DEVELOPMENT OF SPECIAL ECONOMIC ZONE

SPECIAL ECONOMIC ZONE

SPECIAL ECONOMIC ZONE

INTRODUCTION: A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of a structure is to increase foreign direct investment by foreign investors, typically an international business or a multinational corporation (MNC). HISTORY: India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. OBJECTIVES: (a) generation of additional economic activity (b) promotion of exports of goods and services (c) promotion of investment from domestic and foreign sources (d) creation of employment opportunities (e) development of infrastructure facilities BENEFITS: For the units in SEZs
y y

y y y y y y

Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Exemption from minimum alternate tax under section 115JB of the Income Tax Act. External Commercial Borrowing by SEZ units up to US $ 12500 billion in a year without any maturity restriction through recognized banking channels. Exemption from Central Sales Tax. Exemption from Service Tax. Single window clearance for Central and State level approvals. Exemption from State sales tax and other levies as extended by the respective State Governments.

SPECIAL ECONOMIC ZONE For SEZs developers y y y y y y

Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA. Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act. Exemption from dividend distribution tax under Section 115O of the Income Tax Act. Exemption from Central Sales Tax (CST). Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

Feasibility study:
A) Why the SEZ is needed in the actual business sense? YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 VALUE (In Crore) 13,854 18,314 22,840 34,615 66,638 GROWTH RATE (over previous year) 39% 32% 25% 52% 92%

In 2009 state run SEZs account for 55.8% of export earnings. Financing project: Since banks have a ceiling on real estate exposure and SEZs too will be treated as real estate for lending purposes, both will compete for the limited resources y A higher provisioning and risk weightage will require banks to allocate more capital towards advances to SEZs and compel them to increase lending rates y SEZ developers are looking more at FDI y an overseas partner can help in bring in investment and marketing the projects to FIIs B) Risk analyses y Uncertainty over the future tax regime (Direct Taxes Code (DTC) and a goods & services tax (GST)) y Project planning: A) Objectives: y Surveys / Contouring & Investigation of Site, Economic y Zone and Project influence areas y Prepare Conceptual Plans for development y Master Plan and Project Design y Detailed Engineering

SPECIAL ECONOMIC ZONE Architectures Structural Utilities Detailed Cost Estimates Objectives of the Proposed Consultancies Services

y y y y y B) Scope: y y y y y y y y y y y y

Topographical Survey Survey of Land Boundary and physical structure at the site Counter survey of the entire area Soil Survey, soil testing and resistivity survey Base Line Data Collection SWOT Analysis Assessment of facilities required Review of current infrastructure Vision Statement and Concept Plan Detailed Project Engineering (DPE) Billing of quantities and detailed cost estimates Social and Environmental Impact Analysis and Rehabilitation plans

C) Master plan: y Creation of Zone of excellence y Ensure the Quality of SEZ - Internationally y Attract International manufacturers and Service Sector y Master planning for acquired area

SPECIAL ECONOMIC ZONE D) Layout

NETWORKING AND PROJECT SCHEDULING

The Special Economic Zones (SEZs) are coming up all over the country after the big tax breaks announced for both developers and export units in such zones. The new SEZ Act 2005 has prompted 45 new projects worth over Rs 1.5 lakh crores in investment. Mahindra World City in its new avatar house three SEZs: Auto, apparel and IT within the township. Its occupants include Infosys, and BMW which has secured land inside the township but not in the auto SEZ. The TVS group is actively considering setting up a facility in the city. Reliance Industries, ONGC, Mahindra & Mahindra, Reliance Energy, Wipro, Biocon, Hewlett Packard, Nokia and the Adani group are prominent among the 40 players who have announced SEZs of their own. If all these projects go as per schedule, new SEZs in India will attract investments in excess of Rs 1.5 lakh crore, comparing with the situation in 2000 when India s original Act on SEZs yielded little more than a few crores. China has over 600 SEZs unlike India which has struggled to figure afew. So far, if the 7,000-acre Special Economic Zone in Visakhapatnam gets functional in the next three to six months, as planned, it could be the largest in the country. BG Menon, CEO of Mahindra World City attributes the growth of SEZs to the recently passed SEZ Act by the Centre and the Tamil Nadu SEZ Act which are trying to make investment options attractive. Companies within the zone get 15-year income tax holiday besides benefits like zero customs duty on inputs, self-certification and single window clearances.

