Module 1

PROJECT FORMULATION
 Project
Guide to Project Management Body of Knowledge
(PMBOK) by Project Management Institute (PMI)
defines Project as follows:
A temporary endeavour undertaken to provide a
unique product or service

ISO 10006: 2017 defines project as:

A unique process consisting of a set of coordinated and
controlled activities with start and finish dates, conforming
to specific requirements, including constraints of time, cost
and resources
 Characteristics of a Project

• Temporary – definite beginning and definite end

• Unique product, service or result
• Progressive elaboration
• Multidisciplinary – Cuts across organizational goals
• At least one single, definable end-product or service
defined in terms of cost, schedule and resource
requirements
• Uncertainty – risks
Project Performance Objectives

Interactive Project Parameters (Chitkara, 2014)

Types of Projects
There are three broad categories of projects to consider: Strategic Projects,
Operational Projects, and Compliance Projects
• Strategic Projects involve creating something new and innovative. A new
product, a new service, a new retail location, a new branch or division, or
even a new factory might be a strategic project, because it will allow an
organization to gain strategic advantage over its competitors.
• Operational Projects improve current operations. These projects may not
produce radical improvements, but they will reduce costs, get work done
more efficiently, or produce a higher quality product.
• Compliance Projects must be done in order to comply with an industry or
governmental regulation or standard. Often there is no choice about
whether to implement a project to meet a regulation, but there may be
several project options to consider, any of which would result in meeting
compliance requirements.
e.g. Classification of Construction Projects

Based on the domain in which the project is to be executed, there

may be sub categories also.
e.g. Construction projects are further classified on the following
basis:
• Nature of construction facility
• Nature of work
• Mode of execution
• Nature of the contract
• Completion time
• Budgeted cost
• Maturity level
• Need based projects
Characteristics of certain typical types
of projects

Ref: Harold Kerzner, Project Management

 Life cycle of a project
• A project is divided into several phases and collectively,
project phases is known as project life cycle
• Each project phase is marked by completion of one or more
deliverables
• End of each phase reviews both key deliverables and project
performance to date
Phases in the life cycle of a project
• A project is generally divided into the following
phases, based on implementation:
• Pre-implementation phase
• Implementation phase
• Post-implementation phase
• A project is generally divided into the following
phases, based on investment:
• Pre-investment phase
• Investment phase
• Operating phase
 Phases in a Project Life Cycle (in detail)
(based on implementation)
Pre-Implementation Phase
Idea or Project Concept Feasibility
Initiation Phase Phase Phase

Implementation Phase
Basic Design Detailed Tendering Execution Closure
Phase Design Phase Phase Phase
Phase

