Project Management

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 Project Management
Chapter One

Introduction to Project Management

 Meaning of project

Outline Features of a project

Projects, Programs and Plans

Project Planning in Ethiopia

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 Introduction
Every industry relies on projects to stay ahead and innovate.
Projects drive strategic goals, from launching new products to
improving services.

"Faster, Cheaper, Better" – a universal demand across business,

non-profits, and government organizations. Survival depends on

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flexibility, only well-managed projects can ensure organizations keep
up with industry shifts.

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What is a Project?
A project is a temporary endeavor undertaken to
create a unique product, service, or result.

Projects require financial and resource investment

with an expectation of long-term benefits.

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A project ends when its objectives are met or when it
is no longer feasible.

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Key Features of a Project

1. Temporary

• Every project has a clear beginning and a definite end.

• Each activity within the project follows a fixed timeline with a

start and stop date.

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• Unlike regular business operations, projects do not continue
indefinitely.

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2. Unique

• Every project is different—even if similar projects have been done before.

• A project will never happen under the exact same conditions again.

• Innovation and problem-solving are key aspects of every project.

3. Progressive Elaboration

• Projects evolve step by step as details become clearer.

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• This approach ensures continuous improvement and adaptation as new
insights emerge.
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4. Requires Resources

• Projects need people, time, finances, technology, and materials to be

executed.

• Effective resource allocation is crucial for project success.

• A project team must coordinate and optimize available resources.

5. Has a Primary Customer or Sponsor

• Every project has a sponsor who provides direction and funding.

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• Sponsors ensure the project aligns with organizational goals and supports
business needs.

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6. Involves Uncertainty

• Not all project details are known at the beginning.

• Scope, risks, and requirements may change as the project progresses.

• Risk management is essential to handle uncertainties effectively.

7. Requires Integration

• A project brings together diverse resources (people, processes, and tools) to achieve a

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common goal.

• Successful projects require cross-functional collaboration between different teams and

departments.
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Examples of Projects
• Intangible (Non-Physical) Projects:
• Creating awareness (e.g., environmental campaigns).

• Eradicating diseases (e.g., vaccination programs).

• Combating harmful practices (e.g., gender-based

violence prevention).

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• Capacity building (e.g., training programs for
entrepreneurs).
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 Developing a new product or service.

Constructing a building, road, or

Tangible bridge.

(Physical)
Designing a new vehicle.
Projects:
Developing or acquiring a new IT
system.

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Building a community water system.
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Common Misconceptions About
Projects
“A project
Reality: Projects go beyond buildings and
only involves
roads—they include social, technological, and
physical
educational initiatives.
construction.”

“Ongoing Reality: A project has a defined lifespan, while

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operations are daily business activities (like manufacturing or
also projects.” customer service) are continuous.

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 Project vs. Operation

What is a Project?
A project is a temporary, unique endeavor undertaken to
create a specific product, service, or result.

What is an Operation?
An operation consists of ongoing, repetitive activities that

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produce continuous outputs.

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 Key Differences:
Feature Project Operation

Temporary, with a start and

Duration Ongoing, continuous
end date

Uniqueness Unique, non-repetitive Repetitive, standardized

Creates a specific
Purpose Maintains business functions
deliverable

Produces ongoing

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Scope & Output Produces a one-time result
services/products

Remains stable with minor

Change & Evolution Progressively refined
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updates
 Project Example: Operation Example:

• Developing a new e- • Managing daily business

commerce platform for a processes (e.g., HR,
company. Finance, IT support).
• Constructing a new • Running manufacturing
highway to connect cities. plants for a product.

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• Launching a new • Managing customer
financial product like service centers.
mobile banking.
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Project vs. Program

• What Are Projects and Programs?

• Both projects and programs serve as essential tools for

executing development plans and boosting economic
growth.

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• While they are related, they differ in scope, complexity,
and purpose.

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 What is a Program?
• A program is a collection of related projects that are managed in a
coordinated way to achieve broader strategic goals.
• Larger in scope than a single project.
• Comprised of multiple projects that contribute to the same goal.
• Provides synergy, resource optimization, and alignment with development plans.

• Example: A Health Development Program may include. Water project

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to provide clean drinking water, and Construction of a health center to
improve healthcare services.

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 What is a Project?

• A project is a temporary and standalone endeavor aimed at creating

a specific product, service, or result.
• Has a clear objective, timeline, and resources.
• Can exist independently or be part of a program.
• If not linked to a program, it is called a "standalone project."
• Example: A road construction project to connect rural areas to urban

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centers. Or, A mobile banking system development to improve
financial inclusion.
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Five Key Project Constraints
• Every project is influenced by five key constraints,
which are interdependent:
 Scope – Defines the project boundaries

 Quality – Ensures deliverable and process excellence

 Cost – Represents the financial budget

 Time – Specifies the project duration

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 Resources – Includes human, material, and technical assets

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 Development Plans (Strategic Goals
& National Priorities)
Hierarchical Programs (Multiple related projects
under a common goal)
Structure:
Projects (Specific initiatives within a
From Plans program or standalone)
to Execution Tasks (Smaller work segments within
a project)

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Work Packages (Detailed components
of tasks)
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What is Project Management?
• Project management is the application of knowledge,
skills, tools, and techniques to project activities to meet
project requirements effectively.

• Objective of Project Management: To optimize cost,

time, and quality while ensuring successful project

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completion.

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Key Functions of Project
Management:
Planning – Defining project scope, objectives, and deliverables.

Organizing – Allocating resources, roles, and responsibilities.

Leading – Guiding and motivating the project team.

Monitoring & Reporting – Tracking progress, managing risks, and ensuring

quality.

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Delivering Results – Completing the project on time, within budget, and
as per scope.

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 Benefits of Project
Management.
• Goal Clarity & Measurable Progress – Ensures
everyone knows the objectives and success criteria.
• Efficient Resource Coordination – Maximizes the use of
people, materials, and finances.
• Risk Identification & Management – Reduces
uncertainties and minimizes potential project failures.
• Time & Cost Savings – Prevents delays and budget
overruns.

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• Increased Chances of Project Success – Aligns
activities with strategic goals and stakeholder
expectations.
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 Who is a Project Manager?
A Project Manager (PM) is the leader responsible for ensuring a
project is completed successfully by managing:

• Scope – Defining project deliverables.

• Budget – Controlling costs.
• Schedule – Managing deadlines.
• Quality – Ensuring high standards.

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Project Team Members: These are the professionals who work
alongside the project manager to achieve project goals.
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What Makes a Good Project Manager?
Takes Ownership – Proactive, Not Reactive –
Fully responsible for Anticipates challenges and acts in
the project's success. advance.

Plans Adequately – Authoritative, NOT Authoritarian

Defines clear project – Gains trust through expertise,
objectives. not fear.

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Decisive – Makes
quick and effective
decisions.
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 Great Data-Driven – Leads by Sound Judgment
Communicator – Uses facts and Example – – Makes wise
Ensures smooth figures to Demonstrates choices based on
coordination manage strong work experience.
across teams. effectively. ethics.

Motivates & Diplomatic & Delegates

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Inspires – Keeps Collaborative – Wisely – Assigns
the team engaged Manages conflicts tasks effectively
and productive. tactfully. for efficiency.

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 Clearly Defined Goals & Project Mission
Top Management Support
Critical
A Competent Project Manager.
Success A Strong Project Team
Sufficient Resources
Factors for
Customer Involvement & Consultation
a Project Effective Communication

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Customer Responsiveness
Proper Monitoring & Feedback
Use of Appropriate Technology 27
Project Planning in Ethiopia
• Project planning involves defining objectives, resources, schedules, and risks to

ensure successful implementation.

• In Ethiopia, project planning is critical for economic development, infrastructure,

and social progress.

Examples of Major Projects in Ethiopia

Grand Ethiopian Renaissance Dam (GERD) – Africa’s largest hydroelectric dam.

Ethio Telecom Expansion – Improving digital connectivity.

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Industrial Parks (Hawassa, Bole Lemi, etc.) – Promoting manufacturing and

exports.
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 Key Strategic Ethiopia’s Growth and Transformation
Plan (GTP) emphasizes infrastructure,
Aspects of Alignment
with National
industrialization, and poverty
reduction.

Development Projects in Ethiopia are aligned with

Project Goals
government policies, SDGs, and
private sector needs.

Planning in Government Projects – Roads, energy,

Public and housing, water supply, and health.

Ethiopia

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Private Sector Private Sector & NGOs – Agriculture,
education, technology, and entrepreneurship.
Involvement
Public-Private Partnerships (PPPs) –

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Increasingly used to fund large-scale
projects.
Common Challenges in Project
Planning

Bureaucratic Limited Financial Infrastructure

Delays – Lengthy Resources – High Gaps – Logistics
approval reliance on foreign and transportation
processes. aid and loans. constraints.

Capacity & Skill Regulatory and

Shortages – Need Policy Changes –
for skilled project Uncertain business

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managers. environments.

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Thank You !!!

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 Project Management
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Project Management
Chapter Two

Project Life Cycle

Outline
Meaning of Project Cycle

World Bank Project Cycle

UNIDO Project Cycle

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DEPSA Project Cycle
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What is a Project Life Cycle?
Before a project is realized, it goes through various phases
that constitute the Project Life Cycle – a logical sequence
of activities needed to achieve the project's goals and
objectives.

Why is the Project Life Cycle Important?

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Helps manage Enables better Improves team
Ensures structured
risks and monitoring and coordination and
project execution.
uncertainties. control. efficiency.
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 Phases of the Project Life Cycle

1. Initiation Phase (Conceptualization)

2. Planning Phase

3. Implementation Phase (Execution)

4. Closing Phase (Termination)

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• A clear understanding of these four phases allows managers
and executives to control projects more efficiently.
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 1. Initiation Phase
(Conceptualization)
This is the starting point of any project where the
problem is identified and potential solutions are
suggested.

The feasibility and value of the project are

assessed

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Outcome: A project proposal or business case
that justifies moving forward with the project.
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 Key Steps:
I. Define the Problem:

• What problem does the project solve?

• What client need is being satisfied?

• Will the project provide a viable solution?

II. Develop Solution Options:

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• What are the different ways to solve the problem?

• Which approach is the best fit for the organization?

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 2. Planning Phase
A solid project plan is developed to guide the
team and ensure the project stays on time and
within budget.

Why is Planning Important?

• Proper planning = project success!
• Poor planning = delays, cost overruns, and
frustration.

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Outcome: A detailed project plan that serves
as a roadmap for execution.
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Key Activities:
Create a Work
Define Scope &
Breakdown Estimate Costs &
Objectives – What
Structure (WBS) – Budget – How much
needs to be
What tasks need to will it cost?
achieved?
be completed?