SPECIAL ECONOMIC ZONE The Government of India, State Governments as well as private business houses are turning SEZ developers. Reliance Industries Ltd has already got an in-principle approval for a Rs 30,000-crore petrochemical SEZ in Jamnagar - the largest in the country. It expected to be operational in the next three years. The public sector ONGC too will be setting up three petrochemical SEZs in the next few years. These include a Rs 25,000 crore project in Mangalore, a Rs 6,000 crore project in Dahej, Gujarat and a Rs 5,500 crore project in Kakinada, Karnataka. Even the Gujarat government set up an SEZ for the petroleum sector to attract multinationals and large corporates to set up base in the state. In addition, the textiles, chemicals, gems and jewellery sectors too are in an expansion mode. SEZs are a means of attracting companies to set up manufacturing or services bases within the country. This becomes a major revenue earner for the country. Andhra Pradesh Industrial Infrastructure Development Corporation Ltd (APIIC), the promoter of SEZs in the state, the time is ripe in the country for SEZs to take off in a big way. Moreover, in a bid to make SEZs more viable, are adopting a public-private partnership model, he pointed out, and recently Andhra Pradesh has announced the Kakinada SEZ. The 9,000-acre SEZ has multiple stakeholders wherein ONGC and its subsidiary MRPL will hold 46%, the AP government through APIIC 3% (by way of land) Kakinda Seaport Ltd and IL&FS 51%. The reason for the development of SEZs in the area, the key elements needed for setting up and developing SEZs like land, infrastructure, access to roads and more importantly sea ports are all there. ? The positioning Vizag SEZ as the Pudong of the Indian east coast, Claimed Mr. Acharya. While there are large, multi-product SEZ, the state is also looking at product specific SEZs. For instance, an SEZ exclusively for gems and jewellery in the IT Hardware Park near Hyderabad is being promoted by Gitanjali, a well-known jewellery brand. Also, there is a Nanotech park for related industries inside the Hardware Park. Similarly, Ramky group, developers of the Pharma City near Vizag is mulling a pharma SEZ inside the Pharma City. But do product or industry specific SEZs work if the economies of scale are worked out properly, they would. Further, sharing common infrastructure could be an advantage, Said Mr. Acharya. This is true of successful SEZs around the world. Government enthusiasm and facilitation often boosts the success of the facility. The AP government, in a bid to boost the SEZ rush is even contemplating ordinances till the glitches in the state SEZ Act are ironed out. Infrastructure is a definite must. Projects like the Mundra Special Economic Zone (Mundra SEZ) which already has the Port, Container Terminal, its own rail link and airport, and its existing social infrastructure may have a head-start and make a bigger difference. However, all of them in due course will have a positive impact. Gas will be a key driver of the Kakinada, Gangavaram and Vizag SEZs, Mr. Charta pointed out. The most prominent sector is the manufacturing sector which would gain the maximum from SEZs specially light and heavy engineering industries that are oriented towards exports. Electronics and light engineering get the advantage of the SEZs and reach greater heights. Auto and auto-components could also avail of the SEZ to create the much talked about small car manufacturing hub of the world in Indian SEZs making these as the in-gate and out-gate to the global

SPECIAL ECONOMIC ZONE markets. Besides these, industries which are being impacted by reducing tax breaks too are now moving towards SEZs. The gems and jewellery sector will also find it more attractive to move into SEZ as their income tax advantages will end by 2011. Some software firms are now considering setting up SEZs since the income tax benefit available to them in a STP will not be available beyond the 2011-12 assessment year, an STP official in Kolkata said. According to STP rules, firms enjoy 100% tax holiday for a period of 10 years or till 2009-10, whichever comes first. In contrast, units under SEZs tax benefits for 15 years irrespective of the year of their commencement. This apart, SEZ units are also exempted from paying service tax. The drugs and pharmaceutical sector as well as the agro and food processing sector too are seriously considering availing the SEZ platforms. Scale is important in ensuring adequate Return on Investment. This is typically in the range of 15%. Of the 40 odd SEZs that have received the in-principal approval, many of them tend to be sector specific and small ranging from 5 acres to about 150-200 acres in size. These sizes can only avail of the SEZ status to get the fiscal benefits of the governments. To truly benefit from scale of operations they need to be closer to 20,000 acres that is the international norm. The large ones, particularly those of international size of over 20,000 acres can create their own captive power plant, captive water supply and create industry specific parks with industry specific common facilities within the Zone. The existing sea port and other multi-modal infrastructure make the zone leverage all the existing assets for greater synergies. Whatever the trigger, SEZs are certainly the flavour of the season.

