Prof_Prakash,
In reference to a response you posted from a different student..
Can you please explain to me how you come up with the break even analysis numbers (Actual Calculations) for the scenario below.
Dear Sponsor,
With reference to your mail dated 1st September 2013 regarding the selection of project we have done our analysis and based on our review we recommend to pursue Palomino for future investment analysis. We have arrived at the decision based on our analysis and facts provided by you. The principal differentiator for this project has been the return on investment and risk involved. Our detailed analysis is presented below:
Five phases of the Project
1. Project conception and initiation: Define project
An idea for a project will be carefully examined to determine whether or not it benefits the organization. During this phase the feasibility, risk involved and return of investment is actually analysed. This phase we are right now in and will require a detailed feasibility study before making the final investment decision.
2. Project planning
A project plan, project charter and/or project scope may be put in writing, outlining the work to be performed. During this phase, a team should prioritize the project, calculate a budget and schedule, and determine what resources are needed. This is the next and most important phase.
3. Project execution
Resources' tasks are distributed and teams are informed of responsibilities. Maximum resources and cost is involved at this time. The critical path and
4. Project performance and control
Project managers will compare project status and progress to the actual plan, as resources perform the scheduled work. This is process to keep the project on schedule and within budgeted cost. This also involves quality checks and scope change management.The critical path, cost and quality is to be measured and managed closely for success of the project.
5. Project close
After project tasks are completed and the client has approved the outcome, an evaluation is necessary to highlight project success and/or learn from project history. This is the last phase where in all documentation is handed over to owner. The post evaluation may or may not be a part of the contract. Before project closing all contracts should be closed and bills should be settled.
Project Juniper:
Schedule Risk: Low
Cost: $325000
Durations to completion: 6 months
ROI: $250,000 yearly for 2 years total = $ 500,000
Project life: 2-3 years
Positives:
- Product is feasible,
- Risk is low.
- Forecasting will be accurate.
- Product breakeven is around 2 years
- Meets client requirement of product launch in next 12 months.
Negatives: Company's future at risk as product life is only 2-3 years.
Recommendation: No
Project Stargazer:
Schedule Risk: Very High
Cost: $ 1025000
Durations to completion: More than 1year
ROI: ROI of $300,000 first year; $550,000 the second year; and $750,000 the third year.
ROI total = $ 1600
Project life: 7 years
Positives:
Negatives:
- Risk is high
- Forecasting has high variance.
- Product breakeven is around 2 years
- Does not meet client requirement of product launch in next 12 months.
Recommendation: Although a sunk cost is involved bust investing further has no guarantee of returns and also the product timelines don't meet the clients schedule. Need high level analysis for making any investment decision.
Project Palomino:
Schedule Risk: Medium
Cost: $655000
Durations to completion: 9 months
ROI: $450,000 yearly for 5 years total = $ 2250,000
Project life: 7 years
Positives:
- Product is feasible,
- Risk is medium can be mitigated or transferred.
- Forecasting will be fairly accurate
- Product breakeven is around 1.5 years
- Meets client requirement of product launch in next 12 months.
Negatives: Manageable
Recommendation: Project is recommended for further analysis based on financial and commercial terms and conditions.