Op Oper erati ations ons and and Pro Projec jects: ts: Operations are ongoing and repetitive activities conducted by the staff. Some of these include: Financi Financial al managem management ent and contro controll Cont Contin inuou uouss manuf manufac actu turi ring ng Prod Product uct dist distri ribu buti tion on Projects are temporary and unique, and are performed by teams that have: Clearl Clearly y defined defined team team and and indivi individual dual role roless Open Open and effec effecti tive ve communi communicat cation ion syste systems ms isibl isiblee re!ards for good performa performance, nce, and have constant constant pressure pressure to improve poor perform performance ance Common Characteristics bet!een operations and pro"ects are as follo!s: #hey are both both perfo performe rmed d by people people #hey are are const constrai rained ned by limi limited ted reso resourc urces es $oth $oth are plann planned, ed, e%ecut e%ecuted, ed, and and control controlled led
THE PROJECT MANAGEMENT SYSTEM
Categ Categori ories es of Proj Projec ects: ts:
Once a group of tas&s is selected and considered to be a pro"ect, the ne%t step is to define the &inds of pro"ect units. #here are four categories of pro"ects: Individa! #hese are sho short' rt'dur durati ation on pro"ec pro"ects ts normal normally ly assign assigned ed to a single single Individa! projects" #hese individual !ho may be acting as both a pro"ect manager and a functional manager. Sta## projects" projects" #hese are pro"ects that can be accomplished by one organi(ational unit, say a department. Specia! projects: ery often special pro"ects occur that require certain primary functions and)or authority to be assigned temporarily to other individuals or units. #his !or&s best for shor short' t'dur durat atio ion n pro" pro"ec ects ts.. *o *ong ng't 'ter erm m pro" pro"ect ectss can lead lead to seve severe re conf confli lict ctss under under this this arrangement. Matri$ or A%%re%ate large number of functional units A%%re%ate projects : #hese require input from a large and usually control vast resources. +ach of these categories of pro"ects can require different responsibilities, "ob descriptions, policies, and procedures. Pro"ect management may no! be defined as the process of achieving pro"ect ob"ectives through the traditional organi(ational struct structure ure and over the specia specialt lties ies of the indivi individual dualss concern concerned. ed. Pro"ect Pro"ect managem management ent is applicable for any ad hoc unique, one'time, one'of'a'&ind- underta&ing concerned !ith a specific end ob"ective. n order to complete a tas&, a pro"ect manager must:
Set Set ob" ob"ec ecti tive vess +sta +stabl blis ish h plan planss Orga Organi ni(e (e res resou ourc rces es Prov Provid idee sta staff ffin ing g Set Set up up con conttrol rols ssu ssuee dir direc ecti tive vess /oti /o tiva vate te per perso sonn nnel el 0pply 0pply innova innovati tion on for alter alternat native ive actio actions ns 1ema 1emain in fle% fle%ib ible le
#he type of pro"ect !ill often dictate !hich of these functions a pro"ect manager !ill be required to perform. Infor Informal mal Proj Project ect Manag Managem emen ent: t: Companies today are managing pro"ects more on an informal basis than on a formal one. nformal pro"ect management does have some degree of formality but emphasi(es managing the pro"ect !ith a minimum amount of paper!or&. 0 reasonable amount of formality still e%ists. Furthermore, informal pro"ect management is based upon guidelines rather than the policies and procedures that are a re the basis for formal pro"ect management. #his !as sho!n previously to be a charact characteri eristi sticc of a goo good d pro"ect pro"ect managem management ent method methodolo ology gy.. nform nformal al pro"ec pro"ectt managem management ent mandates:
+ffe +ffect ctiv ivee comm communi unica cati tion onss +ffe +ffect ctiv ivee coo cooper perat atio ion n +ff +ffecti ective ve team team!o !or& r& #rust
#hese four elements are absolutely essential for informal pro"ect management to !or& effectively. Or Orga ganiz nizat ation ional al Struc Structur tures es::
2uring the past thirty years there has been a so'called hidden revolution in the introduction and devel develop opme ment nt of ne! orga organi ni(a (ati tion onal al stru struct ctur ures es.. /ana /anagem gement ent has has come come to real reali( i(ee that that organi(ations must be dynamic in nature3 that is, they must be capable of rapid restructuring, if environmental conditions so dictate. #hese environmental factors evolved from the increasing competitiveness of the mar&et, changes in technology, and a requirement for better control of resources for multiproduct firms. /ore than thirty years ago, 4allace identified four ma"or factors that caused the onset of the organi(ational revolution: #he technology technology revolution revolution comple%ity comple%ity and and variety of products products,, ne! materials materials and processes, processes, and the effects of massive research-. Competition Competition and the the profit squee(e squee(e saturat saturated ed mar&ets, mar&ets, inflation inflation of !age and material material costs, costs, and production efficiency-. #h #hee high high cos costt of mar& mar&et etin ing. g. #h #hee unpr unpred edic icta tabi bili lity ty of consu consume merr deman demands ds due due to high high incom income, e, !ide !ide range range of choic choices es available, and shifting tastes-.
/uch has been !ritten about ho! to identify and interpret those signs that indicate that a ne! organi(ational form may be necessary. 0ccording to 5rinnell and 0pple, there are five general indications that the traditional structure may not be adequ ate for managing pro"ects: /anagem /anagement ent is satis satisfie fied d !ith !ith its technic technical al s&ills, s&ills, but pro"ects pro"ects are not meetin meeting g time, time, cost, and other pro"ect requirements. #here #here is a high commitme commitment nt to getting getting pro"ect pro"ect !or& done, done, but great great fluctua fluctuatio tions ns in ho! !ell performance specifications are met. 6ighly talent talented ed specialist specialistss involved involved in the pro"ect pro"ect feel feel e%ploited e%ploited and misuse misused. d. Parti Particu cula larr tech techni nica call group groupss or indi indivi vidu dual alss cons consta tant ntly ly blam blamee each each othe otherr for for fail failur uree to meet meet specifications or delivery dates. Pro"ects Pro"ects are on time and to specificat specifications, ions, but groups groups and individual individualss are not satisfied satisfied !ith !ith the achievement.
Figure 4.7: Functional Organi(ation
Figure 4.: Pro"ect Organi(ation
Figure 4.!: 4ea& /atri% Organi(ation
Organi(ation Figure 4."#: $alanced /atri% Organi(ation
Figure 4."": Strong /atri% Organi(ation
Figure 4."$: Composite Organi(ation
7nfortunately 7nfortunately,, many companies companies do not reali(e the necessity necessity for organi(ati organi(ational onal change until it is too late. /anagement continually loo&s e%ternally i.e., to the environment- rather than internally for solutions to problems. 0 typical e%ample !ould be that ne! product costs are continually rising !hile the product life cycle may be decreasing. Should emphasis be placed on lo!ering costs or developing ne! products8 For each each of the organi( organi(ati ational onal struct structure uress descri described bed in the follo! follo!ing ing sectio sections, ns, advanta advantages ges and disadva disadvanta ntages ges are listed listed.. /any of the disadv disadvanta antages ges stem stem from from pos possib sible le confli conflicts cts arisi arising ng from from
problems in authority, responsibility, and accountability. #he reader should identify these conflicts as such. %raditional &Classical' Organization: #he traditional management structure has survived for more than t!o centuries. 6o!ever, recent business developments, such as the rapid rate of change in technology and position in the mar&etplace, as !ell as increased stoc&holder demands, have created strains on e%isting organi(ational forms. Fifty years ago companies could survive !ith only one or perhaps t!o product lines. #he classical management organi(ation !as found to be satisfactory for control, and conflicts !ere at a minimum. 6o!ever, !ith the passing of time, companies found that survival depended on multiple product lines that is diversification- and vigorous integration of technology into the e%isting organi(ation. 0s organi(ations gre! and matured, managers found that company activities !ere not being integrated effectively, and that ne! conflicts !ere arising in the !ell'established formal and informal channels. /anagers began searching for more innovative organi(ational forms that !ould alleviate the integration and conflict problems. #he advantages and disadvantages of this type of organi(ations are listed in tables 9. and 9.; respectively.
%a(le 4.": 0dvantages of the traditional)classical organi(ation
%a(le 4.$: 2isadvantages of the traditional)classical organi(ation
)ine*Staff Organization &Project Coordinator':
t soon became obvious that control of a pro"ect must be given to personnel !hose first loyalty is directed to!ard the completion of the pro"ect. For this purpose, the pro"ect management position must be separated from any controlling influence of the functional managers. #!o possible situations can e%ist !ith this form of lineot only does he assign !or&, but he also conducts merit revie!s. $ecause each individual reports to only one person, strong communication channels develop that result in a very rapid reaction time.
n pure product organi(ations, long lead times became a thing of the past. #rade'off studies could be conducted as fast as time !ould permit !ithout the need to loo& at the impact on other pro"ects unless, of course, identical facilities or equipment !ere required-. Functional managers !ere able to maintain qualified staffs for ne! product development !ithout sharing personnel !ith other programs and pro"ects. #he responsibilities attributed to the pro"ect manager !ere entirely ne!. First of all, his authority !as no! granted by the vice president and general manager. #he program manager handled all conflicts, both those !ithin his organi(ation and those involving other pro"ects. nterface management !as conducted at the program manager level. 7pper'level management !as no! able to spend more time on e%ecutive decision ma&ing than on conflict arbitration. 0dvantages and disadvantages of Pro"ecti(ed organi(ations are listed in tables 9.? and 9.9 respectively. +d,antages of a projectized organization
%a(le 4.4: &2isadvantages of the Pro"ecti(ed organi(ation
Matri- Organizational Form: #he matri% organi(ational form is an attempt to combine the advantages of the pure functional structure and the product organi(ational structure. #his form is ideally suited for companies, such as construction, that are =pro"ect'driven.= +ach pro"ect manager reports directly to the vice president and general manager. Since each pro"ect represents a potential profit center, the po!er and authority used by the pro"ect manager come directly from the general manager. #he pro"ect manager has total responsibility and accountability for pro"ect success.
#he functional departments, on the other hand, have functional responsibility to maintain technical e%cellence on the pro"ect. +ach functional unit is headed by a department manager !hose prime responsibility is to ensure that a unified technical base is maintained and that all available information can be e%changed for each pro"ect. 2epartment managers must also &eep their people a!are of the latest technical accomplishments in the industry. Pro"ect management is a =coordinative= function, !hereas matri% management is a collaborative function division of pro"ect management. n the coordinative or pro"ect organi(ation, !or& is generally assigned to specific people or units !ho =do their o!n thing.= n the collaborative or matri% organi(ation, information sharing may be mandatory, and several people may be required for the same piece of !or&. n a pro"ect organi(ation, authority for decision ma&ing and direction rests !ith the pro"ect leader, !hereas in a matri% it rests !ith the team. Certain ground rules e%ist for matri% development. #hese are: . ;. ?. 9. @. A. B.
