What is Project? Definition, Characteristics, Lifecycle

What is Project?

A project is a pre-determined set of activities with a definite beginning and a definite end. This means that it is a temporary undertaking the purpose of which is to create a unique product, service, or result. Each project is unique because the product, service, or result in it hopes to produce is different from all other similar products or services.

Each project also has a unique objective that it seeks to attain. The organization needs to attain that objective. However, the budget to attain it is limited. Examples of projects are the various activities that organizations undertake, such as setting up plants, launching products, constructing buildings, putting a new business process or procedure in place, etc.

Project Definition

The Project Management Institute (PMI) defines a project as “a temporary endeavor undertaken to create a unique product or service. Projects usually include constraints and risks regarding cost, schedule, or performance outcome.”

A project is an activity that is non-routine and conducted by organizations and individuals to achieve definite goals. For example, if an organization wants to know why its sales are falling, it may decide to do a survey and collect customer feedback. This survey, which is a non-routine activity, is an example of a project. Such a project has a specific goal, that is, to determine the reasons for the decline in sales.

Projects can be classified based on various parameters. These parameters may be size (small, medium, or large), level of complexity (easy, moderate, or complex) location (national or international), nature (industrial or non-industrial), and deliverables (cement projects, telecommunication projects, refinery projects, steel projects, and fertilizer projects).

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Lifecycle of Project

Depending on the activities performed during each phase of a project, the project’s lifecycle can be divided into seven stages as shown in Figure.

These stages can be briefly explained as follows:

• Identification
• Preparation
• Appraisal
• Presentation
• Implementation
• Monitoring
• Evaluation

Identification

A project begins with an idea that defines the purpose of the project. The idea defines what the project seeks to achieve. Before a project is taken up by an organization, it determines the feasibility of the project idea. Usually, the most feasible project idea is selected out of several alternative ideas.

Selecting the right project idea is very crucial for the success of the project and of the organization taking up the project. For example, an organization may have several ideas for developing new products. However, if the right product idea is not selected, the organization may face a heavy financial loss.

Preparation

At this stage, the selected project idea is analyzed to determine its pros and cons. The organization may analyze the consequences of developing a product, for example, and focus on the financial aspect, such as cost of development, expected market return, etc.

Appraisal

At this stage, every aspect of the selected idea is systematically and comprehensively evaluated. The idea behind this is to prepare the final project plan. At this stage, the organization tries to find out the following:

• The financial feasibility of the project
• The technical feasibility of the project
• Whether the project would yield enough returns
• The risk involved in the project

Presentation

At this stage, a detailed project plan is prepared and sent to different stakeholders for approval. For example, a product development team may present the project idea to the top management for approval. The management may either accept or reject the idea on the strength of the presentation. A project is implemented only after its project idea is approved.

Implementation

At this stage, the approved project plan is implemented. It is, therefore, understandably, also the longest stage of a project as it involves the maximum effort, cost, and time. The project activities are also executed to fulfill the project objectives.

Monitoring

The progress of the project is assessed and monitored for loopholes and corrective action is taken wherever required. This is a very crucial stage of the project as it prevents any deviations from the original project plan, such as increased costs, non-conformity to project objectives and inefficient utilization of resources.

Evaluation

This is the final stage and involves reassessing the project to ensure it has been handled efficiently and has met all project objectives. A project report is prepared that highlights the performance and achievements of the project.

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Projects as Part of Functional Organisations

As discussed earlier in the article, a functional organization is a form of project structure in which all activities of an organization are grouped into functions such as production, marketing, finance, and human resource management. When a project is implemented in a functional organization structure, it is made a part of one of the functional divisions of the organization; usually, the function that could play a major role in ensuring the success of a project.

For example, in an installation project of a new production machine, the old machine is replaced with the new machine. In such a case, the most probable way to run the project would be to involve and assign the main responsibility of a project to the manufacturing division of the organization where the production system is located.

