Methods For Project Selection, Cost Management, Funding, And Implementation Strategies

Importance of project selection

Discuss about the Different Phases Of Project Management.

In order to select the right project for the organization the company undertakes research and development process to find out that which is the most suitable project that will bring success to the organization. According to the research conducted by Marcarelli (2018), it was found out that Analytic Network Process (ANP), is one of the most potential methods that help in the field of research and development. This method will help in the very beginning stage of project selection. The ANP model uses both the qualitative as well as quantitative assessments in order to find out which alternative should be adopted by the organization. It helps in studying the cause and effect relationship between different elements (Marcarelli, 2018). At the time of selecting a project both the internal as well as the external factors impact are analysed. The flexibility of the project is also analysed by project analysts so that stakeholders does not face any problem and can select methodologies as well as technologies according to their own comfort. The project analysts’ analyses the individual project on different basis like the economic return attached to that particular project, benefits as well as risks attached, etc. Also the current or recent projects that are adopted by the organization are analysed by analyst in order to find out the major area of focus as well as the available resources for undertaking a different new project. This process also helps the analyst to eliminate those projects that hold no relevance to the organization (Verbano & Nosella, 2010).

The different approaches that are used by project analysts include Ad Hoc approaches as well as Comparative approaches. Ad Hoc approaches include- Profile- this is a method that includes scoring model also known as balanced scorecard in which certain limits are set for different project attributes and the project that fails to meet the required level are eliminated and the ones that score the highest are selected (Eilat, et al., 2008). Another method that is used includes Interactive Selection which involves an interactive process which takes place between the champions of the projects as well as the decision makers. This interaction continues till the moment the group comes down to a specific project after eliminating the ones that are not worth (Sun, et al., 2008). Comparative approach on the other hand includes – Q- Sort, Analytic Hierarchy Procedure, standard gamble, pair wise comparison as well as successive comparison. Q-Sort is the most commonly used method, in which objectives are shortlisted, and then different alternatives are analysed on the basis of their abilities to fulfil these objectives and then in the end the project is selected (Wang & Yu, 2011).

ANP Model for project selection

Example: ANP model is used by Sarkis and Meade for the section of the supplier selection. At first they analyze the supplier selection problem. The main foal of the supplier section problem is selecting the best supplier which meets the needs of the company. Around 45 criteria’s are determined which lies in three categories: business structure of suppler, manufacturing capability and quality’s system. After this alternatives are determined Successful alternatives are selected based on filed of activity by the company. In the last step, interactions in between and within the clusters are analyzed. In the end the proposed supplier is selected abase don matrix. The proposed model of supplier section is used for realising the designs, manufacturing and after sales services. The team includes many disciplines (Gencer & Gürpinar, 2007).

In order to undertake a project the first thing that comes in mind is regarding the budget that is required in order to successfully undertake the complete project. Hence, cost management is required in order to ensure that the project is completed within the approved budget limit (Meredith & Mantel Jr., 2001). Project cost management is important as it gives a control over the project that is depending upon the budget available the project work is scheduled accordingly as well as control over the activity is also practiced. Cost management will help to keep the project on track and any extravagant expenditure will not be incurred by the company which needs to be avoided. This is the main reason that project analysts undertake project cost management activities (Kerzner & Kerzner, 2017). Project cost management includes the activities like managing the budget of the project, the cash flow as well as controlling the cost along with maintaining proper time schedules (Smith, 2014). Cost, time and quality are considered as the iron triangle of project management. Proper handling of these three factors can decide the success of the project. Cost is the only one factor that can be estimated at the time when merely nothing is known about the project. Cost management also helps in assessing the profit margin of the project (Turner, 2009).

Improving the cost performance is the major task performed by project analysts and hence in order to improve the efficiency of the cist certain strategies are adopted by project analysts. According to a research conducted by Chigara et al. (2013), it was found that strategies like managing the project resources, monthly cost reports along with cash flow forecasting and variance management are used by project managers in order to increase the cost efficiency of the project (Chigara, et al., 2013).

Approaches used by project analysts

For example: Few years back Toyota conducted a research on cost management for studying technologies of European and American automobile for the purpose gradually improving cost of products. The company as not able to compete in global world because of cost management. Company was incurring high cost in production because of mismanagement in cost. After considering the American and European automobile cost system Toyota started following Kaizen and Kanban system for improving cost. Through Kanban System Company started doing advance payments of materials, avoided extra inventories and the storage cost was reduced. On the other side Kaizen was implemented for uniform quality management. The company basically made out that the motivated employees understands management of cost in effective way (Present, 2018).

