JIMMA UNIVERSITY

COLLEGE OF BUSINESS & ECONOMICS

OVER VIEW OF PROJECT

MANAGEMENT

Mengistu Deyassa ( Ass. professor)

Fundamentals of Project
Management & Finance
 CHAPTER ONE
1. INTRODUCTION

 The term project may be defined as a series of

related activities (jobs) usually directed toward
some major output and requiring a significant
period of time to perform.

 A project is an activity that require resource, time,

objective, with fixed deliverables.

 A project is accomplished by performing a set of

activities. For example, construction of a house is
a project. It consists of many activities like digging
of foundation pits, construction of foundations,
construction of walls, construction of roof, fixing of
doors and windows, fixing of sanitary fittings,
wiring, etc.
Fundamentals of Project
Management & Finance
 Introduction…Cont’d
 According to Kerzner (1998), a
project is: “…any series of activities
and tasks that:
 have a specific objective to be
completed within certain specifications
 have defined start and end dates
 have funding limits (if applicable)
 consume resources (i.e., money,
people, equipment).”

Fundamentals of Project
Management & Finance
 Introduction…Cont’d

 Four key considerations always are

involved in a project:
(1) What will it cost?
(2) What time is required to complete the
project?
(3) What technical performance capability
will it provide?
(4) How will the project results fit into the
design and implementation of organizational
strategies?

Fundamentals of Project
Management & Finance
 Introduction…Cont’d

Typical Project Examples

(a) Construction projects
(b) Development projects
(c) Weddings, remodeling a home, and
moving to another house are certainly
projects for the families involved
(d) Company audits, major litigations,
corporate relocations, and mergers are also
projects.

Fundamentals of Project
Management & Finance
 Introduction…Cont’d

Project Goals
 Virtually every project has three overriding
goals: to accomplish work for a client or
end-user in accordance with budget,
schedule, and performance requirements.
(i) Budget: the budget is the specified
or allowable cost for the project.
-It is the target cost of the work to be
done.

Fundamentals of Project
Management & Finance
 Introduction…Cont’d

(ii) Schedule: the schedule includes the

time period over which the work will be
done and the target date for when it
will be completed.
(iii) Performance Requirements: Specify
what is to be done to reach the end-
item or final result.

Note: The three goals are interrelated and must be

addressed simultaneously; exclusive
emphasis on any one goal is likely to detract
from the others.
Fundamentals of Project
Management & Finance
 Introduction…Cont’d

 The above goals can be met in two

ways:

 By using project management disciplines

and project management tools, and
 By following project management
processes.

Fundamentals of Project
Management & Finance
Project Management
 Project management is:
 an organized venture for managing projects.
 “…the application of knowledge, skills, tools
and techniques to project activities in order
to meet stakeholders needs and expectations
from a project.” – (PMI, 1996):PMBOK
 “The process by which projects are defined,
planned, monitored, controlled and
delivered so that agreed benefits are
realized,” – (APM, 2006): PMBOK
 “Project management is the skills, tools and
management processes required to
undertake a project successfully”.
Fundamentals of Project
Management & Finance
 Project management…Cont’d
 Project management comprises:

 A set of Skills. Specialist skills and

experience are required to reduce the
level of risk within a project and thereby
enhance its likelihood of success.

 A Suit of Tools. Various types of tools are

used by project managers to improve
their chances of success. Examples
include registers, planning software,
modelling software, audit checklist and
review forms.

Fundamentals of Project
Management & Finance
 Project management…
Cont’d

 A Series of Processes. Various

management techniques and processes
are required to monitor and control time,
cost, quality and scope of projects.

Examples include time management,

quality management, change
management, risk management, etc.

Fundamentals of Project
Management & Finance
 Project management…Cont’d

 Every person, every organization and every

nation is concerned with project management.
 An individual builds a house. It is a project to
him.
 An organization sets up new factory. It is a
project for the organization.
 The government of a country builds high
ways, dams, thermal power plants,
hydropower plants, airports, etc. These are
all projects that a country undertakes.

