Using the PERT-Beta formula, what is the expected cost of the design effort?

MGT 251. Planning and Control

Assignment 1
Estimating with the PERT-Beta Distribution

Back in 1957, the year in which the Project Evaluation and Review Technique (PERT) was developed by the US Navy, statisticians developed a simple technique to estimate the amount of time it might take to carry out a task. To use the technique, all one needs is to be able to estimate three parameters: a = the best case duration (fastest), b = the most typical case (mode), and c = the worst case duration (slowest). Given these three parameters, estimators can employ the following formula to estimate the expected amount of time it takes to do a job:

Expected time = e(t) = (a + 4b + c)/6

The expected value of time calculated by using this formula turns out to be roughly the mean value of a PERT-Beta distribution:

The standard deviation (SD) for this estimate is roughly (c – a)/6. The standard deviation tells us that the true value of an estimate lies within the range of +/- 1 SD roughly 60-70% of the time. For example, if we usethe PERT-Beta distribution to determine that the expected value of task duration is 4.33 days and the standard deviation is 0.67 days, we can say: “Roughly 60-70% of the time, the actual task duration lies in the range of 4.33 days +/- 0.67 days.”

Note that while this approach to estimating values was originally employed in estimating durations, it can be also used to estimate costs and number of resources required to do a job.

Questions:

1) Company records show that the time taken to install a piece of equipment at customer facilities as follows:

a) What is the expected time for the installation effort?
b) What is the standard deviation associated with the installation effort?
c) What is a practical interpretation for the results reported in 1a and 1b above?

2) Marsha is in charge of planning a large software development project. She is trying to estimate the cost of the design phase. She works with a group of five experienced designers and asks them to estimate the lowest cost, highest cost, and most typical cost possibilities. After an hour of spirited discussion, the group provides the following estimates:
Lowest cost $30,000
Highest cost $50,000
Most likely cost $45,000

a) Using the PERT-Beta formula, what is the expected cost of the design effort?
b) What is anticipated standard deviation for the design effort?
c) What is a practical interpretation for the results reported in 2a and 2b above?

3) Build-It-Quick house construction company has turned house-building into a science. The standard plan for framing the Excelsior Model house is to execute this effort in 10 working days. Depending on the details of site conditions, the number of carpenters needed to do the job varies slightly from job to job. as shown below:
Fewest number of needed carpenters 3 Carpenters
Largest number 10 Carpenters
Most likely number 5 Carpenters

a) Using the PERT-Beta formula, what is the expected number of needed carpenters?
b) What is anticipated standard deviation for the number of needed carpenters?
c) What is a practical interpretation for the results reported in 3a and 3b above?

4) What are some dangers you see in relying on this estimating technique?
5) Using your imagination and/or experience, describe another way to estimate task duration, cost, or manpower requirements.
6) Note that good estimates can be made by guessing the values of only three parameters (best case, worst case, most likely case). Why is this a tremendous advantage?

MGT 251. Planning and Control

Assignment 2

Work Breakdown Structure (WBS)

For some project of your choosing (it can be hypothetical or real):
1. Create a product-oriented, tabular WBS. The WBS should be three levels deep, where the final deliverable itself constitutes the top level. It should contain at least five major elements, and each of those should be comprised of 3-5 sub-elements. Be sure to develop an appropriate numbering system to identify each element or sub-element of the WBS. (This numbering system is called the code of accounts.)

2. Create a task oriented, tabular WBS for the same project covered in task 1 above. Make it three levels deep, where the top level is the overall project, the next level down is the task level, and the third level down is the sub-task level. Be sure to develop an appropriate numbering system to identify tasks and sub-tasks

3. Many project management experts contend that one of the most important things project workers can do when planning a project is to create a good WBS. What value does the WBS possess?

4. What are the relative merits/demerits of a product-oriented vs. task- oriented WBS?

MGT 251. Planning and Control

Assignment 3
Key to Successful Time-boxed Scheduling: Effective Prioritization of Product Features
Brandon Walsh is new product development manager for automaker ModernVehicles. He employs a focus group to help him determine what key features his new vehicle should have. Following are the features arising from the focus group study:
• Anti-lock braking system
• All digital display
• Navigation system
• Remote start
• Collision avoidance
Clearly, the more features Brandon adds to the vehicle, the more expensive the vehicle will be. He is not certain that he wants to add all the features in the list, so he uses the Poor Man’s Hierarchy to prioritize the features.
Using the Poor Man’s Hierarchy, prioritize the features that Brandon proposes to include in his newly designed vehicle.