Although the project responsibility in the functional structure is assigned to a single function based on the skills and knowledge required for project completion, the project is not always independent of the other functions of an organization.

For example, if the manufacturing division of an organization handling a project requires the expertise of a person from the human resource division, the head of the manufacturing division could make a formal request to the head of the human resource division for the same. The human resource head could then provide the manufacturing division with the required human re- source to assist with the project. This has been illustrated in Figure:

In a functional structure, the line of authority extends through each group to the group head and finally to the project head. This makes it easier for the project head in overseeing and coordinating project activities. Apart from this, there are many advantages of implementing a project in a functional organization.

• Advantages of Implementing Projects in Functional Organisation
• Disadvantages of Implementing Projects in Functional Organisation

Advantages of Implementing Projects in Functional Organisation

Some of these advantages are as follows:

• Functional organizations offer maximum flexibility in the use of the organization’s staff. Experts from various divisions within an organization are temporarily assigned work responsibilities. After the completion of their tasks, these experts can immediately resume their routine assignments.
  
  
• Functional organizations are the reservoirs of skills and knowledge in their areas of expertise. Project team members are selected based on their technical knowledge and skills, which are continued to develop through their project assignments.
  
  
• Functional organizations have well-established communication processes leading to timely decision-making and continuous support to team members.
  
  
• Functional organizations provide team members with a focused and supportive work environment. A project in a functional organization is assigned to co-workers with similar professional interests. The established interpersonal relationships among members help in collaborative work efforts.

Disadvantages of Implementing Projects in Functional Organisation

However, there are certain limitations to implementing projects in a functional organization, which are as follows:

• The primary limitation of this arrangement is that the project is not the focal point as the functional unit (handling the project) has its work to accomplish. This might compromise the performance of team members and affect the successful completion of the project.
  
  
• A project in a functional organization may lack support from other functional groups. This is because each function within an organization could initiate its project without consulting other functions. For example, people working in the marketing division may be reluctant to support a project going on in the human resource division if the project does not address their needs.
  
  
• In such arrangements, there is a tendency to sub-optimize a project. If project issues are not within the interest area of a functional unit, they could be dealt with less determination and responsibility.
  
  
• Projects in a functional group do not facilitate a holistic approach to the project.
  
  
• There could be a lack of motivation to complete a project. This is because the project is not the mainstream activity of team members. Often, team members view projects as professional deviation.

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Project Contracting

A project contract is a business deal between two or more parties. The parties who are involved in the project decide the type of the contract. The type of contact usually depends on the nature of the work and it varies from organization to organization.

The type of contract determines the risk involved in the project. It is the main relationship between the two parties who are involved in a project. The selection of contracts is very crucial for any business and companies should always try to choose a contract where there will be less risk.

The following are some common types of contracts:

• Fixed price: It is the simplest type of project contact. It is also called a Lump sum. The terms and conditions for this type of contract are straightforward. In this type of con­ tract, the service provider offers a specific service for a definite pe­riod of time. The client also offers a fixed amount of money for that service. The advantage of these types of contracts is that one knows the total project cost even before the start of the project.
  
  
• Unit price: In this type of contract, the project is divided into smaller units. The client pays for each unit of the project and not for the whole project. It is a flexible method of contact. In this type of contract, the owner or the contractor estimates the bid for each element of the project. When the bidding is completed, the entire project is given to the same service provider.
  
  
• Cost plus: In this type of contract, apart from the agreed fees, the contractor also pays the cost of machinery, labor, and all the other costs involved in the project. In this contract, the service provider needs to give a detailed schedule and a list of resources in ad­vance. The contractor generally pays the agreed fees in monthly, quarterly, and yearly installments or at the end of the project.
  
  
• Incentive: In this type of contract, there are three cost factors – target price, target profit, and maximum cost. We generally choose this type of contract when there is no certainty in the project and there may be any technological change in the project which may have an impact on the overall resource and effort of the project.
  
