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Semiester - 4

Project Planning , Analysis and Management

Project Projects create productive assets. It acts as prime movers of economic development of any country. It is accomplished
by performing a set o activities. For example construction of a house is a project. A project consumes resources. The resources required for completing a project are men, material, money and time. The nature of resources is that they are limited and scarce. If a person wants to construct a house, the first thing that comes to his mind is the financial budget within which the work should be completed. Thus, resource is a feature of all projects. According to Harrison - "a project can be defined as non-routine, non repetitive, one off undertaking, normally with discrete time, financial and technical performance goals"

Project Characteristics
Objectives a project has a set of objective or a mission. For example, the objective of a project may be construction of a highway connecting two cities. Once the construction of highway completed the projects comes to an end. Life cycle a project has a life cycle. The life cycle consists of the following stages- conception stage, design stage, implementation stage, commissioning stage. Definite time limit - a project has a definite time limit. It cannot continue ever. Construction of a highway connecting two cities is a project which is to be completed within a given time limit. Uniqueness a project is unique and no two projects are similar. Teamwork a project normally consists of diverse areas. There will be personnel specialized in their respective areas. Coordination among the diversed areas calls for teamwork. Hence, a project can be implemented only with teamwork. Complexity - Technology survey, hiring the right kind of people, arranging for financial resources, and execution of the project in the time e.tc. Contribute to the complexity of the project. Sub contracting It will be advantageous if it reduces the complexity of the project so that the project manger can co ordinate the remaining activities of the project more effectively. Rational choice project is done after making a study of all the available avenues for investing resources and rational choice among the available avenues made. Multidisciplinary projects are multidisciplinary in nature. They make use of the knowledge and expertise of different kinds of people.

Steps in managing a project

1. Define the problem = Identify the problem to be solved by the project. It helps to visualize the desired end result. What will be different? What will you see, hear, taste, touch, or smell? What client need is being satisfied by the project? 2. Develop solution options = How many different ways might you go about solving the problem? Of the available alternatives, which do you think will best solve the problem? Is it more or less costly than other suitable choices? Will it result in a complete or only a partial fix? 3. Plan the project. Planning is answering questions = what must be done, by whom, for how much, how, when, and so on. 4. Execute the plan = Once the plan is drafted, it must be implemented. Interestingly, people sometimes go to great effort to put together a plan, and then fail to follow it. If a plan is not followed, there is not much point in planning, is there? 5. Monitor and control progress = Plans are developed so that you can achieve your end result successfully. Unless progress is monitored, you cannot be sure you will succeed. 6. Close the project = Once the destination has been reached, the project is finished, but there is a final step that should be taken. Some people call it an audit, others a postmortem.

Project Planning , Analysis and Management

Type of project

Based on the type of activity project can be classified as industrial project and non industrial projects. Industrial projects are set up of production of some goods. Investments in non industrial projects are made by government and the benefits from such projects are enjoyed by the entire society of people. Based on the location of the project projects can be classified as national projects and international projects. National projects are those set up within the national boundaries of a country, while international projects are set up in others countries. Handling of international projects needs more expertise and greater efforts in view of higher risk. Based on project completion time projects can be classified into two types, normal projects and crash project. Normal projects are those for which there is no constraint on time. Crash project are those which are to be completed within a stipulated time, even at the cost of ending up with a higher project cost. Based on need projects can be classified under the following groups, based on the need for project- new project, balancing project, expansion project, modernization project, replacement project. Based on size project can be classified based on the size into three categories small projects, medium project and large projects. As per directives of the govt. of India, project with investment on plant and machinery up to rupees 1 crore are categorized as small project while those with investment in plant and machinery above rupees 100 crore are categorized as large project. Project with investment limit between these two categories are medium scale projects. Based on ownership projects can be classified into private sector projects, public sector projects and joint venture projects. A private sector project is one in which the ownership is completely in the hands of the project promoters and investors. Profit maximization is the prime objective of private sector projects. Public sector project are those that are owned by the state. The evolution and growth of public sector enterprises is the natural consequence of the efforts of government for undertaking developments in a country. Joint sector projects are those in which the ownership is shared by the government and by private entrepreneurs. The main consideration for government's investment in joint sector projects is to make use of the managerial talents and marketing skills of the private entrepreneurs.

Project management project management is an organized venture for managing projects. It involves scientific application
of modern tools and techniques in planning, financing, monitoring, controlling and coordinating unique activities or tasks to produce desirable outputs in accordance with the pre determined objectives within the constraints of time and cost. It was considered to be the prerogative of construction companies. Now days, many aspects of business like innovating new product, implementing a new process e.tc are treated as projects. Project management consists of the following stages Project planning Project scheduling Project implementation, Controlling and monitoring. Every person, every organization and every nation is concerned with project management. An individual builds a house. It is his project .Projects is the backbone of any organization since they help to create productive assets. Project offer a challenging environment since draw the expertise and experiences of different persons and channelize then towards efficient utilization for the creation of productive assets. Project management as a technique is assuming greater importance since it at optimum utilization of resource. Every person is practicing project management in his day to day life. When a person uses the shortest route to reach his office, it involves all the stages of project management. Attributes of good product manager an effective project manager is one who should have the following skills/ capacities Planning & organizational skills Personnel management skills Change orientation Communication skills High energy levels Effective time management Integration skills Team building skills Resource allocation skills.

Project Planning , Analysis and Management Unit 1 Generation & Screening of Project Idea Generation of Ideas Barring truly new ideas which are

based on significant technological breakthroughs, most of the project ideas involve combining existing fields of technology or offering variants of present product or service. The typical route may be described as follows Someone with specialized technical knowledge. Someone other competence feels that he can offer a product or service which can cater to a presently unmet need. Serve a market where demand exceeds supply. Effectively compete with similar products or service because of certain favorable features like better quality or lower prices. His ideas are endorsed by his associates who encourage him and even show willingness to collaborate with him on the proposal. Finally he receives support from financial institutions and banks that approve his project and show readiness to finance it.

Stimulating the flow of ideas

Swot Analysis - Swot analysis represents a conscious, deliberate and systematic effort by an organization to identify opportunities that can be profitably exploited by it. Periodic Swot analysis facilitates the generation of ideas. Clear Articulation A clear articulation and prioritization of objectives helps in channelizing the efforts of employees and prods them to think more imaginatively. The operational objective of a firm like cost reduction, productivity improvement e.tc Fostering a Conductive Climate To tap the creativity of people and to harness their entrepreneurial urges, a conductive organizational climate has to be fostered. Organization like Hindustan Lever is a prominent example in India has successfully used suggestion schemes to motivate employees to think more creatively.

