Definition of Project

Martand T. Telsang: Project is a combination of human and non-human resources

integrated in a time bound temporary organization to a specified objective.
Gray and Larson: Defines project as a complex, non-routine, one time effort limited by
time, budget, resources and performance specifications designed to meet customer need.
British Standard 6079, 2000: A unique set of coordinated activities, with definite
starting and finishing points, undertaken by an individual or organization to meet
specific performance objectives within defined schedule, cost and performance
parameters.
Project Management: Project management refers the planning and organizing a
company’s resources to move a specific task, event, duty towards completion withing
given constraints.

Characteristics of Project
1. Project is one time activity which will never be repeated exactly the same manner
2. A project has a definite start and definite finish
3. A project is comprised of series of interrelated jobs or activities
4. Project has definable goals or end result can be defined in terms of cost, schedule
and performance requirements.
5. Project demand the investment and the benefits are spread for number of future
periods
6. Project passes through distinct activities which constitute a project life-cycle
7. Once the project goal is achieved the project team will be either disbanded or
reconstituted for another project

3 Phases of Project Management

Design phase: Identify the needs that project will serve, construct models to show how
the needs will be developed and evaluate these to determine the optimum process for
task and minimize risk. (Project and organizational strategy, goal definition, modeling
and planning, estimating resource, conflict resolution and justification)
Doing phase: The doing time is when the project is carried out in line with the models
or plans generated above. (Organization, control, leadership, decision making and
problem solving)
Develop phase: Improve process and models in the light of experience gained from the
project. (Assessment of project and outcomes of the project, evaluation, changes for
future)
Difference between Line Manager and Project Manager

Line Manager Project Manager

Authority is defined by Line of authority is fuzzy
organizational structure
Consistent set of tasks Ever changing set of tasks

Responsible for own functional Responsible for cross functional

activities activities
Works in a permanent organizational Operates within a structure which
structure exists for the life of the project

7S of Project Management
Skill: A skill is the learned ability to perform an action with determined results with
good execution often within a given amount of time, energy, or both.
Style: Style is the part of soft side of management. The underlying way of working and
interrelating within the work team or organization.
Stakeholders: Individuals or group that has interest in project process or its outcome.
Structure: The organizational arrangement that will be used to carry out the project
Strategy: Strategy is process. It involves high level consideration of objectives which
can be seen as point of principle rather than activity level details.
System: The methods for the work to be designed, monitored and controlled. Both formal
and informal system need to be designed.
Staff: Staff refers to all of the employees at a business.
Class 2
Feasibility Study
Marketing Feasibility: Marketing feasibility is concerned with determination of
aggregate demand for the proposed product/service and the market share of the project
under appraisal is going to capture. If no sufficient demand exists and there no
positive sign of increasing trend, the project market feasibility does not exist.
Technical feasibility: Technical and engineering analysis of proposed project is done
continually when the project is formulated. Technical appraisal is done to determine
whether the pre-requisites of the project have been considered reasonably and good
choices have been made in respect with location, size and process.
Financial feasibility: Financial feasibility analyses whether the proposed project is
financially viable in a sense that it is able to meet the burden of servicing the debt
and whether the project will satisfy the return expectation of those who have invested
capital.
Economic feasibility: Economic appraisal is considered to be the social cost-benefit
analysis. It is concerned with judging the project from the larger social point of view.

Factors to be Considered for Successful Project

Market Factors Production Factors

1. Size of potential market for 1. Time until ready to install

2. Length of disruption during
the output installation
2. Probable market share of 3. Availability of raw material
output 4. Energy requirements
5. Impact on waste and rejects
3. Impact on current product 6. Change in unit product cost
line 7. Change in raw material usage
8. Safety of process
4. Customer acceptance 9. Other usage of the technology
5. Impact on customer safety 10. Impact on current supplies
11. Change in quality output
12. Facility and other equipment
Project Management Process
Project Management Process includes the following main elements
1. Estimate
2. Schedule/Plan
3. Monitoring and Controlling
4. Documentation

Estimation: Estimation allows a project manager to plan for the resource required for
the execution of the project by establishing the number and size of the tasks that need
to be completed.
Work Breakdown System: WBS is the breakdown of the project or a piece work into
component tasks. That means breaking a big work piece into several small tasks.
Project Constraints: A project can be resource constrained (limited by the type of
people, monetary or hardware resources available) or time constrained (limited by
deadline).
Things to estimate:

• Estimate effort time for average person to undertake tasks

• Estimate different work rates and availability of staff
• Allocate resources (staff) to task
• Calculate elapsed time on the basis of the number of staff, availability and work
rate
• Schedule tasks in relation to other tasks

Scheduling: Scheduling means determining when the project activities should be

executed. The finish schedule is called as project plan
Resource Allocation: Resource allocation means the activity involves assigning
resource to each task.
Critical Path: Tasks on critical path are called critical activities. Any delay in these
activities will cause a delay in the project completion time.
Critical Path Method: Critical path diagram shows the relation among activities in a
project.
Process Evaluation and Review Technique (PERT): PERT replaces the fixed activity
duration used in the CPM method with a statistical distribution which uses optimistic,
pessimistic, and most likely duration estimates.

Where te is the expected time, tm is the most probable and tp is the pessimistic time.
 System
System Definition: A system is a group of interacting or interrelated elements
that act according to a set of rules to form a unified whole.
According to Fagen: A sec of objects together with relationship among objects
and between their attributes.
A system denotes:
1. Interdependency
2. Interrelatedness
3. Interconnectedness

Nature of the System:

1. All open system are input-throughput-output mechanism
2. Every system is delineated by a boundary

• Open system has purposes and goals for their existence

3. All system rundown and disintegrate unless they reverse the
entropic process by importing more energy than they use
4. Open system is steady state or dynamic homeostasis
5. System tends to be more elaborated, complexed, specialized,
differentiated over time. It means system focuses on the process of
differentiation.
6. System have multiple paths to goal.
A system in integration with its environment
 Project Appraisal
Project Appraisal: Project appraisal is the process of assessing and questioning the
proposals before resources are committed.
It is the way by which partnerships can achieve what the want for their community.
But project appraisal is the source of confusion and difficulty for project in the
past.

What can a Project Appraisal Deliver?

1. Be consistent and objective in choosing projects
2. Make sure their program benefits all section of the community
3. Provide documentation for financial & audit requirements
4. Appraisal justifies spending money on a project
5. Appraisal is an important decision-making tool
6. Appraisal is the foundation for delivery

Good Appraisal should Ensure:

1. Project application, appraisal and approval functions are separate
2. All the necessary information is gathered for appraisal
3. Race/tribal equality or other equality issues are given proper consideration
4. Those involved in appraisal have appropriate technical expertise
5. There are realistic allowances for time involved
6. Decisions are within a implementers’ powers
7. There are appropriate arrangements for every small projects
8. There are appropriate arrangement for dealing with novel, contentious or
particularly risky projects
Key Issues in Appraising Projects:

Need, Targeting & Objectives: Applicants should provide detailed descriptions of

projects, identifying local needs/objectives it aims to meet.
Context & Connections: Are there links between the project and other programmes and
projects.
Consultation: Local consultation determines priorities and secure community consent
and ownership.
Options: This is concerned with establishing whether there are different ways of
achieving objectives.
Inputs: Important to ensure all the necessary people and resources are in place to
deliver project.
Value for Money: It is one of the key criteria against which project are appraised.
Implementation: Appraisal scrutinizes the practical plans for implementation, asking
whether staffing, timetable and implementers are okay.
Risk and Uncertainty: There should also be contingency plans in place to minimize the
estimated risks.
Forward Strategies: Appraisal should also consider mainstream links and implication
in case the project funds are over.
Sustainability: Appraisal should include an assessment of a project’s environment,
social and economic impact, its positive and negative effects.
 Social Cost-Benefit Analysis
Social cost benefit analysis is an analysis for evaluating investment projects from
the point of view of the society. This is used primarily for evaluating public
investments.
Towards the end of the sixties and in the early seventies two principal approaches
for SCBA emerged: (a) UNIDO approach (b) Little-Mirrles approach.
Both the approaches call for:
1. Calculating accounting (shadow) prices particularly for foreign exchange savings
and unskilled labor.
2. Considering the factor of equity.
3. Use of DCF analysis.

Differences
UNIDO:
1. The UNIDO approach measures costs and benefits in terms of domestic currency.
2. The UNIDO approach measures costs and benefits in terms of consumption.
3. We need to follow the stage-by-stage analysis recommended by the UNIDO approach
focuses on efficiency, savings and redistribution considerations in different stages.

