Project Risk, Finance, and Monitoring - Lenovo Case Study

This assignment evaluates project management tools and practices suitable for Lenovo to prevent risk associated with starting a new project. It also covers cost management strategies, funding options, and issues that the technology company might face. Capital budgeting analysis of Apple Corporation is also included.

Project risk, finance, and monitoring
1

Executive Summary
This assignment would be evaluating the most suitable project management tools and practices
which are going to be suitable for the company Lenovo for the prevention of risk associated with
starting a new project. The cost management strategies and the funding options would also be
selected in addition to considering the main issues that the technology company might face.
2

Table of Contents
Introduction....................................................................................................................................5
Part A..............................................................................................................................................5
1.0 Project Selection.......................................................................................................................5
1.0 Description of tools and practices used for the selection of a project...................................5
2.0 Analyse an example of the practices used by the company Lenovo to select between
projects.........................................................................................................................................6
2.0 Cost Management....................................................................................................................6
2.1 Description of the role and importance of a cost manager and the importance of cost
management.................................................................................................................................6
2.2 Recommendation on cost management strategies to be undertaken by the company Lenovo
with reference to theory and real-world data...............................................................................7
3.0 Funding.....................................................................................................................................7
3.1 Describe the sources of funding for projects and the benefits or costs of that funding.........7
3.2 Evaluate what funding options are available to your chosen company and determine the
implications of these options.......................................................................................................8
4.0 Implementation and winding up............................................................................................8
4.1 Outline the process and issues associated with starting and finishing a project....................8
4.2 Evaluation of the resource, infrastructure and environmental issues....................................9
Conclusion and Recommendation................................................................................................9
Part B: Capital Budgeting Analysis.............................................................................................9
a) Analysis of the financial data base of Apple Corporation.......................................................9
b) Acceptance of the new product launch (Apple’s new IPhone XI)........................................11
i) Free cash flows (FCF)........................................................................................................11
3

ii) NPV of the Project............................................................................................................13
iii) Recommendations about the acceptance and reject the project.......................................13
iv) Changes in Financing.......................................................................................................14
Reference List...............................................................................................................................15
4

Introduction
This assignment is going to serve the purpose of assisting the technology company Lenovo for
the analysis of the key aspects related to project risk management and the way in which the
knowledge of risk management can be used for managing a limiting risk in the projects the
company is going to implement on the future.
Part A
1.0 Project Selection
1.0 Description of tools and practices used for the selection of a project
The most effective project management tools that are available for the analysis of the project are
the PERT tool and the Gantt chart. The PERT is control and planning tool that defines and
controls the tasks to be performed for the completion of the project. In the PETT analysis the
activities and project milestones are identified, the sequence of performing those activities are
framed, a network diagram is constructed and the time of the completion of each activity is
estimated for the determination of critical path (Milosevic and Martinelli, 2016). The tool of
Gantt chart is used for scheduling the task listing activities and plotting the schedules in a graph.
The practices that are can be used are the waterfall method and agile method. The agile method
would break down the project into different cycles. The execution of the project is done in the
form of a pipeline in the waterfall method.
5

2.0 Analyse an example of the practices used by the company Lenovo to select between
projects
One of the most important skills that the project manager of Lenovo needs to have is the
selection of project in an effectual and strategic manner. Calculations are to be made for the
purpose of the selection of project with the help of withers the Benefit measurement Effort. The
most common benefit measurement method that are applied is by the calculation of the cost
benefit ratio, framing the economic model, finding the net present value and finding the
discounted cash flow. In the best method of finding the cost benefit ratio cost of investment and
the value of return ration is prepared and the project with a low cost benefit ratio is selected
(Kerzner and Kerzner, 2017). The Net present value of the project can also be determined by
where the whole project life cycle is arranges in terms of the earnings.
2.0 Cost Management
2.1 Description of the role and importance of a cost manager and the importance of cost
management
The role and responsibility of the cost manager is cost estimation of the project by the estimation
of value, price, number quality and the extent of the work to be completed. The cost manager
performs the financial management from the project initiation till the project finish. He is
responsible for providing reliable and accurate cost information and also ensures that the project
gets delivered within budget.
Cost management is important because each cost involved in the project is identified
appropriately, the expenses can be approved, a central record of the cost can be kept and the
financial plans of the company Lenovo can be kept up-to-date.
6

