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Index

5.1 Risk

5.2 Risk Management

5.3 Role of Risk Management in Overall Project Management

5.4 Steps in Risk Management

5.5 Risk Identification

Unit 5 : Project Risk & Financial Management

5.6 Risk Analysis

5.7 Reducing Risks

5.8 Trello

5.9 Jira

5.10 Asana

5.11 Project Finance structure

5.12 Process of Project Financial Management

5.13 Planning the Project Finance

5.14 Arranging the Financial Package

5.15 Controlling the Financial Package

5.16 Controlling Financial Risk

5.17 Options Models

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5.1 Risk

Risk is any unexpected event that can affect your project — for better or for worse. Risk can
affect anything: people, processes, technology, and resources. An important distinction to
remember is that risks are not the same as issues. Issues are things you know you’ll have to
deal with, and may even have an idea of when they’ll occur, like a team member’s scheduled
vacation, or a big spike in product demand around the holidays. Risks are events
that might happen, and you may not be able to tell when — such as flu season hitting your
team all at once, or a key product component being on backorder.
Types of Project Risk

Beyond the basics of what “risk” means, project managers should also know the different
types of risks they may encounter. Depending on the project type, the factors that should be
considered will differ.

There are several types of risks that occur frequently, regardless of the specifics of the
project. These common types of risk include:

Cost: The risk of events that impact the budget, especially those that cause the project to be
completed over budget. Errors in cost estimation commonly generate risk in addition to
external factors.

Schedule: The risk of unplanned scheduling conflicts, such as events that cause the project to
be delayed. Scope creep is a common reason for scheduling issues and project delays.

Performance: The risk of events that cause the project to produce results that are
inconsistent with the project specifications.

Depending on the project details, there are many other types of risks that can occur. For
example, project managers may also need to plan around risks pertaining to implementation,
training, testing, and so on.

Once project managers identify the categories of risk they should be concerned with, they can
begin to understand how these risks might impact the project outcomes and what they can do
to reduce their effects. To do so, they will also need to consider the breadth and depth of each
type of risk in the context of the overall project.

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5.2 Risk Management

In project management, risk management is the practice of identifying, evaluating, and
preventing or mitigating risks to a project that have the potential to impact the desired
outcomes. Project managers are typically responsible for overseeing the risk management
process throughout the duration of a given project.

To effectively manage risk, project managers must have a clear understanding of their
objectives so they can identify any possible barriers that could impact the team’s ability to
produce results.

“Risk management is really about looking at your project objectives and figuring out what the
threats to those objectives are, and what you can do to address them from the beginning,”
says Connie Emerson, assistant teaching professor for Northeastern’s Master of Science in
Project Management program.

The types of events or scenarios that fall under the category of risk can be broad and
sometimes misinterpreted. While project managers or those tasked with overseeing a project
may be inclined to view risks exclusively as threats, this is not always the case.

To clarify this common misconception, Emerson defines project risk as “…a future event that
may or may not happen which, if it does happen, will have some impact on the objectives of
the project. It could be positive—an opportunity, or negative—a threat.”

5.3 Role of Risk Management in Overall Project Management

Risk management affects the essential factors to the success of your project such as your
schedule, the scope, budget, communications, stakeholder engagement, agreed quality of the
deliverables, and more. When an unforeseen event happens and there is no risk planning that
has been done, it is difficult to manage the situation and might contribute to the failure of the
project.
Although risks are generally known as negative, they can also be opportunities for the project
team to grow by learning more from the experience.
There is no assurance that these possible events or risks will happen and if they will, they can
happen any time. There is a need to identify these risks, discuss and monitor on them, as well
as involve everyone

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It is important that all team members learn everything in managing risks and estimating when
they could possibly happen. They must agree on the strategies to do for every risk and
undertake actions to prevent negative events from happening
Project risk management is not just developing the plan, recording these risk strategies on file
and sharing it occasionally Risk management is an undertaking wherein it is important that
members know how to deal with them when they happen.
To manage these project risks, the procedure always starts with planning then identifying the
possible risks that might happen.
Effective risk management strategies allow you to identify your project’s strengths,
weaknesses, opportunities and threats. By planning for unexpected events, you can be ready
to respond if they arise. To ensure your project’s success, define how you will handle
potential risks so you can identify, mitigate or avoid problems when you need to do.
Successful project managers recognize that risk management is important, because achieving
a project’s goals depends on planning, preparation, results and evaluation that contribute to
achieving strategic goals.

Planning for Success

Risk management plans contribute to project success by establishing a list of internal and
external risks. This plan typically includes the identified risks, probability of occurrence,
potential impact and proposed actions. Low risk events usually have little or no impact on
cost, schedule or performance. Moderate risk causes some increase in cost, disruption of
schedule or degradation of performance. High risk events are likely to cause a significant
increase in the budget, disruption of the schedule or performance problems.

Communicating with Stakeholders

To ensure that projects run smoothly, effective project managers communicate their plan to
the project sponsors, stakeholders and team members. This sets expectations to people who
provide funding and are affected by the outcomes. It ensures that the project runs smoothly
so one step proceeds to the next without disruption. By identifying, avoiding and dealing
with potential risks in advance, you ensure that your employees can respond effectively
when challenges emerge and require intervention.

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Maximizes Results and Meet Deadlines

By defining risk management processes for your company, you make success more likely
by minimizing and eliminating negative risks so projects can be finished on time. This
enables you to meet your budget and fulfil targeted objectives. When you don’t have risk
management strategies in place, your projects get exposed to problems and become
vulnerable. Effective risk management strategies allow your company to maximize profits
and minimize expenses on activities that don’t produce a return on investment. Through
detailed analysis, effective leaders prioritize ongoing work based on the results produced,
despite the odds.

Be Proactive, Not Reactive

Having a risk management plan in place allow you to be proactive and take steps to
mitigate possible harms before they arise, instead of constantly fire fighting. The project
team can take the risk that have been identified and convert them to actionable steps that
will reduce likelihood. Those steps then become contingency plans that hopefully can be
aside. Should a risk event occur, the contingency plan can be whipped out quickly,
reducing the downtime on a project.

Evaluates the Entire Project

To evaluate your project’s success so you can use the best practices on your next project,
assess the impact of your activities on mitigating exposure to problems and exploiting
opportunities that capitalize on your company’s strengths. For example, if you develop and
deliver a training program that creates awareness about internet security, including
phishing, viruses and identity theft, measure the number of help desk calls received about
these problems. If they go down, you can reasonably assume your risk management
initiatives have contributed to success. If not, revise your training program.

