Sikkim Manipal University Introduction to

Project Management PMB0001

INTRODUCTION TO PROJECT MANAGEMENT -

PM0001
MBA SEMESTER 3
ASSIGNMENT (SET – 1)

Q1. What are the various types of models followed

in project management?

Ans: Project management: is the discipline of

planning, organizing, and managing resources to bring
about the successful completion of specific project goals
and objectives. It is sometimes conflated with program
management, however technically a program is actually
a higher level construct: a group of related and
somehow interdependent projects.

A project is a temporary endeavor, having a defined

beginning and end (usually constrained by date, but can
be by funding or deliverables), undertaken to meet
unique goals and objectives, usually to bring about
beneficial change or added value. The temporary nature
of projects stands in contrast to business as usual (or
operations) which are repetitive, permanent or semi-
permanent functional work to produce products or
services. In practice, the management of these two
systems is often found to be quite different, and as such

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Sikkim Manipal University Introduction to
Project Management PMB0001

requires the development of distinct technical skills and

the adoption of separate management.

Project management model:

The six phases are:

Define: The project is discussed fully with all the

stakeholders and the key objectives are identified. The
costs and timescales are also established at this stage
and there is often a feasibility study as well. This stage
is complete when the project brief has been written and
agreed.

Plan: An initial plan is developed. Planning is an

ongoing activity because the plan is the basis for
reviews and revision when necessary, depending on
how the project progresses.

Team: The team members are usually involved in

developing the plan and are often able to contribute
specialist knowledge and expertise. The building of this
team and its motivation and leadership also continue
until the project is finished.

Communications: should take place continuously, both

within the project team and between the project team
and stakeholders in the project, including anyone who

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Project Management PMB0001

contributes to achievement of the outcomes. Some

communications will be through formal reporting
procedures but many will be informal.

Control: Implementation takes place during the control

stage (stage 4 in the model). During this stage, the
tasks and activities of the team will be monitored
against the plan to assess the actual progress of the
project against the planned progress. Control is
essential to ensure that the objectives are met within
the scheduled timescales, budgeted costs and quality.
Regular reviews are usually held to enable the plan to
be revised and for any difficulties that emerge to be
resolved.

Review and exit: The review is held to evaluate

whether all the intended outcomes of the project have
been met. It is also important because it enables
information to be gathered about the processes used in
carrying out the project from which lessons can be
learned for the future. The exit from the project has to
be managed to ensure that:

• any outstanding tasks are completed;

• all activities that were associated with the project
are discontinued;

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Project Management PMB0001

• All resources are accounted for, including any that

remains at the end and have to be transferred or sold
to someone else.
Many projects evolve through a series of loops of
planning, acting, reviewing and re planning. It is
important to think of planning as a continuous activity
rather than something that can be completed once and
used without change for the duration of the project.
Expect change and allow scope to change or modify the
plan.

Q2. How can we do a risk mitigation process

planning for a software project?

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Project Management PMB0001

Ans: Project risk management is the systematic process

of identifying, analyzing, and responding to project risk.
It includes maximizing the probability and consequences
of positive events and minimizing the probability and
consequences of events adverse to project objectives. It
includes the processes of risk management planning,
risk identification, qualitative risk analysis, quantitative
risk analysis, risk response planning, and risk monitoring
and control.

Business challenge

Risk mitigation is a major challenge that many

organizations fail to fully understand or implement.
Focusing on risk mitigation at the right stage of a
project will increase the likelihood of successful delivery
by more than 50%. Many solutions have to be re-worked
because technical risks were not mitigated in the early
stages of a development. Building a system on a soft
foundation, typically, will mean a collapse later in the
lifecycle.

Solution

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To maintain an approach that focuses on regular risk

mitigation throughout the project lifecycle. During
planning or assessment of an iteration or sprint, help
identify risks and implement plans that minimize those
risks as early as possible. One way to reduce technical
risk, for example, is to implement architecturally
significant requirements in the beginning stages of a
project’s lifecycle and prove that they work.

This approach involves a full risk assessment every few

weeks, and the development of plans that focus on
producing executable code to minimize risk. Involving
key stakeholders in these reviews helps address project-
wide risks effectively.

