The Project Management Process - Week 2

Project Management2. Portfolio Management

Week 2

Project selection and portfolio management

Project selection and portfolio management

What are the inputs that cause

the project process to begin?

Unit Objectives

Implement IT project planning and selection techniques

Appreciate the importance of project portfolio management

Strategic PlanningIdentifying IT Projects

Project ProposalsProject Selection MethodsApplying a Selection Model

Project SelectionProject Success

But first

Assignment 1

Assignment 1

“Write a project plan”

Assignment 1

“Write a project plan”

Topic: Week 3

http://www.teachers.ash.org.au/researchskills/Dalton.htm

Back to the programme…

Strategic Planning

Strategic Planning1. What is strategy?2. How do projects relate to strategy?

Strategy 2Strategy 1 Strategy 3 Strategy 4

Organisation Mission

Money

Customers

Efficiency and Effectiveness

Adaptability

5 Forces analysis

Supplier power

Customer power

Threat of New

Entrants

Substitutes

Intensity of Intensity of competitioncompetition

Michael Porter’s ‘5 Forces’ – 1980’s

business model template

VALUEPROPOSITION

COSTSTRUCTURE

CUSTOMERRELATIONSHIP

TARGETCUSTOMER

DISTRIBUTIONCHANNEL

VALUECONFIGURATION

CORECAPABILITIES

PARTNERNETWORK

REVENUESTREAMS

INFRASTRUCTURE CUSTOMEROFFER

FINANCE

Osterwalder’s Business Model framework 2006http://business-model-design.blogspot.com

Process efficiency Scorecard Customer

satisfaction

Financial

Learning and

innovation

Balanced Scorecard

Kaplan & Norton (1994?) HBR

Kaplan & Norton (1998?) HBRhttp://www.visual-literacy.org/periodic_table/pix/strategy-bsc-map.png

Strategy Map



Money

Customers


Adaptability

• Strategic Management Overview– Involves determining long-term objectives,

predicting future trends, and projecting the need for new products and services

– Provides the theme and focus of the future direction for the firm

• respond to change• allocating scarce resources

– Requires strong links among mission, goals, objectives, strategy, and implementation

•

Set (SMART) Goals

Review Mission

Develop Strategies

Implement Strategies through projects

Align Strategies to goals

SWOT Analysis

SWOT = SITUATIONAL ANALYSIS

Where are we now?

S

T

W

O

S

T

W

O

Positive Negative

S

T

W

O

Inte

rnal

Exte

rnal

S

T

W

O

Inte

rnal

Exte

rnal

Positive Negative

Set (SMART) Goals

Review Mission

Develop Strategies



http://en.wikipedia.org/wiki/SMART_(project_management)

SS SpecificMM MeasurableAA AchievableRR RelevantTT Time-bound

Letter Major Term Minor Terms

SS Specific Significant[3], Stretching[3], SimpleMM Measurable Meaningful[3], Motivational[3], Manageable

AA Achievable Agreed, Attainable[6], Assignable[2], Appropriate, Actionable, Action-oriented[3]

RR Relevant Realistic[2], Results/Results-focused/Results-oriented[6], Resourced[7], Rewarding[3]

TT Time-boundTime framed[2], Timed, Time-based, Timeboxed, Timely[6][5], Timebound, Time-Specific, Timetabled, Trackable

E[1] Exciting, Evaluated, Ethical

R[1] Recorded, Rewarding, Reviewed[8]

http://en.wikipedia.org/wiki/SMART_(project_management)

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-alaorg-5

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-Schwalbe-1


http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-Favell-6

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-Project_Smart-2

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-Schwalbe-1


http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-changingminds-4

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-RapidBI-0

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-RapidBI-0

http://en.wikipedia.org/wiki/SMART_%28project_management%29#cite_note-7

Examples of “not smart”

goals?

Set (SMART) Goals

Review Mission

Develop Strategies




Money

Customers


Adaptability


Set (SMART) Goals

Review Mission

Develop Strategies




Money

Customers


Adaptability

projects

projects

projects

projects


What are the goals of the projects?

Figure 2.1 Strategic Management Process (Gray & Larson, 2006, p25)

projects

projects

projectsprojects

projects

projects

projects

projects

projects projects

projects

projects

projects

projects

projects

projects

projects

PPPMProjectProgrammePortfolioManagement

The ‘O’ is for Organisational

OPM3

Programme

OPM3

Portfolio

Projects

ProjectsProgramme

Portfolio

ProjectProgramme

ProjectProjectProjectsProjectProjectProjects

ProjectProjectProjects

One Portfolio or Several?