TENDERING, BIDDING & CONTRACTING

Process:
A consolidated application seeking permission for setting up of a Unit and other clearances, including those indicated below, shall be made to the Development Commissioner, in Form F, in five copies, with a copy to the Developer:(a) Setting up of unit in a Special Economic Zone (b) Annual permission for sub-contracting (c) Allotment of Importer-Exporter Code number (d) Allotment of land/industrial sheds in the Special Economic Zone (e) Water connection (f) Registration-cum-Membership Certificate (g) Small Scale Industries Registration (h) Registration with Central Pollution Control Board (i) Power connection (j) Building welcomeback plan (k) Sales tax registration (l) welcomeback from inspectorate of factories (m) Pollution control clearance, wherever required (n) Any other welcomeback as may be required from the State Government

SPECIAL ECONOMIC ZONE 4.2 Content of Form F includes: (i) Nature of industrial undertaking (ii) Items of manufacture activity/service activity (iii) Investment in Plant and machinery (iv) Import and indigenous requirements of material and other inputs (v) Infrastructure requirements (vi) Details of Foreign collaboration (vii) Pattern of shareholding (viii) Foreign Exchange Balance sheet for the 5 years (ix) Details of Industrial license or LOI/LOA under SEZ/EOU /STP/EHTP Scheme (x) Details of sub-contracting in manufacturing operations The Development Commissioner shall get the proposal scrutinized and get it placed before the welcomeback Committee for its consideration. The proposals received under following clauses shall be placed before the Board by the Development Commissioner for its consideration. a) Granting of welcomeback to the Developers or Units (other than the Developers or the Units which are exempt from obtaining welcomeback under any law or by the Central Government) for foreign collaborations and foreign direct investments, (including investments by a person resident outside India), in the Special Economic Zone for its Development, operation and maintenance; b) Granting, notwithstanding anything contained in the Industries (Development and Regulation) Act, 1951, a licence to an industrial undertaking referred to in clause (d) of Section 3 of that Act, if such undertaking is established, as a whole or part thereof, or proposed to be established, in a Special Economic Zone 4.3 Consideration of proposals for setting up of Unit in a Special Economic Zone. Rule 18 The welcomeback Committee may approve or approve with modification or reject a proposal placed before it within fifteen days of its receipt Where the welcomeback is to be granted by the Board, the Board shall approve or approve with modification or reject such proposal within forty-five days of its receipt: welcomeback Committee or the Board, shall record the reasons, in writing, where it approves a proposal with modifications or where it rejects a proposal and Development Commissioner by order shall communicate such reasons to the person making the proposal. 4.4 General Requirements for getting welcomeback The welcomeback Committee shall approve the proposal if it fulfills the following requirements, (i) Net foreign exchange earning requirement The proposal meets with the positive net foreign exchange earning requirement (ii) Availability of infrastructure - Availability of space and other infrastructure support applied for is confirmed by the Developer in writing, by way of a provisional offer of space - Developer shall enter into a lease agreement and give possession of the space in the Special Economic Zone to the entrepreneur only after the issuance of Letter of welcomeback by the Development Commissioner: - A copy of the registered lease deed shall be furnished to the Development Commissioner concerned within six months from the issuance of the Letter of welcomeback. (iii) Environmental norms The applicant undertakes to fulfill the environmental and pollution control norms.

SPECIAL ECONOMIC ZONE

(iv) Proof of residence The applicant submits proof of residence, namely, passport or ration card or driving license or voter identity card or any other proof of the proprietor or the partners of partnership firms or Directors of the Company, as the case may be, to the satisfaction of Development Commissioner; (v) Income tax returns, The applicant submits the Income tax returns, along with annexures, of the Proprietor or Partners, or in the case of a company, audited balance sheet for the last three years. (vi) Net Foreign Exchange Earnings.- The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely:Positive Net Foreign Exchange = A B >0 (Rule 53) Where: A: is Free on Board value of exports, including exports to Nepal and Bhutan against freely convertible currency, by the Unit and the value of following supplies of their products, namely: (a) Supply of goods against Advance License or Duty Free Replenishment Certificate under the Duty Exemption or Remission Scheme or Diamond Imprest License under the Foreign Trade Policy; (b) Supply of capital goods to holders of license under the Export Promotion Capital Goods scheme under the Foreign Trade Policy; (c) supply of goods to projects financed by multilateral or bilateral agencies or funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies or funds, where the legal agreements provide for tender evaluation without including the customs duty; (d) Supply of capital goods, including those in unassembled or disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of production and spares to the extent of ten per cent.of the free on rail value to fertilizer plants; (e) Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty; (f) Supply of goods to the power projects and refineries not covered in (e) above; (g) Supply to projects funded by United Nations Agencies; (h) supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding; (i) Supply made to bonded warehouses set up under the Foreign Trade Policy or under section 65 of the Customs Act and free trade and warehousing zones, where payment is received in foreign exchange; (j) Supply against special entitlements of duty free import of goods under the Foreign Trade Policy;

