The discounted cash flow method determines the net present value of all cash flows by discounting them by the required rate of return. It takes into account the net cash flow in a given period, required rate of return, initial cash investment, and the predicted rate of inflation during the given period. Early in the project, net cash flow is likely to be negative, the major outflow being the initial investment in the project. If the project is successful, however, cash flows will become positive. The project is acceptable if the sum of the net present values of all estimated cash flows over the project’s life is positive. That said, the discounted cash flow method also does not ignore the time value of money.
The payback period for a project is the initial fixed investment in the project divided by the estimated annual net cash inflows from the project. The ratio of these quantities is the number of years required for the project to repay its initial fixed investment. This method assumes that the cash inflows will persist at least long enough to pay back the investment, and it ignores any cash inflows beyond the payback period. This method also serves as a proxy for risk. The faster the investment is recovered, the less the risk to which the firm is exposed. With the payback period method, there is still uncertainty about the timing of the project and the cash flows it is expected to generate. There may be uncertainty about the direct outcomes of the project. There is uncertainty about the side effects of the project and its unforeseen consequences.
Considering the discounted cash flow method is a numeric profitability model, the accounting data is usually available and can often be adjusted to account for project risk. There is inherent uncertainty associated with costs and benefits. In the case of being worse than expected, the organization is exposed to some, perhaps substantial level of risk. There are many more ways
of dealing with project risk besides using a shorter payback period. With discounted cash flows, the project manager is dealing with estimates of task durations, costs, etc. as if the information were known with certainty. In fact, a great majority of all decisions made are actually made under conditions of uncertainty as we can still estimate about probabilities of various outcomes.
The PM’s responsibilities are broad and fall primarily into three separate areas: responsibility to the parent organization, responsibility to the project and the client, and responsibility to the members of the project team. It is very important to keep senior management of the parent organization fully informed about the project’s status, cost, timing and prospects. Responsibilities to the firm itself include proper conservation of resources, timely and accurate project communications, and the careful, competent management of the project. It is a major responsibility of the PM to inform senior management if the viability of the project has become doubtful due to its inability to achieve the organization’s strategic objectives. Senior managers should also be warned about likely future problems. Reports must be accurate and timely if the PM is to maintain credibility, protect the parent firm from high risk, and allow senior management to intercede where needed. Above all, the PM must never allow senior management of be surprised. The PM is probably the major resource input compared to the team, the capital, the materials, and any other inputs. This person takes responsibility for planning, implementing, and completing the project, beginning with the job of getting things started.
The PM organizes, staffs, budgets, and controls the project. A PM needs to have good preparation skills in the face of uncertainty as being proactive is a phenomenal way to manage risk and combat inevitable problems. A PM also needs to be personable as it is part of the job
description to select people to serve on the team and fulfill the staff’s needs amongst all other stakeholder preferences. This involves being able to communicate as changes are made. The PM needs to get to know the client at the beginning, must implement sound interpersonal strategy to win at the proposal stage, and needs to maintain healthy communication throughout the project lifetime. Thirdly, a PM needs to be organized as the person needs to make sure facilities and supplies are available when needed. Additionally, a PM needs to be adaptable. As the lifecycle goes on, people are added to the project, as well as plans and schedules are refined. Conflicts between people arise and issues with resources happen. Finally, a PM needs to be skilled at synthesis. Leaders of functional departments take care of the specialized, detailed tasks. However, a PM needs to put many pieces of tasks together to form a coherent whole. A PM needs to be able to answer three major questions in its task of synthesis: What needs to be done, when must it be done, and how are the resources required to do the job to be obtained? The PM cannot allow any of the functional managers to take control of the project’s holistic vision.
All in all, there are certain demands unique to the management of projects which ultimately be considered in the selection of a PM including capability of acquiring adequate resources, acquiring and motivating personnel, dealing with obstacles, making project goal trade- offs, maintaining a balanced outlook, and negotiation. Above all, the best PM is the one who can get the job done. The focus of a PM is on the completion of a difficult job. The PM must have a drive to complete the task. A quality PM is also known as a closer. All others on the team must perceive the project manager has the following major categories of skill: technical credibility, administrative credibility, political sensitivity, ability to keep cooperativeness amongst team members, focus on achieving project goals, ability to work under stress, tolerance of its own
failures, ability to address problems rather than letting them sweep under the rug, ability to influence others, intellectual competence, managerial competence, and emotional competence.
At the beginning, a generalist can totally manage a team of specialists effectively. If the PM is appointed prior to project selection or if the PM originated the project, several of the usual start-up tasks are simplified. The PM’s first set of tasks is typically to prepare a preliminary budget and schedule, to help select people to serve on the project team, to get to know the client (either internal or external), to make sure that the proper facilities are available, and to ensure that any supplies required early in the project life are available when needed. Usually, a senior manager briefs the PM on the project so that the PM can understand where it fits in the general scheme of things in the parent organization, its priority relative to other projects in the system and to the routine work of the organization.
Further, the PM communicates with top management, also known as functional managers, of each team. Since the PM has the functional managers as specialist leaders, it can manage the specialists effectively by managing the low-level staff’s bosses. The PM needs to be more skilled at synthesis, whereas the functional manager should be more skilled at analysis. While the functional manager is needed as a direct, technical supervisor, a project cannot succeed without the large-scale management facilitating each department working together. Considering the analytical method focuses on breaking the components of a system into smaller elements, it is inadequate for understanding a complex system. Adoption of a systems approach is crucial for the PM. Therefore, a generalist is needed to effectively manage a team of specialists. However, as work begins, it is required for the PM to also have specialized knowledge. The PM should be
competent in the science of project management. The PM also needs to have a reasonably high level of technical competence in the science of the project.
A few concerns still do exist with a generalist managing a team of specialists. In the occasional case a PM is chosen late in the project life cycle, a generalist may not be able to manage a team of specialists effectively. For example, a large agricultural projects firm regularly uses a senior scientist PM until the project’s technical problems are solved and the product has been tested. Then, it may replace the scientist with a middle manager from the marketing side of the firm as marketing becomes the focal point of the project. In this case, the transition is difficult and, according to firm spokespeople, the results are sometimes unsatisfactory. Additionally, in the case project team members are strongly oriented toward their individual, functional disciplines and put their own goals in front of the entire project’s wellness, success is threatened. If the team members are adaptable in solving problems impacting the overall project goal, instead of super focused on only their own discipline, success is propelled. Most importantly, there is a separation of powers between the functional leaders and PM. The PM is responsible for organizing, staffing, budgeting, directing, planning and controlling the project. However, the functional managers may affect the choice of technology to be used and the specific individuals who will do the work. Still, the PM cannot allow the functional manager to take control of the project. If control is transferred, the fulfillment of the project’s purpose is likely to fall secondary to the work of the single, functional group. At the same time, the functional manager cannot allow the PM to take over the authority for technical decisions in the functional area or to control the assignment of function area personnel.