Showing posts with label Project Management. Show all posts
Showing posts with label Project Management. Show all posts

Scope of Managerial Economics | Demand Analysis and Forecasting | Cost and Production Analysis | Pricing Decisions and Techniques | Profit and Capital Management | Objective of Business Firm

The scope of managerial economics means the fields of study in which managerial economics cover. Hence, scope of managerial economics includes the subject matter of managerial economics and relationship of managerial economics with other subjects also fall under the scope of managerial economics.

Managerial economics has a close connection with economic theory, operations research, statistics, mathematics and the theory of decision making. Managerial economics also draws together and relates ideas from various functional areas of management such as production, marketing, finance and accounting, project management, etc. Managerial economics is concerned with the following aspects which constitute its subject matter.
  1. Demand Analysis and Forecasting: Demand analysis theory can be a source of many useful insights for business decision-making. The fundamental objective of demand theory is to identify and analyze the basic determinants of consumer needs and wants. An understanding of the forces behind demand is a powerful tool for managers. Such knowledge provides the background needed to make pricing decisions, forecast sales and formulate marketing strategies. A forecast of future sales is essential before making production schedules for employing resources. The forecast helps the manager in keeping and strengthening the market and increasing profits. Demand analysis and forecasting both are very much essential for business planning and take an important place in managerial economics. Under this topic; determinants of demand, types of demand, elasticity of demand, various statistical and non-statistical methods of demand forecasting are included.
  2. Cost and Production Analysis: The cost estimates are helpful for managerial economics. The cost estimate is essential for planning aims. The factors determining costs are not always known or controllable which gives rise to cost uncertainty. It is required to find out the economic costs and measure them for profit planning, cost control and sound pricing practices. The factors of production are scarce (limited) and have alternative uses. The factors of productions may be allocated in a particular way to get maximum output. Due to this, production analysis is also important in managerial economics. The major topics of study under cost and production analysis are concepts of cost and classification, production function, least-cost combination of inputs, factor of productivity returns to scale, etc.
  3. Pricing Decisions and Techniques: Pricing decisions take up an important place in managerial economics because the main objective of a firm is the maximization of profits that depends on suitable pricing decisions. So, price is the source of the revenue, the success of a firm depends on the correctness of the pricing decisions. The main topics included under it are: Price determination under different market structure, pricing objectives, pricing methods, price discrimination, price of joint products.
  4. Profit and Capital Management: Profit provides the index of success of a business firm. So, the business firms are organized for making profits. Profits analysis is difficult since the knowledge about uncertain future but uncertainty expectations are not always realized which makes the profit planning and measurement difficult that is covered by managerial economics. The important aspects covered under the topics are nature, theories and measurement of profit, profit policies and techniques of profit planning. There is one of difficult problems of a business manager is relating to firm’s capital investments. Hence, capital management is required which in turn, needs considerable time and labor. Capital management means planning and control of capital expenditures. The main aspects covered are: Cost of capital, types of investment decisions, and evaluation of selections of projects.
  5. Objective of Business Firm: A firm should fix its objective at the initiation of the business. The objective may be many ranging from profit maximization to sales maximization to utility maximization to satisfying. It is assumed that manager consistently makes decisions in order to maximize profit. Though a firm may have only one objective at a time. The objective should guide a firm in decisions regarding its prices and outputs.

Traditionally, managerial economics drew heavily upon economic analysis for its decision-making process. But lately, the development of mathematical and statistical techniques for analyzing situations faced by managerial economists have also prompted their use in the decision-making process. Managerial economics is also concentrated on integration of managerial economics and operation research. Hence, many mathematical, statistical as well as other techniques are also regarded as a part of a managerial economics.

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Limitations of Project Management in Nepal

