Question

Q1) Abu Dhabi University has been receiving multiple complaints over the past years regarding their IT System. The student portal is very slow, inefficient and not user friendly. Due to these complaints, the IT decided to upgrade/redesign the student portal. Their estimated project value is 800,000 AED. They want to achieve this by Fall of 2020.

You have been assigned as a Project Manager for this Project.

You are required to:

1. Create a project charter for this project.
2. Identify the stakeholders of that project. List three potential risks that the project manager should take into account for that project.

Q2) As a member in the project selection team of a company, you are required to analyze the following two projects using NPV (Net Present Value) and ROI (Return on investment).

Details of the two projects are shown as in Tables 1 and 2:

Project A	Year 1	Year 2	Year 3	Year 4
Benefits	$0	$2,000	$3,000	$4,000
Costs	$3,000	$2,000	$1,000	$1,000

Table 1

Project B	Year 1	Year 2	Year 3	Year 4
Benefits	$1,000	$2,000	$4,000	$4,000
Costs	$2,000	$2,000	$2,000	$2,000

Table 2

                                                                       

1. Assume that the discount rate is 10% and the discount cost start in Year 1. Calculate the NPV and ROI for both Project A and Project B. (Please show your detailed steps including discount factor, discounted cost and discounted benefit calculation. Use 3 decimal places for the discount factor.)
2. Based on (a), which project do you recommend?
3. Discuss the advantages and disadvantages of using NPV and ROI in selecting project.

Q3) A financial services company has a long list of potential projects to consider this year. Managers at this company must decide which projects to pursue and how to define the scope of the projects selected for approval. The company has decided to use a weighted scoring model to help in project selection, using criteria that map to corporate objectives. All projects selected must develop a WBS using corporate guidelines.

You are part of a team that will analyze proposals and recommend which projects to pursue. Your team has decided to create a weighted scoring model using the following criteria and weights:

Criteria                                                                                                        Weight

1. Enhances new product development                        20%

2. Streamlines operations                                                                    15%

3. Increases cross-selling                                                                      30%

4. Has good NPV                                                                                     35%

To determine the score for the last criterion, your team has developed the following scoring system:

• NPV is less than 0, the score is 0
• NPV is between 0 and $100,000, the score is 25
• NPV is between $100,000 and $200,000, the score is 50
• NPV is between $200,000 and $400,000, the score is 75
• NPV is above $400,000, the score is 100

The following is information for three potential projects:

• Project 1: Scores for criteria 1, 2, and 3 are 10, 20, and 80, respectively. Estimated costs the first year are $500,000, and costs for years 2 and 3 are $100,000 each. Estimated benefits for years 1, 2, and 3 are $200,000, $400,000, and $600,000, respectively.
• Project 2: Scores for criteria 1, 2, and 3 are all 50. Estimated costs the first year are $700,000, and costs for the second year are $200,000. Estimated benefits for years 1 and 2 are $300,000 and $700,000, respectively.
• Project 3: Scores for criteria 1, 2, and 3 are 0, 50, and 80, respectively. Estimated costs the first year are $300,000, and costs for years 2, 3, and 4 are $100,000 each. Estimated benefits for years 1, 2, 3, and 4 are $0, $600,000, $500,000, and $400,000, respectively.

Develop a spreadsheet to calculate the NPVs and weighted scores for the three projects. Use a 10 percent discount rate for the NPV calculations.

Answer 1

Q2 a)- Project A - Net Present Value & ROI

Discount Rate is 10%

Year	Discount Factor (1/(1+Discount Rate)Year	Benefits	Discounted Benefits (B*C)	Cost	Discounted Cost (B*E)	Net Present Value (D-F)
(A)	(B)	(C)	(D)	(E)	(F)	(G)
1	0.909	$0	$0	$3,000	$2,727	-$2,727
2	0.826	$2,000	$1,653	$2,000	$1,653	$0
3	0.751	$3,000	$2,254	$1,000	$751	$1,503
4	0.683	$4,000	$2,732	$1,000	$683	$2,049
Total		$9,000	$6,639	$7,000	$5,814	$825

