1.0 Introduction To Project Management.

LEARNING OBJECTIVES • Understand the theories, concepts and principles of project management. • Know and understand the project development and project life cycle. • Apply the criteria and process in the identification and selection of projects.

Definitions, Theories, Basic Concepts, and Principles
• Projects- Unique one - time operations designed to accomplish a specific set of objectives in a limited time frame. • Examples of projects include construction of shopping complex, roads, bridges, school buildings, ports, computerization projects, among others and to be completed on specified time frame • Project management differs from management of more traditional activities because of its limited time framework and the unique set of activities involved, which gives rise to a host of unique problems.

• A project is “a temporary endeavor undertaken to accomplish a unique product or service” (PMBOK® Guide 2000, p. 4) • Attributes of projects
– unique purpose – temporary – require resources, often from various areas – should have a primary sponsor and/or customer – involve uncertainty

What Is a Project?

• •

Project management- a team based approach in the implementation of any undertakings to attain objectives in a given time. Differs in general operations management due to the following; 1. Limited time frame 2. Narrow focus, specific objectives 3. Less bureaucratic

Project management is used because; 1. Special needs that don’t lend themselves to functional managements. 2. pressures for new or improved products or services, cost reduction • Key matrix of project management; 1. time 2. cost 3. performance objectives. • Key success factors of project management; 1. Top-down commitment 2. A respected and capable project manager 3. Enough time to plan 4. Careful tracking and control 5. Good communications

• Major Administrative issues in project management 1. Executive responsibilities a. project selection b. selection of a project manager c. Organizational structure (to whom the project manager report?) 2. Organizational alternatives a. Manage within functional unit b. Assign a coordinator c. Use a matrix organization with a project leader.

How Project Management Relates to Other Disciplines
• Much of the knowledge needed to manage projects is unique to the discipline of project management • Project mangers must also have knowledge and experience in
– general management – the application area of the project

History of Project Management
• Some people argue that building the Egyptian pyramids was a project, as was building the Great Wall of China • Most people consider the Manhattan Project to be the first project to use “modern” project management • This three-year, $2 billion (in 1946 dollars) project had a separate project manager and a technical manager

Project Management Tools and Techniques
• Project management tools and techniques assist project managers and their teams in various aspects of project management • Some specific ones include
– Project Charter, scope statement, and WBS (scope) – Gantt charts, network diagrams, critical path analysis, critical chain scheduling (time) – Cost estimates and earned value management (cost)

• Main Tools of project management 1. Work breakdown structure- initial planning tool needed to develop a list of activities, activity sequences, and a realistic budget. 2. Network diagram- a visual aid that is used to estimate project duration, identify activities that are critical for timely project completion, identify areas where slack time exists, and develop activity schedules. 3. Gantt charts- A visual aid used to plan and monitor individual activities. 4. Risk management- analysis of potential failures or problems, assessment of their likelihood and consequences, and contingency plans.

Sample Gantt Chart

The WBS is on the left, and each task’s start and finish date are shown on the right using a calendar timescale. Early Gantt Charts, first used in 1917, were drawn by hand.

Sample Network Diagram

Each box is a project task from the WBS. Arrows show dependencies between tasks. The bolded tasks are on the critical path. If any tasks on the critical path take longer than planned, the whole project will slip unless something is done. Network diagrams were first used in 1958 on the Navy Polaris project, before project management software was available.

Project Management Software
• By 2003, there were hundreds of different products to assist in performing project management • Three main categories of tools exist: – Low-end tools: Handle single or smaller projects well, cost under $200 per user – Midrange tools: Handle multiple projects and users, cost $200500 per user, Project 2000 most popular – High-end tools: Also called enterprise project management software, often licensed on a per-user basis • Project 2002 now includes a separate version for enterprise project management (see Appendix A for details on Project 2002)

• Key Managerial Decisions in Project Management Success 1.Deciding which project to implement 2. Selecting the project manager 3. Selecting the project team 4. Planning and designing the project 5. Managing and controlling project resources 6. Deciding if and when a project should be terminated

Advantages of Using Formal Project Management
• Better control of financial, physical, and human resources • Improved customer relations • Shorter development times • Lower costs • Higher quality and increased reliability • Higher profit margins • Improved productivity • Better internal coordination • Higher worker morale

You Can Apply Project Management to Many Areas
• Project management applies to work as well as personal projects • Project management applies to many different disciplines (IT, construction, finance, sports, event planning, etc.) • Project management skills can help in everyday life

Project development

Project Development
Is a cycle of activity which runs through the principal phases of pre-investment phase, investment phase and post investment phase.

