Tag: Cost Control and Management Accounting Osmania University b.com Notes

Determining Financial Needs for Projects

Add up costs

One-time costs may include such items as legal and professional costs for incorporating or registering your business; starting inventory; licence and permit fees; office supplies and equipment; long-term assets, such as machinery, a vehicle or real estate; consulting services; and website design.

Recurring expenses will include such items as salaries, rent or lease payments, raw materials, marketing costs, office and plant overhead, financing costs, maintenance and professional fees.

Once you’ve determined your initial and follow-on expenses, you will need to estimate how much money you will have at your disposal.

Calculate your financial resources

Estimate how much starting capital you will have and the amount of revenue you’ll be able to generate each month during the start-up period. To calculate the latter, research your potential market and industry averages to come up with realistic numbers.

Now, plug your estimated financial resources and your estimated expenses into a set of financial projections for your business. A quick examination of your projections will show if you’ll have a financial shortfall.

When you have educated yourself on what entails in the market, it’s time to determine what you will be spending on. Starting a business comes with a lot of expenses. Some of these are one- time costs and others may be recurring expenses. Examples of one-time costs include:

• Cost of registering and licensing your business. Getting the appropriate and legal backing is essential for the long-term of the business.
• Cost of Equipment. These are the machinery that will produce a bulk of your services.
• Office supplies
• Vehicle for transportation
• Office/Production Space

On the other hand, recurring expenses will include:

• Maintenance fees that will ensure your machine framework is functioning properly.
• Salaries for your workers. Whether you start with two employees or twenty, you need to have resources to pay them when due.
• Lease payments. If you lose your production space, your business suffers a great deal. It is extremely necessary to do all you can to maintain that space.
• Marketing costs are also recurring expenses. You will need to consistently get your product into the market by advertising through various means. You may use marketers or media.
• Cost of basic materials that you would be using should also be put into consideration.

Project financing: Advantages:

1. Non-Recourse: The typical project financing involves a loan to enable the sponsor to construct a project where the loan is completely ‘non-recourse’ to the sponsor, i.e., the sponsor has no obligation to make payments on the project loan if revenues generated by the project is insufficient to cover the principal and interest payments on the loan. In order to minimize the risks associated with a non-recourse loan, a lender typically will require indirect credit supports in the form of guarantees, warranties and other covenants from the sponsor, its affiliates and third parties involved with the project.
2. Maximise Leverage: In a project financing, the sponsor typically seeks to finance the cost of development and construction of the project on a highly leveraged basis. Frequently, such costs are financed using 80 to 100 percent debt. High leverage in a non-recourse project financing permits a sponsor to put less in funds at risk, permits a sponsor to finance the project without diluting its equity investment in the project and, in certain circumstances, also may permit reductions in the cost of capital by substituting lower-cost, tax-deductible interest for higher-cost, taxable returns on equity.
3. Off-Balance-Sheet Treatment: Depending upon the structure of project financing, the project sponsor may not be required to report any of the project debt on its balance sheet because such debt is non-recourse to the sponsor. Off-balance-sheet treatment can have the added practical benefit of helping the sponsor comply with covenants and restrictions relating to borrowing funds contained in other indentures and credit agreements to which the sponsor is a party.
4. Maximize tax benefit: Project financings should be structured to maximize tax benefits and to assure that all possible tax benefits are used by the sponsor or transferred, to the extent permissible, to another party through a partnership, lease or other vehicle.

Impact of Leveraging on Cost of Finance

Taking on debt, as an individual or a company, will always bring about a heightened level of risk due to the fact that income must be used to pay back the debt even if earnings or cash flows go down. From a company’s perspective, the use of financial leverage can positively or sometimes negatively impact its return on equity as a consequence of the increased level of risk.

Impact on Return on Equity

Return on equity is the rate of return on the shareholders “Equity of a company’s common stock owners. It measures a firm’s efficiency at generating profits from every unit of shareholders’ equity. Return on equity shows how well a company uses investment funds to generate earnings growth. It can be calculated using the following equation:

ROE = Net Income (After Tax) / Shareholder Equity

Leverage, Risk, and Misconceptions

The most obvious risk of leverage is that it multiplies losses. Due to financial leverage’s effect on solvency, a company that borrows too much money might face bankruptcy during a business downturn, while a less-levered company may avoid bankruptcy due to higher liquidity. There is a popular prejudice against leverage rooted in the observation of people who borrow a lot of money for personal consumption, for example, heavy use of credit cards. However, in finance the general practice is to borrow money to buy an asset with a higher return than the interest on the debt. Instead of spending money it doesn’t have, a company actually creates value. On the other hand, when debt is taken on for personal use there is no value being created, i.e., no leveraging.

There is also a misconception that companies enter a higher level of financial leverage out of desperation, referred to as involuntary leverage. While involuntary leverage is certainly not a good thing, it is typically caused by eroding equity value as opposed to the addition of more debt. Therefore, it is typically a symptom of the problem, not the cause.

Combining Operating and Financial Leverage

Operating and financial leverage can be combined into an overall measure called “Total leverage.” Total leverage can be used to measure the total risk of a company and can be defined as the percentage change in stockholder earnings for a given change in sales. In other words, total leverage measures the sensitivity of earnings to changes in the level of a company’s sales.

