PROJECT stands for: Planning Resource Operation Joint effort

Engineering Co-operation Technique.

Project :- A project is a combination of set objectives to be accomplished

within a fixed period.
According to the Project Management Institute (PMI), it's a temporary
endeavour completed to create a unique product, service or result. For
example, building a house is a project because it's a temporary collection
of construction activities to create a unique home.
Project identification is a process in the initiating phase of project life
cycle for identifying a need, problem, or opportunity.
A. How do the Project come about?
B. Where do project come from?
C. Why are Project where they are?

There are two Major approaches to project identification

 A. Top-down Approach
B. Bottom-up Approach
The top-down approach relies on higher authority figures to determine
larger goals that will filter down to the tasks of lower level employees.
In comparison, the bottom-up style of communication features a
decision-making process that gives the entire staff a voice in company
goals

Top Down Approach:-

 Project are identified based on demand from beyond the community

 It may be a rapid response to disasters like floods, war outbreak

because there is limited time and chance to consult the beneficiaries.

 It can be effective in providing important services like Education,

Health, Water, Roads etc.
  It can contribute to wider national or international objectives and
goals.
Bottom Up Approach
 In this approach community/beneficiaries are encourage to identity
and plan the project themselves with or without outsiders.

 Develops Peoples capacity to identify problems and needs and to

seek possible solutions to them

 Provides opportunities of educating peoples.

 Helps peoples to work as a team and develop a ―WE‖ attitude makes

projects progressive and sustainable.

 Resources are effectively managed. Dependence reduces, there is

increased equity, initiative, accountability, financial and economic
discipline.
Stages of project identification
Initiation
The purpose of initiation is to gather and analyse the projects'
requirements and describe the stages involved in the project. The objective
is to prioritise the tasks and allocate the resources based on availability and
conditions. Identify the project sponsors and create a scope document to
avoid any miscommunication.
Feasibility
The purpose of feasibility is to develop parameters and provide a wide
range of solutions to meet those requirements. The report will contain
answers to any problem arising and elaborate on the project details.
Project schedule
Define a road map and estimate the budget, resources, level of effort
required depending upon the project's complexity. Create a goal and a
series of tasks to be completed to accomplish them. Estimate the time
needed to complete each task and assign them to the personnel responsible
for execution.
Risk analysis
Identify any potential risks involved and describe what you will do to
mitigate or manage them. Create a plan to implement specific steps to
reduce the impact of hazards. Monitor and categorise the risks based on
their threat level, gather resources in advance to deal with the effects, and
ensure the required backup is functioning at its optimum level.
Identification close out
The cost estimates are checked for accuracy, and the date of completion is
confirmed. The identification closes out should include an analysis of the
resource usage during the project, including materials, labor,
subcontractors, and equipment costs. It provides a final opportunity to
review all supporting documentation and ensure that everything is
accounted for, including any discrepancies such as missing or damaged
items.
Approval
This phase consists of the assessment and support of the proposals.
Identify any threats and present the solutions to deal with them. The
recommendations are approved by stakeholders or project managers, and
any changes that need to be made will be sent back to the team for further
analysis.
Benefits of project identification
 Defining critical success factors You identify the objectives and
essential success factors, which will then be presented to the
stakeholders. They point out the most vital targets for management
attention, and they indicate what is likely needed to ensure that the
organisation achieves its goals.

 Developing KPIs to measure deliverables One of the best ways to

do this is by measuring metrics and key performance indicators
(KPIs) that represent what you are trying to achieve. For KPIs to be
meaningful, they must relate directly back to the goal or objective.

 Prevent hindrances Correct project identification is essential in the

project's success. If crucial requirements have been overlooked in the
identification phase, it may cause limitations during the execution
stages of the project.
  Save costs When you identify the requirements at an early stage, you
can gather the resources in a bulk quantity in advance from third
parties at a discounted price, saving money in the long run. This will
prevent resource unavailability during the execution phase and
ensure the smooth functioning of projects.
Identifying risks in project
Project managers can use various methods to identify risks in a project.
The following are:
1. Documentation reviews These are a great way to find out if your
documentation is clear and easy to understand. It can either be done
by the project manager or a concerned team to find out any loopholes
and ensure the detailed description is given wherever required.
2. Gathering information This involves consulting with the risk
management team and reviewing previous documents to identify
risks. While it is difficult to predict risks, we can take measures to
prevent previous mistakes and deal with any uncertainties.
3. Brainstorming Brainstorming is a necessary process that helps
people from different domains come up with new ideas. People can
imagine any potential risks that can arise based on their knowledge
and experience.
4. Checklist This involves creating a list by observing the previous
procedures and making changes based on the project requirement. If
any new risks are identified, additional strategies are included to deal
with them.
5. SWOT analysis A SWOT analysis examines your company's
strengths, weaknesses, opportunities, and threats. It can be used to
evaluate the external environment in which a company operates to
identify what actions need to be taken to remain competitive. This
 leads to new ideas for growth and innovation for many businesses
while also identifying potential pitfalls before they happen.
Concept of Project
A project is a series of tasks that need to be completed to reach a specific
outcome. A project can also be defined as a set of inputs and outputs
required to achieve a particular goal. Projects can range from simple to
complex and can be managed by one person or a hundred.

 A project has a unique purpose. Every project should have a well-

defined objective. For example, many people hire firms to design
and build a new house, but each house, like each person, is unique.

 A project is temporary. A project has a definite beginning and a

definite end. For a home construction project, owners usually have a
date in mind when they‘d like to move into their new homes.

 A project is developed using progressive elaboration or in an

iterative fashion. Projects are often defined broadly when they
begin, and as time passes, the specific details of the project become
clearer. For example, and there are many decisions that must be
made in planning and building a new house. It works best to draft
preliminary plans for owners to approve before more detailed plans
are developed.

 Project requires resources, often from various areas. Resources

include people, hardware, software, or other assets. Many different
types of people, skill sets, and resources are needed to build a home.

 A project should have a primary customer or sponsor. Most

projects have many interested parties or stakeholders, but someone
must take the primary role of sponsorship. The project sponsor
usually provides the direction and funding for the project.
Search for Business Idea
Once you have come to the revelation that you are an entrepreneur that
may not thrive in the 8 to 5 corporate arena, you might be at a loss
regarding what to do about it. Even with the necessary drive, skills and
abilities, many would-be business owners struggle with finding just the
right idea to get behind. However, this shouldn‘t discourage you. There are
several really good techniques and resources to help you discover the
business idea for you.
1. Start with a bit of self examination. Discover what your passions are,
what educational background and any skills or expertise you have.
Find out what you most enjoy doing or what you are most talented
at; this might suggest what industry or industries you should focus
on for your business idea. Jot down your results. Be general, ideas
for a business might jump out at you or they may not at this stage.
Remember what is important here is to identify a business industry
that would fit your talents and interests.
2. Review your own personal needs or desires within the fields of
interest or industries identified in Step 1. Identify a real need of your
own and you may find a relevant need to be filled across the
industry. An online outlet to design and order customized
skateboards for you might just be something you could pioneer and
deliver to the skateboard community for big profits. List anything
you can think of that you would pay for within your areas of interest;
these results will be the beginnings of concrete business ideas.
3. Ask your friends, family and co-workers who share the same
interests what their needs or wants might be within the industries you
are investigating. Find out what they think are the best ways those
needs could be filled. Ask them how much they might be willing to
pay to have those needs addressed. Make the research conversational
and relaxed, and you‘ll be surprised at how many ideas you can
generate.
 4. Go to the library and look through journals and magazines that cover
the industries you want to focus on. Look for business trends that
indicate where the industry is headed. Find out what the ―next big
thing‖ is and you could be the business leader to bring it to market.
5. Research online business sites, such as Inc.com or Entrepreneur.com,
which and offer articles on new business ideas as well as forums to
discuss any new ideas you might have. Review the information and
interact with other forum participants. Use this opportunity to bounce
ideas around, receive feedback and pick the brains of like-minded
entrepreneurs.
6. Use the feedback you‘ve gotten through the previous steps to refine
your list. Drop ideas that don‘t have a large enough market or that
may be too costly to start up. Summarize each of your business ideas
into a short phrase and research them on the internet. Find out if
anyone else has tried to produce your business idea in the past or
present. Research and study their successes and failures. Learn how
you can improve on their efforts or if the idea is one that the market
is ready for at all. This should help you identify the one or two ideas
that are really ready to be pursued.

Project Planning Formulation

Project formulation is the systematic development of a project idea for
arriving at an investment decision. The elements of Project formulation are
feasibility analysis, techno-economic analysis, project design and network
analysis, input analysis, financial analysis, social cost benefit analysis and
project appraisal.

 Staying within a given budget.

 Completing all aspects of the project.

 Providing quality work.

  Completing work on time.

 Securing the right resources in advance.

STEPS IN PROJECT FORMULATION

1) Review of past project proposals: A group that is involved in the
formulation of project proposal needs to review similar types of
project proposal formulated by its own institution or other
institutions. This will give an idea about the strengths and
weaknesses to the project coordinator while thinking about
formulating any project.
2) Consulting experts, consultants, and previous project
coordinators: A person or group formulating proposal could consult
an expert in the area in which the intended project is going to be
formulated and even can appoint a consultant who could be helpful
in the preparation of the proposal. It is always better to consult a
person who has already completed similar type of projects which are
being attempted. The project coordinator formulating project
proposal can consult his/her fellow colleagues who have already
formulated similar types of project proposals.
3) Review past project evaluation reports: Before formulating a
proposal, it is advisable to go through the reports prepared by a
similar type of research organizations/institutions. The project
evaluation report, besides, providing the components of project
activities and strategies, will give details about the methodology,
evaluation, and impact assessment strategy.
4) Interact with the prospective beneficiaries: The project team can
also interact with the prospective beneficiaries to be benefited from
the project interventions and assess their need. It would be better if
 the coordinator could also interact with those who have already
received benefits from the similar types of project.
5) Check statistical data/ report: The data regarding a previous
similar types of projects from various documents must be collected
so that an appropriate project strategy is formulated.
6) Hold focus group discussion: It is always better that the person who
prepares a proposal undertakes a focus group discussion with the
beneficiaries or the prospective clienteles or the stakeholders. If it is
a training project for grassroots level representatives e.g., urban local
bodies, then the training organizer could conduct a focus group
discussion with the elected representatives and functionaries of urban
local bodies and assess their needs
Elements of Project Formulation Analysis
1. Feasibility Analysis
 Examination to see whether to go in for a detailed investment
proposal or not

 Screening for internal and external constraints Conclusion could be:

 The project idea seems to be feasible

 The project idea is not a feasible one

 Unable to arrive at a conclusion for want of adequate data

2. Techno-Economic Analysis

 Choice of Optimal Technology, Plan and Design etc.

 Specifications and standards

 Demand for the project output(goods/services)

 Overall benefits

 Provides platform for preparation of detailed project design

3. Project Design and Network Analysis

 It is the heart of the project

 It defines the sequence of events of the project

 Time and resources are allocated for each activity

 It is presented in the form of a network drawing/bar chart

 It helps to identify project inputs, finance needed and cost- benefit

profile of the project
4. Input Analysis
 Its assesses the input requirements during the construction and
operation of the project

 It defines the inputs required for each activity

 Inputs include materials, equipment, machines, software, human

resources etc
5. Financial Analysis

 Involves estimation of the project costs, operating cost and fund

requirements

 It helps in comparing various project proposals on a common scale

 Analytical tools used are discounted cash flow, IRR, cost-

volumeprofit relationship and ratio analysis

 Investment decisions involve commitment of resources in future

 It needs caution and foresight in developing financial forecasts .

 6. Cost-Benefit Analysis
 The overall worth of a project

 The project design forms the basis of evaluation

 Total costs and benefits there to (Benefits > Costs or B/C>1)

7. Pre-investment Analysis

 The results obtained in previous stages are consolidated to arrive at

clear conclusions

 Helps the project-sponsoring body, the project-implementing body

and the consulting agencies to accept/reject the proposal
Project Screening
A Project Screening is a preliminary assessment or examination of the
project suitability for the selection and application process or development
methodology that evaluates or investigates many project candidates. The
Project Screening identifies the opportunities to obtain an idea of whether
the additional time and efforts consuming for further business cases, and
may conducts by different procedures and methods to compare the
strengths and weaknesses.
Preliminary Screening
Preliminary screening involves the elimination of the screening ideas that
are not so promising. Preliminary screening for project management
involves a few steps that are listed below:
1) Compatibility with promoter: Screening ideas must have
consistency with personal interest as well as the stakeholders and
entrepreneurs. Finance Assignment Editing services determine that
resources must be used well to better project management.
 2) Inputs availability: Input availability affects the decision-making
process. Inputs are needed to implement a feasible project
management plan. Finance Assignment editing services ensure that
screening ideas must be aligned with government rules and national
goals.
3) Market Adequacy: Finance Assignment editing services make sure
that the market is adequate to implement the idea. The market must
have adequate sale opportunity as a capital return possibility.
4) Cost Reasonableness: Finance Assignment editing services
determine that the cost that is being invested in the project returns
with at least a minimum profit margin.
5) Risk Acceptability: This last screening idea ensures that the object
of the project has been considered after accessing all the risks
involved in the same.

Socio Economic Consideration in Project Formulation

The main purpose of project socio-economic evaluation is to help design
and select projects that contribute to the welfare of a country. It is most
useful when applied early in the project cycle and of very limited use
when employed once the project is committed.
Social and economic factors, such as income, education, employment,
community safety, and social supports can significantly affect how well
and how long we live. These factors affect our ability to make healthy
choices, afford medical care and housing, manage stress, and more.

Project Management
Project management is the process of leading the work of a team to
achieve all project goals within the given constraints. This information is
usually described in project documentation, created at the beginning of the
development process. The primary constraints are scope, time, and budget.
Project management is the application of processes, methods, skills,
knowledge and experience to achieve specific project objectives according
to the project acceptance criteria within agreed parameters. Project
management has final deliverables that are constrained to a finite timescale
and budget.

Tip 1: Establish clear goals for the project

Take a look at the big picture and determine what you want to accomplish
with this project. If a client or outside stakeholder is involved in the
project, external sources will obviously help determine your goals.
Overarching goals you should consider include:

 Staying within a given budget.

 Completing all aspects of the project.

 Providing quality work.

 Completing work on time.

 Securing the right resources in advance.

Tip 2: Set expectations up front
Everyone should be on the same page in order to guarantee a successful
project. Clearly sharing your expectations as the project lead and asking
others to communicate their own is an important step in setting up any
project. These expectations should include specific ways your team can
achieve the goals you‘ve already established. In addition, you‘ll want to
include the following:
  List of deliverables and due date.

 Statement of scope.

 Roles and responsibilities defined.

 Q&A process.

