Unit II- Project Identification, Selection, Planning

Project Identification

OBJECTIVES
-To know the importance of conceiving a good of project idea

-To ascertain the different sources from which a project idea

can be generated

-To identify the steps involved in project identification and

selection
 Project Identification
PROJECT IDEAS
• First and foremost task of an entrepreneur to find out suitable
business
• Idea should be feasible and promising and which merit further
examination and appraisal.
• Entrepreneur fist task to search for a sound of workable business
idea
• Since the good project ideas are elusive,
• Need of a variety of sources search to stimulate the generation
of project ideas.
 Project Identification
SOURCES OF PROJECT IDEAS
· Success story of a friend/relatives
· Experience of others in manufacture of product
· Examining the inputs and outputs of industries
· Plan outlays and government guidelines
· Suggestions of financial institutions and developmental agencies
· Investigation of local materials and resources
· Economic and social trend of the economy
· New technological developments
· Project profiles and industrial potential surveys
· Visits to trade fairs
· Unfulfilled psychological needs
· Possibility of reviving sick units
The various sources from which the project idea can be
generated are explained below:
 Project Identification
Analysis of performance of existing industries
• A study of existing industries in terms of their profitability and
capacity
• The analysis of profitability and break even level of various
industries
• Opportunities which are profitable and relatively risk free
• An examination of capacity utilization of various industries
provides information about the potential for further investment
• Region wise study of products especially products with high
transportation costs.
 Project Identification
Examine the inputs and outputs of industries
• An analysis of inputs required for various industries may throw up
project ideas.
• Opportunities exist when supplies presently being procured from
different sources more lead time lag and transportation costs
• Supplying in-house parts at lower cost with economies of scale
• A study of output structure of existing industries for further
processing or processing of waste
Examine imports and exports
• An analysis of import statistics for a period of 5-7 years helpful
• Understanding trend of imports of various goods and the potential
for import substitution.
• Indigenous manufacture of goods currently imported
• Likewise, an examination of export statistics is useful in learning
about the exports possibilities of various products.
 Project Identification
Plan outlays and government guidelines

• Governments proposed outlay in different sector provide pointers

toward investment opportunities.
• Indicate potential demand for goods and service required
by different sectors.

Suggestions of financial institutions and developmental agencies:

• Feasibility reports and suggestions of state financial corporations

state industrial development corporations and other
developmental bodies

• Suggestions of these bodies helpful in identifying promising

projects to potential entrepreneurs
 Project Identification
Investigate local materials and resources
• Investigation into local resources and skills,
• Various ways of adding value to locally available materials
• Skills of local artisans may suggest products

Analyzing economic and social trends

• A study of economic and social trends is helpful in projecting
demand for various goods and services.
• Changing economic conditions provide new business
opportunities.
• Time saving products like prepared food items, ovens
• Desire for leisure and recreational products and services
increasing
 Project Identification
Explore the possibility of reviving sick units
• Sick units are either closed or face the prospect of closure.
• Many such units can be nursed back to health by sound
management,
• Infusion of further capital and provision of complementary inputs
• Such investments typically have a shorter gestation period ,one
does not have to begin from scratch
Identify unfulfilled psychological needs
• Analyze whether there are certain psychological needs of
consumers which are presently unfulfilled.
• e.g. For well established, multi brand product groups like bathing
soaps, detergents, cosmetics and tooth pastes
This analysis is done somewhat as follows.
(i) Important factors influencing brand choice are identified (ii)
respect of the factors identified in step (iii) gaps which exist in
relation to consumer psychological needs are identified.
 Project Identification

Visit to trade fairs

• Attending the National and International trade fairs provides an
excellent opportunity to know about new products and new
development.
 Project Identification
PURPOSE AND NEED FOR PROJECT IDENTIFICATION
The essential conditions which should be taken into consideration
for identification and selection of production projects are as follows:

• Project should be in conformity with the economic needs of the

area.

• It should take into account the depriving factors which might have
adverse impact.