Methods For Finding Total Leverage

Total leverage can be determined by a couple of different methods. If the percentage change in earnings and the percentage change in sales are both known, a company can simply divide the percentage change in earnings by the percentage change in sales. Earnings can be measured in terms of EBIT, earnings before interest and taxes, or EPS, earnings per share. While EBIT can be determined by referencing a company’s income statement, we can determine earnings per share by dividing the company’s net income by it’s average price of common shares.

TL = {(Revenue – Variable Costs) / Operating income} * Operating Income / Net Income

A feasibility study is an assessment of the practicality of a proposed project or system. A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats present in the natural environment, the resources required to carry through, and ultimately the prospects for success. In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained.

A well-designed feasibility study should provide a historical background of the business or project, a description of the product or service, accounting statements, details of the operations and management, marketing research and policies, financial data, legal requirements and tax obligations. Generally, feasibility studies precede technical development and project implementation. A feasibility study evaluates the project’s potential for success; therefore, perceived objectivity is an important factor in the credibility of the study for potential investors and lending institutions. It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based.

Benefits of a Feasibility Study

There are several benefits to feasibility studies, including helping project managers discern the pros and cons of undertaking a project before investing a significant amount of time and capital into it. Feasibility studies can also provide a company’s management team with crucial information that could prevent them from entering into a risky business venture.

Feasibility studies also help companies with new business development, including determining how it will operate, potential obstacles, competition, market analysis, and the amount and source of financing needed to grow the business. Feasibility studies aim for marketing strategies that could help convince investors and banks that investing in a particular project or business is a wise choice.

TELOS is an acronym in project management used to define five areas of feasibility that determine whether a project should run or not.

• T – Technical: Is the project technically possible?
• E – Economic: Can the project be afforded? Will it increase profit?
• L – Legal: Is the project legal?
• O- Operational: How will the current operations support the change?
• S – Scheduling: Can the project be done in time?

Importance of Project Feasibility

The importance of a feasibility study is based on organizational desire to “get it right” before committing resources, time, or budget. A feasibility study might uncover new ideas that could completely change a project’s scope. It’s best to make these determinations in advance, rather than to jump in and to learn that the project won’t work. Conducting a feasibility study is always beneficial to the project as it gives you and other stakeholders a clear picture of the proposed project.

Benefits of conducting a feasibility study:

• Improves project teams’ focus
• Identifies new opportunities
• Provides valuable information for a “go/no-go” decision
• Narrows the business alternatives
• Identifies a valid reason to undertake the project
• Enhances the success rate by evaluating multiple parameters
• Aids decision-making on the project
• Identifies reasons not to proceed

Apart from the approaches to feasibility study listed above, some projects also require other constraints to be analyzed:

• Internal Project Constraints: Technical, Technology, Budget, Resource, etc.
• Internal Corporate Constraints: Financial, Marketing, Export, etc.
• External Constraints: Logistics, Environment, Laws, and Regulations, etc

Features of a feasibility study for a good project

A project feasibility study evaluates the following topics in project management:

• Time: How long do you think it’ll take to finish?
• Risk: What are the dangers of finishing this project? Based on the predicted rewards, is the risk worth the company’s money and time?
• Legality: Is the company well-equipped to complete the project in terms of technical resources?
• Budget: Is the organisation financially capable of completing the project, and does the cost-benefit analysis justify proceeding?
• Operational Feasibility: Is the project addressing the organization’s needs in its intended scope by resolving issues and/or capturing opportunities?
• Technical capability: Is the company well-equipped to complete the project in terms of technical resources?

Scope of Project Feasibility

Need Analysis

The realization of the need of the project is indicated in this head. This identified need may influence the company itself, another company, the government or public. The need is confirmed and evaluated by conducting preliminary study. A proposal is then developed that specify that how the need may be satisfied.

Process Work

The preliminary analysis performed to ascertain what will be needed to fulfil the need is included in the process work. The consultant who is an expert in the project area may perform the work. System models or prototypes are mostly involved in the preliminary study. The general characteristics of the process can be illustrated by using artist’s conception and scaled down models for technology oriented projects. The forecasting of the result before the starting of the actual project can be carried out by the simulation of the proposed system.

Engineering and Design

A thorough technical study of the proposed project is involved in this. Written quotations are got from subcontractors and suppliers as required. The capabilities of the technology are evaluated as required. If required, the product design must be performed at this time.

Cost Estimate

The estimation of project cost to an acceptable level of accuracy is included in this category. At this level of a project plan, levels of around -5% to +15% are common. Cost estimation includes both the initial & operating costs. Cost estimate document should also contain estimates of capital investment and of recurring and non-recurring costs. The sensitivity of the project plan to the estimated cost values is also viewed by conducting sensitivity analysis on the estimated cost values.

Financial Analysis

The analysis of the cash flow profile of the project is included in financial analysis. This analysis should contain sources of capital, rates of return, payback periods, inflation, breakeven points, sensitivity and residual values. It is important analysis in which it is ascertained that either the funds are available or not and also when the funds will be provided to the project. The economic and financial feasibility of the project is supported with the help of the project cash flow profile.

