OliverLehman Questions

Can someone please help with the below questions?


1. You are assigned as the project manager to a project which is executed for a customer
 under FP contract. Your customer informed you this morning that they insist on certain
"refinements" of the project scope. You agree that the requested actions make really sense to the project,
but believe that they constitute a major change increasing the project scope. What should you do next?


A. Accept the request of the customer. Diligently document the additional costs and working hours spent by yourself and the team on the implementation of the change and invoice these to the customer at appropriate rates.
B. Perform earned value analysis to assess the current status of the project and get all the numbers you need to communicate the case to the change control board which then will have to make the best decision regarding the customer request.
C. Check the contract, the project charter, the scope statement and other documents related to the project and the contract. Implement ADR (alternative dispute resolution) procedures if the conflict cannot be resolved otherwise.
D. Talk to the project sales department and find a joint solution with them how to best reject the request considering the commercial and strategic value of the customer to the organization you are working for.


2. A company has to make a choice between two projects, because the available resources in money and kind are not sufficient to run both at the same time. Each project would take 9 months and would cost $250,000.
1. The first project is a process optimization which would result in a cost reduction of $120,000 per year. This benefit would be achieved immediately after the end of the project.
2. The second project would be the development of a new product which could produce the following net profits after the end of the project:
1. year:       $ 15,000
2. year: $ 125,000
3. year: $ 220,000
Assumed is a discount rate of 5% per year. Looking at the present values of the benefits of these projects in the first 3 years, what is true?


A. Both projects are equally attractive.
B. The first project is more attractive by app. 7%.
C. The second project is more attractive by app. 5%.
D. The first project is more attractive by app. 3%.

cnppmp's picture

Answer Q2)

First project:

1st Year=120000/(1+0.05)^1=114285

2nd Year=120000/(1+0.05)^2=108843.54

3rd Year=120000/(1+0.05)^3=103660.07

326788.61

 

Second project

1st Year =15000/(1+0.05)^1=14285.71

 

2nd Year=125000/(1+0.05)^2=113378.68

3rd Year=220000/(1+.05)^3=190043.45

 

317707.84

 

326788.61 – 317707.84 / 317707.84 = 0.0286

%= 2.86 %

 

Answer is D

 

Regards

 

CN Patil

Finance questions can be frustrating especially if you have a finance degree.

NPV calculations should factor in the initial investment

so, 326788.61 – 317707.84 / 317707.84 = 0.0286

subtracting the initial investment gets ( 76788-67707 ) / 76788   or about 12%

I guess the key is the phrase " the present values of the benefits of these projects"

PV of the benefits I supposed would not include the initial investment (sigh)

so the 3% is right but I am not a fan of the wording since typical NPV includes the initial investment.

 

 

cnppmp's picture

Answer Q1) The option appropriate here is option B, since that is what Project manager does performs as an immediate action. Any change request would go through the Change control board assuming the evalutaions and options are tried out. So, PM gives his inouts to the change request and they decided whether to go ahead or not.

Regards

CN Patil

I came across this today...but OL's answer is C(Check the contract...) any views? 

ground rule for any contract related question is to verify the contract first for the appropriated process - and as its a fixed price contract definitely you do not want to do more work for the price that you have agreed for - and if you want to talk about it then you should be knowing what is listed in the contract about scope changes -

hope this helps

saketbansal's picture