MGT 251. Planning and Control

Assignment 4

1) Benefit-cost Analysis
Park Crest Hospital is looking into the possibility of upgrading its patient tracking information system. The current system is a management information system (MIS) that maintains records on the active status of patients residing in the hospital at a given moment. It ties into patient medical treatment files and financial history files. Thus it is possible to determine the current disposition of patients residing in the hospital (e.g., room number, telephone number, attending physicians, attending nurses, etc.); to access facts about the patient’s prior medical history; and to access financial data on current and past charges made to the patient.
The current MIS is more than seven years old. In view of changes in information storage and retrieval technology that have recently occurred, as well as the current system’s inability to deal with changes that have been made to handle the patient medical treatment files, Park Crest management has decided to upgrade its patient tracking information system. Dr. Ralph Kopecky is made head of a task force to identify possible systems that can replace the existing one.
A one-month search unearths two products that are good candidates. Each is an off-the-shelf product that will be modified by the vendor to fit into a client’s existing environment. After lengthy discussions with the vendors, Dr. Kopecky developed the cost and benefit data that appear in the accompanying exhibit. He will employ these data to educate members of the Executive Management Committee about costs and benefits associated with the alternative solutions.

Item System A System B
Purchase price 2,300,000 1,600,000
5-year savings compared to using current system 4,100,000 2,700,000
Cost of conversion from old to new system 325,000 300,000
Annual maintenance cost (includes salaries of full-time support personnel) 275,000 200,000

Questions:
a) Using the data contained in the exhibit, compute the benefit-cost ratios associated with adopting System A and System B.
b) Given the data contained in the exhibit, does it make sense from a financial perspective to abandon the current MIS and to adopt a new one? Explain your reasoning.
c) Using the data contained in the exhibit, which solution – System A or System B – is more attractive from a purely financial point of view? Write up your views in a one-page, single-spaced report that will be submitted to the Executive Management Committee.
d) What are the limitations of taking a purely financial approach to selecting a product that will enable Park Crest Hospital to meet its business needs? What other factors should be taken into account?

2) Schedule-Cost-Resource
The table below contains cost, resource, and schedule data for a hypothetical project.

Questions:
a. Create a network diagram for the tasks listed in the table above.
b. Calculate earliest start, latest start, and float for each task.

Task Earliest start (ES) Latest start (LS) Float
A
B
C
D
E
F

c. Given the information captured in the network diagram, create a Gantt chart for the project. In the Gantt chart, picture weekends. (Assume the project begins on a Tuesday and that a week of effort is five working days long.)
d. Calculate level of effort, labor costs, and total costs per task and put the values in the appropriate cells in the first table above.
e. Assume the company being examined here has only two testers. How will this show up on a resource histogram? How should the work for Tasks D and E be leveled? What, if any, impact will the resource leveling have on the project duration?

MGT 251. Planning and Control

Assignment 5

Getting Projects Back on Schedule

The two best known approaches to getting a slipping schedule back on track are crashing and fast tracking.
1. What does crashing a schedule entail? Specifically, what is the point of crashing and what rules must be followed to crash effectively?
2. Because crashing typically requires us to throw extra resources onto a project, some experts believe that crashing may well cause more problems than it solves. What is the point they are trying to make? What steps should we take to mitigate the ill-effects of crashing?
3. What does fast tracking entail? Provide a specific, real world example of how it might be employed.
4. When experts talk about fast tracking, they often discuss it in the context of risk. Explain the connection between fast tracking and risk. Why would we undertake a technique (fast tracking) that may elevate risk levels dramatically?

MGT 251. Planning and Control

Assignment 6
1. Earned Value Management (EVM)

Following is a cost/schedule status report (C/SSR), a document that is generated each month. It demonstrates the cost and schedule status of a project at a given moment in time. Answer the questions associated with the accompanying C/SSR after reading the appropriate sections on earned value in Managing Projects in Organizations, The New Project Management, and A Guide to the Project Management Body of Knowledge (PMBOK).
Task Budget Task begun Task ended Actual Cost
A 30,000 √ √ 30,000
B 40,000 √ √ 43,000
C 20,000 √ √ 22,000
D 30,000 √ 18,000
E 30,000
F 40,000 √ 44000
G 20,000 √ √ 21,000
Total 210,000 178,000

