Title: Sensitivity Analysis of Project Development and Optimization
In order to increase the business efficiency and a guaranteed successful outcome of the business objectives, the competitive edge of the respective industries are needed to be secured from the external attacks. Most of the business organizations are currently searching different ways to enhance the business efficiency by developing critical business processes. For determining the undesirable failure or else organizational success it is very much necessary for the business analysts to consider certain factors including the first to market, cost competitiveness, and service and product quality. This report depicts the role of project development and optimization for gaining competitive advantages and measurable revenue of a business organization.
In order to process the gathered information in a correct direction in accurate flow it is important for both the system and business process developers to consider proper improvement opportunities to the employees and other system developers. It is determined that there are different project optimizations methods are there such as Business Process Reengineering (BPR), Lean Management (LM), Kaizen Approach (KA), Six Sigma, Total Quality Management (TQM) etc. In addition to this different tools are also there for the improvement of decision making in project optimization. In order to make sensitivity analysis of the developed project certain effective parameters must be considered, those are also illustrated in this project. In addition to sensitivity analysis, economic analyses for each parameter are also elaborated in this report.
In order to differentiate the sources of both uncertainty and inputs a mathematical model is used by business operators is known as sensitivity model. The practices related to sensitivity analysis are uncertainty analysis, uncertainty qualification, uncertainty propagation etc. With the help of this particular approach the business outcomes of project optimization can be recalculated. In order to determine the impact of variables considered for sensitivity analysis include wide range of purposes. The ranges of purposes are as follows:
The key Parameters of project management are as follows:
With the help of sensitivity analysis the following components could be served accordingly:
|
Decision making or development of recommendations |
|
Robustness testing for optimal solution |
|
Critical value identification |
|
Sensitivity identification |
|
Su optimal solution investigation |
|
Communication approaches |
|
Credible recommendations development |
|
Allowing the decision makers for selecting assumptions |
|
Commitment convey |
|
Increment in understanding and qualification |
|
Relationship estimation between the input and output variables |
|
Relationship understanding between the input and output variables |
|
Hypothesis development for testing |
|
Development of models |
|
Model testing |
|
Error searching |
|
Mode simplification |
|
Calibrating testing models |
|
Copy the poor rather missing information |
Decision variable is referred to as a variable over which the decision makers have effective control. With the help of this control the desired level could be selected however from the view of the decision maker, optimal strategies and optimal functions such as profit, social welfare, expected utility and environmental outcome could be developed accordingly. Not a single but different alternative strategy could also be developed with the help of the Sensitive analysis. However, proper observation and experimental design is required to be done for the implementation of sensitivity analysis.
Following the sensitivity analysis approach it is defined that, based upon the profitability of different strategies the sensitivity analysis approaches are outline by the project developers. Again with the changing perception of the optimal strategies are changed or altered. Though, the modified distributions are not certain because the data are obtained from the sensitivity analysis. The process of Sensitivity analysis is based on the “Bayesian Decision Theory”, this is referred to as one of the most powerful approach for decision making n the business organizations. The other things those are required to be adopted
The components those could be varied in project optimization
In order to develop the project and execute it successfully the necessary steps those are required to be considered by the business developers include the following:
Estimation of cash flow
Cash Flow is the set of money needed to be invested for the development of the project by integrating its components professionally. The rate of Return on Investment (ROI) stand high if the business analyst and the finance manager become able to balance the input of the project properly.
|
r |
0.03 |
|||||||
|
Year |
Cash Outflow |
Cash Inflow |
Cash Flow |
Direct Cash Flow |
Cum CF |
PP (in years) |
||
|
0 |
$ 342,100.00 |
$ 20,000.00 |
-$ 322,100.00 |
-$ 322,100.00 |
-$ 322,100.00 |
|||
|
1 |
$ 116,700.00 |
$ 200,000.00 |
$ 83,300.00 |
$ 80,873.79 |
-$ 241,226.21 |
FALSE |
||
|
2 |
$ – |
$ 250,000.00 |
$ 250,000.00 |
$ 235,648.98 |
-$ 5,577.24 |
FALSE |
||
|
3 |
$ – |
$ 250,000.00 |
$ 250,000.00 |
$ 228,785.41 |
$ 223,208.18 |
2.0 |
Years |
|
|
4 |
$ – |
$ – |
$ – |
$ – |
$ 223,208.18 |
FALSE |
||
|
$ 458,800.00 |
$ 720,000.00 |
$ 261,200.00 |
$ 223,208.18 |
|||||
|
RofR = |
12.16 |
% per annum |
||||||
|
IRR (approx.) = |
30.7% |
|||||||
|
NPV = |
$ 223,208.18 |
|||||||
|
payback= |
2.0 |
years |
In this particular case project the cash is coming from the consumers who are buying products and getting services from the company. Another source of cash in-flow is the accounts department of the company who invest money for the development of the company.
