SUBJECT NAME: PROJECT MANAGEMENT AND FINANCE CREDITS: 3

SU BJECT CODE: 1150MG101 HOURS: 3

UNIT – II: PROJECT FEASIBILITY STUDIES:

Opportunity studies – General opportunity studies – specific opportunity studies – pre-

feasibility studies – functional studies or support studies – feasibility study components of
project feasibility studies – Managing project resources flow – Project Life Cycle - Project
constrains.

FEASIBILITY STUDY:

A feasibility study is used to determine the viability of an idea, such as ensuring a project is
legally and technically feasible as well as economically justifiable.

PROJECT FEASIBILITY STUDY:

The project feasibility study is a document containing a detailed description of the

project, followed by a set of different feasibility areas. These are aspects of the project that
will drive the success or failure of the project. This study will provide the necessary
information so that you can decide whether or not your project will begin or whether it has
a shot at success.

PROJECT FEASIBILITY:
The various stages in the project feasibility studies include
a)Opportunity studies
b)Pre-feasibility studies
c)Techno-economic feasibility studies
Let us know the details of opportunity studies and pre-feasibility studies in this lesson.
Opportunity Studies
Identifying suitable opportunities for investment is an intricate and involved exercise
in developing countries. A variety of constraints, complexities, risks and uncertainties have
to be reckoned with, and their implications on the project implementation and its
subsequent success in the operational phase have to be carefully and thoroughly examined
before the resources are committed. Efforts in identifying these opportunities pursued at
different levels. The enterprise management is expected to take all initiative to convince
itself about the prospects of the project that it wishes to launch.

Governmental agencies, development financial institutions and other industrial

promotion or development corporations are also continuously engaged in identifying
worthwhile investment opportunities.

The opportunity studies help in spotting investment opportunities or project ideas,

which can be subjected to detailed scrutiny, if initially found viable. For this preliminary
assessment, a quick analysis of the following aspects is necessary:
➢ Availability of requisite natural resources suitable for processing and manufacture;
➢ The pattern of agricultural activity and scope for agro-based industries;
➢ Categories of consumer products that have prospects of growing demand in response to
population growth or improvements in standard of living;
➢Scope and areas for import substitution;
➢ Manufacturing lines that have been found to be successful by other entrepreneurs;
➢ Possible inter linkages with other industries in the country or abroad;
➢ Scope for forward or backward integration with The prevailing and expected investment
climate in the country;
➢ The industrial policies in vogue;
➢ The availability and the cost aspects of factors of production;
➢ Opportunities for export.
Broad indications on these and other relevant aspects are obtained with the help of the
preliminary studies. These rely on aggregate estimates that are readily available. Rough
cost data are obtained from comparable projects, if any, or are estimated in broad terms.
The opportunity studies can be general or specific in nature.

a) General Opportunity Studies

The government and development institutions carry out these general studies for the
benefit of potential investors. These general studies could be:
Area Studies
Identifying locations that require development and investment initiatives, such as
backward areas, export zones, etc.
Sub-Sectoral Studies
The focus of attention being sub sectoral areas, such as consumer durables, construction
materials, etc.
Resource-Based Studies
These involve a survey of the availability of natural resources that can be processed for
making immediate or final products.

b) Specific Project Opportunity Studies

After identification n of general investment opportunities, whereby products that
have potential for domestic manufacture get noted, the next step is to prepare an
investment profile for the chosen line. Industrial promotion and development agencies
often provide this information for prospective investors.

The specific opportunity study enables the project idea to graduate into an
investment proposition. Government policies, incentives and other supports are aspects on
which information would be needed as they have a bearing on the profitable functioning of
the project. A broad investment profile should be an output of the study, in order to elicit
investor response. Since the study confines itself to aggregates and summary data for a
quick understanding of the investment prospects, it should not be very expensive. At a
moderate cost it should be possible to get the salient facts.

Pre-Feasibility Studies
The project idea requires to be expanded with the help of a more detailed examination
of all relevant information, as also by gathering additional essential information. A
thorough techno-economic feasibility study is very expensive and there is need to be
convinced about the worth of launching such an elaborate and costly exercise.

Alternatives will have to be considered in respect of the following:

Market size and plant capacity: The market scope and size have to be assessed, taking
note of the prevailing and prospective demand. The sales organization, the marketing
network and distribution channels that will be appropriate, the plant capacity to be
installed and the production processes to be adopted are all aspects on which a reasonable
degree of clarity is needed before the feasibility study can be taken up.

Material inputs: the raw materials and other critical stores items that are needed and the
alternatives or substitutes in respect thereof, the different sources for their procurement
and the related economics of purchase should be examined and suitable options chosen.

Location and site: Alternative locations available with adequate infrastructure facilities, or
with proximity to supplies of materials or to the markets for outputs have to be considered
and a proper choice made.
Project engineering: Technology and equipment sources have to be identified and
compared before a decision is taken. Their suitability to the local or domestic conditions
have to be examined carefully and the availability of requisite skills for their proper
maintenance to be ensured.

Overheads: The organization structure will determine the nature and amount of
overheads to be incurred in respect of manufacturing, selling and administrative functions.
Building and equipment layout, the choice of having a sales network or distributing
through wholesale outlets, etc. are aspects on which, at least. Tentative decisions should be
taken to guide the feasibility study.

Manpower: Ready availability of semi-skilled and skilled labour as also casual or unskilled
labour, competent and qualified supervisory and general staff, the training facilities that
are needed and related matters need to be considered and appropriate choices made.

Project implementation: Whether the implementation will be departmentally carried out

or whether it will be entrusted entirely to specialist contractors are questions that have to
be resolved at the prefeasibility stage.

Financial analysis: Fairly reliable, though aggregate, estimates have to be made on the
capital costs of equipment, buildings, etc, and on the choices from among alternative
sources or modes of financing the project. Reliable assessment of costs and revenues
during operating phase will have to be made at this stage and the profitability examined.
Where the investment possibilities and prospects are widely known to be good, because of
the nature of the product or very favourable market factors, there may be no need for a
pre-feasibility study. Even in such instances, in order to decide on the location, size, etc.,
there may be a need for pre-feasibility studies on related aspects, by way of functional or
support studies, before the eventual decision on investment is taken.

Functional Studies or Support Studies

These are confined to selected aspects of the project being contemplated, and may be found
necessary by way of support for prefeasibility or feasibility studies, particularly in the case
of large projects with multi-division, multi-product characteristics. The following types of
studies are found to be common:

Market studies: The thrust is on examining the market prospects of the products
proposed to be manufactured. Demand estimates have to be prepared and, in addition,
scope for market penetration or creation of a new demand through suitable market
strategies have to be assessed

Materials input studies: The ready availability of raw materials and other essential inputs
has to be examined, and reliable sources for these supplies have to be identified. Need for
developing proximate sources of supply for critical items or components through vendor
development initiatives have to be assessed, as this would involve additional project
outlays. The prevailing and anticipated price trends for these items have also to be studied.

Location studies: Where transportation costs are high in relation to the high volume, low
cost raw material requirements (or finished products), or where transport bottlenecks
pose major constraints; location becomes a critical decision factor, and special studies may
be required to arrive at optimal decision in this regard.

Capacity studies: Technology choice is often motivated by the expectation of reaping

economies of scale. But these will have to be established with reference to the market
conditions, infrastructure facilities available, government policies on duties and levies, and
the inflation effects on equipment and other major input costs. Researchers on costs and
prices of manufactured products have questioned the belief that higher volume or capacity
means lower cost per unit. The impact of inflation on capital costs and costs of operational
inputs have had the effect of cancelling out the benefits that are expected to result from
larger size. Switching to high-capacity plants in cement and fertilizers has not yielded us
the benefit of lower unit costs. It is also likely that different technologies have different
optimal capacities, and comparative studies of capacities and costs specific to these
technology alternatives are essential before specific is taken.

Equipment selection studies: Very large projects with multiple divisions and products
have to procure equipment from diverse sources. Certain common services like central tool
room or common annealing, heat treatment, plating, metallurgical testing and other
services can be planned, if found feasible, with substantial savings on capital costs. These
possibilities have to be examined through special studies.

