare project schedules and cost estimates and to assign
responsibility.

◙ A typical WBS might consist of the following five
levels (actually the number of levels varies; the name of
the element description at each level is arbitrary):
Level Element Description
1 Project
2 Category
3 Subcategory
4 Sub-subcategory
5 Work package

Example- New car project, WBS
246

Tools of planning
Bar chart
PROJECT PLANNING

THE GANTT CHART: EXAMPLES OF
SEQUENCE ACTIVITIES
248

Tools of planning…
Network Techniques
 Activities, events and interrelationships are
represented by a network diagram
 A flow chart that graphically describes the sequence,
interdependencies, and start and finish times of the project job
plan of activities that is the critical path through the network.
 Uses
 Provides the basis for scheduling labor and equipment.
 Enhances communication among project participants.
 Provides an estimate of the project’s duration.
 Provides a basis for budgeting cash flow.
 Identifies activities that are critical.
 Highlights activities that are “critical” and can not be delayed.
 Help managers get and stay on plan.

WBS/Work Packages to Network
FIGURE 6.1

WBS/Work Package to Network
(cont’d)
FIGURE 6.1 (cont’d)

Constructing a Project Network
Terminology
 Activity: an element of the project that
requires time.
 Merge Activity: an activity that has two
or more preceding activities on which it
depends.
 Parallel (Concurrent) Activities:
Activities that can occur independently
and, if desired,
not at the same time.
A
C
D
B
Burst Activity: an activity that has more than one activity immediately
following it (more than one dependency arrow flowing from it).

Constructing a Project Network
(cont’d)
Terminology
 Path: a sequence of connected, dependent
activities.
 Critical path: the longest path through the
activity network that allows for the completion of
all project-related activities; the shortest expected
time in which the entire project can be completed.
Delays on the critical path will delay completion
of the entire project. why?
A B D
C

The Project Planning
Logical Framework
 Now that the project has been identified and detailed information
has been collected, we can start to plan exactly how the project
will function.
 The logical framework is a planning and management tool used for
systematic and logical thinking for:
 Plan projects
 Monitor projects
 Evaluate projects
 It connects a project‘s means with its end.
 A Log-framework is a 4x4 matrix. Four rows and four columns.
254

The Project Planning
Logical Framework
 Project Planning or “Log-frame” Matrix is a “Summary” of the Project
 WHY the project is carried out (development objective, immediate
objectives)
 WHAT the project is supposed to produce (outputs)
 HOW the project is going to achieve the outputs (activities)
 HOW the success of the project can be measured (indicators)
 WHERE the data can be found (means of verification)
 WHICH external factors influence the project (assumptions)
 WHICH inputs are required for the project (inputs/budget)
255

How do you estimate time in
project scheduling ?
Estimating Time
 Have people who are doing the work provide the
estimates
 Get an expert‘s estimate
 Find a similar task
 Look for relationship between activity and time
(parametric estimate)
 Educated guess
261

What would be the rate of
Contingency in project
Scheduling?
Contingency
When you use contingency
 Adds expense and time
Add contingency as an activity
 Typically 10-15%
262

MS project Scheduling in the lab: conditioned
on installment

CHAPTER FIVE
PROJECT
IMPLEMENTATION

PROJECT IMPLEMENTATION
☻ critical stage in project
The execution phase is typically the longest
phase of the project (in terms of duration).
It is the phase within which the deliverables
are physically constructed and presented to
the customer for acceptance.
☻To ensure that customer’s requirements are
met, the project manager monitors and
controls the activities, resources and
expenditures required to build each deliverable
throughout the execution phase.
☻

PROJECT IMPLENTATION…
CONT’D
Project Execution Activities (manager responsible to mange..
Build
Deliverables
Monitor &
Control
Perform Phase
Review
Perform
Risk Mgt.
Perform
Time Mgt.
Perform
Issue Mgt.
Perform
Cost Mgt
Perform
Quality Mgt
Perform
Procuremen
t Mgt
Perform
Change Mgt
Perform
Acceptance
Mgt
Perform
Comm.
Mgt

CONT’D
(1) Time Management
☻ Time management is the process within
which time spent by staff undertaking
project tasks is recorded against the
project.
☻
☻ A Timesheet register provides a
summary of the time currently spent on
the project and enables the Project Plan to
be kept fully up-to-date.

CONT’D
(2) Cost Management
☻Cost management is the process by which costs (or
expenses) incurred on the project are formally
identified, approved and paid.
labor, equipment and materials costs.
☻Expense forms are approved by the Project Manager
and recorded within an Expense Register for audit
purpose.

