Project Management 2. Portfolio Management
Week 2
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 Identifying IT Projects Project Proposals Project Selection Methods Applying a Selection Model Project Selection Project Success
But first
Assignment 1
“Write a project plan”
Assignment 1 “Write a project plan” Topic: Week 3
Back to the programme…
Strategic Planning
1.What is strategy? 2.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 INFRASTRUCTURECUSTOMEROFFER FINANCE Osterwalder’s Business Model framework
Process efficiency Scorecard Customer satisfaction Financial Learning and innovation Balanced Scorecard Kaplan & Norton (1994?) HBR
Kaplan & Norton (1998?) HBR 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
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 PositiveNegative
S T W O Internal External
S T W O Internal External PositiveNegative
S T W O Internal External PositiveNegative
Set (SMART) Goals Review Mission Develop Strategies Implement Strategies through projects Align Strategies to goals
SSpecific MMeasurable AAchievable RRelevant TTime-bound
LetterMajor TermMinor Terms SSpecificSignificant [3], Stretching [3], Simple [3] MMeasurableMeaningful [3], Motivational [3], Manageable [3] AAchievable Agreed, Attainable [6], Assignable [2], Appropriate, Actionable, Action-oriented [3] [6] [2] [3] RRelevant Realistic [2], Results/Results-focused/Results-oriented [6], Resourced [7], Rewarding [3] [2] [6] [7] [3] TTime-bound Time framed [2], Timed, Time-based, Timeboxed, Timely [6][5], Timebound, Time-Specific, Timetabled, Trackable [2] [6][5] E [1] [1] Exciting, Evaluated, Ethical R [1] [1] Recorded, Rewarding, Reviewed [8] [8]
Examples of “not smart” goals?
Set (SMART) Goals Review Mission Develop Strategies Implement Strategies through projects Align Strategies to goals
Set (SMART) Goals Review Mission Develop Strategies Implement Strategies through projects Align Strategies to goals
Organisation Mission Money Customers Efficiency and Effectiveness Adaptability Strategy 2 Strategy 1 Strategy 3 Strategy 4
Set (SMART) Goals Review Mission Develop Strategies Implement Strategies through projects Align Strategies to goals
Organisation Mission Money Customers Efficiency and Effectiveness Adaptability 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
PPPM Project Programme Portfolio Management The ‘O’ is for Organisational OPM3
Programme OPM3 Portfolio Projects
Programme Portfolio Project Programme Project Projects Project Projects 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?
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
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 programme projects programme projects Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission Programme projects programme
Short term Mid term Long term projects Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission projects
projects Strategy 2 Strategy 1 Strategy 3 Strategy 4 Organisation Mission 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 (Cosgrove Ware, 2002) –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
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)
Project Initiation forms Figure 2.4B Risk Analysis (Gray & Larson, 2006, p39) Figure 2.4A Major Project Proposal (Gray & Larson, 2006, p38)
Project Selection Methods
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 $$$ Net Present Value Payback model Return on Investment (there are more)
Financial Analysis $$$ 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 toStop 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 $$$ Weighted scoring model Balanced Scorecard
$$$ Weighted scoring model 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 $$$
Balanced Scorecard –Robert Kaplan and David Norton developed this approach to help select and manage projects that align with business strategy –Methodology that converts an organization’s value drivers, such as customer service, innovation, efficiency, and financial performance, to a series of defined metrics –See for more informationhttp:// $$$
Applying a selection model
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 1.Introduction/Background 2.Business Objective 3.Current Situation and Problem/Opportunity Statement 4.Critical Assumptions and Constraints 5.Analysis of Options and Recommendation 6.Preliminary Project Requirements 7.Budget Estimate and Financial Analysis 8.Schedule Estimate 9.Potential Risks 10.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: Not even completed Typically 189% over budget OTOBOS 53% Challenge d 16% Success 31% Critical Failures 1994
Not even completed Still way over budget OTOBOS 51% Challenge d 34% Success 15% Critical Failures 2002 Source: CHAOS Report 2002 by the Standish Group Access it here:
53% Challenge d 16% Success 31% Critical Failures % Challenge d 34% Success 15% Critical Failures 2002
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)
Smaller projects Better tools Better training
Better Selection Portfolio Mgt Strategic Alignment More recently
Things you should have (if you want to succeed) 1.Executive support 2.User involvement 3.Experienced project manager 4.Clear business objectives 5.Minimized scope 6.Standard software infrastructure 7.Firm basic requirements 8.Formal methodology 9.Reliable estimates 10.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?
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