UNIT 2: Dynamic Project Management

Landscape
2.1 Project Cycle
The way in which projects are planned and carried out follows
a sequence that has become known as the project cycle.

The cycle starts with the identification of an idea and develops

that idea into a working plan that can be implemented and
evaluated.

Ideas are identified in the context of an agreed strategy.

It provides a structure to ensure that stakeholders are consulted

and relevant information is available, so that informed
decisions can be made at key stages in the life of a project.
Cont’d
The project cycle considers various stages in which each
stage not only is grown out of the proceeding one/those
that are under way/but also leads into the subsequent
ones.
A project cycle is a self-renewing cycle in that new
projects may grow out of the old ones in a continuous
process and self-sustaining cycle of activity.

 There are alternative models that deal with the project

cycle.
Cont’d
These are:
The Baum Cycle (also called the World Bank
Project Cycle) and
The UNIDO Project Cycle

In addition to these two, a third model

developed by Development projects Studies
Authority in Ethiopia (called “The DEPSAs
Model”), which is more or less identical with the
UNIDO cycle, will be briefly discussed.
2.1.1 World Bank’s Project Cycle
The first basic model of a project cycle developed by
Warren. C. Baum in 1970 and was adopted by the World
Bank as a project cycle.
Initially, this model had recognized only four main stages
in the project cycle, namely:
Identification
Preparation
Appraisal and Selection
Implementation
Later in 1978, the author has added additional two stages
called “Negotiation” and “Evaluation”.
Cont’d
In this version of the Baum model, negotiation
comes after projects pass the appraisal process and
become a candidate for realization.
It is after appropriate negotiations that projects
become implementation entity.
And then, projects that are implemented will be
the concern for evaluation, which usually closes
the cycle as it gives rise to the identification of
new projects.
This model, therefore, includes a total of six
identifiable stages in the project cycle
a. Project Identification
The first stage in the project cycle and in
the planning process is to find potential
projects.
The sources of projects may be one or
more of the following:
Resource-based
Market-based
Need-based
Technical specialists and local leaders
proposals to extend and/or expand
existing programs and projects
b. Project preparation
Once projects have been identified, there begins a process of
progressively more detailed preparation and analysis of project
plans.
At this stage, the project is being seriously considered as a
definite investment action.
Project preparation,(also called project formulation), involves
pre-feasibility and feasibility studies and covers the
establishment of commercial, technical, institutional, financial,
and socio-economic feasibility.
Decisions have to be made on the scope of the project,
location and site, soil and hydrological requirements, project
size (farm or factory size), etc.
The project now exists as a set of tangible proposals.
c. Project appraisal and selection
After a project has been prepared, it is generally appropriate for a
critical review or to conduct an independent appraisal.
This provides an opportunity to re-examine every aspect of the
project plan and determine whether the proposal is appropriate
and sound or not before large sums are committed.
Appraisals should cover at least seven aspects of a project, each
of which must have been given special consideration during the
project preparation phase:
Technical: here the appraisers concentrate in verifying whether
what is proposed will work in the way suggested or not.
Financial : the appraisers try to see if the requirements of money
needed by the project have been calculated properly, their sources
are all identified, and reasonable plans for their repayment are
made where necessary.
Cont’d
Commercial: the way the necessary inputs for the project are
conceived to be supplied is examined and the arrangements for
the disposal of the products are verified.
Incentive: the appraisers see to it whether things are arranged
in such a way that all those whose participation is required will
find it in their interest to take part in the project, at least to the
extent envisaged in the plan.
Economic: the appraisers here try to see whether what is
proposed is good from the viewpoint of the national economic
development interest, all project effects (positive as well as
negative) are taken into account, and check if all are correctly
valued.
Cont’d
Managerial: this aspect of the appraisal examines if the
capacity exists for operating the project and see if those
responsible ones can operate it satisfactorily. Moreover, it tries
to see if the responsible are given sufficient power and scope
to do what is required.

