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

Strategic Planning

Project Proposals

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

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)

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

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)