Scouting or Control or Spying for Project Ideas -Good project ideas the key to success is elusive. So a wide variety of source should be tapped to identify them, here are some suggestions in this regard Analyze economic and social trends a study of economic and social trends is helpful in projecting demand for various goods and services. Changing economic conditions and consumer preference provide new business opportunities. Study new technological development new products or new processes or technologies for existing products developed by research laboratories may be examined for profitable commercialization. Draw clues from consumption abroad entrepreneurs willing to take risks may identify projects for the manufacture of products or supply of services which are new to the country but extensively used abroad. Attend trade fairs national and international trade provide an excellent opportunity to get to know about new products and development. Stimulate creativity for generating new product ideas new product ideas may be generated by thinking along the following lines modification, reversal, magnification, adaptation and combination. Identify unfulfilled psychological needs for well established, multi brand product groups like bathing soap, cosmetics, toothpaste e.tc the question to be asked is whether there are certain psychological needs of the customers which are presently unfulfilled. Analyze the performance of existing Industries a study of existing industries in terms of their profitability and capacity utilization can indicate promising investment opportunities. Review import and exports indigenous manufacture of goods currently imported is advantageous for several reasons: it improves the balance of payments situation, it generates employment. Investigate local materials and resources project ideas may begin with an investigation into local resource and skills. Various ways of adding value to locally available materials may be examined. The skills of local artisans may suggest products that may be profitably produced and marketed. Look at the suggestions of financial institutions and developmental agencies

Project Planning , Analysis and Management

Preliminary screening It is required to eliminate ideas which prima facie are not promising. For this purpose, the following
aspect may be looked into. 1. Compatibility with the promoter The must be compatibility with the interest, personality and resources of the entrepreneur. According to Murphy, a real opportunity has three characteristics. It fits the personality of the entrepreneur. It is accessible to him. It offers him the prospect of rapid growth and high return on the invested capital. 2. Consistency with the government priorities The project idea must be feasible given the national and governmental regulatory framework. The questions to be raised in this context are Is the project consistent with the national goals and priorities? Can foreign exchange requirement of the project be easily accommodated? Will there be any difficulty in obtaining the license of the project? 3. Availability of input The resources and input required for the project must be reasonably assured. To assess this, the following questions need to be answered Are the capital requirements of the project within manageable limits? Can technical knowhow required for the project is obtained? 4. Adequacy of market The size of the present market must offer the prospect of the adequate sales volume. To judge the adequacy of the market the following factors have to be examined - *Export markets*Patent projection*Sales and distribution system 5. Reasonableness of cost The cost structure of the proposed project must enable it to realize an acceptable profit with a price. The following should be examined in this regard Economics of scale Labour cost Factory Overheads Service cost 6. Acceptability of risk level In the assessment of risk a difficult task, indeed the following factors should be considered Technological change Competition from imports Vulnerability of business cycle

Project Rating Index / Preliminary Evaluation

When a firm evaluates a large number of project ideas regularly, it may be helpful to streaming the process of preliminary screening. For this purpose, a preliminary evaluation may be translated into a project rating index. The steps involved in determining the project rating index are as follows Identify factors relevant for project rating Assign weights to these factors Rate the project proposal on various factors, using a suitable rating scale. For each factor, multiply the factor rating with the factor weight to get the factor score. Add all the factor score to get the overall project rating index.

Project Planning , Analysis and Management

Unit 2 Capital Expenditure, Marketing Demand & Situational Analysis Capital Expenditure Steel plant is considering building a new arc furnace, an insurance company is planning to install a
computer system. All these situations involve a capital expenditure decision. Capital expenditure also referred to as a capital investment or capital project. This involves a current outlay and future outlay of funds in the expectation of a stream of benefits. A capital expenditure from the accounting point of view is an expenditure which is shown as assets in balance sheet. It is governed by certain conventions, by some provisions of law, and by the management's desire to enhance or depress reported profits.

Capital expenditure of importance Capital expenditure decisions often represent the most important decisions taken by the firm. Their importance stems from three inter related reasons: Long term effects The scope of current manufacturing activities of firms is governed largely by capital expenditures in the past. Current capital expenditure decisions provide the framework for future activities. Capital investment decisions have an enormous bearing on the basic character of a firm. Irreversibility The market for used capital equipment in general is ill organized. Some types of capital equipment, custom made to meet specific requirement, the market may virtually be non-existent. A wrong capital investment decision often cannot be reversed without incurring a substantial loss. Substantial Outlay Capital expenditure usually involve substantial outlays. For example an integrated steel plant involves an outlays of several thousand million capital cost tend to increase with advance technology. Capital expenditure difficulties Capital expenditure decision are extremely important, they also pose difficulties which stem
three principal sources: Measurement problem Identifying and measuring the costs and benefits of a capital expenditure proposal tends to be difficult. Capital expenditure has a bearing on some other activities like cutting into the sales of some existing product and improving the morale of workers. Uncertainty It is impossible to predict exactly what will happen in the future. Hence, there is usually a great deal of uncertainty characterizing the costs and benefits of a capital expenditure decision. Temporal spread The costs and benefits associated with a capital expenditure decision are spread out over a long period, usually 10-20 years for industrial projects and 20-50 years for infrastructural projects. Such a temporal spread creates some problems in estimating discount rates and establishing equivalences.

Market demand is defined as the total amount of purchases of a product or family of products within a specified demographic.
The demographic may be based on factors such as age or gender, or involve the total amount of sales that are generated in a particular geographic location. Assessing market demand is one of the most important ways that businesses decide what to sell and how to go about selling the products they produce. Properly assessing the market demand for a given product is very important. Failure to accurately project the desirability of a good or service can lead to production levels that are in excess of the number of units that will actually be sold. As a result, the company is left with a huge inventory of finished goods that generate no profit at all. In some cases, failing to project market demand properly is enough to force a company to go out of business. The most common way to evaluate the desirability of goods and services within a given demographic is to implement a structured market demand analysis. Essentially, this process seeks to identify consumers who are attracted to the products enough to actually purchase them. As part of the market analysis, the research helps to identify the size of the market. This makes it possible to determine if the company needs to cultivate consumer interest in a particular demographic in order to generate new business or cultivate several different markets concurrently as a means of remaining profitable. Because market demand can change over time, companies invest resources in constantly checking the current status of consumer wants and needs. This ongoing process often allows companies to remain competitive with other businesses that also target the same markets, as well as keep the interest of current customers by making improvements to existing products and possibly introducing new products that are also of interest to those same customers.

