UNIVERSITY OF MUMBAI, MAY 2000 EXAMINATION - PROJECT MANAGEMENT

FOR M.H.R.D.M. / M.M.M. / M.F.M. (THIRD YEAR)

SUGGESTED ANSWERS SO!UTIONS TO PROB!EMS
Note: Answers to theoretical questions are suggestive and cover only the main points and expected key phrases. The
actual answers could be differently structured more elaborate and explanatory.
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7) I4806' %- 97/(&097)0'7%+ %+ 7+2.)'&709 2(:(9%84(+' 7+ I+270*
- !iberalisation process in "ndustrial fiscal trade # commerce import # export exchange control policies of
the government that has continued since $%%& has given a boost to "ndian industry.
- No controls by government on industrial licensing except in defence nuclear drugs # pharmaceuticals
tobacco alcohol # railways.
- 'arket oriented economy with no artificial barriers for protecting inefficient industry.
- (asier inflow of latest technology
- )pening of financial markets to foreign investors # easy inflow of foreign funds.
- )pening*up of international competitive markets.
- (xposure to global competition in local markets
- "mprovement in productivity # product quality.
- +aster infrastructure development on commercial basis.
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,asic reasons for companies to look for new investment opportunities:
)rganisational ambitions and aspirations for growth * to be a local - state - national - global player. to be
a market leader etc.
"ncreased competition in existing markets * more competitors.
/roduct decay - obsolescence * /roduct substituted - not required any more.
Technology obsolescence * New cheaper technology available.
0overnment policy * changes in government policy tax structure may necessitate withdrawal of product.
1ystematic steps to be followed to choose a new investment opportunities:
(stablishing policy: /olicy arising out of corporate plan # resulting in a long*term strategy for
company2s strength.
13)T analysis : 4ritical evaluation of company2s strengths and weaknesses in marketing production
financial areas its resources and skills. (xternal environment is analysed to study opportunities and
threats.
1election of market : /otential markets that are in line with company2s ob5ectives and policies are
assessed # short listed.
6emand assessment : ,ased on published information in trade 5ournals government statistics published
surveys etc.
6etail market survey : To establish demand pricing probable market share establish distribution
strategy etc.
Technical feasibility : Technical and technological feasibility. 'aterials # skill requirement.
7isk assessment : 8nderstanding and assessment of present # future market risks.
+inancial # profitability assessment : 4omparative assessment of alternatives to choose final product
idea.
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6emand forecasts made on the basis of market trend data are sub5ect to error and uncertainty since:
a9 6ata on past and present market parameters such as products price costs quantities etc. may be
vitiated by inadequacies due to lack of standardisation uniformity on concepts and measures.
4onclusions may not be statistically reliable due to inadequate sample si:e or may be influenced by
certain abnormal factors.
b9 'ethods of forecasting are characterised by certain limitations such as inability to handle
unquantifiable factors errors due to unrealistic assumptions and processing needs of excessively
voluminous data.
c9 (nvironment in which pro5ects are set*up is characterised by uncertainty and unpredictability in many
factors such as technological changes government policies international developments climactic
effects etc.
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The market forecasts and other pro5ections used for pro5ect feasibility and evaluation such as sales prices and
quantities cost of capital assets and inputs taxation rates foreign exchange rates etc. are sub5ect to a risk
1
that they may not turn out in reality as pro5ected. 6eviations from the pro5ections in reality may adversely
affect the pro5ect feasibility.
There are various statistical and other techniques for understanding risks and evaluating their effects.
1ensitivity analysis scenario analysis 'onte*4arlo simulation methods etc. that evaluate effects of
variability of various factors either singularly or multipaly. 1ub5ective probabilities are further attached to
evaluate the pro5ect under optimistic pessimistic and most likely situations out of various possible outcomes
before a final decision is made.
"n absence of extensive analysis pro5ect feasibility worked out on the basis of 4onservative estimates for
pro5ect revenues Adequate safety margins in cost provisions and +lexibility in investment appraisal
yardsticks is considered to be adequately covered for risks.
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- 'arket appraisal: 7easonableness of demand forecasts is examined utilising findings of available
information and surveys. Adequacy of marketing infrastructure is assessed in terms of promotional effort
distribution network transport facilities stocking policies and knowledge experience and competence of
marketing personnel.
- Technical appraisal: Technical review of product mix capacity manufacturing process technical know*
how materials labour skills buildings plant # machinery etc. is made.
