PM OL Lect 5

0:01 All right class. Um good day. Hope you're all doing great. Yes. So last time we talked about um the using the financial method in order to um to evaluate or to select um a project and we talked about um net present value. you see I mean and it's it tells us it calculates the difference between the present value of expected cash so you've not executed the um the the project but you know your cost and the revenue the project is going to generate so you have series of project you want to choose the ones that you can you can it will be financially viable and the ones that it will not so um looking at

0:50 um the financial method in order to select a project. So we talked about the net present value. We we do we did some calculation um um in in class. So today we are looking at um another um uh let's say um profitability index or metrics that we can use to evaluate um a project. So today we are talking about the um internal rate of return. So last time I touched I touched it. So it is the discount rate at which the net present value of a project equals to zero. So you see when you want to make

1:36 any decision using the internal rate of return you want to make sure that the assume discount rate that you've you are using for the project the internal rate of um return what the project is going to generate internally is it more than the assume um discount rate if it's less than it means the project is not viable you don't need to take it if it's higher and it it means the pro project is very profitable. So um with this method let's see um some Excel work on the same um um exercise that we did in class.

2:25 So you see if you remember the project A and the project B. So in essence maybe I can give you more than um two projects. So um this one I've calculated it already. Let me clean it. This one too. Let me clean it. So um I calculated um net present value and the values. So today I mean right now we are looking at the internal rate of return. So with the internal rate of return um he has it formula in Excel. So equal to then I are the formula will come out. So you see returns on um internal rate

3:12 of return for a series of cash flows. So this is the cash flow. I told that cash flow is the cash in and out of a project. So it could be negative and positive. So negative it means you are bearing cost. positive it means you are generating revenue. So you double click on the formula. So you see internal rate of return they say values. So these are the values. So you just I believe you guys have used Excel before. So these are the values of for project A both positive and negative. You get me? Then you bring your comma. You bring your your comma then you see it go it it has gone to a guess. So the guess is the the

3:59 discount rate which is 8%. Then you close it you press your enter. So you see he said this the project a the internal rate of return generated is 47%. When you calculate it you're going to get 47.4 but you see um Excel will run it um over for you. So 47%. Then let's see for project B. So equal to IR R. So the values from the expenses are negative down to the

4:48 then I close it. So you see that one the internal rate of return is 31%. So you see if you are using internal rate of return both of them are profitable because the 47 the 47% is greater than the assume this country which is the 8%. So it means um the project is profitable. I mean using the first one that we did in class net present value it has already told us that is is profitable right? Yes. Then um project B 2 is profitable because 31% is greater than the 8%. So it's also

5:35 profitable. But what can we see here with project B? When compare project A and project B, project A is 47% which is higher than project B which is 31%. So when you are using internal rate of return, you will choose project Ahead of project B. You see when you use net present value is project B that was higher than project A. But you see in terms of internal rate of return, project um how do we call it project A is making more profit as compared to project B. So um I mean at some other time let me let me leave it up for you. I don't want to

6:22 um go deep to confuse you. So you see using internal rate of return it means project what A is more profitable as compared to project B. I hope you get it. So I'll give you an assignment. So I'll send you this Excel sheet. So you are going to calculate you see I've I've given you the value internal rate of 47. But this Excel Excel work I want you to look for the formula. It's an assignment. So you guys can come together look for the formula. Calculate the internal rate of return of project A and internal rate of return for project B. The answer should be closer to this. So me I've given you the answers. So it makes your work easier. I'll take it next week when I come to class. Okay.