Fundamentals of Project
Management & Finance
Differences Between Process & PM
Process Project
o Repeat process or • New process or
product/service product/service
o Several objectives • One objective
o Ongoing • One shot – limited life
o People are homogenous • More heterogeneous
o Well-established in • Systems must be created to
systems in place to integrate efforts
integrate efforts
o Greater certainty of • Greater uncertainty of
performance, cost, performance, cost, schedule
schedule
o Part of the organization • Outside of line organization

Fundamentals of Project
Management & Finance
 Project Characteristics

Major project characteristics are as below:

1. Objectives
 A project has a set of objectives or a
mission. For example, the objective of a
project may be construction of a highway
connecting two cities “A” and “B”, covering
a distance of 200 km. Once the
construction of the highway is completed
the project comes to an end.
 The objective is specified in terms of cost,
schedule, and performance requirements.

Fundamentals of Project
Management & Finance
 ..
Project Characteristics…Cont’d
2. Life Cycle
 A project has a life cycle. The life cycle
consists of the following stages:

a) Project Initiation
b) Project Planning
c) Project Execution, and
d) Project Closure

 The task, people, organizations, and other

resources change as the project moves from
one phase to the next.

Fundamentals of Project
Management & Finance
a) Project Initiation
 It is the first phase in the project
 In this phase a business problem (or
opportunity) is identified and a business case
which provides various solution options is
defined.
 A feasibility study is then conducted to
investigate the likelihood of each solution option
addressing the business problem and a final
recommendation is put forwarded
 Once the recommended solution is approved, a
project is initiated to deliver the approved
solution.

Fundamentals of Project
Management & Finance
 Project Characteristics…Cont’d
o A “Term of Reference” is completed, which
outlines the vision, objectives, scope,
deliverables and structure of the new project,
and a Project Manager is appointed.
o Then the Project Manager begins recruiting a
project team and establishes a Project Office
environment.
o Approval is then sought to move into the detail
planning phase.

Fundamentals of Project
Management & Finance
b) Project Planning
 Once the scope of the project has been
defined in the “Terms of Reference”, the
project enters the detailed planning phase.
This involves the creation of a:

 Project Plan (Outlining the activities,

tasks, dependencies and timeframes)
 Resource Plan (listing the labour,
equipment and materials required)
 Financial Plan (identifying the labour,
equipment and materials costs)

Fundamentals of Project
Management & Finance
 Project Planning…Cont’d
 Quality Plan (providing quality targets,
assurance and control measures)
 Risk Plan (highlighting potential risks and
actions taken to mitigate them).
 Procurement Plan (identifying products to be
acquired from external suppliers).
 Communications Plan (listing the information
needed to inform stakeholders)

Fundamentals of Project
Management & Finance
c) Project Execution
 This phase involves the implementation of each
activity and tasks listed in the Project Plan.
 While executing the activities and tasks, a series
of management processes are undertaken to
monitor and control the deliverables being
produced by the project.
 Once all the deliverables have been produced and
the customer has accepted the final solution, the
project is ready for closure.

Fundamentals of Project
Management & Finance
d) Project Closure
 Project closure involves:-
 releasing the final deliverables to the
customers,
 Handing over project documentation,
 Terminating supplier contracts,
 Releasing project resources and
communicating the closure of the project to all
stakeholders.

 The last remaining step is to undertake a Post

Implementation Review to quantify the overall
success of the project and list any lessons learnt for
future project.

Fundamentals of Project
Management & Finance
 Project Closure…Cont’d
3. Definite Time Limit (Temporary)
 A project has a definite time limit. It cannot
continue forever.
4. Uniqueness
 Every project is unique and no two projects are
similar. Constructing a highway connecting two
cities A & B and constructing another highway
between cities C & D are unique in themselves.
In view of the differences existing in the
organization, infrastructure, location, technical
specifications and the people behind the projects.

Fundamentals of Project
Management & Finance
 Project Closure…Cont’d
5. Teamwork
 Any project calls for the services of experts
from a host of disciplines. Coordination
among the diverse areas call for teamwork.
Hence, a project can be implemented only
with teamwork.
 Perhaps more than any other human
endeavor, project work is teamwork.

