INSE 6230 Mid-Term Exam 1

Mid-Term Exam Solutions

(Total 80 points)

PART I. (Total 40 points)

1. How do we call all the people involved in or affected by project activities?
A. Stockholders
B. Shareholders
C. Sponsors
D. Project managers
E. Stakeholders

2. Which of the options below is NOT and example of a project?

A. Development of software for a new business process
B. Installation of machinery in a factory
C. Organizing a conference
D. Doing regular maintenance work on a railway system
E. All of the listed options are examples of projects

3. Which of the following statements is true about a Program?

A. A Program is a group of related projects
B. A Program is a group of unrelated projects
C. A Program is a part of a big project
D. A Program is a larger project with more complex scope, bigger budget and longer schedule
E. A Program is a group of projects considered together as an investment portfolio

4. Which of the following groups are project management process groups?

A. Initiating, planning, executing, monitoring and controlling and closing
B. Concept, development, implementation and close-out
C. Early, middle and final phases
D. Starting the project, organizing and preparing, carrying out the project and closing the project
E. Scope, time, cost, quality, stakeholders, human resources, communication, risk and procurement
groups

5. How do we call a product or a service that is provided or completed within the scope of a project?
As an example, it could be an approval, a presentation, a project budget, a kick-off meeting, a
design drawing, a prototype or a software installation, simply any output produced as a part of a
project.
A. Baseline
B. Work package
C. Deliverable
D. Task
E. Activity
INSE 6230 Mid-Term Exam 2

6. Which one of the following statements is NOT true about life cycle phases?
A. It is common to have a management review after each phase in order to evaluate the project
progress and to determine its future
B. In early phases of a project life cycle, the level of risk is low and the needs for resources are
low as well
C. In middle phases of a project life cycle, more resources than in other phases are needed
D. In early phases of a project life cycle, stakeholders have the greatest opportunity to influence
the project
E. The project life cycle phases are defined differently in different companies

7. In which form of organization would a project manager find it easiest to coordinate and
administer a project due to the fact that all the individuals who work on the same project are located
in the same department and have only one direct supervisor (which is the project manager)?
A. Functional organization
B. Lightweight project matrix organization
C. Project organization
D. Strong matrix organization
E. Heavyweight project matrix organization

8. Which one of the following is NOT true about stakeholder management strategy?
A. Stakeholder register is ideally completed early in the project to ensure proper engagement of
stakeholders.
B. Stakeholder register is a record of all the key project stakeholders and all the relevant
information.
C. Stakeholder management strategy serves as a guide for critical communications with involved
stakeholders.
D. Stakeholder management strategy may involve sensitive information such as a real interest of
key stakeholders in the project, their influence or their real support for the project.
E. All of the listed statements are true

9. You are a new project manager of a project which is just about to start. You need to know fast
all the key information related to the project such as key schedule milestones, budget information,
objectives and project success criteria. Where would you find such information?
A. WBS
B. The Project Charter
C. The PMBOK
D. The Project Scope Statement
E. Cost Estimation Plan
INSE 6230 Mid-Term Exam 3

10. Which process involves the identification of potential projects, their analysis and the selection
of the ones which are most suitable for the company based on its long-term objectives and defined
business strategy?
A. Resource breakdown structure
B. Project management planning
C. Integrated project control
D. Requirements management plan
E. Strategic planning

11. A newly married couple hired a contractor to build a house for them. Which of the following
evaluations describes an unsuccessful project?
A. The house was of the required size, model and architectural style, the cost was within what was
required and the house was built in the agreed timeframe.
B. The couple found project manager rude during the construction process as he did not bother to
return their phone calls and made some decisions without consulting them. However, they
considered the house very beautiful and they were very happy with the project result in the end.
C. The house cost was 30% more than agreed and it was completed one year later than scheduled,
but it did not matter to the couple at all. They loved the house, it was truly the house of their
dreams!
D. Depending on the criteria of project success, all of the listed statements can describe a successful
project.
E. The house took longer to build and cost more than what was agreed, but the couple kept the
house for a few years and then sold it with a great profit. The return on investment was even better
than originally expected.

12. Which of the following activities is NOT a part of integrated change control?
A. Influencing the factors that create changes to ensure that changes are beneficial
B. Determining that a change has occurred
C. Ensuring that only approved changes are added to the baselines
D. Rejecting all changes after project is approved because they will have negative impact on the
accomplishment of project goals
E. Measuring the impact of changes on project cost, quality, risks, resources, scope and customer
satisfaction

13. You are helping your client move from his old IT system to a new IT system. In your schedule
you need to indicate that the task Shut down the old system cannot finish until the task Install the
new system and have it running starts. You can only deactivate the old system once the new system
has been enabled and users can work on it. What type of dependency does this represent?
A. Finish-to-start
B. Finish-to-finish
C. Start-to-start
D. Start-to-finish
E. None of the listed dependency types
INSE 6230 Mid-Term Exam 4

