Project Risk, Finance and Monitoring Report for Apple Inc. - MBA643

This report, prepared for Apple Inc., delves into key aspects of project risk management, finance, and monitoring. It examines various project selection tools and techniques, such as financial tools, firm strategy tools, bubble diagrams, and scoring models, recommending the use of scoring models to mitigate project failures. The report explores cost management strategies, including resource planning, cost estimating, budgeting, and control, advocating for cost control to enhance profitability. It further analyzes funding sources, comparing debt and equity financing, and recommends debt financing to avoid loss of control. The report concludes with a discussion of project implementation and winding-up procedures, offering recommendations for improved project outcomes and financial strategies.

Running Head: Project Risk, Finance and Monitoring
Project Risk, Finance and Monitoring

Project Risk, Finance and Monitoring
Contents
PART-A................................................................................................................................................2
Executive Summary...............................................................................................................................2
Introduction...........................................................................................................................................2
Tools and Techniques of Project Selection............................................................................................2
Cost Management Strategies for Managing the Project Costs...............................................................4
Cost Management Strategies and Role of Cost Managers.................................................................4
Sources of Funding................................................................................................................................5
Procedure of Project Implementation and Winding up..........................................................................6
Conclusion.............................................................................................................................................7
Recommendations.................................................................................................................................8
References.............................................................................................................................................9
PART-B...............................................................................................................................................10
(Answer-iii).....................................................................................................................................10
(Answer-iv).....................................................................................................................................10
Appendix.............................................................................................................................................11
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Project Risk, Finance and Monitoring
PART-A
Executive Summary
This report deals with the different tools and techniques of project selection and Apple Inc.
should employ scoring models for selection of any project in order to avoid failures iPhone
5C and homepods. This study also suggests Apple Inc. to drop equity financing and choose
debt financing for funding its capital requirements to avoid the risk of loss of control. At the
end, company should employ the cost control strategy in order to survive in the heavy
competition.
Introduction
Every day the companies are faced with multiple project options for the purpose of
investment. A good investment decision could help the company in making good some of
money and a bad investment decision could lead the big company to bear loss. Here, comes
the need for selecting the best project which could prove beneficial for the company and there
are various tools and techniques for deciding upon the project selection. In order to maximise
the profit to be earned from the project the company’s cost management should be very
strong. Therefore project risk management is the process of risk identification, analysing the
identified risk and then responding accordingly to that risk.
Tools and Techniques of Project Selection
The selection of the project is one of the most critical as well as crucial part for any
organisation. There should be a proper management of risk related to the project in order to
reduce or eliminate those risks and potential loss arising out of those risks. Therefore, project
risk management is the process of risk identification, analysing the identified risk and then
responding accordingly to that risk http://www.bookmetrix.com/detail/chapter/3a81ae6e-
7f15-4c37-9aaa-0df17b6aaa5e.
Generally, entities use multiple tools and techniques in order to select a project and these
selection criteria may include:
1. Financial Tools and Techniques: Various financial tools and techniques are used to
decide upon the selection of project. Return and profitability tools like Return on
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Project Risk, Finance and Monitoring
investment (ROI), Net Present Value (NPV), Payback Period and Expected
Commercial Value (ECV).
2. Firm’s strategy tools/techniques: Here, those projects are selected which actually
aligns or match with the primary objective of the organisation. First of all after
deciding upon the firm’s strategy, multiple projects are selected which could be
divided into different buckets like by market, by product line, by product type etc.
Later the rankings are given to each of the selected projects within the buckets. This is
also known as Strategic Buckets Approach (Hemel, 2018).
3. Bubble Diagrams: Bubble diagrams help the project managers in better anticipating
the future and find the differences between the multiple projects or any other selection
criteria like risk and return. These diagrams even help management in figuring out
how the resources are affected with the introduction of a new project. Examples of
bubble diagram includes risk-reward bubble diagram, BCG matrix etc.
4. Scoring Models: Through scoring models, scores are provided to the various projects
available and then decision is taken by the management regarding selection of the best
project.
5. Checklists: Under this tool, different projects are compared with each other. Here,
checklists have many yes/no questions and usually the project with maximum yes is
selected.
(Stevenwpearce, 2015)Apple Inc.’s usually employs Firm’s strategy tools. Like, Apple
Inc. launched MacBook, which actually assist people around the World in their business,
education, music etc. So, in this way Apple selected the project of MacBook which
helped the company in meeting its strategy of contributing to the world through the
innovative technology tools that make the life easier.
Apple even used checklist technique at the time of selecting the project of iPhone 4.
