Project Risk Management and NPV Analysis

The provided report discusses project risk management from Google's perspective, utilizing project management methodologies to analyze potential risks. It also covers resource arrangement through retained earnings, equity, and debt financing. Additionally, the report calculates the net present value of future cash flows for a given problem, concluding that the company can take up the project due to positive NPV results. The assignment is relevant to corporate finance, risk management, and project evaluation.

Project Risk, Finance and
Monitoring

EXECUTIVE SUMMARY
Project risk is the identification of risks followed by application of resources to minimize the
probability of unfortunate events. The present report is about how should Google determine what
projects to undertake and what ones to avoid, what tools and practices are available to project
analysts in this industry? What is the role of project cost management for Google why is it
important, what strategies should be adopted in order to effectively manage project costs. The
company should be concerned with creating consistent solutions situated between clients' needs
and organizational practices. Google identified the establishment of performance measures, such
as quality, production speed or attendance, reliability, flexibility and costs, as the practical
aspects of competitive advantage. Equity finance is money sourced from within the business.
Self-funding is often the first step in seeking finance and involves funding purely through
personal finances and revenue from the business. Net present value (NPV) is the difference
between the present value of future cash inflows and the present value of future cash outflows
over a period. Apple should consider investing in the project as the Net present value of the
project is positive which makes it a profitable investment.

Table of Contents
EXECUTIVE SUMMARY............................................................................................... 2
INTRODUCTION.......................................................................................................... 4
PART A....................................................................................................................... 4
Project selection........................................................................................................... 4
Cost management......................................................................................................... 5
Funding..................................................................................................................... 6
PART B........................................................................................................................ 8
a.) Current equity capital issue of Apple, why does companies raise equity capital and what happened
to share price of Apple in 2019 and why this happened?..........................................................8
b) i) Future Cash flow of the projects are-............................................................................9
b) ii). NPV of the project-............................................................................................. 10
b) iii). Apple should invest in this project-.........................................................................11
b) iv). The cheapest way to finance would be depending on the Cost of Equity or the cost of Debt. If
apple could refinance through bonds only then it would affect the NPV of the project...................11
CONCLUSION............................................................................................................ 11
REFERENCES............................................................................................................ 13

INTRODUCTION
Project risk is the identification of risks followed by application of resources to minimize
the probability of unfortunate events. Finance is defined as the management of money which
includes activities like investing, lending, budgeting, saving, and forecasting. Monitoring is the
process of collecting, analyzing and using information to track a program’s progress
toward reaching its objectives and to guide management decisions. ( Kliem and Ludin,
2019)
The present report will include how should Google determine what projects to undertake
and what ones to avoid, what tools and practices are available to project analysts in this industry?
What is the role of project cost management for Google why is it important, what strategies
should be adopted in order to effectively manage project costs, what funding measures are
generally available to assist to fund proposed new projects, are there any particular issues
associated with commencing a project that Google must consider, what happens when the project
finishes, how are projects wound up, are there environmental issues associated with the end of a
project.
PART A
Project selection
The project management method used by Google for continuous improvement and
growth is “Agile” which uses short continuous cycle called “sprints” to focus on high
improvement in development of product and service. It provides a way for developers and teams
to deliver a better product, in a faster manner, through short, iterative, interactive
sessions/sprints. In the era of digital transformation, with many companies migrating to a digital
workplace, agile is a perfect fit for organizations looking to transform how they manage projects
and operate as a whole. Agile can help ensure company-wide process and methodological
alignment. In terms of business benefits, both the digital workplace and agile provide: Increased
flexibility ,increased productivity, increased transparency, higher quality deliverables, decreased
risk of missed objectives and increased stakeholder engagement and satisfaction.

