Statistics in Project Management

Statistics for Choosing a Project

Payback Period is the amount of time necessary to pay back the initial
investment of a project using estimated annual cash inflows. This can be
used to decide which project will return your investment the quickest.
Payback Period = Initial investment / annual cash inflows
NPV also known as the present value method, it determines the net present
value of all cash flows by discounting them by the required rate of return.
Predicts the value of the project including the impact of inflation.
NPV = - initial investment + net cash flow year 1 / (1 + rate of
return) + net cash flow year 2 / (1 + rate of return) ^ 2 …..
Weighted Factor- Several factors for choosing a project are given a
number based on how important they are to the project. The project is
then given a number based on how well it fits the weighted factors.
Project score = Weight of each factor * Projects score for each
factor added together
The highest project score is the best fit taking into account the key
factors.
Statistics for Scheduling
PERT and CPM, The Program Evaluation and Review Technique and The
Critical Path Method
PERT and CPM combine several different types of statistical evaluation in
determining the schedule for a project
Activity times are calculated using optimistic, pessimistic, and most likely
time estimates
Optimistic time estimate- task will take longer than this 99 percent
of the time
Pessimistic- task will take less time than this 99 percent of the time
Most likely- the mode of the time distribution scale
TE = (optimistic + 4*most likely + pessimistic)
Critical Path- Path which if delayed will delay the completion of the
project.
The critical path is the path estimated to take the most time to complete.
Calculating the probability of Completion Time
Standard Normal Deviate = ( Desired project completion time –
critical time) / standard deviation
The Higher the number of standard deviations the greater the
probability that the project will be completed by the desired time.