• The purpose of the project is to increase the production and

employment of the area and ultimately the profit.
 Project Identification Process
STEPS IN PROJECT IDENTIFICATION PROCESS
• Project ideas don’t take concrete shape immediately.

• An idea is first born, it is under incubation for sometime and

subsequently begins to take some definite shape.

This project identification Process may be broadly divided into four

stages,viz.,
A. Conceptual stage – where project ideas are generated

B. Screening stages – at which unviable ideas are eliminated.

C. Identification stage – at which viable projects are selected

D. Pre-feasibility state – at which pre-feasibility studies are taking up.

 Project Identification Process
A) Conceptual stage
• A number of project ideas may be generated either by those
officials or non-officials and entrepreneurs individually or
collectively who are conversant with the area.

• Examine the potentialities of development and the problems

• Examine needs and aspirations of the people of the concerned

area.
 Project Identification Process
B )Screening stage
• Project ideas generated are screened in a preliminary exercise
• Bad or unviable ides weed out
• All project ideas would not pass the screening test.
• Some project ideas may be imaginary
• Limited objective of providing planners with a choice of projects
from which they can make a selection
• Ideas which are prima facie & not promising are eliminated
• This process of eliminating the irrelevant and unviable ideas is
called screening of project ideas.
It can be done with the help of testing the following conditions of the
propositions.
 Project Identification Process
a.) Compatibility with the promoter

b.) Consistency with governmental priorities

c.) Availability of inputs

d.) Adequacy of market

e.) Reasonable cost

f.) Acceptability of risk level etc.

Lets see these conditions in details

 Project Identification Process
a) Compatibility with the promoter
• Project idea must be compatible with interest ,personality and
resources of the entrepreneur.
• It should be accessible to him
• Offers him the prospects of rapid growth and high return on
invested capital.

b) Consistency with governmental priorities

• Must satisfy or go along with the governmental priorities,
National goals and governmental regulatory framework.
e.g. No Contrary environmental effects to governmental regulations

• Easily accommodation foreign exchange requirements

• No difficulty in obtaining license.

 Project Identification Process
c.) Availability of inputs
• Resources and inputs required for the project reasonably
assured.
• Capital requirement within manageable limit
• Obtaining technical know-how
• Availability of raw materials at a reasonable cost
• Obtaining power supply
 Project Identification Process
d.) Adequacy of market

To judge the adequacy of market the following factors have to be

examined.
• Total present domestic market
• Competitors and their market shares
• Export market
• Quality price profile of the product.
• Sale and distribution system
• Projected increase in consumption
• Barriers to the entry of new units
• Economic social and demographic trends favorable to increased
consumption
• Patent protection
 Project Identification Process
e) Reasonable of cost
• Another factor to screen the project ideas.
• Cost structure of proposed project must enable it to realize and
acceptable profit with a competitive price.
Following cost factors must be carefully considered to design a
viable cost structure.

-Cost of material inputs

-Labour costs, factory overheads.
-General administration expenses,
-Selling and distribution costs.
-Service costs, economics of scale etc.

e)Acceptability of risk level

• It helps to screen the project ideas and determine desirability of a
project.
 Project Identification Process
D )Project Identification stage
• An existing company which seeks to identify new project
opportunities should undertake a “SWOT” analysis,
• It is an acronym law of strengths and weakness and opportunities
and threats.
A brief summary of the points required for SWOT analysis is given
below:

1.Capability of raising external financial resources

2.Availability of production facilities
3.Technological capabilities of the company
4.Availability of different sources of raw materials and its
utilization
5.Availibility of infrastructural facilities
6.Cost structure and profit margins of the company
7.Distribution network of the company
 Project Identification Process
8.Market share of the company

9.Capability of top management of the company

10.State of industrial relations in the company

11.Impact of corporate laws on the growth of the company

12.Likely changes in the governmental policies

13.Possibility of evolving new technology and its impact on the cost

structure of the company

14.Existence and severity of competition

15.Changes in the customers preferences, tests etc.,

 Project Identification Process
E) Pre-feasibility stage
A pre-feasibility study should be viewed as an intermediate stage
between a project opportunity study and a detailed feasibility study,
• It is the process of gathering facts and opinions pertaining to
the project.

