1. 1 Chapter 3: Project Management and the Inception Phase + Project Management UP and Inception Phase Feasibility Analysis

2. Overview: p73 “use an iterative, adaptive approach for this project”: – Developers decide on a few core processes – These become mini projects – More functionality is added via each iteration: – It consists of several different iterations (projects), especially initially to understand the users needs and business processes that must be supported, with the last iterations making it robust and complete. 2

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4. Adaptive Project control: Its harder to monitor the projects progress – Difficult to give a firm time schedule and project costs – Characteristic of the adaptive approach: – Since the system is growing, the project is somewhat open-ended, with the consequence of “scope creep” – This must be controlled!! – See again Fig. 3-3 and 3-4 4

5. Introduction: The development of a new software system is a difficult endeavor: – Inadequate understanding of users requirements – Lack of executive support – Inexperienced project managers, page 75 Project management processes are the activities that are directly related to managing and controlling a project 5

6. Example UP, page 65: (text focused on Agile method) Is a formal methodology for software development: – Premise is that sw should be developed in an iterative approach: the system grows and evolved First iteration: inception iteration – Defining the new scope of the system Second: elaboration – Defining the user’s requirement 6

7. UP cont. Construction iteration: – Building a reliable and robust system Transition phase: – To test and deploy the system In addition: – Development activities, called disciplines Business modeling, Requirements,Design Implementation, Testing, Deployment, Project Management, Configuration and change management, and environment. 7

8. Inception phase: The focus will be to get the project started and the most prevalent business disciplines will be – Business modeling: understanding the business needs – Environment: to configure the development tools for the team – Project management: to plan and schedule the rest of the project 8

9. 9 What is a project? A group of tasks required to accomplish a goal MS Project? – Is a sophisticated program designed to predict the outcome of a project by charting the required time and resources – Gantt Chart – Pert Chart

10. 10 Terminology: Project: An undertaking involving resources that have been allocated to a specific task, which are to be completed within a given time frame and budget Task: A specific activity that is to be carried out at a specific time A critical task: A task that, if lengthened, will delay the finish of the project

11. 11 Terminology Duration: The length of time needed to complete a task Dependency: A specific relationship between two tasks. You may need to finish one task before you can start another. In this case, the implementation of the second task is dependent upon the completion of the first task

12. 12 Terminology: Resource: A specific entity used to complete a task. This includes people, equipment or any other entity used to get the task completed. Resource conflict: This occurs when certain resources are needed for more than one task at the same time

13. 13 Terminology: Calendar: A specific timetable that defines the working and non-working time…… for an entire project: Project Calendar. a set of resources: Base Calendar particular resources: Resource Calendar

14. 14 MS Project: Time: Time Management is the schedule of the duration of tasks or how much time is needed to accomplish a task Costs: To track cash flow for spending and income. You can also separately track resources costs, tasks costs, and income, while keeping a running total of the entire project, or even individual tasks.

15. 15 MS Project: Reports: You can generate reports from interim analysis and presentations to various parties – Workload usage – Under/Over budgeted tasks – Actual hours vs. planned hours spent

16. 16 Four Phases: Define the project’s objective Build the project plan Track and manage the project Close the project

17. 17 A. Objective: You cannot hit the target if you cannot see it. Object should be measurable Define a definite END to the project Include any assumptions about the constraints on the project Everyone affected must agrees to the definition

18. 18 Defining goals: The project goals must be clearly defined so that you have a basis for evaluating the project’s success at a later time Non-specific goal: Apply for an additional phone Specific: Apply for an additional phone, to be installed before 15 September 2009, in office D100 for Ms Jones

19. 19 B. Build the plan To figure out the best way to get there. Gather information: Task that have to be done, time estimates of durations of tasks Enter the information in MS Project Ms Project will create a plan

20. 20 Define Requirements: All the TASKS All the resources Time constraints that must be planned for Cost constraints that must be budgeted for

21. 21 C. Track and Management Your team must execute the plan You keep close tabs on their progress You will encounter problems you did not expect Know the latest STATUS of the project Resolve early problems

22. 22 D. Close Project Every project is a learning experience. No matter how well you planned at the beginning, by the end of the project, your map has changed from the original plan

23. 23 Example: Work through the example in the book: – Page 93 - 99

24. Feasibility Analysis: p102 - 107 Project feasibility analysis is an activity that verifies that a project may be – Started and – Successfully completed To determine if a development project has a reasonable chance of success. 24

25. Objective: Identify all the risks of failure, and establish plans and procedures to ensure that they do not interfere with the success of the project Activities to ensure feasibility: – Risk Management – Determine Organizational/cultural – Evaluate Technological – Determine Schedule – Resource and Economic (Cost/Benefit) 25