Laboratory and pilot plant tests: To prove the suitability of raw materials or components
or processes, laboratory tests or pilot plant tests may have to be resorted to. The functional
or support are investigative in nature, with reference to the specific areas of scrutiny and
the conclusions there from provide clear guidance for proceeding with the subsequent
stages of project preparation. The support studies can precede or follow a pre-feasibility
study or a feasibility study. It is the outcome of the felt need to examine, in depth, certain
aspects that are found to be critical, calling for closer investigation. Such requirements may
arise even after feasibility studies have been completed.

Components of Project Feasibility Studies

Introduction
The United Nations Industrial Development Organization (UNIDO) has published in the
Manual for the Preparation of Industrial Feasibility Studies to help the standardization
of industrial feasibility studies. It will be useful to trace the components, or contents, of the
feasibility studies through the framework provided by UNIDO.

Components of Techno-Economic Feasibility Studies

Following are the contents of techno-economic feasibility studies:
(a) Project background and history
(b) Demand and market study
(c) Demand projections
(d) Forecasting techniques
(e) Export projections
(f) Market penetration
(g) Sensitivity analysis
(h) Sales forecast and marketing
(i) Production programme
(j) Plant capacity
(k) Materials and inputs
(l) Supply programme
(m)Project location
(n) Plant site, within the location
(o) Local conditions
(p) Layout and physical coverage of project
(q) Technology and equipment
(r) Civil engineering
(s) Plant organization
(t) Overhead costs
(u) Labour
(v) Staff
(w) Implementation scheduling
(x) Financial evaluation
(y) Economic evaluation
a) Executive Summary
The feasibility study, being the final scrutiny, analysis, and projections prior to the decision
to commit resources, has to provide definite conclusions on all basic issues of the project.
In the course of the project opportunity study and the prefeasibility study, various
alternatives would have been considered and precise decisions would have been arrived at
on critical aspects such as location, capacity, technology, etc. The summary of the
conclusions and recommendations should be provided in the form of an executive
summary to facilitate a quick grasp of the essentials of the project. The table of contents in
feasibility study given above provides the sequence of presentation of information. On each
aspect, a brief write-up on the essential information should be given. At the end of the
technical, operational and financial data, the major advantages of the project, the major
drawbacks of the project and the prospects of implementing the project should be
highlighted.
b) Project Background and History

The success of any project is dependent, among other things, on its consonance with the
country’s economic setting and its state of industrial development. The economic,
industrial, financial and other relevant policies should be briefly described. There should
also be information on the project promoters or sponsors and the reasons for their specific
interest in the project. The nature of preliminary and subsequent studies that have
proceeded from the feasibility study should be mentioned, giving the highlights and the
costs incurred.
c) Demand and Market Study
After identifying the data requirements of the demand and market study, an appropriate
method of data collection and evaluation will have to be chosen from among the alternative
approaches available. Then the demand and market size for the products, and by-products,
if any, will have to be determined and projected for the life time of the project. Estimations
about the extent of market penetration by products should also be given. The proposed
sales programme has to be spelt out, indicating the progress expected during the project
life. The marketing strategy that has been chosen should be elaborated, presenting its
rationale. Information on product pricing, promotional efforts planned, the proposed
pattern of organization structure for distribution and sales, and decisions on the discounts
and commissions on sales, and the extent and nature of after sales services intended to be
provided should be given. Estimated revenue from sales and the estimated costs of
marketing and distribution need to be shown. Taking note of the policy on stocks of
finished goods to be maintained, the production programme will have to be drawn up.
Details that go into these computations include the inventory requirements, plant capacity
factors, quality specifications, annual production targets, wastes and effluents, and the
costs related thereto. In developing countries, where the projects are geared to import
substitution, the secondary or published data on imports and consumptions provides near-
total information on the market demand for the concerned products. But in the case of the
other categories of products, the secondary data may not be adequate, and it may be
necessary to generate a fair amount of primary data. This could mean additional costs on
preliminary and support studies. The projected sales and income are critical factors
affecting the viability of the project. Optimistic estimates may help launching a project
sooner, but it is an act of self-deception, as the ambitious assumptions fail to materialize
and the project slides down to disaster. We have innumerable examples of such projects
that had looked splendid paper, but could either produce the quantities promised, or failed
to find the market anticipated. The demand analysis should aim at providing the following
essential information:
➢ The geographical boundaries of the market for the product and the size and composition
of the present demand.
➢ The market segments in terms of a) The end use (e.g. consumers); b) Consumer groups
(e.g. high income, middle income); and c) Geographical division (e.g. regional, national,
foreign);
➢ Demand projections of the overall market and of its segments, covering, say, a ten year
period of project life;
➢ The market share that the project is likely to achieve, taking note of the anticipated
trends in domestic and international competition and shifts in consumer needs or
preferences.
➢ The pricing structure that is being adopted which is the basis for the expectations of
market penetrations.
d) Demand Projections
Demand projections should take note of domestic potential as also export possibilities.
These projections should cover the following aspects:
➢ The estimate of the potential demand for the product or products;
➢ The estimates of the potential supplies;
➢ The degree of market penetration that the project is expected to achieve. While
projecting domestic demand, the following logical steps are involved:
➢ Gather and analyze available information on current consumption and the rate of
changes in the past;
➢ Classify such consumption data by market segments;
➢ Identify the major factors that have influenced past demand, and assess the extent of
their influence;
➢ Project the expected impact of these factors on future demand; and
➢ Forecast the demand through extrapolation of the influencing factors.
Growth in demand for consumer products may be linked to expected increase in income
levels. But if the chances are that inflation or hikes in taxes will overtake the income rises,
the demand growth may not occur, or even if it does, it may be marginal. Population growth
is another factor that is equally relevant. A careful assessment of the counteracting
influences of these factors is a precondition for purposeful demand projections.
e) Forecasting Techniques
There are different forecasting techniques that can be adopted and an appropriate choice
has to be made depending on the nature of the products and markets. The demand
forecasting techniques that are normally used are:
➢ The trend method, also referred to as extrapolation method;
➢ The consumption level method (taking note of the income and price elasticities of
demand);
➢ The end-use method, also known as the consumption coefficient method;
➢ The leading indicator method;
➢ Regression models;
➢ Market survey
f) Exports Projections
The information requirements for assessing export market potential are:
➢ The present volume of export of the product or products;
➢ The unit export prices for these products;
➢ Countries to which these products have been, or are being, exported;
➢ Special aspects concerning these products, such as quality stipulations, special selling
arrangements, etc.
➢ Other countries with export assistance or export incentive provided by the home
country, and the prospects of their being continued or improved.
➢ Risk of violent shifts in demand due to rapid technological changes, or changes in
political situations.
g) Market Penetration
The market penetration that the proposed product can achieve is assessed with reference
to the following factors:
➢ The degree of domestic and/or foreign competition;
➢ The consumer preferences or responses; and
➢ The scope for substitution that exists, or might develop. There are also strategic levers
that can be employed for achieving market penetration. These include:
➢ Product quality;
➢ Packaging;
➢ Marketing and distribution methods, and;
➢ The after-sales services provided.
h) Sensitivity Analysis
There are bound to be a large number of assumptions on a variety of aspects relating to the
project. These assumptions can get vitiated by unpredictable events or there could be
inadequacies or inherent errors in the project data inputs. The common deviations that
occur are:
➢ Errors in the base data;
➢ An analysis based on inadequate data;
➢ Unforeseen economic and socio-political developments;
➢ Certain essential parameters being overlooked or some relevant factors and
relationships being unknown or being suppressed;
➢ Unrealistic assumptions being made with no proper justifications;
➢ Rapid technical and technological changes.

