Project management final exam

Name / Ghada Mehana

Class no/ 71 v

Under supervision/ Emad Elwy

Analyzing the case study: (Eslsca university)

This case study to effectively prioritizes projects, it is essential to evaluate
their financial performance using key metrics. These metrics include the
Payback Period(PP), Rate of Return(ROR), Return on Investment(ROI), Net
Present Value(NPV), and Internal Rate of Return(IRR). By analyzing these
factors for each project, We can make informed choices that align with the
organization’s strategic objectives.

 Project A requires a $500,000 initial investment and is expected to

generate $350,000 in revenue within three years.
 Project B has a lower initial cost of $250,000 but offers consistent
annual returns of $75,000 over an extended period.
 Project C starts with a modest investment of $75,000 and has the
potential to yield $150,000 by the end of the fifth year.

So, to conduct a comprehensive financial analysis, we'll need to establish a

discount rate. Based on the expected return on similar projects, we'll use a
discount rate of 20% and inflation is projected to remain 3% as given.

A. Prioritization of projects:
Given data:

Project A:

Investment amount of $500,000

Revenues flow:

First year: $50,000

Second year: $25,000

Third year: $ 350,000

Project B:

Investment amount of $250,000

Revenues flow:

first year: $ 75,000

second year: $75,000

third year: $75,000

fourth year: $50,000

Project C:

Investment amount of $75,000

Revenues flow:

first year: $15,000

second year: $25,000

third year: $50,000

fourth year: $50,000

fifth year: $150,000

calculation for payback period (PP) for project A:

first year = $50,000

second year= $25,000 (cumulative $50,000+25,000)=$75,000

third year=$350,000 (cumulative $75,000+$350,000)=$425,000

PP= 3+ ($500,000 - $425,000) / $350,000= 3.071 year

So project A will cover the full amount of investment after three years.

Project B:

First year = $75,000

Second year = $75,000 (cumulative $75,000+$75,000)=$150,000

Third year = $75,000 (cumulative $150,000+$75,000)=$225,000

Fourth year = $50,000 ($225,000+$50,000)=$275,000

PP= 4 - ($250,000 – $225,000) / $50,000= 3.5 years

So project B will cover full amount of investment afrter 3.5 years.

Project C:

First year = $15,000

Second year = $25,000 ($15,000 + $25,000)=$40,000

Third year = $50,000 ($40,000+$50,000)=$90,000

PP = 3 – (15,000 / 50,000)= 2.7 years

Calculation for the rate of return (ROR)

{ Rate of return= 1/payback period*100}

Project A:

Rate of return (ROR) = unknown

Project B:

Rate of return(ROR) = 1/3.5×100=28.57%

Project C:

Rate of return (ROR) = 1/2.7×100=37.04%

Conclusion:
Project C offers the highest return, followed by Project B.

Calculation Return on investment (ROI):

{ ROI = total return – intial investment / initial investment * 100% }

Project A

ROI = (425,000 – 500,000) / 500,000 *100% = -15%

Project B

ROI = (275,000 – 250,000) / 250,000 * 100% = 10%

Project C

ROI = (290,000-75,000) / 75,000 * 100% = 286.67%

Conculsion:

Project C provides the highest return on investment, followed by Project B.

Project A experiences a loss on its investment.

Calculation for net present value (NPV):

Discount rate of return: 20% and 3% inflation discount rate so total 23%.

Project A

NPV = $254,740.67

Project B

NPV = $77,302.06

Project C

NPV = $55,713.93
Calculation for the internal rate of return (IRR)

Project A

NPV=48,543.69+23,553.25+320,281.45−500,000= −107,621.61

The IRR is the rate that makes NPV equal to zero. For Project A, since NPV is
negative, the IRR is approximately (-5.80%).

Project B

NPVB=72,815.53+70,715.58+68,625.42+44,417.46−250,000= +6,573.99

The IRR is the rate that makes NPV equal to zero. For Project B, the IRR is
approximately (+4.16%).

Project C

NPV=14,563.11+23,553.25+45,750.28+44,417.46+129,434.80−75,000=
+182,718.9
The IRR is the rate that makes NPV equal to zero. For Project C, the IRR
calculated previously is approximately (+44.04%).