SPECIAL ECONOMIC ZONE (k) export of services by services units including services rendered within Special Economic Zone or services rendered in the Domestic Tariff Area and paid for in free foreign exchange or such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by the Reserve Bank of India; (l) supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Color Display Tubes for monitors and Deflection components for colour monitors or any other items as may be notified by the Central Government; (m) Supply to other units and Developers in the same or other Special Economic Zone or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Units or Biotechnology Park Unit provided that such goods and services are permissible for import or procurement by such units and Developers; (n) Supply of goods to Domestic Tariff Area against payment in foreign exchange from the Exchange Earners Foreign Currency account of the Domestic Tariff Area buyer or Free Foreign Exchange received from overseas; (o) Supply of goods against free foreign exchange by a Free Trade and Warehousing Zone Unit; B: consist of sum of the following:(a) sum total of the Cost Insurance and Freight value of all imported inputs used for authorized operations during the relevant period and the Cost Insurance and Freight value of all imported capital goods including goods purchased on high seas basis even though paid for in Indian Rupees and the value of all payments made in foreign exchange by way of export commission, royalty, fees, dividends, interest on external commercial borrowings during the first five year period or any other charges; (b) Value of goods obtained from other Unit or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Unit or Bio-technology Park Unit or from bonded warehouses or procured from international exhibitions held in India or precious metals procured from nominated agencies; ( c) the Cost Insurance Freight value of the goods and services, including prorata Cost Insurance Freight of capital goods, imported duty free or leased from a leasing company or received free of cost and or on loan basis or on transfer for the period they remain with Unit; (d) For annual calculation of Net Foreign Exchange, value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized at the rate of ten per cent every year from the first year to tenth year. 4.5 Sector specific requirements-Rule 18(3) The proposal shall also fulfill the following sector specific requirements, namely:(a) Export of high-grade iron ore that is sixty-four per cent. Fe and above, except iron ore of Goa origin and Redi origin, which would be subject to welcomeback of Board (b) No sub-contracting or job work of polyester yarn shall be permitted in Domestic Tariff Area or in Export Oriented Unit or Units in other Special Economic Zone: This restriction shall not apply to the Units which intend to send the fabric, made by them out of polyester or texturised yarn, for subcontracting but the third party exports shall not be permitted 4.6 Proposals not be considered- Rule 18(4)

SPECIAL ECONOMIC ZONE (a) Recycling of plastic scrap or waste: (b) Enhancement of the approved import quantum of plastic waste and scrap beyond the average annual import quantum of the unit since its commencement of operation to the existing Units; (c ) Reprocessing of garments or used clothing or secondary textiles materials and other recyclable textile materials into clipping or rags or industrial wipers or shoddy wool or yarn or blankets or shawls: (d) Import of other used goods for recycling Reconditioning, repair and reengineering may be permitted subject to the condition that exports shall have one to one correlation with imports and all the reconditioned or repaired or reengineered products and scrap or remnants or waste shall be exported and none of these goods shall be allowed to be sold in the Domestic Tariff Area or destroyed; (e) Export of Special Chemicals, Organisms, Materials, Equipment and Technologies unless it fulfils the conditions indicated in the Import Trade Control (Harmonized System) Classifications of export and import items; (f) If there is any instance of violation of law or public policy by the promoters, having a bearing on the merits of the proposal. (g) the use of any plant or machinery previously used for any purpose in Domestic Tariff Area.(Inserted by Special Economic Zones (Amendment) Rules,2006. MAJOR BIDERS AND SEZ DEVELOPERS OF INDIA:DLF HDIL Parsvnath Developers Omaxe BPTP Real Estate Ansal API Raheja Developers Panchshil Realty Group Adarsh Builders Reliance India CIDCO

ORGANISATION OF PROJECT TEAM

The organisation of project team always comprises of planners, directors, managers, workers etc. These members of a project have a defined role to play starting from the inception of a project to completion of the project. These are aligned in a tree or in a hierarchy where usually planners are placed on the top. The information flow is generally from top to the bottom but can also flow in reverse direction.

