2. “Project Evaluation”
“Business Case” document will contain
Introduction & background to the proposal -
Current Environment
Proposed project – Outline
Market- Estimated demand for product or
service
Organizational & Operational Infrastructure -
How structure of organization will be affected
by implementation of project.
3. “Project Evaluation”
Benefits - A financial value
Outline Implementation Plan - Marketing,
Promotion and operational and maintenance
infrastructure.
Costs - Schedule of expected costs with planned
approach.
The Financial case - Information on income and
costs can be analyzed.
Risks- Threats to successful project execution –
from business risk – relating to factors threatening
benefits of delivered project
Management Plan
4. “Project Portfolio Management”
Provides an overview of all the
projects that an organization is
undertaking
It priorities the allocation of resources
to the projects
Decides which one to be accepted
and which one to be dropped
5. Concerns of portfolio management
Identifying which project proposals are
worth implementation
Assessing the amount of risk of failure
Deciding how to share limited resources
Aware of dependencies among projects
Ensuring that projects do not duplicate
work
6. Portfolio can be categorized into
Portfolio Definition
Portfolio Management
Portfolio Optimization
7. Portfolio Definition
An organization should record in a single
repository details of all current projects
8. Portfolio Management
More detailed costing of projects can be
recorded
Actual performance will be tracked
9. Portfolio Optimization
Performance can be tracked by high-level
managers on regular basis
A better balance of projects may be achieved
The portfolio should have careful thought-out
balance between two types of projects
Modest benefit- Fewer risk
Very profitable- Risky
10. Evaluation of Individual Projects
Technical Assessment
Whether the required functionality can be
achieved with current affordable technologies.
11. Cost Benefit Analysis (CBA)
You need to:
Identify all the costs which could be:
Development Costs - Recruitment and Staff Training
Set-up Costs – Cost of putting the system into place
Operational Costs – Operating the system after
installation.
Expressing these costs and benefits in common
units
Check benefits are greater than costs
12. Cost-benefit Evaluation Techniques
‘Year 0’ represents all the costs before system in operation
‘Cash-flow’ is value of income less outgoing
Year Cash-flow
0 -100,000
1 10,000
2 10,000
3 10,000
4 20,000
5 100,000
Net profit 50,000
13. Payback Period
This is the time it takes to break or pay back
the initial investment.
The project with shortest payback period will
be chosen.
Year Cash-flow Accumulated
0 -100,000 -100,000
1 10,000 -90,000
2 10,000 -80,000
3 10,000 -70,000
4 20,000 -50,000
5 100,000 50,000
14. Return On Investment (ROI)
ROI = Average Annual Profit
Total Investment
X 100
In the previous example
Average Annual Profit
= 50,000/5
= 10,000
ROI = 10,000/100,000 X 100 = 10%
15. Discount Factor
Discount factor = 1/(1+r)t
r is the interest rate (e.g. 10% is 0.10)
t is the number of years
In the case of 10% rate and one year
Discount factor = 1/(1+0.10) = 0.9091
In the case of 10% rate and two years
Discount factor = 1/(1.10 x 1.10) =0.8294
16. Net Present Value
Project evaluation technique that considers
profitability of a project and timing of cash
flows that are produced.
Present value of any future cash flow :
Present value = value in year t / (1+r)t
17. Applying Discount Factors
Year Cash-flow Discount factor Discounted
cash flow
0 -100,000 1.0000 -100,000
1 10,000 0.9091 9,091
2 10,000 0.8264 8,264
3 10,000 0.7513 7,513
4 20,000 0.6830 13,660
5 100,000 0.6209 62,090
NPV 618
NPV for a project is obtained by discounting each flow (both negative and
positive) and summing the discounted flows.
18. NPV-Net Present Value
NPV for a project is obtained by discounting
each flow (both negative and positive) and
summing the discounted flows.
