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Cost Benefit Analysis for Projects: A step by step approach

Organizations, both for-profit and not-for-profit ones, often contemplate the need to take up new initiatives, develop new policies, bring about changes or create new capabilities to improve their current state of business-as-usual and create new benefits for the organization and stakeholders. All such new initiatives will be taken up as new projects by the organizations. These projects are expected to create new business value or in some cases social value. Every new project or initiative will require fresh investments of efforts and money to be made. Organizations will need to make such decisions prudently by creating a clear justification.  Cost Benefit Analysis (CBA): What is it? Understanding Cost Benefit Analysis Conducting a cost benefit analysis (CBA) or a Benefit-Cost analysis (as may be referred alternatively) is one of the most fundamental methods used to compare the financial cost to be incurred for such new initiatives and benefits to be generated from them.  Origins of Cost Benefit Analysis To undertake new initiatives is an integral part of the evolution of mankind, at a personal level, at a social level or at a business level. On the social front, it may involve initiatives like developing new townships, new buildings, new schools, new hospitals, new monuments, new social infrastructures, and new offices. On the business front, it may involve developing new products, new services or new production capabilities. There has always been a need to make sound and clear decisions. As the accountability of leaders on financial matters continues to rise, the need for doing a cost-benefit-analysis also becomes inevitable. CBA as a practice becomes part of policy matters in government projects in the US dating back in 1936, when Corps of Engineers started doing CBA for Federal Waterway Infrastructure projects. Approach to Cost Benefit Analysis A fundamental approach to do CBA includes estimating all the costs to be incurred in doing the project and carefully evaluating and estimating all the benefits to be garnered from the project. Benefits can include both quantifiable financial benefits and non-quantifiable benefits such improvement in quality of life, ease of living, ease of doing business etc. The purpose of Cost Benefit Analysis We already discussed that every new project needs investments to be made with the expectation of returns from the investments. There are two main applications of conducting a CBA: To determine if an investment decision is sound, calculating if its benefits outweigh its costs and by how much. To provide a basis for comparing alternative investment options, comparing the total expected cost of each option with its total expected benefits, thereby creating a basis for selecting the most desirable/viable option. Costs and Benefits Estimating costs Estimating all costs to be incurred in doing a project is the first important part of CBA. It will involve carefully estimating and listing the required quantity, quality and duration of material, labor, equipment and facilities to be used for completing all the activities of project work. Then we can estimate the costs for each of the above categories of resources. There will also be a need to include cost for contingency, inflation, cost of financing (if needed) and cost of any other services (such as training, liaison etc.) which may be required to complete the project activities. Cost estimation can be done with a considerable amount of accuracy level if all the activities of the project can be identified and all resource quantities can be estimated as stated above.  Estimating benefits Estimating all benefits to be garnered is the second important part of CBA. Every project or investment done is expected to deliver benefits in future. Benefits can include financial benefits by means of increase in profit margins and increase in efficiency of doing things. Benefits can also include non-financial benefits such as increased comfort and ease of doing things, improved moral of people, increased satisfaction levels, more peace, social benefits etc. Financial benefits can be estimated with considerable amount of accuracy, while it will be somewhat challenging to estimate and quantify the non-financial benefits. Comparing costs and benefits After careful and diligent estimation of costs and benefits as stated above, we need to compare the costs to be incurred with benefits to be garnered. If the benefits outweigh the costs considerably, such proposals will be taken up for further consideration by the organizations. Organizations may lay down clear guidelines regarding minimum expected difference between benefits to cost for the projects to be selected for implementation. Organizations may also lay down clear guidelines for evaluating the social benefits (mostly non-financial as explained above) for clear decision-making after doing a CBA. How to do a Cost Benefit Analysis  To conduct cost benefit analysis, we need to estimate and enumerate all costs to be incurred and all benefits to be generated. Then one needs to compare the costs with benefits for arriving at suitable decisions and recommendation about whether the project is worthy of taking up or not. There are two broad methods for doing cost benefit analysis: Non-discounted method (does not consider the effects of interest and time period). Discounted method (considers the time period, interest, inflation etc. while calculating the costs and benefits) We can take a simple example below to illustrate some of these methods.  Analyzing using non-discounted method These are very simple methods without considering the effects of interest and time period.The below illustration shows the costs incurred and benefits over a period of six years.  