Project Planning and
Management
1
Introduction to Project
Management
2
Concepts of a Project

A project is a temporary endeavor
undertaken to create a unique product,
service or result (PMI, 2008)

A project is a series of activities aimed at
achieving specified objectives within a
defined time period and with a defined
budget (EU, 2002)
3
3
Comprehensive definition:
Project is a temporary endeavor
involving a connected sequence of
activities and a range of resources,
which is designed to achieve a specific
and unique outcome, which operates
within time, scope, cost and quality
constraints and which is often used to
introduce change (Lake, 1997).
4
Key concepts:
Purpose-the basic reason for the existence
of a project- to solve a problem, address a
need or take the advantage of opportunity.
 Temporary: means that a project is
something that has a specific start date and
a specific end date.
 Sequences of Activities: the works and the
steps we perform and the methods and
knowledge we use to achieve the project
objective.

5
Resources: A project utilizes a variety of
resources [human, financial, material, information, etc]
to carry out the activities or tasks.
 Unique Outcome: A project brings about a
unique product or service - something that
has not existed in the organization here-tofore.
 Scope- the extent of the problem or
opportunity that the project needs to address.
 Organization: is vital to coordinate resources
to achieve the project objectives- organizations
can be public, private or NGOs.

6
Time: any project should be time bounded-it
has a start and end time
 Cost: activities consume human, financial and
material resources.
 Quality: the project needs to produce quality
products to maximize the satisfaction of the
users.
 Introduce change: A project is often used as
an instrument for change - change for the
betterment of the society.

7
 Projects
range in size, scope, cost
and time from mega
international projects costing
millions of dollars over many years
to small domestic projects with
a low budget taking just a few
hours to complete.
8
Characteristics of Projects








Projects are unique and non-repetitive
Projects are composed of interdependent activities
Projects have a clear start and finish time
projects have a life cycle [a beginning and an end,
with a number of distinct phases in between]
Projects create a quality deliverables
Projects are bound in terms of resources (both
human and non-human)
A project involves risk and uncertainty
A project requires team-work.
9
Projects Vs Operations
Organizations perform two types of work:
project work and operational work
 Operations are ongoing and repetitive while
projects are temporary and unique.

The purpose of a project is to attain its
objective and then terminate whereas the
objective of an ongoing operation is to
sustain the business.
10
Feature
Key Differences
Purpose
Projects
Attain objectives and
terminate
Time
Temporary
Unique product, service, or
Outcome result
Dynamic, temporary teams
formed to meet project
People
needs
Generally not aligned with
organizational structure
Varies by organizational
Authority structure
of
Generally minimal, if any,
Manager
direct line authority
Operations
Sustain the
organization
Ongoing
Non-unique product,
service, or result
Functional teams
generally aligned
with organizational
structure
Generally formal,
direct line of
authority
11

Planning is defined as the process of
determining organizational goals and the
courses of actions for attaining these goals.
 What ?
goals
 When?
time
 How ?
Method

The how? of the plan can be answered
through programs and projects
12

Projects exist as components in broader
developmental plans, their identification,
formulation and implementation should be
linked to short, medium and long term
national development plans.

Sound development plans require good
projects, just as good projects require sound
planning.The two are interdependent.
13
Project Vs Program
A program is an assortment of
related/associated projects that are
managed together to achieve a number of
objectives.
 Programs may also contain elements of
ongoing operations. Since programs
comprise multiple projects, they are
larger in scope than a single project.

14
Differences
Project
Narrow in scope
Wide in scope; can comprise
many projects as components.
Specific and detail
Comprehensive and general
More precise and accurate in Broader goal related to
its objectives and features
sectoral policy
Possible to calculate the
costs and returns
Similarities
Program
Difficult to calculate costs
and returns
• Have purpose/ objectives
• Require input (financial, manpower, material)
• Generate output (goods and/or services)
• Operate over space and time
15
Defining Project Management

Project management is the process of planning,
controlling and directing a project from its
inception to its completion, in a given time, at
given cost, and for a given purpose.

According to PMBOK,
Project management is the application of
knowledge, skills, tools and techniques to
project activities in order to meet project
requirements [PMI, 2008].
16

Project requirements- refer to the whole
purpose of the project –this could be to
solve a problem, address a need, or take
advantage of an opportunity.

Knowledge- refers to as acquiring an
understanding of the body of knowledge in
nine areas: integration, scope, time, cost,
quality, contract, resources, communication
and risks.
17

Skills – an ability or aptitude to perform
something well

Tools and techniques- tools refer to PM
templates and checklists to follow, and
techniques describe how to use the tools
or procedures to accomplish a specific
activity or task.
18
 Its
origins lie in World War II, when the
military authorities used the techniques
of operational research to plan the
optimum use of resources.
 One
of these techniques was the use of
networks to represent a system of
related activities
19
What are public projects?
A
public project is any project that is
funded by a government, and is meant
to be owned or operated by that
government.

Most public projects relate to work a
government does to fulfill a public purpose,
and commonly they include such things as
road repair and construction, public building
construction, schools, and even public parks.
20
 Public
sector projects are funded by
taxpayers, and therefore are subject to
more open procedures than many
other projects. For example, a public
project may need to publish
requirements and request bids. Those
bids must be opened at a public place
and then considered publicly.
21
Project Vs General management
General management is a broad subject
dealing with every aspect of managing an
ongoing activity.
 Project management is a carefully planned
and organized effort to accomplish a
specific objective in relatively short period
of time. For example, construct a building;
construct roads, implement a new
computer system, preparing a new
curriculum, etc.

22
General management provides the
foundation for building project
management skills and is often essential for
the project manager.
 A project, which is unique and temporary,
requires different management disciplines.
 Project management is a method for
getting something done, whereas general
management is a method for keeping things
going.

23
PM life cycle

What is project life cycle?

What are the stages in the project
life cycle?
24
The Project Life Cycle
 is
the stages through which the
project passes from inception to its
completion.
 Is a continuous process made up of
separate and complementary stages
(phases) each with its own
characteristics and each setting a
ground for the next one.
25
There are different approaches:
 European
Commission /EC/
 Project Management Institute /PMI/
 WB/UNEP/NEPAD
26
The project cycle /World Bank/
Identification
Evaluation
Preparation
Proposal
development
Implementation
Appraisal
Financing
decision
27
 PCM refers to a process
oriented project management
system covering the whole project
cycle from project conception to
project completion.
28
Thank you!!
29
Project Identification
and Selection
Project Identification
 Project
identification is the initial
phase of the project cycle.
- It begins with the conceiving of ideas or
intentions to set up a project.
- These ideas are then transformed into a
project.
 In
this stage, national development plans
and strategies are translated in to specific
investment projects based on felt human
needs.
 Project
ideas are normally initiated by
a perceived need [PROBLEM or
OPPORTUNITY] in an
organization and converted in to a
formal project proposal.

But, what is a problem or
opportunity ?
Sources of project ideas:
The community, researchers, experts,
local leaders, Policy makers,
entrepreneurs, donors, NGOs,
Planners, etc.
Government policy priorities, unusual
events, external threats, unsatisfied
demands, under utilized natural
resources, etc.
Who identifies projects?
 Various
organizations, whether local
or foreign, state owned or private,
government ministries, development
banks, interest groups, CBOs,
NGOs and of course individuals
can identify projects.
Approaches to project identification
There are two major approaches
to project identification :
(a) Top-down approach
(b) Bottom-up approach
Top-Down Approach

Projects are identified based on demands
from beyond the community.

This may include directives from:
◦ international conventions (such as Kyoto
Protocol/climate change)
◦ international institutions that have
determined particular priorities and thus
projects
◦ national policy makers identifying projects
that pertain to party manifestos and/or
national plans.
Advantages of Top-Down Approach

It may be a rapid response to disasters like
floods, war outbreak because there is
limited time and chance to consult the
beneficiaries.

It can be effective in providing important
services like education, health, water, roads
etc.

It can contribute to wider national or
international objectives and goals
Limitations of Top-Down Approach





Does not help in modifying strongly established
ideas and beliefs of people.
Assumes external individuals know better than the
beneficiaries of the service.
Communities have little say in planning process
rendering approach devoid of human resource
development.
Community develops dependency syndrome on
outside assistance and does not exploit their own
potential.
The development workers (change agents) become
stumbling blocks to people-led development
Bottom-Up Approach
 In
this approach community/
beneficiaries are encouraged to
identify and plan the projects
themselves with or without
outsiders.
Advantages of Bottom-Up Approach





Interveners accomplish more with limited
resources since people tend to safeguard what they
have provided for themselves.
Develops people’s capacity to identify problems and
needs and to seek possible solutions to them.
Provides opportunities of educating people.
Helps people to work as a team and develop a
“WE” attitude - makes project progressive and
sustainable.
Resources are effectively managed; dependence
reduces, there is increased equity, initiative,
accountability, financial and economic discipline.
Limitations of Bottom-Up Approach
Not always effective for projects that
require urgency to implement
 Time-consuming and requires patience and
tolerance.
 People sometimes dislike approach because
they do not want to take responsibility for
action.
 The agency using this approach is never in
control and cannot guarantee the results it
would want.
 The priorities of communities may not fit
with national or international priorities that
seek to have a broader impact.

Project Identification in Both
approaches:
 Involves needs assessment
- collecting, processing and analyzing data on
problems/needs of communities

Review of secondary data
- Look at books, survey reports/ research papers,
publications, media reports, internet etc.

Collecting and analyzing primary information
•
•
•
•
Interviews
Community mapping
Focus Group Discussions
Other methods
Steps in Project identification and
selection:
 Stakeholders analysis
 SWOT analysis
 Problem analysis
 Objective analysis
 Alternative Tree Analysis
a) Stakeholders analysis
 The
main goal of stakeholders analysis
is to identify, assess and develop an
idea/opportunity with a view to
perceived needs and how well it fits
into the organization's programs and
strategies.
What is a Stakeholder?
Stakeholder is any individuals, group or
organization, community, with an interest in
the outcome of a program/project.
 Stakeholder’s could be targeted groups/
beneficiaries, negatively affected groups,
decision makers, funding agencies,
implementing agencies, community leaders,
potential opponents and supporting groups,
etc.

Purpose of stakeholders analysis:
•
•
•
•
To identify those groups who, directly or
indirectly, will affect or be affected by a
project.
To determine, through consultation, the
issues, concerns and information needs of
different stakeholders.
To estimate the probable impact which
various stakeholders will have on the
project.
To identify measures to enhance
stakeholder support for the sustainable
development objectives of the project.
Stakeholder Analysis promotes the three necessary
conditions for the effective implementation of a
project:
• Awareness/ Commitment: that
stakeholders understand and believe in the
objectives and implementation strategy of the
project.
• Capability: that stakeholders believe they can
cope with and benefit from the changes which
the project is intended to bring
• Inclusion: that stakeholders feel they are
valued, consulted and part of the change
process which the project represents
b) SWOT Analysis
SWOT analysis is a tool for institutional
appraisal and a brainstorming exercise in
which the representatives of the organization
participate fully.
Purpose:
• To assess the performance and capacity of
the participating units, divisions of
organization.
• Each participating unit has to undertake
SWOT analysis.
SWOT stands for:
•
•
•
•
Strengths - the positive internal
attributes of the organisation
Weaknesses - the negative internal
attributes of the organisation
Opportunities - external factors
which could improve the organisation’s
prospects
Threats - external factors which could
undermine the organisation’s prospects
c) Problem Analysis
 Begins
with identifying a core problem.
A problem- is an obstacle,
impediment, difficulty or challenge, gap
or any situation that needs solution.

Problems Analysis visually shows the
causes and effects of existing problems in
the project area, in the form of a Problem
Tree. It clarifies the relationships among
the identified problems.
Problem Tree Analysis
Purpose:
- to identify major problems and their
main causal relationships.
Output:
- a graphical arrangement of problems
differentiated according to ‘causes’ and
‘effects’
Steps in Undertaking Problem Tree
1.
Identify a “core” or central problem
2.
List all the problems related to or
stemming from the core problem
3.
Determine which related problems
are causes and which are effects of
the core problem
4.
Arrange the problems in a causeeffect heirarchy around the core
problem
Problem Tree
EFFECT
CAUSE
Problem tree Analysis
Relies on:
 Group-based inter-action eg. Workshop
format
 Participation of key stakeholders
 Process facilitation
 Achieving consensus on problems, causes
and effects
Example 1: Subject of the workshop is food
security, the possible problems mentioned in
relation to this subject are:
Food production on hills
decreasing
 Ethnic clashes in neighboring
districts
 Food shortages
 High incidence of malnutrition
 Canals are blocked
 Rice production in low lands
decreasing
 Poor maintenance of irrigation
facilities







Dikes are degraded
Soil fertility on hill slopes is
decreasing
Soil erosion on hill slopes
Irregular supply of inputs for
rice production
High immigration rates
Irrigation water does not
reach fields in desired
quantity
High incidence of
malnutrition
Problem Tree
Food shortages
Rice production
in low lands
decreasing
Irrigation water does
not reach field in
desired quantity
Canals are
blocked
Food production
on hills decreasing
Irregular supply of
inputs for rice
production
Dikes are
degraded
Soil fertility
on hill slopes
is decreasing
High immigration
rates
Ethnic clashes in
neighboring
districts
Effect
Soil erosion on
hill slopes
Cause
Poor maintenance
system for irrigation
facilities
d) Objective Tree Analysis
 An
objective tree is a technique for
identifying the objectives that will be
achieved as a result of solving the
problems cited in the problem tree.
 The
objectives are also displayed as a
series of means and ends relationships.
 The ‘negative situations’ of the problem
tree are converted into solutions,
expressed as ‘positive situations’.
Analysis of Objectives
Transforming the problem tree into an
objectives tree by restating the problems
as objectives.
 Problem statement converted in to
positive statements
 Check the means-ends relationships to
ensure validity and completeness of the
hierarchy (cause-effect relationships are
turned into means-ends linkages)

Diagram of objectives
Incidence of
Malnutrition reduced
Improved Food
situation
Rice production
in low lands
increased
Regular supply of
inputs for rice
production
Sufficient irrigation
water reaches the
fields
Canals
cleared
Food production
on hills increased
Dikes are
upgraded
Soil fertility on
hill slopes
increased
Lower
immigration
rates
Less ethnic
clashes in
neighboring
districts
End
Soil erosion on hill
slopes reduced
Means
Maintenance
irrigation facilities
improved
e) Alternative Tree Analysis
is a technique for identifying alternative
solutions or course of action that can be
used to achieve the same or alternative
objectives and the display of this
information in a simple format.
 is a process in which specific project
strategies are selected from among the
objectives and means raised in Objectives
Analysis, based upon selection criteria.

