Project Proposals Selecting the right project
Aggregate Project Plan Minor Process change Extensive Process change R & D Projects Breakthrough projects Extensive Process change Platform Projects Derivative projects Minor Process change
Aggregate Project Plan Classifications • Advanced R&D Projects • Innovations and technology development that provides a precursor to commercial development • Breakthrough Projects • Projects that involve significant change in the product and process establish a new core product and process • Platform Projects • Projects provide a base for a product and process family that can be leveraged over several years • Derivative Projects • Cost-reduced versions of an existing product or platform or add-ons or enhancements to an existing production process • Allied Partnerships • Partnerships in any of these project areas to leverage development resources and activities
Aggregate Project Plan Process Changes Next Generation Process Single Dept. Upgrade Tuning and Incremental New Core Processes Product Changes 2 New Core Product Breakthrough Projects Next Generation Product Platform Projects 3 4 Addition to Product Family Derivatives (Enhancements, Hybrids, and Cost Reduced Versions) 5 Add-ons and Enhancements 1 Advanced R&D Projects Allied Partnerships Source: (Wheelwright and Clark, 1995)
Aggregate Project Plan • Usefulness • Identification of gaps in types of projects being undertaken in the organisation • Facilitates evolutions of the resources commitments of the ongoing or proposed projects • Model for employee development
The New Product Development Challenge: • Creating the right set of development projects • Different types of projects • Product line architecture and Aggregate Project Planning (APP) • Executing these projects on target, on time and on budget • Different types of team structure • Different types of development process • Learning across projects • The role of measurement and incentive systems • Projects as a “school” for leaders
Project: Product and Service Development Grab the Idea • Innovate, brainstorm, create Assess the Market • Define target, needs & size • Identify competitive offerings • Define Product and its components • Identify inputs needed • Confirm content and source Define the Concept Develop the Product • Build Prototype • Position product within market • Establish name and packaging • Establish price, sales and distribution Develop the Marketing Plan • Set market test objectives, sites, timeframe, training, documentation Test the Product Launch Product and Marketing Plan Manage the Product • Client Satisfaction • Quality Control
The Development Funnel Evaluation and Selection Development Projects New Products /Services
The Ideal Development Funnel: Screen for Success New Product Development Strategy Concept Development Project Management and Execution
Classifying Different Types of Product Process Changes Research/ Advanced Development Next Generation Process Single Department Upgrade Tuning and Incremental New Core Process Break- through New Core Product Next Generation of Core Product Platform or Next Generation Product Changes Addition to Product Family Enhancements Hybrids, and Derivatives Derivatives and Enhancements
Common Problems: Too Many Derivative Projects Process Changes Research/ Advanced Development Next Generation Process Single Department Upgrade Tuning and Incremental New Core Process Break- through New Core Product Next Generation of Core Product Platform or Next Generation Product Changes Addition to Product Family Enhancements Hybrids, and Derivatives Derivatives and Enhancements
Classifying Different Types of Products Market Perception New Core Value New Benefits Improved Benefits Variation Breakthrough Radical Platform Next Generation Derivative Enabling Technology Incremental Support Base
Consumer Products Firm: Before Market Perception New Core Value New Benefits Improved Benefits Variation Breakthrough Radical Platform Next Generation Derivative Enabling Technology Incremental Support Base
Consumer Products Firm: After Market Perception New Core Value New Benefits Improved Benefits Variation Breakthrough Radical Platform Next Generation Derivative Enabling Technology Incremental Support Base
Net Present Value What is NPV? Net present value (NPV) is a standard method for evaluating competing long- term projects in capital budgeting. It measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met. All projects with a positive NPV should be undertaken
Net Present Value Basically NVP takes into account the value of £ in the future Each cash inflow/outflow is discounted back to its PV. Then they are summed. In this formula t is the time of the cash flow, N the total time of the project, i the discount rate and C is the cash flow at that point in time.
Net Present Value Compare 2 projects Notes a125/720 x 100 = 17.4% bPresent value of an annuity of £1 for 5 years at 20% Found in annuity tables Outcomes Project A – 5.8 years; reject, longer than life of project (5 years) Project B – 3.3 years; accept, less than 5 years and exceeds 20% desired rte of return Net Present Value Reject both because they have negative net present values
Net Present Value General principle Accept a project where the Payback period is less than useful life of project and Where the NPV is positive
Internal Rate of Return (IRR) What is the Internal Rate of Return? This considers cash inflow and cash outflow “The internal rate of return is the discounted cash flow that equates the present values of the two sets of flows”
Internal Rate of Return Income stream Invest £1000 in a 5% simple interest bank account Take out the £50 interest each year. (£50 is 5% of £1000.) Take all the money out at the end of the sixth year.
Internal Rate of Return Year 0 is a negative figure since we put the money in the bank, so this is cash out flow Each year we take the 5% (£50) interest The original £1000 stays in the bank until year six, therefore this is available with interest
Internal Rate of Return An alternative investment We buy a new machine for £1000 It gives us an operating profit of £200 a year for six years At the end of the six years the machine has no value (out of date etc)
Internal rate of Return The machine devalues each year and has no value in the sixth year Therefore the operating profit pays for the machine cost and depreciation
Internal Rate of Return So which is the best investment? Bank Account: -1000 + 50 + 50 + 50 + 50 + 50 +1050 = 300 Machine: -1000 + 200 + 200 + 200 + 200 + 200 + 200 = 200 What do you think?