2.2 Recommendation on cost management strategies to be undertaken by the company
Lenovo with reference to theory and real-world data
The strategies that are recommended to be followed for the management of project costs are
firstly by understanding the needs and wants of the stakeholders for the purpose of ensuring that
no miscommunication takes place. This is recommended for the prevention of expectations and
goals from going unidentified. Secondly, the development of the key performance indicators are
needed to be done in a relevant manner by considering the actual cost, cost variance, earned
value, planned value and return on investment. Furthermore, all the project stakeholders are
needed to be kept informed and accountable (Tonchia, 2018). All the team members re to be
informed about the current status of budget and the budget forecast. The project budget is to be
revisited reviewed and re-forecast. When the budget insights are to be frequently reviewed then
the budget can be prevented from the risk of getting out of control by a large extent.
3.0 Funding
3.1 Describe the sources of funding for projects and the benefits or costs of that funding
There is the funding option of bootstrapping the business. The source of this funding is the
savings of the company itself. The benefits of this funding are getting an easy access to the fund
without facing any bureaucratic obstacle. However, this funding option or source would not be
appropriate for a bug firm. Secondly, Crowd Funding is another funding option where funds are
sourced from community for the completion of a project for the community. Thirdly, venture
capital is another option of funding (Larson and Gray, 2017). Here the equity of the business
entity is sold for the purpose of obtaining fund for a project. The benefit of this source is that the
7

loss and gain of the company is shared among the investors. The cost to be paid by the company
is losing a certain extent ownership in the business.
3.2 Evaluate what funding options are available to your chosen company and determine the
implications of these options
The funding options available for the company Lenovo are bootstrapping their own business and
the funding option of venture capital. To opt for the option of bootstrapping implies that the
company Lenovo needs to gather a significant amount of savings from the previous profits made
before thinking about starting the business. Furthermore, for opting the option of venture capital
implies that the company needs to sale out its shares
4.0 Implementation and winding up
4.1 Outline the process and issues associated with starting and finishing a project.
While commencing the project a vague idea of the requirement is given and as a result of which
the requirement becomes ever changing. The impact of this use is left on the project planning,
budget estimation and an unclear time of the project. The second issue that is faced is the client
communicates with the project manager slowly. When it takes a lot of time for getting from the
person for whom the project is to be completed it becomes difficult to proceed with the project.
The impact that is created is the time of the project planning by the project manager gets delayed.
The issues faced while finishing a project is that the budget of the project getting exceeded. The
impact that is created is that the expectation of the project stakeholders does not get fulfilled. The
second major issue is the project being finished at a time which is highly different from what has
been estimated (Nicholas and Steyn, 2017). The impact is created on the project manager’s
potentiality or skill and also on the budget of the project.
8

4.2 Evaluation of the resource, infrastructure and environmental issues
The issues associated with the resources are getting the availability of the required amount of
resources that would be needed for the project. Moreover, if the resources available would not be
meeting the quality standards of the company Lenovo then it would become an issue.
The infrastructural issue that the company Lenovo might face is the not availability of adequate
infrastructure for housing the project being planned.
The environmental issues being faced is that that resources requirement of the project are being
derived ignoring the expense of the environment. Moreover, the by-products being eliminated to
the environment are harming the environment.
Conclusion and Recommendation
The company Lenovo is recommended to choose the tools of PERT and Gantt char and the
practice of agile project management. In order to manage the cost proper communication is to be
made with the stakeholders from the beginning. The funding option of bootstrapping is going to
be best for the company Lenovo and the company is needed to be careful about the
environmental issues for the protection of the brand value of the company.
Part B: Capital Budgeting Analysis
a) Analysis of the financial data base of Apple Corporation
From the yahoo finance historical data base and the statistical records it can be seen that the
company has the good position in related with the ability of the earnings of the return by
investing the equity funds as well as the investments and the total assets position of the firm. The
management efficiency is in the higher position as the return on equity is 49.13% that implies the
9

firm can provide the maximum return towards its shareholders that might satisfy them and the
sources of finance of the firm might be collected from the issue of the equity shares of the firm
(Finance.yahoo.com, 2019).
The current position of the company is higher level of the debt funds within the organisation than
the equity funds of the firm and that might implies the company has issued a large amount of
debt capital in the market that might increase the risk association of the firm in perspective with
the investors of the company.
The stock price of the company has fallen down within the one year time duration but on the
contrary, it can also be stated that the P/E ratio has been showing the increasing and the higher
rate of the price earnings ratio in this years and this implied that the company has the better
future prospects in the technology market as the market will want to pay more to capture the
share of the Apple company and the company’s share price is much lower than that (Forbes.com,
2019). It might be indicated that Apple Company has to improve as there has been a scope in
enhancing its performance and the market price of the share is higher and the investors in the
market will wish to invest in this company for long.
The beta of the company has been showing that 0.89% that is the risk association of the Apple
Corporation is in elevated position which has to be concentrated within the moderate or lower
level of risk. The reduction of the issue of the debentures and at the same time the boost up of the
equity financing of the company has to be considered by the management of the firm.
The raising of the equity funds will facilitate the company in decline the overheads of the
company and the shareholders might increases that would results in the increase in the share
price of the company in the market.
10