Organizational: the appraisers examine the project it is

organized internally and externally into units, contract, policy,
institution, etc so as to allow the proposals to be carried out
properly and to allow for change as the project develops.
Cont’d
On the basis of an appraisal report, decisions are made
about whether to go ahead with the project or not.

The appraisal may also change the project plan or develop

a new plan, that is, comment made at the appraisal stage
frequently give rise to alternations in the project plan
(project appraisal).

After appraisal, the viable project proposals are chosen for

implementation on the basis of the priorities of the
stakeholders and the available resources.
d. Project Negotiation and Financing
Once the project to be implemented is agreed on, for donor
funded projects, discussions are held on funding and associated
aspects of funding such as conditions for grants, repayment
period, interest rates on loans, flow of funds, contributions from
stakeholders, and whether there is co-financing or not.

This culminates into an “Agreement Document” for the

project, which binds all the parties involved during
implementation of the project.
e. Project Implementation
The objective of any effort in project planning and analysis
clearly is to have a project that can be implemented to the benefit
of the society.
Thus, implementation is, perhaps, the most important part of the
project cycle.
 In this stage, funds are actually disbursed to get the project
started and keep running.
A major priority during this stage is to ensure that the project is
carried out in the way and within the period that was planned.
It is during implementation that many of the real problems of
projects are first identified.
Because of this, the feedback effects on the discovery and design
of new projects and also the deficiencies in the capabilities of the
project actor can be revealed.
f. Project Evaluation
The final phase in the project cycle is evaluation.
Once a project has been carried out, it is often useful,
(though not always done), to look back over what took
place, to compare actual progress with the plans, and to
judge whether the decisions and actions taken were
responsible and useful.
The extent to which the objectives of a project are being
realized provides the primary criterion for an evaluation.
The analyst looks systematically at the elements of
success and failure in the project experience to learn how
better to plan for the future.
2.1.2 The UNIDO Project Cycle

The UNIDO has established a project cycle comprising the

following three distinct phases:
The pre-investment phase
The investment phase, and
The operating phase.
Cont’d
Cont’d
Each of these three phases is divided into stages, some of
which constitute important consultancy, engineering, and
industrial (manufacturing) activities.
In this regard, increasing importance should be attached to the
pre-investment phase as a central point of attention, because
the success or failure of an industrial project ultimately
depends on the marketing, technical, financial and economic
findings and their interpretations, especially in the feasibility
study.
To reduce wastage of scarce resources, a clear comprehension
of the sequence of events is required when developing an
investment proposal from the conceptual stage by way of
active promotional efforts to the operational stage.
1. The pre-investment phase
According to the UNIDO manual, the pre-investment phase
comprises several stages:
Identification of investment opportunities (opportunity
studies)
Analysis of project alternatives and preliminary project
selection as well as project preparation (pre-feasibility and
feasibility studies), and
Project appraisal and investment decision (specialized
appraisal reports)
Opportunity Studies
The identification of investment opportunities is the
starting-point in a series of investment-related activities,
when potential investors (private or public) are interested
in obtaining information on newly identified viable
investment opportunities.
The main instrument used to quantify the parameters,
information, and data required to develop a project
idea into a proposal is the opportunity study
Pre-Feasibility Studies
The project idea must be elaborated in a more detailed
study.
 However, formulation of a feasibility study that enables a
definite decision to be made on the project is a costly and
time-consuming task.
Therefore, before assigning larger funds for such a study,
a further assessment of the project idea might be made in
a pre-feasibility study. This is to see if:
All possible project alternatives are examined,
The project concept justifies detail study,
All aspects are critical and need in-depth investigation,
and
The project idea is viable and attractive or not.
Cont’d
A pre-feasibility study should be viewed as an
intermediate stage between a project
opportunity study and a detailed feasibility
study, the difference being in the degree of
detail of the information obtained and the
intensity with which project alternatives are
discussed.