The projections also have to reckon with a number of uncertainties. Among them are:
➢ Unpredictable shifts in the rates of increase of national and per capita incomes;
➢ Emergence or disappearance of a dominant competitor;
➢ Changes in transportation costs;
➢ Trade agreements within trade blocks;
➢ Introduction of new sources of raw materials or substitutes;
➢ Changes in tariff policies;
➢ New application possibilities for the product.
To reduce the uncertainties from these diverse possibilities to a minimum, statistical
sensitivity analysis provides a systematic approach. This technique can be used to assess
the impact on costs and revenue, when the factors influencing demand turn out to be less
or more favorable to demand than was assumed. Where the sensitivity analysis has to take
note of a combination of changes of different factors, computer facilities can be employed
with advantage to provide a range of forecasts in the categories, pessimistic and realistic.
i) Sales Forecast and Marketing
The demand analysis gets transformed into sales forecasts. Simultaneously, decisions are
taken on the modes of distribution, market promotion strategy, pricing strategy etc.
Analysis of sales and sales income is thus a follow-up of market study and demand analysis.
The specific sales volumes, product by product, for the periods of the operating phase has
to be projected and the corresponding sales income estimated. Volume of production and
sales have a critical bearing on the production and selling costs and, therefore, these
estimates have to be carefully prepared, after considering possible interruptions, delays,
etc. that affects production volume. Choice of promotional methods and distribution
systems, have significant implications for product costs and these have to be clearly
defined and properly estimated. It is not uncommon to come across project estimates
where the sales quantities and prices are overstated thereby boosting up the revenues,
intentionally or otherwise.
j) Production Programme
Having arrived at the sales projections for the different stages of production in the
operating phase of the project, the feasibility study should spell out the detailed production
programme. The levels of output and capacity utilization during the specified periods
should be clearly indicated. Within the available plant capacity, the levels of output can
vary substantially, from time to time, for a variety of reasons, and prepare the materials
flow diagram to show the materials and utilities balances at various stages of production.
The costs on inputs have to be worked out in detail for the different categories. The
production programme provides the basis on which the cash flow projections for the
production periods can be drawn up.
k) Plant Capacity
For determination of costs and revenues, the assumptions on plant capacity are very
critical. The UNIDO manual defines two capacity terms, as below:
Feasible Normal Capacity
This represents the capacity that is achievable under normal working conditions taking
into account not only the installed equipment and technical conditions of the plant, such as
normal stoppages, downtime, holidays, maintenance, tool changes, desired shift patterns
and
indivisibilities of major machines to be combines, but also the management system applied.
Thus, the feasible normal capacity is the number of units produced during one year under
the above conditions. This capacity figure should correspond to the demand figure derived
from the market study.
Nominal Maximum Capacity
This is technically feasible capacity and frequently corresponds to the installed capacity as
guaranteed by the supplier of the plant. To reach maximum output figure, overtime as well
as excessive consumption of factory supplies, utilities, spare parts, and wear and tear, will
inflate the normal level of production costs. With reference to the nature of operations,
technology and also the resource and input constraints, the feasible normal plant capacity
has to be determined and the production costs computed on that basis.
Matching Projected Sales and Plant Capacity
In the case of products that have rapid growth potential, the initial production capacity
should be higher than the initial demand and sales so as to be able to cover subsequent
demand growth. Care should, however, be taken to see that the planned underutilization of
capacity does not fall
below the break-even level. Where expansion can be taken up fast to meet the demand
growth, the initial production should match the demand and creation of idle capacity
should be avoided. In keeping with the feasible normal capacity selected, the input
requirements of materials, manpower, services, etc. should be worked out in detail.
l) Materials and Inputs
As for the requirements of material and other inputs, detailed information has to be
provided about their nature, quantities, sources of procurement, and their costs. Materials
and inputs can be classified into:
➢ Raw materials;
➢ Processed industrial materials (intermediates or components);
➢ Manufactured (subassemblies):
➢ Auxiliary materials;
➢ Factory supplies;
➢ Utilities.
The major items of materials have to be described, mentioning possible alternatives, and
justifying the selection. Information should also be provided on their qualitative aspects
and quantities available, sources of supplies, and the prevailing and projected costs.
m) Supply Programme
The procurement plan should be linked to the anticipated production and inventory levels
and the annual costs of consumption determined for the classified groups of materials and
inputs. The utilities required have to be assessed in detail, taking note of the location,
technology, and plant capacity. Their availability and proximity of sources of supply are
critical for the success of the project. Supply programmes for these should also be drawn
up. The general tendency is to take utilities or off-site facilities for granted, and
underestimate their significance, time frame for installation and costs. Electricity, water,
steam, compressed air, fuel and effluent disposal are project components that require
planned and detailed attention o avert project cost and time overruns and to avoid capacity
constraints during the operating phase for want of support services.
n) Location
Specific requirements that the locations have to fulfill for smooth plant operations have to
be spelt out. Alternatives locations that are likely to be suitable should be identified. The
reasons for the choice of the optimal location from among considered alternatives should
be substantiated.
o) Plant Site
Choice of site, in a given location, for erecting the plant involves selection from available
alternatives, with due consideration for the terrain, transport facilities, water supply,
power supply, manpower availability, etc. Site preparation and development, in some
instances, can be a very expensive proposition and this aspect has to be assessed carefully.
The cost estimates should take note of the magnitude of work involved in preparing the site
for plant erection.
p) Local Conditions
A good understanding if the local conditions in terms of infrastructure and socio-economic
environment is very essential and the relevant information has to be gathered for the
feasibility study. Infrastructural investment is a very essential precondition for the
operation of any project. It is interesting to note that some of the State Industrial
Development Corporations, that build international estates and invite promoters to set up
units, work on the premise that it is sufficient of the land for the factory structure is made
available initially and that the infrastructure facilities such as roads, water, drainage,
transports, etc., can be developed in due course as the number of units in the estate
increases. The consequence has been that the earlier units in these industrial estates were
starved of essential infrastructure facilities and had to struggle for survival. The socio-
economic environment is another factor that has to be considered. Waste disposal, if not
properly organized, will pose an environmental hazard and it is essential that the location
study determines the extent of effluents and the possible manner of disposal in the
locational alternatives under consideration. There are State legislations on effluent
disposal, and the required investments for effluent treatment and disposal have to be
planned and incorporated in the project estimates.
q) Layout and Physical Coverage of the Project
Just as it is important to determine the composition and cost of equipment, materials,
services, land, etc., in great detail, it is also necessary to consider the requirements or
structures and civil works for the considerable construction and erection work that has to
be undertaken during project implantation. Such constructions/erections have to be
defined and their costs estimates prepared.
Project layouts have to be determined with reference to:
➢ The production programme;
➢ The procurement programme for materials, supplies and services;
➢ The technology chosen;
➢ The equipment selected;
➢ The civil work involved; and
➢ Significant factors, if any, with reference to the local conditions.
Alternative project layouts should be considered, and the optimal layout chosen. To
highlight the scope of the project and project components, the physical layout drawings
have to be drawn up.
r) Technology and Equipment
The feasibility study should also describe the technologies considered and the rationale for
the ultimate choice of technology. The costs of technology in terms of investments, or lump
sum payment of technology fees, or royalty or annualized payments have to be determined
and detailed. Equipment have to be categorized as belonging to the production,
infrastructure or other categories, the basis of their choice elaborated and their costs
estimated, with appropriate details of quantities and rates.
s) Civil Engineering
Civil engineering includes the creation of manufacturing facilities required for the project.
Proper blue print of the infrastructure required for the project should be created.
t) Plant Organization
Organizational planning is as important as project engineering. Effective implantation is
difficult if the organizational structure is vague; there is likely to be overlap of functions
and duplication of responsibilities, causing delays and interruptions in project
construction. The consequences are cost and time overruns. There should be a proper
grasp of the types of operations involved and the nature of services required for achieving
the production objective. Production cost centers and service cost centers should be
identified and defined in the organizational framework. Similarly, administration and
finance cost centers should also be incorporated in the structure.
u) Overhead Costs
If the plant is organized into production, service and administrative cost centers, it should
be possible to obtain realistic assessment of overhead costs. The tendency is generally, is to
calculate overhead as percentage surcharge on material cost, or on direct labor cost, or on
the sum of the two. This is too broad an approximation and is inadequate for a proper
assessment of project feasibility. The cost items accruing in the different production,
service and other cost centers should be identified, listed and the expenditure under the
individual items estimated. Depreciation charges and financing cost should also be duly
reckoned.
v) Labour
After deciding on the projected production capacity and the layout, process, etc. The
requisite personnel at various levels of operations have to be assessed. The cost of
recruitment, training, employment, and promotions have to be estimated and reckoned for
working out the economics of the project. Keeping the organizational layout in view, the
labour requirements in the skilled, semi-skilled and unskilled categories have to be
assessed, and the availability of work-force in the required categories are examined.
Depending on the number of production and service cost centers and the organization
pattern of the selling and the distribution functions, the manpower inventory should be
planned, and grouped into direct and indirect categories. The corresponding rates of wages
and salaries and perquisites have to be worked out in detail and the direct and indirect
labour costs and variable and fixed costs classifications identified and projected annually,
for the project period. Training and other personnel related costs, such as provident fund
contributions welfare expenditure commitments, etc., also have to be estimated, year by
year, for the project period.
w) Staff
Lack of qualified and competent supervisory and managerial staff has very often been a
major handicap for many a project. Advance planning and action is necessary to determine
the manpower needs for supervisory and managerial positions, for the proposed
organization structure and plant layout, and for requiting, inducting and training the key
personnel in order to ensure smooth and efficient operations from the commencement of
commercial production. While determining the manpower requirements during the
production phase, the necessity to requite operators and managerial staff for certain
operations and functions, well in advance, for training and familiarization with technology
and related aspects even during the construction stage should not be overlooked. At the
same time, the size of such workforce and stuff should be optimal, in order to avoid
excessive pre-production costs. Where foreign collaboration is involved is involved, the
commitments on foreign experts as per agreed terms and the cost of training of selected
employees at the collaborator’s plant have to be duly reckoned and included in the
estimates. The arrangements for training should not be confined to preproduction phase,
but should be planned and organized even during the operation phase, since the upgrading
of skills and management development is a continuous process.
x) Implementation Scheduling
The implementation phase commences from the time the decision to invest is taken, and
extends upto commencement of commercial production. From the process plant initial
concept, it proceeds through the stages of design, quotations, bid analysis orders and site
contracts, scope variations work completion and startup. If these stages are not properly
planned and managed, delays omissions and commissions will proliferate and cause
avoidable and substantial cost and time overruns. Planning and executing project
construction is no less important than planning and procuring equipment, facilities and
services. The feasibility study should spell out the project implementation programme and
time schedule and describe the proposed action plans and time frames for acquisition of
technology, detailed engineering of equipment, tendering, evaluation of bids and awards of
contact thereof. Similarly, the arrangements for financing for project construction and the
stages in which will be organized to be available for smooth flow of project work, the
arrangements for phased recruitment of personnel at different levels for varying functions,
for necessary and timely sanctions or approvals, clearances, etc., from the government,
financial institutions or other agencies, for procurement of supplies and for marketing will
have to be elaborated. Though due attention is paid to the determination of the periods
required for the various implementation activities, continued methodical and systematic
review is essential to ensure that the project schedule is well knit and co-ordinate. Bar
Charts, CPM, PERT techniques can be of immense help in effective implementation
planning and management. Yet it is necessary to review the implementation schedule from
time to time to initiate midcourse corrections or revisions promptly.
y) Financial evaluation
The feasibility study elaborates, as we have seen, element by element, from the project
conception to the terminal stage of the project life, the status, the prospects the choices, the
selection, the process, the specifications, the quantum, the price, the time schedule, the
costs and the benefits. The building blocks should thus be well- defined and established.
Unfortunately, this is where we seem to grossly underestimate the role of the techno-
economic feasibility study and its comprehensiveness and credibility for the successful
implementation and subsequent functioning of the project. Experimentation with pyrites
and coal as feed stock for fertilizers after confirming, in the Detailed Project Report and the
Technoeconomic Feasibility Report, that they have been found suitable, has cost the nation
dearly in terms of costs. Conceding that the estimates and projections have been well and
adequately prepared, the final acts in the feasibly study are the financial and economic
valuations of the project. The inter-relationship between the estimated capital costs, the
estimated annual revenues have to be analyzed to see whether the project is likely to pay
its keep and leave a reasonable surplus for further growth. The discounted cash flow
analysis and the sensitivity analysis are very useful tools to be applied at this stage of
evaluation of financial and economic aspects of the project.
z) Economic Evaluation
In the case of the projects, it is particularly necessary to evaluate the contribution of the
projects to the national economy. Rising of aggregate consumption could be one of the
basic objectives in the project evaluation. Redistribution of income could be another. These
different objectives will
have to be weighted and combined to establish the net contribution of the project to the
national economy.