5.4 Steps in the Risk Management Process

To protect a project from unplanned risk, project managers typically follow an ongoing risk
management process which helps them identify, understand, and respond to threats and
opportunities. Before beginning this process, however, it’s important to fully understand your
organization’s practices and how you will conduct your risk work for that project. This plan
then will drive the following steps:

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• Identify the risks that could potentially impact your project.

• Assign ownership of each identified risk to a team member who will be charged with
overseeing that threat or opportunity. Although some project managers prefer to
assign ownership after the risks have been analyzed and prioritized, taking this step
early can be beneficial. “Many times I assign an owner to the risk very early on
because I want that person to drive the analysis of the risk,” Emerson notes.
• Analyze each risk to fully understand the driving factors involved and potential
impacts. Be sure to consider the breadth and depth of each threat at this stage in order
to evaluate the severity of each risk in the context of the overall project.
• Prioritize project risks according to urgency and the severity of the impact they could
cause.
• Respond to your identified risks in accordance with your risk management approach,
either by taking steps to prevent the risk event from occurring or to minimize the
impact if it does occur. This step should include building the response as well as
taking action.
• Monitor your risk management strategy and make changes as needed.
Although there are clear steps in the risk management process, this should ideally be an
ongoing effort. After all, the nature of risk is inherently unpredictable, and project managers
need to have the agility and discipline to continuously adapt to changes throughout a given
project.

5.5 Risk Identification

Some degree of risk always exists in project, technical, test, logistics, production, and
engineering areas. Project risks include cost, funding, schedule, contract relationships, and
political risks. (Cost and schedule risks are often so fundamental to a project that they may be
treated as stand-alone risk categories.) Technical risks, such as related to engineering and
technology, may involve the risk of meeting a performance requirement, but may also
involve risks in the feasibility of a design concept or the risks associated with using state-of
the- art equipment or software. Production risk includes concerns over packaging,
manufacturing, lead times, and material availability. Support risks include maintainability,
operability, and trainability concerns.4 The understanding of risks in these and other areas
evolves over time. Consequently, risk identification must continue through all project phases.
The methods for identifying risk are numerous. Common practice is to classify project risk
according to its source, either objective or subjective.
● Objective sources: Recorded experience from past projects and the current project as it
proceeds

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● Lessons learned files

● Program documentation evaluations
● Current performance data
● Subjective sources: Experiences based upon knowledgeable experts
● Interviews and other data from subject matter experts

Any source of information that allows recognition of a potential problem can be used for risk
identification. These include, but are not limited to
● Systems engineering documentation
● Life-cycle cost analysis
● Plan/WBS decomposition
● Schedule analysis
● Baseline cost estimates

● Requirements documents
● Lessons learned files
● Assumption analysis
● Trade studies/analyses
● Technical performance measurement (TPM) planning/analysis
● Models (influence diagrams)
● Decision drivers
● Brainstorming
● Expert judgment

Expert judgment techniques are applicable not only for risk identification, but also for
forecasting and decision-making. Two expert judgment techniques are the Delphi method and
the nominal group technique. The Delphi method has the following general steps:
● Step 1: A panel of experts is selected from both inside and outside the organization. The
experts do not interact on a face-to-face basis and may not even know who else sits on the
panel.
● Step 2: Each expert is asked to make an anonymous prediction on a particular subject.
● Step 3: Each expert receives a composite feedback of the entire panel’s answers and is
asked to make new predictions based upon the feedback. The process is then repeated as
necessary.

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Closely related to the Delphi method is the nominal group technique, which allows for face-
to-face contact and direct communication. The steps in the nominal group technique are as
follows:
● Step 1: A panel is convened and asked to generate ideas in writing.
● Step 2: The ideas are listed on a board or a flip chart. Each idea is discussed among
the panelists.
● Step 3: Each panelist prioritizes the ideas, which are then ranked mathematically.
Steps 2 and 3 may be repeated as necessary.
Expert judgment techniques have the potential for bias in risk identification and analysis.
Factors that can introduce a bias include:
● Overconfidence in one’s ability
● Insensitivity to the problem or risk
● Proximity to project
● Motivation
● Recent event recall
● Availability of time
● Relationship with other experts
There exist numerous ways to classify risks. In a simple business context, risk can be defined
as:
● Business risk
● Insurable risk
Business risks provide us with opportunities of profit and loss. Examples of business risk
would be competitor activities, bad weather, inflation, recession, customer response, and
availability of resources. Insurable risks provide us with only a chance for a loss. Insurable
risks include such elements as:
● Direct property damage: This includes insurance for assets such as fire insurance, collision
insurance, and insurance for project materials, equipment, and properties.
● Indirect consequential loss: This includes protection for contractors for indirect losses due
to third-party actions, such as equipment replacement and debris removal.
● Legal liability: This is protection for legal liability resulting from poor product design,
design errors, product liability, and project performance failure. This does not include
protection from loss of goodwill.

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● Personnel: This provides protection resulting from employee bodily injury (worker’s
compensation), loss of key employees, replacement cost of key employees, and several other
types of business losses due to employee actions.
On construction projects, the owner/customer usually provides “wrap-up” or “bundle”
insurance, which bundles the owner, contractor, and subcontractors into one insurable
package. The contractor may be given the responsibility to provide the bundled package, but
it is still paid for by the owner/customer.
The Project Management Institute categorizes risks as follows:
● External–unpredictable: Government regulations, natural hazards, and acts of God
● External–predictable: Cost of money, borrowing rates, raw material availability
The external risks are outside of the project manager’s control but may affect the direction
of the project.
● Internal (nontechnical): Labor stoppages, cash flow problems, safety issues,
health and benefit plans
The internal risks may be within the control of the project manager and present uncertainty
that may affect the project.
● Technical: Changes in technology, changes in state of the art, design issues,
operations/maintenance issues
Technical risks relate to the utilization of technology and the impact it has on the direction
of the project.
● Legal: Licenses, patent rights, lawsuits, subcontractor performance, contractual
failure
To identify risk issues, evaluators should break down program elements to a level where they
can perform valid assessments. The information necessary to do this varies according to the
phase of the program. During the early phases, requirement and scope documents, and
acquisition plans may be the only program-specific data available. They should be evaluated
to identify issues that may have adverse consequences.
Another method of decomposition is to create a Work Breakdown Structure (WBS) as early
as possible in a program, and use this to evaluate potential candidate risk categories
against candidate system or lower level designs. To use this approach, each element at level
three of the WBS is further broken down to the fourth or fifth level and evaluated for
candidate risk issues.
Another approach is to evaluate risk associated with some key processes (e.g., design and
manufacturing) that will exist on a project. Information on this approach is contained in the

