Individual Project: Project Outline
Question Detail:
In Part II: Project Outline, the new executive (your Instructor) of your strategic business unit (SBU) asked your team to create a portfolio management process and project selection criteria for use by the SBU. Your executive is very satisfied with the work you did to create this process. In fact, he was so impressed with the process and criteria you defined, he has now asked you to be key players in executing that new process. What follows are the details that will comprise the final deliverable of the project.
Your third task in this project is to develop the final deliverable of the module project. This is due no later than the end of week 8.
Part II: Project Outline due at end of week 6:
In the annual budget cycle,
Your SBU was allocated 24 million of funding for staff.
Your SBU is currently staffed with 100 people. The average loaded salary of your staff members is 240,000, which includes direct salary, all benefits (which are part of your budget), and all direct charges and capital charges (supplies, computers, travel, rental charges for the space you occupy, equipment, etc.).
In order to continue to employ all 100 staff members, you must allocate 6 million of funding each quarter.
It is Monday, April 1. The first quarter of the year has just concluded.
Your SBU spent 6.0 million of the annual funding in the first quarter.
Half of that spending went to projects that were finished in the first quarter and no longer require any budget.
There are three committed projects still in progress, which have the following characteristics.
Project
Delivery
1Q
2Q
3Q
4Q
Total
Funding Available for Q
6.0M
6.0M
6.0M
6.0M
24.0M
Project A
6/30
2.0M
2.0M
–
–
4.0M
Project B
9/30
1.0M
2.5M
2.5M
–
6.0M
Project C
12/31
–
1.0M
3.0M
3.0M
7.0M
Sunk Cost in Other Completed Projects
3/30
3.0M
–
–
3.0M
Total Committed Funding
–
6.0M
5.5M
5.5M
3.0M
20.0M
An important new projectProject Dhas been proposed, and your executive has asked you to use the portfolio management process to determine whether to proceed with Project D and to identify the impact of the project on the rest of the programme. Project D must be delivered by December 31 and is estimated to require the following funding to meet that commitment.
Project D Required Profile
Quarter
Funding Required
2Q
1.0M
3Q
2.5M
4Q
2.0M
You are to use the portfolio process you developed in Part II: Project Outline of the module project to determine how to manage the portfolio of existing and new projects. When looking at the funding required, you willnot be able to maintain the work on all the existing projects and introduce the new one with its requirements.
The information that you have for the projects is the following:
Project
Description
A
Final R&D and commercial launch expenses for new product linecritical to protecting market share from aggressive competitors who are rumoured to be developing a similar product line
B
Product line extension (V2.0) for product line that has been quite successful initially in the marketplace and appears to be a successful new product
C
Product line rehab for product line that has not achieved the initial success desired, but should be successful with these design revisions in a market that is growing slowly
D
Exciting new product concept that will replace an outdated product where sales have been deteriorating over the past several years. The product promises (based on initial product market testing) to be a success within several years.
The results of the analysis using the selection process are the following:
Project A is viewed as higher priority than Project D.
Project B and Project C, however, are lower priority than Project D. That is, it is more important to make the requested schedule date for Project D than to maintain the committed schedule dates for Projects B and C.
Cash Flow Estimate for Project A (all figures are in M Euro):
Cash Flow Item
Year 1
Year 2
Year 3
Year 4
Years 515
EBIT
4.10
2.25
4.65
8.50
10.27
Capital Investments
6.90
Cash Flow Estimate for Project B (all figures are in M Euro):
Cash Flow Item
Year 1
Year 2
Year 3
Year 4
Years 515
EBIT
1.10
1.50
3.36
4.50
6.40
Capital Investments
4.10
Cash Flow Estimate for Project C (all figures are in M Euro):
Cash Flow Item
Year 1
Year 2
Year 3
Year 4
Years 515
EBIT
1.70
1.80
2.30
4.30
6.30
Capital Investments
4.70
Cash Flow Estimate for Project D (all figures are in M Euro):
Cash Flow Item
Year 1
Year 2
Year 3
Year 4
Years 515
EBIT
5.10
2.10
6.00
12.00
13.50
Capital Investments
8.2
Notes on Tables:
EBIT is defined as Earnings Before Interest and Taxes (revenues minus discounts minus cost of goods sold).
All equity financing is used so there are no interest charges.
Corporate tax rate is 30%.
Discount rate of 11% should be used.
Straight-line Depreciation should be used. In all cases, assume an average tax life of 15 years.
Assume tax-loss carry-forward applies to all cash flows.
Your report will show how you used your portfolio process to determine why you are going to commit to Project D and determine any impact on currently committed Projects A, B, and C, and you will write a short memo to your manager documenting the results of applying the portfolio process. Attached to the memo you are to include an executive summary project plan for Project D.
Since this is the first project using the new portfolio process and project selection criteria, you will be expected to present an overview of the process and criteria to your new executive. You will then need to present the results of your analysis and recommendation, including an overview of the executive project plan, to the executive as part of the gate review of Project D.
Note that in your discussion, you should identify the potential change management and political issues that might get in the way of successful implementation of this new system for changing the portfolio. Such changes are never easy, with various political motivations or change management issues surfacing. Your company is not different than others, but you need to articulate in your report what some of the issues might be and how you would recommend that management deal with them.