Determinants of market demand

The size of the market. Ceteris paribus, a larger market means more demand, and a more outward market demand curve. The various determinants of individual demand, averaged across all economic actors in the market. The distribution of each of the determinants of individual demand across all economic actors in the market.

Project Planning , Analysis and Management Situational Analysis

- A systematic collection and evaluation of past and present economical, political, social, and technological data, aimed at identification of internal and external forces that may influence the organization's performance and choice of strategies, and assessment of the organization's current and future strengths, weaknesses, opportunities, and threats. Before developing any given marketing strategy it is important to conduct some form of analysis. This should form an essential part of any business or marketing plan and should be reviewed over time to ensure that it is kept current. Many of my clients often ask me what factors are important when doing this.

The elements worth considering include:

Product Situation - What is my current product? You may want to break this definition up into parts such as the core product and any secondary or supporting services or products that also make up what you sell. It is important to observe this in terms of its different parts in order to be able to relate this back to core client needs. Feel free to also discuss here which of your clients needs your product is meeting. Competitive situation - Analyze your main competitors who are they what are they up to how do they compare feature/ benefit analysis. What are their competitive advantages? Distribution Situation - Review your distribution Situation how are you getting your product to market? Do you need to go through distributors or other intermediaries? Environmental factors - What external and internal environmental factors are there that need to be taken into account. This can include economic or sociological factors that impact on your performance. Opportunity and issue analysis - Which requires conduction a SWOT analysis? Things to write down her are what current opportunities that are available in the market, the main threats that business is facing and may face in the future, the strengths that the business can rely on and any weaknesses that may affect the business performance.

Project Planning , Analysis and Management

Unit 3 Technical Analysis, Financial Analysis of project risk What Is Technical Analysis? - Technical analysis is a method of evaluating securities by analyzing the statistics generated
by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns; others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued - the only thing that matters is a security's past trading data and what information this data can provide about where the security might move in the future.

The technical analysis is based on three assumption or principles:

1. The Market Discounts Everything - Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market. 2. Price Moves in Trends - In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. 3. History Tends To Repeat Itself - Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves

Aspects of Technical Analysis

1. Selection of process/ technology The choice of technology also depends upon the quality and quantity of the product proposed to be manufactured. Choosing the latest technology it must be seen that the technology has been proved successful for large scale production. Technology can be purchased outright if the cost of acquisition is affordable 2. Scale of operations it is signified by the size of plant. The plant size mainly depends on the markets for the output of the project. Economic size of the plant varies from project to project. The final decision on the plant size is circumscribed by a number of factors, the main factor being the promoter's ability to raise the funds required to implement the project. 3. Raw material The manufacturing process and the machinery/equipment to be used also to a larger extent depend upon the raw material , the type of raw material to be used should be chosen carefully after analyzing various factors like the cost of different raw material available , the transportation cost involved e.tc 4. Technical know-how Agreement should be executed between the project promoter and the know-how supplier incorporating all essential features of know-how transfer. The agreement should also include penalty clause for non performance of any of the condition stipulated in the agreement. 5. Collaboration Agreements If the project promoters have entered into agreement with foreign collaborators, the terms and condition. The collaboration agreement should have necessary approval of the government of India and does not infringe upon any right. 6. Product mix Customer differ in their needs and preference. In order to enable the project to produce goods of varying size and quality as per the requirements of the customers, the production facilities should be planned with an element of flexibility. 7. Selection of plant and machinery - The machinery and equipment required for a project depends upon the production technology proposed to be adopted and the size of the plant proposed. Capacity of each machinery is to be decided by making a rough estimate. Procurement of plant and machinery Plant and machinery form the backbone of any industry. The quality of output depends upon the quality of machinery used in processing the raw materials. 8. Plant layout Plant layout is the arrangement of the various production facilities within the production area. Plant layout should be so arranged that it ensures steady flow of production and minimizes the overall cost.

Project Planning , Analysis and Management

Unit 4 Firm & Market Risk, Social cost Benefit Analysis What is Market Risk? The only widely accepted theoretically derived measure of risk is market risk. Firms market risk or
more commonly known as beta follows directly from the Capital Asset Pricing Model Simply put, market risk measures the degree to which stocks returns co vary with the returns of the portfolio of all the assets in the economy. This is a systemic risk which is priced because it cant be diversified away. A stock with lower beta should have lower cost of capital and larger firm value. However, CAPM remains a popular tool among practitioners when it comes to estimating cost of equity capital

How is Market Risk Measured?

CAPM involves expected stock and economic returns. But for the estimation of beta we use historical stock returns data. The economic returns are proxied by the returns of value-weighted portfolio of all the stocks traded in the economy (market returns). Apart from stock returns, we need the data on risk free return which is generally proxied by the Treasury bond returns. We estimated the following linear model using OLS rit = + Mktt Where, rit is excess stock return over risk free rate, Mktt is excess market return over risk free rate, and is the estimate of market risk Most often CAPM is estimated using monthly returns. For reliable estimation of beta you will need a sufficiently long time-series of betas: 36-60 months. If you dont have observations available on this long series, or if you want to estimate beta yearly, you can use weekly returns.. In some cases researcher use daily data as well. But daily stock returns series exhibits serial correlation which should be taken into account while estimating CAPM.

Social cost benefits analysis The main objective of an individual, a firm or a company in investing on a project is to earn
the maximum possible returns for the investment. Hence the project promoters tend to evaluate only the commercial profitability of a project. There are some projects that may not offer attractive returns as far as commercial profitability is concerned, but still such projects are undertaken since they have social implication. Such projects are public project like road, railway, and power projects e.tc. such project are analyzed for their net socio economic benefits and the profit ability analysis of such projects is known as national profitability analysis , which is nothing but the socio economic cost benefit analysis done at the national level.

Scope of SCBA
Public Investment: SCBA is important especially for the developing countries where govt. plays a significant role in the economic development. Private Investment: Here, SCBA is also important as the private investments are to be approved by various governmental & quasi-governmental agencies.

Objectives of SCBA - The main focus of Social Cost Benefit Analysis is to determine:
Economic benefits of the project in terms of shadow prices; The impact of the project on the level of savings and investments in the society; The impact of the project on the distribution of income in the society; The contribution of the project towards the fulfillment of certain merit wants (self- sufficiency, employment etc).

