Project Management: Scope, Schedule, And Cost Essay.

On successful completion of this unit, students will be able to:

Identify key aspects of scope, schedule and cost management as per best project management practices

Effectively write and present project planning and controlling reports

Analyse a project case and develop a constraint management plan

Productively work in diverse teams to deliver agreed outcomes

Demonstrate and understanding of due diligence processes and the information needs of stakeholders and project sponsors and supporters

Identifying Key Aspects

Introduction

Project development refers to the process of improving a concept by employing construction of ideas. Optimization, on the other hand, is the practice of making business operations more effective through the adjustment of the variables used in technical analysis. Usually, project development requires high levels of project managing. Project management is to the practice of planning, controlling, coordinating and organizing of the resources in the organization to ensure efficiency and effectiveness in the achievement of the objectives and goals of the organization. Most businesses work with a fundamental aim of profit making. Adidas, in this case, aims at improving the total revenues and overall profitability through sports shoemaking. Therefore, any decision making in the company should be based on the financial planning and analysis of the company. Usually, financial planning refers to the process of making sensible decisions about money that will enable the organization to effectively meet the goals and objectives of the firm (CISI, 2018). An effective financial plan should include the books of accounts such as budget, cash flows and financial statements. Cash flow statement, therefore, supplements the books of account such as income statement and balance sheet (Murphy, 2018). This report is set to develop the alternatives for decisions making, develop the estimated cash flows cash flows, choose the most appropriate course of action and use the technology to decide on parameters affecting the economic analysis.

Available projects

It's significant to have the estimated projects before making a decision. Decisions can't be made in a scenario whereby only on alternative exist. Therefore, the table below shows two example of projects from which decision making is required.

Principles of Cost Driven Project Design

The Net present value (NPV) refers to the total cost of a project including the construction cost (T) and the yearly cash flows which are usually discounted to the present value (Park and Chen, 2014). Usually, when NPV becomes Zero, the rate of return of the scheme which entails the future cash flows is denoted by the Internal Rate of Return (IRR). Therefore, the IRR refers to the interest rates at which the NPV of all the project equals to zero.  IRR estimates the effectiveness of the project in that a project needs to be rejected upon falling below a predetermined NPV. Often, an addition maintenance fee (M_p) is always contributed for the maintenance of the project due to external design factors. Usually, the design factors are constraints that act as the reference points in designing the optimization design alternatives. Usually, optimization aims at minimizing the constraints with respect to the input variable used in the total construction of the project.

Accounting Principles and Budget

The accounting principles form the backbone upon which the current accounting is done. Firstly, them exists the Accrual principle which denotes that accounting should be recorded upon the occurrence period rather than the periods when there exist cash flows related to them. Secondly, the conservatism principle states that liabilities and expenses should be recorded as soon as possible while postponing the revenues and assets until when sure about their occurrence. Thirdly, the consistency principle that emphasizes that an accounting principle should be continuously used until another demonstrably new one is found. The cost principle states that a business should only record the assets, equity investment and liabilities at the start of the initial purchase. Also there exist a going concern principle which states that the business starts with an aim of operating continuously into a foreseeable future. The materiality principle emphasizes on recording all transactions in the accounting records to avoid misleading the decisions of the people who are reading the financial statements of the company. Additionally, the reliability principle states that only the transactions which can be proven need to be recorded. Finally, we have the period principle that states that all the recorded transactions should be done within a standard time frame

Effective Report Writing

A budget is usually an estimation of business expenses and revenues within a business. After the formulation process, a budget is always periodically evaluated. In organizations, a budget is usually an internal tool not recommended to the external parties. Budgeting employs the accounting principles already discussed in the beginning of this section of the paper.

The figure below shows a typical example of an Adidas budget

The figure bellow shows project A and B cost estimations

Estimate Cashflow

Cash flow refers to the amount of cash that moves away from the organization and the total amount received by the company. Cash flow is usually expressed through the cash flow statement. Therefore, a cash flow statement indicates the amount of money generated and used by the organization during a specified period (CFI, 2018). It's significant to conduct an estimation of the cash flows engendered from a particular scheme before deciding on the investment. There are two major methods used in estimation. The two methods used in estimating cash flows are NPV and IRR calculations. The calculations below illustrate the findings and applications of the two independent methods.