Project Impacts

The assessment of the impact of the proposed project is provided by this portion of feasibility study. Social, environmental, cultural, economic and political impacts may be some of the factors that how public views the project. The value added capacity of the project must also be evaluated. On the basis of the cost of the raw material used in manufacturing product and the price of the product, a value added tax can be evaluated. The tax so gathered can be considered as a contribution to government pockets.

Conclusions and Recommendations

The entire outcome of the project feasibility analysis should be covered in the ending portion of the project feasibility analysis. This may reflect the rejection or endorsement of the project. This portion of feasibility report must contain the recommendations on what should be done.

Technical aspects relate to the production or generation of the project output in the form of goods and services from the projects inputs. Technical analysis represents study of the project to evaluate technical and engineering aspects when a project is being examined and formulated. It is a continuous process in the project appraisal system which determines the prerequisites for meaningful commissioning of the project.

Purpose of Technical Analysis

• In order to find out the most suitable and optimal structure of the project in terms of technology, location etc.
• The primary purpose of conducting technical analysis is to find out the technical feasibility of the project. It’s done to know whether all the inputs required to set up the project are available or not.
• Deciding from all available alternatives which will be the best option for the organisation.

Use of Various Informational Tools for Analyzing

Choice of Technology/Manufacturing Process:

Firstly the component associated with technical analysis is the choice of technology or the choice of the manufacturing process. The several factors which influence the choice of technology are:

• Plant Capacity: Also known as the production capacity is the number of units that can be produced in a specific also period of time.
• Principal Inputs: These inputs used to make final products and constitute at least 10% of the cost of material.
• Investment Outlay and production costs: Investment outlay is the cost incurred to acquire an asset or execute a strategy similarly production cost are the business costs involved in the production process.
• Use by other units: The technology adopted should prove to be successful earlier by other existing units.
• Ease of adoption and modernization must be an important factor while making a choice for technology.

Technical Arrangements:

This aims to make arrangements to obtain the technical know-how needed to conduct the proposed production process.

• Price of the technology in terms of infrastructure and licensing fee.
• Suitable modes of payment available must be available.
• Collaboration time of the agreement.
• Benefits from research and development services.
• Process and Performance guarantees of the technology.

Raw Material: In short it is the basic material which upon processing is converted into the final product. It is basically of four types:

• Agricultural products: Field crops, fruits, vegetables, rice, wheat etc.
• Mineral products: Industrial rocks, minerals, clays, sand, gravel, talc, ceramics, paints etc.
• Live Stock and forest products: Farm animals, sheep, horses, goats, pigs, dyes, wood, paper, rubber etc.
• Marine Products: Fish, corals, bacteria, sponges, seashells, crabs etc.

Product Mix

It is also known as product assortment is the total range of products offered by the company. Market requirements guide the choice of product mix.

While planning the production facilities some flexibility in product mix should be thought in accordance with the technical aspects.

It is an important area in technical analysis. It must aim to satisfy a broad range of customers and to do so it must be compatible with other available resources.

Plant Capacity:

Plant capacity also known as the production capacity is the number of units that can be produced in a specific period of time or can be called the maximum output rate of production.

FNC (feasible normal capacity): The capacity achievable under normal working conditions and on the other hand NMC (Nominal maximum capacity- capacity achievable technically or the installed capacity

Following factors have bearing on the plant capacity decision:

• Technological requirement
• Input constraints
• Investment cost
• Product Mix
• Latest Developments
• Ease of absorption
• Auxiliary Materials & Factory Supplies
• Processed Industrial Materials & Components
• Period of collaboration & Assistance provided
• The continuing benefit of R&D work being done
• Market conditions
• Resources of the firm
• Government Policy

Factors influencing the Choice of site location:

• Proximity to the source of raw materials: so the location must be close to the area from which raw material is to be acquired.
• Proximity to markets: for instance, the markets in which the product will sell must be close to the production site and flow of goods must be smooth.
• Availability of infrastructure: infrastructure must be available and suitable in order to conduct operations at that location.
• Government policies: above all the government restrictions must be minimum.
• Other factors: for example the climatic conditions, general living conditions, ancillary units, pollution.

Advancement in the Era of E- Commerce in Project Management

Ecommerce projects are one of the most challenging of all kinds of software projects, owning to the nature of the project itself. With integrated and inter-organisational nature, ecommerce projects have a faster development cycle time and a pressing need for an effective strategy at every phase of the project to deal with the problems.

• Package Selection: The hardest challenge of picking the right software vendor and the package solution from a plethora of options.
• Business Intelligence: Techniques and procedures to obtain the required information about the company’ s competitors, customers, their requirements and all the other internal business processess.
• Customer Relationship Management: The ability to learn how to treat each customer and his requirement as an important individual.
• Process Improvement: Aligining the organization’s operations with its strategic objectives with a goal to improve products and services.
• Human-Resource Management: Hiring and managing the skilled people and do the best to avoid any kinds conflict & project obstacles.

Tactics:

Set clear trackable goals with compelling metrics

Though almost every e-commerce project will have the ultimate goal of selling more products, it’s unfortunately common for a business to forget entirely about setting specific goals.

A bad project manager might decide that it’s worth carrying out some influencer marketing, then simply assume that it was worth it if the influencer in question gets a lot of hits for the relevant content.

