3. Introduction to Project Mamagement PM0001 Sem-3

8/9/2019 3. Introduction to Project Mamagement PM0001 Sem-3

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Sikkim Manipal University Introduction toProject Management PMB0001

INTRODUCTION TO PROJECT MANAGEMENT -PM0001

MBA SEMESTER 3ASSIGNMENT (SET 1)

Q1. What are the various types of models followedin project management?

Ans: Project management: is the discipline of

planning, organizing, andmanagingresources to bring

about the successful completion of specific project goalsand objectives. It is sometimes conflated withprogram

management, however technically a program is actually

a higher level construct: a group of related and

somehow interdependent projects.

Aprojectis a temporary endeavor, having a definedbeginning and end (usually constrained by date, but can

be by funding or deliverables), undertaken to meet

unique goals and objectives, usually to bring about

beneficial change or added value. The temporary nature

of projects stands in contrast to business as usual (or

operations) which are repetitive, permanent or semi-

permanent functional work to produce products or

services. In practice, the managementof these two

systems is often found to be quite different, and as such

LEARNING CENTRE JEDDAH Page 1 of 33MBA III Semester Assignment
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requires the development of distinct technical skills and

the adoption of separate management.

Project management model:

The six phases are:

Define: The project is discussed fully with all the

stakeholders and the key objectives are identified. The

costs and timescales are also established at this stage

and there is often a feasibility study as well. This stage

is complete when the project brief has been written and

agreed.

Plan: An initial plan is developed. Planning is an

ongoing activity because the plan is the basis for

reviews and revision when necessary, depending on

how the project progresses.

Team: The team members are usually involved in

developing the plan and are often able to contribute

specialist knowledge and expertise. The building of this

team and its motivation and leadership also continue

until the project is finished.

Communications: should take place continuously, both

within the project team and between the project team

and stakeholders in the project, including anyone who



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contributes to achievement of the outcomes. Some

communications will be through formal reporting

procedures but many will be informal.

Control: Implementation takes place during the control

stage (stage 4 in the model). During this stage, the

tasks and activities of the team will be monitored

against the plan to assess the actual progress of the

project against the planned progress. Control is

essential to ensure that the objectives are met withinthe scheduled timescales, budgeted costs and quality.

Regular reviews are usually held to enable the plan to

be revised and for any difficulties that emerge to be

resolved.

Review and exit: The review is held to evaluate

whether all the intended outcomes of the project have

been met. It is also important because it enables

information to be gathered about the processes used in

carrying out the project from which lessons can be

learned for the future. The exit from the project has to

be managed to ensure that:

any outstanding tasks are completed;

all activities that were associated with the project

are discontinued;



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All resources are accounted for, including any that

remains at the end and have to be transferred or sold

to someone else.

Many projects evolve through a series of loops of

planning, acting, reviewing and re planning. It is

important to think of planning as a continuous activity

rather than something that can be completed once and

used without change for the duration of the project.

Expect change and allow scope to change or modify the

plan.

Q2. How can we do a risk mitigation processplanning for a software project?



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Ans: Project risk management is the systematic process

of identifying, analyzing, and responding to project risk.

It includes maximizing the probability and consequences

of positive events and minimizing the probability and

consequences of events adverse to project objectives. It

includes the processes of risk management planning,

risk identification, qualitative risk analysis, quantitative

risk analysis, risk response planning, and risk monitoring

and control.

Business challenge

Risk mitigation is a major challenge that many

organizations fail to fully understand or implement.

Focusing on risk mitigation at the right stage of aproject will increase the likelihood of successful delivery

by more than 50%. Many solutions have to be re-worked

because technical risks were not mitigated in the early

stages of a development. Building a system on a soft

foundation, typically, will mean a collapse later in the

lifecycle.

Solution



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To maintain an approach that focuses on regular risk

mitigation throughout the project lifecycle. During

planning or assessment of an iteration or sprint, help

identify risks and implement plans that minimize thoserisks as early as possible. One way to reduce technical

risk, for example, is to implement architecturally

significant requirements in the beginning stages of a

projects lifecycle and prove that they work.

This approach involves a full risk assessment every fewweeks, and the development of plans that focus on

producing executable code to minimize risk. Involving

key stakeholders in these reviews helps address project-

wide risks effectively.