DETAILED PROJECT REPORT (DPR)

Detailed Project Report is one which contains the complete details of the project and it
is required to be submitted to banks and financial institutions for obtaining the financial
assistance. Usually, all the contents of techno-economic feasibility studies will be covered
in the DPR. Detailed project report is a complete document for investment decision
making, approval. Detailed project report is base document for planning the project
and implementing the project. Preparation of detailed project report is a step in firming
up the proposal. When an investment proposal has been approved on the basis of
functional report and the proposal is a major proposal, it would be necessary for detailed
project report to firm up the proposal for the capital cost as well as the various
facilities. It includes:

➢ Examination of technological parameters.

➢ Description of the technology to be used.
➢ Broad technical specification.
➢ Evaluation of the existing resources.
➢ Schedule plan.
➢ General layout.
➢ Volume of work.

PROJECT LIFE CYCLE:

The project life cycle serves to define the beginning and the end of a project. For
example, when an organization identifies an opportunity to which it would like to respond,
it will often authorize a needs assessment and/or a feasibility study to decide if it should
undertake the project. The project life-cycle definition will determine whether the
feasibility study is treated as the first project phase or as a separate, standalone project.
The project life-cycle definition will also determine which transitional actions at the
beginning and the end of the project are included and which are not. In this manner, the
project life-cycle definition can be used to link the project to the ongoing operations of the
performing organization. The phase sequence defined by most project life cycles generally
involves some form of technology transfer or handoff such as requirements to design,
construction to operations, or design to manufacturing. Deliverables from the preceding
phase are usually approved before work starts on the next phase. However, a subsequent
phase is sometimes begun prior to approval of the previous phase deliverables when the
risks involved are deemed acceptable. This practice of overlapping phases is often called
fast tracking.
Project life cycles generally define:
➢ What technical work should be done in each phase (e.g., is the work of the analyst part of
the definition phase or part of the execution phase)?
➢ Who should be involved in each phase (e.g., resources that need to be involved with
requirements and design)? Project life-cycle descriptions may be very general or very
detailed. Highly detailed descriptions may have numerous forms, charts, and checklists to
provide structure and consistency. Such detailed approaches are often called project
management methodologies. Most project life-cycle descriptions share a number of
common characteristics:
➢ Cost and staffing levels are low at the start, higher toward the end, and drop rapidly as
the project draws to a conclusion.

➢ The probability of successfully completing the project is lowest, and hence risk and
uncertainty are highest, at the start of the project. The probability of successful completion
generally gets progressively higher as the project continues.
➢ The ability of the stakeholders to influence the final characteristics of the project’s
product and the final cost of the project is highest at the start and gets progressively lower
as the project continues. A major contributor to this phenomenon is that the cost of
changes and error correction generally increases as the project continues.
➢ Project life cycle defines phases that connect beginning and end of the project. After each
phase deliverables are reviewed for the completeness in time, accuracy according to
defined objectives and their final approval (approval for acceptance) before moving to the
next phase.
➢ In the beginning, phases can be overlapped to save time and to have fast tracking on the
life cycle. This technique is used to compress the whole schedule (if required resources are
available or manageable).
➢ There is no way to define Project Life Cycle ideally. Because of this every project
management team can define its own way to work on the project. They can use best
common practices and can learn new ways of dealing projects by their experiences in detail
or in general. Only three phases are always certain to be performed; conceptualization,
intermediate phase(s), and closure.
➢ Cost and staffing level is defined for every single phase.

