Fluent Essays

I have attached the document with 2 discussions and I need to reply to each one of them in 200 words each. APA format and references. sashi_pm_replies.docx Unformatted Attachment Preview 1 day ago Jonathan James Hawkshaw J.J. Hawkshaw C OLLA PSE Reflection and Discussion Forum 2 Upon completion of this week’s readings, it has become abundantly clear the need for economic analysis in project management. In order for a project to be commissioned, upper management must see a financial benefit. The project itself must be desirable, meaning that the benefit must outweigh the cost. There are numerous methods that the chapter outlines which companies use to evaluate potential projects. Ultimately, projects produce revenue streams that occur at different times during a project. This makes it difficult to compare the benefits of each project in real time. Time Value of Money holds that “a dollar now is worth less than a dollar a year from now (Shtub A, & Rosenwin, M, 2014, p81). In order to compare two separate alternatives with separate revenue streams, a discount rate is calculated in order to bring these revenue streams back to present time. This allows companies to use metrics such as net present value, equivalent worth methods and breakeven analysis to compare the two alternatives at the current time and make a decision that accurately reflects the company’s best interests. One of the most important concepts that I will take from this chapter is analyzing the alternatives of any given project. The chapter states that ranking alternatives can be determined by “one of several evaluation criteria” (Shtub A, & Rosenwin, M, 2014, p92). This means that the rankings can be drastically different depending on how the evaluator is using the information. For example, if the evaluator uses a different discount rate it may change the ranking of the alternatives and may not accurately portray the best option for the company. Sensitivity analysis may play a crucial role in helping evaluate these alternative. Sensitivity analysis helps “determine the variation in a parameter that would change the alternative selected” (Shtub A, & Rosenwin, M, 2014, p111). For example, if the discount rate was to raise from 5\% to 10\% it may affect the ranking of alternatives or it may not. Sensitivity analysis allows the evaluator to determine which parameters will have the most effect of ranking alternatives. For example, the analysis may reveal that variations in the salvage value will have little effect on the alternatives, but the discount rate may affect them significantly. With this being said, I will look to implement these methods of economic analysis into any project that I become a part of. I will keep in mind the importance of bringing all forms of revenue back to the present time. In order to evaluate with the correct criteria, I will first discuss the main objectives of the project with upper management. Moreover, another concept in which I viewed as particularly useful is that of the Internal Rate of Return. The Internal Rate of Return shows the “real rate of return” for any investment (Shtub A, & Rosenwin, M, 2014, p102). Typically, this value is compared to the “minimum threshold” in order to determine if the project is desirable. The unique aspect of this concept is that it eliminates the ability of the rankings to be manipulated by the managers choice of MARR (Shtub A, & Rosenwin, M, 2014, p102). Typically, this is the most important aspect of any project for the investor. They want an accurate reflection of the return that their investment will foster. There must be a financial incentive for organizations to go forth with a project. As a project manager, I will look to eliminate as much uncertainty as possible when evaluating alternatives. Although it is impossible to completely mitigate risk, through tools such as Net present value, sensitivity analysis and internal rate of return, I will strive to provide stakeholders with accurate information in which they can decide the best possible alternative for the organization as a whole. References Shtub, A., & Rosenwein, M. (2017). Project Management: Processes, Methodologies, and Economics. Boston: Pearson. 1 day ago Raeesa Sanjeev Potnis Week 2: Engineering Economic Analysis C OLLA PSE In this chapter of assigned reading, the authors emphasize on the ongoing need of economic analysis in any engineering project as well as the various methods used to perform these analyses and obtain mathematically sound results. While it is true that the design of a project must meet the technical considerations, the final decisions that must be made for resources and the actual execution of the project are based on cost and performance considerations. These economic methods that engineers must use to take decisions factor in the changing business environment and variables. For example, the author explains how any amount of money in the present is worth more than the same amount in the future. This is due to inflation and due to the constantly changing socioeconomic climate in the world. This also goes to show that any investment in the present must be made wisely, i.e. the investment should be able to provide a good rate of returns. That being said, economic analyses in reality are very difficult to get correct and they cannot be expected to predict very accurate outcomes. This is due to the many assumptions that need to be made while performing these analyses including the potential risks and profits. Not having all the information before implementing any approaches of economic analysis can thus lead to faulty assumptions (Shtub & Rosenwein, 2018). Economic evaluations are based on certain criteria like net present value (NPV), rate of return (ROR) and payback period. The main variables governing these criteria are the duration of a project “n” and the discount or interest rate “i”. The discount rate accounts for inflation and change in the value of money between now and the future at the end of the lifecycle of a project. Thus, using a number of compounding formulas, any factor can be calculated (Shtub & Rosenwein, 2018). The discount rate, which is arguably the most important of these considerations, also accounts for risk premium. Risk premium is essentially the increased amount of interest that a project has to pay if its risk assessment consists of more than the average risk as compared to the likelihood of success (Shtub & Rosenwein, 2018). Any one of the above described economic analyses begins with a discounted cash flow analysis. This is done using the host of mathematical formulae, either in a direct or indirect manner. The ROR and payback methods employ an indirect method of cashflow analysis. The discounted cash flow of profit or loss calculated using these formulae is the main basis of comparison for the available choices of methods of analysis. To accurately compare all alternatives, they first need to be defined. The next steps involve determining the study period, cash flow analysis, determining the discount rate, performing sensitivity analyses and then finally landing on a decision (Shtub & Rosenwein, 2018). It is important to determine how much of an effect a said variable can have on the outcome of the project. Sensitivity and Breakeven analysis are used to calculate this. Sensitivity analysis measures the magnitude of a given variation that is significant enough to change the outcome of any decision whereas breakeven analysis “determines the conditions under which two alternatives are equivalent” (Shtub & Rosenwein, 2018). Also crucial in making the final decision on a method is taking into account the net profits and cash flow after taxes since this is the actual profit that a company will generate. This calculation will depend upon the country and the regulation that applied to any particular organization. The authors have hence included a host of decision methods for this purpose related to taxes and depreciation (Shtub & Rosenwein, 2018). Finally, decision makers are faced with a host of alternatives to choose from. They must compute the outcomes from each method and then make a decision for problem resolution. Utility theory or decision theory is the practice of “giving structure and rationale” to any actions and the conditions that govern them. This can be quantified further using multiple methods (Shtub & Rosenwein, 2018). All of the above described tools of economic analysis can be employed by businesses to make profitable decisions and to ultimately divert cashflow into projects that will benefit the organization. References Shtub, A., & Rosenwein, M. (2018). Project Management Processes, Methodologies and Economics. Boston: Pearson. ... Purchase answer to see full attachment