A Critical Analysis On The Project Appraisal & Management of Project in Bangladesh

A Critical Analysis On The Project Appraisal & Management Of Project In
Bangladesh
A Critical Analysis On
The Project Appraisal & Management Of Project In Bangladesh
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Bangladesh
Assignment
“A Critical Analysis On
The Project Appraisal & Management Of Project In Bangladesh”
Submitted To
Md. Zakir Hossain
Course Instructor
Stamford University Bangladesh
Course: Project Management
Submitted By
Md. Ashiqur Rahman Chy ID: MBA 041 11 345

Dipankar Das Dipu ID: MBA 041 11
Neshat Marjiya ID: MBA 041 11 346
Md. Ajaj Mahmud ID: MBA 042 11 553

Date of
Submission: 14TH August, 2010
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Letter of Transmittal
14 August, 2009
Md. Zakir Hossain

Crouse Instructor
Department of Business Administration,
Stamford University Bangladesh.
Subject: Submission of Assignment on “A Critical Analysis on the Project Appraisal &

Management of Project in Bangladesh”
Dear Sir,
It gives us immense pleasure in presenting herewith the assignment on “A Critical Analysis on
the Project Appraisal & Management of Project in Bangladesh”. This Assignment gave the
opportunity to acquire a lot of knowledge about the ‘Appraisal & Management of Project in
Bangladesh’. We have tried our level best to follow the instruction of our Crouse instructor in
preparing this report, and in completing the report by appropriate information as
comprehensively as possible.
We sincerely hope that you will enjoy this paper as much as enjoyed while scrutinizing it. If you
need any further clarification or information in interpreting this analysis, we will be glad to
answer your queries.
Sincerely yours
All the member

Group X
Department of Business Administration

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Acknowledgment
i
Firstly, we would like to express our gratitude to almighty Allah to give us the strength to
complete the report within the stipulated time. While working on this topic, we learned about
real practice of project appraisal in Bangladesh.
We have always had a great affinity with analytical topic, so it was obvious that the subject of
our assignment would go in the same direction. “A Critical Analysis on the Project Appraisal
& Management of Project in Bangladesh” is a sounding title that was suggested to us Md.
Zakir Hossain. Special thanks go to him. His infectious enthusiasm and unlimited zeal have
been major driving forces during the writing of this assignment.
Finally, and definitely not least, we want to thank all the persons who gave their full co-
operation with this assignment & the entire participants who take part in the report, their
contribution are highly appreciated.
All the Member
Group X
Department of Business Administration
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Introduction
ii
Origin of the Report: -
Submit an Assignment is a compulsory part of our study under business faculty of Stamford
University Bangladesh, every trimester we submit an assignment on various topics relevant to
course. This trimester we got the task for “A Critical Analysis on the Project Appraisal &
Management of Project in Bangladesh”
Objective of the Study: -
Every work has some specific objective. The main objective of this report is dividing in two
categories:-
 Broad Objective
 Specific Objective
 Firstly to identify the overall scenario of the project appraisal and management in
Bangladesh.
 Secondly to develop an analysis on the specific performance of project appraisal, analysis of
the projects & its success trend. Also this assignment is essential to completing our project
management course successfully.
Methodology: -
To prepare the report, we have collected the data in two ways-
 Primary Data
 Secondary Data
We collected Primary data by several methods:-
 Conversation with the different project personnel for collecting data about appraisal of a
project.
For the secondary data, we collected data from various sources that are easily available:-
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 We collect data from the Website of various companies, and other informational search
engine.
 Taking help from project management books.
Limitation of the study:-
The following limitations are apparent in collecting

iii data and prepare the report-
۞ Time is the first limitation, because the given time is not sufficient to prepare an assignment
covering all the fact to develop a thriving critical analysis on project appraisal &
management.
۞ Another limitation of this report is the lacking information.
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iv
7
Table
A Critical Analysis On The Of Appraisal
Project Contents & Management Of Project In
Bangladesh
Letter of Transmittal i
Acknowledgement ii
Introduction iii-iv
Abstract 1
Chapter 1 Literature Review
1.0 Definition of Project 3

1
1.0 Definition of Project Appraisal 3-4
2
1.0 Definition of Project management 4
3
1.0 Role of Project Appraisal 5
4
1.0 Methodology of Project Appraisal 6-7
5
1.0 Necessary to Conduct Project Management Appraisal (PMA) 8
6
1.0 Use of Project Management Appraisal (PMA) 8-9
7
1.0 Structural Approach and Typical Issues of Project Management 10-14
8 Appraisal
Chapter 2 Analysis
2.0 Critical Examination of Project Risk Analysis 16-17

1
2.0 Feasibility Analysis of the Projects 18-19

2
2.0 Project Appraisal Using Discounted Cash Flow 20

3
2.0 Problems Threaten to Project Success 21-23

4
2.0 Criteria for the Evaluation of Project Success 24

5
2.0 Project Appraisal under Inflationary Condition 25-26

6
2.0 Common Causes of Project Failure in Bangladesh 27-31

7
Chapter 3 Finding of the

8
Study
3.0 Findings 33
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Abstract
A project is defined as a unique set of co-ordinate activities with a finite duration, defined cost
and performance parameters and clear outputs to support specific business objectives. The term
projects as a discrete package of investments, policy measures, institutional other actions
designed to achieve specific development objectives.
Appraisal involves a careful checking of the basic data, assumptions and methodology used in
project preparation, an in-depth review of the work plan, cost estimates and proposed financing,
an assessment of the projects organizational and management aspects, and finally the viability of
project. In fact a project can be defined as a problem scheduled for solution. Projects can either
be successful or may fail, therefore before undertaking any project it is important to assess its
likelihood of success.
In Bangladesh and the world over, organizations, corporations and institutions commit large
sums of resources into projects and assure their project success through the use of project
appraisals and project management. Project appraisal is a generic term that refers to the process
of assessing, in a structured way, the case for proceeding with a project or proposal. It often
involves comparing various options, using economic appraisal or some other decision analysis
technique.
Project management is the discipline of planning, organizing, and managing resources to bring
about the successful completion of specific project goals and objectives. Project management is
a carefully planned and organized effort to accomplish a specific one-time objective. Appraisals
help ensure that projects will be properly managed, by ensuring appropriate financial and
monitoring systems are in place, that there are contingency plans to deal with risks and setting
milestones against which progress can be judged. Project appraisal therefore cannot be
overlooked and goes hand in hand with effective project management.
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Chapter – 1
Literature Review
1.01 Definition of Project: -

