Project Management:

an Overview
What is a Project?

• A project is an activity that :

• is temporary having a start and end date

• is unique

• brings about change

• has unknown elements, which therefore create risk

● A project is temporary in that it has a defined beginning and end in time, and
therefore defined scope and resources.
● And a project is unique in that it is not a routine operation, but a specific set
of operations designed to accomplish a singular goal. So a project team
often includes people who don’t usually work together – sometimes from
different organizations and across multiple geographies.
Project Life Cycle
Break-even Analysis
 NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present
value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a projected
investment or project.

Decision Rule
In case of standalone projects, accept a project only if its NPV is positive, reject it if its NPV is negative
and stay indifferent between accepting or rejecting if NPV is zero.
In case of mutually exclusive projects (i.e. competing projects), accept the project with higher NPV.
Examples
Example 1: Even Cash Inflows: Calculate the net present value of a project which requires an initial investment of $243,000 and it is expected to
generate a cash inflow of $50,000 each month for 12 months. Assume that the salvage value of the project is zero. The target rate of return is 12%
per annum.

Solution

We have,

Initial Investment = $243,000

Net Cash Inflow per Period = $50,000

Number of Periods = 12

Discount Rate per Period = 12% ÷ 12 = 1%

Net Present Value

= $50,000 × (1 − (1 + 1%)^-12) ÷ 1% − $243,000

= $50,000 × (1 − 1.01^-12) ÷ 0.01 − $243,000

≈ $50,000 × (1 − 0.887449) ÷ 0.01 − $243,000

≈ $50,000 × 0.112551 ÷ 0.01 − $243,000

≈ $50,000 × 11.2551 − $243,000

≈ $562,754 − $243,000

≈ $319,754
Life Cycle Costing