➢ Project may have sub-project(s) and sub-projects may have their own project life cycle.
➢ The typical project life cycle – initiating, implementing and closing – has critical decision
points where the project may continue, be changed, or be abandoned.

Care should be taken to distinguish the project life cycle from the product life cycle. For
example, a project undertaken to bring new banking software to market is but one phase or
stage of the product life cycle.

STAGES OF PROJECT LIFE CYCLE:

The stages of project life cycle are detailed below:
a) Project Initiation
The first of a project is the initiation phase. During this phase a business problem or
opportunity is identified and a business case providing various solution options is defined.
Next, a feasibility study is conducted to investigate whether each option addresses the
business problem and a final recommended solution is then put forward. Once the
recommended solution is approved, a project is initiated to deliver the approved solution.
Terms of reference are completed outlining the objectives, scope and structure of the new
project, and a project manager is appointed. The project manager begins recruiting a
project team and establishes a project office environment. Approval is then sought to move
into the detailed planning phase.” Within the initiation phase, the business problem or
opportunity is identified, a solution is defined, a project is formed and a project team is
appointed to build and deliver the solution to the customer. The following figure shows the
activities undertaken during the initiation phase:

The Project Initiation activities

Develop a business case: The trigger to initiating a project is identifying a business
problem or opportunity to be addressed. A business case is created to define the problem
or opportunity in detail and identify a preferred solution for implementation. The business
case includes:
➢ A detailed description of the problem or opportunity;
➢ The Project Management Life Cycle
➢ A list of the alternative solutions available;
➢ An analysis of the business benefits, costs, risks and issues;
➢ A description of the preferred solution;
➢ A summarized plan for implementation.
“An identified project sponsor then approves the business case and the required funding is
allocated to proceed with a feasibility study. Undertake a feasibility study: At any stage
during or after the creation of a business case, a formal feasibility study may be
commissioned. The purpose of a feasibility study is to assess the likelihood of each
alternative solution option achieving the benefits outlined in the business case. The
feasibility study will also investigate whether the forecast costs are reasonable, the solution
is achievable, the risks are acceptable and the identified issues are avoidable.
Establish the terms of reference: After the business case and feasibility study have been
approved, a new project is formed. At this point, terms of reference are created. The terms
of reference define the vision, objectives, scope and deliverables for the new project. They
also describe the organization structure and activities, resources and funding required for
undertaking the project. Any risks, issues, planning assumptions and constraints are also
identified.
Appoint the project team: the project teams are now ready to be appointed. Although a
project manager may be appointed at any stage during the life of the project, the manager
will ideally be appointed prior to recruiting the project team. The project manager creates a
detailed job description for each role in the project team, and recruits people into each role
based on their relevant skills and experience
Set up a project office: The project office is the physical environment within which the
team is based. Although it is usual to have one central project office, it is possible to have a
virtual project office with project team members located around the world. A project office
environment should include:
➢ Equipment, such as office furniture, computer equipment, stationery and materials;
➢ Communications infrastructure, such as telephones, computer network, e mail, Internet
access, file storage, database storage and backup facilities;
➢ Documentation, such as a project methodology, standards, processes, forms and
registers;
➢ Tools, such as accounting, project planning and risk modeling software.
“Perform a phase review: At the end of the initiation phase, perform a phase review. This is
basically a checkpoint to ensure that the project has achieved its objectives as planned.”
b) Project Planning
Once the scope of the project has been defined in the terms of reference, the project enters
the planning phase. This involves creating a:
➢ Project plan outlining the activities, tasks, dependencies and timeframes;
➢ Resource plan listing the labor, equipment and materials required;
➢ Financial plan identifying the labor, equipment and materials costs;
➢ Quality plan providing quality targets, assurance and control measures;
➢ Risk plan highlighting potential risks and actions to be taken to mitigate those risks;
➢ Acceptance plan listing the criteria to be met to gain customer acceptance;
➢ Communications plan describing the information needed to inform stakeholders;
➢ Procurement plan identifying products to be sourced from external suppliers.
At this point the project will be planned in some detail and is ready to be executed. By now,
the project costs and benefits have been documented, the objectives and scope have been
defined, the project team has been appointed and a formal project office environment
established. It is now time to undertake detailed planning to ensure that the activities
performed during the execution phase of the project are properly sequenced, resourced,
executed and controlled. The activities shown in the following figure are undertaken.

Create a project plan: The first step in the project planning phase is to document the
project plan. A ‘work breakdown structure’ (WBS) is identified which includes a
hierarchical set of phases, activities and tasks to be undertaken to complete the
project. After the WBS has been agreed, an assessment of the level of effort required to
undertake each activity and task is made. The activities and tasks are then sequenced,
resources are allocated and a detailed project schedule is formed. This project plan is the
key tool used by the project manager to assess the progress of the project throughout the
project life cycle. Create a resource plan: Immediately after the project plan is formed, the
level of resource required to undertake each of the activities and tasks listed within the
project plan will need to be allocated. Although generic resource may have already been
allocated in the project plan, a detailed resource plan is required to identify the:
➢ Type of resource required, such as labor, equipment and materials;
➢ Quantity of each type of resource required;
➢ Roles, responsibilities and skill sets of all human resource required;
➢ Specifications of all equipment resource required;
➢ Items and quantities of material resource required.
A schedule is assembled for each type of resource so that the project manager can review
the resource allocation at each stage in the project.
Create a financial plan: A financial plan is created to identify the total quantity of money
required to undertake each phase in the project (in other words, the budget). The total cost
of labor, equipment and materials is calculated and an expense schedule is defined which
enables the project manager to measure the forecast spend versus the actual spend
throughout the project. Detailed financial planning is an extremely important activity
within the project, as the customer will expect the final solution to have been delivered
within the allocated budget.
Create a quality plan: Meeting the quality expectations of the customer can be a
challenging task. To ensure that the quality expectations are clearly defined and can
reasonably be achieved, a quality plan is documented. The quality plan:
➢ Defines the term ‘quality’ for the project.
➢ Lists clear and unambiguous quality targets for each deliverable. Each quality target
provides a set of criteria and standards to be achieved to meet the expectations of the
customer.
➢ Provides a plan of activities to assure the customer that the quality targets will be met
(in other words, a quality assurance plan).
➢ Identifies the techniques used to control the actual quality level of each deliverable as it
is built (in other words, a quality control plan).