Arranging funds is a vital and critical task for any organization in order to carry out the new project. There are many sources available in front of organizations that can be used by the company for funding their projects. Forbes has mentioned few important funding options that are usually used by organizations in order to finance their projects. Bootstrapping is one of the funding sources that are usually used by organizations for funding their projects. Bootstrapping includes the savings maintained by the organization. Rich Christiansen had launched nearly 30 companies by bootstrapping. Another option is through grants that are available to the organizations, like many programmes are launched by governments in order to bring innovation and these grants can be utilized by organizations. Loans or credits can also be raised from creditors which can be repaid by the organization after sometime along with certain interest. Angel investors are also one of the feasible and handy options for funding the projects of the organization. Venture Capital is another option that can be adopted by company though; it is recommended that this source should be adopted at later stage of the organization. Indulging in partnerships is also one of the efficient sources of funding that can be adopted by the organization. These are some of the major alternative funding sources that can be adopted by the organization (Zwilling, 2010). Crowd funding is also one of the sources that can be adopted by the organizations to raise money for the projects. Crowd funding aims at raising small contributions from relatively a large number of populations by using mediums like internet. Crowd funding is also associated with the quality of the project if the population believes that the concerned project will benefit them or will fulfil their needs and demands the people are ready to invest their funds in the organizations project (Mollick, 2014).

Project cost management

Example: There are various real life examples where companies raised funds through venture capitalists. Pepperfry.com is one of those companies. It is an e-commerce company, which deals in furniture products and currently is the largest e-marketplace for furniture segment in India. The company successfully raised 100 million dollars, which was funded by Goldman Sachs and Zodius Funds. The company aims to utilise the funds to expand its foothold in Tier III and Tier IV cities of the country. The generated funds would help the company to add more delivery vehicles as well as distribution centres across the country (Edupristine, 2018).

Implementing a new project always involves some kind of changes in the normal work structure of the employees as well as of the organization. Some of the major issues that are faced at the time of implementation of the project include communication, skills and competencies, change management, etc. if the project is not clearly communicated it may increase confusion among the employees that what is actually being expected from them and why this project is important to the organization; Also, if the employees do not possess the required skills and competencies than the adopted project cannot be implemented (Henderson, 2008). Another important issue is faced when the employees resist adopting any kind of changes. It has been seen that at the time of implementation of new projects the employees feel that they will be loaded with more work and responsibilities hence, they do not welcome new projects in the very first place. These issues need to be redressed as they are the ones that decide the success of the project. Hence, it is very important to get rid of these issues as soon as possible. This may also affect the productivity as well as performance of the organization as the employees may not feel motivated and committed towards their organization. Hence, the present as well as the future of the organization depends upon this and because of this negative impact considering these issues becomes very important (Delgado & Nah, 2006).

In the end of the project the projects are wounded up either because they have achieved their objectives or because they have failed or also if there is no need to continue the project. Wounding up of the project reflects the completion of the projects. When the project finishes the project manager evaluates the project performance that whether the desired objectives has been achieved or not. The project does not just ends, in the end the project manager ensures to conduct a debrief session in which post evaluation of the project is undertaken. This helps in analysing the resources utilized in the project as well as to consider if any shortfalls were there so that they are not repeated in future projects. The entire necessary documents are archived. And this is followed by celebrations of the success of the project (Harvard Business Review, 2016).

Strategies for improving cost performance

Example: Jönköpings is one of the municipality of Sweden. Its IT department was established to help and support other departments of the municipality. The department manages various projects. According to the project managers in the IT department of Jönköpings, having control in a project is of paramount importance for closure of any project. The managers follow a clear method so that control over project closure can follow a smooth and easier way. They follow checklist to ensure closure is effective (Gustafsson & Yadav, 2013).

On the basis of the above discussion some of the recommendations that can be suggested are as follows:

• Project selection is the most important activity for a project analyst. Many different methods are available that can be adopted for project selection like Q-Sort, Scoring model, interaction process, etc.
• Project management objectives should be clearly defined and every organization should take efforts to enhance project management culture within their organization.
• Accountability should be developed regarding managing budgets, accomplishment of objectives etc. so that the whole department remains dedicated towards the work.
• It is also important to develop measurable objectives that can be achieved ad measured by the organization. This will help in analysing the success of the projects (IAPM, 2018).

Looking at the financials of the Myer Company it is visible that the company is raising equity capital. Raised capital refers to obtaining the capital amount from the investors or the venture capital sources. When a company thinks about raising equity capital, they mainly think about a private company, which goes public, selling an IPO. Besides analysing the value of the company, equity capital is important for business because it can be utilized for finance expansion. Equity financing can be defined as a way of financing in which a business funds expansion by selling its shares to investors. The selling of stock by a company is also referred to as selling of equity to investors in exchange cash which can be utilized to fund the growth. Equity financing is the way that companies can gain access to a large amount of cash without debt. Equity capital is a key concept in context of business and personal finance, which illustrates the ownership interest that the person has in any asset. Equity capital is obtained by subtracting any type of liability from value of an asset.

