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Project cost management planning
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Silicon Arts Inc. (SAI) has two capital investment proposals that need to be researched in order to choose the one that will yield more return on investment and that will have the best growth in years to come. These two proposals have been set up by a task force set up by the chairman Hal Eichner, who has a two-point agenda for the company: a) Expand the existing Digital Imaging Market share, and b) Enter the Wireless Communication market. Even though both markets are expected to grow, SAI needs to be aggressive in its investments for each of the markets to ensure SAI’s market share grows and defend against competitors.
In order to evaluate both proposals different measures such as the NPV, IRR, and PI are used. The reliability of these measures depends on the assumptions made regarding cash flow projections. Not only is that so, but also by adjusting the stance from a conservative to moderate or aggressive, the values of NPV, IRR, and PI could also be higher for either proposal. After going through the simulation a number of times, my result was the same. From reading the numbers and changing to different stances, the proposal that was picked was the Digital Imaging proposal. This proposal had a higher value for all three measures and therefore it was concluded that it would be the best proposal to go with.
The decision to invest in either proposal was based on the cash flow the company would have for it. From there it was just a matter of deciding what increases would be from year 1 to year 3 and again from year 4 to year 7 and how much the price would increase for the same time period. To reach the desirable outcome of identifying which proposal will have the most yield, it is necessary to analyze the risks associated with the investment decisions. These risks include initial tests, competition, comparable products, and price decrease over the years.
The initial tests are very crucial risks simply because if the tests are successful then production can continue on with full scale; otherwise there is no need to continue. During this initial test stage the decisions to take need to be successful at every step of the way so that the product can get to production. “There is usually a sequence of decisions in NPV project analysis.
The initiation phase of a project is not complete without a clearly defined goal and realistic, measurable objectives that describe the business benefits which are expected to be delivered upon completion of a project (Laureate Educatio...
After calculating WACC my second analysis would be of the packaging machine investment. I will use incremental analysis and calculate NPV of the incremental cash flows of both strategies (to wait or to invest now). After calculating NPV’s of both scenarios I will calculate the difference between the two.
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
In deciding whether to invest in Deltex, we have to consider some advantages and disadvantages of this deal first.
his company, John Lin, the CEO and founder of Shang-Wa, approaches Bernard Lester, CEO of Lester Electronics with a serious proposal to form and partnership and expand the business in to a neighboring Asian country. Lester Electronics however, has to decide whether a partnership is the best way to go, or if acquiring Shang-Wa outright would be more beneficial. This paper will go over any issues and opportunities associated with this scenario.
This process is aimed at ensuring the project being pursued has a potential of delivering by adhering to the allocated time, sticking to the budget and very important, meeting customers specifications (Mott McDonald, 2002). It involves assessing the projects at critical stages (also referred to as gates) in its lifecycle and thus assuring it can advance to the next stage successfully. This function is performed by an independent experienced team, after which they assure the Senior Responsible Owners that the project can progress successfully (National Academies US & National Research US, 2004). There are six critical stages (gateways) in the lifecycle of a project that the independent gateway review team will evaluate and thus provide th...
Custom Chip, Inc case describes the situation of a company where lack of coordination and cooperation among different departments is hindering them to achieve their common or ultimate goal as a single business entity. Applications engineering, product engineering and manufacturing are all inclined towards achieving their individual objectives and timelines rather than collaborating and synergizing their efforts in order to attain a common goal of effective production with improved cost reduction. Few of the primary reasons are insufficient and unorganized company policies for coordination and cooperation, poor networking with in the organization especially on management level, lack of communication and influence among managers and VPs, insufficient human resource, and measuring a department's effectiveness solely on its performance based on individual objectives, rather than checking its effects on over all company's performance.
SUN Microsystems Case Analysis Sun Microsystems had an extremely tough decision to make in regards to its procurement strategy. They had to decide if they were going to take on an “E-sourcing” or “dynamic bidding” auction-type strategy with making purchases from their suppliers. Taking on this type of procurement strategy would benefit Sun with cost-savings on procurements, but may jeopardize their supplier relationships and quality of inputs for Sun products. After reviewing the enclosed financial data for Sun from 1996-1999, it is apparent that some trends are consistent. Sun’s cost of goods sold has consistently been around half of their revenue for prior fiscal years, resulting in an approximate gross margin of 50%.
If the firm decides to pursue alternative two, Burroughs and Wellcome must construct a new pricing strategy. Some of the firm’s uncertainties consist of the public perception of the company, the implication of the current pricing strategy to revenues, the effect to the bottom line because of the reduction in price, the impact of an introduction of a new product from other competitors in the future, and the unclear outcome on profits due to regulatory constraints.
First is to examine each of those projects to the corporate objectives, compare and contrasting project selection criteria and justify why a project meets the selection criteria.
If Lars decides to invest around $6 million more in research and development, it is highly risky as the company’s survival depends largely on the success of the launch of Ray’s new product into the market.
Making an investment towards a new project/product/company is hardly a simple process. Numerous factors including costs, benefits, time, and resources need to be taken into account before a decision to pursue a new project should be ventured into. At the end of the day prioritising projects and investing funds into projects that have the most potential towards favourable return on investment should be considered. Investment appraisal should not only be used for projects with a monetary return, it is also pertinent to use the tools where the return may not be easy to quantify such as training or development programs. Investment
Project Planning 7 VIII. Quality 8 IX. Cost Estimating 9 X. Risk Identification and Management 10 XI. Facility Startup and Project Closeout 11 XII.
During 1998-2003, SEC invested $19 billion into chip factories and $17 billion into manufacturing facilities for TFT-LCDs, which would be a major component for flat screen TVs and computer screens. Even though SEC was focused in the manufacturing process, it didn’t make SEC a rigid company.
In this competitive world, companies have to deal with various types of risk all the time with there projects. Generally, it affects the budget and schedule of the project. So it is important to keep in mind the risk management strategies while creating an initial project plan.