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A project is a specific plan or design presented for consideration. A project is a proposal for an
investment to crate and or develop certain facilities in order to increase the production of
goods/services in a community certain period of time.
The term projects discrete package of investments, policy measures and institutional and other
actions designed to achieve specific development objectives, a project may cover with following
characteristics-
• A set of well defined activities, clear cut beginning and end

• Having a desired objective/ outcome.
• Consumption of large amounts of money
• Limitations on resources
• Not undertaken frequently
Projects are common term used by many flexibly to denote specific action plans. There are
projects to develop a new road, new car, new motorbike, marketing plan, construction of
buildings, transport and communication etc. A project can be long term or short term, limited or
comprehensive, single sector concentrated or multi sector concentrated. Project: can be defined
thus as
• A scientifically evolved work plan

• Devised to achieve a specific objectives
• Within specified time limit
• Consuming planned resources
1.02 Definition of Project Appraisal: -
Project Appraisal is the process of analyzing the technical feasibility and economic viability of a
project proposal with a view to financing their costs.
Project appraisal is the process of examining the various dimensions of a project be it Technical,
financial, social, Environment and providing an assessment of the projects likelihood for success
and its viability. It is the process of assessing and questioning proposals before resources are
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committed. It evaluates a project’s ability to meet its stated objectives and to provide long term
Economic growth in the larger framework of local and National needs.
The project appraisal process is an essential tool in regeneration and neighborhood renewal. An
effective project appraisal offers significant benefits to partnerships and, most importantly, to
local communities. A good appraisal justifies spending money on a project. It is an important
tool in decision making and lays the foundation for delivery and evaluation. Getting the design
and operation of appraisal systems right is important. The proper consideration of each of the
components of project appraisal is essential. For the following reasons project appraisal is very
much important-
• It is a capital investment decision
• It has long term effects
• Decision once taken is irreversible
• Expenditures are high
1.03 Definition of Project management: -
Project management is the discipline of planning, organizing, and managing resources to bring
about the successful completion of specific project goals and objectives.
The primary challenge of project management is to achieve all of the project goals and objectives
while honoring the preconceived project constraints. Typical constraints are scope, time,
and budget. The secondary-and more ambitious-challenge is to optimize the allocation and
integration of inputs necessary to meet pre-defined objectives.
Project management is a carefully planned and organized effort to accomplish a specific (and
usually) one-time objective, for example, construct a building or implement a major new
computer system. Project management includes developing a project plan, which includes
defining and confirming the project goals and objectives, identifying tasks and how goals will be
achieved, quantifying the resources needed, and determining budgets and timelines for
completion. It also includes managing the implementation of the project plan, along with
operating regular 'controls' to ensure that there is accurate and objective information on
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'performance' relative to the plan, and the mechanisms to implement recovery actions where
necessary.
1.04 Role of Project Appraisal: -
Project appraisal helps a partnership’s management to: -

 Be consistent and objective in choosing projects
 Make sure its program benefits all sections of the community, including those from
ethnic groups who have been left out in the past
 Provide documentation to meet financial and audit requirements and to explain decisions
to local people.
Appraisal justifies spending money on a project

Appraisal asks fundamental questions about whether funding is required and whether a project
offers good value for money. It can give confidence that public money is being put to good use,
and help identify other funding to support a project. Getting it right may help a partnership make
its resources go further in meeting local need.
Appraisal is an important decision making tool
Appraisal involves the comprehensive analysis of a wide range of data, judgments and
assumptions, all of which need adequate evidence. This helps ensure that projects selected for
funding:
• Will help a partnership achieve its objectives for its area

