Project Management

2. Portfolio Management

Week 2

Project selection and portfolio management

Project selection and portfolio management

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

Assignment 1 Write a project plan

Assignment 1 Write a project plan Topic: Week 3

http://www.teachers.ash.org.au/researchskills/Dalton.htm

Back to the programme

Strategic Planning

Strategic Planning
1. What is strategy? 2. How do projects relate to strategy?

Organisation Mission
Strategy 1 Strategy 2
Strategy 3 Strategy 4

Money Customers Efficiency and Effectiveness Adaptability

5 Forces analysis

Threat of New Entrants

Supplier power

Intensity of competition

Customer power

Substitutes

Michael Porters 5 Forces 1980s

business model template

INFRASTRUCTURE CORE CAPABILITIES

PARTNER NETWORK

OFFER VALUE PROPOSITION

CUSTOMER RELATIONSHIP

CUSTOMER TARGET CUSTOMER

VALUE CONFIGURATION

DISTRIBUTION CHANNEL

COST STRUCTURE

FINANCE

REVENUE STREAMS

Osterwalders Business Model framework 2006 http://business-model-design.blogspot.com

Balanced Scorecard
Financial

Process efficiency

Scorecard

Customer satisfaction

Learning and innovation

Kaplan & Norton (1994?) HBR

Strategy Map

Kaplan & Norton (1998?) HBR http://www.visual-literacy.org/periodic_table/pix/strategy-bsc-map.png

Organisation Mission
Strategy 1 Strategy 2
Strategy 3 Strategy 4

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

Review Mission Set (SMART) Goals Develop Strategies Align Strategies to goals Implement Strategies through projects

Review Mission Set (SMART) Goals Develop Strategies Align Strategies to goals Implement Strategies through projects

SWOT Analysis

SWOT = SITUATIONAL ANALYSIS

Where are we now?

Positive

Negative

External

Internal

O T

Positive

Negative

Internal

External

Positive

Negative

Internal

External

Review Mission Set (SMART) Goals Develop Strategies Align Strategies to goals Implement Strategies through projects

S M A R T

Specific Measurable Achievable Relevant Time-bound

http://en.wikipedia.org/wiki/SMART_(project_managemen

Letter S M A R T E[1] R[1]

Major Term Specific Measurable Achievable Relevant Time-bound

Minor Terms Significant[3], Stretching[3], Simple Meaningful[3], Motivational[3], Manageable Agreed, Attainable[6], Assignable[2], Appropriate, Actionable, Action-oriented[3] Realistic[2], Results/Results-focused/Results-oriented[6], Resourced[7], Rewarding[3] Time framed[2], Timed, Time-based, Timeboxed, Timely[6][5], Timebound, Time-Specific, Timetabled, Trackable Exciting, Evaluated, Ethical Recorded, Rewarding, Reviewed[8]

http://en.wikipedia.org/wiki/SMART_(project_managemen

Examples of not smart goals?

Review Mission Set (SMART) Goals Develop Strategies Align Strategies to goals Implement Strategies through projects

Review Mission Set (SMART) Goals Develop Strategies Align Strategies to goals Implement Strategies through projects

Organisation Mission
Strategy 1 Strategy 2
Strategy 3 Strategy 4

Money Customers Efficiency and Effectiveness Adaptability

Review Mission Set (SMART) Goals Develop Strategies Align Strategies to goals Implement Strategies through projects

Organisation Mission
Strategy 1
projects

Strategy 2

Strategy 3

Strategy 4

Money

Customers projects Efficiency and Effectiveness Adaptability projects projects

What are the goals of the projects?

Figure 2.1 Strategic Management Process

(Gray & Larson, 2006, p25)

projects

projects projects

projects

projects

projects projects projects projects projects projects projects

projects
projects projects

projects

projects

PPPM
Project Programme Portfolio Management

OPM3
The O is for Organisational

Portfolio

Programme

OPM3
Projects

Portfolio

Programme

Programme

Projects

Project Project Projects

Project Project Projects

Project Project Projects

Approaches to project portfolio management

One Portfolio or Several?