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government DoD directive 4245.7-M, which provides a standard structure for identifying
technical risk areas in the transition from development to production. The structure is geared
toward programs that are mid-to-late in the development phase but, with modifications, could
be used for other projects. The directive identifies a template for each major technical
activity. Each template identifies potential areas of risk. Overlaying each template on a
project allows identification of mismatched areas, which are then identified as “at risk,” and
thus candidate risk issues. The value in each of these approaches to risk identification lies in
the methodical nature of the approach, which forces disciplined, consistent evaluation of risk
issues. However, using any method in a “cookbook” manner may cause unique risk aspects of
the project to be overlooked, and the project manager must review the strengths and
weaknesses of the approach and identify other factors that may introduce technical, schedule,
cost, program, or other risks.

5.6 Risk Analysis

Risk Analysis and Management is a key project management practice to ensure that the least
number of surprises occur while your project is underway. While we can never predict the
future with certainty, we can apply a simple and streamlined risk management process to
predict the uncertainties in the projects and minimize the occurrence or impact of these
uncertainties. This improves the chance of successful project completion and reduces the
consequences of those risks.

Project team members at various levels identify and handle risks in different flavours.
However, this will be ineffective without a structured risk management framework, as this
leads to:

• Incomplete impact evaluation, leading to loss of:

• Knowledge of the overall impact on the project objectives, like scope, time, cost, and
quality
• Identification of secondary or new risks arising from the already identified risks
• Lack of transparency and a communication gap within and outside the team

Thus, it is very important for any project organization to set up an effective risk management
framework. Instituting such a practice as a project team culture ensures:

• Conscious and focused risk identification and management

• Project progress as desired, with the least amount of deviations or surprise, and in line
with project and organizational objectives
• Early and effective communication of project issues to organization and project
stakeholders
• An effective team building tool, as team buy-in and acceptance is assured

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Figure shows that risk management is an iterative process and each facet of risk management
should be planned and followed during each phase of the project.

The risk management framework followed at Nokia Siemens Networks provides guidelines
for:

• Continuous risk identification

• Risk evaluation
• Risk mitigation and contingency measure definition
• Risk monitoring and control
• Risk identification efficiency measurement
The risk management framework also provides templates and tools, such as:

• A risk register for each project to track the risks and issues identified
• A risk checklist, which is a guideline to identify risks based on the project life
cycle phases
• A risk repository, which is all the risks identified across projects so far

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5.7 Reducing Risk

Activities designed to reduce project risks are an integral part of project management. One of
the biggest hurdles to overcome in terms of risks in project management is identifying the
risks in the first place! Sometimes it is impossible to know in advance about certain types of
risks. For example, if your project involves cutting-edge innovative technology, then
predicting the possible risks is taking a shot in the dark.
But, there are also some risks that are common across many projects or risks that certain team
members may be aware of, but don't communicate to project managers or project leaders.
One way to reduce risks is to gather as much information as possible that might help you
identify possible risks. This can be done through tried and tested methods such as brain-
storming, story-boarding or interviewing individuals from all parts of operations related to a
particular project. Working through a structured project plan template will also help you to
map out potential risks, as it will encourage you to strategically approach and analyse the
project each step of the process.
Once you have documented the identifiable risks, you will be in a much better position to
prevent them or mitigate them; and if you manage those well then any unforeseen risks are
likely to have a lesser impact on the overall project. There are 4 essential steps to reducing
risk: documenting, prioritising, avoiding and mitigating.

Documenting

Document each risk in detail, including their potential impacts and possible responses to
mitigate the risk. Then, assign a team member to monitor each risk as your project
progresses. Keep this risk log updated throughout the project.

Prioritizing

Prioritization of risks should rely on a combination of how likely the risk is to occur and its
effect on the project's schedule or budget. Cleary, certain risks may be very unlikely to occur
but could have an extremely serious effect on budget, schedule or even on your ability to
complete the project. Others may be very likely to occur but require no more response than
dipping into a contingency fund to resolve the issue.

Avoiding

Once compiled, the detailed and prioritised list of all the known risks needs to be
communicated to the team members, stakeholders and anyone else involved in the project. By

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doing, this you will enable your team to work towards avoiding these risks – if a team is not
made aware of what could go wrong, how can they work to avoid it?
It is impossible to avoid unknown risks, and more effective to concentrate your efforts on the
known risks associated with your project.

Mitigating

Before any potential risks have occurred it will benefit the process to consider what the best
solution to the problem would be, should it occur. You can also decide for each individual
risk whether to try and implement the solution, if resources allow, or simply accept there is a
problem but defer any solution to a later date – possibly after the final product has been
delivered – depending on the severity of the problem. If the decision is to resolve the problem
then ensure the solution is fully implemented otherwise you will have just wasted your time.
Effectively managing risk, as already mentioned, is part of a project manager's role and helps
ensure more successful projects. However, risk management should never be such an
onerous task that it takes significant resources away from the other aspects of project
management.

Steps to Reduce and Manage Risk

While it is impossible to completely eliminate risk, there are steps that project managers can
take to effectively manage projects while reducing the amount of risk. Here are four tips to
get started:

1. Create a risk management plan

Anyone that has experience in project management knows how essential a strong project
plan is to the success of the endeavour. There are many ancillary plans that are often
encompassed in this plan, including the risk management plan.

According to Emerson, your risk management plan should define your methodology for
identifying and prioritizing risk, your risk tolerance, how your team will respond to risk, how
you will communicate risk, etc. Developing such a plan takes time and effort, but investing in
the planning phase often pays off by creating a roadmap that will guide your team throughout
the execution phase of your project.

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2. Keep your risk register up to date

Your risk register, which can either be combined with your risk management plan or a
separate document, is a list of all possible risk events that have the potential to impact your
project. Having this document will help you stay on top of potential issues, but it is important
that you keep it current so that you always have an accurate snapshot to refer to.

Use your risk register to keep track of what risk events occurred, how your team responded,
and which new risks have surfaced which you were unable to detect initially. By keeping this
document up to date and ensuring that it is integrative with other planning deliverables, you,
your team members, and other key stakeholders will always have a clear picture of the state
of the project.

