Week 2

IS 556 Project Management

Week 2

2IS 556 Spring 2004-2005

DePaul University CTI - John Fisher

What We Covered Last Week

Course Background and LogisticsWhat is a project, project manager,

project management?Software Project Management IssuesStarting A Project Team

Roles such as sponsor, pm, stakeholders, functional managers, members, customers.

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Course Background and Logistics - Grade is made up of: 1) Final Exam (each person does this individually) - 30% 2) Groups are responsible for reviewing all cases with at least a 1 to 2

page recommendations and supporting material. [20%/#cases]. (group sizes 3-4)

3) Each group specializes in one of the cases and complete:a) Case write-up (elaborating on direction) [10%]b.) Power Point Presentation -> Time ~30 minutes (~60 minutes

with class discussion time added) 4) Project (case study on “real project”) [30%] - Group collaborates on

“real” project based on Hvd business review or real experience or some other source.

A. 15 page discussion/review/recommendations

b. Power Point Presentation -> Time 30 min. Note some people have asked if they can still work on a special project by themselves (because they have high interest in a particular project). I will allow this if you notify/clear it with me and let your group know also (in writing via the group system.) In this case your project grade would be separate from the rest of the groups.

5) Class attendance and participation [10%]

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Course Background and Logistics (Cont) I have put up groups for each person responding. Your responsibility:

Make sure you are in a group and groups are correct. Let me know about mistakes or if you are not in a group.

What is a project, project manager, project management?

Software Project Management IssuesStarting A Project Team

Roles such as sponsor, pm, stakeholders, functional managers, p members, customers.

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What we will cover today

Measuring Project Value Project Contracts Starting Your Project

(Charter/SOW)

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What is a Project – Financially?

How do we know if we should work on a project? Consider 3 different project possibilities with these estimates:

Cash-flows are made up of: Expenses

Hardware/Software PurchasesLaborOverhead

Incomes/benefitsIncreased revenuesReduced costs

Year 1 Year 2 Year 3Cost -Benefit

Project 1 -100,000 50,000 90,000 40,000

Project 2 -80,000 10,000 100,000 30,000

Project 3 -10,000 20,000 25,000 35,000

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Project Value – Graphical cash-flows

Project Cashflows

-$400,000-$200,000

$0

$200,000$400,000$600,000$800,000

$1,000,000$1,200,000

Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04

Month

$

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How do we calculate project value?

Break-Even When do I earn back the cost of the project?

ROI What is the return on the cost of the project? Result of subtracting the project costs from benefits and

dividing by costs. E.g., If invest 100 today and worth 110 next year:

• ($110 - $100) / 100 = .1 or 10% ROI

NPV Net monetary gain/losses after discounting future losses/costs.

Does the return from project exceed the cost of capital? What is the present value of the cashflows (+/-) associated with

the project? >0 ? <0?

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Break Even Point of Project

Source: Information Technology Project Management. Kathy Schwalbe. Pg 144

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Using Net Present Value

NPV = A way to compare project return VS cost of capital (the return on investing capital elsewhere)

Prefer projects with higher NPVs over lower ones NPV accounts for the time value of money

Money earned today is worth more than money earned in 5 years. Can compare projects with multi-year timelines:

Year 1 Year 2 Year 3 Cost-Benefit

Project 1 -100,000 50,000 90,000 40,000

Project 2 -80,000 10,000 100,000 30,000

Project 3 -10,000 20,000 25,000 35,000

NPV1 = $51,120.44

NPV2 = $35,933.43

NPV3 = $53,459.37 Recommend Project 3

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Another NPV Comparison Example


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Calculating NPV Example:


Note: Discounted ROI = (516,000 - 243,200) / 243,200 - 112%

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Calculating Net Present Value

1. Determine estimated costs/benefits of project during its life. (e.g., project built in 6 months and produce 3 years of benefits).

2. Determine discount rate - minimal acceptable return on investment. Often minimal ROI if invested somewhere else (e.g.,

8% per year)

3. Determine NPV - excel has built-in function:

=npv( discount rate, range of cash flows)range of cash flows for previous example project 1 for each

year• So it would be from slide 10 Project 1 -100,000 50,000 90,000

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Calculating Net Present Value - Manually

Sum of the present values of the cash flows NPV = SUM( t=1 .. N)A/(1+r)t

Where t = year of cash flows r = discount rate A = the amount of cash flow each year.

