Project Management for Informatics : Operational Safety Economics

Critical Evaluation of cost benefit analysis

According to Reniers and Van Erp (2016), the cost benefit analysis of the project is the estimates and summation of the equivalent money value benefits for the project. It evaluates the method for calculating the variable cost of the products or the project. The cost benefit analysis has simple calculative system. It would be helpful in knowing which of the benefit is outweighing the costs of the project. The cost benefit can be easily calculated. It means that everyone would be able to understand the financial nature of the project. On the other hand Bazargan et al. (2013) has pointed out that the cost benefit analysis would lead to complications in estimation. The estimation process for making sure whether or not to take the project would involve estimation of the benefits. The inaccurate or misinterpreted benefits would lead to the selection of non feasible project or rejection of feasible project. Both the scenarios are harmful for the organization or the team and it would lead to failure.

The principles of the cost benefit analysis are another important feature that would lead to benefit the project in long run (Roosen, 2014). The quantitative benefits of the project can be determined by the process of cost benefit analysis. It is very easy for calculating the quantitative benefits of a project by using the cost benefit analysis. However, when qualitative benefits are considered, the process of cost benefit analysis is not applicable. It fails to measure the qualitative advantage of the project benefits (Husereau et al., 2015). For example: the analysis of the implementation of the bonus salary program would be marked as the incurred expense. It would not take into account the benefit of employee satisfaction, increase in productivity or the decrease in turnover. The main advantage of the cost benefit analysis is the calculation of the values of the benefit that could be gained in the business operations. On the contrary the there is another problem with the cost benefit analysis and it is the problem of value being mistakenly counted double.

Critical Evaluation of Net Present Value (NPV)

The Net Present Value or NPV is a tool utilized for the analysis of the investment profitability of the project (Galperin, Fishman & Gibiansky, 2012). It analyses the profitability of the investment of the company or can be sued for the calculation of the new project that can be undertaken in the company. The basic calculation of the net present value consists of estimating the value of future investment in terms of the invested value today. Example of Net Present Value is:

The obvious benefit of using the NPV for the deciding whether or not to take any project work, is that it estimates the future value of the project (Lin & Lu, 2013). It would enable the user with calculation of the benefit of investment for the company or the stakeholders. It would help in calculating the time value of the money. The investment of the project would return after some time and the NPV calculation of the return can be done by approximately calculating the investment returns on a yearly calculation. The life span of the project required for completely returning the investment and providing the profit can be calculated by the use of NPV. On the other hand, the NPV is completely based on the guesswork and estimation (Beullens & Janssens, 2014). It is also possible that the assumptions made for the calculation would be not correct or accurate. The primary assumption made for the calculation would be base on the return wanted from the project. If the project investment is too high, it would lead in missing the chances of many good and potential investments. However, if the project investment is very low, it would lead to formation of sub optimized investments in the project.

Critical Evaluation of Internal Rate of Return (IRR)

The IRR deals with the analysis of the return rates of the investments for the project. It is a valuable tool for accessing and pursuing the project worth (Magni, 2013). The IRR would help in measuring the rate of return and the cash flows of the project. The cash flows are measured with the help of capital investments. The generation of the capital investment is the result of the calculation of the net cash flows. The internal rate of the returns would show the future cash flows of the capital investments for the project. According to Keca et al. (2012), the main advantage of the cash flow is that it would help in determining the present value of the cash that would be generated on future. Each cash flow of the project would be given equal weight for the calculation of the net results. However, the process of capital budgeting does not need the process of calculating the hurdle rate for the project. The process of IRR is subjective and it just provides the rough idea of the investment and it is not accurate. According to Guerra, Magni and Stefanini (2012), another problem of the IRR implementation is that it ignores the volume of the project and future costs of the project.

Analysis of the Project progress and Risk Assessment of the project

EVM process for alerting the project failure

EVA or Earned Value Analysis is a manufacturing strategy set for measuring the advancement of the project at any instance of time (Rao & Cherian, 2015). It would help in determining its closing date and last cost. It would help in dissecting the dissimilarities in the schedule and spending plan as the project continues. It compares the arranged calculation of work. The analysis would help in determining the completion of calculation and figuring out whether the expenditure, schedule, and work completed are proceeding as per the agreement. As work is completed, it is considered as "earned". The EVA is representation of values with the passage of time that can be used as an administration device for cautioning in the framework. It is used for identifying insufficient or endangered advancement. It provides a target measure of accomplishments and an exact copy of the contract status (Zeng & Dai, 2013). Earned Value Management procedures the advances against a measure. It includes computing three key qualities for every action in the WBS:

The Planned Value (PV), (some time ago known as the BCWS or Budgeted Cost of Work Scheduled) that bit of the affirmed cost measure wanted to be spent on the given movement amid a given period.