Categories

Approaches to project

portfolio management

One Portfolio or Several?

Categories

Venture: Projects that transform the business

Growth: Projects that grow revenue or market

share

Core: Projects that help run the business

What are the benefits of Project Portfolio Management?

Benefits of Project Portfolio

Management

Builds discipline into project selection processLinks project selection to strategic metricsPrioritizes project proposals across a common set of criteria, rather than on politics or emotionAllocates resources to projects that align with strategic directionBalances risk across all projects

Problems with Project Portfolio

Management

Different views from senior management on what (and how) should

be done

Competition (& effective utilisation) for resources

How toSenior Management Input

– provide guidance in selecting criteria that are aligned with the organization’s goals

– decide how to balance available resources among current projects

• The Priority Team Responsibilities– publish the priority of every project– ensure selection process is transparent – re-assess the organization’s goals /

priorities– evaluate the progress of current projects

Figure 2.8 Sample project portfolio approach(Schwalbe, 2005, p51)

Figure 1.5 Project management compared to project portfolio management(Schwalbe, 2005, p15)

Money

Customers


Adaptability

projects

projects

projects

projects projects

programme

projects

projects

projectsprojects

programme projects



Programme

projects

projects

programme

Shor

t te

rmM

id

term

Long

te

rm

projects

projects

projects

projects projects

projects

projects

projects

projectsprojects

projects projects



projects

projects

projects

projects

http://www.betterprojects.net/search?q=strategy

projects

projects

projects

projects projects

projects

projects

projects

projectsprojects

projects projects



projects

projects

projects

projects

Identifying IT Projects

Identifying IT Projects• Many organizations follow a planning

process for selecting IT projects which is aligned with business strategy

• Research shows:– Supporting business objectives is the

number one reason for investing in IT projects

– Use of IT standards lowers development costs by 41 percent per user (Cosgrove Ware, 2002)(Cosgrove Ware, 2002)

Figure 2.1 Pyramid for the Project Selection Process(Schwalbe, 2005, p35)

Project Proposals

Most business units have a

strategic plan

Which SHOULD align with the organisation’s strategic plan

Which SHOULD align with the organisation’s strategic plan

Solicitation of Project Proposals

Within the organization

Request for proposal (RFP) from external

sources (contractors and vendors)

When ranking proposals, consider;

DisciplineAccountabilityResponsibilityConstraints

Reduced flexibilityLoss of power

Project Initiation forms

Figure 2.4B Risk Analysis(Gray & Larson, 2006, p39)

Figure 2.4A Major Project Proposal (Gray & Larson, 2006, p38)

Project Selection Methods

Not all project proposals make it to initiation

Every project idea isn’t progressed.

Why?

TimeMoneyFocus

Methods for selecting projects include:

- Focusing on broad organizational needs

- Categorizing IT projects- Financial analysis- Using a weighted scoring model- balanced scorecard- Strategy mapping

Focusing on Broad Organizational Needs

– E.g. Non-financial, but important benefits

– Three important criteria:• need for the project• funds available for the project• will to make the project succeed

Categorizing IT Projects – Does the project provides a response to:

•a problem•an opportunity•a directive

– The time and date of expected completion

– The overall priority of the project

Financial Analysis

$$$

Net Present Value

Payback model

Return on Investment

(there are more)

Net Present Value

Net Present Value (NPV) ModelUses management’s minimum desired rate-of-return (discount rate) to compute the present value of all net cash inflows

positive NPV: the project meets the minimum desired rate of return and is eligible for further considerationnegative NPV: project is rejected

Net Present Value (NPV) Model cont’d…NPV Calculations

determine estimated costs / benefits for the life of the project and products it producesdetermine discount rate (ask organization)calculate the NPV some organizations consider the investment year as year 0, others consider it year 1some organizations enter costs as negative numbers, others do not (ask organization)

Example: CP829_Lecture_Week2_NPV.xls

Time to

StoStopp

and turn to a new

presentation pack

Payback model

Figure 4.1 Charting the Payback Period (Schwalbe, 2006, p129)

Measures the time it will take to recover the project investment

Shorter paybacks are more desirable

Payback occurs when cumulative discounted benefits and costs are greater than zero