Post-Implementation Phase
Utilization Phase Close-down Phase
 Case Study Example – Construction Project
(Bubshait and Al-Musaid 1992)
Tasks related to Pre-Implementation Phase
1. Assigning a task force to conduct preliminary studies for the
proposed project
2. Studying the users’ requirements
3. Defining the technical specifications and conditions that determine
the quality of the required work
4. Studying how to secure funds to finance the project
5. Estimation of the project cost and duration
6. Approval of the project cost
7. Studying and determining the technical specifications of the
materials
8. Studying the impact of the project on the safety and health of the
community and environment
9. Establishing criteria for the selection of project location
Tasks related to Pre-Implementation Phase
10. Advising members of the task force (consultant, engineering, etc.)
on the approved funds
for the project
11. Establishment of milestones for the project for review and
approval
12. Describing the responsibilities and authority of project parties
13. Pre-establishing a system to prepare for ‘change order’ procedures
14. Establishment of design criteria for structural specifications
15. Conducting a feasibility study of the proposed project
Tasks related to Implementation Phase
Design-related tasks (Bubshait and Al-Musaid 1992)
1. Arranging the documents of the construction contract
2. Qualifying of design professionals
3. Performing technical and financial analysis of offers from competing
contractors
4. Selecting the design team
5. Negotiating with the qualified design professionals
6. Providing the qualified design professionals with the needed
information
7. Monitoring the design progress of the proposed project
8. Evaluating the design and making the necessary decisions
9. Updating design documents
10. Reviewing design documents
11. Conducting design peer review
Tasks related to Implementation Phase
12. Monitoring design quality
13. Updating drawings and specifications to reflect the requirements
of location or environment
14. Using technical standards (e.g., Indian standard, American
standard, British standard, etc.)
to describe materials quality and construction methods
Tasks related to Implementation Phase
Tendering- and construction-related tasks (Bubshait and Al-Musaid
1992)
1. Pre-qualifying contractors
2. Holding a pre-bid conference and providing the necessary
information
3. Negotiating contract price with qualified contractor
4. Reviewing at frequent intervals documents submitted by the
contractor (e.g., work schedules, manpower qualifications,
equipment)
5. Interpreting and clarifying ambiguities in the contract documents
6. Taking necessary precautions to prevent the loss of project data
7. Making necessary decisions against contractor claims during project
implementation
8. Monitoring and controlling implementation methods, cost, schedule
and contractor productivity
Tasks related to Implementation Phase
Tendering- and construction-related tasks (Bubshait and Al-Musaid
1992)
1. Pre-qualifying contractors
2. Holding a pre-bid conference and providing the necessary
information
3. Negotiating contract price with qualified contractor
4. Reviewing at frequent intervals documents submitted by the
contractor (e.g., work schedules, manpower qualifications,
equipment)
5. Interpreting and clarifying ambiguities in the contract documents
6. Taking necessary precautions to prevent the loss of project data
7. Making necessary decisions against contractor claims during project
implementation
8. Monitoring and controlling implementation methods, cost, schedule
and contractor productivity
Phases in a Project Life Cycle (in detail)
(based on investment)
Characteristics of a project life cycle

• By envisaging the project through different phases, a

clear idea regarding the plan, implementation and
control is possible.
• Probability of successfully completing the project is
lowest and hence risk and uncertainty highest, at
the start of the project
• Ability of stakeholders to influence the final
characteristics of the project’s product and final cost
of the project – highest at start and gets progressively
lower as project continues
Capital Investments
Capital Investments
(Ref: Chapter 1, Projects, Prasanna Chandra)

• Capital Investment, also called Capital Expenditure,

involves a current outlay (sometimes current and
future outlay also) of funds in the expectation of a
stream of benefits extending far into the future.
Importance of Capital Investments
• They denote the most important decisions taken in
a business because of:
• Long term effects
• Irreversibility
• Substantial outlays
Difficulties in Capital Investments

• Measurement problems
• Uncertainty
• Temporal spread
Types of Capital Investments

Type 1 Type 2 Type 3

Mandatory
Physical
Strategic Replacement
Expansion
Monetary
Diversification
Tactical R&D
Intangible
Miscellaneous
Project Management
• Application of knowledge, skills, tools and techniques
to project activities to meet project requirements
(PMBOK)

Planning

Controlling Executing
Generic rules for managing projects
1. Define clear objectives
2. Develop a detailed plan
3. Allocate resources wisely
4. Communicate effectively
5. Manage risks proactively
6. Monitor progress regularly
7. Adapt to change
8. Empower the team
9. Manage stakeholder expectation
10. Document everything
11. Evaluate & learn
Generic rules for managing projects
• Set a clear project goal
• Determine the project objectives
• Establish checkpoints, activities,
relationships and time estimates
• Draw a picture of the project schedule
• Direct people individually and as a project
team
• Reinforce the commitment and excitement
of the project team
• Keep everyone connected with the project
informed
• Build agreements that vitalize team
members
• Empower yourself and others on the
project team
• Encourage risk taking and creativity
Types of plans made in a project
Integrated Approach to Project
Management (Ref: PMBOK)
Factors to be considered for quick and
economical implementation of projects
(Ref: Projects, Prasanna Chandra)
Project identification
Purpose and Need for Project Identification
• Resources are limited
• Investment decisions have to be made wisely
• All aspects have to be looked into

Hence project identification, followed by project

appraisal and project selection, launches the project
into the orbit.
Generic phases in project identification
& feasibility study
Existing System
Rationalyse

