Planning the Project

Project Plan And Its Components

Planning is continuous process of making entrepreneurial decisions
with an eye to the future and systematically organizing the effort
needed to carry out these decisions.

Planning is determining what needs to be done, by whom it is to be

done, and by when it has to be done, in order to fulfill one’s
responsibility. All activities of the project must be precisely explained
and coordinated.

There are nine major components of the planning phase.

 Components of Project Plan
Objectives
A goal, a target that is to be achieved by a certain time

Program:
The strategy that is to be followed and major actions that
needs to be taken in order to achieve or exceed objectives

Schedule:
A plan showing when individual or group activities or
accomplishments will be started or completed
 Components of Project Plan
Organization:
Design of the number and types of positions, along with
corresponding duties and responsibilities, that are required to
achieve or exceed objectives.

Policy:
A general guide for decision making and individual actions.

Procedure:
A detailed method for carrying out a policy
 Components of Project Plan
Budget:
Planned expenditures required to achieve or exceed objectives.

Forecast:
A projection of what will happen by a certain time.

Standard:
A level of individual or group performance defined as
adequate or acceptable.
If the planning is strictly operational, then these factors may be
clearly definable. However, if strategic or long range planning is
necessary, then the future economic outlook can vary, and re-
planning must be done at regular intervals because the goals and
objectives can change.
 There are four basic reasons for project planning:

I. To eliminate or reduce uncertainty

II. To improve efficiency of the operation

III. To obtain a better understanding of the objectives

IV. To provide a basis for monitoring and controlling work

Planning varies at each level of organization

At individual level, planning is required so that cognitive simulation

can be established before irrevocable actions are taken.

At the working group or functional level, planning must include:

• Agreement on purpose
• Assignment and acceptance of individual responsibilities
• Coordination of work activities
• Increased commitment to group goals
• Lateral communications
At the organization or project level, planning must
include:

• Recognition and resolution of group conflicts or goals

• Assignment and acceptance of group responsibilities
• Increased motivation and commitment to organizational goals
• Vertical and lateral communications
• Coordination of activities between groups
 Sorting Out the Project

How to plan a process:

• Begin with project’s objectives

• List major activities needed to achieve objectives (level 1

activities)
• Assign level 1 activities to individuals or functional areas to
develop list of level 2 activities …
• Degree of detail should be same within a given level
 The Project Action Plan

Project activities are identified and arranged in successively finer

detail (by levels)

Type and quantity of each required resource is identified for each

activity

Predecessors and durations are estimated for each activity

Milestones are identified

Individual or group are assigned to perform the work identified for

all activities.
 Using the Project Action Plan

Project master schedule is created by combining milestones,

durations, and predecessors
• Used to compare actual performance with the planned
performance
Project Selection Models
Project Selection

• Project selection is the process of evaluating individual projects or

groups of projects,
• Choosing some of them so that the objectives of the parent organization
is achieved.
• The proper choice of investment projects is crucial to the long-run
survival of every firm.
• Daily we witness the results of both good and bad investment choices.
Decision Models

• Models extract the relevant issues about a problem from the

plethora of detail in which the problem is embedded.
• Reality is far too complex to deal with in its entirety.
• This process of separating the unwanted information from the
required information is called modeling the problem.
• The idealized version of the problem that results is called a model.
• Models may be quite simple to understand, or they may be
extremely complex. In general, introducing more reality into a
model tends to make the model more difficult to manipulate.
Criteria for Project Selection Model

I. Realism
II. Capability
III. Flexibility
IV. Ease of use
Numeric and Non-Numeric Models

• Both are widely used, many organizations use both at the same
time, or they use models that are combinations of the two.

• Nonnumeric models, as the name implies, do not use numbers as

inputs. Numeric models do, but the criteria being measured may
be either objective or subjective.
Nonnumeric Models

• Nonnumeric models are older and simpler and have only a few subtypes
to consider.

• The sacred Cow

• The operating Necessity

• The competitive Necessity

• The Product Line Extension

• Comparative Benefit Model

• Q Sort Method
The Sacred Cow

• Suggested by a senior and powerful official in the organization. Often

initiated with a simple comment such as, “If you have a chance, why
don’t you look into . . .,” and there follows an undeveloped idea for a
new product, for the development of a new market, for the design
and adoption of a global data base and information system, or for
some other project requiring an investment of the firm’s resources.
“Sacred” in the sense that it will be maintained until successfully
concluded, or until the boss, personally, recognizes the idea as a
failure and terminates it.
The Operating Necessity

• If a flood is threatening the plant, a project to build a protective

dike does not require much formal evaluation, which is an
example of this scenario. If the project is required in order to keep
the system operating, the primary question becomes: Is the
system worth saving at the estimated cost of the project?
The Competitive Necessity

• The decision to undertake the project based on a desire to

maintain the company’s competitive position in that market.
• Investment in an operating necessity project takes precedence
over a competitive necessity project
• Both types of projects may bypass the more careful numeric
analysis used for projects deemed to be less urgent or less
important to the survival of the firm.
The Product Line Extension

• A project to develop and distribute new products judged on the

degree to which it fits the firm’s existing product line, fills a gap,
strengthens a weak link, or extends the line in a new, desirable
direction.