The aim of alternative strategy analysis is
division of the objectives tree into more
consistent smaller sub-units that may,
compose the core for a project.
 Each of the sub-units of the objective tree
can represent an alternative strategy for the
future project.
 The project objectives set the framework
for the strategy of the project.

Criteria for selecting the alternative:






RELEVANCE: the strategy corresponds to the
needs of the stakeholders.
EFFECTIVENESS: the lower level objectives of
the strategy will contribute to achievement of the
project purpose.
EFFICIENCY: cost-effectiveness of the strategy
in transforming the means into results.
CONSISTENT with development policies
SUSTAINABILITY of the project
ASSUMPTIONS and RISKS
Diagram of Alternatives
Incidence of
Malnutrition reduced
Improved Food
situation
Rice production
in low lands
increased
Sufficient irrigation
water reaches the
fields
Canals
cleared
Dikes are
upgraded
Maintenance
irrigation facilities
improved
Food production
on hills increased
Regular supply of
inputs for rice
production
Lower
immigration
rates
Soil fertility on
hill slopes
increased
Less ethnic
clashes in
neighboring
districts
Soil erosion on hill
slopes reduced
Alternatives for decision:

Let us assume that agricultural inputs
are provided by one NGO, soil
conservation activities are already in
place by agriculture office, and conflict
is on the process to be resolved by one
INGO. Therefore, the project will
focus on the irrigation system
alternative
Thank you!!
65
The Logical
Framework Approach
Logical Framework Approach (LFA)
 is
a four by four matrix, which
enables the decision maker to identify
project purposes and goals and plan
for project outputs and inputs.
 LFA
is useful in planning, analysis,
follow up and evaluation of the
project.
 The
logical framework is therefore able
to present a concise summary of the
project and identify any flaws in the
logical linkages of activities, inputs,
outputs and objectives. Additionally, if
there is a flaw in the linkage between
project outputs, purpose and goal then
this can be identified and rectified at an
early stage.
LFA is used as a tool to:
identify problems and needs in a certain
sector of society
 facilitate selecting and setting priorities
between projects
 plan and implement development
projects effectively
 follow-up and evaluate development
projects.
 Communicate and report the project
outcomes

Important Terms in LFA
 Goal is the broader objective to
which a project contributes.
 Purpose is the primary intention
or aim of the project
 Outputs are the services or
products that a project delivers to a
target population
 Inputs : financial, human , material
and information resources available
to implement the project
 Sector is the largest system of
which a project apart, e.g. building a dam
is a project in the agriculture sector, if the main
purpose is irrigation or in the energy sector if
the main purpose is the generation of hydroelectric power.
 OVI: demonstrate the desired results
accomplished or to be accomplished
( in terms of quality, quantity, cost
and time)
 Means
of verification: sources of
information for the accomplishments
of the project
 The logic: A vertical and horizontal
logic.
A
vertical logic clarifies why a project is
being undertaken. It specifies goal,
purposes, outputs and inputs.
A
horizontal logic identifies what is to
be produced and the evidence that will signal
success.OVI, MOV and assumptions.


The main output of the LFA is the logframe
matrix.
The basic Logframe matrix contains 16 cells
organized into 4 columns and 4 rows, as
indicated in the next slide
Narrative
Summary
Objectively
verifiable
indicators
Means of
Verification
Important
assumption
Goal
then
Purpose if
then
and
Results if
then
and
Inputs
if
and
17
The Role of Assumptions in the Vertical
Logic
•
•
•
Once the activities have been carried out, and if
the assumptions at this level hold true, results
will be achieved;
Once these results are achieved and the
assumptions at this level are fulfilled, the project
purpose will be achieved; and
Once the purpose has been achieved and the
assumptions at this level are fulfilled, a
contribution to the achievement of the overall
objectives will have been made by the project.
Assumptions
•
Describe necessary internal and
external conditions in order to ensure
that the activities will produce results
•
Assumptions are risks, which can
jeopardize the success of the project
•
Are worded positively, i.e. they
describe circumstances required to
achieve certain objectives
•
Assumptions should be relevant and
probable
•
If an assumption is not important or
almost certain: Do not include
•
If an assumption is unlikely to occur:
Killer assumption – abandon project
Example of Assumptions for the Goal and
Purpose:
•
•
•
•
•
•
•
Political – stability of government staff
Economic – sustainable economy
Adequate funds/materials.
Skilled people – training needs.
Approvals & contracts – legal,
administrative.
Participation of stakeholders.
Etc.
Narrative
Summary
Objectively
verifiable
indicators
Means of
Verification
Important
assumptions
Program or sector Goal:
Measures of goal
achievement
Sources of
information for goal
indicators
Assumptions for
achieving goal target
Project Purpose: immediate
objective of the project
Measures of purpose
achievement : (conditions
that will indicate purpose
has been achieved)
Sources of information
for indicators of project
objectives
Assumptions for
achieving purpose
(objective)
Outputs: desired results
Magnitude of outputs
Sources of information
for indicators of outputs
Assumptions for
providing outputs
Inputs: the people,
Implementation target:
(type and quantity)
Sources of information
for indicators of inputs
Assumptions for
providing inputs
the broader objective to which the
project contributes
information and physical items
which enter the system
Bus.pptx
Narrative
Summary
Goal:
-agricultural productivity increased in
the region
Purpose:
Objectively
verifiable indicators
- Crop yield /hectare
increased
Means of
Verification
Important
assumptions
Field observation
• Periodic reports from
agriculture office
• High
Field observation
• Periodic reports of
district administrators
- Community will take
care of the system
established
•
community
participation
• Commitment
from
both gov’t and NGOs
- Soil & water conservation
systems put in place
•
- 50 hectare
•
- Afforestation
of land covered
with vegitation
- Agricultural density reduced
- Birth rate reduced
• Sample
survey
• Community
participation records
No immigration
Inputs:
Sites
Organaisation report
Funds available on
time
- Promote soil & water conservation
practices through reducing
deforestation
Outputs:
of degraded land
-pop pressure reduced on farm land
- plantation site identified
- Labor organised
- Nursery established
- Family planning and awareness
creation introduced
Garden center
Drugs(contraceptives)
Employees (health and
Agriculture workers)
Field observation
Reliability of rainfall
DA assigned
Community
commitment and
participation
21
Narrative Summary
Goal:
Infant & maternal mortality rates
reduced
Purpose:
Health status of pregnant & nursing
mothers, infants & babies improved.
Results:
1. Functioning primary healthcare
service established at district level.
2. Quality & efficiency of secondary
healthcare improved.
Activities
• Recruit & train staff
Vehicle & equipment purchase
Drug storage & control
Budget utilization
Patient care
 establishing health institutions
Objectively Verifiable
Indicators
Mortality rates reduced for under- 1s, under-5s & pregnant &
nursing mothers from X to Y by 20xx
Sources of
Verification
Dept of Health statistics,
analyzed ex-ante, midterm
& ex-post
Assumptions
Incidence of post-partum & neonatal infection within health
centers reduced from X to Y by 20xx
Rates of infectious diseases (polio, measles, tetanus) among
under-5s reduced from X to Y by 20xx
Incidence of acute birth complications reduced from X to Y by
20xx
Number of villages provided with regular PHC services increased
from X to Y by 20xx
Proportion of under-5s vaccinated against polio, measles &
tetanus increased from X to Y by 20xx
No. birth complications diagnosed & successfully assisted
increased from X to Y by 20xx
Increased patient satisfaction with quality of services provided
Number of patients treated increased from X to Y by 20xx
Average cost of treatment per patient reduced from X to Y by
20xx
Increased patient satisfaction with standards of care
Technical Assistance
Equipment
Medical supplies
Hospital & clinic records,
analyzed ex-ante, midterm
& ex-post
Sample survey of target
group conducted & analyzed
Incidence of infectious diseases
in the household reduced.
Clinic attendance records,
analyzed quarterly
Clinic vaccination records,
analyzed quarterly
Client satisfaction survey,
conducted annually
Mothers willing to attend clinics
Household nutrition
improved through increased
seasonal availability of high
protein foods, & increased
proportion of breast-fed babies.
Pregnant & nursing mothers
able to access cash to pay
for treatment.
MCH.ppt
Hospital records, analyzed
quarterly Client satisfaction
survey, conducted annually
Lump sum costs
Reimbursables
Department of Health maintains
level of funding at pre-project
levels in real terms.
Suitably qualified staff willing to
work in rural areas.
Thank you!!
82
Project
Design/Preparation
Pre-feasibility study

A preliminary selection stage of a project
on the basis of:
 Availability of an adequate market
 Project growth potential
 Investment costs, operational costs and
distribution costs
 Demand and supply factors and
 Social and environmental considerations
84

Objectives of pre-feasibility study are to
determine whether:
 All project alternatives have been examined.
 A detailed analysis through feasibility study is
required.
 Functional or support studies are necessary.
 The investment opportunity is viable or not.
 the environmental situation at the planned
site and the potential impact is inline with the
national standards
85
 Pre-feasibility
is an intermediate
stage between opportunity/problem
identification and a detailed feasibility
study.

If the opportunity study [problem
identification stage] is well-prepared and
comprehensive enough, the prefeasibility stage could be by-passed.
 Hence, it
is not always necessary to
undertake the pre-feasibility study.
86
Support study
Support or functional studies cover specific
aspects of an investment project.
 Examples of these studies are:

 Market studies
 Raw material and factory supply studies
 Laboratory and pilot-plant tests
 Location studies
 Economies-of-scale studies
 Equipment selection studies
 Environment impact assessment
87
Feasibility study
 Feasibility
study provides a
comprehensive review of all
aspects of the project and lays the
foundation for implementing the
project and evaluating it when
completed.
88
A
feasibility study should form the
core of the proposal preparation
process. Its purpose is to provide
stakeholders with the basis for
deciding whether or not to proceed
with the project and for choosing the
most desirable options.
•
The feasibility study must provide answers to the
following basic questions:
• Does the project conform to the development and
environmental objectives and priorities of the specific
country and or region?
• Is the project technically and scientifically sound, and
is the methodology the best among the available
alternatives?
• Is the project administratively manageable?
• Is there adequate demand for the project’s outputs?
• Is the project financially justifiable and feasible?
• Is the project compatible with the customs and
traditions of the beneficiaries?
• Is the project likely to be sustained beyond the
intervention period?
Why in LDCs only few projects did
feasibility study?
Some of the reasons could be:



Lack of enough skilled people;
Unwillingness to spend;
The use of non-numeric selection models
like:
 Sacred cow, officials decision
• Operating necessity, to keep the system in
operation
• Competitive necessity, to maintain
competitive advantage
91
Elements of feasibility study
 Market analysis
 Technical analysis
 Organizational analysis
 Political-legal analysis
 Financial analysis
 Economic analysis
 Social analysis, and
 Environmental analysis
 Cross –cutting issues
92
Market analysis
indicates the demand potential of the output
of the project:
• Demographic statistics
• Income levels of the people
 Market analysis should address the following
questions:

 Is the product for domestic or export consumption?
 Is the market large-enough to absorb the new product without
affecting the price?
 What share of the total market will the proposed product
have?
 What marketing strategies and distribution channels are
required?
93
Technical analysis

Is concerned with the projects inputs (supplies)
and outputs of real goods and services
and the technology of production and
processing
 Its
objective is to evaluate:
 The type of technology and its capacity,
 degree of integration (flexibility of manufacturing
system),
 the production processes involved,
 the inputs and infrastructure facilities
94
Organizational analysis
Institutional/ organizational structure
 Management of the project:


Is focused on the following questions:
 Are authority and responsibility properly linked?
 Does the organizational design encourage delegation
of authority or do too many people report directly
to the project director?
 Does the project have sufficient authority to keep
its accounts in order and to make disbursements
promptly?
 is the project manageable? Team building, motivation
of employees and managers etc
95
Political-legal Analysis


A politically feasible project may be referred to
as a "politically correct project." Political
considerations often dictate direction for a
proposed project. This is particularly true for
large projects with national visibility that may
have significant government inputs and political
implications.
Political feasibility analysis requires an evaluation
of the compatibility of project goals with the
prevailing goals of the political system. All
projects must also face legal scrutiny.
96
Financial analysis

Financial viability of the project is
analyzed based on:
 Sources of funds/ estimates of cost of the
project,
 Return of the project /profitability,
 Financial analysis is based on market price of
goods and services
 It aims to see the feasibility from the view point
of entrepreneurs, investors and financiers
(from private costs and benefits)
97
Economic analysis
Economic analysis is basically concerned with
the following:
 how to identify effects of the project on the
society ;
 qualification of the effects of the proposed
projects; and
 pricing of costs and benefits to reflect their
values to society, shadow price
98
Social analysis

Examine the social implication of the project:
 income distribution to the low income
group
 adverse effects of a project on particular
groups
 The impact of the project on improving
the quality of life.
 Considering the contribution of
alternative projects in furthering the same
objectives.
99
Environmental analysis


The impact of the project on nature and
its habitat such as plants (forests), water, air,
wild and domestic animals, human beings, etc.
Some of the examples of the questions to be
asked are:
 What chemicals and wastes are emitted from
the project that will pollute air and water?
 What hazardous chemicals are used that will
harm the health of employees and the people
living around the project area?
100
Cross- cutting issues Analysis
Cross- cutting issues, recently, have received great
attention in preparing any development projects.
Underestimation of these issues have resulted in
undesirable outcomes which include the lose of
active ‘human labour, reduced productivity, under or
over utilization of the intended output/inputs, social
disruption, poor human health etc.
 Currently project promoters/implementers,
nevertheless, have shown increasing concerns about
the effects of these factors on the development
project and policy makers are also initiating these
points to be entertained in any development projects
preparation and implementations