Monitor and track the use of time

E-commerce businesses often rely on remote working and flexible hours because they’re ideally suited to them, and they’re great for productivity. That said, they’re somewhat harder for monitoring.

This is a problem because time is a precious resource, and it’s hard to manage a team effectively when you don’t know where time is being wasted.

Think of virtual assistants. Do you know how they’re using the time you’ve paid for? This is what Timeneye was designed to help with. Get everyone in your business operating on the same page and tracking their time in the same way. You can then look through the time logs to determine exactly where time is being lost through inefficiency, and start making changes.

Choose the right e-commerce business tools

Because so much of an online business takes place through digital systems (and even in the cloud), it’s mission-critical that you base your company on the right foundations.

Choose well, and you can scale your business smoothly, keep your team ticking along, and cut down on wasted costs through automation.

Ideally, every e-commerce business would run on a simple and scalable CMS like Shopify, allowing the hosting to scale with massive growth. It would use tools like Timeneye to track time, and use a project management tool like Basecamp to keep all relevant files and notes in one location.

Never stop iterating and testing

You plan a project, implement it, achieve the goal (or goals), and move on. That’s how most people would operate in most instances, but ecommerce is a different beast. There, very few projects are ever truly finished. Instead, they’re iterated. You plan some website updates, get them drafted, run them as A/B variants to see how they perform, then go right back to planning. Optimizely has some great options for product teams.

Why? Because there’s no such thing as a perfect store, or a perfect product listing, or a perfect checkout service. There’s always something that could improve. Couple in the aforementioned variability of e-commerce tactics, and you have all the reason you’d ever need to keep going with the improvements and never stop.

Use a scaling budget to account for change

Creating a small business budget is a mandatory part of running and growing a sustainable business, because you’ll always need to be investing and reinvesting in your business.

One problem that comes up a lot with e-commerce is that a budget that seemed right to begin with can become a problem it can suddenly become too little, or even too much.

This is down to two things: old methods becoming more or less effective (such as SEO tactics losing potency after Google algorithm changes), and sales fluctuating massively. If you happen upon a hit product, you might suddenly have an opportunity to make a lot of money from it, but only if you can budget for it.

Market Feasibility

Market feasibility must not be mixed up with economic feasibility. The potential influence of market demand, competitive activities, and available market share should be considered in the market feasibility analysis. During the start-up, ramp-up, and commercial start-up phases of the project, possible competitive activities (local, regional, national and international) should be analyzed for early contingency funding and impacts on the operating costs.

• Type of industry
• Prevailing market
• Future market growth
• Competitors and potential customers
• Projection of sales

Technical Feasibility

The engineering feasibility of the project is viewed in the technical feasibility. Certain important engineering aspects are covered which are necessary for the designing of the project like civil, structural, and other relevant aspects. The technical capability of the projected technologies and the capabilities of the personnel to be employed in the project are considered.

In certain examples especially when projects are in third world countries, technology transfer between cultures and geographical areas should be analyzed. By doing so productivity gain (or loss) and other implications are understood due to the differences in fuel availability, geography, topography, infrastructure support, and other problems.

Financial Feasibility

Financial feasibility must be differentiated from economic feasibility. The ability of the project management to raise sufficient funds required to implement the proposed project is included in the financial feasibility. Additional investors and other sources of funds are considered by the project proponents for their projects in many cases.

In such situations feasibility, sources, soundness, and applications of these project funds may be a hindrance. Other aspects of financial feasibility should also be viewed, if appropriate, like creditworthiness, loan availability, equity, and loan schedule. The implications of land purchase, leases, and other estates inland are also reviewed in the financial feasibility analysis.

• Initial investment
• Resources to procure capital: Banks, investors, venture capitalists
• Return on investment

Economic Viability

Economic feasibility refers to the feasibility of the considered project to produce economic benefits. A benefit-cost analysis is needed. Furthermore, the economic feasibility of a project can also be evaluated by breakeven analysis. In order to facilitate the consistent basis for the evaluation, the tangible and intangible facets of a project must be translated into economic terms. Economic feasibility is critical even when the project is non-profit in nature.

This evaluation typically includes a cost-benefit analysis of the project, which aids firms in determining the project’s viability, cost, and benefits before spending financial resources. It also acts as an objective project review, boosting project credibility by assisting decision-makers in identifying the proposed project’s beneficial economic benefits to the organisation.

Safety Feasibility Study

Another important aspect that must be considered in project planning is safety feasibility. Safety feasibility involves the analysis of the project in order to ascertain its capacity to implement & operate safely with the least unfavorable effects on the environment. Mostly in complex projects, environmental impact assessment is not properly addressed.

Political Feasibility Study

The directions for the proposed project are mostly dictated by political considerations. This is certainly correct for large projects with potential visibility that may have important political implications and government inputs. For example, regardless of the merit of the project, the political necessity may be a source of assistance for a project.

Operational Feasibility

This evaluation entails conducting research to evaluate whether and to what extent the organization’s needs can be addressed by completing the project. Operational feasibility studies also look at how a project plan meets the requirements specified during the system development requirements analysis phase.

Cultural Feasibility Study

The compatibility of the proposed project with the cultural environment of the project is included in the cultural feasibility. Planned operations should be integrated with the local cultural beliefs and practices in labor-intensive projects. For example, what a person is willing to perform or not perform is influenced by his religious beliefs.

