Unit II: Project

Planning
Introduction to Project Planning
Definition
• The process of setting out all the steps, resources, and timelines needed to achieve a project’s goals.

Purpose
• To guide the team from concept to completion efficiently.

Key Elements
• Scope, schedule, budget, quality, resources, risks.

When It Happens
• After project initiation but before execution begins.

Benefits
• Reduces uncertainty, aligns stakeholders, provides control points.

Example
• Planning a college fest by listing events, booking venues, assigning tasks, and setting a budget.
Why Planning Matters
Reduces Risk – Early identification of threats allows for proactive mitigation (e.g., shifting an outdoor event indoors if
rain is forecast).

Improves Coordination – Maps dependencies and ensures tasks flow in the right order to avoid bottlenecks.

Controls Costs – Prevents overruns by linking budgets to specific activities and deliverables.

Ensures Quality – Defines quality standards and processes before work starts, reducing rework.

Builds Confidence – Sponsors and stakeholders are more likely to commit resources when they see a realistic plan.

Example – A marketing campaign with an unclear plan overshoots ad spend; a well-planned one uses a fixed budget
per channel.
 Definition:

• A Project Charter is a formal document that authorizes the project, assigns

the project manager, and outlines key project information.

Purpose:

• Grants authority to the project team

Aligns stakeholders on scope, time, cost, and objectives

• Serves as a reference for future decisions

What is a Key Elements:

Project Charter? • Project Title & Sponsor Name

• Objectives & Business Rationale
• Scope Summary – What the project will and will not include
• High-Level Timeline & Budget Limits
• Project Manager Authority Level
• Key Stakeholders and Roles
• Constraints & Assumptions
• Approval Signatures – Sponsor, Project Manager

Note

• The charter is not a detailed plan but the foundation for planning efforts
• Treat the Charter as a contract—it minimizes oversight and clarifies when
reauthorization is needed if constraints are breached
How to Prepare a Project Charter
Identify Stakeholders: Understand who benefits from or is impacted by the project.

Define the Problem/Opportunity: Clarify the issue being addressed and its strategic importance.

Develop Objectives & Benefits: Outline measurable outcomes aligned with organizational goals.

Use Work Breakdown Structure (WBS) for scope; rough estimates

Establish Scope, Time, and Cost Estimates: for cost/time.

Appoint the Project Manager: Clearly define the PM’s role and authority.

Document Assumptions, Constraints, Risks: Highlight known risks and limitations.

Get Signatures and Approval: Formal authorization by the sponsor and key stakeholders.
 • Definition – A hierarchical structure that breaks the
total scope into smaller, manageable deliverables and
work packages.
• Purpose – Helps plan, assign, monitor, and control
work effectively.
• Structure – Level 1 is the project, Level 2 contains
Understanding major deliverables, Level 3+ contains progressively
smaller work packages.
WBS • Focus on Deliverables – WBS answers “What will be
delivered?”, not “How will it be done?”.
• Integration Role – Links directly to scheduling,
budgeting, and resource allocation processes.
• Example – College Fest: Level 1: Fest Management →
Level 2: Venue, Marketing, Events, Logistics → Level 3
(Marketing): Posters, Social media ads, Sponsorships.
 Review Scope – Start from the scope statement
and approved deliverables.

Steps to
Identify Major Deliverables – Group work into
logical categories (e.g., "Infrastructure Setup").

Decompose into Work Packages – Break down

Create
until each package is measurable and assignable.

Assign Codes – For tracking in cost and schedule

WBS
systems.

Validate Completeness – Cross-check with

stakeholders to ensure nothing is missed.

Example – Wedding Planning → Catering → Menu

Selection → Vendor Booking.
 Definition
•Activities are the specific, actionable steps required to complete a WBS work package.
•While a WBS defines what must be delivered, activities explain how each deliverable will be achieved.
•Activities are the lowest-level elements in the project schedule and form the basis for sequencing and duration
estimation.
Relationship to WBS
•Once the WBS is complete, each work package is decomposed into activities.
•For example, if the WBS contains “Stage Setup” as a work package, activities may include “Install Backdrop,” “Set up
Lighting,” and “Test Sound System.”
•These activities together complete the work package.

From
Activity Attributes
•Each activity should have:
•A clear start and end date.
•Assigned resources or responsible individuals.
•Defined inputs (materials, equipment) and outputs (finished tasks).

WBS to
•Dependencies on other activities.
•These attributes are captured in an Activity List and Activity Attributes Register.

