Project Management: Unit I - introduction

Prepared By Ghaith Al Darmaki

[email protected] for Engineering Business Managers

Manchester Business School

Project Management - Unit I Prepared By: Ghaith Al Darmaki 2

Project Management Definition. Impact of HR Impact of MIS. Impact of Finance Impact of Production. Generation and Screening of project ideas:

Generation of ideasMonitoring the environment Corporate appraisal Profit potential of industries: Porter Model Scouting for project ideas Preliminary screening Project rating index Investment Criteria


What is the “PROJECT” ?

http://www.youtube.com/watch?v=sntDr31QcsI

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There are a number of different definitions of a project: “ A temporary endeavor undertaken to create a unique product

or service” (PMI, 2004, p.5) “…A project is an organization of people dedicated to a specific

purpose or objective. Projects generally involve large, expensive, unique, or high risk undertakings which have to be completed by a certain date, for a certain amount of money, within some expected level of performance. At a minimum, all projects need to have well defined objectives and sufficient resources to carry them out”. (quoted from Steiner (1969) by Pinto and Kharbanda (1995))

“…a combination of human and nonhuman resources pulled together in a temporary organization to achieve a specified purpose”. (Cleland, D.I. and Kerzner (1985))

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What is the “PROJECT MANAGEMENT” ?


“PROJECT MANAGEMENT” is:

The application of knowledge, skills, tools and techniques to project activities in order to meet stakeholders’needs and expectations.


Demands:Scope, time, cost , qualityStakeholders with differing needs and

expectationsIdentified requirements (needs) and unidentified

requirements (expectations).


Project Objectives

Budget

Time Quality

Budget

1990s Today

Budget Client Satisfaction

Time Quality

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From the view point of organization HR represent the people at work. They are the sum total of inherent abilities, acquired knowledge and skills, talents and aptitudes of its employees.

HR is the most important element of organization. Efficient utilization of all other resources depends on the quality of HR.

HR includes all dynamic components of all people at all level inorganization and they have greatest potential to develop and grow provided the right climate is provided to them. Generation of new projects and managing and evaluating existing projects need decision making abilities of employees.

HR thus plays an important role in Project management.


What is “ Management”?What is “Information”? What is “System”?


Management comprises the processes that describe what managers do in the operation of their organization like Planning, organization, control and making decisions. Decision making is a fundamental pre requisite to each of the fore going process including Project management.

Information is data that have been retrieved and used for informative purpose and decision making.

Systems are a set of elements joined together for a common objective. An organization is a system and the various divisions, departments and units are the subsystem.


The objective of an MIS:Provide information for decision making on

planning, organizing and controlling the operations of subsystems of the firm and to provide a synergistic organization in the process.

Why MIS is important for Project Management ?! Important in facilitating decisions.


What is the Role of Finance in Project Management ?

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Finance function deals with the problem of raising funds and their effective utilization in business.

Various decisions regarding acquisition of assets, specific norms where money is to be invested is the scope of finance.

It is the ways and means of managing money and involves activity concerned with planning and controlling of firms financial resources.

Finance plays an important role while evaluating a new project and to generate finance for the project.

It helps to decide on which type of finance is to be chosen and what kind of working capital levels are to be maintained in the project.

Thus finance has an impact on decision making in evaluating a project.


Production is a process of converting raw materials to finished goods. Production plays an important role in project management.

The choice of technology required for the project is to be decided depending on the plant capacity and the appropriateness of technology.

It involves ensuring the availability of raw materials and other utilities.

The important charts and lay outs drawings like Material flow diagram, production line diagram etc facilitates in Projectmanagement.

Production helps in evaluating a project such that it meets the expectations of the stakeholders.


Generation and screening of project ideas Get the right business at the right time. The business has to identify the investment

opportunity which is feasible and promising. Identification of promising investment opportunities

requires Imagination. Sensitivity to environmental changes. A realistic assessment of what the firm can do.


Generation and screening of project ideas

Guidelines helpful in the generation and screening of project ideas are given below: Generation of ideas. Monitoring the environment. Corporate appraisal. Profit potential of industries. Scouting for project ideas. Preliminary screening. Project rating index.



Stimulating the flow of ideas: to stimulate the flow of investment ideas, the following are helpful: SWOT analysis: (Strength, Weakness, Opportunities and

threats): It represents a conscious, deliberate and systematic effort by an organization to identify opportunities that can be profitably exploited by it. Periodic SWOT analysis facilitates the generation of ideas.

Clear articulation of objectives: The operational objectives of a firm may be one or more of the following: Cost reduction Productivity improvement Increase in capacity utilization Improvement in contribution margin Expansion into promising fields.

Fostering a Conducive climate: To tap the creativity of people and to harness their entrepreneurial urges a favorable organizational climate has to be encouraged.

Generation of ideas.


Generation and screening of project ideas SWOT Example:

http://www.youtube.com/watch?v=GNXYI10Po6A

Generation of ideas.

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Generation and screening of project ideas The firm must systematically monitor the

environment and assess its competitive abilities. For purposes of monitoring, the business environment may be divided into six broad sectors. Economic Governmental. Technological. Socio-demographic Sector. Competition Sector. Supplier Sector

Monitoring the environment


Generation and screening of project ideas Economic (State of the economy, Overall rate of growth, Growth rate

of primary, secondary, and tertiary sectors, Cyclical fluctuations etc.)