NPV FOR PROJECT A=

1500 *PVFA AT 8% FOR 3 YEARS

1500*2.5771

NPV =3865.65-2500

= 1,365

NPV FOR PROJECT B =

7000*PVFA AT 8% for 3 years

7000*2.5771

NPV =18,039.7-14000

= 4039.7

IRR FOR PROJECT A = I/CASH INFLOW

A = 2500/1500

= 1.67

THEREFORE, IRR = 36% (FROM THE TABLES)

IRR FOR B= 14000/7000

= 2.0

THEREFORE, IRR = 21%

The table below indicates a summary of the results generated from the calculation of IRR and NPV.

Conclusion on the Result

Different methods provide different method conclusions and alternatives on the projects in question. A typical example of the scenarios is the IRR and NPV calculations illustrated above. Following the results indicated in the table above, NPV figures prefer project B to A. On the other hand, the IRR figures prefer project A to B.

As already presented in the calculations above, different techniques were used to determine the best alternative.  The analysis includes a critical evaluation of the internal rate of return the payback period Net Present Value, and the Internal Rate of Return.  Different techniques have different preference hence different results.  The Net Present Value, for instance, preferred project B to A while the IRR prefer project A to B due to the higher percentage of project A (36%).  The payback period, on the other hand, prefers project A to be since it has a faster return on investment than B which takes 2years for the full return. But since firms no longer value investments in terms of percentage returns but instead opt for the exact amount it will give, project B resulted in being the best option available.

In such a case, proper planning is necessary to come up with the most successful project. The ideology that imperfect planning results into project failure whereas proper planning leads to the success of the project is highly appreciated. Organizational goals and objectives can only be successfully met through clear formulation of the courses of action, project aims and realistic timeframe during the planning process. The perfect planning ideology sounds excellent among most of the managers but variety of them hurry through the planning period due to adverse environmental factors thus resulting into the failure of the project. Projects under poor planning consume vast amounts of money without generating the desired results.

Constraint Management Plan

This report provides information in terms of ratio analysis, liquidity and financial analysis. In this case, the alternatives have conflicting decisions on what exactly to choose and why. Basing on the net present value method, project A is not preferred due to low-income return as compared to project B. With the IRR cash flow calculations, project A is preferred to venture B because of the higher percentage. Therefore, the project invites further evaluation to determine which alternative to pick.

The NPV technique is a straight measure to the dollar contribution on the business owners, and it doesn't measure the size of the project, in this case, both projects have different initial investments of 2500 and 14000 which is clear that there returns may end up being different, and that may be preferred or an advantage over the other. IRR on the other side focuses more on the shows the return on the original money invested. And in this, project A tends to be suitable and not B because of the percentage 36%and 21%.

In the revenue recognition principle of accounting, revenue is recognized as soon as the product is sold or the service is applied. The same ideology applies to projects. There must be revenue recognized as soon as the investment decision has been put in place regardless of when the actual money is received. As the alternatives are chosen, it is believed that the company will continue to exist and be able to meet its objectives as planned, and not just a decision for a time. The proceeding section of this report outlines the advantages and disadvantages of each strategy to guide decision makers solve the contradictory phenomenon depending on individual personalities.

While both NPV and IRR methods are useful in determining which project is best to do, they both have advantages and disadvantage, and they end up giving conflicting results. The two methods provide different aspects related to projects. The solutions brought about by the techniques need further critical evaluation to arrive at a conclusion. NPV and IRR are usually used by managers and entrepreneurs in decision making. However, the contradictory results offered present arguments regarding the accuracy of the method in guiding decision makers. Employing the two methods in decision making without considering the operations, goals and objectives of the company is misleading. Linking the evaluation of the advantages and disadvantages of the two methods to the mission and vision of Adidas Company is the key for proper decision making.

The most significant concept regarding the NPV technique is that it is based on the ideology that expected future value of dollars is greater than the current value of the dollars situated in the bank. Estimated Cash flow in the forthcoming ages is discounted down to the current value while designing a plan. The NPV strategy yields a dollar amount that denotes the total amount of value likely to be generated in the company by the project.  Business owners are able to identify the total individual value generated by the project. Therefore, the criterion offers a basement for the evaluation process.