SPECIAL ECONOMIC ZONE The project team for the development of special economic zone comprises of a chief town planner at the top followed by chief info officer. Under chief info officer, there are usually 4 verticals like Finance & Administrator, Planning & Engineering, Marketing and Regulatory. These 4 verticals have their respective Heads or Director. y y The Finance & Administrator vertical have GM (A/Cs) and GM (Finance and Planning). This vertical looks after the financial and administrator requirement and issues of the project. The Planning and Engineering vertical have GM (Planning), GM (Engineering) and GM (Quality). The GM (Planning) is responsible for the blueprint of the project. It also takes care about the plan layout of the project. Some part of cost estimation is also done by this vertical. The GM (Engineering) looks after the construction of the site, location of the site, texture of the land, infrastructure etc. The takes care of all the technical requirements of the project and also resolves some issues which occur during the development phase of the project. The GM (Quality) is responsible for the quality checks required like Auditing, safety and security. The Marketing vertical have two GMs, GM (Domestic) and GM (International). The GM (Domestic) markets the SEZ to the domestic clients and customers for the development of their offices on SEZ. The GM (International) looks after the foreign corporate clients mainly MNCs who either have their offices in India or want to further develop their offices or those who don t have their offices but wants to open their offices in India for business development. The Regulatory vertical mainly audits the every process involved in the development of SEZ. The other functions of this vertical are that it provides certain facilities such as Free Trade & Warehousing Zones, International Financial Services Centre may be approved for establishment within the Processing Area

These 4 verticals are the backbone for the development of SEZ. These have to work in synchronisation for the better development and quality of SEZ. The Ministry of Commerce and Industry lays down the regulations that govern the setting up and administering of the SEZs. The Central Government is functioning, while the State Governments play a significant lead role in the development of SEZs in their respective States by stipulating the conditions to be adhered to by an SEZ and granting the necessary approvals. The policy framework for SEZs has been enacted in the SEZ Act and the supporting procedures are laid down in SEZ Rules.

SPECIAL ECONOMIC ZONE The organisation of the project team for the development of Special economic zone is shown below:

These verticals perform set of process which is required for the development of SEZ. Some of these processes are given below: y y y y y y y y y y y Locate Site Plan Layout Cost Estimation Get Approvals Arrangement of Funds Organization of Teams Construction of Site Auditing Check Safety and Security Project Close Out Plan Opening

SPECIAL ECONOMIC ZONE

Minimum Land Requirement

Serial No. 1 2 3 4 Name of SEZ Minimum Contiguous Area Required (Max 5000 ha) 1000 100 100 50 100 100 40 40 Minimum required processing area

Multi Product Sector Specific SEZ in Port or Airport SEZ for Free Trade Zone and Warehousing

Gems and Jewellery, 10 Bio-technology, Non-conventional Energy Electronic Hardware and 10 Software, Information Technology

10

50% 50% 50% 50% , 1 lakh sq. m of built up area, (not exceed 20% of the Processing area in Sector Specific SEZ 50% (40000 Sq mtr for BT & 50000 Sq mtr for G&J 50% (1 lakh sq. m of built up area required to be centrally airconditioned

10

Minimum Investment Requirements

Sector Specific SEZs Investment should be more than Rs. 250 crores or Net worth* of Rs. 50 crores Multi product SEZs Investment should be more than Rs. 1000 crores or Net worth* of Rs. 250 crores

Project Finance
The project is will be financed through debt and equity funds. The key financing sources include: y y y CIDCO funds External Equity External Debt

Project quality management

Quality Control: Quality is defined as 'fitness to purpose', i.e. providing a product (a building) which provides an appropriate quality for the purpose for which it is intended. The price to be paid for a building is a reflection of the expectations of quality - A cheaper building probably uses inferior materials and is likely to be less attractive and less durable. The quality is also related to the timing of when it is delivered.

SPECIAL ECONOMIC ZONE Quality control in the construction industry can be looked at as having three elements:
y y y

To produce a building which satisfies the client To produce a building where quality is related to the price. To produce a building in which sufficient time is allowed to obtain the desired quality.

Like most other aspects of construction management quality control has to be planned. Planning seeks 'order' and a quality control system for a construction project reflects this sense of order. It may be seen to be in five basic stages:
y y y y y

Setting the quality standard or quality of design required by client. Planning how to achieve the required quality, construction methods, equipments, materials and personnel to be employed. Construct the building right first time. Correct any quality deficiencies. Provide for long term quality control through establishing systems and developing a quality culture.

The costs of quality: It is obvious that quality is proportional to costs associated with the construction process. Costs associated with quality need to be identified for management decisions. The costs of quality can be broken down as follows:
y y y

Failure costs: The costs of demolishing and rebuilding, the cost of production time, delays to other gangs Appraisal costs: The cost of inspection and testing. Prevention costs: The costs of providing better designs, more training to reduce failure costs, more maintenance.

