10.4 Project Management
Effective project management is essential for the successful delivery of any project, especially in complex environments. This section covers key elements such as project information systems, risk analysis, project financing, tender processes, and contract management.
1. Project Information Systems
A project information system (PIS) is a system designed to collect, store, process, and disseminate project-related data. It helps manage the flow of information throughout the project life cycle and supports decision-making by providing real-time data.
Components of a PIS:
Data Collection: Gathering data from various sources such as stakeholders, project teams, and external systems.
Data Storage: Ensuring that data is stored securely and is easily accessible when needed.
Data Processing: Analyzing and processing data to derive meaningful insights.
Data Dissemination: Distributing the right information to the right stakeholders at the right time.
Types of Project Information Systems:
Project Management Software: Tools like Microsoft Project, Primavera, or Asana used for planning, scheduling, and tracking project tasks.
Collaboration Tools: Platforms such as Slack, Microsoft Teams, or Trello for team communication and file sharing.
Financial Systems: Software to track project budgets, costs, and financial performance.
The Objective of PMIS (Project Management Information System) is to:
Centralize project data for easy access and management.
Improve communication and collaboration among stakeholders.
Track and monitor project performance against goals.
Facilitate informed decision-making with accurate data.
Manage and mitigate project risks effectively.
Optimize resource allocation and usage.
Ensure compliance with standards and quality control.
Support documentation, reporting, and auditing processes.
Evaluate project success for future improvement.
A robust project information system ensures that all team members and stakeholders are aligned with project goals and timelines.
2. Project Risk Analysis and Management
Risk is the possibility of an event or condition that may cause a negative impact on a project's objectives, such as cost, schedule, scope, or quality. It arises from uncertainty and can result in adverse effects if not managed or mitigated. Risks can be internal (e.g., resource shortages) or external (e.g., market changes).
Source of Risk:
Management Risks: Inadequate planning, poor communication, or lack of leadership.
Financial Risks: Budget overruns, funding shortages, or financial market fluctuations.
External Risks: Changes in regulations, political instability, or natural disasters.
Human Resource Risks: Staff turnover, skill gaps, or team dynamics issues.
Technical Risks: Unforeseen challenges with technology, tools, or systems.
Risk management is crucial for anticipating potential problems that may arise during the project and planning how to address them. It involves the identification, assessment, and mitigation of risks.
Risk Management Process:
Risk Identification: Identifying potential risks that could affect the project’s success. Common risks include budget overruns, schedule delays, technical challenges, and resource shortages.
Risk Assessment: Analyzing the likelihood and potential impact of each identified risk. Risks are often prioritized based on their severity.
Qualitative Analysis: Assessing risks in subjective terms (e.g., low, medium, high).
Quantitative Analysis: Assigning numerical values to the likelihood and impact of risks (e.g., a 30% chance of occurring with a cost impact of $10,000).
Risk Mitigation: Developing strategies to minimize or eliminate risks. This might involve:
Tolerate: Accepting the risk without taking any action. This approach is often used when the risk is minimal or the cost of mitigating it is higher than the potential impact.
Treat: Implementing measures to reduce or control the risk. This involves putting actions in place to minimize the likelihood or impact of the risk occurring.
Transfer: Shifting the risk to another party, such as through insurance or outsourcing. This reduces the impact on the project or organization by making another party responsible for managing the risk.
Terminate: Eliminating the risk by avoiding the activity or situation that causes the risk. This may involve changing project plans or strategies to ensure the risk is no longer present.
Risk Monitoring and Control: Continuously monitoring identified risks and emerging risks during the project to ensure that mitigation measures are effective and adjust strategies as needed.
Tools for Risk Management:
Risk Matrix: A chart used to assess and prioritize risks based on their likelihood and impact(severity).
SWOT Analysis: Identifying Strengths, Weaknesses, Opportunities, and Threats related to the project.
Monte Carlo Simulation: A computational algorithm used to assess the probability of different outcomes in uncertain environments.
3. Project Financing
Project financing refers to the methods used to fund a project, including obtaining capital, managing costs, and ensuring financial stability throughout the project life cycle.
Sources of Project Financing:
Equity Financing: Raising funds through the sale of shares in the project or company.
Debt Financing: Borrowing money through loans, bonds, or other financial instruments.
Grants and Subsidies: Obtaining funds from government agencies or non-profit organizations, often for specific types of projects (e.g., research and development).
Overdrafts: Short-term borrowing facility provided by banks, allowing businesses to withdraw more money than is available in their account.
Sales and Leaseback: Selling an asset and leasing it back from the buyer, providing liquidity while retaining the use of the asset.
Debentures: Long-term debt instruments issued by a company, usually unsecured, to raise capital from investors.
Public-Private Partnerships (PPP): Collaboration between government and private companies to fund large infrastructure projects.
