PROJECT MANAGEMENT ASSIGNEMNT

SANCHAR NIGAM

(a) Project Flow Decision Diagram

P-I is two-year long research project involving an outlay of Rs. 4 lakhs and P-II is one-year
long development project involving an outlay of Rs. 12 lakhs.

The project decision diagram is as drawn below

+ 11 Lakhs @ 15 Years

0.3 S

Project-I Zero

(- Rs. 4 Lakhs) + 4 Lakhs @ 6 Years

Outlay 0.7 F + 5 Lakhs @ 5 Years
0.8 S
(- Rs. 15 Lakhs) Project-III
Outlay
0.8 S 0.2 F
(- Rs. 12 Lakhs) Zero
Outlay Project-II (- Rs. 20 Lakhs)
Outlay 0.3 S + 9 Lakhs @ 10 Years
Project-IV
0.2 F Zero
0.7 F
Zero

+ 2 Lakhs @ 4 Years
(- Rs. 4 Lakhs)
Outlay 0.8 S
Project-V

0.2 F
Zero
Year 0 Year 1 Year 2 Year 3

(b) Choice of Project-I or Project-II

To calculate the ‘Expected Value’ for any Project at Year 0 we use the discount model i.e

𝑨[𝟏−(𝟏+𝒓)(−𝒏) ]
Present Value = PV = ;
𝒓

where A is the Amount of Benefit accrued by executing the project; r is the rate of interest per
annum for financing the project.

 From the above diagram, Expected Value (EV) of Project-III =

5𝐿[1−(1+0.14)−5 ]
{0.8 ∗ } + 0.2 ∗ 0 = 13.7323 Lakhs
0.14

13.732 𝑙𝑎𝑘ℎ𝑠
 Discounted Value is = 12.0459 Lakhs
1.14
 Final Value of Project-III is = 12.045 Lakhs – 15 Lakhs = - 2.9541Lakhs
 Using Excel and calculating for all the projects, we get the following:-

Project-III
(1 Year development Project with Success Probability of 0.8 and Failure Probability of 0.2)
Yield per Year 5 Present Value 17.1654
No. of Years 5 Expected Value 13.7323
Outlay (Lakhs) 15 Discounted Value 12.0459
Final Value after Subtracting outlay cost -2.9541
Project-I
(2 Year research Project with Success Probability of 0.3 and Failure Probability of 0.7)
Yield per Year 11 Present Value 67.5638
No. of Years 15 Expected Value 20.2692
Outlay (Lakhs) 4 Discounted Value 15.5965
Final Value after Subtracting outlay cost 11.5965
Project-IV
(2 Year Research Project with Success Probability of 0.3 and Failure Probability of 0.7)
Yield per Year 9 Present Value 46.9450
No. of Years 10 Expected Value 14.0835
Outlay (Lakhs) 20 Discounted Value 10.8368
Final Value after Subtracting outlay cost -9.1632
Project-V (1 Year development Project with Success Probability of 0.8 and Failure Probability of 0.2)
Yield per Year 2 Present Value 5.8274
No. of Years 4 Expected Value 4.6619
Outlay 4 Discounted Value 4.0894
Final Value after Subtracting outlay cost 0.0894
Project-II (1 Year development Project with Success Probability of 0.8 and Failure Probability of 0.2)
Yield per Year 4 Present Value 15.5547
No. of Years 6 Expected Value 12.4616
Outlay (Lakhs) 12 Discounted Value 10.9312
Final Value after Subtracting outlay cost -1.0688

 Dr. Vishwambar should choose Project I instead of Project II

(c) Project Decision with Variable Success/ Failure Probabilities

The calculations for finding the Present Value of the Projects with the Success/ Failure
probabilities varied from 0 to 1 in steps of 0.1 have been solved in Excel.

Probability of Success 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Probability of Failure 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Project - I Final Expected Value -4.00 1.19 6.39 11.59 16.79 21.99 27.19 32.39 37.59 42.82 47.98

Project - II Final Expected Value -12.00 -10.63 -9.27 -7.91 -6.54 -5.17 -3.81 -2.44 -1.06 0.34 1.64

Project-I
Success
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Rate

0 Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I
Project-II

0.1 Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

0.2 Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

0.3 Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

0.4 Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I
 0.5 Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

0.6 Project-II Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

0.7 Project-II Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I
Project-II

0.8 Project-II Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

0.9 Project-II Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I

1 Project-II Project-II Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I Project-I