Categories

One Portfolio or Several?

Venture: Projects that transform the business

Categories

Growth: Projects that grow revenue or market share

Core: Projects that help run the business

What are the 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

Benefits of Project Portfolio Management

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 organizations 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 organizations goals / priorities evaluate the progress of current projects

Figure 2.8 Sample project portfolio approach

Figure 1.5 Project management compared to project portfolio management

Organisation Mission
Strategy 1
programme projects

Strategy 2
projects

Strategy 3 programme

Strategy 4 projects

Money

Customers projects

projects

projects

Programme projects

Efficiency and Effectiveness Adaptability projects programme projects projects

Organisation Mission
Strategy 1
Short term

Strategy 2
projects

Strategy 3 projects

Strategy 4 projects

projects

Mid term

projects

projects

projects

projects

Long term

projects

projects

projects

projects

http://www.betterprojects.net/search?q=strategy

Organisation Mission
Strategy 1
projects

Strategy 2
projects

Strategy 3 projects

Strategy 4 projects

projects

projects

projects

projects

projects

projects

projects

projects

Identifying IT 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 Use of IT standards lowers development costs by 41 percent per user (Cosgrove Ware, 2002)

Figure 2.1 Pyramid for the Project Selection Process

Project Proposals

Most business units have a strategic plan

Which SHOULD align with the organisations 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 2.4A Major Project Proposal (Gray & Larson, 2006, p38)

Figure 2.4B Risk Analysis (Gray & Larson, 2006, p39)

Project Initiation forms

Figure 2.4A Major Project Proposal (Gray & Larson, 2006, p38)

Figure 2.4B Risk Analysis (Gray & Larson, 2006, p39)

Project Selection Methods

Not all project proposals make it to initiation

Every project idea isnt 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

Time to

Stop
and turn to a new presentation pack

Net Present Value (NPV) Model Uses managements minimum desired rateof-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 contd 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

Payback model

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

Figure 4.1 Charting the Payback Period

(Schwalbe, 2006, p129)

Return on Investment (total discounted benefits total discounted costs) discounted costs

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

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

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 organizations value drivers, such as customer service, innovation, efficiency, and financial performance, to a series of defined metrics See http://www.balancedscorecard.org for more information

$$$

Applying a selection model

Applying a Selection Model

Project Classification Selecting a Model
Deciding how well a strategic or operations project fits the organizations strategy
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?

Example business case

Table 3.4 Sample 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

1994
31%
Critical Failures

53%
Challenge d

16%
Success

Not even completed

Typically 189% over budget

OTOBOS

Source: CHAOS Report 1995 by the Standish Group Access it here: http://net.educause.edu/ir/library/pdf/NCP08083B.pdf

2002
15%
Critical Failures

51%
Challenge d

34%
Success

Not even completed

Still way over budget

OTOBOS

Source: CHAOS Report 2002 by the Standish Group Access it here: http://www.standishgroup.com/quarterly_reports/index.php

1994
31%
Critical Failures

53%
Challenge d

16%
Success

2002
15%
Critical Failures

51%
Challenge d

34%
Success

Billions of dollars
$250 $200 $150 $100 $50 $0

1994

2005

Wasted money as a share of total project spend

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)

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 Smaller Better Better projects training and control progress and better skilled tools 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)

Better Selection

Portfolio Mgt

Strategic Alignment

More recently

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

Things you should have

(if you want to succeed)

10. Other criteria, such as small milestones, proper planning, competent staff, and ownership

But, change has been

increm

ental

There is still plenty of room for improvement.

What do you think is still going wrong?

BetterProjects.net

Title page pic care of jpellqen & CC @ Flickr http://flickr.com/photos/jpellgen/444946201/