CH 4 Project Initiation.

CH 4 Project Initiation

Project Initiation Before a project manager begins working on a project, he or she needs to understand how and why the organization decided to spend valuable resources-money and time-on the project. You will understand the project management initiation process when you can

Objectives Define the project initiation process group, with all its component processes and deliverables Understand why selecting the right projects to work on is important and sometimes difficult for an organization Understand the importance and contents of a project charter and the stakeholder assessment matrix Understand how to conduct a project kickoff meeting

Objectives Understand the importance and contents of a project charter and the stakeholder assessment matrix Understand how to conduct a project kickoff meeting

Objectives Learn the tools and techniques of project selection, including: The strategic planning process for the organization and IT department Quantitative methods, including the following: Return on investment (ROI) Net present value (NPV) Internal rate of return (IRR) Payback analysis Qualitative methods Balanced scorecard Real options The weighted scoring model (WSM)

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 long-term business objectives (long-term?) IT projects should support strategic and financial business objectives

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 First, develop an IT strategic plan in support of the organization’s overall strategic plan Then perform a business area analysis Next, define potential projects, build the business case Finally, select IT projects and assign resources

Four Key Issues Needing Answers for All Technology Projects
Business Value Technology Cost/Benefit questions Risk 1. Business value—IT project managers must look at a project from a business perspective by identifying what business process(es) will be most affected. They must understand the process thoroughly and the impact the project will have on these processes. They must also understand what impact the project will have on associated processes. Using the systems approach assists in learning what impact a project will have on all parts of the organization. 2. Technology—The technology used for a project needs to be well tested, scalable, secure, modifiable, and usable. Has the technology been used in the organization before, and do we have experience with it? What technology is the competition using, and how might technology allow this organization to see what works and doesn’t work in their specific industry? 3. Cost/benefit questions—An organization needs to understand whether the complete costs—including acquisition, development, and ongoing support costs—of the project outweigh its benefits. 4. Risk—IT project managers must do a thorough risk assessment for the project. They must know what kinds of issues or problems might surface during the project— such as the software vendor going out of business in the middle of the project or funding for the project being cut in half during execution—and be sure to have appropriate safeguards or workarounds in place so the project can still be completed.

1. Business value- IT project managers must look at a project from a business perspective by identifying what business process(es) will be most affected. They must understand the process thoroughly and the impact the project will have on these processes. They must also understand what impact the project will have on associated processes. Using the systems approach assists in learning what impact a project will have on all parts of the organization.

2. Technology- The technology used for a project needs to be well tested, scalable, secure, modifiable, and usable. Has the technology been used in the organization before, and do we have experience with it? What technology is the competition using, and how might technology allow this organization to see what works and doesn't work in their specific industry?

3. Cost/benefit questions-
An organization needs to understand whether the complete costs-including acquisition, development, and ongoing support costs-of the project outweigh its benefits. .

4. Risk- IT project managers must do a thorough risk assessment for the project. They must know what kinds of issues or problems might surface during the project such as the software vendor going out of business in the middle of the project or funding for the project being cut in half during execution- and be sure to have appropriate safeguards or workarounds in place so the project can still be completed

Methods for Selecting Projects
In every organization, there are always more projects than available time and resources to implement them Very important to follow a repeatable and complete process for selecting IT projects, to get the right mix (portfolio) for the organization Business case – a document composed of a set of project characteristics (costs, benefits, risk, etc.) that aid organization decision makers in deciding what projects to work on Slide

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 • Credibility—Credibility is achieved because the information comes from many different sources, allowing for checks and balances. • Accuracy—Accuracy is improved for the same reasons as credibility, as well as the fact that the information comes from the people who are best equipped to provide it. For example, to get salary data for key resources needed for the project, you go to the accounting department, which can provide the basic salary data plus overhead rates (insurance, vacation, and so on), or to get market impact, you solicit input from the marketing and sales department. • Thoroughness—Thoroughness is aided by this approach if all team members are allowed input into the process. • Ownership—It’s important that IT projects not be viewed as solely the property of the IT department. All stakeholders from all affected departments need to feel like part of the process and take some ownership in making sure the project is successful.