Not only is it important to review the quality of the deliverables produced by the project, it
is also important to review the quality of the management processes that produced them. A
quality plan will summarize each of the management processes undertaken during the
project, including time, cost, quality, change, risk, issue, procurement, acceptance and
communications management.
Create a risk plan: The next step is to document all foreseeable project risks within a risk
plan. This plan also identifies the actions required to prevent each risk from occurring, as
well as reduce the impact of the risk should it eventuate. Developing a clear risk plan is an
important activity within the planning phase, as it is necessary to mitigate all critical
project risks prior to entering the execution phase of the project.
Create an acceptance plan: To deliver the project successfully, you will need to gain full
acceptance from the customer that the deliverables produced by the project meet or exceed
requirements. An acceptance plan is created to help achieve this, by clarifying the
completion criteria for each deliverable and providing a schedule of acceptance reviews.
These reviews provide the customer with the opportunity to assess each deliverable and
provide formal acceptance that it meets the requirements as originally stated.
Create a communications plan: Prior to the execution phase, it is also necessary to
identify how each of the stakeholders will be kept informed of the progress of the project.
The communications plan identifies the types of information to be distributed to
stakeholders, the methods of distributing the information, the frequency of distribution,
and responsibilities of each person in the project team for distributing the information.
Create a procurement plan: The last planning activity within the planning phase is to
identify the elements of the project to be acquired from external suppliers. The
procurement plan provides a detailed description of the products (that is, goods and
services) to be acquired from suppliers, the justification for acquiring each product
externally as opposed to from within the business, and the schedule for product delivery. It
also describes the process for the selection of a preferred supplier (the tender process),
and the ordering and delivery of the products (the procurement process).
Contract the suppliers: Although external suppliers may be appointed at any stage of the
project, it is usual to appoint suppliers after the project plans have been documented but
prior to the execution phase of the project. Only at this point will the project manager have
a clear idea of the role of suppliers and the expectations for their delivery. A formal tender
process is undertaken to identify a short list of capable suppliers and select a preferred
supplier to initiate contractual discussions with. The tender process involves creating a
statement of work, a request for information and request for proposal document to obtain
sufficient information from each potential supplier and select the preferred supplier. Once
a preferred supplier has been chosen, a contract is agreed between the project team and
the supplier for the delivery of the requisite products.
Perform a phase review: At the end of the planning phase, a phase review is performed.
This is a checkpoint to ensure that the project has achieved its objectives as planned.
c) Project Execution
This phase involves implementing the plans created during the project planning phase.
While each plan is being executed, a series of management processes are undertaken to
monitor and control the deliverables being output by the project. This includes identifying
change, risks and issues, reviewing deliverable quality and measuring each deliverable
produced against the acceptance criteria. Once all of the deliverables have been produced
and the customer has accepted the final solution, the project is ready for closure. The
activities of this phase are shown in the following figure.
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 the customer’s requirements are met, the project
manager monitors and controls the activities, resources and expenditure required to build
each deliverable. A number of management processes as shown are undertaken to ensure
that the project proceeds as planned.
Build the deliverables: This phase involves physically constructing each deliverable for
acceptance by the customer. The activities undertaken to construct each deliverable will
vary depending on the type of project being undertaken. Activities may be undertaken in a
‘waterfall’ fashion, where each activity is completed in sequence until the final deliverable
is produced, or in an ‘iterative’ fashion, where iterations of each deliverable are
constructed until the deliverable meets the requirements of the customer. Regardless of
the method used to construct each deliverable, careful monitoring and control processes
should be employed to ensure that the quality of the final deliverable meets the acceptance
criteria set by the customer.

Monitor and control: While the project team is physically producing each deliverable, the
project manager implements a series of management processes to monitor and control the
activities being undertaken by the project team. An overview of each management process
follows.
Time Management: Time management is the process of recording and controlling time
spent by staff on the project. As time is a scarce resource within projects, each team
member should record time spent undertaking project activities on a timesheet form. This
will enable the project manager to control the amount of time spent undertaking each
activity within the project. A timesheet register is also completed, providing a summary of
the time spent on the project in total so that the project plan can always be kept fully up to
date.

Cost management: Cost management is the process by which costs/expenses incurred on

the project are formally identified, approved and paid. Expense forms are completed for
each set of related project expenses such as labor, equipment and materials costs. Expense
forms are approved by the project manager and recorded within an expense register for
auditing purposes.
Quality management: Quality is defined as the extent to which the final deliverable
conforms to the customer requirements. Quality management is the process by which
quality is assured and controlled for the project, using quality assurance and quality
control techniques. Quality reviews are undertaken frequently and the results recorded on
a quality review form.
Change management: Change management is the process by which changes to the project
scope, deliverables, timescales or resources are formally requested, evaluated and
approved prior to implementation. A core aspect of the project manager’s role is to manage
change within the project. This is achieved by understanding the business and system
drivers requiring the change, identifying the costs and benefits of adopting the change, and
formulating a structured plan for implementing the change. To formally request a change
to the project, a change form is completed. The status of all active change forms should he
recorded within a change register.
Risk management: Risk management is the process by which risks to the project are
formally identified, quantified and managed. 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.
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
an issue form has been completed and the details logged in the issue register, each issue is
evaluated by
the project manager and a set of actions undertaken to resolve the issue identified.
Procurement management: Procurement management is the process of sourcing
products from an external supplier. Purchase orders are used to purchase products from
suppliers, and a procurement register is maintained to track each purchase request
through to its completion.
Acceptance management: Acceptance management is the process of gaining customer
acceptance for deliverables produced by the project. Acceptance forms are used to enable
project staff to request acceptance for a deliverable, once complete. Each acceptance form
identifies the acceptance criteria, review methods and results of the acceptance reviews
undertaken.

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 communications message released is captured in a
communications register.
Perform a phase review: At the end of the execution phase, a phase review is performed.
This is a checkpoint to ensure that the project has achieved its objectives as planned.”
d) Project Closure
Project closure involves releasing the final deliverables to the customer, handing over
project documentation to the business, terminating supplier contracts, releasing project
resources and communicating the closure of the project to all stakeholders. The last
remaining step is to undertake a post implementation review to quantify the level of
project success and identify any lessons learnt for future projects. Following the acceptance
of all project deliverables by the customer, the project will have met its objectives and be
ready for closure. Project closure is the last phase in the project life cycle, and must be
conducted formally so that the business benefits delivered by the project are fully realized
by the customer. The activities outlined in the following figure are undertaken.

Perform project closure: Project closure, or ‘close out’, essentially involves winding up the
project. This includes:
➢ Determining whether all of the project completion criteria have been met;
➢ Identifying any outstanding project activities, risks or issues;
➢ Handing over all project deliverables and documentation to the customer;
➢ Canceling supplier contracts and releasing project resources to the business;
➢ Communicating the closure of the project to all stakeholders and interested parties.
A project closure report is documented and submitted to the customer and/or project
sponsor for approval. The project manager is responsible for undertaking each of the
activities identified in the project closure report, and the project is closed only when all the
activities listed in the project closure report have been completed.
Review project completion: The final activity within a project is the review of its success
by an independent party. Success is determined by how well it performed against the
defined objectives and conformed to the management processes outlined in the planning
phase. To determine how well it performed, the following types of questions are answered:

➢ Did it result in the benefits defined in the business case?

➢ Did it achieve the objectives outlined in the terms of reference?
➢ Did it operate within the scope of the terms of reference? Did the deliverables meet the
criteria defined in the quality plan?
➢ Was it delivered within the schedule outlined in the project plan?
➢ Was it delivered within the budget outlined in the financial plan?
To determine how well the project conformed, an assessment is made of the level of
conformity to the management processes outlined in the quality plan. These results, as well
as a list of the key achievements and lessons learnt, are documented within a post-
implementation review and presented to the customer and/or project sponsor for
approval.

PROJECT CONSTRAINTS:

Defining Project Constraints

To prioritize and define the scope of the application deployment(resources into actions)
project, gather information about the constraints of your project. Constraints often include:
Resources: Identify the equipment, software, staff, and space that are available for the
project.
Time: Identify the date by which the application deployment project must be completed,
and how the application testing process fits into the larger deployment project.
Organizational issues: If the project will not involve the entire organization, identify
which groups in your organization will be affected by it. Additionally, determine if a
particular group in the organization needs the new operating system sooner than others. If
so, you might decide to perform a staged rollout.
Access to developers: Identify applications that were developed in-house or especially for
your organization. Access to the developers of these applications is critical during the
testing and issue resolution phases of the project. Such access also can be an invaluable aid
with retail applications.
 The primary impact of project constraints is the likelihood of delaying the completion of
the project. There are three types of project constraints: technological, resource and
physical.
The technological constraints relate to the sequence in which individual project activities
must be completed. For example, in constructing a house, pouring the foundation must
occur before building the frame.
Resource constraints relate to the lack of adequate resources which may force parallel
activities to be performed in sequence. The consequence of such a change in network
relationships is delay in the completion date of the project. We will examine the nature of
resource constraints in much greater detail in the next section.

Physical constraints are caused by contractual or environmental conditions. For example,

due to space limitations an activity such as painting a wall may have to be performed by
only one person.

In general, from a scheduling perspective, projects can be classified as either time

constrained or resource constrained. A project is classified as time constrained in
situations where the critical path is delayed and the addition of resources can bring the
project back on schedule and the project completed by the required date. On the other
hand, a project is resource constrained if the level of resource availability cannot be
exceeded. In those situations where resources are inadequate, project delay is acceptable,
but the delay should be minimal. The focus of scheduling in these situations is to prioritize
and allocate resources in such a manner that there is minimal project delay. However, it is
also important to ensure that the resource limit is not exceeded and the technical
relationships in the project network are not altered.