The Project Development Cycle
Project Evaluation Project Identification

Project monitoring

Project Preparation

Project Implementation

Detailed Project Engineering

Project Appraisal And Financing

The Project Life Cycle
Project Termination
Project Evaluation and

Project Feasibility Study

Project monitoring

Project Financing

Project Implementation

Detailed Project Engineering

Project Plan Implementation

Basis In Project Identification
• • • • • Problem Based Need based Resource based Opportunity based Personal interest based

Categorizing Projects
• One categorization is whether the project addresses
– a problem – an opportunity – a directive

• Another categorization is how long it will take to do and when it is needed • Another is the overall priority of the project

Project selection
• Methods in selecting projects 1. Economic 2. Financial • Project selection criteria 1. Net Present Value 2. benefit Cost Ratio 3. Internal Rate of Return 4. Payback Period 5. Return on Investment

Methods for Selecting Projects
• There are usually more projects than available time and resources to implement them • It is important to follow a logical process for selecting IT projects to work on • Methods include:
– – – – – focusing on broad needs categorizing projects performing financial analyses using a weighted scoring model implementing a balanced scorecard

Focusing on Broad Organizational Needs
• “It is better to measure gold roughly than to count pennies precisely” • Three important criteria for projects:
– There is a need for the project – There are funds available – There’s a strong will to make the project succeed

2. The Project Management Processes Concepts and principles
LEARNING OBJECTIVES • Know and Understand the Concepts and Principles of The Project Management Processes • Be Able to Understand the Relationships of the Project Management Processes • Understand the Project Planning Concepts and Principle • Be able to understand and apply project scope management.

The Triple Constraint • Every project is constrained in different ways by its
– Scope goals: What is the project trying to accomplish? – Time goals: How long should it take to complete? – Cost goals: What should it cost?

• It is the project manager’s duty to balance these three often competing goals

Figure 1-1. The Triple Constraint of Project Management

Figure 1-2. Project Management Framework

• Knowledge areas describe the key competencies that project managers must develop
– 4 core knowledge areas lead to specific project objectives (scope, time, cost, and quality) – 4 facilitating knowledge areas are the means through which the project objectives are achieved (human resources, communication, risk, and procurement management) – 1 knowledge area (project integration management) affects and is affected by all of the other knowledge areas

9 Project Management Knowledge Areas

Project Stakeholders
• Stakeholders are the people involved in or affected by project activities • Stakeholders include
– the project sponsor and project team – support staff – customers – users – suppliers – opponents to the project

Stakeholder Analysis
• A stakeholder analysis documents important (often sensitive) information about stakeholders such as
– stakeholders’ names and organizations – roles on the project – unique facts about stakeholders – level of influence and interest in the project – suggestions for managing relationships

Project Management Process Groups
• Project management can be viewed as a number of interlinked processes • The project management process groups include
– initiating processes – planning processes – executing processes – controlling processes – closing processes

Figure 3-1. Overlap of Process Groups in a Phase (PMBOK® Guide, 2000, p. 31)

Table 3-1. Relationships Among Process Groups and Knowledge Areas (PMBOK® Guide 2000, p. 38)

Table 3-1. Relationships Among Process Groups and Knowledge Areas (PMBOK® Guide 2000, p. 38)

Project Initiation
• Initiating a project includes recognizing and starting a new project or project phase • Some organizations use a pre-initiation phase, while others include items like developing a business case as part of initiation • The main goal is to formally select and start off projects • Key outputs include:
– – – – Assigning the project manager Identifying key stakeholders Completing a business case Completing a project charter and getting signatures on it

Project Initiation Documents
• Business case: • Charter: Note: Every organization has its own variations of what documents are required for project initiation. It’s important to identify the need for projects, who the stakeholders are, and what the main goals are for the project

Project Charters
• After deciding what project to work on, it is important to formalize projects • A project charter is a document that formally recognizes the existence of a project and provides direction on the project’s objectives and management • Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project

JWD’s Project Charter

JWD’s Project Charter

Project Planning
• The main purpose of project planning is to guide execution • Every knowledge area includes planning information • Key outputs include:
A team contract A scope statement A work breakdown structure (WBS) A project schedule, in the form of a Gantt chart with all dependencies and resources entered – A list of prioritized risks – – – –