 Communication plan, including how often you plan to communicate

with stakeholders/client.
Tip 3: Outline potential risks and how you’ll manage them if hazards
arise
Let‘s face it—even if you‘ve planned everything to the minutest detail, the
unexpected can still occur. So what‘s a good project manager to do? Make
a plan for the unexpected, of course! Obviously, you may not be able to
predict the exact hazard that might befall your project—everything from
bad weather to political unrest to technology flubs can occur – but it is still
possible to lessen the potential impact of hazards through risk
management.
Tip 4: Minimize the number of meetings
A study by Verizon Conferencing found that only 22 percent of meetings
are considered ―extremely productive‖ and 44 percent ―very productive.‖
That leaves 34 percent of meetings as only somewhat or not at all
productive. Obviously, meetings are a necessary part of project planning,
but really consider whether a meeting is a best use of your time or if email
or some other form of communication—like project planning software,
which allows you to share files, assign tasks and exchange ideas without
having to meet—can do the trick just as well. The more time spent in
meetings means less time spent on actual deliverables. Consider that
before sending yet another meeting invite.
Tip 5: Plan the perfect kickoff meeting
Speaking of meetings, the kickoff meeting sets the tone for the entire
project. When planning this meeting, be sure to adhere to the following
standards:

 Invite the right people and ensure the key players can be in
attendance.

 Create a detailed agenda stating what the meeting will cover. This
will help everyone stay on task and understand the meeting
objective.

 Determine if this can be an online meeting or if it needs to be held in

person. This will be different depending on how large the project is,
whether you‘re working with a new client, the budget for the project,
etc. Keep in mind that in-person meetings are usually more
complicated to plan—and more expensive too, especially if they
involve travel.

 Reschedule if the key players can‘t be there—there‘s no point in

holding a meeting without them. You‘ll often have to hold another
meeting to update them or get their input.

 Before forming the agenda, be sure to understand the point of the

meeting and what information people should walk away from the
meeting knowing.
Tip 6: Pull reports throughout the project
The only way to know if your project is on track is to pull consistent
reports. This can often be accomplished through your project management
software program. Reports help you measure the efficiency of your
resource allocation and make sure you‘re on track to reach your budget
goals and deadlines.
Tip 7: Get the right tools
While there are many project management tools on the market, not all are
created equal. Decide what you really need and compare the products that
interest you. At the very least, be sure to choose a tool that allows you to
do the following:

 Organize and link tasks to create timelines and plans.

 Share insights that help you better communicate progress.

 Quickly understand how to use the interface.

 Customize your plan to fit your team‘s needs.

Even though being an amazing project manager is difficult, it‘s still
doable. You simply need the skills, know-how and appropriate tools to get
the job done and achieve the right results.
Project Management Cycle
1. Initiation
First, you need to identify a business need, problem, or opportunity and
brainstorm ways that your team can meet this need, solve this problem, or
seize this opportunity. During this step, you figure out an objective for
your project, determine whether the project is feasible, and identify the
major deliverables for the project.
Project management steps for the initiation phase
Steps for the project initiation phase may include the following:
 Undertaking a feasibility study: Identify the primary problem your
project will solve and whether your project will deliver a solution to
that problem

 Identifying scope: Define the depth and breadth of the project

 Identifying deliverables: Define the product or service to provide

  Identifying project stakeholders: Figure out whom the project affects
and what their needs may be

 Developing a business case: Use the above criteria to compare the

potential costs and benefits for the project to determine if it moves
forward

 Developing a statement of work: Document the project‘s objectives,

scope, and deliverables that you have identified previously as a
working agreement between the project owner and those working on
the project
2. Planning
Once the project is approved to move forward based on your business
case, statement of work, or project initiation document, you move into the
planning phase.
During this phase of the project management life cycle, you break down
the larger project into smaller tasks, build your team, and prepare a
schedule for the completion of assignments. Create smaller goals within
the larger project, making sure each is achievable within the time frame.
Smaller goals should have a high potential for success.
Project management steps for the planning phase
Steps for the project planning phase may include the following:
 Creating a project plan: Identify the project timeline, including the
phases of the project, the tasks to be performed, and possible
constraints

 Creating workflow diagrams: Visualize your processes using

swimlanes to make sure team members clearly understand their role
in a project
  Estimating budget and creating a financial plan: Use cost estimates
to determine how much to spend on the project to get the maximum
return on investment

 Gathering resources: Build your functional team from internal and

external talent pools while making sure everyone has the necessary
tools (software, hardware, etc.) to complete their tasks

 Anticipating risks and potential quality roadblocks: Identify issues

that may cause your project to stall while planning to mitigate those
risks and maintain the project‘s quality and timeline

 Holding a project kickoff meeting: Bring your team on board and

outline the project so they can quickly get to work

3. Execution
You‘ve received business approval, developed a plan, and built your team.
Now it‘s time to get to work. The execution phase turns your plan into
action. The project manager‘s job in this phase of the project management
life cycle is to keep work on track, organize team members, manage
timelines, and make sure the work is done according to the original plan.
Project management steps for the execution phase
Steps for the project execution phase may include the following:

 Creating tasks and organizing workflows: Assign granular aspects

of the projects to the appropriate team members, making sure team
members are not overworked

 Briefing team members on tasks: Explain tasks to team members,

providing necessary guidance on how they should be completed, and
organizing process-related training if necessary
  Communicating with team members, clients, and upper
management: Provide updates to project stakeholders at all levels

 Monitoring quality of work: Ensure that team members are

meeting their time and quality goals for tasks

 Managing budget: Monitor spending and keeping the project on

track in terms of assets and resources

4. Monitoring and Controlling

This process oversees all the tasks and metrics needed to guarantee that the
agreed and approved project that is undertaken is within scope, on time
and within budget so that the project proceeds with minimum risk.
During the monitoring phase of project management, the manager is also
responsible for quantitatively tracking the effort and cost during the
process. This tracking not only ensures that the project remains within the
budget but also is important for future projects.

5. Closure
Once your team has completed work on a project, you enter the closure
phase. In the closure phase, you provide final deliverables, release project
resources, and determine the success of the project. Just because the major
project work is over, that doesn‘t mean the project manager‘s job is
done—there are still important things to do, including evaluating what did
and did not work with the project.
Project management steps for the closure phase
Steps for the project closure phase may include the following:
 Analyzing project performance: Determine whether the project's
goals were met (tasks completed, on time and on budget) and the
initial problem solved using a prepared checklist.

 Analyzing team performance: Evaluate how team members

performed, including whether they met their goals along with
timeliness and quality of work

 Documenting project closure: Make sure that all aspects of the

project are completed with no loose ends remaining and providing
reports to key stakeholders

 Conducting post-implementation reviews: Conduct a final analysis of

the project, taking into account lessons learned for similar projects in
the future

 Accounting for used and unused budget: Allocate remaining

resources for future projects
Market and Technical Analysis
Market analysis is a detailed assessment of your business‘s target market
and competitive landscape within a specific industry. This analysis lets
you project the success you can expect when you introduce your brand and
its products to consumers within the market.
Purpose of Market Analysis
1. Research your industry. The purpose of this step is to gain an
understanding of your industry at large, so that you know how to
enter it, can spot trends, and compete with other brands.
Here are questions to get you started:

 How many businesses are in this industry?

 What‘s the size of the market in terms of the number of potential

customers?
  How much revenue does the industry generate?

 What are the industry standards by which companies and consumers

operate?
2. Investigate the competitive landscape. This next step takes you
from broad industry insights to looking specifically at brands you‘ll
be competing against as you seek to attract potential customers in
your target market. Here are questions to guide your process:

 What brands are the most well known in your industry? Who sets
the trends and captures the attention of customers?

 What are these brands‘ offers, price points, and value

propositions?

 What sales tactics, technologies, and platforms do these brands

use to create a customer journey?

 How do these brands use content to educate and engage an

audience?

 What can you learn from customer reviews of these brands?

3. Identify market gaps. With insights into how competing brands
fare, you‘re in a good position to find market gaps, differentiate your
products and services, and stand out within your industry.
Market gaps are needs that are currently not being filled by existing
brands. For example, in the online education industry, you might find
that learners are interested in topics that existing courses do not
cover, in which case you could develop a course to fill this need.
Here are some questions to help you identify market gaps:

 Looking back at your industry research findings, what will external

factors like social change and new laws mean for developing
products and services?
 Ask consumers directly: ―What do you want or need that you
currently can‘t find?‖

 How specifically do competitors‘ products and services fall short?

 In what ways would you be able to create better products and

services, given your strengths and expertise?
4. Define your target market. Now that you know your industry, the
competitive landscape, and market gaps you can fill, the next thing to
do is get specific about the kinds of customers you want to serve.
Define your target market according to the characteristics that make
individual consumers more likely to purchase products and services
from you:

 Of the potential customers in your industry, which specific market

segment can you target effectively?

 How can you describe this segment according to their

demographics (age, ethnicity, income, location, etc.) and
psychographics (beliefs, values, aspirations, lifestyle, etc.)?

 What are their daily lives like?

 What problems and challenges do they experience?

 What words, phrases, ideas, and concepts do consumers in your

target market use to describe these problems when posting on
social media or engaging with your competitors?

 What are the features and benefits of your offers, and how will
these provide solutions to your target market‘s needs?

 What kind of marketing messaging can you use to appeal to this

target market in order to exhibit empathy and understanding?
5. Identify barriers to entry. As you‘re getting to know your target
market and tailoring your offers and messaging to consumers, it‘s
 important to have a clear sense of factors that might prevent you
from entering your market successfully. That way, you can devise a
strategy to address challenges.
Here are some questions to make barriers to entry more visible:

 What are the startup costs of building your business, including

product development, technology, suppliers, patents, and
certifications?

 What legal requirements will you need to fulfill before launching?

 What political, economic, and social factors might affect customers

behavior and their likelihood of purchasing your offerings?

 How much do your top competitors spend on their advertising to

earn the loyalty of customers?

 What will you need to do to present your offerings as better

alternatives in terms of value, price, and ease of purchase?
6. Create a sales forecast. Sales forecasting is the process of
estimating future sales so that you can make confident business
decisions or secure funding from investors and lenders. You may
find it useful to create forecasts for specific increments of time, such
as the next three months, six months, or year.
To generate a sales forecast, answer these questions:

 What products and services do you intend to sell?

 How many units do you expect to sell during each increment of time,
based on your market size and the behaviors of your target market?

 What prices will you assign to each product or service?

 What is the cost of producing and advertising each offering?

Components of Market Analysis
1. Research your industry. Gain a holistic understanding of
everything happening in your industry and prepare to navigate it.
2. Investigate competitors. Know who the big players are and how
you can differentiate your brand.
3. Identify market gaps. Find unsolved problems and unmet desires in
your market.
4. Define your target market. Know your customers‘ unique
characteristics and tailor your offers and marketing accordingly.
5. Identify barriers to entry. Know what stands in your way and
address challenges head on.
6. Create a sales forecast. Estimate future sales and make confident
business decisions.

Technical Analysis
The primary purpose of conducting technical analysis is to find out the
technical feasibility of the project. It's done to know whether all the inputs
required to set up the project are available or not. In order to find out the
most suitable and optimal structure of the project in terms of technology,
location etc.
Purpose of Technical Analysis
 The primary purpose of conducting technical analysis is to find out
the technical feasibility of the project. It‘s done to know whether all
the inputs required to set up the project are available or not.
  In order to find out the most suitable and optimal structure of the
project in terms of technology, location etc.

 Deciding from all available alternatives which will be the best option
for the organisation.

Components of Technical Analysis

1. Selection of Process/ Technology: For manufacturing a product,
more than one process/technology may be available. For example,
steel can be manufactured either by the Bessemer process or by the
open-health process. Cement can be manufactured either by the wet
process or by the dry process.

 Plant Capacity: also known as the production capacity is the

number of units that can be produced in a specific Also period of
time

 Principal Inputs: these inputs used to make final products and

constitute at least 10% of the cost of material

 Investment Outlay and production costs: investment outlay is the

cost incurred to acquire an asset or execute a strategy similarly
production cost are the business costs involved in the production
process

2. Technical Arrangements: This aims to make arrangements to

obtain the technical know-how needed to conduct the proposed
production process.

Price of the technology in terms of infrastructure and licensing fee

Suitable modes of payment available must be available

Collaboration time of the agreement

 Benefits from research and development services
3. Material Inputs and Utilities: Another aspect of technical analysis
is the analysis of the required material inputs and utilities. Material
inputs majorly consist of raw material and hence its deep analysis
must be done. The areas to study are:

 Raw Material: In short it is the basic material which upon

processing is converted into the final product. It is basically of four
types:

 Agricultural products- field crops, fruits, vegetables, rice, wheat

etc.

 Mineral products- industrial rocks, minerals, clays, sand, gravel,

talc, ceramics, paints etc.

 Live Stock and forest products- farm animals, sheep, horses, goats,
pigs, dyes, wood, paper, rubber etc.

 Marine Products- fish, corals, bacteria, sponges, seashells, crabs

etc.
4. Product Mix: An Important aspect in technical analysis of a project
is product mix decision. It is essential to choose an effective product
mix as different customer have different taste preferences and needs.
The Choice of a product mix is usually guided by market
requirements. A product manager must keep in mind the quality of
products and flexibility in production while taking product mix
decision.
5. Plant Capacity: Plant capacity also known as the production
capacity is the number of units that can be produced in a specific
period of time or can be called the maximum output rate of
production.
Following factors have bearing on the plant capacity decision:
 Technological requirement

 Input constraints

 Investment cost

 Product Mix

 Latest Developments

 Ease of absorption

 Auxiliary Materials & Factory Supplies

 Processed Industrial Materials & Components

 Period of collaboration & Assistance provided

 The continuing benefit of R&D work being done

 Market conditions

 Resources of the firm

 Government Policy
6. Location and Site: Location refers to a broad area within the city
and while site means a specific piece of land where project would be
set up. For the purpose of site selection a critical assessment of the
demand, size of plant and input requirements.
7. Machinery and Equipment: Plant and machinery form the
backbone of any industry. The quality of output depends upon the
quality of machinery used in processing the raw materials.
Uninterrupted production is again ensured only by high quality
machines that do not breakdown so often. Capacity of each
machinery is to be decided by making a rough estimate

 Procurement of plant and machinery

  Constraints in the selection of machinery and equipment

 Acquiring spare parts, tools etc.

 The internal transportation system, mechanical instruments,

electrical instruments etc. are also to be taken into consideration
8. Structure and Civil Works: These tasks require a lot of time to be
executed because of the scale which is involved and also the amount
of work to be done. This is generally be divided into 3 categories:

 Site preparation and Development: This includes levelling and

grading of the desired site in addition to removal of the existing
structure if any, allocation of gas&water pipelines, power cables,
construction of power network, communication network etc.

 Buildings and Structure: This generally includes the factory or

setup building, support units or buildings, administrative areas, and
residential areas if required.