14. How do we call unauthorized changes that occur in a project as time evolves and cause
continuous growth in project scope?
A. Scope baseline
B. Scope creep
C. Scope variance
D. Scope change
E. Scope growth

15. As the house construction project manager you are currently developing the project schedule.
You are aware that you cannot start the actual construction work until you get your building permit
first. What type of dependency does getting permit in this situation represent?
A. Technical dependency
B. Mandatory dependency
C. Discretionary dependency
D. Internal dependency
E. Optional dependency

16. Which project management knowledge area involves coordinating all of the other project
management knowledge areas throughout a project’s life cycle?
A. Project scope management
B. Project integration management
C. Project management plan
D. Project execution
E. Project initiation management

17. Which of the following is NOT true about the WBS?

A. The project team members should be involved in developing the WBS.
B. The WBS must represent all product and project work.
C. Tasks in the WBS are equal to product specifications.
D. A task found at the lowest level of the WBS is called work package.
E. WBS is usually represented in a hierarchical fashion.

18. You are a project manager of a manufacturing facility construction project and you are
reviewing existing documentation. Currently you are looking at the collection of documents
composed of the approved version of project scope statement, the WBS and the WBS dictionary.
Which set of project documents are you reviewing?
A. Project scope baseline
B. Validate scope
C. Plan scope management
D. Statement of work
E. Work breakdown structure
INSE 6230 Mid-Term Exam 5

19. What is the most common way of calling a milestone which is completed later than planned?
A. Baseline milestone
B. Schedule milestone
C. Slipped milestone
D. Dummy milestone
E. Schedule baseline

20. How do we call an activity with no duration and no resources, which is used to show a logical
relationship between two activities in the arrow diagramming method of project network
diagrams?
A. Deliverable
B. Milestone
C. Dummy activity
D. Discretional activity
E. Start-to-start activity
INSE 6230 Mid-Term Exam 6

PART II. (Total 40 points)

Question #1 (10 points)

A manufacturing firm considers an investment in the following digital transformation (DT)

project: the initial investment in Year 0 would be $80,000. The expected benefits are $50,000 in
the first year, $60,000 in the second year, and $50,000 in the third year. The incurred cost is that
of maintenance and support which is expected to be $10,000 each year for the period of 3 years.
The firm uses a discount rate of 7% for its investment decisions.

A. Calculate NPV for the DT project. Would you recommend the investment? (4pts)
B. Calculate ROI for the DT project. (4pts)
C. The firm has an opportunity to make an alternative investment into a business model
transformation (BMT) project with ROI of 20%. Given all the information you have, which
of the two projects would you recommend for investment- the DT or BMT project? Justify
your decision. (2pts)

Solution:

DT project

Year 0 Year 1 Year 2 Year 3

Benefits 0 50,000 60,000 50,000
Costs 80,000 10,000 10,000 10,000
Cash flow -80,000 40,000 50,000 40,000

A) Calculate NPV of DT

r = 0.07
𝑛𝑛
NPV= �𝑡𝑡=0(𝐴𝐴𝐴𝐴/(1 + 𝑟𝑟)^𝑡𝑡

= -80,0000+(40,0000/(1.07))+(50,000/(1.07)^2)+(40,000/(1.07)^3)
=-80,000+37383.17+43671.93+32651.91
=33707.1

For r = 0.06
NPV = 35820.43

For r = 0.08
NPV = 31657

I will recommend this investment since it’s a higher NPV and is in a positive direction
INSE 6230 Mid-Term Exam 7

B) Calculate ROI

ROI=( Total discounted benefit – Total discounted cost )/ Total discounted cost

Total benefits= 0+(50,000/1.07)+(60,000/(1.07)^2)+(50,000/(1.07)^3) = 139950

Total discounted cost= 80,000+(10,000/1.07)+ (10,000/(1.07)^2)+ (10,000/(1.07)^3)

=106243.16

For r = 0.07
ROI= (139950.18-106243.16)/ 106243.16
= 0.3172
ROI= 31.72 %

For r = 0.06
ROI = 33.56%

For r = 0.08
ROI = 29.9%

C) In order to select a project for an investment, we compare the ROI values of the
projects.
Since the DT project has a higher ROI percentage of about 30%, it will be recommended
to go with DT Project.
INSE 6230 Mid-Term Exam 8

Question #2 (10 points)

Your company is considering an investment of $50,000. You as a portfolio manager need to choose
between the following two investment alternatives - Project A and Project B. Consider the discount
rate of 7%. The expected annual cash flows for both investments are as follows:

Project A Project B
Discounted cash flow in Year0 50,000 50,000
Discounted cash flow in Year1 10,000 40,000
Discounted cash flow in Year2 20,000 30,000
Discounted cash flow in Year3 30,000 20,000
Discounted cash flow in Year4 40,000 10,000