Schedule & Identify Risks & Allocate Resources

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Timeline – When will Mitigation & Assign
each phase be Strategies – What Responsibilities –
completed? could go wrong? Who will do what?

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 3. Implementation
(Execution) Phase

The project plan is put into action.

Team members execute tasks while project progress is monitored

and controlled.

What Happens If There’s a Deviation from the Plan?

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• Identify what went wrong and how to fix it.
• Decide whether to adjust the plan or correct the issue.
Outcome: A working deliverable that meets project requirements.
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 Key Activities:
Executing project tasks according to plan.

Monitoring progress and making

adjustments as needed.

Ensuring effective team collaboration.

Managing changes and risks proactively.

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Regular reporting on project performance.
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 4. Closing Phase
(Termination)
• Ensuring the project is completed efficiently and
handed over to the customer.

• Learning from the project to improve future performance.

• Outcome: A successful project closure with valuable

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insights for future projects.

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 Key Activities:

Deliver Deliver final product or service to the customer.

Hand over Hand over project documentation.

Terminate Terminate contracts & release project resources.

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Communicate Communicate closure to all stakeholders.

Conduct Conduct a project review & document lessons learned.

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 Project Life Cycle

Initiation Planning Implementation Closing

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Percentages and graph refer to the amount of effort expended.

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 Project cycles vary based on the organization
managing the project.
Models of Some key models include:
World Bank
the Project (Baum) Project
DEPSA’s
Project Cycle
UNIDO Project
Cycle
Cycle

Cycle

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Each model follows a structured approach to
project identification, preparation, execution,
and evaluation.
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 1. The World Bank (Baum)
Project Cycle
• The Baum Model (1970) was adopted by the World Bank to guide its
project funding and implementation.

 The World Bank finances projects in infrastructure, education,

health, and public sector management across various countries.

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 The World Bank and borrowing countries collaborate throughout
the project cycle, with clear roles and responsibilities.
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 Stages of the World Bank Project Cycle

Identification Preparation Appraisal

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Negotiation &
Implementation Evaluation
Board Approval
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I. Identification Phase

The borrowing country and the World Bank analyze

development strategies and identify potential projects.

Outcome: A list of potential projects that are financially,

economically, socially, and environmentally viable.

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Sources of Projects:

Resource-based – Utilizing natural resources for economic gain.

Market-based – Meeting local or global market demands.

Need-based – Addressing social issues like poverty, healthcare,

and education.

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Expert-driven – Suggested by technical specialists or local
leaders.
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 II. Preparation Phase (Pre-
feasibility & Feasibility Studies)
The borrowing country
takes the lead in project
preparation, Who is
conducting impact
assessments, and
refining project
Involved?
objectives.

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World Bank – Local & international
Borrowing country –
Determines project consultants – Assist in
Conducts technical and
conditions and expected large-scale project
economic studies.
impact. design.
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 Key
Activities:
 Conduct feasibility studies – Assess technical,
economic, and financial viability.

 Develop a project plan – Define scope, schedule, and

institutional responsibilities.

 Identify risks and mitigation strategies.

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• Outcome: A comprehensive project proposal ready for
evaluation.
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 III. Appraisal Phase

The World Bank conducts an independent review of

all work done during the preparation phase to determine
if the project is viable.

Outcome: A final review report determining whether

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the project should proceed.

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 Key Appraisal Areas:

Financial
Technical Commercial
Assessment – Are
Feasibility – Will the Viability – How will
funding sources
project function as inputs and outputs
clear and repayment
designed? be managed?
plans viable?

Managerial Organizational
Economic Impact –

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Capability – Can the Structure – Is the
Will the project
executing team project well-
benefit national
manage the project structured for
development?
effectively? execution?
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IV. Negotiations & Board
Approval
The World Bank and the borrowing country negotiate the
loan agreement before final approval.

Finalize financial terms and conditions.

Ensure the project aligns with development
Key Activities: goals.
Obtain approval from the World Bank’s Board
of Directors.

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Outcome: A formal agreement to proceed with project
implementation.

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 V. Implementation Phase
(Execution & Supervision)
The borrowing country executes the project, while the World Bank
supervises to ensure compliance.

Key Activities:

• Executing project tasks according to plan.

• Monitoring procurement and financial management.
• Reporting progress to stakeholders.

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• Making adjustments as needed.

Outcome: A completed project ready for evaluation.

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 VI. Evaluation Phase
To assess whether the project achieved its objectives and delivered
expected benefits.

Key Activities:

• Independent Evaluation Group (IEG) audit.

• Compare actual results with original goals.
• Submit final reports to the World Bank and borrower.

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• Document lessons learned for future projects.
Outcome: A detailed evaluation report measuring project success and
impact.
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2. DEPSA’s Project Cycle
(Ethiopian Model)
What is DEPSA?

• The Development Project Studies Authority (DEPSA)

developed Ethiopia’s project planning framework, outlined in
the 1990 Guidelines to Project Planning in Ethiopia.

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Structure of DEPSA’s Project Cycle:

• DEPSA divides the project cycle into three major phases and
six stages:
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 Three Phases of DEPSA’s
Project Cycle
Pre-Investment • Identification – Recognizing project opportunities.
• Preparation – Conducting feasibility studies.
Phase • Appraisal/Decision – Evaluating and selecting projects.

Investment • Implementation – Executing project plans.

Phase

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Operation • Operation – Running and maintaining the project.
• Ex-Post Evaluation – Reviewing performance after
Phase completion.
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 3. UNIDO Project Life Cycle
• What is UNIDO?

 The United Nations Industrial Development Organization

(UNIDO) supports industrial growth, poverty reduction, and

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environmental sustainability through structured project
planning and execution.
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UNIDO’s 1. Pre-Investment Phase

 Opportunity Study – Identifying potential project

Project
ideas.

Life  Pre-Feasibility Study – Assessing alternative solutions.

 Feasibility Study – Conducting a final technical and

Cycle

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economic analysis.
Phases:  Evaluation Report – Making a final decision on project
viability. 61
 2. Investment Phase

• Technology Acquisition & Transfer;

Securing required technology. 3. Operation Phase
• Engineering Design & Contracts;
Preparing detailed designs and
selecting contractors.
• Land Acquisition & Construction; • Sustaining Operations; Managing
Setting up project infrastructure. equipment, staff, and production.
• Pre-Production Marketing; • Equipment Replacement; Upgrading
outdated technology.
Establishing supply chains and firm
• Liquidation; Shutting down operations

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administration.
if required.
• Recruitment & Training; Hiring and
preparing employees.
• Start-Up; Launching operations.

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Comparison of Project Cycle Models

Model Phases Key Focus

Financing and development

World Bank Project
6 Phases projects (infrastructure,
Cycle
education, health).

Ethiopia’s national planning

DEPSA’s Project
3 Phases, 6 Stages framework for local development
Cycle

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projects.

Industrial and economic

UNIDO Project Life
3 Phases development, technology
63
Cycle
transfer.
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 Project Management
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 Project Management
Chapter Three

Project Identification (Pre-Feasibility

Studies)
Outline
Project Identification (Pre-Feasibility Studies)

Project Idea – Meaning

Macro sources
Sources of Project Ideas
Micro sources

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Project Screening

Project Identification Problems

67
 Project Identification
(Pre-Feasibility Studies)
• What is Project Identification?

 Project identification is the first step in the project planning process,

where potential projects are selected based on their feasibility and
alignment with development objectives.

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 Why is Project Identification
Important?

Helps identify viable project ideas that can be financed and

executed.

Ensures projects align with national, regional, and sectoral

development goals.

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Avoids wasting time and resources on unfeasible or non-
priority projects.
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 Pre-
Pre-Identification (Opportunity Study): Pre-
Identification identification is the first step in project
identification.
vs.
It involves:
Identification
• Conducting opportunity studies to identify
areas with investment potential.
of Projects

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• Analyzing socio-economic data, policies,
and development trends.
• Reviewing natural resources, industry
needs, and market conditions. 70
 Challenges in Pre-
Identification:
 Lack of awareness of its importance.

 High costs and budget constraints.

 Time-consuming nature discourages

stakeholders.

2. Project Identification: Involves selecting

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specific project ideas from pre-identified
opportunities. Ensures the project aligns with
national policies, strategies, and priorities.
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 Sources of Project Ideas

Every project starts with an idea, which emerges from unmet needs,
problems, or opportunities in society.

Who Conceives Project Ideas?

• Individuals (entrepreneurs, innovators).

• Community Groups & Local Leaders.

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• NGOs & International Development Agencies.
• Government Organizations & Policy Makers.

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• Planners, Financial Institutions, & Businesses.
Project ideas originate from multiple macro (governmental,
international) and micro (community, private sector) sources.

Macro Sources of Project Ideas

• Government Policies & Development Plans.

• Sectoral Strategies (health, agriculture, infrastructure, etc.).

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• National & Regional Economic Surveys.
• International Development Agencies (UN, WB, IMF).
• Multilateral & Bilateral Agreements.
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• Micro Sources of Project Ideas

 Entrepreneurs & Private Enterprises.

 Local Community & Producer Organizations.

 NGOs & Social Advocacy Groups.

 Research Institutions & Universities.

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 Industry-Specific R&D Departments.
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How Do Project Ideas Emerge?
Sectoral & Sub-
Policy Reviews &
sectoral Plans (e.g.,
Government
health, education,
Strategies.
agriculture).

Surveys & Studies

Review of Past
Conducted by Local
Projects & Private
and International
Sector Initiatives.
Organizations.

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Market Demand &
Response to Natural
Need Analysis
Disasters or
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(Identifying Unmet
Economic Shocks.
Demand).
 Approaches to Project Idea
Generation
• There are two main approaches used in project idea
generation:
� Top-Down Approach (Macro Level)
• Projects are planned at the national level based on
government priorities.

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• Implementation is decided by policymakers without
direct community involvement.
• Example: Large-scale national infrastructure projects
(highways, railways, energy plants). 76
 Pros: Cons:

Aligned with national May lack community

development goals. involvement, leading to
Encourages long-term resistance.

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economic growth. May not address local-level
needs effectively.

77
� Bottom-Up Approach (Micro Level)
• Project ideas originate from local communities based on real-life
needs.

• Uses grassroots participation for idea generation and execution.

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• Example: Community-led water supply projects, local
entrepreneurship programs.
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Pros:

• Ensures community engagement and local buy-in.

• Easier implementation & sustainability.

Cons:

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• May lack alignment with national development
priorities.
• Requires external funding & technical support.
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Screening Potentially Promising Ideas

Why is Screening Objective of Screening:

Important?
Once a list of project ideas is Identify project ideas that align
generated, the next step is to filter with strategic goals and feasibility
and select the most viable ones. criteria.

