PMI PMP Project Management Professional – Implementing Project Integration Management

1. Section Overview: Implementing Project Integration Management

Welcome to section ten on project integration. Management. If you’re following along in the Pinbach Guide 6th edition, this section will correlate to chapter four in the Pinbach Guide with Project Integration Management. So this is where we’re going to discuss implementing Project Integration Management. And what is project integration? Management is we’ll talk about the trends and emerging practices in Project Integration Management, about tailoring Integration management to your environment. Then how does this work in adaptive environments? One of the first processes that you’ll do in a project is the project charter.

Well, I want to just point out something here about Project Integration Management. We know the very first process is the project charter. Well, Project Integration Management is the only knowledge area that has at least one process in every process group. So we know initiation has the charter where we’re going to see their processes in planning, executing, monitoring, controlling and closing. This is a really big chapter because it has a process in all five of those process groups. It’s the only knowledge area that touches all five. So, very important chapter here. So the project charter talking about benefit measurement methods, creating an assumptions log, developing the project management plan.

So you can see now we’re in planning, directing and managing the project work. Executing, creating, deliverables is what we do when we direct and manage the project work. We’ll be generating some work performance data in Project Integration Management, just raw data that we talked about a little bit ago. We’ll see that again. Creating an issue log that’s really important and issue log, managing project knowledge. This is a new process that we’ll want to pay attention to and then monitoring and controlling the project work, obviously in the monitoring and controlling process group and then performing integrated change control.

So this is kind of the heart of this chapter here is on integrated change Control is very important. So we’re going to spend some time there. In fact, I have an assignment for you where you’re going to map out integrated change control. So really important to pay attention to. And then our last process will be to close out the project or phase, also part of the closing process group, of course. So you can see Project Integration Management will touch on all five of the process groups. So a lot of information to COVID here. Let’s hop in and we’re going to break this down. A lot of information though, and you can do it. Let’s get started right now.

2. Trends and Emerging Practices in Project Integration Management

Project integration management, as you know, is kind of the gears of project management that I do in one area of the project will affect what I do in another area of the project. There are some trends and factors that we need to be aware of for your PLI exam. First off, project integration management now has more of a focus of the alignment of the benefits. So the business value and the benefits, the management of those benefits, and the project lifecycle.

So I don’t just think about from initiation to closing, I also think about beyond the project and how can I best manage the project for benefits realization? Project integration management has some new approaches in how one creates a project management plan that it doesn’t have to be a document, be electronic, driven within Primavera or Microsoft project or basecamp. So there is some trends about is it always necessary to have a paper document also creating and managing project knowledge? And this is a new concept we’ll see throughout the Pinbox that project knowledge or knowledge management is its own process. So we’re talking about some type of an electronic knowledge management system. So how do I record information as the project’s in motion? How do I document and retrieve that information and lessons learned, things like that, that happened throughout the project? How do I pull that and access that later for support of what we’ve created, support in the current project or for future projects and historical information, what about managing performance and then changes of the activities? So with performance we’re thinking about typically the schedule, the cost and the scope. If there’s changes in the activities, what does that do to my baselines in the project?

And then we have a performance measurement baseline. It’s really a combination of time, cost, scope, so it’s the overall health of the project. So if I have a change in an activity, how does that ripple into the whole project? So it’s part of our integrated change control that we’ll look at in this module. We also want to make integrated decisions, meaning that a decision that I make on the project not only affects the entire project or could affect the entire project, but it might also have an effect on the benefits or the support or what happens after the project. So there may be some ramifications there. Project integration management is also about measuring and monitoring the project’s progress. So as the project is in motion, how do we measure that? Is it the number of activities completed? Is it a milestone? Are we just doing a percent complete? So how do you measure the progress of the project? What about meeting project objectives? So what are those objectives, what are the key performance indicators and how do we know if we’re successful? So upfront, we want to define some standards as far as what our goals may be and those can fluctuate based on the phase that we’re in so what are our project objectives and how are they defined? How will we collect, analyze and communicate project data?