Credibility-Credibility is achieved because the information comes from many different sources, allowing for checks and balances. • Accuracy-Accuracy is improved for the same reasons as credibility, as well as the fact that the information comes from the people who are best equipped to provide it. For example, to get salary data for key resources needed for the project, you go to the human resources department, which can provide the basic salary data plus overhead rates (insurance, vacation, and so on), or to get market impact, you solicit input from the marketing and sales department.

• Thoroughness-Thoroughness is aided by this approach if all team members are allowed input into the process. • Ownership-It's important that IT projects not be viewed as solely the property of the IT department. All stakeholders from all affected departments need to feel like part of the process and take some ownership in making sure the project is successful.

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” set of investments that create the greatest possible value at the least possible cost called the “efficient frontier”

Before moving on to building the business case and the project selection tools….
Caution: “It is better to measure gold roughly than to count pennies precisely” Before continuing with the selection criteria remind students that you don’t use every tool to select every project. The effort should reflect the significance of the project. High dollar high risk high importance should take more justification.

Strategic Planning A formal document that outlines an organization’s 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 company’s strategic plan as goals and objectives. Listed next to each goal or objective is a list of strategies which will fulfill the objective

Strategic Planning The development of strategies (projects) must focus on what is needed to meet the strategic plan’s 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 A strength is an organizational resource (dollars, people, location, equipment, information technology) that can be used to meet an objective A weaknesses is a missing or limited resource that bares on the organization’s ability to meet an objective An opportunity is a circumstance that may provide the organization a chance to improve its ability to compete A threat is a potentially negative circumstance that if occurs may hinder an organizations ability to compete.

Strategic Planning • Strength-
A strength is an organizational resource (money, people, location, equipment,IT) that can be used to meet an objective. . • Weakness- A weaknesses is a missing or limited resource that bears on the organization's ability to meet an objective. .' . .

Strategic Planning • Opportunity-
An opportunity is a circumstance that may provide the organization a chance to improve its ability to compete. . . • Threat- A threat is a potentially negative circumstance that, if it occurs, may hinder an organization's ability to compete

Strategic Planning Because today's organizations face an ever-growing number of opportunities and threats, they must be able to successfully execute multiple proJects multiple departments. A technique that assists orgamzations managing multlple projects is called portfolio management.

Strategic Planning IT project portfolio management organizes a group of IT proJect into a single portfolio consisting of reports that capture project goals,. costs, time lines, accomplishments, resources, risks, and other critical factors. Chief Information Officer (CIOs) and other IT managers can then regularly review entIre portfolios, allocate resources as needed, and adjust projects to produce the highest returns.

Selection Tools Qualitative Models Quantitative Models
Subject matter expert judgments “Sacred Cow” Mandates Quantitative Models Net Present Value (NPV) Internal Rate of Return (IRR) Return on Investment Payback Period

Subject Matter Experts
SMEs are individuals either within a company or outside the company who possess expertise or unique knowledge in a particular facet of the business, either because of work experience, education, or a combination of the two.

SMEs SMEs can evaluate projects with or without more complex quantitative models and can categorize projects with low, medium,and high priority rankings.

SACRED COW Sacred cow decisions are made because someone-generally in upper management really wants a particular project to be done. These decisions are not always in the best interest of the organization but of one individual or a group. Unfortunately, many organizations still operate today using this method.

SACRED COW The scenario usually goes something like this:
• A senior manager from a non-IT department picks up a trade magazine and reads about show all the best companies are doing XYZ to be competitive. He then schedules a meeting with an IT manager and explains that XYZ is something we have to implement.

SACRED COW • The IT manager, not knowing any better launches a project, gathers resources, and begins to operate under the directive to "get it done ASAP." • Other projects that these individuals are working on are all delayed, as they work on the "sacred" one.

Mandates Mandates can come from vendors, government agencies, industry sectors, or markets. Vendors may in the case of computer software release a new version and stop support for previous versions: You either upgrade or risk losing support. Some vendor contracts stipulate that you will keep the software current.

