I. Definition on project resources
According to Kerzner (2009), resources of a project are defined as these elements required by the project to carry out its tasks and fulfill the expected aim, which is often included these basic elements such as people, time, equipment, scope, and materials and so on. And all of these resource elements are interrelated, which are all the determinants for the success of a project.
II. Treatment on resources
At the same time, it is so crucial for a project manager to well manage these necessary resources to ensure them to operate at the most effective level (Gray & Larson 2008). For instance, the management on these elements often includes these issues including the allocation of the labor time for the project designers, the constructors, examiners as well as the inspectors for this project. And at the same time, managing the resources in a project also includes treatment on the labor contracts or subcontracts involved in this project in any form. Moreover, besides the management on the people issue, the treatment on the resources required by a new project also includes the management on these issues such as required equipment and materials asked to assist the fulfillment of other resources.
i) Treatment on people
As Meredith and Mantel (2012) advocated that the treatment on people resources for a new project often indicates to obtain the right talents possessing the right skills and knowledge as well as these appropriate tools to work effectively so as to contribute to the right quantity of the outputs in the right time. At the same time, the treatment on the people issue within a new project also means the right management on people to ensure that they have developed the thorough understanding on what they need do and how to do and at the same time to ensure that they also develop the understanding on what they shouldn’t so . And of course, to fulfill this kind of well treatment on people resources to produce the expected outcomes, it requires the suitable and effective motivation means to assist the people management process in a new project.
Moreover, to successfully manage the people resources in a new project, it is so necessary to understand the importance and necessity to well manage the people in senior positions of a team or a group. Right and proper directions and relationship buildings are crucial to ensure the success of people management in a new project with the assistance of deliberate designed labor contracts (Meredith & Mantel 2012).
ii) Treatment on equipment
Meredith and Mantel (2012) also pointed the ways to manage equipment resource in a new project. The actual means for a project manager to treat the equipment resource often relies much on the equipment’s nature. For instance, the necessary equipment needed to construct a warehouse to store frozen food may include the equipment such as these earth moving tool, cranes, trucks and so on. And for the project which is to publish the computer game in a new version, the equipment resource may consist of elements such as computers, equipment for test, machines for package and copy. Hence, to deal with the equipment resources in different project, it is necessary for us to take the nature of this project into consideration. And at the same time, it is important to ensure the rightness of the equipment employed in the proper place at the proper time with the right supplies to support the right operation of this project.
iii) Treatment on materials
Gray and Larson (2008) offer the reasonable measure to manage the material resources in a new project. The first issue related to material resources for a new project to ensure is the supplies for these necessary materials. That is to say, the project manager has to ensure the supplies of these necessary materials in the right quantity and quality and can be obtained in the right time.
III. Different treatments on different resources
As there are several types of resources required in a new project, such as the resources with a current alternative usage as well as the resources with no current alternative usage, the treatment on the two kinds of resources may differ from each other.
i) Treatment on resource with a current alternative usage
The resources which own an alternative use in the current time may indicate this kind of resources which have more functions for the new project to employ, which may produce more effective and greater outcomes if well managed (Kristoffer & Haug 2009). There are several strategy should be employed by the project manager on this kind of resources.
Sustainable development strategy
The first strategy suggested to be employed by the project managers is to employ the sustainable management strategy to manage these resources which have more than one usage. One of the major purposes of the sustainable management strategy is to maintain the function of these resources to support the future development. For a new subject, there are several resources have more than more usage including the people, and equipment. Hence, to maintain these resources can be applied to the future development of the organization or bring continuous contribution to the project in the future, it is important for the project manager to maintain and motivate the activeness of this kind of recourses. (Lockwood 2007)
For instance, to support the people resources to maintain their good performance as they do in the current time or even produce better performance in the future, necessary training and developing programs had better be introduced to them to development their knowledge and skills required by the project and the future. And then to maintain and ensure the best outcomes produced by these training and developing programs for the people resources, the compensatory policy should be well designed to motivate the activeness and passion of people involved in this project and also improve their sense of belonging for their organization, which can improve their efforts devoted to not only this project but also the future. (Lockwood 2007; Robbins & Coulter 2004)
Effective communication treatment
The effective communication is also necessary for today’s project manager to take into consideration when dealing with the resources with more than one utility. To improve the working effectiveness of these resources both for the current and for the future, effective communication via the support of multichannel means will improve the successful level of the information distribution including the distribution of designed documents, budget and cost documents, plans, reports and other important data to reach the target people in the most effective way and remove the misunderstanding and ensure the well process of this project. (Russell & Taylor 2009)
ii) Treatment on recourses with no current alternative usage
To deal with resources with no current alternative usage, project manager should obey the rule that to maximize the outcomes produced by these kind of resources according to the research from Russell and Taylor (2009).