• Sometimes careful calculations of profitability are not required.

Decision makers can act on their beliefs about what will be the
likely impact on the total system performance if the new product is
added to the line.
Comparative Benefit Model

• Organization has many projects to consider but the projects do not

seem to be easily comparable. For example, some projects concern
potential new products, some concern changes in production
methods, others concern computerization of certain records, and
still others cover a variety of subjects not easily categorized (e.g., a
proposal to create a daycare center for employees with small
children).

• There is no precise way to define or measure “benefit.”

Q-Sort Method
• Of the several techniques for ordering projects, the Q-Sort is one
of the most straightforward.

• First, the projects are divided into three groups—good, fair, and
poor—according to their relative merits. If any group has more
than eight members, it is subdivided into two categories, such as
fair-plus and fair-minus. When all categories have eight or fewer
members, the projects within each category are ordered from best
to worst. Again, the order is determined on the basis of relative
merit. The rater may use specific criteria to rank each project, or
may simply use general overall judgment.
The Q-Sort Method
Numeric Models: Profit/Profitability

• A large majority of all firms using project evaluation and selection

models use profitability as the sole measure of acceptability.

I. Present & Future Value

II. Benefit / Cost Ratio
III. Payback period
IV. Internal Rate of Return
V. Annual Value
Present Value

The Present value or present worth method of evaluating projects is a

widely used technique. The Present Value represents an amount of

money at time zero representing the discounted cash flows for the

project.

PV

T=0 +/- Cash Flows

Net Present Value (NPV)
The Net Present Value of an investment is simply the difference

between cash out flows and cash inflows on a present value basis.

Where:

NPV = ∑ Present Value (Cash Benefits) - ∑ Present Value (Cash Costs)

 Present Value Example

• Initial Investment: $100,000

• Project Life: 10 years
• Salvage Value: $ 20,000
• Annual Receipts: $ 40,000
• Annual Disbursements: $ 22,000
• Annual Discount Rate: 12%, 18%

What is the net present value for this project?

Is the project an acceptable investment?
Present Value Example Solution

• Annual Receipts
• $40,000(P/A, 12%, 10) $ 226,000
• Salvage Value
• $20,000(P/F, 12%, 10) $ 6,440
• Annual Disbursements
• $22,000(P/A, 12%, 10) -$124,000
• Initial Investment (t=0) -$100,000

• Net Present Value $ 8,140

• The NPV is greater than zero, therefore the project is acceptable
Future Value
The future value method evaluates a project based upon the basis
of how much money will be accumulated at some future point in
time. This is just the reverse of the present value concept.

FV

T=0 +/- Cash Flows

Future Value Example

• Initial Investment: $ 100,000

• Project Life: 10 years
• Salvage Value: $ 20,000
• Annual Receipts: $ 40,000
• Annual Disbursements: $ 22,000
• Annual Discount Rate: 12%, 18%

What is the net future value for this project?

Is the project an acceptable investment?
Future Value Example Solution
• Annual Receipts
• $40,000(F/A, 12%, 10) $ 701,960
• Salvage Value
• $20,000(year 10) $ 20,000
• Annual Disbursements
• $22,000(F/A, 12%, 10) -$386,078
• Initial Investment
• $100,000(F/P, 12%, 10) -$310,600
• Net Future Value $25,280

• Net future value is positive, therefore the project is acceptable

• Can be used to compare with future value of other projects
PV/FV

There is no theoretical difference if project is evaluated in present or

future value

PV of $ 25,282
$25,282(P/F, 12%, 10) $ 8,140

FV of $ 8,140
$8,140(F/P, 12%, 10) $ 25,280
Annual Value

• Sometimes it is more convenient to evaluate a project in terms of its

annual value or cost. For example it may be easier to evaluate specific
components of an investment or individual pieces of equipment based
upon their annual costs as the data may be more readily available for
analysis.
Annual Analysis Example

• A new piece of equipment is being evaluated for purchase which will

generate annual benefits in the amount of $10,000 for a 10 year period,
with annual costs of $5,000. The initial cost of the machine is $40,000
and the expected salvage is $2,000 at the end of 10 years. What is the
net annual worth if interest on invested capital is 10%?
Annual Value Example Solution
• Benefits:

• $10,000 per year $10,000

• Salvage

• $2,000(P/F, 10%, 10)(A/P, 10%,10) $ 125

• Costs:

• $5,000 per year -$ 5,000

• Investment:

• $40,000(A/P, 10%, 10)-$ 6,508

• Net Annual Value -$1,383

Since this is less than zero, the project is expected to earn less than the

acceptable rate of 10%, therefore the project should be rejected.