Social Feasibility Study

The effect that a proposed project may have on the social system in the project environment is addressed in the social feasibility. It may happen that a particular category of employees may be short or not available as a result of ambient social structure.

Project initiation is the first phase of the project management life cycle and in this stage, companies decide if the project is needed and how beneficial it will be for them. The two metrics that are used to judge a proposed project and determine the expectations from it are the business case and feasibility study.

The term “Project initiation” comes from a five-phase model created by the Project Management Institute (PMI). PMI outlines this model in their Guide to the Project Management Body of Knowledge, also known as the PMBOK® Guide.

Important

• Take major decisions that establish the direction and resource requirements, like the project charter and selecting the project stakeholders, are made during this phase. The stakeholders arrive at a clear objective to ensure everyone stays on the same page in terms of how the project should proceed.
• There will be multiple checks during and after project execution to prevent miscommunication and to ensure the project stays on track throughout its course. However, precious time and resources might get wasted which is undesirable.
• Effective project management requires you to maximize benefits and minimize costs while delivering ‘value’ to the customer. Having a clear project objective helps you achieve all this.

 The model divides a project’s lifecycle into these five stages:

• Project initiation: Broadly define your project and secure buy-in.
• Project planning: Create detailed goals and a project roadmap.
• Project execution: Launch your project using information from the first two steps.
• Project performance: Measure effectiveness using key performance indicators (KPIs).
• Project closure: Debrief with stakeholders.

Steps:

Creating a business case

The business case is an important document that explains how the project’s goals align with the company’s long-term plans. This document explains why should the company spend its technical, financial, and human resources on the specific project.

An ideal business case does not talk about any technical details of the project and focuses solely on the business aspects. It is made to convince the upper management to approve the project and answer their concerns related to possible financial and business-related risks.

Conducting a feasibility study

After the approval of the business case, the next step is to determine the likelihood of the project’s success after considering all the factors. This study identifies the high-level project constraints and assumptions of the project and decides whether the project is worth it or not.

Establishing a project charter

The project charter is perhaps the most comprehensive and important part of the project initiation process. It answers the 3 Ws to identify the scope/objective, team members, and the possible timeframe of the project.

The charter is, in some ways, the first document of the project that identifies the necessary details like the goals and the constraints of the project. It also identifies the project scope and lists the required resources for the completion of the project.

Identifying stakeholders and making a stakeholder register

Communication and negotiations are a huge part of effective project management and a large part of a project manager’s time is usually spent dealing with project stakeholders.

It’s the responsibility of the project manager to ensure the means and frequency of communication in project management with project stakeholders according to their influence and interest in the project. A common practice is to maintain a stakeholder register or a stakeholder map to decide the frequency and means of communication for each stakeholder according to their influence and interest in the project.

Assembling the team and establishing a project office

No project can be started without a project team. Assembling a working project team and assigning them roles and responsibilities is a vital part of the project initiation phase. Assigning roles and responsibilities early on also increases the overall accountability of the entire team and can help you as a manager in the later phases of the project life cycle.

Final review

After performing everything, it’s a good practice to review the entire project initiation stage to ensure you missed nothing. In later stages, you’ll continue reviewing your work as monitoring and controlling is one of the five phases of the project management life cycle.

A Project Management life cycle is a five-step framework planned to assist project managers in completing projects successfully.

The primary competency of a project manager is to gain a thorough understanding of project management stages. Knowledge and planning for the five Project Management steps will help you plan and organize your projects so that it goes off without any hitches.

Stages:

Initiating: Defining what needs to be done

Initiating, the first phase of the project management life cycle, is all about kicking off a project with your team and with the client, getting their commitment to start the project. You bring together all of the available information together in a systematic manner to define the project’s scope, cost and resources. The goal of the initiation phase is to take a loose brief of a project and define it in terms of what it needs to do and achieve in order to be successful.

That usually necessitates identifying the project stakeholders and making sure they all share the same perception of what the project is and agree on the business case the problem that the project is trying to solve. It’s during project initiation phase too that you decide whether it is feasible to deliver the business case. As a project manager, you will need to conduct adequate research to determine the goals of the project, and then propose a solution to achieve them. Once approved, you move on to the next of the project phases.

Planning phase: Defining how to do what needs to be done

After approval to proceed from initiation, you can begin project planning. This is arguably the most critical of the phases of project management. Get it wrong, and you’ll scupper your chances of delivering the project on time and budget. Planning is where you define all the work to be done and create the roadmap that you follow for the remainder of the project to get you there. It’s during planning phase that you figure out how you’re going to perform the project and answer the questions what exactly are we going to do, how are we going to do it, when are we going to do it, and how will we know when we’re done?

At this point in the project life cycle, you take the goals of the and expand on those goals to decide how to attain them. It’s worth keeping evaluating those goals with three criteria: what’s Possible, Passionate, and Pervasive?