In this context, cross-cutting
impacts have come to play a
determinant roll in the project
formulation exercises. These cross
cutting issues could be:
 HIV/AIDS
 Population
 Gender issues
Who Conducts the Feasibility
Study?
The government
 Donor agencies
 Consultants
 Any interested person who can afford to
do it

103
Feasibility study Vs Project Proposal
Feasibility study-is required to
make a decision whether the
project proposal is technically and
economically feasible? After
finalization of project feasibility
study by the experts, the decision
for going ahead for preparation of
the project proposal will be made
104
Project Proposal writing


A project proposal is a detailed description of
a series of activities aimed at solving a certain
problem. It is a means of presenting the
project to the outside world in a format that
is immediately recognized and accepted.
The proposal should contain a detailed
explanation of the justification of the project;
activities and implementation timeline;
methodology; and human, material and
financial resources required.
105
Elements of Project Proposal
 Title
page: The title page should
indicate the project title, the name of
the lead organization (and potential
partners, if any), the place and date of
project preparation and the name of
the donor agency to whom the
proposal is addressed.
106
 Contents
page: If the total project
proposal is longer than 10 pages, it is
helpful to include a table of contents
normally at the start of the document.
It should contain the title and
beginning page number of each
section of the proposal.
107

Abstract (Executive Summary):
The abstract provides a brief
summary of the project. The abstract
should include the problem to be
addressed, the objectives to be
achieved, the implementing
organization, the key project activities
and the total cost (budget) of the
project.
108
 Context
(Project Impact): This
part of the project should describe
the social, economic, political and
cultural background from which the
project is initiated.
 Beneficiaries
(Target Groups): In
this part define the target groups and
show how they will benefit from the
project.
109
Project justification: Rationale
should be provided for the project.
Due to its importance usually this
section is divided into four or more
sub-sections:
◦ Problem statement
◦ Priority needs
◦ The proposed approach (type of
intervention)
◦ The implementing organization
110
 Project
Goals and Objectives:
Project goals are tools that help
members look ahead to plan what they
want to do. Often one major “goal” is
declared and then broken down into
various objectives. Write SMART goal
and objectives.
111
 Outputs
(outcomes): Outputs are
the goods, services and change in
knowledge and attitudes produced as
a result of project activities which
contribute to achieving the objective.
 Project Description and
Background: This part shall include
the specific detailed description of
each activity.
112
 Human
Resources: This part of the
project should describe the management
and implementation teams, their
experience and responsibilities.
 Project feasibility:This part of the
project shows the feasibility of the
project.
 Overall project value: This part shows
the added value of the project to the
higher education, institution, and the
other beneficiaries.
113
 Risks
of the Project: This part of
the project shall include the main
risks (may occur) and the tools could
be used to overcome them.
 Monitoring and Evaluation
(M&E) Plan: In this part specify how
you will monitor the progress of
activities and how you will be able to
evaluate the accomplishment of the
overall goal of the project.
114
 Implementation
Plan:The
implementation plan should
describe activities and resource
allocation in as much detail as
possible.
◦ Activity plan (schedule) based on a
simple table or Gantt chart.
◦ Resource plan/based on budgetary
format/:
115

Project Performance indicators: In this
part, specify the major project performance
indicators (SMART and Measurable project
performance indicators).
Reporting: The schedule of project
progress and financial report could be set in
the project proposal.
 Annexes [if any]: for additional detailed
information

116
Thank you!!
117
Financial Analysis
Contents
◦ The Costs of a Project
◦ Means of finance
◦ Accounting Income Vs Cash Flows
◦ Project Appraisal methods:






Return on Investment (ROI)
Payback Period
Net Present Value (NPV) method
Benefit Cost Ratio (BCR)
Internal Rate of Return (IRR)
Discounted payback period
Project Appraisal
 Projects
can be appraised from
the view point of their
beneficiaries or losers
[financial analysis] or from
the viewpoint of the entire
society [economic analysis]
120


Financial analysis answers the question “is the
project financially profitable to a given
individual, group or business? In financial
analysis costs and benefits are valued at
market prices
Economic analysis answers the question- “is
the project profitable to the society or to a
target population as a whole? what is its
impact ( in terms of job creation and linkages
with the other sectors) on the whole
economy? In economic analysis costs and
benefits are valued at shadow prices
121
Financial appraisal
 The
investment Costs of a
Project
Initial investment Costs of a project








Land and site Development
Buildings and Civil Works
Plant and Machinery
Technical know-how and engineering fees
Miscellaneous Fixed Assets
Capital issue expenses
Pre-operative Expenses
Provision for contingencies
Other costs

 Sunk costs
 Depreciation
122
Operation Costs of a project
Direct and indirect costs:
 Direct costs are directly attributable to the
production
 Indirect costs are incurred to facilitate the
production process but are not the direct
inputs of production.
Variable costs and fixed costs:
 Variable costs are costs that vary with the
volume of the product
 Fixed costs are costs that do not vary with
the volume of the product.
123
Cost of production comprises of three
main factors:
 Cost of materials,
 Labor cost and
 Factory overhead
Cost of production = Material cost +
labor cost + factory overhead cost.
TotalCostOf Pr oduction
CostOf Pr oduction perUnit
TotalNo.of Units
124
Working Capital Estimates
Working capital is the financial requirement
needed to finance the current asset of the
balance sheet.
 raw materials, supplies and components temporarily
held in stock until usage,
 Work-in-process,
 finished goods until the time of selling,
 accounts receivable until payment made by the
customer, etc

Net Working Capital = Current Assets –
Current Liabilities
125
Means of Finance
 Government
 International organizations
 Partially international organizations and
partially government
 Entreprenuers (individually or in group)
 Individuals and govt.
126

The major sources of capital of projects
that are aiming at making a commercial
profit are the following:







Share Capital
Bonds
Term Loans
Trade Credit
Accrued Liabilities
Incentive Sources
Miscellaneous Sources
127
Cretiria to select the most suitable sources
 Cost




Risk
Control
Flexibility
Rules and Regulations of the govt.
and financial institutions
128
Estimates of sales and production
Year
1
2
3
4
Installed capacity (Qty)
Estimated output as % of plant
capacity (Qty)
No of working days
Estimated annual production (Qty)
Value of sales (SP * Qty)
After estimating the quantity of production,
the cost of production has to be estimated.
129
Profitability Projection
After the estimates of sales revenue
and the cost of production are made,
the next step is to prepare the
profitability projection.
• This is done by preparing a projected
income statement and cash flow
statement .
•
130
Income Statement Vs Cash Flows
Income statement


Estimating sales revenue and costs over years of
the project operation helps to prepare projected
balance sheet and income statement and to decide
on the profitability of the project.
Major purposes of preparing income statements:
 to determine indicators of relative efficiency;
 to determine the net profit to be incorporated
in the balance sheet;
 to determine the tax liability of the project;
 To provide financial information to concerned
stakeholders.
131
Projected Income statement
Sales in Units
Sales Revenue (Unit price x a )
Operating Costs (Unit cost x a )
Gross profit (b – c)
Overhead costs
Depreciation
Operating Income (EBIT) (d- (e + f))
Interest on loan
Earning Before Tax (EBT) ( g – h)
Taxes (20%) (20 % of i )
Earning After Tax (EAT) ( i – j)
a
b
c
d
e
f
g
h
i
j
k
132
Exercise 1:









The life of a project = 4 years.
Initial investment cost = 100 million.
Depreciation : 2 million/year.
Annual interest rate on loan = 8,6,4,2 million for year 1, 2,3
and 4 respectively
Unit sales: 1milion (1st year), 2 million (2,3,&4)
Selling price per unit = Birr 60
Operation cost per unit = Birr 32
The overhead fixed cost = 4 million/year
Tax rate is 20% of the net profit
Required: Prepare the forecasted income statement of
the project for five years.
133
Year
1st
2nd
3rd
4th
Sales in Units
1
2
2
2
Sales Revenue (Birr 60 * Units)
60
120
Operating Costs (Birr 32 * Units)
32
64
120
64
120
64
28
56
56
56
Overhead costs
4
Depreciation
2
4
2
4
2
4
2
22
50
50
50
8
6
4
2
14
44
46
48
2.8
8.8
9.2
9.6
11.2
35.2
36.8
38.4
11.2
46.4
83.2
121.6
Gross profit
Operating Income (EBIT)
Interest
Earning Before Tax (EBT)
Taxes (20%)
Earning After Tax (EAT)
Cumulative EAT
The above table shows that the project has a nominal cumulative
of Birr 121.6 million net profits by the end of the fourth year.
134
Cash Flows
It is a process of review of costs and benefits,
measured in terms of cash outflows and cash
inflows.
 The cash inflow of a project includes:





the project revenues,
government grants,
resale/scrap values of assets,
tax receipts and other cash inflows as a result of accepting a
project.
The cash outflow of a project includes:




initial investments in acquiring the assets,
project costs (labour, materials, etc.),
working capital investments,
tax payments and any other cash outflows as a result of
accepting the project.
135
Purpose of cash flow statement
 To
identify shortage of finance, so
that the manager plans to borrow
 To identify overage of finance, so
that the manager plans to lend or
invest the money
136
Exercise 2:
Based on the information given in exercise 1
and
 Capital = 50 million
 Loan = 50 million
 Working capital 1st year = 20 million and 2nd
year = 10 million

Salvage value is expected to be 8
million
 Initial investment cost =100 million

Required: Prepare cash flow statement
137
Projected Cash Flow Statements
Year
Cash in flow
Capital
Loans
Salvage Value
Sales Revenue
Annual cash inflow (a )
Cash outflow
Investment
Working Capital
operating costs
Overhead costs
Loan Interest
Tax
Annual Cash Outflow (b)
Annual Cash Flow Balance (a-b)
0
1st
2nd
3rd
4th
120
120
8
120
128
64
-30
64
4
4
9.2
81.2
38.8
4
2
9.6
49.6
78.4
50
50
0
100
60
60
120
120
100
0
0
0
0
0
100
0
20
32
4
8
2.8
66.8
(6.8)
10
64
4
6
8.8
104.8
15.2
138
Project Appraisal methods
The most common methods analysing
the financial feasibility of a project are:
 Return on investment
 Payback period
 Net present value
 Internal Rate of Return
 Benefit cost ratio
 Discounted pay back period
139
 Non
discounted methods
 Return on investment
 Payback period
 Discounted
methods
 Net present value method
 Benefit cost ratio
 Internal Rate of Return
 Discounted Payback Period
140

Discounting is a technique or a process by
which one can reduce future benefits and costs
to their present worth or present value.

This is the method used to revalue future
cost and benefit flows from project into
present day values so that they are comparable
and can be added together.

As compounding asks “what is the future worth
of a known present amount”? discounting asks
“what is the present worth of a known future
amount”?
141

The factor used to discount future costs
and benefits is called the discount rate
(r) and is usually expressed as a
percentage.

The discount rate is usually determined by
the central authorities (national Bank).
142
Return on Investment (ROI)
Rate of return is the ratio of average
annual profits, to the capital invested. It
is the measure of profitability which
relates income to investment.
 The formula for computing the ROI is:

ROI = Average annual net income X 100%
Total Investment

Decision criterion: the higher the ROI, the
better the project is.
143
Exercise
Income statement
Year
Earnings After Tax (EAT)
Cumulative EAT
1st
2nd
3rd
4th
11.2
11.2
35.2
46.4
36.8
83.2
38.4
121.6
Initial investment is 100 million
ROI = Average annual net income X 100%
Total Investment
Average yearly income = 121.6 million = 30.4 million/year.
4
ROI =
30.4 million X 100% = 30.4 %
100 million
Therefore, the return on investment is 30.4 % per year.
144
Advantage of ROI

it is very simple to calculate and use
Disadvantages of ROI
It does not consider the time value of
money,
 It uses the accounting profit as a measure
of return of the project,

145
Exercise 2
Project life = 6 years
 Initial investment = 160 million
 Total net profit for six years = 240 million

Calculate the ROI?
Which project is better as compared to the
previous exercise?
146
Payback Period
The payback period is the length of time
required to recover the initial
investment.
 According to the payback criterion, the
shorter the payback period, the more
desirable the project is
 If the net cash inflow is uniform each year,
Intial Investment
then,
Payback Period 
AnnualUniformCashInflow
147
Exercise
A
project whose investment outlay is
100 million is expected to have a
uniform annual net cash inflow of 25
million for five years
Payback Period 
Intial Investment
AnnualUniformCashInflow
100million
Payback Period 
 4Yrs .
25million
148

If the cash flows of a project are not uniform, the
payback period is calculated by accumulating a
series of cash flows until the amount reaches the
initial investment.

Example,
Year
Cash flow
0
1
2
3
4
-30000 5,000 12,000 12,000 6,000
5
8,000
The payback period = 3 years + 1000 * 12 = 3 yrs and 2 months
6000
149
Advantages of payback period
 It is simple to apply
 It is helpful in weeding out risky projects.
 It helps to assess the firm’s ability to
meet its financial obligations
Disadvantages of payback period
 It ignores the time value of money.
 It overlooks cash flows beyond the payback
period.
 It may divert attention from profitability
150
Exercise
Year
Project I
Project II
1
4,000
10,000
2
8,000
10,000
3
15,000
10,000
4
12,000
10,000
5
7,000
10,000
Initial investment
30,000
30,000
Which project can be selected based on
Payback period ?
151
Net Present Value (NPV)
NPV is the difference between the present values of
the yearly net cash inflows and the initial investment
outlay
It is calculated using the following equation
CFn
CF1
CF2
NPV 


...

 I0
2
n
1 k
(1  k )
(1  k )
 n
CFt
NPV  
  (1  k ) t
 t 1



  I0

CFt = cash flow of the t th period, k is the discount
rate, t is the number of periods between 1 and n.
152
The formula shows that we follow three steps to
find the NPV of the project:
 We multiply the cash flow of each year by the
discount factor of the same year to convert to its
present value
 We add the products to get the total value of the
project.
 We subtract the initial investment made at year zero
from the total present value to get the NPV
Decision : accept or reject and Ranking
If the NPV is positive, accept the project.
If the NPV is negative, reject the project.
If the NPV is zero, be indifferent
The higher the NPV, the better the project is
153
Example:
The initial investment of the project is 60,000 Ethiopian Birr.
Find the NPV of the project if the discount rate is 10%.
Year (t)
Cash flow
(in Birr)
Discount factor
Present Value
(In Birr)
0
1
2
3
4
-60,000
6,000
20,000
30,000
40,000
4,000
1
0.909
0.826
0.751
0.683
0.621
-60,000
5454
16520
22530
27320
2484
14308
1
(1  k) t
Total NPV
Decision: accept the project because the
result is positive
154
For uniform cash flows:
 1  (1  k )  n
NPV CF 

k



  I0


Where CF is the uniform cash flow starting from year
one, k is cost of capital (discount rate), n is the number of
periods.