JWD’s List of Prioritized Risks

Project Executing
• It usually takes the most time and resources to perform project execution since the products of the project are produced here • The most important output of execution is work results • Project managers must use their leadership skills to handle the many challenges that occur during project execution

Project Plan Execution
• Project plan execution involves managing and performing the work described in the project plan • The majority of time and money is usually spent on execution • The application area of the project directly affects project execution because the products of the project are produced during execution

Important Skills for Project Execution
• General management skills like leadership, communication, and political skills • Product skills and knowledge • Use of specialized tools and techniques

Tools and Techniques for Project Execution
• Work Authorization System: a method for ensuring that qualified people do work at the right time and in the proper sequence • Status Review Meetings: regularly scheduled meetings used to exchange project information • Project Management Software: special software to assist in managing projects

Project Controlling
• Controlling involves measuring progress toward project objectives, monitoring deviation from the plan, and taking corrective actions • Controlling affects all other process groups and occurs during all phases of the project life cycle • Status and progress reports are important outputs of controlling

• Integrated change control involves identifying, evaluating, and managing changes throughout the project life cycle (Note: 1996 PMBOK called this process “overall change control”) • Three main objectives of change control: – Influence the factors that create changes to ensure they are beneficial – Determine that a change has occurred – Manage actual changes when and as they occur

Integrated Change Control

Figure 4-3. Integrated Change Control Process

Change Control on Information Technology Projects
• Former view: The project team should strive to do exactly what was planned on time and within budget • Problem: Stakeholders rarely agreed up-front on the project scope, and time and cost estimates were inaccurate • Modern view: Project management is a process of constant communication and negotiation • Solution: Changes are often beneficial, and the project team should plan for them

Change Control System
• A formal, documented process that describes when and how official project documents and work may be changed • Describes who is authorized to make changes and how to make them • Often includes a change control board (CCB), configuration management, and a process for communicating changes

Change Control Boards (CCBs)
• A formal group of people responsible for approving or rejecting changes on a project • CCBs provide guidelines for preparing change requests, evaluate change requests, and manage the implementation of approved changes • Includes stakeholders from the entire organization

Making Timely Changes
• Some CCBs only meet occasionally, so it may take too long for changes to occur • Some organizations have policies in place for time-sensitive changes
– “48-hour policy” allows project team members to make decisions, then they have 48 hours to reverse the decision pending senior management approval – Delegate changes to the lowest level possible, but keep everyone informed of changes

Configuration Management
• Ensures that the products and their descriptions are correct and complete • Concentrates on the management of technology by identifying and controlling the functional and physical design characteristics of products • Configuration management specialists identify and document configuration requirements, control changes, record and report changes, and audit the products to verify conformance to requirements

Table 4-3. Suggestions for Managing Integrated Change Control • View project management as a process of constant
communications and negotiations • Plan for change • Establish a formal change control system, including a Change Control Board (CCB) • Use good configuration management • Define procedures for making timely decisions on smaller changes • Use written and oral performance reports to help identify and manage change • Use project management and other software to help manage and communicate changes

Project Closing
• The closing process involves gaining stakeholder and customer acceptance of the final product and bringing the project, or project phase, to an orderly end • Even if projects are not completed, they should be closed out to learn from the past • Project archives and lessons learned are important outputs. Most projects include a final report and presentations

Post-Project Follow-up
• Many organizations have realized that it’s important to review the results of projects a year or so after they have been completed • Many projects project potential savings, so it’s important to review the financial estimates and help learn from the past in preparing new estimates

The Key to Overall Project Success: Good Project Integration Management
• Project managers must coordinate all of the other knowledge areas throughout a project’s life cycle • Many new project managers have trouble looking at the “big picture” and want to focus on too many details • Project integration management is not the same thing as software integration

Project Integration Management Processes
• Project Plan Development: taking the results of other planning processes and putting them into a consistent, coherent document—the project plan • Project Plan Execution: carrying out the project plan • Integrated Change Control: coordinating changes across the entire project

Figure 4-1. Project Integration Management Overview

Note: The PMBOK® Guide 2000 includes similar charts for each knowledge area.

Figure 4-2. Framework for Project Integration Management
Focus on pulling everything together to reach project success!

