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Project management
What is project?
A project is temporary in that it has a defined beginning and end in time, and therefore defined
scope and resources
...
So a project team often includes people who don’t usually work
together – sometimes from different organizations and across multiple geographies
...
A project should always be defined and executed and
evaluated relative to an (Executive) approved business case which balances the costs, benefits and
risks of the project
...

Projects include:







A sequence of tasks
Defined outcomes, and deliverables
Defined beginning, end, schedule, and approach
Planned budgets
Resources specifically allocated to the work
Organized approach

Some examples of project:
The development of software for an improved business process, the construction of a building or
bridge, the relief effort after a natural disaster, the expansion of sales into a new geographic market
— all are projects
...


What is project management?
Project management, then, is the application of knowledge, skills, tools, and techniques to project
activities to meet the project requirements
...

Difference between a Project and a Program
The following table summarizes the main areas of difference between a project and a program
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difficult to quantify; benefits often
based on changes to organizational
culture and behaviors; introducing
new capabilities into the
organization; tending towards
subjective
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project
...

Project risk is relatively easy
to identify and manage
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Relatively long term typically
eighteen months to three years
...
Programme failure could result
in material financial, reputational or
operational loss
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between key stakeholders on the
nature and definition of the
problem
...


disagreement between stakeholders
as to the preferred solution
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stakeholders; probable
disagreement between them as to
the definition of the problem & the
preferred solution
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Environment is dynamic; and
programme objectives need to be
managed in the context of the
changing environment within which
the organization operates
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Resources

resources between projects
...
Projects vary in size and complexity, but, no matter how
large or small, all projects can be mapped to the following life cycle structure:


Starting the project



Organizing and preparing



Carrying out project work



Closing the project

Projects are broken down into phases so that extra control can be applied to effectively
manage the processes
...

For a project to be successful, the project team must:


Select the appropriate processes to meet project goals and objectives
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

Clearly define and agree upon stakeholder/customer needs and expectations
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4 Phase Project Life Cycle
The Project Life Cycle has been divided into 4 phases:


Initiation



Planning



Execution



Closure

Each phase has activities associated with it
...
These components facilitate the activities
performed by the Project Manager
...
A Basic project will involve only a few of these activities while a Major project
will involve all the activities in the framework
...
During the Initiation phase you’ll appoint a project manager who
in turn - based on his or her experience and skills - will select the required team members
...

2) Planning
The all-important second step of any successful project management life cycle is planning and
should include a detailed breakdown and assignment of each task of your project from beginning to
end
...
In short, the working processes defined, stake
holders are identified and reporting frequency and channels explained
...
When it comes to the project management cycle,
execution and control just may be the most important of the five steps in that it ensures project
activities are properly executed and controlled
...
In
product and system development, a design resulting in a specific set of product requirements is
created
...
As the Execution and
Control phase’s progress, groups across the organization become more deeply involved in planning
for the final testing, production, and support
...
The Closure phase is typically
highlighted by a written formal project review report which contains the following elements: a formal
acceptance of the final product (by the client), Weighted Critical Measurements (a match between
the initial requirements laid out by the client against the final delivered product), lessons learned,
project resources, and a formal project closure notification to higher management
...
Fortunately,
modern technology provides a variety of templates that will take you from start-to-finish, which
makes the Project Management Cycle user friendly no matter what your level of management
experience may be!

Project selection method:
With a profusion of interesting, challenging projects to choose from, finding a project that is the right
fit for your team's skillset and level of competence and affords the best chance of success is the first
step in successful project management
...


What Are Project Selection Methods?

Consider a scenario in which the organization you are working for has been given access to a
number of projects
...
Therefore, a decision has to be made as to which project needs to be taken up that
will provide maximum profit and recognition
...
There are various methods to help you
choose a project
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Benefit Measurement Methods
2
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Cost benefits are calculated and then
compared to with other projects to make a decision
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If the project is not a hindrance, then the project that has a higher Benefit Cost Ratio is
selected
...
It is also defined as the net profit after the
deductions of taxes and the capital expenditure
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The EVA is always expressed in the
numerical value and not in percentage
...
Once the scoring of these projects are completed the one with the highest score is
selected
...
In simpler terms,
it is the time necessary to recover the cost invested in the project
...
As the name suggests, the
payback period takes into consideration the payback period of an investment
...
The
calculation for payback is pretty simple
...

There are, however, a few limitations to this method:

1
...
The benefits that occur after the payback period are not considered, thus it focuses more on
the liquidity while the profitability is being neglected
...
Risk involved in the individual project is neglected
...
The NPV must always be positive
...

The advantage of considering the NPV over the Payback Period is that it takes into consideration the
future value of money
...
There isn’t any generally accepted method of deriving the discount value used for the present
value calculation
...
The NPV does not provide any picture of profit or loss that the organization can make by
embarking on a certain project
...
For example, the worth of $20,000 will not be the same after 10 years than what it is
today, and will be much lower than the current value
...


Internal Rate of Return
The Internal Rate of Return is the interest rate at which the Net present value is zero
...

It is defined as “annualized effective compounded return rate” or “discount rate that makes the net
present value of all cash flows (both positive and negative) from a particular investment equal to
zero
...

When using the IRR as the project selection criteria, it must not be used exclusively to decide to
decide among a number of projects that need undertaking but instead only a single project that must
be invested in
...

While selecting a project, the one with the higher IRR is chosen
...
During
project selection, the project that has the lower opportunity cost is selected
...


