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Project Design, Management and Evaluation Transport Development
and Investment Policies
Mathematics, Operations Research, Statistics and Information
System for Management ( MOSI ) Vrije Universiteit Brussel,
Etterbeek Campus, Pleinlaan-2, 1050, Brussels Dr Faruque Mirza
Scientific Collaborator ( MOSI ) Brussels, 23rd March , 2008
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Contents Foreword i List of table ii List of figures iii List of
annexes iv List of glossary v Appendixes vi
Part I Project design, Management and Evaluation 1 Introduction
page 1 1.1 Brief history of project page 2 2 Analytical structure
of project design, management and evaluation page 3 2.1 Origination
of project page 3 3 Organisation of management team page 9 3.1
Project designing page 10 3.2 Project programming phase page 12 3.3
project formulation phase page 13 3.4 Logical framework analysis (
LFA ) page 14 3.5 Systems Functional Analysis ( SFA page 17 3.6
Goal achievement analysis ( GAA ) page 18 3.7 Testing validity of
project page 19 3.8 Economic Analysis page 21 3.9 Financial
Appraisal page 22 3.10 Sensitivity Analysis of Risk Management (
SARM ) page 24
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3.11 Decision making process page 27 3.12 Works breakdown
structure page 28 3.13 Budget page 31 3.14 Funding page 31 3.15
Project implementation phase: page 31 3.16 Project Evaluation phase
page 32 3.17 Project termination phase page 37 4 Relevance of
project proposal page 38 Part II
Transport Management Training of Functional Managers ( TMTFM ):
A transport developmental project for Bangladesh 4. Description of
project ( TMTFM ) page 40 4.1 Need and priority of project page 40
4.2 Project programming process page 42 4.3 Project implementation
process page 43 4.3.1 Project committee page 45 4.3.2 The
curriculum of the training programme page 46 4.3.3 Nomenclature of
the degree page 45 4.3.4 Selection of trainees page 48 4.3. 4.1
Primary selection of trainees page 48 4.3.4. 2 Final selection of
trainees page 48 4.3.5 Selection of teaching staff for the partner
page 49 universities
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4.3.6 Distribution of teaching hours for partner universities
page 50 4.3.7 Distribution of teaching hours for selected teaching
staff of the page 51 partner universities 4.3.8 Conducting the
training programme page 53 4.3.9 Organising seminar page 53 4.3.10
Selection of supervisor to help trainees to prepare a thesis page
54 4.3.11 Arrangement of examination for the trainees page 54
4.3.12 Declare results of examination page 54 4.3.13 Conferring
upon degrees to the successful trainees page 54 4.3.14 Assumptions
page 54 4.3.15 Preparation of budget page 55 4.3.16 Economic
analysis page 55 4.3.17 Financial appraisal page 56 4.3.18
Sensitivity analysis for risk management ( SARM ) page 56 4.3.19
Finding page 56 4.3.20 Recommendation page 59 4.3.21 Arrangement of
funding page 59 5 Methods and Techniques used to estimate total
intangible page 89 costs and benefits of the proposed project (
TMTFM) 6 Measurement of performance of transport system page 94 7
Efficient management of transport system and its impact page 96 on
country’s economy
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Foreword i
This monograph is intended to focus on how a project can be
designed to achieve its set
objectives within a timeframe and budget constraint. In order to
accomplish that, an analytical
framework has been developed to give a clear understanding on
project design, management and
evaluation by integrating analyses of various relevant
attributes and methodologies.
In the first part , theoretical aspect is discussed about how a
project concept and various phases of
implementation, from programming to post-evolution and auditing
phases, can be developed,
analysed and inter-linked in a consistent and coherent manner.
In order to achieve that, various
tools and techniques have been developed and applied to lead the
analyses into right perspectives.
A synergetic approach has been followed to analyse the
theoretical validity of project (i.e. System
functional analysis, goal achievement analysis, economic
analysis, financial analysis and sensitivity
analysis of risk management).
The sensitivity analysis of risk management (SARM) has been
developed and treated to make sure
that the project is economically- viable and sustainable. An
analytical framework to apply SARM has
been demonstrated in a simple excel format, so that a
non-technical functional manager is able to
understand and apply this sophisticated tool to considerably
reduce economic and financial risks in
designing a project
In the second part, framework of a transport developmental
project has been designed to
demonstrate how the trained functional managers can play an
important role to enhance the
management and operational efficiencies of a transport system
and to positively contribute to the
country’s economic development. I am sure that this monograph is
able to provide useful
guidelines, as much for the students studying in project design,
management and evaluation ,as for
the functional managers designing, implementing and managing
projects in their own fields of
activities.
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List of table ii Table: 2.1.c.1 Attributable elements of project
concept in a hypothetical situation page 6 Table: 3.6.1 Selected
goals for improving functional efficiency of a page 18 transport
system Table: 3.11.1 Project owner’s decision- making threshold
page 27 Table: 3.12.1 Works breakdown structure reflecting codified
tasks performed in specific sub-system page 28 Table: 3.12.2
Codified tasks in works breakdown structure (WBS) page 30 Table:
3.16.2 Framework for mid-term evaluation of project page 34 Table:
3.16.3 Structure for post- evaluation of transport project page
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Table: 4.3.2.1. Selected primary course for Transport Management
Training of page 46 Functional Manager Table: 4.3.2.2 Selected core
course for Transport Management Training page 47 of Functional
Manager Table: 4.3.4.1.1 Number of trainees to be selected under
the primary selection process page 48 Table: 4.3.4.2.1 Number of
trainees to be selected under the final selection process page 49
Table: 4.3.5.1 Number of teaching staff to be selected from partner
universities page 49 Table: 4.3.6.1 Distribution of teaching hours
for partner universities page 50 Table: 4.3.7.1 Distributed
teaching hours for professors of partner universities page 52
Table: 4.3.18.1 Sensitivity Analysis of Risk Management on
Transport Management Training of Functional Manager by five page 57
parameters in scenarios under the dynamic-comparative setting
Table: 4.3.18.2 Project owner’s decision making threshold under
page 58 dynamic-comparative setting Table: 4.3.23.1 Procedure for
measuring performance of transport system page 96
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List of figure iii Figure: 2.1 Origination of project page 3
Figure: 2.1.1 Structure of project concept page 5 Figure : 3.1
Project management structure page 10 Figure: 3.1.1 Structure of
project design page 11 Figure: 3.2.1 Analytical structure for
project programming page 12 Figure: 3.3.1 Structure of project
formulation page 14 Figure: 3.4.1 Analytical Structure of Logical
framework Approach ( LFA ) page 15 Figure : 3.4.2 Logical Framework
Matrix page 16 Figure: 3.5.1 Inter-relationship of system’s three
internal subsystems page 17 Figure 3.7.1 Analytical structure for
testing validity of transport project page 19 Figure: 3.7.2
Synergetic relationship between goal achievement analysis (GAA) and
system functional analysis (SFA) and performance of transport
system page 20 Figure: 3.10.1 Sensitivity analysis of risk
management ( SARM ) page 26 Figure: 3.15.1 Structure for project
implementation page 32 Figure: 3.16.1 Structure for project
evaluation page 33 Figure: 3.17.1 Structure for project termination
page 37 Figure: 4.3.1.1 Structure of project committee page 45
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List of annex iv Annex: 3.4.1 Logical framework Matrix of
Transport Management Training page 60 for Functional Managers (
TMTPFM ) Annex: 3.15.1 Milestone of the Transport management
Training page 61 for Functional managers ( TMTPFM ) Annex: 3.13.2
Budget of Transport Management training page 64 for Functional
managers ( TMTFM ) Annex: 4.13.18.1 Sensitivity Analysis of Risk