Working in Diverse Teams

The NPV strategy cannot be used in comparing schemes with contrary investment amounts. A project might have been unsuccessful as a result of underutilization of the available resources thus misleading the entire interpretation due to inadequate capital investment. A superior scheme that necessitates more capital should possess an advanced NPV, but the ideology does not that the project is more profitable compared to small scale projects. Often, the organization has other qualitative parameters to contemplate. The vital issue based on the use of NPV is that it entails conjecturing about future cash flows and approximating the firm’s cost of capital.

IRR considers the value of both money and time. The first and the most fundamental thing regarding IRR is the ability to account for the money and time value while performing the analysis of the project. Consideration of the time and money factor is an absent concept in the ARR. Additionally, the technology exhibits straightforwardness. The most luring idea about this technique is that it is straightforward to deduce after the IRR is deliberated. It is tranquil to visualize among the management panel, and that is why the method is favored until they come across confident infrequent circumstances such as mutually fashionable schemes.

As already indicated in the introduction part, project optimization refers to the adjustment of the business analysis variable with the aim of making business operations more effective. Often, project optimization entails adjustment of variables to meet the moving targets. Usually, after the project is selected real-life factors come in place to display the issues that were not addressed during the planning process. For any project to be successful, there is a need to find the best possible combination of factors and settings in decision making. Not always should the issues develop for project optimization to occur in an organization. The operations in the project can be optimized to provide the best outcomes while at the higher level. For successful project optimization to occur, A SWOT analysis needs to be done across all the levels of the work breakdown structure (WBS). Usually, SWOT analysis identifies the strengths, threats, opportunities and weaknesses of the project in the company. The study of the weaknesses identifies areas that require optimization in the project. WBS, on the other hand, tries to break down a big project into smaller departments that can be easily managed by groups or individuals (Christensen, 2017). Furthermore, WBS outlines all the operations in the project.

Following this report, the figure below provides an example of the work break down representation.

Following the cost estimations and the IRR value, project A is preferred to project B. the fact remains that project B is cost in terms of both capital and time. Therefore, we prefer a project that is low costy (A). Additionally, project A has a higher IRR value meaning that the project has higher returns to the organization compared to the project B. Following the results presented by the two approached its evident that under normal circumstances a project with the lowest total cost is likely to present the highest rate of returns. therefore, this research has been successful in displaying the reliability and effectiveness of IRR and NPV in project development.

According to the Fundamentals of Corporate Finance Standard Edition, suggest a shilling is worth more than a shilling tomorrow and thus proper planning should be put in place to avoid wastages. Estimating cash flows for the sake of determining the best decision is fundamental. However, the two methods used in the calculation of the cash flows provide contradictory results. Different methodologies used gives different results and assumptions hence making the choice of what best fits the firm difficult. The two methods used in the calculation address different ideologies that are fundamental to the evaluation process for decision making. Therefore, the concept invites more evaluation and analysis to determine the best approach to partake. Following the discussion above, the advantages associated with IRR are more than the disadvantages.

Additionally, following the fact that Adidas Company is short-term goal oriented, there is a need to consider the time factor. Furthermore, the technology takes into account the money factor which is in line with the company's goals of enhancing profitability and increasing the revenue generated. However, the choice of the technology required depends solemnly on the objectives and goals set by the company.

Conclusion

It is conclusive that, failure to plan results to project catastrophe whereas noble planning leads to efficacious schemes. Clear definition of project in the planning activity, and the creation of an attainable timeframe, one is more likely to prosper in addressing the project objectives. The ideology of proper planning echoes with simplicity yet so many venture directors blast the planning session. The challenges arise from external pressures and other individual assumptions. Proper evaluation is necessary for choosing the best alternatives in decision making.

References

CFI (2018). What is the Cash Flow Statement? Retrieved from: https://corporatefinanceinstitute.com/resources/knowledge/accounting/cash-flow-statement%E2%80%8B/

Chris B. Murphy (2018). What is Cash Flow Statement? Retrieved from: https://www.investopedia.com/investing/what-is-a-cash-flow-statement/

CISI (2018). What is Financial Planning? https://www.financialplanning.org.uk/wayfinder/what-financial-planning

Emily Christensen (2017). How to Create a Work Breakdown Structure and Why You Should? Retrieved from: https://www.lucidchart.com/blog/how-to-create-a-work-breakdown-structure-and-why-you-should

Hyoung J. Park and Juliann Chen (2014). A Cost- Driving Design Optimization Framework. Retrieved from: https://papers.cumincad.org/data/works/att/caadria2014_522