Project management concept suffers from a number of limitations in Nepal. They are:
  1. Unsuitable: Nepal is a country of villages. Rural development projects are important for reducing poverty in rural areas of hills and terai. Most rural projects are small and simple. Project management concept is not suitable for such projects.
  2. Problem of Authority Delegation: Project management concept provides total authority and responsibility to project manager from inception to completion. Nepalese administrative system is "Feudocratic". The institutional capacity for project management is poor. Senior managers are unwilling to delegate authority to project manager. This constrains effect project management.
  3. Top Management Interference: In Nepal, project management generally lacks top management support. Too much interference by top management in appointment and transfer of project manager and project employees and award of contracts is common.
    • Politicians look at projects as convenient vehicles for employment of their political workers. This has led to over-staffing in projects.
  4. Lack of Professional Human Resources: Project management requires a special breed of trained professional human resources. They are in short supply in Nepal.
    • Matrix project organization structures in Nepal suffer from lack of right people. Project managers lack independence to handpick the right people. Functional managers generally depute their "favored ones" or "available ones" to the project. Project team gets staffed in incompetent people.
    • Projects generally carry extra incentive to employees. A lot of "source and force" is used to get posted to projects.
  5. Conflicts: Project management in Nepal tends to be infested with conflicts between project and functional departments. Interpersonal conflicts also abound among project team members. Discipline is poor in projects.
  6. Cultural Constraint: Nepalese culture generally lacks sense of the value of time. Administrative personnel are champions for postponing important decisions for tomorrow. This also happens in projects. The time and cost overruns due to lack of appreciation for project schedules constrain effective project management.
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Benefits of Project in Nepal

Project management in Nepal is a new approach for achieving the objectives of time bound complex projects efficiently and effectively. It has been widely used in Nepal since 1970s.

The benefits of project management approach to Nepal are:
  1. Change Management: Project management approach has served as a vehicle for introducing and managing change in Nepal.
  2. Environmental Adaptation: The flexibility in operations provided by project management approach has facilitated environmental adaption. Nepalese environment is full of risks requiring flexibility.
  3. Resource Mobilization: Project management has been the prime vehicle for mobilizing foreign aid for Nepal's development. The share of foreign aid has been about 55 percent in the total planned outlay in Nepal over the last forty years.
  4. Infrastructure Development: Project management has been instrumental in developing physical and social infrastructure in Nepal.
  5. Better Resource Utilization: Project management has facilitated co-ordination and better utilization of resources across ministries in the government. Decision making has been faster.
  6. Human Resource Development: Project management has facilitated human resource development in Nepal. A pool of professional project managers and experts is available in Nepal. Professional and technical development has been facilitated by foreign training and seminars made possible through project funding. The country's human resource capability has increased.
  7. Organizational Re-engineering: Project management has facilitated pure project and the matrix organization structure to implement projects in Nepal. This has facilitated organizational re-engineering.
    • The "Development Committee" pure project structure was the outcome of the need to apply project management concept to manage development projects.
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Historical Overview of Project Management in Developing Countries

Developing countries are characterized by low levels of economic and human development. Low per capita income is the indicator of their underdevelopment. Project management emerged in these countries as follows:
  1. The project model for managing development in the modern sense appeared with the centralized planning model of the Soviet Union in 1930s. Many developing countries adopted centralized planning model after the second World War. USA adopted this model in 1960 for Manhattan Project.
  2. The increased inflow of foreign assistance from developed to developing countries during the cold war years in 1950s and 1960s gave further impetus to the project model. Much of the foreign aid to developing countries was project-based. Projects become the primary means of translating development plans into action.
  3. During 1970s, the project management model was adopted by developing countries to implement complex development projects. Pure project and matrix project organization structures were also used. The total responsibility and accountability for the project from initiation to completion was entrusted to the project manager.
  4. The implementation of development plans and programmes in developing countries has come to depend heavily on project management. Effective project management is a dominant concern of public and private organizations. Donors insist on it to channel foreign assistance.
  5. The bureaucratic model of managing development has failed to manage change in developing countries. The project management model has been used widely by developing countries to implement projects at the national as well as local levels in present days.
Historical Overview of Project Management in Nepal
Nepal is one of the least developed countries of the world. More than 30 percent of people live below the poverty line. Its per capita income is about US 540$. It ranks low in the Human Development Index (HDI) of UNDP. The country's isolation from the outside world for more than one hundred years till 1951 kept it backward in terms of development. The project management in Nepal emerged as follows:
  1. The project concept is Nepal began in 1950/51 with a grant assistance of US $ 100,000 by USA. The planned development began with the implementation of the First Five Year Plan in 1956. Since then, Nepal had implemented nine development plans. The financing of Nepal's development plans has been heavily dependent on foreign assistance. Foreign assistance in Nepal is heavily project-based.
  2. The foreign aided projects in Nepal consist of:
    • Turnkey Project: Implemented by contractors through global bidding process. 
    • Donor Executed Projects: Donors directly execute the projects.
    • Nationally Executed Projects: Nepalese project managers execute projects.
  3. Project Management model appeared in Nepal during 1970s. The organization structure adopted for project was "Development Committee". It was an autonomous pure project organization structure for the management of a specific project. The matrix project organization structure has also been used in selected cases.
  4. INGOs and private sector are also using the project management concept since 1980s. BOT (Build, Operate, Transfer) modality has also emerged.
    • Foreign Direct Investment in Nepal has also led to greater use of project management. Nepal has approved about 900 such projects till 2003-04. But very few of them are operational.
    • Today, the implementation of Nepal's development plan depends heavily on project management. The project management model is widely used to implement projects in public, private and non-government sectors.
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Limitations of Project Management