Role of SCBA
Improve transparency in decision making. Communicates and explain why results are as presented. Provide a frame work to weigh effects with each other. Provide insight in individual and aggregate effects. Open discussion among stakeholders and decision makers. Approaches to SCBA - There are two principal approaches for Social Cost Benefit Analysis. UNIDO Approach, L-M Approach.

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Unit 5 Multiple Project constraints -In the existing environment, an organisation cannot consider a capital investment
project individually as certain pre-conditions require to be fulfilled.

Constraints: Project dependence, capital rationing and project indivisibility are factors that restrict isolated project selection. If the
acceptance and rejection of one influences the cash flow stream of the other, then the two projects are said to be economically dependent. The three types of economic dependency are as follows: Mutual exclusiveness Negative dependency Positive dependency Capital rationing occurs when funds available are not adequate to undertake all the projects that are acceptable otherwise. It also arises because of internal limitation or an external constraint. A project cannot be accepted or rejected partially, it is indivisible, and has to be accepted or rejected in totality.

Methods for comparison: Factors like economic dependency, capital rationing or project indivisibility emphasize the need for comparison of projects. The methods used for comparing projects are: 1. Method of ranking: Joel Dean originally proposes a method of ranking. It consists of two steps: A. Ranking all the projects in decreasing order of the NPVs, IRRs, or BCRs. Assumptions in these 4 methods are: NPV method: The intermediate cash flow is re-invested at a rate of return equal to the cost of capital of the firm. IRR method: Cash flow is re-invested at a rate of return equal to or greater than the Fisherian rate of return. BCR criterion: The intermediate funds are reinvested at a rate of return greater than the Fisherian rate of return. Accepting all projects in that order until the capital budget is exhausted. B. All combination of feasible projects should be defined, given the capital rationing constraint and project dependencies. Then choosing a combination having the highest NPV is known as the feasible combination procedure. Problems: There are two major problems related to this method Because of the discounted cash flow criteria, conflict arises in the ranking. Indivisibility of the project. 2. Mathematical programming approach: Two broad categories of equations are considered for formulations in the mathematical programming approach: The objective function and The constraint equations. The following three models are commonly used: 1. Linear programming model: Assumes that the objective function and the constraint equation are linear while the decision variables are continuous. 2. Integer linear programming model: It is presupposed that decision variables assume a value of 0 or 1. Advantages of the method: It overcomes the problem of partial projects which besets the linear programming model and. It is capable of handling virtually any kind of project interdependency like mutual exclusiveness, contingency and complementary. 3. Goal programming model: It solves the programming problem of minimizing the absolute deviation from specific goals in order of the established priority structure.

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Multi-Tasking: Why projects take so long and still go late - In most project environments multi-tasking is a way of life. This
seemingly harmless activity, often celebrated as a desirable skill, is one of the biggest culprits in late projects, long project durations, and low project output. At the same time it is one of the least understood factors in managing projects. For companies where projects are of strategic importance, the stakes are very high. Whether it is delivering their product or service, bringing new products to market, or expanding/ upgrading their operations with new facilities, systems, or capabilities, the financial impact of being able to reduce project durations and costs, increase the volume of completed projects, or simply deliver more projects on-time is enormous. So understanding how this often overlooked practice of multi-tasking is of critical importance to most companies.

Is Multi-tasking really so prevalent? - Since multi-tasking is difficult to see or measure precisely, we need to look at some other things to answer this question. The first issue is to understand the opportunity to multi-task. The way to see if your organization has the opportunity to do bad multi-tasking is ask how many jobs/ tasks an individual has on their desk at any given point in time. If there is more than one task that could be worked on a persons desk then there is the opportunity for multi-tasking. When we ask managers how many tasks are on any given persons desk at one time, the not surprising answer is usually more than five. Another way to look at it is to recognize that in most organizations where multiple projects are being done simultaneously, the resources who do the work on a project have to serve multiple, different project managers. For these project managers what is most important tends to be their projects. As a result they typically create pressure on resources to do their work first, institutionalizing multitasking. And when the multi-tasking starts to creep in, it initiates a negative spiral that only increases the pressure to multi-task. If one resource starts the multi-tasking, it delays the completion of their tasks, putting some projects behind. This increases the pressure on project managers and executives to adjust priorities to compensate, which in turn creates more, bad multi-tasking. Its not hard to see how this spiral quickly becomes the reality we see in many organizations where managers at all levels are quickly pulled into managing work priorities across the organization on a daily basis. On top of it, many resources who work on projects also support daily operational functions like QA/ QC, production, engineering, customer service. This support role means that they are frequently presented with unexpected, usually urgent things to do which readily drive more multi-tasking. The result is that in the majority of companies there is the opportunity and the pressure to create a significant amount of bad multi-tasking.

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Unit 6 Network Techniques for project management Project Planning / Network scheduling techniques -Project scheduling is concerned with the techniques that can
be employed to manage the activities that need to be undertaken during the development of a project.

Scheduling is carried out in advance of the project commencing and involves:

Identifying the tasks that need to be carried out; Estimating how long they will take; Allocating resources (mainly personnel); Scheduling when the tasks will occur. Once the project is underway control needs to be exerted to ensure that the plan continues to represent the best prediction of what will occur in the future: Based on what occurs during the development; Often necessitates revision of the plan. Effective project planning will help to ensure that the systems are delivered: Within cost; Within the time constraint; To a specific standard of quality

The three basic project planning techniques are Gantt chart, CPM and PERT - All monitor progress and costs against
resource budgets.

Gantt chart - Gantt charts are also called Bar charts. The use of Gantt charts started during the industrial revolution of the late
1800's. An early industrial engineer named Henry Gantt developed these charts to improve factory efficiency. Gantt chart is now commonly used for scheduling the tasks and tracking the progress of energy management projects. Gantt charts are developed using bars to represent each task. The length of the bar shows how long the task is expected to take to complete. Duration is easily shown on Gantt charts. Sequence is not well shown on Gantt Charts. Gantt charts produced in this form are: graphical; easy to read; and easy to update. Gantt chart is the simplest and quickest method for formal planning. Gantt charts can be very useful in planning projects with a limited number of tasks and with few inter-relationships. This chart typically depicts activities as horizontal lines whose length depends on the time needed to complete the activities. These lines can be progressively overprinted to show how much of activity has been completed. A Gantt chart is a horizontal bar or line chart which will commonly include the following features: Activities identified on the left hand side; Time scale is drawn on the top (or bottom) of the chart; A horizontal open oblong or a line is drawn against each activity indicating estimated duration; Dependencies between activities are shown; At a review point the oblongs are shaded to represent the actual time spent; A vertical cursor placed at the review point makes it possible to establish activities which are behind or ahead of schedule.