Participants must spend full time on the pro"ect3 this ensures a degree of loyalty. 6ori(ontal as !ell as vertical channels must e%ist for ma&ing commitments. #here must be quic& and effective methods for conflict resolution. #here must be good communication channels and free access bet!een managers. 0ll managers must have input into the planning process. $oth hori(ontally and vertically oriented managers must be !illing to negotiate for resources. #he hori(ontal line must be permitted to operate as a separate entity e%cept for administrative purposes.
#hese ground rules simply state some of the ideal conditions that matri% structures should possess. +ach ground rule brings !ith it advantages and disadvantages that are described in tables 9.@ and 9.A respectively.
%a(le 4.: 0dvantages of the /atri% organi(ation
%a(le 4./: 0isad,antages of t1e Matri- organization 4..4." Modification of Matri- Structures: #he matri% structure can ta&e many forms, but there are basically three common varieties. +ach type represents a different degree of authority attributed to the program manager and indirectly identifies the relative si(e of the company. #his type of arrangement !or&s best for small companies that have a minimum number of pro"ects and assume that the general manager has sufficient time to coordinate activities bet!een his pro"ect managers. n this type of arrangement, all conflicts bet!een pro"ects are hierarchically referred to the general manager for resolution.
0s companies gre! in si(e and the number of pro"ects, the general manager found it increasingly difficult to act as the focal point for all pro"ects. 0 ne! position !as created, that of director of programs, or manager of programs or pro"ects. #he director of programs !as responsible for all program management. #his freed the general manager from the daily routine of having to monitor all programs himself. #he desired span of control, of course, !ill vary from company to company and must ta&e the follo!ing into account: #he demands imposed on the organi(ation by tas& comple%ity 0vailable technology #he e%ternal environment #he needs of the organi(ational membership #he types of customers and)or products #hese variables influence the internal functioning of the company. +%ecutives must reali(e that there is no one best !ay to organi(e under all conditions. #his includes the span of control. Selecting t1e Organizational Form:
Pro"ect management has matured as an outgro!th of the need to develop and produce comple% and)or large pro"ects in the shortest possible time, !ithin anticipated cost, !ith required reliability and performance, and !hen applicable- to reali(e a profit. 5ranted that modern organi(ations have become so comple% that traditional organi(ational structures and relationships no longer allo! for effective management, ho! can e%ecutives determine !hich organi(ational form is best, especially since some pro"ects last for only a fe! !ee&s or months !hile others may ta&e years8 #o ans!er such a question, !e must first determine !hether the necessary characteristics e%ist to !arrant a pro"ect management organi(ational form. 5enerally spea&ing, the pro"ect management approach can be effectively applied to a one'time underta&ing that is:
2efinable in terms of a specific goal nfrequent, unique, or unfamiliar to the present organi(ation Comple% !ith respect to interdependence of detailed tas&s Critical to the company
Once a group of tas&s is selected and considered to be a pro"ect, the ne%t step is to define the &inds of pro"ects. #hese include individual, staff, special, and matri% or aggregate pro"ects.
7nfortunately, many companies do not have a clear definition of !hat a pro"ect is. 0s a result, large pro"ect teams are often constructed for small pro"ects !hen they could be handled more quic&ly and effectively by some other structural form. 0ll structural forms have their advantages and disadvantages, but the pro"ect management approach appears to be the best possible alternative. #he basic factors that influence the selection of a pro"ect organi(ational form are: . Pro"ect si(e ;. Pro"ect length ?. +%perience !ith pro"ect management organi(ation 9. Philosophy and visibility of upper'level management @. Pro"ect location A. 0vailable resources B. 7nique aspects of the pro"ect
P2O3C% )IF C5C) #he theoretical definitions of the life cycle phases of a system can be applied to a pro"ect. #hese phases include:
. ;. ?. 9. @.
Conceptual Planning #esting mplementation Closure
Conceptual P1ase: #he first phase, the conceptual phase, includes the preliminary evaluation of an idea. /ost important in this phase is a preliminary analysis of ris& and the resulting impact on the time, cost, and performance requirements, together !ith the potential impact on company resources. #he conceptual phase also includes a =first cut= at the feasibility of the effort. Planning P1ase: #he second phase is the planning phase. t is mainly a refinement of the elements described under the conceptual phase. #he planning phase requires a firm identification of the resources to be required together !ith the establishment of realistic time, cost, and performance parameters. #his phase also includes the initial preparation of all documentation necessary to support the system. For a pro"ect based on competitive bidding, the conceptual phase !ould include the decision of !hether to bid, and the planning phase !ould include the development of the total bid pac&age i.e., time, schedule, cost, and performance-.
Figure .$: System Costs
S6stem Costs: $ecause of the amount of estimating involved, analy(ing system costs during the conceptual and planning phases is not an easy tas&. 0s sho!n in Figure @.;, most pro"ect or system costs can be bro&en
do!n into operating recurring- and implementation nonrecurring- categories. #he implementation costs include one'time e%penses such as construction of a ne! facility, purchasing computer hard!are, or detailed planning. Operating costs, on the other hand, include recurring e%penses such as manpo!er. #he operating costs may be reduced as sho!n in Figure @.;, if personnel perform at a higher position on the learning curve. #he identification of a learning curve position is vitally important during the planning phase !hen firm cost positions must be established. Of course, it is not al!ays possible to &no! !hat individuals !ill be available or ho! soon they can perform at a higher learning curve position.
Figure .: Cost $enefit 0nalysis
Cost 8enefit +nal6sis:
Once the appro%imate total cost of the pro"ect is determined, a cost'benefit analysis should be conducted see Figure @.?- to determine if the estimated value of the information obtained from the system e%ceeds the cost of obtaining the information. #his analysis is often included as part of a feasibility study.#here are several situations, such as in competitive bidding, !here the feasibility study is actually the conceptual and definition phases. $ecause of the costs that can be incurred during these t!o phases, top' management approval is almost al!ays necessary before the initiation of such a feasibility study.
Figure .4: 0 Stream of Pro"ects
%esting P1ase:
#he third phase testing is predominantly a testing and final standardi(ation effort so that operations can begin. 0lmost all documentation must be completed in this phase. Implementation P1ase: #he fourth phase is the implementation phase, !hich integrates the pro"ectDs product or services into the e%isting organi(ation. f the pro"ect !as developed for establishment of a mar&etable product, then this phase could include the product life cycle phases of mar&et introduction, gro!th, maturity, and a portion of deterioration. Closure P1ase: #he final phase is closure and includes the reallocation of resources. #he question to be ans!ered is, =4here the resources should be reassigned8= Consider a company that sells products on the open consumer mar&et. 0s one product begins, the deterioration and death phases of its life cycle i.e., the divestment phase of a system-, then ne! products or pro"ects must be established. Such a company !ould, therefore, require a continuous stream of pro"ects as a necessity for survival, as sho!n in Figure @.9. 0s pro"ects 0 and $ begin their decline, ne! efforts pro"ect C- must be developed for resource reallocation. n the ideal situation these ne! pro"ects !ill be established at such a rate that total revenue !ill increase and company gro!th !ill be clearly visible.
#he closure phase evaluates the efforts on the total system and serves as input to the conceptual phases for ne! pro"ects and systems. #his final phase also has an impact on other ongoing pro"ects !ith regard to priority identification. C1aracteristics of Project )ife C6cle:
Pro"ect life cycle defines phases that connect beginning and end of the pro"ect. 0fter each phase deliverables are revie!ed for the completeness in time, accuracy according to defined ob"ectives and their final approval approval for acceptance- before moving to the ne%t phase. 0s sho!n in the diagrams in the beginning, phases can be overlapped to save time and to have fast trac&ing on the life cycle. #his technique is used to compress the !hole schedule if required resources are available or manageable#here is no !ay to define Pro"ect *ife Cycle ideally. $ecause of this every pro"ect management team can define its o!n !ay to !or& on the pro"ect. #hey can use best common practices and can learn ne! !ays of dealing pro"ects by their e%periences in detail or in general. Only three phases are al!ays certain to be performed3 conceptuali(ation, intermediate phases-, and closure. . a. b. c. d.
Cost and staffing level is defined for every single phase. 5enerally phases are defined in sequential order by technical information officer Pro"ect may have sub'pro"ects- and sub'pro"ects may have their o!n pro"ect life cycle. n the beginning of the pro"ect, level of uncertainty and ris& is al!ays high.
e. #he typical pro"ect life cycle < initiating, implementing and closing < has critical decision points !here the pro"ect may continue, be changed, or be abandoned.
f. #here are many points !ithin the pro"ect life cycle !here Community of Professionals (COPs) may provide support and guidance. For e%ample, initiating the pro"ect involves such activities as identifying the pro"ect team members, defining the scope and business ob"ectives of the pro"ect and identifying &ey sta&eholders. g. 2uring pro"ect close, reassignment and intelligent preservation of resources, &no!ledge pro"ects i.e. deliverables-, and sharing lessons learned are facilitated. Project Management Office: #he Pro"ect /anagement Office sets pro"ect standards and oversees the organi(ationEs portfolio of pro"ects. #his allo!s the organi(ation to evaluate the use of resources across all pro"ects and resolve conflicts that affect pro"ect timelines. #he Pro"ect /anagement Office is also a very good place to e%amine ho! communities are lin&ed across pro"ects. 7sing the communities as the lin&age point for &no!ledge transfer is far more efficient for the follo!ing several reasons:
n communities, the evaluation of &no!ledge is generally done by a broader range of people, ensuring that the ideas are more completely vetted.
Communities generally e%ist outside the pro"ect frame!or& and trust is already established.
#hey can be used as opposed to setting up more formal structures and methods to get the required information transferred to the pro"ect.
n communities, &no!ledge is transferred from e%pert to recipient. #his includes tacit &no!ledge transfer as !ell as e%plicit &no!ledge transfer. #his is a much more efficient transfer mechanism than is normally used. 5enerally, documents !ould be transferred from pro"ect to pro"ect !ith minimal e%pert &no!ledge available to add value.
Community transfer shares the &no!ledge broadly, strengthening the entire organi(ation for future pro"ects.
0s mentioned earlier, Pro"ect /anagement Office and top management are responsible for the periodic revie! of ma"or pro"ects. #his should be accomplished, at a minimum, at the completion of each life cycle phase.
