Project Management in SMEs

Introduction To Literature Review:

Literature Review is done by knowing a clear definition of SMEs, its role in the Indian economy. Then it is carried out by analyzing the definition of project management and its significance in the SMEs, and next the definition of project and its factors affecting the success of a project was discussed. This chapter also deals with the staffing of a project manager, project team and also about the effective skills required for a project manager to implement successful project management methodologies into an organization. This literature also covered by the critical analysis of effective risk management through Project Management practices in Small and Medium Enterprises in India, here mainly it was discussed about the types of risks that an organization encounters while establishing/choosing a vendor, and ways of analysis this risks through project management techniques. This chapter also explained about the ways of implementing a project management methodology into an SME and effects that a SME might face of implementing the project management tools and techniques.

Definition Of Smes:

SMEs can be defined in different forms due to broad mixture in business. A company is generally distinguished as a small or medium enterprise based on the total number of employees, total turnover and the balance sheet of the company. A company is considered as a small firm if it has 50 employees with an annual turnover of about £5.6 million and an annual balance sheet of £2.8 million. On the other hand, a firm is said to be a medium firm when it has a total of 250 employees with a turnover of about £22.8million and a balance sheet of £11.4million (company act 1985, Duke Ghosh, 2009).

Role Of Smes In Indian Economy:

SMEs are most vital part in the sustainable economical growth and participating in a long run of development of industrial sector from the past few years, SMEs are considered as a stepping stone for industrial growth. It has ability to transfer technology and modernization which brings economic success in this modern era. In the development of better and greater economic growth, competition, flexibility and good communication are the required parameters, for this reason SMEs are becoming like of mixture of competitiveness within the economy while providing flexibility and better communication system to the complete industrial structure. (Duke Ghosh, 2009)

Recently the dimensions of the SMEs are seems likely to be increasing due to the government promotions and also its encouragement towards the goal of SMEs. The growth of the entrepreneurial sector have been raised from 870,000 businesses in 1981 to nearly 4 million by 2003 by the identification of importance and its development by the government of India. And it stood next to gigantic agricultural sector in providing the employment opportunities (Boulton and Turner, 2005).

This SMEs are acting like a job providing engines, which indirectly raising the per capita of the nation economy. Such firms make significant contributions to private sector employment and output, which appears to be increasing overtime (Storey, 1994).

The following diagram show the growth and the position of the development of the small industries development as on 2003 according to SIDO

Importance Of Smes To The Indian Economy

SMEs, however defined, constitute the majority of all enterprises in most of the economies in the world (OCED, 1998). SMEs are not only acting as employment generator but also achieved outstanding credit in Indian economy by satisfying its core objectives and being as a supporting body to the large firms. This is one of the main reasons why the SMEs have gained more attention from the politicians, policy-makers and academics. However, between 1945 and the late 1960s there was little interest in small firms from either the government or academics. According to Mr. Pawan Kumar Bansal, Union Ministry of State for Finance, Bangalore; says that SMEs are playing a vital role in socio-economic policies of Government of India.

Foreign earning and imports of foreign capital goods contribution have been developed by the socio economic policies of India (Mr. Pawan Kumar, 2007). “SMEs were regarded as being poorly managed, badly organised and reliant on outmoded technologies to produce inferior products and services” (Manson and Harrison, 1990). For this reason the Indian government have implemented many more SMEs policies for their development and mainly focused on promoting clusters of small firms and supporting the development of high-tech sector such as IT sectors and BPO’s in Bangalore, and this policies have been very successful as a results many of the outsourcing companies from western countries are moving to India (Patrizio B, et. al, 2006). Starting with wide varieties of situations and approach, a huge amount of SMEs policies have been implemented in developing countries like India (Parrilli, 2005).

Services have been the fastest-growing sector of the Indian economy over the past decades and helped to accelerate the overall growth rate of the economy, this services have also made India’s integration with the world economy through trade and capital flows (Uma Kapila, 2009). The phenomenal growth and export in the services like IT and BPO have placed India on the global map as one of the major players in the field of knowledge-based services this also helped to improve the performance of the other sectors of the economy in turn helping the overall development.