Responsibility Assignment
•Each activity is linked to a person or team via a Responsibility Assignment Matrix (RAM) or RACI chart (Responsible,
Accountable, Consulted, Informed).
•This ensures accountability and reduces confusion.

Activities
5. Importance in Planning
•Activities are the building blocks of the schedule and cost estimates.
•Accurately defining them improves duration estimates, cost forecasts, and resource allocation.
•Mis defined activities can cause missed deadlines or cost overruns.
6. Example
•WBS Element: Marketing → Social Media Campaign → Posting Schedule
•Activities:
•“Prepare weekly content plan”
•“Upload posts to scheduling tool”
•“Review analytics and adjust posting times”
•Each of these activities are small, measurable, and assigned to a specific team member.
 • Definition
• Activity sequencing is the process of determining the logical order in which project activities should be
performed. It defines the relationships and dependencies between tasks, ensuring work flows efficiently without
delays or conflicts.
• Purpose
• Sequencing prevents resource clashes, reduces idle time, and ensures critical tasks happen before dependent
Activity Sequencing activities. A well-sequenced schedule also makes it easier to identify the Critical Path, which determines the
project’s overall duration.
• Types of Dependencies
• Finish-to-Start (FS): Task B starts only after Task A finishes (e.g., you can’t decorate the stage until it’s built).
• Start-to-Start (SS): Task B can start when Task A starts (e.g., ticket sales and advertising may begin together).
• Finish-to-Finish (FF): Task B finishes only when Task A finishes (e.g., proofreading ends when writing ends).
• Start-to-Finish (SF): Rare; Task B cannot finish until Task A starts.
• Tools for Sequencing
• Precedence Diagram Method (PDM): Uses nodes and arrows to visualize dependencies.
• Arrow Diagramming Method (ADM): Uses arrows to represent tasks and connections.
• Gantt Charts: Timeline-based tool for displaying sequence and overlaps.
• Considerations
• Resource availability: Ensure no team is overloaded.
• External constraints: Approvals, permits, supplier schedules.
• Lead and lag times: Add gaps or overlaps for efficiency.
• Example
• WBS Element: Venue → Decoration
• Sequence:
• Complete stage structure (FS).
• Install lighting (FS from stage structure, SS with sound setup).
• Hang banners and set seating (FS from lighting).
Estimating
Duration
 • Definition
• Cost estimation is the process of developing an approximate monetary value for the resources needed to complete
project activities. This includes labour, materials, equipment, services, and other expenses directly or indirectly tied to
the project.
• Purpose
• Accurate cost estimates ensure realistic budgeting, help secure necessary funding, and support decision-making.
Underestimating costs can cause budget overruns, while overestimating can tie up unnecessary funds and reduce
project ROI.
• Inputs Required
• Scope Baseline (WBS, WBS Dictionary, Scope Statement).
• Resource Requirements (type, quantity, cost rates).
• Vendor Quotes and Supplier Price Lists.
• Historical Data from similar projects.
• Risk Register (possible cost impacts).

Estimating
• Organizational Cost Policies and Market Conditions.
• Estimation Techniques
• Expert Judgment: Based on specialist experience.

Cost
• Analogous Estimating: Using actual costs from similar past projects.
• Parametric Estimating: Using a unit rate × quantity formula (e.g., ₹500 per seat × 200 seats = ₹100,000).
• Bottom-Up Estimating: Summing costs from the smallest work package level.
• Reserve Analysis: Adding contingency for identified risks and management reserve for unknowns.
• Factors Affecting Costs
• Market price fluctuations.
• Currency exchange rates (for imported materials).
• Resource skill levels and labour rates.
• Logistics and transportation costs.
• Inflation and seasonal demand changes.
• Example
• Activity: Printing Posters
• Quantity: 500 posters.
• Unit Cost: ₹10/poster.
• Total Direct Cost: ₹5,000.
• Contingency Reserve (10%): ₹500.
• Total Estimated Cost: ₹5,500.
 • Definition
• Manpower planning is the process of ensuring that the project has the right
number of people, with the right skills, available at the right time to complete all
activities efficiently. It bridges the gap between project resource needs and actual
human resource availability throughout the project lifecycle.
• Role in Project Success
• Human resources are often the largest single cost in a project and the most critical
driver of performance. Proper manpower planning ensures that work packages in
the WBS have assigned owners, deadlines are achievable, and quality standards
can be met without overburdening the team.
• Alignment with WBS and Schedule
• The WBS identifies what needs to be delivered; manpower planning determines
who will do it and when. By integrating manpower planning with the schedule,

Manpower resource conflicts are avoided and workload is balanced.