Retained Profits: Using the company's own accumulated profits for reinvestment into projects or expansion.
Venture Capital: Funding provided by investors to startups or small businesses with high growth potential, often in exchange for equity.
Business Angels: Wealthy individuals who provide capital to startups or early-stage companies in exchange for equity or debt.
Financing Methods:
Project Budgeting: Estimating the total cost of the project, breaking it down into phases and tasks.
Cost Tracking and Control: Monitoring spending throughout the project and making adjustments to ensure the project stays within budget.
Cash Flow Management: Ensuring that the project has enough liquidity to pay for ongoing expenses.
Financial Risk Management: Identifying and mitigating financial risks such as currency fluctuations, interest rate changes, or credit risks.
Capital Budgeting Decision:
Capital budgeting decisions refer to the process of evaluating and selecting long-term investment projects or expenditures that will affect the financial future of an organization. These decisions are crucial because they involve substantial financial commitments and can impact the company's growth and profitability.
Key Points of Capital Budgeting Decisions:
Investment Appraisal: Evaluating potential investments by analyzing the expected costs and returns over time.
Techniques Used in Capital Budgeting:
Net Present Value (NPV): The difference between the present value of cash inflows and outflows over the investment's life.
Internal Rate of Return (IRR): The discount rate that makes the NPV of an investment equal to zero, representing the project's rate of return.
Payback Period: The time it takes for an investment to recover its initial cost from its cash inflows.
Profitability Index (PI): The ratio of the present value of cash inflows to the initial investment.
Discounted Payback Period: A variation of the payback period that accounts for the time value of money.
Risk Consideration: Identifying and assessing risks associated with the investment, including market, financial, and operational risks.
Long-Term Impact: Capital budgeting decisions often involve projects that will affect a company for several years, requiring careful analysis of future cash flows, profitability, and strategic alignment.
Resource Allocation: Ensuring the best use of limited financial resources by prioritizing projects with the highest potential returns and alignment with organizational goals.
4. Procurement
Procurement refers to the process of acquiring goods, services, or works from external sources through various methods and procedures, usually involving competitive bidding. It is a critical aspect of project management and is aimed at ensuring that the required resources are obtained in a cost-effective, timely, and transparent manner.
Method of Work Execution in Public Procurement
In public procurement, different methods are applied based on the nature, urgency, and size of the required goods, services, or works. Below are the commonly used methods:
Direct Procurement
Description: This method allows the procurement of goods, services, or works directly from contractors who are already on the entity's standing list. It bypasses the need for competitive bidding, simplifying the process and saving time.
Limits:
Goods and Works: Up to Rs. 10 lakh.
Consulting Services: Up to Rs. 5 lakh.
When to Use: Suitable for smaller procurements or when time constraints prevent a formal bidding process.
Sealed Quotation
Description: This method involves inviting sealed quotations from interested suppliers or contractors for goods, services, or works. It is typically used for relatively smaller procurements. Suppliers submit their quotations in sealed envelopes, ensuring confidentiality until the opening stage.
Limit: Up to Rs. 20 lakh.
Process:
A notice for the sealed quotation must be published in a national newspaper.
The notice period is at least 15 days, allowing sufficient time for suppliers to prepare their bids.
When to Use: Appropriate for situations requiring multiple quotes but where formal tendering is not needed.
National Competitive Bidding
Description: This method is used for larger procurement needs, typically for projects valued between Rs. 20 lakh and Rs. 5 billion. It includes various tendering approaches such as shopping, buy-back, limited tendering, and lump sum methods.
Limit: Rs. 20 lakh to Rs. 5 billion.
Process:
A notice must be published in a national newspaper to invite bids.
A notice period of at least 30 days is required, ensuring enough time for potential bidders to respond.
When to Use: Suitable for medium to large projects where multiple suppliers are needed to encourage competition.
International Competitive Bidding
Description: This method is typically used for large-scale projects with a value above Rs. 5 billion, ensuring global competition and the best value for the project. It invites international suppliers or contractors to bid, increasing the pool of potential candidates.
Limit: Above Rs. 5 billion.
Process:
For projects with an estimated value between Rs. 5 billion and Rs. 10 billion, at least 25% of the work must be undertaken by domestic contractors to promote local involvement.
A 5% domestic preference is provided, meaning if a domestic contractor is part of a joint venture, the contract can be awarded to that joint venture even if their bid exceeds the lowest bid by 5%.
The notice for international bidding must be published in both national and international English newspapers.
A notice period of at least 45 days is required to ensure transparency and ample time for international competitors to submit their bids.
When to Use: This method is suitable for very large, high-value projects requiring international expertise and competition.
Work through User's Committee A committee formed by the users or beneficiaries of the goods/services to handle procurement, ensuring their needs are met directly.
Cost Estimate Limit:
Up to Rs. 5 crore may be carried out or obtained from a user's committee.
