Project Initiation and Project Charter
Domain 3 covers how a project becomes authorised: the proposal and feasibility stage, economic appraisal using net present value and payback, and the charter that formally launches the project and appoints the project manager. Exam items are commonly small financial calculations, questions on what the charter does and does not contain, and questions on who issues it.
From proposal to approval
- The project proposal (项目建议书) argues that the project is worth studying; it precedes detailed feasibility work.
- Feasibility study (可行性研究) proceeds from opportunity study to preliminary study to detailed study. Its dimensions are technical, economic, operational and environmental, organizational, social, and risk.
- Economic appraisal covers financial viability and national economic benefit. Core indicators: net present value (NPV), internal rate of return (IRR), payback period, return on investment, and benefit-cost ratio.
- Decision rule: accept an independent project when NPV > 0 and IRR exceeds the discount rate.
The charter
- Issued by the sponsor or a senior manager above the project manager, not by the project manager.
- Contents: purpose and business case, measurable objectives and success criteria, high-level requirements, high-level scope and boundaries, high-level risks, summary milestone schedule, summary budget, approval requirements, and the named project manager with level of authority.
- It authorises the project and gives the project manager the right to apply organizational resources. It is not a detailed scope baseline and contains no activity list.
- Assumptions and constraints identified during initiation go into the assumption log.
Worked example
A 100万元 investment returns 60万元 per year for three years; the discount rate is 10%. Discounted inflows: 60/1.1 = 54.55; 60/1.21 = 49.59; 60/1.331 = 45.08; total 149.22万元. NPV = 49.22万元 > 0, so accept. Compare a second, smaller project with a higher IRR but an NPV of only 20万元: the exam answer is still the first project, because NPV measures absolute value added and is preferred when scale differs.
Traps that cost marks
- Choosing the higher IRR over the higher NPV when projects differ in size.
- Forgetting that simple payback ignores the time value of money and cash flows after the payback point.
- Writing that the project manager drafts and signs the charter.
- Putting the detailed WBS or activity list inside the charter.
- Confusing a feasibility study with a business case summary only.