ESE-2020

Prelims Paper-I

Basics of
Project Management

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IES MASTER PUBLICATION
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First Edition : 2016

Second Edition : 2017

Third Edition : 2018

Fourth Edition : 2019

Typeset at : IES Master Publication, New Delhi-110016

 PREFACE

As enabling technology is becoming stronger, man’s desire to give shape to an idea using that technology is
becoming even stronger. However, it is the marked improvement in the managerial genius of project leaders,
with technical mind and artistic approach that has been an enabler in getting the desired result.
Engineering Services demand such leadership traits in executing government programmes, global projects,
personal and organisational plans to be a successful techno-bureaucrat. This revised and updated edition of
Basics of Project Management helps you comprehend various processes from project initiation, planning,
management, execution, monitoring, and control to project closure, in a fast changing world.

To add to it, the variables defining project management are evolving even faster. Making sense of this changing
scenario, the book helps you understand the flow of knowledge and skills through tools and techniques in
carving out a unique product or service. This book gives a detailed understanding of the various stages,
approaches, structures, and systems in a lucid language.

Designed with a technical approach, this fourth edition of the book incorporates all possible diagrams, flowcharts,
tables, mind maps, etc. to quench your thirst to clear the UPSC Engineering Services Examination (ESE). IES
Master’s research and development wing has done a detailed recce, covering all possible dimensions, on which
the questions can be framed. This updated edition features revised chapters, some of which include expanded
discussions of fundamental concepts or alternative derivations of important formulas. To jack you up to the level
of Engineering Services, a good number of questions have also been incorporated here.

IES Master Publication

New Delhi
 CONTENTS

Preface (iii)

Chapter 1 FUNDAMENTALS OF PROJECT MANAGEMENT 01 – 37

1.1 INTRODUCTION .......................................................................................................................................... 01

1.2 WHAT IS PROJECT? ................................................................................................................................. 02

1.3 PROJECT MANAGEMENT ORGANISATIONS AND THEIR BOOKS OF KNOWLEDGE ..................... 03

1.4 TYPES OF PROJECTS .............................................................................................................................. 03

1.5 CHARACTERISTICS/FEATURES OF PROJECTS .................................................................................... 04

1.6 OPERATIONS ............................................................................................................................................... 05

1.7 STAKEHOLDERS ......................................................................................................................................... 05

1.8 PROJECT CONSTRAINTS ......................................................................................................................... 06

1.9 NEED OF A PROJECT MANAGEMENT .................................................................................................. 07

1.10 PROJECT MANAGEMENT ........................................................................................................................ 07

1.11 OBJECTIVES OF PROJECT MANAGEMENT ......................................................................................... 08

1.12 PROJECT MANAGEMENT MATURITY .................................................................................................... 08

1.13 PROJECT MANAGEMENT OFFICE .......................................................................................................... 09

1.14 FUNCTIONS OF PROJECT MANAGEMENT ........................................................................................... 09

1.15 PRODUCT MANAGEMENT ........................................................................................................................ 10

1.16 VENTURE MANAGEMENT .......................................................................................................................... 11

1.17 PROJECT, PROGRAM AND PORTFOLIO ................................................................................................ 11

1.18 PROJECT LIFE CYCLE ............................................................................................................................. 12

1.19 PROJECT MANAGER ................................................................................................................................ 15

1.20 ORGANIZATIONAL STRUCTURES ........................................................................................................... 17

1.21 PHASE TO PHASE RELATIONSHIP ......................................................................................................... 20

1.22 PROJECT SUCCESS .................................................................................................................................. 21

1.23 SOURCES OF CONFLICT IN PROJECTS ............................................................................................... 21

1.24 CONFLICT RESOLUTION TECHNIQUES ................................................................................................. 21

1.25 PROCESS GROUPS AND KNOWLEDGE AREAS ................................................................................... 22

Chapter 2 PROJECT INITIATION 38 – 70

2.1 INTRODUCTION .......................................................................................................................................... 38

2.2 PROJECT IDENTIFICATION ....................................................................................................................... 39

2.3 PRE-FEASIBILITY STUDIES ...................................................................................................................... 39

2.4 PROJECT FEASIBILITY OR FORMULATION STUDIES ........................................................................ 40

2.5 DETAILED PROJECT REPORT ................................................................................................................. 60

2.6 PROJECT APPRAISAL/EVALUATION ..................................................................................................... 60

2.7 PROJECT SELECTION/DECISION ............................................................................................................. 60

2.8 PROJECT CHARTER .................................................................................................................................. 62