The structure of a pre-feasibility study should

be the same as that of a detailed feasibility
study.
Support/Functional/Studies
Support or functional studies cover aspects of
an investment project, and are required as
prerequisites for, or in support of, pre-feasibility
and feasibility studies, particularly for large-
scale investment proposals. This may include:
Market studies of products
Raw material and factory supply studies
Laboratory and pilot plant tests
Location studies
Environmental impact assessment.
Economies of scale studies
Equipment selection studies
Feasibility Studies
A feasibility study should provide all data necessary for
an investment decision.
The commercial, technical, financial, economic, and
environment prerequisites for an investment project
should, therefore, be defined, refined and critically
examined based on alternative solutions already
reviewed in the pre-feasibility study.
There is no uniform approach or pattern to cover all
industrial projects of whatever type, size or category.
The emphasis on the components varies from project to
project.
For most industrial projects, however, there is a broad
format of general application-bearing in mind that the
larger the project the more complex will be the
information required.
Cont’d
The sensitive parameters such as the size of the
market, the production program, or the
mechanical equipment selected should be
examined more closely.
A feasibility study should be carried out only if
the necessary financing facilities, as determined
by the studies, can be identified with a fair
degree of accuracy.
There would be little sense in a feasibility study
without the reliable assurance that, in the event
of positive study findings, funds could be made
available.
For that reason, possible project financing must
be considered as early as the feasibility study
Appraisal Report
When a feasibility study is completed, the various parties will
carry out their own appraisal of the investment project in
accordance with their individual objectives and evaluation of
expected risks, costs, and gains.
Large investment and development finance institutions have a
formalized project appraisal procedure and usually prepare
appraisal reports.
This is the reason why project appraisal should be considered
an independent stage of the pre-investment phase, marked by
the final investment and financing decisions taken by the
project promoters.
2. PROJECT IDEA GENARATION
What is project Identification?
Project Identification is the process of searching for
and subsequently finding potential projects that could
feasibly generate benefits in excess of costs accruing
to the society and contributing towards the attainment
of specified development objectives.

Project identification is made in rather general terms

with broader scope at the first glance and then, the
idea will be progressively developed.
Who Identify Projects?

The following groups may identify projects:

Small producers organizations/producers’ unions
Large scale individual private sector producers
Product marketing organizations
Private sector companies (local/multinational)
State owned enterprises & organizations
Government ministries, authorities, agencies, and commissions
Development banks, local as well as foreign, and international
development agencies
Local governments; state, regional, and sub-regional authorities
Local political & pressure groups such as oppositional parties
NGO’s: Local or international
Credit institutions & cooperatives
Pre-identification

“Pre-identification” is an important prelude to project identification.

The pre-identification stage involves surveying, reviewing,
inventorying, and analysis of strategies and policies, data about
natural resources, and socio-economic variables.

This stage is a synonym to opportunity study under the UNIDO

cycle, which is very important phase in project planning.

Project identification must be carried out within national, regional,

and Sectorial development framework and policies including pricing,
taxation, and subsidy.

Otherwise, much time and effort might be wasted in the process of

identifying and preparing projects that might be inconsistent with
existing policies, strategies, and priorities and hence, might turn out
to be unfeasible by the end of the day.
Cont’d

projects do not always derive from national and sectoral

plans. Instead, they may originate from several sources.

Irrespective of their origin, project ideas, in general,

should aim at overcoming constraints on the national
development efforts, be it material, human, or institutional
constraint, or at meeting unsatisfied needs, and demand for
goods and services.
SOURCES OF PROJECT IDEAS

Broadly speaking, there are two sources of project:

Macro sources of project ideas and Micro sources of
project ideas.
Macro sources of project ideas : in developing countries
at the macro level can includes:
 Federal/central or Regional Government
 Bilateral and Multilateral Agreement
 International Development Agencies.
Cont’d
In general, in developing countries, the government remains
to be the major source of project for the reason that it:
Has the necessary resource for the task
Has unlimited access to data and information
Has the required facilities to conduct survey, studies and
reviews
Is fully familiar with the development objective priorities
and strategies
Micro Source of Project Ideas