26. Economic Feasibility: Two Questions: – Is the anticipated value of benefits greater than projected costs of development – Does the organization have adequate cash flow to fund the project To assist in the determination of economic feasibility, people use a cost/benefit analysis. 26

27. Cost-Benefit Analysis: Is the process of comparing the anticipated costs of an IS to the anticipated benefits. It is performed throughout the SDLC to determine the economic feasibility of a project and to compare alternative solutions. Techniques: – Payback analysis – Return on Investment (ROI) – Present Value analysis (NPV) 27

28. A. Payback Analysis: Is the process of determining how long it takes an information system to pay for itself. The time it takes to recover the system’s costs is called the payback period. Steps: – Determine initial development cost – Estimate annual benefits AND operating costs – Payback period: Compare the development + operating costs TO total benefits 28

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30. Table Information: The table shows the anticipated annual costs, cumulative costs, annual benefits and cumulative benefits. Year 0 corresponds to the year in which system development begins. This projects development takes less than one year, so some benefits are already realized in Year 0. See next slide for calculations: 30

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32. Payback Period: After year 4, the accumulated costs and benefits are nearly equal. At the end of year 5 the accumulated benefits exceeds the costs, so some point in year 5, the payback period is established. 32

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34. Critique: It places all the emphasis on early costs and benefits and ignores the benefits received after the payback period. The further out in time that you extend your projections, the more unsure your forecast will be. Cannot use it to compare/rank different projects, because later benefits/cost are ignored. 34

35. B. ROI: Is a percentage rate that measures profitability by comparing the total net benefits (return) received from a project to the total costs (investment) of the project. = (total benefits – total costs)/total costs 35

36. Example: Use your spreadsheet!! 36

37. Critique: Can be used to rank projects It measures the overall rate of return and annual rates can vary considerably – Two projects with the same ROI might not be equally desirable if the benefits of one project occur significantly earlier than the benefits of the other – It ignores the timing of costs and benefits OR the time value of money 37

38. C. Present Value Analysis A commercial organization will only invest in a system if it believes it can thereby increase its profits by more than the cost of borrowing capital. If the capital is already available, the projected increase in profits is compared with the projected income which could have been secured had the capital been used for another project. 38

39. Discounted Cash Flows: Is a tool which enables an analyst to assess the profitability of the proposed capital outlay. It investigates the projections of profit and loss statements. – Cost is consider as negative flows and – Anticipated profits as positive flows. – These amounts must take into considerations like corporation tax, depreciation, investment grants, etc 39

40. DCF: 40

41. Example: Capital costEnd of years cash flows 1 2 3 1,000 500 600400 41

42. Example (cont.) 42

43. Quick approximation of return rate Remember our problem is to determine a discount rate so that we will arrive at the initial outlay Analyzing the flows, we can assume an average cash flow of R500 Use Excel function to get an approximate value: 43

44. Use RATE function: 44

45. Guessing the rate: 23% gives a PV larger than R1,000 Therefore I am searching for a rate that will give a PV less than R1,000. Lets guess 25%, meaning – Use Interpolation for an acceptable rate. 45

46. PV: We have to create ‘Discount Factors’, like on page 106 of the text book Multiply each discount factor with the corresponding cash flow or payment and evaluate the final value. 46

47. Guessing the IRR: 47

48. Approximation with interpolation: It is expected from you to solve the equation with ‘linear interpolation’: 48

49. Revision: Q: Is a Rand you have today worth more than a Rand you do not receive until one year from today? A: If you have a Rand now, you can invest it and it will grow in value to more than a Rand in the nearby future! If you invest R100 now in a mutual fund, with an annual return of %8, it will be R108 after one year instead of R100! 49

50. Same example: Instead of asking “How much will my R100 be worth a year from now?” one can ask: “How much do I need to invest today, at %8, in order to have R100 a year from now?” This concept is known as the time value of money. It forms the basis of the technique called present value analysis. 50

51. PV: The PV of a future Rand is the amount that, when invested today at a certain interest rate, grows to exactly one Rand at a certain point in the future. This interest rate is called the discount rate. In PV analysis a company uses a discount rate that represents the rate of return if the money is put into relatively risk-free investments. 51

52. Summary: To perform PV analysis you must time-adjust the cost and benefit figures. – MULTIPLY each of the projected benefits and costs by the proper pv values. – SUM all these time-adjusted benefits/costs – Calculate the net present value (NPV) of the project: Total pv of the benefits – Total pv of the costs 52

53. A interesting Web site: http://www.toolkit.com/small_business_guide 53

54. Example: p106, text book Determine discount factors at 10% Determine the Value of Benefits  PV benefits Determine Costs  PV of costs Determine PV of net benefits and costs Determine Cumulative NPV Determine Payback period Determine ROI 54

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56. Discount Table: 10% 56

57. Assignment 2 You can tackle assignment 3 with confidence now! Test date? Scope? 57