Part 1: Project Evaluation (Is this project worth doing?
Project Evaluation is the process of collecting and analyzing information to determine if a project is
worthwhile. It's usually done in
Step 0 of project planning. Think of it as the "look before you leap" stage.
Why is Project Evaluation Important?
It helps answer crucial questions:
• What progress has been made?
• Did we achieve what we wanted to?
• Can we do better next time?
• Were the results worth the effort and money spent?
The Three Main Types of Assessment
To evaluate a project, you'll look at it from three angles: Strategic, Technical, and Economic.
1. Strategic Assessment
This checks if the project fits the
long-term goals of the organization. It's about the big picture.
• Programme Management: This is used for projects developed for use inside the
organization. It involves managing a group of related projects in a coordinated way to get
benefits you couldn't get by managing them separately. For example, a company might have
a "Go Digital" programme that includes separate projects for a new website, a mobile app,
and internal software upgrades.
• Portfolio Management: This is suitable for a software company that develops products for
other companies. The company manages a "portfolio" of projects and must ensure a new
project adds value and doesn't conflict with others.
2. Technical Assessment
This is a reality check. It evaluates if the proposed project is
technically possible with the hardware and software you have or can get.
3. Economic Assessment (Cost-Benefit Analysis)
This is all about the money. You compare the expected costs of the project with its expected
benefits to see if it makes financial sense.
• Costs:
o Development Costs: Salaries of the project team.
o Setup Costs: Hardware, software, staff training.
o Operational Costs: The costs to run the system after it's built.
• Benefits:
o Direct Benefits: Easily measured financial gains, like reduced salary costs from a new
automated system.
o Assessable Indirect Benefits: Gains from performance improvements, like a user-
friendly screen reducing errors.
o Intangible Benefits: Hard-to-measure benefits, like improved employee morale
leading to lower staff turnover.
Cost-Benefit Evaluation Techniques
These are methods to compare the financial viability of different projects.
• Net Profit: The simplest method. It's just the total income minus the total costs.
o Formula: Net Profit = Total Income - Total Costs
• Payback Period: The time it takes for a project's income to pay back the initial investment.
o Pro: It's simple to calculate.
o Con: It ignores the time value of money (money today is worth more than money
tomorrow) and any profits earned after the payback period.
• Return on Investment (ROI): This shows the net profitability of a project relative to how
much it cost.
o Formula: ROI=Total InvestmentAverage Annual Profit×100
o Where: Average Annual Profit=Total No. of YearsNet Profit
o Pro: Good for comparing the efficiency of different investments.
o Con: Like the payback period, it ignores the timing of cash flows.
• Net Present Value (NPV): This is a more advanced technique that accounts for the time
value of money. It calculates the current value of all future cash flows from a project by
using a discount rate (like an interest rate).
o Concept: A positive NPV means the project is expected to earn more than the
interest you'd get by just investing the money in a bank at the discount rate. A higher
NPV is better.
o Formula for the Discount Factor: DiscountFactor=(1+r)t1
▪ Where 'r' is the discount rate and 't' is the number of years.
Part 2: Step-Wise Project Planning
This is a structured, 10-step approach to planning a software project from start to finish.
• Step 0: Select Project
o This is the project evaluation phase we just discussed, where you check the project's
feasibility (technical, financial, etc.).
• Step 1: Identify Project Scope and Objectives
o Clearly define what the project is supposed to achieve.
o Identify all
stakeholders (anyone affected by the project) and their interests.
o Establish how everyone will communicate.
• Step 2: Identify Project Infrastructure
o See how the project fits with the company's strategic plans.
o Identify any technical standards (hardware/software) that must be followed.
o Decide on the project team's structure.
• Step 3: Analyse Project Characteristics
o Is the project
objective-driven (e.g., improve customer satisfaction by 10%) or product-driven (e.g., build a new
mobile app)?
o Identify high-level project risks.
o Choose a general software development lifecycle approach (like Waterfall or Agile).
o This is a good point to re-estimate the required effort and resources.
• Step 4: Identify Project Products and Activities
o List all the
products (or deliverables) the project will create.
o Create an
activity network, which is a diagram showing the tasks and the order they must be done in.
• Step 5: Estimate Effort for Each Activity
o Use
bottom-up estimating, where you estimate the smallest tasks first and add them up to get a total.
• Step 6: Identify Activity Risks
o For each activity, identify what could go wrong.
o Plan how to reduce these risks or what to do if they happen (contingency measures).
o Adjust your estimates to account for these risks.
• Step 7: Allocate Resources
o Assign people and equipment to tasks.
o Revise plans if you have resource constraints (e.g., not enough developers).
