...Discovery Driven Planning Proprietary Material © K.E. Homa So, what’s the problem? • When evaluating the financial attractiveness of ‘opportunities’, most companies do detailed financial projections going out 3, 5, or 10 years ... or more. • The financial projections are usually driven by ‘point estimates’ of demand (or sales) that are built on layers of assumptions and, thus, are difficult to forecast with any reasonable degree of precision. • So, the financial projections themselves – while confidence building (perhaps) – are always imprecise … and often flat-out wrong ! Discovery Driven Planning to the rescue … Classic publication: 1995 … frequent re-publication and referrals Discovery Driven Planning Basic Premises • Developing a forecast is harder than validating or refuting one (i.e. “over or under” likelihood) So, work backwards … determine how much you to have to sell to meet financial hurdles … and then ask yourself: “Can we do it ?” • Over time, learning occurs (i.e. “discovery”) and assumptions can be validated, refined, or refuted. So, start with ‘what you know’, keep a list of what you don’t know, and refine your estimates when you know more Discovery Driven Planning Basic Premises • Developing a forecast is harder than validating or refuting one (i.e. “over or under” likelihood) So, work backwards … determine how much you to have to sell to meet financial hurdles … and then ask yourself: “Can we do it ?” • Over...
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...Design Estimates In the planning and design stages of a project, various design estimates reflect the progress of the design. At the very early stage, the screening estimate or order of magnitude estimate is usually made before the facility is designed, and must therefore rely on the cost data of similar facilities built in the past. A preliminary estimate or conceptual estimate is based on the conceptual design of the facility at the state when the basic technologies for the design are known. The detailed estimate or definitive estimate is made when the scope of work is clearly defined and the detailed design is in progress so that the essential features of the facility are identifiable. Theengineer's estimate is based on the completed plans and specifications when they are ready for the owner to solicit bids from construction contractors. In preparing these estimates, the design professional will include expected amounts for contractors' overhead and profits. The costs associated with a facility may be decomposed into a hierarchy of levels that are appropriate for the purpose of cost estimation. The level of detail in decomposing the facility into tasks depends on the type of cost estimate to be prepared. For conceptual estimates, for example, the level of detail in defining tasks is quite coarse; for detailed estimates, the level of detail can be quite fine. As an example, consider the cost estimates for a proposed bridge across a river. A screening estimate is made for...
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...Overview The overview of the project says that the fiction corporation data centre is moving its primary data centre miles away by upgrading its network and correct any security flaws its infrastructure in the part of its move with a capital budget of $500,000 without interrupting business operations. . MCC helps in controlling costs, improving operational excellence and mitigating risk during device network and software refreshes with systematic, comprehensive, efficient approach on upgrading the network infrastructures.Fiction Corporation—a detailed project overview, and the identification of all stakeholders, including both Big-Proj and Fiction Corporation, as well as the 500 retail outlets. Initiating the project Project initiation is the reference that determines the scope and the process activity to solve on a problem in establishment of projects to achieve the aim and objectives representing the roles and responsibilities of the organization and its goals of customer expectations and requirements Designing the business need: Here, the initial step of business plan is considered as the most important entity as it provides a roadmap for success on a thoughtful and long term business plan. Business plan is illustrated as the description of the business future. It’s a document which predefines the projects plans and the business strategy consisting the set of resources which is based on the potential elements of business which depends on the change and growth of the...
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...Medical Associates: Equity cost of capital, DCF, CAPM, risk, capital budgeting Medical Associates is a large for-profit group practice. Its dividends are expected to grow at a constant rate of 7% per year into the foreseeable future. The firm's last dividend (D0) was $2, and its current stock price is $23. The firm's beta coefficient is 1.6; the rate of return on 20-year T-bonds currently is 9%; the expected rate of return is 13%. The firm's target capital structure calls for 50% debt financing, the interest rate required on the business's new debt is 10%, and its tax rate is 40%. 1. Calculate Medical Associates' cost of equity estimate using the DCF method. Using the DCF method Cost of Equity = D1/P0 + g D1 = expected dividend= D0 X (1+g) = 2 X 1.07 = 2.14 P0 current price = $23 g = growth rate = 7% Cost of equity = 2.14/23 + 7% = 16.30% 2. Calculate the cost of equity estimate using CAPM. Using CAPM Cost of equity = Rf + (Rm-Rf) beta Rf = risk free rate = 9% Rm = return on market = 13% beta = 1.6 Cost of equity = 9% + (13%-9%) 1.6 = 15.4% 3. On the basis of your answers to #1 & #2, what is your final estimate for the firm's cost of equity? We take the average of the two costs as the final estimate Final estimate is the average of the two = (16.3%+15.4%)/2 = 15.85% 4. Calculate the firm's estimate for corporate cost of capital. Cost of Capital = Proportion of debt X after tax cost + Proportion of equity X cost of equity = 0.5 X 10%...