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Eliminate projects that are
unrealistic or impractical.
Focus resources on the best
possible projects. 80
 Key Screening Criteria
• Project ideas are evaluated based on:
 Strategic Fit – Does it align with government priorities?
 Market Demand – Is there an adequate demand for the project’s output?
 Availability of Inputs – Are required materials and resources accessible?
 Financial Feasibility – Are costs reasonable compared to expected
benefits?

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 Risk Acceptability – Are risks manageable?
 Technical Soundness – Is the project technically feasible?

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Methods for Identifying &
Screening Project Ideas

Focus Group
Interviews:
Discussions:
Conducting structured
Gathering multiple
discussions with
perspectives for
stakeholders.
deeper insights.
Workshops &
Market & Industry
Brainstorming
Research: Studying

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Sessions: Using
trends, supply chains,
SWOT analysis and
and competitor
creative thinking
strategies.
82
techniques.
Problems in Project Identification

Ambiguity in National Conflicts Over Development

Development Goals Priorities
Lack of clear communication Disagreements on which
on national priorities. sectors to prioritize.

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Conflicting interests among Differences in government
stakeholders. and private sector interests.
Goals may not align with local Unclear policy direction
community needs. leads to confusion. 83
Limited Data & Information Conflict of Interest Between
Accessibility Beneficiaries
Inadequate data availability Some groups bear project
for decision-making. costs, while others benefit.
Bureaucratic challenges in Lack of compensation for

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obtaining critical information. affected communities.
Unreliable or outdated Possible resistance from
statistics. local groups.
84
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 Project Management
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Project Management
Chapter Four

Project Preparation
Outline
Markets and Demand Analysis

Raw Materials and Supplies Study

Location, Site and Environment Impact Assessment (EIA)

Production Program and Plant Capacity

Technology Selection

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Organizational and Human Resource Study

Financial and Economic Analysis 88

Project Preparation

Project preparation is a critical phase in project

planning that assesses whether a project is feasible,
viable, and sustainable before implementation.

It involves a comprehensive evaluation of technical,

financial, environmental, and market factors to ensure

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project success.

89
Importance of Project Preparation
• Effective project preparation is essential for:

 Minimizing risks and avoiding project failure.

 Efficient resource allocation to optimize investment.

 Providing critical data for a "go/no-go" decision.

 Establishing a strong business case for stakeholders.

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 Enhancing project success rates through better planning.

 Ensuring financial predictability for governments and funders

90
Key Aspects of Project Preparation:

Ω Feasibility study usually cover five major dimensions to study

whether the proposed project is attractive or not.
Ω Market and Demand Analysis
Ω Technical Study
Ω Environmental Impact Assessment

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Ω Risk Analysis
Ω Financial & Economic analysis
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I. Market and Demand
Analysis

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 Market and demand analysis determines whether there is a viable
market for the project’s product or service.

Market and Demand Study helps estimate market potential and project
feasibility, with the objectives of:

Assess demand Evaluate Define effective

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Identify target
trends and competition and pricing and
customers and customer market share distribution
market size. behavior. potential. strategies.
93
Key Analysis Areas:

Competitor Analysis
Aggregate Demand –
– Strengths,
Overall market
weaknesses, and
potential for the
strategies of
product/service.
competitors.

Customer
Market Trends –
Preferences –

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Growth, stability, and
Purchase power,
external influencing
trends, and buying
factors.
motives.
94
 Secondary Data – Industry reports,
government publications, surveys.
Sources of
Market Data: Primary Data – Customer interviews,
focus groups, field surveys.

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Economic Indicators – GDP growth,
employment rates, industry statistics.

95
 Steps in Conducting Market
and Demand Study:

Situational Analysis & Collection of

Market Surveys –
Objective Setting – Secondary Information
Conduct primary data
Define scope, customer – Industry reports,
collection through direct
behavior, and census data, trade
research.
competitor strategies. publications.

Demand Forecasting – Marketing Plan

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Predict future market Development – Define
trends using qualitative product, pricing,
and quantitative promotion, and
methods. distribution strategy.
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 Demand Forecasting
After gathering market data, demand forecasting predicts future
sales potential. Methods includes Qualitative and Quantitative:

A. Qualitative Forecasting Methods

• Delphi Method – Expert consensus through structured feedback

rounds.

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• Sales Force Composite – Sales team estimates based on regional
trends.
• Consumer Panel Surveys – Direct customer insights into purchasing
behavior. 97
B. Quantitative Forecasting Methods
Naive Method – Assumes future demand equals previous
periods.

Moving Averages – Uses past data trends for short-term

projections.

Regression Analysis – Predicts demand based on causal

relationships.

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Exponential Smoothing – Adjusts past demand with weighted
recent trends.
98
 Example
• Suppose a manufacturer of transistors in Addis Ababa
decides to forecast the sales of its products. The firm
collects data on his sales for the past five years as
follows;
Calculate sales for 2016?
1.Naïve method
2.Moving average with
1. a Simple moving and

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2. Weighted moving (0.5, 0.3, and 0.2).
3. Regression method

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4. Exponential smoothing (use α = 0.12)
1. Naïve method = The forecast of any period is equals with the previous
period actual value. Therefore 2016 forecasted sales= 75.
2. Moving average

𝐴𝐴𝑡𝑡 + 𝐴𝐴𝑡𝑡−1 + 𝐴𝐴𝑡𝑡−2 + 𝐴𝐴𝑡𝑡−3 + 𝐴𝐴𝑡𝑡−(𝑛𝑛−1)

𝑓𝑓𝑡𝑡+1 =
𝑛𝑛
 Where, 𝑓𝑓𝑡𝑡+1 : forecast for the next period

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𝐴𝐴𝑡𝑡 : Actual sale for past period up to n
𝑛𝑛: Number of moving period to be average
t: Current period (last actual period)
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i. Simple moving average

75+70+55+60+50
Five years SMA = ∑ =67
5

75+70+55+60
Four years SMA = ∑ =65
4

ii. Weighted moving average

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Three-year Weighted average= ∑(75*0.5+70*0.3+55*0.2)=69.5

101
3. Regression method

The most commonly used in this method is liner relationship

Where; Y= a + bx
Y=Demand for the year (DV) ∑𝑥𝑥𝑥𝑥−𝑛𝑛(x̄)(ȳ)
b= 2
∑𝑥𝑥 −𝑛𝑛(x̄)2
X=Time variable (independent variable)
a= ȳ - b(x̄ )

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a= intercept of the relationship
x̄ = mean of x
b= Slope of the relationship
ȳ= mean of y
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Years X Y XY 𝑋𝑋 2

2011 1 50 50 1
2012 2 60 120 4
2013 3 55 165 9 𝑦𝑦 = 𝑎𝑎 + 𝑏𝑏𝑥𝑥
2014 4 70 280 16 Where: x= labels for time
2015 5 75 375 25 𝛴𝛴𝛴𝛴𝛴𝛴−𝑛𝑛𝑥𝑥𝑥𝑥 990−930
𝑏𝑏 = = =6
� 𝑥𝑥 2 −𝑛𝑛𝑥𝑥̅ 2 ∑ 55−45
N=5 ∑15 ∑310 ∑990 ∑55
𝑎𝑎 = 𝑦𝑦� − 𝑏𝑏𝑥𝑥̅ = 62-6(3)=44
𝑥𝑥=∑X/n=15/5=
̅ 3

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Y=44+6(6)=80
𝑛𝑛𝑥𝑥̅ 𝑦𝑦=5*3*62=930
�
� ∑Y/n= 310/5= 62
𝑌𝑌=
So, forecasted sales of 2016

103
𝑛𝑛𝑥𝑥̅ 2 =5*32 =45 will be 80
4. Exponential smoothing
 In exponential smoothing forecast results are modified in the
light of observed errors.
Year Actual Forecasted
α = 0.12
demand demand
Assume F1=A1
2011 50 50
F2 = F1 + α(A1-F1) 2012 60 50
F3 = F2 + α(A2-F2) 2013 55 51.2

F4=F3+ α(A3-F3)
2014 70 51.6

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2015 75 53.8
F5=F4+ α(A4-F4)

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F6=F5+ α(A5-F5)= 53.8+0.12(75-53.8)=56.34
 Principles of Forecasting:
 Forecasts are rarely 100% accurate; results
may differ from predictions.
 Forecasts are more reliable for groups of
products than individual items.
 Short-term forecasts are more accurate than

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long-term projections.
 Forecasting assumes past market conditions
will continue in the future. 105
Challenges in Market Forecasting
• Market forecasting is subject to uncertainties such as:

 Data Reliability Issues – Inconsistent or insufficient market data.

 Unrealistic Assumptions – Poorly structured forecasting models.

 Environmental & Technological Changes – Innovations altering demand patterns.

 Government Policy Shifts – Regulatory changes affecting market conditions.

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 New Market Entrants – Competition altering market share dynamics.

106
 Marketing Plan Development
• The final step in project preparation is structuring a
comprehensive marketing plan:
Product – Define features, quality, and
differentiation.
Price – Competitive and value-based pricing
strategies.
Promotion – Advertising, branding, and sales

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strategies.
Distribution – Efficient channels and logistics
planning.
107
II. Technical Feasibility
Study

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108
The technical analysis is used to establish whether or not a project is
technically feasible and provide tentative alternatives to achieve the
project's objectives.

Establishes project feasibility and technological resource

requirements.
• Determines whether a project is technically possible and can achieve
its objectives.

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• Analyzes technical and engineering aspects of a project.
• Forms the foundation for other project feasibility components.
• Examines logistics, production, and technical considerations.
109
 Key
Aspects: Selection of the most efficient production
process.
Identification of suitable machinery and
equipment.
Determination of plant capacity and
production layout.
Compliance with industry standards and

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technological best practices.
Evaluation of technical challenges and
mitigation strategies.
110
Primary Focus Areas:

Material Inputs Manufacturing

and Supply Process/Technology

And others like,

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Location and Site
Plant Capacity organizational,
Selection
and HR
11
1
1. Material Inputs and Supply

Materials and supplies are critical inputs in

industrial projects.

The selection of raw materials depends on

technical project requirements.

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Feasibility studies must ensure reliable access to
materials at reasonable costs and quality.
11
2
Key Considerations:

Identifying suppliers and Evaluating transportation,

raw material sources. storage, and input costs.

Assessing supply chain Understanding contractual,

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reliability and potential regulatory, and
risks. environmental factors.

11
3
Key Questions:

What types of
Where are the
materials are
sources?
needed?

What are the

What are the
environmental

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associated costs?
implications?

114
 2. Manufacturing
Process/Technology

Different technologies may be available for

production.

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The choice of technology should align with
project goals.