Quality Assurance QA: Quality assurance is a mechanism for ensuring that the construction process takes place within the framework of a quality management system. This suggests that quality assurance defines the organization structure, tasks and duties for implementing quality management. In 1987, the Building research establishment surveyed the quality problems on Britain's construction sites. They found that half of the faults were design related, and 40% of the problems arose from faulty construction. 10% were product failing. Design faults:
y y y y y

misunderstanding the client's brief to develop the design using information which is incorrect or out of date misunderstanding of the client's expectations of quality standards lack of co-ordination between the designers. Loose or inappropriate specifications

Construction faults:
y y y

Not building to drawings or specifications poor supervision leading to bad workmanship Insufficient management of the quality of construction.

SPECIAL ECONOMIC ZONE In order to eliminate those potential problems many clients have looked to quality assurance to reassure them that they will get the right building without undue quality problems.

Monitoring and Control of a Project PROJECT CONTEXT: MONITORING AND CONTROL OF A PROJECT This deals with unplanned events that can occur at any point during the project. Subjects covered are Controlling changes Monitoring the project: anticipating, identifying and controlling risks Monitoring changes to the organization. CONTROLLING CHANGES In order to provide stability to the project, project agreements must be recorded, and any changes to agreements must be evaluated for their effects upon other agreements. These agreements should thus be recorded in controlled documentation , and when an agreement is changed, then all other agreements that are based upon that agreement must be reevaluated. In order to control controlled documents in the project, it is proposed that there be a change control board to review changes. The change control board would include the overall project manager, phase project managers, representatives of workers, users, the data processing group and business policy management, and perhaps a change control administration manager to update schedules and provide unbiased advice on business, technical and administrative decisions. Problems of interest to upper management, such as budget issues, would be escalated up to them for resolution. As the project progresses, the responsibilities of the phase managers might be consolidated and the change control board might grow smaller, eventually just handling maintenance changes rather than monitoring the project. When a phase is completed, resulting automated systems should go into maintenance mode. Changes to an automated system agreed upon by the change control board would be sent to a business group for design and to a maintenance group for implementation in the automated system. The maintenance group is often part or all of the group that did the development of the automated system. Once a phase is implemented, a help desk should take telephone calls from users of an automated system. The help desk would give advice on the use of the system and report on errors and suggested enhancements to the maintenance group who would go through the change board for review. As the automated system matures, a user group might take over the change control board in reviewing changes. Controlled Documents Controlled documents may include the following: Organizational objectives, priorities of objectives, strategies and goals Project objectives, priorities of objectives, strategies, goals and constraints workflow requirements system requirements organizational business policies interface plans functional specifications

SPECIAL ECONOMIC ZONE internal design documents (programming specifications) vendor customization specifications programs and program code databases and data dictionary test plans performance and scalability requirements (a Performance and Adaptability Plan ) user documentation, including descriptions of user interfaces. Once an automated system has been implemented, then the automated system must be maintained. After an automated system has been completed and goes into maintenance mode , documents that extend beyond the project and should be maintained and kept up-to-date are those with an asterisk next to them. As indicated documentation that describes an automated system are functional specifications and internal design specifications. These documents should also be controlled. Doing so and enforcing that any changes to the automated system also be recorded in the functional and internal design specifications, provides control over the automated system. Technical items from which an automated system can be built program code and databases are also controlled. Program code and databases for previous versions of the automated system are also kept in case a severe problem occurs that requires a changed automated system to be backed out, returning to a previous version. This process, called the release process or version control Other documents than those listed above are less often controlled during the project, including project plans, risks and contingency plans because they are likely to change and be updated quite often, but should only be changed with careful consideration and consultations. Controlled documents can be used to control changes that may seriously harm a project to distinguish an error in the project from a change in the project. An error is an inconsistency between how an agreement, workflow or automated system is implemented and how it is documented this is either an error in the implementation or in the documentation. A change is a modification in the way an agreement, workflow or automated system is implemented when the implementation matches the documentation of it for a change, both the agreement, workflow or automated system and the documentation should be changed. Change Control Board Questions the change board might ask are the following: Is the change necessary? When? What groups are impacted by the change? How will dependencies and schedules be impacted? Is there are more effective and preferred change to the one that is proposed? Can changes be consolidated? How and when can the change be best made with the least negative impact? Will the change also change the overall project? After approved: What is the priority of the changes with respect to other approved changes? If the change would change the overall project or change other phases in the project, then the overall design will have to be re-visited to determine the change s effect on other phases of the project.