Yr. 0Yr. 1Yr. 2Yr. 3Yr. 4Yr. 5Yr. 6Discount rate at 10% (0.1)Cost100000000000Benefits250002500025000250002500025000Example of CBA using Non-Discounted MethodTotal Cost = 100000; Total Benefits = 150000 Benefit Cost Ration (BCR) = Total Benefits / Total Costs = 150000/100000 = 1.5 (> than 1) Profit = Total Benefits (Revenue) – Total Costs = 150000 – 100000 = 50000 Payback Period = Time taken to recover the total cost (investments) = 4 years ROI = Return on Investment = Profit/Investment = 50000/100000 = 50%  Using the above simple non-discounted methods we can see that this project looks good with benefits being more than the cost, with positive profits and lower payback period.  But these calculations are too simplistic, and do not account for the time-value of money based on interest rates, inflation. Analyzing using discounted method In the above example, the costs are incurred in the present time, while the benefits will be received in future. These values of money are in different timelines and hence their values cannot be compared directly as it is. We need to bring down all the future values of benefits and costs to their corresponding present values and then we can do a comparison of present values of benefits and costs. The below formula can be used to understand the relationship between present value (PV) and future value (FV) of money. PV = FV/(1+r)n(where r stands for rate of discount of money, n stands for time period) In the below example, the cost and benefits value mentioned are in specific period in time. We need to bring all costs as well as all benefits to their corresponding present values (PV) using the above equation and assuming an interest (discount) rate of 10% for ease of calculation.   Yr. 0Yr. 1Yr. 2Yr. 3Yr. 4Yr. 5Yr. 6Discount rate at 10% (0.1)Cost (FV)100000000000Benefits(FV)250002500025000250002500025000Cost (PV100000000000Benefits(PV)0227272066118782170751552714112Example of CBA using Discounted MethodPV of all costs = 100000 (as it is happening in year 0 only) PV of all revenue = 25000/(1.1) + 25000/(1.1)2 + 25000/(1.1)3+ 25000/(1.1)4+ 25000/(1.1)5 +  25000/(1.1)6 = 22727+20661+18782+17075+15527+14112 =108884 Net Present Value (NPV) = Sum of PV of all benefits – Sum of PV of all costs = 108884 – 100000 = 8884 (> 0)  Hence this project investment will lead to a profit after discounting the effect of interest and any other inflationary factors which are taken as 10%) If NPV is > 0, then the project investments will lead to profit. NPV is one of the most practical methods for doing cost benefit analysis by considering the time-value of money.  IRR (Internal Rate of Return) – IRR is the rate of discount at which the sums of PV of all benefits equals sums of PV of all costs. Or in other words IRR is the rate of discount at which NPV equals 0.  Calculating IRR is a more complex affair. In simpler term IRR denotes expected rate of return from the investments. According to a general guideline, higher the IRR from an investment, the better the opportunity.  How to establish a framework As we discussed above, there are various methods for undertaking cost benefit analysis. Different financial parameters such as Benefit Cost Ratio (BCR), ROI, Payback Period, NPV, IRR etc. need to be calculated for arriving at decisions and making necessary recommendations on whether a specific project should be taken up or not. Every organization is unique in their capabilities to invest and take risk. Organizations can define their specific guidelines or framework for project selection taking into account the above financial parameters, the risks involved in doing the project and most importantly specific nature of the investors. A framework for project selection will include all above factors.  Below are some basic guidelines which are used for decision making during cost benefit analysis (CBA) NPV should more than 0. Higher the NPV, the better is the project. BCR should be more than 1. Higher the BCR, the benefits outweigh the cost more. ROI should be high. Higher the ROI, the better is the investment opportunity. IRR should be high. Higher the IRR, the better is the opportunity. Payback period should be lower. Lower the payback period, the better seems the opportunity. Challenges and considerations while doing CBA How accurate is Cost Benefit Analysis? Cost benefit analysis can be reasonably accurate if these are done by technical and financial experts. Experience and availability of real data about costs and benefits of similar projects from past can greatly enhance the accuracy of cost benefit analysis.  Are there limitations to Cost Benefit Analysis? Since cost benefit analysis requires estimating costs and quantifying future benefits accurately, it requires solid maturity in terms of knowledge and availability of past data. In the absence of experience and data availability, CBA may fall short in its accuracy.  The risks and uncertainties in Cost Benefit Analysis While doing cost and benefit analysis, it will be important to understand risks and uncertainties involved in doing the project. It will also be equally important to understand the uncertainties involved in realizing the benefits once the project is done. Cost benefits analysis need to consider the implications of uncertainties to make it realistic. It may require doing statistical simulations and modeling as well.  Cost Benefit Analysis in the real world We saw that CBA became a formal and mandatory practice as early as 1930s in the US government departments, for numerically evaluating if the benefits will outweigh (and by how much) the costs of doing the project.  Organizations have become highly knowledgeable, experienced, and matured. Availability of past data coupled with ability to process the data using modern mathematical and statistical techniques and computerized tools exists in abundance within organizations.  In today’s world the need for doing CBA has become necessary. Businesses and governments are held more and more responsible and accountable to their citizens and investors for justifying their investment decisions. They can do this only by conducting a thorough cost benefit analysis.  