Conclusion:

A thorough financial analysis suggests that Project C is the most promising

investment. It exhibits the highest Net Present Value ( NPV) and Internal
Rate of Return (IRR), indicating superior profitability and return
(ROR). Furthermore, its Return on Investment (ROI) is considerably higher
than the other projects, short payback period (PP) signifying a more efficient
allocation of resources.

B. Expected time of each activity and variance for each

activity:

 Activity ( A ) = 2+4 (4) +6 / 6 = 2+16+6 / 6 = 24/6 = 4 days

 Activity ( B ) = 3+4(6) +9 / 6 = 3+24+9 / 6 = 36 / 6 = 6 days
 Activity ( C) = 2+4(5)+11 / 6 = 2+20+11 / 6 = 33 / 6 = 5.5 days
 Activity ( D ) = 2+4 (10)+12 /6 = 2+40+12 / 6 = 54 / 6 = 9 days
 Activity ( E ) = 4+4(8)+15 / 6 = 4+32+15 / 6 = 51 / 6 = 8.5 days
 Activity ( F ) = 2+4(4)+12 / 6 = 2+16+12 / 6 = 30 / 6 = 5 days
 Activity ( G ) = 3+4(4)+11 / 6 = 3+16+11 / 6 = 30 / 6 = 5days
 Activity ( H ) = 1+4(1)+1 / 6 = 1+4+1 / 6 = 6 / 6 = 1 day

Variance calculation:

 Activity A = (6-2/6)2=0.444
 Activity B = (9-3/6)2=1
 Activity C = (11-2/6)2=2.25
 Activity D = (12-2/6)2=2.78
  Activity E = (15-4/6)2=3.36
 Activity F = (12-2/6)2=2.78
 Activity G = (11-3/6)2=1.78
 Activity H = (1-1/6)2=zero

Activity Predecessors Expected Time Variance (σ²)

(TE)
A -- 4 days 0.444
B A 6 days 1
C A 5.5 days 2.25
D -- 9 days 2.78
E C, D 8.5 days 3.36
F B, E 5 days 2.78
G D 5 days 1.78
H F, G 1 day 0

Activity Optimist Most Pessimist Expected Variance

ic (a) Likely ic (b) Time (te)
(m)
A 2 4 6 4 0.444
B 3 6 12 6 1
C 4 5.5 8 5.5 2.25
D 7 9 13 9 2.78
E 6 8.5 12 8.5 3.36
F 4 5 8 5 2.78
G 3 5 8 5 1.78
H 1 1 1 1 0

C. PERT netwrok for this project

Activity A is the intial start for the project

Activity D has no predecessors and stats indpendently

Activity B & C depend on activity A

Activity E depending on activity D & C

Activity F depends on activity E & F

Activity G depends on activity D

Activity H depending on activity G & F

Path 1: A  B  F H

 Total Duration: (4+6+5+1)=16 days

 Total Variance: (0.444+1+2.78+0)=4.224

Path 2: A  C E F H

 Total Duration: (4+5.5+8.5+5+1)=24 days

 Total Variance: (0.444+2.25+3.36+2.78+0)=8.834

Path 3: D E  F H
  Total Duration: (9+8.5+5+1)=23.5 days

 Total Variance: (2.78+3.36+2.78+0)=8.92

Path 4: D G  H

 Total Duration: (9+5+1)15 days

 Total Variance: (2.78+1.78+0)=4.56

By comparing the total durations of these paths, we can identify the critical
path and the second-most critical path.

 Critical Path: A C E F H (24 days)

 Second-Most Critical Path: D  E  F H (23.5 days)

D.Evaluation Impact of delaying activity D

The longest critical path for the project is: A C E F H with total
duration of 24 days so if any delay happened for any other activity will
lead to delay the all-project duration.

Regarding to activity D its not the crtical path for the project it lies on path
3 or 4. The original duration for Activity D is 9 days and after 3 days of
earthquack delay,the New critical path is D EF  H, and the new
duration is 24.5 days.

E. Propability of finishing the project within 22days and if

it will take longer than 28days.
V^2=8.83-→ α=√(V^2=) √8.83 = 2.97153

As per Z matrix: the project will be complete with 24 days for

99.85%.

 For the probability of finalizing the project in 22 days:

Z= x-M/α

Z= (24-22)/2.97153 = 2/2.97153 = 0.673054

According to the Z table: it is equal to 0.7486 = 74.86% to complete the

project in (22 days).