Mandates A project may be mandated by key customers. Many consumer goods retailers are mandating that all suppliers be capable of conducting business-including orders, shipping information, and inventory control-completely electronically. If your company doesn't have this capability but wants to do business with the customer, you will be required to add these capabilities.

Qualitative Models Subject matter expert (SME) judgments “Sacred Cow”
Individuals either within the company or outside the company who possess expertise or unique knowledge in a particular facet of the business either by work experience, education, or a combination of both SME’s can be used to evaluate projects with or without more complex quantitative models and categorize projects with low, medium, and high priority rankings “Sacred Cow” “Sacred Cow” decisions are made because someone – generally in upper management – really wants the project to get done

Qualitative Models Mandates
Generated from vendors, government agencies, industry sectors, or markets Examples: family leave act, Sarbanes Oxley, use

QUANTITATIVE MODELS QUANTITATIVE MODELS
Every IT project will have some level of financial benefit to the organization as well as some level of cost. The bottom line is that IT projects cost money. The reason we create financial models for project selection analysis is simply to ascertain whether the benefits outweigh the costs and to what degree

Quantitative Models Financial considerations are often an important factor in selecting projects but not always! Four primary methods for determining the estimated financial value of projects: Net present value (NPV) analysis Return on investment (ROI) Payback analysis Internal Rate of Return (IRR)

Time Value of Money A sum of money is more valuable the sooner it is received. A dollar today is worth more than the promise of a dollar 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. <next slide>

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 PV = FV (1+i)n Example: You have a project that promises you $1000 of profit at the end of the first year with the discount rate at 10% PV = $1, = $909 (1+0.1)1 The project is worth only $909 today

Net Present Value Analysis
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

NPV is one of the most often used quantitative models for project selection. 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.

If the NPV turns out to be a positive value, the project has surpassed the cost of capital or return available by investing the same money in other ways. All other project characteristics being equal, the project with the highest NPV should be chosen.

NPV Example NPV is calculated using the following formula:
NPV = ∑t=0…n 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

NPV Example Calculations
Do the Math Discounted Cash Flow Project 1 Year 0 ($120,000) Year 1 ($40,000) / ( )1 ($37,037) Year 2 $25,000 / ( )2 $21,433 Year 3 $70,000 / ( )3 $55,569 Year 4 $130,000 / ( )4 $95,553 Year 5 $80,000 / ( )5 $54,448 NPV Add them up $69,966 Project 2 ($75,000) ($5,000) / ( )1 ($4,630) $70,000 / ( )2 $60,014 $45,000 / ( )3 $35,723 $30,000 / ( )4 $22,051 $5,000 / ( )5 $3,403 $41,561

Internal Rate of Return (IRR)
IRR is similar to NPV in process but is slightly more difficult to calculate. The IRR is the discount rate at which NPV is zero. Finding an IRR solution involves trial and error: You keep plugging in different discount rates and see which one drives the NPV to zero.

You can compare the IRR value to other projects or to a company standard to see which projects should get priority. If the organization has set a minimum value of 8 percent and the project IRR is 15 percent, you have a positive situation, and you should do the project. If the project IRR turns out to be 6 percent, you should not do the project

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. Basically 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

ROI Example Step 1: determine discount factor for each year.
Step 2: calculate discounted benefits and costs

ROI Example

ROI Example ROI Project 1 = ($436,000 - $367,100) / $357,100 = 19%
= 31%

Payback Period 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. As with the other quantitative models, many organizations have a maximum number in mind that all projects must meet or beat. If an IT project has a payback period of four years but the organization demands two years, then either you won't be allowed to proceed with the project or you must make adjustments to change the equation .

