DSITANCE LEARNING CENTRE

AHMADU BELLO UNIVERSITY

ZARIA, NIGERIA

COURSE MATERIAL

FOR

Course Code &Title: Project Management, LIBS 823

Programme Title: Masters in Information Management

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 ACKNOWLEDGEMENT
We acknowledge the use of the Courseware of the National Open University of
Nigeria as the primary resource. Internal reviewers in the Ahmadu Bello
University whoextensively reviewed and enhanced the material have been duly
listed as members of the Courseware development team.

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 COPYRIGHT PAGE

© 2018 Ahmadu Bello University (ABU) Zaria, Nigeria

All rights reserved. No part of this publication may be reproduced in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise without the prior permission of the
Ahmadu Bello University, Zaria, Nigeria.

First published 2018 in Nigeria.

ISBN:

Ahmadu Bello University e-Learning Project,

Ahmadu Bello University
Zaria, Nigeria.

Tel: +234

E-mail:

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COURSE WRITERS/DEVELOPMENT TEAM

Editor
Prof. M.I Sule
Course Materials Development Overseer
Dr. Usman Abubakar Zaria
Subject Matter Expert
Dr AliyuLawan
Subject Matter Reviewer
AbdullahiHussaini
Language Reviewer
EnegoloinuAdakole
Instructional Designers/Graphics
Ibrahim Otukoya, Abubakar Haruna
Proposed Course Coordinator
AbdullahiHussaini
ODL Expert
Dr AliyuLawan

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 CONTENTS
Title Page…………………………………………………………….……?
Acknowledgement Page…………………………………………… ……?
Copyright Page………………………………………………………..……?
Course Writers/Development Team………………………………………?
Table of Content………………………………..……………………………?

COURSE STUDY GUIDE ?

Preamble - - - - - - - - - - -
i. Course Information - - - - - - - -7
ii. Course Introduction and Description - - - - - -7
iii. Course Prerequisites - - - - - - - -8
iv. Course Learning Resources - - - - - - -8
v. Course Objectives and Outcomes - - - - - -8
vi. Activities to Meet Course Objectives - - - - - -9
vii. Time (To complete Syllabus/Course) - - - - - -9
viii. Grading Criteria and Scale - - - - - - -9
ix. OER Resources - - - - - - - - -11
x. ABU DLC Academic Calendar - - - - - - -13
xi. Course Structure and Outline - - - - - - -14

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 xii. STUDY MODULES - - - - - - - -24
Module 1: - - - - - - - - - -24
Study Session1: The Nature and Purpose of Project Management -24
Study Session 2:Project Management Organisation - - -33
Study Session 3:Administration Functions in Project Organisation -40
Study Session 4:Project Definition - - - - -48
Study Session 5:Project Team Building - - - - -56

Module 2: - - - - - - - -67
Study Session 1: Cost Estimates – Definitions and Principles - -67
Study Session 2:Cost Estimates – Practical Estimation - - -76
Study Session 3:Financial Project Appraisal - - - -84
Study Session 4:Commercial Management of Projects - - -98
Study Session 5: Introduction to Project Planning and Scheduling -108

Module 3: - - - - - - - -116
Study Session 1:Network Analysis - - - - -116
Study Session 2:Principles of Scheduling Resources - - -127
Study Session 3:Practical Scheduling of Resources - - -135
Study Session 4:Materials Management - - - - -145
Study Session 5: Project Implementation – An Introduction - -155
Study Session 6: Managing Progress in Projects - - - -163

Module 4: - - - - - - - - -173
Study Session 1: Projected Income Statement - - - -173
Study Session 2:Projected Cash Flow Statements - - -183
Study Session 3:Projected Balance Sheets - - - -192
Study Session 4:Project Evaluation Criteria - - - -200
Study Session 5: Introduction to Economic Analyses - - -210

XIII. Glossary - - - - - - - - -220

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 COURSE STUDY GUIDE
i. COURSE INFORMATION
Course Code:LIBS 823
Course Title: Project Management
Credit Units: 3
Semester: One

ii. COURSE INTRODUCTION AND DESCRIPTION

Introduction:
Libs 823 – Project Management is a semester course work of two-credit
units. It is available to all students taking the MPA programme in the
School of Business and Human Resources Management.
Description:
The course consists of 16 sessions covering the entire facets of project
management. The course involves visits to organisations, mostly government
parastatals. The idea is to enable you have first-hand knowledge of how project
management is carried out in practice.

The course guide tells you what the course Libs 823 is all about, the materials you
will need and how to make use of the materials to ensure good study. Other
information contained in the course guide includes information on self-Assignment
Question. There will be tutorial classes.

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 iii. COURSE PREREQUISITES
You should note that although this course has no subject pre-requisite, you are
expected to have:
1. Satisfactory level of English proficiency
2. Basic Computer Operations proficiency
3. Online interaction proficiency
4. Web 2.0 and Social media interactive skills

iv. COURSE LEARNING RESOURCES

i. Course Textbooks
Belbin, R.M. (1996). Management Teams: Why They Succeed or Fail.
Oxford: Butterworth-Heinemann.
Central Computer and Telecommunications Agency (CCTA) (1997).
An Outline. London: The Stationery Office.
Morris, P.W.G. (1997). The Management of Projects. London: Thomas Telford.
Wearne, S. (1993). Principles of Engineering Organisation. London:
Thomas Telford.

v. COURSE OBJECTIVES AND OUTCOMES

After studying this course, you should be able to:
The aim of this course is to expose you to the knowledge of project management. It
also aims to enrich your skills in the management of various projects. The aims
will be achieved by:
1. Explaining the nature of project management
2. Identifying the key functions in project management
3. Describing the key processes in project management

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 4. Explaining project implementation
5. Visits to organisations to have practical experience.

vi. ACTIVITIES TO MEET COURSE OBJECTIVES

Specifically, this course shall comprise of the following activities:
1. Studying courseware
2. Listening to course audios
3. Watching relevant course videos
4. Field activities, industrial attachment or internship, laboratory or
studio work (whichever is applicable)
5. Course assignments (individual and group)
6. Forum discussion participation
7. Tutorials (optional)
8. Semester examinations (CBT and essay based).

vii. TIME (TO COMPLETE SYLABUS/COURSE)

To cope with this course, you would be expected to commit a minimum of 3hours
Weekly for the Course.

viii. GRADING CRITERIA AND SCALE

Grading Criteria
A. Formative assessment
Grades will be based on the following:
Individual assignments/test (CA 1,2 etc) 20
Group assignments (GCA 1, 2 etc) 10
Discussions/Quizzes/Out of class engagements etc 10

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B. Summative assessment (Semester examination)
CBT based 30
Essay based 30
TOTAL 100%

C. Grading Scale:
A = 70-100
B = 60 – 69
C = 50 - 59
D = 45-49
F = 0-44

D. Feedback
Courseware based:
1. In-text questions and answers (answers preceding references)
2. Self-assessment questions and answers (answers preceding references)

Tutor based:
1. Discussion Forum tutor input
2. Graded Continuous assessments

Student based:

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 1. Online programme assessment (administration, learning resource,
deployment, and assessment).

ix. LINKS TO OPEN EDUCATION RESOURCES

OSS Watch provides tips for selecting open source, or for procuring free or open
software.
SchoolForge and SourceForge are good places to find, create, and publish open
software. SourceForge, for one, has millions of downloads each day.
Open Source Education Foundation and Open Source Initiative, and other
organisation like these, help disseminate knowledge.
Creative Commons has a number of open projects from Khan
Academy to Curriki where teachers and parents can find educational materials for
children or learn about Creative Commons licenses. Also, they recently launched
the School of Open that offers courses on the meaning, application, and impact of
"openness."
Numerous open or open educational resource databases and search engines
exist. Some examples include:
• OEDb: over 10,000 free courses from universities as well as reviews of colleges
and rankings of college degree programmes
• Open Tapestry: over 100,000 open licensed online learning resources for an
academic and general audience
• OER Commons: over 40,000 open educational resources from elementary school
through to higher education; many of the elementary, middle, and high school
resources are aligned to the Common Core State Standards
• Open Content: a blog, definition, and game of open source as well as a friendly
search engine for open educational resources from MIT, Stanford, and other
universities with subject and description listings
• Academic Earth: over 1,500 video lectures from MIT, Stanford, Berkeley,
Harvard, Princeton, and Yale
• JISC: Joint Information Systems Committee works on behalf of UK higher
education and is involved in many open resources and open projects including
digitising British newspapers from 1620-1900!

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 Other sources for open education resources
Universities
• The University of Cambridge's guide on Open Educational Resources for Teacher
Education (ORBIT)
• OpenLearn from Open University in the UK
Global
• Unesco's searchable open database is a portal to worldwide courses and research
initiatives
• African Virtual University (http://oer.avu.org/) has numerous modules on subjects
in English, French, and Portuguese
• https://code.google.com/p/course-builder/ is Google's open source software that is
designed to let anyone create online education courses
• Global Voices (http://globalvoicesonline.org/) is an international community of
bloggers who report on blogs and citizen media from around the world, including
on open source and open educational resources
Individuals (which include OERs)
• Librarian Chick: everything from books to quizzes and videos here, includes
directories on open source and open educational resources
• K-12 Tech Tools: OERs, from art to special education
• Web 2.0: Cool Tools for Schools: audio and video tools
• Web 2.0 Guru: animation and various collections of free open source software
• Livebinders: search, create, or organise digital information binders by age, grade,
or subject (why re-invent the wheel?)

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 x. ABU DLC ACADEMIC CALENDAR/PLANNER

PERIOD
Semester Semester 1 Semester 2 Semester 3
Activity JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC
Registration

Resumption

Late Registn.

Facilitation

Revision/
Consolidation
Semester
Examination

N.B: - All Sessions commence in January

- 1 Week break between Semesters and 6 Weeks vocation at end of session.
- Semester 3 is OPTIONAL (Fast-tracking, making up carry-overs & deferments)

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 xi. COURSE STRUCTURE AND OUTLINE
Course Structure
WEEK MODULE STUDY SESSION ACTIVITY
Study Session 1: 1. Read Courseware for the corresponding Study Session.
The Nature and 2. View the Video(s) on this Study Session
Purpose of Project 3. Listen to the Audio on this Study Session
Week 1 Management 4. View any other Video/U-tube (address/site
Pp.24 https://bit.ly/2HjoWzI)
5. View referred Animation (Address/Site
https://bit.ly/2Lxpu8i)

Study Session 2 1. Read Courseware for the corresponding Study Session.

Project 2. View the Video(s) on this Study Session
Management 3. Listen to the Audio on this Study Session
Organisation 4. View any other Video/U-tube (address/site
Pp.33 https://bit.ly/2UrSqiA)
STUDY
5. View referred Animation (Address/Site
MODULE
https://bit.ly/2GjHH4I)
1
Study Session 3 1. Read Courseware for the corresponding Study Session.
Administration 2. View the Video(s) on this Study Session
Functions in 3. Listen to the Audio on this Study Session
Project 4. View any other Video/U-tube (address/site
Organisation https://bit.ly/2UrSqiA)
Week 2
Pp.40 5. View referred Animation (Address/Site
https://bit.ly/2UrSqiA)

Study Session 4 1. Read Courseware for the corresponding Study Session.

Project Definition 2. View the Video(s) on this Study Session
Pp.48 3. Listen to the Audio on this Study Session
4. View any other Video/U-tube (address/site

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 https://bit.ly/2XI9vaa)
5. View referred Animation (Address/Site
https://bit.ly/2y5kZZz)

Study Session 5 1. Read Courseware for the corresponding Study Session.

Project Team 2. View the Video(s) on this Study Session
Week 3 Building 3. Listen to the Audio on this Study Session
Pp.56 4. View any other Video/U-tube (address/site
https://bit.ly/2J0WeX3)
5. View referred Animation (Address/Site
https://bit.ly/2YifDZQ)
Study Session 1 1. Read Courseware for the corresponding Study Session.
Cost Estimates – 2. View the Video(s) on this Study Session
Definitions and 3. Listen to the Audio on this Study Session
Principles 4. View any other Video/U-tube (address/site
Pp.67 https://bit.ly/2EY1re5)
STUDY 5. View referred Animation (Address/Site
MODULE https://bit.ly/32PRI3w)
Week 4 2
Study Session 2 1. Read Courseware for the corresponding Study Session.
Cost Estimates – 2. View the Video(s) on this Study Session
Practical 3. Listen to the Audio on this Study Session
Estimation 4. View any other Video/U-tube (address/site
Pp.76 https://bit.ly/2J3kHee)
5. View referred Animation (Address/Site
https://bit.ly/32FyRb9)

Study Session 3 1. Read Courseware for the corresponding Study Session.

Title: 2. View the Video(s) on this Study Session
Financial Project 3. Listen to the Audio on this Study Session
Week 5 Appraisal 4. View any other Video/U-tube (address/site
Pp.84 https://bit.ly/2IZpNZ1)

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 5. View referred Animation (Address/Site
https://bit.ly/2Gmnv2b)
1. Read Courseware for the corresponding Study Session.
Study Session 4 2. View the Video(s) on this Study Session
Commercial 3. Listen to the Audio on this Study Session
Management of 4. View any other Video/U-tube (address/site
Projects https://bit.ly/2Caa7ML)
Pp.98 5. View referred Animation (Address/Site
https://bit.ly/32E0tgT)
1. Read Courseware for the corresponding Study Session.
Study Session 5 2. View the Video(s) on this Study Session
Week6 Introduction to 3. Listen to the Audio on this Study Session
Project Planning 4. View any other Video/U-tube (address/site
and Scheduling https://bit.ly/2EWJ7lD)
Pp.108 5. View referred Animation (Address/Site
https://bit.ly/30MC8Ul)

Study Session 1 1. Read Courseware for the corresponding Study Session.

Network Analysis 2. View the Video(s) on this Study Session
Pp.116 3. Listen to the Audio on this Study Session
Week 7 4. View any other Video/U-tube (address/site
https://bit.ly/2NQVJO0)
5. View referred Animation (Address/Site
STUDY https://bit.ly/32HKGxo)
MODULE
1. Read Courseware for the corresponding Study Session.
3
Study Session 2 2. View the Video(s) on this Study Session
Principles of 3. Listen to the Audio on this Study Session
Scheduling 4. View any other Video/U-tube (address/site
Resources https://bit.ly/2VMZtmm)
Pp.127 5. View referred Animation (Address/Site

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 https://bit.ly/2Z4I9ew)

Study Session 3 1. Read Courseware for the corresponding Study Session.

Practical 2. View the Video(s) on this Study Session
Scheduling of 3. Listen to the Audio on this Study Session
Resources 4. View any other Video/U-tube (address/site
Pp.135 https://bit.ly/2tZB7tD)
5. View referred Animation (Address/Site
Week 8
https://bit.ly/2XSwaEp)
1. Read Courseware for the corresponding Study Session.
Study Session 4 2. View the Video(s) on this Study Session
Materials 3. Listen to the Audio on this Study Session
Management 4. View any other Video/U-tube (address/site
Pp.145 https://bit.ly/2Tpuhge)
5. View referred Animation (Address/Site
https://bit.ly/2YeVmEE)
1. Read Courseware for the corresponding Study Session.
Study Session 5 2. View the Video(s) on this Study Session
Project 3. Listen to the Audio on this Study Session
Implementation – 4. View any other Video/U-tube (address/site
An Introduction https://bit.ly/2tWJG8D)
Pp.155 5. View referred Animation (Address/Site
Week 9
https://bit.ly/2SpwMLG)

17
 Study Session 6 1. Read Courseware for the corresponding Study Session.
Managing Progress 2. View the Video(s) on this Study Session
in Projects 3. Listen to the Audio on this Study Session
Pp.163 4. View any other Video/U-tube (address/site
https://bit.ly/2F0827Y)
5. View referred Animation (Address/Site
https://bit.ly/2YeeXEH)

Study Session 1 1. Read Courseware for the corresponding Study Session.

Projected Income 2. View the Video(s) on this Study Session
Statement 3. Listen to the Audio on this Study Session
Week 10 Pp.173 4. View any other Video/U-tube (address/site
https://bit.ly/2NSpXAj)
5. View referred Animation (Address/Site
https://bit.ly/2M2fhjy)

STUDY Study Session 2 1. Read Courseware for the corresponding Study Session.
MODULE Projected Cash 2. View the Video(s) on this Study Session
4 Flow Statements 3. Listen to the Audio on this Study Session
Pp.183 4. View any other Video/U-tube (address/site
https://bit.ly/2TneEG2)
5. View referred Animation (Address/Site
https://bit.ly/2JHytkV)
Study Session 3 1. Read Courseware for the corresponding Study Session.
Projected Balance 2. View the Video(s) on this Study Session
Sheets 3. Listen to the Audio on this Study Session
Pp.192 4. View any other Video/U-tube (address/site
https://bit.ly/2VPNGUy)
Week 11
5. View referred Animation (Address/Site
https://bit.ly/2LwLpMQ)

18
 Study Session 4 1. Read Courseware for the corresponding Study Session.
Project Evaluation 2. View the Video(s) on this Study Session
Criteria 3. Listen to the Audio on this Study Session
Pp.200 4. View any other Video/U-tube (address/site
https://bit.ly/2TyAbek)
5. View referred Animation (Address/Site
https://bit.ly/30LGOde, https://bit.ly/2JSlvQb)

Study Session 5 1. Read Courseware for the corresponding Study Session.

Introduction to 2. View the Video(s) on this Study Session
Week 12 Economic Analyses 3. Listen to the Audio on this Study Session
Pp.210 4. View any other Video/U-tube (address/site
https://bit.ly/2XWe94C, https://bit.ly/2Z4pLT9)
5. View referred Animation (Address/Site
https://bit.ly/2xWVDx1)

Week 13 REVISION/TUTORIALS (On Campus or Online)& CONSOLIDATION

WEEK

Week 14& 15 SEMESTER EXAMINATION

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Course Outline
Module 1:
Study Session1: The Nature and Purpose of Project Management
Study Session 2: Project Management Organisation
Study Session 3: Administration Functions in Project Organisation
Study Session 4: Project Definition
Study Session 5: Project Team Building

Module 2:
Study Session 1: Cost Estimates – Definitions and Principles
Study Session 2: Cost Estimates – Practical Estimation
Study Session 3: Financial Project Appraisal
Study Session 4: Commercial Management of Projects
Study Session 5: Introduction to Project Planning and Scheduling

Module 3:
Study Session 1: Network Analysis
Study Session 2: Principles of Scheduling Resources
Study Session 3: Practical Scheduling of Resources
Study Session 4: Materials Management
Study Session 5: Project Implementation – An Introduction
Study Session 6: Managing Progress in Projects

Module 4:
Study Session 1: Projected Income Statement
Study Session 2: Projected Cash Flow Statements
Study Session 3: Projected Balance Sheets
Study Session 4: Project Evaluation Criteria

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Study Session 5: Introduction to Economic Analyses
12.0 STUDY MODULES
MODULE 1:
Contents:
Study Session1: The Nature and Purpose of Project Management
Study Session 2: Project Management Organisation
Study Session 3: Administration Functions in Project Organisation
Study Session 4: Project Definition
Study Session 5: Project Team Building

STUDY SESSION 1
The Nature and Purpose of Project Management
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Definition of Project
2.2- Meaning of Project Management
2.3- Purpose of Project Management
2.4- Types of Projects
2.4.1 Tangible Projects
2.4.2 Intangible Projects
2.5- Project Objectives
2.5.1 Completion Time
2.5.2 Performance
2.5.3 Budget
3.0Study Session Summary and Conclusion
4.0Self-Assessment Questions

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5.0Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings
Introduction:
Project management is assuming greater importance in both the public and
private sectors of the economy. As managers in our different callings and
organisations, we may be involved in the management of projects and are given
assignments within a project management team.

Project management has evolved because of the need to manage complex

public and private sector activities. But before we go into our discussions on
project management, we need to understand the subject matter. We also need to
understand our operating terminology.

We therefore need to understand at the onset, the nature of project management.

In this session, we will discuss the nature and purpose of project management.
We shall look at the definition of project managementand also the core nature.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Define define and explain the nature of project management
2. Describedescribe the purpose of project management.

2.0 Main Content

2.1 Definition of Project
Project has been defined in various ways. Some authorities see projects as
mere activities while others see them as programmes of action. Longman
Dictionary of Contemporary English defines a project as “an important and

22
carefully planned piece of work that is intended to build or produce something
new, or to deal with a problem.”

From this simple definition, we can see that a project, apart from being
important, should be carefully planned so as to
produce something.

Some of the things that a project seeks to

produce may be tangible or intangible. A
motorcycle is a tangible product but
conducting a census is not a tangible product.

Fig 1.1.1: Definition of Project

Source: hrinasia.com

The following are examples of projects:

1. Planning a large party or an event, that is a project. This is because, it was a
specific party for a specific reason and It was held on a specific date and
time. That means party was unique, temporary, and it had a defined
beginning and end, and party created a specific product or service.
2. Suppose your office is moved to some other place, then it will most likely be
handled as a project.
3. Consider a payroll system: If payroll system of your company is replaced
with a new payroll system, then that’s a project.
4. Changing in Human Resource Process: If your company human resource
department decides to replace the processes they are currently using to
recruit and interview and hire new employees, that too can be handled as a
project.

23
From whatever angle we see these projects; some of their features are that they
will require the commitment and deployment of scare resources. Also, the
products will not manage themselves. They will be managed.

2.2 Meaning of Project Management

If we define a project as an important piece of work, project management is
the planning, organising, directing and controlling of resources for a relatively
short-term objective that has been earlier established to complete specific goals.
For example, the construction of a 50-bed hospital at Ikeja by the Lagos State
government will require a lot of resources: financial, material and labour.

There will be need for procurement of land. There will also be need for
architects to design the hospital. There will be need for structural engineers,
civil and building engineers and electrical engineers. Different types of
equipment will be sourced for e.g. X-ray machines, laboratory equipment, etc.
to equip the hospital.

There should be a way in which all these resources should be coordinated and
managed for effective and time management. In situations like these, project
management comes in handy to provide much needed expertise.

In-text Question
What is Project?

Answer
Longman Dictionary of Contemporary English defines a project as “an important and
carefully planned piece of work that is intended to build or produce something new, or to
deal with a problem.”

2.3 Purpose of Project Management

24
From the onset, it will be necessary to stress that many projects are very
complex in nature. The complexities may be introduced by the nature of
technology required to execute the project. For example, a census project is
one of the most difficult and complex projects that public sector managers may
face. Also, managing the 2007 election in Nigeria was another complex project.

Most projects such as we have mentioned may require elements of critical risks
and uncertainty. For example, how do we predict what will happen next year?
Even if we could predict the political future with a measure of certainty,
predicting the movement of prices and costs of materials in Nigeria involves a
lot of risks and uncertainty.

In all cases therefore, we would say that the purpose of project management is
to foresee the future and associated problems and therefore, plan, organise and
control key activities so that projects are completed successfully and on time
too.

If we see project management from that perspective, it follows logically that

project management starts even before financial resources are committed and
lasts until the completion of the project.

25
2.4 Types of Projects
We have discussed the meaning of project management and also the purpose.
Let us go further and discuss the various types of projects that we might
encounter in our different organisations as managers. Some of the types include:

2.4.1 Tangible Projects

Tangible projects are those projects whose output are tangible and can be seen
with the naked eye. They may include the following:
i. a civil engineering project
ii. a hospital building project
iii. a water borehole project
iv. an aircraft manufacturing plant
v. a milk manufacturing plant
vi. an urban playground.

2.4.2 Intangible Projects

Intangible projects are those that require commitment of resources but whose
output cannot be seen with the naked eye. In most cases, they are social projects
and in some cases they may be political projects. Examples of intangible
project in Nigeria include the 2007 elections and the national census.
2.5 Projects Objectives
Projects must have objectives. It is one of the important tasks of project
managers to see that the projects they manage meet their objectives. Let us now
discuss the objectives of projects.

2.5.1 Completion Time

Most projects, when formulated, have completion times. A normal football
match lasts for about 90 minutes. It is the duty of the referee to ensure that the

26
football match is completed within the set time. Most public sector projects
even at the time they are awarded or initiated always have a time frame attached
to them. For example, the rehabilitation of the Lagos-Benin expressway may be
projected to be completed in 24 months. That is the projected duration of the
project.

Any contractor who is given the contract for such a job should ensure that the
road is completed on time.Another point to note about completion time of
projects is that late completion or delivery of an agreed project will not please
the sponsor of a project. Consider, for example, that the Federal Ministry of
Worksawards a contract for the dualisation of the Owerri-Onitsha road to Julius
Berger and the road is to be completed in 24 months under theterms of the
underlying contract. If Julius Berger, the contractor, fails to complete the road
project in 24 months, the Ministry of Works will not be pleased with it. Besides,
time is money and if a contractor fails to operate within a time frame, inflation
may set in and delay the project completion or increase the cost.
In-text Question
1. Mention Types of Projects

Answer
1. Tangible Projects
2. Intangible Projects

2.5.2 Performance
All projects have objectives which they set out to
achieve. For example, a public hospital project
should have the objective of providing safe and
affordable healthcare to the community. Also, a
private sector fast food project has the objective of
manufacturing hamburgers, fish cake, hot dogs,

27
etc. for its customers. This is a performance objective.
Fig 1.1.2: Performance
Source: financeonline.com

Also, apart from the performance objective, most projects have a quality
objective. For example, a hospital should have the objective of providing
healthcare. This is a performance objective. But the provision of the service
should be safe. For example, hospital workers (nurses, doctors, etc.) while
treating patients must take adequate care so as not to infect the patients with the
HIV through use of unsterilised needle. This is a quality objective.

Most organisations have quality as one of their major objectives. See, for
example, what Daimler Benz has done with Mercedes Benz cars.
Sony products are reputed for their amazing quality. Finally, another aspect of
performance is reliability. A good product should also be reliable especially in
the case of medical testing devices like PH meters.
In patient care, an unreliable thermometer may raise a false alarm concerning
the health of a patient and lead to wrong diagnosis.

3.5.3 Budget
All projects involve financial outlays. The financial outlays (expenditures)
attached to a project are usually controlled by the budget. The budget sets a
limit as to the quantity of funds a project can consume. In most organisations,
the budget for every project is usually set aside.
The reason why a project should be monitored is that failure to do so in some
cases may lead to exhaustion of funds and abandonment of the project in
question.
We have seen that projects may have
three main objectives, namely: time,

28
performance and budget objectives. A major task facing project managers is
how to balance these three objectives. What it means is that at all times the
focus of managers must be on the three items. To retain our understanding of
project objectives, we will go a step further to look at a simple triangle of
objectives. Fig. 1.1.3: The Triangle of Objectives

In-text Question
Explain in brief what performance means in project

Answer
All projects have objectives which they set out to achieve. For example, a public hospital
project should have the objective of providing safe and affordable healthcare to the
community. Also, a private sector fast food project has the objective of manufacturing
hamburgers, fish cake, hot dogs, etc. for its customers. This is a performance objective.

3.0Conclusion/Summary
In this session, we have discussed the nature and purpose of project
management. We looked at the definition of a project and also a working
definition of project management. We also looked at types of projects and also
project objectives.

This session is a foundation unit in our study of project management. It tries to

provide a starting point for our discussions on the key aspects of our study of
project management.
It discusses the nature of projects and also the purpose of project management.
With this background, we will now move ahead with our work.

4.0 Self-Assessment Questions

1. Explain the meaning and purpose of project management.
2. Discuss five tangible projects you may find in a new and emerging city.
3. Discuss the objectives of executing a project.

29
 4. Discuss the key objectives of project management.