7:10 I know Judari is not happy but it is what it is. So let's go back to our yes. So we've talked about eternal rate of return. You see it is easy to understand and it is widely used. So you see they use eternal return internal rate of return more often than the the other ones. So today let's look at project planning. Um come yes let's look at project planning. So to plan a project one you have to have a

7:55 defining scope. So a defining scope identifying project objectives um deliverables and boundaries. So what is the how you going to what is the scope of the project? You see what what is your the your manager or the the the CEO or the um one financing the project? What does he want you to do? So that is the how you defined the scope of the project. So identify project objectives. So what are the objectives? Okay, you are supposed to build a six block building. That's just for um um um um our understanding. Uh six block school building. So that's

8:43 the um the objectives. What are the deliverable? What are the things that I need? You need blocks, you need cement, you need all those things. Then the boundaries. So they are telling you to build um a six block um school classroom for students. We shouldn't see you constructing pool, constructing um um um um um let's say other things that is not part. So you should have boundaries for what you are you are contracted to do. Secondly, creating shadows, develop timelines and milestones. So you see I've told you about timelines. Every project you should have timeline because if you start a project and you don't give a timeline to finish the project means

9:30 it's not a reliable project. It should have milestones. So okay um from um January to February I'll be done with the foundation. So on your Excel sheet where you have everything then you tick I'm done. You've achieved a milestone. Then you go from March to April I'll be um doing my concrete. So concrete but then you take it you are done. So that is um um developing timelines and milestones and make sure I achieve them. Allocating resources. So assigning personnel equipment and budget. You see this self-explanatory. And the last one is risk management. Identify and mitigate potential risk. All the risk involved.

10:15 Okay. We are in the rainy season. Um if I don't plan well war you would do your concrete and it will rain your concrete will not be solid. It means you have to destroy everything and lay your concrete again. So these are the risk that are involved. So you have to manage them. Okay. Um let let's listen to the methological um um um um stations. What are they saying? Tomorrow there's going to be rain. So we can lay our concrete tomorrow. See, so those are the things that you need to manage. So let's look at um last one um conflict in projects. So conflict. So

11:01 sources of conflict sometime difference in goals, priorities, values and communication styles. Um sometimes you know what you want, what you feel like is good for the project. the one giving the money says he's not is not good. So difference in goals you want to build a a classroom block. He's also saying that since the money is coming from the from the government and is the politician here um you should just build a bungalow and just leave it. So difference go it can bring conflict priorities do you get me? Oh, classroom let's put maybe um digital board not blackboard that you need to be cleaning and other things. Then the person say no no let's put a blackboard so that we can save some

11:47 money. So you see difference in priorities they can't be a source of a conflict. Then the types of conflict too we have the tax related, relationship related and process related. So tax related sometimes it can generate um conflict. The your boss your immediate boss says you should do this. The overall boss is is also giving another task. So you leave your immediate boss who you are working under who can um um mafia you left his work and you are doing the big boss role. You see I will not talk because the big boss is higher than the immediate boss but he will mafia you sometimes relationship related. I'm a Christian, so I can't I can even quote um um a scripture.

12:33 There's a scripture in um Psalm I think Psalm um 96 the verse 4 there he said my enemies that hate me without a cost a cause sorry my enemies that hate me without a cause are more than my hair. So you see relationship sometime you not done anything people seen you on site on a project site and they just they are angry with you that's the same you can find some people you've not done anything but they just like you your face oh you're a good guy you talk well so you see all these things are there so you should manage them then lastly the consequences delay timelines when conflict arises sometime you delay your timelines because the senior men are fighting so they'll leave the work there decrease morale so sometimes um the

13:21 energy the God to do the work is not there because your your superiors are fighting and there is a saying that when two elephants fight what happen is the ground that suffers. So you see your your two bosses are fighting and you people that are doing the work you are the ones that are are suffering. So your morale will go down and there is it will all these things might end up in the project and fill up one and I want to leave it here. So you guys make sure that you do the assignment. So look um look for the formula for eternal rate of return and calculate it on a on um um how do we call it official sheet. I'll come and check. I'll take it on um next

14:08 week, God willing. So have a good um week which will run into the weekend. God bless you guys. Take very good care of yourself. Don't follow people to it. They go and shoot you and they will say it's a mistake. So the young ladies be very careful the people die for you. I mean it's not my concern. This is an advice. You can decide to take it or not. All right. God bless you. Bye.