Group b

Answer 1

Given Information:

 Initial investment: ₹28,00,000

 Discount rate: 10% (0.10)
 Cash inflows for each year without uncertainty:

Cash Inflow
Year
(₹)
1 1,40,000
2 1,70,000
3 2,10,000
4 2,60,000
5 3,20,000

 Uncertainty in Year 4 and Year 5:

o 60% probability of cash inflows being reduced by ₹40,000 in each year.

Thus, the possible scenarios for Year 4 and Year 5 are:

o Year 4:
 60% chance of cash inflow being reduced by ₹40,000.
 40% chance of cash inflow remaining unchanged at ₹2,60,000.
o Year 5:
 60% chance of cash inflow being reduced by ₹40,000.
 40% chance of cash inflow remaining unchanged at ₹3,20,000.

Task 1: Calculate the Expected Cash Inflows for Year 4 and Year 5

We will calculate the expected cash inflows for both years based on the probabilities.

Expected Cash Inflow for Year 4:

  60% probability of reduced cash inflow: ₹2,60,000 - ₹40,000 = ₹2,20,000
 40% probability of full cash inflow: ₹2,60,000

Expected Cash Inflow for Year 4=(0.60×2,20,000)+(0.40×2,60,000)

2,60,000)Expected Cash Inflow for Year 4=(0.60×2,20,000)+(0.40×2,60,000)
=1,32,000+1,04,000=2,36,000

Expected Cash Inflow for Year 5:

 60% probability of reduced cash inflow: ₹3,20,000 - ₹40,000 = ₹2,80,000

 40% probability of full cash inflow: ₹3,20,000

Expected Cash Inflow for Year 5=(0.60×2,80,000)+(0.40×3,20,000)

3,20,000)Expected Cash Inflow for Year 5=(0.60×2,80,000)+(0.40×3,20,000)
=1,68,000+1,28,000=2,96,000

Task 3: Calculate the Net Present Value (NPV) of the Project

Net Present Value (NPV) is calculated as the sum of the present values of the cash inflows
minus the initial investment.

NPV=(PV1+PV2+PV3+PV4+PV5)−Initial Investment
NPV=(1,27,272.73+1,40,495.87+1,57,893.19+1,61,887.26+1,83,576.88)−28,00,000
NPV=7,71,125.93−28,00,000=−20,28,874.07
 Task 4: Evaluation and Justification

The Net Present Value (NPV) of the project is ₹-20,28,874.07, which is negative.

Conclusion:

Since the NPV is negative, it indicates that the project is not expected to generate sufficient
returns to cover the initial investment at the 10% discount rate. In financial terms, a negative
NPV means that the company will lose money if it proceeds with the project. Therefore, the
company should not proceed with the project based on the current assumptions and cash
flow projections.

Answer 2

Defining a Project

A project is a temporary endeavor undertaken to create a unique product, service, or result.

Projects have defined objectives, a specific start and end date, and involve activities that
require coordination of resources, time, and effort to achieve specific goals.

How a Project Differs from Regular Operational Activities:

 Temporary vs. Ongoing: A project has a clear start and end, whereas operational
activities are continuous and part of the everyday functioning of the organization.
 Unique Output: A project produces a unique outcome or deliverable (such as a new
software product, marketing campaign, or building construction), whereas operational
activities focus on the repetitive and ongoing tasks needed to maintain the business.
 Scope: Projects usually have a defined scope and specific goals, while operational
activities involve maintaining and optimizing regular processes.
 Resource Allocation: Projects often require specific allocation of resources for a
finite period, whereas operations typically use ongoing, allocated resources.

Characteristics of a Project

1. Temporary Nature:
 o Projects are temporary, meaning they have a defined beginning and end. Once
the project’s objectives are achieved, the project concludes.
2. Unique Deliverables:
o Each project aims to produce something unique, whether a product, service, or
result, which distinguishes it from regular operational work.
3. Defined Objectives:
o Projects have clear, specific objectives that need to be achieved within a set
timeframe and with the resources available.
4. Limited Resources:
o Projects often involve constraints such as limited time, money, and manpower,
which require careful management and coordination.
5. Uncertainty and Risk:
o Since projects are unique, they often involve uncertainty and risk. Managing
this risk is an integral part of project management.
6. Cross-Functional Teams:
o Projects often involve collaboration across multiple departments or expertise,
drawing together teams from various disciplines.
7. Change-Oriented:
o Projects typically aim to bring about change, whether by creating new
products, improving processes, or introducing new systems.

