Project Management Templates
The postaudit (postcompletion) project review is a second aspect of reviewing the performance of the project. A comparison is made of the actual cash flow from operations of the project with the estimated cash flow used to justify the project. The postaudit project review is helpful for several reasons. First, managers who propose projects will be more careful before recommending a project. Second, it will identify managers who are repeatedly optimistic or pessimistic regarding cash flow estimates. How reliable are the proposals submitted and approved (Perhaps additional investments can be made that result in even greater returns.) Top management will be better able to appraise the bias that may be expected when a certain manager proposes a project. The postaudit review also gives an opportunity to
The risk response called reduction is also known by the descriptions treat or mitigate. A form of risk reduction is risk diversification. That is the reduction of risk by distribution through, say, investment in multiple stocks rather than a single stock. Diversification is the strategy adopted by those who do not want to put all their eggs in one basket . Wilkinson (2003) in his focus on the treatment of hazardous materials in a manufacturing context to prevent personal injury, describes two general approaches that may be taken to reduce risk reducing the likelihood of a risk occurring and limiting the loss should the risk materialise. Wilkinson describes methods to reduce the likelihood of occurrence of risks through protection, controls and maintenance and methods of risk reduction through the act of risk spreading such as dispersing chemical storage. The petrochemical industry, while not being able to remove the threat of adverse weather conditions, designs rigs to withstand high...
Valuing these options considers the uncertainty or volatility associated with the business environment and capital allocation. Real options analysis is a valuation, project management and strategic decision paradigm that applies financial option theory to real assets. The concept has the potential to capture the value of the flexibility to adapt and revise management decisions made in the future with the benefit of better information. Real options can provide a framework for managing and creating value, and therefore provide an association between shareholder value, strategy and value-based management. The concept can also be used to communicate management decisions to financial markets, and also demonstrate that risk can be influenced through managerial flexibility. The real options approach is a guide to strategy under uncertainty that is more or less quantifiable. With or without quantification, however, it is likely to produce different results to more conventional thinking about...
Risk wherever it has been identified. We are close to preparing the risk management cycle and incorporating this into our original risk model. Before we get there we can turn to project management standards for guidance on the benefits of systematic risk management which include
Can we use the costs of equity and capital that we have estimated for the firms for these projects In some cases we can, but only if all investments made by a firm are similar in terms of their risk exposure. As a firm's investments become more diverse, in terms of their risk exposure, the firm is less able to use its cost of equity and capital to evaluate these projects. Projects that are riskier have to be assessed using a higher cost of equity and capital than projects that are safer. In this chapter, we consider how to estimate project costs of equity and capital.
A diverse team from across the group designed the SDMF to include best practice and adapted existing systems to minimize the need for new procedures. It is essentially a classical management system adapted to embody sustainable development. It consists of eight steps. Key features include integration of the economic, environmental and social elements in the company's everyday business engagement open reporting and verification. The framework can be applied over any time frame and to everything the company does, including business planning, project management and daily activities. For example, the framework makes it clear that for project proposals to succeed they must take into account environmental and social considerations as well as financial ones.
To see how we might go about estimating NPV, suppose we believe the cash revenues from our fertilizer business will be 20,000 per year, assuming everything goes as expected. Cash costs (including taxes) will be 14,000 per year. We will wind down the business in eight years. The plant, property, and equipment will be worth 2,000 as salvage at that time. The project costs 30,000 to launch. We use a 15 percent discount rate on new projects such as this one. Is this a good investment If there are 1,000 shares of stock outstanding, what will be the effect on the price per share of taking this investment
Structurally ABB was built around a global matrix (see Figure 4.4). At the top of the company is the Group Executive Management, which at the time of Barnevik consisted of seven executives besides himself. Three of the seven headed the major regions, North America, Europe and Asia Pacific. The other four executives in this group had each been head of one of the four sectors in which ABB's more than 50 Business Areas were grouped. Regional headquarters, located in their respective regions, had been responsible for financial performance, human resources, treasury, tax and infrastructure. Business segment headquarters in Zurich had worldwide responsibility for their core business (i.e. mainly for R&D, engineering, production, project management of both customer projects and group projects and management development) and they are part of ABB Holding in Zurich. Under the Group Executive Man
Another tool used to evaluate projects is called the profitability index (PI), or benefit-cost ratio. This index is defined as the present value of the future cash flows divided by the initial investment. So, if a project costs 200 and the present value of its future cash flows is 220, the profitability index value would be 220 200 1.1. Notice that the NPV for this investment is 20, so it is a desirable investment.
