PROJECT MANAGEMENT

Academic Year 2021-22

Seminar/Workshop 3 – Project Selection. Project Scope
Learning Outcomes:
1. Understand how effective project management contributes to achieving strategic
objectives
2. Employ quantitative analysis to evaluate potential for new project investments
3. Understand the importance of scope management for project success

Task 1 – Discussion questions

1. What is the link between strategy and projects/project management?
2. What are some limitations of project selection models?
3. What are the main elements of a typical scope statement?
4. What questions does a project objective answer? What would be an example of a good
project objective?

Task 2. Short exercises on project selection

1. Two new Internet site projects are proposed to be a young start-up company. Project A will cost
$250,000 to implement and is expected to have annual net cash flows of $75,000. Project B will cost
$150,000 to implement and should generate annual net cash flows of $52,000. The company is very
concerned about their cash flow.
Using the payback period, which project is better, from a cash flow standpoint?

2. Sean, a new graduate at a telecommunications firm, faces are following problem his first day at
the firm: What is the ARR for a project that costs $200,000 to implement and has an average annual
profit of $30,000? Calculate Profitability index along with ARR.

3. A 4-year financial project has net cash flows of $20,000; $25,000; $30,000 and $50,000 in the
next 4 years. It will cost $75,000 to implement the project. If the required rate of return is 0.2,
conduct a discounted cash flow calculation to determine the NPV. What would happen to the NPV
of the above project if the inflation rate was expected to be 4% in each of the next four years?

4. Nina is trying to decide in which of four shopping centers to locate her new boutique. Some
locations attract to a higher class of clientele than others, some are in an indoor mall, some have a
much greater customer traffic volume than others, and of course, rent varies considerably from one
location to another. Because of the nature of her store, she has decided that the class of clientele is
the most important consideration, the higher the better. Following this, however, she must pay
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attention to her expenses and rent a major item, probably 90% as important as clientele. An indoor,
temperature-controlled mall is a big help, however, for stores such as hers where 70% of sales are
from passersby slowly strolling and window-shopping. Thus, she rates this as about 95% as
important as rent. Last, a higher traffic volume of shoppers means more potential sales; she thus
rates this factor as 80% as important as rent.
As an aid in visualizing her location alternatives, she has constructed the following table. A “good”
is scored as 3, “fair” as 2, and “poor” as 1. Use a weighted score model to help Nina come to a
decision.

Location
1 2 3 4
Class of clientele Fair Good Poor Good
Rent Good Fair Poor Good
Indoor mall Good Poor Good Poor
Traffic volume Good Fair Good Poor

Task 3. Case Study. Project Selection at Nova Western, Inc.

Phyllis Henry, vice president of new product development, sat at her desk, trying to make sense of
the latest new project proposals she had just received from her staff. Nova Western, Inc., a large
developer of business software and application programs, had been experiencing a downturn in
operating revenues over the past three quarters. The senior management team was feeling pressure
from the board of directors to take steps to correct this downward drift in revenues and profitability.
The consensus opinion was that Nova Western needed some new product ideas, and fast. The report
Phyllis was reading contained the results of a project screening conducted by two independent
groups within the new product development department.
After several weeks of analysis, it appeared that two top contenders had emerged as the optimal new
project opportunities. One project, code-named Janus, was championed by the head of software
development. The other project idea, Gemini, had the support of the business applications
organization. Phyllis’s original charge to her staff was to prepare an evaluation of both projects in
order to decide which one Nova Western should support. Because of budget restrictions, there was
no way that both projects could be funded. The first evaluation team used a scoring model, based on
the key strategic categories at Nova Western, to evaluate the two projects. The categories they
employed were: (1) strategic fit, (2) probability of technical success, (3) financial risk, (4) potential
profit, and (5) strategic leverage (ability of the project to employ and enhance company resources
and technical capabilities). Using these categories, the team evaluated the two projects as shown
here. Scores were based on: 1 = low, 2 = medium, and 3 = high.
The results obtained by this first team suggested that Project Gemini would the best choice
for the next new project. The second team of evaluators presented a Net Present Value analysis of
the two projects to Phyllis. In that analysis, the evaluators assumed a required rate of return of 15%
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and an anticipated inflation rate of 3% over the life of the project. The findings of this team were as
follows:

Phyllis, who was due to present her recommendation to the full top management team in the
afternoon, was still not sure which project to recommend. The evaluations seemed to present more
questions than answers.
Questions:
1. Phyllis has called you into her office to help her make sense of the contradictions in the two
project evaluations. How would you explain the reasons for the divergence of opinion from one
technique to the next? What are the strengths and weaknesses of each screening method?
2. Choose the project that you think, based on the two analyses, Nova Western should select. Defend
your choice.
3. What does this case suggest to you about the use of project selection methods in organizations?
How would you resolve the contradictions found in this example?

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Task 4.

In small groups, identify real-life examples of a project that would fit each of the following priority
scenarios:

a. Time – constrain, Scope – enhance, Cost – accept

b. Time – enhance, Scope – constrain, Cost – accept
c. Time – constrain, Scope – accept, Cost – enhance.

Task 5. Scope Activities

1. You are in charge of organizing a dinner-dance concert for a local charity. You have reserved a
hall that will seat 30 couples and have hired a jazz combo.
Develop a scope statement for this project that contains examples of all the elements. Assume that
the event will occur in 4 weeks and provide your best guess estimate of the dates for milestones.

2. Your roommate is about to submit a scope statement for a spring concert sponsored by the
entertainment council at Western Evergreen State University (WESU). WESU is a residential
university with over 22,000 students. This will be the first time in six years since WESU sponsored
a spring concert. The entertainment council has budgeted $40,000 for the project. The event is to
occur on June 5th. Since you roommate knows you are taking a class on project management, she has
asked you to review her scope statement and make suggestions for improvement. She considers the
concert a resume-building experience and wants to be as professional as possible. Below a draft of
her scope statement. What suggestions you make and why?
WESU Spring Music Concert
Project Objective
To organize and deliver a 6-hour concert
Deliverables
 Concert security
 Contact local newspapers and radio stations
 Separate beer garden
 Six hours of musical entertainment
 Design a commemorative concert t-shirt
 Local sponsors
 Food venues
 Event insurance
 Safe environment
Milestones
 All permissions and approvals secured
 Big-name artist signed
 Secondary artists contracted
 Vendor contracts secured

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  Advertising campaign ended
 Set-up planned
 Concert finished
 All cleaned-up
Technical Requirements
 Professional sound stage and system
 At least five performing acts
 Restroom facilities
 Parking
 Compliance with WESU and city requirements/ordinances
Limits and Exclusions
 Seating capacity for 8,000 students
 Performers are responsible for travel arrangement to and from (WESU)
 Performers must provide own liability insurance
 Performers and security personnel will be provided lunch and dinner on the day of the concert
 Vendors contribute 25% of sales to concert fund
 Concert must be over at 24.15

Customer Review: WESU

Task 6.
1. Identify what is Scope Creep?
2. What are the common causes of scope creep?