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Chapter-1: introduction***
Project definition
⚫ According to American project management institute, a project is a system involving the coordination of a number
of separate department entities throughout the organization and which must be completed within a prescribed schedules
and time constraints.
⚫ According to R.L Martino, a project is some overall tasks which has a definable beginning and a definable end. It
consists of a number of related and dependent activities, all of which utilize resources, and upon which there are
imposed internal and external conditions.
⚫ A project is a temporary and unique effort to produce a product, service, or result with a defined start and end. It is
typically designed to achieve specific goals and objectives within a defined timeline, budget, and scope. Projects may
be simple or complex and can involve multiple teams, stakeholders, and resources. The ultimate goal of a project is to
deliver a specific outcome that meets the needs and expectations of stakeholders.
Project management ***
⚫ According to B.B. GOEL-project management is an organized venture for managing projects that involves scientific
application of modern tools and techniques in planning, financing, implementing, monitoring, controlling and
coordinating unique activities or tasks to produce desirable outputs in consonance with predetermined objectives within
the constraints of time, cost, quantity and quality.
⚫ Project management is the process of planning, organizing, and controlling resources and procedures to achieve specific
goals and objectives for a defined project. It involves coordinating the efforts of team members, setting deadlines, and
establishing budgets in order to deliver the desired outcome on time, within scope, and within budget.
Components or elements of a project *
1. Operations: operation means activities those are performed to conduct the project. So, it includes all the activities in
a project. what is done in a project
2. Resources: resources mean men, machines, materials, technologies and time those are used to complete the project.
So, the elements which are used to accomplish the project are called resources. what is used to compete thew project
3. Condition: the surroundings and the barriers of the project in which the project is performed are known as condition.
So, condition affects the effectiveness of the project activities. that are needed to followed for the completion for the
project
Characteristics/features/nature of a project
1. Projects are complex, one-time processes. A project arises for a specific purpose or to meet a stated goal. It is complex
because it typically requires the coordinated inputs of numerous members of the organization. Project members may
be from different departments or other organizational units or from one functional area. For example, a project to
develop a new software application for a retail company may require only the output of members of the information
systems group working with the marketing staff. On the other hand, some projects, such as new product introductions,
work best with representation from many functions, including marketing, engineering, production, and design. Because
a project is intended to fulfill a stated goal, it is temporary. It exists only until its goal has been met, and at that point, it
is dissolved.
2. Projects are limited by budget, schedule, and resources. Project work requires that members work with limited
financial and human resources for a specified time period. They do not run indefinitely. Once the assignment is
completed, the project team disbands. Until that point, all its activities are constrained by limitations on budget and
personnel availability. Projects are “resource-constrained” activities.
3. Projects are developed to resolve a clear goal or set of goals. There is no such thing as a project team with an
ongoing, nonspecific purpose. The project’s goals, or deliverables, define the nature of the project and that of its team.
Projects are designed to yield a tangible result, either as a new product or service. Whether the goal is to build a bridge,
implement a new accounts receivable system, or win a presidential election, the goal must be specific and the project
organized to achieve a stated aim.
4. Projects are customer-focused. Whether the project is responding to the needs of an internal organizational unit (e.g.,
accounting) or intended to exploit a market opportunity external to the organization, the underlying purpose of any
project is to satisfy customer needs. In the past, this goal was sometimes overlooked. Projects were considered successful
if they attained technical, budgetary, and scheduling goals. More and more, however, companies have realized that the
primary goal of a project is customer satisfaction. If that goal is neglected, a firm runs the risk of “doing the wrong things
well”—pursuing projects that may be done efficiently but that ignore customer needs or fail commercially.
5. Risk & uncertainty: we know that no risk, no gain. Generally, many risks and uncertainties are involved in the
implementation of a project. It is not possible to implement any project without taking risks and uncertainties, which
may be internal and external. Internal risk arises due to the problem of the project and external risk arises due to the
problem of external environment of the project.
Classification of project *
1. On the basis of national income as well as socio economic program:
a) Industry project: to establish a new industry, joining additional department with the established industry and
innovative the new product is included in the industry project.
b) Agriculture project: to conduct the research work for increasing the production of agro-product and generalized
the modern cultivation system are included in the agriculture project.
c) Education project: taking various programs for ensuring the quality of education, compulsory primary education
and adult education program are included in the education project.
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d) Engineering project: to innovate the new technology, various constructing programs for infrastructural
development are included in the engineering project.
2. On the basis of factors of production:
a) Labor intensive: when the emphasis is given on the labor force of a country to conduct and implement a project
then it is called labor intensive project. So here the project is prepared by considering the labor or work force of a
country.
b) Capital intensive: like labor intensive project when the project is prepared by considering the financial condition
of the country is called capital intensive project. Here emphasis is given on capital because capital is more important
and available than the labor for the accomplishment of this type of project.
3. On the basis of partnership project: project can be depended on countries own capital and technology or two or
more countries also can participate. Second one is called joint project.
⚫ By measuring production opportunities development project can be classified into three categories:
a) Category x: productive and revenue earned project: example: various types of industrial project. These
types of projects are self-financed project. production and revenue-based projects are included in x-type project.
It is a self-employment-based project. Expenses and advantages can be measured in this type of project.
b) Category y: productive but not revenue generated project. it is production based but not revenue-based
project. It produces the visible opportunity but not earn the profit. Moreover, it helps other to earn revenue. It
cannot consume the revenue itself.
c) Category z: service-oriented project. opportunities are not for revenue such as education, training hospital,
roads and bridges etc. mainly service based project is called the z-type project. The advantages of this project
cannot be measured. Education, training, hospital, road, bridge etc. Are included in the z-type project.
⚫ Priority to allocated asset: on the basis of priority to distribute the resources and by considering the national
importance, project can be classified into two divisions.
a) Core project: according to the national importance to distribute the resources or wealth, the project which gets
the priority is called core project.
b) Noncore project: according to the national importance to distribute the wealth and resources, the project which
gets the less priority than that of project is called the non-core project.
⚫ By considering project preparation and implementation phases:
a) Experimental project: when the project is conducted to experiment or test its feasibility then it is called the
experimental project. Generally, it is small in nature, high innovative and risky but they always do not give
instant economic result.
b) Pilot project: the size of pilot project is larger than the experimental project. For this reason, it requires huge
investment. The reliability and validity of the result of experimental project are the main considerable factors
for the pilot project.
c) Demonstration project: to increase the productivity, reduce production cost, increase income and increase
social services etc. With efficiency are the main considerable factors for the demonstration project. The main
objective of the demonstration project is to compare the new technology, technique and program with the
traditional technology and shows these comparison and differences to the people.
d) Replication, dissemination and service delivery project: through the replication, dissemination and service
delivery project, techniques and programs of the experimental project is extended. It is the last step according
to the chronology among different stages of the project. That means it arranges a wide use of the objects that
are innovated by the experimental project and tested by the pilot project and shown through the demonstration
project. The tested methods, techniques, strategies, and programs are extended by this type of project.
Project life cycle **
The order or sequence on which the projects stages are performed or done is called project life cycle.
The project life cycle refers to the series of stages that a project goes through from its initiation to its closure. It is a
framework that outlines the key phases and activities involved in delivering a successful project. The purpose of the project
life cycle is to provide a structured approach to managing a project, ensuring that all necessary steps are taken and all
stakeholders are aligned towards the common goal of delivering the project successfully. The specific phases and activities
of the project life cycle may vary depending on the methodology used, but they typically include initiation, planning,
execution, monitoring and control, and closure. The project life cycle is an iterative process, meaning that projects may
cycle through some of the phases multiple times before being completed.
Project life cycle by Warren C. Baum **
Warren c. Baum has given project life cycle which is accepted by the world bank. He has mentioned the 6 stages of a
project. These are as follows:
1. Project identification: according to boom the first step of project life cycle is to identify the project. The identification
of project is able to identify the requirements and establish the concept of a project. Through the identification of
project, possibility of profitable investment is created and by the traditional development program of a country it is
achieved.
2. Project preparation: project preparation means design and frame work of a project where the measurement of
technical, financial, social and institutional requirement of the project is mentioned. The important step of a project
preparation is to conduct the feasibility study of a project.
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3. Project appraisal: project appraisal is a decision-
making process for selecting a project by which the
maximum utilization of resources of a project is
ensured through the minimum resources. The main
objective of project appraisal is to determine the
commercial profit, economic outcome and social
acceptability of project.
4. Project negotiation: in case of contributing project
this step is very important. The important functions
of this step are selecting the most profitable project
from the apprised project, building a team to conduct
the contract, getting govt. Approval for taking credit
and preparing the credit documents.
5. Project implementation and supervision: the
important factors for starting and implementing the
project are project appraisal, project activation,
collecting resources, coordinating production and
distribution, finding solution of problems, and
determining the methods of inventory and supply. It
is necessary to have hard political commitment,
simple frame work, right formulation of project and its proper management for successful implementation of the
project.
6. Project evaluation: it is the last step of project life cycle. In facts it is called the post step of project termination. In
this step the project output is analyzed. Here mainly the variation between the standard of outcome and actual outcome
of the project is measured. It is not only applicable for terminating project but also applicable for the ongoing project.
Adam’s and Burned’s project life cycle ***
1. Conceptualization: conceptualization refers to
the development of the initial goal and technical
specifications for a project. The scope of the work
is determined, necessary resources (people,
money, physical plant) identified, and important
organizational contributors or stakeholders signed
on.
2. Planning: planning is the stage in which all
detailed specifications, schematics, schedules,
and other plans are developed. The individual
pieces of the project, often called work packages,
are broken down, individual assignments made,
and the process for completion clearly delineated. For example, in planning our approach to complete the term paper,
we determine all the necessary steps (research, drafts, editing, etc.) In the process.
3. Execution: during execution, the actual “work” of the project is performed, the system developed, or the product created
and fabricated. It is during the execution phase that the bulk of project team labor is performed. As figure 1.3 shows,
project costs (in man hours) ramp up rapidly during this stage.
4. Termination: termination occurs when the completed project is transferred to the customer, its resources reassigned,
and the project formally closed out. As specific sub activities are completed, the project shrinks in scope and costs
decline rapidly.
Phases of project management
1. Planning: in project management, it first identifying the main activities to be performed, time estimates of these
activities and precedence relationships between them. In cpm and pert, this phase will result in the construction of a
project network.
2. Scheduling: in the planning phase a time chart is made and showing the scheduling of resources (men, machine and
money). It may happen that significant irregularities will arise in the level of resources requirements. Resources leveling
may become an important task in the scheduling phase.
3. Controlling: this phase involves issuing reports, updating the network in response to changes that occur (regenerating
the network in part or in its entirety) and shifting or increasing resources to shorten project duration.
In which stages of project life cycle does implementation start? *
Implementation typically starts in the execution phase of the project life cycle. The execution phase is the stage where the
project manager and the project team carry out the work specified in the project plan, including the development and
delivery of the project's products or services. During the execution phase, the project manager is responsible for managing
the day-to-day activities of the project, ensuring that the project stays on track and that all necessary tasks are completed
within the defined timeline and budget. This is when the project team starts putting the plans into action and delivering the
project outputs. The execution phase is often the longest phase of the project life cycle and can involve significant resources
and effort.
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Why do project managers need to have ideas about project cycle? *
Project managers need to have an understanding of the project life cycle because it provides a framework for delivering a
project successfully. The project life cycle outlines the key phases and activities involved in a project and helps project
managers to ensure that all necessary steps are taken and all stakeholders are aligned towards the common goal of delivering
the project on time, within budget, and to the desired quality. By having an understanding of the project life cycle, project
managers can:
1. Plan and manage the project effectively: The project life cycle provides a roadmap for the project, which the project
manager can use to develop a detailed plan for how the project will be executed and managed.
2. Communicate with stakeholders: By having an understanding of the different phases of the project life cycle, project
managers can better communicate with stakeholders about the project status, progress, and expected outcomes.
3. Control and monitor progress: Project managers can use the project life cycle to track progress and make changes as
necessary to ensure the project stays on track.
4. Ensure that all necessary activities are completed: The project life cycle provides a comprehensive list of activities
that need to be completed in order to deliver the project successfully, which helps project managers to ensure that
nothing is overlooked.
5 components of a project may change over the course of its life cycle
The project life cycle is also a useful means of visualizing the activities required and challenges to be faced during the life
of a project. Figure 1.4 indicates some of these characteristics as they evolve during the course of completing a project as
you can see, five components of a project may change over the course of its life cycle:
1. Client interest: the level of enthusiasm or concern expressed by the project’s intended cus tomer. Clients can be either
internal to the organization or external.
2. Project stake: the amount of corporate investment in the project. The longer the life of the project, the greater the
investment.
3. Resources: the commitment of financial, human, and technical resources over the life of the project.
4. Creativity: the degree of innovation required by the project, especially during certain development phases.
5. Uncertainty: the degree of risk associated with the project. Riskiness here reflects the number of unknowns, including
technical challenges that the project is likely to face. Uncertainty is highest at the beginning because many challenges
have yet to be identified, let alone addressed.
Distinguish between PERT and CPM
PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method) are two project management methods
used for planning and scheduling projects. Both PERT and CPM are graphical representation techniques used to determine
the most efficient way to complete a project, taking into account the time required for each task and the interdependencies
between tasks. However, there are some key differences between the two methods:
1. Purpose: PERT was originally developed for large and complex projects with uncertain and variable activity durations,
while CPM was designed for projects with well-defined and predictable activity durations.
2. Timing: PERT uses a probabilistic approach to determine the estimated time for each activity and the overall project
completion time, while CPM uses a deterministic approach to determine the longest path through the project network
and the minimum project completion time.
3. Activity Representation: PERT represents activities as arrows, with their durations shown on the arrowhead, while
CPM uses boxes to represent activities, with the duration indicated inside the box.
4. Calculation of Project Completion Time: PERT calculates project completion time as the sum of the expected times
for each activity, while CPM calculates project completion time as the length of the critical path, which is the longest
path through the project network.
Both PERT and CPM are useful tools for project management, and the choice between the two will depend on the nature
of the project and the level of accuracy required. In general, PERT is more suitable for projects with a high degree of
uncertainty, while CPM is more appropriate for projects with well-defined and predictable activity durations.
Why are projects important?
1. Achieving Goals: Projects provide a structured approach to achieving specific goals and objectives. Projects allow
organizations to bring together resources and expertise to deliver outcomes that would not be possible through normal
operations.
2. Building Capabilities: Projects provide an opportunity for organizations to develop new capabilities, such as
developing new skills, improving processes, or establishing new systems and technologies.
3. Competitive Advantage: Projects can help organizations gain a competitive advantage by delivering new products,
services or solutions faster than their competitors.
4. Improved Performance: Projects provide a structured approach to delivering improvements in performance, whether
it is improving productivity, reducing costs, increasing efficiency or enhancing customer satisfaction.
5. Innovation and Improvement: Projects provide an opportunity to introduce new ideas and to improve existing
processes, products or services. They can also drive innovation by bringing new solutions to complex problems.
6. Meeting Customer Demands: Projects can help organizations meet the evolving needs of their customers, by
developing and delivering new products and services that meet changing customer demands.
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Determinants of project success
1. Time. Projects are constrained by a specified time frame during
which they must be completed. They are not supposed to continue
indefinitely. Thus, the first constraint that governs project
management involves the basic requirement: the project should
come in on or before its established schedule.
2. Cost. A second key constraint for all projects is a limited budget.
Projects must meet budgeted allowances in order to use resources
as efficiently as possible. Companies do not write blank checks and
hope for the best. Thus, the second limit on a project raises the
question: was the project completed within budget guidelines?
3. Performance. All projects are developed in order to adhere to
some initially determined technical specifications. We know
before we begin what the project is supposed to do or howthe final
product is supposed to operate. Measuring performance, then,
means determining whether the finished product operates
according to specifications. The project’s clients natu rally expect
that the project being developed on their behalf will work as
expected. Applying this third criterion is often referred to as
conducting a “quality” check.
4. Client acceptance. The principle of client acceptance argues that projects are developed with customers, or clients, in
mind, and their purpose is to satisfy customers’ needs. If client acceptance is a key variable, then we must also ask
whether the completed project is acceptable to the customer for whom it was intended. Companies that evaluate project
success strictly according to the original “triple constraint” may fail to apply the most important test of all: the client’s
satisfaction with the completed project.
PM researchers proposes 4 relevant dimensions of success or how project will be successful?
An additional approach to project assessment argues that another factor must always be taken into consideration: the
promise that the delivered product can generate future opportunities, whether commercial or technical, for the organization.
In other words, it is not enough to assess a project according to its immediate success. We must also evaluate it in terms of
its commercial success as well as its potential for generating new business and new opportunities.
1. Project efficiency: meeting budget and schedule expectations.
2. Impact on customer: meeting technical specifications, addressing customer needs, and creating a project that satisfies
the client’s needs.
3. Business success: determining whether the project achieved significant commercial success.
4. Future potential: determining whether the project opened new markets or new product lines or helped to develop new
technology.
How do we analyze stakeholders’ power and interest in project management? *
In project management, analyzing stakeholders' power and interest is an important aspect of stakeholder management. The
power and interest of stakeholders can greatly impact the success of a project, and it's important for the project manager to
understand and manage these factors. Here are some steps to analyze stakeholders' power and interest:
1. Identify Stakeholders: The first step is to identify all the stakeholders who will be affected by the project. This includes
both internal and external stakeholders, such as customers, employees, suppliers, and regulatory agencies.
2. Assess Power and Interest: Once stakeholders have been identified, the next step is to assess their power and interest.
Power refers to a stakeholder's ability to impact the project, while interest refers to the level of involvement and
investment the stakeholder has in the project.
3. Use a Stakeholder Power/Interest Matrix: A stakeholder power/interest matrix can be used to categorize stakeholders
into four groups: high power/high interest, high power/low interest, low power/high interest, and low power/low
interest. This matrix can help the project manager prioritize stakeholder engagement and allocate resources accordingly.
4. Engage with Stakeholders: Once stakeholders have been categorized, the project manager can engage with each
stakeholder group to understand their needs and expectations and to manage their power and interest effectively.
5. Monitor and Manage Stakeholder Relationships: Throughout the project, the project manager should regularly
monitor and manage stakeholder relationships to ensure that their power and interest are aligned with the project
objectives.
By analyzing stakeholders' power and interest, project managers can better understand the potential impact of each
stakeholder on the project, and engage with stakeholders effectively to ensure project success.
Process of stakeholder management of project *
1. Identify Stakeholders: The first step is to identify all the stakeholders who will be affected by the project, including
internal and external stakeholders.
2. Analyze Stakeholder Interests and Power: Once stakeholders have been identified, the next step is to analyze their
interests and power. This involves assessing their level of involvement and investment in the project, as well as their
ability to impact the project.
3. Develop a Stakeholder Management Strategy: Based on the analysis of stakeholder interests and power, the project
manager should develop a stakeholder management strategy that outlines how each stakeholder will be engaged and
managed.
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4. Communicate with Stakeholders: Effective communication is key to successful stakeholder management. The project
manager should communicate regularly with stakeholders to keep them informed about project progress, as well as to
understand their needs and concerns.
5. Engage with Stakeholders: The project manager should engage with stakeholders to understand their needs and
expectations and to manage their power and interest effectively. This may involve working with stakeholders to resolve
conflicts and to align their interests with the project objectives.