- +inancial appraisal: Assessment of reasonableness and adequacy of estimates for capital cost working
results returns is made and appropriateness of financing pattern is checked.
- (conomic appraisal: /ro5ect is reviewed from larger social point of view in terms of social cost*benefit
analysis.
- 'anagerial appraisal: 'anagerial capability of promoters is 5udged by their resourcefulness their
understanding of the pro5ect details and their commitment to the pro5ect.
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- 4oncept of venture capital vis*;*vis traditional security oriented approach: <enture capital is primarily for
the kind of business ideas that have good market potential but do not have any background to base the
pro5ections. 1uch ventures also could suffer very heavy losses if the new products are not accepted in the
market. 'any new promising business ideas floated by unknown entrepreneurs were being re5ected by
financial institutions due to their very guarded and security oriented approach to minimise the risk of loss.
As a developing nation availability of pro5ect capital was scarce and priorities were naturally towards
comparatively risk free investments.
- !iberalisation # opening*up of global markets: 8nder the new liberalised scenario there has been a
positive change in the outlook of financial institutions. +inances are also available from the foreign
investors who are more familiar with the venture capital business. (ven the "ndian financial institutions
have realised the possibility of very high returns by backing promising ventures after due evaluation of
their potential.
- <enture capital funds in "ndia: 'any financial institutions such as "4"4" 0""4 etc. have set*up their
venture funds and there are many private funds also. Although there are no financiers purely in venture
capital field most are allocating about = > to $& > of their investible funds for venture financing to
adequately cover for the risk of failures in some cases.
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1%.92 ,%. &(6%44(+2 -%& 0+ (--(6'7:( P&%<(6' M0+0;(&?
,asic functions of a pro5ect manager are:
$. /lanning # 4ontrol: To develop the pro5ect plan and ensure that the work is completed on time within
budget and with acceptable quality.
?. 7esource 'anagement: 'anage and direct pro5ect resources to achieve pro5ect ob5ectives.
@. 4o*ordination: "nterface with higher management regarding pro5ect review approvals and pro5ect
issues. Also relate successfully to line managers and staff.
Aualities Aualifications # experience to be a successful pro5ect manager:
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- 4ommunication skills both written # oral
- Ambition leading to working hard and positively.
- (nergy to deal with problems and take measured risk.
- 1ense of humour to take events setbacks and success in their stride.
- 'aturity to take things in their stride and sense of timing to make certain moves.
- Toughness and willingness to take contrary positions rather than taking an easy way out or to take a path of
least resistance or to cave in to the pressure.
- Ability to take directions suggestions hints and criticism and converting them in positive action.
M0+0;(&709 @.097'7():
2
- /roblem and conflict solving ability to identify and understand problems place them in perspective
develop and implement solutions.
- /eople management
- /erspective vision to step back and take an overall view to see symptoms of problems.
- ,eing an organiser managing and allocating time for important issues
- +amiliarity with the organisation to understand funding and decision making process.
- "nitiative and risk taking ability to accept - delegate tasks not done.
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- 1hould be a generalist to see a bigger picture i.e. relationship of pro5ect to the company impact of end
product etc.
- (xperience of not only working on several pro5ects but to integrate it to apply to the current pro5ect
- Acquire knowledge and information on all aspects of pro5ect and quickly.
- ,asic understanding and appreciation of technical process is required rather than expertise in the same.
- Adequate knowledge of latest pro5ect planning budgeting and control techniques.
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Although the use of proper planning and budgetary control techniques help in successful pro5ect management
their use and effectiveness depends on the people who are involved and are responsible for various pro5ect
activities at various levels. "t is therefore very important to understand human nature and to achieve satisfactory
human relations in pro5ect setting. /ro5ect manager has to handle problems and challenges relating to following
issues:
i9 Authority: /ro5ect manager very often does not have a direct authority over the pro5ect team. Be has to
co*ordinate efforts of various functional groups experts consultants external agencies etc. Team
leadership and influencing professionals assumes importance than exercising authority. /ro5ect
manager2s authority therefore emanates from his ability to develop rapport with the team members
skilful resolution of conflicts skill of communication and persuation and ability to act as a buffer
between technical engineering financial and commercial personnel.
ii9 /ersonnel orientation: )veremphasis on planning and control techniques that are mathematics and
accounts oriented tends to adopt a structured and mechanical approach to pro5ect management.
