Multiple Project constraints
In the existing environment, an organisation cannot consider a capital investment project individually as certain pre-conditions require to be fulfilled.
Constraints:
Project dependence, capital rationing and project indivisibility are factors that restrict isolated project selection. If the acceptance and rejection of one influence the cash flow stream of the other, then the two projects are said to be economically dependent. The three types of economic dependency are as follows:
- Mutual exclusiveness
- Negative dependency
- Positive dependency Capital rationing occurs when funds available are not adequate to undertake all the projects that are acceptable otherwise. It also arises because of internal limitation or an external constraint. A project cannot be accepted or rejected partially, it is indivisible, and has to be accepted or rejected in totality.
Methods for comparison
Factors like economic dependency, capital rationing or project indivisibility emphasize the need for comparison of projects. The methods used for comparing projects are:
- Method of ranking: Joel Dean originally proposes a method of ranking. It consists of two steps:
- Ranking all the projects in decreasing order of the NPV’s, IRR’s, or BCR’s. Assumptions in these 4 methods are:
- NPV method: The intermediate cash flow is re-invested at a rate of return equal to the cost of capital of the firm.
- IRR method: Cash flow is re-invested at a rate of return equal to or greater than the Fisherian rate of return.
- BCR criterion: The intermediate funds are reinvested at a rate of return greater than the Fisherian rate of return. Accepting all projects in that order until the capital budget is exhausted.
- All combination of feasible projects should be defined, given the capital rationing constraint and project dependencies. Then choosing a combination having the highest NPV is known as the feasible combination procedure. Problems: There are two major problems related to this method
- Because of the discounted cash flow criteria, conflict arises in the ranking.
- Indivisibility of the project.
- Mathematical programming approach: Two broad categories of equations are considered for formulations in the mathematical programming approach:
- The objective function and
- The constraint equations.
The following three models are commonly used
- Linear programming model: Assumes that the objective function and the constraint equation are linear while the decision variables are continuous.
- Integer linear programming model: It is presupposed that decision variables assume a value of 0 or Advantages of the method:
- It overcomes the problem of partial projects which besets the linear programming model and.
- It is capable of handling virtually any kind of project interdependency like mutual exclusiveness, contingency and complementary.
- Goal programming model: It solves the programming problem of minimizing the absolute deviation from specific goals in order of the established priority structure.
Multi-Tasking
Why projects take so long and still go late - In most project environments multi-tasking is a way of life. This seemingly harmless activity, often celebrated as a desirable skill, is one of the biggest culprits in late projects, long project durations, and low project output. At the same time, it is one of the least understood factors in managing projects. For companies where projects are of strategic importance, the stakes are very high. Whether it is delivering their product or service, bringing new products to market, or expanding/ upgrading their operations with new facilities, systems, or capabilities, the financial impact of being able to reduce project durations and costs, increase the volume of completed projects, or simply deliver more projects on-time is enormous. So, understanding how this often-overlooked practice of multi-tasking is of critical importance to most companies.
Is multi-tasking really so prevalent?
Since multi-tasking is difficult to see or measure precisely, we need to look at some other things to answer this question. The first issue is to understand the opportunity to multi-task. The way to see if your organization has the “opportunity” to do bad multi-tasking is ask how many jobs/ tasks an individual has on their desk at any given point in time. If there is more than one task that could be worked on a person’s desk then there is the opportunity for multi-tasking. When we ask managers how many tasks are on any given person’s desk at one time, the not surprising answer is usually more than five. Another way to look at it is to recognize that in most organizations where multiple projects are being done simultaneously, the resources who do the work on a project have to serve multiple, different project managers.
For these project managers what is most important tends to be their projects. As a result, they typically create pressure on resources to do their work first, institutionalizing multitasking. And when the multi-tasking starts to creep in, it initiates a negative spiral that only increases the pressure to multi-task. If one resource starts the multi-tasking, it delays the completion of their tasks, putting some projects behind. This increases the pressure on project managers and executives to adjust priorities to compensate, which in turn creates more, bad multi-tasking. It’s not hard to see how this spiral quickly becomes the reality we see in many organizations where managers at all levels are quickly pulled into managing work priorities across the organization on a daily basis. On top of it, many resources who work on projects also support daily operational functions like QA/ QC, production, engineering, customer service. This support role means that they are frequently presented with unexpected, usually urgent things to do which readily drive more multi-tasking. The result is that in the majority of companies there is the opportunity and the pressure to create a significant amount of bad multi-tasking.
0 Comments