Provide training, coaching and support throughout theimplementation of our iterative risk-mitigation

approach:

Utilizing precise practices to conduct project health

checks that determine the state of the project and

identify risk

Defining an integrated risk assessment plan to

compute and prioritize risks by order of magnitude

Separating risk identification from identifying risk

mitigation and risk response strategies, and



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demonstrate how to build them directly into the

project plan

Collaboration overview

Risk identification workshops

Iteration planning sessions

Iteration assessment sessions

Active mentoring of teams to guarantee a focus on

risk mitigation

Sample implementation

To realize more agile software project lifecycle would

improve delivery capability and reduce risk. We should

modernize the approach to software development by

implementing Essential Unified Process (EssUP)practices.

These are the factors we can use for risk mitigation of

software projects



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Benefits

By fully incorporating risk mitigation into project life

cycle, we can:

Mitigate risks early to give the project a solid

foundation

Ensure shared ownership of risk by the whole

project team

Enable continuous risk tracking, providing better

visibility of project and team dependencies

Be able to record risks and plot trends over time to

identify issues that need to be addressed

Integrate risk management into project plan

Q3. Explain the importance of work breakdownstructure and scope statement in projectmanagement:



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Ans: Work breakdown structure:

A complex project is made manageable by first breaking

it down into individual components in hierarchicalstructure, known as the work breakdown structure, or

the WBS. Such a structure defines tasks that can be

completed independently of other tasks, facilitating

resource allocation, assignment of responsibilities, and

measurement and control of the project.

The word breakdown structure can be illustrated in a

block diagram:

Because the WBS is a hierarchical structure, it may beconveyed in outline form:

LEVE LEVEL-2 LEVEL-3



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L-1

TASK

1

SUBTASK

1.1

Work package

1.1.1

Work package

1.1.2

Work package

1.1.3

SUBTASK

1.2

Work package

1.2.1

Work package

1.2.2

Work package

1.2.3

TASK

2

SUBTASK

2.1

Work package

2.1.1



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Work package

2.1.2

Work package

2.1.3

Work Breakdown Structure Outline:

Terminology for Different Levels

Each organization uses its own terminology for

classifying WBS components according to their level in

the hierarchy. For example, some organization refers to

different levels as task, sub tasks, and work packages,as shown in the above outline. Others use the terms

phases, entries, and activities.

Organization by Deliverables or Phases

The WBS may be organized around deliverables or

phases of the project life cycle. Higher levels in the

structure generally are performed by individual, though

a WBS that emphasizes deliverables does not

necessarily specify activities.



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Level of Detail

The breaking down of a project into its component parts

facilitates resource allocation and the assignment ofindividual responsibilities. Care should be taken to use a

proper level of detail when creating the WBS. On the

one extreme, a very high level of detail is likely to result

in micro management. On the other extreme, the tasks

may become to large to manage effectively. Defining

tasks so that their duration is between several days and

a few months works well for most projects.

WBSs Role in Project Planning

The work breakdown structure is the foundation of

project planning. It is developed before dependencies

are indentified and activity durations are estimated. The

WBS can be used to identify the tasks in the CPM and

PERT project planning models.

Scope statement in project management

The Scope Statement provides a common

understanding of the project among stakeholders. Some

organizations create a separate Scope Statement

Document while others make it a part of the Project



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Charter or Project Plan.

The preliminary Project Scope Statement specifies what

should be the goals and objectives of the project and

what needs to be accomplished for the project.

A project scope statement includes the following:

Project and Product Objectives

Product Acceptance Criteria

Project Boundaries

Assumptions and Constraints

Project Requirements and Deliverables

Initial Defined Risk

Schedule

Work breakdown structure

Summary of Budget

Configuration Management

The preliminary project scope statement can be created

on the basis of the information from the client side. Theinputs used here are:

The project charter,

The project statement of work (SOW)



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The enterprise environmental factor

The organizational process assets

Project Management Methodology (PMM) helps the

project managers in developing and controlling changes

to the preliminary project scope statement.

Project Scope management

A clear and well defined scope is very important for the

completion of any minor or major project on time.

Project Scope Management comprises five processes:

Scope Planning

Scope Definition

Create work break down structure

Scope Verification

Scope Control

Scope interface

The Scope Management Plan should be part of the

Project Plan.