Benefit/Cost Ratio

• The benefit/cost ratio is also called the profitability index and is defined
as the ratio of the sum of the present value of future benefits to the
sum of the present value of the future capital expenditures and costs.
B/C Ratio Example

Project A Project B
• Present value cash inflows
$500,000 $100,000
• Present value cash outflows
$300,000 $ 50,000
• Net Present Value
$200,000 $ 50,000
• Benefit/Cost Ratio
1.67 2.0
 Payback Period
One of the most common evaluation criteria used.

Simply the number of years required for the cash income from a
project to return the initial cash investment.

The investment decision criteria for this technique suggests that if

the calculated payback period is less than some maximum value
acceptable to the company, the proposal is accepted.

Example illustrates five investment proposals having identical capital

investment requirements but differing expected annual cash flows
and lives.
Payback Period
 Example
Calculation of the payback period for a given investment
proposal.
a) Prepare End of Year Cumulative Net Cash Flows
b)Find the First Non-Negative Year
c) Calculate How Much of that year is required to cover the
previous period negative balance
d)Add up Previous Negative Cash Flow Years
Initial Annual Net Cash Flows
Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(45,000) 10,500 11,500 12,500 13,500 13,500 13,500 13,500 13,500 13,500 13,500

a End of Year Cummulative Net Cash Flow

(45,000) (34,500) (23,000) (10,500) 3,000 16,500 30,000 43,500 57,000 70,500 84,000

Pay Back Period c) 0.78 = 10,500/13,500

b
Fraction of First Positive Year 0.78 d) 3 + 0.78
Pay Back Period 3.78
 Example:
Calculate the payback period for the following investment proposal

Initial Annual Net Cash Flows

Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(120) 10 10 50 50 50 50 50 50 50 50

End of Year Cummulative Net Cash Flow

(120) (110) (100) (50) 0 50 100 150 200 250 300

Pay Back Period

Fraction of First Positive Year 1.00
Pay Back Period 4.00
 Example
Calculate the payback period for the following
investment proposal
Initial Annual Net Cash Flows
Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(120) 10 10 50 50 50 50 50 50 50 50

End of Year Cummulative Net Cash Flow

(120) (110) (100) (50) 0 50 100 150 200 250 300

Pay Back Period

Fraction of First Positive Year 1.00
Pay Back Period 4.00
 Example

Calculate the payback period for the following investment proposal

Initial Annual Net Cash Flows

Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(120) 10 10 50 50 50 50 50 50 50 50

End of Year Cummulative Net Cash Flow

(120) (110) (100) (50) 0 50 100 150 200 250 300

Pay Back Period

Fraction of First Positive Year 1.00
Pay Back Period 4.00
Example

Calculate the payback period for the following

investment proposal
Initial Annual Net Cash Flows
Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(250) 86 50 77 52 41 70 127 24 6 40

End of Year Cummulative Net Cash Flow

(250) (164) (115) (38) 14 55 124 252 276 282 322

Pay Back Period

Fraction of First Positive Year 0.73
Pay Back Period 3.73
 Example
Calculate the payback period for the following
investment proposal
Initial Annual Net Cash Flows
Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(250) 86 50 77 52 41 70 127 24 6 40

End of Year Cummulative Net Cash Flow

(250) (164) (115) (38) 14 55 124 252 276 282 322

Pay Back Period

Fraction of First Positive Year 0.73
Pay Back Period 3.73
 Example

Calculate the payback period for the following investment

proposal

Initial Annual Net Cash Flows

Investment 1 2 3 4 5 6 7 8 9 10

Alternative A
(250) 86 50 77 52 41 70 127 24 6 40

End of Year Cummulative Net Cash Flow

(250) (164) (115) (38) 14 55 124 252 276 282 322

Pay Back Period

Fraction of First Positive Year 0.73
Pay Back Period 3.73
Numeric Models: Scoring

