HMCS Max Bernays Pre-Deployment Brief (May 2024).pptx
4. PAE AcFn621Ch-4a Project Alaysis and Selection.ppt
1. M.SC.,ACCOUNTING AND FINANCE
PROJECT ANALYSIS AND EVALUATION
CODE AcFn621-CREDIT HOURS-3
CHAPTER-FOUR
PROJECT ANALYSIS AND SELECTION
PROF. DR. CHINNIAH ANBALAGAN
PROFESSOR OF M.SC., ACCOUNTING & FINANCE
COLLEGE OF BUSINESS AND ECONOMICS
SAMARA UNIVERSITY, ETHIOPIA, EAST AFRICA
EMAIL ID: dr.chinlakshanbu@gmail.com
2. Definition of Project Selection
Project Selection is a process to assess
each project idea and select the project with
the highest priority.
These are often described as the reasons
why you are undertaking the project.
The types of benefits of
eradication projects include:
Biodiversity.
Economic.
3. Definition of Project Analysis
Project Analysis can be used to
estimate the economic or engineering
viability of investment projects by
performing lifecycle analysis of
pavement performance, maintenance
and/or improvement effects together
with estimates of user costs
4. Facts of Project Analysis
• Facts of Project Analysis.
–Damage caused by the project to
environment.
• Financial Analysis.
–Consumption trends in past and present.
• Ecological Analysis.
–Investment quality and cost of project.
• Economic Analysis.
–Preliminary tests and study.
• Market Analysis.
5. Building of Project Team
• Selecting Your Team.
–Take care to choose the right people.
• Set the Tone and the Ground Rules.
–Do this at your very first team meeting.
• Setting Clear Goals.
–You must set clear achievable goals.
• Achievable Early Goals.
–Make use of your goals to build team spirit
and enthusiasm.
• Communication.
6. Build a High Functioning Team
• Create a clear purpose that will inspire
people.
• Establish a clear strategy and plan, and
communicate it often.
• Develop clear and measurable indicators of
success.
• Ensure that every individual has clear
responsibilities and performance
expectations.
7. Planning Process For Project Selection
• Strategic planning, determine the organization’s
strategy, goals and objectives.
• Business area analysis, analyze the business
process to achieve strategic goals such
improvement of sales, manufacturing,
engineering, or IT.
• Project planning, define projects that address the
strategies.
• Resource allocation, choosing which projects to
do and assigning resources for working on them.
8. Project Growth
• Sources of project
–users
–top management
–within information systems
• Process of selecting project
–idea
–estimate benefits, costs
10. Measurement of Project Effect
• Intangibles
–Difficult to measure cost and benefits
• Hidden outcomes
–time, budget subject to great error
• Change of Information Technology
–technology changes rapidly
•outdating many good project idea
•Technology is highly dynamic
11. Measurement of Project Effect
• Allowing non-technical staffers to give estimates.
• Underestimating design time and debugging time
• Inadequate/unclear requirements.
• Poorly defined scope of work.
• Omissions.
• Optimism.
• Failure to assess risk and uncertainty.
• Time pressure.
• External pressure.
• Failure to involve task performers.
12. Organizational Treatment of Projects
• Focusing on bottom line justification misleads
companies with respect to evaluation of
Information technology investment, by
treating project as capital which requires a
rigid cost/benefit analysis.
• The most common justification for project
adoption:
- reduction of payroll
- accomplishing a strategic objective (often
disregarded because it is difficult to measure)
13. Organizational Project Management Process
• Organizational Project Management is
the systematic coordination of structures,
capabilities, and practices to achieve
continuous improvement in the
performance of
temporary processes (Projects, Programs
and Portfolios)
14. Organizational Structures
• Traditional organizational
structures come in four general types,
functional, divisional, matrix and flat.
