The Project Management Process - Week 2

Project Management 2. Portfolio Management

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

Assignment 1 “ Write a project plan”

Assignment 1 “ Write a project plan” Topic: Week 3

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

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

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 = SITUATIONAL ANALYSIS Where are we now?

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

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

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

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)

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

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?

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

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)

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

“ 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/

The Project Management Process - Week 2

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