Financial appraisal of project proposals - Revision history

Akorno: /* Example */

2019-02-11T14:07:28Z

Example

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	A football team wants to build a new stadium, three different locations are identified. If the MARR is 10%, which is the best location for a new stadium.		A football team wants to build a new stadium, three different locations are identified. If the MARR is 10%, which is the best location for a new stadium.
	<div><ul>		<div><ul>
	<li style="display: inline-block;"> [[File:KMROR.PNG\|left\|thumb\|none\|308px\|Figure 4: ~~Annual worth analysis~~ example, created by Kornpong Mahitthiburin]] </li>		<li style="display: inline-block;"> [[File:KMROR.PNG\|left\|thumb\|none\|308px\|Figure 5: ROR example 1, created by Kornpong Mahitthiburin]] </li>
	<div><ul>		<div><ul>
	<li style="display: inline-block;"> [[File:KMRORS.PNG\|left\|thumb\|none\|308px\|Figure 4: ~~Annual worth analysis~~ example, created by Kornpong Mahitthiburin]] </li>		<li style="display: inline-block;"> [[File:KMRORS.PNG\|left\|thumb\|none\|308px\|Figure 6: ROR example 2, created by Kornpong Mahitthiburin]] </li>

Akorno: /* Example */

2019-02-11T14:06:36Z

Example

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	====Example====		====Example====
	A football team wants to build a new stadium, three different locations are identified. If the MARR is 10%, which is the best location for a new stadium.		A football team wants to build a new stadium, three different locations are identified. If the MARR is 10%, which is the best location for a new stadium.
			<div><ul>
			<li style="display: inline-block;"> [[File:KMROR.PNG\|left\|thumb\|none\|308px\|Figure 4: Annual worth analysis example, created by Kornpong Mahitthiburin]] </li>
			<div><ul>
			<li style="display: inline-block;"> [[File:KMRORS.PNG\|left\|thumb\|none\|308px\|Figure 4: Annual worth analysis example, created by Kornpong Mahitthiburin]] </li>

	~~[[File:KMROR.PNG\|left\|300px]]~~
	~~[[File:KMRORS.PNG\|left\|300px]]~~

	First, we order projects by increasing initial cost, then calculated IRR of lowest cost project, location A in this case, which is 10.49%. Then compare location B to A with an incremental cash flow;		First, we order projects by increasing initial cost, then calculated IRR of lowest cost project, location A in this case, which is 10.49%. Then compare location B to A with an incremental cash flow;

Akorno: /* Annual Worth Analysis */

2019-02-11T14:05:34Z

Annual Worth Analysis

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	Project manager of gum factory is considered for an improvement to an automated packing production process whether modifying a current machine to be automated or purchasing the whole new automated machine. Which project should the project manager run with the given MARR of 15% per year?		Project manager of gum factory is considered for an improvement to an automated packing production process whether modifying a current machine to be automated or purchasing the whole new automated machine. Which project should the project manager run with the given MARR of 15% per year?
	<div><ul>		<div><ul>
	<li style="display: inline-block;"> [[File:~~KMAW~~.PNG\|left\|thumb\|none\|308px\|Figure 4: Annual worth analysis example, created by Kornpong Mahitthiburin]] </li>		<li style="display: inline-block;"> [[File:KPAW.PNG\|left\|thumb\|none\|308px\|Figure 4: Annual worth analysis example, created by Kornpong Mahitthiburin]] </li>

Akorno: /* Example */

2019-02-11T14:02:01Z

Example

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	====Example====		====Example====
	Project manager of gum factory is considered for an improvement to an automated packing production process whether modifying a current machine to be automated or purchasing the whole new automated machine. Which project should the project manager run with the given MARR of 15% per year?		Project manager of gum factory is considered for an improvement to an automated packing production process whether modifying a current machine to be automated or purchasing the whole new automated machine. Which project should the project manager run with the given MARR of 15% per year?
			<div><ul>
			<li style="display: inline-block;"> [[File:KMAW.PNG\|left\|thumb\|none\|308px\|Figure 4: Annual worth analysis example, created by Kornpong Mahitthiburin]] </li>

	~~[[File:KPAW.PNG\|left\|350px]]~~

	AWmodification = - 10000 – 40000(A/P,15%,6) + 12000(A/F,15%,6) = -$19198 /year		AWmodification = - 10000 – 40000(A/P,15%,6) + 12000(A/F,15%,6) = -$19198 /year
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	The project manager should modify the current process since it generates lower negative value.		The project manager should modify the current process since it generates lower negative value.


	===Rate of Return Analysis===		===Rate of Return Analysis===

Akorno: /* Example */

2019-02-11T14:01:11Z

Example

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	====Example====		====Example====
	A project manager is considering to run a project that generates highest profit for the company, two candidates which are project X and project Y are study, costs and profit for each project are given below. Which project should be select with MARR of 10% per year?		A project manager is considering to run a project that generates highest profit for the company, two candidates which are project X and project Y are study, costs and profit for each project are given below. Which project should be select with MARR of 10% per year?
			<div><ul>
			<li style="display: inline-block;"> [[File:KMPW.PNG\|left\|thumb\|none\|308px\|Figure 4: Present worth analysis example, created by Kornpong Mahitthiburin]] </li>


	~~[[File:KMPW.PNG\|left\|300px]]~~

	Apply LCM method to compare alternatives.		Apply LCM method to compare alternatives.
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	Project X is selected due to the fact that it generates higher net present value.		Project X is selected due to the fact that it generates higher net present value.