Net Present Vaue of Projet A = $825

Return On Investment (ROI) = (Total Benefits - Total Cost)/Total Cost * 100

Return On Investment (ROI) = ($9,000 - $7,000)/$7,000 * 100

Return On Investment (ROI) = 28.57%

Project B - Net Present Value & ROI

Discount Rate is 10%

Year	Discount Factor (1/(1+Discount Rate)Year	Benefits	Discounted Benefits (B*C)	Cost	Discounted Cost (B*E)	Net Present Value (D-F)
(A)	(B)	(C)	(D)	(E)	(F)	(G)
1	0.909	$1,000	$909	$2,000	$1,818	-$909
2	0.826	$2,000	$1,653	$2,000	$1,653	$0
3	0.751	$4,000	$3,005	$2,000	$1,503	$1,503
4	0.683	$4,000	$2,732	$2,000	$1,366	$1,366
Total		$11,000	$8,299	$8,000	$6,340	$1,960

Net Present Vaue of Projet B = $1,960

Return On Investment (ROI) = (Total Benefits - Total Cost)/Total Cost * 100

Return On Investment (ROI) = ($11,000 - $8,000)/$8,000 * 100

Return On Investment (ROI) = 37.5%

Q2 b) Based on NPV and ROI, Project B would be recommended as project has higher NPV and better ROI as compared to Project A

Q3 - Calculation of Net Present Value

Project 1

Discount Rate is 10%

Year	Discount Factor (1/(1+Discount Rate)Year	Benefits	Discounted Benefits (B*C)	Cost	Discounted Cost (B*E)	Net Present Value (D-F)
(A)	(B)	(C)	(D)	(E)	(F)	(G)
1	0.909	$200,000	$181,818	$500,000	$454,545	-$272,727
2	0.826	$400,000	$330,579	$100,000	$82,645	$247,934
3	0.751	$600,000	$450,789	$100,000	$75,131	$375,657
Total		$1,200,000	$963,186	$700,000	$612,322	$350,864

Net Present Value of Project 1 is $350,864

Hence, Score is 75

Project 2

Discount Rate is 10%

Year	Discount Factor (1/(1+Discount Rate)Year	Benefits	Discounted Benefits (B*C)	Cost	Discounted Cost (B*E)	Net Present Value (D-F)
(A)	(B)	(C)	(D)	(E)	(F)	(G)
1	0.909	$300,000	$272,727	$700,000	$636,364	-$363,636
2	0.826	$700,000	$578,512	$200,000	$165,289	$413,223
Total		$1,000,000	$851,240	$900,000	$801,653	$49,857

Net Present Value of Project 2 is $49,857

Hence, Score is 25

Project 3

Discount Rate is 10%

Year	Discount Factor (1/(1+Discount Rate)Year	Benefits	Discounted Benefits (B*C)	Cost	Discounted Cost (B*E)	Net Present Value (D-F)
(A)	(B)	(C)	(D)	(E)	(F)	(G)
1	0.909	$0	$0	$300,000	$272,727	-$272,727
2	0.826	$600,000	$495,868	$100,000	$82,645	$413,223
3	0.751	$500,000	$375,657	$100,000	$75,131	$300,526
4	0.683	$400,000	$273,205	$100,000	$68,301	$204,904
Total		$1,500,000	$1,144,731	$600,000	$498,805	$645,926

Net Present Value of Project 3 is $645,926

Hence, Score is 100

Criteria	Weight	Score of Project 1	Weighted Score of Project 1 (Score *Weight)	Score of Project 2	Weighted Score of Project 2 (Score *Weight)	Score of Project 3	Weighted Score of Project 3 (Score *Weight)
1	20%	10	2	50	10	0	0
2	15%	20	3	50	7.5	50	7.5
3	30%	80	24	50	15	80	24
4	35%	75	26.25	25	8.75	100	35
Total	100%		55.25		41.25		66.5