...Project Management - Handstar Inc NPV Method for Project Selection The Net Present Value (NPV) of an investment is the present value of the expected cash flows, less the cost of the investment NPV is calculated based on formula for growing annuity - a stream of cash flows that grows at a constant rate for a fixed number of periods C= First year revenue r = Discount rate = 12% g = Annual Revenue Growth T = Product Life Time = 3 years Total development hrs available with 4 developers in a year= 4 X 2500=10000 hrs Assumptions 1. In NPV calculation, we assume all projects are completed on same date 2. 3 years of Product Life time starts from date of completion of individual projects Please refer the attached excel sheet for complete calculation Project# Project Type Project Name Dev Hrs NPV (Refer Excel sheet) Project Rank (Based on NPV) 1 Update Integration of calendar and email 1250 1575155.23 4 2 Update Expense report 400 607862.11 6 3 Update Portfolio tracking system 750 1218324.22 5 4 New Product Spreadsheet Program 2500 2501024.51 3 5 New Product Web Browser 1875 6779898.70 1 6 New Product Trip Planner 6250 2944042.97 2 Q1: As per NPV ranking and available development hrs. (i.e. 10000) following 4 projects can only be undertaken. By taking up these project total 9775 hrs. will be utilized. Project Name Dev Hrs NPV (Refer Excel sheet) Project Rank (Based on NPV) Integration...
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...Handstar Inc. Teaching Purpose: This case requires students to rank a number of candidate projects using both the NPV approach and the weighted scoring model approach. The case demonstrates how the NPV approach can be combined with the weighted scoring approach in evaluating projects. 1. Which projects would you recommend Handstar pursue based on the NPV approach? The spreadsheet bellow summarizes the NPV calculations for the six projects assuming the development costs are incurred at the end of year zero and each product has a three-year life. Since the six projects require a total of 13,025 development hours and only 10,000 hours are available, one or more projects will need to be postponed or eliminated from further consideration. If we start with the project with the highest NPV, the Browser project would be selected first requiring 1,875 hours of development time. Next, the Trip Planner would be selected requiring an additional 6,250 hours of development time. The project with the next highest NPV is the Spreadsheet project. However, this project requires 2,500 hours and only 1,875 hours are available after selecting the Browser and Trip Planner projects. The project with the next highest NPV is the Calendar/Email project which requires 1,250 hours of development time leaving 625 hours available. Of the remaining projects, the Portfolio Tracker requires too many hours while the Expense Report project can be completed with the hours available. Thus, Browser...
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...Handstar Inc. Handstar Inc. was created a little over four years ago by two college roommates to develop software applications for handheld computing devices. It has since grown to ten employees with annual sales approaching $1.5 million. Handstar’s original product was an expense report application that allowed users to record expenses on their handheld computers and then import these expenses into a spreadsheet that then create an expense report in one of five standard formats. Based on the success of its first product, Handstar subsequently developed three additional software products: a program for tracking and measuring the performance of investment portfolios- a calendar program, and a program that allowed users to download their email messages from their PC and read them on their handheld computers. The two founders of Handstar have recently become concerned about the competitiveness of their offerings, particularly since none of them has been updated after their initial launch. Therefore, they asked the directors of product development and marketing to work together and prepare a list of potential projects for updating Handstar's current offerings as well as to develop ideas for additional offerings. The directors were also asked to estimate the development costs of the various projects, product revenues, and the likelihood that Handstar could retain or obtain a leadership position for the given product. Also, with the increasing popularity of the Internet, the founders...
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...Handstar Inc. Handstar Inc. was created a little over four years ago by two college roommates to develop software applications for handheld computing devices. It has since grown to ten employees with annual sales approaching $1.5 million. Handstar’s original product was an expense report application that allowed users to record expenses on their handheld computers and then import these expenses into a spreadsheet that then create an expense report in one of five standard formats. Based on the success of its first product, Handstar subsequently developed three additional software products: a program for tracking and measuring the performance of investment portfolios- a calendar program, and a program that allowed users to download their email messages from their PC and read them on their handheld computers. The two founders of Handstar have recently become concerned about the competitiveness of their offerings, particularly since none of them has been updated after their initial launch. Therefore, they asked the directors of product development and marketing to work together and prepare a list of potential projects for updating Handstar's current offerings as well as to develop ideas for additional offerings. The directors were also asked to estimate the development costs of the various projects, product revenues, and the likelihood that Handstar could retain or obtain a leadership position for the given product. Also, with the increasing popularity of the Internet, the founders...
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...Project Management II 1. Which projects would you recommend Handstar pursue based on the NPV approach? * The spreadsheet bellow summarizes the NPV calculations for the six projects assuming the development costs are incurred at the end of year zero and each product has a three-year life. Since the six projects require a total of 13,025 development hours and only 10,000 hours are available, one or more projects will need to be postponed or eliminated from further consideration. If we start with the project with the highest NPV, the Browser project would be selected first requiring 1,875 hours of development time. Next, the Trip Planner would be selected requiring an additional 6,250 hours of development time. The project with the next highest NPV is the Spreadsheet project. However, this project requires 2,500 hours and only 1,875 hours are available after selecting the Browser and Trip Planner projects. The project with the next highest NPV is the Calendar/Email project which requires 1,250 hours of development time leaving 625 hours available. Of the remaining projects, the Portfolio Tracker requires too many hours while the Expense Report project can be completed with the hours available. Thus, Browser, Trip Planner, Calendar/Email, and the Expense Report projects would be selected based on the NPV approach. 2. Assume the founders weigh a project’s NPV twice as much as both obtaining/retaining a leadership position and use of the Internet. Use...
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...accomplish they use presure or lack of experience or presure to perform even the other factors that ignores reality for something that is not imporsimble to accomples in the time given. When everyone is not available at the same time to work as a team on the project this could cause a delay to finish and deliver the project on time. The trade offs that is to make a clear policy of communication from the begining of the project that nobody goes off course and that everyone have to work as a team and must be on the sameline with everyone on the team. The project head must make him or herself available at all time to make sure that all the policys are met by everyone in the group. Handster inc. 1. Which projects would you recommend Handstar pursue based on the NPV approach? The spreadsheet bellow summarizes the NPV calculations for the six projects assuming the development costs are incurred at the end of year zero and each product has a three-year life. Since the six projects require a total of 13,025 development hours and only 10,000 hours are available, one or more projects will need to be postponed or eliminated from further consideration. If we start with the project with the highest...
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...Chapter 1 The World of Project Management This chapter introduces the topic of project management. Projects are defined as temporary endeavors undertaken to create a unique product or service. The chapter points out that recent interest in project management is based on a recognition that many organizational tasks do not fit neatly into business-as-usual. The significant differences between project management and general management are overviewed. The three interrelated objectives of budget, schedule, and specifications are also introduced. In addition, two alternative project life cycles are presented and the importance of understanding this distinction is discussed. Also included in the chapter is a discussion of project selection including both non-numeric and numeric selection methods. The chapter concludes with a discussion of the aggregate project plan and an overview of the organization of the remainder of the text. Cases and Readings Some cases appropriate to the subject of this chapter are: Harvard: 9-688-040 Boeing 767: From Concept to Production (A); 9-688-041 (B) 9-888-519 Videotape. This 19 page best-selling case shows how a massive corporation manages the evolution of an enormously complex and risky project from conception to manufacture. The 1-page B case is a supplement update about whether Boeing needs to change the way they manage such projects. The video shows the assembly process of an airplane, compressing 10 weeks of work into ten...
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