Payback Period The payback period ignores the time value of money but offers a glimpse at the potential risk associated with each of the projects. A longer payback period generally infers a riskier project. The longer it takes before a project begins to make money for the organization,the greater the chances that things can go wrong on the project

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)

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

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 First identify criteria important to the project selection process Then assign weights (percentages) to each criterion so they add up to 100% Then assign scores to each criterion for each project Multiply the scores by the weights and get the total weighted scores

Weighted Scoring Model Example
Explain that table 4-1 lists the values for the ratings given in the weighted scoring model

Other Methods to Determine Value
Balanced Scorecard Real Options

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 organization’s value drivers, such as customer service, innovation, operational efficiency, and financial performance to a series of defined metrics The balanced scorecard approach suggests that the organization be viewed from four perspectives: • Financial—The strategy for growth, profitability, and risk, viewed from the perspective of the shareholder. • Customer—The strategy for creating value and differentiation, from the perspective of the customer. • Internal business—The strategic priorities for various business processes, which create customer and shareholder satisfaction. • Learning and growth—The priorities for creating a climate that supports organizational change, innovation, and growth.

Balanced Scorecard 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

Real Options Derives from a financial model considering the management of a portfolio of stock investment options Has not yet become a very popular option for IT investments A fundamental definition of an option is “the right, but not the obligation, to buy (call option) or sell (put option) an investment holding at a predetermined price (called the exercise price or strike price) at some particular date in the future”

Real Options A stock option lets us make a small investment today in order to reduce our risk later on. At the same time, it keeps open the possibility of making a bigger investment later, if the future goes the way we expect The more uncertain the times, the more valuable an options approach becomes

Real Options In order to make real options easier to understand, T.A. Leuhrman (1998) used the analogy of a tomato garden: In a tomato garden, not all the tomatoes are ripe at the same time; some are ready to pick right now, some are rotten and should be thrown away, and some will be ready to harvest at a later date We can apply this line of thinking for evaluating investments.

Real Options Traditionally, the evaluation of investments has been limited to a yes/no “ripe or rotten” decision based solely on net present value. With real options, an investment with a negative net present value may still be good, but perhaps it’s just not the right time (it’s not ripe yet) If you can delay until the proper time (now ripe) your once negative NPV net present value would reflect a positive one Viewing an investment as an option allows projects to be evaluated and managed in respect to future value and a dynamic business environment

Real Options Figure 4-3 divides a tomato garden (option space) into six regions, with definitions of the types of options that fall into each region and directions about how to handle them. The regions are defined as follows: • Region 1—This region is a now-or-never area, where either all the unknowns about an investment have been determined or the time to decide is up. If the investment has a value-to-cost greater than 1, you should invest. • Region 2—Investment in this region is currently showing a value-to-cost greater than 1, but it is still not time to invest. The line dividing Region 2 and Region 3 equates to the NPV of the option. In Region 2, the NPV is greater than 0. • Region 3—Investment in this region is currently showing a value-to-cost greater than 1, but it is still not time to invest. In Region 3, the NPV is less than 0. • Region 4—Investment in this region has a value-to-cost ratio of less than 1. This would not be pursued unless conditions are improved to make it a worthy investment before time runs out. • Region 5—Investment in this region has a value-to-cost ratio of less than 1. This would not be pursued unless conditions are drastically improved to make it a worthy investment before time runs out. • Region 6—This region is a now-or-never area, where either all the unknowns about has a value-to-cost below 1, you should not invest. Based on this model, managers should nurture the investments in Regions 3 and 4 to attempt to increase their value or reduce their cost, thus improving their locations to Regions 1 or 2.

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

Selection Summary 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

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 described in Chapter 5 The influence and interests section of the analysis can make the PM job much easier and lead to more successful projects Explain that the influence and interests section may/will contain personal information about each of the stakeholders. Some of this information is shared with the team and some is kept confidential.

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” Be sure to point out that stakeholders are not the enemy, sometimes it feels that way but if dealt with correctly they become the PM’s best allies.