115
Key Factors:

Plant Capacity: Number of units to be produced.

Quality of Input: Investment and production costs.

Latest Developments: Reducing technological obsolescence.

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Ease of Absorption: Simplicity of learning and adaptation.
116
Technology Considerations:

Does it utilize local

Does it protect
raw materials and
ecological balance?
workforce?

Is it compatible with Is it adaptable,

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socio-cultural sustainable, and cost-
conditions? effective?

117
 3. Plant Capacity

Defines the number of

units a plant can Types of
produce in a given
timeframe. Capacity:

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Feasible Normal Capacity Nominal Maximum
(FNC): Achievable under Capacity (NMC):
normal conditions (includes Theoretical maximum
downtime and achievable under ideal
maintenance). conditions. 11
8
 Factors Affecting Plant
Capacity:
1. Technological Requirements: Minimum capacity
constraints.
2. Input Constraints: Availability of power, raw materials,
and skilled labor.
3. Market Conditions: Demand projections influence
capacity decisions.
4. Firm Resources: Capital investment and infrastructure

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availability.
5. Government Policies: Regulatory constraints and
incentives.
119
 4. Location and Site Selection

• Determines where the project will be established.

• Location refers to a broad area (e.g., city or

industrial zone).

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• Site refers to the specific plot where the facility is

120
built.
 Key Location Factors:
• Proximity to Raw Materials: Reduces transportation
costs.
• Market Accessibility: Reduces distribution
expenses.
• Infrastructure Availability: Roads, power, water,
and communication networks.
• Government Policies: Incentives, regulations, and

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restrictions.
• Environmental Impact: Compliance with ecological
regulations. 121
 Site Selection Considerations:
• Land acquisition cost and legal aspects.
• Environmental impact assessment (EIA).
• Infrastructure availability (utilities, transport,
workforce).

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• Future expansion possibilities.
• Proximity to suppliers, workforce, and
transport hubs. 122
5. Organizational
and Human
Resource Planning
Organizational Structures for Projects

1. Functional Organization – Uses existing

departmental structures.

2. Projectized Organization – Creates

independent teams for projects.

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3. Matrix Organization – Integrates
functional and project-based management.
123
 Human Resource Considerations

Workforce Skills and Availability of Local Compliance With

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Expertise. Labor and Training Labor Laws and

Programs. Employment
Regulations. 12
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III. Environmental Impact

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Assessment (EIA) 125
 Environmental Impact Assessment (EIA)

• EIA is a systematic process aimed at ensuring that

development projects are environmentally sound
and sustainable.

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• It evaluates the environmental consequences of a
proposed or existing project before decision-
making.
126
 Understanding the Environment
• The environment includes all conditions under
which individuals and living organisms exist,
develop, and interact. It consists of:
1. Abiotic Factors – Land, water, atmosphere,
climate, sound, odors, and taste.

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2. Biotic Factors – Fauna (animals), flora (plants),
ecology, bacteria, viruses, and social factors that
impact quality of life. 127
Origins of Environmental
Concerns
• Environmental awareness emerged as a response
to public health issues such as:
• Unsanitary living conditions and streets.
• Contaminated water supplies.
• Poor drainage and sanitation.

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• Public nuisances and pollution.
• Unhygienic food processing.
• Widespread epidemics.
128
 Stages of EIA

Identification of environmental risks.

Prediction of expected environmental

changes.

Assessment of significance and

mitigation strategies.

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Development of an environmental
management plan.
129
 Objectives of EIA
Identify and assess potential adverse environmental
Identify
effects.

Propose measures to avoid, reduce, or compensate for

Propose
negative impacts.

Ensure environmental considerations are integrated into

Ensure
planning, design, and decision-making.

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Influence Influence the long-term sustainability of the project.
130
 EIA Process
Preparation – Conducting preliminary studies and defining project scope.

Data Collection – Gathering information from surveys and existing sources.

Data Analysis – Evaluating potential environmental changes.

Impact Evaluation – Weighing the significance of environmental effects.

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Mitigation and Monitoring – Developing strategies to minimize harm.

131
Reporting – Presenting findings for informed decision-making.
 EIA Report Components
 Impact on land, water, and air quality.
 Potential pollution sources (soil, water,&
atmosphere).
 Effects on wildlife and natural habitats.

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 Socio-economic consequences for local
communities.
 Infrastructure needs, including housing. 132
 Political and Stakeholder Analysis
Political Feasibility

• Evaluating the political stability of the project location.

• Understanding government policies and regulatory

impacts.

• Assessing international trade agreements and external

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influences.

133
Stakeholder Analysis

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134
Stakeholder Engagement Strategies:

Clear communication and consultation.

Addressing concerns and expectations.

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Ensuring transparency in project planning and execution.
13
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IV. Risk Analysis

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136
 Project Risk Management
o Risk is uncertainty regarding loss.

o Risk is a condition in which there is a probability of an adverse

deviation from desired outcome that is expected or hopped for.

o Project risk; Any event that prevents or limits the

achievement of your objectives from defined at the

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outset/staring of the project.

137
Types of Project Risks
• Projects face various types of risks that can impact their success.
1. Financial Risks – Unexpected cost overruns, inflation, currency
fluctuations.
2. Operational Risks – Inefficiencies in production, equipment
breakdowns.
3. Market Risks – Changes in customer demand, competition.

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4. Legal and Regulatory Risks – Changes in laws, tax policies.
5. Environmental Risks – Climate change, resource depletion.
138
Risk Management Objectives
o Economical preparation for potential losses.

o Reducing uncertainty and anxiety.

o Ensuring business continuity and survival.

o Maintaining financial stability and growth.

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o Fulfilling social and environmental responsibilities.

139
Risk Management Process
Risk Identification

• Recognizing threats to implementation and

objectives.
• Assessing resource and schedule constraints.

Risk Quantification

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• Estimating the likelihood of risks occurring.
• Measuring the impact of risks on project success.

140
 3. Risk Response 4. Risk Mitigation
Planning Applications

Prioritizing risks based on Estimating the financial

probability and impact. implications of risk
Developing mitigation management measures.
strategies and contingency

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plans.

141
Selection of appropriate risk control tools
based on the frequency and severity

Frequency
High Low

High Insurance
Avoidance and Risk
Control
Severity Retention

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And Risk Retention
Control
Low

142
 V. Financial and
Economic Analysis

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143
• Financial and economic analysis is a crucial component of
project feasibility assessment.

• It helps managers evaluate a project’s financial viability,

economic impact, and overall justification.

Financial Analysis

 Financial analysis focuses on the project’s profitability,

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cost-effectiveness, and feasibility from an investment
perspective.
144
Key Elements of Financial Analysis

Total Estimated Cost of the Project:

Project Financing (Source of Finance):

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Projected Profitability and Cash Flow:
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Total Estimated Cost of the Project:
Land and Site Development: Costs of leveling and site
preparation.

Building and Civil Works: Includes construction costs for

plant, equipment, and infrastructure.

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Plant and Machinery: Includes foundation and installation
charges.
146
Technical Know-How and Engineering Fees: Costs for project
preparation, design, and consultancy.

Foreign Technicians and Training: Expenses related to foreign

expertise and staff training.

Miscellaneous Fixed Assets: Office equipment, IT infrastructure, and

furniture.

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Pre-Operative Expenses: Costs related to project initiation and start-up

147
operations.
 Project Financing
(Source of Finance):
Equity: Owners' contributions towards financing the project.

Loan Financing: Funds obtained from financial institutions such as banks.

Supplier Credit: Deferred payment arrangements for imported machinery and

equipment.

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Leasing: Alternative financing method where assets are leased instead of purchased.

Incentives: Financial support from government agencies to encourage investment.

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 Projected Profitability and
Cash Flow:

Cash Flow: The difference between cash inflows and outflows.

Five-Year Financial Projections:

• Projected Income Statement: Expected revenue, expenses, and net
income.

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• Projected Cash Flow Statement: Forecast of cash inflows and
outflows.
• Projected Balance Sheet: Expected financial position at different
project stages.
149
Time Value of Money
• Principle:

o Money today is worth more than the same amount in the

future due to its earning potential.

o Future cash flows should be discounted to their present

value.

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o Investment decisions should consider opportunity costs
and alternative investments.
150
 Financial Investment
Evaluation Criteria
• Financial evaluation methods are classified into discounting and non-
discounting criteria.
 Discounting criteria
Net Present Value (NPV)
Internal Rate of Return (IRR)
Profitability Index (PI)

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Discounted Payback Period (DPP)
 Non-Discounting Criteria
Accounting Rate of Return (ARR)
152
 Discounting Criteria
Net Present Value (NPV):

o The present value of net cash inflows minus the initial

investment.

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o Decision Rule: Accept if NPV > 0, reject if NPV < 0.

153
Steps in calculating NPV
1st : Calculating present value of net cash inflow generating from project.
Net cash flows = (cash inflows – expenses)
Present value = Net cash flow/ 1 + 𝑟𝑟 𝑛𝑛

2nd : subtract the initial investment on the project from the total present value of
inflows to arrive at net present value.
NPV = Total PV – Initial Investment

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Or
𝑐𝑐1 𝑐𝑐3 𝑐𝑐4 𝑐𝑐𝑛𝑛
N𝑃𝑃𝑃𝑃 = + + +… + −(𝐼𝐼𝐼𝐼)𝑐𝑐0
1+𝑟𝑟 1 1+𝑟𝑟 2 1+𝑟𝑟 3 1+𝑟𝑟 𝑡𝑡

154
Example of Net Present Value
To provide an example of Net Present Value, consider a company who is
determining whether they should invest in a new project. The company will expect
to invest $500,000 for the development of their new product.
The company estimate the cash flow for the next three year
First year cash flow $200,000
Second year cash flow $300,000

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Third year cash flow $200,000
A 10% interest rate is used as the discount rate.
Required: Net Present Value to determine whether they invest or not.
155
• The following table provides each year's cash flow and its present value
Year Cash Flow Present Value
0 -$500,000 -$500,000
1 $200,000 $181,818.18
2 $300,000 $247,933.88
3 $200,000 $150,262.96
Net Present Value = $80,015.02
• When solving for the NPV of the formula, this new project would be estimated to be a

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valuable venture. If: -
 The Projects which has 0 or positive NPV

156
 Select the project which has highest NPV than other.
 • Considers the time value of money.

Merits: • Suitable for selecting mutually exclusive

projects.
• Uses all project cash flows.

• Difficulty in selecting an appropriate

discount rate.
Demerits:

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• May not be suitable for comparing
projects with unequal investments.