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CPM - Critical Path Method - DuPont developed a CPM designed to address the challenge of shutting down chemical plants
for maintenance and then restarting the plants once the Maintenance had been completed. Complex project require a series of activities, some of which must be performed sequentially and others that can be performed in parallel with other activities. This collection of series and parallel tasks can be modeled as a network. CPM models the activities and events of a project as a network. Activities are shown as nodes on the network and events that signify the beginning or ending of activities are shown as arcs or lines between the nodes.

Steps in CPM Project Planning

Specify the individual activities - All the activities in the project are listed. This list can be used as the basis for adding sequence and duration information in later steps. Determine the sequence of the activities - Some activities are dependent on the completion of other activities. A list of the immediate predecessors of each activity is useful for constructing the CPM network diagram. Draw the Network Diagram - Once the activities and their sequences have been defined, the CPM diagram can be drawn. CPM originally was developed as an activity on node network. Estimate activity completion time - The time required to complete each activity can be estimated using past experience. CPM does not take into account variation in the completion time. Identify the Critical Path - The critical path is the longest-duration path through the network. The significance of the critical path is that the activities that lie on it cannot be delayed without delaying the project. Because of its impact on the entire project, critical path analysis is an important aspect of project planning. Update CPM diagram - As the project progresses, the actual task completion times will be known and the network diagram can be updated to include this information. A new critical path may emerge, and structural changes may be made in the network if project requirements change.

CPM Benefits
Provides a graphical view of the project. Predicts the time required to complete the project. Shows which activities are critical to maintaining the schedule and which are not.

CPM Limitations - While CPM is easy to understand and use, it does not consider the time variations that can have a great impact
on the completion time of a complex project. CPM was developed for complex but fairly routine projects with minimum uncertainty in the project completion times. For less routine projects there is more uncertainty in the completion times, and this uncertainty limits its usefulness.

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PERT - The Program Evaluation and Review Technique (PERT) is a network model that allows for randomness in activity completion
times. PERT was developed in the late 1950's for the U.S. Navy's Polaris project having thousands of contractors. It has the potential to reduce both the time and cost required to complete a project. In a project, an activity is a task that must be performed and an event is a milestone marking the completion of one or more activities. Before an activity can begin, all of its predecessor activities must be completed. Project network models represent activities and milestones by arcs and nodes. PERT is typically represented as an activity on arc network, in which the activities are represented on the lines and milestones on the nodes. The milestones generally are numbered so that the ending node of an activity has a higher number than the beginning node.

Characteristics:
It forms the basis for all planning and predicting and provides management with the ability to plan. It enables management for best possible use of resources to achieve a given goal within time and cost limitations. It provides visibility and enables management to control ''one-of-a-kind" programs as opposed to repetitive situations.

Steps in the PERT Planning Process

1. Identify activities and milestones - The activities are the tasks required to complete the project. The milestones are the events marking the beginning and end of one or more activities. 2. Determine activity sequence - This step may be combined with the activity identification step since the activity sequence is known for some tasks. Other tasks may require more analysis to determine the exact order in which they must be performed. 3. Construct the Network Diagram - Using the activity sequence information, a network diagram can be drawn showing the sequence of the serial and parallel activities. 4. Estimate activity times - A distinguishing feature of PERT is its ability to deal with uncertainty in activity completion times. For each activity, the model usually includes three time estimates: Optimistic time (OT) Most likely time (MT) Pessimistic time (PT) 5. Determine the Critical Path - The critical path is determined by adding the times for the activities in each sequence and determining the longest path in the project. The critical path determines the total time required for the project. 6. Update as project progresses - As the project unfolds, the estimated times can be replaced with actual times. In cases where there are delays, additional resources may be needed to stay on schedule and the PERT chart may be modified to reflect the new situation.

Benefits of PERT
Expected project completion time. Probability of completion before a specified date. The critical path activities that directly impact the completion time. The activities that have slack time and that can lend resources to critical path activities. Activities start and end dates.

Limitations of PERT
Time and labor intensive effort is required. Upper-level management decision-making ability is reduced. There exists a lack of functional ownership in estimates. There exists a lack of historical data for timecost estimates. The assumption of unlimited resources may be inappropriate. There may exist the need for too much detail.

Project Planning , Analysis and Management The differences between PERT and CPM

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1. PERT uses three time estimates (optimistic, most likely, and pessimistic). From these estimates, an expected time can be derived. CPM uses one time estimate that represents the normal time (that is, better estimate accuracy with CPM). 2. PERT is probabilistic in nature, based on a beta distribution for each activity time and a normal distribution for expected time duration. This allows us to calculate the "risk" in completing a project. CPM is based on a single time estimate and is deterministic in nature. 3. Both PERT and CPM permit the use of dummy activities in order to develop the logic. 4. PERT is used for Research and Development projects where the risks in calculating time durations have a high variability. CPM is used for construction projects that are resource dependent and based on accurate time estimates. 5. PERT is used on those projects, such as Research and Development, where percent complete is almost impossible to determine except at completed milestones. CPM is used for those projects, such as construction, where percent complete can be determined with reasonable accuracy and customer billing can be accomplished based on percent complete.

Network Re-planning Techniques: There are two network re-planning techniques based almost entirely upon resources:
resource leveling and resource allocation. Resource leveling is an attempt to eliminate the manpower peaks and valleys by smoothing out the period-to-period resource requirements. The ideal situation is to do this without changing the end date. However, in reality, the end date moves out and additional costs are incurred. Resource allocation is an attempt to find the shortest possible critical path based upon the available or fixed resources. The problem with this approach is that the employees may not be qualified technically to perform on more than one activity in a network. Not all PERT/CPM networks permit such easy rescheduling of resources. Project managers should make every attempt to reallocate resources so as to reduce the critical path, provided that the slack was not intentionally planned as a safety valve. It is important to note here that transferring resources from slack paths to more critical paths is only one method for reducing expected project time. Several other methods are available. These are as follows: Elimination of some parts of the project Addition of more resources Parallelization of activities Shortening critical path activities Shortening early activities Shortening longest activities Shortening easiest activities Increasing the number of work hours per day In this regard, under the ideal situation, the project start and end dates are fixed, and performance within this time scale must be completed within the guidelines described by the statement of work. Should the scope of effort have to be reduced in order to meet other requirements, the contractor incurs a serious risk in that the project may be canceled, or performance expectations may no longer be possible

Project Planning , Analysis and Management Unit 7 Project Review & Administrative

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A Project is monitored during the implementation Phase so that time & cost overrun are minimised after a project is commissioned its Performance Is Periodically Reviewed to see whether its Performance has been in line with expectations. If things turn sour, the abandonment may also have to be examined.