 For the probability of finalizing the project in (28 days):

Z= x-M/α

Z= (24-28)/2.97153 = (-4/2.97153 )= -1.34611

According to the Z table: it is equal to 0.0901 = 9.01% to complete the

project in (28 days).
F. Crashing activity

Activity Crash Time Cost per

Day

A Not possible -

B 3 days $200/day

C Not possible -

D Not possible -

E 5 days $300/day

F 2 days $500/day

G Not possible -

H Not possible -

**Critical path is A C E F H

**The only activities we can crash on the critical path are (E & F). activity E
by five days and activity F by two days as showen in the previous table.

**To expedite the project, it would be more beneficial to reduce the duration
of Activity (E) by five days. Compared to Activity (F), shortening (E) offers a
more significant reduction in project time at a lower cost per day.

So, the cost of crashing activity B = (3*200)=$600

the cost of crashing for activity E = (5*$300)=$1,500

The cost of crashing Activity F= (2*$500)= $1,000

Conculsion:

Activity (F) best optimal activity to be crashed since it cost ($1,000) for the
project.
G.Calculation for ES,EF,LS,and LF
Slack= LS-ES

Slack= LF-EF

**Slack is zero because the critical path is zero.

Predecesso
Activity Slack Critical
rs
ES EF LS LF LS-ES Path
A -- 0 4 0 4 0 YES
B A 4 10 12 18 8 NO
C A 4 9.5 4 9.5 0 YES
D -- 0 9 0.5 9.5 0.5 NO
E C,D 9.5 18 9.5 18 0 YES
F B,E 18 23 18 23 0 YES
G D 9 14 18 23 9 NO
H F,G 23 24 23 24 0 YES

H.Gantt chart
I.

Negotiating for Effective Project Crashing

Expediting activities on the critical path, the sequence of tasks that

determines the project's overall duration, often necessitates skillful
negotiation to balance time constraints and cost considerations. A structured
approach, encompassing strategic planning, effective communication, and
collaborative problem-solving, is essential for achieving successful outcomes
in these negotiations. The following guide outlines the key
stages, steps, strategies, tactics, and concepts to consider when negotiating
project crashes.

Negotiation Stages and Steps

The negotiation process typically involves several distinct stages, as outlined
below:

a. Preparation Stage

This initial stage is crucial for laying the groundwork for effective
negotiations. Thorough preparation involves gathering relevant
information, understanding the needs and expectations of stakeholders, and
developing a well-informed negotiation strategy.

 Define Objectives: Clearly articulate the specific goals for the

negotiation, such as reducing project duration or minimizing costs.

 Understand Constraints: Identify any limitations or restrictions that

may impact the negotiation process, such as budget
constraints, inflexible deadlines, or limited resource availability.

 Prioritize Activities: Focus on activities that are critical to the

project's overall timeline. By prioritizing these activities, you can
ensure that any negotiations are directed toward areas that will have
the most significant impact on project completion.

b. Information Exchange

During this stage, both parties actively share information regarding their
respective needs, constraints, and expectations.

 Present Facts: Provide compelling evidence to support your proposed

actions. This may include data on the cost of crashing activities, the
potential time savings, and the overall benefits that these changes will
bring to the project.

 Understand Counterparty's Position: Actively listen to the concerns and

perspectives of other stakeholders involved in the negotiation
process. This will help you identify potential obstacles and develop
strategies to address them effectively.

c. Bargaining

The bargaining stage is where the majority of negotiation takes place, and
parties often make concessions to arrive at a mutually acceptable
agreement.
  Offer Proposals: Propose creative solutions that involve trade-offs, such
as crashing one activity in exchange for additional resources or cost
savings in another area.

 Seek Win-Win Solutions: Strive for outcomes that benefit both the
project and the stakeholders involved. Avoid approaches that favor
one party over another, as such tactics can lead to resentment and
hinder long-term collaboration.

d. Closing the Negotiation

Once a mutually agreeable solution is reached, the negotiation process

concludes with the finalization of agreements and a commitment from both
parties to adhere to the new schedule or terms.

 Document Agreements: Clearly document all agreed-upon

activities, deadlines, and cost implications. This ensures that there is a
shared understanding and a clear record of the negotiation outcomes.