Project Management Officer &PMO':
Pro"ect /anagement Officer P/O- centrali(es and coordinates management of pro"ect under his domain, and oversees management of pro"ect and product system)program- both. Pro"ect /anagement Officer may not be directly related to the pro"ect at spot. 6e)she focuses on coordination planning, prioriti(ation of all resources and deliverables of pro"ects and sub pro"ects. t is the responsibility of Pro"ect /anagement Officer to &eep top management and clients)parents organi(ation connected and informed about all pro"ects running or product life cycle. 6e)she is involved in selection, management and re'deployment of shared pro"ects as much as authori(ed. Pro"ect /anagement Officer is generally responsible for: a. Providing monitoring platform for Pro"ect /anager.
b. dentifying the Pro"ect /anagement /ethodology and best practices for specific pro"ect. c. Clearing house, i.e. defining and refining pro"ect policies, procedures, templates and shared documents. d. Configuration management for all pro"ects under !or&. e. For developing and &eeping repository and ris& management for pro"ects. f. 2eveloping Pro"ect /anagement Office for operation and maintaining tools for pro"ect management. >ormally it includes +nterprise 4ide Pro"ect /anagement Soft!are creation and installation. g. /anagement and coordination and monitoring of communications across the pro"ects, pro"ect timelines and budget, quality standards. h. Pro"ect /anagement Officer may be having authority to terminate pro"ect anytime !hen he gets it not feasible anymore. 0ifference 8et9een Project Manager and Project Management Officer:
. $oth have different ob"ectives ' driven by different requirements, aligned !ith strategic needs of organi(ation. ;. Pro"ect /anager is responsible for delivering specific pro"ect ob"ectives !ithin pro"ect constraints, !hile Pro"ect /anagement Officer is responsible for organi(ational structure specific mandates having much vast perspective. ?. Pro"ect /anager focuses on pro"ect ob"ectives, !hile Pro"ect /anagement Officer focuses on ma"or programs, scope and changes required and authenticated. Pro"ect /anagement Officer considers all potential opportunities to have business goals achieved. 9. Pro"ect /anager is constrained !ith assigned resources for specific pro"ect to meet its full ob"ective. On the other hand, Pro"ect /anagement Officer is supposed to optimi(e the use of shared organi(ational resources across all pro"ects overall. @. Pro"ect /anager manages scope, schedule, cost, and quality of product, !hile the Pro"ect /anagement Officer manages overall ris&, opportunities, interdependencies and lin&s among different pro"ects.
Pro"ect /anager reports on pro"ect progress)pro"ect specific information to the top management, !hile Pro"ect /anagement Officer provides consolidated reporting)enterprise vie! of pro"ect or all the running pro"ects. % P2O3C% M+;+<2
S=ill 2e>uirements for Project Managers:
Pro"ects are often comple% and multifaceted. /anaging these pro"ects represents a challenge, requiring s&ills in team building, leadership, conflict resolution, technical e%pertise, planning, organi(ation, entrepreneurship, administration, management support, and the allocation of resources. #his section e%amines these s&ills relative to Pro"ect /anagement effectiveness. 0 &ey factor to good pro"ect performance is the Pro"ect /anagerDs ability to integrate personnel from many disciplines into an effective !or& team. #o get results, the Pro"ect /anager must relate to: a. b. c. d. e.
#he people to be managed #he tas& to be done #he tools available #he organi(ational structure #he organi(ational environment, including the customer community
0ll !or& factors are interrelated and operate under the limited control of the Pro"ect /anager. 4ith an understanding of the interaction of corporate organi(ation and behavior elements, the manager can build an environment conducive to the !or&ing teamDs needs. #he internal and e%ternal forces that impinge on the organi(ation of the pro"ect must be reconciled to mutual goals. #hus, the Pro"ect /anager must be, both socially and technically a!are to understand ho! the organi(ation functions and ho! these functions !ill affect the Pro"ect organi(ation of the particular "ob to be done. n addition, the Pro"ect /anager must understand the culture and value system of the organi(ation he is !or&ing !ith. 1esearch and e%perience sho! that effective Pro"ect /anagement performance is directly related to the level of proficiency at !hich these s&ills are mastered. #en specific s&ills are identified in no particular order- and discussed in this section:
Team building Leadership Conflict resolution Technical expertise Planning Organization ntrepreneurship !dministration "anagement support #esource allocation
t is important that the personal management traits underlying these s&ills operate to form a homogeneous management style. #he right mi%ture of s&ill levels depends on the pro"ect tas&, the techniques employed, the people assigned, and the organi(ational structure. #o be effective, Pro"ect /anagers must consider all facets of getting the "ob done. #heir management style must facilitate the integration of multidisciplinary pro"ect resources for synergistic operations. #he days of the manager !ho gets by !ith technical e%pertise alone or pure administrative s&ills are gone. #he ten specific s&ills required in a good Pro"ect /anager can be discussed as follo!s: & Team 'i!din% S(i!!s"
$uilding the pro"ect team is one of the prime responsibilities of the Pro"ect /anager. #eam building involves a !hole spectrum of management s&ills required to identify, commit, and integrate the various tas& groups from the traditional functional organi(ation into a single Pro"ect /anagement system. #o be effective, the Pro"ect /anager must provide an atmosphere conducive to team!or&. 6e must nurture a climate !ith the follo!ing ch aracteristics: a. b. c. d. e. f. g. h.
o o o
#eam members committed to the pro"ect 5ood interpersonal relations and team spirit #he necessary e%pertise and resources Clearly defined goals and pro"ect ob"ectives nvolved and supportive top management 5ood pro"ect leadership Open communication among team members and support organi(ations 0 lo! degree of detrimental interpersonal and inter'group conflict #hree ma"or considerations are involved in all of the above factors aimed to!ards integration of people from many disciplines into an effective team: +ffective communication Sincere interest in the professional gro!th of team members Commitment to the pro"ect
)eadership S(i!!s"
0n absolutely essential prerequisite for pro"ect success is the Pro"ect /anagerDs ability to lead the team !ithin a relatively unstructured environment. t involves dealing effectively !ith managers and supporting personnel across functional lines !ith little or no formal authority. t also involves information processing s&ills, the ability to collect and filter relevant data valid for decision ma&ing in a dynamic environment. t involves the ability to integrate individual demands, requirements, and limitations into decisions that benefit overall pro"ect performance. t further involves the Pro"ect /anagerDs ability to resolve inter'group conflicts that is an important factor in overall pro"ect performance. Perhaps more than in any other position belo! the general managerDs level, quality leadership depends heavily on the Pro"ect /anagerDs personal e%perience and credibility !ithin the organi(ation. 0n effective management style might be characteri(ed this !ay:
Clear pro"ect leadership and direction 0ssistance in problem solving Facilitating the integration of ne! members into the team 0bility to handle interpersonal conflict Facilitating group decisions
Capability to plan and elicit commitments 0bility to communicate clearly Presentation of the team to higher management 0bility to balance technical solutions against economic and human factors #he
personal traits desirable and supportive of the above s&ills are:
Pro"ect management e%perience Fle%ibility and change orientation nnovative thin&ing nitiative and enthusiasm Charisma and persuasiveness Organi(ation and discipline
Con#!ict Reso!tion S(i!!s"
Conflict is fundamental to comple% tas& management. t is often determined by the interplay of the Pro"ect organi(ation and the larger host organi(ation and its multifunctional components. 7nderstanding the determinants of conflicts is important to the Pro"ect /anagerDs ability to deal !ith conflicts effectively. 4hen conflict becomes dysfunctional, it often results in poor pro"ect decision ma&ing, lengthy delays over issues, and a disruption of the teamDs efforts, all negative influences to pro"ect performance. 6o!ever, conflict can be beneficial !hen it produces involvement and ne! information and enhances the competitive spirit. 0 number of suggestions have been derived from various research studies aimed at increasing the Pro"ect /anagerDs ability to resolve conflict and thus, improve overall pro"ect performance. Pro"ect managers must: a. 7nderstand interaction of the organi(ational and behavioral elements in order to build an environment conducive to their teamDs motivational needs. #his !ill enhance active participation and minimi(e unproductive conflict. b. Communicate effectively !ith all organi(ational levels regarding both pro"ect ob"ectives and decisions. 1egularly scheduled status revie! meetings can be an important communication vehicle. c. 1ecogni(e the determinants of conflict and their timing in the pro"ect life cycle. d. +ffective pro"ect planning, contingency planning, securing of commitments, and involving top management can help to avoid or minimi(e many conflicts before they impede pro"ect performance. #he value of the conflict produced depends on the ability of the Pro"ect /anager to promote beneficial conflict !hile minimi(ing its potential ha(ardous consequences. #he accomplished manager needs a =si%th sense= to indicate !hen conflict is desirable, !hat &ind of conflict !ill be useful, and ho! much conflict is optimal for a given situation. n the final analysis, he has the sole responsibility for his Pro"ect and ho! conflict !ill contribute to its success or failure. Technica! S(i!!s" #he Pro"ect /anager rarely has all the technical, administrative, and mar&eting e%pertise needed to direct the Pro"ect single'handedly. >or is it necessary or desirable. t is essential, ho!ever, for the Pro"ect /anager to understand the technology, the mar&ets, and the environment of the business to participate effectively in the search for integrated solutions and technological innovations. /ore important, !ithout this understanding, the integrated
consequences of local decisions on the total Pro"ect, the potential gro!th ramifications, and relationships to other business opportunities cannot be foreseen by the manager. Further technical e%pertise is necessary to evaluate technical concepts and solutions, to communicate effectively in technical terms !ith the pro"ect team, and to assess ris&s and ma&e trade'offs bet!een cost, schedule, and technical issues. #his is !hy in comple% problem'solving situations so many pro"ect managers must have an engineering bac&ground. #a&en together, technical e%pertise is important to the successful management of engineering pro"ects. t is composed of an understanding of the: a. b. c. d. e. f. g.
