Information Technology Project Management – Third Edition By Jack T. Marchewka Northern Illinois University Copyright 2009 John Wiley & Sons, Inc. all rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.

Conceptualizing and Initializing the Project Chapter 2

Information Technology Project Methodology A strategic-level plan for managing and controlling the project Game plan for implementing project and product lifecycles Recommends phases, deliverables, processes, tools, and knowledge areas for supporting an IT project Must be flexible and include “best practices” and “lessons learned” from successful and unsuccessful experiences over time. Should lead to fewer wasted resources and projects that provide true value to the organization Can be Traditional (e.g., Waterfall) Agile (e.g., XPM, SCRUM)

An IT Project Methodology Figure 2.1

Phases Phase 1: Conceptualize and Initialize Define the overall goal of the project – most important step in the ITPM Project is undertaken for a specific purpose and that purpose must be to add tangible value to the organization Aids in defining the project’s scope, guides decisions throughout the project life cycle and will be used to evaluate the project’s success Identify alternatives along with the costs, benefits, feasibility and risks The project’s goal and analysis of alternatives that support the goal are summarized in a deliverable called the business case Senior management uses the business case during the selection process to determine whether the project should be funded

Phases Phase 2: Develop the Project Charter and Detailed Project Plan The project charter is a key deliverable of this phase Defines how the project will be organized and implemented Identifies and gives authority to a PM to begin carrying out the processes and tasks associated with the SDLC The project plan provides all the tactical details concerning Who is the PM, plan sponsor, project team What is the scope, resources, tools, technologies, value to the org How long, how much The project’s scope, schedule, budget, and quality objectives are defined in detail

Phases continued Phase 3: Execute and Control the Project Carry out the project plan to deliver the IT product The project team uses a set of systems analysis and design tools for implementing the SDLC Must have people with appropriate skills on board, risk plan, quality management plan, change management plan, testing plan, communication plan, etc. Phase 4: Close Project Formal acceptance should transfer control from the project team to the client or project sponsor Project team should prepare a final report to document and verify that all deliverables have beenmet

Phases continued Phase 5: Evaluate Project Success Post mortem by project manager and team of entire project Document lessons learned and best practices to improve organization’s methodology for future projects Evaluation of team members by project manager Identify strengths and opportunities for improvement to help maximize each person’s potential Outside evaluation of project, project leader, and team members Evaluate project’s organizational value

Project Management Process Groups A process is a series of actions directed toward a particular result Project management can be viewed as a number of interlinked processes The project management process groups include: Initiating processes Defining and authorizing a project or project phase Planning processes Devising and maintaining a workable scheme to ensure that the project addresses the organization’s needs Executing processes Coordinating people and resources to carry out the various plans and produce the products, services or results of the project or phase Monitoring and controlling processes Regularly measuring and monitoring progress to ensure that the project objectives are met Closing processes Formalizing acceptance of the project or phase, closing out contracts, documenting lessons learned

Level of Activity and Overlap of Process Groups Over Time

Mapping the Process Groups to the Knowledge Areas You can map the main activities of each PM process group into the nine knowledge areas using the PMBOK® Guide Note that there are activities from each knowledge area under the planning and monitoring and controlling process groups Information Technology Project Management, Sixth Edition

Process Groups and Knowledge Area Mapping

Process Groups and Knowledge Area Mapping

Process Groups and Knowledge Area Mapping

IT Project Management Foundation Project Management Process Groups Initiating processes Planning processes Executing processes Controlling processes Closing processes Project Objectives

IT Project Management Foundation Tools - e.g. Microsoft Project ®, Computer Aided Software Engineering (CASE) Infrastructure Organizational Infrastructure How projects are supported and managed How resources are allocated, reporting relationships of the PM and team members, role of project Project Infrastructure – supports the project team in terms of: Project Environment Roles and Responsibilities of team members Processes and Controls Technical Infrastructure hardware and software tools to support the project team Project Management Knowledge Areas