• Possible: Strive for something that is achievable. Ask yourself, does this solution match the budget? Does my team have the ability to do this? Do we have enough time? Setting unrealistic goals is setting yourself up for failure.
• Passionate: Projects are tough, so you want a team that is emotionally engaged in the project. Ask yourself, Is this a project that your team can be passionate about? Is it something that can bring them together to collaborate to achieve the same goal? Even though it might be their job to do what you tell them to do, no one is going to invest into something they don’t think is worthwhile
• Pervasive: Does this have the potential to become a ground-breaking success? Is this something that is a complete solution to the problem that was given to you or is it really just a band-aid temporary or partial solution? Does it have the potential to be improved on, developed and to become a permanent way of working?

Executing: Making a project happen

This is the part of the project management life cycle where you finally get to execute on your awesome project plan it’s where planning gets turned into action. You bring your resources onboard, brief them, set the ground rules, and introduce them to one another. After that, everyone jumps in to perform the work identified in the plan.

As the project manager, you shift from talking about a project and creating documentation to get the green light to proceed with the project execution to leading the team and managing them toward delivery. You’ll spend your time in briefings, meetings, and reviews to lead the team, and keep the project on track as it moves through the project development lifecycle.

Monitoring & Controlling: Keeping a project on track

This is one of the toughest areas in the project management cycle. In parallel with the project execution, as a project manager, you report performance, and monitor and control the project. That means monitoring the project life to ensure the project is going according to plan, and if it isn’t, controlling it by working out solutions to get it back on track. In reality, a project manager is monitoring and controlling a project in some way throughout all of the project life cycle phases.

First, that means ensuring you capture the data (usually derived from timesheets and tasks completed) to track progress effectively against the original plan. Secondly, it means taking the data and comparing the task completion, budget spend and timeline allocated in the original plan. By comparing the plan against actuals, you can establish whether or not you’re hitting the objectives for timeline, cost, quality and success metrics.

Closure: Ending a project

In this final phase of the project management life cycle, your project is essentially over and your job as project manager on the project comes to a close. But the project’s not over yet check out our article on How to manage a project when it’s over. At this point, before everyone forgets, it’s useful to hold a meeting post project review or post-mortem to discuss the strengths and weaknesses or the project and team, what went wrong and what didn’t go so well, and how to improve in the future.

This can be one of the most rewarding stages of project management, as it’s a great opportunity to recognize and acknowledge valuable team members and celebrate the successes. At the same time, taking the time to make a report outlining learnings and actionable advice can help you do better in your next projects. Use writing tools to help you convey your ideas clearly.

Planning Cycle

The Planning Cycle brings together all the aspects of planning a one-off, medium-sized project into a single, coherent process.

The essential activities include the following:

• Encouraging diverse participation: Planning activities provide an opportunity for input from different functions, departments, and people. Some organizations establish planning committees that intentionally include people from diverse backgrounds to bring new perspectives into the planning process.
• Maintaining organizational focus: Defining specific goals requires managers to consider the vision, mission, and values of the organization and how these will be operationalized. The methods and selected goals can demonstrate that the vision, mission, and values statements are working documents that are not just for show but prescribe activities.
• Empowering and motivating employees: When people are involved in developing plans they will be more committed to the plans. Allowing diverse input into the planning cycle empowers people to contribute and motivates them to support the outcomes.

Stages:

Define objectives

The first, and most crucial, step in the planning process is to determine what is to be accomplished during the planning period. The vision and mission statements provide long-term, broad guidance on where the organization is going and how it will get there. The planning process should define specific goals and show how the goals support the vision and mission. Goals should be stated in measurable terms where possible. For example, a goal should be “to increase sales by 15 percent in the next quarter” not “Increase sales as much as possible.”

Develop premises

Planning requires making some assumptions about the future. We know that conditions will change as plans are implemented and managers need to make forecasts about what the changes will be. These include changes in external conditions (laws and regulations, competitors’ actions, new technology being available) and internal conditions (what the budget will be, the outcome of employee training, a new building being completed). These assumptions are called the plan premises. It is important that these premises be clearly stated at the start of the planning process. Managers need to monitor conditions as the plan is implemented. If the premises are not proven accurate, the plan will likely have to be changed.

Evaluate alternatives

There may be more than one way to achieve a goal. For example, to increase sales by 12 percent, a company could hire more salespeople, lower prices, create a new marketing plan, expand into a new area, or take over a competitor. Managers need to identify possible alternatives and evaluate how difficult it would be to implement each one and how likely each one would lead to success. It is valuable for managers to seek input from different sources when identifying alternatives. Different perspectives can provide different solutions.

Identify resources

Next, managers must determine the resources needed to implement the plan. They must examine the resources the organization currently has, what new resources will be needed, when the resources will be needed, and where they will come from. The resources could include people with particular skills and experience, equipment and machinery, technology, or money. This step needs to be done in conjunction with the previous one, because each alternative requires different resources. Part of the evaluation process is determining the cost and availability of resources.

Plan and implement tasks

Management will next create a road map that takes the organization from where it is to its goal. It will define tasks at different levels in the organizations, the sequence for completing the tasks, and the interdependence of the tasks identified. Techniques such as Gantt charts and critical path planning are often used to help establish and track schedules and priorities.

Determine Tracking and Evaluation methods

It is very important that managers can track the progress of the plan. The plan should determine which tasks are most critical, which tasks are most likely to encounter problems, and which could cause bottlenecks that could delay the overall plan. Managers can then determine performance and schedule milestones to track progress. Regular monitoring and adjustment as the plan is implemented should be built into the process to assure things stay on track.