So what’s the process? There status reports. Are we doing some type of a workflow? Are we using a PMIs, a project management information system where people are logging their time on each task? We have actual data. So that helps us then to do forecasting and just to manage the existing project. What about completing the work and formally closing out the phase or the contract or the project? And then of course, we manage phase transitions. This is especially true if I’m using a different set of resources, human resources in each phase. So as the foundation crew leaves and the framers come on, what’s that transition like? Do those two groups talk to each other or do they need to talk to each other? Or if we have phases that overlap, like the electrical phase in the framing. So there’s some phase overlap there. What’s the coordination like?

So some things to consider, some trends in project management. I mentioned a couple already, like some automated tools like the PMIs. So people are entering the actual hours for their work completed in a piece of software rather than a physical document or an email. And that helps as part of the workflow using more and more visual management tools instead of plans. I talked about that a moment ago as well. But do I need a physical document or can I use a PMIs or electronic? So some things here you might know is our dashboards or we’ll talk about a little bit our Kanban boards, a sign board or a way to visualize the flow of the work through the project. What about the project knowledge management? So what database or knowledge management system and how do we get that in to that database? There’s more and more responsibility on the PM, as I mentioned when it comes to benefits management.

But the PM might also be involved in the business case development. So as a project manager, you might find yourself working alongside a business analyst then hybrid methods, a new term for you that we have hybrid methods here of adaptive and predictive kind of blended together. Recall that an adaptive life cycle is more change driven, that we have a requirements backlog where a predictive life cycle as they do more forecasting. Well, it’s possible you could have a mashup of those and that’s a hybrid method. So that’s becoming more and more of a trend. All right, so these are just some things to think about. I don’t think you’re going to see an overwhelming, a lot of questions on these on your exams. But we want to be familiar with there’s some different trends that are happening here when it comes to project management. I say the overwhelming trend that will have an impact on you though is this idea of adaptive and predictive having a hybrid method. All right, good job. Keep moving forward. We’re going to keep talking about project integration, management.

3. Tailoring Project Integration Management

In the Pinbach Guide, 6th edition. A new feature that you’ll see is this idea of tailoring processes. Probably you’ve been doing this already in your career as a project manager where you have a process that you need to do, but this is a low priority project, so you don’t do it to the same depth as you would on a high profile A file project. So tailoring and Project Integration Management is that same concept, same idea that I only use first off, the processes that I need, and then I make a determination as to what depth or how extensive I need to do that particular process. So we tailor each process and you’ll see this idea as we move through each of these knowledge areas throughout the Pinbox. When it comes to tailoring Project Integration management, we tailor the processes as needed.

And then what about governance? Remember that we have our enterprise or our program governance. So what governance do we have to follow? There may already be some rules as to what depth were required to do these processes in Project Integration Management. So you may have some requirements, some enterprise and environmental factors where you’re required by your organization to do a process to a particular extent. If you’re working with a PMO, whether it’s a directive, controlling, possibly supportive, they may already have some rules as well as to what are the best practices for your organization. So as we talk about tailoring in this knowledge area and the remainder of the chapters in the Pmbok, we’ll have to keep coming back to this idea of what are you allowed to tailor in your organization? In project integration, management?

The types of processes that we would tailor would be first off, what are the project what’s the project lifecycle? Often the project lifecycle is going to be determined by your discipline. We talked about that a little bit earlier. Recall that the life cycle, the project lifecycle describes the phases in your type of projects that you’re doing. So construction has unique phases. It projects have their own phases, or manufacturing or health care and so on. So the project lifecycle, though, might be tailored to fit the type of work that you’re doing, the development lifecycle.

So you think about Adaptive or predictive. So in Adaptive we had Iterative and incremental. So what’s your choices there and why? Or using Scrum or XP, and there’s some rules or guidelines that you use in those approaches. So the management approaches would be affected here as well. Knowledge management, if it’s the same type of project you’re doing over and over and over and over, your knowledge management efforts might be pretty shallow.