Management for Transport page 84 Management Training of Functional
Managers ( TMTFM ) by discounting 10% of PVIF under static-
Comparative setting. Annex: 4.13.18.2 Sensitivity Analysis of Risk
Management for Transport page 85 Management Training of Functional
Managers ( TMTF ) by discounting 12% of PVIF under static-
Comparative setting. Annex: 4.13.18.3 Sensitivity Analysis of Risk
Management for Transport page 85 Management Training of Functional
Managers ( TMTFM ) by discounting 13% of PVIF under static-
comparative setting. Annex: 4.13.18.4 Sensitivity Analysis for Risk
Management of Transport page 86 Management Training for Functional
Managers ( TMTFM ) by discounting 14% of PVIF under static-
comparative setting. Annex: 4.13.18.5 Sensitivity Analysis of Risk
Management for Transport page 86 Management Training for Functional
Managers ( TMTFM ) by discounting 15% of PVIF under static-
comparative setting. Annex: 4.13.18.6 Sensitivity Analysis of Risk
Management for Transport Management Training of Functional Manager
page 87 ( TMTFM ) by changing five parameters at different rates
under the dynamic- Comparative Setting Annex: 4.13.18.7 Decision –
making options under project acceptance thresh-hold ratio (PATR)
page 88
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List of glossary v ADB = Asian development Ban ACDCT= Additional
cost for delayed completion of tasks AIROR = Average industrial
rate of return BYOVIF =Base year operating vehicle in the fleet
BAVIF = Base year available vehicle in the fleet BYHT = Base year
haulage of traffic BYOR = Base year operating revenue BYOC = Base
year operating cost CYOVIF = Compared years operating vehicles in
the fleet CYAVIF = Compared years available vehicle in the fleet
CYHT = Compare years haulage of traffic CYOC = Compared year’s
operating cost DD0 = domestic production of goods DS0 = Domestic
supply of goods EU = European Union EC = European Commission EA =
Economic Analysis FA = Financial Appraisal FSS = Financial
sub-system GAA = Goal achievement analysis IRR = Internal rate of
return LFA = Logical framework analysis
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LFM = Logical framework Matrix NPV = Net present value method
OSS = Operational sub-system OCOC = opportunity cost of capital
OETB = Over-estimation of total benefit PI = Profitability index
PATR = Project Acceptance Thresh-hold Ratio PBP = Payback period
PCM = Project cycle management PVIF = Present Value Interest Factor
RP = Rate of charge and price trade off line for export goods R1P1
= Rate of charge and price trade off line SFA = System functional
analysis SARM = Sensitivity analysis of risk management TMTFM =
Transport management training for functional managers NPV = Net
Present Value TSS = Technical sub-system UETC = Under-estimation of
total costs WB = World Bank WD0 = World demand of export goods WS0
= World supply of export goods WDI = world demand of import goods
WSI = world supply of import goods WDIG = World demand of import
goods WSIG = World supply of import goods
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Appendix vi Appendix: 5.1 Estimation of intangible costs for
transport development project page 89 Appendix: 5.2 Estimation of
lost hours for the implementation of the TMTFM page 90 Appendix:
5.3 Estimation of intangible benefits for the TMTFM page 91
Appendix:5.4 Estimated Total tangible costs of the TMTFM page 92
Appendix: 5.5 Estimated total intangible costs of the TMTPFM page
93 Appendix: 5.6 Total estimated revenue of the selected modes of
transport in page 94 Bangladesh Appendix: 5.7 Estimated total
intangible benefits of the TMTFM page 95 Appendix: 5.8 Estimated
total benefits of the TMTFM page 96 Appendix: 6.1 Measurement of
performance for transport system page 98 Appendix: 7.1 Rate of
charge and price trade off line page 99 Appendix : 7.2 World demand
of importable goods page 99 Appendix : 7.3 Production of export
goods page 99 Appendix : 7.4 Rate of charge and price trade of line
page 101 Appendix : 7.5 World demand of importable goods page 101
Appendix : 7.6 World supply of import goods page 101
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Part I Project design, Management and Evaluation 1 Introduction
A project is to be seen as planned activities to achieve set
objectives within a timeframe and budget constraint. To design
framework of a project, a scientific structure is to be developed,
so that an integrated analyses can be made on its theoretical,
economic and financial aspects. In this paper, a synergetic
approach of analyses has been followed to develop the framework of
a project. The framework of project is made up of development of
concept, identification of needs, programming, formulation,
implementation, evaluation and auditing. In order to undertake a
project, an initiator needs to become certain that the investable
funds is able to provide sustainable economic benefits. The
initiator can enhance the possibility to derive that by evaluating
the project in terms of theoretical, economic ,financial and risk
management analyses. A project is economically- viable and
sustainable only if that is able to produce the estimated results
as expected over time. A project initiator needs to be ensured that
the economic return from the invested funds will more than exceed
the incurred costs. Unless a project is able to pay back more than
the invested funds, investing funds in that undertaking is not
economically viable and sustainable, as the economic gains foregone
by not investing the same funds elsewhere in the economy is not
compensated. In such case, the project is seen as an uneconomic
undertaking. A project needs to be framed basing on scientific
analyses of relevant attribute, so that the estimated results is
produced and missing opportunity of economic gains largely avoided.
When a project is scientifically structured, there is an increased
possibility that the project is rightly implemented. Therefore, the
project initiator should trade off between judging the necessity of
undertaking a project and its cost-effectiveness while investing
the funds in a particular area of interest. Qualifying a project on
project acceptance thresh-hold ratio (i.e. profitability index over
industrial average rate of return) is to be considered as a
realistic approach for undertaking a project. To design a project,
an in-depth analyses needs to be undertaken on various relevant
issues to ascertain if that is able to achieve zero or negative
opportunity cost of capital on the investable funds. One can invest
funds in a project on economic justification where the
profitability index ( PI ) at least equals or exceeds the
industrial average rate of return ( IAROR ) where the funds is to
be invested. The value obtained by dividing the profitability index
of the investable funds with average industrial rate of return
indicates the degree of acceptability of a project; and that is
defined as project acceptance threshold ratio (PATR). The project
acceptance threshold ratio (PATR) can be found out from synergetic
analyses of the following relevant attributes, such as: system
functional analysis, economic analysis , financial analysis and
sensitivity analysis of risk management. In the current monograph,
the author intends to demonstrate how a structured analysis on the
pertinent attributes and appropriate methodologies help design a
project proposal in a scientific way. As the least developed
countries suffer from acute shortages of economic resources, the
project designer needs to strictly follow the scientific procedure
to design projects . A great number of projects undertaken in the
LDCs are seen to have failed to achieve the set objectives due to
selecting inappropriate parameters and methodologies.
Unfortunately, decisions to undertake projects in a great majority
of LDCs are still being undertaken on social and political
relevance without following priority of needs, appropriate
procedures and methodologies; and that is undoubtedly increasing
the wastage of economic resources for those countries. In order to
improve the situation, initiatives need to be undertaken by project
initiators, development partners and governments to combine their
efforts to improve quality in project design, management and
evaluation. As currently presented, this monograph
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is intended to provide the state of art to design project
proposal, so that the economic wastage is greatly reduced in the
least developed countries as well as the highly developed ones.