This C/SSR shows the cost and schedule status of our project as of the end of last month. The numbers in the “Budget” column represent how much money was budgeted to be spent on each of the tasks at the end of reporting period. Applying earned value management (EVM) principles, answer the following six questions:
a) What is the schedule variance (SV) for the project as of the end of last month?
b) What is the cost variance (CV) for the project as of the end of last month?
c) What is the value of cost performance index (CPI)?
d) What is the value of the schedule performance index (SPI)?
e) If the total budget for the project as of its completion date is $600,000, what is the value of estimate at complete (EAC)?
f) In one paragraph, summarize the cost and schedule status of this project using the earned value

MGT 251. Planning and Control

Assignment 7
Project to Arrange for Conference

Questions:
1. The table for this assignment provides best case, most typical case, and worse case estimates of task duration for each task. Using the PERT Beta distribution formulas, compute the expected time for achieving each task and its standard deviation.
2. How long will the project take to carry out?
3. What is the standard deviation of the critical path?
4. What is project duration when 1σ (standard deviation) is added? 2σ? (Note that when dealing with normal distributions, about 68% of observations lie within ±1 σ and about 95% of observations lie within ±2σ. We do not have a normal distribution in this case. We are working with a PERT Beta distribution that is not fully symmetric. Still, using an assumption of normality, we can get a very rough sense of the probability that a project will slip its schedule by 1σ or 2σ.)
5. Identify latest start, earliest start, and float times for each of the tasks in this project.

Expected duration Latest Start Earliest Start Float
ID speaker topics
Contact speakers
Select hotel
Arrange hotel accommodations
Arrange catering
Develop brochure
Print and mail brochure
Develop exhibit material
Develop workbook
Print and bind workbook
Final set-up for conference

6. An opportunity arises to have “Develop workbook” and “Print workbook” carried out earlier, in parallel to the other tasks. “Develop workbook” can begin as soon as “ID speaker topics” is complete. Reconfigure the PERT/CPM network to reflect this change in work. How much time has been saved on the project?

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Q1. The coding system by which project data are organized is called:
a. the code of accounts
b. the general ledger
c. the cost account
d. the chart of accounts

Q2. The following chart shows revenue and cost figures for a product development effort over a five year period of time. In what year does payback occur?
Year Cost Revenue
1 $30k $0
2 $20k $52k
3 $10k $61k
4 $0 $30k
5 $0 $2k

a. Year 2
b. Year 3
c. Year 4
d. There is not enough information to determine when payback occurs

Q3. Following are the benefit-cost ratios for three investment opportunities. Which is the best investment?
Investment opportunity Benefit-cost ratio
A 1.8
B 2.1
C 1.5

a. A
b. B
c. C
d. We have insufficient information to determine which investment opportunity is the most attractive

Q4. Benefit-cost analyses can be qualitative.
a. true
b. false

Q5. In principle, the salary paid a worker should be:
a. less than the required level of profit
b. equal to minimum wage requirements
c. determined by opportunity costs of the investment opportunity
d. less than the worker’s value marginal product

Q6. Wages for a project are $50,000. Fringe benefits and overhead add up to an additional $100,000. What is the loading or burden rate for the work effort?
a. $50,000
b. 2.00
c. 3.00
d. $100,000

Q7. A benefit-cost ratio is a measure of how efficiently investment dollars are being used.
a. true
b. false

Q8. Treasury notes and bonds are examples of:
a. Risky investments
b. Above zero risk options
c. Zero risk options
d. Unreliable measures of rate of return on investments

Q9. If a product has a low price elasticity of demand, this indicates that there is little demand for that product.
a. true
b. false

Q10. At the beginning of the year, Hank puts $100,000 into an investment. At the end of the year, the investment is completed and he is given a check for $110,000. Meanwhile, Susan puts $100,000 in another investment, and receives $140,000. In retrospect, what was Hank’s opportunity cost?
a. $30,000
b. $40,000
c. $100,000
d. $110,000

Q11. In doing benefit-cost analysis, you often encounter situations where an element of the analysis can be treated as either a cost or benefit.
a. true
b. false

Q12. The ratio of discounted benefit streams divided by discounted cost streams is commonly called:
a. Profitability index
b. NPV index factor
c. IRR index factor
d. Buss’s discounting and rank-ordering technique

Q13. The issue of determining how to weigh costs and benefits for different players who are being examined in a benefit-cost analysis (e.g., Who should count more: rich people or poor people) is an example of:
a. the equity problem
b. the extrapolation problem
c. the aggregation problem
d. the negation problem

