Ch.

2 Strategic Management and Project Selection

Maturity of Project Management Criteria for PS Models Nature of PS Models Types of PS Models Uncertainty Analysis and Risk Management Information Base for PS Models Project Portfolio Process (PPP) Project Proposal

Ch. 2.0: Overview of PS Process

Project Management Office (PMO): Aligning corporate needs and project goals Project Selection: Chose candidate project using Evaluation Criteria Dealing with Uncertainty: Risk Analysis Strategically selecting best Projects: Project Portfolio Process (PPP) Locking up the deal: Writing a Project Proposal

Ch. 2.1: Project Management Maturity Levels

Ad-hoc (essentially disorganized) Abbreviated (some processes exist) Organized (standardized processes) Managed (measured processes) Adaptive (continuous improvement)

Ch 2.2: PS Models

Idealized view of reality Representing the STRUCTURE of the problem, not the detail Deterministic or stochastic

Ch. 2.2: Criteria for Project Selection models

Realism (technical-, resource-, market-risk) Capability (adequately sophisticated) Flexibility (valid results over large domain) Ease of Use (no expert needed to run model) Cost (much less than project benefit) Easy Computerization (use standard software)

Ch. 2.3: Nature of PS models:

Caveats

Project decisions are made by PM --NOT by PS model! A PS model APPROXIMATES, but does NOT DUPLICATE reality!

Ch. 2.3: Nature of PS Models:

Methodology

Start with detailed list of firms goals Create list of project evaluation factors
(PEFs)

Weigh every element in PEF list Compute an overall score for project
based on weighted PEFs Select project that has the closest alignment with firms goals

Ch 2.3: Project Evaluation Factors (PEFs)

Production Factors Marketing Factors Financial Factors Personnel Factors Administrative and Misc. Factors

Ch 2.4: Types of PS Models:

Nonnumeric

Sacred Cow Operating Necessity Competitive Necessity Product Line Extension Comparative Benefit Model

Ch 2.4: Numeric PS Models: Profit / Profitability

Payback Period (PB) Average Rate of Return Discounted Cash Flow (NPV) Internal Rate of Return Profitability Index Other Profitability Models

Ch 2.4: Numeric PS Models: Scoring

Unweighted 0-1 Factor Model Unweighted Factor Scoring Model Weighted Factor Scoring Model Constrained Weighted Factor Scoring Model

S = (x) S = (s) S = (sw)

S = (sw) (c)

Ch 2.4: Choosing the PS Model

Dependent on wishes and philosophy of management 80% of Fortune 500 firms choose nonnumeric PS models Firms with outside funding often chose scoring PS models Firms without outside funding often chose profit / profitability PS models

Ch 2.5: Management of Risk: Terminology

Risk: Decision based on complete Uncertainty: Decision based on

incomplete or insufficient data.

information about the probability of each possible outcome.

Game: Decision based under

conditions of conflict.

Ch 2.5: Areas of Uncertainty

Project timing & expected cash flow.

Direct outcome of project, i.e. what exactly will the project accomplish Side effects and unforeseen consequences of project

Ch 2.6: Risk Analysis Crystal Ball2000 Software

1)

2)

3)

Start with estimated risk profile for all key parameters of project Use Crystal Ball, an EXCEL plug in, to represent decision by statistical model Repeat many times to get a statistical distribution of all possible outcomes

Ch 2.6: Risk Analysis: Crystal Ball2000 Software

1)

Input of Cash Flow parameter from Psycho Ceramic example

Ch 2.6: Risk Analysis: Crystal Ball2000 Software

2)

Select distribution parameter (Triangular for this example)

Ch 2.6: Risk Analysis: Crystal Ball2000 Software

3)

Output, 1000 Monte Carlo Runs (example:Average Project NPV $10,821)

Ch. 2.6: Window-ofOpportunity Analysis

Estimate IN ADVANCE economic

impact of innovation before R&D is undertaken Set up a baseline of current process as the sum of all current sub processes Compute cost / performance of new innovation as a multiple of each sub process in the baseline system

Ch. 2.6: Problems Affecting Data Used in PS Models

Accounting: arbitrary assignment of

Measurements: (subjective vs.

overhead costs, linear cost and revenue forecasts

objective), (quantitative vs. qualitative), (reliable vs. unreliable), (valid vs. invalid)

Technology shock: New technology has

to overcome initial resistance threshold.

Ch 2.7: Project Portfolio Process (PPP)

Step Step Step Step Step Step Step Step

1: 2: 3: 4: 5: 6: 7: 8:

Establish a Project Council Identify Project Categories & Criteria Collect Project Data Assess Resource Availability Reduce Project and Criteria Set Prioritize Projects within Categories Prioritize the projects within categories Implement the Process

Ch 2.8: Project Proposal:

Content

Cover letter Executive summary Description and past experience of project team Nature of technical problem to be solved How to approach solution of technical problem Plan for implementation of project Plan for logistic support and administration

Ch 2.8: Project Proposal:

Cover letter & Executive summary

Compose a cover letter as key

marketing instrument

Explain fundamental nature and

general benefits of project

Minimally technical language

Ch 2.8: Project Proposal:

Past Experience of Project Team List all key project personnel with
titles and qualifications

Include full resume of each principal Provide all pertinent references

Ch 2.8: Project Proposal:

Technical Approach

General description of problem to be

addressed or project to be undertaken

Major subsystems of problem or

project

Methodology of solving the problem Special client requirements Test and inspection procedures

Ch 2.8: Project Proposal:

Implementation Plan

Estimates of time, cost and materials for

each subsystem and the whole project

Establish major milestones to break

project into phases

List equipment, overhead and

administrative cost

Develop contingency plans (incl. slack

time)

Ch 2.8: Project Proposal:

Plan for Administration and Logistic Support

Control over subcontractors Nature and Timing of all reports

(progress, budget, audits) Change management

Termination Procedures touch of class capabilities (artists

renderings, meeting facilities, video conferencing, computer graphics)