Identifying Risk Factors

By identifying risk factors, you can identify the potential barriers to a successful
deployment and assess the cost of failure for each potential blocking issue. With this
information in hand, you can create contingency plans to help mitigate or avoid
blocking issues. For application compatibility testing, it is important to think about the
project risks early in the project rather than later, during the test planning phase. The
main risk for any application testing and deployment project is the business impact of
application failure.

MANAGING PROJECT RESOURCE FLOW:

Resources are commonly thought of as sources of supply or support, such as money,
people, materials, technology, and space.

There are two primary types of resources used in projects namely: 

 Human resources
 Capital resources

Human Resources:

It is personnel pool available to an organization. The most important resources in

any organization it’s human resources. Appropriate human resources assure an
organization that the right number and kind of people are available at the right time and
place so that organizational needs can be met. Human Resources include all project
stakeholders, such as customers, project team members, support staff, project suppliers
and end users.

HRM is the strategic function performed in an organization that facilitates the most
effective use of people(employees) to achieve organizational and individual goals. The
person that manages Human resources is called Human Resource Manager or Personnel
Manager.

Role of a Human Resource Manager:

The role of a HRM is:

 Acquiring Human Resources

 Maintaining Human Resources.

Capital Resources:

Capital Resources can be defined as the tools and infrastructure used to produce
other goods and services. While the range of assets that can be considered to be a capital
resource is very broad, it is important to note that not all assets are capital resources.
There are a few basic qualifications that govern what assets can properly be referred to as
a capital resource.

One of the basic criteria for an asset to be considered a capital resource relates to
the long-term and short-term use of the asset in the production of goods and services.

Resource Management. All projects require skilled human resources to successfully

accomplish goals. Resource managers are responsible for assigning the right people to the
right projects at the right time. They manage employees currently in the workplace and
determine hiring needs based on each project's requirements.
3 different types of resources
Economists have long recognized three distinct types of economic resources that people
use to create the things they want. Natural Resources, Human Resources, and
Capital Resources are the three types of economic resources, and they are also referred to
as "factors of production".

For resource allocation when managing a project the following points to be consider.

1. Know Your Scope
Before you can allocate your resources or manage them, you have to determine the scope
of the project you’re working on. Is it a big or small project, long or short?
Once you have those questions answered, then you can make the right decision on what
resources you’ll need and how many of them are necessary to complete the project.
The clearer the project scope is, the better you’ll be able to figure out how to allocate your
resources. Therefore, take the time to get the full picture of the project prior to doing any
resource allocation.

2. Identify Resources
You know the scope of the project, it’s objective and the tasks necessary to get the work
done on time and within the budget approved, now you have to get your resources
together.
But that doesn’t mean you have an unlimited pool from which to pull from. So, you have to
see who’s currently available, what equipment you’re going to need or purchase and where
are you going to perform the tasks for this project, and is that space available.
Before you can allocate resources, you have to have them. So, make a list using the criteria
above and then make sure it fits within the budget allotted for the project.
3. Don’t Procrastinate
You’re a project manager. You live and die by your planning. Resource allocation is no
different. Waiting until something has gone awry means you have to scramble to get it back
on track, if that’s even possible.
It’s inevitable that resources will need reallocation. What plan have you ever created that
was set in stone? Therefore, in the planning process you should take some time to research
where and when you might have a blocked team member or task dependencies.
By setting up a resource plan and noting these red-flag warnings, and more importantly
figuring out how you’ll respond to them, beforehand, you’re prepared to handle them when
they arise. And they’ll always arise.
4. Think Holistically
It’s a problem when you’re so focused on process that you neglect to lift your head up from
the project plan to note what is actually happening. This isn’t merely checking your
estimates against actual progress in the project, though that is important, too.
What you must always be aware of is the state of your resources. For example, what is the
schedule for your team, are any taking vacation time, are they sick, etc.? Also, what is the
duration of the lease for site or equipment?
Don’t let any of these details get past you because of tunnel vision. Look at the whole
project, not just the various pieces, as captivating as it can be to lose oneself in
project metrics.
5. Track Time
You always want to keep a close eye on time, how your team is working and if they’re being
efficient. It’s your job to make sure that a task that can be completed in a day doesn’t take a
week. There are ways to improve time tracking.
To do this you must keep track of your team’s workload. That requires the right tools to
give you real-time data collected on one page where you can both see and schedule ahead
when needed.
With a dashboard tool, you can see whether your resources are properly allocated and, if
not, easily reschedule them. That way you can balance the workload and run a more
efficient project.
6. Use Tools
Speaking of tools, project management software is a great asset to managing your
resources more productively. With an online tool, you get project data instantly updated.
You can see where your resources are allocated across a calendar that is color-coded  to
note whether they’re on- or off-task, on vacation or sick. Rescheduling to help a team
member who is over tasked is a simple click of the keyboard.
You can also set up notifications, so when a task is running behind you know about it
before it becomes a problem. And you can automate email notifications to keep team
members on schedule without micromanaging them.
7. Don’t Over-allocate
Many managers over-allocate, whether because of poor planning or an inability to say no,
which doesn’t help. Instead of bringing in the project on time and within budget, over-
allocation threatens team burnout.
Be honest. Do you suffer from this bad habit? If so, stay vigilant and avoid it. If you don’t,
there’s a good chance you’ll tarnish team morale and the quality of their project work.
It’s unfair to expect so much from your resources that they break. Re-examine your
resource plan and make use it allocated the resources you have for the project evenly.
8. Be Realistic
While it’s good practice to be prepared for issues that might arise in your project, you don’t
want to hog resources by adding too many people or days to your schedule.
When you do this, you’re skewing the project estimate and messing with the effectiveness
of long-term planning. It’s going to take from your bottom line.
 Remember when we mentioned comparing your estimated to actual utilization? This is
where that process helps keep you properly allocated. Using a tool, like we noted above, is
also key to getting an accurate sense of how the project is going.
9. Have a Routine
As a manager, you plan and then you execute and monitor. It’s all very structured. But
sometimes things like resource allocation falls through the cracks, which is only going to
come back and haunt you.
Therefore, you want to set up regular check-ins, say a specific day and time every week, to
go through your resources, check your PM tools and make sure no one over-tasked for the
week’s work ahead.
Another thing you can do is speak with your team members, get a sense of what’s going on
with them on the front lines of the project, ask if they have any issues. By setting up a
routine check-in and keeping updated by your PM software, you get a clear sense of your
resources.
10. Know Your Resources
You can’t manage what you don’t know. You should know the experience and skills and
personality very resource that you’ve tasked or allocated to support the project.
For example, you should create a profile for each of the members of your project team.
What are their skills and experience? The more you know about them, the better you’ll be
able to place them in the project and assign tasks which they can best perform.
You probably have something like this already from when you were assembling your team
and had written a job description for each of them. Keep those files up to date as their skills
and experiences broaden.

Effectively managing project resources is crucial for professional services organizations

and other companies that run their business by project. How well you manage and
optimize resources will determine how much revenue you bring in per employee, as well
as, the overall profitability of your organization.

 What factors into effective project resource management?

There are several factors that determine how well professional services firms manage their
resources:
 Having clear and thorough understanding of the project plan, and the role it play
 Developing a resource schedule/plan derived from the project plan
 Optimizing resources after the project is underway
 Qualifying your efforts - measuring utilization and realization
 The role software plays in effectively managing project resources
 
Having a clear and thorough understanding of the project plan and the role it plays
In order to effectively manage resources, you must start with some of the key components
of the project plan. Managing resources for a project begins with the accuracy of the
estimate presented to the customer. The more you know about the project ahead, the more
you can prepare. In other words, the more accurate your estimates are, the better you will
be able to manage the schedule of your resources for the project ahead of time, allowing
you to prepare for possible roadblocks that could derail the success of the project.
 
