Project & Operation - Management and Financial Model: Dr. Nor Khairusshima

PROJECT &
OPERATION
__MANAGEMENT AND
FINANCIAL MODEL__
LECTURE 1
DR. NOR KHAIRUSSHIMA
OPERATIONAL VS PROJECT
• Most work being done in organizations, companies, firms
can be described as either Operational or Project Work.
Operational Project Work
On Start -
going End
DR. NOR KHAIRUSSHIMA MUHAMAD KHAIRUSSALEH MANU 3314 PROJECT AND OPERATION MANAGEMENT
CLASS ACTIVITY: Project Or Operation?
Project
Building Factory production Final Year Project Company

Construction Accounting
Operation
WHAT IS A PROJECT?
• Definition: A project is a TEMPORARY endeavor

undertaken to create a unique product, service, or result.
• The temporary nature of projects indicates that a project

has a definite beginning and end.
WHAT IS A PROJECT?
• The end is reached:
i. when the project’s objectives have been achieved or
ii. when the project is terminated because its objectives

will not or cannot be met, or
iii. when the need for the project no longer exists.
PROJECT OUTPUT
• A project can create:
i. A product that can be either a component of another
item, an enhancement of an item, or an end item in
itself;
ii. A service or a capability to perform a service (e.g., a

business function that supports production or
distribution);
PROJECT OUTPUT
iii. An improvement in the existing product or service lines
(e.g., A Six Sigma project undertaken to reduce
defects); or
iv. A result, such as an outcome or document (e.g., a

research project that develops knowledge that can be
used to determine whether a trend exists or a new
process will benefit society).
PROJECT’S EXAMPLES
• Examples of projects include, but are not limited to:
i. Developing a new product, service, or result;
ii. Effecting a change in the structure, processes, staffing, or

style of an organization;
iii. Developing or acquiring a new or modified information

system (hardware or software);
PROJECT’S EXAMPLES
iv. Conducting a research effort whose outcome will be aptly
recorded;
v. Constructing a building, industrial plant, or infrastructure;

or
vi. Implementing, improving, or enhancing existing business

processes and procedures.
vii. …and etc.

PROJECT
MANAGEMENT
PROJECT MANAGEMENT
Project management is the application of knowledge,

skills, tools, and techniques to project activities to meet
the project requirements.
PROJECT MANAGEMENT
Why Project Managers Need To Understand Their
Organization’s Mission And Vision
• There are two main reasons
i. To provide destination for the

organization.
ii. Guiding light on how to get to the

destination
PROJECT vs PROGRAM vs PORTFOLIO
• Portfolio refers to a collection of projects, programs,

subportfolios, and operations managed as a group to
achieve strategic objectives.
• Programs are grouped within a portfolio and are

comprised of subprograms, projects, or other work that
are managed in a coordinated fashion in support of the
portfolio.
• Individual projects that are either within or outside of a

program are still considered part of a portfolio.
• Although the projects or programs within the portfolio

may not necessarily be interdependent or directly related,
they are linked to the organization’s strategic plan by
means of the organization’s portfolio.
CLASSIFICATION OF THE PROJECT
• Many organizations find they have three different kinds of projects in
their portfolio:
i. Compliance and emergency (must do)
e.g. Rebuilding a soybean factory destroyed by fire
ii. Operational (support current operations)

e.g. Total quality management (TQM)
iii. Strategic projects (directly support the organization’s long-run

mission)
e.g. New products, research, and development)
ORGANIZATIONAL INFLUENCES ON PROJECT
MANAGEMENT
• Organizational influences directly effects a project’s success;
either positively or negatively
• These influences include the organization’s structure, its

structure and its general style
• Organizational structures range from functional to projectized,

with a variety of matrix structures
MANAGEMENT
ORGANIZATIONAL
• Infographic Style INFLUENCES ON PROJECT
MANAGEMENT
FUNCTIONAL Organisation
Project
Each employee has one Coordination Chief
Executive
supervisor, employees are
grouped by
Functional Functional Functional
specialty/department and Manager Manager Manager
the project manager has

Staff Staff Staff
little authority
Staff Staff Staff
Staff Staff Staff

ORGANIZATIONAL
• Infographic Style INFLUENCES ON PROJECT
MANAGEMENT
PROJECTED Organisation
Most employees are Project
involved in project work, Coordination Chief
Executive
teams are co-located,
and groups are reported Project Project Project
directly to project Manager Manager Manager
manager who has an Staff Staff Staff

appropriate authority
Staff Staff Staff
Staff Staff Staff

MANAGEMENT
STRONG matrix
WEAK Matrix Chief Executive Organisation Chief
Organisation
Executive

