QUANTITATIVE METHODS IN PROJECT MANAGEMENT - ASSIGNMENT

Question 1- Explain Business Value Models in detail.

Ans:

Balanced Score Card Model

1. Financial perspective: Financial data has always been a part of business models.
Kaplan and Norton suggest some additional financial data such as cost-benefit and risk-
assessment data.

2. Customer perspective: This defines the ability of the company to market its products
and services. The present market has ample competition. If the customer is not satisfied
with you, he/she will find another option, which is not good for the growth of your business.
This also explains the poor performance of the business.

3. Internal business perspective: This perspective refers to the operational efficiencies of

the business. It aids managers in analysing the health of the business, that is, whether
products and services of the business are doing well or not.

4. Innovation and learning perspective: It has long-term goals and is meant to meet the
goals of the three previous perspectives. Employee capabilities, motivation, empowerment,
and alignment are some major categories related to this perspective.

The Treacy-Wiersema Model

1.Customer intimacy: This is derived from the concept of relationship management. Your
business needs to perform well in terms of customer support and satisfaction to survive a
competitive market, as a customer can easily find other options.

2.Product excellence or superiority: This is again related to the customers needs and
demands. If your product will be superior and different enough to create more demand than
your competitors, your business will grow faster and better.

3.Operational excellence: This area is similar to the innovation and learning perspective of
the balanced scorecard, as it also strives for maintaining good operational standards and
practices.

The Kano Model

Its primary focus is on the customer and his/her requirement of products and services from
the business.

1.Must-be quality
These are the factors, the absence of which raises great dissatisfaction while their presence
does not increase satisfaction.

2.One-dimensional quality
The absence of these factors results in dissatisfaction, whereas their presence results in
satisfaction.

3.Attractive quality
The presence of these factors results in complete satisfaction, but their absence does not
lead to dissatisfaction.

4.Indifferent quality
These are the factors that neither satisfy nor dissatisfy customers. For example, when a
customer expects hot water available in his/her hotel room, the kind of equipment used by
the hotel will not affect the customer in any way.

5.Reverse quality
This refers to a high degree of achievement resulting in a high degree of dissatisfaction.
This happens because the market consists of different types of customers.

Question 2 What is parametric estimating? Explain the steps involved in the

development of a parametric model.

Ans

Parametric estimating is an estimating technique that uses a statistical relationship between

historical data and other variables, such as square footage in construction and lines of code
in software development for calculating an estimate for activity parameters, such as scope,
cost, budget, and duration. Parametric estimating can produce higher levels of accuracy
depending upon the accuracy and sophistication of the underlying data.

This technique is used for estimates that are quantitatively based such as dollars per
square foot or number of installations per day. It is relatively a simple method, but not every
activity or cost can be estimated quantitatively.

Steps Involved In The Development Of A Parametric Model

1) Determining the scope of the parametric model: It involves defining the applications,
physical characteristics, critical components, and cost drivers of the model.

2) Collecting data to support model development: Data related to both scope and cost
needs to be identified and collected. The level at which the cost data is collected will
affect the level at which the model can generate costs.

3) Normalising data to support model development: Data normalisation involves

making adjustments to the base-cost data to account for the differences between the
actual basis of the data for each project and a desired standard basis of data to be used
for the parametric model.

4) Data analysis to support model development: A typical data analysis consists of

performing regression analysis of costs versus selected design parameters to determine
the key cost drivers for the model.
5) Creating the parametric model application: This step involves establishment of the
user interface and the presentation form for the parametric cost model.

6) Testing the parametric model: It measures how well the model can explain variability
in data. This is commonly used as a proxy to know how well the algorithm predicts the
calculated costs.

7) Documenting the parametric model: In the last step, it is very important to document
the resulting cost model and parametric estimating applications. Next, a user model
needs to be prepared showing the steps involved in preparing an estimate using the
cost model and describing clearly the required inputs to the cost model. The data used
to create the model should be documented, including a discussion on how the data was
adjusted or normalised for use in the data analysis stage.

Question 3 What is Capital Budgeting? What aspects of capital budgeting must be

considered while selecting a project?