Fundamentals of Project
Management & Finance
 Project Closure…Cont’d

6. Complexity
 A project is complex set of activities relating to
diverse areas. Technology survey, choosing the
appropriate technology, procuring the
appropriate machinery and equipment, hiring
the right kind of people, arranging for financial
resources, execution of the project in time by
proper scheduling of the different activities,
etc. contribute to the complexity of the project.

Fundamentals of Project
Management & Finance
 Project Closure…Cont’d

8. Risk and Uncertainty- a risk free project

cannot be thought of.
9. Sub-contracting- to give a contract to
somebody else to do part of the work.

Fundamentals of Project
Management & Finance
Reasons for Project Initiation
 The basic purpose of initiating a project is to
accomplish some goals. Projects are initiated
either to take advantage of an opportunity or
to solve a problem, i.e.
1. to respond to a new customer request and
to the environment,
2. to improve trouble handling (solve/correct
problems).
3. to respond to a regulatory ruling.

Fundamentals of Project
Management & Finance
 Project Terminology
 When discussing project management, it is
sometimes useful to make a distinction
between such terms as program, project,
task, and work packages.

 The military, the source of most of these terms,

generally uses the term program to refer to an
exceptionally large, long-range objective that is
broken down into a set of projects. These
projects are further divided into tasks, which
are, in turn, split into work packages that are
themselves composed of work units. Here is the
hierarchy.

Fundamentals of Project
Management & Finance
 Project Terminology…Cont’d
Program – refers to a group of projects.
Project – a specific, finite task to be accomplished.
Task – is a further subdivision of a project.
Work packages – is a group of activities combined to
be assignable to a single organizational unit.
Work unit – refers to the smallest unit in a project
activity.

Fundamentals of Project
Management & Finance
 PM Objectives…Cont’d
 Project management as its objectives
could enhance the following attributes of
professionals:
 Technical skill,
 Communication skill,
 Decision making skill,
 Problem-solving skill,
 Interpersonal skill,
 Leadership skill,

Fundamentals of Project
Management & Finance
 Project Management Derivers: What
Causes PM?

1. The expansion of knowledge (knowledge

explosion)
2. The increasing demand for new products
(services)
3. The increase in world wide market
4. Increased competition
5. The belief that “better living through technology”
6. Expanding size of projects – some projects may
be expanding too much thus requiring project
management.

Fundamentals of Project
Management & Finance
 Typical Project Problems
1. Scope may not be clearly defined when
commitment is made to a client.
2. There may not be enough resources allocated
(people, money, materials, time, space, etc.)
3. Conflict of interest between or among
stakeholders (ops vs. engineers, sales vs.
technical support, line vs. staff).
4. Commitment to unrealistic dates – the PM
may be too optimistic about the completion
date of the project.
5. There may be unclear roles and
responsibilities.
6. Things may go wrong for some natural
reasons.
Fundamentals of Project
Management & Finance
Functions of the Project Managers
 Project managers perform the following
major functions:
1. Plan work (scope, budget, schedule),
2. Obtain and manage resources,
3. Resolve conflicts and problems,
4. Motivate people
5. Communicate to the team, to the organization,
and to the clients,
6. Set priorities,
7. Make decisions,
8. Control technical quality, budget, and schedule
9. Integrate multiple skills

Fundamentals of Project
Management & Finance
PM at Work – Preliminaries
1. Understanding project finance and
evaluation helps understand the economic
challenges faced by owners and
contractors.
2. Deciding on fundamentals of contract
delivery type (organizational method,
Award method (who hired? Who decide)
contract type (how to pay?))
3. Financing mechanisms public, Private and
hybrid funding
4. Evaluation measures (NPV, IRR, Cost-
benefit, ARR etc.).

Fundamentals of Project
Management & Finance
 CHAPTER TWO
2. PROJECT CYCLE
 Before any project is actually realized it goes
through various planning phases. Therefore, the
different phases through which a project passes
constitutes what is often called “the project cycle”.
The main features of this process are information
gathering, analysis and decision making.

 There are various models that deal with the project

cycle. However, here we give more emphasis on
the basic models. The Baum’s cycle and the UNIDO
project cycle.

