COST BENEFIT ANALYSIS

 Is a Simple tool use for comparing the costs into the benefits, make a decision and
selection of best project in a financial point of view.
 Cost benefit Analysis is like a scale, which on the left side are the benefits, and on the
right side are the cost, it represents weighing of benefits and cost

Example of benefits
 Revenue–it is the total amount of income generated by the sale of goods and services, or
in other word it is a profit.
 Staffing Reduction (Cost Control) – it is the termination of employee, to decrease the
expenses of the company, maybe because of the project or production becomes limited.
 Organization Efficiency – it is an organization, which can deal, every challenge, resulting
the production was expected on time, preventing error, and wastage of resources.

Example of Cost
 Construction Cost, a cost used for construction.
 Principal Cost, refer to an amount of money you invest to start a business, example buying
a printer for printing business.
 Personnel Cost, it is the employee salaries, wages and bonuses.
 Direct and indirect cost.
 Direct cost meaning it helps your company produce goods or services, example is the
salary or commission of pay employee, Fuel cost for machine and equipment, and steel
used in factory to makes product like cars.
 Indirect cost helps support your business in other way or it is an overhead cost., like
utilities such as electricity and water, office equipment such as computers or telephones,
insurance, rentals and repairs, Salaries of Managers and supervisors are also considered
as indirect cost.
 Depreciation, it is the decrease in an asset's value.
 Annual Cost, it should be tax or maintenance cost.
Situational Example
Let say you have a 90Million pesos, and you wanted to find out, if you could make more
money by, building a commercial establishment, in order to make decision, we could find out
how much cost to do, and how much final money we could earn.
Let’s start at the beginning, in the year 0 let say 90Million needed to get started such as (buying
land, construction of building, utilities and office equipment. And after a year, the small red bar
1Million pesos represent utility cost, employee salary and maintenance cost, blue bar represent
5Million earnings from rental for a year. Over a year, let say 60 years, each year you spent 1
million pesos and make 5Million pesos each year up to 60 years, And after 60 years adding all
Total Benefits less total cost we get 135Million, You make profit of 45Million from 90Million
starting capital, since you increase your money from 90Million to 135Million you should pursue
this project, but it is not necessary in all cases, it is because we consider option or alternative to
choose which be more productive and make more money.
Stages in Creating Cost Benefit Analysis

 Stage 1 - Make a list of benefits and cost which involve over project lifetime, in this form,
you can fill up, the cost here, and benefits.
 Stage 2 - Set a reasonable amount for every benefits and cost created in stage 1.
 Stage 3 - it is the Estimation of cost and benefits every year until project lifetime.
 Stage 4 - In example, Option 1, 2 and 3, based on the data we can say option 1 is the best
because it has highest benefits than cost.

RISK ANALYSIS
 Process that figures out how likely that a risk will arise in a project.
 It is a list of question of potential risks to consider in project and its preventive measures.

Sources of Risk

 New technology – it is a risk to consider because people need to educate in handling and
operating of this new innovative technology. For example, Exoskeletons technology which
can help workers in carrying weight up to 100 kg with less effort, but when mishandling
or misuse it can cause accident.
 New Partner – sometimes engagement in newly partner is tough, conflict in ideas and
principles maybe arise.
  New Process – it is a procedure need to familiarized and carefully understand for proper
implementation, that’s why in every project we have a methodology for every work to be
done.
 Availability of resources – some of equipment specifications, are not available here in the
Philippines, so the project management need to procure overseas, it takes time for the
shipment and also it undergoes costume clearance. schedule greatly affects as a risk, also
obsolete of equipment and material need to consider as risk, example for this, is water
cooled Chiller is now not available in the market, and it is replaced by Air-cooled chiller,
risk for the project are procurement and delivery, which schedule and budget greatly
affects.

Example of Risk Assessment Checklist form

https://www.geneevarojr.com/construction-project-risk-assessment-checklist/
BUSINESS CASE

 Is a document to make a case financially based on benefits and cost.

 A justification for the organization to invest in a project.
 The aim of a business case is to convince decision-makers that a particular course of
action will result in the best outcome.

Content of Business Case

 Executive summary
o It is Just a summary that describe purpose of the project, explain how project will
address and solve the problem.
 Problem
o States what business opportunity or problem are in the project
 Analysis
o It is the analysis, to help decision makers, to set out, a choice in a number of option
or proposals
o It Contains list of Financial and non-financial benefits
 Financial Benefits - Increase in sale, increase in availability and effective
work process.
 non-financial benefits -Customer satisfaction, service quality, Enhanced
reputation with supplier and customer.
o Benefit realization – is when actual results meet goal of a strategy
o Financial and non-financial cost – such as maintenance, utilities and insurance
o Project team also be included, it is important because many companies looking
for PM and project team with better understanding in project
 Finances
o by using Cost Benefits analysis, it explains how much it will cost to conduct the
project, and projection profit from a project,
 Possible option
o Outline the possible solution to the problem
 Recommendation
o It shows why the project you selected is the best option, includes risk and how you
will address these.
Example of Business Case Template

Reference: https://pingboard.com/
OVERVIEW OF PROJECT INITIATION

(a) Project initiation is the first phase in project life cycle which define overall parameters.