3. Understand the risk event

A common mistake in risk management is the tendency for people to think about risk in terms
of the possible outcomes rather than the risk event itself. For example, people sometimes
identify “missing the deadline” as a risk to their project. While missing the deadline is
certainly a threat to the project, this isn’t actually the risk, but rather the impact.

Instead, consider risk in the following format: Due to X, Y may occur, causing Z impact.
Doing so will help you understand the root of the risk, the risk event, and how you should
address it.

4. Be proactive instead of reactive

Project managers can sometimes make the mistake of taking a reactive approach to risk
management rather than a proactive approach. It will always be necessary to have the agility
to react when an unplanned event occurs, but it is also important to take a step back and view
your project through a proactive lens.

By investing time in the early stages of the risk management process and fully analyzing each
risk, you can prepare yourself to take preventative steps that reduce the probability of the risk
event occurring, rather than trying to respond once it has already happened.

5. Develop your project management skills

Above all, effectively managing projects and their risks requires a strong foundation
of project management skills. In addition to practicing, staying up to date with industry

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trends, and attending conferences and workshops, one of the best ways to refine these skills is
to earn a certificate or graduate degree in project management.

Those who are faced with the opportunity to oversee a project but lack formal training stand
to benefit substantially from project management education; however, those who are already
working in the field can also benefit by honing their craft.

5.8 Trello

Trello is a kanban-based task management and collaboration tool that works for any project
or team. Content teams, marketing projects, customer support tracking, sales funnels, HR
tracking and agile project management all are included in it.
Trello's most unique feature is its board and card structure, which divides projects into
boards, each of which has a card for each task. The cards, on the other hand, has feature
tracking lists that prioritise particular assignments and allow us to keep track of the status of
our tasks and employees.
Trello, in general, brings together a variety of project management and collaboration services,
giving employees a private channel to interact, track updates and debate projects in real time.

Trello is a perfect fit for most projects as long as our needs are really not financial in nature,
as it doesn't include any budgeting or invoicing capabilities.

In fact, all team members are aware of system changes with a single click, with an alert
appearing on their device as well as to their email account. They may also add additional
participants to the chat with a single click. A distinctive aspect is the fast voting mechanism,
which allows employees to accept or disapprove of a project and take action in a fraction of a
second. In our Trello evaluations, we go through the software's features, cost and more.
Trello is the most user-friendly project management software on the market, given its feature
set and the amount of convenience built into its design.
Trello was one of the first project management tools that is ease to use and wide list of
capabilities available in the free version.
Trello Features
Trello has following features:
• Detailed and quick overviews of front/ back cards. • Easy, drag-and-drop Editing

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• In-line editing
• Easy organization with labeling, tags and comments
• Card records archive
• Easy upload (Local devices, Dropbox, Google drive and box)
• File attachment
• Deadline alerts and notifications
• Automated email notifications.
• Activity logs
• Individual/group task assignment
• Information backup
• Voting options
• Discussions

Benefits of Trello Management tool

1. Board and card system is well-organized
Trello's developers tried searching for the most simple and user-friendly workflow
organization method and they discovered their unique board and card system for detailed
progress views. There is less chance of confusion with a board for each project and a card for
each work, as all assignments are in sequence and can be tracked with individual
performance lists.
2. Smooth editing
Trello's goal is to keep our project management structured, therefore it ensures that we may
edit task lists in order, using the most basic drag and drop technique available. Because the
lists are totally adjustable, we may track only the metrics that matter to us, and utilise the
automated notifications to stay up to date on all changes and updates
3.Collaboration
Many experts would argue that Trello is above all a collaboration system, a daim easily
justified by the number of team features available in the system using it, we can enable our
entire team to participate in important discussions (both group meetings and one-to-one chat
sessions), send diatribes and notes, share files of all formats, and comment on individual
tasks and assignments. We can also upload files directly from our Dropbox, Box, or Google
Drive accounts using this system.
4.Timelines that are reasonable

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The power-up calendar in trello can be used to priorities projects with shorter deadlines,
assign operations at the last minute and display them according on their status. However, we
are not required to use this feature, we can use our current calendar software to activate the
iCal feed and import tasks that have already been assigned.
5.Searchable database
Trello ensures that all essential talks and company data are attractively saved in the system
for future use, as well as backed up in the case of a crisis or failure. There are a number of
labels and searching filters available to assist us in quickly locating the desired file.
6. Security
Trello is built to meet with the highest security requirements and uses a bank-level encryption
method to ensure that our important data never falls into the wrong hands. As the
administrator, we will have the ability to define permissions and decide which boards are
private and accessible only to approved users.
7. Integrations
Trello has public developer APIs, so we may integrate it with almost anythird-party
programme, system, extension, or plugin.
8. Optimization for mobile devices
Trello is a mobile - friendly collaboration system that allows users to access data from
virtually any device, including Android and iOS devices.
Technical Specifications of Trello
Devices supported
• Web-based
• iOS
• Android
• Desktop
Customer types
• Small business
• Medium business
• Enterprise
Support types
• Phone
• Online

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5.9 JIRA
Jira is a highly customizable project management application developed by Atlassian, an
Australian company. Jira's primary concept is that all projects are stored in a centralized
database and each project contains issues that represent tasks that progress through various
stages in team processes. Workflows define the status of our project and the rules that govern
how project tasks progress to different statuses.

Jira is commonly considered as one of the finest project management tools. Jira is an
excellent choice if we need a comprehensive solution for handling both traditional and agile
projects while also having limited requirements for portfolio-level functionality.

Jira was developed with agile methodologies in mind. Agile is the most widely used software
development approach and it follows to the following four principles:

• Individuals and interactions take priority over processes and tools.