• Step 8: Review and Publicize Plan
o Check the quality of your plan.
o Document the plan and get everyone to agree on it.
• Step 9 & 10: Execute Plan / Lower-Level Planning
o As you execute the plan, you may need to repeat the planning process for smaller,
more detailed parts of the project.
Part 3: Project Management Methodologies (PMBOK vs. PRINCE2)
These are two popular frameworks that provide a structured approach to managing projects. They
are different in their philosophy.
PMBOK (Project Management Body of Knowledge)
• What it is: A guide and standard from the Project Management Institute (PMI) in the USA.
It's not a strict methodology but a collection of best practices, processes, and guidelines.
• Approach: Descriptive. It describes
what you should know, like tools and techniques, but doesn't tell you exactly how to apply them.
Think of it as a comprehensive encyclopedia for project managers.
• Focus: It heavily emphasizes the role of the Project Manager as the main decision-maker
and planner. It also covers "soft skills".
• Structure: Organized into 5 Process Groups:
1. Initiating
2. Planning
3. Executing
4. Monitoring & Controlling
5. Closing
PRINCE2 (PRojects In Controlled Environments)
• What it is: A process-based project management methodology from the UK. It's widely used
by government and international organizations.
• Approach: Prescriptive. It tells you
what to do, who should do it, and when. It's more like a detailed, step-by-step recipe.
• Focus: It emphasizes structure, control, and a strong business case. It defines roles for senior
management (the Project Board) and not just the project manager.
• Structure: Built on 7 Principles, 7 Themes, and 7 Processes.
o Key Principle Example: Every project must have a clear business justification.
o Theme Example: "Business Case" - ensuring the project remains desirable and
achievable.
o Process Example: "Managing Stage Boundaries" - reviewing each project stage
before moving to the next.
Key Differences Summarized
Feature PMBOK PRINCE2
prescriptive
Type A descriptive guide/standard A
methodology
"Here's what you should
Approach "Here's what you should know"
do"
The Project Board &
Focus The Project Manager
Business Case
More flexible; you choose the
Flexibility More rigid and structured
processes you need
Complexity More comprehensive and detailed Simpler and easier to learn
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Part 4: Contract Management
A project often involves legal agreements. Managing these is critical.
• What is a Contract? A legally binding agreement between two or more parties.
• What is Contract Management? The process of ensuring that all parties in a contract meet
their obligations to achieve the project's goals. A key reason for this is to
manage risk.
Essential Elements of a Valid Contract
For a contract to be legally valid, it must have:
1. Offer: One party proposes the deal.
2. Acceptance: The other party agrees to the offer.
3. Consideration: Something of value is exchanged (e.g., money for services).
4. Intention: Both parties intend for the agreement to be legally binding.
5. Capacity: The parties are legally able to enter a contract (e.g., they are not minors).
6. Legality: The purpose of the contract must be legal.
The Contract Management Lifecycle
This is the journey of a contract from beginning to end.
1. Procurement Stage: Planning and creating the contract.
2. Execution Stage: Signing and approving the contract.
3. Service Delivery Stage: The work is done, and you monitor performance.
4. Closing Stage: The contract is completed, and loose ends are tied up.
How to Solve the Financial Problems
Here are the main calculation types you need to know, with examples drawn directly from your
presentation.
1. Net Profit
What it is: The simplest measure of profitability. It's the total income from a project minus the total
costs over its entire life.
Example Problem: Calculate the net profit for Project 1, Project 2, and Project 3 from the table.
(Negative values are costs, positive values are income).
Year Project 1 Project 2 Project 3
0 -100,000 -1,000,000 -120,000
1 10,000 200,000 30,000
2 10,000 200,000 30,000
3 10,000 200,000 30,000
4 20,000 200,000 30,000
5 100,000 300,000 75,000
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Solution: You just add up all the numbers in each column.
• Project 1: -100,000 + 10,000 + 10,000 + 10,000 + 20,000 + 100,000 = 50,000
• Project 2: -1,000,000 + 200,000 + 200,000 + 200,000 + 200,000 + 300,000 = 100,000
• Project 3: -120,000 + 30,000 + 30,000 + 30,000 + 30,000 + 75,000 = 75,000
Conclusion: Based on net profit, Project 2 is the most profitable.
2. Payback Period
What it is: The length of time it takes for a project to earn back its initial investment. A shorter
payback period is generally better.
Example Problem: Using the same table, when does each project pay back its initial cost?
Solution: We track the cumulative cash flow year by year until it turns from negative to positive.