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2HjoWzI. Watch the video & summarise in 1
paragraph
b. View the animation on add/sitehttps://bit.ly/2Lxpu8i and critique it in the
discussion forum

6.0 Bibliography and Further Readings

Belbin, R.M. (1996). Management Teams: Why They Succeed or Fail.
Oxford: Butterworth-Heinemann.
Morris, P.W.G. (1997). The Management of Projects. London: Thomas Telford.
Jalal Afsar. “What Is a Project?” Engineering Intro, 6 Sept. 2015,

www.engineeringintro.com/initiating-planning-project/what-is-a-project/.

30
 STUDY SESSION 2
Project Management Organisation
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Communications in Project Management
2.2- The Need for a Project Manager
2.3- Types of Project Management Structures
2.3.1Functional Matrix
2.3.2 Project Matrix
2.3.3 Pure Project Team Organisation
2.3.4 Site Teams
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
We have earlier discussed the fact that projects require the commitment of
resources and people to get them executed and to meet project objectives.
It is obvious then to think that if the project objectives are to be achieved, the
resources, people, communication and jobs must be organised. But there is no
standard way in which projects should be organised. Organisation of project
management varies significantly between organisations.

In project management organisation, we shall discuss the importance of

communication in project management and also examine the types of project

31
management organisations. This discussion will enable us to understand the
fundamental organisation structures that are necessary to ensure effective
management.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Describediscuss project management organisation
2. Explainthe different types of project management organisation.

2.0 Main Content

2.1 Communication in Project Management
In management theory, we did learn that communication is very important in
every organisation. The organisation structure helps to describe the clear lines
of authority. Also, communication in an
organisationis a two-way affair.
Communication flows from top to bottom
and then from bottom to top.
Communication ensures that the jobs of
information and coordination are made easy.
Fig 1.2.1: Communication in Project Management
Source: wrike.com

A problem usually encountered in a project situation is how best to structure

communication so flow as not to disrupt activities in an existing set-up. For
example, a local government clinic is undergoing training on the use of a new
malaria drug. But the project supervisor is a community development officer
from the health ministry who is much junior to the head of the local government
health department. It is obvious that the malaria project will require
communication between the outside parties (the community development
officer) and the Local government clinic. The communication flows must be
32
structured in such a way as not to introduce friction or mass discontent arising
from loss of team spirit.

2.2 The Need for a Project Manager

In a real life situation like in a company, a
project manager may be an individual who
is appointed to manage a project. In some
cases project managers are consulting firms
of either architects or other professionals.
They may be appointed to oversee very large
and complex projects. Fig 1.2.2: The Need for a Project Manager

Source: Financesonline.com

A project manager ensures that all the activities relating to the project are
planned, coordinated and closely directed to meet the set objectives. The key
functions of the project manager are communication and coordination. The
project manager implements the project and reports routinely to the project
initiator or purchaser.
Let us look at the role of a project manager in the healthcare industry. Our
example is a new anti-
malaria drug being
developed by the Federal
Ministry of Health in
conjunction with the World
Health Organisation.
Fig. 1.2.3: A Public Sector Drug Development
Project

33
From fig. 1.2.3, it will be observed that the project manager is involved in the
total project from the drug design stage to the sale of the drug to the final
consumer.
2.3 Types of Project Management Structures
We have discussed the project manager and the important roles assigned to him
or her. But we did not discuss the types of structures that the project manager
will be in when managing projects. We want to see how he/she relates to the
existing organisation and to the new project. This leads us to a discussion on the
types of structures in project management.

2.3.1 Functional Matrix

At times, it is possible for a project manager to be appointed within an
organisation which has other routine activities. In such a situation, thereare
existing departments and work flow continues normally. The project manager
when appointed within such an existing framework is usually required to pay
attention to the new project. In this peculiar situation, the project manager
ordinarily plays the role of a coordinator and has no direct line authority over
any other manager or existing staff.

In a project management situation, this type of organisational arrangement is

referred to as a functional matrix.
If, for any reason the project
manager is not receiving the level of
cooperation he requires, problems
arise and disrupt the project
management task.

34
Functional matrix organisationsare mainly found in private manufacturing
companies with single or multiple product lines.
Situations arise where many project managers exist in a firm or organisation and
have different projects which they manage. They may begin to compete for the
resources of the organisation resulting in conflict amongst them.

In-text Question
Explain in brief communication in project management

Answer
In management theory, we did learn that communication is very important in every
organisation. The organisation structure helps to describe the clear lines of authority. Also,
communication in an organisation is a two-way affair. Communication flows from top to
bottom and then from bottom to top. Communication ensures that the jobs of information and
coordination are made easy.

2.3.2 Project Matrix

A Project matrix is different from a functional matrix. In a project matrix,
project managers are given greater authority over other functional managers. In
this situation, it is usual for departments to contribute staff that they release to a
project manager working on a particular project. For example, in the
computerisation of a bank, when a project manager is appointed, staffs are
handpicked from other departments or units to join the project team. In this
situation, as long as the computerisation project lasts, all the project staff report
to the project manager.
We will see that the project matrix situation makes room for effective project
management but it also has its own limitations.

2.3 Pure Project Team

Organisation
A third type of project
management structure is

35
known as the pure project team organisation. In a pure project team
organisation, a work group or project team is created for each project with the
project manager as head of the team. In this type of arrangement, the project
manager is given absolute authority over the project team.

For example, in a community water project, a project manager might be

appointed to handle the project.The team will undertake the design and
construction of the necessary buildings. Theteam will also design the
installation of the plant and machinery. The team will purchase the necessary
equipment and see the water project to completion.

The above example shows the organisation of a team brought together to

construct a local government water project.

2.3.4 Site Teams

At times, situations arise that warrant site teams to be created. This is usually
where a project is located far away from an organisation's head office. An
example would be a communication company like MTN trying to set up a
communication mast at Calabar in Cross River State.

In such a situation, it will be very appropriate to raise a site team to be deployed

at Calabar under the leadership of the project team leader. The team leader
supervises the project and reports Week-to-Week progress to the head office in
Lagos.
In-text Question
Give a brief note on project matrix

Answer

36
Project matrix is different from a functional matrix. In a project matrix, project managers are
given greater authority over other functional managers. In this situation, it is usual for
departments to contribute staff that they release to a project manager working on a
particular project. For example, in the computerisation of a bank, when a project manager is
appointed, staffs are handpicked from other departments or units to join the project team.

3.0 Conclusion/Summary
In this session, we have looked generally at project management organisation.
We discussed communication in a project situation. We also examined the need
for a project manager and discussed the types of project management structures.
This session treated project management organisation which is very important
in our study of project management. The knowledge gained in this unit will
assist us forge ahead by providing much needed background information.

4.0 Self-Assessment Questions

1. List and discuss main functions of a project manager.
2. Appraise the different types of project management structures.
3. With particular reference to project management structures, discuss the
differences between a functional matrix and a project matrix.

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2UrSqiA. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2GjHH4I and critique it in the
discussion forum

6.0 References/Further Readings

Crosby, P. B. (1979). Quality is Free: The Art of Making Quality Certain. New
York: McGraw-Hill.
Klien, R. L. &Ludin, I. S. (1992). The People Side of Project Management.

37
Aldershot: Gower.

38
 STUDY SESSION 3
Administration Functions in Project Organisation
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Administration Function in a Pure Project Team
2.1.1- Motivation and Leadership
2.1.2Good and Easier Communication
2.2- Administration Function in a Matrix Organisation
2.3- Administration Function in a Hybrid Organisation
3.0 Study Session Summary and Conclusion
4.0Self-Assessment Questions
5.0 Additional Activities (Videos, Animations &Out of Class activities)
6.0 References/Further Readings

Introduction:
In session 2, we discussed project management organisation. We also discussed
various project management organisation structures like the functional matrix,
the project matrix, the pure project team organisation and site teams.

These are all different arrangements under which a project could be organised.
In this unit, we will discuss the administration function in these different
organisation types and also try to examine the merits and demerits of the
various organisation types.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:

39
 1. Describediscuss the nature of administration functions in project
organization
2. Explainthe differences in administration between the various types of
project organisations.

2.0 Main Content

When an organisation wants to embark on a project, some of the central
questions that will arise are:
1. What type of project management organisation should be adopted and
why?
2. Should a project team be built and over which should be placed a project
manager to report to management?
3. Should the organisation adopt a functional matrix? If the answer is yes,
then the project manager if appointed will be held responsible for the
project but has no direct line authority over the staff that he/she works
within the project.

Our interest in such situations is based on the fact that the key functions of a
project manager are administration and management. But we will quickly
realize that the administration function will depend to a large extent on the type
of project management structure that is in place.
In most cases, project managers do not select their own staff or be allowed to
recruit staff. Most of the time, staff are selected and imposed on the project
manager. Again, the members of a project team may notall share the general
sentiments attached to a project. Some members will end up becoming passive
members while others might have a senseof team spirit and contribute positively
to team objectives. In each case, project managers are still faced with the task of
administration.

40
Now let us start by discussing the administration function in a pure project
team.

2.1 Administration Function in a Pure Project Team

When a pure project team has been set up, it has the primary advantage that
resources and energiescan be directed towards meeting the objectives set for
the team. In most of pure project teams, they are independent and also have
their own budgetary allocation of resources of both money and people.

An important aspect of pure project teams is the idea of motivation which

invariably affects team spirit. When people are motivated, teamspirit is
generated and this helps in team building. So in
most pure project teams, the members usually
will feel a deep sense of belonging and strive to
meet team goals and objectives. Everybody
working within a pure project team reports either
directly to the project manager, or to another
manager who reports to the project manager.Fig 1.3.1: Administration Function in a Pure
Project Team

It is easy for us to see that in this situation, the line of authority is very
clear.Communication flow is very
easy from the top to the bottom and
from the bottom to the top.
Instructions move from the project
manager to other managers within
the project and then to other
members of the project team. Let

41
us display communication flows in a pure project team in the diagram.
Apart from the clearly defined communication lines which we have just seen in
our example, you will note as managers that there are clearly defined lines of
authority in a project team. The command structure is perfect.
Having discussed communication flows in a project team, let us now bring out
what we see as the advantages of a pure project team in terms of administration.

In-text Question
Give a brief note on the administration function in a pure project team

Answer
When a pure project team has been set up, it has the primary advantage that resources and
energies can be directed towards meeting the objectives set for the team. In most of pure
project teams, they are independent and also have their own budgetary allocation of
resources of both money and people.
An important aspect of pure project teams is the idea of motivation which invariably affects
team spirit. When people are motivated, team spirit is generated and this helps in team
building. So in most pure project teams, the members usually will feel a deep sense of
belonging and strive to meet team goals and objectives. Everybody working within a pure
project team reports either directly to the project manager, or to another manager who
reports to the project manager.

2.1.1 Motivation and Leadership

A major advantage of pure project teams is the issue of motivation and
leadership. In most teams, members are motivated and when people are
motivated, leadership becomes easier and administration is also made much
easier.

2.1.2 Good and Easier Communication

Because of the nature and structure of pure project teams, communication flows
are fast and efficient. Information moves very fast within the team.
We have seen the advantages of structuring a pure project team especially in
terms of administration and communication. However, there are some

42
disadvantages that are inherent in pure project teams. Let us discus some of the
disadvantages.
Because of the way most project teams are structured, they tend to be rather
rigid or inflexible. Everything within the team is defined. For example, if a
project team has five engineers working on a dam project, the absence of two of
the engineers may critically affect the job since it is not very easy to bring in
temporary members into a structured project team.

Again, situations may arise when a medical doctor is attached to a project team
of about 20 people when in the alternative the same medical doctor could treat
100 patients daily in a general hospital. When such situations arise, it is easy to
notice inefficient use of scarce resources. Rigidity can also arise from the
following situations:
a. Where the budget for the project team becomes insufficient
b. Where the project manager is unable to deviate from the project
objectives even where this will benefit the organisation.

2.2 Administration Function in a Matrix Organisation

We have discussed the administration function in a pure project team. In this
segment we will discuss the administration function in a matrix organisation. It
is important that you should remember that a matrix organisationis structured
along the establishment of specialist functional groups within an organisation.
For example, in a university teaching hospital, you will have various functional
departments.

Each of the departments will have specialists. Work is expected to continue in

perpetuity as long as the teaching hospital exists. The teaching hospital may
initiate several projects, but they may be of short duration.

43
 1. medical microbiology
2. pathology
3. surgery
4. internal medicine
5. Ear, nose and throat.

A Majoradvantage which a matrix organisation has is the building of

competence. For example, in the university teaching hospital set up, we will
note that it is structured along departmental lines. In the department of surgery,
there will be so many surgeons. Some will be thoracic surgeons, plastic
surgeons, cardiologists, etc.

There will be formal seminars and cross-fertilisation of ideas and knowledge.

Therefore, we can say that a matrix organisation encourages the build-up of
skills organised along specialist lines.

For example, in an engineering firm, we will have civil engineers, mechanical

engineers, electrical engineers and architects. Though they are structured along
departmental lines, most members end up acquiring more skills due to cross-
fertilisation of knowledge.

This type of advantage is not available to a specialist engineer deployed to

supervise a particular project.
A major disadvantage that generates administration difficulties in the matrix
organisation is the issue of split responsibilities which members face. For
example, when a project team is raised in a teaching hospital, a medical officer
in the surgery department may have two reporting lines, namely: reporting to

44
the head of surgery department and reporting to the project team manager in the
university teaching hospital.
Sometimes, organisations are either
project teams or matrix organisations.
They may also combine both
features. Such an organisationis
referred to as a hybrid organisation.

Fig. 1.3.3: Hybrid Organisation

A university teaching hospital has functional departments. Within each

department is a project team.A major advantage in administration of the hybrid
organisation is that the project teams which are within the departments can
count on thetechnical and managerial support of their department. For example,
the HIV control team within the Department of Community Medicine can ask
for support from the department.
In-text Question
Explain in brief the good and easier communication

Answer
Because of the nature and structure of pure project teams, communication flows are fast and
efficient. Information moves very fast within the team.
We have seen the advantages of structuring a pure project team especially in terms of
administration and communication. However, there are some disadvantages that are inherent
in pure project teams. Let us discus some of the disadvantages.
Because of the way most project teams are structured, they tend to be rather rigid or
inflexible.

3.0 Conclusion/Summary
In this session, we have discussed the administration function in a project
management organisation. We discussed the way information flows in the pure

45
project team and the matrix. We also learnt that some organisation combine
both project team and matrix features–hybrid organisations.
This session treats administration functions in project organisation. It tries to
examine the flow of information and managerial dynamics within the various
types of project organisation. The knowledge gained in this unit will be very
useful to us in the near future as we progress in our study.

4.0 Self-Assessment Questions

1. Discuss the merits and demerits in a pure project team like:
2. How can competence be built up relative to administration function in a
matrix organisation?
A hybrid organisation usually has a matrix organisation but sets up
various project teams when the need arises. In a hybrid organisation,
the various specialist groups are arranged along functional lines
each headed by a specialist. Within the specialist groups, project
teams could be set up.
3. Explain the hybrid organisation with emphasis on the advantages.
4. Discuss the advantages and disadvantages in using a pure project team to
execute a project

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2UrSqiA. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2UrSqiA and critique it in the
discussion forum

6.0 References/Further Readings

Central Computer and Telecommunications Agency (CCTA) (1997).

46
 An Outline. London: The Stationery Office.
Wearne, S. (1993). Principles of Engineering Organisation. London:
Thomas Telford.

47
 STUDY SESSION 4
Project Definition
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Meaning of Project Definition
2.2- The Project Cycle
2.2.1- The Project Idea Stage
2.2.2 - Project Identification Stage
2.2.3 - Project Evaluation Stage
2.2.4 - Project Selection Stage
2.2.5 - Project Execution Stage
2.3- Defining a Project for Financial Appraisal
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In this session, we will discuss project definition which is a very important
aspect of our study as it begins to sharpen our focus on the core study of
projects. Project definition is very important since it helps us to define a project
under discussion.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Describea project cycle.

48
 1. Explainthe project definition process
2.0 Main Content
2.1 Meaning of Project Definition
Project definitionis a process which seeks to describe a project from the idea
stage to the stage when the project has been completed.
All information about the project is usually embodied in the definitionof the
project. Usually, before a project starts, it must be
properly defined so that the parties involved properly
understand their clear roles.
Let us use a familiar case as a discussion case. In 2005,
the federal government decided to rehabilitate the Lagos-
Ibadan expressway which was in a terrible state. The
engineering firm of Julius Berger Nigeria PLC was
chosen as the competent firm to carry out the
rehabilitation work. We can describe the project by
considering the various processes involved before the
project was commissioned. Commissioning and Handover
Fig. 1.4.1: The Process of Project Definition for the
Rehabilitate the Lagos-Ibadan Expressway

We have looked at a simple case of a road rehabilitation project. We will now

deepen our knowledge by discussing the project cycle.

2.2 The Project Cycle

The project cycle tries to describe the various
stages that are involved from the conception of a
project idea to when the project is executed or
actually takes off. Understanding of a project cycle
is really very important as it enables us to get the
total picture of a project. Let us now examine the
49
various stages of a project cycle.
Fig. 1.4.2: The Project Cycle

2.2.1 The Project Idea Stage

The project idea stage is the first stage of a project cycle. The idea about a project
arises from a variety of sources within the market place or macroeconomic
environment.

New project ideas could originate from within an organisation or from outside it.
In a public sector organisation, it emanates mainly from the assigned roles of the
relevant body. For example, a rural farmers‟ fertiliser distribution project is most
likely to emanate from a state ministry of agriculture and natural resources. The
idea of a rural medical clinic is also likely to emanate from a health ministry.
In the private sector, project ideas could emanate from within an organisation or
from outside. From within, it could arise out of contacts between salesmen and
customers. It could also arise from outside if customers specifically request for
possible bigger or better products.

New project ideas may fall into any of the following categories:
A. A proposal to build a community health centre in a very remote village in
Kwara State.
B. A proposal to upgrade a rural medical clinic to a general hospital.
C. A proposal to conduct a population census in Nigeria prior to an election.
D. A proposal to build a mega railway line that will link the western part of
Nigeria with the eastern part.
In-text Question
Briefly explain the Project Cycle

Answer
The project cycle tries to describe the various stages that are involved from the conception of
a project idea to when the project is executed or actually takes off. Understanding of a
project cycle is really very important as it.

50
2.2.2 Project Identification Stage
After the project idea stage, the next stage is the project identification stage. The
project identification stage consolidates the project idea stage. Project ideas are
not actually useful except if they are clearly identified and put down in a
systematic manner for further processing.

A government agency may conceive the idea of poverty alleviation in aparticular

local government area of Bauchi State. But you will that the concept of poverty
alleviation covers a very vast area of possible interventions. So apart from simply
coming up with the poverty alleviation, the government agency should go ahead
to identify the mode of intervention. The poverty alleviation project could be any
of the following:
A. a rural women kunu making seminar/workshop
B. a rural women micro-credit scheme
C. a millet planting project.

2.2.3 Project Evaluation Stage

When a project has been identified, the next step is to evaluate the project. Project
evaluation involves the estimation of the costs and benefits of a project. Costs and
benefits should be measured in terms ofcash flows. It will be important here for us
to understand that the estimation of cash flows of a project is a very difficult task.
It is difficult in the sense that cash flows which are likely to arise in the future may
be difficult to estimate.

In a public sector set up, other factors come into play when evaluating a project.
For example, the employment generation potentials of a project may be taken into
consideration when estimating the benefits of a project. Besides, political
considerations may also come into play.

51
2.2.4 Project Selection Stage
After the project evaluation stage, the next stage is the project selection stage.
Faced with an array of projects with different values and worth, there is need to
select which projects will be embarked upon. Besides, budgetary considerations
will also come into play since the resources for projects are limited.

Project selection is a top management responsibility. In the selection of projects,

top management usually considers the financial cost outlays involved and match
them with the benefits to be derived from a project. Projects that add positive
benefits to the community should be selected.

2.2.5 Project Execution Stage

The project execution stage is the final stage in the project cycle. After a project
has been selected, it moves on to the execution stage. In most organisations, the
responsibility for execution of projects is vested on a project management team
raised by management or government. The function of the project management
team is to ensure that the budget forthe project is actually spent on the project and
that the project is completed on schedule.

In an ideal organisation, the project management team usually prepares a

monthly or quarterly budget report on projects. This is important for project
monitoring and control.

2.3 Defining a Project for Financial Appraisal

Virtually all projects involve financial expenditures but at different levels. Some
aspects of a project may be ignored but there is no way that we may be able to
ignore the financial aspects of a project.

52
Before a project is embarked upon, all aspects of financial appraisal must be
conducted so that the total expenditures and inflows/benefits of the project can be
estimated well in advance.
To guide us in defining a project for financial appraisal, let us draw up a checklist.

Table 1.4.1: Checklist for Defining a Project Financial Appraisal

In-text Question
Give a short note on project evaluation stage

Answer
When a project has been identified, the next step is to evaluate the project. Project evaluation
involves the estimation of the costs and benefits of a project. Costs and benefits should be
measured in terms of cash flows. It will be important here for us to understand that the
estimation of cash flows of a project is a very difficult task. It is difficult in the sense that cash
flows which are likely to arise in the future may be difficult to estimate.

4.0 Conclusion/Summary
In this session, we have discussed the concept of project definition. We also
discussed the concept of the project cycle which runs from the project to the
project execution stage.
This session treated project definition. It tried to examine how a project can be
defined. In doing this, we used an example of a road rehabilitation project to
53
define a project. We also discussed the project cycle.

4.0 Self-Assessment Questions

Self-Assessment Questions
1. Explain project definition?
2. Discuss the project cycle.
3. Discuss fully the concept of a project cycle.

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2XI9vaa. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2y5kZZz and critique it in the
discussion forum

6.0 References/Further Readings

Association of Cost Engineers. (1991). Estimating Checklist for Capital
Projects. (2nd Ed.). London: Spon.
Klien, R. L. &Ludin, I. S. (1997). Reducing Project Risk. Aldershot:
Gower.

54
 STUDY SESSION 5
Project Team Building
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Team-Based Structures
2.1.1 - Pure Project Teams
2.1.2 - Task Force Teams
2.1.3 - Quality Improvement Teams
2.2- Group Dynamic and Team Building
2.3- Team Work
2.3.1 - One Unit Goal
2.3.2 - Group Cohesiveness and Support
2.3.3 - Team Spirit
2.3.4 - High Expectations
2.3.5 - Willingness
2.4- Communication within Project Team
2.4.1 - Vertical Communication
2.4.2 - Horizontal Communication
2.4.3 - External Communication
2.5- Building Goal Interpersonal Relations within the Team
2.5.1 - Effects of Poor Interpersonal Relations
2.5.2 - Principles of Interpersonal Relations
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

55
Introduction:
You will recall that in unit 2, we discussed project management organisation.
There we briefly discussed pure project team organisation. Here, we shall fully
discuss the project team and discuss other aspects of it which we did not touch
when we introduced the matter.

In a pure project team organisation, a special work group or team is created

for a special project with a project manager as the head of the team.
As the case may be, the project manager may be given absolute authority over
the project team. Our direction in this unit is to take a critical look at the team
and discuss ways in which such a team will be made effective so as to be seen
as a project team.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Describethe dynamics of project teams.
2. Explainthe mechanics of project team building

2.0 Main Content

2.1Team-Based Structures
In a very large organisationincluding a multinational, we come across
situations where there are many teams within the organisation. The teams may
be created for various purposes. Let us
briefly discuss some examples of teams
in a practical organisation setting. To
organise our thoughts we shall define
team-based structures as "employee

56
teams". It is a design where work is structured for groups. The groups are then
given authority and discretion over matters such as process improvement,
service development, quality management or even new product development.
Team approach to management was developed mainly by Japanese companies
like Toyota, Honda, Mitsubishi, Sony, and a whole lot of others. What we see
toWeek are giant Japanese firms which control a large segment of global trade?

Let us briefly discuss some of the team-based structures that are in place in
some organisations.

2.1.1 Pure Project Teams

A pure project team is a specially constituted work group formed within the
organisation and given a special assignment or task. The assignment could be
any of the following:
A. installation of a new computer system
B. design of a new product
C. design of a new service format.

Usually, members of a pure project team are nominated to join the team based
on certain criteria. A team leader or manager is usually placed at the head of the
team. In most cases, after the assignment has been completed, the team is
disbanded.

2.1.2 Task Force Teams

A task force is created by top management to tackle
or solve a major problem. In the Nigerian setting,
we have witnessed the advent of one task force or

57
the other. There was the task force on ports congestion. Members of a task force
are usually drawn from various organisations with a team leader as the head.
Usually at the end of the assignment or when the task force loses focus, it is
disbanded.

2.1.3 Quality Improvement Teams

ToWeek, quality has become an issue that has taken the front line in business
discussions. Most organisations are drawing heavily from the Japanese firms
that have long imbibed quality as their watch word.
In Nigeria toWeek, total quality management (TQM) has become an
important issue and many firms are setting up internal quality teams specially
empowered to address ways to improve quality.
In-text Question
What is a team-based structure?

Answer
In a very large organisation including a multinational, we come across situations where
there are many teams within the organisation. The teams may be created for various
purposes. Let us briefly discuss some examples of teams in a practical organisation setting.

2.2 Group Dynamics and Team Building

Recall that organisations grow out of the need for people to cooperate for the
achievement of set goals. The coming together is based on thefact that different
people have different skills. That precisely explains briefly the origin of teams
or groups.
Although groups have been variously defined in the literature, our working
definition is that a group is a collection of two or more people who perceive
themselves as a group, share a common interest, goal, norm and a sense of
belonging. They may have a leader.

Invariably, the following can be seen as groups:

58
 1. a computer steering committee
2. a product launch committee.
We have just defined a group but we need to go further to examine the group
content. In an ideal project team or group, there will be different people from
different backgrounds and different skills. When people join a project team or
group, they may lose their work identity especially if the group they joined has
a work culture or ethics.
Practically, organisations use groups or teams for the following purposes:
1. To distribute work along clearly defined lines. In a bank, for instance,
you could find the energy group, treasury group, etc.
2. To monitor and control work. After a group has been formed, the group
needs to be managed and that is why every group or team should have a
leader.
3. Problem solving. At times, groups are used to solve organizational
problems as they arise. Problems facing an organization are many.
They may bemajor or minor. In most cases, when major problems
arise, management can set up a team to look into the problem.

2.3 Team Work

Building project teams is not the end of the task ahead. The most important task
is how to build team spirit. Like we said earlier, members of the team may come
from various units or departments to join a particular team set up at the head
office. The critical task and which is the duty of the team leader is to ensure that
the group members see themselves as members of a team and also work like a
team.

59
If members of a team are to perform as team players and work towards team
objectives, then certain things should be present in the team. Let us examine
those things:

2.3.1 One Unit Goal

It is important that every member of a team perfectly understands the goals and
objectives of the team. Every action of each member must be directed towards
the set objectives of the team.

2.3.2 Group Cohesiveness and Support

A group is made up of a number of people with different qualities and
characteristics. A good group is one in which there is that cohesiveness. This
cohesiveness binds the group together and makes them act in one direction and
towards the same objectives.

2.3.3 Team Spirit

Individual spirit is not the same as team
spirit. Team spiritis based on group
affinity and affection amongst members.
Team spirit makes an individual member
imbibe the spirit of a group and behave like
the group.
Fig 1.5.3: Team Spirit
Source: bookboon.com

2.3.4 High Expectations

There must be high expectations amongst the various members of a team. For
example, when you form a 15-man football team to represent Nigeria, each
team member usually will have high expectations arising from team dynamics
and spirit.
60
2.3.5 Willingness
Team members must be willing to be members of the team. They should not be
unwilling members because if they are, they will be frustrated and this will
affect the team as a whole.
2.4 Communication within Project Team
We need to now discuss communication within a project team. In a project
team, there will be a lot of people who need to communicate with each other.
Communication is the process of exchanging information between one person
or another or between one person and a group of persons. Communication also
conveys knowledge of or information about a subject matter. Communication is
all about sharing information. Generally, in a team situation, there is the need
for effective communication amongst the members. The importance of
communication is that it is the life blood of any organisation and by implication
the team.