But if it’s a new type of project, that’s a first time first use. For example, you might be taking a lot more notes and doing a lot more documentation. You might be taking a lot more notes or doing a lot more documentation because you have to support that solution. So your knowledge management might be tailored based on what new knowledge is being gained. I’m not saying ignore lessons learned, I’m just saying there’s different depths of lessons learned and documentation in your project. Change management may be tailored. So you might have a project that we’re on a strict deadline, so there are no changes. This is our requirements. Everyone’s in agreement, we’re doing no changes. Or you might say, well, requirements are very loose, or we’re in adaptive environment, so we’re going to take this approach to change management. What’s the governance are you allowed to do?

So you have project governance as well. So again, you might upfront define what the rules are, what the governance is for that project. Are you tailoring those rules or that governance just for this project? Or are you adapting an existing set of rules and governance that you’ll use in the project regardless? So it’s the idea of tweaking existing governance or creating a new one. Lessons learned. So you might tailor to what extent you do lessons learn part of our knowledge management. And then what about the benefits management here? So what’s the tailoring there for the benefits? So sometimes the priority of the project or the benefits, the urgency to have benefits realization that may cause you to change how you do the project work, like your project lifecycle, because we want those benefits as soon as possible. All right, so that’s some concepts behind tailoring project integration management keep moving forward.

4. Considerations for Adaptive Environments

In the Pmbok Guide 6th edition, there is, as we’ll see throughout the remaining chapters in our course, there’s a Nod or an Acknowledgment or an embrace of adaptive environments. For your exam, you will need to know some about adaptive environments. So we’ll be talking about consideration for adaptive environments throughout these different knowledge areas here in Integration Management, the main theme with adaptive environments is that the team members are local domain experts, meaning that the project team are the experts. They’re the people that are doing the judgment of how long things take, what’s the priority along with the product owner, and really making determination of the things and decisions and events and who will do a what work, who will be responsible for what, the flow of the work. That’s all on the team, the project team.

So team members determine how these plans and components are going to integrate. Team members are key in an adaptive environment, so team members have the control over the project team and project decisions. But what’s the project manager do? The project manager has that servant leadership role that we talked about a little bit earlier in the course as a reminder, the servant leader you think of, they carry food and water for the team. So the project manager does servant leadership.

The project manager makes themselves available and they ensure that the project team, that they have the things that they need. They also kind of defend the team and keep them from interruptions and change during an iteration, but they’re there to serve the team. The project manager also tries to create or builds a collaborative decision making environment where the PM, the product owner, the stakeholders, the customer, the project team members, all the project team members participate in things like the requirements gathering and product prioritization, where the product owner really owns that. But we want to collaborate with these different stakeholders so it’s not isolated where it’s all just the project manager or just a few project team members that the whole project team is involved.

Team members are usually generalists rather than specialists, so we don’t really want these silos of knowledge that it’s shared and that are general and they can contribute to different parts of the project that they’re just not isolated or siloed. All right, so it’s very high level, these little nuggets that we’ll see throughout the Pmbok Guide and throughout this course about adaptive environments. All right. Good job, Deep. Moving forward. I’ll I’ll see you in the next lecture.

5. Developing the Project Charter

Welcome back to our conversation about project integration management. In this lecture we’re going to discuss the project charter. As you know, the project charter is one of the first documents that we create in a project. So let’s look at the Edo’s and then we’ll check out some characteristics of the project charter. The input, tools and techniques. As we’ll see, for every process, we have the inputs, business documents, business case, the benefits management plan. We have agreements, could be agreements between departments like an SLA, a service level agreement, or it could be with a vendor, a contract. We have enterprise environmental factors and organizational process assets, tools and techniques to actually create the charter. Expert judgment, data gathering, types of data gathering. We have brainstorming, focus groups and interviews.