• Working software is preferred over extensive documentation.
• Customer participation in contract negotiations
• Responding to change and maintaining to a plan

Atlassian applied these concepts to develop a project management system in which flexibility
and customization are essential components, allowing companies to adapt the tool to their
specific operations.
Agile project management principles are supplemented by the Jira platform. To get the most
out of Jira, use it in conjunction with the agile ceremonies.
Jira software is part of a package of solutions meant to assist teams of all sizes in managing
their workloads. Jira was initially designed as a bug and issue tracker. Jira, on the other hand,
has matured into a strong task management tool for all types of use cases, ranging from
requirements and test case management to agile software development.
JIRA features
JIRA has following features :
• Business project templates
• Issue details
• Notifications

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• Power search
• Product/issue backlog
• 0 Reports and Dashboards.
• Email notifications
• Task / Bug linking
• Boards (Cloud only)

Benefits of JIRA Management tool

Jira has advantages for both co located and remote teams. We may readily. anticipate
deadline challenges with an efficient working environment and improved visibility into
project status. All of the information required by the entire team, including milestones,
updates and reminders, is available in one location.
Jira is still a viable solution for development teams. With the support of the software,
businesses of all sizes and across industries can advance their cause, methodology and
disciplines.
1.Corresponds with plan requirements
• Jira provides tools for users to sketch out the big picture, communicate plans and relate the
larger project roadmap goals to the team's day-to-day work. Teams may scale their efforts to
larger goals, keep track of the big picture, anticipate dependencies and plan with team
capacity in mind.
2. Excellent for mobility
The tool provides a complete view of all user requirements and can generate the necessary
serial data, such as burndown charts, sprint velocity and others. Users can also organize
tickets into sprints and releases while monitoring the team's effort and task assignments.
3. Available integration
The problem and project tracking software connects with a wide range of popular third party
applications. Integration with effectively to the needs and slack, for example, makes it simple
to communicate issues and reply to notifications. The Atlassian Marketplace has over 3,000
apps available to augment the software’s functionalities.
4. For different types of users
Developers, project managers, engineers, managers and other non-tech business professionals
use Jira. Customers from a number of industries use the solution to achieve a variety of aims,
including space travel and the development of future technology.

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5. Highly adaptable
Jira users can create any type of issue. They can adapt workflows to meet the specific needs
of an organization. Tables, forms, timelines, reports and fields can all be created and adjusted
by users.
Technical Specifications of JIRA
Devices supported
• Web-based
• iOS
• Android
• Desktop
Customer types
• Small business
• Medium business
• Enterprise
Support Types
• Phone
• Online

5.10 Asana
Asana is a project management tool that allows we to manage tasks and other projects with a
group of people. In more concrete words, Asana keeps track of who is in charge of the task
and all associated information, such as all required steps, due dates and so on.
One of its distinguishing features is its adaptability, which allows us to choose what type of
work to track and how to use it (more on that point in a moment). The corporation has offered
more options and templates in recent years to provide structure for teams who don't desire
unlimited liberty. In other words, subscribers can use Asana in a completely unique and
customised way or they can use it in a guided way by using the tools and templates that
Asana gives.

This arrangement differs from standard project management software which isdesigned for
project - based work and can only be utilised in a limited number of ways.

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Asana is capable of handling continuous work (bug fixes, maintenance, etc.) and some sorts
of projects, though often more lightweight ones that don't require us to manage dozens of
moving parts with other, concurrent projects.
Project management software, on the other hand, can handle multiple complex projects at
once. Let's say a corporation constructs 50 homes per year. A project management tool can
map out each stage of construction for all of the houses, ensuring that they are completed in
the correct order and that shared equipment and skilled workers are available at the
appropriate times for each stage. The project management tool assists us in rearranging the
schedules for building all 50 houses, as well as the schedules for all the people working on
them, if a piece of machinery or a person is suddenly taken out of action. While Asana can't
quite do that, it can assist us in planning a product launch or a marketing campaign,
Asana is a project and task management platform that automates some of our most time-
consuming communication and collaboration processes.
Asana has the following features:
• Customizable dashboards
• Activity feeds
• Focus mode and individual task lists
• Subtasks assignment
• Prioritization
• Email integration
• Notifications and reminders
• Automated updates
• Project/Task creation o Project permissions
• Searched views
• Tracking
• Customer support
• Multiple workspaces
• Adding followers
• Group discussions
Benefits of the Asana Management Tool
Asana's key advantages are its extensive feature set, customizations and overall usability.
Let's go over the details one by one:

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1.Prioritization and Segmentation of projects

Attention option in Asana is intended to allow the firm to concentrate on productive tasks
while excluding those that do not support its strategy. Even the simplest assignment is
accompanied by a name and deadline once projects are broken down into tasks and subtasks
and its progress is tracked thanks to the Harvest integration. The user can upload a file from
their local device, Dropbox Google Drive or Box for each task.
2.Project history and permissions
Each project task and subtask will be included in the Activity feed, where we may tag both
people and groups who should consume the information. This is a recurring benefit. We can
simply discover jobs using the advanced search filter, and we can even mark them as
favourites to keep them in sight. When it comes to permissions, the system's administrator
will be able to handle them individually for each project.
3.Dashboard that can be customized
Asana provides fully customisable dashboards that show the status of each participant and
track the progress of each task separately. Because it is the first place where modification
notifications appear, the dashboard can also be utilised for group conversations. Leads,
customer inquiries and job applications can all be tracked using the dashboard.
4.A Communication portal
We will definitely like Asana's smart inbox, which allows us to transmit all of our corporate
communication without the need for third-party apps and services. Large corporations like
the fact that crucial project communication is properly preserved and there is no fear of
missing updates, as there would be in a packed email inbox. The portal connects all users,
allowing them to talk one-on-one or in groups, as well as transfer files from their local
devices or Google / Dropbox / Box accounts.
5. Distinctive points of view
When it comes to views, Asana is one of the best options we receive a priority list with
automated notifications, which can be read with a comprehensive search filter to find the
relevant files. Needless to say, we will decide which jobs are the most critical and pending,
ideally by selecting them from the outstanding Asana calendar.
6.Secure storage
Asana recognises that our projects and corporate interactions are sensitive company
information and follows to the highest security requirements to protect them. At the same
time, because it is fully integrated and paired with a variety of services and applications, it
blends into our software infrastructure.

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Technical Specifications of Asana

Devices Supported
• Web-based
• iOS
• Android
• Desktop
Customer Types
• Small business
• Medium business
• Enterprise
Support Types
• Phone
• Online

5.11 Project Finance structure

Project finance is the funding (financing) of long-term infrastructure, industrial projects, and
public services using a non-recourse or limited recourse financial structure. The debt and
equity used to finance the project are paid back from the cash flow generated by the project.

Project financing is a loan structure that relies primarily on the project's cash flow for
repayment, with the project's assets, rights, and interests held as secondary collateral. Project
finance is especially attractive to the private sector because companies can fund major
projects off-balance sheet (OBS).

