Overview of Project Management

Project management refers to the process of planning, organizing, directing, and controlling
company resources to achieve specific goals within a set time-frame, budget, and according to
defined performance specifications. A project is a one-time, unique effort that has specific
objectives, a start and end date, and consumes resources. Projects are typically multifaceted, often
involving various teams, skills, and departments.

Knowledge Areas of Project Management

1. Project Integration Management: Ensures the coordination of all project elements. This
includes creating a project charter, developing a management plan, and managing execution
and changes.
Example: In the office construction project, the project manager integrates various activities
to ensure everything is coordinated. This involves creating a Project Charter to get
approval for the project, then developing a Project Management Plan that outlines scope,
schedule, budget, and resources. During execution, the manager tracks progress, handles
changes (like unexpected weather delays), and ensures everything aligns with the project’s
objectives.
Key Actions: Define project goals, manage project execution, monitor progress, handle
changes, close the project successfully.
2. Project Scope Management: Defines and controls what is included and excluded from the
project. It involves defining project requirements and managing the Work Breakdown
Structure (WBS).
Example: The project manager clearly defines what’s included in the office construction
project and what’s excluded. For instance, the scope statement specifies that the project
includes constructing the building, laying the foundation, installing utilities, and interior fit-
out. Scope exclusions might include future office equipment or landscaping, which will be
managed separately.
Key Actions: Define requirements, create a Work Breakdown Structure (WBS) to break
down tasks, validate scope through approvals from stakeholders.
3. Project Schedule Management: Focuses on defining the project timeline, identifying
critical paths, and tracking project milestones.
Example: In the office project, the project manager develops a Gantt Chart to visualize the
construction timeline, marking key milestones such as foundation completion, structural
work, and interior finishing. By identifying the Critical Path, the project manager focuses
on tasks that are most crucial for meeting the project deadlines. If there's a delay in the
delivery of materials, the manager reschedules tasks to mitigate the delay’s impact.
Key Actions: Develop a schedule, track milestones, manage timeline, adjust schedules
based on delays.
4. Project Cost Management: Manages budgeting and cost control. This includes estimating
project costs, creating a budget, and monitoring to prevent overruns.
Example: The project manager estimates the costs involved in building the office, including
materials, labor, permits, and contingencies. The project budget is then developed and
tracked throughout the project. If unexpected issues arise (e.g, needing a more expensive
 foundation due to soil conditions), the project manager must manage the budget and may
make adjustments to prevent cost overruns.
Key Actions: Estimate costs, develop a budget, track expenses, control costs to avoid
overruns.
5. Project Quality Management: Ensures that the project meets quality standards through
processes like Quality Assurance (QA) and audits.
Example: To ensure the office meets quality standards, the project manager implements a
Quality Assurance (QA) process. This involves conducting regular inspections at different
stages (e.g., checking the quality of materials, ensuring construction meets building codes).
If any part of the project doesn’t meet quality standards, corrective actions are taken (like
fixing poor-quality installations).
Key Actions: Implement QA processes, conduct quality audits, ensure standards like
building codes are met, use quality control tools (e.g., Six Sigma).
6. Project Resource Management: Handles team and resource management. This includes
assigning roles, managing performance, and optimizing resource allocation.
Example: The project manager needs to allocate resources effectively, including labor (e.g.,
construction workers, engineers) and materials (e.g., steel, concrete). This includes creating
a plan for resource utilization, optimizing team performance, and making adjustments if
resources are over- or under-utilized (e.g., hiring more workers if the project is behind
schedule).
Key Actions: Assign roles, manage performance, ensure efficient resource allocation, handle
resource conflicts.
7. Project Communications Management: Ensures effective communication among
stakeholders, often facilitated by tools like Slack or Microsoft Teams.
Example: In the office construction project, the project manager sets up a communication
plan to ensure all stakeholders (e.g., construction team, project sponsors, suppliers) are
informed about the project’s progress. Regular updates might include weekly emails with
status reports and monthly meetings to discuss milestones. If there’s a change in the project,
it’s communicated to stakeholders immediately.
Key Actions: Create a communication plan, report progress, use tools like Slack or email for
team communication, engage stakeholders regularly.
8. Project Risk Management: Identifies potential risks and develops contingency plans.
Example: The project manager identifies risks at the beginning, such as potential delays due
to bad weather, supply chain disruptions, or labor shortages. Risk assessments are carried
out, and mitigation plans are developed, like having backup suppliers or scheduling buffer
time. The project manager monitors risks throughout the project and implements mitigation
strategies when issues arise.
Key Actions: Identify risks, assess likelihood and impact, develop response plans, monitor
risks during project execution.
9. Project Procurement Management: Manages the acquisition of goods and services,
including vendor selection, contract negotiation, and performance monitoring.
Example: The project manager is responsible for acquiring materials (e.g., cement, steel)
and services (e.g., specialized contractors for HVAC systems). This involves issuing
 Requests for Proposals (RFPs) to suppliers, selecting vendors, negotiating contracts, and
managing procurement processes. The manager ensures that vendors deliver on time and
meet the specified requirements.
Key Actions: Issue RFPs, select vendors, negotiate contracts, monitor vendor performance.
10.Project Stakeholder Management: Engages stakeholders, manages expectations, and
ensures satisfaction.
Example: The project manager identifies all stakeholders involved in the office
construction, including employees, contractors, the local community, and government
bodies. A stakeholder engagement plan is created, which might involve regular meetings
with the local community to discuss construction impacts or with investors to keep them
updated on progress. Stakeholders' expectations are managed, and feedback is gathered to
ensure the project’s success.
Key Actions: Identify stakeholders, manage expectations, ensure satisfaction, involve
stakeholders in decision-making.

Project Types and Categories

Projects are categorized based on their characteristics, such as:
• Type I Projects: Well-defined methods and end requirements (e.g., large engineering
projects).
• Type II Projects: Poorly defined methods but well-defined end requirements (e.g., product
development).
• Type III Projects: Well-defined methods but poorly defined end requirements (e.g.,
software development).
• Type IV Projects: Both poorly defined methods and end requirements (e.g., organizational
development).

Key Project Management Concepts

• Triple Constraint: Projects are often bounded by three main constraints—time, cost, and
performance (scope).
• Subprojects: Smaller components of larger projects, each with its own goals and resources.
• Program vs. Project: A program is a group of related projects managed in a coordinated
way for greater control and benefit.

Project Stakeholders and Roles

• Stakeholders: Individuals or groups who are impacted by the project or can influence its
outcome (e.g., customers, employees, vendors).
• Project Manager: Responsible for integrating various activities, creating and executing
project plans, and ensuring project success.
• Functional Manager: Focuses on specific technical aspects of the project and manages the
resources needed to complete tasks.
• Executives: Responsible for setting priorities and supporting the project at a high level.
Project Success Factors
• Successful project management is achieved when objectives are met within time and budget,
using the available resources effectively while ensuring customer satisfaction.

Project Selection Models

Project selection is the process of choosing which projects to pursue, based on the goals and
objectives of an organization. The objective is to ensure that the projects selected will help achieve
the organization’s long-term objectives.

Criteria for Project Selection Models:

1. Realism: The model should be realistic and based on achievable expectations. It must
account for the available resources, time, and budget.
2. Capability: The model should align with the organization's capabilities. Can the
organization handle the project with its current resources and expertise?
3. Flexibility: The model should allow for changes if needed, as conditions can change during
the project's life cycle.
4. Ease of Use: The model should be simple and easy for decision-makers to use without
needing extensive training or complex systems.
5. Cost: The model should be cost-effective to implement.
6. Easy Computerization: The model should be able to be automated or easily integrated with
software systems for tracking and reporting.

Numeric and Non-Numeric Models:

• Numeric Models: These models use numbers and data to assess projects. They help
quantify things like costs, benefits, and risks. Some examples are financial calculations like
Net Present Value (NPV) or Payback Period.
• Non-Numeric Models: These models are based on subjective judgment, experience, and
qualitative factors rather than numerical data. They include simpler decision-making
approaches like "Sacred Cow" or "Operating Necessity."

Non-Numeric Models
These models don't rely on numbers but instead on intuition, judgment, and experience. Here are
some non-numeric models:

1. The Sacred Cow:

• What it is: A project that is suggested by a senior or influential person in the organization.
It’s typically initiated with vague or undeveloped ideas but is pursued because of the
authority or influence of the person who suggested it.
• Example: A CEO says, "Let's build a new mobile app" without much analysis, just because
they believe it’s important for the company’s future. The project moves forward mainly
because the CEO supports it.
2. The Operating Necessity:
• What it is: A project that must be done to maintain operations. These projects usually don't
need much evaluation because they are required to keep the business running.
• Example: If a factory's machinery breaks down, the project to repair or replace it becomes
an operating necessity. It's not about growth or improvement, just about maintaining the
current system.

3. The Competitive Necessity:

• What it is: A project done to stay competitive in the market. It's essential to keep the
company in the game, even if the project’s immediate returns are unclear.
• Example: If a competitor launches a new product that poses a threat, a company might rush
to develop a similar product to maintain its market position, even without clear profitability
analysis.

4. The Product Line Extension:

• What it is: A project that aims to add new products to a company's existing product line.
The decision is based on the belief that the new product will complement the current
offerings, even if profitability calculations aren't always needed.
• Example: A company that makes winter jackets might decide to produce winter hats and
gloves as a natural extension of its product line, based on intuition or the general belief that
it will strengthen the product range.

5. Comparative Benefit Model:

• What it is: Used when there are many projects with different types of benefits that are hard
to compare directly. This model helps decide which project would bring the greatest overall
benefit to the organization.
• Example: A company is considering projects to build a new product, improve operations,
and invest in employee wellness programs. It might be difficult to quantify the direct benefit
of each, but the decision will be made based on a comparison of the overall positive impact.

Numeric Models
These models use numerical data to evaluate and select projects. They involve financial and risk
assessments and are more structured than non-numeric models.

Profit/Profitability Models:
• What it is: Projects are evaluated based on their potential to generate profit. The
profitability of a project is a common criterion for project selection.
• Example: A company evaluates several projects, and the one that offers the highest expected
return on investment (ROI) is chosen.

Economic Analysis for Project Selection:

This involves evaluating the financial viability of a project by considering future cash flows (the
money a project is expected to generate in the future) and comparing them to the project's costs.
Methods of Investment Analysis
Investment analysis helps determine which projects or investments are most likely to generate good
returns. There are two main types of models: Deterministic Models and Probabilistic Models.

A. Deterministic Models
These methods assume a known, fixed set of variables and provide straightforward calculations.
1. Break-Even Analysis:
• What it is: A method to determine when a project will start making a profit by
comparing costs and revenues. The point at which total revenues equal total costs is
called the break-even point.
• Example: A company invests $100,000 to launch a new product. The break-even
analysis would calculate how many units need to be sold to recover that investment.
2. Payback Period Method:
• What it is: This method calculates how long it will take for a project to repay its
initial investment.
• Example: If a company invests $200,000 in a new machine that generates $50,000
per year in revenue, the payback period is 4 years (200,000 / 50,000).
3. Average Rate of Return (ARR):
• What it is: A method that evaluates the profitability of a project by calculating the
average annual profit as a percentage of the initial investment.
• Example: A project that generates $50,000 per year in profit with an initial
investment of $200,000 would have an ARR of 25% (50,000 / 200,000).
4. Discounted Cash Flow (DCF) Methods:
• These methods take the time value of money into account (i.e., money today is worth
more than money in the future).
a) Net Present Value (NPV):
• What it is: This method calculates the total value of future cash flows, adjusted for
the time value of money. If the NPV is positive, the project is considered profitable.
• Example: A project that promises $100,000 in profits over 5 years might have a
discounted value of $85,000 today. If the initial investment is less than $85,000, it’s a
good investment.
b) Internal Rate of Return (IRR):
• What it is: The rate at which the NPV of the project equals zero. It helps determine
the potential return rate of a project.
• Example: A project that offers an IRR of 15% means the project is expected to
generate a return of 15% per year on the initial investment.
5. Discounted Payback Period:
 • What it is: A variation of the Payback Period method, but it takes into account the
time value of money. It calculates how long it will take for the discounted cash flows
to recover the initial investment.

B. Probabilistic Models
These methods account for uncertainty and risk by considering different possible outcomes.
1. Risk-Adjusted Discount Rate Method:
• What it is: A variation of the NPV method that adjusts the discount rate based on the
risk of the project.
• Example: Riskier projects may use a higher discount rate to account for potential
volatility.
2. Certainty-Equivalent Approach:
• What it is: This method adjusts uncertain cash flows to reflect their certain
equivalent value, reducing the value of uncertain future cash flows.
3. Expected Monetary Value (EMV):
• What it is: A probabilistic method that calculates the average expected outcome of a
project by weighting each possible outcome by its probability.
• Example: A project has a 50% chance of making $100,000 and a 50% chance of
losing $50,000. The EMV would be (0.5 * 100,000) + (0.5 * -50,000) = $25,000.
4. Hillier’s and Hertz’s Models:
• What they are: These models use simulations and decision trees to evaluate the risk
and rewards of a project, helping decision-makers make more informed choices
under uncertainty.

These models help organizations decide which projects to undertake based on the expected financial
return and the potential risks involved. Depending on the context and available data, different
models can be used to assess projects' feasibility and align them with strategic goals.