Take our previous example of the 100million initial
investment. Find the NPV of the project if it has an annual
uniform net cash inflow of Birr 26million for five years
and if the cost of capital is 10%.
 1  (1  0.1) 5
NPV 26
0.1


  100  1.44

Decision: reject the project
155
Advantages of NPV
 The time value of money is taken into account
 The cash flows from the beginning to the end of the project
are considered
 It focuses on the profitability of the project
 It is useful for the comparison of mutually exclusive
projects
 Since the NPV is expressed in Dollar or Birr, the managers
can understand it more easily than percentages.
Disadvantages of NPV
The NPV method can be employed in selecting from
mutually exclusive projects only when the projects are of
the same size.
 The NPV method assumes that funds are reinvested at the
cost of capital
 The cost of capital is assumed to remain constant
throughout the life of the project.

156
Exercise
Year
Project “A”
Project “B”
1
40,000
25,000
2
30,000
25,000
3
25,000
25,000
4
20,000
25,000
5
10,000
25,000
Initial
investment
80,000
80,000
10%
10%
Discount rate
• Calculate the NPV and which project is preferable
and why?
• Calculate the payback period and make a
decision? Is the decision similar with NPV result?
157
Benefit Cost Ratio (BCR)
Benefit – cost ratio is also referred to as profitability index.
It is an extension of the NPV approach to compare the
profitability of investment alternatives before arriving at
investment decision.
There are two ways of defining the benefit cost ratio:
a) PV to initial investment
BCR PV
=
I
Where PV is present value of benefits and I is initial investment.
b) NPV to initial investment
NBCR = BCR – 1 or
NPV
I
158
Decision rules:
When BCR > 1 or NBCR > 0, accept the
project
 When BCR < 1 or NBCR < 0, reject the
project
 When BCR = 1 or NBCR = 0, be
indifferent
 if we compare two or more projects, the
higher the BCR/NBCR, the better the
project is

159

Example: Consider a project with initial investment of Birr
50,000 and the following Cash inflows. Discounting rate is
12%
A) BCR
Year
1
Cash inflow 12500
2
10000
3
30000
4
25000
PV
BCR 
I
12500 10000
30000
25000
(



)  50000
2
3
4
(1.12) (1.12)
(1.12)
(1.12)
11160  8000  21428  15924
50000
56512
 1.13
50000
b) NBCR = 1.13 –1 = 0.13
Decision: ???
160
Advantages of BCR

BCR indicates a relative and not absolute
measure of profits i.e. the benefit per dollar
(Birr) of investment.
Disadvantages of BCR
 This
method cannot be employed when a
package of smaller projects is to be
considered in relation to a large project.
161
Exercises
Year
1
Project “A”
30,000
Project “B”
25,000
2
3
4
40,000
45,000
50,000
40,000
40,000
50,000
Initial investment
Cost of capital
110,000
12%
100,000
12%
Find BCR and NBCR of the two projects ?
Decision ?
162
Internal Rate of Return

IRR is the discount rate that makes the
present value of cash inflows equal to the
present value of cash outflows.

Previously, we find the IRR of a project by
trying different discount rates until we
discover the discount rate that makes the
NPV zero. However, today it is easier to find
IRR of a project using Excel Application.
163
It is the value of k in the following equation
 n
CFt
Investment   
t
(
1

k
)
 t 1



CFt = cash flow at the end of year
K = internal rate of return
T = life of the project
Decision Rule for IRR is
 Accept :if IRR is greater than the cost of capital
 Reject: if the IRR is less than the cost of capital
 indifferent: if the IRR is equal to the cost of capital
 If we are comparing two or more projects, the
higher the IRR, the better the project is.
164
Example:

Find the IRR of a project with 20 million initial
investments, the cost of capital of 12 % and
with the following table of cash flows.
Year
1
Cash flow 6000
2
3
4
6000
8000
9000
165
Try to compute the NPV with 12% discount
rate.
 6000 6000
8000
9000 

  20000  5357  4800  5714  5732  20000  1603



2
3
4 
 1.12 (1.12) (1.12) (1.12) 
Since the NPV is still positive, (1603), try again
with a higher discount rate: 15%
 6000
6000
8000
9000




2
3
4
1
.
15
(
1
.
15
)
(
1
.
15
)
(
1
.
15
)


  20000

(5217 + 4545 + 5263 + 5142) –20000 = 167
166
Still the NPV is positive. Try again with a higher
discount rate i.e. 16%.
 6000
6000
8000
9000




2
3
4
1
.
16
(
1
.
16
)
(
1
.
16
)
(
1
.
16
)


  20000

(5172 + 4444 +5095 + 4945) = 19656
= 19656 – 20000 = -344
 Thus, it can be concluded that the IRR is between
15% and 16%
167
However, the exact percentage can be
computed using interpolation techniques as:
 Present value at 15% = 20167
 Present value at 16% = 19656
Difference = 511
The difference between the target present value
20000, and the PV of 20167 (discounted at 15%) is
167.
Therefore, we get the percentage difference of:

Adding this number to 15%, we get the IRR
approximately 15.33%.
168
Advantages of IRR
 It gives due consideration for the time value of money
 It recognizes the total cash flows during the project life
 It conveys the direct message about the yield on the
project.
Disadvantages of IRR
 It involves tedious work through trial and error and
interpolation
 The IRR does not reflect the scale, or dollar size
 It assumes that all proceeds are reinvested at the
particular IRR, whereas the NPV approach assumes
reinvestment at the cost of capital.
169
Exercise
Year
Cash flow
1
30,000
2
30,000
3
40,000
4
45,000
Initial investment
100,000
Discount rate
12%
Find IRR based on trial and error method ?
170
Discounted Payback Period
To overcome the limitations of the payback
period, the discounted payback period method
has been suggested
The decision is similar with payback
period. The difference is multiplying each
cash flow by discount factor.
171
Exercise
Year
Cash Flow
1
2
3
4
5
5000
6000
8000
7000
6000
Initial investment
Discount rate
10,000
10%
Calculate the payback period of the project ?
172
Exercise
of
Project Year Cash In flow PV of $1 at PV
10%
inflow
cash Cumulative
savings
0
-10000
1.000
-10000
-10000
1
5000
0.909
4545
-5455
2
6000
0.826
4956
-499
3
8000
0.751
6008
5509
4
7000
0.683
4781
10290
5
6000
0.621
3726
14016
Payback Pd = 2 Yrs +
cash
 499 


 6008 
= 2 Yrs + .083 Yr = 2.083 Yrs or 2 yrs and one month
173
Thank You!!
Economic/ Social CostBenefit/Analysis
Economic Analysis
 Is
an assessment of a project’s costs and
benefits from the view point of the
national economy.
 It is basically concerned with how to
identify effects of the project on the
society ; qualification of the effects; and
pricing of costs and benefits to reflect
their values to society.
 It
is , therefore, conducted to identify
costs and benefits where there is a
significant divergence between market
prices and economic costs or values, and
its application is important in the selection
of economically viable public projects
Rationale for Economic Analysis :
 Market imperfection
 Externalities
 Taxes and subsidies
 Concern for savings
 Concern for redistribution
 Merit wants , etc
178
 Net
private benefits and net social benefits
are usually different due to the existence
of market imperfections, externalities , income
redistribution, etc.
 In
such circumstances, social cost analysis
must depend on shadow prices (instead
of market prices) to measure the net
benefit to the society.
179
Financial Vs Economic analysis
Financial
Economic

Appraise the project from the view
point of an entrepreneurs,
investor or financier.

Appraise the project from the view
of macro or national economy or its
contribution to the society.

Covers only private costs and
benefits

It takes into account social costs and
benefits.

Taxes are treated as costs and
subsidies as a return.

Taxes and subsidies are treated as
transfer payments.

Interest paid to external suppliers
of money may be deducted to
obtain the stream of benefit
available to the owner of the
project.

Interest on capital is never
separated and deducted from gross
return because it is part of the total
return to the capital available to the
society as a whole.

The overriding objective is financial
viability (i.e. making profit) based
on market price.

The objective is economic viability
[social benefits] based on shadow
price.
180

Therefore, market prices are often distorted by:
 Taxes
 Monopolistic/Oligopolistic measures
 Subsidies
 Rent, Interest
 Quotas
 Regulatory measures
 Protection, etc

And must be adjusted to reflect social value of
the project i.e., shadow price
181

In economic analysis we consider the
benefits of the project to the society
such as:
 Employment creation
 Foreign Exchange generation or saving
 Contribution to different sectors: such as
health, education, etc.
 Multiplier effect (on other economic variables
in the economy)
 Linkages (both forward and backward linkages)
 Economies and diseconomies of scale
 Externalities, etc.
182
Shadow prices is the price used for analysing
the cost and benefit of a project when the
market price is felt to be a poor estimate of the
economic value of a project.
 Shadow price measures the value of
commodity from point of view of the society or
the economy of a nation.
 After estimating the shadow prices, we measure
the viability of the project through the normal
process of calculating NPV, IRR or CBR.

183
We use conversion factor to change the market
price in to shadow price.
 Conversion Factor: is a number, usually less
than 1, used to multiply the domestic market
prices of goods/services and to get the
equivalent border prices so as to correct the
distortions in domestic prices of the same
goods/services.
 Conversion Factor is a ratio of shadow price
(SP) to market price (MP).

CF
SP
MP
SPMP * CF
184
Project Risk and
Sensitivity Analysis
Uncertainty: Sensitivity and Risk
Analysis
 The
techniques of project analysis have
been considered so far as if the basic
data which they have used are known
with certainty.
 However, both technical and economic
information is used in the form of
forecasts and is subject to considerable
uncertainty.
186
 It
is possible that an investment goes
ahead on the bases of favourable
appraisal of the project.
 But subsequently ex-post evaluation
may indicate that the appraisal
was faulty and the project
should not take place.
187
Faulty predictions/ sources of error
may be in any of the following:

Problems in Prediction of technical
performance:
Underestimation of the project life time
The quality & quantity of raw materials,
Supply of imported inputs and spare parts
Wrong assumptions of the physical quality and quantity of
your product
 Wrong rate of production expansion (production capacity)
 Problem with the quality of the management skills.




188
 Prediction




Wrong estimation on cost of investment
"
"
about the volume of demand
"
"
of cost of inputs
"
"
of operating costs
 "
"
 Estimation

of the market situation:
the value of output
of shadow prices
Prediction of macroeconomic
conditions





For example, availability may not be as predicted
Inflation rate may rise above expected
Interest rate, example, deposit rate decrease from 6% to 3%
Changes in laws and regulations
Weather may also affect particularly agricultural projects
189
There are several ways of incorporating
uncertainty:
 Adding an item called "Contingency" (in %)
 Adding "a risk premium" to the discount
rate, i.e. use a higher discounting rate (NPV
decreases)
 Shorten the "life of the project"
 Use “Sensitivity Analysis".
190
Sensitivity Analysis

Measures of project worth are first calculated using
the best estimate of inputs and outputs and the
discount rate. The project decision will be based on
these best estimates.
However, how sensitive is a project in financial
prices and economic values?
 There might be:
an increase in construction costs,
an extension of the implementation
period,
a fall in prices, etc.

191
 It
is analytical tool to test systematically what
happens to the earning capacity of the project
if events differ from the estimates made about
them in planning.