Communication as a process assists management functions to be accomplished.

Communication enables the team leader to communicate with other members of
the team and also enables other team members to communicate with the team
leader. Communication provides a link between people in a team or
organisation.

The real purpose of communication is to effect change in an organisation and

influence action towards organisational objectives. Communication organises
the human resources in an organisation or team. Let us discuss the lines of
communication in a project team.

2.4.1 Vertical Communication

61
Vertical communication within the project team could be from the team leader
to subordinates or from the subordinates to the team leader. Vertical
communication assists in passing information on policies and provides
feedback mechanism through which staffs respond to communication.

2.4.2 Horizontal Communication

In a project team, communication can flow horizontally across staff at the same
level in the project team. It could be communication to all the managers in the
team or at the same level.

2.4.3 External Communication

Within a project team, external communication is a situation where the team or
group exchanges information with the larger organisation. For example, when a
team leader reports progress to the managing director, we regard the
information as a form of external communication as it is outside the team.

2.5 Building Good Interpersonal Relations within the Team

An organisation may possess enormous capital, good organisational structure,
highly trained manpower. But if the staff do not relate properly to one another,
then problems may likely occur frequently and retard corporate performance.
And so it is with a team. As discussed earlier, a team can be made up of people
from different units and backgrounds.
It is therefore, very important that at all times, managers should be aware of the
need to build and maintain good interpersonal relationship with their
subordinates, bossesand peers within the organisation.

Put simply, interpersonal relations are the way and manner people get along
with one another. It could be the relationship between one person and another or

62
between one group of persons (e.g. staff) and another group of persons.If
people are friendly and understanding, then good interpersonal relations develop
and everyone performs his or her tasks properly.

2.5.1 Effects of Poor Interpersonal Relations

A. Tension between staff and other fellow staff
B. Tension between staff and management
C. Tension amongst management staff
D. Unhealthy internal rivalry between all staff
E. Industrial misery and hostility
F. Strike
G. Corruption
H. General dishonesty
I. Crime in the work place
J. Disloyalty to the organisation.
In a situation where there is no good interpersonal relation, obviously
productivity is lowered and this gives rise to lower earnings for the
organisation.

2.5.2 Principles of Interpersonal Relations

A. Act like a member of a team. Do not let personal interest affect that of the
organization
B. Remember that other staff come from different backgrounds and will at
times behave differently from your expectations
C. Learn to be accommodative
D. Keep your boss informed of your movements at all times
E. Avoid gossips in the workplace
F. Display a positive attitude to your job

63
 G. Be friendly and cooperative
H. Treat your subordinates with respect
I. Stick to the chain of command
J. Learn to wear a smile on your face always
K. Show interest in other peoples‟ problems
L. Always learn to say "thank you"
M. Avoid aggressive behavior
N. Always learn to apologise when you are wrong
O. Greet people in the morning, afternoon and evening
P. Be polite
Q. Be respectful
R. Be honest
S. Be responsive
T. Show good hygiene.

In-text Question
Explain what external communication mean

Answer
Within a project team, external communication is a situation where the team or group
exchanges information with the larger organisation.

3.0 Conclusion/Summary
In this session, we discussed project team building. We discussed team-based
structure, pure project teams and task force teams. We also discussed group
dynamics and team building, team, work and interpersonal relations. All these
enabled us to properly understand project team building.
Understanding team building is a very crucial aspect of our study since most
projects practically involve the setting up of project teams. It is necessary that
we properly understand how to generate team spirit and cohesiveness within a
project team.
64
4.0 Self-Assessment Questions
1. What do you understand by team-based structures?
2. Discuss the effects of poor interpersonal relation within the team.
3. There is need for communication within a project team. Discuss?
5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.
a. Visit U-tube addhttps://bit.ly/2J0WeX3. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2YifDZQ and critique it in the
discussion forum

6.0 References/Further Readings

Cosby, P. B. (1979). Quality is Free: The Art of Making Quality Certain. New
York: McGraw–Hill.
Kliem R. L. &Ludin, I. S. (1992). The People Side of Project Management.
Aldershot: Gower.
Belbin, R. M. (1996). Management Teams: Why They Succeed or Fail.
Oxford: Butterworth–Heinemann.

65
 MODULE 2
Contents:
Study Session 1: Cost Estimates – Definitions and Principles
Study Session 2: Cost Estimates – Practical Estimation
Study Session 3: Financial Project Appraisal
Study Session 4: Commercial Management of Projects
Study Session 5: Introduction to Project Planning and Scheduling

STUDY SESSION 1
Cost Estimates: Definition and Principles
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Cost Definitions and Principles
2.1.1- Direct Costs
2.1.2- Factory Costs
2.2.3- Fixed Costs
2.1.4- Indirect Costs
2.1.5- Standard Labour Costs
2.1.6- Overhead Recovery
2.2- Work Breakdown
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:

66
Generally in project management, it is very important to accurately estimate the
cost of a project. It is even more necessary for management decision and control.
Before a project comes on stream, the cost implications must be known well in
advance and properly estimated. This serves as a guide to proper project
management and control. Proper cost estimation will allow for proper planning of
costs, allocation of resources to various units of a project, cost control and most
importantly budgetary control.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Describethe definitions and principles of cost estimation.
2. Explain the general nature of cost estimates

2.0 Main Content

2.1 Cost Definitions and Principles
The word “cost” when used in accounting conveys lots of meaning and so must
be properly qualified. There are many types
of costs and part of our discussion in this
unit is to properly discuss various costs and
see how they properly fit into the study of
project management. It is so because when
we mention “cost”, we should clarify the
type of cost we are talking about. Fig 2.1.1: Cost Definitions and Principles

Let us discuss the key types of costs that are important for our study.

2.1.1 Direct Costs

Direct costs are those costs which are attributed directly to a job or project. For
example, if an engineer spends five hours to design an engineering column, then

67
that time spent by the engineer can be described as a direct labour and the cost
can be recorded as a direct cost to be charged directly to the design of the
engineering column.

2.1.2 Factory Costs

The concept of factory cost is mainly applicable to manufacturing concerns.
Factory cost is the total cost of a job or project before the addition of a mark-up
for the purpose of profit. Factory costs will include the following:
A. direct materials costs
B. direct labour costs
C. indirect labour costs
D. Design costs.

2.1.3 Fixed Costs

Fixed costs are those costs which remain virtually unchanged and must continue
to be incurred even though the workload might fluctuate between zero and the
maximum or installed capacity. Fixed costs will generally include the
following:
A. management salaries
B. administrative salaries
C. heating and electricity expenses
D. insurance
E. maintenance of building, etc.
F. business permits.
In-text Question
Explain direct Costs

Answer
Direct costs are those costs which are attributed directly to a job or project. For example, if
an engineer spends five hours to design an engineering column, then that time spent by the

68
engineer can be described as a direct labour and the cost can be recorded as a direct cost to
be charged directly to the design of the engineering column.

2.1.4 Indirect Costs

In an ideal setting like a manufacturing facility, the provision of office
accommodation, management, welfare services, accounting, heating and
lighting all constitute costs that must be incurred in running the manufacturing
facility. Others will include salaries and wages.
Generally, all these cost are termed indirect costs or overhead costs.
Table 2.1.1: Cost Structure for a Simple Manufacturing Project
ITEM N
Iron flat sheets 1,000,000
Brass rods 2,000,000
Aluminum profiles 3,000,000
Total cost of direct materials 6,000,000
Direct Labour
Design – engineering labour 200,000
Manufacture – factory hands 700,000
Total direct labour 900,000
Overheads 1,350,000
Total factory cost 8,250,000
Mark up at 30% 2,475,000
Market selling price 10,725,000

2.1.5 Standard Labour Costs

Labour constitutes a very critical component of project cost. It includes the
labour of both junior and senior personnel, engineers, accountants and the
rest who are involved in a project. When trying to estimate the labour cost for
any project, it would be very difficult to use the different rates of pay to be
69
earned by every individual. There might be two engineers engaged in a project
but they may not be earning the same salaries. Generally, in project
management, it is advisable to use standard costing to estimate the cost of
labour.

For labour costs, it is convenient to classify people according to some

convenient rules based on the type of jobs that they do.
For example, engineers in a project may be averaged out to cost N1,000,000 per
annum. Therefore, we can estimate that the standard cost for an engineer for a
project is N1,000,000 per annum. That is the cost that will be imputed in the
cost estimate for engineers.

Also, for accountants involved in a project, there may also be the need to work
out the standard cost for an accountant. For example, we might estimate the
standard cost for an accountant to be N1,500,000 per annum.
For all types of labour, we should have estimates of the standard costs. It
enables the project to be properly cost.

Table 2.1.2: Example of Labour Grade for Standard Costing in a Project

Engineering Company
Grade Those Included Comments Salary
Per
annum
N
01 Company Director - 5,000,000
02 Divisional Heads Rank of general 4,000,000
manager
03 Assistant Divisional Rank of assistant 3,000,000
Heads general manager and
above
04 Management Cadre Rank of senior 2,500,000
managers and above.

70
 Includes senior
engineers and architects
05 Engineers Managers 2,000,000
06 Technologists Deputy managers 1,500,000
07 Draughtsmen Assistant managers 1,500,000
08 Administrative Staff Clerks, Secretaries, etc. 1,000,000

2.1.6 Overhead Recovery

In table 1, we saw the cost structure for a simple manufacturing project. We
easily computed the cost of direct materials and also direct labour. We also
recorded overheads. In practical terms, direct labour costs are not difficult to
estimate.

Direct labour cost is equal to time recorded on a job multiplied by the standard
hourly rate. So, how can we recover overheads?
An amount can be added that is proportional to labour cost (usually
apercentage) to recover a part of a companys indirect overhead costs. Intable 1,
we saw total direct labour as N900,000. Overheads standing atN1,350,000 is
about 150% of totaldirectlabourcosts. Generally, themethod of recovering
overheads as a levy on direct labour costs is calledabsorption costing.

However, setting the percentage overhead rate is a technical matter requiring

professional accounting skills.

2.2 Work Breakdown

Consider a project to build a new university at Ulakwo which is about 20
kilometres from Owerri, the Imo State capital. Even where we have defined
the project as a new university, it will be very necessary to consider the total
picture of the new university project.
The university project will include the following:

71
 1. access roads
2. administrative buildings
3. lecture halls
4. clinics
5. laboratories
6. churches and mosques
7. students hostels
8. university teaching hospital complex.

Breaking the total project into

smaller units constitutes what
is referred to as a work
breakdown. Work breakdown
enables the project managers
or administrators to break
down a large or complex
project into smaller and more
manageable units.

Fig. 2.1.2: Work Breakdown for a

New University Project

72
The ideal thing to do is to break a
project into smaller units called sub-
projects. The sub-project itself
could be further divided into much
smaller units for effective analysis
and design.
When a project is broken down into
smaller sub-projects, it becomes
very easy to cost each sub-project
properly. After costing each sub-
project properly, then we could then
add up the costs of the sub-projects
to generate the cost of the total
project.

Fig 2.1.3: Work for a New

Secretariat Breakdown Federal
Complex at Abuja

In-text Question
What is a work breakdown?

Answer
Consider a project to build a new university at Ulakwo which is about 20 kilometres from
Owerri, the Imo State capital. Even where we have defined the project as a new university, it
will be very necessary to consider the total picture of the new university project.

3.0 Conclusion/Summary
In this session, we discussed cost estimates: definition and principles. We
discussed direct costs, factory costs and fixed costs. We discussed standard
labour costs and overhead recovery. We also discussed the concept of work
breakdown. All these have enabled us to understand the basic principles of cost
estimates.
73
This session treats cost estimates: definitions and principles. The definitions and
principles enable us to have a general background to the understanding of
project costs.

4.0 Self-Assessment Questions

1. What is “cost” in relation to project management?
2. Discuss the types of costs.
3. Discuss, using a practical example, the concept of work breakdown.

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2EY1re5. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/32PRI3w and critique it in the
discussion forum

6.0 References/Further Readings

Association of Cost Engineers. (1991). Estimating Checklist for Capital Project.
(2nd Ed.). London: Spon.
Smith, N. J. (1995). Project Cost Estimating. London: Thomas Telford.

74
 STUDY SESSION 2
Cost Estimates: Practical Estimation
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Practical Estimation
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In session 1, we laid the foundation for unit 2. We discussed definitions and
principles of cost estimates. In this unit, we want to take a practical approach and
use a practical example of a project. To guide our discussions, we shall define
project costs as all those costs that are incurred in the process of setting up a
project. The costs must be attached to the project. The list of project cost item
must be exhaustive.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain cost estimates in practice
2. Developthe cost estimates of a project.

2.0 Main Content

2.1 Practical Estimation

75
We need to arrange the cost items in an orderly and consistent manner so that
like items stay together. To ease our discussions and to make them as easy as
possible, we shall divided project costs items into the following sub-headings:
1. cost of land
2. cost of building
3. cost of machinery and equipment
4. cost of utilities
5. cost of furniture and other fittings
6. cost of vehicles
7. pre-operational expenses
8. working capital.

Fig 2.2.1: Practical Estimation

Source: itpro.co.uk

Although we have listed the cost sub-headings, we shall go ahead and prepare a
small checklist that will guide us. After the checklist, we will work through a
practical demonstration using a vegetable oil refining plant as example.

Table 2.2.1: Cost of Land Checklist

76
Table 2.2.2: Cost of Land Checklist

Table 2.2.3: Cost Buildings Checklist

Table 2.2.4: Cost of Machinery/Equipment Checklist

77
Table 2.2.5: Cost of Utilities Checklist

Table 2.2.6: Cost of Vehicles Checklist

Worked Example
Breakdown of Project Cost in a Vegetable Oil Refining Plant

Estimates of Project Cost N

Land for the project 4,000,000

Civil works and foundations 5,000,000

Steel Structures

Includes H beams, U channels, angles,

checker plates, railing pipes, roofing
Materials 13,000,000
22,000,00
Total Land, Building and Steel Structures 0

78
Storage Tanks

2 Units crude oil tank -200 tons - 3,000,000

1 Unit refined oil tank – 300 tons - 2,000,000
1 Unit fatty acid tank – 50 tons - 850,000
1 Unit water storage tank – 20 tons - 750,000
1 Unit diesel storage tank – 20 tons - 750,000
1 Unit furnace oil tank – 20 tons - 750,000

Sub-Total = 8,100,000

Utilities

1 Unit 500 KVA transformer - 3,500,000

10,000,00
1 Unit 500 KVA generator - 0
1 Unit water borehole - 500,000
14,000,00
Sub-Total = 0

Machinery and Equipment (Imported)

Full line vegetable oil refining plant consisting of the following:

1. Continuous oil pre-treatment section

2. Continuous bleaching section
3. Continuous physical refining and deodorising section
4. Thermal oil heating unit
5. Water cooling and recirculation system
6. Steam generation and distribution system.

Total C & F Lagos US$N132 = 91,740,000

79
695,000 x
Bank charges (L/C, etc.) = 500,000
Port clearing and other misc. charges = 6,500,000
Sub-total machinery and Equipment = 98,740,000

Pre-Operational Expenses

Feasibility Studies = 300,000

Project management consulting services = 500,000
NAFDAC for registration/documentation = 150,000
Travels and tours (local and overseas) = 500,000
Sub-total pre-operational expenses = 1,450,000

Summary of Project Cost

Land, building and steel structures = 22,000,000

Machinery and equipment = 98,740,000
Storage tanks = 8,100,000
Utilities = 14,000,000
Pre-operational expenses = 1,450,000
144,290,00
Sub-total = 0

Working capital = 30,617,994

174,907,99
Project Grand Total = 4

Analysis of Working Capital Requirements

1 week purchase of raw materials = 9,697,261

1 month factory salary/wages = 482,820
80
 437,91
1 month diesel, oil and lubrication expenses = 3

Total = 30,617,994
Proposed Financing Plant
(N)

81
 Project Bank Total
Sponsor
Land, building and steel 9,000,000 13,000,000 22,000,000
Structures
Machinery and 20,800,000 77,940,000 98,740,000
Equipment
Storage tanks - 8,100,000 8,100,000
Utilities 14,000,000 - 14,000,000
Pre-operational expenses 1,450,000 - 1,450,000
Sub-total 45,250,000 99,040,000 144,290,000
Working Capital 30,617,994 - 30,617,994
Total 75,867,994 99,040,000 174.907,994

Contribution ratio

Project sponsor = 43.3%

Bank = 56.7%
Total = 100%
In-text Question
Mention the practical estimation

Answer
1. Cost of land
2. Cost of building
3. Cost of machinery and equipment
4. Cost of utilities
5. Cost of furniture and other fittings
6. Cost of vehicles
7. Pre-operational expenses
8. Working capital.

3.0 Conclusion/Summary
In this session, we discussed project cost analysis. In doing this, we agreed that
cost of land, buildings, machinery and equipment, utilities, furniture and
fittings, etc. all form part of total project cost. We also used a checklist to guide
preparation of the cost analysis. Finally, we used a worked example of a

82
vegetable oil refining plant to throw more light on project cost analysis.
Project cost analysis is important to both the project initiator and the financial
analyst who may want to evaluate a project. In the next unit, we shall discuss
financial project appraisal.

4.0 Self-Assessment Questions

1. List 10 items which you think should appear in project cost analysis of a
start-up sachet water packaging plant.
2. Why do you think that it is important to know the total cost of a project?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2J3kHee. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/32FyRb9 and critique it in the
discussion forum

6.0 References/Further Readings

Leon, Ikpe (1999). Project Analysis and Evaluation. Impressed Publishers.
Smith, N. J. (1995). Project Cost Estimating. London: Thomas Telford.

83
 STUDY SESSION 3
Financial Project Appraisal
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Characteristics/Qualities in Project Appraisal Criteria
2.2- Project Appraisal Criteria - Types
2.2.1- Traditional Criteria of Project Appraisal
2.2.2- Discounted Cash Flow (DCF) MethodStudy Session Summary
and Conclusion
3.0 Self-Assessment Questions
4.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
Financial project appraisal seeks to present the methods to be adopted to measure
the value of a project. The appraisal enables the analyst to choose between two or
more projects once the values are known. Financial project appraisal enables
government or management of a company to take proper investment decisions
based on sound financial principles that are verifiable.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain what financial project appraisal is
2. Define the various methods used in appraising projects.

84
2.0 Main Content
2.1 Characteristics/Qualities in Project Appraisal Criteria
Any project appraisal
criteria to be adopted
should possess the
following characteristics:
Fig 2.3.1: Characteristics/Qualities in Project Appraisal Criteria
Source: accountlearning.com

1. It should provide a means of distinguishing between acceptable and

unacceptable projects.
2. It should be able to rank projects in order of their desirability.
3. It should also be a criterion that is applicable to any conceivable project.
4. It has to recognise that bigger cash flows are preferable to smaller ones
and that early cash flows or benefits are preferable to later cash flows.

2.2 Project Appraisal Criteria - Types

Although there are a lot of project appraisal criteria, we shall discuss the most
widely accepted criteria which are the traditional criteria and the discounted
cash flow (DCF) criteria.

2.2.1 Traditional Criteria of Project Appraisal

In the traditional criteria, we shall discuss two methods, namely, the
payback period and the accounting rate of return.
Payback Period
The payback period is one of the most popular methods of project appraisal.
Payback period is defined as the number of years required to recover the
85
original cash outlay invested in a project. If the project yields constant annual
cash inflows, the payback period can be computed by dividing cash outlay by
the annual cash inflow. So we say thus:
Cash outlay
Payback period = (investment)
Annual cash inflow

Example
A project requires a cash outlay of N200,000 and yields an annual cash inflow
of N50,000 for a period of 10 years. Calculate the payback period.
200,00
The payback period is N0 = 4 years
N 50,000
However, it is to be noted that in the case of unequal cash inflows, the payback
can be computed by adding up the cash inflows until the total is equal to the
initial cash outlay.
In-text Question
What are the characteristics of a project appraisal?

Answer
1. It should provide a means of distinguishing between acceptable and unacceptable
projects.
2. It should be able to rank projects in order of their desirability.
3. It should also be a criterion that is applicable to any conceivable project.
4. It has to recognise that bigger cash flows are preferable to smaller ones and that
early cash flows or benefits are preferable to later cash flows.

The payback period is greatly admired by project evaluators because it is very

simple to understand. Another good virtue of the payback period is that it costs
less than most of the other sophisticated methods.

86
However, despite its simplicity, the payback period may not be very desirable
investment criteria. In the first place, it fails to recognise thecash flows that
come in after the payback period. Again, it fails to consider the pattern of cash
inflows and that early cash inflows are better than later cash inflows.

Despite its weakness, payback period is very popular amongst analysts.

Payback period tries to emphasise on early recovery of an investment.This
means that it gives an insight into the cash inflows of the project.

Accounting Rate of Return (ARR)

The Accounting Rate of Return (ARR) is a method that uses accounting
information to measure the profitability of an investment. The Accounting Rate
of Return (ARR) is computed by dividing the average income after taxes by the
average investment.
ARR ─Average Income
Average
Investment

Example
A project costs N100,000 and has a scrap value of N40,000. The streams of
income before depreciation and taxes are N40,000, N50,000 and N60,000 for
the first three years. The tax rate is 50% and depreciation is on straight line
basis. Calculate the accounting rate of return for the project.

Solution

Year 1 Year 2 Year 3

Earnings before
depreciation
87
 and taxes 40,000 50,000 60,000
Depreciation 20,000 20,000 20,000
Net earnings before taxes 20,000 30,000 40,000
Taxes at 5% 10,000 15,000 20,000
Net earnings after taxes 10,000 15,000 20,000
Book value of investment 100,000 80,000 60,000
Beginning
Ending 80,000 60,000 40,000
Average 90,000 70,000 50,000

Average earning = 10,000 + 15,000 + 20,000 ÷ 3 = 15,000 Average investment

= 90,000 + 70,000 + 50,000 ÷ 3 = 70,000

Accounting rate of return =

1

15,000
70,000
= 21.42%

As an „accept‟ or „reject‟ criterion, the ARR method will accept all those
projects whose ARR is greater than the minimum rate established by
management. If the ARR is lower than the minimum rate established by
management, then the project should be rejected. The ARR method is very
simple from three main weaknesses. First, it uses accounting profits not cash
flows in appraising projects. Second, ARR ignores the Time value of money.
The profits occurring in different periods are valued equally. Third, it does not
allow the fact that profit can be reinvested to earn more profits.

88
2.2.2 Discounted Cash Flow (DCF)
Method
We have discussed two of the traditional
methods for appraisal of projects. One is the
payback period while the other is the
Accounting Rate of Return (ARR). Although two of them are simple to use and
understand, they are not theoretically sound. Both of them fail to consider the
timing of cash flows. Both fail to consider the time value of money. Because of
these limitations, we shall consider two superior investment criteria which fully
recognise the timing of cash flows. Thetwo methods are the Net Present Value
(NPV) method and the Internal Rate of Return (IRR) method. These two
methods are referred to as Discounted Cash Flow (DCF) methods or the time-
adjusted methods.

Net Present Value (NPV) Method

The Net Present Value (NPV) method is one of the Discounted Cash Flow
(DCF) methods used in project appraisal. It fully recognises the time value of
money. The method also correctly recognises the fact thatcash flows arising at
different time periods differ in value and are comparable only when their
equivalent present values are found out.

The following steps are followed when computing the Net Present Value
(NPV).
1. A discount rate is selected to discount the cash flows. The correct
discount rate should be the firms cost of capital which is the minimum
rate of return expected by the investors to be earned bythe firm.

89
 2. The present value of cash inflows and outflows are computed using cost
of capital as the discounting rate.
3. The net present value (NPV) is the present value of cash inflows less
present value of cash outflows.
The acceptance rule using the NPV method is to accept a project if the NPV is
positive, and to reject it if the NPV is negative. If NPV is greater than zero, then
the value of the firm is expected to increase. It is also important for us to
understand the interpretation of net present value. Net present value may be
interpreted to mean the immediate increase in the wealth of a firm if the
investment proposal is accepted.

It is equal to an unrealised capital gain. Also, net present value can also be
interpreted to represent the amount the firm could raise at a required rate of
return in addition to the initial cash outlay to distribute immediately to its
shareholders and by the need of the projects life to have paid off all the
capital raised plus interest on it.
Example
Calculate the net present value of a project which cost N500,000 but generates
cash inflows of N150,000, N300,000 and N400,000 over a three year period
respectively. The required rate of return is:

Year Cash inflows Discount factor Present value

at 10% of cash inflows

N N
1 150,000 .909 136,350
2 300,000 .826 247,800
3 400,000 .751 300,400

90
 Total 684,550
Less investment outlay 500,000
Net present value 184,550

In terms of merit, the net present value method is very significant since it
recognises the time value of money. It is also consistent with the objective of
maximising the wealth of shareholders. However, the net present value suffers
from the following limitations.
First, it is fairly difficult to use. Second, in computing the NPV, it is assumed
that the discount rate which usually is a firms cost of capital is known. But as
we know, the cost of capital is a fairly difficult concept to measure in real life.
Third, net present value may not yield a consistent answer when the projects
being compared involved different amounts of investment.
Internal Tate of Return (IRR) Method

We have earlier discussed net present value as one of the Discounted Cash Flow
(DCF) methods used in project appraisal.

The Internal Rate of Return (IRR) can be defined as that rate which equates the
present value of cash inflows with the present value of cash outflows of an
investment. Put in another way, the internal rate of return is the rate at which the
NPV of an investment is zero.

It is called the internal rate because it depends solely on the outlays and the
resulting cash inflows of the project and not any rate determined outside the
investment.

Let C = Cash outlays of an investment

91
 = Cash inflow received in year 1 discounted at the cost of
A1 capital

r.
(1+r)

A2 = Cash inflows received in year 2 discounted at the cost of

capital r.

(1 + r)2

A3 = Cash inflows received in year 3 discounted at the cost of

capital r.

(1 + r)3

Write the basic equation

C = A1 + A2 + A3

(1 + r) (1 + r)2 (1 + r)3

O = C - A1 + A2 + A3

(1 + r) (1 + r)2 (1 + r)3

The value of r in the equation at which total cash outlays equal total
cash inflows is called the internal rate of return (IRR). Usually, the value
of r can be found out by the trial and error. Generally, if the calculated
92
Preset value of the expected cash inflows is lower than the present
value of cash outflows, a lower rate should be tried. On the other hand,
if the calculated present value of the expected cash inflows is higher
than the present value of cash outflows, a higher rate should be tried.

Example
A barbing salon costs N32,400 to establish and is expected to generate cash
inflows of N16,000, N14,000 and N12,000 over its life of 3 years. Calculate the
internal rate of return.
Solution
Let us start by trying 16%

Year Cash inflow Discount factor Present value

at 16%
N N
1 16,000 .862 13,792
2 14,000 .743 10,402
3 12,000 .641 7,692
Total 31,886
Less cash outlay 32,400
Net Present Value (NPV) = -514

The net present value Is – N514.At 16% discount factor. Let us try a
lower rate like 14%.

Year Cash inflow Discount factor Present value

at 14%
N N
1 16,000 .877 14,032

93
 2 14,000 .769 10,766
3 12,000 .675 8,100
Total 32,898
Less cash outlay 32,400
Net Present Value (NPV) = 498

You will observe from the above calculations that when we tried 16% discount
rate, the NPV was negative at – N514. When we tried 14% discount rate, the
NPV became positive at N498. Therefore, the internal rate of return we are
looking for lies between 14% and 16%.
The basic accept–or–reject rule, using the IRR meth od, is to accept the project
if its Internal rate of return is higher than the firm‟s required rate of return.
However, the project should be rejected if its internal rate of return is lower than
the firms cost of capital.

