LECTURE 4

Performing Project Reviews

Before a project is approved, a number of reviews are in order to be sure that the project makes sense, that it is feasible, worthwhile, and not overly risky.

These reviews include: Conceptual Review

Feasibility Study

Benefit-Cost Analysis

Profitability Measures

Alternative Course of Action Review

Opportunity Cost Review

Introduction

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Conceptual Review

Determines suitability of project for the organization. Project Manager asks:

Does the project fit within the mission, goals, and objectives of the organization?

Does the project support a specific business plan already in place?

Will the project solve the stated problem or appropriately take advantage of the current opportunity?

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Feasibility Study

A good feasibility study will gather information from other organisations that may have tried a similar project in order to better gauge the chances of project success.

The project manager asks:

How realistic is it to expect that the project can meet the stated objectives?

How realistic are the project scope, budget, and time requirements?

Can the appropriate resources (including funds) be made available when needed to complete the project?

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Benefit-Cost Analysis

The project manager asks:

What benefit with the organization get from completing this project?

What is the value of the promised advantages, considering the amount of money involved, the time needed to complete the project, and the resources required?

What is the projects value compared to other projects that could be done instead (opportunity cost)

Expected revenue/expected costs = profitability ratio

> 1 : Profitable project

< 1 : Costs to exceed profit

= 1 : Break even 5

Profitability Measures

Payback period How many years will it take for cumulative revenues to exceed cumulative costs?

Internal rate of return (IRR) average rate of return, expressed as a percentage

Return on assets (ROA) net profit/total assets

Return on investment (ROI) net profit/total investment

Return on sales (ROS) net profit/total sales6

Alternative Review

The Project Manager asks:

What other things could be done to solve the problem or take advantage of the opportunity?

What are the positive and negative consequences of each potential course of action?

What would happen if you took no action at all?

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Opportunity Cost Review

In selecting a project, a company commits finite resources, time and energy

So comparing all other possible uses of resources should be taken seriously

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Preliminary Risk Assessment

The project manager asks:

What could go wrong in the project and what are the potential consequences?

What are the uncertainties of the project?

What are the consequences if the project fails to meet its objectives?

What is the risk that it will not solve the problem?

The project manager must determine that the project benefits outweigh the risk.

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Possible Review Outcomes

After these reviews the project manager and customer determine whether to:

Proceed

Change the objectives

Drop the project

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Classroom Activity 5a

For your current project, perform a:

mini-conceptual review,

feasibility study,

benefit-cost analysis,

alternative course of action review,

opportunity cost review, and

risk analysis.

Write down the outcomes of each and show the advantage (or disadvantage) of proceeding with the project

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Questions?