CONT’D
(3) Quality Management
◙ Quality is defined as “the level of conformance of the final
deliverable to the customer’s requirements”.
◙ Quality Management is the process by which the quality of
the deliverables is assured and controlled for the project,
using Quality Assurance and Quality Control techniques.
◙ Quality reviews are frequently undertaken and the results
recorded within a Quality Register.

CONT’D
(4) Change Management
♣ Is the process by which changes to the project’s
scope, deliverables, timescales or resources are
formally defined, evaluated and approved prior
to implementation.
♣
♣ To formally request a change it is often
necessary to complete a Change Form. The
change request details may then be recorded
within a Change Register.

CONT’D
(5) Risk Management
☺Risk management is the process by which risks to the
project (e.g. to the scope, deliverables, timescales, or
resources) are formally identified, quantified and managed
during the project.
☺A project risk may be identified at any stage of the project
by completing a Risk Form and recording the relevant risk
details within the Risk Register.

CONT’D
(6) Issue Management
♠ Issue management is the method by which issues currently
affecting the ability of the project to produce the required
deliverable are formally managed.
♠ After completion of an Issue Form (and logging the
details within the Issue Register), each issue is evaluated
by the PM and a set of actions undertaken to resolve the
issue at hand.

CONT’D
(7) Procurement Management
♠ Procurement management is the process by which product
is acquired from an external supplier.
♠, a Purchase Order must be approved by the PM and sent to the
supplier for confirmation.
♠ The status of the purchase is then tracked using a
Procurement Register until the product has been
delivered and accepted by the project team.

CONT’D
(8) Acceptance Management
♣ Acceptance management is the process by which deliverables
produced by the project are reviewed and accepted by the
customer as meeting his/her specific requirements.
♣ To request the acceptance of a deliverable by the customer, an
Acceptance Form is completed.
♣ The Acceptance Form describes the criteria from which the
deliverable has been produced and the level of satisfaction of
each criterion listed.

CONT’D
(9) Communications Management
◘ Communications management is the process by which
formal communications messages are identified,
created, reviewed and communicated within a project.
◘ The most common method of communicating the
status of the project is via a Project Status Report.
◘ Each communication item released to the project
stakeholders is captured within a Communications
Register.

CONT’D
Perform Phase Review
◙ At the end of Project Execution Phase, a phase review
is performed.
◙ This is basically a checkpoint to ensure that the
project has achieved its stated objectives as planned.

CONT’D
The ability of project team to perform tasks effectively as a group
determines the project’s outcome.
How to Keep Project Team Motivated?
 Take the time to meet with and listen to team members.
 Provide teams with specific and frequent feedback about their
performance, and support them in improving their performance.
 Recognise, reward and promote high performance; deal quickly with
poor performance so that they can improve and learn from mistakes.
 Provide information on how the organisation has achieved or failed to
achieve its goals.
 Involve teams in decisions, especially those decisions that affect them.

CONT’D
 Give members of the team the opportunity to grow and
develop new skills.
 Provide team members with a sense of ownership in their
work and their working environment.
 Strive to create a work environment that is open, trusting
and fun.
 Encourage new ideas, suggestions and initiatives.
 Celebrate individuals’ successes and take time for morale
building, team meetings and activities.

CONT’D
◙ Complex systems require much more, such as:
● lengthy manuals for procedures, system operation, repair, and
service;
● testing manuals;
● manuals for training the trainers;
● training materials and simulators; and
● schematics, drawings, special tools, servicing, and support equipment.
◙ Much of the information for these manuals is
derived from documentation accumulated during
the design stage.

Discussion
1. How to motivate a project teams ?
2. Discuss the management process of
project execution

Chapter Six
Monitoring and Evaluation

• Evaluation is a periodic assessment of an ongoing or completed project
- its design, implementation and results.
• The ultimate objective of evaluation is to determine the;
• relevance and fulfillment of project objectives,
• Efficiency-“productivity” of the implementation process
(efficient use of financial, human and material resources).
• Effectiveness- the extent to which the purpose has been
achieved
• impact - the extent of socio-economic, technological,
environmental, and psychological changes attributable to
the project’s interventions
• sustainability of the project- what happens after the project
has been completed.
 What is Evaluation?
282

Evaluations can be categorized in a variety of ways.
• According to evaluation timing
• According to who conduct the evaluation
• According to evaluation methodology
 Types of Evaluation
283

• According to evaluation timing
 Ex-ante/Pre-implementation Evaluation – occur at the point of
project planning
 Ongoing/Formative Evaluation – occur during project
implementation to improve project performance and assess
compliance
 Midterm Evaluation - are formative in purpose and occur
midway through the project implementation
284