The key variables to which sensitivity analysis
could be applied include: skill and
technology requirements, Price of inputs,
Price of output, Operating Costs, Sales
volume and Initial cost outlay.
192
Reworking an analysis to see what
happens under these changed
circumstances is called sensitivity
analysis.
• All projects should be subjected to
sensitivity analysis.
• In agriculture for example, projects are
sensitive to change in four principal areas:
Price of output and inputs, delay in
implementation, costs overrun & yield.
•
 The
application of sensitivity analysis
involves varying one project item at
a time and measuring the effect on
project worth. Because this is easier
to interpret in absolute terms, the
project worth measure generally
employed in sensitivity analysis is the
net present value (NPV).
How to Do Sensitivity Analysis
Assume that:
 Initial investment =100 million birr
 Sales volume = 1million units for 1st year and , 1.5
million units for 2,3,4 &5 years
 Selling price per unit is 60 birr
 Operating cost per unit is 32 birr
 Overhead cost is 5 million for each year
 Working capital = 19.5 for 1st year, 9 for 2nd year
 Cost of capital is 10%.
 Income tax is fixed: 0 for 1st & 2nd year , 1.6 for 3rd
year, 3.64 for 4th year, and 9.8 for 5th year.
Annual Cash Flows Related to the Project (In Millions of Birr)
(Original estimate)
Year
Annual Sales (Demand) in units
(Millions)
0
0
1
1
2
1.5
3
1.5
4
1.5
5
1.5
Investment Costs
-100
Working Capital
0
-19
-9.5
Sales Revenue (@ of Birr60/Unit)
0
60
90
90
90
90
Operating costs (@ Birr 32/Unit)
0
-32
-48
-48
-48
-48
Overhead costs
0
-5
-5
-5
-5
-5
Tax (Assuming Fixed tax)
0
0
0
-1.6
-3.64
-9.8
-100
4
27.5
35.4
33.36
55.7
NPV
IRR
$9.39
13%
Annual Incremental Cash flow
28.5
Case One: If demand decreases by 7%
Annual Cash Flows Related to the Project (In Millions of Birr)
Year
Annual Sales (Demand) in units (Millions)
0
0
1
0.93
2
1.395
1
1.395
4
1.395
5
1.395
Investment Costs
-100
Working Capital
0
-19
-9.5
Sales Revenue (@ of Birr60/Unit)
0
55.8
83.7
83.7
83.7
83.7
Operating costs (@ Birr 32/Unit)
0
-29.76
-44.64
-44.64
-44.64
-44.64
Overhead costs
0
-5
-5
-5
-5
-5
Tax (Assuming Fixed tax)
0
0
0
-1.6
-3.64
-9.8
-100
2.04
24.56
32.46
30.42
52.76
Annual Incremental Cash flow
28.5
NPV
$0.07
Factor (a)
Decrease in Demand
(quantity) by 7%.
% Change in
Factor (b)
0.07
% decrease in NPV (c)
0.07  9.39
X 100
9.39
=99%
Sensitivity
(c/b)
14.18
Case Two: If cost of initial investment increases by 10.4 million
Annual Cash Flows Related to the Project (In Millions of Birr)
Year
Annual Sales (Demand) in units
(Millions)
Investment Costs
Working Capital
Sales Revenue (@ of Birr60/Unit)
Operating costs (@ Birr 32/Unit)
Overhead costs
Tax (Assuming Fixed tax)
Annual Incremental Cash flow
Factor (a)
Increase in Investment Cost
by Birr10.4million.
0
0
1
1
2
1.5
-110.4
0
0
0
0
0
-110.4
-19
60
-32
-5
0
4
-9.5
90
-48
-5
0
27.5
3
1.5
90
-48
-5
-1.6
35.4
4
1.5
5
1.5
28.5
90
90
-48
-48
-5
-5
-3.64
-9.8
33.36
55.7
NPV
($0.06)
% Change % decrease in NPV Sensitivity
in Factor (b) (c)
(c/b)
10.4%
100.7%
9.68
Case Three: if Price Decreases by Birr2
Annual Cash Flows Related to the Project (In Millions of Birr)
Year
Annual Sales (Demand) in units
(Millions)
Investment Costs
Working Capital
Sales Revenue (@ Birr58/Unit)
Operating costs (@ Birr 32/Unit)
Overhead costs
Tax (Assuming Fixed tax)
Annual Incremental Cash flow
Factor (a)
Decrease in Unit Price
0
0
1
1
2
1.5
-100
0
0
0
0
0
-100
-19
58
-32
-5
0
2
-9.5
87
-48
-5
0
24.5
% Change in
Factor (b)
3.33%
3
1.5
87
-48
-5
-1.6
32.4
4
1.5
5
1.5
28.5
87
87
-48
-48
-5
-5
-3.64
-9.8
30.36 52.7
NPV
($0.12)
% decrease in
NPV (c)
Sensitivity (c/b)
101.28%
30.38
Case Four: If Cost increases by Birr2/Unit
Annual Cash Flows Related to the Project (In Millions of Birr)
Year
Annual Sales (Demand) in units
(Millions)
Investment Costs
Working Capital
Sales Revenue (@ of
Birr60/Unit)
0
0
1
1
2
1.5
3
1.5
4
1.5
5
1.5
-100
0
-19
-9.5
0
60
90
90
90
90
Operating costs (@ Birr 34/Unit)
0
-34
-51
-51
-51
-51
Overhead costs
Tax (Assuming Fixed tax)
Annual Incremental Cash flow
0
0
-100
-5
0
2
-5
0
24.5
-5
-1.6
32.4
-5
-3.64
30.36
-5
-9.8
52.7
NPV
($0.12)
28.5
% Change in
% decrease in Sensitivity
Factor (a)
Factor (b)
NPV (c)
(c/b)
Increase in Operating Cost
6.3%
101.3%
16.21
Case Five: if Interest rate Increases by 3%
Annual Cash Flows Related to the Project (In Millions of Birr)
Year
0
Annual Sales (Demand) in units
0
(Millions)
Investment Costs
-100
Working Capital
0
Sales Revenue (@ of
Birr60/Unit)
0
Operating costs (@ Birr 32/Unit) 0
Overhead costs
0
Tax (Assuming Fixed tax)
0
Annual Incremental Cash flow
-100
Factor (a)
Increase in interest rate
1
1
2
1.5
-19
-9.5
60
-32
-5
0
4
90
-48
-5
0
27.5
3
1.5
4
1.5
5
1.5
28.5
90
-48
-5
-1.6
35.4
% Change in % decrease in
Factor (b)
NPV (c)
30%
97%
90
-48
-5
-3.64
33.36
90
-48
-5
-9.8
55.7
NPV
$0.27
Sensitivity
(c/b)
3.24
Summary Table of Results for sensitivity analysis
Factor (a)
Decrease in Demand by
7%
Increase in Investment
Cost by 10.4 Million
Decrease in Price by Birr2
Increase in Operating
Cost by Birr2
Increase in interest rate
by 3%
Rank for
% Change in % decrease Sensitivity Management
Factor (b) in NPV (c)
/c/b/
Attention
-7.0%
-99.3%
14.2
3
10.4%
-100.7%
9.7
4
-3.3%
-101.3%
30.4
1
6.3%
-101.3%
16.2
2
30.0%
-97.2%
3.2
5
What is the implication of this sensitivity analysis summary for
managers?
Risk Analysis
•
•
•
Risk analysis involves a fuller assessment of
possible variation.
Its purpose is to provide a probability
estimate of how likely a project decision
is to bewaring.
Risk analysis begins from the best estimates
contained in the initial resource flow and from
the effect of variation given by sensitivity
analysis; but now different variables are
considered simultaneously.
 For
example, given the optimism with
which projects are often prepared, some
items like investment costs are more
likely to vary upwards rather than
downwards from the best estimate, whilst
others like revenue are more likely to be
below rather than above the best
estimate.
 Some
project items can be
estimated with greater certainty
than others. Although it is
convenient to use the same range
of variation for each variable
considered in risk analysis, the
probability of the different values
in the range occurring will differ.
A
probability should be attached
to the best estimate and each
variation, to reflect the likelihood
with which the different value in
the range will occur. The sum of
these probabilities must total 1.0
for each variable.
The
effect of varying values
within a range can be calculated
through sensitivity analysis. It is
additional probability estimates
associated with each variation
that represent the essential
feature of risk analysis.
 Where
do these probability estimates
come from? For some variables they
may come from past evidence, for
example, of fluctuations in prices,
outputs, or of, material ratios in
different production processes. For
other variables, intuitive guesses may
have to be made on the basis of
experience.
 Risk
analysis is most important for
marginal projects, with a rate of
return just above the discount rate.
For projects with a much larger rate
of return the probability of a negative
NPV with variation in the major
variables is likely to be on decision
among alternative marginal projects.
 Identifying
the effects of variation in
major variables, and investigating the
likelihood of their combined variation,
provides considerable information on
the risks associated with a project. It
indicates where the risk might be
reduced.
Challenges of Managing Risks
•
•
•
•
•
•
•
Software would not be adequate for the project’s
requirements.
New costly hardware would he included.
System interfaces would be overlooked or
impossible to manage.
Management would lose interest in the project.
Cost overruns could occur.
Systems might not comply with regulatory or
statutory requirement.
The data might not be available in the formats
necessary.
In a public-sector application. however, other
risks could include the risks that:
–The press might investigate the project and
make public its challenges and failures.
–Necessary hardware and software might not
he available through state purchasing systems.
–Salaries might not be adequate to attract
expert staff.
–Federal policies and reimbursement models
that the system was designed to meet might
change.
◦ The project might be cut from the budget or
might not be reauthorized if it crosses budget
cycles.
◦ The best vendor might not be on approved
vendor lists.
◦ Less-qualified vendors might exert political
pressure to gain business.
◦ Providers in the service-delivery network, such
as county or private- sector providers of
service, might not be able to comply with
system requirements or might elect to develop
their own systems or refuse to cooperate with
this one.
◦ Systems might not be allowed to be created
because they are incompatible with centrally
mandated system architecture.
◦ Processes for hiring staff, contracting with
consultants, and purchasing software and
hardware might be slow and delay the project.

Those types of risks are particularly difficult to
manage, because they extend outside the
project and involve stakeholders with varied
interests and motivations.
Risk management strategies
 Risk reduction
 Risk transference
 Risk avoidance
 Risk acceptance
 Contingency plan
Risk reduction

involves reducing the risk in terms of either likelihood
or impact (or both).

For example, if a lack of experienced staff has been identified as a
potential risk then a likelihood reduction strategy could involve
recruiting more experienced staff incorporating a training
component or recruiting consultants. An impact reduction
strategy for the same problem could involve utilising more
experienced staff in a supervisory role or increasing the
anticipated completion time of project activities to take account
of this lack of experience.

The reduction strategy should be cost-effective in
terms of the potential cost which could have been
incurred by the unreduced risk.
Risk Transference
involves transferring the potential impact of a risk to
a third party. This can be in the form of insurance or
through subcontracting.
 The formulators must ensure that the subcontractor
is reliable and must also bear in mind that
transferring the risk in totality to the subcontractor
will come at a price.
 It may be better to enter into a contractual
agreement whereby potential risks are shared with
the subcontractor.

Risk avoidance

involve redefining the project to exclude
the risk area or, as an extreme measure,
cancelling implementation altogether if
the risks arc felt to be unacceptably high.
Risk acceptance
involves an acceptance that no action
needs to be taken at the present time.
There is then a need for constant
monitoring to identify any changes in the
situation which may then require action.
 This strategy is cost- effective but without
adequate monitoring it is a potentially
precarious course of action.

Contingency plan
 involves
identifying a range of alternative
options which should be rehearsed and
implemented when appropriate. For each
alternative the formulators must
scrutinize all potential costs and benefits.
BEST PRACTICES:
Best practices for managing risks for
public-sector projects can include:
 Adopt a proactive strategy with regard
to risk
 Engage as broad a group as possible in
risk identification and response planning
 Identify the risk tolerances of your
organization
 Keep
in mind that risk can be reduced but
not eliminated; be alert to secondary risks
 Create risk categories that include political
and media risks and the risk of failing to
deliver a product that will satisfy
customers
 Use risk analysis methods that fit the
project and the organization (i.e., methods
that are neither too rigorous nor too
informal)
 Put
the consideration of risk on the
agenda at every team meeting
 Assign responsibility for the management
of specific risks
 Build a plan for managing legal and
administrative constraints
 Include time and resources in the project
plan for the implementation of the plan
for managing legal and administrative
constraints
 The
selection of one or more of the
previous conditions largely depends on
the specific project situation (internal
and external context as well as the
organization's real possibility to confront
both of these contexts) and must be
based on a cost-benefit analysis that is as
quantitative as possible in reference to
the short, medium and long-term period.
Thank You!!
Project Organization and
Contract Administration
Forms of Project Organization
 Functional Organization
 Projectized Organization
 Matrix Organization
227
Functional structure:
Is a structure where authority rests with the
functional heads; the structure is sectioned by
departmental groups based on division of
work.
 Staff members are divided to groups (e.g.
financial, planning, public relations, engineering,
legal etc) according to their specialized
knowledge.
• Some of these groups can be further
subdivided into smaller functional groups.
•
228
229

The main advantage of this organizational
structure is that each functional group has
complete control over its segment of the
project, enforcing in this way the application
of standards across projects.
•
The disadvantages of the functional
organization are that of speed, flexibility
and communication when attempting cross
functional projects. Since in a functional
organization the work is divided between the
departments, any query or request must be
passed among department heads for approval,
causing in this way delays.
•
In addition, the responsibility of managing the
project is shared among the functional managers
(head of the departments) and this may cause
lack of ultimate responsibility for project
management.
Projectized Organization
Projectized organization is an organizational
structure that focuses on projects.
Projectized organizations derive their name
from the fact that they are built to do project
work.
 The project organization structure supports
the completion of project activities and
provides an adequate level of oversight, review
and contribution from necessary parties.

232

Project Managers are given both the authority,
and the responsibility, to manage virtually all
aspects of the project. They have the same
authority as functional managers, and project
team members are the project managers’
subordinates.
234

The main advantages of the projectized
organization are speed and flexibility. Since
the experts are concentrated within the team
and fully committed to the project, it is easier
to react to changing requirements and
complete the project on time. Responsibility
for the success of the project is clearly
identified and lies on the Project Manager.

The main disadvantage of the projectized
structure is the high resource costs, since the
organization often has to hire extra staff with
certain expertise in order to implement
different projects simultaneously. In addition
this type of structure burdens the
administrative overhead since there may be
periods where not all project teams are
occupied.
Matrix Organizations
 Matrix
organization is a blend of
functional and project organizations. It is
an attempt to combine functional and
project structures in order to take
advantage of the strengths of both
structures. In matrix organization, project
team members report to both a functional
manager and a project manager.
237

The most common form is that team
members have connected to project managers
by dotted lines and connected to their
functional managers by solid lines. Since team
members report to multiple managers, a clear
communications plan is essential.
239
The main advantage of the matrix organization
is that it retains the benefits of both
functional and projectized structures. It
also facilitates the effective resource allocation
to different projects.
 For these reasons, the matrix structure is
considered as the most effective structure
for implementing and managing projects and
therefore is widely used.


The main disadvantage of the matrix structure
is the potential for conflict between the
Project Manager and the functional manager
regarding the resource assignment, since the
functional manager has to staff multiple
projects with the same experts.
Contract Administration

A contract is an agreement enforceable
by law, and is made between two or more
parties.
 Contracting
is the process of
establishing a relation between the owner
and the contractors to execute the
project work
242
Contents of a contract
Name and address of both the parties,
 Subject of the agreement,
 Deadlines for the different stages of fulfillment of
the agreement,
 Financial aspects and other necessary conditions
such as violation of contract etc.