• Are deliverable
• Involve local people and take proper account of the needs of people from ethnic
minorities and other minority groups
• Are sustainable
• Have sensible ways of managing risk.
Appraisal lays the foundations for delivery
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Appraisal helps ensure that projects will be properly managed, by ensuring appropriate financial
and monitoring systems are in place, that there are contingency plans to deal with risks and
setting milestones against which progress can be judged.
1.05 Methodology of Project Appraisal: -
Appraisal involves a careful checking of the basic data, assumptions and methodology used in
project preparation, an in-depth review of the work plan, cost estimates and proposed financing,
an assessment of the projects organizational and management aspects, and finally the viability of
project.
It is mandatory for the Project Authorities to undertake project appraisal or at least give details of
financial, economic and social benefits and suitably. These projects are examined in the Planning
and Development Division from the technical, institutional/organizational/managerial, financial
and economic point of view depending on nature of the project. On the basis of such an
assessment, a judgment is reached as to whether the project is technically sound, financially
justified and viable from the point of view of the economy as a whole.
In the Planning and Development Division, there is a division of labor in the appraisal of projects
prepared by the concerned Executing Agencies. The concerned Technical Section in consultation
with other technical sections i.e.; Physical Planning & Housing, Manpower, Governance and
Environment sections undertake the technical appraisal, wherever necessary. This covers
engineering, commercial, organizational and managerial aspects, while the Economic Appraisal
Section carries out the pre-sanction appraisal of the development projects from the financial and
economic points of view. Economic appraisal of a project is concerned with the desirability of
carrying out the project from the standpoint of its contribution to the development of the national
economy. Whereas financial analysis deals with only costs and returns to project participants,
economic analysis deals with costs and returns to society as a whole. The rationale behind the
project appraisal is to provide the decision-makers with financial and economic yardsticks for the
selection/rejection of projects from among competing alternative proposals for investment.
The techniques of project appraisal can be divided under two heads:-
1. Non-discounted and
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2. Discounted.
Non-discounted techniques include
A. Payback period, and
B. Profit & Loss account.
Discounted techniques take into account the time value of money and include
A. Net Present Value (NPV),
B. Benefit Cost Ratio (BCR),
C. Internal Rate of Return (IRR)
D. Sensitivity Analysis (treatment of uncertainty) and
E. Domestic Resource Cost (Modified Bruno Ratio).
Many investment projects are addition to existing facilities/activities and thus benefits and costs
relevant to the new project are those that are incremental to what would have occurred if the new
project had not been added. During the operating life of a project, it is very important to measure
all costs and benefits as the difference between what these variables would be if no project
(without project) were undertaken and what they will be should the project be implemented (with
project). It is very common error to assume that all costs and benefits are incremental to the new
project when, in fact, they are not. Hence, considerable care must be taken in defining a “ base
case” which realistically sets out the profile of costs and benefits expected if no additional
investment is undertaken
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1.06 Necessary to Conduct Project Management Appraisal (PMA): -
A project management appraisal should be viewed as a useful, constructive and necessary

diagnostic tool available for augmenting the capability of the sponsoring organization's project
management team.
It can be used to provide information ranging from an informal enquiry to an extensive analysis
of the effectiveness of every aspect of the project management process. In the latter context it
can be conducted to ferret out common failings of many project management arrangements.
Some of these common failings include:
• Management on the project may be unable to see the forest for the trees.
• Decisions may be being unduly biased by contractual commitments already in existence,

rather than being made in the best interests of the final project results
• Decisions may be similarly biased unduly by corporate policy
• Short term political expediency may be overwhelming (Crisis management)
• Key individuals on the project may be under the influence of some form of illegal
pressure
• Management on the project may simply be naive, inexperienced, lack sufficient training
in project management skills, or otherwise ill prepared for the difficult tasks at hand
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1.07 Use of Project Management Appraisal (PMA): -
• Identify the strengths of current practices in a project management organization, or on an

existing project
• Establish how various groups within the organization perceive the organization's
effectiveness in managing projects
• Examine the effectiveness of project communication and documentation, and clarify the
relationships between project scope, quality, time and cost
• Identify barriers to better performance, or critical skills needed by project managers or

their supporting teams to increase their effectiveness
• Identify sooner specific aspects which require improvement and hence speed the
achievement of results
• Provide for an exchange of ideas, information, problems, solutions and strategies with
project team members, and thus develop a plan of action for carrying out improvements
• Help to create a supportive environment focusing on project success, and the professional
growth of project team members
Thus, by conducting a PMA in a timely and favorable manner, potential difficulties can be
identified and brought out into the open for appropriate corrective action. Better still,
potential problems may be circumvented altogether, if the concept and timing of a PMA is
built into the project plan from the outset.
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1.08 Structural Approach and Typical Issues of Project Management Appraisal: -
Modern project management is generally considered to be encompassed by the integration of

eight functional areas. These include the four core or constraint functions of scope, quality, time
and cost, and four integrative and interactive functions of risk, human resources,
contract/procurement and information/communications management.
Each function tends to require a separate skill set, so that on a larger project, or in the larger
project management organization, responsibilities naturally tend to be grouped accordingly for
their proper conduct. Consequently, the investigative format of a project management appraisal
also more readily follows these functional descriptions.
The sequence in which these functions are listed above is significant because of their dynamic
relationship. The sequence parallels both the progressive flow of information as well as the flow
of work through the project management process. The information flow represents what is
managed, while the process flow reflects how it is managed. Since projects should be planned
moving progressively down the list, projects in the planning phases might well have the first four
functional areas examined first. For projects in the implementation phases, on the other hand, the
latter four functions might be given priority, and in the reverse order.
The content of the questions to be raised will also be highly dependent upon the particular phase
of the project in which the PMA is being conducted, and therefore should be structured
accordingly.
For example, the content of technological questions under a Project Management Appraisal
(PMA) conducted early in the implementation phase of a construction project would focus on the
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availability and adequacy of information to carry out detailed design efficiently, or to commence
construction activities productively. Similarly, technological issues to be raised just prior to
commissioning would likely cover quality assurance records, validation of equipment and system
check-off, dry-runs and so on.
The following discussion is intended to give an indication of the issues that might be looked at,
both in terms of the function under consideration, and the phase that the particular project has
reached.
• Project Management Core Functions: -

As noted earlier, the first four functions: scope, quality, time and cost, are generally considered
to be the basic functions of project management. From the sponsor's point of view, these four
functions embody the project's basic management objectives, while for those providing services
to the project, i.e. designer construction, they constitute constraints. They therefore represent a
set of core parameters which are used to control the project.
• Scope and Quality