A. Calculate the annual discounted cash flows for all the years for both projects. Use the
table below for your answers. (5pts)
B. Calculate the payback period for each project. (3pts)
C. Knowing that for your company it is important to invest in projects with short
periods of investment cost recovery, which of the two alternatives would you
recommend being selected? Explain why. (2pts)

Solution:
A. Table with the answers:
For r = 0.07
Project A Project B
Discounted cash flow in Year0 -50,000 -50,000
Discounted cash flow in Year1 9345.8 37383.17
Discounted cash flow in Year2 17468.8 26203.16
Discounted cash flow in Year3 24488.9 16325.9
Discounted cash flow in Year4 30515.8 7628.9

For r = 0.06
Project A Project B
Discounted cash flow in Year0 -50,000 -50,000
Discounted cash flow in Year1 9434 37736
Discounted cash flow in Year2 17800 26700
Discounted cash flow in Year3 25189 16792
Discounted cash flow in Year4 31684 7921

For r = 0.08
Project A Project B
Discounted cash flow in Year0 -50,000 -50,000
Discounted cash flow in Year1 9259 37037
Discounted cash flow in Year2 17147 25720
Discounted cash flow in Year3 23815 75877
Discounted cash flow in Year4 29407 7350
INSE 6230 Mid-Term Exam 9

Discounted cash flow A (r = 0.07)

Year 0= -50,000
Year1= 10,000/1.07=9345.8
Year2= 20,000/(1.07)^2=17468.8
Year3= 30,000/(1.07)^3=24488.9
Year4= 40,000/(1.07)^4=30515.8

Discounted cash flow B (r = 0.07)

Year 0= -50,000
Year1= 40,000/1.07=37383.17
Year2= 30,000/(1.07)^2=26203.16

Year3= 20,000/(1.07)^3=16325.9
Year4= 10,000/(1.07)^4=7628.9

Payback for project A

When r = 0.07

Year 0= -50,000
Year 1= -50,000+9345.8=-40654.2
Year2= -40654.2+17468.8=-23185.4
Year3= -23185.4+24488.9=1303.5

When r = 0.08

Year 0= -50,000
Year 1= -40741
Year2= -23594
Year3= 221

When r = 0.06

Year 0= -50,000
Year 1= -40566
Year2= -22766
Year3= 2423

Year 3 is the payback period for Project A

INSE 6230 Mid-Term Exam 10

Payback for project B

When r = 0.07

Year 0= -50,000
Year 1= -50,000+37383.17=-12616.83
Year2= -12616.83+26203.16=13586.77

When r = 0.08

Year 0= -50,000
Year 1= -12963
Year2= 12757

When r = 0.06

Year 0= -50,000
Year 1= -12264
Year2= 14436

Year 2 is the payback period for Project B

c) Project B is recommended for a short period of investment cost recovery since its
payback period is in year 2 compared to Project A whose payback period is in year
INSE 6230 Mid-Term Exam 11

Question #3 (10 points)

You are tasked with improving the process of building a house. Your team provides you with
the major steps involved (tasks A to I in the table below) but you need to add the details related
to the task relationships and durations. Here is the information you have about the house
construction process:

The project has to start with the excavation work which

would normally take around 5 days. Once the excavation A. Complete the table below: (5pts)
is finished the building of foundation can start. The
structural integrity of a house rests on a solid foundation, Task Predeces Duration
and it takes at least 2 days to build the solid foundation.
Building the skeleton of the house (also known as a sor
frame) is the longest activity because it involves A Excavate - 5
completing floor system and walls. It takes around 12
days and can start only after the foundation is completed. B Foundatio A 2
Electrical work which involves rough plumbing, n
electrical and HVAC systems takes around 9 days, but it
cannot start before the frame of the house is completed. C Frame B 12
Other activities are roof building which takes 5 days, and D Electrical C 9
masonry work which will take around 8 days. Both of
these activities – roof building and masonry work – also E Roof C 5
require that the frame of the house is fully finalized F Masonry C 8
before they can begin. The work on the interior design
takes around 10 days, but it cannot start before all these G Interior D, E, F 10
3 tasks (electrical, roof and masonry) are completed. The
H Exterior E 7
work on the exterior design will take around 7 days.
There is no need for the exterior design to wait until the I Landscap G, H 5
electrical work has ended, but the exterior design cannot
e
start before the roof is fully finished. Finally, when both
interior and exterior are finalized, it is the landscaping,
which takes around 5 days, which can start. Landscaping
concludes the project.

B. Draw AON network involving the nine mentioned major tasks of this project. (5pts)
INSE 6230 Mid-Term Exam 12

Question #4 (10 points):

Consider a project whose tasks are shown in the following table:

Task Predecessor Duration (Days)

A - 3 A. Draw AOA network diagram
B A 6 for this project. (5pts)
C A 7
D A 5 B. Draw Gantt Chart for this
E B, C 13 project. (5pts)
F C, D 8
G F 11
H G, E 6

Solutions:

A. AOA network diagram

B. Gantt chart
INSE 6230 Mid-Term Exam 13