Bowever pro5ect being sub5ect to many uncertainties a more creative and adaptive approach is
necessary to solve un*programmed and un*structured problems as the pro5ect progresses. 1uch
orientation is required for all the pro5ect team.
iii9 'otivation: /ro5ect being a short term endeavour carried out by loosely bound professional team it is
very difficult to keep it motivated throughout the pro5ect term. The team members sometimes tend to
get confused due to split authority and dual subordination structure of the organisation. To keep a high
level of motivation the pro5ect manager has to ensure that the pro5ect goals are clearly defined and are
visible to all involved. Be has to encourage participative management with proper delegation of
authority and responsibility that creates a sense of belonging to the pro5ect and to make individual2s 5ob
sufficiently challenging to have greater personal commitment.
iv9 Team ,uilding: 'ost of the pro5ect activities are inter*related and inter*dependant and most of the
problems need inter*disciplinary solutions. 1uccessful management of pro5ect therefore is not possible
without proper teamwork. 6evelopment of mutual trust and acceptance open communication and co*
operation and development of right attitude toward pro5ect are essential for team building.
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2(67)7%+)?
6ifferences*
- !ong term effects: 4onsequences extend far into the future. 1cope of current manufacturing is governed by
capital investment of the past.
- "rreversibility: 6ecisions can not be reversed without substantial financial loss. !ess or no demand for used
machinery when scrapped.
- 1ubstantial financial outlays: <ery high outlays as compared to operational requirements.
6ifficulties in preparation and analysis of decisions:
- 'easurement problems: 'easurement of costs and benefits is difficult when they have a bearing on
company2s other operations or have intangible effects.
- 8ncertainty: 8ncertainty # unpredictability of future costs and benefits.
- Temporal spread: /ro5ections are spread over long period of = C ?& years. (stimating discounting rates and
establishment of equivalence is difficult.
3
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Y0 Y# Y2 YB YC Y3
6iscount rate > $& $? $D $E $F ?&
/< +actor $.&&& &.F%@ &.GF@ &.EG= &.=G? &.DGE
4ash +low *?= = $& $? $& F
/resent <alue *?= D.DG G.F@ F.$& =.G? @.F$
Net /resent <alue H D.%@
(xplanation:
1ince the discount rate changes every year the discounting factor cannot be obtained directly from the present
value tables. Bowever it can be calculated as follows:
/< factor for I$ J /< factor for $?.& > J &.F%@
/< factor for I? J /< factor for $?.& > K /< factor for $D.& > J &.F%@ K &.FGG J &.GF@
/< factor for I@ J /< factor $?.& > K /< factor $D.& > K /< factor $E.& > J &.F%@K &.FGG K &.FE? J
&.EG=
# so on so that
/< factor for It J /<f $?.& > /<f $D.& > K LL. /<f M$&.& > H ?t9
!ogic: The normal /resent <alue formula when expanded becomes as follows:
( )
( ) ( )( ) ( )( )( ) ( ) r
PV
r r r
PV
r r
PV
r
PV
PV
r
PV
PV
n
n
n
n
n
+ + + + + + +

+
+ + + =
=
$ $ $ $ $ $ $
$
. ..........
@ ? $
$
This is true when the discounting rate r2 is same every year. ,ut when the rates are different every year say r$
r? r@ rD r=L.. rn etc. we have to use the expanded formula and therefore it becomes
( ) ( )( ) ( )( )( )
( )( )( ) ( )
r r r r
PV
r r r
PV
r r
PV
r
PV
PV
n
n
+ + + +
+ + + + + +
+
+ + =
$ .. .......... $ $ $
$ $ $ $ $ $
@ ? $
.......... ..........
. ..........
@ ? $ ? $ $
@ ? $
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7+:()'4(+' 8&%8%)09).
The appraisal criteria for evaluation of mutually exclusive investment proposals are broadly categorised as:
6iscounting 4riteria:
- N(' P&()(+' V09.( (NPV) is the sum of the present values of all cash flows associated with the pro5ect.
+uture cash flows are discounted at a certain hurdle rate to arrive at their present value. Bigher N/<
indicates a better proposal in case the "nitial "nvestments are similar.
- B(+(-7'-C%)' A+09,)7) calculates the ratio of either /resent <alue of benefits to the "nitial "nvestment
M,enefit 4ost 7atio ,479 or the Net /resent <alue to "nitial "nvestment MNet ,enefit 4ost 7atio N,479.