The Business Case Definition of Business Case: an analysis of the organizational value, feasibility, costs, benefits, and risks of the project plan. Attributes of a Good Business Case Details all possible impacts, costs, and benefits Clearly compares alternatives Documents methods and rationale used to quantify costs and benefits Objectively includes all pertinent information Shows explicitly how an investment in IT will lead to an increase in business value Systematic in terms of summarizing findings Provides senior management with all the information needed to make an informed decision as to whether a specific project should be funded

Process for Developing the Business Case Figure 2.3

Developing the Business Case Step 1: Select the Core Team Advantages: Credibility - all stakeholders and relevant departments involved Alignment with organizational goals Access to the real costs Ownership Agreement Bridge building - include critics on the team

Developing the Business Case Step 2: Define Measurable Organizational Value (MOV) The project’s goal - measure of success Must be measurable Provides value to the organization Must be agreed upon Must be verifiable at the end of the project Guides the project throughout its life cycle Should align with the organization’s strategy and goals

The IT Value Chain Figure 2.4

The IT Value Chain prevent customers from leaving or switching to a competitor develop tighter linkages with customers Develop a B2B application to allow customers to do business on-line

IT Value Chain President Kennedy’s mission to the moon – clear and measurable goals without saying how to accomplish the goal “Our goal is to land a man on the moon and return him safely by the end of the decade” A human being and not a monkey or unmanned rocket Get him back safely to earth Do this by 1970 http://www.youtube.com/watch?v=E8- zejVPn30&feature=fvwp&NR=1

Process for Developing the MOV Example: A company wants to develop and implement a B2C e- commerce application to expands its current brick and mortar operations Identify the desired potential area of impact – why does the organization want to take on the project Strategic Customer Financial Operational Social B2C – PM meet with plan sponsor to determine how the idea for the project came about to understand how and why decisions are made by sponsor’s organization. Strategic & financial – expand b&m operations

Process for Developing the MOV Identify the desired organizational value of the IT project – how will this project help achieve what we want as an organization Better? Faster? Cheaper? Do More? (growth) B2C – enable the organization to expand its current operations Improved customer service and operations would fall under better, faster and cheaper

Process for Developing the MOV Develop an Appropriate Metric - should it increase or decrease? Company needs a way to determine if project is a success and if their investment paid off Money ($, £, ¥ ) Percentage (%) Numeric Values (customers, hits on website) B2C – plan sponsor has set the metric to be a 20% return on investment and 500 new customers

Process for Developing the MOV Set a time frame for achieving the MOV When will the MOV be achieved? Completion of the project does not mean the MOV has been achieved. MOV can change as time passes B2C – plan sponsor has set the metric to be a 20% return on investment and 500 new customers within first year. 25% return and 1000 new customers second year, 30% return and 1,500 new customers third year.

Process for Developing the MOV Verify and get agreement from the project stakeholders Ensure that it is accurate and realistic Project manager and team can only guide the process, plan sponsor identifies the vale and target metrics PM should not commit to an unrealistic MOV

Process for Developing the MOV Summarize the MOV in a clear, concise statement or table Opportunity to get final agreement and verification Simple and clear directive to the project team Sets explicit expectation for all project stakeholders This project will be successful if _________________. MOV: The B2C project will provide a 20% return on investment and 500 new customers within the first year of its operation Year MOV 1 20% return on investment 500 new customers 2 25% return on investment 1,000 new customers 3 30% return on investment 1,500 new customers

Developing the Business Case Step 3: Identify Alternatives Base Case Alternative – how would the organization would perform under the status quo Determine costs of maintaining the current system over time Increased maintenance costs of hardware and software Possibility of more frequent system failures and downtime Possible Alternative Strategies Change existing business processes without investing in IT Adopt/Adapt systems from other organizational areas Reengineer existing system Purchase off-the-shelf applications package Custom build new solution using internal resources or outsourcing

Developing the Business Case Step 4: Define Feasibility and Asses Risk Feasible – doable and worth doing Economic feasibility – too costly and/or not provide expected benefits Technical feasibility – can infrastructure, IT staff, vendor support the solution Organizational feasibility – will solution be accepted by staff, will business be disrupted Other feasibilities - legal/ethical issues considered Risk Identification - what can go wrong and what must go right? Assessment – what is the impact of each risk? Response – how can the organization avoid or minimize the risk?