1.1 Brief history of project The word project comes from the
Latin word “projector” which means – throwing something forwards.
In other words, this means that something takes place before
anything else is thrown in that place. It refers to planning of
doing some activities in the future. In the ordinary sense of the
term, a project means as a desire to accomplish some tasks in the
future. As in economics parlance, the demand of a consumer is not
an economic demand unless that is sufficiently backed by his
purchasing power. Therefore, designing the framework of a project
proposal needs to be considered in the light of that notion as its
implementation depends largely on the availability of the required
funds. In fact, the understanding of project remained obscured and
undefined until its various components were put into a framework
for analyses and explained sufficiently in an orderly manner.
However, that obscurity in understanding of project gradually
disappeared when several techniques in its design, management and
evaluations were developed and used during and after 1950s. In
fact, 1950s marked the beginning of the modern era of project
management. Prior to 1950s, projects were managed on a temporary
basis, using the Gantt chart and other informal techniques and
tools in the United States of America. At that time, the following
two mathematical scheduling models were developed and used as
technique to implement projects, such as: (i) Project Evaluation
and Review Technique ( PERT) which was developed by Booz-Allen
& Hamilton as part of contract for making Polaris Missile of
the US Navy under the Sub-Marine Programme by the Lockheed
Corporation and (ii) Critical Path Method (CPM) developed by the
DuPont Corporation and Remington Rand Corporation under a joint
venture for completing the scheduled tasks of plant maintenance
which has been refined and is still being used effectively by many
business enterprises in recent time. In order to develop a project
proposal, the following relevant elements need to be incorporated
in the analytic framework: (a) origination of project (b)
identification of need, (c) development of concept, (d) organizing
management of project programming, (e) formulation (f) development
of methodologies (g) economic analysis (h) financial analysis, (i)
assessment of risks,(j) implementation ( k) evaluation and (i)
auditing . The analyses of these elements are included in the
project cycle management (PCM). The activities which need to be
completed for the implementation of project, through programming to
evaluation, are defined, estimated, scheduled and included in the
works breakdown structure (WBS), so that no over-lapping and
disruption take place. In order to implement the project, the
initiator (i.e. individual or organization) needs to invest his
funds to complete the planned activities. Therefore, a project is
to be seen as completion of planned human activities to achieve the
set objectives within a timeframe and budget constraint; and that
essentially requires to be managed by an efficient management team.
2. Analytical structure of project design, management and
evaluation In order to frame a project proposal, what is required
is to develop an analytical structure, so that all the relevant
attributes can be defined, integrated and analysed to arrive on a
decision. In order to achieve that, a synergetic analyses of the
following pertinent elements need to undertaken as set out
below:
• Origination of project • Identification of need
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• Development of concept (i.e. identification of need in the
thematic area, specific area, priority of needs, location,
timeframe and finance )
• Organizing management of project. • Project designing (i.e.
Programming, formulation , testing validity, implementation,
evaluation
and auditing
• Project programming (i.e. defining objectives, specific
objective ,purpose and results, activities targets, beneficiaries
and assumptions )
• Project formulation ( i.e. analyses linkages in implementation
processes, using methodologies and tools )
• Testing validity of project (i.e. project formative evaluation
in the light of theoretical, economic ,financial and risk
management )
• Sensitivity Analysis of Risk Management • Decision-making
process: (i.e. acceptance or rejection of project ) • Project
implementation ( i.e. execution of planned and scheduled tasks to
achieve objectives in
a timeframe and budget constraint
• Project evaluation (i.e. formative evaluation to
post-evaluation through mid-term evaluation ) • Auditing (i.e.
scrutiny of project’s expenses relevant to the execution of the
scheduled tasks. 2.1. Origination of project The origination of a
project is based mainly on the following elements, such as: (a)
initiator (b) identification of needs , (c) development of concept
and ( d ) management team. In order to initiate a project, these
elements need to be found out and organised. An analytical
framework has been developed to mirror the origination of project
as shown below in figure: 2.1.1 Figure: 2.1.1 Origination of
project
Initiator
Source of finance
Identification of needs
Development of concept Formation of management organization
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(a) Initiator A project is not created per se, but that needs to
be planned, designed, organised and managed by an initiator. Funds
need to be created and put in place to implement the project by an
individual or a group of people. The person who undertakes a
project and invests funds is called the initiator. The initiator
takes the initial efforts to design and implement a project for
meeting his needs and find the necessary source of finance. An
initiator may be represented by a person or groups of persons and
organization and that depends on the type of the project (i.e.
individual, a commercial enterprise ,NGO, Government body). (b)
Identification of need
The identification of need is the most important element on
which basis an initiator finds out thematic and specific area and
initiates designing a project. As for example, the shortage of
capacity of air port, maritime port or road network in a country
raise the interests of the government to undertake projects for
creating new capacities to meet the demands of the general public.
Analogously, the increased growth of deceases and need for phasing
out old health-care facilities may lead the concerned authorities
(i.e. Ministry of health) to design projects to create new capacity
by building new hospitals and health-care centres in a particular
locality or region. Similarly, various academic training programmes
are developed to train human resources suiting to the needs of
various academic institutions (i.e. colleges, universities ,
private enterprises and government organisations ). Transport
Management Training for Functional Managers (TMTFM ) as set out in
the second part of the monograph is the one which can be used as
show-case model for framing a project proposal. ( c ) Development
of concept The concept of project needs to be developed before
structuring its analytical framework (i.e. programming to
auditing). Concept of project is developed by piecing together the
relevant attributes. When the relevant attributes are identified,
defined and included in the analytical framework, a well thought -
out concept, linking to a project, emerges. The initiator is able
to frame a realistic project only if a coherent concept can be
developed by him. A project concept is composed of the following
elements: (I) thematic area of interest ( ii ) specific area of
interests, (iii) ownership, (iv) location, ( v ) timeframe and (vi
) source of finance. The figure: 2.1.2.c is set out below
demonstrating a general structure to develop a project concept.
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Figure : 2.1.2 Structure of project concept All countries are
not self sufficient to fulfil ever-increasing needs of people. The
desire for consuming variety of products is rising faster among
people than the resources available under their disposal. As such,
the necessity for investing funds in different productive areas is
increasingly growing. In designing a realistic project, what is
necessary in the first place is, to identify a thematic area of
interest from which a specific area of interest can be identified,
prioritrised and included in the selection process. Usually, a
project initiator sets his priority after having identified the
area of his priority. Developing a project concept without
considering actual needs in an area of interest is considered as
wastage of time, economic resources and investment opportunities.
Because investing funds in that project ties up scarce economic
resources which can be invested gainfully in other alternative
productive areas. A project is to be considered as well thought out
if that is qualified considering on priority of need, economic
viability and sustainability. It is for that reason, the project
concept needs to be developed in line with the prioritrised needs
as explained above. The above analysis suggests that the
development of concept on the identification of needs is the
pre-requisite for framing a realistic project proposal (i.e.
thematic and specific areas ).Table: 2.1.1.2 depicts a format on
how a project concept can be developed.
Ownership
Location
Budget
Specific area of interest
Thematic area of interest
Development of Project concept
Timeframe
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Table: 2.1.1.2 Attributable elements of project concept in a
hypothetical situation
Thematic area of interest
Specific area of interest
Ownership characteristics
Location Timeframe Source of finance
Economic 1. Industry 2. Agriculture 3.Service 4. Trade 5.
Transport
1. Private type management 2. Public type management
Intra-state , inter-state and inter-continent
Duration ( i.e. beginning and ending )
Private organisations,
Social 1.Education 2.Health care 3.Sanitation 4.Poverty
reduction 5. Creation of public amenities
1. Private type management 2. Public type management
Intra-state , inter-state and inter-continent
Duration ( i.e. beginning and ending )
Government agencies
Political 1. Collaboration on security matters 2.Immigration
policy 3.Energy policy 4. Green house gas emission policy
2. Public type management
Intra-state , inter-state and inter-continent
Duration ( i.e. beginning and ending )
NGOs and supra-national organisation (SAARC )
Source: Author From the above table: 2.1.1.2, it is clear that a
project concept can be developed in any of the above mentioned
thematic areas. In the column, three thematic areas are to be seen,
such as: (I) economic area, (ii) social area and (iii) political
area. At the interception of column and row, a project concept can
easily be developed in any of the specific fields of interest from
the three thematic areas. At the interception of the first column
and first row, AZF fish processing company can be set up in 2010 by
AT group of industries to process fish products for local
consumption as well as for exports, industrial growth and economic
development. At the interception of the second column with the
second row, a public hospital complex can be established in 2009
under the financial aid of the World Bank. This is expected to
create new facilities for the treatment of deceases in the local
area for improving the existing healthcare facilities contributing
to the social sector. At the interception of the third column with
the third row, the border control between India and Bangladesh can
be undertaken in 2012 under the initiative of the South Asia
Regional Cooperation ( SAARC ). This is expected to
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grow interaction between the people of the two countries and
thereby strength cultural ties, improve political relation and
boost trades and commerce. 2.1.a Thematic area of interest To
undertake a project, an initiator needs to choose to find out a
specific area of interest from the existing thematic area of
interest. One can design a project in any of the following three
thematic areas (i.e. economic, social and political ). Once a
concept of project is developed in the social thematic area, a
specific area of interest can easily be identified from it. Setting
up a healthcare centre in a locality is an example of specific area
of interest which falls in the social thematic area. Analogously,
establishing AZF fish processing plant is an example of specific
area of interest which falls in the economic thematic area. 2.1.b
Specific area of interest There are many specific areas of
interests existing in a thematic area from which one can design a
project. But undertaking a project in a specific area of interest
is based on the priority of needs and financial ability of an
initiator. As such, the decision to frame a project in an area of
interest depends largely on the initiator’s judgement in trading
off between the priority of need and his ability to acquire the
required funding. As a matter of fact, an individual decides to
undertake a project basing on his prioritised needs and financial
capability. It is, for this reason, a prudent initiator ( i.e. an
industrialist, a businessman ,NGO or a government agency )
undertakes a project in a specific area of interest where he is
able to fulfil both of the required conditions. Decision for
undertaking a project in an area of interest differ widely between
an individual or groups of people even though the resulting
deliverables meeting their requirements in economic terms. The
perception of deriving economic satisfaction is not always the same
between two individuals and groups of people if an inter-comparison
is made for selecting a particular undertaking. This can be evident
if one compares the revealed preferences of different persons
dealing from different professions to choose a project. As for
example, an academic usually prefers to undertake a project in the
academic area. An industrialist prefers to undertake a project in
the industrial area. This also is true for a NGO or government
agency to undertake a project in the area of their own interests.
What is important for a project initiator is, to select a project
in a specific area of interest in accordance to his priority and
financial capability. One can easily find out a specific area of
interest from within the above mentioned thematic areas in the
concept development processes as demonstrated in table: 2.1.1.2
2.1.c Ownership ( i.e. organiser ) In order to undertake a project,
one need to develop its concept, structure analytical framework,
arrange funds, plan activities and form a management team to
operate the project. As such, a project cannot be launched without
an organiser or owner. The owner is responsible to design a
project, oversee management and take over after its termination.
The project’s resulting outcomes (i.e. deliverables as economic
benefits or losses) are to be owned by that entity. In profit
making undertaking, an owner ( i.e. a private or public limited
company ) constructs a plant or open a business in a locality needs
to take full responsibility for its operation and management . In
non-profit making organization (i.e. municipal authority, NGOs and
government bodies ), an owner involves in production and
distribution of goods and services in the same way ( i.e.
constructing of public roads ,bridges, garden and swimming pool ).
As such, the economic gains or losses resulting from the
implementation of projects are borne by their owners. In order to
implement a
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project on a realistic basis, one needs to form an ownership
which is to be prepared to take all responsibilities during its
operational and management processes. It is, for this sole reason,
the project must be owned by someone who has to take full
responsibility for its efficient operation and management. 2.1.d
Location A project is located in a particular place, so that its
impact can be perceived by the local people and they are benefited
directly or indirectly from the implementation of that undertaking.
In a profit making organization, the construction of transport
network in an area benefits the local people directly by enabling
them to use its services. Analogously, a manufacturing plant
producing goods and services in a locality creating the positive
economic effects in terms of production and distribution of goods
and income generation for the local people. In many instances, it
is observed that the costs incurred by a manufacturing plant to
produce goods vary considerably in moving raw materials and
finished goods between their respective production centres and
markets, depending on the distance of their locations. As such,
selecting a suitable location for setting up manufacturing plant is
considered as cost-saving factor. In a non-profit making area, the
resulting effects of a project is perceived by the local people who
are affected directly or indirectly from the implementation of that
undertaking (i.e. tangible and intangible economic benefits which
are derived from using services in a constructed dam, public road
,park , public library and son ) 2.1.e Timeframe Implementation of
project within a set timeframe is considered as efficient
performance of project management team. Incurring total costs for a
project increases if that is not completed in scheduled time. The
delay in completion of project is economically undesirable as that
pent up the invested funds for more than the required time and
extra costs need to be spent for that extra time. As for example,
if a plant is not completed as scheduled, the owner is to incur
extra costs due to rising costs of labour and materials in the
market, and partly due to paying extra interests on the extended
uses of borrowed capital. In addition, the owner has to suffer from
losing some profits due to delayed completion. That takes place in
two ways: Firstly, goods cannot be produced and sold to their
respective markets in time ( i.e. domestic or foreign markets ). As
a result, selling of goods by the plant is reduced as part of the
market is taken over by other producers penetrating in the market
taking advantage of reduced supplies of goods. Secondly, production
- costs of goods are increased due to increased labour and material
costs over the extended time. As a result, selling of goods is
reduced for increased prices resulting from high production - costs
and extra inventory costs. Therefore, delay in completion of
project results in additional costs and which falls largely on the
shoulder of the project owner ( i.e. additional costs incurred for
increased time for completion and loss of revenue earning from
selling goods due to delayed production and distribution of goods
). To avoid unnecessary costs and prevent loss of profit, what a
project management team requires to do is, to ensure that the tasks
are well planned and included in the works breakdown structure and
completed as scheduled. The Critical Path Method (CPM) and Project
Evaluation Review Technique ( PERT ) are widely used to
systematically complete the scheduled tasks to avoid excess
incurred costs. It is, for this reason, the project management team
gives more emphasis on planning and scheduling tasks and sub- tasks
in the works breakdown structure ( WBS ), so that the estimated
time for completion of tasks becomes accurate.
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9
2.1.f Preparation of budget Preparation of budget is an
important function of the project initiator (i.e. owner). The
budget is prepared by estimating the planned tasks, completion time
and their costs. As such, an under-estimation or over-estimation
for completion of tasks may increase the total costs of a project.
For under-estimation of tasks, an extra cost is to be required to
complete the unfinished tasks which increases the actual total
costs of a project. For over-estimation of tasks, an economically
viable project may be disqualified for wrongly including inflated
time and increased costs for completion of the planned tasks. In
order to avoid this mistake, the project initiator needs to be
careful in planning tasks and estimating the completion time before
including those components in the budget. A good budget is one that
keeps the dispersion of estimated time for completion of the
planned tasks and their accompanied costs within the small band of
fluctuation. Therefore, the safest way to prepare a budget is, to
verify and revise many times before going for its finalisation.
2.1.g Source of finance The availability of funds is considered as
pre-condition for undertaking a project. As such, a project
initiator has to arrange funds before designing a project. The
amount of funds required for implementing a project depends on its
characteristics, size and duration. In practice, a project is
initiated and implemented by a single initiator. But it may be
undertaken by a consortium operating in the same or different lines
of business. In a single ownership, the estimated costs of a
project are financed entirely by its owner. In a consortium, the
project’s funding is made up of resources pooled up by members as
part of their own contribution. However, it is not important who is
committing what and how much. What is important is that the funds
needs to be committed and put in place before the project is
undertaken. A mere commitment is not availability of funds in real
terms. The availability of funding is considered as an effective
financial instrument for undertaking a project if that can readily
be used. That is why the source of finance is to be acquired before
designing a project for its implementation. 2.2 Organisation of
management In order to undertake a project, an inter- related
management capabilities needs to be created. To implement a
project, organisation for its management needs to be created and
integrated into three sub-committees as follows: (I) steering
committee, (ii) management committee and (iii) implementation
committee.
(i) Steering committee is to be comprised of the upper echelon
of functional managers which constituted to direct and control of a
project.
(ii) Management committee is comprised of middle echelon of
functional managers who are responsible for overall management of
project and maintaining co-ordination between its steering and
implementation committee.
(iii) Implementation committee is comprised of functional
managers who are directly involved to implement the project and
remain responsible for its implementation. In general, a matrix
type of organisational structure is formed to implement a project .
A free-form type of organisational structure is also used when the
project is implemented by partnership with a diverged interest
groups, cultural backgrounds, functional practices and its
implementation spread out among different countries, regions and
continents.
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10
For efficient management of a project, its activities split up
into tasks and sub-tasks are to be planned, defined, scheduled and
incorporated into a works breakdown structure (WBS ). These planned
activities are to be completed during different phases of its
implementation. In general practice, the project’s management and
implementation teams hold major responsibilities for its
implementation. Typical project management organisation is shown
below in figure : 2.1.1 Project Management
Figure : 2.2.1 Project management structure 3. Project designing
To design an economically viable and sustainable project, what is
needed is, to develop an analytical structure integrating
systematically among its various phases of implementation ( i.e.
Programming, formulation, implementation and pre-evaluation and
post- evaluation ). In order to develop a realistic project, one
needs to undertake a synergetic analyses among its relevant
attributes. Some projects are undertaken simply on the political
and social priorities without considering the results of economic
and financial evaluations. Those projects fail to deliver the
expected results and become economically burdensome and
unsustainable in the long-run. In order to safely design and
implement a project, an integrated analyses need to be undertaken
on the following relevant attributes as set out below : (i) Project
programming (i.e. objectives, specific objects, purpose , results,
activities, target groups, beneficiaries and stakeholders ) ( ii )
Project formulation (i.e. an integrated analyses of various
attributes and methodologies ) (iii) Testing theoretical validity
of project (i.e. Systems functional analysis, goal achievement
analysis, economic analysis , financial analysis and sensitivity
analysis of risk management ) (iv) Project implementation (i.e.
planned activities included into works breakdown structure ) (v)
Project evaluation (i.e. formative evaluation, mid-evaluation ,
post evaluation and auditing
Organization of
management
Steering Committee
Implimentation Committee
Management Committee Project implementation
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The Figure: 3.1.1 given below demonstrates as to how a project’s
different phases are inter-related in its implementation ( i.e.
planning to auditing phase ). Figure: 3.1.1 Structure of project
design An analytical structure is mirrored in the above figure how
a project can be implemented into successive phases. The analytical
structure indicates how the whole implementation process is to be
started and completed in successive sequences. In the first phase,
the project programming is to be developed and analysed. In the
second phase, the project formulation is to be developed and
analysed. In the third phase, the activities of the project is to
be planned and scheduled to achieve objectives and produce results
( i.e. activities are planned, scheduled and included in the works
breakdown structure). In the fourth phase, project’s evaluation
procedure is developed and analysed (i.e. mid-term evaluation is
undertaken to monitor the progress and post evaluation undertaken
to learn the lessons and rectify project’s resulting drawbacks). In
the final phase, project’s auditing procedure is developed,
analysed and followed covering all relevant aspects for
verification ( i.e. right administrative compliances, timely
completion of tasks, actual incurred costs, appropriate
methodologies and analytical tools are rightly followed ). 3.2.
Project programming In the programming phase, the project initiator
needs to define and give answer to the following questions: (i) who
is the owner ? (ii ) What broad objectives are intended ?(iii) what
specific
Project design
Project programming
Project Formulation
Testing theoretical validity of project
Project evaluation
Project implementation
Auditing
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objectives are to be achieved? (iv) What is the purpose ?,(v)
what are the expected results?, (vi) what activities are necessary
to achieve these results ? (vii) who are the target groups ? ,
(viii) who are the beneficiaries? , (ix) who are the direct
beneficiaries ? (x) who are the indirect beneficiaries ?, (xi) what
are the assumptions ? (xii) what are the pre-conditions and (xii)
who are providing the funding ? The above mentioned questions need
to be answered and included in the project’s programming structure.
Figure: 3.2.1 below depicts an analytical structure for project
programming. 3.2.1: Analytical structure of project programming
From the above figure:3.2.1, one can visualise that the project
initiator needs to acquire funding to accomplish the planned tasks
to produce results in order to achieve the set objectives. The
results produced by a project need to satisfy the desire of the
target groups, beneficiaries and stakeholders. But the expected
deliverable are produced only when assumptions and pre-condition
external to the project are fulfilled. In programming phase, a
cause - effect relationship is to be seen playing role to achieve
various hierarchies of objectives. In order to develop the project
programming, the following specific hierarchies of objectives are
to be defined and incorporated in the programming phase: ( i )
Project owner (beneficiary). The project must be owned by an
entity. It may be an individual, organisation or a groups of people
who undertake the full responsibilities for operation and
management of a project and takes over after its termination. The
project owner is the main beneficiary who prepares to undertake
any
Project owner
Objectives
Purpose
Results
Activities
Financing
Indirect beneficiaries
Assumptions and pre-condition
Project programming
Direct Beneficiaries
Beneficiaries
Target groups
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13
eventualities that may arise from its implementation ( i.e.
monetary benefits or losses from the invested funds ). ( ii ) Broad
objective: The broad objective is the main objective which the
project initiator wants to achieve. ( iii ) Specific objective: The
specific objectives are the targeted objects which the initiator
wants to achieve through which achieving the broad objective. ( iv)
Purpose: Purpose is the main result which the initiator wants to
achieve . (v ) Results: Results are the actual deliverables which
the initiator intends to derive from implementing the project. (vi
) Activities: Activities are the planned tasks and sub-tasks
included in the works breakdown structure to achieve the results.