#echnology involved +ngineering tools and techniques employed Specific mar&ets, their customers, and requirements Product applications #echnological trends and evolutions 1elationship among supporting technologies People !ho are part of the technical community
#his is normally an e%cellent testing ground for the future Pro"ect /anager. t also allo!s top management to "udge the ne! candidateDs capacity for managing the technological innovations and integration of solutions needed for success. P!annin% S(i!!s"
Planning s&ills are helpful for any underta&ing3 they are absolutely essential, ho!ever, for the successful management of large comple% pro"ects. #he pro"ect plan is the road map that defines ho! to get from the start to the final results. Pro"ect planning is an ongoing activity at all organi(ational levels. 6o!ever, the preparation of a pro"ect summary plan, prior to pro"ect start, is the responsibility of the Pro"ect /anager. +ffective pro"ect planning requires particular s&ills far beyond !riting a document !ith schedules and budgets. t requires communication and information processing s&ills to define the actual resource requirements and administrative support necessary. t requires the ability to negotiate the necessary resources and commitments from &ey personnel in various support organi(ations !ith little or no formal authority, including the definition of measurable milestones. +ffective planning requires s&ills in the areas of: a. nformation processing b. Communication c. 1esource negotiations d. Securing commitments e. ncremental and modular planning f. 0ssuring measurable milestones g. Facilitating top management involvement n addition, the Pro"ect /anager must assure that the plan remains a viable document. Changes in pro"ect scope and depth are inevitable. #he plan should reflect necessary changes through formal revisions and should be the guiding document throughout the life cycle of the Pro"ect. >othing is more useless than an obsolete or irrelevant plan. Finally, Pro"ect /anagers need to be a!are that planning can be overdone. f not controlled, planning can become an end in itself and a poor substitute for innovative !or&. ndividuals retreat to the utopia of no responsibility !here innovative actions cannot be ta&en DDbecause it is
not in the plan.= t is the responsibility of the Pro"ect /anager to build fle%ibility into the plan and regulate it against such misuse. Or%ani*ationa! S(i!!s"
#he Pro"ect /anager must be a social architect, that is, he must understand ho! the organi(ation !or&s and ho! to !or& !ith the organi(ation. Organi(ational s&ills are particularly important during pro"ect formation and startup !hen the Pro"ect /anager establishes the pro"ect organi(ation by integrating people from many different disciplines into an effective !or& team. t requires far more than simply constructing a pro"ect organi(ation chart. 0t a minimum, it requires defining the reporting relationships, responsibilities, lines of control, and information needs. Supporting s&ills in the area of planning, communication, and conflict resolution are particularly helpful. 0 good pro"ect plan and a tas& matri% are useful organi(ational tools. n addition, the organi(ational effort is facilitated by clearly defined pro"ect ob"ectives, open communication channels, good pro"ect leadership, and senior management support. Entrepreneria! S(i!!s"
#he Pro"ect /anager also needs a general management perspective. For e%ample, economic considerations are one important area that normally affects the organi(ationDs financial performance. 6o!ever, ob"ectives often are much broader than profits. Customer satisfaction, future gro!th, cultivation of related mar&et activities, and minimum organi(ational disruptions of other pro"ects might be equally important goals. #he effective Pro"ect /anager is concerned !ith all these issues. +ntrepreneurial s&ills are developed through actual e%perience. 6o!ever, formal training /$0 type-, special seminars, and cross'functional training pro"ects can help to develop the entrepreneurial s&ills needed by Pro"ect /anagers. Administrative S(i!!s"
0dministrative s&ills are essential. #he Pro"ect /anager must be e%perienced in planning, staffing, budgeting, scheduling, and other control techniques. n dealing !ith technical personnel, the problem is seldom to ma&e people understand administrative techniques such as budgeting and scheduling, but to impress on them that costs and schedules are "ust as important as elegant technical solutions. Particularly on larger pro"ects, managers rarely have all the administrative s&ills required. 4hile it is important that Pro"ect /anagers understand the companyDs operating procedures and available tools, it is often necessary for the program manager to free him)her from administrative details regardless of his)her ability to handle them. 6e)she has to delegate considerable administrative tas&s to support groups or hire a pro"ect administrator. Some helpful tools for the manager in the administration of his pro"ect include: a. #he meeting b. #he report c. #he revie! d. #he budget and schedule controls Pro"ect /anagers must be thoroughly familiar !ith these available tools and &no! ho! to use them effectively. Mana%ement Spport 'i!din% S(i!!s"
#he Pro"ect /anager is surrounded by a myriad of organi(ations that either support them or control their activities. 0n understanding of these interfaces is important to Pro"ect /anagers as it enhances their ability to build favorable relationships !ith senior management. /anagement support is often an absolute necessity for dealing effectively !ith interface groups. Pro"ect organi(ations are shared po!er systems !ith personnel of many diverse interests and =!ays of doing things.= #hese po!er systems have a tendency to!ard imbalance. Only a strong leader bac&ed by senior management can prevent the development of unfavorable biases. Four &ey variables influence the pro"ect managerDs ability to create favorable relationships !ith senior management. #hese are: a. b. c. d.
#heir ongoing credibility #he visibility of their pro"ect #he priority of the pro"ect relative to other organi(ational underta&ings #heir o!n accessibility
0ll these factors are interrelated and can be developed by the individual manager. Furthermore, senior management can aid such development significantly. Resorce A!!ocation S(i!!s"
0 pro"ect organi(ation has many bosses. Functional lines often shield support organi(ations from direct financial control by the pro"ect office. Once a tas& has been authori(ed, it is often impossible to control the personnel assignments, priorities, and indirect manpo!er costs. n addition, profit accountability is difficult o!ing to the interdependencies of various support departments and the often changing !or& scope and contents. +ffective and detailed pro"ect planning may facilitate commitment and reinforce control. Part of the plan is the =Statement of 4or&,= !hich establishes a basis for resource allocation. t is also important to !or& out specific agreements !ith all &ey contributors and their superiors on the tas&s to be performed and the associated budgets and schedules. /easurable milestones are not only important for hard!are components, but also for the =invisible= pro"ect components such as systems and soft!are tas&s. deally, these commitments on specifications, schedules, and budgets should be established through involvement by &ey personnel in the early phases of pro"ect formation, such as the proposal phase. #his is the time !hen requirements are still fle%ible, and trade'offs among performance, schedule, and budget parameters are possible. Manager ,ersus Project Manager: 0ssuming that the Pro"ect and Functional /anagers is not the same person, !e can identify a specific role for the Functional /anager. #here are the follo!ing elements to this role: #he Functional /anager has the responsibility to define ho$ the tas& !ill be done and $here the tas& !ill be done i.e., the technical criteria-. #he Functional /anager has the responsibility to provide sufficient resources to accomplish the ob"ective !ithin the pro"ectDs constraints i.e., $ho !ill get the "ob done-. #he Functional /anager has the responsibility for the deliverable. #he ma"or responsibility of the Pro"ect /anager is planning. f pro"ect planning is performed correctly, then it is conceivable that the Pro"ect /anager !ill !or& himself out of a "ob because the pro"ect can run itself. 0s the architect of the pro"ect plan, the Pro"ect /anager must provide: o o
Complete tas& definitions 1esource requirement definitions possibly s&ill levels-
o
/a"or timetable milestones 2efinition of end item quality and reliability requirements
o
#he basis for performance measurement .
o
#hese factors, if properly established, result in: a. 0ssurance that functional units !ill understand their total responsibilities to!ard achieving pro"ect needs. b. 0ssurance that problems resulting from scheduling and allocation of critical resources are &no!n beforehand. c. +arly identification of problems that may "eopardi(e successful pro"ect completion so that effective corrective action and re'planning can be done to prevent or resolve the problems. Pro"ect /anager are responsible for pro"ect administration and, therefore, must have the right to establish their o!n policies, procedures, rules, guidelines, and directives < provided these policies, guidelines etc. conform to overall company policy. Companies !ith mature pro"ect management structures usually have rather loose company guidelines, so pro"ect managers have some degree of fle%ibility in ho! to control their pro"ects. Selecting t1e Project Manager: Probably the most difficult decision facing upper level management is the selection of Pro"ect /anager. Some /anagers !or& best on long'duration pro"ects !here decision ma&ing can be slo!3 others may thrive on short'duration pro"ects that can result in a constant pressure environment.
0 Pro"ect /anager is given license to cut across several organi(ational lines. 6is activities, therefore, ta&e on a flavor of general management, and must be done !ell. Pro"ect management !ill not succeed !ithout good Pro"ect /anagers. #hus, if general management sees fit to establish a pro"ect, it should certainly see fit to select a good man as its leader. 0 Pro"ect /anager is far more li&ely to accomplish desired goals if it is obvious that general management has selected and appointed him. #he selection process for Pro"ect /anager is not an easy one. Five basic questions must be considered: a. b. c. d. e.
4hat are the internal and e%ternal sources8 6o! do !e select8 6o! do !e provide career development in pro"ect management8 6o! can !e develop pro"ect management s&ills8 6o! do !e evaluate pro"ect management performance8
Pro"ect management cannot succeed unless a good Pro"ect /anager is at the controls. #he selection process is an upper level management responsibility because the Pro"ect /anager is delegated the authority of the general manager to cut across organi(ational lines in order to accomplish the desired ob"ectives successfully 0uties and 3o( 0escriptions: Since pro"ects, environments, and organi(ations differ from company to company as !ell as pro"ect to pro"ect, it is not unusual for companies to struggle to provide reasonable "ob descriptions of the Pro"ect /anager and associated personnel. $elo! is a simple list identifying the duties of a pro"ect manager in the construction industry.
Planning:
a. b. c. d. e. f. g.
$ecome completely familiar !ith all contract documents. 2evelop the basic plan for e%ecuting and controlling the pro"ect. 2irect the preparation of pro"ect procedures. 2irect the preparation of the pro"ect budget. 2irect the preparation of the pro"ect schedule. 2irect the preparation of basic pro"ect design criteria and general specifications. 2irect the preparation of the plan for organi(ing, e%ecuting, and controlling field construction activities. h. 1evie! plans and procedures periodically and institute changes if necessary.
Organizing:
a. 2evelop organi(ation chart for pro"ect. b. 1evie! pro"ect position descriptions, outlining duties, responsibilities, and restrictions for &ey pro"ect supervisors. c. Participate in the selection of &ey pro"ect supervisors. d. 2evelop pro"ect manpo!er requirements. e. Continually revie! pro"ect organi(ation and recommend changes in organi(ational structure and personnel, if necessary. 0irecting:
a. 2irect all !or& on the pro"ect that is required to meet contract obligations. b. 2evelop and maintain a system for decision ma&ing !ithin the pro"ect team !hereby decisions are made at the proper level. c. Promote the gro!th of &ey pro"ect supervisors. d. +stablish ob"ectives for Pro"ect /anager and performance goals for &ey Pro"ect Supervisors. e. Foster and develop a spirit of pro"ect team effort. f. 0ssist in resolution of differences or problems bet!een departments or groups on assigned pro"ects. g. 0nticipate and avoid or minimi(e potential problems by maintaining current &no!ledge of overall pro"ect status. Controlling:
a. /onitor pro"ect activities for compliance !ith company purpose and philosophy and general corporate policies. b. nterpret, communicate, and require compliance !ith the contract, the approved plan, pro"ect procedures, and directives of the client. c. /aintain personal control of adherence to contract !arranty and guarantee provisions. d. Closely monitor pro"ect activities for conformity to contract scope provisions. +stablish change notice procedure to evaluate and communicate scope changes. e. /aintain effective communications !ith the client and all groups performing pro"ect !or&.