It is important that we understand the interpretation of the internal rate of return

(IRR). The internal rate of return (IRR) represents the highest rate of interest a
firm would be ready to pay on funds borrowed to finance the project without
being financially worse off, by repaying the loan principal plus accrued interest
out of the cash inflows generated by the project.

We should also see the internal rate of return method as a very sound method.
As we said, it is a discounted cash flow method and also it considers the time
value of money.It is also compatible with the firms desire to maximise the
owners wealth. However, the IRR method is fairly difficult to understand and it
involves complex computations.
In-text Question
Explain in brief the traditional criteria of project appraisal

94
Answer
In the traditional criteria, we shall discuss two methods, namely, the payback period and the
accounting rate of return. Payback Period
The payback period is one of the most popular methods of project appraisal. Payback period
is defined as the number of years required to recover the original cash outlay invested in a
project. If the project yields constant annual cash inflows, the payback period can be
computed by dividing cash outlay by the annual cash inflow. So we say thus:
Payback period = Cash outlay (investment)
Annual cash inflow

3.0 Conclusion/Summary
In this session, we discussed project appraisal criteria which we said constitutes
a very crucial topic in this course. We discussed traditional criteria of project
appraisal where we dealt with the payback period and the Accounting Rate of
Return (ARR). We also discussed discounted cash flow criteria. Here, we
treated the Net Present Value (NPV) method and the Internal Rate of Return
(IRR).

Project evaluation criteria provide us with the tools with which we can choose
from various investment proposals using acceptable techniques. The appraisal
criteria guides the project initiated and assists us to choose from among
alternative projects. Also, banks use project appraisal criteria to decide whether
or not to lend money for a project.

In the next session, we shall discuss commercial management of projects.

4.0 Self-Assessment Questions

1. Distinguished between the net present value and the internal rate of return
as criteria for project appraisal.
2. Why are the discounted cash flow (DCF) techniques better and more
acceptable than the traditional methods of project appraisal?
5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.
95
a. Visit U-tube addhttps://bit.ly/2IZpNZ1. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2Gmnv2b and critique it in the
discussion forum

6.0 References/Further Readings

Leon, Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.
Raftery, J. (1993). Risk Analysis in Project Management. London: Spon.

96
 STUDY SESSION 4
Commercial Management of Projects
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Sourcing Finance for Projects
2.1.1- Borrowing from BanksBorrowing from the Bank of Industry
2.1.2- Limited
2.1.3- The Small and Medium Enterprises Equity Investment Scheme
(SMEEIS)
2.1.4- Other Sources of Finance
2.2- Contracts
2.2.1- Offer and Acceptance
2.2.2- Consideration
2.2.3- Capacity of Contract
2.3- Insurance
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In the last session, we discussed financial project appraisal. In discussing financial
project appraisal, we saw the various appraisal methods used in evaluating
projects. The appraisal methods enable investors to choose among competing
projects.In this session, we shall discuss commercial management of projects.
Commercial management of projects focuses attention on the keys areas, namely:
1. sourcing finance for projects
2. contracts
97
 3. insurance.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Appraise the sourcing of finance for projects
2. Explain commercial management of projects.

2.0 Main Content

2.1 Sourcing Finance for Projects
Sourcing finance for projects is a
very important aspect of project
management decisions. Whether it is a
public sector or private sector project,
the sources of finance must be
properly identified.
Fig 2.4.1: Sourcing Finance for Projects
Source: dbsa.org

2.1.1 Borrowing from Banks

A key function of a bank is to lend money to individuals and organisations.
Small businesses may be owned by individuals or by organisations and they too
are entitled to approach banks for the various loan facilities.

Let us now discuss the various types of finance that are available from the
banks.

Banks Loans
Banks normally grant loans to eligible business organisations to enable them
undertake capital investments in sectors like agriculture, industry, and
commerce.
98
Loans when granted are for specific reasons like purchase of manufacturing
equipment, etc. Loans are usually payable over a fixed period of time and at
agreed interest rates, and most banks will insist that the borrowers provide
collateral security when borrowing from them.

Bank Overdraft
Bank overdrafts are advanced in most cases to organisations for enhancing of
working capital. Most organisations obtain
bank overdrafts and deploy them towards
purchase of raw materials for manufacture
of goods or to procure finished goods for
resale. Usually, bank overdrafts are for
short periods of time like for one year. In
practice, overdrafts are renewable. Fig 2.4.2: Bank Overdraft

Source: billsblills.com

Lease Finance
A lease is a contract whereby one party (the lessee) hires equipment from
another party (the lessor) in a way that the lessee uses the equipment without
purchasing it. In return, the lessee pays lease rentals and at the end of the lease
period may have the option to purchase the equipment.
Lease finance is becoming a more popular type of finance for firms that do not
want to purchase equipment.

2.1.2 Borrowing from the Bank of Industry Limited

The Bank of Industry Limited is Nigeria's oldest and largest Industrial financing
institution. It was established in year 2001 out of the Nigerian Industrial
Development Bank (NIDB) Limited, which was incorporated in 1964.
The bank's authorised share capital is set at $400 million. The mandate given to
the Bank of Industry Ltd (BOI) is "providing financial assistance for the
99
establishment of large, medium and small projects as well as expansion,
diversification and modernisation of existing enterprises and rehabilitation of
ailing ones,"
In-text Question
Explain in brief the process of borrowing from banks to finance a project

Answer
A key function of a bank is to lend money to individuals and organisations. Small businesses
may be owned by individuals or by organisations and they too are entitled to approach banks
for the various loan facilities.

The Bank of Industry Limited can assist the following:

1. Small, medium and large enterprises excluding cottage industries.
2. New or existing companies seeking expansion, modernisation or
diversification.
3. Credit worthy promoters who will be required to prove their commitment
to the project by contributing at least 25% of the project cost excluding
land.
4. Borrowers whose management capability, financial situation (including
availability of collateral and guarantee) character and reputation are
incontrovertible.
5. Clients with demonstrable ability to meet loan repayments.
6. Borrowers with no record of unpaid loans to erstwhile development
finance institutions and other banks.

2.1.3 The Small and Medium Enterprises Equity Investment Scheme

(SMEEIS)
Another good source of finance for the small business is the Small and Medium
Enterprises Equity Investment Scheme (SMEEIS). It is a scheme under which
small and medium enterprises receive special funding by way of equity

100
investment by the bank. The investment by the bank enables them to grow and
expand their business.

The small and medium enterprises equity investment scheme is a voluntary

initiative of the Bankers Committee approved in 1999. The initiative was in
response to the Federal Government's concern and policy measures for the
promotion of small and medium enterprises (SMEs) as vehicles for rapid
economic development, poverty alleviation and employment generation.
Under the scheme, 10% of the profit before tax (pbt) of all banks is set aside
annually to be invested as equity investment in small and medium enterprises.
The funding to be provided under the scheme shall be in the form of equity
investment and or loans. The following are eligible to get funding under the
scheme:

All those engaged in the following activities:

1. Agro-allied businesses
2. Information technology and telecommunications
3. Manufacturing
4. Education establishments
5. Services
6. Tourism and leisure
7. Solid minerals
8. Constructions.

The limitation under the scheme is that the investing bank must not take more
than 40% equity investment in a small and medium business.
2.1.4 Other Sources of Finance
Other sources of finance for the small business are:

101
 1. Finance houses
2. Mortgage banks
3. Microfinance banks.

2.2 Contracts
Most projects involve contracts between the project and other parties such as
suppliers or land owners. Ordinarily, all contracts made by a project contractor
and suppliers should be in writing and also properly drafted. The type of
contracts that a project may execute will vary depending on the nature of the
project in question and the third party concerned.

However, for all contracts, several conditions must be satisfied for a legally
binding contract to exist. The following are some of the conditions:

2.2.1 Offer and Acceptance

For any transaction or document to be termed a contract, there must be offer and
acceptance. For example, a project contractor in entering into a contract must
state definitely his offer and state willingness to contract on specified terms.
The party dealing with the contractor has to properly accept the offer without
qualification.

2.2.2 Consideration
In every contract, there must be a consideration. A contract must result in each
party promising the other a
valuable benefit. For most
projects, this means that one
party promises to deliver some
stated goods, property or service at a specified date and the other party will also

102
promise to accept the stated goods and pay for them.

2.2.3 Capacity to Contract

Another condition for a contract to exist is the issue of capacity. The parties to a
contract must have the capacity to contract. For example, a minor may not have
the capacity to enter into a contract. For a firm, the powers and the capacity to
contract can be found in the memorandum and articles of association.
In practical terms, some of the contracts that an organisation can execute with
other parties may include some of the following:
A. Contract for the purchase of land for a project
B. Contract for the design of buildings
C. Contract for civil engineering jobs
D. Contract for the supply of machinery
E. Contract for the maintenance of machinery
F. Contract for the supply of raw materials
G. Contract for the supply of skilled personnel
H. Contract for the sale of finished goods
I. Contract for the training of personnel
J. Contract for the management of certain aspects of a project.

Most projects must have a contract scope. The contract scope specifies the
scope of the contract, i.e. where it begins and where it ends. Some of the various
contract scopes are described below:
A. Build–own–operate–maintain (BOOM)
B. Build–own–operate–transfer (BOOT)
C. Build–own–train–operate (BOTO)
D. Operate–maintain–train – (OMT)
E. Turnkey (TK)
103
2.2 Insurance
A major aspect of commercial management of projects is the issue of
insurance. Insurance has to do with the management of risks. Every
organisation faces risks, and so do all projects especially if they are start-up
projects.
B
When a project is initiated, part of management's responsibility is to identify the
various risks likely to arise and devise ways to manage or minimise the risks. So
in most cases, the priority of management is to ensure that all physical and
commercial risks facing a project are reduced to the barest minimum.
Let us discuss some of the risks identified and types of insurance that can apply
particularly with respect to projects and their management.

Legal Liabilities Insurance

Legal liabilities relate to payments to third parties as a result of statutory,
contractual or professional commitments. It also relates to compensations
awarded by the courts.
Ordinarily in commercial and industrial projects, some responsibilities will be
placed on the project owner or contractor to insure against several risks. For
example, in the construction of a 20-storey building, it will be in the best
interest of the contractor handling the project to take out insurance to cover
compensation to third parties for bodily harm. The third parties may be workers
on site, visitors or members of the public.

Liability insurance features prominently in project contracts and extends to the

following:
1. Property loss or damage

104
 2. Infringement of property rights
3. Accidents
4. Professional negligence as in the case of medical doctors
5. Contractors all risk insurance to protect work in progress against fire,
storm, theft and malicious damage
6. Accident and sickness insurance.
In-text Question
What is capacity to contract?

Answer
Another condition for a contract to exist is the issue of capacity. The parties to a contract
must have the capacity to contract. For example, a minor may not have the capacity to enter
into a contract. For a firm, the powers and the capacity to contract can be found in the
memorandum and articles of association.

3.0 Conclusion/Summary
In this session, we discussed commercial management of projects. We also
discussed various sources of funds for projects as well as contracts in respect of
projects. These discussions threw more light on the commercial management of
projects.

This session treats the commercial management of projects. It focuses attention

on the key aspects of the commercial management of projects.
It treats the issues of finance for projects, contracts and insurance of projects.

4.0 Self-Assessment Questions

1. Discuss sources of finance that are available to an investor of the
manufacture of fruit juice.
2. List and discuss the sources of finance for a project.

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

105
a. Visit U-tube addhttps://bit.ly/2Caa7ML. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/32E0tgT and critique it in the
discussion forum

6.0 References/Further Readings

Eaglestone, F. N. (1993). Contractors‟ all Risks Insurance.
(2nded.). London: Chartered Institute of Loss Adjusters.
Hodgin, R. W. (1996). Professional Liability: Law and Insurance.
London: Lloyd‟s Commercial Law library.

106
 STUDY SESSION 5
Introduction to Project Planning and Scheduling
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Factors Affecting Project Planning
2.2- Project Plan and Schedule – Meaning
2.3- The Planning Time Frame
2.3.1- Free Planning Approach
2.3.2- Target-led Planning Approach
2.4- Project Matrix Charts
2.5- Bar Charts
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
All projects involve commitment of resources towards certain pre-set objectives.
And in most cases, there is always a time frame or deadline for the
implementation of the project. It is therefore, safe to assume that there must be a
plan of some sort if the envisaged projectwill be completed on time. Most
projects are complicated in nature and have to be properly planned.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain factors affecting project planning

107
 2. Discuss project planning and scheduling.

2.0 Main Content

2.1 Factors Affecting Project Planning
A project manager, when
appointed, will realise that
he/she is confronted with a
number of factors within and
outside the organisation which
influence a project.
We shall divide the factors into
two for ease of discussion, and
they are external factors and
internal working factors.
They are illustrated in Figs.
2.5.1 and 2.

Fig. 2.5.1: External Factors Affecting Project Planning

108
 Fig. 2.5.2: Internal Working Factors Affecting a Project Planning

2.2 Project Plan and Schedule

A project plan is the listing or display that emerges when major project
activities have been estimated, subjected to their logical sequences and timed. In
an ideal situation, network analysis is usually a preferred method for producing
a project plan.

On the other hand, a project schedule is obtained by doing further work on the
project plan. The resources needed to execute the plan must have been
estimated and then taken into account.We can therefore, describe a project
schedule as a working document that results from matching the organisations
available resources to the project plan. From the foregoing, we can say that
project plans and scheduling go hand in hand. They are usually linked.

2.3 The Planning Time Frame

Every project to be executed must have a time frame. There are two ways of
considering a project time frame, namely: the free planning approach and the
target led approach.
109
2.3.1 Free Planning Approach
Under the free planning approach, a set of physical and financial estimates are
obtained and used to produce a project plan that predicts the completion time of
the project. This predicted completion time will now be accepted by the project
manager or team.

2.3.2 Target-Led Planning Approach

The target-led planning approach appears to be the direct opposite of the free
planning approach. In the target-led planning approach, the project target
delivery or completion date is determined well in advance. And so the project
manager must work with the available resources to meet the target delivery
date for the project. For example, if there is going to be an army exhibition on
Independence Week (1 October), all the officers involved in the exhibition will
take October 1 as the target date for the project delivery and work to meet the
deadline.

It should be realised that target-led planning at times leads to project planners

having to build overtime into the project just to ensure the completion.
If project plans are made with full consideration of the organisations available
resources, then the execution of the project will not encounter problems along
the line.
In-text Question
What is project plan and schedule

Answer
A project plan is the listing or display that emerges when major project activities have been
estimated, subjected to their logical sequences and timed. In an ideal situation, network
analysis is usually a preferred method for producing a project plan.

110
On the other hand, a project schedule is obtained by doing further work on the project plan.
The resources needed to execute the plan must have been estimated and then taken into
account.

2.4 Project Matrix Charts

Let us briefly recall that every project consists of people, tasks and resources.
These three items are present in every conceivable project. There must be a
way or manner in which the three items will be organised to be able to ensure
project execution.
Matrix charts list one set of factors at the extreme left-hand side of tabulation
and on the right-hand side, factors directly associated with them across
columns.
There are many variations of the matrix chart. In project management, matrix
charts are very useful for managers who have the responsibility of allocating
tasks to different people in a project team. Matrix charts are very useful for
planning and controlling projects. The matrix charts can be used to allocate
people to tasks, or tasks to people. In some cases, the matrix chart is used to
allocate people to machines.
Table 2.5.1: Simple Matrix Chart for Planning and Controlling a Book
Publishing Project

111
Table2.5. 2: Simple Matrix for Assigning Medical Students to Wards in a
Medical Training Project

2.5 Bar Charts

Bar charts are derived from Grant Charts named after their originator, Henry
Grant. Bar charts are used in planning and scheduling. They are very easy to
draw and can be adapted to suit many planning and scheduling jobs.
When properly prepared, bar charts turn out to be very handy planning and
scheduling aid to a project planner.

Table 2.5.3: A Simple Project Bar Chart

112
In using the bar chart, the project manager will usually identify each task within
a project and then go ahead to allocate a time frame for the completion of
each task. With this information, the bar chart is then constructed.
In-text Question
Explain the project matrix charts

Answer
Matrix charts list one set of factors at the extreme left-hand side of tabulation and on the
right-hand side, factors directly associated with them across columns.
There are many variations of the matrix chart. In project management, matrix charts are very
useful for managers who have the responsibility of allocating tasks to different people in a
project team. Matrix charts are very useful for planning and controlling projects. The matrix
charts can be used to allocate people to tasks, or tasks to people. In some cases, the matrix
chart is used to allocate people to machines.

3.0 Conclusion/Summary
In this session, we discussed the introduction to project planning and
scheduling. We also discussed external and internal factors affecting project
planning. We discussed project plans and schedules.

We looked into the planning time frame as well as the project matrix charts and
bar charts. All these help to improve our understanding of project planning and
scheduling.This session treats project planning and scheduling. It discusses the
introductory elements necessary to understand project planning and schedules.
It tries to expose how plans and schedules can assist in project execution.

113
4.0 Self-Assessment Questions
1. Give meanings to project plan and project schedule. Is there any
relationship between them?
2. Distinguished between free planning approach and target-led approach in
relation to project time frame.
3. Discuss the external factors that affect project planning.
4. How does a project plan differ from a project schedule?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2EWJ7lD. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/30MC8Ul and critique it in the
discussion forum

6.0 References/Further Readings

Reiss, G. (1995). Project Management Demystified: ToWeek‟s Tools and
Techniques. (2nd Ed.). London: Spon.
Burke, Rory (1999). Project Management: Planning and Control. (3rded.).
Chichester: Wiley.

114
 MODULE 3
Contents:
Study Session 1: Network Analysis
Study Session 2: Principles of Scheduling Resources
Study Session 3: Practical Scheduling of Resources
Study Session 4: Materials Management
Study Session 5: Project Implementation – An Introduction
Study Session 6: Managing Progress in Projects

STUDY SESSION 1
Network Analysis
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Network Notation System
2.1.1- Arrow Network
2.1.2- Activity Duration
2.1.3- Dummy Activities (Dummies)
2.1.4- The Forward Pass
2.2- Critical Path Analysis Using Precedence Notation
2.2.1- Identification Numbers
2.2.2- Logical Dependencies
2.2.3- Activity Duration Estimates and Descriptions
2.3- Implementing Network Analysis
2.3.1- Arranging a Project Meeting
2.3.2- Identifying Critical Details in Network Planning
3.0Study Session Summary and Conclusion

115
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
Generally, we shall use the term “network analysis” to describe several planning
methods which owe their origin to developments in Europe. Network analysis
achieved great prominence during World War II and was used successfully for the
planning of the United States of America defence projects. When we discussed
charts, we saw that they were really easy to construct and also could be easy to
understand.

Network analysis, on the other hand, is not as easy as it assumes a lot of

familiarity with logic and argument.Network diagrams simply show all the tasks
within a project together with their logical sequence. Network diagrams are more
powerful than bar charts since they clearly show the interdependencies between
job tasks in a project. For example, before a building can be started, network
analysis will inform the planner that the foundation of the building will be the
starting point of the project.

A major strength of network analysis is that it enables all the tasks in a project to
be clearly defined. The tasks deemed to be very critical are also identified and
completion times of every task estimated.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain network analysis
2. Apply network analysis to project management.

116
2.0 Main Content
2.1 Net Notation Systems
In the literature, there are several network notation systems. Each network
system usually reflects the thinking of its inventors.

2.1.1 Arrow Networks

Arrow networks are activity-on-arrow systems. There are various names used
under arrow networks. Some of them include the following:
A. Critical Path Methods (CPM)
B. Critical Path Analysis (CPA)
C. Programme Evaluation and Review Technique (PERT).

The strong point of the arrow

network is the arrow diagram,
logic diagram or network. Let
us use a simple example to
demonstrate the key elements
of an arrow network. Fig. 3.1.1: Key Elements of Arrow Network Logic

Now take a look at fig. 1. Each circle represents a project event such as the start
or finish of an activity. The arrow joining any two events shows the activity or
time needed to progress from one event to another.
The numbers inside the circles are used to identify the events. If you note
carefully, activities 1, 2, 3 must be completed before thinking of moving ahead
to any other activity.
Another issue that should be clearly understood in network analysis is the
issue of direction. Conventionally, activity arrows are drawn from left to right.

117
Another important element in arrow diagrams is the issue of logical
dependencies. In an arrow diagram, no event can be considered complete until
all the activities that lead into it have been completed.

For example. in fig. 1, activity 4 cannot be achieved until activities 1, 2 and 3

have been completed. Also, activity 5 cannot take off until activities 3 and 4
have been completed.

2.1.2 Activity Duration

In building the network, we should also break down the activities properly and
attach time estimates to them. Consider a hospital project to be initiated at
Calabar by the state government.
Activity Description Estimated Duration
1 to 2 Build the hospital 6 months
2 to 3 Equip the hospital 3 months
3 to 4 Staff the hospital 2 months

The hospital project

can now be displayed
using arrow notation:

Fig. 2.1.2: The Hospital Project Network Using Arrow Notation

You will observe that the estimated duration for every activity is also indicated
in the diagram.

118
2.1.3 Dummy Activities (Dummies)

Fig. 2.1.3: Example of Arrow Network Time Analysis

In fig. 2, we saw a very simple network with which we displayed a hospital

project. Fig. 3 is a much more complex network. As you can see, there are so
many activities in the network with time notations.

There is more than one path to the completion of the network activities.
If you note properly, there are three possible routes to the final event 6.
One of the possible routes passes through the dotted linking event 4 to event 3.
The dotted arrow linking event 4 to event 3 is called a dummy activity. A
dummy activity does not represent work and so has no time duration. A dummy
activity though having zero time duration acts as a logical link or constraint on
activities that follows it.

For example, in fig. 3, the start of activity 3 to 6 depends not only on

completion of activity 2 to 3, but, because of the dummy, also on the
completion of activity 1 to 4.

Also you are to note that numbers written above event circles indicate the
earliest possible time by which the event can be completed. This can be
calculated by adding the activity durations from left to right. Where more than
one path exists, the longest path determines the earliest possible event time.

119
Numbers below the event circle are found by subtracting activity durations from
right to left from the final event again taking the longest path.
In-text Question
Arrow networks are called by various names, itemize them

Answer
1. Critical Path Methods (CPM)
2. Critical Path Analysis (CPA)
3. Programme Evaluation and Review Technique (PERT).

2.1.4 The Forward Pass

You are still required to refer to fig. 3. In the figure, the earliest possible time
for each event and also the earliest possible time for the entire project
completion have been calculated by merely adding up activity duration
estimates along the arrows from left to right. This time analysis is known as the
forward pass.

Also, in the fig. 3, we are using the forward pass is complicated because there
are many routes to the project completion. For example, we might be tempted to
think that the earliest possible time for event 3 might be 1
+ 2 = 3 if the route of events 1, 2 and 3 are taken. That might not be really
true. Event 3 may not be achieved until the end of week 5 because of the longer
path through the dummy (activity path of 4 to 3).

2.2 Critical Path Analysis Using Precedence Notation

In our earlier discussion, we dealt with arrow networks. This time around, we
shall discuss critical path analysis that uses precedence notation. In current
times, precedence system has become very popular in project management for
the following reasons.
1. Precedence logic diagrams resemble engineering flow diagrams and are
easy to understand.
120
 2. Precedence notations indicate clearly the start and finish of activities and
even indicate overlapping activities.
3. Precedence networks are supported by various computer software.

Generally, it is important to
note that the flow of work in
a precedence diagram is
from left to right.

Fig. 3.1.4: An Activity in Precedence Notation

Let us now look at some features of the precedence system:

2.2.1 Identification Numbers

In a precedence system, every activity is usually given an identification number
called the I D code. These codes are usually important especially for computer
processing. The ID codes range from small serial numbers to complex
alphanumeric codes with 10 or more characters.

2.2.2 Logical Dependencies

In the precedence system, all activities are joined by lines. You should recollect
that they differ from arrow networks which use arrows to link activities. Now
back to precedence systems. The precedence notation system allows the
project manager the complete freedom to display relationships between various
activities.

121
2.2.3 Activity Duration Estimates and Descriptions
Now let us go back to our simple project which we discussed in section 3.1.2 of
this session.

Activity Description Estimated Duration

1 to 2 Build the Hospital 6 months
2 to 3 Equip the Hospital 3 months
3 to 4 Staff the Hospital 2 months

The hospital project can be built into fig. 2.1.5.

Fig. 2.1.5: Hospital Project using Precedence Notation

You are to note that fig. 5 shows the estimated duration, earliest start and finish
times for the three activities in the hospital project.

2.3 Implementing Network Analysis

All along, we have been discussing the basic techniques of project network
analysis. We discussed arrow networks, activity duration, dummy activities and
the precedence notation in network analysis. All these are tailored towards our
understanding of basic networks.

122
In this section, we shall discuss the procedures and methods used in the
implementation of network analysis in an organisation. We shall take them one
by one.

2.3.1 Arranging a Project Meeting

In an organisation, when a project is to be initiated or executed, someone is
usually appointed as the project manager. The project could be the building of a
general hospital, the building of a federal government secretariat complex or the
building of a refinery complex.

In most cases, the project manager is appointed with members of the project
team. The first step in a project meeting is to assemble all the members of the
team and hold a brainstorming session. In an ideal situation, members of the
project team will be chosen from various units or departments and also will be
senior members of staff.
During the brainstorming session, the project will be laid bare and all the
activities connected with the project will be discussed. Here the basic network
of the project will be drawn so that all the team members can see it and make
their own contributions.

Ideally, a digital projector can be used for the brainstorming exercise. In this
case, arrow notations are better. After a lot of discussions have taken place, a
final network analysis diagram will be produced which temporarily serves as
the guide to the execution of the project.

2.3.2 Identifying Critical Details in Network Planning

We have just said that in implementing projects, there is the need to call a
project meeting. Part of the things that the project meeting will seek to achieve

123
is to identify the critical details in a network. Such critical details will include
the following:
A. Identification of all activities
involved in the project
B. Allocation of activities to people
C. Work authorisations
D. Work supervisors
E. Start and finish times for every
activity
F. Obtaining building permits where
necessary
G. Issue of invitations to tender for
supply of materials or equipment
H. Receipt of tenders
I. Approval of tenders
J. Supplies of materials deadlines
K. Handover of project.
Fig. 2.1.6: Details in Purchasing Sequence for Supply of Medical Equipment to a Hospital

In-text Question
What is a logical dependency?

Answer
In the precedence system, all activities are joined by lines. You should recollect that they
differ from arrow networks which use arrows to link activities. Now back to precedence
systems. The precedence notation system allows the project manager the complete freedom to
display relationships between various activities.

3.0 Conclusion/Summary
This session has treated network analysis which we saw as a very important
management tool in project management. We discussed network notation

124
systems especially arrow networks. We also discussed activity duration, dummy
activities and critical path analysis using precedence notation. Finally, we
discussed the identification of critical details in network planning.
Network analysis is a management tool in the practice of project management.
It equips project managers with the necessary skills for managing various
projects. It emphasises the breakdown and analysis of project activities in a
sequence that leads to project conclusion.

4.0 Self-Assessment Questions

1. You have been appointed project manager to construct a new university
at Lokoja. Develop an activity duration using arrow notation for the
project.
2. Discuss the procedures and methods used in the implementation of
network analysis in a chosen organisation.
3. Why do you think that network analysis is important in project
management?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2NQVJO0. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/32HKGxo and critique it in the
discussion forum

6.0 References/Further Readings

Meredith, J. R. &Mantel, S. J. Jnr (1995). Project Management: AManagerial
Approach. (3rd ed.). New York: Wiley.
Reiss, G. (1995). Project Management Demystified: ToWeek‟s Tools and
Technique. (2nd ed.). London: Spon.