Provide training, coaching and support throughout the

implementation of our iterative risk-mitigation
approach:

 Utilizing precise practices to conduct project health

checks that determine the state of the project and
identify risk
 Defining an integrated risk assessment plan to
compute and prioritize risks by order of magnitude
 Separating risk identification from identifying risk
mitigation and risk response strategies, and

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demonstrate how to build them directly into the

project plan

Collaboration overview

 Risk identification workshops

 Iteration planning sessions
 Iteration assessment sessions
 Active mentoring of teams to guarantee a focus on
risk mitigation

Sample implementation

To realize more agile software project lifecycle would

improve delivery capability and reduce risk. We should
modernize the approach to software development by
implementing Essential Unified Process (EssUP)
practices.

These are the factors we can use for risk mitigation of

software projects

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Benefits

By fully incorporating risk mitigation into project life

cycle, we can:

 Mitigate risks early to give the project a solid

foundation
 Ensure shared ownership of risk by the whole
project team
 Enable continuous risk tracking, providing better
visibility of project and team dependencies
 Be able to record risks and plot trends over time to
identify issues that need to be addressed
 Integrate risk management into project plan

Q3. Explain the importance of work breakdown

structure and scope statement in project
management:

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Sikkim Manipal University Introduction to
Project Management PMB0001

Ans: Work breakdown structure:

A complex project is made manageable by first breaking

it down into individual components in hierarchical
structure, known as the work breakdown structure, or
the WBS. Such a structure defines tasks that can be
completed independently of other tasks, facilitating
resource allocation, assignment of responsibilities, and
measurement and control of the project.
The word breakdown structure can be illustrated in a
block diagram:

Because the WBS is a hierarchical structure, it may be

conveyed in outline form:

LEVE LEVEL-2 LEVEL-3

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L-1
TASK

1
SUBTASK Work package

1.1 1.1.1
Work package

1.1.2
Work package

1.1.3
SUBTASK

1.2
Work package

1.2.1
Work package

1.2.2
Work package

1.2.3
TASK

2
SUBTASK Work package

2.1 2.1.1

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Work package

2.1.2
Work package

2.1.3

Work Breakdown Structure Outline:

Terminology for Different Levels
Each organization uses its own terminology for
classifying WBS components according to their level in
the hierarchy. For example, some organization refers to
different levels as task, sub –tasks, and work packages,
as shown in the above outline. Others use the terms
phases, entries, and activities.

Organization by Deliverables or Phases

The WBS may be organized around deliverables or
phases of the project life cycle. Higher levels in the
structure generally are performed by individual, though
a WBS that emphasizes deliverables does not
necessarily specify activities.

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Level of Detail

The breaking down of a project into its component parts

facilitates resource allocation and the assignment of
individual responsibilities. Care should be taken to use a
proper level of detail when creating the WBS. On the
one extreme, a very high level of detail is likely to result
in micro –management. On the other extreme, the tasks
may become to large to manage effectively. Defining
tasks so that their duration is between several days and
a few months works well for most projects.
WBS’s Role in Project Planning

The work breakdown structure is the foundation of

project planning. It is developed before dependencies
are indentified and activity durations are estimated. The
WBS can be used to identify the tasks in the CPM and
PERT project planning models.
Scope statement in project management

The Scope Statement provides a common

understanding of the project among stakeholders. Some
organizations create a separate Scope Statement
Document while others make it a part of the Project

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Charter or Project Plan.

The preliminary Project Scope Statement specifies what

should be the goals and objectives of the project and
what needs to be accomplished for the project.

A project scope statement includes the following:

 Project and Product Objectives

 Product Acceptance Criteria
 Project Boundaries
 Assumptions and Constraints
 Project Requirements and Deliverables
 Initial Defined Risk
 Schedule
 Work breakdown structure
 Summary of Budget
 Configuration Management

The preliminary project scope statement can be created

on the basis of the information from the client side. The
inputs used here are:

 The project charter,

 The project statement of work (SOW)

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 The enterprise environmental factor

 The organizational process assets
Project Management Methodology (PMM) helps the
project managers in developing and controlling changes
to the preliminary project scope statement.

Project Scope management

A clear and well defined scope is very important for the

completion of any minor or major project on time.

Project Scope Management comprises five processes:

 Scope Planning
 Scope Definition
 Create work break down structure
 Scope Verification
 Scope Control
 Scope interface

The Scope Management Plan should be part of the

Project Plan.

Assignment Answers for Project

Management - 2

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Sikkim Manipal University Introduction to
Project Management PMB0001

Q1. What are the various methods of demand

forecasting? Explain in detail with some practical
tools

Ans: Demand forecasting is the activity of estimating

the quantity of a product or service that consumers will
purchase. Demand forecasting involves techniques
including both informal methods, such as educated
guesses, and quantitative methods, such as the use of
historical sales data or current data from test markets.
Demand forecasting may be used in making pricing
decisions, in assessing future capacity requirements, or
in making decisions on whether to enter a new market.

