Question

Being a Financial Consultant, you have been approached by a long-time friend Ms. Collette who

has just retired. She would like to redeem her retirement benefits of Sh 5 Million which is currently
invested to yield a return of 10%. Upon receipt of this amount, she is considering using it to invest
in one of two alternative projects A & B. The expected cashflows from project A for the next 3
years is Sh 2.5 Million each year, while project B is expected to generate Sh 8 Million at the end
of the 3 years.
Required:
a) What steps should Ms. Collette adopt in ensuring proper management of a project? (5
marks).
b) Advise Ms. Collette on which project to undertake using the methods below (use the NPV
tables provided):
Net Present Value method
(9 marks)
Payback Period method (apply a higher rate of 20% for this method) (9 marks)
iii) Advise what should be done in case there is a conflict between the 2 methods
(2marks).
c) Advise Ms. Collette on any 5 factors that could possibly lead to project failure (5 marks).

Answer 1

a) Steps to Ensure Proper Management of a Project:

1. Define Clear Objectives: Clearly define the goals and objectives of the project to ensure everyone involved understands what needs to be achieved.

2. Develop a Detailed Project Plan: Create a comprehensive project plan that outlines the tasks, timelines, resources, and responsibilities required to successfully execute the project.

3. Allocate Resources Appropriately: Ensure that the necessary resources, including financial, human, and technological, are allocated appropriately to support the project.

4. Monitor Progress: Regularly monitor and track the progress of the project to identify any issues or deviations from the plan. This will allow for timely adjustments and corrective actions.

5. Communicate Effectively: Establish clear lines of communication and ensure that all stakeholders are kept informed about the project's progress, challenges, and milestones.

6. Manage Risks: Identify potential risks and develop strategies to mitigate them. Regularly assess and update the risk management plan throughout the project lifecycle.

7. Evaluate and Learn: Conduct thorough evaluations and assessments at key milestones to identify areas of improvement and learn from both successes and failures.

b) Project Selection Advice:

Net Present Value (NPV) Method: Calculate the NPV of each project by discounting the expected cash flows at a rate of 10%. The project with the higher NPV should be selected as it indicates a higher value creation potential.

Payback Period Method: Calculate the payback period for each project by dividing the initial investment by the annual cash flows. Apply a higher rate of 20% to the cash flows. The project with the shorter payback period should be selected as it indicates a quicker recovery of the initial investment.

In case of a conflict between the two methods, it is advisable to give more weight to the NPV method. This is because the NPV method considers the time value of money and provides a more comprehensive assessment of the project's profitability.

c) Factors Leading to Project Failure:

1. Inadequate Planning: Insufficient or incomplete project planning can lead to delays, cost overruns, and failure to achieve project objectives.

2. Lack of Stakeholder Support: Projects can fail if key stakeholders, such as management, employees, or customers, do not support or actively resist the project.

3. Poor Risk Management: Failure to identify, assess, and mitigate project risks can result in unexpected problems that can derail the project.

4. Inadequate Resources: Insufficient budget, manpower, or technology can hinder project execution and lead to failure.

5. Changing Requirements or Scope Creep: If project requirements are not clearly defined or if there are frequent changes to the project scope, it can lead to confusion, delays, and project failure.

It is essential for Ms. Collette to consider these factors and take appropriate measures to address them to increase the chances of project success.

Step-by-step explanation: