3.Pmp Integration v1.2

STEVBROS -‐ Global PMI R.E.P

Chapter 3: Project Integration Management

Stevbros Training and Consultancy

Copyright@STEVBROS1

PMI, PMP and PMBOK are registered marks of the Project Management Institute, Inc.


The key role• The key role of the project manager is to perform integration

• The key role of the project team is to concentrate on completing the project activities

• The key role of the project sponsor is to protect the project team from unnecessary changes and loss of resources

Copyright@STEVBROS2


The key role• The project expediter works as staff assistant and communications coordinator. The expediter cannot personally make or enforce decisions.

• The project coordinators have power to make some decisions, have some authority, and report to a higher-‐level manager.

Copyright@STEVBROS3


Project selection methods

• Discounted cash flow • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback Period • Benefit Cost Ratio (BCR) • Return on Investment (ROI)

Copyright@STEVBROS4


Discounted cash flow

• Present Value (PV): means value today of future cash flows:

PV = FV/(1 + i)n – PV -‐ Present Value to be calculated – FV -‐ Expected Future Cash inflow – i -‐ Notional Interest or Expected Rate of Interest

Copyright@STEVBROS5


Net Present Value• Net Present Value (NPV): present value of the total benefits (income or revenue) less the costs over time period:

NPV = PV1 + PV2+ PV3 .. + PVn -‐ Invested Amount

Copyright@STEVBROS6


Net Present Value• Example: Invested Amount : $500,000 Income Expected (Future Value)-‐ 1 Year : $200,000 Income Expected (Future Value)-‐ 2 Year : $300,000 Income Expected (Future Value)-‐ 3 Year : $100,000 Rate of Interest : 5% per year. Now calculate the PV for every year:

Year Future Value Calculation PV 1 $200,000 200,000/(1 + 0.05) 190,476.2 2 $300,000 300,000/(1 + 0.05)2 272,108.84 3 $100,000 100,000/(1 + 0.05)3 86,383.76

NPV for the project = Total PV -‐ Original Investment = $548,968.8 -‐ $500,000 => So the final NPV is 48,968.8.

Copyright@STEVBROS7


Internal Rate of Return

• Internal Rate of Return (IRR): is the rate of discounting at which the PV of costs match the PV of benefits.

• In other words, it is the rate of return internal to the project and it is the interest rate that makes the NPV zero.

• The company should accept projects where IRR is greater than interest rate and should reject projects where IRR is less than interest rate.

Copyright@STEVBROS8



• Example: Invest $2,000 now, receive 3 yearly payments of $100 each, plus $2,500 in the 3rd year. What is IRR?

Let us try 10% interest: Now: PV = -‐$2,000 Year 1: PV = $100 / 1.10 = $90.91 Year 2: PV = $100 / 1.102 = $82.64 Year 3: PV = $100 / 1.103 + $2,500 / 1.103 = $75.13 + $1,878.29 NPV = -‐$2,000 + $90.91 + $82.64 + $75.13 + $1,878.29 = $126.97 I will take a better guess now, and try a 12% interest rate.

Copyright@STEVBROS9



• Try 12% interest rate Now: PV = -‐$2,000 Year 1: PV = $100 / 1.12 = $89.29 Year 2: PV = $100 / 1.122 = $79.72 Year 3: PV = $100 / 1.123 + $2,500 / 1.123 = $71.18 + $1,779.45 NPV = -‐$2,000 + $89.29 + $79.72 + $71.18 + $1,779.45 = $19.64

• Try 12.4% interest rate Now: PV = -‐$2,000 Year 1: PV = $100 / 1.124 = $88.97 Year 2: PV = $100 / 1.1242 = $79.15 Year 3: PV = $100 / 1.1243 + $2,500 / 1.1243 = $70.42 + $1,760.52 NPV = -‐$2,000 + $88.97 + $79.15 + $70.42 + $1,760.52 = -‐$0.94

Copyright@STEVBROS10



That is good enough! Let us stop there and say the Internal Rate of Return is 12.4%.In a way it is saying "this investment would earn 12.4%" (assuming it all goes according to plan!).



NPV, IRR questionsin PMP exam

• Q: You have two projects to choose from. Project X will take 2 years to complete and has a NPV of $35,000. Project Y will take 5 years to complete and has an NPV of $95,000. Which one will you take up?

A: Project Y, because it has a higher NPV. Don’t get confused with the longer duration of the project. What is important is that the NPV should be greater.

• Q: If you have to choose between Project A with an IRR of 25% or Project B with an IRR of %15. Which one will you take up?

A: Project A. Reason: the IRR of Project A is greater than the one for Project B.



Payback period• Payback period: the number of time periods it takes to recover your investment in the project before your start accumulating profits.

Q: You have 2 projects to choose from. Project A with payback period of 5 months or Project B with a payback period of 12 months. Which one would you go for? A: Project A.



Benefit Cost Ratio

• Benefit Cost Ratio (BCR): the benefit cost ratio compares the present value of benefits to the present value of costs (benefit/cost). A BCR of more than 1 means that the benefits are greater than the cost.

Q: if the BCR of Project A is 2.5 and BCR of Project B is 1.5, which project would you select? A: The answer is Project A



Return on Investment

• Return on Investment (ROI): is the rate of return on the project normalized by the initial investment.