• Skill Matching and Resource Profiling

Planning • Different phases require different skills — for example, in a college fest, creative
roles (marketing, design) are needed early, technical roles (stage setup, lighting)
are needed closer to event day, and administrative roles (finance, reporting) peak
post-event. Skill mapping ensures each task has a competent performer.
• Resource Levelling and Smoothing
• Levelling: Adjusting schedules so no resource is over-allocated, even if it extends
the project duration.
• Smoothing: Adjusting resource allocation within existing schedule limits to avoid
peaks and troughs in workload.
• Example
• In a college fest:
• Technical volunteers scheduled for stage setup two days before the event.
• Marketing students focus on promotions one month before.
• Finance team handles budget reconciliation after the event.
 Identify Project Skill Requirements

•Begin with the WBS and scope statement to determine the skills needed for each work package. Categorize them into technical,
managerial, creative, and support skills. This ensures all competency areas are covered before resource assignments begin.

Prepare a Resource Breakdown Structure (RBS)

•The RBS is a hierarchical representation of resources by category and type. It helps visualize the workforce composition — for
example: Event Managers → Stage Crew → Lighting Technicians. This links directly to specific WBS elements.

Match Resources to Activities

Steps in
•Using the activity list and RBS, assign resources with the right skills to the right tasks. Consider both full-time and part-time
availability, as well as shared resources between projects. Use tools like a Responsibility Assignment Matrix (RAM) or RACI chart
to clarify accountability.

Manpower
Resolve Resource Conflicts

•Identify where multiple tasks require the same resource simultaneously. Apply resource leveling (adjust task dates) or resource
smoothing (spread workload without affecting the critical path). This prevents burnout and delays.

Planning
Adjust for Peak Workload Periods

•Projects often have periods of intense activity. Plan for additional temporary staff, volunteers, or overtime during these phases to
avoid last-minute scrambling. For example, more manpower might be needed in the week leading up to a major college fest
performance.

Monitor and Revise the Plan

•Manpower planning is not a one-time task. Regularly review resource assignments against progress, adjusting if someone becomes
unavailable or if task durations change. Keep the resource calendar updated to reflect actual availability.

Example:

•In a college fest:

•Assign marketing team to pre-event promotions (October–November).
•Assign technical team to stage setup (event week).
•Assign finance team to close accounts (post-event).
 • Definition
• Project quality planning is the process of identifying the quality standards relevant to the project and determining
how to meet them. It ensures deliverables satisfy stakeholder requirements and comply with applicable regulations,
industry norms, or organizational standards.
• Purpose
• Quality planning focuses on preventing defects rather than detecting them later. It integrates quality considerations
into every stage of the project so that rework, delays, and cost overruns are minimized.
• Key Components
• Quality Standards: Benchmarks to be met (e.g., safety certifications, design aesthetics).
• Quality Metrics: Measurable parameters to assess deliverable quality (e.g., print resolution, stage lighting lux
levels).
• Quality Checklists: Standardized lists for ensuring critical steps are not missed.
• Process Standards: Documented methods for consistent performance (e.g., event setup procedures).

Project Quality • Quality Management Plan

• The quality plan is part of the Project Management Plan and includes:

Planning
• Roles and responsibilities for quality assurance (QA) and quality control (QC).
• Tools and techniques for quality verification.
• Timing and frequency of inspections.
• Procedures for addressing non-conformance.
• Integration with Other Plans
• Quality planning must be aligned with:
• Scope Plan: Ensures deliverables match agreed specifications.
• Schedule Plan: Includes time for inspections and approvals.
• Cost Plan: Budgets for quality activities like testing and audits.
• Example
• In a college fest:
• Quality Standard: “Stage must support a 2-ton load.”
• Quality Metric: “Sound clarity must be ≥ 90% intelligibility at 30m distance.”
• QA Process: Technical rehearsal two days before event.
• QC: Final inspection of lighting, sound, and safety barriers before opening ceremony.
 Purpose of Tools in Quality Planning
• Quality planning tools help project managers and teams design processes that prevent defects, meet standards, and deliver
outputs aligned with stakeholder expectations. These tools are applied during the planning stage to define, measure, and
monitor quality parameters before execution begins.

Checklists
• A checklist is a predefined list of steps or requirements to be completed before a deliverable is accepted.
• Use: Ensure critical quality requirements are not overlooked.