243
Approaches to contracting:
 Contracting total responsibility for one
contractor
 Dividing the project and contracting it to
suitable suppliers and contractors.
 Accomplish a portion of the work yourself
and contract out the balance to one or
more agencies.
244
A contracting schedule contains:
 The work code
 Work packages; volume of main
activities and budget estimate
 Starting and finishing dates and
 The names of people who prepared
the bid documents and awarded the
contract.
245
Contracting procedures:
Governments and different institiutions have
their own procedures with clear objectives
to acheive:
 To elicit competitive bids
 To provide equal opportunity and
equal treatment to all eligible
tenderers
 To accept the tender at the lowest
cost
246
Steps in contracting :
1.
Work packaging and scheduling

Specialized Activity Packages like
construction, civil engineering works,
painting etc.
Unit packages like administration building,
by - product plant, steel melting shop etc.
The starting and finishing time of each
individual package


247
2. Preparation of Tender Documents
 Instruction to tenderers
 Model Form of tender
 Drawings and specifications
 Schedule of Rates
 General conditions of contract
 Special conditions of contract
 Specimen of Bank guarantee
248
3. Determination of Contractor's Qualifications
World Bank's criteria :
Factors
Organization and Planning
Points
10
 Management Structure
 General Implementation programme
 Plans for subcontracting
 History of Default
249
Personnel
15
 Experience/ qualification of key personnel
 Adequacy of specialized staffing
Major plant and equipment
15
 Adequacy
 Age/condition
 Source of availability
250
Experience
30
 Technical references
 Value of completed contracts of similar type
 Average percent of work under subcontractor
Financial Condition
30
 Bank reference
 Average annual turnover
 Working capital
 Quick Ratio
 Value of contracts completed in last 5 years
251
4.Tender Invitation
 Sending equerry letters for short lists or
 Advertising openly
5.Tender submission
 Tender is usually submitted in sealed
envelops
 The required number of copies together with
documents will be submitted by tenderers on or
before the last date for submission
252
6.Tender Opening
 Tenders should be opened in the
presence of tenderers or their
authorized representatives unless
required
7. Evaluation and recommendation
 Costs, quality, quantity and other
technical specification
253
8. Award of contract
 Lowest price
 Negotation
9. Signing of Agreement with
detailed contract conditions.
254
Thank you!!
Project Team Building and
Conflict Management
Teamwork in projects

Projects are managed by people working
together as a team.
In a team,
 People depend on each other;
 May or may not work in the same physical
location,
 Combine to achieve something together
Team Building
The process of working with a team to
clarify its task and how team members
can work together to achieve it.
 A strategy that can help groups to
develop into a real team is “team building”

Key actions in Team Building
Setting and maintaining the teams objectives
and standards
 Involving the team as a whole in the
achievement of objectives
 Maintaining the unity of the team
 Communicating efficiently with the team
 Consulting the team – members before
taking any decisions

Nature of project team
The project team is usually a new, temporary
group with out previous experience of
working together.
 Complex projects require complex teams
with a set of work rules and norms.
 High degree of learning and interdependency
requires well functioning and cohesive teams.

Team building processes

Initial project team assembly
◦ introductions
◦ goal explained
◦ rough network proposed

Some issues debated
◦ who else should be on the team?
◦ without concern for budget restrictions, what
would each member contribute?
The group would construct an idealized
network (one they would implement if they
could do what they wanted)
 This would be done with the participation of
team members, giving them an opportunity to
know each other’s views.
 Involvement of people right from the goal
setting stage nurtures commitment &
continuity.

Iterate towards a realistic plan negotiations
with each other and the project team
 Here the practical constraints and limitations
would be brought up by the members from
their own areas of expertise and experience
 This is the participative process
 Continue the process of negotiation until a
feasible solution is found (operationally viable
and within the budget)
 This network becomes the initial project plan
with which project execution begins.

Aspects of Team Development
When people from different departments are
assembled for a project they form a
temporary social system and as it is new there
is no system of customs that indicate proper
behavior while working on that project.
 Each person brings him/her own set of
customs, beliefs and perceptions to the
project.

Operating culture
Group “mind”
 Common set of objectives and motives
 Explicit Vs implicit contract
 Heterogeneous group has no communality of
motives
 The initial project plan is the explicit contract
for the team. Working towards building that
network helps to develop the implicit contracts
which are necessary for a smooth working
team.

Group attributes
Members perceive themselves as in a group and
they know who is in the group and who is not.
 There is at least one objective that all the
members agree upon, although each individual
member may have a multitude of other
objectives.
 There is a need for interaction because of the
interdependencies of the people in the group as
they work towards the agreed upon objective.

Group performance
Studies indicate that heterogonous groups
tend to be more productive than homogenous
groups.
 A team is a heterogeneous group with
complementary rather than competing skills in
the members.
 It is a temporary alliance created for a
specific purpose or objective.

Key factors to successful performance of
a team – S.C.O.R.E
Strategy
Clear Roles and Responsibility
Open Communication
Rapid Response
Effective Leadership
Strategy:
 Shared
purpose
 Clearly articulated values and ground rules
 Understanding of risks and opportunities
facing the team
 Clear
categorization of the overall
responsibilities of the team
Clear Roles and Responsibilities:
 Clear
definition of roles and responsibilities
 Responsibility
 Specific
results
shared by all members
objectives to measure individual
 Open
communication:
 Respect
for individual differences
 Open communication environment among
team members
 Rapid
 Rapid
response:
response to the team’s problems
 Effective management to change in the
internal and external environment
•
Effective Leadership:
 Team
leader who is able to help members
achieve the objective and build the team
 Team leader who can draw out and free up
the skills of all team members, develop
individuals
“Coming together is a beginning
Keeping together is progress; and
Working together is success”
Stages in team building:
Forming-Provide clear direction to establish
the team’s purpose, setting goals, etc.,
 Storming
–Provide
strong,
hands-on
leadership to keep people talking and taskfocused
 Norming–Codes
of behavior becomes
established and an identifiable group culture
emerges. People begin to enjoy each other’s
company and appreciate each other’s
contributions.

274
Performing – Teams that reach this stage
achieve results easily and enjoyably. People
work together well and can improve systems,
solve problems and provide excellent
customer service.
 Adjourning – Temporary project team
reaches this stage; celebrate their team’s
achievements.

Leadership style
PM is more of the mgt of the team than
the management of the tasks.
 The team goes through various stages in
its development and maturity

Task relevant maturity levels
M1
M4
Less maturity level
Maximum maturity level
M1= group can not accomplish the task
without direct supervision
M4= group has matured to accomplish the
task with a minimum of supervision
Leadership style

S1 :Structuring:
◦ Organize and direct the work of others
◦ make each person accountable
◦ demonstrate

S2 : Coaching:
◦ tutoring
◦ Joint effort
◦ Role model
S3 : Encouraging:
◦ greater responsibility with doer
◦ recognize and praise good work
 S4 : Delegating:
◦ assign task responsibilities and let others
carry it out
◦ motivate by giving control and respect

Task relevant maturity level Vs
leadership style.
M1
S1 [ less matured
employees need structuring]
.
.
M4
S4 [ more matured
staff need delegation]
Conflict Management
Conflict is the contest between people with
opposing needs, ideas, beliefs, values, or goals.
Conflict can exist whenever two or more
people get together to complete their tasks and
responsibilities.
 It occurs within all organizations. It is an
important element of an organization’s
development, and can serve as a means to build
organizational capacity, and to generate creative
ideas.

281

Actually, conflict can have both positive and
negative outcomes. Conflict is positive
when it causes a broadening of ideas,
stimulates innovation and creativity, and
leads to improved results of a project.
Conflict can be negative when it leads to
tension, frustration, confusion, and less
quality and productivity of a project.
In general, all potential conflict fits one of three
categories:
◦ Goal-oriented conflicts are associated with end
results, performance specifications and criteria,
priorities, and objectives.
◦ Administrative conflicts refer to the management
structure and philosophy and are mainly based on
definition of roles and reporting relationships and on
responsibilities and authority for tasks, functions, and
decisions.
◦ Interpersonal conflicts result from differences in
work ethics, styles, egos, and personalities of the
participants.
283
Sources of Conflict and their Definitions
Sources of Conflict
Definitions
Conflict over Project Priorities View of project participants differ over sequence
of activities and tasks.
Conflict over Administration Managerial and administrative oriented conflicts
Procedures
over how the project will be managed
Conflict over Technical
Opinions and Performance
Trade- offs
Conflict over Human Power
Resources
Conflict over Cost
Conflict over Schedules
Personality Conflict
Disagreements over technical issues,
performance specifications, technical trade-offs.
Conflicts concerning staffing of project team
with personnel from other areas.
Conflict over cost estimates from support areas
regarding work breakdown structures.
Disagreements about the timing, sequencing,
and scheduling of project-related tasks.
Disagreements on interpersonal issues.
284


Effective conflict management involves analyzing a
conflict, understanding the dynamics between the
parties in conflict, and determining the
appropriate method of conflict resolution.
In the absence of confidence and skill in conflict
management, most public officials resort, often
counterproductively, to the use of power,
manipulation and control. Possessing confidence
and skill, one can effectively exercise the available
options for managing conflict.
285
Conflict Management Style
Style
Avoiding
Description
Retreats from an actual or potential
conflict situation
Smoothing
Emphasizes areas of agreement rather
than areas of difference
Compromising Searches for and bargains for solutions
that bring some degree of satisfaction
to all parties
Forcing
Pushes one’s viewpoint at the expense
of others; offers only win-lose
situations
Collaborating Incorporates multiple viewpoints and
insights from differing perspectives;
leads to consensus and commitment
Problem
Treats conflict as a problem to be
Solving
solved by examining alternatives;
requires give-and take attitude and
open dialogue
Effect
Does not solve the
problem
Provides only shortterm solution
Provides definitive
resolution
Hard feelings may
come back in other
forms
Provides long-term
resolution
Provides ultimate
resolution
286
Conflict can be healthy if it is managed
effectively. Conflict management requires a
combination of analytical and human skills.
 Every project participant should learn to
resolve project conflicts effectively. Good
conflict managers work at the source of
conflict.
 To resolve it permanently, they must address
the cause of the conflict and not just the
symptoms of it.

287
Thank You!!
Project Implementation
planning Tools
Activity Scheduling
Activities Schedule is the backbone of every
project and is essential for a successful
outcome.
 It gives all personnel involved in the project
common understanding of what is required,
how this will be achieved, when it will be
achieved and who will be responsible for the
successful outcome of each activity.

290
Activity Scheduling Involves:
Application of Work Breakdown
Structure in order to subdivide the major
project deliverables into smaller, more
manageable component based on the project
scope.
 Identification of the activities needed in
order to produce the project deliverables and
if necessary breaking down the activities into
more manageable tasks which can then be
assigned to individuals

Determination of activities’ sequence (i.e.
in what order should related activities be
undertaken?) and dependencies (i.e. is the
activity dependent on the start up or
completion of any other activity?)- Network
 Estimation of activities/ tasks duration
 Scheduling of activities by defining the start up
and completion dates of each activity/task.

Work Breakdown Structure (WBS)
It represents a systematic and logical
breakdown of the project into its component
parts.
 It is constructed by dividing the project in to
its major parts, with each of these being
further divided in to sub parts.
 This is continued till a breakdown is done in
terms of manageable units of work for
which responsibility can be defined.

293
Thus, the work breakdown structure helps in:
 Effective planning by dividing the work
in to manageable elements which can be
planned, budgeted and controlled.
 Assignment of responsibility for work
elements to project personnel and
outside agencies.
 Development of control and
information system.
294
Ways of doing WBS
Hardware orientation [identification of
basic work packages]
 Agency orientation [based on
assignment of responsibility to different
agencies]
 Functional oriented [e.g. deign,
procurement, construction and
commissioning]

Illustrative WBS for Construction Projects
Foundation
Layout
Exterior
Form
Frame
& install
window
s
Heating/air
conditioning
Finish
Electrical
Paint
Fixtures
Floor
covering
Clean up
Roof
Pour & Finish
Install siding
Interior
insulate
Dry wall
Painting
Doors & trim
Tools of Implementation
Planning
 Gantt or bar chart showing when
activities take place
 Project
network showing
activities, their dependencies and
their relation to the whole.
Bar or Gantt Chart
An illus trativ e Bar Chart
Activities
Time in weeks from project start
10
20
30
40
Design
Purchase of
parts
Fabrication
Assembly
298
 A Gantt chart is a graphical
representation of the duration of tasks
against the progression of time.
 A Gantt chart is a useful tool for planning,
scheduling and monitoring projects.
The advantages of the bar chart are:
 It is simple to understand
 It can be used to show progress
 It can be used for manpower planning
299
The disadvantages of the bar chart
are:
 It cannot show interrelationship
among activities on large , complex
projects;
 There may be a physical limit to the
size of the bar chart, which may limit
the size of the project; and
 It cannot easily cope with frequent
changes or updating.
300
Network Techniques

In this technique, the
 activities,
 events, and
 their relationships
are presented by a network diagram, also
called an arrow diagram.
301
Why Project Network?
It is a convenient way to show activities and
precedence in relation to the whole project.
 It is a basis of project planning:

◦ responsibility allocation
◦ definition of subcontracting units
◦ role of different players

It is the base for scheduling and establishment
of work time tables
•
Facilitate critical path determination for
management control
– deterministic Vs probabilistic activity times
•
Facilitates resource planning for projects
– Project crashing with time cost trade offs
– Resource aggregation
– Resource leveling
– Limited resource allocation
•
It can handle very large and complex projects
and it can be easily computerized and updated

Uses for project implementation
◦
◦
◦
◦
Time table for implementation
Monitoring and reporting progress
updation of schedules and resources
Coordination of work with different agencies
The project network is thus a common vehicle
for planning, communicating and implementing
the right from inception.
Drawbacks of network technique
 Being
more complicated than the
traditional bar chart it is not easily
understood by the project personnel,
and
 It does not define an operational
schedule which tells who does what
and when.
305
Basic Network terminologies
 An
activity is a task or a job that
takes time and resources
 It is represented in a network by an
arrow.
 The arrow doesn’t have any relationship
with a scale.

Example: Excavate the land, Dig foundations,
Lay foundations, Build a wall, etc.
306
In a network analysis, it is important
to establish:
 The activities involved in the project,
 Their logical relationship, ex.
Building a wall comes after laying the
foundation.
 An estimate of the time that an
activity is going to take
307

An event is a point in time and
indicates the start or finish of an activity
or activities, e.g. wall built, foundations
dug, etc.
 An event is represented in a network by
a circle.

The establishment of activities automatically
determines events because they are the start
and finish of activities.
308
 Dummy
activity: an activity that
does not consume time or
resources.
 It shows merely the dependencies
or proper relationship between
activities.
 A dotted arrow represents dummy.
309
Network: this is the combination of activities,
dummy activities and events in logical sequence
according to the rules of drawing networks.
Example:
310
Rules for drawing networks:
A complete network should have one point
of entry – a start event, and one point of exit
– a finish event.
 Each activity must have one preceding (tail)
event and one succeeding or head event.
Many activities may have the same tail event
and many may have the same head event.
 No activity can start until its tail event is
reached.

