INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE
TERM IV | PROJECT MANAGEMENT
SUBMISSION ON
Handstar Inc.
Submitted By
PPRACHI GARI (PGP/26/095)
To determine the projects Handstar should pursue, we need to calculate the net present value
(NPV) of each project. NPV represents the present value of expected cash flows from a project,
discounted at a specific rate (12%). The project with the highest NPV would be the most
favorable.
Information given:
Calculating NPV:
Discounting the cash flows for each year using a discount rate of 12%. Since the projects have a
three-year life, we will calculate the NPV for each year (Year 1, Year 2, Year 3) and sum them
up. The initial development cost will be subtracted from the total NPV. Let's calculate the NPVs:
● Integration of email and calendar program: NPV = ($750,000 / (1 + 0.12)^1) + ($675,000
/ (1 + 0.12)^2) + ($607,500 / (1 + 0.12)^3) - Initial Development Cost
● Update of expense report program: NPV = ($250,000 / (1 + 0.12)^1) + ($262,500 / (1 +
0.12)^2) + ($275,625 / (1 + 0.12)^3) - Initial Development Cost
● Enhancement of portfolio tracking program: NPV = ($500,000 / (1 + 0.12)^1) +
($525,000 / (1 + 0.12)^2) + ($551,250 / (1 + 0.12)^3) - Initial Development Cost
● Spreadsheet program: NPV = ($1,000,000 / (1 + 0.12)^1) + ($1,100,000 / (1 + 0.12)^2) +
($1,210,000 / (1 + 0.12)^3) - Initial Development Cost
● Web browser: NPV = ($2,500,000 / (1 + 0.12)^1) + ($2,875,000 / (1 + 0.12)^2) +
($3,306,250 / (1 + 0.12)^3) - Initial Development Cost
● Trip planner program: NPV = ($1,300,000 / (1 + 0.12)^1) + ($1,365,000 / (1 + 0.12)^2) +
($1,433,250 / (1 + 0.12)^3) - Initial Development Cost
Handstar should pursue the projects with the highest NPVs. These projects would provide the
most value and potential return on investment.
Weighted factor scoring method to rank the projects:
Let's assign twice the weight to NPV compared to obtaining/retaining a leadership position and
making use of the Internet.
We'll assign scores/weight to each project based on the following scale:
● NPV: 2 times the NPV value (higher is better)
● Leadership position: 1 for high, 0.75 for moderate, 0.5 for certain, and 0 for low or very
low
● Internet use: 1 for extensive, 0.75 for moderate, 0.5 for little, and 0 for none
Let's calculate the weighted scores for each project and rank them:
● Integration of email and calendar programs: Weighted score = (2 * NPV) + (0.75 *
Leadership position) + (0.75 * Internet use)
● Update of expense report program: Weighted score = (2 * NPV) + (1 * Leadership
position) + (0.5 * Internet use)
● Enhancement of portfolio tracking program: Weighted score = (2 * NPV) + (0.5 *
Leadership position) + (0.75 * Internet use)
● Spreadsheet program: Weighted score = (2 * NPV) + (0.75 * Leadership position) + (0 *
Internet use)
● Web browser: Weighted score = (2 * NPV) + (0 * Leadership position) + (1 * Internet
use)
● Trip planner program: Weighted score = (2 * NPV) + (0 * Leadership position) + (1 *
Internet use)
Based on the weighted scores, we can rank the projects from highest to lowest. The projects with
the highest scores would be the most recommended.
Also, we need to consider the workload and development time required for the projects. If the
total development hours exceed the capacity of the current software developers (4 developers *
2500 hours/year), hiring an additional engineer may be justified to handle the workload.
However, if the current team can handle the development hours required for all the projects,
hiring an additional engineer may not be necessary. It's important to assess the resource
availability and the efficiency of the current team before making a decision.