Rs. 5 crore for co-operatives.
Rs. 1 crore for normal user's committees.
Scope of Work: This method is typically used for labor-intensive works. Projects that involve heavy equipment or require large machinery are excluded from being carried out through the user's committee. Only works that can be managed with manual labor are eligible under this procedure.
When to Use:
Suitable for projects with lower budgets and those that do not require specialized equipment.
Can be used for community-based, smaller-scale development works or projects involving local groups like co-operatives or community committees.
Emergency Procurement Used for immediate procurement in unforeseen emergency situations, such as natural disasters or urgent requirements.
Nongovernmental Organization (NGO) NGOs are involved in procurement activities, typically in development and humanitarian projects, with rules suited for their specific needs.
Force Account Involves using the organization's own resources and labor to execute works, often used for small or specialized projects.
Sealed Quotation A competitive bidding process where quotations are submitted in sealed envelopes, typically used for smaller procurement needs.
National Bid Competitive bidding open only to national suppliers or contractors, often used for local projects or where only national expertise is required.
International Bid Open competitive bidding involving international suppliers, typically for large-scale projects or those requiring expertise or resources not available domestically.
Catalogue Shopping Procurement done by selecting goods or services from pre-approved catalogs, often used for fixed-price items.
Buy Back Method A procurement method where the contractor or supplier is required to buy back existing equipment, products, or services as part of the deal.
Limited Tendering A competitive bidding process where only selected, qualified suppliers are invited to submit tenders, ensuring specific expertise or quality.
Lump Sum Method A method where a fixed price is agreed upon for completing a specified scope of work, commonly used in construction and large projects.
PPMO (Public Procurement Monitoring Office)
The Public Procurement Monitoring Office (PPMO) is an important governmental body responsible for overseeing public procurement activities in Nepal. Its key functions include ensuring transparency, accountability, and efficiency in the procurement process, as well as monitoring and evaluating procurement procedures to comply with relevant laws and regulations.
Key Roles and Responsibilities of PPMO:
Monitoring and Oversight: PPMO monitors the public procurement process, ensuring that it adheres to legal and regulatory requirements.
Regulation Enforcement: Enforces rules and policies related to public procurement and ensures that procurement is conducted fairly, transparently, and with due diligence.
Capacity Building: Provides training, guidelines, and support to government entities and procurement professionals to improve procurement practices.
Complaint Handling: Handles complaints and grievances related to procurement processes and resolves disputes when necessary.
Audit and Evaluation: Conducts audits and evaluates procurement projects to ensure that they meet the set standards and provide value for money.
Research and Reporting: Conducts research on procurement trends and challenges and publishes reports to inform and guide future procurement activities.
PPMO's primary goal is to streamline public procurement in Nepal to prevent corruption, inefficiency, and delays while ensuring that public funds are spent effectively.
5. Tendering Process
Tendering is the formal process of inviting and evaluating bids from suppliers or contractors to provide goods, services, or labor for the project. The tendering process ensures transparency, competitiveness, and fairness in project procurement.
Tendering comes into play during the procurement process when an organization needs to acquire goods, services, or works through a competitive process (e.g., National Competitive Bidding, International Competitive Bidding, or sealed quotations).
Procurement can include tendering as one of the methods for sourcing, but procurement can also occur without formal tendering in cases of direct purchase or when the total value of the goods or services is low.
Tendering Process Steps:
Preparation of Tender Documents: Detailed documents outlining the project requirements, terms, conditions, and selection criteria.
Invitation to Tender (ITT): Issuing the invitation to potential suppliers or contractors to submit bids for the project.
Bid Submission: Interested suppliers submit their proposals, including technical specifications, pricing, and timelines.
Rs 3000 voucher for the project having budget i.e. under 2 crores
Rs 5000 voucher for the project having budget i.e. over 2 crores
Bid Evaluation: Reviewing and comparing the bids based on criteria such as cost, technical capability, experience, and compliance with project requirements.
Contract Award(Letter of Intent): Selecting the winning bid and awarding the contract to the chosen supplier or contractor.
Contract Negotiation: Finalizing terms and conditions, and ensuring both parties are aligned on expectations.
Types of Tenders:
Open Tendering: Any qualified contractor can submit a bid.
Selective Tendering: Only selected contractors are invited to bid.
Negotiated Tendering: Direct negotiations with a contractor, often used when only one party is capable of completing the work.
Details of Tender Notice:
A tender notice typically includes the following details in short:
Name of the authority publishing the notice: The organization or entity inviting bids.
First date of publication: The date when the tender notice is first published.
Brief description of the job: A summary of the work or services to be performed under the contract.
Date, time, and place for tender document availability and submission: When and where the tender documents can be obtained and submitted.
Cost of the tender document: The price required to purchase the tender documents.