Master Production Scheduling

A master production schedule (MPS) is a plan for individual commodities to be produced in each time period such as production, staffing, inventory, etc. It is usually linked to manufacturing where the plan indicates when and how much of each product will be demanded. This plan quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods. Since a MPS drives much factory activity, its accuracy and viability dramatically affect profitability. Typical MPSs are created by software with user tweaking.

Due to software limitations, but especially the intense work required by the “master production schedulers”, schedules do not include every aspect of production, but only key elements that have proven their control effectivity, such as forecast demand, production costs, inventory costs, lead time, working hours, capacity, inventory levels, available storage, and parts supply. The choice of what to model varies among companies and factories. The MPS is a statement of what the company expects to produce and purchase (i.e. quantity to be produced, staffing levels, dates, available to promise, projected balance).

The MPS translates the customer demand (sales orders, PIR’s), into a build plan using planned orders in a true component scheduling environment. Using MPS helps avoid shortages, costly expediting, last minute scheduling, and inefficient allocation of resources. Working with MPS allows businesses to consolidate planned parts, produce master schedules and forecasts for any level of the Bill of Material (BOM) for any type of part.

A master production schedule may be necessary for organizations to synchronize their operations and become more efficient. An effective MPS ultimately will:

• Give production, planning, purchasing, and management the information to plan and control manufacturing.
• Tie overall business planning and forecasting to detail operations.
• Enable marketing to make legitimate delivery commitments to warehouses and customers.
• Increase the efficiency and accuracy of a company’s manufacturing.
• Rough cut capacity planning.

MPS issues:

• Width of the time bucket
• Planning horizon
• Rolling plan
• Time fencing
• Schedule freezing

Characteristics

Change oriented: Project management is a vehicle for planning and managing change in an organized manner. It adopts flexibility in doing things in a risky environment.

Objectives oriented: Project management is focused on achieving specific project objectives with customer satisfaction. It is results-oriented.

Single Responsibility Center: The project manager is the single responsibility center accountable for project outcomes. The role of project manager is crucial from inception to completion of the project. He is a project leader and champion. He motivates team members to excel.

Functional Coordination: Project management requires coordination along functional lines. The work flow is both vertical and horizontal in a matrix organization structure.

Planning and Control: Project management required integrated planning and control systems for continuous improvement.

Team-based: Project management consists of a multi-disciplinary project team with a wide range of skill and experiences. The team has project dedication. Each member has responsibility and accountability for a unit of work. Self-management is emphasized. So is member participation. The team membership is flexible and changes with project needs.

Constraints: Project management achieves results within the constraints of time, cost and quality. It is a time and resources limited activity. It is focused on customer needs.

Body of Knowledge: Project management consists of a body of knowledge like;

• Scope Management
• Time Management
• Change Management
• Integration Management
• Cost Management
• Quality Management
• Human Resource Management
• Conflict Management
• Risk Management
• Procurement Management

Importance of Project Management

Project management includes: Identifying requirements, establishing clear and achievable objectives, balancing the competing demands from the different stakeholders and ensuring that a commonality of purpose is achieved. It is clear that unless there is a structured and scientific approach to the practice of management, organizations would find themselves adrift in the Ocean called organizational development and hence would be unable to meet the myriad challenges that the modern era throws at them. Hence, the importance of project management to organizations cannot be emphasized more and the succeeding paragraphs provide some reasons why organizations must take the practice of project management seriously.

Without a scientific approach to the task of managing the projects and achieving objectives, it would be very difficult for the organizations to successfully execute the projects within the constraints of time, scope and quality and deliver the required result. In other words, there has to be a framework and a defined way of doing things to ensure that there is a structure to the art of project management.

Thus, project management is about creating structure and managing the project commitments and the delivery of agreed upon results. By using the methods of project management as described in the PMBOK and allied technical journals, organizations can seek to achieve control over the project environment and ensure that the project deliverables are being managed. Managers face what is known as the “triple constraint”. This is the competing demands of time, scope and quality upon the project manager’s list of things to do and how well the project manager manages these constraints goes a long way in determining the success of the project. Without the use of Project Management, managers and organizations would find themselves facing an unpredictable and chaotic environment over which they have little control. Thus, Project Management is both necessary and essential to the success of the project.

Improve internal communications

Working together can be hard. With more efficient project management processes, you can reduce the complexity of collaboration, increase transparency, and ensure accountability, even when you’re working across teams or departments.

Iterate on your successes

Project management helps you to scale high performance and build on your team’s best practices. By using the data and learnings from previous projects, you’re able to pinpoint where your team is excelling and where there’s room for improvement. And by measuring your KPIs you can create and track personalized benchmarks to understand how your team is performing project over project.

Save time and money

With the right planning, you can ensure that your work is delivered on time and within budget. Using project management methods, you can map your project’s journey from the outset and know in advance where the deadlines and projected spend are going to fall, so you can more efficiently allocate your resources, helping you to avoid delays and project overspend.

Make better business decisions

With clearer records of how your project is progressing, you get a deeper understanding of where your resources are being spent, what you need to prioritize and when, and if you’re at risk of going off track. Good project management means that you can forecast issues before they become issues, prevent bottlenecks, and make smarter, data-driven decisions.