Fundamentals of Project
Management & Finance
(A) The Baum Cycle (World Bank
Procedures)
 The first basic model of a project cycle is that
of Baum (1970), which has been adopted by
the world bank and initially recognized four
main stages, namely:
1. Identification
2. Preparation
3. Appraisal and selection
4. Implementation

Fundamentals of Project
Management & Finance
 The Baum Cycle…Cont’d
 At a later stage (in 1978) the author has
added an additional stage called
“Evaluation” which usually closes the cycle
as it gives rise to the identification of new
projects. Thus, making the stages 5 in
number.
 Each of these stages are discussed briefly
below.

Fundamentals of Project
Management & Finance
Stage 1. Identification
 The first stage in the cycle is to find potential projects.
 Some sources of projects are given here:-
 Some may be “resource based” and stem from
the opportunity to make profitable use of
available resources.
 Some projects may be “market based” arising
from an identified demand in home or overseas
markets.
 Others may be “need based” where the
purpose is to try to make available to all
people in an area of minimal amounts of
certain basic material requirements and
services.
 Well informed technical specialists and local
leaders are also common sources of projects.
Fundamentals of Project
Management & Finance
 Identification…Cont’d
 Technical specialists will have identified
many areas where new investment might
be profitable, while local leaders may have
suggestion about where investment might
be carried out.

 Ideas for new projects also come from

proposals to extend existing programs.

NB. In general, most projects start as an elementary

idea. Eventually, some simple ideas are
elaborated into a form to which the title “Project”
can be formally applied.
Fundamentals of Project
Management & Finance
Stage 2. Preparation (Pre-feasibility
and/or feasibility studies)
 Once projects have been identified, there begins a
process of progressively more detailed preparation
and analysis of project plans.
 At this stage the project is being seriously
considered as a definite investment action.
 Project preparation (or formulation) covers the
establishment of technical, economic and financial
feasibility.
 Decisions have to be made on:-
 The scope of the project
 Location and site
 Soil and hydrological requirements,
 Project size (farm or factory size) etc.

Fundamentals of Project
Management & Finance
 Preparation…
Cont’d
 Resource base investigations are undertaken
and alternative forms of projects are
explored.
 Complete technical specifications of distinct
proposals accompanied by full details of
financial and economic costs and benefits are
the outcome of the project preparation stage.
The project now exists as a set of tangible
proposals.

Fundamentals of Project
Management & Finance
Stage 3. Appraisal
 After a project has been prepared, it is
generally appropriate for a critical or an
independent review to be conducted. This
provides an opportunity to reexamine every
aspect of the project plan to assess whether
the proposal is appropriate and sound before
large amount of money is committed.

 Appraisal should cover at least seven aspects

of a project, each of which must have been
given special consideration during the project
preparation phase.

Fundamentals of Project
Management & Finance
 Appraisal…Cont’d
a. Technical – here the appraisal concentrates in
verifying whether what is proposed
will work in the way suggested or
not.
b. Financial– to see:
- if money needed for the project have
been properly calculated.
- their sources are identified, and
- reasonable plans for their
repayments are made.
c. Commercial – to examine whether the necessary
inputs for the project are
supplied.
- to see whether the arrangements for
the disposal of the products are verified.

Fundamentals of Project
Management & Finance
 Appraisal…Cont’d
d. Incentive - to see whether things are arranged in
such a way that all those whose participation is
required will find it in their interest to take part in
the project.
e. Economic – to see the economic significance of the
project towards the development the
nation.

f. Managerial – this aspect of the appraisal examines:

 to see if the capacity exists for operating the
project, and
 to see if the responsible ones are given
sufficient power and scope to do what is
required.

Fundamentals of Project
Management & Finance
 Appraisal…Cont’d
g. Organizational – to see if it is organized
internally and externally into units so as to
allow the proposals to be carried-out properly
and to allow for change as the project develops.

 On the basis of this appraisal report financial decisions are

made – whether to go ahead with the project or not.

NB 1. If the project involves loan finance, the

lender will almost certainly wish to
carryout his own appraisal before completing
negotiations with the borrower.
2. Comments made at the appraisal stage possibly
results in alterations in the project plan
(Project proposal).