Selection for any project in Google is based on two criteria, Benefit measurement and
constrained optimization method (Carvalho and Rabechini Junior, 2015).
The aim of the Benefits Measurement and Review set of activities is to ensure that
integrated change programs and projects are implemented and managed with a sustained focus
on benefits realization. Benefits reviews assess the amount of benefit that has been realized to
date, update estimates of future benefits and, where necessary, recommend remedial action to
address shortfalls in the expected levels of benefits realization. In the simplest case, this means
solving problems in which one seeks to minimize or maximize a real function by systematically
choosing the values of real or integer variables from within an allowed set (Harris, 2017). This
formulation, using a scalar, real-valued objective function, is probably the simplest example; the
generalization of optimization theory and techniques to other formulations comprises a large area
of applied mathematics. More generally, it means finding "best available" values of some
objective function given a defined domain, including a variety of different types of objective
functions and different types of domains (Henri, Boiral and Roy 2016).
Cost management
The company should be concerned with creating consistent solutions situated between clients'
needs and organizational practices. Google identified the establishment of performance
measures, such as quality, production speed or attendance, reliability, flexibility and costs, as the
practical aspects of competitive advantage. The development of a corporate strategy is the
rationalization and the intertwining of the different activities that will provide support to
competitivity. Hence, all competencies must be considered in the formulation of the different
internal strategies, such as, for example, the production strategy and the costs strategy.
Costs Strategic Management, in turn, concerns costs management, be it for the financial
and profitability analyses of the products, be it for verifying and assessing the short and long-
term business profitability. To attain these objectives, an efficacious and efficient cost
management is implemented which coordinates with the business strategies, so as to provide
sustainable competitive advantage. Strategic Cost Management also significantly contributes to

efficiency in analyzing value for the stakeholders, in a possible alteration of organizational
behavior and to minimize the risks for the company (Serrador and Pinto, 2015).
Cost management, for quite some time, was a forgotten island in corporate strategy. In
recent years, nevertheless, cost management succeeded in increasing its importance in
opportunities prospect ion. Strategic costs management offers wider understanding of processes
for managing expenses, both for financial performance measures and for identifying competitive
advantages. Several factors may influence the planning of the costing system; it is not simply the
competition degree that influences the planning of the system, but the nature of competition,
which, in theory, is determined by the choice of competitive strategy.
In a cost leadership strategy, the costing system has to be planned and developed to
identify the potential areas for cost reduction. Smaller costs are obtained by better use and
smaller material loss, by a lesser level of losses along the process, by the minimization of re-
works etc (Dogan, Yamamoto-Ibusuki, and Andre, 2017).
Funding
There are various types of funding through which Google acquire its resources:
Debt finance is money provided by an external lender, such as a bank, building society or credit
union on basis of rate of interest charged by them. Most finance companies offer finance
products via a retailer. Finance companies must have a registration, so before you obtain finance
check the professional registers on the Australian Securities and Investments Commission
(ASIC) website. Factor companies offer a form of finance where they purchase a business'
outstanding invoices at a discount. The factor company then chases up the debtors. While
factoring is a way to get quick access to cash, it can be quite expensive compared to traditional
financing options.
Equity finance is money sourced from within the business. Self-funding is often the first step in
seeking finance and involves funding purely through personal finances and revenue from the
business. Investors and lenders will both expect some amount of self-funding before they agree
to offer you finance. Venture capitalists are usually large corporations that invest large sums in
start-up businesses with the potential for high growth and large profits. They typically require a

large controlling share of the business and often provide management or industry expertise.
Investors can contribute funds to your business in return for a share in your profits and equity.
Investors such as business angels can also work in the business providing expertise or advice as
well as funds (Kerzner and Kerzner, 2017).
Implementation and winding up –
The best projects in Google start with “thinking” and only proceed to “doing” when there is a
viable plan in place. Bridging that divide–between idea and implementation–is the first point
where many projects stumble. Because culture comes down to the beliefs, expectations, and
sense of purpose a team shares, it can change according to the project.
Doing that well takes plenty of research and asking the right questions. But there is such a
thing as over-brainstorming. Putting hundreds of questions on the wall in Post-It notes, or
unloading every possible, half-baked idea into a Google doc, is probably a bad move. Too
much idea generation at the very beginning of a project will only confuse. The trick is to keep
it simple, pragmatic, and targeted.
Team dynamics are all about culture. When it get that right, it’s easier to forecast
interpersonal problems, mentor team members effectively, or replace them quickly. Because
culture comes down to the beliefs, expectations, and sense of purpose a team shares, it can
change according to the project. With so many unknowns at the start of any project, it’s often
impossible to chart a precise course toward success. As a result, it’s important not to get stuck
in too many details too early. Once project’s basic scope is defined, that’s usually enough to
start outlining a few of the initial milestones. Leave the later ones for later. With every small
first step, the path forward becomes ever clearer.( Layton and Ostermiller, 2017)
Not only can this help teams stay efficient as they build on the work they’ve done over the
course of a project, it also helps everyone stay motivated. When it watch the work build