157
Internal Rate of Return
(IRR):
o The discount rate at which NPV equals
zero.

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o Decision Rule: Accept the project if IRR >
required rate of return.
158
 IRR is the discount rate (or rate of return) at which the net
present value is zero.
𝑪𝑪𝟏𝟏 𝑪𝑪𝟐𝟐 𝑪𝑪𝑻𝑻
𝑵𝑵𝑵𝑵𝑵𝑵 = −𝑪𝑪𝟎𝟎 + + +. . . +
(𝟏𝟏 + 𝒓𝒓)𝟏𝟏 (𝟏𝟏 + 𝒓𝒓)𝟐𝟐 (𝟏𝟏 + 𝒓𝒓)𝑻𝑻

 Find the IRR (rate) in which NPV Would be equal to zero.

𝑪𝑪𝟏𝟏 𝑪𝑪𝟐𝟐 𝑪𝑪𝑻𝑻
𝟎𝟎 = −𝑪𝑪𝟎𝟎 + + +. . . +
(𝟏𝟏 + 𝑰𝑰𝑰𝑰𝑰𝑰)𝟏𝟏 (𝟏𝟏 + 𝑰𝑰𝑰𝑰𝑰𝑰)𝟐𝟐 (𝟏𝟏 + 𝑰𝑰𝑰𝑰𝑰𝑰)𝑻𝑻

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 Invest in any project if its IRR is higher than the required rate
(discount rate, r)
159
Steps for IRR Calculation:
 Compute NPV using an arbitrary discount rate.

 Adjust the rate upwards if NPV is positive and downwards if negative.

 Repeat the process until NPV equals zero.

 Use linear interpolation to determine the exact IRR.

Linear interpolation is given by:

𝑵𝑵𝑵𝑵𝑽𝑽𝑳𝑳𝑳𝑳 − 𝟎𝟎

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𝑳𝑳𝑳𝑳 + (𝑯𝑯𝑯𝑯 − 𝑳𝑳𝑳𝑳)
𝑵𝑵𝑵𝑵𝑽𝑽𝑳𝑳𝑳𝑳 − 𝑵𝑵𝑵𝑵𝑽𝑽𝑯𝑯𝑯𝑯
Where; LR = Lower rate and HR = higher rate
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 Illustration:
 The cost of the project is 1500 Br. Determine whether project is
acceptable if the cost of capital is 18% using the IRR method. A project
has the following cash flows.

 Solution

I. Select an arbitrary r (say 9%) and compute the NPV, NPV = 290.
II. Since, NPV is positive and large we select another discount rate larger than
9%, let say 15%. NPV = 38.19
III. Since, NPV at 15% is positive but not large, we select a slightly higher rate, say,
r=17%. NPV = -34.19

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IV. Use liner interpolation to find the exact IRR in which NPV = 0, IRR= 16.055
Decision rule: Reject the project since IRR is less than the required rate of
return (cost of capital).
161
 Merits: Demerits:

• Closely related to NPV. • Complex calculations.

• Considers the time value • Does not provide clear
of money. decision criteria for
• Uses actual project cash ranking projects.
flows. • Some projects may have
multiple IRRs.
• May lead to incorrect

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decisions in mutually
exclusive projects.

162
Profitability Index (PI):
The ratio of the present value of future cash inflows to
the initial investment.

PI = Present Value of Cash Flows / Initial Cost.

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PI > 1: Accept the project.
Decision Rule: PI < 1: Reject the project.
PI = 1: Indifferent decision.
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3
Illustration: A project has the following cash flows

• If the required rate of return is 9% and the project initial cost is 1500 Br,

calculate the PI of the project and advice if the project is acceptable.

 Solution:
1st Compute the present value

2nd Compute the profit index….PI = Total present value of cash flow over initial cost

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𝑷𝑷𝑷𝑷 𝒐𝒐𝒐𝒐 𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄 𝒇𝒇𝒇𝒇𝒇𝒇𝒇𝒇 𝟏𝟏𝟏𝟏𝟏𝟏𝟏𝟏
𝑷𝑷𝑷𝑷 = = = 𝟏𝟏. 𝟏𝟏𝟏𝟏𝟏𝟏
𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰𝑰 𝒄𝒄𝒄𝒄𝒄𝒄𝒄𝒄 𝟏𝟏𝟏𝟏𝟏𝟏𝟏𝟏
3rd Decision: the project is accepted, since PI is greater than one.

164
Merits:

• Allows comparison of projects of different sizes.

• Considers the time value of money.
• Provides clear decision criteria.

Demerits:

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• Does not indicate project risk.
16
5
Discounted Payback Period (DPP):

Steps to Calculate DPP:

Measures the time • Compute the present value of
cash flows for each year.
required to recover the • Accumulate the present values
until the initial investment is
initial investment using covered.

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discounted cash flows. • Determine the exact time
required to break even.

16
6
Assume a company wants to invest in two mutually exclusive
projects of 1000 Br each generating the following cash flows.
If the required rate of return is 10%. Which of the projects
should the company invest in?
 The project cash flow

 PBP= Years before full recovery + Unrecovered cost at the start of the year / Cash
flow during the year
Year PV -A Cum-A Year PV -B Cum-B
Payback Period–A
1 454.51 454.51 1 90.91 90.91 𝟐𝟐 +
𝟐𝟐𝟐𝟐𝟐𝟐. 𝟗𝟗𝟗𝟗
= 𝟐𝟐. 𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗𝟗
𝟐𝟐𝟐𝟐𝟐𝟐. 𝟒𝟒𝟒𝟒
2 330.58 785.09 2 165.29 256.20

3 225.40 1010.49 3 225.40 481.60

Payback Period-B

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4 273.21 1283.70 4 273.21 754.81 𝟒𝟒 +
𝟐𝟐𝟐𝟐𝟐𝟐. 𝟏𝟏𝟏𝟏
= 𝟒𝟒. 𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕𝟕
𝟑𝟑𝟑𝟑𝟑𝟑. 𝟒𝟒𝟒𝟒
5 1283.70 5 310.46 1065.46

6 1283.70 6 338.68 1403.95

 The management should undertake project A since it has a lower pay back period.
167
 Merits: Demerits:
Considers the time value Ignores cash flows after
of money. the payback period.
Useful for assessing Does not consider overall

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project risk and liquidity. project profitability.

16
8
 Non-Discounting Criteria

Accounting Rate of Return (ARR): Measures average annual profit

relative to investment.
• ARR = (Average Annual Net Profit / Initial Investment) × 100.

ARR is a percentage return, say if ARR = 7%, then it means that the project is expected to
projects, the higher the ARR, the more attractive the project is. earn seven cent out of
each dollar invested (yearly).

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Steps
• Calculate the net profit, annually
• Compute the average net profit 16
• Compute the ARR 9
 Illustration:
• Assume 90,000 Br is invested in a project with the following after tax net profits.

• The life of the project is 3 years and no salvage value, compute ARR of the project.
• Solution

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• Average Net profit = 20,000+10,000+30,000/3 = 20,000

ARR = (20000/ 90000) × 100= 22%

170
 Merits: • Simple to compute and interpret.
• Uses readily available accounting data.

• Ignores the time value of money.

Demerits:

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• Does not account for cash flow uncertainty.
• Does not consider project risk.

17
1
 Economic Analysis

Key Economic Considerations

• Social Cost-Benefit Analysis (SCBA):
Weighs societal benefits against
project costs.
Economic analysis evaluates • Employment Generation: Measures
a project's broader impact direct and indirect job creation.
on society and the national • Impact on GDP and National
economy. Revenue: Evaluates tax contributions,
export potential, and foreign exchange

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earnings.
• Income Distribution and Poverty
Reduction: Assesses how the project

172
affects marginalized communities and
economic equality.
Thank You!!!

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173
 Project Management
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 Project Management
Chapter Five
Project Planning, Implementation,
and Controlling (M&E)
 Outline
Project Planning

Project Organization

Project Directing

Project Control (Monitoring and

Evaluation)
Human Aspects of Project

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Management
Pre –requisites for Successful
Project Implementations
176
Project Planning

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177
Planning serves as the foundation of project
management, ensuring that:

Objectives are clear and well-defined.

Responsibilities and roles are assigned appropriately.

Budgets and timelines are realistic and achievable.

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Stakeholders are actively involved to enhance
commitment and accountability.
178
Define project goals and objectives with
measurable success criteria.

Establish project scope and deliverables to

set clear boundaries.

Develop Work Breakdown Structure (WBS) for

detailed task mapping. Planning
Create network diagrams for task
dependencies and sequencing. Phase
Schedule activities with realistic timeframes
and buffer allocations. Activities

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Determine resource requirements and
distribute accordingly.

Perform cost estimation and financial

forecasting. 179
Project Goals and Objectives

The first step in the planning process is to define the

project goals and objectives.

The goals and objectives must be clearly defined and

agreed upon by the customer and the organization or

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contractor that will perform the project.

18
0
Project
The project scope is the framework of a project.
scope
The scope determines the “boundaries” of the
project and defines exactly what the project will
achieve.

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A project’s scope should be based on the needs
and resources.
181
Project Scope Statement Includes:
Clear project objectives aligned with business goals.

Deliverables with detailed descriptions and acceptance criteria.

Milestones with specific deadlines and checkpoints.

Exclusions to avoid scope creep and ensure focus.

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Technical requirements for compliance and efficiency.

Customer review and feedback mechanisms. 182

 A deliverable is any measurable
outcome that contributes to
Project project completion.

Deliverables Reports (progress reports, risk

assessments, financial summaries)

Examples Completed infrastructure (buildings,

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bridges, IT systems)

Software applications or digital

183
platforms
 Project Milestones

Milestones serve as critical checkpoints

in project execution, ensuring timely
progress and alignment with objectives.

Examples of Milestones:

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• Completion of key project phases.
• Approval of project proposals and contracts.
• Finalization of significant tasks (e.g., system
testing, prototype development).
184
 Exclusions further define the
boundary of the project by stating
what is not included.
Project
Exclusions

Examples of Exclusions:

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External data collection Software deployment
responsibilities without end-user
assigned to the client. training. 185
 Reviews with customer
Completion of the scope checklist ends with a review with your
customer, internal or external.

Is the customer getting what he or she desires in deliverables?

Are questions of limits and exclusions covered?

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Clear communication in all these issues is imperative to avoid
claims or misunderstanding.
186
 Work Breakdown Structure (WBS)

• A Work Breakdown Structure (WBS) divides the project

into smaller, manageable tasks to improve tracking and
accountability.

• Establishes a structured approach to resource allocation.

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• Enhances visibility into project tasks and timelines.

• Serves as the foundation for scheduling and cost estimation.

187
WBS Development Process
Identify major project phases and break them down into
subtasks.

Ensure collaboration with stakeholders to refine task details.