SPO software is designed to track and allocate the major resources of service companies or departments, i.e. people, intellectual capital and time traced to their outputs, such as proposals, contracts, projects and reports. SPO is also known as professional services automation (PSA), enterprise service automation (ESA) and services relationship management (SRM). Gartner Dataquest predict with a 0.7 probability that by 2005 80 per cent of all IT professional organizations with over 100 billable consultants will replace their project management applications with SPO.2 Large users include KPMG, Ericsson, NCR and CSC, with the largest providers including Peoplesoft, Oracle, SAP and Aggresso.
Construction contracts generally use project management methods to set down the required tasks, usually in great detail, and have well-established procedures for tracking the progress of the project against milestones. Measuring risks will fall out of this process in a fairly traditional manner - issue reporting, milestone shortfalls, etc. Management's task is to keep the project on track and ensure that any problems do not result in project overruns. They also need to keep an eye on financial risk, particularly cashflow requirements.
The report suggests that risk management can lead to better service delivery, more efficient use of resources, better project management, help minimise waste, fraud, poor value for money and promote innovation. Additionally, that the reputation of departments can suffer when services fail to meet the public's expectations.
In addition the guide provides guidance on the timing of the application of risk management in terms of the OGC Gateway Process, describes the stages of the risk management process (common to other publications) and gives a traffic light probability impact risk matrix for scoring risks. Risk responses are described using the headings avoidance, reduction, transfer and retention acceptance. Risk feedback The guide recommends that feedback should be encouraged from all those involved in the delivery of the project on how well risks were managed, and how this could be improved. This information can be used to improve risk management performance in future projects and that it should be part of the post-project review. Project execution plan The guide recommends that the project execution plan should include the risk register and the risk management plan.
All businesses at some stage engage in some form of organisational change to realign themselves with the market, facilitate expansion, increase market share or create new markets. This may include for instance IT investment, product development, premises rationalisation, embarking on e-commerce, or an overseas investment. Any proposed major change that a business intends to carry out must be planned as a project in its own right. There must be a clear set of objectives, timeframe, budget, sponsor, project manager, brief, designated participants and desired outcomes. There must be an understanding of the complexity, degree of novelty and how the activity will impact existing and potential customers. There must be clear recognition of the significance of the programme to the success of the business and the speed with which the activities are to be completed. All change programmes entail risk. Hence there must also be an understanding of the risks and opportunities associated with the...
Another method used to evaluate projects involves the profitability index (PI), or benefit-cost ratio. This index is defined as the present value of the future cash flows divided by the initial investment. So, if a project costs 200 and the present value of its future cash flows is 220, the profitability index value would be 220 200 1.10. Notice that the NPV for this investment is 20, so it is a desirable investment.
A Monte Carlo program usually builds a histogram of the results, referred to .as a frequency chart, for each forecast or output cell that the user wants to analyze. The program then delivers a percentage certainty that a particular-forecast will fall within a specified range, much like a weather forecast. The program also has an optimization feature that allows a project manager with budget constraints to figure out which combination of possible projects will result in the highest profit
8-8 The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment RISKYCASH FLOWS projects. Each project costs 6,750 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions
The price earnings ratio method is useful in many circumstances, yet it has drawbacks. As mentioned earlier, the earnings of the project and the comparison portfolio must have similar growth rates. For example, if the earnings of the comparison portfolio are growing at a faster rate than those of the project, the price earnings ratio method is invalid because the value of the comparison portfolio will be enhanced by the faster growth rate. Even if the project costs little to initiate and seems to have a favorable cost-to-earnings ratio compared to the price earnings ratios available from similar investments, the project could destroy value if the low cost does not make up for the project's low earnings growth rate.
Bureaucratization and Internal Conflict If more projects are adopted, project management may find it increasingly difficult to make good decisions in a reasonable time frame. This may require more cumbersome bureaucracy and reduce cash flows for all other divisions. Resource Exhaustion Perhaps the most common source of negative externalities and often underestimated is limited attention span. Management can pay only so much attention to so many different issues. An extra project distracts from the attention previously received by existing projects.
Islamic banking can be defined as the providing of and use of financial services and products that conform to Islamic religious practices.20 Islamic financial services are characterized by a prohibition against the payment and receipt of interest at a fixed or predetermined rate. Instead, profit-and-loss-sharing (PLS) arrangements or purchase and resale of goods and services form the basis of contracts. In PLS modes, the rate of return on financial assets is not known or fixed before undertaking the transaction. In purchase-resale transactions, a markup is determined on the basis of a benchmark rate of return, typically a return determined in international markets such as LIBOR (London interbank offered rate). Islamic banks are also prohibited from engaging in certain activities such as (a) financing production or trade in alcoholic beverages or pork and (b) financing gambling operations. A range of Islamic contracts is available, depending on the rights of investors in project...
