• Internal Code :
  • Subject Code : PROJ6000
  • University : Laureate International Universities
  • Subject Name : Principles of Project management

Assessment 2: Project Selection Methods and Initial Document

Table of Contents

Introduction 

Project Selection 

Cost-Benefit Ratio 

Payback Period 

Net present Value 

Process 

Cost-Benefit Ratio 

Payback period 

Net Present value 

Initiation Process Group 

Introducing Project Charter 

Proper identification of the Stakeholders 

Other elements 

Documents Required 

Project Charter 

Stakeholder 

Conclusion 

References 

Introduction

This essay will discuss the documents that are necessary during the life of a project. These documents are so important that without them the project cannot even start. Along with that, project selection methods will also be discussed and what are the processes that are accompanied by project selection. To increase the success rate of a project it becomes necessary to analyze the project selected as it is the stepping stone for the rest of the processes that will take place during the timeline of the project (Abdel-Basset, Atef & Smarandache, 2019). During the lifetime of the project, several documents are required, some of these documents are tailored beforehand and work as the guidelines for the project whereas some documents have to make during the work is in progress. Every project is associated with some risk or the other it becomes quite necessary to identify the risk along the project life cycle to minimize the losses significantly and enhance the efficiency and success rate of the project (Sharma & Ram, 2016).

Project Selection

There are multiple project selection methods throughout the world. Some of the selection methods which can be used in our case are as follows:

Cost-Benefit Ratio

Cost-benefit is a technique that is a very famous tool that is preferred by many project managers throughout the world as it helps the managers to establish a clear idea what will be the total cost that will be incurred during the lifetime of the project (Sunstein, 2017). This particular method for selection becomes quite necessary to identify the economic evaluation of the project.

Payback Period

The payback period is quite easy to understand because of which many managers use this tool to determine whether or not the project should be worked on. This particular tool helps the managers to understand how much time the project might take to return the investment value (Preißinger et al., 2015). Any project will only start having profits after the cost has been recovered, because of this reason it becomes very necessary for managers to identify the payback period.

Net present Value

This particular tool also becomes important when the managers try to determine the selection method for a project. When the NPV is low the project manager should give up on the project (Petković, 2015). This project selection method can be applied in most of the projects because this gives the managers a clear idea about the project that is most suitable in their given budget.

Process

The process plays a very significant role and helps the manager to identify the event the smallest of details that may become a problem for the project in the long run (Galli, 2018).

Cost-Benefit Ratio

The first step to efficiently calculate the cost-benefit of the ratio is to find about all the costs that will be incurred during the project. Along with that try to identify the benefits that the project will bring and finally place project life into the equation. The second step gives some monetary value to the cost that will be incurred these does not necessarily mean only the cost of machinery and other types of equipment. Of only machines and infrastructure cost is calculated the cost-benefit ratio will fail tragically. Manpower should also be calculated as without man these machines are just a piece of junk (Acemoglu & Restrepo, 2018). Along with this, the lifetime of the project timeline should also be considered so that the manager could identify the additional cost that might incur during the project. In the third step, benefits are also calculated in financial terms. This is the most crucial and difficult part of the cost-benefit analysis. Some of the benefits are intangible because of that it becomes quite hard to provide a number to it (Han, 2019). The most troublesome part with the benefits is that these cannot be predicted correctly. The final step is the complete evaluation of both cost and benefits and their comparison. The main reason why this is done is to find a clear understanding of the cost of the project is superior or the benefits. This particular method will surely help the manager to think clearly and give him the idea for project selection. 

Payback period

The payback period can be calculated using two processes namely, average method and Subtraction method. The most crucial step in this particular process is to estimate the cash flow accurately. To calculate using the average method the cash flow is divided with the initial expenditure this particular method is only possible when the manager determines that the cash flow will be steady for almost all the years. However, the subtraction method is used when the manager expects that the cash flow will be dynamic. This particular method is calculated all the individual cash flow, that is, the initial cash outflow, until the time the payback period is completed. One of the biggest problems with this particular method is that the payback period does not tell about the amount of revenue that will be generated on an annual basis it can only determine how much time the manager can expect a return on his investment. The main reason why people choose this particular method for selection of the project is because of the ease in its usage (Gamsakhurdia, 2015).

Net Present value

Net present value (NPV) is among some of the most used tools for decision making while selecting whether or not a project should be undertaken. The initial step is to identify a project and provides an approximate estimate of what will be the difference in cash flows that is whether the present cash flow will be greater or the future cash flow. However, this is not the only way NPV functions. It compares the sum that is equivalent to inflow and outflow of the cash to get a deeper understanding of whether or not to go on with the project (Creemers, 2018).

The assessment of whether or not a project should be undertaken lies in its NPV if the NPV is positive than it is a desired project whereas if the NPV is negative it is advisable to the manager to reject the project.