 Set Monitoring Mechanisms: Implement a system for tracking progress

and monitoring adherence to the negotiated terms. This helps ensure
that the agreed-upon actions are carried out as planned and any
necessary adjustments can be made promptly.

2. Negotiation Strategies

When negotiating to crash project activities, adopting the following

strategies can enhance your chances of achieving favorable outcomes:

a. Integrative Negotiation (Win-Win Approach)

Prioritize solutions that benefit all parties involved. For example, consider
reducing the duration of a critical activity by strategically allocating
additional resources in a manner that minimizes significant cost
increases. This approach fosters collaboration and ensures that the project's
objectives are met without undue financial burdens.

b. Distributive Negotiation (Win-Lose Approach)

Distributive negotiation is appropriate in situations where resources are

limited and a gain for one party often results in a loss for another. For
example, when faced with tight budget constraints, you may need to
negotiate for fewer resources allocated to non-critical activities in order to
free up funds for critical tasks. This approach involves a more competitive
bargaining process where parties aim to maximize their own share of limited
resources.

c. Collaborative Negotiation

Collaborative negotiation is a problem-solving approach that encourages

both parties to work together towards a mutually beneficial solution for
accelerating the project schedule while minimizing cost increases. This
involves open and honest discussions about constraints, challenges, and
potential opportunities for resource reallocation. By fostering a collaborative
environment, parties can explore creative options and identify solutions that
address the needs of all stakeholders.

3. Tactics to Use in Negotiation

When negotiating to crash project activities, consider employing the

following specific tactics:

a. Trade-offs

Propose strategic reallocations of resources, shifting them from non-critical

activities (which have more flexibility) to critical tasks. This approach can
help accelerate the project timeline without necessitating additional
funding. By identifying activities that can be delayed or scaled back, you can
free up resources for critical tasks and maintain the overall project schedule.

b. Cost Sharing

Consider negotiating with stakeholders, such as suppliers or contractors, to

share the additional costs associated with crashing activities. If these
stakeholders have a vested interest in the timely completion of the
project, they may be willing to contribute to the increased expenses. This
approach can help alleviate the financial burden on your organization and
facilitate the implementation of necessary changes.

c. Time-Constrained Tactics

When negotiating project crashes, emphasize the critical importance of

meeting the project deadline. Clearly articulate the potential consequences
of missing the deadline, such as financial penalties, loss of client trust, or
reputational damage. By highlighting the negative repercussions, you can
increase stakeholder awareness and motivation to support the necessary
changes, even if they involve additional costs.

d. Multi-Issue Bargaining

Consider negotiating multiple issues simultaneously, such as time, cost, and

resource allocation. This approach can help identify trade-offs and find
mutually beneficial solutions. For example, stakeholders may be more willing
to accept increased costs if it results in significant time savings, or vice
versa. By addressing multiple issues concurrently, you can optimize the
overall project outcome and ensure that all stakeholders' interests are
considered.

4. Key Concepts for Crashing the Project

a. Time-Cost Trade-off

Crashing activities typically involves reducing their duration at an additional

cost. It is essential to evaluate each activity on the critical path to determine
the potential time savings and associated costs. Prioritize activities that offer
the greatest reduction in time for the least expense.

b. Resource Allocation

Consider reallocating resources from non-critical path activities to critical

path activities. Non-critical path activities often have flexibility in their
timelines and can accommodate delays without impacting the overall project
schedule. By strategically shifting resources from less critical tasks, you can
allocate them to critical activities and accelerate their completion.

c. Marginal Cost of Crashing

For each activity, calculate the marginal cost of crashing, which represents
the additional cost incurred for each unit of time saved. Prioritize crashing
activities with the lowest marginal cost, as these offer the most efficient use
of resources and minimize overall expenses.

d. Slack

Slack refers to the flexibility or leeway available in scheduling an

activity. Activities on the critical path have zero slack,meaning any delays in
these activities will directly impact the overall project completion date. To
expedite the project,you can negotiate to utilize the slack in non-critical
activities, freeing up resources that can be allocated to critical tasks.

e. Critical Path Management

Crashing activities on the critical path is the only effective way to shorten
the project duration. However, it is essential to regularly reassess the critical
path as crashing certain activities may alter the sequence of critical
tasks. This ongoing evaluation ensures that resources are allocated
efficiently and that the project remains on track.