(vii ) Target groups: Target groups are the people who are directly
involved in a project and to be directly benefited from the
project. (viii ) Beneficiary: Beneficiaries are the groups of
people who are indirectly benefited and ultimately benefits from
the produced deliverables. ( ix) Source of financing: The source of
financing is the authority providing financing and co-financing for
a project without which its implementation cannot be undertaken. (x
) Assumptions: Assumptions are made for validating the scientific
basis of analysis in obtaining the expected results of project.
(xi) Pre-condition. Pre-condition is the required condition to be
fulfilled without which a project cannot be undertaken. 3.3.
Project formulation phase
The formulation phase is the most complex exercise which needs
to be carefully developed. Formulation of project is based on the
integrated analyses of relevant attributes, methodologies and
tools. In order to successfully implement a project, it is
necessary to formulate an analytic framework, so that the whole
implementation processes becomes consistent and coherent. The
formulation phase is made up of an integrated analyses of the
following, pertinent attributes, methodologies and tools, such as :
(a) Logical Framework Approach, (b) System Functional Analysis, (c)
Goal Achievement Analysis,( d ) Economic Analysis, ( e ) Financial
Analysis, (f) Sensitivity Analysis of Risk Management ( SARM ), (g
) Works Breakdown Structure , (h) Works Schedule, (I) Project
Milestone, (j) Assumptions, (k) Pre-condition, (m) Budget , (n)
Formative Evaluation (Mid-term Evaluation (i.e. monitoring progress
of various tasks and controlling related expenses) , (o) Post -
evaluation and (p) Auditing. Figure below: 3.3.1 depicts how a
project is to be designed and implemented by applying the above
explained attributes, methodologies and tools during the formulated
processes.
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14
Figure: 3.3.1 Structure of project formulation It appears from
the above figure that the project formulation is processed by an
integrated treatment of the relevant attributes, methodologies and
tools. A synergetic approach has been followed to maintain that
integrated linkage of analysis throughout the formulation process.
In order to formulate the project in its right perspectives, the
following attributes, methodologies and tools have, as described in
the above figure (i.e. System Functional Analysis, Goal Achievement
Analysis, logical framework Analysis, Economic Analysis, Financial
Analysis, Sensitivity Analysis of Risk Management ,works breakdown
structure, assumptions, pre-condition and milestone ) been treated
to substantiate the theoretical foundation of project formulation.
3.4. Logical Framework Analysis ( LFA ) The Logical Framework
Analysis ( LFA ) is used as a core method through which
programming, formulation, management and implementation of
project’s phases are integrated and analysed at great length. LFA
is followed to design a project proposal and implement that through
project cycle
Methodologies Management tools
Logical Framework Approach
Goal Achievement Analysis (GAA )
System Functional Analysis ( SFA )
Financial appraisal
Logframe Matrix
Works Breakdown
Structure ( WBS)
Works schedule
Project milestone
Formative evaluation Decision making
Assumption
Economic analysis
Testing theoretical validity of project
Sensitivity analysis of risk management
Project formulation phase
Budget
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15
management ( PCM ). The Project Cycle Management is made up of
the following components, such as : (a) project programming, (b)
project formulation, (c) project implementation, (d) project
evaluation and (e) project auditing. Components incorporating in
the LFA provide a set of inter-locking concepts which are used as a
part of iterative process to develop a structured analysis of a
project proposal . The LFA indicates the basic information through
which a project’s planned activities and budget are inter-linked.
More importantly, the relevant analytical issues on project
proposal are observed where relevant questions can be asked,
answered and weaknesses identified. Besides, decisions on
undertaking project can be made on an improved understanding,
rationale, objectives and means by which the inter-linked and
relevant activities are accomplished. A logical framework Matrix (
LFM ) is the reflection through which the expected outputs of
project is mirrored and indicated in a row and column matrix of the
hierarchy of objectives (i.e. project description and intervention
logic, objectively verifiable indicators, source of verification,
pre-condition, means, assumptions and pre-conditions linking with
the key external factors and influencing the project’s overall
results ). In fact, the Logical Framework Analysis ( LFA )
demonstrates how the set objectives of a project can be achieved
through a systematic and integrated analyses on various pertinent
attributes, such as: objectives, purpose, results ,activities and
means. In order to achieve the expected results of a project, the
LFA requires to undertake the following steps: - To define broad
and specific objectives to achieve the expected results. - To
define purpose to be achieved. - To define results to be produced.
- To define activities to be undertaken to produce results. - To
define means to be used to accomplish the planned activities. The
analysis of Logical Framework Analysis ( LFA ) is set out below in
figure: 3.4.1 to show how s project achieve its set objectives. The
cause-effect inter-relationship of LFA can be demonstrated in top –
down approach as well as bottom – up approach
Broad objective
Purpose
Activities
Logical Framework Analysis ( LFA )
Results
Means
Specific objectives
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16
Figure: 3.4. Analytical structure of Logical Framework Analysis
( LFA ) From the above figure, the outcomes produced by hierarchy
of objectives on a project can be demonstrated in top-down or
bottom-up fashion (i.e. outcomes of objectives can be demonstrated
in descending or ascending order) . In the top-down analysis, the
following emerge: The broad objectives can be achieved if the
specific objectives are realised. Specific objectives can be
realised if the purpose is achieved. Purpose is achieved if the
results can be produced. Results can be produced if the activities
are undertaken. Activities can be undertaken if the funds are made
available. In the bottom-up approach of analysis, the whole process
will take place in the opposite direction. When the means are made
available, the activities can be undertaken. When the activities
can be undertaken, the results are produced. When the results can
be produced, the purpose is achieved. When the purpose can be
achieved, the broader objectives are realised. In figure: 3.4.2 ,
the Logical Framework Matrix is presented to show how a transport
development project can be designed, evaluated and managed to
achieve its various hierarchy of objectives. The analytical
structure is developed basing on a typical transport system and
that analytic structure will be followed throughout the current
monograph.
Project hierarchy of descriptions
intervention logic indicating the deliverables
Objectively verifiable indicators of achievement
Sources and means of verification
Assumptions and pre-conditions
Overall objectives
To contribute to economic development
GDP Exports Imports
National Bureau of Statistics
Specific objective To increase capacity of transport
Statistics of passenger and freight traffic
Compiled data from public and private transport operators
Purpose
To increase capacity of efficient management
Performance ratios Public and private transport operators
Results
To train 100 functional managers
Academic performance of the trainees
Publication of results by the training organisation
An increase of 5% increase in productivity and distribution of
transport services is assumed
Activities
To provide academic training
Academic and operational facilities to be provided by the
training institute
Pre-condition
Means
To finance the activities
Budget ( i.e. made up of Administrative costs, academic costs
and operational costs )
Funding is to be acquired as pre-condition
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17
Figure: 3.4.2 Logical Framework Matrix (LFM ) The table
indicates the project summary in a matrix form where one can easily
find out how hierarchy of objectives are achieved by analysing
various relevant attributes. In a matrix form, the project summary
is presented for analyses in an integrated form. From the above
figure, the cause-effect inter-relationship exist among various
hierarchy of objectives is to be visualised from column and row
analyses. From the LFM, one can see the contents of project and
sense the expected outcomes by examining various relevant
attributes as set in its rows and columns. A logical framework
matrix reflects the true profile of a project and potentiality of
its success. 3.5. Systems Functional Analysis ( SFA ) In designing
a transport development project, the functional inter-relationship
of transport system’s three internal sub-systems (i.e. Technical
sub-system, Operational sub-system and Financial sub-system ) need
to be analysed as they jointly contribute to the system’s overall
performances. If the functional efficiency of one sub-system falls,
the other sub-systems cannot function efficiently. As a result, the
system’s overall performances is bound to fall. The system’s
performances will be enhanced only if the functions of the three
internal subsystems’ efficiencies are simultaneously enhanced and
positively co-related. The same inter-relationship is also true for
other project. Figure: 3.5.1 below depicts as to how a transport
systems’ three internal sub-systems are inter-related and
functioned. Figure: 3.5.1 Inter-relationship of system’s three
internal subsystems From the above figure , one can find that the
inter-related functions of the system’s three internal sub-systems
are indicated by the direction of arrow. The figure demonstrates
that all the three subsystems are inter-related each other in
respect of their performances. It is indicated that the functional
efficiency of the technical subsystem affect the functional
efficiencies of the operational and financial subsystems.