 Outdoor Works: Subsequently these include supply and distribution

facilities of utilities, disposal of waste methods, a system of disposal
and treatment of harmful emissions, external supervision etc.
9. Environmental Aspects: In addition to the points discussed above
the environment is a very great and important factor as far as the
current situation is considered. The amount of pollution irrespective
of its kind is also a big threat to society.
The government also favours organisations those who work without
damaging the environment. It also becomes our moral responsibility to do
so. Therefore the following key issues must be considered and taken care
of when it comes to the environment:

 What are the types of emissions generated? What can be done to

minimise these emissions?
  Will the project be able to clear all the environmental restrictions
imposed by the government?

 What should be done for the proper disposal and treatment of

effluents and treatment of other waste products?

 Other environmental aspects include surface water quality, air

quality, erosion, land quality, the noise of operations, public health
factors etc.
10. Project Charts and Layouts: Charts and layouts certainly
define the scope of the desired project and provide the basis of
detailed engineering and estimation of investment and production
costs.
It also takes into account the general functional layout and the
organizational layout with the embedded layout for communication.
Above all these are prepared after completion of dimensions like market
size, demand analysis etc.

 Labor Situation: the current situation of labour in that area during

different times

 Transport layout: certainly the means of transport outside the product

line

 Government Policies, for instance, the strictness of these policies

 Other factors, for example, the climatic & living conditions

Market Analysis
Four common types of market research techniques include surveys,
interviews, focus groups, and customer observation.
 1. Surveys: the most commonly used:- Surveys are a form of
qualitative research that ask respondents a short series of open- or
closed-ended questions, which can be delivered as an on-screen
questionnaire or via email. When we asked 2,000 Customer
Experience (CX) professionals about their company‘s approach to
research, surveys proved to be the most commonly used market
research technique.

What makes online surveys so popular? They‘re easy and inexpensive to

conduct, and you can do a lot of data collection quickly. Plus, the data is
pretty straightforward to analyze, even when you have to analyze open-
ended questions whose answers might initially appear difficult to
categorize.

We've built a number of survey templates ready and waiting for you. Grab
a template and share with your customers in just a few clicks.

2. Interviews: the most insightful:- Interviews are one-on-one

conversations with members of your target market. Nothing beats a
face-to-face interview for diving deep (and reading non-verbal cues),
but if an in-person meeting isn‘t possible, video conferencing is a
solid second choice.

Regardless of how you conduct it, any type of in-depth interview will
produce big benefits in understanding your target customers.

What makes interviews so insightful? By speaking directly with an ideal

customer, you‘ll gain greater empathy for their experience, and you can
follow insightful threads that can produce plenty of 'Aha!' moments.

3. Focus groups: the most dangerous: -Focus groups bring together a

carefully selected group of people who fit a company‘s target
market. A trained moderator leads a conversation surrounding the
product, user experience, and/or marketing message to gain deeper
insights.

What makes focus groups so dangerous?

If you‘re new to market research, I wouldn‘t recommend starting with
focus groups. Doing it right is expensive, and if you cut corners, your
research could fall victim to all kinds of errors. Dominance bias (when a
forceful participant influences the group) and moderator style bias (when
different moderator personalities bring about different results in the same
study) are two of the many ways your focus group data could get skewed.

4. Observation: the most powerful :- During a customer observation

session, someone from the company takes notes while they watch an
ideal user engage with their product (or a similar product from a
competitor).

What makes observation so clever and powerful?

‗Fly-on-the-wall‘ observation is a great alternative to focus groups. It‘s not

only less expensive, but you‘ll see people interact with your product in a
natural setting without influencing each other. The only downside is that
you can‘t get inside their heads, so observation is no replacement for
customer surveys and interviews.

Market Analysis: In simple words Market analysis is a study done to

analyse the needs of the market and consumer preferences for a given
project idea.
Demand Analysis: Meanwhile Demand analysis simply aims at
estimating the aggregated demand for a particular product or service for a
given time period.
Key steps in market and demand analysis
1. Situational Analysis :- To briefly learn about the relation between
the product and its market, the project manager must informally talk
to customers, competitors, middleman, and other people related to
the project and industry.

 What is the current demand for the new product/service?

 How is demand distributed temporally and geographically?

  What trade margins will induce distributors to carry it?

 Who are buyers of the new product/service?

 What channels distribution is most suited for the new

product/service?

 What are the prospects of immediate sales?

2. Collection of Secondary Information

Information is indeed collected from various secondary and primary
sources. Secondary information refers to the information that‘s gathered
from other sources and which is already available in the market.
Primary information, on the other hand, refers to the first-hand
information that‘s collected for the first time to meet the specific purpose.
On the other hand, secondary information provides the base and starting
point for market and demand analysis.
Some most important and popular sources of secondary data collection
are:

 National sample survey reports

 Plan reports

 Annual survey of industries

 Monthly bulletin of the reserve bank

 Publications of advertising agencies

 National Census

 Annual reports of the Department of commerce and industry

 The exchange directory

  Statistical abstract of national union

 Statistical yearbook

Conduct of Market Survey

Firstly to obtain primary data and secondary information a detailed market
survey is needed to be done. The market survey can be of different types.
For instance, it may be a census survey or a sample survey.
In a sample survey, a sample of the population is contacted or observed
but on the other hand in a census survey, the entire population is covered.
The information collected from the market survey can relate to some of the
following things from:

 Total demand and growth rate of demand

 Demand in different segments of the market

 Motives of the buyers for buying the product

 Purchasing plans and intentions of the buyer

 Social and economic characteristics of the buyer

 Unsatisfied needs and wants of the customer

 Attitude and behaviour towards various products

 Trade practices and preferences

 Satisfaction level of consumers with the existing products available

in the market
Characterization of the market
Based on the information collected from various primary and secondary
sources and through the market survey, the market for the product or
service for which the analysis is being conducted can be described in the
following terms:

 Effective demand for the product in the past or in the present

 Breakdown of demand for the product

 Price factors related to the product

 Methods suitable for distribution of the product and its sales

promotion

 Consumers of the product

 Supply levels and the amount of competition for the product in the
market

 Government policies relating to the market looking to work in

Demand Forecasting
After the collection of information about various aspects of the market and
demand analysis from suitable primary and secondary sources, an attempt
is to made to estimate the future demand for the product or service.
However, a wide range of forecasting methods is available with the project
manager to do the same.
We will learn more about the methods, uncertainties and ways to come
with those uncertainties further in the post.
Market Planning
So, market planning is the process of organizing and defining the
marketing aim of a company for a product or service and planning
strategies and tactics to achieve planned goals.

Components of a Market Plan

  Current Market Situation

 S.W.O.T. Analysis

 Objectives

 Marketing Strategy

 Action Program

 Budget and Controls

Uncertainties in Demand Forecasting

Demand uncertainty refers to the external factors that cause demand to
unexpectedly increase or decrease. This situation can be caused by a
public health crisis or even a sudden shift in the customers' tastes. Many
software help companies to forecast demand and develop relevant
production and supply chain strategies.
It is found that there are three major factors for demand uncertainties-
availability of the Product in market, affordability of the customers,
seasonal Effect. These factors affect business performance significantly.
Demand forecasts are subject to error and uncertainty, which arise from
three principal sources:
1) Data about past and present market,
2) Methods of forecasting, and,
3) Environmental change.
Data about past and present market. The analysis of past and present
markets, which serve as the springboard for the projection exercise, may
be vitiated by the following inadequacies of data:
  Lack of Standardization: Data pertaining to market features like
product, price, quantity, cost, income, etc. may not reflect uniform
concepts and measures.

 Few observations: observations available to conduct meaningful

analysis may not be enough.

 Influence of abnormal factors: Some of the observations may be

influenced by abnormal factors like war or natural calamity.
Method of forecasting. Methods used for demand forecasting are
characterized by the following limitations:

 Inability to handle unquantifiable factors: most of the forecasting

methods, being quantitative in nature, cannot handle unquantifiable
factors which sometimes can be of immense significance.

 Unrealistic assumptions: Each forecasting method is based on

certain assumptions. For example, the trend projection method is
based on the mutually compensating affects premise and the end use
method is based on the constancy of technical coefficients.
Uncertainty arises when the assumptions underline the chosen
method tend to be realistic and erroneous.

 Exercise data requirement: In general, the more advanced a

method, the greater the data requirement. For example, to use an
econometric model one has to forecast the future values of
explanatory variables in order to project the explained variable.
Environmental Change. The environment in which a business functions
is characterized by numerous uncertainties. The important sources of
uncertainty are mentioned below:

 Technological Change: This is a very important and very hard-to-

predict factor which influences business prospects. A technological
advancement may create a new product which performs the same
 function more efficiently and economically, thereby cutting into the
market for the existing product. For example, electronic watches are
encroaching on the market for mechanical watches.

 Shift in Government Policy: Government resolution of business

may be extensive. Changes in government policy, which may be
difficult to anticipate, could have a telling effect on the business
environment.

 Development on the International Scene: Development on the

International Scene may have a profound effect on industries.

 Discovery of New Sources of Raw Material: Discovery of new

sources of raw materials, particularly hydrocarbons, can have a
significant effect on the market situation of several products.

 Vagaries of the Weather: Weather plays an important role in the

economy of a country, is somewhat unpredictable. Extreme weather
influences, directly or indirectly, the demand for a wide range of
products.
Product Mix:
Customers differ in their needs and preferences. Hence, variations in size
and quality of products are necessary to satisfy the varying needs and
preferences of customers, the production facilities should be planned with
an element of flexibility. Such flexibility in the production facilities will
help the organization to change the product mix as per customer
requirements, which is very essential for the survival and growth of any
organization.
For example, a plastic container manufacturing industry can be produced
according to the market requirement. This will give the unit a competitive
edge.
Plant Capacity:
Selection of machinery: The machinery and equipment required for a
project depends upon the production technology proposed to be adopted
and the size of the proposed. Capacity of each machinery is to be decided
by making a rough estimate, as under; thumb rules should be avoided.
i) Take into consideration the output planned.
ii) Arrive at the machine hours required for each type of operation.
iii) Arrive at the machine capacity after giving necessary allowances for
machinery maintenance/breakdown, rest time for workers, set up time for
machines, time lost during change of shifts, etc.
iv) After having arrived at the capacity of the machinery as above, make a
survey of the machinery available in the market with regard to capacity
and choose that capacity which is either equal to or just above the capacity
theoretically arrived at.

 Procurement of Machinery : Plant and machinery form the

backbone of any industry. The quality of output depends upon the
quality of machinery used in processing the raw materials (apart
from the quality of raw material itself). Uninterrupted production is
again ensured only by high quality machines that do not breakdown
so often. Hence no compromise should be made on the quality of the
machinery and the project promoter should be on the lookout for the
best brand of machinery available in the market. The performance of
the machinery functioning elsewhere may be studied to have a first
hand information before deciding upon the machinery supplier.

 Plant Layout : The efficiency of a manufacturing operation depends

upon the layout of the plant and machinery. Plant layout is the
arrangement of the various production facilities within the
production area. Plant layout should be so arranged that it ensured
steady flow production and minimizes the overall cost.
 The following factors should be considered while deciding plant-layout:
i) The layout should be such that future expansion can be done without
much alteration of the existing layout.
ii) The layout should facilitate effective supervision of work.
iii) Equipments causing pollution should be arranged to be located
away from other plant and machinery. For example, generator is a
major source of noise pollution.
iv)There should be adequate clearance between adjacent machinery and
between the wall and machinery to enable undertaking of regular
inspection and maintenance work.
v) The plant layout should ensure smooth flow of men and material
from on stage to another.
vi)The plant layout should be one that offers maximum safety to the
personnel working inside the plant.
vii) The plant layout should provide for proper lighting and
ventilation.
viii) The plant layout should properly accommodate utilities like power
and water connections and provisions for effluent disposal.

Material and Inputs –

It involves defining the requirements for materials and utilities, specifying
their properties and setting up a supply channel. Material input & utilities
may be classified into the following:
Raw materials – Raw materials (processed and / or semi – processed)
may be classified into three types:
 1. Plant/tree-based – materials like vegetables, fruits, flowers, wood,
resin, latex are obtained from plants and trees.
2. Animal-based– materials like leather, meat, bones, milk, wool, silk
are all obtained from animals.
3. Mining-based– materials like minerals, metals, crude oil, coal, etc.
are obtained by mining the earth.
Processed Industrial Materials/Components – Processed industrial
materials and components (base metals, semi-processed materials,
manufactured parts, components, and sub-assemblies) represent important
inputs for a number of industries.
Auxiliary materials and factory supplies – In addition to the basic raw
materials and processed industrial materials and components, a
manufacturing project requires various auxiliary materials and factory
supplies like chemicals, additives, packaging materials, paints, varnishes,
oils, grease, cleaning materials etc.
Utilities – A broad assessment of utilities (power, water, steam, fuel, etc)
may be made at the time of input study though a detailed assessment can
be made only after formulating the project with respect to location,
technology, and plant capacity.
Machinery and Equipment:
Machinery and equipment is "used directly" in a manufacturing operation,
testing operation, or research and development operation, if the machinery
and equipment meets any one of the following criteria: Acts upon or
interacts with an item of tangible personal property.
For a service company, these can include computers, copiers, telephone
systems, and any electronic gear.
For a manufacturing company, they include such things as drill presses,
lathe machines, sanders, and other large tools.
Financial Analysis
Financial analysis refers to an assessment of the viability, stability, and
profitability of a business, sub-business or project. It is performed by
professionals who prepare reports using ratios and other techniques, that
make use of information taken from financial statements and other reports.
Types of Financial Analysis
Fundamental Analysis: Fundamental analysis uses ratios gathered from
data within the financial statements, such as a company's earnings per
share (EPS), in order to determine the business's value. Using ratio
analysis in addition to a thorough review of economic and financial
situations surrounding the company, the analyst is able to arrive at an
intrinsic value for the security. The end goal is to arrive at a number that
an investor can compare with a security's current price in order to see
whether the security is undervalued or overvalued.
Technical Analysis: Technical analysis uses statistical trends gathered
from trading activity, such as moving averages (MA). Essentially,
technical analysis assumes that a security‘s price already reflects all
publicly available information and instead focuses on the statistical
analysis of price movements. Technical analysis attempts to understand
the market sentiment behind price trends by looking for patterns and
trends rather than analyzing a security‘s fundamental attributes.