Stakeholder Analysis Process
Identify all potential stakeholders Determine interests, expectations, and influence for each Build a stakeholder assessment matrix (see Figure 4-5) Analyze appropriate stakeholder approach strategies and update the matrix Update throughout the project

Where to Look for Stakeholders

Stakeholder Assessment Matrix
Only a few ways to get this information: past references and interviews. The first column of the matrix lists the name and sometimes the department or organization in which the stakeholder works. The second column describes the stakeholder’s interest in or goals for this project. The third column describes the influence this person will have on decisions and ultimately the outcome of the project. The fourth column is one you might want to keep private, depending on the nature of the information. Unique information can be job related but often is information about stakeholders’ personal lives— anything that may aid the project manager in formulating an approach strategy. The fifth column is the official role the stakeholder will play during the project, and finally the last column describes the approach the project manager and the team should take in working with each stakeholder

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 Remind students not to panic if they don’t understand some of the sections in the charter; the text has covered only a few of its elements. During the next several chapters, the other elements will be explained, and they will learn exactly how to fill out each part of the charter. “Should” is in quotes because this is something many projects don’t do even those that create a charter. Having the level of authority outlined for all stakeholders including the project manager from the start makes everything run much smoother throughout the project.

Project Charter 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 Manager’s 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 Like the project selection process, the charter requires input from many sources to be accurate and encourage buy-in

Sample Project Charter from Running Case Study
Project title—Aproject charter needs a short, action-oriented title, usually starting with an action verb. Many organizations like to create a short form of the title, using the first letter of each word, such as Upgrade Project Software (UPS). The title needs to be long enough for people to differentiate from others but short enough to be remembered. Project date—This is the date the charter was completed and ready for authorized signatures. Version—Once signed, the project charter is under configuration version control. If anything in the project changes and affects this document, a new version should be created, and a new version number should be assigned. Description—This includes business needs, project purpose, justification for the project based on market demand, business need, customer request, technological advance, legal requirement, social need, and information that will tie in with the organization’s strategic plan. Project manager—This is the name of the person assigned as the manager of the project, who could be internal or external to the organization. Authority level—The charter needs to specify the amount of authority the project manager and others have to make project decisions without approval from others. The authority level covers all aspects of the project, including scope, time, and cost. For example, a certain authority level may allow the project manager to make decisions that have an impact on cost of less than 10 percent of the entire budget and/or less than a fixed dollar amount of, say, $1,000. Objectives—Objectives are written at a high level and cover the major project objectives. The template contains bullet points to reinforce the idea that these do not need to be complete sentences. The key purpose in the objectives section is to clearly state the boundaries of the project. It is just as important to state what is not included as it is to state what is included. The objective statements should be future outcome based (for example, “the update to the inventory control software will allow the warehouse to cut overhead expenses by 25 percent”). Major deliverable schedule—Each objective needs to be listed in this section, along with a projected delivery date. Keep in mind that you are very early in the processand haven’t even begun the project, so coming up with a specific date will be difficult or even impossible. If the sponsor or the organization’s management team requires a date, you should try to use a month (April) or quarter (third quarter) and not get locked into an exact date. This section also shows the order in which the objectives will be worked on and completed. For some projects, customers have exact “need by” dates for parts of the project due to government regulations, interdependencies with other projects, or competitive pressures. In these cases, you need to make sure these dates are noted and explained. The explanation should include the negative consequences of not meeting the due dates. Critical success factors—This is a list of metrics that will be tracked to measure success. The metrics may be different on every project and need to be generated by the project sponsor. Like the objectives, these need to be short and to the point. They should be defined in the form of goals. George Doran coined the acronym SMART (for specific, measurable, assignable [preferably to one person or at a minimum one group], realistic, and time related) as a way to aid in the goal creation process. When all the goals or success factors have been achieved, the project is complete and successful. Assumptions/constraints/risks—The project charter needs to contain a list of issues that can affect the outcome of one or more of the objectives and thus the project and need to be monitored or mitigated. These are items significant enough that they need to be brought to the attention of the sponsor and upper management. Relevant regulatory agency policies and procedures should be noted in this section. Any specific security issues should be described in this section. Key roles and responsibilities—The project charter needs to list the names, roles, and responsibilities required to complete the project successfully Approvals—Finally, a project charter needs a list of names and signatures of people who agree with the stated objectives and critical success factors and who authorize the start of the project

Kick-Off Meeting With the completion of the stakeholder analysis and the signing of the project charter, it’s 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

Summary of Process Steps
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

PROJECT SELECTION AND THE INITIATION PROCESS
This section describes the steps necessary to complete the selection process. The project selection process is as follows:

Step 1. Project sponsors prepare the business case for the project, including qualitative and quantitative information, as appropriate or required by the organization. This is performed for each project being considered. Step 2. The business cases for all the projects are collected by the organization's steering committee staff and separated into categories (research, mandates, strategic direction, market advantage, and so on). The projects can then be compared to others in the same categories. The categories are specific to the organization's industry and mission.

