Management Studies: Project Environment

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Project Environment

The environment where project emerges, grows and terminates is called project environment. In other words, the factors or forces which influences the project activities and its ability to achieve the defined project objectives is known as project environment. Each project procures inputs from environment, processes them to convert into customized output and delivers again to the environment. Thus project cannot existed in vacuum. It operated in association with its environment. Project environment creates the situation of strength & weakness and opportunity & threats (SWOT).

Environment is ever changing phenomena, the degree of risk and uncertainty are mostly associated with the environment. The main cause of project failure is also the absence of adaptability to its environment. Therefore the project must adopt to its environment to achieve the objectives effectively.

Project environment can be classified into three group;

Internal Environment
Task Environment
External Environment

1. Internal Environment

It is also known as controllable environment. It consist of a forces which are within direct control of project manager. It determines the strength and weakness of a project. The main forces of internal environment are as follows:

Objective
Constraints
Resources
Structure

2. Task Environment

It is also known as operating environment. It is made up of stakeholder of project. Their interest are affected by project and project is also affected by them. The different elements of task environment are interrelated and mutually complementary factors for the project because project resources that is inputs are procured from the task environment and outputs are again delivered to task environment. However, it is not within the control of project but it directly influences the project and its functions. The elements of task environment are as follows:

Customers
Contractors
Consultants
Suppliers
Competitors
Financiers
Government
Special interest group etc.

Task Environment (Stakeholders) of Project

The another types of environment found in project is task environment. The task environment of a project immediately surrounds the project. It is made up of stakeholders. Their interests are affected by the project. They affect the project activities. Projects can influence task environment. The elements of project's task environment are:

Client: A project is custom-made. It satisfies the needs of a client. The client specifies the project's terms of reference. The client greatly influences the project. The project should be focused on client needs and requirement.
Contractors: A project involves high level of contracting and subcontracting. The greater the complexity, the greater the level of contracting. Turnkey projects are getting important. The contractors influence project progress. Almost 80% of project work is contract based.
Consultants: The project consists of an array of consultants from inception to completion. They exert important influences on project activities in all phases of the project life cycle.
Suppliers: Projects depend on suppliers for procurement of equipment, materials, services and labor. They affect efficiency, quality and schedule of project through delivery timings. Projects should build good relations with suppliers.
Government: the policies, attitudes and facilities by government help or constrain projects. Projects should comply with government regulations and directives. They should be environment-friendly.
Financiers: The financiers of the project can be owners, shareholders, organizations or donors. They affect fund mobilization for the project.
Competitors: Competition is everywhere. The competition for projects is intense.Work can be done almost anywhere. Competitors actions affect the project.
Labor Unions: Unionization is increasing in projects. Labor relations need to be effectively managed by projects. Industrial disputes leading to strikes can adversely affect project progress.

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Internal Environment in Project

Internal environment is located within the project. It is controllable by the project. It provides strength and weakness to the project. The forces in the internal environment consist of:

Project Objectives: Objectives are the desired outcomes or end results of the project. Project activities must be conducted within project objectives. A project must focus on objectives. It ceases to exist when the objectives are achieved.
Constraints: A project operates within the constraints of cost, time and quality performance. They delineate the scope and boundaries of the project.
Structure: A project is a temporary organization. Its structure generally cuts across organizational and departmental lines. It usually has its own management consisting of a project team headed by a project manager. Team members come from various disciplines with varied experiences. Projects must functions within the boundary of their structure.
Resources: A project consists of human and non-human resources. It usually has its own budget. Resource availability sets a limit on project activities.

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Technological Environment of Project

The one of the environment surroundings that influence projects is technological environment. Technology consists of skills, methods, systems and equipment. It includes inventions and innovations. It makes work more efficient.

Technology influences projects by bringing about changes in jobs, skills, life styles, products, production methods and processes. Automation, computerization, robotics, informatics, biotechnology, new materials and artificial intelligence have all influenced projects.

Factors in the technological environment consist of:

Factors in Technology Environment of Project

1. Level of Technology

The level of technology can be appropriate or sophisticated. It can be labor-based or capital-based. The level of technology influences projects.

Labor-based Technology: Human labor is mainly used for the operations.
Capital-based Technology: Machinery is mainly used for operations. Technology is represented by automation, computerization, robotization, etc. The technology can be high, intermediate or low.

2. Pace of Technology Change

Technology is a dynamic force. Its pace of change is accelerating. Projects should adapt t the changing technological forces.

3. Technology Transfer

Sources of technology can be within the organization, within the country or foreign countries. Technology transfer implies technology imported from technologically advanced foreign countries.

Technology transfer can be through:

Globalization: Global companies are the key sources of technology transfer in developing countries. The modality can be contracts, franchising, technical collaboration, joint ventures, subsidiary establishment.
Projects: Turn-key projects based on global bidding serve as a source of technology transfer.
Trade: This consists of sale of equipment or machines by the manufacturer.
Technical Assistance: Bilateral and multilateral donors under technical assistance provide international consultants who bring new technology with them.
Training and Publications: They provide opportunities to learn about new technology.

4. Research and Development (R & D)

R & D is the essence of innovation. Expectations for improved technology are increasing. Customers expect projects for superior quality which are safe, comfortable and environment-friendly.

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Social Environment of Project

Social Environment is refers to all the social surroundings that influence project. It consists of factors related to human relationships.

Projects operate within the society. They satisfy societal needs. Social factors influence the practices and activities of projects.

