Basics of Project Tender

Project tender is a written agreement offered by tenderer to execute some project within some constraints.

Tender notice: 

It is the invitation letter issued in the public for calling tender.

Qualification of tenderer:

• should be financially capable
• should have sufficient experience
• should have sufficient assets and human resources

Earnest Money Deposit(EMD):

During submission of tender,all tenderers need to deposit 1% to 3% money of total contract value.

Security Deposit:

After selection of tender,successful tenderer need to deposit 15% amount of total tender amount.

Letter of Intent(LOI):

It is the letter notifying successful tenderer that his/her offer is accepted.

Types of payments to contractor:

• Final bill: payment made after successful completion of project.
• Running bill: to run project payments are given at some regular intervals.

Voucher:

document used for proof of payment.

Liquidated Damage:

penalty to tenderer in case of delay in project.

Contract:It is legal agreement.

Contractor:person or organisation who follow contract.

Types of contract:

1.Turn key contract:whole execution of project is done by contractor and final product is handed over to the owner.

2.Non-turnkey contract:In execution of project both contractor and owner are involved.These are further classified as:

A)Lumpsum contract:-In this type of contract a fixed price is given by owner to contractor and contractor is responsible for further execution.These types of contract is suitable for short duration project.

B)Unit price contract:-contractor is paid according to portion of work done,it is suitable for long duration project.

C)Item rate contract:-payment is given to contractor on the basis of quality of work executed,generally used by govt. contract.

Cost estimate methods:

• Top down estimate-for periodic work using past experience.
• Bottom up estimate-for new type of projects,estimates are taken from subordinates.
• Parametric estimates-parameters are estimated from past experience.
• Simulation/Monte carlo estimates-computer softwares are used for simulation.

Project sickness

Sick company-losses exceeds 50% of average net profit during 4 years,failed to repay debt in three consecutive quarters.

• sick company is required to report to BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION within 60 days of audit if company becomes sick.
• Registrar of BIFR verify according to Sick industrial act,1985.

Cost overrun-increase in project cost over estimated cost.

credit rating agencies in india-CRISIL,ICRA,CARE etc.

salvage value-resale value

scrap value-value as junk.

depletion-decrease in value of resources.

ENTERPRISE RESOURCE PLANNING-team workig with common goal.

TECHNICAL CONSULTANCY ORGANISATIONS-the organisation which provides technical consultancy.

Project Monitoring

Project Control Tools:

• Work breakdown structure
• Bar chart/Milestone Chart
• Line of Balance chart
• critical ratio
• Earned value analysis
• cpm/pert
• GERT
• Network Simulation

Work breakdown structure

It is dividing whole project into smaller components which is achievable.

Line of balance(LOB)

It is planning tool for periodic work.In this method resource is not spent until work is required.Project will be completed as per commitment was made.

Critical Ratio

It is used to decide the acceptance of project.A ratio of some variables are chosen and when measured value of ratio drops below selected value of ratio project is rejected.

Earned value analysis(EVA)

This method uses some parameters to analyze project performance,theseparameters are defined as below:

1.COST VARIANCE(CV)=(Budget cost for work performed)-(Actual cost for work performed)

2.cost performance index=
(Budget cost for work performed)/(Actual cost for work performed)

3.SCHEDULE VARIANCE=
(Budget cost for work performed)-(Budget cost for work scheduled)

4.SCHEDULE PERFORMANCE INDEX=
(Budget cost for work performed)/(Budget cost for work scheduled)

5.TIME VARIANCE=It is amount of work by which project is lagging from scheduled work.

TV=(review date)-(date on which budget cost for both work performed and work scheduled is same)

6.Estimated Cost performance Index=

(budget cost)/(actual cost for work performed +additional cost to complete the project)

Graphical evaluation and review technique(GERT):

GERT is based on probabilistic approach.

Network simulation method:

Since real life project activity time is not fixed but duration varies according to real life situation,so to solve such types of problem simulation model is used because it permits solving such projects.

Tuckman Stages:

(team formation stages)

• Forming-basic rules are created,members behave as strangers.
• Storming-communication starts between team members.
• Norming-members perfom as team
• Performing-
• Adjourning-credits are given to corresponding performers.

RESOURCE ALLOCATION

There are two methods of resource allocation:-

1.Resource Levelling-it's objective is to reduce peak requirement and time requirement.resource is unlimited but time is limited.

2.Resource Smoothening-resource is limited but duration may be vary.

Project Evaluation

Project Evaluation refers to verifying the work performed till date so that corrective action can be taken to complete the project as planned.