Budget of the project
Developing a budget is also part of estimating a project. Budgets are included in the
estimate because it is understood that as the project progresses, the budget will likely
change. Having a baseline budget amount allows project managers to have greater control
over the resources assigned to the project. A common example illustrating the importance
of the project budget is when a senior resource is assigned to a project, but the customer
would rather have a junior resource (or multiple) assigned to the project because their
rates are lower. In this scenario, two junior resources could potentially finish the project
more quickly at a lower overall cost.
 
Timeframe for completion
The date you commit to delivering a project plays a big role as well. Some of your resources
may work at a different pace than others - and some may not be available as much as you
would prefer, because they are already assigned to other projects.
 
Tasks required to complete the project
Another key component involves assigning resources to specific project tasks. In order to
do this effectively, you need to know a.) all of the tasks required to complete the project, b.)
how long you expect each task to take to complete (task duration), c.) the priority of the
tasks, d.) the dependency of tasks as they relate to each other  and e.) constraints and
restrictions for tasks, such as deadlines, budgets, and the skill sets of your resources.
 
Having a clear understanding of all the above components of a project plan and estimate
will give you a solid foundation that will help you in the next step of resource management,
which is building a resource plan from the project plan, or resource scheduling.
Resource Scheduling/Resource Planning
Specific goals for a project may vary, but at a high level professional services firms are
striving to complete their projects in the most efficient way possible, in order to maximize
project profitability. This should be at the forefront of a project manager's mind as he/she
is scheduling resources for a project. Now that you are aware of the project plan and the
customer's requirements, you must evaluate your internal resources in order to effectively
manage them.
 
Evaluating your on-going projects
Before scheduling resources to a new project, you should first evaluate projects that are
currently active and on-going. How many of them are on-track or ahead of schedule? Are
any of them at risk of not being completed on time, or going over budget? If you discover
that some of your projects are at risk, now is the time to make the necessary adjustments to
resources in order to produce the results you promised  the customer. Failing to recognize
off-track projects before starting a new project will only make things more hectic down the
line.
 
Understanding your people resources
When creating a resource schedule for a project you must know a resource's skillset, as
well as their experience and billable rate. By developing an accurate estimate and list of
tasks to complete the project, you should have a good idea of the skillsets required to
complete a project. You wouldn't ask a resource to take on a task they aren't qualified to
do; knowing your resource's skillsets as well as the skillsets required for the project will
enable you to filter  resources to form a project team. Likewise, each resource's billable rate
will factor in to the resource scheduling process because of the project budget. This ties
back into accurately estimating the project - the skillsets required for the project will
determine the resources needed.
 
Resource capacity and demand
You've evaluated your current projects and adjusted resources to make sure they are
completed successfully, and you've determined which resources you have available to
schedule based on skillsets required and budget available for the upcoming project. Now
you must identify, of the remaining resources, which have availability.
 
Resource capacity and resource demand will help you efficiently manage these resources.
The demand of a resource in terms of a project is the amount of time required to complete
a project task. Resource capacity, on the other hand, refers to what that resource can
handle as far as skillset and available time. For example, in order to complete a specific
project task, it may take a resource 10 hours a week for the next 3 weeks. This is demand.
However, this resource, due to being scheduled on other projects, only has 8 hours a week
available. This is the resource's capacity. When evaluating resource capacity and demand,
don't forget to factor in non-project-related commitments, such as vacation, holidays,
training time, etc.
 
Scheduling your resources requires a complete understanding of your on-going projects
and how they are performing, the skill sets and billable rates of your resources, as well as
the capacity and demand of each resource. Once you are caught up on these key areas, you
can put together a resource schedule and move on to the next phase: resource
optimization.

Resource Optimization
While building an accurate project estimate and an effective resource schedule are two
static pieces of the process, optimizing resources after a project has begun is an on-going
process that requires diligent monitoring. No matter how well you estimate a project and
build a resource schedule for the project, something is always going to change. If done
correctly, resource optimization will allow you to adjust to these changes accordingly
without risking your goal of completing the project efficiently, with maximum profitability.
 
Changes in capacity and demand
Throughout the lifecycle of a project, capacity and demand will change for resources. A
resource may have more capacity part-way through a project because one of their other
projects was completed. Or, new resources might become available altogether that weren't
available when the project started. On the other hand, resources may be pulled away from a
project and assigned to something with a higher priority - the demand is still the same, but
their capacity is lower. Balancing these changes in resource availability alongside the
priority of projects is what resource optimization is all about.
 
There are cases where you don't have the resources necessary to complete all of your
projects on-time and on-budget, so you have to resort to other methods. Two common
ways of dealing with resource constraints are resource leveling and resource smoothing.
 
Resource leveling

Resource leveling involves identifying the demand for an over-allocated resource, and
making sure the supply (capacity) meets the demand. To increase supply of a resource, you
either need to have another resource with equal skill set available to assign to the project
(you probably wouldn’t be doing resource leveling if this were the case) or you need to
increase the amount of available hours the resource has by ‘leveling’ the hours spent on
different projects.
 
For example, a resource schedule may be built out for Project A over a 10-week period, but
due to the project tasks and skill sets required, Pam (high-demand resource) would be
required to work 60 hours some weeks, while only working 30 in others.
This isn’t practical, as Pam cannot work more than 40 hours in a week. Resource leveling in
this case would involve adjusting the project date of delivery from 10 weeks to 12 weeks,
which would increase Pam’s resource capacity to match the demand while staying under
that 40-hours-a-week limit.
 
It is common for resource leveling to indirectly affect the completion date of a project in
scenarios like the one above, because in most cases resource leveling is only used when a
project is at risk due to task dependencies (i.e. a certain task must be completed before the
next one is started and you can't just skip it and come back to it later). This is one of the
main differences between resource leveling and resource smoothing.
 

Resource smoothing
While Pam is allowed to work up to 40 hours a week per her organizational policies, they
would prefer she only be allocated for 38 hours a week for the sake of flexibility. Resource
smoothing involves adjusting the resource schedule for different project tasks and
assignments while still working within the predefined resource constraints (38 hours)
when slack is available.
 
Resource smoothing is applied after resource leveling, and does not have an affect on the
project completion date. The purpose of resource smoothing is to take advantage of slack in
the resource's schedule in order to work within the desired allocation for that resource by
moving around project tasks that don't have dependencies.
 
Resource optimization - balancing the future
There are plenty of resource optimization techniques that will help you drive up project
profitability today, but maybe the most important optimization technique has to do with
finding a balance between maximum project profitability and maximum investment into
growing your resources. While increasing profitability for each project is an immediate
goal, you have to set yourself up for future success.

Calculating resource utilization

The first step in calculating utilization and realization is establishing a baseline number for
the total hours a resource has available to work. The most common number used in
professional services firms is 2080 hours in a year (40 hours a week x 52 weeks in a year =
2080 hours). That being said, every organization is different. Some companies factor in
their company holidays and/or vacation time, and start with a baseline of 2000. The
baseline number itself isn't as important as just being consistent - once you decide on a
baseline number for total hours, it is important to use that same baseline when calculating
realization and utilization for all employees in order to get the most accurate
measurements.
 
After establishing a baseline, you can begin to calculate utilization for a resource. The goal
is ultimately to have 100% resource utilization. Julie a full-time employee, was available to
work 2080 hours last year, in total she ended up working 2080 hours. Julie was 100%
utilized.
Utilization rate = Hours Worked / Hours Available to Work
 
Calculating Resource Realization
Calculating resource realization requires you to know how many of a resource's hours
were billable, and how many of those hours were actually billed to a client. The total
billable hours will be the new baseline; you can divide the hours billed for a resource by the
baseline to determine realization rate. Continuing on the example above, Julie worked 2080
hours but only 1456 of them were billable. Of those 1456 billable hours, 1224 hours were
billed to customers and resulted in revenue. Julie was 84% realized (1224 billed hours /
1456 total billable hours).
 
Realization rate = Billed Hours (hours billed to the customer) / Total Billable Hours
  
Measuring utilization and realization rates is critical for professional services organizations
because it:
 shows you how well your resources are being managed, at a glance
 gives you a key performance indicator (KPI) that allows you to compare your
organization to industry benchmarks
 provides insight into overall project profitability, and shows where you have gaps
that need filled.