Reference no: EM131051181

Project Management Assignment:

Question 1-

Your company is doing well and has a profit of about $50,000. You want to make your profit work harder so you have looked at some investment opportunities available. They are

• To insulate the current company offices at a cost of $18,000 which will provide a fuel savings of $1,600 per year over the next 10 years.
• To pay the lump sum of $30,000 to the mortgage of $40,000 that has a loan term of 10 years at6.5% interest per annum.
• To invest$20,000into a new business, which has been estimated to return the double amount in 6years' time.
• To keep the profit $50,000 in an iSaver account earning a fixed interest of 4.5% per annum for 8 years. After 8 years, there will be no interest for this iSaver account.

Assumptions:

- If only a part of the profit $50,000 is invested in a project, the remaining amount is still kept in the pocket (i.e. no investment).

- The investment/cost occurs at the beginning of a year, and the investment benefits are obtained at the end of a year.

- iSaver account calculates the compound interest.

(a) Given the profit you have and assuming a discount rate of 4.8%, perform and document appropriate NPV calculations for 10 years for all possible investment options you identified. Graph the results to show the payback analysis of each investment option.

You must use Microsoft Excel or an equivalent spreadsheet program to perform and present your calculations.

Do not use the Excel NPV function and demonstrate you understand the formulas by calculating the NPV.  You may confirm the calculated NPV using the Excel NPV function.

Ensure you format the spreadsheets so they use references rather than hard coding data.  This al-lows experimenting with the data, e.g., if I change the discount rate the data should react and change accordingly.

Use bolding, colors etc. to ensure the data is easy to interpret.

(b) From your calculations in (a), which investment would you take up and why?

Use a Weighted Scoring Model (see an example on pages 154-155 of the textbook) to discuss the results and explain in detail why you have chosen one option over the others.  It is not always just the figures that determine the final decision.

Question 2-

You are in charge of building a new office for your company. After some discussion with your builder, you identified some of the key tasks, the duration and the costs to complete the building. As you are a project manager you have decided to monitor the building progress using Earned Value Management (EVN). Answer the following questions using the following information

ID	Task Name	Cost ($)	Start Date	Duration
1	Lay foundations	18,000	November 1	2 weeks
2	Build frame	34,000	November	4 weeks
3	Install pipes and electrical	10,000	December	6 weeks
4	Make office water-tight	15,000	February	8 weeks
5	Install internal walls and bathroom	20,000	April	12 weeks
6	Install cabinetries	14,000	July	4 weeks
7	Paint office	8,000	August	2 weeks
8	Install light fixtures and appliances	9,000	August	2 weeks

NOTE: Assume that no task is scheduled to run concurrently, e.g., Task 2 starts after Task 1 com-pletes, Task 3 starts only when Task 2 completes, and so on. Also, assume that each month is made up of exactly four weeks.

(a) What is the planned value of the entire project?

(b) The project manager has managed to keep cost to what was originally budgeted above. At this point, the project has completed Task. Up to this point,

i. What is the planned value of the project?

ii. What is the actual cost (AC) of the project? Briefly explain how you derive the actual cost.

iii. What is the rate of performance (RP) for each task? Using the RPs obtained, calculate the Earned Value (EV), Schedule Variance (SV), Cost Performance Index (CPI), and Schedule Performance Index (SPI) of the project.

(c) Unfortunately, two trades resigned after Task 5 was completed and this caused the remaining tasks to exceed its original cost and schedule by 25%, 30%, 40% respectively. At the end of the project,

i. What are the CPI and SPI?

ii. How is the performance with respect to cost and time?

iii. Represent the Planned Value (PV), Earned Value (EV)and Actual Cost (AC) in a chart like the example below. 

NOTE: Questions about different variations/interpretations of question#1 have been given below use this for more information regarding assignment.

Option#1 (Insulate office)

You pay $18,000 now and you get return $1,600 every year for 10 years.

Cost: $18,000

Benefit: $1,600 yearly

Option#2 (Mortgage payment)

You had a loan of $40,000. You decided to pay $30,000 of this loan today. So you still need to pay $10,000 with interest 6.5%

Cost: $30,000

Benefit: Difference between what you had to do in $40,000 and what you have to do in $10,000 loans. First number should be $1,950

-Use the Mortgage Benefit sheet to do your calculations for the benefit values.

-You don't need to do a very realistic version taking into consideration principal and interest.

Option#3 (Invest in new business)

You pay $20,000 now, and in year 6 you get $40,000

Cost: $20,000

Benefit: in year 6, you get $40,000

Option#4 (iSaver account)

You put the $50,000 in an iSaver account with interest rate 4.5% for 8 years. No investment after 8 years.

Cost: $50,000

Benefit: adding 4.5% on your last year money.

-From year2, the cost (what you put), is equal to your benefit from last year...think of it as you re-invest your benefit every year - in Year1, put X, you get Y. Then in Year2, you put Y, and get Z and so on].

-After 8 years (years 9 & 10) you keep the money in your account without change (but it's value changes because of the discount rate).

-A very interesting finding here is that although you have put your money in iSaver account, the discounted value/benefit is less than $50,000. This is because the interest rate (4.5%) is less than the discount rate (4.8%).

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