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BUS353e Project Management For Cash Flow And NPV Calculation

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Questions:

Question 1

The management of Tembusu Polyclinic (TPC) is planning for operations to begin in 2019. Assume that you are the Chief Operations Officer (COO) of this polyclinic; the CEO has asked you to develop a list of potential projects, which are important to the polyclinic. Together with your team, you have shortlisted the following:

i. Project A: Design a new patient-centric service experience from appointment booking, registration, medical consultation, collecting medication to payment using Design Thinking methodology as part of SG Gov’s Public Service initiative (PS21).

ii.Project B: Implement a robotic-assisted pharmacy to improve distribution of medication to patients quickly and accurately where it is able to handle 50 per cent more prescriptions, up to 150 prescriptions an hour, and saves 180 man-hours per month.

Classify each project into Compliance, Strategic or Operational category. Appraise the consideration for each classification by envisaging what the project can contribute to the development of TPC.

Question 2

(a)The CEO has asked you to perform a financial analysis of Projects A and B using the Payback Period method of analysis.

Project A will cost TPC $250,000 and generate an annual net cash flow of $55,000, whereas Project B will cost $350,000 and generate an annual net cash flow of $90,000.

Calculate the payback period (in years) and the rate of return (in percent) of each project. Based on this analysis, recommend which project to be implemented.
Note: Show your numerical answers to one decimal place.

If you are asked to recommend one project between Projects A and B, discuss which project TPC should choose to implement based on other criteria apart from the payback period. Provide two (2) reasons for your choice.
 
 

Answer:

Section 1

Question 1

The project classification and consideration for classification are shown in the following table.

Project

Classification

Consideration

Project A

Strategic

The new service will significantly enhance the strategic direction of the polyclinic

Project B

Operational

This project will enhance the operations of the polyclinic

Project C

Compliance

This project ensures the compliance with Singapore Quality Class (SQC) certification

Project D

Operational

This project adds a new dimension to the operational aspect of the polyclinic

Project E

Compliance

This project ensures compliance with Personal Data Protection Act (PDPA) policies and processes

Project F

Strategic

This project is completely strategic in nature

Question 2

Answer to a

The payback period calculation is shown in the following tables.

Project A

 

 

 

Year

Cash Flow

Cumulative Cash Flow

Payback (Years)

0

-250,000

-250000

 

1

55000

-195000

 

2

55000

-140000

 

3

55000

-85000

 

4

55000

-30000

 

5

55000

25000

4.545454545

6

55000

80000

4.545454545

Hence, the total payback period for this project is 4.55 years. In addition, from the calculation in the excel sheet, it has been found that the rate of return for this project is 9%.

Project B

 

 

 

Year

Cash Flow

Cumulative Cash Flow

Payback (Years)

0

-350000

-350000

 

1

90000

-260000

 

2

90000

-170000

 

3

90000

-80000

 

4

90000

10000

3.888888889

5

90000

100000

3.888888889

6

90000

190000

3.888888889

The total payback period for this project is 3.9 years. Moreover, the rate of return for this project is found to be 14%.

Between the choices of these two projects, the recommended project is Project B as it has less payback period and more rate of return than Project A. 

 

Answer to b

The cash flow and NPV calculation for Projects C and D are shown as follows.

Project C

 

 

 

 

Year

Inflow

Outflow

Net Flow

Present Value

0

0

75000

-75000

-75000

1

40000

3000

37000

35576.92

2

45000

3500

41500

38369.08

3

40000

4000

36000

32003.87

TOTAL

125000

85500

39500

 

 

Net Present Value

 

30949.87

 

IRR

 

 

24.632209%

 

Project D

 

 

 

 

Year

Inflow

Outflow

Net Flow

Present Value

0

0

90,000

-90,000

-90000

1

50,000

5,000

45,000

43269.23

2

60,000

7,000

53,000

49001.48

3

67,000

9,000

58,000

51561.79

TOTAL

177000

111000

66000

 

 

Net Present Value

 

53832.50

 

IRR

 

 

31.788880%

Based on this analysis, TPC should proceed with Project D as it has higher values in both NPV and Internal Rate of Return.

Answer to c

The three criteria for going ahead with Project B are listed as follows.

Criterion 1 is Payback Period. It is the highest ranked because profitability is most essential in any business.

Criterion 2 is Technology. It is medium ranked because technological consideration is one of the major considerations for TPC.

Criterion 3 is Rate of Return. It is lowest ranked because although the rate of return is important, it has less priority than the previous two.

Section 2

Question 3

Answer to a

The TWT project is explained based on the seven factors influencing the choice of project management structure as follows.

Deadline – Deadline is a very important aspect of project management. It is important to management deadlines of the project in order to avoid unnecessary complications and cost. The deadline for this particular project is 10th June, 2019.

Budget – The decided budget for this project is $400,000 that must not be exceeded at any cost.