Cost estimate (optional for works under 2 crore): The estimated cost of the project or work.
Date, time, and place of bid opening: When and where the bids will be opened.
Earnest money and security deposit amount: The required financial guarantee (earnest money) and the performance security deposit amount.
Expected date of acceptance of successful bids: The anticipated date when the contract award decision will be made.
Bid Security & Its Validity
The bid security (the amount required from bidders to guarantee their participation in the tender process) for projects with an estimated cost up to 2 Crores should be 2-3% of the estimated project cost.
NCB: Bid document validity = 90 days, Bid security validity = 120 days.
ICB: Bid document validity = 120 days, Bid security validity = 150 days.
Performance Security
The performance security is a financial guarantee required from the winning bidder to ensure that they will fulfill the terms of the contract if awarded. The value of the performance security is calculated based on the bid price and the cost estimate.
If the bid amount is within 85% of the cost estimate:
Performance Security = 5% of Bid Amount
This means if the bid amount is at or below 85% of the cost estimate, then the performance security will be 5% of the actual bid price.
If the bid amount is above 85% of the cost estimate:
Performance Security = 5% of Bid Price + (0.85 * Cost Estimate) * 0.5
This means if the bid amount exceeds 85% of the cost estimate, the performance security will be a combination of:
5% of the actual bid price
An additional calculation: 0.85 of the cost estimate, multiplied by 0.5.
6. Contract Management
A contract is defined as an agreement concluded between two or more parties for performing or not performing any work. It is legally binding and enforceable.
Elements of a Contract:
Two or more competent parties: All parties involved must be legally capable of entering into the contract.
Offer and acceptance: One party makes an offer, and the other party accepts it.
Intention of creating legal relations: Both parties must intend to be legally bound by the contract.
Free consent: The agreement must be made voluntarily, without coercion, undue influence, or misrepresentation.
Lawful purpose: The objective of the contract must be legal.
Possibility of performance: The terms of the contract must be capable of being performed.
Written and registration: In certain cases, the contract must be written and registered to be valid (e.g., property transactions).
Contract management involves overseeing and managing all aspects of the contract between the project team and the supplier, contractor, or client. It ensures that the contract is executed as agreed upon and resolves any issues that arise during the project.
Key Steps in Contract Management:
Contract Formation: The creation of a legally binding agreement that outlines the roles, responsibilities, terms, and conditions of all parties involved.
Contract Execution: Managing the performance of the contract by ensuring that both parties meet their obligations.
Change Management: Handling any modifications or amendments to the contract, often due to unforeseen circumstances or scope changes.
Dispute Resolution: Addressing conflicts between parties, whether through negotiation, mediation, or legal action.
Contract Closure: Finalizing the contract after the project is completed, ensuring all terms and conditions are met, and that all deliverables are accepted.
Types of Contracts:
Fixed-Price Contracts: The price is agreed upon upfront and remains the same throughout the contract.
Cost-Plus Contracts: The client reimburses(repay) the contractor for actual costs plus an additional fee.
Time and Materials Contracts: Payment is based on the actual time spent and materials used.
Incentive Contracts: Contractors are rewarded for completing the project ahead of schedule or under budget.
Pre-Qualification & Post-Qualification
Pre-qualification is a process used to shortlist eligible bidders before the bidding process, ensuring only competent contractors participate, thus avoiding overcrowding.
Key Criteria for Pre-Qualification:
Experience: Past performance on similar contracts.
Capabilities: Availability of skilled personnel, equipment, and facilities for construction or manufacturing.
Financial Position: Financial stability and capacity of the bidder.
Litigation History: A review of the bidder’s history in legal disputes.
Note:
Pre-qualification is not required for projects with an estimated cost below Rs. 20 million (Rs. 2 crore).
Post-qualification allows all eligible bidders to participate in the bidding process. It may involve:
Single Envelope System: Includes only the financial proposal.
Double Envelope System: Includes both the financial and technical proposals in separate envelopes.
Technical Shortlist:
Shortlist bidders based on technical proposals.
Award the contract to the lowest bidder among those shortlisted. (This is the most common method in Nepal.)
Lowest Bidder First:
Evaluate the lowest financial bid.
If the technical proposal is satisfactory, award the contract.
If not, evaluate the next lowest bidder's technical proposal.
Weighted Evaluation:
Assign weights to both financial and technical proposals.
Award the contract to the bidder with the highest overall score.
Here also if the Project Budget is under 2 crores, then there is no Pre-Qualification process happen.
Conclusion
Project management encompasses a wide range of activities and skills necessary for the successful completion of a project. The effective use of project information systems, thorough risk analysis, proper project financing, careful handling of the tendering process, and strong contract management are essential for ensuring that a project is completed on time, within budget, and to the satisfaction of stakeholders. Managing these aspects effectively contributes to the overall success and sustainability of the project.
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