Cost Benefit Analysis for Projects: A step by step approach

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Cost Benefit Analysis for Projects: A step by step approach

Organizations, both for-profit and not-for-profit ones, often contemplate the need to take up new initiatives, develop new policies, bring about changes or create new capabilities to improve their current state of business-as-usual and create new benefits for the organization and stakeholders. 

All such new initiatives will be taken up as new projects by the organizations. These projects are expected to create new business value or in some cases social value. Every new project or initiative will require fresh investments of efforts and money to be made. Organizations will need to make such decisions prudently by creating a clear justification.  

Cost Benefit Analysis (CBA): What is it? 

Understanding Cost Benefit Analysis 

Conducting a cost benefit analysis (CBA) or a Benefit-Cost analysis (as may be referred alternatively) is one of the most fundamental methods used to compare the financial cost to be incurred for such new initiatives and benefits to be generated from them.  

Origins of Cost Benefit Analysis 

To undertake new initiatives is an integral part of the evolution of mankind, at a personal level, at a social level or at a business level. On the social front, it may involve initiatives like developing new townships, new buildings, new schools, new hospitals, new monuments, new social infrastructures, and new offices. On the business front, it may involve developing new products, new services or new production capabilities. 

There has always been a need to make sound and clear decisions. As the accountability of leaders on financial matters continues to rise, the need for doing a cost-benefit-analysis also becomes inevitable. CBA as a practice becomes part of policy matters in government projects in the US dating back in 1936, when Corps of Engineers started doing CBA for Federal Waterway Infrastructure projects. 

Approach to Cost Benefit Analysis 

A fundamental approach to do CBA includes estimating all the costs to be incurred in doing the project and carefully evaluating and estimating all the benefits to be garnered from the project. Benefits can include both quantifiable financial benefits and non-quantifiable benefits such improvement in quality of life, ease of living, ease of doing business etc. 

The purpose of Cost Benefit Analysis 

We already discussed that every new project needs investments to be made with the expectation of returns from the investments. There are two main applications of conducting a CBA: 

  1. To determine if an investment decision is sound, calculating if its benefits outweigh its costs and by how much. 
  2. To provide a basis for comparing alternative investment options, comparing the total expected cost of each option with its total expected benefits, thereby creating a basis for selecting the most desirable/viable option. 

Costs and Benefits 

Estimating costs 

Estimating all costs to be incurred in doing a project is the first important part of CBA. It will involve carefully estimating and listing the required quantity, quality and duration of material, labor, equipment and facilities to be used for completing all the activities of project work. Then we can estimate the costs for each of the above categories of resources. There will also be a need to include cost for contingency, inflation, cost of financing (if needed) and cost of any other services (such as training, liaison etc.) which may be required to complete the project activities. 

Cost estimation can be done with a considerable amount of accuracy level if all the activities of the project can be identified and all resource quantities can be estimated as stated above.  

Estimating benefits 

Estimating all benefits to be garnered is the second important part of CBA. Every project or investment done is expected to deliver benefits in future. Benefits can include financial benefits by means of increase in profit margins and increase in efficiency of doing things. Benefits can also include non-financial benefits such as increased comfort and ease of doing things, improved moral of people, increased satisfaction levels, more peace, social benefits etc. Financial benefits can be estimated with considerable amount of accuracy, while it will be somewhat challenging to estimate and quantify the non-financial benefits. 

Comparing costs and benefits 

After careful and diligent estimation of costs and benefits as stated above, we need to compare the costs to be incurred with benefits to be garnered. If the benefits outweigh the costs considerably, such proposals will be taken up for further consideration by the organizations. Organizations may lay down clear guidelines regarding minimum expected difference between benefits to cost for the projects to be selected for implementation. Organizations may also lay down clear guidelines for evaluating the social benefits (mostly non-financial as explained above) for clear decision-making after doing a CBA. 

How to do a Cost Benefit Analysis  

To conduct cost benefit analysis, we need to estimate and enumerate all costs to be incurred and all benefits to be generated. Then one needs to compare the costs with benefits for arriving at suitable decisions and recommendation about whether the project is worthy of taking up or not. 

There are two broad methods for doing cost benefit analysis: 

  1. Non-discounted method (does not consider the effects of interest and time period). 
  2. Discounted method (considers the time period, interest, inflation etc. while calculating the costs and benefits) 

We can take a simple example below to illustrate some of these methods.  

Analyzing using non-discounted method 

These are very simple methods without considering the effects of interest and time period.The below illustration shows the costs incurred and benefits over a period of six years.  


Yr. 0Yr. 1Yr. 2Yr. 3Yr. 4Yr. 5Yr. 6Discount rate at 10% (0.1)
Cost100000000000
Benefits
250002500025000250002500025000

Example of CBA using Non-Discounted Method

Total Cost = 100000; Total Benefits = 150000 

  • Benefit Cost Ration (BCR) = Total Benefits / Total Costs = 150000/100000 = 1.5 (> than 1) 
  • Profit = Total Benefits (Revenue) – Total Costs = 150000 – 100000 = 50000 
  • Payback Period = Time taken to recover the total cost (investments) = 4 years 
  • ROI = Return on Investment = Profit/Investment = 50000/100000 = 50%  

Using the above simple non-discounted methods we can see that this project looks good with benefits being more than the cost, with positive profits and lower payback period.  