Stakeholders – There will be a number of stakeholders assigned in the project based on the role and function requirements. Some of the stakeholders required will be project manager, technical supervisor, finance manager and others.

Project Members – The project members will include system developers and system testers.

Demand – The project will be based on fulfilling the demands of the patients regarding an efficient system for monitoring their health without having to travel to hospitals and perform various costly tests.

Supply – The systems will be supplied to the patients at certain cost for health monitoring.

Price – The price of the product will be kept as reasonable as possible considering the development costs.

Answer to b

Stakeholder Group

Role in TWT Project

Management Board

Supervision and change management in the project

Development Team

Development and testing of the system

Finance Department

Management and allocation of project funds

Patients

Provide user requirements for the system

Section 3

Question 4

Answer to a

The revised work breakdown structure is shown as follows.

WBS

Task Name

Duration

Start

Finish

Predecessors

0

TPC Wearable Technology (TWT) Project

86 days

Fri 2/1/19

Mon 6/10/19

 

1

   Project Coordination and Administration

26 days

Fri 2/1/19

Tue 3/12/19

 

1.1

      Conduct Project Kick-Off Meeting

1 day

Fri 2/1/19

Fri 2/1/19

 

1.2

      User Experience (UX) Study

5 days

Mon 2/4/19

Tue 2/12/19

2

1.3

      Apply for HSA approval as medical device

20 days

Wed 2/13/19

Tue 3/12/19

3

1.4

      Procure wearable devices and cloud computing resources

20 days

Wed 2/13/19

Tue 3/12/19

3

2

   Application Development

74 days

Wed 2/13/19

Thu 5/30/19

 

2.1

      Development

45 days

Wed 2/13/19

Tue 4/16/19

 

2.1.1

         Develop mobile app (iOS)

45 days

Wed 2/13/19

Tue 4/16/19

3

2.1.2

         Develop mobile app (Android)

40 days

Wed 2/13/19

Tue 4/9/19

3

2.2

      Review and Testing

29 days

Wed 4/17/19

Thu 5/30/19

 

2.2.1

         Architecture security review

4 days

Wed 4/17/19

Tue 4/23/19

8,9

2.2.2

         Source code reviews

5 days

Wed 4/24/19

Tue 4/30/19

8,9,11

2.2.3

         System Integration Testing (SIT) including payment gateway

10 days

Thu 5/2/19

Wed 5/15/19

12

2.2.4

         User Acceptance Testing (UAT)

10 days

Thu 5/16/19

Thu 5/30/19

13

2.2.5

         Conduct security penetration testing

5 days

Thu 5/16/19

Thu 5/23/19

13

2.2.6

         Deployment to production system

5 days

Fri 5/24/19

Thu 5/30/19

15

3

   Infrastructure and Security

11 days

Fri 5/24/19

Mon 6/10/19

 

3.1

      Publicise service to pilot patients

10 days

Fri 5/24/19

Fri 6/7/19

15

3.2

      Train operations support team

5 days

Fri 5/24/19

Thu 5/30/19

15

3.3

      Pay all vendors and suppliers

3 days

Fri 5/31/19

Tue 6/4/19

16

3.4

      Launch pilot TWT service

1 day

Mon 6/10/19

Mon 6/10/19

18,19,20

Answer to C

The total project duration is 86 days.

The completion date of the project is 10th June, 2019.

The project starts on 1st February and ends on 10th June, 2019. The entire schedule has been created keeping in mind the following.

The working days are Monday to Friday.

Some of the working days are marked as public holidays.

Some of the activities can be simultaneously performed such that the overall duration can be reduced.

Section 4

Question 5

Answer to a

Item

Category

Description of Risk

Consequence

Risk 1

Technical

Various performance issues may arise due to insufficient testing

The performance issues will lead to serious complications and reduce the usability of the system

Risk 2

External

The customers may not accept the system

The entire project will be meaningless and failure

Risk 3

Organisational

The existing staffs may not be technically efficient to maintain the system

Due to lack of maintenance, the system will fail after a short period of time

Risk 4

Project Management

Schedule may not be followed and the development may take a longer amount of time

Budget overshoot will occur due to the schedule issue

Answer to b

The risk response ways and the risk response plan will be selected and performed as shown as follows.

Item

Category

Risk Response Way

Risk Response

Risk 1

Technical

Mitigate

Ensure all tests are done accurately and all the issues are solved before system launch

Risk 2

External

Monitor and Prepare

Monitor customer response towards new system and receive feedbacks from the customers before launching the system

Risk 3

Organisational

Accept

Provide technical training to the staffs

Risk 4

Project Management

Transfer

Instruct project management team to follow schedule and deliver the project within time

 

 

Bibliography

Fleming, Q. W., & Koppelman, J. M. (2016, December). Earned value project management. Project Management Institute.

Harrison, F., & Lock, D. (2017). Advanced project management: a structured approach. Routledge.

Kerzner, H., & Kerzner, H. R. (2017). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.

Leach, L. P. (2014). Critical chain project management. Artech House.

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