At the micro-level, many institutions/entities could

generate project ideas, among which the following are
the main ones:
• Private and Public Enterprise
• Local groups or Organizations
• Consumer groups and Associations
• Financial Institutions/ Credit Associations
• Cooperatives, Farmers’ Unions,
• New technology Suppliers.
• etc
Cont’d
There are quite diverse micro-sources of project ideas that emanate
from:
• The identification of unsatisfied demand or needs
• The existence of unused or underutilized natural or human
resources and the perception of opportunities from their efficient
use
• The need to remove shortages in essential materials, services, or
facilities that constrain development efforts
• The initiative of private or public enterprises in response to
incentives provided by the government
• The necessity to complement or expand investments previously
undertaken
• The desire of local groups or organizations to enhance their
economic status and improve their welfare
• Analyze the performance of existing industries
• Examine the inputs and outputs of various industries
Project Idea Generation Process

1. Survey & Review of Endowments and Facilities (infrastructure):

• Surveying, reviewing and analysis of existing policies, resource
endowments, and socio-economic variables.
• Natural resource: review of the natural resource endowments of the
country.
• Human resource : review of educational standard and facilities
• Socio-economic variables : review of various socio economic factors
such as :
 Housing facilities & standard
 Utilities services
 health and nutrition services
 income distribution
2. Field survey and interview:
• Asking people what goods or services they want in order to identify their
unsatisfied needs.
• Asking people what their problems are.
Cont’d
3. Observing and analysis of prevailing situation:
• Observing and examining current demand & supply
situation for goods/services
• Examining past& future trends for goods and services
• Observing possibilities for improvements/ quality &
quantity
• Observing opportunities & threats in the invention &
introduction of new technology, etc.
4. Deliberations, discussions, and trainings:
• Discussions and deliberations in seminars, workshops,
conferences both local and international
• Meeting at different levels within the organization
• Educational & training programs
Cont’d
5. Brainstorming:
• A group of people suggesting different ideas regarding
future activities, very quickly, before analyzing and/or
considering the source of the idea more carefully.
6. Exposure to publication & media:
• Reading various publications and media: journals,
magazines, newsletter, newspapers, etc
• Audio-visual media (discussions, reports etc)
• Visual media (cinema, video)
7. Informal discussions and meetings:
• Get together meeting
• Friendship meetings (fraternal associations)
Approaches to Project Idea Generation
Broadly speaking, project ideas could be generated
through the following two approaches:
• Top-Down Approach (Macro level)
• It is an approach whereby individuals at the micro
level, or grass root level, are not involved in the
process of project idea generation.
• Projects are identified at the higher planning (or
macro) level and implemented at the decision of
officials at the top.
• It is based on the national plan and strategies.
• The government need not go down because the
problem might be understandable
Cont’d
• Bottom-Up Approach (Micro level)
• A bottom-up idea generation process requires
base line surveys, which is based on the
realities existing in different localities.
Project Ideas

Survey of Survey of key

needs development
Survey of
problems resources
Screening potentially promising ideas

• Once a list of project ideas has been put

forward, the first step is to select one or more
of them as potentially promising.
• This, calls for a quick preliminary screening by
experienced professionals who could also
modify some of the proposals.
• At this stage, the screening criteria are vague
and rough, that becomes specific and refined
as project planning advances.
• During the preliminary screening to eliminate
ideas, which are not promising, it is required to
look into the aspects such as:
• Compatibility with the promoter
• Consistency with government priorities
• Availability of inputs
• Adequacy of market
• Reasonableness of costs
• Acceptability of risk level
During preliminary selection, the analyst should eliminate project
proposals that:

• Are technically unsound and risky;