progressively–rather than just spotting on the assembly line–it is more likely to see the whole
thing through, successfully and under deadline.
PART B
a.) Current equity capital issue of Apple, why does companies raise equity capital and what
happened to share price of Apple in 2019 and why this happened?.
Companies prefers raising equity capital due to many reasons which are discussed in
brief below:
One of the major advantage of companies that they always prefers of raising funds through
equity that investors are likely to provide follow up funding in an organization if they sees that it
is growing.
It results in lower overhead expenditures for the company in the sense that it has to pay no
interest on the amount borrowed from the investors. Thus, in the inception years of business,
equity finance is more fruitful than other source of finance (Smith and et.al., 2016).
Another reason why the Google has always backed up the idea of raising the equity capital that it
provides large amount of capital for expansion and growth and the capital which is raised is
permanent. This is because this amount has to paid back only at the time of winding of the
company.
It is also a covenant less financing in which lenders of sum of money develops covenants that
puts restrictions on the amount realized by the way of loan. Such things are not present in equity
finance. Thus, it allows companies like Google to aptly use the capital raised in the way that
benefits the organization in the best possible way (Advantages & Disadvantages of Equity
Capital, 2019).
Price cuts have led Apple’s profit to decrease in the holiday quarter which was less than the
profits which were originally forecasted by the company. The organization decided of cutting its
products’ prices in China. It planned of offering around 20% discounts to its customers in China.
Such incidences have resulted into the decline in the value of Apple’s share price and market’s
analysts have also reduced their intended price for company’s stock.
This has happened because of the following reasons:
Gradual declining of the iPhone market is one of the reason which has made the company to
experience low profitability in the year 2019.
The prices of the iPhones is another reason why customers are shifting their base from world
biggest mobile manufacturing company to its competitors. The cheapest iPhone XR is around
$749 which makes customers to think twice before from purchasing company’s products
(Harrison and Lock, 2017).

As per the report from Bloomberg, Apple does not emphasize on business. The report said the
company who has focused on their business has seen less decline in their market share prices as
compared to companies who has just focused on the idea of attracting just the customers. The
other thing which the article highlighted that investors have behaved more rudely with the
companies who are highly customer focused such as Apple and Amazon in comparison to
companies who are business focused such as Microsoft. Apple has lost around 23% market share
as compared to Microsoft who has seen fall in market of just 6.3% (5 reasons Apple’s stock price
is tanking right now, 2018)
b) i) Future Cash flow of the projects are-
Discounted cash flow (DCF) is a valuation method which is used to estimate the value of
an investment based on its future cash inflows and outflows. DCF analysis finds the present
value of expected future cash flows using a discount rate.
DCF is calculated as-
DCF= CF1 + CF2 + CF3 + …………. CFn
(1+r)1 (1+r)2 (1+r)3 (1+r)n
where,
CF= Cash flows
r = Discounting rate (weighted average cost of capital)
n = period of project
The value calculated through DCF model is higher than the current cost of the investment, the
opportunity is profitable, and this could be considered.
As per the case study above, future cash flows are calculated in the below table-
Year 0 1 to 3 4
∆NR -
1
.80
1
.80
∆OpEx -
(0.
36)
(0.
36)
∆EBITDA -
1
.44
1
.44
∆D&A -
(1.
00)
(1.
00)
∆EBIT 0 0