 Contents (v)

Chapter 3 PROJECT PLANNING 71 – 110

3.1 INTRODUCTION .......................................................................................................................................... 71

3.2 STEPS OF PROJECT PLANNING ............................................................................................................ 71

3.3 PROJECT KICKOFF MEETING ................................................................................................................. 72

3.4 DEFINING SCOPE OF WORK .................................................................................................................... 72

3.5 WORK BREAKDOWN STRUCTURE (WBS) ............................................................................................. 72

3.6 ROLE ASSIGNMENT .................................................................................................................................. 73

3.7 PROJECT SCHEDULING ............................................................................................................................ 73

3.8 NETWORK ANALYSIS TECHNIQUE ......................................................................................................... 74

3.9 PERT ANALYSIS ........................................................................................................................................ 76

3.10 CPM ANALYSIS ......................................................................................................................................... 83

3.11 GERT ............................................................................................................................................................ 86

3.12 ACTIVITY ON NODE NETWORK SYSTEM ............................................................................................. 86

3.13 ESTIMATION OF PROJECT COST .......................................................................................................... 87

3.14 COST SLOPE/SLOPE OF DIRECT COST CURVE ................................................................................ 88

3.15 BUDGET PLANNING ................................................................................................................................... 90

3.16 RESOURCE ALLOCATION ........................................................................................................................ 90

3.17 PROJECT SUPPORT PLANS ................................................................................................................... 91

Chapter 4 RISK MANAGEMENT 111 – 123

4.1 INTRODUCTION ......................................................................................................................................... 111

4.2 SOURCES OF RISK ................................................................................................................................... 112

4.3 STEPS OF RISK MANAGEMENT ............................................................................................................ 113

4.4 RISK MANAGEMENT PLANNING ............................................................................................................ 113

4.5 RISK IDENTIFICATION .............................................................................................................................. 114

4.6 RISK ANALYSIS ........................................................................................................................................ 115

4.7 RISK RESPONSE PLANNING ................................................................................................................... 119

4.8 RISK MONITORING AND CONTROLLING ............................................................................................ 120

4.9 REVIEW ...................................................................................................................................................... 120

Chapter 5 PROJECT EXECUTION 124 – 131

5.1 INTRODUCTION ........................................................................................................................................ 124

5.2 OBJECTIVES OF EXECUTION PHASE .................................................................................................. 125

5.3 APPROACHES TO PROJECT EXECUTION ........................................................................................... 125

5.4 MANAGING PROJECT EXECUTION ...................................................................................................... 125

5.5 TOOLS REQUIRED FOR EXECUTION .................................................................................................... 126

5.6 ORGANISING SYSTEMS AND PROCEDURES FOR PROJECT EXECUTION .................................... 126

5.7 SYSTEMS REQUIRED FOR THE EXECUTION OF A PROJECT ......................................................... 126

5.8 PROJECT CONTROL PROCESS ............................................................................................................ 127

5.9 ISSUES IN PROJECT EXECUTION ......................................................................................................... 128

5.10 FACTORS AFFECTING PROJECT EXECUTION ................................................................................... 128

5.11 FACTORS LEADING TO POOR EXECUTION ....................................................................................... 128

(vi) Contents

Chapter 6 PROJECT MONITORING AND CONTROL 132 – 146

6.1 INTRODUCTION ........................................................................................................................................ 132

6.2 PROJECT MONITORING ......................................................................................................................... 132

6.3 TOOLS AND TECHNIQUES FOR MONITORING ................................................................................... 133

6.4 PROJECT MANAGEMENT INFORMATION SYSTEM (PMIS) ............................................................ 137

6.5 PROJECT CONTROL ............................................................................................................................... 137

6.6 PURPOSE OF CONTROL ........................................................................................................................ 138

6.7 ELEMENT OF CONTROL IN PROJECT ................................................................................................ 138

6.8 TYPE OF CONTROL SYSTEMS ............................................................................................................. 139

Chapter 7 PROJECT CLOSURE AND REVIEW 147 – 157

7.1 INTRODUCTION ........................................................................................................................................ 147

7.2 OBJECTIVES/BENEFITS OF PROJECT CLOSING ............................................................................... 147

7.3 STEPS PROJECT CLOSING ................................................................................................................... 148

7.4 ENSURING PHYSICAL COMPLETION ................................................................................................... 148

7.5 CLOSING PROCUREMENT OR OTHER CONTRACTS ........................................................................ 148

7.6 HANDING OVER OF OUTPUT AND OBTAINING FORMAL ACCEPTANCE ..................................... 148

7.7 DOCUMENTING PROJECT RECORDS ................................................................................................... 148