• Have no market for the output;
• Have inadequate supply of inputs;
• Are very costly in relation to benefits
• Assume over – ambitious sales and
profitability.
PROBLEMS IN PROJECT IDENTIFICATION
a. Ambiguity about the development
objectives of the country:
• People may not clearly identify development
goals
• development goal may not be well
communicated
• may not be in the best interest of units or
groups
• may not get full hearted acceptance from the
public
Cont’d
b. Priority issues in the existing development
objectives:
• Conflict regarding the priorities set
• opposing views may result in lack of interest
& commitment
• Differences in views regarding critical aspects
of priority
• differences in prioritizing goals & objectives
Cont’d
c. Limited information and data and obstacles
in data/information flow and accessibility:
• Data and in formation flow problem
• accessibility of data flowing
• limited data& information
• data may not be dependable(reliable) to use
Cont’d
d. Conflict of interest between local beneficiary
group: (i.e. some groups may bear the cost and
others may get the benefit)
• What are the costs & benefits of identified
projects?
• Who bears the costs & benefits in the society?
• Is benefits accruing to other groups while the costs
paid by a given local group (unit)
• Mechanisms to compensate those bearing the costs
• Unless compensated, the consequences might be
unfavorable, costly, and severe as well.
3. Principles of Project Management
What is Project Management?
• It is the application of:
– Knowledge
– Skills
– Tools
– Techniques
– To do project activities to meet project requirements
– It is accomplished through appropriate application and
integration of logically grouped project management processes
comprising the 5 process groups.
– What are those FIVE Process Groups?
– What are those 9 Knowledge Areas in Projects?
Mapping the Processes
Process Initiating Planning Executing Controlling Closing
PM Group
P.G. P.G. P.G. P.G. P.G.
Knowledge Area
1. Project 1.1 Develop 1.2 Develop Project 1.3 Direct & 1.4 Monitor & 1.6
Integration Project Management Plan Manage Control Project Close
Management Charter Project Work Project
Execution 1.5 Perform or
Integrated Change Phase
Control

2. Project Scope 2.1 Collect 3.4 Verify Scope

Management Requirements 3.5 Control Scope
2.2 Define Scope
3.3 Create WBS

3. Project Time 3.1 Define Activities 3.6 Control

Management 3.2 Sequence Activities Schedule
3.3 Estimate Activity
Resources
3.4 Estimate Activity
Duration
3.5 Develop Schedule

4. Project Cost 4.1 Estimate Costs 4.3 Control Costs 51

Management 4.2 Determine Budgets
Mapping the Processes (cont.)
Process Closi
Initiating Planning Executing Controlling
Group ng
PM P.G. P.G. P.G. P.G.
P.G.
Knowledge Area
5. Project Quality 5.1 Plan Quality 5.2 Perform Quality 5.3 Perform
Management Assurance Quality Control
6. Project Human 6.1 Develop 6.2 Acquire Project Team
Resource Human Resource 6.3 Develop Project Team
Management Plan 6.4 Manage Project Team
7. Project 7.1 7.2 7.3 Information 7.5 Report
Communications Identify Communications Distribution Performance
Management Stakehold Planning 7.4 Mange Stakeholders
er
8. Project Risk 8.1 Plan Risk 8.6 Monitor &
Management Management Control Risk
8.2 Identify Risk
8.3 Perform
Qualitative Risk
Analysis
8.4 Perform
Quantitative Risk
Analysis
8.5 Plan Risk
Responses

52
Mapping the Processes (cont.)
Process Initiating Planning Executing Controlling Closing
PM Group P.G. P.G. P.G. P.G. P.G.
Knowledge Area
9. Procurement 9.1 Plan 9.2 Conduct 9.3 Administer 9.4 Close
Procurement Procurement Procurement Procurement

53
What is Project Management?
1.Project aligned with organizational objectives and customer needs

• Project Initiation 2.Preliminary scope statement includes stakeholder needs and expectations
3.High-level risks, assumptions are understood
4.Stakeholders identified and their needs understood
5.Project charter approved

1 .Project scope agreed

2.Project schedule approved

• Project Planning 3.Cost budget approved

4.Project team identified with roles and responsibilities agreed
5.Communications activities agreed
6.Quality management process established
7.Risk response plan approved
8.Integrated change control processes defined
9.Procurement plan approved

• Project Execution 10.Project plan approved

1.Project scope achieved

2.Project stakeholders expectations managed
3.Human resources managed
4.Quality managed against plan
5.Material resources managed

• Project Monitoring 1.Project tracked and status communicated to stakeholders

2.Project change is managed

& Change Mgt.