Aspects of Project Management

Definition of Project Management:

Project management is the application of knowledge, skills, tools, and techniques to project
activities to meet project requirements. The primary purpose of project management is to
ensure that a project is completed on time, within scope, and within budget while achieving
the desired outcomes.

Main Aspects of Project Management:

1. Project Initiation:
 o The first phase involves defining the project, setting objectives, and obtaining
approval from stakeholders. During this phase, the project's feasibility, goals,
and scope are assessed.
2. Project Planning:
o This stage focuses on creating a detailed plan that outlines the scope,
resources, schedule, risks, and budget. The planning phase sets clear
deliverables and defines roles and responsibilities.
3. Project Execution:
o This phase involves implementing the plan, where the project team carries out
the tasks and activities defined in the planning phase. It includes resource
management, team coordination, and communication.
4. Project Monitoring and Controlling:
o Throughout the project, progress is monitored against the plan. Any deviations
from the planned schedule, scope, or budget are identified and corrective
actions are taken. This phase also includes managing changes and risks.
5. Project Closure:
o In this final phase, the project is formally closed. This includes delivering the
final product or service, obtaining acceptance from stakeholders, and
conducting a post-project evaluation. Lessons learned are documented for
future reference.

Example: Project Management in a Software Development Company (e.g., "Tech

Innovators")

Company Overview: "Tech Innovators" is a mid-sized IT company focused on developing

innovative software solutions for businesses. The company often takes on projects to create
custom software products or improve existing systems for clients.

Application of Project Management:

 Project Initiation: When a client approaches "Tech Innovators" to develop a new

software application, the project manager begins by assessing the client’s needs,
determining the feasibility, and gaining approval from senior management and the
client.
  Project Planning: A detailed plan is developed for the software development process,
including defining the scope (features of the software), setting deadlines, budgeting
for development resources, and planning the technical infrastructure.
 Project Execution: The software development team, including developers, testers,
and designers, works on building the software according to the plan. The project
manager ensures that communication flows smoothly and that resources are used
efficiently.
 Project Monitoring and Controlling: The project manager regularly checks the
progress of the project, ensuring that it stays on schedule and within budget. Any risks
or issues (e.g., technical challenges, resource shortages) are addressed promptly.
 Project Closure: Once the software is completed and tested, it is delivered to the
client. The project is then formally closed after the client’s approval, and a post-
mortem analysis is conducted to document lessons learned for future projects.

Conclusion:

Project management is essential to ensure that a project is completed successfully within the
constraints of time, budget, and scope. By following a structured project management
approach, organizations like "Tech Innovators" can deliver high-quality software products
that meet client expectations while managing resources effectively and minimizing risks.

Group C
Answer 3

Explanation of Project Selection Models

Project selection models are methods or tools used to evaluate and prioritize projects to help
organizations make decisions on which project to pursue. These models can be broadly
categorized into two types: Non-Numeric Models and Numeric Models.

1. Non-Numeric Models:
Non-numeric models involve subjective decision-making criteria, often based on qualitative
factors, and do not use mathematical or financial data. They typically focus on strategic
alignment, risk, and organizational priorities.

 Benefit/Cost Model:
o Involves evaluating projects based on their potential benefits relative to their
costs. It is used when a general understanding of the project’s costs and
benefits is needed.
 Scoring Model:
o Projects are assigned scores for various criteria (e.g., technical feasibility,
market potential, alignment with strategic goals). The total score helps
determine which project is more favorable.
 Constrained Optimization Model:
o Projects are evaluated based on constraints like resources, timelines, or
manpower. The goal is to choose a project that optimally fits within these
limitations.
 Checklist Model:
o A simple approach where each project is evaluated against a pre-defined
checklist of criteria. Projects that meet most of the checklist items are
preferred.
 Causal Model:
o Focuses on establishing cause-and-effect relationships between the project and
strategic goals. It helps in determining how a project can contribute to long-
term objectives.

2. Numeric Models:

Numeric models use quantitative data, such as financial metrics, to evaluate and compare
projects. These models provide a more analytical and data-driven approach to decision-
making.

 Net Present Value (NPV):

o The NPV model calculates the difference between the present value of cash
inflows and outflows over the life of the project. A positive NPV indicates that
the project will likely create value for the organization.
  Internal Rate of Return (IRR):
o The IRR is the discount rate that makes the NPV of a project equal to zero. It
represents the expected rate of return from the project. Projects with higher
IRRs are generally more attractive.
 Payback Period:
o The payback period measures the time required for a project to recover its
initial investment. Projects with shorter payback periods are preferred,
especially when cash flow is an important consideration.
 Profitability Index (PI):
o The PI is the ratio of the present value of future cash flows to the initial
investment. A PI greater than 1.0 suggests that the project is profitable.