Cost of Project
Cost of a project means the cost of the acquisition, construction,
reconstruction, conversion, or leasing of any industrial, commercial, health
care, agricultural, or forestry enterprise, or any part thereof, to carry out
the purposes and objectives of this chapter, including, but not limited to,
acquisition of land or interest in land, buildings, structures, or other
planned or existing planned improvements to land, including leasehold
improvements, machinery, equipment, or furnishings; working capital; and
administrative costs including, but not limited to, engineering,
architectural, legal, and accounting fees which are necessary for the
project;
Projected Cash Flow
A cash flow projection estimates the money you expect to flow in and out
of your business, including all of your income and expenses. Typically,
most businesses' cash flow projections cover a 12-month period. However,
your business can create a weekly, monthly, or semi-annual cash flow
projection.
Advantages of projecting cash flow
Estimating anticipated cash flow projections can help boost your
business‘s success. Some pros of creating a cash flow projection include
being able to:

 Predict cash shortages and surpluses

 See and compare business expenses and income for periods

 Estimate effects of business change (e.g., hiring an employee)

 Prove to lenders your ability to repay on time

 Determine if you need to make adjustments (e.g., cutting expenses)

Creating a projection of cash flow
If you want to create your own cash flow projection, start drafting out
columns for your future periods. Or, you can take advantage of a spread
sheet to organize your cash flow statement projections.
You should include the following categories in your cash flow projection:

 Opening balance

 Cash in (e.g., sales)

  Cash out (e.g., expenses)

 Totals for cash in and cash out

 Uses of cash (e.g., materials)

 Total cash flow for the period

 Closing balance

 Periods (e.g., month of January)

A cash flow statement typically includes three main components:

 Operating activities

 Investing activities

 Financing activities
Means of Financing Project in India
Project finance may come from a variety of sources. The main sources
include equity, debt and government grants. Financing from these
alternative sources have important implications on project's overall cost,
cash flow, ultimate liability and claims to project incomes and assets.
Project financing is a means of obtaining funds for industrial projects,
long-term infrastructure, and public services. There are several ways to
secure project finance, such as investors, loans, private finance, equity,
funds, grants, etc. The repayment is managed from the cash flow generated
by the project.
Below, we have discussed different sources from which one can obtain
project financing.
  Angels Investor Angels Investors have a vast experience in the
industry they operate in. Private investors may invest in a company
for capital gain. The investment is for a place on board or an equity
stake.

 Venture Capital Venture capitalists invest in a project for a non-

executive position on the board. They provide capital in exchange for
an equity share or a position at a strategic level. Once the value of
shares increases, they may sell those for a profit.

BASIS FOR VENTURE

ANGEL INVESTOR
COMPARISON CAPITALIST

Meaning Angel Investors are Venture Capitalist

affluent individuals, refers to an
who help startup organization or a part
founders in starting of an organization or a
their business by professional person
infusing their money, who invests in budding
in exchange for an companies, by
ownership stake or providing them capital,
convertible debt. to help them grow and
expand.

What is it? Individual investors, Professionally

who are often managed public or
successful private firm.
businessmen.

Investment Investment is made in Investment is made in

the pre-revenue the pre-profitability
business. business.

Money Use their own money Pools money from

insurance companies,
BASIS FOR VENTURE
ANGEL INVESTOR
COMPARISON CAPITALIST

to make investment. funds, foundations, and

corporations, to make
an investment.

Investment size Less Comparatively large

Screening Undertaken by the Undertaken by a team

angel investor of experts or by an
according to their own outside firm which
experience. specializes in the
same.

Post Investment Active Strategic

role

Stresses on Investment criteria Investment criteria

related to ex-post related to initial
involvement. screening of
investment
opportunities.

Approach to Incomplete contracts Principal-agent

agency risk approach approach
control

 Loan for Business Apart from secured lending, a company can

choose the unsecured business loan that comes for a fixed tenure
 with a repayment plan. The cost of the loan is determined by
estimating the returns from the project. The interest payment is tax-
deductible in some cases. An agreement is made between the
financial institution and the borrower for a specific loan amount and
tenure.

 Overdrafts Overdrafts are ideal for short-term finance. The period

of overdraft facility is for a year or less. The interest is only charged
on the amount spent from the person‘s account. Such financing can
be arranged quickly like business loans.

 Share Capital The shareholders get profits from dividends. This

share of profit is derived from ordinary shares (owned by business
owners who can share profits of an organization from dividends) or
preference shares (does not belong to company owners but a third
party). Capital gain is expected from selling the shares in future. It is
the company shareholders who raise the Share Capital.

 Debentures Debenture loans come with a fixed or a floating rate and

are provided against an organization‘s assets. The debenture holders
receive payment of interest before the shareholders receive their
dividend payment. If the business fails, then these holders are liable
as preferential creditors.
A project loan offers a great opportunity to fund providers and investors to
be a part of the company‘s growth process and share its profits. The
above-mentioned sources for project financing are crucial for new
companies. Apart from these sources, a few others to mention are project
grants and government funding.
Role of Financial Institutions in Project Finance
They provide long-term as well as short-term funds to these companies.
The long-term fund helps them form capital, and short-term funds fulfill
their day-to-day working capital needs.
Types of Financial Institutions
 Commercial Banks A commercial bank is a financial institution that
accepts money from individuals and businesses and provides loans to
those in need. They offer services such as loans, savings, certificates
of deposits, bank accounts, bank overdrafts, etc., to their customers.
These organizations earn money by granting loans to individuals and
gaining interest on loans. Business loans, house loans, personal
loans, car loans, and education loans are the different types of loans
offered by commercial banks.

 Investment Banks Investment banking helps individuals,

organizations, governments, and other institutions raise capital and
provide financial consultancy advice. They don‘t deal with customer
deposits but rather assist with financing through securities such as
bonds and stocks.
They are a type of financial institution that provides services that
specialize in facilitating business operations, such as financing and
offerings of capital expenditure and equity, mergers and acquisitions,
and new issues of initial public offerings (IPOs). They also commonly
act as market makers for trading exchanges, provide brokerage services
for investors, and other corporate restructurings.

 Credit Unions A credit union is a type of financial institution

similar to a commercial bank. But is a non-profit institution that is
created, owned, and operated by its members. They provide
traditional banking services only to their members, such as
account opening, issuing credit cards, loans, etc. Credit unions
charge interest and account fees just like a bank, but they reinvest
those profits into the products they offer; however, banks provide
these profits to their shareholders.
In the recent past, credit unions only serve a particular demographic as per
their field of membership, such as military members, teachers, etc.
Although, nowadays, they have liberated the restrictions on membership
and provide their services to the general public.

 Insurance Companies Insurance companies are familiar kinds of

non-bank financial institutions. They offer insurance services to
both individuals and organizations. The insurance can be related
to the protection against financial risk, life insurance, health,
home, shop, company, products, vehicles, etc. These institutions
put the money from insurance premiums into a pool to fund the
policy coverage. Insurance companies can be necessary for the
stability of financial systems mainly because they are significant
investors in financial markets. As a result of the growing links
between insurers and banks, insurers are insuring the risks of
households and firms to guarantee their financial stability.

 Brokerage Firms A brokerage firm or company is a middleman

who connects the buying and selling parties to facilitate the
transaction. They assist in the dealing of securities such as stocks,
mutual funds, shares, bonds, options, and other financial
instruments. Once the transaction is completed, brokers receive
the brokerage (commission) from both parties involved. Some
brokerage companies also provide financial advice and act as
consultants.
Break Even Analysis
A break-even analysis is a financial calculation that weighs the costs of a
new business, service or product against the unit sell price to determine the
point at which you will break even. In other words, it reveals the point at
which you will have sold enough units to cover all of your costs.
Break Even Analysis in economics, business, and cost accounting refers to
the point in which total cost and total revenue are equal.
Formula for Break Even Analysis
Break Even Quantity = Fixed Costs / (Sales Price per Unit – Variable Cost
Per Unit)
Where:

 Fixed Costs are costs that do not change with varying output (e.g.,
salary, rent, building machinery).

 Sales Price per Unit is the selling price (unit selling price) per unit.

 Variable Cost per Unit is the variable costs incurred to create a unit.
For example, if a book‘s selling price is Rs.100 and its variable costs are
Rs.5 to make the book, Rs.95 is the contribution margin per unit and
contributes to offsetting the fixed costs.
Example of Break Even Analysis
A, which sells water bottles. He previously determined that the fixed costs
of Company A consist of property taxes, a lease, and executive salaries,
which add up to Rs.100,000. The variable cost associated with producing
one water bottle is Rs.2 per unit. The water bottle is sold at a premium
price of Rs.12. To determine the break even point of Company A‘s
premium water bottle:
Break Even Quantity = 100,000 / (12 – 2) = 10,000
Therefore, given the fixed costs, variable costs, and selling price of the
water bottles, Company A would need to sell 10,000 units of water bottles
to break even.
For an example:
Variable costs per unit: Rs. 400 Sale price per unit: Rs. 600 Desired
profits: Rs. 4,00,000 Total fixed costs: Rs. 10,00,000 First we need to
calculate the break-even point per unit, so we will divide the Rs.10,00,000
of fixed costs by the Rs. 200 which is the contribution per unit (Rs. 600 –
Rs. 200). Break-Even Point = Rs. 10,00,000/ Rs. 200 = 5000 units Next,
this number of units can be shown in rupees by multiplying the 5,000 units
with the selling price of Rs. 600 per unit. We get Break-Even Sales at
5000 units x Rs. 600 = Rs. 30,00,000. (Break-even point in rupees)
Project Appraisal
Project appraisal is the structured process of assessing the viability of a
project or proposal. It involves calculating the feasibility of the project
before committing resources to it. It is a tool that company‘s use for
choosing the best project that would help them to attain their goal. Project
appraisal often involves making comparison between various options and
this done by making use of any decision technique or economic appraisal
technique.
Project Appraisal Guidelines

 Project should assess in terms of its economic, social and financial

viability

 Various aspects of a Project should asses before committing a project

 An individual person or a team who are not involved it‘s the

preparation of Project Proposal should assess the Project.

Economic Analysis
Economic analysis essentially entails the evaluation of costs and benefits.
It starts by ranking projects based on economic viability to aid better
allocation of resources.
Economic analysis refers to evaluating costs and benefits to check the
viability of a project, investment opportunity, event, or any other matter.
In other words, it involves identifying, evaluating, and comparing costs
and benefits. In addition, there are many other significant concepts
involved.
There are two prominent types of methods of economic analysis:
A) Deductive Method B) Inductive Method.
Deductive method (Testing an existing theory) : The Deductive Method
is also known as the ‗Analytical Method‘ or ‗Abstract Method‗ or ‗Priori
Method‘ or ‗Hypothetical Method‘.
It is a method of economic investigation or economic analysis. It is also
known as the analytical abstract priori method or the hypothetical method.
In this method, a person is required to assume the factual information and
then follow the phase of logical reasoning to arrive at a concrete result or
conclusion. By including some assumptions and experiments, a theory is
built in this method.
For instance, it is a common fact that businessmen strive for maximum
profits. Therefore, assumptions such as businessmen buying materials at a
cheaper cost and cutting labour costs are added to build an economic
theory that offers solutions to qualitative and labour-related issues. Hence,
the common rule to remember in the case of deductive methods is to move
from general facts to particular assumptions and, eventually, constructive
theories.
For example any supply and demand analysis you do is the application of
generally accepted principles about demand and about supply; therefore,
you are engaging in deductive logic.
All men are mortal. Joe is a man. Therefore Joe is mortal.
Bachelors are unmarried men. Bill is unmarried. Therefore, Bill is a
bachelor.
Principles
1. Abstract to Concrete
2. Particular (General to Specific)
3. Rule to Example
4. Top up Approach (Generalization to Specific)
Steps of Deductive Method
1. Selection of Problem
2. Formulation of Assumption
3. Formulation of Hypothesis
4. Verify the Hypothesis
Merits of the deductive method
1. Simple and convenient: This method is observation based and is
fairly easy to practice. For example, in the Law of Diminishing
Marginal Utility, after the increase in consumption, the consumer
reaches the point of satiety, and the utility of the good begins to
diminish.
2. Removes the need for experimentation: Experiments are vital in
subjects like chemistry and physics but not mandatory in the case of
economics. Deductive method is an alternative to experiments as far
as economics as a subject is concerned.
3. Accurate results: Deductive method includes logical reasoning on
the part of the economist or the analyst. Hence, logical thinking
increases the chances of precision and sets high standards.

Inductive Method (Developing a Theory)

It is a process to generalize the data on the basis of particular observed
fact. In other words we can say this method is to move from specific
example to generalization.
Example :- A Man Purchase Round Grapes and when he eat the grapes
they are sour and next day he apply same process than he felt grapes are
sour, when he apply this process 3 to 5 five time than he generalized the
fact that round shapes grapes are always sour.
Inductive method works on the basis of experiments, and experiments
require materials and resources. It is often difficult to gather and access
the facts required for experiments. The Inductive method is an
incomplete method alone. It can be used if combined with deductive
methods or deductive reasoning.
Principles
5. Concrete to Abstract
6. Particular (Specific to General)
7. Example to Formula (Rule)
8. Bottom up Approach (Observation to Generalization)
9. Direct Experience
10. Repetition at Many Times
11. Generalized after Observation
Steps of Inductive Method
1. Problem
2. Data Collection
3. Classification of Data
4. Analysis of Data
5. Observation
6. Generalization
Merits of the Inductive method
1. It is a very practical and applicable method, and it is simply descriptive.
2. It is totally verifiable since it deals with quantities.
3. Laws and theories under the inductive method may not be universal but
are condition specific.

Financial Analysis
Financial analysis is the process of evaluating businesses, projects,
budgets, and other finance-related transactions to determine their
performance and suitability.
There are two types of financial analysis: fundamental analysis and
technical analysis.
Fundamental Analysis Fundamental analysis uses ratios gathered from
data within the financial statements, such as a company's earnings per
share (EPS), in order to determine the business's value. Using ratio
analysis in addition to a thorough review of economic and financial
situations surrounding the company, the analyst is able to arrive at an
intrinsic value for the security. The end goal is to arrive at a number that
an investor can compare with a security's current price in order to see
whether the security is undervalued or overvalued.
Technical Analysis Technical analysis represents study of the project to
evaluate technical and engineering aspects when a project is being
examined and formulated. It is a continuous process in the project
appraisal system which determines the prerequisites for meaningful
commissioning of the project. Technical analysis attempts to understand
the market sentiment behind price trends by looking for patterns and
trends rather than analyzing a security‘s fundamental attributes.
Technical Feasibility: Technical feasibility is the process of figuring out
how you're going to produce your product or service to determine whether
it's possible for your company. Before launching your offerings, you must
plan every part of your operations, from first sourcing your production
materials all the way to tracking your sales.

 Summarize your plan When beginning your technical feasibility

study, start by creating a summary of your plan. Figure out what
aspects of the production process you need to consider. Use this
initial process to create an outline for your plan as well. Write down
all the factors of your project that your team needs to consider,
including things like production costs, materials, labor force,
marketing needs and pricing strategies.

 Determine your unique selling proposition As the market

continues to become more saturated, your team needs to figure out
how your brand is going to stand out to consumers or clients. Your
unique selling proposition is essentially what makes your product or
service special. It's the reason someone would buy from your brand
as opposed to one of your competitors. Consider what gap in the
market your offerings are going to fill or what consumer needs
they're going to meet.

 Anticipate any challenges Work with your team to figure out any
challenges or barriers you may experience throughout your
production process. Plan ways you would overcome these obstacles
if they were to occur. For instance, you might consider what would
happen if you run short on a certain material. Likewise, have a
backup plan if a vendor could not deliver on their expectations. By
planning ahead, you can ensure you're meeting customers'
expectations and delivering your product to market on time.