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Assign responsibilities and validate dependencies to prevent
188
bottlenecks.
 Project Scheduling
• Scheduling is a critical process in project planning that involves:

• Determining when tasks should begin and end.

• Identifying dependencies and constraints among activities.

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• Allocating resources efficiently to optimize project completion.

• Recognizing the critical path to ensure timely project delivery.

189
Key Steps in Scheduling
Define Activities – Break down the project into smaller,
manageable tasks.

Sequence Activities – Establish logical relationships and

dependencies among tasks.

Estimate Activity Durations – Use historical data, expert

judgment, and estimation techniques.

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Develop Schedule – Construct a structured timeline
incorporating task dependencies and durations.
190
Scheduling
The primary scheduling tools include:
Tools
1. Gantt Chart (Bar Chart)
• A widely used tool for visualizing the project
timeline.
• Represents tasks, their durations, start/end

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dates, and dependencies.
• Helps in tracking progress and identifying
potential delays. 191
 Key Features:
Tasks are displayed as horizontal
bars across a time axis.

The left end of the bar marks the

start time, and the length
represents the duration.

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Dependencies between tasks can
be illustrated using connecting
lines.
192
 Activity A

Activity B

Activity C

Activity D

Jun Jul Aug Sep Oct Nov

Time
There are many other acceptable ways to display project information on a bar chart.

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193
 2. Network Diagram
A visual representation of task relationships and
dependencies.

Highlights sequential and parallel activities to optimize

scheduling.

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Used to identify the critical path, which determines the
shortest possible duration to complete a project.

194
• Comparison with Gantt Chart:

• More sophisticated than Gantt charts, as they explicitly

define task dependencies.

• Helps in identifying bottlenecks and schedule

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optimization opportunities.

195
 Key Terminologies
Parallel Activities: Tasks executed simultaneously.

Sequential Activities: Tasks executed in a specific order.

Diverging (Merge) Activities: A single task that precedes multiple subsequent

activities.

Converging (Burst) Activities: Multiple tasks that merge into a single

subsequent activity.

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Critical Path: The longest sequence of dependent activities; any delay in these
tasks will delay the project.

196
Slack (Float): The amount of time a task can be delayed without affecting the
overall project timeline.
Types of Network Diagrams:

Activity on the Arrow (AOA) – Tasks are represented by

arrows.

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Activity in the Box (AIB) – Tasks are shown as boxes with
dependencies indicated by arrows.
197
A, B, C, D, E, F are activities
B
A E
A B E
Start Finish
Start C F
D
C D F Finish

AOA Format
AIB Format

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198
 Example

Activity Time(days) Preceded By

A 10 --
B 7 --
C 5 A
D 13 A

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E 4 B,C
F 12 D
G 14 E

199
 Time
Estimating of time is the process of forecasting or
Estimation approximating the time of completing a project and an

Techniques activity.

Methods of Estimation:

• Top-Down Estimation: Conducted by senior

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management using past project data.
• Bottom-Up Estimation: Developed by project teams

200
based on detailed task breakdowns.
Factors Affecting Estimation Accuracy:
• Resource availability and efficiency.

• Complexity and risk associated with tasks.

• Multitasking and work interruptions.

• Duration Estimate

Includes both direct working time and waiting time.

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•

• Establishes estimated start and finish times for each task.

201
 Determining Earliest and
Latest Times
• Earliest Start (ES) – The soonest an activity can begin.

• Latest Start (LS) – The latest an activity can begin

without affecting the timeline.

• Earliest Finish (EF) – The earliest an activity can be

completed.

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• Latest Finish (LF) – The latest an activity can be
completed without delaying the project.
202
 Forward and Backward Pass
• Forward Pass: Adds durations to determine the earliest start and finish
times.
• Backward Pass: Works backward to determine the latest start and finish
times.
• Determining Slack (Float)
 When the forward and backward passes have been computed, it is possible to

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determine which activities can be delayed by computing “slack” or “float.”
• Slack = LS - ES or LF - EF
• Activities with zero slack are on the critical path. 203
 Schedule for a Project
Earliest Latest
Activity Responsibility Duration
Start Finish Start Finish Slack

1 A Jim 10 0 10 0 10 0

2 B Jim 7 0 7 10 17 10

3 C Susan 5 10 15 12 17 2

4 D Abera 13 10 23 10 23 0

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5 E Kebe 4 15 19 17 21 2

6 F Amare 12 23 35 23 35 0

7 G Amare 14 19 33 21 35 2 20
4
When Expected Activity Times
are Uncertain
• Optimistic estimate- the shortest time
for each task (to),

• Most likely- the mean value of the t o + 4t m + t p

te =
estimates of each task (tm), and 6
• Pessimistic estimate- the longest time for
 t p − to 
2
each task (tp) time estimate for each

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σ =
2

activity.  6 
• te = Estimated time (PERT Estimating)
205
Activity Preceded By to tm tp te σ2
A -- 2 6 7 5.50 .694
B -- 5 7 9 7.00 .44
C A 3 5 6 4.83 .250
D A 10 10 10 10.0 0.000
E B,C 3 4 5 4.0 .111
F D 8 12 13 11.5 .694

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G E 2 4 8 4.33 1.000

206
Network Diagram with Expected Activity
Times and Variances

[5.5, 2 [10, 0.0] 4

0.694]
D [11.5, 0.694]
A F
1 C [4.83, 6
0.250]
B
[7.0, G
0.444] E [4.33, 1.0]
3 5
[4.0,

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0.111]

Expected Completion Time and Variance of Path A-D-F

Expected completion time = 5.5 + 10 + 11.5=27 207
 Assigning Resources

Resource allocation ensures that tasks are executed

efficiently and on time.

Key Considerations:

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Assign the right Ensure that required Prioritize activities on Secure firm
people to the right resources are the critical path when commitments from
tasks based on their available before assigning scarce team members and
skills and expertise. scheduling activities. resources. stakeholders. 20
8
 Project Cost Estimation
Accurate budgeting is essential for project success and
financial control.

Budgeting Process:
• Allocate Total Budgeted Cost (TBC): Assign budgets to each work
package.

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• Develop Cumulative Budgeted Cost: Distribute the TBC over the
project duration.
• Monitor Budget Utilization: Compare planned vs. actual 20
expenditures. 9
 Project Plan
A comprehensive project plan ensures alignment
between objectives, execution, and monitoring.

Key Components of a Project Plan:

• Human Resource Plan – Defines team roles and responsibilities.

• Cost and Budgeting Plan – Outlines financial management strategies.
• Procurement Plan – Details sourcing strategies for project materials and services.

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• Communication Plan – Establishes information flow and reporting structures.
• Risk Management Plan – Identifies potential risks and mitigation strategies.
• Quality Assurance Plan – Specifies quality benchmarks and compliance measures.
210
Project Implementation

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211
 Introduction
• Once the planning phase is successfully completed, the project moves
into the implementation (or execution) phase, which is the third phase of
the project management life cycle.
• It is the longest and most resource-intensive phase, involving
extensive coordination, teamwork, and stakeholder engagement.
• This phase transforms project plans into action, converting inputs into

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outputs to achieve project objectives.
• The project team actively works to produce deliverables while

212
managing constraints such as budget, time, and quality requirements.
Key Activities in Project Implementation

 Establish and manage the project team: Ensure team members

understand roles, responsibilities, and expectations.

 Manage resources efficiently: Allocate financial, human, and material

resources optimally to avoid delays.

Execute project activities: Ensure tasks are performed as per the

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

project plan while adhering to timelines and quality standards.

213
• Oversee procurement and contracts: Manage supplier
relationships, negotiations, and procurement logistics effectively.

• Implement approved changes: Address change requests while

ensuring alignment with project objectives.

• Conduct regular meetings and communication: Keep all

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stakeholders informed and engaged to promote collaboration.

214
• Monitor and control project performance: Track progress using
KPIs and performance indicators.

• Identify and manage risks: Proactively anticipate and mitigate

risks through strategic interventions.

Provide recognition and rewards: Maintain team morale and

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•

motivation through incentives and feedback mechanisms.

215
 Importance of the Implementation Phase
• A well-designed project can fail due to poor execution, making this
phase crucial for achieving desired results.

• The focus shifts from planning to action, requiring real-time adjustments

and proactive management.

• Implementation begins after final project approval and continues until

the project delivers expected benefits.

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• The project manager coordinates and directs resources efficiently to
meet defined objectives while handling constraints.
216
Pre –requisites for Successful
Project Implementations

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217
1. Strong Project Formulation

• Comprehensive needs assessment and feasibility studies.

• Realistic cost-benefit analysis.
• Accurate estimation of risks and benefits.

2. Effective Project Organization

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• Competent leadership and well-defined roles.
• Clear accountability mechanisms and work processes.
21
8
3. Proper Implementation Planning

Well-defined resource allocation and project scheduling.

Established performance benchmarks and quality
standards.

4. Strong Financial Management

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Timely availability of funds and effective budget control.
Professional financial oversight to prevent misallocation.
21
9
5. Robust Contract Management

• Ensuring contractor competence and accountability.

• Establishing contingency plans for contract delays.

6. Continuous Monitoring and Evaluation

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• Establishing an adaptive M&E system that informs decision-making
and strategic adjustments.
220
Human Aspects of Project
Management

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221
Why Human Resources Are Crucial?

Human resources are the

A well-managed workforce
most valuable asset in
optimizes the use of
project execution,
financial, material, and
impacting efficiency,

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technical resources.
innovation, and quality.

222
 Key Human Resource Functions in
Project Management
• Defining Workforce Requirements: Determine the
number, and expertise needed for project success.
• Recruitment & Onboarding: Hire competent
professionals & integrate them effectively into project

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teams.
• Training & Development: Equip team members with
necessary skills and continuous learning opportunities.
223
Performance Monitoring & Feedback: Regular assessments to
identify strengths and improvement areas.

Compensation & Rewards System: Implement fair remuneration

and incentives to boost morale and productivity.

Workforce Planning & Leave Management: Ensure efficient

human resource allocation to avoid delays.

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Compliance & Ethical Standards: Adhere to labor laws,
diversity policies, and corporate ethics. 22
4
Project Organization

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225
The conventional organizational structure is built on functional divisions and a
hierarchical system, ensuring clear lines of authority and responsibility.

Organizations are typically divided into several specialized departments such as:

• Production – Oversees manufacturing and assembly processes.

• Purchasing – Handles procurement and supplier relationships.
• Marketing – Manages branding, advertising, and sales strategies.

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• Finance – Controls budgeting, financial planning, and investments.
• Personnel (HR) – Focuses on hiring, training, and workforce management.
• Engineering & R&D – Drives product innovation and process improvement. 226
 Line Functions – Directly
contribute to core business
Departments are operations.
categorized into: Staff Functions – Provide
support services like HR and
finance.