Similarly, the functional efficiency of the technical sub-system
influences the operational sub-system. The operational subsystem
exerts the influence on the financial subsystem. The financial
subsystem influences on the functional efficiencies of the
technical and operational subsystems. An increase or decrease in
the functional efficiency of one subsystem leads to an increase or
decrease in
Technical subsystem
Financial subsystem
Operational sub-system
System Functional Analysis ( SFA ) System’s overall
performances
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18
the functional efficiencies of the other subsystems. This
implies that the three subsystems’ functional inter-relationship
are true and they jointly contribute to enhance the system’s
overall performances. In order to improve the overall performances
of a transport system, what is needed is, to establish positive
coordination and functional inter-relationship among its three
internal sub-systems. Functional inter-relationship exist in all
transport systems and their efficient operations depend largely on
the positive functional inter-relationship of the technical,
operational and financial sub-systems. 3.6. Goal Achievement
analysis In goal achievement analysis, the most relevant goals are
selected for a project to achieve its set objectives. In designing
a transport developmental project, the goals are selected to see if
those have stronger influences on the internal sub-systems to
enhance the system’s overall performances. To select goals for a
transport development project, one needs to find positive
inter-relationship between the set goals and the system’s three
internal subsystems. The goals which strongly influence the
system’s overall performances are usually chosen. For undertaking a
transport development project considering its scientific strength
and economic evaluations, the following goals may be considered as
relevant : (a) diminishing wastage of resources in production and
distribution of services (b) reduction of pollution in production
and distribution of services , (c) improving quality of services,
(d) increasing carrying capacity of the system, ( e ) decreasing
rates of charges to provide services and (f) increasing sales of
services. The relevant goals which positively influences the
transport system’s three internal sub-system are shown below in
table: 3.6.1 Table: 3.6.1 Selected goals for improving functional
efficiency of a transport system
Selected goals Internal sub-systems
Technical sub-system ( 1 ) Diminishing wastage of resources in
production and distribution of services
( 2 ) Reduction of pollution in production and distribution of
services
( 3 ) Improving quality of services
Operational sub-system ( 4 ) Increasing carrying capacity of the
system
( 6 ) Increasing sales of services
Financial sub-system ( 5 ) Decreasing rates of charges to
provide services
Source: Author From the above figure, it is clear that a
positive inter- relationship exists between the selected goals and
transport system’s three internal sub-systems and that can be seen
in the above row and column. As for the first goal, the efficient
functioning of the technical sub-system help reduce wastage of
resources in production and distribution of services as that helps
cut down redundant expenses in repairs and maintenances of the
system’s vehicles and equipments. As for the second goal, the
improved functional efficiency of the technical sub-system helps
enhances timely repairs
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19
and maintenances of the system and reduce pollution. As for the
third goal, the enhanced functional efficiency of the technical
sub-system helps improves the quality of services of the system due
to its timely repairs and maintenances. As for the fourth goal, the
improved functional efficiency of the technical sub-system helps
increase carrying capacity of the system due to enhancing
reliability of services, and partly due to maintaining efficient
repairs and maintenances. As for the fifth goal, the enhanced
functional efficiency of the financial sub-system helps reduce
rates of charges of the system by cutting excess operating costs
due to undertaking timely repairs and maintenances, and partly due
to reducing unnecessary overhead costs. As for the sixth goal, the
improved functions of the operational and technical sub-systems
help increase carrying capacity and also sales of services of the
system due to improving traffic operations and enhanced repairs and
maintenance. 3.7. Testing theoretical validity of project In order
to design a transport development project, one needs to follow an
integrated and holistic approach of analyses on the following
attributes and methodologies: (a) Logical Framework Analysis (b)
System Functional Analysis (SFA) , (c) Goal Achievement Analysis
(GAA), (d) Economic Analysis (EA), (e) Financial Analysis (FA) and
(f) Sensitivity Analysis of Risk Management (SARM). The synergetic
analysis is important in designing a project ,as this not only
leads the analysis to the right direction, but also reinforces its
scientific relevance. The analytical structure which needs to be
developed for testing the validity of a transport project is set
out in figure: 3.7.1 Figure:3.7.1 Analytical structure for testing
validity of transport project The analytical structure which needs
to be developed for testing the validity of a transport project is
set out in figure: 3.7.1 in which an integrated functional
inter-relationship of its three internal sub-systems (i.e.
Technical sub-system, Operational Sub-system and Financial
sub-system ) is demonstrated. The theoretical validity of a project
can be seen in the outcomes achieved by the combined functions of
the transport system’s three internal sub-systems and the set
goals. One can show how the set goals and results of the three
internal sub-systems ( i.e. technical sub-system,
System Functional Analysis ( SFA )
Economic Analysis ( EA)
Sensitivity Analysis of Risk Management
( SARM )
Goal Achievement
Analysis ( GAA )
Financial Appraisal ( FA )
Testing validity of project
Logical Framework Analysis
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20
operational sub-system enhanced inter-relationship existing and
financial sub-system) of the transport system are inter-related in
a matrix diagram as demonstrated below in figure: 3.7.2. The
inter-relationship is intended to focus on how the functional
efficiency of sub-systems influence to achieve the set goals of a
transport system.
Enhanced efficiencies of sub-systems Selected goals
Technical sub-system Operational-subsystem Financial
sub-system
Reduction of wastage in production and distribution of
services
Prevent frequent break down of vehicles and equipments and
reduce wastage of economic resources
Prevent under-capacity and over-capacity carriage of traffic and
minimise wastage of economic resources
Control on operating expenses and investment and prevent
unnecessary extension of services and development of facilities
Reduction of pollution in production and distribution of
services
Provide qualitative repairs and maintenances in the, routes,
workshops and yards by introducing improved techniques and using
good quality equipments
Ensure efficient traffic operation and reduce pollution by
decreasing congestion in the yards, workshops and operating
routes
Ensure allocation of adequate funds to replace defective
vehicles creating pollution in the operating routes, workshops and
yards
Improving quality of services
Ensure timely repair, maintenance, procurement of spare parts
and equipments to maintain optimum number of on -road vehicles in
the fleet
Improve traffic operation lead to achieve easy accessibility,
comfort and reliability of services
Ensure timely allocation of funds for repair and maintenance and
replacement of equipments and defective vehicles
Increasing carrying capacity of the system
Ensure required facilities for timely repairs and maintenances
of vehicles
Enhanced performance of traffic operation increase operable
vehicles and enable to make increased trips
Allocate necessary funds to undertake timely repair and maintain
large number of operable vehicles in the fleet
Decreasing rates of charges in providing services
Provide regular repairs and maintenances and which helps keep a
large number of operable vehicles in the fleet.