Limitations of payback:• ignores the time value of money• assumes cash inflows for

investment period only• does not consider profitability

Return on Investment

Return on Investment (ROI)Calculated by subtracting project costs from the benefits and then dividing by the costsFormula:

ROI = (total discounted benefits – total discounted costs) / discounted costs

Higher the ROI, the better. Many organizations have a set or minimum rate of return on investment projects

Example: CP829_Lecture_Week2_ROI.xls

(total discounted benefits – total discounted costs)

discounted costs

Non-financial Analysis

$$$

Weighted scoring model

Balanced Scorecard

$$$

Weighted scoring model

A weighted scoring model is a tool that provides a systematic process for selecting projects based on many criteria

– Steps in identifying a weighted scoring model:

• identify criteria for project selection• assign weights (%) to criteria add up to

(100%)• assign scores to each criteria for each project• multiply scores by weights to get total scores

– The higher the weighted score, the better– Example: CP829_Lecture_Week2_WeightedScore.xls

$$$

$$$

Balanced Scorecard

•Balanced Scorecard – Robert Kaplan and David Norton developed

this approach to help select and manage projects that align with business strategy

– Methodology that converts an organization’s value drivers, such as customer service, innovation, efficiency, and financial performance, to a series of defined metrics

– See http://www.balancedscorecard.org for more information

$$$

Applying a selection

model

Applying a Selection Model• Project Classification

– Deciding how well a strategic or operations project fits the organization’s strategy

• Selecting a Model– Focus on competitive strategy and broad organizational

needs– Perform net present value analysis or other financial

projections– Use a weighted scoring model– Implement a balanced scorecard– Address problems, opportunities, and directives– Consider project time frame– Consider project priority

Project Selection

The Business Case

Impacts Costs & Benefits

Clearly compares alternatives Objective

Systematic

The Business Case

Elevator pitches?

Table 3.4 Sample business case(Schwalbe, 2005, pp74-76)

Example business case

Contents of a Business Case1. Introduction/Background2. Business Objective3. Current Situation and Problem/Opportunity

Statement4. Critical Assumptions and Constraints5. Analysis of Options and Recommendation6. Preliminary Project Requirements7. Budget Estimate and Financial Analysis8. Schedule Estimate9. Potential Risks10.Exhibits

Figure 2.3 The Process for Developing a Business Case(Marchewka, 2003, p34)

Project Success

By the way,

Things are getting better

Source: CHAOS Report 1995 by the Standish GroupAccess it here: http://net.educause.edu/ir/library/pdf/NCP08083B.pdf

Not even complete

d

Typically 189% over

budgetOTOBOS

53%Challenged

16%Success

31% Critical Failures

1994

Not even complete

d

Still way over

budgetOTOBOS

51%Challenged

34%Success


2002

Source: CHAOS Report 2002 by the Standish GroupAccess it here: http://www.standishgroup.com/quarterly_reports/index.php

53%Challenged

16%Success


1994

51%Challenged

34%Success


2002

$0

$50

$100

$150

$200

$250

1994 2005

Wasted money as a

share of total project

spend

Billions of dollars

What happened?

“The reasons for the increase in successful projects vary. First, the average cost of a project has been

more than cut in half. Better tools have been created to monitor and control progress and better skilled project managers with better management processes are being used. The fact

that there are processes is significant in itself.”

(Standish Group cited in Schwalbe, 2004, p13)

“The reasons for the increase in successful projects vary. First, the average cost of a project has been

more than cut in half. Better tools have been created to monitor and control progress and better skilled project managers with better management

processes are being used. The fact that there are processes is significant in

itself.” (Standish Group cited in Schwalbe, 2004, p13)

Smaller

projects

Better tools

Better trainin

g

Better Selection

Portfolio Mgt

Strategic Alignme

nt

More recently

Things you

should have

(if you want to succeed)

1. Executive support2. User involvement3. Experienced project

manager4. Clear business objectives5. Minimized scope6. Standard software

infrastructure7. Firm basic requirements8. Formal methodology9. Reliable estimates10. Other criteria, such as

small milestones, proper planning, competent staff, and ownership

incrementalBut, change has been…

There is still plenty of room for

improvement.

? What do you think is still

going wrong?

BetterProjects.net

Title page pic care of jpellqen & CC @ Flickrhttp://flickr.com/photos/jpellgen/444946201/

The Project Management Process - Week 2

Technology

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