Project and Project Management Fundamentals
Project: Definition and Management
A project is a plan or provision that is formed for a treaty, or the execution of something of importance, outlining and extending all the circumstances to be met for its achievement. For example, Wikipedia is a company that has planned a set of activities that are interrelated and coordinated. Project management is the application of knowledge, skills, tools, and techniques to project activities to meet project requirements. A project is a response to an idea that seeks to solve a problem (replacement of obsolete technology, abandonment of a product line) or how to exploit a business opportunity.
Preparing a Project
- Determine the extent of investments, operating costs, and benefits.
- Evaluate the project; in other words, measure the return on investment.
Both stages constitute what is known as pre-investment.
Reasons a Project Becomes Unviable or Fails
- Changes in the political context generate qualitative and quantitative changes in ongoing projects.
- Changes in international trade relations (e.g., Free Trade Agreements).
- Unstable natural conditions (e.g., eruptions and earthquakes).
- Legal regulations (e.g., tax policy or labor laws).
- Socio-cultural changes.
The set of justificatory background, through which the advantages and disadvantages of allocating resources to an idea or a given target are set out, is called Project Evaluation.
Types of Projects
Objective Purpose of the Study
- Studies to measure the profitability of the project, i.e., the total investment, regardless of where the funds come from.
- Studies to measure the return on equity invested in the project.
- Studies to measure the project’s own capacity to meet the payment commitments assumed in a potential debt or its performance.
Depending on the Purpose or Object of the Investment
- Projects that seek to create new businesses: In this case, the evaluation will focus on identifying all the costs and benefits directly associated with the investment.
- Projects that seek to evaluate a change, improvement, or modernization of an existing business: These will consider only those relevant to the decision to be taken.
A project is done on a timeline over which the behavior of prices, availability of inputs, technological advancement, changes in demand, evolution and behavior of competition, changes in economic policy, and other environment variables are simulated. But so great is the number of variables affecting a project that this fact alone makes it impossible for two specialists to agree. The clear definition of what the aim is in the evaluation is a key element to take into account for the correct selection of the evaluative criterion.
An underground railway may not be attractive to a private investor with a profit objective, but socially it could be very profitable as the community would be positively affected by the allocation of resources, using a criterion that gives priority to social benefits.
Social Project Evaluation
Social project evaluation compares the benefits and costs that a particular investment might have on the community of a country as a whole. There is not always a project that is profitable for an individual that is also profitable for the community.
The criteria used for evaluating both private and social projects are similar but differ in the assessment of variables determining costs and benefits associated. The private evaluation criterion works with market prices, while social assessment does so with social or shadow prices. The latter takes into account indirect effects and externalities generated on the welfare of the community.