The increase in the share price in the year 2019 might be the launching of the new IPhone in the
market and the cut off the prices will also attract the huge customers as well as the share price of
the company will also gone up and investors will want to invest in these company in expectation
of the increase of the share price in the market in near future through the innovation process
implementation of the company.
b) Acceptance of the new product launch (Apple’s new IPhone XI)
i) Free cash flows (FCF)
The free cash flow of the projects can be determined with the help of the operating profit after
the deducting the operating expenses and the tax has also to be deducted from the revenue of the
firm and the depreciation and the amortisation will have to be added to this residual value of
these projects and the changes in the working capital as well as the capital expenditure of the
firm in related with the accepting of the projects has to be deducted in order determine the value
of the free cash flows of the projects.
The net operating flow from the projects has to excluded with the capital expenditures of the
projects and the firm should be deducted all the operating expenses and the depreciation and the
amortisation amount of the cost of the machinery purchasing by the company in the relation with
the launch of new i-phones by the Apple corporation in the technological market (Ali, Ormal and
Ahmad, 2018).
11

Figure showing the free cash flow for the 4 years
(Source: Author)
The operating expenses of the projects have to be treated as the variable cost of the project which
is the 20%of the revenue of the projects that is the 560000 in each year for the 4 years.
The research and development cost for the immediate basis for the projects has to be incurred by
the company and it would be treated as the capital type of expenses for this projects as it will be
incur for the one time only and this won’t be occurred in frequent way.
The depreciation and the amortisation cost has to be added to the net profit after tax value of that
projects and the depreciation of the purchased machinery by the company is 1000000 for book
value of the depreciation value for the four years of life span of the projects (Lilford, Maybee
and Packey, 2018). Therefore, it can be stated that the depreciation of the machinery will be
1000000 for the each year for the life span and it has to be starting from the end of the first year.
12

The tax rate of 30% has to be deducted from the cash flows of the projects of the company that
has to be included within the income of the projects.
ii) NPV of the Project
Figure of Calculation of NPV
(Source: Author)
The NPV of the project has been showing the positive that implies the firm could able to earn
profit by investing in this project. NPV is the measurements of the viability of the projects that is
whether to accept or not. The cost of capital of the firm has to be determined as the 10% that is
the required rate of return on the basis of which the shareholders of the company has to be pay
out their dividends out of the profitability margin of the projects (Maharaj et al., 2018).
iii) Recommendations about the acceptance and reject the project
The project should be accepted by the Apple Corporation as this will provide the positive NPV
that is the profit by investing six million in this project based on the cost of capital 10% rate. If
the cost of capital rate can be reduced the profit can be maximised and the NPV of the projects
could be increased and it might show the positive NPV.
13

iv) Changes in Financing
The issue of the ordinary shares for financing these projects will results in the best financing
option as it would not increase the overheads of the company by issuing the debt funds of the
company. The issue of shares might reduce the risk association of the company and the debt
funds issue might increase the risk association of the projects. The NPV will also decrease that is
the interest of the debt holders has to be pay out first from the operating profit of the projects and
the firm.
14

Reference List
Ali, U., Ormal, L. and Ahmad, F., 2018. Impact of Free Cash Flow on Profitability of the Firms
in Automobile Sector of Germany. Journal of Economics and Management Sciences, 1(1).
Finance.yahoo.com. (2019). Yahoo is now part of Oath. [online] Available at:
https://finance.yahoo.com/quote/AAPL/history?
period1=1528014310&period2=1559550310&interval=1mo&filter=history&frequency=1mo
[Accessed 3 Jun. 2019].
Forbes.com. (2019). Apple Loop: Massive iPhone 11 Leaks, Tim Cook's Big Battery
Problem, iPhone XR Price Cuts. [online] Available at:
https://www.forbes.com/sites/ewanspence/2019/01/18/apple-news-iphone-xr-iphone-11-price-
cut-new-leak-rumor-usbc-qualcomm-smart-battery-case/#439732581a8c [Accessed 3 Jun. 2019].
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Larson, E.W. and Gray, C.F., 2017. Project management: The managerial process. McGraw-Hill
Education.
Lilford, E., Maybee, B. and Packey, D., 2018. Cost of capital and discount rates in cash flow
valuations for resources projects. Resources Policy, 59, pp.525-531.
Maharaj, R.G., Teelucksingh, S., Chow, H. and De Freitas, L., 2018. Screening for Non-
communicable Diseases at a Walk-in Clinic in Trinidad and Tobago: A Time-motion Cross-
sectional Study and Net Present Value Analysis. West Indian Medical Journal, 67(2).
15

Milosevic, D.Z. and Martinelli, R.J., 2016. Project management toolbox: tools and techniques
for the practicing project manager. John Wiley & Sons.
Nicholas, J.M. and Steyn, H., 2017. Project management for engineering, business and
technology. Routledge.
Tonchia, S., 2018. Project Cost Management and Finance. In Industrial Project
Management (pp. 153-170). Springer, Berlin, Heidelberg.
16