Step 3. The steering committee meets physically or virtually to review the organization's strategic plan and current environment and economic situation. The plan may have been written as much as one or two years earlier, so before project decisions are made, the organization's current situation needs to be reviewed and evaluated. Step 4. The steering committee builds a WSM for each project within each category, using the appropriate metrics

Step 5. The steering committee reviews the resource availability needs of each project and compares them to what is currently available. It would be great to always select the best projects, but this might not be feasible if two projects require the same resource full time. The company must then decide not to do both projects or to acquire additional resources. If additional resources are acquired, the project cost structure must be updated. Step 6. The steering committee selects the projects and commits the associated resources

Step 7. The selected project manger conducts the stakeholder analysis, with aid from selected SMEs. Step 8. The steering committee staff creates the project charter, with the aid of the selected project manager. The project manager should be picked based on the needs of the project. A complex critical project should have a senior project leader assigned, and a simple, non critical project should have a less senior project leader assigned. The project manager's experience should also be taken into consideration. If the project is to update the organization's accounting software, a project manager with accounting background should be selected

Step 9. The project manager must get the project charter signed by the appropriate stakeholders, securing their support for the project. Step 10. The project manager, in association with the project sponsor, conducts the kickoff meeting. Many organizations have the sponsor run the meeting and make the invitations to increase the visibility of the sponsor to all stakeholders.

HOW TO CONDUCT THE PROJECT INITIATION PROCESS
Step 1: Preparing the Business Case

Chapter Review 1. In most organizations, there are more projects than there are resources to support them. Organizations need to follow a disciplined project-selection process to ensure that they are working on the correct mix of projects. 2. IT professionals must lmderstand the systems context in which the project they are working on exists. The following four key issues will assist in understanding the business context: business value, technology,cost/benefit questions, and risks

Chapter Review 3.A business case is a document composed of a set of project characteristics that aid organization decision makers in deciding what projects to work on. The key parts are objectives, methods and sources, benefits, consequences, costs, qualitative and quantitative models, and risks. 4. A project may be undertaken to fulfill an initiative as part of an organization's strategic plan. IT has become a strategic enabler of most or all of the items on strategic plans

Chapter Review 5. Project selection techniques fall into two groups: qualitative models and quantitative models. Qualitative models consist of relying on 5MB judgments, sacred cow decisions, and mandates. The quantitative models are NPY, IRR, ROI, and payback period. 6. The WSM is used to compare the merits of projects based on the organization's specific priorities, such as risk, financial concerns, strategic plan initiative, and competition. Each project is evaluated fairly, based on its relative score in the model

Chapter Review 7. The balanced scorecard approach was developed in the early 1990s to enable companies to identify what they should measure in order to balance the financial perspective of the organization. The organization should be viewed from four perspectives: financial, customer, internal business process, and learning and growth.

Chapter Review 8. Real options is a methodology that allows an organization to select a mix of projects derived from a financial model of managing a portfolio of stock investment options. 9. A stakeholder analysis is used to identify the influence and interests of the various stakeholders and documents their needs, wants, and expectations. This information will form the basis of the scope statement

Chapter Review 10. A project charter is the key deliverable of the initiation phase of every project, regardless of size. The charter officially recognizes the start of a project for all stakeholders. Once signed, the charter should be placed under configuration control. The charter consists of the project title and active date, the version number, a short project description, the project manager's name and authority level, project objectives, major deliverables, critical success factors, assumptions, constraints, risks, and key role responsibilities. The last section consists of key project stakeholder signatures, signifying their approval of the charter and thus the project.

Chapter Review 11. The kickoff meeting is organized by the project sponsor to officially announce the start of the project. The project charter should be used to provide information for all participants. Many times, the key stakeholders are asked to sign the charter at the conclusion of the meeting.