• But with the rise of the digital marketplace,
decentralized, team-based
org structures are disrupting old business
models
15. Organizational Treatment of IS Projects
• Hinton & Kaye (1996) - survey of 50
organizations
CAPITAL: rigid cost-benefit analysis
REVENUE: need to invest to keep up
Investment Capital Mix Revenue
training 0% 01% 99%
marketing 04% 9% 87%
info tech 39% 41% 20%
operations 58% 31% 11%
16. Organizational Treatment of Projects
• Cost benefit analysis should consider
cost over the entire life cycle of the
project.
• Estimate the Project
Developer who estimate their project tend
to be optimistic, so having one group
estimate and other develop the project is a
good practice.
17. Initial Risk Evaluation
Most of these risks have to do with estimating the
time, which depends on a number of factors:
• Project manager ability
• experience with application, environment,
language
• familiarity with modern programming practice
• availability of critical equipment, software
• completeness of project team
• personnel turnover
• project team size
• relative control of project manager over project
team
19. ROI and IRR
• Return on investment, is the result of subtracting the
project cost from the benefit and then dividing by the
cost.
ROI = (total discount benefit – total discount costs) /
discount cost
• IRR, find what discount rate result in an NPV of zero for
the project.
• There is no direct formula for calculating IRR return.
• It is found using an iterative process using NPV.
• The closest thing to a formula is the following:
If NPV=0 then IRR=discount rate used to calculate the
NPV.
• So we calculate NPV with different discount interest
rates, zeroing in on NPV=0 to find the IRR.
20. Project Selection Methods
The comparative approach, the value of one project would need to be
compared against the other projects, you could use the benefit
measurement methods.
– This could include various techniques, of which the following are
the most common.
- You and your team could come up with certain criteria that you
want your ideal project objectives to meet. You could then give
each project scores based on how they rate in each of these criteria,
and then choose the project with the highest score.
- When it comes to the Discounted Cash flow method, the future
value of a project is ascertained by considering the present value
and the interest earned on the money. The higher the present value of
the project, the better it would be for your organization.
- The rate of return received from the money is what is known as the
IRR. Here again, you need to be looking for a high rate of return
from the project.
The mathematical approach is commonly used for larger projects.
– The constrained optimization methods require several calculations
in order to decide on whether or not a project should be rejected.
21. Project Selection Methods
- Following is an illustration of two of methods (Benefit
Measurement and Constrained Optimization methods).
22. Project Approval Criteria
• Financial
– net present value/internal rate of return
– payback
– profitability index/budgetary constraint
• Management
– support business objectives
– respond to competition
– better decision making
– satisfy legal requirements
• Development
– Project needed for effective operation
– Introduction of new technology
23. Project Screening
• Identifying the factors that are important
• Establishing a minimum of acceptable levels
of requirements and eliminate projects that
fail on any one of these standards.
• This is appropriate if the minimum standards
reflect what management demands in return
for its investment.
• a way to implement screening assure
implementation of policy limits
24. Project Screening
• Eliminate proposals not meeting
minimum requirements, weeding out
projects with unacceptable features.
• Project Profile is to display how the
project proposal compares with
standards, as well as how it compares
with other proposals.
25. Project Profile
• Display project features with standards
• Compares strengths, weaknesses
Project Cost NPV/Cost Strategic
A265 230,000 0.43 no
A8013 70,000 0.51 yes
A9217 90,000 0.46 no
B6224 80,000 0.11 yes
B8379 10,000 0.22 yes
C2194 10,000 0.41 no
26. Cost Benefit Analysis
• Cost-benefit analysis (CBA), sometimes called benefit-
cost analysis (BCA), is an economic decision-making
approach, used particularly in government and business.
• CBA is used in the assessment of whether a
proposed project program or policy is worth doing, or to
choose between several alternative ones.
• It involves comparing the total expected costs of each
option against the total expected benefits, to see whether
the benefits outweigh the costs, and by how much.