Fundamentals of Project
Management & Finance
Stage 4. Implementation

 The objective of any effort in project planning and

analysis clearly is to have a project that can be
implemented to the benefit of the society. Thus,
implementation is perhaps the most important
part of the project cycle.
 In this stage,
 Funds are actually disbursed to get the projects
started and keep running,
 A major priority during this stage is to ensure that
the project is carried out in the way and within the
period that was planned.
 It is during implementation that many of the real
problems of projects are first identified. Therefore,
to allow the management to become aware of the
difficulties that might arise, recording, monitoring
and progress reporting are important activities
during the implementation stage.
Fundamentals of Project
Management & Finance
Stage 5. Evaluation

 The final phase in the project cycle is evaluation.

 Once a project has been implemented, it is often
useful, to look back over what took place, to
compare actual progress with the plans, and to
judge whether the decisions and actions taken were
responsible and useful.
 Evaluation is not limited only to completed projects.
It is important managerial tool in ongoing projects.
And formalized evaluation may take place at several
times in the life of a project.
 Evaluation should be undertaken when a project is
terminated or is well into routine operation.

Fundamentals of Project
Management & Finance
 (B) UNIDO – Project Cycle

 UNIDO has established a project cycle

comprising three distinct phases:

I. The pre-investment
II. The investment, and
III. The operational phase

 Each of these three phases is divided into

stages, some of which constitute important
consultancy, engineering and industrial
activities.

Fundamentals of Project
Management & Finance
 I. The Pre-investment Phase
 The pre-investment phase comprises several
stages:
i. Identification of investment opportunities
(Opportunity Study)
ii. Analysis of project alternatives and
preliminary project selection (pre-
feasibility and feasibility studies) and
iii. Project appraisal and investment
decisions (appraisal report).

NB. Support or functional studies are also part of

the project preparation stage and are usually
conducted separately, for later incorporation
in the pre-feasibility or feasibility study.

Fundamentals of Project
Management & Finance
 …Cont’d
(a) Opportunity Studies:
 The identification of investment opportunities
is the starting point in a series of investment
related activities.
 It may also eventually even be the beginning
of the mobilization of investment funds.
 The opportunity study would analyses:
 The general availability of natural resources,
 Future demand for consumer goods,
 Imports substitution and export possibilities,
 Environmental impact,
 Expansion of existing capacity, etc.

Fundamentals of Project
Management & Finance
 …Cont’d
 Opportunity studies could be general or specific:

i. General Opportunity Studies (Sector Approach):

 It requires an analysis of the overall investment
potentials in developing countries and the
general interest of developed countries in
investing abroad.
It could be:-
(a) Area studies - designed to identify
opportunities on a given areas (Adm. Province,
backward regions, etc),
(b) Industry studies – to identify opportunities
to delimit industrial branch, and
(c) Resource-based studies – to reveal
opportunities based on the utilization of
natural, agricultural or industrial resources.
Fundamentals of Project
Management & Finance
 …Cont’d
ii. Specific Project Opportunity Study (Enterprise
Approach):

 Involves the identification of specific

investment requirements of individual project
promoters.
 Are seen in the form of products with
potential for domestic manufacture.
 A specific project opportunity study may be
defined as the transformation of a project idea
into a broad investment proposition.

NB. Opportunity studies are rather sketchy in nature and

rely more on aggregate estimates than on detailed
analysis. Cost data are usually taken from
comparable existing projects and not from suppliers
quotations.
Fundamentals of Project
Management & Finance
 Cont’d
(b) Pre-feasibility Studies:
 The project idea must be elaborated in a more
detailed study. However, formulation of a
feasibility study that enables a definite decision
to be made on the project is a costly and time-
consuming task. Therefore, before assigning
large funds for such a study, a further
assessment of project idea might be made in a
pre-feasibility study. The objectives of which are
to see whether
 All possible project alternatives have been
examined,
 The project concept justifies detailed study,
 All aspects are critical and need in-depth
investigation through functional (sup) studies
 The project idea is viable and attractive for a
particular investor or investor group.
Fundamentals of Project
Management & Finance
 …Cont’d
 A pre-feasibility study
should be viewed as an
intermediate stage
between a project
opportunity study and a
detailed feasibility study,
the difference being in
the degree of detail of
the information obtained
and the intensity with
which project alternatives
are discussed.
Fundamentals of Project
Management & Finance
 ...Cont’d
 The structure of the pre-feasibility study should be
the same as a detailed feasibility study.
 A detailed review of available alternatives must
take place at the stage of the pre-feasibility study.
 A pre-feasibility study is conducted if the
economics of the project are doubtful.

