13 April 2022 13:14:47 IST

Project planning can optimise costs and improve operations

The old business adage — money saved is money earned — could not have been truer in the current times. We are confronting a paradoxical situation where on the one side there is too much money available, meaning excess liquidity, which is driving inflationary pressures, and ironically, on the other, an average business person is complaining about the lack of adequate funds to meet his existing business opportunities let alone seek potential ones.  

So, it is not about how to raise money, but rather save money in a manner that existing funds are optimally used to meet business requirements.  

Past lessons

Many years ago, I had an opportunity to work with a client on planning the execution of the construction of a new manufacturing plant. A couple of years before that the client had worked on a similar project which unfortunately took much longer than anticipated.  

The intent this time was to complete the project within eight months which was considered a tall order. After the first two months, it was found in a project review that the progress was rather slow, the project scheduling was not happening as planned, and there were concerns all round.  

We made the difficult decision to go back to the drawing board to work out strict schedules and put in place rigorous review mechanisms, which took close to three weeks. After which, as per the revised schedule, the project execution went on smoothly and it was completed within four months.    

The point being even after having lost time and missing schedules early on, the project was completed much ahead of the originally estimated time schedules. The company went into production nearly a month ahead of the original plan.  

A report published in March 2021 about the delays in government projects with estimated costs of ₹150 crore and above indicated that the total original cost of implementation of the 1,737 projects was ₹22,33,409 crore and their anticipated completion cost is likely to be ₹26,69,649 crores, which reflects overall cost overruns of ₹4,36,239 crores (19.53 per cent of original cost).

This challenge of cost overruns is not restricted to the government sector. There are plenty of cases in the private sector too where companies have witnessed significant project costs and time overruns forcing them to borrow additional amounts from the banking system

The additional interest costs incur additional repayment obligations, and more importantly, result in missed market opportunities because of the delayed commencement of production. 

Project management  

Project management, as a concept, is larger in scope as it deals with many issues relating to goals and objectives, and budget, and organisational requirements. But here, we are going to zero in on the concept of project scheduling, which, if executed well, could facilitate achievement of set targets. 

Project scheduling starts with a list of activities and the timelines necessary for the milestones to be achieved. That done, the next activity is to track every activity within the schedule to facilitate monitoring of every project activity.   

That would entail drilling down into the resource requirements namely materials, machines, methods and importantly men which is popularly known as the 4M. One of the most common tools used for this purpose is the Gantt chart. 

Gantt chart helps one to identify the critical path where any delays in the path would cause consequential delays in the completion of the project. It facilitates easy tracking of the project progress, not to speak of the better coordination between the various stakeholders for the timely execution of their part of the activity.  

It clearly defines the dependent and independent activities that ensure resource deployment is done in a manner that does not delay dependent activities more importantly those on the critical path.  

Monitoring mechanism

No project scheduling would be complete without providing for contingencies and evaluating risks in execution. This includes setting up risk mitigation measures to overcome potential issues.  

The need for a disciplined and comprehensive monitoring mechanism cannot be overemphasised. A well-executed monitoring mechanism will always pick up the early warning signals and if captured early in the cycle they can easily be rectified without too much of impact on the cost or timelines. 

Project scheduling is not just an effective tool for capital projects but is far more relevant for regular business operations where the supply chain must be effectively managed. In a competitive world, delays in goods reaching the market would mean either lost sales opportunities or having to sell the goods at higher levels of discount to avoid inventory pile-up.

Project scheduling, execution, and monitoring is a multidisciplinary approach and would require the timely intervention of all management functions such as design, engineering, production, personnel, procurement, logistics, finance, legal, and quality. Ultimately, in any business, success or failure is a function of good execution of ideas and scheduling is the key component of that. 

(The writer is a Chartered Accountant and Partner at RVKS and Associates, Chennai.)