Lecture 2: Project InitiationPhase 1: Planning

Dr. Taysir Hassan Abdel Hamid

Outline

• The project sponsor is a key person who identifies business value to be gained from using information technology.

• The approval committee reviews system requests from groups throughout the organization and selects projects for the benefit of the business.

How do Projects Begin ?

• Business needs should drive projects.

• Project sponsor recognizes business need for new system and desires to see it implemented.

• Business needs determine the system’s functionality (what it will do).

• The project’s business value should be clear.

System Request• A document describing business reasons for project

and system’s expected value.• Lists project’s key elements

– Project sponsor – the person who has an interest in seeing the system succeed, usually the person who initiated the project.

– Business need – why the information system should be built.

– Business requirements – what the information system will do.

– Business value – the expected value from the system

– Special issues or constraints – Any circumstances affecting the project

System Request Template

• Project Name:• Project Sponsor: • Name: • Department:• Organization:• Phone: E-mail:• Business Need: • Functionality: • Expected Value: • Tangible:• Intangible:• Special Issues or Constraints:

Example

• A Multimedia company, located in Assiut (AssuitMult). Annual sales last year was 200,000 L.E. and they are growing every year by a 3% to 5% for the past few years.

• Background: Eng. Osama Omar, vice president of marketing, has recently become both excited and concerned with the rise of Internet sites selling CDs. The Internet has the potential to enable AssiutMult to reach beyond its regional focus and increase sales internationally.

Example (Cont.)

• AssuitMult currently has a simple web page that provides information about the company and about its stores that has opened.

• System Request: At AssiutMult, new IS projects are reviewed and approved by IS steering committee that meets monthly.

System Request Examples

• Project sponsor – VP of Marketing• Business need – Reach new customers and improve

service to existing customers• Business requirements – Provide web-based shopping

capability• Business value – 400,000 in new customer sales;

300,000 in existing customer sales• Special issues or constraints – System must be

operational by holiday shopping season

System Request Example (how to fill in the template)

• Project Name: Internet Sales • Project Sponsor: Vice President of Marketing Name: Osama Omar Department: Marketing Phone: 555-3243 E-mail: omar@yahoo.com• Business Need: To increase sales by reaching a new market: Internet

customers • Functionality: Receive immediate credit approval Search through a product Place an order on one or more products • Expected Value: • Tangible: 300,000 L.E. increase in annual sales• Intangible: Improved customer satisfaction Improved recognition of AssiutMult brand name • Special Issues or Constraints: The system must be in place within the next 3 months

Preliminary Project Acceptance

• System request is reviewed by approval committee

• Based on information provided, project merits are assessed.

• Worthy projects are accepted and undergo additional investigation – the feasibility analysis.

Your Turn

• If you were building a web-based system for course registration,– What is the business need?– What would be the business requirements?– What would be the business value (tangible and

intangible)?– What special issues or constraints would you

foresee?

FEASIBILITY ANALYSISFEASIBILITY ANALYSIS

Feasibility Analysis

• Detailed business case for the project:a. Technical feasibility

b. Economic feasibility

c. Organizational feasibility

• Compiled into a feasibility study

• Feasibility is reassessed throughout the project

a. Technical Feasibility:Can We Build It?

• Users’ and analysts’ familiarity with the business application area

• Familiarity with technology– Have we used it before? How new is it?

• Project size– Number of people, time, and features

• Compatibility with existing systems

b. Economic FeasibilityShould We Build It?

• Identify costs and benefits

• Assign values to costs and benefits

• Determine cash flow

• Assess financial viability (Fig. 1-8)– Return on investment (ROI)– Break even point (BEP)– Present Value (PV) – Net present value (NPV)

Assess Financial Viability – Net Present Value

• NPV = PV(future cash inflows) –

PV(future cash outflows)

• PV = Cash flow amount

(1 + interest rate)n ,

where– interest rate = required return– n = number of years in future

Definitions

• Net Present Value - is defined as the difference between the present value project benefit and the value of the present value of the project cost.

• NPV = PV Benefits – PV Costs

• Return on Investment (ROI) - A measure of a corporation's profitability

• ROI = (Total benefits – total costs)/ (Total costs)

Tangible vs. Intangible Costs

• Tangible Costs – Includes revenue that the system enables the organization to collect, such as increased sales.

• Intangible Costs – Are based on intuition and belief rather than “hard numbers.”

Definitions (Cont.)

• Break-even point analysis - The break-even point technique is used in the analysis of the profit

• The purpose of the break-even point analysis is to find out the level of sales (Quantity) or the selling price per unit at which the project will break even

• If the projected sales volume or selling price is higher than the BEP then the project is expected to gain.

Assign Cost and Benefit Values

• Difficult, but essential to estimate• Work with people who are most familiar

with the area to develop estimates• Intangibles should also be quantified• If intangibles cannot be quantified, list and

include as part of supporting material

Determine Cash Flow:Assign Values to Costs and Benefits

– Simple Cash Flow Method

Determine NPV

If NPV >= 0,

Project is OK

If NPV < 0,

Project is unacceptable

ROI Example

ROI

BPE

• BPE = (Yearly Net Cash Flow – Cumulative Net Cash Flow)

Yearly Net Cash Flow

BPE Example

BPE

Assess Financial Viability – Break Even Point

• How long before the project’s returns match the amount invested

• The longer it takes to break even, the higher the project’s risk.

Summary of Economic Feasibility

c. Organizational FeasibilityIf we build it, will they come?

1. Strategic alignment– How well do the project goals align with

business objectives?

2. Stakeholder analysis– Project champion(s)– Organizational management– System users

1. Strategic Alignment • is the fit between the project and business

strategy—

• The greater the alignment, the less risky the project will be, from an organizational feasibility perspective.

• For example, if the marketing department has decided to become more customer focused, then a CRM project that produces integrated customer information would have strong strategic alignment with marketing’s goal.

1. Strategic Alignment (Cont…)

• Many projects fail if the IT department alone initiates them and there is little or no alignment with business unit or organizational strategies.

2. Stakeholder Analysis

• A stakeholder is a person, group, or organization that can affect (or can be affected by) a new system.

• In general, the most important stakeholders in the introduction of a new system are the project champion, system users, and organizational management, but systems sometimes affect other stakeholders as well.

• For example, the IS department can be a stakeholder of a system because IS jobs or roles may be changed significantly after the system’s implementation.

PROJECT SELECTIONPROJECT SELECTION

Project Selection Issues

• Approval committee works from the system request and the feasibility study– Project portfolio – how does the project fit within the

entire portfolio of projects?– Trade-offs must be made to select projects that will

form a balanced project portfolio– Viable projects may be rejected or deferred because

of project portfolio issues.

Summary

• Project initiation involves creating and assessing goals and expectations for a new system

• Identifying the business value of the new project is a key to success

• Feasibility study is concerned with insuring that technical, economic, and organizational benefits outweigh costs and risks

• Project selection involves viewing the project within the context of the entire project portfolio, and selecting those projects that contribute to balance in the portfolio

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