6. Monitor and Adjust Stakeholder Management Strategy: Throughout the project, the project manager should
regularly monitor and adjust the stakeholder management strategy as needed. This may involve reassessing stakeholder
interests and power and making changes to the engagement and communication strategy.
Who are the different stakeholders in a project? *
Stakeholders are individuals or groups who have a vested interest in the outcome of a project. In a project, there can be
several types of stakeholders, including:
1. Project sponsor: The individual or organization that funds or sponsors the project and provides resources to support
the project.
2. Project team: The individuals who are responsible for completing the work of the project and delivering the project
deliverables.
3. Customers/Clients: The individuals or organizations that will benefit from the project and receive the project
deliverables.
4. End-users: The individuals who will actually use the project deliverables.
5. Suppliers: The individuals or organizations that provide goods or services to support the project.
6. Regulators: The individuals or organizations that enforce regulations or standards that the project must comply with.
7. Community: The local community that may be impacted by the project and its outcomes.
8. Investors: The individuals or organizations that have invested in the project and expect a return on their
investment.
9. Management: The individuals who are responsible for managing the project and ensuring its success.
Some basic concepts
1. Network: network is a series of inter dependent related activities.
2. Activity: an activity represents some action and as such is a time-consuming effort necessary to complete a particular
part of the overall project. Each and every activity has a point of time where it begins and a point where it ends.
3. Event: an event represents the start or completion of some activity and as such consume no time. An event is a specific
instant of time that denotes the beginning and end of an activity.
4. Network diagram: network diagram is a pictorial presentation of the various events and activities concerning with a
project.
5. Critical path: critical path consists of the sequence of those events and connected activities that require the maximum
time in the completion of the project. It is that path which takes the longest time to complete the project.
6. Earliest start time (est): earliest start time for an activity is the earliest possible time an activity can begin on the
assumption that all activities preceding to it started at the earliest possible time.
7. Earliest finish time (eft): earliest finish time is the sum of the earliest start time and the estimated time to perform the
concerning activity.
8. Latest start time (lst): latest start time for an activity is the difference between the latest finish time and the estimated
time for the activity to be performed.
9. Latest finish time (lft): latest finish time for an activity is the latest possible time an activity can finish without delaying
the project beyond its dead line on the assumption that all the subsequent activities are performed as planned.
10. Slack: slack is the length of time an activity can be delayed without increasing the project completion time.
⚫ Slack=latest start time-earliest start time (lst-est)
⚫ Or slack=latest finish time-earliest finish time (lft-eft)
Objectives of network analysis
1. Powerful tools for planning, scheduling and control.
2. Show interrelationship
3. Minimization of cost for a given time.
4. Minimization of time for a given cost.
5. Minimization of idle resources.
6. To minimize production delays, interruption and conflicts.
Think of a successful project and unsuccessful project with which you are familiar. What distinguishes the two,
both in terms of the process used to develop them and their outcomes?
A successful project is typically characterized by a well-defined scope, clear goals, effective communication and
collaboration, appropriate resources, and a systematic and flexible process that accommodates changes and surprises. A
successful project is delivered on time, within budget, and meets the needs of its stakeholders.
On the other hand, an unsuccessful project is usually plagued by a lack of clear direction, poor communication,
inadequate resources, inadequate risk management, and a rigid process that does not allow for changes and surprises. An
unsuccessful project may be delivered late, over budget, and may not meet the needs of its stakeholders.
In terms of the process used to develop them, a successful project is likely to have used a well-structured project
management methodology, such as Agile, Waterfall, or Lean, and to have employed tools and techniques such as network
diagrams, Gantt charts, and risk management plans to plan, schedule, and monitor the project.
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In contrast, an unsuccessful project may have used an ad-hoc or poorly defined process, with a lack of clear
milestones and checkpoints, and limited use of project management tools and techniques.
In conclusion, the difference between a successful and unsuccessful project is largely determined by the quality of
the planning, communication, and management processes used to develop them, as well as the outcomes they deliver.
Successful projects are well-planned, well-executed, and deliver the desired results, while unsuccessful projects often suffer
from a lack of direction, poor communication, and inadequate management.
What is critical path of a network diagram? *
The critical path of a network diagram is the sequence of project activities that determines the minimum time required to
complete the project. It represents the longest path through the project network, from the start of the project to the end, that
includes all the activities and tasks that must be completed in order to achieve project completion on schedule.
In other words, the critical path represents the longest sequence of tasks that must be completed without delay in
order to meet the project deadline. Any delay in any of the critical path tasks will directly impact the overall project timeline
and the ability to deliver the project on schedule.
The critical path is an important tool for project managers, as it helps to identify the most critical tasks and activities
that must be managed closely in order to ensure project success. By monitoring the critical path and managing risks and
dependencies associated with critical path tasks, project managers can ensure that the project remains on track and is
delivered on time and within budget.
Why critical path of a network diagram is important to find out?
1. Project timeline: The critical path represents the longest sequence of tasks that must be completed without delay in
order to meet the project deadline. Knowing the critical path helps project managers to identify the tasks that are most
critical to the project timeline and to prioritize their efforts accordingly.
2. Resource allocation: The critical path can help project managers to determine the resources required to complete the
project on schedule. This includes the allocation of labor, materials, and equipment to the critical path tasks, as well as
the scheduling of those resources.
3. Risk management: By identifying the critical path, project managers can better understand the risks associated with
the project and can take proactive measures to manage those risks. This includes identifying potential delays and
contingencies, and developing strategies to minimize the impact of any potential delays.
4. Performance monitoring: The critical path provides a clear visual representation of the project timeline, allowing
project managers to monitor the progress of the project and to make adjustments as needed. This helps to ensure that
the project remains on track and that deliverables are completed on time and within budget.
5. Communication: The critical path can also be used as a communication tool to share project status with stakeholders
and to keep everyone informed of the project timeline and progress.
What is network diagram? *
A network diagram is a visual representation of the tasks and dependencies involved in a project. It is used to illustrate the
relationships between project activities and to identify the sequence in which the tasks must be completed.
Network diagrams are commonly used in project management to help project managers plan, schedule, and control project
activities. They provide a clear visual representation of the project timeline, allowing project managers to identify the
critical path and determine the minimum time required to complete the project.
The network diagram typically includes a set of nodes or boxes that represent the tasks, and arrows that indicate the
dependencies between tasks. Tasks are shown in the order in which they must be completed, and the length of the arrows
represents the time required to complete each task.
Network diagrams can be created using a variety of tools and techniques, including flowcharts, bar charts, Gantt charts,
and PERT (Program Evaluation and Review Technique) diagrams. They can also be created using project management
software such as Microsoft Project, Trello, and Asana.
In conclusion, network diagrams are an important tool for project managers, as they provide a visual representation of the
tasks and dependencies involved in a project and help to plan, schedule, and control project activities to ensure project
success.
Guideline for construction network diagram **
1. Each activity is represented by one and only one arrow in the network.
2. No two activities can be identified by the same beginning and end events.
3. Before an activity can be under taken, all activities preceding it must be completed.
4. The arrows depicting various activities are indicative of the logical precedence only.
5. The flow the diagram should be from left to right.
6. Arrows (activities) should not be crossed unless it is completely unavoidable.
7. Arrow should be kept straight and not curved or bent.
8. Angle between the arrows should be as long as possible.
9. Each activity must have a tail and head events.
10. Dangling must be avoidable in a network diagram.
11. The general rules for numbering the events are that no event can be numbered until all preceding events have been
numbered.
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Objectives of Project management *
The objectives of project management can vary depending on the specific project, but some common objectives include:
1. Meeting project goals and objectives: The primary objective of project management is to ensure that the project is
completed on time, within budget, and to the required quality standards.
2. Delivering value to stakeholders: Project management aims to deliver value to stakeholders by ensuring that the
project outcomes are in line with their expectations and needs.
3. Managing risks and uncertainties: Project management helps to identify, assess, and manage risks and uncertainties
that may impact the project, in order to minimize the impact of those risks and to ensure project success.
4. Improving efficiency and effectiveness: Project management helps to streamline processes and eliminate waste, in
order to improve the efficiency and effectiveness of project activities and outcomes.
5. Facilitating communication and collaboration: Project management provides a structured approach to
communication and collaboration, in order to ensure that all stakeholders are informed and engaged throughout the
project.
6. Building and developing skills and knowledge: Project management provides opportunities for project team members
to develop their skills and knowledge, and to apply new learning to future projects.
7. Providing a foundation for continuous improvement: Project management helps to identify areas for improvement
and to implement best practices that can be applied to future projects, in order to continuously improve project
outcomes.
In conclusion, the objectives of project management are varied, but all aim to ensure that projects are completed successfully
and deliver value to stakeholders. Project management provides a structured approach to planning, executing, and
controlling projects, in order to achieve project goals and objectives and to ensure project success.
Functions or duties of a project management *
1. Prepare activity plan according to the objectives
2. Prepare schedule and budget by using modern techniques
3. Project staffing and training and determine the responsibilities, duties, interrelationships of selected employees
4. Supervision and control
5. Communicate with other departments
6. Communicate with competitive organization, government and non-govt. Organizations
7. Prepare evaluation report after implementing project
Necessity of project management or project managers functions and responsibilities ****
the man who is responsible for all the task of the project is called the project manager. According to f.l. Harrison “the man
who is responsible for a project may be called a project manager. Project manager is also called the project director or
coordinator. It is the duty of project manager to success the project from the view point of time, cost, and technical side.
We know that the main organization has many divisions and many employees work in those divisions. So, it is the duty of
project manager to lead those employees so that it is possible to complete the project with predetermined time and budget.
To maintain the responsibilities, a project manager has to perform the bellow activities-
1. Project planning: the project manager has to prepare a plan for implementing the project. Proper planning is the
precondition for the success of the project.
2. Project coordination: it is the important task of the project manager is to coordinate among the members of the project,
suppliers, contractors, advisors and other concerned parties. Because, group effort is the indispensable factor for a
project.
3. Project staffing and training: it is the important function of project manager to recruit the qualified personnel for the
project and arrange the training facilities for them. It is the duty of a project manager is to recruit a right person for the
right post at the right time.
4. Project implementation: project implementation means perform the project activities according to the plan and
schedule of the project. The project manager has to implement the project under his supervision.
5. Project control and reporting: to conduct the project according to the predetermined plan, control the activities, cost,
and time are the important considerable factors to the project manager. It is also the duty of project manager to submit
report to the higher authority regarding the advancement and problems of the project.
6. Maintaining linkage with the concerned parties: it is the duty of project manager to maintain coordination and
communication with the project concerned parties and those who have direct and indirect effect on the project.
7. Conflict management: conflict may arise among the members of the project due to the tendency of getting power in
the organization, leading others and authority & responsibility relationship. In this situation the duty of project manager
is to identify the conflict as soon as possible and need to solve.
8. Change management: it is the duty of project manager to adjust the project with the changing situations in the country.
That means if it is essential to change any task or decision of the project due to the changing situation then it is the duty
of project manager to adjust the project with the situation and inform the members of the project regarding that changing
situation.
9. Project financial management: it is the duty of project manager is to collect the fund in right time, control cost and
innovate effective accounting system for the project.
10. Terminating the project: it is the important duty of project manager to terminate the project formally, utilize the
unused resources after terminating the project and preparing evaluating report that will act as a future direction of the
project.
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Distinguish between traditional management and project management. *
1. Scope of work: Traditional management is concerned with ongoing, recurring operations, whereas project management
is focused on one-time, temporary initiatives with a specific start and end date.
2. Nature of work: Traditional management involves managing stable and well-defined processes, whereas project
management is characterized by uncertainty, complexity, and ambiguity.
3. Resources: Traditional management utilizes a stable pool of resources, whereas project management often involves
bringing together a unique combination of resources for each project.
4. Time frame: Traditional management operates within a long-term time frame, whereas project management is
typically focused on a shorter time frame, with a specific deadline.
5. Decision-making: Traditional management involves ongoing decision-making and problem-solving, whereas project
management requires focused, proactive decision-making to resolve the unique challenges of each project.
6. Structure: Traditional management has a hierarchical structure, with clear lines of authority and reporting
relationships, whereas project management often requires a more flexible, cross-functional structure to facilitate
collaboration and teamwork.
7. Repetition: the functions of traditional management are repeated. But the functions of project management are not
repeated.
8. Orientation: traditional management is job oriented but the project management is goal oriented.
9. Communications: traditional management maintains the formal communications system but the project management
maintains the informal communications system.
Project organization
Project organizations are those that are set up with their exclusive focus aimed at running projects. Construction companies,
large manufacturers such as Boeing or airbus, pharmaceutical firms, and many software consulting and research and
development organizations are organized as pure project organizations. Within the project organization, each project is a
self-contained business unit with a dedicated project team. The firm assigns resources from functional pools directly to the
project for the time period they are needed. In the project organization, the project manager has sole control over the
resources the unit uses. The functional departments’ chief role is to coordinate with project managers and ensure that there
are sufficient resources available as they need them.
Perfect organization is very important for the project management. The role of project manager regarding directing
and controlling activities of the project is determined by the nature of organizational structure of the project. Generally,
three types of project organization are used to conduct the project. They are as follows-
1. Line and staff or functional organization: it is appropriate for the small project when both line and staff authorities
are included in a line and staff organization. It is consisted of employee and straight-line authority. Expert employee
only has the ability to provide advise but straight-line executives have the authority to order and advise. To coordinate
the task of this type of organization, coordinator is recruited who coordinate the task of functional divisions.
2. Divisional organization: it is familiar as a strong organizational structure of the project. In this system there are
separate divisions and a project manager of that division has to implement the project. The expert and other employees
are engaged in the project for the full time. The project manager is all in all and has power to order the employees for
their duty. That means he is the most superior in straight line authority and all the members of the project work under
him. Due to the centralized power, it is possible to take quick decision.
3. Matrix organization: in matrix organized project, the project manager controls administrative decisions and functional
heads controls technical decisions. In matrix organization the power is more balanced. It is the method of organizing
that maintains both functional supervisions as well as project supervisions. A strong matrix operates close to a pure
project organization while a weak matrix operates more like a functional organization. So here authority is divided
between project manager and functional manger. Only project manager cannot take decisions here.
Discuss the characteristics of a matrix organization. *
A matrix organization is a type of organizational structure that combines functional and project-based structures in a single
entity. The key characteristics of a matrix organization are:
1. Dual reporting structure: Employees in a matrix organization report to two managers, one for their functional area
and one for their project team. This creates a balance between the needs of the functional and project-based aspects of
the organization.
2. Shared resources: In a matrix organization, resources are shared across multiple projects, which helps to maximize
efficiency and minimize duplication of effort.
3. Cross-functional teams: Matrix organizations often employ cross-functional teams, where individuals from different
functional areas come together to work on a project. This encourages collaboration and helps to build a sense of
community within the organization.
4. Flexibility: Matrix organizations are known for their flexibility, as they are able to adapt to changing project
requirements and shifting priorities.
5. Complexity: Matrix organizations can be complex, as they require coordination between multiple stakeholders and
balancing the needs of different functional areas and projects.
6. Power struggles: In a matrix organization, power struggles can arise between functional managers and project
managers, as they both have a degree of authority over the same employees.
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Draw an organogram of a functional organization. *

What are the key objectives that need to meet to set a project organization? *
1. Clarity of project scope: The project scope should be clearly defined, including the project objectives, deliverables,
and any constraints or limitations.
2. Effective resource allocation: The project organization should ensure that the right resources are in place at the right
time to meet the project requirements. This may include personnel, equipment, and materials.
3. Appropriate levels of control: The project organization should have the appropriate levels of control in place to
manage the project effectively, including clear lines of authority, decision-making processes, and communication
channels.
4. Clear lines of responsibility: The roles and responsibilities of all members of the project organization should be clearly
defined to ensure that everyone understands their obligations and can work together effectively.
5. Alignment with strategic goals: The project organization should be aligned with the broader strategic goals of the
organization, to ensure that it contributes to the overall success of the organization.
6. Effective risk management: The project organization should have effective risk management processes in place, to
help identify and mitigate potential risks that may impact the project.
7. Strong leadership: The project organization should have strong leadership, with a project manager who is capable of
guiding the team and ensuring that the project is delivered on time, within budget, and to the required quality standards.
Project consists of some activates, but all the activates are not project. ****
Specialists tried to define project in such a way that, “the activities which are performed to achieve a special or
predetermined goal.” This definition may create a question that, do all the activities are project? A laborer does his job to
earn money. One can do anything, is that a project? Definitely this is not a project. To remove this confusion, we may
define project in such a way that “project is those activities, which have predetermined starting and ending time, for which
definite expenses and assets are allocated.” By analyzing this definition, if we justify the activities from the point of
objective, nature, time, expenses and sources of assets, we can find some characteristics; which differentiate the project
from other activities. Those activities are described below.
1. Objective: objective is an important and main characteristic of a project. We know that all tasks are not a project. But
the task having a specific objective may be a project. That means what is the main goal of performing specific job and
for whom the activities are to be performed must be specified in the project.
2. Life time: like objective, life times also an indispensable characteristic of a proper project. A project must have a
specific life time. When will the project be started and when it will be closed, will be specified in a project? That means
time duration must be mentioned in a project.
3. Team work: we know that more than one people and more than one task are involved in a project. Again, to perform
a specific task, it may need more than one people. So, to perform the task, it needs more than one people which require
making a team to organize the work properly. So, team work is an essential characteristic of a project.
4. Life cycle: like a product life cycle in marketing and life cycle of human being, a project has a particular life cycle.
From a slow beginning they progress to build up of size then peak, begin decline, and finally musty be terminated by
some due time. A particular project has mainly three steps; starting, growth and termination.
5. Change: the nature of project is not constant; it may change to adjust with the changing situation. The rules and
regulations, decisions and techniques may be changed to implement the final project. It is always changeable.
6. Successive principle: we know that to form and implement a project it should have a set of important successive
principle, where the techniques of forming and implementing a project will be mentioned. So, a project must have a set
of successive principles.
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7. Made to order: to implement a project it is essential to have a balance in chain of command. That means, the specific
duty and responsibility and under whom will the work be done, must be mentioned in a perfect project. So, it is another
important characteristic of project to have a set of order to command to implement the project and the activities.
8. Unity in diversity: unity in diversity means a project may have more than one department or various units to perform
separate task. That means it has many units which are responsible to perform different tasks. Suppose, if the project is
to make a bridge, then various units be responsible to perform different tasks for constructing a bridge. So, diversity of
various units is the important characteristics of a project.
9. High level of subcontract: moreover, most of the complex tasks of a project are performed by the subcontract. Many
people are involved with the project. That means to perform the main task of a project may require different level of
subcontract but all are involved to implement the main project.
10. Risk & uncertainty: we know that no risk, no gain. Generally, many risks and uncertainties are involved in the
implementation of a project. It is not possible to implement any project without taking risks and uncertainties, which
may be internal and external. Internal risk arises due to the problem of the project and external risk arises due to the
problem of external environment of the project.
In fine, we can say that project is the sum of many activities but all the activities are not project, because every project must
fulfill the above characteristics.
Discuss 4 major knowledge areas to know by a project manager. *
A project manager is responsible for overseeing all aspects of a project, from initiation to closure. In order to be effective
in this role, a project manager must have a solid understanding of four key knowledge areas:
1. Project Integration Management: This knowledge area focuses on how to coordinate all the different elements of a
project, including project scope, schedule, budget, quality, resources, and risk management.