But these calculations are too simplistic, and do not account for the time-value of money based on interest rates, inflation. 

Analyzing using discounted method 

In the above example, the costs are incurred in the present time, while the benefits will be received in future. These values of money are in different timelines and hence their values cannot be compared directly as it is. We need to bring down all the future values of benefits and costs to their corresponding present values and then we can do a comparison of present values of benefits and costs. 

The below formula can be used to understand the relationship between present value (PV) and future value (FV) of money. 

  • PV = FV/(1+r)n(where r stands for rate of discount of money, n stands for time period) 

In the below example, the cost and benefits value mentioned are in specific period in time. We need to bring all costs as well as all benefits to their corresponding present values (PV) using the above equation and assuming an interest (discount) rate of 10% for ease of calculation.   


Yr. 0Yr. 1Yr. 2Yr. 3Yr. 4Yr. 5Yr. 6Discount rate at 10% (0.1)
Cost (FV)100000000000
Benefits(FV)
250002500025000250002500025000
Cost (PV100000000000
Benefits(PV)0227272066118782170751552714112

Example of CBA using Discounted Method

  • PV of all costs = 100000 (as it is happening in year 0 only) 
  • PV of all revenue = 25000/(1.1) + 25000/(1.1)2 + 25000/(1.1)3+ 25000/(1.1)4+ 25000/(1.1)5 +  25000/(1.1)6 = 22727+20661+18782+17075+15527+14112 =108884 
  • Net Present Value (NPV) = Sum of PV of all benefits – Sum of PV of all costs = 108884 – 100000 = 8884 (> 0)  

Hence this project investment will lead to a profit after discounting the effect of interest and any other inflationary factors which are taken as 10%) 

If NPV is > 0, then the project investments will lead to profit. NPV is one of the most practical methods for doing cost benefit analysis by considering the time-value of money.  

  • IRR (Internal Rate of Return) – IRR is the rate of discount at which the sums of PV of all benefits equals sums of PV of all costs. Or in other words IRR is the rate of discount at which NPV equals 0.  Calculating IRR is a more complex affair. In simpler term IRR denotes expected rate of return from the investments. According to a general guideline, higher the IRR from an investment, the better the opportunity.  

How to establish a framework 

As we discussed above, there are various methods for undertaking cost benefit analysis. Different financial parameters such as Benefit Cost Ratio (BCR), ROI, Payback Period, NPV, IRR etc. need to be calculated for arriving at decisions and making necessary recommendations on whether a specific project should be taken up or not. 

Every organization is unique in their capabilities to invest and take risk. Organizations can define their specific guidelines or framework for project selection taking into account the above financial parameters, the risks involved in doing the project and most importantly specific nature of the investors. A framework for project selection will include all above factors.  

Below are some basic guidelines which are used for decision making during cost benefit analysis (CBA) 

  1. NPV should more than 0. Higher the NPV, the better is the project. 
  2. BCR should be more than 1. Higher the BCR, the benefits outweigh the cost more. 
  3. ROI should be high. Higher the ROI, the better is the investment opportunity. 
  4. IRR should be high. Higher the IRR, the better is the opportunity. 
  5. Payback period should be lower. Lower the payback period, the better seems the opportunity. 

Challenges and considerations while doing CBA 

How accurate is Cost Benefit Analysis? 

Cost benefit analysis can be reasonably accurate if these are done by technical and financial experts. Experience and availability of real data about costs and benefits of similar projects from past can greatly enhance the accuracy of cost benefit analysis.  

Are there limitations to Cost Benefit Analysis? 

Since cost benefit analysis requires estimating costs and quantifying future benefits accurately, it requires solid maturity in terms of knowledge and availability of past data. In the absence of experience and data availability, CBA may fall short in its accuracy.  

The risks and uncertainties in Cost Benefit Analysis 

While doing cost and benefit analysis, it will be important to understand risks and uncertainties involved in doing the project. It will also be equally important to understand the uncertainties involved in realizing the benefits once the project is done. Cost benefits analysis need to consider the implications of uncertainties to make it realistic. It may require doing statistical simulations and modeling as well.  

Cost Benefit Analysis in the real world 

We saw that CBA became a formal and mandatory practice as early as 1930s in the US government departments, for numerically evaluating if the benefits will outweigh (and by how much) the costs of doing the project.  

Organizations have become highly knowledgeable, experienced, and matured. Availability of past data coupled with ability to process the data using modern mathematical and statistical techniques and computerized tools exists in abundance within organizations.  

In today’s world the need for doing CBA has become necessary. Businesses and governments are held more and more responsible and accountable to their citizens and investors for justifying their investment decisions. They can do this only by conducting a thorough cost benefit analysis.  