Governmental. (Industrial policy, Government programmes and projects, Tax framework,. Subsidies, incentives, Import and export policies etc.)

Technological. (Emergence of new technologies, Access to technical know-how, foreign as well as indigenous etc.)

Socio-demographic Sector. (Population trends, Age shifts in population, Income distribution, Educational profile, Attitudes toward consumption and investment)

Competition Sector. (. Number of firms in the industry and the market share of the top few (four or five), Entry barrier, Marketing policies and practices etc.)

Supplier Sector (Availability and cost of raw materials, Availability and cost of energy, Availability and cost of money etc.)




Example:

PESTEL Analysis of Ericsson Oman LLC


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Document


Generation and screening of project ideas A realistic appraisal of corporate strengths and

weaknesses is essential for identifying investment opportunities which can be profitably exploited. The broad areas of corporate appraisal and the important aspects to be considered under them are as follows: Marketing and Distribution (Market image, market share,

customer loyalty etc.) Production and operations ( Condition and capacity of

plant, cost structure) Research and development (Research capability, co

ordination between research and operations, etc) Corporate resources and personnel (corporate image,

state of industrial relation etc.) Finance and accounting ( Cost of capital, relation with

shareholders, accounting and control system)

Corporate appraisal



Mckinsey value chain model

Corporate appraisal

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There are several useful tools or frameworks that are helpful in identifying promising investment opportunities. Porter Model. Life Cycle Approach. Experience Curve.

Profit potential of industries



Porter Model Michael Porter has argued that the profit

potential of an industry depends on the combined strength of the following five basic competitive forces: Threat of new entrants Rivalry among existing firms Pressure from substitute products Bargaining power of buyers Bargaining power of sellers



Generation and screening of project ideas Profit potential of industries

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Life Cycle Approach. Many industrial economists believe that most

products evolve through a life cycle which has four stages:

pioneering stage, rapid growth stage, maturity and stabilization stage, and decline stage.



Generation and screening of project ideas Each stage presents investment opportunities that

exhibit different characteristics. Investment in the pioneering stage may have a

low return and negative NPV. However, it may possibly create options for participating in the growth stage.

Investment in the growth stage is likely to earn a high return and generate positive NPV.

Investment in the maturity stage may earn average return and be NPV-neutral.

Finally, investment in the decline stage may earn low returns and produce negative NPV.



Generation and screening of project ideas Profit potential of industries

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The Experience Curve Investments aimed at reducing costs are

essential to the long-term survival and profitability of the firm. The experience curve is a useful tool for planning such investments.

The experience curve shows how the cost per unit behaves with respect to the accumulated volume of production. The accumulated volume of production is the total number of units produced cumulatively from the very beginning, it should not be confused with the annual rate of production.




Generally, the cost per unit declines with the accumulated volume of production because of: Learning effects:

by time labour skills improve productivity increases lower costs.

Technological improvements: more volume deploy improved techniques and processes. lower cost


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Example of The Experience Curve:


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A wide variety of sources should be tapped to identify good project ideas. They are: Analyze the Performance of Existing

Industries. Examine the Inputs and Outputs of Various

Industries Review Imports and Exports Study new technological developments Explore the possibility of reviving sick units.

Scouting for project ideas


Generation and screening of project ideas Some kind of preliminary screening is required

to eliminate ideas which prima facie are not promising. For this purpose the following aspects may be looked into:

Compatibility with the promoter. Consistency with governmental priorities Availability of inputs Adequacy of market Reasonableness of cost Acceptability of risk level

Preliminary screening.


Generation and screening of project ideas Compatibility with the promoter: The idea must be compatible

with the interest personality and resources of the entrepreneur. It must offer him rapid growth and high return on the invested capital.

Consistency with governmental priorities: The project idea must be feasible given the national goals and governmental framework.

Availability of inputs: The resources and inputs required for the project must be reasonably assured. Capital requirements, technical know how, raw materials, power supply etc is within the manageable limits.

Adequacy of market: The size of the present market must offer the prospect of adequate sales volume. There should be potential for growth and a reasonable return on investment.

Reasonableness of cost: the cost structure of the project must enable it to realize an acceptable profit with a price.

Acceptability of risk level: The desirability of a project is critically dependent on the risk characterizing it. The risk factors can be technological changes, competition from substitutes, competition from imports, governmental control



Generation and screening of project ideas Compatibility with the promoter:

http://www.youtube.com/watch?v=gxo2rGr7Yfg


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When a firm evaluates a large number of project ideas regularly, it may be helpful to streamline the process if preliminary screening. For this purpose a preliminary evaluation may be translated into a project rating index.

Project rating index



The steps involved in determining the project rating index are as follows: 1. Identify factors relevant for project rating.2. Assign weights to these factors (the weights are

supposed to reflect their relative importance). 3. Rate the project proposal on various factors,

using a suitable rating scale. (Typically a 5-point scale or a 7-point scale is used for this purpose.)

4. For each factor, multiply the factor rating with the factor weight to get the factor score.

5. Add all the factor scores to get the overall project rating index.




Example:


Step 1 Step 2

Step 3 Step 4

Step 5

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