P2O3C% CO;CP%IO; +;0 P2O3C% F+SI8I)I%5
Project Conception:
Conception of an ndustrial Pro"ect is the initial step in the process of defining the actual scope of a pro"ect. Pro"ect conception generally starts !ith a manifestation of a requirement or an opportunity that !ill benefit the corporate interests, and culminates !hen one or more preliminary options have been formulated !hich !ill, theoretically, satisfy the companyEs e%pectations as originally presented. #he process presented here although illustrated by an industrial pro"ect has features directly translatable to conceptual evolution in many diverse applications. #he fact that the pro"ect in question has been deferred is not uncharacteristic of the fate of many programs during the conceptual phase. Stages of Project Conception:
nitial conceptuali(ation of a pro"ect has various degrees of comple%ity, depending on the nature of the specific pro"ect and the particular analysis and approval procedures used by a company. #he companyEs planning strategy may require formulations of programs involving several pro"ects. Conception of the overall program should then precede conception of the individual specific pro"ects. #he conceptual stage involves the follo!ing activities: . 2efinition of a requirement or an opportunity that commands the interests of the company. ;. Formulation of a set of preliminary alternatives capable of fulfilling the initial requirement. ?. Selection of alternatives- that might satisfy the requirements in terms and conditions attractive to the company. 0 brief description of each of these activities in a specific situation and in an organi(ed environment follo!s: 0efinition of t1e 2e>uirement of Opportunit6:
#he continuity of efficient operations and the opening of the ne! business areas are the main drives for capital investments for industrial firms. nvestment opportunities are detected through operational analysis of current performance and by forecasts of the most li&ely future scenarios. nitially, the scope of any ne! investment is li&ely to be vague. Subsequent definition involves consideration of all available relevant facts, required resource sand constraints associated !ith the original idea.
Figure .": Project Initiation
Preliminar6 Formulation of t1e +lternati,es:
Pro"ect conception continues !ith development of alternatives capable of fulfilling the e%pressed ob"ectives. #he preliminary formulation of alternatives is important as it sets the pace of the subsequent definition and elaboration of the pro"ect scope. 2uring this phase, the company calls upon the e%perience and creativity of its technicians, manager and directors to generate an adequate group of alternatives to fulfill the e%pressed need. Initial Selection of +lternati,es:
0fter the alternatives have been identified, comparative analyses are made in order to select the most beneficial and to re"ect the least attractive. #he selection process employs a basic feasibility analysis of each alternative the establishment of criteria that !ill allo! the identification of the most attractive options. 0t this point, further consideration of the re"ected alternative is terminated along !ith the need to prepare elaborate definitions for them. #he cost, schedule, profitability, and other salient advantages and disadvantages of each of the selected alternatives are assessed in terms of order of magnitude. 2ifference among the options is sought still !ithout establishing precise pro"ect parameters.
Feasi(ilit6 +nal6sis:
0 feasibility study is an analytical tool used during the pro"ect planning process, sho!s ho! a business !ould operate under an e%plicitly stated set of assumptions. #hese assumptions include the technology used the facilities, types of equipment, manufacturing process, etc.and the financial aspects of the pro"ect capital needs, volume, cost of goods, !ages etc.0s the name implies, a feasibility study is an analysis of the viability of an idea. #he feasibility study focuses on helping ans!er the essential question of should !e proceed !ith the proposed pro"ect idea8G 0ll activities of the study are directed to!ard helping ans!er this question. Feasibility studies can be used in many !ays but primarily focus on proposed business ventures. Farmers and others !ith a business idea should conduct a feasibility study to determine the viability of their idea before proceeding !ith the development of the business. 2etermining early on that a business idea !ill not !or& saves time, money and heartache later. 0 feasible business venture is one !here the business !ill generate adequate cash flo! and profits, !ithstand the ris&s it !ill encounter, remain viable in the long'term and meet the goals of the founders. #he venture can be a ne! start'up business, the purchase of an e%isting business, an e%pansion of current business operations or a ne! enterprise for an e%isting business. nformation file, a feasibility study outline is provided to give guidance on ho! to proceed !ith the study and !hat to include. 0lso, information file, ho! to use and !hen to do a feasibility study helps through the process and also to get the most out of the study. 0 feasibility study is usually conducted after producers have discussed a series of business ideas or scenarios. #he feasibility study helps to frameG and flesh'outG specific business alternatives so they can be studied in'depth. 2uring this process the number of business alternatives under consideration is usually quic&ly reduced. 2uring the feasibility process you may investigate a variety of !ays of organi(ing the business and positioning your product in the mar&etplace. t is li&e an e%ploratory "ourney and you may ta&e several paths before you reach your destination. Hust because the initial analysis is negative does not mean that the proposal does not have merit if organi(ed in a different fashion or if there are mar&et conditions that need to change for the idea to be viable. Sometimes limitations or fla!s in the proposal can be corrected. 0 pre'feasibility study may be conducted first to help sort out relevant alternatives. $efore proceeding !ith a full'blo!n feasibility study, you may !ant to do some pre'feasibility analysis of your o!n. f you find out early on that the proposed business idea is not feasible, it !ill save you time and money. 0 mar&et assessment may be conducted to help determine the viability of a proposed product in the mar&etplace. #he mar&et assessment !ill help you identify opportunities in a mar&et or mar&et segment. f no opportunities are found, there may be no reason to proceed !ith a feasibility study. f opportunities are found, the mar&et assessment can give focus and direction to the construction of business alternatives to investigate in the feasibility study. 0 mar&et assessment !ill provide much of the information for the mar&eting section of the feasibility study. #he conclusions of the feasibility study should outline in depth the various alternatives e%amined and the implications and strengths and !ea&nesses of each. #he pro"ect leaders need to study the feasibility study and challenge its underlying assumptions. #his is the time to be s&eptical. #he feasibility study provides an investigating function. t addresses the question of s this a viable business venture8G #he business plan provides a planning function. #he business plan outlines the actions needed to ta&e the proposal from ideaG to reality.G
#he feasibility study outlines and analy(es several alternatives or methods of achieving business success. So, the feasibility study helps to narro! the scope of the pro"ect to identify the best business model. #he business plan deals !ith only one alternative or model. #he feasibility study helps to narro! the scope of the pro"ect to identify and define t!o or three scenarios or alternatives. #he consultant conducting the feasibility study may !or& !ith the group to identify the bestG alternative for their situation. #his becomes the basis for the business plan. #he feasibility study is conducted before the business plan. 0 business plan is prepared only after the business venture has been deemed to be feasible. f a proposed business venture is considered to be feasible, then a business plan constructed that provides a roadmapG of ho! the business !ill be created and developed. #he business plan provides the blueprintG for pro"ect implementation. f the venture is deemed not to be feasible, efforts may be made to correct its deficiencies, other alternatives may be e%plored, or the idea is dropped. Pro"ect leaders may find themselves under pressure to s&ip the feasibility analysisG step and go directly to building a business. ndividuals from !ithin and outside of the pro"ect may push to s&ip this step. 1easons given for not doing feasibility analysis include: 4e &no! it is feasible. 0n e%isting business is already doing it. 4hy do another feasibility study !hen one !as done "ust a fe! years ago8 Feasibility studies are "ust a !ay for consultants to ma&e money. #he feasibility analysis has already been done by the business that is going to sell us the equipment. 4hy not "ust hire a general manager !ho can do the study8 Feasibility studies are a !aste of time. 4e need to buy the building, tie up the site and bid on the equipment. %6pes of Feasi(ilit6:
Feasibility is of the follo!ing types: %ec1nical Feasi(ilit6: #his area revie!s the engineering feasibility of the pro"ect, including structural, civil and other relevant engineering aspects necessitated by the pro"ect design. #he technical capabilities of the personnel as !ell as the capability of the pro"ected technologies to be used in the pro"ect are considered. n some instances, particularly !hen pro"ects are in third !orld countries, technology transfer bet!een geographical areas and cultures needs to be analy(ed to understand productivity loss or gain- and other implications due to differences in topography, geography, fuels availability, infrastructure support and other issues. Managerial Feasi(ilit6: 2emonstrated management capability and availability, employee involvement, and commitment are &ey elements required to ascertain managerial feasibility. #his addresses the management and organi(ational structure of the pro"ect, ensuring that the proponentEs structure is as described in the submittal and is !ell suited to the type of operation underta&en. conomic Feasi(ilit6: #his involves the feasibility of the proposed pro"ect to generate economic benefits. 0 benefit'cost analysis addressing a problem or need in the manner proposed by the pro"ect compared to other, the cost of other approaches to the same or similar problem- is required. 0 brea&even analysis !hen appropriate is also a required aspect of evaluating the economic feasibility of a pro"ect. #his addresses fi%ed and variable costs and utili(ation)sales forecasts-. #he tangible and intangible aspects of a pro"ect should be translated into economic terms to facilitate a consistent basis for evaluation. +ven !hen a pro"ect is non'profit in nature, economic feasibility is critical Financial Feasi(ilit6:
Financial feasibility should be distinguished from economic feasibility. Financial feasibility involves the capability of the pro"ect organi(ation to raise the appropriate funds needed to implement the proposed pro"ect. n many instances, pro"ect proponents choose to have additional investors or other sources of funds for their pro"ects. n these cases, the feasibility, soundness, sources and applications of these pro"ect funds can be an obstacle. 0s appropriate, loan availability, credit !orthiness, equity, and loan schedule still be revie!ed as aspects of financial feasibility analysis. 0lso included in this area are the revie! of implications of land purchases, leases and other estates in land. Cultural Feasi(ilit6: Cultural feasibility deals !ith the compatibility of the proposed pro"ect !ith the cultural environment of the pro"ect. n labor'intensive pro"ects, planned functions must be integrated !ith the local cultural practices and beliefs. For e%ample, religious beliefs may influence !hat an individual is !illing to do or not do. Social Feasi(ilit6: Social feasibility addresses the influences that a proposed pro"ect may have on the social system in the pro"ect environment. #he ambient social structure may be such that certain categories of !or&ers may be in short supply or none%istent. #he effect of the pro"ect on the social status of the pro"ect participants must be assessed to ensure compatibility. t should be recogni(ed that !or&ers in certain industries may have certain status symbols !ithin the society. Safet6 Feasi(ilit6: Safety feasibility is another important aspect that should be considered in pro"ect planning. Safety feasibility refers to an analysis of !hether the pro"ect is capable of being implemented and operated safely !ith minimal adverse effects on the environment. 7nfortunately, environmental impact assessment is often not adequately addressed in comple% pro"ects. Political Feasi(ilit6: Political considerations often dictate directions for a proposed pro"ect. #his is particularly true for large pro"ects !ith significant visibility that may have significant government inputs and political implications. For e%ample, political necessity may be a source of support for a pro"ect regardless of the pro"ectDs merits. On the other hand, !orthy pro"ects may face insurmountable opposition simply because of political factors. Political feasibility analysis requires an evaluation of the compatibility of pro"ect goals !ith the prevailing goals of the political system. n,ironmental Feasi(ilit6: Often a &iller of pro"ects through long, dra!n'out approval processes and outright active opposition by those claiming environmental concerns. #his is an aspect !orthy of real attention in the very early stages of a pro"ect. Concern must be sho!n and action must be ta&en to address any and all environmental concerns raised or anticipated. #his component also addresses the ability of the pro"ect to timely obtain and at a reasonable cost, needed permits, licenses and approvals. Mar=et Feasi(ilit6: #his area should not be confused !ith the +conomic Feasibility. #he mar&et needs analysis to vie! the potential impacts of mar&et demand, competitive activities, etc. and mar&et share available. Possible competitive activities by competitors, !hether local, regional, national or international, must also be analy(ed for early contingency funding and impacts on operating costs during the start'up, ramp'up, and commercial start'up phases of the pro"ect. %angi(le and Intangi(le 8enefits:
+stimating benefits and costs in a timely manner is very difficult. $enefits are often defined as: #angible benefits for !hich money may be reasonably quantified and measured. o ntangible benefits that may be quantified in units other than money or may be o identified and described sub"ectively.