We’ll need to use some interpersonal and team skills. We’re talking about conflict management, facilitation and meeting management. And of course, if we have meeting management, we’re going to have meetings our outputs. We get two things here. As an output, we get the project charter and the assumption log. So those are our inputs, tools and techniques for the project charter. Let’s talk about developing the charter. In order to develop the charter, we are working with the project sponsor, maybe some other key stakeholders like the steering committee, our project team. But what are we actually doing here? Well, to create the charter, we’re trying to authorize the project and to authorize the project manager to act on behalf of the sponsor. So those experts that are involved, we all have the same goals that we’re trying to capture exactly at a high level what we are trying to create.

And then we are aiming to act on behalf of the sponsor to achieve the vision. So we don’t need real particulars at this point. It’s pretty high level. It just kind of frames out what the project aims to accomplish. The charter has to be authorized external to the project. As I mentioned, it’s not the project manager who’s signing the charter, it’s the project sponsor. So we need someone has the appropriate power over the resources to be used in the project. So the sponsor has to be high enough in the organization that they’re over all resources that are going to be utilized in the project. The portfolio steering committee may be involved or they may be writing a charter, if you have such a committee in your organization. And the project is typically developed once at the beginning of the project. But notice for your exam, in some projects it’s possible to have a charter at multiple points in the project. So at each phase you could have a charter.

Typically it’s only done once. But that seems like a good exam question there to me. The business case for the project charter, the business case, we’re describing the business value and why this project should take place or why the project is needed. So it’s going to describe things like the market demand, the organizational need, the customer demand. If a customer has requested this, the technological advance, remember we talked about you’re moving to a new technology, could be new type of materials, is there a legal requirement, are there any ecological impacts and is there a social need? So all of that business is in the business case, enterprise environmental factors, government or industry standards are definitely enterprise environmental factors. So maybe you’re legally obligated to do this or there are things that you have to adhere to that are government or industry standards, are there legal and regulatory requirements? So new regulations, new laws and that’s why the project is taking place.

What’s the marketplace condition, what’s the competition like? Is there a short opportunity or a short window here that you’re trying to grab through this project organizational culture and the political climate and then the organizational governance framework, just how do you operate within that organization and what are the expectations and boundaries, what’s the workflow or processes, how do you get things done? Also very important here, and we’ll see this again in chapter eleven in the Pinbox, is this idea of stakeholders expectations for risk and risk threshold. Not talked a whole lot about risk yet, but a stakeholders expectations and risk threshold talks about their tolerance level, how tolerant are they for risk in light of this project. So we’re going to see, we’ll see this a couple of times that projects that have a high priority, I have a low tolerance for risk.

So the higher the priority, the lower the tolerance there is for risk. If it’s a low priority project, then I’m generally a little bit more tolerant for risk events. Opas organizational process assets opas or organization standard policies, processes and procedures for the charter. So I’ve consulted in some environments where they do the same type of project over and over and over and the project charter is just a template that we drop in a few phrases or keywords a bullet to list of what we aim to accomplish and then the project goes. It could be a very complex and you have to write it from scratch and that’s part of your processes. So whatever is the norm in your organization when it comes to writing a charter is what we have to do. OPA could also be the portfolio, program and project governance. If you already have some rules established for government, so some things that you have to do, forms that you have to use that are part of a portfolio or a program or it’s the norm for projects, then that’s part of what we have to use in our current project.

How are you monitoring reports? What are those methods? Like do you have some forms or templates or using a dashboard or a website? Templates are part of OPA. So templates for the charter, templates for the business case could even be setting us up for what type of templates do we use in planning? Historical information and lessons learned. That’s always one of the best OPA is proven information, things that have happened before this project. Now we’re going to talk about developing the charters. Now we’re into our tools and techniques. Here, I’m going to use expert judgment. And we’ll see expert judgment over and over and over in our processes as we move through the different tools and techniques. So expert judgment, we’re talking about people who have some skills and benefits management. They have technical knowledge of what we’re trying to accomplish. They’re good at estimating. They could do risk identification. So some typical people here that are involved, consultants, you may have some internal resources.