Using Software to Assist in Project Integration Management
• Several types of software can be used to assist in project integration management – Documents can be created with word processing software – Presentations are created with presentation software – Tracking can be done with spreadsheets or databases – Communication software like e-mail and Web authoring tools facilitate communications – Project management software can pull everything together and show detailed and summarized information (see Appendix A for details)

3. Project Management Planning
Learning Objectives • Understand the Project Planning Concepts and Principle • Be able to apply the GOPP, logical framework analysis and project scope management.

Project Plan Development
• A project plan is a document used to coordinate all project planning documents • Its main purpose is to guide project execution • Project plans assist the project manager in leading the project team and assessing project status • Project performance should be measured against a baseline plan

Attributes of Project Plans
Just as projects are unique, so are project plans • Plans should be dynamic • Plans should be flexible • Plans should be updated as changes occur • Plans should first and foremost guide project execution

Common Elements of a Project Plan
• Introduction or overview of the project • Description of how the project is organized • Management and technical processes used on the project • Work to be done, schedule, and budget information


• The Logical Framework Approach (LFA) is a specific strategic planning methodology that can be used to prepare many different types of projects, including environmental investment projects. The output of LFA is the Logical Framework Matrix (LogFrame).

LFA fulfils several functions:
• It develops a structured set of project ideas by clarifying objectives and outputs. • It provides a clear, brief and logical description of the proposed project. • It helps to identify possible risks to project implementation. • It provides a useful basis for project appraisal.

Logical Framework Approach is often confused with the Logical Framework Matrix.
LFA is a project preparation methodology, whereas the LogFrame is a document with a special structure, produced at the end of the LFA process.

The LFA process can be divided into the following five steps: 1. Situation analysis; 2. Stakeholder analysis; 3. Problem and objective analysis; 4. Analysis of alternatives; 5. Activity planning.

Logical Framework Matrix (LogFrame)
• The final step in the LFA is to create the LogFrame. • LogFrame is a document, which summarizes the results of the LFA process. The Logframe has four columns and four rows. Its main purpose is to link the project goals and objectives to the inputs, processes and outputs required to implement the project.

The general structure of the LogFrame is given in the following
• • • • • • • • • • • Narrative Summary Wider Objective Objectively Verifiable Indicators Information Sources Risks and Assumptions What assumptions are you making What assumptions are you making What assumptions are you making What assumptions are you making How to measure How to check the wider objective measurement Project Purpose How to measure How to check the immediate objective measurement Outputs How to measure How to check the outputs produced measurement Inputs/Activities How to measure How to check the Inputs measurement

Logframe Matrix structure
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Project Description Goal: The broader development impact to which the project contributes – at a national and sectoral level Purpose: The development outcome expected at the end of the project. All components will contribute to this. Component Objectives: The expected outcome of producing each component’s outputs. Outputs: The direct measurable results (goods and services) of the project which are largely under project management’s control. Activities: The tasks carried out to implement the project and deliver the identified outputs. Performance Indicators Measures of the extent to which a contribution to the goal has been made. Used during evaluation. Means of Verification Sources of information and methods used to collect and report it. Assumptions

Conditions at the end of the project indicating that the Purpose has been achieved. Used for project completion and evaluation. Measures of the extent to which component objectives have been achieved. Used during eview and evaluation. Measures of the quantity and quality of outputs and the timing of their delivery. Used during monitoring and review. Implementation/work program targets. Used during monitoring.

Sources of information and methods used to collect and report it.

Assumptions concerning the purpose/goal linkage.

Sources of information and methods used to collect and report it.

Assumptions concerning the component objective/purpose linkage.

Sources of information and methods used to collect and report it.

Assumptions concerning the output/component objective linkage.

Sources of information and methods used to collect and report it.

Assumptions concerning the activity/output linkage.

Column Headings
• Narrative Summary The text that "narrates" or describes the objectives. • Objectively Verifiable Indicators The indicators, which demonstrate the ways in which the goals, project purpose, outputs and input shall be achieved. The indicators answer the following questions: In what quality? In which quantity? By what time? Indicators should be quantifiable wherever possible, but qualitative indicators may also be used if necessary. In general, ideal indicators are: Independent, Verifiable, Specific, Accessible. • Sources of information These specify the source of the information used to measure or verify the indicators. • Risks and assumptions These are important events, conditions, or decisions which are necessarily outside the control of the project, but which are critical for the project objective to be attained