• In CBA, benefits and costs are expressed in money terms,
and are adjusted for the time value of money so that all
flows of benefits and flows of project costs over time
(which tend to occur at different points in time) are
expressed on a common basis in terms of their "present
value."
27. Cost-Benefit Analysis
• Accurately estimate all benefits
– identify overall profit impact
– in net present terms
• Accurately estimate all costs
– overall profit impact, in net present terms
• Ratio: benefits/costs
<=1, don’t adopt >1, profitable
can adopt by highest ratio
28. Payback
• Refers to the period of time required for the return on an investment
to "repay" the sum of the original investment
• For example, a $1000 investment which returned $500 per year
would have a two year payback period. The time value of money is
not taken into account.
• Payback period intuitively measures how long something takes to
pay for itself. Shorter payback periods are preferable to longer
payback periods.
• Payback period as a tool of analysis is often used because it is easy
to apply and easy to understand for most individuals. When used
carefully or to compare similar investments, it can be quite useful.
• The most basic method of financial evaluation is simply to compare
the income that will be generated with the initial investment.
• Identify the time needed (rough estimate of time) for costs to be
recovered
– simple
– doesn’t consider negative cash flow in early period.
• The most common reasons for company failure in US is lack of cash
flow.
29. Payback (example)
In house cumulative Out source cumulative
Year 0 (380,000) (380,000) (520,000) (520,000)
Year 1 70,000 (310,000) 190,000 (330,000)
Year 2 150,000 (160,000) 270,000 (60,000)
Year 3 225,000 65,000 340,000 280,000
30. Net Present Value
• NPV compares the value of a dollar today
to the value of that same dollar in the
future, taking inflation and returns into
account.
• The basic calculation is applied to the
benefit, which must then be offset against
the cost.
• This figure is called the Net Present Value
(NPV) which equals to present value of
benefit – present value of cost.
31. NPV - Example
Now Year 1 Year 2 Year 3
Startup cost 50,000
Running cost 30,000 45,000 45,000
revenues 40,000 50,000 60,000
Sales of
business
70,000
32. Value Analysis
(is an alternative to cost/benefit analysis)
• Decision Support System benefits usually very
vague.
• Unfair to apply cost-benefit analysis
– benefit estimates unreliable
• Costs - identify as in cost-benefit
• Benefits - leave in subjective terms
• Managerial decision: are you willing to pay this
much for that set of benefits?
• Quantify the intangible in terms of value not in
dollars.
33. Multi-criteria analysis
• Multi-Criteria Analysis (MCA) is a decision-making tool
developed for complex problems.
• By using MCA the members don't have to agree on the relative
importance of the Criteria or the rankings of the alternatives. Each
member enters his or her own judgment, and makes a distinct,
identifiable contribution to a jointly reached conclusion.
• SMART is a very simple means of quantitatively combining diverse
sets of benefits by converting them all to an abstract measure of
value. (two factors here are weight and score)
• SMART Simple Multi-Attribute Theory
– identify criteria (risk, market share)
– measure utilities of alternatives over each criterion
– elicit preference weights
• From the most important to the least important
value = S of weights times scores
35. Questions to Help You
Plan Your Project
• When you begin a project, you always feel the pressure to jump in
and start working to meet the aggressive time schedules. You want
to be sure it’s planned out before you start, but you’re not quite sure
where to begin, and you’re always under pressure to start producing
results. Answer the following questions in this chapter to be sure
you’ve completely identified all the work your project will require.
• What’s the Purpose of Your Project? As soon as you’re assigned
to your project, get a clear and complete picture of its significance.
Determine the following:
- What situation(s) led to your project?
- Who had the original idea?
- Who else hopes to benefit from it?
- What would happen if your project weren’t done?
An accurate appreciation of your project’s purpose can lead to better
plans, a greater sense of team-member commitment, and improved
performance.