• Project 1 (Investment: 100,000):
o End of Year 1: -100,000 + 10,000 = -90,000 (still in debt)
o End of Year 2: -90,000 + 10,000 = -80,000
o End of Year 3: -80,000 + 10,000 = -70,000
o End of Year 4: -70,000 + 20,000 = -50,000
o End of Year 5: -50,000 + 100,000 = +50,000 (Payback achieved this year)
o Payback for Project 1 is during Year 5.
• Project 2 (Investment: 1,000,000):
o End of Year 1: -1,000,000 + 200,000 = -800,000
o ...after 5 years of 200,000 income, the debt is paid off.
o End of Year 5: -200,000 + 200,000 = 0.
o Payback for Project 2 is at the end of Year 5. (The final year's income of 300,000 is
profit).
• Project 3 (Investment: 120,000):
o End of Year 1: -120,000 + 30,000 = -90,000
o End of Year 2: -90,000 + 30,000 = -60,000
o End of Year 3: -60,000 + 30,000 = -30,000
o End of Year 4: -30,000 + 30,000 = 0
o Payback for Project 3 is at the end of Year 4.
Conclusion: Based on payback period, Project 3 is the best choice because it pays back the fastest.
3. Return on Investment (ROI)
What it is: A percentage that shows how much profit a project generates compared to its initial cost.
Example Problem: Calculate the ROI for Project 1.
Solution: Follow the two-step formula.
1. Calculate Average Annual Profit:
o Formula: Average Annual Profit=Total No. of YearsNet Profit
o Calculation: 5 years50,000=10,000 per year
2. Calculate ROI:
o Formula: ROI=Total InvestmentAverage Annual Profit×100
o Calculation: 100,00010,000×100=10%
Conclusion: Project 1 provides an average annual return of 10% on the investment.
4. Net Present Value (NPV)
What it is: The most powerful method. It calculates the total value of a project's future cash flows in
today's money, accounting for the fact that money loses value over time (inflation, interest rates).
Example Problem: Calculate the NPV for a project with the following cash flows, using a discount
rate of 10%.
Year Cash Flow Discount Factor (10%) Discounted Cash Flow
0 -100,000 1.0000 -100,000
1 10,000 0.9091 9,091
2 10,000 0.8264 8,264
3 10,000 0.7513 7,513
4 20,000 0.6830 13,660
5 100,000 0.6209 62,090
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Solution: The hard part (calculating the discount factor) is already done for you in the table.
1. Multiply the Cash Flow by the Discount Factor for each year. This gives you the "Discounted
Cash Flow" (the value of that cash flow in today's money).
o Example for Year 2: 10,000 * 0.8264 = 8,264. This means that 10,000 received in two
years is only worth 8,264 today if you assume a 10% interest rate.
2. Sum up all the values in the "Discounted Cash Flow" column.
o Calculation: -100,000 + 9,091 + 8,264 + 7,513 + 13,660 + 62,090 = 618
Conclusion: The NPV is +618. Since it's a positive number, the project is considered a good
investment. It will earn 618 more than simply investing the money at a 10% rate. If the NPV were
negative, you would reject the project.
5. Decision Trees
What it is: A way to make decisions when outcomes are uncertain. You calculate the Expected Value
(EV) for each choice to see which is likely to be the most profitable on average.
Example Problem: An organization can either Extend its current system or Replace it. The potential
outcomes and their probabilities are shown in the tree. Which is the better choice?
Solution: You calculate the Expected Value for each main branch (Extend and Replace).
• Formula: Expected Value = (Probability_A * Outcome_A) + (Probability_B * Outcome_B) + ...
• Calculate EV for "Extend":
o There's a 0.8 (80%) chance of "No expansion," resulting in an NPV of 75,000.
o There's a 0.2 (20%) chance of "Expansion," resulting in an NPV of -100,000.
o EV (Extend) = (0.8 \times 75,000) + (0.2 \times -100,000)
o EV (Extend) = 60,000 - 20,000 = 40,000 Rs
• Calculate EV for "Replace":
o There's a 0.8 (80%) chance of "No expansion," resulting in an NPV of -50,000.
o There's a 0.2 (20%) chance of "Expansion," resulting in an NPV of 250,000.
o EV (Replace) = (0.8 \times -50,000) + (0.2 \times 250,000)
o EV (Replace) = -40,000 + 50,000 = 10,000 Rs
Conclusion: The Expected Value of Extending (40,000 Rs) is higher than the Expected Value of
Replacing (10,000 Rs). Therefore, based on this analysis, the organization should choose to extend
the existing system.