Project Management: Unit I - introduction

Prepared By
Ghaith Al Darmaki
gm.al.darmaki@gmail.com
MBA for Engineering Business Managers
Manchester Business School

 Project Management Definition.
 Impact of HR
 Impact of MIS.
 Impact of Finance
 Impact of Production.
 Generation and Screening of project ideas:
 Generation of ideas
 Monitoring the environment
 Corporate appraisal
 Profit potential of industries: Porter Model
 Scouting for project ideas
 Preliminary screening
 Project rating index
 Investment Criteria

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

 What is the “PROJECT” ?

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


 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
e
purpose”. (Cleland, D.I. and Kerzner (1985)) c op
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Project Management - Unit I Prepared By: Ghaith Al Darmaki
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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 , quality
Stakeholders with differing needs and
expectations
Identified requirements (needs) and unidentified
requirements (expectations).


 Project Objectives

1990s Today

Client
Budget
Satisfaction
Budget

Time Time
Quality 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 in
organization 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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http://www.youtube.com/watch?v=_NS-M0FizA4


 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 Project
management.
 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.


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.


of project ideas Generation of ideas.
 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.

of project ideas Generation of ideas.
 SWOT Example:

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


of project ideas Monitoring the environment
 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


 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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of project ideas Corporate appraisal
 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)


of project ideas Corporate appraisal

 Mckinsey value chain model

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of project ideas Profit potential of industries

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



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


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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.



 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.


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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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of project ideas Scouting for project ideas

 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.


of project ideas Preliminary screening.
 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


 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
Project Management -factors can be technological Ghaith Al Darmaki
Unit I Prepared By: changes, competition from 36
substitutes, competition from imports, governmental control

 Compatibility with the promoter:

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

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of project ideas Project rating index

 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.



 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 3 Step 4

Step 1 Step 2 e
p Step 5
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Project Management: Unit I - introduction

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