Lisa_Shaw_Assignment_Unit5
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Project Calculations
1
Project Calculations
By Lisa Shaw
GM591 - Strategic Project Selection and Initiation
Professor Simon Cleveland
Assignment Unit 5
Project Calculations
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Executive Summary
The project manager has to create a bid for a project that has a projected cost of $20 million in the time span of 5 years. The plan is for the organization to borrow the money up front
and to make payments annually with an interest rate of 10%. The goal is to end with a high profit and still meet the quality standards. It is imperative to stay within the controlled budget and to avoid scope creep. The projects benefits should contribute to the overall intent (Resch, 2011). The bid is for $20 million up front, and this increases the risk factor being that the amount is needed up front, without seeing the outcome or ROI. It is a blind investment, and this is the riskiest type. The scope and budget must be set at the beginning and it must be a hard line.
There can be no scope creep because this can lead to massive increases in the budget. The value of the investment is calculated by the original investment, and the interest that will accumulate during the projects duration (Resch, 2011). Looking at the principal and interest, the total cost of the project at the end of the 5 years, calculated to the future value, is $32,210,200.00. This would be the amount that would need to be bidded to be able to payback the amount owed, the amount to cover expenses, and enough to show a profit.
Introduction
A newly hired project manager it is required that a bid proposal be created. The assigned project is $20 million dollars for a project that spans 5 years. The amount is to be lended up front, and the debt will be paid off at the completion of the 5 years of the project, with a 10%
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interest compounded annually. The bid will be outlined showing the expenses, the interest and principal, and the profit. Enough money must be earned to pay off the debt, cover the costs, and show a profit. Project Overview The overall goal is to meet the customers expectations and time restraints, all while staying within the budget and ending with a profit. Poorly planned projects can be detrimental to
the business and to the workers. This can affect the budget, the timeline, and the trust in the planner for future employment with that company. The bids are necessary to request proposals for prospective workers. This is why reputation and and professionalism are important, because if the bid is comparable to other bids, the reputation and past employment can put a company above the rest. Because this is a high bid amount of $20 Million, the complexity and detail of the bid is expected to be consistent, flexible, and professional. Analysis The future value (FV) calculation determines the value of an investment and what could happen in the future to change the guessed amount. (Future value calculator, 2021). The FV is based on a rate of interest paid over a specific length of time (Resch, 2011). The formula for FV is: FV = PV (1 + r × n ) (Resch, 2011). FV = future value PV = present value r = interest rate n = number of time periods (Future Value Calculator, 2021).
The commitment is high because the $20 Million up front payment makes the bid a high risk. To avoid scope creep, the scope must be set early on and must be a main focus. The basic formula for FV does not include compounding. Compounding allows the FV to be calculated
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with the original amount plus the interest that is accrued. The new formula then becomes: FV = PV (1 + i )n (Resch, 2011). With the 10% annual compound and the principle interest, the cost of the project at the end of the 5 years is $32,210,200.00. This is the amount that would need to be bid. Future Value: $32,210,200.00 (Future value calculator, 2021)
PV (Present Value) $20,000,000.00
N (Number of Periods)
5.000
I/Y (Interest Rate) 10.000 PMT (Periodic Deposit) $0.00 Starting Amount
$20,000,000.00 Total Periodic Deposits $0.00 Total Interest $12,210,200.00
Recommendation
The project manager must be able to look ahead and plan for the unknown, all while being able to plan for the known, and be able to know what might happen, and know how it will happen, and know when. This include expected benefits, primary project, end product or deliverable, date and budget (Gido et al, 2018). Detailing the project scope is important too. This includes what the customer requires, the statement of work, the deliverables, the acceptance
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criteria, and the work breakdown structure (Gido et al, 2018). The recommendation is that the above stated plan for finances be followed and the scope be kept under close surveillance. This project will take the full 5 years and should be followed in order to avoid time constraints and the
possibility of scope creep which will dig into the final profits. The Return on Investment depends on the timeline and product output. Conclusion
Many proposals for projects equaling more then $10 Million have been bid with many mistakes. These mistakes include lack of preparation, neglecting significant information, not verifying CRO qualifications, over-dependence on bid grids, and failure to correctly evaluate pricing (Anderson, 2009). As a new project manager it is imperative that the project be written with detail and explanation in order to assure communication and planning with the stakeholders to ensure that the end goal is reached. The 5 year plan is set to meet the customers needs and to pay the debt off during the 5 year period and end up with enough money to repay the loan.
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References
Anderson, B. (2009). Top 5 Mistakes of RFP Writing. Applied Clinical Trials, 18(6), 64–68. Future value calculator. (2021). Financial calculators. Retrieved June 7, 2021, from https://www.calculator.net/ Gido, J., Clements, J., & Baker, R. (2018). Successful project management. (7th ed.). Cengage Resch, M. (2011). Strategic project management transformation: Delivering maximum ROI & sustainable business value. J. Ross Publishing
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