 Consider your finances Ultimately, the purpose of creating a

product or service is to be profitable. That's why it's important to
consider your financial situation before getting started. Along with
 planning out your budget for a particular project, your team needs to
come up with price points that are going to make you money. Think
about things like production costs and outstanding debts and how
they may affect your net profit. Also, consider what price points are
going to be profitable while still affordable for your target audience.

 Complete a market analysis Knowing your current market can help

you determine if your project is feasible. Complete a market analysis
to learn about your target audience and top competitors, and do some
research to find out more about market trends and what kinds of
products or services are selling well right now. Consider conducting
consumer surveys to learn more about people's needs and spending
habits. Seek feedback on your initial project ideas to see if people are
actually going to purchase your product.

 Find a template Going through a technical feasibility study can help

your team stay organized. Make sure you gather all your information
into one well-organized document. Consider finding a template that
you can fill in or use a spreadsheet to track all your needs. Consider
breaking your document or chart into different sections based on
your labor, marketing, financial, material and technology needs.

 Look at risk vs. reward Before beginning your project, use all the
information you gathered to determine if the reward of a project is
far greater than the risk. The risk involves potential challenges you
might encounter, the money you need to invest in a project and the
level of effort your team will put into this project. The reward
involves the payoff of all your time, effort and resources. If you are
profitable enough, then your project may be worth it.

 Consider necessary labor When considering your production costs,

it's important to factor in your labor needs. Think about how much of
your current staff's time this project is going to occupy. Then,
consider if you're going to need to hire additional team members for
 certain tasks. Depending on the nature of your project, you may need
to bring in specialists for certain tasks.

 Set milestones You can use your study to set realistic goals for your
team. By creating milestones for each part of your project, everyone
can be more aware of specific deadlines and dates. This way, you
can fulfill your promises to different vendors, retailers and
customers.

Managerial Competence: The ability of the management to run a

business successfully is quintessential for assessing the viability of any
project. Project management competencies are key qualifications that great
project managers have, including skills, experience and other
qualifications.

Here are 10 project management competencies you can work on

developing

 Communication Communication is one of the most essential

competencies for project managers. Project managers communicate
frequently with a range of people, including their project team and
project stakeholders.

 Leadership Leadership is another project management competency.

Project managers are often responsible for leading project teams,
making it essential for them to have strong leadership skills.

 Decision-making Because project managers make many decisions

about projects, decision-making is another project management
competency. Good project managers typically have a strong
decision-making process as well as decision-making skills.
 Business acumen Business acumen is another project management
competency. Business acumen is an understanding of business and
what to do in different business situations. Having business acumen
skills helps project managers make good business decisions, which
can contribute heavily to the success of their projects

 Organization Good project managers also have organization skills.

Good organization is essential to project management, as project
managers typically juggle many different components of projects at
the same time.

 Negotiation skills Negotiation skills are also important for project

managers. Often, project managers are responsible for negotiating
budgets, project scopes, resource allocation and other elements of
projects.

 Strategy creation Another project management competency is

strategy creation. Strategy creation is an essential part of project
management, as project managers are typically responsible for
designing strategies to reach project goals.

 Risk management An understanding of risk management is also

important for project managers. Skills in risk management can help
project managers spot project risks and respond to them before they
cause problems.

 Planning and scheduling The ability to create plans and schedules

is another project management competency. One of the essential job
duties of a project manager is creating a thorough project plan.
Typically, project management plans include goals, tasks, metrics,
deadlines and other elements.
  Stress management Project managers should also possess skills in
stress management. It's important for project managers to manage
their stress so they can lead their teams effectively and produce
quality work. Stress management includes knowing the de-stressing
methods that work for you personally.

Project Appraisal Techniques

Performance appraisal is a development activity undertaken by the

company for improvement of the skill, knowledge, ability, personality of
the people at work. After procuring people, organization finds whether
output/service of the people is as per standard set or below the standard.

The techniques of performance appraisal are:

Technique # 1. Rating Scales: A conventional rating form of the cheek-

the-box types is sometimes called ―graphic rating‖ or ―rating scale‖. The
important part here is the overall summary rating or score, which makes it
possible to compare a large number of employees.

The rating on specific factors does serve a purpose, however, in helping to

pinpoint areas in which a subordinate needs further development.

The employees are usually rated on ―how well‖ or ―how bad‖ they
perform their job, considering the vital factors associated with the job.

Technique # 2. Forced Choice Techniques: A newer method of

appraising, which is gaining prominence, is the forced choice scale. It
eliminates much of the criticism of subjectivity in rating forms. It was
developed for the US army during World War II and has subsequently
been adapted for use with the management and supervisory personnel.

Technique # 3. Critical Incident: A new approach has been developed

which is designed to, place a much heavier, emphasis on the study of the
behaviour of the worker on the job. It aims to collect representative
samples of observed behaviour which can be used as basis for obtaining
objective, quantitative data regarding the job. It is hoped that, instead of
opinions and hunches, activity analysis can be made to yield the type of
sampling data, which can lead to inference and predictions.

Technique # 4. Self-Assessment: An individual‘s right to see, sign or

comment on his/her own appraisal can contribute to greater openness but
does not in itself indicate a truly participative approach. Some writers have
advocated a method of self-assessment as a means towards greater
involvement of the appraisee but much depends on what is meant by this
term.

Payback Period

It is the number of years it would take to get back the initial investment
made for a project. Therefore, as a technique of capital budgeting, the
payback period will be used to compare projects and derive the number of
years it takes to get back the initial investment.

One of the essential duties of a project manager is to determine whether a

project is worth investing in and ensure its success from beginning to end.
For example, one helpful metric of project value is the payback period;
that is, how long will it take to recover your initial investment in the
project? Let‘s take a closer look at the basics of payback period to help us
better prepare for the PMP exam.

Payback Period Formula PMP

The payback period formula is pretty simple, assuming the income
generated from the project is constant. Use the PMP exam formula below
to calculate the payback period of a project:

Let‘s say you are considering a project with an initial investment of

Rs.250,000. The project will produce a positive cash flow of Rs.50,000 per
year. According to the payback period formula:

Payback Period = 250000/50000 your payback period will be 8 months.

Let us understand the payback period method with a few illustrations.

Apple Limited has two project options.

The initial investment in both projects is Rs. 10,00,000.

– Project A has an even inflow of Rs. 1,00,000 every year.

– Project B has uneven cash flows as follows:

-> Year 1 – Rs. 2,00,000

-> Year 2 – Rs. 3,00,000

-> Year 3 – Rs. 4,00,000

-> Year 4 – Rs. 1,00,000

Now let us apply the payback period method to both projects.

Project A:

The formula of payback period when there are even cash flows is:

Payback period= Initial investment/Net annual cash inflows

If we use the formula, Initial investment / Net annual cash inflows

then the payback period computes to –10,00,000/ 1,00,000 = 10 years

Project B:

Total inflows = 10,00,000 (2,00,000+ 3,00,000+ 4,00,000+ 1,00,000)

Total outflows = 10,00,000

The formula to calculate the payback period for uneven cash flows is:

Considering the year of recovery as ‗n‘.

(The period up to n-1 + cumulative cash flow in n-1 year)/Cash inflow

during the nth year

Now, let us modify the cash flows of Project B and see how to get the
payback period:

Say, cash inflows are:

Year 1 – Rs. 2,00,000

Year 2 – Rs. 3,00,000

Year 3 – Rs. 7,00,000

Year 4 – Rs. 1,50,000

The payback period can be calculated as follows:

Year Total flow ( in Lakh) Cumulative flow

0 -10 -10

1 2 -8
2 3 -5

3 7 2

4 1.5 3.5

Now to find out the payback period:

Step 1: We must pick the year in which the outflows have become
positive. In other words, the year with the last negative outflow has to be
selected. So, in this case, it will be year two.

Step 2: Divide the total cumulative flow in the year in which the cash
flows became positive by the total flow of the consecutive year. So that is:
5/7 = 0.71

Step 3: Step 1 + Step 2 = The payback period is 2.71 years. Therefore,

between Project A and B, solely on the payback method, Project B (in
both the examples) will be selected. The example stated above is a very
simple presentation. In an actual scenario, an investment might not
generate returns for the first few years. Gradually over time, it might
generate returns. That too will play a major role in determining the
payback period.

Accounting Rate of Return

The accounting rate of return (ARR) formula is helpful in determining the

annual percentage rate of return of a project. ARR is calculated as average
annual profit / initial investment. ARR is commonly used when
considering multiple projects, as it provides the expected rate of return
from each project.

The accounting rate of return (ARR) is a formula that reflects the

percentage rate of return expected on an investment or asset, compared to
the initial investment's cost. The ARR formula divides an asset's average
revenue by the company's initial investment to derive the ratio or return
that one may expect over the lifetime of an asset or project.

ARR= Average Annual Profit / Initial Investment

How to Calculate the Accounting Rate of Return (ARR)

 Calculate the annual net profit from the investment, which could
include revenue minus any annual costs or expenses of
implementing the project or investment.
 If the investment is a fixed asset such as property, plant, and
equipment (PP&E), subtract any depreciation expense from the
annual revenue to achieve the annual net profit.
 Divide the annual net profit by the initial cost of the asset or
investment. The result of the calculation will yield a decimal.
Multiply the result by 100 to show the percentage return as a whole
number.

Example of the Accounting Rate of Return (ARR)

As an example, a business is considering a project that has an initial

investment of Rs.250,000 and forecasts that it would generate revenue for
the next five years. Here's how the company could calculate the ARR:

Initial investment: Rs.250,000

Expected revenue per year: Rs.70,000

Time frame: 5 years

ARR calculation: Rs.70,000 (annual revenue) / Rs.250,000 (initial cost)

ARR = 0.28 or 28%

Net Present Value

Net present value (NPV) refers to the difference between the value of cash
now and the value of cash at a future date. NPV in project management is
used to determine whether the anticipated financial gains of a project will
outweigh the present-day investment — meaning the project is a
worthwhile undertaking.

In this formula:
 Cash Flow represents the positive or negative revenue of the project
in year ―n‖
 ―r‖ represents the interest or discount rate
 ―n‖ represents the year
 Initial Cost represents the financial investment in a project
Company A ltd wanted to know their net present value of cash flow if they
invest 100000 today. And their initial investment in the project is 80000
for the 3 years of time, and they are expecting the rate of return is 10 %
yearly. From the above available information, calculate the NPV.

PV = Cash flows /(1- r)n – Initial investment

= 100000/(1-10)^3-80000

NPV = 57174.21

Internal Rate of Return

The internal rate of return (IRR) is frequently used by companies to
analyze profit centers and decide between capital projects. But this
budgeting metric can also help you evaluate certain financial events in
your own life, like mortgages and investments.
The internal rate of return (IRR) is a metric used in financial analysis to
estimate the profitability of potential investments. IRR is a discount rate
that makes the net present value (NPV) of all cash flows equal to zero in a
discounted cash flow analysis.

IRR Uses

As we mentioned above, IRR is a key tool in corporate finance. For

example, a corporation will evaluate investing in a new plant versus
extending an existing plant based on the IRR of each project. In such a
case, each new capital project must produce an IRR that is higher than the
company's cost of capital. Once this hurdle is surpassed, the project with
the highest IRR would be the wiser investment, all other things being
equal (including risk).

Benefit Cost Ratio

A benefit–cost ratio (BCR) is an indicator, used in cost–benefit analysis,
that attempts to summarize the overall value for money of a project or
proposal. A BCR is the ratio of the benefits of a project or proposal,
expressed in monetary terms, relative to its costs, also expressed in
monetary terms.
Benefit-cost ratios (BCRs) are most often used in capital budgeting to
analyze the overall value for money of undertaking a new project.
However, the cost-benefit analyses for large projects can be hard to get
right, because there are so many assumptions and uncertainties that are
hard to quantify. This is why there is usually a wide range of potential
BCR outcomes.

Formula

Benefit-Cost Ratio Formula = PV of Benefit Expected from the Project /

PV of the Cost of the Project

Steps to Calculate Benefit-Cost Ratio (BCR)

Step 1: Calculate the present value of the benefit expected from the
project. The procedure to determine the present value is:

 The amount for each year = Cash Inflows*PV factor

 Aggregate the amounts for all the years.

Step 2: Calculate the present value of costs. If the costs are incurred
upfront, the cost incurred is the present value of the expenses as there is
no PV factor.

Step 3: Calculate the benefit-cost ratio using the formula:

 BCR formula = PV of Benefit Expected from the Project / PV of the

Cost of the Project

EFG ltd is working upon the renovation of its factory in the upcoming
year, and for they expect an outflow of $50,000 immediately, and they
expect the benefits out of the same for $25,000 for the next three years.
The inflation rate that is currently prevailing is 3%. You are required to
assess whether the decision to renovate will be profitable by using a
BCR.

Solution
To do the cost-benefit analysis first, we need to bring both costs and
benefit in today‘s value. Since the outflow of Rs. 50,000 is immediate and
hence that would remain the same. Since the gains are in future value, we
need to discount them back by using a discount rate of 3%. Therefore, the
Benefit-Cost Ratio can be calculated as using the below formula as,


The formula for Calculating BCR = PV of Benefit expected from the
Project / PV of the cost of the Project

= 70715.28 /-50,000.00

BCR =1.41

Since the Benefit-Cost ratio is greater than 1, the renovation

decision appears to be beneficial.

Social Cost Benefit Analysis

The foremost aim of all the individual firm or a company is to earn
maximum possible return from the investment on their project. In this
aspect project promoters are interested in wealth maximization. Hence the
project promoters tend to evaluate only the commercial profitability of a
project. There are some projects that may not offer attractive returns as for
as commercial profitability is concerned but still such projects are
undertaken since they have social implications. Such projects are public
projects like road, railway, bridge and other transport projects, irrigation
projects, power projects etc. for which socio-economic considerations
play a significant part rather than mere commercial profitability. Such
projects are analysed for their net socio economic benefits and the
profitability analysis which is nothing but the socio-economic cost benefit
analysis done at the national level.

Features of Social Cost Benefit Analysis

 Assessing the desirability of projects in the public as opposed to the

private sector
 Identification of costs and benefits
 Measurement of costs and benefits
 The effect of (risk and uncertainty) time in investment appraisal
 Presentation of results – the investment criterion.

Benefits of SCBA in Project Management

1. Market Instability: A private corporation would evaluate a deal

based on productivity and relevant market prices. However, the
government must consider additional variables. Determining social
costs in the event of market inefficiency and when market pricing
cannot specify them. These hidden social costs are referred to as
shadow prices.
2. Investments & Savings: A venture that results in increased savings
is considered an investment in a market.
3. Income is distributed and redistributed: The initiative should not
lead to revenue accumulation in the control of a few and the
distribution of income.
4. Career and Living Standards: The impact of a program on
employment and level of livelihood will also be considered.
Therefore, the contract should result in a rise in employment and
living standards.
5. Externalities: Externalities can be detrimental and advantageous to
an enterprise. As a result, both impacts must be considered before
 approving a deal. For example, positive externalities can take the
shape of technological advances, while negative externalities might
take the form of rapid urbanization and ecological degradation.
6. Subsidy and Taxation: Taxation and subsidies are treated as
expenses and revenue, respectively. However, taxation and subsidy
are regarded as transfer payments for social cost-benefit analysis.