There are several parties in a project financing depending on the type and the scale of a
project. The most usual parties to a project financing are;

1. Sponsor (typically also an Equity Investor)

2. Lenders (including senior lenders and/or mezzanine)
3. Off-taker(s)
4. Contractor and equipment supplier
5. Operator
6. Financial Advisors
7. Technical Advisors

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8. Legal Advisors
9. Equity Investors
10. Regulatory Agencies
11. Multilateral Agencies / Export Credit Agencies
12. Insurance Providers
13. Hedge providers
Project Finance Structure:

In conclusion, there is not a single definition of project finance, rather it is common to

describe project finance through some distinguishing features, such as the following:

1. The sponsors create a legally independent company, the so-called special purpose vehicle
(SPV) or project company, with a finite life whose only business is the project.

2. There is a high ratio of debt to equity, up to 90% in some cases. The SPV borrows funds
from the lenders and these look to the future cash flows and the assets as collateral to repay
all loans.

3. The future cash flows of the project must be sufficient to fund operating costs and the debt
service, since they are the basic guarantee for raising funds. Usually, project finance assets
involve either a strategic asset with high barriers to entry, or a monopolistic position, or the
certainty of demand and price that comes with a long-term off-take contract or revenue
agreement. As a result, the cash flows are sufficient, stable, and predictable.

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4. Project risks are allocated among all the participants involved in the project. Through a
wide range of commercial and legal issues, the SPV is linked to the numerous participants,
such as, for example, the constructor, the operator, the clients, and the suppliers, in order to
assure the anticipated cost or the future revenue.

5. The lenders have either no recourse or limited recourse to the SPV; in other words, the
lender has only a limited claim if the collateral is not sufficient to repay the debt.

An essential target of project finance is to mitigate risk for sponsors and lenders. There are
several types of risk, such as random sales and supplies (off-take and shortage risk),
construction and completion risk, operating risk, political, legal, and current risk. These risks
should be allocated to the different participants of the project (Beenhakker, 1997). The parties
are the concession authority (either a central/regional government or municipality), the
purchasers, the suppliers, the contractors, and the operators along with lenders and sponsors.
The main participant is the project company or SPV that enters into risk allocation
agreements with the other parties. In this contractual framework, the risk of random sales is
allocated either to a buyer or to a host government (for example, a municipality) interested in

the project. These parties act as guarantors or off-takers through the off-take agreement. The
robustness of project finance is based on these agreements, which assures the return of the
project (Ballestero, 2000b). The rationale of such an agreement relies on the fact that the
guarantor is the best at managing sales risks. The off-take agreement between the project
company and the client plays a central role in most project finance structures. In this
agreement, the client assures a minimum level of sales, paying for the balance if the amount
of sales remains below this minimum level. Another significant agreement is the engineering,
procurement and construction (EPC) contract, in which the project will be designed and built
for a fixed price on a fixed date. In a “put-or-pay” contract, the supplier is committed to
purchasing a minimum amount of inputs at a fixed price for a specific period, or to pay for
the shortfall. A project is generally covered by several types of insurances. The coverage of
these insurance policies is related to several kinds of risks, such as force majeure events,
employer liability, contractor insolvency, and delays in obtaining permits. Other
arrangements with the supplier (“supply-or-pay” agreement), the operator (“operating-and-
maintenance” (O&M) agreement), or the government enhance the project (Ballestero et al.,
2004). In above figure, the basic structure of project finance, with some participants and the
corresponding agreements, is represented.

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5.12 Process of Project Financial Management

The purpose of the Financial Management Process is to record actual financials (or expenses)
which accrue during a project's lifecycle. Project financials are formally documented through
the completion of the Project Expense Form.

The following diagram depicts an overview of the Project Financial Management Process,
including the roles, processes and procedures to be undertaken in this process

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Project Financial Management Process

Project Manager/ Budget

The project
budget has been
Sponsor Plannning approved by the
Project Sponsor

The Financial
Expense form is
created

Incoming
Document expenses are
Expenses documented
Project Manager/Project Administrator

If the expense was

not planned,
Planned or
approval is
unplanned
needed from the
expense?
Project Sponsor
for payment

If planned,
process for
Track Expenses payment and
track expenses on
the Financial
Expense Form

Update the
Project Plan

Finalize and Project completed

Project Manager/

on budget?
Close Budget
Sponsor

No
Yes

Finalize all
expenses and
close budget.
Submit final Notify the
expense report to Project Sponsor
Project Sponsor of any exceptions
for signoff

Budget Planning

Budget Planning involves documenting planned financial project information expected to

occur during the project. To properly develop a sound project budget, the Project Manager

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and Project Sponsor should outline the known project activities that will need to occur and
estimate their cost, keeping in mind time constraints and other dependencies that may impact
the cost of the budget. An initial Financial Expense Form is created and approved by the
Project Sponsor.

Document Expenses

After the Financial Expense form is approved and the project is underway, the Project
Manager and/or Project Administrator should begin to track all expenses on a regular,
preferably weekly basis.
During this process, the Project Manager must confirm that:
• The tasks for which the expense occurred are valid (as per the Project Plan)
• The expense was originally budgeted (as defined in the approved budget)
• Any unbudgeted expenditure is fair and reasonable before forwarding to the Project
Sponsor for approval (if above a certain agreed upon limit)
Based on the above information, the Project Manager will:
• Approve the expense and process it for payment or
• Request further information from the person submitting the expense or
• Decline the expense and raise an issue with the person submitting the expense.
Following formal approval of the expense by the Project Manager, payment will be
scheduled. It is typical to pay expenses in ‘batches’ to reduce the administrative workload in
making expense payments and more effectively manage project cash-flow.

Track Expenses

This process involves updating the Financial Expense Form and Project Plan with relevant
information and notifying the Project Sponsor of any budget vs. actual expense exceptions.
The following procedures are undertaken:

Update Financial Expense Form

After the payment has been scheduled, the Financial Expense Form should be updated to
ensure that an accurate record of the approval and payment is documented. Although the
form must be revised after the expense has been approved, it should also be updated
throughout the process to ensure that the Project Manager always has current expense
information at all phases of the project lifecycle.

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Update Project Plan

On a regular basis (typically weekly) the Project Plan is updated, with the total expenditure
recorded against each project task as listed within the Financial Expense Form. This enables
the Project Manager or Administrator to:

• Produce a view of the overall financial of the project to date

• Identify any exceptions (e.g. instances where the actual expenditure exceeds the
planned expenditure)
• Note if the time frame of a task will be impacted while waiting for an expenditure
approval or payment
Notify Project Sponsor of Exception
The Project Manager should identify any expenditure deviations to date. Based on the
deviation from the plan, the Project Manager may:
• Change the individual / amount of resource allocated to a task
• Allocate additional funds to complete a task
• Request assistance from an external supplier to complete the task
• Raise a project issue for action by the Project Board / Sponsor. ©
Mark Task as Complete
Once each task is completed, the respective task within the Project Plan is marked as 100%
complete and no further expenditure may be allocated to the task for the duration of the
project.