KnowledgeHut

KnowledgeHut

Author

KnowledgeHut is an outcome-focused global ed-tech company. We help organizations and professionals unlock excellence through skills development. We offer training solutions under the people and process, data science, full-stack development, cybersecurity, future technologies and digital transformation verticals.
Website : https://www.knowledgehut.com

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And with its new rollout, the PMP helps holders grow and develop diverse project management skills to suit the fast-changing markets of today and beyond.PMP DemandThe reason why PMP is so well received is because the skills one learns during the PMP certification journey can be applied across sectors, geographies and industries including IT, government sectors, telecommunications, manufacturing, banking and more.It allows certified professionals to maximise value, enhance bottom line margins and prove that they can drive business results.PMP continues to remain one among the best Project Management Certifications for 2021.Benefits of getting PMP certifiedValidate your commitment to continued excellence and qualityDemonstrate your proficiency in project managementGrow your career in project management with confidenceManage projects across sectors and industriesGet yourself hired by the bestEarn salaries that are up to 58% higher than those who do not hold the certificationEarn salaries up to $145,000Top companies that hire PMP professionalsExxon MobileAppleSAICEXELONWhere to take training for certification: Aspirants must undertake the training from an Authorized Training Provider of PMI®.Who should take the training for certification:Mid-Level, Senior Project ManagersProject CoordinatorsProject AnalystsProject LeadersProduct ManagersProgram ManagersProject SponsorsTeam LeadersAnyone interesting in building project management skillsEligibility for PMP examTo be eligible for the PMP® exam, you must fulfill the following criteriaEDUCATIONAL BACKGROUNDSecondary Degree (high school diploma, associate’s degree or global equivalent), ORFour-year Degree (bachelor’s degree or global equivalent), ORBachelor's or Post-Graduate degree from a GAC accredited program (bachelor’s degree or master's or global equivalent).PROJECT MANAGEMENT EXPERIENCEMinimum five years/60 months unique non-overlapping professional project management experience, ORMinimum three years/36 months unique non-overlapping professional project management experience, ORMinimum two years/24 months unique non-overlapping professional project management experience.PROJECT MANAGEMENT EDUCATION35 contact hours of formal education, unless you are an active CAPM holder.Exam FormatThe latest (2021) PMP® certification exam pattern is as follows:No of questions: 180 multiple-choice, multiple responses, matching, hotspot and limited fill-in-the-blank.Time: 230 minutesDifficulty level: The questions are populated as per the difficulty level. The questions are randomized so that no two candidates will get similar questions. The easier the question, the higher the passing score determinant and the higher or tougher the question, the easier the passing score. Duration to get certified: After completing your 35 hours of PMP workshop training, you need to rigorously prepare for the exam. Experts suggest dedicating several weeks to studying for the exam to ensure thorough preparation. Your web-based exam results will be visible to you immediately upon completion of the exam.Course fee for certification: In India: INR 14999, America: USD 999, Canada: CAD 1399Application fee: For PMI membership: USD $ 129 plus USD $10 for application fee.Exam fee for certification:In IndiaMember: ₹23,459.00 Non-member: ₹42,863.00In US Member: $405Non-member: $555Retake fee for certificationMember: $275Non-member:$3752. CAPM®: Certified Associate in Project Management Yet another offering from the PMI, the CAPM is a foundational credential that reflects the holder’s expertise in defining and managing new age project management tools and techniques. Based on the PMBOK® Guide-Sixth Edition, the CAPM will help you stand out among non-certified project managers and showcase your proficiency in implementing global project management best practices.  CAPM Demand: The CAPM certifies the holder as being adept in project management practices. An organization having a pool of CAPM qualified professionals has a good reputation and standing in the market. Owing to the benefits that they bring in, CAPM practitioners are much in demand.Benefits of getting CAPM certifiedLearn the right skills in project managementGain insights into project executing, monitoring, controlling and managementBe thorough in estimating project activity costsAchieve quality management and quality assurance at every stageMaster global project management best practicesOpen yourself to new opportunities and lucrative job offersEnhance your market credibility  Gain 23 contact hours/PDUsBe part of the PMI network and gain several benefitsEarn average salaries from $93,500 to $111,500Top companies that hire CAPM professionalsKaiser PermanateAecom CorporationSAP AmericaBooz, Allen, HamiltonInternational Business Machines (IBM) CorpWhere to take training for certification: Aspirants must train from an Authorized Training Partner (ATP) of PMI.Who should take the training for certificationAssociate Project ManagersProject ManagersIT Project ManagersProject CoordinatorsProject Analysts, Project LeadersSenior Project ManagersTeam LeadersProduct ManagersProgram ManagersProject SponsorsProject Team MembersEligibilitySecondary degree (high school diploma, associate’s degree or the global equivalent)23 hours of project management education completed by the time you sit for the examExam FormatNo of questions: 150 questions Time: 3 hoursDifficulty level: Moderate but requires thorough knowledge of project management principlesDuration to get certified: After completing your 23 hours of CAPM workshop training, you need to dedicate around 45-60 hours to ensure complete preparation for the exam. Your web-based exam results will be visible to you immediately upon completion of the exam.  