Case Scenario Application:

Scenario: Your organization is a mid-sized IT firm looking to develop a new software

product. You have a limited budget and are under pressure to deliver a project that guarantees
a quick return on investment (ROI). There are two potential projects:

1. Project A: Promises higher profitability in the long run.

2. Project B: Offers immediate cost recovery but has limited scalability.

Recommendation of Project Selection Model: Given the organization's limited budget and
the need for a quick ROI, the Payback Period model would be the most appropriate choice
for evaluating these two projects. Here’s why:

 Payback Period: This model focuses on how quickly the initial investment can be
recovered. Since the organization is under pressure to deliver quick results and has a
limited budget, Project B, with immediate cost recovery, aligns well with the firm's
needs. The Payback Period model will help identify which project can recover its
costs more quickly, making it easier for the organization to decide which project to
fund first.

In contrast, Project A, which offers higher profitability in the long run, might not provide the
quick returns necessary for the firm's current budget constraints. Therefore, the Payback
Period model will allow the firm to prioritize projects based on the speed at which they
deliver cash flow and financial recovery.

Comparison of Non-Numeric and Numeric Models:

Criteria Non-Numeric Models Numeric Models

Simple and qualitative. Requires More complex, requiring detailed
Complexity subjective judgment and is easy to financial analysis and the ability to
understand. forecast future cash flows.
Based on qualitative factors such as Based on quantitative data like
Decision-Making
strategic alignment, feasibility, and financial metrics (e.g., cash flows,
Criteria
long-term goals. returns, costs).
Suitable for early-stage projects,
More suitable for projects with
projects with uncertain financial data,
Applicability measurable financial metrics, such
or when strategic alignment is a
as ROI, profitability, and risk.
priority.
High risk of bias and subjectivity since Low risk of bias as decisions are
Risk of
they rely on personal judgment and driven by numerical data and
Subjectivity
priorities. objective financial analysis.
Requires detailed financial
Resource Less resource-intensive; does not
forecasting and resource
Requirements require detailed financial analysis.
allocation.
Benefit/Cost Model, Scoring Model, NPV, IRR, Payback Period,
Example Models
Checklist Model. Profitability Index.

For the Case Scenario: The Payback Period model is the most appropriate selection
model, given the company's need for quick cost recovery and limited budget. While
the NPV or IRR models might be valuable for long-term profitability considerations,
the Payback Period model aligns with the firm's immediate priorities.
Answer 1

Project Data Overview

Let's summarize the activities, their Planned Value (PV), Earned Value (EV), and Actual
Cost (AC) for each task.

Budgeted Actual PV EV
Time Planned Actual AC
Cost Cost (Planne (Earne
Activity (Weeks Completio Completio (Actua
(Thousand (Thousand d d
) n n l Cost)
s) s) Value) Value)
Security
Audit of 20 100% 100% 100% 100% 20,000 20,000 20,000
System (A)
Security
Audit of 24 100% 100% 100% 25,000 24,000 24,000 25,000
System (B)
Developme
nt of
Security 10 100% 90% 100% 10,000 10,000 9,000 10,000
Software
(C)
Procureme
nt of
70 100% 70% 50% 55,000 50,000 25,000 55,000
Hardware
(D)
Trial Run
of the
15 100% 0% 0% 15,000 0 0 0
Software
(E)
Modificatio
n and
25 100% 0% 0% 12,000 0 0 12,000
Validation
(F)
Software
22 100% 0% 0% 22,000 0 0 22,000
Testing (G)
Installation
10 100% 0% 0% 10,000 0 0 10,000
(H)
Training (I) 12 100% 0% 0% 0 0 0 0
1. Planned Value (PV) for each activity

The Planned Value (PV) is the planned budget for the work scheduled to be completed by
the specified time. It is calculated as the percentage of completion based on the scheduled
time. For simplicity, we will assume the planned budget equals the total budget for each
activity, distributed across the time period for each activity.

From the data, PV is calculated as follows:

 Security Audit of System (A): 20 weeks, 100% planned completion, so PV = 20,000.