Finalize and Close Budget

After ensuring that all project expenses have been paid for and no other tasks/expenditures
remain outstanding, the Project Manager or Administrator should issue a final Financial
Expense Form to the Project Sponsor for approval. Once approved, this information should
be included in the Project Closure Report for project historical purposes.

5.13 Planning the Project Finance

Financial knowledge has always been a crucial part of successful project management.
Whether it’s healthcare, automotive, or services industry, it’s always necessary to keep track
of all the financial streams that flow through the company. If we are going to implement

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a new project, it is even more important to estimate these financial streams. Errors in the
“planning phase” could eventually cause implementation of a project that is not profitable
from its beginning. The management of financial flows in the loss-making project will no
longer help any more, and we are just monitoring the impending financial catastrophe.

So what do we do to successfully master the planning phase? First of all, it is essential for
the project manager to understand the industry, both operationally and financially. The
knowledge of the operation is gained by doing the job itself, but the knowledge of corporate
(project) finance requires the following: learn the basic terminology (which is transferable
to any sector), understand the financial statements and be able to plan financial flows. It
is important to understand the differences between revenues and incomes and costs and
expenses. But the biggest work comes with the analysis of financial statements and the
searching for links between numbers and real world. This is especially about the sentiment
and time we invest in.

Financial planning of a “comparable” project

If we operate in “traditional industries” such as wholesale, banking, or logistics, there are

countless information sources where we can find industry-specific financial indicators. In
addition, we can use, for example, a business register where financial statements of specific
companies can be obtained for free. Here we can read the data on turnover, wages, or profits
after tax, and you can get a detailed idea of how the company works. From financial
statements (balance sheets and profit and loss accounts), we can further calculate indicators
such as ROA, ROE, EBITDA, and various levels of liquidity and debt.

So, if you are going to implement a project or set up a business company in some traditional
industries, these publicly available data can make it easier for you – setting out the profit
margins and the percentage of your costs, and you just slightly “refine” your plans.

Financial Planning Project on “Green Meadow”

However, if you are going to implement a project that is specific and you do not have any
financial data available for a similar project, you have the only option – to model these
financial statements and cash flows by yourself. At this stage, it is crucial for the project
manager (and for the project itself) to avoid overestimation of project revenue and

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undervaluation of project costs. It is necessary to understand deeply all the costs and their
breakdown. Financial accounting uses a different cost division in contrast with cost
accounting which is tracked by project managers and executives.

For the successful completion of the financial plan, it is therefore essential to capture all the
associated costs and revenues that the project will generate over its useful life. It is common
for managers to underestimate or forget to include some costs. In order to avoid this problem,
there are several methods.

The Top-down method (picture below) is one of the ways to identify project costs: We move
from top to bottom, and the total cost of the project is then divided into lower-level activities.
This “mental map” will help us think about project costs in a structured way, but it cannot be
used to further planning of financial flows. This is traditionally done by MS Excel.

Top-down method

The bottom-up approach is the alternative to the top-down approach, and this refers to
figuring out what every part of the project will cost, and then adding it up to determine the
total.
• If a customer approaches you to re-build a parking lot, and asks for a quote,
you could use a bottom-up approach. You would consider everything that is
necessary for the project, and then determine the total cost.
• In this case, you determine the cost of the project by figuring out what every
piece will cost and then calculating a total. In the top-down approach, the

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cost is determined by available resources, and you must work within those
limits.

5.14 Arranging the financial package

Financial Package refers to the financing package that includes all financial assistance
specified in the financing agreements and subordinated Debt, if any, as well as the total
capital cost of the project and the means of financing it, as set forth in the financial model and
approved by the senior leaders.
Some projects have a large budget and require careful planning and tracking. Some projects
do not have a budget part. Consider the following simple measures for arranging project
finances :

1. Estimate costs

• Predicting costs is the first step in handling our project's budget. This is not as easy as it
appears. We will need to figure out how many people, equipment, materials and other assets
we will need to finish the task.

• The next step is to calculate the costs of these resources and when they will be consumed.

2. Set the budget

• Estimating expenses is not the same as setting a budget. According to our company's
financial standards, the budget shows how capital is allocated. • The budget reveals when
funds are assigned to our project, provides spending reports, allocates capital vs. expense
money and so on. We must keep track of project costs in accordance with the budget.

3. Decide if we can get contingency funding

Estimates for projects are not always correct. A contingency is a term that describes an
estimation that is irregular. This estimation uncertainty is represented by a contingency
budget.

For example, if we estimate our project to be worth 10,00,000 with a 90 % confidence level,
we could request 1,00,000 lac in contingency funding to account ₹ for the uncertainty. This
1,00,000 are not used risk or different target appeals, but they could be if it turns out that we
miscalculated the amount of work on our project.

Emergency budgets are not permitted in all organisations. If we don't have this kind of budget
flexibility, we can include the uncertainty in our baseline estimate through contingency
funding.

4. Track weekly

The next stage is to start keeping track of our design expenses. Every expense - both human
and physical resources - must be tracked. This may be a typical procedure, but it should be
reviewed by our accounting system on a regular basis. Request that our staff create

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expenditure forms and send them to us. When they pay money on Aunt of the project, they
may ask for our permission.

We must approve the large sum of money before they are discovered so that we may better
control project expenses.

The term "cash flow control" refers to the process of managing the funds required to design.
Make that our Sponsor has budgeted for the following 1-2 months of work and has made the
necessary reserves available to handle the project. Then keep track of how those money are
spent each week.
5.Manage expectations
Communicate the current situation of our spending as well as our budgeted spending. If we
are on the verge of going over or under budget, make sure you keep expectations realistic so
there are no unexpected consequences.
Cost control for a project might be difficult. If the project manager does not keep track of the
cash, it becomes even more difficult. So, the manager should periodically observe the
expectations in accordance to the expenses.
Thus, a financial packages are the total calculated costs that are needed to fulfil a project
within a limited period of time. So it is used to arrange and monitor the estimate costs of the
work for every stage of the project.