Stakeholders, you may go watch your industry groups and the PMO. So basically anyone that can contribute is considered expert judgment. So we’ll see expert judgment a lot. The PM doesn’t make all the decisions in the project. Data gathering we’re going to see data gathering is a common tool and technique. So data gathering here, things like brainstorming, we get together and we throw out ideas. And then from those ideas we can do analysis. So we have idea generation and then analysis. We’ll see brainstorming a lot when it comes to planning as well. Focus groups focus groups is where we bring stakeholders together. It’s usually moderated by a third party, someone who’s kind of neutral to the project. So we’re not trying to sway opinions and then we’re trying to learn about what do you want out of this project, what would it mean for this project to be successful? What are some risks that you see?

So it’s more conversational and you have kind of a panel of people that are in this conversation. Interviews are often one to one, but I’ve come prepared with questions and I’m asking about the project and what do you want out of this project, how do you feel about this project, what do you think this project is going to do to your workflow? What would it mean for this to be successful? So I’m talking about requirements, I’m talking about assumptions or constraints from the stakeholders point of view that can also be used for approval criteria that based on what you said in that interview. That’s how we’re going to formulate this project. And those are our goals for the project to be successful. A tool and technique that we will see a lot throughout the Pinbox is the idea of interpersonal techniques. So interpersonal techniques, we’re talking about that ability to get along with people, that ability to talk to people and to have conversations and to do conflict management. So interpersonal techniques is something that we will see a lot in the organization. We call them interpersonal and team skills because you also are managing the team. So we’re going to do things like conflict management.

So we’re looking for resolution. So you might have some conflicts when it comes to objectives in your project. Or competing objectives. Those high level requirements, the success criteria, the project description, summary milestones, those could all be things that people are in conflict over. So we have to do some conflict management. We’ll talk more about that in chapter nine in the Pinball. When we talk about HR skills, facilitation just means you’re able to facilitate meetings. You’re able to talk to people. You want to make certain that people are involved in the meeting. You ever go to a meeting and there’s that one guy that just doesn’t say anything? Well, we need to pull those people into the conversation and get their input as well. There’s a reason why they’re in a meeting. Facilitation is also about finding some mutual understanding and then reaching a consensus or at least an agreement of where we are. Meeting management means that we have to have an agenda, that we represent the different stakeholder groups, and then once the meeting is done, we might have follow up minutes and an agenda for your exam. We’re very keen on agendas and minutes and follow up on action items when it comes to meeting management.

So developing the project charter, there’s a lot of things here that we need to know that are going to go into the charter we want to be familiar with. Got to have project purpose defined. What are the measurable objectives and the high level requirements? What are we trying to achieve? We talked about the risk, the summary milestone, the end of each phase, what are the pre approved financial resources? Who are the key stakeholders? What are the approval requirements? How do we know we’re successful? What’s the exit criteria? So those are the conditions that the project’s done, or are things not going well or the project is no longer needed? So what’s the criteria there? If we want to cancel the project, who’s the project manager and who’s the sponsor? So those are all things that will go into the project charter. So we really won’t see the project charter anymore? It’ll be an input a couple of times, but as a general wrap for the charter, it means that this is a document that authorizes the project to exist in the organization and authorizes the project manager to act on behalf of the project sponsor. All right, good job. I know a lot of information there. Keep moving forward. I’ll see you in the next lecture.

6. Examining Benefit Measurement Methods

As a project manager, we typically don’t have a lot of say in I want to do that project or I don’t want to do that project. Often that decision is made beyond the scope of the PM’s authority. However, there are times where the project manager will be asked to participate in making that decision. So choosing a project we think about why are projects chosen? We talked about the project initiation context. Let’s drill down a little bit deeper here into why a project’s selected and how projects get selected. Choosing a project, we’re talking about solving an opportunity or seizing an opportunity, I should say. So there’s a marketplace or a customer request.