• Used for tentatively determining whether the project idea is worth

pursuing furthering.

• Lays stress on assessing market potential, magnitude of investment,

technical feasibility, financial analysis, risk analysisetc.

• Help in preparing a project profile for presentation to various

stakeholders including funding agencies

• Throws light on aspects of the project that are critical in nature and
necessitate further investigation
 FEASIBILITY
STUDY
Feasibility study-
• is an analysis of the viability of an idea.

• is an analysis of all possible solutions to a problem and

a recommendation on the best solution to use.

• is a formal study to decide what type of system can

be developed, which best the needs of the
organization.
• A feasibility study is essentially a process for
determining the viability of a proposed initiative or
service and providing a framework and direction for
its development and delivery
 WHY DO FEASIBILITY
STUDIES?
• To find a solution that is cost effective from a
business perspective.
• To Find a solution that is well recognized
• To find out the probable market for the products
• To find out the opportunities and
threats as presented by environment
• To determine the probable income of
operating the project
• To show the contributions the project can offer to
the society, among others
Feasibility of a project covers the following areas:

· Commercial and economic feasibility

· Technical feasibility
· Financial feasibility
· Managerial feasibility
· Social feasibility or acceptability
 COMMERCIAL AND ECONOMIC FEASIBILITY
-Relates to the earning capacity of the project.

-Earnings of the project depends on the volume of sales.

-Considers Present demand of the goods

-
Projection about the future demand

-Determining the extent of supply to meet the expected demand

-Deciding how project under consideration will have a reasonable

chance to share the market.

-Anticipated rate of return on investment

-Potentialities of the export market & growth of new industries.

-Technological innovations bringing substitute into the market.
The commercial feasibility of a project involves

-A proposed arrangements for the purchase of raw

materials and sale of finished products

-Physical requirement of production input such as raw

materials, power, labour etc.

-Matching costs with revenues with a view to

estimating the profitability of the project and the
TECHNICAL FEASIBILITY
- To study the project basically from a technician’s angle

-Description of the project in terms of technology to be used,

-Size of the plant, location of the project,

-Requirement of equipment, labour and other inputs.

-Engineering and technical specifications

-Quality, quantity of components

-Plant & machinery, accessories, raw materials, labour fuel,
power, water, effluent disposal transportation etc.

-Pollution caused by the project

-Production capacity of the project,

 TECHNICAL FEASIBILITY(LOCATION AND SITE)
A thorough & comparative analysis for each potential
location should be made.
It has to consider to following factors:
 The accessibility to, & availability of, raw material
sources.
The availability of cheap or moderately priced
utilities such as power, water or fuel.
 The combine cost of transporting raw materials &
fuel to the site.
 The proximity to distributing outlets.
 The availability of skilled & unskilled labor.
 Maps & charts of the proposed site must be included.
 TECHNICAL FEASIBILITY (PLANT SIZE)

Determination of an optimum plant size is critical to the

success of a project.
A plant represents sunk costs and any under
utilisation of its capacity means either reduced
profits or, losses.
It is therefore normally better to build a plant having a
capacity that is likely to be fully utilized quickly,
 TECHNICAL FEASIBILITY (LAYOUT)
The layout should be clearly depicted through
diagrams & descriptions.
 A good layout is characterized by:
 Minimum material handling.
 Effective space utilization.
 Smooth work flow.
 Safe & conductive working area for the
workers.
 Safety and sanitation facilities &
 Flexibility of arrangements.
 FINANCIAL FEASIBILITY

Financial analysis seeks to ascertain whether the proposed

project will be financially viable

Whether the proposed project will satisfy the return

expectations of those who provide the capital.

The aspects which have to be looked into while conducting

financial appraisal are:

 Investment outlay & cost of project.

 Means of financing
 Project profitability
 Break-even-point
 Cash flows of the project
FINANCIAL FEASIBILITY(INVESTMENT OUTLAY & COST OF PROJECT)
It refers to the financial resources committed to an investment.
The major cost elements of a project are the following:
 Land and site development
 Buildings and civil works
 Plant and machinery
 Technical know-how and engineering fees
 Fixed assets
 Margin money for working capital

FINANCIAL FEASIBILITY(MEANS OF FINANCING)

To meet the cost of project the following means of finance are available:
 Share capital
 Term loans
 Debenture capital
 Deferred credit
PROJECT PROFITABILITY
The Project Profitability report is used to monitor
the planned and real cost related to a project.

• Project Profitability is the state or condition of a project to describe

the yielding of a financial profit or gain from that project.

• It is a measure of project operational efficiency in terms of

financial benefits.
 FINANCIAL FEASIBILITY (BREAK EVEN POINT)
• Definition At this point the income of the business exactly equals
its expenditure. If production is enhanced beyond this level, profit
shall accrue to the business and if it is decreased from this level,
loss shall be suffered by the business.

The break even point is :-

 The point where the gains equal the losses.
 The point defines when an investment will generate a positive
return.
 The point where sales or revenues equal expenses.
 The point where total costs equal total revenues.
 There is no profit made or loss incurred at the break even point.
 It is the lower limit of profit when prices are set and margins are
determined.
BREAK EVEN POINT
• Definition At this point the
income of the business exactly
equals its expenditure. If
production is enhanced beyond
this level, profit shall accrue to
the business and if it is
decreased from this level, loss
shall be suffered by the
business.
• The break even point is :-
 The point where the gains
equal the losses.
 The point where sales or
revenues equal expenses.
 The point where total
costs equal total revenues.
 There is no profit made or
loss incurred at the break
even point.
BREAK EVEN POINT
 There are two basic types
of costs a company incurs.
• Variable Costs
• Fixed Costs
 Variable costs are
costs that change
with changes in
production levels or
sales. Examples
include: Costs of
materials used in the
production of the
goods.
 Fixed costs remain
roughly the same
regardless of
sales/output levels.
Examples include: Rent,
Insurance and Wages
 • Formula

Break even point

= (Fixed cost) / (Contribution
per unit)

Where,
Contribution = Selling cost –
Variable cost
FINANCIAL FEASIBILITY(CASH FLOWS OF THE PROJECT)
These cash flows can be segmented as follows:

1. Initial Investment Outlay

These are the costs that are needed to start the project, such
as new equipment, installation, etc.

2. Operating Cash Flow over a Project's Life

This is the additional cash flow a new project generates.

3. Terminal-Year Cash Flow

This is the final cash flow, both the inflows and outflows, at the
end of the project's life; For example, potential salvage value at
the end of a machine's life.
MANAGERIAL FEASIBILITY
• The success or failure of a project largely depends upon
the ability of the project holder or project manager
• Project is a bundle of activities
• Each activity has its own role.
• For the success of a project, a project holder has to
coordinate
all the activities to obtain desired result.

Ways to measure the managerial efficiency:

a. Skill acquired through training
c. Skill acquired through course of work
SOCIAL FEASIBILITY
• A project must have no social acceptance.
• It should avoid social conflicts which will stand on
the successful implementation of the project,
• Should take care of interests of the general public;

e.g.: Large employment potential,

Channelizing income in less developed areas

Project Planning
A project plan expresses the objectives &
requirements of the project in terms of
• Project Scope
• Project Schedule
• Resource Requirement
• Project cost estimation
• Project Quality and
• Project Risk Management
1.Project Scope Planning Project Scope Planning
The project scope is generally
constrained, with respect to
following aspects
Time
Quality
Resources
 
Elements of Project
Planning:
• Any change in the scope of
the project has direct effect
on (either any or all) of
time, quality and resources
of given project.
• Vice versa, any change in
time or cost or resource can
make the project scope
altered.
1.Project Scope Planning
• Any project is expected to provide its stakeholders with certain
outcome, which is commonly termed as project deliverables.

• Project deliverables depends on the scope of the project.

• Defining a project scope is like drawing a map.

• In the map, the boundaries are drawn to indicate stretch/ extent of a

given territory; similarly project scope outlines the extent of project
deliverables.
• Project scope is
-What the project is expected to achieve
-Specify the budget of both time and cost
• One needs to take care of clearly carving out project definition &
the budgetary requirements.
 
1.Project Scope Planning
Project Scope Planning deals with
- Project Deliverables
- Work Breakdown Structure (WBS)

Project Deliverables
• To define project scope, one needs to refer project requirements.
• Must list down project deliverable items unambiguously stating
whether they are ‘In Scope’ or ‘Not in Scope’.
Work Breakdown Structure (WBS)
• The WBS is a breakdown/ decomposition of project work into
distinct work items at higher level.
• Work items are aligned with the project objective
• WBS is decomposition of project work in a hierarchical fashion
• With each descending level, it gives details of project deliverable
required from project team.
 
 2.Delivery Schedule Planning
•   Next task after project scope is to create delivery timeline.
• For each deliverable work item in the work breakdown structure
(WBS), project planner needs to identify list of activities need to
perform.
Activities/Tasks
• Activities are basis for estimation, scheduling, execution,
monitoring and controlling of the project work.
• For each of these activities he/she needs to figure out
a. How long will it take to complete each activity (days, weeks)?
b. What kind of resource(s) – required for its completion (skill set,

experience, etc.)?

Milestones
• A milestone marks a significant event in the project.
• Project sponsors refer to list of milestones to trace project delivery
2.Delivery Schedule Planning

Gantt chart
 

• Referring the Gantt chart for a given project, project manager/ project
planner can optimize/ change the schedule further.
• Using Gantt Chart, one can
1.Reschedule project delivery timeline [Time Implication]
2.Deploy additional resources [Resource Implication]
3.Change the scope of project [Scope Implication]
4.Enforce additional/ lesser Quality checks [Quality Implication]
2.Delivery Schedule Planning

Gantt chart
 
2.Delivery Schedule Planning

Gantt chart
 
2.Delivery Schedule Planning

Gantt
  chart
 2.Delivery Schedule Planning
Five steps to create delivery schedule
Define Tasks/ Activities
 
2.1
Identification of individual & specific tasks to be performed to create the project deliverables
Tasks/ Activities Sequencing
2.2 It is to take care of identification & establishing relationships among the project activities e.g.
Product filling activity to start after package labelling activity.
Resources Requirement Estimation
2.3 This process carry out estimation of the type (skill set/ experience, etc.) and quantities of
material, people, equipment, etc. required to perform any given activity.
2.4 Task Durations Estimation
The process of approximating the number of work periods needed to complete individual
activities with estimated resources. One can arrive at these estimates based on either of
 Expert’s judgement (consulting Subject Matter Expert)
 Three Point Estimate (Most likely, Optimist, Less Likely)
 Parametric Estimation (length & height of compound wall, number of lines of code)
Sometimes, it’s a good idea to add tolerance for duration of activity if you are unsure of exact
duration (e.g. 3 W eeks +/- 2 days).
2.5 Schedule Development
This is a critical process wherein project planner analyses sequences of activities, for each
activity what are the: durations required, resource required, and constraints arising due to
scheduling. The outcome from this exercise is a project schedule. Once project schedule is
agreed by important stakeholders, it becomes a baseline for the given project.

Table 1: 5 steps to create project delivery schedule

3.Project Resources Planning

 
It is the people who make the project work hence it is critical to plan
for project team. But project resource is not just about the people to
be involved in the project, rather materials, equipment required for
successful completion of the project. Having mentioned this,
generally resource planning tends to revolve about people/staffing
management.

Human Resource Plan

This plan tries to answer following questions but rather precise
details:
• What kinds of people are required to complete the project –
necessary qty, competencies?
• What should they do – roles & responsibilities?
• Whom will they report to?
3.Project Resources Planning
What can we expect from human resource plan?
Sr Item Description
No
A Roles & responsibilities
This section of the plan broadly describes how resources should be & how they are expected to
perform in order to deliver the project outcome.
A.1 For set of activities & work area, Roles are identified to make resource
Role
accountable e.g. business analyst to assess & process business requirements
A.2 This section documents clearly describes the work a project team member is
Responsibility
expected to carry out to perform project activities
A.3 If project team does not have necessary competencies, project outcome
remains uncertain. To assess competency requirement – this section
Competency describes the skill set, experience & capacity requirement concerned about
the completion of project activities. Based on resource competency
requirements; company can undertake hiring or training activities.
A.4 Authority is what marks the difference between steering committee and
working committee. This section of the document, describes who has what
kind of authority to perform/approve/reject, etc. e.g authority to approve
Authority resource movement, the right/authority to approve project schedule, quality
gate checklist, etc. Widely known secrete - Team members operate best
when their individual levels of authority match their individual
responsibilities
3.Project Resources Planning
B Organization Chart for project
This can be formal or informal chart to indicate team members involved in the project with
reporting/working relationship. It may help project sponsors to take into account organization
designs already in place.
3.Project Resources Planning
C Staffing management plan
This is an important section which if implemented can have cost implication to the
organization. This section describes staffing & training requirement, resource calendars,
release plan, rewards & recognitions, etc.
C.1 This section tries to answer following questions:
1. Do we have resources of specified competencies & experience?
Resource 2. Should we move internal resource to given project or hire new ones?
acquisition 3. If new resource is to be hired, should he be on the co. roll or contract?
4. Will team work in a co-location or discrete places across geographies?
5. What is the cost-benefit analysis for decisions made for above aspects?
6. How staffing activities will be synchronized with HR department?
C.2 This section talks about following points
Resource  The duration of each kind of team members required for project
calendars  Timeline for hiring (internal/external) – when should these be started
 Depicting resource requirement in calendar of the project team during
the entire lifecycle of the project
C.3 This plan provides details of the training to be provided for project team so
as to make them competent to perform project activities. These could be in
house training, external trainings, and certifications as necessary for
Staff Training sponsors’ compliance requirements.
& release plan
The project resources need to be released based on project activities &
progress made. This section describes the approach to be taken in releasing
resources underlining the cost, quality & timeline implications.
C.5 Incentive This section to document clear objectives & unambiguous conditions for
Program nominations & reward process underlining the cost-benefit analysis.
4.Project Cost/Budget Planning
• It helps to baseline the overall project budget in terms of money
• It tries to identify cost elements to be consumed during the
project life cycles such as

1.Monetary resources requirement (people, machinery, material,

equipment, space, etc.)
2.Provisions for risk management (people, machinery, material,
equipment, space, etc.)
 
 What can we expect from Project Cost plan?

It is expected to capture cost implication of

• People, equipment, facilities, etc. required to complete given
activity
• Inflation, exchange rates applicable for context of the activity
 
 
4.Project Cost/Budget Planning
 
Factors considered for estimates

• Whether all assumptions are made? <current vendor will

supply at 10% discounted rate>

• Whether all constraints are applied? < min electricity

requirement, number of seats>

• What all parameters formed as a basis of estimate <number of

lines of code, per square feet of wood, number of seats, etc.>

• What is the confidence level of estimate? And Why? <80%?>

4.Project Quality Planning
 To create project quality plan, project planner need to identify
• What are the quality requirements of the project,
• Which all standards are we supposed to comply with and in
what manner
There are various known approaches to ensure project quality –
some of these are

1.Six Sigma (6 σ)
2.Cost of Quality (CoQ)
3.Total Quality Management (TQM)
4.Failure Mode and Effect Analysis (FMEA)
5.International Organization for Standardization 9001(ISO), etc.
4.Project Quality Planning
What can we expect project quality plan to highlight?
Sr. Item Description
No
1 Quality Process & Policies
The policies about quality assurance process to be followed, quality controls to be in place,
process improvement being adopted are detailed
2 Project planner need to build the business cases to present cost-benefit
analysis of quality assurance & control process to demonstrate benefits of ::
 Significant avoidance of rework
Cost-Benefit
 Increase in productivity
Analysis
 Quality & Reliability of deliverables,
etc. factors which would satisfy quality expectations and accompanying cost
implication.
3 Cost of Quality This section gives stakeholders details of estimated cost to be incurred
during the project lifecycle by virtue of quality control & quality process:
bifurcating/highlighting the cost projection in terms of
 Conformance cost (Prevention costs, appraisal cost)
 Non-Conformance cost (internal failure cost, external fail. cost)
4.Project Quality Planning

4 This section will establish the metrics based on which quality controls can
be applied. Establishing quality metrics is very important to ensure stability
and performance of the project. The parameters & permissible values such
Quality Metrics
as availability (acceptable: 98.95%), failure rate (0.02%) & frequency, budget
control (cost overrun <4%), etc all these essentially governs & indicate
health of the project to the stakeholders.
5 Based on the best practices, the project quality planner may provide quality
Quality
checklist to ensure specific set of project activities are performed in
Checklist
standardized manner. Such checklists are quite useful in quality controls.
6 This is chart representation to visualize process stability & performance.
The project planner needs to specify the boundary & threshold limits to
Control Charts
indicate when project stability or performance is getting compromised. At
what levels who’s intervention is expected etc is being charted out.
5.Project Risk Management Planning

• Project risk is futuristic uncertainty that may occur during life of a

project
• Risk can be recorded through cause-effect analysis.
• Cause of risk could be some hypothesis, limitation, requirement, etc.
• Effect could be slippage of timeline, cost overrun/save, performance
degradation/improvement, etc. of the project
• For example – new regulatory compliance may be enforced on
power projects, economic uncertainty may lead to higher cost of
labour, etc.
Project Risk Management
• Project risk management is about assessing future uncertainties of
Project objectives
• Creating risk management plan,
• Preparing team for effectively managing those uncertainties.
5.Project Risk Management Planning
Sr. Item Description
No
1 Risk Identification

Identification The success of the risk management depends on the pro-activeness

1.1 exhibited by project team in identifying & reducing effect of risks on
process
project. This can be facilitated if risk identification process is well
documented & is easy to understand for team members. It also
The project risk planner specifies categories of the risks based on the
1.2 Risk Categories
potential impact on the project objective e.g. catastrophic, severe, low, etc.
2 Risk Assessment
Risk probability Well established criterions to help team members to assess risk probability
2.1
and impact & impact.
The plan to indicate what could be risk tolerance level that would be
2.2 Risk Tolerance acceptable to stakeholders and what strategy to be adopted if risk level
crosses the tolerance level.
5.Project Risk Management Planning

Risk Responses
3 The risk planner must define under what conditions response should be to avoid, accept,
mitigate or transfer the risk.
4 Risk Management
4.1 Mechanism It outlines what approach to take, whom to consult, what utility to use, etc.
This section specifies who should do what if risk occurs. It is not
Roles and
4.2 uncommon to find armies world over have defined personnel to command
responsibilities
and own specific responsibility.
Budget This section marks budget provisioning for known & unknown risks and
4.3
Provisioning provide justification of doing so.
4.4 Risk Tracking It details who would track risk, in what frequency, with what inputs, etc
 Organizational Structure in Project Management
Organizational Structure
• It refers to the differentiation and integration of activities and
authority roles and relationships.
• While there are various types of organizations used today.
Followings are the most prominent form of organizations:
a. Functional Organization Structure/ Hybrid project:

• Prior to about 1960 most corporate organizations favored a

functional organization structure, also called a traditional
organizational structure.
• Teams or groups are created based on common function in a
bottom-up manner.
• Consists of specialist or functional departments each with their own
departmental manager responsible to one or more directors.
• Each department is expert at its function and the interrelationship
between them is well established.
Organizational Structure in Project Management
Organizational Structure in Project Management

Functional Organization Structure Advantages:

(i) No structural change: Projects are handled within the
existing organizational structure.