2. Project Scope Management: This knowledge area covers how to define, plan, and control the scope of a project,
including how to manage stakeholder expectations, gather requirements, and develop a project scope statement.
3. Project Time Management: This knowledge area covers how to plan, schedule, and control the timeline of a project,
including how to develop a project schedule, allocate resources, and manage risks related to the project timeline.
4. Project Cost Management: This knowledge area covers how to plan, budget, and control the costs of a project,
including how to develop a project budget, estimate costs, and manage project financials.
Chapter-2: project life cycle analysis***
Project formulation ****
Proper project formulation is one of the most important pre-condition for the proper implementation of the project
objectives. Project formulation means the activities that convert entrepreneur’s ideas and aspiration into a realistic planning
and work schedule.
According to B.B. GOEL “project formulation refers to a series of steps to be taken to convert an idea or aspiration into a
feasible of action”.
According to G. MYRDAL “project formulation is one of the basic techniques through which planning can be changed
from an institutional base to an institutional and rational base”.
Project formulation is the pre-project or ex-ante appraisal of a project. Here before taking a project decision, project
entrepreneur appraise the project from economic, technical and social point of views. Project formulation is an intellectual,
a complex and risky task. So, it needs to have a team of expertise people who comes from different discipline like
economics, engineer, management, marketing and so on.
Stages of project formulation ****
Project formulation process involves many sequential stages which are as follows:
1. Project identification: 3. Feasibility study:
2. Technical analysis: 4. Appraisal of project:
Project identification
Project identification refers to determining the activities in order to control the emerged situation, solving the existing as
well the potential problem or to achieve any desired results. Any project cannot emerge by itself. Various parties' like-
government, person, organization etc. Take the initiative of the project. By analyzing various issues, it can be observed that
the government is the initiator of most of the projects. For the expansion of industry and commerce various industrial and
commercial organizations take the initiative of new projects. These types of initiatives influence the social and economic
condition of the country directly or indirectly. It creates employment opportunity of many people, fulfill the demand of
customers, at all make the country export dependent. By following the project identification process primarily, it is possible
to get 3 types of decision-
1. The project is potential.
2. the project is not potential that means it is not appropriate.
3. the data available is not in a position to reach in a decision.
Technical analysis **
In this stage, different strategic concepts which play a supporting role such as labor, raw material, transportation, demand
and supply etc. are analyzed. The broad purposes of technical analysis are
(a) to ensure that the project is technically feasible in terms of availability of all the inputs.
(b)to facilitate the most optimal formulation of the project in terms of technology, size, location and so on.
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Following factors are considered for technical analysis **
A. Input analysis: where will the project be set up, what types of raw materials, manpower are required and form where
will it be collected etc. are analyzed in input analysis. It includes
• Location • Transportation facilities
• Size and cost of land • Incentives and concession
• Raw materials • Environmental consideration
• Utilities • Climatic and natural consideration
• Manpower • Technical aspect consideration
B. Demand and supply analysis: the importance of a project depends on the demand of its produced goods and services.
By demand and supply analysis, we can get whether the project is capable of producing quality products or not according
to its customer demand. For analyzing demand and supply, it is required to have adequate information about customer,
consumer, seller and their behavior. Demand and supply can be forecasted through data, which are collected from the
primary and secondary sources.
• Survey of buyer’s intention • Market test method
• Composite of sales force opinion • Statistical method
Feasibility study of project *****
Feasibility study: feasibility study means to determine whether a project is socially, economically, financially, politically
and environmentally viable or not. Following aspects are considered in feasibility study:
A. Economic feasibility study: how a project is economically profitable /acceptable is examined in economic feasibility
study. Generally overall conditions of the country, export import, unemployment problem is given emphasis in economic
feasibility study. Generally, in economic feasibility study the following factors are considered:
• Capital cost • Estimates of operating revenues
• Working capital requirement • Taxes and depreciation
• Estimates of operating cost • Profits
B. Financial feasibility study: whether the project is financially positive or not is examined in financial feasibility study.
For analyzing financial feasibility study, the following factor should be considered or various types of techniques can be
used among the techniques following is the important techniques.
Payback period (PBP): the payback period is the length of time which is required to recover the initial cash outlay of the
project.
Net present value (NPV): the NPV of the project sis the sum of the present values of all the cash flows- positive as well
as negative –that are expected to occur over the life of the project. That means time value of money is considered here.
Benefit cost ratio (BCR): the BCR is defined as the present value of benefits divided by the present value of costs. A
project is considered worthwhile if the benefit cost ratio is more than 1 and not worthwhile if the benefit cost ratio is less
than 1.
Present Value of Benefit
BCR= Present Value of Cost
Internal rate of return (IRR): the IRR of the project is the discount rate, which makes its npv equal to zero. By using
below formula, IRR can be determined-
C
IRR= a+ D (b-a)
Where a= lower discounting rate
b= higher discounting rate
c= net present value at lower discounting rate
d= difference between the net present value at higher discounting rate and at lower discounting rate.
Financial ratios: financial ratios are used to measure the project financial capacity; liquidity, ability to earn profit etc. Are
used in financial ratio.
C. Commercial feasibility study: the commercially acceptability of the project is examined in commercial feasibility
study. In this case the following factors should be considered:
• What is the current demand of the product produced in a project and what will be in future?
• What will be the price of product in future?
• What would be the cost of the product?
• What would distribution channel be of the product?
D. Managerial feasibility study: managerial feasibility study examined whether the management of the project is right
and eligible enough or not at the time of production and project implementation. Managerial feasibility study is important
in project implementation. Following aspects are considered here
• How much manpower are required, whether management personnel are skilled and experienced, whether foreign
expert is required or not?
• Consider equilibrium between supervisor and production staff and from this determine size of management.
• Whether organization structure is appropriate for the project or not.
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Appraisal of project*
Appraisal of project is the last stage of project formulation.
According to P.K. MOTTOO: “project appraisal is the process of evaluating the salient features of feasibility analysis,
techno-economic analysis, design and network analysis, input analysis, financial analysis and social cost benefit analysis
of a project”.
Actually, project appraisal is the details list of answering several questions of the different aspect of a project from which
it is possible to know about the ins and out of the project.
Principle and techniques of appraisal
Appraisal of project is the last stage of project formulation. It is such types of analytical process that analyze the various
parts of a proposed project, like- economic, financial, technical, business, management. It analyses the reality as well as
profitability and the project managers take the decision of acceptability and investment based on this.
B.b. goel said, "project appraisal is a tool to examine as to whether in the given situation. It would be most realistic, reliable
and reasonable one to commit resources or not."
P.K. motto said, "project appraisal is the process of evaluating the features of feasibility analysis, techno-economic
analysis, design and network analysis input analysis, financial analysis and social cost-benefit analysis of a project."
For a proper appraisal of a project the project managers need to analyze the following issues-
1. Technical potentiality. 4. Commercial feasibility. 7. Social feasibility.
2. Financial potentiality. 5. Organizational feasibility. 8. Environmental feasibility.
3. Monetary potentiality. 6. Managerial potentiality.
Issues involved in social, political and economic appraisal of project **
For social appraisal of project managers need to find the answers of the project. Following questions-
1. What types of change the proposed project can bring in human perception and behavior?
2. What is the attitude of general people toward the project?
3. How the beneficiaries of the project will be associated with various stages of the project?
By analyzing these various questions managers come to a decision that whether the project will be socially acceptable or
not. If the answer is positive then managers take the decision to implement the project.
For political appraisal of project managers need to find the answers of the following questions-
1. What is the attitude of politician regarding the project?
2. Whether the project goes against the policy of the government?
3. Will the government allow the project to be implemented?
4. Will the government give proper support for performing the activities properly?
When the answers of these questions come in favor then it is possible to take initiative to implement the project.
For economic appraisal of project managers need to find the answers of the following questions-
1. The organization that is going to take the initiative of the project is financially capable or not. If not then how it is
possible to achieve this financial capability?
2. Is the cost is determined on the basis of future cost and price? 3. What types of finance is needed for this project and
from which source it will be collected?
3. Whether the investors have the capability to to pay the debt of the money lending organization?
4. What will be the potential cost, income, liquidity, and income rate?
The financial issue is a very important issue because without money it is not possible to start the project. All these three
issues are needed to consider very carefully in order to get the highest outcome from a project.
Problems/impediment/drawback in effective project formulation ***
In developing country like Bangladesh problems of proper project formulation are as follows:
• Analysis of market on the basis of assumption. • Radical change of market condition.
• Don’t use of modern management technique in • Social customs create barriers to the project
project formulation. beneficiaries.
• Exaggerate financial planning. • The project is not consistent with socioeconomic
• Failure to evaluate entrepreneur qualification to development of the country.
accept new project. • The project is not consistent with the purpose of
• Frequent change of govt. Rules and regulation. initiative organization.
• Frequent transfer of higher managerial personnel. • To be ambitious in project formulation by planner.
• Higher initial cost. • Underestimating of project cost.
• Ignore environmental problem influenced by project. • Underestimating of project scheduling.
• Inadequate market analysis. • Unnecessarily use of modern technology as a result
• Internal conflict of entrepreneurs due to self-interest. increase of project cost.
• Lack of political stability. • Unsuitable technology selection and implementation.
• Lack of qualified professional and technically trained • Wrong presentation of project duration, cost,
employees. revenue, social cost benefit etc.
• Lock of planning is product mix at primary stage. • Wrong selection of project place.
• Problem of supplying raw materials.
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Necessary measures or guidelines for effective project formulation
• Accurate financial planning • Recruit qualified and experienced personnel
• Accurate presentation of project duration, cost, • Select and implement appropriate technology.
revenue, social cost benefit etc. • Stable political climate
• Adequate market analysis • The project must be consistent with socioeconomic
• Consider environmental issue. development of the country.
• Develop proper project schedule • The project must be consistent with the purpose of
• Don’t frequent transfer of project personnel initiative organization.
• Include beneficiary group in the project formulation • Use of modern management technique in project
process formulation.
• Proper selection of project place
Chapter-3: project appraisal and selection***
Benefit-cost-ratio
Benefit -cost ratio means the ratio between benefit and cost. Here benefit refers to the income from the project and cost
indicates the invested money and operational costs. It is mainly the ratio between the value of present income and the value
of present costs. By this ratio it can be known how much money can be earned against investing a unit of money.
Benefit-cost ratio= present value of benefit/ present value of cost.
If the value of benefit-cost ratio is 1 or more than 1 then the project is acceptable. In case of more than one project the
project n which BCR is more that particular project is more acceptable. But if the benefit-cost ratio is less than 1 then that
project is not acceptable.
Benefit-Cost Ratio (BCR) is a financial metric used to evaluate the economic viability of a project or investment.
It is calculated by dividing the total benefits of a project by its total costs, including both direct and indirect costs.
The BCR is used to determine whether the benefits of a project are worth the costs and provides a quick way to
compare the potential returns of different projects. A BCR greater than 1 indicates that the benefits of the project are greater
than its costs, making it economically viable. On the other hand, a BCR less than 1 indicates that the costs are greater than
the benefits, making the project unviable.
The BCR is a useful tool for project managers and decision-makers, as it helps them to assess the potential return
on investment (ROI) of a project, and to make informed decisions about whether to invest in a particular project or not. By
calculating the BCR, they can ensure that they are making the best use of limited resources and investing in projects that
have the highest potential for success.
Payback period **
Payback period is a familiar, much useable and easy method for evaluating the investment proposal. Through payback
period we can know, what amount is come within what year from the main capital investment project. Here, salvage value
is not considered. If one project's annual cash inflow is static, then the payback period is expressed in the following way:
Cost of Investment
Pbp = Annual cash inflow
Or
Net Cash Outlay (NCO)
Pbp = Net Cash Benefit (NCB)
net cash outlay= net investment
net cash benefit= net yearly profit or earning
The Payback Period is a financial metric used to measure the length of time it takes for a project or investment to recover
its initial cost. It is calculated by dividing the initial cost of the project by its expected annual cash inflows.
The Payback Period is a simple and straightforward method for evaluating the feasibility of a project or investment.
A shorter payback period is generally considered more favorable, as it indicates that the investment will generate returns
more quickly. On the other hand, a longer payback period may indicate that the investment will take longer to generate a
return, or that it may not generate a return at all.
The Payback Period is widely used by project managers and decision-makers as a quick and easy way to assess the
viability of a project or investment. However, it is important to note that the payback period is a relatively simple metric
and does not take into account the time value of money or the long-term profitability of a project. As such, it is often used
in conjunction with other financial metrics such as the internal rate of return (IRR) and net present value (NPV) to gain a
more comprehensive understanding of the financial performance of a project or investment.
Advantages of payback period (PBP) **
1. Payback period method is very easy and understandable
2. It is less expensive than other method
3. It is measured on basis of analysis of cash flow.
4. It emphasis on short-term project than risky project.
Disadvantages of payback period (PBP)**
1. Payback period method does not consider the cash flow of money in next year.
1. It does not measure profit, because it does not count all the cash flow of life cycle of project.
2. It does not consider time value of money.
3. It is not consistent with the companies' long-term goal.
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Internal rate of return (IRR) **
Internal rate of return is such types of discount
rate by which if the future costs benefit when
converted in present value then it becomes
equal. On the other hand, it can be said that
IRR is that discount rate in which the NPV of
investment becomes zero.
According to R. L PITELY, "IRR is that rate
of discount at which NPV=0, and BCR=1.
When the IRR is equal or more than the
minimum necessary rate then it is acceptable
Internal rate of return is expressed by-
The Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of a project or investment. It is the
discount rate that makes the present value of future cash flows from the investment equal to its initial cost.
In other words, the IRR is the expected annualized rate of return that an investment will generate over its lifetime. It is used
to determine the feasibility of a project or investment and to compare the expected returns of different investments.
A high IRR indicates that an investment is expected to generate high returns, making it a more attractive investment. On
the other hand, a low IRR may indicate that an investment is not expected to generate high returns, or that the expected
returns are not worth the investment.
The IRR is widely used by project managers and decision-makers as a key tool for evaluating the financial viability of a
project or investment. It helps them to determine the expected rate of return, to compare the expected returns of different
investments, and to make informed decisions about which investments are worth pursuing. However, it is important to keep
in mind that the IRR is based on a number of assumptions, such as constant cash flows and a constant discount rate, and
may not accurately reflect the true profitability of an investment in real-world scenarios.
Advantages of internal rate of return (IRR) **
1. It considers time value of money and discount, future cash flow by its discounting rate.
2. It counts all cash flow of project life cycle.
3. It determines discount rate. So that it is considered to compare with the project cost of capital.
4. It is very easy to compare the project with other project.
Disadvantages of internal rate of return **
1. It is difficult to understand, measure & use.
2. Its project excepting system may not accurate.
3. The result of IRR & NPV may different when project life cycle, cash outflow and cash inflow is different.
4. It is very difficult to use IRR method in the economy of unstable country
Net present value (NPV)
By discounting the future cash flows
of any project through the rate of cost
of capital and after converting the
present value, the opening cost of
project is deducted from the total
present value, which present value
remain is called net present value. If
this strategy shows the positive figure
or zero then the project is considered
as acceptable. But if the result is negative then the project is not acceptable. Net present value is expressed by-
NPV=total present value of cash inflow-total present value of cash outflow.
The Net Present Value (NPV) is a financial metric used to evaluate the profitability of a project or investment. It is
calculated as the sum of the present values of all expected cash flows from the investment, minus the initial cost of the
investment.
The NPV takes into account the time value of money, meaning that it adjusts the value of future cash flows to their
equivalent present value, based on a discount rate. This discount rate represents the minimum return that an investor would
require to make the investment.
A positive NPV indicates that the expected returns from an investment are greater than the cost of the investment,
making it a profitable investment. On the other hand, a negative NPV indicates that the expected returns are lower than the
cost of the investment, making it an unprofitable investment.
The NPV is widely used by project managers and decision-makers as a key tool for evaluating the financial viability
of a project or investment. It helps them to determine the expected profitability of the investment, to compare the expected
profitability of different investments, and to make informed decisions about which investments are worth pursuing. Unlike
other financial metrics, such as the Payback Period or the Internal Rate of Return, the NPV takes into account the entire
expected life of the investment, making it a more comprehensive and reliable measure of the expected profitability of an
investment.
Advantages of net present value method
1. It applies the time value of money. 3. It considers the nature and quantity of cash flow.
2. It counts all cash flow of project. 4. It has the opportunity to co-ordinate with the risk.
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Disadvantages of net present value method
1. It is difficult to use, understand & measure the method.
2. It is essential to determine the discount rate that is very difficult task.
Time value of money
Time value of money means the present value of money is more benefitted than the future value of money. In future, the
value of money is less than present existing money. That means, the value of present 100 tk. Is more than the value of 100
tk. Will get in future. Since we prefer present or money than future money.
Important of time value of money
1. We live in uncertain world, since firm does not sure about its future cash flow. So, firm gives preference to its present
cash flow.
2. Most of the people give preference on the present consumption than future consumption, because in future it may arise
many risks and it may not possible to consume in future at all.
3. Most of the organization emphasis on existing money than the future cash flow, because firms can invest its present
money and gained profit. But in present time, it is not possible to invest future cash flow.
Chapter-4: project planning & scheduling***
Project planning and scheduling
Definitions of planning: planning is deciding in advance what is to be done in future.
According to r. L. Martino, a project plan establishes the duration of the project, the resources needed to complete each
activity and the required sequence of performance of each job.
Project planning is a framework or blue print of action where mention the particular budget. It is the pre decision regarding
the activities of project, time and cost of completing a project and regarding a required resource of a project.
3 elements of project planning
1. To determine the duration of the project 3. To identify the sequence of performance of each job.
2. To estimate the necessity of resources
Steps of project planning *
Project planning is a crucial step in the project management process and involves several key steps:
1. Define the project scope: Clearly defining the project's objectives, goals, and deliverables helps to ensure that everyone
involved has a shared understanding of what the project entails.
2. Identify the project team: Determine the roles and responsibilities of each team member and assign tasks accordingly.
3. Develop a work breakdown structure (WBS): Divide the project into smaller, more manageable tasks and organize
them into a hierarchical structure.
4. Establish a project timeline: Determine the start and end dates for each task and create a schedule for the entire
project.
5. Allocate resources: Assess the resources required for each task and make sure that adequate resources are available
for the project's duration.
6. Develop a risk management plan: Identify potential risks to the project and develop strategies for mitigating those
risks.
7. Create a budget: Establish a budget for the project, taking into account the resources, materials, and expenses required
to complete each task.
8. Obtain approvals: Obtain approval from stakeholders and project sponsors to ensure that the project has the support
it needs to move forward.
9. Communicate the plan: Share the project plan with the project team and stakeholders to ensure everyone is aware of
their roles, responsibilities, and timelines.
These steps are not a one-time process but rather an iterative cycle, and the plan may be adjusted as necessary based on the
progress of the project and any changes that may occur.
Plans require projects and projects require plans. Discuss **
The statement "Plans require projects and projects require plans" is a concise representation of the interdependence of
planning and project management. Planning is the process of defining what work needs to be done, in what order and by
when, to achieve specific goals. Project management is the application of knowledge, skills, tools, and techniques to project
activities to meet project requirements.