Project
• Example: Pre-event checklist for a college fest might include sound test, lighting alignment, stage safety verification, and
sponsor banner placement.

Benchmarking

Quality
• Benchmarking compares current project plans or processes against best practices or previous successful projects.
• Use: Helps identify performance gaps and improvement opportunities.
• Example: Comparing marketing outreach for the current fest with last year’s campaign to set better engagement targets.

Planning
Cause-and-Effect (Ishikawa/Fishbone) Diagram
• Visually maps possible causes of quality issues, grouped into categories like manpower, methods, materials, and environment.
• Use: Identifies root causes of potential defects before they occur.
• Example: Analysing why stage rehearsals in past fests faced delays (e.g., late performer arrival, missing equipment).

Flowcharts
• A diagram that maps process steps and decision points, helping identify where errors can occur.
• Use: Clarifies workflows and highlights quality checkpoints.
• Example: Mapping the ticket booking process to identify steps that could cause booking errors or delays.

Control Charts
• Statistical tools that show process variation over time and help determine if a process is within acceptable limits.
• Use: Detects trends that may lead to defects.
• Example: Tracking audience entry times at the fest to identify delays and improve future crowd management.
 Definition
• The Organisation Breakdown Structure (OBS) is a hierarchical model that depicts the project’s
reporting relationships and the organizational units responsible for each portion of the project work.
It is the human resource counterpart to the Work Breakdown Structure (WBS).

Purpose
• The OBS links people to work. It ensures that every work package in the WBS is assigned to a
responsible organizational unit, facilitating accountability and communication.
Structure
• Top Level: Overall project management (e.g., Project Steering Committee).
• Mid-Level: Functional or departmental groupings (e.g., Marketing, Logistics, Finance).

Organisation
• Lower Level: Individual roles or sub-teams (e.g., Social Media Team, Stage Crew).
This mirrors the WBS so that for every deliverable, there is a responsible organizational entity.

Benefits
Breakdown • Clarifies who is responsible for what.

Structure
• Improves coordination between teams.
• Supports resource allocation and workload balancing.
• Helps track performance at the organizational-unit level.
Example – College Fest OBS
• Level 1: Fest Organizing Committee.
• Level 2: Marketing Team, Venue & Logistics Team, Event Coordination Team, Finance Team.
• Level 3: Under Marketing – Social Media Subcommittee, Sponsorship Subcommittee; Under Logistics
– Security Team, Transport Team.

Link to Responsibility Assignment Matrix (RAM)

• The OBS is often combined with the WBS in a RAM to create a matrix view showing which
organizational unit is responsible (R), accountable (A), consulted (C), or informed (I) for each WBS
element.
 Top-Level Structure

• Fest Steering Committee – Provides overall direction, approves budgets, and

resolves escalated issues.
• Project Manager (chief coordinator) – Oversees all teams, ensures alignment
with the WBS, monitors progress, and reports to the steering committee.

Middle-Level Structure

• Marketing Department – Responsible for promotions, sponsorships, and public

Organisation
engagement.
• Venue & Logistics Department – Handles venue booking, decoration,
equipment, and catering.

Breakdown
• Events Department – Plans and executes competitions, main stage events, and
workshops.
• Finance Department – Manages budgeting, payments, and financial reporting.
• Security & Safety Unit – Ensures event safety, emergency planning, and crowd

Structure
control.

Lower-Level Structure

(Example)
• Marketing – Social Media Team, Graphic Design Team, Sponsorship
Subcommittee.
• Venue & Logistics – Decoration Team, Seating & Lighting Crew, Catering Unit.
• Events – Main Stage Crew, Competition Organizers, Workshop Facilitators.
• Finance – Cashiers, Accounts Reconciliation Team.