Q14. A budget variance of -10% for expenditures during the month of April shows that a project is:
a. losing money
b. will face a cost overrun at its conclusion
c. is still on target
d. We don’t have enough information to determine budget status

Q15. A frequently encountered problem with budgets is that the project cost data that forms the basis of the budget is often based on optimistic assumptions.
a. true
b. false

Q16. The Caldor-Hicks criterion is an approach to determining the benefits associated with public sector projects.
a. true
b. false

Q17. If a frost causes widespread damages to orange crops in Florida, and this leads to a jump in the price of oranges, this can be captured by movement along the demand curve.
a. true
b. false

Q18. With diminishing returns:
a. as inputs into a process increase, output decreases
b. as output decreases, inputs into a process decrease
c. as inputs into a process increase, outputs increase at a decreasing rate
d. as inputs decrease, outputs decrease as well

Q19. The best way to develop a budget is to identify all the things you want and to include these items in the budget
a. true
b. false

Q20. A call option is the opportunity to sell a stock at a given price within a defined time frame.
a. true
b. false

Q21. I need two designers working three days each to design a new software system. One code-writer will spend eleven days writing software to implement the design. One tester will test and correct the resulting code over three days. What is the level of effort associated with this project?
a. 20 person days
b. $2,525
c. 15 days
d. Cannot compute without data on indirect costs

Q22. In making decisions using benefit-cost analysis, analysts often find themselves struggling to deal with trade-offs between benefits and costs.
a. true
b. false

Q23. IRR is the best capital budgeting technique because it identifies the rate of return on an investment.
a. true
b. false

Q24. A price elasticity of 1.2 indicates that:
a. an item costs 20% more after an increase in demand than before
b. a 10% increase in demand leads to a 12% increase of revenue
c. a 1% increase in quantity demanded, leads to a 1.2% decrease in price
d. a 1% increase in price, leads to 1.2% decrease in quantity demanded

Q25. When preparing a bid price for a project, Debby uses the following data: John’s salary ($20,000), Mary’s salary ($30,000), cost of materials ($10,000), required profit ($10,000). What is the bid price for doing the project?
a. $70,000
b. $60,000
c. More than $70, 000, because cost overruns always occur
d. More than $70,000 in order to include indirect costs

Q26. Mixed costs can have a fixed and variable component to them.
a. true
b. false

Q27. An advantage that the accrual method has over the cash method of accounting is that:
a. It is an insurance against financial scandals
b. It makes it more difficult for a company to overstate its revenues
c. The cost of doing a job is tied to the time period when payment was made for the work effort
d. The cost of doing a job is tied to the time when the work was done

Q28. In SWOT analyses, ‘weakness’ refers to:
a. internal factors that can harm project performance
b. external factors that can harm project performance
c. situations where costs exceed benefits
d. projects that have not yet achieved profitability

Q29. Which of the following items is an example of direct costs?
a. The cost of lumber used in building a structure
b. Lease payments for office space
c. Cost of heating and air conditioning
d. Salaries of supervisors, secretaries, and attorneys

Q30. On the balance sheet, patented technology should appear as:
a. a short term asset
b. a long term asset
c. a short term liability
d. a long term liability

Q31. In options trading, strike price is the price of a stock determined by market forces.
a. true
b. false

Q32. NPV and IRR analyses are basically the same, but viewed from different perspectives.
a. true
b. false

Q33. If your project was supposed to have spent $100,000 to date, has actually spent $120,000, but has done $80,000 worth of work (your earned value), what is your cost variance according to the earned value management perspective?
a. on target performance
b. $20,000 overrun
c. $40,000 overrun
d. $60,000 overrun

Q34. Crashing a schedule entails:
a. adding extra resources to the job to speed things up
b. abandoning a schedule, and replacing it with a new one that takes into account current information
c. recognizing that because a schedule will not be achieved, it should be abandoned
d. lengthening the amount of time tasks need to be carried out in order to reflect the realities of getting a job done

Q35. Capital expenditures are those that will benefit the firm for a period of time of more than a year.
a. true
b. false

Q36. Zero based budgeting looks at last year’s expenditures as the basis of computing this year’s budget.
a. true
b. false

Q37. The IRR figure resulting from an analysis of projected cash flows can be used:
a. to negotiate an interest rate for a bank loan
b. to measure the profitability of the investment
c. to assess the payback point of the investment
d. to compare the investment opportunity being examined with other investment opportunities

Q38. An assessment of high impact project requirements finds that the following requirements have varying beneficial impacts (indicated by percentage figure in parentheses). The Pareto Rule suggests which requirements should be addressed first?