  1. Lack of Long Range Planning: Organizations are involved in achieving the objectives of temporary projects. This may adversely affect strategic planning for long-term direction and scope of the organization.
  2. Organizational Disruption: Projects compete for people and resources with functional departments. This may disrupt the normal functioning of the organization.
  3. Constrained Human Resource Development: Shifting people form project to project may constrain the training and development of new employees by experienced employees.
  4. Reluctance for Authority Delegation: Senior line mangers may be unwilling to delegate authority to project managers. They may be afraid of losing their positions to project managers. Top management support may also be lacking.
  5. Organizational Restructuring: Organizational restructuring for project management may require changes. They may be resisted by employees in functional departments.
  6. Team-related Problems: Members of project team lack stability. This constrains effective team work. Team identity and norms development take a long time. Team members have divided loyalty if they work on multiple projects and also report to line managers.
  7. Conflicts: Conflicts in project team may not be managed effectively. They can disrupt the project. Project autonomy may create with line department.
  8. Unsuitable: Project management may not be suitable for all tasks. It is not suitable for small organizations which lack resources.
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Benefits of Project Management

1. Change Management

Project Management serves as a vehicle for introducing and managing change. It facilitates introduction of new technologies. It breaks down functional barriers which resistance to change.

2. Environmental Adaptation

Project management operates in a dynamic and risky environment. It has flexibility in operations. Adjustments can be made to adapt to changing requirements during the life cycle phases of a project.

3. Results-orientation

Project management is results-oriented. It gets the jobs done. It aims at continuous improvement of performance. It achieves project objectives within the constraints of time, cost and quality. It promotes efficiency and eliminates waste. There is greater accountability.

4. Coordination

The project manager has total responsibility and accountability for project results. The project manager serves as a single responsibility and accountability center. There is minimal hierarchy. This facilitates coordination across functional lines. The resources are efficiently utilized with customer focus. Decision making is faster. Conflicts are managed effectively.

5. Team Development

A project has a multi-disciplinary team drawn from various departments. Project management creates conditions for good team work by building trust and respect. It encourages development and creativity of team members through participation. A team identity is created. Moreover, team members can be changed as needed.

6. Re-engineering

Project management is based on temporary organization structure. It can be pure project structure or matrix structure. Generally, matrix structure is used which cuts across functional lines. The work flow is both vertical and horizontal. This facilitate re-engineering. Its temporary nature causes minimum organizational disruption. There are no long term commitments to employees. Business processes are radically redesigned.

7. Timely Correction

Project management requires integrated planning and control. Actual performance is measured against plans. Identification of deviations is done to  take corrective actions. Problems are solved as and when they arise. This improves capacity for future planning. This also ensures adherence to objectives and to time-cost-quality constraints.

8. Customer Satisfaction

Project management is customer focused. The results are achieved within the constraints of time, cost and quality. The needs of customers are satisfied. Satisfied customers tend to be lifelong customers.
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Characteristics of Project Management

  1. Objectives oriented: Project management is focused on achieving specific project objectives with customer satisfaction. It is results-oriented.
  2. Change oriented: Project management is a vehicle for planning and managing change in an organized manner. It adopts flexibility in doing things in a risky environment.
  3. Single Responsibility Center: The project manager is the single responsibility center accountable for project outcomes. The role of project manager is crucial from inception to completion of the project. He is a project leader and champion. He motivates team members to excel.
  4. Team-based: Project management consists of a multi-disciplinary project team with a wide range of skill and experiences. The team has project dedication. Each member has responsibility and accountability for a unit of work. Self-management is emphasized. So is member participation. The team membership is flexible and changes with project needs.
  5. Functional Coordination: Project management requires coordination along functional lines. The work flow is both vertical and horizontal in a matrix organization structure.
  6. Planning and Control: Project management required integrated planning and control systems for continuous improvement.
  7. Constraints: Project management achieves results within the constraints of time, cost and quality. It is a time and resources limited activity. It is focused on customer needs.
  8. Body of Knowledge: Project management consists of a body of knowledge like;
  • Scope Management
  • Time Management
  • Change Management
  • Integration Management
  • Cost Management
  • Quality Management
  • Human Resource Management
  • Conflict Management
  • Risk Management
  • Procurement Management
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Project Management Model

Project management is a new way of thinking about management. It manages complexity and change in a dynamic environment. It makes efficient use of resources for better client satisfaction.