(ii) Flexibility in the use of staff: specialists within various

functional departments can be temporarily assigned to the
project and then return to their normal duties within their
functional departments.

(iii) In depth expertise: the project can benefit from the use of
experts coming from the functional units. Hence it gains
potentials of the unit without duplication of scarce resources,
maximizing their utilization.
Organizational Structure in Project Management

Functional Organization Structure Disadvantages:

(i) Lack of focus: Because each functional unit has its own
routine work and responsibilities, the project may be given
low priority.

(ii) Poor integration: Specialists in functional units may be

concerned only with their part of the project and not with what is
best for the total project.

(iii) This method does not work very effectively when used in
facilitating complex projects.

(iv) Slow response: Functional units cannot respond to fast

changes in customer demands or the product since only the top
level management has broad knowledge and the decision
making authority.
Organizational Structure in Project Management

b. Divisional Organization structure:

• A separate division or team is set up to implement the
project,
• Each division corresponds to the end product or services
provided by the organization.
• Each division has own set of functional units like research,
manufacturing, marketing etc and is completely self
contained.
• Headed by the project manager and has full line authority.
• He recruits necessary people from both within and outside
the organization.
• It is less hierarchical and formed by decomposing the
functional structure along with product lines.
Organizational Structure in Project Management
Organizational Structure in Project Management

Divisional Organization structure Advantages:

(i) Very strong form of project organization.

(ii) The divisional project organization facilitates the process of

planning and control.

(iii) Fast: Full attention to the project makes it possible to

complete the project as soon as possible.

(iv) Cohesiveness: team members share a common goal which

results in a high level of motivation and togetherness.

(v) Integration: It brings about better integration of efforts.

(vi) Coordination: It helps in departmental coordination.

Organizational Structure in Project Management
Divisional Organization structure Disadvantages:
(i) Inefficient of resources: This form of organization,
however, may entail an inefficient use of the resources of
the firm.
(ii) Internal strike: A dispute can develop between the project
team and the parent organization.

(iii) Limited Technological Expertise: Technical expertise is

limited to the talents and experience of the specialists
assigned to the project.

(iv) Difficult product integration: when organization produces

multiple products which might be used together or are part
of a larger product, the integration task becomes
challenging since there is little coordination between the
divisions.
(v) Expensive for small projects
Organizational Structure in Project Management
C. Matrix Organization Structure:
• Evolved from the recognition of inherent flaws in the
Functional Organization and Divisional Organization
structures.

• Combined the best components of these two structures.

• Contains teams of people created from various sections of

the business.

• Teams will be created for the purposes of a specific project

• Led by a project manager.

• Often the team will only exist for the duration of the project

• Each project manager reports directly to the vice president

and the general manager
Organizational Structure in Project Management
Matrix Organization Structure:
 Organizational Structure in Project Management
Matrix Organization Structure Advantages:
(i) Efficient: Resources can be shared with multiple projects as well
as within functional units.

(ii) Strong Project Focus: As compared to functional project setup, this

enables a strong project focus by having a formally designated project
manager.

(iii) Flexibility: Matrix structure makes possible the flexible

utilization of resources of resources and expertise within the
organization since the boundaries between the project team and the
functional units are not so strict.

(iv) Because key people can be shared, the project cost is minimized.

(v) Stress is distributed among the team.

(vi) Efficient use of support system.
 Organizational Structure in Project Management
Matrix Organization Structure Disadvantages:
(i) A conflict of loyalty between line managers and project managers
over the allocation of resources.

(ii) Projects can be difficult to monitor if teams have a lot of

independence.

(iii) Costs can be increased if more managers (i.e. project managers)

are created through the use of project teams

(iv) Slow: Decision making becomes a slow process when various

functional departments and project groups have to come to an
agreement.

(v) Infighting: In matrix form, resources, people and equipment are

being shared by various projects and functional tasks, conflict and
competition is unavoidable.