Calculating NPV by hand1. Determine discount factor - multiplier based on year and

discount rate:

1/(1+r)t

Year 0 = discount rate = 1/(1+.08)0 = 1 Year 1 = discount rate = 1/(1+.08)1 = .93 Year 2 = discount rate = 1/(1+.08)2 = .86 Year 3 = discount rate = 1/(1+.08)3 = .79

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Calculating Net Present Value

Calculating NPV by hand1. Determine discount factor - multiplier based on year and discount

rate:

2. Multiply the each year’s costs/benefits by its discount factor.A. e.g., Slide 12 figure 5.3

Year 1 costs discounted costs 40,000 40,000*.93 = 37,200 Year 1 benefits discounted benefits 200,000 200,000*.93 = 186,000Year1 discounted benefits - costs = 186,000 -37,200 = 148,800

Calculate each year’s discounted cost/benefits: NPV = (140,000) + 148,000 + 137,500 + 126,400 = 272,800

Year 0 is negative)

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Critical Questions

What is the discount rate?What are the cashflows?

CostsDirect Labor (E.g., Developer salaries)Direct Material (E.g., hardware/software purchased)Indirect Labor (E.g., Proj mgmr)

Benefits Revenue Increase Cost Decreases

Costs and benefits measured should be Direct result of projectQuantifiable

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Managing Project NPV

Cost Domain of PM Constrained by client

Benefit Domain of client Influenced by PM

Rate Domain of client

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Agenda


(Charter/SOW)

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Ch. 3 Contracts and Legal Issues

What is the relationship between customer and software developer?

How are contracts costed?

Two types of contracts: Cost-plus -> Time and materials Fixed Price

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Cost Plus

Expense plus agreed profit margin E.g., rent a car -> monthly cost + expenses

(gas, insurance) E.g.,$120 / staff hours + 20% support costs

Expenses might include Special purpose equipment Travel outside services

•Customer may have developers report to their management

Used w/ small projects when requirements hard to define. Sometimes use for requirements only.

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Cost plus contracts might contain:

Contracts might cover Persons assigned to project Work definition Percent of time each person assigned Hourly or daily work rate for each person Authorized expenses to be reimbursed Billing/Termination Procedure

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Cost Plus Advantages/Disadvantages

Advantages Low financial risk to development organization Earn while you learn

Minus Low profit Reduced control - often need to ask to

authorize expenses Developer may work within customer’s

hierarchy No commitment to complete project

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Fixed Price

Developer commitment to provide: Agreed product/service Agreed price Agreed timeframe

Example might be - custom built house: Decide on contact with developer building allowances for cabinets, flooring, lights Timeframe agreed upon

Clearly more appropriate for well defined product/service

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Developer View

Plus Complete control Higher profit (potentially) Commitment for complete project

Minus Risks -

competition may cause to underbid.May have cost overruns

Customer managementRequirements changesProject completion issues

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Customer View

Plus Fixed budget, etc Lower risk

Minus Reduced control Late delivery? Developer management

Requirements changesProject completion issues

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Request for proposal - RFP

Beginning of selection processOften organizations have pre-

defined processesUsed for

Software Selection Software Development Maintenance and/or Upgrades Equipment Selection

Might use RPF for entire project or just a portion (e.g., testing)

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First Decide Overall Issues

Before Writing an RFP Need to know Type of contract (fixed price or cost-plus) Overall budget allocated? (Is it reasonable

amount?) Who are candidates to receive ( too wide

and have an evaluation mess, too narrow and miss potential solutions.)

How will decision be made - Who makes decision? Will make a recommendation (or decision)? What is important to him/her?

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As you do this ...

Its critical you think through this process.Must make comparison fair and feasible

Must control response format. Might need to have an idea of how vendors will

respond Might need to “trial” RFP.

Need to decide if issue to limited, broad set or any who request basis. If issue to limited set, what criteria will use … How handle vendor sales staff? Will meet with

each?

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RFP Details

Statement of Problem and Overall Objectives Overall problem, scope of solution, relevant diagrams,

as needed organization structure.

Technical Requirements - You must avoid leaky requirements!

The software must report on the error defects in processAutomatic weekly reports must be generated indicating:

• The daily and overall weekly percent of failures • An exception report dictating which items had failures per week

It helps to avoids compound requirements! The software must weekly post web reports that indicate daily

and weekly percent failures and percent failures over time.

LILO - Leaky in Leaky out

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More RFP Details ...

Administrative Information - How will decision be made - what process Who is RFP open to?

Cost requirements - May indicate type of contract May include expectations they will supply (E.g.,

need to breakout software, hardware and loaded costs for each person

Ability to perform - For long-term relationship/longer contracts may need to know about company stability, (D&B report indicating likelihood of staying in business) past successes with similar items, customer references, etc.

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RFP Outline - (See details Pg 43)

Reference documents - any references to standards or existing documentation

Required deliverables - clarify overall solution expectations, e.g., training, customization. hardware only, warranty

Required proposal format - how should vendor respond? Format of response, how answer technical requirements, how specify pricing, do they provide SOW?

Submission and Decision Schedule ...

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RFP Outline - (See details Pg 43)

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The Proposal for work ...