Various facets of Project Review:1. Control of in progress projects: - A lot of efforts is expended in selecting capital projects, things often wrong in implementation phase. This is evident from the frequent cost &time over-runs witnessed in practice. There are two aspects of controlling in progress capital projects: Establishment of internal control procedures Use of regular progress reports 2. Post-completion audits:-An audit of a project after it has been commissioned is referred to as a post audit. Regular post completion audits of capital projects are: Provide a documented log of experience that may be valuable in improving future decision making Enable the firm in identifying individuals with superior abilities in planning and forecasting Help in discovering systematic biases in judgment Include healthy caution among project sponsors Serve as a useful training ground for promising executives who need broader business experience and exposure 3. Abandonment Analysis Capital expenditure mgt is a dynamic process. Its cannot be regarding as a commitment till the end of project life. As time roll-on, changes occur which can alter the attractiveness of projects or entire division. This technique used to analyze a new project can also be used to analyze whether an existing project should be continued or terminated. Behavioral issue in project Abandonment - The investment decision should be guided by the net present value. Applied to project "continuation Vs abandonment" decision the rule says: If the present value associated with abandonment is > Net present value associated with continuation. If the present value associated with continuation is > Net present value associated with abandonment 4. Administrative aspects of capital Budgeting Identification of promising investment opportunities Classification of investment Submission of proposals Decision making Preparation of capital budget & appropriation Implementation Performance review 5. Agency Problem Manager enjoys substantial autonomy and has a natural inclination to pursue their own goals. This is the agency problem. To prevent from being dislodged from their position, managers may try to achieve some acceptable level of performance as far as shareholder welfare is concerned. They seek to following: Preside over a big empire that gives them Power, stature, and high compensation. Pursue pet project that draw on their special skills and competencies so that their position in the organisation is entrenched. Enjoy generous compensation & lavish perquisites. Shirk efforts because identifying & implementing high NPV projects is very demanding proposition. Avoid risks because acceptance of high firm-specific risks, although quite acceptable to diversified shareholders, can threaten the security of their job and the growth prospects with the firm. Agency cost can be mitigated by monitoring the action and behaviour of managers & by offering them right incentives that motivate them to maximize value. By monitoring: - Its helps in checking more visible agency problems like empire building, excessive perquisites, managerial absenteeism, and frauds

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By incentive compensation:-A well conceived incentive compensation plan goes a long way in aligning the interest of managers and shareholders. Following guidelines in compensation plan: Integrated the incentive plan into total compensation architecture Select the right set of performance measure Use objective criteria Reward relative performance Lengthen the decision making horizon of the executives 6. Evaluating the capital budgeting System of an org.- Its may be evaluated in following criteria: Results Techniques Communication Decentralization Intelligibility Flexibility Control Review

Project Planning , Analysis and Management Unit 8 Project Financing in India

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Project financing defined as the raising of funds required to finance an economically separable capital investment proposal in which the lenders mainly rely on the estimated cash flow from the project to service their loans.

Project financing differs from conventional financing: In conventional financing, cash flow from different assets and businesses are co-mingled. In project financing, cash flow from the project related assets alone are considered for assessing the repaying capacity. In conventional financing, end use of the borrowed funds is not strictly monitored by the lenders. In project financing, the creditors ensure proper utilization of funds and creation of assets as envisaged in the project proposal. In conventional financing, the creditors are not interested in monitoring the performance of the enterprise and they are interested only in their money getting repaid. Project financiers are keen to watch the performance of the enterprise and suggest/take remedial measure as and when required to ensure that the project repays the debts out of its cash generation.

Sources of finance - After the project cost is ascertained, the sources of finances available for meeting the project cost are to be
analyzed and a proper combination of the different sources shall be chosen that is most suitable for the project. The various sources of finance can be divided into two categories - equity capital and debt capital (borrowed capital). Debt capital enforces upon the organisation an obligation for repayment of principal and payment of interest. Equity capital does not impose any such obligation it serves as a cushion at times when the business conditions are unfavorable leading to operational difficulties. The combination of equity and debt should be judiciously chosen, and it will vary according to the nature of the project. The following are the main sources of project finance Ordinary Share Equity shares are the source of permanent capital. Equity shareholder being the owner of the company bears the risk of ownership. They are entitled to dividend on their capital invested, only after interest obligations and dividends to preference share shareholder are paid. Preference Shares Preference share bear a predetermine rate of dividend. They have priority of claim over equity share in the matter of payment of dividend. If company incurs loss in a particular year, the dividend not paid during that year is to be carried forward and is to be paid in subsequent year/years when the company earns profit. Debentures Debentures are instruments for raising long term debt capital. The debenture holders are the creditors of the company. The company that has borrowed money by way of debentures has the obligation to repay interest and debt on specified dates. A company may also issue convertible debenture for mobilizing funds. Convertible debentures are those debentures that are convertible into equity shares at the option of the debenture holder. Bonds A bond is more or less similar to a debenture and these two terms are frequently interchangeable. In India, there is a tendency to reserve the term 'bond' to public debt securities issues by the government and public sector undertaking. Bridge finance Bridge loans are sanctioned by banks and financial institution in order to help speedy implementation of the project. In the absence of bridge loan, the project implementation may get delayed for want of sufficient funds. Deferred Credits - Machinery suppliers provide the facility of deferred credit, provided the credit- taker offers a bank guarantee. A project promoter wants to avail the deferred credit facilities offered by machinery supplier should approach a bank for offering guarantee for the repayment of deferred installments to the machinery supplier. Unsecured loans If there is some shortfall in the means of finance, the promoters can mobilize funds from their friends, relatives and well wishers in the form of loan to make good the shortfall. Such loans are always unsecured i.e. the lenders can not have any charge over the assets of the company. Terms loans The terms 'Term loan' denotes long term loans offered for financing. The period of principal repayment of such long term loans vary from 5-10 years depending upon the nature of the project. Term loans are offered by All India Financial Institutions like LIC, IDBI, UTI, ICICI etc. The term lending institutions stipulate a certain minimum contribution to be brought in by the project promoter towards meeting the project cost.