Project Management And Its Significance:

This literature says before knowing about the significance of project management in SMEs, it is important to explain the definition of the project management and its approach of implementing a project as follows:

Project Management:

“The purpose of project management is to plan, organize and control all activity so that the project is completed as successfully as possible in spite of all the difficulties and risks. This process starts before any resources are committed and must continue until all work is finished. The aim is for the final result to satisfy the objectives of both the project performer and the customer” (Lock, 2006, p. 1)

It is known that projects differ from each other in more ways than one. They might differ in their structure, mode of operation, funds allocated or even the strength they comprise of or their criticality to the business (Heldman, 2005). Even though a similar project has been carried out in the past, the projects may differ in one or more aspects such as administrative, physical and commercial or a change in ways of working etc; managing projects is a part of every business and is quintessential for the smooth functioning and success of the project. Project Management includes all necessary activities needed to plan and execute a project (Lock, 2006).

The two most important steps involved in going about a project are discussed below:

Step 1:

• To decide what needs to be done before the initiation of a project.

• The next set of requirements from a project management perspective is to estimate the cost of completing the project and make sure there are necessary funds available to execute the project so as to bring name and revenue to the organization (Burke, 1999).

• People involved in planning the project need to ensure beforehand that they pick the right people to execute the project and make them aware of the responsibilities assigned to them. Project resources are the key to success in any project and it’s rarely a one-man team (Heldman, 2005). Therefore, a team that has an open-minded approach towards the project and all other people involved in the project and be prepared to motivate and be motivated throughout the length of the project. This will encourage teamwork and commitment in what they do. One of the key things to ensure higher rates of success in a project is to choose the right mix of people and the right level of management looking for process improvement and thereby providing value added services to customers. This in turn helps organizations improve their efficiency and help them to stay on top of its competitors (Baron, 2005).

• Every person involved needs to be updated by project leaders and start the chain of communication to ensure adequate buy-in and at the same time commit to managing their expectations from the project. The main aim of communication is to keep everyone updated about any latest developments that take place and keep them engaged (PMBOK, 2004).

• Provide clear briefs to people involved in the project to obtain commitment on work and deliveries (Baron, 2005).

• The support of sponsors is very important by making them commit to your approach. (Burke, 1999) Meeting the expectations of the stakeholders, meeting of objectives and requirements, meeting budget, meeting deadlines etc (Jeston and Nelis, 2006).

Step 2:

We live in a competitive world where every firm attempts to make optimum use of resources and to be better than their competitors. This brings the area of proper planning and execution of the project. The main objective of planning a project well is to schedule and chart out the complete work for the project and then ensure arrangements are in order for work to start and continue as per schedule (Burke, 1999). For a project to be successful and be admired, it should complete on schedule.

The project needs a leader who takes the final decision with the consent of all members in his/her team. He/she should portray the courtesy to listen to subordinates even when the opinion is not being considered or implemented (Heldman, 2005). People who carry out the project should be taken into confidence and spoken to regularly. Most importantly, a project should have clarity about its scope, objectives, responsibilities, cost and accountability, scope for improvement should be considered and stockholders should be kept in confidence (PMBOK, 2004).

The literature explains that the project management methodologies allow the project manager to allocate and make more work done with less people and time, so it would be beneficial to the SME where it have very fewer people working. And also its make the organisation more effective by implementing more project in lesser time by providing clear control on the projects scope and changes and implementing them more effectively and efficiently. Project management improves the line of decision making; it also increases the quality of a project. SMEs can handle more projects by raising its business (Kerzner, 2003).

Definition Of Project And Its Success Factors:

Project:

A project is a series of activities or tasks that have a specific objective to be completed within a determined specification; have defined start and end dates; usually funded and require resources (Kerzner 2003; Cooke-Davies 2001).

When the project is said to be failed it is waste of capital, time and resource, a new lessons /techniques/methodologies have to be learned from the failed projects and the project manager/ project authorities have to continue for the new project. Project management is one of the methodologies which deals the projects in a systematic manner and says the following are the essential factors to be made to complete successfully with a project:

Clarity In Project Definition:

Project manager has to make himself/herself with a clear idea and definition of the project, but not only he/she but also to his/her project team. He/she have to make sure about the project specifications such as “what the project is about” its aim, objectives, and its deliverables, etc. For example we can talk about the case studies of some unsuccessful projects due to indistinct objectives and aims which are documented by Gray and Larson (Gray and Larson, 2002). Thus the chances of increasing project success lies in clear and distinct objectives and aims.

Project Feasibility:

It is one among the factors which talks about the social, economical, political, human, cultural, financial and environmental factors which underpins to the achievement of the project (Fullen, 2005). According to Khatib this factors would produce a good result for a project which undergoes a serious study, specified aim and objective and allocation of time (Khatib, 2003). Consistent feasibility makes a project manager to define himself with a clear and well project aim, time specifications, and allocation of resources. A positive feasibility brings more chances to lead a project success.