If specific technological aspects of the project such as engineering, manufacturing or
constructability, are to be reviewed, such an investigation must clearly be conducted by those
thoroughly conversant with the project's technology. In addition, most projects today have some
degree of recognizable environmental, social or safety impacts. If these have not already been
analyzed and arrangements made for monitoring and mitigation, then persons with corresponding
knowledge and experience must undertake such review.
Even so, certain general management questions can be formulated with regard to the technical
scope and quality of the project.
In the case of quality: has the project's executive given priority to building the required quality
standards into the project planning and execution process right from the outset? Is this standard
consistent with production, operation, maintenance, safety and social acceptability expectations,
so that the facility will perform economically during its life time? Indeed will the facility last for
its required life time? Have the members of the project team been selected on the basis of their
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qualifications for their respective roles, and likewise will similar considerations be given to those
providing detailed design and/or construction services during project execution?
Are meeting the end-user's requirements seen as being at least as important as, if not more
important than, meeting cost and schedule targets, and will a post project review include a
critique of the project's quality attainment?
• Schedule and Cost

Similarly, specific questions can be posed regarding schedule and cost. For example: Do project
plan include a milestone schedule indicating major pieces of work to be accomplished, and who
will be responsible for each?
Are project schedule time estimates and logic developed using input from members of the project
team, in order to build in commitment? Are they prepared using a structured breakdown
consistent with the work breakdown structure, such that cost and schedule can be correlated?
Are project schedules allowing sufficient time to get the work done right the first time, and
without causing overruns? And when changes are made during project implementation, are
corresponding changes made to the schedule to accommodate these changes?
The cost situation should be similarly examined, and the direct impacts on the cost situation of
any changes in the schedule also recognized. Thus typical cost questions should include: Is the
estimate realistic, including both direct and indirect costs of all required resources, or have any
changes taken place since, in terms of the project's parameters or the external environment,
which might require its reevaluation?
• Project Management Integrative Functions

As indicated earlier, the issues under scope, quality, time and cost only really question the status
of the project's relatively static objectives. If the answers are found to be unsatisfactory, then it
will be necessary to examine the means to influence them within the remaining time left for the
project to run.
The next set of questions therefore investigate the supporting integrative and more dynamic
functions of project management, which consist of the management of risk, human resources,
contract/procurement and information/communication management.
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Each of these functions influences the success of the project through the performance of people.
They involve as much art as science, and, suitably managed can affect the course of the project
and consequent outcome. Unlike scope, quality, time and cost, which deal with project outputs
and deliverables, these four functions impact the activities, i.e. the work involved in achieving
those outputs and deliverables. Often, these areas of review provide a much more illuminating
area of investigation.
• Project Risk
Questions under this heading should include: Has the project planning included a program or
study of risk identification and analysis with recommendations for mitigate actions?
Does the project's management effectively anticipate potential obstacles at each stage in a way
that avoids future hindrance?
Have adequate contingency planning and allowances been incorporated into the project
parameters to provide for major risk factors which may adversely affect project success?
• Human Resources
Questions which address the issues of people and their motivations are frequently the most
significant, since essentially projects and the degree of their success are achieved through the
project's human resource element. Therefore, this area of the PMA may be quite intensive.
For example: Does the project team enjoy the active and visible support of the project's sponsor,
and is the focus consistently on the project's stated objectives?
Has the sponsor assigned the leadership of the project the necessary level of authority for it to
execute its responsibilities, and is it held accountable accordingly? Is this process visible and
effective?
Are people resources available when needed? And do they have the required levels of technical
skills, or if not, are they encouraged or provided with suitable training? Are they rewarded for
exceptional effort?
Is conflict handled and used constructively, in order to sustain a highly motivated team? Will the
final project evaluation include a critique of the project team's collective performance?
• Contract/Procurement
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The manner in which the project is to be facilitated or procured is an issue which should be dealt
with very early in the project planning phase, since it will have a significant effect on the way in
which the project parameters are expressed. For instance, construction which is to be accelerated,
or "fast-tracked", should require a shorter schedule but will carry significantly higher risks.
Conversely, the more time taken to improve the definition of the project's scope, the lower
should be the project risks. In each case, the form of contracting must be tailored to suit.
• Information/Communications
Information is best viewed as the data upon which the project is configured and upon which
decisions are based, while communication is the oil and grease which keeps the whole project
progressing smoothly. Questions in this area might therefore include: Does the project sponsor
keep the project manager informed on matters affecting the project, and in turn does the project
manager keep the members of his team similarly informed? Are project team members free to
voice their opinions and concerns for the project? In other words, is information flowing
satisfactorily through the organizational structure, and in doing so, is its quality and integrity
maintained?
Similarly, are the necessary mechanisms in place to inform those who are outside of the project
organization, and inform them according to their respective interests? For example, an external
stakeholders' public relations program could be very necessary where the construction and
completion of the project is politically sensitive, since adverse reaction could have a damaging
affect on the ultimate success of the project.
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Chapter – 2
Analysis of the Study
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2.01 Critical Examination of Project Risk Analysis: -
Here we discuss some issues which could be treated in a critical evaluation of the project subject
& how such an evaluation would be carried out. Difficulties of some areas would affect the
ability of practitioners to carry out a project cost or schedule risk analysis. So a critical study of
the methods would need to address these issues.
1. Level of Aggregation of Tasks or Costs
A first obvious question is what level of aggregation should be used for the components of the
schedule or cost. One could imagine using the highest level available, that of the whole project.
This is obviously not credible: when asked how long it would take to complete a complex
project or how much it would cost, risk analysts would be under severe pressure to produce a
number that fits the client’s schedule or budget. If the estimate did not fit, the analyst would be
hard pressed to justify the estimate or to answer the next question, which would ask what
adjustments could be made to modify the project to fit the constraints. Alternatively, too fine-
grained a disaggregation of tasks or costs would be enormously burdensome to deal with as
experts attempted to determine probability distributions for very small tasks or cost distributions
for tiny pieces of hardware.
Cost estimators recommend going down to various levels, depending on the stage of the project,
but in schedule risk analysis there is no similar structure that defines level of detail:
 Deciding what tasks go into the schedule network is a matter of experience
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Added to these issues of aggregation is the simple observation that in a complex project, which is
technologically immature, it may be impossible to specify individual tasks at the beginning, let
alone their interrelationships or all of the cost elements.
2. Elicitation of Probabilities
Assuming that the task network have been assembled at the appropriate level of aggregation, the
next task is to determine the probability distributions of the times to completion of each task and
the probability distribution of each cost element. One source of such information is from
previous experience. However, such data is not available in the open literature, and, if
proprietary, may be limited by the type of projects done by a particular company or consulting
firm. And for complex projects that are at the cutting edge of technology there simply may not be
much data that is directly relevant. In this case the pedagogical literature in general recommends
that expert opinion be consulted to elicit the required probability distributions for task durations
and task and component costs.
For example, while the risk analysis literature focuses on matching a few values to a standard
distribution, the statistical literature includes methods for cross-checking elicited distributions by
feeding back the implications of the current distribution to the subject, and allowing the subject
to then modify the distribution based on this information to better reflect their beliefs. However,
the project management literature has few or no references to this work.
3. Correlations
As several authors in the literature have noted, durations for some related tasks and costs for
some related hardware might be correlated because they are affected by common external events
or by some common characteristics. Virtually all of the advanced texts on project risk analysis
recommend that correlations be taken into account when specifying probability distributions for
quantities that may be correlated. Given that correlations between task durations and cost
elements should be assessed the difficulty of doing so is an obstacle to applying quantitative risk
methods.
4. Feedback Effects
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Although much of the empirical research on cost and schedule changes have documented
overruns in both categories, it has also been noted in the risk analysis literature that managers
have adaptive strategies available to them in the course of a project. For example, they can
reallocate resources such as manpower to shorten timelines for some tasks if the project begins to
fall behind. This kind of adjustment is yet another reason for distrusting initial risk analyses as
having predictive validity: if schedules begin to slip or costs rise there are feedback mechanisms
that can act to bring the schedule and/or cost back to compliance. The behavior with intelligent
agents which will formulate and implement adaptive strategies during simulated project histories
to get a better cost and schedule projection.
2.02 Feasibility Analysis of the Projects:-
• Management Appraisal
Management appraisal is related to the technical and managerial competence, integrity,