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Role of Financial institutions in project Financing - Project financed by a combination of equity and debt. This is more so in respect of larger projects because of arranging for equity capital to fund the entire project may not be feasible. Equity finance is made use of during the initial stage of project implementation. This is because financial institutions must insist the project promoters to mobilize equity capital before releasing their loan component. In India, All India financial institutions (like IDBI, ICICI, and IFCI), State financial corporations and banks undertake project financing. Non banking financing companies also do project financing, but their share stands very low. All India financial institutions and state finance institutions sometimes called development bankers. Banks are the custodian of public funds and thus they occupy the position of trustee. Hence, it is their bounden duty that they lend money only after very careful analysis and after getting it ensured that their money land in safe hands. Development finance institutions were set up with the objective of promoting industrial development. They played a significant role in helping new and first generation entrepreneurs in setting up industrial ventures. The lending decision is primarily governed by three conditions The capacity of the project to repay the loan along with interest obligations, out of its own cash generations. The value of security offered for the loan. The integrity and willingness of the borrower to repay the loan in time. The first and foremost criterion is that the project should be self sustaining that is it must be able to repay its obligation out of its own cash generation. If this criterion is fulfilled the many objective for which the project is set up, like creation of wealth, utilization of resources, creation of employment opportunities e.tc.

Project Planning , Analysis and Management UNIDO Approach:

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This approach is mainly based on the publication of UNIDO (United Nation Industrial Development Organization) named Guide to Practical Project Appraisal in 1978.

The UNIDO approach of Social Cost Benefit Analysis involves five stages:
Calculation of financial profitability of the project measured at market prices. Obtaining the net benefit of the project at shadow (efficiency) prices. (Objective of SCBA SCBA-1) Adjustment for the impact of the project on Savings & Investment. (Objective of SCBA-2) SCBA 2) Adjustment for the impact of the project on Income Distribution. (Objective of SCBA-3) Adjustment for the impact of the project on Merit and Demerit Goods whose social values differ from their economic values. (Objective of SCBA-4)

Stage one - Net Present value of a Project is calculated as:

Here, Vt = Value of outputs ts at market price at time t, Ct = Value of inputs at market price at time t., K = Discount Rate T = Lifetime of the project, I0 = Initial cost at the start of the project. The project is viewed as financially feasible if NPV > 0. Stage-2: Obtaining the net benefit of the project at economic (shadow) prices The Commercial Profitability analysis (calculated in stage - 1) would be sufficient only if the Project is operated in perfect market. Because, only in a perfect market, market prices can reflect the social value. If the market is imperfect (most of the cases in reality), net benefit of the Project is determined by assigning shadow prices price to inputs and outputs. Therefore, developing shadow prices is very much vital. General Principles of Shadow Pricing 1. Numeraire: A unit of account in which the values of inputs and outputs are to be expressed. Numeraire is determined at Domestic currency (BDT) rather than border price. Present value rather than future value. Because," a bird in the hand is worth two in the bush. Constant price rather than current price. 2. Tradability: Tradability refers to whether a good or service is tradable or non-tradable; non tradable; if tradable whether is fully traded or non-traded. traded. A good/service is tradable in the absence of or within limited trade barriers. A tradable good/service is actually traded when The import (export) supply is perfectly elastic over the relevant range of volume. All additional demand (production) must be made (consumed) by import (export) due to the full capaci capacity in the domestic industry (fulfillment of demand by domestic consumer). The import (CIF) price is less or the export (FOB) price is more than the domestic cost of production. 3. A good/service is non-tradable; if Its import (CIF) price is greater than its domestic cost of production, and/or Its export (FOB) price is less than its domestic cost of production. A tradable good/service that is not actually traded is called non-traded. non 4. Sources of Shadow Pricing: Depending on the impact of the project on national economy, there are three sources of shadow pricing Taxes: If the project augments domestic production, taxes should be excluded; If the project consumes existing fixed supply of nonnon traded inputs, tax should ould be included; For fully traded goods, tax should be ignored. Consumer Willingness to Pay (CWP): What a consumer wants to spend for a product or service. The difference between CWP and actual payment is called consumer surplus. Externalities: An externality lity is an external effect (either beneficial or harmful) causes from a project which is Not deliberately created by the project sponsors but is an incidental outcome. Beyond the control of the persons who are benefited or affected by it. Not traded in the market place

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Shadow Pricing of Externalities: Although valuation of external effects is difficult as they are often intangible in nature and there is no market price, shadow pricing of externalities may be made indirect means such as: The harmful effect ct of the bridge may be measured by the consumer willingness to pay for the output of the people which has been reduced due to the bridge. The cost of pollution may be estimated in terms of the loss of earnings as a result of damage to health caused by it. Capital: Investment of capital in a project causes to happen two things: Financial resources are converted into physical assets Financial resources are withdrawn from national pool of savings. Thus alternative projects are foregone and there is an opportunity cost of it. The shadow price of physical assets is calculated in the same manner in which inputs and outputs are calculated. The opportunity cost of capital (shadow price of capital) depends on the source from which the capital has generated. Stage 3: Adjustment for the impact of the project on Savings & Investment The purposes of this stage are to determine determine the amount of income gained or lost because of the project by different income groups (such as project other than business, government, workers, customers etc.) Evaluate the net impact of these gains and losses on savings Measure the adjustment factor for savings and thus the adjusted values for savings impact. Adjust the impact on savings to the net present value calculated in stage two. Stage 4: Adjustment for the impact of the project on Income Distribution Government considers a project as an investment for the redistribution of income in favor of economically weakens sections or economically backward regions. This stage provides a v value alue on the effects of a project on income distribution between rich & poor and among regions. Distribution Adjustment Factor (Weight) is calculated and the impacts of the project on income distribution have been valued by multiplying the adjustment factor factor with the particular income of a group. This value will then be added to the net present value re-calculated calculated in stage three to produce the social net present value of the project. Determination of Weights: It there are only two groups in a society, poor and rich, the determination of weight is just an iterative process between the analysts (at the bottom) and the planners (at the top). This is called bottom-up bottom approach. When more than two groups are involved, lved, weights are calculated by the elasticity of marginal utility of income. The marginal utility of income is the weight attached to an income is:

Where, wi = weight of income at ci level, ci = level of income of group I, b = base level of income that has a weight of 1.0, n = elasticity of the marginal utility of income Stage 5: Adjustment for Merit and Demerit Goods If there is no difference between the economic value of inputs and outputs and the social value of those, the UNIDO approach for project evaluation ends at stage four. In practical, there are some goods (merit goods), Social value of which exceed the economic value (e.g. oil, creation of employment etc.) and Also there are some goods (demerits goods), Social value of which is less than their economic value (e.g., cigarette, alcohol, high-grade high grade cosmetics etc.) Adjustment to the net present value of stage 4 is required if there is any difference between the social and economic value. The steps of adjustment procedure are: Estimating the present economic value Calculating the adjustment factor Multiplying the economic value by the adjustment factor to obtain the adjusted value Adding or subtracting the adjusted value to or from the net present value of the project project as calculated in stage four.