Developing the Business Case Step 5: Define Total Cost of Ownership Total cost of acquiring, developing, maintaining and supporting the application over its useful life Direct or Up-front costs – initial cost of hardware, software, telecomm equipment, development, installation, outside consultants, etc. Ongoing Costs – salaries, training, upgrades, supplies, maintenance, etc. Indirect Costs – initial loss of productivity, downtime cost, QA, auditing equipment, post-implementation reviews.

Developing the Business Case Step 6: Define Total Benefits of Ownership Increasing high-value work Sales force spends less time on paperwork and more time on calls to customers Improving accuracy and efficiency Reduction in errors, duplication, time to complete a business process Improving decision-making Getting timely and accurate information Improving customer service New products/services, faster or more reliable service, etc Intangible benefits Try to quantify them by linking them to tangible benefits that can be linked to efficiency gains Corporate wide directory on an intranet improves communications and reduces paper documents, printing, etc An EDI application enables faster collection of A/R, benefit which can be valued in terms of investing that money

Developing the Business Case Step 7: Analyze alternatives using financial models and scoring models – compare all models the same way Payback – how long will it take to recover the initial investment Payback Period = Initial Investment Net Cash Flow (or Return) per year = $100,000 $20,000 = 5 years

Developing the Business Case

Developing the Business Case Break Even Materials (putter head, shaft, grip, etc.) $12.00 Labor (0.5 hours at $9.00/hr) $ 4.50 Overhead (rent, insurance, utilities, taxes, etc.) $ 8.50 Total $25.00 If you sell a golf putter for $30.00 and it costs $25.00 to make, you have a profit margin of $5.00: Breakeven Point = Initial Investment / Net Profit Margin = $100,000 / $5.00 = 20,000 units

Developing the Business Case Return on Investment shows the relationship between a project’s cost and benefits returns must arise as a direct result of the initial investment Project ROI =(total expected benefits – total expected costs) total expected costs = ($115,000 - $100,000) $100,000 = 15%

Developing the Business Case Net Present Value – time value of money Discounts streams of cash flows in the future so that it can be determined if investing the time, money and resources is worth the wait Outflows – Year 0: cost to build; Years 1- 4: support and maintenance When comparing alternatives, higher NPV is more desirable Year 0 Year 1 Year 2 Year 3 Year 4 Total Cash Inflows $0 $150,000 $200,000 $250,000 $300,000 Total Cash Outflows $85,000 $125,000 Net Cash Flow ($200,000) $65,000 $75,000 $100,000 NPV = -I0 +  (Net Cash Flow / (1 + r)t) Where: I = Total Cost or Investment of the Project r = discount rate t = time period

Developing the Business Case Net Present Value Time Period Calculation Discounted Cash Flow Year 0 ($200,000) Year 1 $65,000/(1 + .08)1 $60,185 Year 2 $75,000/(1 + .08)2 $64,300 Year 3 $100,000/(1 + .08)3 $79,383 Year 4 $100,000/(1 + .08)4 $73,503 Net Present Value (NPV) $77,371

Net Present Value Analysis $943.39 41

Developing the Business Case Internal Rate of Return The discount rate that makes the net present value of investment zero. It is an indicator of the efficiency of an investment, as opposed to NPV, which indicates value or magnitude. The IRR is the annualized effective compounded return rate which can be earned on the invested capital, i.e., the yield on the investment. A project is a good investment proposition if its IRR is greater than the rate of return that could be earned by alternate investments (investing in other projects, buying bonds, even putting the money in a bank account). Thus, the IRR should be compared to any alternate costs of capital including an appropriate risk premium.