Risk Analysis
Risk Analysis and Management is a key project management practice to
ensure that the least number of surprises occur while your project is
underway. While we can never predict the future with certainty, we can
apply a simple and streamlined risk management process to predict the
uncertainties in the projects and minimize the occurrence or impact of
these uncertainties.
Risk Analysis is a series of activities to quantify the impact of uncertainty
on a project. These activities are risk identification, probability
assessment, and impact estimation. Risk analysis creates the foundation
for running the risk management process throughout the project lifecycle.

There are three types of risk analysis in project management as

follows below:

1. Qualitative Risk Analysis. It is a subjective analysis by the project

team where risks are identified and assessed based on their
probability of occurrence. The risk analysis table lists the risks in
terms of their probability of occurrence, impact and its control
strategies.
2. Quantitative Risk Analysis. It is an objective analysis wherein risks
are classified according to their probability of occurrence, using the
standard deviation to determine its level. This technique is useful for
determining the impact of risk events to project objectives and for
 identifying the possible courses of action and methods for controlling
and mitigating risks.
3. Technical Risk Analysis. it is a dynamic analysis that requires the
project manager to use various tools and techniques in order to
identify, rank and evaluate risks. For example, the Delphi method
requires the project manager to present the risks to a group of experts
in the field and ask them to rate or rank each risk in terms of its
probability.

Benefits of risk analyses in project management

Here are some ways risk analysis in project management is important:

 Encourages progression: A complete and successful risk

management program allows your project to move forward with few
deviations and surprises. You can decide whether to continue with a
project or make adjustments when you understand the risks and ways
of mitigating them.
 Creates awareness: Knowing the potential risks allows your team to
communicate the problems and downfalls of the project to interested
parties. Ensure you put a proper communication system that
encourages team members to report identified risks, provide
feedback and create timely responses to threats before and when they
occur.
 Makes risks manageable: Analyzing risks creates opportunities to
prepare your team to manage issues when they happen, lessening the
impact on your project. Consider analyzing risks at the start of a
project to increase the likelihood of its successful completion.
 Minimizes liabilities: While advancing a project and reducing the
financial impact of risks are beneficial results of risk analysis, it also
can lead to a reduced probability of injury for those involved in the
 project. It's essential to ensure security for members, including staff
and customers, for efficient and cost-effective processes.
 Improves efficiency: Completing a risk analysis at an early stage
can show the impact on project areas, like timeline and resources. It
also can help guide your decisions regarding resource quantity or
cost.

Measures of Risk
Risk measures are statistical measures that are historical predictors of
investment risk and volatility, and they are also major components in
modern portfolio theory (MPT). MPT is a standard financial and
academic methodology for assessing the performance of a stock or a
stock fund as compared to its benchmark index.
There are five principal risk measures, and each measure provides a
unique way to assess the risk present in investments that are under
consideration. The five measures include the alpha, beta, R-squared,
standard deviation, and Sharpe ratio. Risk measures can be used
individually or together to perform a risk assessment. When comparing
two potential investments, it is wise to compare like for like to
determine which investment holds the most risk.

Alpha: Alpha measures risk relative to the market or a selected

benchmark index. For example, if the S&P 500 has been deemed the
benchmark for a particular fund, the activity of the fund would be
compared to that experienced by the selected index. If the fund
outperforms the benchmark, it is said to have a positive alpha. If the
fund falls below the performance of the benchmark, it is considered to
have a negative alpha.

Beta: Beta measures the volatility or systemic risk of a fund in

comparison to the market or the selected benchmark index. A beta of
one indicates the fund is expected to move in conjunction with the
benchmark. Betas below one are considered less volatile than the
benchmark, while those over one are considered more volatile than the
benchmark.

R-Squared: R-Squared measures the percentage of an investment's

movement attributable to movements in its benchmark index. An R-
squared value represents the correlation between the examined
investment and its associated benchmark. For example, an R-squared
value of 95 would be considered to have a high correlation, while an R-
squared value of 50 may be considered low.

The U.S. Treasury Bill functions as a benchmark for fixed-income

securities, while the S&P 500 Index functions as a benchmark for
equities.

Standard Deviation: Standard deviation is a method of measuring data

dispersion in regards to the mean value of the dataset and provides a
measurement regarding an investment‘s volatility.

As it relates to investments, the standard deviation measures how much

return on investment is deviating from the expected normal or average
returns.

Sharpe Ratio: The Sharpe ratio measures performance as adjusted by

the associated risks. This is done by removing the rate of return on a
risk-free investment, such as a U.S. Treasury Bond, from the
experienced rate of return.

This is then divided by the associated investment‘s standard deviation

and serves as an indicator of whether an investment's return is due to
wise investing or due to the assumption of excess risk.
Sensitivity Analysis
Sensitivity analysis helps determine how changes in one input affect the
output. Project managers find this tool useful since it allows them to weigh
the benefits and risks under different conditions.

You can see which input has the most influence on the output. Based on
this information, managers can then make a better informed decision.

Sensitivity analysis is also called what-if analysis and simulation analysis.

It is commonly referred to as a mathematical tool used for scientific and
financial modelling. It helps determine if any kind of uncertainty is present
in a model and how it will affect the entire model.

Benefits of sensitivity analysis

There are many benefits of sensitivity analysis. You can avoid a lot of
errors by using sensitivity analysis. It will make your project management
speedy and error-free. You will be able to determine what's best for your
project.

1. Make better decisions

You can make better decisions for your project management when you use
sensitivity analysis. It will help you in making a rational decision that you
will have no doubts about. You can make the project successful by making
better decisions; sensitivity analysis will help you in this regard.

2. Make reliable predictions

When you have proper data achieved by using a formula, you can make
reliable predictions. It will affect the entire project, and nothing will stop it
from being a complete success. You have to be very thoughtful when you
are making predictions for the future of your project. Any small mistake
can ruin the entire project. This is why you need sensitivity analysis to
make proper predictions.

3. Know where you need an improvement

Once you are done conducting a sensitivity analysis, you will know where
your project needs improvement. You will be able to make your mistakes
right, and this will lead to the overall improvement of the project. When
you know the weakness of your project, you can determine how to
improve it and make it better. This is going to make your project
management skills strong. You can work on your weaknesses to make
them strengths, and within no time, you will become one of the best
project managers.

4. Make your statement credible.

You can make your statement credible by using a sensitivity analysis

formula. You can apply the direct and indirect methods for sensitivity
analysis according to the variable and what you want to find. You will be
able to support your decision by giving proper proof for your statement.
This will provide credibility for your statement and will lessen the chances
of making mistakes.

5. Accurate

Sensitivity analysis is very accurate, and you will get proper results. There
is a window for mistakes somehow, but if you take your variables
vigilantly, you can get accurate results. This will help you to get a
conclusion for making a decision. You can make proper and authentic
predictions for the project as well. Thus, it will help reduce major errors in
the calculation that will help you get improved results every time.

6. Simple to understand

Sensitivity analysis is very simple to understand as it is an easy method.

You just have to apply a formula, and it will provide you with results. It
will not even take a lot of time, and you can easily make an analysis based
on the sensitivity of project elements.

Simulation Analysis

The Simulation Analysis is a method, wherein the infinite calculations are

made to obtain the possible outcomes and probabilities for any choice of
action.
Simulation in project management helps in establishing new ways of
thinking towards the progress of the process. The process results in useful
information which gives the managers as well as other participants to
understand and start implementing different lessons. Additionally, the data
from the simulation offers people the opportunity to focus on the big
picture by identifying the possible mistakes and redefine how various units
in the project interact.

Simulations can be used to tune up performance, optimise a process,

improve safety, testing theories, training staff and even for entertainment
in video games! Scientifically modelling systems allows a user to gain an
insight into the effects of different conditions and courses of action.

Advantages

1. Less Financial Risk

Simulation is less expensive than real life experimentation. The potential

costs of testing theories of real world systems can include those associated
with changing to an untested process, hiring staff or even buying new
equipment. Simulation allows you to test theories and avoid costly
mistakes in real life.

2. Exact Repeated Testing

A simulation allows you to test different theories and innovations time

after time against the exact same circumstances. This means you can
thoroughly test and compare different ideas without deviation.

3. Examine Long-Term Impacts

A simulation can be created to let you see into the future by accurately
modelling the impact of years of use in just a few seconds. This lets you
see both short and long-term impacts so you can confidently make
informed investment decisions now that can provide benefits years into the
future.

4. Gain Insights for Process Improvement

The benefits of simulation are not only realised at the end of a project.
Improvements can be integrated throughout an entire process by testing
different theories.

5. Assess Random Events

A simulation can also be used to assess random events such as an

unexpected staff absence or supply chain issues.

6. Test Non-Standard Distributions

A simulation can take account of changing and non-standard distributions,

rather than having to repeat only set parameters. For example, when
simulating a supermarket you can input different types of customer who
will move through the shop at different speeds. A young businesswoman
who is picking up a sandwich will move through the shop differently from
an old couple or a mother doing a weekly shop with two children in tow.
By taking such changing parameters into account, a simulation can more
accurately mimic the real world.

7. Encourages In-Depth Thinking

Even the process of designing a simulation and determining the different

parameters can offer solutions. By thinking in-depth about a process or
procedure it is possible to come up with solutions or innovations without
even using the final simulation.

8. Improve Stakeholder Buy-In

A visual simulation can also help improve buy-in from partners, associates
and stakeholders. You can visually demonstrate the results of any process
changes and how they were achieved, improving engagement with
interested parties or even enabling a simulation based sales pitch.
Decision Tree Analysis

As a project manager, you make important decisions every day. But how
can you be sure that the choices you‘re making are the best ones for both
your individual career and your company as a whole? The answer is found
through decision tree analysis.

A decision tree is a diagram that determines the potential results of a series

of choices and clearly lays them out. By using a decision tree, project
managers can easily compare different courses of action. For each course,
decision tree analysis evaluates the chance of success as well as the risks,
and predicts the benefits.

A decision tree is a type of diagram that clearly defines potential outcomes

for a collection of related choices. In project management, a decision tree
analysis exercise will allow project leaders to easily compare different
courses of action against each other and evaluate the risks, probabilities of
success, and potential benefits associated with each.

It‘s important to note that a proper decision tree has four main elements:
decision nodes, chance nodes, end nodes, and branches. Let‘s briefly
explore each of these individually.

1. Decision Nodes: A decision node, represented on our decision tree

diagram as a square, indicates a choice that needs to be made.
2. Chance Nodes: A circle represents a chance node and is used to
signify uncertain outcomes. These nodes are used when future results
are not guaranteed.
3. End Nodes: End nodes, like the name suggests, represent the end of
a diagram and illustrates a final outcome.
4. Branches: Lastly, we have branches. Branches are what connect the
nodes together. Each branch represents a potential choice and should
be clearly labeled.

Benefits of Decision Tree Analysis

Clarity: Decision trees are extremely easy to understand and follow.
When structured correctly, each choice and resulting potential outcome
flow logically into each other.

Efficiency: Building off the last point, because decision trees present
information in such a straightforward way, they can be quickly analyzed
and used to make crucial decisions.

Adaptability: Decision trees can be easily adapted to accommodate new

ideas and/or opportunities. Meaning, your tree can grow alongside your
projects.

Compatibility: The decision tree analysis technique can be used in

tandem with other project management methodologies, allowing you
complete flexibility as you manage your projects.

Short note on Decision Tree:-

1. A decision tree which is also known as prediction tree refers a tree
structure to mention the sequences of decisions as well as
consequences.
2. Considering the input X = (X1, X2,… Xn), the aim is to predict a
response or output variable Y.
3. Each element in the set (X1, X2,…Xn) is known as input variable. It
is possible to achieve the prediction by the process of building a
decision tree which has test points as well as branches.
4. At each test point, it is decided to select a particular branch and
traverse down the tree.
5. Ultimately, a final point is reached, and it will be easy to make
prediction.
6. In a decision tree, all the test points exhibit testing specific input
variables (or attributes), and the developed decision tree is
represented by the branches.
7. Because of flexibility as well as simple visualization, decision trees
are mostly probably deployed in data mining applications for the
purpose of classification.

In the decision tree, the input values are considered as categorical or

continuous.
8. A structure of test points (known as nodes) and branches is
 established by the decision tree by which the decision being made
will be represented.
9. Leaf node is the one which do not have further branches. The
returning value of leaf nodes is class labels while in some cases they
return the probability scores.
10. It is possible to convert decision tree into a set of decision rules.
11. There are two types of Decision trees: classification trees and
regression trees
12. Classification trees are generally applied to output variables which
are categorical and mostly binary in nature, for example yes or no, sale
or not, and so on.

Whereas regression trees are applied to output variables which are

numeric or continuous, for example predicted price of a consumer good.

14. In variety of situations, it is possible to apply decision tree. It is easy

to represent them in a visual way, and the analogous straightforward.

15. Also as the result is a sequence of logical if-then statements, there is

no any presence of underlying assumption regarding a linear or
nonlinear relationship between the input variables and the response
variable.
16. A decision tree consists of three types of nodes:
Decision nodes – typically represented by squares
Chance nodes – typically represented by circles
End nodes – typically represented by triangles
A Glass factory that specializes in crystal is developing a Substantial
Backogs and for this the firm management is considering three Course of
Action. The Correct choice depands largely upon the future demand,
which may be low medium and high.

Show this decision situation in the form of a decision tree Indicate the
most preferred decision its corresponding effected value.

Course of Action
Demand Probability
S1 S2 S3

Low 0.10 10 -20 -150

Medium 0.50 50 60 20
High 0.40 50 100 200

S1 Sub-Contraction
S2 Being Overtime
S3 Construct New Faciity

Procedure:
1. To calculate Expected Monetary Valve using Probability
2. Draw the Diagram
3. Select the best alternative

EMV (Expected Monetary Value) (S1)=

0.10 (10) + 0.50 (50) + .40 (50)
1 + 25 + 20 = 46

EMV (Expected Monetary Value) (S2)=

0.10 (-20) + 0.50 (60) + .40 (100)
-2 + 30 + 40 = 68

EMV (Expected Monetary Value) (S3)=

0.10 (-150) + 0.50 (20) + .40 (200)
-15 + 1 + 80 = 75
Project Scheduling/Network Techniques in Project Management

In today‘s highly competitive environment, management is continually

seeking new and better control techniques to cope with the complexities,
masses of data, and tight deadlines that are characteristic of many
industries. In addition, management is seeking better methods for
presenting technical and cost data to customers.