Plans provide the roadmap for a project, outlining the goals, tasks, resources, and timeline. They help to organize
the project and provide a framework for making decisions. However, plans are often only theoretical, and the actual
execution of a project may differ from the original plan. This is where project management comes in, as it is used to manage
the day-to-day execution of the project and to adjust the plan as needed to keep the project on track.
In this sense, plans are a prerequisite for successful project management, as they provide the foundation for
decision-making and help to ensure that all necessary tasks are completed on time and within budget. Conversely, successful
project management requires constant monitoring and updating of the plan, as well as regular reassessment of goals, to
ensure that the project stays on track and achieves its intended outcomes.
In conclusion, plans and projects are closely interrelated and both are essential for the successful completion of any
project. A good plan lays the foundation for effective project management, while effective project management requires
constant monitoring and updating of the plan to ensure success.
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Important or necessity of project plan **
1. To communicate all parties related to the project 6. To determine the responsibilities and distribution
2. To control the unexpected events and changes. 7. To determine who will do the jobs, when to do and
3. To coordinate all activities of the organizations why to do?
related to project 8. To establish controlling process
4. To coordinate all activities with people 9. To estimate the probable termination time of the
5. To determine the necessity of resources allocation or project
distribution of each stage of the implementation of 10. To organize the activity of project
plan.
Factors for making project plan effective
1. Clarity and specificity: The project plan should be clear, concise, and easy to understand, with specific goals, tasks,
and timelines defined.
2. Realistic expectations: The project plan should set realistic expectations for the project team, stakeholders, and
sponsor.
3. Aligned with strategic goals: The project plan should align with the organization's overall strategy and goals, to ensure
that it supports the organization's mission.
4. Adequate resources: The project plan should allocate adequate resources, including people, time, and budget, to ensure
the project's success.
5. Flexibility: The project plan should be flexible and able to adapt to changes in circumstances, resources, or goals.
6. Involvement of stakeholders: The project plan should involve stakeholders in the planning process to ensure their
buy-in and support for the project.
7. Communication plan: The project plan should include a communication plan to ensure regular and effective
communication with the project team, stakeholders, and sponsor.
8. Risk management: The project plan should include a risk management plan to identify potential risks and mitigation
strategies.
9. Continuous monitoring and review: The project plan should be continuously monitored and reviewed to ensure it
remains relevant and effective throughout the project's lifecycle.
10. Collaboration and teamwork: The project plan should encourage collaboration and teamwork among the project team
to promote a positive and productive working environment.
Functions of project planning
1. Defining the project: Project planning helps to define the project scope, goals, and objectives, and to establish a clear
understanding of what the project entails.
2. Organizing the project: Project planning helps to organize the project into smaller, more manageable tasks and to
develop a work breakdown structure (WBS) to ensure that all tasks are accounted for.
3. Establishing a timeline: Project planning establishes a timeline for the project, including start and end dates for each
task and a schedule for the entire project.
4. Allocating resources: Project planning allocates the resources required for each task, including people, time, and
budget, to ensure that the project can be completed successfully.
5. Managing risk: Project planning identifies potential risks to the project and develops strategies for mitigating those
risks to help ensure project success.
6. Communication: Project planning includes a communication plan to ensure regular and effective communication with
the project team, stakeholders, and sponsor.
7. Monitoring progress: Project planning provides a framework for monitoring progress and making adjustments as
necessary to keep the project on track.
8. Facilitating teamwork: Project planning helps to foster collaboration and teamwork among the project team to
promote a positive and productive working environment.
9. Improving decision-making: Project planning provides the information and data needed to make informed decisions
about the project and to ensure that resources are used effectively.
Why do plan fail or causes of failure of project plan
1. If the objectives of the plan are unclear or unexpressed
2. Excess activity included in short term plan
3. Financial estimation is weak and undependable
4. If the plan is based on insufficient information
5. Plan is not methodical
6. If the plan is prepared without considering competent people for implementing plan
7. Without considering past experience
8. Frequently transfer employees without considering the scheduling of the project
9. Natural calamities or accident.
Do you think employees of all levels in the project should know the objectives and strategies of planning? Give
reasons in favor of your answer. *
Yes, I think employees of all levels in a project should know the objectives and strategies of the project plan. There are
several reasons why this is important:
1. Aligned effort: When all employees have a shared understanding of the project's objectives and strategies, they can
work together towards a common goal, which can lead to greater efficiency and better results.
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2. Improved communication: When all employees are aware of the project plan, they can communicate more effectively
with each other, which can help to resolve any issues or challenges that arise.
3. Increased accountability: When all employees know the project plan, they are more likely to be accountable for their
role in the project and to take ownership of their tasks, which can help to ensure that the project is completed
successfully.
4. Better decision-making: When all employees are aware of the project plan, they are better equipped to make informed
decisions that support the project's goals and objectives.
5. Enhanced motivation: When employees feel that they are part of a shared effort and that their work is contributing to
a larger goal, they are likely to be more motivated and engaged in their work.
Discuss the managerial philosophy of effective plan. To what extent a plan should be detailed? *
The managerial philosophy of effective planning emphasizes the importance of having a well-designed plan that is tailored
to meet the specific needs of a project. This philosophy holds that a good plan should be comprehensive, flexible, and
adaptable, and that it should reflect the goals and objectives of the project and the organization as a whole.
The level of detail in a plan should depend on the specific needs of the project. For simple projects, a high-level
plan with a general overview of tasks and timelines may be sufficient. For more complex projects, a more detailed plan
may be necessary, with specific tasks, timelines, resources, and contingencies identified.
A plan that is too detailed can be overly rigid and inflexible, making it difficult to respond to changes in the project
environment. On the other hand, a plan that is too general can be vague and lacking in direction, making it difficult to keep
the project on track and to measure progress.
The optimal level of detail for a plan will depend on several factors, including the size and complexity of the
project, the experience and skills of the project team, and the availability of resources.
In general, a good plan should strike a balance between being detailed enough to provide clear direction and
structure, while being flexible enough to accommodate changes as the project progresses. Effective planning requires
ongoing review and adjustment, so that the plan remains relevant and effective throughout the project's lifecycle.
What is scheduling?
A schedule depicts the expected start and finish time of each job. It is produced by allocating resources up-to the limit of
availability according to the requirements given by the plan. Scheduling is the determination of time required of execution
of each operation and the time order in which each operation has to be carried out to meet the plan objectives.
Scheduling is the time table of future performing activities. When the tasks will be started and when it will be ended
is the subject matter of scheduling. It includes the times of various activities. It let to know the prospecting starting and
ending period of each activity of the project. On the basis of time available in scheduling the resources are distributed to
implement the project.
According to R.L. MARTINO: a schedule depicts the expected start and finish time of each job. It is produced by
allocating resources up to the limit of availability, according to the requirements given be the plan.
According to Punmia and Khandelwal- “scheduling is the determination of time required for execution of each operation
and the time order in which each operation has to be carried out, to meet the plan objectives.”
Stages/steps in scheduling *
Scheduling is the important task of project management. Scheduling shows the steps of performing various activities and
it can know the ending period of performing activities from the scheduling. For this reason the success of project depends
on the proper formulation of scheduling. To make easy and fruitful of the project activities it needs to follow some steps.
Dennis lock has developed sever steps to make scheduling. These steps are as follows:
1. Determination of project objective: it is the first task to determine the object of project to make the schedule of the
activities of the project.
2. Division of project: after determining the objective of the project it needs to divide the total project on the basis of
easy supervision and control of the project.
3. Steps of activities: after dividing the project now it requires to determine the sequence of activities of the project. That
means developing steps of each activity of the project.
4. Estimating time: after developing the sequences of each activity of the project now it requires to estimating time for
each activity separately. Due to estimating time of each activity will be reliable to implementing the project.
5. Terminating time: after developing the estimating time now it has to determine the terminating time of each activity
on the basis of estimating time of the project.
6. Coordination: after developing terminating of each activity of the project now it needs to coordination the program of
the project with the resources available in project. If the resources are not available according to scheduling, then it
may change the schedule of the project.
7. Disposing responsibility: it is the last step of scheduling of the project. After coordinating the program with the
schedule last it needs to dispose the duty and responsibility of the project on the persons who are involved to
implementing the project.
Project scheduling methods
Project scheduling methods are techniques used to create a timeline for a project and to determine the start and end dates
for each task in the project. Some commonly used project scheduling methods include:
1. Gantt Chart: A graphical representation of a project schedule that shows the start and end dates of each task, as well
as any dependencies between tasks.
2. Critical Path Method (CPM): A network-based scheduling method that identifies the critical path, or the sequence of
tasks that must be completed in order to complete the project on time.
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3. Program Evaluation and Review Technique (PERT): A network-based scheduling method that takes into account
the uncertainty and variability of task durations to create a probabilistic schedule.
4. Agile Project Scheduling: A flexible scheduling method that is used in agile project management and is focused on
delivering working increments of the project in short iterations.
Distinguish between project planning and scheduling **
1. Purpose: Project planning is focused on defining the scope, goals, and objectives of a project, while project scheduling
is focused on establishing a timeline and sequence of tasks to complete the project.
2. Output: Project planning results in a project plan, which outlines the overall structure of the project and the tasks
required to complete it. Project scheduling results in a project schedule, which lays out the timeline and sequence of
tasks.
3. Level of detail: Project planning is typically more focused on the overall structure and goals of a project, while project
scheduling is more focused on the specifics of when and how each task will be completed.
4. Flexibility: Project planning is typically more flexible, as it can be adjusted as the project progresses to accommodate
changes in scope, resources, or goals. Project scheduling is less flexible, as it establishes a specific timeline for each
task and is designed to be followed as closely as possible.
5. Importance: Both project planning and scheduling are important for ensuring the success of a project. Project planning
sets the foundation for the project by defining the scope and goals, while project scheduling provides the roadmap for
completing the project on time and within budget.
Chapter-5: project cost estimating and financing***
Project cost estimation
Cost management is extremely important for running successful projects. The management of costs, in many ways, reflects
the project organization’s strategic goals, mission statement, and business plan. Cost management has been defined to
encompass data collection, cost accounting, and cost control, and it involves taking financial-report information and
applying it to projects at finite levels of accountability in order to maintain a clear sense of money management for the
project. Cost accounting and cost control serve as the chief mechanisms for identifying and maintaining control over project
costs
Cost estimation is a natural first step in determining whether or not a project is viable; that is, can the project be done
profitably? Cost estimation processes create a reasonable budget baseline for the project and identify project resources
(human and material) as well, creating a time-phased budget for their involvement in the project. In this way, cost estimation
and project budgeting are linked hand in hand: the estimates of costs for various components of the project are developed
into a comprehensive project budgeting document that allows for ongoing project tracking and cost control.
Sources of project cost
During the development stage of the proposal, the project contractor begins cost estimation by identifying all possible costs
associated with the project and building them into the initial proposal. While a simplified model of cost estimation might
only require a bottom-line final figure, most customers will wish to see a higher level of detail in how the project has been
priced out, that is, an itemization of all relevant costs. For example, a builder could simply submit to a potential home buyer
a price sheet that lists only the total cost of building the house, but it is likely that the buyer will ask for some breakdown
of the price to identify what costs will be incurred where. Some of the more common sources of project costs include:
1. Labor—labor costs are those associated with hiring and paying the various personnel involved in developing the
project. These costs can become complex, as a project requires the services of various classifications of workers
(skilled, semiskilled, laborers) over time. At a minimum, a project cost estimation must consider the personnel to be
employed, salary and hourly rates, and any overhead issues such as pension or health benefits. A preliminary estimate
of workers’ exposure to the project in terms of hours committed is also needed for a reasonable initial estimate of
personnel costs.
2. Materials—materials costs apply to the specific equipment and supplies the project team will require in order to
complete project tasks. For building projects, materials costs are quite large and run the gamut from wood, siding,
insulation, and paint to shrubbery and paving. For many other projects, the actual materials costs may be relatively
small, for example, the purchase of a software package that allows rapid compiling of computer code. Likewise, many
projects in the service industries may involve little or no materials costs whatsoever. Some materials costs can be
charged against general company overhead; for example, the use of the firm’s mainframe computer may be charged to
the project on an “as used” basis.
3. Subcontractors—when subcontractors provide resources (and in the case of consultants, expertise) for the project, their
costs must be factored into the preliminary cost estimate for the project and be reflected in its budget. One subcontractor
cost, for example, could be a charge to hire a marketing communications professional to design the project’s
promotional mate- rial; another might be costs for an industrial designer to create attractive product packaging.
4. Equipment and facilities—projects may be developed away from the firm’s home office, requiring members of the
project team to work “off site.” Firms commonly include rental of equipment or office facilities as a charge against the
cost of the project. For example, oil com- panies routinely send four- or five-person site teams to work at the
headquarters of major subcontractors for extended periods. The rental of any equipment or facility space becomes a cost
against the project.
5. Travel—if necessary, expenses that are related to business travel (car rentals, airfare, hotels, and meals) can be applied
to the project as an up-front charge.
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Classification of cost
Another way to examine project costs is to investigate the nature of the costs themselves. Among the various forms of
project costs are those related to type:
1. Direct or indirect
2. Recurring or nonrecurring: on the basis of frequency of occurrence
3. Fixed or variable: on the basis of opportunity to be adjusted
4. Normal or expedited: on the basis of opportunity schedule
Cost estimation
How much money will be needed to implement the project effectively is estimated before its implementation. By project
cost estimation, project initiator can get an idea about the project cost. It also helps to find out the possible sources of
finance and to take timely decisions. So we can say that, project cost estimation means estimation of project costs before
its implementation.
Estimating project costs is a challenging process that can resemble an art form as much as a science. Two important project
principles that can almost be called laws are at work in cost estimation. First, the more clearly you define the project’s
various costs in the beginning, the less chance there is of making estimating errors. Second, the more accurate your initial
cost estimations, the greater the likelihood of preparing a project budget that accurately reflects reality for the project and
the greater your chances of completing the project within budget estimates.
One key for developing project cost estimates is to first recognize the need to cost out the project on a disaggregated basis;
that is, to break the project down by deliverable and work package as a method for estimating task-level costs. For example,
rather than attempt to create a cost estimate for completing a deliverable of four work packages, it is typically more accurate
to first identify the costs for completing each work package individually and then create a deliverable cost estimate, as table
8.3 illustrates.
Methods of cost estimation
Companies use a number of methods to estimate project costs, ranging from the highly technical and quantitative to the
more qualitative approaches. Among the more common cost estimation methods are the following:
1. Ballpark estimates/ as order of magnitude estimates: sometimes referred to as order of magnitude estimates, ballpark
estimates are typically used when either information or time is scarce. Companies often use them as preliminary
estimates for resource requirements or to determine if a competitive bid can be attempted for a project contract. For
example, a client may file an rfq (request for quote) for competitive bids on a project, stating a very short deadline.
Managers would have little time to make a completely accurate assessment of the firm’s qualifications or requirements,
but they could still request ballpark estimates from their personnel to determine if they should even attempt to bid the
proposal through a more detailed analysis. The unofficial rule of thumb for ballpark estimates is to aim for an accuracy
of ±30%. With such a wide variance plus or minus, it should be clear that ballpark estimates are not intended to
substitute for more informed and detailed cost estimation
2. Comparative estimates—comparative estimates are based on the assumption that historical data can be used as a
frame of reference for current estimates on similar projects. For example, boeing corporation routinely employs a
process known as parametric estimation, in which managers develop detailed estimates of current projects by taking
older work and inserting a multiplier to account for the impact of inflation, labor and materials increases, and other
reasonable direct costs. This parametric estimate, when carefully performed, allows boeing to create highly accurate
estimates when costing out the work and preparing detailed budgets for new aircraft development projects. Even in
cases where the technology is new or represents a significant upgrade over old technologies, it is often possible to gain
valuable insight into the probable costs of development, based on historical examples.
3. Feasibility estimates/study estimate—these estimates are based as a guideline on real numbers, or figures derived
after the completion of the preliminary project design work. Following initial scope development, it is possible to
request quotes from suppliers and other subcontractors with a greater degree of confidence, particularly as it is common
to engage in some general scheduling processes to begin to determine the working project baseline. Feasibility estimates
are routinely used for construction projects, where there are published materials cost tables that can give reasonably
accurate cost estimates for a wide range of project activities based on an estimate of the quantities involved. Because
they are developed farther down the life cycle, feasibility estimates are often expressed in terms of a degree of accuracy
of ±10%.
4. Definitive estimates—these estimates can be given only upon the completion of most design work, at a point when the
scope and capabilities of the project are quite well understood. At this point all major purchase orders have been
submitted based on known prices and availabilities, there is little or no wiggle room in the project’s specifications, and
the steps to project completion have been identified and a comprehensive project plan is in place. Because it is
understood that cost estimation should naturally improve with time, as more information becomes available and fewer
project unknowns remain unresolved, definitive estimates should accurately reflect the expected cost of the project,
barring unforeseen circumstances, at completion. Hence, definitive estimates can be expected to have an accuracy of
;5%. We saw in previous chapters that some projects may offer very thin profit margins; for example, in the case of
fixed-cost contracts, the project organization assumes almost all risk for completing the project according to originally
agreed-on contract terms. As a result, the better the job we do in estimating costs, the more likely we will be to maintain
the profit margin contracted.
5. Preliminary estimate
6. Detailed estimate
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What are the factors upon which accurate cost estimation is dependent? *
Accurate cost estimation is essential for successful project planning and management, as it provides a foundation for
budgeting, resource allocation, and risk management. The accuracy of cost estimates depends on several factors, including:
1. Project scope: The clarity and completeness of the project scope definition will impact the accuracy of cost estimates.
2. Historical data: Previous project data and experience can provide valuable information for cost estimation, including
data on labor rates, material costs, and other expenses.
3. Resource availability: Accurate cost estimates depend on the availability of resources, including personnel,
equipment, and materials. Availability can impact both the cost and the timeline for completing each task.
4. Inflation and economic conditions: Changes in inflation, currency exchange rates, and other economic conditions can
have a significant impact on the cost of a project, and should be considered in cost estimation.
5. Project complexity: The complexity of the project, including the number and interdependence of tasks, can impact the
accuracy of cost estimates, as well as the time required to complete the project.
6. Risk assessment: An assessment of potential risks and uncertainties, including natural disasters, supply chain
disruptions, and changes in regulations, can help to identify potential cost overruns and allow for more accurate cost
estimation.
7. Collaboration and communication: Accurate cost estimation requires collaboration and communication between
project stakeholders, including project managers, team members, and suppliers.
Types of project costs
Project costs can be classified into two groups. Such as-
1. Initial costs: all the costs incurred before the production from the project are treated as initial costs. It includes the cost
of fixed assets, installation cost, design cost, salary of advisers etc. They are non- repetitive in nature.
2. Regular costs: all the costs incurred after the commercial production from the project are treated as regular cost. It can
be working capital cost and operating cost. Working capital cost include the cost of raw materials, cost of storing etc.
Operating costs include cost of daily production, cost of marketing and selling etc.
Types of cost estimates
Cost estimates can be of different types. S. Chowdhury classified different types of cost estimates into five categories. They
are as follows-
1. Order of magnitude estimates: after identifying a project, initiator can take help from order of magnitude estimates.
Order of magnitude estimates can be +60% accurate. For order of magnitude estimates past experience, scale factor, or
capacity estimation techniques can be used.