3.Quality is monitored and controlled
4.Risk is monitored and controlled
5.Project team is managed
6.Contracts administered

• Project Closing 1.Project outcomes accepted

2.Project resources released
3.Stakeholder perceptions measured and analyzed
4.Project formally closed
Project Management Office
• It is an organized body or entity assigned
coordinated management of projects under its
domain
• It is the key decision maker during the
beginning of each project
• It is also responsible for the selection,
management and deployment of shared or
dedicated project resources
Functions of Project Management Office
1. Managing shared resources
2. Identifying & developing project management
methodology, best practices and standards
3. Coaching, monitoring, training and oversight
4. Monitoring compliance project audits
5. Developing & managing project policies, procedures,
templates and other standard documentation?
6. Coordinating communication across projects
Project Manager
• Focuses on a specific project objective
• Controls resources to best meet project
objectives
• Manages the constraints (scope, schedule,
cost and quality etc) of individual project
Main Functions of a Project Manager
 Define scope of project
 Identify stakeholders & Leadership (decision makers:
Client, Parent organization, Project Team, Publics)
 Evaluate project requirements
 Develop detailed task list (work breakdown,
structures)
 Develop initial project management flow chart
 Estimate time requirements
 Identify cost estimation and budget
 Identify required resources and evaluate risks
Main Functions of a Project Manager
 Prepare contingency plan
 Identify interdependencies
 Identify and track critical milestones
 Secure needed resources, manpower
 Participate in project phase review
 Manage the change control process
 Report project status
Project Management Vs
Operation Management
• Operations are permanent endeavors that
produce repetitive outputs with resources
assigned to do same set of tasks
• It is an ongoing nature of operations
• Projects are unique
• Projects are temporary endeavors
Characteristics of a
Project Manager
• Knowledge: Must be well versed with project
management.
• Performance: Application of project management
knowledge
• Personal: Behavior of the project manager:
– Effectiveness
– Attitude
– Personality characteristics
– Leadership, guidance to balance project constraints
4. Quality
Quality

Concerned with ensuring that the required level of quality is

achieved in a product.
• Involves defining appropriate quality standards and procedures
and ensuring that these are followed.
• Should aim to develop a ‘quality culture’ where quality is seen as
everyone’s responsibility.
• Quality, simplistically, means that a product should meet its
specification.
• This is problematical for software systems
– There is a tension between customer quality requirements (efficiency,
reliability, etc.) and developer quality requirements (maintainability,
reusability, etc.);
– Some quality requirements are difficult to specify in an unambiguous way;
– Software specifications are usually incomplete and often inconsistent.
Quality management activities
• Quality assurance
– Establish organisational procedures and standards for quality.
• Quality planning
– Select applicable procedures and standards for a particular project and
modify these as required.
• Quality control
– Ensure that procedures and standards are followed by the software
development team.
• Quality management should be separate from project
management to ensure independence.
• Standards development : Involve practitioners in development,
Engineers(professionals) should understand the rationale underlying a
standard.
• Review standards and their usage regularly. (Standards can quickly become
outdated)
• Detailed standards should have associated tool
support.
5. Project Risk Management
Risk-Defined
A situation involving exposure to danger;
“The combination of the probability of an
event and its consequences”

“Effect of uncertainty on objectives”

(ISO 31000(2009) /ISO Guide 73:2002)

Uncertainties include events (which may or not happen);