This structure is ideal for handling routine and well-

established business operations but may not be well-

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suited for temporary, cross-functional projects.

227
 Project Management System

A project management system integrates project activities within the

parent organization and aligns them with organizational goals.

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It serves as a framework to ensure efficient project execution while
maintaining alignment with broader corporate strategies.

228
• The system establishes a clear interface between
projects and the organization by defining:
o Authority – Who makes decisions regarding
project scope, budget, and resource allocation.
o Resource Allocation – How personnel,
materials, and finances are distributed.

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o Project Integration – Ensuring seamless
transition of project outcomes into regular
operations. 229
Project Management Structures
• Organizations utilize three main project
management structures:

1. Line and Staff Organization (Functional

Structure)

2. Divisional Organization (Dedicated Team

Structure)

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3. Matrix Organization (Hybrid Model)

230
 1. Line and Staff Organization
(Functional Structure)
• Projects are managed within the existing functional
hierarchy.
• Each department works on its assigned segment of
the project, and coordination happens through
standard management channels.

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• The project operates without disrupting the
organizational structure.

231
 Advantages:
• Minimal Structural Change, No
major reorganization is required.
Disadvantages:
• High Flexibility, Specialists can
• Lack of Project Focus, Employees
be assigned to projects
prioritize routine tasks over project work.
temporarily.
• Expertise Utilization, Teams • Poor Cross-Departmental Collaboration,
leverage specialized knowledge Functional silos hinder integration.

from various functional areas. • Slow Execution, Rigid structures result in

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• Easy Post-Project Transition, delays and inefficiencies.
Employees revert to their regular
• Weak Accountability, Project ownership
functions after project completion.
is diluted among multiple stakeholders.
232
 2. Divisional Organization
(Dedicated Team Structure)

The project team functions as a separate unit, operating independently

from the parent organization.

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A full-time project manager is assigned to oversee execution and
ensure alignment with strategic objectives.

233
 Advantages:
• Strong Project Ownership, The
project team has a clear mission Disadvantages:
and accountability.
• High Cost, Requires dedicated resources,
• Rapid Execution, Dedicated teams
increasing operational expenses.
ensure efficient project delivery.
• Highly Motivated Team, Members • Potential Internal Conflicts, Competing
share a common vision and priorities between the project team and
strong team spirit. parent organization.

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• Cross-Functional Synergy,
• Post-Project Uncertainty, Reassigning
Specialists from different domains
personnel after project completion can be
work together closely.
234
challenging.
 3. Matrix Organization
(Hybrid Model)
• Combines aspects of both functional and divisional structures.

• Employees report to both a functional manager and a project

manager.

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• The matrix structure balances efficient resource allocation and

effective project execution.

235
Advantages:
• Resource Optimization,
Personnel and assets are shared
across multiple projects. Disadvantages:
• Enhanced Project Focus, A • Conflicts Between Managers, Functional and
designated project manager project managers may clash over priorities.
ensures proper coordination. • Competition for Resources, Shared resources
• Smooth Post-Project Transition, can lead to bottlenecks and delays.
Employees can easily reintegrate • Increased Stress, Employees must report to
into regular functions. multiple supervisors, which can be

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• Adaptability, Project managers can overwhelming.
directly request specialists from • Complex Decision-Making, Requires careful
different departments as needed. coordination to prevent inefficiencies
236
Project Directing

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237
 Qualities of an Effective
Project Manager
• Strong leadership and decision-making capabilities.

• Effective communication and interpersonal skills.

• Problem-solving and analytical thinking.

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• Time management and multitasking ability.

Ability to manage stress and motivate the team.

238
•
Project Team & Teamwork
A project team consists of individuals with diverse expertise working
towards a common goal.

The effectiveness of the team directly impacts project success.

The project team is the backbone of successful execution; effective

leadership is essential to maintain productivity.

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The project manager plays a critical role in team development,
motivation, and performance management. 23
9
Key Factors for a Successful Team:
Clear Goals – Well-defined project objectives.

Effective Leadership – Strong direction from the project

manager.

Collaboration & Trust – Team members must work cohesively.

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Continuous Development – Regular training and performance
feedback. 240
Communication in Project Management

• Effective communication ensures alignment and transparency among

all stakeholders, including:

• Management: Requires high-level reports summarizing project

status and performance.

• Project Team: Needs detailed task breakdowns, progress

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updates, and role clarifications.

• Customers & Functional Managers: Should receive relevant

updates on project milestones and deliverables. 241
 Importance of Communication:
• Ensures transparency and alignment within the team and
with stakeholders.

• Helps identify risks early and mitigate potential delays.

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• Strengthens team cohesion and decision-making.

242
 Types of Communication:
• Formal – Reports, presentations, structured meetings.

• Informal – Emails, quick check-ins, team huddles.

• Face-to-Face – Direct interaction for clarity and

engagement.

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• Virtual – Online meetings and collaboration tools for remote

243
teams.
 Listening is key to effective communication.
Active listening involves:
Active Listening
Giving full attention Asking clarifying Avoiding
& Personal to the speaker. questions. interruptions

Communication

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“Good project managers listen more than
they speak.”
244
Reporting in Project Management

Reports should be structured to communicate essential

information clearly and concisely, ensuring that stakeholders
receive the data they need without unnecessary details.

A well-prepared report should include activities carried out,

outputs delivered, expenditures incurred, and challenges
encountered.

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The focus of reports should be on the core project constraints:
time, cost, and scope.
245
Best Practices for Effective Reporting

Ensure Accuracy: Reports must be factual, consistent, and

Ensure
verifiable to maintain trust and credibility.

Tailor Reports for Different Stakeholders: Senior

Tailor management, clients, team members, and external
partners require different levels of detail.

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Use Exception Reporting: Highlight only major deviations
Use from the plan instead of excessive details to facilitate
24
quick decision-making. 6
 Choose the Right Format: Use tables, line graphs,
Choose histograms, bar charts, or Gantt charts for better
visualization of project data.

Clearly State Report Objectives: Each report should

State explicitly state its purpose and any required actions to
guide decision-makers effectively.

Highlight Key Achievements: Showcase progress,

Highlight
milestones achieved, and critical success factors.

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Timely Submission: Ensure that reports are delivered as
Ensure per the agreed schedule to keep stakeholders informed
and proactive. 247
 Managing Risks in Projects
Risks can be
internal (poor
planning,
Risk refers to any
resource
uncertain event
constraints,
or condition that, Three-Step Risk
technical failures)
if it occurs, can Management
or external
impact project Process
(regulatory
objectives
changes,

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negatively.
economic
downturns,
supplier failures).
248
 1. Risk Identification
• Identify all potential risks using brainstorming
sessions, expert consultations, historical data,
and SWOT analysis.

• Sources of risks include stakeholders, suppliers,

regulatory changes, market shifts, and
operational inefficiencies.

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• Consider political, economic, technological,
and environmental factors when identifying
risks. 249
2. Risk Assessment & Prioritization
• Classify risks based on likelihood of occurrence
and severity of impact.

• Use qualitative and quantitative techniques such as

risk matrices, Monte Carlo simulations, and
decision trees.

Prioritize high-impact risks that require immediate

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•

mitigation strategies.

250
 3. Risk Mitigation & Response
Planning
• Develop strategies to eliminate, transfer, mitigate, or
accept risks.

• Establish contingency plans and fallback strategies to

minimize disruptions.

Continuously monitor risks and adjust strategies as

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•

necessary.

251
 Project Control
(Monitoring and Evaluation)

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252
Project control is a proactive approach to managing deviations by
ensuring project objectives are met.
Project control is the systematic process of tracking performance against the
project baseline, identifying variances, and taking corrective actions as needed.

It is an ongoing function that ensures the project remains aligned with

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budget, schedule, scope, and quality expectations.

Effective project control provides timely and relevant project data,

allowing managers to make informed decisions. 253
 Project Control Process

Setting a Baseline Plan – Establish performance

Setting
benchmarks for time, cost, and scope.

Measuring Progress & Performance – Continuously

Measuring
track progress and analyze deviations.

Comparing Plan vs. Actual Results – Identify

Comparing
discrepancies and their root causes.

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Implementing Corrective Actions – Take necessary
Implementing
steps to bring the project back on track. 25
4
 Monitoring and Evaluation
(M&E) in Project Management
Monitoring and Evaluation (M&E) are integral components of project
management that help track performance and assess outcomes.

M&E occurs during the execution phase of the project life cycle but also
plays a crucial role in project planning and closure.

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Though often used together, monitoring and evaluation serve different
functions but are interlinked.
25
5
 What is Monitoring?
Monitoring is the systematic, ongoing collection and
analysis of data to measure project performance.

It involves tracking progress against predefined plans,

identifying potential risks, and ensuring compliance with
project objectives.

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256
 Why Monitor?

Ensures resources are utilized effectively.

Detects early warning signs of issues.

Helps decision-makers take corrective action promptly.

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Improves accountability and transparency in project execution.
257
 What to Monitor?
Resources: Human, financial, material, and technological
assets.

Processes: Adherence to project schedules, work methods,

and compliance requirements.

Performance: Time, quality, and cost control indicators.

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Stakeholder Engagement: Participation levels and feedback

258
from beneficiaries.
Who Conducts Monitoring?

Monitoring is primarily performed by project

managers, team members, and stakeholders
who are directly involved in project execution.

External auditors or third-party agencies may also

be engaged for independent monitoring.

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259
 Characteristics of an Effective
Monitoring System:
• Quick Corrective Action: Identifies issues early for timely resolution.

• Cost-Effective: Maximizes value with minimal resources.

• Accurate and Reliable: Uses verifiable data.

• Comprehensive: Covers all critical project areas.

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• Transparent: Ensures information is accessible to relevant
stakeholders.
260
 Provide Highlight Enable
Monitoring Provide Highlight Enable
stakeholders deviations informed
Reports with real-
time insights
from plans
and suggest
decision-
making to
into project corrective optimize
performance measures project

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success

261
What is Evaluation?
Evaluation is a systematic assessment of project
effectiveness, efficiency, impact, and sustainability.

Conducted at strategic points (mid-term, final, or post-

project) to assess overall success.

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Helps extract lessons learned to improve future project
planning and execution.

262
 Types of Evaluation:
Interim Evaluation: Conducted mid-project to assess
progress and recommend course corrections.

Terminal Evaluation: Carried out at project completion to

measure outcomes.