  
• Percentage of construction fee: In this type of contract, the cost is estimated based on the resources and materials required in the projects. This is generally used for engineering projects. In this type of contract, the client usually pays a percentage of the total cost of the project.

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Project Selection and Approval

The selection and approval process of a project varies from organisa­tion to organization. However, some general processes should be followed by every organization for selecting and funding a project within a given period. The time frame for a project can be four months, six months, twelve months, or any time frame set by the organization.

When a project meets the minimum needs of the organization, it is forwarded to the managers, who have the authority to approve or dis­ approve the project. A manager or committee of managers compares the project with other alternative projects in terms of cost, benefits, and risks involved in the project and then they decide to select and approve the project.

The following conditions should be met to approve a project:

• The project should be mapped directly to the strategy and goal of the organization.
• A measurable organizational value should be provided by the proj­ect and this value could be verified when the project is completed.
• The project should meet the desired tangible and intangible costs and benefits.

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Project Environment

As we know, human resource is critical to the successful completion of a project. However, people can perform their best only when they are provided with a suitable project environment. Project environment refers to a physical setting in which individuals work. It also includes the work culture of an organization. A project manager plays an important role in ensuring a congenial project environment for individuals.

In addition, a project manager should ensure that all project team members (internal or external) are allotted a comfortable workspace. He/she should also ensure that there is regular interaction between team members so that they can bring in the problems and queries faced by them as a part of the project’s culture. Adequate arrangements for infrastructure and office supplies should also be made.

The project environment is generally divided into three types, which are:

• Social environment: It encompasses communication between the project manager and the team members, resolution of conflicts, team values and culture, trust, and cooperation among team members.
  
  
• Psychological environment: It covers the personality and individual values of team members, mental well-being, emotional intelligence, stress factors, and so on.
  
  
• Technical environment: It involves the design and program of the project, risk management, safety systems, etc.

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Project Characteristics

A project has several characteristics. The main characteristics of a project include the following features:

• Objectives or Mission
• Life Cycle
• Definite Time Limit
• Uniqueness
• Team Work
• Complexity
• Sub-Contracting
• Risk and Uncertainty
• Customer Specific Nature
• Change
• Response to Environments
• Forecasting
• Rational Choice
• Optimality
• Control Mechanism

Objectives or Mission

A project has a set of objectives or a mission. Once the objectives are achieved, the project is treated as completed. For example, the objective may be constructed of a highway connecting two cities ‘X’ and ‘Y’, covering a distance of 100 kilometers. Once the construction of the highway is completed the project comes to an end.

Life Cycle

A project has a life cycle. The life cycle consists of the following stages:

• Conception Stage: Where project ideas are conceived
  
• Design Stage: Where the detailed design of the project is worked out.
  
• Implementation Stage: Where the project is implemented as per the design.
  
• Commissioning Stage: Where the project is commissioned after implementation. Commissioning a project indicates the end of its life cycle.

Definite Time Limit

A project has a definite time limit. It cannot continue forever. The construction of a highway connecting two cities is a project which too is completed within a given time limit. Maintenance of the highway is an on process and it will continue forever, Hence highway maintenance will not come under the purview of the project.

Uniqueness

Every project is unique and no two projects are the same. Setting up a Cement plant and constructing a highway are no doubt two different projects having unique characteristics. Constructing a highway between cities X and Y and constructing another highway between cities A and B are also unique in themselves, because of the difference existing in the organization, infrastructure, location, technical specification, and the people behind the projects.

Team Work

A project normally consists of diverse areas. There will be personalized in their respective areas. Any project calls for the services of experts from a host of disciplines. Co-coordination among the diverse areas calls for teamwork. Hence a project can be implemented only with teamwork.

Complexity

A project is a complex set of activities relating to diverse areas. Technology survey, choosing the appropriate technology, procuring the appropriate machinery and equipment, hiring the right kind of people, arranging for financial resources, executing the project in time by proper scheduling of the different activities, etc. contribute to the complexity of the project.