knowledge of the project, managerial competence of the promoters etc. The promoters
should have the knowledge and ability to plan, implement and operate the entire project
effectively. The past record of the promoters is to be appraised to clarify their ability in
handling the projects.
• Technical Feasibility
Technical feasibility analysis is the systematic gathering and analysis of the data
pertaining to the technical inputs required and formation of conclusion there from. The
availability of the raw materials, power, sanitary and sewerage services, transportation
facility, skilled man power, engineering facilities, maintenance, local people etc are
coming under technical analysis. This feasibility analysis is very important since its
significance lies in planning the exercises, documentation process, risk minimization
process and to get approval.
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• Financial feasibility
One of the very important factors that a project team should meticulously prepare is the
financial viability of the entire project. This involves the preparation of cost estimates,
means of financing, financial institutions, financial projections, break-even point, ratio
analysis etc. The cost of project includes the land and sight development, building, plant
and machinery, technical know-how fees, pre-operative expenses, contingency expenses
etc. The means of finance includes the share capital, term loan, special capital assistance,
investment subsidy, margin money loan etc. The financial projections include the
profitability estimates, cash flow and projected balance sheet. The ratio analysis will be
made on debt equity ratio and current ratio.
• Commercial Appraisal
In the commercial appraisal many factors are coming. The scope of the project in market
or the beneficiaries, customer friendly process and preferences, future demand of the
supply, effectiveness of the selling arrangement, latest information availability an all
areas, government control measures, etc. The appraisal involves the assessment of the
current market scenario, which enables the project to get adequate demand. Estimation,
distribution and advertisement scenario also to be here considered into.
• Economic Appraisal
How far the project contributes to the development of the sector, industrial development,
social development, maximizing the growth of employment, etc. are kept in view while
evaluating the economic feasibility of the project.
• Environmental Analysis
Environmental appraisal concerns with the impact of environment on the project. The
factors include the water, air, land, sound, geographical location etc.
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2.03 Project Appraisal Using Discounted Cash Flow: -

DCF analysis and estimating the NPV of cash flows incorporate fundamental principles of
finance that support disciplined financial management in organizations. Professional accountants
in business have a role in promoting and explaining the importance of these principles in their
organizations, particularly where the connections between the application of financial principles
and related financial theory are not easily understood or accepted. A key challenge in using DCF
arises from the confusion that often occurs in understanding its theoretical basis and practical
application. The key principles underlying widely accepted good practice are: -
 When appraising multi-period investments, where expected benefits and costs and related
cash inflows and outflows arise over time, the time value of money should be taken into
account.
 The time value of money should be represented by the opportunity cost of capital.
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 The discount rate used to calculate the NPV in the DCF analysis should properly reflect the
systematic risk of cash flows attributable to the project being appraised, and not the
systematic risk of the organization undertaking the project.
 A good decision relies on an understanding of the business and an appropriate DCF
methodology. DCF analysis should be considered and interpreted in relation to an
organization’s strategy, and its economic and competitive position.
 Cash flows should be estimated incrementally, so that a DCF analysis should only consider
expected cash flows that could change if the proposed investment is implemented. The value
of an investment depends on all the additional and relevant cash inflows and outflows that
follow from accepting an investment.
 At any decision-making point, past events and expenditures should be considered irreversible
outflows (and not incremental costs) that should be ignored, even if they had been included
in an earlier cash flow analysis.
 All assumptions used in undertaking DCF analysis, and in evaluating proposed investment
projects, should be supported by reasoned judgment, particularly where factors are difficult
to predict and estimate. Using techniques such as sensitivity analysis to identify key variables
and risks helps to reflect worst, most likely, and best case scenarios, and therefore can
support a reasoned judgment.
 A post-completion review or audit of an investment decision should include an assessment of
the decision-making process, and the results, benefits, and outcomes of the decision.
2.04 Problems Threaten to Project Success: -