Before launching iPhone 4 they conducted a survey to check the customer’s satisfaction
level of iPhone 3.
Near around 2000, Apple launched the products like iPod, iTunes music store, iPhone etc.
Such projects were selected by Apple to meet their strategy of becoming a leader in the
consumer Electronic business. Here, we could see the company used Firm’s strategy tool
for the project selection.
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Project Risk, Finance and Monitoring
Recommendation: Apple Inc. may also go for scoring models which would help the
company in choosing the best project out of the lot. This approach might had stopped the
failures like Apple 12inch MacBook launched in 2015, iPhone 5 C, iPhone failure in
China, homepods etc.
Cost Management Strategies for Managing the Project Costs
Cost Management Strategies and Role of Cost Managers
Maximising the profit margin is the ultimate objective of cost managers. Below are some cost
management strategies which helps the management in achieving their goal of reducing cost:
1. Resource Planning: Before moving ahead with any project the management of the
company should list out all the required resources, quantity required in stock, available
suppliers and their cost etc. This prevents the cash to get tied up in the inventory
unnecessarily. Here, the role of cost manager is to decide upon how much resources would be
required at each step of work. Accordingly, the cost managers decide on how much cost
would be involved to acquire the desired resources.
2. Cost Estimating: It is a wise decision if the management of the company estimates the total
cost involved from the start till the completion of the project. It helps the company in
identifying the fund requirement and also the available sources of funds. Here, various cost
estimating techniques are employed by the cost manager in order to arrive at the estimated or
expected cost of completing the project. This helps the company to know in advance about
the exact amount of fund required for the project completion and could help them in raising
funds from the appropriate sources.
3. Cost Budgeting: Budgeting the requirements always makes the task easier and so in the
case of project management. Once a proper budget is prepared for a project it helps the
management of company in exercising their control over the business expenditure and
income. It also helps in getting an idea about which portion of the project involves more cost
and then proper strategies can be formulated in order to control those costs. The cost manager
arrives at the final budget of the project and these budgets are planned for each of the stages
which include the reserves and contingencies too.
4. Cost Control: The very famous and recognised way of increasing the profit margin is by
reducing the cost of production. The cost manager at this level tries to identify the cost
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Project Risk, Finance and Monitoring
variations and in case of any such variations he/she tries to find out the reason behind it. In
case, the reason is unacceptable a corrective action is taken by the manager. This helps the
organisation in controlling its expenses which ultimately results in a higher profit margin
(Duncan, pg.74).
Recommendation: Now the competition in the technology sector is becoming very intense.
The company like Apple who offers their products at a very premium prices should work on
reducing their price in order to survive in the heavy competition (UKEssays, 2018). Simply
speaking, Apple Inc. is recommended to employ cost control strategy for increasing their
revenue and also to remain on a healthy position in a competitive market.
Sources of Funding
There are two popular sources of funding one is debt funding and the other is equity funding.
These sources are used by the company in order to meet their capital requirement. Some
companies have either debt or equity in their capital structure and some have the combination
of both.
1. Equity Financing- The primary benefit of raising capital through equity is that here
the company does not have an obligation to pay any kind of interest or dividend to the
equity holders in case of loss or low revenue. This source of financing also acts as a
disadvantage for the companies in a way that whenever a company go for such
funding it has to give a share or part of the company to the fund providers.
2. Debt Financing- Debt financing is nothing but borrowing money from the outside
lenders for which the company has to bear the interest cost. This source of financing
creates a financial burden on the company to pay the interest amount to the creditors
irrespective of whether the company has incurred loss or earned profit. However,
there are certain advantages that make this source of financing attractive. Debt
financing eliminates the risk of control that means here the company is not required to
give a percentage of the company to the fund provider. Everyone seeks for tax
exemption or tax deduction so the interest paid on the borrowed amount in the form of
debt is tax deductible too.
If we look at the capital structure of Apple Inc. then it has preferred to choose the equity
financing over the debt financing as a result of which shareholders’ equity stands at
107,147,000 USD whereas long term debt is 93,735,000 USD only in 2018. This has made
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Project Risk, Finance and Monitoring
the capital structure of Apple Inc. more attractive for the lenders and made it easy for the
company to borrow money in the future without any difficulty.
Recommendation: Now it’s a high time when Apple Inc. is required to take care of the
ownership of the company. Apple Inc. should now choose debt financing for meeting its’
funds requirements over equity financing. This would help the company in meeting its capital
needs without losing any part of the company.
Procedure of Project Implementation and Winding up
There are usually five steps involved in the management of project.