2. Study estimates: for conducting the economic or financial feasibility study or for collecting the necessary fund, study
estimates are done. The accuracy of these types of estimates is 130%. It is done by analyzing the information relating to
project work, needed machineries, price and quantity of needed materials etc.
3. Preliminary estimates: when project scheduling is done and the initiator has a clear idea about the technology to be
used in the project, the preliminary estimates take place. This type of estimates is done on zero date. The accuracy of these
types of estimates is ±20%.
4. Definite estimates: after zero date, definite estimates are done. It is done by analyzing the information relating to
complete plan, specimen of price and quantity of materials/elements etc. The accuracy of these types of estimates is +10%.
5. Detailed estimates: when the initiator ordered for different elements/materials of project and the vital contracts are
signed, then the detailed estimates can be done. The accuracy of these types of estimates is +5%
Project cost escalation *
Rising of project cost is a common phenomenon. There is hardly any project which is completed within its primary cost
estimation. The difference between the estimated cost and the actual cost of a project is called project cost escalation.
According to f. L. Harrison, "project cost escalation is the difference between the final cost or latest estimate of final cost
and the original definitive estimation"
Reasons/causes for cost escalation *
1. Inefficiency: inefficient management of project can raise its final cost. Inefficient use of materials, machineries,
manpower etc. Can lead to project cost escalation.
2. Inflation: inflation means continuous rise in price level in terms of percentage. Due to inflation, the price of various
factors like materials, machineries, salary etc. Increases and thus creates project cost escalation.
3. The character of information flow: if the original or preliminary cost estimation is done based on the vague
information then it can differ from the final cost.
4. Form of contract: cost escalation can be created due to the form of contract. We know two in case of a project;
contracts can be of two types- fixed price contract and cost-plus contract. There is usually no change in final cost in
fixed price contract but definitely a chance of rise in cost in cost plus contract. These are the major causes of project
cost escalation.
Sources of fund
To purchase the fixed assets or invest to another field funds are not limited within the owner of the firm. Mainly funds are
collected from two sources, internal sources and external sources.
1. Internal sources: when funds are collected from the inter of the organization then it is called internal sources of the
organization, such as share of capital, non distributed profit, incentive or provident fund of the employee, depreciation.
2. External sources: when funds are collected from the outside of the organization then it is called external sources of
fund, such as creditors, preferred share, trade credit etc.
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Project financing *
1. Financing of private project
a) Friends And Relatives
b) Commercial Banks: Sonali Bank, Janata Bank & City Bank Etc.
c) Specialized Financial Institutions
• Bangladesh Shilpa Bank (BSB) • Investment Corporation of Bangladesh (ICB)
• Bangladesh Shilpa Rin Shanghta (BSRS) • Bangladesh Krishi Bank (BKB)
• Bank Of Small Industries and Commerce • Rajshahi Krishi Unnayan Bank (RAKUB)
(BASIC) • Grameen Bank
• Bangladesh Small Cottage Industries • Bangladesh House Building Finance Corporation
Corporation (BSCIC) (BHBFC)
2. Financing Of Public Project:
a) Form Domestic Sources or Own Resources or Income of Government
b) Loan From International Organisations or Foreign Aid
• World Bank (WB) • International Monetary Fund (IMF)
• International Development Association (IDA) • Asian Development Bank (ADB)
• International Finance Corporation (IFC) • Islamic Development Bank (IDB)
Project crashing *
Project crashing is a project management technique that involves reducing the project timeline by accelerating the
completion of certain tasks. The goal of project crashing is to complete the project as quickly as possible while minimizing
the additional costs associated with the accelerated schedule. Project crashing is typically used when the project is running
behind schedule or when there is a critical need to complete the project sooner.
The basic approach of project crashing is to identify the critical path of the project, which is the sequence of tasks
that must be completed in order to complete the project on time. The critical path tasks are then prioritized based on their
impact on the project timeline and cost, and additional resources are allocated to accelerate the completion of these tasks.
Project crashing can be effective in reducing the project timeline, but it also has some risks and limitations. The
acceleration of tasks can result in increased costs, as additional resources, materials, and equipment may be needed.
Additionally, the compression of the project schedule can result in increased stress and pressure on the project team, and
may lead to errors and quality issues.
Therefore, project crashing should only be used when it is deemed necessary and after a careful analysis of the
costs and benefits. The choice to crash a project should also take into account the potential impact on the project quality,
team morale, and overall project risk.
Why projects require crashing? *
Projects may require crashing for a variety of reasons, including:
1. Time Constraints: When the project has a hard deadline and is running behind schedule, project crashing can be used
to accelerate the timeline and ensure that the project is completed on time.
2. Urgent Need: Some projects may have an urgent need to be completed, such as a product launch, an event, or a contract
requirement. Project crashing can be used to meet these urgent needs by accelerating the timeline.
3. Unforeseen Delays: Unforeseen delays, such as equipment failure, weather events, or changes in regulations, can
impact the project timeline. Project crashing can be used to make up for lost time and reduce the impact of these delays.
4. Cost Savings: Project crashing can be used to reduce the overall project cost by reducing the duration of the project
and avoiding unnecessary costs associated with prolonged schedules.
5. Competitive Advantage: In some cases, project crashing can be used to gain a competitive advantage by delivering
the project faster than competitors, or by completing a project before the market changes.
However, project crashing should not be used as a routine approach to project management, as it can result in increased
costs, decreased quality, and increased stress on the project team. Project crashing should only be used when deemed
necessary and after a careful analysis of the costs and benefits, taking into account the potential impact on the project
quality, team morale, and overall project risk.
Social costs **
The social costs of a project refer to the negative impacts of a project on society that are not reflected in the market prices
of the goods and services produced by the project. These costs can arise from a variety of sources, including:
• Environmental damage • Health effects • Cultural heritage
• Congestion • Displacement of communities
It is important to consider the social costs of a project in decision-making, as these costs can have significant impacts on
society and the environment. This may require the use of methods such as cost-benefit analysis, social impact assessments,
and environmental impact assessments to estimate and compare the costs and benefits of different alternatives.
Social benefit **
The social benefits of a project refer to the positive impacts of a project on society that are not reflected in the market prices
of the goods and services produced by the project. These benefits can arise from a variety of sources, including:
1. Job creation 3. Increased access to goods and 4. Environmental improvements
2. Improved infrastructure services 5. Cultural preservation
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It is important to consider the social benefits of a project in decision-making, as these benefits can have significant impacts
on society and the environment. This may require the use of methods such as cost-benefit analysis, social impact
assessments, and environmental impact assessments to estimate and compare the costs and benefits of different alternatives.
Social cost benefit analysis ****
From the viewpoint of society, social cost benefit analysis is the process to evaluate investment project. In this analysis, the
total effects of a project on socio economic matter of a country are evaluated. In social cost benefit analysis, project is
considered not only as capital investment but also asset investment. In the evaluation process, project is treated as the
significant to the implementation authority and to the nation.
According to P.K. Mattoo: social cost benefit analysis is the process of evaluating a project from the viewpoint of the total
impact on the economy of the nation.
Social cost benefit analysis is evaluated directly and indirectly. A project is established in a specific place, where structural
situation, natural situation, socio economic situation etc. Are established for the project and project does its job in this
environment. Project subtracts something from this environment which is social cost and projects deliver/provide something
to this environment which is called social benefit. Project collects input from the society and provides output to the society.
The main objective of social cost benefit analysis is to evaluate the direct and indirect effect of project on socio
economic situation of a country.
Why social cost benefit analysis is done or Rational for social cost benefit analysis ***
Social cost-benefit analysis (SCBA) is a method used to evaluate the social benefits and costs of a project or policy. The
purpose of SCBA is to assess the overall impact of a project or policy on society, including both the market and non-market
impacts. The main reasons for conducting a SCBA are:
1. To inform decision-making: SCBA provides a comprehensive evaluation of the costs and benefits of a project or
policy, which can be used by decision-makers to make informed choices about the allocation of resources.
2. To ensure fairness: SCBA considers the distributional impacts of a project or policy, including the effects on different
groups in society, such as the poor, minorities, and the elderly. This helps to ensure that the benefits and costs are fairly
distributed and that the project or policy is equitable.
3. To consider externalities: SCBA accounts for externalities, which are costs or benefits that are not reflected in market
prices. This is important because externalities can have significant impacts on society and the environment.
4. To improve the allocation of resources: By considering the social benefits and costs of a project or policy, SCBA
helps to allocate resources more efficiently, ensuring that resources are used in the most productive and socially
beneficial manner.
In conclusion, SCBA is a valuable tool for evaluating the impact of projects and policies on society, helping to ensure that
decisions are based on a comprehensive understanding of the costs and benefits of different alternatives.
Distinctions between social costs-benefits analysis and financial analysis ***
Social cost benefit analysis and financial analysis both are the pre-investment evaluation technique of a project. In financial
analysis, it is judged that the investment of a particular project is profitable or not. And in social cost benefit analysis, it is
evaluated that investment of a particular project is benefited to the country or not.
The differences between social cost benefit analysis and financial analysis are given below:
1. Measuring income and expenses: in financial analysis of a project, primary or direct income or expenditure is countable.
But in social cost benefit analysis of project direct, indirect and tertiary income expenditure is countable.
2. Measuring benefits: in financial analysis commercial profitability is measurable on the basis of equipment’s,
production, market price, capital expense, management expense and income. On the other hand, social cost benefit analysis
is evaluated on the basis of social price of elements and output.
3. Externalities of output: in financial analysis of project externalities of output is neglected. Externality of output is
considerable factors in social cost benefit analysis.
4. Time value of money: in financial analysis the present value of future income, expenditure of a project, prevalent interest
rate is considerable. In social cost benefit analysis social rate of discount is used.
5. Potential consumer surplus: in financial analysis of a project, potential consumer surplus is not considerable. On the
other hand, in social cost benefit analysis potential consumer surplus is considerable.
Methods of social cost benefit analysis
Two methods of social cost benefit analysis were invented at the ending of sixteen century and beginning of seventeen
centuries. These are:
A. UNIDO methods
B. Little Mirrlees methods
Discuss the consumer willingness to pay ******
Consumer willingness to pay (WTP) refers to the maximum amount of money that a consumer is willing and able to pay
for a particular good or service. It is an important concept in economics and market research, as it helps to determine the
value that consumers place on a product or service.
WTP is influenced by a variety of factors, including the consumer's income, the availability of substitutes, the
perceived quality and benefits of the product, and the consumer's preferences and attitudes. In general, consumers with
higher incomes are willing to pay more for a product or service, while consumers with lower incomes may have a lower
WTP.
In project management, the concept of consumer willingness to pay (WTP) can be used to evaluate the potential
demand for a project's outputs, such as products, services, or outcomes. Understanding the WTP of potential customers can
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help project managers make informed decisions about the design and development of a project, and to allocate resources
more efficiently.
UNIDO method ******
The familiar journal of united nation named “guidelines for project evaluation” first introduces the UNIDO methods of
social cost benefit analysis in 1972. In this journal the wide structure of social cost benefit analysis for developing country
was explained. Again, the United Nations industrial development organization (UNIDO) published another journal named
guide to practical project appraisal. According to UNIDO methods, social cost benefit analysis has five levels such as:
1. Estimating financial profitability according to market price: at the beginning of UNIDO method, it is necessary to
estimate financial profitability at market price. Input and output are calculated based on market price and according to it,
net present value of the project is estimated. Estimation of financial profitability depends on three financial statements.
These are:
• Financial income statement: in this statement, probable income and expenditure are included. The main objective
of the statement is to evaluate whether it is profitable or not.
• Cash flow statement: here necessary funds, source of funds and cost units are shown to forecast cash balance or
scarcity. The source of funds in project is share capital, term loan, bonds, bank loan, deferred credit depreciation,
business loans, balances etc. On the other hand costs are capital expense, primary expense, stock, tax interest
payment of credit etc.
• Projected balance sheet: it is an assumed statement where shows the condition of assets, capital and liabilities at
the end of every year. It is done based on previous two statements.
2. Estimating net benefit based on shadow price: in second stage, the net profit is determined based on shadow price of
the project. For monopoly market condition in developing country, it is necessary to determine shadow price.
3. Adjustment for the impact of the project on savings and investment: on the basis of the impact of the project on
saving and investment, project is evaluated in third stage of UNIDO methods. The difference of income from consumption
is savings. Investment is dependent on savings. Balance income is distributed among all various groups such as project,
private owner other organization, government, labor, consumer, external sector etc.
• Measuring gains or losses: difference between shadow price and market price of inputs is the profits or losses of
the project for physical resources. On the other hand, difference between value paid and value received is the profits
or losses for financial resources.
• Savings impact and its value: almost every developing country faces the scarcity of capital. So the government
or authority must analyze the impact of savings and its value of project.
• Impact on savings: the changes of income on the certain income group for a project and that's group’s marginal
propensity to savings guides to estimate project impact on savings.
• Value of saving: value of saving for one unity is current value of additional consumption stream created by
profitable investment.
4. Adjustment for the impact of the project on income distribution: investment project is tactical by government for
regional development, income distribution to all level people. The government gives emphasis on undeveloped region or
poor people to maintain balance of income distribution. That's why it weights to adjust income distribution for undeveloped
regions or poor people. In this stage, social cost benefit analysis of UNIDO methods, project is evaluated based on income
of various groups’ comparative weight.
5. Adjustment for the impact of the projects on merit and demerit goods: the difference between economical value and
social value of resources is seen in analyzing social cost benefit. This difference happened for merit goods and demerits
goods. For merit goods social value is higher than economical value & here upward adjustment is used. For demerit goods
economical value is higher than social value and demerit goods needs to downward adjustments.
Little Mirrlees methods
In this L-M method, project related inputs and outputs can be classified into three ways:
1. Shadow prices of traded goods and services: if any product or services is exported, its shadow price will be f.o.b
prices, and on the other hand if any products or services are imported then shadow price will be c.i.f. price. If the foreign
demand is not constant, marginal export income will be shadow price and for foreign inconstant supply marginal import
cost will be the shadow price.
2. Shadow prices of non-traded goods and services: for the non-traded goods se land, buildings, services etc. Shadow
price is determined by marginal social cost (MSC) and marginal social benefit (MSB). Marginal social cost is additional
input for additional output and marginal social benefit is additional pricing from the view of society. But it is not easy to
measure MSC and MSB. So, in l-m methods financial cost of non-traded goods and services is divided into three ways
exchangeability, labor and rest parts. Conversion factors are some average ratios of accounting prices to market prices.
3. Shadow prices of labor:
Similarities between UNIDO method and Little Mirrlees method **
1. Computation of shadow price, especially in case of foreign currency reserve and inexpert labor.
2. Consideration of equity.
3. Use of discounted cash flow (DCF).
The dissimilarities between UNIDO method and Little Mirrlees method are as follows**
1. Under UNIDO method the income and expenses of project are calculated in local currency. But under l-m method, they
are calculated in border price.
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2. Under UNIDO method the income and expenses of project are calculated on the basis of consumption. But under l-m
method income and expenses of project are calculated on the basis of uncommitted social income.
3. Under UNIDO method saving, skill, redistribution etc. Are considered sequentially. But under l-m method, these issues
are considered at a time.
Shadow price **
Shadow price is not market price, it is derived price. It is determined by considering the alternative goods in market. It is
also called the assumption price. Shadow price is such type of pricing system that influence by the equipment’s needed to
produce the goods and external price of the goods.
Mainly underdeveloped and developing country uses the shadow price. But developed country does not use the shadow
price. Because, their price is determined by balancing the demand and supply of the goods.
Methods of shadow price determination
Shadow price is not market price or real price but it is assumed price, which is determined by alternative goods or other
ways. The other ways are such as:
A. Choice of numeraire: determining shadow price account numeraire is an important factor. What will be the currency
and its current or future value for cost benefit evaluation etc. Is considered to determine numeraire.
B. Tradability of product: tradability of product means the buying and selling capacity of a product in international market.
On the basis of tradability of product, it can be divided into four divisions –
• Tradable goods: the product on which the government has no restriction regarding its import and export then it is
called the tradable goods.
• Traded goods: tradable goods which are already exchanged means exported or imported is called traded goods.
• Non-tradable goods: if the total cost of locally produced products is high because of high production cost and
international transportation cost then these products export becomes impossible. Importers are not willing to import
these products by giving high price. These types of products are known as non-tradable goods. The goods that
cannot be imported and exported due to its more production cost and international transportation cost.
• Non traded goods: the importable and exportable goods which are not imported or exported because of trade
policy of the country are called non-traded goods.
C. Sources of shadow prices:
D. Estimation of taxes:
E. Adjustment factor: it is a certain premium or discount rate which helps to increase or decrease the financial value or
economical value.
F. Shadow pricing of specific resources:
Shadow pricing of specific resources:
1. Tradable inputs and outputs: for fully traded products shadow price is calculated based on border price. The border
price is to turn into local currency be market exchange rate. For export product in indicates by f.o.b. price, on the other
hand atcif for import.
2. non-tradable inputs and outputs: if the consumption of non-tradable goods increases then marginal consumers’
willingness to pay will be the shadow price. If the alternative production of non-tradable goods increases, production cost
saving will be shadow price.
3. Externalities: it is special type of non-tradable goods which can't be measured by money directly but to measure it one
has to consider other incentives. It is unwilling creation, uncontrollable and non-tradable to market. As for example, benefit
gain by training activities is measurable only through the change in the earning capacity of through the change in the earning
capacity of the trainee completing training program.
4. Labor input: shadow pricing of labor input is as like as product shadow pricing. Analysts have to see the mode of labor
suppl. If labors bring from other industry in leave, shadow price of labor well be their sacrificed wages. For newly employed
labor, shadow price well be the cost of making work worthy. For imported labor, shadow price will be their demand wages.
5. Capital inputs: shadow price of capital inputs can be measured from the two views:
• Capital used: which resources are collected by spending capital shadow price of will be evaluated according to
those resources
• Sources of capital: if we consider sources of capital the shadow price of the capital will be its shadow price.
6. Foreign exchange: in UNIDO methods local currency is numeraire.
Discuss shadow price sources. **
For having impact of project on economy, a UNIDO method raises three sources:
• If there is any change means increase and decrease in consumption then consumers’ willingness to pay will be based
to determine shadow price.
• If there is any change in production then output cost will be based.
• If there is any impact in international trade for project then foreign exchange value will be based.
Shadow price refers to the estimated value of a good or service that is not traded in the market and therefore does not have
a market price. Shadow prices are used to estimate the economic value of goods and services in situations where there is
no market for them, such as environmental goods, public goods, or goods with significant externalities. Shadow prices are
used in cost-benefit analysis, environmental impact assessments, and other economic evaluations.
Shadow prices can be derived from several sources, including:
1. Market prices of close substitutes: The shadow price of a good can be estimated using the market price of a close
substitute, such as a similar product or service.
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2. Willingness-to-pay surveys: Surveys can be used to estimate the value people place on a good or service by asking
them how much they would be willing to pay for it.
3. Hedonic pricing models: This method uses regression analysis to estimate the value of a good or service by examining
the prices of other goods or services that are related to it.
4. Input-output analysis: This method estimates the shadow price of a good or service by examining its contribution to
the production of other goods and services.
5. Discounted cash flow analysis: This method calculates the present value of the future benefits of a good or service to
estimate its shadow price.
