IT Project Management MS Sumayya Ajaz Lecture 9

Programme Management Individual projects as components of a programme within the organization. Programme as a group of projects that are managed in a coordinated way to gain benefits that would not be possible were the projects to be managed independently.

Programme Manager Vs. Project Manager Programme Manager 1.Many simultaneous projects 2.Need to maximize utilization of resources. 3.Projects tend to be similar. Project Manager 1.One project at a time. 2.Need to minimize demand for resources. 3.Projects tend to be dissimilar.

Project Portfolio management Project portfolio management provides an over view of all the projects that an organization is undertaking or is considering. It prioritizes the allocation of resources to project and decides which new projects should be accepted and which existing ones should be dropped.

Evaluation of individual projects Technical Assessment: Evaluate required functionality against hardware and software The cost of technology adopted must be taken into account in the cost benefit analysis Cost-benefit analysis: Estimate the cost and benefits of the project and the benefits should exceed the estimated costs. Two steps Identify and estimate all the costs and benefits of carrying out the project Express the costs and benefits in a common unit for easy comparison (e.g. $)

Evaluation of individual projects Cash flow forecasting: Estimation of the cash flow over time Why? Need detailed estimation of benefits and costs versus time A forecast is needed of when expenditure such as salaries and any income are to be expected We need to compare projects on the basis of their cash flow forecast

Cash Flow Forecasting (Cont’d) Expenditure Income Time

Cost-benefit evaluation techniques Payback Period Time taken to pay back the initial investment YearProject A 0-100, , , ,000 Payback4.5 Years

Cost-benefit evaluation techniques Project A requires an investment of $ 100,000 and it generates cash flow as given in the above table. The payback period is 4.5 years ($10,000 + $10,000 + $10,000 + $20,000 = $50,000 in the first four years + $50,000 of the $100,000 occurring in Year 5)

Cost-benefit evaluation techniques Net Profit Difference b/w total cost and total income Net profit = Total income – Total costs YearProject A 0-100, , , ,000 Net Profit $ 50,000

Cost-benefit evaluation techniques Return on Investment Compare the net profitability to the investment required ROI YearProject A 0-100, , , ,000 Net Profit50,000 ROI10%

Cost-benefit evaluation techniques Discount rate: The annual rate by which we discount future earnings is known as the discount rate. More extensive or detailed table may be constructed using the formula for various values of r (the discount rate) and t (the number of years form now)

Cost-benefit evaluation techniques Present Value: Present value is the value which a future amount is worth at present Let n be the number of year and r be the discount rate, the present value (PV) is given by

Cost-benefit evaluation techniques Net present value (NPV) The sum of present values on every year’s cash flow. It takes into account the profitability of a project and the timing of the cash flows. Let m be the total number of years n be the number of year at a particular time and r be the discount rate.

Cost-benefit evaluation techniques Assuming a 10% discount rate, the NPV for project A would be calculated as in the following table. The net present value for project 1, using a 10% discount rate, is therefore $618. YearProject A Cash flow Discount Discounted Cash flow 0-100, , , , , , , , , , , ,090 Net Profit: $ 50,000NPV: $618

Cost-benefit evaluation techniques Internal Rate of Return (IRR) IRR can be used to rank several prospective projects a firm is considering. IRR attempts to provide a profitability measure as a percentage return that is directly comparable with the interest rate. IRR is calculated as that percentage discount rate that would produce an NPV of zero. The project with the highest IRR would probably be considered the best and undertaken first. NOTE: The NPV and IRR are collectively known as discounted cash flow (DCF) techniques.

Assignment Calculate the net profit, payback period, ROI, and NPV with 10% discount rate for each of the given project. YearProject BProject CProject D 0-1,000, , , ,00030, ,00030, ,00030, ,00020,00025, ,00020,00050,000

Assignment This assignment contains 5 sessional marks. Submission must be on 22 nd April no assignments would be accepted after due date.