Sub-Contracting

The characteristic stems forth in the view of the complexity of functions and activities of a project. Some of the activities are entrusted to sub-contractors to reduce the complexity of the project. Sub-contracting will be advantageous if it reduces the complexity of the project so that the project manager can coordinate the remaining activities of the project more effectively.

In general, the greater the complexity of the project, the larger will be the extent to which sub-contracting will have resorted. Sub-contracting is also helpful if the sub-contractors are specialized in their field of activity since this will improve the quality of the project.

Risk and Uncertainty

Risk and uncertainty go hand in hand with the project. A risk-free project cannot be thought of. Even if a project appears to be risk-free, it only means the risk element is not visible on the surface and it will be hidden underneath. The risk factor will come to the surface when conditions become conducive to it. Some of the risk elements can be foreseen and the project can be strengthened to encounter the risk as and when it emerges.

Some other risk elements cannot be foreseen. For example, assume putting up a cotton yarn spinning mill is the project on hand. If during the project feasibility study, it is learned that there has been a gradual shift among consumers from the usage of cotton yarn to the usage of synthetic yarn, and if it is apprehended that at one stage synthetic yarn will rule over, the machinery can be so chosen that they can be used for both types of yarns.

If this is not entirely possible, the choice of machinery can be so done to avoid major conversion costs while switching over from the manufacturer of cotton yarn to the manufacturer of synthetic yarn in case the need arises. Such eventualities can be foreseen and planned for.

On the other hand, the sudden entry of a strong competitor who can upset all our forecasts and projection can be anticipated. A sudden fall of a Government country that is not anticipated may turn the calculations wrong and make the forecasts meaningless.

Customer Specific Nature

A project is always customer specific. This is because the products produces or services offered by the project are necessary to be customer oriented. It is the customer who decides upon the product to be produced or services to be offered and hence it is the responsibility of every organization to go for projects/services that are suited to customer needs.

Change

A project is not rigid in its lifespan. Changes occur throughout the life span of a project as a natural outcome of many environmental factors. The change may vary from changes that may have very little impact on the project to major changes which have a big impact or even may change the very nature of the project.

During implementation, the technology would have improved further, and equipment with the latest technology would have already started arriving. In such a case, if the equipment originally planned had not been yet procured, it would be wise to switch over to the equipment with the latest technology. There could also be the latest technological innovations in the manufacturing process which may deserve a switchover. All such changes are necessitated to keep the project updated.

Response to Environments

Projects take shape in response to environments. Indian Government soon after independence set up major projects in the public sector, in the sectors of iron and steel, coal, power generation, heavy types of equipment manufacture, etc. This was in tune with the then need for the development of infrastructure and heavy industries.

Forecasting

Forecasting the demand for any product/service the project is going to produce is an important aspect. Only if the forecast gives positive indications, the project is taken up for further study. Thus, all projects involve forecasts and given the importance attached to forecasts, they must be accurate and based on sound fundamentals.

Rational Choice

Since a project is a scheme for investing resources, the choice of a project is done after making a study of all the available avenues for investing resources, and a rational choice among the available avenues is made.

Optimality

A project is always aimed at the optimum utilization of resources for the overall development of the organization/economy. Resources are scarce and resources have a cost. Hence, optimum utilization of resources is a must for any project. Many project management concepts have evolved intending to achieve optimum utilization of available resources.

Control Mechanism

All projects will have a pre-designed control mechanism. To ensure completion of projects within the schedule, within the estimated cost, and at the same time achieving the desired level of quality and reliability.

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Project Constraints

• Time
• Resource Availability
• Quality Factors

Time

Our definition of a project stated that it was an activity that had a defined beginning and ending point. Most projects will be close-ended in terms of there being a requirement for completion by a certain point in time. This point may be the result of an external factor such as new legislation or may be derived from organizational requirements. It may also be partly determined by other constraints. There is likely to be some relationship between the time taken for a project and its cost. A trade-off between the two constraining factors may then be necessary.

