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

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

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

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

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.

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 36

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

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

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

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

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

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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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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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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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.

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

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

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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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

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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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

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