Necessity for forecasting demand:

Often forecasting demand is confused with

forecasting sales. But, failing to forecast demand
ignores two important phenomena. There is a lot of
debate in demand-planning literature about how to
measure and represent historical demand, since the
historical demand forms the basis of forecasting. The
main question is whether we should use the history of
outbound shipments or customer orders or a
combination of the two as proxy for the demand.

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Methods:

No demand forecasting method is 100% accurate.

Combined forecasts improve accuracy and reduce the
likelihood of large errors.

Methods that rely on qualitative assessment

Forecasting demand based on expert opinion. Some of

the types in this method are,

 Unaided judgment
 Prediction market
 Delphi technique
 Game theory
 Judgmental bootstrapping
 Simulated interaction
 Intentions and expectations surveys
 Conjoint analysis

Methods that rely on quantitative data

 Discrete Event Simulation

 Extrapolation
 Quantitative analogies
 Rule-based forecasting

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 Neural networks
 Data mining
 Causal models
 Segmentation

Delphi method:

The Delphi method is a systematic, interactive

forecasting method which relies on a panel of experts.
The experts answer questionnaires in two or more
rounds. After each round, a facilitator provides an
anonymous summary of the experts’ forecasts from the
previous round as well as the reasons they provided for
their judgments.

First applications of the Delphi method were in the field

of science and technology forecasting. The objective of
the method was to combine expert opinions on
likelihood and expected development time, of the
particular technology, in a single indicator. One of the
first such reports, prepared in 1964 by Gordon and
Helmer, assessed the direction of long-term trends in

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science and technology development, covering such

topics as scientific breakthroughs, population control,
automation, space progress, war prevention and
weapon systems. Other forecasts of technology were
dealing with vehicle-highway systems, industrial robots,
intelligent internet, broadband connections, and
technology in education.

Later the Delphi method was applied in other areas,

especially those related to public policy issues, such as
economic trends, health and education. It was also
applied successfully and with high accuracy in business
forecasting.

Prediction markets

Prediction markets (also known as predictive

markets, information markets, decision markets, idea
futures, event derivatives, or virtual markets) are
speculative markets created for the purpose of making
predictions. Assets are created whose final cash value is
tied to a particular event (e.g., will the next US
president be a Republican) or parameter (e.g., total
sales next quarter). The current market prices can then
be interpreted as predictions of the probability of the

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event or the expected value of the parameter.

Prediction markets are thus structured as betting
exchanges, without any risk for the bookmaker.

People who buy low and sell high are rewarded for
improving the market prediction, while those who buy
high and sell low are punished for degrading the market
prediction. Evidence so far suggests that prediction
markets are at least as accurate as other institutions
predicting the same events with a similar pool of
participants.

Game theory:

Game theory is a branch of applied mathematics

that is used in the social sciences, most notably in
economics, as well as in biology (most notably
evolutionary biology and ecology), engineering, political
science, international relations, computer science, and
philosophy. Game theory attempts to mathematically
capture behavior in strategic situations, in which an
individual's success in making choices depends on the
choices of others. While initially developed to analyze
competitions in which one individual does better at
another's expense (zero sum games), it has been

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expanded to treat a wide class of interactions, which are

classified according to several criteria. Today, "game
theory is a sort of umbrella or 'unified field' theory for
the rational side of social science, where 'social' is
interpreted broadly, to include human as well as non-
human players (computers, animals, plants)"

Extrapolation:

In mathematics, extrapolation is the process of

constructing new data points outside a discrete set of
known data points. It is similar to the process of
interpolation, which constructs new points between
known points, but the results of extrapolations are often
less meaningful, and are subject to greater uncertainty.
It may also mean extension of a method, assuming
similar methods will be applicable. Extrapolation may
also apply to human experience to project, extend, or
expand known experience into an area not known or
previously experienced so as to arrive at a (usually
conjectural) knowledge of the unknown (e.g. a driver
extrapolates road conditions beyond his sight while
driving).

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Q2. What are the methods of financial appraisal?