125
 STUDY SESSION 2
Principles of Scheduling Resources
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Project Resources
2.2- Priority Rules for Scheduling Resources
2.2.1- Resource Limited Scheduling
2.2.2- Time Limited Scheduling
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
Research shows that scheduling of resources is a fairly complex topic because of
the complexities of various types of projects in the environment.
Resources scheduling can be seen from many view -points. It can be seen from
point of view of a large industrial establishment like Nigerian Breweries Plc.
where it is employed in the formulation of long-term plans. Resources scheduling
can even take a wider dimension when one considers the complexities involved in
running a refinery that produces petrol, diesel, kerosene, engine oil, aviation
fuel and other petrochemicals.

We are not going to discuss resources scheduling from wider perspectives. Rather,
we shall discuss it from the point of view of a project manager whose concern is
basically with the short-term operations of a business or a specific project.

126
Resources scheduling problems differ from firm to firm or from organisation to
organisation. An organisation which has a large percentage of its labour force as
causal labour may not have the problem of scheduling of its labour resources. On
the other hand, an organisation that handles its projects using its own workforce
cannot ignore scheduling of resources. This is more applicable to engineering and
road construction companies.

Principles of scheduling resources have come to the forefront of project

management techniques as project managers find themselves in situations that
require good knowledge of resources scheduling.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able t:
1. Define scheduling
2. Enumerate project resources
3. Discuss the priority rules for scheduling resources.

2.0 Main Content

2.1 Project Resources
All along, we have been using the work “resources” but we did not define what
resources are. So let us now define a project resource. A project resource is any
person (labour) equipment, tool or
money that is needed for work on a
project. Having briefly defined a
project resources, we can now go
ahead to list the various types of
resources that can be used in a
project. Fig 3.2.1: Project Resources

127
 Source: stakeholdermap.com

1. Land
2. Natural gas
3. Water
4. Rubber
5. Cocoa
6. Cement
7. Granite
8. Sand
9. Generator
10. Factory buildings
11. Offices
12.Labour (causal labour)
13.Labour (management)
14. Computers
15. Radio Stations
16. X-ray machine
17. Blow molding machine
18. Dam
19. Tractor
20. Time

Before a project commences, there must be a total breakdown of all the

activities that are required to execute the project.Also, there should be a list of
resources required to execute the project. The type of resources will include the
following:
1. Skilled personnel, e.g. building engineers
2. Skilled personnel, e.g. technologists
3. Unskilled personnel, e.g. labourers.
128
Again, there should be a breakdown of the materials required for the execution
of the project. Usually for the materials, there should be funds made available
for their purchase.

Consider, for example, a project that involves the construction of a

student’s‟ hostel in a university. The activities are shown in table 2.2.1, table
2.2.2 and table 2.2.3.

Table 2.2.1: Construction of a Student Hostel in a University

Dig soak away Lay rubber and Prepare chamber
And drain pipes slabs with cement and
drain trench inside trench iron rods

(1) (2) (3)

Dig hostel Lay concrete Lay

Foundation foundation works floor base

(4) (5) (6)

Mount bricks Fit lintel Build parapet

(7) (8) (9)

Table 2.2.2: Construction of a Student Hostel in a University

Fit roof timber Fit and run Fit roof sheets

fascia board

(10) (11) (12)

Seal the roof Fit ceiling boards Fit gutters

(13) (14) (15)

Hang doors Fit electrical fittings and do Paint

and windows plumbing work

129
(16) (17) (18)

Table2.2.2 Students‟ Hostel Project: Task List and Time

: Analysis

Activity Description Duration Resources

(Weeks) available
1. Dig soak away and drain trench 2 Yes
2. Lay rubber and drain pipes 2 Do
3. Prepare chamber slabs with cement 2 Do
4. Dig hostel foundations 3 Do
5. Lay concrete foundation works 3 Do
6. Lay floor base 2 Do
7. Mount bricks 21 Do
8. Fit lintel 5 Do
9. Build parapet 4 Do
10. Fit roof timber 4 Do
11. Fit and run fascia board 4 Do
12. Fit roof sheets 6 Do
13. Seal the roof 10 Do
14. Fit ceiling boards 10 Do
15. Fit gutters 4 Do
16. Hang doors and windows 5 Pending
17. Fit electrical fittings and plumbing 10 Pending
18. Paint 10 Pending

130
In-text Question
Mention the types of resources needed before the project is commence

Answer
1. Land
2. Natural gas
3. Water
4. Rubber
5. Cocoa
6. Cement
7. Granite
8. Sand
9. Generator

2.2 Priority Rules for Scheduling Resources

Scheduling of resources is based on two options or priority rules. One option is
whether the scheduling of the resources should be resource-limited or time
limited. We shall now consider each of the options.

2.2.1 Resource Limited Scheduling

In resource limited scheduling, the levels of available resources are known well
in advance and as a matter of fact should not be exceeded. Following this, the
completion time of the project will be a
secondary objective. In real life, resource
limited scheduling is found mainly in
government establishments and parastatals
where the annual or supplementary budget
sets a limit to the amount that can be
expended by a ministry or parastatal. Fig 3.2.2: Resource Limited Scheduling

Source: zilicus.com

2.2.2 Time Limited Scheduling

131
In a situation where time is of essence in a project, the scheduling should be
time-limited. For example, if a university is due to reopen in October and it is
expected that a new students‟ hostel under construction will accommodate
2,000 new students, it means that at least the new students‟ hostel should be
ready by September of the same year.When a project is subjected to time-
limited scheduling, overtime and hiring of excess labour usually resorted to in
order to meet the time schedule.

In practical situations, project managers resort or fall back to a second-tier

resource level.
In-text Question
What is a priority rule for scheduling resources

Answer
Scheduling of resources is based on two options or priority rules. One option is whether the
scheduling of the resources should be resource-limited or time limited. We shall now
consider each of the options.

3.0 Conclusion/Summary
In this session, we discussed principles of scheduling resources. We discussed
the meaning of resources and also the priority rules for scheduling resources.
The options available to the project manager are resource-limited scheduling
and time-limited scheduling of resources.
Principles of scheduling resources guide the project manager in project
management. It provides project managers with tools with which to schedule
resources.

4.0 Self-Assessment Questions

1. Define a project resource?
2. Using a practical example, explain the “time-limited scheduling.”
3. What do you understand by resource-limited scheduling?
132
5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.
a. Visit U-tube addhttps://bit.ly/2VMZtmm. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2Z4I9ew and critique it in the
discussion forum

6.0 References/Further Readings

Meredith, J. R. & Mantel, S. J. Jnr. (1995). Project Management: A Managerial
Approach. (3rd ed.). New York: Wiley.
Reiss, G. (1995). Project Management Demystified: ToWeek‟s Tools and
Techniques. (2nd ed.). London: Spon.

133
 STUDY SESSION 3
Practical Scheduling of Resources
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Factors in Project Resource Scheduling
2.2- Labour Resources to be scheduled
2.3- Scheduling Labour Costs
2.4- Scheduling Costs for other Materials
2.5- Scheduling Cash Flows
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In the last session, we discussed principles of scheduling resources. We defined
the meaning of resources and also the priority rules for scheduling resources.
We also discussed the options available to the project manager for scheduling of
resources.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Outline areas of practical scheduling of resources
2. Discuss practical scheduling of resources.

134
2.0 Main Content
2.1 Factors in Project Resource
Scheduling
In practical terms, before
practical scheduling can be
carried out, the appointed
project manager with his or her
team will first of all be faced
with a number of critical
questions that concern the
project in question.
They may have to highlight
problems associated with the
project and offer solutions. Let
us now look at fig. 1 which
highlights competing factors in project resource scheduling. Fig. 2.3.1: Competing

Factors in Project Resource Scheduling

2.2 Labour Resources to be Scheduled

In fig. 2.3.1, we displayed the competing factors in project resources
scheduling. Although a lot of factors have been highlighted, a very important
resource that needs scheduling is labour. Whatever the nature of the project
concerned, the starting point is laboursince it is labouthatorganises all the other
factors that take part in a project. So whether it is large construction project,
manufacturing project or a large petrochemical project, we will find that the
following work activities should be scheduled. They include the following:
1. Project layout design
2. Civil engineering jobs
135
 3. Mechanical engineering jobs
4. Structural engineering jobs
5. Electrical engineering jobs
6. Plumbing and hydro engineering jobs
7. Production engineering jobs
8. Chemical engineering jobs.

2.3 Scheduling Labour Costs

In section 3.2 we listed a number of work schedules that should be scheduled. In
terms of schedules, we are specifically looking at labour intensive schedules.
For example, in project design we are looking at the labour content of project
layout design.

So in practice, it will be necessary to schedule the estimated expenditures for

labour. The ideal thing to do is to choose a specific cost rate per unit of labour
resource. For example, we could have the following estimates for labour costs
in a project:
Category Rates per Week
( N)
Civil engineering jobs 2,500
Structural engineering jobs 2,000
Plumbing jobs 1,000

2.4 Scheduling Costs for Other Materials

Apart from labour cost in a project, there is the need for other materials costs
to be estimated and scheduled. In practice, all activities identified in a project
should be recognised and the associated materials also identified for cost
purposes.

136
Usually, the project accountant collects information about project activities
from the project manager. He/She then matches the material cost with the
associated activity.

Based on the network analysis, the accountant is issued with the priority list
for the project so that adequate purchase arrangements could be made. The
cost of materials to be scheduled will vary depending on the nature of the
project, the activities involved and of course the duration of the identified
activities.
In-text Question
Mention the activities that take place in labour resources to be scheduled

Answer
1. Project layout design
2. Civil engineering jobs
3. Mechanical engineering jobs
4. Structural engineering jobs
5. Electrical engineering jobs
6. Plumbing and hydro engineering jobs
7. Production engineering jobs
8. Chemical engineering jobs.

2.5 Scheduling Cash Flows

Cash flow schedules basically are schedules which show inflows (income) of a
project and also outflows (expenditures) of a project.
As we discussed earlier, money is a
very critical resource. Again, it is to
be stressed that most resources for a
project will be paid for with money.
Therefore, schedules which show how
money will flow in a project is very
important. Fig 3.3.2: Scheduling Cash Flows

Source: nutcache.com

137
It is also very important to note that the cash flow schedule is not an accounting
statement or schedule. It is basically a schedule that shows the receipts of
money and the spending of money in relation to a project.
The cash flow schedule is divided into two sections, namely: the cash inflow
section and the cash outflow section. Two of them combine to form the cash
schedule.
The cash inflow section of the cash schedule shows the various sources of cash
for a project. Sources of cash for a project may vary. In the private sector
projects, they will consist mainly of equity or bank loans. But that is
understandable.

However, the sources of funds for a public sector project might be different.
They may consist of local government, state or federal government funds. Also,
public sector projects might attract external funds sources from outside Nigeria.

To drive home the practical construction of a cash flow schedule, we produce

for your study two cash flow schedules for the following projects:

A refinery project A hospital project

1. Table 1
2. Table 2
An important point to note about cash flow schedules is that apart from the fact
that the schedule highlights the activities, the timing of the activities are duly
captured. For example, in the refinery project (table 1) you will observe that the
Bank of Industry loan is expected to come in by January and not February. The
logic is simple. The loan will be required to undertake the engineering design
work, civil engineering and other works.

138
At a glance, therefore, the project manager can see what activities will come up
at different times and the amount of funds they will require.
In more complex cases, the cash flow schedule will highlight when the project
will require external funding, etc.

139
 Table 2.3.1: Cash Flow Schedule for a
Refinery Project

Cash Inflows January February N‟

Million

March
Bank of Industry loan 10,000 - -
European Investment Bank loan - - 10,000
Federal
Government of Nigeria - 10,000 -
Equity
10,000 10,000 10,000
Total Cash Inflows

Cash Outflows 200 - -

Engineering design 300 1,000 1,000
Civil engineering works 2,000 1,000 1,000
Structural engineering works 2,000 5,000 1,000
Mechanical engineering 1,000 2,000 2,000
works
Electrical engineering 100 100 100
works
100 100 100
Office buildings 100 - -
Salary and wages 200 - -
Environmental impact studies - - 9,600
Permits
6,000 9,200 14,800
Refining chemicals
Total Cash Outflows 4,000 800 (4,800)

- 4,000 4,800
Inflows Less Outflows 4,000 4,800 -
Opening Cash Balance
Closing Cash Balance

140
 Table 2.3.2: Cash Flow Schedule for
a Hospital Project

N‟ Million
April May June
Cash
Inflows
World Health Organisation grant 200 100 -
Federal Government of Nigeria equity 300 - 50
TOTAL CASH INFLOWS 500 100 50
CASH
OUTFLOWS
Engineering design 10 - -
Civil engineering works 100 10 -
Structural engineering
works 30 10 -
Electrical engineering works 10 10 -
Wards and offices 200 30 -
Hospital equipment 100 10 10
Drugs and medicaments - - 30
Salary and wages 40 40 10
Total Cash Outflows 490 110 50
Inflows Less Outflows 10 (10) -
Opening Cash Balance - 10 -
Closing Cash Balance 10 - -

141
 Table 2.2.3: Steps in Project
Resource Scheduling

S/No. Step Notes

1. Define the objectives of the project Study the feasibility of

and break them down into the project

technical, financial And time

Objectives

2. Divide the project into manageable

tasks using the network analysis

3. Make a list of all the tasks and their Use the

Network

Sequence Analysis

4. Estimate all task durations and You may use a bar chart

identify the critical paths here plus the

network

Analysis

5. Match the tasks with The available

Resources

6. Assign tasks to team members or team units

In-text Question
Give a brief explanation on scheduling cash flows

Answer
Cash flow schedules basically are schedules which show inflows (income) of a project and
also outflows (expenditures) of a project.
As we discussed earlier, money is a very critical resource. Again, it is to be stressed that most
resources for a project will be paid for with money. Therefore, schedules which show how
money will flow in a project is very important.

3.0 Conclusion/Summary
In this session, we discussed practical scheduling or resources. We looked at the
142
competing factors in project resource scheduling. We discussed labour
resources to be schedules and the scheduling of labour costs. Wethen discussed
project cash flow schedules. We concluded the unit by highlighting steps in
project resources scheduling.

In this session, we treated practical scheduling of resources which is a very vital

topic towards our understanding of project management. We saw practically
how resources are scheduled and using a cash flow schedule. We demonstrated
scheduling of project resources. In the next unit, we shall discuss materials
management.

4.0 Self-Assessment Questions

1. Explain the competing factors in project resources scheduling.
2. What are the competing factors in project resource scheduling?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2tZB7tD. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2XSwaEp and critique it in the
discussion forum

6.0 References/Further Readings

Wallace, T. F (1995). MRPH – Making it Happen: The Implementer‟s Guide to
Success with Manufacturing Resources Planning. Chichester: Wiley.
Baily, P (1991). Purchasing Systems and Records. (3rd ed.). Aldershot: Gower.

143
 STUDY SESSION 4
Materials Management
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- The Purchasing Cycle
2.2- Commercial Conditions of Purchase
2.3- Timing of Purchase Orders and Deliveries
2.4- Call-Off Orders
2.5- Purchasing for Capital Projects
2.6- Stores Administration
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
Materials management concentrates on the key aspects of purchasing and
control that take place after a purchase order has been issued for materials of a
project. Also, materials management concentrates on the purchasing procedures
in projects defined as capital projects.

Purchasing is a vital function in project management because the supply of

materials is very critical to ensuring that there are no delays in the supply of
materials to projects. Also, buying on competitive terms and prices is
considered to be very important to project managers.Materials management also
concentrates attention on the schedule inspection of project materials and goods

144
when they are delivered to the project stores or sites. Stores management is also
part of materials management.

Besides, it is to be realised that shortage of material can frustrate a project. So

project managers in managing materials purchase must ensure that on no
account should materials shortage occur once a project commences. Materials
shortages delay projects if they are allowed to occur.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain the purchasing cycle
2. Appraise the principle of materials management
3. Discuss stores administration.

2.0 Main Content

2.1 The Purchasing Cycle
There is this misconception that a purchasing department consists of people
(staff) whose only functions are to issue purchase orders and take delivery of
materials and goods. This is not true. The purchasing function goes beyond
issuing of local purchase orders (LPOs). We shall now discuss the purchasing
cycle which will throw more light on the purchasing function.
The purchasing function may start with the
project manager who discovers that some
materials are needed for a project.
Instructionsare then issued to the purchasing
department asking it to purchase the materials
required. It may also start from the stores
department of a project when it is discovered

145
that certain materials are in short supply. Fig 3.4.1: The

Purchasing Cycle

After the need for materials has been identified, the next stage in the purchasing
cycle is to specify the materials or goods to be purchased. It is important to
specify the required materials especially if they are engineering or specialist
goods. They may even be chemicals which are also specialist goods not sold
everywhere.

After specifying the materials, the next step

is to shortlist vendors and invite tenders
from the shortlisted vendors. When the
tenders have been received from the
shortlisted vendors, some organisations
pass on the tenders to the tenders‟
committee which chooses the vendors.
After the vendor has been chosen, the
purchasing department now issues the local
purchase order (LPO) for the materials.

When the materials are received, it is the

duty of the purchasing department to
inspect the goods before receipt. After
receipt of the goods, payment will then be made to the vendor.
Fig. 3.4.2: The Purchasing Chain

2.2 Commercial Conditions of Purchase

Since some projects purchase will run into billions of naira in monetary terms, it
is important that the commercial conditions of purchase for any project be
properly spelt out. In most organisations, the commercial conditions of purchase
146
are usually spelt out on the reverse side of their local purchase order (LPO).
Here is a list of some commercial conditions of purchase which appear in many
purchase orders.
1. Goods mean the supply and delivery of the goods specified in line with
the organisations purchase order.
2. Payment terms: Payment may be made on delivery or against shipping
documents.
3. Prices: Prices are usually fixed for the period of the contract (LPO) and
cannot be varied.
4. Quality of the goods or materials shall conform to description or
specification given by the organisation to the supplier.
5. Rejections: The company may at any time before or after receipt of the
goods reject the goods if they are found to be of inferior quality.
6. Delivery time: The delivery time must not exceed the time stated on the
LPO. However, if for any cogent reason, the supplier cannot deliver
goods within the delivery time, the supplier shall notify the company in
writing.

We have discussed the commercial conditions of purchase which we said

should be written at the back or reverse side of a local purchase order (LPO).

In practice, however, for larger projects, project managers should engage the
services of legal experts to draft the local purchase orders so as to reduce losses
from legal actions.
In-text Question
Mention four commercial conditions of purchase

Answer
1. Goods mean the supply and delivery of the goods specified in line with the
organisation‟s purchase order.
2. Payment terms: Payment may be made on delivery or against shipping documents.
147
3. Prices: Prices are usually fixed for the period of the contract (LPO) and cannot be
varied.
4. Quality of the goods or materials shall conform to description or specification given
by the organisation to the supplier.

2.3 Timing of Purchase Orders and Deliveries

You will recall that in unit 1, we discussed network analysis. There we
discussed project plans and schedules. An important aspect we discussed was
activity duration. We identified the start and finish time for an activity.

Every activity should have an earliest start time and earliest finish time. It
follows logically therefore, that if the project manager knows when an activity
should commerce, and then he/she should ensure that the materials required
for an activity must be in place before the start of the activity. For example,
if the foundation for a stadium project is scheduled to start on December 1, then
the cement for the foundation laying must be on
the project site latest by November 29 of the same
year.

Project managers when handling projects must see

to it that all items required in a project are fully
identified. Also, when the various materials will
be required should be identified and charted. If
this is done, notice will be given in advance to the
purchasing department to make the necessary
purchase. There is therefore, a very strong link
between timing of purchase orders, delivery and
commencement of project activities. Fig. 3.4.3: Purchase Order Deliveries Project Activity Chain

148
In management of timing of orders and deliveries, project managers are relying
on just-in-time (JIT) management techniques which were perfected by the
Japanese. Just-in-time approach to purchasing and manufacture was adopted to
reduce stock holdings by manufacturers to almost zero.Just-in-time techniques
require that suppliers of materials should supply them direct to the work site at
the right time.

In just-in-time techniques, a great deal of trust is built between the purchaser

and the supplier and this ensures that the supplier delivers the goods at the work
site at the right time and of the right quality.

Purchasing managers, fully aware of the time lag between issue of purchase
orders and deliveries from suppliers, should plan purchases properly so as not to
frustrate project activities due to late deliveries or non-delivery of materials.

2.4 Call-off Orders

Consider for example, a situation where a new university is to be built at
Bauchi. The university will contain students' hostels, lecture halls,administrative
buildings, senate buildings, roads, playgrounds, etc. The project nodoubt
will gulp billions of naira to complete and will also require a lot of
cement, sand, concrete, wood, electrical parts, plumbingparts, etc.

If all the materials required for the university project are ordered at once, then
there will be no storage space to receive the goods. In practice, if a large
quantity of a particular material is required for a project, then the delivery of the
materials (e.g. cement) can be arranged to be made in batches arranged between
the purchaser and the supplier. This type of order is known as a call-off order.
This is so-called because the materials are called off as they are required to

149
suit a project schedule. However, call-off orders delay expenditures which will
only be incurred when materials are delivered.

2.5 Purchasing for Capital Projects

So far, we have built the necessary background for the understanding of
materials management. We shall now focus attention on purchasing for capital
projects which are mainly what most of us will be faced with in practice.

Capital projects involve large commitment of resources (money and people) and
therefore, it is important for us to understand the structure for managing
purchases relating to them.

Capital projects will include the

following:
1. Design and construction
of a new university
complex
2. Design and construction
of a federal secretariat
complex
3. Design and construction
of a new teaching
hospital
4. Design and construction
of a national stadium.
Fig. 3.4.4: Purchasing Organisation for a Capital Project

150
Table 3.4.1: A purchasing schedule for a capital project
Title Schedule
Project Manager Responsible to the client for scheduling and
supervising all project activities until completion.
Project Engineer Assists the project manager. Provides support to the
purchase agent. Writes the purchase specifications
for every item or equipment to be purchased.
Purchase Agent Assists the project engineer. Issues invitation to
tender to suppliers. Maintains suppliers records.
Foreign Suppliers Prepare equipment bids and send same to the
purchase agent. Proceeds with supply if bid is
successful.
Site Manager Examines equipment on arrival and arranges
storage.
Local Suppliers Supply equipment and materials direct to site
manager.

2.6 Stores Administration

Although purchasing is a critical aspect of materials management, stores
administration complements the purchasing function. If materials and
equipment for a project are delivered on site and not properly accounted for,
pilfering and other vices can frustrate a project. Stores administration includes
the following:
1. Accommodation for equipment and materials
2. Labeling the materials for easy identification
3. Preservation and paying attention to peculiar storage arrangements
4. Handling and issuing of equipment and materials records
5. Security.
In-text Question
Give a brief note on call-off orders

Answer
Consider for example, a situation where a new university is to be built at Bauchi. The
university will contain students' hostels, lecture halls, administrative buildings, senate
buildings, roads, playgrounds, etc. The project no doubt will gulp billions of naira to
151
complete and will also require a lot of cement, sand, concrete, wood, electrical parts,
plumbing parts, etc.
If all the materials required for the university project are ordered at once, then there will be
no storage space to receive the goods. In practice, if a large quantity of a particular material
is required for a project, then the delivery of the materials (e.g. cement) can be arranged to
be made in batches arranged between the purchaser and the supplier. This type of order is
known as a call-off order.

3.0 Conclusion/Summary
In this session, we discussed materials management generally. We discussed the
purchasing cycle, commercial conditions of purchase, the timing of purchase
orders and deliveries. Call-off orders was also discussed in addition to
purchasing for capital projects. All these helped us to improve our
understanding of project management.

Materials management concentrates attention on the purchase, scheduled

inspection of materials and deliveries. Stores management is an important
aspect of materials management.

4.0 Self-Assessment Questions

1. Describe the purchasing functions.
2. List and discuss the conditions of purchase which can appear in a local
purchase order?
3. Describe the purchasing schedule for a capital market.
4. What is the relationship between purchasing and stores administration?
5. What do you understand by the term “purchasing cycle” with reference to
materials management?
5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.
a. Visit U-tube addhttps://bit.ly/2Tpuhge. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2YeVmEE and critique it in the

152
discussion forum
6.0 References/Further Readings
Farmer, D & Van Weele, A. J. (Eds.) (1995). Gower Handbook of Purchasing
Management. (2nd ed.). Aldershot: Gower.
Lamar, L. Dobler, D. W. & Burt, D. N. (1996). Purchasing and Supply
Management. (6th ed.). Maiden Head: McGraw-Hill.

153
 STUDY SESSION 5
Project Implementation: An Introduction
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Project Implementation Stages
2.1.1-Project Authorisation
2.1.2- Project Documentation
2.1.3- Organisation of the Project
2.1.4- Tasks Allocation
2.1.5- Project Kick-Off
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In practical terms, project implementation starts from the time that a project has
been conceived, designed and authorisation duly given to proceed on the project.
Authorisation can be given by a customer or project owner.

A project owner may be, for example, the Federal Ministry of Works and the
project in question may be the dualisation of the Owerri-Onitsha highway.
Project implementation runs through the entire process of organisational
initiation of a project to its full implementation. Project implementation highlights
the basic principles and processes that are to be followed to ensure that a project is
eventually implemented.

154
1.0 Study Session Learning Outcomes
After studying this session, I expect you to be able to:
1. Explain the process of project implementation
2. Discuss project implementation.

2.0 Main Content

2.1 Project Implementation Stages
Generally, project implementation is broken into various
stages. This is shown in fig. 3.5.1:

Fig. 3.5.1: Project Implementation Stages

2.1.1 Project Authorisation

Before we go into the discussion of project implementation proper, we shall first
discuss project authorisation because it is the starting point to
describe the process of project implementation. When project authorisation
occurs, it means that the project manager has been given proper authority and
instruction to proceed with a project.

In a public sector setting, project authorisation may involve the ministry

signing a formal contract with the project contractor or project manager as the
case may be.

Even in a private sector setting where a project will be executed in-house, there
155
must be a formal written authorisation from the private organisation. The
authorisation document will state essential information on the project. It will state
the nature of the project and the scope of work to be undertaken. It will also state
the project amount.

The project manager will also be stated.

Table 3.5.1: Project Authrisation for a Construction Company

2.1.2 Project Documentation

Normally, most organisations may have many projects at the same time. For
example, the Federal Ministry of Works at every point in time may have well
over 200 projects going on. Some of the projects may be road projects. Others
may be building projects.

Practically therefore, there should be ways of distinguishing one project from

the other. Whenever any new project is authorised, it has to be registered and
given an identification number. For example, in the Federal Ministry of Works,

156
We could have the following pattern of identification numbers.

Project I.D. No. Project Title

R. 101 Kano – Zaria expressway
R. 102 Kano – Maiduguri Road
R. 103 Yola – Biu Road
R. 104 Lagos – Ibadan Expressway
H. 101 Federal Housing Estate Ikoyi
H. 102 Federal Low Cost Housing Estate, Kano
H. 103 Federal Low Housing Estate, Calabar
In-text Question
What is project authorization?

Answer
When project authorisation occurs, it means that the project manager has been given proper
authority and instruction to proceed with a project.
In a public sector setting, project authorisation may involve the ministry signing a formal
contract with the project contractor or project manager as the case may be.
Even in a private sector setting where a project will be executed in-house, there must be a
formal written authorisation from the private organisation. The authorisation document will
state essential information on the project. It will state the nature of the project and the scope
of work to be undertaken.

The identification numbers are usually entered into a project register. Other
information that should be entered in the register with respect to every project
will be:

A. The title of the project

B. Nature of work to be done
C. Scope of the work to be done
D. Project amount and disbursement pattern
E. The project manager
F. The design architects for the project

157
 G. The structural engineers for the project
H. The mechanical engineers
I. The electrical engineers
J. The supervising agent
K. Project start date
L. Project finish date
With the advent of the computer and information technology, most project
registers are available in computer systems and this makes the retrieval of
information about any project very easy.