The NPV method holds several advantages over the discounted payback period method. For example, the NPV method considers all cash flows for a project, reveals the absolute dollar value added to the firm by project acceptance, and handles correctly even unconventional cash-flow patterns.
Most often the choice of the discount rate is beyond the authority of the project manager. Top management will determine some threshold discount rate and dictate that it is the rate that must be used to assess all projects. When this is the policy, the rate is usually the firm's WACC with an additional margin added to compensate for the natural optimism of project proponents. A higher WACC makes NPV lower, and this biases management toward rejecting projects.
A project's internal rate of return (IRR) is the interest rate that the project essentially pays out. It is the interest rate that a bank would have to pay so that the project's cash outflows would exactly finance its cash inflows. Instead of investing money in the project, one could invest money in a bank paying a rate of interest equal to the project's IRR and receive the same cash flows. One can think of the IRR as an interest rate that a project pays to its investors. For example, a project that costs 100,000 to set up but then returns 10,000 every year forever has an IRR of 10 . If a project costs 100,000 to set up and then ends the following year when it pays back 105,000, that project would have an IRR of 5 . The IRR is the rate of return generated by the project. For example, suppose a project costs 1,000 to set up, and then produces a one-time cash inflow of 1,100 one year later. The IRR of this project is 10 . If the company imposes a minimum threshold of 20 , this project...
In the old plan, merit pay had little meaning. Performance reviews rewarded tenure instead of results, fostering an entitlement culture. Basically, we were paying for effort and not results. But we weren't getting the results we needed to achieve, said Donna Graebner, senior project manager of compensation at Penney. We introduced a new performance management tool. To reinforce our new value system, we sent the message that you have to increase your value to the organization in order to get an increase in pay. Because determining job titles and compensation was an important step in moving toward a new business model, the HR department became a crucial component of the process, according to Graebner.
A project costs 10 million and has NPV of +2.5 million. The NPV is computed by discounting at a WACC of 15 percent. Unfortunately, the 10 million investment will have to be raised by a stock issue. The issue would incur flotation costs of 1.2 million. Should the project be undertaken
The physical aspects can involve many issues from adequately trained staff, to health and safety, to finding that the physical conditions of the ground are not what was expected. These will need to be managed through the project management process, but with tact given potential cultural sensitivities and the need to manage client relations. Managing a stream of sub-contractors can also be problematic but can be done with clear and consistent communication and making promises that are kept. We have already touched on potential financial problems which are more than likely to arise. If only one person is permitted to sign the progress payment cheque, and he is away on official business, there is little that can be done but postpone payments and or seek funds from Head Office or bankers to cover the shortfall. Exchange and interest rate risks should be covered as far as possible, given any local market limitations.
When you create and follow a budget, you apply organizing skills where there once were none. Budgeting is a form of project management, which is a form of organizing, meaning it's just another process improvement to be made and has no reflection on your character or your worth as a person.
Investments in information technology (IT) and information systems (ISs) take place in an environment rife with uncertainty. As a consequence, projects are frequently behind schedule and over budget. The resulting systems may be of poor quality or fit inadequately to user requirements. As the dollar cost of such investments continues to rise, the competitive advantage of IT IS projects needs to be carefully scrutinized and justified. Senior managers are increasingly seeking the assistance of decision-making tools to improve their ability to reason about the progress and outcome of a particular project. In this section we illustrate how BBNs can be used by operational risk and other managers as a project management tool. We consider a retail bank that is considering releasing a new software product to its customers. The key concern is to identify the number of serious defects in the software prior to release and to investigate the impact of different managerial policies on product...
Expected project schedule cost and expected schedule per module for this strategy. A full breakdown of costs and schedule for each stage of the development process is given in Table 17.2. The expected total project cost and expected schedule are given in Table 17.3. The project is expected to be completed in just over a year at a cost of 4.1 million. Table 17.4 gives the probability distribution of defects likely to be present in the product after testing and debugging. There is approximately a 96 percent likelihood that the project will be delivered with a medium to very low number of defects. If we assume the number of product defects is positively correlated with maintenance cost, the project manager can reasonably expect the maintenance cost of the developed software to be low.