SPECIAL ECONOMIC ZONE MONITORING THE PROJECT AND RESULTING CHANGES Monitoring the Project The project manager monitors the overall project. A phase project manager monitors his phase. The phase project manager reports to the overall project manager of any risks. Jointly, phase project managers and overall project manager should identify risks, potential project problems, as early as possible identify when goals may not be met identify when constraints may be violated ensure that contingency plans occur before unrecoverable problems occur provide and receive project status for the phases and total project. When there is a significant chance that the goals of the project will not be met, this risk should be reported to upper management. Also, when the constraints of the project may be violated, specifically, costs being overrun and schedules significantly slipped, these risks will be reported. When there are disagreements between the phase project manager and overall project manager, then resolution will be escalated to the change control board. Lack of resolution there could escalate to upper management. Figure 16.2 from lists types of risks, identified and not identified. Of the identified risks, these can be separated into those that the project managers consider to be important and those not considered to be important; of these, the important risks can be built into the schedule Of these identified important risks, some will be actual problems and contingency plans in the schedule would be initiated.

SPECIAL ECONOMIC ZONE Of the identified risks, some will be considered not important. These later may not becomes problems, as expected, or may indeed become problems. The other category of problems, unidentified problems, have a higher likelihood of being overlooked. Of these, some will become problems and others will not. Thus, as shown in figure 16.2, there are three paths that result in problems: 1. Those risks that are identified as important and you do nothing about them 2. 3. Those risks that are identified as unimportant and later change into a high risk Those you do not identify and later become problems.

Risks in 1. should never become a problem because the project managers would build them into the schedules. Risks in 2., although probably not built into the schedule, should be recorded and remembered and periodically revisited by project managers to determine if they are now turning into problems. Unidentified risks (3.) require constant monitoring by project managers to identify and resolve.

Generic Software Project Risks

Project Risk Lack of top management commitment to the project Failure to gain user commitment Misunderstanding the requirements Lack of adequate user involvement Failure to manage end user expectations Changing scope/objectives Lack of required knowledge/skills in the project personnel Lack of frozen requirements Introduction of new technology Insufficient/inappropriate staffing Conflict between user departments Importance 9 8 8 7.5 7 7 7 6.5 6 6 5.5

Monitoring Changes to Workflows

Reengineering workflows is not a one shot deal but should involve ongoing process management and improvement. Once workflows have been implemented, they should be monitored for actual improvement in business operations and for compliance with business policies. Reengineering is imbedded both within human processes implemented in the organization and within user interfaces. Both should be considered for further (even radical) change once the project is complete. As in the project reengineering process, the employee should be heavily involved, as reengineering is a social process in addition to a business and technical process. Monitoring System Performance A potential problem when automated systems are involved is the potential of the systems not being able to handle increased volumes of data in the future. To take care of this, performance monitoring should be a part of all automated systems that are likely to grow in size, identifying potential future bottlenecks in the system, including lack of disk space, lack or processing power, approaching transaction limits, long before they become a problem, so corrective action can be taken. This process is very complex because automated systems will grow in size due to systems being installed incrementally (e.g., they may be installed at a pilot location first) and due to future increases in number of customers over time. It is also complex because new technology may become

SPECIAL ECONOMIC ZONE available that handles greater capacity but that will incur additional costs to the organization to implement. In this book, it is proposed that information required for this planning be kept in a Performance and Adaptability Plan document that identifies future projections of increases in number of customers handled by automated systems, bottlenecks identified so far, and contingency plans for resolving anticipated future performance problems. The Performance and Adaptability Plan document would be used by business planners who would project increases in numbers of customers, performance monitors who identify bottlenecks in systems, and capacity planners who would identify requirements for changes to hardware and system software. Application of IT Broad focus on providing secure communication: When two entities are communicating with each other, and they do not want a third party to listen to their communication, then they want to pass on their message in such a way that nobody else could understand their message. This is known as communicating in a secure manner or secure communication. Secure communication includes means by which people can share information with varying degrees of certainty that third parties cannot know what was said. Other than communication spoken face to face out of possibility of listening, it is probably safe to say that no communication is guaranteed secure in this sense, although practical limitations such as legislation, resources, technical issues (interception and encryption), and the sheer volume of communication are limiting factors to surveillance. Software Automation: Automation is the act of scripting or automating a wide variety of tasks that software developers do in their day-to-day activities including things like: compiling computer source code into binary code packaging binary code running tests deployment to production systems creating documentation and/or release notes VPN/Outsourced Data networks: A virtual private network (VPN) is a computer network that uses a public telecommunication infrastructure such as the Internet to provide remote offices or individual users with secure access to their organization's network. It aims to avoid an expensive system of owned or leased lines that can be used by only one organization. It encapsulates data transfers using a secure cryptographic method between two or more networked devices which are not on the same private network so as to keep the transferred data private from other devices on one or more intervening local or wide area networks. There are many different classifications, implementations, and uses for VPNs.