Manager Manager Manager
Staff Staff Staff
Staff Staff Staff Staff Project manager

Staff
Staff Staff Staff Project manager
Matrix Staff Staff
Project Coordination
Organisation Staff Staff Project manager
STRONG matrix Chief Executive Project Coordination

Organisation
Functional Functional Functional Matrix organisations are range from WEAK to

STRONG, with the project manager’s
Staff Staff Staff
authority corresponding to the organisation’s
Staff
Staff Staff
structure
Project manager Staff Staff
Project Coordination
MANAGEMENT
Influence of Organisational Structures on Projects
PROJECT LIFE CYCLE
PLC
A project life cycle is the series of
phases that a project passes
Project Life through from its initiation to its
closure.
Cycle
(PLC):Main
project The phases are generally sequential, and
their names and numbers are determined by:
documents the management and control needs of the
organization or organizations involved in
the project,
the nature of the project itself, and
its area of application.
DR. NOR KHAIRUSSHIMA MUHAMAD KHAIRUSSALEH

Cost and Staffing Level
PROJECT MANAGEMENT OUTPUT
2 4
1
Time
1 Project charter 2
Project management 4 Archived project Documents
3 Accepted deliverables
DR. NOR KHAIRUSSHIMA MUHAMAD KHAIRUSSALEH
plan. MANU 3314 PROJECT AND OPERATION MANAGEMENT
MAIN PROJECT DOCUMENTS (PLC)
A document issued by the project initiator or sponsor

that formally authorizes the existence of a project and
provides the project manager with the authority to apply 1 Project charter
organizational resources to project activities..
The document that describes how the project will be Project management plan
2
executed monitored and controlled.
Any unique and verifiable product, result, or capability to

perform a service that is required to be produced to 3 Accepted deliverables
complete a process, phase, or project
.
PROJECT LIFE CYCLE (PLC): GENERIC LIFE
CYCLE
• PLC typically passes sequentially through 4 stages:
Defining Planning Executing Closing
• The starting point begins the moment the

project is given the go-ahead.
• Project effort starts slowly, builds to a

peak, and then declines to delivery of the
project to the customer
1 2 3 4
CYCLE
1 DEFINING STAGE: Specifications of the project are defined; project
objectives are established; teams are formed; major responsibilities
are assigned.
2 PLANNING STAGE: The level of effort increases, and plans are

developed to determine What the project will entail, when it will be
scheduled, whom it will benefit, what quality level should be
maintained, and what the budget will be learned.
CYCLE
3 EXECUTING STAGE:
A major portion of the project work takes place—both physical and
mental.
The physical product is produced (a bridge, a report, a software

program).
Time, cost, and specification measures are used for control.
Is the project on schedule, on budget, and meeting specifications?

What are the forecasts of each of these measures?
What revisions/changes are necessary?
CYCLE
4 CLOSING STAGE:
i. Delivering the project product to the customer
ii. Redeploying project resources and
iii. Post-project review
Delivery of the project might include customer training and transferring

documents.
Redeployment usually involves releasing project equipment/materials

to other projects and finding new assignments for team members
Post-project reviews include not only assessing performance but also
capturing lessons learned
PROJECT LIFE CYCLE (PLC) STRUCTURE
CHARACTERISTICS
Cost and staffing levels are low at the start, peak as

the work is carried out, and drop rapidly as the project
draws to a close. The typical cost and staffing curve
above may not apply to all projects.
CHARACTERISTICS
A project may require significant expenditures

to secure needed resources early in its life cycle,
for instance, or be fully staffed from a point very
early in its life cycle.
CHARACTERISTICS
Risk and uncertainty are

greatest at the start of the
project. These factors
decrease over the life of
the project as decisions
are reached and as
deliverables are accepted.
CHARACTERISTICS
The graph illustrates the idea
that the cost of making changes
and correcting errors typically
increases substantially as the
project approaches completion
A project may require

significant expenditures to
secure needed resources early
in its life cycle, for instance, or
be fully staffed from a point
very early in its life cycle.
ITERATIVE ADAPTIVE /
Types PREDICTIVE /
FULLY PLAN-
AND
INCREMENTAL
CHANGE-
DRIVEN /
of DRIVEN – Repeat project
activities to
AGILE
- scope, time, & – responsive to
Project cost determined achieve result –
especially useful if
big changes, with
as early as few advance
Life possible but may the output is
unknown – could
scope definitions
still use rolling and in order to
Cycles wave planning have sequential
or overlapping
respond to
stakeholder input
phases
TYPES OF PROJECT LIFE CYCLES
Example of Single Phase Project Example of Three-Phase Project
Example of Predictive Life Cycle
Example of a Project with