Planning:

“According to Kerzner project planning; in general, can best be described as the function of selecting the enterprise objectives and establishing the policies, procedures, and programs necessary for achieving them. It can be described as a forecasting the environment and predefined course of action” (Kerzner, 2003 ).

According to Kerzner, there are four basic reasons for project planning:

• Elimination or reduction of uncertainty.

• Improving the efficiency of the operation.

• Understanding a better understanding of the objectives.

• To provide a basis for monitoring and controlling work.

(Adapted from Kerzner, 2003)

Work Breakdown Structure (Wbs):

The important task to be done by the project manger after project planning is dividing the work into manageable tasks. “The work breakdown structure is a deliverable-oriented hierarchical decomposition of the work to be executed by the project team, to accomplish the project objectives and create the required deliverables” (PMBOK, 2004). The work breakdown structure also explains complete scope of the project. The WBS divides the work into small tasks which are manageable and will have a specific responsible authority will be allocated, it will be in a manner of integratable so that the total work package is the summation of subdivided elements, and it will be as much as easy to be measure in terms of progress like estimating cost, scheduling, monitoring, and controlling (Kerzner, 2003).

Involvement Of Project Stakeholders:

“Project stakeholders are the individuals and organizations that are actively involved in the project, or whose interests may be affected as a result of project execution or project completion. They may also exert influence over the project’s objectives and outcomes” (PMBOK, 2004). Project stakeholders are also a part of the project success, to ensure this success the project team have to identify their requirements, expectations, and their influence on the project. Stakeholders may have various levels of authority/responsibility on the project; they may vary from occasional contributors to full sponsors for the project. “Stakeholder who ignores this responsibility can have a damaging impact on the project objectives. Likewise, project managers who ignore stakeholders can expect a damaging impact on project outcomes” (PMBOK, 2004).

The above figure shows that every individual project is similar to the structure of the earth where in each sector plays an important role here the most interior structure is project manager who forms the base of any project. The project manager forms the integral part of a project management team along with whom he carry on the project. The project manager and the project management team together comprises of a project team where in this team wholly concentrate on the project that is to be taken. These three together works for the satisfaction of the stakeholders interested in the completion of the project it may comprises of the senior management of the company the owners and the clients of the company.

Staffing The Project Manager And Project Team:

As mention above to my literature the successful project includes; on time delivery, must come across stakeholder’s expectations, within budget and have to congregate the project deliverables (Cooke-Davies, 2004). Project manager is one who plays a vital role to mix all stuff to formulate the project to a success. “Project manager is the individual ultimately responsible for managing and leading the project to its successful conclusion” (Paul D, 2005). It is a role that entails a mix of competencies, combining management with leadership and political awareness (Pinto, 2000). Though understanding the role of project manager sounds good, but the upper management always find difficulties in the selection of a correct project manager.

“Project management is said to be successful only if the project manager and his team are totally dedicated to the successful completion of the project. This requires the project team and project manager must have good understanding of the fundamental project requirements” (Kerzner, 2003). For this reason the upper management have to look up/focus at the following skills in the selection process from the individual to appoint him/her as a project manager: (this are requirements demanded by a SME in its advertisement for a facilities planning and development project manager (adapted from The New York Times, January 2, 1972) (source: Kerzner, 2003)

Business Management Skills:

If project management is itself an organization, as the whole project group will work as a solo unit for the achievement of a common goal, then the project manager is the CEO of this organization. So the organization skills are predominantly important during project development.

With strong business management skills, he/she must be able to achieve the most excellent hysterics across teams and in the midst of all project resources of the organisation. “It requires defining the reporting relationship, responsibilities, line of control, and information needs. A good program plan and a task matrix are useful organisation tools plus clear defined program objectives, open communication channels, good program leadership, and senior management support” (Kerzner, 2003).

Leadership Skills:

Project manager is the one who has to manage his/her team and make them to follow him/her, has to act as a leader. He/she has to have a clear project leadership and own direction to direct the team members. He/she must be able to solve the conflicts, assistance in problem-solving, as a project leader he/she as to represent his/her team to upper level management. He/she as to motivate the project team members towards common vision. Project manager as a leader has to remain as a inspiration to his/her project team (Kerzner, 2003).