Resource Availability

There is likely to be a budget for the project and this will be a major constraint. Cost constraints may be set in several ways, for example as an overall cash limit or as a detailed budget broken down over several expenditure headings. Labor resources in particular may be a limiting factor in the completion of the project. In the short run, labor will likely be fixed in supply.

Whilst the overall resource available may in theory be sufficient to complete the project, there may be difficulties arising out of how the project has been scheduled. That is, there may be several activities scheduled to take place at the same time and this may not be possible given the number of resources available.

Quality Factors

Whether the project delivers the goods to the right quality. Some techniques can be used to overcome the problems referred to above. These include:

Budgeting and the corresponding control of the project budget through budgetary control procedures. Project planning and control techniques such as Gantt charts and network analysis.

An important point to note at this stage is how the various constraints on project completion are likely to be interlinked with each other. For example, problems with time constraints or resource constraints may be overcome by spending more by working overtime, employing more people, or purchasing better machines. Budget problems may have a knock-on effect on the achievement of deadlines.

It is important to remember that while project management techniques are important, they tend to understate the importance of the key resource: people. In a fast-changing environment where tasks are often difficult, and controversial with uncertain outcomes, “people management” skills are called for.

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Sources of Project Ideas

Project ideas could originate from various sources, such as:

• The success story of a friend/relative
  
• Experience of others in the manufacture/sale of the product or rendering service
  
• Examination of the inputs, processes, and outputs of industries and search for improved processes, substitute input, and so on
  
• Government plan outlays, schemes, and guidelines
  
• Development programs of financial institutions and developmental agencies
  
• Investigation of local resources, material, and human and the ways of tapping them Economic and social changes of the economy
  
• B2B advertisements, C2B communications, and so on
  
• Project profiles and industrial potential surveys
  
• Visits to trade fairs, industrial exhibitions
  
• Unfulfilled human needs
  
• Possibility of reviving and rehabilitating sick units
  
• New inventions and patents, and new technological developments and business opportunities around them
  
• Tender notifications of businesses, government departments, universities, etc.
  
• Liberalization, privatization, and globalization policies are driven by governments, as this means new business opportunities for the private sector, MNCs, etc.

Let us briefly discuss these sources of project ideas.

• Analysis of the Performance of Existing Industries
• Examination of the Inputs, Process, and Outputs of Industries
• Examination of Volume, Value, and Direction of Imports and Exports
• Plan Outlays and Government Guidelines
• Developmental Schemes of Financial Institutions and Developmental Agencies
• Investigation of Local Resources (Material and Human)
• Analysis of Economic and Social Changes
• Exploration of the Possibility of Reviving and Rehabilitating Sick Units
• Identification of Unfulfilled Human Needs
• Visit Trade Fairs
• B2B Advertisements, C2B Communications, Yellow Page Ads, and So on
• Government agencies, credit institutions, non-governmental organizations, village panchayats, and public

Analysis of the Performance of Existing Industries

A study of existing industries in terms of their profitability and capacity utilization is helpful. The analysis of profitability and break-even level of various industries could indicate promising investment opportunities. An examination of the capacity utilization of various industries provides information about the potential for further investment. Such a study becomes more useful if it is done region-wise, particularly for products that have high transportation costs.

Examination of the Inputs, Process, and Outputs of Industries

An analysis of the inputs required for various industries may throw up project ideas. Opportunities exist when (i) materials and supplies are presently being procured from different sources with an attendant time lag and transportation costs and (ii) several firms produce internally some components/parts which can be supplied at a lower cost by a single manufacturer who can enjoy economies of scale. A study of the output structure of existing industries may reveal opportunities for further processing of output or even processing of waste. A study of the processes followed may reveal opportunities for improving the process, with time and cost advantages.