If “people problems” occur once a project is underway, there are seven specific intervention
tools that have been used to get a project back on track. These are:
1. Provide coaching and mentoring to key project personnel

2. Make a change in project personnel
3. Use a strong outside facilitator to mediate conflicts
4. Provide a personality-based team building experience
5. Provide activity-based teambuilding events
6. Provide skills-based teambuilding sessions
7. Provide problem solving-based teambuilding retreats
The type of intervention tool used depends on the nature and severity of the people problems that
threaten project success. These seven tools are explained below.
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1. Provide Personal Coaching

This is the tool of choice when the behavior or attitudes of a particular project member is
causing problems that threaten project success. The point of this intervention is to help
the project member become aware of how his/her actions are a hindrance to project
completion. The hope is that coaching will help change the behavior or attitudes of the
project member who is holding up project success. The person doing the coaching can be
the project leader, the project sponsor, the project member’s supervisor, or even a
respected colleague. There are different possible coaching techniques and tools that can
be used in this situation.
2. Make a Change in Project Personnel

This type of action is used only on rare occasions. This tool is used when the actions (or
inactions),poor attitudes, lack of ability, or lack of performance of a particular project
member is causing problems that threaten project success, and several attempts to change
the behavior have not succeeded. The purpose of this intervention is to remove someone
from a project role so that we can quickly get over the problem and move forward on the
project. There are four factors that must be considered before taking this type of drastic
action.
3. Bring in an Outside Facilitator

When the project is in jeopardy due to politics, lack of teamwork, or other “people”
problems, and when several attempts to deal with these issues have failed, it is often
helpful to bring in an experienced third party, with no connections to the organization, to
serve as an arbitrator and facilitator to help mediate conflicts so that the project may
move forward. This is a form of a“project rescue;” however, the emphasis is solely
4. Carry Out Personality-Based Team building

This tool is used when a project team or sub-team is not performing well due to
personality conflicts on the team. The purpose of this intervention is to help team
members better understand each other, and thus learn how to work more effectively
together. Many “personality conflicts” on teams result from differences in how team
members perceive, make decisions and interpret and react to the same set of stimuli.
Once these differences are understood, the team learns that many “personality conflicts”
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are due to misunderstandings and“projections” of motives that are not necessarily true.
They then can agree on codes of conduct for communicating and working together more
effectively.
5. Carry Out Activity-Based Teambuilding

This tool can be applied when a project team is not performing well together due to any
number of different symptoms, such as lack of trust, poor communication, and lack of
teamwork. The purpose of activity-based teambuilding is to help team members learn
how to work together in a series of challenging outdoor group tasks and exercises, and
then to apply the lessons learned to working together on the project. Activity-based
teambuilding can be carried out in a variety of settings, such as “high” ropes courses,
“low” ropes courses or various outdoor adventures. All these exercises require groups to
learn to work together to achieve success.
6. Carry Out Skills-Based Teambuilding

This tool is the approach of choice when a project team is not performing well together
due to a lack of understanding of how teams operate and/or a lack of teamwork skills.
The purpose of this intervention is to teach team members specific teamwork skills and
ground rules for operating more effectively together. In skills-based teambuilding, team
members participate in workshop sessions that require them to learn and practice specific
teamwork skills (e.g., dealing with conflict, reaching group consensus, learning how to
give criticism, or running effective team meetings).
7. Carry Out Problem Solving-Based Teambuilding

Problem-solving teambuilding retreats are the most often used interventions on projects.
The purpose of this tool is to remove the team from its everyday setting and get the team
to agree on the barriers they are having, analyze why, and then take ownership in the
problems by agreeing on actions they will take to get back on track. In our experience
this type of intervention has been quite successful in getting project teams focused, back
on track, and more productive. Several steps must be followed when carrying out this
type of intervention.
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2.05 Criteria for the Evaluation of Project Success: -
The evaluation of a project’s “Developmental Effectiveness” and its classification during the final
evaluation into one of the various levels of success described in more detail below concentrate
on the following fundamental questions:
• Are the project objectives reached to a sufficient degree (aspect of project effectiveness)?
• Does the project generate sufficient significant developmental effects (project relevance
and significance measured by the achievement of the overall development-policy
objective defined beforehand and its effects in political, institutional, socio-economic and
socio-cultural as well as ecological terms)?
• Are the funds/expenses that were and are being employed/incurred to reach the objectives
appropriate and how can the projects microeconomic and macroeconomic impact be
measured?
• To the extent that undesired (side) effects occur, are these tolerable?
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We do not treat sustainability, a key aspect to consider for project evaluation, as a separate
category of evaluation but instead as a cross-cutting element of all four fundamental questions on
project success. A project is sustainable if the project-executing agency and/or the target group
are able to continue to use the project facilities that have been built for a period of time that is,
overall, adequate in economic terms or to carry on with the project activities on their own and
generate positive results after the financial, organizational and/or technical support has come to
an end.
2.06 Project Appraisal under Inflationary Condition: -

