Project Management: Chapter 5: Project Evaluation & Termination

quiz-September 29,2017
September 30, 2017
Study and Revision Plan
September 30, 2017

We now come to the final stage in any project—evaluating the result and closing the project. As we will see, there are many ways to do both, some relatively formal, some quick and dirty, and some rather casual. We discuss evaluation first, in the generic sense, and then discuss a very specific and often formal type of evaluation known as the project audit. Following this we discuss termination of the project.


The term “evaluate” means to set the value of or appraise. A project evaluation appraises the progress and performance relative to the project’s initial or revised plan. The evaluation also appraises the project against the goals and objectives set for it during the selection process.

1.1 Evaluation Criteria

There are many different measures that may be applied in a project evaluation. Project management team may have particular areas that they want to evaluate for future planning and decisions. One study identified four important dimensions of project success.

1.2 Evaluation Methods



  • The project audit is a thorough examination of the management of a project, its methodology and procedures, its records, properties, budgets, expenditures, progress, and so on.
  • The project audit is not a financial audit but is far broader in scope and may deal with the whole or any part of the project.

Typical steps in a project audit are:

1.2.2 Audit Levels:

An audit can be conducted at three levels:

1.3 Project Termination

Eventually the project is terminated, either quickly or slowly, but the manner in which it is closed out will have a major impact on the quality of life in the organization. Occasionally, the way project termination is managed can have an impact on the success of the project.  As part of the project termination, contracts will be closed with all the service providers.

2.Project Contract

A contract is an exchange of promises between two or more parties to do, or refrain from doing an act, which resulting contract is enforceable in a court of law. In the project or program context, contracts typically involve the exchange of money in return for goods or services.

If an organization decides to “buy” from one or more outside sources, it must select the type of contract it needs. In selecting what type of contract to use, the primary objective is to have risk distributed between the buyer and seller so that both parties have motivation and incentives for meeting the contract goal.

Factors of Influence:

  • Type and complexity of requirement.
  • The extent of price competition.
  • Cost and price analysis.
  • Urgency of requirement or performance period.
  • A frequency of expected changes.
  • Industry standards of types of contracts used.
  • Whether or not there is a well-defined statement of work.
  • Overall degree of cost and schedule risk

2.1 Type of Contracts:

2.1.1 Turnkey Contracts:

A Turnkey Contract is one under which the contractor is responsible for both the designand construction of a facility. The basic concept is that in a Turnkey Contract the contractor shall provide the works ready for use at the agreed price and by a fixed date

2.1.2 Non-turnkey Contracts:

This contract is handled by the in house team of the organization which is floating the contract. That means the overall supervision and responsibility lies with the in house department.

There are multiple type of contracts in this category. Cost reimbursable (or Cost Plus) Cost reimbursable (CR) contracts involve payment based on sellers’ actual costs as well as a fee or incentive for meeting or exceeding project objectives. Therefore, the buyer bears the highest cost risk. Fixed Price Contracts Fixed price (FP) contracts (also called lump-sum contracts) involve a predetermined fixed price for the product and are used when the product is well defined. Therefore, the seller bears a higher burden of the cost risk than the buyer. Time and Material Contracts

Time and material (T&M) contracts (sometimes called Unit Price Contracts) contain characteristics of both fixed price and cost reimbursable contracts and are generally used for small project cost amounts. These contracts may be priced on a per-hour or per-item basis (fixed price) but the total number of hours or items is not determined (open-ended cost type arrangements like CR contracts)

Miscellaneous Topics

Enterprise Resource Planning


Enterprise Resource Planning (ERP) is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources.


  • ERP software typically integrates — including product planning, development, manufacturing, sales and marketing — in a single database, application and user interface.
  • Small business ERP applications are lightweight business management software solutions, often customized for a specific business industry or vertical.
  • The basic goal is to provide one central repository for all information that is shared by all teams across the organization.

Finance – gathers financial data and generates reports such as ledgers, trial balance data, overall balance sheets and quarterly financial statements.

Human resource management – gathers data and generates reports about such things as employee recruitment, performance reviews, training and professional development, performance reviews, mediation and exit interviews.

Inventory management – gathers data and generates reports about non-capitalized assets and stock items.

Supply chain management – gathers data and generates reports about materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer.

Business Value of ERP

Improved business insight

From real-time information generated by reports

Lower operational costs

Through defined and more streamlined business processes

Enhanced collaboration

From users sharing data in contracts, requisitions, and purchase orders

Improved efficiency

Through a common user experience across many business functions and managed business processes

Consistent infrastructure

From the back office to the front office, all business activities have the same look and feel

Lower management and operational costs

Through uniform and integrated systems

Reduced risk

Through improved data integrity and financial controls

ABC Analysis


The ABC analysis helps to focus control efforts in areas where it is most needed. The basis of classification is usage value of the items and not their physical quantities. This classification will help the organization to identify the items which are of high importance.

ABC analysis is an inventory categorization method which consists in dividing items into three categories (A, B, C): A being the most valuable items, C being the least valuable ones. This method aims to draw managers’ attention on the critical few (A-items) not on the trivial many (C-items). The classification can be extended to D,E,F etc., if needed.

Economic Order Quantity


EOQ is the amount of inventory to be ordered at one time for the purpose of minimizing the annual inventory cost.


  1. Known & constant demand
  2. Known & constant lead time
  3. Instantaneous receipt of material
  4. No quantity discounts
  5. Only order (setup) cost & holding cost
  6. No stockouts

If A = Demand for the year,

 Cp = Cost to place a single order

 Ch = Cost to hold one unit inventory for a year

 Q = Order Quantity

Total Cost  = Yearly Holding Cost + Yearly Ordering Cost =

Below figure shows the relationship between various costs

EOQ is calculated as

Example: Sam runs a business for gym equipment. Annual demand for the TricoFlexers is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order quantity?



  1. ajinkya says:

    no data

  2. Rishi Kumar says:

    grear work sir

  3. Rishi Kumar says:

    great work sir, enjoyed learning through best concepts

  4. Ajit says:

    Sir is there any other things is required beside this material.

  5. sagar khichi says:

    very good work sir
    there is nothing to compare in the world

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