Course fee for certification: INR 8999, USD 799Application fee for certification: For PMI membership: USD $ 129 plus USD $10 for application fee.Exam fee for certification:In IndiaMember: ₹17,377.00Non-member: ₹23,169.00In U.S.Member: $435Non-member: $4953. PMI-RMP®: Project Management Institute-Risk Management ProfessionalThe pandemic exposed many vulnerabilities that organizations had not been prepared for. When faced with unprecedented risks, organizations need specialists who can identify and assess project risks, mitigate threats and take advantage of opportunities. The PMI-RMP course and certification prepares professionals to perform this role and successfully steer projects in complex environments.PMI-RMP Demand: According to the 2015 Pulse of the Profession® by PMI, “Eighty-three percent of organizations that are high performers in project management practice risk management frequently while just 49 percent of low performers do so”. This shows the importance of risk management and the emphasis organizations place on qualified risk managers.Benefits of getting PMI-RMP certifiedApply risk management practices for greater competitive advantageIdentify and measure risks in project development and implementationQuantify and create risk response strategies to deliver products that meet stakeholder expectationsUse a proactive and focused approach to preventing problems, rather than dealing with them once they occurIncrease your visibility within the companyAim for greater career growthEarn salaries upto $115,931Top companies that hire PMI-RMP professionalsWhere to take training for certification: Aspirants must train from an Authorized Training Partner (ATP) of PMI.Who should take the training for certificationRisk ManagersRisk Management ProfessionalsProject ManagersProject SponsorsProgram ManagersProject EngineersProject CoordinatorsPlanning ManagersPlanning EngineersProject Cost Control EngineersQuantity SurveyorsCivil EngineersIT Project ManagersProduct ManagersProject AnalystsBusiness AnalystsProject LeadersProject Co-ordinatorsTeam LeadersTeam MembersEligibilityTo apply for the PMI-RMP® Credential, you need to possess a:Secondary degree (high school diploma, associate’s degree, or the global equivalent)4,500 hours of project risk management experience40 hours of project risk management educationORFour-year degree (bachelor’s degree or the global equivalent)3,000 hours of project risk management experience30 hours of project risk management educationExam FormatNo of questions: 170 questions Type: Multiple ChoiceTime: 3.5 hoursDuration to get certifiedApplication fee: For PMI membership: USD $ 129 plus USD $10 for application fee.Course fee for certification: INR12999, USD 999Exam fee for certificationIn U.S.Member: $520Non-member: $670Retake fee for certificationMember: $335Non-member: $4354. PRINCE2® Foundation/PRINCE2 PractitionerThe PRINCE2 (PRojects IN Controlled Environments) Foundation and Practitioner credentials are sought-after offerings from AXELOS. There are a number of credentials offered under PRINCE2 that make it suitable for a wider audience. Axelos keeps the PRINCE2 curriculum regularly updated with the latest industry advances, which makes it suitable for new age project management and intensive, demanding projects.  PRINCE2 Demand: PRINCE2 extends its applicability across industries and sectors. This makes it very popular in the market as it is a one size fits all model. Although PRINCE2 was founded in the UK, it has now firmly established its presence in industries across the world. According to a report in LinkedIn, PRINCE2 is the most popular project management methodology. A professional adept at PRINCE2 and holding the credential is highly valuable and sought after by organizations implementing PRINCE2 for their projects.  Benefits of getting PRINCE2 certifiedGuide projects in their entiretyTailor PRINCE2 to suit the needs of projects and organizationsValidate your commitment to continued excellence and quality  Master and demonstrate your proficiency of the PRINCE2® framework  Gain project management best practices and grow your career with confidence Work across projects in diverse sectors and industriesShow your ability to work in challenging work environments  Command higher salaries (upto $99,012 average) than your non-certified peers Top companies that hire PRINCE2 professionalsShellBPTranspower New ZealandIBMHPAquasoftGetronicsSiemensWhere to take training for certification: Aspirants must undertake training from a Certified Partner of AXELOS and an accredited training organization (ATO) with PeopleCert®.Who should take the training for certification?Project ManagersProject CoordinatorsProject AnalystsProject LeadersProduct ManagersProgram ManagersProject SponsorsTeam LeadersSenior Responsible OwnersProduct Delivery ManagersBusiness Change AnalystsProject and Programme Office PersonnelOperational Line ManagerAnyone who wishes to build up knowledge in project management EligibilityThere are no eligibility requirements for the PRINCE2® Foundation certification exam. To qualify for the PRINCE2 Practitioner exam, you must have at least one of the following certifications: PRINCE2® Foundation or higher (applicable only to certificates obtained after 1 January 2009) Project Management Professional (PMP)® Certified Associate in Project Management (CAPM)® IPMA Level A® (Certified Projects Director) IPMA Level B® (Certified Senior Project Manager) IPMA Level C® (Certified Project Manager) IPMA Level D® (Certified Project Management Associate) Project Management Qualification (PMQ) Project Professional Qualification (PPQ) Exam FormatFoundation ExamDuration: 60 minutes (1 hour) Questions: 60 Multiple choice questions Pass mark: 33 out of 60 available, or 55% Use of textbook: No, it’s a closed book examPractitioner Exam Duration: 150 minutes (2.5 hrs) Questions: 68 Objective type questions Pass mark: 38 out of 68 available, or 55% Use of textbook: Yes, but only the official PRINCE2® manual is permitted. Duration to get certifiedYou will need to attend 32-hours of PRINCE2® Foundation and Practitioner training from an ATO of AXELOS and PeopleCert®, following which you will be required to take the exams to demonstrate your knowledge of PRINCE2 and get certified. The results of your tests are issued within 2 business days from the date of your exam.  