Project Management Fundamentals

• A project is a scheme or part of a scheme for investing resources.
• A project is defined as something that can be evaluated as an independent unit.
• Defining a project helps determine its scope.
• Defining the project also determines the required investments/sources of funding and implementation period.
• Defining a project helps analyze and evaluate its investment merits.
• The project cycle includes activities, or steps a project undergoes from conceptualization to operation.
• Phases of the project cycle include: project identification, project preparation, project appraisal, documentation, and project supervision.

Project Cycle Phases

• Project identification involves seeking possible investment projects.
• Project preparation involves the preliminary assessment of the project through a study of initial designs.
• Project preparation involves assessing alternative technical processes, and conducting initial calculations of financial as well as market aspects.
• Project appraisal is a thorough review of a project's technical, market, financial, managerial, and economic aspects to ensure its viability.
• Documentation translates findings from the project appraisal stage into formal records.
• Project supervision involves managing the project through its implementation, construction, and operation stages.
• Project supervision ensures the project is executed as planned.

Project Cycle Functions

• The main functions in the project cycle are: market/commercial, technical, financial, economic, and managerial.
• Project identification is important because resources are scarce.
• The use of scarce capital, labor, raw materials, and land must be maximized based on the investing entity's objectives.

Guides to Identifying Project Opportunities

• Study imports and exports.
• Investigate local materials and resources.
• Study available skills.
• Monitor economic indicators.
• Make industry studies.
• Originate or apply technology.
• Examine inter-industry relationships.
• Evaluate development plans.
• Review old projects.
• Observe experiences elsewhere.
• Use Standard Industry Classification lists.

Feasibility Studies

• Feasibility studies provide investors with viability information needed to decide the extent of their exposure to a business proposal.
• Financial institutions generally require feasibility studies from loan applicants borrowing beyond a certain loan ceiling.

Scope and Nature of Projects

• A project's scope includes pre-operating activities, management, marketing, production/technical aspects, financial considerations, and socio-economic feasibility.
• The best way to gauge correctness is whether it's practical to implement in a specified future time.
• Data inputs must be carefully studied, selected, and should contain allowances for potential future inflation.

Project Cost

• Project Cost is the approximate investment requirements of a particular project from conception to the start of commercial operations.
• Factors affecting project feasibility costs: size, nature, depth, data availability, and project length. Elements/costs included in the project cost estimate:
• Pre-operating and organization expenses
• Land
• Site preparation and improvements
• Buildings and other structures
• Machinery and equipment
• Marine insurance and freight
• Bank charges and other local expenses
• Custom duties and taxes
• Installation costs
• Spare parts
• Start-up and trial run
• Process acquisition/patents/licenses
• Technical assistance
• Other fixed assets
• Financial charges during construction or pre-operating period
• Working capital
• Provision for contingencies

Project Cost Details

• Pre-operating and organizational expenses are based on the actual/projected expenditures from the project inception state until the start of commercial operations such as initial investigations, designs studies and advertisement.
• Land costs should be the amount invested for the project, including notarial and registration fees.
• Usual sources for land cost estimates include: prevailing market rate in the area, land purchase agreements, and offers.

Site Preparation and Improvements

• This includes: Land surveys and fees, dewatering and drainage, site clearing, Excavation, Grading etc.
• Cost estimation for site preparation is based on: contractor's estimates based on plans, site consideration, topography, and the work to be undertaken.
• Estimates may also be on a per square meter basis, available from land developers and contractors.

Buildings and Structures

• Typical buildings within an industrial plant: Process (main) building, Administration offices, Laboratory, Medical services etc.
• Auxiliary areas/offsite facilities: Steam generation and distribution buildings, Power generation and distributions buildings, separators and hydrants etc.
• Bases are typically contractor's estimates according to building plans.
• In the absence of contractor's estimates, costing may be computed on a per square meter basis.
• Machinery and equipment should cover main process equipment and auxiliary equipment.
• Basis for costing: Quotations, past experience with similar equipment used in other projects, machinery dealers and suppliers, and rapid cost estimates. The cost of land should be the amount invested by the proponent in land for the project. The cost should likewise include notarial and registration fees.

Marine Insurance & Freight

• These charges are based on the arrangement with the equipment supplier, and should include inland freight, ocean freight, and handling expenses up to the port of destination, usually stated in the supplier's quotation.
• Basis for costing: past experience in identical/similar equipment, from insurance firms/shipping companies/freight forwarders.
• Most countries subject all imported articles to customs, duties, and taxes, unless exempted by government decree, special arrangements, or government incentives.
• Banking fees and other local expenses are incurred when importing equipment, due to fees incurred during opening of letters of credit.
• Delivery and other local expenses are incurred when delivering equipment from the warehouse or pier to the plant site. Arrastre charges are costs incurred in bringing down the goods from the vessel to the pier and warehousing these goods.
• Installation costs are typically included in civil works expenditures, such as foundation, plumbing, electrical, and support costs.
• Spare parts included vary depending on the type of equipment and the country of origin
• Start-up and trial run costs are incurred during test runs or debugging of machinery and equipment.
• These costs can be derived through the experience of the process owner/supplier or the proponent.
• Process acquisition/patents/licenses are based on the actual contract with the process supplier or owner.

Financial Assistance

• This is factored in when dealing with board/lodging expenses to the technicians.
• Installation and start-up assistance are FREE and FORM PART of the cost to the machinery and equipment and its installation.

Fixed Assets

• Other fixed assets are costs which may be incurred depending on the industry.
• Bases are usually per requirements and current costs. These include service and delivery vehicles, furniture and fixtures.
• Financial charges during construction or pre-operating period include all fees/charges during the pre-operating stage relative to securing financing.
• It is usually left out, however it is a real cost, and must be paid for to complete the loan period

Working Capital

• This fund is used for day-to-day operations, and is tied up in raw materials, work-in-progress, finished goods, AR and operation cash to ensure and uninterrupted flow of operations.
• Components include Raw Material Inventory, Work-in-Process, Finished Goods, Account Receivables, Operating Cash, etc.
• Provision for contingencies acts as safety net for miscalculations and accidental errors/ events.

Rapid Cost Estimate Methods

• Unit Price
• Six-tenths Factor
• Capacity Adjustment by Exponential Method
• The project timetable lists individual events from project conceptualization to commercial operation, according to a time scale and precedence order.
• It is important to determine the minimum time necessary to operate the project.
• Errors in estimating may cause delays which may lead to project cost overruns.
• Knowing the timetable maximizes time use and minimizes financial charges prior to operations.

Funds Drawdown Schedule

• It indicates when funds for a particular project should be available.
• Significant for the creditor and proponent in preparing funds.
• Affects the computation of financial charges during the pre-operating period.

Feasibility Study Outline

• Includes an Introduction with a product/project description that details physical and functional aspects as well as an industry assesment
• Market Feasibility: Competitors, target market, Demand and Supply Analysis, Price determination, distribution system etc.
• Technical Feasibility: plant location, manufacturing processes and capacities as well as layout and design
• Managemenet Feasibility: Ownership, organization, and personnel
• Financial Feasibility: Capital requirements, funding sources, and schedule etc.
• Includes Financial Analysis and Evaluation
• Includes Socio-Economic Feasibility to determine costs and benefits as well as evaluations
• Concludes with a recommendation.

Test your knowledge of project management, covering essential concepts like project definition, benefit assessment, cost-benefit analysis, and the project cycle phases. Review key areas such as project identification, feasibility studies, design, and documentation.