311
 An
event is not complete until all
activities leading in to it are complete.
 A series of activities which lead back to
the same event are not allowed.
 All activities must be tied in to the
network; all must contribute to the
progress of the project, danglers are
not allowed.
312
Activity Identification
Short description: example, Lay foundation,
erect frame, etc.
 Alphabetic or numeric code: example, A, B,
C, etc., or 100, 101, 108 etc.
 Using tail and head event numbers:
example, 1-2, 2-3, 3-4, 3-6, etc

313
Example 1: Organizing a one day seminar
Generate the list of jobs to be done:
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
Decide date, budget , venue for seminar
Identify speakers, participants
Contact and finalize speakers
Print seminar brochure
Mail brochures to tentative participants
Estimate number of participants
Decide menu for lunch, tea and coffee
Arrange for catering
Arrange projection facilities at venue
Receive guests at registration
Conduct seminar as per brochure
See off guests
Code
Activity
Predecessors
A
Decide date, budget , venue for seminar
-
B
Identify speakers, participants
-
C
Contact and finalize speakers
B
D
Print seminar brochure
E
Mail brochures to tentative participants
D
F
Estimate number of participants
E
G
Decide menu for lunch, tea and coffee
F
H
Arrange for catering
G
I
Arrange projection facilities at venue
F
J
Receive guests at registration
E
K
Conduct seminar as per brochure
L
See off guests
A, C
H, I, J
K
Network of A one day
seminar on PM
10
L
K
A
1
D
3
B
2
C
E
4
J
8
5
I
F
H
6
7
G
9
Example 2: Complex Construction
Project
A = Lay foundation
B = Erect framework
C = install millwork
D = install wiring
E = install plumbing
F = plaster walls
G = install siding
H = decorate the interior
I = finish the exterior
The interrelationship among these
activities is as follows:
 A should precede B
 B should precede C, D, E, F, and G
 C, D, E and F should precede H
 G should precede I
318
Network diagram of the project:
4
C
1
A
2
B
D
3
H
7
E
F
G
5
6
8
I
9
Activity Duration

Deterministic [as in CPM]
◦ When previous experience yields fairly accurate
estimates of activity duration, [e.g., construction
activity, market surveys]

Probabilistic [as in PERT]
◦ when there is uncertainty in times, as for instance
in R & D activities, new activities being carried out
for the first time.

Deterministic time estimate:
◦ A single time estimate is used for each activity. This
is taken from experts who have prior knowledge
and experience of the activity.

Probabilistic time estimate:
◦ Multiple time estimates -Three time estimates
[Optimistic, Most Likely and Pessimistic] are
commonly used for each activity based on the
consensus of the group.
O  4 ML  P
ExpectedTime
6
Critical path
Is the longest path in the network
 Lower bound on the project duration [the
shortest time in which the whole project can
be completed]
 Selective control for management of the
project
 Can be determined by:

◦ Enumeration of all paths in the network
◦ Event based computations [forward pass and
backward pass]
 There
may be two critical paths and the
critical path can pass through a dummy.
 The Critical path is determined by
selecting the chain of activities where
their ESTs are equal to their LSTs.
 The other activities with differences in
their ESTs and LSTs are non-critical
activities.
323

Earliest start time (EST): the earliest
possible time at which a succeeding activity
start. Calculating the EST is called the forward
pass.

Latest start times (LST): is the latest
possible time at which a preceding activity can
finish without increasing the project duration.
Notes on calculating LST (termed the
backward pass)
324
Example 1
2
B
D
2
1
0
•
4
3
4
5
A
C
E
F
1
3
1
2
The Critical paths of this project are A, B, D and F.
• The total duration of this project is 9 days.
• The non-critical paths are C and E.
325
Example
Activity
A
B
C
D
E
F
G
H
J
K
L
M
N
Preceding Activity
_
A
A
A
C
C
C
B, D
F, J
E, H, G, K
E, H
L, M
Activity durations (Weeks)
9
3
8
2
3
2
6
1
4
1
2
3
4
Required: Find the critical path and the duration for this project.
326
Answer
3
M (3)
7
E (3)
A (9)
8
N (4)
H (1)
1
L (2)
C (8)
G (6)
4
6
D (2)
B (3)
F (2)
2
K (1)
J (4)
5
Critical path : A, C, G, L and N
Project duration : 29 Weeks
327
Exercise 1
Activity
Predecessors
Duration (days)
A
B
C
D
E
F
G
H
I
A
A, B
D
D
C, E
C, E
F, G, H
2
3
1
4
5
8
6
4
3
Draw the network and find the critical path?
 Float: Float or spare time is associated
with non- critical activities. There are three
types of floats: total floats, free float and
independent float.
 Total float is the amount of time a path of
activities could be delayed with out affecting
the overall project durations.
 Total Float = Latest finish time – Earliest
Start time – Activity duration
 For example total float for activity C and E is
7-1-4 = 2 days.
329
 Free
float is the amount of time an
activity can be delayed without affecting
the commencement of a subsequent
activity at its earliest start time, but may
affect float of a previous activity.
 Free float = Earliest Finish TimeEarliest Start Time – Activity
Duration
 For example free float for activity E is 74-1 = 2 days
330

Independent Float is the amount of time an
activity can be delayed when all preceding
activities are completed as late as possible and all
succeeding activities completed as early as
possible. Independent float therefore does not
affect the float of either preceding or subsequent
activities.
 Independent
Float= Earliest Finish Timelatest Start Time-activity Duration

Example, Independent float for activity E is 7-6-1
= 0 days.
331
Activity
Duration E S T L S T
E F T
L F T
T
F
F
F
I F
A
1
0
0
1
1
-
-
-
B
2
1
1
3
3
-
-
-
C
3
1
1
4
6
2
-
-
D
4
3
3
7
7
-
-
-
E
1
4
6
7
7
2
2
-
F
2
7
7
9
9
-
-
-
332
Uncertain activity duration
[PERT]
 For
each activity in the project three
time estimates are obtained:
◦ Optimistic times, a
◦ Most likely time, m
◦ Pessimistic time, b
PERT time estimates
•
Mean of activity duration:
= (a + 4m + b)/6
• Variance of activity duration:
=( (b-a) /6 )2
• Standard deviation of activity
duration:
= sq. roots of variance = (b-a )/6
Basic PERT Procedure
Compute mean and variance of all jobs
 Conduct forward and backward pass on the
project network with expected times of all
activities
 Identify the critical path
 Obtain variance of critical path by adding
variance of activities.
 Obtain the distribution of the project duration


Make probability statements about the
project
◦ Chances of meeting the target date
◦ Probability of exceeding A given ceiling date
◦ Probability that the project duration is
confined to an interval of time.
◦ Z (standard normal deviate) = [xq]/SD
Multiple time estimate
1
3
C
A
D
F
0.5, 1, 1.5
2, 3.5, 4
5.6, 7, 15
3, 4.5, 5.4
2
0
4
E
B
4,5,6
5,6,8
337
Activity
Expected duration
a  4m  b 

ED



6


A
B
C
D
E
F
3.33
5.00
1.00
8.10
6.17
4.40
The critical path B, D and F
Project duration = 5+8.1+4.4 = 17.5
338
To calculate the probability that the project
can be completed within 19 days:
 Calculate the SD of each activity on the
b a
critical path using the formula:

6
– Activity B =
64
 0.33
6
– Activity D =
15  5.6
1.57
6
– Activity F =
5.4  3
0.4
6
339

Find the combined standard deviation of
all activities on the critical path.
0.33  1.57  0.4 1.65weeks
2

2
2
Find the number of standard deviations
that the scheduled date is away from the
expected duration.
19  17.5
 0.91
1.65
340
 Look
up this value in a table of areas
under the normal curve to find the
probability.
 In
this case the probability of achieving
the scheduled date of week 19 is 82%.
341
Exercise 2
Activity
A
B
C
D
E
F
G
H
I
Predecessors
A
A
A
B,C
D,F
D,F
E, H
a
2
4
6
2
6
9
8
4
4
Time estimates
m
4
6
6
8
8
3
16
4
8
b
8
10
6
14
12
15
20
4
10
Draw the network? Find the CP?
What is the probability of completing the project by 36 days?
What is the probability of finishing the project by 28 days?
Cost scheduling

The overall objective is to calculate
the cost of various project durations and
to find the cheapest way of reducing
the overall duration
343
Multiple Objectives
Project cost and time are undoubtedly the two
major objectives that project managers strive
to minimize and control
 Project performance ( in terms of both
quantum and quality of work done)needs to be
monitored and controlled
 There could be a number of attributes that
reflect project performance, time and cost.

Conflicting objectives:
Meeting a certain contracted date
 Minimizing the total project cost

◦ Direct activity cost
◦ Indirect activity cost
◦ Penalties for project delays
Ensuring that certain activities are not
crashed for quality reasons
 Confining the expenses to a fixed budget

With expenditure of additional resources it is
generally possible to accomplish the activity in
a shorter duration
 The minimum possible duration of the activity
is its crash duration, when its cost is the
highest.
 For technological reasons it is not possible to
shorten duration below the crash limit even
by spending more money or resources.

•
•
project schedules influence both the direct
costs of activities and indirect costs associated
with the project.
Activity direct costs:
– Costs associated with the performance of the
specific activity, such as:
•
•
•
•
•
•
cost of planning and design
raw materials procurement
Labor costs
Manufacturing or processing costs
Travel, communication and transportation
Consultation fees, etc
Project indirect costs

Overhead costs such as:
◦
◦
◦
◦
◦

managerial services
Indirect supplies
Equipment rentals
Allocation of fixed expenses
Site office maintenance
Indirect costs increase with the duration of
the project
 Project
cost comprises direct costs and
indirect project costs.
 As we shorten project duration, direct
costs increase whereas indirect
costs decrease.
 Therefore, there is optimal project
duration where the total project cost
becomes the minimum.
349
Project direct cost- time relationship
Normal cost: The costs associated with a
normal time estimate for an activity.
 Crash cost: they are caused by extra wages,
overtime premiums and extra facility costs.
 Crash time: the minimum possible time that
an activity is planned to take. Applying extra
resources usually brings this about.

350

Cost slope: this is the average cost of
shortening an activity by one time unit.
CrashCost NormalCost
CostSlope 
NormalTime  CrashTime

Least cost scheduling or crashing: The
process by which we can find the least cost
method of reducing the overall duration of a
project.
351
Heuristic solution procedure:
Start with the normal project duration
 Obtain the critical paths
 Choose that activity on the critical path
which is cheapest to crash
 Crash that activity till either another path
becomes critical or the activity is fully
crashed

Determine the most economical set of
activities to be crashed or relaxed to reduce
the durations all critical paths
 No further crashing is possible when at least
one critical path can not be reduced
 When two or more activities on any path are
simultaneously crashed, some previously
crashed activity on the path may be relaxed.

Example: Given the information below, find the maximum length of the
schedule and the minimum cost schedule when the indirect cost is
Birr70 per day.
Activity
A
B
C
D
E
F
Preceding
Activity
A
B
B
C, E
Time
Normal
Crash
4
2
8
6
2
1
10
5
5
1
3
1
Total Direct Cost
Cost
Normal
150
100
50
100
100
80
580
Crash
350
200
90
400
200
100
Slope *
100
50
40
60
25
10
* Average cost of shortening an activity by one time unit
354
2
4
13
C (2)
4
A (4)
F(3)
5
0
13
15
18
0
0
18
E (5)
3
B (8)
8
D (10)
8
The critical paths are B and D
Normal project duration is 18 days
355
Step 1: The first is to determine the
normal costs and normal durations of the
project.
 The critical paths are B and D
 Normal project duration is 18 days
 Direct Cost = Birr580
 Indirect cost = 70X18= 1260
Total project cost = Birr1840
356
Step 2: Reduce the least cost slope critical
activity B by two days
 The critical paths B and D (Not changed)
 Project duration 16 days
 Direct cost = normal cost + crush cost =
580+100 = 680
 Indirect Cost = 70X16 = 1120
 Total project cost = 1120 + 680 = 1800
357
Step 3: Since we have fully used the crash
time for B, now crash critical activity D by two
days
 Two Critical paths: the first is B and D;
and the second is B, E and F.
 Project duration 14 days
 Direct cost = Cost of step 2 + crash
cost = 680+(60*2=120) = 800
 Indirect Cost = 70X14 = 980
 Total project cost = 980 + 800 =
1780
358
Step 4: Three crashing days remain from activity D.
We select one either E or F with the least cost slope
to crash it together with activity D. Therefore, we
can crash two days of activity D and only two days of
Activity F.
 Two Critical paths: the first is B and D; and the second is
B, E and F.
 Project duration is 12 days
 Direct cost = Cost of step 3 + crash cost (crash cost of
D + Crash cost of F) = 800 + (60+10)*2 days = 940
 Indirect Cost = 70X12 = 840
 Total project cost = 940 + 840 =
1780
359
Step 5: We can further crash by one more day
activity D and E but not activity F
 Two Critical paths. The first is B and D; and
the second is B, E and F.
 Project duration is 11 days
 Direct cost = Cost of step 4 + crash cost
(crash cost of D + Crash cost of E) = 940
+ (60+25)*1 days = Birr1025
 Indirect Cost = 70X11 = 770
 Total project cost = 1025+ 770 = 1795.
360
 Conclusion: The
student should
note that the total project cost
starts to increase at step 5 when
compared to step 4. Then the
optimal solution for this project is
the values of step 6 as follows.
 Project duration = 12 days;Total
project cost = 1780
361
The activities and time estimate ( in weeks) for various activities
are illustrated below:
Activity





Preceding
Activity
Time Estimates
Optimistic
Most likely
Pessimistic
A
-
1
2
3
B
-
8
10
12
C
A
2
4
6
D
B
1
2
3
E
C,B
6
8
10
F
D
4
3
8
Draw the network diagram?
Determine the critical path
Calculate EST, LST, EFT and LFT of the activities on the critical
path?
Detriment the average estimated duration of the project?
What is the probability of finishing the project with in 20 weeks?
362

Given the following list of activities , precedence relationships,
normal and crash time and cost of a project, when the indirect
cost is birr 120 per day,
Activity
Preceding
activity
Time
Cost
Normal
Crash
Normal
Crash
A
_
6
4
500
620
B
_
4
2
300
390
C
A
7
6
650
680
D
A
3
2
400
450
E
B,C
5
3
850
1000
Calculate the cost slope?
 Draw the network diagram?
 Determine the project completion time?
 Determine the critical path?
 Construct a least cost schedule for the network (Crash it)?