Uncertainties caused by ambiguity or a lack of information; and
Also includes both negative and positive impacts on objectives.
PROJECT RISK MANAGEMENT

Art and science of planning, organizing, securing and managing

resources (Management) to harness/control/manage the effects of
uncertainties on objectives (Risk)of a temporary endeavor (project).
Is a Comprehensive System that includes:
 Creating an appropriate risk management environment
 Maintaining an efficient Risk Measurement
 Mitigating and Monitoring Process
 Establishing an Adequate Internal Control Arrangement
Core of the Strategic Management of the Company
It is the process whereby organizations methodically address the risks
attaching to their activities with the goal of achieving sustained
benefit within each activity and across the portfolio of all activities.
SHORTLY Risk Management is the;
Identification;
Assessment; and
prioritization of risks
Monitoring

followed by coordinated and economical

application of resources to minimize, monitor,
and control the probability and/or impact of
unfortunate events or to maximize the
realization of opportunities.
Why Risk Management:
Its objective is to add maximum sustainable value to
all the activities of the organization.

It marshals the understanding of the potential upside

and downside of all those factors which can affect the
organization.

It increases the probability of success, and reduces

both the probability of failure and the uncertainty of
achieving the organization's overall objectives.
ROOTS OF UNCERTAINTY

 Stakeholders
 Objectives
 Variety of Resources, (human, capital, material..)
 Project Organizations
 Scope of work
 Cost
 Time
 Delivery of Quantified and Qualitative objectives
 Technologies
 Environment
 Regulators
Roots of Uncertainty are associated with
who : Who are the parties ultimately involved
Why : What do they want (motives, objectives..)
What : What is it the parties interested in (design)
Which way : How is to be done (activities)
Where: What resources are required (resources)
When: when does it have to be done (Schedule, timetable)

Role of Risk Managers

• Risk Identification
• Risk Appraisal
• Focus of downside of risk
• Exploit Opportunities arising from risks
Types of Risks
a) Technical Feasibility
• Organizational lack of familiarity with the technology
• Relative level of technical complexity
• Maturity of the technology (new vs. tried and tested)
• Interconnectivity of technology with existing systems
• Existing assets are underutilized in this project
• Obsolete approach for program delivery
• Customer demand projections incorrect
• Uncertainty over customer ownership and control
b. Political and External Market
 Marketplace Positioning/competition
 Regulatory Environment /unfavorable
 Customer Corporate/Organizational changes
in priorities
 Customer Commitment/viability of project
 Changes in decision makers
 Natural Hazards
 Political changes (new laws, tax policies etc.)
c. Financial and Economic
 Project costs can exceed budget
 High inflation or cost increases
 Customer bankruptcy
 Cash flow profile unfavorable
 Funding not approved by customer
 Excessive price fluctuation on imported
components
 Required investment too high for return
d. Legal and Contractual
 Breach of contract/termination's
 Penalty clauses
 Excessive warranties
 Contract claims/failure to perform
 Contract disputes escalation procedure
inadequate
 Excessive liability
 Patent/copyright infringement
 Team unfamiliar with procurement method
e. Human Behavior
 Unavailability of Internal technical expertise
 Unavailability of External technical expertise
 Lack of staff support for project/corruptions
 Delays in customer approvals
 Delays in documentation
 Actions by labor unions
f. Scope and Schedule:
 Unreality of stated deadlines
 Inadequate project definition
 Standards incompatible with requirements
 Design incorporates high maintenance materials
 Lack of resource availability
 Lack of product availability
 Poor coordination of resources
 Requirement inflexibility
g. Project Organization
 Unavailability of key project personnel
 Change of key customer personnel
 Unsatisfactory choice of subcontractors
 Engineering design not kept to schedule
 Inadequate coordination of partners and
subcontractors
 Staff not trained in time
 Inadequate contract documentation
 Inadequate security of site during installation
SOURCES of RISKS

