project management chapter 2
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Why Project Managers Need to Understand the Strategic Management ProcessChanges in the organizations mission and strategyProject managers must respond to changes with appropriate decisions about future projects and adjustments to current projects.Project managers who understand their organizations strategy can become effective advocates of projects aligned with the firms mission.
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*The Strategic Management Process: An OverviewStrategic ManagementProvides the theme and focus of the future direction for the firm.Responding to changes in the external environmentenvironmental scanningAllocating scarce resources of the firm to improve its competitive positioninternal responses to new action programsRequires strong links among mission, goals, objectives, strategy, and implementation.
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Strategic Management Process (contd)Four of Activities of the Strategic Management ProcessReview and define the organizational mission.Set long-range goals and objectives.Analyze and formulate strategies to reach objectives.Implement strategies through projects
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Strategic Management ProcessFIGURE 2.1
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Characteristics of ObjectivesEXHIBIT 2.1S Specific Be specific in targeting an objective M Measurable Establish a measurable indicator(s) of progress A Assignable Make the objective assignable to one person forcompletionR Realistic State what can realistically be done with availableresourcesT Time related
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Project Portfolio Management ProblemsThe Implementation GapThe lack of understanding and consensus on strategy among top management and middle-level (functional) managers who independently implement the strategy.Organization PoliticsProject selection is based on the persuasiveness and power of people advocating the projects.Resource Conflicts and MultitaskingThe multiproject environment creates interdependency relationships of shared resources which results in the starting, stopping, and restarting projects.
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Benefits of Project Portfolio ManagementBuilds 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.Justifies killing projects that do not support organization strategy.Improves communication and supports agreement on project goals.EXHIBIT 2.2
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Portfolio of Projects by TypeFIGURE 2.2
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*A Portfolio Management SystemSelection CriteriaFinancial: payback, net present value (NPV), internal rate of return (IRR)Non-financial: projects of strategic importance to the firm.Multi-Weighted Scoring ModelsUse several weighted selection criteria to evaluate project proposals.
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Financial ModelsThe Payback ModelMeasures the time it will take to recover the project investment.Shorter paybacks are more desirable.Emphasizes cash flows, a key factor in business.Limitations of payback:Ignores the time value of money.Assumes cash inflows for the investment period (and not beyond).Does not consider profitability.
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Financial Models (contd)The Net Present Value (NPV) modelUses managements 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.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Net Present Value (NPV) and Internal Rate of Return (IRR): Example Comparing Two ProjectsEXHIBIT 2.3
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Project Screening MatrixFIGURE 2.3
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Applying a Selection ModelProject ClassificationDeciding how well a strategic or operations project fits the organizations strategy.Selecting a ModelApplying a weighted scoring model to bring projects to closer with the organizations strategic goals.Reduces the number of wasteful projectsHelps identify proper goals for projectsHelps everyone involved understand how and why a project is selected
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Applying a Selection ModelProject ClassificationDeciding how well a strategic or operations project fits the organizations strategy.Selecting a ModelApplying a weighted scoring model to bring projects to closer with the organizations strategic goals.Reduces the number of wasteful projectsHelps identify proper goals for projectsHelps everyone involved understand how and why a project is selected
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Project ProposalsSources and Solicitation of Project ProposalsWithin the organizationRequest for proposal (RFP) from external sources (contractors and vendors)Ranking Proposals and Selection of ProjectsPrioritizing requires discipline, accountability, responsibility, constraints, reduced flexibility, and loss of power.Managing the PortfolioSenior management inputThe priority team (project office) responsibilities
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Major Project ProposalFIGURE 2.4A
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Risk AnalysisFIGURE 2.4B
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Managing the PortfolioSenior Management InputProvide guidance in selecting criteria that are aligned with the organizations goalsDecide how to balance available resources among current projectsThe Priority Team ResponsibilitiesPublish the priority of every projectEnsure that the project selection process is open and free of power politics.Reassess the organizations goals and prioritiesEvaluate the progress of current projects
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Project Screening ProcessFIGURE 2.5
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Priority AnalysisFIGURE 2.6
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Project Portfolio MatrixFIGURE 2.7
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Project Portfolio Matrix DimensionsBread-and-butter projectsInvolve evolutionary improvements to current products and services.PearlsRepresent revolutionary commercial advances using proven technical advances.OystersInvolve technological breakthroughs with high commercial payoffs.White elephantsProjects that at one time showed promise but are no longer viable.
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 2*Key TermsBalanced scorecardImplementation gapNet present valuePaybackOrganizational politicsPriority systemPriority teamProject portfolioProject screening matrixSacred cowStrategic management process
Copyright 2006 The McGraw-Hill Companies. All rights reserved.
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