 Terminal/Summative Evaluation – occur at the end of project
implementation to assess effectiveness and impact.
 Final Evaluation - are summative in purpose and are conducted
(often by external bodies) at the completion of project
implementation to assess how well the project achieved its
intended objectives.
 Ex-post Project Evaluation/Final Post Evaluation - are
conducted some time after the completion of the project
implementation to assess long-term impact and sustainability.
285

• According to who conduct the evaluation
 Internal or Self-evaluation – are conducted by those
responsible for implementing a project.
 External or Independent Evaluation - are conducted by
evaluator(s) outside of the implementing team, lending it a
degree of objectivity and often technical expertise.
 Participatory Evaluation - are conducted with the beneficiaries
and other key stakeholders, which can be empowering - building
their capacity, ownership and support.
 Joint Evaluation - are conducted collaboratively by more than
one implementing partner and can help to build consensus and
credibility at different levels.
286

• According to evaluation methodology
 Real-Time Evaluation – are undertaken during project
implementation to provide immediate feedback to improve ongoing
implementation.
 Meta Evaluation - are used to assess the evaluation process itself.
For instance, check compliance with evaluation policy and good
practices; assess how well evaluations are disseminated and utilized
for organizational learning and change.
 Thematic Evaluation - focus on one theme, typically across a number of projects, or the whole organization.
 Impact Evaluation - focus on the effect of a project, rather than on
its management and delivery.
 Cluster/Sector Evaluation - focus on a set of related project
activities, typically across sites and implemented by multiple
organizational units.
287

 The main basis for evaluation is the objectives
and goals of the project.
 There must be indicators in the project
document to measure the impact of the
project.
 Basis of Evaluation
288

 M&E differ and are distinct concepts. Yet they are closely
related or interactive processes.
 Both M&E gather and analyze data & information in order
to examine the progress, effectiveness of projects.
 Information generated through M&E provide project staff
with a clearer basis for decision-making
Project Monitoring & Evaluation
289

 Nevertheless, M&E have their own focuses and strategies
 Monitoring is a continuous or periodic review of project
implementation focusing on inputs, activities, work schedules,
outputs, which is used as an input for evaluation function.
• Monitoring is ongoing and tends to focus on what is happening.
• On the other hand, evaluations are less frequent and conducted at
specific point in time to assess larger changes or outcomes, such
as the impact and relevance of the project.
• In conclusion, the main difference between M&E is their timing
and focus of assessment.
290

 Inputs: Financial, Material, human resources
 Activities: A set of tasks performed
 Process: A set of activities, towards a common
purpose
 Deliverable output
 Quality
 Timeliness
What to Monitor

Monitoring Evaluation
 Implementation oriented  Policy oriented
 Focuses on timelines  Focus on rigor/objectivities
 Emphasize on multi-level results  Emphasize final results
 Inform budgeting  Inform broad resource allocation
 Essential for project implementation and
improvement
 Essential for strategy development
 Can use disaggregated data  May use aggregated data, etc
Features of M&E
292
 Assess immediate results  Assess attribute

Chapter Seven
Project Termination
13-293

Introduction
All projects end
 The objectives have been completed
 It no longer makes sense to finish
Some teams move on to other projects
Other times, members go their own way
The client may be happy, mad, or anywhere
in between

When to Terminate a Project
When completed or failed
 It may be easy to terminate a project that is
finished
 But it can be very difficult to terminate a
project prior to its completion

13-296
The Varieties of Project Termination
Termination by extinction
Termination by addition
Termination by integration
Termination by starvation

Termination by Extinction
Extinction occurs in any scenario where
the project goes away
 Successful
 Unsuccessful
 Changes in environment
 Take too long
 Murder

Termination by Addition
Applies to an in-house project
When the project is successful, it is
institutionalized
While the project goes away, project
personnel and assets are transferred to the
new business

13-299
Termination by Integration
The project comes into the business
 It is absorbed into the existing structure
That structure absorbs the assets of the
project

Termination by Starvation
Termination by starvation involves greatly
reducing the budget of a project
Used when it is politically dangerous to
cancel a project

The Termination Process: things to
do
Must first decide to terminate
Planning for implementing an orderly shut
down yields better results
Who leads the shut down project?
 A special termination manager may be used

Things to Do…
Ensure tasks are completed
Notify the client
Finish the paperwork
Send out final invoices to the client
Redistribute resources
Clear with legal counsel
Determine what records to keep
Close the project books
 Who will close the door?

The end
Next is your turn=presentation of your project
proposal (group assignment)!

Fundamentals of Project Management101.ppt

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