Ans: from the financial viability viewpoint, the

selection of projects to be implemented will be based on
the stream of cash flows (both inflows and outflows), for
which estimates are worked out as noted in the
preceding section. The method to be used will depend
on the selection criteria to be decided by the
management.
It is important to keep in mind the points that need
to be considered while estimating the costs incurred and
the income realized from the project in the consecutive
years of the project’ operation. These points are as
under:
1. All costs and incomes (benefits) need to be
measured in terms of cash flows. This means that
that all non –cash charges or expenses like

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depreciation should be added back to the PAT to

arrive at net cash flows.

2. The net cash flow accrues to the firm only after

paying tax. Hence, net cash flow must be
computed in post- tax terms.

3. For an additional project being considered by an

company which is already in operation, only the
incremental cash flows arising out of the
additional project should be considered.

With the above –mentioned points I the

background, we can broadly divide the financial
viability criteria in two categories as under:
• Discounting criteria – These criteria consider the
time value of money. The discounting rate to be
used for this computation is popularly accepted
as the ‘cost of capital’ in percentage (k). Cost of
capital can be defined as the minimum discount
rate that must be earned on a project keeping
the market value of the firm constant. Another
understanding of the cost of capital is that it is
the expected rate of return offered to the
investors by the equivalent risk investments
traded in the capital markets. A brief description

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of cost of capital is given in the succeeding

section.

• Non –discounting criteria- These criteria do not

consider the time value of money i.e. the future
year’s cash flows are considered on the same
footing as the investment / cash flows in the
initial year / years.

A. Discounting criteria:

The different discounting techniques are:

Net Present Value (NVP)
NVP is the present algebraic value of all future
cash flow discounted at ‘k’.
The formula for NPV is

Note: If summation is made from

t= 1 to t = N, Initial investment
t will be subtracted from RHS of the equation

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Where CFt = Cash flow in year t, t varying from 0 to N

i.e. the no. of years of project life.
Cash inflow taken as (+) and Cash outflow taken as
(-)
CF0 will be the investment made in year 0 and will
be (-), the investments may continue to be made in
year 1, year 2 etc. in which case CF1, CF2 etc.

Will be entered accordingly in the equation

k= Cost of capital (computation of k is discussed in
subsequent section.
k reflects the risk of the project.
The project is accepted if NPV is (+)
Rejected if NPV is (-)
Point of indifference if NPV = 0

If there are 2 or more mutually exclusive projects,

the one with the higher NPV is selected. It can be
noted that the NPV decreases as the cost of capital
increases, can increases as the cost of capital
decreases.
Modified NPV (NPVn)
The assumption in the NPV method above is that

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the cash flows are reinvested at a rate of return

equal to k i.e. cost of capital. In case the
reinvestment rate is ‘r’, then the Terminal Value
(TV) of the cash inflows of the project has to be
computed, then the TV has to be reduced to its
present value and the NPV will be equal to the
present value of TV minus the present investment
(assuming the entire investment is made in year 0).
The formula for modified NPV (denoted as NPVn) is

I = investment outlay
It can be noted that if the reinvestment rate is
higher than the cost of capital, the NPVn will be
higher than NPV and vice versa.

Internal Rate of Return (IRR)

The IRR is the discount rate (k) at which NPV=0
By way of a formula, the IRR is the value of ‘k’
derived from the equation hereunder:

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The IRR is also known as ‘yield on investment’,

marginal efficiency of capital, marginal productivity
of capital etc.
Although the IRR can be considered as the case for
NPV=0, we must understand the differences
between the implication of NPV and IRR.

In the NPV method, k is taken as the cost of capital

which is determined based on the factors external
to the project proposal. In the IRR method, the
discount rate is the rate of return based on the
factors that are internal to the project proposal.
The company sets a cut –off rate for comparing with
the IRR computed. The project is accepted if IRR is
greater than the cut –off rate. For more than one
project being evaluate, the project with the highest
IRR is selected.
Modified IRR (IRRn)
The IRR method shown above is based on the
assumption that the cash inflows of the project are
reinvested at the same IRR rate. If the reinvestment
rate (r) is different, then the modified IRR i.e. IRRn
is to be computed after calculating TV as explained
in the NPVn method above. The formula for IRRn is

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Here, TV is the terminal value of cash inflows

expected from the project i.e.

And PVC is the present value of the costs

associated with the project i.e.