Project financing is sometimes called off-balance sheet financing. However, while the project debt may not be on the sponsor's balance sheet, the project debt will appear on the face of the project balance sheet. In any event, the purpose of a project financing is to segregate the credit risk of the project in order that the credit risk of lending to either the sponsor or the project can be clearly and fairly appraised on their respective merits. The purpose is not to hide or conceal a liability of the sponsor from creditors, rating agencies, or stockholders.
Projects These CRSA events will be part of the standard risk assessment and preparation of risk registers that most project management methodologies recommend. Project risk will consist of a combination of the project going wrong and the outcome being poor, late or over budget. Controls will revolve around the way the project is managed and if this involves a large new venture an entire set of new controls may be designed and adopted. The focus is on innovation and flexibility and the production of brand new controls that fit the bill. Moreover, risks may also be seen as upside risk that means we take out excessive controls to ensure new opportunities can be exploited.
Answer 100,000 is the certainty equivalent of the future cash flow. Discounting this at a rate of 5 percent yields 100,000 1.05 or 95,238. Therefore, if the project costs less than 95,328, McGirwin managers should accept it. If it costs more than 95,328, they should reject it.
Editor-in-Chief Denise Clinton Executive Editor Donna Battista Development Editor Ann Torbert Project Manager EA Mina Kim Editorial Assistant Kerri McQueen Managing Editor Nancy Fenton Senior Marketing Manager Jodi Bassett Senior Media Producer Bethany Tidd Supplements Editor Heather McNally Permissions Editor Dana Weightman Project Coordination, Text Design, Art Studio,
We have a long list of people to thank for their helpful criticism of earlier editions and for assistance in preparing this one. They include Aleijda de Cazen-ove Balsan, John Cox, Kedrum Garrison, Robert Pindyck, and Gretchen Slemmons at MIT Stefania Uccheddu at London Business School Lynda Borucki, Marjorie Fischer, Larry Kolbe, James A. Read, Jr., and Bente Villadsen at The Brattle Group, Inc. John Stonier at Airbus Industries and Alex Tri-antis at the University of Maryland. We would also like to thank all those at McGraw-Hill Irwin who worked on the book, including Steve Patterson, Publisher Rhonda Seelinger, Executive Marketing Manager Sarah Ebel, Senior Developmental Editor Jean Lou Hess, Senior Project Manager Keith McPherson, Design Director Joyce Chappetto, Supplement Coordinator and Michael McCormick, Senior Production Supervisor.
A way of exploring the mechanisms for implementing a risk management process is to break it down into its component parts and examine what each part should contribute to the whole. It is proposed here that the risk management process is broken down into six processes called analysis, identification, assessment, evaluation, planning and management. While activities follow a largely sequential pattern, it may be a highly iterative process over time. For as new risks are identified, the earlier process of identification and assessment are revisited, and the sequential process is repeated through to the implementation of risk response actions.
Ryan Richardson is a 35-year-old senior project manager for Medical One, a company that produces custom software for the medical industry. He manages several projects over the course of a year and is known for his ability to complete projects on time and under budget. Although he finds tracking and mercilessly cutting costs at his job natural, he has a much harder time putting this kind of thinking into practice in his personal life. He grew up in the small town of Lake Worth, Florida. His father made a good living as a sales rep for an industrial equipment company, and his mother worked at the town's only travel agency. While they enjoyed spending, his parents always seemed to struggle to make ends meet, and family finances were a constant source of contention. He met Christine while they were students at the University of Florida, and they married a year after graduation. They had their first child, a son named Chad, four years later, and a daughter named Jennie three years after...
Since most project financings are infrastructural, the contractor is typically one of the key players in the construction period. Construction can be either of the EPC or 'turnkey' variety. EPC, or engineer, procure, and construct, is when the construction company builds the facility as per an already designated specifications. Turnkey, on the other hand, is when the contractor designs, engineers, procures and constructs the facility, assuming all responsibility for on-time completion. In both cases, it is important that the construction company selected has a track record of successful project management and completion. In many large projects, consortia of constructors may become involved either for sheer economies of scale or for political reasons. In such cases, lenders prefer members of the consortia to undertake joint and several liability since the risk of failure of performance is the total responsibility of each member of the consortium. Most projects are structured on the...
Project Management Site Content In the remainder of the chapter, the use of job order costing data to support management decision making and improve cost control is discussed. The next section discusses how standard costs, rather than actual costs, can be used to improve cost management.