 Security Audit of System (B): 24 weeks, 100% planned completion, so PV = 24,000.
 Development of Security Software (C): 10 weeks, 100% planned completion, so PV
= 10,000.
 Procurement of Hardware (D): 70 weeks, 70% planned completion, so PV = 50,000
(70% of the total budget).
 Trial Run of Software (E): 15 weeks, 0% planned completion, so PV = 0.
 Modification and Validation (F): 25 weeks, 0% planned completion, so PV = 0.
 Software Testing (G): 22 weeks, 0% planned completion, so PV = 0.
 Installation (H): 10 weeks, 0% planned completion, so PV = 0.
 Training (I): 12 weeks, 0% planned completion, so PV = 0.

2. Earned Value (EV) for each activity

The Earned Value (EV) represents the value of the work actually completed by the specified
time. It is calculated as the percentage of work actually completed multiplied by the total
budget for each activity.

 Security Audit of System (A): EV = 20,000 (100% completed).

 Security Audit of System (B): EV = 24,000 (100% completed).
 Development of Security Software (C): EV = 9,000 (90% completed).
 Procurement of Hardware (D): EV = 25,000 (50% completed).
 Trial Run of Software (E): EV = 0 (0% completed).
 Modification and Validation (F): EV = 0 (0% completed).
 Software Testing (G): EV = 0 (0% completed).
 Installation (H): EV = 0 (0% completed).
 Training (I): EV = 0 (0% completed).

3. Actual Cost (AC) for each activity

The Actual Cost (AC) is the actual cost incurred for each activity up to the given time.

 Security Audit of System (A): AC = 20,000.

 Security Audit of System (B): AC = 25,000.
 Development of Security Software (C): AC = 10,000.
 Procurement of Hardware (D): AC = 55,000.
 Trial Run of Software (E): AC = 0.
 Modification and Validation (F): AC = 12,000.
 Software Testing (G): AC = 22,000.
 Installation (H): AC = 10,000.
 Training (I): AC = 0.
4. Cost Performance Index (CPI) and Schedule Performance Index (SPI)

Cost Performance Index (CPI):

The CPI is a measure of cost efficiency and is calculated as:

CPI=EVACCPI = \frac{EV}{AC}CPI=ACEV

 Security Audit of System (A): CPI=20,00020,000=1.0

 Security Audit of System (B): CPI=24,000/25,000=0.96
 Development of Security Software (C): CPI=9,000/10,000=0.90
 Procurement of Hardware (D): CPI=25,000/55,000=0.45
 Trial Run of Software (E): CPI=0
 Modification and Validation (F): CPI=0/12,000=0
 Software Testing (G): CPI=0/22,000= 0
 Installation (H): CPI=0

Schedule Performance Index (SPI):

The SPI is a measure of schedule efficiency and is calculated as:

 Security Audit of System (A): SPI=20,00020,000=1.0

 Security Audit of System (B): SPI=24,00024,000=1.0
 Development of Security Software (C): SPI=9,00010,000=0.90
 Procurement of Hardware (D): SPI=25,000/50,000=0.50
 Trial Run of Software (E): SPI=0
 Modification and Validation (F): SPI=0
 Software Testing (G): SPI=0
 Installation (H): SPI=0

Project Status Analysis

 Progress: The project is progressing well in terms of Security Audit of System (A)
and Security Audit of System (B), both of which are on track with 100% completion.
 Cost Performance: There is a cost overrun in some areas:
o Procurement of Hardware (D): The CPI is low at 0.45, indicating significant
inefficiencies in terms of costs. The actual cost is much higher than planned.
o Development of Security Software (C): The CPI is 0.90, indicating a small
cost inefficiency.
 Schedule Performance: There are significant delays in the project:
o Procurement of Hardware (D): The SPI is 0.50, which indicates that only
half of the work was completed compared to what was planned by this point.
o Several activities (E, F, G, H, I) have not started yet, as reflected by an SPI of
0 for all of them.
Recommendations for Improvement

1. Address Procurement Delays (D): The low CPI and SPI for Procurement of
Hardware suggest that this activity is causing both cost and schedule delays.
Investigate procurement bottlenecks and negotiate with suppliers to expedite delivery.
2. Monitor and Control Costs: Focus on controlling costs, especially in areas like
Procurement of Hardware (D) and Development of Security Software (C).
Implement stricter budget monitoring and ensure that the project stays within
financial limits.
3. Prioritize Delayed Activities: Focus on the activities that have not started yet (E, F,
G, H, I) and ensure that they are initiated immediately. Adjust the schedule to make
up for lost time by possibly reallocating resources.
4. Increase Team Efficiency: Review team productivity and ensure that there are no
resource constraints. Consider adding more skilled personnel or tools to accelerate
progress in the remaining tasks.