Many consultant houses have defined format and process for this

Usually indicates: (See Pages 47-49) Executive Overview - This goes to key

decision maker (1-6 pages just the bottom line). Technical proposal (what is being proposed,

how meet these requirements) Management proposal - Pricing Proposal (how much, cost structure) The Statement Of Work.

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Proposal Review

Review team - Likely includes all stakeholders. May need to differentiate between vital few and significant

other. Evaluation review can be highly emotion. (Sales teams often

not help to keep objective.) Sometimes narrow down process.

The more objective the better. Assume “losers” will want reasons and time. “Winners” of rounds likely get to refine and resubmit.

Major components Technical: what will be done? Management: how will it be done? Cost: how much? Background: who will do it?

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Example: RFP for software selection

Led a team for multi-site selection of UNIX backup software selection (~late 1980s) We were “major” site - We had 50% of

servers there were 5-6 other sites. Our site -> 100-200 servers

Project was started by our site, but management decided to expand to other sites

Developed a list of requirements based on our site’s needs.

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Example RFP - Software selection

Requirements (20 pages) Included things like Hardware connectivity - needed to backup (HP, SUN, IBM)

needed to backup to ATLs. Reporting mechanism - automated report Functionality of software - D/R capabilities, Tape rotation

schedules, automated restore, operation interface, etc. Costs of solution

Expanded requirements to other sites Expanded on requirements - many cared about specific

hardware Greatly helped clarify complex requirements

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Example RFP:Software selections

Once requirements approved, decided to release to 1 vendor. They agreed would get an early version and

would work with us.This was extremely impertinent ! caused us to greatly

increase level of specificity of requirements.

Developed a list of vendors to send out to: Because of scope of project lots of vendors

wanted to answer RFP: Who to send to? How much time is enough? What would be our

process with vendors? Decided based on sales volume and I would “pre-screen”

vendors.

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Example RFP: Software selection

Developed a evaluation process: Send out requirements Receive input and review with vendor Request clarifications Receive clarifications and our team would decide

on “score” for each item.Item Prod1 PRd2 Prd31. Backup system uses UNIX 5 4 3 (uses semi-prop)standard tape format such

as tar cpio: 2. Maintain list of offsite 3 (db has 4 5 tape volumes in database sz limits)

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E.g.,RFP Software Selection

Issues with process: Vendors wanted to stay as involved as possible Negotiating weights for each category major issue

E.g., sites all wanted their favorite hardware/requirement Needed to do D&B and then leading company was not public Doing this process right takes time, severe management pressure. Hard to verify/determine where vendors “fudged” on answers.

(which ones are vaporware, not 110% accurate) Vendor references often “best case” users. Losers often wanted to “rattle the management chain” Final selection - Narrowed to 2 and did demos. Narrowed to 1 and

then did “trial”. (Issue with trial, how to get hardware needed) Scores were subjective (5 VS 3) and quibbled with the team and

vendors (why did we get a 3 for item 15?)

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Proposal Review

How evaluate proposal? More systematic the better. E.g.,

Technical: 35%Management: 25%Cost: 30% Company Background: 10%

IT may may sense to pre-define how each item will be defined in the requirements. E.g.,

Ability to generate reports via web (low - not there or can be built, med has some capabilities, high - automatically generates trend line)

Might use weights like page 51-52. (next page)

These can be cut up lots ofdifferent ways. Poor score in one might knock someone out. Might not even emphasize beyond 1 or 2 areas.

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Rating Scale Example (Pg 51)

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Legal Issues

Legal issues are an issue on to themselves Most major corporations have corporate

lawyers handle such things. Intellectual Property

Patents - Legal monopoly for use, manufacture, and sale of invention.

Copyrights - legal invention that enables holder to control how the work is used. (requires minimum originality and lasts for 75 years)

Trade secrets - often signed non-disclosure to keep secret

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Agenda


(Charter/SOW)

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Project Management Key Classic Success Factors

1. Agreement Among Project Team, Customer's) and Management2. A Plan That Shows Overall Clear Path3. Constant Effective Communication Among Everyone In Project 4. Scope Management - Defensive Measures Against Growing Scope5. Management Support -

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Project Definition & Critical Success Factors

• Project Definition Effects 3 of the 5 CSFs•Agreement, Scope, Management Support

•Tools of Project Definition Include 1. Charter 2. SOW 3. Responsibility Matrix 4. Communication Plan

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Purpose Of the Charter

• A Straightforward Announcement Of The Project•A One-Time Announcement That States

1. Name Of The Project 2. Project Purpose 3. Project Manager Name 4. Perhaps The Goal & Responsibilities of the PM5. Anything else to ensure responsibility is well defined

•Charter is reviewed and issued by sponsor.

