Week # 4,5

SPRING ’19: Fundamentals of Project Management

(FPM)
MSPM-I
Course Supervisor: Shehzad Ahmad
 Describe the importance of aligning projects with
business strategy, the strategic planning process, and
using a SWOT analysis
 Explain two different approaches to the project planning
process—a four-stage traditional approach and an agile
approach
 Summarize the various methods for selecting projects
and demonstrate how to calculate net present value,
return on investment, payback, and the weighted score
for a project
 Discuss the program selection process and distinguish
the differences between programs and projects
 Describe the project portfolio selection process and the
five levels of project portfolio management

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Marie Scott: Director of Proj. Mgt.Office(PMO)
Conducted meeting with several senior managers
Purpose:
◦ Discuss the process of selecting projects
◦ Grouping them into programs
◦ & determine how they fit into Org. portfolio of projects
Invited ~ Outside Consultant
Reaction:
◦ Several managers were getting bored with presentation
◦ Others concerned, their projects might be cancelled
After the end of Presentation:
◦ Marie had each participant to write down his or her
concerns & questions and hand them anonymously

Result:
 She was amazed at the obvious lack of understanding of the
need of projects to align with business strategy
Everyday Org =f > problems & opportunities

 Most organizations cannot undertake most of the

potential projects identified because of resource
limitations and other constraints

 An organization’s overall business strategy should

guide the project selection process and
management of those projects

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Mike Peterson: Director PricewaterhouseCoopers
~ an Org. needs a new financial system
“With little in the way of analysis, an organization selected an
enterprise resource planning package and hired a firm to
assist with the implementation of new financial system

They did not formally define the benefits of the new system
or decide exactly which processes were to be redesigned.”

RESULT:
The project was completed over budget and behind
schedule, and instead of helping the company, it prevented it
from closing its books for over twelve months

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Strategic planning involves determining long-term
objectives by analyzing the strengths & weaknesses,
studying opportunities & threats in the business
environment, predicting future trends, and projecting
the need for new products and services

 Strategic planning provides important information to

help organizations identify & then select potential
projects
 A strategic plan usually includes the organization’s
mission, vision, and goals for the next 3-5 years

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 Mission:
◦ As a symbol of national pride, Pakistan International must strive
to be an airline of choice operating profitably on modern
commercial concepts, capable of competing with the best in its
entire International and Domestic markets and consistently
exceeding customer expectations. It should be a choice
employer deploying modern technology in all spheres of its
activities.

 Vision:
◦ To be a world class airline exceeding customer expectations
through dedicated employees committed to excellence

 Slogan:
◦ “Great people to Fly With”

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 SWOT analysis involves analyzing Strengths,
Weaknesses, Opportunities, and Threats

 It can help you to identify potential projects,

strategic initiatives to which resources are
allocated

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 Strengths Opportunities
•List of
Ideas
(Capitalize) (Invest) •||
•Goals
Weakness Threats Statement
/Objective
s
(Shore up) (Identify)

•External
•Internal
•Secondary data:
•Customer • Environment
feedback • Industry data
• Surveys, focus gps. • Competitive data

•Employee Info. •Customer data –

•Capabilities primary data
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•Mind Mapping: A technique that uses branches
radiating out from the core idea to structure thoughts and
ideas

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 Three Videos

◦ Mind Mapping by Tony

◦ Mind Mapping – through everyday example

◦ MindView 4 software for mindmapping

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 Organizations often follow a detailed planning
process for project selection

 Figure 2-3 shows a four-stage planning process

for selecting projects

 It is very important to start at the top of the

pyramid to select projects that support the
organization’s business strategy

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 Strategic Planning:
◦ 1st step of project selection process
◦ Determine the Org.’s strategy, goals, & objectives
 This info. comes from: strategic plans or strategy planning
meetings
 Eg. If Firms competitive strategy is “Cost leadership,” ~ focus on
projects to retain as low-producers

 Business Area Analysis:

◦ 2nd step
◦ Analyze business processes that are central to achieving
strategic goals.
◦ E.g. Org. makes improvements in IT, HR, manufacturing,
etc. areas to support the strategic plan
 Project Planning
◦ 3rd step
◦ Start defining potential projects
 That addresses strategies & business areas
◦ PM may discuss the potential
 Project scope, time, cost, benefits and constraints.