The criterion is preferable to N/< criteria for comparing proposals having widely differing initial
investments.
- I+'(&+09 R0'( %- R('.&+ (IRR) is the discount rate at which N/< of the pro5ect is Nero. Bigher "77
indicates better proposal irrespective of the amount of initial investment.
Non*6iscounting 4riteria:.
- P0, B065 P(&7%2 is the length of time to recover initial cash outlay on the pro5ect. 1horter the payback
period the more desirable the pro5ect. This criterion tends to shield the pro5ect from the risk of future
uncertainties in the cash flows to certain extent.
4
- A66%.+'7+; R0'( %- R('.&+ is a measure of pro5ect profitability that relates income to investment both
measured in accounting terms. "t is generally expressed as a ratio of Average "ncome after Tax to "nitial
"nvestment.
(xcept for the N/< criterion which can not be used for comparing mutually exclusive proposals unless the
investment amounts are similar all other criteria enable a good comparison within their own limitations.
"n general the non*discounting methods are simpler to calculate and therefore give a quicker comparison
between various proposals. They however do not take time value of future cash flows into consideration and
therefore may result in misleading conclusions. These criteria are therefore used to compare smaller investments
or as a quick method to discard weak proposals.
6iscounting methods are considered to be more dependable for comparing large investments and are
recommended for use by the financial institutions.
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(A7)'7+; %8(&0'7%+). T$( 8&()(+' ROCE (R('.&+ %+ C087'09 E489%,(2) -%& '$( 6%480+, 7) #DE
/7)O(4T A , 4 6 (
"nitial "nvestment ?& @& E& F& $&&
/resent <alue of Net 4ash +low at a discounting
rate of $= > being marginal 4ost of 4apital
@& =& $?& ?&& @&&
(xpected life of the pro5ect @ = = $& $&
SO!UTION #*
"n order to compare and rate the above proposals the absolute value of N/< can not be compared as the initial
investments are varying widely between 7s. ?& 4rores to 7s. $&& 4rores. "t is therefore necessary to use ,47 #
"77 methods. ,ased on the information available rankings based on the two criteria are as under:
PROJECT A B C D E
"77 M"nternal 7ate of 7eturn9 $F $G $E.= $F $%
,47 J /< of benefits - "nitial investment ?.=& ?.EG @.&& @.=& D.&&
"77 7anking ? D = ? $
,47 7anking = D @ ? $
)verall 7anking @ D = ? $
(xplanation: 4omparing both "77 and ,47 ranks
- /ro5ect ( is and /ro5ect 6 are ranked No. $ and No. ? respectively in both criteria and there is no doubt
about the overall ranks for these pro5ects.
- Although ,47 rank for pro5ect 4 is better than that of /ro5ect A the "77 is lower than the present 7)4( of
$F > and hence gets lower ranking than /ro5ect A. Bence /ro5ect A is ranked as No.@ in overall
- /ro5ect , is ranked No. D in both criteria. Bowever it has higher "77 than /ro5ect 4. "77 being more
dependable criterion among the two gets preference and hence /ro5ect 4 is evaluated inferior to /ro5ect ,.
/ro5ect , therefore holds its rank No. D.
SO!UTION 2* (S.;;()'(2 /, P&%-. A. S. C$0./09)
Another approach to the problem could be to find 8niform Annual (quivalent2 of pro5ect N/<s for different
pro5ects. This will bring the differences in pro5ect lives on par.
PROJECT A B C D E
Annualisation factor ?.?F@ @.@=? @.@=? =.&$% =.&$%
Annualised N/< P $= > $@.$D$ $D.%$E @=.F&& @%.FD% =%.GG@
,47 J Annualised N/< - "nvestment &.E=G &.D%G &.=%G &.D%F &.=%F
7anking $ D ? = @
(xplanation: Among pro5ects 4 # ( that have almost equal ,47 values pro5ect 4 is ranked higher due to its
shorter life. 1ame criterion is followed for pro5ects , # 6.
5
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0+09,)7)? EA8907+ '$( /0)76 )'(8) 7+:%9:(2 7+ 2(67)7%+ '&(( 0+09,)7).
1ome investment decisions are not isolated or not unconnected with future outcome of events after making the
decision are analysed with help of decision tree technique. 'any such outcomes would be beyond the control of
the decision*maker and will be a result of chance to a greater or lesser extent.
A decision tree consists of a number of branches springing at each node as a result of one of two conditions.