Example: if a project involves an initial investment of $100,000 and on average it results in benefits of $20,000 per year, the ROI is 20,000/100,000 = 20%



Project selection methods

• Net present value: (NPV) – select greatest one

• Internal Rate of Return: (IRR) – select highest one

• Payback period: – select shortest one

• Benefit-‐Cost ratio: (BCR) – select higher one


STEVBROS -‐ Global PMI R.E.P17

• Opportunity Cost: refers to the opportunity given up by selecting one project over another

Question: you have 2 projects to choose from: project A with NPV of 45,000 or project B with an NPV of $85,000. What is the opportunity cost of selecting project B? Answer: $45,000

Terms

Copyright@STEVBROS


• Sunk Costs: are expended costs. Be aware of that accounting standards say that sunk costs should NOT be considered when deciding whether to continue with a troubled project.

Question: you have a project with an initial budget of $1,000,000. You are halfway through the project and have spent $2,000,000. Do you consider the $1,000,000 over budget when determining whether to continue with the project? Answer: No. the money spent is gone.

Terms

Copyright@STEVBROS


• Depreciation: Equipment purchased by a company lose value over time. Accounting standards call this depreciation. – Straight Line Depreciation: the same amount of depreciation is taken each year:

E.g: A $1,000 item with a 10-‐year useful life and no salvage value (how much the item is worth at the end of its life) would be depreciated at $100 per year.

– Accelerated Depreciation: E.g. A $1,000 item with a 10-‐year useful life and no salvage value (how much the item is worth at the end of its life) would be depreciated at $180 the first year, $150 the second, $130 the next, etc.

Terms

Copyright@STEVBROS


Processes Initiating process group

Planning process group

Executing process group

Monitoring & controlling process group

Closing process group

• Develop project charter

• Develop project management plan

• Direct and Manage Project Execution

• Monitor and Control Project Work

• Perform Integrated Change Control

• Close Project or Phase



Develop charter• The process of developing a document that formally authorizes a project or a phase and documenting initial requirements that satisfy the stakeholder's needs and expectations.


(A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK® Guide) ©2013 Project Management Institute, Inc. All Rights Reserved. Figure 4-‐2 Page 66.)

Important ITTOs

• Facilitation techniques • Project charter

22


Facilitation techniques

• Brainstorming, conflict resolution, problem solving, and meeting management are key techniques used by facilitators to help teams and individuals achieve agreement to accomplish project activities.



Project charter•It comprises of:

Project purpose or justification, Measurable project objectives and related success criteria, High-‐level requirements, level project description and boundaries Assumptions and constraints, High-‐level risks, Summary milestone, schedule, budget, Project approval requirements (i.e., what constitutes project success, who decides the project is successful, and who signs off on the project), Assigned project manager, responsibility, and authority level, and Name and authority of the sponsor.



Develop project management plan

• The process of documenting the actions necessary to define, prepare, integrate, and co-‐ordinate all subsidiary plans and baselines.


A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK® Guide) ©2013 Project Management Institute, Inc. All Rights Reserved. Figure 4-‐3 Page 72.

Important ITTOs

• Facilitation techniques • Projectmanagement plan

26


Facilitation techniques

• Brainstorming, conflict resolution, problem solving, and meeting management are key techniques used by facilitators to help teams and individuals achieve agreement to accomplish project activities.



Project management plan


A Guide to the Project Management Body of Knowledge, Fifth Edition (PMBOK® Guide) ©2013 Project Management Institute, Inc. All Rights Reserved. Table 4-‐1 Page 78.


• Project management plan comprises of: Project baseline: • scope baseline, • schedule baseline, and • cost baseline

Subsidiary management plan (next slide)

29



No. Subsidiary management plan Knowledge area1 Requirement management plan Scope2 Scope management plan3 Schedule management plan Time4 Cost management plan Cost5 Quality management plan Quality6 Process improvement plan7 Human resource management plan HR8 Communications management plan Communications9 Procurement management plan Procurement10 Stakeholder management plan Stakeholder11 Risk management plan Risk12 Change management plan Integration13 Configuration management planCopyright@STEVBROS

30


Direct and manage project execution

• The process of leading and performing the work defined in the project management plan and implementing approved changes to achieve the project’s objectives.



Important ITTOs

• Project management information system (PMIS)

• Deliverables

32


PMIS

• PMIS is part of the environmental factors. • PMIS provides access to tools, such as a scheduling tool, a work authorization system, a configuration management system, an information collection and distribution system, or interfaces to other online automated systems.

• Automated gathering and reporting on key performance indicators (KPI) can be part of this system.


Deliverables

• A deliverable is any unique and verifiable product, result or capability to perform a service that is required to be produced to complete a process, phase, or project.

• Deliverables are typically tangible components completed to meet the project objectives and can include elements of the project management plan.

34


Monitor and control project work

• The process of tracking, reviewing, and report ing the progress to meet the performance objectives defined in the project management plan.




Perform integrated change control

• The process of reviewing all change requests; approving changes and managing changes.



Important ITTOs

• Change requests • Change log

37

Change management

• Step 1: submit change request • Step 2: PM consider to accept or reject or transfer to Change Control Board (CCB) for further review

• Step 3: CCB is responsible for meeting and reviewing the change requests and approving, rejecting, or other disposition of those changes.

38


Change request



Change log



Close project or phase

• The process of finalizing all activities across all of the Project Management Process Groups to formally complete the project or phase.




Summary• The key role of the project manager, project team, project sponsor, project coordinator and project expediter

• Project selection methods: NPV, IRR, PP, ROI • Term: opportunity cost, sunk cost, depreciation. • Key outputs in this knowledge area: charter, PM plan, deliverables, approved CR.


3.Pmp Integration v1.2

Documents

Transcript of 3.Pmp Integration v1.2