Problem #1 Project Selection at Nova Western, Inc. Phyllis Henry, vice president of new product development, sat at her desk, trying to make sense of the latest new project proposals she had just received from her staff. Nova Western, Inc., a large developer of business software and application programs, had been experiencing a downturn in operating revenues over the past three quarters. Their consensus opinion was that Nova Western needed some new product ideas, and fast. The report Phyllis was reading contained project screenings conducted by two independent groups within the new product development department. One project, code-named Janus, was championed by the head of software development. The other project idea, Gemini, had the support of the business applications organization. Phyllis’s original charge to her staff was to prepare an evaluation of both projects in order to decide which one Nova Western should support. Because of budget restrictions, there was no way that both projects could be funded. The first evaluation team used a weighted scoring model, based on the key strategic categories at Nova Western, to evaluate the two projects. However, Phyllis was also presented with financial analyses of the two projects by her second team of evaluators. Their evaluation assumed a required rate of return of 18%, including anticipated inflation, over the lives of the two projects. Nova Western’s client is very concerned about being first to market after the successful completion of this new project. They are very concerned about the project scope and deliverables and are not interested in any changes. Budget is always a concern but there are budget and management reserve funds available just in case additional resources are needed. The data the project selection teams collected are shown on the next page: Project Janus Category 1. Strategic fit 2. Probability of technical success 3. Financial risk 4. Potential profit 5. Strategic leverage Importance 3 2 2 3 1 Score 2 2 1 3 1 Weighted Score Total Score Initial investment Life of the project Anticipated stream of future cash flows: Year 1 Year 2 Year 3 Year 4 Year 5 Calculated NPV Simple Payback $250,000 5 years $50,000 $100,000 $100,000 $200,000 $75,000 Project Gemini Category 1. Strategic fit 2. Probability of technical success 3. Financial risk 4. Potential profit 5. Strategic leverage Importance 3 2 2 3 1 Score 3 2 2 3 2 Total Score Initial investment Life of the project Anticipated stream of future cash flows: Year 1 Year 2 Year 3 Calculated NPV Simple Payback Weighted Score $400,000 3 years $75,000 $250,000 $300,000 A. Complete the tables on the preceding page. Use the weighted scoring model to score each project. Use the financial selection models to calculate the net present value and the simple payback for each project. Place these values in the tables on the previous page in spaces indicated. B. Using only the financial criteria for project selection, which project should Nova Western select and why? C. Using only the weighted scoring model for project selection, which project should Nova Western select and why. D. Based on the above case scenario, determine the project priority matrix for the project and write it in the space provided. Why do you think this is what the client and Nova Western have agreed to? Problem # 2 You are creating a project network for a market research project for FUN, Inc. With the information provided below, draw the project network on the next page. Complete the forward pass, the backward pass and compute the activity slack. Activity A B C D E F G Description Contract signed Survey design Identify target market Data collection Develop presentation Analyze results Present Results Predecessor None A A B,C B D E,F Time (days) 3 3 3 7 2 2 1 A. Network diagram Legend ES SL LS DUR ID LF EF B. Gantt Chart Take the Network Diagram that you created on the previous page make a Gantt Chart for the project in the space provided below. Be sure to identify or distinguish between working time and slack time for each activity as appropriate. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 C. Network Questions 1. What is (are) the critical path (s) _____________________________________________ 2. What is the planned project completion time? ____________ 3. What is the slack for activity E? ____________ 4. If there are burst activities, identify them here: ____________ 5. If there are any merge activities, identify them here : ____________ 6. How sensitive is this project network? Problem #3 You are given the following information regarding a project. The earliest, midpoint and latest estimated time for each activity is noted. Based on this information: a. Compute the te and Variance for each activity to complete the table. (20 Points) Activity Predecessors a m b A --- 7 9 11 B A 1 2 3 C A 7 8 9 D B 2 5 11 E C 2 3 4 F C 1 4 8 G D, E 6 7 8 H E, F 2 6 9 I G, H 1 2 3 te Variance a. What are the Expected Time and the Variance for the project? b. What is the probability of completing the project within the Expected Time? c. If you were told that you must finish this project in 32 days, what level of confidence (probability) would you assign to meeting this deadline? Problem #4 Given the data and information that follow and given the indirect costs for each project duration are $400 (19 time units), $350 (18), $300 (17), and $250 (16) respectively; compute the total direct cost for each project duration from the normal time through the crash point and provide that in the table on the next page. What is the optimum cost-time schedule for the project? What is this cost? Normal Normal Activity Predecessor Time Cost A B C D E F G A A A B C E, F, D 3 5 3 10 6 7 5 50 60 70 50 100 90 50 Maximum Crash Time Crash Cost 1 2 1 0 3 3 1 20 60 40 0 50 100 70 a. Complete the table below: Duration Direct Costs Indirect Costs Total Costs b. What is the optimum Cost-Duration solution for the project you just analyzed? Cost: ___________________ Duration:_____________________ c. Reducing the project duration increases the risk of being late. Explain. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ Problem #5 The National Science Foundation is planning a research study on ice flow in Antarctica. The activities and their predecessors, along with the budget item are included in the following table: Task/Activity Time (mo.) Predecessor(s) A. Preliminary Plan B. Detail Plan C. Hire staff D. Equipment selection E. Train staff F. Buy clothing/supplies G. Plane Transportation H. Get custom equipment I. Get additional equipment J. Test equipment K. Ship clothing/supplies L. Travel 3 2 2 1 1 3 2 5 3 1 5 1 None A B B C C C D H E, I F G, K, J Total Budget ($000) 3 2 4 5 3 9 60 36 20 6 15 9 Work Package by Month 1 2 3 4 5 1 1 1 1 1 4 0 5 3 3 0 6 5 55 5 5 10 10 6 10 5 5 6 3 3 0 0 9 9 A. Create a Time-Phased Budget ID A B C D E F G H I J K L Task Dur Budget Prel Plan Det. Plan Hire Staff Sel. Equip Train Purch. Clothing Plane Transport Custom Equip. Additonal Equip. Test Equip. Ship Supplies Travel Total Budget Cumulative Budget 0 1 2 3 B. Create a Time-Cost Duration Graph. Cost Period 4 5 6 7 8 9 10 11 12 13 14 15 16 C. Use the information on the previous two pages to respond to the questions below: 1. What is the BAC for the project? 2. What is the Planned Value after the completion of month 9 of the project? 3. If the project is 60% complete in terms of cost at the completion of month 9 of the project and your actual cost incurred thru this same time period is $108,000, what is your revised estimate for the project cost at completion? Is the project ahead or behind in terms of scheduled work?