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...Q1A. WHAT IS PLANNING AND BUDGETING IN SOCIAL DEVELOPMENT PROGRAMME AND WHAT ARE THEIR IMPORTANCE PLANNING AND BUDGETING IN SOCIAL DEVELOPMENT PROGRAMME INTRODUCTION Like budgeting, planning is crucial to, individuals and organizations. The popular saying is “he who fails to plan, plans to fail”. Without good planning, development which is assumed to be the ultimate goal of all social programmes becomes a mirage. The primary reason for planning is to take care of the future. Thus, planning is deciding in advance what to do, how to do it, when to do it, who is to do it, why do it, and how much resources are to be used. Planning requires both skill and innovation than budgeting because the time period that development plans normally do take care of is much longer than budgeting that is barely twelve calendar months. Put differently, planning is anticipation of the future based on the present therefore, ‘Plan is a blueprint of action.’ A budgeting is simply the statement of expected income and expenditure over a time period, usually a year. Program planners at all levels do envisage how much they are likely to generate from all source available to them. At the same time, they visualize what the expenditure will be. The income side of a budget normally does include loans sourced both internally and externally. In essence, budget has become the means by which programme’s objectives is achieved. The major advantage of budgeting is to guarantee orderly development of the programme...
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...market it must first understand the laws, rules, and regulations that govern acquisitions and procurement for the federal government. Discuss the importance of fixed price contract in creating effective, efficient, and accountable acquisition planning: Under a Fixed price Contract. FAR 16.201, the government agrees to pay a specific price (which includes the contractor’s profit) for completed work and delivered products. The fixed price contract is used for the procurement of commercial items as well as services when: * There is adequate price competition; * There is reasonable price comparisons with past purchases of the same or similar products or services made on a competitive basis are available; * Available cost or pricing information permits realistic estimates of the probable performance cost * Performance uncertainties can be identified, and reasonable estimates of their cost impact can be made. The government prefers a fixed price contract because the liability of performing the contract is held by the contractor. And any cost overage or risk concerning the contract will be absorbed by the contractor. There are no limits on what profit the contractor may make. This is solely based on how the contractor manages his cost and if prudent will realize a higher profit. The government uses fixed price contracts in simplified acquisitions, and the fixed price...
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...USING THE EARNED VALUE COST MANAGEMENT REPORT TO EVALUATE THE CONTRACTOR'S ESTIMATE AT COMPLETION David S. Christensen, Ph.D. College of Business Southern Utah University 351 West, Center Street Cedar City, UT 84720 Phone: (435)865-8058 Email: Christensend@suu.edu Published in Acquisition Review Quarterly (Summer 1999) BIOGRAPHY David S. Christensen is an Associate Professor of Accounting at Southern Utah University in Cedar City, Utah. After receiving a Ph.D. from the University of Nebraska in 1987, he joined the faculty at the Air Force Institute of Technology, where he taught undergraduate and graduate courses in earned value cost management for over ten years. David is a CPA, CMA, CGFM, and CCE/A, and is active in several professional associations, including the Society of Cost Estimating and Analysis, the American Accounting Association, and the Institute of Management Accounting. Presently, David serves as Associate Editor for the Journal of Cost Analysis. He has published extensively in the area of earned value cost management in Acquisition Review Quarterly, Project Management Journal, National Contract Management Journal, Journal of Parametrics, National Estimator, and the Journal of Cost Analysis. 2 USING THE EARNED VALUE COST MANAGEMENT REPORT TO EVALUATE THE CONTRACTOR'S ESTIMATE AT COMPLETION ABSTRACT The earned value cost management report is a valuable management tool for project managers. Its long association with earned value management...