Assignment Answers for ProjectManagement - 2



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Q1. What are the various methods of demandforecasting? Explain in detail with some practicaltools

Ans: Demand forecasting is the activity of estimating

the quantity of a product or service that consumers will

purchase. Demand forecasting involves techniques

including both informal methods, such as educated

guesses, and quantitative methods, such as the use of

historical sales data or current data from test markets.Demand forecasting may be used in makingpricing

decisions, in assessing future capacity requirements, or

in making decisions on whether to enter a new market.

Necessity for forecasting demand:

Often forecasting demand is confused with

forecasting sales. But, failing to forecast demand

ignores two important phenomena. There is a lot of

debate in demand-planning literature about how to

measure and represent historical demand, since the

historical demand forms the basis of forecasting. The

main question is whether we should use the history of

outbound shipments or customer orders or a

combination of the two as proxy for the demand.

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Methods:

No demand forecasting method is 100% accurate.

Combined forecasts improve accuracy and reduce the

likelihood of large errors.

Methods that rely on qualitative assessment

Forecasting demand based on expert opinion. Some of

the types in this method are,

Unaided judgment

Prediction market

Delphi technique

Game theory

Judgmental bootstrapping

Simulated interaction

Intentions and expectations surveys

Conjoint analysis

Methods that rely on quantitative data

Discrete Event Simulation

Extrapolation

Quantitative analogies

Rule-based forecasting

http://en.wikipedia.org/wiki/Prediction_markethttp://en.wikipedia.org/wiki/Delphi_methodhttp://en.wikipedia.org/wiki/Game_theoryhttp://en.wikipedia.org/wiki/Conjoint_analysis_(in_marketing)http://en.wikipedia.org/wiki/Extrapolationhttp://en.wikipedia.org/wiki/Prediction_markethttp://en.wikipedia.org/wiki/Delphi_methodhttp://en.wikipedia.org/wiki/Game_theoryhttp://en.wikipedia.org/wiki/Conjoint_analysis_(in_marketing)http://en.wikipedia.org/wiki/Extrapolation


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science and technology development, covering such

topics as scientific breakthroughs,population control,

automation, space progress, war prevention and

weapon systems. Other forecasts of technology weredealing with vehicle-highway systems, industrial robots,

intelligent internet, broadband connections, and

technology in education.

Later the Delphi method was applied in other areas,

especially those related to public policy issues, such as

economic trends, health and education. It was also

applied successfully and with high accuracy in business

forecasting.

Prediction markets

Prediction markets (also known as predictive

markets, information markets, decision markets, idea

futures, event derivatives, or virtual markets) are

speculative markets created for the purpose of making

predictions. Assets are created whose final cash value is

tied to a particular event (e.g., will the next US

president be a Republican) or parameter (e.g., total

sales next quarter). The current market prices can then

be interpreted as predictions of the probability of the

http://en.wikipedia.org/wiki/Population_controlhttp://en.wikipedia.org/wiki/Automationhttp://en.wikipedia.org/wiki/Speculationhttp://en.wikipedia.org/wiki/Population_controlhttp://en.wikipedia.org/wiki/Automationhttp://en.wikipedia.org/wiki/Speculation


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expanded to treat a wide class of interactions, which are

classified according to several criteria. Today, "game

theory is a sort of umbrella or 'unified field' theory for

the rational side of social science, where 'social' isinterpreted broadly, to include human as well as non-

human players (computers, animals, plants)"

Extrapolation:

In mathematics, extrapolation is the process of

constructing new data points outside a discrete setof

known data points. It is similar to the process of

interpolation, which constructs new points between

known points, but the results of extrapolations are often

less meaningful, and are subject to greateruncertainty.It may also mean extension of a method, assuming

similar methods will be applicable. Extrapolation may

also apply to human experience to project, extend, or

expand known experience into an area not known or

previously experienced so as to arrive at a (usually

conjectural) knowledge of the unknown (e.g. a driver

extrapolates road conditions beyond his sight while

driving).

http://en.wikipedia.org/wiki/Game_theory#Types_of_gameshttp://en.wikipedia.org/wiki/Mathematicshttp://en.wikipedia.org/wiki/Discrete_sethttp://en.wikipedia.org/wiki/Interpolationhttp://en.wikipedia.org/wiki/Uncertaintyhttp://en.wikipedia.org/wiki/Methodhttp://en.wikipedia.org/wiki/Experiencehttp://en.wikipedia.org/wiki/Game_theory#Types_of_gameshttp://en.wikipedia.org/wiki/Mathematicshttp://en.wikipedia.org/wiki/Discrete_sethttp://en.wikipedia.org/wiki/Interpolationhttp://en.wikipedia.org/wiki/Uncertaintyhttp://en.wikipedia.org/wiki/Methodhttp://en.wikipedia.org/wiki/Experience


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Q2. What are the methods of financial appraisal?

