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Lebanese International University School of Engineering Department of Electrical Engineering Fall 2012 IENG300 – Engineering Project Management

Assignment # 1 Solution
Exercise 2.1 (10 Points): Projects may be classified as follows:    Compliance: d., g., i. Operational: a., c., j. Strategic: b., e., f., h.

It was easy to classify the Compliance projects but not so easy to distinguish between Operational and Strategic projects. Given the limited information, we have to make judgment calls. In real life, such information will be available. Debates may occur around whether converting the heating system to solar polar was an operational necessity or to fit the ecofriendly image. Likewise, launching the promotional campaign with Hawaii Airlines would be considered strategic if it promoted the eco-tourism theme, otherwise it could be considered operational. Classification of the different types of projects is very useful for managing projects at a hotel as it is very helpful in the project prioritization process. Exercise 2.4 (20 Points):

A 1 2 3 4 5 Project Omega 6 Required Rate of Return 7 Investment 8 Cash Inflows 9 NPV = 10 11 Project Alpha 12 Required Rate of Return

B

C

D

E

F

G

H

I

J

Exercise 4a Net Present Value Example Comparing Two Projects Year 0 18% -$225,000 -$190,000 $150,000 $190,000 $215,000 $175,000 $197,000 $70,000 $119,689 Formula Project Omega: =C7+NPV(B6,D8:J8) Year 0 18% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

IENG300 – Engineering Project Management

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13 14 15 16 17 18 19 20 21 22 23

Investment Cash Inflows NPV =

-$300,000 -$50,000 $150,000 $200,000 $250,000 $150,000 $180,000 $90,000 $176,525 Formula Project Alpha: =C13+NPV(B12,D14:J14)

NPV comparison: Accept both Omega and Alpha; or select Alpha that has the highest NPV of $176,525 Exercise 4b Net Present Value Example Comparing Two Projects (with inflation)

Project Omega Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Required Rate of 21% Return 24 Investment -$225,000 25 Cash Inflows -$190,000 $150,000 $190,000 $215,000 $175,000 $197,000 $70,000 26 NPV = $76,650 Formula Project Omega: =C24+NPV(B23,D25:J25) 27 28 Project Alpha Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 29 Required Rate of 21% Return 30 Investment -$300,000 31 Cash Inflows -$50,000 $150,000 $200,000 $250,000 $150,000 $180,000 $90,000 32 NPV = $129,536 Formula Project Alpha: =C30+NPV(B29,D31:J31) 33 34 NPV comparison: Accept both Omega and Alpha; or select Alpha that has the highest NPV of $129,536

Exercise 2.7 (20 Points):

Part a. Part b.

68 57 99 85 107

95 66 117 88 116

a. Rate Project 5 the highest and Project 2 the lowest. IENG300 – Engineering Project Management Page 2

b. Yes. The three highest are Projects 3, 5, and 1. Given the new strong sponsor weight, Project 3 becomes the first choice. However, note that Project 5 is still the near equivalent of Project 3 by the weighting scheme. c. It is important that the weights mirror critical strategic factors because failure to do so will cause selection of projects that do not contribute the most to the strategic plan.

Exercise 3.2 (20 Points): The following issues should be addressed.  How important is project management to LL Company? LL Company appears to have a stable product line and does not engage heavily in product development. If so, then a formal matrix structure should not be recommended. What is the culture like at LL Company? Does it support informal collaboration and teamwork? Will whoever is in charge of the binocular project have trouble getting the support and cooperation of people needed to complete the project? If yes, then a dedicated project team would be recommended to reduce the project dependencies on other parts of the organization. If no, then an informal matrix could be arranged where a project manager is assigned to oversee the completion of...
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