,asic steps involved in the analysis are:
$. "dentify the problem and various alternatives
?. +orm the decision tree.
- 6ecision points and alternatives available for action.
- 4hance points when outcomes are dependant on chance
@. 1pecify probabilities # monetary values for various outcomes.
- data for probabilities associated with each possible outcome at various chance nodes and
- 'onetary value of each combination of decision alternatives and chance outcomes.
D. (valuate the alternatives.
- (valuate monetary values of chance points and decision points in a backward manner till reaching
the original decision point.
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60+ ;7:( 0 6(&'07+ &('.&+ %- D.0E. A9'(&+0'7:(9,, '$(&( 7) 0+ %88%&'.+7', -%& 27:(&)7-760'7%+ 1$76$, 7-
).66())-.9, 7) ()'740'(2 '% /&7+; 0 &('.&+ %- #F.0E. H%1(:(& 7- 27:(&)7-760'7%+ 7) +%' ).66())-.9, (A8(6'(2
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405( '$( 27:(&)7-760'7%+ 1%&'$1$79(?
!et probability of success in diversification be x2. Bence probability of failure is M$*x9.
(valuation of diversification should be at least be F > i.e. 7s. F.& 4rores if not more.
Bence
F.& J $G.& x H ?.& M$*x9
F.& J $G.& x H ?.& Q ?.& x
F.& Q ?.& J $=.& x
x J E - $= J &.D
/robability of success in diversification should be at least &.D or D&.& >
6
100 Cr.
INVEST
EXISTING
BUSINES
S
DIVERSIFY
SUCCESS x %
FAILURE 1-X %
8.0 Cr.
100 %
1.0 Cr.
2.0 Cr.
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7) U)( %- CPM 7+ %8'747)0'7%+ %- 8&%<(6' 6%)'.
The principal focus of 4/' analysis is on variation in activity times as a result of changes in resource
assignments. "t further determines pro5ect schedule to minimise total cost on the basis of time*cost relationships.
Total pro5ect cost comprises of the direct cost2 for performing activities Mmaterial labour # machinery costs
equipment hire costs etc.9 and indirect cost2 Moverheads supervision interest down*time cost loss of revenue
etc.9 "t is observed that while the indirect costs are directly proportional to the pro5ect duration. the direct costs
are inversely proportional to activity duration. This means that the indirect costs reduce with the pro5ect duration
while an extra expenditure has to be incurred on activities to reduce their duration. 4/' tries to achieve the
optimum duration for which the total cost of the pro5ect is the minimum.
"n practical use it is difficult to obtain accurate cost*time relationship on various activities either because data
are not available or because estimates are too bothersome and expensive to compile. ,ut even if the accurate
data are not available best guesses unless completely arbitrary are useful information and help pro5ect manager
to arrive at better decisions.
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/(7T: /(7T methodology deals with the uncertainties involved in performing various activities and therefore
difficulties in determining exact duration of activities in the pro5ect. The model generally considers development
oriented pro5ects where many activities do not have precedents to estimate their likely duration. Bence the
model adopts a statistical average time estimate based on three time estimates * optimistic pessimistic and most
likely times * criteria. The total pro5ect duration worked out on this basis thus also has certain probability value.
4/': 4/' approach considers day*to*day work situations and therefore the activity durations can be estimated
with a fair accuracy. 4onsiderable amount of past data can be available for similar activities. The total time for
completion based on critical path duration is also quite accurate and helps in controlling the pro5ect schedules
more effectively.
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3,1 is a systematic and logical breakdown of the pro5ect into its component parts or work packages. "t is
constructed by dividing pro5ect into its ma5or parts each of which is further sub*divided. The process is
continued till the breakdown reaches such manageable level where schedule cost and responsibility can be
clearly defined for units of work or individual activities. 3,1 therefore helps in
- (ffective planning of the pro5ect by dividing large pro5ect into manageable elements that can be easily
comprehended and planned.
- 4osts and responsibilities can be assigned to 3,1 elements at the lowest levels and summarised at the
higher levels of the structure.
- (ffective planning monitoring and controlling structure can be developed.
- (ffective information system is developed with help of proper codification for cost accounting and progress
reporting.