The timing of project appraisal is significant from the point of view of appraisers. A project
under normal conditions is viewed from different aspects viz. technical feasibility, commercial
and financial viability and economic and social considerations and managerial aspects. However,
normal conditions seldom exist and a project is subjected to inflationary pressures from time to
time because the project has to be implemented over a period of time ranging from 6 months to
more than one or two years. During such economy is generated. Besides this, the size and
magnitude of the project also varies form organization to organization. In such a situation
inflation is bound to affect the project appraisal and implementation process.
In a developing country like India, inflation has become a part of life. Therefore, under such
circumstances, it is always prudent to make adequate provision for a probable escalation in the
project cost as a cushion to inflationary jerks.
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It is a well known fact that during inflationary conditions, the project cost is bound to increase on
all heads viz. labor, raw material, fixed assets such as equipment’s, plant and machinery,
building material, remuneration of technicians and managerial personnel etc.
Beside this inflationary conditions erode purchasing power of consumers and affect the demand
pattern. Thus, not only cost of production is but also the projected statement of profitability and
cash flows are affected by the change in demand pattern. The inflationary pressure does not stop
here. Financial institutions and banks may revise their lending rates resulting in escalation in
financing cost during inflationary conditions. Under such circumstances, project appraisal has
to be done generally keeping in view the following guidelines which are usually followed by
Government agencies, banks and financial institutions.
• It is always advisable to make provisions for cost escalation on all heads of cost, keeping in
view the rate of inflation during likely period of delay in project implementations.
• The various sources of finance should be carefully scrutinized with reference to probable
revision in the rate of interest by the lenders and the revision which could be effected in the
interest bearing securities to be issued. All three factors will push pu the cost of funds for the
organization.
• Adjustments should be made in profitability and cash flow projections to take care of the
inflationary pressures affecting future projections.
• It is also advisable to examine the financial viability of the project at the revised rates and
ashes the same with reference to economic justification of the project. The appropriate
measure for this aspect is the economic rate of return for the project which will equate the
present value of capital expenditures to net cash flows over the life of the projects. The rate
of return should be acceptable which also accommodates the rate of inflation per annum.
• In an inflationary situation, projects having early payback periods should be preferred
because projects with long payback period are more risky.
The following discussion focuses on investment appraisal techniques under inflationary

conditions.
As already stated inflation causes erosion in the purchasing power of money. This also causes
problems for the financial decision makers. This is particularly true while assessing investment
decision which can easily rely on predicted cash flows over several years into the future. Over
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just a few years a fairly moderate rate of inflation can have far reaching implications on the
purchasing power of money, thus distorting investment decision. Specially the inflation-related
problems which the investment decision
2.07 Common Causes of Project Failure in Bangladesh: -
In Bangladesh, Why the certain percentage of project cannot success that causes are point
out below: -
• Lack of clear links between the project and the organization’s key strategic
priorities, including agreed measures of success
• Lack of clear senior management and leadership
• Lack of effective engagement with stakeholders
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Bangladesh
• Lack of skills and proven approach to project management and risk management
• Too little attention to breaking development and implementation into manageable

steps
• Too little attention to breaking development and implementation into manageable

steps
• Lack of understanding of, and contact with the supply industry at senior levels in
the organization
• Lack of effective project term integration between clients, the supplier team and
the supply chain
1. Lack of clear links between the project and the organization’s key strategic priorities,
including agreed measures of success.
• Do we know now the priority of this project compares and aligns with our other delivery and
operational activities? Have we defined the Critical Success Factors (CSFs) for the
project?
• Have the CSFs been agreed with suppliers and key stakeholders?
• Do we have a clear project plan that covers the full period of the planned delivery and all
business change required, and indicates the means of benefits realization?
• Is the project founded upon realistic timescales, taking account of statutory lead times, and
snowing critical dependencies such that any delays can be handled?
• Are the lessons learnt from relevant projects being applied?
• Has an analysis been undertaken of the effects of any slippage in time, cost, scope or quality?
In the event of a problem/conflict at least one must be sacrificed.
2. Lack of clear senior management and leadership.
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• Does the project management team nave a clear view of the interdependencies between
projects, the benefits, and the criteria against which success will be judged?
• If the project traverses organizational boundaries, are there clear governance arrangements to
ensure sustainable alignment with the business objectives of all organizations involved?
• Are all proposed commitments and announcements first checked for delivery implications?
• Are decisions taken early, decisively, and adhered to, in order to facilitate successful
delivery?
• Does the project have the necessary approval to proceed from its nominated minister either
directly or through delegated authority to a designated Senior Responsible Owner (SRO)?
• Does the SRO have the ability, responsibility and authority to ensure that the business change
and business benefits are delivered?
• Does the SRO have a suitable track record of delivery? Where necessary, is this being
optimized through training?
3. Lack of effective engagement with stakeholders.
• Have we identified the right stakeholders?
• Have we as intelligent customers, identified the rationale for doing so (e.g. the why, the what,
who, the where, the when and the how)?
• Have we secured a common understanding and agreement of stakeholder requirements?
• Does the business case take account of the views of all stakeholders including users?
• Do we understand how we will manage stakeholders (e.g. ensure buy—in, overcome

resistance to change, allocate risk to the party best able to manage it)?
• Has sufficient account been taken of the subsisting organizational culture?
• Whilst ensuring that there is clear accountability, how can we resolve any conflicting
priorities?
4. Lack of skills and proven approach to project management and risk management.
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• Is there a skilled and experienced project team with clearly defined roles and responsibilities?
If not, is there access to expertise, which can benefit those fulfilling the requisite roles?
• Are the major risks identified, weighted and treated by the SRO, the Director, and Project
Manager and/or project team?
• Has sufficient resourcing, financial and otherwise, been allocated to the project, including an
allowance for risk?
• Do we have adequate approaches for estimating, monitoring and controlling the total
expenditure on projects?
• Do we have effective systems for measuring and tracking the realization of benefits in the
business case?
• Are the governance arrangements robust enough to ensure that "bad news" is not filtered out
of progress reports to senior managers?
• If external consultants are used, are they accountable and committed to help ensure
successful and timely delivery?
5. Too little attention to breaking development and implementation into manageable