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Ex-Post Evaluation: Conducted years after project
completion to assess long-term impact.
263
 Differences Between Monitoring &
Evaluation
Feature Monitoring Evaluation

Tracks progress and Assesses project impact and

Purpose
activities effectiveness

Nature Observational Judgmental and analytical

Periodic (mid-term, final, post-

Frequency Continuous

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project)

Responsibility Internal teams Internal or external experts

Focus Operational performance Outcomes and impact 26

4
 Key Concepts in M&E
• Outputs, Outcomes, Impacts and KPI
• Outputs: Tangible and measurable deliverables produced by a
project. Examples include new infrastructure, training manuals,
and implemented systems.
• Outcomes: Medium-term effects that result from project outputs.
For instance, increased access to clean water following the
construction of wells.
• Impacts: Long-term changes and benefits derived from the

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project. Examples include improved public health due to better
sanitation and enhanced economic growth due to infrastructure
development.
265
 Key Performance Indicators (KPIs)
• KPIs are specific metrics used to measure project
performance in terms of time, cost, quality, and
impact.
• They must be aligned with project objectives and
stakeholder expectations.

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• Project managers use tools like brainstorming,
interviewing, and the Delphi technique to
determine the most relevant KPIs. 266
 Examples of KPIs:
Customer & Cost Performance
Employee Index (CPI) and Cost
Satisfaction Variance (CV)

Return on Investment Number of Project

(ROI) and Benefit- Milestones
Cost Ratio (BCR) Completed on Time

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Quality Control
Cycle Time for Task
Metrics (e.g., defect
Completion and
rate, rework
Productivity Metrics
frequency)
267
 Link Between Planning,
Monitoring, and Evaluation

Planning provides the foundation for effective monitoring and

evaluation.

Monitoring generates data that feeds into evaluation.

Evaluation analyzes and interprets the data to draw meaningful

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conclusions.

Together, they form a continuous improvement cycle ensuring

project success. 268
Thank You !!!

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269
 Project Management
Full PPT
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 Project Management
Chapter Six

Social Cost Benefit Analysis (SCBA)

 Meaning of SCBA?

Outline Objectives of SCBA

Rationale for SCBA

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UNIDO Approach to SCBA

272
Meaning of SCBA?

Social Cost Benefit Analysis (SCBA), also referred to

as Economic Analysis, is a crucial aspect of project
appraisal that evaluates investment projects from the
perspective of society as a whole.

Unlike traditional financial analysis, which focuses on

private profitability, SCBA considers both the direct

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and indirect impacts of a project on the economy, the
environment, and social well-being.

273
SCBA examines how projects affect:

• The distribution of income within society

• The level of savings and investments
• The fulfillment of merit needs such as employment, self-
sufficiency, and social welfare
By incorporating externalities, both positive and negative,

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SCBA ensures a more comprehensive understanding of a
project's true impact beyond financial metrics.

274
 Social Costs
Social
Costs and
Staff-Related Costs
Benefits
• Layoffs and voluntary termination

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• Work-related injuries

275
• Negative attitude formation in employees
 Community and Public Costs
Increased cost of living in the vicinity due to
a project

High consumption of state-provided

services (e.g., electricity, water, public
facilities)

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Environmental damage, including air and
water pollution, deforestation, and habitat
276
destruction
Social Benefits

Staff-Related Benefits
 Medical and hospital facilities

 Educational assistance

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 Subsidized food and housing

 Recreational and cultural activities

277
Community and Public Benefits

 Local tax contributions

 Environmental improvements

 Job creation and economic stimulation

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 Development of essential infrastructure

278
Application of SCBA: Example
• If a bridge is planned for construction, SCBA assesses:
• Usage Demand: How many people will benefit from the
bridge?
• Economic Impact: Reduction in travel time and costs
• Affordability: The feasibility of toll charges and
potential public acceptance

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• Social and Environmental Considerations: The effect
on local communities and ecosystems
279
 The primary objectives of SCBA are:

Objectives of
Comprehensive Evaluation – Assessing
SCBA both tangible and intangible impacts of
projects on society.

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Efficient Resource Allocation – Ensuring
resources are invested in projects that
maximize social benefits.

280
Equity Consideration – Analyzing the
distribution of benefits and costs among
different segments of the population.

Policy Formulation – Providing policymakers

with an objective framework for decision-
making.

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Economic Growth Support – Promoting
sustainable development and long-term
economic progress.

281
 Rationale for SCBA
• The need for SCBA arises due to:
• Market Imperfections – Market prices do not always reflect true social
value due to factors like subsidies, taxes, and regulations.
• Public Goods Consideration – Many projects involve goods that benefit
society but lack direct profitability (e.g., infrastructure, healthcare).
• Social Welfare Maximization – Ensuring that national development
priorities align with broader economic and social well-being.

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• Accounting for Externalities – Incorporating environmental and social
consequences that are not typically captured in financial analyses.
282
UNIDO Approach to SCBA
• The United Nations Industrial Development
Organization (UNIDO) has developed a

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structured SCBA approach, especially for
developing economies.
283
This approach follows five key steps:

Calculation of Adjustment for Impact on Impact on Adjustment for

Financial Economic Savings and Income Merit Goods
Profitability at Efficiency Investment Distribution and
Market Prices (Shadow Externalities
Pricing)
Assessing the Replacing market Evaluating how Analyzing the Considering
project's financial prices with the project redistribution social and
viability based shadow prices to influences effects to ensure environmental

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on prevailing reflect true national savings equitable factors, such as
market economic costs and capital economic growth. employment
conditions. and benefits. formation. generation and
pollution control.
28
4
Other Approaches to SCBA

Besides the UNIDO approach, two additional frameworks are

widely used:

Little-Mirrlees Approach (L&M Approach)

• Emphasizes the use of world prices instead of domestic

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prices for valuation.
• Focuses on trade-related distortions and efficiency in
resource allocation. 28
5
Financial Applied by banks and lending
institutions to assess investment
Institution projects.

Approach Considers financial sustainability

alongside social and economic
benefits.

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286
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287
 Project Management
Chapter Seven

Project Financing
 Source of Project Finance

• Equity
• Loan Financing
• Leasing
Outline
Cost of Capital

Public Policy and Regulations on Financing

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Financing Institutions
289
• Every project requires financing to ensure successful

implementation and operation.

• Project finance refers to the process of sourcing funds for a

long-term infrastructure or industrial project and repaying the

financing through the cash flow generated by the project itself.

Project financing refers to the process of securing funds to

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•

implement and run a project successfully.

290
 Key Parties Involved in
Project Finance
• Several stakeholders play a crucial role in project finance. These
include:

• Sponsors – Individuals or entities that initiate and promote the project.

• Lenders – Financial institutions that provide funding.

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• Financial Advisors – Experts who assess and advise on the return on
investment (ROI) for both lenders and borrowers.

291
• Legal Advisors – Specialists who handle legal matters related to the project.
• Debt Financiers – Institutions or individuals that provide secured loans
based on project assets.
• Equity Investors – Investors who provide capital in exchange for ownership
shares.
• Regulatory Agencies – Government bodies overseeing compliance with

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relevant regulations.
• Multilateral Agencies – International organizations, such as the World Bank
Group, that may provide funding or support.
292
 Sources of Project Financing
• There are a wide variety of funding sources

available for projects.

• The main sources of project finance include

 Equity

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 Debt

 Lease and Grants

293
 Equity Financing
• Equity financing refers to capital provided
by project sponsors, government, third-
party private investors, and internally
generated cash.

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• It represents ownership in the project and
comes with the expectation of returns.
294
Sources of Equity Financing:

Private investors

Government
Retained earnings
contributions

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Corporate
Venture capitalists
sponsors
295
 Advantages: Disadvantages:
No repayment obligations Higher return expectations
Increases project credibility from investors

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Enables risk-sharing among Ownership dilution
investors Investors have a say in

296
decision-making
 Loan Financing
(Debt Financing)

Debt financing refers to borrowing funds

from banks and other financial institutions,
which must be repaid with interest.

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It has a fixed maturity period and provides lenders with a priority claim
over income and assets in case of liquidation.
297
Types of Debt Financing:
Commercial Loans:
Funds borrowed from
commercial banks with
fixed interest and
repayment schedules.

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Bonds: Long-term debt Bridge Finance: Short-
instruments that pay term loans used until
periodic interest to long-term financing is
investors. secured.
298
Advantages: Disadvantages:

No ownership dilution Regular repayment

Interest payments are tax- obligations

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deductible Increased financial risk if
Allows control over the project cash flow is insufficient
project Potentially high interest rates
299
 Leasing
• Leasing is an alternative financing method
where a project acquires equipment or assets
through lease agreements rather than purchasing
outright.

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• The lessee pays periodic lease rentals for asset
usage.
300
Types of Leasing:
o Operating Lease: Short-term lease where
the asset is returned to the lessor.

o Financial Lease: Long-term lease where the

lessee has the option to purchase the asset.

Hire Purchase: Allows asset purchase

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o

through installments while the seller retains

ownership until full payment is made.
301
Advantages: Disadvantages:

Lower initial capital Higher overall cost compared

requirement to direct purchase
Maintenance costs may be Lack of ownership until lease

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covered by the lessor completion
Provides flexibility in asset Restrictions on asset
acquisition modifications
302
 Cost of Capital
• The cost of capital represents the return required by
investors to finance a project.

• It is crucial for evaluating project feasibility and

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investment decisions.

303
Components of Cost of Capital:

Cost of Equity:
Expected return
required by equity
investors.

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Weighted Average Cost
of Capital (WACC): The Cost of Debt: Interest
overall cost of financing, rate paid on borrowed
combining both equity funds.
and debt.
304
Factors Influencing Cost of Capital:

Risk profile
Market of the
conditions project

Inflation Governmen

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rates t policies

305
 Public Policy and
Regulations on
Financing
• Government policies and financial regulations
play a critical role in project financing by

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influencing funding availability, interest rates,
and compliance requirements.
306
 Key Regulatory Aspects:
Monetary Policies: Influence interest rates and loan availability.

Taxation Policies: Affect investment decisions through tax incentives or

liabilities.

Legal Framework: Ensures transparency and compliance in financial

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transactions.

Foreign Direct Investment (FDI) Regulations: Control the extent of

foreign involvement in projects.
307
 Government Support
Mechanisms:
Public-private partnerships (PPPs)

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Infrastructure development funds

Grants and subsidies for strategic

projects 308
Financing Institutions

• Various financial institutions provide

funding for projects, each with distinct
objectives and financing terms.

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There are various types of Financial
Institutions:
309
 Commercial Banks: Provide loans and credit lines with structured repayment
terms.
 Development Banks: Fund projects that promote economic development and
infrastructure growth.
 Multilateral Financial Institutions: Entities like the World Bank and IMF
support large-scale, international projects.
 Venture Capital Firms: Offer equity funding to high-risk, high-reward

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projects.
 Government Financial Agencies: Provide financial support for public interest
projects.
310
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311
 Project Management
Full PPT
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