We can generate a profit if you’re an organization that you do projects for others, are there problems in the organizations or problems with a product or a process or something that we’re trying to resolve? Or a customer request, an internal customer request to do a project or to create some solution? When it comes to choosing a project, we have to look at these different approaches as to why an organization chooses a particular project and not others. Benefits Measurement benefits measurement is a tool and technique to compare benefits among multiple projects to choose the project that’s most valuable for the organization. So benefits Measurements we are talking about a cost benefits ratio where it has three cost to four benefits, sometimes called a CVR, but that just means that the costs are less than the number of benefits.

So that’s a good project to invest in. Scoring Models the scoring model is what we see in this graph. A scoring model is a way to take categories of project factors like cost, schedule, benefits, references I’ll talk about references in a moment, but different things that the project is going to create. And then I give points to each one of those categories. So you can see when it comes to cost, Project B two there is doing really well. That’s a good one to invest in. With schedule, you can see, oh well, Project B also, or Project B has a really good short schedule or it’s comprehensive that we could get it done efficiently. The benefits project B has a lot of benefits as well. You can see it’s going up in that chart there. Now, references, I included references here. References means that we are looking for references for a vendor. So if a vendor were doing this project or proposing these projects, we might have references. We can do a scoring model also when it comes to procurement.

So it’s the same concept, but we’re not going to see this again all the way into chapter twelve. So you’re a little bit ahead of the curve there. But references means we could be talking about vendors. Which vendor are we going to choose for our project or to do the project for us? A murder Board okay, this sounds just awful because it is a murder board means that you or the sponsor or whomever would represent the project goes before this group of executives. And this group of executives, they ask every possible question about your project that’s possible. And then from that they make a determination, we want to invest in that or not. So they murder, they kill the project before it’s really even initiated.

So a murder board is kind of a grueling process, but it’s part of which project should we select based on these questions we have for you, the payback period is how long will it take to pay back the investment for the project? So the payback period, how long will it take to pay back the investment for the project? So if I vest $100,000 in your project and it’s going to take six months before it breaks even, that’s the payback period. It would be six months of having to support that until it starts creating a return on investment. Sometimes the payback period that point at six months is called a management horizon. A couple of formulas you should be familiar with deal with the time value of money. The first one is future value. I’m trying to say, what’s this present amount of money worth in the future? So it’s a way of finding out, should I invest $300,000 into David’s project, or should I take that $300,000 and invest it over here in a different project or put it into the stock market or invest it in a savings account? Which probably wouldn’t be great, but where else could I invest that money as opposed to investing it in David’s project?

So it’s all about looking at which one is going to earn more for the organization. So the formula for future value is you take the present value, like that $300,000, and you multiply that with one plus I. So I is the interest rate. So we always have to know the interest rate. Someone has to tell us what the interest rate is. So on the exam, they may say like the interest rate or the rate of return is 6%. So our formula then would be one plus 0. 6 to the power of N, where N represents the number of time periods. So what this looks like the power of N. Remember, it’s not 1. 6 times three. If it were three years, it would be 1. 6 times 1. 6 times 1. 6. That’s the number of time periods. That’s the power.

Okay? So let’s take a look at what happens here. Let’s say it’s $100,000. We’re going to invest and it’s going to last for five years, this project. So present value is $100,000. The interest rate is 0. 6 and it’s going to last for five years. Our formula then would be 100,000 times 1. 06 to the power of five. So we would take 1. 6 times 1. 6 times 1. 6 times 1. 6 times 1. 6. And if you’re wondering on the exam, there’s not a scientific calculator. That’s why I’m being very clear on what that power means. I get that question sometimes. So 100,000 times 1.