2.1.3 Organisation of the Project

Once the project documentation stage of a project has been concluded, the next
stage in the implementation process is the organisation of the project. In most
situations, the project manager as the leader of the project team with his close
subordinates will draw up the
comprehensive organisation chart for
the project which will clearly detail
the following information:
A. Teams that will work at head
office level
B. Teams that will work at the
project sites
C. Principal sub-contractors and
their locations
D. Supervising agencies
E. Other logistics.
Fig 2.1.2: Tasks Allocation

158
You will recall that network analysis identifies the principal activities that are
involved in a project. That we have understood. In tasks allocation, the project
manager identifies every activity that will be undertaken and goes ahead to
allocate the tasks to the various sessions.

Every unit or team that is involved in a project must know what it is

expected to do and the time frame allocated for every activity. A tool that assists
the project manager to allocate tasks in a project is the responsibility matrix.
The responsibility matrix consists of task types on one side and responsibilities
on the other. Each task in a project is allocated to the project team or unit that is
responsible for the task.

A project responsibility matrix is shown in table 3.5.3.

Responsibility
Table 3.5.3: A Project Responsibility Matrix
Purchasin
Project g Design Project Project
Manager Manager Office Accountant Engineer
Task
Designs X
Approval of X
designs
Purchase X X
orders (P.O)
Planning X X
and logistics
Progress X X
report
159
 Cost reports X X X

2.1.5 Project Kickoff

We have traced project implementation from the authorisation stage to the tasks
allocation stage. The next stage which is the last stage is the project kick-off
stage. Ideally, every project has a kick-off date which isusually known in
advance. The kick-off date is arranged following series of meetings of the
project team members. Before the project kick-off,grey areas must have been
resolved.

In practice, most project managers will arrange a pre-kick-off meeting with key
team members. The objective of the pre-kick-off meeting usually is to ensure
that all critical aspects of a project have been covered and also to evaluate the
readiness of all team members and leaders towards ensuring the success of the
project.

The actual kick-off of the project is the beginning of proper project

implementation.
In-text Question
Explain the organisation of the project

Answer
Once the project documentation stage of a project has been concluded, the next stage in the
implementation process is the organisation of the project. In most situations, the project
manager as the leader of the project team with his close subordinates will draw up the
comprehensive organisation chart for the project which will clearly detail the following
information:
1. Teams that will work at head office level
2. Teams that will work at the project sites
3. Principal sub-contractors and their locations
4. Supervising agencies
5. Other logistics.

3.0 Conclusion/Summary
160
In this session, we treated project implementation. We discussed the various
stages of project implementation. We discussed project authorisation, project
documentation and organisation of a project, tasks allocation and project kick-
off. All these are essential stages in project implementation.
This session treats project implementation at an introductory level. It highlights
the key stages that are involved when a project is being implemented. Project
implementation is not a one-off thing. It is an on-going process.

4.0 Self-Assessment Questions

1. List and discuss the information that you can find in a
project authorisation document.
2. Why is it necessary to document the project?
3. The Federal Government of Nigeria has approved the construction of
a new Lagos-Ibadan expressway at a cost of N4 billion. Discuss the
stages in the implementation of the project.

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2tWJG8D. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2SpwMLG and critique it in the
discussion forum

6.0 References/Further Readings

Healey, P. L. (1997). Project Management: Getting the Job Doneon Time and in
Budget. Oxford: Butterworth – Heinemann.
Randolph, W. A. (1991). Getting the Job Done: Managing Project Teams and
Taskforces for Success. Helmel Hempstead: Prentice-Hall.

161
 STUDY SESSION 6
Managing Progress in Projects
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Managing Progress
2.2- Management by Walk About
2.3- Managing Sub-Contractors and Agency Staff
2.4- Construction Site Management
2.5- Conduct of Project Meetings
2.6- Project Progress Reports
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In the last session, we discussed project implementation. We discussed the
various stages of project implementation which include project authorisation,
project documentation and organisation of a project, tasks allocation and project
kick-off.

In this session, we shall discuss managing progress in projects. This unit will
conclude our study of project management.

162
1.0 Study Session Learning Outcomes
After studying this session, I expect you to be able to:
1. Explain managing progress in projects
2. Discuss the management of progress in projects.

2.0 Main Content

2.1 Managing Progress
Once a project has been commissioned, there will be need to monitor its progress.
For example, when the .Federal Ministry of
Works awarded the contract for the
dualisation of the Onitsha-Owerri highway,
it detailed the supervisory unit to
periodically inspect the progress of work on
the road project and report back to the
headquarters. Fig 3.6.1: Managing Progress

Source: settlingufree.blogspot.com

When we discussed network analysis, we saw that every activity in a project has
duration. Duration refers to how long it will take to finish an activity. We also
noted that every activity has an earliest start time and earliest finish time. In
managing progress, the project manager must compare the progress achieved on
every activity against the planned schedule.

In situations where the project site is far away from the head office or
headquarters, it becomes very necessary for the project manager through the
necessary communication lines with the site managers to get on the spot progress
of work at various locations.

163
Practically, there is resort to the use of a progress report questionnaire. The
progress report questionnaire is designed to measure the progress of work in a
project. It will usually describe the various activities in the project, their durations,
earliest start dates and earliest finish dates. The respondent to the questionnaire is
expected complete the relevant columns. Headquarters uses the questionnaire to
monitor progress of various projects.
Consider, for example, a project that involves the construction of a student’s‟
hostel. A progress report questionnaire is shown in table 3.6.1:

Table 3.6.1: Progress Report Questionnaire for Students‟ Hostel under

Construction in a University

The frequency of the reports will depend on the nature of the projects. Where
computer systems are available, data and information on various activities can be
keyed in at the various project sites.

2.2 Management by Walk About

164
The ideal methods in managing progress in projects involve the use of reports
from team members on the various aspects of the project they are involved in. In
that respect, all project team leaders usually will prepare periodic project
reports which will be sent to the project manager for review and further action.
But whilst the preparation of periodic reports is commendable, a practical project
manager must be prepared to pay scheduled and unscheduled visits to the project
sites to get firsthand information on the state of work at the site.

This type of visits to the project sites is known as management by walk about.
Apart from seeing things as they are on the site, one advantage of scheduled visits
to sites is that it helps to boost the morale of workers at the site when they see
their project managers and team members at the site reviewing progress. During
such scheduled visits, project managers may take photographs of the project site
which serve as documents at the headquarters. Photographs also will document
the level of construction progress especially for a building project.

It has to be stressed that when a project is being monitored the control areas relate
to:
1. The state of progress at the various levels of activity of the project.
2. Manpower deployment and utilisation including shortages.
3. Expenditures of the projects and whether they are within the project budget.

2.3 Managing Sub-Contractors and Agency Staff

In practical terms, most organisations use main contractors, sub-contractors and
agency staff for project execution. This fact introduces the complexity involved in
managing a project. First, the organisation‟s staff may differ widely in quality and
conduct from that of the main contractor and also the sub-contractor.

165
Depending on their scope, most projects have their main contractor andalso sub-
contractors. Sub-contractors are usually engaged in projects especially where they
are required to undertake tasks for which they are specialised and which may not
be available to the main contractor. For example, the design and construction of a
National Stadium at Abuja definitely involved the main contractor and a lot of
other sub-contractors with different areas of specialisation.

Let us assume that Company A was awarded the contract to construct the new
national stadium at Abuja at a cost of N20 billion. In this case, Company A is the
main contractor but it has to engage many sub-contractors for various jobs related
to the stadium project. A lot of sub-contractors may be hired for the following
jobs:
1 Foundations and piling jobs - Trevi Foundation Ltd.
Wood works - Ashly and Bred Ltd.
2
3 Plumbing works - Asea, Orly& Co.
Electrical works - Newman Nig. Ltd.
4
Painting - Bonalux Painters Ltd.
5
If you take a good look at the jobs that the sub-contractors were engaged to do,
you will realise that they are outside the areas of competence of Company A
which is the main contractor to the stadium project. So when we are talking of
managing progress in a project, the project should be seen in totality.
Although the main contractor has the duty to supervise and manage the progress
of the sub-contractor, the project manager's function is all encompassing. The
project manager supervises and monitors progress in a project from a holistic
point of view.

166
Apart from managing sub-contractors, some projects involve the use of agency
staff that may either be deployed to work at the main contractor‟s location or
deployed to work at other designated locations.Usually, a main contractor resorts
to the use of agency staff on a temporary basis; this usually is to cover staff
shortage which normally arises in the course of project execution. All agency staff
that are absorbed to work at the main contractor's premises must be properly
supervised and monitored. A practical way of doing this will be to have induction
training for them at the inception of the project.

In-text Question
Briefly explain management by walk about

Answer
The ideal methods in managing progress in projects involve the use of reports from team
members on the various aspects of the project they are involved in. In that respect, all project
team leaders usually will prepare periodic project reports which will be sent to the
project manager for review and further action. But whilst the preparation of periodic reports
is commendable, a practical project manager must be prepared to pay scheduled and
unscheduled visits to the project sites to get firsthand information on the state of work at the
site.

2.4 Construction Site Management

A lot of projects may involve construction sites and the management of these sites
are crucial if projects are to be properly executed. Also, in many projects, the
headquarters of the project manager may be very far away from the various
construction sites. Take, for example, MTN which is involved in communications.
The construction and deployment of
communications masts nationwide involve
many construction sites. Work at all of
these sites must be properly supervised
and managed. Therefore, there is the need

167
for proper coordination and management of construction sites.
Fig 3.6.2: Construction Site Management
Source: jupitersiteservices.co.uk

In construction site management, the primary focus is on the facilities at the

various project sites. Some of the facilities will include the following:
1. Road network
2. Staff accommodation
3. Office accommodation, e.g. Portakabin
4. Communication equipment
5. Computers
6. Telephones
7. Stationery.

All these facilities must be on site with other necessary items. If there is no power
or water at the site, the project manager or main contractor must ensure that these
are also provided. The health of the site workers must also be taken care of. In this
case, local arrangements will have to be made to provide regular and emergency
medical services to the staff at project sites. In more complex cases, banking
facilities in addition to catering services will need to be provided for the workers
at the project site.

2.5 Conduct of Project Meetings

Along the line when the project is ongoing, there is always the need to conduct
project meetings to monitor and evaluate progress of work at different sites.
Project meetings are very important. Project meetings may be held at a project site
or at the headquarters of the project manager depending on the circumstances.
As with any other meeting, the following must be in place:
1. Agenda
2. Meeting room with adequate ventilation
168
 3. Visual aids
4. Refreshments
5. Accommodation for visiting members.

To ensure the best out of project meetings, the agenda for the meeting should be
given well in advance to the various members so that they can study it and prepare
their reports where necessary.
As we have indicated earlier, the objective of many project meetings is to evaluate
progress of work. Also, meetings serve as avenues to identify problems associated
with a project. At times, problems (especially engineering problems) arise
during a project implementation. We discover that in most cases, teams working
independently may be unable to solve the engineering problems. Such engineering
problems if they arise may be brought to the attention of a larger audience, i.e. the
project meeting. Also, project meetings may highlight interdepartmental or inter
team problems which may be affecting work progress.

Table 2.6.2: Project Meeting and Action Sheet

169
2.6 Project Progress Reports
Progress reports are usually addressed to any of the following:
1. Company management
2. Customer or client, e.g. The Federal Ministry of Works.

The progress report seeks to set out details of the technical and financial status of
projects especially to compare the results achieved so far with the target objectives
of the project. In most project contracts, reports may be required to be sent in
weekly or monthly depending on the nature of the project. The progress report
should contain, amongst other things, the following:

1. Details of work done so far

2. Details of outstanding work to be done
3. Estimated project completion time of project
4. Project cost discipline
5. Project cost escalations – (if any).
In-text Question
What is construction site management?

Answer
A lot of projects may involve construction sites and the management of these sites are crucial
if projects are to be properly executed. Also, in many projects, the headquarters of the project
manager may be very far away from the various construction sites. Take, for example, MTN
which is involved in communications. The construction and deployment of communications
masts nationwide involve many construction sites. Work at all of these sites must be properly
supervised and managed.

3.0 Conclusion/Summary
In this session, we have generally discussed managing progress in projects a
very vital part of our study of project management. We discussed the concept of
management by walk about which is a more practical approach to managing
progress in projects. We also discussed the management of sub-contractors and

170
agency staff, construction site management, project meetings as well as project
progress reports.
This session treats managing progress in projects. It tries to examine the key
features in the management of progress in a project. The importance of
managing progress by walkabout cannot be underestimated in project
management.

4.0 Self-Assessment Questions

1. In managing progress in projects, a manager must be prepared to pay
visits to the project sites. What are the benefits of this?
2. List three control areas that should be monitored in a project.
3. Why is it necessary to conduct project meetings?
4. As a project manager, how do you manage progress in your projects?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2F0827Y. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2YeeXEH and critique it in the
discussion forum

6.0 References/Further Readings

Morris, P. W. G. (1997). The Management of Projects. London: Thomas
Telford.
Crosby, P. B. (1979). Quality is Free: The Art of Making Quality Certain.
New York: McGraw – Hill.

171
 MODULE 4
Project Income and Evaluation
Contents:
Study Session 1: Projected Income Statement
Study Session 2: Projected Cash Flow Statements
Study Session 3: Projected Balance Sheets
Study Session 4: Project Evaluation Criteria
Study Session 5: Introduction to Economic Analyses

STUDY SESSION 1
Projected Income Statement
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Projected Income State
2.2- The Structure in the Projected Income Statement
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
The key basis for financial planning and project evaluation is financial
information. The financial information is required to record, compare and
evaluate a firm‘s earning power and ability. In an already existing project, the
financial information is already provided since it is a historical data. The
income statement or the profit and loss account is a summary of revenues,

172
expenses and net profit of an enterprise for a period of time. This serves as a
measure of the firm‘s profitability over the period. For an on-going project or
firm, when prepared, the income statement becomes a historical statement. The
projected income statement is a forecast of the revenues, expenses and the net
profit of an enterprise or project.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain the meaning of projected income statement
2. Discuss its application in project evaluation
3. Prepare a projected income statement.

2.0 Main Content

2.1 The Projected Income Statement
The projected income statement is usually needed by a variety of people. Some
of the users of the projected income statement might have direct interest in the
firm while others have indirect interest. The owners or sponsors of a project
have a direct interest in the projected income statement. It is so because they are
entrusting their investment to the firm. They wish to know beforehand what the
revenues, expenses and net profit of the firm will be, and most importantly, their
own expected dividends.

Another important group that is expected to have a direct interest in the

projected income statement of a project is the management. Usually when a
project is conceived and a project plan is written, the plan will contain the
projected income statement as conceived by the project sponsors or consultants.
Usually, the projected income statement is handed down to the project managers
as a guide.

173
Also financial institutions are interested in a projected income statement.
Practically, when any firm approaches a financial institution for financial
assistance, the firm is expected to prepare a business plan or a project feasibility
study which contains, amongst other things, the projected income statement.
Financial institutions need to study the projected income statement to evaluate
the revenues, expenses and profitability of the investment project. When they do
this, they will also test the cash flows of the project to see whether the proposed
project can repay any loan granted together with the interest.

Other people that might be interested in the projected income statement are
potential investors. Potential investors need to examine the projected income
statement to decide whether or not they will invest in a firm.

2.2 The Structure of the Projected Income Statement

We have just explained what the projected income statement is. It is a statement
that shows projected revenues, projected expenses, and of course, net profit of a
proposed investment, an expansion project or an existing project.
In the standard practice, there is an acceptable arrangement that should group
like items together and this leads to building a projected income statement that
is broken into revenues, expenses and the net profit.
1. Revenues
Ordinarily, revenues are the value of output of goods or services that an
enterprise supplies to its customers. Revenues, therefore, arise when a firm
produces or manufactures goods which it sells to third parties for a fee.
Secondly, revenues can arise when a firm is engaged in the buying and selling
of goods. It purchases goods which it later resells at a profit or a loss as the case
may be. Thirdly, revenues can also arise through provision of services by a firm.

174
A hospital may specialize in surgery and provide surgical services to its
customers for whom it collects relevant payments, which when added up, make
up the revenues.

Finally, a firm can earn revenue by loaning its economic resources. For
example, a bank lends money to customers and earns interest income.

The interest earned is revenue. In projecting for revenues in a project situation,

care must be taken so that proper estimates or forecasts are made. And this is
made qualitative judgment plus quantitative judgment on the part of the project
evaluator. For example, if the project is a manufacturing facility that will
produce goods for the market, the best option is to start with the known market
price of the good to be produced. For example, if the good in question is the
type of bread that sells for N100 a loaf, then the project evaluator or initiator has
to start from the known price of a loaf of bread and that is N100 a loaf. If the
number of loaves of bread to be produced per annum amount to 1,000,000 then
the projected revenue of the project is N100,000,000. Likewise, if a firm is
engaged in the provision of services, the revenues likely to be earned can be
easily estimated. If for example a hospital is projecting revenues, it has to first
estimate the likely number of patients that will use its facility and also the
average fee it charges a patient. The number of patients multiplied by the
average fee per patient will give us the projected revenue of the health facility.

The projection for revenues can cover various periods. In most organisations,
revenue projections for project evaluation purposes stretch over a period of
three years. Some banks ask for five year revenue forecasts. In the revenue
projections care must be taken so as not to overstate the revenues or understate
them.

175
In-text Question
Explain in brief the projected income statement

Answer
The projected income statement is usually needed by a variety of people. Some of the users of
the projected income statement might have direct interest in the firm while others have
indirect interest. The owners or sponsors of a project have a direct interest in the projected
income statement. It is so because they are entrusting their investment to the firm.

2. Expenses
The cost of earning revenue is known as the expense. Expenses are different
from costs. Cost is the outlay incurred to acquire some asset.
For example, when a car is purchased by a company for its business, the sum
used to purchase the vehicle is the cost of the vehicle. If the vehicle uses fuel for
the firm‘s operations, that constitutes an expense. In projecting the expenses of
a firm‘s investment, a lot of factors are usually taken into consideration.

Firstly, we have to get proper estimates of

the current cost profile of the various
items. For example, when projecting gas
and oil expenses of a project, the proper
starting point is to collect data on the
current prices of gas and oil. Fig 4.1.1: Expenses

Source: myob.com

1. Revenue Projections
From the proposed production plan, the following is the revenue profile for the
project in year one (year 2007).

176
Consumption of Utilities and Chemicals per Ton of Bleached and Refined
Vegetable Oil
Steam at 50 psig = 70kg
Barometric water = 6 m3
Clean water in circulation = 7 m3
Fuel oil = 4 kg
Bleaching earth = 15 kg
Citric acid = 200 gms
Phosphoric acid (for dosing) = 300 gm

Vegetable Oil Packaging Expenses

The refined vegetable oil will be sold in two ways:
1. Direct to vegetable oil distributors who will purchase the vegetable oil in
tanker loads. In this case, the vegetable Oil tankers will come and load
vegetable oil at the factory.
2. The refined vegetable oil will be filled into plastic jerry cans of 9 litres
and 18 litres capacity and also sold to the market. The purpose of this is
to ensure that the brand of vegetable oil will be in affordable units and
prices to the market.

177
Table 4.1.2: Project manufacturing Account for a vegetable Oil
Projected Manufacturing Account for Year Ending 31st December

Table 4.1.3: Projected Expenses for a Vegetable Oil Refining Plant

Table 4.1.3: Projected Trading Profit and Loss Account for a Vegetable Oil Refining
178
Projected Trading, profit and Loss Account for the Year Ending

In-text Question
What is revenue?

Answer
Ordinarily, revenues are the value of output of goods or services that an enterprise supplies
to its customers. Revenues, therefore, arise when a firm produces or manufactures goods
which it sells to third parties for a fee. Secondly, revenues can arise when a firm is engaged
in the buying and selling of goods. It purchases goods which it later resells at a profit or a
loss as the case may be.

3.0 Conclusion/Summary
We have discussed the projected income statement. We discussed the structure
of the projected income statement, revenues, expenses and net profit concepts.
Finally we used as an example to demonstrate a projected income statement.
We have treated the projected income statement in this unit. The projected
income statement is one of the most important items in project evaluation from
the project sponsor‘s position or from the bank or analyst‘s position.

4.0 Self-Assessment Questions

1. List and explain four expense items that can be found in a projected
income statement.

179
 2. Discuss the likely users of a projected income statement.
5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.
a. Visit U-tube addhttps://bit.ly/2NSpXAj. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2M2fhjy and critique it in the
discussion forum

6.0 References/Further Readings

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

180
 STUDY SESSION 2
Projected Cash Flow Statements
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Projected Cash Flow Statements – Meaning and uses
2.2- The Structure of the Projected Cash Flow Statement
2.2.1- Cash Inflows
2.2.2- Cash Outflows
2.2.3- Sensitivity Analysis
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In session 1 we discussed the projected income statement. There we discussed
the concept of revenues and expenses and also net profit. We also discussed the
fact that the projected income statement is used by a variety of users like the
project initiators, bankers and financial analysts. In this unit, we shall
discuss the projected cash flow statements.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain what a projected cash flow statement is
2. Explain how it can be prepared
3. Explain the usefulness.

181
2.0 Main Content
2.1 Projected Cash Flow Statement – Meaning and Uses
It is important to understand and analyse the projected cash flows of the firm. We
shall begin our discussion by defining a cash flow statement. A cash flow
statement is a statement that shows the
actual receipt of cash (inflows) and the
disbursement of cash (out flows) of a
firm or project. Having said that, we can
now go ahead to define a projected cash
flow statement. Fig 4.2.1: Projected Cash Flow Statement – Meaning and Uses

A projected cash flow statement is a statement which shows the forecasts of actual
receipts of cash (inflows) and the disbursement of cash (outflows) of a firm or
project. There are many users of information contained in projected cash flow
statements. The first user of the projected cash flow statement is the project
sponsor or initiator.
The project sponsor or initiator is interested in knowing well in advance the future
cash flows of the firm. This is important because the future financing needs of the
firm have to be known well in advance. The project initiator needs to distinguish
between credit sales and cash sales.
If the project initiator does not distinguish between credit sales and cash sales,
then his/her project may suffer cash flow problems. The initiator may not be able
to estimate the amount of cash needs of the project as well as timing of the cash
needs.

Similarly, providers of finance especially the lending banks are usually very
interested in the projected cash flow statement. They need to determine the firm‘s
ability to service debt. The debt in question may be existing debts or future debts.
Ability to service debts is a function of future cash flows.

182
Projected cash flow statements assist us to evaluate a firm‘s future performance
and of course financial condition that enables the project evaluator answer the
following questions.
1. What is the nature of the firm‘s projected cash flow statement?
2. Will the projected cash flow be able to service the project‘s debts (loan,
overdraft + interest)?
a. When will the project need financing and to what extent?
b. How should the loan or overdraft or finance be structured?
c. How stable are the cash flows?

2.2 The Structure of the Projected Cash Flow Statement

The basic format of the projected cash flow statement is displayed in Table 33 is a
projected cash flow statement of a company. But it covers a period of only 3
months. You can project a cash flow as long as you require but the basic
principles should be followed. If you examine Table 33 properly, you will realise
that the projected cash flow statement is divided into two main sections, namely:
1. The cash inflows
2. The cash outflows (outgoings)
We will now go ahead to break down the projected cash flow statement.
In-text Question
What is projected cash flow statement?

Answer
A projected cash flow statement is a statement which shows the forecasts of actual receipts of
cash (inflows) and the disbursement of cash (outflows) of a firm or project. There are many
users of information contained in projected cash flow statements. The first user of the
projected cash flow statement is the project sponsor or initiator.

183
Table 4.2.1: A Three Month Projected Flow Statement Niger Limited Cash
Inflows January

2.2.1 Cash Inflows

We have seen that a projected cash flow statement is broken down into the inflows
and the outflows (outgoings). Let us now proceed to examine some of the key
items contained in the projected cash flow statement. The items will vary from
capital to loan introduced and also cash sales. We shall treat them individually.
A. Capital Introduced
Every firm or project should have a capital. At the time a project conceived or is
being expanded, the owners of the firm usually bring in what is known as capital.
In a limited liability company, the share-holders usually contribute the capital of
the firm. In cash flow construction, capital is usually entered as an inflow. The
reason is clear. When you introduce capital, you bring in cash.
B. Loan
Another item appearing in a projected cash flow statement is loan. In some cases,
a project is funded through loan from banks.

184
The loan will usually have the following features:
A. The loan amount will be specific
B. The loan has an interest rate attached to it.
C. The loan will be repaid in agreed installments.
D. Cash Sales
The sales figure is the most important in a projected cash flow statement.
Projections for sales pose one of the most difficult challenges in cash flow
projections. We must quickly distinguish between total sales, credit sales and cash
sales. Total sales are the total value of goods or service sold to third parties. Credit
sales refer to sales for which payment is not made immediately. The figure for
credit sales is usually transferred to the debtors list. Cash sales are the difference
between total sales revenue and credit sales.

As far as we are concerned, the cash sale is the most important component of sales
and it is the one that appears in the projected cash flow statement. Credit sales are
only reflected in the cash flow when they are converted to cash. For example, if in
January 2007, a company sells four cars at a credit of N10,000,000. In the cash
flow for January 2007, there will be no entry for cash sales. But if in February
2007, the company receives a cash payment of N5,000,000, then that figure will
appear in the inflows column for February 2007.

The basic rule is that only actual cash received is usually entered in the inflow
column. In actual practice, projecting for cash sales will involve exhaustive
consideration of the following:
A. General economic outlook in the country
B. The industry outlook. What is the demand situation like? What is the supply
situation?

185
 C. What is the structure of competition and how fierce is it?
D. What will be the effect of competition on prices in the firm‘s area of
operation?

2.2.2 Cash Outflows

Cash outflows or outgoings will include all expenses
that use cash. They will include items like:

Fig 4.2.2: Cash Outflows

A. Raw material expenses

B. Salary and wages
C. Stationery
D. Loan repayment
E. Interest charges
F. Selling expenses
G. Office admin expenses
H. Oil and gas expenses
I. Taxation
J. Rates and permits

2.3 Sensitivity Analysis

Usually, when constructing a projected cash flow statement, the first set of
projections is what we call normal estimates of cash flows. Normal estimates of
cash flows especially cash revenues are based on all things being equal; but all
things cannot be equal. A lot of things may happen.
In a market, supply can come from unexpected source and cause prices to fall.
Prices of raw materials may rise suddenly and all these tend to reduce our earlier
revenue projections and jack up expenses.

186
Sensitivity analysis provides the tool for subjecting a project‘s cash flow s to
adverse market situations. Sensitivity analysis seeks to adjust revenues for risk
and also costs. In conducting sensitivity analysis, we say that we are adjusting a
project‘s cash flows for risk. If we conduct sensitivity analysis on a cash flow, we
may do that by making one, two or three of the following assumptions:
1. Due to intense competition the project will not be able to make the earlier
normal sales volume. Cash revenues will drop.
2. Due to excess supply, prices in the market will fall, that will reduce cash
revenues.
3. The prices of raw materials and other items will rise. A close examination
will reveal that the impact of any of the above will have the effect of
reducing the cash revenues of a project.
We now state that if a normal projected cash flow statement is reconstructed to
accommodate the fact that the market could be worse, we say that the
reconstructed cash flow is now called a risk ―adjusted cash flow statement. The
risk- adjusted cash flow is a pessimistic cash flow and should be admired by
analysts.

Table 4.2.1 is a risk-adjusted income statement reconstructed from Table 33.The

critical assumption is that Table 34 assumes that only 75% of cash sales of Niger
limited will be realised.