Reasons/causes of shadow pricing **
1. Imperfect competition: if imperfect competition is existed in the market or economy then shadow price is used.
2. Demand and supply determination: in case of imperfect competition where price is not possible to determine on the
basis of demand and supply of the goods then shadow price is used.
3. Unknown market price: if the market price is unknown and it is not possible to get the real price then the shadow price
is followed.
4. Political interruption in inputs and outputs: in product evaluation process, if the input and output of the project
influenced by political interruption then the shadow price is followed.
Estimation of taxes or Discuss the impact of tax on the calculation of shadow price. ****
Estimation of taxes: principles of UNIDO methods for estimating taxes of shadow prices are:
1. If project collects limited supplies, consumable goods and non-traded goods from other producers then taxes will be
included to shadow price
2. If a project is hindered by other producer's local production, then the tax will not be counted.
3. Taxes will be ignored for fully traded products.
Tax can have a significant impact on the calculation of shadow prices because it affects the market price of goods and
services. The market price is a key factor in the calculation of shadow prices, especially when using market prices of close
substitutes or hedonic pricing models.
For example, if a tax is imposed on a good or service, its market price will increase, and this will in turn affect the
calculation of its shadow price. If the tax is high enough, it could make the good or service unaffordable, which would
mean that its shadow price would become meaningless.
Similarly, tax incentives or subsidies can also affect the calculation of shadow prices. If a subsidy is given to a
good or service, it will reduce its market price, which in turn will affect its shadow price calculation.
In conclusion, it is important to consider the impact of tax on the calculation of shadow prices in order to produce accurate
and meaningful estimates. This may require adjusting the market prices used in the calculation to account for the effects of
tax.
Factors to determine shadow pricing *
To determine the shadow price, it uses the two terms.
1. Preferring the unit of account: during the project evaluation, in which way the cost and benefit of the project (taka,
pound, dollar, rupee) is measured called the prefer unit of account. To determine the shadow price, it plays a great role.
2. Exchange ability of product: exchangeability of product means the buying and selling capacity of a product in
international market. On the basis of exchangeability of product, it can be divided into four divisions –
• Tradable goods: the product on which the government has no restriction regarding its import and export then it is
called the tradable goods.
• Traded goods: tradable goods which are already exchanged means exported or imported is called traded goods.
• Non-tradable goods: if the total cost of locally produced products is high because of high production cost and
international transportation cost then these products export becomes impossible. Importers are not willing to import
these products by giving high price. These types of products are known as non-tradable goods. The goods that
cannot be imported and exported due to its more production cost and international transportation cost.
• Non traded goods: the importable and exportable goods which are not imported or exported because of trade
policy of the country are called non-traded goods.
Chapter-8: project monitoring and controlling
What do you mean by project implementation? ****
When the project is applied in practical field then it is called the project implementation. It is the last step of project
formulation. Project implementation is started after planning, forming, evaluating and scheduling the project. It is the total
expression of its main goal. Through the project implementation, project can start to perform its activities. So it is vital in
project management to achieve its desired goal.
Stages or steps of project implementation ****
The objective of project implementation is performing the project’s activities within the resource available and, scheduling
& budgeting of the project. For implementing the project, it needs to maintain seven steps. These are discussed in bellow-
1. Initiating the project: it is the first step of project implementation. Functions of project are started from here. Again,
here project makes the new plan. Without these other tasks are
• A. Selecting a manager for the project.
• B. Approving the plan, budget, strategy programs of the project by concerned authority.
• C. Have to make a contact for financial help and technical support if it is required.
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2. Specifying and scheduling the work: in this step, project plan is analyzed properly. Each activity is identified and the
relationship among the activities is determined. Where, when, how and by whom the activities of the project will be done
is mentioned here. All the tasks of the project are divided into some controllable subdivisions. Due to these divisions, it is
easy to estimate the required time and resources to complete the project. To implement the project bellow activities, need
to perform-
• Finalizing the technological parameter. • Call for tender and pay the invoice.
• Selecting the machine. • Collecting supplies and installation equipment’s.
• Developing the layout. • Training the employees.
• Identifying the infrastructure.
3. Clarifying the authority responsibility and relationship: here the relationship of the persons involved in the project
is analyzed. The responsibility of the employees and how much authority he will hold is clarified and their organizational
relationship is discussed in this step.
4. Obtaining resources: in this step the required resources for the project are collected. It can divide the resources of the
project into three divisions. These are personnel, finance, and materials & equipment’s.
5. Estimating controlling system: to complete the activities in right time, right cost and in right way controlling system is
developed here. It determines the time, budget and cost of the project on the basis of assumption. So, it balances between
assumption and reality. Every task is dependent to the other task. So, the failure of previous task influence to the present
task. For this reason, controlling system should be established in such a way, so that it is possible to identify the problems
of the project instantly and take necessary action to solve the problems.
6. Directing and controlling: after establishing the controlling system, the employees are directed to perform the activities.
That means, it needs to provide the advice regarding when the task will be started and how & when the task have to be
performed. The internal environment of the organization is different than that of other organization. So, it should direct the
employees in such a way so that they can do their responsibility simultaneously and they can understand that they are not
dominated by anyone.
7. Terminating the project: it is the last step of project implementation. From the experience it is seen that many project
managers take this step as usual. But it should not acceptable for all. Because, right termination of the project influences
the post ante evaluation.
Impediments/problems/drawbacks for implementing the project ******
1. Accidents: various accidents may be occurred at the time of execution of the projects such as fire damage, sudden
death at the time of working. It also hinders the project.
2. Apathy to application of modern management techniques: apathy to application of modern management techniques
makes the project less efficient.
3. Change in government fiscal and licensing policies: the project implementation stops at the mid-point because of
changes in government fiscal and incensing policies.
4. Change in project priorities: for change in project priorities, project implementation speeds may be slow down or
stop at the mid-point.
5. Communication gap between project and other related departments: for communication gap between projects
academies and research laboratories project implementation may haphazard.
6. Continuous change in designs, drawings and specifications: continuous change in designs, drawings and
specifications also make changes in assigning task. So, the employee groups need to adjust with the changes, which
require some more time. So, it also impedes the project implementation.
7. Delay in getting foreign technical assistance: a project might not be properly implemented if it delays in getting
foreign technical assistance such as money, men, materials and knowledge.
8. Delay in obtaining approval: delay in obtaining approval on various aspects of project from the concerned agencies.
It hampers to start activities just in time.
9. Diffusion of implementation responsibility: project analysis may assign the implementation responsibility to various
agencies instead of certain agency, which will hamper project implementation.
10. Excluding beneficiary group to project: excluding beneficiary group to project also hampers its proper
implementation.
11. Frequent transfers and heavy turnover: for frequent transfers, project loses its experience and skill members to
implement and heavy turnover also creates barriers for project implementing.
12. Lack of integrated management information and reporting system: for the lack integrated management information
and reporting system project impede to reach the objectives.
13. Lack of perspective project: it is a major impediment to project implementation. It happens for the lack of experience,
skill and redtops in planning and lack of information.
14. Lower monitoring: if the monitoring does not work properly at the time of implementing project, the project cannot
run successfully.
15. Missing of cost planning, budgeting and accounting: if the planning committee misses to integrate cost planning,
budgeting and accounting then the project may face problems in proper implementation.
16. Natural calamities: in spite of having many efforts of all group and agencies a project may hamper due to natural
calamities like storm, flood, earthquake etc.
17. No afford to promote and maintain interest of project related group: no afford to promote and maintain interest in
individual projects resulting in less enthusiasm, initiative; attention and follow through may hamper a project.
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18. No clarity about authority and responsibility relationship: if the staff does not know what to do, who will provide
guideline then projects may fail to implement because they will avoid their works.
19. No consideration of past experience: if the project planner does not consider past experience for preparing new plan,
schedule then project may fail to implement the project properly.
20. No estimating of direction and control: if there are no parameters for direction and control then project fails to
implement properly.
21. No mechanism for co-operation and co-ordination: if project analyzer fails to co-operate and co-ordinate between
the various connected agencies or the activities, project does not be implemented properly.
22. non-commitment to financial resources: before starting the project, financial sources will be predetermined. At the
time of implementing non-commitment to financial resources will hamper it.
23. Political expediency and vested interest: form the beginning of planning to the implementing, every stage of the
project is influenced by this political expediency and vested interests. That’s why implementation cannot run properly.
24. Poor quality system: poor quality of technician, materials, equipment’s, technology led to the project failure.
25. Too many similar projects under way at a time: concentration on the project becomes lower because of taking many
similar projects under way at a time. That’s why proper implementation is not possible.
26. Unavailability of materials: project implementation may hinder because of unavailability of raw materials.
27. Under- staffing and over-staffing: for understaffing project faces problems to complete the project activities within
the time limit. Overstaffing creates haphazard and increases expenses.
28. Unrealistic scheduling: sometimes project analyst prepares unrealistic scheduling which is not easy to turn into action.
So, project is hampered.
29. Various contractual problems: various contractual problems with other parties may hamper the project at the mid-
point or beginning.
30. Wrong assignment: if improper people are employed and given the responsibility to implement project may not
successfully towards its objects.
For which impediments the project manager has nothing to do? ******
These are the impediments to project implementation. Among these impediments, for the below impediments, the project
manager has nothing to
1. Accidents 4. Political expediency and vested interest
2. Natural calamities 5. Unavailability of materials
3. Change in government fiscal and licensing policies
Guidelines for effective implementation ***
The below guidelines can be followed for ensuring the effective formulation of
1. Do not run too many similar types of projects at a time.
2. Preparing and strictly maintaining the schedule.
3. To cope with the changing situation, taking necessary adaptive strategy like decentralization of power, delegation of
authority etc.
4. Perform adequate analysis regarding location, market, materials, machineries etc.
5. Use of modern management technique in project implementation.
6. Recruit qualified and experienced personnel and always motivate them so that they devote themselves to achieve project
objectives.
7. Include beneficiary group in the project implementation process.
8. Ensuring good relationship among government, NGOs, and project related other organizations and the initiating
authority.
9. Proper monitoring and periodic evaluation of project.
10. Application of integrated management information system and reporting & controlling system.
It is said, project implementation requires to combine, strategy, structure, and organizational culture. Discuss the
statement. **
The statement is accurate. Project implementation is a complex process that involves multiple aspects of an organization.
Strategy refers to the overall plan and approach for achieving the desired outcome of a project. It includes defining
goals, identifying resources, and determining the most effective methods for achieving success.
Structure refers to the design and organization of a project, including the allocation of roles and responsibilities,
the establishment of processes and procedures, and the creation of systems for communication and collaboration.
Organizational culture refers to the shared values, beliefs, and practices that exist within an organization. It
influences the way people behave, work together, and make decisions. A strong organizational culture can support the
success of a project by promoting teamwork, communication, and a shared commitment to achieving the project's goals.
To successfully implement a project, it is important to consider how these three elements work together. A well-
designed project structure can support the strategy, while a positive organizational culture can facilitate its execution. When
the strategy, structure, and culture are aligned and support each other, the likelihood of project success is greatly increased.
What do you mean by project monitoring?
Monitoring is considered as an important task of project management. Project has less possibility to achieve its goal if the
implemented activities of the project are not monitored properly. The main objective of project monitoring is to ensure the
implementation and termination within the estimated time and cost.
According to B.B. GOEL: monitoring involves watching the progress against time and resources, performance schedule
during the execution of the project and identifying the lagging areas where timely attention and action is required.
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According to m. Thyagarajan: monitoring means periodic checking of progress of works against the targets laid down in
order to timely completion of the project.
At last, we can say that monitoring is the coordination of activities and formulate recommendation for solving problems
regarding supervision, result orientation which involved in the implementing of the project.
Benefits of project monitoring *
The activities of project are mutually interdependent. If one task of project is hampered then it influences the other activities
of the project. It is possible to identify problems of the project in right time and taking proper preventive action accordingly
through monitoring. Bellow benefits are also available in monitoring.
1. It can evaluate whether the project is implemented according to its main goal or not.
2. It can identify the problems and develop recommendations for solving the problems.
3. It can select the implementation steps.
4. It is possible to determine the necessity of basic solution rationally.
5. It can determine the result or outcome of the implemented effort for developing the objective of project and also
determine direction.
6. By evaluating the planning and scheduling progress, it can provide feedback to the concerned authority.
7. It can present the recommendation with documents to the authority for developing policy and taking decision.
Methods of project monitoring
project monitor follows various methods for measuring and controlling progress of activities. Project implementation
report is one of them. Various methods of monitoring are discussed in bellow-
1. Project status report: it is a short report where the current situation of the project for a particular day is discussed.
Here all the executed tasks, schedule, programs, and total figure of the project are mentioned. Moreover, it identifies
the variation between main plan and actual performance, and determines the influences of these variations. It uses the
color code. Color code identifies the weak point of the project. Project manager can give priority on this weak point.
2. Project schedule chart: in this method, the schedule for implementing project is developed and maintains properly.
In general sense it is entire chart of the important task of the project. It also holds the probable terminating time of the
project. On the basis of that chart the schedule of the task of the project is prepared. On the basis of scheduling the
progress of performance of the project is evaluated.
3. Project financial status report: it is an important report among the reports of project monitoring. Here the financial
condition of the project is descried. The main subject matter of project monitoring is to measure the progress of
performance with predetermined time and budget. If it requires more time than the predetermined time then it negatively
affect the project. Time over run moves the project toward the cost overrun and reduce the financial feasibility.
4. Photograph of physical progress: photograph may be used as a method for monitoring the progress of the construction
project. It can present pictorial presentation of the project about its applied progress. It is possible to measure the
progress of project according to the time and budget. Necessary actions can be taken if the project does not progress
according to time and budget. To follow this method, it needs to monitor and evaluate the applied progress of the project
after certain time interval.
5. Project inspection: in this method the authority does not dependent on the report of the project, they directly inspect
and evaluate the performance of the project. After inspecting the project, the inspection groups fill-up the table on the
basis of predetermined rules and prepare the report for submitting to the authority. It is necessary to have own inspection
group to monitor the project in this method.
Guidelines for effective monitoring **
To make the monitoring process more effective the bellow guide lines should be followed-
1. Assigning primary responsibility: the primary responsibility of monitoring is given to those persons, to whom the
responsibility of implementation is given.
2. Team work: monitoring should be done through a team work. The responsibility of monitoring should not let to a
single person.
3. Compulsory tool: monitoring is considered as an important and compulsory task of project management. It should not
use as a tool of mistrust or illegal interference in other work.
4. Mentality of the members: to prepare business report of activities, monitoring team should have the mentality of
honesty, integrity, and courage.
5. Involvement of all parties: to make the monitoring more effective, the involvement of all parties in essential. They
should have high level of commitment and team spirit.
6. Relation: monitoring and scheduling are closely related. According to the standard of scheduling the task of monitoring
is done. So, there must have a close connection between them/
7. Small project: the both task of scheduling and monitoring can be done through the same group in case of small project.
8. Communication: the monitoring activities should not be confined within the top-level management. The related
information of monitoring should be communicated to all levels of employees.
9. Qualification of members: the monitoring task should be hand over to a group of persons who are skilled, trained and
capable enough.
10. Working environment: proper working environment should be provided to the monitoring team, so that they can get
job satisfaction and feel secure.
11. Time interval: the time interval of monitoring activities should be according to the nature of project.
12. Timely action: the monitoring report should be submitted to those who can take timely action.
13. Flawless information: one of the most vital preconditions of monitoring is quick exchange of flawless information.
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14. Dependence: the success of monitoring activities dependent on the prudence, analyzing power and confidence level of
the monitoring persons.
15. Complex project: in case of complex project the monitoring task should be assigned to a renowned project
management company, who has expertise personnel or team for monitoring.
Level of monitoring in Bangladesh or Project monitoring process in Bangladesh *
Monitoring of development projects in Bangladesh is done at various levels. Now the monitoring process of project at
different levels is discussed in bellow:
1. Project level monitoring: in this level, it is the duty of persons or person who is responsible for conducting the project.
Project implementation activities are monitored through bar chart, periodical budget, cpm etc.
2. Agency or division level monitoring: in agency level, there is a planning and implementation wing. The
implementation wing is engaged in the duty of monitoring the project and solving the existing problems. Generally, a
large executive agency is divided into some sectors. These sectors monitor the project on the basis of sector base,
project base and agency base. Management by exception strategy is used to solve the project’s problems.
3. Ministry level monitoring: every ministry has a planning cell. These planning cells monitor the task of the project
activities. The performance of the project is reviewed in the monthly review meeting of ministry.
4. Monitoring at national level: implementation, monitoring and evaluation division (imed) is assigned to monitor the
development project at national level. It is a division of planning ministry.
Effective monitoring system ensures an effective implementation of project. Do you agree with this statement? **
Yes, I do agree with the statement that an effective monitoring system is important for ensuring effective
implementation of a project. Monitoring provides a systematic and ongoing assessment of the progress of a project and
helps to identify any deviations from the plan. This allows project managers to make timely adjustments to stay on track
and achieve the desired outcome.
An effective monitoring system should include regular check-ins and progress reports, performance metrics, and
mechanisms for tracking the use of resources. This information can be used to identify areas for improvement and ensure
that the project stays on track and on budget. In addition, effective monitoring can help to identify potential risks and
opportunities and provide data for making informed decisions.
Overall, an effective monitoring system plays a crucial role in ensuring the effective implementation of a project
by providing visibility into its progress, enabling corrective action, and promoting accountability and transparency.
Project evaluation **
Project evaluation is the last step of project management. After performing the activities of the project, it requires to
investigate the success and failure of the project on the basis of specific objectives.
According to skylark chadha: evaluation is an analytical process for systematically and objectively perceiving the relevance,
efficiency, effectiveness and impact of activities in the light of their objectives. Project evaluation includes-
1. Measuring the progress of the project activities and its total impact.
2. Analyzing the problems and barriers which are faced during the operation of the project.
3. Measuring the steps which were taken to overcome these problems and obstacles.
Methods of project evaluation **
To evaluate the project, the professionals, specialist and reactionaries follow the different methods. The important methods
of project evaluation are as follows-
1. Firsthand information-based evaluation: it is very simple method for evaluating the project. In this method to
evaluate the project, the information is collected from the field workers, office staffs, or experts those who are directly
involved in the execution of project and know about the progress of the project. In this method, the project manager
investigates the progress of the project and identifies the variation of the performance. Here project evaluation is more
effective. If the size of the project is big and also more complex than it is not possible to this method to evaluate the
project.
2. Periodic reports: in this method the project manager evaluates the project on the basis of formal and informal report
after certain time intervals. From the informal report, various information’s about the project condition can be collected.
There is a possibility to have vague, bias and dangerous information in informal report. For this it is not possible to
identify who is responsible for the fault. So, informal report has less acceptability and reliability. To evaluate the project
formal, repot is more acceptable and reliable because it provides accurate and correct information. For this it is possible
to identify who is responsible for the fault.
3. Graphical representation: the progress of the project activities is presented through the picture, graph, and chart in
the room of the project manager. One can get the total idea about the progress of the project activities within very short
time without growing attention. If it is presented wisely then it requires less space, become more visible and easier to
understand and it also help to compare between expectation and achievement. The main disadvantages of this method
are more time consuming and expensive.
4. Standing evaluation review committee: the large institutions form standing evaluation review committee to evaluate
their own project. In this committee the experienced and expert person’s work. This committee arrange meeting after
certain time interval. This committee identifies the problems and provides recommendation to the authority to solve
the problems.
