Lecture 3 Flashcards
9 General Planning Components
Objective, Program, Schedule, Budget, Forecast, Organisation, Policy, Procedure, Standard
Perspective project selection consists of 3 stages
Feasability study, Cost-Benefit Analysis, Setting of Milestones/Deadlines
What does the Feasibility Study consist of (8 steps)?
Initiation/outline, stakeholder analysis, define the clients needs, evaluate constraints, evaluate alternatives and options, gather information, value management, cost-benefit analysis
What is the purpose of a Cost-Benefit Analysis?
To ensure the project with provide financial and non-financial benefit
What are the two main types of benefits and what do they measure?
- Tangible - money - quantified and measurable
2. Intangible - everything other than money (often environment)
What is the Payback period (PP)?
The exact length of time needed to recover initial investment, calculated from cash inflows
What is the problem associated with calculating Payback period?
PP may contain great errors, it only takes into account the actual cash value, not time value of money. £1 today may not be worth £1 in the future
What is the Time value of Money?
This values the initial investment at a present day basis - by discounting final cash using a discount rate (scale factor) to arrive at the present day worth
What is the discount rate?
Effectively a scale factor used to discount final cash to find the present day value, this allows future costs and benefits to be evaluated and compared
Why is the Time value of Money so important for Engineering Projects?
Because of the time scale - engineering projects occur over many years. The end delivery must be quantifiable in relation to the initial proposal.
What is the Net Present Value used for?
To compare the Discounted cash flow Vs. the initial investment
When should Net present value, NPV be accepted?
If NPV=/>0 accept, if NPV <0 reject
What is the Internal Rate of Return, IRR?
The discount rate when NPV=0
Why is IRR often prefered over NPV?
It eliminates the need to determine a discount rate
How are IRR values ranked, and in what case can this determine the project to be unfeasable?
The higher the IRR, the more desirable the project (indicates profit at high discount rates - secure investment), if IRR is less than capital £ then the project is unfeasable
What is the purpose of Capital Rationing (CR)
By selecting and carefully ordering the best groups of project, the highest net present value will result
What are the two main approaches to Capital Rationing?
- Investment opportunity schedule - plot IRR in order against cumulative investment
- Net present value method - again a ranking system of IRR
What is the benefit of the planning cycle?
it allows management to control critical decision points
What does implementing life-cycle phases allow and prevent?
- avoids commitment to major resources too early
- preserves future options
- maximizes benefits of each project in relation to all other projects
- assess risk
Summary of Planning Cycle?
The planning cycle effectively splits the project into manageable chunks (life-cycles) allowing more control. These cycles can be ordered according to their IRR values. Those with high IRR will be invested in first to maximise overall profit.
Detailed Scheduling and Charts are important, why?
To plan how company resources can be best integrated to produce synergy
Guidelines for scheduling (4):
- all major events and dates clearly identified
- exact sequence of work defined through a network
- schedules should be directly relatable - using WBS (work breakdown structure)
- all schedules must identify time constraints and resources required
What 4 things should Program planning do?
- Eliminate conflicts
- serve as a communication tool
- provide verification of objectives and requirements
- contain all activity schedules to facilitate progress analysis and reporting
The project office can instruct functional managers to accomplish their task using what?
Program Plan