Overlapping Phases
Source: PMBOK 5TH Edition PMI

Topic Predictive Iterative Adaptive (agile)
TYPES OF PROJECT LIFE CYCLE

Sequential, Sequential, Sequential,
Phases
overlapping overlapping overlapping, parallel
High-Level Scope Yes Yes Yes
Only for each phase or
Detailed Scope At beginning of project Only for each phase
iteration
High-Level Planning Yes Yes Yes
At beginning of project Only for each phase or

Detailed Planning Only for each phase
OR rolling wave iteration
Product is not well

Product is well Large and complex understood, rapidly
When Used
understood projects changing
environments
Beginning, when
Customer
scope changes, and Periodic Continuous
involvement
project end
PROJECT SELECTION METHOD
PROJECT
Project Selection Methods
A. Benefit Measurement B. Constrained Optimization

Methods Methods
1. Murder Board 1. Linear Programming

2. Peer Review 2. Integer Programming
3. Scoring Model 3. Dynamic Programing
4. Economic (Financial) 4. Multi Objective Optimization
Models
A : BENEFIT MEASURE METHOD
– Economic Financial Models
1. Payback period
2. Net present value
3. Internal rate of return (IRR)
4. Cost benefit analysis
Most managers
financial criteria are
the preferred method
to evaluate projects.
FINANCIAL
These models are
CRITERIA
appropriated when there is a
high level of confidence
associated with estimates of
future cash flows.
Portfolio Presentation
FINANCIAL CRITERIA
Payback Net Present Value
• Infographic Style
• The payback model measures the time it

PAYBACK will take to recover the project
investment.
• Shorter paybacks are more desirable
• Payback emphasizes cash flows, a key

factor in business
PRESENT VALUE, PAYBACK AND ROI
 Present value = the value today of future cash flows

𝐹𝑢𝑡𝑢𝑟𝑒 𝑣𝑎𝑙𝑢𝑒(𝐹𝑉 )
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 ( 𝑃𝑉 )= 𝑛
( 1+𝑟 )
r = interest rate
n = number of time periods
PRESENT VALUE, PAYBACK AND ROI
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐶𝑜𝑠𝑡(𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡)

𝑃𝑎𝑦𝑏𝑎𝑐𝑘 𝑝𝑒𝑟𝑖𝑜𝑑 ( 𝑦𝑟𝑠 )=

𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔
𝑅𝑂𝐼 ( % )=
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐶𝑜𝑠𝑡 The shorter payback period - better
• Some managers
use the payback • The major
model to limitations of
• Payback is the
eliminate paybacks are
simplest and
unusually risky that
that itit ignores
ignores
most widely
ADVANTAGES projects (those the time value of
used model
AND with
with lengthy
lengthy money assumes
payback cash
cash flows
flows for
for
LIMITATION • Payback
periods) the investment
OF PAYBACK emphasizes
period (and not
cash flows, a
• Payback beyond),
beyond), and and
key factor in
emphasizes does not
business
cash
cash flows,
flows, a
a consider
key factor in profitability
profitability
business
EXAMPLE PAYBACK AND ROI
• Project A has an initial investment of $700,000 and projected

cash inflows of $225,000 for 5 years.
• Project B has an initial investment of $400,000 and

projected cash inflows of $110,000 for 5 years.
Which project should be accepted and

which project should be rejected?
EXAMPLE PAYBACK MODEL
Payback
Investment Annual Saving
(investment/saving)
PROJECT A 700,000 225,000 3.1 years
PROJECT B 400,000 110,000 3.6 years
EXAMPLE ROI MODEL
Payback
Investment Annual Saving
(saving/investment)
PROJECT A 700,000 225,000 32.1%
PROJECT B 400,000 110,000 27.5%
COMPARISON
Payback
PAYBACK ROI
(saving/investment)
PROJECT A 700,000 3.1 years 32.1%
PROJECT B 400,000 3.6 years 327.5%
The payback for Project A is 3.1 and for Project B is 3.6 years. Using the payback
method, both projects are acceptable as both return the initial investment in less
than 5 years and returns on the investment of 32.1 and 27.5 percent respectively.
PAYBACK MODEL (EXAMPLE)
Two new software projects are proposed to a young, start-up company.