OBS–WBS Link

• For example, in the WBS:

• 1.2.1 Social Media Campaign → Linked to Marketing → Social Media Team
in the OBS.
• 1.4.3 Catering → Linked to Venue & Logistics → Catering Unit in the OBS.
 Fest Marketing Logistics Event Finance Sponsorship
WBS Element / Task
Director Lead Lead Coordinator Manager Manager

1.1 Venue Booking A C R I I I

1.1.2 Decoration A C R I I I

Legend: 1.1.3 Seating & Lighting A I R C I I

R (Responsible): Does the 1.2.1 Social Media

work to complete the task. Campaign
A R I I I C

A (Accountable): 1.2.2 Posters A R I I I C

Ultimately answerable for 1.2.3 Sponsors A C I I I R

the task’s success, 1.3.1 Main Stage

Events
A I C R I I

approves work. 1.3.2 Competitions A I I R I I

C (Consulted): Provides 1.3.3 Workshops A I I R I I

input, expertise, or 1.4.1 Equipment A I R C I I

guidance. 1.4.2 Security A I R C I I

I (Informed): Needs 1.4.3 Catering A I R C I I

updates on progress or 1.4.4 Transportation A I R C I I

decisions. 1.5.1 Planning &

Scheduling
A C C C I I

1.5.2 Budget Control A I I I R I

1.5.3 Risk
A C C C I I
Management

1.5.4 Quality Control A C C C I I

 Definition

• The Cost Breakdown Structure (CBS) is a hierarchical representation of the project’s

budget, showing how total costs are divided among deliverables, work packages, or cost
categories. It is often aligned with the WBS to enable precise cost tracking and control.

Cost Purpose

• The CBS ensures every cost element is accounted for and linked to a deliverable. This

Breakdown
enables detailed budgeting, accurate forecasting, and effective financial control
throughout the project lifecycle.

Structure

Structure • Top Level: Total project cost.

• Second Level: Major deliverables or phases (mirroring WBS Level 2).
• Third Level: Work packages or sub-deliverables (WBS Level 3).

(CBS)
• Lowest Level: Detailed cost items (materials, labour, services).

Integration with WBS

Basics • By aligning CBS codes with WBS codes, project managers can track actual costs against
planned costs for each deliverable. This supports Earned Value Management (EVM) and
variance analysis.

Benefits

• Improves cost visibility and accountability.

• Helps identify overspending early.
• Enables accurate financial reporting to stakeholders.
• Facilitates “what-if” analysis for budget changes.
 • 1.0 Fest Organization: ₹500,000 total budget.
• 1.1 Venue: ₹200,000
• Venue Booking: ₹120,000
• Decoration: ₹50,000
Example – • Lighting & Seating: ₹30,000
• 1.2 Marketing: ₹100,000
College Fest • Social Media: ₹40,000

CBS • Posters: ₹30,000

• Sponsorship Costs: ₹30,000
• 1.3 Events: ₹120,000
• Competitions: ₹50,000
• Main Stage Events: ₹50,000
• Workshops: ₹20,000
• 1.4 Logistics: ₹50,000
• 1.5 Project Management: ₹30,000
 • Definition of Project Budgeting
• Project budgeting is the process of aggregating cost estimates for individual activities or work
packages into an authorized cost baseline. This baseline serves as the benchmark for
measuring financial performance throughout the project.
Project Budgeting & • Purpose

Decision-Making • A well-prepared budget ensures that adequate funds are available when needed, prevents
overspending, and aligns project spending with organizational priorities and constraints. It is
also a decision-making tool to determine whether to proceed, modify, or cancel parts of the
project.
• Steps in Project Budgeting
• Estimate Costs: Use bottom-up, analogous, or parametric methods.
• Aggregate Costs: Combine estimates at work package and deliverable levels to create the total
project budget.
• Add Reserves: Include contingency reserves for known risks and management reserves for
unknowns.
• Obtain Approval: Secure sign-off from project sponsors or governing bodies.
• Establish the Cost Baseline: Lock in the approved budget for performance measurement.
• Decision-Making in Budget Management
• Project managers must make funding-related decisions throughout the project lifecycle:
• Cost-Benefit Analysis (CBA): Compare costs against expected benefits.
• Net Present Value (NPV) & Payback Period: For projects with financial returns.
• Make-or-Buy Decisions: Decide whether to perform work internally or outsource.
• Reallocation Decisions: Move funds between work packages if priorities shift.
• Example – College Fest
• Initial Budget: ₹500,000.
• Decision Point: Increase Main Stage Events budget by ₹20,000 to hire a better headline act,
funded by reducing decoration costs by ₹15,000 and logistics by ₹5,000.
• Justification: Expected audience increase of 25%, leading to higher sponsorship value next year.
 • Definition
• Cost-Benefit Analysis (CBA) is a decision-making technique that evaluates the financial
worthiness of a project, activity, or investment by comparing the total expected costs to the
total expected benefits (monetary and sometimes non-monetary).
• Purpose
• CBA helps determine whether a project should be approved, modified, or rejected. It
supports objective, evidence-based decisions by quantifying trade-offs between spending

Cost-Benefit
and value creation.
• Process Steps
• Identify Costs: Include direct (labour, materials) and indirect costs (overheads,

Analysis (CBA): administrative).