Technical Skills:

Technical skills is an superlative addition remark for a project manager, if his proficiency applicable to the project, by this he/she can have good thoughts and understanding about the projects and can work out more for his/her profound project objective (Horine 2005; Murch 2001). Now a day this skills achieved a greater importance, without technical skills a project manager cannot understand the present market, updated technology and the environment of the business. With the help of these technical skills one can understand the consequences or technical risks that encounter in the project, for example a software engineer being as a project manager and handling a software development project can easily sort the risks that appear in that project. He/she can make sure of his/her project team with a clear understanding of the foreseen risks that may appear in the project. “According to Kerzner, 2003 the technical expertise is composed of the following understanding:

• Technology involved

• Engineering tools and techniques employed

• Specified markets, their customers, and requirements

• Product application

• Technological trends and evolutions

• Relationship among supporting technologies

• People who are part of the technical community”

(Source: Kerzner, 2003)

Communication Skills:

Another important skill set must be posed by the project manager is communication skills. “Project manager influence people o take action, this requires an ability to communicate in a style appropriate for the individual concerned” (Paul D, 2005). Project manager is the communication channel throughout the project. Project manager is effective means of communication hub between the project team and the end users.

Project manager have to act as a communication radio and have to carry the stakeholder’s expectations towards the project team and have to bring the project to a successful effective end. Moreover, a successful project manager ensures smooth information sharing across teams via instilling a communication-driven environment that allows for efficient spread, user-friendliness and use of information.

Conflict Resolution Skills:

No project end up successfully without any conflicts, there might be foreseen risks or conflicts between the project team members or conflicts between project team and stakeholders. So this is the main reason that the project manager, the CEO of project management organization has to possess the problem solving skills/conflict resolution skills. Project success lies with how well the project manager solves the problems/conflicts. Soundness of the solution taken by the project manager with a logical and analytical thinking conforms how well the project manager good at reaching the project to a successful end. However these conflicts are beneficial to a project which indirectly increases the competiveness among the team members involved the project (Kerzner, 2003).

Project Management Experience:

Implementing successful project management lies in the hands of able project manager, so the project manager is responsible character and must possess prior project management experience in general. Project management is body of knowledge which can be learned from the realistic knowledge, but it’s not a skill which comes by itself.

A well qualified project manager will be very much able to implement a successful project management into an organization. Past knowledge makes a manager to overcome all the challenges that he/she face in completing a project by using project management.

Other Skills:

There are so many other skills such as planning, resource allocation, management support building, and time management skills, etc, which make the project manager to lay his/her path successful in controlling the projects successfully.

Not only this but also the entrepreneurial skills and administrative skills are very important in understanding the tactics and implement them in his/her own project and make the project victorious (Kerzner, 2003).

A Critical Analysis Of Effective Risk Management Through Project Management Practices In Small And Medium Enterprises In India:

Risk:

Vose (2008, p. 3) defines the term risk as “a random event that may possibly occur and, if it did occur, would have a negative impact on the goals of the organization. Thus, a risk is composed of three elements: the scenario; its probability of occurrence; and the size of its impact if it did occur”.

Any risk could prove an organisation wrong in its quest to achieve success. Risks can occur in various forms and their impact can vary under a lot of factors. In a high cost business environment that is under fierce competition from companies not just on a national, but also on a global level, the chances of risks arising multiply quickly and heavily (Crouhy et al., 2000). A firm can easily lose its name in the market because they had overlooked a miniscule drawback that their competitors overcame. Therefore, risks not only carry financial implications with them, but also other factors such as brand image, market credibility or loss of market share. To analyse and understand these implications, it is necessary to understand the types of risks and their varying characteristics (Flynn, 2008). Click and Duening (2004) have come up with a list of the various types of risks such as human capital risks, Confidentiality risks, overall project risks, and scope risks, delay risks, estimation risks and dependency risks may occur in the business. In addition to this there might be property (intellectual), legal, value related or unavoidable natural risks that generally exist and arise in a business.

Types of risks:

• Human capital risks – This has always been an important part of the business activity. People who work towards organizational goals are the most critical assets of the firm and the project (Beasley et al., 2004). A loss of an employee who was very important to the smooth functioning of a project can be a risky proposition because a new individual joining the project would need time to understand and evaluate a lot of factors contributing to the project. This would invariably lead to loss of productivity, a slump in team morale or even loss of time and money (Flynn, 2008).

• Project risks – These risks arise because of a lot of other risks contributing to the main risk of a project being delayed or even shelved in certain cases. There have also been instances where proper planning and regulation were absent or goals misunderstood leading to extended timeframes to complete the project thus leading to increased investments of critical resources (Sanchez & Canton, 1998). A very good example of project risks can be seen in Government funded public projects or even military developmental projects where public time and money is involved.