Initiation Process Group

According to the PMBOK, there are 3 main elements for the initiation process group

Introducing the Project Charter

When the project charter is introduced, the manager can easily identify the objective of the project in the beginning phase only. The main reason for the introduction of the charter is to provide a timeline and the outcome can be identified. Project charter also becomes important so that all the financial sources are in place and approved so that during the project the management does not face any confusion (Kloppenborg & Tesch, 2015).

Proper identification of the Stakeholders

Identification of people who might impact the project, directly and indirectly, should be identified before hands so that the project can be completed in the time frame that is decided in the charter. Project management should develop a foresight so that everything is done according to the time allotted for the activity. The manager must identify and consider the smallest problem which might hinder the project.

Other elements

Apart from the project charter and the stakeholders, the project manager is also liable to consider other problems that might hinder the working of the project these initial stages are the most crucial part for the project manager and his entire team management team if in the initial stages the right steps are not taken it becomes very hard in later stages of the project to alter when most of the work is done.

Documents Required

There are two types of documents that are needed in the initiation 

Project Charter

Project Charter is deemed as one of the most important documents at the initiation of the project. It is made up of the following concepts:

  1. Funding amount

  2. Success Criteria

  3. Scope Statement

  4. Business case

  5. Milestones

  6. Funding Status

Stakeholder

There are two types of stakeholders which can be found during the life of the project the first category is in favor of the project whereas the other category opposes the project, it is very important to find out the stakeholders as soon as possible as they may pose a possible threat to the project (Verbrugge et al., 2017)

Conclusion

This essay focused on the importance of project management in the initial stages of any project. The essay enlightened the audience with the various methods which are considered while taking up a project. The main reason why so much time and effort is put into the selection of the project is that to complete a project it takes a lot of time and resources if even there is even a single mistake it can cost huge losses. In this essay, the methods that are liable for project selection are researched in depth so that there is no risk associated with the project whether it is economical or any other. For project initiation it is necessary to have the proper documents, the right documents were identified during this essay and the processes associated with the documents. This essay made a significant study in the initial stages of a project so that the foundation of the project becomes strong and the company or the manager do not face problem in the long run from their respected stakeholders.

References

Abdel-Basset, M., Atef, A., & Smarandache, F. (2019). A hybrid Neutrosophic multiple criteria group decision making approach for project selection. Cognitive Systems Research, 57, 216-227.

Acemoglu, D., & Restrepo, P. (2018). The race between man and machine: Implications of technology for growth, factor shares, and employment. American Economic Review, 108(6), 1488-1542.

Annema, J. A., Frenken, K., Koopmans, C., & Kroesen, M. (2017). Relating cost-benefit analysis results with transport project decisions in the Netherlands. Letters in Spatial and Resource Sciences, 10(1), 109-127.

Creemers, S. (2018). Moments and distribution of the net present value of a serial project. European Journal of Operational Research, 267(3), 835-848.

Galli, B. J. (2018). Effective Decision-Making in Project Based Environments: A Reflection of Best Practices. International Journal of Applied Industrial Engineering (IJAIE), 5(1), 50-62.

Gamsakhurdia, T. (2015). The theoretical and practical aspect of selecting the capital budgeting methods. In 3rd Eurasian Multidisciplinary Forum, EMF 2015 19-21 October, Tbilisi, Georgia (p. 47).

Han, S. (2019). Cost-benefit evaluation of land development based on logistic regression. Retrieved from: https://www.webofproceedings.org/proceedings_series/ESSP/ISSEC%202019/ISSEC19147.pdf

Kloppenborg, T. J., & Tesch, D. (2015). How executive sponsors influence project success. MIT Sloan Management Review, 56(3), 27.

Petković, D. (2015). Adaptive neuro-fuzzy optimization of the net present value and internal rate of return of a wind farm project under wake effect. Journal of CENTRUM Cathedra: The Business and Economics Research Journal, 8(1), 11-28.

Preißinger, M., Schatz, S., Vogl, A., König-Haagen, A., & Brüggemann, D. (2016). Thermoeconomic analysis of configuration methods for modular Organic Rankine Cycle units in low-temperature applications. Energy Conversion and Management, 127, 25-34.

Sharma, S., & Ram, B. (2016). Causes of Human Errors in Early Risk assessment in Software Project Management. In Proceedings of the Second International Conference on Information and Communication Technology for Competitive Strategies (pp. 1-11).

Sunstein, C. R. (2017). Cost-Benefit Analysis and Arbitrariness Review. Harv. Envtl. L. Rev., 41, 1.

Verbrugge, L. N., Ganzevoort, W., Fliervoet, J. M., Panten, K., & van den Born, R. J. (2017). Implementing participatory monitoring in river management: The role of stakeholders' perspectives and incentives. Journal of Environmental Management, 195, 62-69.

 

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