Project Management. Session 4 - Dr. Sepehri. Sharif MBA Fall Feasibility Study, Project Selection. Burke Chapter 4-5

Transcription

1 Project Management Sharif MBA Fall 1385 Session 4 - Dr. Sepehri Feasibility Study, Project Selection Burke Chapter 4-5 1

2 Project Feasibility Feasibility study ensures that projects are technically and legally possible, and are economically justified. Feasibility study must be managed as a mini-project using planning and control, with its own life-cycle. Senior manager has the responsibility to select the project manager for feasibility study. Project manager then selects the feasibility study team, including a representative of future operators. Decision to proceed with the feasibility study does not mean the decision to go ahead with the project! Not every project is doable! Not every project should be done! Not every project makes the best use of company s resources 2

3 1- Feasibility Study Initiation The lead up to the project feasibility study is the formalization of the project with the project charter. Project Feasibility Study should be formalized with requirements, boundaries, and expected outcomes: Who is responsible Project brief to be analyzed Who should be involved Level of details Budget for the feasibility study Report back date 3

4 2- Planning the Feasibility Study 4

5 3- Stakeholder Analysis The purpose of the needs analysis in feasibility study is to determine needs and expectations of all stakeholders Project stakeholders are people and organizations (both internal and external) who are either actively involved in the project, or whose interests are affected by project. Originator Owner Sponsor Project Champion Users Customers Suppliers/Vendors Project Team Senior Management Functional Managers Boss Colleagues Sub-contractors Supports Health/Safety Authorities Trade Unions Interest Groups Lobby Groups Government Citizens 5

6 Stakeholders Analysis Stakeholders may be positively or negatively affected by the project (cannot cancel out!). Project manager must negotiate to build a coalition among stakeholders to move forward. 6

7 4- Define the Client s Needs Function at a pre-defined rate Operate in a specific environment Have working life of so many years Budget not to exceed $x amount Meet certain specifications/standards Achieve reliability requirements Must be energy efficient Meet health and safety regulations Ease of maintenance and repairs Provide opportunity for expansions Etc. 7

8 5. Evaluate Constraints Internal Project Constraints Technical, Technology, Resources, Budget, etc. Internal Corporate Constraints Financial, Marketing, Partner, Exports, Training External Constraints Laws & Regulations, Logistics, Environment 8

9 Technology Transfer Should we start the project now with the present technology or should we wait for better technology? At what point in the development should a design freeze, with the current technology, be imposed? 9

10 6- Evaluate Alternatives and Options By breaking down a complex project into components, by work breakdown structure (WBS) or activity, the project constraints, the project objectives, alternatives and options may be assessed more effectively. 10

11 7- Gather Information Information is a pre-requisite for effective problem solving and decision making. The size of the company will influence how and where information is available. Responsibility for setting up a database of information should lie with either the project office or the company s general manager. Sales/Marketing Brochures Books and Periodicals Technical Reports Bureau Specifications Market Research Internet Stakeholders Close-up Reports 11

12 8- Value Management Value Management is a structured, systematic and analytical process that seeks to achieve value for money by providing all the necessary functions at the lowest total cost, consistent with desired levels of quality and performance. Identify unnecessary expenditures Challenge assumptions General alternative ideas Promote innovation Optimize resources Save time, money, and energy Simplify methods and procedures Eliminate redundant items Update standards, criteria, objectives Clarify customers needs Create ideas Challenge assumptions Participate everyone See the purpose Seek lowest cost 12

13 9- Cost Benefit Analysis Initial cost-benefit analysis to establish the financial feasibility of the project. Pareto improvement criteria: the project should make some people better off without making anyone worse off. Hick-Kaldor test: the aggregate gains of the project should exceed aggregate losses. Willingness to pay: to determine how much your clients are prepared to pay for your product 13

14 Communication Gap in Needs Assessment 14

15 Project Selection Project Selection = Investment Decision = Commitment for Future Maximize Profit Utilize workforce Increase Market share Enter new markets Improve image Production Consideration Marketing Consideration Financial Consideration Personnel Consideration Administration Consideration 15

16 Numeric Methods Payback Period Payback Period = The time taken to gain a financial return equal to the original investment. Most widely used Simple and quick An initial filter Future is uncertain 16

17 Disadvantages = No time value of money Indifferent to the timing Not for long-term projects Based only on cash flow Not consider risk exposure Not consider total project 17

18 Return on Investment (ROI) Average Annual Profit = (Total Gains) (Total outlay) / No. of Years Return on Investment = Average Annual Profit / Original Investment Profit ( A & B ) = $55,000 - $35,000 Annual Profit = $20,000 / 4 = $5,000 ROI = $5,000 / $35,000 = 14% 18

19 Net Present Value Present Value = discount factor x cash-flow Discount factor = 1 / (1+i) n i = the forecast interest year n = number of years from start 19

20 Example of Net Present Value 20

21 Net Present Value Advantages of Net Present Value Uses Time value of money Allows for inflation/escalation Disadvantages of Net Present Value Bias towards short run projects Limited by accuracy of interest rate 21

22 Internal Rate of Return (IRR) IRR or DCF is the value of the discount factor when the NPV is zero. 22

23 Example of IRR 23

24 Net Present Value (NPV) using Variable Interest Rates 24

25 Scoring Models Financial and Non-financial factors with varying weights 25

26 Break-even Analysis Break-even point = Fixed costs / Contribution per unit 26

27 Project Life-cycle Cash-flow 27

28 Choosing the Right Project 28

29 Next Classes: Today Sunday 30 th of Mehr Regular class 12:20 pm Feasibility, Project Selection Review session 1:20 pm Problem Solving, Exercises Tuesday 2 nd of Aban Finish Session 3 from last week Session 4: Planning, Initiation and Integration Sunday 7 th Aban Regular Class: Case studies (TBA) Review session: Problem Solving, Exercises Tuesday 9 th Aban Session 5: Scope Management Wednesday 10 th Aban (make-up class) Session 6 Organization Structure 29