Project Evaluation

1. Project Evaluation UNIT 2

2. Typical Project Life-cycle BIN PROJECT No Yes INITIAL FULL PROJECT PROJECT PROJECT WRITE PROJECT EVALUATION INCEPTION POSSIBLE? APPROPRIATION EVALUATION STAGE No FORMAL SHELVE APPROVAL? PROJECT Yes PROJECT START MANAGEMENT SYSTEM Cost/schedule/ performance targets PROJECT PROJECT PROJECT IMPLEMENTATION PREPARATION COMPLETE AND EXECUTION Progress ~ plans

3. Project Evaluation Why evaluate? • Need to prepare for an appropriation/justification • What are the strategic/technical issues • How much will the project cost? • What are the benefits? • How long will the project take? • What are the risks? • Not completing the project on time, cost, performance • Not delivering the benefits This evaluation process is normally called a ‘feasibility study’

4. Strategic Considerations • Does the project fit with the overall Business Goals/strategy • e.g. Ryanair strategy - low cost airline • Internal Projects - internet ordering/ ticketless check-in • Who are the key stakeholders, will the project meet their requirements? • How will the equipment be maintained and by who? • Will the skill base, manning levels, organisational structure be affected?

5. Technical Considerations • Is the scope of the project clearly defined? • Has this type of project been done before? • Is there a simpler design or build method? • Have all the options been considered? • Are the component parts compatible with plants mechanical and electrical standards? • What about the drawings, spares, maintenance recommendations?

6. Economic Considerations • Is the project economically viable? • Has a cost/benefit analysis been carried out? • Simple process 1. Identify and estimate all costs and benefits 2. Convert costs and benefits into common units • normally monetary units 3. Assess whether costs outweigh the benefits

7. Estimating Cost • For the project manager to effectively plan and control a project, accurate estimating is essential. The estimators task is to predict the project’s parameters by building a model of the project on paper. • The quality and accuracy of the estimate should be seen as the best approximation based on: - time available - information available - techniques employed - expertise and experience of the estimator • The quality and accuracy of the estimate can be continually improved as the project is progressively executed when more detailed and accurate information becomes available. • It is important to remember that the costs can not be accurately established until scope and all resources have been quantified

8. Three types of Estimate • Conceptual Estimate +/- 25% - 50% • Feasibility Study +/- 10% • Definitive Estimate +/- 5%

9. Conceptual Estimate • Also called order of magnitude, budget figure, ball-park figure or ‘finger in the air’ estimate • Occurring at the conceptual or initiation phase • Based on a limited scope of work • Low level accuracy (> +/- 25%)

10. Feasibility Study • Preliminary or comparative estimate • Should we proceed with the project? • Determines the needs and expectations of all stakeholders • Handled as a highly structured mini project accuracy of estimate at about +/- 10%

11. Definitive Estimate Mostly carried out after project approval • In depth design and calculations • Detailed scope of work • Itemised bill of materials (BOM) and parts list • Detailed plan • Firm prices from sub-contractors and suppliers • Good estimate of man-hours and labour costs • Almost every aspect of the project is quantified • Accuracy of estimate of +/- 5%

12. Project Costs • Direct costs - those costs that can be specifically identified with an activity or project • Indirect costs - overheads • Material and equipment costs • Transport and shipping costs • Project office costs • Procurement costs - Costs to buy in goods and services • Contingency allowance - usually added as a percentage of the overall project • underestimating work content due to lack of scope definition • additional work caused by design errors

13. Outputs from Cost Estimate • A description of the scope of the work • Documentation showing the basis for the estimate • An indication of the range of possible price options • A total cost for the project which can then be assessed against the potential benefits

14. Benefit’s • Benefits to be estimated • direct benefits • e.g. reduction in staffing levels • assessable indirect benefits • e.g. reduction in operator errors • intangible benefits • e.g. improved working conditions • Quantify where possible into monetary terms • Once costs and benefits are established can now carry out analysis

15. A Feasibility Study Process(According to Burke 2003) 1. Feasibility study initiation 2. Appointment of the Feasibility Study Team. 3. Plan the Feasibility Study. 4. Stakeholder Analysis. Stakeholders include any people or organisations that are involved in or affected by the project. It is important to know which stakeholders will be affected positively and which will be affected negatively by the project. 5. Define the Client’s Needs. The project manager must work with the client to produce an agreed and unambiguous statement of which needs will be addressed by the project. 6. Evaluate the Constraints. • Internal Project Constraints. • Internal Corporate Constraints. • External Constraints.

16. A Feasibility Study Process 7. Evaluate Alternatives and Options. • Time. • Cost. • Quality. • Resources. • Technical. 8. Gather Information. 9. Value Management. looks at the project has a whole and considers the relationship between function, cost and worth, its purpose being to ensure value for money over the complete product life cycle. 10. Cost Benefit Analysis. In general terms if the benefits exceed the costs the project is considered to be worthwhile

17. ‘Constraints’ Tutorial Your company is a small-medium engineering firm which makes components (i.e. low precision and tech) for the automotive industry. You have been approached by a company to become a partner in setting up and operating an engineering design and manufacturing operation in Iraq to supply high precision components for the re-development of its oil industry. You are to identify the possible constraints which require investigation to ascertain the feasibility of this project. Use the three thematic headings for this Purpose i.e. • Internal Project Constraints. • Internal Corporate Constraints. • External Constraints.

18. ‘Constraints’ Tutorial • Internal Project: • Can we do it – technology and staff (move to high tech precision products) • Special equipment – can we afford it? • Is budget and timescales feasible • Are terms and conditions acceptable and achievable. • Internal Corporate: • Are the Company’s financial objectives met by this project (loss leader ?) • It this change in product type and location in line with company strategy • Is the partnership and its terms acceptable to company and its shareholders • External: • Material delivery lead-times (sourcing and transportation) • Ability to find suitable workforce (highly skilled) – local or secondments • Political unrest • Dangerous working/living conditions – may impede secondments • Stability of proposed market • Equipment performance (due to heat, dust etc)

19. Key Points • Identify all stakeholders- assess, quantify and prioritise their needs and expectations • Identify all the constraints, both internal and external. • Consider alternative options to produce a better solution,product or service.

20. Next Week • ‘ Project Selection Techniques’ • Read - Lesson 2 ‘The Appraisal and Selections of Projects’