As there are several in the resources with no current alternative usage, such as these consumable resource, it should be well managed in the process of this new project to ensure the schedule of this project should be on time without slips. Because once, there are delay or mistakes taking place, the usage of this kind of resources may be increase, which may not only waste the money, but also have side effects on the usage of other resources or even produce great side effects on the entire performance of this project. (Russell & Taylor 2009)
The aim of cost management employed in the new project to manage the resources with no current alternative use is to make the cost of these resources in the lowest level and with the highest achievement level (Russell & Taylor 2009).
As the time and cost in this project are suggested to be used to ensure the right function of these employed resources especially these resources with no current alternative use, the quality management strategy should also be included to ensure these resources can produce the expected outcomes in the right time and right place with the lowest cost. (Russell & Taylor 2009)
I. Benefits and drawbacks on the proposed new project
Besides the consideration of the treatment on these necessary resources, the benefits and drawbacks brought by proposed new project should also be taken into consideration to ensure the value of this new project to reach the expectations.
According to the survey of Morgan (2010), there are a variety of benefits may be brought out by a proposed new project including the financial benefits, human resource benefits, development benefits and so on, which we will justify via some a project example that the world biggest search engine – Google plans to set up a new data center in Lenoir with investment of about $ 600 million in the year of 2006 (Morgan 2010).
The first benefit brought by a proposed new project may lie in the profits brought out by this project (Morgan 2010). This kind of project will bring out financial benefits not only for the local community but also for Google itself. The second benefit brought by this project is the offering of more jobs for this place (Morgan 2010). The third benefit is to support this region and Google itself to get a greater development potential and attention from the public (Morgan 2010).
For instance, this proposed project will bring out some initial changes in areas such as employment, people’s income or output which may motivate the spending of this region. At the same time, this kind of changes may also have good influence on the development of local suppliers due to the cooperation with Google. And as the income of people increased, their spending capacity will be enlarged to further trigger the consumption of this region. (Morgan 2010)
By and large, the benefits brought by the proposed new project are so necessary for the organization to take full consideration, because they may influence whether this project is worth carrying out.
Besides the evaluation on the benefits, the analysis on drawbacks may also help the organization to figure out whether this project is worth implementing.
The first drawback created by any project is the spending and costs required to carry out the project. Take the example of Google’s 2006 project in Lenoir once more (Morgan 2010). To build a data center, Google has no choice but to invest a large sum of money around $ 600 million, which is such a big amount. This huge investment may also involve with many uncertainty. For example, in the year 2007 the new financial crisis has hit the world, which may not be expected by Google. And under the hit of financial crisis, the global development speeds of many multinational companies including Google are hindered, which even resulted in the wealth, shrinking in many companies. That is to say, due to the huge investment in 2006, the flexibility and financial capacity of Google will be reduced, when meeting the financial crisis in 2007, which may bring out many side effects.
The second, side effect involved in a proposed new project may be the time and human resources consuming. Any project whether it is a big one or small one, it requires investment of human resource and time to spend on deliberate project design (Morgan 2010).
By and large, the importance of evaluation on the benefits and drawbacks of the proposed new project should always be emphasized. If the drawbacks of this project outstrip the benefits, it is necessary for the organization to give up this project to avoid further loss (Morgan 2010).
II. Project synergies
According to Horn (2004), synergies refers to two or more elements which function together to create or contribute to an outcome which can’t be gained independently. And for a project, its synergies often means these elements required by a project to work together so as to produce better achievements. For Disney, part of its success is also due to its well managed project synergies which we will explain in the following.
The project synergies aren’t a new concept for Disney which includes elements across its movie theaters to its theme parks.
· Disneyland assists this company to keep its characters from its movies in front of the public to maintain the popularity and reputation of this movie maker company.
·Disneyland and Disney World assist this company to offer sales outlet for the public including various souvenirs made from the characters in the movies.