INTERNAL EXTERNAL
Resourc Process
es es
Inadequate internal
controls, Political risk
Human errors Country Risk
(incompetence, Market Risk
inexperienced, Currency Risk
corruption) Interest Rate Risk
IT failure Counter-part Risk
Inadequate human Credit or default Risk
resurces Environmental Risk
Operational Risks
Legal Risks??
RISK MANAGEMENT PROCESS
 According to the standard ISO 31000 "Risk
management -- Principles and guidelines on
implementation," the process of risk management
consists of several steps as follows:
 Establishing the context involves:
1. Identification of risk in a selected domain of
interest
2. Planning the remainder of the process.
3. Mapping out the following:
 the social scope of risk management
 the identity and objectives of stakeholders
 the basis upon which risks will be evaluated, constraints.

4. Defining a framework for the activity and an

agenda for identification.
5. Developing an analysis of risks involved in the
Risk Management Principals
ISO identifies the following principles of risk management:
Risk management should:
 create value - resources expended to mitigate risk should
generally exceed the consequence of inaction, or (as in value
engineering), the gain should exceed the pain
 be an integral part of organizational processes
 be part of decision making
 explicitly address uncertainty and assumptions
 be systematic and structured
 be based on the best available information
 be tailor able
 take into account human factors
 be transparent and inclusive
 be dynamic, iterative and responsive to change
 be capable of continual improvement and enhancement
 be continually or periodically re-assessed
Application of Risk Management in
PLC
Stages Steps
Conceive Identifying stakeholders and their expectations
Identifying appropriate performance objectives
Design Testing the reliability of design
Testing the feasibility of design
Setting performance criteria
Assessing the likely cost of a design
Assessing the likely benefits from a design
Assessing the effect of changes to a design
Plan Identifying and allowing for regulatory constraints Assessing the
feasibility of plan
Assessing the likely duration of a plan
Assessing the likely cost of the plan
Determining appropriate milestones
Estimating resources required
Assessing the effect of changes to the plan
Determining appropriate levels of contingencies funds and resources
Application of Risk Management in PLC
Stages Steps
Allocate Evaluating alternative procurement strategies
Defining contractual terms and conditions
Determining appropriate risk sharing arrangements
Assessing the implications of contract conditions
Assessing and comparing competitive tenders
Determining appropriate targets costs and bid prices for
contracts
Estimating likely profits following project termination
Execute Identifying remaining execution risks
Assessing implications of changes to design or
plan
Revising estimates of cost on completion
Revising estimates of completion time of
execution stage
Deliver Identifying risks to delivery
Assessing feasibility of delivery schedule
Assessing feasibility of meeting performance
criteria
Assessing reliability of testing equipment
Assessing requirement for resources to modify
PLC-
Review Assessing effectiveness of risk
management strategies
Identifying of realized risk management
strategies
Support Identifying extent of future liabilities
Assessing appropriate level of resources
required
Assessing profitability of the project
Building a Risk Management Culture
 Prepare the organization
 Risk: the Organizational Culture Issue
 A culture of risk management competencies
 Link corporate and project planning
 Training and Development in Risk
 Project Experience
 Learning Organization
 Strong Functional managers Address Quality
 Building the Culture
 Addressing Risk with scenarios
 Performance incentives
 The Risk of “Blinders”
 Personal, Project and Organization Risk
Cultur Mana Train
e ge
• Risk is • Require • Train
our risk in people
way of plannin to see
doing g risk
busines docum
s ents

Visio Priori Meth Educ

Policy
n ty od ate

Establish vision Write manuals Develop

of risk based Use risk to help online risk
decisions select training
Connect to Use risk to help program
businesses manage Use electronic
success Identify template for
Individual Assignment (20%( submit with hard copy with in 1
week)
1. Consider the recent circumstances in our country, try to
look into the macro and micro level and list at least five
possible projects. Which source do you base to identify
the projects?

2. Screen out and select only three based on the screening

criteria's stated in this lesson. Which criteria do you apply
to screen the projects?