Row Headings
• Wider Objective - The higher-level objective that the project is expected to contribute to; this is the objective based upon the “focal problem” identified during the LFA. The addition of the word "contribute' implies that this project alone is not expected to achieve the wider objective. Project Purpose – The anticipated effect that the project will achieve by delivering the planned outputs. This should correspond to one of the objectives based upon the “sub-problems” from the LFA. There is a tendency for this to be expressed in terms of a "change in behaviour" of a group or institution; the project outputs are expected to facilitate this change. Outputs - The tangible results that the project management team should be able to guarantee. Outputs are generally delivered within specified time frame. Inputs/Activities – Inputs are the resources that the project "consumes" in the course of undertaking the activities. Typically they will be human resources,

• •

LogFrame Matrix Example

• • •



• • •

To improve air ambient quality in Black Hollow

Full compliance with the Directive Mandatory measurement No. 1999/30/ of ambient air quality in EC for the Black Hollow region “Black Hollow agglomeration” as required

• • • • • • • • • • • • • • • • • PROJECT PURPOSE To replace buses with trolley buses in the downtown area of Black Hollow assured

OBJECTIVELY VERIFIABLE INDICATORS Share of passengers carried by trolley-buses will achieve 65% after the project is completed Annual survey made and published Co-financing by the Black Hollow Public Transportation authority SOURCES OF INFORMATION

by the Air Quality Framework Directive No. 96/62/EC and performed by the competent authority required by the same Directive SOURCES OF INFORMATION RISKS AND ASSUMPTIONS

OUTPUTS 1. Completed, ready-to-operate trolley bus route A

2. Completed, ready-to-operate trolley bus route B

OBJECTIVELY VERIFIABLE INDICATORS 1. The route complies with all the requirements necessary for obtaining the official permit by the Rail Authority to operate trolley buses. 2. The route complies with all the requirements necessary for obtaining the official permit by

RISKS AND ASSUMPTIONS 1. Checklist with the requirements Construction verified by the city hall. permits issued in time 2. Checklist with the requirements verified by the city hall.

• • • • • • • • • • • • • • • • • • • • • • • • • • •

INPUTS/ACTIVITIES ASSUMPTIONS 1.1. Construction of the funds available trolley route and on time 1.2. Construction of the power subsystem 1.3. Construction of the ground electric transmission line 1.4. Necessary adjustments of the roads on the route 1.5. Purchase of the trolley buses 2.1. Construction of the trolley route 2.2. Construction of the power subsystem 2.3. Construction of the ground electric transmission line 2.4. Necessary adjustments of the roads on the route

OBJECTIVELY VERIFIABLE INDICATORS 1.1. 4 350 m of two track trolley laid 1.2. 1 converter station 2 x 660 V at A 1.3. Trolley route supplied by electricity in all the length



1.1. Operational permit issued

1.2. Operational permit issued 1.3. Operational permit issued

1.4. All the roads on the route capable of carrying trolley buses in compliance with the respective state standard 1.5. 5 trolley buses with the carrying capacity of 140 people 2.1. 3 500 m of two track trolley laid 2.2. 1 converter station 2 x 660 V at B 2.3. Trolley route supplied by electricity in all the length 2.4. All the roads on the route capable of carrying trolley buses in compliance with the respective state standard

1.4. Operational permit issued

1.5. City Hall book-keeping records 2.1. Operational permit issued 2.2. Operational permit issued 2.3. Operational permit issued

2.4. Operational permit issued

Project Scope Management Processes
• Initiation: beginning a project or continuing to the next phase • Scope planning: developing documents to provide the basis for future project decisions • Scope definition: subdividing the major project deliverables into smaller, more manageable components • Scope verification: formalizing acceptance of the project scope • Scope change control: controlling changes to project scope

Project Initiation: Strategic Planning and Project Selection
• The first step in initiating projects is to look at the big picture or strategic plan of an organization • Strategic planning involves determining long-term business objectives • IT projects should support strategic and financial business objectives

Scope Planning and the Scope Statement
• A scope statement is a document used to develop and confirm a common understanding of the project scope. It should include
– a project justification – a brief description of the project’s products – a summary of all project deliverables – a statement of what determines project success

Scope Planning and the Work Breakdown Structure
• After completing scope planning, the next step is to further define the work by breaking it into manageable pieces • Good scope definition
– helps improve the accuracy of time, cost, and resource estimates – defines a baseline for performance measurement and project control – aids in communicating clear work responsibilities