 Resource Allocation
◦ 4th / Last step
◦ Which project(s) to do
◦ & assigning resources for working on them
 The amount of resources available OR Willing to acquire
 Will affect the decisions that how many projects it can support
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1) Focus on competitive strategy and broad
organizational needs
2) Perform net present value analysis or other financial
projections

3) Use a weighted scoring model

4) Implement a balanced scorecard

5) Address problems, opportunities, and directives

6) Consider project time frame

7) Consider project priority

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 Financial considerations are often an important
aspect of the project selection process

“Projects are never ends in themselves. Financially

they are always a means to an end, cash.”

 Three important methods include:

◦ Net present value analysis – NPV

◦ Return on investment – ROI

◦ Payback analysis

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 Net present value (NPV) analysis is a method of
calculating the expected net monetary gain or loss
from a project by discounting all expected future cash
inflows and outflows to the present point in time

 NPV means the return from a project exceeds the

opportunity cost of capital—the return available by
investing the capital elsewhere

 Projects with higher NPVs are preferred to projects

with lower NPVs if all other factors are equal

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Discount rate 10%
Year
PROJECT 1 1 2 3 4 5 Total
Benefits $ - $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 8,000,000
Discount factor 0.91 0.83 0.75 0.68 0.62
Discounted benefits $ - $ 1,652,893 $ 1,502,630 $ 1,366,027 $ 1,241,843 $ 5,763,392
Costs $ 4,000,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 6,000,000
Discount factor 0.91 0.83 0.75 0.68 0.62
Discounted costs $ 3,636,364 $ 413,223 $ 375,657 $ 341,507 $ 310,461 $ 5,077,212

Total discounted benefits - costs, or NPV $ 686,180

Note: The discount factors are not rounded to two decimal places.
They are calculated using the formula discount factor =1/(1+discount rate)^year.

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 Some organizations refer to the investment year(s)
for project costs as Year 0 instead of Year 1 and do
not discount costs in Year 0

 The discount rate can vary, based on the prime rate

and other economic considerations.

 You can enter costs as negative numbers instead of

positive numbers, and you can list costs before
benefits

 Project managers should check to see which

approaches their organizations prefer when
calculating NPV
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Schwalbe, Information Technology Project Management, Sixth Edition, 2010

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1. Determine the estimated costs and benefits for the
life of the project and the products it produces.

2. Determine the discount rate. A discount rate is the

rate used in discounting future cash flows. The
annual discount factor is a multiplier for each year
based on the discount rate and year (calculated
as CF/(1+r)^t, where r is the discount rate, and t is
the year).

3. Calculate the net present value by subtracting the

total discounted costs from the total discounted
benefits.
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 Return on investment (ROI) is the result of subtracting the
project costs from the benefits and then dividing by the costs.
For example: if you invest $100 today and next year your
investment is worth $110, your ROI is ($110 – 100)/100, or
0.10 (10 percent)
 Note that the ROI is always a percentage, and the higher the
ROI, the better
 Many organizations have a required rate of return for
projects—is the minimum acceptable rate of return on an
investment
 You can find the internal rate of return (IRR) represents the
intrinsic rate of return that is expected to be derived from an
investment considering the amount and timing of the
associated cash flows.
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 Payback period is the amount of time it will take to
recoup—in the form of net cash inflows—the total
dollars invested in a project
 Payback analysis determines how much time will lapse
before accrued benefits overtake accrued and
continuing costs
 Payback occurs in the year when the cumulative
benefits minus costs reach zero
 The shorter the payback period, the better

 Discounted Payback Period is the duration that an

investment requires to recover its cost taking into
consideration the time value of money