• Confidentiality risk: The second most important risk that may appear in dealing a project is confidentiality risk, it mostly appear due to lack of secrecy. This is especially for the large projects. The information have to be kept confidential, if not the competitors with large team members may understand the work flow/formulae of the project and be able to built the project earlier as before you can. We must be careful especially when we involve contractors or outsiders into the project. Effective project management may help in having a good communication line among the team members, marketing staff, and contractors; this may helps to keep the information confidential (T Kendrick, 2009)

• Scope risks: This is another type of risk which mostly appears when the project starts to take a shape. This is due to requirement of a new technology, unfamiliar developments of tools or methods, poor testing criteria, inconsistent specification, undefined product definition, and technical complication (T Kendrick, 2009)

• Delay risks: Delay risk is part of schedule risks and these are after scope risks, these risks mainly appear due to the delay of the essential parts required for a project, it include customs, Paperwork, delivery, and related concerns. This is also due to the delay of information needed, communication gap and misunderstanding among the team members/ project stakeholders, etc. Due this factor the project may delay for some days, months or may be for years (T Kendrick, 2009)

• Estimating risks: Estimating risk appears mostly in technical projects. Project manager mostly says the typical risks arise in the project is estimating risks. Estimating risks occurs when there are learning curves ( when the quality of estimates of new technology, or new people involvement is not good), judgements (misunderstanding, disintegration of work), and imposed deadlines (forceful deadlines set in advance, when an objective is retained) (T Kendrick, 2009)

• Dependency risks: Other projects, infrastructure factors, and legal issues are three sub categories of dependency risks. In general large project are sub divided into small projects and mostly these small project will be dependent on the other, unfortunately when one small project is delayed/stopped the other projects which are dependent on it will be delayed. “Even for the interfaces that were defined in advance, delay was fairly common due to the uncertainty in each project” (T Kendrick, 2009)

The above section has detailed the different types of risks that normally exist or co-exist in projects. Their modes of occurrence and the impact they can have on the project and the firm has been explained in brief. The following part would attempt to explain ways that firms, projects and managers involved employ to analyse and manage the same since the occurrence of a risk can pose a threat to the above in terms of time, money or even failure to deliver what has been promised.

Analyzing And Managing Risks:

Ways to manage risks with limited impact on other resources:

Risks are present in abundance in any IT and outsourcing industries because of the processes being tightly interlinked such as business processes, database, or process reengineering. Therefore, it is very important to:

• Identify risks.

• Weigh risks for probability of risk occurring.

• Weigh risks for criticality/impact at your operations.

• Plan to reduce risk (to zero if appropriate, for example for a safety critical industry) (Sanchez & Canton, 1998).

A simple way of explaining risk analysis is to take an airplane for example because the traveler, who is the user, has zero tolerance to risks. In similar manner, risk analysis can be carried out for other products and services too. The most important indicative risks are business continuity management risks, information security/data privacy risks and process related risks (Lock, 2001).

The need to evaluate and monitor risks involved from an Enterprise Risk Management (ERM) perspective takes higher priority over other means of analysis in the information age of business (Flynn, 2008). It can be seen in the ERM diagram below the different risks across the entire organization that exist or arise and the need for them to be managed effectively (Beasley et al., 2004).

An important reason firms should stress on analysing risks is the realization that risks delay chances of sticking to time schedules agreed by project leaders to customers in turn; leading to increased investment of resources in the form of man hours and time (PMBOK, 2004). This causes increase in investment of capital, which is something neither customers nor firms involved like to do.

Risks occur at every stage of a project thus increasing stress on carrying out risk analysis and minimize the effects of risks on a given project. It means that risks and errors still occur when thorough analyses of their occurrence have been chalked out and steps have been implemented to minimize the effects they have on a project (Burke, 1999). However, prior knowledge of a risk occurring at a given period in the project enables people involved to counter the risk effectively and minimize or erase the impact it could have had on the project. Before the project could be initiated, assessing risks by knowing in exact what the project intends to do and the reason for it to be outsourced becomes very important. This could include assessing project behaviour under varying market conditions and the expected growth rate it can attain within a given period of time (Dickson, 2003).

Risks need to be analyzed in a detailed manner by the top management in order to understand the various options available to conduct a cost-benefit analysis. This understanding and analysis becomes significant in implementing a sound risk management plan. A project taken up poses as a risk in itself to explore opportunities that lie waiting on the other side. Therefore, threats need to be minimized a