ISQA 450510 Project Management Project, Program, Portfolio Selection Ken Houseman

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ISQA 450/510Project Management-Project,
Program, Portfolio SelectionKen Houseman
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Selection Process

• Strategic Planning
• SWOT
• Long-term business strategy alignment
• Business area analysis
• What areas of the business can be utilized to
  meet objectives
• Begin financial analysis information
• Project Planning
• Identify and select projects to meet strategic
  goals
• Analyze financial benefit analysis and strategic
  fit
• Resource Allocation
• Determine resources to allocate to selected
  projects
• Level resources for effective implementation
• Monitor and control bottlenecks

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SWOT Analysis
Internal Factors
Weakness
Strength
Opportunity
External Factors
Threat
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SWOT Analysis

• A SWOT analysis generates information that is
  helpful in matching an organization or groups
  goals, programs, and capacities to the social
  environment in which it operates.
• Factors internal to the firm usually can be
  classified as strengths (S) or weaknesses (W),
  and those external to the firm can be classified
  as opportunities (O) or threats (T).
• It is an instrument within strategic planning.
• When combined with dialogue it is a participatory
  process

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SWOT Internal Factors

• Strengths
• Positive tangible and intangible attributes,
  internal to an organization. They are within the
  organizations control.
• Weakness
• Factors that are within an organization's control
  that detract from its ability to attain the core
  goal. Which areas might the organization improve?

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SWOT External Factors

• Opportunities
• External attractive factors that represent the
  reason for an organization to exist and develop.
  What opportunities exist in the environment,
  which will propel the organization?
• Identify them by their time frames
• Threats
• External factors, beyond an organizations
  conrol, which coul place the organizations
  mission or operation at risk. The organization
  may benefit by having contingency plans to
  address them if they should occur.
• Classify them by their seriousness and
  probability of occurrence.

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Example Zara Fashion
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SWOT Strategy Matrix
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SWOT Concerns

• SWOT analysis can be very subjective. Do not
  rely on it too much. Two people rarely come-up
  with the same final version of SWOT.
• Use it as a guide and not a prescription.

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Exercise

• List the 3 main strategic objectives of your
  company. If you dont work for a current
  company, select one that you can adequately
  hypothesize about.
• Develop a SWOT analysis for the company.
• Compare your SWOT to the strategic objectives.
• List 2 or 3 possible projects that you could
  potentially implement.
• Work in pairs.

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Profitable Projects

• Business is about finding projects that will make
  money, i.e., that will increase firm value.
• The project has two parts
• The expenses
• The money received from the project
• Given a set of cash flows, how do we decide if
  the project is profitable?

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NPV
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Net Present Value (NPV)
Net Present Value (NPV) is a standard method for
the financial appraisal of long-term
projects. Present Value of Net Cash Flows,
discounted back to present value (PV).
Net Present Value
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Simple?
2009
2013
2010
2011
2012
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
In todays terms
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NPV
1. Each cash inflow/outflow is discounted back
to its present value (PV).
Year 1s value in todays terms, Year 2s value
in todays terms, Year 3s value in todays
terms, Year 4s value in todays terms, etc.
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NPV
2. Then they are summed.
Year 1 Year 2 Year 3 Year 4 Etc
Sum
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NPV
t the time of the cash flow N the total time
of the project r the discount rate ( the rate
of return that could be earned on an investment
in the financial markets with similar risk.) Ct
the net cash flow (the amount of cash) at time
t
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NPV

• Estimated Costs/Benefits Input costs and
  benefits in the year they will be realized and
  present day values.
• Discount Rate (r) the rate used in discounting
  futur cash flows the capitalization rate or
  opportunity cost of capital
• Discount factor 1/(1 r)t
• ROI (Benefits - Costs) / Costs

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NPV Payback Analysis

• Payback Period the amount of time it will take
  to recoup in the form of net cash inflows the
  totla dollars invested in a project.
• Chart cumulative discounted costs and cumulative
  discounted benefits
• Cross point is payback point
• Net profit from that point forward

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NPV
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NPV Exercise

• Youve been selected to manage a new IT
  infrastructure install project to improve
  efficiency. The operations VP has asked you to
  determine whether this project is a viable
  project and what the ROI will be as well as when
  the company will start returning a profit. In
  addition, the IT director wants to know what the
  total benefit will be across the 5 year
  depreciation period of purchases of equipment
  that is mandated by company asset management in
  order to budget for the depreciation.
• The initial cost to start up the project is 40k
  with 10k per year of overhead costs estimated.
  The project is estimated to last 3 years. There
  are 2 systems that will come online during the
  project, each resulting in 20k benefits for the
  company. One will come online in year 2 and one
  in year 3.
• The current market depreciation rate is 8 per
  year.
• Calculate the NPV, ROI, and date of break even.

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Weighted Scoring Model

• Systemic way of selecting projects based on
  multiple criteria of importance to the company,
  weighted by importance level of each criteria.
• Comparative approach for multiple projects
• Creates apples to apples comparison

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Weighted Scoring Method

• Determine key criteria
• Assign importance weights to each in percent
• Total weight for all criteria must equal 100
• Assign scores for each project in that area based
  on SWOT and other analysis into these areas
• Collective, subjective review required
• Multiply each projects criteria score by the
  weight of that criteria and sum the results
• Graph all project results

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Weighted Scoring Model Example
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Weighted Scoring Model Exercise

• With your partner, define 5-7 critical evaluation
  criteria for the company you evaluated in the
  first exercise for SWOT analysis.
• Weight the criteria as you see them based on the
  company obejectives.
• For each of the projects you identified in the
  SWOT exercise, grade them on a 0-100 scale.
• Determine which projects are a best fit.

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Balanced Scorecards

• Converts company objectives into goals and
  measurable metrics for determining success
• Based on the company mission and objectives,
  goals are defined and metrics implemented at
  appropriate processes and projects to ensure that
  tactical implementation aligns to strategic goals
• Using the objectives from the SWOT analysis,
  develop a few metrics for the company you chose.

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Project Timing

• Ideally you plan based on resources available and
  needed man hours to complete a project. Finish
  date is determined from resource available and
  manhours required.
• If a project must be finished by a specific date,
  plan backwards using resources and manhour
  requirements to determine needed start date.
• May determine project is behind schedule before
  it has even started.

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Homework

• Start reading Case 1. May work in groups up to 4
  people.
• Complete all 4 Exercises at the end of the
  chapter.