Page 215 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes 2. Project maturity: We know interest rate has a term structure, i.e. interest rates (or yields)
are affected by the term (or life) of the assets or loans. In addition, we know the most
common relationship between interest rate and term to maturity is a positive one (i.e. an
upward sloping yield curve). In other words, it is cheaper to borrow short term than it is
to borrow long term. This will have an impact on the financial manager’s financing
decision depending on the life of the project.
The economic life of a project is not always a clear-cut indication of whether a financial
manager should use short-term or long-term financing. This depends on whether the
management has made a long-term commitment to the project, i.e. renewing a project
with short economic life when it comes due. Examples of long-term commitment on
projects with short economic life include cash registers (at a retail store like K-Mart),
utensils (at a restaurant), etc. When a financial manager makes a long-term commitment,
he/she will “borrow” at the long-term interest rate even though the project has a short
economic life.
3. Strategic considerations: Even though certain projects might not generate a positive NPV
for the firm, the management still approves those projects because they might help the
firm gain certain technological expertise (and they are mostly R&D projects). For example,
GE might be working on a project to create a robot that will sweep the floor based on voice
commands. The firm can probably find a cleaning crew that will do a better job (and at a
much lower cost) than the robot, but this project will help GE gain technical knowledge on
robotics and voice command systems, which might prove invaluable in future GE projects
(and products).

Task Find out the role of "WBS" in Project Planning.

Self Assessment

State True or False:

1. A financial manager sometimes needs to pick less superior projects that will meet this
short-term goal.
2. Interest rates (or yields) are not affected by the term (or life) of the assets or loans.

3. A Work Breakdown Structure (WBS), in project management and systems engineering, is
a deliverable oriented decomposition of a project into smaller components.
4. Decomposition is the act of combining deliverables in to successively larger chunks of
work to be completed.

12.3 Summary

 The first step to creating your WBS is to get all your team, and possibly key stakeholders,
together in one room.
 The WBS should contain a list of broken down deliverables.
 The WBS cannot be used as a replacement for the project plan or schedule.

 A WBS is not required to be created in any type of order or sequence. It is simply a visual
breakdown of deliverables.

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