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SPM Evaluation

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SPM Evaluation

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SPM Evaluation

  1. 1. SOFTWARE PROJECT MANAGEMENT Prof. Kanchana Devi V
  2. 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. 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. 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. 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. 6. Portfolio can be categorized into  Portfolio Definition  Portfolio Management  Portfolio Optimization
  7. 7. Portfolio Definition  An organization should record in a single repository details of all current projects
  8. 8. Portfolio Management  More detailed costing of projects can be recorded  Actual performance will be tracked
  9. 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. 10. Evaluation of Individual Projects  Technical Assessment  Whether the required functionality can be achieved with current affordable technologies.
  11. 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. 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. 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. 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. 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. 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. 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. 18. NPV-Net Present Value  NPV for a project is obtained by discounting each flow (both negative and positive) and summing the discounted flows.

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