The Project Management Process - Week 2

Project Management 2. 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 Planning
Identifying IT Projects
Project Proposals
Project Selection Methods
Applying a Selection Model
Project Selection
Project 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 Planning
What is strategy?
How do projects relate to strategy?

Strategy 2 Strategy 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 competition Michael Porter’s ‘5 Forces’ – 1980’s

business model template VALUE PROPOSITION COST STRUCTURE CUSTOMER RELATIONSHIP TARGET CUSTOMER DISTRIBUTION CHANNEL VALUE CONFIGURATION CORE CAPABILITIES PARTNER NETWORK REVENUE STREAMS INFRASTRUCTURE CUSTOMER OFFER FINANCE Osterwalder’s Business Model framework 2006 http://business-model-design.blogspot.com

Process efficiency Scorecard Customer satisfaction Financial Learning and innovation Balanced Scorecard Kaplan & Norton (1994?) HBR

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

Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission Money Customers Efficiency and Effectiveness 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 Internal External

S T W O Internal External Positive Negative

http://en.wikipedia.org/wiki/SMART_(project_management) Time-bound T Relevant R Achievable A Measurable M Specific S

http://en.wikipedia.org/wiki/SMART_(project_management) Recorded, Rewarding, Reviewed [8] R [1] Exciting, Evaluated, Ethical E [1] Time framed [2] , Timed, Time-based, Timeboxed, Timely [6] [5] , Timebound, Time-Specific, Timetabled, Trackable Time-bound T Realistic [2] , Results/Results-focused/Results-oriented [6] , Resourced [7] , Rewarding [3] Relevant R Agreed, Attainable [6] , Assignable [2] , Appropriate, Actionable, Action-oriented [3] Achievable A Meaningful [3] , Motivational [3] , Manageable Measurable M Significant [3] , Stretching [3] , Simple Specific S Minor Terms Major Term Letter

Examples of “not smart” goals?

Organisation Mission Money Customers Efficiency and Effectiveness Adaptability Strategy 2 Strategy 1 Strategy 3 Strategy 4

Organisation Mission Money Customers Efficiency and Effectiveness Adaptability projects projects projects projects Strategy 2 Strategy 1 Strategy 3 Strategy 4

What are the goals of the projects?

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

projects

projects projects projects projects

projects projects projects projects projects projects projects projects projects projects projects projects

PPPM
Project
Programme
Portfolio
Management
The ‘O’ is for
Organisational
OPM3

Programme OPM3 Portfolio Projects

Projects Programme Portfolio Project Programme Project Project Projects Project Project Projects Project Project Projects

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?

Builds discipline into project selection process
Links project selection to strategic metrics
Prioritizes project proposals across a common set of criteria, rather than on politics or emotion
Allocates resources to projects that align with strategic direction
Balances risk across all projects
Benefits of Project Portfolio Management

Problems with Project Portfolio Management

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

Competition (& effective utilisation) for resources

How to
Senior 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 Efficiency and Effectiveness Adaptability projects projects projects projects projects programme projects projects projects projects programme projects Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission Programme projects projects programme

Short term Mid term Long term projects projects projects projects projects projects projects projects projects projects projects projects Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission projects projects projects projects

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

projects projects projects projects projects projects projects projects projects projects projects projects Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission projects projects projects 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)

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;
Discipline
Accountability
Responsibility
Constraints
Reduced flexibility
Loss 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?

Time
Money
Focus

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) Model
Uses 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 consideration
negative 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 produces
determine discount rate (ask organization)
calculate the NPV
some organizations consider the investment year as year 0, others consider it year 1
some organizations enter costs as negative numbers, others do not (ask organization)
Example: CP829_Lecture_Week2_NPV.xls
Time to Stop 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 costs
Formula:
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

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
$$$ Weighted scoring model $$$

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
$$$ Balanced Scorecard $$$

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 Case
Introduction/Background
Business Objective
Current Situation and Problem/Opportunity Statement
Critical Assumptions and Constraints
Analysis of Options and Recommendation
Preliminary Project Requirements
Budget Estimate and Financial Analysis
Schedule Estimate
Potential Risks
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 Group
Access it here: h ttp://net.educause.edu/ir/library/pdf/NCP08083B.pdf
Not even completed Typically 189% over budget OTOBOS 53% Challenged 16% Success 31% Critical Failures 1994

Source: CHAOS Report 2002 by the Standish Group
Access it here: http:// www.standishgroup.com/quarterly_reports/index.php
Not even completed Still way over budget OTOBOS 51% Challenged 34% Success 15% Critical Failures 2002

53% Challenged 16% Success 31% Critical Failures 1994 51% Challenged 34% Success 15% Critical Failures 2002

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 training

Better Selection Portfolio Mgt Strategic Alignment More recently

Things you should have (if you want to succeed)
Executive support
User involvement
Experienced project manager
Clear business objectives
Minimized scope
Standard software infrastructure
Firm basic requirements
Formal methodology
Reliable estimates
Other criteria, such as small milestones, proper planning, competent staff, and ownership

inc rem en tal
But, 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 @ Flickr
http://flickr.com/photos/jpellgen/444946201/

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The Project Management Process - Week 2

by Craig Brown on Aug 06, 2008

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