Costs are significantly more difficult to quantify, at least in a timely and ine%pensive manner. #he minimum costs that must be determined are those that specifically are used for comparison to the benefits. #hese include: . #he current operating costs or the cost of operating in todayDs circumstances. ;. Future period costs that are e%pected and can be planned for. ?. ntangible costs that may be difficult to quantify. #hese costs are often omitted if quantification !ould contribute little to the decision'ma&ing process. 0 feasibility study is essentially a process for determining the viability of a proposed initiative or service and providing a frame!or& and direction for its development and delivery. t is a process for ma&ing sound decisions and setting direction. t is also a process !hich: a. s driven by research and analysis b. 7sually involves some form of consultation !ith sta&eholders, community, users, etc. c. Focuses on analy(ing, clarifying and resolving &ey issues and areas of concern or uncertainty d. ery often involves basic modeling and testing of alternative concepts and approaches #here is no universal format for a feasibility study. Feasibility studies can be adapted and shaped to meet the specific needs of any given situation. 0 feasibility study is designed to provide an overvie! of the primary issues related to a business idea. #he purpose is to identify any ma&e or brea&G issues that !ould prevent your business from being successful in the mar&etplace. n other !ords, a feasibility study determines !hether the business idea ma&es sense. 0 feasibility study loo&s at three ma"or areas: o o o
/ar&et issues Organi(ational)technical issues Financial issues
0gain, this is meant to be a first cutG loo& at these issues. For e%ample, a feasibility study should not do in'depth long'term financial pro"ections, but it should do a basic brea&'even analysis to see ho! much revenue !ould be necessary to meet your operating e%penses. 2easons for conducting feasi(ilit6 studies
2eveloping any ne! business venture is difficult. #a&ing a pro"ect from the initial idea through the operational stage is a comple% and time'consuming effort. /ost ideas, !hether from a cooperative or an investor o!ned business, do not develop into business operations. f these ideas ma&e it to the operational stage, most fail !ithin the first A months. $efore the potential members invest in a proposed business pro"ect, they must determine if it can be economically viable and then decide if investment advantages out!eigh the ris&s involved. 5eneral requirements and potential benefits of conducting feasibility study include: a. 2eveloping any ne! business venture is difficult. b. #a&ing a pro"ect from initiation of idea to operational stage is a comple% and time consuming effort. c. /ost ideas, !hether from cooperative or investor'o!ned businesses, do not develop into business operations. d. f these ideas ma&e it to the operational stage, ma"ority of them fail !ithin first si% months. e. Pro"ects involve business operations that differ from ndividual business. f. #hese operations involve ris&s of unfamiliar. g. Feasibility study allo!s groups developing a business idea to previe! potential pro"ect outcomes and decide if they !ant to continue developing the pro"ect. h. #hough the cost of conducting a study can seem high, almost al!ays, these costs are relatively minor !hen compared to the total pro"ect cost.
i. ".
Small initial e%penditure on a feasibility study by a group can help to protect larger capital investments later. Feasibility study is a useful tool and is valid for many &inds of pro"ects.
Scope of Feasi(ilit6 +nal6sis:
n general terms, the elements of a feasibility analysis for a pro"ect should cover the follo!ing: Need Ana!+sis" #his indicates recognition of a need for the pro"ect. #he need may affect the organi(ation itself, another organi(ation, the public, or the government. 0 preliminary study is then conducted to confirm and evaluate the need. 0 proposal of ho! the need may be satisfied is then made. Pertinent questions that should be as&ed include:
s the need significant enough to "ustify the proposed pro"ect8 4ill the need still e%ist by the time the pro"ect is completed8 4hat are the alternate means of satisfying the need8 4hat are the economic, social, environmental, and political impacts of the need8
Process ,or(" #his is the preliminary analysis done to determine !hat !ill be required to satisfy the need. #he !or& may be performed by a consultant !ho is an e%pert in the pro"ect field. #he preliminary study often involves system models or prototypes. For technology oriented pro"ects, artistDs conception and scaled'do!n models may be used for illustrating the general characteristics of a process. 0 simulation of the proposed system can be carried out to predict the outcome before the actual pro"ect starts. En%ineerin% and -esi%n" #his involves a detailed technical study of the proposed pro"ect. 4ritten quotations are obtained from suppliers and subcontractors as needed. #echnology capabilities are evaluated as needed. Product design, if needed, should be done at this time. Cost Estimate" #his involves estimating pro"ect cost to an acceptable level of accuracy. *evels of around '@I to J@I are common at this level of a pro"ect plan. $oth the initial and operating costs are included in the cost estimation. +stimates of capital investment and of recurring and nonrecurring costs should also be contained in the cost estimate document. Sensitivity analysis can be carried out on the estimated cost values to see ho! sensitive the pro"ect plan is to the estimated cost values. .inancia! Ana!+sis" #his involves an analysis of the cash flo! profile of the pro"ect. #he analysis should consider rates of return, inflation, sources of capital, paybac& periods, brea&even point, residual values, and sensitivity. #his is a critical analysis since it determines !hether or not and !hen funds !ill be available to the pro"ect. #he pro"ect cash flo! profile helps to support the economic and financial feasibility of the pro"ect. Project Impacts" #his portion of the feasibility study provides an assessment of the impact of the proposed pro"ect. +nvironmental, social, cultural, political, and economic impacts may be some of the factors that !ill determine ho! a pro"ect is perceived by the public. #he value added potential of the pro"ect should also be assessed. 0 value added ta% may be assessed based on the price of a product and the cost of the ra! material used in ma&ing the product. #he ta% so collected may be vie!ed as a contribution to government coffers.
Conc!sions and Recommendations" #he feasibility study should end !ith the overall outcome of the pro"ect analysis. #his may indicate an endorsement or disapproval of the pro"ect. 1ecommendations on !hat should be done should be included in this section of the feasibility report.
lements of a Feasi(ilit6 +ssessment:
0s a first step, a feasibility assessment should define the business idea, be it a ne! pro"ect, product or service. #he pro"ect or business idea feasibility can then be determined. #he feasibility needs to account for the current circumstances of the proponent. For e%ample, for a business intender it should ta&e into account personal readiness, s&ills, resources, &no!ledge and goals. For established businesses, lin&ages to e%isting lines of business, customers, suppliers, employees and other sta&eholders need to be accounted for. 0 feasibility report should have the follo!ing structure: -ecuti,e Summar6: t provides a quic& overvie! of the main points of the assessment, helping to form a picture of the proposal along !ith the recommendations. t should be concise and include the ma"or findings covered in the main body of the report. ;eed +nal6sis: >eed 0nalysis information provide a conte%t to the business proposition. t analy(es the "ustification of the idea, !ith a study of possible alternatives. t lin&s the business idea to the current circumstances and helps to inform evaluation of the business idea. ngineering: 2escription of the technical aspects of the business idea, including any changes needed to be made to e%isting processes or the need to add items to e%isting range of products and services.
+d,antages and 0isad,antages: 0dvantages and disadvantages of the business idea compared to alternatives, such as competing products3 or for a ne! concept, its relevance to current practices, and to unmet or potential demand. Mar=et for t1e Product Offerings: State the number of customers, e%pected frequency and si(e of average purchase, and any reduction in costs across the business arising from the ne! product or service. 0ny assumptions about customer purchase behavior should be identified so that they can be evaluated in terms of li&elihood of being achieved or e%ceeded. For changes in business operations, the payoff may come from competitive advantages such as increased mar&et share, cost savings or higher prices. 1esearch should focus on: Cstomers" Kou need to be clear about the type of customer you !ill target, and !hy they !ill respond to your offering. dentify your target mar&et segments or groups: 4hat &no!ledge do you have of your mar&et segments or groups8 6o! many are there8 4hat !ill they buy8 6o! often !ill they buy8 4hat !ill be their average purchase8 Prodcts and Services" Create a list sho!ing the products)services you !ill be offering to each segment3 ho! much customers !ill pay for each product or service. Competition" *ist your competitors and note their perceived strengths and !ea&nesses. Kou need to understand !hy they are competition to your proposed business.
0s& the question: 6o! can you attract customers from them i.e. your competitors-8 Price should not be the only ans!er3 !hole of life value, product features, distribution and promotion strategies, and after sales options may all be part of the purchase decision. Map" Obtain a map and define on it your mar&et boundaries, your location, access routes, your competitors, your suppliers, and demographic information on your mar&et such as population and distribution.
