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344SAMLecture3-InitiationandPlanningPart1.pptx

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344SAM Project Management L3: Initiation and Planning

Learning Outcomes

Understand the process of initiation

Describe the function and purpose of the Business Case

Understand the first stages of project planning (to be continued in next lecture)

Project Lifecycle

What project?

Question

If you are deciding which projects to invest in within your organisation, what types of things do you need to consider?

“Investment appraisal is a collection of techniques used to identify the attractiveness of an investment”.

APM (2012)

Organisations use projects to convert strategy into new products, services and processes needed for success

Project selection needs to be aligned with the company’s strategy

Needs to ensure a strong link between projects and the strategic plan

→ Clear focus

Best use of scarce resources

Work within given constraints

According to Descamps (1999), PMs who do not understand the relationship between projects and strategy tend to make the following mistakes:

Focus on issues that have low strategic priority

Focus on the immediate customer rather than the market and value chain

Trying to solve every customer issue (80:20 law)

Engaging in a never-ending search for perfection.

“

Stages

Assess the feasibility of the project (project selection model)

Build the business case

Two broad types of project selection models:

Numeric

Non-numeric

1. Checklist Model

Make a checklist against which you screen potential projects

For example:

Cost of development

Potential return on investment

Stability of funding

Stakeholder support

Durability and market potential

Pros and Cons of Checklist model

Assumes that all factors are equal

There are so many potential factors it is easy to miss important ones

Good for discussion

Good for highlighting potential problems and benefits

Good for highlighting priorities

2. Scoring Models

Weight – most important criteria are given a higher score

Score – does the project score high (3), medium (2) or low (1) on each criterion?

Multiply importance x score to arrive at weighted score

Add weighted scores to arrive at an overall project score.

PROJECT	CRITERIA	WEIGHT	SCORE	WEIGHTED SCORE
Alpha	Cost	1	3	3
	Potential profit	2	1	2
	Development Risk	2	1	2
	Time to Market	3	2	6
				13

Beta	Cost	1	2	2
	Potential Profit	2	2	4
	Development Risk	2	2	4
	Time to Market	3	3	9
				19

Limitations?

???

Limitations of Scoring models

Scoring models try to impose structure

Treating high, medium and low as numerical values is mathematically wrong (difference between)

If project Alpha scores 13 and Beta 19, can we assume that Beta is 46% better?

No!

3. Payback period

How long will it take for the project to pay back its initial budget and begin to generate positive cash flow?

Project costs

Project revenue streams

How long will it take to reach breakeven point?

Shorter paybacks are better than longer ones

Payback period example

Years	Cash Flow Machine A	Cash Flow Machine B
0	(35,000)	(35,000)
1	20,000	10,000
2	15,000	10,000
3	10,000	15,000
4	10,000	20,000
Payback period	2 years	3 years

Limitations?

After payback period?

Time value?

???

4. Net Present Value

NPV = the most popular financial decision making tool

NPV assesses the change in the organisation’s value if a project is undertaken

It is the reverse of ‘compound interest’

Positive NPV – the firm will make money

Negative NPV – the firm will lose money

Example NPV (Kerzner, 2009: 616)

Year	Cash inflows (£)	Present Value (£)
1	1,000	909
2	2,000	1,653
3	2,000	1,503
4	5,000	3,415
5	2,000	1,242
Present value of cash inflows:		£8,722
Less investment		£10,000
Net present value		(1,278)

Limitations of NPV

In times of financial instability, it can be difficult to make assumptions and/or predictions about future interest rates.

5. The sacred cow

Projects are selected based on ‘who decides’

High risk

Difficult for Project Managers to navigate

The Business Case (Prince 2)

Business Case contains:

Reasons

Business Options

Expected benefits / dis-benefits

Timescales

Costs

Investment appraisal

Risks

Refer to Prince2 Business Case: https ://www.prince2.com/prince2-business-case

Conclusion

Deciding which project to pursue and which to reject can be difficult

Not an exact science

No model can fully capture reality and anticipate the future

Managers are not necessarily rational

Project selection is far more subjective than some models suggest

Project Planning (Part 1)

Project Management

Project Lifecycle

Where to start?

Why is planning important?

Project Management Plan

Why - statement of the change: definition need, problem or opportunity; relate to business case

What - objectives, scope, deliverables with acceptance criteria, success criteria, KPIs. Also takes into account constraints, assumptions and dependencies

How - strategy, handover, tools and techniques, monitoring and control, reporting

How much - budget, and cost management

Who - key roles and responsibilities, and the plan for resources

When - timescales, milestones, phasing

Where - geographic locations which will impact costs and people

Policies and plans - for managing change, communication, configuration, governance, health and safety, environmental issues, procurement, quality and risk

Schedule Management

“A schedule is the timetable for a project. It shows how the work will progress over a period of time and takes into account factors such as limited resources and estimating uncertainty.”

APM (2012)

“

Managing the planning process

Breaking down complex activities into chunks

Determining sequence

Estimating time

Planning costs

Logical basis for making decisions

Shows effects on other systems

Filtering ideas

Work breakdown structure (WBS)

What is a work breakdown structure?

“a logical, hierarchical tree of all the tasks needed to complete a project”

Lock (2007:165)

A WBS organises tasks into a logical sequence, allowing them to be planned in time and allocated to people

Dissertation

Identify Problem

Literature Review

Methodology

Data Gathering

Data Analysis

Conclusion

What

How

Why

Questionnaire

Interview

Case Study

Observation

Experiment

Questionnaire Design

Questionnaire Pilot

Questionnaire Correction

WBS – diagrammatic view

Advantages and Disadvantages Work Breakdown Structure

Breaks the project down into manageable, measurable tasks

Adopts the typical analytical process

Can be done as a team

Weakness is based around communication and co-ordination

Some things may still be unknown

How much detail to go into?

Process Mapping