Glossary business case A document composed of a set of project characteristics-costs, benefits, risks, and so on-that aids organization decision makers in deciding what projects to work on. portfolio management Control and monitoring of an organization's mix of projects to match organizational objectives for risk and investment returns. project charter A document that formally authorizes the work to begin on a project and provides an overview of objectives and resource requirements.

Glossary qualitative model A model that involves making selection decisions based on subjective evaluation using nonnumeric values of project characteristics. quantitative model A model that involves making selection decisions based on objective evaluation involving numeric values of project characteristics. stakeholder analysis A process used to identify the influence and interests of the various stakeholders and to document their needs,wants, and expectations

Glossary strategic plan A formal document that outlines an organization's three- to five-year mission,vision, goals, objectives, and strategies. subject matter expert (SME) A person who has the level of knowledge and/or experience in a particular facet of the business needed to support decision making. SWOT analysis An analysis of strengths, weaknesses, opportunities, and threats; an information gathering and analysis technique to evaluate external influences against internal capabilities.

Glossary time value of money The concept that a sum of money is more valuable the sooner it is received: A dollar today is worth more than the promise of a dollar tomorrow. The worth is dependent on two variables: the time interval and rate of discount.

Review Questions 1. Explain the advantages and disadvantages associated with each of the following project selection methods: mandates, sacred cow decisions, NPY, IRR, payback period, and ROI. 2. Explain the importance of an organization's strategic plan to the selection process. 3. Why is it important for an organization to conduct a project selection process? 4. Define and describe the key components of a business case

Review Questions 5. Explain why the contents of a business case might change, depending on the project. 6. Describe the stakeholders who should participate on the project selection team. 7. Explain the differences between qualitative and quantitative models and where each may be appropriate for project selection decisions. 8. Using your own words and example, explain the concept of the time value of money

Review Questions 9. Explain the process of creating a WSM. Include an explanation of the selection of weights for each criterion. 10. How does the real options approach apply to the selection of IT projects? 11. List and explain the four perspectives the balanced scorecard uses to analyze an organization's performance. How does this relate to project selection?

Review Questions 12. What is a project charter and what are its principal uses? 13. List and explain the major components of a project charter. 14. What type of information is collected through a stakeholder analysis? Explain the process. 15. Describe the contents of a stakeholder assessment matrix. 16. Who should be the individual responsible for planning and organizing (scheduling, sending out the invitations, and so on) the kickoff meeting. Justify your answer

Review Questions 17. "The preliminary scope statement describes each of the major milestones of a project in detail." Do you agree with this statement? Why or why not? l8. Who should be invited to attend the kickoff meeting? 19. Describe the 10-step project selection process. 20. In your opinion, what are some of the major drawbacks to qualitative models? 21. What does the acronym SWOT stand for? Explain Its use

Projects and Research 1. Write a research paper reviewing the project selection methods that today's organizations from various industries are using. Also look into the WSM criteria and the relative weights different organizations are using. 2. Compare the results from question 1 to those you get from your university's or college's IT department. What differences did you find, and why do you think a university's criteria might differ from the criteria used by a corporate organization?

Projects and Research 3. Search the web or use other means to find examples of project charters. Then do a comparative analysis across industry segments and project types. What items have these charters included that this chapter doesn't describe? 4. Build a list of characteristics that can be used for a WSM. Discuss how different organizations might set the weights based on good and bad economic conditions and highly competitive situations

Projects and Research 5. Can a nonprofit organization receive any value from quantitative selection methods? Explain. 6. Statistics have shown that many organizations today still don't fully utilize a project selection process. Explain why you think this is the case.

Projects and Research 7. Describe a well-planned and well-executed project you were a part of either in school or outside school. Describe a project that wasn't as well planned. Explain what was different about the two and what led to success or failure.

Projects and Research 8. Define a preliminary scope statement for a project to build a simple interactive web site for this class. The web site should be accessible only by current students and instructors. The web site should allow students access to all the material presented in the class, including lecture slides and notes, extra reading, the course schedule, a chat room, a frequently asked questions section,grades, informative links, and the syllabus

CH 4 Project Initiation.

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