Course fee for certification: USD 1999Exam fee for certification: Included in course fee5.  PgMP®: Program Management Professional (PgMP)® Certification TrainingAnother project management from the PMI, this credential is more advanced than the PMP and certifies the holder’s ability to manage complex projects that cover functions, organizations, cultures and geographies. The credential mandates holders to be proficient in the six prime focus areas: Governance, Prioritization, Escalation, Resource Management, Benefits Realization, and Stakeholder Management.PgMP Demand: Credentials from the PMI are known for their rigorous standards and testing, which is why they are well accepted in industries across sectors. PgMP holders are better able to promote integration and coordination of multiple projects for the overall benefit of the program. According to PMI’s 2015 Pulse of the Profession® report, an organization’s projects are far more successful with program management than without it — 76 percent compared to 54 percent. This further compounds the demand for PgMP professionals. Benefits of getting PgMP certifiedGet in-depth knowledge of tools and techniques to handle complex multiple related projectsUnderstand Program Lifecycle and its processes, competencies, tools and techniques with practical sample templatesLearn to implement large-scale programs to align with business strategyOpen yourself to lucrative job opportunities and leadership rolesWork in projects across geographiesEarn high salaries, upto $139,000 on averageTop companies that hire PgMP professionalsAmazonGoogleMicrosoftCognizantCapgeminiDeloitteJP Morgan ChaseErnst & YoungWhere to take training for certification: Aspirants must train from an Authorized Training Provider of PMI®Who should take the training for certificationTeam LeadsSponsorsProject DirectorsProgram ManagersPortfolio Managers  Project Management Office (PMO) HeadsEligibilityA Four-year Degree (Bachelor's or Global equivalent), with at least four years of Project Management experience and four years of Program Management experience.ORA Secondary Diploma (High school or Global equivalent), with at least four years of Project Management experience and seven years of Program Management experience. Exam FormatNo of questions: 170 multiple-choice, of which 20 are considered pretest questions which are not scored.Question type: Most questions are scenario based and test a professional's understanding and clarity of thoughts on different Program Management concepts.Time: 4 hoursDifficulty level: DifficultDuration to get certified: You have to complete your 24 hours of training from an Authorized Training Partner (ATP) of PMI. Make a study plan and stick to it religiously. The PgMP is considered to be more difficult than the PMP and requires a fair bit of preparation. Once you pass the 4-hour exam you will be PgMP certified.  Course fee for certification: INR 13,999; USD 1199Application fee for certification: For PMI membership: USD $ 129 plus USD $10 for application fee.Exam fee for certificationIn IndiaMember: ₹46,338.00Non-member: ₹77,230.00In U.S.Member: $800Non-member: $1000Retake fee for certificationMember: $600Non-member: $8006. PMI-ACPPMI-ACP Demand: Agile is a fairly new concept in the context of product development. Though organizations reap immense benefits by adopting Agile, the road to transformation can often turn out to be expensive if not well executed. PMI-ACP professionals are therefore in huge demand as they can bring in project management best practices in Agile environments and ensure project success.  Benefits of getting PMI-ACP certifiedThe shortage of Project Managers has increased job opportunities in the Agile environmentYou will qualify for Agile jobs with expertise in Agile methods like Scrum, FDD, Kanban, etc. which are in demand in the industryEarn salaries in the range of $108,000 on an averageEquips you with knowledge of various Agile methodsMakes you more marketableTop companies that hire PMI-ACP professionalsStandard CharteredOracleIBMVMWareSource: IndeedWhere to take training for certification: Aspirants must train from an Authorized Training Provider of PMI® Who should take the training for certification?Project ManagersProject PlannersQuality Assurance StaffDevelopers/ProgrammersDesigners, TestersProject ControllersProduct OwnersScrum MastersScrum Team MembersEligibilityTo apply for the PMI-ACP®, candidates must meet the following requirements:1. General Project Experience2000 hours of working on project teams within the last 5 years or having an active PMP®/PgMP® credential2. Agile Project Experience1500 hours of working on Agile Project Teams or with Agile Methodologies, in addition to “General Project Experience” above;3. Training in Agile Practices21 contact hours earned in Agile PracticesExam FormatNo of questions: 120 MCQ, of which 20 are pre-testDuration: 3 hoursDuration to get certified: Once you complete the course, you need to schedule the exam date. Exam applications have to be submitted and approved by PMI. Online applications m ay take upto five business days to get processed. Once your application is processed, you can schedule your exam date, and on passing receive the PMI-ACP credential.Course fee for certification: INR 10,999, USD 1099Application fee for certification: For PMI membership: USD $ 129 plus USD $10 for application fee.Exam fee for certificationFor members: $435Non-members: $495Retake fee for certificationMembers: $150Non-members: $200SummaryProject Management is among the most sought after job roles, not only in the tech industry but any industry that executes and manages projects. By 2027, 88 million individuals will need to be skilled in project management-oriented roles. This makes it among the hottest job trends in the coming years, and a credential will go a long way in helping you capitalise on this trend.
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Best Project Management Certifications in 2021

