Individual Project: Project Outline

In Part II: Project Outline, the new executive (your Instructor) of your strategic business unit (SBU) asked your team to create a portfolio management process and project selection criteria for use by the SBU. Your executive is very satisfied with the work you did to create this process. In fact, he was so impressed with the process and criteria you defined, he has now asked you to be key players in executing that new process. What follows are the details that will comprise the final deliverable of the project.

Part II: Project Outline - due at end of week 6:

In the annual budget cycle,

• Your SBU was allocated €24 million of funding for staff.
• Your SBU is currently staffed with 100 people. The average loaded salary of your staff members is €240,000, which includes direct salary, all benefits (which are part of your budget), and all direct charges and capital charges (supplies, computers, travel, rental charges for the space you occupy, equipment, etc.).
• In order to continue to employ all 100 staff members, you must allocate €6 million of funding each quarter.

It is Monday, April 1. The first quarter of the year has just concluded.

• Your SBU spent €6.0 million of the annual funding in the first quarter.
• Half of that spending went to projects that were finished in the first quarter and no longer require any budget.
• There are three committed projects still in progress, which have the following characteristics.

An important new project-Project D-has been proposed, and your executive has asked you to use the portfolio management process to determine whether to proceed with Project D and to identify the impact of the project on the rest of the programme. Project D must be delivered by December 31 and is estimated to require the following funding to meet that commitment.

You are to use the portfolio process you developed in Part II: Project Outline of the module project to determine how to manage the portfolio of existing and new projects. When looking at the funding required, you will not be able to maintain the work on all the existing projects and introduce the new one with its requirements. 
The information that you have for the projects is the following:

The results of the analysis using the selection process are the following:

• Project A is viewed as higher priority than Project D.
• Project B and Project C, however, are lower priority than Project D. That is, it is more important to make the requested schedule date for Project D than to maintain the committed schedule dates for Projects B and C.

Cash Flow Estimate for Project A (all figures are in €M Euro):

Cash Flow Estimate for Project B (all figures are in €M Euro):

Cash Flow Estimate for Project C (all figures are in €M Euro):

Cash Flow Estimate for Project D (all figures are in €M Euro):

Notes on Tables:

• EBIT is defined as Earnings Before Interest and Taxes (revenues minus discounts minus cost of goods sold).
• All equity financing is used so there are no interest charges.
• Corporate tax rate is 30%.
• Discount rate of 11% should be used.
• Straight-line Depreciation should be used. In all cases, assume an average tax life of 15 years.
• Assume tax-loss carry-forward applies to all cash flows.

Your report will show how you used your portfolio process to determine why you are going to commit to Project D and determine any impact on currently committed Projects A, B, and C, and you will write a short memo to your manager documenting the results of applying the portfolio process.

Since this is the first project using the new portfolio process and project selection criteria, you will be expected to present an overview of the process and criteria to your new executive. You will then need to present the results of your analysis and recommendation, including an overview of the executive project plan, to the executive as part of the gate review of Project D.