36. Questions to Help You
Plan Your Project
• Whom Do You Need to Involve? Knowing early whom you need to
involve allows you to plan for their participation at the appropriate
times. Involving these people in a timely manner ensures their input
will be available when it’s needed and lets them know that you value
and respect their contributions. As you determine who may play a
role in your project’s success, categorize them as follows:
_ Drivers: People looking for your project’s results.
_ Supporters: People who can help your project succeed.
_ Observers: People interested in your project.
After you have this comprehensive list, decide whom to involve and
when and how you want to involve them.
• What Results Will You Produce? Specify all the outcomes you
expect your project to produce. Be sure that you describe clearly
each product, service, or impact; make the outcomes measurable and
include performance targets. Confirm that your project’s drivers
believe these outcomes meet their needs and expectations.
37. Questions to Help You
Plan Your Project
• What Constraints Must You Satisfy? Identify all information,
processes, and guidelines that may restrict your project activities and
your performance. Distinguish between the following:
- Limitations: Restrictions that people outside your project team
set.
- Needs: Restrictions that you and your project team members
establish.
When you know your constraints, then you can plan to minimize their
effect on your project.
• What Assumptions Are You Making? As soon as you begin
thinking about your project, document all assumptions about its key
information because each of these assumptions leads to one or more
project risks that you may choose to plan for in advance. Continue
adding to your list of assumptions as you develop the parts of your
plan. Update your plans whenever an assumption changes or you
find out its actual value.
38. Questions to Help You
Plan Your Project
• What Work Must Be Done? Identify all the activities required to complete your
project so you can assign responsibilities for them, develop schedules, estimate
resource needs, give specific tasks to team members, and track your project during
performance. For each activity, specify
_ The work to be done: The processes and steps that each activity requires.
_ Inputs: All people, facilities, equipment, supplies, raw materials, funds, and
information necessary to perform each activity.
_ Results you expect: Products, services, or situations that you expect each activity
to produce.
_ Interdependencies: Activities that you must complete before you can start the
next one; activities you can start after you’ve completed the current one.
_ Duration: The actual calendar time to perform each activity
• When Does Each Activity Start and End? Develop a detailed schedule with
clearly defined activities and frequent intermediate milestones. Having this
information allows you to give team members precise guidance on when to perform
their assignments. This information also supports your ongoing monitoring and
control of work in progress. Take the following into account when you create your
schedule:
_ Duration: The actual calendar time to perform each individual activity.
_ Interdependencies: What you must finish before you can begin your activity.
_ Resource availability: When you need particular resources and when they’re
39. Questions to Help You
Plan Your Project
• Who Will Perform the Project Work? Knowing who will perform
each task and how much effort they’ll have to devote allows you to
plan for their availability and more accurately estimate the overall
project budget. Specify the following information for all people
who need to work on your project:
_ Identify each person by name, by position description or title, or
by the skills and knowledge required to do the assignment.
_ When more than one person must work on the same activity,
describe the specific roles and how these people can coordinate
their efforts.
_ Specify the level of effort each person has to invest.
_ If a person will work less than full time on an activity, specify
exactly when she will work. Consult with the people who’ll
perform the project tasks to develop this information.
40. Questions to Help You
Plan Your Project
• What Other Resources Do You Need? Identify
all equipment, facilities, services, supplies, and funds that you
need to perform your project work. Specify how much of each
resource you’ll need and when.
• What Can Go Wrong? Identify those parts of your
project that may not go according to plan. Decide which risks
pose the greatest dangers to your project’s success and develop
plans to minimize their negative effects.
41. How To Improve Your Project
Management
• Look for ways to improve visibility and
awareness.
• Create a daily habit for your team.
• Don't over complicate your projects.
• Hold team members accountable for updating
work.
• Utilize project templates.
• Communicate changes to your team.
• Set appropriate expectations and stick to them.
42. Summary
• Initial evaluation of projects is where most
are eliminated
• Companies need to avoid non profitable
– if budget scarce, select most profitable
• Many risks need to be considered
• ideally identify net present costs, benefits
• practically need to consider intangibles
