Project Pre-Initiation

Question 1

Typical elements of a business case:

Answer 1

1) Problem statement and project objectives
2) Summary of scope and any alternatives/options
3) Cost and investment appraisal
4) Benefits expected (quantitative, i.e. Expressed in measurable terms against today’s situation and qualitative)
5) Risks (summary of the key risks of the projects)
6) Timescales (summary of plan)
7) Assumptions/constraints

Question 2

Capital Expenditures (CAPEX):

Answer 2

Capital expenditures is funds spent in order to create future benefits of an organization, i.e. purchasing new fixed assets or extending the value of existing assets beyond the taxable year

Question 3

Operating Expense (OPEX):

Answer 3

Operating Expense is an ongoing cost for running the business

Question 4

Total Cost of Ownership (TCO):

Answer 4

Total Cost of Ownership is a financial estimate whose purpose is to determine the cost of acquiring and maintaining an asset over a number of years

Question 5

Main CAPEX elements:

Answer 5

1) Software licenses
2) Hardware licenses
3) Telecommunications technology and lines
4) Acquisition research/decision/procurement costs
5) Implementation/installation services
6) Development and customization services
7) Integration services
8) Testing
9) Consulting
10) Training
11) Travel

Question 6

Main OPEX elements:

Answer 6

1) Software maintenance
2) Hardware technology maintenance
3) Telecommunications technology lines
4) Recurring data centre costs
5) Recurring operations costs
6) Training

Question 7

Return on Investment (ROI):

Answer 7

Return on Investment are the benefits received from the project against the total costs of the project over a timeframe

Question 8

Payback Period (PP):

Answer 8

Payback Period is the length of time taken to repay the initial capital cost

Question 9

Future Value Formula:

Answer 9

Future Value = Amount_Invested * (1 + Interest_Rate)^N

Question 10

Present Value:

Answer 10

Present Value = Future_Amount * (1 + Interest_Rate)^N

Question 11

Net Present Value (NPV):

Answer 11

Net Present Value is the sum of the present values of all net cash flows during the period into consideration for the investment

Question 12

Net Cash Flows:

Answer 12

The inflows minus outflows (inflows are the funds received and outflows are funds paid out)

Question 13

NPV formula:

Answer 13

Sum of all terms At / (1 + r)^t
t = time of the cash flow
r = discount rate
At = the net cash flow at time t

Question 14

Cost Estimate Level - Order of Magnitude (ROM):

Answer 14

Use when only very basic information is available or needed. Typically used before a project is officially started

Question 15

Cost Estimate Level - Budgetary

Answer 15

Use when allocating money into an organisation’s budget, typically 1-2 years before the project starts. Scope, high-level requirements and resources information is relatively available

Question 16

Cost Estimate Level - Definitive:

Answer 16

Use when detailed information is available, e.g. to make purchasing decisions, to update budget. Typically <1 year before project starts

Question 17

Main Estimation Approach - Analogous (Top-Down):

Answer 17

Use actual cost of a previous similar project as a basis for estimating the costs of the current project

Question 18

Main Estimation Approach - Bottom-Up:

Answer 18

Estimating the costs of individual tasks/activities and summing them to get the total. Size of tasks/activities and experience of the estimators drive the accuracy levels

Question 19

Main Estimation Approach - Parametric

Answer 19

Use project characteristics in a mathematical model

Question 20

Three-point Estimate Formula:

Answer 20

E = (4 * MP + O + P) / 6
MP = Most Probable
O = Optimistic
P = Pessimistic

Question 21

Project Budget:

Answer 21

The process and relevant artefact of allocating the estimated costs, labour and material over time

Question 22

Procurement:

Answer 22

The process of acquiring products or services from a 3rd party. Often done via a (formal) bid (tender) process.

Question 23

Statement of Work:

Answer 23

The description of work required for the procurement or as part of the contract. Scope document with sufficient level of detail. Clarity and non-ambiguity are critical factors.