Myer’s equity value dropped in 2018 because of being beaten up by the online competition. The company’s business has been eaten up from all sides. Shopping centres are the new departmental stores. There used to be a time when people used to head into the Myer in town, for not everything from a toaster to business suit; but it is happening anymore. Instead, it is the shopping centres with dazzling and side-lining array of alternatives, which are attracting investors towards them. There are online disruptors also who are stealing the sales and market share. In short, the company is not having any compelling value proposition

Following is the table showing cash inflows:

Cash Inflows

3666666.667

2933333.333

1994666.667

1356373.333

2370893.537

For calculation refer to excel sheet sent.

Funding options for organizations

The method of net present value is considered as the main tool for the purpose of determining the profitability of the project. Many of the financial analysts use this technique for the purpose of deriving decisions related to the investment. This technique is widely used because it considered the time value factor of money. In this technique, the present value associated with future cash flows are calculated for the purpose of discounted rates. In addition to it, the technique offers concrete value related to the viability of the project (Woodroof, 2011). The net present value of the project has been derived as $4243303. This value shows that the by making an investment in the project, the company will be able to enhance its overall value by the amount of $4243303. The positive net present value of the project shows that project is profitable for the company, as the project will be creating a positive figure of $4243303.

PV of Inflows	PV of Outflows
3666666.667	2426667
2933333.333	1930667
1994666.667	1312142
1356373.333	891782.6
2370893.537	1517372

NPV = $4243303

• Second Scenario

When 1 Canadian Dollar = 0.95 US Dollar

In the case when Canadian dollar depreciates against the Australian dollar, the NPV changes from 4243303 to 4466635. Though the net present value of the project changed after the change in foreign exchange but still the project seems to be profitable as the net present value is high for the project.

Conclusion

In both the scenarios the project seems to be profitable as the net present value is positive and is high also. If the company will invest in this new project then they will be able to earn a good amount in return (Woodroof, 2011).

References

Chigara, B., Moyo, T. & Mudzengerere, F. H., 2013. An Aanalysis of cost ManagementStrategies. International Journal of Sustainable Construction Engineering & Technology, 4(2), pp. 1-13.

Delgado, S. & Nah, F. F.-H., 2006. Critical Success Factors for Enterprise Resource Planning Implementation and Upgrade. Journal of Computer Information Systems , 46(5), pp. 99-113.

Eilat, H., Golany, B. & Shtub, A., 2008. R&D project evaluation: An integrated DEA and balanced scorecard approach. Omega, 36(5), pp. 895-912.

Harvard Business Review, 2016. The Four Phases of Project Management, s.l.: Harvard Business Review.

Henderson, L. S., 2008. The impact of project managers’ communication competencies: Validation and extension of a research model for virtuality, satisfaction, and productivity on project teams. Project Management Journal, 39(2), pp. 48-59.

IAPM, 2018. Recommendations for Project Management Departments. [Online]
Available at: https://www.theiapm.org/iapm-article.php?id=7&cat=
[Accessed 14 May 2018].

Kerzner, H. & Kerzner, H. R., 2017. Project Management: A Systems Approach to Planning, Scheduling, and Controlling. s.l.:John Wiley & Sons.

Marcarelli, G., 2018. An integrated network model for performance management: a focus on healthcare organisations. International Journal of Managerial and Financial Accounting, 10(2), pp. 163-180.

Meredith, J. R. & Mantel Jr., S. J., 2001. Project Management: A Managerial Approach. s.l.:John Wiley & Sons.

Mollick, E., 2014. The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing, 29(1), pp. 1-16.

Smith, D. P., 2014. Project Cost Management – Global Issues & Challenges. Procedia – Social & Behavioral Sciences, , Volume 119, pp. 485-494.

Sun, Y.-H., Ma, J., Fan, Z.-P. & Wang, J., 2008. A Group Decision Support Approach to Evaluate Experts for R&D Project Selection. IEEE Transactions on Engineering Management, 55(1), pp. 158-170.

Turner, J. R., 2009. The Handbook of Project Based Management. 3 ed. s.l.:McGraw-Hill.

Verbano, C. & Nosella, A., 2010. Addressing R&D investment decisions: a cross analysis of R&D project selection methods. European Journal of Innovation Management, 13(3), pp. 355-379.

Wang, Z. & Yu, Y., 2011. Information entropy method for project portfolio selection. Shanghai, IEEE.

Woodroof, E. A., 2011. How to use NPV to your Advantage. [Online]
Available at: https://www.buildings.com/article-details/articleid/11828/title/how-to-use-net-present-value-npv-to-your-advantage

Zwilling, M., 2010. Top 10 Sources Of Funding For Start-ups. [Online]
Available at: https://www.forbes.com/2010/02/12/funding-for-startups-entrepreneurs-finance-zwilling.html#8f3d883160f2
[Accessed 12 may 2018].