POST AUDIT

Post audit or post project evaluation is assessment of project after the completion of project.It has two stages:-

1.Immediate assessment

2.Assessment after a fixed time duration

Types of post audit

• Economic Audit
• Financial Audit
• Technical Audit

Planning and Scheduling of Projects

Planning and Scheduling of Projects refers to breaking down of project work into activities and to allocate time to these activities.

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Work break down structure

It is  deliverable-oriented breakdown of a total project work into smaller parts that can be achieved by project team.

Project scheduling tools:

1.Bar Charts

(by Henry Gantt around 1900AD)
it is plotted between time spent and activity performance,mainly used for projects with certainty,sub-activities are not mentioned separately,it does not show progress of project,not used in projects with uncertainty.

2.Mile stone charts

It is modified Gantt chart including information about sub-activities completion.

3.Line of balance(LOB)

It is the graphical management tool to measure and control
 facts relating to time, cost and accomplishment - all measured against a specific plan.

4.Network Methods:

there are two network methods-pert,cpm

(PERT) PROJECT EVALUATION & EVALUATION TECHNIQUE

• used for projects with uncertainty
• it is event oriented network
• optimistic time-minimum time in which activity can be completed
• pessimistic time-maximum time in which project can be completed
• most likely time-it is expected time to complete activity te = (o + 4m + p) ÷ 6       
•               standard deviation of time              σ_te = (p - o) ÷ 6                                                     
• it is based on probabilistic approach
• cost is proportional to time

(CPM) CRITICAL PATH METHOD:

• used for deterministic projects
• it is activity based method
• time & cost relation is determined by curve

Project formulation and Appraisal

There are 3 phases in project development process:-

1.Pre-investment phase:- it includes finding project ideas,selection from alternatives(pre-feasibility studies),detailed feasibility analysis,final decision making

2.investment phase:- It includes procurement,design,inplementation,execution etc.

3.Operation phase:-In this phase project is in operation.

Project Appraisals

It involves analysis of various aspects of project like aim of project,technology used in the project,geographical location of project,machinery and manpower used,environment impact assessment etc.

Demand Forecasting

It is the estion of future demand and trend on the basis of past data.

Two types of demand forecasting are avialable:-

qualitative methods:-market openion/survey,customer survey method,delphi method(panel of experts suggest),Jury openion method

Quantitative method:-

1.Simple Average method

Simple average=(Sum of all demands)/(no. of time)

2.Moving average method

moving avg=(sum of demand in selected time period)/(no. of selected time period)

3.Weighted moving average method:-In this method different priority is given to different demands.

Financial Analysis Methods:-

1.Average/accounting rate of return:-is used to determine annual rate of return on investment.

ARR=(annual profit)/(avg. investment)

2.Payback period:-used to determine the time in which investment is recovered.

payback period=(investment)/(annual profit)

3.Discounted cash flow techniques:-

DCF=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+⋯CFn(1+r)n$$DCF=\frac{C{F}_1}{(1+r{)}^1}+\frac{C{F}_2}{(1+r{)}^2}+\frac{C{F}_3}{(1+r{)}^3}+\cdots \frac{C{F}_n}{(1+r{)}^n}$$

where,cf=cash flow

r=discount rate

Internal Rate of Return:-it is effective rate at which net present value becomes zero.

Social Cost Benifit Analysis

1.United nation industrial development organisation(UNIDO METHOD):-for developing country projects,measures in terms of domestic price.it is stagewise analysis.

shadow price-estimate how much cost is paid for certain benifit

2.Little-mirrless(LM) method:-Measures in terms of international price,simultaneous analysis.

Economic Return of Return:-measures rate of return to the society.

Domestic Resource Cost:-

DRC=[(value added at domestic prices)/(value added at world prices)]*exchange rate

Effective Rate of Protection:-

ERP=[(value added at domestic price)-(value added at world price)]/(value added at world price)

Detailed Project Reports(DPR)

It is detailed plan/blueprint for execution of project and gives authority to different person to use resources according to their role.

Project Risk Management:

Risk-possibility if project fails to achieve its aim.

1.completion failure

2.technological risk

3.political risk

4.resource risk etc.

Project risk analysis tools:-

1.Sensitive analysis:-it is used when deviation occurs from expected results,but it consider only one variable at a time.

2.Scenario Analysis:-it considers several deviations simultaneously on the basis of 3 scenario :-optimistic,pessimistic,most likely scenario

3.Simulation analysis:-MONTECARLO METHOD

4.Break Even Analysis

5.Decision Tree Analysis