Ans:

Capital Budgeting

Capital budgeting is a cost-benefit analysis. In simple words, it means that if a company

purchases an asset or makes any investment, it needs to ensure that benefits to the
company are greater than the total cost. In essence, capital budgeting compares the cash
inflows and outflows in a project. Capital budgeting also assists project managers to
evaluate whether to continue or discontinue with a project.

Let us have an overview of the steps involved in the capital budgeting process. First, we
need to list all the cash flows in a project. This is a difficult task since it requires a detailed
understanding of the project. In addition, in this step, a project manager needs to forecast
the future cash flows in a project. Therefore, if the cash flows are not correctly forecasted,
the calculation of the profitability of the project will fail.

Once the cash flows have been determined, the next step is to determine whether the
project should be undertaken or not.

The following are some advantages of capital budgeting:

Multi budgeting methods: In capital budgeting, there are several budgeting techniques
available to suit the varying needs of businesses.

Risk assessment: Capital budgeting is an effective risk-assessment tool. It is a technique

of objectively and individually assessing the returns and risks involved in projects

Predict potential return: Various capital budgeting techniques enable project managers to
calculate the future value of project investments.

Forecasting: Capital budgeting techniques are effective tools for evaluating long-term
investment decisions. The techniques help in analysing long-term
Aspects of Capital Budgeting

Growth of the organisation: This implies that a project should be selected after
considering the overall profit and market share of the organisation. An incorrect decision
regarding project selection can affect the profitability of the organisation. The growth of the
organisation can only be ensured if it invests in appropriate projects.

Risks: This signifies that uncertainties, such as economic recession, inflation, and change
in technology, should be considered during the selection of a project. These risks may affect
the profitability of the project to a large extent, which, in turn, may hamper the growth of the
organisation.

Arrangement of funds: This is the most important aspect of capital budgeting. An

organisation raises funds from different sources to invest in different projects. The
availability of funds influences the project selection decisions of the organisation. A
profitable project may not be affordable in the absence of adequate funds.

Irreversibility of investment decisions: This implies that an organization cannot change

or withdraw its investment decisions once it has taken them, as it may lead to financial loss.
Moreover, changing investment decisions may affect the goodwill of an organisation.
Therefore, an organization should be careful while deciding on a project.

Question 4 Explain the concept and application of Earned Value. What is Time
Centric Earned Value.

Ans:

Concept and Application of Earned Value

According to earned value, if the total value delivered in a project is greater than the total
money spent, the project is considered successful.

If a project is fairly complex, EVM can assist in controlling the performance. By providing
cost and schedule performance assessments of both the total project and its major parts,
EVM allows identifying the likely problem areas so that an effective corrective action can be
taken.

If a project is fairly complex, EVM can assist in controlling the performance. By providing
cost and schedule performance assessments of both the total project and its major parts,
EVM allows identifying the likely problem areas so that an effective corrective action can be
taken.

Consider a project that is running late by one period. If a late delivery of project deliverables
has no dollar consequence, then the late delivery has no consequence on the EV metrics.
However, in case there are dollar consequences to the delayed delivery, then it is
incorporated in the period EV or the period cost, depending on whether the dollar penalty is
an opportunity cost or expense cost.
Consider the project situation where one period late project requires payment of a late
delivery penalty of $500 to the ultimate customer. Such payment is a hard cost expense or
penalty cost. The $500 is expensed to the project and becomes a part of the project cost.
The value of the project to the sponsor remains the same.

Time Centric Earned Value

EV is one of the most trusted tools for project managers. However, it is often viewed as
costly and requires much involvement. Traditionally, EV is a cost centric method, giving the
highest value to the cost.

However, time rather than money is the highest priority for many projects, and this section
describes a time-centric EV system, which can improve project performance and
satisfaction. A consistent focus on getting tasks started and (especially) finished stimulates
project improvement. The Earned Start-Finish system is a time-centric system. In a time-
centric system, the main objective is to earn the time elements of the project plan.

For these, the following questions need to be answered:

Are tasks starting on time?

Are they finishing on time?

Most of the important features of the cost-centric approach are retained in the start-finish
time-centric approach. These features focus on accomplishment, performance
measurement against plan and a predictive outlook on completion.