Important factors in the social environment consist of demographics, social institutions, pressure groups and social change.

Factors in Social Environment of Project

Factors in Social Environment of Project
i) Demographics: Demography is concerned with human population and its distribution. Demographic forces that affect labor availability in projects are:

Size, distribution and growth of population in project area.
Age mix of population
Migration of population
Foreign employment policies.

ii) Social Institutions: They consist of reference groups and social class:

Reference Groups: They consist of groups that have a direct or indirect influence on the attitudes and behavior of ties or professionally successful people.
Social Class: It is the rank within a society determined by its members. It can be classified into upper, middle and lower. Members of a class share similar values, interests and behavior. Project activities are influenced by classes in the society. Projects need to tailor their activities to meet the needs of specific social classes.

iii) Pressure Groups: They are special interest groups. They use the political process to advance their position on an issues of social concern. They pressurize and lobby government and projects to protect their interests through change in laws, policies and practices.

Pressure groups can be related to consumerism, environment protection, human rights, women rights, good governance etc.

iv) Social Change: Change is making things different. Social change implies modification in relationships and behavior patterns in a society. Life style and social values promote social change.

Life style is a person's pattern of living reflected in his activities, interests and opinions. It affects product choice.

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Economic Environment (Economic Conditions)

Economic conditions indicate the health of the economy in which the projects operate. The factors of economic conditions are:

Income: The level and distribution of income affect expenditure, saving and investment. They together influence the economic conditions of projects. Nepal has a per capita income of US $ 280. The GDP growth rate is very low.
Business Cycles: The stages of business cycle can be prosperity, recession and recovery. They affect the health of projects.
Inflation: It is rise in price level. It influences costs, price and profits of projects.
Regional Economic Groups: They promote cooperation among member countries for projects. They provide opportunities to member countries and threats to non-member countries.

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Economic Environment (Economic Policies)

Policies are guidelines for action. Economic policies of the government significantly influence and guide projects.

Key economic policies influencing projects are:

Monetary Policy: It is concerned with money supply, price stability, interest rates and credit availability. Cheap money reduces project cost costs, dear money increases project costs.
Fiscal Policy: It is concerned with the use of taxation and government expenditure to regulate economic activity. Taxation on income, expenditure and capital exerts an important influence on project decisions. Government purchases, subsidies and other transfers also influence the activities of projects.
Industrial Policy: It is concerned with industrial licensing, location, incentives, facilities, foreign investment, technology transfer and nationalization. It greatly influences the investment climate for projects.

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Economic Environment (Economic System)

Economic environment refers to all the economic surroundings that influence project activities. It consists of economic parameters.

Important components of economic environment are :

Economic System

Economic system determines the scope of private sector participation and market forces. The models of economic system are:

Free Market Economy: This system is based on private sector ownership of the factors of production. Profit serves as the driver of economic engine. The comparative market mechanism guides project decisions. There is freedom of choice. Individual initiative is encouraged.
Centrally Planned Economy: This system is based on public ownership of the factors of production. The economy is centrally planned, controlled and regulated by the government. There is no consumer sovereignty. Public enterprises play a dominant role in projects.
Mixed Economy: This system is a mix of free market and centrally planned economies. Both public and private sectors coexist. The public sector has ownership and control of basic industries including utilities. The private sector owns agriculture and other industries but is regulated by the state.

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Legal Environment

Legal environment refers to all the legal surroundings that affect project activities. It consists of an array of acts, rules, regulations. It defines what projects can and cannot do.

Legal environment is concerned with

Protecting the rights and interests of clients, contractors, employees and the society.
Providing grounds on which project activities can be carried out. It encourages or restrains activities by providing facilities to law abiders and giving punishment to law breakers.
Regulating activities through legal provisions relating to wages, labor relations, foreign investment, foreign exchange, environment protection, habitat protection, project location, imports, exports and taxation etc.

Projects must ensure that their activities conform to the laws of the land. They must comply with legal provisions in force.

The important legal factors that influence projects are given:

Factors in Legal Environment of Project

Law: It consists of an array of laws enacted by the Parliament. It also protects the rights and interest of project participants.
Courts of Law: Courts are institutions established by law to solve disputes. Nepal has a three-tier court system. The Supreme Court is at the national level and is the highest level of judiciary. The courts of Appeal are at the middle level. The 75 district courts are at district level.
Law Administrators: Various law enforcement agencies ensure implementation of laws and the judgements of the courts of law. Government agencies, lawyers, police and jails play an important role in law administration.

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Political Environment of Project

Political environment of project is related to the management of public affairs. The important factors that influence projects are:

Factors in Political Environment of Project

i) Political System

It consists of ideological forces, political parties, election procedures and power centers. A stable, efficient and honest political system is essential for projects. Political instability resulting from civil war, emergencies and terrorist activities adversely effect the projects.

ii) Political Institutions

They consists of legislature, executive and judiciary.

The legislature (parliament) enacts laws that guide project activities.
The executive (Government) implements the decisions of the legislature and lays down policies, regulations and procedures that influence the activities of projects.
The judiciary (Courts of Law) servers as watchdog and their rulings influence project practices. It settles disputes.

iii) Political Philosophy

It can be democratic, totalitarian or a mix of both. Democracy vests power in the hands of people. Totalitarian vests power in the hands of the state. A mix of both is based on power sharing.

Political philosophies influence project activities. Democracy provides greater role to the private sector. Totalitarianism provides greater role to the state. Mixed philosophies provide roles to both private sector and state.

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