Examination of Volume, Value, and Direction of Imports and Exports

An analysis of import statistics for a period of five to seven years helps understand the trend of imports of various goods and the potential for import substitution. Indigenous manufacturing of goods currently imported is advantageous for several reasons:

• It improves the balance of payments situation.
  
• It provides a market for supporting industries and services.
  
• It generates employment.

Likewise, an examination of export statistics is useful in learning about the export possibilities of various products in various countries.

Plan Outlays and Government Guidelines

The government plays a very important role in many economies. Government’s proposed outlays in different sectors provide useful pointers toward investment opportunities. For instance, the schemes of distribution of free color TVs, gas stoves, dhotis and sarees, bicycles, books, etc. are providing new opportunities for businesses. They indicate the potential demand for goods and services required by different sectors.

Developmental Schemes of Financial Institutions and Developmental Agencies

In a bid to promote the development of industries in their respective states, state financial corporations, state industrial development corporations, and other developmental bodies conduct studies, prepare feasibility reports and offer suggestions to potential entrepreneurs. The developmental schemes suggested by them lead to new project ideas.

Investigation of Local Resources (Material and Human)

A search for project ideas may begin with an investigation into local resources and skills and various ways of adding value to the locally available materials. Similarly, the skills of local artisans may suggest products that may be profitably produced and marketed.

Analysis of Economic and Social Changes

A study of economic and social changes helps project demand for various goods and services, identifying shifts in demand for goods and services, and so on. Changing economic conditions provide new business opportunities. Great awareness of the value of time is dawning on the public. Hence, the demand for time-saving products like packaged food items, ovens, and powered vehicles has been increasing. Another change that we are witnessing is that the desire for leisure and recreational activities has been increasing. This has caused growth in the market for recreational products, fitness products, and services.

Exploration of the Possibility of Reviving and Rehabilitating Sick Units

Industrial sickness does happen in developed and developing countries. Sick units are either closed or face the prospect of closure. A significant proportion of sick units, however, can be nursed back to health by sound management, infusion of further capital, and provision of complementary inputs. Hence, there is a fairly good scope for investment in this area. Such investments typically have a shorter gestation period because one does not have to begin from scratch. Indeed, in many cases, marginal efforts would suffice to revive such units.

Identification of Unfulfilled Human Needs

For well-established, multi-brand product groups like bathing soaps, detergents, cosmetics, and toothpaste, the question to be asked is not whether there is an opportunity to manufacture something to satisfy an actual physical need but whether there are certain psychological needs of consumers which are presently unfulfilled. To find whether such an opportunity exists, the technique of spectrum analysis may be followed. This analysis is done somewhat as follows.

• Important factors influencing brand choice are identified
  
• Gaps that exist in consumer psychological needs are identified

Visit Trade Fairs

Attending national and international trade fairs/exhibitions/ conventions/conferences provides an excellent opportunity to know about new products/services and their development.

B2B Advertisements, C2B Communications, Yellow Page Ads, and So on

B2B advertisements, C2B communications, and so on give out business solicitations, joint venture opportunities, and the like. Trade journals and business dailies also provide business solicitations.

Government agencies, credit institutions, non-governmental organizations, village panchayats, and public

Project ideas may be generated by government agencies, credit institutions, non-governmental organizations, and also by the public. The government has the largest resources and the necessary information to generate project ideas and it plays a predominant role in this sphere. The government has the required facilities and manpower to conduct detailed studies which may lead to making investment decisions.

Banks and other financial institutions are actively involved in sharing the social responsibility of achieving the national objectives of economic development. The cooperatives and nongovernmental organizations as well as individual entrepreneurs now actively participate in the identification of projects. The awareness of involving the people or the beneficiaries in project identification is now increasing fast.

Since the local people have first-hand knowledge of the potentials and problems of the area to which they belong, more realistic project identification has become possible with their involvement. It needs no emphasis that the project ideas would be generated in a better manner both in qualitative as well as quantitative terms when the knowledge and ideas of the government functionaries, people, financial institutions, and other experts are pooled together.