7:) R()%.&6( !(:(997+; / S4%%'$(+7+;
The initial network schedule considers all activities to start at their earliest times and does not consider the
resource requirements for performing activities. The implicit assumption is that the normal deployment of
resources can be done as and when required and there are no constraints on resources. 1uch schedule invariably
gives rise to a situation where peak requirements of various resources on day*to*day basis show very large
variations. 1uch situation is not desirable as it does not ensure uniform workload on day*to*day basis and pose
difficulty in determining optimum resource strength for the pro5ect.
"t is therefore necessary to smoothen*out the peak requirements and contain the maximum resource level within
available level. This is known as resource levelling and smoothening and is achieved by ad5usting the schedules
of non*critical activities within the available floats. The schedule ad5ustment can be done either by 5ust shifting
the entire activity within the float or by stretching the activity duration with reduction in resource allocation or
by splitting the activity to be carried out in parts at convenient times within the available time. As this exercise is
very complicated complexities increasing as more variety of resources are considered heuristic algorithms are
developed to perform this exercise with help of computer programs.

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/ro5ect implementation phase starts after the pro5ect activity schedule is planned budgets are allocated and
responsibilities are assigned. "n order to achieve effective control over the implementation it becomes necessary
to assess the progress from time at regular intervals in terms of physical completion of scheduled activities
actual cost incurred in performing those activities ad achievement of desired performance levels. This
assessment process known as monitoring2 then compares the status with the plans to find deviations. The effect
of deviations in schedules and costs are estimated on the final completion time and cost and controlling actions
are taken to correct the deviations to the extent possible and to bring the pro5ect back on its planned course.
1chedules budgets and performance parameters are revised as a result and reissued for further execution. Actual
controlling actions are carried out by the persons authorised and responsible for the activities and involve efforts
and assistance by entire pro5ect team.

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The software package for pro5ect management should essentially have following features:
- 1cheduling: Ability to develop schedules based on three basic inputs. vi:. Activity name estimated duration
and precedence relationship.
- 'onitoring: +acility to update pro5ect status from time to time and workout its effects.
- 7esource allocation: +acility to define and allocate resources and resource costs.
- 4alendar dates: 1chedules to be represented on calendar basis rather than on day numbers.
- 4ost allocation: +acility to define fixed and variable costs of activities.
- 7eporting: Ability to prepare and print reports in tabular and graphic formats.
)ther desirable features could be:
- +ormat: /referably A)N format with at least three types of relationships +1 11 # ++.
- 3,1: +ull 3,1 format preferred to outlining.
- 1ub*pro5ects: +acility to link independent pro5ects as sub*pro5ects.
- "nterfacing: (xport*import and linking to databases and other applications.
". F 0) W$0' 0&( -9%0') %& )9065) 7+ 8&%<(6' )6$(2.9() 0+2 $%1 '$(, 0&( .)(2 7+ (--(6'7:( 40+0;(4(+' %-
8&%<(6')? H%1 2% '(&4) =T%'09 F9%0'> 0+2 =F&(( F9%0'> 27--(& 7+ '$(7& )7;+7-760+6(? W$(+ 60+ 8&%<(6'
)6$(2.9( 6096.90'7%+) )$%1 =N(;0'7:(> -9%0')?
+loat or a slack represents the difference between the time available and the time required to perform the
activity. 3hen time available equals time required there is no float and the activity is called critical. The float
available on non*critical activities therefore indicate the flexibility in scheduling the activity and also the
maximum extent to which the activity can be delayed without affecting the pro5ect completion date.
Total float signifies the maximum permissible delay without delaying the final completion while +ree float
signifies the maximum permissible delay without delaying the earliest start of its immediate successor activity.
Rnowing the available floats on various activities helps the pro5ect manager to plan and organise day*to*day
activities in view of resource constraints and concentrate efforts and resources on critical activities.
Negative float indicates that the time available is less than the time required to perform the activity and unless
the activity duration is compressed or crashed2 to by the extent of negative float the scheduled completion date
can not be met.
8
!LAN
ACTUAL
STATUS
C"#!ARE
VARIANCES
YES
ESTI#ATES T" C"#!LETE
ACTI"N !LAN
REVISED SC$EDULES%
BUDGETS
N"
". F /) R(-(&&7+; '% '$( 97)' %- 06'7:7'7() /(9%1, 2&01 0 +('1%&5 7+ =A&&%1 D70;&04 (AOA)> 6%+:(+'7%+. F7+2
%.' '$( T%'09 T74( -%& 8&%<(6' 6%489('7%+, C&7'7609 P0'$ 0+2 T%'09 F9%0') 0:0790/9( %+ +%+-6&7'7609
06'7:7'7().