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Cloud Computing:
Cloud computing is location-independent computing, whereby shared servers provide resources, software, and data to computers and other devices on demand, as with the electricity grid. Cloud computing is a natural evolution of the widespread adoption of virtualization, service-oriented architecture and utility computing. Details are abstracted from consumers, who no longer have need for expertise in, or control over, the technology infrastructure "in the cloud" that supports them. Cloud computing describes a new supplement, consumption, and delivery model for IT services based on the Internet, and it typically involves over-the-Internet provision of dynamically scalable and often virtualized resources. It is a byproduct and consequence of the easeof-access to remote computing sites provided by the Internet. This frequently takes the form of webbased tools or applications that users can access and use through a web browser as if it was a program installed locally on their own computer. The National Institute of Standards and Technology (NIST) provide a somewhat more objective and specific definition here. The term "cloud" is used as a metaphor for the Internet, based on the cloud drawing used in the past to represent the telephone network, and later to depict the Internet in computer network diagrams as an abstraction of the underlying infrastructure it represents. Typical cloud computing providers deliver common business applications online that are accessed from another Web service or software like a Web browser, while the software and data are stored on servers.

Project Close-Out
For many organizations, project closeout involves gathering all of the cost control documentation and evaluating the cost control procedures, as detailed below. Documentation. As a part of project closeout, you need to collect all data related to project cost control. This includes budget reports, performance analyses, trend analyses, Gantt charts, change requests, budget update reports, and progress updates. Procedures. Project closeout procedures often include completing all the necessary company forms and evaluating any new project processes. The lessons learned during cost control efforts should become a part of a project's historical database. The information you keep about closed-out projects should be used to save you time and money on future endeavors.

SPECIAL ECONOMIC ZONE Things you should include as you document the lessons learned are details about the main causes of cost control variances, the reasons behind the corrective action chosen, and actions you'll do differently in future projects. In addition, when you learn important lessons that will improve the performance of future projects, you should share the information with other project leaders within the company. Possible reporting techniques include: discussing lessons learned during team debriefings reassigning a team member to another division in order to train personnel there writing a case study based on the lesson and incorporating it into corporate training material Distributing lessons learned to employees via e-mail or as written memos. Update Project Close-Out Plan and Schedule Activities The outline of the required activities already exists in the Project Close-Out Plan section of the Software Development Plan. This was prepared early in the project and will probably need to be updated at this time. The Project Manager should ensure that a formal schedule for project termination activities is constructed and agreed with the customer and the projects own organization. This schedule should be captured in the Software Development Plan. Schedule Final Configuration Audits The Project Manager arranges for the final functional and physical configuration audits to be conducted according to Perform Configuration Audit. Conduct a Project Post-Mortem Review A post-mortem review is held to determine whether the project is ready for final, formal acceptance by the customer, and subsequent close-out. The Iteration Assessment for the previous iteration and the Issues List are reviewed to make sure any residual issues are understood and have an owner in the support and maintenance organization. If there was a formal acceptance test, the status of results and corrective actions should be reviewed, to ensure there are no showstoppers going into the formal Project Acceptance Review. The state of deployment should be examined to ensure that installation, training and transition have completed, or that remaining activities can complete without prejudice to acceptance. The Project Manager produces a Status Assessment that captures the results of the post-mortem review and the configuration audit, in preparation for the Project Acceptance Review. Complete Acceptance Action Items There may be some remaining actions following the Project Acceptance Review and acceptance may be conditional upon completion of these. The Project Manager initiates work to resolve these items. Close Out the Project The project manager handles the remaining administrative tasks of project termination. These will include: Ensuring that the project is formally accepted: the contract and the Product Acceptance Plan will describe the requirements. In the end, what is needed, in effect, is signed agreement from the customer that all contracted deliveries have been made, meet the contracted requirements and are accepted into ownership by the customer; all contracted activities (including acceptance test, if any) have been successfully completed; and that the customer takes all further responsibility (warranty and latent defect claims aside), for the products and any residual issues and actions associated with them.

SPECIAL ECONOMIC ZONE Settling the project's finances - making sure all payments have been received and all suppliers and subcontractors paid. Organizational policy or other regulatory requirement may also require a more formal audit process at project termination, covering the project's finances, budgeting process, and assets. Archiving all project documentation and records. Transferring any remaining (non-deliverable) hardware and environment assets to the owning organization's pool of assets. Transfer the project measurements to the corporate historical database. Reassign remaining project staff: if possible, this should not be done abruptly. Most projects can accommodate a gradual ramp-down of staff levels, and allow a smoother transition of staff to other projects. The project manager should ensure that the project knowledge and responsibilities of departing staff have been transferred to those remaining. Staff performance reviews should also be conducted as staff is transferred.