• Identify Benefits: Tangible (revenue increase, cost savings) and intangible (brand
reputation, customer satisfaction).

Comparing • Quantify in Monetary Terms: Assign monetary values to both costs and benefits, even for
qualitative outcomes if possible.

Costs Against
• Compare Totals: Calculate the Net Benefit = Total Benefits – Total Costs.
• Decision Rule: Proceed if Net Benefit is positive and aligns with strategic goals.

Expected
• Key Metrics Used in CBA
• Benefit-Cost Ratio (BCR): Benefits​ → A value > 1 indicates benefits outweigh costs.
Total Benefits
• BCR =

Benefits
Total Costs
• Net Present Value (NPV): Accounts for time value of money by discounting future
benefits and costs.
• Payback Period: Time taken for cumulative benefits to cover costs.
• Example – College Fest Decision
• Proposal: Increase social media campaign budget by ₹20,000.
• Expected Additional Benefit: ₹50,000 from higher sponsorship value due to increased
audience reach.
• BCR: 50,000 ÷ 20,000 = 2.5 → Strong justification to proceed.
• Intangible Benefit: Enhanced brand recognition for future events.
Item Description Year 1 Year 2 Year 3 Total
Costs
Software purchase & One-time license and
₹4,00,000 ₹0 ₹0 ₹4,00,000
licenses setup fees

Training Employee training cost ₹1,00,000 ₹20,000 ₹20,000 ₹1,40,000

Annual software
Maintenance & upgrades ₹50,000 ₹50,000 ₹50,000 ₹1,50,000
maintenance
Total Costs ₹5,50,000 ₹70,000 ₹70,000 ₹6,90,000
Benefits
Value of saved employee
Increased productivity ₹2,50,000 ₹2,75,000 ₹3,00,000 ₹8,25,000
hours
Fewer penalties &
Reduced project delays ₹1,50,000 ₹1,75,000 ₹2,00,000 ₹5,25,000
overtime
Extra revenue from
Improved client retention ₹50,000 ₹1,00,000 ₹1,25,000 ₹2,75,000
satisfied clients
Total Benefits ₹4,50,000 ₹5,50,000 ₹6,25,000 ₹16,25,000
Total Benefits – Total
Net Benefit ₹(-1,00,000) ₹4,80,000 ₹5,55,000 ₹9,35,000
Costs
Benefit–Cost Ratio Total Benefits ÷ Total
2.36
(BCR) Costs

Since BCR > 1 and total

net benefit is positive,
Conclusion
the project is financially
viable.
 • Definition
• Net Present Value (NPV) is the difference between the present value of cash inflows (benefits) and the
present value of cash outflows (costs) over the project’s life, discounted at a chosen rate of return. It
measures the profitability of a project in today’s money.
• Purpose
• Evaluates a project’s financial viability considering the time value of money.
• Helps choose between competing projects.
• A positive NPV indicates that the project is expected to add value to the organization.
• Formula 𝑛𝑛
Cash Inflow𝑡𝑡 − Cash Outflow𝑡𝑡
𝑁𝑁𝑁𝑁𝑁𝑁 = �
1 + 𝑟𝑟 𝑡𝑡
𝑡𝑡=0
• Where:
• t = time period

Net Present
• n = total number of periods
• r = discount rate (cost of capital or required rate of return)

Value (NPV)
• Key Points
• Positive NPV → Accept the project.
• Negative NPV → Reject the project.
• NPV considers both the magnitude and timing of cash flows.
• Example – College Fest Sponsorship Decision
• Initial investment: ₹5,00,000 (Year 0).
• Expected net cash inflows:
• Year 1: ₹2,50,000
• Year 2: ₹3,00,000
• Year 3: ₹2,00,000
• Discount rate: 10%
• Calculation:
−5,00,000 2,50,000 3,00,000 2,00,000
𝑁𝑁𝑁𝑁𝑁𝑁 = 0
+ 1
+ 2
+
1 + 0.10 1 + 0.10 1 + 0.10 1 + 0.10 3
𝑁𝑁𝑁𝑁𝑁𝑁 = −5,00,000 + 2,27,272.73 + 2,47,933.88 + 1,50,262.96
𝑁𝑁𝑁𝑁𝑁𝑁 = ₹1,25,469.57 Positive → Accept Project