Sensitivity analysis is a tool for subjecting cash flows to risk analysis. The key
objective of the sensitivity analysis is to forecast a worst-case scenario for a
project. Other ways of conducting a sensitivity analysis is to assume that expenses
attached to a project will increase.
Table 4.2.2: A Three Month Risk-Adjusted Projected Cash Flow Statement
Niger Limited

187
In-text Question
Briefly explain capital introduced

Answer
Every firm or project should have a capital. At the time a project conceived or is being
expanded, the owners of the firm usually bring in what is known as capital.
In a limited liability company, the share-holders usually contribute the capital of the firm. In
cash flow construction, capital is usually entered as an inflow. The reason is clear. When you
introduce capital, you bring in cash.

3.0 Conclusion/Summary
We have discussed projected cash flow statements. We discussed the nature of
cash flow statements and their users. We also examined the structure of cash
flow statements. We used an example to show what a projected cash flow
statement looks like. We also constructed a risk adjusted cash flow statement.
In this session we treated projected cash flow statements which we said
constitutes a very vital document used in the evaluation of projects. The cash
flow gives us a picture of cash inflows and outflows together with timing.

4.0 Self-Assessment Questions

188
 1. Why do you think that banks are interested in projected cash flow
statement of projects?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2TneEG2. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2JHytkV and critique it in the
discussion forum

6.0 References/Further Readings

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

189
 STUDY SESSION 3
The Projected Balance Sheet
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Meaning of a Balance Sheet
2.2- Components of a Balance Sheet
2.2.1- Assets
2.2.2- Liabilities
2.3- Construction of the Projected Balance Sheet
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
In session 2, we discussed the projected cash flow statement. There, we
discussed inflows and outflows (outgoings) of a firm or project. We also
discussed the structure of the projected cash flow statement and went a step
further to provide an example of a projected cash flow statement. In this unit,
we shall discuss the projected balance sheet.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
2. Explain the meaning of a projected balance sheet
3. Explain the preparation of the projected balance sheet
4. Prepare a projected balance sheet.

190
2.0 Main Content
2.1 Meaning of a Balance Sheet
Before we delve into the projected balance sheet proper, it is very important for
us to first understand what a balance sheet is. The balance sheet or the statement
of financial position is one of the most important financial statements. It shows
the financial condition or better still,
the statement of affairs of a firm or
business. We Will therefore, define a
projected balance sheet as a forecast
of a future balance sheet as at a
future date. Fig 4.3.1: Balance Sheet

Source: explania.com

2.2 Components of the Balance Sheet

The balance sheet has two main sides namely:
1. Assets
2. Liabilities

2.2.1 Assets
When we are talking of assets generally, we are talking about the valuable
possessions owned by the firm, valued in monetary terms. They will include
land and buildings, stock of goods, raw materials, cash, vehicles and other
valuables. But generally we can classify assets under the following headings:
A. Current assets
B. Investments
C. Fixed assets
Let’s us now discuss each of them:

191
Current Assets
The current assets of a firm or business are those assets which are held in the
form of cash or expected to be converted into cash in a period or within the
accounting period of the firm. In actual practice, the accounting period is
usually of one-year duration. The current assets of the firm will include the
following:
A. Cash
B. Book debts (debtors).
C. Prepaid expenses
D. Marketable securities.
E. Stock
Let us start with cash which is one of the most liquid current assets. Cash will
mean cash on hand or cash in the bank.

Another current asset which is important is book debts (debtors). Book debts
are sometimes called account receivables. These are amounts due from debtors
to whom goods have been sold or service rendered. Some of the book debts may
be realised by the firm. If they are not realized they turn into what is called bad
debts and may be written off later.

Prepaid expenses are also current assets. They are expenses of future periods
that are paid in advance. An example of prepaid expenses is rent which may be
payable in advance by a firm. For example in January 2007, a firm may pay rent
for its office for January 2007 to December, 2007. If in April, 2007, the
financial year of the firm ends, it will regard the portion of rent paid from May
2007 to December, 2007 as a prepaid expense which invariably is a current
asset.

192
Stock (inventory) is another current asset and includes raw material, work in
process and finished goods. The raw materials and work in process are required
for maintenance of the production function of the firm.Finished goods usually
will be already packed and kept ready for purchase by customers of the
business. Marketable securities are the firm‘s short term investment in shares,
bonds and other securities. The securities are usually marketable and can be
converted into cash in a very short time.

Investments
Investments represent the firm‘s investments in shares, debentures and bonds of
either firms or the government. By their nature, the investments are long term. It
is important to note that the investments yield income to the firm.

Fixed Assets
Fixed assets are long-term assets held for periods longer than one year. They are
usually held for use in the firm‘s business. Fixed assets include land, buildings,
machinery and equipment, vehicles, etc.

We have briefly seen what the assets are. We shall now move over and discuss
liabilities.
In-text Question
Define assets

Answer
When we are talking of assets generally, we are talking about the valuable possessions
owned by the firm, valued in monetary terms. They will include land and buildings, stock of
goods, raw materials, cash, vehicles and other valuables.

2.2.2 Liabilities

193
When we talk of liabilities, we mean the debts that are payable by the firm or
business to creditors. They may represent various obligations due to various
third parties arising from various business transactions.

Examples of liabilities include creditors, accounts payable, taxes payable,

bonds, debentures, etc. But generally, liabilities are divided into two broad
groups namely:
A. Current liabilities and
B. Long-term liabilities

We shall discuss each of the groups

Current Liabilities
Current Liabilities are those debts that are payable in a short period usually
within a year. One of the major current liabilities is the bank overdraft. Most
banks grant their customers overdraft which are repayable within a period of
one year. The other type of current liability includes provisions for taxes and
dividends. These are liabilities that will mature within one year.

Another type of liability is expenses payable. The firm may expenses to public
power supply organisation or have rents to be paid.

Long Term Liabilities

Long-term liabilities are the obligations which are payable in a period of time
greater than a year. One of the long term liabilities of a firm is term loan. The
firm may borrow money from a bank that will be repayable over a period
preceding one year. Such a borrowing or loanis regarded as long-term liability.
Also, when a firm needs to raise a large sum of money, it debentures. A

194
debenture is an obligation on the part of a firm to pay interest and principal
under the terms of the debenture.

However one of the most stable types of long term liability is owners‘ equity.
Owner‘s equity represents the owners‘ interest in the firm. In practical terms,
the total assets of a firm less the liabilities realized on the interest. The owners
interest in the firm consist of
A. Paid up share capital and
B. Retained earnings (undistributed profits).

2.3 Construction of the Projected Balance Sheet

In the earlier sections of this unit, we have discussed the
balance sheet generally. That was from a historical
perspective. We shall now discuss the construction of a
projected balance sheet.

Fig 4.3.2: Construction of the

Projected Balance Sheet

The following steps are recommended:

1. Start from the determination of sales revenue.
2. Compute cost of goods sold (COGS)
3. Compute admin expenses, general and selling expenses.
4. Bring forward sundry income and expenses and generate the projected
income statement.
5. Determine taxation, dividends and retained earnings.
6. Project for assets.
7. Project for liabilities.

195
Table 4.3.1: A Projected Balance Sheet

In-text Question
What is a liability?

Answer
Liabilities mean the debts that are payable by the firm or business to creditors. They may
represent various obligations due to various third parties arising from various business
transactions.

3.0 Conclusion/Summary
196
We have discussed the projected balance sheet. We first discussed assets
generally and then went ahead to discuss liabilities. We discussed the
construction of the projected balance sheet and provided a checklist for the
projection for both assets and liabilities.

We have treated the projected balance sheet. The projected balance sheet as we
discussed is a forecast of a future balance sheet as at a future date. It will show
what the assets will be and also what the liabilities will be. It is a very important
document in project evaluation.

4.0 Self-Assessment Questions

1. Discuss the components of a balance sheet.
2. Who do you think are the users of the information in a projected balance
sheet?
3. Why do they need the information contained in it?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2VPNGUy. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2LwLpMQ and critique it in the
discussion forum

6.0 References/Further Readings

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

197
 STUDY SESSION 4
Project Evaluation Criteria
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Traditional Criteria of Project Evaluation
2.2- The Discounted Cash Flow (DCF) Method
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
Let us recall that the focus of this course is project evaluation. From unit 1, we
discussed the project cycle. From there we moved on to discuss factors
affecting location of projects. We also discussed capacity and production
planning, demand analysis, supply analysis, project cost analysis, projected
income statements, cash flows and the balance sheet.

All these have set the stage for us to tie the discussions. We now want to discuss
a very crucial aspect of this course, which is the project evaluation criterion.
Project evaluation criteria seek to present the methods to be adopted to measure
the value of an investment project. The evaluation enables us to choose between
two or more projects once the values are known. Any project evaluation
criterion to be adopted should possess the following characteristics:
1. It should provide a means to distinguish between acceptable and
unacceptable projects.

198
 2. It should also be able to rank projects in order of their desirability.
3. It should be a criterion that is applicable to any conceivable project.
4. It should recognise that bigger cash flows are preferable to smaller ones.
5. It should recognise that early cash flows or benefits are preferable to later
cash flows or benefits.
Although there are a lot of project evaluation criteria in the literature, we shall
discuss the most widely accepted criteria which are the traditional criteria and
the discounted cash flow (DCF) criteria

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Discuss project evaluation criteria
2. Distinguish between the traditional criteria and the discounted cash flow
relative to project evaluation.

2.0 Main Content

2.1 Traditional Criteria of Project Evaluation
In the traditional criteria, we shall discuss two
methods, namely: the payback period and the
accounting rate of return method.

Fig 4.4.1: Traditional Criteria of

Project Evaluation

The Payback Period

The payback period is one of the most popular methods of project evaluation.
The payback period is defined as the number of years required to recover the
original cash outlay invested in a project. If the project yields constant annual
cash inflows, the payback period can be computed by dividing cash outlay by
the annual cash inflow. So we say thus:
199
Payback period Cash outlay (investment) = Annual Cash inflow Example

A project requires a cash outlay of N200,000 and yields an annual cash inflow
of N50,000 for a period of 10 years; calculate the payback period.

The payback period is N200, 000 = 4 years.

--------------
N50, 000

However, it is to be noted that in the case of unequal cash inflows, the payback
period can be computed by adding up the cash inflows until the total is equal to
the initial cash outlay. The payback period is greatly admired by project
evaluators because it is very simple to understand. Another good virtue of the
payback period is that it costs less than most of the other sophisticated methods.

However, despite its simplicity, the payback period may not be a desirable
investment criterion. In the first place, it fails to recognise the cash flows that
come in after the payback period. Again it fails to consider the pattern of cash
inflows and that early cash inflows rather than later cash inflows.

Despite its weakness, the payback period is very popular analogy. It tries to
emphasizes early recovery of an investment. This means that it gives an insight
into the cash inflows of the project.

200
The Accounting Rate of Return (ARR) Method
The accounting rate of return (ARR) is a method that uses accounting
information to measure the profitability of an investment. The accounting
rate of return (ARR) is computed by dividing average income after taxes by the
average investment.

ARR = Average Income

------------------------
Average Investment

Example
A project costs N100, 000 and has a scrap value of N40, 000. The stream of
income before depreciation and taxes are N40, 000, N50, 000 and N60, 000 for
the first three years. The tax rate is 50% and depreciation is on straight line
basis. Calculate the accounting rate of return for the project.

Solution

201
Book value of investment

As an accept or reject criterion, the ARR method will accept all those projects
whose ARR is greater than the minimum rate established by management. If the
ARR is lower than the minimum rate established by management, then the
project should be rejected. The ARR method is very simple to understand and
use. It can also be easily calculated using accounting information.
However, the ARR suffers from three main weaknesses. First it uses accounting
profits not cash flows in appraising projects. Secondly ARR ignores the time
value of money. The profits occurring in different periods are valued equally.

Thirdly, it does not allow the fact that profit can be reinvested to earn more
profits.
In-text Question
Explain briefly the payback period

Answer
The payback period is one of the most popular methods of project evaluation. The payback
period is defined as the number of years required to recover the original cash outlay invested
in a project. If the project yields constant annual cash inflows, the payback period can be
computed by dividing cash outlay by the annual cash inflow.

202
2.2 Discounted Cash Flow (DCF) Methods
We have discussed two of the traditional methods used in the evaluation of
projects. One is the payback period while the other is the accounting rate of
return (ARR). Although two of them are simple to use and understand, they are
not theoretically sound. Both of them fail to consider the timing of cash flows.
Both fail to consider the time value of money.

Because of these limitations, we shall consider two superior investment criteria

which fully recognize the timing of cash flows.

The two methods are the net present value (NPV) method and the internal rate
of return (IRR) method. These two methods are referred to as discounted cash
flow (DCF) methods or the time-adjusted methods.

The Net Present Value (NPV) Method

This method correctly recognises the fact that cash flows arising different time
periods differ in value and are comparable only when their equivalent- present
values are found out.

The following steps are followed when computing the net present value (NPV).
1. A discount rate is selected to discount the cash flows. The correct
discount rate should be the firm‘s cost of capital which is the minimum
rate of return expected by the investors to be earned by the firm.
2. The present value of cash inflows and outflows are computed using cost
of capital as the discounting rate.
3. The net present value (NPV) is the present value of cash inflows less
present value of cash outflows.

203
The acceptance rule using the NPV method is to accept a project if the NPV is
positive, and to reject it if the NPV is negative.

If NPV is greater than zero, then the value of the firm is expected to increase. It
is also important for us to understand the interpretation of NPV. The net present
value may be interpreted to mean the immediate increase in the wealth of a
firm if the investment proposal is accepted. It is equal to an unrealized capital
gain. The net present value can also be interpreted to represent the amount the
firm could raise at a required rate of return in addition to the initial cash outlay
to distribute immediately to its shareholders and by the end of the project life to
have paid off all the capital raised plus interest on it.

Example
Calculate the net present value of a project which cost N500,000. But generates
cash inflows of N150,000, N300,000 and N400,000 over a three year period.
The required rate of return is 10%.

Solution

In terms of merit, the NPV method is very significant since it recognizes the
time value of money. It also is consistent with the objective of maximizing the
wealth of shareholders. However, the NPV suffers from the following
limitations. Firstly, it is fairly difficult to use.
204
Secondly, in computing the NPV, it is assumed that the discount rate which
usually is a firm‘s cost of capital is known. But as we know, the cost of capital
is a fairly difficult concept to measure in real life.

Thirdly, NPV may not yield a consistent answer when the projects being
compared involve different amounts of investment.

The Internal Rate of Return (IRR) Method

The internal rate of return (IRR) can be defined as that rate which equates the
present value of cash inflows with the present value of cash outflows of an
investment. Put in another way, the internal rate of return is the rate at which the
NPV of an investment is zero. It is called the internal rate because it depends
solely on the outlay and the resulting cash inflows of the project and not any
rate determined outside the investment.

Let C = Cash outlays of an investment

A1 = Cash inflows received in (I+R). year I discounted at the cost of capital R.
A2 = cash inflows received in year 2 (I+R)² discounted at the cost of Capital R.
A3 = cash inflows received in year 3(I+R)3 discounted at the cost of Capital R.

Write the basic equation

The value of R in the equation at which total cash outlays equal total cash
inflows is called the internal rate of return (IRR). Usually the value of R can be

205
found out by trial and error. Generally, if the calculated present value of the
expected cash inflows is lower than the present value of cash outflows, a lower
rate should be tried. On the other hand, if the calculated present value of the
expected cash inflows is higher than the present value of cash outflows, a higher
rate should be tried.

Example
A barbers‘ shop costs N32,400 to establish and is expected to generate cash
inflows of N16,000,N14,000 and N12,000 over its life of three years. Calculate
the internal rate of return.

Solution

Let us start by trying 16%

You will observe from the above calculations that when we tried 16% discount
rate, the NPV was negative at –N514, when we tried 14%discount rate, the NPV
became positive at N498. Therefore, the internal rate of return we are looking
for lies between 14% and 16%.

206
The basic accept-or-reject rule, using the IRR method, is to accept the project if
its internal rate of return is higher than the firm‘s required rate of return.
However, the project should be rejected if its internal rate of return is lower than
the firms cost of capital. It is important that we understand the interpretation of
the internal rate of return (IRR).

The internal rate of return (IRR) represents the highest rate of interest a firm
would be ready to pay on funds borrowed to finance the project without being
financially worse-off, by repaying the loan principal plus accrued interest out of
the cash inflows generated by the project.

We should also see the internal rate of return method as a very sound method.
As we said, it is a discounted cash flow method and also it considers the time
value of money. It is also compatible with the firm‘s desire to maximise the
owners‘ wealth. However the IRR method is fairly difficult to understand and it
involves complex computations.
In-text Question
Mention the two methods of the time-adjusted methods.

Answer
The two methods are the
1. The net present value (NPV) method and
2. The internal rate of return (IRR) method.

3.0 Conclusion/Summary
We have discussed project evaluation criteria which we said constitute a very
crucial topic in this course. We discussed traditional criteria of project
evaluation. Here we mentioned the payback period and the accounting rate of
return (ARR). We also discussed discounted cash inflow criteria. Here we
mentioned the net present value (NPV) method and the Internal Rate of Return
(IRR).
207
Project evaluation criteria provide us with the tools with which we can choose
from various investment proposals using acceptable techniques. The evaluation
criteria guide the project initiator and assist him/her to choose among alternative
projects. Also banks use project evaluation criteria to decide whether or not to
lend money for a project.

4.0 Self-Assessment Questions

1. Distinguish between the traditional project evaluation methods and the
discounted cash. Show criteria.
2. Why are the discounted cash flow (DCF) techniques better and more
acceptable than the traditional methods of project evaluation?

5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.

a. Visit U-tube addhttps://bit.ly/2TyAbek. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/30LGOde, https://bit.ly/2JSlvQb
and critique it in the discussion forum

6.0 References/Further Readings

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

208
 STUDY SESSION 5
Introduction to Economic Analysis
Section and Subsection Headings:
Introduction
1.0 Learning Outcomes
2.0 Main Content
2.1- Financial Analysis and Economic Analysis- A Comparison
2.2- The Nature of Economic Analysis
2.3- Adjustments to Financial Analysis
2.4- Linkage Effects of a Project
3.0Study Session Summary and Conclusion
4.0 Self-Assessment Questions
5.0 Additional Activities (Videos, Animations & Out of Class activities)
6.0 References/Further Readings

Introduction:
Generally, in a project analysis situation, most analyses focus on the cash
inflows and outflows of a project. Critical expenses and incomes are usually
compared to determine whether a project should be undertaken or not. But
expenses and revenues in most financial analyses are mainly the consideration
of a private investor.

The implication of financial analysis is that it provides a micro view of a

project and concentrates attention on things like accounting profits.
Economic analysis on the other hand considers projects from a macro point of
view.
The type of questions asked in an economic analysis are:
1. Will the project under consideration lead to the general well-being of the

209
 community, the state and the nation?
2. Will the project generate employment at various levels in the macro
environment?
3. Will the project lead to economic growth?
4. What are the linkages that the project has, i.e., forward or backward
linkages?
5. Will the project generate more technical knowledge?

The questions that we have asked are not exhaustive but only go to demonstrate
the type of questions that economic analyses seek to answer.

1.0 Study Session Learning Outcomes

After studying this session, I expect you to be able to:
1. Explain the meaning of an economic analysis
2. Distinguish between an economic analysis and a financial analysis.

2.0 Main Content

2.1 Financial Analysis and Economic Analysis – a Comparison
In generaltheory, a financial analysis tries to solve resource allocation problems.
It tries to use information from projects to determine whether projects should
come on stream or not. Economic analysis also tries to solve resource allocation
problems in an economy. In economic theory, resources are very scarce and it is
part of any good analysis to allocate resources between competing projects. For
example, resource allocation problems can arise if a community is trying to decide
whether to build a school or a hospital with limited scare resources.

Financial analysis equally tries to allocate resources but from a micro view point.
So, both financial and economic analyses solve resource allocation problems.

210
Financial analysis tries to concern itself
with issues of both benefits and costs
arising from a project. In the financial
analysis, the concern of the analysis is to
evaluate the stream of costs attached to a
project and deduct same from the stream of
benefits. Fig 4.5.1: Financial Analysis and Economic Analysis

Source: chalkstreet.com

If the stream of benefits is greater than the stream of costs, then project in question
has a positive value and should be accepted, all things being equal. However, if
the stream of costs is greater than the stream of benefits, then the project in
question has a negative value and should not be accepted, all things being equal.
Economic analysis also concerns itself with costs and benefits arising from a
project. If the stream of benefits is greater than the stream of costs, then the
project in question has a positive value and should be accepted.

However, if the stream of costs is greater than the stream of benefits, then the
project in question has a negative value and should not be accepted, all things
being equal. So we could say that financial analysis and economic analysis both
concern themselves with costs and benefits arising from a project. In the end, they
provide answers to the question of whether a project should be acceptable or not.
In evaluating projects, both use discounting and compounding techniques to arrive
at their answers.

However, there exist conceptual differences between financial analysis and

economic analysis. While financial analysis has a primary objective of
establishing the viability and acceptability of a project from a financial view point,
paying no attention to society, economic analysis has the objective of establishing

211
the fact that a project is acceptable or not to the society as a whole. So while
financial analysis has a micro objective, economic analysis has a macro objective.

Finally, in reaching a decision as to whether or not to accept a project, financial

analysis and economic analysis both try to establish a relationship between costs
and benefits.

For example in financial analysis, costs and benefits arising from a project are
usually defined in monetary variables such as profits. But economic analysis goes
really beyond the vague definitions of profit. In Economic analysis, costs are
defined in terms of opportunity costs or foregone costs to the society as a whole.

2.2 The Nature of Economic Analysis

In economic analysis, the costs and benefits attached to a project are usually
compared before a decision can be reached on whether or not to accept a project.
In the literature, there exist three discounted measures of project worth which we
will now discuss:
The Net Present Worth
The net present worth is the difference between the present worth of benefits and
the present worth of costs. We can write thus:
Net Present Worth =
Present Worth Present Worth
of benefits of costs

Fig 4.5.2: The Net Present Worth

Generally, according to the net present worth theory, a project is acceptable if the
net present worth is positive. If the net present worth is negative, the project will
be rejected.

212
Benefit-Cost Ratio
If you divide the present worth of benefits of a project by the present worth of
its costs, then you have what is known as the benefit-cost ratio. We can write thus:
Benefit-Cost ratio = Present worth of benefits
-------------------------------
Present worth of costs
Generally, a project is acceptable if the benefit-cost ratio is greater than 1 (one).
If the benefit-cost ratio is exactly 1 (one), that project is a break even project.

The Internal Rate of Return (IRR)

The internal rate of return is a discount rate where the present worth of benefits is
equal to the present worth of costs.

Under the internal rate of return evaluation method, a project will be acceptable if
its internal rate of return is higher than the firm‘s required rate of return.
The starting point of economic analysis is the financial analysis of a project which
should be properly concluded before embarking on an economic analysis. Some
adjustments will be made to the calculations to arrive at economic data.
In-text Question
Define financial analysis

Answer
Financial analysis tries to solve resource allocation problems. It tries to use information
from projects to determine whether projects should come on stream or not. Economic
analysis also tries to solve resource allocation problems in an economy.

First, it may be necessary to include or exclude some costs and benefits which
may have been included or excluded from the financial analysis.
Secondly, some project inputs and outputs may have to be revalued if their
shadow prices differ significantly from their market prices.

213
2.3 Adjustments to Financial Analyses
We have stated that the starting point of an economic analysis is a financial
analysis, so if we have financial data on financial analysis, we need to make some
adjustments to the financial analysis to arrive at economic analysis data. We shall
now consider some of the adjustments:

Transfer Payments
Transfer payments represent transfer of resources from one section of society to
another. They do not make any claim on the country‘s resources and as such, their
impact should be clearly distinguished and analyzed in the economic analysis.
One of the first transfer payments we shall consider is interest. Interest is a reward
for capital. For example, if a project is
funded through a bank loan, the interest
component is included in the profit and loss
statement.

The interest charges in the profit and loss

statement represent transfer payments from a
project to the provider of funds. What the project lost (interest) has become a gain
to the provider of funds. Fig 4.5.3: Transfer Payments

Source: thetyee.ca

In effect, both figures are equal and cancel out without any net increase to society
of funds. Therefore in economic analysis, interest charges are excluded since they
only represent transfer payments.

The second transfer payment we shall consider is tax. When a project is profitable
it is expected to pay taxes to the government at the ruling rate. In computing the
profit of a project taxes are deducted to arrive at net profit. Taxes therefore appear

214
as outgoing cash flows. Taxes represent transfer payments from a project to
government.

In the economic analysis of a project, taxes are excluded because from the point of
view of the society, they are only a transfer of resources from one section of the
economy to another.

The third transfer payment is subsidies. In a traditional private sectors setting, it

would be unheard of to talk of subsidies. But in economic analysis, subsidies
appear as important data. Most public sector projects enjoy government
subsidies to enable the poor gain access to certain services which ordinarily
they cannot afford without government assistance. Subsidies represent
opportunity costs to a nation as a whole.

Therefore in estimating the true cost of a project in an economic analysis,

subsidies should be included.

2.4 Linkage Effects of a Project

Consider a simple case where a university is newly located in an environment.
Many investments will begin to spring up. New housing developments will begin
to spring up; canteens will begin to spring up; hair dressing salons, etc. will begin
to spring up to cater for the needs of the new university community. Such
constitute the linkage effects of a project.

Generally, there are two types of linkage effects which we shall briefly discuss:

Forward Linkage Effects

215
Forward linkage is the stimulus given to industries that use the products of a
project. A case in point is a flour manufacturing project. Flour has so many uses.
If a flour mill is located in an environment, it will lead to the establishment of
such projects as bakeries which will use the flour.

Backward Linkage Effects

Backward linkage demonstrates the stimulus to industries that supply the inputs to
a project. For example, the establishment of a flour mill in an environment will
lead to demand for wheat which is a major input for flour mill. The flour mill will
lead to investment in wheat cultivation.

Also, the establishment of a car assembly plant will lead to the establishment of
tyre manufacturing plants that need to supply tyres to the car assembly plant.

Example of an Economic Analysis

In the year 2006, the World Bank was considering the desirability or otherwise of
assisting Nigeria set up an ethanol plant covering thousands of hectares in the
Niger Delta area.

Under the scheme, young farmers will be allocated hectares of land for subsidized
cassava cultivation. Such inputs like fertilizers will be heavily subsidized while
technical advice will be provided by the World Bank/ Nigerian agricultural
experts.
In-text Question
What is a forward linkage effect?

Answer
Forward linkage is the stimulus given to industries that use the products of a project. A case
in point is a flour manufacturing project.

216
3.0 Conclusion/Summary
In this session, we discussed the nature of economic analysis and compared it
with the financial analysis of a project. We discussed net present benefit cost
ratio and the internal rate of return (IRR).
Introduction to economic analysis has provided us with the tools to conduct
economic analyses, with financial analyses as a starting point.

4.0 Self-Assessment Questions

1. Discuss the nature of economic analysis with emphasis on the methods of
evaluating the worth of a project.
2. What do you see as the basic differences between the financial analysis of
a project and the economic analysis of a project?
3. Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.
5.0 Additional Activities (Videos, Animations &Out of Class activities) e.g.
a. Visit U-tube addhttps://bit.ly/2XWe94C. Watch the video & summarise in 1
paragraph
b. View the animation on add/site https://bit.ly/2xWVDx1 and critique it in the
discussion forum

6.0 References/Further Readings

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

217
 XIII Glossary
Abandonment Rates: A measurement of the number of job applicants that start
but do not finish completing a job application on a company’s ATS (applicant
tracking system). When job-seekers start the process and then drop out, that’s a
failure for the employer.

Absenteeism Policy: A policy about attendance requirements, scheduled and

unscheduled time off, and measures for dealing with workplace absenteeism.
Repeated absenteeism can lead to termination.

Administrative Services Only (ASO): The hiring of a firm (usually a health

care vendor) to handle certain administrative tasks. The firm does not assume
any risk but merely carries out the specialized functions that the employer
cannot or does not want to do.