Question 5 Explain Benefit-Cost Ratio Analysis and Break-Even Analysis.

Ans:

Benefit-Cost Ratio Analysis

BCR analysis refers to an approach that compares the cost to be incurred and financial
benefits to be received from a project. It is conducted to make project decisions. BCR
analysis involves weighing total expected costs and expected benefits to select the most
profitable option. An accurate estimation of costs and benefits would result in an accurate
outcome of the BCR analysis.

A BCR indicates the overall value of money invested in a project. In simple words, BCR
refers to the ratio of the benefits of a project proposal to its costs (both expressed in
monetary terms). All the costs and benefits are expressed in terms of present value. If the
PV of the benefits is greater than the PV of the costs, the project is worth undertaking. In
other words, for a project to be acceptable, the PV of the benefits must be greater than the
PV of the costs.

Project managers participate in calculating the BCR by evaluating the risks in the project
that affect cash flows.

BCR = (PV of all cash inflows)/(PV of all cash outflows)

If BCR > 1, the project has a greater inflow than outflow.

The project is acceptable if BCR > 1.

Break-Even Analysis

Break-even analysis is a widely used technique in project management. Break-even is a no

profit and no loss situation for a project. In a break-even analysis, all costs associated with a
project are divided into two heads, fixed costs and variable costs.

The total fixed cost and the total variable cost are then compared with the total return or
revenue of the project. In a break-even scenario, the total of all fixed or variable costs in a
project are equal to the total revenue or return of the project. Therefore, a project can be
said to have reached its break-even when it has no profit or loss.

The different costs used in the break-even analysis are discussed as follows:

Fixed costs: These refer to the costs incurred in the initial stage of a project and do not
depend on the production or operational level of the project. For example, cost of a
machinery and rent.

Variable costs: These refer to the costs that depend on the volume of production. Wages
and raw materials are examples of variable costs.

Total cost: It refers to the sum total of fixed and variable costs. As depicted in Figure 10.1,
at point P, the total cost is equal to the total revenue. Therefore, the project can be said to
have achieved a break-even at point P.

Question 6 What are the steps that should be followed to construct a house of
quality?

Ans:

The 5 Steps to be followed to construct a House of Quality are -

1) Voice of the customer:

This step includes determining and identifying the customers needs. The main objective of
this step is to translate the needs of every customer into engineering specifications.

Customers buy products that have the desired characteristics, and manufacturers offer the
desired characteristics. There should be a proper alignment between the needs of the
customers and the offerings of the manufacturer. After determining the most important
features, their translation into particular specifications is carried out. Each aspect, such as
heights, torques, weights, etc., of the desired item must be defined. For example, customers
might prefer the weight of a particular mobile phone to not exceed 150 grams. Data from
market research can be used, and new studies can be conducted to gather necessary
information. For example, an automobile manufacturer may find out the needs of customers
for mileage of certain miles per litre of fuel.

2) Regulatory requirements:

This step involves the identification of regulatory standards and requirements by the
management. After the requirements are identified, it is important to incorporate them into
the product design for fulfilling the necessary requirements. For example, an automobile
manufacturer needs to adhere to the emission norms of the government while satisfying the
needs of customers.

3) Planning matrix:

This step involves comparing how well the team meets the requirements stated by
customers as compared to its competitors. The matrix shows the priority of each
requirement that the team and competitors are fulfilling. On the basis of the requirements
fulfilled by each company, it is given a rating from 1 to 5. Customer ratings are combined
with the weighted performance to produce a performance measure.

The main objective of the matrix is to connect customer requirements with the performance
measures designed to improve the product. For example, an automobile manufacturer can
compare the mileage of his/her car models with the mileages of the similar car models of
his/her competitors.

4) Relationships between customer requirements and performance measures:

After establishing the matrix, we need to determine the relationship between customer
requirements and performance measures. These relationships are expressed in terms of
strong, medium or weak relationships.

5) Setting design targets and benchmarks:

In this step, customer requirements are prioritised. A priority is a quality characteristic that
signifies that the organisation delivers more value to the customer by incorporating the
quality characteristics in the products.