·TV is also a project synergy for Disney to promote its fame all over the world. This outlet facilitates its theme parks to always own the attractiveness to these customers and audience all over the world.
·Music, publications, movies, the theme parks work together to promote each other via the employment of stories, movie characters as well as these attractive settings.
By and large, thanks to the well management of these project synergies, Disney has created good sales performance and the unique position which can’t be exceeded for a long time.
III. Beneficial side effects
According to the research of Damodaran (2010) on Disney, we can get this corporate is so active and positive to find beneficial side effects from its movie products to further promote its business. The reputation enjoyed by Disney to find beneficial side effects from its movie operations particularly the animated movies in its movie industry.
In the first place, Disney is so smart to find profit from its movies. For instance, these plastic action figures as well as these toys with stuff are produced and introduced immediately when the related movies are released to the market. That is to say, profits are also found by Disney from the synergy of its movies.
In the second place, cooperation with these big giants in fast food industry all over the world is the second beneficial side effect found by Disney from its movies. For instance, Disney has already developed the cooperation with McDonald’s, Burger King and other global fast food players to promote the business together. In McDonald’s or Burger King, movie related merchandise of Disney are promoted together with the kids meals from these fast food players, which often produces a win- win outcomes. That is, Disney has saved the advertising cost from cooperation with these fast food players and these fast food players have further promoted their food products to the children customers taking the advantage from the reputation of Disney in the mind of children.
In the third place, Disney has strengthened the fame of its famous movie characters by the acquisition of Capital cities, which further generates more profits for Disney.
In the fourth place, Disney is also wisdom to produce musicals in Broadway such as Beauty and the Beast, The Little Mermaid, The Lion King and so on to continue attract the eyes and maintain the reputation of Disney and keep the high profitability.
In the fifth place, the theme park of Disney contributes great profits to this kingdom taking the advantages of its classical animated character in its movies.
In the sixth place, these computer software and video games on the ground of the animated movie character of Disney also explore wider profitable way for Disney.
At last, continuous profit has been gained by Disney from issuing the video and DVD of its animated movies, which are even regarded as the must-own items for these movie fans.
IV. Product cannibalization and Sony
Drezner (2011) defined product cannibalization refers to the decreasing situation in the sales volume, market share as well as revenue of one product due to the appearance of a new product produced by the same company. From the superficial level, we may find that this situation may seem negative for a company, while if the producer has developed careful and deliberate design and implementation strategy, which can also produce positive effects with the fulfillment of the various market demands among fierce competition. In the following, we will cite the story of Sony’s television business to develop a better understanding on the issue of product cannibalization.
Based on the research from Shen and Altinkemer (2008) on the television business of Sony, we know that the quality based segmentation of Sony’s television line is made up of several models including the models of 27 inch, 32 inch, 35 inch and models within the size of each screen with different features. And these different television lines of Sony possess their own price and quality bundles, which are aimed to meet the different requirements from different customer segmentation. For instance, the price of these models within the size of each screen with different features of Sony’s television are branding as high price products for high quality compared to the relatively lower prices of the models of 27 inch, 32 inch, 35 inch for relatively poor quality.
At the same time, Churchill (2009) pointed out the product with higher quality and price is to meet the needs of customers who care about quality much even with higher payment. And the product with lower price and quality is to meet the needs of customers who care the product quality less while concern the price issues much.
While, things don’t always go so smoothly as the markets or produces expected. In Sony’s case, we find that there is a trend for some higher ended customers of its television products tending to purchase the lower quality televisions products, when these lower quality and price television products have been introduced to the market. One of the reasons for this is because those customers find these lower quality television products made by Sony own sufficient attractiveness for them. Hence, higher ended customers may choose to buy these lower quality and price television products instead of these higher quality and price products targeted by Sony to the, because it is more beneficial. (Drezner 2011; Shen & Altinkemer 2008)
In another word, we may define this situation is the lower quality television products made by Sony to cannibalize the sales of Sony’s higher quality products.
I. Differences between real options and financial options
Copeland and Tufano (2004) defined real options analysis is to apply the techniques of option valuation to the decision of capital budgeting. This kind of analysis means works as a discipline, which serves the business to make up the real life decisions in the financial field even under the uncertainty environment. For instance, real option may assist R & D managers in an organization to well allocate the budget of R & D across different projects.