363
Thank You !!
Project Monitoring,
Evaluation and Close out
Project Monitoring
Monitoring is an internal activity of project
management, the purpose of which is to
determine whether project activities
have been implemented as planned.
 It seeks to oversee whether resources are being
mobilized as intended and products are being
delivered on schedule.
 It involves the provision of regular feedback
on the progress of project implementation
and the problems faced during implementation.

366
 Monitoring
consists of operational and
administrative activities that track
resource acquisition and allocation,
delivery of services and cost records.
 It
helps to pinpoint problems requiring
corrective and timely action and it is also
important in the context of coping with
uncertainty in implementation.
367
Basis for Monitoring
Periodic reports
 Regular project management and staff
meetings
 Observations
 Field visits and inspection, etc.

368

All development projects are monitored to
find out and identify:
 specific problems as they arise for
corrective measures
 whether or not a project continues to be
relevant etc.

Monitoring is an integral part of
every project, from start to
finish.
369
Functions of Monitoring





Provides project managers and other stakeholders with
continuous feedback on implementation.
Identifies actual or potential successes and
problems as early as possible to facilitate timely
decision making and adjustments to project
operation
Provides useful information for project managers
focusing on the day-to-day management issues.
Aims at assisting the manager to keep the project
on track in accordance with the planned activities and
outputs.
Provides the kinds of information required by project
managers at each of the stages of a project.
370
If a project is to achieve its objectives against
time and budget, it will need to be carefully
monitored against the key dates and
milestones you have identified in the project
plan.
 There are three main domains of information
required in a monitoring system: input,
process and output

371
Inputs— resources going into conducting and
carrying out the project or program. These could
include staff, finance, materials, and time.
 Process— set of activities in which program
resources (human and financial) are used to achieve
the results expected from the program (e.g., number
of workshops or number of training sessions).
 Outputs— immediate results obtained by the
program through the execution of activities (e.g.,
number of commodities distributed, number of staff
trained, number of people reached, or number of
people served).

372
Monitoring addresses the following
questions:
• To what extent are planned activities actually
realized? Are we making progress toward
achieving our objectives?
• What services are provided, to whom, when,
how often, for how long, and in what context?
• How well are the services provided?
• What is the quality of the services provided?
• What is the cost per unit service?
373
Types of Monitoring Indicators: There are
four types of monitoring indicators, namely;
• Input indicators: describe what goes on in the
project
Example: number of bricks brought on site and
amount of money spent
• Output indicators: describe the project activity
Example: number of classrooms built
• Outcome indicators: describe the product of the
activity
Example: number of pupils attending the school
• Impact indicators: measure change in conditions of
the community
Example: reduced illiteracy in the community
374

The distinction between outcome and impact
is that outcome is short-term or
intermediate results obtained by the
program through the execution of activities;
whereas, impact is long-term effects (e.g.,
changes in health status).
375
The Steps of Project Monitoring
Setting standards: standards are set based on
cost, schedule, and performances.
 Monitoring progress: Monitoring is the
measurement through time that indicates the
movement toward the objective or away from it.
 Evaluating progress: Evaluation is the process
of comparing the actual cost, time and
performance information with the estimated
cost, time and performance set during the first
step of controlling.

376
 Taking
actions: based on the results of
the evaluation, there are three options of
decisions:
 Maintain The Existing
Performance.
 Modify The Standards.
 Increase Momentum
377
Project Evaluation
This is a process of determining systematically
and objectively the relevance, efficiency,
effectiveness and impact of the project in light
of its objectives.
 The comprehensive review, assessment and
critical analysis not only of the project results,
but also the initial assumptions underlying the
project elements including the relevance of
the problem statement.

378



Evaluation is an assessment that refers to design,
implementation and results of completed or on-going
projects.
Evaluation is not something that happens at the end
of a project. It is a process that begins when the
project begins with the development of goals and
objectives, and it continues throughout the life of
the project.
It is through the evaluation process that we learn
whether projects are meeting their goals and having
an impact on the beneficiaries.
379
The aim of the evaluation is to determine the
efficiency, effectiveness, impact, sustainability
and relevance of the project.
 Evaluation is the use of social research
methods to systematically investigate a
program’s effectiveness.

380

Evaluation:
 requires study design.
 sometimes requires a control or comparison
group.
 involves measurements over time.
 involves special studies.

Evaluation entails a systematic examination of a
planned, on going and/or completed project. It aims to
answer specific management questions, judge the
overall value of an endeavor, and supply lessons
learned to improve future actions, planning and
decision-making.
381

Project evaluation is usually carried out by
external consultants to examine the
successes of the project in relation to its
objectives. It is research based to determine
major problems that encountered through the
project cycle and provide lessons for future
projects.
382
Purpose of Evaluation
To identify the constraints or bottlenecks
that hinder the project in achieving its
objectives.
 To assess the benefits and costs that accrue
to the intended direct and indirect
beneficiaries of the project.
 To draw lessons from the project
implementation experience and using the
lessons in the planning of other projects in
that community and elsewhere.

383
To provide a clear picture of the
extent to which the intended objectives
of the activities and the project have been
realized.
 To provide feedback on project
outcomes and successes to the
community involved.

The Process of Evaluation

Evaluation can and should be done: before, during,
and after implementation.
a) Before project implementation, evaluation is
needed in order to:
 assess the possible consequences of the planned
project(s) to the people in the community over a
period of time;
 make a final decision on what project alternative
should be implemented; and
 assist in making decisions on how the project will
be implemented.
385
b) During project implementation:
Evaluation should be a continuous process
and should take place in all project
implementation activities. This enables the
project planners and implementers to
progressively review the project
strategies according to the changing
circumstances in order to attain the desired
activity and project objectives.
386
C) After project implementation: This is to retrace
the project planning and implementation
process, and results after project implementation.
This further helps in:
 identifying constraints or bottlenecks
inherent in the implementation phase;
 assessing the actual benefits and the number of
people who benefited;
 providing ideas on the strength of the project,
for replication; and
 providing a clear picture of the extent to which
the intended objectives of the project have been
realized.
387
Types of Evaluation
As mentioned earlier, project evaluation is the
assessment of the extent to which the
project has met its objectives (i.e. has been
effective, economical and efficient).
 There are two evaluation types: summative
and formative.

388

Formative Evaluation: Formative evaluation
is a method of judging the worth of a
project while the project activities are
happening. Formative evaluation assesses the
project as it is being put in place and during
its early operation. Formative evaluation
assesses current, ongoing project activities,
provides an internal process that compares
the planned project with the actual program,
and measures the progress made toward
meeting the project goals.
389

This evaluation type helps identify problems
threatening the project's viability, enabling
the project manager and planning group to
make mid-course corrections. Formative
evaluation focuses on the process. The
objectives of formative evaluation are:
 to find out the extent of program
implementation; and
 to determine improvements and adjustments
needed to attain the project objectives
390

Summative Evaluation: Summative evaluation
is a method of judging the worth of a program
at the end of the program activities. It is used
to access the projects success after the project
has ended and to make decisions about the
future of the project. Summative evaluation will
attempt to determine: the success of the
project, goals being met, participant satisfaction
and benefit, effectiveness, end results versus
cost, and whether the program should be
repeated or replicated. The focus of summative
evaluation is on the outcome .
391

Questions appropriate for a summative evaluation
include:
 was the project successful? What were the
strengths and weaknesses?
 to what extent did the project or program
meet the overall goal(s)?
 did participants benefit from the project? In
what ways?
 what components were most effective?
 were the results worth the costs?
 how will you share what you have learned?
392

The objectives of summative evaluation are
to find out the extent to which project
objectives are achieved; and to help you
decide whether a project activity or any of
its parts should be revised, continued, or
terminated. Finally, a close examination of
the formative and summative evaluation
results is necessary to understand the
successes and failures of the project
393
Evaluation plan
Outline how the quality of project
implementation, outputs and outcomes will be
evaluated
 Key elements of an evaluation plan:
– Evaluation questions
 for process evaluation: linked to the planning and
organization of the project activities
 for effect evaluation: linked to the specific
objectives in consultation with the
stakeholders

– Evaluation indicators
 Process indicators (progress)
 Performance indicators (outputs)
 Effect indicators (achievement of objectives)
– Evaluation targets
 numbers expected, level of quality aimed for, …to serve
as a standard to compare the process or results of the
project with

– Evaluation methods linked to the
indicators
Evaluation Indicators
Are variables which measure the performance
and progress of the work and the level to
which the objectives are reached
 Differentiate between:

- Performance indicators for process evaluation
- Outcome/output indicators for effect evaluation
Indicators should:
- be explicitly linked to the specific objectives: for

each specific objective, one or more indicators can be defined
- be either quantitative (e.g., numbers of
participants, numbers of users, …) or
qualitative (e.g., the appreciation of project
deliverables by external experts)
- ideally also specify target values (i.e.,
numbers to be achieved, level of quality aimed
for, …)
- be measurable: the way in which they will be
measured must be detailed in a evaluation plan
(e.g., document analysis, counting,
questionnaire, observation, …)
Practical issues on evaluation
 Outsourcing
evaluation?
– Pro’s: enhance the quality and objectivity of the
evaluation, add to the project status, take away the
practical burden of carrying out the evaluation
– Cons: reduces the ownership of the evaluation results,
may give rise to conflicts over priorities, and reduces
the opportunity to learn from the project
– Small-scale evaluations focusing on formative aspects
can mostly be undertaken by organizations
themselves
Budget
– Evaluation should be incorporated in the
project’s budget in a way that makes the
evaluation study realistic, manageable, efficient,
and productive
 Timing
– It is a common mistake to assume that
evaluation takes place at the end of a project.
– evaluation must be planned from the outset
and conducted throughout the project life
time

Dissemination

The process of making the results and
deliverables of a project available to the
stakeholders and to the wider audience
purpose: to raise awareness, inform, get
input/feedback from the community, and
ensure that the effects will be sustained after
the project
 Key elements
– Stakeholder analysis – an exercise in which
stakeholders are identified, listed, and assessed in term
of their interest in the project and importance for the
its success, dissemination and sustainability
– Dissemination strategy – explains how the
visibility of the project outputs and outcomes will be
maximized and shared with stakeholders, relevant
institutions, organizations, and individuals
– Exit/sustainability strategy – models and
scenarios outlining what should happen to the
project outputs at the end of the project, and to
explore how they can be sustained
Dissemination plan

Outline how the visibility and sustainability of the
project outputs and outcomes will be maximized.

Should include:
– What you plan to disseminate – the message
– To whom – the audience
– Why – the purpose
– When – the timing
– How – the method
 Publications
 Conferences and workshops
 Collaborative events
 Website
 sending e-mails, etc
Project Closure Phase

The last major phase of a project's life cycle
is project closeout. Project closeout is
performed once all defined project
objectives have been met and the customer
has accepted the project’s product. In this
phase, you will formally close your project
and then report its overall level of success
to your donor.
403
Project Closing
A successful project can be closed either by
extinction or by addition or by integration; whereas
an unsuccessful project can be terminated by
starvation.
 A project can be said to be closed successfully only
when it has a proper final report in place.
 A final report contains all the knowledge gained from
the processes of the project. Project final report
along with the project records is the best source to
gain experience from previous projects and improve
the way future projects are handled.

404
The main functions of the project closeout
process are:
to formalize project completion and disseminate
information to project participants;
 to assess the project and derive any lessons learned
and best practices to be applied to future projects;
and
 to verify that all work has been accomplished as
agreed and that the client or customer accepts the
final product.

405

The project manager must ensure that the
project is brought to its proper completion.
The closure phase is characterized by a written
formal project review report containing the
following components:
 completion and closeout of any contractual agreements
with suppliers or providers
 formalizing customer acceptance
 closeout of any financial matters
 preparation of the project’s final performance report
 conducting a project review
 documenting lessons learned
 completing, collecting and archiving project records
 Celebrating project success.
406


There are two processes that occur during
project closeout. These are contract closure
and administrative closure.
Contract closure involves checking the work
for completeness and accuracy and
documenting formal project acceptance. In
other words, contract closure involves
verification that all work has been completed
correctly and satisfactorily, updating of contract
records to reflect final results, and archiving
information for future use.
407
Among other activities contract closure
includes:
 Confirming the project has addressed the
terms and conditions of the contracts
 Confirming completion of exit criteria for
contract closure
 Formally closing out all contracts associated
with the completed project
408
Administrative closure involves gathering
and disseminating project closure
information to relevant parties, archiving
files, and documenting lessons learned.
Among other activities administrative
closure includes:
 confirming the project has met all sponsor,
customer, and stakeholder requirements
 verifying that all deliverables have been
delivered and accepted
 validating exit criteria have been met
409

A final project report contains a section on
performance of the project wherein the delivered
output is compared with the planned output, a
section on the performance or the administration of
the project, a section on the organizational structure
adopted and its implications on the performance of
the project and finally a section on the confidential
information to be reported to the top management
and the recommendations of the project manager on
ways of improving the processes.
410
Ensuring sustainability
Revisit the project outcomes, and consider the
changes the project will stimulate or enable
 Consider the take-up and embedding needed
to achieve the envisaged changes


Formulate an exit strategy, which outlines:
– Access – Who will host the deliverables after the project ends?
Will they be available on the project web site? Have other
arrangements for hosting been made?
– Preservation – Where will the deliverables be preserved?
– Maintenance – What supporting documentation will be needed
to maintain deliverables, e.g. user manuals, technical manuals?
Will any ongoing maintenance be needed and what will it
cost?
– Intellectual property – What IP rights need to be cleared to
make sure deliverables can be accessible to the teaching,
learning, and community after the project ends?

Consider deliverables or outputs that will be
sustainable in the long term
e.g., tools, guidelines, protocols, …that could be
used by other projects or that are useful for the
research community.

Develop sustainability scenarios for these
outputs
Think about who might carry them forward, how,
and the issues that will need to be addressed to
make these outputs self-sustaining.
Thank you!!
The End!!