The Work Breakdown Structure
• A work breakdown structure (WBS) is a deliverable-oriented grouping of the work involved in a project that defines the total scope of the project • It is a foundation document in project management because it provides the basis for planning and managing project schedules, costs, and changes

Approaches to Developing WBSs
• Using guidelines: Some organizations, like the DoD, provide guidelines for preparing WBSs • The analogy approach: Review WBSs of similar projects and tailor to your project • The top-down approach: Start with the largest items of the project and break them down • The bottom-up approach: Start with the detailed tasks and roll them up • Mind-mapping approach: Write down tasks in a nonlinear format and then create the WBS structure

Sample Mind-Mapping Approach

Basic Principles for Creating WBSs
1. A unit of work should appear at only one place in the WBS. 2. The work content of a WBS item is the sum of the WBS items below it. 3. A WBS item is the responsibility of only one individual, even though many people may be working on it. 4. The WBS must be consistent with the way in which work is actually going to be performed; it should serve the project team first and other purposes only if practical. 5. Project team members should be involved in developing the WBS to ensure consistency and buy-in. 6. Each WBS item must be documented to ensure accurate understanding of the scope of work included and not included in that item. 7. The WBS must be a flexible tool to accommodate inevitable changes while properly maintaining control of the work content in the project according to the scope statement.
*Cleland, David I. Project Management: Strategic Design and Implementation, 1994

Scope Verification and Scope Change Control • It is very difficult to create a good scope statement and WBS for a project • It is even more difficult to verify project scope and minimize scope changes • Many IT projects suffer from scope creep and poor scope verification
– FoxMeyer Drug filed for bankruptcy after scope creep on a robotic warehouse – Engineers at Grumman called a system “Naziware” and refused to use it – 21st Century Insurance Group wasted a lot of time and money on a project that could have used off-the-shelf components

4. Project Financing and Budgeting
• • • • Learning Objectives Be Familiar and Understand the Concepts and Principles of Project Financing and Budgeting Know and understand how project cost is analysed and identify sources of financing Identify and Analyze Project Costs and Benefits Compute for the Financial and Economic Viability of Projects

How much will it cost?
• How much will the project cost
– To develop – To operate – To maintain

• Can we sustain project operations and maintenance?

How much will it cost?
• • • • • How much is needed to operate and maintain the project in usable form? If we can charge user fees, how much should it be? How much more is needed to collect the fees (administrative cost of collecting the fees)? Given the fees, what is the projected number of users? If we do not collect the fees, what is the projected number of users? If the project cannot be expected to pay for itself, will the provincial government be willing to subsidize its operations and maintenance? By how much?

How much will it cost?
If operations and maintenance of the project cannot be sustained, either from project revenues or subsidies from the province, the project investment should not be undertaken.

Total Project Cost
Cost Items Loan Equity Total

Fixed Cost

1.Machineries, Equipments 2. Buildings And other Infra

• Operating Cost
1. Labor 2. Materials

• •

Miscellaneous Contingency

Sources of Financing
• Equity (Owner’s Investment) • Loan (Banks and other sources) • Grant (Government and other Sources) • Co-Financing

The Budget Cycle
Budget Accountability Budget Preparation

Budget Execution Budget Review

Budget Authorization

KNOW the project
• What is the output of the project?
– Output, not outcomes

• Characterize the output
– Public, private, mixed – Tradeable, nontradeable, partly tradeable

UNDERSTAND the project
• What are the desired outcomes?
– outcomes NOT outputs ?!!?

• What are the desired impacts?

Financial Analysis of Projects
• Financial considerations are often an important consideration in selecting projects • Three primary methods for determining the projected financial value of projects:
– Net present value (NPV) analysis – Return on investment (ROI) – Payback analysis

• Net present value (NPV) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time • Projects with a positive NPV should be considered if financial value is a key criterion • The higher the NPV, the better

Net Present Value Analysis

Net Present Value Example
Note that totals are equal, but NPVs are not.

Uses Excel’s npv function

JWD Consulting NPV Example

Multiply by the discount rate each year, then take cum. benefits – costs to get NPV

NPV Calculations
• Determine estimated costs and benefits for the life of the project and the products it produces • Determine the discount rate (check with your organization on what to use) • Calculate the NPV (see text for details) • Notes: Some organizations consider the investment year as year 0, while others start in year 1. Some people enter costs as negative numbers, while others do not. Check with your organization for their preferences.