steps.
• Has the approach been tested to ensure it is not 'big-bang’ (e.g. In IT-enable projects)?
• Has sufficient time been built-in to allow for planning applications in property &
Construction projects for example?
• Have we done our best to keep delivery timescales short so that change during development
is avoided?
• Have enough review points been built-in so that the project can be stopped, if changing
circumstances mean that the business benefits are no longer achievable or no longer represent
value for money?
• Is there a business continuity plan in the event of the project delivering late or failing to
deliver at all?
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6. Evaluation of proposals driven by initial price rather than long term value for money
(especially securing delivery of business benefits.)
• Is the evaluation based on whole-life value for money, taking account of capital, maintenance
and service costs?
• Do we have a proposed evaluation approach that allows us to balance financial factors

against quality and security of delivery?
• Does the evaluation approach take account of business criticality and affordability?
• Is the evaluation approach business driven?
7. Lack of understanding of, and contact with the supply industry at senior levels in the
organization.
• Have we tested that the supply industry understands our approach and agrees that it is
achievable?
• Have we asked suppliers to state any assumptions they are making against their proposals?
• Have we checked that the project will attract sufficient competitive interest?
• Are senior management sufficiently engaged with the industry to be able to assess supply-
side risks?
• Do we have a clear strategy for engaging with the industry or are we making sourcing
decisions on a piecemeal basis?
• Are the processes in place to ensure that all parties have a clear understanding of their roles
and responsibilities, and a shared understanding of desired outcomes, key terms and
deadlines?
• Do we understand the dynamics of industry to determine whether our acquisition

requirements can be met, given potentially competing pressures in other sectors of the
economy?
8. Lack of effective project team integration between clients, the supplier team and the
supply chain.
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• Has a market evaluation been undertaken to test market responsiveness to the requirements
being sought?
• Are the procurement routes that allow integration of the project team being used?
• Is there early supplier involvement to help determine and validate what outputs and outcomes
are sought for the project?
• Has a shared risk register been established?
• Have arrangements tor sharing efficiency gains throughout the supply team been established?
Finally if the answers to the above questions are unsatisfactory, projects should not be allowed to
proceed until the appropriate assurances are obtained.
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Chapter – 3
Findings of the Study
3.00 Findings of the Report: -
• Project appraisal & management both analyses based in term of cost and time but in
Bangladesh most projects can’t maintain cost & time matters properly in the particular
project.
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• In Bangladesh some appraisal are adequate for such project but unable to analysis in-
depth because of dependable data.
• Project appraisal need estimate some significant forecast about cost function of the
project but in most case accurate estimates not possible for necessary data that’s why
no true picture could be found.
• If the necessary data are available, then the findings of the data are not properly
applied
• In most case, the people who handle the project have no idea and not adequate for the
project, ultimately project is misled.
• In some project where the project leader is selected accurately but the project team
member not coordinate properly.
• Finally all the projects that have the following problem may abandon the project &
some case they need huge fund to solve the project problem or reinvestment in the
project.
42

A Critical Analysis On The Project Appraisal & Management of Project in Bangladesh

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A Critical Analysis On The Project Appraisal & Management Of Project In

The Project Appraisal & Management Of Project In Bangladesh

The Project Appraisal & Management Of Project In Bangladesh”

Md. Zakir Hossain

Stamford University Bangladesh

Course: Project Management

Md. Ashiqur Rahman Chy ID: MBA 041 11 345

Neshat Marjiya ID: MBA 041 11 346

Md. Ajaj Mahmud ID: MBA 042 11 553

Submission: 14TH August, 2010

Stamford University Bangladesh

Md. Zakir Hossain

Subject: Submission of Assignment on “A Critical Analysis on the Project Appraisal &

All the member

Department of Business Administration

All the Member

Department of Business Administration

Stamford University Bangladesh

Origin of the Report: -

Objective of the Study: -

To prepare the report, we have collected the data in two ways-

The following limitations are apparent in collecting

Chapter 1 Literature Review

1.0 Definition of Project 3

2.0 Critical Examination of Project Risk Analysis 16-17

2.0 Feasibility Analysis of the Projects 18-19

2.0 Project Appraisal Using Discounted Cash Flow 20

2.0 Problems Threaten to Project Success 21-23

2.0 Criteria for the Evaluation of Project Success 24

2.0 Project Appraisal under Inflationary Condition 25-26

2.0 Common Causes of Project Failure in Bangladesh 27-31

Chapter 3 Finding of the

1.01 Definition of Project: -

• A set of well defined activities, clear cut beginning and end

• A scientifically evolved work plan

1.02 Definition of Project Appraisal: -

• It is a capital investment decision

• It has long term effects

• Decision once taken is irreversible

• Expenditures are high

1.03 Definition of Project management: -

1.04 Role of Project Appraisal: -

Project appraisal helps a partnership’s management to: -

Appraisal justifies spending money on a project

Appraisal is an important decision making tool

• Will help a partnership achieve its objectives for its area

Appraisal lays the foundations for delivery

1.05 Methodology of Project Appraisal: -

The techniques of project appraisal can be divided under two heads:-

Non-discounted techniques include

A. Payback period, and

B. Profit & Loss account.

A. Net Present Value (NPV),

B. Benefit Cost Ratio (BCR),

C. Internal Rate of Return (IRR)

D. Sensitivity Analysis (treatment of uncertainty) and

E. Domestic Resource Cost (Modified Bruno Ratio).

1.06 Necessary to Conduct Project Management Appraisal (PMA): -

A project management appraisal should be viewed as a useful, constructive and necessary

• Decisions may be being unduly biased by contractual commitments already in existence,

• Decisions may be similarly biased unduly by corporate policy

• Short term political expediency may be overwhelming (Crisis management)