Note: A well prepared and comprehensive opportunity

study may justify bypassing the pre-feasibility
stage.

Fundamentals of Project
Management & Finance
 …Cont’d
(c) Support or Functional Studies:
 Support (or functional) studies covers
aspects of an investment project, and are
required as a pre-requisites for, or in
support of, pre-feasibility and feasibility
studies, particularly for large scale
investment proposals. This may include:

 Market studies of products to be

manufactured
 Raw materials and factory supply studies
 Laboratory and pilot plant tests.
-Made to determine the suitability of a particular raw
materials (products).

Fundamentals of Project
Management & Finance
 …Cont’d
 Location studies: Particularly for potential projects where
transport costs would constitute a major determinant.
 Environmental impact assessment:
- Carried-out particularly for project involving for examples,
chemical plants, paper and cellulose mills, petroleum
refineries, the Iron & Steel Industry, and nuclear, thermal
and hydropower plants.
 Economies of scale studies:
- The main objective here is to assess the size of plants that
would be most economic after considering alternative
technologies, investment costs, production costs and prices.
 Equipment selection studies:
- Which are required when large plants with numerous divisions
are involved.

Fundamentals of Project
Management & Finance
 …Cont’d
(d) Feasibility Studies:
 A feasibility study should provide all data
necessary for an investment decision.

 The commercial, technical, financial, economic,

and environmental prerequisites for an
investment project should be defined and
critically examined on the basis of alternative
solutions already reviewed in the pre-feasibility
study.

Fundamentals of Project
Management & Finance
 Cont’d
 The financing part of the study covers:-
i. The scope of the investment,
ii. The production and marketing costs,
iii. The sales (revenue), and
iv. The return on capital invested (RoE)

 Even a feasibility study that does not lead to an

investment recommendation is of great value as it
prevents the misallocation of scarce resources.

 A feasibility study should be carried-out only if the

necessary financing facilities, as determined by the
studies, can be identified with a fair degree of
accuracy.

Fundamentals of Project
Management & Finance
 …Cont’d
(e) Appraisal Report:
 When a feasibility study is completed the various
parties involved in the project will carryout their
own appraisal of the investment project in
accordance with their individual objectives and
evaluation of expected risks, costs and gains.
 Large investment and development finance
institutions have formalized project appraisal
procedures and usually prepare an appraisal
report.
 The better the quality of the feasibility study, the
easier will be the appraisal work.

Fundamentals of Project
Management & Finance
 …Cont’d
 Project appraisal as carried-out by financial
institutions concentrates on:-

i. The health of the company to be financed,

ii. The returns obtained by equity holders, and
iii. The protection of its creditors.

NB. Appraisal reports as a rule deal not only with the

project but also the industries in which it will be
carried-out and its implication on the economy as a
whole. For example, if a car manufacturing plant is
to be appraised, the report will also review the
relationship of the plant to its feeder industry, the
transport sector, the availability of highways, and
the energy supply.
Fundamentals of Project
Management & Finance
2. The Investment Phase
 The investment or implementation phase of a
project provides wide scope for consultancy and
engineering work, first and foremost in the field of
project management.
 The investment phase can be divided into the
following stages:
 Establishing the legal, financial, and organizational basis for
the implementation of the project.
 Technology acquisition and transfer, including basic
engineering
 Detail engineering design and contracting, including
tendering, evaluation of bids and negotiations.
 Acquisition of land, construction work and installation
 Recruitment and training of personnel
 Plant commissioning and start-up

Fundamentals of Project
Management & Finance