5. Key Considerations

Feasibility: Evaluate the feasibility of crashing each activity, considering

technical limitations and the availability of human resources. Some activities
may not be suitable for acceleration due to practical constraints.

Cost vs. Benefit: Carefully assess the costs associated with crashing
activities and compare them to the potential benefits of early project
completion. Consider factors such as avoiding financial penalties, gaining
bonuses, or improving customer satisfaction.

Stakeholder Buy-In: Gaining the support of all stakeholders is crucial for

the success of negotiations, especially when changes involve reallocating
resources or budgets. Ensure that all parties understand the rationale for
crashing activities and are committed to supporting the necessary
adjustments.

J.

The most effective organizational structure for a project depends on its

scale, complexity, and the degree of cross-functional collaboration required.
Below are recommended approaches for organizational design and
departmentalization.

A matrix organizational structure is the most appropriate approach for this

project. By combining elements of functional and project-based designs, this
structure offers flexibility and efficient resource allocation. The following are
key benefits of a matrix structure:

 Optimal Resource Utilization: Resources from various functional

areas are shared across projects, minimizing redundancy.

 Enhanced Collaboration: Teams composed of members from

different departments foster knowledge sharing and collaboration.

 Improved Communication: The matrix structure encourages

communication across departments, which is crucial for project
success.

 Focused on Project Goals: Project managers have the authority to

ensure that project objectives (time, cost, and quality) are
prioritized.”*

In a matrix structure, employees have dual responsibilities:

 Functional Managers oversee the professional development and

career growth of employees within their respective functional areas.

 Project Managers are accountable for ensuring that projects are

completed on time and within budget.”*

Matrix structures vary in terms of the balance of power between project and
functional managers. In a weak matrix, functional managers have more
control. In a balanced matrix, authority is shared equally. In a strong matrix,
project managers have greater authority. For this project, I recommend a
balanced matrix structure. This approach allows project managers to
make decisions while ensuring that functional departments maintain control
over their resources and areas of expertise.

Recommended Departmentalization (Functional

Departmentalization)

Functional departmentalization is the most suitable approach for organizing

departments and teams in this project. This method involves grouping
employees based on their specialized functions and areas of expertise, such
as engineering, finance, marketing, or procurement.

Advantages of Functional Departmentalization

Functional departmentalization offers several benefits, including:

 Specialization: Grouping employees with similar expertise promotes

specialization and deep knowledge within their respective fields.

 Clear Authority: Functional managers have well-defined authority

and responsibilities, reducing ambiguity and confusion within the
organization.

 Efficient Resource Allocation: Specialized resources can be

assigned to projects based on their expertise, ensuring that tasks are
handled by qualified individuals. For instance, engineers can focus on
design work, while finance professionals can handle budgeting and
cost analysis.

Functional Departments in the Project

Given the nature of the project, the following functional departments should
be established:

 Project Management Department: Responsible for overseeing the

overall project, managing timelines, assessing risks, and coordinating
with stakeholders.

 Engineering/Technical Department: Focused on the technical

aspects of the project, including design,construction, or product
development.

 procurement and Supply Chain Department: PrResponsible for

acquiring materials, equipment, and services required for the project.

 Finance and Budgeting Department: Overseeing financial

matters, including budgeting, cost tracking,forecasting, and resource
allocation.

 Quality Assurance Department: Ensuring that all project

deliverables meet the required quality standards and specifications.

3. Integration Between Matrix and Functional Departmentalization

By combining the Matrix Structure with Functional Departmentalization, you

can achieve the following benefits:
 Enhanced Communication: The matrix structure facilitates close
collaboration between functional experts and project
managers, ensuring that critical issues, such as technical
challenges, procurement delays, or budget overruns, are addressed
promptly.

 Improved Accountability: While functional managers maintain

oversight of their respective departments, the project manager plays a
crucial role in ensuring that all departments are aligned with the
project's overall objectives and goals.

 Optimized Resource Allocation: The matrix structure enables

efficient allocation of resources across different functional departments
based on the specific needs of the project. This flexibility allows for
reallocation of resources if necessary to meet critical deadlines or
address emerging challenges.