7.8 PERFORMING FINANCIAL CLOSURE ................................................................................................... 148

7.9 DOCUMENTING LESSONS LEARNED .................................................................................................... 149

7.10 RELEASING/REDISTRIBUTION OF RESOURCES .................................................................................. 149

7.11 PERFORMING POST IMPLEMENTATION REVIEW .............................................................................. 149

7.12 ARCHIVING PROJECT RECORDS .......................................................................................................... 150

7.13 PROJECT AUDIT ...................................................................................................................................... 150

7.14 TYPES FOR PROJECT CLOSING AND TERMINATION ...................................................................... 151

7.15 CHALLENGES IN PROJECT CLOSING ................................................................................................. 153

Chapter 8 FINANCING OF PROJECTS 158 – 183

8.1 INTRODUCTION ........................................................................................................................................ 158

8.2 CAPITAL STRUCTURE ............................................................................................................................ 158

8.3 THE TYPICAL PATTERN OF FINANCING ............................................................................................ 160

8.4 SOURCES OF FINANCING ...................................................................................................................... 160

8.5 METHODS OF OFFERING ........................................................................................................................ 169

8.6 VENTURE CAPITAL ................................................................................................................................. 171

8.7 VARIOUS TYPES OF PROJECT CONTRACTS ................................................................................... 171

8.8 DEPRECIATION ......................................................................................................................................... 172

8.9 COST ESTIMATES AT VARIOUS STAGES OF PROJECT ................................................................ 176

8.10 LIFE CYCLE COST .................................................................................................................................. 177

8.11 FINANCIAL MANAGEMENT .................................................................................................................... 177

8.12 CONSTRUCTION ECONOMICS & FINANCE ........................................................................................ 178

APPENDIX - I 184-185

APPENDIX - II 186-187
 1

1.1 INTRODUCTION

INSIDE  With the evolution of mankind and radical transformation of

 Introduction society there emerged a need to develop new structure and
technologies.
 What is Project?

 Project Management Organisations and  Creating these technologies or new structures required huge
their Books of Knowledge amount of resources and man power.
 Types of Projects  This has lead to development of some form of approach or
methodology for better and efficient use of these resources.
 Characteristics/Features of Projects
 Finally a new branch of study “The project management” has
 Operations
emerged.
 Stakeholders
 Centuries back, so-called “projects” were finished successfully,
 Project Constraints
e.g. the building of the aqueducts in Roman times or the
 Need of a Project Management construction of the Great Wall in China, but these projects were
managed more on an adhoc basis mostly using informal
 Project Management
techniques and tools.
 Objectives of Project Management
 These days v arious businesses regularly use project
 Project Management Maturity
management to grow (or expand) from domestic firms to
 Project Management office nationalised companies to global or multinational enterprises,
with limited resources under critical time constraints.
 Functions of Project Management
 Hence project management nowadays is regarded as a very
 Product Management
high priority as all companies or organisations, whether small or
 Venture Management
large, are at one time or another involved in implementing new
 Project, Program and Portfolio undertakings, Innovations and changes etc. – projects!!!.
 Project Life Cycle
 There are various social factors that have caused increased
 Project Manager usage of project management.
 Organizational Structures (i) Rapidly changing technologies: Technologies are changing
 Phase to Phase Relationship very fast, so all manuf acturing as well as serv ice
organizations have to cope up with technological changes,
 Project Success
which provide a big scope for project management.
 Sources of Conflict in Projects
(ii) High entropy of the system: Changes are very fast. So,
 Conflict Resolution Techniques
energy levels are high. To adapt to the fast changing world,
 Process Groups and Knowledge Areas no organization can stick to old things or systems. Any
modification or modernization leads to the need of project.
2 | BASICS OF PROJECT MANAGEMENT GS AND ENGINEERING APTITUDE