Requirements and their corresponding beneficial impacts: A (2%), B (50%), C (2%), D(5%), E(10%), F(1%), G (30%), H (1%), I (2%), J(2%)
a. A, C, F, H, I, J
b. B, G
c. B, G, E
d. A, B, E

Q39. The condition where you have one all-powerful buyer of goods and services is called:
a. Monopsony
b. Monopoly
c. Oligopoly
d. Imperfect competition

Q40. An important component of cost of capital is:
a. your estimate of cash outflows
b. your estimate of cash inflows
c. the level of risk you are facing in the investment
d. the size of the initial investment

MGT252. Project Finance and Budgeting
Assignment 1

1. What is the Balance Sheet? What does it tell us about an organization?

2. What is the Income Statement? What does it tell us about an organization?

3. What is the Cash Flow Statement? What does it tell us about an organization?

4. Using the data from the following Financial Statements, compute:
a. Current ratio:
b. Quick ratio:
c. Profit margin on sales:
d. Return on total assets:
e. Return on equity:

Balance Sheet Ajax Corp. Acme, Inc.
Cash $2,255,000 $67,000
Accounts Receivable $565,000 $1,110,000
Inventory $1,332,000 $2,441,000

Total Current Assets $4,152,000 $3,618,000

Net Property, Plant and Equipment $369,000 $1,327,000
Other Assets $211,000 $597,000

Total Assets $4,732,000 $5,542,000

Accounts Payable $27,000 $168,000
Notes Payable Sort Term $426,000 $819,000
Other Short Term Liabilities $2,000 $56,000

Total Current Liabilities $455,000 $1,043,000

Notes Payable Long Term $1,222,000 $943,000

Total Liabilities $1,677,000 $1,986,000

Stockholders’ Equity $3,055,000 $3,556,000

Total Liabilities and Stockholders’ Equity $4,732,000 $5,542,000

Income Statement Ajax Corp. Acme, Inc.
Sales $32,752,000 $4,835,000
Cost of Sales $28,273,000 $2,966,000

Gross Profit $4,479,000 $1,869,000

Selling, General and Administrative Expenses $2,541,000 $912,000

Income before Interest and Taxes $1,937,000 $957,000

Interest Expense $129,000 $88,000

Income before Taxes $1,808,000 $869,000

Taxes $723,000 $280,000

Net Income $1,085,000 $589,000

5. What does each of these financial ratios tell us about a company?
a. Current ratio

b. Quick ratio:

c. Profit margin on sales:

d. Return on total assets:

e. Return on equity:

MGT252. Project Finance and Budgeting
Assignment 2

1. What are the two budgets of major concern for a project? Describe the purpose of each.

2. What is the difference between a Static Budget and a Flexible Budget? What are the pros and cons of each?

3. What are the four constraints that must be considered when developing a project budget? Why?

4. In doing risk analysis for your project, you have identified the following risks items:
Risk P (Risk Probability) I (Cost Impact) Risk Contingency
A .7 $20,000
B .25 $30,000
C .5 $16,000
D .10 $45,000
E .3 $18,000
F .30 $10,000
Total $139,000

a) Calculate the expected value of each of these risks.
b) How much would you request for this project to be added to your budget as risk contingency?
c) Why wouldn’t you request the entire $139,000?
d) What would you do in the event Risk D occurs?

MGT252. Project Finance and Budgeting
Assignment 3

1. You have been hired as a project management consultant to assist the Acme Company in evaluating two different project proposals that they are considering. Proposal A calls for the construction of a new plant which will require three years to complete and will have much greater capacity than the old plant. Because the plant will have to be built on the current site, the old plant will have to be razed. Proposal B involves the renovation of this plant. This renovation will require two years to complete, but the plant can remain in operation in a reduced capacity during this upgrade. Once the renovation is complete revenue will be increased by 25% per year, however annual maintenance will be 50% higher that Proposal A.

a. What is the profit associated with the project carried out in Proposal A? Proposal B?
b. When does payback occur on the project carried out in Proposal A? Proposal B?
c. What is the present value of revenue for the project carried out in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)
d. What is the present value of expense for the project carried out in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)
e. What is net present value for the project described in Proposal A? Proposal B? (In computing present value, do not discount the value for the first year being examined.) (Assume i = 0.10)
f. What is the internal rate of return for the project described in Proposal A? Proposal B?
g. Which project would you recommend? Why? What are the merits? What are the risks?