Costin%" Costing for the implementation of the business idea is done. 0ssess ho! long it !ill ta&e you or your staff to produce or obtain the proposed products or services and to deliver them to your customers and !or& out the cost of that time. 2etermine ho! much it !ill cost to buy, assemble or produce them. #his approach should account for all costs over and above the e%isting activity. For e%isting businesses this section should clearly specify if marginal or average costs have been used to determine costing. 0ssumptions should be stated, for e%ample, assumed ra! material prices, availability of supplies, staff s&ills, plant and equipment etc. Costs of alternative production)implementation strategies should also be considered in the analysis. Spp!iers" dentify preferred and alternative suppliers3 collect their catalogues and price lists. )ocation" dentify your site, is it rented, o!ned or at home8 2o you need more room than e%isting business8 4hy locate there8 4hat are the advantages and disadvantages8 Resorces" 1esources such as assets and equipment that !ill be required, cost of acquiring them, alternative methods of acquisition etc. are assessed. For e%ample, outright purchase versus hire purchase or other forms of leasing. Sta##" 4hat staff !ill you need8 4hat s&ills !ill they need8 4hat !ill you need to pa y them8 Financial anal6sis: 4or& out the profits from a given level of operations, the capital required and ho! the capital !ill be found to commence operating. 2is= anal6sis of t1e Preferred Solution: 1is& analysis may ta&e the form of basic brea&'even analysis, i.e. the level of business operation that !ill ensure that the business does not incur a loss. Sophisticated analysis may consider various business scenarios based on the assumptions made in costing and mar&et analyses. Comparati,e +nal6sis: Comparative analysis of alternatives should reflect the ob"ectives of the pro"ect. For e%ample, decision ma&ing may be based on ma%imi(ing profit or minimi(ing of loss for various business scenarios. Some alternatives may be ris&ier, !hich !ill be reflected in higher financial payoffs under certain scenarios and potential losses under other scenarios3 !hile some may be less ris&y !ith lo! financial profits or losses under a !ide variety of circumstances. #he choice bet!een a high payoff but high ris& of failureG option instead of a lo! payoff !ith associated lo! ris&G option is one that you can then ma&e in the conte%t of your ob"ectives, your mar&et and your financial situation. 2ecommendations: 1ecommendations of the preferred alternative !ith an associated plan of action3 or a decision not to proceed, should be covered in this section. Possible plans of action !ill be < going bac& to the dra!ing board, developing more promising alternatives, further research to minimi(e possibility of failure or moving for!ard to develop detailed business plan.
#he feasibility study phase considers the technical aspects of the conceptual alternatives and provides a firmer basis on !hich to decide !hether to underta&e the pro"ect.
P2O3C% S)C%IO; Introduction:
Pro"ect selection is the process o# choosin% a project or set o# projects to /e imp!emented /+ the or%ani*ation. Since pro"ects in general require a substantial investment in terms of money and resources, both of !hich are limited, it is of vital importance that the pro"ects that an organi(ation selects provide good returns on the resources and capital invested. #his requirement must be balanced !ith the need for an organi(ation to move for!ard and develop. #he high level of uncertainty in the modern business environment has made this area of pro"ect management crucial to the continued success of an organi(ation !ith the difference bet!een choosing good pro"ects and poor pro"ects literally representing the difference bet!een operational life and death.
+ach pro"ect !ill have different costs, benefits, and ris&s. 1arely are these &no!n !ith certainty. n the face of such differences, the selection of one pro"ect out of a set is a difficult tas&. Choosing a number of different pro"ects, a port#o!io % is even more comple%. n the follo!ing sections, !e discuss several techniques that can be used to help senior managers select pro"ects. Pro"ect selection is only one of many decisions associated !ith pro"ect management. #o deal !ith all of these problems, !e use decision aiding models
Modeling: 0 model is an ob"ect or concept, !hich attempts to capture certain aspects of the real !orld. #he purpose of models can vary !idely, they can be used to test ideas, to help teach or e%plain ne! concepts to people or simply as decorations %6pes of Project Selection Models: Of the t!o basic types of selection models numeric and nonnumeric-, nonnumeric models are older and simpler and have only a fe! subtypes to consider. 4e e%amine them first. ;on?;umeric Models: #hese include the follo!ing: The Sacred Co0" n this case the pro"ect is suggested by a senior and po!erful official in the organi(ation. Often the pro"ect is initiated !ith a simple comment such as, f you have a chance, !hy donEt you loo& into . . .,G and there follo!s an undeveloped idea for a ne! product, for the development of a ne! mar&et, for the design and adoption of a global database and information system, or for some other pro"ect requiring an investment of the firmEs resources. #he immediate result of this bland statement is the creation of a pro"ectG to investigate !hatever the boss has suggested.
#he pro"ect is sacredG in the sense that it !ill be maintained until successfully concluded, or until the boss, personally, recogni(es the idea as a failure and terminates it. The Operatin% Necessit+"
f a flood is threatening the plant, a pro"ect to build a protective di&e does not require much formal evaluation, !hich is an e%ample of this scenario. LKM Steel Corporation has used this criterion and the follo!ing criterion also- in evaluating potential pro"ects. f the pro"ect is required in order to &eep the system operating, the primary question becomes: s the system !orth saving at the estimated cost of the pro"ect8 f the ans!er is yes, pro"ect costs !ill be e%amined to ma&e sure they are &ept as lo! as is consistent !ith pro"ect success, but the pro"ect !ill be funded. The Competitive Necessit+" 7sing this criterion, LKM Steel undertoo& a ma"or plant rebuilding pro"ect in the late NAs in its steel bar manufacturing facilities near Chicago. t had become apparent to LKMEs management that the companyEs bar mill needed moderni(ation if the firm !as to maintain its competitive position in the Chicago mar&et area. 0lthough the planning process for the pro"ect !as quite sophisticated, the decision to underta&e the pro"ect !as based on a desire to maintain the companyEs competitive position in that mar&et.
n a similar manner, many business schools are restructuring their undergraduate and /asters in $usiness 0dministration /$0- programs to stay competitive !ith the more for!ard loo&ing schools. n large part, this action is driven by declining numbers of tuition paying students and the need to develop stronger programs to attract them. nvestment in an operating necessity pro"ect ta&es precedence over a competiti&e necessity pro"ect, but both types of pro"ects may bypass the more careful numeric analysis used for pro"ects deemed to be less urgent or less important to the survival of the firm. The Prodct )ine E$tension" n this case, a pro"ect to develop and distribute ne! products !ould be "udged on the degree to !hich it fits the firmEs e%isting product line, fills a gap, strengthens a !ea& lin&, or e%tends the line in a ne!, desirable direction.
Sometimes careful calculations of profitability are not required. 2ecision ma&ers can act on their beliefs about !hat !ill be the li&ely impact on the total system performance if the ne! product is added to the line. Comparative 'ene#it Mode!" For this situation, assume that an organi(ation has many pro"ects to consider, perhaps several do(en. Senior management !ould li&e to select a subset of the pro"ects that !ould most benefit the firm, but the pro"ects do not seem to be easily comparable. For e%ample, some pro"ects concern potential ne! products, some concern changes in production methods, others concern computeri(ation of certain records, and still others cover a variety of sub"ects not easily categori(ed e.g., a proposal to create a daycare center for employees !ith small children-.
#he organi(ation has no formal method of selecting pro"ects, but members of the selection committee thin& that some pro"ects !ill benefit the firm more than others, even if they have no precise !ay to define or measure benefit.G #he concept of comparative benefits, if not a formal model, is !idely adopted for selection decisions on all sorts of pro"ects. /ost 7nited 4ay organi(ations use the concept to ma&e decisions about !hich of several social programs to fund. Senior management of the funding organi(ation then e%amines all pro"ects !ith positive recommendations and attempts to construct a portfolio that best fits the organi(ationEs aims and its budget. #he process described may be carried out by one person !ho is responsible for evaluation and selection, or it may be performed by a committee charged !ith the responsibility. f a committee handles the tas&, the individual ran&ings can be developed anonymously, and the set of anonymous ran&ings can be e%amined by the committee itself for consensus. t is common for such ran&ings to differ some!hat from rater to rater, but they do not often vary stri&ingly because the individuals chosen for such committees rarely differ !idely on !hat they feel to be appropriate for the parent organi(ation. Pro"ects can then be selected in the order of preference, though they are usually evaluated financially before final selection.
#here are other, similar nonnumeric models for accepting or re"ecting pro"ects. 0lthough it is easy to dismiss such models as unscientific, they should not be discounted casually. #hese models are clearly goal'oriented and directly reflect the primary concerns of the organi(ation. #he sacred co! model, in particular, has an added feature3 sacred co! pro"ects are visibly supported by the po!ers that be.G Full support by top management is certainly an important contributor to pro"ect success /eredith, N-. 4ithout such support, the probability of pro"ect success is sharply lo!ered.
;umeric Models: Profit@Profita(ilit6 0s noted earlier, a large ma"ority of all firms using pro"ect evaluation and selection models use profitability as the sole measure of acceptability. 4e !ill consider these models first, and then discuss models that surpass the profit test for acceptance. 12Pa+/ac( Period" The paybac' period for a proect is the initial fixed in&estment in the proect di&ided by the estimated annual net cash inflo$s from the proect #he ratio of these quantities is the number of years required for the pro"ect to repay its initial fi%ed investment. For e%ample, assume a pro"ect costs Q, to implement and has annual net cash inflo!s of Q;@,. #hen
#his method assumes that the cash inflo!s !ill persist at least long enough to pay bac& the investment, and it ignores any cash inflo!s beyond the paybac& period. #he method also serves as an inadequate pro%y for ris&. #he faster the investment is recovered, the less the ris& to !hich the firm is e%posed. 32Avera%e Rate o# Retrn" Often mista&en as the reciprocal of the paybac& period, t he a&erage rate of return is the ratio of the a&erage annual profit (either before or after taxes) to the initial or a&erage in&estment in the proect $ecause average annual profits are usually not equivalent to net cash inflo!s, the average rate of return does not usually equal the reciprocal of the paybac& period. 0ssume, in the e%ample "ust given, that the average annual profits are Q@,:
>either of these evaluation methods is recommended for pro"ect selection, though paybac& period is !idely used and does have a legitimate value for cash
budgeting decisions. #he ma"or advantage of these models is their simplicity, but neither ta&es into account the time'value of money. 7nless interest rates are e%tremely lo! and the rate of inflation is nil, the failure to reduce future cash flo!s or profits to their present value !ill result in serious evaluation errors. 42 -isconted Cash .!o0" !lso referred to as the *et Present +alue (*P+) method% the discounted cash flo$ method determines the net present &alue of all cash flo$s by discounting them by the re,uired rate of return (also 'no$n as the hurdle rate% cutoff rate% and similar terms) as follo!s:
#o include the impact of inflation or deflation- !here pt is the predicted rate of inflation during period t% !e have
+arly in the life of a pro"ect, net cash flo! is li&ely to be negative, the ma"or outflo! being the initial investment in the pro"ect, ! . f the pro"ect is successful, ho!ever, cash flo!s !ill become positive. #he pro"ect is acceptable if the sum of the net present values of all estimated cash flo!s over the life of the pro"ect is positive. 0 simple e%ample !ill suffice. 7sing our Q, investment !ith a net cash inflo! of Q;@, per year for a period of eight years, a required rate of return of @ percent, and an inflation rate of ? percent per year, !e have
$ecause the present value of the inflo!s is greater than the present value of the outflo! that is, the net present value is positivethe pro"ect is deemed acceptable. 52Interna! Rate o# Retrn 6IRR7" -f $e ha&e a set of expected cash inflo$s and cash outflo$s% the internal rate of return is the discount rate that e,uates the present &alues of the t$o sets of flo$s f !t is an e%pected cash outflo! in the period t and #t is the e%pected inflo! for the period t , the internal rate of return is the value of ' that satisfies the follo!ing equation note that the ! !ill be positive in this formulation of the problem-:
#he value of ' is found by trial and error. 82 Pro#ita/i!it+ Inde$" !lso 'no$n as the benefit.cost ratio% the profitability index is the net present &alue of all future expected cash flo$s di&ided by the initial cash in&estment Some firms do not discount the cash flo!s in ma&ing this calculation.- f this ratio is greater than ., the pro"ect may be accepted. Other Pro#ita/i!it+ Mode!s" #here are a great many variations of the models "ust described. #hese variations fall into three general categories. #hese are: . #hose that subdivide net cash flo! into the elements that comprises the net flo!. ;. #hose that include specific terms to introduce ris& or uncertainty, !hich is treated as ris&- into the evaluation. ?. #hose that e%tend the analysis to consider effects that the pro"ect might have on other pro"ects or activities in the organi(ation. +d,antages of Profit?Profita(ilit6 ;umeric Models: Several comments are in order about all the profit'profitability numeric models. First, let us consider their advantages:
. #he undiscounted models are simple to use and understand. ;. 0ll use readily available accounting data to determine the cash flo!s. 3. /odel output is in terms familiar to business decision ma&ers. 4ith a fe! e%ceptions, model output is on an absoluteG profit)profitability scale and allo!s absoluteG go)no'go decisions.