While nothing can replace industry work experience... Read More

Project Contracts – A Vital Legal Binding

One of the key knowledge areas discussed in the Project Management Professional (PMP®) certification is Procurements Management. As part of project procurements management a project manager is mainly expected to be able to initiate, execute and manage projects based on the project contracts. This article is an attempt to discuss about project contracts, to discuss the importance of such contracts and to give an introduction to types of contracts as a precursor to subsequent articles. The PMBOK® defines a contract as follows. “Contract represents a mutually binding agreement that obligates the seller to provide the specified products, services or results, and obligates the buyer to provide the monetary or other valuable consideration in return. A contract can also be called an agreement, understanding, undertaking or a purchase order.” (PMBOK® 5.0) Any project involves two or more parties. One main party that is the buyer and the other the seller. In addition to these there can be other 3rd party elements that are not directly involved in the contract but are interested in or are impacted by the same. The contract between the buyer and the seller happens to protect the interests of the two parties entering into the agreement. The seller provides goods or services to the buyer for which the buyer compensates the seller monetarily or through other financial or non-financial means.   A contract is a formal agreement between the two parties and it is a legal binding amongst the two entities. A formal contract must be in written format and can be used even in court of law in the case of either party failing to honour their commitment or in the case of an appeal against any misdeeds. Dishonouring contracts may actually lead to settlements even in court but should ideally be settled mutually among the disagreeing parties, most probably through a mediator called an ‘arbitrator’. Normally in large organizations contracts are managed by a separate contract manager or a procurements manager. The management of contracts are done in 2 separate ways namely; centralized contracting and decentralized contracting. In centralized contracting, one contract manager manages all the contract related matters for multiple projects. This requires expertise in contracting, standardization of contracting practices across the organization and more focused management of contracts. In decentralized contracting, separate contract managers are allocated to manage the procurements for individual projects. This results in full time management of contracts and the contract manager must report progress to the project manager. This results in more focused management of project contracts and with time creates specialized expertise in contracting. However, this may result in duplication of contracting expertise and less standardization of contracting practices across multiple projects in the company. There are three main types of contracts. They are Cost Reimbursable OR Cost Plus, Time and Material or Unit Price and Fixed Price or Lump Sum contracts.  The applicability and use of these contract types based on the type of project, complexity and the parties involved may decide on variations based on the charges involved in order to ensure that the contract terms are mutually beneficial for the two parties. Hence, these contracts vary based on the cost, time and price.  A cost plus or cost reimbursement contract is a contract in which the contractor is reimbursed or paid all the actual expenses they incur when carrying out the work. In addition to this they are also allowed to charge an extra fee allowing them to obtain a profit. For example a contractor taking up building a contract may claim resource costs as well as any miscellaneous expenses incurred for travel, food, purchases as well as charge an additional amount from the customer in order to make a profit from the tasks carried out. A fixed price contract on the other hand does not depend on the resources utilized or time expended. A fixed amount is agreed upon between the contractor and the customer where the amount is paid to the contractor even if the resources expended is lower or higher than the agreed upon amount. Time & material contract is where the contracting party is paid only for the amount of time or resources spent. For example if there is a software development firm which assigns 4 resources for a project on a T&M basis the company will be paid an hourly rate for each resource based on the amount of time they spend on tasks in the project.  Each contract type has its own pros and cons for both the contracting and implementation party. For example a fixed price contract is suitable for an organization as they would know the amount due before hand and know that they won’t end up paying extra if the triple project constraints are not met. Similarly, a time and material project may be suitable for both parties, as amount will be charged only based on the amount of work done in the project and for the time spent. Advantages and disadvantages of each contract type depend on the context. Thus, it is important for stakeholders involved in projects to negotiate on contracts wisely.
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Project Contracts – A Vital Legal Binding

One of the key knowledge areas discussed in the Pr... Read More