Developing the Business Case

Developing the Business Case Weighted Scoring Models A tool that provides a systematic process for selecting projects based on many criteria Identify criteria important to the project selection process Can combine both qualitative and non-qualitative items Weights and scores can be largely subjective Assign weights (percentages) to each criterion so they add up to 100% Assign scores to each criterion for each project Multiply the scores by the weights and get the total weighted scores The higher the weighted score, the better

Criterion Weight Alternative A Alternative B Alternative C Financial ROI 15% 2 4 10 Payback 10% 3 5 NPV Organizational Alignment with strategic objectives 8 Likelihood of achieving project’s MOV 6 9 Project Availability of skilled team members 5% Maintainability 7 Time to develop Risk External Customer satisfaction Increased market share Total Score 100% 2.65 4.85 8.50 Notes: Risk scores have a reverse scale – i.e., higher scores for risk imply lower levels of risk

Developing the Business Case Step 8: Propose and Support the Recommendation Recommend one of the options, must be supported by your analysis Opportunity to make an impression on the client or plan sponsor Use template on next slide

Business Case Template Figure 2.5

Project Selection and Approval The IT Project Selection Process Organization needs a balance of projects in its project portfolio with varying degrees of risk, technological complexity, size and strategic intent. Due to limited resources, what a company wants to do is not always feasible Committee decides which projects to approve and project manager is assigned The Project Selection Decision IT project must map to organization goals IT project must provide verifiable MOV Selection should be based on diverse measures such as tangible and intangible costs and benefits various levels throughout the organization (individual, dept, enterprise)

Project Selection and Approval Balanced Scorecard Balances traditional financial measures with operational metrics across four different perspectives Finance Customer satisfaction, Internal business processes The organization’s ability to innovate and learn The organization must create a set of measurements or key performance indicators for each of the perspectives The measures are used to create a scorecard that allows management to keep score of the organization’s performance Provides a balanced approach in terms of tangible and intangible benefits, long and short-term objectives and how each perspective’s desired outcomes and drivers impact the other perspectives

Project Selection and Approval Balanced Scorecard Financial performance is linked to customer focused initiatives, internal operations and investments in employees and the infrastructure to support their performance Measures for customer satisfaction can be linked to financial rewards Customer satisfaction can be achieved through improved internal operational activities which leads to improved financial performance Organization relies heavily on its employees to provide continuous improvement and innovation in the first three perspectives.

Balanced Scorecard Approach

Reasons Balanced Scorecard Approach Might Fail Nonfinancial variables incorrectly identified as primary drivers Metrics not properly defined Goals for improvements negotiated not based on requirements Reliance on trial and error as a methodology No quantitative linkage between nonfinanacial and expected financial results

MOV and the Organization’s Scorecard MOV supports the balanced scorecard approach in terms of how it supports the perspectives Figure 2.6

IT Governance Focuses on the processes that coordinate and control an organization’s resources, actions, and decisions to help prevent people from making bad investments, acting unethically, or doing something illegal For many organizations, IT governance started with project management, but today it also includes change management, application life-cycle management, asset and resource management (i.e., IT investment/project approval), portfolio management, and security management

IT Governance Best Practices Identify strategic value Organizations are often faced with a stack of potential IT projects, so it is important to compare them in terms of their business value as well as their costs and potential risks Top business managers should set IT priorities Many organizations rely on a committee of business and IT leaders to determine how the IT budget will be spent. Helps align IT with organizational objectives and increase shared accountability. Communicate priorities and progress clearly The priorities defined by the top IT and business managers must be communicated clearly to the rest of the organization to ensure that everyone is aware of and understands how the governance process works Monitor projects regularly An organization needs to track each project’s progress on a regular basis to protect the value of its investment. Summary of key project metrics, spotlight potential issues or problems early on

The Project Management Office (PMO) Can be a critical component for supporting IT governance Its role is to provide support and collect project-related data while providing tools and methodologies. Information collected about projects across the organization provides a means to study the organization’s portfolio of IT projects. Historical information can be used as an audit trail to conform to regulatory requirements Also can be used as a basis for estimating and conducting reality checks for projects. A PMO can become center of excellence for project management.

Benefits of a PMO Points out minefields in project processes, such as time and cost estimation Enforces priorities and/or controls that keep the project on track Coordinates cross-functional projects that may stumble as a result of organizational politics that often arise when intra-organizational boundaries are crossed Provides a standardized way for all projects to be planned, managed, and reported Can show the real value of projects by comparing projected costs and benefits with actual results Can coordinate more and larger projects than the organization could handle in the past Allows IT to support its requests for additional staff or resources