Week 02 - Portfolio Management

Project Management2. Portfolio Management

Week 2

Project selection and portfolio management

What are the inputs that cause

the project process to begin?

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 PlanningIdentifying IT Projects

Project ProposalsProject Selection MethodsApplying a Selection Model

Project SelectionProject Success

Strategic PlanningIdentifying IT Projects

Project ProposalsProject Selection MethodsApplying a Selection Model

Project SelectionProject Success

But first

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

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

Strategy 2Strategy 2Strategy 1Strategy 1 Strategy 3Strategy 3 Strategy 4Strategy 4

Organisation MissionOrganisation Mission

MoneyMoney

CustomersCustomers

Efficiency and EffectivenessEfficiency and Effectiveness

AdaptabilityAdaptability

5 Forces analysis

Supplier power

Customer power

Threat of New

Entrants

Threat of New

Entrants

SubstitutesSubstitutes

Intensity of Intensity of competitioncompetition

Michael Porter’s ‘5 Forces’ – 1980’s

business model template

VALUEPROPOSITION

COSTSTRUCTURE

CUSTOMERRELATIONSHIP

TARGETCUSTOMER

DISTRIBUTIONCHANNEL

VALUECONFIGURATION

CORECAPABILITIES

PARTNERNETWORK

REVENUESTREAMS

INFRASTRUCTURE CUSTOMEROFFER

FINANCE

Osterwalder’s Business Model framework 2006http://business-model-design.blogspot.com

Process efficiency

Process efficiency ScorecardScorecard Customer

satisfaction

Customer satisfaction

FinancialFinancial

Learning and

innovation

Learning and

innovation

Balanced Scorecard

Kaplan & Norton (1994?) HBR

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

Strategy Map

MoneyMoney

CustomersCustomers

• 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

Set (SMART) GoalsSet (SMART) Goals

Review MissionReview Mission

Develop StrategiesDevelop Strategies

Implement Strategies through projectsImplement Strategies through projects

Align Strategies to goalsAlign Strategies to goals

SWOT Analysis

SWOT = SITUATIONAL ANALYSIS

Where are we now?

Positive Negative

http://en.wikipedia.org/wiki/SMART_(project_management)

SS Specific

MM Measurable

AA Achievable

RR Relevant

TT Time-bound

Letter

Major Term Minor Terms

SS Specific Significant[3], Stretching[3], Simple

MM Measurable Meaningful[3], Motivational[3], Manageable

AA AchievableAgreed, Attainable[6], Assignable[2], Appropriate, Actionable, Action-oriented[3]

RR RelevantRealistic[2], Results/Results-focused/Results-oriented[6], Resourced[7], Rewarding[3]

TT Time-boundTime framed[2], Timed, Time-based, Timeboxed, Timely[6][5], Timebound, Time-Specific, Timetabled, Trackable

E[1] Exciting, Evaluated, Ethical

R[1] Recorded, Rewarding, Reviewed[8]

http://en.wikipedia.org/wiki/SMART_(project_management)

Examples of “not smart”

goals?

MoneyMoney

CustomersCustomers

MoneyMoney

CustomersCustomers

projectsprojects

What are the goals of the projects?

Figure 2.1 Strategic Management Process (Gray & Larson, 2006, p25)

projectsprojects

projectsprojectsprojectsprojects

projectsprojects

PPPMProjectProgrammePortfolioManagement

The ‘O’ is for Organisational

Programme

PortfolioPortfolio

ProjectsProjects

ProjectsProjectsProgramme

Programme

PortfolioPortfolio

ProjectProjectProgramme

Programme

ProjectProjectProjectProjectProjectsProjects

One Portfolio or Several?

CategoriesCategories

Approaches to project

portfolio management

One Portfolio or Several?

CategoriesCategories

Venture: Projects that transform the business

Growth: Projects that grow revenue or market

Core: Projects that help run the business

What are the benefits of Project Portfolio Management?

Benefits of Project Portfolio

Management

Builds discipline into project selection process

Links project selection to strategic metricsPrioritizes project proposals across a common set of criteria, rather than on politics or emotionAllocates resources to projects that align with strategic directionBalances risk across all projects

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 organization’s 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 organization’s goals /

priorities– evaluate the progress of current projects

Figure 2.8 Sample project portfolio approach(Schwalbe, 2005, p51)

Figure 1.5 Project management compared to project portfolio management(Schwalbe, 2005, p15)

MoneyMoney

CustomersCustomers

projectsprojects

projectsprojects projectsprojects

programme

projectsprojects

programme

programme projectsprojects

Programme

projectsprojects

programme

termMid

projectsprojects

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

projectsprojects

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)(Cosgrove Ware, 2002)

Figure 2.1 Pyramid for the Project Selection Process(Schwalbe, 2005, p35)

Project Proposals

Most business units have a

strategic plan

Which SHOULD align with the organisation’s strategic plan

Solicitation of Project Proposals

Within the organization

Request for proposal (RFP) from external

sources (contractors and vendors)

When ranking proposals, consider;

DisciplineAccountabilityResponsibilityConstraints

Reduced flexibilityLoss of power

Project Initiation forms

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

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

Project Initiation forms

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

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

Project Selection Methods

Not all project proposals make it to initiation

Every project idea isn’t progressed.

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

(there are more)

Net Present Value

Net Present Value (NPV) ModelUses management’s 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 considerationnegative NPV: project is rejected

Net Present Value (NPV) Model cont’d…NPV Calculations

determine estimated costs / benefits for the life of the project and products it producesdetermine discount rate (ask organization)calculate the NPV some organizations consider the investment year as year 0, others consider it year 1some organizations enter costs as negative numbers, others do not (ask organization)

Example: CP829_Lecture_Week2_NPV.xls

Time to

StoStopp

and turn to a new

presentation pack

Time to

StoStopp

and turn to a new

presentation pack

Payback model

Figure 4.1 Charting the Payback Period (Schwalbe, 2006, p129)

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

Return on Investment (ROI)Calculated by subtracting project costs from the benefits and then dividing by the costsFormula:

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

(total discounted benefits – total discounted costs)

discounted costs

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 organization’s 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

Applying a Selection Model

• Project Classification– Deciding how well a strategic or operations project fits

the organization’s strategy

• Selecting a Model– 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?

Table 3.4 Sample business case(Schwalbe, 2005, pp74-76)

Example business case

Contents of a Business Case

1. Introduction/Background2. Business Objective3. Current Situation and Problem/Opportunity

Statement4. Critical Assumptions and Constraints5. Analysis of Options and Recommendation6. Preliminary Project Requirements7. Budget Estimate and Financial Analysis8. Schedule Estimate9. Potential Risks10.Exhibits

Figure 2.3 The Process for Developing a Business Case(Marchewka, 2003, p34)

Project Success

By the way,

Things are getting better

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

Not even complete

Typically 189% over

budget

OTOBOS

53%Challenged

16%Success

31% Critical Failures

Not even complete

Still way over

budgetOTOBOS

51%Challenged

34%Success

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

53%Challenged

16%Success

51%Challenged

34%Success

1994 2005

Wasted money as a

share of total project

Billions of dollars

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 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)

Smaller

projects

Smaller

projects

Better tools

Better trainin

Better SelectionBetter

SelectionPortfolio

MgtPortfolio

Strategic Alignme

More recently

Things you

should have

(if you want to succeed)

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

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

incrementalBut, change has been…

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/

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