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...Chapter 4 Product and service design It is the major factor in - Cost - Customer satisfaction - Quality - Competitive advantage - Time-to-market Objectives of Product and Service Design Main focus - Customer satisfaction - Understand what the customer wants Secondary focus - Function of product/service - Appearance - Cost/profit - Ease of production/assembly - Quality - Ease of maintenance/service Product or Service Design Activities 1. Translate customer wants and needs into product and service requirements 2. Refine existing products and services 3. Develop new products and services 4. Formulate quality goals 5. Formulate cost targets 6. Construct and test prototypes 7. Document specifications Reasons Design or Re-Design : The driving forces for product and service design or redesign are market opportunities or threats: - Economic - Competitive - Social and Demographic - Cost or Availability - Political, Liability, or Legal - Technological Regulations and Legal Considerations Product Liability : A manufacturer is liable for any injuries or damages caused by a faulty product. Uniform Commercial Code : Products carry an implication of merchantability and fitness. Designers Adhere to Guidelines - Produce designs that are consistent with the goals of the company - Give customers the value they expect - Make health and safety a primary concern - Consider potential harm to the environment Other...
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...Welcome to Week 1! Project Scope Definition and WBS In this course, we will explore project cost and schedule control! The focus of this week is developing the scope and the work breakdown structure (WBS). We will use the WBS to specifically detail the tasks required to complete any project. The scope is the starting document of a project. It defines the project. The WBS is created from the scope and is the basis on which several other project documents, such as the budget and schedule, will be derived from. Because the WBS is one of the foundations to our planning effort, it is critical to know and understand this tool. Shortcomings in the scope or WBS will translate to the rest of our planning documents resulting in real failures during project execution to attain goals in scope, cost, and schedule. It is, therefore, of primary importance that the scope and WBS are inclusive and detailed. Just remember that as a project manager, your family comes first but the project scope and WBS are not far behind. Introduction Cost and schedule form two sides of the iron triangle of project management with the third side being the collection of scope, quality, and performance. This makes cost and schedule paramount concerns to a project manager. Cost and schedule control on a project are vital to a successful project. As you know, this course is named Project Schedule and Cost Control, which may imply that the project is underway and it's time to go to work. However, the process...
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...is the basic tool used in project planning, and project estimates are typically derived from the details found in the WBS. Estimates form the basis for defining project budgets. Estimates are typically formed using a combination of estimated costs for labor and materials, combined with allowances for indirect costs such as inventory costs and overhead. WBS: There are a few different types of WBS which are described in the textbook (Chapter 5), and these include deliverable based, function based, and phase or process based. The selection of the type is based on the project and project manager preference. The accumulation of historical data regarding costs is a primary determinant of estimating accuracy. to develop a meaningful database for use in historical cost estimating: Develop a System for Gathering Data Costs common across projects in the company should be identified, and requirements for comparative data established. Regardless of the method used to accumulate historical data, a prime concern is that all costs are captured in the database. There are a number of ways to relate historical costs to new project estimates: By Actual Cost; By Pro-rating; By Pooling Costs. Choosing the Method for Accumulating Historical Costs The majority of firms use a combination of methods to record historical costs for estimating purposes. • Direct costs are usually recorded at actual cost and can therefore be closely correlated to output. • Indirect costs are usually...
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...that only 16.2% of IT projects were successful in meeting scope, time, and cost goals; over 31% of IT projects were canceled before completion Advantages of Using Formal Project Management: * Better control of financial, physical, and human resources * Improved customer relations * Shorter development times * Lower costs * Higher quality and increased reliability * Higher profit margins * Improved productivity * Better internal coordination * Higher worker morale What is project? A project is “a temporary endeavor undertaken to create a unique product, service, or result” Project Attributes: A project: * has a unique purpose * is temporary * is developed using progressive elaboration * requires resources, often from various areas * should have a primary customer or sponsor * The project sponsor usually provides the direction and funding for the project * involves uncertainty Program: group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually The triple constraint of project management: Scope, cost & time. Project management: is “the application of knowledge, skills, tools and techniques to project activities to meet project requirements” 10 knowledge areas (project management framework): 1. Scope management 2. Time management 3. Cost man. 4. Quality man. 5. Human Resource man. 6. Communication...