Non-Numeric Project Selection Models

1. The Sacred Cow

The senior and he powerful official in the company suggest the project in this case. Mostly the project is simply initiated from an apparent opportunity or chance which follows an un-established idea for a new product, for the designing & adoption of the latest information system with universal database, for the establishment of a new market or for some other category of project that demands the investment of the resources of the organization.

The project is created as an immediate result of this bland approach for investigating whatever the boss has proposed. The sacredness of the project reflects the fact that it will be continued until ended or until the boss himself announces the failure of the idea & ends it.

2. The Operating Necessity

If a plant is threatened by the flood then it is not much complex and effortful to start a project for developing a protective desk. This is the best example of operating a necessity. Potential projects are evaluated by using this criterion of project selection by the XYZ steel corporation.

Certain questions come in front of the project is needed in order to keep the system functioning like is the estimated cost of the project is effective for the system? If the answer to such an important question is yes, then the project costs should be analyzed to ensure that these are maintained as the minimum and compatible with the success of the project. However, the project should be financed.

3. The Competitive Necessity

In the late 1960s, XYZ Steel considered an important plant rebuilding project by using this criterion in its steel bar producing facilities near Chicago. It was clear to the management of the company that certain modernization is required in its bar mill in order to keep the current competitive position in the market area of Chicago.

Perhaps the project has a modern planning process, the desire to keep the competitive position of the company in the market provide a basis for making such a decision to carry on the project. Similarly, certain undergraduate and Master in Business Administration (MBA) programs are restructured in the offerings of many universities to keep their competitive position in the academic market.

Precedence is taken by the operating necessity projects over competitive necessity projects regarding investment. But both of these types of project selection models are considered much useful & effective as compared to other select models.

4. The Product Line Extension

In case of the product line extension, a project considered for development & distribution of new products will be evaluated on the basis of the extent to which it suits the company’s current product lines, fortify a weak line, fills a gap, or enhanced the line in a new & desirable direction.

In certain cases, careful evaluations of profitability is not needed. The decision-makers can perform actions on the basis of their belief about the probable influence of the addition of the new product to the line over the entire performance of the system.

5. Comparative Benefit Model

According to this selection model, there are several projects that are being considered by the organization. That subset of the projects that are selected by the senior management of the organization can provide the most benefits to the company. But comparing various projects is not an easy task.

For example, some projects are related to the new products, some are related to the computerization of particular records, others are related to make alterations in the method of production and some of them may contain such areas that cannot be easily categorized.

There is no formal method of selection of projects in the organization but it is the perception of the selection committee members that certain projects will benefit the company more than the others even they lack the suitable way to specify or measure the proposed benefit.

For all sorts of projects, if not a formal model, the concept of comparative benefits is enormously used for selection decisions. United States Companies considering various social programs for providing funds to them to use this concept to make the decisions.

All the considered projects with positive recommendations are examined by the senior management of the funding organization in order to make an effort to develop a portfolio that can effectively suit the objectives & budgets of the organization.

6. Q-Sort Model

The Q-Sort model is one of the most straightforward techniques for ordering projects. According to their relative merits, the projects are first divided into three groups which are Good, Fair and Poor. The main group is further subdivided into the two types of fair-minus and fair-plus if any group has more than eight members.

The projects within each type are ranked from best to worst when all types have eight or fewer members. Again relative merit provides the basis for determining the order. The specific criterion is used by the rater to rank each project or he may merely use general entire judgment.

Numeric Project Selection Models (Profit/Profitability)

Payback Period

The initial fixed investment in the project divided by the forecasted annual net cash inflows from the project is referred to as the payback period for the project. The number of years needed by the project to refund its initial fixed investment is reflected in the ratio of these quantities.

This method supposes that the cash inflows will die-hard to the minimum extent to pay back the investment, and any cash inflows outside the payback period are ignored. This method also functions as an inadequate representative for the risk. The company faces less risk when it recovers the initial investment fast.

Average Rate of Return

The ratio of the average annual profit (either after or before taxes) to the average or initial investment in the project is referred to as the average rate of return. It is mostly misunderstood as the reciprocal of the payback period.

Discounted Cash Flow

The discounted cash flow method is also called the Net Present Value (NPV) method. The net present value of all cash flows is determined by discounting them by the required rate of return in this method.

Project Selection Models

Where k = the required rate of return

Ft = the net cash flow in period t

Ao = the initial cash investment

Internal Rate of Return (IRR)

If there are two sets expected cash flows, one for expected cash inflows and other for expected cash outflows then the Internal Rate of Return is the discount rate that equalizes the present value of the two sets of flows. If Rt is the forecasted cash inflow for period t and At is a forecasted cash outflow in the period t, the internal rate of return is the value of k that satisfies the following equation.

Profitability Index

The net present value of all future expected cash flows divided by the initial investment is referred to as the profitability index. The profitability index is also called the benefit-cost ratio. The project may be accepted if this ratio is higher than 1.0.

Other Profitability Models

The models just explained have different variations that fall into the following three groups:

• Those that contain particular terms to acquaint risk (uncertainty) into the assessment.
• Those that further split the net cash flow into components that make up the net flow.
• Those that widen the analysis to view impacts that the project can have on activities or projects in the company.