4.
Some profit models account for pro"ect ris&.
0isad,antages of Profit?Profita(ilit6 ;umeric Models: #he disadvantages of these models are the follo!ing:
#hese models ignore all non'monetary factors e%cept ris&. 1. /odels that do not include discounting ignore the timing of the cash flo!s and the time
0ll discounting models are nonlinear, and the effects of changes or errors- in the variables or parameters are generally not obvious to most decision ma&ers.
7.
0ll these models depend for input on a determination of cash flo!s, but it is not clear e%actly ho! the concept of cash flo! is properly defined for the purpose of evaluating pro"ects.
P2O3C% P2OPOS+) Introduction:
Pro"ect Proposal is the initial document that converts an idea or policy into details of a potential pro"ect, including the outcomes, outputs, ma"or ris&s, costs, sta&eholders and an estimate of the resource and time required. #o begin planning a proposal, remember the basic definition: a proposa! is an o##er or /id to do a certain project #or someone2 Proposals may contain other elements < technical bac&ground, recommendations, results of surveys, information about feasibility, and so on. $ut !hat ma&es a proposal a proposal is, that it as&s the audience to approve, fund, or grant permission to do the proposed pro"ect. %6pes of Project Proposals: Consider the situations in !hich proposals occur. 0 company may send out a public announcement requesting proposals for a specific pro"ect. #his public announcement, called a #e,uest for Proposal (#/P), could be issued through ne!spapers, trade "ournals, Chamber of Commerce channels, or individual letters. Firms or individuals interested in the pro"ect !ould then !rite proposals in !hich they summari(e their qualifications, pro"ect schedules and costs, and discuss their approach to the pro"ect. #he recipient of all these proposals !ould then evaluate them, select the best candidate, and then !or& up a contract. $ut proposals come about much less formally. magine that you are interested in doing a pro"ect at !or& for e%ample, investigating the merits of bringing in some ne! technology to increase productivity-. magine that you visited !ith your supervisor and tried to convince her of this. She might respond by saying, =4rite me a proposal and !ill present it to upper management.= 0s you can see from these e%amples, proposals can be divided into several categories: Internal Proposal:
-f you $rite a proposal to someone $ithin your organization (a business% a go&ernment agency% etc)% it is an internal proposal 4ith internal proposals, you may not have to include certain sections such as qualifications-, or you may not have to include as much information in them. -ternal Proposal:
!n external proposal is one $ritten by a separate% independent consultant proposing to do a proect for another firm t can be a proposal from organi(ation or individual to another such entity. Solicited Proposal: -f a proposal is solicited% the recipient of the proposal in some $ay re,uested the proposal #ypically, a company !ill send out requests for proposals 1FPs- through the mail or publish them in some ne!s source. $ut proposals can be solicited on a very local level. For e%ample, you could be e%plaining to your boss !hat a great thing it !ould be to install a ne! technology in the office3 your boss might get interested and as& you to !rite up a proposal that offered to do a formal study of the idea. Ansolicited Proposal: 0nsolicited proposals are those in $hich the recipient has not re,uested proposals 4ith unsolicited proposals, you sometimes must convince the recipient that a problem or need e%ists before you can begin the main part of the proposal. 2e>uest for Proposal:
0 1equest for Proposal referred to as 1FP- is an invitation for suppliers, through a bidding process, to submit a proposal on a specific product or service. 0 1equest for Proposal 1FP- typically involves more than the price. Other requested information may include basic corporate information and history, financial information can the company deliver !ithout ris& of ban&ruptcy-, technical capability used on ma"or procurements of services, !here the item has not previously been made or !here the requirement could be met by varying technical means-, product information such as stoc& availability and estimated completion period, and customer references that can be chec&ed to determine a companyDs suitability. 1equest for Proposals 1FPs- often include specifications of the item, pro"ect or service for !hich a proposal is requested. #he more detailed the specifications, the better the chances that the proposal provided !ill be accurate. 5enerally 1equest for Proposals 1FPs- are sent to an approved supplier or vendor list. #ypical !rite ups should be prepared in advance for various other parts of the proposal. #hese !ill be modified to suit the 1equest for Proposal 1FP- or inquiry document. 0mong other these !ritings include: ntroduction o Pro"ect Organi(ation o o Schedule Pro"ect Controls o Compensation o Common Sections in Proposals:
#he follo!ing is a revie! of the sections you !ill commonly find in proposals. 2o not assume that each one of them has to be in the actual proposal you !rite, nor that they have to be in the order they are presented here, plus you may discover that other &inds of information not mentioned here must be included in your particular proposal. Introduction: Plan the introduction to your proposal carefully. /a&e sure it caters to all of the follo!ing things but not necessarily in this order- that apply to your particular proposal: ndicate that the document to follo! is a proposal. 1efer to some previous contact !ith the recipient of the proposal or to your source of information about the pro"ect. Find one brief motivating statement that !ill encourage the recipient to read on and to consider doing the pro"ect. 5ive an overvie! of the contents of the proposal.
1emember that you may not need all of these elements, and some of them can combine neatly into single sentences. #he introduction ought to be bris& and to the point and not feel as though it is trudging laboriously through each of these elements. 8ac=ground on t1e Opportunit6: Often occurring "ust after the introduction, the bac&ground section discusses !hat has brought about the need for the pro"ect3 !hat problem, !hat opportunity there is for improving things, !hat the basic situation is. 0n o!ner of pine timberland may !ant to get the land productive of saleable timber !ithout destroying the ecology.
t is true that the audience of the proposal may &no! the problem very !ell, in !hich case this section might not be needed. 4riting the bac&ground section still might be useful, ho!ever, in demonstrating your particular vie! of the problem. 0nd, if the proposal is unsolicited, a bac&ground section is almost a requirement3 you !ill probably need to convince the audience that the problem or opportunity e%ists and that it should be addressed. 8enefits and Feasi(ilit6 of t1e Proposed Project: /ost proposals discuss the advantages or benefits of doing the proposed pro"ect. #his acts as an argument in favor of approving the pro"ect. 0lso, some proposals discuss the li&elihood of the pro"ectDs success. n the forestry proposal, the proposer is recommending that the lando!ner ma&e an investment3 at the end of the proposal, he e%plores the question of !hat return there !ill be on that investment, ho! li&ely those returns are. n the unsolicited proposal, this section is particularly important as you are trying to =sell= the audience on the pro"ect. 0escription of t1e Proposed Bor= &2esults of t1e Project': /ost proposals must describe the finished product of the proposed pro"ect. n this course, that means describing the !ritten document you propose to !rite, its audience and purpose3 providing an outline3 and discussing such things as its length, graphics, binding, and so forth.- n the scenario you define, there may be other !or& such as conducting training seminars or providing an ongoing service. 0dd that too. Met1od Procedure %1eor6: n most proposals, you !ill !ant to e%plain ho! you !ill go about doing the proposed !or&, if approved to do it. #his acts as an additional persuasive element3 it sho!s the audience you have a sound, !ell' thought'out approach to the pro"ect. 0lso, it serves as the other form of bac&ground some proposals need. 1emember that the bac&ground section the one discussed above- focused on the problem or need that brings about the proposal. 6o!ever, in this section, !e !ill discuss the technical bac&ground relating to the procedures or technology you plan to use in the proposed !or&. For e%ample, in the forestry proposal, the !riter gives a bit of bac&ground on ho! timber management is done. Once again, this gives the proposal !riter a chance to sho! that you &no! !hat you are tal&ing about, and build confidence in the audience that you are a good choice to do the pro"ect. Sc1edule: /ost proposals contain a section that sho!s not only the pro"ected completion date but also &ey milestones for the pro"ect. f you are doing a large pro"ect spreading over many months, the timeline !ould also sho! dates on !hich you !ould deliver progress reports. 0nd if you cannot cite specific dates, cite amounts of time or time spans for each phase of the pro"ect. Dualifications: /ost proposals contain a summary of the proposing individualDs or organi(ationDs qualifications to do the proposed !or&. t is li&e a mini'resume contained in the proposal. #he proposal audience uses it to decide !hether you are suited for the pro"ect. #herefore, this section lists !or& e%perience, similar pro"ects, references, training, and education that sho! familiarity !ith the pro"ect. Costs 2esources 2e>uired: /ost proposals also contain a section detailing the costs of the pro"ect, !hether internal or e%ternal. 4ith e%ternal pro"ects, you may need to list your hourly rates, pro"ected hours, costs of equipment and supplies, and so forth, and then calculate the total cost of the complete pro"ect. 4ith internal pro"ects,
there probably !ould not be a fee, but you should still list the pro"ect costs: for e%ample, hours you !ill need to complete the pro"ect, equipment and supplies you !ill be using, assistance from other people in the organi(ation, and so on. Conclusions: #he final paragraph or section of the proposal should bring readers bac& to a focus on the positive aspects of the pro"ect you have "ust sho!ed them the costs-. n the final section, you can end by urging them to get in touch to !or& out the details of the pro"ect, to remind them of the benefits of doing the pro"ect, and maybe to put in one last plug for you or your organi(ation as the right choice for the pro"ect.
