This document provides an overview of project evaluation and portfolio management. It discusses evaluating individual projects through a business case document covering introduction, proposed project details, market estimates, organizational impacts, benefits, costs, risks and a management plan. Project portfolio management aims to prioritize allocation of resources across all of an organization's projects by categorizing them, tracking performance, and balancing high-benefit low-risk and high-profit high-risk projects. Key evaluation techniques discussed are cost-benefit analysis, payback period, return on investment, discount factors, and net present value analysis which discounts future cash flows to evaluate project profitability.

1. SOFTWARE PROJECT
MANAGEMENT
Prof. Kanchana Devi V

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.