- .44 .44
(1-t)i.e
(1-.30) -
0
.13
0
.13
∆NOPAT -
0
.31
0
.31
∆D&A -
1
.00
1
.00
∆CFO -
1
.31
1
.31
∆CapEx
(5.
00) - -
Working
(5.
00)
1
.31
1
.31
Cap
Reccovered
in the last
year - -
0
.03
Salvage - -
2
.00
Value
1.
00
3
.17
0
.68
∆FCF
(5.
00)
4
.48
2
.28
The following points are considered in the calculation-
 For resale value- It is assumed that the machinery is sold as the end of year 4 and hence
included in the calculation.
 Revenue from the sale of product is $2.8 million, and it is also given that he revenue for
Apple’s existing IPhoneX product is expected drop by $1 million per year for the next
four years because of the new product. Hence the Net Revenue is taken as $2.8 million
less $ 1 million= $1.8 million.
 The sunk cost spent for Apple’s Research and Development department of $1 million for
researching demand for the new product as well as ways to address the battery problems
is ignored for the calculation of FCFs and NPV and it is irrelevant for decision making
 The cost of Capital is taken as 10% and the tax rate as 30%.
b) ii). NPV of the project-
Net present value (NPV) is the difference between the present value of future cash
inflows and the present value of future cash outflows over a period. NPV techniques is use while

making capital budgeting and investment planning decisions to analyze the profitability of a
projected investment (What is the NPV Formula, 2019).
Year Future Cash Flows
0 (5.00)
1 to 3 4.48
4 2.28
NPV 1.76
b) iii). Apple should invest in this project-
Apple should consider investing in the project as the Net present value of the project is
positive which makes it a profitable investment. Given the market demands the technology
upgradation hence strategically it is supposed to be a favorable decision for the company.
b) iv). The cheapest way to finance would be depending on the Cost of Equity or the cost of
Debt. If apple could refinance through bonds only then it would affect the NPV of the project.
The cheaper option for funding the project would depend upon the cost of equity or the
cost of debt. In the given scenario we notice that the Cost of Equity is 10% and future cash flows
are discounted on that basis, if given the internal and external factors of the entity the cost of
debt is less than 10% then debt would be a favorable option. There would be tax deduction
benefit on interest paid on such debt, whereas there is no tax deduction benefit for the payment
of equity dividend (Smith, 2016).
If Apple could refinance using bonds, it would affect the NPV as the operating cost of the
project would include the interest payable on such bonds.
CONCLUSION
From the above project report, it can be concluded that project risk is the proper
management of risk that could arise during the cycle of initiating and closing of a particular

project. It was seen that Google takes the assistance of project management methodologies for
analyzing which projects it should consider and which it should not. Also, it was observed that
there are many sources from which Google arranges its resources such as retained earnings,
equity and debt financing. In other segment of the report, NPV was calculated for the given
problem in which the it was seen that net present value of future cash flows were positive which
indicated that company can take up the project as the future cash flows are higher than the initial
investment made by the organization.

REFERENCES
Books and Journals
Kliem, R. L. and Ludin, I.S., 2019. Reducing project risk. Routledge.
Harris, E., 2017. Strategic project risk appraisal and management. Routledge.
Carvalho, M.M.D. and Rabechini Junior, R., 2015. Impact of risk management on project
performance: the importance of soft skills. International Journal of Production Research, 53(2),
pp.321-340.
Dogan, S., Yamamoto-Ibusuki, M. and Andre, F., 2017. Funding sources of practice-changing
trials. Annals of Oncology, 29(4), pp.1063-1065.
Layton, M. C. and Ostermiller, S. J., 2017. Agile project management for dummies. John Wiley
& Sons.
Serrador, P. and Pinto, J.K., 2015. Does Agile work?—A quantitative analysis of agile project
success. International Journal of Project Management. 33(5). pp.1040-1051.
Henri, J.F., Boiral, O. and Roy, M.J., 2016. Strategic cost management and performance: The
case of environmental costs. The British Accounting Review. 48(2). pp.269-282.
Smith, P., 2016. Project cost management with 5D BIM. Procedia-Social and Behavioral
Sciences. 226.pp.193-200.
Harrison, F. and Lock, D., 2017. Advanced project management: a structured approach.
Routledge.
Smith, C.M.S and et.al., 2016. Punakaiki Coastal Restoration Project: A case study for a
consultative and multidisciplinary approach in selecting indicators of restoration success for a
sand mining closure site, West Coast, New Zealand. Catena. 136.pp.91-103.
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Online
What is the NPV Formula. 2019.[online].Available
through<https://corporatefinanceinstitute.com/resources/knowledge/valuation/npv-formula/>
Advantages & Disadvantages of Equity Capital.2019. .[online].Available through
<https://finance.zacks.com/advantages-disadvantages-equity-capital-4270.html >