Fig A: Project Implementation and Winding up
6
Process of Project
Implementation
and Winding up
Initiating
Processes
Controlling
Processes
Closing
Processes
Executing
Processes
Planning
Processes

Project Risk, Finance and Monitoring
1. Initiating Process: At this stage the management of the company recognizes that a
particular project should be started and on this basis next phases of the project are
carried out.
2. Planning Process: Before starting any project, the project manager has to chalk out a
proper plan according to which cost allocation is done for each of the project
execution stages. However, the issue which bothers the most is the frequent changes
to be brought in the plan. Example, the prior date for project execution is
unacceptable as a result of which changes are required to be made in resources, cost
or sometimes the defined scope of the project.
3. Executing Process: At this stage all the people and the resources are combined to
accomplish the plan.
4. Controlling Process: Here, the project manager ensures whether the objectives of the
project are met or not. The manager actually looks at the progress of the work,
measures it and in case of deviations adequate corrective actions are taken by him.
5. Closing Processes: There are two types of closure-
a) Administrative Closure: The administrative closure takes place after achieving the
objective of the project. The documents reflecting the project completions are
verified and also the product generated are evaluated by the sponsors, clients or
customers. Then the documents reflecting the final output are updated and are
stored in archives for any related use in future. In order to avoid information lost
each of the phases involved in the project should be properly closed.
b) Contract Close Out: In contract close out the contract could be terminated before
time but only in special cases. It is also possible that procedure for closing the
contract is enlisted in the terms and conditions of the contract (Dunkan, 1996).
Conclusion
So now we are aware of the different tools and techniques which are employed by the
companies in project selection. These tools could be a financial tool or firm strategy tool. It
could even include bubble diagrams for better future visualization. For carrying out the
project efficiently as well as effectively the role of cost manager and cost management
strategies could never be ignored.No company could think of executing a project without an
adequate amount of capital which a company may raise through equity or debt financing.
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Success of the project also depends upon the way and manner in which each phase of the
project is carried out plus the way in which the closure of the same project takes place.
Recommendations
Apple Inc. should try to use scoring model at the time of selecting any project to avoid the
risk related to potential product failure. Then the company is highly recommended to lower
its price in order to survive in the competitive world where technology is getting updated
each and every day. At last, the company should take care that it does not lose a big part of
the company’s ownership for which it should choose debt financing for accomplishing its
capital needs.
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Project Risk, Finance and Monitoring
References
Duncan, W.R. (1996). A Guide To The Project Management Body Of Knowledge. 3rd ed.
Pennsylvania: Project Management Institute.
Hemel, M. (2018).Selecting the right projects within an effective project selection method – A
multiple case study in the Dutch high-tech industry. [online]. Available 31May, 2019
https://theses.ubn.ru.nl/bitstream/handle/123456789/6833/Hemel%2C_Milou_1.pdf?
sequence=1.
Stevenwpearce. (2015).Apple, Inc. The Strategy of Success. [online]. Available 31May, 2019
https://stevenwpearce.wordpress.com/2015/06/08/apple-inc-the-strategy-of-success/
#_Toc401265586
UKEssays. (2018).Strategic Management:Apple Inc. [online]. Available 31May, 2019
https://www.ukessays.com/essays/marketing/strategic-management-essay-on-apple-inc-
marketing-essay.php.
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Project Risk, Finance and Monitoring
PART-B
(Answer-iii)
In order to take a smart financial decision it is always advisable to go for NPV calculation.
NPV stands for net present value. If the NPV of any projects comes out to be positive then
the project is acceptable or lese the project with negative NPV should be rejected. Negative
NPV means the cash inflows or revenues from the project would be less than the cost
incurred on the project. Apple Inc is planning to launch iPhone XI with three added features
which include antenna, brighter light for better facial recognition and an improved Wi-Fi.
This may boost the sales of the new iPhone XI. Now, on calculating NPV with the given data
we are arriving at a different decision because the NPV is showing a negative figure of $-
6778.08 million so Apple Inc. should not move ahead with the project of iPhone XI.
(Answer-iv)
Funding the project of iPhone XI would not prove to be the cheapest source of finance. Now
let’s say the return on bond is 6% then after providing for the tax benefit the cost of capital is
coming out to be 4%. From this cost of capital the resultant NPV is still negative that -
$337.62 million. First of all the company is advised of not proceeding with the project as
NPV of the project is coming out be negative both in case of going for equity financing as
well as in case of complete bond financing. Still, if the company is confident about the
success of the project then it should opt for bond for the purpose of project financing.
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Appendix
11