Ensure efficient traffic operation which helps increase load
factor ratio of the operable fleet
Reduce expenditures over revenues due to adopting various
innovative and cost-effective financial measures
Increasing sales of services
Provide timely repair and maintenance and helps maintain a large
number of operable vehicles in the fleet to meet increased demands
of passenger and freight services
Enhance functional efficiencies of staff in the traffic
department and helps increase capacities of passenger and freight
services
Maintain optimum operating ratio ( i.e. increased revenues over
operating costs ) and helps reduce costs on passenger and freight
services and increase sales of through an efficient traffic
operation
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Figure: 3.7.2 Synergetic relationship between goal achievement
analysis (GAA) and system functional analysis (SFA) and performance
of transport system It is clear from the above analysis that the
set goals can be achieved if the functions of the system’s three
internal sub-systems are positively co-related. Reduction of
wastage in production and distribution of services take place if
the efficiencies of the technical, operational and financial
subsystems are enhanced as indicated in the three horizontal boxes
of the first row. Pollution in the production of services can be
reduced if the efficiencies of the technical, operational and
financial sub-systems are enhanced as shown in the three horizontal
boxes of the second row. An improved quality of services can be
maintained if the efficiencies of the technical, operational and
financial subsystems are enhanced as demonstrated in the three
horizontal boxes of the third row. The carrying capacity of the
system can be increased if the efficiencies of the technical,
operational and financial subsystems are increased as shown in the
three horizontal boxes of the fourth row. The decreasing rates of
charges in providing services can be achieved if the functional
efficiencies of the technical, operational and financial subsystems
are improved as indicated in the three horizontal boxes of the
fifth row. Increased sales of services can be achieved if the
efficiencies of the technical, operational and financial
sub-systems are enhanced in accordance to the three horizontal
boxes as shown in the sixth row. It is clear from the above
analyses that the set goals are suitable to enhance the functional
efficiencies of a transport system. This suggests that the
malfunction of a subsystem can diminish efficiencies of the other
subsystems and prevent the system from operating efficiently. It
can, therefore, be concluded that the positive and coordinated
functions of the three sub-systems are necessary for improving
performance of a transport system. This implies that the overall
performance of transport system depends largely on the positive
coordination among its three internal sub-systems. It is,
therefore, necessary for the project initiator to examine if a
positive inter-relationship exists between the functions of the
internal subsystems and the set goals of the system before its
selection for undertaking. As such, it is important that the
theoretical validity is tested to design a development project and
that is achievable only if the integrated analyses of the system
functional analysis, economic analysis, financial analysis and
sensitivity analysis of risk management (SARM) produce positive
results. 3.8 Economic Analysis In developing framework of a
project, the cost-benefit analysis is undertaken to justify its
economic viability. The cost-benefit analysis (CBA) is undertaken
as a standard analytical tool. To design a transport development
project, all that is needed is, to estimate total benefits to be
derived from its implementation over the incurred total costs. The
net total benefits can be found out by deducting the estimated
total costs from the expected total benefits. In practice, the
total costs and benefits are calculated in monetary terms in order
to assess the project’s economic viability and sustainability. If
the difference of total benefits is not significantly high over
total costs, total intangible benefits and total intangible costs
are estimated and included in the evaluation processes. In order to
frame a project by following the standard economic procedure,
intangibles costs and benefits are measured and included in its
economic feasibility studies, so that the resulting effects can be
compared in a more meaningful way. Although, this is a very
difficult to estimate intangible costs and benefits in monetary
terms, yet the values of intangible attributes can be measured
partially by using the analogue method. In analogue method, the
values are assigned to the intangible attributes of a project in
accordance to their importance which are calibrated, measured and
used in its formative evaluation.
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In order to frame a project, pre-economic evaluation is
undertaken to assess its economic viability and sustainability.
This procedure is followed in order to justify its superiority
competing other alternative projects. A project is economically
viable if its estimated total benefits surpass the total costs by a
significant margin. In fact, a project becomes economically viable
and sustainable if the benefits derived from it is sufficiently
large and remain stable for a long time. This produces a favourable
results to undertake a project where the estimated profitability
index of the invested funds at least equalises or exceeds the
industrial average rate of return in the area where that is to be
undertaken. In that case, project’s opportunity cost of capital
becomes zero and at least negative. As for economic appraisal of a
project, the greatest emphasis is given to maintain the opportunity
cost of capital to the lowest minimum level ( i.e. zero or negative
), so that the economic benefits are increased and losses avoided
and the best opportunities are availed of in the desirable area of
investment. Therefore, applying an appropriate procedure for
economic evaluation enhances not only the economic viability and
sustainability of a project by reducing accompanied risks in losing
the invested funds (i.e. economic and financial risks), but also
enable the investors to invest their funds in the most profitable
areas where the risks on returns possibly remain at the lowest
level. In order to make the right decision in the selection of a
project , the formative evaluation is undertaken to economically
justify investing funds in a project proposal (i.e. cost- benefit
analysis is undertaken). 3.9. Financial-analysis To devise an
appropriate financial analysis is considered as necessary
instrument for economic evaluation of a project. It enables an
investor to understand if his choice of investment is
cost-effective and profitable in a specific portfolio. In
undertaking financial appraisal, the estimated total benefit of a
project is discounted by a market rate of interest to estimate the
net present value of the invested funds. The positive net present
value indicates that the project is profitable and worth
undertaking. An appropriate discount rate is selected to estimate
the net present value and profitability index (PI) of the
investable funds and these are obtained by applying the standard
procedures. The profitability index is estimated by dividing the
net total costs by net total benefits. The profitability index (PI)
is used to find out the average rate of return. In order to
estimate the real economic benefit for the investment of funds in a
project, the opportunity cost of capital is to be measured. The
opportunity costs of capital is obtained by dividing the
profitability index (PI) by the industrial average rate of return
(IAROR). It is very difficult to ascertain the real economic gains
or losses in investing funds in an industrial area and excluding
the other ones. The opportunity cost of capital is measured for
estimating the economic gains or losses what are foregone by the
investors in choosing one industrial area where the risk for
investment of funds remain the same. The extent of economic gains
or losses are not the same in all the industrial areas for facing
varied market conditions and risks. As such, a prudent investor
always compares among many different portfolios in investing funds
in order to minimise the possibility of his financial losses. The
fact is that the prudent investor must try to increase his
financial gains from investing funds in an industrial area, so that
the foregone financial gains which he could receive elsewhere is
more than compensated by his current choice . In order to ensure
desirable return from investable funds in a project , the
opportunity cost of capital (OCOC) is estimated by deducting the
value of estimated profitability index (PI) with industrial average
rate of return (IAROR) in an industrial area where the funds is to
be invested. If the value of profitability index (PI) is more than
the value of industrial average rate of return (IAROR), the
opportunity cost of capital is to be negative. In that case, the
project is economically- viable and sustainable. Because, the
invested funds of the project earns more than the incurred costs in
the same portfolio (e.g. investing funds in the same industrial
area). If the va