The Alpha project will cost $150,000 to develop and is expected to have
annual net cash flow of $40,000. The Beta project will cost $200,000 to
develop and is expected to have annual net cash flow of $50,000. The
company is very concerned about their cash flow. Using the payback
period, which project is better from a cash flow standpoint? Why?

NET Style
• Infographic
PRESENT
• It uses management’s minimum desired rate-of-return
VALUE (discount rate, for example 20 percent) to compute the
present value of all net cash inflows.
(NPV)
lo = Initial investment (since it is an outflow, the number will be

negative)
Ft = Net cash inflow for period t

r = Required rate of return
NET PRESENT VALUE (NPV)
Project meets minimum desired rate of return and is

+ NPV eligible for further consideration
- NPV The project is rejected
The higher +ve NPV value, is better
EXAMPLE (NPV)
Consider the following cash flow for a project and consider rate of 5%
- RM3,000 RM5,500 RM8,000 RM10,000
- RM15,000
Using NPV decide if this project is a good investment
EXAMPLE (NPV)
- RM3,000 RM5,500 RM8,000 RM10,000
- RM15,000 𝒏
𝑭𝒕
𝑷𝒓𝒐𝒋𝒆𝒄𝒕 𝑵𝑷𝑽 =𝒍 𝟎 + ∑ 𝒕
𝒕 =𝟏 ( 𝟏+𝒓 )

−3000 5500 8000 10000
𝑁𝑃𝑉 =−15000+ + + + =𝟐𝟐𝟔𝟗 .𝟐𝟒
1+5% ( 1+5% ) ( 1+5% ) (1+5% )
2 3 4
ASSIGNMENT 1

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PROJECT &

Operational Project Work

Building Factory production Final Year Project Company

• Definition: A project is a TEMPORARY endeavor

• The temporary nature of projects indicates that a project

i. when the project’s objectives have been achieved or

ii. when the project is terminated because its objectives

iii. when the need for the project no longer exists.

ii. A service or a capability to perform a service (e.g., a

iv. A result, such as an outcome or document (e.g., a

ii. Effecting a change in the structure, processes, staffing, or

iii. Developing or acquiring a new or modified information

v. Constructing a building, industrial plant, or infrastructure;

vi. Implementing, improving, or enhancing existing business

vii. …and etc.

Project management is the application of knowledge,

• There are two main reasons

i. To provide destination for the

ii. Guiding light on how to get to the

• Portfolio refers to a collection of projects, programs,

• Programs are grouped within a portfolio and are

• Individual projects that are either within or outside of a

• Although the projects or programs within the portfolio

ii. Operational (support current operations)

iii. Strategic projects (directly support the organization’s long-run

• These influences include the organization’s structure, its

• Organizational structures range from functional to projectized,

the project manager has

Staff Staff Staff

manager who has an Staff Staff Staff

Staff Staff Staff

Functional Functional Functional

Staff Staff Staff Staff Project manager

STRONG matrix Chief Executive Project Coordination

Functional Functional Functional Matrix organisations are range from WEAK to

DR. NOR KHAIRUSSHIMA MUHAMAD KHAIRUSSALEH

A document issued by the project initiator or sponsor

Any unique and verifiable product, result, or capability to

Defining Planning Executing Closing

• The starting point begins the moment the

• Project effort starts slowly, builds to a

2 PLANNING STAGE: The level of effort increases, and plans are

The physical product is produced (a bridge, a report, a software

Is the project on schedule, on budget, and meeting specifications?

Delivery of the project might include customer training and transferring

Redeployment usually involves releasing project equipment/materials

Cost and staffing levels are low at the start, peak as

A project may require significant expenditures

Risk and uncertainty are

A project may require

Example of Predictive Life Cycle

Example of a Project with

Source: PMBOK 5TH Edition PMI

TYPES OF PROJECT LIFE CYCLE

High-Level Planning Yes Yes Yes

At beginning of project Only for each phase or

Product is not well

A. Benefit Measurement B. Constrained Optimization

1. Murder Board 1. Linear Programming

Payback Net Present Value

• The payback model measures the time it

• Shorter paybacks are more desirable