Example of the parameters

 Scope are the deliverables in the projects
 Budget/Cost - All projects incur costs. Project costing is a key factor in making project
decisions. As a project manager, you need to be aware of the type of costs that impact
your project.
Types
o Fixed costs are those that do not change throughout the life-cycle of a project.
Machine Cost such as Tower crane, excavator and bulldozer
o Variable costs, are costs that change during the project life-cycle
Fuel cost for machine, equipment, labor rates included overtime cost
o Direct cost and indirect cost which I previously explain
o Sunk Cost - Sunk costs are those that have been incurred in a project, but have not
produced value towards the project’s objectives, or a cost that used in a project
that cannot recover, example selling a product and no one buy due to negative
impact to the customer, your product cost considered as sunk cost
o Time/Schedule are the start date and end dates of a project
o Quality are the output of deliverables

Example of relationship
If project manager wants to shorten the schedule for faster completion, it results higher
budget, meaning short deadline more resources to get the work done on time.
 (b) Identifying opportunity or reason for the project

Opportunity because project is intended to help people build a better life, economy and
tourism growth.

In this shown project is the Manila-Clark Airway (Overall Progress is 43% as of Jan. 31, 2021)
Guaranteed 1-hour travel from Metro Manila to Clark International airport.

In addition is the Mindanao Railway: (status in not yet started) this is a 2000km railway in
Mindanao Island. The travel time from Davao to Surigao and Cagayan De Oro would become 2
hours. It will help goods to be transported faster and cheaper in different parts of Mindanao. In
result with, is the opportunity to grow businesses and economy of Mindanao.

Reference: https://pinoytrending.altervista.org/look-list-big-projects-duterte-administration-planned-build/
 (c) To set the quality environment required to complete the project
 Any Project poses environmental risk need ECC (Environmental Compliance Certificate).
 Project should not cause negative impact on the Philippine environment.

FLOW CHART OF PROJECT INITIATION

Reference: Project Initiation Process: 6 Key Activities – Knowledge Hub for Project Management Professionals (projectpractical.com)

In the 1st Column Head of the Project Management office is also called Project Director,
PMO supports cross-functional collaboration and reduce chaos within organization, meaning it
is the center or way of communication between the Client and Project Manager.
The reason why early involvement of the project manager from the beginning to the
end of the project is ensures that the project manager has an in-depth understanding of the
project and can therefore identify imminent risks and constraints in the project
SELECTION OF PROJECT MANAGER
 Project Manager play a very important role in every stage of project, it should have a
competent to complete project at deadline, with desired quality and in allocated budget.
 Performing Organization such as Project Management Office (PMO) appoints the project
manager to lead project team and manage the project until completion.

Criteria in selection of Project Manager

 Basic Criteria – Education, experience
 Criteria of Authority - Leadership criteria, managerial criteria
 Technical Criteria – knowledge, ability
 Certification Criteria – Certificate on the project management
 Human Criteria – communication, attitude and character

UNDERSTANDING BUSINESS CASE

 comprehend the reason why project is initiated
 it allows stakeholders to know the justification for carrying out a project
 knowing the project scope serve as a guide on what to be done, when and at what stage
 Project manager should consider the benefits, costs and risks rising from the project

CREATE MEASURABLE OBJECTIVE

 It is an objective that can be tracked with the help of units, numbers, and figures.
 Objective should be SMART

Why it is important
 Track progress
 Identify problem in achieving outcome

Example of Objectives for Construction Project

 Promote the use of green energy by installing a solar system before completing the third
phase of construction.
 Improve lighting insulation by installing lightning arrestors in the last phase of the project.
 Enhance safe construction policies by actively monitoring all stages of construction and
constant reporting.
 Ensure that the buildings are up to modern standards at the end of the phase.
 Create space-friendly designs to save on space by the end of the first phase.
STAKEHOLDER MANAGEMENT STRATEGY/ STAKEHOLDER MANAGEMENT PLAN

 Is a formal document outlining how stakeholders will be engaged in the project.

 Defines an approach to increase the support and minimize negative impacts of
stakeholders throughout the entire project life cycle.

Example of stakeholder management plan

Reference: https://cfw.paymoapp.com/wp-content/uploads/2019/08/Stakeholder-Register.pdf

To able to fill up the Power and interest we consider Mendelow’s Matrix

Mendelow's matrix is a popular method helps to deal with stakeholders' conflicting

demands. It identifies stakeholder expectations and power and helps in establishing political
priorities
The matrix contains Interest in x direction from low to high in right direction, while power or
authority in y direction from low to high going up

 High power – high interest: These are key stakeholders, like the project sponsor, who
can help you get the much-needed budget or recruit the right team members.
Because of this, manage them closely and involve them early on in the decision-
making process.
 High power – low interest: The “delayed bombs”. They might have a low interest at
the moment, but this can change if the project deviates from its course. Keep them
satisfied, but not busy. Briefs and memos should work so they’re aware of the
project’s overall direction.
 Low power – high interest: The “cheerleaders”. Or the ones who root for the project
on the sidelines, despite their low level of power. This makes them powerful allies,
so keep them informed about all the major updates and invite them to help with the
project details.
 Low power – low interest: this stakeholder do not have much influence over project
decision, nor are they very interested in project itself.

MILESTONE

 Represents an important event for the project to achieved

 Should be assigned zero duration

Reference: https://constructionprojectmanagementpro.com/
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