MGT252. Project Finance and Budgeting
Assignment 4

1. Benefit-cost analysis experts agree that to the extent you can quantify benefits and costs, you should do this. However, some people complain that there are many things that cannot be quantified, so they resist engaging in quantitative benefit-cost analyses.
Certainly, some things are harder to quantify than others. For example, quantifying potential customer satisfaction with a new product your company plans to produce is not easy to do. Nonetheless, by conducting surveys of potential customers, engaging in focus group studies, and testing prototypes of the product on customers, you can develop a reasonable quantitative sense of possible customer satisfaction with the product. The point is that ultimately, everything can be quantified. The real issue is whether your attempt at quantification is valid and really reflects what you want to measure.
Describe how you might be able to measure the benefits and costs of implementing the 9/80 schedule described below:
• Traditionally, employees work 8-hour days for 5 days a week. However, many companies are offering flexible work hours including the 9/80 schedule. The 9/80 schedule allows employee to work for 9 hours every day and get every other Friday off.

2. In building a large hydroelectric dam in Batundaland, a substantial portion of the country’s electric power needs can be met. However, the dam will create a lake that will be the breeding grounds of snails that lead to a devastating disease called bilharzia, and this disease can affect a significant portion of the population. The World Bank is asked to provide loans to fund this project. The World Bank requires that a benefit-cost analysis be conducted on all projects it funds that assess the impacts of the project on society (including health impacts). Discuss the aggregation problems that might be encountered in designing this benefit-cost analysis.
[Reference slide 5-22]

MGT252. Project Finance and Budgeting
Assignment 5

1. Net Present Value (NPV) examines financial performance in absolute terms. How does this differ from Benefit/Cost Ratios and Internal Rate of Return (IRR)?
2. Net Present Value requires the computation of a discount rate. Discuss the challenges this presents to an organization.
3. What is the fundamental premise of Benefit/Cost Analysis? What is the value of this analysis? What are some of the risks?

CASE STUDY: Building a Wind powered electrical generating plant
Background
Integration of wind generation into a wholesale power supply portfolio requires a proper balance between the operating characteristics of base load generation, power purchase agreement flexibility and cost of service objectives. Purchasing or generating wind power has an associated expense that must be addressed as the wholesale power supplier meets its obligation to supply a reliable, affordable and balanced supply of wholesale electric energy and related services to its member systems. The integration of wind generation into a power supply portfolio can be challenging and the “all in” costs associated with this resource must be objectively considered in order to accurately reflect the contribution this resource will make to supply portfolio pricing.
Results of a Feasibility Study
A feasibility study was carried out to see what the costs and consequences would be of building the Wind powered electrical generating plant. Basic data on anticipated costs and benefits are provided in Table A and B respectively.

Table A
Year -> 1 2 3 4 5 6 7 8 9 10
Initial capital costs 300 600 500
Cost of operations 40 42 50 46 52 61 59
Anticipated maintenance 25 42 35 41 27 29 31
Other costs 80 80 65 40 44 24 15 16 19 18

TOTAL 380 680 565 105 128 109 102 95 109 108

Table B
Year -> 1 2 3 4 5 6 7 8 9 10
Income to Cooperative 45 101 122 135 136 175 201 220
Secondary income generation effects 85 119 122 163 201 305 412 415 453 487

TOTAL 85 119 167 264 323 440 548 590 654 707

1. What is the undiscounted Benefit/Cost of the project?
2. If this project could be financed at a rate of 10%, could it be economically justified? Why?
3. What is the Net Present Value of this project using a discount rate of 10%?
4. In what year does this project break even? Is this timeframe acceptable? Why?

MGT252. Project Finance and Budgeting
Assignment 6
1. Assume that your project has started to slip dramatically. Let’s further assume that the project deadline is fixed and can’t change. Your project currently has one developer working on module of code with 21 day duration on the critical path. You are desperate to shorten this timeframe and you are considering adding a second resource to this activity but, the resource does not have all the right skills and he might work five days just to reduce the overall time by two days. From an economic perspective is this a good move? Why?
2. Gold plating is what we call it when the project team does work on the product to add features that the requirements didn’t call for, and that the stakeholder and customer didn’t ask for and doesn’t need. Is this a good practice from an economic perspective? Why?
3. What is the difference between project managers who considers themselves implementers of others solutions versus project managers who view themselves as the CEO of a small business?

MGT252. Project Finance and Budgeting
Assignment 7
PART I

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