	===Annual Worth Analysis===		===Annual Worth Analysis===

Akorno: /* Financial Appraisal Tools */

2019-02-11T13:59:15Z

Financial Appraisal Tools

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	*Rate of Return Analysis		*Rate of Return Analysis
			<div><ul>
			<li style="display: inline-block;"> [[File:Project evaluation step.jpg\|thumb\|none\|200px\|Figure 3: Outline of evaluation stages, created by Kornpong Mahitthiburin]] </li>


	~~[[File:Project evaluation step.jpg\|150px]]~~

	However, this four moethod may generate different results on the same project, which method should be chosen is dependent on the considerations		However, this four moethod may generate different results on the same project, which method should be chosen is dependent on the considerations

Akorno: /* Cost Estimation */

2019-02-11T13:56:21Z

Cost Estimation

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	*Top-down costing – work well when competition is high that it can limit cost component.		*Top-down costing – work well when competition is high that it can limit cost component.
	<div><ul>		<div><ul>
	<li style="display: inline-block;"> [[File:KPCOST.PNG\|~~500px~~\|Figure 2: Cost estimation stages, taken from “Engineering Economy”- Sixth Edition (2005)]] </li>		<li style="display: inline-block;"> [[File:KPCOST.PNG\|thumb\|none\|308px\|\|Figure 2: Cost estimation stages, taken from “Engineering Economy”- Sixth Edition (2005)]] </li>

Akorno: /* Cost Estimation */

2019-02-11T13:55:26Z

Cost Estimation

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	*Top-down costing – work well when competition is high that it can limit cost component.		*Top-down costing – work well when competition is high that it can limit cost component.
			<div><ul>
			<li style="display: inline-block;"> [[File:KPCOST.PNG\|500px\|Figure 2: Cost estimation stages, taken from “Engineering Economy”- Sixth Edition (2005)]] </li>

	~~[[File:KPCOST.PNG\|500px]]~~

	Generally, there are several techniques to estimate the cost of the project, asking an expert for the opinion and make a comparison to the situation is one of the magnificent estimators. Performing a quantitative method also the good way, techniques such as Cost Indexes, Cost Capacity Equations, Factor Method, and Activity Based Costing (ABC), where first three techniques can only comply direct cost but not ABC that can estimate both direct and indirect cost.		Generally, there are several techniques to estimate the cost of the project, asking an expert for the opinion and make a comparison to the situation is one of the magnificent estimators. Performing a quantitative method also the good way, techniques such as Cost Indexes, Cost Capacity Equations, Factor Method, and Activity Based Costing (ABC), where first three techniques can only comply direct cost but not ABC that can estimate both direct and indirect cost.

Akorno: /* Background */

2019-02-11T13:52:28Z

Background

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	Minh Cao Le, and Van Tau Nguyen.(2007)"''Strategy for Project Portfolio Selection in Private Corporation in Vietnam(Master's Thesis)''" [URL:http://www.diva-portal.org/smash/get/diva2:141275/fulltext01]</ref>. This means that projects that have not been selected at the beginning can be launched with the remaining resources and market conditions. The framework of constructing a portfolio suggested by Archer and Ghasemzadeh is in the following figure<ref>		Minh Cao Le, and Van Tau Nguyen.(2007)"''Strategy for Project Portfolio Selection in Private Corporation in Vietnam(Master's Thesis)''" [URL:http://www.diva-portal.org/smash/get/diva2:141275/fulltext01]</ref>. This means that projects that have not been selected at the beginning can be launched with the remaining resources and market conditions. The framework of constructing a portfolio suggested by Archer and Ghasemzadeh is in the following figure<ref>
	NP. Archer, and F.Ghasemzadeh"An integrated framework for project portfolio selection".''International Journal of Project Management''17.4(1999):207-216 </ref>.		NP. Archer, and F.Ghasemzadeh"An integrated framework for project portfolio selection".''International Journal of Project Management''17.4(1999):207-216 </ref>.
			<div><ul>
			<div><ul>
			<li style="display: inline-block;"> [[File:KPPF.PNG\|thumb\|none\|308px\|Figure 1: Framework for project portfolio management, taken from the “An integrated framework for project portfolio selection"]] </li>

	~~[[File:KPPF.PNG\|400px]]~~

	In each heavy outlined box, is where the major stages of portfolio selection. In order to do so, several methods are introduced such as Scoring model, Analytic Hierarchy Process, and Operation Research Technique, but we will stay with the economic method which easy and ready to understand by portfolio managers which make it easier to compare projects with other opportunities for capital investment<ref>		In each heavy outlined box, is where the major stages of portfolio selection. In order to do so, several methods are introduced such as Scoring model, Analytic Hierarchy Process, and Operation Research Technique, but we will stay with the economic method which easy and ready to understand by portfolio managers which make it easier to compare projects with other opportunities for capital investment<ref>

Tkokotas at 15:35, 16 November 2018

2018-11-16T15:35:14Z

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			''Developed by Kornpong Mahitthiburin''


	[[Category:Portfolio Management]]		[[Category:Portfolio Management]]
	[[Category:Complexity]]		[[Category:Complexity]]