Integration Management
CashFlow Analysis Techniques
Project Selection Criteria

What is it

Selection Mechanism

Payback Period

Period of time required to recoup the funds expended in an investment, or to reach the breakeven point.

Select Lowest

Internal Rate of Return (IRR):
Think bank Interest rate

Internal portfolio rate at which the investment will produce results.

Select Highest

Net Present Value:
Money now is more valuable than money later on.

Formula:
PV = FV/(1 + r)t
Where
r =interest rate
PV – Present Value
FV = Future Value
t = Time period

Select Highest
Remember the Formula!!

ROI
Return on Investment

Divide net profit by total assets

Select Highest

Benefit Cost Ratio

Benefit / Cost

Select Highest

Cost Management
Rough Order of Magnitude estimate (ROM) = 25% to +75%
Definitive estimate = 5% to +10%
Earned Value Management Formulas:
Name

Formula

What is it?

Interpretation


BAC

Budget at Completion

No formula

Approved Budget


PV

Planned Value

PV = BAC* Planned % Complete

What your schedule says you should have spent


EV

Earned Value

EV = BAC * Actual% Complete

How much of the project’s value you’ve really earned


AC

Actual Cost

No Formula

Spending on the projects – actual


SPI

Schedule Performance Index

SPI = EV/PV

Whether you’re behind or ahead of schedule

SPI >1 – Ahead of Schedule
SPI = 1 – As per Schedule
SPI < 1 – Behind Schedule

SV

Schedule Variance

SV = EVPV

How much ahead or behind schedule you are


CPI

Cost Performance Index

CPI = EV/ AC

Whether you’re within your budget or not

CPI >1 – Under Planned Budget
CPI = 1 – On Budget
CPI < 1 – Over Planned Budget

CV

Cost Variance

CV = EV – AC

How much above or below your budget you are


EAC

Estimate at Completion

EAC = BAC/CPI
Mostly Used

The expected total cost of completing all work.
If the CPI is expected to be the same


EAC

Estimate at Completion

EAC=AC+BAC–EV

If future work will be accomplished at the planned rate


ETC

ETC = EAC – AC

The expected cost to finish remaining work


TCPI

To Complete performance Index

TCPI=(BACEV)/(BACAC)

The run rate required to win the match
(Run rate = spending rate)
(Target Runs = Approved Budget)


ThreePoint Estimates:
PERT Analysis Also called BETA Distribution
Mean = (P + M + O)/3
Triangular Distribution Also called Average Distribution
Mean = (P + 4M + O)/ 6
Quality Management
1 Sigma = 68.26%
2 Sigma = 95.46%
3 Sigma = 99.73%
6 Sigma = 99.99%
Pareto Rule = 80/20
Communication Management:
Communication channels = n * (n1)/2
Where n is the number of stakeholders
Procurement Management
Make or Buy Decision:
Make or Buy Decision: Select decision which result in lower cost or lower risks.