L-M:
1. L-M approach measures costs and benefits in terms of international prices.
2. L-M approach measures costs and benefits in terms of uncommitted social income.
3. The L-M approach tends to view these considerations together.

UNIDO method of project appraisal involves five stages:

1. Calculation of the financial profitability of the project measured at market
prices.
2. Obtaining the net benefit of the project measured in terms of economic prices.
3. Adjustment for the impact of the project on savings and investment.
4. Adjustment for the impact of the project on income distribution.
5.. Adjustment for the impact of the project on merit goods and demerit goods whose
social values differ from their economic values.
 Demand Forecasting
Definition: Demand forecasting refers to a scientific and creative approach for
anticipating the demand of a particular commodity in the market based on past
behavior, experience, data and pattern of related events. It is not based on mere
guessing or prediction but is backed up by evidence and past trends.
Example: A printing press owner forecasts high demand for notebooks in June and July
due to the new session. Therefore, he plans for a large-scale production during this
time and arranges for the raw material, workforce, finance and machinery accordingly.

Factors Affecting Demand Forecasting

Demand is never constant and fluctuates with the change in certain factors related to
the commodity and the market in which the business operates. With the changing demand,
it’s forecasting also varies.
Following are some of the factors which influence the demand forecasting of a
commodity: Factors Affecting Demand Forecasting

Price of Goods: Demand estimation is highly dependent on the price of goods or services.
The pricing policy and fluctuation in the present price can give an idea of change in
demand for that particular commodity.
Type of Goods: The kind of commodity, its features and usability determine the customer
base it is going to cater. The demand for existing goods can be easily estimated by
following the previous sales trend, competitors’ analysis and substitutes available.
Whereas, the demand for a new product on the market is difficult to predict.
Competition: The level of competition in the market supports the process of demand
forecasting. It is easy to predict sales in a less competitive market, whereas the same
becomes difficult in a market where the new firms can freely enter.
Technology: The demand for any product or service changes drastically with the
advancement in technology. Therefore, it is essential for an organization to be aware
of technological development while forecasting the demand for any commodity.
Economic Perspective: Being updated with economic changes and growth is necessary for
demand forecasting. It assists the organization in preparing for future possibilities
and analyzing the impact of economic development on sales.
Process of Demand Forecasting
Demand forecasting is not based on assumptions but is a systematic and scientific
process of estimating future sales and performance as well as directing the resources
accordingly.
The steps involved in a standard demand forecasting process are as follows: Process of
Demand Forecasting
Setting the Objectives: The purpose for which the demand forecasting is being done
must be clear. Whether it is for short-term or long-term, the market share of the
product, the market share of the organization, competitors share, etc. By all these
aspects, the objectives for forecasting are framed.
Determining the Time Perspective: The defined objectives are supported by the period
for which the forecasting is being done. The demand for a commodity varies with the
change in its determinants over the period.
There is a negligible change in price, income or other factors in the short run. But,
the organization may notice a considerable difference in these determinants over a
long-term, affecting the demand of a commodity.
Selecting a Suitable Demand Forecasting Method: Demand forecasting is based on
specific evidence and is determined using a particular technique or method. The method
of prediction must be selected wisely. It is dependent on the information available,
the purpose of predicting and the period it is done for.
Collecting the Data: Forecasting is based on past experiences and data. This data or
information can be primary or secondary. Primary data comprises of the information
directly collected by the analysts and researchers; whereas secondary data includes
the physical evidence of the past performance, sales trend in the past years, financial
reports, etc.
Estimating the Results: The data so collected is arranged in a systematic and
meaningful manner. The past performance of a product in the market is analysed on
this basis. Accordingly, future sales prediction and demand estimation are done. The
results so drew must be in a format which is easy to understand and apply by the
management.

Objectives of Demand Forecasting

Short-Term Objectives: To ensure the effective working of the organization, estimation
of sales for the past six months is done. Let us now go through the following purpose
of demand forecasting in the short run:

Formulation of Production Policy: Demand forecasting aims at meeting the demand by

ensuring uninterrupted production and supply of goods and services.
Formulation of Price Policy: It helps in formulating an effective price mechanism to
deal with the market fluctuations and conditions like inflation.
Maximum Utilization of Machines: It streamlines the production process and operations
such that there is the optimum utilization of machines.
Proper Control of Sales: Forecasting the regional sales of a particular product or
service provides a base for setting a sales target and evaluating the performance.
Regular Supply of Material: Sales forecast determines the level of production, leading
to the estimation of raw material. Thus, a continuous supply of raw material and
inventory management can be done.
Arrangement of Finance: To maintain short-term cash in the organization it is
essential to forecast the sales as well as liquidity requirement accordingly.
Regular Availability of Labor: Estimation of the production capacity provides for the
acquisition of suitable skilled and unskilled labor.
Long-Term Objectives: Demand forecasting is inevitable for the long-term existence of
an organization. Following objectives justify the statement:
Long-Term Finance Management: Forecasting sales for the long-term contributes to
long-term financial planning and acquisition of funds at reasonable rates and
suitable terms and conditions.
Decisions Regarding Production Capacity: Demand forecast determines the production
level, which provides a base for decisions related to the expansion of the production
unit or size of the plant.
Labor Requirement: Demand forecasting initiates the expansion of business, thus
leading to the estimation of required human resource to accomplish business goals and
objectives.
Estimating demand with accuracy requires a lot of expertise and knowledge. Therefore,
experts are hired by the business organizations to ensure better results and proper
utilization of resources.

Determinants of Demand
1] Price of the Product: People use price as a parameter to make decisions if all other
factors remain constant or equal. According to the law of demand, this implies an
increase in demand follows a reduction in price and a decrease in demand follows an
increase in the price of similar goods.
The demand curve and the demand schedule help determine the demand quantity at a
price level. An elastic demand implies a robust change quantity accompanied by a change
in price. Similarly, an inelastic demand implies that volume does not change much even
when there is a change in price.
2] Income of the Consumers: Rising incomes lead to a rise in the number of goods
demanded by consumers. Similarly, a drop in income is accompanied by reduced
consumption levels. This relationship between income and demand is not linear in
nature. Marginal utility determines the proportion of change in the demand levels.
3] Prices of related goods or services: Complementary products – An increase in the
price of one product will cause a decrease in the quantity demanded of a complementary
product. Example: Rise in the price of bread will reduce the demand for butter. This
arises because the products are complementary in nature. Substitute Product – An
increase in the price of one product will cause an increase in the demand for a
substitute product. Example: Rise in price of tea will increase the demand for coffee
and decrease the demand for tea.
4] Consumer Expectations: Expectations of a higher income or expecting an increase in
prices of goods will lead to an increase the quantity demanded. Similarly, expectations
of a reduced income or a lowering in prices of goods will decrease the quantity
demanded.
5] Number of Buyers in the Market: The number of buyers has a major effect on the total
or net demand. As the number increases, the demand rises. Furthermore, this is true
irrespective of changes in the price of commodities.

What are the criteria of a good forecasting method?

1. Plausibility: The management should have good understanding of the technique chose
and they should have confidence in the technique adopted. Then only proper
interpretation will be made. According to Joel Dean, the plausibility requirements can
often increase the accuracy of the result. Accuracy entails the executives to accept
the results. Experienced executives will have a market feel and they can contribute
effectively.
2. Simplicity: The method chosen should be of simple nature or ease of comprehension
by the executives. Elaborate mathematical and econometric procedures are less
desirable, if the management does not really understand what the forecaster is doing.
3. Economy: Cost is a primary consideration which should be weighed against the
importance of the forecasts to the business operation. There is no point in adopting
very high levels of accuracy at great expense, if the forecast has little importance in
the business.
4. Availability: Immediate availability of data is a vital requirement in forecasting
method. The technique should yield quick and meaningful result. Delay in result will
adversely affect the managerial decision.
To conclude, the ideal forecasting method is the one which yields good returns and
costs in accuracy meets new circumstances with flexibility.

How to forecast sales of a new product?