And the financial options refers to these derivatives contracts which have close relationship with these financial instruments including bonds, shares, interest rate and so on. One of the functions of financial options is to offer rights to these buyers to not only purchase these underlying instruments in the financial field but also sell these instruments in a certain price in the future. (Copeland & Tufano 2004)
The first different between financial options and real options is the value of these underlying assets. On the one hand, financial options are often these issues written involved in the traded securities, which ease the path to evaluate the financial options’ parameters. And since it is easy to observe and figure out the security price, we can get the return rate’s variance from two ways such as the historical information and data as well as the calculation from anticipated variance from other options which own the same security. On the other hand, the underlying risky assets involved in the real options aren’t the traded asset in comparison with the ones in financial options. (Kang 2009)
Secondly, the probability for improving underlying assets’ value is the second difference between the two options. For one thing, as so many financial options belong to side bets, many companies often don’t choose to issue the financial options, especially when these shares they are contingent on. And for these agents who issue these financial options, they often own no influence power or control on the action of these companies and their share prices. For the other, compared the performance of financial options in the probability to improve the underlying assets’ value aspect, real options own different performance and influence. In real options, the control right on these invested underlying assets are owned by organizational management under the time series involved in the project. For example, organizational management employed the real options, can choose to stop the project, if they find the value produced by the project is low. At the same time, the management of the organization may also have the right to continue this project, if they find the underlying project’s value may be increased or added by the assistance of some new ideas. (Kang 2009)
The third different between real options and financial options may be in the possibility level to change the risks managed by the organization. As a matter of fact, with either real options or financial options, these uncertainties involved in the underlying assets own the chance to be exogenous. This is more reasonable for real options rather than financial options. On the one hand, in financial options, individuals may be incapable to manage or even influence the uncertainties involved in the return rate from the purchased shared. On the other hand, companies which own the real options may be able to have impact on the activities from their competitors as well as these uncertainties faced in the underlying financial issues. (Kang 2009)
Fourthly, we may summarize that the fourth difference between the real options and financial options in a project is the importance of time management. In real options, it is more necessary and curial or management of an organization to take the time issue into consideration involved in the underlying assets than financial options. (Kang 2009)
At last, in the importance of decision rule part, there is also difference between the two. In a word, real options emphasize these decision principles such as critical values much more than financial options. (Kang 2009)
II. Three options embedded in many capital budgeting projects.
According to the research from Damodaran (2010), there are three options embedded in many capital budgeting projects including the option to delay a project, the option to expand a project as well as the option to abandon a project.
The option to delay project
At first, the option to delay project is often employed when companies possess exclusive rights over this project. Under this option, company evaluates the project often on the basis of their discount rate and expected cash flows. (Damodaran 2010)
Supposing, the initial investment for a project is I, the present value (PV) of the cash flows for this project is V. then the net present value (NPV) of this project equals V-I. If the V > I, then it is reasonable and valuable for the firm to take this project, because it owns positive NPV, if not it isn’t suitable and profitable for this firm to take this project. (Damodaran 2011)
The option to expand a project
In some circumstances, companies may choose to involve in a project if it can extend the chance for it to enter other projects or markets in the future. This is defined as the option to extend a project. In this case, firms may accept the requirements of a payment on this option if it can offer more chances for it to enter other markets or projects. And sometimes, even the net present value (NPV) of this project is negative, which may produce higher positive net present value in these related projects for the firm, this project is acceptable. (Damodaran 2010)
Figure 2.0 The option to expand a project
In figure 2.0, it shows the option for firms to extend a project. If the expected cash flows’ NPV outstrips the expenditures on entering the new market or projects brought by this project, it is reasonable for this firm to take this project. (Damodaran 2011)
The option to abandon a project
The last option is to abandon a proposed project when the cash flows brought by this project can’t fulfill the expectations. In table 1.0, it’s the data about a project to build a real estate partnership of ten years. (Damodaran 2011)
Table 1.0 Data for company ABC on establishment a real estate partnership
Hence we can get the following:
Table 2.0 Results
Based on the results we can get, the total NPV of this project is $11.53 million ($10+ $1.53). It indicates the abandonment will own greater attractiveness in the future if the PV of the remaining cash flows reduces. (Damodaran 2011)
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