Our team has done the required analysis based on the information that was given to us. We would like to recommend the Piper Industries Corp. to pursue with the project Palomino for future investments. We arrived at this conclusion based on the risks involved, feasibility study, break even analysis and return on the investment studies. It has been stated as a requirement that the project has to be finished and it should start generating revenue within the next 12 months. Below you will find a detail description of the different phases of a project and then an analysis on all three projects, followed by our recommendation.
Phases of a project
From the start to finish a project can be divided into five different phases (http://www.projectinsight.net/project-management-basics/basic-project-management-phases).
Project conception and initiation
The purpose of this phase is to define the project accomplishments. This is a critical phase as it is essential for those who will deliver the product/service, for those who will use the product/service, and for those who have a stake in the project to reach agreement on its initiation (http://pmstats.dis.arkansas.gov/Meth/05-Initiation%20phase.pdf). During this phase, the idea of the project is analyzed to see how beneficial it is to the business.
Project definition and planning
This phase defines the project scope and its activities. It outlines the tasks that have to be performed to complete the project. During this phase, a team should prioritize the project, calculate a budget and schedule, and determine what resources are needed (http://www.projectinsight.net/project-management-basics/basic-project-management-phases).
Project launch or execution
During this phase, the defined project activities are started to be executed. The project manager moves his attention from planning to execution. A constant monitoring of project risks is required during this phase. There will be a daily interaction between the team members, to successfully finish the execution tasks.
Project performance and control
Progression of the project is measured during this phase. The current status of the project will be compared with the actual plan. Scope verification and control to check and monitor for scope creep, change control to track and manage changes to project requirement, calculating key performance indicators for cost and time are to measure the degree of variation if any and in which case corrective measures are determined and suggested to keep project on track (http://project-management.com/top-5-project-management-phases/).
During this phase the project tasks are satisfactorily completed and tested, the client approves the project. The project team evaluates success or failure of the project and documents key learning’s, to implement in future projects. This phase also involves in relieving project resources, reward and recognizes team members and formal termination of contractors in case they were employed on the project (http://project-management.com/top-5-project-management-phases/).
Analysis of the proposed project
Risk of project completion assessment
Based on the risk of completion assessment, Juniper has the lowest impact, Stargazer the highest and Palomino has the medium risk of finishing the project on time. The critical path is known in both Juniper and Palomino, whereas there is no indication of critical path in Stargazer. The notes also say that there are still open questions from the business on Stargazer, which increases the risk of completing the project on time. The basic requirement from the management is that the project should be completed and generating revenue in 12 months. On this basis, it is better for the company to choose either Palomino or Juniper. Delivery Dates based on the assumption that the project starts on January 1st 2015 Juniper: June 31st 2015
Palomino: September 31st 2015
ROI assessment and break even analysis
For Juniper the return on investment is $250,000 yearly for the next two to three years, which could provide $500,000 to $750,000. The cost of doing the project is $325,000. So the project breakeven point is within 2 years. For Palomino, the ROI is $450,000 yearly for the next five years, which will result in $2,250,000. The cost of doing this project is $655,000.
Even with the 5% margin of error, the breakeven for this project is within 2 years. For Stargazer, the ROI is, $1,600,000 ($300,000 first year; $550,000 the second year; and $750,000 the third year). There is no information on the ROI for the rest of the years. So there is an unknown factor involved in this project. The cost of this project is $1,025,000 ($450,000 + $575,000). The breakeven for this project is within 3 years. Based on this assessment, the breakeven point is lesser if the company pursues Juniper or Palomino.
Juniper’s product has only 3 years of life cycle, while both Stargazer and Palomino has 7 years of product life. Based on this assessment, the company will profit if it chooses Stargazer or Palomino.
A feasibility assessment is the disciplined and documented process of thinking through an idea from its logical beginning to its logical end (http://www.agmrc.org/business_development/starting_a_business/marketbusiness_assessment/articles/assessing-the-feasibility-of-businesspropositions/). With Juniper project, the product is feasible, as we can predict the forecasting of its schedule. It starts to generate profit within 12 months. But since the product life span is less, the company’s profit ends soon.
Stargazer, even though it is an innovative product it is risky and it has unanswered business questions, so it may not be feasible to complete the project on time. Its forecasting variance is very high. Even though a sunk cost of $450,000 is involved in this project, there is no guarantee for the product to start generating returns in 12 months if we pursue this project. In Palomino project, the risk is medium and the critical path is known. Recommendation: Even though Palomino has a 5% margin of error from its supplier, we conclude that this project is more feasible and profitable than the other two.