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LECTURE 4

Performing Project Reviews

Introduction
Before a project is approved, a number of
reviews are in order to be sure that the project
makes sense, that it is feasible, worthwhile,
and not overly risky.
These reviews include:

Conceptual Review
Feasibility Study
Benefit-Cost Analysis
Profitability Measures
Alternative Course of Action Review
Opportunity Cost Review
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Conceptual Review
Determines suitability of project for the
organization. Project Manager asks:
Does the project fit within the mission, goals, and
objectives of the organization?
Does the project support a specific business plan
already in place?
Will the project solve the stated problem or
appropriately take advantage of the current
opportunity?

Feasibility Study
A good feasibility study will gather information from other
organisations that may have tried a similar project in
order to better gauge the chances of project success.
The project manager asks:
How realistic is it to expect that the project
can meet the stated objectives?
How realistic are the project scope, budget, and
time requirements?
Can the appropriate resources (including funds) be
available when needed to complete the project?

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Benefit-Cost Analysis
The project manager asks:
What benefit with the organization get from completing this
project?
What is the value of the promised advantages, considering
the amount of money involved, the time needed to complete
the project, and the resources required?
What is the projects value compared to other projects that
could be done instead (opportunity cost)
Expected revenue/expected costs = profitability ratio

> 1 : Profitable project

< 1 : Costs to exceed profit

= 1 : Break even

Profitability Measures
Payback period How many years will it take
for cumulative revenues to exceed cumulative
costs?
Internal rate of return (IRR) average rate of
return, expressed as a percentage
Return on assets (ROA) net profit/total
assets
Return on investment (ROI) net profit/total
investment
Return on sales (ROS) net profit/total sales
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Alternative Review
The Project Manager asks:
What other things could be done to solve the
problem or take advantage of the opportunity?
What are the positive and negative consequences
of each potential course of action?
What would happen if you took no action at all?

Opportunity Cost Review

In selecting a project, a company commits


finite resources, time and energy
So comparing all other possible uses of
resources should be taken seriously

Preliminary Risk Assessment


The project manager asks:
What could go wrong in the project and
what are the potential consequences?
What are the uncertainties of the project?
What are the consequences if the project
fails to meet its objectives?
What is the risk that it will not solve
the problem?
The project manager must
determine that the project benefits
outweigh the risk.
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Possible Review Outcomes


After these reviews the project manager and
customer determine whether to:
Proceed
Change the objectives
Drop the project

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Classroom Activity 5a

For your current project, perform a:

mini-conceptual review,
feasibility study,
benefit-cost analysis,
alternative course of action review,
opportunity cost review, and
risk analysis.

Write down the outcomes of each and show the


advantage (or disadvantage) of proceeding with
the project
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Questions?

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