Forecast based on sales of existing products: The most common forecasting method is to
use sales volumes of existing products to forecast demand for a new one. This method
is particularly useful if the new product is a variation on an existing one involving,
for example, a different color, size or flavor. In this case, your new product will
likely sell very much like your (or someone else’s) existing ones. This is especially
true if you’re making no major changes in marketing or distribution.
A sales forecast becomes more complex if you’re launching a completely new product.
Here, you will need to do more market research to learn about the potential market for
your product.
Use affordable market research techniques: Big companies use sophisticated market
research techniques, but there are affordable methods you can use to help you project
sales of your new product. Rikely, who advises companies in Vancouver on improving
their sales performance, offered the following tips for putting together your sales
forecast.
Ask your sales team: Sales representatives know your market intimately, including what
your competitors are doing. Your customer service team will also have insights into the
potential of a new product. Discuss your project with them and get their help in
estimating how many units you can move in the initial months as well as what the ramp
up rate might be. As an added bonus, their participation may make them feel more
engaged in the successful launch of the product.
Seek other sources of intelligence: Talk to trusted customers, suppliers and sales
partners such as dealers or distributors to get their take on how the product will do
in the first year. “You can say: We’re thinking of doing something along these lines,
what do you guys think?” Rikely says. “It’s amazing what people will tell you if you
ask.
Consider primary research: Primary market research involves such techniques as
conducting surveys, organizing focus groups and observing customers. It can produce
valuable insights into potential customer demand for your new product, but it involves
a commitment of time and money. To make your investment worthwhile, it’s a good idea
to hire market research professional to guide you.
Start with a pilot project: It often makes sense to test your product on a small scale
before rolling it out to all potential customers. You could try it out with a small
number of sales reps to gauge market reaction, Rikely says. “Use the information to
rejig the product and your marketing. And then do a full launch.”
Monitor your results and adjust: Your initial sales forecast for a new product will
involve a lot of guesswork, which is why you should adjust your forecast as soon as you
get actual sales results.
That means you have to be disciplined about monitoring sales on a monthly basis. The
first few months will give you crucial information about product pricing, production
and overall customer reaction, Rikely says.
“Every month you need to be looking to see if you’re on track with your forecast. If
you’re not, you want to figure it out sooner so you can take action, rather than at the
end of the year when it’s too late.”

Uncertainties in demand forecasting

Demand forecasts are subject to error and uncertainty which from three principal
source.
Data about past and present market: The analysis of past and present markets, which
serve as the springboard for the projection exercise, may be vitiated by the following
inadequacies of data:
Lack of Standardization: Data pertaining to market features like product, price,
quantity, cost, income, etc. may not reflect uniform concepts and measures.
Few observations: observations available to conduct meaningful analysis may not be
enough.
Influence of abnormal factors: Some of the observations may be influenced by abnormal
factors like war or natural calamity.
Method of forecasting: Methods used for demand forecasting are characterized by the
following limitations:
Inability to handle unquantifiable factors: most of the forecasting methods, being
quantitative in nature, cannot handle unquantifiable factors which sometimes can be
of immense significance.
Unrealistic assumptions: Each forecasting method is based on certain assumptions. For
example, the trend projection method is based on the mutually compensating affects
premise and the end use method is based on the constancy of technical coefficients.
Uncertainty arises when the assumptions underline the chosen method tend to be
realistic and erroneous.
Exercise data requirement: In general, the more advanced a method, the greater the
data requirement. For example, to use an econometric model one has to forecast the
future values of explanatory variables in order to project the explained variable.
Environmental Change: The environment in which a business functions is characterized
by numerous uncertainties. The important sources of uncertainty are mentioned below:
Technological Change: This is a very important and very hard-to-predict factor which
influences business prospects. A technological advancement may create a new product
which performs the same function more efficiently and economically, thereby cutting
into the market for the existing product. For example, electronic watches are
encroaching on the market for mechanical watches.
Shift in Government Policy: Government resolution of business may be extensive.
Changes in government policy, which may be difficult to anticipate, could have a
telling effect on the business environment.
Development on the International Scene: Development on the International Scene may
have a profound effect on industries.
Discovery of New Sources of Raw Material: Discovery of new sources of raw materials,
particularly hydrocarbons, can have a significant effect on the market situation of
several products.
Vagaries of the Weather: Weather plays an important role in the economy of a country,
is somewhat unpredictable. Extreme weather influences, directly or indirectly, the
demand for a wide range of products.
Coping with Uncertainties:

• Given the uncertainties in demand forecasting, adequate efforts,

along the following lines, may be made to cope with uncertainties.
• Conduct analysis with data based on uniform and standard
definitions.
• In identifying trends, coefficients, and relationships, ignore the
abnormal and out-of-the-ordinary observations.
• Critically evaluate the assumptions of the forecasting methods
and choose a method which is appropriate to situation.
• Adjust the projections derived from quantitative analysis in the
light of unquantifiable, but significant, influences.
• Monitor the environment imaginatively to identify important
changes.
• Consider likely alternative scenarios and their impact on market
and competition.
• Conduct sensitivity analysis to access the impact on the size of
demand for unfavorable and favorable variations of the
determining factors from their most likely levels.