The amount of Cash out-flow is the expense of the company itself. If the amount of cash in-flow is higher than the cash out flow then the cash flow is referred to as the positive cash flow. On the other hand, if the rate of cash out-flows is higher than the cash in-flow, then it will be referred to as negative cash flow.
|
Cost Benefit Analysis using Present Value |
|||||
|
Benefits of the options |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
project unit understanding |
$ 100,000 |
$ 100,000 |
$ 100,000 |
$ 100,000 |
$ 100,000 |
|
Buying practice improvement |
$ 25,000 |
$ 25,000 |
$ 20,000 |
$ 20,000 |
$ 15,000 |
|
service improvement |
$ 15,000 |
$ 15,000 |
$ 15,000 |
$ 20,000 |
$ 25,000 |
|
Total Benefits |
$ 140,000 |
$ 140,000 |
$ 135,000 |
$ 140,000 |
$ 140,000 |
|
Option for cost |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Total cost |
$ 250,000 |
$ – |
$ – |
$ – |
$ – |
|
Hardware requirement |
$ 50,000 |
$ – |
$ – |
$ – |
$ – |
|
Functional and operational cost |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
|
Development time |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Cost for maintenance |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
|
Net cost |
$ 305,000 |
$ 5,000 |
$ 5,000 |
$ 5,000 |
$ 5,000 |
|
Total profit |
$ (165,000) |
$ 135,000 |
$ 130,000 |
$ 135,000 |
$ 135,000 |
|
Cumulative cost |
$ (165,000) |
$ (30,000) |
$ 100,000 |
$ 235,000 |
$ 370,000 |
|
Total cost (NPV @ 5%) |
($157,142.86) |
$122,448.98 |
$112,298.89 |
$111,064.83 |
$105,776.03 |
|
Cumulative NPV |
($157,142.86) |
($34,693.88) |
$77,605.01 |
$188,669.84 |
$294,445.88 |
|
Break Even Analysis |
|||||
|
Costs of Existing System |
Year 1 |
Year 3 |
Year 4 |
Year 5 |
|
|
Net development cost |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Hardware cost |
$ 22,000 |
$ 26,000 |
$ 20,000 |
$ 30,000 |
$ 40,000 |
|
Operational and functional cost |
$ 22,000 |
$ 20,000 |
$ 18,000 |
$ 11,000 |
$ 19,000 |
|
Time for development |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Maintenance cost |
$ 12,000 |
$ 17,000 |
$ 16,000 |
$ 20,000 |
$ 20,000 |
|
Existing cost |
$ 56,000 |
$ 63,000 |
$ 54,000 |
$ 61,000 |
$ 79,000 |
|
Cost for project optimization |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Development cost |
$ 250,000 |
$ – |
$ – |
$ – |
$ – |
|
Hardware cost |
$ 50,000 |
$ – |
$ – |
$ – |
$ – |
|
Operational and functional cost |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
|
Development time |
$ – |
$ – |
$ – |
$ – |
$ – |
|
Maintenance cost |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
$ 2,500 |
|
Maintenance cost |
$ 305,000 |
$ 5,000 |
$ 5,000 |
$ 5,000 |
FALSE |
Conclusion
From the overall discussion it can be concluded that in order to execute a project successfully project optimization, project integration, project sensitivity and project economic analysis important to be illustrated. For integrating different project components, it is necessary for the project developers to estimate the cost for each of the processes. With the help of proper estimation of each phase after the execution of the project it will be able to gain effective revenue from the competitive market. For developing any business project the project manager and the project team members are also required to consider different methods of project optimization such as utilization of mind map, follow fishbone, etc. On the other hand, Cash Flow Analysis (CFA) is referred to as one of the most widely used decision making tools however, cash flow analysis for different decision making told are different from each other. The sensitivity analysis and economic analysis for each of these approaches are elaborated in this report. Though, with the application of cash flow analysis the project optimization and integration become more beneficial however, certain issues are still found to be associated to it In order to mitigate those issues proper project optimization methods are needed to be developed by the management authority and those are also illustrated as recommendations.
In order to resolve the issues of project management certain approaches those are needed to be adopted are as followed:
DMIAC implementation: With the implementation of DMIAC (define, measure, analysis, improvement and control) approaches, the issues of project optimization and development will be completely minimized. Even the project operation cycles can be modified accordingly with the help of the implementation of these processes. In addition to this, the business processes could be analyzed appropriately with the implementation if DMIAC approach.
Time and cost management: By managing time and cost for each of the project development phases the business operations can be made properly. In addition to the identification of problem statement the business developers also came to know about whether the estimated cost and allotted time is sufficient for the completion of the project.
Principle of the 5 S: In order to develop effective project outcome for the consumers and for the business operators as well it is necessary for the project managers to adopt the 5S principles. The 5 principle components are Sort, Set in order, shine, systemization and standardization.
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