Project 2

11/9/2009
Richard Carlsson
Richard Carlsson
Richard Carlsson, Jnkping International Business School
ToDay
Guest lecture
2009.12.02, 10:00 12:00 Andr Pehar, SafeTool, COO and Project Manager
Learning Objectives
Understand the basic definitions and concepts of
Project initiation
Understand that choosing project is important
Project initiation Project Scope and Human Resource Planning Project Time and Cost planning
Acquire a general understanding of the parts of the project management plan Understand the importance of discovering and documenting stakeholder requirements
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Strategic Planning and Project Selection

The first step before initiating projects is to look at the big picture systems approach or strategic plan of an organization Strategic planning involves determining longterm business objectives (long-term?) IT projects should support strategic and financial business objectives
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Jnkping International Business School
11/9/2009
Projects authorized as a result of:

A market demand An organizational need A customer request A technological advance A legal requirement
Identifying Potential Projects

Organizations should follow a documented consistent planning process for selecting IT projects 1. First, develop an IT strategic plan in support of the organizations overall strategic plan 2. Then perform a business area analysis 3. Next, define potential projects, build the business case 4. Finally, select IT projects and assign resources
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Key Issues Needing Answers for AllTechnology Projects

1. Business Value 2. Technology 3. Cost/Benefit questions 4. Risk
Methods for Selecting Projects

Always more projects than available time and resources to implement them Very important to follow a repeatable and complete process for selecting IT projects Business case
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Business Case
Contents of the business case may include: Key business objectives Methods and sources used to obtain information Benefits to the organization if the project is successful Consequences if the project is not done Full life-cycle costs Qualitative models Quantitative models Risks
Business Case Development

Developed by multiple people (Subject Matter Experts) representing all key stakeholders Benefits to having the right team:
Credibility Accuracy Thoroughness Ownership
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Business Case Example from Text Case Study
Selecting the Wrong Projects

There are five major reasons why organizations choose the wrong projects: bias and errors in judgment, failure to establish an effective framework for project portfolio management, lack of the right metrics for valuing projects, inability to assess and value risk, and failure to identify project portfolios on the efficient frontier
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Strategic Planning
Before moving on to building the business case and the project selection tools.
A formal document that outlines an organizations 3 to 5 year mission, vision, goals, objectives, and strategies The main goal of any project should be to deliver some form of business value: higher market share, new product or market, better customer support, higher productivity, lower operating costs, etc. All of these are typically defined in the companys strategic plan as goals and objectives. Listed next to each goal or objective is a list of strategies which will fulfill the objective
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Strategic Planning
The development of strategies (projects) must focus on what is needed to meet the strategic plans goals and objectives A question that is often asked - Does the proposed project deliver a product or service which was defined as an objective on the strategic plan?
Strategic Planning
An often used tool to build the strategic plan is called SWOT analysis. An information gathering technique to evaluate external influences against internal capabilities
Strengths Weaknesses Opportunities Threats
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Selection Tools
Strengths
Weaknesses
Qualitative Models
Subject matter expert judgments Sacred Cow Mandates
SWOT Analysis Opportunities

Quantitative Models
Threats
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Net Present Value (NPV) Internal Rate of Return (IRR) Return on Investment Payback Period
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Time Value of Money

A sum of money is more valuable the sooner it is received. A euro today is worth more than the promise of a euro tomorrow Due to: Inflation and risk Before you invest money in a project you must compare its rate of return against other opportunities (other projects)
Time Value of Money

FV = PV(1 + i)n Where: FV = Future Value of an investment (project) PV = Present Value of that same investment i = Interest rate, discount rate or cost of capital n = Number of years Example: Invest $1000 today (PV) for 1 year(n) at an interest rate of 10% (i), the investment is worth $1000(1+.1)1 or $1210 at the end of year one What happens when you have two different investments with varying rates of return? You must find a way to put both on equal terms.
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Time Value of Money

You put both on equal terms by changing the formula slightly to evaluate all future cash flows at time zero or today
Time Value of Money

PV = FV (1 + i ) n
Example: You have a project that 1000 = 909 promises you 1000 of profit at PV = (1 + 0,1)1 the end of the first year with the discount rate at 10% The project is worth only $909 today
NPV is a method of calculating the expected net monetary gain or loss from an investment (project) by discounting all future costs and benefits to the present time Projects with a positive NPV should be considered if financial value is a key criterion Generally, the higher the NPV, the better
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NPV Example
NPV Example Calculations

Do the Math Project 1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 NPV Project 2 Year 0 ($75,000) ($5,000) / (1 + .08)1 $70,000 / $45,000 / $30,000 / (1 + .08)2 (1 + .08)3 (1 + .08)4 ($75,000) ($4,630) $60,014 $35,723 $22,051 $3,403 $41,561
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Discounted Cash Flow
($120,000) ($40,000) / (1 + .08)1 $25,000 / (1 + .08)2 $70,000 / (1 + .08)3 $130,000 / (1 + .08)4 $80,000 / (1 + .08)5 Add them up
($120,000) ($37,037) $21,433 $55,569 $95,553 $54,448 $69,966
NPV is calculated using the following formula: NPV = t=0n CF/ (1+i)t Where t = the year of the cash flow n = the last year of the cash flow CF = the cash flow at time t i = interest rate or discount rate
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Year 1 Year 2 Year 3 Year 4 Year 5 NPV
$5,000 / (1 + .08)5 Add them up
Internal Rate of Return (IRR)

One of the more sophisticated capital budgeting techniques and also more difficult to calculate The IRR is the discount rate at which NPV is zero Or the Discount rate where the present value of the cash inflows exactly equals the initial investment. IRR is the discount rate when NPV = 0 Most companies that use this technique have a minimum IRR that you must meet. User Goal Seek in Excel OR trial and error changing the discount rate until NPV becomes zero
Return on Investment (ROI)

Return on investment (ROI) is income divided by investment
ROI = (total discounted benefits total discounted costs) / total discounted costs
The higher the ROI or higher the ratio of benefits to costs, the better Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects
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ROI Example
ROI Example
Step 1: determine discount factor for each year. Step 2: calculate discounted benefits and costs
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ROI Example
ROI Project 1 = ($436,000 - $367,100) / $357,100 = 19% ROI Project 2 = ($335,000 - $256,000) / $256,000 = 31%
Payback Analysis
The payback period is the amount of time it will take a project before the accrued benefits surpass accrued costs or how much time an investment takes to recover its initial cost track the net cash flow across each year to determine the year that net benefits overtake net costs (not discounted cash flows) Many organizations want IT projects to have a fairly short payback period (< 1 year)
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Payback Example
Same numbers as earlier examples. Table shows net cash flows Project 1 payback occurs sometime during year 4 Project 2 payback occurs sometime during year 3
Selecting a Portfolio of Projects

We have reviewed several methods for evaluating individual projects. Now lets move on to selecting our entire portfolio by comparing projects against each other using a weighted scoring model
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Weighted Scoring Model (WSM)

The weighted scoring model (WSM) is a culmination of all of the other models discussed in this chapter It is used to evaluate all projects on as equal a basis as is humanly possible. It attempts to remove human bias in the project selection process The criterion used to compare projects differs from one organization to another and may differ between types and classes of projects within the same organization
Process to Create WSM

1. First identify criteria important to the project
selection process
2. Then assign weights (percentages) to each
criterion so they add up to 100%

3. Then assign scores to each criterion for each
project 4. Multiply the scores by the weights and get the total weighted scores
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Weighted Scoring Model Example
Other Methods to Determine Value

Balanced Scorecard (Real Options)
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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 converts an organizations value drivers, such as customer service, innovation, operational efficiency, and financial performance to a series of defined metrics Organizations record and analyze these metrics to determine how well projects help them achieve strategic goals The balanced scorecard measures organizational performance across four balanced perspectives: financial, customers, internal processes, and learning
Balanced Scorecard
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Selection Summary
This completes our section on project selection techniques. As you can see, a variety of choices are available to help organizations become better at selecting the right projects Many studies have been done to review the use and effectiveness of these techniques. The problem in trying to draw any conclusions from these studies is that they all address different industry segments, over different time periods, using different technologies The choice of which techniques to use is based on many factors: company culture, financial position, industry segment, technology, length of project, size of project, and so on Organizations should use a method that builds a WSM which consists of elements and weights that are pertinent to the organization at a point in time and circumstances
Project Initiation
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Project Initiation
The projects have been selected, now time to begin First project artifact is the Project Charter, but
First we must do a stakeholder analysis
Stakeholder Analysis
Identifies the influence and interests of the various stakeholders and documents their needs, wants, and expectations These needs and wants form the basis of the scope statement The influence and interests section of the analysis can make the PM job much easier and lead to more successful projects
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Old Saying
If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle
Stakeholder Analysis Process

1. Identify all potential stakeholders 2. Determine interests, expectations, and
influence for each 3. Build a stakeholder assessment matrix (see Figure 4-5) 4. Analyze appropriate stakeholder approach strategies and update the matrix 5. Update throughout the project
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Where to Look for Stakeholders
Stakeholder Assessment Matrix
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Project Charter
Is the first tangible work product created in all projects, regardless of size and type After deciding what projects to work on, it is important to formalize the project start A project charter is a document (legal) which formally authorizes the work to begin on a project and provides an overview of objectives and resource requirements Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project First project artifact placed under change control. Should define Project Managers level of authority and responsibility
Project Charter Best Practices

Should not be created in isolation It is not a novel, keep it short and to the point
Implementing an entire ERP application can be summarized in a project charter in 3 or 4 pages max Tough to get stakeholder buy-in and understanding when the charter is 20 plus pages
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Sample Project Charter from Running Case Study
KickKick -Off Meeting

With the completion of the stakeholder analysis and the signing of the project charter, its time to schedule and conduct the kickoff meeting First step, use the stakeholder analysis to make sure to invite the right people Everyone at the start of the project hears the same message Get agreement from everyone on Project Charter
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Summary of Process Steps

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Project sponsors prepare the business case Review potential project business cases Review current business climate Build the weighted scoring model Review available resources Select projects and assign project managers Conduct stakeholder analysis Create Project Charter Obtain Project Charter buy-in obtain signatures Conduct Kick-off meeting
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Integration Management KA
Develop the Project Management Plan Process: taking the artifacts created in each of the other eight Knowledge areas and putting them into a consistent, coherent document the project plan Telling the team What to do
The text will spend several chapters describing the elements of the project plan!
Build the Project Plan

Scope management plan Work breakdown structure (WBS) WBS dictionary Staffing management plan Schedule management plan Cost management plan Quality management plan Process improvement plan Communication management plan Risk management plan Procurement management plan
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Project Plan Development

A project plan is a document used to coordinate all project planning documents Its main purpose is to guide project execution Project plans assist the project manager in leading the project team and assessing project status Project performance should be measured against a baseline project plan Building the plan should not be done in secret or in isolation; the whole project team needs to participate
Attributes of Project Plans

Just as projects are unique, so are project plans Plans should be dynamic Plans should be flexible Plans should be updated as changes occur (Integrated Change Control) Plans should first and foremost guide project execution Plans should never assume the team will work overtime, at least not at the start
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MissionMission -type tactics (Auftragstaktik Auftragstaktik) )

The military commander gives their subordinate leaders a clearly defined goal. The subordinate needed to accomplish that goal within a decided time. The subordinate leaders then implement the order independently. The subordinate leader is given
the planning initiative freedom in execution flexibility in execution.
Project Plan Creation

Most expensive project mistakes are made during planning. McConnell (1998) states that errors found upstream during the planning phase cost on the order of 200 times less to fix than errors found downstream during the building of the product Planning forecasting seeing into the future is not an easy task
Carl von Clausewitz 1780 1831 Burg bei Magdeburg Prussia
"War is merely a continuation of politics"

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T. Capers Jones (1998) summed it up this way: The seeds of major software disasters are usually sown in the first three months of commencing the software project. Hasty scheduling, irrational commitments, unprofessional estimating techniques, carelessness of the project management function are the factors that tend to introduce terminal problems. Planning isnt done just once but is a continuous process of adaptation and change

Although planning is crucial, project teams must be careful to avoid over-planning
the planning must be appropriate to the size, complexity, and risk of the project Project managers must be careful to avoid what many systems analysis text books refer to as analysis paralysisgetting stuck in the analysis phase, trying to get everything defined perfectly
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What Is Project Scope Management?

Scope - refers to all (100%) the work involved
Scope of Project
What is the scope of the project? Start- and finish date? What resources are available? Is there a clear and concise Project Objective Statement (POS)? Have the major deliverables been well defined? Is there a written Is/Is Not list for each deliverable? Do the major deliverables have target completion dates?
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in creating the products of the project and the processes used to create them A Deliverable - is a product produced as part of a project, such as hardware or software, planning documents, or meeting minutes Project scope management includes the processes involved in defining and controlling what is or is not included in a project
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POS
A good project objective statement..
Is captured in maximum 25 words Uses plain language, avoiding jargon and acronyms Is clear and concise Is visionary and creates challenge/excitement
Requirements Documentation
Functional and nonfunctional system requirements Business rules Impacts on any other systems and/or departments Support and training requirements Specific acceptance criteria for each requirement or set of requirements Quality requirements
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Put a man on the moon and return him safely by December 31, 1969, at a cost of $9B.
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Requirements Management
Who has authority to update the list of requirements? What process will be used to manage the changes to the requirements? How are requirements prioritized? In other words, which ones are done first or are done at all? How are requirements traced from discovery to system design to prototype to finished product?
Work Breakdown Structure (WBS)

After completing scope planning, the next step is to further define the work by breaking it into manageable pieces Systems Analysis Good scope definition:
helps improve the accuracy of time, cost, and resource estimates defines a baseline for performance measurement and project control aids in communicating clear work responsibilities
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WBS Uses Throughout the Project

Guide the work of the entire project team Facilitate communication Aid the team in building the schedule and budget Assigning the right person to the right task Getting the project to a done state Aid in quality control Accountability Reduce scope creep Aid in budget and schedule progress reporting and performance reporting Aid in examining alternative steps in building a product
Building the WBS

Using guidelines: Some organizations, like the DOD, provide guidelines/requirements for preparing a WBS The analogy approach: A WBS is first created by looking for a similar project done in the past and using its WBS as a starting point The top-down approach: Start with the largest items of the project and keep breaking them down into smaller and smaller parts The bottoms-up approach: Start with the detailed tasks and roll them up Thread concentrate on most important items first
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Analogy Technique Advantages

Is the fastest path to a completed WBS Is a valuable tool for brainstorming a new project and looking for deliverables Enhances cross-project consistency Improves budget and time estimates Improves resource allocations
TopTop-Down Approach Advantages

Ensures projects are organized logically based on the nature of the project Promotes stakeholder participation in the planning phase of the project Can create a greater understanding of the entire project by all participants
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Bottom up approach
Advantages
Promotes stakeholder participation in the planning phase of the project Can create a greater understanding of the entire project by all participants May lead to a more complete list of tasks
Thread Approach
Advantages
Promotes stakeholder participation in the planning phase of the project Can create a greater understanding of the entire project by all participants Greater control and focus of the brainstorming sessions Generally the most important stakeholder objectives done first
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Richard Carlsson, Jnkping
Which Method to Choose?

The existence of a similar project would lead you to the analogy approach which if done correctly is the fastest and most accurate method Experience level of the project manager and team if little experience, choose the top-down approach, conversely if many years of experience then choose a bottom-up approach Uniqueness of the product or process if the product or process is very unique, never anything like it before in this company or by this team then choose the top-down approach
Basic Principles for Creating a WBS

the WBS represents 100% of the work required to produce the product
As soon as you define more than 100% of the scope, you have committed to doing more than you agreed to - scope creep has begun (100% Rule)
Each WBS element represents a single deliverable Each deliverable is distinct
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HR Management Questions?
How to assign the right tasks to the right person? How to motivate the team to perform at peak performance with the highest quality? How to obtain the needed power and authority to manage the entire project?
HR Planning Process
Identifying and documenting project roles, responsibilities, and reporting relationships Important areas of research/study related to project management include:
Motivation Influence and power Effectiveness Matching of resources to task
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Abraham Maslow - Motivation

Recognized as the first to identify a prioritized hierarchy of needs that workers possess which motivates them to do their best work
Instinctual need to make the most of our unique abilities Self respect, reputation, recognition, self-confidence Love, belonging, togetherness, approval, group inclusion, friendship Economic security, protection from harm, secure employment Breathe, food water, clothing, shelter, 79 sleep
McGregor Leadership Styles

The work of Douglas McGregor is helpful to the project manager in understanding how to approach workers with an appropriate leadership style Two leadership styles: theory X and theory Y Theory X workers are inherently lazy and require direct supervision on a constant basis authoritarian approach to managing using punishment as the primary motivator Theory Y workers enjoy work and can be trusted to work efficiently without direct supervision participative style approach to managing with group decision making
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McGregor
Workers come in many forms, some lean toward theory X and some toward theory Y and everything in between Workers will also change over time based on life circumstances PM leadership style must be adaptive
Ouchi theory Z
William Ouchi later added a third dimension or theory of workers referred to as theory Z. Theory Z workers emphasizes a more Japanese cultural based approach. Workers are more participative, and capable of performing many and varied tasks at different levels of responsibilities Theory Z management emphasizes things such as job rotation, broadening of skills, generalization versus specialization of skills, and the need for continuous training
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Herzberg
Frederick Herzberg found that the factors causing job satisfaction (implying motivation) were different from that causing job dissatisfaction Hygiene factors (physiological, safety, and social)
If present didnt motivate employees to perform better but if missing created job dissatisfaction and became demotivators
Summary of Herzbergs Research

Leading to Dissatisfaction
Supervision Company Policies Relationship with supervisor Work conditions Relationship with peers Salary
Leading to Satisfaction
Recognition Work itself Achievement Responsibility Growth in and outside of the job Advancement
Motivation factors (esteem and self actualization)

If workers experienced these items they tended to be satisfied, happier, and more productive
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Best Practices
Taking the time to know each individual one-on-one Keep and communicate a positive attitude about the project, the team, and the company Assign the appropriate level of work to each worker Communicate often and openly Make each worker feel appreciated for their particular contribution to the project Make sure each worker has the proper training needed and desired Reward members of the team fairly and consistently
Authority Influence and Power

In many projects, the team is made up of crossfunctional team members who have functional supervisors and potentially multiple project managers to answer too (Matrix Organizational Structure) To be successful, project managers in addition to discovering individual worker needs and motivations must have the needed authority and power to direct the work required to accomplish the goals and objectives of the project
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Influence Types
Expertise the project manager is seen by the project team as having superior content knowledge of the business, past project success, and an appreciation of the technology Work Challenge the project manager has some control over who gets assigned what work Salary Influence the project manager has input (directly or indirectly) into the workers salary. Friendship personal relationships established between the project manager and others
Influence Types
Future Work Assignments project manager has influence on a workers future work assignment Promotion project manager has input (directly or indirectly) on a workers future position promotions Authority power that is delegated or given to a project manager from their superiors Fund Allocations project manager has influence on how the project budget is spent Penalty project manager can penalize nonperforming team members
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Influence Types
Best opportunity for success:
Expertise, work challenge, and salary influence
The Seven Habits of Highly Effective People

1. Be proactive 2. Begin with the end in mind 3. Put first things first 4. Think win-win 5. Seek first to understand and then to be
Worst opportunity for success:

Budget allocation, salary, and penalty
understood
6. Synergize 7. Sharpen the saw
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11/9/2009

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Understand that choosing project is important

Richard Carlsson, Jnkping International Business School

Strategic Planning and Project Selection

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

Projects authorized as a result of:

Identifying Potential Projects

Richard Carlsson, Jnkping International Business School

Key Issues Needing Answers for AllTechnology Projects

Methods for Selecting Projects

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Business Case Development

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

Business Case Example from Text Case Study

Selecting the Wrong Projects

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

SWOT Analysis Opportunities

Time Value of Money

Time Value of Money

Time Value of Money

Time Value of Money

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

NPV Example Calculations

Discounted Cash Flow

($120,000) ($37,037) $21,433 $55,569 $95,553 $54,448 $69,966

Year 1 Year 2 Year 3 Year 4 Year 5 NPV

$5,000 / (1 + .08)5 Add them up

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Internal Rate of Return (IRR)

Return on Investment (ROI)

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Selecting a Portfolio of Projects

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Weighted Scoring Model (WSM)

Process to Create WSM

criterion so they add up to 100%

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

Weighted Scoring Model Example

Other Methods to Determine Value

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Richard Carlsson, Jnkping International Business School

Stakeholder Analysis Process