The Project Scheduling is the tool that communicates what work needs to
be performed, which resources of the organization will perform the work
and the timeframes in which that work needs to be performed. The Project
schedule should reflect all of the work associated with delivering the
project on time. Without a full and complete schedule, the project manager
will be unable to communicate the complete effort, in term of cost and
resources, necessary to deliver the project.

Advantages of Network Technique:

1. Detailed and thoughtful planning provides better analysis and logical

thinking.
2. Identifies the critical activities and focus them to provide greater
managerial atten-tion.
3. Network technique enables to forecast project duration more
accurately.
4. It is a powerful tool for optimisation of resources by using the
concept of slack.
5. It provides a scientific basis for monitoring, review and control, to
evaluate effect of slippages.
6. It helps in taking decision;

(i) To over-come delays,

(ii) To crashing programme,
(iii) Optimising resources, and
(iv) On other corrective actions.

7. It helps in getting better co-ordination amongst related fields.

8. It is an effective management tool through a common and simple
language, providing common understanding.
The most common of these techniques are shown below:

1. Gantt or bar charts

2. Milestone charts
3. Line of balance
4. Networks

 Program Evaluation and Review Technique (PERT)

 Arrow Diagram Method (ADM) [Sometimes called the Critical
Path Method (CPM)]
 Precedence Diagram Method (PDM)
 Graphical Evaluation and Review Technique (GERT)

Gantt or bar charts: The Gantt chart is the most widely used chart in
project management. These charts are useful in planning a project and
defining the sequence of tasks that require completion. In most instances,
the chart is displayed as a horizontal bar chart.
Milestone charts:

A project milestone helps project managers track their progress and

determine how close they are to finishing the project.

For example, while driving, we frequently see signs that tell us how many
miles are left till we reach our destination. Because of the signpost, we are
aware of our location. In project management, project milestones serve the
same purpose.

Line of balance:

The Line of Balance (LOB) Scheduling Technique was originated by the

Goodyear Company in the early 1940's and was developed by the U.S.
Navy in the early 1950's for the programming and control of both
repetitive and non‐repetitive projects. It was developed for industrial
manufacturing and production control. The basic concepts of LOB have
been applied in the construction industry as planning and scheduling
method.
Critical Path Method (CPM)

CPM was developed in the late 1950s as a method to resolve the issue of
increased costs due to inefficient scheduling. Since then, CPM has become
popular for planning projects and prioritizing tasks. It helps you break
down complex projects into individual tasks and gain a better
understanding of the project‘s flexibility.

Why use the critical path method?

 Improves future planning: CPM can be used to compare expectations

with actual progress. The data used from current projects can inform
future project plans.
 Facilitates more effective resource management: CPM helps project
managers prioritize tasks, giving them a better idea of how and
where to deploy resources.
 Helps avoid bottlenecks: Bottlenecks in projects can result in lost
valuable time. Plotting out project dependencies using a network
diagram, will give you a better idea of which activities can and can‘t
run in parallel, allowing you to schedule accordingly.

Here are the steps to calculate the critical path manually:

Step 1: Write down the start and end time next to each activity.
  The first activity has a start time of 0, and the end time is the
duration of the activity.
 The next activity‘s start time is the end time of the previous activity,
and the end time is the start time plus the duration.
 Do this for all the activities.

Step 2: Look at the end time of the last activity in the sequence to
determine the duration of the entire sequence.

Step 3: The sequence of activities with the longest duration is the critical
path.

Guideline for Network Construction

1. The Start event of an activity is called tail event and ending event is
called head event.
2. The network should have a unique starting node tail event.
3. The network should have a unique completion node head event.
4. No activity should be represented by more than one arc (activity) in
the network.
5. No two activities should have the same starting node and the same
ending node.
6. Dummy activity is an imaginary activity indicating precedence
relationship only. Duration of a dummy activity is Zero.

Consider the details of a project as shown in the Table

Activity Immediate Predecessor (S) Duration(Month)

A - 2
B - 5
C - 4
D B 5
E A 7
F A 3
 G B 3
H C,D 6
I C,D 2
J E 5
K F,G,H 4
L F,G,H 3
M I 12
N J,K 8

A. Construct the Critical Path Method (CPM) Network.

B. Determine the Critical Path and Project Completion Time.

C. Compute Total Floats and Free Floats for non-critical activities.

A. The CPM Network

 B. Determine the Critical Path and Project Completion Time

Critical Path: The Critical path of a project network is the longest path in
the network.
This can be identified by simply listing out all the possible paths from the
start node of the project to the end node of the project and then selecting
the path with maximum sum of activity times on that path.

Two Phases:
1. Determine earliest start times (ES) of all the nodes. This is called
forward Pass.
2. Determine latest completion times (LS) of various nodes. This is
called backward pass.

Latest Completion Time (To Put Minimum Value)

Earlier Start Time (To Put Maximum Value)

Determination of earliest start time (ESj)

i= Starting Activity
j= Ending Activity
D= Duration
ESj = Max (i) (ESi + Dij)
ESi = 0
For Node 1 ESi = 0
Node 2 0+2 = 2
Node 3 0+5 = 5
Node 6 2+3 = 5
5+3 = 8
10+6 = 16
Determination of Latest Completion Times (LCi)
LCi = Min (j) (LCj - Dij)
Node 8 = LC9 - D8,9
28 - 8 = 20
Node 7 28 - 12 = 16
Node 6 28 - 3 = 25
20 - 4 = 16
Node 5 20 - 5 = 15
Node 4 16 - 2 = 14
16 - 6 = 10
Node 3 16 - 3 = 13
10 - 5 =5
Node 2 15 - 7 =8
 16 - 3 = 13
Node 1 8 - 2 =6
5 - 5 =0
10 - 4 =6
Condition for Critical Path
 ESi (Earlier Start Time of Starting Activity = LCi (Latest
Completion Time of Starting Activity) It Should be Zero

 ESj (Earlier Start Time of Ending Activity = LCj (Latest

Completion Time of Ending Activity) It Should be Zero

 ESj - ESi = LCj - LCi = Dij

In this Equation the critical path is = Longest Path is Critical Path

1 - 3 - 4 - 6 - 8 - 9
B - D - H - K - N
5 + 5 + 6 + 4 + 8 = 28

C Compute total floats and free floats for non-critical activities

Total Floats: It is the amount of time that the completion time of an
activity can be delayed without affecting the project completion time.

TFij = LCj (Latest Completion Time of Ending Activities -

ESi (Earlier Start of Starting Activity) - Dij (Duration)
Activity A 1-2 = 8 - 0 - 2 = 6
Activity B 1-3 = 5 - 0 - 5 = 0
Activity C 1-4 = 10 - 0 - 4 = 6
Activity D 3-4 = 10 - 5 - 5 = 0
Activity E 2-5 = 15 - 2 - 7 = 6
Activity F 2-6 = 16 - 2 - 3 = 11
Activity G 3-6 = 16 - 5 - 3 = 8
Activity H 4-6 = 16 - 10 - 6 = 0
Activity I 4-7 = 16 - 10 - 2 = 4
Activity J 5-8 = 20 - 9 - 5 = 6
Activity K 6-8 = 20 - 16 - 4 = 0
Activity L 6-9 = 28 - 16 - 3 = 9
Activity M 7-9 = 28 - 12 - 12 = 4
Activity N 8-9 = 28 - 20 - 8 = 0

Free Floats: It is amount of time that the activity completion time can be
delayed without affecting the earlier start time of immediate successor
activity in the network.
FFij = ESj - ESi - Dij
Activity A 1-2 = 2 - 0 - 2 = 0
Activity B 1-3 = 5 - 0 - 5 = 0
Activity C 1-4 = 10 - 0 - 4 = 6
Activity D 3-4 = 10 - 5 - 5 = 0
Activity E 2-5 = 9 - 2 - 7 = 0
Activity F 2-6 = 16 - 2 - 3 = 11
Activity G 3-6 = 16 - 5 - 3 = 8
Activity H 4-6 = 16 - 10 - 6 = 0
Activity I 4-7 = 12 - 10 - 2 = 0
Activity J 5-8 = 20 - 9 - 5 = 6
Activity K 6-8 = 20 - 16 - 4 = 0
Activity L 6-9 = 28 - 16 - 3 = 9
Activity M 7-9 = 28 - 12 - 12 = 4
Activity N 8-9 = 28 - 20 - 8 = 0

Activity Total Floats Free Floats

Duration (Dij)
(I, j) (TFij) (FFij)

A 1-2 2 6 0
B 1-3 5 0 0
C 1-4 4 6 6
D 3-4 5 0 0
E 2-5 7 6 0
F 2-6 3 11 11
G 3-6 3 8 8
H 4-6 6 0 0
I 4-7 2 4 0
J 5-8 5 6 6
K 6-8 4 0 0
L 6-9 3 9 9
M 7-9 12 4 4
 N 8-9 8 0 0

Any critical activity will have Zero total float and Zero free float
based on this properly we can determine critical activities.

Program Evaluation and Review Technique (PERT)

PERT Method (Program Evaluation and Review Technique) was first

developed by the US Navy SPO (Special Projects Office) in 1967 during
the Polaris missile development program then it was applied to the other
industries. Both CPM and PERT are complementary tools and they are
developed at roughly the same time. Unlike other methods, PERT is an
event-oriented technique that uses three-time estimates (optimistic,
expected, and pessimistic) for each task. With this aspect, it employs
uncertainty while calculating the task durations. These characteristics
make the PERT Method (Program Evaluation and Review Technique)
useful for large-scale, complex, and non-routine projects.
PERT Analysis Formula

The PERT method employs simple statistic calculations. It uses three-

time estimations.

 Optimistic Estimate: The shortest time required to complete the task.

 Pessimistic Estimate: The longest time required to complete the task.

 Most Likely Estimate: The most possible time (probable duration)

required to complete the task.
Expected time is calculated with the help of the PERT Analysis formula
below
Expected time = ( Optimistic + 4 x Most likely + Pessimistic) / 6

The PERT Method Implementation Steps

1. List the activities and milestones: The first step is to determine the
tasks required to complete the project.
2. Determine the sequence of activities: The second step is to determine
the order of the activities. Which activity is the predecessor which
one is the successor? It is easy to determine the sequence of some
 activities however the sequence of some tasks may require deep
analysis.
3. Build a network diagram: The third step is to create the network
diagram with the help of software or by hand and place the activities
on the diagram.
4. Estimate the activity durations: The PERT Method uses three
duration estimates for activities which are;

 Optimistic Estimate (O): the minimum possible time required to

accomplish a task, assuming everything proceeds better than is
normally expected.

 Pessimistic Estimate (P): the maximum possible time required to

accomplish a task, assuming everything goes wrong (excluding
major catastrophes).

 Most Likely Estimate (M): the best estimate of the time required to
accomplish a task, assuming everything proceeds as normal.
With the help of three estimates, expected duration is calculated.
5. Determine the critical path: The critical path is the longest path of
the network diagram. Forward and backward pass calculations is
used to determine the critical path.

A. Construct the project network.

B. Find the expected duration and various of each activity‘
C. Find the critical path and expected project completion time.
D. What is the probability of completing the project on or before 22
Weeks?
 Duration (Weeks)
Predecessor
Activity O (Optimistic M (Most Likely P (Pessimistic
(S)
Estimate) Estimate) Estimate)
A - 5 6 7
B - 1 3 5
C - 1 4 7
D A 1 2 3
E B 1 2 9
F C 1 5 9
G C 2 2 8
H E, F 4 4 10
I D 2 5 8
J H, G 2 2 8
Mean Duration te = Expected Duration
to = Optimistic Time
tm = Most Likely Time
tp = Pessimistic Time
te = to + 4tm + tp
6

Variance = Square of Standard Deviation

Duration (Weeks)
O M (Most Mean
Activity Variance
(Optimistic Likely P (Pessimistic Duration
Estimate) Estimate) Estimate)
A 5 6 7 6 0.11
B 1 3 5 3 0.44
C 1 4 7 4 1.00
D 1 2 3 2 0.11
E 1 2 9 3 1.78
F 1 5 9 5 1.78
G 2 2 8 3 1.00
 H 4 4 10 5 1.00
I 2 5 8 5 1.00
J 2 2 8 3 1.00

Find the Critical Path and Expected Project Completion Time.

Earlier Start Time - Forward Pass
Latest Completion Time - Backward Pass
ESj = Max (i) (ESi + Dij)
LCi = Min (j) (LCj - Dij)

Critical Path: The Longest Path in the Network

Condition for Critical Path

  ESi (Earlier Start Time of Starting Activity = LCi (Latest
Completion Time of Starting Activity) It Should be Zero

 ESj (Earlier Start Time of Ending Activity = LCj (Latest

Completion Time of Ending Activity) It Should be Zero
ESj - ESi = LCj - LCi = Dij
1 - 4 - 6 - 7 - 8
C - F - H - J
4 + 5 + 5 + 3 = 17

What is the probability of completing the project on or before 22

weeks?
Duration (Weeks)
O M (Most Mean
Activity Variance
(Optimistic Likely P (Pessimistic Duration
Estimate) Estimate) Estimate)
A 5 6 7 6 0.11
B 1 3 5 3 0.44
C 1 4 7 4 1.00
D 1 2 3 2 0.11
E 1 2 9 3 1.78
F 1 5 9 5 1.78
G 2 2 8 3 1.00
H 4 4 10 5 1.00
I 2 5 8 5 1.00
J 2 2 8 3 1.00
 Mean
Activity Variance
Duration
C 4 1.00
F 5 1.78
H 5 1.00
J 3 1.00
17 4.78

Therefore = 4.78 = 2.19 Week

P = Probability
P (x < 22)

(22-17) = 2.28
2.19
Z Value in Standard Normal Distribution Table is 0.9887
The Value is obtaining from std. normal distribution table. Therefore for
probability of completing the project on or before 22 weeks is 0.9887 i.e.
98.87%

