Professional Documents
Culture Documents
Unit-I: Introduction To Project Management
Unit-I: Introduction To Project Management
Introduction to
Project management
What is a project?
• A definitive deliverable (objective and goal)
• Takes time
• Consumes resources
• Definite starting and stopping dates
• Is broken up into tasks (activities, steps)
• Consists of processes
• Proceeds through milestones
• Utilizes teams
• Based on personal integrity and trust
What is a project
Time
Quality
Cost Scope
Triple Contraint
• Increased Scope = increased time + increased
cost
STAGE 2:
Planning-and-
Budgeting
STAGE 3:
Executing
STAGE 5:
Terminating-and-
Closing
STAGE 4:
Monitoring-and-Controlling
Project Life Cycles
Man Hours
5. Requirements
Project Life Cycles and Their Effects
Client Interest
Project Stake
Resources
Creativity
Uncertainty
Basic questions
Is the project worthwhile financially (that is whether it will
generate sufficient cash flows to repay debt and produce a
satisfactory rate of return on investment)?
How to select the "best" project from a list of projects?
The amount of time required to recover the initial investment that the sponsors
inject in the project.
Calculate the present value of all future cash flows with the
discounting factor (MARR)
Add all the present values of cash in-flows (cash revenues) and
subtract all the present values of cash out-flows (cash expenses)
What we obtain is the Net Present Value or NPV
Positive NPV means attractive financial return, and larger NPV
means more attractive project alternative.
n
Ft (Without Inflation)
NPV (project) A 0 t
t 1 (1 k)
n
Ft
NPV (project) A 0 t
t 1 (1 k p t )
(With Inflation)
Internal Rate of Return (IRR)
NPV(IRR) = 0 =
Advantages of Profit/Profitibility Models
1. These models allow multiple criteria to be used for evaluation and decision making,
including profit/profitability models and both tangible and intangible criteria.
2. They are structurally simple and therefore easy to understand and use.
3. They are a direct reflection of managerial policy.
4. They are easily altered to accommodate changes in the environment or managerial
policy.
5. Weighted scoring models allow for the fact that some criteria are more important than
others.
6. These models allow easy sensitivity analysis. The trade-offs between the several
criteria
are readily observable.
Disadvantages of Profit/Profitibility Models
1. The output of a scoring model is strictly a relative measure. Project scores do not
represent the value or “utility” associated with a project and thus do not directly indicate
whether or not the project should be supported.
2. In general, scoring models are linear in form and the elements of such models are
assumed to be independent.
3. The ease of use of these models is conducive to the inclusion of a large number of
criteria, most of which have such small weights that they have little impact on the total
project score.
4. Unweighted scoring models assume all criteria are of equal importance, which is
almost certainly contrary to fact.
5. To the extent that profit/profitability is included as an element in the scoring model,
this element has the advantages and disadvantages noted earlier for the profitability
models themselves.
Example#1
Seddet International is considering two major projects each of which has four year
lives. The firm has raised all of its capital in the form of equity and has never borrowed
money. This is partly due to the success of the business in generating income and
partly due to an insistence by the dominant managing director that borrowing is to be
avoided if at all possible. Shareholders in Seddet International regard the firm as
relatively risky, given its existing portfolio of projects. Other firms’ shares in this risk
class have generally given a return of 10 per cent per annum and this is taken as the
opportunity cost of capital for the investment projects. The risk level for the proposed
projects is the same as that of the existing range of activities.
Year Cash Flow
Project S Project L
0 (1000) (1000)
1 500 100
2 400 300
3 300 400
4 100 600
(a) State which is the best project if they are mutually exclusive using NPV.
(b) Use the IRR decision rule to choose between the projects.
(c) What is the payback period for the projects.
IRRS= 14.49% IRRL= 11.79%
IRRS
IRRL
Technical Analysis in
Project Management
Purpose
• To ensure that the project is technically feasible
in the sense that all the inputs required to set up
the project are available.
52
Key Step in Market & Demand Analysis and
Their Inter-relationship
Collection of Demand
Secondary Forecasting
Information
Characterization of
Situational
the Market
Analysis and
Specifications of
Objectives
Market Planning
Conduct of
Market Survey
Forecasting
Predicting the future
Qualitative forecast methods
– subjective
Quantitative forecast methods
– based on mathematical formulas
Depend on
– time frame
– demand behavior
– causes of behavior
Demand Forecasting
Qualitative Methods
– These methods rely essentially on the judgment
of experts to translate qualitative information into
quantitative estimates
– Used to generate forecasts if historical data are
not available (e.g., introduction of new product)
– The important qualitative methods are:
• Jury of Executive Method
• Delphi Method
Uncertainties in Demand
Forecasting
Data about past and present markets.
– Lack of standardization:- product, price, quantity,
cost, income….
– Few observations
– Influence of abnormal factors:- war, natural
calamity
Methods of forecasting
– Inability to handle unquantifiable factors
– Unrealistic assumptions
– Excessive data requirement 56