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...moments that make a project a success or a failure. The implementation stage is defined as "motorcycle modifications being installed and made operational in a production environment. The phase is initiated after the motorcycles has been tested and accepted. This phase continues until the system is operating in production in accordance with the defined motorcycle requirements”. While all of the planning that takes place in preparation of the implementation phase is critical, I am of the opinion that the implementation itself is equally as important. When working through the process of defining the motorcycle and selecting the organizational personnel to create this motorcycle systems, the beginning stages become the most important part of the motorcycle project for this organization. A tremendous effort has to be exuded in planning and preparation for the motorcycle development and deployment. The start of the motorcycle implementation phase is indication that progress was being made and the motorcycles are well underway. Before analyzing the process of project planning in teams it is necessary to identify the differences between such terms as a group of people and a team. A group is a number of people (members) that are treated as one unit, while a team is a group of people who work together with a common goal and perform certain functions for the benefit of every member. There are special types of a team, known as high-performance teams, which are "groups...
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... 6.Activity based costing/Target costing Mechanism for determining selling prices. It is a cost management tool. TATA tries to manufacture a car at Rs. 1 ,00,000. – is a typical example for target costing. 42. Stages of target costing 1. Determine the target price which customers will be prepared to pay for the product 2.Deduct a target profit margin fro the target price to determine the target cost 3. Estimate the actual cost of the product 4.If estimated actual cost exceeds the target cost , investigate ways of driving down the actual cost to the target cost 43. Target costing-Continues Customer oriented approach Used by Japanese copanies and recently adopted by Europe and the USA. Recently call canters are trying to adopt this as Indian currency strengthened. 44. Procedures: 1.Market research to find the customer’s perceived value-tear down analysis-examining the competitors’ products-dismantling of the competitor's product.use value engineering 2.How customers differentiate the product from the competitors 3.Target profit margin depends on planned return on investment and fix % of profits on sales 4.Decomposed into a target profit for each product. 5.Deduct the target profit from target price 6.Compare with the predicted actual cost. 7. If predicted cost>target cost then efforts are made to close the gap. 45. What is required? Team approach Team members include: 1.designers 2. engineers 3. Purchasing 4. manufacturing 5. marketing 6. management accounting...
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...form of budgeting and identify its advantages and disadvantages. Ans. Also called bottom-up budgeting or self-imposed budgets, where the initial flow of budget data moves from lower levels of responsibility to higher levels of responsibility. Each person with responsibility for cost control will prepare his or her own budget estimates and submit them to the next higher level of management. These estimates are reviewed and consolidated as they move upward in the organization. Budget estimates prepared by lower-level managers should be scrutinized by higher levels of management. Without such a review, participative budgets may be too loose and allow much "budgetary slack." The result will be inefficiency and waste.. Advantages: 1. Individuals at all level of the organization are recognized as members of the team whose review and judgments are valued by top management. 2. Increase feeling of unit-level ownership in the budget 3. Leads to greater support for the budgetand a greater understanding of goals 4. Greater accuracy of budget estimates. Budget estimates prepared by front line managers can be more accurate and reliable than estimates prepared by top managers who are removed from day to day activities and who have less intimate knowledge of markets and operating conditions. 5. Motivation is generally higher when an individual participates in setting his or her own goal then when the goals are imposed from above. Self-imposed...
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...PMBOK has 9 knowledge areas and 5 basic process groups typical of almost all projects. These knowledge areas are Project Integration Management, Project Scope Management, Project Time Management, Project Cost Management, Project Quality Management, Project Human Resource Management, Project Communications Management, Project Risk Management, and Project Procurement Management. The 5 basic process groups are initiating, planning, executing, monitoring & controlling, and closing. This knowledge area focuses on the larger tasks that must be done for the project to work. It is the practice of making certain that every part of the project is coordinated. In Integration Management, the project is initiated, the project plan is planned and executed, the work is monitored and verification of the results of the work is performed. As the project ends the project manager also performs the tasks associated with closing the project. This knowledge area involves control of the scope of the project. It involves management of the requirements, details and processes. Changes to the scope should be handled in a structured, procedural, and controlled manner. The goal of scope management is to define the need, set the expectations, deliver to the expectations, manage changes, and minimize surprises and gain acceptance of the project. In Scope Management, the project is planned, monitored and controlled. Project Time Management is concerned with resources, activities, scheduling and schedule...
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