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L-M Approach: I.M.D Little & J.A.Mirlees have developed this approach for analysis of Social Cost-Benefit in Manual of Industrial Project Analysis in Developing Countries and Project Appraisal & Planning for Developing Countries. I.M.D. little and James A. Mirlees have developed an approach to SCBA which is famously known as L-M approach. The core of this approach is that the social cost of using a resource in developing countries differs widely from the price paid for it. Hence, it requires Shadow Prices to denote the real value of a resource to society. (Mentioned earlier)
Features of L-M Approach
L-M Numeraire is present uncommitted social income. An L-M method opts for savings as the yardstick of their entire approach. Present savings is more valuable to them than present consumption since the savings can be converted into investment for future. L-M approach rejects the consumption Numeraire of UNIDO approach since the authors (L & M) feel that the consumption of all level is valuable. This approach measures the cost and benefits in terms of international or border prices. Why Border prices? - Because the border prices represent the correct social opportunity costs or benefits of using or producing a traded goods.

Social Cost-Benefit Analysis (SCBA)

The resources inputs & outputs of a project are classified into mainly: Labor, Traded Goods &Non-traded Goods Therefore, to find out the real value of these resources, we should calculate 1. Shadow Wage Rate (SWR) - The purpose of computing the SWR is to determine the opportunity cost of employing an additional worker in the project. For this we have to determine The value of the output foregone due to the use of a unit of labor The cost of additional consumption due to the transfer of labor L-M suggests the following formula for calculating the SWR: SWR = m + (c'-c) + (1-1/s) (c-m) Here, m = marginal productivity of the wage earner, c'-c = cost of urbanization, (1-1/s) (c-m) = cost of additional committed consumption, c'= additional resources devoted to consumption, c = consumption of wage earner, 1 = value of uncommitted resources,1/s = value of committed resources, c-m = additional consumption of labor, c' (transportation system, e.g. road construction, motor vehicles) c (e.g. bus rent) = cost of urbanization (e.g. road construction) 2. Shadow price of Traded Goods - Shadow price of traded goods is simply its border or international price. If a good is exported, its shadow price is its FOB price; If a good is imported, its shadow price is its CIF price. 3. Shadow price of Non-traded Goods - Non-traded goods are those which do not enter into international trade by their very nature. (e.g. land, building, transportation) hence, no border price is observable for them. Ideally, Shadow price of Nontraded Good is defined in terms of marginal social cost (MSC) and marginal social benefit (MSB). L-M suggest that the monetary cost of non-traded goods be broken down into Labor SWR (Social Wage Rate), Tradable Social Conversion Factor (SCF),Residual components SCF.

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Appraisal Commercial Appraisal or Analysis or Evaluation The commercial appraisal is concerned with market for the
product/service. The very ideas of promoting a project are to produce some product/service and to market the same to the consumers and earning a profit thereby. Marketing management receives more attention than in earlier years because the reason behind that the very survival of any projects depends on the question as to whether the product/service offered by the product is successful commercially. Commercial appraisal or market appraisal of a project is done studying the commercial successfulness of the product/service offered by the project from the following angles Demand for the product Supply position for the product Distribution channels Pricing of the product Government policies.

Economic Appraisal Economic appraisal measures the effect of the project on the whole economy. Developing countries and underdeveloped countries face scarcity of capital and foreign exchange. Hence, policy makers are concerned as to where the scarce resource can be directed to maximize economic growth of the country. So, the policy makers make a choice based on economic return. This is true irrespective of whether resources are committed to a large project under taken by the government or to smaller project under taken by an individual entrepreneur. But an individual entrepreneur, when left free to choose, is more likely to be interested in his profit rather than having a broader perspective of the economic returns of the project. For example let an entrepreneur own a granite quarry consisting of high quality granite stone. If the entrepreneur is not aware of the potential of granite stone as its use in the form of polished slabs/tiles, he may choose to exploit the granite quarry by setting up a stone crushing unit which will produce stone jelly to be used as a raw material for say, lying of road, preparing concrete mix e.tc. Even if the entrepreneur is aware of the potential of granite stone, if he is not mentally prepared to venture into a high tech project for the production of polished granite slabs/tiles which can have very good export potential, he may settle for a low tech stone crushing project, producing jelly. He may be even satisfied with the return from the stone crushing unit through setting up an unit for production of polished granite slabs/tiles will maximize the economic growth of the country as a whole by earning valuable foreign exchange in view of its export potential. Management appraisal management is the most important factor that can either make a project a success or a failure. A good project at the hands of a poor management may fail while a not so good project at the hands of an effective management may succeed. Banks and financial institutions that lend money for financing projects lay more emphasis on management appraisal. Institutions look at the capacity of the project to repay the loan along with interest within the stipulated period of time and also they observe the willingness of the borrower to repay the loan. While the capacity to repay is assessed by technical, commercial and financial appraisal the willingness to repay is assessed by way of management appraisal. While other appraisal techniques are quantitative and objective in nature, management appraisal is purely qualitative and subjective in nature. Management appraisal depends upon the constitution of the enterprise. The partnership firms, the management appraisal shall be done on the managing partners of the firm. Mutual understanding and trust among the partner is a key factor for the success of an enterprise. Persons, who maintained a cordial, long term relationship in the past either in business or in other areas, make good partners. Persons who join together for the first time with sole intention of promoting a new project are often found to lack in mutual understanding and this will slow up shortly after the project has taken shape, or at times , even during the implementation stage of the project itself. In private limited companies, it will be the managing direction/executives directors who are to be apprised. The affairs of closely held public limited companies are mostly looked after by the promoter directors. Public limited companies, the management appraisal shall be done on the directors who are in the board of the company, on the chief executive officer of the company and also on key functional managers. Appraisal of chief executive officer carries more importance since he is the king- pin of a company. The importance of management appraisal is being increasingly felt now days in view of the growing number of units that have become sick due to mismanagement. Management appraisal is concerned with the appraisal of human qualities.

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