David Morales presented on financial analysis tools for project management. He discussed payback analysis, return on investment (ROI), and net present value (NPV). Payback analysis determines how long until costs are recovered through benefits. ROI compares total benefits to total costs as a percentage. NPV compares total discounted benefits to total discounted costs, with a positive NPV indicating a feasible project. Morales also provided a brief history of project management, including developments of tools like Gantt charts, critical path method, and program evaluation and review technique in the 1950s.

1. David Morales Chapter 6 Presentation

2. Presentation “Do’s” Practice your presentation Time yourself so you know you will meet time restraints Know your presentation inside and out Check spelling and grammar Nothing can hurt an otherwise excellent presentation than a simple typo (i.e. to, too, and two)

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5. Financial Analysis Tools Payback Analysis Determines how long it takes an Infosys to pay for itself through reduced costs and increased benefits Steps: Determine the initial development cost of the system Estimate annual benefits Determine the annual operation costs Find the payback period by comparing total development and operating costs to the accumulated value of the benefits produced by the system.

6. Financial Analysis Tools Payback Analysis (cont.) The time it takes to recover the system’s cost is called the payback period As the system requires more maintenance, costs begin to increase The period between the beginning of systems operation and the point when operational costs are rapidly increasing is called the economically useful life of the system

7. Financial Analysis Tools Return on Investment (ROI) A percentage rate that compares the total net benefits (the return) received from a project to the total costs (the investment) of the project ROI = (total benefits - total costs) / total costs Considers cost and benefits over a longer time span than payback analysis. Based on total costs and benefits for a period of five to seven years. Measures profitability by comparing total net benefits

8. Financial Analysis Tools Net Present Value The total value of the benefits minus the total value of the costs Both costs and benefits adjusted to reflect the point in time at which they occur The present value of a future dollar is the amount of money that, when invested today at a specified interest rate, grows to exactly one dollar at a certain point in the future. The specified interest rate is called the discount rate

9. Financial Analysis Tools Net Present Value (cont.) The discount rate represents the rate of return if the money is put into risk-free investments, instead of being invested in a project A positive NPV is economically feasible because the project will produce a larger return than would be achieved by investing the same amount of money in a discount rate investment. Can be used to compare and rank projects All things being equal the project with the highest net present value is the best investment

10. History of Project Management Project management has been practiced since early civilization Until the 1900’s civil engineering projects were generally managed by creative architects and engineers themselves Henry Gantt (1861-1919), Called the father of planning and control techniques Famously known for his use of the Gantt chart as a project management tool

11. History of Project Management The 1950s marked the beginning of the modern Project Management era Prior to the 1950s, projects were managed on an ad hoc basis using mostly Gantt Charts, and informal techniques and tools Two mathematical project scheduling models were developed Critical Path Method (CPM) and Program Evaluation and Review Technique (PERT)

12. History of Project Management CPM was developed in a joint venture by both DuPont Corporation and Remington Rand Corporation for managing plant maintenance projects PERT, developed by Booz-Allen & Hamilton as part of the United States Navy's (in conjunction with the Lockheed Corporation) Polaris missile submarine program; These mathematical techniques quickly spread into many private enterprises

13. History of Project Management (1956) The American Association of Cost Engineers (now AACE International; the Association for the Advancement of Cost Engineering) was formed by project management professionals AACE continued its pioneering work and in 2006 released the first ever integrated process for portfolio, program and project management (Total Cost Management Framework)

14. History of Project Management (1969) The Project Management Institute(PMI) formed to serve the interests of the PM industry PMI’s premise is that the tools and techniques of project management are common among widespread applications of projects from industry to industry (1981) the PMI Board of Directors authorized the development of A Guide to the Project Management Body of Knowledge (PMBOK Guide), containing standards and guidelines of practice that are widely used throughout the profession