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 Find: via an excel

◦ NPV

◦ ROI

◦ IRR

◦ Payback Analysis

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 A weighted scoring model is a tool that provides a
systematic process for selecting projects based on
many criteria

 To create a weighted scoring model:

◦ Identify criteria important to the project selection process

◦ Assign a weight to each criterion (so they add up to 100

percent)

◦ Assign numerical scores to each criterion for each project

◦ Calculate the weighted scores by multiplying the weight for

each criterion by its score and adding the resulting values

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Criteria Weight Trip 1 Trip 2 Trip 3 Trip 4
Total cost of the trip 25% 60 80 90 20
Probability of good weather 30% 80 60 90 70
Fun activities nearby 15% 70 30 50 90
Recommendations 30% 50 50 60 90
Weighted Project Scores 100% 64.5 57.5 75 66.5

Weighted Score by Project

Trip 4

Trip 3

Trip 2

Trip 1

0 20 40 60 80

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 Problems are undesirable situations that prevent an
organization from achieving its goals - can be
current or anticipated. Eg. Bridge in a city collapsed

 Opportunities are chances to improve the

organization. Eg. Revamp website or booth at Conf.

 Directives are new requirements imposed by

management, government, or some external
influence. Eg. Uniform in school, or prayers as
mandatory
 -→ easier to get approval & funding for projects that addresses
Problems & Directives
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 Another approach to project selection is based on the
time it will take to complete a project or the date by
which it must be done

 For example, some potential projects must be finished

within a specific time period. If they cannot be finished
by this set date, they are no longer valid projects

 Some projects can be completed very quickly—within

a few weeks, days, or even minutes. However, even
though many projects can be completed quickly, it is
still important to prioritize them
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 Many organizations prioritize projects as being
high, medium, or low priority based on the current
business environment

 Organizations should always focus on high-priority

projects

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 Recall that a program is a group of projects managed in
a coordinated way to obtain benefits and control not
available from managing them individually

 After deciding which projects to pursue, organizations

need to decide:
◦ if it is advantageous to manage several projects together as
part of a program

 There might already be a program

◦ that a new project would logically fall under,
◦ or the organization might initiate a program and then approve
projects for it

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 Save money: A construction firm can purchase
materials, obtain services, and hire workers for less
money if it is managing the construction of one hundred
houses instead of just one house
 Save time: One person or group can be responsible for
similar work, such as obtaining all the permits for all the
houses
 Increase authority: The program manager can use
authority in multiple situations, such as negotiating
better prices with suppliers and obtaining better
services in a more timely fashion
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 Instead of viewing each movie for Lord of the Rings
as a separate project, the producer, Peter Jackson,
decided to develop all three movies as part of one
program

 Jackson said that doing detailed planning for all

three movies made it much easier than he imagined
to produce them, and

◦ the three movies were completed

 in less time
 and for less money by grouping them together

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 It’s crucial to focus on enterprise success when
creating project portfolios
 There may be a need to cancel or put several
projects on hold, reassign resources from one
project to another.

 For example, a university might have to close a

campus in order to provide quality services at other
campuses

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 Jane Walton, the project portfolio manager for IT
projects at Schlumberger, saved the company $3
million in one year by simply organizing the
organization’s 120 IT projects into one portfolio.
The company canceled several projects and
merged others to reduce the newly discovered
redundancy.

 Organizations that excel in project management

complete 89% of their projects successfully
compared to only 36% in organizations that do not
have good project management processes.

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 An organization’s overall business strategy should guide the
project selection process and management of those
projects
 The four-stage planning process helps organizations align
their projects with their business strategy
 Several methods are available for selecting projects,
including financial methods (net present value, return on
investment, and payback); weighted scoring models;
balanced scorecards; addressing problems, opportunities,
and directives; project time frame; and project priority
 The main criteria for program selection are the coordination
and benefits available by grouping projects
 The goal of project portfolio management is to help
maximize business value to ensure enterprise success

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