Return on Investment • Return on investment (ROI) is calculated by

subtracting the project costs from the benefits and then dividing by the costs ROI = (total discounted benefits - total discounted costs) / discounted costs • The higher the ROI, the better • Many organizations have a required rate of return or minimum acceptable rate of return on an investment • Internal rate of return (IRR) can by calculated by setting the NPV to zero

Payback Analysis
• Another important financial consideration is payback analysis • The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the net dollars invested in a project • Payback occurs when the cumulative discounted benefits and costs are greater than zero • Many organizations want IT projects to have a fairly short payback period

5.1. Introduction to the Concepts And Use of PERT/CPM
• • • • • Learning Objectives Aware and Understand the Concepts and Principles of PERT/CPM Analyze Business Problem and Relate to the Applicability Of the Use of PERT/CPM Identify Business Problems and Use PERT/CPM in its solution Solve Business Problems Using PERT/CPM

Introduction to the Concepts And Use of PERT/CPM
• PERT-Program Evaluation and Review Technique, for planning and coordinating large projects and is concern about scheduling of activities • CPM-Critical Path Method, for planning and coordinating large projects and is concern about importance of activities

By Using PERT/CPM Managers Are Able To Obtain;
• A graphical display of project activities. • An estimate of how long the project will take. • An indication of which activities are the most critical to timely project completion. • An indication of how long any activity can be delayed without delaying the project.

The Network Diagram
• Main features of PERT/CPM is the use of a network or precedence diagram to depict major project activities and their sequential relationships • Two conventions in network construction; 1. Activities on Arrow- arrows designate activities. 2. Activities on node- nodes designate activities

Locate facilities start 1 interview

Order furniture 2 remodel 4 Furniture Set-up 3 Hire and train 5 Move in 6 end

ACTIVITIES ON ARROWS 2 Order furniture 5 remodel 3 interview 4 Hire and train

1 Locate facilities start

6 Furniture Set up 7 Move in


Common terms used in PERT/CPM
• Activities- project steps that consume resources and /or time. • Events- the starting and finishing of activities, designated by nodes in the AOA convention. • Path- a sequence of activities that leads from the starting node to the finishing node. • Critical path- the longest path; determines expected project duration. • Critical activities- activities on the critical path. • Slack- allowable slippage for a path; the difference between the length of a path and the length of the critical path.

• Deterministic time- time estimate that are fairly certain • Probabilistic time- estimates of times that allow for variation. • Optimistic time- the length of time required under optimum condition (To). • Pessimistic time- the length of time required under the worst condition (Tp) • Most likely time- the most probable amount of time required (Tm) • Computing slack time; Slack= Late start- Early start or Late finish- Early finish • Computing estimated time (Te); Te= (To+4Tm+Tp)/6


a a b a a b a b

b c b


Activities must be completed in sequence; first a, then b, and then c.

a a b a


c c b c c d

Both a and b must be completed before c can start

Activity a must be completed before b or c can start.

c d c
Dummy activity

Both a and b must be completed before c or d can start

a b

Use dummy activity to clarify relationships: 1. To separate two activities that have the same starting and ending nodes. 2.When activities share some, but not all, precedence activities No dummy needed

No dummy needed No dummy needed

• To determine the early start and early finish the backward pass is used. -Begin with the starting activity. Start is an activity with zero (0) duration hence this is the early start of the first activity. The early start is added to the duration to get the early finish. The early finish is then the early start of the succeeding activity. This is done for all the activities. However, if there are two activities preceding an activities the highest early finish of the two activity will be considered as the early start of the succeeding activity.

• To determine the late start and the late finish the backward approach is used. -This is done by starting with the analysis with the last activity of the network. The duration of the network will be considered as the late finish of the last activity in the network. The late finish of the last activity is deducted to the duration to get the late start. The late start will then be the late finish of the next activity. This is done for all the activities. Activities with two preceding activity the activity with the lowest late start will be considered as the late finish of the succeeding activity.

A Network Showing the Schedules of Each Activity
0 5 0 5 start 1 g 1 4 1 3 14 16 2 a 5 e 3 5 13 5 13 c 8 5 2 b 13 15 d 13 15 6 10 3 9 19 25 h 2 f 6 7 15 25 15 25 i 8 j

0 3 6 19

5 12 7 8 15 3

25 33 25 33 k 8 end 9 17 3 20 16 33

0 1 13 14

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.