338,226 is what 1. 6 to the power of five is. So you multiply that out, it’s $133,822. 0. 60. So here’s what that tells us. Right now, today, $100,000. If we could earn 6%, it would be about $134,000. So your project has to be worth more in five years, $134,000, or it’s probably not a great investment from a purely financial point of view. So that’s the future value of money, that determination. So future value, you’re multiplying it across, and you are trying to make the determination, should I invest in your project? Which is better? So if your project is only going to be worth $125,000 in five years, that’s not a great investment. If we can predict the future, we can also bring that back to the present.

So here’s the scenario with present value of money, bob goes into your comes into your office and says, hey, I’ve got a great I got a great project here. It’s going to be worth $300,000. It’s going to take three years to get done. So $300,000 in three years, though, that’s pretty good. So you do a little research and you say, well, if the present value is what I’m trying to find out, and I know in three years, it’s 300,000, I would take 300,000 divided by one, plus the interest rate to the power of N. So in this case, our formula would look like 300,000 divided by 1. 6 to the power of three. So I’m saying that future amount of money, what’s it worth today. So is that a good investment or not? So let’s check one out here. Okay, here’s one where the future value is $160,000. And this project is going to last for five years. The interest rate, they tell us, they have to tell us it’s 6%. So our formula would be 160,000 divided by 1. 6 to the power of five. So 1. 6 times 1. 6, that whole steel, and that would be 1. 338,226. So we divide that. We reduce it. We’re bringing it closer. So it’s a reduction.

So $119,561. What that tells us if that project will cost more than about 120,000 today, it’s not a real good investment because in five years, it’s going to be $160,000. So I’m trying to make the determination, how much, what’s the most I should invest today in order to equal that 160. So if I only have to invest, you know, 110,000 or 80,000, that’s a pretty good return on investment. So the present value of money, I’m trying to see what’s the most I should invest, knowing what it’s going to be worth in the future. Net present value won’t have to do this calculation on your exam. Just be familiar with NPV. Net present value is looking for the true value of a project. It’s where I have returns over multiple years. So let’s say I have a project that each year I’m going to have some benefits. I can start using. So what’s the value of those benefits? And then from that, I can determine what’s today’s present value? So it’s all about projects that have multiple returns. Here’s the formula for net present value. Each one of those time periods, you have to find the present value. Then you sum up the present value for all those time periods, subtract your original investment, the investment for the whole project. Anything greater than zero means you have a return. That that’s good. Less than zero, you’re upside down. It’s not good.

You won’t have to do this on your exam. Just NPV considers the time periods where you do have a return. So here’s what one looks like. So each year you can see years one through five. There is some cash flow, there are some benefits or realization. So each year you would find a present value for that year. So year one would be 14,150 and so on. Then you add that up. The total cash flow was 100,000. That’s what you expect to generate. Over five years, the present value would be 83,900 and some change. You had to invest $78,000 in this project. So you have an NPV of almost $6,000. So that’s pretty good. That’s kind of a drastic example, but that’s a pretty good net present value. You won’t have to do that on your exam. Just be familiar with NPV that basically anything greater than one is good. Means you’re making at least a dollar.

Now, the internal rate of return. The internal rate of return, again, you won’t have to do this on your exam, but it’s where your present value equals the amount of money coming in. So remember, present value is what it’s worth in the future. Here we are today, what’s its present value? And the income from that project is equal to present value. Basically, the bigger the IIR, the bigger the internal rate of return. That means the more money you have coming in as a result of this project. So the higher the IIR, that’s better. Lower values might be poor. There’s a couple of different schools of thought here, but generally, greater than zero means you have income, means that’s good. So it’s a decent project selection if your internal rate of return is greater than zero. So internal rate of return, you won’t have to know that about your exam. It’s just a project selection method. You’ll need to just be familiar with it, you don’t have to calculate it. All right, so those are some project selection methods. Little bit of math there for your exam. I would be familiar with the present value and the future value. Know how to do those. All right, great job. Keep moving forward.