5. Project profile: the important method for evaluating the project is developing project profile. To prepare a profile, it
needs to investigate and analyses the total activities of the project from starting to terminate. On the basis of principles,
models, and directions the enquiry group prepares the project profiles.
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6. Control center: control center is mentionable method for evaluating the project. This control center is established for
the single large project. It is expensive to evaluate the project by the control center. Because, it requires structural
facilities to evaluate the project.
Objectives of project evaluation
1. To provide visibility: the total expenses of the project from the beginning to the ending. The schedules, the interrelation
of the working factors is provided to the project management clearly.
2. To identify problems before they occur: identify problems before they occur and to protect the possibility of loss &
destruction or control the frequency of loss.
3. To identify the opportunity quickly: if any special opportunity arises that should be identified as quickly as possible
and that can increase the project development process, decrease the expenses and achieve the tactical advantages.
4. To accelerate managerial activities: without proper management any works cannot reach to its destination. A project
is not indifferent to it. Evaluation helps to enhance the speeds of managerial activities.
5. To retain the right way of goals: evaluation helps a project manager to judge working mode, working efficiency, and
skill of the stuffs. These also help to provide guidelines to retain the right way towards goal of the project.
6. Ascertaining the quantum of remedial measure: evaluation also ensures the quantum of remedial measure.
Evaluation identifies the problem before occurred. So, it must ascertain the quantum of remedial measure.
7. Adjusting with necessary changes: if any kind of change is necessary at the mid-way of running project, then
evaluation will find the necessary change. It also helps to take necessary steps to adjust with the changes.
8. Provide suggestion to managerial board: evaluation is an analytical process where various information’s, data are
collected. Analyzing this information, evaluation can provide suggestion to the managerial board.
9. Maintaining proper implementation: evaluation also maintains proper implementation process.
Stages of project evaluation plan
1. Timing of evaluation: the time of evaluation must be specified at the beginning of the project. Nature of the project
and the time of making decision at different levels of the project should consider while determining the evaluation time.
2. Defining the nature of decision: who will take the decision, the lower level or top-level executive is define in this
stage? An executive can take three kinds of decision through evaluation. A. Carrying on the project without any change.
B. Changing the project plan or objectives. C. Canceling the project.
3. Determining the scope of project evaluation: at this stage, solution of the problems or answers of the questions are
required to overcome the situation through evaluation.
4. Identifying symptom: success or failure of the project depends on identifying the symptoms. It is the main task of
evaluating the project. For an example massive response of the customers for an advertisement shows that whether the
promotion strategy is fulfilled or not.
5. Defining types of data: what types of data should be collected for evaluating must be defined in detail at this stage.
Unnecessary data is totally harmful for the evaluation task.
6. Selecting the method of data collection: after defining the types of data, method of collecting data is also be selected.
Probable complexity, reality of system, acceptability should be considered at the time of selecting the method.
7. Selecting method of data analysis: how the data will be analyzed is determine at this stage. A well-documented report
is prepared after the analysis.
8. Redefining data specification: if anything found unnatural while analyzing the data. Then the project manager should
redefine the specific data.
9. Putting evaluation-based suggestions: it is one of the most important steps of the evaluation plan. In this stage
suggestion is made on the basis of the evaluation.
10. Refining project design: it is the last stage of the project evaluation plan. If any variance is found in the current project,
then it is needed to be refined. Refining task is done according to the suggestion.
Principle or prerequisites of effective evaluation *
1. Never includes personal opinion/view of the evaluator in the evaluation process.
2. Always make the evaluation process neutral.
3. Explain the expected results from the project to the all concerned parties.
4. To be well informed about the information requirement of the decision maker.
5. Distinguish between cause and effect.
6. Make distinction between prove and opinion.
7. Identify and differentiate the sector/activities in which sector/activities, there is no prove.
8. Include alternative techniques in the evaluation process.
9. Making realistic recommendations.
10. Delegating authority and responsibility for implementing the suggestions/recommendations.
11. Convey the results to the decision maker after the recommendations are fully implemented.
Evaluation acts as guidelines for future project. Discuss *
Yes, evaluation can act as guidelines for future projects by providing valuable information and insights about what
worked well and what didn't in the implementation of a project. Evaluation can help identify best practices, as well as areas
for improvement, and provide recommendations for how to do things differently in the future.
Evaluation can be conducted at various stages of a project, from its design to its completion, and can include a
variety of methods, such as self-assessment, peer review, and external assessment. The results of the evaluation can inform
decisions about resource allocation, risk management, and overall project management.
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In addition, evaluation can help organizations learn from their experiences and improve their project management
processes. By documenting and sharing the lessons learned, organizations can promote continuous improvement and avoid
repeating mistakes in future projects.
Overall, evaluation acts as a key tool for ensuring that projects are implemented effectively and efficiently, and it
provides a framework for future projects to build upon, thereby contributing to the overall success of an organization's
project management efforts.
Chapter-9: project management in Bangladesh
Project classification in Bangladesh
In Bangladesh, project can be divided into three ways by considering socio-economic and national importance. Theses
ways are as follows:
1. Magnitude of investment: on the basis of investment level project can be classified into three categories. And various
authorities approve the project by considering investment level. These categories are-
a. A category: the size of investment of this category is maximum two cores taka for all projects or schemes. The
ministers of various ministers approve this project on the basis of reference of divisional project evaluation
committee.
b. B category: investment size is two cores to ten cores taka for all projects or schemes. The planning minister
approves this project on the reference of project evaluation committee of planning commission.
c. C category: the investment size of this category is above ten core takas. Executive committee of national
economic committee (ECNEC) approves this project on the basis of reference of planning commission (pc),
project evaluation committee (pec) and planning minister.
2. Project benefits: on the basis of project benefits, project can be classified into three types. These are-
a. X type project: production and revenue base project are included in x type project. It is a self-employment
base project, such as- industrial project.
b. Y type project: it is production base but not revenue base project. It produces the visible opportunity but not
earns profit, such as sewerage and land development project.
c. Z type project: mainly service base project is called z type project. The advantages of this type of project
cannot be measured, such as educational institutions, hospital, road bridge etc.
3. Project priority: by considering the national importance and on the basis of priority to distribute the resources, project
can be divided into two divisions, such as-
a. Core project: the projects which get more priority on the national importance to distribute the wealth are
include in core projects, such as-
• Approximately terminate projects.
• X type and infrastructure development projects.
• The projects which get more foreign aid and national fund.
• Foreign aided projects.
b. Non-core projects: the project items those are not included in the core projects are called the non-core projects.
It gets the less priority by the national development programs.
Except these above types of projects, various governmental organizations have classified projects from their own views.
Moreover, all projects should be for social welfare.
Persons, organizations or bodies who are involved to implement the project in Bangladesh.
Authorities, organizations or bodies those who are involved in scheduling, budgeting, approving, and implementing the
project are as follows-
1. Management of various projects. 7. Project evaluation committee.
2. Management of owner company. 8. Ministry of planning.
3. Various corporations and executive agencies in 9. Implementation, monitoring and evaluation
Bangladesh. department.
4. Ministry. 10. Ministry of finance.
5. Departmental project evaluation committee. 11. External resource divisions.
6. Various sectors, divisions and planning divisions of 12. National economic council.
planning commission.
Forms of planning commission
Planning commission is the central unit to determine the economic policy of Bangladesh. It was established in 1972 at
January. Planning commission is under the planning division of panning ministry. Planning commission consists of one
president, one co-president, and six members. The head of government is the president of planning commission. Minister
of planning ministry takes the duty to implement the project and head of government gives the opinion.
Organization of implementation, monitoring and evaluation division (IMED)
It was established in 1975 at January. At the starting level, its name was planning implementation bureau. Next its name
was changed to planning monitoring bureau. Before this current name, its name was project monitoring division. Secretary
or additional secretary is the executive of the monitoring and evaluation division. It is the central unit of evaluation who
evaluate the entire project in public sector. To operate easily, it is divided into many sectors. These sectors are agriculture
and industry sector, electricity sector, education and social sector. Director general is the head of each sector. Under a
director general, there are three to five directors. Co-directors and staffs work under a director. It is a division of planning
ministry.
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Functions of Organization of implementation, monitoring and evaluation division (IMED)
1. It evaluates the implemented task of the development project under the annual development programs.
2. It presents the annual or monthly report to the related ministry, head of the government, advisors, organizations, or
ECNEC.
3. If it finds any problems during investigation then it discusses with the related ministry or agency for evaluating,
investigating in the field level, and other coordinating activities to solve the problems.
4. After investigating the project, if it finds any problem then through the recommendation, it is presented to the related
ministry.
National economic council (NEC)
National economic council is the maximum authority of policy maker regarding the economic factors of government. It
determines the national policies and objectives for the long-term planning. According to executive committee of national
economic council, planning commission determines the national plans and schedules. The head of the government is the
main of national economic council. All the members of the ministry council are assistant president of national economic
council. National economic council calls for meeting after one month interval.
Functions of National economic council
1. National economic council provides direction to determine the long-term planning, five years planning, annual
development programs and the most important economic policies.
2. It finalizes the plan, project or program, policy and also approves these.
3. It analyzes the economic advancement and the implementation of developing project program.
4. It takes very important decisions and activities for the socio-economic development.
5. It forms the various committees to maintain the duties which are imposed on the national economic council.
Executive committee of national economic council (ECNEC)
The determined policies of national economic council (NEC) are implemented by a committee (consist of some executives),
which is called ECNEC. It is the powerful authority for permitting the project. ECNEC also analyze these projects which
are reported by implementation, monitoring and evaluation department (imed). Prime minister is the head of ECNEC. The
minister of industry, commerce, finance, labor, and project initiator ministry are the members of ECNEC. Moreover, the
bellow persons have to present in the meeting of ECNEC.
1. Secretary of minister. 6. Secretary of resources department (ERD).
2. Members of planning commission. 7. Secretary of finance department.
3. Member (general economic department) of planning 8. Secretary of planning department.
commission. 9. Secretary of implementation, monitoring and
4. Member (related department) of planning evaluation department.
commission. 10. Secretary of related ministry.
5. Governor of Bangladesh bank.
Functions of Executive committee of national economic council
1. By the recommendation of project evaluation committee (pec) of planning commission, it considers and permit the
project which cost is more than five core takas.
2. Consider the performance of regulated corporations specially their financial result.
3. It analyzes the advancement of implemented activities of the development project. The report given by implementation,
monitoring and evaluation department (imed) is the basis of it.
4. It considers and permits the sole tradership invested projects whose primary investment is more than fifteen core takas.
5. It considers the price of public utility services and the product of government institutions.
6. Monitoring the economic condition and analyze the total economic performance.
Organizational structure of national planning in Bangladesh
Generally, policy making authority exists at the
top of the organizational structure of national
planning in Bangladesh. The function of this
authority is to take development planning and
prepare policies. The government of a country
gets the highest priority to determine this
policy. At present the national assembly of our
country is the authority of determining this
policy after establishing the democratic cabinet
in 1991.
The duties and responsibilities for preparing
plan and implementing and evaluating the
project have been given to the ministry of
planning. There are three division which works
under the ministry of planning. These divisions
are as follows:
1. Planning division
2. Implementation, monitoring and evaluation division (imed)
3. Statistics division
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The central planning and policy making organizations -such as planning commission works under the planning division.
This commission works through six division and thirty wings.
Central authority evaluates the implementation, monitoring and evaluation of running development project. Bangladesh
bureau of statistics works under the statistic department. The main function of statistics bureau is to collect report, analysis
and present this report to fulfill the needs and help in decision making of every sector of developing planning.
There is another institution named- “Bangladesh institute of development studies” (bids). It is an autonomous institution.
We can show the organizational structure of national planning in Bangladesh by the given chart.
Problem of project management in Bangladesh *
Success of a project depends on various things, like proper principles, necessary efficiency, foresight, cooperative attitudes
etc. Timely approval of project, supply of money and other resources, effective adjustment among various activities, regular
monitoring the progress of the project also affect the success of project. But absence of above-mentioned elements is absent
in the field of implementing developed projects in Bangladesh. As a result, complexity is created/made in the period of
implementing project like waste enough time & increase cost. The factors which work as hindrance in implementing project
are as follows:
1. Absence of sound plan & political system: at first the reality of compiled plan should be ensured for implementing
national plan properly. Political stability along with reality is essential of implement plan properly. There is absence of
proper political practice in our country. It creates obstacle to implement the project.
2. Conflict & co-ordination problems at the local level: decentralization of govt. Administration or power policy creates
problem in the field of administration & political sector. Lack of proper response & co-operation of local people to
prepare development plan & implement, professional inefficiency of decision maker etc. Work as obstacle.
3. Crowding of projects: an approved project must be included in adp to get allotted money. Planning commission
distribute the received assets among the projects which is included in adp. To fulfill local demand, excessive projects
are included in adp due to political promises .it is not possible to implement excess project by govt. For its limited
resources within certain financial year. For this reason, enough time is needed, and cost increase & inflation is arisen
to terminate the project.
4. Delay in approval of projects: there are various authorities in Bangladesh for processing & approving the development
projects such as ECNEC, pec, spec, dpec, sdpec etc. A particular authority does not have the power for processing or
approving all type of projects. Approval depends on its nature & project cost. Several stages have to follow to get
approval and after getting approval it is seen that staring time is over. Donor associations have lost their interest of
finance.
5. Inadequacy of resources: over dependence on foreign aid for finance, excessive project included in adp, which hamper
the effectiveness of adp. Supply of project finance from internal sources is not satisfactory in maximum time. It is not
possible to utilize resources properly for managerial inefficiency & corruption.
6. Lack of constant monitoring & evaluation of projects: monitoring & evaluation of progress of implementing
activities of project is performed by planning ministry under imed. But it is not possible to monitor & evaluate all
project activities at a time. Selected project activities are monitored & evaluated. So, all development projects are not
monitor & evaluated.
7. Lack of objectivity: according to many experts (in Bangladesh) there is absent of certain objective & planning. Project
cannot reach at target destination because of the lack of objectivity.
8. Lack of proper coordination & cooperation: various ministry, department & agency are related with taking imitative,
processing, approval & implementation of the development project. Lack of co-operative attitude of the delegated
authorities with project & lack of proper co-ordination among their works/activities are delayed to terminate the project
which leads to increase cost. So, lack of mutual understanding among project related parties & proper coordination
obstructs proper implementation.
9. Lack of skilled manpower & sound techniques: lack of skilled manpower & sound techniques is the main hindrance
for plan implementation rather that scarcity of money & other resources. There is absence of experienced project
direction & skilled labor & also effective training system. There is no idea about modern technology which is used in
project management activates.
10. Over dependence on foreign aid: most of the projects in our country depend on donor countries or associations’
promises. But in practical, they fail to supply money according to their promises. Consequently, progress of the project
is hindered, even stopped due to the lack of adequate money.
Solutions or suggestion for project management in Bangladesh
1. Determine the objective and goal: it is needed to identify or determine the accurate objective and goal for long time
basis, five-year basis or annual basis project and also clearly described. At the time of determining the objective and
goal the possibility of getting national needs, availability of internal resources, foreign aid and credit should be
informed, as why the project can be implemented within estimated time and cost. The project should be classified on
the basis of importance and more rights for allocation.
2. Ensure local participation: for implementation of project, local participation needs to be ensured. Because they
identify the problems and feel the needs. As a result, selection of project becomes easy and gets the support and
coordination of them.
3. Proper and regular monitoring: it is the precondition of effective project implementation. In the stage of division
and direct, central monitoring department should be established cell of imed for monitoring process of regular and more
effectiveness.
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4. Proper coordination: different ministry of govt. And development is involved with type of project. So proper
coordination should be done with various ministry and development.
5. Reduce complexity in delay and fund release: for sanctioning project implementation the aspect of fund release
complexity and delay should be prevented. Supply the fund should be regular so that the activities of project can be
finished within the fixed time.
6. Selection of organizational structure: the prestige and responsibility of project manager depends on organized project
structure. For fruitful implementation, proper organizational structure should be selected. All the duties and
responsibilities should be divided between upper level and lower level. For project scheduling and estimating cost,
modern technology such as cmp, pert, caspar, mis etc. Should be applied.
7. To reduce complexity and long-term process: project processing and sanction should be easy and short term. If the
projects are not sanctioned in right time, it is not possible to implement. It should be prevented waste of resources. For
project sanction and implementation, some steps should be taken for preventing corruption and indiscipline.
8. Training system: the directors of project should be trained up. International or local specialist may happen it. As a
result, technical, theoretical and human skill of directors will be increased.
What is scenario analysis? *
Scenario analysis is a risk management technique used in decision-making to analyze the potential outcomes of different
possible scenarios. It involves considering alternative future scenarios and assessing the likelihood and impact of each
scenario on a particular decision or situation.
Scenario analysis can be used in a variety of contexts, including financial planning, strategic planning, and project
management. The goal of scenario analysis is to provide decision-makers with a better understanding of the potential risks
and opportunities associated with different courses of action, and to help them make informed decisions based on a range
of possible outcomes.
In scenario analysis, multiple scenarios are developed and analyzed, including best-case, worst-case, and most
likely scenarios. The results of the analysis can be used to develop contingency plans and make strategic decisions.
Scenario analysis can be a valuable tool for decision-makers because it helps to identify potential risks and
opportunities, provides a framework for considering alternative futures, and encourages a more comprehensive and
proactive approach to decision-making.
Narrate the steps involved in scenario analysis. *
1. Define the decision or situation: Identify the decision or situation for which scenario analysis is being performed.
This step helps to ensure that the analysis is focused and relevant to the issue at hand.
2. Identify the key variables: Identify the key variables that will impact the decision or situation. These variables could
be internal to the organization, such as resources, or external, such as market conditions.
3. Develop scenarios: Develop a range of possible scenarios that could occur in the future. These scenarios should be
based on the key variables identified in the previous step.
4. Assess likelihood and impact: Assess the likelihood and potential impact of each scenario. This step helps to prioritize
the scenarios and to identify the most important factors that will influence the outcome.
5. Evaluate the scenarios: Evaluate the potential outcomes of each scenario. This step helps to identify the potential risks
and opportunities associated with each scenario.
6. Choose a course of action: Based on the results of the scenario analysis, choose a course of action that is most
appropriate given the potential outcomes of each scenario.
7. Implement the decision: Implement the chosen course of action and monitor the results to ensure that it is on track
and achieving the desired outcomes.
8. Review and update: Regularly review and update the scenario analysis to ensure that it remains relevant and accurate
in light of changing circumstances.
Chapter-7: project risk management***
⚫ Projects operate in an environment composed of uncertainty. There is uncertainty regarding project funding, the
availability of necessary resources, changing client expectations, potential technical problems—the list is seemingly
endless. This uncertainty forms the basis for project risk and the need to engage in risk management.
⚫ Risk management, which recognizes the capacity of any project to run into trouble, is defined as the art and science of
identifying, analyzing, and respond ing to risk factors throughout the life of a project and in the best interests of its
objectives. The difference between projects that fail and those that are ultimately successful has nothing to do with the
fact that one lacks problems the other has. The key lies in the plans that have been made to deal with problems once
they arise.
⚫ The project management institute defines project risk as “an uncertain event or condition that, if it occurs, has a
positive or negative effect on one or more project objectives such as scope, schedule, cost, or quality. A risk may have
one or more causes and if it occurs, may have one or more impacts.
⚫ This definition is important because, unlike the past, when project risk was automatically assumed to lead to negative
consequences, it is now recognized as the source of either opportunities or threats. As a result, whereas in the past
leading project management researchers assumed that project risk was “an estimate of the probability of loss from a
large population of unwanted circumstances, risk in the modern sense argues that the uncertainty that exists in any
project can result in either positive or negative outcomes. Project managers must acknowledge the possibility that the
same risk event may bring several outcomes, of both a positive and detrimental effect on the project. Underlying these
definitions is the recognition that many events, both within the organization and outside its control, can affect our best
efforts to successfully complete projects.
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⚫ Risk management consists of anticipating, at the beginning of the project, unexpected situations that may arise that are
beyond the project manager’s control. These situations have the capacity to severely undermine the success of a project.
Broadly speaking, for the manager, the process of risk management includes asking the following questions:
1. What is likely to happen (the probability and impact)?
2. What can be done to minimize the probability or impact of these events?
3. What cues will signal the need for such action (i.e., what clues should I actively look for)?
4. What are the likely outcomes of these problems and my anticipated reactions?
⚫ In other words, all risks must be evaluated in terms of two distinct elements: the likelihood that the event is going to
occur as well as the consequences, or effect, of its occurrence. The risk of a project manager in your company being
struck by lightning on the way to work would clearly constitute a high level of consequence to the project, but the
probability of such an occurrence is sufficiently low to minimize your need to worry about it. On the other hand, people
do change jobs, so an event such as the loss of a key project team member midway through the development phase may
have both a potentially serious impact and a high degree of probability in some organizations. Hence, in those project
environments, it would be appropriate to develop mitigation strategies to address this risk, given its high likelihood of
occurring and the negative consequences it would engender. For example, the project manager could develop a bonus
or other incentive program to reward personnel who remain on the project team as a useful response (risk mitigation)
for the potential loss of key personnel during the project.
⚫ Risk and opportunity are mirror opposites of the same coin—opportunity emerges from favorable project uncertainties
and negative consequences from unfavorable events. Early in the life of a project, both risk and opportunity are high.
The concept may be thought valuable, and the opportunities are strong, as are the negative risks. This result is due to
the basic uncertainty early in a project’s life cycle. Until we move forward into the development phases, many
unanswered questions remain, adding to overall project uncertainty. On the other hand, the brutality of negative
consequences (the “amount at stake”) is minimal early in the project’s life. Few resources have yet been committed to
the project, so the company’s exposure level is still quite low. As the project progresses and more budget money is
committed, the overall potential for negative consequences ramps up dramatically. At the same time, however, risk
continues to diminish. The project takes on a more concrete form and many previously unanswered questions (“will
the technology work?” “Is the development time line feasible?”) Are finding answers. The result is a circumstance in
which overall opportunity and risk (defined by their uncertainty) are dropping just as the amount the company has at
stake in the project is rising.
Reasons of risk management
Risk management is a crucial aspect of project and business management, and there are several reasons why organizations
engage in risk management:
1. To minimize potential losses: By identifying and managing risks, organizations can minimize the potential losses that
could result from unexpected events or changes in the operating environment.
2. To increase profitability: Effective risk management can help organizations to increase profitability by reducing the
likelihood of losses, improving operational efficiency, and maximizing opportunities.
3. To enhance decision-making: Risk management provides organizations with a systematic approach to decision-
making, allowing them to weigh the potential risks and benefits of different courses of action and make informed
decisions.
4. To improve stakeholder confidence: By demonstrating that they have a robust risk management process in place,
organizations can improve stakeholder confidence and reduce uncertainty.
5. To comply with regulations: Many industries and sectors are subject to regulations that require organizations to
engage in risk management activities. By doing so, organizations can ensure that they are in compliance with these
regulations and avoid potential legal and financial consequences.
6. To prepare for the unexpected: Effective risk management helps organizations prepare for unexpected events, such
as natural disasters, economic downturns, and technological failures. This helps to ensure that they are better prepared
to respond and recover from these events.
Benefits of risk management
1. Improved decision-making: Risk management provides organizations with a systematic approach to decision-making,
allowing them to weigh the potential risks and benefits of different courses of action and make informed decisions.
2. Increased profitability: By identifying and managing risks, organizations can minimize the potential losses that could
result from unexpected events or changes in the operating environment. This can help to increase profitability by
reducing the likelihood of losses and maximizing opportunities.
3. Enhanced stakeholder confidence: Effective risk management can demonstrate to stakeholders that an organization
is responsible, accountable, and transparent, leading to increased confidence and trust.
4. Improved operational efficiency: By managing risks, organizations can improve operational efficiency by avoiding
or minimizing the impact of unexpected events and reducing the need for unplanned resources.
5. Increased resilience: Effective risk management helps organizations prepare for unexpected events and reduces their
exposure to risk, making them more resilient and better prepared to respond to unexpected challenges.
6. Compliance with regulations: Many industries and sectors are subject to regulations that require organizations to
engage in risk management activities. By doing so, organizations can ensure that they are in compliance with these
regulations and avoid potential legal and financial consequences.
7. Better allocation of resources: By identifying and managing risks, organizations can better allocate their resources to
areas where they are most needed, improving overall resource utilization.
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Different kinds of enterprise risks or risk identification
A useful method for developing a risk identification strategy begins by creating a classification scheme for likely risks.
Remember that risk implies the potential for both positive and negative effects on the project. Risks commonly fall into
one or more of the following classification clusters:
1. Financial risk—financial risk refers to the financial exposure a firm opens itself to when developing a project. If there
is a large up-front capital investment required, as in the case of Boeing or airbus industries’ development of a new
airframe, the company is voluntarily assuming a serious financial risk in the project. Construction companies building
structures “on spec” provide another example. Without a contracted buyer prior to the construction, these companies
agree to accept significant financial risk in the hopes of selling office space or the building itself after it is completed.
2. Technical risk—when new projects contain unique technical elements or unproven technology, they are being
developed under significant technical risk. Naturally, there are degrees of such risk; in some cases, the technical risk is
minimal (modifications to an already- developed product), whereas in other situations the technical risk may be
substantial. For example, Goodrich corporation developed a modification to its electronic hoist system, used for cable
hoists in rescue helicopters. Because the company had already developed the technology and was increasing the power
of the lift hoist only marginally, the technical risk was considered minimal. On the other hand, the Spanish ship-builder
navantia is currently wrestling with serious performance problems in its newest generation of submarine, the s-80 class,
because of the decision to include too many ground-breaking technical upgrades in one ship. The problems with the s-
80 are so severe that the submarine itself is considered unsafe and not ready for sea trials (see case study 7.2 at the end
of the chapter). The greater the level of technical risk, the greater the possibility of project underperformance in meeting
specification requirements.
3. Commercial risk—for projects that have been developed for a definite commercial intent (profitability), a constant
unknown is their degree of commercial success once they have been introduced into the marketplace. Commercial risk
is an uncertainty that companies may willingly accept, given that it is virtually impossible to accurately predict customer
acceptance of a new product or service venture.
4. Execution risk—what are the specific unknowns related to the execution of the project plan? For example, you may
question whether geographical or physical conditions could play a role. For example, developing a power plant on the
slopes of mount pinatubo (an active volcano) in the philippines would involve serious execution risks! Likewise, poorly
trained or insufficient project team personnel might constrain project execution. Execution risk is a broad category that
seeks to assess any unique circumstances or uncertainties that could have a negative impact on execution of the plan.
5. Contractual or legal risk—this form of risk is often consistent with projects in which strict terms and conditions are
drawn up in advance. Many forms of contracted terms (e.g., cost-plus terms, fixed cost, liquidated damages) result in a
significant degree of project risk. Companies naturally seek to limit their legal exposure through legal protection, but
it is sometimes impossible to pass along contractual risk to other parties. For example, most us railroads will not accept
penalty clauses for late deliveries of components because they have an almost monopolistic control of the market.
Therefore, organizations utilizing rail transportation must accept all delivery risk themselves.
Common forms of risk in projects
After understanding the broad categories of risk, you want to anticipate some of the more common forms of risk in projects.
The following list, though not inclusive, offers a short set of some of the more common types of risk to which most projects
may be exposed:
1. Absenteeism 6. Initial specifications poor or incomplete
2. Resignation 7. Work or change orders multiplying due to various
3. Staff being pulled away by management problems
4. Additional staff/skills not available 8. Enhancements taking longer than expected
5. Training not as effective as desired
Risk factor identification
Although the broad categories and common types of risk in the preceding lists are both good starting points, you also need
to consider common industry-specific risks that run across different types of projects in the specific field in which you are
working. A number of methods, both qualitative and quantitative, are available for conducting risk factor identification for
industry-specific risks, including:
1. Brainstorming meetings—bringing the members of the project team, top management, and even clients together for
a brainstorming meeting can generate a good list of potential risk factors. Brainstorming is a qualitative idea-creation
technique, not one focused on decision making. In order to be effective, brainstorming meetings must be free of
judgments, criticism of others’ viewpoints, and pressure to conform. A mini-scenario of risk management is at work.
Think about it: would you be willing to place your most creative ideas on the table in front of 10 other people if you
were at risk of being immediately critiqued? Or might you be tempted to hold an idea for later if your boss required
that you present it in a fully developed way? In short, the brainstorming environment needs to be made safe for the
risk-averse.
2. Expert opinion—this technique can be used in two alternative ways in assessing project risks. The more quantifiable
method, commonly referred to as the delphi approach, collects and consolidates the judgments of isolated anonymous
respondents. For delphi to be used effectively, some preliminary screening of potential contributors is usually
necessary. The collective “wisdom” of the set of experts is then used as the basis for decision making. The simpler,
more intuitive method for using expert judgments is based on the principle that “experience counts.” You simply
identify and consult people within the organization who have had similar experiences in running projects in the past or
who have been with the firm long enough to have a clear grasp of the mechanics of project risk analysis. As obvious
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as this may seem, this opportunity may not be clear to everyone, particularly if management shifts recently have taken
place in a firm or if new employees are not aware of the firm’s project history.
3. History—in many cases the best source of information on future risks is history. Has a firm encountered a consistent
pattern of problems while pursuing projects over time? What “storm signals,” or events that have preceded past
problems, have been detected? Experience can be used to identify not only risk factors but their leading indicators as
well. The problem with experience is that it is no guarantee of future events. The issues or conditions that contributed
to project risk in the past decade, year, or even month may not be relevant to current market conditions or the state of
project work as it is now being conducted. Hence, history can be useful for identifying key project risk factors provided
all parties employ a reasonable degree of caution when evaluating current projects through the portal of past events.
Rauma corporation of Finland, for example, developed state-of-the-art logging equipment that worked well in locations
with good infrastructure to allow for frequent servicing. When it attempted to use the equipment in remote rain forest
regions of Indonesia, however, the company found it had not anticipated the problems involved in routine servicing,
including having to fly the machinery hundreds of miles out of the forests to servicing centers. Experience had not
prepared the company for new risks.
4. Multiple (or team-based) assessments—using single-case sources to identify project risks is itself a risky proposition
because of the potential bias in any one person’s viewpoint. It makes sense that no one individual, regardless of her
perceived degree of expertise, can possibly discern all sources of threat and project risk. Although an engineer is likely
to be more attuned to technical risks, a cost accountant to budgetary risks, and so forth, not even the most seasoned
manager with experience in many fields is all-knowing. A team-based approach to risk factor identification encourages
identification of a more comprehensive set of potential project risks. At the same time, a collaborative approach can
help persuade the half-convinced or uncommitted members of the team to support project goals.
Project risks
Project risk is based on a simple equation: event risk=(probability of event) (consequences of event)
Risk management process or steps
Systematic risk management comprises four distinct steps:
1. Risk identification: the process of determining the specific risk factors that can reasonably be expected to affect your
project.
2. Analysis of probability and consequences: the potential impact of these risk factors, determined by how likely they
are to occur and the effect they would have on the project if they did occur.
3. Risk mitigation strategies: steps taken to minimize the potential impact of those risk factors deemed sufficiently
threatening to the project.
4. Control and documentation: creating a knowledge base for future projects based on lessons learned.
Typical risk variables
1. Promotion risk: probability that the investments made to fund the front-end activities will be lost (project abandoned).
2. Market risk, volume: probability that the forecast sales volume for the new project will not materialize
3. Market risk, price: probability that the actual unit price will turn out to be less than the forecast price
4. Political risks: expropriation; discriminatory legislative or regulatory changes covering tax codes and environmental
laws; political unrest such as riots, strikes, civil unrest, wars, invasions, terrorism, religious turmoil.
5. Technical risks: probability that the project will not perform to the required technical standards or produce substandard
products or have excessive operating cost consumption
6. Financing risks: probability that the project revenues will not be sufficient to repay the debts and hence no financing
can be organized
7. Environmental risks: probability that the project will have adverse environmental impacts beyond its permitted limits
and increased liabilities
8. Cost estimate risk (completion risk): probability that the funds allocated to the project will be insufficient to complete
the project
9. Schedule risk (delay risk): probability that the project will overrun its allocated duration
10. Operating risk: probability that the facility fails to perform to its full functionality or fails to generate adequate units
of output or has excessive consumption of resources
11. Organizational risk: probability that legal and managerial structures put together to develop and operate the project
will not perform well
12. Integration risk: probability that separate bodies acting as sponsor, developer (or client), and operator will not work
in partnership
13. Acts of God: probability of events beyond the control of the project team occurring
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Risk breakdown structure

Risk mitigation strategies

The next stage in risk management is the development of effective risk mitigation strategies. In a general sense, there are
four possible alternatives a project organization can adopt in deciding how to address risks:
1. Accept risk: one option that a project team must always consider is whether the risk is sufficiently strong that any
action is warranted. Any number of risks of a relatively minor nature may be present in a project as a matter of course.
However, because the likelihood of their occurrence is so small or the consequences of their impact are so minor, they
may be judged acceptable and ignored. In this case, the decision to “do nothing” is a reasoned calculation, not the result
of inattention or incompetence. Likewise, for many types of projects, certain risks are simply part of the equation and
must be factored in. For example, it has been estimated that the us recording industry spends millions every year in
developing, producing, and promoting new recording artists, knowing full well that of the thousands of albums
produced every year, less than 5% are profitable. Likewise, chapter 3 detailed the extraordinary lengths that
pharmaceutical manufacturers must go to and the high percentage of failures they accept in order to get a small
percentage of commercially successful drugs to the marketplace. Hence, a high degree of commercial risk is embedded
in the systems themselves and must be accepted in order to operate in certain industries.
2. Minimize risk: strategies to minimize risk are the next option. Consider the challenges that Boeing corporation faces
in developing new airframes, such as the newly introduced 787 model. Each aircraft contains millions of individual
parts, most of which must be acquired from vendors. Further, Boeing has been experimenting with the use of composite
materials, instead of aluminum, throughout the airframe. The risks to Boeing in the event of faulty parts leading to a
catastrophic failure are huge. For example, several early flights were plagued by meltdowns in the aircraft’s lithium-
ion batteries, manufactured in Japan by gs yuasa. Consequently, the process of selecting and ensuring quality
performance from vendors is a challenge that Boeing takes extremely seriously. One method Boeing employs for
minimizing risk in vendor quality is to insist that all significant vendors maintain continuous direct contact with Boeing
quality assessment teams. Also, in considering a new potential vendor, Boeing insists upon the right to intervene in the
vendor’s production process in order to ensure that the resulting quality of all supplier parts meets its exacting standards.
Because Boeing cannot produce all the myriad parts needed to fabricate an aircraft, it seeks to minimize the resultant
risk by adopting strategies that allow it to directly affect the production processes of its suppliers.
3. Share risk: risk may be allocated proportionately among multiple members of the project. Two examples of risk
sharing include the research and development done through the European space agency (esa) and the airbus consortium.
Due to tremendous barriers to entry, no one country in the European union has the capital resources and technical skills
to undertake the development of the ariane rocket for satellite delivery or the creation of a new airframe to compete
with Boeing in the commercial aircraft industry. Esa and airbus partners from a number of countries have jointly pooled
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their resources and, at the same time, agreed to jointly share the risk inherent in these ventures. In addition to
partnerships that pool project risk, ameliorating risk through sharing can be achieved contractually. Many project
organizations create relationships with suppliers and customers that include legal requirements for risk to be shared
among those involved in the project. Host countries of large industrial construction projects, such as petrochemical or
power generation facilities, have begun insisting on contracts that enforce a “build-own-operate-transfer” provision for
all project firms. The lead project organization is expected to build the plant and take initial ownership of it until its
operating capacity has been proven and all debugging occurs before finally transferring ownership to the client. In this
way, the project firm and the host country agree to jointly accept financial (risk) ownership of the project until such
time as the project has been completed and its capabilities proven.
4. Transfer risk: in some circumstances, when it is impossible to change the nature of the risk, either through elimination
or minimization, it may be possible to shift the risks bound up in a project to another party. This option, transferring
risk to other parties when feasible, acknowledges that even in the cases where a risk cannot be reduced, it may not have
to be accepted by the project organization, provided that there is a reasonable means for passing the risk along.
Companies use several methods to transfer risks, depending upon their power relative to the client organizations and
the types of risks they face. For example, if our goal is to prevent excessive budget overruns, a good method for directly
transferring risk lies in developing fixed-price contracts. Fixed-price contracts establish a firm, fixed price for the
project upfront; should the project’s budget begin to slip, the project organization must bear the full cost of these
overruns. Alternatively, if our goal is to ensure project functionality (quality and performance), the concept of
liquidated damages offers a way to transfer risk through contracts. Liquidated damages represent project penalty clauses
that kick in at mutually agreed-on points in the project’s development and implementation. A project organization
installing a new information system in a large utility may, for example, agree to a liquidated damages clause should the
system be inoperable after a certain date. Finally, insurance is a common option for some organizations, particularly in
the construction industry. Used as a risk mitigation tool, insurance transfers the financial obligation to an insuring
agency
9 phases of a comprehensive project risk assessment
1. Define—make sure the project is well defined, including all deliverables, statement of work, and project scope.
2. Focus—begin to plan the risk management process as a project in its own right, as well as determining the best methods
for addressing project risk, given the unique nature of the proj etc. being undertaken.
3. Identify—assess the specific sources of risk at the outset of the project, including the need to fashion appropriate
responses. This step requires that we first search for all sources of risk and their responses and then classify these
risks in some manner to prioritize or organize them.
4. Structure—review and refine the manner in which we have classified risks for the project, determine if there are
commonalities across the various risks we have uncovered (suggesting common causes of the risks that can be addressed
at a higher level), and create a prioritization scheme for addressing these risks.
5. Clarify ownership of risks—distinguish between risks that the project organization is willing to handle and those that
the clients are expected to accept as well as allocate responsibility formanaging risks and responses.
6. Estimate—develop a reasonable estimate of the impacts on the project of both the identified risks and the proposed
solutions. What are the likely scenarios and their relative potential costs?
7. Evaluate—critically evaluate the results of the estimate phase to determine the most likely plan for mitigating
potential risks. Begin to prioritize risks and the project team’s responses.
8. Plan—produce a project risk management plan that proactively offers risk mitigation strategies for the project as
needed.
9. Manage—monitor actual progress with the project and associated risk management plans, responding to any variances
in these plans, with an eye toward developing these plans for the future.