(iii) Squeezed life cycle of products: Project life make something new) and that usually requires
cycle is squeezed to a great extent with a lot of time”.
innovations taking place at a very fast rate. or
Projects are needed for the upgradation of
 “A project is a task or problem in school that
products.
requires careful work over a long period of time.”
(iv) Globalization impact: All producers and
service providers in the present world are According to Oxford Dictionary
exposed globally. Projects need to modify their  “A project is an individual or collaborative
system of operations to match the global enterprise that is carefully planned to achieve a
practices, thus creating opportunity for particular aim.”
projects. or
(v) Large organizations: Projects face problems  “A project is “a piece of research work undertaken
of management of huge workforce and work by a school or college student.”
division, so they divide their work in projects
and create a team to accomplish the According to ISO-21500
objectives in the form of projects. This has “A project is a unique process consisting of a set of
also helped the organization to develop a coordinated and controlled activities with start and finish
method for performance appraisal. dates, undertaken to achieve an objective conforming
(vi) Customer focus: Increased customer focus to specific requirements including to constraints of time,
has been a market trend in recent times. A cost and resources.”
few years back, cost reduction was a major
formula of success for an enterprise. Thus, According to PRINCE 2
there was more emphasis on standardization. “Project is a temporary organisation that is created for
In recent years, customer focus has redirected the purpose of delivering one or more business
market towards customization. Though it is products according to specified business case”.
not purely customisation, it is more of a
combination of standardization and custo- Note: Prince 2 is an acronym of “Projects IN
mization. All this has led to the application of Control led Environments”. It is an
project management. methodology for project management
developed by U.K. Government.
 Before we understand this approach of managing
projects, we shall briefly address ourselves to According to IS-15883 (Part 1): 2009
certain questions or fundamental concepts like
“A project is a non-recurring task having a definable
 What is project? beginning and end, with a definite mission and has a
 How it is different from operations or a set objectives and achievements”.
program?
According to Project Management Institutes– “A
 What is project manager?
guide to the project m anag em ent body of
 What are roles of a project manager? knowledge” (PMBOK guide)
 What are different types of Organisational
structures?  “A project is a temporary endeavor undertaken to
create a unique product, service or result.”
 How do different Organisational structure
change role and power of a project manager?
Note: Above definition given by PMBOK is the
 In this chapter we will try to understand most acceptable and undisputed definition.
fundamentals of project management and will try
to address the questions stated above.  There are two key words in above definition.
(i) Temporary (ii) Unique
1.2 WHAT IS PROJECT?
 The term temporary refers to the execution of the
project and not to the product of the project, which
According to Webster’s Dictionary is usually created to deliver a lasting or sustained
outcome. Example of this kind of project could be
 “A project is a planned piece of work that has a a newly constructed highway, software, automobile,
specific purpose (such as to find information or to or a power station.
30 | BASICS OF PROJECT MANAGEMENT GS AND ENGINEERING APTITUDE

Questions

1. Which is true regarding projects? 7. What is name for group of related projects
(a) A project is a unique service undertaken to managed in a coordinated way to obtain a
create a temporary product synergy between them which is not found by
managing them individually
(b) A project is a unique endeavor undertaken
to create a temporary service (a) Multi project (b) Portfolio
(c) Program (d) Strategy
(c) A project is a temporary endeav or
undertaken to create a unique product or 8. Which of following best define stakeholder?
service.
(a) Your project team member, project sponsor
(d) A project is a temporary product undertaken and client
to create a unique endeavor or service
(b) Any person or group who can affect or be
2. At what stage in the project life cycle would costs affected by your project
be the lowest? (c) Any person or group
(a) Concept (b) Development (d) The client, the project sponsor and external
government agencies
(c) Implementation (d) Close out
9. One phase is planned and then the another
3. Project Managers have least power in which
phase is planned, that is which type of relationship?
organization structure?
(a) Overlapping relationship
(a) Matrix (b) Functional
(b) Sequential relationship
(c) Projectized (d) Balanced
(c) Multi-phase relationship
4. In a weak matrix organisation the (d) Iterative relationship
(a) Most of the power belongs to functional
10. Your development team is waiting for the design
manager
team to finish their work. As a Project Manager,
(b) Most of the power belongs to project use this approach to reduce uncertainty in the
manager project. Which of the following relationships does
(c) Both have equal power this describe?
(d) No one have power (a) Iterative relationship
(b) Sequential relationship
5. Which organisation violates the principal of unity?
(c) Overlapping relationship
(a) Projectised organisation
(d) Common relationship
(b) Functional organisation
(c) Matrix organisation 11. Consider the following statements:

(d) None 1. A project has a mission

2. A project has to terminate at some time or
6. What is primary role of portfolio manager? the other
(a) To deliver unique product, service, or result 3. Projects vary in terms of technology,
of the project equipment and materials, machinery and
(b) to prov ide project gov ernance and people, work ethics and organisational
sponsorship culture.
(c) To directly manage people assigned to Amongst the above, the characteristic features
several different projects for a project are
(d) To assess all potential projects against (a) 1 and 2 (b) 2 and 3
known organizational strategic goals. (c) 1 and 3 (d) 1, 2 and 3