The Actual Cost (AC), (some time ago known as the actual cost of work performed or ACWP) is the aggregate of the expenses acquired in finishing the project in a given period (Wang et al., 2014). This Actual Cost must compare to whatever was planned for the Planned Value and the Earned Value (e.g. all work, material, gear, and circuitous expenses).

The Earned Value (EV), (previously known as the budget cost of work performed or BCWP) is the estimation of the work really finished.

These three qualities are consolidated to decide by then regardless of whether work is being proficient as arranged. The most normally utilized measures are the cost change:

CV or Cost Variance = EV – AC (where EV is the earned value and AC is the Actual cost)

SV or Schedule Variance = EV – PV (where EV is the earned value and PV is the Planned value)

CPI or Cost performance index is the efficiency indicator for cost and calculated as:

CPI = EV / AC (where EV is the earned value and AC is the Actual cost)

SPI or Schedule performance index is the efficiency indicator for cost and calculated as:

SPI = EV/PV (where EV is the earned value and PV is the Planned value)

Formation of the strategies for project

The strategies for risk assessment and successful completion of the project could be done by forming project model and risk mitigation. The project model would help in successful completion of the project and risk mitigation would minimize the effect of risk.

Project Model: The strategies for assessing the risk and successful closure of the project consist of making a project model. The model would be implied in the project development and risks assessment. The model of the successful completion of informatics project is shown in the figure below:

Figure 1: Project Management Model

(Source: Garel 2013, pp-667)

The model consists of seven steps like analysis, evaluation, designing, implementing, developing, monitoring, and closing. The first step of analysis would consist of the process of analysis of the requirements of the informatics project. The step of evaluation would help in evaluating each of the steps and activity of the project (Brown et al., 2016). The step of designing would help in forming a design of the project plan using the activity planned in the initial step. The step of implementing would help in implying the steps and plans made at the planning step of the project. The step of developing would help in changing and modifying the project plan with the requirements of the project. The step of monitoring would help in keeping an eye on the process of the project. It would help in forming better solutions of the project and making sure that the project is completed in time. The step of closing would help in forming the closure of the project with the help of the project planning.

Table 1: List of the steps in the project management model

(Source: Garel 2013, pp-665)

Risk mitigation for the informatics project

Risk mitigation is useful for the process of the minimizing the risk factor and forming the best suitable solution of the project completion (Davies & Walters, 2013). The risk mitigation can be used by focusing on schedule, planning, performance evaluation, and cist analysis.

Figure 2: Risk Management Planning

(Source: Talluri et al., 2013, pp-267)

Risk Mitigation planning includes following alternatives:

Assume or Accept: It is used for acknowledging the occurrence of a specific risk, and settle on a considered option to recognize it without being a part in exclusive endeavours for controlling it. Endorsement of project or plan initiatives is required.

Avoid: It is used for adjusting the program necessities or essentials for taking out or decreasing the hazards. This alteration could be matched by an alteration in subsidizing, timetable, or dedicated requirements.  

Control: It is used for implementing activities for minimizing the consequences or probability of occurrence of the hazard.

Exchange: It is sued for shifting hierarchical power, obligation, and responsibility to another associate who is willing to concede the hazard.

Watch or Monitor: It is used for monitoring the basic modifications that affect the environment and evaluating the additionally effect of the hazard.

Conclusion

The report had helped in understanding the role of the project management skills for the management of the informatics projects. The projects of the Informatics require huge amount of skills and experience for managing the objectives of the project. There are numerous metric tools such as cost benefit analysis, internal rate of return, net present value, payback period, net cash flow, and return of investment. The critical evaluation of the accounting metrics like cost benefits analysis, net present value and internal rate of return has shown that they have benefits and drawbacks both. The calculation of these metrics should be done carefully by making sure that no mistake is conceived.

The Earned value analysis can be done for determining whether the project had failed to meet its requirements in estimated time.  The risk is a threat to the project that would hinder the successful completion of the project. The strategies for risk assessment and successful completion of the project could be done by forming project model and risk mitigation. Hence it can be concluded from the report would help in concluding the role of the management process for informatics projects.

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