• In an attempt to overcome some of the disadvantages of profitability

models, particularly their focus on a single decision criterion, a number
of evaluation/selection models hat use multiple criteria to evaluate a
project have been developed. Such models vary widely in their
complexity and information requirements. The examples discussed
illustrate some of the different types of numeric scoring models.
Some Factors to Consider
Unweighted 0–1 Factor Model
• A set of relevant factors is selected by management and then
usually listed in a preprinted form. One or more experts score the
project on each factor, depending on whether or not it qualifies for
an individual criterion.
• The experts are chosen by senior managers, for the most part from
the rolls of senior management.
• The criteria for choice are:
• (1) a clear understanding of organizational goals
• (2) a good knowledge of the firm’s potential project portfolio.
• In the next slide you will see that the columns are summed,
projects with a sufficient number of qualifying factors may be
selected.
• Advantage: It uses several criteria in the decision process.
• Disadvantage: It assumes all criteria are of equal importance and it
allows for no gradation of the degree to which a specific project
meets the various criteria.
THE WORK BREAKDOWN
STRUCTURE
 Simple Approach for Creating the WBS

I. Gather project team

II. Provide team members with pad of sticky-notes

III. Team members write down all tasks they can think of

IV. Sticky-notes placed and arranged on wall

A Partial WBS (Gozinto Chart) for an Annual Tribute Dinner
Project
A Linear Responsibility Chart
• What is WBS:
In planning a project, the manager must structure the work into small
elements. It is

• An outline of the work that is to be done to complete the project

• A way to organize and control the project
• A method to ensure that the plan is complete
• A basis for all of your formal project management steps
• Anything not in the WBS is not in the project
• WBS Terminology:

• WBS summary tasks

The categories organizing the work.
This is a higher level than the actual work packages

• Code of accounts
Uniquely identifies each element of the WBS.

• Work packages
A deliverable at the lowest level of the WBS.

• WBS dictionary
Includes work package instructions for the assigned team
member.
• Example
• Landscape project

• 1.0 Design landscape

• 2.0 Lawn
• 2.1 Acquire lawn material
• 2.2 Install sprinkler system
• 2.2.1 Identify sprinkler locations
• 2.2.2 Dig trenches
• 2.2.3 Install pipe and hardware
• 2.2.4 Cover sprinkler system
• 2.3 Plant grass
• Summary Tasks:
A summary task  also known as parent task is a collection of
subtasks that shows their combined information. In the previous slide
the summary tasks are:

• Lawn
• Install sprinkler system
• Code of Accounts:

• 1.
• 2.
• 2.1
• 2.2
• 2.2.1
• 2.2.2
• 2.2.3
• 2.2.4
• 2.3
Work Packages:

• Design Landscape
• Acquire land material
• Install sprinkler system
• Identify sprinkler locations
• Dig trenches
• Install pipe and hardware
• Cover sprinkler system
• Plant grass
Work Packages:

• Represent units of work at a level where work is going to be

performed
• It clearly distinguish work package from others

• It is assigned to a functional group

• It usually limit the work to be performed in a relatively short

periods of time
Example

Job Creation Process:

• Task description
To hire new employee for Product Specialist position.
• Goals and Objectives:
To fill position by June 15, 2020 and have trained by end of July.
• Job Description:
To provide the job description here with performance criteria.
• Acceptance Criteria:
Mr. Jamal must provide approval of selected candidate before the
job offer is made, and provide acceptance upon completion of
probationary period.
• Work packages should be…

• Relatively short in time span

• Measurable by cost
• Assignable to an individual, department, or company
• Two Approaches:
• Low-level WBS
Created from a perspective of activities or tasks and is expressed
as action verbs

• High-level WBS
Based on products, requirements, or deliverables, created from a
perspective of the project scope definition and is expressed as
nouns
Example: Low-level WBS

Making cakes at home

1. Preparation
1.1 Read recipe
1.2 Check ingredients at home
1.3 Make shopping list
1.4 Go on shopping trip
and so on…
High Level WBS:

Program: New plant Construction and start up

Project 1: Analytical study

Task 1: Marketing/Production study
Task 2: Cost Effectiveness Analysis
Project 2: Design and Layout
Task 1: Product Processing Sketches
Task 2: Product Processing blueprints
• How should I break down the project?

• By geographically separated areas for product or activities

• By major chronological time periods
• By structural, process, system, or device components
• By “intermediate” deliverables required in the production of the
“end” deliverables
• By separate areas of responsibility, departments, or functional
areas
• By geographically separated areas for product or activities:

Conference

Europe USA Asia

New York City

October 15,
2021
By structural, process, system, or device components:

Airplane

Pilot Controls HVAC Engine

Air Conditioning

Refrigerants
• By “intermediate” deliverables required in the production of the
“end” deliverables:

Software

Requirements Prototype Products

Interface

Graphics