Ans: from the financial viability viewpoint, the

selection of projects to be implemented will be based on

the stream of cash flows (both inflows and outflows), for

which estimates are worked out as noted in the

preceding section. The method to be used will depend

on the selection criteria to be decided by the

management.It is important to keep in mind the points that need

to be considered while estimating the costs incurred and

the income realized from the project in the consecutive

years of the project operation. These points are as

under:

1.All costs and incomes (benefits) need to be

measured in terms of cash flows. This means that

that all non cash charges or expenses like



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depreciation should be added back to the PAT to

arrive at net cash flows.

2. The net cash flow accrues to the firm only after

paying tax. Hence, net cash flow must be

computed in post- tax terms.

3. For an additional project being considered by an

company which is already in operation, only the

incremental cash flows arising out of the

additional project should be considered.

With the above mentioned points I the

background, we can broadly divide the financial

viability criteria in two categories as under:

Discounting criteria These criteria consider the

time value of money. The discounting rate to be

used for this computation is popularly accepted

as the cost of capital in percentage (k). Cost of

capital can be defined as the minimum discount

rate that must be earned on a project keeping

the market value of the firm constant. Another

understanding of the cost of capital is that it is

the expected rate of return offered to the

investors by the equivalent risk investments

traded in the capital markets. A brief description



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of cost of capital is given in the succeeding

section.

Non discounting criteria - These criteria do not

consider the time value of money i.e. the future

years cash flows are considered on the same

footing as the investment / cash flows in the

initial year / years.

A. Discounting criteria:

The different discounting techniques are:

Net Present Value (NVP)

NVP is the present algebraic value of all future

cash flow discounted at k.

The formula for NPV is

Note: If summation is made from

t= 1 to t = N, Initial investment

t will be subtracted from RHS of the equation



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Where CFt = Cash flow in year t, t varying from 0 to N

i.e. the no. of years of project life.

Cash inflow taken as (+) and Cash outflow taken as(-)

CF0 will be the investment made in year 0 and will

be (-), the investments may continue to be made in

year 1, year 2 etc. in which case CF1, CF2 etc.

Will be entered accordingly in the equation

k= Cost of capital (computation of k is discussed in

subsequent section.

k reflects the risk of the project.

The project is accepted if NPV is (+)

Rejected if NPV is (-)

Point of indifference if NPV = 0

If there are 2 or more mutually exclusive projects,

the one with the higher NPV is selected. It can be

noted that the NPV decreases as the cost of capitalincreases, can increases as the cost of capital

decreases.

Modified NPV (NPVn)

The assumption in the NPV method above is that



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the cash flows are reinvested at a rate of return

equal to k i.e. cost of capital. In case the

reinvestment rate is r, then the Terminal Value

(TV) of the cash inflows of the project has to becomputed, then the TV has to be reduced to its

present value and the NPV will be equal to the

present value of TV minus the present investment

(assuming the entire investment is made in year 0).

The formula for modified NPV (denoted as NPVn) is

I = investment outlay

It can be noted that if the reinvestment rate is

higher than the cost of capital, the NPVn will be

higher than NPV and vice versa.

Internal Rate of Return (IRR)

The IRR is the discount rate (k) at which NPV=0

By way of a formula, the IRR is the value of k

derived from the equation hereunder:



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The IRR is also known as yield on investment,

marginal efficiency of capital, marginal productivity

of capital etc.

Although the IRR can be considered as the case forNPV=0, we must understand the differences

between the implication of NPV and IRR.

In the NPV method, k is taken as the cost of capital

which is determined based on the factors external

to the project proposal. In the IRR method, the

discount rate is the rate of return based on the

factors that are internal to the project proposal.

The company sets a cut off rate for comparing with

the IRR computed. The project is accepted if IRR is

greater than the cut off rate. For more than one

project being evaluate, the project with the highest

IRR is selected.

