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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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The Basics of Capital Budgeting

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In this chapter, we described five techniques—NPV, IRR, MIRR, payback, and discounted payback—that are used to evaluate proposed capital budgeting projects. NPV is the best single measure as it tells us how much value each project contributes to shareholder wealth. Therefore, NPV is the method that should be given the greatest weight in decisions. However, the other approaches provide useful information; and in this age of computers, it is easy to calculate all of them. Therefore, managers generally look at all five criteria when deciding to accept or reject projects and when choosing among mutually exclusive projects.
In this chapter, we took the cash flows given and used them to illustrate the different capital budgeting methods. As you will see in the next chapter, estimating cash flows is a major task. Still, the framework established in this chapter is critically important for sound capital budgeting analyses; and at this point, you should:
-Understand capital budgeting.
-Know how to calculate and use the major capital budgeting decision criteria, which are NPV, IRR, MIRR, and payback.
-Understand why NPV is the best criterion and how it overcomes problems inherent in the other methods.
-Recognize that while NPV is the best method, the other methods do provide information that decision makers find useful.

 

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