Constrained Optimization Methods
The Constrained optimization Methods, also known as the Mathematical model of Project Selection,
is used for the larger projects that require complex and comprehensive mathematical calculations
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The organizational strategy is a major factor in project selection methods
that will affect the organization’s choice in the selection of a project
...
A large necessity in today’s
business world is to build an effective and cordial relationship and environment with the customers
...


Implementation of the Methods That Are Chosen
The Project Selection Methods can be carried out in a number of combinations
...
Thus, every
project will need careful consideration
...
The Selection Techniques in Project Management help in selecting a project that could provide
a better return on investment as well as recognition
...


Incremental Cash Flow
Incremental Cash Flow Overview
Incremental cash flow analysis is used to review a change in the cash inflows and outflows that are
specifically attributed to a management decision
...
There is no need to consider the aggregate cash flows
associated with all operations of the machine
...

Incremental Cash Flow Example
For example, ABC International owns a machine that can manufacture 2,000 units per hour
...
The cost of this upgrade is $200,000, and the profit
derived from each unit is $0
...
The machine is currently operated for 40 hours per week, so the
contemplated increase in capacity will yield a net incremental cash flow increase per year of
$208,000
...
10 = $100 per hour incremental cash inflow
= ($100 per hour of cash inflow) x (40 hours per week) x (52 weeks per year)
= $208,000
The incremental change in cash flow represents a payback period of just over 1
...

An alternative way to look at the sample situation is to avoid the $200,000 equipment upgrade and
instead run the existing equipment for an additional shift
...
This alternative is considerably less expensive than the
equipment upgrade option, on an incremental cash flow basis
...
The formula for the discounted sum of all
cash flows can be rewritten as

When a company or investor takes on a project or investment, it is important to calculate an estimate
of how profitable the project or investment will be
...
Considering
that the money going out is subtracted from the discounted sum of cash flows coming in, the net
present value would need to be positive in order to be considered a valuable investment
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Shoes for You's will expect to invest
$500,000 for the development of their new product
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The expected return of 10% is used as the discount rate
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Year

Cash Flow

Present Value

0

-$500,000

1

$200,000

$181,818
...
88

-$500,000

3

$200,000

$150,262
...
02
The net present value of this example can be shown in the formula

When solving for the NPV of the formula, this new project would be estimated to be a valuable
venture
...
In other words, IRR is the discount rate which equates the present value of the future
cash flows of an investment with the initial investment
...

Decision Rule
A project should only be accepted if its IRR is NOT less than the target internal rate of return
...

IRR Calculation
The calculation of IRR is a bit complex than other capital budgeting techniques
...
− Initial Investment = 0

Where,
r is the internal rate of return;
CF1 is the period one net cash inflow;

CF2 is the period two net cash inflow,
CF3 is the period three net cash inflow, and so on
...
However, there are alternative procedures which can be followed to find IRR
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Guess the value of r and calculate the NPV of the project at that value
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If NPV is close to zero then IRR is equal to r
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If NPV is greater than 0 then increase r and jump to step 5
...
If NPV is smaller than 0 then decrease r and jump to step 5
...
Recalculate NPV using the new value of r and go back to step 2
...
The cash inflows during the
first, second, third and fourth years are expected to be $65,200, $96,000, $73,100 and $55,400
respectively
...

NPV at 10% discount rate = $18,372
Since NPV is greater than zero we have to increase discount rate, thus
NPV at 13% discount rate = $4,521
But it is still greater than zero we have to further increase the discount rate, thus
NPV at 14% discount rate = $204
NPV at 15% discount rate = ($3,975)
Since NPV is fairly close to zero at 14% value of r, therefore
IRR ≈ 14%

Profitability Index
Profitability index is an investment appraisal technique calculated by dividing the present value of
future cash flows of a project by the initial investment required for the project
...
While present value is
an absolute measure (i
...
it gives as the total dollar figure for a project), the profibality index is a
relative measure (i
...
it gives as the figure as a ratio)
...

Profitability index is sometimes called benefit-cost ratio too and is useful in capital rationing since it
helps in ranking projects based on their per dollar return
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Calculate the profitability index
...
3
Net Present Value = PV of Net Future Cash Flows − Initial Investment Rquired
Net Present Value = $65M-$50M = $15M
...
3

Matrix structure
A matrix organizational structure is one of the most complicated reporting structures a company can
implement
...


Definition
A matrix organizational structure is a company structure in which the reporting relationships are
set up as a grid, or matrix, rather than in the traditional hierarchy
...


Pure project organization

The project-based model of organizing is widespread in traditional manufacturing industry but also employed in oth

organizations such as consultancy firms, marketing and film industry
...
But not that well suited for more

specialization along functional lines leads to advantages of scale, learning and marketing
...
In pure project organization approach (figure 1
...
The project, therefore, is the primary business mechan
business functions such as manufacturing and marketing
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For larger projects this way of organizing is effective and efficient, but for smaller projects it is of

there is a varying need for specific resources throughout the project and with smaller projects this variation, for exa

even out
...
(Hobday, 2000; Mantel & al, 2001
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This is a resu
certain expertise or specific knowledge which would be needed to complete a task
...
Another drawback is the so called “projectities”, the typical project related challenges, which appear espec

to a specific project tend to get strongly attached to it, fear the day the project is ending, and thus may slow down t

may lead to a situation where the control is lost, systems vary from project to another, and the project begins to tak
al, 2001

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