ACT. DUR. PRED. SUCC. ES EF !S !F TF
A @ * , 4 & @ & @ &
, = A 6 @ F G $? D
4 G A ( + @ $& @ $& &
6 D , 0 F $? $? $E D
( E 4 0 $& $E $& $E &
+ D 4 B $& $D $G ?$ G
0 = 6 ( B R $E ?$ $E ?$ &
B F 0 + ! ?$ ?% ?$ ?% &
R ? 0 ! ?$ ?@ ?G ?% E
! D B R * ?% @@ ?% @@ &
Total time for completion J @@ weeks
4ritical /ath J A Q 4 Q ( Q 0 Q 68''I Q B Q !
Total +loats , J D 3eeks
6 J D 3eeks
+ J G 3eeks
R J E 3eeks
". D 0) EA8907+ 1$, 0+2 $%1 '$( 8&%<(6' /.2;(') 0&( /&%5(+-.8 %+ '$( /0)7) %- 8&%<(6' 06'7:7'7() '% 06$7(:(
(--(6'7:( 6%)' 6%+'&%9.
- /ro5ect budgets are initially prepared to conform to the asset classification required by the financial
institutions. This classification is generally based on depreciation - amortisation rates and capitalisation
rules in accounting procedure tax and company statutes.
- 1uch classification is not useful for control as it is more suitable for historical information and does not
reflect the time and manner in which the expenditure is to be incurred.
- 4osts are incurred and become due in a pro5ect as various pro5ect activities are being performed by
deploying resources.
- Time and costs are therefore inseparably linked and it is not possible to control costs without linking them
with time schedule of activities.
- "t is therefore necessary to identify costs with the work involved in pro5ect activities.
- The total cost budget is broken down as per 3,1 at different levels upto its last level representing
individual activity.
- 3hen the duration or schedule for the particular part of the pro5ect or for the individual activity are
changed the cost incidence also changes accordingly.
- +iner the 3,1 more flexible and accurate will be the control.
- Techniques such as (arned <alue2 and 12 curves help in keeping cost and schedule control in an integrated
manner.
&
A ' 3 (
B ' 5 (
C ' ( E ' 6 (
F
' 4 (
$ ' 8 (
D ' 4 ( G ' 5 ( ) ' 2 ( L
' 4 (
DU##Y
". D /) A 8&%<(6' 6%48&7)7+; %- #0 06'7:7'7() 17'$ '%'09 (A8(6'(2 2.&0'7%+ %- B3 1((5) 10) &(:7(1(2 %+
6%489('7%+ %- 20 1((5) 0-'(& )'0&'. T$( 8$,)7609 8&%;&()) %- :0&7%.) 06'7:7'7() 0) 0))())(2 0+2 06'.09 6%)')
7+6.&&(2 '799 20'(, 0&( 6%480&(2 17'$ (A8(6'(2 8&%;&()) 0+2 /.2;('(2 -7;.&().
1ince costs are assumed to incur linearly in proportion of activity completion ,431 # ,43/ for individual
activities are found on the basis of given data.
,431 J ,udgeted cost of activity K 1cheduled > 4ompletion
,43/ J ,udgeted cost of activity K Actual > 4ompletion
A4T. N). > 4)'/!(T")N T)TA! 4)1T1 ,431 ,43/
14B. A4T8A! ,860(T A4T8A!
$ $&& $&& $&.&& $?.&& $&.&& $&.&&
? $&& $&& $?.&& $?.=& $?.&& $?.&&
@ G& E& $F.&& $?.&& $?.E& $&.F&
D == =& ?=.&& $@.&& $@.G= $?.=&
= @& ?= ?&.&& E.&& E.&& =.&&
E $& & $=.&& &.&& $.=& &.&&
G & & $&.&& &.&& &.&& &.&&
F & & F.=& &.&& &.&& &.&&
% & & E.=& &.&& &.&& &.&&
$& & & =.&& &.&& &.&& &.&&
T)TA! $@&.&& ==.=& ==.F= =&.@&
i9 ,431 J ==.F= lacs
ii9 ,43/ J =&.@& lacs
iii9 4ost <ariance J ,43/ Q A43/
J * =.? lacs M8nfavourable9
iv9 4/" J ,43/ - A43/
J &.%&E@ Mindicates cost over*run9
v9 1/" J ,43/ - ,431
J &.%&&E Mindicates schedule delay9

10