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Statement Of Work

•Clarifies with stakeholders the goals, scope, and deliverables of project •Sometimes may be a contract (E.g., an outsourcing arrangement for SOW)•Other times a project clarification device•Reviewed by project board/sponsor (sometimes with team member input).

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Elements of SOW

• Project Purpose – •Specifically, why are we doing it?

• Project Goal - SMART • Project Goal - what is in or out of scope• Project Deliverables - What the project produces• Project Cost/schedule estimates - Rough OOM • Formal Stakeholder definition - • Chain of command - who reports to whom

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Defining The Goal

• Need to clearly think out the goal and define it in writing

•Should spell out the criteria for success •Entire team should agree to the goal

•Should be SMART •Specific, measurable, agreed upon, realistic, time-bound.

•Roll out a new version of XXX software•Deploy Version YYY of XXX software to ZZZ users by 4/22/04

•Every time you make a decision during the day, ask yourself this question, "Does it take me closer to, or further from my goal." If the answer is "closer to," then you've made the right decision. If the answer is "further from," well, you know what to do.

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Define The Scope

• Purpose: Define project boundaries • Should describe major activities in such a way that its impossible to add activities without adding to the scope statement •Clarify:

•What is relationship to this project and other related ones•What is within the scope •What is beyond the scope•What are the major deliverables

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Project Deliverables

Precise definition of what you are providing.Not requirements but major outputE.g.,

Internet based system that:Presents end-user survey input Stores based on user name Generates histogram reports of survey responsesSystem maintenance documentation

.

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Software Development SOW Items

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Elements of SOW • Project Purpose - Specifically, why are we doing it? • Project Goal - SMART • Project Goal - what is in or out of scope• Project Deliverables - What the project produces• Project Cost/schedule estimates - Rough OOM • Formal Stakeholder definition - • Chain of command - who reports to who

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More on Charter/SOW

. Cost and Schedule Estimates- What are the budget concerns?

- How fixed is the budget it? - How good of an estimate can you

make?

- Can a reliable estimate be made?

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Formal Stakeholder Definition

•Create a table with at least the following•Role•Description•Who•Percent Involvement•Estimated Duration

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Formal Stakeholder Definition - Example

Planner Jane PM 100% 5 WeeksIT Admin Joe Sets up systems 50% 2 Weeks

configures themAp “A” Hans Identifies key data 50% 3 weeksOwner Ap “B” Mike Identifies key data 50% 3 weeksOwner Sponsor Jean Project Champion & <5% Monthly review

Sponsor App Janet Project Board of < 5% Monthly ReviewMgmt Directors Admin Frank Copies data & 100% 4 weeks.

programs

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Other SOW Items •Can also include information about the phases of the project.

•What methods will the project follow? •Incremental VS waterfall?

•Is there a phased approach?

•E.g., Phased - D/R plan•Phase 1 - Plan for vital data •Phase 2 - Plan for all business data•Phase 3 - Building facilities recovery

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Responsibility Matrix

•Defines key groups and their responsibilities.•Help define cross organization responsibilities

•E.g., change in tool design requires work in another department. Will other department have a role in decisions?

•Can be done for each major task or for specific areas•Best if done up-front before turf wars develop

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Responsibility Matrix

•List the major activities of project on vertical axis•List the stakeholder groups on horizontal axis •Code the responsibility matrix

•E - Execution responsibility (get work done)•C - Must be consulted •I - Must be informed•A - Approval authority

•Review matrix

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Communication Plan

A written strategy for getting the right info to the right people Sponsors - Probably a formal mechanism Project Review Board - Separate from sponsor? Functional management - as providers of resources

may need to know Customers - Make ultimate decisions, likely different

levels of customer involvement Project team - probably needs regular communication

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Sample Communication Plan

Stakeholder Info Needed Freq Medium Sponsor - High-level cost,

schedule, quality perf, - Problems and action

Monthly Written report, and meeting

PM supervising management

- Detailed cost, schedule,. Quality performance - problems, proposed actions, assistance required

Weekly Written report and meeting

Customer Exec - Detailed cost, schedule, quality performance - Problems and actions

Monthly Written report and meeting

Customer Contact - on-going cost information. Problems and on-going status

Weekly Project team meeting with written report.

Project Team - On-going cost and schedule information. Problems and on-going status

Weekly Project team meeting with written report.

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Communication Plan

What needs to be communicated? Authorizations - major document

agreements, such as project plans, SOW, product specifications

Regular Status Updates - Cost and status updates.

Coordination - General coordination generally among team members.

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PM Should Be Defined Process

Charter Purpose review and publish

SOW A. Document goals, scope deliverables HL budget estimateReview with Project board

Communication Plan Document communication methods of various level Review with project board, various stakeholders

Risk Strategy Project PlanExecute

HL Plan

LL Plan

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Summary


(Charter/SOW)

Business

Week 2