Accessibility: The extent to which a contractor’s or employer’s facility is

readily approachable and does not inhibit the mobility of individuals with
disabilities, particularly such areas as the personnel office, worksite and public
areas.

Ageism: Prejudice or discrimination on the basis of a person’s age. It is against

the law to discriminate against anyone in the workplace because of their actual
or assumed age.

Agent (Insurance): An employee who sells the products owned by the

company, in contrast to a broker, who sells the insurance products of several
companies. See Broker.

Agile Organization: Also known as agile manufacturing, this is a term applied

to an organization that has created the processes, tools, and training to enable it
to respond quickly to customer needs and market changes while still controlling
costs and quality.

Background Screening / Pre-employment Screening: Testing to ensure that

employers are hiring qualified and honest employees and that a prospective
employee is capable of performing the functions required by the job.

Base Wage Rate (or base rate): The monthly salary or hourly wage paid for a
job, irrespective of benefits, bonuses or overtime.

Balanced Scorecard: A strategic planning and management system that is used

to tie business activities to the vision and strategy of the organization, improve
internal and external communications, and monitor performance against goals.
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Ban the Box: Refers to the box to be checked on a job application asking if an
applicant has a criminal record. Depending on legislation, which varies by
jurisdiction, employers may need to remove questions about criminal history
from the initial job application.

Benchmark Job: A job commonly found in the workforce for which pay and
other relevant data are readily available. Benchmark jobs are used to make pay
comparisons and job evaluations.

Benchmarking: A technique using specific standards to make comparisons

between different organizations or different segments of the organizations, with
the intent of improving a product or service.

Benefits Administration: Software that helps companies manage and track

employee participation in benefits programs such as healthcare, flexible
spending accounts, pension plans, etc. This software helps automate and
streamline the complex and otherwise time-consuming tasks of benefits
administration.

Behavioral Risk Management: The process of analyzing and identifying

workplace behavioral issues and implementing programs, policies or services
most suitable for correcting or eliminating various employee behavioral
problems.

Benefits (benefits package): Benefits are a form of compensation paid by

employers to employees over and above the amount of pay specified as a base
salary or hourly rate of pay. Benefits are a portion of a total compensation
package for employees.

Bereavement Leave: Paid or unpaid time off following the death of an

employee’s relative or friend. This time, generally ranging from one to three
days, is given so that the employee can make arrangements, attend the funeral
and attend to other matters related to the deceased. Many organizations are
flexible in terms of how much time an employee takes off.

Blended workforce: A workforce is comprised of permanent full-time, part-

time, temporary employees and independent contractors.

Blind Engagement: A term coined by HRmarketer founder Mark Willaman,

refers to the automation of communications on social media. Social marketing
software has made it easy for brands to share content and engage on social. The
unintended side effect is the over reliance of social automation including

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automating thank you’s, shares and even follows – all examples of blind
engagement which have the potential to hurt brand reputation.

Branding: Promoting a product or service by identifying and then marketing its

key differentiators from competitors. The differentiator/s often inspire the name,
phrase or logo for which the product or service becomes known.

Broadbanding:: A pay structure that exchanges a large number of narrow

salary ranges for a smaller number of broader salary ranges. This type of pay
structure encourages the development of broad employee skills and growth
while reducing the opportunity for promotion.

Broker: An individual who acts as an agent for a buyer and a seller and charges
a commission for his/her services. An example of a large brokerage firm is
Marsh. An example of a state firm is ABD in California.

Bullying (workplace bullying): According to the Workplace Bullying and

Trauma Institute workplace bullying is “repeated, health-harming mistreatment,
verbal abuse, or conduct which is threatening, humiliating, intimidating, or
sabotage that interferes with work, or some combination of the three.”

Bumping: Giving long-standing employees whose positions are to be

eliminated the option of taking other positions within the company that they are
qualified for and that are currently held by employees with less seniority.

Business continuity planning: Broadly defined as a management process that

seeks to identify potential threats and impacts to the organization, and provide a
strategic and operational framework for ensuring the organization is able to
withstand any disruption, interruption, or loss to normal business functions or
operation.

Business Process Outsourcing (BPO): The managing of an organizations

business applications by a technology vendor.

Candidate Experience: A job seeker’s feelings about an organization’s job

application process. Applicant attitudes and behaviors are important for a
number of reasons and can impact abandonment rates (the number of people
that start but do not finish completing a job application on the company’s
applicant tracking system) and employer branding attitudes (an organization’s
reputation as an employer).

Career Pathing: The process whereby an employee charts a course within an

organization for his or her career path, growth and development.
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Carrier: A vendor in the employee benefits space. More commonly used in
reference to health care. Carriers (e.g., Met Life, Blue Cross, Aetna, etc.) sell
their products through Brokers & Consultants, but may also sell to an employer
directly.

Carve-Out: The elimination of coverage of a specific category of benefit

services (e.g. vision care, mental health/psychological services, or prescription
drugs). The employer opts out of certain services with one vendor and contracts
another to deliver them.

Casual Employment: The practice of hiring employees on an as-needed basis,

either as a replacement for permanent full-time employees who are out on short
and long-term absences or to meet employer’s additional staffing needs during
peak business periods.

Coaching: A method of training an individual or group in order to develop

skills or overcome a performance problem. Coaching can be between a manager
and a subordinate or an outside professional coach and one or more individuals.
There are many coaching methods and models, but close observation,
accountability and feedback on progress and performance are usually included.

Co-Employment: The relationship between a Professional Employer

Organization (PEO), or employee leasing firm and an employer, based on a
contractual sharing of liability and responsibility for employees.

Cognitive Ability Testing: A testing instrument used during the selection

process in order to measure the candidate’s learning and reasoning abilities.

Collective Bargaining: One or more unions meeting with representatives from

an organization to negotiate labor contracts.

Compensation: Pay structures within an organization. It can be linked to

employee appraisal. Compensation is effectively managed if performance is
measured adequately.

Compensatory Time-Off plan: The practice of giving employees paid time off
that can be used in the future in lieu of paying them overtime for hours worked
in excess of 40 per week. While an acceptable practice in the public sector, the
FLSA places very strict limitations on the use of compensatory time off for
private sector employers.

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Competency-Based Pay: Competency-based pay, alternately known as skill-
based and knowledge-based pay, determines compensation by the type, breadth
and depth of skills that employees gain and use in their positions.

Competency Modeling: A set of descriptions that identify the skills,

knowledge, and behaviors needed to effectively perform in an organization.
Competency models assist in clarifying job and work expectations, maximizing
productivity, and aligning behavior with organizational strategy.

Competitive Advantage: In the context of Human Resources, competitive

advantage refers to the quality of the employees, as a competing organization’s
systems and processes can be copied but not its people. All other things being
equal among competing companies, it is the company with better employees
that has the competitive advantage.

Condition of Employment: An organization’s policies and work rules that

employees are expected to abide by in order to remain continuously employed.

Consultants: An outside individual who supplies professional advice or

services to companies for a fee. Large HR consulting firms include Aon,
Mercer, Hewitt and Watson Wyatt. Large HR consulting firms typically work
with companies who have more than 1,500 employees.

Contingency Recruiting (Search): Contingency recruiters conduct frontline

talent searches and represent either employers or individuals seeking placement.
Contingency firms are not paid unless a candidate is successfully placed.

Contingent Staff: Temporary staff that supplements a companys workforce.

Contingent staff may be hired through a staffing firm. Businesses that have
fluctuating seasonal staff demands or are in need of temporary call center
representatives often use contingent workers.

Contract for services: An agreement with a self-employed person for a specific

job.

Contract of service: Another term for employment agreement.

Cost-Benefit Analysis: The ability to measure the costs associated with a

specific program, project, or benefit. The cost is then compared to the total
benefit or value derived.

Cost-Per-Hire: The costs linked to recruiting talent. These costs can include
advertising, agency fees, relocation costs, and training costs.
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Crowdsourcing: Obtaining services or contributions from a large independent
group of people (usually from an online community) rather than from traditional
employees or suppliers.

Deep Learning: An artificial intelligence function that imitates the workings of

the human brain in processing data and creating patterns for use in decision
making. Essentially, teaching computers to process information more like
humans do.

Deferred compensation: Payment for services under any employer-sponsored

plan or arrangement that allows an employee (for tax-related purposes) to defer
income to the future.

Defined Benefit Plan: A retirement plan that pays participants a lump-sum

amount that has been calculated using formulas that can include age, earnings
and length of service.

Defined Contribution: A pension plan that clearly defines the amount of

contributions, which is usually a percentage of an employees salary. The
benefits payable at retirement depend on several factors including future
investment return and annuity rate at retirement.

Deregulation: The removal or revision of laws that regulate the supply of goods
and services.

Discrimination: The favoring of one group of people, resulting in unfair

treatment of other groups.

Disease Management: An information-based process involving the continuous

improvement of care (prevention, treatment and management) throughout the
delivery of health care. Effective disease management can mean decreased
health care costs.

Distance Learning: Educational programs using instruction via video or audio

tapes, computers etc. instead of attending a class in one centralized location.

Distributive bargaining: A negotiation between competing parties that

involves the distribution of resources. One party prevails, to the detriment of the
other.

Diversity: The collective mixture of differences and similarities that may

include: individual and organizational characteristics, values, beliefs,
experiences, backgrounds, preferences and behaviors.
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E-Recruitment: Web-based software that handles the various processes
included in recruiting and onboarding job candidates. These may include
workforce planning, requisitioning, candidate acquisition, applicant tracking
and reporting (regulatory or company analytics).

Emotional Intelligence: Based on the book of the same name by Daniel

Goleman, Emotional Intelligence is the ability to recognize, assess and manage
their own and others’ emotions.

Employee Engagement: Employee engagement, also called worker

engagement, is a business management concept. An “engaged employee” is one
who is fully involved in, and enthusiastic about their work, and thus will act in a
way that furthers their organization’s interests.

Employee Relations: Developing, maintaining, and improving the relationship

between employer and employee by effectively and proactively communicating
with employees, processing grievances/disputes, etc.

Employee Retention: Practices and policies designed to create a work

environment that makes employees want to stay with the organization, thus
reducing turnover.

Empowerment: Giving employees the resources, skills and authority necessary

to share power with management and make decisions. Employees are then held
accountable for their decisions and rewarded if appropriate.

Enterprise Compensation Management (ECM): The automation of the

compensation process to assist organizations in the acquisition, management
and optimization of its workforce.

Equity theory: The idea that people desire to be treated fairly and thus compare
their own contributions to the workplace—and resulting rewards—against those
of their coworkers, to determine if they are being treated fairly.

Executive Coaching: Executive coaching is a professional relationship between

a Coach and an Executive, or an Executive Team. The goal is to assist
executives with positive leadership development. It can be provided in one-on-
one sessions or via the Internet.

Executive Search: An agency or organization used by employers to assist them

with the selection and placement of candidates for senior-level managerial or
professional positions.

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Factor comparison: A systematic and scientific comparison, that instead of
ranking complete jobs, ranks according to a series of factors. These factors
include mental effort, physical effort, skill needed, responsibility, supervisory
responsibility, working conditions, etc.

Fair Representation: The duty of fair representation is incumbent upon U.S.

labor unions that are the exclusive bargaining representative of workers in a
particular group. It is the obligation to represent all employees fairly, in good
faith, and without discrimination.

Fair Credit Reporting Act: A United States federal law that regulates the
collection, dissemination, and use of consumer information. In an HR setting
employers that run background checks on job candidates or employees must
comply with the Fair Credit Reporting Act.

Freedom of association: The right of workers to join a union and to bargain

collectively. This right is protected by the Universal Declaration of Human
Rights and the Human Rights Act of 1993.

Freemium: A pricing model, typically relating to Internet software or a web

service, that allows you to use a limited version of the product for free with the
option of paying for additional functionality. The goal is to provide just enough
functionality in the free version to incentivize the user to become a paying
customer.

Full-time equivalent (FTE): A value assigned to signify the number of full-

time employees that could have been employed if the reported number of hours
worked by part-time employees had been worked by full-time employees
instead.

Functional job analysis: Developed by the U.S. Department of Labor,

functional job analysis is a method of gathering specific and detailed job
information. This information can be used to write job descriptions.

Gag clause: Refers to the employment contract restrictions used as a means of

protecting the organization’s trade secrets or proprietary information.

Gender Pay Gap: the average difference between men’s and women’s
aggregate hourly earnings.

Genetic-based Discrimination: The practice of requesting or requiring genetic

testing information during the hiring process or using genetic testing
information to base any other employment decisions or actions.
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Geographical Differential: The variance in pay established for same or
comparable jobs based on variations in labor and costs of living among other
geographic regions.

Glass Ceiling: A term used to describe the barriers – often unseen – that keep
minorities and women from career advancement regardless of their
qualifications.

Goal Setting: Assigning specific, attainable goals to a person, team or

organization. Goal setting is a motivational technique, as workers often rise to
the challenges given them.

Good Faith Bargaining: A requirement of the Employment Relations Act of

2000 that all parties to a contract conduct negotiations with a willingness to
reach an agreement on new contract terms.

Grievance: a complaint by an employee due to an alleged violation of law or

collective bargaining or dissatisfaction with work conditions.

Gross Misconduct: An action so serious that it calls for the immediate

dismissal of an employee. Examples include fighting, drunkenness, harassment
of others and theft.

Hierarchy of needs: A theory created by psychologist Abraham Maslow that

states humans constantly strive to meet a series of needs, going from physical
(food and shelter) all the way to spiritual (self-actualization).

HR Audit: A periodic measurement of human resources effectiveness,

conducted by internal staff or with the use of an HR audit system.

HR Generalist: An individual who is able to perform more than one diversified

human resources function, rather then specializing in one specific function.

Human Capital: The collective skills, knowledge and competencies of an

organization’s people that enables them to create economic value.

Job analysis: The process of gathering information about the requirements and
necessary skills of a job in order to create a job description.

Job classification: A method of evaluation used for job comparisons, which

groups jobs into a prearranged number of grades, each having a class
description and a specified pay range.

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Job Description: A written statement that explains the responsibilities and
qualifications of a given job, based on a job analysis. The job description
usually includes specific required tasks as well as an overview of the position
and whom the employee reports to.

Job evaluation: A comparison of one job with other jobs in a company for the
purpose of assessing fair compensation.

Johari Window: A leadership disclosure and feedback model used primarily in

self-help groups and corporate settings as a heuristic exercise which can be used
in performance measurement and features the four quadrants (windows) of
“knowing.”

Key Performance Indicators (KPIs): Tasks that are central to the success of a
business and show, when measured, whether the business is advancing toward
its strategic goals.

KSAs: The Knowledge, Skills and Abilities an employee needs to meet the
requirements of a job.

Labor certification: Labor certification is a statement from the U.S.

Department of Labor (DOL) that a particular position at a particular company is
“open.” It is the first step in the process of obtaining a green card.

Labor force participation rate: The ratio between the labor force (all those
currently employed or seeking work) and the nation’s total working-age
population.

Labor Market: A geographical region (local, national or international) in

which labor transactions occur—employers find workers and workers find
work.

Labor law posting: Federal and state regulations requiring employers to post in
conspicuous places a variety of labor law posters with information regarding
employee rights

Leadership Development: Activities, whether formal or informal, that enhance

leadership qualities

Long-term care insurance: Helps provide for the cost of long-term care
beyond a predetermined period, and is generally not covered by health
insurance, Medicare, or Medicaid.

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LIFO (Last In, First Out): A method of determining who should be laid off in
which the most recent hires are laid off first.

Loyalty Programs: Programs that reward and therefore encourage loyalty. In a

workplace setting these programs are often called Employee Rewards and
Recognition Programs.

Lump sum payment: A single large payment given to an employee, usually

instead of more and smaller pay increases.

Management by Objective (MBO): A process of defining objectives within an

organization so that management and employees agree on the overall goals and
objectives for the organization. The employees determine and set goals for
themselves based on the overall goals and objectives for the organization.

Managed Service Provider (MSP): Outsourced agency that manages the

contingent worker program (temporary staffing) of a business. It consists of a
team that helps the client company source and manage temporary workers.

Matrix organization: Used primarily in the management of large projects, a

horizontal authority structure in which teams are created from various
departments and report to more than one boss.

mCommerce: Commerce carried out over a mobile device.

Mean wage: The average wage for a worker in a specified position or

occupation, which may be skewed up or down if there are a few extreme
examples in the sample.

Medical savings account (MSA): A savings account funded by employees in

which tax-deferred deposits can be made for use as medical expenses, co-
payments, or deductibles.

Mentoring: An informal training process between a more experienced person

and a junior employee.

Merit pay: Performance-related pay which provides bonuses or base pay

increases for workers who perform their jobs effectively, according to
measurable criteria.

Millennials: The demographic cohort following Generation X. There are no

precise dates when the generation starts and ends. Researchers and
commentators use birth years ranging from the early 1980s to the early 2000s.

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Minimum wage: The lowest amount an employer can pay an hourly employee.
This rate is set by the federal government.

Minority business enterprise: A business which is at least 51% owned,

operated and controlled on a daily basis by one or more African American,
Asian American, Hispanic American, or Native American citizens.

Mission Statement: A description of an organization’s purpose: what it does,

what markets it serves and what direction it is going in.

Mobile Recruiting: Using mobile technologies to find and connect with people
(candidates) who use mobile devices (e.g., phone).

Momtrepreneur: A woman who has children and runs a business at the same
time.

Motivational Theories: Psychological models that attempt to explain what

motivates people. These theories can help employers design incentive strategies.

Myers-Briggs Type Indicator (MBTI): A well-known personality type

assessment designed to measure people’s psychological preferences. The
personality is divided into four dichotomies, with 16 personality types possible.
The system is partly based on the theories of psychologist Carl Jung.

Negotiation: Bargaining between two or more parties with the goal of reaching
consensus or resolving a problem.

Nepotism: Preferential hiring of relatives and friends, even though others might
be more qualified for those positions.

Newsjacking: A PR term used to describe the act of publishing content that

relates to a current trending story or topic in order to get more interest in your
content.

Nondisclosure Agreement: A contract restricting an employee from disclosing

confidential or proprietary information.

Nonexempt Employee: An employee who does not meet any one of the Fair
Labor Standards Act exemption tests and is paid on an hourly basis and covered
by wage and hour laws regarding hours worked and overtime pay.

Nontraditional Employment: Any occupation in which women or men

comprise less than 25% of the workforce. Non-traditional careers refers to jobs
that have been traditionally filled by one gender.
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Observation interview: A method of assessing job requirements and skills by
observing the employee at work, followed by an interview with the employee
for further assessment and insight.

Organizational Culture: The values, attitudes, beliefs and behaviors that

characterize an organization. It is the unwritten workplace ethos that is picked
up by new employees.

Organizational Development: A planned organization-wide effort to improve

and increase the organizations effectiveness, productivity, return on investment
and overall employee job satisfaction through planned interventions in the
organization’s processes.

Orientation: Introducing new hires to the organization and its policies, benefits
and culture. Training and familiarization with each department are sometimes
included.

OSHA: The Occupation Safety and Health Administration, an agency of the

U.S. Department of Labor. The agency’s goal is to promote health and reduce
accidents, injury and death in the workplace.

Outplacement: A benefit offered by a downsizing employer to assist former

employees in re-entering the job market. Assistance can include job training,
resume workshops, interview practice and career counseling.

Outsourcing: Contracting out non-core functions, such as payroll, benefits

administration or manufacturing, to save money and focus on what the company
does best.

Pareto chart: A quality assurance tool that ranks information, like reasons for
certain problems, in descending order. The goal is to identify the most serious
problems so improvements can be made.

Payroll: Documentation created and maintained by the employer containing

such information as hours worked, salaries, wages, commissions, bonuses,
vacation/sick pay, contributions to qualified health and pension plans, net pay
and deductions.

Peer appraisal: A performance assessment given by an employee’s peers who

have observed the employee’s job performance.

Performance Appraisal: A periodic review and evaluation of an individual’s

job performance.
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Performance Improvement: A plan to improve an employee’s performance in
which the performance problem is identified, modified and monitored.

Performance Management: The process of maintaining or improving

employee job performance through the use of performance assessment tools,
coaching and counseling. The ultimate goal is to better meet organizational
objectives.

Performance Planning: An organization-wide plan to manage employees and

their performance wherein goals are set for employees, departments and the
organization as a whole.

Premium only plan (POP): Section 125 is part of the IRS Code that allows
employees to convert a taxable cash benefit (salary) into non-taxable benefits,
so they may pay for qualified benefit premiums before any taxes are deducted
from their paychecks. The Premium only plan allows for certain employee paid
group insurance premiums to be paid with pre-tax dollars.

Probationary Arrangement: An agreement between an employer and

employee that the employee will work for a set amount of time on a trial or
probationary period.

Professional Employer Organization (PEO): A staffing service that is

contracted to assume the employers responsibilities and risk for his/her
workforce. Employees are legally co-employed by the PEO. The PEO is
responsible for such actions as the preparation of accurate payroll checks, the
remittance of payroll taxes to federal and state jurisdictions and the preparation
of various tax information.

Protected Concerted Activity: A legal term used in labor policy to define

employee protection against employer retaliation in the United States

Random Testing: Employer-administered drug and alcohol tests conducted at

random intervals.

Recruitment: The process of finding and hiring the best-qualified candidate for
a position.

Recruitment Process Outsourcing (RPO): The outsourcing of the recruiting

process to a third party.

Redundancy: Eliminating jobs or job categories as they become unnecessary to

the functioning of an organization.
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Replacement charts: A tool in succession planning in which current and future
job vacancies, as well as the number of employees in currently filled jobs, are
visually summarized.

Reputation Management: The practice of monitoring the reputation of an

individual or brand on the internet to address potentially or harmful content.

Request for proposal (RFP): A request sent by a company to a vendor to

submit a bid for a product or service. The bid includes a timeline, a description
of the good or service, the type of contract, cost and other specifics.

Restrictive covenant: Also known as a negative covenant; a provision in a

contract excluding key employees from working for competitors in a certain
geographic area and for a certain length of time.

Return on investment (ROI): The percentage of profit on an investment

compared to the cost of that investment. Also called the rate of return or yield.

Reverse Mentoring: An initiative in the workplace where more older

employees are mentored by younger employees. For example, younger
employees with a deep understanding of social media may mentor older
employees on the use of such technologies.

Right to Manage: The “right” of management to conduct business without

having to answer to internal or external forces for their decisions.

Risk Management: The use of insurance and other strategies to minimize an

organizations exposure to liability in the event a loss or injury occurs.

Retention Strategy: In order to retain employees and reduce turnover managers

must meet the goals of employees without losing sight of the organization’s
goals, utilizing valence and expectancy theories.

Rotational Training: A training method where employees are rotated among a

variety of different jobs, departments or company functions for a certain period
of time.

RSS (Real Simple Syndication): A commonly used protocol for delivering

web-based content such as blogs. RSS is an XML-based format that allows
webmasters to provide fresh web content in a succinct manner. It is fast
becoming an easy and affordable way to spread content.

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Scalability: The degrees to which the system, network, or process of a
computer’s hardware or software can be expanded in size, volume, or number of
users served and continue to function properly. An analogous business model of
economic growth refers to a businesses ability to expand to a greater capacity.

Sensitivity Training: A form of individual or group counseling geared toward

increasing self-awareness of one’s own prejudices and sensitivity to others.

Short-Term Disability: Disability income insurance designed to replace

employee income for a temporary, specified time frame while they are unable to
perform their duties due to illness or injury, before they return to work.

SHRM: Their self-definition: “The Society for Human Resource Management

(SHRM) is the world’s largest association devoted to human resource
management. Representing more than 250,000 members in over 140 countries,
the Society serves the needs of HR professionals and advances the interests of
the HR profession.”

Social HR: The extent to which human resource departments leverage social
media tools (Facebook, LinkedIn, Twitter, etc.) to conduct human resource
activities (recruiting, employment branding, etc.) aimed at aligning HR goals to
the company’s business goals.

Social Media: Forms of electronic communication (as Web sites for social
networking and microblogging) through which users create online communities
to share information, ideas, personal messages, and other content (as videos).

Sourcing: The developing of lists of potential candidates. Also relates to the

task of requisitioning, or creating job descriptions, approval workflows and
actual job postings. Most e-recruitment software providers include modules for
requisitioning.

Staffing: A method of finding, evaluating, and establishing a working

relationship with future employees. They may be current employees or future
employees.

Strategic HRM: Aligning human resource management (HRM) with the

strategic goals of an organization.

Strategic Planning: The process of considering an organization’s future,

usually three to five years ahead, and then working backward to create strategic
plans and allot resources to realize this desired future state. This includes a
hiring strategy.
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Stay Interviews: unlike exit interviews, stay interviews are conducted during
employment to help employers understand why good employees stay and what
might make them leave.

Succession Planning: The process of identifying long-range needs and

cultivating a supply of internal talent to meet those future needs. Used to
anticipate the future needs of the organization and assist in finding, assessing
and developing the human capital necessary to the strategy of the organization.

Summary dismissal: The immediate firing of an employee, usually due to an

act of gross misconduct.

Summary material modifications: A summary of modifications or changes

made to an employee benefit plan that is not included in the summary plan
description.

Suspension: An employee is sent home for a period of time, usually without

pay, as a disciplinary measure.

Systemic discrimination: A pattern of discrimination that permeates workplace

practices, and is not apparent at first glance, but is actually systematic in its
application of policies and practices.

Talent Management: Also called Human Capital Management, the process of

recruiting, managing, assessing, developing and maintaining employees.

Tangible rewards: Gifts in the form of merchandise, gift certificates, etc. that
can be physically held or touched.

Title VII: Federal law that prohibits employers from discriminating against
employees on the basis of sex, race, color, national origin, and religion.

Total Remuneration: An employee’s complete annual pay package, including

benefit and pension plans, bonuses, incentives, and paychecks.

Training and Development: Providing information and instruction that equips

employees to better perform specific tasks or attain a higher level of knowledge.

Training Needs Analysis: An assessment to determine the training needs of a

group of employees, taking into account the employees’ prior education and
skills and the desired outcome once training is completed.

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Transformational Leadership: A systematic form of leadership that enhances
the motivation, morale and performance of followers through change,
innovation, and group dynamics.

Unconscious Bias: Implicit or unconscious bias happens when our brains make
quick judgments and assessments of people, or situations, without us realizing.
Unconscious bias can heavily influence recruitment and selection decision.

Underwriter: A person or organization that ensures money will be available to

pay for losses that are insured. An insurance company can be considered an
underwriter.

Unfair labor practice (ULP): An action carried out by an employer or union

that violates the Federal Service Labor-Management Relations Statute, part of
the National Labor Relations Act (NLRA), and would be investigated by the
National Labor Relations Board (NLRB).

Union: Workers who organize a united group, usually related to the kind of
work they do, to collectively bargain for better work conditions, pay or benefit
increases, etc.

Video Interview: A job interview that takes place through a video technology
platform instead of in person.

Virtual HR: The use of various types of technology to provide employees with
self-serve options. Voice response systems, employee kiosks are common
methods.

Volunteerism: How a company supports an employee who wishes to volunteer

or otherwise offer unpaid services to a community organization, often by
providing paid leave of sponsorship.

Wage drift: The difference between basic pay and total earnings, due to a
variety of possible factors such as overtime, bonuses, gender, age and
performance.

Work-life Balance: The attempt to balance work and personal life in order to
have a better quality of life. A person with a balanced life is an asset to his or
her business, as he or she experiences greater fulfillment at work and at home.

Workforce Planning: The assessment of the current workforce in order to

predict future needs. This can consist of both demand planning and supply

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planning. Many e-recruitment software providers include modules for
workforce planning.

Wrongful Termination: A legal term referring to when an employee was fired

for an illegal reason.

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