Project Management

Processes

Chapter 4

Taila Jabeen
IT Project Management
Agenda

■ Why Manage Integration

■ Develop Project Charter
■ Develop Project Management Plan
■ Direct and Manage Project Work
■ Monitor and Control Project Work
■ Perform Integrated Change Control
■ Close Project or Phase
Why Manage Integration

■ Integration of Subsidiary Project Management plans i.e Output of other

knowledge areas such as Scope Management, Time Management, Cost
Management, Quality Management, Human resource Management, Risk
Management, Procurement Management, Stakeholder Management
■ To Combine, unify and coordinate the various processes and project
management activities
PROJECT CHARTER
Project Charter

■ To create a document that formally authorizes a project

Inputs to Project Charter

■ Project statement of work(SOW) – It is narrative description of products or

services to be delivered by the project. Every SOW should include
Business Case
Business Case

■ The business case or similar document describes the necessary information from
a business standpoint to determine whether or not the project is worth the required
investment.
■ It is commonly used for decision making by managers or executives above the
project level.
■ Typically, the business need and the cost-benefit analysis are contained in the
business case to justify and establish boundaries for the project, and such
analysis is usually completed by a business analyst using various stakeholder
inputs.
■ The sponsor should agree to the scope and limitations of the business case.
Business case (Cont.)

■ Business case are created so that project can answer or satisfy one of the
following
Project Selection Methods

■ Project selection is the process of evaluating individual projects or groups of projects,

and then choosing to implement some set of them so that the objectives of the parent
organization will be achieved.
■ The proper choice of investment projects is crucial to the long-run survival of every
firm.
■ Daily we witness the results of both good and bad investment choices.
■ One of the factor for project selection is COST

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Project Selection Methods

■ Benefit Cost Ratio (BCR)

■ Pay Back Period
■ Return on Investment (ROI)
■ Net Present Value
■ Internal Rate of Return(IRR)

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Benefit Cost Ratio
(BCR)

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Benefit/Cost Ratio (BCR)

■ Benefit Cost Ratio(BCR)

 Benefit /Cost
 Benefit is the expected monetary reward created by the deliverable
 The greater the value, the better the project. For benefit to exceed cost , BCR>1
 Example:
• Projected project cost=$20,000
• Expected to sell it for $60,000
• BCR=$60,000/$20,000=3

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Benefit/Cost Ratio

■ The benefit/cost ratio is also called the profitability index and is

defined as the ratio of the sum of the present value of future
benefits to the sum of the present value of the future capital
expenditures and costs.
B/C Ratio Example
Project A Project B
■ Present value cash inflows
$500,000 $100,000

■ Present value cash outflows

$300,000 $ 50,000

■ Net Present Value

$200,000 $ 50,000

■ Benefit/Cost Ratio
1.67 2.0

Which Project to select?

Payback Period

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Payback Period

■ One of the most common evaluation criteria used.

■ Simply the number of years required for the cash income from a project
to return the initial cash investment.
■ The investment decision criteria for this technique suggests that if the
calculated payback period is less than some maximum value acceptable to
the company, the proposal is accepted.
■ These methods can be used alone or in combination as determined by the
project steering committee.

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Payback Period
Payback Period

■ If cash flow is even Payback period is equal to:

Payback Period=Initial Investment/Net Annual cash inflow

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Example

Company C is planning to undertake a project requiring initial investment of $105

million. The project is expected to generate $25 million per year for 7 years. Calculate
the payback period of the project.
Solution
Payback Period = Initial Investment ÷ Annual Cash Flow = $105M ÷ $25M
= 4.2 years

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Payback Period

■ If cash flow is uneven Payback period is equal to:

Payback Period=A+B/C

where
A =last period with a negative cumulative cash flow
B =absolute value of cumulative cash flow at the end of the period A
C =is the total cash flow during the period after A

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Example
Calculation of the payback period for a given investment proposal.

a) Prepare End of Year Cumulative Net Cash Flows

b) Find the First Non-Negative Year
c) Calculate How Much of that year is required to cover the previous
period negative balance
d) Add up Previous Negative Cash Flow Years

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Example

■ Calculate the payback period for the following investment proposal

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Example

■ Calculate the payback period for the following investment proposal

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Example

■ Calculate the payback period for the following investment proposal

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Example

■ Calculate the payback period for the following investment proposal

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Example

■ Calculate the payback period for the following investment proposal

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Example

■ Calculate the payback period for the following investment proposal

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Example

Company C is planning to undertake another project requiring initial investment of $50

million and is expected to generate $10 million in Year 1, $13 million in Year 2, $16
million in year 3, $19 million in Year 4 and $22 million in Year 5. Calculate the payback
value of the project.

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Return On Investment
(ROI)

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Return on Investment(ROI)

■ ROI is the ratio of average annual profit to initial or average investment in project.
■ The percentage profit for the project.
■ Also called Average Rate of Return(ARR)

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Example

■ Example
• Projected project cost=$400,000
• Expected to sell it for $500,000
• RO1=$500,000-$400,000/$40,000 x 100
=$100,000/$40,000 x 100
=0.25x100
=25%

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Example

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Net Present Value/
Present Value

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Present Value

■ The Present value or present worth method of evaluating projects is a widely used
technique. The Present Value represents an amount of money at time zero
representing the discounted cash flows for the project.

■ Where
PV=Present value
FV=future cash inflow/outflow
n=no. of years
k=Discount rate

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Future Value

■ The future value method evaluates a project based upon the basis of how much
money will be accumulated at some future point in time. This is just the reverse
of the present value concept.

■ Where
FV=Future Value
PV=Present Value
n=no. of years
k=Discount rate

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Example: Future Value

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Example: Present Value

Solution:
The present value $100 to be received after 1 year $93 dollars today.

The present value $100 to be received after 5 year $68 dollars today.

The present value $100 to be received after 15 year $32 dollars today.

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Net Present Value

■ The Net Present Value of an investment it is simply the difference

between cash outflows and cash inflows on a present value basis.
■ In this context, the discount rate equals the minimum rate of return for the
investment.

NPV = ∑ Present Value (Cash Benefits) - ∑ Present Value (Cash Costs)

■ Invest if NPV > 0

■ Best criterion for corporate investment.

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Example: Net Present Value

Solution:

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Example: Net Present Value

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■ Business case video
– https://www.projectmanager.com/blog/project-management/how-to-write-a-
business-case