5.15 Controlling the Financial Package

The systems, policies and methods through which an organization monitors and regulates the
direction, allocation and use of its financial resources are known as controlling of financial
packages. Controlling of financial packages are the heart of any resource management
organization and improves operational efficiency.
After a careful examination of a company's current policies and future prospects, efficient
financial packages control procedures should be implemented.
Before implementing financial management in a corporation, it's also essential to make sure
the following four stages are completed:

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1. Detecting irregularities and overlaps

Financial budgets, financial reports, profit and loss statements, balance sheets, and other
financial documents show the performance of the company and operational overview. As a
result, detecting any overlaps and irregularities resulting from the data available is important
when creating financial control measures. It aids in the detection and elimination of any
existing gaps in the current management system.
2. Timely updating
Financial control is the essence of resource management and, hence, the overall operational
efficiency and profitability of a business. Timely updates of all available data are very
important. In addition, updating all management practices and policies concerning the
existing financial control methods is also equally important.

3. Analyzing all possible operational scenarios

Before implementing a fixed financial control strategy in an organization, it is important to

thoroughly evaluate all possible operational scenarios. Viewing the policies from the
perspectives of different operational scenarios – such as profitability, expenditures, safety,
and scale of production or volume – can provide the necessary information. Also, it helps
establish an effective financial control policy that covers all operational aspects of the
organization.

4. Forecasting and making projections

While implementing a financial control policy, forecasting and making projections are very
important steps. They provide an insight into the future goals and objectives of the business.
In addition, they can help establish a financial control policy in accordance with the business
objectives and act as a catalyst in achieving such goals.

5.16 Controlling Financial Risk

A financial risk is anything that has to do with money flowing in and out of the business.
Controlling of financial risk is the process of identifying and addressing financial hazards that
our company may face now or in the future. It's not about avoiding risks because few
organizations can afford to be completely risk - free. It's more about putting a distinct line.
The goal is to figure out what risks we are willing to face, which dangers we need to avoid
and how you will design a action to protect.

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The plan of action is the most important aspect of any financial risk control strategy These
are the methods, rules and practice that our company will follow to guarantee that it does not
take on more risk than it can handle. In other words, the strategy will make it plain to
employees what they can and cannot do, what choices need to be escalated and who is
ultimately responsible for any risk that arises.
Financial risk is control in a variety of ways by businesses. This procedure is dependent on
the type of business, the market it serves and the level of risk it is willing to take. In this
view, it is the responsibility of the firm's owner and directors to identify and analyze risk and
determine how the company will manage it. The following are some of the steps involved in
controlling the financial risk:
A) identifying the exposure of risk
Identifying financial hazards, as well as their sources or causes, is the first step in controlling
of financial risk .The balance sheet of the company is an excellent place to start. This gives
an overview of the company's debt, liquidity, foreign exchange exposure, interest rate risk,
and commodity price sensitivity. We should also look at the income statement and the cash
flow statement to observe how income and cash flows change over time and how it affects
the risk profile of the company.
B) Calculating the exposure
The next stage is to quantify or assign a monetary value to the hazards we've identified. Of
course, risk is unpredictably unpredictable and placing a precise number on risk exposure will
never be possible. Analysts frequently employ statistical models such as the standard
deviation and regression approach to assess a company's risk exposure. These tools calculate
the difference between our data points and the average or mean.
Excel, a spreadsheet programme, may assist small firms in doing simple analyses in a quick
and precise manner. The bigger the standard deviation, the greater the risk associated with the
data point or cash flow being quantified.

C) Choosing a "hedging" strategy

• Once we have examined the risk sources, we will need to select how we will use
theknowledge. Are we willing to take the risk? Is there anything we can do to reduce or
hedge against it? This decision is based on a number of criteria, including the company's
goals, its business environment, its risk appetite and whether the cost of risk mitigation
justifies the risk reduction.

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Apart from these above steps, the following action steps also essential to control the financial
risk:
1. Fixing interest rates on loans so that our financing costs are more predictable.
2. Lowering the volatility of cash flow.
3. Keeping track of running costs.

4. Keeping track of our payment terms.

5. Establishing strict billing and credit control procedures.

6. Saying goodbye to consumers that consistently violate our credit restrictions

7. Recognize our commodity price exposure, or how vulnerable we are to changes in the
price of raw materials. For example, a rise in oil prices, might increase costs and diminish
profitability in the haulage industry. To limit the risk of fraud, ensure that the correct
personnel are assigned to the

8. proper jobs with the appropriate level of supervision.

9.Conducting due diligence on projects, such as analysing the risks of joining a partnership or
joint venture.

Thus, Controlling Financial Risk is a tedious task to the entrepreneur accomplished by the
project manager

5.17 Options Models

"Options are derivative contracts that allow the holder the right but not the obligation to
purchase or sell the underlying instrument at a predetermined price on or before a specified
future date, according to the definition.

To determine a current theoretical value, option traders typically use a variety of option price
models. To compute the theoretical value for a certain option at a given moment in time,
Option price models use some fixed knowns in the present (elements such as underlying
price, strike and days till expiration) as well as forecasts (or assumptions) for factors such as
implied volatility. Variables will change over the course of the option's life and the
theoretical value of the option position will adjust to reflect these changes.

Option pricing models are mathematical models that compute the potential value of an option
based on a set of variables. An option's theoretical value is an estimate of what it should be
worth based on all known inputs. To put it another way, option pricing models tell us how
much an option is worth. Finance experts could change their trading strategies and portfolios

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based on an estimate of an option's fair value. As a result, option pricing models are effective
tools for finance professionals who trade options.

An option, according to its formal definition, is a sort of contract between two parties that
gives one party the right but not the duty to buy or sell the underlying asset at a fixed price
before or on the expiration date. Calls and puts are the two main forms of options.

1. A call option offers we the right, but not the responsibility, to purchase the underlying
asset at a fixed price before or on the expiration date.

2. A put option gives us the right but not the responsibility to sell the underlying asset at a
fixed price before or on the expiration date.

Options can also be categorized based on how long they take to exercise:
A. European style options can only be used until they expire
B. American style options can be used at any time between the time of purchase and the
date of expiration.
The above mentioned option classification is critical because the option pricing model we
choose will be influenced by whether we choose European style or American-style options

The binomial option pricing model

• A binomial option pricing model is the simplest way to price the options. The assumption of
fully efficient markets is used in this model. The model may price the option at each point in
a specified time period based on this assumption.
• The binomial model assumes that the price of the underlying asset will either rise or fall
over time. We may compute the payout of an option under these scenarios using the
underlying asset's various prices and the strike price of an option, then discount these payoffs
to obtain the option's current value.
Binomial tree for two period

Project Management Milind P Gajare