D. strategic + project selection


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D. strategic + project selection

  1. 1. Project Selection
  2. 2. Strategic Planning and Project Selection Strategic planning involves determining long- term objectives, predicting future trends, and projecting the need for new products and services Organizations often perform a SWOT analysis Analyzing Strengths, Weaknesses, Opportunities, and Threats As part of strategic planning, organizations: Identify potential projects Use realistic methods to select which projects to work on Formalize project initiation by issuing a project charter2
  3. 3. Figure 4-2: InformationTechnology Planning Process3
  4. 4. Methods for Selecting Projects(Please note: The Methods are notonly meant for this ITPM Class)
  5. 5. Methods for Selecting Projects  There are usually more projects than available time and resources to implement them  Methods for selecting projects include:  Focusing on broad organizational needs  Categorizing information technology projects  Performing net present value or other financial analyses  Using a weighted scoring model  Implementing a balanced scorecard5
  6. 6. Focusing on Broad Organizational Needs It is often difficult to provide strong justification for many IT projects, but everyone agrees they have a high value “It is better to measure gold roughly than to count pennies precisely” Three important criteria for projects: There is a need for the project There are funds available There’s a strong will to make the project succeed6
  7. 7. Categorizing IT Projects One categorization is whether the project addresses: A problem An opportunity A directive Another categorization is how long it will take to do and when it is needed Another is the overall priority of the project7
  8. 8. Financial Analysis of Projects Financial considerations are often an important consideration in selecting projects Three primary methods for determining the projected financial value of projects Net present value (NPV) analysis Return on investment (ROI) Payback analysis8
  9. 9. Net Present Value AnalysisNet present value (NPV) analysis is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in timeProjects with a positive NPV should be considered if financial value is a key criterionThe higher the NPV, the better9
  10. 10. Figure 4-3: Net Present ValueExample Note that totals are equal, but NPVs are not because of the time value of money10
  11. 11. Figure 4-4: JWD Consulting NPV ExampleMultiplyby thediscountfactor eachyear, thentake cum.benefits –costs toget NPV Note: See the template called business_case_financials.xls Table 3-16 on pp. 118-119 lists the templates available 11 on the companion Web site (www.course.com/mis/schwalbe5e)
  12. 12. NPV Calculations Determine estimated costs and benefits for the life of the project and the products it produces Determine the discount rate (check with your organization on what to use) Calculate the NPV (see text for details) Note: Some organizations consider the investment year as year 0, while others start in year 1; some people enter costs as negative numbers, while others do not Check with your organization for their preferences12
  13. 13. Return on Investment Return on investment (ROI) is calculated by subtracting the project costs from the benefits and then dividing by the costs ROI = (total discounted benefits - total discounted costs) / discounted costs The higher the ROI, the better Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects Internal rate of return (IRR) can by calculated by finding the discount rate that makes the NPV equal to zero13
  14. 14. Payback Analysis Another important financial consideration is payback analysis The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the total dollars invested in a project Payback occurs when the net cumulative discounted benefits equals the costs Many organizations want IT projects to have a fairly short payback period14
  15. 15. Figure 4-5: Charting the PaybackPeriod15
  16. 16. 5 Minutes Class Activity Weighted Decision Matrix  Suggest four or five criteria you would use to choose a roommate.  Then choose the weight for each criterion, making sure the weights add up to one hundred.  Pick four potential roommates from this class.  Make a simple table, as shown here: Have you make your decision?Criteria Weight Name1 Name2 Name3 Name4C1 30% 100 100C2 20% 90 100C3 30% 40 20C4 10% 70 10C5 10% 50 10Weighted 72 58Score This activity demonstrates one way to develop a weighted decision matrix for Project selection by finding a significant other.
  17. 17. Weighted Scoring Model  A weighted scoring model is a tool that provides a systematic process for selecting projects based on many criteria 1. Identify criteria important to the project selection process 2. Assign weights (percentages) to each criterion so they add up to 100% 3. Assign scores to each criterion for each project 4. Multiply the scores by the weights and get the total weighted scores  The higher the weighted score, the better17
  18. 18. Figure 4-6: Sample Weighted ScoringModel for Project Selection18
  19. 19. Implementing a Balanced Scorecard Drs. Robert Kaplan and David Norton developed this approach to help select and manage projects that align with business strategy A balanced scorecard: Is a methodology that converts an organization’s value drivers, such as customer service, innovation, operational efficiency, and financial performance, to a series of defined metrics See www.balancedscorecard.org for more information19
  20. 20. Figure 4-7: Balanced Scorecard Example Defense Finance and Accounting Service, “DFAS Strategic Plan,” Nov 2001 (http://balancedscorecard.org/files/DFAS-strategic-plan.pdf ), p. 13.20
  21. 21. Destination DiagramA destination diagram often used to visualize elements that should appear at the end of a projectOften utilized as vision building exercise (for project or non project-life)This is a richer aspect of presenting the elements other than Check List
  22. 22. My Life Dream 20 years from today (16 Feb 2011) Mr X Darul Iman – Modernize ‘sekolah pondok’ for adults Picture Location: Bandar Tasik Puteri, Rawang, Selangor Cost: RM60,000.00 / year Income: RM120,000.00 / year Performing 3rd Hajj Location: Makkah Cost: RM100,000.00 Renowed Academician & Researcher Location: Universiti Selangor (UNISEL) Income: RM 174,000.00 / year Raised my 1 year old son Cost: RM 3 millionUmrah & TourLocation: Jordan - Restoren BawangTurki – Egypt - Location: Bandar Tasik Puteri,Madinah - Makkah Rawang, Selangor Bungalow with swimming pool Audi 4WDCost: RM100,000.00 Cost: RM80,000.00 / year Location: Kuala Lumpur outskirt Cost: RM450,000.00 Cost: RM 1.5 million Income: RM240,000.00 / year
  23. 23. $ 20,000,000 $30,000 $ 200,000 $ 30,000,000+600,000 $500,000 $100,000 From the second 5 years $ 80,000 until year 20th $ 450,000 + $ 4,000,000+600,000 Post- DR with grant From the second 5 years until years 20th $ 1,500,000 $ 500,000+600,000 $ 40,000 PHDMy Life $ 50,000+ grantDreams $ 10,000 $ 70,000+50,000 $ 10,000
  24. 24. After Selecting Project
  25. 25. Project Charters After deciding what project to work on, it is important to let the rest of the organization know A project charter is a document that formally recognizes the existence of a project and provides direction on the project’s objectives and management Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project; a signed charter is a key output of project integration management25
  26. 26. Table 5-2: Sample Project Charter26
  27. 27. Preliminary Scope Statements A scope statement is a document used to develop and confirm a common understanding of the project scope It’s important for preventing scope creep The tendency for project scope to keep getting bigger It’s good practice to develop a preliminary or initial scope statement during project initiation and a more detailed scope statement as the project progresses27
  28. 28. Stakeholder Analysis A stakeholder analysis documents important (often sensitive) information about stakeholders such as: Stakeholders’ names and organizations Roles on the project Unique facts about stakeholders Level of influence and interest in the project Suggestions for managing relationships28
  29. 29. Table 4-2: Sample StakeholderAnalysis29
  30. 30. Chapter Summary Project Selection Methods Developing a project charter Developing a preliminary project scope statement Developing Stakeholder Analysis30