Design alternate solution

Produce for each solution

Costs Benefits Risks Cost-Benefit Analysis

Consider

Technical aspects Social aspects Economic aspects

Recommendation and presentation

What happens during Project Identification?
• Articulation of objectives
• Generation of ideas
• SWOT Analysis
• Emerging market trends
• Other constraints

OBJECTIVES
STRENGTH WEAKNESS

OPPORTUNITY THREAT

ALTERNATE PROJECT
POSSIBILITIES
 Generation of ideas

Types of Objectives
• Productivity improvement
• Cost reduction
• Capacity utilization
• Expansion into promising fields
• Philanthropic nature
• National/global objectives
 Generation of ideas

What is SWOT Analysis?

• SWOT analyses can be applied to an entire company

or organization, or individual projects within a single
department. Most commonly, SWOT analyses are
used at the organizational level to determine how
closely a business is aligned with its growth
trajectories and success benchmarks, but they can
also be used to ascertain how well a particular project
is performing according to initial projections.
 Generation of ideas
SWOT Analysis
 Generation of ideas

SWOT Applied…
 Generation of ideas

How to carry out a SWOT Analysis?

1. Gather your team together

2. Set up your quadrants
3. Start with strengths
4.Follow suit with weaknesses, opportunities, and
threats
5.Organize the information collected into a neat and
tidy document
6.Send out to the team with notes. Organize a second
meeting to come up with action items and owners
How are ideas generated and by whom?
• Brainstorming, followed by screening and selection
• It is usually done by:
• Sales and marketing personnel
• R&D
• Top management
• Production department
• Consumers
Appraisal and Selection of Projects
Screening of projects is done based on:
• Investment • Similarity to existing
business
• Rate of return
• Expected life
• Risk
• Flexibility
• Likely profit
• Environmental impact
• Payback
• Competition

Weightage could be given based on cost, risk,

return, hazard etc. Responses like excellent, very
good, good, fair, poor etc. can be given.
 Mortality of new ideas

screening appraisal selection

No. of projects

Project chosen

time
Identifying Investment Opportunities
(For Reading – Ref: Chapter 3, Projects, Prasanna Chandra)

• Generation of ideas
• Monitoring the environment
• Corporate Appraisal
• Tools for identifying investment opportunities
• Scouting for project ideas
• Preliminary screening
• Project Rating Index
• Sources of positive net present value
 Failure of Projects
Some of the main causes of failure of projects are:
• Inadequate project formulation: Poor filed investigation,
inadequate project information, unrealistic cost estimates, lack
of experience, inadequate project analyses, poor investment
decisions.
• Poor planning for project implementation: Inadequate time plan,
inadequate resource plan, inadequate equipment supply plan,
unanticipated interlinking, poor cost planning and poor
organizational structure.
• Lack of proper contract planning and management: Improper
pre-contract actions, poor post award contract management.
• Lack of project management execution: Inefficient and
ineffective working, delays, changes in the scope of the work,
difficult location, unforeseen calamities, deliberate attempts by
undesirable elements.
Common problems of management failure
• Planning failure: Unclear objectives and targets, unworkable plans, top
management’s failure to back-up plans, failure to identify critical items, lack
of understanding of operating procedures and policy directions, reluctance
to take timely decisions, ignorance of appropriate planning tools and
techniques.
• Organizational failure: Due to incorrect organizational structures resulting in
conflicts, ambiguity on responsibility, inadequate delegation of authority,
higher management interference etc.
• Resource failure: Inadequate/inefficient staff and other resources.
• Directional failure: Lack of team spirit, internal conflicts, poor human
resource management and labour strikes.
• Controlling failure: Unclear targets, inadequate information flow,
incompetency in adopting appropriate monitoring techniques and an
absence to timely corrective measures.
• Coordination failure: Lack of communication, lack of day to day decisions to
fill procedural gaps, absence of cooperation and team spirit.
• Other failures: Faulty procurement of machinery and materials, bad
workmanship, poor performance of subcontractors, accidents, unforeseen
bad weather and a failure to adopt to the local conditions.