Benefit –cost ratio (BCR, also known as Profitability

index PI)
This is the ratio of the present value of future cash
benefits to the initial investment. The present value
of future cash benefits is computed using the same
Time-value of money technique used in the NPV
method. The NPV method computes the differences
between the present value (PV) of the future cash
benefits and the initial investment, whereas the
BCR method calculated the ratio of future cash
benefits to the initial cash flow. The formula for BCR
is thus:

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The project is Accepted if BCR > 1

Rejected if BCR < 1
Point of indifference if BCR = 1
If there are two or more projects being evaluated,
the one with the highest BCR will be selected.
Net benefit cost ratio (NBCR)
The formula for NBCR id
NBCR = BCR – 1
It measures the ratio of the net benefit of the
project rather than the gross benefit. It is
advantageous when capital rationing is used.
The project is Accepted if NBCR is +ve
Rejected if NBCR is – ve
Point of indifference if NBCR = 0
In case of more than one project, the project with
the highest +ve NBCR is selected.
Discounted Payback Period
In this method, the present value of future cash
flows are calculated and added. The number of
years for which this total becomes equal to the
initial investment I is considered as the payback
period. This can include a fraction of the year. This

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payback period is compared to the payback period

set as the standard for accepting the project.
If the discounted payback period is less than the
standard, the project is accepted. If it is more than
the standard, the project is rejected.

B. Non - discounting Criteria;

The different non –discounting techniques are

Payback Period
Here, the future annual cash flows are algebraically
added without considering the time–value of
money. If the annual cash inflows are equal,
Then

The criteria foe project selection is the same as the

mentioned under
Discounted payback period

Average Rate of Return (ARR, also called

Accounting Rate of Return)
The formula is

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A project with a higher rate of ARR is preferred.

3. What do you mean by social cost benefit

analysis? Explain with a example.

Ans: Cost-benefit analysis is a term that refers both

to:

• Helping to appraise, or assess, the case for a

project or proposal, which itself is a process known
as project appraisal; and
• An informal approach to making economic decisions
of any kind.

Under both definitions the process involves, whether

explicitly or implicitly, weighing the total expected costs
against the total expected benefits of one or more
actions in order to choose the best or most profitable
option. The formal process is often referred to as either
CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost
Analysis).

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Benefits and costs are often expressed in money

terms, and are adjusted for the time value of money, so
that all flows of benefits and flows of project costs over
time (which tend to occur at different points in time) are
expressed on a common basis in terms of their “present
value.” Closely related, but slightly different, formal
techniques include cost-effectiveness analysis,
economic impact analysis, fiscal impact analysis and
Social Return on Investment (SROI) analysis. The latter
builds upon the logic of cost-benefit analysis, but differs
in that it is explicitly designed to inform the practical
decision-making of enterprise managers and investors
focused on optimizing their social and environmental
impacts.

Examples of social cost benefit analysis of Delhi metro

are summarized as follows,

Example:

The Delhi Metro planned in four phases is part of an

Integrated Multi Mode Mass Rapid Transport System
(MRTS) planned for dealing with the fast growing
passenger traffic demand in Delhi. It provides an
alternative safe and comfortable mode of transport by

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rail to a large fraction of passengers using the road

transport in Delhi. It reduces the travel time of people
using the road and Metro, number of accidents on roads
and the atmospheric pollution.
The financial cost-benefit ratio of the Metro is
estimated as 2.30 and 1.92 at 8 percent and 10 percent
discount rates respectively while its financial internal
rate of return is estimated as 17 percent. The financial
evaluation of the Metro is done considering the financial
flows of the project comprising the annual revenue
earned and flows of investments and operation and
maintenance costs. The shares of debt, equity and
internal resource mobilization in investments made on
Metro are 60, 30 and 10 percent, respectively.

The social cost-benefit analysis of the Metro

requires the identification of benefits and the economic
agents affected by it. The incremental changes in the
incomes of various economic agents: passengers,
transporters, public and government and unskilled
labour due to the Metro could be estimated by
considering the Delhi economy with and without the
Metro. It is found that there are income gains to the
government, public, passengers and unskilled labour

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while there are substantial income losses to the

transporters because of the Metro.
The estimated NPSB of the Metro at 2004-05 prices
and the 8 percent social time preference rate for the
Indian economy is Rs. 419979.6 million. The social rate
of return on investment in the Metro is as high as 22.7
percent.

Social cost-benefits of Delhi Metro

Savings in travel time

Due to reduction in travel time for Metro passengers
Reduction in accidents
Reduction in the number of vehicles on road
Savings in fuel consumption
Reduction in air pollution
Savings in passenger time
Savings due to fewer accidents
Savings in vehicular operating costs due to the
decongestion effect
Savings in Capital and Operating Cost of Diverted
vehicles

LEARNING CENTRE JEDDAH Page 33 of 33

MBA III Semester Assignment