This is due to the ever changing nature of the external environment but there are a number of circumstances in which risk follows a more orderly pattern or life cycle. A construction contract is just one of many such examples. It is often a large scale project which needs to be managed using project management methodologies. There is a clear start, middle and end involved and each of those stages have different risks associated with them that are generally predictable in nature.
To see how we might go about estimating NPV, suppose we believe the cash revenues from our fertilizer business will be 20,000 per year, assuming everything goes as expected. Cash costs (including taxes) will be 14,000 per year. We will wind down the business in eight years. The plant, property, and equipment will be worth 2,000 as salvage at that time. The project costs 30,000 to launch. We use a 15 percent discount rate on new projects such as this one. Is this a good investment If there are 1,000 shares of stock outstanding, what will be the effect on the price per share from taking the investment
Any assignment should be treated as if it were a project in its own right with objectives, a timeframe, resources, a budget, and end deliverables. Applying project management principles in this way will provide greater certainty of delivering the required outcome. The greater the number of team members and or client representatives participating in the assignment the greater the importance of the application of management principles. It comes down to the who is doing what, when, how and why. The task must be broken down into manageable lumps which can all be assigned objectives, a timeframe, budget and resources.
Why does an effective cost management system necessarily have both a short-term and long-term focus 8. Why would management be willing to accept somewhat inaccurate costs from the cost management system What sacrifices would be necessary to obtain more accurate costs 9. List some examples of costs that a cost management system might treat differently for internal and external purposes. Why would these treatments be appropriate 10. How can an integrated cost management system help managers understand and evaluate the effectiveness and efficiency of business processes 11. Is cost reduction the primary purpose of a cost management system Discuss the rationale for your answer. 12. Why is it not possible for a cost management system to simply be pulled off the shelf 13. How does the choice of organizational form influence the design of a firm's cost management system 14. What information could be generated from a cost management system that would help an organization manage its core...
In most large companies, there are often project teams developed and facilitated by project managers. They are often comprised of people from different departments whose purpose is to design, develop, and or implement a new product, process, or system. Project team members are assigned certain tasks to complete within stipulated time frames. Many of these people serve as part-time project resources in addition to performing their regular jobs.
In a postinvestment audit of a capital project, information on actual project results is gathered and compared to expected results. This process provides a feedback or control feature to both the persons who submitted and those who approved the original project information. Comparisons should be made using the same technique or techniques used originally to determine project acceptance. Actual data should be extrapolated to future periods where such information would be appropriate. In cases where significant learning or training is necessary, startup costs of the first year may not be appropriate indicators of future costs. Such projects should be given a chance to stabilize before making the project audit.
The most widely used office software packages include word processing, desktop publishing, spreadsheet, database, presentation graphics, personal information management, accounting, project management, e-mail, and Internet browser software. These applications are available as integrated solutions software, rather than independent applications. The integration capabilities lead to increased efficiencies and higher productivity, provided users are trained well to maximize the power and flexibility available using these automated office tools. Integration between applications supports the following features common documentation, automatic updating, mail merge, multiple open files, networking capability, ease of use and learning, and common error handling.
A financial analyst has computed both accounting and NPV break-even sales levels for a project under consideration using straight-line depreciation over a 6-year period. The project manager wants to know what will happen to these estimates if the firm uses MACRS depreciation instead. The capital investment will be in a 5-year recovery period class under MACRS rules (see Table 7.4). The firm is in a 35 percent tax bracket.
Our first step was to form an interdepartmental team to devise a strategy and oversee development of the e-course, said Kathy Napierala, a veteran UWA multimedia developer who was named e-learning project manager. Rather than attempt to create several e-classes at the same time, the team decided to focus on a single pilot course. For the pilot, it chose a condensed e-version of one of its most popular introductory training sessions, United Way 101, which it renamed Introduction to United Way.
Life-cycle costing is the accumulation of costs for activities that occur over life-cycle costing the entire life cycle of a product, from inception to abandonment by the manufacturer and consumer. 12 Manufacturers would base life-cycle costing expense allocations on an expected number of units to be sold over the product's life. Each period's internal income statement using life-cycle costing would show revenues on a life-to-date basis. This revenue amount would be reduced by total cost of goods sold, total R&D project costs, and total distribution and other marketing costs. If life-cycle costing were to be used externally, only annual sales and cost of goods sold would be presented in periodic financial statements. But all pre-production costs would be capitalized, and a risk reserve could be established to measure the probability that these deferred product costs will be recovered through related product sales. 13 The risk reserve is a contra asset offsetting the capitalized...
|184 Project Management Templates|
Project Management Made Easy
What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.