Float Times: Project management float, also known as ―slack,‖ is the

amount of time a project can be delayed before failing to meet a deadline.
Usually, this time will depend on what tasks are involved and how much
float each one allows.
The time a task will take is defined as the float time, which indicates how
long you have before it must be completed. The amount of time a task can
be delayed without delaying the project‘s deadline is known as total float
time.
Float time becomes important in project management when you need to
understand how much time you have to delay a task without it impacting
the due date of the project as a whole. This becomes especially important
when tasks start to build up on the critical path and can delay the project if
they‘re not completed on time.
Benefits of Float in Projects
1. Prevents tasks from building up and impacting the due date of the
project
2. Allows for more time to complete high priority tasks
3. Helps to manage resources more efficiently
4. Can help to avoid rushing to complete tasks at the last minute
5. Reduces stress and allows for a more relaxed work environment
6. Keeps the team on track and focused on the project goals
7. Helps to avoid overtime and additional costs associated with it
8. Allows for a more accurate assessment of how long tasks will take to
complete
9. Prevents unnecessary delays from occurring and causing a ripple
effect
Types of float
1. Total float: Total float identifies when a project's due and provides
the team with some flexibility to help them stay on schedule. Project
managers use total float to determine the time they can delay a task
without it impacting the overall success of their project. This helps
project managers assess whether a specific action may alter their
projected completion date.
2. Free float: This term refers to how long you can delay a task without
it affecting subsequent tasks. Project managers can use free float to
determine how delaying one task may cause a chain reaction that
delays the work of other team members. This helps project managers
assess whether a specific action may affect a successor activity rather
than the final completion date.
3. Project float: Project float refers to the amount of time you can
delay an entire project without affecting the customer, client or end
 user. Project managers often set an internal deadline for their team
that's earlier than the date they agreed to deliver the finished project
to their client. This provides them with a buffer period in case they
experience unexpected delays.
4. Interfering float (INTF): INTF refers to the time you can delay a
task from the date you planned to start it without delaying the
project's completion date. In this instance, delaying a task also may
delay the start date of another noncritical task or activity, but it may
not impact the start date of a critical task. For example, if you
allocated five days to complete a task that may take only three days
to finish, you can delay starting this task for two days and still meet
your deadline.
5. Independent float (INDF): INDF refers to the maximum time you
can delay a task without affecting the early start date of subsequent
tasks or activities. The early start date refers to the earliest possible
day you could start a specific task. For example, if you're working on
a photography project and your early start date to edit photos is on
Aug. 15, then the last day you can take photos without delaying the
editing process is Aug. 14.
Crashing of Activities: In its simplest terms, crashing is a method in
project management that helps you speed up the timeline of a project
through the addition of resources. Project managers and stakeholders often
use this method to either preserve a project's estimated deadline or
expedite it.
The initial project plan you construct seldom will be delivered without
making modification to the projects triple constraint, which are schedule,
cost and scope. Crashing your project will directly impact two out of three
of your project triple construct, which are schedule and cost.
Crashing of your project will accelerate your project delivery and increase
your project budget; however it will have no effect to your project scope.
1. Crashing is the technique to use when fast tracking has not saved
enough time on the schedule. It is a technique in which resources are
added to the project for the least cost possible.
 2. Crashing refer to a particular variety of project schedule compression
which is performed for the purposes of decreasing total period of
time (also known as the total project schedule duration.)
3. When we say that an activity will take a certain number of days or
weeks, what we really mean is the activity normally takes this many
project management triangle days or weeks. We could make it take
less time, but to do so would cost more money. Spending more
money to get sometime done more quickly is called crashing.
4. Crashing the schedule means to throw resources to the critical path
without necessarily getting the highest level of efficiency.
5. Crashing is another schedule compression techniques where you add
resources to the project to compress the schedule. In crashing, you
review the critical path and see which activities can be completed by
adding extra resources. You try to find the activities that can be
reduced the most by adding the least amount of cost. Once you find
those activities, you will apply the crashing techniques.

Multiple Projects:
Multi-project management is just as it sounds, a managerial practice where
project managers are leading several projects at the same time. It's a way
to optimize the resource planning and resource management in an
organization and use resources and team members more efficiently across
all projects.
Managing Multiple Projects
When you have more than one project to manage, you have to be efficient
with your time or risk burnout. You have a lot of disparate things to do,
often at once. It can be done, of course, but requires that you follow a few
tips.
 Plan Ahead: Just as you plan for one project, you must plan for
multiple projects. The last thing you want to do is start the week
unprepared and just wing it. No matter how good you are, things are
going to get out of control quickly. Therefore, make weekly plans for
yourself, look at the work ahead and prioritize it. Know your
 upcoming deadlines. Meet with your team and stakeholders. It‘ll
probably change day-to-day, but at least you have a structure.
 Communicate Clearly: Communication is the life‘s blood of any
project. Your project plan, status reports and so much more are all
communication tools. Managing multiple projects means that you act
as the hub that leads to both multiple stakeholders and teams;
therefore, you must update stakeholders and direct your teams.
However, if you do this (in person, on a project management tool or
with documentation) it has to be clear. Remember, communication is
also listening. Get feedback and be responsive.
 Review and Adjust: Plans change. Things happen. You can‘t be
married to the schedule without risking going off track, overspending
or losing quality. Just as you would when managing one project, and
more so with multiple projects that exponentially add to the
possibility of change, you need to monitor and review your progress
and performance regularly. Have a plan in place to manage change
and adjust your schedule, costs or scope accordingly.
 Delegate Work: If you have a tendency to feel that for something to
get done right you have to do it yourself, lose it. There‘s no way one
person can manage multiple projects without support. Accept help
and delegate work that can be delegated to associates. There‘s tons
of paperwork and other minutiae related to managing multiple
projects that can be done by others. Oversee it, sure, but don‘t overdo
it.
 Stay Organized: Don‘t use Post-It notes or keep your schedule on
scraps of paper. Where are your important dates and numbers? They
should be at your fingertips, probably best on an online project
management tool that can automatically alert you of approaching
deadlines, collect all your files in one place and plan, schedule,
monitor and report on your project.

Constraints in Selection of Project:

On any project, you will have a number of project constraints that are
competing for your attention. A project constraint in project management
is anything that restricts a project‘s scope.
PMI describes project constraints as the general restrictions that limit the
project portfolio management in a particular domain. For example, a cost
restriction in your project means that you are limited by the budget or
resources you have to implement it. Project constraints are usually
interconnected so if you change one constraint, it will have an impact on
the other.
On the other hand, constraints happen when you have a set of
requirements from a project, a deadline for completion, and other
characteristics that put a limit on how you can approach the project. You
might be limited by the technology available to you or have a lack of
dedicated resources.

Six project constraint

Time constraint:
One of the most important stakeholder considerations, project time (how
long it will take to deliver), is a vital measure of project success. Your task
is to estimate project time as accurately as possible, which requires a blend
of research and experience.
 The project timeline
 The number of hours worked on each stage of the project
 Use of internal calendars and the goals set for each team member
 Use of time for planning and strategy building
 The number of project phases included within the plan.

When it comes to time constraints, proper scheduling is essential.

According to the Project Management Body of Knowledge (PMBOK), the
following steps should be taken for effective time management:
 1. Planning: This includes defining the main goal(s) of the project
team, how the team intends to achieve the goal(s), and the equipment
and/or steps that will be taken to do so.
2. Scheduling: The project management team must plot out the
realistic timeframe to complete each phase of the project.
3. Monitoring: This step occurs once the project is underway and
requires the project team to analyze how the past stages of the
project performed, noting trends and impacts on future plans, and
communicating these findings to all relevant stakeholders.
4. Control: In the control step, the team must, upon communicating the
results of each phase of the project, move forward accordingly. That
means if things are running smoothly, the team must analyze the
factors contributing to that positive outcome so that it can be
continued and replicated. If there has been a derailment, the team
must know how and why the derailment occurred and correct it for
future actions.
Scope constraint:
The scope of a project defines its specific goals, deliverables, features,
and functions, in addition to the tasks required to complete the project.
Project scope refers to a project‘s magnitude in terms of quality, detail,
and deliverables. Time and money are dependencies of project scope,
because as the project scope grows, the project will require more time
and money to complete. To keep the scope in check, you can:
 Provide clear documentation of the full project scope at the beginning
of the project, including all requirements.
 Set up a process for managing any changes, so if someone proposes a
change, there is a controlled system in place for how that change will be
reviewed, approved or rejected, and implemented if applicable.
 Communicate the scope clearly and frequently with stakeholders.

For instance, if your project involves IT that you are upgrading or

implementing and your project scope is expanded due to new software that
your competitors have implemented that now must become part of your
project scope, you will have to increase both the project cost and timeline.

Cost constraint
Cost is the budget approved for the project, including all necessary
expenses needed to deliver the project. Within organizations, project
managers have to balance between not running out of money and not
underspending because many projects receive funds or grants that have
contract clauses with a ―use it or lose it‖ approach to project funds.
A project‘s budget includes both fixed and variable costs, including
materials, permits, labor, and the financial impact of team members
working on the project. A few of the ways to estimate the cost of a project
include:

 Historical data: Looking at what similar projects cost in the

recent past

 Resources: Estimating the rate of cost for goods and labor.

 Parametric: Comparing historical data with updated, relevant

variables

 Vendor bid: Averaging the total charge of several solid vendor

bids

Risk
Project risks are any unexpected occurrences that can affect your project.
While most project risks are negative, some can be positive. For example,
a new technology may be released while your project is in progress. This
technology may help you finish your project quicker or it may cause more
competition in the market and reduce your product value.

You can determine project risks using risk analysis and risk management
strategies to keep them at bay. Some risks you may face include:
  Stretched resources
 Operational mishaps
 Low performance
 Lack of clarity
 Scope creep
 High costs
 Time crunch
Use a risk register to assess the likelihood and severity for each project
risk, then mitigate the most likely and severe risks first.

Resources
Resources tie closely with cost constraints on your project because these
project requirements cost money. Without proper resource allocation, can
experience lower project quality, an increased budget, and timeline delays.
Some resources to consider include:

 People
 Equipment or materials
 Facilities
 Software
Use a resource management plan to ensure you have the resources you
need for every element of your project so that this constraint doesn‘t
negatively affect other project areas.

Quality
Project quality is the measure of how well your project deliverables meet
initial expectations. Every project constraint affects project quality
because project quality is the ultimate result of your project. However,
project quality is also its own constraint because there are aspects of the
project that can result in poor quality that aren‘t necessarily related to cost,
time, resources, risk, or scope. These include:
 Lack of communication
 Poor design or development skills
  Too many project changes
You must manage project quality as its own entity while also balancing the
other five project constraints if you hope to achieve high project
performance. If you fail to manage your constraints, the result can be low
project quality and low customer satisfaction.

Project Dependence: Dependencies in project management deal with

managing and scheduling project tasks while keeping their sequences and
requirements in mind. If task B requires the completion of task A, then
we‘ll say that task B is dependent on task A. This may sound simple right
now but in complex projects with several interdependent tasks, things can
get messy.

Types of Project Dependencies

 Finish to Start: In this scenario, task A must finish before task B

can begin. This is the most common example of a project
dependency and is generally the most straightforward. For example,
a fabrication team cannot begin building until the final design has
been approved.
 Start to Finish: In a start-to-finish dependency, task A cannot finish
until task B has started. These are less common but are prevalent in
retail and shift work environments. For example, the morning shift in
a restaurant‘s kitchen cannot finish their day until the evening shift
has arrived and started their own.
 Start to Start: Start-to-start dependencies require task A to start
before task B can begin. For example, a writer cannot begin to revise
an article draft until the editor has started to edit it.
 Finish to Finish: In a finish-to-finish scenario, task B cannot finish
until task A has finished. Start-to-start and finish-to-finish
dependencies are often related to one another. For example, a server
 cannot finish serving everyone at a table until the kitchen has
finished cooking and plating each dish that was ordered.

Internal Dependencies in Project Management

Internal dependencies in project management include logical, resource-
based, preferential, and cross-team dependencies. We‘ve listed more
subcategories below and provided examples of each.

These are some common internal dependencies:

 Task Based: Basic, task-based dependencies follow a logical path to

completion. For example, you must print shipping labels before you
can mail customer orders.
 Team Based: Team-based dependencies require collaboration
between teams. For example, you can‘t take product photos for sales
brochures until the production team produces a prototype to
photograph.
 Approval Based: Some dependencies are based on approval
requirements. For example, you can‘t purchase new large-scale
manufacturing equipment until you get approval from the CFO.
 Best Practices Based: Many dependencies are based on the best
practices required to complete a task. For example, it is best to let
your kitchen equipment cool down completely before cleaning it.
 Resource Based: Resource-based dependencies require certain items
to be available for use before a task can begin. For example, you
cannot print sales brochures without the right kinds of cardstock and
ink.
 Software Based: Some dependencies require software inputs or
updates before tasks can progress. For example, you must update
storage software regularly for continued secure access to data.
External Dependencies in Project Management
External dependencies are outside of a business‘s control. They can be the
most difficult to predict and manage. These include factors such as
deliveries, weather events, finances, and traffic changes.

These are some common external dependencies:

 Deliveries: Supply chain issues can affect project timelines. You

can‘t start the work to build a product if the materials haven‘t
arrived.
 Weather: Good weather is a requirement for many construction-
related tasks. You cannot begin construction on a house while there
is a hurricane.
 Bureaucracy: Most industries require various certifications and
permits, which are dependent on local bureaucracy. Oftentimes work
cannot begin before the team secures those permits and
certifications.
 Traffic: Traffic congestion can delay some work. For example, you
cannot set up your booth at a trade show when all of your equipment
is stuck in a traffic jam.
 Finances: A company‘s finances, especially regarding loans, can
cause delays due to dependencies. You cannot start purchasing
expensive equipment when your loan funding hasn‘t come through.
 Legislature: Some dependencies are based on anticipated legal
changes. For example, a restaurant in a dry county might have plans
to start offering wine if the ordinance changes.

Capital Rationing:
Capital rationing is the process through which companies decide how to
allocate their capital among different projects, given that their resources
are not limitless. The main goal is to maximize the return on their
investment.
Why is Capital Rationing Used? – Benefits
Capital rationing is used by many investors and companies in order to
ensure that only the most feasible investments are made. It helps ensure
that businesses will invest only in those projects that offer the highest
returns. It may appear that all investments with high projected returns
should be taken. However, there are times when funds are low or when a
company or an individual investor merely want to improve their cash
flows before making any more investments. It may also be the case that
the investor has reason to believe that they can make the investment under
more favorable terms by waiting a bit longer before pursuing it. For
example, the company‘s management may expect a significant drop in
interest rates within the next six months, which would make for less
expensive financing costs.

Two Types of Capital Rationing

There are two primary types of capital rationing, referred to as hard and
soft:

1. Hard capital rationing occurs based on external factors. For

example, the company may be finding it difficult to raise additional
capital, either through equity or debt. Or, its lenders may impose
rules on how it can use its capital. These situations will limit the
company‘s ability to invest in future projects and may even mean
that it must reduce spending on current ones.
2. Soft capital rationing, also known as internal rationing, is based on
the internal policies of the company. A fiscally conservative
company, for example, may require a particularly high projected
return on its capital before it will get involved in a project—in effect,
self-imposing capital rationing.

Project Completion Report:

A project closure report is the last deliverable submitted at the end of a
project, and it measures the project's overall success. The project manager
records details of every phase of the project and provides a way for both
themselves and senior management to determine what parts of the project
worked and what didn't. It also allows the company to analyze how to
improve in the future and the best practices for future projects.

What to include in a project closure report: Project closure reports may

vary in length or content depending on the size and complexity of the
project, but they usually include some of the same basic information. Here
is a list of common details featured in project closure reports:

 The original project guidelines, including stakeholder requests,

budget and timeline
 Proof that the clients have received their deliverables
 Invoices from suppliers, stakeholders or other sources
 Release or transfer records of remaining resources
 Detailed performance reviews on each phase of the project
 Feedback from senior management, team members and stakeholders
 A separate folder with all project files and communication for
archival purposes
 A request for project closure approval