Modified IRR (IRRn)

The IRR method shown above is based on the

assumption that the cash inflows of the project arereinvested at the same IRR rate. If the reinvestment

rate (r) is different, then the modified IRR i.e. IRRn

is to be computed after calculating TV as explained

in the NPVn method above. The formula for IRRn is



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Here, TV is the terminal value of cash inflowsexpected from the project i.e.

And PVC is the present value of the costs

associated with the project i.e.

Benefit cost ratio (BCR, also known as Profitability

index PI)

This is the ratio of the present value of future cash

benefits to the initial investment. The present value

of future cash benefits is computed using the same

Time-value of money technique used in the NPV

method. The NPV method computes the differences

between the present value (PV) of the future cash

benefits and the initial investment, whereas the

BCR method calculated the ratio of future cash

benefits to the initial cash flow. The formula for BCR

is thus:



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The project is Accepted if BCR > 1

Rejected if BCR < 1

Point of indifference if BCR = 1

If there are two or more projects being evaluated,

the one with the highest BCR will be selected.

Net benefit cost ratio (NBCR)

The formula for NBCR id

NBCR = BCR 1

It measures the ratio of the net benefit of the

project rather than the gross benefit. It is

advantageous when capital rationing is used.

The project is Accepted if NBCR is +ve

Rejected if NBCR is vePoint of indifference if NBCR = 0

In case of more than one project, the project with

the highest +ve NBCR is selected.

Discounted Payback Period

In this method, the present value of future cash

flows are calculated and added. The number of

years for which this total becomes equal to the

initial investment I is considered as the payback

period. This can include a fraction of the year. This



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payback period is compared to the payback period

set as the standard for accepting the project.

If the discounted payback period is less than the

standard, the project is accepted. If it is more thanthe standard, the project is rejected.

B. Non - discounting Criteria;

The different non discounting techniques are

Payback PeriodHere, the future annual cash flows are algebraically

added without considering the timevalue of

money. If the annual cash inflows are equal,

Then

The criteria foe project selection is the same as the

mentioned under

Discounted payback period

Average Rate of Return (ARR, also called

Accounting Rate of Return)

The formula is



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A project with a higher rate of ARR is preferred.

3. What do you mean by social cost benefit

analysis? Explain with a example.

Ans: Cost-benefit analysis is a term that refers both

to:

Helping to appraise, or assess, the case for a

projector proposal, which itself is a process known

asproject appraisal; and

An informal approach to making economic decisions

of any kind.

Under both definitions the process involves, whether

explicitly or implicitly, weighing the total expected costs

against the total expected benefits of one or more

actions in order to choose the best or most profitableoption. The formal process is often referred to as either

CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost

Analysis).

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rail to a large fraction of passengers using the road

transport in Delhi. It reduces the travel time of people

using the road and Metro, number of accidents on roads

and the atmospheric pollution.The financial cost-benefit ratio of the Metro is

estimated as 2.30 and 1.92 at 8 percent and 10 percent

discount rates respectively while its financial internal

rate of return is estimated as 17 percent. The financial

evaluation of the Metro is done considering the financial

flows of the project comprising the annual revenue

earned and flows of investments and operation and

maintenance costs. The shares of debt, equity and

internal resource mobilization in investments made on

Metro are 60, 30 and 10 percent, respectively.

The social cost-benefit analysis of the Metro

requires the identification of benefits and the economic

agents affected by it. The incremental changes in the

incomes of various economic agents: passengers,

transporters, public and government and unskilledlabour due to the Metro could be estimated by

considering the Delhi economy with and without the

Metro. It is found that there are income gains to the

government, public, passengers and unskilled labour



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while there are substantial income losses to the

transporters because of the Metro.

The estimated NPSB of the Metro at 2004-05 prices

and the 8 percent social time preference rate for theIndian economy is Rs. 419979.6 million. The social rate

of return on investment in the Metro is as high as 22.7

percent.

Social cost-benefits of Delhi Metro

Savings in travel time

Due to reduction in travel time for Metro passengers

Reduction in accidents

Reduction in the number of vehicles on road

Savings in fuel consumption

Reduction in air pollution

Savings in passenger time

Savings due to fewer accidents

Savings in vehicular operating costs due to the

decongestion effectSavings in Capital and Operating Cost of Diverted

vehicles

LEARNING CENTRE JEDDAH P 33 f 33

3. Introduction to Project Mamagement PM0001 Sem-3

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