Project management is a systems approach for efficient and effective achievement of project objectives through:
  • Assignment of total responsibility and accountability to a single project manager from inception to completion.
  • Coordination across functional lines.
  • Proper utilization of planning and control tools for better resource use within the constraints of time, cost and quality.
Project management is much like a task force approach to achieve project objectives through better resource use within time, cost and quality constraints with customer focus.

Project Management Model
Project management is an alternative to traditional management. It is planning, implementing and controlling of complex and unique activities through project team to achieve results within constraints with customer satisfaction.


Means, Focus, End in Project Management

Project management consists of  knowledge, tools and techniques for managing a project. It utilizes resources efficiently. It achieves project objectives effectively with customer satisfaction.

Project management defines in advance the who, what, when, where and how before the project begins. This is planning. It assembles project team for the project structure. It allocates resources for various activities. This is organizing. It tracks and monitors performance to get feedback to assess how well the project objectives have been achieved. This is controlling. It manages and motivates people to excel. This is leading. It closes the project when the objectives are achieved.
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Project Organization

Organization is the structure of the relationship among the position and jobs which is built up for realization of common objectives. It facilitates the implementation by arranging all the activities in a suitable manner for the use of management control.

Project organization can be defined as an engine of project management because it lays down the rules and regulation for the smooth operation of activities and administration of the project, outlines the relationship between project participants, establishes authority and responsibility relationship, indicates communication lines and channel between project manager with project team and external stakeholders and provides basis for integration and coordination of human and non-human resources in the project.

Project organization is superior than traditional organization. Since traditional form of organization is characterized by superior subordinate relationship, departmentalization, formal communication, chain of command, rigid etc. It is not suitable for handling the non repetitive, unique and complex project activities in a coordinated manner according to changing environment. Therefore, project organization is established to avoid such weakness of traditional organization for proper implementation of the project. Project organization is action oriented and flexible. It is an adhoc (temporary) organization that ceases to exist once the project is terminated.

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Project Formulation

Project formulation refers to the development of the project from the generated idea of the firm, the idea is the seed of the project. Project formulation includes the total procedures or activity of altering the project concept, theme etc. from intuitions based to an institutional based and rational based to result feasible work form. It is detail procedure of analyzing the feasibility of any specific project. So various factors are taken into consideration to test the viability of the proposed project. It plays the dominant role into the success of the any project. 
Project formulation task defines the parameters of the proposed project and develops the objectives and outputs of the project in broad terms. It aims at gaining preliminary formal commitment to the project and the project idea to justify the further work on it. It serves at the basis of project planning. It is the basis of project planning.

There are various techniques available for the project formulation. Most commonly used techniques are as follows:
  1. Cost Benefit Analysis
  2. Feasibility Analysis
  3. Input Analysis
  4. Financial Analysis
  5. Network Analysis
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Elements/ Components of Project Specification

1. Statement of Work (SOW)

It is the description of the work to be performed in the proposed project. The work may be construction, procurement, installation, operation schedule. For example: in a building construction project specification includes detail description of all the relevant works like size of wall, size and length of pillar etc. 

2. Quality of Materials

Every project requires quality raw materials to deliver the quality output. The quality standard for material to be used in project is specified. It specify the type of materials, standard of materials with its physical and chemical properties.

3. Detailed Engineering Design

Engineering design is the blueprint of the project. It is the key to implement the project. Therefore the specification should be provided the detailed engineering design.

4. Workmanship

Specification identifies every type of work in the project. The right man is necessary for the right job to complete the work as per requirement as well as successful attainment of project objectives. Therefore it specifies time and skill of the personnel required to implement the project.

5. Work in progress

Every work passes its own process as well as linked with other works. It makes clear what is linked activity and which should be completed to start another.
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