Project Management

Ans. Projects are successful if they are completed on time, within budget, and to performance requirements. Management of any project involves planning, coordination and control of a number of interrelated activities with limited resources, namely men, machines, money and time. Furthermore, it becomes necessary to incorporate any change from the initial plan as they occur, and immediately know the effects of the change. Therefore the managers are compelled to look for and depend on a dynamic planning and schedule system which will not only produce the best possible initial plan and schedule, but will also sufficiently dynamic to react instantaneously to changed in the original plan and schedule. The question of such a dynamic system/ technique led to the development of network analysis. It provides a framework which : 􀂾 defines the job to be done, 􀂾 integrates them in a logical time sequence and finally, 􀂾 affords a system of dynamic control over the progress of the...

Ans.  Two approaches are available for determining which project to accept and which projects to reject : (i) the method of ranking, and (ii) the method of mathematical programming.This section discusses the method of ranking ; the following section discusses the method of mathematical programming. The method of ranking consists of two steps : (i) Rank all projects in a decreasing order according to their individual NPV’s, IRR’s or BCR’s. (ii) Accept project in that order until the capital budget is exhausted. The method of ranking, originally proposed by Joel Dean is seriously impaired by two problems: (i) conflict in ranking as per discounted cash flow criteria, and (ii)project indivisibility. Conflict in Ranking In a given set of projects, preference ranking tends to differ from one criterion to another. For example, NPV and IRR criteria may yield different preference rankings. Likewise, there may be a discrepancy between the preference rankings of NPV and BCR (bene...

Ans.  When investment projects are considered individually, any of the discounted cash flow technique may be applied for obtaining a correct accept or reject criteria. In an existing organisation, however, capital investment projects often cannot be considered individually or in isolation. This is because the pre-conditions for viewing projects individually- project independence, lack of capital rationing, and project divisibility are  rarely, if ever, fulfilled. Under the constraints obtained in the real world, the so called rational criteria per se may not necessarily signal the correct decision.  Constraints Project Dependence : Project A and B are economically dependent if the acceptance or rejection of one changes the cash flow stream of the other or affects the acceptance or rejection of the other. The most conspicuous kind of economic dependency occurs when projects are mutually exclusive. If two or more projects are mutually exclusive, acceptance of ...

Ans. I.M.D. Little and J.A. Mirrlees have  developed an approach (hereafter referred to as the L-M approach) to social cost benefit analysis. The LM technique assumes that a country can buy and sell any quantity of a particular good at a given world price. Hence, all traded inputs and outputs are valued at their international prices (CIF for importables and FOB for exportables) which is the opportunity cost/value of the particular good to the country. Every input is treated as a forex outgo and every output is treated as a forex inflow. All non-tradable inputs are valued at accounting prices. These costs are broken up into tradable goods and other non-traded goods. Following this chain of production, commodities that are either exported or imported are determined for application of accounting prices. The theory assumes that non-tradable form an insignificant part of operating costs Despite considerable similarities there are certain differences between the two approa...

Ans. Towards the end of the sixties and in the early seventies two principal approaches for SCBA emerged: the UNIDO approach and the Little- Mirrlees approach. This section discusses the UNIDO approach; the following discusses the Little-Mirrlees approach. The UNIDO method of project appraisal involves five stages: 1. Calculation of financial profitability of the project measured at market prices. 2. Obtaining the net benefit of project measured in terms of economic (efficiency) prices. 3. Adjustment for the impact of the project on savings and investment. 4. Adjustment for the impact of the project on income distribution. 5. Adjustment for the impact of project on merit goods and demerit goods whose social values differ from their economic values. Each stage of appraisal measures the desirability of the project from a different angle. The measurement of financial profitability of the project in the first stage is similar to the financial evaluation. So, sk...